Gran Colombia Gold Corp.'s (TPRFF) CEO Lombardo Paredes on Q4 2020 Results - Earnings Call Transcript
Gran Colombia Gold Corp. (TPRFF) Q4 2020 Earnings Conference Call April 1, 2021 9:00 AM ET
Company Participants
Mike Davies - Chief Financial Officer
Lombardo Paredes - Chief Executive Officer
Operator
Welcome to the Gran Colombia Gold Q4 2020 and Year-End Results Webcast. My name is John and I will be your operator for today’s call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session., [Operator Instructions] Please note, the conference is being recorded.
And I will now turn the call over to Mike Davies.
Mike Davies
Thank you, John. That’s great. Good morning, and thank you for joining us today for the Gran Colombia Gold fourth quarter and fiscal year 2020 results webcast. With me on the webcast this morning is our CEO, Lombardo Paredes.
And as is customary, I will first go through our prepared remarks regarding our update on our performance in 2020 and then Lombardo will be available as we open things up for the Q&A session.
Before we proceed with the presentation this morning, I would first like to draw your attention to the legal disclaimer regarding forward-looking statements that maybe made by us during the webcast today.
I would like to start off this morning with some comments on our response to COVID-19. Community and health are two of the pillars in our ESG program. Unlike every other mining company, we implemented and continue to maintain the necessary steps to protect our workforce, so we can operate safely.
We increased security and protection protocols and we have installed facial recognition technology with entry and exit biometric detection points in our operations. We installed antibacterial sanitization stations and hand wash stations in our operations and trained all of our personnel to ensure our workers follow the correct protocols. And for our office staff, we have made working remotely in the new norm.
Supporting the community has similarly been an important focus area during the pandemic. We donated sanitation kits and face masks to the various communities surrounding our Segovia Operations. And we also donated protein grocery kits to vulnerable families in our local communities. We supported the community hospitals with donations of equipment and supplies. To say the least, we are very proud of the way our people rose to the occasion during such unusual working conditions in 2020.
Gran Colombia has long been known for its attention to ESG matters at the local level in our Colombian operations. In early 2020, we added an ESG subcommittee of the Board to add support at the highest level of the organization for our ongoing commitment to ESG initiatives. In 2020, the company’s ESG programs continue to focus on education, health, environment and community programs and we contributed almost $10 million to the local community foundation through our social contributions to fund a variety of programs.
Last night, we released our fourth quarter and full-year 2020 results. Our production results, which we had pre-released back in mid-January, showed that we had met our annual production guidance for the fifth consecutive year. Gold prices, which remained high in the fourth quarter, were a key driver to record revenue, adjusted EBITDA and adjusted earnings for 2020.
We reported a net loss in the fourth quarter of 2020 of $51 million, which brought the net loss for the full-year to $27.6 million. The fourth quarter net loss reflected $4 million of Caldas Gold financing cost and another $52 million of non-cash fair value losses on the various derivative financial instruments on our balance sheet, including those related to the Caldas Gold financings completed in 2020 to fund the Marmato Project.
For the full-year, the fair value losses amounted to about $83 million and the full-year net loss also reflects the $17 million non-cash cost related to the Caldas RTO transaction and $14 million of transaction costs related to the Caldas financings. If we take all these items into account, our 2020 adjusted net earnings increased by 25% over the last year to $76 million, or $1.28 per share. While 2020 did have its challenges due to COVID, we are pleased with the results we reported last night.
Turning to our capital structure, there are two updates I would like to highlight. We currently have 61.1 million shares issued and outstanding, that’s down 702,000 shares from the end of December as a result of the shares we purchased in March under our normal course issuer bid. That brings the total shares we have purchased for cancellation using our free cash flow to $1.5 million since we renewed the normal course issuer bid last September and we have spent a total of CAD9 million to do so.
The second update is in respect of our convertible debentures, which give us the right to redeem 10% each year on the anniversary date. Once notice is given to the holders that we intend to redeem 10% of the debentures, the holders can elect to convert the redemption amount to shares rather than receive cash, which is what they have decided to do this year. While it will result in the issuance in early April of another 421,000 shares, it will reduce the debentures to CAD18 million and at an 8% coupon will save another $160,000 per annum in interest cost.
In 2018, we issued $98 million of gold notes. They have been listed on the TSX and they have been very well received in the market, especially with the surge in gold prices in 2020. In March 2020, we used $20 million of the proceeds from a private placement to reduce 30% of the gold notes ahead of schedule, saving gold premiums and interest costs.
