Principal Financial Group Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 11 speakers on the call.

Operator

Welcome to the Fortuna Mining Corp. Q2 2024 Financial and Operational Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. I will now hand the conference over to your host, Carlos Baca, Vice President of Investor Relations. Sir, the floor is yours.

Speaker 1

Thank you, Jenny. Good morning to all. I would like to welcome you to Fortuna Mining's 2nd quarter 2024 financial and Operational Results Conference Call. Hosting the call today on behalf of the company will be Jorge Alberto Anoza, President and Chief Ganoza, President and Chief Executive Officer Luizarillo Ganoza, Chief Financial Officer Cesar Velasco, Chief Operating Officer, Latin America David Widdle, Chief Operating Officer, West Africa. Today's earnings call presentation is available on our website.

Speaker 1

As a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release, the earnings call, webcast presentation, MD and A and the risk factors in our annual information form. Financial figures contained in the presentation and discussed in today's call are presented in U. S. Dollars unless otherwise stated. Technical information in the presentation has been reviewed and approved by Eric Chapman, Fortuna's Senior Vice President of Clinical Services and Qualified Person.

Speaker 1

I would now like to turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer and Co Founder of Fortuna.

Speaker 2

Thank you, Carlos, and good day to all. I'm pleased to report that Fortuna remains well positioned to continue capitalizing on the rising prices of gold and silver, while strategically maintaining a business capable of performing across varying market cycles. Q2 was marked by significant operational and financial results. Specifically, we made strides in 3 relevant areas: advancement of key capital projects capturing high value exploration opportunities and consolidating a fortress balance sheet. Our mines produced 116,000 gold equivalent ounces, benefiting from the upward trend in precious metal prices.

Speaker 2

The average realized gold price increased to $2,334

Speaker 3

per

Speaker 2

ounce from $2,087 in Q1. Hello?

Speaker 4

Hello?

Speaker 2

The average realized price increased to 2,030 I thought I lost the line for a second here, dollars 2 1,334 per ounce from $2,087 in Q1. This led to total sales of $260,000,000 with gold contributing 81%, silver 10% and byproducts zinc and lead making up the remainder. The business generated $93,000,000 in cash flow before working capital adjustments, equivalent to $0.30 per share and achieved $39,000,000 in free cash flow from operations. Our adjusted EBITDA was $113,000,000 reflecting a robust margin of 43% over sales. I want to highlight 2 major capital projects.

Speaker 2

Firstly, the Lindero Leach Pad expansion has reached 60% completion with a total 2024 construction budget of $42,000,000 this is our largest capital project. This significant project weighs approximately $400 on the Lindero all in sustaining cost and $90 on our consolidated all in sustaining cost for this year. We anticipate the leach pad to be concluded and ready to receive ore by Q4, setting the stage for the next decade of reserves. And secondly, the Seguela processing plant exceeded expectations, operating at an average rate of 208 dry metric tons per hour, which is 36% above its design capacity of 154. This optimization has delivered significant value and helped mitigate the power outages of the National Grid in Cote d'Ivoire during the quarter, ensuring no material effect on our guided production for the year.

Speaker 2

On our high value exploration opportunities, we are thrilled about the emerging Kingfisher discovery at the Segueta mine. Through 14,000 meters of drilling, we have identified continuous mineralization over a 2 kilometer strike length. We plan to continue drilling with the aim of producing a first resource estimate by year end. Kingfisher is a remarkable discovery as it does not have surface expression. The prospect is located just 4 kilometers from our processing plant and main antenna deposit.

Speaker 2

This discovery highlights the significant discovery potential within the 35 kilometer long belt under our control. And on the strength of our balance sheet, the successful placement of $172,000,000 in convertible notes in the quarter was 3x oversubscribed. This has increased our liquidity to $350,000,000 and lowered our cost of capital from 7.7 percent down to 3.75%. We also maintained a low total net debt to EBITDA ratio of 0.2. The strong balance sheet allows us to pursue value focused opportunities in our regions throughout market cycles.

