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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Good morning, and welcome to the Gran Colombia Gold's Q1 2021 Results Webcast. My name is Cheryl, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.I will now turn the call over to Mike Davies. Sir, you may begin.
Great. Thank you, Cheryl, and good morning, and thank you for joining us today for the Gran Columbia Gold First Quarter 2021 Results Webcast. With me on the webcast this morning is our CEO, Lombardo Paredes.And as is customary, I will first go through our prepared remarks regarding an update on 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 this morning, I would first like to draw your attention to our legal disclaimer regarding forward-looking statements that may be made by us during the webcast this morning.Last night, we released our first quarter 2021 results. With the closing of the Aris gold financing transaction on February 4, our equity interest in Aris fell below 50% to 44%. For financial reporting purposes, this represents a loss of control. And as such, we recognized a $57 million gain on the loss of control in our first quarter results. And from February 4 onward, we will equity account for our share of Aris' results.The change in how we report the Aris results going from full consolidation to equity accounting will somewhat distort the comparison our results this year compared to last year. With that being said, I do believe that the equity accounting method for Aris will provide a cleaner look at the balance sheet and the results of Gran Colombia.Income from operations of $39 million, together with the $57 million gain on loss of control of Aris, $43 million of gains on the change in fair values of our derivative financial instruments and a $9 million gain on the sale of our Zancudo project, all contributed to our net income of $118 million or $2.02 per share in the first quarter of this year.Our adjusted net income was steady with $22 million or $0.36 per share, essentially on par with the first quarter last year. And over the next several slides, I'll take you through some further details behind our first quarter performance.Turning to our capital structure. I'd like to highlight a couple of items. In the first quarter of 2021, we have returned a total of $5.4 million to shareholders with the repurchase of 702,000 shares for cancellation at a cost of $3.2 million and payment of 3 monthly dividends totaling $2.2 million.In addition, we currently have 61.6 million shares issued in outstanding, reflecting the issuance of 421,000 shares to redeem 10% of the convertible debentures in April, bringing the remaining principal of the convertible debentures outstanding, down to $18 million.We're continuing to pay our monthly dividend, which currently represents about a 3.5% annual yield. The next dividend payment set to go out next Monday, at which point, we will also be announcing the dividend to be paid on June 15 to holders of record on May 31.We've had tremendous response from shareholders on our monthly dividend, and we see it as an integral part of the value creation for our shareholders.We pre-released our production results back in mid-April. We produced 49,000 ounces of gold at Segovia in the first quarter of 2021, and we have followed that up with another 17,500 ounces of gold in April. That brings us to a total of 66,500 ounces through the first 4 months of this year, and our trailing 12 months total gold production at the end of April is just over 201,000 ounces. We remain confident that we will meet our production guidance again this year, which is projected to be in the range of from 200,000 to 220,000 ounces of gold at our Segovia operations.In the first quarter of 2021, we processed an average of 1,470 tonnes per day at our Segovia operations at an average head grade of 12.8 grams per tonne, with 1,200 tonnes per day coming from the company mines and another 270 tonnes per day from the 56 artisanal mines we have under contract in our title.In April, we processed about 1,600 tonnes per day with the additional material coming out of El Silencio and Sandra K. Both of these mines started out the year a little slower as we gave priorities to some infrastructure and development activities to catch up on work delayed in 2020 due to the handling of the COVID situation.The expansion of the Maria Dama processing plant to 2,000 tonnes per day of capacity is progressing well and should be completed in the second half of this year.The construction of the new polymetallic recovery plant is also nearing completion and we'll begin commissioning the plant in the next couple of months.Revenue totaled $102 million in the first quarter of 2021 compared with $101 million in the first quarter last year. Our realized gold price in the first quarter of 2021 increased to an average of $1,812 per ounce from $1,570 per ounce a year ago. This was the key driver behind the growth in revenue from our Segovia operations from $90 million in the first quarter last year to $97 million in the first quarter this year.On the other hand, our revenue in the first quarter last year included $11 million from Marmato, which decreased to only $5 million in the first quarter this year as 2021 included just the month of January due to the change in reporting for Aris, that I had mentioned earlier in this presentation.There were no surprises for us in Segovia's total cash cost performance in the first quarter of 2021, which averaged $825 per ounce sold, fairly consistent with what we reported in the fourth quarter last year.As we explained in our year-end webcast, with the increase in gold prices in mid-2020, we increased the payment rates to our contract in artisanal miners in the third quarter last year. This was the first increase in these rates since 2017 and ensures we remain competitive in the local market.Higher gold prices also increased our production taxes within our total cash cost. And the costs associated with the new COVID health and safety protocols implemented at the beginning of the second quarter last year were also a factor.However, despite the recent increase in our total cash