Vista Gold Corp (VGZ) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Vista Gold's Corp. first quarter financial results and conference call with management. At this time, all participants are in a listen-only mode. Following the discussion, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded. Today is Monday, May 14, 2012. It is now my pleasure to introduce your host, Mr. Fred Earnest, President and CEO. Please go ahead, Mr. Earnest.

Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss our results for the three months ended March 31, 2012. With me on the call today is Terri Eggert, our interim Chief Financial Officer. Terri will provide a summary of our operating results for the first quarter of 2012, and then I will give you an update on our project activities. We will then open the conference call for your questions.

Thank you, Fred, and to all of you for participating on our conference call today. We really appreciate your time and interest. First, I will summarize for you the significant financial transactions that occurred during the first quarter of 2012. On February 7, Vista and Invecture Group S. A. de C. V. entered into an earn-in right agreement with respect to our Concordia Gold project in Baja California Sur, Mexico. Under the terms of the earn-in agreement, Invecture made a non-refundable payment of $2 million in exchange for the right to earn a 60% interest, which was subsequently adjusted to 62.5%, effective May 1, in Desarrollos Zapal, S. A. de C. D.

Also in March of 2012, the Company received $1.5 million from Awak Mas Holdings Pty. Limited, under the additional option agreement, resulting in a gain of $934,000 on our Awak Mas gold project. Also in March, the Company received $733,000 from the exercise of certain compensation options. And finally, on April 19, we announced that we filed a final short form base shelf perspective with the Securities Commission in each province and territory of Canada other than Quebec, and that our shelf registration statement on Form S-3 filed with the SEC was brought effective. These offering documents were filed to replace our prior Canadian short form base shelf perspectives that expired last year and our shelf registration statements on form S-3 that expired on May 1 of 2012 and allow us to make offerings of common shares, warrants, subscription receipts, or units for aggregate proceeds above to US $200 million, during specified periods of time.

With that background, let's review our balance sheet. Cash and cash equivalents declined by $3.1 million, from $17.9 million at December 31, 2011 to $14.8 million at March 31, in support of advancements at our Mt. Todd gold project, the exploration drilling program at our Guadalupe de los Reyes gold silver project, and the earning right agreement with Invecture. These cash outflows were partially offset by the $733,000 we received upon exercise of the compensation options, the $2 million non-refundable payment we received from Invecture, and the $1.5 million option payment we received from Awak Mas.

The payments we received from both Invecture and Awak Mas reduced the mineral property balances of our Concordia and Awak Mas gold projects by $2 million and $566,000, respectively. Additionally, our investment in Midas Gold Corp. declined in value by $4.6 million net of deferred taxes at an effective tax rate of 38.87% from December 31, 2011, to March 31, 2012, due to a decline in the value of its common shares, which is consistent with a decline experienced during the first quarter of 2012 in the value of shares of other junior gold stock. Lastly, we recognized stock-based compensation expense of $1 million for outstanding stock awards, including the restricted stock that we were granted in January of 2012.

Turning now to our statement of income or loss, with the continuation of drilling, permitting, and development activities at our Mt. Todd gold project and the ongoing exploration program at our Guadalupe de los Reyes gold silver project, we incurred a net loss of $11.2 million or $0.16 per basic and fully diluted share for the three months ended March 31, 2012. This is compared to a net loss of $3.9 million or $0.06 per basic and fully diluted share for the same period in 2011. Compared to this respective prior period, results for the quarter ended March 31, 2012, were primarily attributable to -- one, the increased cost of $2.8 million that we incurred to advance the feasibility study and permitting process being undertaken at our Mt. Todd gold project; and, two, increased cost of $976,000, due to legal and professional fees associated with the earn-in right agreement with Invecture and our Canadian and United States prospectuses and for stock-based compensation for the restricted stock units that we granted in January of 2012. These increased costs were partially offset by the $934,000 gain we realized on the $1.5 million payment we received from Awak Mas under the additional option agreement. Additionally, we recognized an unrealized loss on our investment in Midas Gold Corp., as noted earlier. Fred will now give you an update on our operating and project activities.

