Aya Gold & Silver Inc (Quebec) (AYA) 2023 Q2 法說會逐字稿

Good day. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aya Gold & Silver second quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Ruth Hanna, you may begin your conference.

Thank you, operator. Good morning, everyone, and welcome to Aya's second quarter 2023 results conference call. My name's Ruth Hanna, and I'm the Investor Relations and Communications Manager dialing in with some of the IR team from Montreal and Morocco this morning.

On the call today, we have Benoit La Salle, President and Chief Executive Officer; Ugo Landry-Tolszczuk, Chief Financial Officer. Raphaël Beaudoin, Vice President, Operation; and David Lalonde, Head of Exploration. We'll finish today's event with a Q&A session with the team. Please contact our IR team directly with any follow-up questions that are not addressed during the call.

Before we begin, I'd like to remind listeners that today's event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statement. Details of the forward-looking statements are contained in our August 11 news release as well as on SEDAR+ and on our website.

With that, I'd like to turn the conference over to Aya's President and CEO, Benoit La Salle. Benoit, please go ahead.

Thank you. Good morning, everyone. Welcome to the Aya Q2 conference call. We had an excellent quarter, Q2 was an excellent quarter. We have given you a presentation that summarizes the results which you have for this call. I would ask you to go to slide number three.

On slide number three, we have highlights of operations. In Q2 2023, we produced 526,703 ounces of silver, which is clearly, for us, above budget. It was a very good quarter. It's the second highest [traction] after Q4 of 2022. Our cash cost was up $10.98 per ounce sold. We generated $9.6 million in revenue and $3.7 million in cash flow. And we also closed the quarter with USD52 million in cash and cash equivalent. So very good quarter, very good cash position, strong financial position.

The growth pipeline, we have progressed this Zgounder expansion to 45% completion. As you see regularly with our videos, the construction is going very well and we will keep updating you regularly. The extended Boumadine open-ended strike to 3.8 kilometer, that was also disclosed this quarter in a press release. And we've also discovered a new at-surface northwest mineralized zone, which we will review later.

Also, for some of you who have questions, David Lalonde is on the call with us from Marrakesh. So you will be able to ask question to him directly. The -- we also have some (technical difficulty) regional players.

In the quarter, we've acquired seven permits. The Tirzzit copper -- the historical Tirzzit copper mine and 67.7 square kilometers property. Just for this -- for a bit of history, in 2020, when we started reviewing the asset of Aya, and we have this Zgounder asset, we had identified those (technical difficulty). And these permits, when we identified them, belonged to a family. We were able to acquire them in Q2 of 2023, which came after three years of us looking at those permits as being complementary to Zgounder and position in a very strong geological potential area.

The few things at the AGM in the quarter, we've increased the Board diversity. We have now more than a third female representation on the Board, which is aligned with Glass Lewis. We've also disclosed a lot of our ESG program, and we've had our ESG report that was published.

Going to slide number four on our presentation, that's quite telling. You have a summary of Q2 and year to date. And it's quite interesting to see that with 526,000 ounces of silver production, we are now at a year to date of over 1 million ounces compared to our guidance of 1.7 to 1.9. So we maintain the guidance for the time being at 1.7 to 1.9, knowing that as of now we're at 1 million ounces.

The cash cost was excellent in Q2, it was good as well in Q1. So the average cash cost so far for the year is $12.87, our guidance was $14.40. So we're a bit ahead of our guidance, which is something that we understand quite well. It's all a function of definition drilling and being more efficient at site.

The average grade is aligned with our reserve model. Q2 is up 265, up to now we're on 250. The guidance was up at 264. You will recall that the deposit has these very high grade pockets that we hit in Q4 of last year. So right now it's more the grade is steady and -- but the important thing is we've also been adding to the stockpile, which we did not add historically. Now, we are mining more than we're processing and that's quite important.

The two plants have good recoveries. So the average mill recovery is at 87%, the guidance was at 86%. So we're doing quite well. The availability, which you don't have on page 4, but the availability is in the MD&A. For the two plants, it was at 95%. So that was really, really excellent.

