Galiano Gold Inc (GAU) 2018 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Asanko Gold Q4 and Full Year 2018 Operating and Financial Results Conference Call and Webcast, which is being recorded. A copy of today's news release, presentation, the management discussion and analysis and financial statements are available on the company's website at asanko.com.

I would now hand over the meeting to Peter Breese, President and CEO of Asanko. Please go ahead.

Thanks very much. If we could move to Slide 2, please, cautionary language. Thank you, and good morning, ladies and gentlemen. Joining me on the call today is our CFO, Fausto Di Trapani; and Rob Slater, Executive Vice President, 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.

If we could move to Slide 3, please. Q4 and financial year 2018 highlights. Operationally, the Asanko Gold Mine had a very good year with consistent delivery quarter-on-quarter against the plan to achieve record annual production. In 2018, the mine exceeded the top end of production guidance, producing 223,152 ounces of gold at an AISC of $1,072 per ounce, which is at the lower end of guidance.

These exceptional production results also resulted in record revenues for the year of USD 283.9 million from gold sales of 227,772 ounces at an average realized price of $1,247 per ounce. This record performance also enabled the mine to deliver good operational cash flow after working capital of $72.5 million for the year. This is particularly pleasing results and allows the mine to focus on investing in its future as we continued with the substantial pushback of Nkran pit and commenced the initial development of our large greenfields deposit, Esaase.

Looking at Q4 specifically, the mine produced 59,823 ounces of gold at an AISC of $1,072 an ounce. Gold sales were 61,821 ounces, generating $74.2 million in revenue at an average realized gold price of $1,215 per ounce. Cash flow from operations for the quarter amounted to $12.9 million.

This quarter, the joint venture posted a net loss after tax of $3.1 million for Q4, which Fausto will explain in detail shortly. And the JV ended the year with $21.6 million in cash on hand and $4.3 million in receivables from gold sales. The JV is debt-free.

Turning to Asanko Corporate. We reported a net loss attributable to common shareholders of $0.9 million in Q4 2018. However, adjusted EBITDA was $6.1 million, and we ended the quarter with approximately $10.4 million in cash.

I'd now like to turn to Slide 4 to discuss the mine's operational performance. Q4 operational performance. Starting with our #1 priority, safety, I'm pleased to report that the mine has achieved its seventh consecutive quarter without a lost time injury and over 10 million man hours worked, maintaining our world-class, industry-leading safety record. This is a fantastic achievement, and I commend all our employees and contractors for their diligence in ensuring every task is done safely.

During the quarter, the mine sourced ore from Nkran, Nkran Extension, Akwasiso, Dynamite Hill and the Esaase bulk sample, with 1.4 million tonnes of ore mined at an average grade of 1.5 grams a tonne and a strip ratio of 6.1:1. Mining operations at Nkran continued to focus on the western portion of the Cut 2, and we are on track to complete this exercise during 2019. At Dynamite Hill, we mined 200,000 tonnes of ore at an average grade of 1.5 grams a tonne, and at Akwasiso, we mined 89,000 tonnes of ore at a grade of 1.2 grams a tonne.

Mining unit costs increased to $4.13 per tonne from the previous quarter. This was mainly due to the lower volumes of material mined during the quarter. In addition, mining costs were higher due to increased accruals for production bonuses for the year, the rate changes from local mining contractors, and this was also the first full quarter that the 5% nonrefundable levy of VATable goods and services was in place. These factors were partly offset by lower ore and -- load and haul costs compared to Q3.

The processing plant delivered yet another strong quarter, mining 1.2 million tonnes at 1.6 grams a tonne feed grade. The feed grade was in line with the previous quarter, Q3 2018, whilst gold recovery increased 1% quarter-on-quarter to 95%. This is particularly encouraging as it was the first quarter that we fed the Esaase oxide through the load, and they obviously contributed to the improved gold recovery performance. So far, the Esaase oxides are behaving (inaudible) circuit, with gravity recovery maintaining very high levels of circa 50% and reagent additions having (inaudible) those anticipated from the laboratory leach results.

Processing costs were higher this quarter at $12.39 per tonne milled, and this was mainly a function of the lower throughputs, increased accruals for production bonuses as well as the impact of the recent VAT changes. In addition, we also took advantage of the slowdown during the festive season to bring forward a more [reliant] and planned maintenance shut that was originally scheduled for January 2019, which also contributed to the higher costs during the quarter. These factors were partly offset by lower consumption of grinding media and consumables relative to previous quarters.

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 financials.

Thank you, Peter. Let's turn to the next slide, please. Looking at the quarter. Our cost performance, operating cash costs increased compared to Q3 mainly due to the following factors. The biggest factor was the lower sales volumes, which had the impact of increasing fixed production costs on a per ounce basis. This quarter was also the first full quarter under the new Ghana VAT regime with a 5% nonrefundable levy on goods and services, which was introduced in August 2018. The VAT levy added approximately $26 per ounce to the cost base.

