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Edited Transcript of TMR.TO earnings conference call or presentation 15-Aug-19 2:00pm GMT

Q2 2019 TMAC Resources Inc Earnings Call

TORONTO Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of TMAC Resources Inc earnings conference call or presentation Thursday, August 15, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David King

TMAC Resources Inc. - VP of Exploration & Geoscience

* Gilbert John Frederick Lawson

TMAC Resources Inc. - COO

* Jason R. Neal

TMAC Resources Inc. - President, CEO & Director

* Lisa Wilkinson

TMAC Resources Inc. - Director of IR & Strategic Development

* Marthinus Wilhelmus Theunissen

TMAC Resources Inc. - CFO

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Conference Call Participants

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* James Huntington

Scotiabank Global Banking and Markets, Research Division - Associate

* Raj Udayan Ray

Desjardins Securities Inc., Research Division - Analyst

* Thomas Gallo

Canaccord Genuity Corp., Research Division - Associate Analyst

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Presentation

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Operator [1]

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Welcome to the TMAC Resources Inc. Second Quarter 2019 Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Lisa Wilkinson, Director, Investor Relations and Strategic Development. Please go ahead, Ms. Wilkinson.

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Lisa Wilkinson, TMAC Resources Inc. - Director of IR & Strategic Development [2]

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Thank you, operator, and good morning, everyone. On behalf of my colleagues, I'd like to welcome everyone to our second quarter 2019 conference call. I'd like to remind listeners that on this call, we will be making forward-looking statements. We refer you to our cautionary statement in the news release issued Wednesday, August 14, after the market closed and in the MD&A for the quarter filed on SEDAR and posted to our website. All forward-looking statements on this call are qualified by those cautionary statements. Also, please note that all dollar amounts mentioned in this conference call are in Canadian dollars unless otherwise stated.

On the call today, we have Jason Neal, President and Chief Executive Officer; Gil Lawson, Chief Operating Officer; Maarten Theunissen, Chief Financial Officer; and Dave King, Vice President, Exploration and Geoscience. Following the prepared remarks they will be available to answer questions. This conference call is being webcast and will be available for replay on the website.

I will now turn the call over to Jason Neal.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [3]

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Thank you, Lisa, and good morning, everyone. On this call, we're going to cover the quarterly operations and financials as well as the transaction we announced yesterday to strengthen the balance sheet. I will provide an overview in my introductory comments and then hand over to Gil and Maarten for elaboration. I have also invited to this call Dave King, our VP, Exploration, Geoscience, to provide an exploration update including interesting results from yesterday.

The most topical news to open the call today is the highlights of royalty amendment transaction we agreed with Maverix that is scheduled to close tomorrow. The transaction strengthens the balance sheet with gross proceeds of CAD 57 million, which enables ongoing investment in the growth at Hope Bay while providing a buffer against operational volatility as well as funding support for our sealift. We evaluated a number of options, but this is the one with the lowest cost of capital, provided our current shareholders with the greatest exposure to strengthening gold price and leaves us with the greatest ongoing financial and strategic flexibility. Maarten will talk about the details of the royalty amendment later in the call.

In the second quarter of 2019, we reported consecutive quarters of earnings with net profit of $0.01 per share on revenue of $66 million, with an average realized gold price of $1,310 per ounce. Listeners on this call without a doubt are keenly aware of strengthening gold prices, and TMAC is a significant beneficiary in both current operations and what it means to find an undiscovered gold mineralization endowment of Hope Bay. As previously reported, quarterly production has modestly declined as a result of reduced plant recoveries from 84% to 80%, which in turn has contributed to an increase in the all-in sustaining cost and cash cost to $1,081 per ounce and $729 per ounce, and $1,036 per ounce and $693 per ounce year-to-date, respectively. Production in the second quarter was 38,520 ounces and 78,570 ounces year-to-date. Sales, which is the divisor for cash cost and all-in sustaining cost, were 37,730 ounces for the second quarter and 76,930 ounces for year-to-date.

