Orla Mining Ltd (ORLA) 2022 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Orla Mining's conference call for the first-quarter 2022. My name is Brent, and I will be your conference operator today. (Operator Instructions) Please be advised that this call is being recorded.

I would like to turn the meeting over to Andrew Bradbury, Vice President of Investor Relations and Corporate Development for Orla Mining. Please go ahead, Mr. Bradbury.

Thank you, operator. And welcome, everyone, to Orla's first-quarter 2022 results conference call.

During today's call, we'll be making forward-looking statements. I would invite you to review the cautionary language in the first and second slide of today's presentation, which describes some of the risks and uncertainties that may affect Orla's performance in the future. I'd also like to mention that unless otherwise indicated, all of dollar amounts discussed today will refer to US dollars.

Joining me on the call this morning at the full executive team led by Jason Simpson, President and Chief Executive Officer; Etienne Morin, Chief Financial Officer; Andrew Cormier, Chief Operating Officer; Sylvain Guerard, Senior Vice President, Exploration; and Chafika Eddine, Chief Sustainability Officer.

During the quarter, we made the transition from gold developer to gold producer with declaration of commercial production. Annual guidance has been issued, and we are well on our way to a successful 2022. Management will walk through the Camino Rojo oxide operations, our strengthened balance sheet, the project pipeline, and the start of exploration on our large land packages.

And with that, I will turn the call over to Jason Simpson, Orla's President and CEO.

Thanks, Andrew. Orla has had a remarkable start to our year. Construction is complete, and we have declared commercial production. Through the construction and commissioning phases, we maintained a strong health, safety, and environmental record. Now in operations, we continue to reinforce these established practices.

Gold production from the Camino Rojo oxide mine is expected to be 90,000 to 100,000 ounces for the full-year 2022. Orla produced just over 23,000 ounces during a ramp-up first quarter, and we are on track to achieve production guidance. Upon achieving commercial production, we began accounting for all-in sustaining costs, which means we will be reporting from the second quarter onward.

All-in sustaining costs from Q2 to Q4 of this year is forecast to be $600 to $700 per ounce, and we are on track to achieve this target as well. It should be noted that we are seeing inflationary increases from some consumables, but that has been offset by reduced consumption rates. We are aware of the potential impacts of inflation, but our cost guidance is not affected at this time.

We have forecast $5 million in sustaining capital and $20 million in non-sustaining capital for 2022. The non-sustaining capital is related to the completion of construction. And all in, we anticipate the total project cost to be $8.6 million or almost 6% below budget. We can now afford to spend $15 million on exploration this year. First quarter activities involve planning and staging.

Drill rigs have been turning across our properties in April, and we look forward to sharing the results as they are available. Andrew Cormier, Orla's COO and an experienced metallurgist will walk you through some details on the recent Camino Rojo sulphide metallurgical test, which provide the possibility of a stand-alone and staged processing facility. Project evaluation is ongoing. And we are working toward a preliminary economic assessment as a first step in project development. We are encouraged with what we are seeing thus far on geology and metallurgy.

Before we get into the operational detail, I'll pass the call to Etienne Morin, Orla's CFO, to discuss the financial results for the quarter.

Thanks, Jason. The Q1 was marked by the completion of construction and exploration and commercial production at Camino Rojo. We produced just over 23,000 ounces of gold and sold just under 21,000 ounces at an average realized price of $1,888 per ounce. We generated net income of $18.8 million resulting in earnings per shares of $0.08.

Cash flow from operating activities before non-cash working capital was $19.8 million for the quarter. We did not report all-in sustaining costs for the first quarter as commercial production was effective April 1. That said, our cost during the first quarter was as expected and our guidance of $600 to $700 per ounce is maintained.

Total capital expenditures at Camino Rojo were over just over $125 million at the end of the quarter. And we are projecting that we will be $8.6 million under our initial capital estimate for the project. There will be some construction capital that is paid in the second quarter, but we have demobilized all project contractors and close all contracts. We are steadily building cash and had a cash balance of $35 million at the end of the quarter.

Subsequent to quarter end, we received $8.5 million in value added tax refunds from the Mexican government for a total of approximately $11 million year-to-date. Also subsequent to quarter end, we repaid $11 million loan to Newmont. This loan was initially provided to support payments of the landholding costs in 2018 and 2019. The repayment of this loan was due upon Orla reaching commercial production at Camino Rojo.

