Orla Mining Ltd (ORLA) 2023 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Orla Mining's conference call for the second-quarter 2023 results. My name is Cheryl, 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 to Orla's second-quarter 2023 results conference call.

We will be making forward-looking statements during today's call, and I direct you to the first and second slide of the presentation, which contains important cautionary notes regarding these forward-looking statements. All dollar amounts discussed today will refer to US dollars unless otherwise indicated.

On the call this morning is Orla's executive team. And I'll now pass the call over to Jason Simpson, President and Chief Executive Officer.

Thanks, Andrew. Our second quarter was highlighted by ensuring the safety for our people and surrounding environment, continued operational consistency at Camino Rojo, and effective cost management across the business. This operational strength has led to more cash generation, and I am pleased to report a net debt balance of only $20 million at quarter-end.

Additionally, our extensive 2023 exploration program continues to generate positive results. We are committed to unlocking value through consistent operation, exploration, and development.

At the halfway point of the year, we are on track to achieve gold production guidance. Please note that we are adjusting our cost guidance down as a result of resequencing the mine plan, which will reduce our strip ratio until the end of the year. Andrew Cormier, our Chief Operating Officer, will provide a summary of the quarterly operating results. Etienne Morin, our Chief Financial Officer, will provide an update on the financial details. And Chafika Eddine, our Chief Sustainability Officer, will provide some updates on our ESG efforts.

Over to you, Andrew.

Thank you, Jason. The second quarter was marked by continued strong mining and processing performances at Camino Rojo while maintaining the health and safety of our team.

1.9 million tons of ore was mined at a strip ratio of 0.61 and an average grade of 0.76 grams per ton of gold. The average grade of ore processed during the second quarter was 0.77 grams per ton of gold. An average stacking rate of 19,669 tons per day was achieved, once again, above plant nameplate capacity.

Mined ore tons and grade are reconciling well to the block model, and process recoveries remain in line with the metallurgical recovery model. Waste mining during the first half has been less than planned, resulting in lower mining costs and all-in sustaining costs in the short term.

We are awaiting permit amendments from SEMARNAT, the Mexican environmental permitting authority, and it's been taking longer than our previous experience. Once the amendments are approved, we will schedule the waste material as we intended to mine this year.

Our 2023 plan has been adjusted to account for mining less waste for the remainder of the year. As such, we are adjusting the all-in sustaining cost downwards.

These changes to our plan will not impact the 2023 gold production. The 2023 strip ratio is now expected to be 0.4, a reduction from 1, or about 4.5 million tons lower.

Upon receipt of the necessary permit amendments, we will begin mining this material, and we do not anticipate an impact to the 2024 gold production.

I will now pass the call over to Etienne Morin, Orla's Chief Financial Officer, to discuss the financial results for the quarter. Etienne?

Thanks, Andrew. During the quarter, we sold nearly 30,000 ounces of gold at a realized price of $1,975 per ounce, resulting in $59 million in revenue for the period.

Net income for the quarter was $12.8 million, or $0.04 per share, and after adjusting for unrealized foreign exchange losses, adjusted earnings were $14 million, or $0.05 per share.

It should also be noted that during the quarter, we spent $7.2 million in exploration and project costs as we continue to advance our growth pipeline. These costs include spending in Nevada, in Panama, and for regional exploration in Mexico.

All-in sustaining costs for the second quarter was $698 per ounce, and on a year-to-date basis, all-in sustaining cost is $696 per ounce. We received a few questions about the effects of foreign exchange on our all-in sustaining costs in light of the strengthening Mexican peso. The majority of our operating costs is still denominated in US dollars, but we calculated the impact of a stronger peso to be approximately $15 per ounce between Q1 and Q2, and this is reflected in our AISC for the second quarter.

As Jason and Andrew mentioned, we're reducing our annual 2023 all-in sustaining cost guidance to a range of $700 to $800 per ounce from the original guidance of $750 to $850 per ounce. And this is due to the reduced waste mining we're now expecting through the remainder of the year.

Cash flow from operating activities before changes in non-cash working capital was $22.4 million, or $0.07 per share.

During the quarter, we began making monthly tax installments as prescribed by the tax authority in Mexico. The May payment covered the months of January to April 2023, and we've made ongoing monthly payments since. Total income tax paid for the quarter totaled $12.2 million, which accounts for five months of tax installments, all of which relate to 2023.

During the quarter, we repaid $5.6 million in principal towards our credit facility. And at the end of the quarter, we had $113 million in debt outstanding between our term loan and our revolving credit facility.

