Galiano Gold Inc
TSX:GAU
Earnings Call Analysis
Summary
Q3-2023
Galiano Gold reported strong Q3 2023 results, with nearly 36,000 ounces of gold produced, and beats its sixth consecutive quarter of cost and production guidance. Expected full-year gold production is close to 130,000 ounces, with all-in sustaining costs lowered to between $1,500 and $1,600 per ounce, a substantial decrease from initial projections. The company remains on track with their life of mine plan, aiming for 1.85 million ounces over 8.5 years, at costs of $1,150 per ounce, and is highly sensitive to gold price, with a $530 million NPV at $1,900 per ounce. Mining operations have restarted, with full mobilization expected by Q1 2024 and significant ore delivery to the mill anticipated by Q2 2024. The conversion of inferred ounces could add 100,000 ounces to reserves. Liquidity has continued to rise with the JV now at $145 million, while Galiano maintains a robust balance sheet with $56 million in liquidity and is debt-free, reporting a net income of $11.4 million for the quarter.
You don't have any saved screeners yet
Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Galiano Gold Inc. Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] Mr. Badylak, President and CEO of Galiano Gold, you may begin your conference.
Thank you, operator, and good morning, everyone. We appreciate you taking the time to join us on this call today to review the third quarter 2023 Galiano Gold results that we released last night. We'll be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our most recent MD&A as well as on this slide of the webcast presentation. Our release yesterday detailed the third quarter 2023 financial and operating results. It should be read in conjunction with our third quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR.
Please also bear in mind that all dollar amounts mentioned on the conference call today are in U.S. dollars unless otherwise noted. With me on the call today, I have Matthew Freeman, our Chief Financial Officer. I will initially go through the highlights and then take you through the operations. Matt will then focus on the financials, and I'll then wrap it up and open the call up for a Q&A session. Here on Slide 5, please note that I'll be discussing these results on a 100% basis. On the safety front, during the quarter, we had 1 lost-time injury and 3 recordable injuries. This results in a 12-month rolling LTI and TRI frequency rate of 0.54 and 1.61 million man hours worked, respectively. Health and safety continues to remain a top priority throughout the organization, particularly as activity ramps up during the recommencement of mining. We consistently strive to reinforce our commitment to Zero Harm and the implementation of best safety practices at the AGM. Our gold production from stockpile processing again reached the high end of expectations. We produced nearly 36,000 ounces of gold during the quarter and expect to reach the higher end of guidance for the year closer to 130,000 ounces. On the cost front, we recorded all-in sustaining costs of $1,445 per ounce. We continue to seek ways to optimize our costs and have revised cost guidance downwards to between $1,500 and $1,600 per ounce for the full year. This is down considerably from when we started the year and marks the sixth consecutive quarter where the team has outperformed our cost and production guidance. Our liquidity at the JV has continued to grow, now sitting at $145 million in total liquidity. As per guidance, and based on the technical report we released earlier this year, we also recommenced mining operations on October 1.
On Slide 6, it is important to point out that the recommencement of mining marks a critical point in the future of the Asanko Gold Mine. It comes on the back of 18 months of work where our team has focused on advancing our technical understanding of our known deposits and defining a realistic future for this asset. I was on site last week and was pleased to see the progress the team and the mining contractor are making on the mining front. The fleet was partially mobilized in Q3 and we currently have sufficient equipment on site to achieve our expected new material movement for the remainder of the year. Additional fleet continues to arrive on site, and we anticipate full mobilization to be complete by Q1 2024. As you can see from the images that are right of your screen, we are currently removing free dig saprolite material and expect to commence drill and blast activities towards the latter part of Q4. Although we don't expect to see material ore delivery to the mill prior to Q2 2024, we are pleased that grade control drilling has already identified small pockets of ore across larger areas than expected. Encouraging as this may be, I'll caution that this material is not large in volume and is not expected to significantly impact gold production over the next 2 quarters. In light of the elevated gold price environment, the conversion drilling program is underway at Abore to define the limits of a potential larger $1,700 per ounce reserve pit. Initial results from this program are also better than expected and we will report in our recent exploration news release. We estimate that successful conversion of inferred ounces in this zone could yield at least 100,000 ounces of additional reserves. We are pleased that with the timely recommencement of mining, we remain on track to deliver our stated life of mine plan.
