Galiano Gold Inc

TSX:GAU

Earnings Call Transcript 2019-Q3

[Gregory John McCunn, Director & CEO]

Hi, everyone, and welcome to another Asanko Gold Videocast, this time focused on our Q3 2019 results. For further information, please refer to our financial statements and our MD&A filed on both SEDAR and on our website.First, let's take a look at the results from our Asanko Gold Mine in Ghana, West Africa, our 50-50 joint venture with Gold Fields, which is managed and operated by Asanko. Now all information related to the Asanko Gold Mine is presented here on a 100% basis.The operations continued to perform very well, with record-breaking quarterly production and revenues. During the quarter, the AGM produced 62,440 ounces of gold and continued to do so safely with no lost time injuries, stretching our lost time injury-free record to over 30 months or 15.7 million man-hours worked. And with over 184,000 ounces produced year-to-date, we're well on track to achieve our guidance of 225,000 to 245,000 ounces of gold for 2019.So turning to the mining operations. The main focus of the operations in Q3 was to complete the major pushback at the Nkran pit. And during the period, 4.7 million tonnes of waste was removed from Nkran. This resulted in capitalized stripping costs of $10.3 million being incurred during the quarter.So for mill feed during the quarter, the Esaase pit produced about 56% of the ore, with Nkran providing only about 30%, as the waste stripping dominated the activity in the pit. And the balance of the ore came from stockpiles, and the final ore cut from the Dynamite Hill satellite pit, which was depleted early in Q3.Now in Q4, we've completed Cut 2 at the Nkran pit, and we're now seeing significant ore release. So we expect things to return to normal here in Q4 and going forward, with about 60% of the feed for the mill coming from Nkran and the balance expected from the Esaase pit.The processing plant continued to perform very well, with a record of 1.44 million tonnes of ore processed at an average feed grade of 1.4 gram per tonne gold and gold recovery averaging 94% for the quarter.From a gold sales point of view, it was a record-breaking quarter, with proceeds of $91 million booked during the period on gold sales of 63,009 ounces with a realized gold price in the quarter of $1,443 an ounce.Now turning to costs. The mine's cash operating costs were $799 per ounce, with all-in sustaining costs continuing to be relatively high at $1,179 an ounce. Now approximately $163 an ounce of the all-in sustaining cost was attributable to the capitalized waste stripping at Nkran. So with the stripping now completed in early Q4, we expect the all-in sustaining cost to decline substantially. And as a result, we still expect annual average all-in sustaining costs to be generally in line with our guidance of $1,040 to $1,060 an ounce.The balance sheet remains strong at the joint venture level with $46.5 million in cash, receivables and gold bullion. We've also now closed our $30 million line of credit, putting us in the position where we expect to begin sweeping cash from the joint venture and generating a return on our invested capital for the JV partners.During the period, we made an important decision on the direction we're taking with a life of mine development at the Asanko Gold Mine. Our revised direction, which was announced in August, will focus on free cash flow generation and limited further capital investment. We expect the estimated resource base will provide a life of mine of 8 to 10 years with average gold production of approximately 250,000 ounces per year. Now this will be achieved with no major development capital investments, such as further processing plant expansions or our transportation infrastructure. Although we don't expect the final plan to be complete until Q1 next year, we do anticipate a significant reduction in our expected resource and reserve base. And as a result, Asanko recorded a noncash impairment charge on the company's equity investment in the JV of $128.3 million. Corporately, at Asanko Gold Inc., these noncash adjustments impacted on earnings with a net loss of $147.5 million for the quarter. However, adjusted earnings were $0.8 million with adjusted EBITDA of $9.4 million for the period.Importantly, the company's cash position increased to $13.6 million as at September 30 with no debt. We expect our cash balance to further improve in Q4 when we receive our final cash payment of $10 million from Gold Fields as well as any distributions received from the joint venture.So with gold prices strong at over $1,500 an ounce, we expect to be in a position to continue to build cash on our balance sheet in the fourth quarter this year and well into 2020.Now I'd like to switch gears for a minute and talk briefly about our exploration program. As you know, we have over 21,000 hectares of a highly prospective land package on one of Ghana's major gold belts, the Asankrangwa Belt. Now this belt hosts multiple multimillion-ounce gold deposits and yet is largely underexplored. So for 2019, we allocated $8 million in exploration expenditure with 2 main objectives. Firstly, to delineate new resources within a 10-kilometer radius of the processing plant so that they can be brought 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 located about 20 kilometers south of the plant. Currently, we're drilling at the Fromenda target, where historical drilling has indicated a strongly mineralized system, and we expect to release drill results during the quarter.So what you can expect from the company over the next 9 to 12 months is to continue with our stable and consistent operating results ideally augmented with some exploration drilling success. We are tracking the upper end of our annual production guidance, and we're maintaining our cost guidance for the year. So with the gold prices strong and limited capital expenditures planned in the near term, we are expecting to continue to generate cash flow from the joint venture operations and continue to build cash on the balance sheet. So thank you for watching, and I look forward to our next videocast in February when I'll update you on our year-end results.