Q1 2023 Vista Gold Corp Earnings Call

Participants

Douglas L. Tobler; CFO; Vista Gold Corp.

Frederick H. Earnest; President, CEO & Director; Vista Gold Corp.

Pamela Solly; VP of IR; Vista Gold Corp.

Adrian Vincent Day; Chairman, President & Treasurer; Global Strategic Management Inc.

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

Presentation

Operator

Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter 2023 Financial Results and Corporate Update Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. Today is Monday, May 1, 2023. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Pamela Solly

Thank you, Jenny, and good day, everyone. Thank you for joining the Vista Gold Corp. First Quarter 2023 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 Chief Executive Officer; 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 most recently filed Form 10-Q for details 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.

Frederick H. Earnest

Thank you, Pam, and thank you, everyone, for joining us on the call today. During the first quarter, we completed an internal scoping study to evaluate the technical and economic merits of smaller-scale development alternatives from Mt Todd, while preserving the opportunity for subsequent expansion or stage development. The work completed in the study leverages off of the 2022 feasibility study and gives us confidence that a smaller and easier to build initial phase of the project is viable and economically attractive.
We recently announced results of the Mt Todd surface exploration program, the retirement of 2 of our directors and positive recommendations from the Northern Territories mineral development task force regarding the Northern Territories royalty structure. The strategic process with CIBC Capital Markets is ongoing, and we continue to take actions to implement cost reductions, which have had a positive impact on our quarter end financial position. Vista continues to have no debt.
We remain committed to the health and safety of our employees into environmental stewardship at Mt Todd. There have been no lost time incidence this year, and the site has now achieved 523 consecutive accident-free days.
I will discuss these topics in greater detail later in the call, but we'll now turn the time over to Doug Tobler, our CFO, for a review of our financial results for the quarter ended March 31, 2023.

Douglas L. Tobler

Thank you, Fred. Today, I'll provide a brief recap of our results of operations for the first quarter of 2023 and discuss our financial position as of March 31. Vista Gold's full financial statements and MD&A are included in our Form 10-Q that was filed last Friday and is available at either sec.gov or sedar.com. I'm pleased to report that our results were in line with management's expectations for the quarter and recurring costs are tracking toward our objective of achieving a 7% reduction compared to our 2022 results. From an overall perspective, we reported consolidated net losses for the 3 months ended March 31, '23 and '22 of $2 million and $300,000, respectively.
The higher loss for the current quarter resulted from a few main components. First, we had a onetime gain of $2.9 million during the first quarter of 2022, which was realized as we closed out the sale of our interest in the Awak Mas gold project in Indonesia. There were no similar items this year. Offsetting this change in realized gain, we saw substantially lower expenses during Q1 of 2023. Notably, Mt Todd exploration and holding costs decreased by $1 million from $1.8 million reported for Q1 of '22, down to $800,000 for Q1 of '23. This related largely to having completed the drilling program and the Mt Todd feasibility study last year plus overall reductions in our recurring costs in Australia. Our administrative expenses were also down by -- to $1.2 million for the current quarter compared to $1.4 million for Q1 of 2022.
Turning to our financial position. Our balance sheet remained in good condition at March 31, 2023. We ended with cash of $6.6 million and maintained our position of having no debt. That concludes my remarks for today. I'll turn the call back to Fred now.