The commissioning of the additional gravity concentrators and other plant retrofitting was completed in the second quarter of 2019, and the gravity project is now complete with the second surge being in full operation as of the 1st of July. We are confident that the plant has the capability to process 2,000 tonnes per day on average. We are disappointed that we experienced reduced second quarter recoveries of 80%, which was caused by lower availability of gravity concentrators due to commissioning challenges, and as a result, greater pressure is placed on the resin performance. The scavenger columns to treat solution tails, which have been in design since the beginning of the year and Board approved in the second quarter, will be installed during the third quarter and commissioned in the fourth quarter. We're expected to materially improve concentrate treatment plant recovery with this project.

On July 15, when we announced our operating results for the second quarter, we also announced exploration results for the second quarter activity. Underground diamond drilling on the Doris North BTD Extension continues to expand the high-grade mineralization to the north, and we intersected mineralization in the surface step-out a further 325 meters north that has the potential to nearly double the strike length of the BTD Extension zone. At Madrid North Suluk, drilling intersected positive results down to the 660-meter level, demonstrating the significant potential below the current indicated mineral resource, which is established down to approximately 300 meters. I encourage listeners today to review the Q2 exploration release found on our website. And yesterday morning, we provided a further exploration update to provide information broadly that was shared with Maverix as part of their due diligence. We continue to have strong drilling results in the growing Doris North BTD Extension zone. Additionally, initial results in a new zone we're calling Doris Valley, a part of our Doris regional exploration program, are intriguing, and we're evaluating our follow-up strategy. I'm not going to steal Dave's thunder and allow him to take everybody through these results.

We decided to do a midyear update to our guidance for 2019, which for the most part is a narrowing of the already established guidance ranges. We are narrowing our initial guidance from 180 to 180 -- I'm sorry, 160,000 ounces to 180,000 ounces to now be 170,000 ounces at the top end. Cash cost and all-in sustaining cost guidance have been updated to reflect the change in the production guidance as well as a modestly strengthening Canadian dollar and the additional forecasted royalty payments to Maverix. Cash cost guidance has been narrowed within the existing range, with the low end increasing from $625 per ounce to $650 per ounce. All-in sustaining cost has been increased by about 5% to now be $950 per ounce to $1,050 per ounce. Sustaining capital has increased slightly to $55 million (sic) [$57 million], up from $54 million. However, the allocation of funds has changed. Underground development guidance has increased by $9 million related to updated mine plan to include additional development for the remainder of 2019 to develop mining faces required for 2020 mining. To offset the increase, sustaining capital for infrastructure and equipment decreased by $6 million due to deferred projects.

In the second quarter, the Board approved the addition of 2 key capital investments, including additional mining equipment to begin the portal and decline at Madrid North for advanced exploration, as it is important to advance the second potential mine at Hope Bay. Our capital project to improve gravity recovery is complete but highlighted the capacity constraint of the concentrate treatment plant, and the purchase and installation of the scavenger circuit was approved to address gold in solution losses. These items, together with an increase in capital for the ocean discharge project, which included a scope change to add water treatment, form approximately 90% of the increase in our expansion capital guidance from $20 million to $36 million.

I'm going to hand the call to Gil Lawson next, who today is calling in from the Hope Bay mine, to cover operations, followed by Maarten, who will discuss the financial results, before concluding with a brief discussion of our path forward. And of course, in that gap as well, Dave King going through some exploration. Over to you, Gil.

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [4]

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Thank you, Jason, and good morning to all from the North. I'll start with an update on plant performance this quarter. In the second quarter of 2019, the plant processed an average of 1,740 tonnes per day at a grade of 9.5 grams per tonne and achieved an average recovery of 80%, which resulted in production of 38,520 ounces. Our recoveries decreased in the second quarter to 80%, related to lower availability of the gravity concentrators due to commissioning challenges. And as a result, greater pressure was placed on resin performance. The amount of gold lost in increased solution tails from the resin column substantially accounts for the reduction in overall gold recovery versus the first quarter. Issues with resin performance and higher throughput have been anticipated but were compounded by poor gravity concentrator availability. The scavenger columns to treat solution tails will be installed during the third quarter and are expected to materially improve concentrate treatment plant recovery. Our project to improve gravity recovery is now complete with commissioning completed in the second quarter of 2019. Installation of the first surge bin between the crushing and grinding circuits was completed during the first quarter and commissioned in April. The second surge bin was installed in the second quarter and became operational on July 1 of this year.

