Galiano Gold Inc (GAU) 2018 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Asanko Gold Q3 2018 Operating and Financial Results Conference Call and Webcast, which is being recorded. A copy of today's news release, the Q3 management discussion and analysis and interim financial statements as well as a presentation are available on the company's website at asanko.com.

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

If you could move to Slide 2.

Thank you, and good morning, ladies and gentlemen. Joining me on the call today is our CFO, Fausto Di Trapani; Rob Slater, Executive Vice President, Strategy; and our newly appointed Senior Vice President, Corporate Development and Investor Relations, Dr. Andrew Ramcharan. I'd like to take this opportunity to welcome Andrew to the Asanko team.

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.

Moving on to Slide 3, Q3 2018 highlights.

This is our first quarter reporting on Asanko Gold Mine in our capacity as joint owners as well as the operators and managers of the joint venture. As many of you are aware, on the 31st of July of this year, we completed our transaction with Gold Fields for the sale of 50% of our Ghanaian assets, including a 45% economic interest in the Asanko Gold Mine. This is reflected in our financial statements from August 1, 2018, when we started to equity account our interest in the joint venture.

Because of -- the JV transaction resulted in pervasive changes to the face of our financial statements. This quarter specifically is distorted by the switchover to equity accounting 1 month into the quarter, and Fausto and his team have taken the time to prepare some comparatives to show how the mine performed in the quarter, which he'll take you through after the operational review.

Turning to the Q3 2018 highlights of the Asanko Gold Mine on a 100% basis.

Once again, I'm pleased to demonstrate that the mine is operating for a third consecutive quarter in a row where we have beat our expectations on the mine. The operations team are doing a fantastic job managing all the variables associated with a large mining complex such as this to deliver ahead of expectations.

The mine delivered a third consecutive quarter of strong operational results with quarterly gold production of 61,599 ounces at an AISC of $971 per ounce. Production year-to-date is a 163,329 ounces, at an AISC of $1,072 per ounce, which places us at the high end of our 2018 production guidance of 200,000 to 220,000 ounces and towards the lower end of cost guidance of an AISC of $1,050 to $1,150 an ounce. The mine sold 65,267 ounces of gold, generating $78.2 million in gold revenue at an average realized price of $1,198 per ounce. We've achieved our sixth consecutive quarter without a lost time injury, maintaining our world-class, industry-leading safety record. I would like to take this opportunity to congratulate the team and our workforce for the continued vigilance and commitment to safe work practices and ensuring everyone goes home safe at the end of every shift.

Mining operations are ahead of plan, bolstered by the resumption of steady-state operations at Nkran, which I'll talk about on the next slide. The Esaase preproduction program is progressing on schedule, and again, I'll give an update later on.

During the quarter, the Ghanaian government introduced a new 5% nonrefundable levy on goods and services that attract VAT. This has impacted costs for the quarter, which Fausto will discuss in more detail.

The joint venture continued to demonstrate its ability to generate cash flows from operations and ended the quarter with approximately $33.4 million in unaudited cash and immediately convertible working capital balances.

Turning to Asanko corporate.

As I mentioned, we completed our JV transaction with Gold Fields on the 31st of July. We used the proceeds from the first tranche of a $165 million to repay in full the Red Kite debt, so we are now debt free. The second and final tranche of $20 million will be payable by Gold Fields on an Esaase development milestone but, in any event, no later than the 31st of December 2019.

We reported adjusted EBITDA of $13.3 million and ended the quarter with approximately $14.3 million in cash at corporate level.

I'd now like to go to Slide 4 to discuss the mining performance.

For Q3, the Asanko Gold Mine sourced all from Nkran, Nkran Extension, Akwasiso and Dynamite Hill pits and mined 1.7 million tonnes of ore at an average grade of 1.4 grams a tonne, with a strip ratio of 5.3:1.

At our main pit, Nkran, mining operations were back at steady-state levels of ore production for the full quarter following the completion of the Cut 2 pushback on the eastern side back in June, 1 month ahead of schedule.

The photo on the top right-hand side of the slide shows how much progress we have made since our last update. And you can see we now have the entire bottom of the pit open up to access to ore domain.

Mining operations at Nkran mined 1.1 million tonnes of ore at an average grade of 1.5 grams per tonne and a strip ratio of 5.2 for the quarter.

The increase in ore tonnes and decrease in strip ratio is due to the completion of the Eastern portion of Cut 2 and higher ore yield out of the pit this quarter. We have started the western portion of Cut 2, and as you can see from the picture on the right-hand side, this is progressing according to plan, and we expect it to be substantially complete by mid-2019.

At our satellite deposits, 218,000 tonnes of ore at an average grade of 1.7 grams per tonne was mined at Dynamite Hill and 402,000 tonnes of ore at a grade of 1.1 grams a tonne at Akwasiso, broadly in line with last quarter.

