Galiano Gold Inc (GAU) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Asanko Gold Q1 2018 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. Please go ahead, sir.

Thank you very much, operator. Thank you, and good morning, ladies and gentlemen. Joining me on our call today is our CFO, Fausto Di Trapani; and our Executive Business Development and Strategy, Rob Slater. 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. Q1 2018 highlights. I'm pleased to report this is the second consecutive quarter the mine has performed ahead of the optimized Life of Mine Plan, which was introduced in late Q3 2017.

Gold production for the quarter was 48,229 ounces in line with guidance with AISC of $1,226 an ounce, which is at the lower end of our H1 2018 guidance of $1,200 to $1,300 an ounce. The larger optimized Nkran pushback is progressing ahead of schedule and the mill delivered another record-milling performance.

We have 0 lost time injuries during the quarter. And on the 19th of March this year, we achieved our first year without any lost time injuries and only -- and over 5.9 million man-hours worked. I'd like to congratulate the entire team on this fantastic results, and I'm pleased to see such diligent commitments for all our employees and contractors to work in a safe environment.

The mine's strong operational performance for the quarter was mirrored in the financial results as we returned to profitability. Net income attributable to common shareholders for the quarter was USD 2.1 million, an improvement of $9.3 million compared to the previous quarter, which Fausto will discuss in more detail later on.

On the corporate side, as many of you will know, just before the quarter end, we announced USD 185 million joint venture arrangement with Gold Fields, one of the world's largest gold producers and the second largest gold producer in Ghana. Under the joint venture terms, Gold Fields will acquire a 50% interest in all of Asanko’s Ghanaian interests, including the Asanko Gold Mine. A key term of the agreement with Gold Fields is that Asanko will continue to operate and manage the mine, which is a great vote of confidence in both the quality of the asset as well as the management team. The transaction is progressing well, and we remain on track for closing before the end of Q3 2018.

In addition, Gold Fields has also taken a 9.9% stake in Asanko Gold Inc. via a private placement of 22.4 million shares. This equates to gross proceeds of approximately USD 17.6 million, which we received in the bank on the 4th of April, 2018. Upon closing of the transaction, Asanko will emerge as a debt-free company that will be able to fund the Esaase project from cash without the requirement for further debt. I would now like to turn to Slide 4 to discuss our mining performance.

During the quarter, the Asanko Gold Mine sourced ore from Nkran, Akwasiso, Dynamite Hill and Nkran Extension as well as on-surface stockpiles. We mined 767,000 tonnes of ore at an average grade of 1.3 grams a tonne, with a strip ratio of 15.7:1. The low ore tonnes and high strip ratio are in line with our plans and reflects our current focus on the larger optimized Nkran Cut 2 pushback.

The pushback is progressing exceptionally well and is currently one full bench ahead of schedule. We expect to start yielding steady-state levels of ore, again, in early Q3 2018.

In addition to the excellent progress we have made on stripping, the strip ratio for the quarter also included the geotechnical design changes to the Nkran pits. As you will recall from our last quarterly results conference call, I discussed the need to flatten the slope angles in the oxidized zones from 34 degrees to 26 degrees. I'm pleased to say that all this work is fully complete.

At the Akwasiso satellite deposits, mining operations, mine the mix of oxide and hard granites, delivering approximately 147,000 tonnes per month at a grade of 1.2 grams a tonne. At Dynamite Hill, the second satellite pit to be brought into production, mining operations have now ramped up to full mining rates and delivered approximately 67,000 tonnes a month of oxide at an average grade of 1.6 grams per tonne.

The lower overall mine grade for the quarter, although expected, was predominantly due to the low ore yield from Nkran, due to the pushback exercise and the predominance of mine ore coming from lower grade satellite pits. Mining cost increased to $3.23 per tonne compared to the last quarter due to Dynamite Hill now being fully ramped up to production, transitioning to harder rock at Nkran, whilst the granites at Akwasiso required more drilling and blasting than in the prior quarter.

