Galiano Gold Inc (GAU) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Asanko Gold Q2 2018 Operating and Financial Results Conference Call and Webcast, which is being recorded. A copy of today's news release, the Q2 2018 interim financial statements, 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, from Vancouver.

Joining me on the call today is our CFO, Fausto Di Trapani; and Rob Slater, Executive Vice President, 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 reserves.

I'd now like to turn to Slide 3, Q2 2018 highlights.

I am pleased to report that the Asanko Gold Mine delivered another set of excellent production results this quarter as our main Nkran pit returned to steady-state levels of ore production in June and the mill achieved yet another record milling rate.

The mine produced 53,501 ounces of gold at an AISC of $1,068 per ounce for the quarter, and 101,731 ounces at an AISC of $1,145 for the half year, beating both our production and cost guidance for the first half of 2018.

We maintained our strong safety record during the quarter with no lost time injuries reported. We have now achieved over 15 months and worked more than 7.7 million man-hours without a single lost time injury. This is a significant achievement given the continued ramp-up in our operations, whilst at the same time, we have installed the various upgrades to our process plants using outside contractors, who are not necessarily aligned with our world-class safety systems.

We recorded a noncash net loss attributable to common shareholders of $142.3 million or $0.63 per common share, which is solely attributable to the loss on classification of the company's Ghanaian subsidiaries as held for sale in connection with the Gold Fields joint venture transaction, which Fausto will discuss in more detail later on. However, adjusting for this nonrecurring noncash loss, we maintained our profitability and reported adjusted net income attributable to common shareholders of $2.3 million or $0.01 per common share.

At June 30, 2018, the company had approximately $48.1 million in unaudited cash and immediately convertible working capital balances, of which $18.8 million was attributable to Sanko with the remaining balance classified as assets held for sale in the JV.

On July 31st we completed the much-anticipated $185 million joint venture transaction with Gold Fields, who are now our partners in Asanko Gold Mine. We have received the first payment of $165 million from Gold Fields, with the second unconditional payment of $20 million due on completion of an Esaase development milestone, but in any case, no later than the 31st of December, 2019. We have used the proceeds from their first tranche to repay the Red Kite project debt facility in full. And I'm pleased to say that we are now a debt-free company.

I'd now like to turn to Slide 4 to discuss our mining performance.

Mining operations continued to deliver according to plan for the quarter, mining 945,000 tonnes of ore at an average grade of 1.5 grams a tonne and a strip ratio of 10.4:1. The Eastern portion of the larger Cut 2 pushback at Nkran is now substantially complete with commercial ore yields achieved in June 2018. As a result, the strip ratio has decreased substantially as ore exposure rates increased with the progression of the pushback, which is tracking ahead of plan.

As you can see from the photo on the right-hand side of the slide, we have now exposed a large part of the ore body, highlighted in red. And in June, we mined 178,000 tonnes of ore at 1.9 grams per tonne from the Nkran pit.

Looking forward, we have commenced the Western Cut 2 pushback in line with our plan, which will result in above life-of-mine strip ratios for the rest of the year.

From a geology perspective, our gold reconciliation process continues to validate the gold endowment at Nkran. On a rolling 12-month basis, the ounce reconciliation remains within 2% of the resource model, with grades being higher and tonnes lower than predicted. At our satellite deposit Dynamite Hill, we mined 251,000 tonnes of ore during the quarter at an average grade of 1.9 grams per tonne, whilst Akwasiso delivered approximately 356,000 tonnes of ore at an average grade of 1.1 grams per tonne.

Mining costs were higher for the quarter, averaging $3.65 per tonne mined. This was due to higher drill and blast and load and haul costs associated with the progression of Cut 2 into more competent material and the requirement to move extra -- ore extra distances to the mobile crushers that are running within the processing plant facility. We are looking closely at our mining efficiencies and costs, with a view to bringing them down over the coming quarters as a key focus area for the mine.

Now that Nkran has resumed steady-state operations, we expect grade and gold production to be higher in H2 2018, consistent with our guidance.

Moving on to processing on Slide 5, the processing plant delivered another great quarter, achieving yet another record milling rate of 1.37 million tonnes, which is equivalent to 5.5 million tonnes per annum and well in excess of the 5 million tonnes nameplate design capacity for the plant. We only started operations at the Asanko Gold Mine some 2.5 years ago at a rate of 3 million tonnes per annum. With a very small capital injection to increase the process capacity to 5 million tonnes per annum, we are already running the facility at rates well in excess of the upgraded design. This is testament to the fantastic effort by the operations team to fully understand the characteristics of the ore in the ground, and how the process facility can be optimized by clearly understanding the relationship between rock hardness, fragmentation and process throughput rates.

During the quarter, we commissioned the final P5M recovery circuit upgrades, installed the upgraded mill motor on the SAG mill and the secondary crusher. These upgraded installations have assisted us in beating our targets.

The feed grade for the quarter was 1.4 grams per tonne, was also an improvement compared to Q1 due to the Nkran pit returning to steady-state ore production in June. However, feed grades were lower than the mine grade of 1.5 grams per tonne as we had to feed lower-grade stockpile material to fill the mill due to running at throughput rates well above design.

