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Edited Transcript of VGZ earnings conference call or presentation 31-Oct-18 4:00pm GMT

Q3 2018 Vista Gold Corp Earnings Call

Littleton Nov 19, 2018 (Thomson StreetEvents) -- Edited Transcript of Vista Gold Corp earnings conference call or presentation Wednesday, October 31, 2018 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frederick H. Earnest

Vista Gold Corp. - President, CEO & Director

* John F. Engele

Vista Gold Corp. - Senior VP & CFO

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Conference Call Participants

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* Heiko Felix Ihle

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter Financial Results and Mt. Todd Update Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. Today is Wednesday, October 31, 2018.

It is now my pleasure to introduce Vista's President and CEO and your host, Mr. Fred Earnest. Please go ahead, Mr. Earnest.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [2]

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Thank you, James. Good morning, ladies and gentlemen. Thank you for joining Vista Gold Corp.'s 2018 Third Quarter Financial Results and Mt. Todd Conference -- Update Conference Call. I'm pleased to be joined on this call this morning by Jack Engele, our Senior Vice President and CFO; and Connie Martinez, our Director of Investor Relations, both of whom are here with me in our corporate office in Denver.

In the course of this call, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Vista to be materially different from any future results, performance or achievements expressed or implied by such statements. I invite you to refer to our Form 10-K for a detailed discussion of results and risks -- I'm sorry, a discussion of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements.

I'll now turn the time over to Jack Engele to discuss the financial results for the quarter.

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John F. Engele, Vista Gold Corp. - Senior VP & CFO [3]

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Thank you, Fred. Good morning, everyone. I’ll start with our balance sheet for September 30, 2018. Our working capital totaled approximately $15 million on September 30, which included cash and T-Bills of about $10.2 million. The company continues to be debt-free.

Turning to our statement of income and loss for the quarter ended September 30, 2018. We reported a net loss of $2.1 million or $0.02 a share for the quarter. The loss is comprised of $1.9 million of operating expenses, a $0.3 million mark-to-market loss on our investment in Midas Gold Corp., offset by other income of about $0.1 million. The main components of the $1.9 million of operating expenses included $0.6 million of fixed-site management cost at Mt. Todd, about $0.2 million of discretionary programs at Mt. Todd, about $0.8 million of fixed corporate G&A costs, and about $0.3 million of noncash stock-based comp and depreciation.

Q3 2018 fixed costs at Mt. Todd were consistent with 2017 levels. Q3 2018 corporate administration fixed costs trended marginally higher than our Q3 2017 fixed costs, mainly attributed to an increased focus on our investor relations programs. Discretionary programs at Mt. Todd are lower in 2018 than in 2017 because several large programs, ore sorting studies, met testing, the PFS update, for example, were completed through the course of 2017.

Looking ahead, through 2018, as Fred will explain in a minute, we expect to complete additional crushing, ore sorting and grinding tests as well as a modest drilling program on our exploration licenses or ELs, particularly on the Wandi IOCG target. We are also undertaking a drilling program in Quigleys, which we believe could be a future source of supplemental higher-grade mill feed.

We expect our 2018 fixed costs at Mt. Todd, in Australian dollar terms, to trend approximately 20% higher than in 2017. Offsetting this, we expect our 2018 discretionary programs at Mt. Todd to trend 45% to 50% lower than our 2017 discretionary programs.

Similarly, we expect 2018 G&A fixed costs to trend about 20% higher than our 2017 fixed costs.

On October 24, we announced that we had agreed to extend the due date for the second $1.5 million option payment for the Guadalupe de los Reyes project in Sinaloa, Mexico by 6 months to April 23, 2019. As consideration for the deferral, the company will receive an additional $150,000 in cash, $50,000 of which was paid on October 24, and $100,000 of which Minera Alamos Inc. has agreed to pay by January 23, 2019.

