U.S. Markets closed

Edited Transcript of PG.TO earnings conference call or presentation 7-Mar-19 3:00pm GMT

Q4 2018 Premier Gold Mines Ltd Earnings Call

Thunder Bay Mar 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Premier Gold Mines Ltd earnings conference call or presentation Thursday, March 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Ewan Stewart Downie

Premier Gold Mines Limited - President, CEO & Director

* Matthew Gollat

Premier Gold Mines Limited - VP of Business Development

* Steven J. Filipovic

Premier Gold Mines Limited - CFO

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

Conference Call Participants

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

* Andrew Rostislav Mikitchook

BMO Capital Markets Equity Research - Analyst

* Bryce Adams

CIBC Capital Markets, Research Division - Analyst

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

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

Presentation

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

Operator [1]

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

My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Premier Gold Mines Limited Q4 and Year-End 2018 Financial Results Webcast and Conference Call. (Operator Instructions) Thank you. Matthew Gollat, Vice-President, Business Development, you may begin your conference.

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

Matthew Gollat, Premier Gold Mines Limited - VP of Business Development [2]

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

Thanks Jessica, and thanks all for joining us this morning on -- for this conference call. I just like to point out on Slide 2 there are forward-looking statements and we will be making some forward-looking statements on this presentation, so I encourage you to read through this disclaimer page thoroughly.

On Slide 3, presenting today is Ewan Downie, President, Chief Executive Officer as well as Steve Filipovic, Chief Financial Officer and available for questions on top of those 2 gentlemen will be Brent Kristof, Senior Vice President. So he'll be able ask -- answer any operational type questions.

With that I'd like to turn the call over to Ewan Downie, Chief Executive Officer.

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [3]

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

Thank you, Matt, and thank you everyone for attending our call today. Premier is truly focused on building our mining business. We've been a company that successfully transitioned from explorer to producer over the past several years. We've assembled now, what I believe, is a peer best production and development pipeline, which is 100% North American focused. Our projects are in some of the safest mining jurisdictions. I think you'll find -- jurisdictions you'll find anywhere in the world and in world class mining districts, including the Battle Mountain and Carlin Trends of Nevada, the Red Lake Camp of Ontario and Sonora State of Mexico.

Our company believes in the partnership model. We have several partnerships ongoing and in relation to either exploration and/or production. We have currently 2 mining operations. At the South Arturo project currently there are 2 new mining initiatives under development, the El Niño underground mine and the Phase 1 open pit. We should start to see the -- those assets coming online the underground later this year.

We also have 2 projects in full permitting, the Cove property in Nevada and Hardrock, part of our Greenstone Gold joint venture in Northwestern Ontario. The company is advancing these projects with our strong financial position. At year-end, we had nearly $44 million. All figures you'll see in this presentation are in U.S. figures, by the way. In Q1 of this year, we announced an additional $18 million added to our balance sheet and a revolver facility that provides the company with access to an additional $50 million, so well over $100 million in cash and liquidity available as we grow our new assets.

We do continue to focus on our future. We are a very forward looking company with the intent of not only building the 2 operations that are currently under construction, but being in a position to also advance Cove and Hardrock once the permitting comes online. And in terms of spending our dollars wisely, you'll see in the ensuing slides that we have been very successful at growing our reserve and resource base through a focused exploration program and very successful exploration programs that we have had over the past several years.

On Slide 5, you can -- is a chart showing that resource and reserve growth. Back in 2015, our company had less than 200,000 ounces in reserves, globally approximately 5 million ounces. Fast forward to today, we're sitting on approximately 3 million ounces of reserves and 10 million ounces in global resources. So it's been a good trajectory upwards and now we are focused on developing our reserves such that we will deliver strong production in the future.

On Slide 7, our mining operations. As I mentioned, we have 2 mining operations under construction at South Arturo. We do expect some product -- or some processing of ore and preproduction gold coming from South Arturo during the year as we transition into new production initiatives there. The Phase 3 and East Dee opportunities at South Arturo continue to show significant potential upside in the future, and we are continuing to advance a potential heap leach option for that project, which would again result in another increase in production coming from South Arturo.

