Calibre Mining Corp

TSX:CXB

Earnings Call Transcript

[Operator]

Good day and thank you for standing by. Welcome to the Calibre Mining Corporation 2021 Q1 Financial Earnings Results and Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ryan King. Please go ahead, sir. Thank you.

[Ryan C. King]

Thank you, operator. Good morning, everyone, and thanks for taking the time to join the call this morning. Before we get started, I'd like to direct everyone to the forward-looking statements on Slide 2. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although management believes that our forward-looking statements are based on fair and reasonable assumption, actual results may turn out to be different from these forward-looking statements. For a complete discussion of the risks, uncertainties and factors, which may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to our 2020 Annual MD&A and 2020 AIF available on our website as well as on SEDAR. And finally, all figures are in U.S. dollars unless otherwise stated.Today present with me on the call are Darren Hall, Dustin VanDoorselaere, John Seaberg, and Mark Petersen. We will be providing comments on our first quarter results and our growth strategy, after which we will be happy to take questions. The slide deck we will be referencing is available on our website at www.calibremining.com under the Events section. You can also click on the webcast to join the live presentation. And with that, I'll turn the call over to Darren.

[Darren Hall, President, CEO & Director]

Thanks, Ryan. Turning to Slide 3. Good morning everybody and thank you for taking the time to join us on our Q1 earnings call. Just over a year ago, we initiated a self-imposed temporary shutdown as the world faced a rapidly evolving COVID pandemic. Fortunately, within 10 weeks, we recommenced operations after implementing rigorous controls along with international best practices. It is pleasing to report that these controls continued to be proving effective with only 5 confirmed COVID cases within our 3000-plus employees and business partners during the first quarter. As we continue our journey to zero harm, I'm encouraged by the team's commitment to improving our safety culture, which was rewarded with a 45% reduction in our Q1 lost-time injury frequency rate compared to full year 2020.I would like to take a moment to recognize all of our employees and business partners for their continued focus which delivered another solid quarter, well down to the entire team. Before discussing the Q1 numbers, I think it's important to take a moment to acknowledge the progress the team has made over the last 18 months. We have delivered against production and cost guidance quarter-on-quarter. We have net of 2020 mining depletion, increased our mineral reserves over 200% to 864,000 ounces, which is not only the largest consolidated reserves since 2010, but is also the highest reserve rate on record.We have implemented our hub-and-spoke operating strategy, demonstrating a significant value creation potential through debottlenecking Limon. The alternating satellite deposits like Pavon and resulting in a cogent multi-year plan to Libertad before considering any exploration upside.It is important to note that prior to the transaction, Libertad was anticipated to move into closure during 2020. We commenced production from our high-grade Pavon Norte mining spoke progressing from permit to plant in less than 18 months. We acquired the remaining 70% of the Eastern Borosi district, completed fulsome geological and technical reviews, which has identified an exciting opportunity to add additional high-grade mining spoke. During the quarter, we commenced infill drilling and technical studies with the intent of being in a position to declare reserves, and more importantly, commence permitting within the next 12 months.On to Q1 results. We delivered 45,452 ounces at a total cash cost of $979 per ounce, and all-in sustaining cost of $10.95 per ounce, generating $16.6 million in net income and adding $5 million in cash. Moving of our solid Q1 performance, we remain on track to deliver our 2021 guidance of 170,000 to 190,000 ounces at a total cash cost of $9.50 to $10.50 per ounce and all-in sustaining cost of $10.40 to $11.40 per ounce. With the improved confidence in our multi-year outlook afforded by the more than 200% increase in mineral reserves, our exploration programs have been expanded to include growing resources at our emerging districts and generative drilling.Given Nicaragua's prolific history of gold production, it is somewhat surprised that came out of the country remains relatively under explored beyond the nonproducing and historical mines. During 2020, we took steps to more than double our portfolio of 100% owned mineral properties and concession applications, bringing our total land position to over 2000 square kilometers, exclusive of our Rio Tinto joint venture properties. We currently have 15 drill rigs operating and our exploration teams continue to see excellent opportunities for delineation of newer resources and growth, which Mark Petersen will talk to you shortly.Turning to Slide 4. I believe the 100% owned Eastern Borosi district is an extremely exciting opportunity to reinvest organic growth. During the quarter, we initiated infill drilling and technical studies at the Riscos de Oro, Guapinol and Vancouver deposits. We acquired a significant portion of the required necessary surface rights to develop the deposits, putting us in a favorable position to progress Eastern Borosi as a next high-grade mining spoke. Given the high-grade nature of these deposits, we believe that this opportunity could represent our highest price and lowest cost ounces to date. In addition to increasing confidence in our existing mineral reserves -- resources, we see excellent opportunities to resource expansion and new discoveries throughout the Eastern Borosi district.Now I'd like to introduce Dustin VanDoorselaere, our VP Operations, to provide an overview of the Q1 operating results. Dustin has been with the company since March 2020, and before joining Calibre, he was COO at First Majestic Silver. Over to you, Dustin.