cost, with the higher gold prices, our per ounce margins remained just as strong now as they were in the first quarter last year.With the increase in our total cash cost at Segovia, our all-in sustaining cost was $1,164 per ounce in the first quarter of 2021. This is an improvement from the fourth quarter of 2020, which included a much higher sustaining capital element due to a backlog of capital projects from earlier in 2020 due to the COVID situation.In the first quarter of 2021, we spent $9 million on sustaining capital at Segovia. About $176 per ounce compared to only $6 million or $109 per ounce in the first quarter last year. Of the $9 million of sustaining capital in the first quarter of this year, we spent $1.7 million on our continuing exploration program, $3.6 million on mine development and another $3 million on our mine infrastructure and equipment.We expect that our all-in sustaining cost will remain at about the $1,100 per ounce level this year as we execute our planned capital investment program at Segovia.In the first quarter this year, we generated about $46 million of adjusted EBITDA, all of it from Segovia compared to $50 million in the first quarter last year, which was comprised of about $48 million from Segovia and $2 million from Marmato. Our trailing 12 months total adjusted EBITDA at the end of Q1 stood at $184 million compared with $188 million in 2020.And we continued to deliver solid cash flow results in the first quarter of 2021. Excluding Aris, our operating cash flow was about $24 million in the first quarter of 2021 and reflected about a $7 million increase in income taxes in Colombia compared with the first quarter last year.It also reflected delayed receipt of VAT refund claims. We're pleased to report that the VAT situation is starting to clear up and we've received about $11 million of our delayed claims so far in April and May.Our consolidated free cash flow was $2.5 million in the first quarter of this year and adjusted to exclude the Aris impact in January, it was about $15 million. Our free cash flow generation continues to be more than sufficient to support our ongoing debt service on our dividend program. And we've been putting our free cash flow to good use in strengthening our balance sheet.I had mentioned at the outset that with the change to equity accounting for our investment in Aris, the strength in our balance sheet continues to become more apparent as it only includes the direct cash and debt of Gran Colombia.We finished the first quarter with $74 million of cash, $33 million of gold notes and $16 million of convertible debentures. In April, we redeemed 10% of the convertible debentures with shares. And in May, we used another $10 million of our cash balance to redeem a portion of our gold notes ahead of schedule.That brings the total amount of our gold notes down to $19.75 million as of today. That's $78 million of debt repaid over the last 3 years since we issued the gold notes. And over the remaining 3-year term of the debt, we only need to use 15,800 ounces of our gold production, less than 3%, to service the quarterly amortizing payments. In fact, for the rest of this year, we only need to use 2,800 ounces of gold to meet the requirements for the payments at the end of July and October. It's amazing to see how far we've come over the last 3 years in our debt reduction program.Last night, we filed the NI 43-101 technical report in support of the updated mineral resource and reserve numbers we reported at the end of March, which demonstrates that we replaced the mineral resources that we mined last year through our ongoing exploration program at Segovia.The updated mineral resource estimate for the Segovia operations incorporates assay results from an additional 467 diamond drill holes totaling 64,000 meters of sampling information in the databases compared to the previous model, inclusive of the 2019 drilling program and ongoing validation exercises of historical information being completed by our geologist. In addition to the drilling, a total of 9,800 channel samples totaling some 7,800 meters in length were completed in 2020.In light of some conjecture I've recently become aware of, I'd like to set the record straight that although SRK raised the gold price in the updated mineral resource estimate to $1,700 an ounce, they also increased the projected cost by 14%. The net result was a nominal reduction in the cutoff grade from 3 grams per tonne in the 2019 mineral resource estimate to 2.9 grams per tonne in the 2020 mineral resource estimate update that we filed last night.SRK has indicated in the technical report the change in cutoff grade had only a 21,000-ounce impact on the latest mineral resource estimate update. And the key driver behind the replacement of resources was our ongoing exploration campaign.In the first quarter of 2021, we drilled 9,000 of the 40,000 meters planned this year focused on step out and infill drilling in proximity to our 4 mines at Segovia. We also completed about 2,300 of the planned 20,000 meters at our brownfield targets, including Vera, where drilling has outlined the down plunge extension of the historical ore-shoot; and at Marmato, drilling has successfully intercepted the western extension of the Marmato vein structure.We currently have 8 drill rigs operating in Segovia and expect to add 2 more in the second half of this year. We also expect to release detailed results from our first quarter drill program by early June.I'd like to take this opportunity to draw your attention to our latest corporate video, Beyond Gold, which is available on our YouTube channel and our website. The video features our Segovia operations and sustainability initiatives. Directed by Colombian journalists, Yamid Ahmad, the video interviews local management and gives investors not only an opportunity to see what our capital investment has achieved in mechanizing and modernizing our operations but also the impact our focus on ESG has contributed to the community, our workers and the environment. If you haven't watched it yet, I would encourage you to do so. It's something that we are very proud of.While Segovia is the epicenter