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Edited Transcript of VGZ earnings conference call or presentation 5-Mar-20 9:30pm GMT

Q4 2019 Vista Gold Corp Earnings Call

Littleton Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Vista Gold Corp earnings conference call or presentation Thursday, March 5, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas L. Tobler

Vista Gold Corp. - CFO

* Frederick H. Earnest

Vista Gold Corp. - Former CEO & Director

* Pamela Solly

Vista Gold Corp. - VP of IR

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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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Ladies and gentlemen, thank you for standing by, and welcome to the Vista Gold Corp.'s 2019 Financial Results and Corporate Update.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the conference over to your speaker today, Pamela Solly, Vice President, Investor Relations.

Thank you. Please go ahead.

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Pamela Solly, Vista Gold Corp. - VP of IR [2]

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Thank you, Julianne. Good afternoon, ladies and gentlemen, and thank you for joining the Vista Gold Corp. 2019 Financial Results and Corporate Update Conference Call. I'm Pamela Solly, Vice President of Investor Relations. On the call today is Fred Earnest, President and CEO; and Doug Tobler, Chief Financial Officer.

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

I will now turn the call over to Fred Earnest.

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

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Thank you, Pam, and thank you, everyone, for joining us on the call today. 2019 was a year of significant achievements as we continued to advance and derisk the Mt Todd gold project. We completed several major project initiatives, highlighted by the updated preliminary feasibility study.

We also generated cash of USD 3.3 million from nondilutive financing opportunities, and strengthened our Board of Directors and senior management team with appointments of several accomplished and experienced mining executives. As part of our 2019 initiatives, we completed a comprehensive metallurgical optimization program, an independent benchmarking study and an updated preliminary feasibility study. These initiatives combined with other derisking activities demonstrate the robust economics and advanced stage of our Mt Todd gold project.

I'll discuss these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler for a review of our financial results for the year ended December 31, 2019.

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Douglas L. Tobler, Vista Gold Corp. - CFO [4]

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Thank you, Fred. I'm pleased to report that we concluded 2019 with a favorable improvement in working capital during the fourth quarter. I'll discuss this more in a minute. But we ended 2019 with working capital of $7.8 million, which was up $600,000 from September 30, 2019.

Our fiscal priorities for 2019 continue to focus on spending controls and effective use of working capital to advance and derisk Mt Todd. We completed the 2019 feasibility study on budget. As noted, we ended with working capital of $7.8 million. This included $4.7 million of cash and short-term investments, $3.7 million related to other investments and other net current assets and liabilities. The carrying value of our other investments related largely to Vista's holdings of 6.8 million shares of Midas Gold. We also now hold 1.3 million shares of Nusantara Resources, which is rapidly advancing towards development of the Awak Mas gold project in Indonesia.

While working capital showed a net decline of $5.4 million for the full year of 2019, we benefited from our efforts to monetize noncore assets. During 2019, we realized $3.2 million from the Los Reyes option agreement and an additional $400,000 from other sources. Working capital of $7.2 million to fund metallurgical testing, the 2019 PFS and general corporate expenditures. The other primary change to working capital was a $1.8 million decline in the fair value of other investments, which again, was largely related to the Midas Gold shares. As a closing note on the balance sheet, Vista continues to have no debt.

I'll now turn to the income statement for a few brief comments. For the year ended December 31, 2019, our net loss was $9.4 million compared to a loss of $8.7 million for last year. The largest component of our net losses was operating expenses, which were $8.1 million and $10.9 million for the years ended December 31, 2019 and 2018, respectively. Of this $2.8 million year-over-year decrease, $1.9 million resulted from higher depreciation and a noncash impairment incurred during 2018. The remaining decline in operating expenses reflects decreased expenditures from Mt Todd drilling and a modest decrease in corporate administrative expenses. The other major component of our net loss was the gain/loss on other investments, which is largely the fair value mark-to-market on the Midas shares. In 2018, we recognized an unrealized gain of $1.7 million. This year, we effectively saw that unrealized gain reverse itself with a $1.6 million loss.

Now looking forward, we believe our existing working capital and potential future sources of nondilutive financing will be sufficient to fully fund our currently planned corporate expenses and project holding costs for more than the next 12 months. Our expenditures profile is well controlled, and is expected to be generally consistent with 2019.

We also have a $10 million at-the-market agreement in place that is subject to the -- on an effective registration statement, but can allow us to opportunistically raise equity proceeds.

Thank you for your time today, and I'll now turn it back over to Fred.

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

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Thank you, Doug. I will first briefly address the achievements of 2019 and then provide an outlook for 2020.

