Orla Mining Ltd (ORLA) 2023 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Orla Mining's Conference Call for the Fourth Quarter and Year End 2023 results. My name is Sarah, and I will be your conference operator today, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again, please be advised that this call is being recorded.

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

Thank you, operator, and welcome to Orbitz Fourth Quarter and Year End 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 this presentation, which contains important cautionary notes regarding these forward-looking statements. All dollar amounts, as just discussed today will refer to U.S. dollars unless otherwise indicated. All the executive team is on the call this morning, and I will now pass the call to Jason Simpson, President and CEO, who will walk you through our Q4 and 2023 highlights.

Thanks, Andrew.

Our fourth quarter highlights include continued strong performance at Camino Rojo on safety and environmental management operations and costs. As a result, we exceeded our increased production guidance and achieved the reduced annual all-in sustaining cost guidance, low cost and consistent operation at Camino Rojo, generated industry-leading margins and cash flows strengthened our balance sheet and Orla is now in a net cash position. We are actively advancing our exploration and development portfolio in Mexico and Nevada. And you will have seen positive drill results released throughout the first quarter from our 2023 campaign exploration is a key component of our growth, and Sylvain Garrard, our Senior Vice President Exploration, will walk you through some of the team's results. Andrew Carmody, our Chief Operating Officer, will update you on the permitting work in Nevada, we recently announced the acquisition of contact gold, the owner of the Pony Creek property neighboring our land package in Nevada. This strategic transaction strengthens our land position immediately adds gold ounces to our resource inventory and illustrates our conviction in Nevada. So the railroad will be tremendous.

Next project for R-LA. We are disappointed with the recent events in Panama as it relates to mining and investment, despite making progress earlier in the year and the receipt of our environmental permits at Serra came up in November 2023, the Panamanian government passed law forum seven imposing a moratorium on granting renewing or extending concessions for metal mining in Panama, which say applies to our concession renewals for several came up project. We are exploring legal remedies to protect our historical investments as we monitor the upcoming elections in Panama. It Jim more in for those Chief Financial Officer, Phil described the accounting treatment applied to 2023. For this matter, we have the executive team on the call to provide specific updates, and now I'll hand it over to Andrew Cormier our Chief Operating Officer for a fourth quarter operational update.

He Jason, the fourth quarter was marked by continued strong mining and processing performances at Camino Rojo. We did this while maintaining the health and safety of our team. We mined nearly 1.9 million tonnes of ore at a strip ratio of 0.43. The average gold grade of ore processed during the fourth quarter was 0.73 grams of gold per tonne. We also achieved an average stacking rate of 18,998 tonnes per day mined ore tonnes and grade or reconciling well to the block model and process recoveries remain in line with the metallurgical recovery model during the second half of 2023 we initiated a program to test the impact of reducing the crusher product size from a PAT of 28 millimeters to 23 millimeters. Initial results of this test program are positive and we are seeing higher gold recoveries from the heap leach. The testing will continue in 2024 to quantify the positive impact that reduced crusher size has on the various ore types. Gold production in the fourth quarter was another record with 34,484 ounces of gold poured. As a result, we exceeded the increased 2023 production guidance range of 110 to 120,000 ounces of gold with a total of 121 808 hundred and 77 ounces of gold for the year. We are carrying the strong momentum from 2023 into the first quarter of 2024, and the operations continue to perform consistently and to plan.

In terms of permitting, we are continuing to work through permitting delays in Mexico. Our operating team continue to adjust our mine plan and are maintaining the tonnes and grade feeding the operation. We are hopeful that the new administration, which takes office midyear, will be more encouraging of mining investment in Nevada, our South railroad project development and permitting continue to advance under the prescribed Bureau of Land Management approach. We have submitted 17 of 19 supplemental environmental reports, of which 40 have been reviewed. These supplemental environmental reports will be used in the environmental impact study process that we expect to continue through 2025. Additionally, we have advanced our strategies for sage grouse habitat restoration and water rights which require which BLM requires as part of the EIS. process. We will continue this work through permitting in 2025, ideally allowing construction through 2026 and production in 2027. Based on this time line, we expect to begin engineering and optimization and updating estimates in 2025. At Dhamra, our Chief Financial Officer will now discuss the financial results for the quarter.

