U.S. Markets closed

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

Q2 2019 Guyana Goldfields Inc Earnings Call

TORONTO Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Guyana Goldfields Inc earnings conference call or presentation Wednesday, July 31, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Christopher Stackhouse

Guyana Goldfields Inc. - 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 Caldwell

* Suresh Kalathil

Guyana Goldfields Inc. - Senior VP & COO

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

Conference Call Participants

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

* Daniel McConvey

Rossport Investments LLC - Founder & Portfolio Manager

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

Presentation

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

Operator [1]

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

Good morning, ladies and gentlemen, and welcome to the Guyana Goldfields, Inc. Second Quarter 2019 Operational and Financial Results Conference Call. (Operator Instructions) This call is being recorded on Wednesday, July 31, 2019.

And 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, Joanna. Welcome, and thank you, everyone, for joining our second quarter 2019 operational and financial results conference call. Reviewing the second quarter results on the line today are Scott Caldwell, President and CEO; Chris Stackhouse, Interim CFO; and Ron Stewart, Senior Vice President, Technical Services and Corporate Development. In addition to these individuals, René Marion, Nonexecutive Chair, Allen Palmiere, incoming Interim CEO; and Suresh Kalathil, Senior Vice President and Chief Operating Officer, will also be available to answer any 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 financial 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 Scott to review the results.

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

Scott Caldwell, [3]

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

Thank you, Jacqueline. And I'm going to start -- as you know, I'll be stepping down as President and CEO and a Director effective close of business today. I'd first like to thank the Guyana Goldfields team and the entire Board of Directors for their support over the last few years. And I want everyone to know that I'm really looking forward to supporting the company as a shareholder, and I really remain confident and excited about the long-term future of the Aurora Gold Mine.

Allen is going to assume the leadership of the company as interim Chief Executive Officer effective at the close of business today. Allen has the experience. He's demonstrated the skills required for this role, and I'm confident that Allen will do a great job in this role. I support the change, the time is right, and Allen is the guy for the job. So I'm really looking forward to seeing Allen's success in the near future.

On to the first quarter. I always like to start with health and safety. I can't say enough good things about the men and women working in the field. They continue to do a great job in the health and safety front. The team has accumulated over 2 million hours work without a lost time injury. And we are remote in some adverse conditions when it rains, so that's quite a feat for us to do that for that team, and my hat's off to them.

Production Q1. The gold was -- gold production was about 37,000 ounces, amounting to 74,000 ounces in the first half. And we're in -- on line to hit our production range guidance of 145,000 to 160,000, the lower end of that guidance.

Record quarterly mill performance of 7,800 tonnes per day. That's a 10% increase over the same period, the second quarter of 2018. Our head grade was approximately 1.8 grams per tonne.

Underground decline construction resumed in the quarter, and we're -- by the end of the month, end of the quarter, we advanced about 164 meters in the vertical. So we're only at, say, 10 or 15 meters in depth, but that's going well. We continue to advance on the drift.

Unfortunately, on the 2nd of July, the company experienced a work stoppage. The stoppage started on the 2nd to the Aurora mine. And a portion of the workforce blocked delivery of order to the mill. The work stoppage lasted 3 days, employees returning to work on July 5. And the result of these operational days lost, the company estimates -- we didn't know -- about 25,000 -- 22,000 tonnes, excuse me. It was a nonviolent stoppage. There was no violence, no equipment damage, but still a stoppage that was unplanned and resulted in not being able to mill ore for 3 days.

Looking out to the full year. The company expects the full year gold production to come in towards the low end of its previously stated guidance of 145,000 to 160,000 ounces of gold. During the third quarter, the plan calls for approximately half of the mill feed to be sourced from stockpiles due to sequencing of the pit phases of Rory's Knoll. As a result, the second half of the year will be back-end weighted, with the fourth quarter accounting for approximately 60% of the forecast ounces.

Cash cost per ounce for -- before royalty for the second half of the year is expected to be within the previously stated range guidance of $800 to $850 an ounce. Third quarter cash costs per ounce are expected to be approximately 20% higher, again due to the feeding of low-grade material in the third quarter. It was always in the plan. It's planned. It's expected. It's just the sequencing of mining at Rory's Knoll that we experience every year or on a regular basis as we go through our various pushbacks.