At Mercedes, after having a fairly challenging first half of 2018, I hope, you'll see in our numbers that we've very successfully made the transition of the new orebody, the Diluvio deposit which has now resulted in our costs dropping significantly, especially since Q3, and we look to continue to achieve sustainable production levels and low operating costs going forward. We're also just starting to define the Marianas zone, which is one of the top priority targets at Mercedes since we acquired the mine and the underground drill program is underway. And in this presentation we'll be showing a couple of highlight results from the initial drilling that we have into that zone from underground.

With that I'll pass on Slide 7 to our Chief Financial Officer, Steve Filipovic, who will talk about our operational and financial results for both Q4 and full year 2018.

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [4]

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

All right. Thank you, Ewan, and good morning everyone. Just as Ewan said turning to Slide 7. I will speak to the details around our fourth quarter results as well as the year-to-date full year results. During Q4 Premiere produced 23,000 ounces of gold and 120,730 ounces of silver. Of the 23,000 ounces of gold we produced, nearly all of it, 22,465 ounces came from Mercedes and, well, just under 600 ounces came from South Arturo. This compares to 24,000 -- just over 24,000 ounces of gold in the same period Q4 2017 and 77,000 ounces of silver last year this time, so a little bit more out of the South Arturo mine. Our production relative to those 2 was 19,000 at Mercedes and 4,400 from South Arturo.

On a year-to-date basis, we produced just under 90,000 ounces of gold and 321,000 ounces of silver. But the breakdown of the gold production by mine, just under 69,000 ounces from Mercedes and just under 21,000 ounces from South Arturo. Of the 321,000 ounces of silver, majority of that is from our Mercedes mine. This compares to 139,658 ounces of gold during the full year 2017 where we saw about 82,000 from Mercedes and just under 60,000 from South Arturo. Majority of the silver, again in 2017, was from our Mercedes mine.

As we previously guided, these lower production levels this year are due to the cessation of mining at South Arturo and the decrease in production we're seeing coming from the Phase 2 stockpiles. There is still some gold in those stockpiles, but as you can see on the period-over-period results that we've been reporting that those production levels from South Arturo Phase 2 mining are on their way down.

We also saw significant impact this year. We've spoken to this as we've presented on the quarters, and this was as a result to the reinterpretation of the mining at Mercedes. But we do feel that we're back on track. We've seen that production level improve itself as we've progressed through Q2, Q3 and now into Q4 -- sorry, rather through Q4. So we feel that we were through that challenging time, and of course, the results have started to improve in relation to that.

On a unit operating cost basis, for the fourth quarter -- and this is on a consolidated basis, we reported cash costs of $619 and all-in sustaining cost of $798. Now that's at a consolidated basis. At an asset level, our all-in sustaining costs at Mercedes were $639 -- sorry rather cash costs were $639 at Mercedes and our all-in sustaining costs were $808. Again, this is an area where we would like to emphasize that as we've progressed through the year, we saw our cash costs and all-in sustaining costs -- I think it was probably Q2 where they reached a peak this year. As an example, we were running, I think, $963 cash costs at Q2 and all-in sustaining costs of $1,088. We've been showing period-over-period, quarter-over-quarter improvements in that and the improvement from Q3 to Q4 alone on a cash cost basis was a 25% reduction, and just under 25% in all-in sustaining costs as well.

So we do feel that the challenges that we experienced this year with Mercedes with respect to the mining, the impact that it had on our production levels as well as the increased costs have to come under control. And it's an area that we continue to focus on, not just, obviously through the remainder of 2018 rather, but it's something that we're very, very focused on as we begin the year this year. And we're quite confident that we've got to handle on controlling both production and costs as we move forward.

On a full year basis, just to give full year guidance on the cash cost. We did end the year with $788 from a cash cost perspective on a consolidated basis, and on all-in sustaining basis, we ended the year at $927. That's in relation to our guidance of $690 to $740 on cash costs, and $800 to $850 on all-in sustaining costs. These movement in unit costs, again both between Q4 2018 and Q4 2017 and on a year-to-date basis, it's really a reflection of our relative production levels. We've seen that increase from a balanced production level from South Arturo and Mercedes to a much more heavily weighted Mercedes production. And this relationship was probably most apparent mid-year, but it continues and the results that you see for the year are very much impacted by that weighting of production from those respective mines.

Carrying over to Slide 8, I believe. For the year or -- sorry, for the fourth quarter, Premier generated $19.9 million on sales of 15,652 ounces of gold. And that was at an average realized price of U.S. $1,250 per ounce. This compares to $30.2 million on sales of 22,000 ounces for the same period last year, and that was at average gold prices of $1,265, and it compares to $27.3 million in sales on 21,500 ounces of gold at an average prices of $1,209 during Q3 of this year.

