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Edited Transcript of GUY.TO earnings conference call or presentation 1-May-19 2:00pm GMT

Q1 2019 Guyana Goldfields Inc Earnings Call

TORONTO May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Guyana Goldfields Inc earnings conference call or presentation Wednesday, May 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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 Andrew Caldwell

Guyana Goldfields Inc. - President, CEO & Director

* Suresh Kalathil

Guyana Goldfields Inc. - Senior VP & COO

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Conference Call Participants

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* Trevor Turnbull

Scotiabank Global Banking and Markets, Research Division - Analyst

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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 Q1 2019 Operating and Financial Results Conference Call. (Operator Instructions) This call is being recorded on Wednesday, May 1, 2019.

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

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

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Thank you, Joanna. Welcome, and thank you, everyone, for joining our first quarter 2019 operational and financial results and life-of-mine plan optimization conference call. On the line today are Scott Caldwell, President and CEO; Suresh Kalathil, Senior Vice President and Chief Operating Officer; Chris Stackhouse, Interim Chief Financial Officer; and Ron Stewart, Senior Vice President, Technical Services and Corporate Development, who will review results and following this will be available to answer any questions at the end of the call.

Yesterday's press release is available for viewing on our 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 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.

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

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Thank you, Jacqueline, and good morning, everyone, and thank you for joining us on the call this morning. I'm going to give you a brief summary and then pass it off to Suresh. But we produced 36,000 -- a little over 36,000 ounces, so we're on track to hit our guidance of 145,000 to 160,000. On the 30th of April, we elected to retire our loan balances, so we've paid down our entire loan of $35 million that we always talk about, the facility. And Chris Stackhouse will go through that in a little more detail later in the presentation. And then the third point that I'd like to mention is that we did issue a Mineral Resource and Reserve estimate life-of-mine plan that was offered by Roscoe Postle Associates, and we have -- since then management has identified the additional opportunities that fell outside of the scope of the study. And we're going to have a session today at 1 p.m. here in Toronto, and I hope you can all make that session, either via calling in or video or Internet or attend in person, and we'll go through the details of that optimized life-of-mine plan there. And you'll have an opportunity to meet some of our key staff. We've got a number of very talented Guyanese individuals that are up -- professionals that are up for a few days, and they're going to be at that session. And of course, Suresh will be there and Perry Holloway.

In our restructuring in Guyana, we've really been focusing on advancement and the promotion of some highly skilled Guyanese. It's been part of our training and development program, and there's an opportunity at 1:00 to meet a number of those individuals.

Head office, same thing, significantly strengthening that. An example would be Suresh and Perry.

And with that, Suresh, I'll turn it over to you, and you can talk about operating performance for the first quarter.

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Suresh Kalathil, Guyana Goldfields Inc. - Senior VP & COO [4]

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Thanks, Scott. For the -- particularly for the first quarter 2019 finances -- operation and finances report. On the gold production front, we produced 36,600 ounces, well within the guidance. So we were between the guidance of 145,000 to 160,000 ounces. [Goldfields] was around 38,000 ounces. On the ore mined, we've produced around 502,000 tonnes for the quarter with [mined gold] 5 million and a total mined of 5.5 million tonnes for the quarter at a strip ratio of 10. Total tonnes mined for the day was around 61,500 -- well, almost -- above the Q1 of 36,489 tonnes. Ore processed was 649,000 tonnes against 605,000 for Q1 2018, and total tonnes processed per day was 7,200 tonnes. The head grade was 1.94 and a recovery of 90.5%. So we actually significantly improved our mining and milling volumes compared to the previous year. A lot of optimizations have gone through that and pretty well in line with the volumes which we are talking of, and it's going pretty well.

On the throughput front, the grades have gone down a little bit. But again, it was partially offset with the increased throughput and at a lower strip ratio compared to the first quarter of 2018. Gold recovery averaged around 90.5% for the quarter compared to 91.7% a year later. The company actually completed the mill expansion. One of the very important things which we did during Q1 is the installation of the precrush, which was installed around the 25th of February. This increased our throughput almost by 10%. And compared to the Q1 performance [for 15th of] April is an improved performance, both on the mining volumes and the mining tonnages. On the -- a lot of work is being carried out on the optimization, principally on working on costs, productivities and efficiencies. The fundamental drivers being on -- working on the zero-harm, productivity, cost, life of mine and cash flow. So going forward, we are really strongly positioned for Q2, Q3 and Q4, sticking to the plan and working to get those numbers in.

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

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Chris, maybe you can talk about the loan retirement and the balance sheet a little bit?