So the quarterly production is expected to remain steady throughout the year and we -- based on our mine plan, we should even better grade going forward. Cash costs are expected to remain stable. And the exploration budget, of course, is something that we'll be coming back to you shortly as we are getting very, very good result at Zgounder and Boumadine.

Just slide number five, it's interesting to see the bar charts. The top left one shows the production. And as you can see, except for Q4, which was, you recall, an excellent quarter due to very, very high-grade. This is our second best quarter at 526,000 ounces. So it's very good.

The grade you see below on the left hand side, below the production, is steady and it is where it should be, around 250, 260. So it's really where it should be.

The recoveries on the right hand side at the top, again, except for Q4, which was a normal quarter if you look at the recoveries at 87%, that's really aligned with where we wanted to be. And the ore process at 72,000 tonne, it's the second-highest. And actually, we are right now around 800 tonne a day with a design capacity of 700 tonne a day. So in the industry we always say, you have about a 15% potential to go higher than the design capacity. Well, we are 15% above the design capacity right now of the two existing plants, and that's why we're building a third plant right now.

Slide number six. On a cash flow basis, top left you see 3.7 is again aligned with where we need to be. Of course, it's affected by sale. And currently, and as you know, we have -- approximately half of our production is concentrate and half is ingot.

The concentrate is -- it's a bit more difficult on the timing of the sale because the timing of the sale is when it reached destination, so based on transport. So we don't always -- we don't -- not always, we don't control the timing of the sale on the concentrate. We do on the ingot, but not under concentrate.

So that has a direct effect, obviously, on our revenue, which has been a direct effect on the financial statements. The gross margin at 2.8 million during the quarter is good. It's aligned with where --based on our cash costs where it should be. Cost of sales at $6.9 million. Cost of sales at $6.9 million is a little high. We have been acquiring a lot of equipment for the plant expansion. We've been hiring more people. And as we indicated in the previous quarter, this is not business as usual. This is business going into a very large expansion.

So you have amortization, it's more than what it should be because we have more trucks than we should have. We have more employee. So yeah, it's a very, very good quarter. It's a very good cash cost, but also remember that we're getting ready to quadruple the production this time next year so we don't hire all the people a week before we get going.

So it's -- we're a little -- we know we're a little bit overstaffed, overequipped and all of that, but that -- we understand this. The cash cost was excellent at $10.98.

One of the reason is the -- why it's a little bit lower is there was less definition drilling. We had done quite a bit of definition drilling at the beginning and we were ahead of the curve on that. So we have a good cash cost at a $10.98.

Moving to slide number seven and on the sustainability. Again, look, to me that is pretty straightforward. We have $100 million ESG loan with the EBRD. We follow some very strict guidelines with them, which we're very happy to have. We had them on site in July. They came and -- which is part of the process of the loan agreement that we have. And we went through with -- we obtained a pass, which is what we need to obtain. So everything is aligned correctly.

So you have a major effort that's been put in health and safety, major effort, which we now are pleased to say that we're becoming international standards. We've also put in a mine rescue plan, which did not exist when we arrived. Now we have a mine rescue plan, which is very important, and that's coming along very well.

The other important aspect is Scope 2 emission. You recall that we have a power line that's being built at the moment, which will bring green energy to site for the new plant expansion and for all of the equipment that we have. So that is going extremely well. Any quick question on that, you have Ugo and Raphaël with us today, but that power line is coming along very, very well.

The task force on climate-related financial disclosure is about 70% completed. This is something that we're doing with EBRD as well. And the environmental and social action plan is 31% completed, but that's also something that we follow closely, which is part of our ESG financing.

So the -- we are in a very good position and locally things are going very well. We have local cooperation. This is a very important project in country and in the region where we are. And we also have, as you saw, mobile clinic on different health topics. And we are -- we have a great success with all of this.

Slide number eight is, of course, it's just a picture. I know you've all seen the videos that we circulate about once a month and it's going very well. The construction that you're seeing here is where we are as of the end of the quarter, but the construction is going quite well.