In September of 2019, we announced the results of a preliminary feasibility study for the Mt Todd project. And in October of 2019, we filed the updated 43-101 Technical Report. This 2019 preliminary feasibility study maintains the high level of engineering with all engineering at the feasibility study levels, except for piping, electrical and instrumentation designs in the process plant that has been part of our previous studies. And provides an assessment of the Mt Todd project at a gold price of $1,350 per ounce with a foreign exchange rate of USD 70 per Australian -- or USD 0.70 per Australian dollar.

The results reflect improved average life of mine gold recoveries of 91.9%, and indicate a net present value at a 5% discount rate of $823 million with an internal rate of return of 23.4%. At a gold price of $1,650 per ounce and a foreign exchange rate of $0.65 per Australian dollar, the net present value at a 5% discount rate is approximately USD 1.5 billion with an internal rate of return of 38.3%. These are compelling economics that make Mt Todd a very attractive asset located in a politically stable and mining-friendly jurisdiction.

In the third quarter of last year, we reported comprehensive results from our metallurgical optimization program for the Mt Todd gold project. As a result of this test work, and related leach recovery test, a final grind size of 80% passing 40 microns was selected, which resulted in higher life-of-mine gold recoveries of 91.9% compared to 86.4% in the 2018 preliminary feasibility study, and a total recovered gold production of 5.3 million ounces. It also demonstrated that at a 40-micron grind size, the tail grade is nearly constant within specific grade ranges.

Test results also confirm the efficiency, first, of ore sorting across a broad range of head grades, and the natural concentration of gold in the screen undersized material prior to sorting. And second, the fine grinding improved the gold leach recoveries and 80% passing grind size of 40 microns. These tests also resulted in our selection of FLSmidth's VXP mill as the preferred fine grinding mill.

Also in 2019, we commissioned an independent benchmarking study to assess the appropriateness of capital and operating cost estimates, construction and ramp-up schedules, owners' costs and other key components of the projects such as power supply. The study was completed in the third quarter of last year, and the comprehensive results were incorporated into the updated 2019 preliminary feasibility study. We expect to release a public version of this study in the very near future.

Turning to some of our activities to monetize noncore assets, as referred to by Doug. Part of our efforts last year -- as part of our efforts last year, we amended the company's royalty agreement for the Awak Mas gold project in Indonesia. Pursuant to the agreement, PT Masmindo DWI Area was -- has the option to cancel the 2% net smelter return royalty payable to Vista by making an initial payment of $100,000 and issuing 666,667 shares of Nusantara Resources Limited shares. We received both of these in November of 2019.

In addition, they must make future payments to Vista in the amounts of $2.4 million payable April 30, 2020, and USD 2.5 million payable on April 30, 2021, with each payment canceling 1% of the NSR royalty. The upcoming payment of $2.4 million will increase Vista's cash position and strengthen our balance sheet.

Turning to additions to our board and management team. Last year, we appointed several accomplished and experienced mining professionals to our Board of Directors and senior management team, including Deborah Friedman as a Director; Doug Tobler, who you've heard from as our Chief Financial Officer; and Pam Solly, who started this call, as our Vice President of Investor Relations. We believe the talent and experience of these professionals will be instrumental in the future success of Vista.

Finally, during this year, we continued to work with the Northern Territory Department of Mines on the approval of the Mt Todd project Mine Management Plan. Now in Australia, the Mine Management Plan is equivalent of a mine operating permit here in North America. We expect to receive authorization of the Mine Management Plan in the coming months. And once that is approved, Vista will hold all of the major permits for the Mt Todd project.

Moving on to our share price performance. For the 12 months ended December 31, 2019, Vista shares increased 36.8% year-over-year, significantly outperforming gold, which was up 19.1% and slightly underperforming the GDXJ, which was up 39.8%. As we've mentioned in previous calls, Vista is highly leveraged to the price of gold, and we understand the value of higher gold prices as it relates to our project economics. Since November 13 of 2018, when gold broke out of its horizontal trend through March 3 of this year, the gold price has improved by approximately 34.4%, while Vista's share price has improved 54.5%. This is 1.5 -- 1.6x the improvement in the price of gold on a percentage basis. This compares to the value of the GDXJ improving 1.5x the improvement of the gold price over the same period of time. We believe that the ongoing optimization work that we are undertaking will further enhance the leverage Vista shareholders enjoy relative to the price of gold.

So let me turn to our next steps and looking to the future. Our primary focus in 2020 will be to evaluate and engage a strategic partner for the development of Mt Todd. We continue to believe that the amount of debt and dilution to build Mt Todd on a stand-alone basis is not in the best interest of our shareholders. Our objective is to achieve a valuation for Mt Todd that is reflective of a multimillion ounce gold deposit in Australia's low-risk Northern Territory with favorable cost, robust project economics and with environmental permits already in hand.

We believe that these factors coupled with the technically advanced stage of the project and excellent infrastructure place Mt Todd on a short list of the most-attractive development stage gold projects in the world. The 2019 preliminary feasibility study provides a solid basis for engagement with prospective development partners, and current market conditions demonstrate the robust economics of the project. Our goal is to provide appropriate reward for our shareholders.

