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Edited Transcript of ROXG earnings conference call or presentation 13-May-20 12:00pm GMT

Q1 2020 Roxgold Inc Earnings Call

VANCOUVER May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Roxgold Inc earnings conference call or presentation Wednesday, May 13, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graeme Douglas Jennings

Roxgold Inc. - VP of IR

* John Andrew Dorward

Roxgold Inc. - President, CEO & Director

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Presentation

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Operator [1]

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Good morning and welcome to the Roxgold 2020 First Quarter Earnings Results Conference Call. My name Polly and I will be your conference operator today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the call over to Graeme Jennings, Vice President, Investor Relations. Graeme, please go ahead.

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Graeme Douglas Jennings, Roxgold Inc. - VP of IR [2]

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Thank you, operator. Good morning, everyone, and welcome to Roxgold's 2020 First Quarter Financial Results Conference Call.

Today on the call, we have John Dorward, President and CEO; Vince Sapuppo, Chief Financial Officer; Paul Criddle, Chief Operating Officer; and Paul Weedon, Vice President, Exploration, all of whom will be available for questions following the presentation.

Please note that certain statements made on today's call may contain forward-looking information subject to known and unknown risks, uncertainties and other factors. For more information, we refer you to our detailed cautionary note within last night's press release. Also, please note that all amounts are in U.S. dollars unless otherwise stated.

I'll now turn the call over to John to take you through our results.

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [3]

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Thank you, Graeme, and good morning, everyone.

Thank you for joining our 2020 first quarter results conference call today. The start of 2020 has been an unprecedented time in the market and in our lives. While the world continues to adapt and manage the current pandemic, Roxgold's operating team has faced this adversity with attentiveness and rigor. Our regional teams have done an impressive job employing the foresight and initiative to introduce comprehensive protocols at all our sites and offices to manage and mitigate the impacts of COVID-19 on our employees and contractors.

Our Yaramoko mine complex is currently 100% coronavirus free, thanks to the rapid response of our employees and the protocols we have put in place. The company has continued to enhance its testing and on-site medical support as well as reducing all nonessential mine site personnel. As a result, Yaramoko continues to operate well with a strong quarter to start the year. Gold production for the quarter totaled 32,380 ounces compared to 33,652 ounces produced in Q1 last year. The Yaramoko mine complex mined a total of 134,472 tonnes, which was a 37% increase over the same period last year, as Bagassi South in the 55 Zone continued to operate well together to feed the processing plant with a near record 125,879 tonnes processed at a combined head grade of 8.7 grams of gold per tonne in the quarter.

I'm pleased to report a strong safety performance continued at site with no lost time injuries reported in the first quarter, and our operations approaching 5 million hours of LTI free. On a security basis, our operations in Southwest Burkina Faso continue to operate without incidents. We are regularly assessing and improving our safety measures and practices at site and in our communities, reinforcing the mandate that the health and safety of our employees is the primary priority for our company.

Turning to financial results in the quarter. With an average realized gold price of $1,595 per ounce, Roxgold generated cash flow from mining operations of $25.4 million or $0.07 per share and adjusted EBITDA of nearly $20 million, representing an EBITDA margin of 41% in the quarter. Roxgold realized the cash operating cost of $566 per ounce produced and an all-in sustaining cost of $1,058 per ounce sold. The all-in sustaining cost is attributed to increased decline events and waste development at Bagassi South, which is weighted towards the first half of the year as well as lower gold sales due to COVID-19-related timing of gold shipments at the end of the quarter, which has an unfavorable impact on all-in sustaining cost of approximately $40 per ounce sold. In addition, higher royalty payments as a result of higher gold prices together with the introduction of the new 1% community royalty increased AISC to the tune of an additional $30 per ounce.

We continue to maintain our focus on unit cost improvements, with our operating costs on a per tonne basis achieving a record low of $146 per tonne in the quarter. The operating cost improvement, combined with the strong gold price, resulted in record realized margins of $938 per ounce in the first quarter, an increase of 20% from the prior period. We continue to focus on opportunities to improve mine productivity and plant efficiency while identifying sustainable cost reductions across our business.