The surge bins, once commissioned, have been successful in improving stability in the flotation circuit and have also resulted in the plant achieving increased throughput. We processed an average of 1,940 tonnes per day in May and June combined, including a 21-day period that averaged more than 2,000 tonnes per day to close out the quarter. We are now confident that the plant has the capability to consistently process 2,000 tonnes per day on average, which was a key 2019 target, achieved sooner than expected.

Underground mine production in the second quarter of 2019, was 105,800 tonnes or 1,160 tonnes per day of ore at a grade of 11.4 grams per tonne, containing 38,900 ounces of gold. This production includes 91,600 tonnes of ore at an average grade of 12.7 grams per tonne, produced from longhole stoping and sill development. Sill development contributed a further 14,200 tonnes at a grade of 3.5 grams per tonne, which is considered to be incremental ore.

Mining from the Doris Hinge zone in the second quarter was in line with our plan. However, we experienced some delays in sill production from Doris Connector and Doris BTD related to issues experienced with blasting stopes containing waste blocks and a lack of working faces being available due to development being behind plan. The high-grade BTD longhole sills have been resequenced to mine out in the remainder of this year. In the BTD extension, we've completed 4 ore sills by the end of the second quarter and have recently started a fifth. This area will grow in its importance in providing high-grade feed to the plant, and I can report that the ore has proven to be very complex. However, the grades have tracked well against the mineral reserve model to date despite the complexity. We look forward to developing further into the better grade sections of the mineral reserves going forward.

Work has started on the Madrid North Naartok East crown pillar. Surface infrastructure was essentially completed, and mining commenced with overburden removal progressing as per the plan, and the first blast of ore is planned in August. Metallurgical testing of the Naartok East ore has been completed to determine the most efficient blending strategies with the Doris ore. Mining of the crown pillar is estimated to produce 132,300 tonnes of ore at a grade of 5.6 grams per tonne during the last 5 months of 2019, or approximately 880 tonnes per day over a 5-month period commencing in August. The remainder will be mined in the first half of 2020.

Mine development productivities continued to improve in the second quarter of 2019 and achieved 1,840 meters, averaging 20.2 meters per day compared with 18.4 meters per day during the first quarter. This was lower than what was required to open up sufficient mining faces. Productivity was impacted by blasting delays caused by ventilation and water management issues. The mine operations continue to focus on increasing development productivity, and part of the additional development work in the second quarter included underground infrastructure and ventilation upgrades required to support increasing the development meters per day.

Slide 8 has a summary of operating statistics for the quarter. This is the data I have just gone through with a comparison of that same detail over prior quarters. We have had steady production this quarter, and we are focused on strengthening our performance each quarter.

I'll now turn the call over to Maarten to touch on the financial results in the quarter.

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [5]

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Thank you, Gil, and good morning. Our all-in sustaining cost and cash costs increased during the second quarter due to lower gold production and sales resulting from lower recoveries and grade while processing more tonnes. Tonnes are generally the cost driver, and drawing down on the stockpile inventory results in higher absolute costs in the quarter as it includes some mining cost from the prior periods that's recorded in the stockpile tonnes. The all-in sustaining cost for the quarter was USD 1,081 per ounce, which is 26% lower than the second quarter of 2018 and 8% higher than the first quarter. The sustaining CapEx in the second quarter of 2019 was $12.8 million, contributing USD 254 per ounce. Cash cost in the quarter was USD 729 per ounce, which is 27% lower than the second quarter of 2018 and 10% higher than the first quarter of 2019.

We sold 37,730 ounces during the second quarter for proceeds of $66.1 million at an average price of USD 1,310 per ounce, which is in line with the average gold price of $1,309 for the quarter. The net profit was $1.2 million or $0.01 per share on a basic and fully diluted basis. Cash flows from operating activities of $21.5 million was lower than the previous quarter as we start making payments for the annual sealift during the back end of the second quarter. Adjusted EBITDA for the quarter was $24.3 million.

We ended the second quarter of 2019 with a cash balance of $45.4 million, of which $14.6 million was unrestricted, a decrease of $11 million from the first quarter. The restricted cash balance, which is restricted as it is posted as collateral for environmental rehabilitation obligation and future royalties to Inuit organizations, was $30.8 million at the end of June. During the 3 months ended June 30, 2019, NTI informed TMAC that the agreement entered into 2018 to reduce certain letters of credit related to payment security would not be extended. And thus, an additional $3.2 million of letters of credit were issued under the NTI production lease and mineral exploration agreement. These letters of credit were cash-collateralized. The $1 million posted for letters of credit issued under the NTI bonus were returned after the final commercial reduction bonus payment were made in June. Approximately $56 million of unrestricted cash will be added to our treasury on the closing of the royalty agreement and private placement, net of our estimated transaction costs.

