Aya Gold & Silver Inc (Quebec) (AYA) 2023 Q3 法說會逐字稿

Good morning. My name is Cynthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aya Gold & Silver's third-quarter 2023 results conference call. (Operator Instructions)

Ms. Hanna, you may begin your conference.

Thank you, operator. Good morning, everyone, and welcome to Aya's third-quarter 2023 results conference call. My name is Ruth Hanna, and I'm the IR and Communication Manager, dialing in with almost all of the Aya team from Montreal this morning.

On the call today, we have Benoit La Salle, President and CEO; Ugo Landry-Tolszczuk, Chief Financial Officer; Raphaël Beaudoin, Vice President, Operations; David Lalonde, Head of Exploration; and Mustapha Elouafi, President and Managing Director of Morocco. We'll finish today's event with the 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 statements. Details of the forward-looking statements are contained in our November 14 news release as well as on SEDAR and on ayagoldsilver.com.

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

Thank you , Ruth. Good morning, everybody.

Just one little item. I know that the call is one day later than when we published our financial statement. And the reason is we had a strategic Board meeting in Montreal, where all the Board members were in and all the management team was in Montreal. Hence, yesterday was a very busy day on -- for the Board. And this is the reason why the call was one day later. I know some of you were wondering and called me about this.

So let's review the performance of the quarter, Q3 2023. We have a slide up, slide number 3. We had an excellent quarter. All of our KPIs were green. We're very pleased with the quarter. We produced 519,000 ounces of silver, which is plus 15% when we compare it to the previous year. We generated $11 million in revenue and record operating cash flow of $7.7 million for the quarter.

Our cash cost was a $10.73 and our ASIC was even below $11, just below $11. So it was a very good quarter for cost. And I know some of you called us about this and how we were able to do it. And then this is just the performance of the quarter and the cost of operation in Morocco.

The net profit for the quarter is $1.2 million. It's a 79% increase year over year. And we closed the quarter with $71 million in cash and cash equivalents; hence, a very strong balance sheet.

The continued performance is on track with what we expected. The Zgounder's expansion is 60% completed. The drilling was increased last quarter by 73% to 119,000 meters for the company as a whole, which is, as we all know right now, in our industry, is exceptional.

The Boumadine also was extended. The strike length was it extended to 4.2 kilometer. That was published in the quarter. We've announced high-grade, open-pittable gold at Tijirit in one of our press releases. We've also announced that we drew down $35 million on our construction facility for the Zgounder expansion.

And we've expanded our land position. And that's something we're very keen, is to increase our land position. We increased it by 17% at Zgounder and 50% at Boumadine. When we took over three years ago, we had about a little bit over 60 square kilometers. And as we are right now in Aya, we have over 600 square kilometer of prospective ground.

The -- just a couple of items on page 4 of the PowerPoint, the silver production, the cash cost, the average grade. As you know, the grade is something that can be a little bit hard to manage at Zgounder because of the nature of the deposit. So our guidance was 264. So far, we're at 254, so we're not far. And Q3 was at 261. Mill recovery is excellent at 86%, and mill availability is above 90%.

So those KPI.s, we're doing extremely well. And in the tonne processed, we processed 70,000 tonne in Q3 and 215,000 so far. So when you see, on slide 4, the guidance to where we are after three quarters, you can see that we're really well aligned to be on guidance or even better than guidance.

A couple of slides just to see. You see that the production, at 500,000 ounces, has been pretty steady for the last five quarters. You remember that Q4 is an anomaly and not to be repeated because the grade was extremely high in Q4. And now that we have stockpile, that would not happen again. But to see 500,000 is clearly been a trend for the past five quarters.

The grade is also holding in well, as you can see at the bottom. So when we say 250, 254, that's also been steady for the past five quarters. The average recovery is really around 85%, 86%. We touched 87% in the previous quarter, so it's very, very steady. And the ore processed at 70,000 tonne. What's interesting is our capacity, nameplate capacity, is 700 tonne a day, and we're really running now at a little bit above 800 tonne a day or around 800 tonne a day. So we are exceeding our nameplate capacity,

The cash flow for the quarter, you see this on page 6. Very strong cash flow this quarter at $7.7 million. And obviously, we're extremely pleased with that result. The gross margin is higher as well because the cost was lower. The cash costs and the ASIC was lower, so of course, we have a good gross margin. Cost of sale, the same; and the cash costs, well, at $10.73.

