Osisko Development Corp (ODV) 2021 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Osisko Development Q4 and Year 2021 Results Conference Call. (Operator Instructions) Please note that this call is being recorded today, February 25, 2022, at 9:00 a.m. Eastern Time. Today on the call, we have Mr. Sean Roosen, Chair of the Board of Directors and Chief Executive Officer; Mr. Alex Dann, Chief Financial Officer and Vice President, Finance; Mr. Chris Lodder, President; Mr. Luc Lessard, Chief Operating Officer. I would now like to turn the meeting over to your host for today's call, Mr. Sean Roosen. (foreign language)

(foreign language) Welcome to the fourth quarter results call for Osisko Development Corporation, everybody, and thank you for taking your time out today during a busy session. We'll be looking at the fourth quarter results for the Osisko Development Corporation and some of the things that are going on, on the balance sheet. But first, I wanted to take a chance to discuss the results for 2021 from a catalyst standpoint. And we'll get into it after I read the forward-looking statements.

I'd like to remind participants all amounts discussed on this call being denominated in Canadian dollars. Please also note that statements made during this call will include forward-looking information and future-oriented financial information regarding ODEV, its business and disclosure and regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectations of future growth, results of operations, business performance and business prospects and opportunities.

Such statements are made as of the date hereof, and the company assumes no obligation to update or revise them to reflect events, disclosures or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties and are no guarantees to future performance or results as a number of these risks and uncertainties could cause results to differ materially from those results that are discussed today.

Given the risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the risk factors, forward-looking information the future-oriented financial information sections of our public filings, including, without limitation, our recent 2021 annual financial statements, MD&A and earnings of the press release -- and earnings press release for additional information, which was filed on SEDAR.

Yesterday, we released our 2021 annual and fourth quarter results. Before we get into the financial results, I do want to take a chance to give you an update on the shareholders' company and a quick overview on the acquisition of the Trixie project in Utah. Trixie mine project in Utah, the Tintic property is about 14,000-plus acres and it consists of 23 previous producers. What's most exciting was a new high-grade discovery that happened in 2020 developed by the operators of the project. This is a new type of mineralization that hasn't been seen. This project has been in production for over 100 years, most recently by Kennecott. And this new mineralization has been ultra-high grade and led to Trixie mine being the highest in the production line last year at 59 grams a tonne at grade mine, though albeit very small scale. We consider this to be a significant opportunity for the ODV, ODEV shareholders as we get further into it.

In terms of our growth plans on that project, we'll come back to you after the deal closing and give you further update and insight on that project as it evolves. In terms of our growth plans, we continue to add ounces along the 43-101 compliant resource development update and drilling campaign is ongoing at the Cariboo Gold Project as well as what we're doing in Mexico. The assets that we have on the go right now are all evolving through the development curve and into the production side. Going through construction here in the next 24 to 36 months for the most part.

Projects -- the Cariboo project in particular. Permitting is underway for 4,750-tonne per day operation. That permitting cycle is in good shape, and we expect [to see] acceptability in the second half of 2022 with a feasibility study in the first half of 2022 this year or so by June. And that project has also experienced a significant amount of drilling last year with 158,000 meters drilling completed in 2022 to infill and set the table for the Phase 1 mine plan of that project, which we expect to announce with the feasibility study as well.

Currently, production is ongoing at the BL2 project, which is part of the Cariboo but larger project, we expect to see north of 20,000 ounces plus we're operating the QR mill and obviously, 2020 and '21 were challenging years due to the COVID impact on operations there. So we're happy to see and thank the team for all the hard work to get us to where we are and pouring gold there, a significant weight here as we speak today.

The San Antonio heap leach project in Mexico. There's 1 million tonne stockpile that we're currently putting on the leach pad. We're hoping up that rate of load onto the pad to between 4,000 and 6,000 tonnes by the end of this quarter. And we should see first gold process here in Q1, early Q2 next quarter on that project as we process that stockpile, set the stage for the larger project. We believe that we'll be -- we should receive a permit for that sometime in the second half of the year, and we'll decide that how we want to scale that project as we're looking at some leach kinetics coming in now.

