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Good morning, ladies and gentlemen, and welcome to the Aya Gold & Silver's First Quarter 2023 Results Conference Call. [Operator Instructions]. This call is being recorded on Friday, May 12, 2023. I would now like to turn the conference over to Ruth Hanna. Miss Hanna, you may begin your conference.
Thank you, operator. Good morning, everyone, and welcome to Aya's first quarter 2023 results conference call. My name is Ruth Hanna, and I'm the Investor Relations and Communications Manager, dialing in with some of the Aya team from .
On the call today, we have Benoit La Salle, President and Chief Executive Officer; Ugo Landry-Tolszczuk, Chief Financial Officer; Raphaël Beaudoin; Vice President Operations; and David Lalonde, Head of Exploration. We will finish today's event with a Q&A session with the team. Please contact our Investor Relations team directly with any follow-up questions that are not addressed during the call.
Before we begin, I'd like to remind listeners that today's event will contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Details on the forward-looking statements are contained in our May 12 news release, as well as on SEDAR and at www.ayagoldsilver.com. With that, I would like to turn the conference over to Aya's President and CEO, Benoit La Salle. Benoit, please go ahead.
Thank you, Ruth. Good morning, everyone. Thank you for being there today for the first conference call. I would ask you to go to page 3 of the PowerPoint, which is on our site and on the site for the conference call. If you go to page 3, we have the key highlights of our first quarter. The first highlight is our production at 474,813 ounces of silver, second-highest quarterly production. You'll recall that our highest quarterly production was in Q4 of 2022, which was an exceptional quarter due to a very high grade zone.
The total cash cost for Q1 is $14.56 per ounce sold, which is aligned as well with our guidance. And as you know, Q1 is always for Aya the more difficult quarter due to the weather. And hence at $14.56 per ounce in Q1 of 2023, we're completely aligned with our guidance. Another highlight is we generated $10.4 million of revenue and $4.1 million in operating cash flow for the quarter.
Also in the quarter, we closed an oversubscribed equity bought deal for $92 million, and we exited the quarter with $91 million in cash and cash equivalent. We are fully funded for the task ahead, for the plant expansion, for the exploration program. And hence, this is why in Q1 of 2023, we did this financing to have a fully funded company for the years to come. The overall construction progress is assessed at 32%, and we'll come back to that later on in some of the slides.
One of the highlight was in exploration. The extension of the Boumadine open-ended strike to 3.4 kilometer, you recall originally we were at around below 1 kilometer, and now with the last results that we presented, the strike is at 3.4 kilometers. And also it was the discovery of the new stock work mineralization. David Lalonde is on the call and he will be there to answer some of your questions.
Going to slide number 4, a very interesting slide because we have the guidance for all of the KPIs and we have the Q1 results. So the guidance on silver production, our guidance was 1.7 million to 1.9 million ounces for the year, and we are at 474,000 ounces for Q1. So you see that we are on guidance and especially that Q1's always a more difficult quarter. The cash cost at $14.56 is aligned with that guidance at $14.40. I'll come back to that cash cost for a minute. Let's not forget that we're running the company today, not on minimizing cash cost and maximizing profit, but in being ready for the plant expansion of next year.
So if we ran the company today, knowing that there's no plant expansion, of course, we would have probably less people and we'd be not managing it the same way. But our goal is for next year to grow our production with the new plants starting. And hence we're building the team and organizing the site so that we have a very smooth commissioning next year. The average grade is for the quarter 235 gram per tonne. The guidance is at 264, and I'll come back to that in the next slide.
But due to the nature of this deposit, we do have small, sometimes large fluctuation in the grade. The mill recovery was very good at 87.1%, our guidance was at 86%. And the tonne processed, a very strong quarter at 72,737 tonnes, and the guidance for the year was 245,000 tonnes; so we're way here ahead of guidance.
So going to slide 5, you have some charts that are quite interesting. The first one on the left hand side is showing the production. And you see that at 474,000 for Q1, it compares extremely well to Q1 of last year. Of course, beside Q4, it's a little bit lower, but you recall that you see it on the chart, below on the grade. The grade at 235 is aligned with what we saw in Q3 of last design -- in Q3 of last year. Q4 was an exceptional year.
