CA - Aya Gold & Silver Inc. (AYASF) Q3 2023 Earnings Call Transcript

2023-11-16 15:25:28 ET

Aya Gold & Silver Inc. (AYASF)

Q3 2023 Results Conference Call

November 16, 2023 10:00 AM ET

Company Participants

Ruth Hanna - IR, Communications Manager

Benoit La Salle - President, CEO

Ugo Landry-Tolszczuk - CFO

Raphael Beaudoin - VP, Operations

David Lalonde - Head-Exploration

Conference Call Participants

Justin Chan - SCP Resource Finance

Stephen Soock - Stifel

Eleanor Magdzinski - SCP Resource Finance

Presentation

Operator

Good morning. My name is Cinta and I will be your conference operator today. At this time, I would like to welcome everyone to the Aya Gold & Silver Third Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions].

Thank you. Ms. Hanna. You may begin your conference.

Ruth Hanna

Thank you, operator. Good morning, everyone, and welcome to Aya’s third quarter 2023 results conference call. My name is Ruth Hanna, and I’m the IR Communications Manager, dialing in with all of the Aya team from Montreal this morning.

On the call today, we have Benoit La Salle, President and CEO; Ugo Landry-Tolszczuk, Chief Financial Officer; Raphael Beaudoin, Vice President, Operations; David Lalonde, Head of Exploration; and Mustapha Elouafi, President and Managing Director at Morocco. We’ll finish today’s event with a Q&A session with the team. Please contact our IR team directly with any follow-up questions that are not addressed during the call.

Before we begin, I’d like to remind listeners that today’s event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details of the forward-looking statements are contained in November 14th news release, as well as on SEDAR and on ayagoldsilver.com.

With that, I would like to turn the conference over to Aya’s President and CEO, Benoit La Salle. Benoit, please go ahead.

Benoit La Salle

Thank you, Ruth. Good morning, everybody. Just one little item. I know that the call is one day later than when we published our financial statement. And the reason is we had a strategic board meeting in Montreal where all the board members were in, and all the management team was in Montreal. Yesterday was a very busy day on for the board. And this is the reason why that the call is one day later. I know some of you were wondering and called me about this.

So let's review the performance of the quarter Q3 2023. We have a slide up, Slide number 3. We had an excellent quarter. All of our KPIs were green. We're very pleased with the quarter. We produce 519,000 ounces of silver, which is plus 15% when we compared to the previous year. We generated 11 million in revenue and a record operating cash flow of 7.7 million for the quarter. Our cash cost was at 10.73 and our [ASIC] was even below $11, just below 11. So it was a very good quarter for cost. And I know some of you called us about this and then how we were able to do this. And then this is just the performance of the quarter and the cost of operation in Morocco.

The net profit for the quarter is 1.2 million. It is a 79% increase year-over-year, and we close the quarter with 71 million in cash and cash equivalent, and a very strong balance sheet. The continued performance is on track with what we expected. The Zgounder expansion is 60% completed. The drilling was increased last quarter by 73% to 119,000 meters for the company as a whole, which is as we all know right now in our industry, it's exceptional. The Boumadine also was extended, the strike length was extended to 4.2 kilometer. That was published in the quarter. We've announced high grade open pittable goal at DDH in one of our press releases. We've also announced that we draw down 35 million on our construction facility for Zgounder expansion. And we've expanded our land position, and that's something we're very keen is to increase our land position, but we increased it by 17% at Zgounder and 50% at Boumadine. When we took over three years ago, we had about over a little bit over 60 square kilometers. And as we are right now in Aya, we have over 600 square kilometer of perspective ground.

The -- just a couple of items on page four of the PowerPoint, the silver production, the cash cost, the average grade, as you know, the grade is something that is can be a little bit hard to manage at as Zgounder because of the nature of the deposit. So our guidance was 2 64, so far we're at 2 54, so we're not far. And Q3 was at 2 61. Mill recovery is excellent at 86%. And mill availability is above 90%. So those KPIs we're doing extremely well. And in the ton process we process 70,000 ton in Q3 and 215 so far. So when you see on Slide 4, the guidance to where we are after three quarters, you can see that we're really well aligned to be on guidance or even better than guidance.

A couple of slides just to see, you see that the production at 500,000 ounces has been pretty steady for the last five quarters. You remember that Q4 is an anomaly and not to be repeated, because the grade was extremely high in Q4, and now that we have stockpile that would not happen again. But to see 500,000 is clearly been a trend for the past five quarters.