On slide number nine you see that we have the percentage of completion for the process plant. We're at 40%. The underground and open pit mining at 47%. You saw pictures and video of the open pit mining,, all the drilling that occurred there. Tailings, you also see that at 55%. Water management at 74%. Electrical infrastructure, that's the new power line that's being built right now at 27% and on-site infrastructure at 55%.

So look, globally, as Raphaël will tell you, on time and on budget. We are 90% committed on our cost and we are on budget. And then now we're getting into the erection part of the program, which is -- it's something that we're going to follow closely.

A couple of pictures on page 10 of the leach tanks, the ore silos, and then a view of the water management system. As we all know, water is key to mining, water is key to Morocco. We're lucky that we have mountains around us that are up to 4,000 meters high that bring in water from snow melting and from the rainfall. So we will be capturing. We need to capture less than 1% of the water that runs by our territory. Less than 1% to have water for the full year.

On page 11 is our portfolio of assets, the Atlas fault in Morocco. Morocco is becoming an extremely busy part of the world right now in mining, in industrial construction, in automobile, in batteries. I'm sure you see a lot of news flow coming out of Morocco these days. So we have a very (technical difficulty)

-- in the second half then of the year, we will launch field work on Tirzzit, of course, and we'll continue the exploration on all of our other assets.

So that completes the official, I would say, portion of the presentation. Again, you have Ugo. You have Elias with us. You have David Lalonde and Raphaël. Any question specific to the operation, we will answer with great pleasure.

Operator, back to you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions) Justin Chan, SCP Resource Finance.

I guess my first question is just regarding the second half of the year and your overall CapEx plans. Is it right in doing the math from today that you have roughly 105 million left in your budget to spend? And I'm just curious how much you think this year versus how much is next year?

Hi, Justin. You're talking more about our CapEx for for construction, I'm assuming.

Yeah.

So it's -- of course, at the beginning of the project, it's a lot of deposits and civil work and the earthworks. So I think today right now in our budget we'll have about half of that that will be done this year and about half that will be done next year.

Okay. Got it. And then just on, I guess, your expectations on grade for the rest of the year. Do you expect something pretty similar to this quarter, but I think would imply that you're going to be guiding as you normally do. But I'm just asking the question to confirm, what do you think?

Hi, this is Raphaël speaking. So further grade, we need to understand that we are mining right now about 50% higher mining rate than we are milling rate. So we are stockpiling and we are processing. For commissioning next year, we need ore and we certainly won't pass the best ore we need to for commissioning the plant.

So to answer your question, we're mining at around 230 gram per tonne right now, but we are milling around 250. And we are stockpiling a bit lower grade. So we do expect to continue processing this slightly higher grade of the mill than we stockpile for the rest of the year.

Guidance remains the same. We need to do a bit of maintenance at the end of the year. We want to make sure that that we do guidance, that we do our stockpile, that we are ready for next year. So we don't expect much change -- we don't expect any change in our strategy. So our grade should remain similar.

Thanks. And just on Tijirit in Mauritania. I guess what are your current thoughts on on that? I suppose we'll know more when the DFS comes out. But strategically, do you see it as a project within Aya or perhaps may be a standalone opportunity? Just curious how you view that right now?

We're finishing -- Justin, we're finishing the feasibility. That will be done for the end of August. You will see some drill results in the next few days because we did 25,000 meters. So obviously, we had a lot of -- we had a lot of result. The feasibility will be done at the end of August and then we'll make a decision.

Look, it's a robust project. It's good grade. We know that it's a grade at around 3.54 gram per tonne. It's open pit. It's easy. It's close by [Tirzzit] asset. It's an easy project. So it's a project that's easy to do.

Is it part of our main strategy? No, it's not, because we want to focus in Morocco. But we have it. It's something that we've known for many years. We will decide in September if we -- how we approach this. That project is going to get built. Is it by us, by somebody else, we don't have an answer yet.

But we'll maximize the value for our shareholders. It's a very nice asset, but it's probably the best fit with a pure-play, gold play. But again, this market is this market, we don't know where we're going to be with. So we'll make a decision. But it is a nice asset. It's got a lot of potential in geology.