For the fourth quarter, we reported mine operating income of $6.1 million and a net loss of $8.9 million or $0.04 per share. This compares to Q4 2017 mine operating income of $7.2 million and a net loss of $3.6 million or $0.02 per share. On a full year basis, we recorded revenue of a $113 million, just under $114 million rather on sales of 87,000 ounces at an average price of $1,254. And this is in comparison to $200 million on sales of a 139,000 ounces in average price of $1,254 for the full year 2017.

We reported mine operating income of $16.5 million and a net loss of $20.4 million or $0.10 per share for 2018, and this compares to mine operating income of $64 million and net income of $16.2 million or $0.08 per share during the full year 2017. Our year-over-year operating income is due primarily to a combination of lower reported production and the associated metal sales. And I think one of the largest reasons as you've seen through these quarters that we've carried on is the unit operating cost, the impact that the Mercedes mine development -- the additional mine development we did this year had on those operating cost.

As well, we do continue to report exploration and development expenses through our P&L for projects that are not yet at the developments -- or sorry, the move forward -- basically production decision stage. So we do carry over $20 million of exploration and development costs through our P&L on an annual basis here. And as well, we did take a small impairment this year on the RMC bankruptcy, and that obviously had an impact on our overall earnings for the year. I believe it represented around a $0.04 per share impact on our full year results.

Premier finished the year, as Ewan indicated, with an -- just under $44 million in cash on its balance sheet. And that's after taking into account just under $50 million in the combined exploration and development capital expenditures this year as we continue to focus on moving our projects forward. As well, we did pay down $20 million in outstanding debt to Orion during the year. Despite the challenges that we've had this year, we do feel quite confident that as we finish the year, we had a handle on both the production mining challenges that we had at Mercedes, as well as the costs.

With that, I'll turn this back to Ewan.

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [5]

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

Thank you, Steve. I'll talk about some of the highlights that we had last year, and that we're looking to achieve this year. For the South Arturo project, you will see on Slide 9, it continues to become a more and more important part of our company's future with the new development initiatives we have ongoing at the property. As probably most of you know, Premier is the 40% owner of the property. Barrick owned 60%, and the project is operated by the Goldstrike mining team.

Currently we have 2 new mining initiatives under construction; the Phase 1 open pit, the El Niño underground. And we continue to consider the economics of potential run-of-mine heap leach operation and advancing the Phase 3 open pit which would continue to expand mine life at the property and add to our production profile. We are continuing exploration to achieve long term production. We've had a significant success in 2018 with the El Niño -- sorry, the East Dee results. And we are expecting to have a fairly significant program to increase reserves and resources at the El Niño property in 2019.

Also of note, we acquired the Rodeo Creek Property that we believe has very strong exploration success, that's on trend with the Phase 1 mining operation and the continuation of the Storm deposit to the north on Barrick's ground. And we believe that some of the structures that host the mineralization on our property into the south will continue to trend up on to that property, and we'll be testing that theory in the second half of this year with drilling.

In terms of our guidance for this year, we are expecting pre-production -- pre-commercial production of 5,000 to 10,000 ounces. Part of those ounces will come from limited processing of the remaining stockpile from the Phase 2 pit. And later this year, the expectation that mining will commence at the El Niño underground and processing of pre-production ore is likely to begin in the second half of the year.

On Slide 10, just to go over some of our operational results. The -- in Q4, as you know, the mining of Phase 2 ended in 2017. We had just limited production of gold from the stockpile. As always, this -- the cost have been very low for this production, and we expect that in the future, as production ramps up again, that this will be a low cost operation for the company. On a full year basis, the all-in sustaining cost on our 21,000 ounces were below $500 an ounce, continuing to be one of the lowest cost operations I think you'll find anywhere on the planet, especially a gold-only operation.

On Slide 11, you can see our land position in blue related to the geology to the -- immediately to the south is an extensive area being mined currently by Newmont and Barrick, and the subject of a lot of discussion these days given the recent hostile discussion regarding Barrick and Newmont. And when you look in all of the red in there -- those are the various deposits and mines in the core part of the Carlin Trend. And the blue area is the -- makes Premier the only company that has a core position in the heart of the Carlin Trend.

