OceanaGold Corporation (OCANF)
Q3 2022 Earnings Conference Call
October 27, 2022, 8:00 AM ET
Company Participants
Brian Martin - Senior Vice President, Business Development and Investor Relations
Gerard Bond - President and CEO
Scott McQueen - Chief Financial Officer
David Londono - Chief Operating Officer, Americas
Scott Sullivan - Chief Technical and Projects Officer
Peter Sharp - Chief Operating Officer, Asia-Pacific
Sabina Srubiski - Investor Relations
Conference Call Participants
Ovais Habib - Scotiabank
Wayne Lam - RBC
Michael Parkin - National Bank
Presentation
Operator
Good morning and afternoon, ladies and gentlemen. And welcome to OceanaGold 2022 Third Quarter Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]
Also note that this call is being recorded on Thursday, October 27th at 8 a.m. Eastern Time. And I would like to turn the conference over to Brian Martin. Please go ahead, sir.
Brian Martin
Good morning. Welcome to OceanaGold’s third quarter 2022 results webcast and conference call. I am Brian Martin, Senior Vice President of Business Development and Investor Relations for OceanaGold. We are joined today by Gerard Bond, President and CEO; Scott McQueen, Chief Financial Officer; David Londono, Chief Operating Officer, Americas; and Scott Sullivan, Chief Technical and Projects Officer. Now Peter Sharp has joined us as our Chief Operating Officer for the Asia-Pacific region. He is currently visiting the operations as part of his onboarding. So Scott Sullivan will talk to the results for those sites.
Before we proceed, please note that references in this presentation adhere to International Financial Reporting Standards and all figures are denominated in U.S. dollars.
Also, please note that the presentation contains forward-looking statements, which, by their very nature, are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate as future results and events could differ materially. I refer you to the disclaimers, including those on forward-looking statements in our presentation.
I will now turn the call over to Gerard Bond for opening remarks.
Gerard Bond
Thank you, Brian, and good morning, everyone. Thanks for taking the time to talk -- join with us today. I am happy to say that our third quarter results were broadly in line with plan and while it was the low quarter for production, as we guided to at the start of the year, we achieved some significant accomplishments in the period.
Notably, we continue to have strong safety performance during the third quarter, which is the number one priority across the business. We achieved a very pleasing 15% reduction in the total recordable injury frequency rate relative to the previous quarter and at 2.3 per million hours worked, we had the lowest ever total recordable injury frequency rate for the company on a 12-month rolling basis. This is a reflection of the care being taken across the business to keep each other safe. We will remain focused on this and strive to reduce the severity of any injuries that do occur.
I am also happy to report that we remain on track to deliver our full year guidance. We produced 351,000 ounces of gold year-to-date, which puts us pretty much bang on 75% of the midpoint of our full year gold production guidance range. With a strong fourth quarter expected due to higher grades at Haile, we remain well on the way to delivering on this key commitment to the market.
The permitting process at Haile is progressing, albeit with a slight change in the sequence of permit issuance from that which we previously thought. Pleasingly, the supplementary environmental impact statement was published in August and we understand that the Army Corp of Engineer is satisfied, we have addressed the few comments received.
Last week, the Section 401 Water Quality Certification Permit notice was issued by the South Carolina Department of Health and Environmental Control or DHEC, which we expect to take effect in mid-November. There are a few permits to come, but the 401 Certification sets stage for the remaining permits to follow. We have good engagement with all regulatory agencies and remain confident of obtaining them in the fourth quarter.
In the interim, we were delighted to have received approval during the quarter to commence early preparation of underground operations, which has allowed us to begin development of the underground portal and decline and the two ventilation portals. This work is progressing well with us having completed to date, 50 meters of the 180 meters permitted in relation to the production portal. David will talk about this a little more later.
Although the permanent process for the Haile expansion has taken longer than we originally expected, we are very pleased to have the SEIS published. The comments on it fully addressed the Section 401 notice issued by DHEC and to be progressing well with the production portal and ventilation early works and we are very much in the final stages of getting the permits.
Finally, I am happy to report that the operational and financial outcomes from Waihi have significantly improved quarter-on-quarter, with the benefit of completed grade control drilling, improving our mining performance and leading to Waihi generating positive free cash flow in the third quarter.
Now for some of the highlights from the third quarter, we safely delivered 105,000 ounces of gold production at an all-in sustaining cost of $1,554 per ounce, generating $214 million in revenue and EBITDA of $40 million.
