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Welcome to the Gran Colombia Gold Q1 2019 Results Webcast. My name is Ellen, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.I would now like to turn the call over to Mike Davies, Chief Financial Officer. Sir, you may begin.
Great. Thank you, Ellen. Good morning, and thank you for joining us today for our 2019 first quarter results webcast. With me on the webcast this morning is our CEO, Lombardo Paredes. And I'll first go through our prepared remarks regarding our performance in the first quarter, and then Lombardo will be available as we open things up for the Q&A session.Before we proceed with the presentation, I would like to first draw your attention to our legal disclaimer regarding forward-looking statements that may be made by us this morning during the webcast.Last night, we released our operating and financial results for the first quarter of 2019. We're pleased to be able to report another strong quarter as we execute our strategy. The record gold production, which we reported for the first quarter, led to new quarterly highs in revenue at $77.5 million and adjusted EBITDA at $35.2 million. Cost per ounce data was lower than expected and lower than the first quarter last year given the production performance. And all of this resulted in net income of $7.9 million and adjusted net income of $12.9 million, both of which were up compared to the first quarter last year.Our operating cash flow in the first quarter was $19.8 million, and after CapEx, our free cash flow was $11.3 million, both up from the first quarter last year, and this contributed to a $4.6 million increase in our cash position to $40.2 million at the end of March 2019.Over the next few slides, we'll take a closer look at the results we reported last night. In April, we reported that we had set a new quarterly production record with 60,601 ounces of gold in the first quarter of 2019, a 15% increase over the first quarter last year. Last night, we announced that we produced a total of 20,472 ounces in the month of April, with Segovia producing 18,371 ounces and Marmato producing 2,101 ounces. This brings the trailing 12 months total gold production at the end of April 2019 to 230,283 ounces, up almost 6% over 2018's annual gold production and above the top end of this year's production guidance. It's still too early in the year for us to be comfortable changing guidance at this point, so we'll continue to monitor performance over the next several months and reevaluate things as we see how this year's trend is shaping up.Our development and mechanization investments in the company-operated areas at our Segovia operations, a cornerstone in our capital programs the last couple of years, continued to pay off in the first quarter of 2019 with increased production at both the Providencia and El Silencio mines. Material process with Segovia in the first quarter of 2019 increased to over 1,100 tonnes per day, up 19% over the first quarter last year, and head grades increased to 18.8 grams per tonne. A key contributor to the head grade increase was the company-operated areas within the Providencia mine, which contributed 21% of the total material processed in the first quarter at an average grade of 34.8 grams per tonne, up from 25.4 grams per tonne in the first quarter last year.We've started off the second quarter on the right foot. In April, Segovia's production totaled 18,371 ounces with almost 1,200 tonnes per day of material processed at head grades averaging 18 grams per tonne. Providencia continued to perform well with material from its company-operated areas contributing about 20% of the total material process to grades averaging 35 grams per tonne.Marmato's production remained steady, but the real focus at this time is the evaluation work being undertaken with respect to the underground expansion opportunity to incorporate the Deeps material.Revenue reached a total of $77.5 million in the first quarter of 2019, up 20% from the first quarter last year. Gold sales volume was up 19% this quarter driven by the production growth. Spot gold prices fell to $1,304 per ounce in the first quarter of 2019, down from $1,329 per ounce in the first quarter last year. However, our realized gold prices actually went up from $1,293 per ounce last year to $1,298 per ounce this year. The catalyst for this improvement, which equated to about $20 per ounce in additional revenue this quarter, was a change in refinery in January of this year.We had been experiencing some performance issues with the previous refinery that caused us some concern, and we took the decision to terminate the long-term supply agreement. In doing so, we completed an international competitive tender process among several refineries, and all of the refineries we received quotes from showed a substantial savings, but just as important to us was ensuring we maintained a low credit risk profile in whichever one we chose to deal with. We're happy with our choice of new refinery. And as you can see in our financial statements, not only did we collect $1.4 million of trade receivables long overdue from the previous refinery, but our ongoing trade receivables and operating cash flow are benefiting from the payment terms in our new [ agreement ].We were notified last week by the ICC that the previous refinery has requested that we proceed with an arbitration process as is their right under the contract in connection with the termination. But we feel we have solid grounds for our actions, and we'll defend our position in the arbitration.Overall, our first quarter 2019 cash cost averaged $621 per ounce, down from $670 per ounce in the first quarter last year. Our company average cash cost in the first quarter of 2019 benefited from the fact that 91% of our total sales came from the significantly lower-cost Segovia operations. Segovia's cash costs came down 7% to $570 per ounce in the first quarter of 2019 as the production increase helped to further reduce fixed production costs on a per ounce basis, and the incremental production associated with the grade increase