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Edited Transcript of GUY.TO earnings conference call or presentation 31-Oct-19 2:00pm GMT

Q3 2019 Guyana Goldfields Inc Earnings Call

TORONTO Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Guyana Goldfields Inc earnings conference call or presentation Thursday, October 31, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Allen Joseph Palmiere

Guyana Goldfields Inc. - Interim CEO & Director

* Jacqueline Wagenaar

Guyana Goldfields Inc. - VP of IR & Corporate Communications

* Leon Binedell

Guyana Goldfields Inc. - CFO

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Conference Call Participants

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* Barry D. Allan

Laurentian Bank Securities, Inc., Research Division - MD of Research & Mining Analyst

* Buck Bandura

* Daniel Joseph Noone

G2 Goldfields Inc. - Director

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Guyana Goldfields Q3 2019 Operational and Financial Results Conference Call. (Operator Instructions) Also note that this call is being recorded on Thursday, October 31, 2019.

And I would like to turn the conference over to Jacqueline Wagenaar. Please go ahead.

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Jacqueline Wagenaar, Guyana Goldfields Inc. - VP of IR & Corporate Communications [2]

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Thank you, Shelby. Welcome, and thank you, everyone, for joining our third quarter 2019 operational and financial results conference call.

On the line with me today are Allen Palmiere, Interim CEO; and Leon Binedell, Chief Financial Officer, who will review results, and following this, will be available to answer questions at the end of the call. Yesterday's press release is available for viewing on the company's website at guygold.com.

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 release. 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 Allen to review the results.

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [3]

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Thanks, Jacqueline. Good morning, everyone. My name is Allen Palmiere, and I'm the CEO of the company. I joined the firm earlier this year as an Independent Director as part of the proxy settlement announced in late April. Subsequently, I was asked by the Board to fill the CEO role on an interim basis at the close of business on July 31 when the former CEO and Director, Scott Caldwell, left the company. The search for the permanent CEO is still ongoing. However, I'm committed to remaining with the firm for as long as required. Since joining the company, we've taken a hands-on first-principles approach to reviewing all aspects of the operations, identifying the challenges and the opportunities and making changes accordingly. The company has experienced ongoing challenges in achieving the optimized sequence of mining and waste development in the open pit.

And as a result, we have commenced a thorough review of the Aurora life-of-mine plan. As part of this review, we are undergoing a comprehensive mine production and cost savings review plan to make the necessary changes and improvements to ultimately increase productivity and profitability.

During this time, we have also made some corporate office and site management changes, allowing for improved technical and operational leadership. We have made changes to the site operating team, modifying operating procedures and enhancing reporting. To date, the review has confirmed that Aurora is a sound asset. However, the mine plan requires further study in order to maximize its value to optimize the sequence of mining and waste development in the open pit. We appointed Roscoe Postle Associates, RPA, to assist in this review and to build on the prior work they had completed, which resulted in the March 2019 technical report. We chose RPA again because they have the history with the deposit and are a highly reputable independent consultant.

The review will also assess the cost savings initiatives, which were underway earlier this year as a result of the implementation of the management optimization plan previously envisaged by prior management. The timing of implementing these cost savings may be impacted by the outcome of the review. We don't expect the review to materially change the total reserves to be mined. However, we may see a change in the sequence of open pit development and ore release, timing of access to Rory's Knoll underground and the mining methods. We will release the details of this review once fully completed, which is expected in the first quarter of next year. However, some cost improvements are expected to begin to be realized almost immediately.

The new team that we have put together have a proven ability to optimize operations, and we are advancing the review focusing on operational execution to support a sustainable and profitable production profile based on practical sequencing of ore release.

In terms of guidance, for the remainder of 2019, fourth quarter gold production is expected to improve over the third quarter as mining moves back into the primary ore zone within Rory's Knoll. However, full year production is expected to be below previously released guidance. Prior guidance does not reflect current operating realities experienced in the mine sequence and operational constraints that I just mentioned.

As such, full year unit costs are expected to be in line with the experience in the third quarter year-to-date. We don't consider it appropriate to provide updated guidance ranges or any forward projections until the review is completed. And as I said, that is expected in the first quarter of next year.

In terms of Q3 '19 results, gold production was 22,100 ounces for the quarter, which amounts to our year-to-date gold production of 96,000 ounces. During the third quarter, the mine called for approximately half of the mill feed to be sourced from stockpiles due to sequencing of the mine of the pit phases at Rory's Knoll. The mining rate averaged 51,500 tonnes per day, an 11% decrease compared to the prior quarter due to pit constraints imposed by smaller benches, reduced working faces, heavy rainfall and a 3-day work stoppage. We estimate that the work stoppage resulted in approximately 22,500 tonnes that was not able to be processed. The average strip ratio during the quarter was 15.6 tonnes of waste to 1 tonne of ore, an increase of strip ratio of 8.6:1 from the comparable quarter in the prior year.