We amended our 1% NSR royalty with Maverix Metals yesterday to include an additional 1.5% NSR for proceeds of USD 40 million that is included -- that includes the private placement for USD 3 million or 660,000 shares at a price of CAD 6 per share. There is a short-term incremental 0.25% NSR payable until Sprott debt facility is repaid. The incremental royalty serves as compensation for Maverix as the additional royalty cannot be registered on title, and Maverix also had to enter into a subordination agreement with Sprott. Once the Sprott debt facility is repaid by latest June 2021, an additional 1.5% NSR is registered against the property, the incremental royalty will fall away. There is a full buyback right to the entire 1.5% NSR for USD 50 million in the event of a change of control transaction that is announced before June 30, 2021. There is also partial buyback right, where TMAC can purchase 0.5% of the additional 1.5% royalty for USD 15 million after June 30, 2021, or earlier, if there is a change of control. There is a step-down of the additional 1.5% royalty, regardless of whether the partial buyback right has been exercised, to 0.75% after 3 million ounces of gold have been produced at Hope Bay from the effective date of August 1, 2019. We also have the ability to pay the quarterly additional royalty amounts with common shares at the then current share prices until June 30, 2021. The transaction is expected to close tomorrow. Overall, this transaction strengthens the balance sheet with proceeds of $57 million, to enable ongoing investment in the growth at Hope Bay, while providing a buffer against operational volatility as well as the funding support for our sealift in the future.

I'll now turn the call over to Dave to provide an exploration update.

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David King, TMAC Resources Inc. - VP of Exploration & Geoscience [6]

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Thank you, Maarten, and good morning.

Underground diamond drilling continued through the second quarter with 2 drill rigs active at the Doris mine. Also during the quarter, the North's belt regional drilling programs commenced, with 2 surface drill rigs active. As reported in mid-July, initial regional exploration drilling from surface near Doris mine intersected Doris deposit stratigraphy and mineralized quartz veins with visible gold noted a further 325 meters north of the established resources.

Following up on this, TMAC provided an exploration update yesterday morning to release the high-grade assay results from this new zone that we refer to as Doris Valley. To date, we have received assays from 5 surface holes drilled in the Doris Valley, and the initial results are intriguing, and we are evaluating a follow-up strategy. At Doris Valley, assays from holes include intercepts within the first 15 meters of surface, intercepting 7.7 grams per tonne gold over 7.5 meters, including a higher-grade interval of 11.8 grams per tonne gold over 4.3 meters; and a second hole near surface, 9 grams per tonne gold over 8.5 meters, including 15.4 grams per tonne gold over 2.3 meters. There is obviously a lot of work to follow up on this initial success and begin to build our resource base here, but the first drilling highlights the potential to grow our mineral resource inventory through even modest exploration investment. At Doris mine, underground expansion and infill drilling is ongoing in the high-grade Doris BTD Extension zone, and additional assays have been received since the July 15 news release.

Highlights from the underground expansion drilling program approximately 60 meters north of the established resources include 193 grams per tonne over 1.8 meters, 42 grams per tonne of gold over 0.6 meters and 333 grams per tonne gold over 0.6 meters. Underground infill and expansion drilling on the BDT Extension will continue through the remainder of 2019.

Both the underground and surface exploration programs this quarter have been extremely successful, expanding the BDT Extension zone at high-grade mineralization that will be mined in the near future. However, encountering similar mineralization on a significant step-out drill hole increases our confidence in the long-term sustainability of the Doris operation.

