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Edited Transcript of HTI.H.V earnings conference call or presentation 2-Aug-19 3:00pm GMT

Q2 2019 Leagold Mining Corp Earnings Call

VANCOUVER Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Leagold Mining Corp earnings conference call or presentation Friday, August 2, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adriaan Almero Roux

Leagold Mining Corporation - COO

* Douglas Reddy

Leagold Mining Corporation - SVP of Technical Services

* Neil Woodyer

Leagold Mining Corporation - CEO, President & Director

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Conference Call Participants

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* Ryan Thompson

BMO Capital Markets Equity Research - Analyst

* Stephen Soock

GMP Securities L.P., Research Division - Associate

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Leagold Mining Corporation Second Quarter 2019 Results Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. For those of you on the webcast, please be advised that the slides are viewer-driven. (Operator Instructions)

I'd now like to turn the conference over to Neil Woodyer, CEO. Please go ahead, Mr. Woodyer.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [2]

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Thank you, operator. And welcome, and thank you for everybody joining us today. I am here in Vancouver. I have with me Doug Bowlby, Corporate Development; Doug Reddy, Technical Services; Harpreet, CFO; and on the line, we have Attie Roux, COO.

So I'll give a quick overview. Attie will follow through on some of the details on a mine-by-mine basis. Doug Reddy will give a quick overview of our development projects and some of the future things. And then I'll give you a summary wrap-up and we'll follow that with Q&A.

So if I can take you to Slide 2. H1 production was 197,000 ounces at an all-in sustaining cost of $951. So we're on track to meet our full year guidance at the half year stage. We completed a $400 million long-term debt refinancing, which includes a term loan and a revolving credit facility. In July, we started expansion of Los Filos, prioritizing Bermejal Underground as the first stage of development. We also initiated a drill program, which totals about 37,000 meters at Guadalupe open pit and the Los Filos underground. But Doug will go into those in a little bit more detail later.

If we turn to the next page, we see our H1 operating highlights. We also see quarter-by-quarter production and trends in cost. So for the half year, we produced 197,000 ounces. Our sales were about 202,000 ounces. Our all-in sustaining cost was $951. Our all-in sustaining margin was $65 million and a revenue of $258 million. Our earnings from mine operations was $44 million and our EBITDA was $63 million. So as I say, we're on track to meet full year guidance, which is 380,000 to 420,000 ounces at an all-in sustaining cost of $920 to $970.

Turning to the next page, which is the summary of earnings for the half year. Our revenue was $258 million; earnings from operations $44 million; earnings -- sorry, earnings from mine operations $44 million. Earnings from operations in total was $35 million. Earnings before tax was $13 million. During the Q2, we took a -- recognized a provision against deferred income tax assets, which, of course, is a noncash item in our subsidiary, DMSL, which owns Los Filos. This attributes to multiple tax years prior to Leagold's acquisition and includes 2017.

Turning then to our corporate activities and developments on an overview basis. Completed the $400 million refinancing, $200 million term loan for 5.5 years and a portion of the $200 million RCF we used to pay down our debt, which is at that time was $238 million. So it gives us the remaining RCF availability to provide additional funding and give us some cash flexibility.

Importantly, we commenced Los Filos expansion. Bermejal Underground activities prioritized the new vent raise to connect with the existing 1,300-meter ramp we constructed last year. And that will be followed by lateral development. We also started the access road to Guadalupe so that after that, we can start the open pit stripping, which we scheduled to begin at the beginning of Q4. We initiated a 37-meter drill program at Guadalupe and also at Los Filos underground.

And if I could now hand you over to Attie to take us through on a mine-by-mine basis.

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Adriaan Almero Roux, Leagold Mining Corporation - COO [3]

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Okay. Thanks, Neil. If we turn to Page 7, we'll start off with Los Filos. Quarter 2 gold production was just below the 45,000 ounces, giving a total half year of 109,000 ounces at an all-in sustaining cost of $846 per ounce sold. The Los Filos underground section continues to perform well. Mining consistently over 1,950 tonnes per day at about $73 per tonne in quarter 2 as compared to around 1,100 tonnes per day at over $80 per tonne a year ago.