ASIC (sic) [AISC] for the second half of the year is expected to be roughly in line with the year-to-date average. While ASIC for the third quarter is approximately 5% higher than that of the first half. That's due to limited ore, more waste stripping and feeding of stockpile material. And Chris can go through that in a little more detail. But really, it's a function of higher stripping, fewer tonnes out of the pit, lower ounces because of feeding the low grade. Open pit mining rates, targeted rate is right around 64,000 tonnes a day. We expect to be in line with that through the rest of the year.

With that, I'm going to hand it off to Chris. And Chris will spend a few minutes talking about the financials of the company.

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

Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [4]

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

Thanks, Scott, and thanks, everyone, for joining us. So I'm going to, as in previous quarters, look at the balance sheet and the income statement. Of course, if anyone has any questions, we're happy to take them at the end of the presentation.

So we now go at the top of the balance sheet. Our cash has declined by $37 million from the year-end balance. That's effectively -- that $37 million is effectively being driven by the debt repayment that we announced in early April. So we start -- we ended the year -- ended last year with $40 million of debt on the balance sheet. And as of June 30, we've fully repaid our debt facility, so that $40 million has been extinguished through the course of April.

You'll note a significant decline in inventories. That's being driven by stockpile reliance. So late in the second quarter, we started drawing down our ore stockpiles, as Scott mentioned, and we'll continue to be drawing those down through the third quarter. So I think we can expect to see a decline in our inventories related to stockpiles through the third quarter as well.

There is a new caption, assets held for sale, on the balance sheet. So we discussed previously, we're constantly looking at the balance sheet for any suboptimal assets that aren't providing the appropriate total rate of return. And so we had discussed previously and made the decision in the quarter to sell the Twin Otter operational bush plane. And so that's -- that was available for sale at June 30. But worth noting, the sale was and disposal was finalized in early July. So that $2.9 million was realized into a cash sale in the third -- early in the third quarter.

You'll see an increase in mineral property -- mineral properties, plant and equipment. As usual, the big driver in addition there is the deferred stripping related to the highest stripping ratio that is -- to release ore in the future. But we do have the Phase 2 plant expansion in there as well that was finished in the first quarter. And of course, the underground exploration decline is in there as well amongst some other miscellaneous in addition to the mobile equipment fleet.

And further down the balance sheet, accounts payable and accrued liability is relatively flat from year-end. You will notice right below that, restructuring provision. That has around $3.5 million increase. That is related to the ongoing restructuring primarily related to management but restructuring of the team and the Aurora operation to provide additional value to the operation going forward.

The only other thing to note on the balance sheet, as I mentioned, when I was talking about cash, that at year-end, we had the $40 million of debt. So you'll see that in the comparable at December 31. And as of June 30, no long-term or current portion of the debt remains on the balance sheet. So the balance sheet, $38 million -- $39 million of cash, no debt, so lots of flexibility, more than enough working capital. And so it's a healthy balance sheet that can take on leverage if required.

We move on to the income statement. You see revenues quarter and year-to-date versus the comparable periods are higher. That's mostly benefiting from the higher gold price that we're currently experiencing, and appreciate, of course. So that was on 38,500 and 76,500 ounces sold at quarter and year-to-date.

We've talked about our slight increase in operating cost profile. You will notice our operating -- earnings from mine operations for the quarter is around $5 million, but also for the year-to-date, it's around $5 million. So that -- you'll remember, in the first quarter, we basically broke even at our earnings from operations. So the cost initiatives that we have in place, although slower to realize, you will see that they are taking effect as the second quarter is at a greater gross margin than the first quarter. And that's just reflective of an improved operating cost profile.

Exploration and evaluation expense, although a small number for the current quarter, I just want to point out the dollar spend are actually materially higher. And it's just the nature of the type of exploration that we're doing. As Ron's previously mentioned, we've converted -- transitioned our exploration program from a greenfields, bringing it back closer to site. And the accounting treatment for the dollar spend is just slightly different. We capitalized infill drilling, and exploration, definition drilling is capitalized to mineral properties. So the P&L, although it's $200,000 and $0.5 million spend year-to-date, the actual number is closer to $1.8 million of expenditure year-to-date on our exploration program.