Our free cash flow in the quarter was negative $17 million, which we expected would be the case given the production and CapEx profile. We generated $55 million of free cash flow year-to-date. Our balance sheet remains strong, and is well positioned with $130 million in cash and $174 million in net debt, and that includes finance leases at the quarter end.
I will now turn over to Scott McQueen to provide more detail on our financial results.
Scott McQueen
Thanks, Gerard, and good morning, everyone. As Gerard outlined, our third quarter financial results were in line with expectations. While gold production was, as expected, lower compared to the previous quarter, gold sold was relatively consistent quarter-on-quarter, due to the timing of sales and inventory movements. However, despite the consistent sales volume, third quarter revenue of $214 million was 7% below the previous quarter, due to lower average realized gold and copper prices.
EBITDA was $40 million, reflecting the lower revenue, but also approximately $17 million of non-cash unrealized foreign exchange losses arising on the revaluation of our U.S. dollar-denominated revolving credit facilities.
After adjusting to this non-cash charge, our third quarter adjusted net profit after-tax was $6 million. This equated to an EPS of $0.01 per share fully diluted, while operating cash flow per share was $0.08, both in line with analyst consensus.
Looking ahead to the fourth quarter and as outlined at the start of the year, we continue to expect stronger gold production relative to the third quarter. At Haile, gold production in the fourth quarter is expected to increase as mining progresses into higher grade zones.
Haile’s all-in sustaining cost per ounce is also expected to increase despite the higher gold production. This reflects higher expected capitalized pre-stripping, the early works underway at the Haile Underground and the planned capital expenditure on waste containment facilities.
The precise amount of some of these works -- precise timing of some of these works is subject to receipt of the SEIS final record of decision and related operating permits. While the approved early works program at Haile Underground is underway based on the expected timing to conclude the permitting process as outlined by Gerard, Haile’s 2022 full year capital expenditure is now expected to be approximately $20 million lower with some planned works moving into 2023. As a result, the Group’s 2022 full year consolidated capital expenditure is now expected to be towards the lower end of the guidance range.
At Macraes, gold production in the fourth quarter is also expected to be higher than the third quarter, driven by higher feed grade and recoveries, while Macraes’ all-in sustaining cost profile is expected to be lower, consistent with the higher expected gold production.
At Didipio and Waihi, gold production and all-in sustaining costs per ounce at both operations are expected to remain relatively consistent in the fourth quarter as compared to the third. Copper production at Didipio is also expected to remain relatively consistent in the fourth quarter.
I will now turn the call over to David Londono to discuss Haile’s performance during the quarter.
David Londono
Thank you, Scott, and good morning, everyone. The Haile operation continued to maintain a low injury frequency rate with 1.8 recordable injuries per million hours worked at the end of the quarter. Safely and responsibly delivering production is the highest priority at OceanaGold, I am very pleased with the efforts of the Haile’s team to keep pit ore safe.
Mining at a lower grade Haile pit continue this quarter as planned and the resulting production was 36,500 ounces of gold, a slight decrease when compared to the previous quarter, but better than originally planned.
Total material mine in the third quarter was 8.2 million tonnes, a decrease from the previous quarter due to lower equipment availability and longer haul cycles. Total ore mine, however, was 1.1 million tonnes, a 50% increase quarter-on-quarter. This significant increase was a result of positive or tonnage reconciliation in areas of historical workings combined with faster advance rate in the Haile pit.
Mining in the Haile pit was completed at the end of the quarter and the mine transition to the Mill Zone and Ledbetter Phase 2 areas in line with the mine plan. Total mill sale was in line with the prior quarter reflected the ongoing benefits of improved ore presentation, improve ore feed blending and much better mill utilization due to less ship congestion. Average melted gold grade was lower than the previous quarter, mainly due to lower grade ore supply from Haile pit Phase 1, consistent with the mine plan.
Hurricane Ian made landfall in South Carolina on September 30th delivering high winds and heavy rainfall to Haile. Pleasingly, as a result of improved water planning, better drainage systems and better road based on the pit plant, the mine was able to maintain operations with no material disruption either to mining or processing during this period.
Mining unit costs increased compared to the previous quarter, primarily due to lower total mining movements. High implant maintenance work on the mobile fleet also continues to impact productivity and mining unit cost and reduced unplanned maintenance is the primary focus of the Haile asset management plan and continuous improvement initiatives.