Speaker 2

All in all, Q2 performance demonstrates the strength of our business. We remain focused on delivering value to our shareholders through strategic investments, operational excellence, unlocking the geologic potential of our properties and responsible mining practices. Now David Widdle will give you an overview of the performance of our business in West Africa. David?

Speaker 5

Thanks, 2nd quarter regarding production combining for 64,430 ounces of gold for the quarter and 126,163 ounces for the first half of twenty twenty four. While both Seguela and Yaramoko had power supply limitations, they remain on target to achieve production targets. Both mines also maintained their excellent safety record. In the Q2, Seguela mined 420,000 tons of ore at an average grade of 3.03 grams per ton and 2,500,000 tons of waste, achieving a strip ratio of 5.9:one. The processing plant treated 318,000 tons at an average gold grade of 3.47 grams per ton, producing 32,900 and 83 ounces of gold for the quarter, totaling 67,539 ounces in the first half of twenty twenty four.

Speaker 5

Despite power interruptions from the National Grid resulting in a reduction of 4 55 hours or 19 days of processing time. We were able to mitigate this by optimizing mining schedules to provide higher grade ore to the plant and increasing plant throughputs, which have reached 208 tonnes per hour for the quarter with a high of 2 13 tons per hour have reached in June. In the Q3, Seguela experienced full power availability from the national grid. Backup power generating capacity is being expanded on-site to mitigate any future power supply issues. And construction of the on-site solar power plant is still scheduled to commence this year.

Speaker 5

As a result, Sogaila remains ahead of schedule year to date and is on track to achieve annual production guidance of between 126,000 136,000 ounces. Mining activities at Seguela have been focused on the Antenna pit to deliver higher grade ore to the process in plan. Additionally, over 75,000 tons of ore have been mined at the Ansean and Kula pits year to date, surpassing the mine planned targets. Continued exploration success at the Badi Orchestral and Gabro North Pits is providing further opportunities with the life of mine plan and opens the potential for underground mining at the Sunbird and Ansean deposits. These developments along with the emerging Kingfisher discovery bode well for the future of the Seguela mine.

Speaker 5

Despite this power supply issues, the strong production performance at Seguela resulted in a cash cost of $5.64 per ounce and an AISC of $10.97 per ounce of gold. At Yaramoko, 111,000 tons were mined at an average grade of 8.0 grams per ton for 28,709 ounces of gold in the 2nd quarter. The processing plant treated 121,000 tons at an average grade of 8.4 grams per ton, producing 31,000 447 ounces of gold, outperforming the mine plan and totaling 58,624 ounces for the first half of twenty twenty four. During the quarter, mining operations were paused at the 55 zone ore body due to a fall of ground caused by a seismic event. Access to the working areas of the mine was reduced by 10 days whilst rehabilitation works were conducted.

Speaker 5

During this time, the QVP orebody continued to produce mill feed, which was supplemented by existing stockpiles. To mitigate future seismic risks, mining operations have been rescheduled, resulting in a revised production profile that will lower expected production in the 3rd quarter, but enhance output in the 4th quarter. Yaramoko was also affected by power availability in Burkina Faso, resulting from power supply reductions in Ghana and Coquilua. Yaramoko already has backup diesel generating capacity, which was complemented by the mobilization of an additional genset, thereby mitigating any significant effects on the mining and processing operations. As experienced at Seguela, normal power supply is being provided from the National Grid in the Q3.

Speaker 5

Mining and drilling operations of both the 55 Zone and the QB ore bodies have revealed strike extensions beyond the initially anticipated mining boundaries. Consequently, 55 Zone Development operations are now projected to continue until the Q1 of 2025. Although this extension will likely elevate the forecasted all in sustaining cost per ounce in 2024, potentially reaching or exceeding the upper end of our current guidance, it will significantly enhance the production and cost profile for 2025. Originally, the 55 Zone development was scheduled to conclude in June 2024. Exploration operations at Yaramoko have identified a promising satellite open pit opportunity at the 109 zone located just to the north of the processing plant.