As we mentioned in our guidance, we expect grade and gold production to be higher in the second half of the year when Nkran Cut 2 starts delivering steady-state levels of ore production. This will have the effect of reducing our reliance on lower grade stockpiles for mill feed effectively increasing the mill feed grade and lowering costs.

Moving to Slide 5. Processing performance. The processing plant achieved another record this quarter milling 1.27 million tonnes for the quarter and 432,400 (sic) [432,410] tonnes in March, which on an annualized basis is well above our designed throughput rate of 5 million tonnes per annum, which was increased in 2017. This is the second consecutive quarter that we've had a record-milling performance, which is down to the work that we did last year. We improved fragmentation within the pits. We have a dynamic [geometric] model that enable us to incorporate the rock hardness into the bin plant.

We've implemented mill slicer technology, and we successfully installed and commissioned the P5M volumetric upgrade. All these measures have contributed significantly to the increased throughput volumes and highly efficient operating rates.

Gold recovery of 93% was slightly lower than the previous quarter but still well ahead of our plan. This is an excellent outcome as we have managed to maintain our recoveries at elevated levels, despite lower mill feed grades and higher volumes being processed through the mill.

During the quarter, we installed the recovery upgrade circuits, including the additional Knelson concentrator, new Intensive Leach reactor and the third oxygen plant. The installation has gone smoothly, and we will commission the various circuit in this current quarter.

As I mentioned in our Q4 results conference call, we are optimizing the comminution circuit this year with the installation of a permanent secondary cone crusher, which will replace the 3 mobile crushers that we are currently operating. The secondary crusher will give us a huge amount of flexibility with regards to the ore fleet bin. as it is more efficiently -- as it more efficiently reduces the size fraction of ore to the SAG mill, thereby optimizing the milling throughput rate as well as reducing crushing cost by replacing the expensive diesel-fired mobile crushers. The second crusher has arrived on site, and we have already started to install it in a temporary position whilst work continues on the permanent location for the crusher. We expect to complete the installation and commissioning of the permanent facility in Q3.

Moving on to cost. As you would expect to see, the record mill throughput drove down processing unit costs by 13% to $11.17 per tonne compared to the previous quarter, which marks another record as our lowest ever to date. The reduction in processing cost per tonne is largely due to higher throughput, which has the impact to reducing fixed processing cost on a per unit basis as well as the process in our softer stockpile material this quarter. In addition, the company also benefited from a slight reduction in power rates.

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

Thank you, Peter. I'd like to start with our cost performance on Slide #6. Production costs for the quarter decrease compared to the previous quarter, due to the increase in the volumes processed and the associated benefit of decreasing fixed processing cost on a per unit basis. These factors were partly offset by the increase in mining costs as Nkran transition to more competent rock, necessitating higher levels of drilling and blasting.

Operating cash costs and total cash costs were down slightly compared to the fourth quarter while, as we guided, all-in sustaining costs increased quarter-on-quarter to $1,266 (sic) [$1,226] an ounce. These costs at the lower end of our guidance range for the first half of 2018, despite that's having mined the enlarged Nkran Cut 2 at higher volumes with the [cut] being full bench ahead of schedule. Given the focus on advancing the Nkran Cut 2 pushback, our all-in sustaining costs for the quarter included $533 an ounce attributable to deferred stripping.

Corporate costs decreased 28% compared to the previous quarter, due to our focused on cost as a strategy for the successful reduction in discretionary spend. Sustaining capital, excluding deferred stripping costs, also decreased substantially compared to the prior quarter, although we expect it to increase for the next 2 quarters.

As we previously guided, we expect to complete the commissioning of the recovery upgrades and install the upgraded mill motors in Q2, and then complete commissioning of the secondary crusher in Q3. We benefited from a supportive gold price during the quarter with an average realized gold price of $1,314 an ounce, which is $50 an ounce higher than the previous quarter and the highest we had since we commenced gold sales. Although our all-in sustaining margin was low at $88, it's important to remember that this is within the context of our decision to invest in the acceleration of Cut 2 at Nkran with the larger optimized pushback.

