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Ladies and gentlemen, thank you for standing by and welcome to the RNC Minerals first quarter 2020 results conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session [Operator Instructions]. I would now like to hand the conference over to your speaker for today, Mr Paul Huet, Chairman and CEO of RNC Minerals. Please go ahead, sir.
Thank you, Tammy. Good morning and welcome to the RNC Minerals Q1 2020 conference call.In addition to me speaking on today's call will be other members of the RNC executive management team. Graeme Sloan, Managing Director of our Australian operations; Johnna Muinonen, President of Dumont Nickel; Barry Dahl, Chief Financial Officer and Oliver Turner, Senior Vice President of Corporate Development and Investor Relations.This morning we issued a news release outlining our strong first quarter 2020 results. Our MD&A and financial statements for the period ended March 31, 2020 have been filed, all of which are available on the RNC website at www.rncminerals.com or under RNC's profile on SEDAR at sedar.ca.During today's call, the speakers will be referring to presentation slides which are available for download through a link on the homepage of our website at www.rncminerals.com.Before I begin the presentation, I would like to remind you to please review our cautionary statements regarding forward-looking information and non-IFRS measures, which can be found in our MD&A news release and in our presentation slides.I am very pleased with the results from the first quarter of 2020 and the positive momentum we have at RNC. Before I dive into the details, I'd just like to express my best wishes to all of you who have taken the time to join our call today and hope that you are all keeping safe and well. These are certainly unprecedented times and the COVID-19 pandemic has impacted every one of us.At RNC, we have been both fortunate and proactive in our approach to dealing with this situation. There is no doubt why Western Australia is nominated the number one jurisdiction to mine in the world based on the Fraser Institute list. We have been fortunate to maintain our operations while implementing strict protocols to ensure the safety of each of our employees as always the health and safety of our employees and stakeholders is a top priority. Q1 of 2020 was our third consecutive robust quarterly performance since the transformational acquisition of the Higginsville mine and mill that occurred in June of 2019. Our first quarter gold production was just under 25,000 ounces and our all-in sustaining cost trend was as expected and it continued to be reduced by an additional $30 per ounce demonstrating three consecutive quarters of reductions down to $1,101 per ounce sold. These results position us well to achieve our guidance of 90,000 ounces to 95,000 ounces at an all-in sustaining cost range between $1,050 and $1200 an ounce U.S. per ounce sold. We are confident that we remain on track to achieve our internal goal of reducing our all-in sustaining cost to $1,000 U.S. per ounce by the end of the year. While we currently do not expect any disruptions, our guidance for 2020 assumes no significant interruption in operation as a result of the COVID-19. I cannot emphasize enough how proud I am of the entire team especially those in Australia.Together, we managed to achieve strong operational results in Q1, despite some very significant challenges at site. It was only a few months ago that bush fires devastated areas of Australia. Once the fire subsided in January, our operations were then faced with extreme heavy rain, which led to flooding of regional roads and heavy water inflows into our open pit. Despite all of these challenges, our operational team delivered consistent results and continue to improve our all-in sustaining costs while ensuring safety remain paramount at the mine sites.As a precaution for the remainder of 2020, we have made a strategic decision to increase our stockpile in front of our mill, which now totals over 100,000 tonnes. This strategy allows us to be proactive in case we have any disruptions and are faced with unplanned shutdowns from COVID-19. A very similar strategy proved to be very effective during the natural disasters we faced in Q4 and early Q1 of 2020.Additionally, we have hired and assigned a full time nurse and medical staff at our site to monitor and ensure the health and safety of all our employees and contractors. Barry Dahl will discuss the financial results, but I am pleased that despite having to deliver $5.3 million into legacy hedges, we still managed to increase our cash position yet again another quarter. Our cash position increased to $38.4 million Canadian at the end of Q1, which was an increase of almost $4 million over Q4. Just before turning the call over to Graeme, I just want to add that our hedges will be completed in Q2 of 2020. We have approximately 3500 ounces remaining, in Q1 we had about 7500 ounces, 2500 ounces per month and once they're gone, we intend to take full advantage of the open gold market prices. At this point, I will turn the call over to Graeme who will provide you more details on the operational performance and the exploration.
