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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Gran Colombia Gold Fourth Quarter 2019 and Year End Results webcast. My name is Hilda, and I'll be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Mike Davies. Mr. Davies, you may begin.
Great. Thank you, Hilda. Good morning, and thank you for joining us today for our 2019 Fourth Quarter and Year End Results webcast. With me on the webcast this morning, hopefully, will be our CEO, Lombardo Paredes. They are having some power outages when I met him this morning, and I understand he's having some difficulty connecting. But as is customary, I'll first go through our prepared remarks regarding our performance in 2019, and if Lombardo is able to connect, he'll join us for the Q&A session when we open things up. Before we proceed with the presentation, I would first like to draw your attention to our legal disclaimer regarding forward-looking statements that may be made by us this morning during the webcast. So last night, we released our operating and financial results for 2019's fourth quarter and full year. We're pleased to once again be able to report another solid quarter, consistent with our expectations. In the fourth quarter, record gold production, coupled with strong gold prices propelled our adjusted EBITDA, adjusted net income and cash flow metrics in the right direction. For the full year, we set new highs across the board. Over the next few slides -- oh, good morning, Lombardo.
Yes, good morning, Mike. Sorry.
Yes. It's okay. We just got started. All right. So as I was saying, over the next few slides, we'll take a closer look at the results we reported last night. One of the items we reported last night was the impairment charge taken in the fourth quarter. We completed the spin-out of Zona Baja mining assets of Marmato into its new public vehicle, Caldas Gold Corp. in February so we can proceed to develop the underground mine expansion and the Deeps mineralization without impacting Gran Colombia's capital structure or its balance sheet. We think this is going to be a fantastic project, and our initial investment is valued at $44 million. With the spin-out, we had to assess the carrying value of the Zona Alta mining title that remained behind with Gran Colombia. Prior to 2013, this area was a key focal point in the open pit strategy. And a lot of investment, including values assigned back in the 2011 merger with Medoro remained attached to the upper portion of the mountain. However, with the continuing presence of illegal miners in Zona Alta, we aren't able to do any exploration nor can we establish any mining operations in Zona Alta at this time. As we stated in the last night's press release, this is one of the reasons we commenced the free trade arbitration to Colombian government back in May of 2018. And after considering the various alternatives and recognizing nothing has changed since we launched the arbitration, we do not believe the carrying value is recoverable at this time, and so I took the opportunity to write the carrying value down in the fourth quarter. With this slide, I want to highlight that the carrying values on our December balance sheet reflect the core strategic assets in our portfolio that we believe will drive value creation for our shareholders. The dollar amount shown represent the accounting carrying values of the net assets at the end of 2019. Each of Segovia, Caldas Gold, Gold X and even Western Atlas, all have the potential to be worth far more than the current carrying values as their individual exploration, development and growth strategies unfold. And Caldas Gold is a great example of what I'm referring to. The mineral resource estimate in last year's PEA was based on drilling up to the end of July 2019. Since then, we have issued several press releases with infill drilling results in the main zone, showing higher grade results than were in the PEA resource. This bodes well for the PFS that is currently in process and expected to be completed midyear. The other exciting development is the discovery of a new zone, parallel and very close to the main zone, that has the potential to add to the project's resources with more drilling. The more drilling we complete in the Deeps mineralization, the better this project is looking for us. We had a record quarter at Segovia in the fourth quarter, bringing our total gold production for the year to 240,000 ounces, up 10% over last year and more than double our production level 5 years ago. In fact, since 2010, we have now produced over 1.3 million ounces of gold from our 2 projects in Colombia. At Segovia, we processed an average of 1,345 tonnes per day in the fourth quarter, with an average head grade of 16.2 grams per tonne, resulting in 58,000 ounces of gold production. At Marmato, an improvement in head grades to an average of 2.7 grams per tonne increased its quarterly production to 7,000 ounces. For the year, Segovia's 214,000 ounces of gold production was a new record with Providencia and El Silencio continue to be the key contributors. We saw additional growth in Sandra K, and we also saw an increase in the artisanal miner production as new contracts came on stream in 2019 under our contract mining model in our title. Our model's 2019 production was near the top end of its guidance range. The spin-out of Marmato to Caldas Gold sets the stage now for us to improve production as they implement the mine optimization plan envisioned in the PEA. Last night, we also reported the 2019 update to Segovia's mineral resources and reserves after completing our drilling program last year, which comprised almost 36,000 meters. We are pleased with the results replacing the reserves we mined in 2019 and adding over 360,000 ounces to our mineral resources, more