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Edited Transcript of ASR.TO earnings conference call or presentation 2-May-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Alacer Gold Corp Earnings Call

ENGLEWOOD May 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Alacer Gold Corp earnings conference call or presentation Tuesday, May 2, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa Maestas

Alacer Gold Corp. - Director of IR

* Mark E. Murchison

Alacer Gold Corp. - CFO

* Rodney P. Antal

Alacer Gold Corp. - CEO, President and Executive Director

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Conference Call Participants

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* Daniel McConvey

* Michael Slifirski

Credit Suisse AG, Research Division - MD

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Presentation

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Operator [1]

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Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Alacer Gold's First Quarter 2017 Operating and Financial Results Conference Call. (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, Ms. Maestas.

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Lisa Maestas, Alacer Gold Corp. - Director of IR [2]

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Thanks, Steve. Welcome, everyone, and thank you for joining us today for Alacer Gold's First Quarter 2017 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 on our website. You can also access all documents released today on SEDAR and on ASX. A telephonic replay of this call will be available for 1 month, and an archived webcast will be available for 3 months after today's call. Following today's presentation, we will open the call up for a question-and-answer session.

If I could 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 the MD&A. Additionally, all dollar amounts in this presentation are expressed in U.S. dollars and are 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 3.

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [3]

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Well, thanks all for joining us, and welcome to the first quarter operating and financial results call. I just wanted to start off by highlighting some of the key activities so far this year, and we'll provide more details later in the presentation.

We received a pasture permit in April, and mining of the West Pit has started. This keeps us on track to meet our full year production guidance of 160,000 to 180,000 ounces. The Sulfide Project is on schedule and on budget. Drilling has recommenced at Cakmaktepe, and the Definitive Feasibility Study work was kicked off for Gediktepe. So, so far this year, we're off to a good start.

I just want to move on to Slide 4 and start providing an update on the Sulfide Project. As you can see from the picture, construction of the Sulfide Project is progressing very quickly and to schedule. We look forward to showcasing the progress of the pProject to a number of our shareholders and analysts at the upcoming site visit.

On the following slide, there are a couple more photos of our progress. The photos show some of the key areas of the plant. Moving clockwise from top left, you can see the autoclave and flash vessels are in the building, and we completed welding the sections for both the autoclaves and flash vessels. The decant and POX feed thickener tanks are progressing, and the concrete work for the grinding circuit area is advancing. In just over 9 months, we made tremendous progress, and the Project is 37% complete overall.

So turning on to Slide #6, which highlights some of the Project milestones we achieved in quarter 1. Very important to all of us is that we are lost-time injury free on the Project. Some of the other highlights include -- we haven't seen any [scope creep] through the engineering process. Engineering is now 98% complete, and the majority of the team is now on site. All major equipment is ordered and has progressively arriving in country and at Copler. The autoclave sections have been welded together, and nondestructive testing of the weld is complete and will be verified by the independent body this week. Civils is 65% complete with over 27,500 cubic meters of concrete poured through the end of quarter 1. The CIP tank shells have been assembled, and the mechanical and piping contractors are mobilizing to site. The oxygen plant construction is progressing on schedule, and the tailings storage facility earthworks are well underway. So overall, great progress for the quarter and the Sulfide Project remains on schedule and on budget.

So turning to Slide 7 for an update of liquidity position. With liquidity of over $500 million plus $80 million of free cash flow to be generated through to the remaining construction period, we are maintaining a comfortable cash surplus. With $511 million of budgeted spend remaining on the Project, the Project is fully funded. After a comprehensive technical review by the lenders' independent engineers and satisfaction of all conditions precedent, we drew down $130 million from the $350 million finance facility on April 21. Another important liquidity factor is that our lenders have confirmed that no cost overrun reserve is required. This outcome demonstrates the robustness of the Sulfide Project. At the end of the first quarter, there were 132,000 ounces of forward gold sales with oxide production remaining at an average price of $1,281 per ounce. This secures the gold price during the construction period.