Mining costs remained in line with the previous quarter and averaged $3.63 per tonne despite the impact of a new 5% nonrefundable levy introduced by the Ghanaian government with respect to VAT-able goods and inflationary pressure on fuel and supply costs. This was due to a reduction in drill and blast costs as a larger portion of total tonnes mined in Q3 comprised oxide material, while load and haul costs were lower due to shorter average haul distances now that the eastern portion of the Cut 2 is complete.

Moving on to Slide 5, processing performance.

The processing plant delivered another strong quarter, milling 1.3 million tonnes at 1.6 grams a tonne, which equates to a year-to-date annualized performance of 5.2 million tonnes per annum, well in excess of the recently upgraded 5 million tonne per annum designed.

This quarter, the gold feed grades were higher than average grade -- mined grade due to the differential stockpiling and feed arrangement process that the mine deploys in line with the mine's ongoing Life of Mine planning.

Metallurgical recovery continued to exceed design levels at 94% despite the elevated milling rates for the quarter as a result of higher-than-designed gravity recovery performance.

This performance highlights the capability of the recovery circuit to run at higher throughput levels whilst still maintaining recovery performance. Importantly, though, these elevated milling rates have been achieved without access to the originally designed feed-to-oxide ore blend ratio of 9,000 tonnes per day of fresh ore and 6,000 tonnes per day of much softer oxide ores. This is the result of a number of innovative technologies that we -- have been installed on the mine over the past year, including the installation of MillSlicer technology, fragmentation management and Bond Work Index mapping, along with modifications to the comminution circuit.

The commissioning of the secondary cone crusher alongside the mobile crushing capacity has assisted to reduce the size fraction of the fresh ore delivered to the SAG mill, which, in turn, supported the process facility achieving higher throughput rates.

Processing costs were higher this quarter at $11.26 per tonne milled due to a 4-day shutdown that was required to replace the ball mill gearbox. Unit costs were therefore impacted by lower throughput impacting our fixed-to-variable cost ratios and the cost to replace the gearbox.

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

Thank you Peter. Let's turn to the next slide.

Given the movement we've seen in this quarter with 1 month of consolidated operations and 2 months of equity accounting, I thought it would be useful to provide a snapshot of the JV's performance for the quarter on a 100% basis. As Peter mentioned at the start, the JV transaction closed at the end of July, and we started equity accounting for our interest in the Asanko Gold Mine at the beginning of August.

For the 3 months ended September 2018, the JV sold a record 65,267 ounces of gold, generating gold revenue of $78.2 million at an average realized price of $1,198 an ounce, which was $88 an ounce lower than Q2.

Total cash costs were higher this quarter due to the recognition of an adjustment to the carrying value of the JV stockpile inventory in order to reflect the net realizable value of lower-grade ore that was added during the period. In addition, mining costs were higher due to the 5% nonrefundable VAT levy that Peter mentioned earlier. Combined with a lower realized price, the higher cash costs compressed margins for the quarter.

Income from the mine operations was $570,000 for the quarter. The decrease compared to Q2 was due to margin compression on higher cash costs and lower realized revenue per ounce as well as higher depreciation drove the mining -- excuse me, driven by mining higher ore tonnes and a larger asset cost base due to the substantial completion of stripping related to Cut 2 and the associated commencement of depreciation. Importantly, though, all-in sustaining costs for the quarter were $971 per ounce, towards the low end of the H2 2018 cost guidance, generating a healthy all-in sustaining cost margin of $227 an ounce or $14.8 million in aggregate for the quarter.

The JV continued to demonstrate its strong operating cash flow performance and generated cash flows from operations of $21.2 million, up 15% from the previous quarter. Ignoring changes in working capital, operating cash flows of the JV amounted to $21.9 million.

At the end of the quarter, the JV held approximately $53.4 million in cash and immediately convertible working capital with no debt on the balance sheet following the close of the JV transaction and the concurrent settlements of the Red Kite debt facility.

Next slide, please, operator.

The mine's operating cash costs were $743 an ounce for Q3, an increase of approximately a $161 an ounce compared to Q2 due to a number of factors that came into play during the quarter. As Peter mentioned, with Nkran back at steady-state levels of ore production, the JV strip ratio improved by 49% from Q2 2018, which was the main factor in reducing all-in sustaining costs. This was partially offset by an adjustment to the carrying value of the mine stockpile inventory, which equated to $122 an ounce, in order to reflect the net realizable value of lower-grade stockpiled ore that was added during the quarter. Additionally, a lower-grade product was mined during the quarter, driving up the unit costs on a relative basis.