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

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Perfect. Thanks, everyone. So I'm just going to start with the income statement then talk about our cash flows for the quarter and end with the balance sheet because that's the most material news for the quarter. Revenues for the quarter versus prior year quarter were about the same, $1 million lower. That was on the same number of ounces sold, the 38,000 that Suresh mentioned, but an average realized selling price of around $1 300, which was $30 lower than the comparative quarter in the prior year.

Cost of sales was about equal to revenues for the quarter, so net-net had a breakeven from mine operations for the quarter. The increasing cost of sales was driven by 2 primary factors, an increase in depreciation and an increase in production costs. The increase in depreciation is due to 2 things. One, we have we restated our resource and reserve, which drives the units of production, depreciation basis, so we have less ounces to depreciate over the life of mine. The second is we've invested a lot heavily into our fixed assets over the last 12 months, so we have a higher depreciation base to depreciate.

Production cost increased during the quarter, was primarily driven by mining costs. So we had increased mining rates, increased stripping ratio for the quarter as well as higher cost to mine. We had higher volumes of hard rock in the current quarter versus Q1 prior year, which drives drilling blast. And also, as we're deeper -- get deeper into the pit, the haul distances get longer.

Suresh touched on it, and I think we're going to go into a little more detail this afternoon, but we do have a number of cost reduction initiatives that have either already been executed on or identified to execute on through the remainder of the year. One of the big ones has been restructuring, which you can kind of see later in the P&L, of a key expat and management positions where we've identified local -- talented local Guyanese, as Scott mentioned. And that initiative is just about completely executed. We're also imminently awarding a new diesel contract which is going to source higher-quality fuel at a lower -- total lower cost of acquisition and transport. This, being the #1 input cost for both mining and processing, will certainly have a positive impact on our cost profile going forward.

And as we look to move towards our total contract mining at the Aurora open pit, we're forecasting to save around $0.25 to $0.50 per tonne of material moved. On a forecast of 20 million tonnes moved a year, that's going to translate into some material savings on the operations.

And as other key supply contracts come due this year, we're tendering and renegotiating with our suppliers. And one of the material ones that we see ahead of us is the explosives contract where we believe we can generate some real savings.

So moving now below the income from operations. Corporate G&A for the quarter was higher than the prior year. It's actually driven primarily by onetime costs or current period costs of $2 million related to the proxy contest. Also included in the 2 lines below, you could see, we spent about $600,000 of restructuring. That relates to severances and terminations that relates to the cost-saving initiative that we talked about earlier.

Exploration and evaluation expense for the quarter shown as $300,000. It's worth noting that we spent closer to $1 million during the quarter. About $700,000 was capitalized to mineral properties. All expenditure within the current resource shell is capitalized, and you could see that those investment dollars are showing some pretty compelling results, as you would have seen in the press release this morning.

We had a net finance expense -- oh, sorry, income for the quarter of close to $2 million. That was largely driven by our hedge book mark-to-market. So the price of oil increased during the quarter, which is offset by, of course, by our interest cost on carrying the $35 million of debt during the quarter.

Small loss from operation resulted in a deferred tax recovery for the quarter. And net-net, the total operations produced a loss of around $2 million for the quarter or $0.01 loss per share.

Moving on to the cash flow. As I said earlier, the cash -- or we've talked about previously, this is another quarter of positive cash flow from operations, generating just over $17 million. That cash was reinvested back into the operation. So you can see in the investing cash flow line, which was primarily deferred stripping requirements for the quarter, of around $13 million was capitalized to the balance sheet. We completed the Phase 2 of the plant expansion, which Suresh talked about earlier, and we also added some additional capacity to our open pit mine fleet early in the quarter.

Financing cash flows was $5 million and a principal repayment, plus around $700,000 of interest, which brought our debt balance down to $35 million, which I'll speak about shortly. Net cash flows, it was about $9 million outflow from -- for the quarter, as I said, driven by slightly lower cash which was -- from operations, which was reinvested back into the operation.

So moving on to the balance sheet. I've already spoken about the movement in cash. Inventories does -- decreased slightly for the quarter, but it still remains an opportunity the operations has identified to release working capital back to the business. Mineral, property plant and equipment, you can see an increase for the quarter, which I spoke about, driven by the deferred stripping and plant investment.

Key area that I want to focus on the balance sheet is the classification of our debt, which was all classified as current. Reason being subsequent to quarter end, management elected to repay the debt balance in full. We're looking at the debt, and it's -- what it provided to the operation over the next 7 quarters during a heavy capital investment period, having to repay the debt at the same time didn't provide any additional financial flexibility. So retiring the debt early saves on the interest costs, and that will be about $3 million to $4 million over the next 7 quarters. It releases the Aurora deposit that was held as security and collateral to that $35 million loan outstanding, and it will provide additional administrative -- releases administrative burden and provides additional operational flexibility with respect to advancing underground exploration decline and exploration drilling outside the Aurora deposit.