In addition, we recognized increased accruals for production bonuses. There were higher rates charged by certain local mining contractors. And as Peter just mentioned, we brought forward some maintenance which was originally planned for January 2019. These factors were partly offset by lower load and haul costs on the mining side, while the plant also had reduced consumption of grinding media and consumables.

Even though an adjustment was recognized to the carrying value of the Asanko Gold Mine stockpile inventory during the quarter in order to reflect the net realizable value of lower-grade ore, this adjustment was lower than in Q3 due to the improvements in the gold price outlook at the end of Q4. In Q4, the inventory adjustment increased cash costs by $106 per ounce versus Q3, which was $122 per ounce.

Turning to all-in sustaining costs. The 10% increase to $1,072 per ounce compared to the previous quarter was primarily attributable to the higher total cash costs per ounce. G&A expenses increased $11 an ounce, again, as a result of the recognition of Q4 production bonuses for the entire year. Sustaining capital increased by $14 per ounce relative to the last quarter as a result of the acceleration of the tailings dam lift, which was driven predominantly by the higher mill throughput.

Moving on to Slide 6 and the JV income statement performance. For the full year 2018, the Asanko Gold Mine generated revenues of $283.9 million from gold sales of 227,772 ounces. The increase in revenues year-on-year was a function of higher sales volumes and marginally higher average realized gold prices. There was a fair value adjustment of $126.9 million associated with the Gold Fields JV transaction. Finance expenses decreased significantly compared to 2017 following the repayment of the debt facility with Red Kite in July 2018.

Turning to Q4. The Asanko Gold Mine sold 61,821 ounces of gold at an average realized price of $1,215 per ounce with total revenue of $74.2 million. This included $0.2 million of byproduct revenue, and the stated net of $1.1 million of gold sales related to preproduction activities at Esaase that were capitalized to mineral properties, plant and equipment.

Total cost of sales decreased for the quarter due to lower sales volumes and lower depreciation, driven by fewer ore tonnes mined, offset partially by the higher cash costs. The loss from mining operation is primarily attributable to the $9.3 million adjustments to the net realizable value of the lower-grade stockpile inventory, of which $6.5 million was recognized in production costs and $2.7 million in depreciation. Also contributing to the net loss was higher mining and overhead costs associated with the achievement of production and performance targets.

With regards to the stockpile inventory, the Asanko Gold Mine continually assesses the valuation of its stockpiled inventory against most recent assessments of realizable value less cost to complete and sell. This assessment is done using the appropriate operational and cost information together with information on future gold prices over the next 6 months or so.

Depreciation and depletion expenses for Q4 amounted to $20.8 million, including $8.6 million of depletion associated with previously capitalized deferred stripping costs as a result of 1.4 million tonnes of ore being mined during the quarter. As mentioned before, it also includes $2.7 million associated with adjustments to the low-grade stockpile inventory.

G&A expenses for the JV were $2.5 million for the quarter and impacted by the recognition of year-end production bonuses. The Asanko Gold Mine's net loss after tax for the quarter amounted to $3.1 million. The results of the JV for Q4 include the $1.5 million service fee that is charged by Asanko in accordance with the terms of the JV transaction.

Let's now turn to Slide 8 and the JV cash flow performance. Cash generated from operating activities after working capital changes for the year amounted to $72.5 million. During the quarter under review, the mine generated operating cash flow before working capital changes of $17.8 million and $12.9 million after working capital changes. Cash outflows of $4.1 million from noncash working capital were primarily the result of an $8.8 million increase in receivables, including the VAT receivable, and $5.8 million increase in inventory. These factors were partially offset by a $9.3 million increase in accounts payable and accruals and $0.4 million decrease in pretax expenditures.

The JV continued to invest cash flows generated from operations. In Q4, $10.3 million were spent on deferred stripping, primarily on the western portion of Nkran Cut 2 pushback, and $9.9 million were spent on the initial development of Esaase. For the year ended December 2018, $57 million were spent on the Nkran Cut 2 pushback, $9.4 million on the volumetric upgrades to the process plant as part of the successful P5M upgrade plant, mill motor upgrades as well as the installation and commissioning of a secondary crushing circuit. In addition, we spent $13.8 million on the Esaase predevelopments activities. The JV's cash balance at the end of the quarter was $21.6 million. Additionally, the JV held $4.3 million in gold sales receivables.