Lastly, in April, we successfully refinanced our credit facility. The new $150 million facility extinguished the Camino Rojo project finance facility and is comprised of a $100 million five-year term loan and a three-year $50 million revolving credit facility that can be upsized or extended. Repayment of the principal will begin in December 2022. And the interest rate on this new facility is based on the SOFR rate plus a margin between 2.75% and 3.75% that is determined based upon the leverage ratio calculated at the end of the quarter.

This new facility offers increased flexibility at a much-reduced cost of capital. And we're pleased to have graduated to this stage of maturity to attract these strong financial terms. As a result of the repayment of the old credit facility, we expect to have a non-cash expense of approximately $11 million in Q2 related to the unamortized portion of the transaction costs, mainly related to the cost of the warrants issued in connection with the facility in 2019. Including these key financial -- financing events that took place in April and early May, our cash balance is now approximately $39 million.

I'd like to extend our thanks firstly, to the syndicate of lenders led by Agnico Eagle, Pierre Lassonde, and Trinity Capital Partners who supported the development of the Camino Rojo mine. We're also pleased to welcome a new syndicate of lenders that includes Scotiabank, BMO, and CIBC.

I'll now hand it over to Andrew Cormier, our Chief Operating Officer, who will get into the construction, operating, and development details for the quarter.

Thank you, Etienne. During the quarter, site activities were focused on completing commissioning and ramp-up of the mining and processing rates. Construction activities included the installation of the heap leach liner in cell two and the event pond, placing of overliner material on cell two of the heap leach, commissioning of the third and final overland conveyor, construction of the airstrip, and completion of the rainwater runoff diversion channel.

In the first quarter, we mined 1.9 million ore tonnes at an average grade of 0.68 grams per tonne. We stacked approximately 1.7 million tonnes at an average rate of 0.81 grams per tonne at an average daily stacking rate of 15,917 tonnes per day. Record monthly processing throughput was achieved in March, with an average daily strike stacking throughput of 17,444 tonnes per day or 97% of the nameplate capacity of 18,000 tons per day. We are expecting to achieve nameplate capacity during the second quarter.

We are now officially in operation. And we continue to be confident in our operations team to deliver on our Q2 production budget. Overall, mined ore tonnes are reconciling well to the block model and process recoveries to date are in line with the metallurgical recovery model.

Earlier this week, we released a summary of Phase 1 metallurgical results on our Camino Rojo sulphides project. As you know, the sulphides are a viable asset due to its approximate 9 million gold ounce resource. While we continue to consider the Peñasquito processing option with Newmont, Orla's study efforts have been primarily focused on stand-alone options. We will retain 100% of the sulphide value.

In 2021, we completed a directional drill core program into the deposit. The main objectives of the program were to generate additional geologic and analytical information regarding the continuity and geometry of the higher-grade gold mineralization, obtain geotechnical information required to evaluate potential underground mine scenarios, and provide new material for metallurgical studies.

The drill program was successful, and the drill results confirmed the presence of wide, higher-grade gold zones within the sulphide mineral resource. This drilling also provided samples for the positive metallurgical results announced earlier this week. This new information greatly increases our understanding of the metallurgical characteristics and demonstrates the possibility of a staged stand-alone processing option for the sulphides.

A geometallurgical model was developed from all our current and historical information that integrates geological, geochemical, mineralogical, and recovery data to characterize zones of metallurgical response. Two of these zones appear to be amenable to conventional CIL processing, and three zones responded well to selective flotation. Work continues to establish the size of each geometallurgical zone.

The two CIL amenable zones also provide the possibility to stage the development of the process plant over time as each zone is sequentially developed. This information will be used to determine new cutoff grades for open pit and underground mine designs. The respective mine designs will be used to support an updated sulphide mineral resource estimate, which is currently in progress, and will form the basis of a preliminary economic assessment on the sulphide project targeted for the end of year 2022.

The company will continue to work towards determining optimal development plan with the goal of generating the greatest value for stakeholders. Work planned in 2022 include a Phase 2 drill program of 8,250 meters to reinforce the geologic model and to continue to confirm the continuity of wide-zone, higher-grade gold mineralization.