Speaker 5

This opportunity has undergone all required studies and has been permitted by the Burkina Faso Yeoman. We're currently evaluating tender submissions with mining expected to commence in the Q4 of 2024. Yaramoko's strong production during the quarter resulted in a cash cost of 9 $53 and an AISC of $13.89 per ounce of gold and remains on track to achieve its production guidance of 105,000 to 119,000 ounces of gold. Overall, our West African operations have demonstrated resilience and a strong performance. We remain focused on optimizing production, advancing our exploration opportunities, while maintaining our commitment to safety and operational excellence.

Speaker 5

Thank you. Back to you, Jorge.

Speaker 2

Thank you, David. Cesar, can you please share with us the highlights of the LATAM business?

Speaker 6

Thank you, Jorge, and good morning to everyone. Lindero, San Jose and Caylloma had a strong second quarter, collectively producing 28,200 and 86 ounces of gold, bringing our total to 56,231 ounces for the first half of twenty twenty four. Silver production was also robust with a combined total of 990,574 ounces for the quarter and 2,100,000 ounces for the first half of twenty twenty four. I am pleased to report that all our Latin American operations are on track to meet their production guidance for the year. Our safety performance across all operations this quarter has been exemplary.

Speaker 6

Management at site continues to effectively implement our active leadership philosophy program, yielding excellent results. So starting in Argentina, Lindero's gold production in the quarter was 22,874 ounces, a slight 2% decrease compared to the previous quarter. This was due to a longer than expected maintenance pause of the HPGR and agglomeration plant, which required more spare parts than originally anticipated. During the quarter, 1,800,000 tons of ore were mined at a stripping ratio of 0.7:one, A total of 1,400,000 tons of ore were placed on the leach pad at an average gold grade of 0.61 grams per ton containing an estimated 27,663 ounces. The operation experienced lower front end loader mechanical availability, which mainly impacted the waste mining plant for the period.

Speaker 6

The mine plan has been adjusted to reflect higher waste mining during the 3rd and 4th quarters with higher head grades and ore tonnage to be placed on the leach pad. This remains aligned with the annual guidance for the year. As of the end of July, the $51,800,000 leach pad expansion project, of which $41,700,000 is to be spent in 2024 is approximately 64% complete. The construction package of the project commenced in January 2024 with contractors on-site undertaking earthworks, construction of the impulsion line and liner deployment. Procurement is practically complete with important items on-site.

Speaker 6

The new Impulsion line pump arrived on-site in July, liner installation has progressed and contracts for the major mechanical works have been executed. The company expects to start placing ore on the leach pad expansion in the Q4 of 2024. The gold production for the 1st 6 months of 2024 totaled 46,136 ounces. Lindero had a cash cost of $10.92 and an AISC of $2,0.33 per ounce of gold for the quarter. The AISC reflects timing of sales as the company maintained higher inventories in the vault as of the end of July.

Speaker 6

If we exclude the microeconomic effect related to inflation and devaluation for the Q2, our cash cost remains in line with company expectations at approximately $1,000 per ounce. As anticipated in our guidance for the year, our ASIC carries a heavy component related to the leach pad expansion project. If we were to exclude the leach pad expansion and inflation devaluation effect, the Acycled Lendero would be between $1400 to $1500 per ounce. For the second half of the year, the company expects Indeiro's cash cost and AISC to remain aligned with annual guidance if the Argentine microeconomics do not worsen. Moving up to Mexico, San Jose produced 684,176 ounces of silver and 5,269 ounces of gold at an average height rates of 140 grams per ton of silver and 1.09 grams per ton of gold respectively, reflecting a 10% decrease and a 16% increase when compared to the Q1 of 2024.

Speaker 6

The processing plant milled 136,214 tons, averaging 1980 tons per day and the grade profile for the period was consistent with the geological model. Silver and gold production for the 1st 6 months of 2024 totaled 1,443,287 ounces and 9,802 ounces respectively on track to meet annual guidance. For the first half of twenty twenty four, in alignment with the mining sequence and production plan, the operation conducted an intensive preparation campaign to position the mine for higher silver and gold production in the second half of the year. As mineral reserves are scheduled to be exhausted by year end, the company continues evaluating its options whether to execute a multiyear progressive mine transition and monetary plan or putting the mine on current maintenance or maintaining operations at the mine. San Jose had a cash cost of $24.91 and an AISC of $27.55 per silver equivalent ounce for the quarter.