Processing unit costs increased marginally compared to the previous quarter due to higher cost of reagents and mechanical and electrical parts, which were partially offset by lower reagent consumption. Third quarter all-in sustaining cost was $15.52 per ounce with cash cost of 1,175 per ounce.
Now for more detail on the permitting process. During the quarter, the U.S. Army Corp of Engineers published the Haile SEIS, which was followed by a scheduled 30-day public comment periods. No material comments were received.
The U.S. Army Corp of Engineers has advised us that all comments received in the review period have been adequately addressed and that is ready to issue both the final Record of Decision and the Clean Water Act Section 404 Permit. The expectation is that this will occur once the Clean Water Act 401 Water Quality Certification that was recently issued by DHEC will take effect.
On October 21st, DHEC published a notice that it has issued a 401 Certification, which will be effective in early November 2022, unless a request for the DHEC Board review is submitted. We do not anticipate that any review would be requested.
Given the agreement reached earlier this year with the conservation community in South Carolina to provide additional financial assurance to the state as part of the SEIS process. We are also engaged with these groups throughout the project permitting process.
Shortly after the SEIS Record of Decision or quote-unquote permit issue, DHEC will issue the mine permit, which will effectively conclude the permitting process for Haile mine expansion. We expect this all to occur in the fourth quarter.
As Gerard mentioned, DHEC also approved an early works program, which allowed the team to begin preparation of underground operations, including advancing initial development of the main underground production portal and decline and drilling the intake and exhaust ventilation portal. All of this is within the current permitted area.
This approval was granted later in the third quarter, and as of today, the main decline has advanced approximately 50 meters, and the intake and exhaust ventilation portals have advanced a combined total of approximately 75 meters.
With the early work programs underway and our expectations around the issuance of the final Record of Decision and the mining permits to be probated in the near-term, we continue to expect ore to be delivered from the Haile Underground in the fourth quarter of 2023 and remain on track to deliver significant production growth at Haile over the next couple of years.
I will now turn the call over to Scott Sullivan to discuss the results from the Didipio and our New Zealand operations.
Gerard Bond
Scott, are you there? Okay. Scott may be having some problems with his audio. So I will take it from here. If I -- we will start with Didipio. Didipio continues to be one of the safest operating mines in the industry and it reported a recordable injury rate per million ounces worth of 0.8 by the end of the quarter.
The operation mined at its full 1.6 million tonnes per annum underground and produced over 25,000 ounces of gold and over 3,500 tonnes of copper. And that’s a slight decrease when compared with the previous quarter due to lower copper and gold grades mined, but was in line with the full year mine plan.
Total mined material in the third quarter slightly decreased due to a minor reduction in underground development rates as the operation advance through areas with wetter ground conditions.
Mill feed in the third quarter also slightly decreased when compared to the previous quarter due to variations in planned maintenance, which included a SAG mill reline. There were also multiple power interruptions to the mill at the end of the quarter due to impacts to the network during Typhoon Cardin.
Underground mining unit costs and processing unit costs both increased as a result of increased electricity tariffs, consumables and other costs, while processing costs were also impacted by the planned plant maintenance shutdown.
Didipio’s third quarter site all-in sustaining cost was $930 per ounce, while cash costs were $818 per ounce, generating strong margins, despite the decrease in average realized gold and copper prices.
We are moving on to Macraes. Macraes had a 23% reduction in its total recordable injury frequency rate quarter-over-quarter and reported 5.1 recordable injuries per million hours worked.
The team there is doing a loss of very targeted work to improve the safety performance of the site and pursue the elimination of high impact injuries and we are starting to see some early signs of this having the desired effect.
The operation experience record monthly rainfall in July of 200 millimeters. Naturally, this impacted negatively on open pit mining and underground mining operations as access to the phrases underground by the Frasers West pit was restricted. Along with lower grade from Golden Point Underground, this resulted in lower quarter-over-quarter gold production of 29,400 ounces.
During the third quarter, open pit mining occurred in Deepdell, Frasers West, Gay Tan and Innes Mills, while underground mining was at Frasers Underground and Golden Point Underground. While development rates at Golden Point underground continued to be impacted by poor geotechnical conditions around the Golden Point fault, progress was made and decline development during the quarter opened up access to the Round Hill ore system, with the first ore drive turnouts commencing at the end of the quarter.
Mill throughput decreased slightly compared to the previous quarter despite a higher percentage of harder Deepdell ore and the planned stoppage to conduct SAG mill maintenance during the quarter. Gold recovery was lower compared to the previous quarter due to a high percentage of carbonaceous ore from Deepdell Phase 4. This adversely impacted carbon and leach recoveries. We expect the optimized blending strategies and increased underground ore volumes in the fourth quarter of the year to improve recoveries.
