U.S. Markets close in 1 hr 10 mins

Edited Transcript of GUY.TO earnings conference call or presentation 27-Mar-19 2:00pm GMT

Q4 2018 Guyana Goldfields Inc Earnings Call

TORONTO Apr 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Guyana Goldfields Inc earnings conference call or presentation Wednesday, March 27, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher Stackhouse

Guyana Goldfields Inc. - VP & Interim CFO

* Jacqueline Wagenaar

Guyana Goldfields Inc. - VP of IR & Corporate Communications

* Ronald W. Stewart

Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development

* Scott Andrew Caldwell

Guyana Goldfields Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Daniel McConvey

* Don M. Blyth

Paradigm Capital Inc., Research Division - Analyst of Gold

* Kip Keen

S&P Global Market Intelligence Metals & Mining - Research Analyst

* Mark Mihaljevic

RBC Capital Markets, LLC, Research Division - Analyst

* Trevor Turnbull

Scotiabank Global Banking and Markets, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to the Guyana Goldfields Fourth Quarter and Full Year 2018 Results and Updated Life of Mine Plan Conference Call. (Operator Instructions) This call is being recorded on Wednesday, March 27, 2019.

I would now like to turn the conference over to Jacqueline Wagenaar, VP, Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Jessica. Welcome and thank you, everyone, for joining our fourth quarter and full year 2018 operational and financial results conference call. In addition, management will also be reviewing updated life of mine plan results, which were issued in conjunction to the financial results yesterday after market close.

On the line today are Scott Caldwell, President and CEO; 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 are available for viewing on the company's 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. Please also note today's call has a hard stop at 10:45 a.m. as management has scheduled marketing in place.

I will now turn the call over to Scott to review the results.

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Jacqueline, and, first, I'd like to say good morning, and thank you all for joining us for a few minutes this morning, so we can talk about the year end results for 2018 and the go-forward business plan, the RPA work, the life of mine.

So for the year, we produced about 150,000 ounces of gold, had some trials and tribulations over the course of the year that you should be aware of. But to recap, we had a delay in mobilization, and our mining rate was below plan, requiring us to revise guidance down. And then late in the year, in the fourth quarter, we encountered, unfortunately, in Rory's Knoll, the ore reserve model did not perform as we thought it would. And we had to revise downward based on grade contained in Rory's Knoll.

Despite that, we produced 150,000 ounces. The mill is running very, very well. We averaged 7,100 tonnes per day in the fourth quarter. A record tonnage as our various expansions, Phase 1 was completed and Phase 2 was completed early this year, so we're done with the millwork. Recoveries continue to improve and it runs well. The mine itself, in the fourth quarter, we averaged just over 69,000 tonnes a day, which is a dramatic increase over same period in 2017. And we hold that rate, 69,000, 70,000 tonnes a day, from here on out. That's our design capacity. That's ore and waste.

All of the mine pits that we're in -- Rory's Knoll is a primary pit, but also a few of the satellite pits. So a difficult year. Health and safety continues to be pretty good. Environmental performance is good. We're dedicated to the health and safety, the safety of our employees and the protection of the environment. So a difficult year, but we did make 150,000 ounces and generated positive cash flow. And a little later in the presentation on the call, Chris Stackhouse will speak to the financials and give you more detail on that.

Moving on to the life of mine plan -- the resource model and life of mine plan. As you know, we commissioned RPA to do a full review and a revised feasibility study and update -- not an update, but a full feasibility study, 43-101 standards. They looked at the entire resource model, so all deposits, Rory's Knoll, Aleck Hill, et cetera. Bottom line is we ended up with measured and indicated of about 4 million ounces and around 2 million ounces in the inferred category.

The ore reserve -- mineral reserve is about 2.3 million ounces, and I won't go through the numbers. I mean, you can read them. The life of mine plan, in the first 5 years, we produced an average of 218,000 ounces, over the next 5 years, cash costs of about $753 an ounce and AISC of $879 an ounce. So the recovered gold production for the life of the mine right now sits at 2.15, estimated head grade of 2.6 and about a 13 year mine life. And if you looked at the production profile, you can see it declines in outer years as we get deeper in the underground mine.