in the Providencia mine came with very little in the way of additional production cost.Marmato's cash cost is staying fairly steady above the $1,100 per ounce mark. However, we do expect to see much lower cash costs in the future once we implement the mine expansion strategy incorporating the Deeps mineralization.From this chart, you can see some improvement in our all-in sustaining cost in the first quarter of 2019, down to $832 per ounce, benefiting from the lower cash cost per ounce this quarter and also a reduction in CapEx spending on a per ounce basis as a result of the production growth. Our trailing 12 months all-in sustaining cost has also decreased to $896 per ounce compared with 2018's full year average of $919 per ounce.And something I feel is important to highlight this morning is that we have adapted our all-in sustaining cost and all-in cost disclosure to the latest guidance update published by the World Gold Council late last year. This guidance update was largely issued to incorporate the impact of adopting the new IFRS 16 standard regarding leases in 2019. While IFRS 16 did not have any major effect on our total all-in sustaining cost in the first quarter, it did have a minor impact on the components of our all-in sustaining cost, reducing reported cash costs by about $4 per ounce related to equipment and vehicles under operating leases and reducing G&A by about $1 per ounce related to office leases. The offset to all of this is that we now include about $5 per ounce of lease payments in our all-in sustaining cost as a separate line item.Review of the updated guidance of the World Gold Council did cause us to take a look at a couple of other areas, and we decided to make 2 changes to better align our reporting with the updated guidance. First, we now include social contributions related to current production at Segovia in our all-in sustaining cost. Over the last couple of years, it has averaged about $22 to $24 per ounce. Second, we decided to separate our capital expenditures between sustaining and nonsustaining or growth CapEx particularly given what lies ahead with the Marmato Project and also the step-out and brownfield drilling we're going to carry out in Segovia. We're applying these 2 changes retroactively, and you can see by this chart that they aren't having a material effect on our metrics. However, to keep investors and analysts updated, we have included a table in our MD&A, which shows a reconciliation of the quarterly numbers from the old basis to the new basis for the preceding 2 fiscal years.With the boost in revenue from the production increase in the first quarter of 2019 and the lower cash cost per ounce, our adjusted EBITDA also hit a new quarterly high of $35.3 million, up 29% over the first quarter last year. This brings the trailing 12 months adjusted EBITDA at the end of March to a total of $110 million, up 8% over 2018's annual adjusted EBITDA.Cash flow metrics in the first quarter of 2019 were also better than expected with operating cash flow of almost $20 million, this after paying $16 million in income taxes in the quarter. And after $8.5 million spent on CapEx in the first quarter, most of which related to Segovia, our first quarter 2019 free cash flow was $11.3 million, which was more than enough to meet our debt service obligations and purchase some additional shares in Sandspring, increasing our equity position to 18%. This left us with $4.6 million to add to our cash balance at the end of March.And on this slide, you can see the progression over the last year in strengthening our balance sheet with debt now coming down steadily through the quarterly repayments of the Gold Notes and our cash position building through our free cash flow generation. In April, we closed the bought deal private placement of convertible debentures, increasing our long-term debt by almost $15 million and our cash position by $13.6 million after costs and expenses of the financing. We will be deploying this cash over the balance of 2019 and through 2020 on the accelerated exploration program at our Segovia operations. We are initially completing some studies, including the AI work that we previously announced with GoldSpot Discoveries, and then later this year, we will ramp up the drilling on the identified targets focusing on reserve and resource additions and mine life extension at Segovia.We currently have 48.3 million shares outstanding. And including the 2024 warrants, the stock options and the shares issuable under the new convertible debentures, our fully diluted share count is now approximately 68 million shares. As of yesterday's close, we have a market cap of $161 million. With Red Cloud's analysts initiating coverage in April, we now have 3 analysts covering us, all with target prices well above the current trading level. And we remain focused on the key catalysts as we execute our strategy to close the valuation gap to our peers.On this last slide before we open up the Q&A session, I would like to reiterate that at this point early in the year, we're maintaining guidance on production and cost, and we will be monitoring performance over the next several months to evaluate updates later on as warranted.Segovia continues to be our flagship operation, and the results of the first quarter demonstrate why the implementation of our mine development and capital programs at these high-grade mines is so important to us. With the debt financing behind us, our exploration team has already commenced the work required to expand the drilling program at Segovia in the second half of this year to accelerate our efforts to add reserves and resources and mine life.The work at Marmato on the evaluation of the underground expansion to incorporate the Deeps mineralization is proceeding nicely, and we remain on track to have a PEA completed before the end of the year. We continue to work with Sandspring as they advance their projects, and we are preparing ourselves to be in a position to return to Venezuela when the opportunity presents itself.With that, Ellen, I would like to now open the lines for the Q&A session.