With that, I'd like to turn the call back over to Jason.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [7]

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Thank you very much, Dave. The first priority is quite obviously to build our cash flow margins. Gold price is doing its part, but we're not putting -- we're putting a lot on our own shoulders as well and not taking that strength for granted. The first pillar supporting that objective is, therefore, a continued focus on operational improvements in the plant. Our team remains confident in our targets. And as we approach these targets that relate to revenue generation -- throughput, recovery and grade -- we have greater ability to address unit cost performance. As the throughput of the plant increases, the performance of the mine becomes more important, and we are planning and executing on a plan that provides ore feed from multiple areas with a focus on ounces, not tonnes. Doris is ramping up, and our plans include a consistent contribution from higher-grade areas. And at Madrid, we have started the crown pillar recovery at Naartok East. Our strategy for further development at Madrid North is especially important to our 2020 and 2021 mine plans and beyond.

Our investment in drilling has nearly doubled in 2019 to 60,000 meters. Resource and reserve growth is essential to the value-generation potential of our company. Our exploration strategy in 2019 is a combination of BTD focused exploration at Doris, a targeted program at Madrid to help with -- to help make better near-term development decisions, a regional exploration program that includes the results that have been published with respect to near Doris, but also active on other areas of the belt. And at Boston, it's revitalization of a project that many believe is the crown jewel of Hope Bay. Ultimately, we generate the best value for our shareholders through long-term investment and strategic planning across the belt. While we drive near-term improvements, we are with equal vigor looking to the future. And as we work through our planning, we are identifying various alternatives, which we will have to evaluate against value, risk, capital intensity and funding criteria. The key is obviously getting ourselves in a position to make well thought-out and disciplined decisions.

With that, I'll turn the call over to the operator for question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Tom Gallo of Canaccord Genuity.

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Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [2]

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Really great exploration results you had there. I wanted to ask 2 questions pertaining to that. Firstly, maybe for Dave, can you elaborate a little bit more on the drill plan, both at BTD Extension from surface and the new surface discoveries to the north? Are you infilling, stepping out? Does this sort of change the plan? And some allocated meterage or number of drills, if you have any details on that.

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David King, TMAC Resources Inc. - VP of Exploration & Geoscience [3]

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Yes. So currently, we've been waiting and reevaluating the stratigraphy and looking at the data that we received from the Q2 drilling. So both those exploration rigs have moved to the mid-belt regional drilling, and then we're going to evaluate maybe moving back to the Doris North area in the fall. That program could conceivably be completed even during the winter period as we can build a winter access road. It doesn't necessarily have to be done during helicopter season. So we wanted to get the results back and do some reinterpretation before moving drills back there. Then the near-surface drilling, that could be related to a second stratigraphic repetition of the Doris stratigraphy or the zone that hosts Doris. The deeper intersections below the dike we're still looking at, but they appear to be the same sort of stratigraphic horizon as the Doris Extension zone. So obviously, more drilling to follow up, and we're evaluating when we can do that.

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Thomas Gallo, Canaccord Genuity Corp., Research Division - Associate Analyst [4]

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All right. Very Good. Secondly, I just wanted to try and roughly wrap my arms around the BTD extension. I know it's a difficult thing to quantify, but roughly, maybe for Gil, how many months of production do you see per 100 meters of strike at BTD?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [5]

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Well, our current mineral reserve has us being able to carry on consistent production out to -- into next year. And we're currently building the models to -- of the recent drill results, so we fully expect that to extend outwards. So in terms of dividing it into -- I would say, 100 meters gives us 3 to 4 months of mining.

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Operator [6]

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Our next question comes from James Huntington of Scotiabank.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [7]

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Just the first one. Could you please give some more color on the water management issues you experienced in the quarter? Was this just like regional inflow into the mine and the pumping couldn't keep up? Or was this just management of mine water?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [8]

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Yes. I can give you color on that. It's really related to the access to the [DCM] zone, which is our 2020 production area. And that's a primary decline access at single face and being in the deepest part of the mine. If we have any issues with our groundwater anywhere in the mine and if we have pumping issues, the water reports right to that face and causes the slowdown of the advance of that face. So that was primarily what it's referring to. Elsewhere in the mine, we generally don't have any particular water issues. If there are, they're very localized and very short-lived.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [9]

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Okay. Great. I'm glad to hear it's certainly in one spot. And then secondly, this -- once you install the scavenger columns in Q3, how -- what's the sort of ramp up do you expect until you sort of get -- start to see those incremental gains? Is it like awake once it's all plumbed in? Or is there going to be a bit of fine-tuning as well, like maybe a couple of weeks?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [10]