In addition, Minera Alamos has agreed to pay interest at a rate of 1.5% per month on the unpaid balance of the $1.5 million payment, beginning January 24, 2019. The payment deferral was driven by delays that Minera Alamos experienced in arranging the financing. It's not driven by any project technical concerns. Interest at 1.5% per month after January 24 should motivate them to make the payment as soon as their financing has been completed.

We continue to believe that our existing working capital, together with potential sources of non-dilutive financing, will be sufficient to fully fund our currently planned fixed costs and discretionary programs into 2020. We continue to pursue non-dilutive financing opportunities, including the sale of our used mill equipment and the future option payments for the Guadalupe de los Reyes project. In addition, we maintain the option of being able to sell some or all of our remaining Midas Gold shares at a future date

That concludes my comments. Over to you, Fred.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [4]

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Thank you, Jack. Since our last conference call, we have undertaken additional metallurgical testing as part of our ongoing effort to optimize the Mt. Todd process area and significantly improve the project economics through improved gold recovery. Some of these testing programs have been completed and others are ongoing.

This month, we completed additional high-pressure grinding roll crushing tests in Germany. A 1-ton test was completed in the facilities of Weir in Cologne, Germany. The results of that test were substantially similar to the previous test -- testing completed at the facilities of thyssenkrupp Industries. We also crushed 2 higher-grade samples, each approximately 2.5 tons each at the facilities of thyssenkrupp Industries near Düsseldorf in preparation for additional ore sorting tests.

After screening the HPGR product at 5/8 of an inch, the coarse material from the thyssenkrupp HPGR test was sent to Tomra Sorting Solutions. These 2 samples were sorted using the 2-stage sorting process consisting of X-ray transmission followed by laser sorting. The results of the sorting test were very consistent with previous test results on a material balance basis. And we are now waiting for the assay results from the various products of the tests. The sorted products and the fine material from the crushing tests are now on their way to Denver where additional metallurgical testing will be undertaken.

As we announced in July, we now expect project recoveries to exceed 90%. More importantly, the test work completed in July suggests that we may be able to achieve a constant tail grade. In order to confirm this, we will be preparing samples from the material now on its way from Germany for additional fine grinding and leaching tests. A series of tests are planned for material ranging from approximately 0.8 grams of gold per ton to approximately 1.7 grams of gold per ton with the objective of generating a series of grade, grind size recovery curves. These tests will allow us to bring this round of metallurgical evaluations to feasibility-level standards.

This work will allow us to make a change from a deposit-wide average recovery to variable recoveries based on the grade of material delivered from the mine. With a constant tail, higher recoveries are expected in the early project years as a result of the higher grades that will be processed during that time. The mine plan provides higher grade in the early life of the mine to optimize project cash flow.

On a project basis, we are anticipating gold recoveries in the 91% range through the life of the project with a potential to achieve gold recoveries in the range of 94% in the early years of the project compared to 86.4% gold recovery that we announced earlier this year.

As a result of these significant improvements in gold recovery resulting from the finer grind size, we now anticipate that life of mine gold production will increase by more than 300,000 ounces. With no significant change in our costs, analysis indicates that each 1% improvement in gold recovery could add approximately 0.5% to Mt. Todd's after-tax IRR and approximately $25 million to after-tax NPV. It is our belief that the work we are completing adds significant value to the project and substantially increases the leverage that the project enjoys in a rising gold price environment.

In early October, we started drilling on the exploration licenses contiguous with Mt. Todd. We are undertaking additional drilling on 2 targets, namely the Wandi and Golden Eye targets. Wandi appears to be an iron oxide copper-gold system, while the Golden Eye target is a heated vein system similar to the style of mineralization encountered at the Batman deposit at Mt. Todd.

Drilling at these 2 targets will be followed by drilling at the Quigleys satellite deposit, which is located approximately 5 kilometers from the Batman deposit. We expect to begin receiving assay results in the later part of November.