Thank you, Terri. Before proceeding to provide an update on our projects, I would like to address two topics that have been the source of repeated questions following our recent announcement. The first topic is the adjustment of the percentage interest which the Invecture Group can earn in the Concordia project. The earn-in agreement was based on the premise that Vista would successfully complete the process of getting a resolution from the Mexican Secretariat of Agrarian Reform indicating that the land previously thought to be federal land was in fact private land and that the Company had executed the necessary transactions to become the owner of the private land. In spite of very diligent efforts made by our team in Mexico, and in part due to changes within the organization of the Secretariat of Agrarian Reform in Baja California Sur, we did not succeed in obtaining the resolution prior to April 30.

The agreement recognized the value of the work that had been done prior to its signing in February and the value that would be realized upon receipt of the resolution. The parties agreed to the 2.5% adjustment in the event that the resolution was not received prior to April 30 of this year. Work continues in the effort to obtain the resolution. However, our costs related to this effort have ceased. We believe that Invecture will be successful in getting the resolution from the Secretariat of Agrarian Reform. We believe that that will effectively validate the transactions that we have previously concluded to acquire the rights to that piece of property and thereby facilitate the permitting process, specifically as it relates to the change of land use permit.

The second topic is our cash burn rate. As reported, we concluded the first quarter with $14.8 million in cash, not including investments. We project that this will fund our planned activities into the fourth quarter of this year, with the following explanation. We are presently working with the government of the Northern Territory in Australia to obtain certain permits that would allow us to treat the acidic water that has been pumped to the Batman Pit over the period of the last seven to eight years. It is expected that these permits would also allow us to discharge most of the treated water over the next two wet seasons. If we are successful in obtaining these permits, we expect to incur water treatment charges of approximately $8 million in the third and fourth quarters of this year, which will necessitate that we undertake financing activities to fund the treatment of this water. We believe that this would be a very positive step in the development of the Mt. Todd project, as water management is a critical path item in the development of the project.

Now, to proceed with the discussion of developments at our projects, at our Guadalupe de los Reyes project in Sinaloa, Mexico, we have recently concluded drilling activities for the season and are concluding and core logging and final assay. As the dry season in the project area has been more pronounced than usual, we are providing assistance to local landowners in the form of transportation of water for livestock consumption. This may continue through the end of June. We have commenced the preliminary economic assessment for the project, and a technical site visit was completed by Tetra Tech. Metallurgical testing of core obtained from our drilling has been started at the lab of Resource Development Inc. in Wheat Ridge, Colorado. At the present time, we expect to have the preliminary economic assessment completed in the third quarter of this year.

At the Concordia project, we are pleased with the initial progress being made by the Invecture Group and look forward to the results of their efforts as the year progresses. At the Mt. Todd gold project in the Northern Territory of Australia, we continue to receive favorable results that are changing our view of the project in a very favorable manner. The drilling program that was started in November of last year with a planned scope of 8,500 meters has been increased to 14,300 meters, based on the favorable results achieved to date. We expect this program to conclude the second week of June. Those of you who have taken the time to review the results of this drilling, as contained in our public disclosure and as shown in cross-sections found on our website at www.vistagold.com, realize that we are encountering mineralization previously classified as inferred resources as projected, and additionally, in some areas that were not expected, and also that the grade of the mineralization that has been encountered has been of generally better quality than estimated in our resource estimate. We are encouraged by the results of this drilling and look forward to the results of the new resource estimate that we expect to be completed in August of this year.

We have recently received the results of metallurgical tests completed on samples obtained from the existing heap leach pad. We have always treated the heap leach pad as an environmental liability, but based on work that started last December, our views are changing. Based on historical records, the heap leach pad contains approximately 17 million tons of material that was partially leached by previous operators, prior to the closure and abandonment of the project. In the coming weeks, we expect to announce the results of the metallurgical testing on material from the heap leach pad. Work on the feasibility study for the 30,000-ton per day operation, which does not consider the results of the drilling program that is in progress nor the result of the metallurgical testing of material from the heap leach pad, is coming to a conclusion. We're in the process of evaluating the potential impact of the recent findings on the scope and the scale of the Mt. Todd project.

In conclusion, we continued to move forward to realize greater value from our portfolio of assets. We recognize that the last months have been an unsettling period for resource investors. I believe that we have work in progress that will allow us to distinguish ourselves from our peers as the year goes on. We appreciate your interest and continued support. And I will now open the call for questions from those who are participating in the call.