Effective the 1st of August, the Ghana Revenue Authority introduced a new, nonrefundable 5% levy on goods and services that attract VAT. While VAT is still applied at 17.5%, the refundable portion has reduced by 5% to 12.5%, which directly impacts production costs. The net effect of this added $22 per ounce to the cost base for the quarter. Going forward, we estimate that this VAT change could have an impact on all-in sustaining costs of approximately $20 to $35 per year. The mine all-in sustaining costs were $971 for the quarter, a decrease of 9% compared to Q2 and a 21% decrease compared to Q1, as predicted in our annual guidance.

This quarter saw a substantial reduction in deferred stripping costs compared to Q2 2018, which decreased to a $121 an ounce as a result of the Eastern portion of the Cut 2 pushback being completed. We expect deferred stripping costs to remain around these levels for the current quarter as well. The mine's all-in sustaining cost is currently forecasted to achieve H2 2018 and full year 2018 cost guidance.

Attributable all-in sustaining cost for Asanko corporate was $997 an ounce due to less attributable production applicable to Asanko following the completion of the JV transaction.

Moving on to Slide #8 and the JV income statement performance.

This table provides the summarized income statement for the JV on a 100% basis, including fair value adjustments made at the time of conclusion of the JV transaction.

The mine posted revenues of $78.4 million for the quarter, an increase compared to Q2 due to the increase in gold ounces sold despite a reduction in realized gold prices by $88 an ounce. The mine posted revenues -- excuse me, the total cost of sales increased this quarter due to higher depreciation driven by higher mining and processing volumes, the NRV adjustment to stockpiled inventory, the increase in sales volume compared to Q2 2018 as well as some inflationary pressures on the mine associated with fuel and supplies.

To elaborate further on the NRV adjustments, the Asanko Gold Mine recognized a $14.1 million adjustment to the carrying value of its stockpiled inventory in order to reflect its net realizable value, $7.9 million of which was recorded as production costs and $6.2 million as depreciation expense.

The Asanko Gold Mine continuously assesses the valuations of its stockpiled inventory against most recent assessments of realized value less cost to sell. This assessment is done using the appropriate operational and cost information together with estimations on future gold prices over the next 6 months or so.

Despite the NRV adjustments and higher depreciation, income from the mine was $570,000.

Exploration expenses were incurred predominantly on licensing and permitting of mineral tenements as well as costs relating to properties without defined mineral reserves.

G&A expenses for the JV were $2 million for the quarter, inclusive of the JV management fee charged by Asanko corporate for August and September.

The loss from operations for the quarter was $2.2 million.

The fair value adjustment at the JV level associated with the JV transaction was a $126.7 million. This loss was allocated to the JV's mineral property, plant and equipments.

After finance expenses and deferred income tax expenses, the mine posted a loss of a $128.8 million. However, on an adjusted basis, the mine posted a loss marginally above $2 million for the quarter.

Let us now turn to Slide 9 and the JV cash flow performance for Asanko.

The operation continued to generate operating cash flows, although they were lower than Q2. Operating cash flow before working capital changes was $21.9 million. Net cash after working capital changes, primarily driven by increases in inventory, was higher this quarter compared to Q2 at $21.2 million. A total of $14.4 million was allocated to various capital projects during the quarter. This included $10.7 million on deferred stripping, $1.4 million on the Esaase preproduction program in preparation for mining operations next year, $1 million on metallurgical and volumetric upgrades, just under $1 million on miscellaneous property, plant and equipments and $400,000 accelerated spend on the lift of a raise at the tailings storage facility as a result of the most outstanding performance this year.

Net cash provided by financing activities was $5 million associated with the close of the JV transaction and the repatriation of funds into the JV, which were historically switched to the Asanko corporate level. The JV's cash balance at the end of the quarter was $30.4 million.

That concludes the JV financials. Let us now review the consolidated results for Asanko at the corporate level on the next slide, Slide #10.

As discussed earlier, we started equity accounting our interest in the Asanko Gold Mine JV from the 1st of August 2018. As a result, the company income statement reflects a hybrid of 1 month consolidated results of the Asanko Gold Mine and 2 months of equity accounted results of the mine. Going forward from Q4, this will normalize with the company early-reporting the equity pickup on the face of the income statement and no longer reporting the revenues and costs of the JV consolidated on a line-by-line basis.

Having already discussed the results of the JV for the full quarter, I won't go into the detail of the proportional results included in the company income statements. However, I would like to spend a little time on the share of net earnings related to the JV.

The $256,000 in Q3 relates to the company's 45% economic interest in the Asanko Gold Mine for August and September 2018. In future periods, you will not see revenue or cost of sales on the company's income statements but will rather see the company's share, currently 45%, of the net earnings or losses related to the JV.

During the quarter, the company recognized $2.7 million in finance income associated with the company's interest in the redeemable preference shares of the JV. The $2.4 million was recognized as a fair value adjustment, while $0.3 million was recognized as a accretion income.