Frederick H. Earnest

Thank you, Doug. I'll begin with a review of our ESG initiatives and performance, then review our first quarter 2023 achievements and conclude with an outlook for the remainder of this year.
We have established a record of environmental leadership in the Northern Territory. We continue to maintain this leadership position through the execution of our site management plans with the wet season recently concluded I'm pleased to report that even with significantly higher than normal total rainfall, we had no unplanned discharges of water from the site, and we're in complete compliance with our environmental obligations.
As noted previously, our team in Australia has now completed 523 consecutive days with no lost time accidents. We are very pleased with our safety-oriented culture and the accomplishments of the team. We continue to maintain a strong working relationship with the traditional owners at Mt Todd. As many will know, we have agreements in place with the Jawoyn people and work very closely with them and the leaders of the Jawoyn Association Aboriginal Corporation. Presently, we are collaborating with the Board of the Jawoyn Association to finalize a cross-cultural training program for employees and contractors at Mt Todd.
We also work very closely with leaders and stakeholders in the Katherine area and more broadly in the Northern Territory. I am pleased that our social license is firmly in place and strongly supported. We continue to aggressively pursue best governance practices across our organization. And are pleased with the inclusive atmosphere that is part of our culture. I note that during the quarter, we announced the retirement of 2 long-serving directors and the resizing of our Board. More on that in a moment.
Moving on to some of our accomplishments during this quarter. In March, we announced the completion of an internal scoping study in which we evaluated the development of the Mt Todd project at a smaller initial scale. The results were very promising and contemplated significantly lower initial capital costs while preserving the opportunity for subsequent expansion or stage development. Work to date indicates that a nominal 5 million-tonne per year project or 15,000 tonnes per day could be designed and constructed with an initial capital expenditure of less than $350 million for scenarios that include contract mining and would achieve annual production in the range of 150,000 to 200,000 ounces of gold per year.
Operating cost analysis suggest that all-in sustaining costs would be higher than those estimated in the company's 2022 feasibility study on Mt Todd, largely as a result of the higher unit operating costs resulting from contract mining the loss of certain economies of scale and adjustments for inflation. But the all-in sustaining costs would still remain very competitive in today's environment.
The results of the scoping study have been made available to potential strategic partners and other parties who have signed confidentiality agreements. We also announced the results of the most recent surface exploration program on 2 specific areas within the exploration licenses at Mt Todd. Both targets returned excellent anomalous gold assays from surface soil sampling, including up to 4 grams of gold per tonne at the Irwins target.
The exploration licenses at Mt Todd encompass 1,650 square kilometers and are largely underexplored. As part of our annual exploration program for the exploration licenses, we collected more than 600 rock chips and soil samples from targets on the Cullen Australis and Batman-Driffield structural corridors. The results demonstrate strong geologic similarities to the area in the mining licenses where we previously delineated 4 highly prospective exploration targets potentially representing up to an additional 1.8 million to 3.5 million ounces of gold through our 2021, '22 drilling program. Obviously, we are very encouraged by the tenor of these results, which reinforce our belief that the Mt Todd land package has tremendous discovery potential.
As I indicated, after more than 25 years of serving Vista Gold and its shareholders, Mike Richings, Chair and Non-executive Director; and Tom Ogryzlo, Non-Executive Director, retired upon the completion of their terms at Vista's 2023 Annual General and Special Meeting of Shareholders that was held last week on April 27. The Board of Directors approved a reduction in the size of the Board of the Directors of the company from 7 to now 5 members.
On behalf of the Board and management team, I'd like to thank Mike and Tom for their leadership and commitment to the company. Their contributions have played a significant role in the execution of a number of transformational transactions and advancing Mt Todd into one of the largest and developed ready gold projects in Australia. Mike and Tom have served with the highest degree of professionalism and acted with the shareholders' best interest at heart. We have all learned a great deal from each of them and has been a privileged to work with him, and we wish them well.
Now one bit of news that was very exciting to us is that subsequent to the end of the quarter, we reported that the Northern Territory government released the final report of the mineral development task force, which outlined a series of recommendations and actions to increase and enhance the competitiveness of the Northern Territory as a mining investment destination. As these recommendations are implemented, we expect the Mt Todd gold project to benefit in several ways, most notably.
The report emphasizes the importance of updating the current royalty regime to make it more competitive and highlighted the importance of developing local skills to support the mining industry. This potentially means moving to a simpler ad valorum royalty structure and aligning the royalty rate more closely with other Tier 1 mining jurisdictions where rates typically range from 2.5% to 5%. This represents a very meaningful opportunity for improved project economics and earlier shareholder returns at Mt Todd, where our 2022 feasibility study included Northern Territory royalties equivalent to a 7% to 9% ad valorum rate depending on the gold price and other assumptions.
Skills development will also be an important benefit given that we support the use of a local workforce at Mt Todd over the more traditional fly-in, fly-out approaches that are common elsewhere in Australia. As a next step, the Northern Territory government plans to engage with stakeholders in the mining industry to obtain feedback on the best approach to implement the key recommendations and specific actions proposed in the report. The strategic process with CIBC Capital Markets continues to generate interest and positive feedback on the technical merits of Mt Todd.
Since announcing the completion of the scoping study, there has been both new and renewed interest in the optionality Mt Todd offers under different development strategies, but interested parties continue to maintain a cautious approach to new large-scale development projects. We remain focused on recognizing value for shareholders through the completion of the right transaction, one that realizes a greater portion of the present value of Mt Todd and provides ample opportunity for future additional value recognition.
Reducing costs and maximizing cost effectiveness are high priorities for 2023. We have taken actions to further reduce recurring costs by approximately 7% and continue to evaluate and implement opportunities for additional cost reductions. At current project expenditure levels, our annualized cost for preserving the value of Mt Todd are less than $0.80 per ounce of proven and probable reserves. We believe this is a very respectable holding cost.
Looking ahead, our priority is maximizing shareholder value. We continue to execute our plans for improved cost effectiveness and efficiency. Our internal evaluations of Mt Todd continue and include the assessment of value-creating development options and a grinding area study that would lead to additional improvements in planned operational efficiencies. With the wet season behind us at Mt Todd, we will have a small field exploration program planned for the exploration licenses to meet our annual expenditure commitments. This program will consist of additional field mapping and soil sampling. We will be participating in the industry consultation process with the NT government as they embark on the path of implementing the recommendations found in the mineral development task force report. And finally, we continue to work with CIBC Capital Markets to realize the full value of the Mt Todd gold project.
In conclusion, we have completed over the last several years -- the work we have completed over the last several years, including the feasibility study and the internal scoping level study has positioned Mt Todd as one of the largest and most advanced undeveloped gold projects in Australia with 7 million ounces of proven and probable reserves, Vista controls the third largest reserve package in Australia. In addition to its size, Mt Todd provides a number of other advantages for those interested in a potential transaction. Mt Todd is ideally located in the Northern Territory an extremely stable and mining-friendly jurisdiction, the existing basic infrastructure at Mt Todd, including paved roads, power lines, and a natural gas pipeline to the site, combined with the operational infrastructure comprised of the freshwater charged reservoir and tailings impoundment facility provide a very distinct construction time line and risk mitigation advantages. All the major permits for the development of Mt Todd have been approved. Of equal importance, we have earned the trust of local stakeholders and are confident that our social license is firmly in hand.
Our technical programs focus on designs that are capital efficient with low operating costs. We believe the proposed changes in the NT royalty regime will help improve project economics, enhance the project's leverage to gold price and provide a stronger foundation for improved shareholder value. We believe Mt Todd is a superior asset and one of the most attractive development-stage gold projects, not just in Australia, but in the world.
Our primary objective is to achieve a valuation for Mt Todd that is reflective of the gold production profile, long operating life, excellent gold recovery, favorable operating costs, robust economics that are demonstrated by the completed feasibility study and the fact that we hold all approvals for the major permits. For a more comprehensive review of the work completed by Vista on 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 in that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold.
Jenny, this concludes our prepared remarks, and we'll now be happy to respond to any questions from the participants on the call.