As we progress with the pushback and Nkran returned to the steady-state levels of ore production, we expect our all-in sustaining costs and all-in sustaining margin to improve. Cost as a strategy also continues to be a key focus. And as you would expect, we continue to monitor our cost closely across all areas of our business.

Moving on to the income statement on Slide #7. As Peter mentioned earlier, I'm pleased to report that we returned to profitability this quarter. We generated a net income attributable to common shareholders of $2.1 million from the sale of 48,899 ounces of gold at an average realized price of $1,314 an ounce. This is a $9.3 million improvement over 4 -- over our Q4, apology, which I think is a solid result, given the lower grades mine, whilst we focused on the development of the Nkran Cut 2 pushback.

Earnings before interest, tax, depreciation and amortization increased by $4 million compared to Q4 to $30.4 million for the quarter. Delivering a quarterly average earnings before interest, tax, depreciation and amortization of $28.4 million from Q2 last year. The increase compared to Q4 was due to higher gold prices, low exploration expenditure, reduced production cost, lower depreciation as well as lower G&A. We did not pay any cash taxes for the quarter. Earnings per share for the quarter was $0.01 per common share.

Before moving on to the cash flow statement, I'd like to take this opportunity to talk about Asanko's financial reporting after the completion of the JV transaction with Gold Fields. Even though Asanko will remain the manager and operator of the Asanko Gold Mine once the transaction has been completed. For financial reporting purposes and with the various definitions within IFRS, it is expected that Asanko will have joint control of the Asanko Gold Mine with Gold Fields. Therefore, the company will be considered to no longer retain control of the mine. The predominant JV agreement of Gold Fields will be structured within the Asanko Gold Ghana entity, which means the JV arrangement will meet the definition of a joint venture under IFRS. Therefore, Asanko will have to start equity accounting for its interest in the Asanko Gold Mine once the JV transaction close.

For those that are less familiar with the concept of equity accounting,upon closing of the JV transaction, the company will derecognized the assets and liabilities of the Asanko Gold Mine and will instead recognize the fair value of Asanko's investment in the joint venture on a single line on the balance sheet. In the statement of operations, after the closing of the JV transaction, the company will no longer report the revenue and production costs, et cetera, associated with the Asanko Gold Mine, but will rather account for the changes in Asanko share of the net assets of the joint venture as a single line item on the statement of operation.

The company expects to record a noncash loss associated with the loss of control in the Asanko Gold Mine in its statement of operations upon closing of the JV transaction. This adjustment is expected to be material.

In the cash flow statement, after closing of the JV transaction, the company will no longer report the cash flows associated with the Asanko Gold Mine, but will rather report the cash flow associated with Asanko Gold Inc. The company is required and authorized to continue to include certain summarized financial information regarding the joint venture in the notes to the company's financial statements, including the joint venture's revenue, current and noncurrent assets and liabilities, depreciation, income tax expenses, et cetera.

In the interest of transparency, we do expect to augment these required disclosures with additional information. That will enable the market and shareholders to continue to have a very good understanding of the mine's performance.

Let us now turn to the cash flow statement on Slide #8. We generated $19.1 million in cash flow from operations, $30.5 million before changes in working capital. Giving us a trailing 4 quarter average cash flow from operations before working capital changes of $28.8 million. The decrease in cash provided by operations in Q1 compared to Q4 was largely due to $11.4 million of cash that was absorbed in noncash net working capital, predominantly due to increases in inventory balances and an increase in the VAT receivables. The effect of the increase in noncash net working capital was partly offset by higher revenue, lower exploration expenses, reduced production costs and lower G&A. The VAT recovery continues to be in line with our expectations. We ended the quarter with $38.6 million in cash and $4.4 million in immediately convertible working capital, which has since been boosted by the additional $17.6 million that we received from the private placement with Gold Fields. I will now hand back to Peter.

Thank you, Fausto. Moving to the last slide of our presentation, Slide 9.