Thank you, Paul. Well it's certainly been an interesting quarter with fires and rain and then later in the quarter COVID-19. As Paul mentioned earlier, we initiated measures firstly to protect our workforce and then to maintain production levels. The measures were multipronged and included the formation of a rapid response team, full time nurse, rigorous testing procedures, changing shift rosters, charter flights for our fly-in/fly-out personnel and the inoculation of the entire workforce with the flu vaccine. So I am particularly pleased to report that despite all of the issues we faced during the quarter, we are still able to meet our guidance for ounces produced and all-in sustaining cost.Our operating teams at both sites performed extremely well with no significant safety or environmental incidents recorded for the quarter. Overall, employee morale remains high. At Higginsville, lost-time injury free days is now an impressive 374 and at Beta Hunt 135.If you go to Slide 7, on a consolidated basis total tons mined from operations was up 30% from quarter four to 313,000 tons. At Higginsville, gold produced from the open pits was 7,046 ounces down from quarter four, a results of the higher than normal waste removal and the fires and heavy rains previously mentioned. The Baloo open pit continues to be the main source of high-grade feed for the Higginsville plant; although Fairplay North provided 1.5 to 2-gram material as it moved further into the main load. Production planning at Higginsville, predominantly focused on the next generation of open pits with modeling and optimization works in full swing. The Hidden Secret, Mousehollow and [ pioneer open pits ] all of which are in the near-term mine plan have shown increases in contained answers from this modeling.Slide 8, at Beta Hunt total tons milled was up 40% to 186,000 tonnes at a grade of 2.58 for a total of just over 17,000 ounces. The increase in tonnage was a deliberate strategy to build a large ROM stockpile at Higginsville as further protection against COVID-19. In western flanks, development of the first 20-meter wide starting block is nearing completion. These areas when in full production will result in higher productivity and lower cost per ton.On Slide 9. at Higginsville exploration focused predominantly on tenements previously covered by the Morgan Stanley Royalty. Some of these areas have had little to no exploration for over a decade and our systematic review of the historic Higginsville resource continues as a high priority. At the Aquarius deposit, which was formally known as Corona and you can understand why we changed that name, we identified a number of very high grade historical drill results including 658 gram per ton or 20 ounces per ton over 2.3 and 225 grams per ton or 7 ounces a ton over 1.9. We believe Aquarius has both surface and underground mining potential and forms a key part of our 2020 exploration program. At Baloo, drilling focused on grade control and expanding the existing resource, drill targets yet to be followed up include North Baloo and the down dip extension of the main mineralization, which we also believe has underground mining potential. Some of our most recent drilling highlights can be seen on Slide 10At Fairplay North drilling focused on the margins of the optimize pit design with the aim of increasing the resource in Baloo, drill highlights can also be seen on Slide 10. Moving to Slide 10 at Mousehollow and Hidden Secret drilling has identified a possible linking structure between the 2 zones, which should add to the overall resource. At hidden secret our geology personnel collecting samples for metallurgical testing discovered visible gold in [ a court’s ] outcrop on the surface, this is highly unusual with most mineralization in the area under several meters of cover. Some of the better drill results from Hidden Secret include 15 grams per ton over four meters and 25 gram per ton over four meters and at Mousehollow 26 grams per ton over 3 and 3 gram per ton over 19 meters from the surface, which means our first bucket of material from Mousehollow will be high-grade mineralization. Mining approvals for both projects will be submitted shortly.Slide 11, in late January we announced the results of a recently completed high density gravity survey. That program identified a new interpreted structure extending over 5 kilometers. The structure is located just north of the Higginsville treatment plant and the previously mined high-grade 1 million ounce [ prime ] gold deposit. The area is considered to have high potential and will be the focus of a new round of drilling fueling our exploration program.So overall a good result and a good start to 2020 and despite the ongoing challenges of COVID, we remain confident of achieving our full year guidance.I will now pass over to Johnna.