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Yes. It's in that 1- to 2-week range, I would estimate. It's really the -- as we've talked about, we're putting in 2 styles of scavenger column. One is a resin-based one. And the resin-based one, what it effectively is doing is doubling the amount of resin that we have to absorb gold out of solution from what we currently have. So these columns -- it's really -- they're not particularly complicated in comparison to, let's say, a gravity circuit. They are basically pumping solutions. They're not slurries. Relatively simple systems. And we're very good at the handling, the chemistry and the stripping and the loading of the resins right now. So it's really -- we anticipate that once we put the system in place, the benefits will be fairly immediate.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [11]

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I'll just elaborate a little bit and Gil jump in if I'm beyond my level of expertise here. Couple of other things about those scavenger columns. They're at the very back end of the process plants. So they are not disruptive to the rest, so we shouldn't have -- we shouldn't have any situation where we would say we've had throughput disruption related to those. The resin that we're putting in is a high-strength resin, which is -- it loads very well, but it strips poorly. And the reason that we're using that is the resin that comes off of that column plus the second column, which is a carbon-based column, that material is shipped off-site and burned. So it's not resin that we're stripping and reusing, so you won't hear about fouling issues and that sort of thing. It's -- the one thing that it will have though, and we have to figure out exactly what it is, is the production will be reported and then the sales will have some lag because it's not [door report] on-site. It's off. But we're protecting the value of the gold by doing this, and this is the best way for us to get the additional revenue despite that working capital of having loaded resins shipped. Anything else, Gil?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [12]

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Yes. And just -- I know we're diving into a bit of detail, but we do have the option to use our current resins. Because it's a multi-celled, the first scavenger column is a cascade system of 5 cells. So Jason described a strong base resin. That's more of an absorber. We also have the option of adding our current resins that we're using, which we call -- which are loadable and strippable on site. So with actual operating philosophy, we're going to be playing with that a little bit. And obviously, the goal is to have as much as local gold production as possible because we turn that into cash much quicker than shipping it off-site.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [13]

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Okay. And then what are the sort of size of the incremental gains you're expecting from the scavengers columns to your recoveries, that is?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [14]

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Let me start that and then let Gil go into it. So one of the things you would have seen in details in the MD&A, and just top of my head here, the -- I think we had -- of the gold that was put in the plant, 4% of the gold exited through solution losses in Q1. In Q2, because the issue we had with the gravity concentrators availability, the concentrate from flotation that went on to the CTP was higher grade, and that's where we ran into issues. And therefore, the resin having a 4% solution tail, we ended up having a 9% solution tail. Is that right, Maarten? Yes, 9%. So the potential is -- on a normal operating basis with these scavengers getting the 4% -- sorry, did I say -- on a consistent basis, getting the 4% -- some high proportion of the 4%, but then when we have any sort of upset and there's a potential for solution losses to spike that we are -- that we have certain insurance as well that we won't have those extraordinary losses. Sorry for talking in circles a little bit there -- is that clear?

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [15]

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Yes. I was thinking -- so like -- so you're saying it was going from like 4% to 9%. So you're sort of looking in sort of 5% gain to reduce that additional 5% loss?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [16]

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Yes. If I said it another way, in a normal operating time, where the gravity concentrators are doing what they're supposed to do, the solution losses would be something like 4%. And so the design level, when Gekko did the design and everything, was that that was supposed to be 1%. And so in a normal operating environment, the scavengers would provide a 3% uptick. But if we have solution losses spiking to 9%, then the potential is that 8% gap rather than the 3% gap. That's on Page 16 of our MD&A, if you want to take a look through, and all the numbers are there.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [17]

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Okay. Thank you. And then just lastly moving to Madrid. So last year, I understand you purchased some underground equipment for the bulk sample, the initial bulk sample you had planned. Has this equipment -- has that equipment been reallocated to Doris now and that's why you're acquiring more? Or has the scope for the Madrid underground increased requiring the additional equipment?

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [18]

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So Maarten, if you want to take that.

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [19]

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Yes. So because of the explorational success at BTD, we've been doing additional development in that area. So some of the equipment has been used there. We didn't use all of it, probably 70% to 80% of it, so the -- we are replacing some of that equipment with this purchase.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [20]

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And then just what is the equipment, like a jumbo and a LHD? Or is it just some auxiliary equipment?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [21]

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Jumbo, bolster, LHD. It's a typical fleet that you would see for driving a decline.