[Dustin Simon VanDoorselaere, Vice President of Operations]

Thanks very much, Darren. Turning to Slide 5, we had a strong quarter with consolidated production of 45,452 ounces, from almost 420,000 tons milled at an average grade of 3.5 grams per ton gold with the combined recovery of 91%. Higher production was driven by a 39% consolidated grade increase over Q1 2020. The Limon’s production largely came from the Limon Central open pit, resulting in 16,337 ounces of gold at a mill grade of 4.4 grams per ton, in line with the mine plan.As Darren mentioned, we recently announced a 200% increase in reserves, which included initial reserve estimate at Pavon where we have been advancing underground development. We began prepping the mine in Q1, and during Q2 we will begin mining the initial stopes in Pavon. We expect to see increased tons and a higher-grade contribution from Panteon going forward. Additionally, we have begun development to the Atravesada zone from the Veta Nueva underground mine. Atravesada is expected to commence production in early 2023. It was not included in our multi-year outlook.Libertad production increased to 29,115 ounces as initial higher-grade Pavon Norte ore came online replacing much of the lower-grade stockpiles, increasing overall grade approximately 88% to 3.2 grams per ton versus 1.7 grams per ton gold in Q1 2020.During the quarter, we began Pavon to Libertad ore haulage, which averaged approximately 350 tons per day. We expect to gradually increase to 1000 tons per day by the end of the year. Limon to Libertad ore haulage remains steady and we continue to optimize transport in grades as we expect higher grades coming from Panteon.With the rise in WTI prices, our team continues to look for opportunities to improve productivity and reduce costs. Demonstrated by the renegotiated power costs, which were down approximately 24% to $0.16 per kilowatt-hour from $0.21 per kilowatt hour during 2020.With that, I'll hand over to John Seaberg to take you through our financial performance.

[John Seaberg, Senior VP & CFO]

Thanks, Dustin. Just turning to Slide 6. During the quarter, we sold 45,882 ounces of gold at an average realized price of $1,788 per ounce for revenue of $82 million. This drove net income of $16.6 million and basic earnings per share of $0.05.During the quarter, we generated $25.5 million in operating cash flow, providing the opportunity to reinvest $20.7 million in exploration, property, plant and equipment and mine development at Limon and growth opportunities like Pavon, Panteon, and Eastern Borosi. During Q1, we added $5 million to the treasury and in the quarter $58.2 million in cash. We will continue to deploy a disciplined capital allocation strategy as we see attractive opportunities to reinvest into the business while strengthening our balance sheet.Overall, I'm very pleased with our financial health. We continue to have strong cash flows, we're debt free and unhedged, affording us the ability to continue to reinvest in the new projects and exploration. I'll now hand over to Mark Petersen to walk you through our exploration and growth platform.

[Mark Petersen, Vice President of Exploration]