Clearly, this -- the future of this property has been and continues to be the transition from open pit to underground. We'll begin work on our exploration drift. The work on that should start shortly -- resumption of work on that. And we'll continue to gather more data as that drift gets deeper and deeper, and we do exploration drilling from the exploration drift.

The -- probably one thing I'd really like to point out, if you look at the life of mine plan, management believes, at today's spot prices, we can self-fund this program out in the future. So we don't -- we could generate enough cash to maintain an adequate cash balance, service our debt, which, at the end of the year, was around $40 million in debt. We had $82 million in cash. So we can generate enough cash through the life of mine plan, transition to the underground all the activities we've got, corporate G&A, service the debt, exploration.

So it's a solid plan, and really I believe we've created a solid foundation for the future of the company. Not good news, the resource went down. I see a lot of potential, and Ron is going to talk a little bit about exploration potential in the underground mine itself. And we've had some pretty interesting results in the past -- the last few months -- the last 6 months.

But with that, Ron, maybe I'll hand it over to you, and you can add a little more color to the 43-101.

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [4]

--------------------------------------------------------------------------------

Thanks, Scott. As Scott's mentioned, we did a full update to the resource model. We've created a new foundation for the company going forward, which is a lot more solid. It's based on a full new geologic interpretation of the volcanics, really the outboard volcanics.

Rory's Knoll didn't change that much. We also modified the kriging parameters to incorporate some more conservative elements to the resource model. And those really were the drivers behind the resource and reserve reduction that Scott mentioned. The point, though, really is, it creates a solid foundation for us going forward to build a mine plan that we can achieve and take us into the future.

What RPA have done really is accessed about just over 55% of the M&I resources in their mine plan. So we see good opportunity to take some of those additional M&I resources and create a more sustainable, a longer life production profile. You can see that the ounces sort of tail off in the back half of the current mine plan. And we don't really think that that's ultimately what we're going to see once we get going with the underground.

The exploration potential that we recognize underneath the satellites, Mad Kiss, East Walcott and Aleck Hill, all offer a great opportunity for us to supplement the Rory's Knoll system with high-grade vein style mineralization that we think will really change the economics of this project going forward. So on balance, what we think that we've got here is a far stronger, more solid foundation with great opportunities to enhance this as we move forward.

Any 43-101 is a snapshot in time. It takes current understanding of costs, current understanding of the geology and the mineral system. The evolution of this project going forward, we see opportunity to reduce costs, change the capital format of the development of underground, change the underground to even look at certain underground mining techniques that could benefit this project. So the amount of benefits that we still have in front of us are considerable. We're looking forward to moving through the next couple of years and transitioning this into a long-term, stable underground producer.

So one thing I'll note about our 43-101. Normally, when you release the results, you have 45 days to file a report. We anticipate having our report filed within a day or 2 of this call. So you shouldn't have to wait very long before you can see the entire report and all the details that went into the work that was done. So within a couple of days, tomorrow -- maybe tomorrow or before the end of the week, we should have that 43-101 filed.

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Thank you, Ron. Chris, maybe you could talk to the balance sheet and the year end -- for quarter end.

--------------------------------------------------------------------------------

Christopher Stackhouse, Guyana Goldfields Inc. - VP & Interim CFO [6]

--------------------------------------------------------------------------------

Thank you, Scott. So first, I'll take everyone through the consolidated balance sheet, which continues to be one of the strongest balance sheets in our peer group.

We ended the year with $82 million of cash, $40 million of debt, which is repayable over the next 2 years, in even payments. The balance sheet health is further emphasized by a net working -- a net positive working capital of $101 million. Major components of that are the $82 million of cash, I just mentioned. We have $37 million of parts and supplies inventory, $19 million of stockpiles and gold and circuit inventories and $9 million of other receivables in current assets. Offset by $20 million of our current loan receivable and $26 million of current accounts payable and accrued liabilities.

I'd like to note in that the parts and supplies inventory balance is higher than management would like to see. Reducing this number is a key focus area of management, to free up additional cash flow through 2019. The current receivables largely reflect our VAT receivable balance from the government of Guyana. We were successful through the course of 2018 in recovering $1.5 million, and we're continuing to work with respective parties to collect further on that balance.