But this is the nature of this deposit is at times, we're going to be in 235, 240. And at times we're going to be at 300 and more mining higher grade parts of the deposit. What's important for us is to mine these deposits in its logical sequence and really to maximize the number of ounces that we will take over the mine life. So for the quarter, we were at 235, which is a bit lower than the guidance for the year.
On the right hand side, the average recovery at 87.1% is totally aligned with the where we want this company to be. We had almost 90% in Q4, but it was an exceptional quarter. And on the ore process, at 72,737 tonne, well, that's a record. So this is very, very strong quarter for tonne processed. And that's what you see on the right hand side, at the bottom chart.
Moving to the next one, what's interesting again on the left-hand side is the cash flow. And if you look at Q3 2022, Q4, and Q1, we generated like $13 million of operating cash flow in the last three quarters. So the mine -- the KPIs are all good, and we are operating well. It's generating cash and obviously, we all know that this is coming from the two smaller plants, the leaching plant, and the concentration plant.
And once the third plant is up and running, all these numbers are going to change in a dramatic way. The gross margin at $2.1 million for the first quarter that's aligned with -- it's also a function of our selling price, which was around $22 an ounce. Obviously, historically, we had a better selling price than that, but that's the reality of our industry. The cash cost -- the cost of sales at $8.4 million is also aligned with our production numbers. And you saw that our cash cost is at and .
So we have a very, very good quarter. So the cash cost, as I said, on the right hand side of $14.56 well, it's aligned with guidance very similar to what we've had in the previous quarters, obviously, except for Q4, where the grade was 350 gram per tonne. So financially, we had a very strong quarter. We have a very strong cash position. And which, as I mentioned and I'm saying it again, we're fully, fully funded for the years to come.
And before we go into geology and operation, I'll just cover sustainability. It's a very, very important part of our values. And we do have, as you know, $100 million loan with EBRD, which is really an ESG loan, which has all kinds of KPIS. So we have rolled out in Q1 our program in health and safety. Now health and safety is an area that did not exist when -- a concept that did not exist when we arrived three years ago. We're pleased to say that in Q1 of this year, it was our best quarter ever is no accidents, no fatalities, no LTI, so no long-term disability were recorded. We also gave over 1,000 hours of training.
So this is a momentum situation where you really have to bring health and safety as part of the value and it's coming and we're doing very -- much better should I say than when we arrive. And we're pleased with the results of the first quarter.
Also on ESG., we're advancing the construction of the power line at the 90 kilometer power line. And that's important because we will be receiving renewable grid power, green energy. And this Zgounder mine will, once up and running on that power line, will be one of very few mines in the world running on green power.
The ongoing water testing and the launch of the air and noise monitoring system, that's also an important element of mining, and we're doing this. We're implementing the task force on climate-related financial disclosure, we're about 60% completed. And we're 31% completed on EBRD's environmental and social action plan. So these are very strict KPIs that we have. We have -- it's part of our goals. It's part of our values. It's part of our strategies. And it's also all of that is part of our remuneration package, it's part of our KPIs.
So the ESG aspect of our business is seriously embedded in everything that we do. And we have the rollout in the community programs, and we always talk about that, and that's something that we communicate with you on a regular basis. It's something that is extremely, extremely important and we have it for -- at our medical program that exists there. We support education. We also have implemented a stakeholder engagement plan, so this, again, a very strong Q1 on the ESG front.
Now talking about the construction, and that's taking you to the next slide, very interesting. You saw the video that we put out at the beginning of the week. As of today, the video has been seen 36,500 times. So it's a YouTube success. So the video is showing great progress. You have a picture here that shows the site. It's very interesting and the construction, as we indicated, is 30% completed.
You have that on the next slide on slide number 9, we have a bit of a detail on the process plant. It's completed at 26%, of course, because the erection of the steel has not yet started to build the plant, but the underground and the open pit is done at 29%, tailings and water managers at 41%, electrical infrastructures at 18%, which is normal because it lags behind other infrastructure, and on-site infrastructures is at 53%.
Raphaël is on the call. He just came back last night from site. He was in Montreal, and he came back one day ahead of schedule to participate on this call. So if you have questions on construction, completion, and all of that, Raphaël is with us.