Our cash balance increased by $31 million during the second quarter, resulting in a cash position of about $114.5 million at June 30. The increase during the quarter is a direct result of cash flow generation at Camino Rojo, as well as the Agnico Eagle equity investment of CAD25 million previously announced in May.

We continue to make strong progress in strengthening our balance sheet and position ourselves for future growth. And this graph highlights the evolution of our net debt as we've generated cash and paid down our debt over the last 18 months.

Our financial position has improved in a meaningful way since the start of production at Camino Rojo. We will continue to look for opportunities to optimize our capital structure to maintain the appropriate flexibility for our business needs going forward.

With that, I'll pass it over to Chafika, who will provide an update on some of our sustainability activities.

Thank you, Etienne. We are delighted to be publishing our inaugural sustainability report later this month, where we discuss how we intend to achieve our plans of maximizing benefits to stakeholders while minimizing consumption, injuries, and impacts. We will also outline some of our Towards 2030 sustainability strategies, with a focus on community development strategies based on multi-partnership initiatives combining environmental, social, and economic elements; local suppliers' creation with diversity and inclusion; water; climate-related opportunities; sustainable livestock; and regenerative agriculture.

The report follows SASB and TCFD international requirements and was developed to fulfill the core KPIs and ESG factors of our materiality review. Our long-term sustainability strategy is grounded in our business purpose to transform mineral resource into a net positive benefit for our stakeholders.

Embedding sustainability across our business means simply that every Orla employee and partner is on the pathway to becoming net positive. It's about the goal of adding more to society than extracting from it. Our sustainability initiatives are essential to achieving this objective.

We have maintained a consistent sustainability approach as we have evolved from explorer to developer, and now a precious metal producer. In particular, with the commencement of our first mine, Camino Rojo, in Mexico's Zacatecas state in 2022, we targeted the highest standards of health and safety, environmental, and social practices.

We constructed the site during the pandemic on time and under budget, with no lost days due to COVID- 19 and with a respectable lost time injuries frequency rate of 0.77 during the construction period. We are proud that we've developed our first project with a large proportion of local workers, supporting each of them with extensive training and enabling them to embark on their new profession.

On the environmental front, we closed our first year of production with 0.19 tons of CO2 equivalent per ounce of gold produced. This carbon intensity level placed Camino Rojo as one of the lowest emissions gold mines globally. It also provides us with the basis for keeping our environmental footprint at a minimum during the life of our mine while exploring ways to reduce our emissions in the future.

Our sustainability strategy aims to be economically feasible, operationally achievable, and embedded in our business targets. Our commitment to sustainability has been evident from Orla's earliest days. Over the past four years, we achieved a great deal to establish our business while keeping our people and our environment safe and healthy. We remain committed to these principles and will provide market updates as we progress.

And with that, I'll pass it back to Jason. Jason?

Thanks, Chafika. In addition to our continued operational, financial, and ESG performance, we are systematically advancing our growth pipeline. In 2023, we have allocated $35 million to exploration across our portfolio. In the second quarter, we invested just over $10.5 million into exploration, with a focus on advancing the Camino Rojo sulphide deposit and regional exploration.

In Mexico, about 50% of the planned 34,000-meter sulphide program has been completed. The intention is to advance the understanding of the deposit, particularly through the current lens of an underground mining scenario. This scenario requires a certain drill density. Results to date continue to demonstrate wide widths of higher-grade gold mineralization. To extend the sulphides, we have identified that the ore body is open at depth.

While it is still early days, our geologists believe that new, high-grade polymetallic intercepts represent a potential to grow the Camino Rojo sulphides. The extension of the sulphides is being drill-tested by extending approximately 20% of the sulphide drill holes planned. And additional drilling has recently been added to gain a greater understanding of down-plunge potential for the system. It is also worth noting that we have completed the drill program on the layback area, which will allow for an update of resources and reserves at Camino Rojo before the end of the year.

Regionally, in Mexico, we are following up on additional gold targets using a systematic 20,000-meter drill program, which has already encountered visible gold on one regional target, Guanamero. We will continue to follow up on this target and others, with the hopes of discovering more oxide or sulphide-hosted mineralization.

In Panama, we continued our drilling at Cerro Quema during the dry season in the first half, and the results are being analyzed. In May, we had our ESIA approved for the oxide project, but await the mine concession extensions before contemplating a construction decision.

Drilling in Nevada at South Railroad is ramping up to the second half of the year, with first drilling taking place at the North Bullion and Dark Star targets before extending to multiple targets across our large land position.

As mentioned a number of times, we are on track for the 2023 production guidance and have now reduced our all-in sustaining cost guidance to a range of $700 to $800 per ounce to reflect the lower waste mining rates for the remainder of the year.

