Galiano Gold Inc (GAU) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Asanko Gold Third Quarter 2017 Operating and Financial Results Conference Call and Webcast, which is being recorded. A copy of today's press release, the management discussion and analysis and the presentation is available on the company's website at www.asanko.com.

I will now hand over to Peter Breese, President and CEO of Asanko.

Thank you, and good morning, ladies and gentlemen. Joining me on the call today is our CFO, Fausto Di Trapani; and Rob Slater, our recently appointed Executive for Business Development and Strategy.

Before I begin, I would like to draw your attention to the disclaimer on Slide 2 regarding customary forward-looking and cautionary statements regarding mineral resources and mineral reserves.

Turning to Slide 3, Q3 2017 highlights. I'll touch on the highlights for the quarter before going into more detail on our operations. Gold production for the quarter was a respectable 49,293 ounces at an all-in sustaining cash cost of $975 an ounce, which places us on track to meet our revised guidance for the year. I'm pleased to report that the mining interventions that we put in place in Q2 are already yielding results, and we are making good progress in embedding them into our daily operations. Alongside these initiatives, we have also restructured our executive and site management teams to better align the business focus on operational delivery. Safety continues to be a core focus of the group, and I'm pleased to report that we continued our excellent safety record, which is industry leading with lost time injury frequency rate of 0.19 on a rolling 12 months basis.

Our financial performance improved compared to Q2, and we continued our track record of generating cash. Fausto will go into more detail a bit later on. But the headline numbers are: Revenue of $63.7 million from gold sales of 50,241 ounces at an average realized price of USD 1,265 per ounce. The mine generated USD 40.7 million in cash from operating activities, up 20% from the previous quarter. We generated USD 31.3 million in EBITDA, up 24% from Q2. Attributable net income increased quarter-on-quarter by $4 million to $4.7 million, which equates to $0.02 per share. And we ended the quarter with USD 64.3 million in cash and immediately convertible working capital. This quarter, we also received the full benefit from the shorter metal to money cycle of just five days, which had a positive effect on managing our working capital. On the corporate development side, we acquired the Miradani Mining Lease, which is a highly perspective exploration project adjacent to the Asanko Gold Mine, and I'll talk about that a little bit later on in the presentation.

I would now like to turn to Slide 4 with reference to mining performance in Q3. Our mining -- ore mining rates for the Asanko Gold Mine averaged 393 ,000 tonnes per month for the quarter at an average mining rate of 1.8 grams per tonne and the strip ratio of 6.2:1. At Nkran, the grade improved compared to Q2 as mining operations extracted ore from multiple zones within the pit. In addition, the deployment of blast movement technology to minimize ore losses and dilution has been yielding positive results. We continue to embed this technology and expect to be fully integrated into our operations by year-end. The average mining grade at Nkran for the quarter was 1.8 grams per tonne.

The grade control versus the resource model reconciliation continues to be positive with an 8% positive variance on ounces for the quarter. During the quarter, we also started the next stage of the reconciliation, which is confirmation of the low feed to the reserve model. This reconciliation measures the ability of the mining operations to deliver the plan tonnages and grades predicted by the reserve model to the processing plant. The reconciliation for the quarter was positive with a 1% variance on ounces. These positive ounce variances are significant as they scientifically validate the gold endowment at Nkran.

The Cut 2 pushback continued according to our plan during the quarter and progressed along the southeast section of the Nkran pit, moving into more confident material towards the end of the quarter. At the Akwasiso satellite deposit, mining operations delivered approximately 20,000 tonnes per month of oxide ore at 1.3 grams per tonne. As we announced recently, we completed a confirmatory drilling program in September, which firmed up the reserve model. The purpose of this was to infill drill test the previously inaccessible area to east that was covered by tailings from historic artisanal mining activities.

At Dynamite Hill, second satellite pit that we are bringing into production, site establishment got underway during the quarter. We have completed just over 3000 meters of grade control drilling, which has validated the resource model and confirmed the mine plan. We've also finished construction of the haul road to the processing plant via the Akwasiso pit. Bush clearing and pit preparations are now at an advanced stage, and we expect to commence initial mining operations in the current quarter, with oxide ore being delivered to the plant in Q1 2018.