In addition to seeking a strategic partner, we will continue to derisk Mt Todd in a cost-effective manner. And work with the Northern Territory agencies to receive authorization of the Mt Todd Mine Management Plan. And finally, with the continued improvement in gold price, we are evaluating the positive impact of higher gold prices on mine plans and other ways that we can impact project economics.

In conclusion, our Mt Todd gold project is the largest single deposit, undeveloped gold project in Australia with 5.85 million ounces of gold in proven and probable reserves. Vista controls the third largest reserve package in Australia. It is ideally located in the Northern Territory of Australia. Not too far south of Darwin with paved roads to the site and other existing infrastructures such as power lines, a natural gas pipeline, freshwater storage reservoir and the tailings impoundment facility with capacity for a little over 80 million tonnes.

The project improvements we have discussed today, along with our estimated reserve and production profiles, have created the foundation for the leverage to gold price and improve shareholder value. I think it's very fair to say that we have earned the trust of the local stakeholders, and we believe that our social license is firmly in hand. We've worked hard to secure the authorization of the major environmental permits, and are now focused on gaining the authorization of the Mine Management Plan.

We're extremely pleased with the results of the preliminary feasibility study completed last year, which demonstrate a net present value at a 5% discount rate of $823 million and an internal rate of return of 23.4% at $1,350 gold price and $0.70 foreign exchange rate. I'd note that these are after tax numbers. Again, I remind you that at a gold price of $1,650 and a foreign exchange rate of $0.65, the project economics are even more compelling with a net present value at the same discount rate of approximately $1.5 billion and an internal rate of return that would be approximately 38%.

We believe that Mt Todd is a superior asset located in a politically stable and mining-friendly jurisdiction with one of the most-attractive development stage -- and is one of the most-attractive development stage gold projects, not just in Australia, but in the world. For a more comprehensive assessment of the value accorded to Vista in the Mt Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com.

We believe that Vista Gold represents an exceptional investment opportunity for the gold investor looking for value growth potential, low geopolitical exposure and leverage to the gold price.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) 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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In your Feb 26 release, you stated something along the lines of with the continued -- and this is a quote: "with the continued improvement in gold price, we are evaluating deposit impact of higher gold prices on mining plans of project economics." Earlier on this call, you also brought up the Vista share price performance during 2019. So based on all that, just -- I mean, gold's gone from $1,550 to -- $1,515 to $1,670 since the beginning of the year. Obviously, there is huge leverage there. What has changed since Jan 1? And can you maybe just quantify your 2020 plans a little bit more, both in regards to work to be done and also in dollar terms, please?

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

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Yes. So obviously, we live in an ever-changing world and many things beyond our control have had a significant impact on market sentiment and emotions, and that certainly affected the gold price as well. With regards to the project and optimization opportunities specifically, one of the things that we've done since the first of the year is with the publication of reserves for this year by the Australian gold producers who we benchmarked the project against and compare ourselves against, we've realized that the majority of Australian gold producers are reporting reserves at a gold price of AUD 1,600, using a foreign exchange rate of either $0.70 or $0.75. When we convert that to U.S. dollars, that equates to a gold price of somewhere between $1,100 and $1,200. Our previous preliminary feasibility studies, the 2018 and 2019 studies are based on a pit design that has been optimized around the $1,000 pit shape. The way mine planning is done, and so we evaluate the pit shell or the shape of the pit at various different gold prices. And it's like one that at the current time that we think is economically most attractive.

Given that our peers in the Australian gold mining space are reporting reserves at a higher gold price than we have, we are currently undertaking a review through our mining engineering consultants to look at what would be the impacts on the project of using a higher gold price. And obviously, the easy answer without having any numbers available to report is that we would expect that the number of tonnes mined and delivered to the mill would go up. What we don't yet understand is what the changes in the stripping ratio would be, and whether those changes would be favorable to the project or adverse on a long term. We think this is an interesting opportunity that's given to us, and it's something that we will continue to monitor. Obviously, USD 1,100 or USD 1,200 gold price compared to today's gold price that's north of $1,660 an ounce, is still a very conservative gold price, very reasonable, and we feel that this is a very prudent step for us to take on our part. In addition to the work that we're doing with the mine plans, I indicated that we would be releasing in the near future, a public version of the benchmarking study. I hope that those on the call and those who listen to the call, will recognize and realize that as we undertake benchmarking studies that sometimes we rely on nonpublic information, information that's proprietary to the consultants that we have hired.

And this is a normal course of business. As part of the efforts to complete this benchmarking study, we have requested that the consultants complete and exercise to, if we could, sanitize or remove all references to the proprietary information without affecting their conclusions and make that a publicly available document. And we're excited about being able to disclose that for public consumption here in the near future.