of our free cash flow generation, we also have a solid portfolio of investments capable of creating value for our shareholders. In addition to the 44% position we have in Aris gold, we have added a 27% position in Denarius, an emerging junior metals company listed on the Toronto Stock Venture Exchange with interest in the Lomero project in Spain and the Guia Antigua and Zancudo projects in Colombia.The recently acquired Lomero project is a polymetallic deposit located on the Spanish side of the prolific copper-rich Iberian Pyrite Belt, with a historical estimate in the inferred category of 21 million tonnes of material, with 3 grams per tonne of gold, 62 grams per tonne of silver, 0.9% copper, 0.85% lead and 3% zinc. The remains opened at depth in the long strike.The project deposit site is well serviced by water, power, paved highways and port access and is also positioned in close proximity to the Matsa JV project, which has processing facilities with the capacity to process 4.4 million tonnes of copper and polymetallic ore annually.Denarius has recently raised the funds required to carry out an exploration program leading to an updated technical study to take the Lomero project forward and also to commence a drilling program at the Guia Antigua project in Colombia. We also have an 18% equity position in Gold X Mining and its Toroparu project in Guyana.In March, we announced a bid to acquire the other 82% equity interest in Gold X that we don't already own. The acquisition will be completed through a plan of arrangement with a share for share exchange based on an exchange ratio of 0.6948 of a Gran Columbia share for each Gold X share.Our management team has considerable experience in the Guyana Shield and has the mine building experience to bring a project such as Toroparu into production.Over the last couple of years, since we made our initial investment on Gold X, we have increased our knowledge and our understanding of this project. And in making the bid, we see an opportunity to diversify our portfolio with another multimillion-ounce gold deposit.The transaction is subject to regulatory and shareholder approval, and meeting materials have been distributed by both companies to shareholders and both companies will be holding shareholder meetings on May 27. If approved, the transaction could then be completed in early June.And with that, Cheryl, we'd now like to open things up for the Q&A session.
[Operator Instructions] And our first question comes from [ Hugh Smithers ].
I have a couple of questions. One, when do you first expect to receive any revenues from your polymetallic recovery plant? I know you said you expected completion in the next couple of months. But when do you expect to receive any revenues from it?And then were any of the drill results from Q4 2020 included in your resource update? Or are you still waiting for results from that?
Lombardo, do you want to respond on the polymetallic part?
Yes. Well, the operation, the start-up operation in the polymetallic plant is going to be in June. The month of June we'll be able to start up the plant. And the commercial operation will start in August. We are already finalizing the contract, and we are going to deliver the concentrate from -- in other words, the contractor or the company, which will pick up the material, will pick up the material in Segovia and will be transported to the Pacific Port of Buenaventura in Colombia. The company is a company which is associated with Glencore.So a concrete answer is, in September, we'll start to receive revenues from that polymetallic facility.
And on the drill results, the drill results up to about the end of November were included in the 43-101 update. So there's some holes from December. And the results of that, that will be included in the next resource update.
And also do you intend on continuing the dividend after the Gold X merger?
Absolutely.
Our next question comes from [ Nick Pickard ].
Had a couple of questions. First question is, I was wondering if you could comment on the situation right now in Colombia? From what we see on the news, it's not great. Is that having any impact? I know you guys have done a lot of work on relationship with the community there, but is that having a potential impact on production?
The answer is not. We have not any impact related with the strikes and the concentration of people in Colombia. In fact, yesterday, he was calling Colombia some kind of mining strike, but the -- that mostly happens. Basically, today, will be a concentration Amalfi, which is a town to our -- part of Segovia. And probably they will interrupt the roads and that kind of thing, but that will not affect the operation. In concrete, we do -- we do not suffer any interruption because of the situation in Colombia.
Okay. That's great. And then the other question was on the tax side. It was significantly higher than Q1 of 2020. Is that all because of the higher gold prices? Or anything else going on there?
No, it's largely -- it would be 2 things. Definitely, the higher gold price, which improved our profitability last year, as you saw with record earnings. So we are paying a larger tax bill. And Q2, as always, will be a bigger tax cash payment season for us. We've made a payment in April, and we've got another one coming up in June. The other factors we announced in our year-end results is that we've now been so profitable in Colombia that we have to pay a 10% withholding tax on money that we are bringing up from Colombia. So we did have some of that in the first quarter that we paid as well.
[Operator Instructions] And presenters, I show no further questions in queue at this time.
Well, I'd like to thank everybody for joining this morning. We do have the shareholders' meeting coming up in a couple of weeks. So we look forward to your participation in that. And please stay tuned.We'll have further updates, as I mentioned, with exploration coming out at the end of the month. And certainly, an update on the proceedings around the shareholders' meeting on the Gold X transaction. So thank you.
Thank you.
Thank you ladies and gentlemen. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.