The grade is also holding in well, as you can see at the bottom, so when we say 250, 254, that's also been steady for the past five quarters. The average recovery is really around 85%, 86%. We touch 87% in the previous quarter. So it's very, very steady, and the average -- the ore process at 70,000 ton. What's interesting is our capacity, nameplate capacity is the 700 ton a day, and we're really running now at a little bit above 800 ton a day, or around 800 ton a day. So we are exceeding our nameplate capacity.

The cash cashflow for the quarter, you see this on Page 6. Very strong cashflow this quarter at 7.7 million. And obviously, we're extremely pleased with that result. The gross margin is higher as well, because the cost was lower. The up -- the cash costs and the ASIC was lower. So of course, we have a good gross margin, cost of sale was same, and the cash costs -- well at 10.73, I would remind you that in our new plant in the feasibility study, the cash cost is planned to be at 7.50 and the ASIC at 9.50.

So we are aligned at -- to go towards this with the new plant. But currently at 10.73, I mean, that's an extremely good cash cost for the current two operations. A quick picture of the construction, but I would also recommend that you go on our website, and you see the video that we do every month. It's very well done. I have to say to Ruth, it is very well done. And the team in Morocco that do this with the drones are doing a great job. So please take a look, there'll be another one ready in a couple of weeks for the end of November, and it will be available in early December.

The expansion and Raphael is with us. So some of you have question on the expansion as we indicated, it's coming very well on budget and on time. We still have five months of construction, so obviously, we're following this closely, but you see the percentage of completion for the processing plant, for the underground development, for tailings water management, electrical infrastructure, and onsite infrastructure. And by watching the video, you'll be able to see this. And now it's going to change considerably in the coming months as steel is now being erected. And now you will -- you have started to see the tanks go up and you'll see a lot more in the coming weeks and the in the coming months.

On the underground development, because you remember that when you were asking us what was the risk of this project, the number one risk was always the underground development at the mining rate and all of that. And Raphael will be able to tell you that we're doing extremely well with the underground development, the horizontal and vertical. And we are 76% done on the lateral development and 65% on the vertical development. As well the -- for the construction, you will see that the tailing storage facilities are is extremely advanced. The power line is being billed, the Merril-Crow is on site. And the Silver Room is being billed. The electrical substation you see is also being built. And so it's -- as we say, we're on time and we're on budget. And again, you know that but in our industry, only 2% of the projects get done on time and on budget.

A quick picture or two pictures, one of the tailing storage facilities is very impressive, and it was a big work, civil work done by the local Moroccan company. And it's extremely well done. And then you see the leach tanks coming up and it is of course more advanced as we speak, but it's coming very, very quickly. It's being done very quickly. And it's again, with local construction companies.

On the exploration front and we're extremely lucky, David is with us in Montreal today, so you can ask all of your question. But as I indicated, we have a massive drill program ongoing at Zgounder at the mine. It is 29,000 meters of drilling. We're 9,000 done. We are a little bit slower than we wanted, but because priority was given to the development for the mining, the speed of the mining and enhance. So on the drilling, we know that this is -- if there's one point where a little bit later is the drilling at the main Zgounder deposit. But that's fine because we have years of mine life, so we know that -- but David is working very hard to catch up for -- in the coming few months.

At Boumadine, we have a 76,000 meter budget, extremely large budget. We are 52,000 meter done at quarter end. And that is moving and is going extremely well. At Boumadine regional as well, we have 14,000 meter in the budget. We've done 8,600. When we started that a year and a half ago, it was like grassroots exploration. We've discovered many targets. We are drilling, we're seeing new zones. So it's quite interesting this Zgounder exploration is moving. But we have to recall that we started, it was Greenfield a year and a half ago. These are the permits we acquired six months ago. We're starting to work on them. And we've completed 25,000 meters of drilling. And we're completing the feasibility on this smaller project that we own in Mauritania.

So this is the main zone on Page 11. You're very familiar with this slide. That's where we're drilling all the way down to the granite. It's where we're mining for the coming years. It is a very well mineralized sponge of 1.4 kilometer long going down all the way to the granite, sometimes down to 600 meter. This is the source of the ore for the coming years. That's what we're going to drill all the way down. And that's where we're going to be spend drilling 29,000 meters. So this is ongoing. We have many drills working and this is at the moment is a top priority, and we have a couple of months of work yet to be to complete the drilling on the structure.