Last month, we announced we are going to redeem another $10 million ahead of schedule following the April 30 quarterly amortizing payment. This redemption will now take place on May 10. And after it is completed, our gold notes will be down to just under $20 million.
You can see on the graph on this slide, the gold bars showing the balance of the gold notes principal each of the periods according to the latest amortization schedule, which takes into account this early amortization and is well ahead of the original schedule, which is shown in green. It’s all part of our opportunities we are taking to continue to strengthen our balance sheet.
On the savings, we are realizing through the early redemption of our gold notes are being returned to our shareholders through the new monthly dividend program implemented last year. We are one of the very few in this industry paying dividends on a monthly basis and at current share prices represents an annualized yield in excess of 3%. Since inception in August last year, we have completed five monthly dividend payments equal to CAD0.015 per share and returning a total of CAD4.6 million to our shareholders in the process. The next $0.015 per share monthly dividend will take place on April 15.
In 2020, we produced a total of 220,000 ounces of gold, with 196,000 ounces from our high-grade Segovia Operations and the balance from the Marmato mine, which was spun out to Caldas Gold early last year.
In February of this year, we completed the Aris transaction and our equity position has fallen below 50% to 44.3%. As such, starting in the first quarter of 2021, we will equity account for our position in the new Aris Gold and we won’t be consolidating Marmato’s production in our results going forward.
2020’s production at Segovia was adversely impacted in the first three weeks of the COVID-19 national quarantine implemented in late March last year as we adapted our operations to the new protocols. During that time, we kept our plant going with lower grade stockpile material. And over the balance of the year, operations returned to about 95% or so of normal and Segovia produced just over 196,000 ounces of gold and 186,000 ounces of silver.
Head grades at Segovia averaged 14.5 grams per tonne in 2020, in the upper end of our guidance range, bringing the average grade mined at Segovia over the last 10 years to 13.8 grams per tonne. In February of this year, we provided our 2021 annual guidance for Segovia with an expectation of 200,000 to 220,000 ounces of gold and head grades averaging between 13 and 15 grams per tonne for the full-year.
Also, as we announced last night, Lombardo and the team are making great progress on two initiatives to support our growth strategy at Segovia. The expansion of the Maria Dama plant to 2,000 tonnes per day is progressing well and will be ready in the second half. The construction of the new concentrate recovery plant is also on track to be completed in the next few months and will allow us to recover commercial quantities of zinc, lead, gold and silver from our tailings, not only providing an additional source of cash flow, but positively benefiting our environmental impact by reducing heavy metals from our tailings.
Gold production in the fourth quarter of 2020 was just over 50,000 ounces, with head grades averaging 14 grams per tonne as expected. That was down from the fourth quarter of 2019 in which Segovia’s head grades had averaged 16 grams per tonne, resulting in 58,000 ounces. I have two observations in our fourth quarter 2020 production results worth mentioning.
First, we did startup mining operations in December at our fourth mine, the Carla mine, which is about 10 kilometers south of the Segovia plant. Now, I realized 38 ounces doesn’t seem like much, but most of its mined material was still in the stockpile over the holidays at the end of the year.
Over 2021, our mine plan sees Carla ramping up through the first half of the year as it gets its legs under it. This is the same kind of thing we saw back in 2017 when brought the Sandra K mine back into operation. At that time, Sandra K did 4,000 ounces in its first year. And now in 2020, it’s doing just over 4,000 ounces each quarter.
The second observation is that our small mining supply chain initiative in Segovia is working. We currently have 56 small mining cooperatives in our Segovia mining title under contract. In 2020, not only did we see a 37% increase in gold production from the small mining supply chain, but we saw head grades increase from the typical 6 to 8-gram per tonne range to almost 12 grams per tonne in the fourth quarter.
As you will see in our various ESG materials coming out this year, this initiative is one we believe strengthens our social license to operate and has been well-received in the local community. Revenue amounted to $99.7 million in the fourth quarter of 2020, bringing the total for the full year to a new record of $391 million, up 20% over 2019. Spot gold prices drove our realized gold price to an average of $1,751 per ounce in 2020, up from $1,381 per ounce in 2019, a key factor in enhancing our operating margins and cash flow in 2020.
At the Segovia operations, total cash cost averaged $699 per ounce in 2020, up from $607 per ounce in 2019, reflecting a couple of noteworthy items. First, in response to the current higher gold market conditions, we had to increase our payment rates to our contract miners. Their rates had not changed since 2017 and we needed to stay competitive in our local market. Higher spot gold prices in 2020 also meant we paid higher production taxes on a per ounce basis, up to an average of $60 per ounce in 2020 from $50 per ounce the year before.