A quarterly mill performance of 6,900 tonnes per day is a 12% decrease from the prior quarter as a result of management reducing throughput rates to maximize recovery from lower-grade materials being processed during the quarter. On a year-to-date basis, mill throughput increased from the prior year as a result of commissioning the second phase of the plant expansion earlier this year, which has increased mill availability and throughput.

The mill head grade for the third quarter was 1.21 grams per tonne, which is lower as a result of low-grade stockpile ore being fed to the mill due to pit sequencing. As a result, gold recoveries of 89.1% are lower due to low volumes of higher-grade ore available.

In early September, the company announced receipt of a Trade Union Certificate of Recognition from the Trade Union Recognition and Certification Board in Guyana, identifying the National Mine Workers Union as the representative union for employees below the supervisory level at Aurora and Guyana. The company is actively adhering to applicable laws, regulations and is facilitating communication with relevant parties. However, timing of reaching an agreement is undetermined.

I'd just like to briefly touch on our underground exploration decline. The early works program on the underground exploration decline continued in the third quarter, reaching a total length of 394 meters. Management is currently evaluating options for the full development of the underground, alongside the ongoing life-of-mine review being conducted and have appointed specialists to assist in this assessment. The main underground development contract is the next approximately 2,100 meters of development beyond the early works program.

Exploration activities for the quarter focused on advancing the understanding of the geology and the mineralization controls at the Aurora mine in support of the mine life plan review and detailed mine planning that is currently underway.

And with that, I will hand it off to Leon, our Chief Financial Officer, who will review the financial results.

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Leon Binedell, Guyana Goldfields Inc. - CFO [4]

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Thank you, Allen. Good morning, everyone. My name is Leon Binedell, and I'm the CFO of the company. I joined the firm at the end of August, and I'm excited to be part of the team that's been tasked with taking the company forward. The third quarter was one of the more challenging quarters for the company as the mine plan called for approximately half of the mill feed to be sourced from stockpiles due to the sequencing of the pit phases at Rory's Knoll. As a result, higher costs were expected on a per ounce basis due to the lower level of gold production and the limited primary ore release from Rory's Knoll.

During the quarter, the company sold 23,500 ounces of gold at an average realized price of $1,485 per ounce, resulting in revenues of $34.8 million. On a year-to-date basis, the company sold 100,000 ounces of gold at an average realized price of $1,353, resulting in revenues of $135.3 million. Loss from mine operations for the third quarter was $9 million as a result of low sales. The low sales volume and revenue was mainly due to lower mill throughput, coupled with lower grade and recoveries of ore processed from stockpiles, and therefore, lower volumes of gold produced and sold during the current quarter.

The lower gold sales volumes negatively impacted our unit costs as well. Our total cost before royalty -- I'm sorry, our total cash cost before royalty was $1,372 per ounce of gold sold. Cost of sales, including royalty and depreciation, was $1,864 per ounce, and all-in sustaining costs were $1,882 per ounce for the quarter.

Net loss for the quarter was $9.5 million, largely attributable to the $9 million loss from mining operations, which included a noncash write-down of $5 million comprising of $1.8 million associated with value-added tax receivable from the government of Guyana and a write-down of $3.2 million related to materials and inventory supplies. These write-downs reflects our best estimate of the recoverable amount, net of costs to recover, and was excluded from all-in sustaining cash cost calculations as per the World Gold Council's November 2018 guidance.

The company generated $3 million of operating cash flow during the third quarter. Cash used in investing activities was $17.8 million for the third quarter of 2019, and year-to-date cash flows used in investing activities totaled $53 million, mainly due to $62 million cash used in capital investments. The most significant capital investments year-to-date are deferred stripping of $36.5 million and $5.4 million associated with underground development.

Corporate, general and administrative expenses for the quarter was $2.1 million, in line with the prior year quarter. However, year-to-date G&A cost at $10.8 million is higher than the prior year due to shareholder proxy contest-related costs as was disclosed in the prior quarter.

At 30 September 2019, cash and cash equivalents were $24.8 million, which is approximately $14 million lower than cash reported in the second quarter. Cash was utilized in ongoing waste development during the quarter as a result of the sequencing in the original open pit, which resulted in low ore release and the consequential low gold sales.

At present, the company anticipates that its mine operations will generate sufficient working capital and cash flow to cover operating requirements through the balance of 2019 and 2020. However, as Allen had mentioned earlier, the outcome of the life-of-mine plan review being conducted may impact the timing of cash flows and the company's financial position.