Mining costs increased slightly quarter-on-quarter to $3.35 per tonne. This was predominantly due to mining harder rock in the current sequence of the Cut 2 pushback. From Q4 2017 onwards, as we bring our third pit into operation, the mine plan will incorporate all sources of ore available to us, including the various stockpiles. We have about 3 million tonnes on stockpile at the moment, which is more than sufficient as a risk mitigation measure. So in order to optimize our operating costs, we'll start to actively manage our stockpile balances alongside the different pit extraction rates to ensure an optimal blend to the mill. As a consequence, the mill feed grades are expected to reflect the average reserve grades from the respective pits as they are mined, including the blended grade average from the various stockpiles.

I would now like to turn to processing on Slide 5, Q3 processing performance. We processed 862,000 tonnes of ore for the quarter at a the feed grade of 1.9 grams per tonne to produce 49,293 ounces, taking the year-to- date tally to 153,596 ounces, in line with our full year guidance of 205,000 ounces to 225,000 ounces. Our processing performance of the quarter was impacted by three mill motor outages that resulted in 11 days of lost milling time, which equates to an excess of 5,000 ounces lost gold production for the quarter. We have since rectified the mill motor situation with one motor on full standby and two new upgraded motors due for delivery to site in Q1 next year. Gold recovery was unaffected and continued to exceed design at 94% with the gravity recovery circuit recurring over 55% of the gold, which is well above designed levels. As a consequence of the lost milling days, the unit cost of processing was marginally higher quarter-on-quarter at $12.94 per tonne.

Commissioning of the P5M volumetric upgrades was completed during the quarter and the plant has achieved milling rates in excess of 13,500 tonnes per day on a campaign basis. The P5M mill designs were based on the blend of 9,000 tonnes per day of fresh rock and 6,000 tonnes per day of oxide ores. So in spite of higher fresh ore tonnes being been fed to the plant, the milling rates been achieved on a campaign basis represent a significant improvement over and above the design parameters. The increase in higher fresh ore tonnes is being achieved by modification to the comminution circuit, which currently consists of three mobile crushers, plus our primary crusher. However, this is just a temporary measure as we are planning to install a secondary crusher in the second quarter of next year.

That concludes the operational review for the quarter. I would now like to hand over to Fausto, our CFO, who will discuss our financial performance.

Thank you, Peter. So turning to Slide #6, I'd like to start with our cost performance. This quarter is marked by two key financial highlights, namely a positive cost performance despite the operational challenges with the loss of 11 days of milling and a continuation of the company generating positive operating cash flows and earnings. In Q3, we generated operating cash flows before changes in non-cash working capital of $31.7 million. Our mining costs was $3.35 per tonne, marginally up from last quarter, as a result of the progression of Cut 2 in Nkran into more competent rock, which necessitated drilling and blasting. This was offset partially by oxide mining in Akwasiso, keeping unit costs down.

The processing costs for the quarter were higher than Q2, predominantly as a result of higher maintenance costs associated with the SAG mill motor outages, as well as lower throughputs pushing unit costs higher. Stripping activities ramped up this quarter with the progression of Cut 2 at Nkran. After accounting for the cost of pre-stripping activities, total cash costs were $549 an ounce, which is 13% lower than Q2, with the reduction being predominantly attributable to the lower operational strip ratio at Nkran and the higher oxide mining mix with the development of Akwasiso.

All-in sustaining costs for the quarter were marginally higher than last quarter at $975 an ounce, driven up by the continuation of our efforts in developing the next phase of ore mining operations at Nkran in Cut 2. All-in sustaining margin for the quarter was just shy of last quarter's results as margin compression associated with higher stripping activities was somewhat offset by the higher realized prices. On a year-to-date basis, all-in sustaining costs amounted to $955 an ounce, in line with the company's 2017 production and cost guidance. This quarter, we have kicked off a detailed review of our cost performance, and it is now a key operational focus, which Peter will talk to a little bit further on.