The third quarter site all-in sustaining cost was $1,924 per ounce, with cash costs of a shade under $1,300 per ounce, both an increase from the previous quarter due to lower mining productivity in gold production and sales combined with higher costs.
If I move now on to Waihi. Waihi’s total recordable injury frequency rate was consistent with the previous quarter as this team continued to safely deliver production. And in the quarter, Waihi produced 13,690 ounces of gold, an increase of 67% compared to the previous quarter. This is a significant quarter-on-quarter increase, which we did expect, because mining during the third quarter progressed into higher confidence areas of the Martha Underground deposit, which improved -- resulted in improved stoping performance, increased ore tonnes and higher grade mined. Mill feed increased 37% from the previous quarter.
With the benefit of the grade control drilling program data and as mining has progressed into these areas of higher confidence, it’s expected that mining rates will continue to increase over the coming quarters.
However, there remains a risk that annual production rates may not reach levels previously projected on a multiyear basis. Underground mining rates, processing unit rates and site G&A all decreased quarter-over-quarter, primarily as a result of increased mined and milled tonnes.
On last quarter, we launched the Waihi North Project consent application and the receiving councils formally accepted. The application is complete for processing and issued a number of requests for additional information, which we will respond to ahead of public consultation next year.
At the completion of the consultation stage, the councils will determine the formal hearing process for considering the consent application. Along with the consent application, we continue to advance various technical studies and exploration at Wharekirauponga to support the Waihi North pre-feasibility study.
Drilling to date and mining optimization studies strongly support further growth of the indicated resource. As we mentioned before, a targeted indicated resource size of 1.1 million ounces has been determined as optimal for initial development plans, which provide improved mine design opportunities in support of pre-feasibility study, which is expected to be completed around the end of 2023.
So moving to the final slide. After three solid quarters, we are well on our way to safely and responsibly delivering on the production and financial expectations set out at the start of this year and we know that’s the key requirement of the market.
We are focused on maximizing production and free cash flow, and we have three key new programs addressing the value potential here, namely asset management, procurement and continuous improvement.
We have recently recruited proven experts in each of these areas to accelerate the realization of this potential. We have seen some early-stage successes in the procurement space, because our procurement expert has being the longest serving new joiner and there’s a lot of opportunity for improvement in the other two areas as well.
We have made good progress in our journey of realizing the organic growth in our portfolio and shareholders can be certain that we remained focused on creating shareholder value and higher returns to shareholders.
I will now turn the call back to the Operator and open up to any questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And your first question will be from Ovais Habib at Scotiabank. Please go ahead. Please unmute your line, Habib. Hello, Mr. Habib, can you hear us, your line is open. Getting no response, next question will be from Wayne Lam at RBC.
Wayne Lam
Yeah. Thanks. Good morning, guys. Just wondering at Didipio, you guys have seen quite a big increase in unit costs with the higher energy rates and labor. Just wondering, as you look into next year, how much of that do you see as transient or should we anticipate costs to be relatively similar to the implied H2 guidance given the cost pressures you are seeing on multiple fronts?
Gerard Bond
Yeah. Thanks, Wayne. Look, Didipio’s energy costs are primarily impacted by coal costs in the Philippines and your view on what they are going to be in the current [ph] as good as mine. But overall, year-to-date, I mean, its performance is broadly in line with the guidance that we have given for the year. And as we said during the prepared remarks, the production volumes, and certainly, there’s stability in the relative rate of increase of cost, we don’t expect the cost performance to be any worse.
I would note that as it relates to labor costs, the Philippines peso, a bit like as we have experienced in New Zealand as well and also Australia to the extent that we have costs in Australia. The depreciation of those operating currencies against the U.S. dollar has given us a really good buffer in a U.S. dollar unit cost sense.
Wayne Lam
Okay. Got it. Thanks.
Gerard Bond
Thank you.
Wayne Lam
And then just wondering on the increase in the plant capacity there, the targeted mill feed for the year would imply relatively flat throughput quarter-over-quarter. So I just wanted to confirm whether the mill is already able to achieve the higher max throughput? And then what would you need to see from the optimization study and can you give us a sense of timing on when you might be in a position to make a decision on the higher limit?
Gerard Bond
Yeah. Well, and for the benefit of all, so we guided this year for the mill rate to be somewhere between 3.5 million tonnes to 4 million tonnes for the year, even though, as your question implies, we got an increase to take the mill to 4.3%.