Suffice it to say the drill results that we put out on San Antonio have met our expectations and then some as of recent, and we continue to see good growth on that asset as we go on with it. So quite an exciting year, and I would say that in the gold business, high-grade assets and shallow and good jurisdictions are like waterfront on the Riviera and the addition of Tintic gives us the -- development shareholders a waterfront a lot of high grade with a large project at Cariboo in the background and a low-cost CapEx project in Mexico. I think we have a very good mix of assets in the company for future growth and then we set the stage to be a mid-tier producer. As we said that we would within the 5-year window that we had allotted as we came out with this company in 2021.

I will now pass the mic over to Alex Dann, our CFO, to give you an overview of 2021 Q4 financials. Alex, over to you.

Thank you, Sean, and bonjour. Good morning, everyone. Gross revenue was approximately $3 million for the fourth quarter from the sale of 1,236 ounces of gold at an average realized gold price of USD 1,766 per ounce. For the 12 months ending December 31, the company sold 3,175 ounces, generating $7.7 million of revenues and realizing a USD 1,802 per ounce gold price. In the fourth quarter, the company incurred a net loss of approximately $56.4 million or $0.42 per share.

The main driver for the loss is the recording of noncash impairments totaling $47.8 million, which is comprised of 2 amounts: an amount of $42 million related to the exploration and evaluation assets, held in Northern Quebec and the South of Mexico. With the company's resources focused on its current active projects and the addition of the Tintic project in the company's portfolio, management being prudent to impair these properties. The second noncash amount of $5.8 million is related to the reevaluation of the stockpile at Sapuchi, due to an increase in the estimated processing costs.

For 2021, the company incurred a net loss of approximately $133.3 million or $1.01 per share. The loss for the year is mainly due to the noncash impairments of assets recorded in Q4 and prior quarters, totaling approximately $122 million. G&A for the quarter was in line with the previous quarter. General and administrative expenses for the full 2021 year totaled $21.7 million and the increase compared to last year is due to the ramp-up of activities and workforce at all the projects and the head office.

Other income net of other expenses in the fourth quarter was a gain of $3.8 million compared to $3.5 million in the same quarter last year. For 2021, a recorded gain of $13.5 million compared to $9.8 million in the prior year. The increase in income is mainly due to the recognition of a premium on the flow-through and charity flow-through share issuances that were completed in the first quarter of 2021.

Our cash and cash equivalents balance at the end of the year was approximately $33.4 million. The main drivers affecting cash in the quarter were as follows: cash flows used in operating activities for the full year was approximately $41.4 million compared to $6 million in the prior year. The increase is due to the ramp-up of the G&A to meet operational requirements and also a negative change in the noncash working capital.

Cash flows used in the investing activities totaled approximately $157 million for the year compared to $62 million in the prior year. The increase is mostly reflected in the ramp-up of the mining interest and property plant and equipment at the Cariboo Gold Project, Bonanza Ledge II and San Antonio projects offset by the proceeds from the disposal of certain investments.

And finally, cash flows provided by financing activities for the full year were approximately $34.7 million, which was due to the flow-through financing, was completed in March of '21, that generated $33.6 million of gross proceeds.

I will now turn the call back to Sean for closing remarks.

Thank you very much, Alex. Obviously, what's going on in terms of the evolution of the company when we had transitioned this company from [ORs] balance sheet to ODV, we have taken some of these exploration projects with us with short the pending development of the company and the listing on the NOIC. We wanted to make sure that all issues regarding the balance sheet were dealt with in this quarter. So we've looked at the ability to do that. And we've also initiated 2 financings, nonbrokered, for $110 million and $90 million bought deal that was scheduled to close [tribute] proceeds of $230 million plus the existing cash balance and equity book in the company, setting available liquidity somewhere north of $300 million as we close those financings.

Our current workforce is sitting at around 500 people, including contractors as we push these projects along the way. And as everybody knows in this sector, the COVID-19 and supply chain impact have to be dealt with, and that's been part of our reality throughout 2020 and 2021, but we feel like we've turned the corner, taking advantage of those moments as best we can, and we're in line to have 3 fully permitted mines in production by the end of this year.

They'll be in small scale and then scaling up to larger production as these projects continue to take their natural evolutionary course, setting the table to be one of the more exciting assets in the gold space with a Canadian large-scale project at Cariboo, an evolving asset in Utah, which could be polymetallic. We talked about the high-grade gold deposit extracted from Snap Trixie. There's also a silver led zinc mine called Burgin there. And a significant exploration target on a copper porphyry that we believe is important as well on that property. So quite a bit to do this year and a very exciting times. And I think that we have a lot of catalysts for the ODEV shareholders this year.