Speaker 6

When compared to the previous quarter, the increase in cost is mainly explained by lower head grades, lower production and a stronger Mexican peso as 50% of our costs are denominated in pesos. Nonetheless, as previously indicated, San Jose's mine plant for the second half of the year accounts for higher production, lower development and lower preparation meters, which will reduce both cash costs and AISC in alignment with our annual guidance for the year. Exploration drilling continues at the Jesi vein to provide better understanding of the economic potential of the mineralized zone. Moving to Peru, the Caylloma mine produced 306,398 ounces of silver at an average head grade of 83 grams per ton of silver in the Q2 of 2024, 3% and 5% lower respectively when compared to the previous quarter. Silver production for the 1st 6 months of 2024 totaled 621,858 ounces in line to meet annual guidance.

Speaker 6

Zinc and lead production was 13.0 and £10,500,000 at an average head grades of 4.80% and 3.83% respectively, a 7% 10% increase when compared to the Q1. Increased production is the result of higher head grades sourced from the lower levels of the Animas vein. Zinc and lead production for the 1st 6 months of 2024 totaled £25,200,000 £20,100,000 respectively, well on track to meet the upper end of guidance for the year. The cash cost per silver equivalent ounce for the quarter was $13.94 driven primarily by lower treatment and refining charges. The AISC per ounce of payable silver equivalent was $19.87 Both cash cost and AISC are aligned with annual guidance for the year.

Speaker 6

Back to you, Jorge.

Speaker 2

Thank you, Cesar. Luis, a briefing on the financial results.

Speaker 4

Sure. Thank you. So for Q2 2024, we have recorded net income attributable to Fortuna shareholders of $43,300,000 as previously stated by Jorge or $0.13 per share. This is compared to $3,400,000.01 per share in Q2 of 2023. Net income in the period includes a large deferred tax credit related to the issuance of our convertible notes.

Speaker 4

Adjusting for this and our non cash non recurring items, adjusted attributable net income was $30,400,000 or $0.09 per share compared to $2,500,000 and $0.01 per share in Q2 of 2023. Main drivers for the higher net income were an increase in gold volume sold of 66% as well as higher gold prices of 17%. As has been noted, the increase in gold sold is explained by the Seguela mine, which contributed 33,000 ounces in Q2 or 36% of total gold sold. Our consolidated cash cost per gold equivalent ounce was $9.88 slightly above our Q2 2023 cash cost of $9.68 Excluding San Jose for which we are currently expensing all capital items, Our consolidated cash cost in the quarter was $8.79 per ounce, representing a reduction of approximately $90 per ounce year over year. The reduction was due to the low cost contribution of Seguela with $5.64 per ounce, partially offset by higher cost per ounce at Lindero and Yaramoko.

Speaker 4

As in the case of Lindero, as Cesar has mentioned, we expect we can remain for the year within the ASIC guidance range. However, it is worth noting that we have been seeing an increasing impact on our costs from the growing appreciation of the peso as even though inflation is trending down, the pace of the valuation has been lagging the inflation rate. We expect this trend to continue for the remainder of the year. A few comments on the financials. Depreciation in the quarter was $57,000,000 which includes $17,500,000 in depletion of the purchase price related to the acquisition of Roxgold in 2021.

Speaker 4

On general and administration expenses, we recorded $22,400,000 and as shown in the breakdown we provide in the news release and in page 10 of our MD and A, this was comprised of close to $10,000,000 of in country G and A at our mining operations, dollars 6,600,000 of corporate G and A and $5,800,000 of share based compensation. Compared to Q2 of 2023, we have a higher mine G and A related to the addition of Seguela and higher share based compensation explained by the rise of our share price in the second quarter to a large extent. Our effective tax rate for the quarter is distorted by the $12,000,000 deferred tax recovery I previously alluded to. Excluding this effect, our effective tax rate was 39%, which is in the high end of the range of what we expect on average, which is between 32% 36%. Moving on to cash flow and the cash flow statement.