What's important is the lateral development is we have 5107 meters done on our 11,000 meter program. Cement is being poured. Engineering is about 80% completed. Earthwork is near completion. The advancement of the new tailings and water facility, you saw that on the video that's going very, very well. The EPC is progressing with the critical items that's going well.
So today, out of our budget, we're about $119 million contracted across all the capital cost categories. At year end, we had incurred -- at year end -- sorry, at quarter end, we had incurred about $26 million. Obviously, now it's a bit more. So we say that we are on budget and we are on budget. And Raphaël will be able to comment on this.
Going to page 10 of the small PowerPoint, you have a few pictures showing you the earthwork, how we're advancing, and the installation of the ore silo has already started. So you see a couple of pictures, but the best, of course, is from the video that is available on our website.
Now going to exploration, which is a central part of what we do. The exploration programs are going extremely well in Morocco. As you know, we have three large programs. We have Zgounder on the main zone, where our budget is 26,000 meters. We have Zgounder Regional, where our budget is 6,700 meters for the year. Then we have Boumadine, where our budget is 36,000 meters. So that's on page 11 of the PowerPoint that you have.
So coming to the -- going to page 12, that is Zgounder the main zone, so we are at 3,200 meters drilled so far. It is aligned with our expectation because the budget -- the 26,000 was divided 25% per quarter because we needed to complete the lateral development at the bottom of the current mine so that we could start the underground drilling from this new gallery, bring in water, bring in electricity, and start drilling.
So you see on that slide, page 12, all the blue lines are drilled potential or expected proposed drill targets because our intention is to have drilled the full structure for year end in order to include all of the results into a resource calculation for Zgounder main zone. So that's extremely, extremely important.
We are also focusing on Zgounder Regional, where we have a budget of 6,700 meters. That is, of course, is a little bit different because that's that systematic drilling, it's more exploration drilling. So David, with the team are looking at targets. We have many, many targets, and they are doing more exploration drilling to the north, on the two permits that we have there. And there's also a permit southeast that has some very, very good targets.
The next project and which is of great interest is Boumadine. Boumadine in the quarter, we've announced some very good results. The most important one was 192 gram per tonne of silver equivalent over 129 meters, but that was also extending the strike length of the structure to 3.4 kilometer. It was also showing that it was opening up to the south as you all know, now we're drilling 400 meter south again to go even further at 600 meter or it is called .
And we are looking -- this is being drilled as we speak, obviously, to understand at the opening of the stockwork that we saw in the in Section 6,000. So it's a very, very interesting program. We are not all done, but we are more than 20,000 meters done. We will have a complete review of the results over the coming few months and then we're going to be making some decisions during the summer on what's next. But Boumadine is really looking very, very good. There's some infill drilling as well going on in the central zone in the north, and that's very important.
On slide 14, you have a section, which showed the mineralization, which is clearly open at depth. It's open to the north. It's open to the south. But it's also clearly, clearly open at depth. So it shows you the strength of the mineralization. You recall the central zone was well mineralized giving us silver equivalent grade that were very, very good. And now we have to understand what we have and that's why we intend to put in many thousands of meters of drilling.
The slide on page 15 is showing this last drillhole where you see the five veins, if I can call them like that, that were mineralized historically, and to the north where you had veins, in between there was no mineralization, the stockwork was that mineralized. But in this case, at that level, when we've hit these five veins that you see on slide on page 15, the stockwork is also mineralized, hence showing the potential to be much closer to the heat source or the beginning of this mineralization.
So a very strong quarter, Q1 was great at the mine. The operation went very well. The financing was very well done. The exploration is going on and it's been very successful. And on the ESG front, it's going very well. So you have it on page 16, you have the takeaways of the first quarter, very good production, good cash cost aligned with our guidance.
We're delivering the key milestones for the 2,700 tonne per day as Zgounder plant expansion, the start of construction of the tailings dam, the water reservoir, it's done in Q2, complete the detailed engineering in the beginning of the open pit operation. Raphaël can comment on that on Q3 delivery of the ball mill that today is aligned. It's not confirmed because it's -- we can't say confirm.