Roxgold finished the quarter with $50 million cash in gold doré on hand. Since the end of the quarter, we have continued to make gold shipments as the flow of freight in and out of Burkina Faso has continued. As the impact of the coronavirus accelerated in March, the company drew down the remaining $15 million of its revolving credit facility to maximize cash reserves and reduce liquidity risk given the volatile and uncertain financial market conditions.

Meanwhile, on operations, Yaramoko continued to have a good quarter with a strong cash flow from mining operations of $25.4 million. The company ramped up its exploration spend in Q1 following the strong results at Séguéla and in the lead up to the preliminary economic assessment announced after the end of the quarter.

Based on our first quarter results, we have maintained our production guidance of 120,000 to 130,000 ounces of gold for the year. That being said, the strong start to the year has been achieved against the headwinds of the current coronavirus pandemic, which is challenging businesses and countries around the world. Should a prolonged COVID-19-related interruption occur, there could be an impact on current guidance. We have increased our supply of consumables at site and have multiple contingency plans in place to help mitigate impacts should there be an escalation in the current environment.

Looking at costs. We continue to be vigilant on predicting and maximizing our margins and are reiterating our cash operating cost guidance of $520 to $580 per ounce produced and an all-in sustaining cost of $930 to $990 per ounce sold. The higher all-in sustaining cost this year is forecast to be temporary as the Bagassi South decline development will be completed this year, after which, our all-in sustaining costs are expected to return to a steady-state level of between $750 and $850 per ounce going forward. It should be noted that this additional development cost for Bagassi South is weighted towards the first half of the current year.

Our exploration budget for the year is expected to be within the range of $15 million to $20 million as we accelerate the drill program at Séguéla, following up the recent exemplary drill results at Ancien and Agouti and test additional satellite targets to grow the project further.

As many of you know, we announced our Séguéla preliminary economic assessment last month, which outlined a very robust project with exceptional prospective project economics. Séguéla has been a substantially value-accretive acquisition for Roxgold as the project has the potential to double our production within a short frame of time without dilution to our shareholders. As such, Séguéla has become the company's highest priority initiative, and we are focused on advancing the project feasibility studies ahead of an ultimate construction decision early next year. To ensure we will continue to advance the project, we will be filing our environmental social impact assessment imminently with the goal of receiving our permits by the end of the year. With a significant portion of our infill program complete, the key outstanding items on the critical path towards the feasibility study include advanced engineering and geotechnical drilling. Our drilling team has resumed operations at Séguéla this week, and we believe we are on track towards completion of the feasibility study early next year.

One of the highlights of the last 6 months for Roxgold has been a discovery and advancement of consistent high-grade mineralization at Ancien, located approximately 6 kilometers south of Antenna and currently host to an open-pit inferred resource of 261,000 ounces at a grade of 6.1 grams per tonne. At these grades, Ancien provides very high-value, high-margin ounces early in the mine life of Séguéla. Drilling is ongoing at Ancien. The updated resource in the PEA used to drill hole data cutoff in early February this year. And since then, we have continued to delineate additional high-grade mineralization along strike and at depth. While we believe our infill program has been successful converting a portion of the in-pit material previously categorized as waste into mineralized material, these successes suggest the potential to extend the pit shell and add meaningful ounces for inclusion into the feasibility study.

Meanwhile, we will continue to test the extension potential depth at Ancien. Recent high-grade results at depth have supported the strength of the high-grade shoot below the pit base and support the potential for an additional mineralized shoot below the main on same structure. Not only will these results likely increase the lateral and depth extent of the current open-pit resource, but they also highlight the potential for a future underground operation, which we intend to fully investigate.