Speaker 4

Moving on to cash flow and the cash flow statement, sorry, we generated $73,500,000 of net cash provided by operating activities, which includes $20,600,000 of taxes paid, the majority of which is related to the Seguela mine in Ivory Coast. There is a pronounced timing effect impact in the quarter as the bulk of taxes paid at Seguela are concentrated in Q2. In the investing section of the cash flow statement, we recorded $50,400,000 under additions to mineral, properties, plant and equipment, consisting of 30 $2,800,000 of sustaining capital including brownfield exploration and $17,600,000 of non sustaining capital expenses. This includes $6,500,000 to acquire 1 half of the 1.2% NSR royalty held by Franco Nevada at Seguela, dollars 5,000,000 spent at the Ambasad and $6,200,000 of exploration. Our free cash flow from ongoing operations was 38 point $6,000,000 which considers corporate expenses and sustaining capital.

Speaker 4

And our net free cash flow after all capital expenditures was $21,000,000 We expect to see a peak in sustaining capital expenditure levels in Q3, mostly associated to the progression of the leach pad expansion at the Lindero mine. And as Jorge has emphasized and as we have communicated before, 2024 is a heavy CapEx year at Lindero with a total budget, including capitalized stripping of $64,000,000 comprising around 50% of our consolidated capital expenditures, excluding exploration activities. Moving on to the balance sheet, we closed the offering of 1 $172,500,000 of convertible notes on June 10. The notes have a 5 year maturity, bear a 3.75% coupon and have a conversion price of $6.59 per share. At quarter end, the proceeds from the offering were partially used to fully repay the outstanding $125,000,000 under our revolving credit facility.

Speaker 4

Subsequent to the end of the quarter, the $46,000,000 of convertible notes issued in 2019 were settled with approximately $10,000,000 redeemed in cash and $36,000,000 converted into shares. Back to you, Jorge.

Speaker 2

Thank you. We can move on to Q and A, operator.

Operator

Certainly. At this time, we will be conducting a question and answer Your first question for today is from Adrian Pay with Adrian Pay Asset Management.

Speaker 7

Yes. Hi. How are you? I had two questions, if I may. The first question was on the base metals, the zinc and the lead.

Speaker 7

What proportion I should know, I could work this out, but what proportion of the revenue from the mine is that? And how do you see that going over the next 6 to 12 months? That's the first question.

Speaker 2

Hello, Adrian.

Speaker 8

Hi.

Speaker 2

I would say base metals, I can stand to be corrected here by Luis or Cesar, but I if my math doesn't tell me, base metals account probably for 2 thirds of revenue today at the mine.

Speaker 7

And how do you see that changing in the next 12 months or so, 24 months?

Speaker 2

In the previous cycle, just as a quick reference, talking about 2011, some years ago now, silver and base metals were pretty much fifty-fifty in terms of revenue contribution. That has shifted towards a more base metal rich component. And we expect this break of silver and base metals will remain as what we have in our plans for 2024, 2025. Can we adjust that? Yes, we could.

Speaker 2

We have some silver rich veins, but those veins at these prices today are not in the mine plan.

Speaker 7

Okay. Okay, that's helpful. And then secondly, I don't know I know you've talked a little bit about San Jose, but can you expand maybe a little bit on what your current thinking is about San Jose for next year?

Speaker 2

Yes. At San Jose, we have currently 3 options in front of us. We are set to exhaust reserves as they were the reserves we estimated early late last year, early this year. And we've been working on several fronts. 1 is exploration and the Jesi vein, something that we have been talking about.

Speaker 2

2nd is there are changing scenarios, higher prices. The peso over the last weeks has weakened against the dollar. So all of those variables are being assessed as we continue optimizing the resources we have. We are short on reserves right now, but we have close to, I would say, around 20,000,000, 29,000,000 ounces of silver in resources. And the work we are doing is trying to optimize our processes to see how many of those ounces we can bring into a reserve.