We also continue to evaluate potential partners. We've just returned from the PDAC conference in Toronto. And had the opportunity to meet with a number of companies that we would consider to be potential partners. We expect that we will continue the process of signing confidentiality agreements and inviting groups to visit the site as they work their way through their due diligence efforts. This is an area where we are advancing cautiously. I think that it's a very big decision that we face as we try to select a partner. And I think that it's worth mentioning that the due diligence process on both parts takes time. And that will be something that we'll see slowly develop over the course of the -- this year. I hope I've answered your questions, Heiko.

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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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Right. I take it a step further and say that, that was one of the more thorough answers I've gotten on a conference call. And for that, I thank you. Okay, and I also bite on the bait with the ever-changing world that you just alluded to. I mean, that given the exponential growth with this whole coronavirus stuff that's going on, the extensive travel distance between the U.S. and Australia, I mean, obviously, you guys are in the states. Have there been any changes in contingency planning made to manage and travel for site visits? Or just to get over there for governmental work? And on that same notes, are there any other steps that you all are undertaking to prepare for the potential issues related to the virus?

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

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This is a situation that's evolving day by day. And certainly, we are plugged into and attuned to many different sources of information, trying to understand the complete impact of the coronavirus, as there have been very few cases in Australia. And relatively speaking, there has not been a lot of -- we've not had many instances of the occurrence here in the U.S. We continue to feel that travel to and from Australia is reasonable and prudent to undertake. We'll continue to monitor that and keep a close eye on that. And if we get to a point where we feel that, that presents any significant risk to our personnel on either side of the ocean then we'll take appropriate actions.

We do have -- sitting here in our conference room, we do have video conferencing capabilities, and we use that from time to time as an ongoing part of our business. And we feel that, that's something that we can readily adopt and implement as needed as we move forward. I think that many, many people in our industry are looking to a more sustained use of that technology. We are aware of other companies that have implemented restrictions. Some of our associates from Denver, as they returned from PDAC, received notice from their corporate organizations, and we're instructed that they are to work at home for the next few weeks, kind of quarantined at home. We've not taken those steps yet, but we will continue to monitor this. And obviously, one of the highest priorities that we have is the safety, health and wellbeing of our team.

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Operator [6]

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We have no further questions. I'd like to turn the call back over to Fred Earnest for closing remarks.

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

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Very good. Thank you, everyone. We appreciate your time this afternoon. 2019 was a very exciting year for us with some very significant milestones are reached. As we look forward to this year, we see a number of things well within our reach, and I can assure you that the management team is focused on those objectives. The opportunities to improve project economics through continued optimization, some in the area of the mine planning that we talked about in response to Heiko's call. We're working very closely with the Northern Territory government. And provided that we don't see any deterioration in travel conditions in the next 40 days, anticipate being in the Northern Territory to undertake a couple of days of workshops to help facilitate understanding of the engineering that's been completed. And get to a point where we have understanding with the agency on the remaining items that are outstanding, yet in the approval of our Mine Management Plan. That's another high priority for us.

We continue to reach out to and engage with others and seek to identify those organizations, whether they be on the producer side or on the strategic financial partner side with regards to identifying and undertaking the work that's necessary to come to better understanding of the partnership relationship that could exist with -- between us and one of these organizations in the future.

We continue to believe that the best way for us to create value for our shareholders is to identify and ultimately, engage in a development partnership relationship for the Mt Todd project. I repeat that it is not our intent nor our interest in undertaking the amount of debt and dilution that would be required to build this ourselves.

Again, in closing, I would just remind everyone the very conservative nature of the preliminary feasibility study that we announced last fall. The study parameters were completed using -- or the cash flow evaluation was completed using a gold price of $1,350, conservative to the gold price at the time. We have seen a very sustained and steady increase in the price of gold. And with today's improvements, the gold price being over $1,660 per ounce, the project economics, the value of the Mt Todd project is very robust. And as we've indicated with an IRR, an after-tax IRR of approximately 38%, and an NPV at a 5% discount rate of $1.5 billion, this is a project that we believe is one that is definitely on the short list of projects that should be considered by others for development.

With that, I just want you to know and remind you again of our focus on creating value. We enjoy great leverage to the gold price. We're doing all that we can to continue to enhance that leverage. We look forward to meeting with many of you as we participate in conferences over the next 3 or 4 months. And certainly, as you're not able to participate in conferences, but would like additional information, please feel free to reach out to Pam Solly or to me, and we'll be happy to spend the time with you to help you understand the events that are transpiring, what we're doing about it, and certainly, the exciting news and growth in the development of the Mt Todd project.

With that, thank you very much for your participation in the call this afternoon, and we wish you all a very pleasant good afternoon.

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Operator [8]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.