Now moving on to the next slide. And I want to take the moment to discuss our other growth opportunities, which we are progressing. In December last year, we released a maiden resource in the Copler District of 140,000 M&I ounces, which was a positive first step. These deposits are within 5 to 7 kilometers from Copler, and the resource remains open. What became more exciting is the discovery we had at the end of last year's drilling program, where we identified a shallow high-grade area called Cakmaktepe Central. Most of the results were not included in the maiden resource and represent resource growth potential. While the maiden resource at Cakmaktepe has established a great foundation, Central appears to align more closely to our original exploration objective of discovering shallow satellite deposits that have the potential for quick development. The 2017 drilling program has recommenced and will be focused on step-out drilling for the entire Cakmaktepe mineralized area. The last part of the program at Cakmaktepe this year will be to define the development plan to potentially bring Cakmaktepe to production in 2018. We are preparing for the construction of the access road to Cakmaktepe, and it will ultimately serve as the haul road. This road will provide direct access to and from the Copler Mine.

So moving on to Slide 9 to discuss Gediktepe. In September last year, we announced the results of a positive Pre-Feasibility Study on Gediktepe, which is a polymetallic orebody, of which we own 50% with our joint venture partner. The Project has the potential to become a valuable contributor to our business in the medium term with a projected Life-of-Mine production of 1.8 million ounces on a gold equivalent basis over a 12-year period. We've started and expect to issue a Definitive Feasibility Study with development options for the Project in June of 2018.

So now I want to hand the presentation over to Mark for an overview of the financial results, which are outlined on Slide #10.

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Mark E. Murchison, Alacer Gold Corp. - CFO [4]

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Hello, everyone. Slide 10 provides an overview of the key operating metrics for the quarter. 33,000 ounces of gold were produced, which was in line with our guidance. With the Pasture Permit in hand, mining of the West Pit will be substantially complete by the end of Q2, and the Manganese Pit will be the primary source of oxide ore for the remainder of the year. As Rod mentioned, our production guidance for 2017 is reconfirmed at 160,000 to 180,000 ounces. And as previously noted, production is expected to be weighted 35% to 40% in the first half of the year.

As expected, Total Cash Costs for the quarter were higher than annual guidance. Total Cash Costs are expected to trend lower through the year for a few reasons: Firstly, production will increase through the year, as we have guided. Secondly, the haulage distance for waste tonnes will be shorter with the receipt of the pasture permit and access to alternate waste dump areas, thus reducing costs. Thirdly, more waste tonnes will be utilized in the construction of the Sulfide Project. And finally, the volume of recoverable ounces stacked on the heap leach pad will increase with higher grade ore mined from the West Pit.

Moving on to Slide 11 and our financial highlights. 35,000 ounces of gold were sold in the quarter. Operating cash flow of $9 million was generated. Attributable Net Profit for the quarter was $9 million or $0.03 per share. The Attributable Profit includes 2 significant noncash items: firstly, an attributable income tax benefit of $20 million arising from incentive tax credits related to qualifying expenditures under the third incentive certificate; and secondly, an attributable unrealized $10 million loss arising from the mark-to-market value of the hedge book at period end that offsets the tax credit.

A comment on tax as a reminder. We estimate that for every dollar spent on the Sulfide Project and heap leach pad expansion, a $0.35 cash tax credit will be generated. So in 2017, with over $420 million of CapEx forecast to be spent on these items, approximately $150 million of cash tax credits, or 35% of the spend, will be recognized. The effective accounting tax rate in the books are expected to continue as a significant credit during the sulfide construction period as incentive tax credits are recognized and carried forward as deferred tax assets to offset future tax payable. As just mentioned, we forecast $150 million to be recognized in 2017, and credited to the income tax expense account in the P&L. Finally and perhaps most importantly, we expect Alacer (inaudible) annual effective cash tax rate going forward to be around 5%.

Our balance sheet remains strong and supports our growth profile with cash of $284 million and a remaining undrawn $220 million on the finance facility.