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James Huntington, Scotiabank Global Banking and Markets, Research Division - Associate [22]

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Okay. And then is this expected on the current sealift? Or is this going to be for the year?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [23]

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It's on the boat.

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Operator [24]

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Our next question comes from Raj Ray of Desjardins Securities.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [25]

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Just a quick question on the development rate for Q2. Now it did see uptake, but you mentioned that there is potential for improvement on that. So what's the target development to your rate you're looking at and with the infrastructure improvement and ventilation improvement you've done in Q2? And also you mentioned that you're putting in a third jumbo crew. Are you expecting to hit that development rate in Q3 or anytime in second half of the year?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [26]

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Yes. I can speak to that. We've done -- what we're seeing, without spilling the beans on Q3 results, but we are seeing an improvement from the Q2, which is consistent with the plan that we need to achieve. And our target is to roll over 9 rounds per day, which is approximately in that 25 to 27 meters per day, depending on which jumbo takes the round, obviously the mix. So the -- we're on track and heading in the right direction and pulling things together. So just a kind of flavor of the direction I can give you.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [27]

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Okay. And you said you're already hitting those rates now?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [28]

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We're substantially heading towards there. We're getting close, but we're not quite at the 9 rounds per day.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [29]

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Okay. And on the processing front, Gil. With the scavenger columns in place, is there an incremental increase in your operating cost? Or is it pretty minimal?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [30]

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I would describe it as very minimal. And the one -- the biggest benefit other than the higher recovery of the solutions gold is it's going to allow a change in our operating philosophy. Right now, we have a recirculating load in that circuit that from a chemistry point of view contributes significantly to the following challenge we have. And with the higher capacity to do -- absorb solutions with the 2 columns in place, we'll be able to engineer a flow-through system, and that's going to substantially reduce our fouling issues. So there's a lot of benefits that the scavenger column is going to have other than just a higher immediate recovery because that -- a flow-through philosophy will allow us to optimize processes now, the leaching processes and gravity processes upstream of the scavengers. So there's still more things we'll be talking about, about the benefits in the future. And from a cost point of view -- and the cost point of view, it's not very -- there's not much impact at all.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [31]

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And can you talk briefly -- you did mention that you're seeing overloading of the resin. So what's the concentration of the gold going into the resin circuit right now versus what it should be once the gravity circuit is optimally performing?

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Gilbert John Frederick Lawson, TMAC Resources Inc. - COO [32]

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They performed fairly well in the 20 to 30 gram per tonne when the solutions are in that operating range. And that -- we get that when the gravity machines are operational and running. We described how we had some issues of operating time in the quarter, and what ends up happening is the flotation does pick up that gold, turns it over to CTP. And we saw in the quarter often solutions up to 100 grams per tonne or greater entering the columns. And when we send that much gold into the columns, they really have a difficult time absorbing that much gold, and the solution losses blossom in those environments. So yes...

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [33]

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One last question for Maarten. Maarten, of the $14.6 million cash that you had, how much of that was flow-through dollars versus hard dollars?

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Marthinus Wilhelmus Theunissen, TMAC Resources Inc. - CFO [34]

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We've spent about 40% -- 40% to 50% of our flow-through dollars to the $15 million that we have to spend this year. So the balance of that would be 7% to 8%.

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Jason R. Neal, TMAC Resources Inc. - President, CEO & Director [35]

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One thing about the flow-through, obviously, is -- remember this, the drilling at underground at Doris is not flow-through-eligible. So our flow-through for the year, certainly, the regional and around Madrid, was qualified. And so that's some of the summer programs. Then obviously, Boston is part of that, and that's ramping up. And we're very excited to be able to start talking about Boston again, maybe a little bit in Q3, but certainly as we get to -- get our full year, hopefully there will be a lot more to say.

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Operator [36]

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(Operator Instructions) This concludes the question-and-answer session. I will now turn the conference back over to Ms. Wilkinson for any closing remarks.

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Lisa Wilkinson, TMAC Resources Inc. - Director of IR & Strategic Development [37]

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Thank you, operator. Thanks, everyone, for joining us today. If you have any further questions, feel free to reach out, and have a good day.

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Operator [38]

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