Thank you, Graeme. Good morning to everybody listening in. Turning to Slide 13, Dumont represents one of the only large-scale fully permitted nickel-cobalt projects in a low risk jurisdiction that can begin to satisfy the significant growth expected in the nickel demand from the electric vehicle battery market.The result of the updated Dumont feasibility study were announced last year and the full technical report is available under RNC's profile on SEDAR.The study confirmed the economic feasibility of the deposit with a strong rate of return of 15.4% and the U.S. $920 million NPV at 8%. These results confirm that Dumont is a large scale low-cost and long-life assets producing an average of 39,000 tons of nickel annually at a C1 cash cost of $3.22 cents per pound with a 30-year mine life.Since we last spoke in March, we've been actively executing the 2020 work plan despite the challenges related to the COVID-19 pandemic.This includes several different focuses. The first is maintaining our shovel ready status post the feasibility study. This includes updating all stakeholders with the results from the study and integrating these results into the project construction readiness item. This also includes an update of the Dumont closure plan, which is a critical element in finalizing the mining lease and maintaining our shovel ready status.In addition to maintaining our shovel ready status with the Dumont, we will continue to evaluate opportunities to improve the economics of the project as well as de-risk the project including focusing on preparedness for detailed engineering as well as construction execution planning.We are continuing to move forward to implement the approved compensation project to offset fish habitat losses related to future mine development, a portion of this work was completed in the 3rd quarter of 2019 and the remainder it will be completed in the summer of 2020. We fully believe there is an exciting future ahead for the nickel market and RNC continues to evaluate all opportunities to maximize shareholder value for our share of Dumont. I will now turn the call over to Barry Dahl for a discussion of our financial results.
Thank you Johnna, I'll provide a few financial highlights for the quarter. Turning to Slide 15, first quarter revenue was $54.3 million down slightly compared to $56.8 million in Q4. The revenue decrease was primarily from a decrease in ounces sold. In Q1, we recognized lower operating costs because of lower gold ounces sold and lower G&A expenses. Operating earnings were $15.6 million compared to $12.9 million in the prior quarter up $2.7 million. In Q1, we recognized derivative losses of $5.9 million and foreign exchange losses of $7.7 million, primarily related to gold hedges and unrealized FX losses on the intercompany loans respectively.Adjusted earnings for the first quarter were $12.7 million and adjusted EBITDA was $13.6 million compared to 13.7 and $14.4 million respectively in the prior quarter. We finished the first quarter with a stronger balance sheet including the cash balance of $38.4 million and working capital of $30.7 million, increases of 3.7 and $4.2 million compared to December 31, 2019. I'll now turn the call over to Oliver.
Thanks, Barry, and hello everyone. While the COVID-19 pandemic is certainly affected global travel around the world as I outlined in our fourth quarter and year-end conference call, we have not let it slow down our marketing or our Investor meeting efforts. During the first quarter, we successfully attended three virtual Investor conferences and numerous virtual investor meetings and presentation. As the world and our targeted investor base adjusts for this digital platform, we expect to continue to build upon the successes of the last six weeks since we held our last Investor call.Last month, we also announced that we have received approval from the TSX for our normal course issuer bid. Under the terms of the NCIB, RNC can purchase up to 30.4 million of its common shares over the next 12 months. The NCIB gives us the flexibility to purchase shares during volatile market conditions and during times where we believe that the common shares trade at a significant discount to their underlying value. Lastly, like many other gold producing companies in light of the COVID-19 situation, we will also be hosting our first virtual Annual General Meeting on June 11, 2020. We encourage our investors to attend that virtual AGM to better understand some of the corporate efforts we have been busy with over the past several months.With that, I'll turn the call back over to Paul.
Thanks. Oliver. At this point, operator Tammy, we'd like to open up the call for any of the questions that we have queued up thank you.
[Operator Instructions] Your first question comes from the line of Matthew O'Keefe with Cantor Fitzgerald.
Great quarter, especially given what we've all been experiencing over the last couple of months. So, congratulations there. I do have a couple of questions really, I just wanted two questions. One, I wanted to dig in a little more on Higginsvile, you've got I think on the last comment we had about a $10 million Australian budget for exploration, and I think that's right and I'm wondering how that's going to be allocated across, it sounds like most of its for Higginsville on how that's going to be allocated, or is it on the existing pits or is there a lot of new targets, maybe you could talk about how that will be allocated and then the second question refers to the production split between Higginsville and Beta Hunt. Based on this quarter's production, you had about 70% Beta Hunt and 30% some at Higginsville. Do you see that getting more evenly split as we go forward or is that what we might expect for the longer term?