In August, we were informed by the Northern Territory Department of Mines that we were authorized to proceed with the presentation of a final project mine management plan. This is similar to a mine operating permit in North America. I am pleased to indicate that we have plans to submit this mine management plan and the documents associated with it for final review and approval in the coming days. We expect to have the final approval of the plan in the first quarter of next year. At that point, we will have all of the major project -- or I'm sorry, all of the major permits for the development of the Mt. Todd project.

In conclusion, our Mt. Todd project is the largest single deposit, undeveloped gold project in Australia. With 5.85 million ounces of proven and probable reserves, Vista controls the third-largest reserve package in Australia. Our studies indicate that Mt. Todd has the capacity to be the fourth-largest gold producer in Australia with the lowest quartile, all-in sustaining cost. The work that I have described will only reinforce this enviable position.

The project is ideally located in the Northern Territory of Australia with paved roads to the site and exists -- and other existing infrastructure, such as power lines and natural gas pipeline, freshwater storage reservoir and a tailings impoundment facility.

We have achieved significant milestones and now have in place the foundation for creating improved shareholder value. We have earned the trust of the local stakeholders and believe that our social license is firmly in hand. The updated preliminary feasibility study results or the outcome of technical improvements to the project, they are based on extensive technical testing completed a year ago. And I have outlined ongoing testing that will complement that. For more detailed information, I refer you to the Canadian National Instrument 43-101 report that has been filed on SEDAR and is available for download.

On completion of the testing programs that have been discussed on this call and any associated design changes, we expect to update the economic analysis and publish a new report.

For a more comprehensive assessment of the value accorded to Vista and the Mt. Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. There, you will be reminded that we are presently trading at approximately 0.1x NAV compared to our peers trading in the range of 0.4 to 0.5x NAV. This represents a significant opportunity for an increase in shareholder value. Mt. Todd is well advanced and technically derisked. All major environmental permits are in hand, an accomplishment attained by very few of our peers.

As I noted, it has the potential to be the fourth-largest gold producer in Australia with lowest quartile cost. It is favored with easy access and excellent existing infrastructure, all of which are found in the mining-friendly jurisdiction of the Northern Territory. We believe all of this adds up to an exceptional investment for the gold investor looking for good value, growth potential and leverage to the gold price.

We will now respond to any questions from the participants in this call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Heiko Ihle from H.C. Wainwright.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [2]

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It's H.C. Wainwright. I was playing around with my model a bit earlier today, and I did some work on the recovery improvements mentioned in the release. And I mean, on ore and the potential to reach more than 90% recovery just makes a huge difference in that, I mean, well North of $100 million if you improve it by 5%, and this is after tax. And then I did looking at some 90%, even I came up with $75 million. But I guess, that's more or less in line with what you had. So the obvious follow-up question to that is, how soon can you move this into a full feasibility-level study in regards to timing and required drilling investments? Anything else that is necessary?

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [3]

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Heiko, thanks for the question. That's an excellent question. With the work that's being completed and with the update in the financials, we will be in a position to move forward very quickly with a feasibility study, should the market support that activity. We don't require any additional drilling. There will be no need to complete any additional metallurgical testing. We'll be in a position to finish the work. And I would just highlight for those who are participating in the call that as we've stated before that all of the work that we've completed to date on the Mt. Todd project and as reported in -- under the cover of a preliminary feasibility study, is already at feasibility study standards, except for the design of the piping, electrical and instrumentation systems in the process plant. We have not completed that engineering at feasibility study. But with the completion of this metallurgical testing, our metallurgical test work, as it relates to fine grinding and, more importantly, to the very significant improvements in gold recovery that we've been discussing, will all be at feasibility study standards. And so what that means is that in the right market conditions, gold price, interest in gold stocks as a whole, that we would be able to move forward to the completion of a feasibility study, which we estimate would take something on the order of 6 to 8 months to complete at a cost of approximately $2.5 million. And we're able to achieve both that time schedule and that budget because of the immense amount of work that's already been completed and maintained at feasibility study standards for the project. So one, we have the capacity to complete this very quickly; two, the decision to actually proceed to the completion of that study will be driven by our assessment of market conditions and the ability -- and the interest of the market in actually financing the development of the project once those results are published.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [4]

