OceanaGold Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 3, 2023

There are 8 speakers on the call.

Operator

Good morning and afternoon, ladies and gentlemen, and welcome to the OceanaGold 2023 First Quarter Results Webcast and Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Please press star 0 for the operator. Also note that this call is being recorded on Wednesday, May 3, 2023 at 10 am Eastern Time.

Operator

And I would like to turn the conference over to Rebecca Harris. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to OceanaGold's Q1 2023 results webcast and conference call. I'm Rebecca Harris, Director of Investor Relations. We are joined today by Jared Bond, OceanaGold's President and CEO Scott McQueen, Chief Financial Officer David Londono, Chief Operating Officer, Americas and Peter Sharp, Chief Operating Officer, Asia Pacific. Also present is Craig DeBry, Chief Exploration Officer and Ryan Martin, Senior Vice President, Business Development and Investor Relations.

Speaker 1

The presentation that we will be referencing during the conference call is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q and A session. As we will be making forward looking statements during the call, Please refer to the cautionary notes included in the presentation, news release and MD and A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U. S.

Speaker 1

Dollars unless otherwise noted. I will now turn the call over to Jared Bond for opening remarks.

Speaker 2

Thank you, Rebecca, and welcome to OceanaGold. It's great to have you and your experience on the team. And good morning, everyone. Thank you for joining us. We had a solid Q1 in all respects.

Speaker 2

Our results are in line with guidance and we remain on track to deliver our full year 2023 production, capital and cost guidance. I'll begin with thank you, where I'm delighted to That is the Q1 we achieved another company record. Our total recordable injury frequency rate of 1.9 per 1000000 hours worked On a 12 month rolling average basis, it was the lowest ever for the company and a decrease from the 2.3 reported for 2022. Now we may not be able to sustain such low injury rates every quarter given the small number of injuries it would take to cause an increase, but You can be sure we remain absolutely focused on the safety of everyone coming through the gates at OceaniaGold every single day. From a production perspective, both Haile and Didipio performed well in the Q1.

Speaker 2

In New Zealand, as previously disclosed, we had a challenging Q1. McCraes was affected by having to take 1 of the ball mills down for major repair and why he experienced challenges due to extreme wind events, which Calls sliding in part of the Martha Underground and prevented access to the high grade stopes in these areas. Pleasingly, we completed a temporary repair of the Macraes Ball Mill at the end of the March and it has returned to full milling capacity in April. At Waihi, we are progressively regaining access to all areas of the underground mine and expect to deliver more tonnes at better grades through the remainder of the year. Peter is going to talk to both items later on the call.

Speaker 2

During the quarter, we also made progress on our organic growth options, Notably, the Haile underground project with our main production decline now advanced 550 meters. The decline has now reached the top elevation of the ore body and we remain on track for delivery of our first ore from Horseshoe Underground in the 4th quarter. With this enhanced access from underground, we also expect to begin underground exploration drilling at Horseshoe in the Q2, targeting both resource conversion and growth. On the topic of exploration, we continue drilling at Whirakirapanga in New Zealand as we work towards delineating this high grade deposit. In the Q1, nearly 800 meters of drilling was completed, focused on infill of the main EG vein, and we expect to be able to update the market with results later this year.

Speaker 2

So we produced around a quarter of the midpoint of 2023 guided production in the Q1. We expect the Q2 to be the strongest production quarter of the year for the company and we are well positioned to generate strong free cash flow at these current metal prices. I'm pleased to say that we also paid our previously announced $0.01 per share semiannual dividend recently in the month of April. Now moving on to some highlights from the Q1. You can see we produced 118,000 ounces of gold and 3,500 tons of copper, both in line with full year guidance.

