Orla Mining Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 13, 2024

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Ola Mining's Conference Call for the Third Quarter 2024 Results. My name is Rob, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please be advised that this call is being recorded.

Operator

I would like to turn the meeting over to Andrew Bradbury, Vice President, Investor Relations and Corporate Development. Please go ahead, Mr. Bradbury. Thank you, operator, and welcome to Orla's Q3 2024 results conference call. We will be making forward looking statements during today's call and I direct you to the 1st and third slide of the presentation, which contains important cautionary notes regarding these forward looking statements.

Operator

All dollar amounts discussed today will refer to U. S. Dollars unless otherwise indicated. The Boralex executive team is

Speaker 1

on the call this morning, and I'll

Operator

now pass the call to Jason Simpson, President and CEO.

Speaker 2

Thanks, Andrew. During the Q3, Camino Rojo had record production at low costs. This record production and low costs in a record gold price environment drove strong margins and cash flow. As a result, we took the opportunity to pay off all our outstanding debt, taking us to a debt free status, positioning us well for future investment in the business. Part of the growth investment we'll discuss today is the construction planning for the South Railroad project and exploration in Nevada on our South Carlin complex.

Speaker 2

We have the executive team on the call to provide specific updates. As a result of the continued performance at Camino Rojo, we increased our production guidance for a second time this year and are tracking to 130,000 to 140,000 ounces produced at the low end of the all in sustaining cost guidance of CAD800 to CAD900 per ounce. Our Chief Operating Officer, Andrew Cormier will now discuss this operating performance.

Speaker 1

Thank you, Jason. As mentioned, our operating team in Mexico delivered an impressive quarter while remaining committed to the health and safety of the team. During the quarter, we mined over 1,900,000,000 tonnes of ore at a strip ratio of 1.46. The increased strip ratio in the second half is in line with the mine sequence plan for the year. The average bulk grade of ore processed during the Q3 was 0.93 barrels per tonne.

Speaker 1

We expect that in the 4th quarter, grades will come down slightly while remaining in line with the plan. We also achieved an average stacking rate of 18,434 tonnes of ore per day. The recovery improvement program continues to show positive results and we have demonstrated that we can maintain the crushing and stacking rates. We are pleased with positive recovery results, but it's worth noting that much of the test work and operational results have been with oxide material. As we increase processing rates of transition material, we will continue testing to understand that these recovery improvements can be expected as observed with the oxide maturity.

Speaker 1

With the continued strong mining and operating performance in the 3rd quarter, we produced a new quarterly record of nearly 43,000 ounces of gold. Year to date, we have outperformed on tonnes, grade and recovery for both gold and silver. As Jason mentioned, with the continued operational execution and performance, we increased our production guidance for the full year to 130,000 to 140,000 ounces of gold and we are well on track to achieve this target. Permitting of our layback in Mexico continues and we have resubmitted the application of permits to the federal government with the full endorsement of the state government. In recent weeks, the new administration has reached out to ORDA and the broader mining community to discuss investment, including these meetings in Toronto and Mexico, which our CEO attended.

Speaker 1

We see this as a positive statement. We anticipate the new administration will be prepared to respond to our expansion permit application in the New Year. In Nevada, permitting for the South Railroad project continues to progress. We are finalizing 20 supplemental environmental reports required to be prepared for the Bureau of Land Management prior to issuing the notice of intent. To date, 15 reports have been reviewed by the Bureau of Land Management and cooperating agencies and our consultants are completing the final 5 incorporating the feedback.

Speaker 1

The company aims to finalize all the supplemental environmental reports by the end of 2024. The completion of this work ahead of the notice of intent should aid in the preparation of subsequent EIS documents. The notice of intent is then expected to be published in early 2025 with the targeted record of decision, the final permitting decision by mid-twenty 26. Following this approval, construction on the South Railroad project would commence with the 1st gold production anticipated in 2027. At the state level, we have received Class 1 and 2 Air Operating Permits.