than replacing what we mined. The results also reaffirmed our confidence in the high-grade nature of our Segovia Gold project, with the M&I grades averaging 11.7 grams per tonne and an average of 10.5 grams per tonne in our proven and probable gold reserves. The biggest increases in resources came at El Silencio and Sandra K, and our drilling last year identified several high priority targets that have the potential to increase our reserves and mine life. Our 2020 drilling program will be following up on all of these targets. Revenue of $88.5 million in the fourth quarter brought the total revenues for 2019 to $326 million, up 22% over 2018. Our revenue growth over the last 5 years has predominantly been driven by our production growth at Segovia. The lift in spot gold prices in the second half of 2019 was also a major catalyst in 2019's revenue growth. And overall, our total cash cost was $685 per ounce in the fourth quarter this year, bringing our company average for the year to $661 per ounce, about 3% lower than 2018. From this chart, you can see that Segovia's cash cost continues to hover around the $600 per ounce level, while Marmato at just over $1,100 per ounce is expected to see significant improvement going forward as Caldas Gold implements the optimized mine plan, improving production and identifying cost savings opportunities. We also expect with the recent Colombian peso devaluation in March of 2020, it should have some positive impact on our U.S. dollar equivalent cost for both mining and operations. Our All-in sustaining cost increased to $1,003 per ounce in the fourth quarter this year, reflecting an increase in capital expenditures at Segovia, most notably associated with exploration and mine development. And our G&A reflected the cost of the legal work required this quarter related to our arbitrations and process. That brought our ASIC for 2019 to $916 per ounce, below our guidance of $925 per ounce. In 2019, we incurred another $30 per ounce of nonsustaining CapEx, mainly on the drilling, PEA and PFS work at Marmato, resulting in an All-in cost for the year of $946 per ounce, which was also below guidance, which was $950 per ounce. With gold prices rising in 2019, you can see the gap between revenue and All-in cost widened in 2019, a key driver behind our free cash flow growth. And with the boosted revenue from the increase in gold prices in the second half of the year, combined with 2019's production growth and lower cash costs, our adjusted EBITDA reached a total of $147 million in 2019, up 43% over last year. That means we're currently trading at less than 1.5x EBITDA than the current market. Cash flow metrics in 2019 also benefited from the higher gold prices and our continuing strong operating performance. Operating cash flow in 2019 surpassed $100 million, this after paying $35 million income taxes earlier in the year, and was up 30% over 2018. After $43 million spent on CapEx and exploration in 2019, our free cash flow was $60 million, up 38% over 2018. With about $22 million in free cash flow in the fourth quarter and after debt service, the purchase of a $5 million convertible debenture in Gold X Mining and $1 million spent to acquire a 20% interest in Western Atlas, our cash position increased to $84 million by the end of 2019. This also included about USD 11 million we received in the private placement with Eric Sprott in November that we used in the first quarter of 2020 in connection with our private placement with Caldas Gold. Meanwhile, we reduced the principal amount of the gold notes by another $5 million in October, bringing them down to about $69 million by the end of 2019. Including the convertible debentures, the total principal amount of debt outstanding at the end of the year was also about $84 million. We've come a long way in strengthening our financial liquidity in just 2 years. And in February, we completed a private placement for about USD 30 million. And today, we have used $22 million of the proceeds to redeem 30% of the gold notes, bringing their principal outstanding down to $45 million. We will have about another $4 million in savings this year in our debt service because of the early redemption that we've taken. And with the private placement in February, our issued and outstanding common shares now stands at 60.8 million shares. With warrants, options and the convertible debentures, our fully diluted count is about 88.7 million. Our share price, much like others in the market has taken a beating with the COVID-19 crisis. But we feel confident in our assets and we're optimistic the value will return once the markets normalize. I expect there will be many questions this morning about COVID-19, what we are doing about it and how it is affecting us. We're closely monitoring the situation, and we're adapting our response plans on a daily basis as new information becomes available. The safety and well-being of our workers is of the utmost importance, and we're taking all the necessary precautions. To date, our production and shipments have not been significantly impacted by COVID-19. Colombia is in the midst of a national quarantine, so we have implemented our business continuity plan. We do have mining plants and maintenance operations going on at this time. As you can get the impression from this slide, we have also focused on the humanitarian side of things in the crisis, providing food and water to the communities as well as ensuring everyone follows the recommended protocols to remain safe and healthy. This is a situation that is changing almost on a daily basis, so we'll keep you informed as the time goes on. And I'd like to take the opportunity before the Q&A session. Lombardo, did you have anything that you wanted to add about what's happening with COVID-19 at the moment in Colombia?