Thanks, Andrew. And during the quarter, we sold 31,000 ounces of gold at a realized price of $1,974 per ounce, resulting in $63 million in revenue for the period. As Jason mentioned, as a result of the passing of law, form seven and subsequent cancellation of the mining concession at our silver came a project in Panama. We recognized an impairment charge of 72.4 million in our financial statements for the year ended December 31st, 2023. The remaining carrying value of the asset relates to land ownership that we own in Panama. As a result of the impairment, our net loss for the period was 58.4 million. But after adjusting for the impairment, unrealized foreign exchange loss and other small items, adjusted net earnings was 15.7 million or $0.05 per share should be noted that during the quarter, we expense about 9 million in exploration and project costs as we continue to advance our growth pipeline in Mexico and in Nevada. All-in sustaining cost for the fourth quarter was $802 per ounce, resulting in a full year 2023 all-in sustaining costs of $736 per ounce, well within our annual guidance range of 700 to $800 per ounce and retaining our position as one of the lowest cost coal mine globally.

Total capital expenditures in the fourth quarter were 6.7 million, of which key capital items included report on the stockpile dome and costs related to the Phase two expansion of the heap leach pad of that 6.9 million, 3.3 million and nearly half related to capitalized exploration. Total capital expenditures for the full year added up to $20.9 million, of which $12.7 million or approximately 60% related to capitalized exploration. Cash flow from operating activities before changes in noncash working capital was 24.7 million or $0.08 per share for the quarter. During the quarter, we made the final payment of 22.8 million to Fresno as part of the layback agreement as this payment is treated as an investment, it had an impact on free cash flow for the quarter, which was negative 8.2 million. As outlined on this chart, we've continued to pay down our debt, increase our financial flexibility and strengthen our balance sheet. In 2023, we repaid nearly 60 million in debt, including the final payment to first Neo and $25 million towards the repayment of our credit facility. We also amended our credit facility to have $150 million revolving facility, which now extends to 2027 and provides increased fixed flexibility as well as lower cost of capital.

Our current outstanding debt balance at year end was $88 million, resulting in becoming net cash positive by year end. While we no longer have mandatory quarterly repayments, we'll look to further repay our debt outstanding 2024.

And last point to note is that in 2023, we began making monthly tax installments in Mexico. In total, we paid 29 million throughout 2023. And therefore, we have a large tax payment due at the end of this month related to income tax as we did last year. However, the special mining duty and the extraordinary mining duty in Mexico is only payable once a year, but we expect that amount to be approximately $10.5 million, which will be paid at the end of this month. So within Q1.

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

Thank you, Ed Chan. As a recap, for 2023, we exceeded our increased 2023 production guidance at industry-leading all-in sustaining costs. Our strong cash margins allowed us to repay nearly 60 million in debt, increasing our cash and liquidity while investing extensively in exploration and growth projects across our portfolio, we will carry that momentum into 2024, we are consistently guiding to 110 to 120,000 ounces of production at all-in sustaining costs of 875 to $975 per ounce of gold sold. The increased all-in sustaining cost over 2023 was due primarily to increased waste movement, sustaining CapEx and maintenance costs and some price inflation. Sustaining capital expenditures included the planned heap leach expansion for the first half of the year of Pit well expansion and some capitalized exploration in 2023. We also ramped up our exploration efforts, which we are continuing this year.

And so Vanguard, our Senior Vice President of Exploration, will walk you through an update from Q2, some in the fourth quarter, we are the ones that came in over full sulfide deposit from exploration results were enrolled in the club 2023. Exploration was highly positive at both sites. And in early 2024, we issued five press releases related to having a whole oxide sulfide infill and extension program, along with two releases on the Salt River project and its extension onto Pony Creek through the acquisition of contango. Additional results from Salisbury well that will be released shortly at Camino. Hopeful We confirm mineralization extending to the north over the layback REO in on the edge of the open pit guided by the positive drill results from 2023 follow-up drilling will occur in the first part of 2024 to access the shallow oxide potential on the southeast extension of the open pit with the intentions to increase answers at the higher margin chemical Raquel oxide mine in the sulfide deposit.