Speaker 2

So we have 3 options in front of us. 1, by year end, we call a progressive closure. 2nd, we go into a current maintenance while our exploration and evaluations continue. Or 3rd, we have the opportunity to continue mining depending on the success of the work we carry over the coming weeks months before the end of the year. We certainly need to have clarity on which of those three avenues we will take in the Q3, right?

Speaker 2

So we are updating our mine closure plan. We're conducting exploration. We are doing several iterations on the optimization of existing resources. All of that is taking place right now, but we certainly need to have a position or we expect we can have a position during this Q3.

Speaker 7

Okay, super. That's very helpful. Thank you. Thank you.

Operator

Your next question is from Toni Chryst with Odyssey Investments.

Speaker 9

Yes. Thank you. It's Christ, pronounced like Crist. Anyway, thank you for taking the question, Jorge. Congratulations on the quarter.

Speaker 9

You're experiencing dramatic growth. I have 2 actually a 2 part question. I'm wondering if you can give an update on the share repurchase that you announced after the last quarter announcement and if the company is able to participate in any share repurchase and any guidance or color you can give on it? And then secondly, I'd like to know if your team might consider coming on a Zoom call with Water Tower Research. They're English and they handle smaller companies.

Speaker 9

I was on a call with B2Gold and I was impressed they had 12 research analysts and they have I think, more stability. Well, they have less variability in the price of their stock. And I think it helps get the word out to an entity through an entity that's not a vested interest entity. So I'd like to ask if you'd consider that if I can call them and arrange it having that. But thank you and congratulations again.

Speaker 9

It's just an astronomical quarter. You're growing even if gold prices stay constant. So congratulations.

Speaker 2

Thank you for that. With respect to the share repurchase program, yes, we have a program in place. We have not been active on the program over the last month, but that is something that we are revisiting

Speaker 4

constantly.

Speaker 2

And when we participate in the market, response to our use of funds at the time or view on valuation and movements in the market. So you yes, you can expect to see us active in the market anytime. With respect to meeting and learning about other, as I understand you, potential houses that can give be interested in learning more about the company? Yes, absolutely. There is a channel through Carlos Vaca at Info Fortuna, and we can certainly arrange a conversation at any time.

Speaker 9

I will contact Carlos. Thank you so much.

Operator

Your next question for today is from John Perera, a Private Investor.

Speaker 8

Yes, good morning, gentlemen. Again, I'd reiterate congratulations on the quarter. Just as a follow-up to the previous question on San Jose, I know there's exploration going on with the YETI vein. When do you expect that we're going to see an update on that exploration? I guess that is part, I guess, ties into one of the three options for the San Jose mine.

Speaker 8

So first question is, when do we expect to see an update on that exploration program?

Speaker 2

The bulk of our drilling is done. We're currently assessing the results and running iterations with the results we have in place. As I said, it is in this Q3 that we must have clarity on the path forward, bringing into consideration these exploration results, the iterations of the optimization of existing resources for reserves and the updating of the mine closure plan. So yes, it's work that it's ongoing. And hopefully, before the end of the quarter, we can be in a position to make a decision and share it with the market.

Speaker 8

Right. Okay. And then the second question is thank you for that. And the second question is on the sustainable capital costs that the company is incurring. And it was indicated that Lindero was a $64,000,000 CapEx plan for the leach pad and so on.

Speaker 8

I didn't maybe I missed it, but I didn't get an understanding of how much is left to be spent of that $64,000,000 I did read that the remainder of that was going to be spent here in Q3. Maybe just give a little bit more clarity to that component of CapEx. How much more is to be spent on the 2 leach pad and what additional capacity they're going to provide? And then maybe when that CapEx number drops and if you can give some clarity on when that CapEx number drops and so then to what it's going to you expect it to drop to as a normalized quarter on quarter CapEx rate for sustainable capital?

Speaker 2

Yes. Just a clarification. The total sustaining capital for Lindero this year is the $60 plus 1,000,000 you mentioned. Out of that figure, the leach pad is $42,000,000 this year, right? So we are the 6 the leach pad is over 60% complete, 60%, 64% complete by the end of the quarter.