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6 to 8 months and $2.5 million, that's less than I would have thought. Just the -- bodes well into my follow-up question. I assume the figure is reasonably low, and the whole process will continue to create shareholder value. But can you just sort of walk us through any of the anticipated costs from the testing that you're doing right now for the rest of the year? I mean, you're looking at 3 continents between Australia, where it's coming from; Europe, where some of the testing is; now the U.S. Any particularly large expenditures we should model in throughout the rest of the year or early 2019? Will this just be offset by the extra money that you just got from GdlR for the delay?

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [5]

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Right, Heiko, the answer to your question is that the met testing program is, okay, to get it wrapped up is going to be about 300 -- what?

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John F. Engele, Vista Gold Corp. - Senior VP & CFO [6]

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$385,000.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [7]

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About $385,000. Some of that money has already been spent, obviously, as we've shipped material to Europe and completed the test work there. Once the metallurgical testing is completed, we will be -- the cost of updating the preliminary feasibility study, there will be some minor design work that has to be completed, we'll be looking at about another $250,000 to complete that. Beyond that, that gets us to the completion of the work that we've described and positions us so that we're able to achieve both the schedule and the cost that we project with regards to the feasibility study.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [8]

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Yes, most companies, $385,000 payment would be irrelevant. But I mean, you guys are famous for running a lean and mean operation and expenditures or something that you frown upon. And for that, I commend you.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [9]

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Well, thank you, Heiko. We continue to work to maximize the return that we achieved from the expenditures that we make. And I think that nearly everybody would agree that spending approximately $385,000 in the complete metallurgical testing program that were -- is in progress right now to achieve essentially -- or projected 5% improvement in recovery is a very remarkable return on investment or a return on expenditure for shareholder funds.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [10]

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Oh, I know companies of similar market caps as yours or maybe a little bit bigger that spend twice that in travel expenses in a year, so yes.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [11]

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Thanks, Heiko. We appreciate that commentary.

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Operator [12]

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(Operator Instructions) And there are no further questions at this time. I turn the call back over to you, Mr. Earnest.

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Frederick H. Earnest, Vista Gold Corp. - President, CEO & Director [13]

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Very good, James, thank you. To all of those who have been listening in on the call this morning, we would like to express our appreciation. As I indicated to Heiko, we have been working very diligently. We are very pleased with the results that we've seen thus far. We think that this is a significant value-add for a very modest expenditure, and we're very pleased with the results.

We invite all of you to continue to be watchful of the results, not only of the metallurgical testing programs, we'll begin to announce results the latter part of November, early part of December, but also results of the drilling program that's going on right now. As we begin to have assay results, we will publish those most likely on a target-by-target basis. And so I think that there is some very interesting news that will be coming in the coming weeks and months.

We continue to assert that Vista and the Mt. Todd gold project are underappreciated and undervalued and, as such, represent a very significant investment opportunity. We believe that as we continue to execute on the plans that we've described today that we'll be continuing to add to and solidify the basis that's been created for significant value recognition and realization.

I would just like to close by reminding everybody that, that continues to be the primary focus, with the management team here at Vista Gold, is to create value and then to realize that for our shareholders.

So with that, again, I express our appreciation for your participation in the call this morning. For those who are listening or participating via the webcast, we appreciate your participation as well. And if any of you have follow-up questions that you would like to handle on a personal basis, please feel free to contact Connie Martinez, our Director of Investor Relations here at Vista Gold.

With that, we wish you all a very pleasant day. And until next time, thank you.

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Operator [14]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.