But we see that that will happen in Q3, completion of all the water storage basins, and for Q3 all of that will be done. The drilling at Zgounder is going well and will be completed for year end. The drilling at Boumadine will be completed by mid-year, and we'll review then what we will do, and the same for Tijirit. We don't talk about Tijirit a lot, but the drill program is complete. The feasibility will be completed in a couple of months. So it's following its critical path.
The ESG milestones for 2023 are extremely important because they are aligned with the EBRD loan agreement. We're following this closely and there, as we mentioned, we are again there on the ESG implementation. We are on time and there's no budget, but we are on time as per our agreement. And we will continue the year focusing on health and safety. It's part of our value. And it is extremely important. So, operator, that completes the formal presentation for Q1. I will turn it back to you for question and answers.
[Operator Instructions]. The first question comes from Puneet Singh with Eight Capital.
I just had a couple of questions on exploration related to Boumadine. It's been nice to see you guys continuing to grow the strike length there. I thought the last batch of drilling was a very interesting development. Maybe just run through what's guiding the deep drilling there. How do you think the new mineralization style could grow the project even further?
Yes, thanks for that question, Puneet. David are you online because David is calling from Marrakech and sometimes the line is not perfect. But David, are you on line and can you answer this?
Yes, I'm online. Can you hear me well?
Yes.
Yes, so what's guiding the exploration of that geophysics is one of the best tool to help us. The airborne survey was done last year with the electromagnetic, allows us to follow the footprint of the mineralization at depth. So that's one of the greatest tool. Otherwise we just keep on step-drilling outside of the known area and slowly with all the indicators, it can be, the temperature and [indiscernible].
We start seeing an increase in temperature that tells us we're getting closer to a source towards the south, and that's how we discovered this new stockwork zones towards the south. I think that in the north we have the stockwork. So there was basically just very, very small anomalies in there, no economical rates or whatsoever. And more we move to the south, more we start to see significant values in gold and other metals associated with the stockwork.
So yes, [Technical Difficulty] increasing volumes to the system. It brings us closer to the source. So the south is a big key to the future success of Boumadine. And in parallel, we keep on infill drilling in the south area and central area in order to be .
Okay, go ahead Puneet.
No, no, go ahead gentleman.
No, I was just saying to David because your question says, how do you see this changing the size of the project? And I know that was part of your question. So I just was going to ask David to maybe to comment if he has a comment.
What has changed the size? I mean, switching from 4 meters, 10 meters wide mineralization, to 100 meter wide mineralization. It's simply increased the volume and [Technical Difficulty] we'll keep on [Technical Difficulty] larger and larger. So it has a huge impact on the future size of the system, but it is very early to see [Technical Difficulty] and the exploration also, but it's a hallmark and it's unique here.
Okay, got it. And then just my second question was on, I know you guys were conducting the surface mapping right now, so maybe just run us through your efforts there. And what do you think the data will help you do once you get that back? Thanks.
The surface mapping will help us understand the structure, this structure because we start to understand the model. We have a main structure that is north-south. And this is caused by some other late stage faults. Some of them seems to be bringing in with [indiscernible] and silver in the system, and so that will help us tracking those areas in the richer polymetallic stage of our main zone.
It will also help us discovering new parallel zones and other systems. So it's all part of the global understanding of the deposit. and we will also be able to use that data to geophysics and [Technical Difficulty].
Okay. Thanks, David. Thanks, Benoit. Those are all my questions.
Thank you.
Our next question comes from Justin Chan with SCP Resource Finance.
Hi, Benoit, David, Raphael, and team, . Thanks so much for hosting us. I just have one on the development rate. I'm just curious, is the 5,100 meters that you quoted, is that a number for today? Or was that the number at the end of March just for our calculations on your daily rate?
The 5,100 meter development on , is that at the end of March or is that as of today?
That would be in our first quarter. That's at the end of Q1, so as per March 31. And our development rate is relatively steady at 500 meter per month.
Okay. So yeah, so when we did the calculations this morning, that put us pretty much exactly for the end of Q1 next year, which ties very well for your production ramp-up. So it sounds like from the math checks out with like what you think as well.
Correct.