The restricted cash balance showing of $3 million is a condition of our current loan facility. We are required to set aside capital to fund the mine closure at a rate of $1 million a year up to $5 million. The net book value of mineral properties and fixed plant assets at year-end was $308 million. The additions through the year were primarily, as Scott described earlier, the plant expansion capital, capitalized deferred stripping and mine fleet capacity -- additional mine fleet capacity.

The deferred tax asset you see on the balance sheet relates to recognized tax losses that relate to costs incurred in Guyana to develop the Aurora Mine and other noncurrent assets of $5 million related to supplier advances and other receivables.

Accounts payable and accrued liabilities up $26 million increased largely year-over-year due to better terms negotiated with suppliers, increase in our production rates and timing of payments at year-end. As I mentioned previously, we have $40 million of debt outstanding, which is payable in $5 million increments over the next 8 quarters with our next payment due next week, March 31, 2019.

Now moving on to the income statement. So through the course of the year, we sold just over 148,000 ounces of gold at an average price of $1,266 per ounce, for total revenues of $188 million. The average gold realized of $1,266 per ounce was in line with the London spot market average of $1,269 per ounce. Production costs were up 17% from prior year on roughly the same amount of gold ounces produced. However, mine and mill production levels were up significantly on respective tonnage. That's a long way of saying a lot more tonnes with lower grade.

While production volumes increased, so did our average unit costs through the course of the year. Management has multiple initiatives in place right now to drive our unit costs down, some of which you would have already read about in our recent press releases. Overall earnings from mine operations were down year-over-year from $58 million to $37 million. This was a result of the lower grade experience through the year, combined with the higher production costs I just described.

Corporate G&A and exploration costs combined were relatively consistent year-over-year. You will note a new line in the P&L for restructuring expense for roughly $4 million. This relates to costs associated with management changes that have taken place at the corporate and operations level through 2018. I'd like to point out that these initiatives have continued into the first quarter of 2019 as we actively work to restructure our long-term cost profile of the operation. This is one of the many cost reduction initiatives I mentioned previously.

Net finance expense of $5.5 million for the year is a culmination of our debt interest payments and realized and unrealized gains and losses on our long-term diesel swaps that we've entered into. And finally, worth noting, the bottom of the P&L. In the third quarter, we liquidated our marketable securities holding in SolGold for total accounting gain and other comprehensive income of $21.5 million, which is net of tax impact. Given we have ample tax shelter at the Canadian level, we had no cash tax payable on the transaction. As such, we grossed $35.5 million of proceeds from this sale. As a reminder, the initial investment in cost basis on that investment was $10 million.

Lastly, on to the cash flow, I just want to point out some of the highlights. Cash generated from operations for 2018 was $55 million. Although we had our challenges, this is still testament to the quality of the asset, producing significant positive cash flow. That could be the same for every -- the same could be said for every quarter. Since the commencement of commercial production 3 years ago, the company has posted 12 consecutive quarters of positive cash flow from operations.

Investing cash flows were made up of the fixed asset additions I described previously, along with the proceeds of $35 million from the sale of SolGold. And through financing activities, you'll see we paid down another $20 million of debt through the course of the year. Overall cash was up through the 12 months ended December 31 by $6 million. That was after significant investment in fixed assets to help unlock further value in the Aurora asset, paying down our debt by $20 million and leaving our balance sheet in a strong position going forward.

So I think, with that, I'll hand it back to Scott. We're happy to take any questions during the Q&A period.

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

Yes. At this stage, I think, of the call, we will turn it over to question-and-answer, and we'll try to answer any questions you might have about 2018 or the life of mine plan.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Daniel McConvey of Rossport Investments.

--------------------------------------------------------------------------------

Daniel McConvey, [2]

--------------------------------------------------------------------------------

Thank you for post on the presentation on the website. That was helpful. Two questions. First one on the inferred grade for the underground. You doubled the tonnes and the grade has gone down by half. I know it's inferred, but what was the process in that adjustment?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Ron, maybe you could explain that.

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [4]

--------------------------------------------------------------------------------

Yes. The process, Dan, is that we used $1,500 an ounce gold price for our resource estimation. And in terms of the mining, the cut-off grade for Rory's Knoll underground went down to 1.2 with that gold price. So more inferred at a lower grade gets baked into the resource estimate, but, as you point out, they are inferred.

