CA - Orezone Gold Corporation (ORZCF) Q1 2023 Earnings Call Transcript

2023-05-14 11:19:02 ET

Orezone Gold Corporation (ORZCF)

Q1 2023 Earnings Conference Call

May 10, 2023, 11:00 AM ET

Company Participants

Patrick Downey - Chief Executive Officer

Peter Tam - Chief Financial Officer

Ryan Goodman - Vice President, Legal and Administration

Kevin Mackenzie - Vice President, Corporate Development and IR

Conference Call Participants

Don Blyth - Paradigm Capital

Presentation

Operator

Hello. My name is Chris, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Orezone Q1 2023 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. Patrick Downey, Chief Executive Officer. You may begin.

Patrick Downey

Thank you and good morning. Welcome everyone to Orezone’s first full quarter of reporting of operations and financial performance. As stated, all figures are in U.S. dollars unless stated and today I have with me Peter Tam, Chief Financial Officer, who will be walking through the financial data and performance for Q1. I also have Ryan Goodman, VP, Legal and Administration; and Kevin Mackenzie, VP, Corporate Development and IR. I will be making forward-looking statements, so please have a read of this disclaimer in your own time.

So, firstly, just a quick walk through the summary of the Q1 highlights. Gold production for the quarter was 41,301 ounces. Gold sales were 43,139,000 ounces at an all-in sustaining cost of $926 per ounce.

Our plant operated at approximately 13% above nameplate, which is an exceptional performance and really a testament to the team down on site. Zero lost time injuries and I will walk through that later on and what it means. Our cash at the end of the quarter were $45.2 million and we also paid -- repaid $9.8 million of principal senior loans.

Also importantly during the quarter, we were advancing on all growth initiatives, the Phase II expansion study, the grid power, and our Phase II and III RAP. I plan to go through these above in a little more detail later on in the presentation.

So health and safety, we are soft -- we have had a solid safety record, I think, in fact, we are right up there with the best in the industry. In Q1 we had zero LTIs with 928,000 hours worked. Since taking records of work on the project, we have over 10 million hours now and over 1,600 days without an LTI.

We are extremely proud of this achievement, and again, it is a testament to the quality of our on-site leadership. We have ongoing safety initiatives, which we started right off the get-go from production, including emergency response training and mine rescue training.

We brought in an international team who are experts in these areas to train, manage and oversee these programs, and also very importantly, we have a lot of ongoing local community training and awareness.

We are building up our local community capability for small contracts and community work projects and prequalification to tender includes safety training and an understanding of all our safety protocols and procedures, and with our RAP Phases II and III, all of these contractors are local, which puts all of the money back into the communities.

On this I will now hand over to Peter Tam. Peter?

Peter Tam

Thanks, Patrick. On financial and operating highlights, the first quarter of 2023 was our first full quarter of commercial production and is reflected in our higher gold sales production and income figures as compared to the fourth quarter of 2022 where we only had two months of running operations.

Our first quarter was strong financially, led by the sale of 43,139 gold ounces at a realized gold price of $1,892 an ounce. Cash cost was $799 an ounce and all-in sustaining cost was $926 an ounce, which resulted in a cash margin of $966 an ounce sold or 51%.

Revenue was $81.7 million, with earnings from mine operations of $39.7 million after deducting cost of sales of $42 million.

Pretax income was $28.5 million, which attracted an income tax expense of $2.9 million for the quarter. Tax loss carryforwards available for immediate deduction have now been fully applied against income earned by our Bomboré operations over these past two quarters.

Tax attributes from historical exploration and evaluation costs remain, but they are only allowed to be deducted over the life of mine for Burkina Faso tax purposes. As a result, we expect our effective tax rate and tax expense to increase in future quarters going forward.

After income taxes, net income was $25.6 million, and net income attributable to Orezone shareholders after deduction for non-controlling interest, was $22.6 million. Basic earnings per share attributable to Orezone shareholders was $0.07 per share.

Switching from earnings to cash flows. Operating cash flow before working capital was $41.1 million and after working capital was $38.9 million. All this led to a healthy cash balance of $42 -- $45.2 million at March 31, 2023, meaning that we are well positioned to fully repay our short-term senior loan as it comes due with Coris Bank in Q2, while continuing to fund our growth initiatives.

Moving on to slide six, production and unit cost summary. On the mining front, 4.6 million tonnes were mined in the quarter at a waste-to-ore ratio of 1.1. Ore tonnes processed was an impressive 1.44 million tonnes, which exceeded nameplate by 13%.