The heap leach pad improvements continued with some optimized lime addition and solution control, successfully maintaining the pH levels and lowering cyanide consumption. The high-grade underground ore continues to be stacked separately on a plastic liner to reduce the lag time during irrigation and giving improved recoveries. The mine has initiated a program of compacting the previously leach open pit ore before placing the new layer to reduce solution flow during the time lag.

If we talk about Fazenda, Fazenda again delivering a solid quarter, producing almost 18,000 ounces for quarter 2 with H1 production of 36,000 ounces at an all-in sustaining cost of $871 per ounce sold. Fazenda's main focus is on cost management and optimizing plant process throughput capacity. The ongoing drilling program is focused on resource and reserve replacement for underground ore.

If we turn to Page 8, starting with RDM. The commissioning of the new grid power line at the end of quarter 1 resulted in higher mill throughput, improved grind and recovery and lower overall cost in quarter 2. Quarter 2 gold production was 17,000 ounces, which was 24% increase over quarter 1 at an all-in sustaining cost of $1,100 per ounce sold, which is 22% improvement over quarter 1. This gives an H1 gold production of 31,000 ounces at an all-in cost of $1,247 per ounce sold. Current estimates are that RDM will have sufficient water to sustain the operation throughout the current dry season.

We talk about -- next mine is Pilar. Quarter 2 gold production was over 11,000 ounces, which is a 19% increase quarter-on-quarter at an all-in sustaining cost of $1,100 per ounce sold, which is a 20% decrease from quarter 1. This gives an H1 gold production of 20,600 ounces at an all-in sustaining cost of $1,227 per ounce sold. Mining rates have improved with higher equipment availability from the new mining contractor. Mining production and processing have both shown improvements under the new management team. Other optimization programs continue to include plant and equipment maintenance activities.

At this point, I'll hand over to Doug.

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Douglas Reddy, Leagold Mining Corporation - SVP of Technical Services [4]

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Thank you, Attie. If we look at Page 9, the Los Filos expansion is underway. Our priority at the moment is Bermejal Underground. As you can see on the chart at the bottom, it's an 18-month, $65 million expenditure to do all the work on Bermejal Underground for development. First thing we'll be doing is an additional vent raise that connects to the existing 1,300-meter access ramp that we completed in November. And then we'll follow that with lateral development as we start to develop to the various mining zones in Bermejal.

Guadalupe is being prepared. We're doing an access road and then the stripping is scheduled to begin in Q4 of this year. The CIL construction is scheduled for the middle of next year. And in the meantime, we're continuing with engineering and optimization work towards the CIL plant.

So if we turn to page -- on Page 10. In conjunction with the work on Guadalupe, we're doing a 24,000-meter drill program totaling 130 drill holes. The target is conversion of inferred resources to indicated, which should give us the opportunity to be able to consider them for conversion to reserves. And I'll note that in the technical report, Bermejal and Guadalupe open pit had over 800,000 ounces of inferred resources. So that's what's being targeted because a large portion of that is in the Guadalupe area.

We also will be doing drilling to assess the potential to steepen the pit slopes, particularly on the north side of Guadalupe open pit and carbonate. Currently, we're using a relatively conservative 37 degrees. And so the opportunity to be able to steepen the pit wall would give us both the opportunity to lower the overall strip ratio. Potentially, we'll be able to add reserves in that area as well.

We're also drilling an area of waste in Guadalupe open pit in the south side that had a lack of drilling previously. It is above the intrusive, which in all other areas of the property, the top of the intrusive we often get low- to medium-grade mineralization. So we see that as an opportunity to essentially drill off waste and potentially convert it to reserves.

We also commenced the 12,750-meter drill program at Los Filos. It's a step-out program with 55 holes aimed at extending the mine life there. Given that Los Filos is high grade, it's very important to us that we can continue to extend the Los Filos underground mine life. These programs and the associated work is about $7 million in total and are scheduled to be complete within 8 months.