At Agouti and Boulder, located less than 2 kilometers to the east of Antenna, we have completed over 15,000 meters of drilling, resulting in a maiden inferred resource of a combined 183,000 ounces new surface. Both deposits remain open along strike and at depth, and we will be conducting additional extension drilling at both of these targets for inclusion into the feasibility. A high-priority drill target is the highly prospective 1.2 kilometer corridor between the 2 deposits, which has seen a core testing previously with indications of mineralization similar to what we see at Agouti, suggesting that the 2 deposits may connect. This corridor will see initial testing over the coming months as we move our drill program from feasibility support to resource growth initiatives.

Looking beyond Antenna, Ancien, Boulder and Agouti, it is important to note that in less than a year, our exploration program returned material intersections from 5 of the first 7 targets identified with an additional 21 targets on the property yet to be tested, and we are continuing to uncover more. We intend this year to resume testing of these targets with high-priority targets, including Folly, P1, P7 and Elephant. With the success we have had to date and the growing understanding of Séguéla's geological setting and structural mineralization controls, we believe there is further potential to add significant ounces to the project.

So as I have stated, the Séguéla project is a high-priority initiative for the company as it has the potential to make a meaningful impact to our production and cash flow profiles within a short time frame. Furthermore, we expect to see the project improve as we advance it through feasibility and into construction. It is important to remember that this PEA is just a snapshot in time of what the ultimate value of Séguéla will be. The Séguéla project is a very capital-efficient project, requiring an initial capital outlay of $142 million while returning an after-tax net present value attributable to Roxgold of $268 million using a gold price assumption of (inaudible) that is a multiple of the capital requirement, we are seeing the type of project that Roxgold likes to build.

We intend to finance Séguéla ourselves using internal funding and a modest amount of debt. We will be able to utilize our strong balance sheet, cash flows generated by Yaramoko and the debt capacity available to ensure that our shareholders can fully realize the benefits of the exceptional growth profile of this project. We intend to fully finance the development of Séguéla without recourse to our shareholders, which brings the potential to more than double our production, reserves and cash flow without expanding our share count.

Quickly turning to the production profile. It is clear that extending the early year production levels is a key priority for us. And we are confident that this profile can be maintained as we see additional mineralization emerging from our current deposits, Ancien and Agouti, as well as the high-priority targets elsewhere on the Séguéla properties. We have built significant flexibility into the project to ensure that exploration success, either through discovery of additional deposits or expansion of current resources, will allow us to maximize the potential of the project.

Meanwhile, back at Yaramoko, in the second half of this year, our decline will reach the 4,700 level, which is approximately 600 meters below surface. We are planning to construct underground drill stations on the 4,700 level to conduct a comprehensive underground drill campaign towards the goal of converting and upgrading our resources and extending the deposit at depth where the ore body remains open.

Some of our best holes have been at depth, as highlighted by Hole 4.6 (sic) [Hole 426], which returned a broad intersection of nearly 24 meters of 20 grams per tonne. So we are looking forward to resuming this program. Additionally, the underground drill platforms will allow us to conduct some brownfields exploration as we intend to test the footwall of the 55 Zone for potential additional structures, which have never been tested.

In closing, this year is proving to have its challenges. It is also promising to be an exciting year for Roxgold. We are intent on moving this company ahead, focusing on controlling that which we can control and mitigating ourselves from the impacts of that which we cannot. The company continues to see strong and steady production in cash flow generation from Yaramoko, which we are reinvesting into the next leg of growth at Séguéla, building Roxgold into West Africa's next multi-asset producer, a bigger, better and more resilient company for our shareholders into the next decade.

Thank you for your time this morning, and we would now like to welcome any questions.

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Operator [4]

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(Operator Instructions) And at this time, there are no audio questions. (Operator Instructions) And again, at this time, there are no audio questions. And are there any closing remarks?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [5]

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I'd like to thank everybody for joining the call today. Any follow-up questions can be addressed through myself or Graeme. We look forward to speaking to you again when we report our Q2 results. Have a good day and stay healthy. Thank you very much.

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Operator [6]

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And thank you for your participation. This concludes today's conference. You may now disconnect.