And with that, I'll pass the call back to Jason.

Thank you, Andrew. During our previous conference call and in a specific exploration press release in March, we outlined our exploration plans for this year. The first quarter was spent staging for drilling across our portfolio in Mexico and Panama. Drilling then began in April.

As a reminder, we have budgeted $15 million between both countries and the focus is on resource and reserve expansion, as well as new deposit discovered. As part of that discovery process, we have a systematic approach to target definition using multiple layers of information combining geology, geophysics, and geochemistry. This approach, coupled with the team's depth of experience, maximizes our chance of discovery.

We are very pleased to be ramping up exploration on our large and unexplored land packages. This includes our efforts in Panama, where we continue to advance in parallel with the permitting process. We currently have two core rigs turning on Camino Rojo sulphide zone; and RC rig testing regional oxide targets at Camino Rojo; and one core rig ramping up to a second rig planned at Cerro Quema in Panama. We look forward to providing results through the year as they become available.

As the team has stated, we are excited about our new position as a cash-generating gold producer, with a rich pipeline of development assets and exciting exploration prospects. We believe the combination of cash generation from Camino Rojo, advancements in our development portfolio, and exploration success will increase shareholder returns.

Finally, I would like to thank all our stakeholders who have supported Orla's growth from explorer only three years ago to a profitable mining company today. This includes our investors, our employees, and the communities and countries where we operate. We are excited about our potential for growth.

The Camino Rojo sulphide project would create multiple decades of positive impact for the communities where we operate. This includes opportunities for employment, local businesses, and social programs. We look forward to a long-term partnership with the communities around our mine in Mexico. And we look to replicate the same opportunity in Panama.

At this point, I would like to open the call to questions. Operator?

(Operator Instructions) Ovais Habib, Scotiabank.

Thanks, [Sabrino]. Hi, Jason and Orla team. Really congrats to you and the team on successfully building Camino Rojo during very challenging times. So congratulations to the whole team.

Jason, couple of questions from me. Just starting off on the Camino Rojo sulphides. Now, from what I understand, two out of five zones are amenable to CIL, three zones amenable to flotation. When will you start being able to provide the market in terms of the size of these zones? And is the current drill program exactly doing that, kind of figure out exactly what the size and scope are -- is within these two zones, or let's say, five zones?

Thanks for the compliment, Ovais. And specific, I'll start with the with the drilling question around the sulphides.

So the Phase 2 drilling that we're conducting right now, the two rigs are set up embarking on that program. We'll certainly be able to inform the geology for the upcoming PEA. That drill core will be utilized for another phase of metallurgical tests, but it's unlikely that metallurgy will be in time to be included in the PEA work.

So moving back to the start of your question, we should be starting to narrow down the size of the areas related to each processing option. But as you can appreciate, that is specific to the mining method that we choose. So the stage we're at right now is utilizing the geometallurgical model to adapt our cutoff grades for open pit and underground scenarios.

We have two separate the consultants that are working with us on those mining method options. As we review the results from that mine planning work, we'll begin to understand what the different sizes of the deposit will be able of the mine through those two scenarios. And all of that, of course, will culminate in the PEA that will deliver by the end of this year. I don't anticipate that we'll be producing a whole bunch more material related to the sulphides leading up to the PEA. The next big piece of information to the market related to the sulphides will be the PEA by year end.

Okay, thanks. Thanks for the color on that, Jason. And just moving on to Cerro Quema. Any sort of updates or latest discussions taking place with the regulators in advancing development of Cerro Quema?

Yes. So Andrew Cormier, Chafika Eddine, and I were in Panama very recently. Our focus in Panama for 2022 is exploration while we await our environmental permit. And our geologists are keen to expand the Caballito copper discovery, as well as find more copper-gold. I would anticipate that once the government has passed the new agreement with Cobre Panama into law this year demonstrate that they should have the capacity to consider our development.

Got it. Thanks, Jason. Thanks for the color and that's it for me.

(Operator Instructions) There are no further questions. I will turn the call back to Jason Simpson for closing remarks.

Thank you, operator. Since there's no further questions, I'd like to thank our team for their continued effort in advancing our key projects. Never hesitate to reach out to Orla should you have any follow-up questions. And we thank everyone for your time.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.