To the north in red is our Rodeo Creek property that we will be advancing later. This is a property we acquired in 2015 from Goldcorp, and has led to a relationship and a partnership with Barrick. We found Barrick to be a very strong partner, very easy to deal with and has been a -- and has been something that we've really relished in the Nevada area. The partnership here that we gained through the acquisition has led to other opportunities for our company, including the McCoy-Cove JV where Barrick is working with us on exploration in -- proximal to our Cove deposit. That property actually will be our largest pure exploration program for the company in 2019.

As part of that deal, we have a custom processing arrangement for refractory ore related to the bulk sample which is permanent at Cove, which provides some certainty for us in advancing the project going forward. And also as part of that deal, we are in the process of preparing an exploration and drill program at Rye, and Rye is a property as part of that JV at McCoy-Cove that we are acquiring from Barrick. So there is -- I believe we built a strong relationship with Barrick, and we're looking forward to working with their team going forward, a very professional partner in my opinion.

And at the top end, Rodeo Creek, which will be our first 100% owned piece of ground in this area and we believe that the geology and the structural setting is right for potential deposits on this property. We will be starting soil sampling et cetera in the first half of the year and expecting to be drilling in the second half of the year up at Rodeo Creek.

Slide 12. The image on the left is the conceptual image of what we're looking to achieve at South Arturo. Of the 3 open pits that you see there, Phase 2 was completely depleted in 2017. As Steve mentioned, we continue to process on a limited basis, some of the stockpiled material where lower grade material remaining from that mining.

And on the images on the right you can see the lower image, the portals construction, that's the El Niño underground project that is currently under production. We are expecting the El Niño property to ramp up later this year and enter commercial production officially late year, early 2020.

We are also, in the upper image, stripping the Phase 1 open pit. If you look on the left, that's the pit on the left. And we are currently stockpiling potential heap leach material that will be processed should we go ahead with the heap leach option.

The Phase 3 would be the next mining operation, open pit operation on the property. And we are now pursuing exploration of potential pit expansion and/or under -- future underground deposits. The most significant from 2018 was success we had in the East Dee area. East Dee will be subject to a definition drill program this year in an attempt to advance the East Dee target to our potential resource category going forward.

Move on to our Mercedes in Mexico on Slide 13. Mercedes is 100% owned mine by -- owned by Premier, owned and operated by Premier with an acquisition we made from Yamana in 2016 and is the deposit or is a mine that mines multiple deposits in order to achieve its throughput.

When we acquired the property, Yamana had just started developing 2 new deposits, Diluvio and Rey de Oro. And when we accessed Diluvio in late 2017, we found that the deposit was not quite as interpreted from surface drilling and as a result we stopped all mining at Diluvio during the first half of the year to complete a significant underground drill program in order to better understand exactly how we were going to mine this and what the deposit look like.

We had to add additional development, which resulted in quite high costs in the beginning of the year. But as you'll see, as Diluvio came online in Q3 and Q4, we reduced costs by over $300 an ounce on all-in sustaining basis Q3 over Q2. And again, a significant reduction in cash and all-in sustaining cost in Q4 to where this mine is operating generally on a fulltime basis. Our guidance for this year is 75,000 to 85,000 ounces of gold at all-in sustaining costs of $900 and $950.

Slide 14 you will see our Q4 production. Q4 was a pretty outstanding quarter. We don't always expect to have 22,465 ounces of production, our all-in sustaining costs, well below our guidance for this year at $808. And a very solid reduction from what we saw during the year. I like to commend our operations team for that turnaround and we expect the project to be more stabilized this year than what we saw last year. I won't say it's not going to be without its challenges, but it is operating on a fulltime basis. We're essentially filling the mill on a daily basis.

As we advance, the most important deposit potential on the property Marianas, which we have just begun the underground drill program with an effort to move Marianas into our reserves and into our mine plan in 2020.

In terms of our -- the property's geological potential, we believe that there are significant exploration potential going forward, particularly on strike from them Mercedes, Barrancas, Lagunas where Marianas sits that you can see on the geological picture on the right. And Marianas is essentially the extension of the main Mercedes mine trend, so to speak and an important part of this mine's future.

You can see Diluvio, Lupita up to the North and Klondike, Rey de Oro in between. I'll point out that Diluvio, which forms more than 60% of our current reserves is a lower grade deposit. However, we have implemented some longhole mining et cetera and so lower cost on a per tonne basis. However, the real stabilization of this project is expected to come when Marianas becomes part of our production expected to be in 2020.