Thank you. John. Turning to Slide 7. During 2020, we made significant exploration progress and our drilling programs paid off with the additions of the Atravesada and Panteon mineral resources at Limon. Identification of new gold vein systems at Libertad with Tranca and Amalia, and materially increasing our mineral reserves twofold.Given Nicaragua's strong mining history and its position with Central America's largest gold endowment, we see significant opportunities for continued resource growth and discovery, both at our operating mine sites and across our broader portfolio of mining and exploration concessions. In addition to Limon and Libertad, we've established a strong strategic position in the country that includes the district scale Pavon and Eastern Borosi properties as well as multiple less explored, yet highly prospective exploration concessions.We've initiated a 3-prong exploration strategy that encompasses a combination of brownfields resource expansion, new resource delineation and development and greenfields generative exploration. Our generative program is focused on identifying new discovery opportunities on our earlier stage concessions as well as less explored areas around Limon and Libertad. It involves traditional boot leather prospecting and field mapping in combination with the latest methods in geo-chemistry, geo-physics and remote sensing to rapidly generate and systematically drill test targets as we advance toward our next discovery.Since we launched our generative program last July, our team has identified highly prospective, yet underexplored vein systems at all of our 100% owned properties. We recently commenced first pass drilling on the high-grade Cerro Volcan target at Libertad. And in June, we will begin drilling to test 4 newly recognized veins systems at our satellite Amalia-Nispero concessions located 35 kilometers away from Libertad.During 2020, we also expanded our land position with applications for several -- 7 new exploration concessions in the region surrounding Libertad and Pavon, which we expect to have approved within the coming months. Additionally, a key component to our 2021 program is a 7,000 line kilometer airborne geophysical survey, which we are mobilizing right now. The survey will be especially useful identifying extensions to gold mineralization below cover as we finalize targeting decisions for this year's 10,000 meter reconnaissance drilling program.Our emerging districts program is focused on adding ounces through step out drilling at Pavon Norte and Pavon Central, where we have 2 drills active. Also at Eastern Borosi, where we have 6 drills turning to upgrade resources for conversion to reserves at the high-grade Guapinol and Riscos de Oro gold vein systems. Over the past 10 years, approximately 32,000 meters of drilling at Eastern Borosi has successfully outlined our current 700,000 ounce inferred resource there.We believe significant discovery potential remains untapped in Eastern Borosi as Darren noted in his opening remarks. During the second half of 2021, our generative exploration team will add 2 drills to commence an initial 7,500 meter reconnaissance drilling program at Eastern Borosi to test multiple earlier stage targets that have been recognized along the 4 regional scale vein trends extending across the project claim block.Finally, moving to our mining operations. At Limon, 3 rigs continue to delineate additional high-grade, high-margin ounces at the producing Santa Pancha and Veta Nueva deposits as well as our newest ore bodies Atravesada and Panteon. At Libertad, 4 rigs are active in a combination of resource extension, new resource delineation and first pass drill testing of new targets.In all, we have 15 rigs operating with 2 more on the way. In the coming weeks, we expect to announce initial results from our Q1 resource expansion programs at Limon and Libertad. Finally, as recently disclosed a first pass drilling campaign has begun on our Rio Tinto exploration earn-in JV, which Calibre operates. This initial 5,500 meter program is getting 5 areas of prospective copper-moly and copper-gold mineralization that have little or no previous exploration drilling. We currently have one drill operating and expect to add a second drill in the coming weeks. Since Calibre delivered Nicaragua's first porphyry copper-gold discovery at Primavera in 2012, our entire team is very excited to have the exploration drills turning again in the district because, as we all know, discoveries happened at the phase of the drill bit. With that, I'll hand it back to Darren to conclude the call.

[Darren Hall, President, CEO & Director]

Thanks, Mark. Turning to Slide 8. For the balance of the year, reliable cash flow from operations will allow us to reinvest in the business to unlock value through the drill bit and advance our highest-grade deposits at Eastern Borosi. I'm proud to announce that the team has initiated the process of meeting the World Gold Council's responsible gold mining principles. And as our first step towards compliance, we will be completing a readiness review in Q3. We are also in the final stages of completing our inaugural sustainability report, which we expect to be released during Q2, which will document numerous environmental, social and governance initiatives in support of increased accountability, transparency and reporting across the industry. We remain committed to improve our practices and contributions to sustainable development for the benefit of all of our stakeholders. With that, we are happy to take questions at this time. And back to you, operator.

[Operator]

[Operator Instructions] Your first question comes from the line of Tom Gallo.

[Thomas Gallo, Associate Analyst]

Congrats on the quarter. Darren, just for you, you mentioned progress on the land purchases at Eastern Borosi. Could you maybe provide a little bit more detail on how that relates to the expected front-half weighted capital?

[Darren Hall, President, CEO & Director]

Yes. Tom, thanks for the question. Yes, now it's a rapidly evolving situation at Eastern Borosi. I mean we -- in the last quarter, have identified this exciting opportunity. We've initiated land purchases. And when we provided full year guidance, we saw things being H1 weighted. We still see that happening, but as we advance the Eastern Borosi, it's likely that we could see additional capital spend in the back half of the year as we work through accelerating the development of Eastern Borosi, and I think we'll be in a position later in Q2, early in Q3 to provide a more fulsome update of what that spend will look like over the next 18 months.