Okay. Perfect. And thank you. Thanks for that one. And just on the budget, similar question. So we calculated roughly, there's about 90 million or so left to spend just we take your completion in here and your initial budget. And that sort of ties to your numbers today, which I think don't include contingency. I just want to check that those numbers are also correct.
Yeah, so at the end of Q1, we were at 26.5 million spend. We have to be a bit careful that we don't just divide the dollar spend divided by the total amount of spend. And that gives the, if you will, the percent complete. Our percent complete, we calculate based on our large or large worksheet that's based on effective work and not so much on dollars spent. And so those we'll track exactly. So today at March 31, we were at 26.5 million, spent about committed. And so far that's tracking with what we're expecting.
That's so perfect. Thanks. It sounds like the build is tracking well, I mean, this quarter was, I think, staying online as well. So that's all great because maybe if I could do one last one, I'll free up the line, just pivoting to Boumadine. Could you talk us through the methodology of the stockwork zone and how that might influence -- how do you plan the circuit versus the high-grade zones?
So Boumadine's metallurgy is something that we've been working on for quite a while. Boumadine is a polymetallic metal for which we understand relatively well, at this point, it's refractory. This is no news to anyone. And then my answer to this is going to be the same. We can unlock the value of every metal on Boumadine, and then depends on the grade and depends on the tonnage that we will find.
We have evaluated several processing options that technically work all rather well, whether it's , whether it's fresh oxidation, whether it's even roasting, all known method to process refractory or gold ore have worked rather well, meaning over, say, 85% gold recovery. Now the question becomes which method should we favor moving forward? And at this point in time, we need to continue our exploration campaign to answer this important question.
So what we can expect from Boumadine in the long run is a conventional flotation for lead, zinc, and a portion of the gold and silver and then to extract the rest of the value of the ore would have to be some sort of oxidation method to oxidize the remainder of the pyrite to unlock the gold and the silver.
So on a purely technical basis, Boumadine metallurgy is relatively well understood. And there is obviously room for improvement. Now, which method will be used, what tonnage the project will be, what mining method, what processing method, we keep our options open until we have a much broader understanding of what the potential of the deposit is.
Just on that, right, I think, we're above 50,000 meters to Boumadine exploration and every drillhole that it dugs, something new comes out. So we need some time here to discover this to find out exactly what we have. And based on that, we continue to follow it. But we're a little bit early in the game here, I think to say, oh this zone we'll do this, this zone we'll do that. Raphael's team is working on that. As the process moves and as we discover more and more about Boumadine, we'll be tackling those at the same time.
Perfect. Thanks, guys. Really appreciate that. So thanks. That's it for me, but just one request, we'd love to come visit Boumadine. Lot of our research seem to be in in various parts of June, July so just putting that request out there, but I'll free up the line. Thanks very much, guys. Congrats on a good Q1.
Well noted, Justin. Well noted. It's a very nice trip to go to Boumadine. Alex likes it very much. So I'm curious if is putting that in his agenda.
Our next question comes from Don DeMarco with National Bank Financial.
Thank you, operator, and good morning, Benoit and team. Congratulations on a solid quarter. So my first question has to do with the mining rate. So we've seen the mining rates trending higher. It got nice another little jump in Q1. And I think the average is just over 900, but it seemed like you're in the month of March, you're hitting over 1,000. You've received some new equipment, so is that a rate of just over 1,000 at the end of March, is that indicative of what we can expect for Q2?
And then second part of that is what is your target for year end? Is that actually 1,200 tonnes per day? Or is that something beyond year-end this year? Thank you.
Okay. So 2023 is obviously a ramp-up year for us on the ground and what drives that is to have a healthy stockpile before commissioning the plant. That being said, yes, we had good mining rate in Q1, and we do expect to continue to ramp this up in Q2, and we're so far going to plan. And to answer your second question, by year end, we want to have a 500 tonne per day at the open pit and 1,200 tonne per day underground. So this is our target and yeh, that's going by plan.
Okay, thank you. And then just shifting to milling rates. So we see in Q1 that you're running over 800 tonnes per day, this is above nameplate. What can we expect for the rest of the year? I mean this also has been increasing, what is driving that increase? And do you expect to even crest a bit higher than the 800 we saw in Q1?