Operator, I'll open up for questions now. Thanks, everybody, for listening, and we will be presenting at the BMO conference in Florida this week on Wednesday morning at 9:45. If not, if you happen to be here in Florida for the conference, we're also available to book. Just first let us know, we'll find the time slot. On that, operator, please we'll take our first question.

(Operator Instructions) And your first question comes from John Tumazos from John Tumazos Very Independent Research.

Could you just refresh us with the feasibility study and permitting schedule? When you think the first gold from the full Cariboo mine will be produced and what the annual production rate will be in the first several years?

Thank you, John. The Cariboo project is online for the acceptable -- EIA acceptability to be completed in the fourth quarter of this year. It was scheduled for third, but we're assuming that some COVID lag on the permitting. And the development will start in earnest near the end of the year or in early 2023 with the underground portal at Cariboo -- sorry, at Cow Mountain, and we'll be in construction throughout 2023 and 2024. All that assumes that project financing and the greenlighting and the permitting is in place for the early works.

So we will be looking to be a staggered production increase. We would increase -- we would start to feed the QR mill in the ores order at lower tonnages as we develop that mine where we'd be looking to by the end of 2024, be in and around that 20 -- that 2,750 tonnes a day development and the construction of the flotation concentrator at the well site would be complete by then on the current schedule.

So that would set the stage for production in the north of 180,000 ounces a year, and we would be targeting somewhere between 200,000 ounces and 250,000 ounces a year from where we sit today. However the feasibility study is not complete. So we will put that feasibility out here by the end of the second quarter.

I just want to make sure I'm understanding clearly, Sean. So I'm going to try to take baby steps. So there's going to be some noncommercial production possibly in '23 and '24 from development muck? [For granted], it's not indicative of the commercial mine.

That's correct. We will be drifting into the Cow Mountain and doing a bulk sample this year from the low heap side and that will set the stage for the first Cow Mountain style mineralization to be processed with the ores order. And then we would continue to try and develop that once we've got the EIA to continue to operate the QR mill that reduce tonnages while we get that larger concentrator up and running. So that will come out in the feasibility study, but we would hope that through the bulk sample and as that permitting goals that we can keep smaller-scale production a 1,000 to 2,000 tonnes a day ongoing while we complete the construction of the larger projects.

And then for 2025, should we be expecting 180,000 or 250,000? I wasn't sure what you said.

Well, the PEA study that [said] had us at 185,000 ounces a year coming out and then we haven't published a feasibility study yet. So we'll put that number out as I say here, but the public information that right now is that PEA study from 2020 -- 2019.

So there's a chance that the grade or the tons or the recovery could be better in the feas. than the PEA.

Yes. As the goal was to increase the tonnage and also to simplify the mining plan. And to bring our mining costs down by utilizing the ores order. So the optimization right now will be -- a lot of the information will be gathered this year from the bulk sample that got fully permitted in Q4 of last year. And we'll be able to give you better guidance on what kind of grade we're able to mine and what the optimum sweet point of what grade we mined versus what grade we treat with the ores order and what grade goes in the QR in the interim and then what grade we are producing from the [condo] and the flotation concentrator that will be built in 2023.

In terms of the Northern Quebec exploration properties written down, would these be things that dated from what Andrea was operating Virginia mines like Coulon and other things in Northern Quebec?

That's correct, John. We inherited those -- that investment during the acquisition of Virginia back in 2015, and they were passed through at Osisko royalties as part of the portfolio that we put into Osisko Development last year. As we haven't been active on those lands and on the Coulon project, we deemed it prudent to take the write-down right now as we're transitioning the company and setting the stage for an NYSE listing.

In terms of the Carrera District large lands, those have not been written down. Those are just waiting for a better time to evaluate portfolio, I guess?

Yes. We've looked at various joint ventures there. And as you know, that region is evolving with quite a bit of activity in that gold belt, we still believe that the Guerrero belt is probably the most significant gold belt that remains -- with the remaining upside within Mexico. So we're looking for the right partner on that asset, but we think that we have to bear down and focus on the assets in hand right now, and we'll try and find the right partner for that asset base.

The gold in the ground never goes anywhere, so you can be patient. In terms of the Tintic district, I might have recollections of different companies active in the neighborhood. Could you just repeat the name of the company you bought out?

It's Chief Consolidated Resources and Tintic, IG Tintic are the companies that are the current owners. That we're in final stages of acquisition with.