Speaker 1

Applications have been prepared for the water pollution control permit and the National Looting Discharge Elimination System discharge permit, which will be submitted after the notice of intent in 2025. The EPCM contract is set to be awarded later this year. Basic and detailed engineering will proceed in 20252026 to align with the construction following the record of decision. Long lead equipment will be identified and purchase orders potentially placed in 2025. We have been asked if the election of the new President in the United States will have an impact on the permitting timeline.

Speaker 1

Our base schedule assumes that a notice of intent is received in 30, 2025. With the new President, we think the potential for delays in this schedule is reduced. We will monitor and update as we get more information. Now over to our Chief Financial Officer, Ed Seyane Morin, to discuss the financial results for the quarter.

Speaker 3

Thanks, Andrew. During the quarter, we sold 38,000 ounces of gold at a realized price of $2,477 per ounce, resulting in record $99,000,000 in revenue for the quarter. All in sustaining costs for the Q3 was $7.20 per ounce, lower in part due to higher gold sales and higher silver byproduct credits. With the strong gold production and cost management, we're now guiding to the low end of the improved 2024 all in sustaining cost guidance range of $800 to $900 per ounce of gold sold, and we remain on track to achieve that target. Our low cost production coupled with higher gold prices are driving strong earnings and cash flow generation.

Speaker 3

Our net earnings for the quarter were $21,100,000 or $0.07 per share And after adjusting for unrealized foreign exchange gains and other small items, adjusted net earnings were $19,200,000 or $0.06 per share. These strong earnings are reflected in robust operating margins of 65% and record free cash flow generation. During the quarter, exploration and project costs were CAD17.4 million of which CAD13.7 million was expensed and $3,700,000 was capitalized. Of note, this quarter represented the peak of exploration and project spending for the year and we are on track to meet our full year guidance for both exploration and project development spending. Cash flow from operating activities before changes in non cash working capital was $52,000,000 or $0.16 per share for the quarter and we generated a record $45,000,000 in free cash flow of $0.14 per share.

Speaker 3

During the quarter, our total capital expenditures were $7,900,000 of which $3,800,000 were non sustaining and related to capitalized exploration in Mexico and $4,100,000 were sustaining and mainly related to the construction of Phase 2 of the heap leach pad, which was completed in the Q3. At the start of 2024, we had nearly $90,000,000 in long term debt outstanding. We were making incremental quarterly payments, but as gold price continued to increase and our operating results strengthened, we were in a position to pay off the full amount outstanding in October and became debt free only 2.5 years after achieving commercial production, all while continuing to invest in our growth pipeline. Our cash balance as of today is approximately $145,000,000 with no debt and a non drawn $150,000,000 revolving credit facility, bringing our total liquidity to nearly

Speaker 1

$300,000,000 So with that, I'll pass

Speaker 3

it on to Sylvain Guerrare, our Senior Vice President of Exploration.

Speaker 4

Thanks, Etienne. In Mexico, drilling in the 1st part of the year successfully defined gold and polymetallic mineralization within the first 500 meter beneath the Quembeau Hao sulphide resources. In the second half, ongoing drilling is focused on extending this mineralization from half to 1 kilometer beyond the existing resources. New results are being received and an update on our drill program is planned before year end. I will now walk you through a short update on the exploration of the Salt River Project in Nevada, which is now part of what we are calling the South Carlin Complex.

Speaker 4

This complex is 25,000 hectare land package with a 30 kilometer strike and combines the South Railroad and Pointer Creek properties. We recently released results from the first part of our 2024 program, which tested potential extensions of gold mineralization beyond the current projected open pit at Darkstar and Pinion. These results returned significant gold intercept in oxide and sulfide zones. The image on the right shows the Darkstar pit and how recent drilling is successfully intersecting new mineralization outside the current open pit boundaries, including the subtle area located between Dark Star Main and North Zone. We find these results very promising.