Speaker 2

Our all in sustaining costs For the quarter, we were $15.67 per ounce, 112,000 ounces of gold sold. From a financial perspective, we reported an adjusted net profit after tax of $39,000,000 which equates to an adjusted EPS of $0.06 per share. We did report negative free cash flow of $16,000,000 slightly below plan due to over 6,000 ounces of gold at Haile Being produced but not sold at quarter end. Other working capital outflows are associated with Plan Philippines annual tax payments and annual employee incentive payments for 2022, which were made during the quarter. We do remain in Strong financial position with $191,000,000 of net debt, a leverage ratio of 0.3 times And liquidity of $158,000,000 at the end of the quarter.

Speaker 2

And this gives us the financial flexibility to continue investing in the exciting growth projects across our business. I'll now turn the call over to Scott McQueen to provide an overview of our Q1 financial highlights.

Speaker 3

Thank you, Jared, and good morning, everyone. 1st quarter financial results were broadly in line with expectations, Given the temporary challenges faced by the New Zealand operations during the quarter, quite a small quarter on quarter reduction in sales volume, Revenue was $244,000,000 a $6,000,000 increase relative to the prior quarter due to higher average gold prices received. Also note, our Q1 gold sales were lower than gold produced, reflecting the timing of sales around quarter end and gold in transit. We expect to benefit from the reversal of this timing difference in the coming quarter. EBITDA for the quarter was 100,000,000 There's a $9,000,000 reduction relative to the prior quarter, with the first quarter impacted by the timing of sales around quarter end as mentioned, Higher G and A costs and the $2,000,000 non cash unrealized FX loss relative to a $16,000,000 FX gain in the prior quarter.

Speaker 3

These non cash FX adjustments mainly relate to movements in the New Zealand dollar exchange rate during the period. Net profit after tax of $39,000,000 was broadly consistent with the prior quarter. When adjusted for the non cash unrealized FX loss, this equates to an EPS of $0.06 per share will be diluted. Operating cash flow equated to $0.14 per share fully diluted, both slightly ahead of analyst consensus estimates. While the Q1 EBITDA, net profit and EPS were sound and were an improvement quarter on quarter on most measures, 1st quarter free cash flow was lower at negative $16,000,000 This is mainly due to the delayed sales previously mentioned, Combined with typically high first quarter working capital requirements, which included the payment of some annual Philippines taxes, annual insurance premiums, Annual bonding and the payment of annual employee incentives, as Gerard mentioned.

Speaker 3

We expect to see these impacts normalize as the year progresses, We remain well on track to deliver strong free cash flow at current prices across the full year. As outlined at the start of the year, We continue to expect stronger group gold production and free cash flow in the 2nd quarter relative to the first. Overall, at the end of the Q1, we will remain well on track to deliver our full year guidance. I will now turn the call over to David Landonio to

Speaker 4

Thank you, Scott, and hello, everyone. The Hayley operation continues to maintain a low injury frequency rate with 1.6 recordable injuries per 1,000,000 hours worked At the end of the quarter, a 15% reduction compared to the end of 2022. Safely and responsibly delivering production It's the highest priority at OceanaGold, and I am very pleased with the continued efforts of the A team to keep each other safe. 1st quarter oil production of 48,000 ounces was higher than the previous quarter, Primarily due to higher grade mining mill zone, which was offset by slightly lower mill tonnage as a consequence of the 3 severance that occurred in late 2022, combined with a shutdown early in the quarter. Alek expects to remain within full year all in sustaining cost guidance, achieving $15.52 per ounce sold in Q1, While continuing to integrate continuous improvement projects in key operational and capital areas, Cash costs of $6.73 per ounce sold in Q1 were impacted by timing of coal sales, That's slightly offset by lower operating costs.

Speaker 4

Q1 was an exciting quarter outside. At the beginning of March, we hosted a well attended analyst and investor tour. And then on March 6, We welcome visitors to celebrate the opening of the Horseshoe Underground. We have made significant progress on the underground since receipt of the SCIS in Q4 We also continue to invest in exploration with a healthy $7,000,000 budget this year. And in the Q1, We continued our drilling focus at Palomino and have an underground drill scheduled to begin drilling at both Horseshoe and Horseshoe Extension later this quarter.