What's very interesting is the team, the geological team have identified, because that's what we've been looking for. We've been looking for a similar Zgounder lookalike structure. We looked to the west, we found some -- there was some smells of silver, but we have not discovered a structure. But then we realized that going to the east, we had continuity in the open pit and depth. And then, the team realized that there could be a continuation of the main zone in a deep. And that's what we're showing on the next slide. And that’s something that we're going to attend to and see if this is there. And if it is, that would be a major discovery. Because it is very close, obviously, you can see to the current mine and the current operations.

As well, on the right-hand side on the same slide, does the pinkish oval. That's also a new concept of an additional or a same geological setting, but further south from this Zgounder mine. And the team will also look into this as they believe that there could be a similar structure as what we have at Zgounder. So at Zgounder, Zgounder regional keep being our number one priority, because it's right at the mine site. And anything we find will allow us to just feed the current plant and to increase the mine life. And even at one point, if we wanted to increase the throughput at the mine.

Our next project Boumadine, you're very familiar with that one. So that is a discovery that we've made that was made like 400 years ago. But that we -- after doing the geophysics, we understood better, the structures and the mineralization. And we started drilling this last year. We did about 18,000 meters, and then we had an original budget in 2023 of 36,000, which was then increased to 76,000 meters. The reason is because the structure that we've discovered originally, we saw it in the geophysics on 6 kilometer, but now we have it drilled on 4.2 kilometer with very good result. There'll be more results coming soon as we keep drilling and we keep working on our interpretation.

So we had a, during the quarter we had one press release on Boumadine. It gave us some very good result. There'll be another one in this quarter as well. And it's a project that we believe will become the number 1 project of our company going forward. But of course, we're at the beginning of expiration, and at the beginning of understanding the geology, we did some work in metallurgy because it's a project that was known to many as metallurgically complex, which is fine. So we have had in this team, they've done the work. They've looked at different methods, and we put a pressure release out to, just to show that there is a solution.

So we did put a pressure release out showing 89% recovery for silver, 85% for gold, 85% for lead, and 72% for zinc. And enhanced to show that yes, there is a solution. Of course, it comes with CapEx and it will come with OpEx and all of that. But for us it was an important press release, because it told us that the project is doable, it is economic, it's now a matter of us understanding how big it is, what's the tonnage, what's the ultimate grade, and how do we attack this? So Boumadine is a project that is continuing at top speed. And it will continue like that for years to come.

On the ESG front, extremely, extremely important. And we're pleased to say that on our health and safety, we're doing quite well, on our LTIs, we've reduced this considerably. We also have a lot of hours in training, 2000 hours this quarter. We're approaching 8,000 hours for the year. And it's something that we're doing, we're very proud of. Please follow us on LinkedIn and on Twitter, we do put out pictures and often the programs that we have and that we do, it is something that is extremely important and you know that it's also part of our EBRD loan that we have, whereby we need to have certain programs that are in place.

And that's what we have. As I would say, the second item on this slide is the EBRD milestones advancing on the TCFD, the task force on climate related financial disclosure, we're about 80% done. And on the environmental and social action plan, we're 79% done. And that is very, very important.

So on top, we have our CSR programs. The medical program is in place. We have health program, water access program and also of course, the creation of businesses and assistance with the local saffron producer. That's something that we do and that we're very proud of. We also participated in the relief effort after the earthquake that we were not affected because of our location. The earthquake was not far from the mine, but the main effect went north and not south. And we are south of the fault. So we were not affected. We, of course, we felt it, but we had no damage, but we did participate in the effort to for rebuilding of villages and helping with blankets and everything that's needed during an earthquake. So we were part of that, and we're continuing to be part of this.

So just to conclude and after our third quarter our silver production and cause guidance, we're on track. That's coming along extremely well. The 2,700 ton per day expansion also on track and coming along, we're not done, but it is coming along. We've received a ball mail. We've finished a new water storage basin. You can see them on our website and on the videos.

And the civil work is really has been done and it is quite impressive. The TSF, we just saw a picture that's on track. They're drilling boat at Zgounder and Boumadine continuing. TJ is completed. And the field work at Tirzzit is starting, and we're following our ESG milestone. And that is continuing. So this completes the presentation on our Q3 results. You have the team in Montreal. So I would welcome question and please just tell us who you're addressing the question to. And you have the complete team here to answer any of your questions. So I turn it over to you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Justin Chan of SCP Resource Finance.