With that, I'll hand back to Allen to close.

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [5]

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Thank you, Leon. In conclusion, I'm optimistic and encouraged by the work that is being completed on the mine plan. However, the last year has been a difficult one for the company and for its stakeholders, in particular, our employees. I wish to extend my gratitude for the hard work and perseverance of the employees as the company has been transitioning through many changes. The new team that we have in place has a proven ability to optimize operations, and we are advancing the company forward with a focus on increasing productivity and profitability.

I'd like to thank everyone for joining the call this morning, and I'll now turn it back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will be from Barry Allan at Laurentian Bank.

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Barry D. Allan, Laurentian Bank Securities, Inc., Research Division - MD of Research & Mining Analyst [2]

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I just have really one simple question, I think. I didn't see anywhere where you broke out what the grade from low-grade stockpiles actually was or what grade you were getting from the open pit and what you were expecting.

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [3]

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We didn't disclose that, but what we were really doing was taking from a very low-grade stockpile that was running about 0.8 of a gram and the open pit averaged about 1.7, and that's for the quarter.

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Operator [4]

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Next question will be from Buck Bandura at Wells Fargo.

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Buck Bandura, [5]

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Last I understood, there was a search for a new CEO that was supposed to be announced this month. Did I miss something? Are you permanent? Or are we still searching for a CEO?

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [6]

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Quick answer is we are still searching. Let me provide a bit of context around that. I originally came on August 1. And at that point, the intent was that I would only be in this position for 1 month. We did have an identified candidate. However, for personal reasons, that individual had to withdraw at the end of August. That has resulted in us basically rebooting the entire process, and the search is currently ongoing. What happened in conjunction with that, though, is it became obvious that we could not wait possibly until such time as we had a new CEO. So when my tenure was extended somewhat indefinitely, the Board agreed that we would move forward and implement the review that we previously discussed. We would implement changes, both at the management and the operating level, and we would start moving the company forward.

So while I am still an interim CEO, I will not be the permanent CEO. But while I am interim, the company is not waiting to clean up its act and move forward. We've got a number of issues that we're addressing, and we're doing so as quickly as is possible.

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Buck Bandura, [7]

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Okay. One follow-up question to that. I had read earlier this year that you guys were looking at all strategic alternatives for the company, maybe for a sale, and you hired some financial firms to help you with that. Where are we on that process?

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [8]

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The release that you're talking about was issued in January. And what it dealt with were the appointment of 2 financial advisers primarily to provide guidance and advice through the proxy situation that was then on the table. There's the proxy battle. As part of that, one of the firms was tasked with looking at various strategic alternatives. However, on the conclusion of the proxy fight and the settlement agreement, both of those engagements were terminated. At this point, it is, from our perspective, inappropriate to pursue any kind of corporate transaction given that the company has been very heavily penalized for past performance. We have a lot of value here that is not being recognized in the marketplace today, so it makes it very hard for us to contemplate a corporate transaction of any sort that would be to the advantage of our shareholders.

That being said, we're a public company. We're for sale all the time. And if somebody walks in the door, we have to consider it, but we are not actively pursuing anything.

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Operator [9]

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(Operator Instructions) And your next question will be from Dan Noone at G2 Goldfields.

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Daniel Joseph Noone, G2 Goldfields Inc. - Director [10]

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It's Dan here. I was just wondering, when do you think you'll be caught up on the strip at Rory's Knoll such that you'll be able to access all the ore that you require from Rory's Knoll.

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [11]

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It's a very simple question with a very complicated answer, Dan. It is no secret that the company is behind on the stripping right now, and we are making effort -- every effort to schedule the phases of Rory's Knoll such that we maintain, to the extent possible, ore release. Getting caught up, we'll be caught up the day we last -- we move the last tonne of ore out of that pit, to be honest. However, we are looking at a variety of scheduling options to ensure that we maximize the ore release out of it. We are -- as you can probably identify just looking for a stripping ratio we announced, we are actively trying to move as much waste as is possible to enhance our ore release. That's part of the planning process we're going through, Dan. And I would like to be able to give you a more definitive answer, but until we finish this planning and review process, it would be inappropriate.

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Operator [12]

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(Operator Instructions) And at this time, Mr. Palmiere, it appears we have no further questions. Please proceed.

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Allen Joseph Palmiere, Guyana Goldfields Inc. - Interim CEO & Director [13]

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I just want to thank everybody for participating this morning. As usual, to the extent that you have any follow-on questions, please feel free to contact us. Again, thank you for joining us, and I wish everyone a very good morning.

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Operator [14]

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Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.