So in conclusion, ladies and gentlemen, we have had a good start to the year. With our first quarter ahead of plan on the key metrics of production, grade, throughput, gold production, cost and profitability. We're on track to meet our H1 2018 guidance of 90,000 to 100,000 ounces at an AISC of $1,200 to $1,300 an ounce. This coming quarter, we will be commissioning the recovery circuit upgrades in the plant and installing the secondary crusher and the mill motors, which we expect to see the full benefits of in Q3 once commissioning has been completed.

As I mentioned at the beginning of the call, we announced a joint venture with Gold Fields in late March. The transaction only requires approval from the government of Ghana, which we expect before the end of Q3 2018. The stakeholder engagement process in country is going extremely well, and we're on track to close the transaction within this time frame. In preparation for this, so that we can hit the ground running, so to speak, we plan for the joint venture management committee to convene for the first time in May, and we look forward to working with Gold Fields to continually delivering value from this great asset that is the Asanko Gold Mine.

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

(Operator Instructions) And our first question from Nana Sangmuah with Clarus Securities.

A couple of questions. Concerning the strip, the whole quarter, I think, you came in at 15.7:1, I think part of that was capitalized and some went to the operating strip. I was just wondering how much of it went to the operating strip.

Fausto?

Nana, we had about [4:1]. Going to the operational strip, the balance was pretty much capitalized.

Great. And we saw that the mining costs went up to, I think, 3.2. As you encounter harder ore at Nkran, do you see that going up for the rest of the year or that's pretty much it?

Yes. Nana, it's Peter speaking. I suspect the whole [of Nkran is] actually up on the mine last week. The whole of Nkran is now fully in harder ore. So I would expect those sort of cost to remain fairly static from now on. And as I stated in my script, we have now flattened the slope angles in oxides to 36 degrees. So all the oxide movement and preparation that's done, all the ramps are done. And it's purely hard rock mining, so I would expect the cost to stay pretty similar.

Great. And on the processing inside, I mean we still expect to see significant [depths] to, I think, $11.17. Should we expect further decreases as the secondary crusher comes up?

Absolutely. I think that's the whole purpose of doing this exercise. We're running 3 diesel-powered crushers right now, 2 jaws and a cone crusher and our crushing cost is north of $2 per tonne that we put to that machine, whereas the permanent cone crusher will run at around $0.40. So we would expect to see, once that cone crusher is up and operational, a significant improvement in our processing cost happening in H2 of this year.

So what sort of $10 or $9.50 be reasonable or to...

No, I would say just north of $10 would be a fair target, Nana.

Okay. And then the last question, I mean, I noticed that you allocated something for predevelopment at Esaase, what would that entail for this year? What should we be expecting?

So we're doing quite a lot of work on Esaase. And as you know, Esaase is clearly a greenfield site. It's never been mined before. As you -- if you remember the problems we had last year with Akwasiso because of that been historically mined, and we've taken it on the nose. We really didn't do a very good job there. So just in preparation for

Esaase. It is a greenfield site. Never been mined by anybody else before. What we're doing is we're doing infill drilling and grade control drilling. And the purpose behind that is we want to make sure that our mine plan is really well understood for the first 18 months to 2 years. So we're doing a drilling project at Esaase. Whilst we're doing that drilling program, we will subject all that dilling to metallurgical testing. And at the same time, we will also be doing some drilling to confirm the design slope angle to make sure that we got the slope angle up. So it's really risk mitigation work to get all of that ready. In addition, we will be -- as soon as we get the road permit, we will put the road in towards the end of this year, which links from Aburi. We got a road just over halfway from Aburi to Esaase. So it will be the road and also some site infrastructure. So that's the work that we're doing now.

Great. And then last question and before I pass it over, on exploration. Should we be expecting any update in the near term or what are the plans there or what's currently being done?

Yes. That's a good question. Obviously, we've -- we're just getting into bid with our new partners, Gold Fields. And we, over the last 2 days, in fact, we've been sitting with them, reviewing our exploration strategy, and we expect to firm that up with our colleagues in the coming weeks. And that should lead us to having a much better idea in terms of what is our strategic plan in terms of exploration. What are we going to drill? What, if any, geophysical work that still need to be done. We've done extensive work. But we will put that whole strategic plan together, and I would hazard a guess from that, we will be able to give better guidance for -- both parties to the JV and have a very clear understanding of the way forward then. What we see, is exploration -- our exploration and development still remain a high priority for us. Yes.