Now please turn to Slide 12, and I'll hand back to Rod to wrap up.

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [5]

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Thanks. So in concluding, before we open up to questions, a good start to the year across the business. Both the cost and production Guidance is reconfirmed with the receipt of the pasture permit. The Sulfide Project is on schedule and on budget. And we recently drew down the first tranche of the finance facility, and we have no requirements for a cost overrun reserve the drilling has started, again, at Cakmaktepe, and the DFS at Gediktepe is now underway. We remain on course to deliver our organic growth strategy and look forward to keeping you up-to-date on the progress.

And with that, I'd like to open the call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Michael Slifirski, Credit Suisse.

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Michael Slifirski, Credit Suisse AG, Research Division - MD [2]

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Let's start on Cakmaktepe Central. When I scan through all those results, the grades look pretty good, good intersections, good grades. What would you expect when you actually put a design around it? What might the average grade look like in that area? How shall we scale down what we actually see in those results?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [3]

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Just give -- be patient, Michael, before we get too far ahead of ourselves. So the initial part of the one -- the drilling program that we're doing right now is step-out drilling. So we need to complete that before we start to put any real, definitive mine plans over it, et cetera. But you know as you quite rightly pointed out, the grade profile is quite good. It's relatively shallow to surface. So I don't expect a very large strip ratio over that area. So -- but it's important. I don't think we finished off that step-out drilling so we can complete that piece of work. So we'll do that and progressively keep you up-to-date. The other important thing about the Cakmaktepe Central, as you commented, is that as -- and as a reminder that the area -- or most of that area is actually permitted from a previous permit that was up there. So we'll certainly take advantage of that. It still will require us to do a refresh of the environmental impact assessment that we previously had approved because this is now a change to that. So we'll need to complete that work, and that's why they're drilling's important so we can get the mine plan so we can define it. But -- and so that certainly helps us with the objective of getting part of Cakmaktepe into 2018. But I will just also make a comment that the rest of Cakmaktepe, if we were to proceed with it, would require a full permit process. So while we're fortunate Central has the permit on it, the rest of the area will require a full permitting process.

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Michael Slifirski, Credit Suisse AG, Research Division - MD [4]

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Yes, understood. So in terms of that full permitting process and your more recent experience with the -- getting the most recent permit, are permits flowing more quickly now than before? Are you making greater progress? OR was there something around this pastoral permit that was special that allowed it to be a bit quicker than perhaps you might have anticipated?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [5]

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I think in the background, we continue to get permits of various things. The drilling permits obviously are key. We're certainly getting those. I know other companies are as well. So I think we -- the reason there certainly is -- are permits coming out of the regulators. So that's obviously reassuring and positive. The speed of permits is still really the question mark. So there isn't a real a time line for these things. So the quicker we get in front of them and put the applications in, the better it is for us to ensure they don't become a roadblock to us.

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Michael Slifirski, Credit Suisse AG, Research Division - MD [6]

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Okay. Then to follow with respect to the situation in Turkey, I guess the headlines we see seem somewhat alarmist but in terms of what you're seeing on the ground, is there any improvement, deterioration, any change in day-to-day activities?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [7]

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No. Look, we -- as we've been fairly consistent in saying, no impact to us. We haven't seen any impact to us on the ground. So that's been the status quo.

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Operator [8]

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Our next question is from Daniel McConvey, Rossport Investments.

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Daniel McConvey, [9]

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Three questions. Just to follow up in the last one. So we just -- we read about all the changes in the civil service. And I know yours haven't changed. I just want to confirm again, the people you deal with in the permitting front are the same people for the most part that you've dealt with before?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [10]

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That's correct, Dan. We haven't seen any changes within the government departments that are reporting to us to get our jobs done.