So let's take -- go down to the bottom. So you can see we did post a net loss for the quarter. Although positive earnings from operations, we're burdened by restructuring provision. There were costs that are buried in the corporate G&A associated with the proxy battle and settlement that happened early in the second quarter. So with normalizing those 2 line items, there's a reasonable expectation to return to net profitability in the near future.

I'm not going to spend any time on the cash flow statement, the -- other than the operations has produced again $15 million positive cash from operations, which has been the story, I think, every quarter since the commencement of commercial operations 3 years ago. So that's a good news story. Most of the cash is consumed through debt repayments and capital investments. With no more debt to pay in front of us, the cash flows will no longer be burdened by financing -- with the cost of -- the payments associated with loan facilities going forward.

And I think that's it for the financials and highlights for the quarter. I'm passing -- I think I'll pass it on to Ron to give us an update on exploration.

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

Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [5]

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

Thank you, Chris. Yes. Thanks, Chris. As he mentioned, we've been focusing our exploration activities during the first half of the year at the mine site. We continue to enjoy success from the exploration front. We drilled 18 holes for just over 5,000 meters in Q3 -- or Q2 rather. Our plan and objectives for this activity is to focus on 2 things: one, shallow open pit oxide targets that we can feed into the mill; and to continue to pursue the high-grade ore shoots underneath our satellite ore bodies on site. And we have success on both of those fronts.

The report, MD&A report, highlights the drilling that we did at North Aleck Hill. That was an area that was a small satellite that was -- had been identified in Q4. We put a pilot road into that target area of that small resource. And we've successfully transitioned it into an operating little satellite pit through the first half of the year and have been drilling the system at depth. You can see the results from the report show that mineralization does extend that depth. We're continuing to assess the opportunity for extended mineralization at North Aleck Hill, and we're looking at other small satellite opportunities that we can incrementally feed into the mill.

In respect of the deep drilling that we're doing beneath the targets, in the quarter, we released a fairly impressive hole from Mad Kiss that was about just over 6.1 grams over 300 meters. We intentionally drilled that hole down the dip of a quartz-feldspar porphyry dike that is well mineralized. We know that, that dike is well mineralized. We were looking for the dip dimensions and trying to understand that dip continuity of high-grade mineralization along that plane. We then turned around and drilled 3 holes across that same area that we got the large intercept in. And those are reported in the MD&A: Holes 184, 192 and 188. And they all intercepted very, very good mineralization. 184, for example, 14 grams over 5.9 meters; 192, 19.4 meters (sic) [19.4 grams] over 12.2 meters; and 188, we got 2.5 grams (sic) [2.3 grams] over 17.7 meters.

Those results drilled across the mineralization, across that large, lengthy intercept, demonstrate that there is both -- we've got now 2 dimensions on this mineralization that there's good dip continuity of high grade and that there is some lateral size to this dike system at depth. So our thesis is being proven that we anticipate this area is going to be very productive from an underground mining point of view. And so we're looking forward to getting the ramp down into Mad Kiss, which we should see towards the end of the year and be able to start selling out on that ore zone.

Later on in the quarter, we started drilling at East Walcott. We've got a couple of drill results we reported from East Walcott. But what I'm really quite enthusiastic about is we did a drill test 175 meters below anything that we had previously tested at East Walcott. That hole intercepted our mineralized system where we had anticipated. We can see the mineralization is quite visual. We have partial assay results. And again, this defends our thesis that the mineralization in these shoots extends at depth. So we're going to follow that drilling up. We'll report the results when I've got all of them, but our mineralization is fairly simple to see. So we're relatively confident that this is going to be an extension to that ore zone at East Walcott.

So our work in the first half was always meant to focus on those 2 objectives. Through the second half, we will transition to underground drilling when the ramp is developed far enough for us to get an underground around rig into the mine. We've let a new contract for our drilling, someone, a contractor that has capability of doing surface drilling. We've got a larger RC rig coming on to site, and an underground rig will be commissioned in site in Q3.

So as we move forward in the back half of the year, the plan was always to transition our exploration work to a phase of underground work. And meanwhile, we've been assessing the regional projects, the ground outside of the mining license and outside of the Golden Mile at Aurora. We've compiled all of those records, and we'll begin that work in earnest in the second half, probably into the fourth quarter. So we've got a lot of things on the go in exploration, and it continues to deliver success, which doesn't surprise us.