Question and Answer Session

Operator

(Operator Instructions) Your first question is from Heiko Ihle from H.C. Wainwright.

Heiko Felix Ihle

A few weeks ago, you put out some release about the surface exploration for additional gold targets at Mt Todd. In particular, at one point, you mentioned 4 grams per tonne gold at the Irwins. Can you just sort of walk me and the other participants in this call for your plans there for the rest of the year? Or in general, I guess, with exploration.

Frederick H. Earnest

Yes, absolutely, Heiko. The work that we've done at -- on the exploration licenses has started with very, very broad-ranging surface geology mapping. We have followed that up with magnetic surveys, do some high-level geophysical work to identify those areas where we see magnetic anomalies, which are typically associated with intrusives and hence, the heat engine for gold deposits in the district. And then we follow that up with surface soil sampling on a grid pattern. And the initial work that is completed is done on a very broad spacing. And then as we have interesting results, we closed in the spacing of the grid. We began to undertake some of that work of closing the spacing in last year.
And these are our soil samples collected on 25-meter centers and 100x100 grids sometimes. And the bottom line is that the results that we achieved, while anomalous were very encouraging. Typically, as you're aware, we often see soil sample results in the parts per billion range. And that's very, very interesting when we see those results in the very surface soils. To have soil samples in the 4 parts per million or 4 grams per tonne range is particularly interesting, and we'll be doing some more work in the areas of some of these higher-grade samples as well as continuing to reach out in and -- close-in spacing where we've had other results in the past. Our team last year also did some mapping of outcrops and collecting rock chips and we'll be undertaking more work in those areas as well.
Again, as I indicated, this year, the -- our target will be to spend the amount of money required to meet our exploration commitments to maintain the exploration licenses and good standing. We believe that this work continues to demonstrate to potential partners and others who would be interested in an attraction Mt Todd that there's tremendous exploration upside. And we continue to be very, very bullish about the work that's going on. Again, we -- this will be a grassroots level exploration we have not yet progressed any of these targets to the point of bringing in a drill rig.