Average head grade was 0.96 grams per tonne and process recovery was a steady 92.2%, resulting in 41,301 ounces of gold production.

Mine site unit cash costs declined 21% quarter-over-quarter from $23.93 per ore tonne processed to $18.92 per ore tonne processed, driven by greater mill throughput and lowering of fixed unit costs. Q4 2022 unit costs were higher as the process plant was still under commissioning for part of the quarter.

We continue to control costs closely wherever possible, driven by improved operating practices for reagent dosage and consumption. Our unit consumption is below budget for all major reagents including lime and cyanide and this has had a positive impact on processing costs.

However, we continue to see cost pressures from a strengthening local currency and from persistently high diesel prices in country, which we had budgeted to fall in reaction to falling global oil prices in the second half of 2022. We have not yet seen falling diesel prices materialize. However, we will continue with our cost control efforts and we will look for other controllable ways to manage costs.

With that, I will hand it back to you, Patrick.

Patrick Downey

Thanks, Peter. So now on to guidance. So based on Q1 performance, we are reiterating guidance with production being stronger in the first half of 2023, showing gold production guidance of 140,000 ounces a year to 155,000 ounces a year at all-in sustaining costs of just over $1,000 per ounce to $1,110 per ounce.

Sustaining capital is still projected at between $15 million to $16 million, with growth capital of $33 million to $38 million. I just want to point out that, that sustaining capital of $15 million to $16 million now includes a Phase III tailings lift, which will allow us to save approximately $3 million over the two-year period and also provides us with the foundation for the growth that we are talking about later on in the project. Our growth capital includes $18 million to $20 million for RAP Phase II and III, and the grid power connection of $15 million to $18 million.

As Peter said, we are really out setting the foundation for the future. We expect debt reduction of $33 million for 2023. We have repaid $9.8 million in Q1. Our RAPs Phase II and III allows access to the remainder of the mining permit, including the southern oxides and all of the south rock, sorry, hard rock on the project.

Our grid power connection, which is expected to be completed in Q4 will materially reduce the life-of-mine power cost. And I just want to state that in Q1, our cost per kilowatt hour were $0.63, which included diesel, rental of equipment and operating costs for the equipment.

With the grid power in place, we will be at approximately $0.20. That’s a 66% savings, or if you look at Q1, if we were connected to the grid, our all-in sustaining cost would be approximately $800 an ounce, which is truly best in class for a single-stage junior mining company who have just got into operation. It would equate to $20 million of savings per annum going forward, as a significant difference would be about $150 of savings and all-in sustaining costs over the year. So a critical project.

But really, where are we going with Orezone and Bomboré? Well, it is truly the Phase II expansion study. Our updated study is on schedule for Q3 2023. This study will include an additional 100,000 meters of drilling since our 2019 Feasibility Study and Resource update.

The resource modeling is well advanced and mine design planning is now -- and planning is now underway. Our metallurgical studies are essentially complete. They have been excellent. These confirm the rapid leach kinetics that we expected. It supports a 24-hour leach versus the 42-hour leach in the 2019 Feasibility Study.

So if you look at that photograph, what we will essentially be doing is replicating what we built for the Phase I. So we know how to build it, we know what it cost and we know how long it take to build. So the major equipment such as tank sizes, agitators, in-tank screens, pumps, et cetera, are exactly a replica of what we have just built.

Our flowsheet is frozen. The equipment and capital costs are well advanced. We are actually going out for a full detailed quotes on the long lead items at the SAG mill, the jaw crusher and the thickener. It is a simple process circuit, a primary crusher, single-stage SAG and a 24-hour leach and it contemplates commonality of the leach circuit, the reagents and all plant site services. So a pretty simple operation.

We have completed all of the foundation geotech, not just for study but for construction. So we are getting ready to start building this plant and we have done the same for the TSF expansion. So all soil analysis and trenching and drilling is complete and the design is well underway. So, again, this will be ready to build and it will be exactly the same as the existing TSF as just an extension of it.

I also want to say that we will be using the same design and build team as the successful Phase I plant, Lycopodium for the design and construction, Knight Piésold for the tailings on-site water management and our own existing OBSA owner’s team. So, with the same team, we expect the same results, on time and under budget.

So what does this mean? Our existing 2019 Feasibility Study contemplated production of 134,000 ounces a year for the first 10 years with a three-year tail based on 5.2 million tonnes of oxide throughput for the first three years, sorry, and then reducing to 3 million tonnes in year three with a 2.2 million tonne hard rock plant coming up to augment that in year two.