Justin Chan

First of all, congratulations on a great quarter. I guess my first one, just to kick it off, probably everyone's wondering this, you're way above your guidance rate. Well, at least you're above the top end for production and way below on cash cost. So with that said, what do you expect for Q4? Are there any mitigating factors, while you maintain guidance or just being conservative, knowing that you're well above it, I guess, what are your expectations for that?

Raphael Beaudoin

Hi, Justin. This is Rafael. So yes, it's been a break quarter and a good year-to-date. We always plan our biggest shutdown of the year in around November and December. We want to make sure that we start on a strong foot. So yes, I can see your analysis. We are on track to be guided. However, we've been quite aggressive on head grade all year round. And we do have a major shutdown coming in. And we also plan to test the open pit ore, which hasn't been done so far. So essentially, we wanted to have a strong three quarter in order to clean things up on the last quarter to do our shutdown, to do some test work on the open bit. So I do expect us to be on the higher end of the guidance. But we're not changing our guidance since we have work to do in December, and we expect December to be a bit of a slower month to make sure to start the year on a strong foot.

Justin Chan

Got it. Thanks. That's really helpful. And then on development, I see that there was a shift from lateral development to vertical development during the quarter. Is that how you -- I guess, should we expect that to be representative of the other quarters in the next, let's say three quarters before the new plant comes online? Is it more vertical development from now on, or was that more just a feature of Q3?

Raphael Beaudoin

Okay, so we are starting to slow down the lateral development, which is a good thing, means that we are essentially, we're getting towards the end of the lateral development that we had to do for the expansion of the ramp up. That being said, for the vertical development, we have three chimneys, three raises that are done out of four, which were the three main ones. We do have a secondary ventilation rate to start, early next year. So typically, over the last two years, our lateral development rate has been around 400 meters per month. We will bring this down to more of a sustainable capital development more around like 200 or 300 meters a month instead of the 400. So we are slowly wrapping down the development at the Aya, since we are getting ready for production.

Justin Chan

Got it. Thanks. That's really helpful. And then just the last one from me, and I'll free up the line, maybe one more for David, but on your upcoming resources, you've got an update at Boumadine in Q1, I guess also at [Indiscernible]. Could I ask what your thoughts on timing for that updated resources? And then, the feasibility study at Tirzzit? What are your thoughts there on timing?

David Lalonde

Okay. For Boumadine, we're on track. We're expecting resource statements. Sometimes in February, most likely, the drilling is on track, but I mentioned 50 something meters. We are now a little bit above 62,000 as we speak now, so everything's on track. The results are good, so I There should be no bad surprise.

And for Zgounder. Well, we are late -- a bit late from the underground because of the development but we're catching up. We are having five rigs right now underground. And we'll update you later. Maybe let -- or

Raphael Beaudoin

So we're compiling right now. We have to make a decision if we're going to publish before the first quarter of next year for the simple reason is it's regulatory. If we want to publish under our banner, we have to be a reporting issuer, which only happens if you've got three years of $40 million of revenue. And so we may, like we're publishing to the government at the end of -- at the end of December. And we may have to hold off for regulatory reasons here to the end of the first quarter to be a reporting issuer. But things are progressing well, and we're preparing that for the government right now.

Justin Chan

Well congratulations on a great quarter and the site looks amazing. So congrats Ralf and Benoit, Juan and the whole team on that. Can't wait to be back, hopefully soon.

Operator

Our next question comes from Stephen Soock from Stifel.

Stephen Soock

Congrats on a really strong quarter. Great to see everything clicking there. Just two from me. The first one is on the development of the 2,000 ton per day expansion. Nut I guess more on the surface works. What's kind of critical path items or front and center here as you're coming into the colder months? I know you mentioned steel work, but is there anything else that we should look for as kind of critical milestones for de-risking over the next two to three months?

Benoit La Salle

Right now we're getting the crunch of construction. So every day site, there are truckloads of steel that arrives. Most equipment already arrived on site. The underground development is going well. And I guess where the crunch is coming is we have all these different construction lots that are open. We have warehouse getting built. We have a workshop getting built. We have the plant. And it's a lot of logistics. It's a lot of logistics coming in. So essentially, it's weekly meetings and make sure that we can coordinate everything. So I'm not too sure how else to answer your question. The next four or five months are essentially the core of the erection of the plant. And we need to keep it up.

Stephen Soock

Maybe just another way. What's I guess what's on the critical path between now and turning the plant on and kind of wet commissioning?