Heiko Felix Ihle

Helpful. Helpful. Okay. Gold is at just under $2,000 right now, at some point, a trend becomes maybe the new normal. Walk us through the potential and what you see implications wise, given the potential for a smaller scale development that you released about 2 months ago for the site. I mean the way I look at it, is for $250 million, I can build 150,000 to 200,000 ounces of production, is somebody is missing something. And maybe can you go through some color what you think the market is missing or misunderstanding or not giving you enough credit for?

Frederick H. Earnest

Yes, absolutely, Heiko. The feasibility study that we completed for Mt Todd evaluated the Mt Todd project at a 17.5 million tonne per year rate, 50,000 tonnes per day. And all of the engineering and the designs associated with the feasibility study were targeted and undertaken with the idea of designing a project that would be very attractive to a senior gold producer. The capital expense of building that initial project, while a large number for us at almost $900 million. There's actually a very capital-efficient number actually in the lowest quartile on a per ounce of gold produced over the life of the project basis compared to our peers.
However, the fact remains that it was a very large number. And so with the feedback that we received from the process that was initiated by CIBC Capital Markets a year ago, we undertook an internal level scoping study to evaluate what a project that's built at a smaller scale and more to a -- I think the best term would be fit for purpose design level might look like. I and several members of the team visited some smaller-scale Australian operations in the middle of the year last year and formulated some ideas about what the standards might look like and what a typical mid-tier or smaller Australian company, would use as a design criteria. We then brought in a new engineering firm who had not been extensively involved in the design of the feasibility study plan to redesign the process plant area, where we're using concepts that we gleaned from visiting other operations. This has allowed us to design an operation that are smaller could be built more quickly and more efficiently. And as we indicated, at this smaller scale, the capital cost is estimated to be less than $350 million.
Now in doing this work, we have not tried to estimate the economics for a life of mine project at 15,000 tonnes a day. I mean simply stated that would have a mine life in excess of 40 years. But we carried the life out far enough to get a good idea of what the economics were. And we've been very careful, so as to not condemn any part of the existing reserve. We've maintained the optionality specifically and some of the work that's ongoing at the present plant is looking at a simple 50% expansion of the plant that we designed. We've also looked at and are looking at and evaluating what a project would look like that used the principle of staged development, i.e., building the first 15,000 tonne per day train and then adding another 15,000 tonne per day train and possibly 1/3 to ultimately reach something very close to the 50,000 tonnes per day that we had originally proposed.
We've incorporated contract mining as a way to further reduce the initial capital expense. All of these things have been done to demonstrate to partners the optionality of developing Mt Todd, that Mt Todd does not have to be developed at 50,000 tonnes per day. And while we've done an extensive amount of work at that scale, we've been able to leverage off of that feasibility study level design work in the evaluation of a smaller project. The smaller project concept has resonated with a number of companies, and there have been additional confidentiality agreements signed as we -- in the period of time following the announcement of the completion of the study.
It has also put the news out there and we've had interest from those who are not necessarily interested in a smaller scale project. And so it's been a way to once again drive serious and genuine interest to Mt Todd and to the development opportunities and potential that exists there.

Operator

(Operator Instructions) Your next question is from Adrian Day from Adrian Day Asset Management.

Adrian Vincent Day

I've actually got 2 questions to follow on from Heiko. The first one is, can you quantify the cost of the exploration that you intend to do this year?

Douglas L. Tobler

Yes. It's Doug Tobler here. It will be in the range of about $200,000 as part of our planned spend.

Adrian Vincent Day

Okay. That's not a lot.

Douglas L. Tobler

Yes. Well, it's surface work. There's no drill rigs. So similar size and scale.

Frederick H. Earnest

Yes. You can get a lot of surface soil sampling done for $200,000, Adrian.