I'll leave it at that and pass back to you, Scott.

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

Scott Caldwell, [6]

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

Thank you, Ron. And with that, I'll open the call up to any questions you might have.

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

Questions and Answers

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

Operator [1]

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

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

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

Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [2]

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

Chris, I have a question for you on potential hedging with your limited credit capacity. What is the -- if you wanted to -- I not saying you should, but if you wanted to hedge, what do you -- are you constrained much right now by your balance sheet with counterparties?

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

Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [3]

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

No. Well, the asset and security are all -- become unencumbered through the retirement of the debt. So we have availability to take on -- if we needed to secure a hedging program, we can -- I think we have a lot of flexibility there. We are looking and actively exploring various options, just on what makes sense for the company in this market with the development schedule of the underground ahead of us. It is being considered and reviewed, and I don't see any roadblocks in the way of any of the strategies we look at to execute on.

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

Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [4]

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

Okay. On that note, you were looking at getting a facility, at least access to one, continuously. Is -- how is that going the ability to have an undrawn facility for backup?

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

Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [5]

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

Right. So I'd say we are in advanced discussions with multiple parties. The market is, I think, favorable right now. One, with the run-up in gold price, there is more money available for gold mining companies. And we are -- I think we have some attractive options on the table. We just want to ensure that we execute on the one that makes the most sense for the company and its shareholders.

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

Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [6]

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

Okay. So you're seeing a few options. Scott, can you just give us an update on the cost reduction efforts? I understand the strike was related to an effort to cut costs, et cetera. But what kinds of things are going on, on the ground to reduce costs? And to see a fair bit -- obviously, you gave us -- the presentation gives a flavor of it, but your confidence level that costs can be reduced over the next couple of years.

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

Scott Caldwell, [7]

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

Sure. First off, I'll speak to the labor issue. There was a number of demands on the labor issue. And it's from very significant, on things like pay, to insignificant things. There was a number of demands there. And it was a 3-day work stoppage. It was nonviolent. There was no equipment damage. There was no injuries, quite frankly, fairly orderly. But we did have a labor stoppage. And on the cost savings initiatives, and maybe I'll hand that off to you, Suresh, and you could talk about some of the things that you're working on from explosives to fuel to et cetera.

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

Suresh Kalathil, Guyana Goldfields Inc. - Senior VP & COO [8]

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

On the costs, actually, we are working on a few fronts, one is productivity-based, that's the operational; the other is supply chain-based. On the productivity-based, it's unit cost on drilling efficiencies, equipment productivity, availability and utilization. And on the supply chain front, working on contracts, especially with explosives, reagents, cyanide, fuel. So basically, working on all these cost fronts to optimize the cost. A lot of work is also being done on manpower productivities. So yes, on the cost front, a lot of work is being done to optimize the costs and to get into a system of capacity utilization.

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

Scott Caldwell, [9]

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

Thank you, Suresh. One thing I would point out is that the cost measures that Suresh is talking about are not advancing as we originally thought for a variety of reasons. But there is concrete progress being made, items like the explosives that Suresh touched on, and ammonium nitrate emulsion blend is -- we're successfully using an 80-20 blend now that reduced costs. So there's things happening. Unfortunately, we just didn't get them accomplished as quickly as we thought that they'll advance, continue to advance on a daily basis. And I think you'll start to see those fruits of those efforts in the -- later in the year.

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

Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [10]

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

Okay. The confidence level you and Suresh have in terms of reducing costs over time are still as high as they were a few months ago.

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

Suresh Kalathil, Guyana Goldfields Inc. - Senior VP & COO [11]

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

Absolutely. We've got full confidence in reducing these costs because we are actually working on the unit cost of production, so yes.

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

Operator [12]

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

(Operator Instructions) There are no further questions at this time. You may proceed.

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

Scott Caldwell, [13]

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

So first, I'd like to thank all of you for spending a few minutes out of your day today with the team. I appreciate that.

And in closing, I'd like to emphasize how excited I am about the future of the Aurora Gold Mine and the company. I think under Allen's leadership, in the short term, it's going to do good things. And in the long term, I'm very confident of the success. And I look forward to supporting the company as a shareholder long into the future. But thank you very much, and have a great day.

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

Operator [14]

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

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