Speaker 4

This somewhat depends on the underground ramp up. The focus during Q1 was on advancing development The decline has now made an important milestone, reaching the 10:35 level, which represents the top elevation of the Horseshoe underground ore body. Year to date, we have completed 7 41 meters of total development For an average of EUR 273 per month. Meanwhile, work has been advancing at our surplus project as well, With progress being made at both the Westpac facility and tailings storage facility expansion, We are pleased with the work being done on surface as the expanded footprint allows additional operational flexibility and optimizes material handling. At the water treatment plant expansion, all the work piping installation has been completed and the plant is now energized.

Speaker 4

Initially began at the end of April and the plant is expected to be fully operational this quarter. Overall, the Hale expansion project remains on schedule, and I'm very excited about the future of the mine. I will now turn the call over to Peter Sharp to discuss Didipio and our New Zealand assets.

Speaker 5

Thank you, David, and hello, everyone. Starting with Didipio, the mine continues to be one of Safest operating mines in the Philippines and the mining industry in general and reported a 12 month moving average, recorded injury frequency rate of 0.88 injuries 1st quarter gold production of 33,000 ounces was 14% higher than the previous quarter, With copper production of 3,500 tonnes being consistent with previous quarter, a good start to the year and sets really well to meet the full year production guidance for Didipio. Didipio's 1st quarter all in sustaining costs was $5.85 per ounce, while cash costs were $5.36 per ounce, which helped deliver strong margins for the period. The 45% quarter on quarter decrease in all in sustaining costs is mainly due to higher gold sales along with lower sustaining capital expenditure. We do expect sustaining capital expenditures to increase through the year and expect Didipio all in sustaining costs to be within full year guidance ranges.

Speaker 5

We continue to study the options for increasing underground mining rates at Didipio to at least 2,000,000 tonnes per annum and expect to be in a position to share the findings from this work by the end of this year. On the exploration side, We began follow-up drilling on the 2 recent discoveries we announced in December and will continue delineating these and other targets throughout the remainder of the year. Moving over to Macraes, the operation reported a 12 month moving average recordable injury frequency rate of 2.9 injuries per 1000000 hours at the end of the first quarter, a much improved 43% reduction compared to the end of the previous quarter. Macraes produced 27,000 ounces of gold for the Q1 of 2023, 33% lower than the previous quarter. Reduced mill throughput and lower average fee grades were the key drivers of this decrease.

Speaker 5

The throughput impact was caused by the cracked trunnion on the ball mill That Gerard mentioned earlier, while the lower grade was predominantly due to the lower underground ore tonnes in

Speaker 3

the quarter, the repair to

Speaker 5

the bore mill trunnion was completed at the end of March And normal mill throughput rates were achieved in April. We also completed a planned shutdown of the Ball Mill in mid April to inspect the condition of the repair and pleasingly Everything looked good. We are undertaking an engineering assessment now and expect to have a full feed in replacement Designed and ready for installation in early 2024. Underground mining at Golden Point Underground was impacted by a fall of ground in late February, resulting in the decision to upgrade ground support in all of the intersections and turnouts in the main decline. This work was completed at the beginning of April Development rates are expected to return to full capacity by the end of Q2.

Speaker 5

Stoping rates are unchanged from original plan, which is to hit full capacity in Q3. Stronger operational performance at Macraes is expected through the rest of 2023 as the mill has now returned to full capacity And high grade ore from Golden Point Underground is being processed. Now for Waihi. Waihi produced 10,000 ounces of gold for the Q1. This was broadly in line with the previous quarter.

Speaker 5

As previously reported, the North Island of New Zealand and Waihi operation experienced abnormally high rainfall at the beginning of 2023. Over 1 meter of rain fell during the 1st 6 weeks of the year to put this into context. This impacted productivity in the underground mine, especially in the areas of Edward and Empire West, And the mining had to be developed into alternative areas of the mine due to flooding. On the expectation that rainfall will continue to moderate as it did in March April, The company expects to be able to access the previously flooded areas in the Q2, which will allow the Q1 production impacts to be recovered across the balance of 2023. I will now turn the presentation back over to Jared.