Adrian Vincent Day

Okay. Good. Let me just type that. And then the second question. So it's been a little over a year since the definitive feasibility study. And I'm wondering if you can reflect or let us know the reactions you've had from companies, the reaction you've had, I should say, both to the DFS and also to the scoping study. Are the things in the reaction that have pleased you, I don't want to put words in your mouth, but the number of companies, the variety of companies or whatever. And are there things about the reaction that are frustrated or disappointed you?

Frederick H. Earnest

Well, that's a very interesting question, Adrian. From day 1, we have dealt with a headwind of people who remember Mt Todd from 1996, '97 when it was operated in a golden -- the gold price environment that the gold price was in the range of $300 and the operations shut down, and the company owned it went into bankruptcy. We've made a very significant investment. And we very systematically and methodically completed test work and drilling and engineering. We've obtained all of the permits. We've worked hard on our social license. And I think that the gratifying thing for everyone here in the Vista team is that as we've gone through the due diligence process with a number of companies.
The work that has been completed has been validated, the technical designs, the process flow sheet, the work that we've done to address how we crush and grind the hard rock that Mt Todd is so widely known for have all received a very strong endorsement from companies who have taken the time to look at the data and review the test work. We've had companies come in and drill at their own expense to obtain fresh rock for their own metallurgical testing programs, and they have essentially confirmed that with our proposed flow sheet that the numbers, the recoveries that we're proposing are quite reasonable and achievable that the process flow sheet should function as we expect it to.
Companies with much greater larger resources, more people have been very complementary of the work that we have done in the local community to garner support for the project and to earn our social license they are very respectful of the work that we've done with the Jawoyn aboriginal people. And so we're -- the process that we've gone through has been the confirmation that has happened over and over and over again has been very pleasing.
Now you asked if there was a disappointment. Well, obviously, the disappointment would be that we've done this, and the market has been such that we've not, to date, reached that conclusion of being able to announce a transaction that would recognize the value, the full value of the project and appropriately reward shareholders who have been patient with the work that we've done over so many years.
We started the process with CIBC Capital Markets a year ago. And within weeks of kicking that off, all we read in the headlines was news about interest rates going up and inflation. And all of a sudden, companies who we thought would be ideal partners and candidates for a transaction, announcing that they were putting evaluations of development stage projects on the back burner, some of them for as long as 4 to 6 quarters. So that -- the failure of things to move to the completion of a transaction to date is the disappointment. But the other side of it is that the confirmation of the technical merits of the project and the confirmation of the extensive amount of work that Vista has completed on a budget that's far less than what other companies would have spent has been very satisfying and confirms that our patiences is justified that there's no reason for us to be in a hurry to complete a transaction that we do have genuinely a world-class asset and that ultimately gives us confidence that we will be able to complete a transaction at the right time that will reward our shareholders.

Operator

(Operator Instructions)

Frederick H. Earnest

Jenny, it appears that we have no other questions.

Operator

Yes, sir. There are no further questions at this time. Please go ahead.

Frederick H. Earnest

All right. Well, thank you, everyone, for taking time to join us for this update and a discussion of our first quarter results. We're very excited about the implications of the recommendations of the Northern Territories mineral development task force. The potential impact of reducing the effective ad valorum rate from 7% to 9% that we saw in the feasibility study under a different royalty regime to something more competitive with other jurisdictions has tremendous impact for the project.
As we've discussed in response to questions, the field exploration programs will be kicking off soon with the onset of the dry season. We're very pleased with the progress that's being made at Mt Todd in those regards. We're very pleased with our track record for environmental compliance, the health and safety of our employees. And we look forward to moving forward with the newly configured Board of Directors as we seek to and focus on maximizing shareholder value.
Again, we reiterate that our work with CIBC Capital Markets is focused on generating realization of the maximum value, full value for the Mt Todd project and that we will continue to hold the line on that. While there were questions about developing Mt Todd in the smaller scale, I wish to reiterate that we have no intentions at this time to develop Mt Todd on our own. We see that there's better ways to generate value for shareholders through being patient and waiting for the right transaction.
With that, I'll conclude our remarks. We thank you for your time and interest. We invite you to seriously consider either increasing your position in Vista Gold or initiating a holding, and we look forward to seeing all of you and meeting you and having you as shareholders. And with that, we wish you all a pleasant day.

Operator

Ladies and gentlemen, the conference has now ended. Thank you all for participating. You may all disconnect.