[Operator Instructions] And our first question is from Derek Macpherson from Red Cloud Inc.
Congratulations on a strong quarter. Could you maybe talk about the strong start to the year, both on a cost basis and a production basis, coming in sort of well ahead of the run rate for guidance? Can you talk about why that is?
Yes, certainly. I think as you saw the -- in February, when we made the announcement of our monthly production, we particularly highlighted that we have come into an area of -- the company-operated area of Providencia where the grades were averaging almost 2 ounces a tonne of material, much higher than the block model showed and a little bit unexpected. And that continued on for a little while, and in early March, it started to come back a bit more to the block model. So with those extra ounces, we were able to not only get ahead of ourselves in production, but given the fact that they came from an area where it was simply a grade increase, no effect on cost per tonne, there was minimal additional cost, really other than production taxes, and that helped to dramatically reduce the cost per ounce at Segovia to $570 in the quarter compared to what we thought. It's for that reason that while we're very pleased with the outcome because, obviously, it really helped deliver a strong quarter, we'd like to see another couple of months of performance before we decide how we're going to alter the guidance that we've got for this year.
All right. That makes good sense. And then, just my second question relates to the capital spend at Segovia, along with the exploration spend. The $25 million to $30 million you apply in your guidance, does that include the originally planned 20,000 meters and then the money raised in the recently closed bought deal is supplemental to that?
Yes. No. It's not quite that. The -- let me just go through, and I'll just clarify because I have had a couple of questions about our capital spend plan for this year. We expect $25 million to $30 million of CapEx at Segovia this year. That doesn't include the -- any of the exploration that we've got planned. That is the mine development to the infrastructure and the other CapEx that we've got going on.For the original -- for the 20,000-meter program that was already planned for this year, sort of our recurring program, there's about another $5 million of expenditures to be incurred. We have about $1.5 million that we plan to spend this year at Marmato and another $2.5 million related to the technical studies and drilling at the project. So if we assume the top end of Segovia's production guidance, that brings us to about $39 million of CapEx, exploration and development spending this year. Then from the -- about $14 million of cash that we have available from the new money raised, I think it's probably somewhere in the area of $5 million to $6 million this year will be spent on the studies that we're doing upfront and then getting into the expansion of drilling, and then the balance would be spent the following year. So we're looking at a total program, including the additional accelerated exploration of somewhere between $40 million and $45 million this year for the company.
[Operator Instructions] Our next question is from [ Mike Shao ] from [indiscernible].
So I have 3 questions this time. The first one is how is the machine learning exploration at the Segovia so far? How much you need to pay for the company GoldSpot for this job?
Sorry, [ Mike ]. We didn't quite get the first part of the question, if you don't mind repeating it.
Oh, sorry for that. Yes. So my first question is how is machine learning exploration at the Segovia so far?
We -- yes. The machine learning that we're doing with GoldSpot really has just gotten underway in the early part of May, so it's still a little early to comment on how that process is going to go. It's something that we expect we'll start to see results towards the middle of the year. It takes a little bit of time to get all the information loaded in and do the analysis. So it's a little early, but we're quite confident based on the experience that GoldSpot's had with other large mining clients that we should get some interesting additional information out of this process to help us prioritize our targets for this additional drilling.
Okay. So can you tell me how much you need to pay for the company GoldSpot for this job, maybe they have -- you have budget?
We have a budget. It's -- we don't really contract information per se, but it's not -- let's put it this way. It's not a very large sum of money for the nature of the work being spent. So it's less than $0.5 million for us to do this work with GoldSpot.
Okay. The third one is the company plan to complete the Marmato underground mining operation PEA later this year and might -- and then maybe start mining in the fourth quarter. I'd like to know the budget for this Marmato Project. Company needed to buy new equipment for this project?
All right. The -- there's 2 elements to the information you just mentioned. First, we are working on the studies to lead up to a PEA for later this year. That's on the larger, full expansion incorporating the Deeps information. We will have better information on the total CapEx to build that mine later on through the process. We expect that it's probably $200 million or less. But at this point, we're still in the early stages of the PEA process.We will not start full mining from the Deeps mineralization this year. That's going to come sometime afterwards. What is going to start in the fourth quarter of this year is a particular area that when we were doing the drilling from the existing mine, we identified a block with some higher-grade material that, we have said in our last release about the Marmato results, we will be able to start and we have started readying the development for mining later this year. So there's a small section of the zone that we've identified we can start mining this year, but the main project will not commence this year. It's probably still some time away after we complete the PEA.