Turning now to process costs, we again saw a significant improvement in our cost per tonne milled, where we have seen unit costs in the process facility decrease by 23% since we started the upgrades to the milling circuit. This is as a direct result of the substantial volume increases, reducing the fixed-cost unit production rates and our power costs that are lower than planned.

These changes have seen our processing costs decrease 11% quarter-on-quarter to $9.95 per tonne. This is a very good result, and provided throughput remains at these elevated levels, we expect processing costs to continue in the $10 to $10.50 range for the remainder of the year.

That concludes the operational view for the quarter. I'd now 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.

Operating cash costs of $582 an ounce and total cash costs of $646 an ounce for Q2 were in line with the previous quarter. During Q2, higher direct production costs were partly offset by the impact of higher gold sales volumes, which had the effect of decreasing fixed production costs on a per-unit basis. All-in sustaining costs for the quarter improved considerably compared to Q1, decreasing 13% to $1,068 an ounce, generating a $218 per ounce all-in sustaining margin.

The decrease in all-in sustaining costs was largely a function of deferred stripping costs reducing by 35% to $344 an ounce as a result of the Eastern portion of Cut 2 at Nkran being substantially completed and steady-state operations resuming in June. The increase in gold sales also helped to reduce fixed sustaining costs on a per-unit basis.

These aforementioned factors were partially offset by a higher sustaining capital and G&A expense compared to Q1. The planned increase in sustaining capital was the result of bringing forward the next TSF grades, which was necessitated by the increased mill throughput. All-in sustaining cost is expected to reduce further in the second half of 2018, as Nkran continues to produce steady-state levels of ore. And as I mentioned earlier, the deferred stripping costs reduced quite considerably compared to Q1 now that the larger Eastern portion of Cut 2 is substantially complete.

Moving on to the income statements on Slide #7, I'm pleased to report that the company posted adjusted net income of $2.3 million attributable to common shareholders or $0.01 per common share from gold sales of 51,785 ounces at an average realized gold price of $1,286 an ounce. The adjusted net income was lower than Q1 due to a lower realized gold price, higher exploration expenditures of $1.7 million and a $1 million increase in finance expense, although these were partially offset by higher mine operating earnings of $1.6 million and a lower income tax expense, which decreased by $2.2 million quarter-on-quarter.

As completion of the JV transaction was considered to be highly probable at June 30, 2018, we concluded that our Ghanaian assets and associated liabilities met the criteria for classification under IFRS as held for sale. Consequently, the Q2 results have been negatively impacted by a onetime noncash post-tax loss of $144.6 million due to the reclassification of the Ghanaian assets and associated liabilities as held for sale.

As I mentioned in our Q1 conference call, although Asanko will remain the manager and operator of the Asanko Gold Mine, with the close of the JV transaction this week Asanko now has joint control of the Asanko Gold Mine with Gold Fields as defined within IFRS. As such, the joint arrangement represents a joint venture as defined in IFRS, and we will commence equity accounting for our interest in the joint arrangement from Q3 2018, the period in which the JV transaction was completed.

The pervasive impact the JV transaction has in the primary statements of the company is evident in our balance sheet disclosures this quarter. From Q3 onwards, we will see the impact in the income and cash flow statements as we pivot to equity accounting our interest in the joint venture.

Getting back to the income statement, we maintained a robust adjusted earnings before interest, tax, depreciation and amortization of $28.1 million, marginally down compared to $30.5 million in Q1 2018 due to the increase in our exploration expense that I mentioned earlier as well as an increase in G&A expenditure. Our ability to continue to generate strong adjusted earnings before interest, tax, depreciation and amortization underpins the strong performance of the Asanko Gold Mine during the quarter.

Let us now turn to Slide #8 and the cash flow statement. The operations continue to generate positive cash flows with solid cash generation from operations of $13.4 million and $28.6 million before changes in working capital. The trailing 4-quarter average cash flow from operations before working capital is a robust $29.3 million.

We continued to invest in the future of the Asanko Gold Mine, with mine development expenditures on deferred stripping of $14.6 million for the quarter and growth capital of $7.4 million completing the P5M plant upgrades, including the upgraded mill motor and installation of the secondary crusher. As mentioned on our Q1 results conference call, we completed a private placement equity financing with Gold Fields as part of the JV transaction, raising $17.6 million. At the end of the quarter, we had a closing cash balance attributable to Asanko of $18.8 million, cash attributable to the joint venture amounting to $23.7 million and is included in assets held for sale at the end of the quarter.

That concludes the financial review for the quarter. And I will now hand back to Peter.

Thanks, Fausto.

I'd now like to turn to near-term growth opportunities, the Esaase deposit on Slide 9. The large-scale greenfield Esaase deposit is located some 27 kilometers from the central processing facility. The resource comprises a large portion of oxides at surface, which can be extracted at lower mining costs as there is no need to drill and blast. We plan to commence mining at Esaase in January next year, starting with an interim trucking operation in the first couple of years whilst the conveyor is being constructed.