[Thomas Gallo, Associate Analyst]

Okay, very good. That's helpful. And then just one other one for me and I was -- just because I didn't catch it. The Pavon stockpile that you guys are building, could you just repeat the tons and grade of that.

[Darren Hall, President, CEO & Director]

Yes. Tom, I don't think we actually reported the tons and grade. But from memory, I think we're looking at about 60,000 to 74,000 tons at the end of the quarter at roughly 3.5 grams. John, does that reconcile with your number.

[John Seaberg, Senior VP & CFO]

Yes, so it's -- Darren you're about right. It totaled about 8,500 ounces, Tom. It was in stockpile at the end of March.

[Thomas Gallo, Associate Analyst]

Okay.

[Darren Hall, President, CEO & Director]

So 75,000 tons.

[John Seaberg, Senior VP & CFO]

Yes, the math works right, so it’s -- I just got the ounces, it’s 8,500. We had just shy of 14,000 ounces at the end of December. So we would process a significant amount of that year end stockpile at Pavon.

[Thomas Gallo, Associate Analyst]

Okay. And maybe just one more from me while I’ve got you on the line, John. The asset breakdown of costs like I can’t see that in the MD&A, maybe I'm just missing it. Do you guys have that or are you not providing that anymore and just doing it on a consolidated basis.

[John Seaberg, Senior VP & CFO]

No, it's actually in the MD&A under the table on Page 15 that breaks down the sustaining and non-sustaining capital.

[Darren Hall, President, CEO & Director]

I mean like a cash per ounce.

[John Seaberg, Senior VP & CFO]

We break it down. And you're talking to cash spent on CapEx and PP&E?

[Thomas Gallo, Associate Analyst]

I'm talking about like cash cost per ounce from the loan, cash cost per ounce.

[John Seaberg, Senior VP & CFO]

Sorry. Yes, so I apologize, Tom. Now I understand the question. Now we have moved to a one segment reporting, really just to reflect how we manage and view the business. So we're no longer reporting all-in sustaining cost per Limon or Libertad. There’s no competition between the 2. We do it -- it's really one Nicaragua. We had 2.7 million ounces of surplus capacity or total capacity in country and taking advantage of the synergies and trying to maximize the value by trucking these [ lots ] of different areas. We provided guidance in the same format. So going forward, we'll have the all-in sustaining cost just at the consolidated level as well as the total cash cost.

[Operator]

Your next question comes from Mike Curran.

[Michael D. Curran, MD & Mining Analyst]

Just a question for me is maybe possible to get a little more color on the upcoming drill program on the Rio Tinto JV ground. I guess what I'm looking for is that 5,500 meter drill program, 5 different targets. What kind of depth are you drilling at those targets? Are they all pretty near service or are you punching from 500 meter holes, maybe a little color there?

[Darren Hall, President, CEO & Director]

Mark, if you could pick that one up.

[Mark Petersen, Vice President of Exploration]

Sure. Happy to respond. That's a great question. This initial program that Rio Tinto has designed and we are executing on their behalf is really designed to test the top 5 copper-gold and copper-moly potential porphyry centers that Rio's team identified through an exhaustive targeting exercise they did last year. Hole depths, to your question about that, are on the order of 200 to 250 meters per hole. So that's a pretty good depth. And the objective is to get a bite into a demonstrably mineralized body of porphyry style mineralization. There is plenty of smoke in the entire region and as some of us on the call may be aware, the Golden Triangle has produced quite a bit of gold from a variety of deposit types, all of what you find in the porphyry environment. I would expect, but until we do it with a good solid porphyry style drill intercept, I would expect that drilling will progress to deeper levels once we have something to target at those deeper levels.

[Operator]

Your next question comes from Geordie Mark.

[Geordie Mark, Co]

Maybe I can extend on the Tom's question earlier. in terms of Pavon, any insights so far in terms of initial reconciliation through the mill? And given the commercial production, I guess, was in March, did you capitalize any of the revenue through there? Or how did you flow that through the cash flow?

[Darren Hall, President, CEO & Director]

Geordie, I'll let John fill the financial question there. But in terms of reconciliation, we are early into the deposit, but we are seeing very favorable rates in terms of mining, and we have seen more ore than what was planned from the material we've mined. Now it's only early days, but thus far the performance of the models have been very favorable, and we look forward to a positive Q2. So from that perspective -- and that has influenced some of our financial accounts, which I'll pass over to John to talk about.