Speaker 4

As a pinion deposit, infill drilling confirm continuity and enhanced grade between historical holes, while new and historical results across the target area indicate that gold mineralization remains open southeast of the projected open pit. Ultimately, we intend to expand the resource base by following key structures that control modernization and exploring open road zones. These drilling programs supports our Nevada strategy to enhance project value and extend mine life by identifying additional oxide resources and making new discoveries across the land package. I will now hand the call back to our Chief Sustainability Officer, Safika Hedina.

Speaker 5

Thank you, Sylvain. On the sustainability front, we recently inaugurated our egg poultry farm in partnership with a local high school in Santi Burcu near our Camino Rojo mine, which achieved its first ag production. This project was designed for community economic development and agricultural education. And it's a model for most stakeholder partnership with pre sold ag production set to supply Camino Rojo and other nearby mines including Penasquito. We were pleased to celebrate this important achievement with our neighbors and project partners, and we hope it spurs continued partnerships and more local business endeavors.

Speaker 5

Internally, at Orla, we've been equipping our leaders across our sites with essential soft and technical skills, empowering them to train others and facilitate learning modules within our leadership system and other initiatives. This past quarter, team leaders in Canada, Mexico and Nevada conducted workshops for their teams on responsible procurement practice, our social investment toolkit and our leadership foundations workshop, which is rooted in systems leadership principles. Through this training, we are preparing our leaders to guide their teams effectively fostering growth that's both responsible and sustainable. And with that, I'll pass the call back to Jason.

Speaker 2

Thank you, Shafika. Record production and cash generation, debt free while making significant growth investments, more gold discovered and permitting progressing. Orlet is getting stronger, bigger and more valuable. I am proud that this team continues to execute. Thank you to our teams in the countries where we operate, whose commitment and delivery are driving this business forward.

Speaker 2

And at this point, I'd like to open the call to questions and hand it back to the operator.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Anita Soni from CIBC. Your line is open.

Speaker 6

Good morning, Jason and team. A question I had with respect to the mine plan in 2025.

Speaker 5

Your permits, I think you said you're going

Speaker 6

to submit them in November. Have they been submitted yet?

Speaker 2

Hi, Anita. Yes, thanks. I'm glad to have you on our call now. We submitted the permits on November 11th, so they have been submitted. That submission, as Andrew referenced, with the full support of the state government.

Speaker 2

So we hand delivered those on November 11th. As Andrew also mentioned, I've been fortunate enough to be asked to be part of 2 meetings with the Mexican government and facilitated by the Canadian government as they have open dialogue with the mining industry and other executives, most recently last Friday. We expect that with their feedback on the submission included that we can expect a response from the federal government in the first half of twenty twenty five.

Speaker 6

Okay. And then as we move into thinking about the first half of twenty twenty five, I'm assuming once you get the permits, you'll be able to move forward pretty quickly. But what does the mine plan look like? I know the strip ratio increased in the back half of this year in order to maintain consistent core feed. Does that drop next year or does that remain consistent?

Speaker 2

Yes. No, that will remain consistent. And as the permits are being evaluated and we receive response, our plan will continue and we will not be interrupted in 2025. Earlier in 2024, we made a decision to invest in a redesign and internal ramp in the pit such that our production through 2024 and 2025 would remain uninterrupted. So we'll continue with that mine design as Andrew referenced the plan and that includes throughout 2025 where we'll look to maintain a balanced amount of stripping and hence a balanced amount of cost to the business throughout the year next year.

Speaker 6

Okay. And then how does that impact the grades next year as well?

Speaker 2

The grades really are a function of where we are within the pit. There are portions, as you can imagine, in the pit that have higher grades and portions lower grades. And all of that will be part of our budget plan for 2025 that leads to our guidance calculation. The other thing that we should also keep in mind is what Andrew referenced related to the recoveries. We are extremely pleased with the recovery improvements that have translated to additional production in 2024.