Yes. Well, one of the advantages of Colombia is that Colombia took the measure to isolate people early in the process. It was not like Spain or Italy, for example. And in our case, especially Segovia, for example, that Segovia and the neighboring municipalities are free of coronavirus. And there is a town which is 2.5 hours by road, like car on road, which is -- we have only 1 case. So in our -- from the point of view of isolations, Segovia is in a very good position. Segovia and Remedios, they do not have any cases of coronavirus. And the town, which has only 1 person with symptoms is 2.5 hours far from Segovia by car. So we are -- and the municipality, Segovia and Remedios are isolating. So no one can cross the border. Our people who are working there are isolated within the mine facility. So -- and we are cooperating hand-to-hand with the authorities, sanitary authorities. So we are confident that we are handling the situation, the emergency properly.
Great. Thank you. So with that, Hilda, we'd now like to open up the lines for the Q&A session.
[Operator Instructions] We have a question from Sid Rajeev from Fundamental Research Corp.
Gentlemen, congratulations on the strong results. Maybe some more color on COVID-19 and the impact. Are you revising your production guidance that was provided a few weeks ago?
Lombardo, do you want to answer that?
Yes. Yes, please. For example, the production of March and also the first quarter will have almost no impact. The isolation started in March 23. So for our -- so our production in -- it will be -- our whole production will be about to 92%, 94% of our target. And -- well, April is going to be a little bit more challenging. We are monitoring the situation. We -- depending on how challenging is April or if the situation is extended beyond April, probably we have to revise our guidance.
How easy or challenging is it to turn off production and resume production at both mines?
With this type of situation, in Remedios, that kind of thing is not unusual for us. Our -- for example, our last civil strike was in 2017 and last 42 days. We asked to implement strict measures and unaffected -- by the way, unaffected emergency plan -- continuity plan. This time, it's a little bit different because the authorities are limiting the mobility of the people. But for example, we have in Segovia, we have around 800 people, 550 people is our own people and the rest are contractors. They are working in all the mines. They are working in the plant. We have to drill rigging operations. So -- and probably -- most probably, and I'm saying that probability is -- 50% probability is that the measures, knowing how we are handling the situation and cooperation that we are having with the authorities will allow the people -- will allow us to have more people working. So I am optimistic with that situation. I'm saying that it will be challenging because you never know how that kind of situation evolve. But taking the proper measure, we believe that we will be able to handle the situation in a reasonable manner. And probably my expectation for April, is going to be around -- probably around from 10,000 to 15,000 ounces of gold if the situation remain as it is. Okay?
Okay. And how about CapEx? So last year, the CapEx is about $43 million. Do you have any -- are you starting to -- do you have any guidance for that?
Yes. So we were going to provide guidance on CapEx. We do have programs that are underway. As you've seen in our press release, we have taken some precautionary measures in light of the situation to slow down some discretionary CapEx. So at this point, we would have seen CapEx probably a similar level this year to last year. In normal times, we're going to wait and update guidance on where we think CapEx will be once we get beyond this situation and have a better sense of just what the numbers will look like for the year.
The next question comes from Derek Macpherson from Red Cloud Securities.
Congratulations on a solid quarter. Just looking at the -- looking back a year when the sort of exploration program kicked off, the 2019 exploration program or the money that was raised with the convert -- design was that it would be sort of 2020 loaded on the exploration side. If you do have 36,000 or -- yes, 36,000 meters last year, what's the plan? I mean, obviously, COVID-19 could be an issue there but what's the plan to drill -- or what was the plan to drill in 2020?
Well, as we announced about a month ago and it was in our MD&A last night, we've -- we do have a plan this year at Segovia for about 45,000 meters of drilling, and we're leveraging -- we extended -- the 36,000 meters last year was already increased relative to what we'd initially set out to do in the year. The 45,000 meters this year is going to include about 30% of those meters on the regional program, stepping out now into some of those veins where we're not currently mining and looking at high priority targets for expansion into new mining areas in the title. So we will see an increase this year. But obviously, we've got to color that comment at the moment given the slowdown and some things that are happening as a result of COVID-19.
And just -- Mike, let me add something.
Sure.
For exploration, we are using a Peruvian company the name is [indiscernible] Out of the 6 drilling rigs that we have in Segovia, we have 3 in operations, especially 2 in El Silencio and 1 Sandra K. So -- and those rigs are working on the high priority targets.
