Galiano Gold Inc

TSX:GAU

Earnings Call Transcript 2019-Q2

[Gregory John McCunn, Director & CEO]

Hello, everyone, and welcome to Asanko Gold's Q2 2019 Results Videocast. Let's take a look at the results from the Asanko Gold mine in Ghana, West Africa, our 50-50 joint venture with Gold Fields, which is managed and operated by Asanko. Q2 2019 was the mine's best quarter since starting commercial production in 2016. We had record-high gold production, record-high revenues and record-high net income. The mine produced 62,067 ounces, the fourth consecutive quarter of over 60,000 ounces produced, and it continued to do so safely, stretching our lost-time injury-free record to over 27 months or 14 million man-hours worked without a lost-time incident. With over 122,000 ounces produced in the first half of the year, we're well on track to achieve our guidance of 225,000 to 245,000 ounces for 2019. In the mining operations, the Esaase pit continued to mature after mining was initiated in January of this year. And in Q2, 50% of the ore mine came from Esaase. And one of the smaller satellite pits, Dynamite Hill, produced most of the balance of the ore mine during the period as the major cutback at the Nkran pit continued during Q2. During the period, 5.8 million tonnes of waste was removed from Nkran with very little ore production. This resulted in capitalized stripping costs of $20.5 million being incurred during the quarter. Looking forward to Q3, we are expecting the stripping at Nkran to continue at approximately the same rates as Q2 and to be substantially complete by the end of Q3. Dynamite Hill mining is expected to be finished during the third quarter, and ore for Q4 and 2020 will predominantly be a blend of Esaase and Nkran. The processing plant continued to perform very well with a record of 1.38 million tonnes of ore processed at an average feed grade of 1.5 grams per tonne gold with gold recovery averaging 93%. Now financially, it was also a record-breaking quarter with gold sales of 66,337 ounces generating record revenue of $85.6 million with the realized gold price in the quarter averaging $1,290 an ounce. Now this enabled the mine to generate EBITDA of $35.2 million and net income after tax of $13.6 million. That's a threefold increase from last quarter. So turning to costs, the mine's cash operating costs improved by 25% compared to last quarter, decreasing to $660 per ounce, predominantly due to record gold sales. Now as we previously guided, all-in sustaining costs continued to be relatively high this quarter at $1,180 an ounce with approximately $300 per ounce of those costs attributable to the capitalized stripping at Nkran. And we expect this to continue in Q3 before it declined substantially in Q4 due to the completion of the capital stripping program. So as a result, we still expect annual average all-in sustaining costs to be in line with our guidance of $1,040 to $1,060 an ounce. So the bottom line is, we improved our net working capital position at the joint venture level this quarter, and the balance sheet is strong with over $32 million in cash, trade receivables in bullion, and of course, no debt at quarter end. At the corporate level at Asanko Gold Inc., we equity accounted for our 45% stake in the joint venture with adjusted EBITDA of $12.4 million and net income of $6.1 million for the quarter or $0.03 per share. So now I'd like to talk about the near-term outlook for the business. As the Asanko Gold Mine continues to transition away from capital projects to focus on free cash flow generation, the joint venture is also committed to adding value through exploration. As many of you are aware, we have a highly prospective land package on one of Ghana's major gold belts. The Asankrangwa Belt holds multiple million ounce gold deposits, and it is still largely underexplored. And we've allocated $8 million for our exploration program this year, and we have 2 main objectives: firstly, to delineate new resources within a 10-kilometer radius with a processing plant that we can bring into the near-term mine plan; and secondly, to investigate the potential for a major discovery at Fromenda. That's a previously drilled exploration target that's located about 20 kilometers south of the plant. So the drill's returning in Q3, and we'll keep you posted as the exploration progresses in the second half of this year. Now looking further ahead, we've now aligned our development philosophy for the Asanko Gold Mine with our focus on near-term free cash flow generation. We're collaborating with our joint venture partner, Gold Fields. And together, we're working on an updated mineral reserve estimate, which we expect to publish in the first quarter of 2020. At this stage, we do not anticipate the updated mineral reserve estimate will be based on any major capital investments, such as further processing plant expansions or transportation infrastructure for the ore from Esaase. So in conclusion, we've had a very good start to the year. We are tracking the upper end of our annual production guidance, and we're maintaining our cost guidance for the year. We are expecting to continue to drive down those costs, particularly with the Nkran Cut 2 pushback due to be substantially complete in Q3. And the company has around $7 million in cash on its corporate balance sheet, no debt, and we expect our final cash payment of $20 million later this year related to the Gold Fields transaction. So with gold prices strong and limited capital expenditure planned in the near term, we are expecting to generate free cash flow from the joint venture operations and build cash on the corporate balance sheet. Thank you for watching, and I look forward to our next videocast in November when I'll be updating you on our Q3 results.