Understood. Okay. So the last question is company like to help Sandspring so far. Can you tell me if the company like to increase the Sandspring equity? As far as I know, Sandspring need more cash for the exploration. Also can you tell me when Sandspring plan to start mining operation at Chicharron Project, which located within Segovia?
So let me tackle the first part and then let Lombardo speak to the second part. So the first part in terms of will we increase, I think we're quite comfortable right now at our 18% position. If Sandspring does some form of equity raise, obviously, we'll take a look to see what it is and how we participate in that, but still too early to say.Let me let Lombardo speak to the second part in terms of what Sandspring is doing on Chicharron.
Okay. There are 2 issue here: one is Sandspring, the [indiscernible]; and the other is Chicharron. Chicharron, we do some exploration -- where's that chart exploration? And basically, on that result, we developed a plan, so we are hiring a mining contractor who will work Chicharron for a couple of months. Then -- and we will add another short exploration program for Chicharron. Not -- this is basically shallow wells. It's not a big deal. But to answer the question is, yes, Chicharron, we will start mining Chicharron this year within the next 2 months.In relation with Sandspring, [indiscernible] you know that we split the project. The project [ is in its first ] phase, which will include Sona Hill, which is a new area, which in the Toroparu Project; and then we are developing a PEA, and we will continue with the feasibility study. Now we are developing a project execution plan, a complete cost estimate analysis and risk analysis. Also our plan is to try to incorporate a mining contractor to perform the mining in Guyana and also to hire an independent power producer, which will take care of on a take-or-pay basis of the power production. We will do -- we were planning on that.In relation with the plan because the plan is a big item, because the plan is from $90 million to $110 million is -- will be not flotation, if we see a plant. And there, we are planning to use secondhand equipment like for the [ sack ] mill, for the ball mill, for the main closure. They cannot see it ]. Our idea is trying to reduce at minimum the capital expense, the capital deployed; in other words, to order to make the project more bankable, okay? That is the whole about Sandspring.
The next question is from [ Michael Kirk ], representing himself.
Congratulations again to this very good quarterly results. I have 1 question about the Maria Dama plant, which is in expansion now and will be finished in about 4 to 6 weeks. If the production increased to about 1,500 tonnes per day, how will it affect this -- the future production?
Yes. Maria Dama plant now is able to process around 1,300 tonnes per day. We are feeding the plant with around 1,200 tonnes per day. By the end of May, the plant will be ready to process 1,500 tonnes per day. And that is our idea during the course of this year, to increase the amount of minerals that Maria Dama will process. Because [ while viewing ] we are incorporating some more contract mining is more mining. So the idea is that. The idea is to increase Maria to -- not idea. The fact is that Maria Dama starting June 1 will be able to process 1,500 tonnes per day.
Okay. We should expect probably in the entire production. Is this correct?
Sorry, could you repeat that, please?
Yes. I think with higher processing, I think, the production will grow a little bit 10% to 15%. Or what's the expectations from this?
Well, I think both. We don't have anything planning to plan to change the Maria Dama performance. They will continue to process the mineral from mining contractors. There's nothing different. [indiscernible].
Yes. I think, Lombardo, the additional part to that is that while we'll have the capacity at 1,500 tonnes a day, we don't immediately think that it's going to be 100% utilized. So I think we see the production growing and staying up maybe around 1,300 or so tonnes a day for the balance of this year, but we're really setting ourselves up that in 2020, we have capacity for additional material discovered during this year's drilling.
Yes, that's the [ completion ] of that, yes.
Okay. But I think what you think is that probably, the grades will stay at these levels, which we all have now. But what are you expecting? Because if the grades stay at these levels, then this means production will grow. But if the grades go lower, and this is the reason for the expansion, then we will have the same production. Or what's the reason for this expansion?
The reason for this expansion is we are developing Sandra K, for example. The [ kind of a ] mine which is [ total new ]. We are also drilling deep residential in which we will find new materials, and we are drilling, well, some in other areas, which will add material. So in relation to the lower grade, the lower grade, well, it will depend on how much material from the mining contractor will be incorporated into the process because we do not expect a reduction in grades in El Silencio or in Sandra K. And Providencia will continue the same production this year and 2020. In other words, the new material will come from exploration.
And we have no further questions at this time.
All right. Well, we'd like to thank everybody for joining us this morning. Our contact information is in the materials on our website. So if you'd like to follow up with anything afterwards, we'd be more than happy to get back to you. Thank you, and we look forward to hearing again at the next quarterly webcast in July.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.