Thank you. (Operator Instructions). Our first question comes from Marco Rodriguez from Stonegate Securities. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I was wondering if we could talk a little bit more about the Invecture transaction and what recently transpired. I would appreciate the additional color that you provided in your prepared remarks. Perhaps you can maybe talk a little bit about timing, when you think -- has Invecture, rather, communicated when they think they might be able to get that resolution?

Marco, good morning. Thanks for the question. Actually, we had been working very closely with the people at the Secretariat of Agrarian Reform up to and through April 30. We had been hopeful that we would actually achieve that resolution prior to that date. The team at Invecture is continuing to use the team of people and the resources that we had put together to achieve that resolution and have added some people from their own political relations team to that effort.

At the present time, we do not have any guidance from Invecture as to when that resolution might be issued. We were always under the impression that it was a couple of weeks away. I don't know if I can provide any meaningful guidance as to whether that's -- if we're talking in the next week or two weeks or three weeks at the present time.

My last communication with the team at Invecture indicated that they were working closely with the people in the Secretariat of Agrarian Reform and were pushing the matter forward and acknowledged it was crucial and very important to the final approval and issuance of the change of land use permit and that they were using all of their resources to finish up the work that we had started. I'm sorry that I'm not able to provide a more specific date, Marco, but that's the best information I can provide at the present time.

Okay. That's fine. And maybe you can talk a little bit about what's driving your level of confidence, then, in terms of them getting this resolution.

Certainly. You'll recall that when we announced the transaction in February that we indicated that we felt that we needed to bring in a Mexican partner, someone who had a more intimate understanding of the workings of the Mexican political process, someone who had political capital that could be deployed in the effort of achieving the authorization of the permits.

In conversations with the Invecture team, I have gained a level of confidence that they are doing exactly what we expected them to do and what they indicated they would do prior to the completion of the transaction. They are -- based on dealings with their other projects within their portfolio, they have an already established relationship with regulators in the Mexican government, specifically within SEMARNAT and also at the Secretariat of Agrarian Reform.

I believe that those relationships will, at the end of the day, carry more weight than strictly the legal relationship that exists between a company applying for permits and the regulatory agencies. And that's typical of the way business is done in Mexico.

And so, the value that we saw in the Invecture Group, with their Mexican residency, their Mexican experience, and their ability to move and accomplish things and the track record of having done so, was very appealing to us. And there's been nothing in the events of the last three months that have changed my opinion. And therefore, I continue to be optimistic that they will succeed in this effort.

Okay. And then shifting gears here, when we're looking at your operating expenses for exploration and property valuation, how should we be thinking about that line item as we progress through the year?

The exploration activities at Guadalupe de los Reyes have been concluded. We will be reevaluating the opportunity to restart that program in the fall, after we complete the preliminary economic assessment. But for now, those expenses have been terminated. We're winding down the core logging and will have some assay expenses here in the next four to six weeks.

With regards to project development costs at Guadalupe de los Reyes, the only real costs are the costs associated with the preliminary economic assessment, and that's being done by -- and the metallurgical testing, which is work being done here in the US.

With regards to Mt. Todd, we are likewise winding down our exploration activities. We are -- as I indicated, we expect to complete the 14,300-meter drilling program the second week of June. And we'll have most of our exploration costs wound up in the second quarter financials for this year. There will be a little bit of ongoing assay expense and analysis expense.

With regards to the project itself, our site management costs are very much in line with what we've seen in years past, with the exception that we have approved some out-of-budget expenditures for repairs related to the storm that the project experienced last December 26. And now that the wet season is over, those repairs are ongoing.

The major project development expense that we will see, as I mentioned, is the water treatment. And that's entirely dependent on the approval of permits. So, our level of expenditure with the work on the feasibility study winding down and the drilling programs winding down, the level of expenditure is dropping off compared to what you saw in the first quarter of the year.

Helpful. And then, just a clarification, in regard to the potential expenditure for the water treatment in Australia at Mt. Todd, was that -- I'm not sure if I caught that correctly. Was it $8 million in each, Q3 and Q4, or a total of $8 million?

It's $8 million total.

Okay. Got it. All right. Thanks a lot.

Okay. Thank you, Marco.

Thank you. Our next question comes from Brian Post from ROTH Capital Partners. Please go ahead.