No, we don't expect to go above that. This is 800 tonne per day. It's been a very good quarter in Q1. Sure it's above nameplate of 700, but we are simply continuously improving the two small mills we have. Over the last two years that have gone by, we continuously improve the recovery, availability, and throughput and as we attract more and more talent to join the team to help us out for commissioning the new plants, the same guys define new opportunities to improve things.
So Q1 has been a very good quarter for throughput, and we're not planning to continue to improve it further than that. But the 700 tonnes per day remains our nameplate, and we can expect to see a good quarter with that 800. But our focus is the expansion and to be ready for the expansion. And that remains true.
Okay, thank you very much. That's very helpful. Good luck with Q2. That's all for me. Thank you.
Our next question comes from Stephen Soock with Stifel.
Congrats on another great quarter. Just two questions on my side, from the 2,000 tonne per day construction, any indication of how much of the contingency has been used that you guys are about a third of the way through the overall project? And maybe if you can talk a little bit about the progress of critical path items and how those are going.
Okay. So on contingency, someday we save on the contingency, someday we lose on the contingency. It's dynamic as the construction goes. And what I can say about that is today not all contingency has been located for. So we remain confident to be on the budget. And it's all I have to say about that at this point.
As per the critical path, today, the pressure is on engineering is on pouring concrete, and to finish earthwork. So we are still at this stage in construction. So procurement is going well, although all long lead items have been ordered in the last 12 months or so. And engineering is also progressing well. So the pressure remains on engineering and procurement. Critical path, it stays on long lead item.
And as any construction, we need to continuously put pressure on engineering and to follow up on our long lead. And construction is still on time, depending on all the different laws, whether it's the electrical line, the TSF, the plants, the underground mine. So things are progressing according to plans. And we cannot let go of the pressure and that's what the team is doing.
Great. No, it sounds like things are moving well there and I will stay tuned as that progresses. And switching tracks a little bit, I know you talked to this to some degree, over to Boumadine. I mean, it's obviously expanding rapidly. You mentioned, it's a little bit early in the game for metallurgy, but do you have any indication of when we might expect to see formal results of metallurgical testing in order to get a little bit more clarity on expected recoveries or even just metallurgical zones that are being defined and starting to be investigated?
So I think to answer that and to be maybe more clear on this is, we have enough work on metallurgy to justify ourselves to continue drilling Boumadine. And Boumadine is a good opportunity for us. So that being said, we won't put more effort into metallurgy until we see more clearly what Boumadine. Still the work that we wanted to do, we have done it. Now it's time to drill it. And I think we can expect within the next six to 12 months to continue working on metallurgy. But now our focus is on drilling it.
Okay. Yeah, understood. It seems with five rigs there, it's clearly worth pursuing. I guess I'm just interested to see from our side that the results of that metallurgy worked out publicly.
Yes, I think for now you guys have to trust that we're not spending money unwisely.
Our next question comes from John Sclodnick with Desjardins.
Operator, I think all my questions have been asked, quite a good ones so far. I'll just go with the standard inflationary pressures, one, and just seeing if you're seeing any on the CapEx budget and whether you're experiencing any offsets there with the weaker Moroccan dirham than was budgeted?
Yeah. So I think -- hi John, so I think on inflationary pressures, a lot of our capital for construction is already committed, and we're actually seeing a lot of the inflationary pressures. I think maybe that we're seeing in North America. we don't feel them as much. The dirham for sure, helps us. And so for us, it hasn't been a point where it's affecting budget time. And so for us, it hasn't been an issue to the point where it is affecting budget today.
Okay. That's great. And great to see a solid quarter from you guys and looking forward to more updates from Boumadine and Zgounder Expansion. Thanks guys.
[Operator Instructions]. There are no further questions at this time. Please proceed.
Well, thank you very much, all of you for attending our first conference. We will be back at the end of Q2, so in August. Otherwise, have a great summer and we will continue to work. And as you know, we will be putting out a video once a month. We'll be putting out drill results on Zgounder and on Boumadine in the coming weeks. So you will be kept informed of our development. So thank you again, and we'll see you in mid-August. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.