Moving on to Slide 16 is our longitudinal section looking at the main mine trend. In pink, green and blue you can see the zones that are -- have been mined and there is some mining on a limited basis in those areas continuing. However, down plunge of those deposits, which typically mine out at a grade of about 50% higher than our current reserves is the extension of that trend to Marianas deposit.

Based on surface drilling, it appears to have grades comparable to the other deposits on trend. And as you can see we've got in our presentation here, the first results from underground drilling. We're drilling the -- what we expect to be just the beginning part of the deposit from underground.

We're in the first drill bay of several that will be looked at this year. And we had initial interception that drilling of 21.35 meters of 4.5 grams gold, 64 gram silver, including 4.58 meters of over 11 grams gold and 94 grams silver. And in MR19-006, 3.05 meters of 7.87 grams and 54 grams per tonne silver. These results were not unexpected. It is -- the drill bay 3 and beyond is the core part of the expected deposit, but it's good to see that we are intersecting gold early in the program and look forward to when we drill this in additional detail to move this into reserves and resources.

The current program will be approximately 20,000 meters from underground. And the entire focus of this is to upgrade the deposit to our reserves and moved into our mine plan in 2020. This should provide for additional flexibility in our mining with the additional mine phases and our expectation that the grades that come out of here will be well above of what we have in our current reserves. So we look -- really look forward to this project being completed this year and moved into our mine plan in 2020.

Moving on to Slide 17. Premier has a very significant organic growth pipeline. Currently the company, in addition to our 2 mines, has 2 projects undergoing full permitting. The Cove property on the Battle Mountain Trend of Nevada and the Hardrock deposit, part of Greenstone Gold in the Beardmore-Geraldton Camp in Ontario, Canada.

Cove, this year, we are looking to continue to advance our permitting for full production. We do have permits to undertake an underground program. However, right now, we are working on a hydrological flow test which will -- these are large diameter holes we installed, I believe, at 17 piezometer well and are doing a full hydrological test to assess the need to pump water as we advance the underground development of this project.

A preliminary economic assessment was completed in 2018, showing very favorable economics for this deposit and we continue to advance the project through drilling, looking at additional targets, particularly on the Barrick joint venture. That drill program is underway and multiple targets will be tested during the current program.

We are advancing towards completing a future feasibility study, which would allow for full production at Cove. Cove remains one of the highest grade undeveloped gold deposits in North America with a grade of greater than 11 grams per tonne.

At Greenstone Gold, it's a property we completed the feasibility study in 2016, our partnership with Centerra. We have submitted all documentation to the provincial and federal governments of Canada to move this project to where we make a production decision expected to be later this year.

In terms of our EA and EIS submittals, in December of 2018, the federal government approved our EA and we're expecting provincial EIS approval. It says EA, but that's the EIS approval here, in the first half of 2019. We continue to move forward in our relationship agreements with the local communities, including aboriginal communities. And this project continues to be funded by our partner. At the end of last year at $71.2 million remaining to be spent by Centerra prior to Premier participating in the funding of the project going forward.

In terms of exploration, we are a company that is very forward-looking. We do recognize that for Premier to be a long term sustainable producer, we will have to continue to grow our reserve base. And in 2019, our primary projects, we are advancing our Rye, part of our Rye Goldbanks property package in Nevada. And the Hasaga project in Red Lake, Ontario, where our final step out hole was 39 meters or 23.4 meters true width of 5.7 grams, representing a potential -- reasonably high grade bulk mining opportunity in the Red Lake camp.

The main property for us, though, in exploration this year will be Rye. Rye, as a property, is part of the Barrick joint venture at McCoy-Cove. As part of that arrangement, Barrick gave us the option to acquire 100% interest in Rye. Rye is an epithermal vein system in Nevada. Nevada is well known for its success in these type deposits with some very perspective intercepts from a previous drilling that suggests the potential there could be a deposit or deposits along a very significant strike length and we will be testing this property later this -- in 2019.

As a summary, Premier is a company that is very focused on growing our production -- our future production and expect to achieve that later this year when El Niño comes online. In 2020, we're expecting the Phase 1 operation to come online in the second half of the year.