On Slide 7, I'd like to highlight some of the key points of our life of mine plan. You can see on this slide, the step change in gold production that we anticipate over the next 24 months as we commence digging high grade material to the mill. The processing facility will continue to operate existing throughputs of 5.8 million tonnes per annum throughout this period. The life of mine plan is self-funded with existing cash at the joint venture and future cash generated from the asset and sees us producing 1.85 million ounces of gold over an 8.5-year period at an all-in sustaining cash cost of $1,150 per ounce. The operation is also highly leveraged to gold price, and you can see that our NPV at a 5% discount almost doubles to $530 million at a gold price of $1,900 per ounce.
On Slide 8, I'll briefly touch on some high-level corporate highlights before handing the time over to Matt. Galiano ended the quarter with a total liquidity of $56 million and remains debt-free. During the quarter, the company reported a net income of $11.4 million or $0.05 per share. We remain in an enviable position amongst our peers of having a clean balance sheet and access to cash. With this in mind, our teams continues to seek accretive value-adding opportunities for the company to grow and deliver long-term performance to our shareholders. With that, I'll turn the time over to Matt Freeman, our CFO, to review the financials.
Thanks, Matt. Good morning, everyone. I'd like to remind everyone that Galiano operates Asanko Gold Mine under a JV with Gold Fields. This somewhat complicates our financial statements owned to the fact that we are a quite equity account for the interest. On Slide 9, I'd like to initially discuss the results of mine itself on a 100% basis. And then following that, how that impacts the financials of Galiano itself. The Asanko Gold Mine had another strong quarter operationally and financially in Q3. As you know, we continue to process stockpiles which continue to perform in line or slightly better than planned, resulting in production over 35,000 ounces which means we expect to come in the top end of our production guidance of 130,000 ounces for the year. Processing stockpiled material doesn't incur mining costs and as a result, we've been able to generate significant cash, which bolsters our balance sheet and ensures our ability to execute on the next phase of the life of mine plan that we disclosed earlier in the year.
The Asanko Gold Mine ended the quarter with cash of $137 million, an increase of more than $45 million since the start of the year with free cash flow of $24 million in the quarter. Gold prices remained positive, realizing just over $1,900 per ounce in the quarter for total revenues of $68 million. We focus hard on trying to keep costs down within the context of the global inflation environment. So I'm pleased that processing and G&A costs remain broadly consistent across the year. It all culminated in net earnings for the quarter of $21 million at the Asanko Gold Mine level. With the mine ramping up towards the restart of mining activities on October 1, we've seen an increase in capital expenditures to $15 million for the quarter.
Notably, this was spent on raising a good height at the tailing storage facility and the Abore site establishment, which includes getting the site itself ready and cleared, building a haul road diversion and a new public road. This all resulted in an expected increase to our all-in sustaining costs compared to Q2 to $1,445 per ounce. We're expecting the fourth quarter all-in sustaining cost to be elevated as well, largely due to the pre-stripping of the Abore pit. However, because of the outperformance of the stockpile this year and our continued focus on cost, we are able to reduce our 2023 all-in sustaining cost guidance to between $1,500 per ounce and $1,600 per ounce compared to $1,650 to $1,750 that we had guided to for the Q2.
Finally, at the Asanko Gold Mine, as Matt touched upon, we've continued to invest heavily in exploration, forecasting to spend approximately $15 million this year. On Slide 10, we can see the increase in liquidity at the Asanko Gold Mine. So that by September 30, we have $143 million in total liquidity. As Matt mentioned previously, our team remains focused on operational and financial performance. You can see the continuous cash accumulation within the JV having increased over $50 million in the past 5 quarters. So now looking at Galiano. We've kept our cash balance above $55 million, whereby the annual 7% service fee we own for operating Asanko Gold Mine plus interest being earned on our cash balance, largely offsets the G&A burn from running the corporate office. Galiano also remains debt free. This provides us with a healthy treasury to be used for future value-enhancing opportunities.
As I mentioned before, the income statement is a bit challenging with us recognizing our interest income earned from the JV. But with the $9 million recognized from the JV, the service fee for managing the mine and interest earned on our cash balance after deducting our G&A costs, we ended up with net income for the quarter of $11 million or $0.05 per share. So in summary, we've ended the quarter in a very healthy financial position. And like the corporate entity, the joint venture has any debt Galiano has more than $55 million at its disposal and the JV has more than $135 million in cash available to restart mining at Abore, invest in the next phase of the life of mine plan and execute on our aggressive exploration strategy. Gold prices remain very supportive, which helps to ensure we have the financial capacity to execute on our corporate strategy. With that, I'll turn it back over to Matt.