Moving on to the income statement on Slide #7. We generated earnings before interest tax depreciation and amortization of $31.3 million for the quarter. We continued on our path of positive earnings with net income attributable to common shareholders of $4.7 million, an increase of $4 million from Q2. This is predominantly due to $3.4 million higher income from mine operations associated with lower total cash costs, higher realized gold prices and higher sales volumes. Net earnings would have been closer to $8 million had we not adjusted for non-cash taxes. We do not currently pay cash taxes and the tax charge of $3.7 million was largely driven by non-cash deferred income tax estimates for the year without the associated recognition of debit deferred tax related to carryforward tax losses. If we calculate earnings per share before non-cash taxes, we generated earnings of approximately $0.04 per share. The positive trend in income from mine operations equated to a gross margin of 30%, the third consecutive quarter that we have exceeded 25% gross margin.

So let's now turn to the cash flow statements on Slide #8. As we expected, we continued to generate cash flow from operating activities. Operating cash flows before working capital change amounted to $31.7 million, which clearly demonstrates that the mine continues to generate base-load cash flow, which the company is able to deploy in funding both current and future growth. Cash on the balance sheet grew by $5.9 million, despite the investment in stripping activities for the Cut 2 pushback at Nkran. Stripping and development expenses at Akwasiso and Dynamite Hill as well as the continued investments in the P5M volumetric upgrades and certain costs associated with the P5M metallurgical upgrades. We continue to work with the Ghana Revenue Authority to manage the best receivable cycle that we carry on the balance sheet.

During Q3, we had a net VAT inflow of some $7.5 million after a refund was collected amounting to $13.1 million. I'm very pleased to report that since the quarter end, the company recovered all VAT out standing up to and including August 2017. So the company has managed to reduce its VAT aging to one quarter or less, which is very encouraging.

Turning the focus to capital expenditure for the quarter. We spent approximately $13.6 million on growth capital, which included the completion of the volumetric upgrades and advancing the recovery upgrades associated with P5M, as well as pre-stripping activities developing the Akwasiso deposit. Waste stripping of approximately $16.7 million is reflective of the progress made with the Nkran pushback.

I'll now hand back to Peter.

Thanks, Fausto. If we can turn to Slide 9, and I'd like to talk about Miradani. In September, we announced the acquisition of Miradani, a highly prospective piece of ground that is adjacent to the Asanko gold mine concession area and located within 10 kilometers of our processing facility. We are very excited about the Miradani project and believe it has huge potential to increase our resource base and to contribute to our future growth plans. We have identified three initial targets, areas along the main structural trend, Miradani, the Central Zone and Tontokrom. Just to give you some context, the Miradani and Tontokrom targets each have a strike length in excessive of 700 meters, which is roughly the same size of the current Nkran pit. Historical trench and soil geochemistry data along the recent mechanized artisanal mine workings indicate that each target area consists of multiple parallel mineralized zones, individually ranging between 3 meters and 37 meters in width. We will be conducting a phase drilling program, which we expect to commence shortly.

The first phase will be focused on the Miradani and Tontokrom targets, and the aim is to gain an understanding of the grade, width and continuity of the mineralization along the strike of these deposits. We will then move to the second phase with a view to announcing a maiden resource in the second half of 2018.

I would now like to move to Slide 10, outlook. In summary, our Q3 performance has been very encouraging given that we only started to deploy new mining technologies and systems only a few months back in July of this year. And the positive resource and reserve reconciliation is evidence of this improved performance. Our focus very much remains on operational delivery as we continue to embed the new systems and processes into the businesses DNA. And we have three clear focus areas. Alongside fine-tuning the resource and reserve conversion and the blast movement technology, we are also implementing some best in breed methodologies. These include integration of the structural geology into our modeling techniques, improving our polygon designs and ore delineation methodology and adding Bond Work Index measurement to our key ore metrics, alongside great and rock type to refine the blend to the mill.

We are also making a number of efficiency improvements, such as the use of MillSlicer technology to assist us with the performance optimization of the mill, maximizing the SAG mill throughput by adding extra capacity to the crushing circuit and adjust in the low throughput rates based on the ore field's Bond Work Index to maximize milling rates. We expect to see the efficiency improvements translate to the cost of production. We have embarked on a cost optimization program, and we are looking across the entire production value chain and supporting services to drive performance, efficiency and ultimately best cost performance into the operation. This is a detailed exercise and that will take a good few quarters to deliver real tangible results. At the operations themselves, Cut 2 will continue in the (inaudible) Akwasiso will continue to contribute around 20,000 tons per month of oxide ore, and we will be bringing our throughput Dynamite Hill into production. Dynamite Hill will start to make a significant contribution from Q1 2018 onwards. Mining flexibility is key, and as I mentioned earlier, the mine plan from Q4 onwards will use all available ore sources, including stockpiles, so the mill feed grade will reflect the average reserve grade from these ore sources. On the processing side, we expect to upgrade -- to the recovery circuit to be installed in the first quarter of 2018.