So again, it's part of -- spending a lot of time on. But this one is -- it's big. It's ready to go to construction in three month, two month.

Well, it sounds very good. Look forward to those results. Thanks, guys. I'll free up the line, but congratulations again on being where you normally are midyear, which is above your guidance range and below your cost looking down on it. Cheers.

Eleanor Magdzinski, SCP Resource Finance.

I have more detailed questions on mining side of things. The first question I was just wondering is, how many jumbos you currently have operating? (technical difficulty)

Okay. So we currently have four jumbo in site. That being said, we operate full time two of them. The two other are either on support, support work.

One thing we need to understand here is that we are on ramp up, so so there is a bit of a sequencing between the equipment we receive and how the mining rate follows. So we want to make sure we have enough equipment on-site to sustained that milling -- that mining rate.

So right now, we have two jumbos in operation and two on standby that will be put towards the end of the year and early next year.

Okay. Great. And then do you also have some Jackleg headings as well for your development.

No. We use jack-like for definition drilling punctually, but we do not have any stope that are reported with Jackleg.

Okay. Great. And then the second question is about raising. So just for vertical development. I'm just curious what was, I guess, what was less developed in Q1 versus Q2 and if it's primarily to do with ore passes and wave passes or ventilation or kind of a combination of both.

Sure. In this project we have four raise, we have four raise at our plan. The first one we did, finished it in Q1, commissioned it in Q2, is the ventilation raise. So we are installing our primary ventilation. So on the first raise.

We have two other raise that we are working on, one for waste and one for ore or vice versa, we can interchange them. And finally, the fourth raise will be a ventilation raise also for the first sub levels, lower than level 2,000.

So we're about halfway through our vertical development, but the pace continue to improve and now we are cruising.

So we have -- to answer your question, we have four raise in this project, two for ventilation, two for ore and waste.

Okay. Great. And then is it a combination of Alimak and drop raising?

Only Alimak.

Only Alimak. Okay. Your rates are pretty great, especially considering its Alimak. So it's good to see.

John Sclodnick, Desjardins Securities.

Yeah. Thanks, guys. I'm going to get it back on the detail a little bit here, but a very good quarter and impressive cash cost. Obviously, tracking well below guidance. With given guidance in place, do you think that back half of the year cash cost are going to be above the guidance level or just above kind of your EBITDA number so far?

Hi, John. It's Ugo. Listen, we try to do our best on cash cost every quarter. There is a little bit of stuff associated to mining that doesn't push to mining costs and some development and some ground support that's gotten pushed a little bit into the second half.

And so for now, we're not changing guidance on costs, but obviously, it's a target we're trying to be (technical difficulty)

Fair enough and a very diplomatic answer. On the exploration budget, I know you kind of touched on it and alluded to maybe going out back half of the year. Zgounder construction still on budget. And on my numbers, it looks like you'll have a bit of a cash buffer. Just kind of wondering if you can provide a bit of color on what buffer you'd like to have there as you're ramping up Zgounder and how you see that exploration budget tracking in that light?

Yeah. So far, I think we've mentioned, right, at Boumadine, we basically run the meters that we want to do, although we had budgeted for the year. And so we're kind of waiting on some results and some feedback for that here and then we'll see what we want to do with the budget associated to that.

On Zgounder, we've done the majority of our surface drilling. Now, we're really focused on a lot of the drilling that had to be done from underground. We have two drills operating now and then few others coming in here towards the end of the month. So we're on track. We're on track in terms of budget and in terms of meters we want to do and the costs associated to that. And same thing with regional, we're pretty much on track of where we want to be.

We're a little bit ahead of what we had budgeted with RC drilling to define the open pit. We finished that basically six months early of what we had budgeted. So that's pretty much completed. And so for exploration, I right now, we're on budget on what we want to do. We'll see what we do going forward here. We're just -- that was always our plan, right, kind of do the first half year. Go all out with what we could, kind of look at our results, and make a decision from there. And so we're there now.