My recollection is that maybe 5 to 10 years ago, [Tom Pattons] company, (inaudible) was working in that district and had a JV with Freeport.

Yes. It's been a very active area, and it remains a very active area...

Are you [buying that] ground, too? Or was -- is that...

No. The acquisition the only acquisition that we're focused on right now is the Chief and Tintic, IG Tintic ground, which is about 14,200 acres plus the JV ground around it. But we are limited to that footprint at this point in time. We feel that that's more than adequate amount of opportunity for us at this time.

And you've identified both high-grade gold and porphyry copper targets, at least 2 different -- it's like your big game hunting for Tigers and Lions at the same time?

Yes. I think this has got -- we've got a carbonate replacement zone that's in the Burgin mine. Let's say previously this property was mostly known for silver led zinc production. And most recently, it was in production and shipping flux to the Kennecott smelter up at Bingham Canyon, which is only 40 miles north. And Chris is on the line, we were going to have a geological talk afterwards, John. But the age group and the mineralization at Tintic and this region is pretty much bang on with the same mineralization of Bingham Canyon, which is North America's premium copper porphyry system.

So we're quite excited by that, and we're doing a lot of science on the ground, and we'll be targeting that deeper porphyry system as we get further into the year, and Chris and the entire geological team, we're pretty excited to get the targeting completed and have a go at that. We also -- there's a PEA study from 2011 on the Burgin mine, which outlined about a $250 million NPV project in a PEA study there. So we'll be looking to update that on the silver led zinc side.

And then historically, the production in the [7585] zone was courts rich 7 to 10-gram gold deposits that were being shipped directly to the smelter for flux. So there are several targets there. And then the newest one and the one that I think has gun in and rightfully so a significant amount of excitement is this new style of mineralization that we've seen, with telluride gold system in it and that's behind the traditional zone and had never been mined historically. So that's the new discovery that starts everything in motion and the rest of it, we will continue to work on.

(Operator Instructions) And your next question comes from Phil Ker from PI Financial.

Congrats on all the recent success. Just a first question here on Cariboo. Could you just clarify what's happening right now underground with -- in terms of the bulk sample. And could you outline what sort of budget we're looking at for this year?

So what's going on underground on the BL2 is the continued mining. We have about -- we're expecting about 20,000-plus ounces this year out of BL2. That mining is ongoing, and reporting gold on a weekly basis. And have seen some good results at the QR mill as of late, with recoveries in the plus-80% range, even in those graphite rich zones of BL2, and that's -- hats off to our operators there, they've gone through a tough winter in BC and been able to achieve significant operating progress on that front.

The portal for the bulk sample has been set. The road header is in there and we'll be looking to greenlight that underground development sometime at the end of March. And then we've got about 7 to 8 months of drifting -- of ramp to get to the target zone for the bulk sample. And the ores order is on site. So we would look to commission the ores order and do the optimization work on the 10,000 tons of bulk sample that is currently permitted and look to see what else we can do while we're in there based on permitting and the evolution of the permit on Cow Mountain.

So if you look at the pictures on the deck right now, you can see the road headers parked in the portal. And we're just waiting for weather to lighten up, and then we'll have a go with that. So budget for that, it's about $17 million.

Okay. So development is suspended as of right now. And then with another 7 to 8 months of progress to get to the bulk -- targeted bulk sample zone. We're really not looking to begin processing that material until kind of later in Q3, early Q4 then.

Correct.

All right. And then what about underground drilling, we'd be setting up underground drill stations along the way? Or is that sort of kind of on an ad hoc basis depending on progress on...

We have about $3.9 million of flow-through left right now. We're just doing an optimization on the resource, and we'll probably do some surface drilling on low heap to infill that zone in the near term. And that will help us with our plans as we get further into the bulk sample as well as we will want to drill some of those areas from underground as we're on our way down there.

Perfect. Okay. And then in terms of San Antonio, I think the news said -- it referred to some permits you were waiting for. Is that for actual mine permits of new zones there? And can we anticipate just the mining for 2022 to be fully from the 1 million tonne stockpile.

Right now, we're fully permitted for that 1 million tonne stockpile. We have about 16,000 ounces contained that we're looking to recover there in the short term. The permitting aspects or the actual Sapuchi larger project is underway. We have our own equipment that we bought 15,000-ton-a-day plant that we bought and shipped to Mexico and we'll be looking to over the course of the summer, decide how big we want to set up for on Sapuchi.