Our third phase of infill drilling, so totaling about 35,000 meter ever came to refine the Jones called model, including the distribution of vein sets, controlling higher grade zones of mineralization on the ground resources estimation work is ongoing with completion targeted by the second half of 2024. Historical and recent drilling beneath the resource limit have intersected polymetallic semi massive, massive sulfide replacement mineralization, which defers from the sulfide vein in the current resource area. This discovery motivated us to execute a drill section nearly 500 meters down plunge from the resource limit. Encouraging drill intersections from this drilling indicates that the large coming of awkward deposit is still open, offering significant upside potential. In addition, initial metallurgical studies on two represent positive samples of the new mineralization style have returned positive results, 30,000 meters of drilling and 2024 is dedicated to the coming or corporate extension. The regional exploration program will also continue with new targets defined in 2023 expected to be explore starting in early Q2 in Nevada 2023, drilling at South railroad called, so that word project and the oxide open pit opinion and Dark Star both intersected significant mineralization, indicating the potential to add the oxide mineralization and potentially grow the resources and Dark Star high-grade oxide mineralization. Briefly, anything potential feeder type structure was intersected, including 20 meters at 5.2 gram per tonne gold, part of a 37 meter intersection grading ZAR3.5 per tonne and scroll up north Brazilian Carlin type sulfide deposit infill drilling was completed with the objectives of providing materials for metallurgical testing, refining geological model and supporting the upgrade of the natural mineral resources. Results from drilling at both marine and other target will be released shortly.

We are also expanding our land position to the south with the announced acquisition of contact from Golden, the owner of the Pony Creek property. The geology and soil geochemical months trends extend that to Pony Creek, which also owns three mineralized zones contributing to a mixed resource containing oxide transitional and sulfide material totaling close to 400,000 and for gold ounces in 2020 for 15,000 meter of drilling was initially planned at South railroad with focus on extending the mineralization outside projected open pits following up on 2022 results at satellite deposit and testing new targets for discoveries, assuming a successful closing of the Contactual acquisition and the second quarter, we will anticipate drilling an additional 7,000 meter at 43 properties. Is there anything that will result in an additional 3 million in 2024 and leave other exploration. This will also bring the global plan program for the extended South railroad property to over 22,000 meters of drilling overall 2023 was an excellent year with highly positive results, supporting resource growth potential and defining the path to new discoveries at our sites. We have an exciting exploration program well underway in early 2020. For this work will further advance our exploration and project initiatives in Mexico in Nevada.

I will now pass the call to Sophie Karp, hidden and Kim Sylvain at 2023 was a productive year for our sustainability efforts. We maintain an impeccable record of zero community related and labor related incidents throughout 2023. Our flagship asset Camino Rojo, notably cemented our engaging relationship with our employees by successfully negotiating a new agreement with the employee union and delivering on our commitment to fostering positive relations with our workforce. We take pride in being the preferred choice for talent, talented individuals, including in the regions where we operate. Nearly half of our direct employees are sourced from our local communities and approximately 30% of our contractors are recruited from areas directly influenced by our operations in an industry where the average percentage of female representation is from 8% to 17%. We celebrate the fact that overall among our four locations, women make 31% of our direct workforce. Furthermore, our voluntary turnover turnover ratio continues to improve year over year, a testament to our positive work environment, something we will keep monitoring closely. In 2023. We launched at Orleans inaugural sustainability report, and we are currently in the process of compiling our ESG performance data for our next report. Through the assessment evaluation and disclosure of our ESG performance, we reaffirm our dedication to our guiding principles through our guiding principle of transforming resources into a net positive benefit for all stakeholders in 2023. We also established three initiatives for sustainable community development with multi-stakeholder partnerships, Mexico, including one for pharma and for conservation and blend regeneration in 2024. We are committed to enhancing our reporting on environmental, social and governance performance as we further integrate sustainability principles across our sites and communities. Our proactive and transparent approach is reflected in our dedication to continuing improving our positive in our environmental and social influence, aligning with the evolving industry standards and ensuring an open communication with our stakeholders. I'll pass the call back to Jason.