Speaker 2

And we do expect to see still CapEx execution in the Q3, and that CapEx execution tails off in the Q4. The leach pad expansion is a project that was always in the technical report. It was a project scheduled to be executed on year 3 of operations. And it is the it sets up the mine to receive or the path to receive reserves for over a decade. There are also, throughout the next decade, other minor investments that will have to be done periodically as it would have been expected.

Speaker 2

But the bulk of the investment is being executed now, and it sets the mind for the next decade, right? So perhaps Cesar or Luis have a detail right now on our expected CapEx for the Q4, but the project is complete on the Q4. So CapEx still heavy CapEx on Q3 and then tails off in Q4.

Speaker 8

Okay. So that $64,000,000 number was the overall CapEx, the total of which you're saying $40,000,000 was for the leach pad, 60 percent spent on that. So say $24,000,000 is another $6,000,000 to spend on the leach pad and then the remainder of the $64,000,000 will be spent between the 3rd and into the 4th quarter. Yes, I understand you'll have ongoing nominal amounts for CapEx costs for maintenance on any mine. But the bulk of the leach pad and the other CapEx for Lindero will be so I'd say it's what somewhere around $30,000,000 $35,000,000 still to be spent in Q3 and Q4 in terms of larger CapEx spend on Lindero, would that be fair?

Speaker 2

Yes. Perhaps Luis or Cesar can help complement here and have those details in

Speaker 5

please?

Speaker 4

Yes. This is Luis here. That is accurate. That is a fair estimate of what we should expect in the for the second half of the year. And just to complement on an ongoing basis, annual CapEx for Lindero, we should expect to see more in the range of $20,000,000 on a recurring basis, right, beyond 2024.

Speaker 8

So annualized base basis $20,000,000 to $25,000,000 ongoing CapEx early there? Yes. And then there's a component in Argentina for a larger component in CapEx as well or no? Did I have that wrong?

Speaker 2

No. Again, on an ongoing basis, yes. Go ahead, Luis. Go ahead.

Speaker 4

No, I just wanted to provide a clarification. So for 2024, I think we just recapped what we should expect for the second half. And you correctly pointed out what we had indicated for a total year in terms of total CapEx, including the leach pad. And what we're clarifying now is that beyond the leach pad expansion, the $20,000,000 $25,000,000 is a fair estimate for the recurrent annual CapEx for Lindero moving forward. There's nothing else.

Speaker 8

Okay. So and again, thank you for taking all the time guys. But I guess what I'm also saying is for anywhere else, any of the other mines, is there any additional major sustainable CapEx? Obviously, you got your CapEx for exploration, that's second line item there. But is there any other major sustainable CapEx expected here in Q3 and Q4 and going forward that you're aware of?

Speaker 2

No, no, no, no, no. We have a lot of visibility and control on our capital projects for 2024 and 2025 and 2026. We have at every mine always an expansion of tailings facility and things like that. All of those are scheduled in our loans. But certainly, the elephant in the room here is a leach pad expansion with $42,000,000 right?

Speaker 2

Yes, probably. And there is no other projects of that nature in the portfolio today.

Speaker 8

Okay. And then sorry, and then the last clarification on the question is when the completion of that you have a completion of that leach pad, it's not essentially going to enable additional throughput. It's just going to allow you to process as you indicated process product for the next several years, the next decade or so, correct?

Speaker 2

That is correct.

Speaker 8

Okay, that's great. Thank you very much for taking the time to answer those questions and elaborate. Appreciate it, gentlemen.

Speaker 2

Thank you.

Operator

Your next question for today is from Thomas Beslanovitz, a private investor.

Speaker 10

Yes. I have a question because of the lack of power and the amount of tonnage that you could produce through your mill, you used a higher grade of material to compensate for the less amount of tonnage. Going forward into the 3rd Q4, are you still going to use that same amount of high grade ore to mill? And if you do, I'm assuming that that would be much higher output of gold. And that's just what I want to kind of know is, is that how you're going to do things going forward?

Speaker 10

Thank you.