And then once we have that permit, we'll decide to greenlight it, but we're taking advantage of the time window to engineer that plant and to make sure that we take some of the exploration results that we received and get those things moving as they evolve, and we should have some more drill results coming out over the next week or 2. (inaudible) on what we're seeing there, but we put 27,000 meters of drilling in there, mostly line, the (inaudible) the oxide zones, but we've had a few discoveries on potential other oxide zones on the property as well. So we're continuing to follow that up.

And so would you be using the same leach pad? Would you need to expand a leach pad once mining Sapuchi? And what sort of capital outlays would we anticipate upon receipt of that permit later this year?

Yes, we would be looking to optimize the leach pad that we've already constructed and there is some of that you can see pictures of it on the website. So we'll take advantage of everything that we have now. But the Sapuchi mine was always envisioned to have its own separate leach pad and the civil engineering work for that is underway as we speak in terms of engineering design and optimization. So it would be a separate leach pad build. And depending on how many tonnes a day that we decided to commission that be somewhere between USD 10 million and USD 25 million CapEx where we envision at present. And then the question will be how much is owner operator versus contracting?

All right. When would you be able to make a decision on that? Like is it dependent on receipt of that permit? Or could you get started on that construction sort of mid-year?

I think we need to see the permit first and then make a decision -- best allocation of capital at the time. Focus right now in the interim will be the closing of the Tintic acquisition development of the ramp at Tintic with our partners there, to continue the evolution of the fermenting process in Cariboo and then be in a strike position to take advantage of that permit in Mexico soon as it does come up.

Your next question comes from Ralph Profiti from Eight Capital.

Sean, two of them. Firstly, at Cariboo, can you bring us up to date on the EIA process. This is relatively new for the BC government. I'm just wondering in the public consultation, what's the feedback been? And has there been any surprises?

The public consultation had over 2,000 responses, which is relatively light for BC. And it's been very good, and we have closed out the public consultation period for Phase 1. There will be another period over the course of the summer. We are nearing completion of response to all of those. Nothing very surprising are the normal concerns about footprint and light noise, water and then effect on community job creation and that sort of thing. And that's -- we've taken a lot of effort to do a lot of engagement, and we've been -- enjoyed good support from our partners Lhtako Dené, who stepped up and been part of the process and well involved in making sure that the project meets their expectations and criteria.

And we continue to make steady progress on that. As you say, we are the first one through the new BC EIA process. So we've enjoyed pretty good support from BC government in terms of them allocating resources to their regulators to help get this project moving along. And we don't see any delays at this point.

Even with COVID-19, we've been able to hold the line in terms of the progress there. That's a large count to our team on the ground, led by Chris Lodder and François Vézina and the team in terms of responding to that. And -- we continue to make progress each and every day on that front. So I think we're in pretty good shape.

Okay. Yes. Sounds good. At Tintic, Sean, should we expect exploration catalysts as part of the story in 2022? As you drill out those 15,000 meters into the year-end 43-101 or is this more of like a bulk analysis approach?

Well, we definitely see the merit and the success that the team on the ground has had with this sort of jackleg and scope or underground development and being able to follow the mineralization. It's so much better than the drill hole to be able to walk through the ore body and see this high-grade mineralization and understand it that we'll continue on. That will be the bulk of the exploration will be from the underground development. We will be setting up to drill some larger diameter core because of the way that the -- fairly near surface here, and there's a lot of oxidation in the rock. We'll be wanting to do largely eminent [HQ] core with possibly a mud program to get that proper recovery. So there'll be optimization right now. It's too tight to have too much down there.

So we need to continue to develop the underground space. And once we have access from the ramp, we will be bringing to bear a larger more intense drill program from underground and it's relatively shallow, present with about 600 feet, 625 foot level, down to 900. We need to drill, but we would like to prefer to drill it from the underground and from within mineralization.

And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Thank you, everybody. I think we've set the stage for an exciting evolution for ODEV this year and certainly look forward to getting a few of you on the site visits as the year evolves. I want to thank everybody, and especially the shareholders for their support throughout 2021, and we are working hard for the shareholders this year to make sure that we get these development assets across the line. And I think it's -- the market is just right for these development-style assets to come to fruition.

And thank you, everybody. Wish you luck with your investments and your work.

This concludes today's conference call. You may now disconnect.