Hey, thanks, Matt. Moving on to Slide 12. I just want to point out that our new management team is heavily focused on continuously delivering to our stated guidance and building integrity with our existing and future stakeholders. We understand that this can only be done through consistently meeting our targets quarter-on-quarter. Apart from outperforming costs and production guidance and increasing the joint venture's cash balance by over $88 million over the last 18 months, this slide highlights some of the other key milestones the team has delivered to on schedule. This includes the timely delivery of the updated technical report and Life of Mine Plan and the lead up to and the recommencement of mining. We are on track to double our production by 2025 and are making significant strides on the exploration side of the business where we expect additional positive news flows as we continue to aggressively drill both near mine and regional targets.
On Slide 13, our final slide, I would like to recap the investment case of Galiano, the asset is located in the top-tier African mining jurisdiction, which is governed by the rule of more with a strong transparent mining regulation and a highly skilled workforce. We have an enviable resource endowment and hold a large, highly prospective and underexplored land package. The asset is highly derisked being cash flow-producing and post construction with all client, infrastructure and permits in place to allow us to execute our stated life of mine plan. We have a clear line of sight to a significant value-adding event, which sees us doubling production by the year 2025. The asset remains highly leveraged to gold price with NPV increasing significantly at current metal prices.
Having a fully funded mine plan, no debt and a strong balance sheet further strengthens the investment thesis for Galiano. With these points in mind, the company is uniquely positioned to deliver superior value to investors through the execution of the life of mine plan and the ramp-up of production over the next 24 months. With that, I'd like to turn the call back over to the operator and open the lines up for questions.
[Operator Instructions] Okay. And our first question comes from the line of Heiko Ihle of H.C. Wainwright.
Hey, that saprolite rock waste removal, any idea how long that will take and how much the whole thing should cost? I don't know how far is it brought? I assume you don't really need to put anything underneath the waste material though you? Because it's mostly clay, right?
Yes. So Heiko, the strip that we're talking about here is obviously, partially saprolite material, which is free dig and doesn't require drill and blast activities. And we're kind of stuck into that at the moment. So that's the upper surface of the strip. And as I mentioned on the call, probably about towards the end of this year, we'll be getting into drill and blast activities out there. And that will continue into Q1 next year, where we expect material or ore delivery to be delivered to the mill in Q2 next year. So that's when you'll see an increase in grade feeding the mill in Q2.
Got it. Okay. And how far is it transported?
Sorry?
Yes. How far is it...
Oh, how far is it transported. Yes, yes, so the actual waste material is obviously stored near the mining facility, but the deposit itself is about 10 to 12 kilometers away from the processing facility. So that's the haulage for the ore. And obviously, the waste is just going to be stored in waste stockpiles near the pit.
Got it. Okay. You had a little chart on Page 12 of your presentation for this call that you're working on several operational optimizations. What exactly are you still doing what has already happened? And can you maybe quantify some of the results you've gotten so far or maybe even what you expect to see in a quantified terms by the end of the year?
Yes. I think by the end of the year, we'll still be progressing some of these optimization works. Obviously, Heiko, I mean I think we mentioned or I mentioned in the past that we have already utilized larger trucks for the mining of Abore, and we're expecting to do that for the other pits as well. So in the short term, that's the 1 optimization that's going to yield better productivity, and we expect better costs per unit moved as well. So on that front, we're using 777 haul trucks at Abore and the feasibility study that we released earlier this year described 40-tonne ADT trucks for that same deposit. So that's 1 optimization. The other things that we're looking more longer term is the ability to potentially apply ore sorting at the Esaase deposit, which will help us potentially increase the amount of lower-grade material that is profitable at that deposit. And on the other side of that, it could also increase the grade of the higher grade material that we're currently -- that we will be mining at Esaase as well.
There's some other smaller optimizations. We do have an ability to add to additional CIL tanks in the CIL circuit, which we're looking at in terms of increasing residence time there, and there's also a secondary crusher that we're looking to install by the end of next year, which would act as reducing costs in the crushing circuit as well. So those things we're working on and advancing at the moment.
Perfect. No, that's helpful. I appreciate and I'll get back in queue.
Thank you, Heiko. Cheers.
[Operator Instructions] Okay. There seems to be no further questions from the phones at this time. So I'll hand the floor back to our speakers for the closing comments.
Okay. Thanks for that, operator. Well, listen, we're certainly at a stage of inflection at the asset level at the moment, and we're certainly looking forward to ramping up production over the next 24 months as stated in the conference call. So I'm very pleased with where the team is at and certainly looking forward to getting stuck into the high-grade material as of Q2 next year. And I appreciate everyone dialing in to the call today, and have a good day. Thank you.
Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.