Thanks, Matt, this is Paul. Actually it's better if I let Graeme answer both those. The one on the allocation, Ben and then also the splits. Graeme why don't you go ahead and help Matt with those responses
Yes. Thanks, Matt. Thanks for the questions, just on the exploration and the split the 10 million. Look at this point in time the vast majority has been focused in and around Higginsville and that's for very good reason Matt, this really is just an area that's opened up and especially since we removed the Morgan Stanley renegotiated the Morgan Stanley Royalty over there. What it has done is just lifted the lid on all of these tenements and we are able to go back and as I've said in my presentation some of these places haven't been drilled for over 10 years or so. So a number of ready-made walk-up targets that is crying out for exploration and we are looking at this and the biggest challenge we have Matt to actually prioritize which of those targets we go and drill first given the fact that there are so numerous. On the second part of your question on the split on production, the majority did come from Beta Hunt this quarter and again as I said it was focused mainly around what we did this, mainly around to get as much higher grade material on the ROM from Beta Hunt in protection against the COVID, just in case that sort of was to impact on that operation. We still had this high grade feed going into the plant. So I expect going forward the production will balance itself back up to that 50-50 level and again just based on what we're seeing at Higginsville from the open pits, we're starting to get into some of the meaty parts of the ore which will ensure that happens
Okay. Now, that's great. Okay and then just on the Higginsville so I'm clear, so I guess in this quarter there'll be a fair bit of, for lack of a better term reconnaissance drilling, just to help priority or evaluation to help prioritize these targets and then maybe we'll have a better sense of where the bulk of the drills are going to go during the course of the quarter?
Yes, really strong position, we are in Matt is that a lot of these targets have existing resources on even though they may well be in third resources, but they open the door to allow these ready-made projects to walk up to and to start to drill. So it's more a function of we had slowed down because of COVID, we had to restrict people's access into site. We still are in that position even today. So what we don't want is to have any sort of COVID sneaking into Higginsville and disrupting that whole production cycle. So, to a certain extent exploration has slowed a little bit around the edges while we waiting for this to sort of dissipate and as soon as that happens we'll start to gear up again. In the meantime, what we are doing is this prioritization of targets and the remodeling that we're doing of the existing resources, which in itself identifies further targets for us. So we're doing that work and we're working quite diligently at that to make that happen in preparation for when the COVID ban is lifted if you like.
Your next question comes from the line of Derek McPherson with Red Cloud.
The first question relates to the stockpiles and the decision to build it. Could you provide a little more color on that and then maybe a little bit of detail, what was the approximate cost impact in Q1 and then what do you view as sort of your ideal stockpile, just something that's going to build, continue to build, or is it something that might run down over the course of the year.
Thanks, Derek. This is Paul. While I know the answers, I'm going to let our MD from Australia Graeme respond to that one as well, so. Graeme another operational one for you.
Yes, for sure Paul. Thanks, Derek. Just on the stockpiles, it doesn't make economic sense longer term to keep building these stockpiles up and just putting it, costs a lot of money to put it there and there is better uses for that money. The reason we're doing it now, as we say this mainly just for that protection around the COVID. So with that happening, we will start to draw down. In fact we are drawing down on some of those stockpiles now. We will hope to keep it around that from month supply up there that sort of level and I think that's a very healthy number we can maintain and not too much drawn on our cash operating cost. At the same time, it does give us ability to also blend these materials coming in from each of the areas to get the optimum recoveries from the plant. So there are a lots of good reasons to do it. The only reason you don't continue to do is obviously because of the cost involved in having that sort of material sitting there and not earning money for you. So I hope that it's is one question. The ideal stockpile I think you mentioned, as I said, is somewhere around that that one month around 60 to 100,000 tons up there, that sort of level we'd be more than comfortable with, Derek.
Okay. And then maybe talk a little bit about the cost, what the cost impact is of on your cash cost for Q1 because I think obviously if you're not building up stockpile and drawing it down, Q2 should see an improvement in that area.
Yes. These stockpiles obviously don't just happen. We've been working on this for a while. We actually started this this strategy a bit before the COVID and the COVID sort of kicked into gear again because we knew we have what we call over here these fire seasons and these rainy season. So it's been a progression build-up. So we attributed some of those costs into earlier quarters. I must admit we did in quarter one really push forward and add to that, the direct result on the operating cost, I haven't actually worked it out Derek to what it was. But we will start to pick that up and obviously some of those cost will look at how we deal that going forward, but I think it's not significant, but it does have a cost if you go overboard with it there.