I'll hand it back to Neil.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [5]

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Okay. Thanks, Doug. And let's go to the last slide, conclusion slide. So H1 sales were 201,000 ounces at an all-in sustaining cost of $951. So we're on target to meet our full year's guidance.

We have our 2 fully funded growth projects, the expansion of Los Filos and the restart of Santa Luz, which provide a way to 600,000 to 700,000 ounces a year with an EBITDA in excess of $300 million a year. Very importantly, the Los Filos expansion has now started and the Santa Luz construction schedule -- is scheduled to start in 2021.

That wraps up our formal part of the presentation. So operator, if we could now go to Q&A session?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Stephen Soock with GMP Securities.

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Stephen Soock, GMP Securities L.P., Research Division - Associate [2]

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I was wondering if you could just provide a little more color on the Mexico tax provision that you guys recognized this quarter. What was kind of the reinterpretation there? How did all that come about?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [3]

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Well, the company has a long, very active history prior to our acquisition, very complicated history. A settlement has been reached. And we are just trying to get our way through it and fully understand it. It is extremely complicated. And therefore, we felt it wise to mention the provision at this time.

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Stephen Soock, GMP Securities L.P., Research Division - Associate [4]

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Okay. Great. I guess we'll stay tuned as that shakes out. Just one more quick question. I noticed the mention of an RC grade control program at RDM. If you could just talk about what you expect to see out of that and kind of improvements on the back of that program.

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Douglas Reddy, Leagold Mining Corporation - SVP of Technical Services [5]

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I'll -- this is Doug Reddy. I'll speak to it. And Attie, you can add to it if I -- if you need to add additional information. We do regular grade control on all the open pit mines. But at RDM, we did an additional program, which is essentially an RC program that drills ahead multiple benches. By doing that, it's been beneficial to us to be able to preplan better than what was done previously. And so we look forward to that helping us to do a better job of grade control essentially. We found that our reconciliation was getting a little bit out of whack.

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Operator [6]

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(Operator Instructions) And our next question comes from Ryan Thompson with BMO.

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Ryan Thompson, BMO Capital Markets Equity Research - Analyst [7]

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Just a quick question with Los Filos. I'm fairly new to the story. Could you just make a general comment about how the rainy season has impacted the operation in the past and sort of what you're seeing as we head into the third quarter?

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [8]

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Attie, do you want to deal with that?

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Adriaan Almero Roux, Leagold Mining Corporation - COO [9]

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Sorry, are you talking about RDM?

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Ryan Thompson, BMO Capital Markets Equity Research - Analyst [10]

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No. At Los Filos and just the Mexican rainy season.

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Adriaan Almero Roux, Leagold Mining Corporation - COO [11]

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Yes. Obviously, that's pretty much on the history. The rainy season hasn't been quite severe this growth year. Doug, I don't know if you want to add anything. There's no major impact on the operation this year.

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Douglas Reddy, Leagold Mining Corporation - SVP of Technical Services [12]

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Mining fleet-wise, we have a system for advising of any storm events coming in advance of them showing up at site. So safety-wise, we deal with that proactively and that we will park the fleet if we end up with an electrical storm over the site. Where transit of the vehicles, if it does have a heavy downpour and we do need to grade the roads, we do it. But it's just dealt with as a matter of course with no exceptional events. We don't end up with any issues with excess water underground, so it's not an issue there.

And then in regards to management of water on the heap leach pad, the main thing for us is that during the rainy season, we're running 5 of operators nonstop in order to keep our pond volumes as low as possible, so that we have the event space available. Other than that, it's just dealt with the normal course. We have a little bit of variability on the amount of pumping that we do because of the additional water in the system. But I think it's built into our scheduling overall.

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Operator [13]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Woodyer for any closing remarks.

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Neil Woodyer, Leagold Mining Corporation - CEO, President & Director [14]

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Thanks very much, operator. And again, thank you for attending. From our point of view, I think we are well on track for our year, our guidance for the year. Very important, as I say, we're now moving forward with the expansion of Los Filos to build a bigger, better company. And I would like to thank you all again for attending the conference call. Thank you very much.

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Operator [15]

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