I would remind you that in our new plant in the feasibility study, the cash cost is planned to be at $7.50 and the ASIC at $9.50. So we are aligned to go towards this with the new plant. But currently, at $10.73, I mean, that's an extremely good cash cost for the current two operations.

A quick picture of the construction -- but I would also recommend that you go on our website and you see the video that we do every month. It's very well done, I have to say to Ruth. It's very well done. And the team in Morocco that do this with the drones are doing a great job. So please take a look. There will be another one ready in a couple of weeks for the end of November, and it will be available in early December.

The expansion -- and Raphaël is with us. So if some of you have a question on the expansion. As we indicated, it's coming very well, on budget and on time. We still have five months of construction. So obviously, we're following this closely. But you see the percentage of completion for the processing plant, for the underground development, for tailings, water management, electrical infrastructure, and on-site infrastructure.

And by watching the video, you'll be able to see this. And now, it's going to change considerably in the coming months as steel is now being erected. And now, you will -- you have started to see the tanks go up. And you'll see a lot more in the coming weeks and in the coming months.

On the underground development -- because I know you remember that when you were asking us what was the risk of this project, the number one risk was always the underground development, the mining rate, and all of that. And Raphaël will be able to tell you that we're doing extremely well with the underground development, the horizontal and vertical. And we are 76% done on the lateral development and 65% on the vertical development.

As well, for the construction, you will see that the tailings storage facility is extremely advance. The power line is being built. The Merrill-Crowe is on site. And the silver room is being built. The electrical substation you see is also being built. So it's -- as we say, we're on time and we're on budget. And again, you know that. But in our industry, only 2% of the projects get done on time and on budget.

A quick picture or two pictures, one of the tailing storage facility. It's very impressive, and it was a big work, civil work, done by the local Moroccan company. And it's extremely well done. And then you see the leach tanks coming up and it's, of course, more advanced as we speak. But it's coming very, very quickly. It's being done very quickly. And it's, again, with local construction companies.

On the exploration front -- and we're extremely lucky that David is with us in Montreal today. So you can ask all of your questions. But as I indicated, we have a massive drill program ongoing at Zgounder, at the mine. It's 29,000 meters of drilling. We are 9,000 done.

We are a little bit slower than we wanted. But because priority was given to the development for the mining, the speed of the mining enhanced. So on the drilling, we know that this is -- if there's one point we're a little bit later, it's the drilling at the main Zgounder deposits. But that's fine because we have years of mine life. So we know that -- but David is working very hard to catch up in the coming few months.

At Boumadine, we have a 76,000-meter budget, extremely large budget. We are 52,000 meter done at quarter end, and that is moving and is going extremely well. On Zgounder Regional as well, we have 14,000 meter in the budget. We've done 8,600.

When we started that a year and a half ago, it was a grassroots exploration. We've discovered many targets. We are drilling. We're seeing new zones. So it's quite interesting the Zgounder exploration is moving. But we have to recall that we started, it was a greenfield a year and a half ago.

Tirzzit, these are the permits we acquired six months ago. We're starting to work on them. And Tijirit, we've completed 25,000 meters of drilling. And we're completing the feasibility of this smaller project that we own in Mauritania.

So this is the main zone on page 11. You're very familiar with this slide. That's where we're drilling all the way down to the granite. It's where we're mining for the coming years. It's a very-well mineralized sponge of 1.4 kilometer long, going down all the way to the granite, sometimes down to 600 meters. This is the source of the ore for the coming years. That's what we're going to drill all the way down. And that's where we're going to be drilling 29,000 meters.

So this is ongoing. We have many drills working. And this, at the moment, is a top priority. And we have a couple of months of work yet to complete the drilling on this structure. What's very interesting is the team, the geological team, have identified -- because that's what we've been looking for. We've been looking for a similar Zgounder look-alike structure.

We looked to the west. We found some -- there was some smells of silver, but we have not discovered a structure. But then, we realized that going to the east, we had continuity in the open pit and at depth. And then the team realized that there could be a continuation of the main zone in a dip.

And that's what we're showing on the next slide. And that's something that we're going to attend to and see if this is there. And if it is, that would be a major discovery because it's very close -- obviously, you can see -- at the current mine and the current operations.