Good morning, Fred. Along the lines of that water treatment project, is this project included in the development time line for Mt. Todd? Or if you were able to do it now and get your permits early, does it accelerate anything?

No, Brian. The water treatment for Mt. Todd is contemplated in the present development program for Mt. Todd. The program that's been proposed is the in situ treatment of water in the Batman Pit using micronized calcium carbonate, with a second step using a smaller amount of quick lime to raise the pH to approximately seven and then allowing the water in the pit to settle.

We would then propose to discharge the treated water under the conditions of our present water discharge license over a two-year period, and that water would be discharged during the wet season. Obviously, this water -- the water level in the pit needs to be dropped in order to be able to initiate the pre-production mining activities, which include a little bit of stripping and also the stockpiling of certain amounts of ore that will be treated and blended in over the early years of the project.

Okay. And then $8 million, is it pretty even over those two quarters or any time period?

Actually, it would be pretty even over the two quarters. Supposing that permits are received in July, we would then give the orders to the contractor to mobilize their equipment. Treatment would start in mid-August, and we expect that the treatment process will take 10 to 12 weeks. So, I would expect the cost for the treatment would be pretty evenly distributed over the latter half of Q3 and the first part of -- the first half of Q4.

Great. Thanks for the detail. And at Guadalupe, for the PEA, can you give us an idea of the scope of the PEA relative to the information that we already know? Obviously, your past published information is based on small amounts of drilling. How much bigger can we expect that almost addressable area to get with the PEA?

That's a good question, and I've just been reminded, we're starting to wander into some topics where I guess, for clarity, I should remind everybody that's on the call that some of the topics that we are addressing are forward-looking statements. I would encourage you to refer to the disclosure that's found in our corporate presentation regarding cautionary notes. I think that it would be advisable for you to review that and just be aware that some of these statements are forward-looking statements.

In regards to your question, Brian, at the present time, the Mount -- or the Guadalupe de los Reyes project is comprised of resources that are both indicated and inferred. They are based on the results of shallow drilling completed in the late 1980s and early 1990s.

Those results are being validated -- or the purpose of our drilling program that has concluded was to drill enough that we could validate the results of those previous estimates. The scope for the preliminary economic assessment is for an open pit operation that would concentrate on mining the resources as defined. The material would be processed through some sort of a milling operation.

Given the relative relatively large difference in the magnitude of concentrations of gold and silver -- the gold grades are somewhere in the range of 1.5 grams per ton, and silver grades are in the range of 25 grams per ton -- that it would be necessary to have a milling circuit with cyanidation followed by a Merrill-Crowe recovery circuit to be able to recover the volume of -- or a significant part of the silver that is present in the deposit.

The tails would then be detoxified and deposited in a tailings impoundment facility. At this point in time, I'm not able to give any guidance on approximate size of the operation, as the scoping study that will determine the plant size has obviously not been completed. But that is the type of operation that is contemplated.

Got it. And then exploration, looking at Mt. Todd beyond Batman, any progress or any update on ideas or thoughts in Quigleys or Silver Spray or those other areas?

For the purposes of our planning for this year, we are not planning to do anything else with Quigleys. It will continue to be reported as a resource. We have -- as we will not be undertaking any drilling, we will likewise not be undertaking any metallurgical testing and, therefore, will not include the Quigleys resource in any feasibility study or reserve statements in the near future.

With regards to properties on the exploration licenses that you referenced, such as Snowdrop, Golden Eye, MSTS-2, and MSTS-5, we are continuing to undertake soil sampling studies and work to further define targets. At this point in time, we used our exploration license budget for the additional drilling at Mt. Todd, as we felt that created more value.

We will evaluate market conditions and our cash position later this year and determine whether we will authorize additional program drilling on the exploration licenses or not. But at the present time, we are planning for the first part of the dry season to undertake additional field reconnaissance mapping and soil sampling work. And we'll see where the markets go as far as determination for additional work.

Great. Thank you.

Thank you. (Operator Instructions).

As it appears that there are no further questions, I will take this opportunity to thank all of the participants on the call. We appreciate your interest. We appreciate the questions that you've asked. And we look forward to seeing each and every one of you as we make calls on the investment community through the coming months. Thank you very much, everybody.

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line, and have a great day.