As you're going to see later today in our presentation, we believe we have the capital that will produce -- and produce sufficient cash from operations to put the underground into service without any additional financing. However, management is looking at potential sources of financing to provide flexibility, should we need it over the next 24 months.

So 2 key points, I think, from the quarter. Our P&L was adversely impacted by higher production costs and depreciation costs. Management has identified tangible material opportunities to reduce cost and has already successfully executed on some of those initiatives. And I think the big takeaway here is in 3 years, the company went from $160 million of debt to now being debt free with $36 million of cash remaining post debt retirement. We believe the future is bright, and you're going to see more of what the future holds in our presentation scheduled for later today.

So I think with that, I'll pass it on to Scott.

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

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Yes. Ron, can you -- Ron Stewart. And Ron will talk a little bit about exploration and the future.

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

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Yes. Thanks, Scott. So we put out a press release early this morning on a hole that we drilled at Mad Kiss. About a year ago, we brought our drills back to the mine site environment and focused on brownfields exploration, and we've been working on our mineral system in and around the mine. We've released some pretty good holes over the course of the last 6 months in terms of that work. Today's hole is particularly exciting. What we did was we set up on Mad Kiss. Mad Kiss is one of our satellites that's a quartz-feldspar porphyry host and drilled down the dip plane of that porphyry. The objective of the hole really was to demonstrate vertical continuity of mineralization that would be mimic what stope dimensions and stopes would look like from underground. So we've collared the hole purposely to go down the dip plane of the mineralization and encountered 300 meters -- it's 301 meters of 6.1 grams per tonne. That comprised 2 separate major porphyry intercepts, an upper zone and a lower zone, separated by a zone of porphyry-plus volcanics. So the upper zone, they're about the same length. The upper zone was 120 meters at 6.5 grams; and the lower zone, 127 meters at 7.7 grams, included a number of higher-grade subset -- subintervals that have considerably higher grade. What we're excited about is from underground, our resource model is built on a primary 5x5x5-meter blocks. Whereas in underground, you have a lot more flexibility as to where you position stopes and how you mine this material. We've been stating for some time that we believe that there's good opportunity for considerably higher-grade stopeable ore from underground, and this hole was purposely designed to try to prove that thesis, and I think it goes a long way towards that.

We continue to explore at the deposit in the deposit environment with 2 drills. One other area that we think is significant to the deposit itself in the future is we have 1.7 million ounces of measured and indicated resources that were not included in our reserve and mine plan. So as Chris said, our DD&A went up a little bit because our reserve went down. Our focus is really to get some of that M&I upgraded into reserves, replaced reserves year-over-year, grow the business. In addition, we've got another 2 million ounces of inferred resources that we're working on. So net-net, we've got about 3.7 million total ounces that we can work on to increase and bring into our reserves and extend the life of this mine. So we're pretty excited about the future at Aurora now that we've got a pretty solid foundation. I'll stop there and pass back to you, Scott.

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Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [9]

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Yes. With that -- thank you, Ron. With that, we can open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from [Zaid Saliba] from [Paulette & Co.]

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Unidentified Analyst, [2]

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I just wanted to -- if you guys could comment -- anybody, really, could comment on the time lines and the processes involving the new CEO search. I think we'd -- yes, we'd all appreciate that.

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

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This is Caldwell here. We're going to go through a very, very rigorous process, obviously considering internal candidates and external, and really we'll move expeditiously as possible but no set time line. We've got to find the right individual for the role.

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Operator [4]

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Your next question is from Trevor Turnbull from Scotiabank.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [5]

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Yes. I had a question, I guess, on breakdown of capital for the year. I think the new mine plan had something like $48 million. But just given that there was a fair bit of stripping and sustaining cost in Q1, can you remind me how much sustaining capital you're budgeting for 2019?

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Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [6]

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Chris, could you take that question?

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Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [7]

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I don't have the number in front of me, Trevor. But if you're going to be around this afternoon, I can certainly have the number ready or reach out to you after the call.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [8]

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Yes.