As well, on the right-hand side on the same slide, there's the pinkish oval. That's also a new concept of an additional or a same geological setting, but further south from the Zgounder mine. And the team will also look into this as they believe that there could be a similar structure as what we have at Zgounder.

So Zgounder, Zgounder Regional, keep being our number one priority because it's right at the mine site. And anything we find will allow us to just feed the current plan and to increase the mine life and even, at one point, if we wanted to, to increase the throughput at the mine.

Our next project, called Boumadine, you're very familiar with that one. So that is a discovery that we've made -- that was made like 400 years ago, but that we -- after doing the geophysics, we understood better at the structures and the mineralization. And we started drilling this last year. We did about 18,000 meters. And then we had an original budget in 2023 of 36,000, which would then increase to 76,000 meters.

The reason is because the structure that we've discovered, originally, we saw it in the geophysics on 6 kilometer. But now, we had it drilled on 4.2 kilometer with very good result. There will be more results coming soon as we keep drilling and we keep working on our interpretation.

So we had to do -- during the quarter, we had one press release on Boumadine. It gave us some very good result. There will be another one in this quarter as well. And it's a project that we believe will become the number one project of our company going forward. But of course, we're at the beginning of exploration and at the beginning of understanding the geology.

We did some work in metallurgy because it's a project that was known to many as metallurgically complex, which is fine. So we -- Raphaël and his team, they've done the work. They looked at different methods. And we put a press release out just to show that there is a solution. So we did put a press release out showing 89% recovery for silver, 85% for gold, 85% for lead, and 72% for zinc, enhance to show that, yes, there is a solution.

Of course, it comes with CapEx and it will come with OpEx and all of that. But for us, it was an important, important press release because it told us that the project is doable. It's economic. It's now a matter of us understanding how big it is, what's the tonnage, what's the ultimate grade, and how do we attack this. So Boumadine is a project that is continuing at top speed, and it will continue like that for years to come.

On the ESG front, extremely, extremely important. And we're pleased to say that our health and safety, we're doing quite well on our LTIs. We've reduced this considerably. We also have a lot of hours in training, 2,000 hours this quarter. We're approaching 8,000 hours for the year. And it's something that we're doing, we're very proud of.

Please follow us on LinkedIn and on Twitter. We do put out pictures. And often, the programs that we have and that we do, it is something that is extremely important. And you know that it's also part of our EBRD load that we have, whereby we need to have a certain program that are in place.

And that's what we have as, I would say, the second item on this slide is the EBRD milestones advancing on the TCFD, the Task Force on Climate-related Financial Disclosure. We're about 80% done. And on the environmental and social action plan, were 79% done. And that is very, very important.

So on top, we have our CSR programs. The medical program is in place. We have health program, water access program, and also, of course, the creation of the businesses and assistance with the local saffron producer. That's something that we do and that we're very proud of.

We also participated in the relief effort after the earthquake. You know that we were not affected because of our location. The earthquake was not far from the mine, but the main effect went North and not South. And we are south of the fault, so we were not affected.

Of course, we felt it. We had no damage, but we did participate in the effort for a rebuilding of villages and helping with blankets and everything that's needed during an earthquake. So we were part of that, and we're continuing to be part of it .

So just to conclude, after our third quarter, our silver production and cost guidance were on track. That's coming along extremely well. The 2,700-tonne-per-day expansion also on track and coming along. We're not done, but it's coming along. We have received the ball mill. We finished a new water storage basin. You can see them on our website and the videos. And the civil work has been done, and it's quite impressive.

The TSF, we just saw a picture. That's on track. The drilling both at Zgounder and at Boumadine is continuing. Tijirit is completed. And the field work at Tirzzit is starting. And we're following our ESG milestone, and that is continuing.

So this completes the presentation on our Q3 results. You have the team in Montreal, so I would welcome questions. And please just tell us who you are addressing the question to, and you have the complete team here to answer any of your questions. So I turn it over to you.

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

Hi, guys. First of all, congratulations on a great quarter. I guess my first one, just to kick it off, probably everyone's wondering this. You're way above your guidance range. Well, at least you're above the top end for production and way below at cash costs. So with that said, what do you expect for Q4? Are there any mitigating factors why you maintained guidance or just being conservative, knowing that you're well above it? I guess what are your expectations for that?