You should think of our business continues to get stronger quarter over quarter with the operations exceeding targets and our exploration and project development outlining pathways to growth. 2023 was a successful year for Orla and 2024 is off to a strong start. I would like to thank our team who remain steadfast in their commitment to our strategic objectives of creating value for our shareholders. It's my great pleasure to share this call with my executive team who've outlined our great results of the past and our plans for the future.

At this point, I'd like to open the call to questions and hand the call back to the operator.

Caio, if you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply Taiwan again.

Your first question comes from the line of Ovais Habib with Scotiabank. Your line is open.

Hi, Jason, and all of team, congrats to you and your team on a strong 2023. And just a couple of questions from me, Jason, starting off with the Camino Rojo. Obviously, I'm sure you are disappointed that the permits have not been received for the pit pushback, but also good to hear that 2024 guidance does not get impacted? And what's the cutoff quantity that you think you need to have the permits by so not to impact the 2025 production?

Yes. So ideally, the permits would be ever approved early in this next administration, enabling us to eliminate any gold impact, not only in 2024, but we predict the impact could be very modest in 2025 as well, based on backing up a bit, you know, I think for the benefit of the call, I'll mention that we've been pursuing these permits since we achieved the layback agreement in 2021. And yes, we're disappointed that the permitting time lines for all companies in Mexico have exceeded the historical norms under this administration. Some ends of these permits will maximize the benefit produced from Camino Rojo over the long term, and we need to receive them in the short term to enable the necessary waste to delivery as the thanks for the color.

Just and then just a follow-up on that. I mean, I mean, I'm glad you're have that confidence in terms of the second, the next administration coming through with these permits, but is there some sort of a bucket plan, Jason, just in case these permits get delayed into 2025? Or is that not a worry right now on on your end?

No, there is there is I would offer backup plans, which we're implementing now to make sure that the impact of production is not us that there's no impact to production in 2024 and 2025. And that's through a function of the sequencing, the benches differently, thinking deeper into what we would call the constrained pit. So we can do that over the coming years. And but as you can appreciate, in order to get the fully expanded Camino Rojo oxide pit that we envisioned via the layback agreement to towards the end of mine life. We need the permits to expand to that larger envelope, and we'd like to be able to do a consistent stripping over the years leading towards the end of mine life, so that there's no and on a cash impact year over year.

And then, Jason, just a factual, I would just And my last question to you is in regards to the 2024 all-in sustaining cost number. Our guidance, obviously, there was plans for these pushbacks to take place now since things are getting delayed. Are you I mean, is there a chance that the AC guidance gets revised downwards based on how much you can spend this year? Or will you still stick with that?

Efficacy?

Yes, I think there is some cost reduction if we strip less than 100% of the waste that we have budgeted. But through that resequencing that we that I just described are based. We believe that we're going to be able to strip over 80% of the wall rock that we had planned. It won't come necessarily from the young permitted a layback area, but it will come from other sources. So as I mentioned earlier, certainly for the gold production, but also the rock production, we'd resequence things via establishing an unplanned ramp within the pit to enable us to still move the rock ahead of time as well as maintain gold production. So we're going to be striving to achieve our budgeted and guided waste and ore movement levels throughout 2024. And the waste movement levels throughout 2024 is what enables us to be confident that we can mitigate impacts to 2025 on it.

That's it for me, Jason.

Thanks for taking my questions and great color.

Thank you.

So your next question comes from the line of Andrew Mikitchook took my apologies from BMO Capital Markets. Your line is open.

Okay, Jason, congrats to you.

And the team for a great quarter is always a very comprehensive presentation here.

So I'm just kind of one question, Ken came to revisit this reduced pressure size or crushing size, some effort that you're doing in terms of exactly what's happening and conceptually, what would that mean to either costs and or throughputs if this actually occurs?

Yes.

Thanks, Sankar, all introduced.

So I'll introduce the response, but I've got Andrew carmaker across from me that that can convert some additional color to the great work that his team has been doing there. And he's explained to me that it is, in fact a changing and sizing through through screen replacement rather than adjustments to the crusher. But I'll let him get into that detail.