--------------------------------------------------------------------------------

Daniel McConvey, [5]

--------------------------------------------------------------------------------

But the grade -- the ounces stayed roughly the same. The tonnes went up -- tonnes doubled, and the grade went down by 50%. So why the grade reduction?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [6]

--------------------------------------------------------------------------------

Like I said, we applied a gold price of $1,500 at our 1.2 gram per tonne cut-off for underground that -- at Rory's Knoll. The grade, obviously, will go down.

--------------------------------------------------------------------------------

Daniel McConvey, [7]

--------------------------------------------------------------------------------

Why -- okay. But why have the ounces gone -- why have the ounces stayed the same if you've doubled the tonnage? This is another way to ask the question.

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [8]

--------------------------------------------------------------------------------

Okay. So ultimately, the tonnes at Rory's Knoll, as I pointed out, didn't really change that much. The system itself is -- was fixed geologically. The Rory's Knoll is an intrusive, and we've got it pretty well defined. When you get down to the inferred and the inferred goes down considerably below where our mining is contemplated, there is not a lot of drilling down there. The change in the resource estimation parameters together with, as I mentioned, the gold price and cut-off grade, the grade comes down. I don't anticipate that the mineralization changes that dramatically. It's probably more of a function of drill spacing and the modeling parameters.

--------------------------------------------------------------------------------

Daniel McConvey, [9]

--------------------------------------------------------------------------------

Okay. But I'm still -- I'll go on to the next question, but I'm still confused as to how you kept the ounces same. And if you increase the gold price to $1,500, you should have more ounces, not the same ounces with half the grade. That's what I want to know. So there's been -- it seems to me there's been a grade adjustment downwards. The second question, Scott, just, if you look at your mine plan the way it is now and hopefully it improves, the free cash flow generation next 2, 3 years is challenged. It's been also -- everyone's going to be looking just to can you get through this without having to issue equity, so that's a concern. And with that comes -- to me, what it comes down to is how good is the -- how much scrutiny was given to the underground technical report -- we'll see that in a couple of days, but did RPA -- they reviewed the reserves and resources. Did they review the cost? And what kind of costs and scrutiny was given to the underground development in the mine plan?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Well, I'll start with that. But yes, RPA did review the cost, the cost associated with not only underground, but surface and milling, but underground. They also reviewed productivity. So, whether it be advance rates. So they reviewed productivity, which obviously drives your cost and your development schedule. But yes, RPA, essentially, reworked the underground mine plan looking at all of the parameters, like I said cost, development rates or productivity rates, ultimate mining rates for various mining methods from various zones, a full detail on the underground mine. And that -- you'll see that when you read the report here in a few days.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question comes from Mark Mihaljevic of RBC.

--------------------------------------------------------------------------------

Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Analyst [12]

--------------------------------------------------------------------------------

A few questions for me. So I guess, sticking with the underground theme. Can you just give us a breakdown of what percentage of the reserve you expect to take out with long hole stoping versus the sublevel retreat or caving?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [13]

--------------------------------------------------------------------------------

Ron, do you have an idea? I mean, that will be in the 43-101. Obviously, most of the tonnage comes from the -- at this stage of the game we're thinking the sublevel retreat, but, Ron, do you have a -- on -- have it?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [14]

--------------------------------------------------------------------------------

Yes. 90% of the tonnes for the underground comes from Rory's Knoll. And the amount -- the division between sublevel cave and the stoping, I don't have that number off the top of my head, but it's just the upper levels that we're looking at stoping that area as we develop into the sublevel cave. And we're in full production by 2022, I believe, from Rory's Knoll. So it's not a big amount of stoping out of Rory's Knoll, and 90% of the reserves for underground come out of Rory's Knoll. So most of it is sublevel cave.

--------------------------------------------------------------------------------

Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Analyst [15]

--------------------------------------------------------------------------------

And I guess, just a follow-up to that. Has your -- have your thoughts on the sublevel caving changed given the reinterpretation that you've seen? Or are you still comfortable with, I guess, kind of a relatively similar mining methodology to what you'd outlined last year?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [16]

--------------------------------------------------------------------------------

Yes. At this stage, we're pretty comfortable with using that as our base case assumption. Obviously, there's things to learn, and we will consider different opportunities or different mining methods, once we get down there. But right now, there's no reason to change that. Rory's Knoll, as I've said, the geology of that area hasn't changed. We know that it's 150, 175 meter diameter stop that is mineralized. And so, from our point of view of this study, the sublevel cave was the base case that we ran with.