[John Seaberg, Senior VP & CFO]

Yes. Thanks, Darren. Yes, so we are essentially in almost the very beginning at Pavon. So whatever ore we got trucked and processed went through revenue and the mining cost obviously went through production costs. And then we used the inventory method, so whatever sitting on the ground in stockpile is sitting on the balance sheet and inventory and will get flushed through the income statement when we truck it over and process it through the mill.

[Geordie Mark, Co]

Okay. And maybe if I can extend on your answer, Darren. When you were talking about more ore material that more -- obviously more material defined outside the reserves, but inside the total resources or in addition to the defined resource boundaries as well?

[Darren Hall, President, CEO & Director]

It's a material increase over the resource model. A significant portion of Pavon Norte is already an indicator as in reserve. So the extra material we saw was because basically the solidification was higher up in this rather than what we anticipated. So we've got more, and we actually saw a positive in grade as well. So a significant increase in ore tonnage and a positive reconciliation on grades. So again, as we get into the core of the ore body, we will develop a more appropriate forward-looking, reconcilable history, but thus far the deposit has overperformed against expectations.

[Geordie Mark, Co]

Nice. And maybe a question on your pricing contract for power. Was that -- are you already seeing that in the Q1 financials? I know that power was down materially 600,000 year-on-year. Is that part of the contract or also part of the lower throughput levels at [ Nicaragua ]?

[Darren Hall, President, CEO & Director]

It was primarily as a consequence of the revised power costs. The reduction of around 25% that we've seen on currently contracted prices. This is average 2020, about half of that was actually realized in Q1. We actually had 2 contract negotiations. One of them was effective January 1 and the second one was effective like April. And the net of those 2 impacts was 25% reduction. Some of it was build into Q1 and some of it will be Q2 going forward.

[Operator]

Your next question comes from Justin Stevens.

[Justin Stevens, Precious Metals Analyst]

Congrats on a good quarter there. Most of what I wanted to ask has already been covered off, but a couple of last ones here. What's the time line for the ramp up of mining at Pavon. Should we expect fairly steady sort of growth in tons hauled from [indiscernible] end of the year? Or is there going to be a step change probably at some point?

[Darren Hall, President, CEO & Director]

Justin, thanks for the question. I mean we have a very solid quarter and averaged about 350 tons per day over the quarter, and we're going to have a nice methodical ramp up in production during the course of the year and anticipate being at around 2,000 tons a day by the end of the year. It won’t be a step change. It's important that we do this responsibly. It's a critical part of our business going forward. And as part of our social license, we want to ensure that it's going to [indiscernible]. So we're looking forward to ramping that up. And as foreshadowed, we've had a very positive mining start and we’re actually building inventory. So there's lots of pressure on that haulage to get more material over to Libertad quicker, but we will definitely be ensuring that we're doing it in a responsible way, and we’ll be taking a long-term view there.

[Justin Stevens, Precious Metals Analyst]

Got it. Yes. So relatively smooth increase should be pretty easy to do that.

[Darren Hall, President, CEO & Director]

Yes. That would be [indiscernible].

[Justin Stevens, Precious Metals Analyst]

Okay. The only other question I had is, is there a plan to treat the Panteon or that will be coming out here at Limon? Or is it more likely to get trucks down to Libertad.

[Darren Hall, President, CEO & Director]

It doesn't really matter where it gets trucked, Justin. It’s the way -- because of the mineralogy of the deposit, it’s relatively agnostic as to what material goes where. So on the day the operations will make the best decision on where that material gets processed. In all likelihood, the folks at Limon will want to try and hold on to the material coming out of [indiscernible] will be the highest-grade material. So that [indiscernible] to process that and send lower grade material to Libertad. But yes, it doesn’t have to be sent to either facility. So it will be where it makes the most sense on the day.

[Operator]

There are no further questions at this time. I will now turn the call back to Darren for the closing remarks.

[Darren Hall, President, CEO & Director]

Yes. Thanks, everybody, and thanks, Tom, Mike, Geordie and Justin for your questions this morning. And as always, Ryan, I and the leadership team are available as required. And I'd just like to take the opportunity to let everyone stay safe, take care, and we look forward to talking to you soon. So back to the operator.

[Operator]

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