Okay. All right. So that's why the drilling guidance might be a little bit -- drilling results may differ from the 45 kilometers. And then just on the accounting side, typically, with Gran Colombia, cash -- you guys pay your -- while you incur taxes all year, your taxes are paid in the first half. Mike, can you give us a little bit of color as to what the sort of cash taxes payable are in half 1 this year? I think last year, it was around USD 30 million.
Yes. And certainly, with the increased profitability last year, our cash taxes are higher, obviously, this year to pay. We have about $45 million of cash taxes that we expensed last year. So our cash tax payments in the first half of this year will be about $35 million or so. The primary payments come forward in later in April and in June. I think one of the things that I'm very happy about, despite everything that's going on, is that we have been very prudent in the last 1.5 years to take the opportunity to invest wisely in the assets, but at the same time, put cash on the balance sheet. So as we go through this situation, we're obviously taking some steps to lessen some of the liquidity issue with a slowdown in some of the discretionary OpEx and CapEx items. But we do feel that the cash balance that we have will give us the necessary funding that we'll need to keep everything moving along. And as typical later in the second half of the year. So hopefully, when everything is back to normal, that's the period again, which we start stocking up on cash on the balance sheet.
Okay. And then maybe you could provide a little bit of color on how March production has been going?
March production, you say?
Yes, please.
Well, in Segovia, it's going to be around 17,000 ounces of gold, and the target was 18,000. And in Marmato, it's going to be -- in Caldas, it's going to be 2,000 ounces of gold, the target was 2,500. So we are going to a little bit. We're going to be about 94%, 92% at there in relation with the target. So the total gold production for Segovia for the first quarter is going to be around 50,000 ounces of gold.
The next question comes from Mike Nery from Nery Asset Management.
Just a follow-up question on CapEx. So if base case CapEx was similar to last year, what's the minimum level that we should look at, assuming we're operating for the whole year?
Yes, Mike, I think that's, as I said, a little hard to predict at the moment, not knowing exactly how long this situation may go on and what the impact is going to be. So we're prioritizing the CapEx still within the mine. Certainly, we're focused on a lot of the maintenance CapEx at the current time. But some of the expansion or growth CapEx is going to be delayed, at least, for a few months, while we get through the situation. So I wouldn't venture, I guess, on what the minimum would be this year until we know a little more about the situation.
Okay. Right. And then in terms of we're doing this debt buyback here in the first quarter. Can you remind me -- can we do another one of those a year from now? Or is that the kind of the only one we can do until those mature?
No, the -- there's no restriction on the number of partial redemptions we can do early. So we could do them. Again, if we can build up some additional cash that we feel we've got an opportunity to use that cash to take out some more of the gold notes early. Obviously, you have to abide by the agreements and pay the make-whole premium as defined under the agreement to the holders, which for this payment was about 10% or $1.9 million. But with that $1.9 million of make-whole premium that we're paying today, we'll generate about $6 million or so of savings this year between the gold note repayments, the interest. And if gold stays where it is above $15.50, the gold premium, certainly, we will save on that. So it's a function ultimately of determining that we have some surplus cash that we feel would best be used for that type of endeavor.
Okay. And then how would you look at your overall cash position? And I understand there's a lot of moving parts right now, but what are -- after we do this debt paydown, what are your priorities in terms of how you look at what you do with additional cash?
Well, we did raise USD 30 million in the first quarter, so we added about net of the repayment that we've made this morning on the debt, an additional $8 million. So we're currently sitting -- we're still after also spending $11 million in the first quarter as our follow-up private placement that was promised into Caldas Gold. So we're currently sitting with a cash balance this morning after the redemption of about $80 million. I think as we go forward, our priority is, obviously, meeting our financial obligations as they come due over the next number of months, while this situation moves forward. As Lombardo has said, the operations are continuing to operate. So we will continue to be generating cash flow from the mines, perhaps not quite at the rate that we typically do. But we feel comfortable that between the cash balances and the continuing cash flow from operations, much like we saw in 2017, we won't miss a beat in terms of carrying forward on the agenda. We'll just prioritize how we spend the money of the projects in the meantime.
Okay. And so given the savings on the return on the debt buyback, would you consider doing another one of those this year?
As I said, it will really come down to an assessment of surplus cash. I can't make that assessment right now in the current situation. But definitely, that remains one of the levers that we have at our disposal as we get further out in the year and we see where we are.
[Operator Instructions]
All right. Well, it sounds as if there's no more questions at this point. So with that, we'd like to thank you for taking the time to join us this morning. Stay safe. And if you have any follow-up questions afterwards, please reach out to us. Thanks.
Thank you.
Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you for participating. You may now disconnect.