We endeavor to be a consistent operator, and Camino Rojo's steady performance strengthens this status. Beyond Camino Rojo oxides, our team is focused on production growth and increased cash generation through advancing our assets in Mexico, Nevada, and Panama.

Thank you to our team who remain committed to growing value sustainably. It is the countless unseen hours of effort from our international team that enables us to responsibly convert natural resources into value for our stakeholders.

At this point, I'd like to open the call to questions. Over to you, operator.

(Operator Instructions) Arun Lamba, TD Securities.

Hey, guys. Congrats on the good quarter, and thanks for the detailed permitting information in the MD&A. I thought it was very good.

Just on South Railroad, you mentioned that you're expecting the BLM to now file the Notice of Intent late '23, early '24. Can you speak to if or when we might see an updated feasibility study then based on that? And can you just remind us your estimated timeline for a record decision? I know it's all out of your control, but what's the estimate post that getting filed?

Sure, Arun. Thanks for the question. What I will start by saying is we continue to work with the BLM to file supplemental reports that will feed into the eventual ESIA process once they deliver their Notice of Intent, which we're expecting by the end of this year. Given all that front-end work, we're hopeful that they'll be able to adhere to their 12-month timeline, which would lead to the record of decision.

In terms of your question about updating engineering, as we've communicated before, it's likely that we are to update the feasibility with the addition of a crushing circuit. And we look to update all of our engineering once we get partway through that year between the record of intent and record of decision.

We'll begin our construction engineering before the record of decision. And once we do that, we would intend to update the market on our view at that time of the construction costs for the project.

Great. Thanks. And then just one more, and I think you guys actually might have answered it during the presentation, but just on the Camino Rojo permit, you mentioned no effects in 2023. Did I also hear you don't expect it to affect 2024 either, regardless whether that gets resolved in the next three months?

I know you haven't given 2024 guidance, and all we have publicly is kind of the last feasibility study minus changes of actual production. But the question, I guess, is just when would you need to get it to not affect next year's production, or that's not a concern?

Yeah, you're right. We have not provided 2024 guidance yet, but we don't anticipate this to impact 2024. It will begin to impact in 2025 if we don't begin stripping waste at some point in 2024. And of course, there's mitigations we could take in 2025, but we're confident we won't need to exercise those mitigations.

We have great relationships in the state of Zacatecas, personally with the governor who's spoken on our behalf with the President. The President has appointed the Secretary of the Economy for the state of Zacatecas to be the liaison for Zacatecas-based mining companies and the federal SEMARNAT agency.

So we've had a number of good conversations with that federal agency recently. So we're working through the process and confident that we'll begin moving waste, at earliest, towards the end of this year and certainly into 2024.

Great. Thanks for that, Jason. And then just one last one. I know AISC was lowered largely due to the less waste mining and some input costs.

Can you just talk about or remind me like how much you guys hedge against the FX that some of your peers have seen with the peso strengthening costs creeping up a little bit? I think it's around 50%, but can you just remind me what you guys are hedging for currency and how it's affecting the cost?

Yeah. So the first thing I'll say is we don't currently hedge against currency. And as Etienne pointed out in his remarks, we are seeing an effect of the strengthening peso. As you may recall, we did hedge during the construction period just as a mechanism to reduce construction risk. That's ordinary course for us.

And I'll hand the question over to Etienne to discuss our future plans for currency hedging, considerate of the current changes in Canadian and Mexican peso as it relates to US dollar. Go ahead, Etienne.

Yeah. Thanks, Jason. And good question. So as Jason mentioned, we don't hedge right now; we have in the past. We're always looking ahead to see if now's the time to hedge. There's also a natural hedge with the gold price as well that results in higher revenue.

So we have less than 50% of our cost that's denominated in Mexican peso. And so the impact might not be as high as others that have a higher denomination in peso. We're closely monitoring all this and taking the appropriate measures to address it.

That's great. Thanks. Yeah, I was -- I forgot. That's what I meant, 50% is in peso. So it's equivalent to the FX. But no, it's great. Thanks a lot, guys. Congrats on the strong cash generation and looking forward to the next quarter.

Thanks for your thoughtful and detailed note, Arun.

There are no further questions at this time. I will now turn the call over to Jason Simpson, CEO, for closing remarks.

Thank you, everyone. Since there are no further questions, I'd just like to thank everybody who dialed in for your time ahead of a long weekend. If you ever have any follow-up questions, Orla and management is available. Never hesitate to reach out and ask questions. Thank you, everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.