--------------------------------------------------------------------------------

Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Analyst [17]

--------------------------------------------------------------------------------

And then, I guess, you mentioned some more conservative parameters now with the resource model. Just wondered if you could tell us how the resource model would compare to the historical updates or to the historical performance you've actually seen? Are you actually conservative relative to that or are you pretty well dialed in on, I guess, the 3 years of actual data that we have?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [18]

--------------------------------------------------------------------------------

What we've seen from the comparison between the new model and our production is that we're pretty much spot on in terms of grade. There's a little bit lower tonnes, so it's a conservative measure on tonnes, but there's always sort of -- when you go and mine a system, you end up having more tonnes of low-grade material that you end up seeing. So the grade, we've got that dialed in pretty well. The tonnes are a little bit conservative.

--------------------------------------------------------------------------------

Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Analyst [19]

--------------------------------------------------------------------------------

And then, I guess, you also mentioned a few changes to the operating parameters for the open pit. So changing slope angles, dilution assumptions, mining recoveries. Can you just give us some more detail? Obviously, we'll get the full update with the technical report, but if you can just give us some high-level details.

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [20]

--------------------------------------------------------------------------------

Yes, pit slopes didn't really change too much. The geotechnical engineering that we've had at the project has been fairly comprehensive. And so, the slopes didn't change. The major changes that we've made -- because of the changes in our geologic interpretation going from a shear related model into a fold related model, the dilution and mining loss factors in the volcanic area changed more dramatically than anything in Rory's Knoll. Rory's Knoll is a pretty good ore body from an open pit mining point of view, because it's relatively broad, and the grade is distributed relatively evenly across the mining [phase]. So you don't get a lot of external dilution or extraction losses in Rory's Knoll so much. But in the volcanics, where we have tighter folds and more vein style mineralization, the dilution and mining loss factors obviously went up. And that was one of the reasons that the open pit, especially at Aleck Hill, took a big hit, quite frankly. The geology over at Aleck Hill is considerably different than what was assumed previously. We've seen that now that we're through the saprolite and into the fresh rock, and so the dilution and mine loss factors there were higher. I just don't have those numbers off the top of my head.

--------------------------------------------------------------------------------

Mark Mihaljevic, RBC Capital Markets, LLC, Research Division - Analyst [21]

--------------------------------------------------------------------------------

And then one last one for me. I guess, you guys have mentioned that you're comfortable with the balance sheet at current metal prices being able to sustain -- or being able to self-fund the underground development. I just wondered if you could give us a sense of kind of the amount of buffer you guys see either in terms of gold price that you're still comfortable down to or at least the dollar amount of buffer you see. And then kind of if we do see a drop in the metal price what lever do you see is a more of a resequencing of the capital? Or do you see it as trying to refinance the debt to give you some more breathing room there?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [22]

--------------------------------------------------------------------------------

I'll start with that, and then maybe Chris can give you little more specifics. This is Caldwell. But as you heard me say it earlier, at today's metal price, so let's just say $1,300, we can achieve all of our goals defined in the life of mine plan, including servicing the debt and things that aren't in the 43-101, such as exploration and corporate G&A. So we can service all of that and still accomplish the plan. You talk about if gold price was to drop, what levers? Obviously, we would slow down something, such as we wouldn't do any outside exploration, perhaps. We just have to look at it that time. So right now, we don't see any need to look at any sort of financing. We're always considering better options to reduce interest rates, et cetera. Chris, maybe you could add a little bit more color on what we see as these metal prices.

--------------------------------------------------------------------------------

Christopher Stackhouse, Guyana Goldfields Inc. - VP & Interim CFO [23]

--------------------------------------------------------------------------------

Yes, for sure. So you're exactly right. I think we have a few internal levers we can pull first. The open pit mine production schedule, there's some optimization opportunities there, we feel. The capital, the timing of capital, you'll see in the 43-101 for the underground development. I think is a little bit aggressive, so we may have some opportunities to spread that capital out and optimize the cash flows there. The project is sensitive to gold price. So the next lever we have to pull, and I've mentioned earlier, when I was walking through the income statement, reducing our cost profile helps with that. So there's a couple of the big hitters there for internal levers, and then Scott is exactly right. We're looking at and always looking at opportunities to keep our financing costs as low as possible and keep the balance sheet as healthy as possible.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Your next question comes from Trevor Turnbull of Scotiabank.