In June, we received the amended environmental permit for Esaase, which includes approval for this trucking operation and completes the permitting process for Esaase. We are now fully permitted for mining, trucking and conveyor operations.

During the quarter, we started the preproduction and business readiness programs in anticipation of a positive development decision by the JV management committee in Q4 2018. We completed a program on -- of infill reverse circulation drilling during the quarter. 84 new RC holes were drilled over a 1-kilometer strike length totaling 4,900 meters. All holes were logged in detail and samples were sent for SA.

In addition, we completed and exercised an extensive core logging -- core relogging exercise to improve the geological definition and understanding of the controls to mineralization within the proposed pits. A total of 163 holes totaling 43,000 meters were relogged, situated on 15 chosen section lines covering a strike length of 800 meters.

The successful completion of this program achieved 2 main outcomes. Firstly, the exercise delivered a better definition of the oxidization surfaces in preparation for mining operations in the first quarter of 2019. And secondly, the relogging program has helped to improve the understanding of the geological controls to mineralization to facilitate a higher level of resource modeling. All the new data is now being incorporated to enhance the mineral resource estimate and mine plan for Esaase.

In the coming quarters, we plan to also reevaluate the geotechnical, hydrological and metallurgical design parameters to confirm the inputs for the Esaase pit designs.

In terms of infrastructure, all we require for the initial development is to build a road of approximately 19 kilometers to Esaase -- to link Esaase to the existing haul road and the processing facility. We aim to have this completed by the end of the year. We also plan to award the Esaase mining contract by early Q4.

Turning to Slide 10, outlook. So in summary, ladies and gentlemen, we have had another very solid quarter with Nkran now back at steady-state levels of ore production and the mill achieving another throughput record. These achievements have allowed us to beat the top end of guidance for the half year and positively impact our costs with a significant reduction in all-in sustaining costs as well as ensuring another quarter of profitability and operating cash flow generation.

We are also pleased to confirm that our much anticipated JV with Gold Fields has concluded with the receipt of USD 165 million of cash. These funds were used to close out our debt facility with Red Kite, who have been repaid in full. In addition, we completed the permitting process for Esaase with approval for the trucking operation and getting the Esaase preproduction program underway. As we enter the second half of the year, we are well on track to meet our 2018 full year cost and production guidance.

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

(Operator Instructions) And our first question comes from the line of [Matthew McNeil].

Just a question surrounding the mill performance. We've seen some strong mill performance in Q1 and again in Q2. Can you attribute that to a softer blend of ore feeding the mill? Or is it more -- I know it's partly because of the upgrades you have done to the mill, but I'm just trying to look forward into the rest of the year, heading into the harder ore coming out of the Nkran pit. Can we expect that sort of outperformance to continue?

Yes, [Matthew], that's a good question. The 5 million tonne a year milling operation is designed for 9,000 tonnes a day of fresh rock from Nkran and 6,000 tonnes per day of oxides. We averaged about 3,000 tonnes a day of oxides in the quarter and achieved a run rate of 5.5 million tonnes per annum. The oxides -- however, the supply of oxides are limited until such time as we get to open up Esaase. That is our only real source of oxides, so we will see milling rates leveling off for the next 2 quarters. I don't see them increasing. If anything, maybe even slightly below that at around 1.3 million tonnes per quarter, which is not going to be material until such time as we open up Esaase. So it has got to do with the blend, but the blend that we put in there right now is predominantly hard rock. So we shouldn't see any change. But I'm not sure that we'll continue seeing big step changes in volume throughputs in the mill going forward.

Okay. Great. That's kind of what I expected. And then you may have addressed this,, but I may have missed it. Just, Miradani, going forward in kind of second half of the year, now that the JV transaction is closed, are we putting some more holes in there? Can we expect any sort of news flow out of Miradani in the second half of the year?

So what we have done, [Matthew], on the whole exploration strategy is, although the transaction only closed on Tuesday, we have been working with Gold Fields who really do bring a much higher level of geological expertise to the party than we will ever have just due to their sheer size. So we've been working with the Gold Fields' people; they've been to site a good number of times, and the whole purpose of that is to relook at the whole exploration strategy. What should we drill? What shouldn't we drill? Where should we drill? And essentially, we've been going through a process of looking at all the historical data, unpacking every single thing that has ever been done there and coming up with a holistic exploration program.

That being said, Miradani is the key target. And in fact, next week on site, we will be reviewing the final exploration strategy. And I would hazard a guess that will lead into an agreed budgeting process and a 5-year exploration strategy, which will go through an approval process, and then we will start allocating funds for that drilling program. So I suspect it could take at least the whole of this quarter to get that through and into the fourth quarter. And only then will we be able to start mobilizing any drill rigs.

So I would say the expectation from exploration is we would see, before the end of this year, an agreed exploration strategic plan that we will be able to share with the market.

Okay, and there are no further questions at this time. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation today and ask that you please disconnect your lines.