So the studies that we have underway, both relate to both mining and the plant. And we have just got to try and find a peak point of value relative to the cost of any downstream works to accommodate that extra milling rate and also make sure that the interplay between underground ore feed and the utilization of the aboveground stockpile is optimized.
So we are not just going to chase to fill the mill. There is this -- there’s a nice blend of the underground mine plan, and obviously, we would love to get more from the underground given that’s where the higher grade gold is.
The ore body, as you know, is open at depth and we are trying to -- again, we want to make sure that, that interplay between those two sources underground and open pit is optimized rather than rushing to fill the mill necessarily. But it’s nice to have that little bit of headroom. As to the timing of the studies, I think, that will be finished early next year.
Wayne Lam
Okay. Perfect. And then maybe just last one for me. Just wondered at Haile, how far are you guys able to ramp down before the Record of Decision is fully in hand?
Gerard Bond
Ramp down. Yeah. Probably about another month roughly, I mean, we are advancing at a good rate. And in terms of the permit that we have, we have got a bit of headroom there to go, but around a month from now and we have to get it all done in that period of time.
Wayne Lam
Perfect. Thanks for taking my questions.
Gerard Bond
Thank you, Wayne. Appreciate it.
Operator
[Operator Instructions] And at this time, it appears that we have no further questions. Please proceed.
Gerard Bond
So was that an attempted question there?
Sabina Srubiski
Yes. Sorry, there’s actually a question, sorry to jump in. There is a question on, that we got through the webcast and this is from Ovais. He would like to know that, at Haile, the receipt of the SEIS permits seem to be closed and based on DHEC approving early works and assuming SEIS permit in 2023, how are we looking at 2023?
Gerard Bond
David, I will have a go and then you can color it in. I mean, I think, as David said, basis the work that we are doing now and the expected timing of the receipt of all associated permits. We are on track to get first ore out of Haile Underground in -- towards the end of 2023, which if you go back to the technical review that we put out back in February is broadly consistent with that.
We always knew that they would -- at the first ore, we were targeting to get in -- towards the end of and be a small sliver of the 2023 ore feed. And as David said earlier, that’s -- that remains the current expectation. David, anything you want to add to that?
David Londono
No. That’s pretty good. With the current advance with the earlier batch, we don’t target to deliver first ore in fourth quarter -- early in the fourth quarter.
Gerard Bond
Thanks, Ovais. Thanks, Ovais. We appreciate your persistence by having a web related question. Any other questions?
Sabina Srubiski
One more from him actually.
Gerard Bond
Okay.
Sabina Srubiski
At Waihi we saw production come up nicely due to grade control drilling. How far is rate control drilling ahead of production and are you now confident that production has stabilized.
Gerard Bond
Well, great question. Yeah. We have grade control drilled the remainder of this year and all of next year and naturally you can expect that we are going to be keeping well ahead of it going forward. We expect that next year’s production will be higher than the -- this year’s production.
And as I think I was alluding to in the comments, it may not get -- and we are in the middle of our life of mine planning now and we have obviously got the better drilling data that allows us to inform the rate over a longer term period.
But our expectation is that, it may not get up to the circa 90,000 ounces -- 90,000 ounces to 100,000 ounces that we had previously, but it would be certainly much higher on a go-forward basis, sustainably then the rates that we will achieve in this year. And pleasingly, just to make the point again, we expect, as we saw, if the rates of performance in the far -- in the quarter just gone were achieved to be free cash flow positive in -- as a result.
Sabina Srubiski
We have got another question coming in from the webcast. It’s from Michael Parkin at National Bank. Does Waihi’s grade control drilling flow through OpEx and total cash costs in ASC?
Gerard Bond
Yes. It does. It certainly does, Mike.
Operator
He is also on the phone. I will put him through. Mr. Parkin, your line is open.
Michael Parkin
Thank you. That was good color. Thanks, guys.
Gerard Bond
Thanks, Mike.
Operator
At this time…
Gerard Bond
Operator?
Operator
… we have no other phone questions.
Gerard Bond
Great. Thank you. And look, thanks, everyone, for joining us. That concludes the webcast and conference call. A replay will be available on our website later today. On behalf of the management team and everyone at OceanaGold, thanks for joining us and I wish you a very pleasant rest of the day. Bye for now.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
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OceanaGold Corporation (OCANF) Q3 2022 Earnings Call Transcript