And on Zgounder construction, we're on budget. I think Jason had a question about that, we have about half --half the amount to spend out of about 100 million that's left or a little bit less than 100 million or about half of this year, about half of next year.

And so anyway, all that money is (technical difficulty) on our balance sheet as per our loan agreement. And so that's kind of put it to this side where Escondida itself, self contained and in restricted cash. And (technical difficulty) But our geology team comes up with great results and we feel like that's something we should continue to invest in heavily [then] make decisions moving forward.

Okay. No, that makes sense. Appreciate that. And last one for me, and I'm not sure if you can provide any details. But just on NPI, as I recall, you weren't paying it as it didn't seem legit. I'm just curious kind of what the resolution was, if you can provide any details? And then I guess, specifically if there was a cash per share component there?

Yeah. John, absolutely. So the NPI, you remember when we came in, we immediately said that we didn't like it and we didn't think it made any sense. At the time, we felt it was not the right thing to have and so we went and we started discussion with the former CEO. We were accounting for it, but we never paid it. But we were accounting for it.

And in Q2, after months of discussion, we finally came to an agreement with the former CEO, whereby we would pay in a portion of what was owed to him, which was even prior to our time, but then also for 2020 and 2021. And so there was a payment made of $1.6 million, which was accounted for, it was in the payable, it was there. And we made that payment to the former CEO. And for that, just -- with him agreed to kill the agreement, the NPI. So it was done with him and it was -- I won't say friendly because it's a big discussion, but the (inaudible) well and he agreed that that thing was done at times that was different. And so we paid $1.6 million, which was accounted for in the payables. So the payables are down USD1.6 million and the NPI has been canceled.

No, it's okay. Yeah, that seems like a win-win. I'm sure he prefers that money than nothing. So yeah, it seems like a good solution. That's it for me for questions. So yeah, again, congrats on a great quarter and thanks for taking my questions.

Stephen Soock, Stifel.

Hi, guys. Echo John's sentiments. Great quarter. Great -- everything on track here. Most of my questions have been answered, but I was just wondering if you could provide a little more clarity on the costs here. Quite low for Q2, and that's great to see -- you mentioned some of that development in ground support work has been pushing the second half of the year. So I guess we should expect a bit of an uptick.

But is there any other thing to recognize efficiencies from the scale-up of the underground mining activities? Or any additional color on kind of why those costs were still low quarter over quarter?

So this is Raphaël, again. Like Ugo said, we obviously try to do our best ever quarter. Indeed, there is a bit of timing thing here. We did not have any mill maintenance shutdown this quarter, very high availability. Just 95%. That's one thing.

Also, we have quite a bit of brand-new equipment. We did a lot of maintenance last year. We are in ramp up. We have brand-new equipment, things are going well. Because we mine at a higher rate, we do have the flexibility of putting good ore through the mill, so we benefit from that. Not much more to say on this. This was a particularly good quarter. We do have maintenance to do towards the end of the year and guidance number we want to beat.

Don DeMarco, National Financial.

Just a couple questions here. First off, focusing on Zgounder construction. I think previous caller mentioned that the remaining CapEx on the order of about 105 million, would that be correct in your estimate?

There were a little bit --

About there.

And if we split that between H2 and H1 next year, I guess to work that to may be, all things equal, 26 million a quarter. Just wanted to confirm a few timelines there. And are you expecting first quarter, maybe late Q1, and then commencing commercial production sometime in Q2 next year?

Are you talking about budget or construction timeline?

I'm talking about Zgounder expansion milestones. So with respect to first quarter, would that be tracking late Q1 next year and then commercial production in Q2 sometime? I just want to think about about how to assign the remaining development CapEx before commercial production?

So it's our payment milestones and if you will, the completion milestones, are maybe -- they're not exactly perfectly timed. And so probably costs will come a little bit -- a little bit like -- as things move forward, especially with the plants, a lot of it is paid and then there's kind of a retention until commercial production.