The third factor was the additional costs we incurred over $1 million to maintain the necessary COVID-19 protocols required to protect the health and safety of our workers. And finally, the lower production in 2020 did increase our fixed operating cost on a per ounce basis compared with the previous year.
All-in sustaining cost for the Segovia operations averaged just over $1,000 per ounce in 2020, up from $878 per ounce in 2019. Including Marmato, consolidated all-in sustaining cost in 2020 was $1,100 per ounce compared with $916 per ounce last year. The increase in consolidated all-in sustaining cost reflects the increase in total cash cost, an increase in sustaining capital expenditures at both Segovia and Marmato, and the impact of lower gold sales volumes on sustaining capital and G&A costs on a per ounce basis. That being said, while we saw an increase in our ASIC per ounce, our margin per ounce increased about 10% in 2020 as a result of the rising gold price environment.
Adjusted EBITDA amounted to $43 million in the fourth quarter of 2020 bringing the total for the full year to a new annual record of $188 million, up 28% over 2019. And based on our current market cap, we are currently trading at just 1.5x 2020’s adjusted EBITDA. And that adjusted EBITDA growth in 2020 was the key driver behind the growth in our net cash provided by operating activities in 2020 to $136 million, up 31% over 2019. It could have been about another $8 million higher if not for a delay in receiving some VAT refunds in Colombia due to the impact of COVID on the government’s claims processes.
In 2020, Segovia and Marmato spent a total of $63 million on capital expenditure programs, up from $43 million in 2019. However, free cash flow for 2020 increased to $74 million, up 19% over the previous year. If we exclude the free cash flow of Caldas Gold, which was negative, 2020’s free cash flow, driven mainly by Segovia, would have been $88 million.
Our balance sheet in the fourth quarter continued to show further strengthening. We finished the year with $90 million of cash, excluding the cash in Caldas and our gold notes were down 48% in 2020 to $35.5 million. In addition to buying back shares and paying dividends in the fourth quarter, we used CAD20 million of our free cash flow to participate in the Aris financing to maintain a 44% position and we took a toehold in the new Denarius Silver, which I will comment on in a few minutes.
In 2020, our ongoing drilling program focused much of the year on in-mine and near-mine targets in our 4 producing operations. The anticipated brownfield drilling program, initially expected to begin in March, was delayed due to COVID-19 restrictions in our mining title and did not get started at Vera, our first target until October. That being said, in July and December last year, we announced additional high-grade results from our drilling program as you can see on this slide.
In early February of this year, we announced the first results from drilling at Vera, which includes some robust gold grades and also some stellar silver grades, which is to be expected given that it falls within the eastern side of our Segovia title. And that exploration work we completed in 2020 led to the annual update of our mineral resources and reserves we announced last night for Segovia.
We are pleased to confirm that once again we have replaced what we mined last year. We also saw an upgrade of about 69,000 ounces from inferred to measured and indicated. And our measured and indicated resources now amount to 4 million tonnes at a grade of 11.2 grams per tonne for a total of 1.43 million ounces.
Our inferred resources amounted to 3.7 million tonnes at a grade of 10.3 grams per tonne for a total of 1.2 million ounces. And we also reported an update of our 2P reserves last night, which amounted to 2.2 million tonnes at a grade of 9 grams per tonne for a total of 633,000 ounces.
While COVID kept us from getting to the brownfield program in 2020, the 2020 exploration campaign reaffirmed one more time our confidence in the high-grade nature of the Segovia gold deposits. And that’s why we are excited to get going this year on the 2021 drilling programs.
We have 60,000 meters of drilling planned for 2021 at a total cost of about $14 million. Our 2021 program includes 40,000 meters of in-mine and near-mine drilling at our four operating mines at a cost of about $10 million, focused on replacing the 2021 mining production and organic growth through resource and reserve expansion.
Our 2021 program also includes 20,000 meters already underway at our high priority brownfield targets at a total cost of approximately $4 million. And these targets include Vera, which is underway; Cristales, Marmajito and San Nicolas. These are highly prospective veins that are home to full former mines operated decades ago by Frontino Gold Mines, but also being mined at surface by small miners under contract to us at the current time. As such, we have a lot of data for our team to work with and very excited about the opportunities we see ahead. Stay tuned as we expect lots of news this year from exploration at Segovia.