That is no longer the case and I strongly recommend you ignore it. The brownfields expansion will be the current oxide plant running at 5.7 million current throughput and maintaining that throughput and a separate 4.4 million tonne hard rock plant contemplated and we are targeting greater than 250,000 ounces of production per year. So it’s a significantly different study from what we are talking about and we expect to run right into construction of this study.

On to our projects update, which are critical to getting the next stage of expansion ongoing. Our grid power connection, which is obviously a critical project and serves both the oxide and hard rock. So there’s no further capital for the hard rock on this line.

All long lead items of equipment are now in place for this project, our installation contracts have been awarded and mobilization has commenced, our alignment survey is complete and our ground clearing for the spur line of 23 kilometers will commence later this month. And as I stated, our grid power connection is scheduled to be energized in Q4 of this year, with future cost savings estimated between 60% to 70% from current on-site costs.

RAPs Phase II and III, the earthworks is complete for the largest spillage and all the water supply systems are in place. The contracts have been awarded to several local construction companies and our main housing construction at MV3 is now underway.

I am not going to dwell on the next slides, but I really want to include them. You cannot build and successfully operate a mining project without a strong support from the local communities and I am really proud of our record in this regard.

The -- as I say, I am not going to dwell on this, I am just going to flick through these slides, but we are -- they are included as an example of the work we have done and continue to do, which are critical to the support of the local communities.

I am really also proud to say that we have several technical people working on the plant and mining operations that are from these local communities that have gone through training programs.

So it’s not just jobs for drivers and drill operators, et cetera, we really are also focusing on education and giving long-term training and support for the local communities in the region. Again, the next slide shows you further. All of our on-site uniforms are made by the local communities, which is great and they are of a high quality, I must say.

So, in summary, Orezone has built a very simple and highly effective stage I operation that is working extremely well. It is run by a strong and focused local team. We have very, very few expats on this project, I got to say, and our general manager is a local guy and his team below him are generally local people and they are doing a great job, as can be seen from our results in Q1.

And we now look forward to fully betting it in and advancing towards the next stage of growth, which is extremely exciting. We will have further drill results in 2022, really along our oxide expansion testing of new targets. Our updated Feasibility Study is scheduled for completion in Q3, grid power in Q4 and RAPs Phase I, but the critical aspects in 2023 with ongoing RAP in 2024.

I got to say we have also had preliminary discussions with our local lender, Coris Bank. We walked through the study with them and where we see the capital cost, et cetera, and they are very determined that they will be our supporting lender as we move forward here. So that will allow us to order lead equipment early on and keep our schedule on target for first gold from the expansion in the middle of 2025.

With that, I will hand it back to the Operator.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Don Blyth with Paradigm Capital. Your line is open.

Don Blyth

Hey, Paddy and team. Congratulations on an amazing first full quarter of production. You have done a very remarkable job getting this thing built during COVID and start-up has gone remarkably smoothly, all things considered. Could you talk on just, obviously, the geopolitical situation in Burkina is tends to be getting worse. You are located at least in the best part of the country, if you will, central part away from the sort of problematic areas. But is there any sort of impact on your day-to-day operations just from the geopolitical standpoint?

Patrick Downey

Yeah. Thanks, Don. No. Actually, we have been in and out of country a few times and we, obviously, keep a very close watch on everything. I would say that the current President is extremely popular with the local Burkinabe population and they see him doing a really positive job in pushing back against some of the things that happened over the past couple of years.

We also get that feedback from our local bank who obviously have branches all over the country and they give us feedback on what they see happening in the regions and they echo that. But, obviously, the situation remains tense in the area and in the region.

As you said, for us, we have not seen anything, we go in and out, we do not need armed escorts or equipment and materials and supplies. They just come directly in and out. Our operation has run extremely smoothly, very little turnover of personnel and no big supply delays. I would say, Peter, our longest would be cyanide, because it comes as a [inaudible] I think?

Peter Tam

Yeah. Even then it’s not a long lead time required. So we are definitely well stocked for there.

Patrick Downey

Yeah. So we -- our working capital remains quite steady throughout the quarters and the week. So we are running this as like it’s like a normal operation, to be quite frank.

Don Blyth

Excellent. Great to hear.

Operator

[Operator Instructions] And it appears that we have no further questions. I will turn it back over to Mr. Downey for any closing remarks.

Patrick Downey

I hope the fact that there’s no question that everybody is excited as we are, what we have achieved and what we expect to achieve. So that’s great. Thank you very much and we look forward to continuing to keep you updated on Orezone and Bomboré’s activities.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

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