Speaker 2

Thanks, Peter. I'm pleased to welcome some new faces to our Board and management team. Linda Broughton has been recently appointed to the Board of Directors and brings with her successful track record as an accomplished executive in the mining industry. Businesses in environmental geochemistry, water and tailings management, Mine reclamation and closure as well as risk management will provide us with a unique perspective and add tremendous value to our Board and to our shareholders. We also recently announced the appointment of Maris Van Niekerk as Chief Financial Officer, who will join us towards the end of this month.

Speaker 2

Maris is a very capable and dynamic executive with global commercial and financial expertise, both in the resources and technology industries. I'm very confident he will help sustain the integrity of our financial reporting and governance systems as well as generate significant value for the company.

Speaker 6

Though he will be with

Speaker 2

us for a while yet, I'd like to take this opportunity to thank Scott McQueen for his more than 6 years of dedicated service and high quality contribution to Oceania Gold. That's a high caliber, high integrity CFO, and we appreciate his commitment to support the onboarding and transition to Maris as well as completing several important projects throughout 2023. I'm confident Scott's going to give a few more farewells and best wishes before he eventually leaves us. But for now, I'm going to take the opportunity to acknowledge his contribution to the company and to the excellent support and wise counsel he has provided me over the past year. So in summary, we remain committed to our goal to safely and responsibly deliver And financial expectations set at the beginning of this year, which we know to be a key requirement for the market.

Speaker 2

We're focused on safely and responsibly maximizing the free cash flow generation of the company, and we've made good progress in our journey of realizing the organic growth potential in our portfolio. Shareholders can be certain our objective is creating shareholder value and generating high returns to shareholders. With that, I'll now hand the call to the operator and we'll go over the questions.

Operator

Thank you, And your first question will be from Ovais Habib at Scotiabank. Please go ahead.

Speaker 6

Thanks, operator. Congrats, Gerard and Oshaanagold team on the Q1 beat. This is despite challenges of the New Zealand operation. So great job there. Just a couple of questions from me.

Speaker 6

Number 1, great to hear that Hale underground expansion remains on track. You guys are doing the underground decline is Advancing to the 1st production level. Have you as you progress to the production stope that you're looking to develop, you started doing any sort of great control drilling? And if so, have the results been in line with your expectations? David?

Speaker 4

Yes, I can answer the question. So we actually haven't started drilling yet. We have the drill in transit and we plan to start in the next couple of weeks.

Speaker 6

Okay. Thanks for that. And then just that then moving on to Falomino, you're looking to convert resources reserves in early 2024. Will you be releasing an updated underground study on the back of this resource and reserve conversion? Any thoughts about that there?

Speaker 2

I mean, I'll take that. I mean, I guess, we'll be DASA driven of those. I guess, the drill results and the magnitude of what that means For the mine and its materiality will govern that. But we do have a Study underway. The study will be informed by the results.

Speaker 2

And yes, as and when it's of a magnitude that causes there to be material change that

Speaker 6

And my last question, just on the Q4 conference call, you mentioned that Oceana is kind of working on optimization studies at I believe it was Macraes, Didipio and Waihi. Are you looking to release these studies to the market? And if so, when Should we expect these results? Or also any sort of progress on those studies and any sort of expectations that are being built up within the company?

Speaker 2

Look, sure, as and when they're all in progress and they're variously to At Radmacraes, we have the round hill option study, which we provided some detail on, as you say, in the Q4 results. That's underway and will be as soon as it is completed and again subject to it being materially Different to what is the current flight path of the asset, we would update the market. A lot of the other studies that are going on across the business relate To the underground optimization, particularly at Didipio and that I think Peter mentioned on the call now, The target is going to take it to from its current underground mining rate. And as you'll appreciate of those, any time at any of our underground mines, Any of our sites, when we can get more from underground, whether that be at Macraes, Didipio and of course, Haile. The benefit that we get from a grade perspective and then a waste hand perspective is really powerful.