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Daniel McConvey, [11]

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Okay. The autoclaves, your presentation mentions putting -- finishing putting together this quarter. It looks like in the picture though that of them have already been assembled. Is that right?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [12]

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So the welds joining the autoclaves have recently been completed. And they, as I mentioned, get -- have gone through the nondestructive testing and are going to be verified this week by the independent bodies. So that's coming up. And then obviously, the rest of the assembly process on doing the hydrostatic testing is set to take place from this point. But in terms of actually welding the pieces together, that is now complete.

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Daniel McConvey, [13]

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Rod, what kind of testing did you say that you do on them once theyre welded, like the first test you just mentioned?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [14]

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So the first test right now on the weld is a nondestructive testing, so the x-raying, et cetera, to ensure the integrity of the welds. From that point, once the independent bodies have given that the okay, we move into the rest of the certification process, which includes the hydrostatic testing for the autoclaves, which are -- then the nondestructive testing happens again and the independent bodies then verify. And then we have a certification by the notified independent bodies. So it's quite a comprehensive process, Dan, to get us there. We expect that to take us the rest of the quarter.

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Daniel McConvey, [15]

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Okay. So by the end of the quarter though, all that testing you just mentioned should be completed or pretty much?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [16]

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Correct, correct.

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Daniel McConvey, [17]

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Okay, good. Last question-- thiscash credit. I just -- I'm just wondering, is the word cash the right word? This is a credit you will be -- you'll be taking this as a credit on income tax paid. You won't be -- in no situation, you will be actually getting cash back when you're not -- instead of offsetting taxes paid. In other words, you're not going to have a net payment coming from the government on the income tax situation.

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Mark E. Murchison, Alacer Gold Corp. - CFO [18]

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That's right. Dan, it's Mark. So the reason I used the reference to cash tax credits is because there's different losses -- normal tax losses carried forward. So for these credits, you work a tax payable and then you reduce your tax payable by the credits. Rather than having the position of losses carried forward where you normally apply those to your tax payable first, this actually comes off your actual amount of cash tax to pay but it's not remitted from the government.

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Daniel McConvey, [19]

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Okay. It's similar to what the tax credits that have been available in the past in Canada and the U.S., I presume.

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Mark E. Murchison, Alacer Gold Corp. - CFO [20]

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Yes.

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Operator [21]

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The next question is from Michael Slifirski, Credit Suisse.

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Michael Slifirski, Credit Suisse AG, Research Division - MD [22]

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Sorry to come back again. Just in terms of risk around the Sulfide Project budget and so on, when you think of activity levels, is the higher risk in the early part where there might be some estimation risk associated with material movements, earth movements, rights progress? Or is it the latter part when you're wiring up and plumbing the thing? And is basically the high risk part behind you in terms of estimation risk? Or is it still to come?

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [23]

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Look, on any project, Michael, it's really until you finish it, and there's a risk to it. I think we've come out of the first phase of having the earthworks done, the fact that we had the civil works complete in front of us. So we had phases available to do the work that we needed to, the fact that the major procurement has been completed. And the pieces of equipment are, as I said, arriving to site progressively, which is great. Engineering is pretty much at the end of it, and we haven't seen any scope creep, which is a significant milestone in itself because that's where you can get yourself in trouble. So we've come out of that in good shape. And the other thing is our contingency is intact at this stage. So then where we are today, as you think about it, we feel good about where we are. As we look into the next 6 months, the real efforts are about pulling it all together, as you said. So it's important as we mobilize the people out with all the contractors we'll have on site, particularly around the mechanical, electrical and other areas, where it's more sort of artisan work that we really see the productivity that they have promised us through the contracts to be delivered on the ground. If we keep to those productivity factors, then the schedule will stay intact. So thats obviously where a lot of the attention is turning to now.

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Operator [24]

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There are no further questions at this time. I'll hand the call back to Mr. Antal for closing remarks.

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Rodney P. Antal, Alacer Gold Corp. - CEO, President and Executive Director [25]

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Well, I just want to -- well, thanks to all attending today. I appreciate that and look forward to -- I look forward to keeping you up-to-date as the year progresses forward. And with that, I want to close it up.

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Operator [26]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.