--------------------------------------------------------------------------------

Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Yes. I just wanted to go back a little bit on the underground mining costs. You were -- I think you provided a number, which is obviously a blended number for the different types of mining methods, the sublevel and the long hole. And we'll probably see it in the report. But can you just tell us roughly what the difference is cost per tonne for those two methods?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [26]

--------------------------------------------------------------------------------

Ron, do you recall off the -- of course, Trevor, it will be in the 43-101, so all the detail will be out. But Ron, do you recall the delta?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [27]

--------------------------------------------------------------------------------

Man, I'm going to get that one wrong if I try and pull numbers. Most of it -- like I said, most of the underground mining is sublevel caves, so it's highly skewed towards the sublevel cave operating cost. Let me get back to you on that, Trevor. I don't want to give you the wrong number. That's not going to help.

--------------------------------------------------------------------------------

Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [28]

--------------------------------------------------------------------------------

Yes. That's fine. I can wait for the report. I guess, I was also curious. Is there a good comparable in your mind to kind of a sublevel cave operation that we -- that you would look to when you're kind of thinking about how much those costs are going to come in at? Just in terms of other operations that might be running similar type of situations.

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [29]

--------------------------------------------------------------------------------

Trevor, this is Caldwell. Let me speak with the RPA engineers, and I'm sure they can give us a list. I'm thinking of a couple up in Nunavut area, the diamond mines. But the data there won't be real current, but I can get some mines that you might want to look at.

--------------------------------------------------------------------------------

Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [30]

--------------------------------------------------------------------------------

Okay. And then just also with respect to the underground. There was a lot of kind of noise with respect to the EPA, and you've got an exploration decline today, and at some point it needs to become a producing situation. Kind of what is the timing on talking to the government about converting that to mining as opposed to exploration? And was part of that just getting a new mine plan out there? Is that one of the hurdles you need to deal with first?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [31]

--------------------------------------------------------------------------------

This is Caldwell. What we wanted to do is obviously get this life of mine plan out, the RPA work completed and public. And then the mining method underground has not changed appreciably. The pit bottom is not as deep, so it's gone up a little bit. And so, we'll get that feasibility study in front of the government. And then we'll be talking about resuming work. We have not begun driving decline yet. We will mobilize shortly and then begin work on that again. And the idea of that program is to train some underground miners from Guyanese as well as gather the data that we just -- exploration, et cetera, trial mining, et cetera, is appropriate within the guidelines of the permit. But we will begin work on the required permit for the full-blown underground operation incorporating any new data we might gather, i.e. do we put more stopes in the plan, et cetera, as we get drilling and some other things done. So we'll begin working on that as soon as this report has been digested and communicated with the government, and then we'll begin working on the next permit. Have plenty of time in our belief to get the permit in time to achieve all these production goals.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Your next question comes from Don Blyth of Paradigm.

--------------------------------------------------------------------------------

Don M. Blyth, Paradigm Capital Inc., Research Division - Analyst of Gold [33]

--------------------------------------------------------------------------------

Actually Trevor asked the main question, was about the underground work. But you say you feel you have plenty of time with the big haircut on the open [pit] reserves, obviously, it does make the underground all the more critical for you. What are the critical time lines we should be watching for given that you start in 2020 with some underground, and then about 2021 you're getting into it full-time? So what should be we watching for in terms of milestones on the -- permitting-wise?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [34]