Hi, Justin. This is Raphaël. So yeah, it's been a great quarter and a good year to date. We always plan our big shutdown of the year around November and December. We want to make sure that we start on a strong foot. So yeah, I can see your analysis.

We are on track to beat guidance. However, we've been quite aggressive on head grade all year round. And we do have a major shutdown coming in. And we also plan to test the open pit ore, which hasn't been done so far. So essentially, we wanted to have a strong three quarter in order to clean things up on the last quarter, to do our shut down, to do some test work on the open pit.

So I do expect us to be on the higher end of the guidance. But we're not changing our guidance since we have work to do in December. And we expect December to be a bit of a slower month to make sure to start the year on a strong foot.

Got you. Thanks. That's really helpful. And then on development, I see that there was a shift from lateral development to vertical development during the quarter. Is that how you -- I guess should we expect that to be representative of the other quarters in the next, let's say, three quarters before the new plant comes online? Is it more vertical developments from now on? Or was that more just a feature of Q3?

Okay. So we are starting to slow down the lateral development, which is a good thing. It means that we are -- essentially, we're getting towards the end of the lateral development that we had to do for the expansion and the ramp up. That being said, for the vertical development, we have three chimneys -- three raises that are done out of four, which were to three main ones. We do have a secondary ventilation raise to start early next year.

So typically, over the last two years, our lateral development rate has been around 400 meters for per month. We will bring us down to more of a sustainable capital development, more around like 200 or 300 meters a month instead of the 400. So we are slowly ramping down the development at the Zgounder since we are getting ready for production.

Got you. Thanks. That's really helpful. And then just the last one for me and I'll free up the line, maybe one more for David. But on your upcoming resources, you've got an update at Boumadine in Q1, I guess also at Zgounder. Could I ask what your thoughts on timing for that updated resource is? And then the feasibility study at Tijirit, what are your thoughts there on timing?

Okay. For Boumadine, we're on track. We're expecting resource statements sometime in February, most likely. The drilling is on track. Benoit mentioned 50-something meters. We are now a little bit above 62,000 as we speak now. So everything's on track. The results are good. So there should be no bad surprise.

And for Zgounder, well (multiple speakers)

For Zgounder, we're a bit late from the underground because of the (inaudible), but we're catching up. We're having five rigs right now underground, and we'll update you later. For Tijirit, maybe I'll let Raphael or Ugo.

So Tijirit, we're compiling right now. So we have to make a decision if we're going to publish before the first quarter of next year. Principal reason is it's regulatory. If we want to publish under our banner, we have to be a reporting issuer, which only happens if you've got three years of $40 million of revenue.

And so we may -- we're publishing to the government at the end of at the end of December, and we may have to hold off for regulatory reasons here to the end of first quarter to be a reporting issuer. But things are progressing well and we're preparing that for the government right now.

Got you. Thanks. That's really helpful. Well, congratulations on a great quarter. And the site looks amazing. So congrats, Raph, and Benoit, and the whole team on that. Can't wait to be back, hopefully, soon.+ Thanks, guys.

Thanks, Justin.

Thank you. Stephen Soock, Stifel.

Hey, Benoit and team. Congrats on a really strong quarter. Great to see everything clicking there. Just two for me.

The first one is on the development of the 2,000-tonne-per-day expansion, but I guess more and more on the surface works. What's kind of critical path items or front and center here as you're coming into the colder months? I know you mentioned steel work. But is there anything else that we should look for as kind of critical milestones for derisking over the next two to three months?

Right now, we're getting the [Concho] construction. So every day at site, there our truckloads of steel that arrive. Most equipment already arrived on site. The underground development is going well. And I guess across your comment is we have all these different construction lots that are open.

And we have warehouses getting built. We have a workshop getting built. We have the plant. It's a lot of logistics. It's a lot of logistics coming in. So essentially, it's weekly meetings and make sure that we can coordinate everything.

So I'm not too sure how else to answer your question. The next four or five months are essentially the core of the erection of the plant. And we need to keep it up.

Okay. Maybe just another way. I guess what's on the critical path between now and turning the plant on kind of wet commissioning?