We also are advancing 2 projects with permitting that we expect will continue to grow our production profile going forward. We haven't stopped our exploration, which will continue to allow us to replace reserves. Our goal would be to -- on an annual basis to continue replacing reserves that are mining operations and growing our reserves for future production. And also exploration continues to be a priority across the company's entire portfolio. And with the growth in production we expect to see in the future, we expect to see significant increases in our company's cash flow well into the future.

So with that I believe will open up the floor to a few questions. We have myself, Steve Filipovic and Brent Kristof available to answer questions relating to operations or finances.

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

Questions and Answers

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

Operator [1]

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

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from John Tumazos of John Tumazos Very Independent Research.

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

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [2]

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

I stopped by the Centerra booth at PDAC earlier this week. And Centerra team appeared to be very enthusiastic about their Öksüt mine under construction in Turkey. And they also are very enthused about the copper-gold underground mine at Kemess where the original mill still sits waiting for ore. And they said, they liked the Hardrock deposit, but at these gold prices, the other stuff is better and when the time comes, they might put it on the shelf. I guess, that's probably a relief for Premier Gold because you guys have a lot of projects too. Are the McCoy-Cove and the various zones at South Arturo, a green light at current gold price is around $1,280-$1,285.

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [3]

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

Can you ask that last part of the question again?

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

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [4]

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

Is McCoy-Cove and the different zones at South Arturo good enough to move ahead at current gold prices?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [5]

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

We expected McCoy-Cove and the South Arturo projects to be quite low cost operations and would generate significant cash flow. If you look at South Arturo in 2017, the production cost -- the all-in sustaining costs was $351 an ounce. And I know it was written up in many places as a pure gold mine, being the lowest cost producing mine in the world in 2017. So we're very confident in those projects. I will point out one thing though, John, about Hardrock and Greenstone is that it is not Centerra's decision on how that project moves forward. It is the joint venture company. So not sure exactly if you heard them right or if they misspoke. However, they don't make the decision on the project. It is both companies have an equal say. So just want to make sure that's clear.

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

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [6]

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

If they were going slow and you were going hard, would you try to buy them out?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [7]

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

I won't comment on anybody buying out or are going slow or fast. We are working on the permitting of the project. So it isn't permanent, we can't build it. And because of that we are -- we can't make a production decision. The intent this year is to advance the project through more detailed engineering, additional ongoing drilling and completing the permitting and getting the balance of the community agreements completed. Being in a position, we hope that year-end to assess the market and see how the financing package that we're working on -- or potential financing package that we're working on, having retained a financial advisor for the ultimate financing package and engage the markets at year-end and see, if, how and when we are going to advance this project to full production. Obviously, it will be a market dependent. If we're sitting on a gold price that's well below where we'd like it to be, we would, as they say, put it on hold. But if everything lines up and we're a believer that the gold price is going up, not down, this project should be a big part of our company's future. It is the largest reserve and resource in our company. And fortunately for us this year, we continued to be carried by our partner. I hope they are enthused about it because they are putting a fair amount of money in it upwards of over $40 million into the project this year.

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

John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [8]

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

So -- and did I hear you right that you're paying a fee to a financial advisor to work on the Hardrock financing?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [9]

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

Hi, John. It's Steven Filipovic. We are working with an advisor to do some market sounding to get a sense of what the current situation is from a debt perspective to just see what sort of debt capacity this project could handle. And as Ewan indicated, everything that we're doing this year is to move toward a place at the end of the year where we can make a very informed decision around the feasibility of moving this project forward.

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

Operator [10]

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

Your next question comes from Bryce Adams of CIBC.

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

Bryce Adams, CIBC Capital Markets, Research Division - Analyst [11]

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

I just wanted to ask about the RMC Metals write-down. Looks like that situation drove delayed sales by about 8,000 ounces. Is that understanding correct?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [12]

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

Hi, Bryce its Steve. So just speaking to the RMC write-down, I think what listeners need to understand with respect to that is, that is purely an audit driven decision that's been reflected in our financial statements. We have a responsibility, obviously, to be able to allow our auditors to confirm the existence of those inventories because they are subject to this bankruptcy proceeding. It really does sort of play out in a situation where from an audit perspective there are certain steps that we would need to take. But I think what I would want to say for everyone that's listening is that, it's by no means a reflection of anything the bankruptcy courts have done in terms of a determination around the recoverability of that inventory from Premier or any of the mining companies. There are quite a long list of companies involved, many of them are obscured because of the specific names of the companies that perhaps were involved in the refining contracts. But from our perspective, this is not an indication of our expectation around our success with our reclamation claims. And I expect that's probably the sentiment that's carried by many of the other mining companies involved. And it's certainly no indication of any sort of specific decision or action on behalf of the bankruptcy courts. As I indicated, this is purely an audit related termination that came about as we were working through the preparation of our financial statements.