If you look at the MD&A, we have a simplified gantry that's there. We have some first quarter, late Q1, early Q2 kind of thing and then commercial production sometime between Q3 and Q4. It's -- and then ramp up and ramp up and commissioning between that. And so we're pretty much sticking to that. That's what we've had -- that's what we've kind of had some beginning. That's what we're kind of sticking to right now. There's nothing that really indicates that. It will be different, but payments will be earlier than that because most of the work is going to be done.

Just shifting to the operations. I think in Q2 that open pit mining of ore commenced in July, is that a contributor to the increase in mining rate that we saw in Q2? And looking ahead to Q3, Q4, are you going to expect to see those mining rates really increase as open pit accelerates?

As you see, we go from 700 tonne per day to 2,700 tonne per day. This is quite a bit of a step-up and the open pit will be instrumental to succeed that. In 2023, our plan, our objective is to bring underground mining rate from 700 to 1,200 tonne per day, which we achieved. So we're already there. So good news.

For the rest of the year, we will focus on bringing up the open pit production to reach half the mining rate, so around 500 tonne per day. So indeed, towards Q4, we will see a ramp up in the open pit. Right now, we take our time. We finish definition drilling in Q1 and Q2 and we just started to open up the open pit. So we're taking our time. This is the first open pit under Zgounder. We are making sure to get the valuation right, to get the word done tried. So Q3 will be the start of the open pit. We have maybe 2,000 or 3,000 tonne in July and will accelerate that most in Q4 to reach 500 tonne per day towards the end of the year. And then continuing to ramp up next year between underground and open pit to reach our target cruising rate of 2,700.

Puneet Singh, Eight Capital.

Just one on the strategy, quite extensive land positions out there with the Zgounda region on there. You make that new acquisition. I just wanted to ask, do you see yourself locking up more land in that area over time? Or would your first like to see what you have and then make a decision going forward?

Yeah. This is Benoit. Look, we always look for ground always. Always. Always. Because sometimes things have to be renewed and then they -- we can get additional ground around it. It's a function of the results that we're getting.

We have permits also to the southeast that are also very interesting. David has been working there and we may -- look, if we see better things, we will get additional ground. We're always, always on the lookout because people have slowly started to come in.

When we were at Boca Raton two weeks ago at [The Rule Conference]. Some people came to me, companies, and said, oh, we're looking into Morocco and how your numbers are so good that we got to see if we can get some ground. I mean, they will -- they may try. But I think Morocco is going to get busier. So we're maximizing the real estate of -- it's got to make sense, obviously, but we're maximizing the real estate.

Same at Boumadine, David has got his eyes on a few things and it's normal. And same at Zgounder and Tirzzit, well, it came, it was an opportunity. And look, yeah, and -- but we do look at things in Morocco regularly. People do come to us and we take a look, we decide yeah or no, and David goes and he will visit it, and it's a function of what we see. But we're absolutely open to take more ground, absolutely.

Okay. Sounds good. Yeah. I think you definitely have an advantage being a first mover there. So great. Thanks very much.

Thank you. There are no further questions. I will turn the call back to Benoit La Salle for closing remarks.

Thank you, operator. Thank you for the questions. Thank you very much to all of you present. Again, we had a very good H1, good Q1, good Q2.

The team is -- we're fully staffed. We have a fantastic team on site here in Canada. We're, as you know, developing two, three big projects, Zgounder main zones, Zgounder Regional, Boumadine and now Tirzzit. So we have a lot of work for the rest of the year.

We also have guidance to meet, which we're looking forward to and we believe that we will maintain the guidance that we have and we will be able to meet that, so currently, what we're seeing.

So again, thank you very much. It will be a busy H2 because we have drilling going on extensively at Zgounder and Zgounder Regional. We have Boumadine that has just completed the 36,000 meters and that will be coming out. And obviously, as Ugo indicated and the team, we will sit down as soon as we have all the information and then make some decision on additional exploration going forward.

So also, we will see most -- many of you at Beaver Creek. We will see some of you in Denver as well immediately after Beaver Creek. If any of you goes to the Denver Broncos game just make sure to let us know and we will be there.

And so look, it's -- thank you for being there. It's been a great beginning of 2023 and we're looking forward to discussing with you and working with you in -- for the rest of the year. Thank you very much.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.