Speaker 2

Some of that can be carried into 2025, but as we go deeper in the oxide pit, I remind our audience that there are 4 zones of material through that pit. And as we get deeper and deeper into the pit, the recovery profile changes. And so we'll need to consider that in our production planning for 2025 along with the grade that you asked about and presumably maintaining our throughput despite getting deeper that will all come together for our 2025 guidance. And we should expect Orla's production over the past 2 years this year and next year to be reasonably predictable.

Speaker 6

Okay. Thank you. That's it for my question.

Speaker 2

Nice to hear from you, Anita.

Operator

Your next question comes from the line of Andrew Mikitchook from BMO Capital Markets. Your line is open.

Speaker 7

Thank you. Congratulations on a record quarter and being debt free today. I just want to come back to South Railroad. You had a nice chart in the presentation. And I think the commentary indicated there was 5 remaining submissions.

Speaker 7

Is there any sense you can give us on how far along those submissions are in terms of the time and work that's already been put into target this being finished for submission, I think the wording was by year end?

Speaker 2

Yes, Andrew. So those submissions, have already gotten feedback from BLM on that. So we're incorporating that feedback in the next draft that will go to them so that we have all 20 submitted by year end. So that's the work that's already gone into it. The reports already written, gone through one set of feedback with BLM that could potentially be a second set of feedback.

Speaker 2

And if it follows the same pattern of the first 15, that would conclude our submission.

Speaker 7

Okay. And there's a grayish box in the middle of that chart on Page 7 says option for early start. Any commentary that's I guess if everything's rolling well, you can accelerate the EPCM. Is that what that infers?

Speaker 2

Yes. We've spoken to this in the past and the way I described it is we would like to replicate the kind of success that we had in constructing Camino Rojo. Andrew Cormier and his team's approach to this is to make sure that we get the basic engineering done early such that we can let the contracts also early based upon detailed designs. Additionally, earlier procurement can enable us to de risk the project by having key equipment on the ground. In the case of Camino Rojo, it was actually before construction began.

Speaker 2

So we'll look to do the same thing. We are in a few weeks going to submit a budget to the Board for 2025, which will include in the first half of the year that basic engineering that I talked about. And potentially, we will go back to the Board mid year next year to begin the construction contracts and early procurement for long lead time items in the second half of this of next year, such that similar to the communal rojo process, we can build the mine in Nevada in months.

Speaker 7

And then if I can indulge with the microphone here. One last question on the exploration, the long section, I think, on Slide 11 of the Dark Star Main and North pits. Obviously, the historical holes and your follow-up polls released today, suggest that the pit shapes will change. And I think the comment just suggested the same for Pinion. To me, just to confirm that the start of the mine sequence looks intact.

Speaker 7

This is just changes midway to later in the mining sequence around this and would be part of the future. So it wouldn't impact the current permitting effort or the near term mine plan for this at the start. Is that accurate?

Speaker 2

Yes, that's exactly how I'd like to characterize, Andrew. Thank you. Clearly, we're going to need to incorporate those compelling results in addition to an update to the gold price considerations. In due time, it is important that we continue on the path that we're on right now through the permitting process, begin the operation as designed and then take the liberty to incorporate all of these additional results and opportunities into the long term mine life. We as miners and similar to what we're doing at Camino Rojo will look to add resources that replace depletion in addition to potentially expanding things when the time is right.

Speaker 2

And at those times that we have justified in expansion, we will need to submit for permit amendments in that regard.

Speaker 7

Well, thank you. I'll sign off and let others ask questions. Congratulations.

Speaker 2

Thanks, Andrew.

Operator

And that concludes our question and answer session. I will now turn the call back over to Jason Simpson, CEO for closing comments.

Speaker 2

Okay. I want to thank everyone for their time and dialing in today. Thank you, operator. I'm very proud of the Orla team, and we continue to deliver results. If you ever have any questions, the Orla management team is available, so don't hesitate to reach out.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Orla Mining Q3 2024
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