That concludes the review of the JV profit and loss and cash flow performance. Let's now review the consolidated results for Asanko at the corporate level on the next Page, Slide #10 -- excuse me, Slide #8. We started equity accounting our interest in the Asanko Gold Mine JV from August 1, 2018. And as a consequence, Q4 was the first full quarter that we equity accounted the results of the JV. Having already discussed the results of the JV for the full quarter, I will not go into the detail of the proportional results included in the company's income statement.

The company reported adjusted earnings before interest, tax, depreciation and amortization of $6.1 million for the quarter, a decrease compared to Q3 due to the lower JV contribution and lower than Q4 2017, when the company was still consolidating the results of the Asanko Gold Mine at 100%. Management believes that adjusted earnings before interest, tax, depreciation and amortization provides an analog to the company's proportionate interest in the cash flow from operations of the JV, combined with the company's own operating cash flow results. While the measures intended to include an estimate of the company's share of the Asanko Gold Mine's operating cash flows before working capital changes, these funds are not within the company's exclusive control as the disposition of cash from the JV is governed by the joint venture agreement.

During the quarter, the company recognized $2.4 million in finance income associated with the company's interest in the redeemable preferred shares of the joint venture. G&A for the quarter was slightly higher than Q3 due to additional technical hires to support the management of the joint venture.

Net loss attributable to common shareholders was $0.9 million or $0.00 per share for the quarter. We finished the quarter with a closing cash balance of $10.4 million, which is more than sufficient to cover our corporate annual G&A costs of approximately $6 million to $7 million, net of the post-tax JV management fee of $4.5 million. In addition, we'll also receive the second tranche from Gold Fields of $20 million in cash related to the JV transaction by no later than the end of December 2019.

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

Thanks, Fausto. I would now like to turn to Slide 9 and give you an update on our near-term growth opportunity at the Esaase deposit. The large-scale Esaase deposit, which is, by far, the largest known deposit we have within our tenement, provides an exciting near-term organic growth opportunity for the business. As I've mentioned earlier, we commenced the initial development of Esaase by successfully completing the installation of an infrastructure construction of a new haul work and the bulk sampling exercise in Q4 of 2018. The bulk sampling program went well, and the material has successfully been processed through the mill and reported excellent results. As a result of the successful completion of the bulk sample, the mine commenced trial mining operations in January 2019 as planned.

Mining operations were focused on mining the surface oxides of the deposit and are currently restricted to day shift only with minimal blasting. Mining rates are expected at around 350,000 to 400,000 tonnes a month, and the material is being trucked to the processing facility via the newly commissioned haulers. As I said earlier, we are very encouraged by the results from the bulk sample and the trial mining so far, with the oxides performing well in the mill. Throughput is exceeding expectations, and gold recovery is in line with current levels experienced from other feed sources. This year, we expect to spend approximately $16 million in additional capital on the development of Esaase. This includes the commencement of the village relocation, which we'll start this year, as well as the installation of 2 water treatment plants infrastructure.

With regard to the long-term plan for Esaase, we are busy working with our JV partner to finalize an updated mineral resource estimate, taking into account the core re-logging and infill drilling campaign that we completed last year. In addition, we are updating the capital and operating cost estimate for input into the updated life-of-mine plan, which will be the cornerstone to the long-term ore transportation decision that we expect to present to the JV participants in Q2 of this year.

Turning to Slide 10, exploration strategy. I'm pleased to announce that we have started our exploration program this year and earmarked a budget of $8 million for 2019. Working with our JV partner, who are extremely experienced in this area, we have put together a detailed two-pronged exploration strategy to maximize the potential we have on this highly prospective land package.

Phase 1 is to look for near-mine oxide targets that are within 5 kilometers of the road and plant infrastructure to maintain oxide mill feed optionality. We have identified 9 targets that we'd like to test, 6 of which are priority 1 targets.

Phase 2 is the longer-term search for new life-of-mine replacement deposits, which are located between 10 and 20 kilometers from the process facility, with a view to increasing our mineral reserve inventory over the next 5 years. The JV partners have analyzed all the historical exploration data, including the completed helicopter-borne VTEM survey of all of our tenements. We have identified the South Camp, which includes the Tontokrom-Miradani-Fromenda mineralized trend as the most prospective Phase 2 target. It's an area that has returned excellent historical drilling results, as you can see from the table on the bottom-left side of the slide, and more recently, artisanal mining activities, which is always an excellent indicator. We've recently commenced drilling at underground, and as of yesterday, in fact, we have competed with first 2 holes, and we will inform the market as the results come through.

Moving to Slide 11, outlook. Looking to the year ahead, we are providing the following guidance for 2019. The Asanko Gold Mine is targeting 225,000 to 245,000 ounces of gold production at an AISC of $1,040 to $1,060 per ounce, which includes $60 an ounce of additional costs that were not incurred during the entire year of 2018. These are $35 an ounce for the recently introduced Esaase trucking operation and $25 an ounce to account for the recent impact of the 5% nonrefundable levy on goods and services that attract VAT in Ghana, which was introduced in August of 2018.