I would like now to turn attention to our equity portfolio. As I mentioned earlier, with the Aris transaction completed earlier this year, we now have 44.3% of Aris Gold, formerly known as Caldas Gold. Aris is a TSX-listed company led by Neil Woodyer and his team and they have taken on the task of building Marmato.
With the four financings completed last year, including the Wheaton Stream, they are fully financed based on the 2020 PFS. The market value of our holdings of common shares and listed warrants in Aris currently totals about CAD150 million.
Through the private placements completed in the fourth quarter of 2020 and the first quarter of 2021 and the spin-out of our interest in Zancudo, we now have a 27% equity position in Denarius Silver, an emerging venture exchange listed company that owns Zancudo and the Guia Antigua mine in our Segovia title and is currently in the process of completing an acquisition of the Lomero Project in Spain. It’s still early days for Denarius, but we see this investment as another opportunity to take a dormant asset and turn it into an exciting multi-project opportunity to realize value for our shareholders.
The last investment I want to mention is Gold X. We currently own about 18% of the outstanding shares in Gold X, and we also own another 4.6 million warrants. In March, we announced a friendly bid to acquire all the shares of Gold X we do not currently own in a share-for-share exchange. And based on trading prices at the time of the announcement, we agreed to exchange 0.6948 of the GCM share for each share of Gold X that we don’t own. That placed a value on Gold X shares at $4.10 at the time and a total transaction value of over $300 million on a 100% basis.
We really like the Toroparu project. Lombardo and his team have been studying it careful for a couple of years now. And Serafino has had considerable success building mines in the Guyana Shield of the Venezuelan side of the border. We see this bid as an opportunity to create a new Latin American-focused growth story with two of the top projects in Latin America. This is a project we believe will bring into production, and Gold X is a stream facility with Wheaton already in place that can be used to fund the development and construction of the project.
The transaction, which we completed by way of a plan of arrangement requires regulatory and shareholder approval, and we are currently working with Gold X to close this transaction in late May or early June. More details of the specific shareholder meeting dates, et cetera, will be forthcoming very shortly.
And one of the reasons we like this deal is we see it as being very accretive to our net asset value. When you consider the size and quality of the resource and the additional results from the recent drilling program completed by the Gold X team, together with its peer ranking on an enterprise value to resource basis, stacks up to look very attractive as an acquisition for Gran Colombia at the current offer price.
And on this last slide, before we open up things for the Q&A session, I’d like to circle back to where we started this morning’s webcast on the topic of ESG. In a couple of months, we’ll be publishing our first ever sustainability report, and I think it is going to help investors see how we have integrated ESG into our operations and our culture over the 10 years since we acquired the Segovia Operations.
I’d like to take this opportunity to put in a plug this morning for an upcoming ESG episode that will be featured on BTV, B&M Bloomberg on April 10 and 11, in which our Corporate ESG Manager, Sasha Villoza, will be talking about Gran Colombia’s ESG initiatives. Please join that – in on that or follow-up on BTV’s website later on to catch up with the episode.
With that, I’d now like to thank you for taking the time to be on the call this morning. And John, if we can, let’s open up the lines for the Q&A session.
Question-and-Answer Session
We will now begin the question-and-answer session. [Operator Instructions] [Operator Instructions] At this time, no questions in queue.
Mike Davies
All right. Well, in that case, I’d like to, again, thank you again for joining us this morning. We are available, if you’d like to give us a shout-out or send us an e-mail to follow-up on any questions you’d like to deal with on a one-on-one basis. Stay tuned. In another few weeks, we’ll be very quickly releasing our Q1 results. In a couple of weeks, we’ll be releasing production for the first quarter.
The next dividend takes place on April 15. And at the end of this month, we’ve got amortization payment for the gold notes, followed by the early redemption of the $10 million of gold notes. So lots of news and catalysts coming forward in our story, and we think this is going to be a very exciting year for Gran Colombia and its shareholders. So thank you for taking the time today.
Operator
Thank you, ladies and gentlemen. That concludes today’s conference. Thank you for participating and you may now disconnect.
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Comments (5)
I've invested in several smaller copper miners over the years so am somewhat familiar with valuing dirt. So what is missing? Is the geo-political risk that high? Management track record?I"m not being rude in my comment, I just can't quite follow the valuation - which appears to be in line with a junior miner that has a "prospective" operation as opposed to one with actual cash flow. Leads me to believe there is something I'm not understanding or am missing.