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Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [9]

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Yes. I don't have the number in front of me.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [10]

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Okay. Yes. I'm happy to follow up this afternoon. I was just wondering, given there was a fairly large component of stripping and sustaining capital relative -- and which brought the all-in sustaining costs up relative to cash cost, I'm just wondering how that's -- how we should think about that going into the second quarter. And the reason I ask is after you retired the debt, you kind of gave a pro forma cash balance, which would indicate, I guess, the month of April still burning some cash. And I didn't know if that was due to higher all-in sustaining costs or if you've got carryovers from like the proxy and severance payments, if there's some of that in Q2 we should expect as well.

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Christopher Stackhouse, Guyana Goldfields Inc. - Interim CFO [11]

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Certainly it's a combination of a number of different things, our timing of payables at May month end -- sorry, at April month end. There is proxy cost that are of course that were going on with the release of the MIC during the month. And then stripping this is another big component, and it's the #1 component of our capital investment for the course of the year. But could certainly give a little more color this afternoon.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [12]

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Okay. Then maybe just a quick question for Ron with respect to that drill hole came out this morning. It certainly indicated mineralization over a tremendous length. As you mentioned, it was focused on this dip plane. Can you give us a sense of the third dimension on this in terms of what kind of volumes. You mentioned the ability to stope this. And I'm just wondering we've seen kind of the vertical continuity here, but kind of how far off that dip plane can we expect mineralization to trend? And kind of what kind of volumes are you expecting here?

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Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [13]

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Yes. No problem. Mad Kiss, itself, it's a quartz-feldspar porphyry dike. So the deposit, the gold mineralization is hosted within a unique rock type. Our mining from the open pit has shown dimensions that vary anywhere from about 5 or 6 meters up to about 20 meters in width. So our experience for mining in the pit is that the dike itself has some reasonable width to it. Obviously, from underground mining, you can get down to a minimum mining width, depending on stope sizes of a couple of meters. So there's enough evidence from our geologic modeling on this that the width of this system is somewhere plus 5 meters, varies up towards 20 meters in places, but it -- it's not a regular block. It's a dike, so there's dimensions to it. We've got a reasonable resource and reserve around the upper levels of Mad Kiss, and we'll be in there from underground as our initial trial mining and test stoping that we've got plans to develop the upper levels of Mad Kiss early on in the underground exploration. So we're pretty excited about it.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [14]

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So I just haven't done the math, but it was a bit of an angle hole, kind of what -- how deep is the bottom of this intercept? It says you got down to, I guess, 315 meters. So what is that in kind of just depth from surface?

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Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [15]

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Well, the hole was drilled at minus 73 degrees, so it's effectively -- what's the math on that? It's about 80% or 85% of the length of the hole just from the [trig]. But we expect that the system, the geologic system at Mad Kiss and in the satellites have the same kind of depth extent as Rory's Knoll. And we've traced Rory's Knoll down to 2 kilometers. So we came out of the dike at 315, drilled another 30 odd -- 40 meters of metasediments. And so we were out of the dike at that point. But my belief is that there's really strong evidence that this mineral system will extend the depth to the same dimensions as Rory's Knoll.

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Trevor Turnbull, Scotiabank Global Banking and Markets, Research Division - Analyst [16]

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Yes. Just because you came out of the dike didn't mean necessarily the dike ended so much as just moved away from the drill hole trace. But I guess what I was wondering, so assuming, like you say, 80%, you're down 250 meters or so. And I'm wondering previously how far had drilling tracked the dike at Mad Kiss prior to this hole.

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Ronald W. Stewart, Guyana Goldfields Inc. - SVP of Technical Services & Corporate Development [17]

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We've got holes in Mad Kiss and some of the satellites that are down that deep 300-ish meters, 350 meters, I think, is about as deep as we've gone on that, obviously because of the drill angles that becomes harder and harder to drill from surface. So this is why we're excited about going underground and getting drill platforms that we can better target that material. But that material at depth is where a lot of the measured and indicated resources are that aren't part of the reserves, just because we don't have a mine plan to support all of the development of those resources, but we're pretty confident in they're being there.

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Operator [18]

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Thank you. There are no further questions. You may proceed.

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Scott Andrew Caldwell, Guyana Goldfields Inc. - President, CEO & Director [19]

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Well, first, thank you all for joining us this morning for a few minutes. As you heard from the presentation, we're on track to meet full year guidance. It's one of the things that we're really excited about or I am. We've begun work on the underground exploration drift again, and we'll continue to drive that drift, and we're going to spend quite a bit of time talking about that program later today at 1 p.m. if you can join us.

I just want to say that the team is focused on optimizing the existing operation while continuing our never-ending commitment to health, safety and environmental. Great group of men and women working in this company, both in the field, Toronto office, Georgetown office. I think the future, which is the underground mine, is very bright, and we hope to see you at 1:00. Thanks again.

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Operator [20]

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