Benoit La Salle

I would say, it's electrical work, pipe fitting electrical work. Again, we did a very good job at making sure all of the equipment would be on site on time, which they are all are essentially. And then it'll be the speed at which we can do a erection.

Stephen Soock

Maybe switching gears a little bit, I know it's early, but for 2024, I know mentioned some interesting drill targets here. How are you thinking about kind of the split between allocating drilling Boumadine, Zgounder, Zgounder regional maybe earlier stage targets for 2024. And then, what sort of magnitude are you thinking of? Total drill program, obviously, once the 2000 ton per day expansion's up and running, you'll have significant cash flow to help kind of fund that and expand that. So, where's your head at from that aspect?

Benoit La Salle

Yes. I think David has a long wishlist of things he wants to do at all, at Zgounder and Boumadine as well. We're just going through the budgeting process now, so I'd be surprised if we slow down compared to this year further than that, we're in the budgeting process now, so we have to kind of see what we're going to do. So, we'll in Q1, we'll be able to speak more to that, I think.

Stephen Soock

Okay. 10.4. I guess we'll keep an year out for that. And look forward to another great year. As the plant comes online and things take a step up here. Congrats again, guys. I'll open the line for anyone else.

Operator

[Operator Instructions] The next question comes from Eleanor Magdzinski from SCP Resource Finance.

Eleanor Magdzinski

Can everyone hear me, okay?

Benoit La Salle

Yes.

Eleanor Magdzinski

Okay, wonderful. Congratulations, to all of you on a great quarter. I just had a question about the open pit mining that took place, I guess. So it sounds, well, I assume the press release said you were able to get up to 409 tons per day in terms of a rate. Just curious on what kind of stockpile you guys have right now, and in terms of this coming or this quarter, kind of processing that what you're planning to do for kind of testing things out. Because it sounds like none of it actually went through the plant last quarter.

Benoit La Salle

Okay, so hi, Eleanor. Happy to comment on this. So the open pit rate target on the medium term, I should say for next year or so is about 500 tons per day, which we are reaching, I mean, we had two, three months ramp up. We're taking our time and there are very high-grade rich pockets, that we're getting at in the open pit. We haven't got to them yet. And in 2023, at Zgounder, we have essentially doubled the mining rate, overall between the open pit and underground.

And that gives us the luxury of choice if you want, of what tons do we process, what tons do we not process. And by respecting the sequence of the open pit, we have a stockpile of around as we speak today close to 160,000 tons. And the grade is lower of course, because we process a higher grade to the mill and we stockpile the lower grade for commissioning. So to answer your question, we have around 160,000 ton of ore that is being stockpiled right now, most of which come underground, but about a third of it comes from the open pit.

Eleanor Magdzinski

Okay, great. And in terms of that commissioning, so that'll just be later on, like once you're everything's kind of up and running, you're going to be put putting that through the mill to begin with. And then I guess in the time period, are you going to be separating any other higher-grade bits out to put through the process plant with your underground or is that kind of going to just sit for a little bit until the commissioning period.

Benoit La Salle

So we'll do bit of tests with our existing plant, with the open pit ore as I mentioned a bit earlier in the coming month, to get a feel for it. It is a surface ore tends to be more oxidized. We need to learn how to process it. Nothing out of the ordinary. We do keep all the oars separated to make sure, to keep this optionality of how we're going to blend it. The open pit of Zgounder has always been and remains a stepping stone in order to allow us to have optionality into ramping up our underground mine. So we keep the mining rate at around 500 tons a day. We can -- whenever we want and we choose, we can increase this rate, but there's no need for it right now. So we'd rather focus on, on grade control and making sure that we mind this, this bit properly until commissioning. And through commissioning, we will process lower grades not to waste any good, or, and once the plan reaches full capacity, we'll slowly increase the grade. Does that answer at all?

Eleanor Magdzinski

Absolutely. And again, congrats to everyone. Definitely a lot of hard work that went into getting the project to this point. So, good job to all of you and congrats again.

Operator

Thank you. There appear to be no further questions. I'll return the conference back to you speakers.

Benoit La Salle

Well, thank you. Thank you everyone for participating in our conference call. We will be back next year with the Q4 and full year results. However, I'm going to see most of you next week in London at the one-to-one, and then at all the conferences that are in London next week. And following that in Zurich at the two conferences in Zurich.

So thank you again for participating. Thank you for your comment. All the analysts thank you for your notes that you send after every press release. We appreciate this greatly. So thank you for following Aya and we will see you next week. Thank you.

Operator

Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.

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