Speaker 2

So A lot of work being done to see if we can increase the amount of material that we get from underground at all sites With those underground operations. But yes, as a general statement, you can be certain that as and when we complete the studies And we've got something to say. We'll be all too pleased to share that with the market.

Speaker 6

Sounds good. Thanks Gerard for the color and thanks for taking my questions. That's it for me. Thanks, Sunez. Appreciate it.

Operator

Thank you. And your next question will be from Mike Parkin of National Bank. Please go ahead.

Speaker 7

Hi, guys. Congrats on the quarter. Just one follow-up to Vasquez, last question there. The multiyear guidance, I would assume, doesn't factor in any potential optimization upside At the various undergrounds, would it?

Speaker 2

Look, I mean, there's a certain level of Improvement, but not in terms of a step change nature, no. So we don't have the kind of Step change in Didipio, for example, that Peter spoke about reflected therein. So it does represent upside to that multiyear outlook. But there is a degree of improvement in our multiyear outlook as well. So it's I think I was but with some of those studies, particularly, again, the one at Didipio that represents Quite a considerable change in potential.

Speaker 7

Okay. Thanks for that. We're seeing a number of miners beat on earnings and noting an improvement on consumables. Your OpEx tracked very nicely relative to my estimate. Can you just highlight some of the areas where you're seeing The biggest wins, diesel has been mentioned by some of your peers.

Speaker 7

Is that something you're seeing improve quarter over quarter?

Speaker 2

In short years, I think the commodity price exposure at its Core has translated into better pricing, but that also relates to some reagents. I mean, We really got, stung with a surge in reagent costs last year and that has pulled back To varying degrees. It does vary by reagent, but we're pleased to say that the certainly the rate of inflation has slowed and in some cases It has decreased in terms of price to again to varying degrees. I think that's changed is that the supply side response has lifted and some of those constraints, particularly Those relating to shipping out of China that you will all recall was constrained with the latest lift of COVID restrictions in country, what we've also seen is just a speed of supply to the market has also improved. So, yes, we haven't fully reverted to the pre inflationary surge that we all experienced as an industry last year, But certainly getting some reversion on some elements this year.

Speaker 7

Excellent. On TCRCs with respect to Didipio, are you seeing any improvement on those contract prices or Is it still kind of locked up for a period before renegotiation?

Speaker 2

I believe they're The subject of an existing contract, Scott McQueen, you can probably clarify.

Speaker 3

Yes, that's right, Gerard. Hi, Mike. Our current contract is last about another 12 months and we're in the process of Getting ready to go through the proper commercial process to see how we can improve that whole structure. So, that will be part of it. But right now, they've been locked into

Speaker 7

Okay. And then just one last question. When we were down that site to see the hail underground. It certainly showed that the more challenging ground conditions Seemed to be behind you. Is that still the case?

Speaker 7

You're noting pretty impressive development rates of about 10 meters a day. Just any kind of comment in terms of conditions of the rock, inflow of water, etcetera. The water was fairly modest When we are there, is it same, lower, higher?

Speaker 2

David?

Speaker 4

Yes. We've definitely seen a big improvement on the ground conditions and the water is being diminished. Yes, we actually April was a very good month for us, where we advanced 300 meters during the month. So Yes, ramping up really nicely. Great.

Speaker 7

Okay, that's it for me guys. Thanks very much. Thank

Operator

you, Mike. And at this time, it appears we have no further questions. Please proceed with closing remarks.

Speaker 2

Well, look, thanks everyone for taking the time for the call. We are very pleased with the webcast. The replay will be available on our website later today. On behalf of everyone at Oceania Gold, really appreciate you joining us And wishing you all a very pleasant rest of the day. Bye for now.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

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