Speaker 2

Yes. You're right in how we mitigated the power outages. We lost at the Seguela mine 19 days, 19, 19 days of operation in the quarter, an aggregate of 19 days due to the intermittent power outages throughout the quarter. The way we mitigated that was we had the capacity to run the mill at a higher rate, so we did. And because we had some flexibility in the mine plan, in the mine schedule, we were able to source higher grades.

Speaker 2

That was a mitigating plan put in place and executed well by our site team. And in July, we have received 100% power from the grid almost. So we are reverting back to our original mining schedule. You should expect to see great decline with respect to what we saw in the Q2. And we what we should do is continue what we're working to do, you should expect to see is us continuing pushing the throughput or debottlenecking efforts, initiatives, optimization, and you should continue to see higher throughput.

Speaker 2

So that's where the gain is more than great right now.

Speaker 10

Thank you very much for answering my question. And I look forward to when Chris Marcus interviews you on Fortuna Silver on his site. And I'll be listening to that when you're on the air with him very shortly. Thank you very much, sir.

Speaker 8

Thank you.

Operator

Your next question for today is from Don DeMarco with National Bank Financial. Don, your line is live.

Speaker 3

Thank you, operator, and good afternoon, Jorge and team. I was disconnected just getting back in the queue. So I apologize if my questions are already been asked. But I wanted to get a little bit more detail on Kingfisher. In June, you released some exploration updates, some intercepts and seeing some wide intercepts, high grade, certainly garnered some attention.

Speaker 3

But I wonder what the next steps are at Kingfisher, namely how much infill drilling is required? And how about like in terms of is there potential to or is it too early to say to supplant some of the ore that's queued up over the next quarters or years with this higher grade ore? Thank you.

Speaker 2

Yes. At Kingfisher, up to since the discovery hold to now, so basically throughout this year, we have already drilled about 14,000 meters. The 14,000 meters have outlined gold mineralization in a shear zone that was not previously identified for a strike length of 2 kilometers. And our plan right now is to continue drilling nonstop until the end of the year with the aim of producing a first resource estimate. We expect the bulk of that resource estimate will be in the inferred category.

Speaker 2

We are not focused on tight infill drilling now to upgrade the quality of the resource, but rather fully understand the lateral and vertical extent of mineralization at this point. So that is the focus of the program right now. Something exciting about this discovery is that it's a blank discovery. It has no surface expression. If you're acquainted with West Africa, you know that a lot of the deposits, most of the deposits in production today throughout the region have some sort of artisanal mining on top of it.

Speaker 2

And this one doesn't. It's virgin ground. And we're currently running orientation geophysical surveys to see if we can pick up signatures that we can extrapolate as part of our larger exploration program in the property. We control 35 kilometers here on the belt, a lot of ground to cover still. So going back to Kingfisher, we expect to produce a first resource estimate by year end.

Speaker 2

You should expect most of it to be in the inferred category in this first path. We expect to have a good sense of size and dimension. And then probably follow with infill drilling in 20 25 early 2025. Kingfisher needs to first produce a resource and upgrade the resource in certainty category to indicated. We need to work on permits for these one deposit to incorporate it into our mine plan and schedules.

Speaker 2

But still early days, but we're thrilled about what we're seeing, wide zones of mineralization on a well defined shear that has not been identified before, striking for over 2 kilometers that remains open with a vertical extent that remains open as well. It's shaping up to be probably the largest deposit we have in inventory at Seguela today. So give us a bit of time to have the drill rigs through the deposit. And probably in early 2025, we can start thinking about time lines for when this can contribute to a mine plan. I don't want to put the courage in front of the horses.

Speaker 2

So but we are thrilled. We're excited. It looks meaningful. We just have to do our work, right?

Speaker 3

Okay. Okay. Well, thanks for that. We'll keep an eye out for the main resource and any updates in the interim. That's all for me.

Speaker 3

Good luck with Q3.

Speaker 2

Thank you.

Operator

We have reached the end of the question and answer session. And I will now turn the call over to Carlos for closing remarks.

Speaker 1

Thank you, Holly. If there are no further questions, I would like to thank everyone for listening to today's earnings call. Have a great day.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Speaker 5

Thank you, everyone.

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Earnings Conference Call
Principal Financial Group Q2 2024
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