AISC in 2019 is expected to remain at similar level to those obtained in 2018 due to the continued investment into the large western pushback at the Nkran pit, which will result in the strip ratio and mining costs remaining elevated during 2019. The investment in the Nkran strip will be completed in 2019, at which time the strip level at Nkran will normalize and ore production levels from the shallow Esaase oxide will be ramping up, both of which will have a material positive impact on unit costs into the future.

In addition, we are working on a cost optimization exercise, which is expected to result in further cost reductions as we recognize that the mine's costs are higher than we would like. We have completed a full cost benchmarking exercise that has identified that mining costs are high due to the complexity of mining multiple pits using various contractors, thus amplifying overhead and infrastructure requirements. We are addressing the mining costs and expect to drive contractor costs down and efficiencies up during the year, which will benefit the cost profile in future years to come.

Total capital expenditure for 2019 is forecast to be $25 million. Sustaining CapEx is estimated at $9 million and includes a tailings dam lift, which, as Fausto said, is being brought forward due to the higher milling rates. Development capital is $16 million, most of which is allocated for the development of Esaase, as I've already mentioned. As I mentioned on the previous slide, we also plan to spend $8 million on exploration this year.

Turning to Asanko Gold Inc. We expect our corporate costs in 2019 to be $60 per attributable ounce over and above the AGM AISC.

So in conclusion, ladies and gentlemen, our key focus areas for 2019 are operational efficiencies. We plan to deliver to the plan and so we bring mining costs down. Organic near-term growth; aggressively progress Esaase to a development decision by the JV partner and future growth; prioritize our exploration activities to focus on South Camp, which the JV partners believe offers the most potential for a new discovery.

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

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

A couple of questions on the guidance for '19. Does that production number include Esaase?

None of the production numbers does include Esaase. The first -- the production that we generated from the bulk sample was not included, but that production includes Esaase for this year. Yes, that's correct.

And how much of it is coming from Esaase?

It's 125,000 to 150,000 tonnes per month is the feed rates from Esaase, Nana.

Okay. And the grades are coming in circa 1.4 grams? That's the expectation?

Yes. We are feeding at around 1.4 grams a tonne. That's correct. So we're mining at a lower cut of 0.5. We do differential stockpiling. 0.5 to 1 gram a tonne is -- sits on the stockpile at Esaase. Cut 1 gram a tonne is being trucked to the mill. That's how it works.

Great. And on the strip and pushback profiles in 2019, is it fair that's still in trend to be done? So what level should we be anticipating? What strip ratio should we be modeling going forward?

The plant strip ratio for Nkran for 2019, I think, remains between 7 and 8, depending which time of the year it is. And it does reduce as the year goes on.

Great. And would they be picking up from any of the other existing pits, like Dynamite Hill or Akwasiso? Or that's going to be about the same level that we saw in '18?

Yes, so Dynamite Hill will finish around about July, August of this year, and Dynamite Hill will be complete. And so the main ore supply is really Nkran and Esaase after Dynamite Hill.

Great. And moving on to exploration. I know you've reported $8 million for the year. What sort of (inaudible) cadence we'll be expecting? And how soon should we be expecting this (inaudible)? And how many (inaudible)...

Yes. So money is being released in phases, and it's all around cash flow management, to be honest with you. And our cash balance is okay right now, but because of this investment in (inaudible) at Esaase, our cash balance has certainly gone low towards midyear and then picked up dramatically from the end of Q3 upward. So in the first half of the year, we've only got one drill rig drilling there at Tontokrom right now. And we don't expect to spend much more than about $800,000 on this campaign. How we do it is we plan the campaign. We drill the holes. And I think in this first phase, there's 17 holes that we're going to be drilling. We evaluate the information, and then we retarget the next phase of holes. So there's always -- we have what we call short interval controls in place. We don't just authorize it just to authorize it. So it's about $800,000 first phase, 17 holes. We'll drill those. We'll analyze the information and then go allocate the next phase of money. So we don't expect to spend any more than that for the next quarter.

Great. So it's fair to say we might get some new load from exploration at the tail end of Q1 or at Q2 sort of time range?

I would say that is about right, yes. We started the drilling about a week ago in (inaudible). And as of yesterday, we were finishing our second hole. So I mean, this is right at the beginning of the program.

(Operator Instructions) And we are showing no further questions at this time on the audio line. Gentlemen, I'll turn the call back over to you for closing remarks.

Thank you very much, ladies and gentlemen, for listening to our call, and we wish you luck and good health. Bye-bye. Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you kindly for your participation and ask that you kindly disconnect your lines. Have a good day, everyone.