I would say electrical work, pipe fitting, electrical work. Again, we did a very good job at making sure all of the equipment would be applied on time, which they are all are, essentially. And then it will be the speed at which we can do a erection.

Perfect. Thanks for that. Maybe switching gears a little bit. I know it's early, but for 2024, you mentioned some interesting drill targets here. How are you thinking about kind of the split between allocating drilling Boumadine, Zgounder, Zgounder Regional, maybe earlier stage targets for 2024. And then what would -- magnitude are you thinking of total drill program?

Obviously, once the 2,000 -tonne-per-day expansion is up and running, we'll have significant cash flow to help of fund that and expand that. So where's your head at from that aspect?

Yeah. I think David has a long, long wishlist of things he want to do at Zgounder and at Boumadine as well. We're just going through the budgeting process now. So I'd be surprised if we slow down compared to this year for other than that. We're in the budgeting process now. So we have to guide people where we're going to do. So in Q1, we'll be able to speak more to that, I think.

Okay. [Ten pour]. Yeah, I guess we'll keep an ear out for that and look forward to another great year as the plant comes online and things take a step up here. Congrats again, guys. I'll open the line for anyone else.

Thanks, Stephen.

Thank you.

Thank you. (Operator Instructions) Eleanor Magdzinski, SCP Resource Finance.

Can everyone hear me okay?

Yeah.

Okay, wonderful. Congratulations to all of you on a great quarter. I just had a question about the open pit mining that took place, I guess. So it sounds -- in the press release, you said you were able to get to 409 tonnes per day in terms of our rate. Just curious on what kind of stockpile you guys have right now and in terms of just coming to this quarter, kind of processing that, what you're planning to do for testing things out. Because it sounds like none of it actually went through the plant last quarter.

So hi, Eleanor. Happy to comment on this. So the open pit rate target on the medium term, I should say, for next year or so is about 500 tonnes per day, which we are reaching. I mean, we had two or three months ramp up. We are taking our time. And they are very high-grade, rich pocket that we're getting at in the open pit. We haven't gotten them yet.

And in 2023, at Zgounder, we have essentially doubled our mining rate overall between the open pit and underground. And that gives us the luxury of choice if you want, what tonnes do we process, what tonnes do we not process. And by respecting the sequence of the open pit, we have a stockpile of around, as we speak today, close to 160,000 tonnes. And the grade is lower, of course, because we process the higher grades in the mill and we stockpile the good lower grade for commissioning.

So to answer your question, we have around 160,000 tonnes of ore that is being stockpiled right now. Most of it's -- most of which come underground. But about a third of it comes from the open pit.

Okay, great. And in terms of that commissioning, is that settled to see later on. Like once everything is up and running, you're going to be putting that through the mill to begin with. And then I guess in the time period, are you going to be separating any other higher grade bits out to put through process plant with your underground ore? Or is that kind of going to just sit for a little bit until the commission period?

So we'll do that with our existing plant with the open pit ore, as I mentioned earlier, in the coming months to get a feel for it. It's a surface ore. It tends to be a bit more oxidized. You need to learn how to process it. Nothing out of the ordinary. We do keep all the ore separated to make sure to keep that optionality of how we're going to blend it.

The open pit at Zgounder has always been and remain a stepping stone in order to allow to have optionality into ramping up our underground mine. So we keep the mining rate at around 500 tonne per day. We can -- whenever we want them to choose, we can increase this rate. But there's no need for it right now.

So we'd you rather focus on grade control and making sure that we mine this pit properly until commissioning. And through commissioning, we will process lower grade, not to waste any good ore. And once the plant reaches full capacity, we will slowly increase the grade. Does that answer, Eleanor?

Absolutely. That's perfect. Thank you so much. And again, congrats, everyone. Definitely a lot of hard work that went into getting this project to this point. So good job to all of you and congrats again.

Thank you. There appear to be no further questions. I'll return the conference back to you, speakers.

Well, thank you. Thank you, everyone, for participating in our conference call. We will be back next year with the Q4 and full-year result. However, I'm going to see most of you next week in London at the one to one; and then at all the conferences that are in London next week; and following that, in Zurich, at the two conferences in Zurich. So thank you again for participating. Thank you for your comments.

All the analysts, thank you for your notes that you send after every press release. We appreciate this greatly. So thank you for following Aya, and we will see you next week. Thank you.

Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.