Turning to near-mine exploration. We expect to complete the drilling program at Midras South this quarter, and we're aiming to publish a maiden resource for this deposit in Q1 2018. For those who are not familiar with Midras South, it's a shallow near-surface deposit about 5 kilometers away from the processing facility. We are aiming to delineate additional oxide tonnes that can be blended with the fresh ore from Nkran during the course of the next couple of years. As I mentioned earlier, we expect to commence drilling at Miradani, our biggest exploration target in the coming months, and we will update the market further once the program has started.

With regard to our future growth plans, we continue to work on the P5M optimization plan and associated funding package. This optimization process of only 11 pits is quite detailed. We are not just optimizing each individual pits, but we are also having to add in detail design parameters such as Bond Work Index, geotechnical and geo-hydrological implications, and we're working with leading industry experts to ensure these elements are being done to best practice. We are making good progress and continue to engage with our very supportive lenders rate card. We expect to provide the market with further updates in the coming months.

So to conclude, ladies and gentlemen, overall, Q3 has been an encouraging quarter across a number of key areas, mining operations are improving, positive cash flow generation continued, and we added cash to the balance sheet. There is still work to do. We remain focused on operational delivery. However, we are on track to meet our revised guidance for 2017.

Thank you all for listening. Operator, we will now take questions.

(Operator Instructions) And our first question comes from the line of Nana Sangmuah.

A couple of quick questions here for Fausto. I just wanted to see if you could provide us some guidance on the sustaining CapEx front as the Cut 2 spread goes on for the coming quarters, what level should we be modeling going forward?

Thanks, Nana. From a sustaining capital perspective, specifically, on the Cut 2 expenditure between now and kind of the end of February, we anticipate anything between $4 million and $5 million dollars per month in stripping costs that we anticipate will be deferred. Obviously in February, once that cut is complete, debt deferral comes of quite substantially, Nana, and we actually started depleting the balance on the balance sheet into period cost on a quarterly basis.

Great. And in Q4, what should we be anticipating in terms of growth CapEx, because I guess most of the volumetric changes is done as an update -- expansion spend is done?

That's correct, Nana--I mean, look, they still haven't seen payables, so there's some working capital to flush through from a cash perspective. And then the longer lead items insofar are the metallurgical upgrades were expecting over the course of Q4 and Q1. So anything between $4million and $8 million in cash, Nana, that will be disbursed in that period.

Great. And moving on to exploration, you should be (inaudible) Miradani shortly. Any idea what the exploration budget is going to be for Miradani?

Yeah, sure. Nana, Peter speaking. Yeah, we are going through the consultation process with the local communities right now. We expect to be able to start putting drills on the ground in the next 2 to 3 weeks. As we stand right now, as you know, the structure in Ghana, the paramount chief has given his blessing and so have the local chief, so we now just going to get the communities to prove that drilling program. First up, we will be doing the Phase I drilling program, it'll be completed before the end of the year. That's about a $600,000 drilling program. And in Phase 2, we'll start in January after the Christmas break and that's about a $3.4 million project, and we hope to have that done before the end of May. And I think we'll have two to three rigs on the Phase 2 drilling program.

And the last one for me. Since we expect an initial resource from Midras South some time in Q1, should we be expect in some results in the coming months from --?

Yes. So we will be -- update everybody on the exploration performance in the coming months from both the Miradani and the Midras South perspective. And we will keep the marketing guys, we're obviously very excited about the programs. We're getting some results from Midras, which is quite encouraging, and we wait to see what happens with Miradani as well.

And our next question comes from the line of Chris Thomson of Raymond James.

Look, we're going to talk about a lot of this, I guess, during the site visit, but two quick questions for you. Akwasiso, I guess what potential is there, I guess, to ramp that production up beyond what you're currently delivering to the mill, and what sort of time frame should we be modeling?