One of the things that he and I discussed when we were pursuing this, it was the ability to maintain the production performance that we've seen over the past two years at Camino Rojo exceeding nameplate and that 19,000 tonne per day stacking rate that we've been able to maintain. And what he has demonstrated since starting that pilot project is that not only has he been able to increase recoveries it through to the lower sizing, but also maintain the throughput. One of the risks that we had to consider was as we processed a smaller size, would that negatively impact our throughput abilities. And that hasn't been the case. So this is early days, but tremendously good news. I'll ask and require me to give you some specifics on what the project is and the results it's delivering.

Morning, Andrew?

Yes, as Jason referred, we were modifying the circuit starting in August of last year, which reduced the screen size of the crushing circuit. And in doing that, we had a finer and finer final crusher site. And that's all been achieved without reducing nameplate capacity at or above nameplate capacity of 19,000 tonnes per day.

What we've been seeing in the heap leach as you can appreciate it's a 90 day leach cycle. So it takes some time to be able to confirm these plant trials for improvements. But we are seeing positive gold and silver recoveries. And we would expect that later the first half of this year that we'd be able to quantify that. And if there's any revision to guidance, we will provide that at that time. But all indications now is that this initiative has been very positive on gold and silver recoveries without reducing the throughput capacity of 19,000 tonnes a day and just because I wasn't writing as quickly as they might have been.

What was the change in screen size? It was like 23 to 26 or 26 to 23 just I didn't read data goes yes, the 2027 to 23 millimeters, so reducing the size of the protocols that pass through that site.

So.

Okay. Thank you very much. I'll sign off and let others ask questions.

Thanks.

And your next question comes from the line of Arun Lamba with TD Securities. Your line is open.

Morning, guys. Just a couple small ones from me on just in terms of 2024 guidance and production, I know last year you kind of had every quarter was better than the last with Q4 kind of being the highest? And what should we think about in terms of 2024? Is we kind of expect equally weighted second half weighted just in terms of somewhat quarterly production guidance, if you can give some color.

Yes, we'll provide a bit of color. We clearly are and don't provide quarterly production guidance. But I guess as we recognize the sequence of production last year. I'll have Andrew pull up sort of some quarterly color on grade. Clearly recovery would be the same, but I would offer that we have a pretty consistent grade profile through the year. We would expect the consistent now improved recovery above the feasibility expected levels on and what we have to weave into that in our guidance is consideration of bench sequencing, consideration of seasons and so on. And we tried to consider all of that in a way that has us achieve guidance and to the expectations of market. If we have no have more positive things happen throughout the year than negatives. And then we'll increase the guidance as we've done over the past two years. But if there are a balance of positive and negative things throughout the year, which would still expect to achieve our guidance. That's how we model our guidance.

So any color, Andrew, on the quarterly without giving quarterly guidance. So the quarterly sort of expectations for for the broader market morning, Arun?

Yes.

So what we can say about our quarter, our expected quarterly performance is that it will be flat and consistent with our annual guidance that we've provided.

Yes, I think some in some operations room, they certainly you'd cover and I've been familiar with there is a clear distinction based on grade or otherwise sequencing in those operations where they may have to guide that second half could be stronger than the first. In our case, I would expect a reasonably consistent production profile across Camino Rojo. It is one of those types of ore bodies where we can just consistently produce at the low costs that we've indicated and harvest the expected amount of cash.

Great.

That's very helpful.

And then just let's just move to Nevada quickly and expectations are in the DR deal and file the notice of attend 2024 and then hopefully the record decision final permits for construction in 2025. I'm just wondering when should we expect kind of an updated study to kind of reflect the oil standard to build SRP. I'm thinking it would probably be in 2025.

And maybe some color on the timing of when you guys would put out kind of a new feasibility study for SRQ?