Adjusted net loss attributable to common shareholders was $1.6 million or $0.01 per share for the quarter. The adjustment to arrive at adjusted net loss for the quarter relates to a $1.3 million reduction in the previously recognized loss associated with the JV transaction.

As I have mentioned, the company's all-in sustaining costs, including the corporate G&A expenses net of the management fees recovered from the JV, were $997 an ounce, resulting in an attributable all-in sustaining cost margin of $201 an ounce in spite of the weak gold price environment.

A new non-GAAP measure has been formulated with the completion of the JV transaction as a measure to provide an analog to the company's proportionate interest in the cash flow from operations of the JV, combined with the company's earned operating cash flow results. While the measure is intended to include an estimate of the company's share of the Asanko Gold Mine's operating cash flows before working capital changes, these mines are not within the company's exclusive control, and the disposition of cash from the JV is governed by the joint venture agreement.

That being said, the company reported adjusted earnings before interest, tax, depreciation and amortization of $13.3 million for the quarter, a decrease compared to Q2 2018 due to the higher cash costs, lower realized sales price and attributable accounting of the JV result. This was partly offset by the positive impact of higher gold sales volumes.

We finished the quarter with a closing cash balance of $14.3 million, which is more than sufficient to cover our corporate annual G&A costs, which are approximately $4 million to $5 million a year, net of the pretax JV management fee of $6 million.

In addition, we'll also receive the second tranche of $20 million in cash related to the JV transaction at some point next year but by no later than 31 December 2019.

In closing, I would like to talk through the changes in the balance sheet this quarter.

As I mentioned in the Q2 conference call, with the close of the JV transaction considered to be highly probable at the end of Q2, the Ghanaian assets and associated liabilities were classified as held-for-sale and an associated onetime noncash post-tax cash -- post-tax loss of a $144.6 million was recognized. With the close of the JV transaction in Q3, the Ghanaian assets and associated liabilities were deconsolidated on the 1st of August 2018 and the loss trued-up to a $143.3 million. Concurrently, the company recognized its initial interest in the JV at fair value amounting to $295.4 million, comprising redeemable preference shares in the JV amounting to a $148.9 million measured at fair value, redeemable preference shares in the JV amounting to $19.2 million and measured at amortized cost, as well as an ordinary share interest in the JV amounting to a $197.3 million. Going forward, the company's interest in the preference shares of the JV will be remeasured and movements recorded in accordance with the respective financial instrument classifications, while the equity interest in the JV will be adjusted for the company's share of the net earnings or losses of the JV.

Before I hand back to Peter, I would like to point out the additional disclosures we have introduced this quarter to provide a see-through to the equity accounted Asanko Gold Mine. These are located in Note 20 of the financial statements as well as Part 5 of the management discussion and analysis.

That concludes the financial review for the quarter, and I'll now hand back to Peter.

Thanks, Fausto. Now I'd now like to turn to our near-term growth opportunity, the Esaase deposit on Slide 11.

The preproduction program at Esaase is well under way and progressing according to schedule. We are planning an initial operation that will mine the oxides and then truck the ore to the central processing facility, whilst the JV partners decide on the longer-term ore transportation solution, which is expected during the first half of next year.

As I mentioned during our last results conference call, we have completed the extensive core re-logging exercise and infill drilling. All the new data is now being incorporated to refine the mineral resource estimate for Esaase.

As you can see from the photos, site establishment has commenced, local contractors have been mobilized to do bush clearing and we have commenced our grade control drilling program in preparation for mining. Tenders for the mining contractor have been issued, and we expect to award the contracts during the current quarter.

Construction of the haul road that will link the Esaase to the existing haul road is well advanced and on track for completion during Q4.

During this quarter, we will mine a large bulk sample of around 50,000 tonnes to confirm the previous co-leaching test work results that we did previously. This will feed into the updated metallurgical design parameters for the Esaase pit design and performance expectations, along with other technical aspects such as geotechnical and hydrological information.

All this work will support an investment decision by the JV management committee during Q4 to approve an initial oxide mining and trucking operation. If the decision is positive, we will commence mining in Q1 2019.

We continue to work with our JV partner on the longer-term development options for Esaase and expect to provide an update to the market during the first half of 2019. This will include an updated mineral resource estimate based on the re-logging, infill and grade control drilling that we're doing as well as ore transportation solution and Life of Mine plan.

Turning to Slide 12, outlook.

As we enter the final quarter for the year, I am pleased that the mine's performance is tracking the high end of 2018 production guidance with year-to-date production of a 163,329 ounces and the lower end of 2018 cost guidance with a year-to-date AISC of $1,072 per ounce versus our forecast of $1,050 to $1,150 an ounce.

That, ladies and gentlemen, concludes today's call. Thank you all for listening. Operator, we will now take questions.

(Operator Instructions) We have no phone questions at this time, sir.

Thank you.

So thank you. We can now conclude the conference call.

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