Our next question is from Rahul Paul with Canaccord Genuity.

Most of my questions are answered. On the exploration side of things. Just a follow-up to what Nana -- you indicated that you expect to sit down with Gold Fields and come up with a plan in the near term. So just to clarify, would that be prior to the closing of the transaction or maybe later on this year once you've had the chance to close the transaction and then prepare to form a plan?

No. I don't think we should be waiting, [Rahul,] I mean, we always have known that our ground is highly prospective with [all the] people on this belt in Ghana. And we have very high priority targets. So we don't want to sit and wait for the approval from the government and then find that we get towards the end of September, which is the scheduled closing date, and then you start to work on it. Our view is that it costs us nothing. We've done all this work. We've got all the geophysical data, the 3D inversion study, the priority listing, the categorization. So let's start working with them now, sooner rather than later, so that we can hit the ground running. So we're trying to be preemptive on our process here.

And then if I could ask on the -- wondering if you could just add -- give us your thoughts regarding some of the headlines that we've seen yesterday regarding a possible shakeup of the mining policy in Ghana and possibly higher taxes or royalties or something like that.

Yes. Good question, Rahul. Because to be honest with you, it's kind of total surprise to us, but we are aware that the -- our Vice President did make comments at the IMF regional economic outlook event that was held in Accra on Tuesday. There were comments made about free carried interest and taxation and everything else. I must point out that we published our annual CSR Report on Monday this week. And the free carried interest is just one of the number of [measures] of economic contribution by mining companies. For Asanko, as you would have seen in our 2017 CSR Report that our total contributions to the Ghana economy in 2017 was $255.4 million. And on top of that, we're obviously considering another $140-odd million investment in Esaase, which runs with employment and everything else. Now that being said, we -- I don't know if the industry is aware, but there is a government task team that was set up some time ago and it's called the Government of Ghana's economic management team. And that is led by the Vice President of Ghana, and it includes the Minister of Energy, the Minister of Planning, the Minister of Monitoring and Evaluation, the Minister of Food and Agriculture, the Deputy Minister of Mines and 3 other staff of the Vice President's office included is also the Chief Director of the Ministry of Land and Natural Resources, the CEO of the Minerals Commission as well as the CEO of the PMMC. Now that's committee met with the Chamber of Mine, the President of the Chamber of Mine and the CEO of the Chamber of Mine plus 4 managing directors or country heads of the largest mining company in Ghana on the 17th of April. And at that meeting, these issues were discussed and the meeting lasted for a couple of hours and in the Deputy President's closing remarks, he placed on record his appreciation of the role and contribution of the mining sector to the Ghanaian economy. And it's -- the development that it has had on the economy and the keen support for it. So essentially, what I'm saying is we are surprised, but there is very active engagement in Ghana and there is a structured engagement which is, I think, a very important factor. The fact that all these very influential high-ranking ministers are involved in open dialogue with us, I think it's a good thing. So I do not expect anything to come out of the blue that will surprise us going forward, to be honest with you.

Thanks, Peter. And just to follow up on that. Do you have a fiscal stability agreement in place with the government of Ghana?

No, we don't. We've never had a fiscal stability agreement. The rules in Ghana stipulates that you have got to invest more than $500 million before you can get a stability agreement. Obviously, with phase one, we have never met that threshold. So we pay normal royalties, normal taxes, normal duties, VAT, et cetera, et cetera. Obviously, once Esaase gets underway and the conveyor belt gets built, we will then reach that $500 million threshold at which time I suspect that with our new partners, Gold Fields, we will enter into those negotiations with the government.

Thank you very much for your question. Ladies and gentlemen, there are no further questions, and that does conclude our call for today. We thank you for your participation. Have a good day, everyone.