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

Bryce Adams, CIBC Capital Markets, Research Division - Analyst [13]

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

So in 2019 there is a chance or likelihood of recovering those ounces?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [14]

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

What's happening right now -- and I do have to be very cautious, I guess, about what we do say. This is subject to the bankruptcy proceeding. So I think for those that maybe aren't following it, there are proceedings underway where other mining companies that are involved, the refining customers of RMC are taking action to recover the inventory or the value of the inventory that was caught within the premises of RMC when the bankruptcy occurred. So those proceedings will take place throughout the next several months of 2018 -- sorry 2019, rather. I don't have specific dates. This is a fairly large situation, I think. But I do believe that we are progressing toward the hearing of these claims through the bankruptcy courts in the U.S. over the coming months.

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

Bryce Adams, CIBC Capital Markets, Research Division - Analyst [15]

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

Ewan, you spoke about Coves in the opening remarks. And feasibility study work that you're advancing towards, would that be PFS or DFS? And do you have any sort of timeline for that study?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [16]

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

Right now our plan is to move likely write to full feasibility on the property. We are internally discussing do we proceed necessarily with the underground to move to feasibility or do we complete, which could be started very soon, some definition drilling from surface that's required to upgrade our resources. As you know, most of our resource, 1.3 million ounce of the resource is inferred. In order to complete a feasibility study, we need additional delineation to upgrade our resource to indicated, and we are discussing that right now. We also -- to move this project long-term, need more definitive agreements for processing and we are actually discussing with both Barrick, Newmont potential opportunities for longer term processing arrangements. Our plan is to hopefully deliver the feasibility study in late '20 or early '21. And with that timing, we should be able to make a go, no-go decision in '21 for that project, and advance it towards full production. By then, we'll have then completed our hydrological flow test which will provide us better understanding of how we'll have to deal with groundwater as we proceed with the project. Groundwater is very common in Nevada mines. But -- and also the completion of the permitting of the project. So it is expected to be a project that we can drive forward into development with our current cash and cash flow in addition to what we're doing at South Arturo. And we're doing -- taking all steps we can to de-risk it through permitting feasibility study and eventually it becoming a big part of our company's production growth in the future.

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

Bryce Adams, CIBC Capital Markets, Research Division - Analyst [17]

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

Just switching to the near term, Mercedes throughput average is just around 2,000 tonnes a day in Q4, that's a good result to see that. Has that been maintained year-to-date in 2019 for January and February, is it in line with our Q4 performance?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [18]

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

Yes, Q4 was quite exceptional. We produced more than we generally expect -- Mercedes more. Month-by-month we target 20,000 sort of open to have 18,000 to 22,000 per quarter, depending on which areas we're mining and when. I'd say January was very stable. February, we had a few issues. Fairly major snowstorms actually at one point in that area, in an area that's not used to seeing significant snow, put a few delay in February, and significant rains during that period. So it's a mine that, rainy season you have a few challenges owing to conditions, and when it's not raining it's much easier to operate. So it's a mine we expect will see ups and downs month-by-month depending on where we're mining. But, yes, it's been very stabilized this year in general and we expect to have a good March here and continuing to towards year-end when we expect to bring the Marianas online.

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

Bryce Adams, CIBC Capital Markets, Research Division - Analyst [19]

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

So 2019 guidance would assume 2,000 tonne a day for the full year?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [20]

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

Yes, we're doing our best to achieve 2,000 tonnes a day.

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

Operator [21]

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

Your next question comes from Andrew Mikitchook of BMO Capital Markets.

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

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [22]

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

All my questions have already been asked, but can someone comment on the sustaining and/or development CapEx to be expected for Mercedes for 2019?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [23]

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

Our CapEx at Mercedes for this coming year, Andrew, sustaining in the order of around $10 million, our exploration related capital book for and expansion just over $2 million.

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

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [24]

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

So $10 million, $4 million and $2 million, in total $16 million?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [25]

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

Yes.