--------------------------------------------------------------------------------

Sure. Well first, I'll back up a little bit. Obviously, a key milestone is to begin drilling and blasting and development on the drift, which is imminent on the decline. So that would be something I would watch for when we start to begin work on that. We're hoping to get a technology center, i.e. trial mining methods and training center started late in the year, early next year to start to -- that would be at the Mad Kiss deposit. That's something to look at. And that's in our exploration permit to -- the construction permit to do some training and test mining both metallurgical sampling, et cetera, backfill methodology, all the things you want to get hands-on experience with. On the permitting side, really what we'll need to do is get the -- and we'll give updates as we move forward with the permit required for the underground mine. And obviously it will get adjusted as we get data from exploration drilling and select the ultimate mining methods for a given zone. And so, we will be working through that as we drive down to the minus 2,500 level -- excuse me, a total of 2,500 meters about the minus 200 level, which is the bottom of the vent raises. And so that's about an 18 month horizon as we work through this and start to begin developing. So it's going to just be the status on this -- the final permits required to get into commercial production on the underground. And we've got a plan on getting that. And as we start to get more resolution on this, of course, we're working with regulators, and they have their process and their systems to go through. And so, you never try to predict exactly when you'll get a permit, but it is the future. And I think we're all the stakeholders, obviously, Guyana Goldfields, our employees, our contractors and -- support there, and, of course, the regulators. They have a system and a process to go through very similar to the systems that we're used to working with, the regulations we're used to working with in North America and elsewhere in the world. So we'll work through them, and I think it's going to be a successful effort, and it's just going to take some time.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Your next question comes from Kip Keen of S&P.

--------------------------------------------------------------------------------

Kip Keen, S&P Global Market Intelligence Metals & Mining - Research Analyst [36]

--------------------------------------------------------------------------------

Yes. Just wondering if you could just provide a few more details on what went wrong with the 2018 reserves in terms of how the new grade was higher than you guys have put out in this report. You mentioned a matter of potentially dilution -- internal dilution. So how does that miss the original report -- previous report?

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [37]

--------------------------------------------------------------------------------

Scott, do you want me to answer that one?

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [38]

--------------------------------------------------------------------------------

Yes. You could, yes, talk to that, but we also -- just to recap. We had a mining issues. We were not able to mine tonnes as required. So we had to feed low-grade stockpiles, not related to the resource. And Ron, maybe you can handle the resource question.

--------------------------------------------------------------------------------

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [39]

--------------------------------------------------------------------------------

Yes, that's fine. In terms of the resource, the parameters or the way it was previously modeled in Rory's Knoll, there was a subdomain of high grade that was plus 5 grams per tonne that was modeled uniquely as a subdomain. So it had a hard boundary to estimate grades within that at plus 5 grams per tonne. But they had a porous boundary out of that high-grade domain, so they allowed the high-grade data to influence blocks outside of that. And similarly, in that same area, they had an internal waste domain where they excluded assays from influencing block grades. So the combination of the two subdomains in Rory's Knoll, the high-grade subdomain, treatment of data and the low grade or the waste rather, internal waste subdomain, conspired to inflate grades in a local area. We hadn't seen that kind of problem previously further up -- higher up in the open pit, because the drill density was just so tight that no matter what was done from a resource modeling point of view it didn't go awry. But when we got into Q4, we got into an area where there was just some particularly high-grade exploration holes that populated blocks, inflated the grade. So that was the local grade problem that we had and experienced in Q4.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

There are no further questions at this time. Please proceed.

--------------------------------------------------------------------------------

Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [41]

--------------------------------------------------------------------------------

This is Scott. So in conclusion, we have a new life of mine plan developed by ourselves and primarily RPA. It's a very rigorous review/a total rework of all aspects of the plan. And I believe it's created a solid platform for the future of the company. We have the balance sheet to finance the plan at today's metal prices and so to finance the plan from internal cash flow with today's spot prices on gold. And I think just as importantly or more importantly, we have a group of stakeholders, and I'm referring to all of the stakeholders, employees of AGM, the various international experts and consultants that we use, I'm talking about STRACON and JDS and I guess [Longet] and other contractors and suppliers, local contractors, such as Japarts and other people that work on the road for us. We've got numerous companies, too many to name, that are helping us locally, suppliers. And probably, most importantly, it's all the men and women from all of that team that are working day in, day out in the field, committed to safety and executing the plan -- the new business plan. We've got a lot of enthusiastic Guyanese men and women that are really excited about learning how to work and becoming underground technicians whether that be miners or health safety professionals or environmental professionals. So we're committed to executing this plan. And finally, I would like to thank you for spending your morning with us. And as Ron mentioned, the 43-101 will be out in a few days. And of course, with that report, please take a look at it, give us a call, and we'll be glad to try and answer any questions that you may have related to the report. So thanks, again, and we'll talk soon.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.