Yes. So Chris, as you're aware, the expectation for Akwasiso, just over the top of my head, is above 200,000 ounce reserve deposit. We always anticipate that we would have a significant amount of oxide, which -- what we've done, as you are aware, in the market is aware -- is we removed that mud and we've now done a whole of drilling and actually, it's -- a large portion of that deposit is granite in nature. Now the issue with granite is the Bond Work Index for that material is about 17.5 as opposed to about 12 to 13 for normal sandstone. So even if we had -- in other words, the reserve is there, but we can't mine it and process that more than about 45,000 tonnes to 60,000 tonnes a month of granite through the mill, because it's just too hard in the SAG mill. So we will be limiting the whole Akwasiso mining to what the mill is available to consume or able to consume.

And what's your sense for Dynamite Hill, Peter, at the moment?

Look, we've done a whole lot of grade control drilling at Dynamite Hill. You will see next week, we've taken a lot of the cap off -- there's this laterite cap that fits on top of dynamite hill. Dynamite Hill is definitely well oxidized. We've confirmed that there is some granite in there, as there is in Nkran, but most probably between 5% and 15% of the total deposits will have no impact on the plane. And Dynamite Hill will be up and over 80,000 tonnes a month from next year.

Our next question comes from the line of Matthew MacPhail of Canaccord Genuity.

Just another question along the lines with Akwasiso. You guys -- you're averaging 20,000 tonnes per month at 1.3 grams in the quarter. Is that kind of what you expected? I wasn't able to find anywhere in your attached [reports that split out the production by deposit. So slightly below reserve grade right now, is that what -- were you expected to be?

Yes, it's true. Most of the granite is actually in the hard rock. The oxides, we always -- we also have a different cut-off for oxides, but the oxide cut-off 0.5 grams per tonne, where the fresh ore cut-off is 0.7 of gram per tonne and this is just based on economics. So you will naturally get a lower grade through the oxide. Matthew, I'm not sure if you're aware, but what happened, I think it was last quarter, we uncovered at Akwasiso, there were some errors made in the interpretation of the Akwasiso deposit. So we have to take some steps to rectify that and those steps were in the form of removing the historical artisanal workings and doing a decent size drilling program of not only phased [drilling, but also grade control drilling. So the original plan for Akwasiso was to do, if I remember, somewhere between 40,000 tonnes and 60,000 tonnes a month of oxide, but because the oxides have been predominantly depleted, there's still a couple hundred thousand tonnes of oxide, but it's in narrow zones, the ability to both mine those is lessened. So our plan with Akwasiso wouldn't go much faster than 20,000 tonnes a month of oxide.

Okay, that's great. And you mentioned the -- I remember from the Q2, the artisanal mining, the disturbed ground make mining a bit slower. Has that continued into Q3 or are you mostly through that or do you expect to kind of encounter it piecemeal as you go through the rest of the deposit?

No, 95% of it gone. I think there's two little glory holes left when they came and took it out. So no impact to the deposit. We know exactly what it is, we've tested the depth extension, they are not material. So we know exactly what Akwasiso is right now. And as part of the P5M optimization plan, which is a new mine plan, as I said in my discussion this morning, which is optimizing all 11 pits together, it's also optimizing Akwasiso with all this new information.

Okay, great. That's great to hear. And just a quick question for Fausto. If you could just briefly describe how do you define operational strip, just in terms of what you capitalize versus expense, if it's short enough for this call?

Sure. Look, I think we defer costs to the extent we're stripping at extra pressure substantially higher than expected strip ratio in any one of the components in the Nkran pits and at Akwasiso. Obviously, now in Cut 1, we are stripping at operational strip ratios, which is ultimately -- we've removed most of the overbid and we're just mining now the ore body itself. So the operational strip ratio comes off quite substantially once you've remove that initial overbid in and that's being stripped. So ultimately, when we look at kind of Cut 1 at Nkran now because all the core is exposed and we're mining out of ore body, the waste ore ratio substantially lower than kind of the 6.2:1 that you see in the global number of total waste mined and total ore mined for the quarter.

And that does conclude our question-and-answer session. Ladies and gentlemen, that concludes the Asanko quarterly call. Thank you, and have a good day.