Yes, you're exactly right in the timing or around. So we would look to gauge where we are in the permitting process and everything. If everything is remains on schedule and we can see sort of within six months of record of decision. That's when we would make sure that we're ramping up our construction engineering and optimization all offer because as we've communicated, we would make some changes to the field feasibilities 2021 feasibility study and actually through 2022 feasibility study done by GSV., including consideration of crushing, Ansell and a variety of other optimizations that we've identified that we would likely embed in our engineering process. So yes, we are currently based on the permitting time lines that we're striving for, anticipate that midyear 2025, we'll be working away at optimizing and updating the construction engineering that will go hand in hand with updated estimates and quotes from from suppliers and contractors. This is the exact same playbook that we followed in constructing Camino Rojo so that we can update the market in 2025 of what oil is going to build, how much it's going to cost to build it, how long we expect to take to build it and hence establish our report card for the construction program through 2026. So that's when you can expect all of those updates.

Great.

And just the last one really quickly, it's probably more high-level, but and recently noticed in the market, obviously Fairfax increased their position.

They appear to be your largest shareholder now maybe any relationship and then you kind of have with them on anything you can provide on that, Tom, obviously, high level and certainly we're very grateful to have Prem Watsa as now our largest shareholder, and he has been a fantastic supporter of the company as he described in a recent meeting with him, he's interested in finding companies that have good assets run by strong management teams that want to grow value. And he's in it for the long term. So that's exactly how he characterized his investment thesis. So we're grateful for that. The relationship was established through a Pierre Lassonde and Carol Sokolov. So as we know, Pierre Lassonde is one of the founders of the company and has been supportive of the company throughout the past six years. And so Orla was introduced to cure. So Gloster and <unk> and Prem Watsa us for a strong investors across a variety of investments. So I think everybody's familiar with Fairfax and and they have a point of view of both to both gold. And I think what we can all appreciate the decoupling of gold equities in relation to the gold price, and they see tremendous value in gold equities. If they select the right companies. And fortunately for us or our prem believes that the Orla is the right company.

Great.

Thanks so much, Jason, and congrats on the clean quarter and my questions.

Thank you.

Thanks.

And once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from the line of Steven Schick with Stifel. Your line is open.

And Jason and team again, congrats on another very solid quarter, very profitable quarter. And I was just wondering if you could provide a little color on how you're able to control costs. So well, click on unit costs, kind of beat expectations here when so many of your peers in Mexico are struggling with both FX headwinds and inflation in country. If you could just give us a little insight into what your magic sauce is there?

Sure.

But once again, I'll start to answer and then hand it over to the guy who is controlling the costs.

Andrew, Andrew Cormier.

The first thing I'd like to acknowledge is the particular mine characteristics of Camino Rojo, very low strip ratio open-pit heap leach inflate very flat. Terrain, frankly, is the type of mine that is going to have low costs. So so all we can take credit for there is we knew that elected to build this high-margin mine first as the foundation for the Company. And now, of course, we bought as we built it through the pandemic and help solve the inflationary pressures post pandemic, we've had to walk the same roads that other companies have had to do as well. And we did increase our salaries for our employees in Mexico. So we have if we want to call it some inflation in labor costs through our CBA negotiations, they are seeing higher costs in their household and hence, the company is helping to provide both better payments for the two to eight families in Mexico. But in terms of the other operating costs outside of labor, things like the agent supplies and services, Andrew and his team have done a good job in working with our suppliers and contractors that, frankly, the inflation cost has been diminimus.

And Andrew, any other color on on your cost containment to in Mexico?

Sure.

Point, Steven. Yes, as Jason said, we have the same inflationary costs on labor as everyone else. However, on the re-agents and commodities being a fairly new mining entity when we first started our supply contracts, we were unknown. So the pricing might not have been as good as some of our peers at the time. And as we've demonstrated our capabilities, not only operationally but financially with with those vendors, we've actually been seeing our pricing unfold or dropping through to the last two years of operation. So what that's resulted in is some of those upward cost pressures that others might be seeing in these commodities. We're actually seeing a hold or slightly lower unit costs on those, and that's a testament to the negotiating of our procurement department at our site.

Great.

Thanks.

The answer is that I'm Well, appreciate it, and that's it for me. I'll open the line to someone.

Thanks very much for the questions.

This concludes the question and answer session. I'll turn the call to Jason Simpson for closing remarks.

Thank you, operator. Since there are no further questions, I'd like to thank you for your time. Never hesitate to reach out to Orla. Should you have any follow-up questions we're available.

This concludes today's conference call. We thank you for joining you.

May now disconnect.