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

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [26]

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

And just before I sign off, can you just walk again through this whole South Arturo pre-commercial designation of these ounces, and how that would be reflected on the financials and against this $39 million share of your CapEx for the development of these 2?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [27]

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

Maybe I'll start this. I'll let Steve finish it. Right now because of the ongoing development, we're not sure exactly what month the processing will start. All I can say is that according to the most recent model that we've been provided, we do expect to be accessing ore in the El Niño underground during Q3. Mining would likely begin during Q3. However, no exact certainty of when and how much of the ore would be processed through the roaster. It could start right away, it could start later in the year. So with that, we have to be a bit cautious on when we officially declare commercial production and then we can start to assess costs outlet. And then the stockpiled material, we've been notified or guided that there will be some processing from the Phase 2 stockpile, its timing and how much. So I hope that we're being quite conservative in our guidance for South Arturo, but I'll let Steve talk about the implications of why that pre-production.

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [28]

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

Andrew, and really it's what Ewan said. I mean, for us to be able to make that declaration of commercial production, we need to see those sustained production levels coming out of Arturo. And we don't - we are not anticipating that that will occur until next year. But through the development phase, we do expect to encounter some recoverable ounces as we work through the development work. And so there is value that we'll derive from those ounces and the accounting treatment for those -- for this sort of arrangement is or sort of situation is that those -- the revenue, the value of that -- the metal is not shown as an -- as a revenue piece, it's actually just a reduction of your ongoing development cost until you establish that commercial production level.

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

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [29]

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

And just to be clear that $39 million is -- I think, Ewan says that excluding, that doesn't assume any pre--

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [30]

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

It does. It does not.

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

Andrew Rostislav Mikitchook, BMO Capital Markets Equity Research - Analyst [31]

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

--commercial gold sales at all?

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

Steven J. Filipovic, Premier Gold Mines Limited - CFO [32]

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

It does not. No, I mean, obviously we -- until we encounter those ounces and clearly there is a sale would have to occur on those ounces to derive a value that we could be disclosing to demonstrate some sort of an offset against that, right? And so the $39 million is not net of value from the pre-commercial production ounces.

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

Operator [33]

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

Your next question comes from [Humphrey Kerry].

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

Unidentified Analyst, [34]

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

I'd like to continue the discussion about South Arturo. Just remind me 2 things. 1, are you -- when are you going to give us any indication how much production there might be from those 2 projects in 2020? And the second question is more for -- on the finance side. Clearly, there is going to be quite a large buildup of inventories and stockpiles, particularly as you don't know exactly when your ore is going to be processed. Has that amount being allowed for in the total $100 million that is being spent on these projects or is that in addition that you may need some cash to finance those stockpiles?

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

Ewan Stewart Downie, Premier Gold Mines Limited - President, CEO & Director [35]

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

No. All of the costs that we are assuming have been accounted for. We -- part of the reason why we haven't been able to give a great clarity on expected production from the next couple years is the ongoing work being done at Phase 1. The Phase 1 open pit is currently being called -- what we call a test project in terms of autonomous trucking. And some assumptions are being made related to that program in terms of cost per tonne. However, we haven't been running that program long enough to make a concrete assessment on whether the operation will utilize autonomous over the long term. If the test isn't as favorable as planned, we would plan on going to manned vehicles. And the costing on that per tonne is higher, so there is a different ounce expectations should we do autonomous then manned trucks. So until we complete the test and make a definitive decision on which direction that's going to go, we've decided not to guide ounces, because it could change in terms of which method is used utilized going forward. Also we have not made a firm decision on the heap leach yet. The material -- heap leach material that we're currently mining as part of the pre-strip is being stockpiled for potential processing in the future. So that does -- we recognize it does making a bit difficult in terms of providing terrific guidance on the project. However, as we progress this year and make a definitive decision on which way we're going to go, the mine plan should then be more concrete. And we do continue to intend at hopefully some point mid-year or early in the third quarter to provide longer term guidance for both the underground and the open pit.

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

Operator [36]

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

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

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

Matthew Gollat, Premier Gold Mines Limited - VP of Business Development [37]

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

Well, thanks everyone for joining us on the call this morning. I hope you've got a lot out of it. If you have any further questions feel free to call any of the team here at Premier. Ewan, Steve, myself are all available to talk through any of the points on -- brought up on the call today. And with that, I'd like to turn it back over to the operator. And that thank you very much.

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

Operator [38]

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

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