Yes, so I think the decision is prudent, I just wanted to try to understand the potential benefit in Q2.
Sorry, this is Paul. The one thing that really saved us a lot in Q4 and in early in January because of the natural disasters we had was an original stockpile that we had inherited when we bought Higginsville. So we had 80,000 to 100,000 tons of stockpile. We ended up having to deplete it because our roads were shut down anywhere from 14 to 17 days because Graeme had taken that proactive approach, that discipline worked extremely well for us in Q4 and repeating that ahead of COVID just worked out even better for us. So this has already proven very successful for us already once, putting that one month behind us. The timing thereof is almost a wash anyhow. You might have some cost trickle in, but the truth is if you're keeping a month in inventory those costs they almost wash themselves out so there's not a whole lot of carryover or buildup.
The other question and maybe this is related, but the grades at Beta Hunt came in sort of lower than the more than the reserve grade in Q1. Can you maybe talk about why that was and do you expect it to get back up to the reserve period for the balance of the year?
Graeme.
Yes, I'll certainly answer that. The key reason for that was the production coming from Beta Hunt is typically in that sort of 3 gram range, and as you said these grades were lower at 2.5 and the reason for that is that obviously when you start mining some of this material will get a lower grades but still enough to make money. We bring that to the surface, it sits in the low-grade stockpile. As soon as COVID came into being, we shifted all of that material across and some of that material went into the mill with the oxide ore and giving us an overall lower grade for the Beta Hunt under what would be normal typical sort of mine production grades if you like. So you will see grades will start to come back into normalized fashion over the coming weeks.
Okay. And then you've mentioned previously that you guys are working on some ore sorter testing. Can you maybe talk about how that's progressing and then what that could mean for the operations.
Please go ahead Graham.
The results today, although early have been really encouraging for us. We are in full swing with testing, we had the first of the examples going through the ore sorter and then COVID came and everything up there just stopped and so we've been waiting to recommence that sort of work, but certainly our initial results have been extremely encouraging and it could be a significant difference going for us when going into the future.
[Operator Instructions]. Last question comes from the line of Dana Allen, private investor.
Yes. Congratulations again fellows. Concerning challenges you had a very good quarter. I was wondering you're able to mine underground at a lower cost, quite a bit lower cost than most companies are. They would not be able to mine the grade that you mined in the first quarter and make a profit. Can you go into the factors of why you're able to mine at such a low cost underground and then the second aspect of that is that you're going to a wider stopes and what is your guess on how you're mining costs will decrease as a percentage by going to those wider stopes?
Hey, Dana. Thanks for the question, this is Paul. Yes these seem all operations so yours again.
Dana, thanks for that question. Just on the ability to be able to mine at these sort of the grades and at these sort of costs, look it's a function of a number of things and I think we're not by ourselves in the mining game over here as far as those sort of those grades and those sort of costs, but we do have the width and we do have the ground conditions that allow us to be able to stope and extract ore without spending a huge amounts on ground support. We still have to do it obviously but that's one of the biggest costs over there. I think our regime of mining is very functional. I think our personnel have been well trained in that area and obviously with safety in mind but they are certainly well-trained around the production of the removal of that dirt as quickly and as efficiently as possible. So overall, I think the good part of the team, I think you have to have the practices to back it up and the processes and that's probably the biggest reason and personnel and manning as a minimum. So that's been a plus for us. On the other question about the estimate of the cost, what they will do, it's a little hard, will be, and it will be wrong for me to give you numbers around that at this point in time. This work has been there and we have developed the first of those stopes. They won't be in production for a little while. We have just brought on site a different drill rig, a production drill rig for the stoping, which now drills 99 millimeter hole versus a 76. We are using a different type of explosive, which is emulsion, and both of those will also help to bring down the cost to those wider stopes and I'm certainly looking forward to seeing some of the material come out. So a little early for us to give you some numbers Dana but certainly I don't mind later on when they start to flow through for us.
Dana, this is Paul. Let me just add a bit of color for a comparison in North America. Some of the things that are quite different in Australia because what Graeme was pointing to, the ground is good, we have less ground support to put in but in North America in both Canada and the U.S. and Mexico in many times you're going to find that most of the operations that are doing long haul like we're doing will have to backfill. We don't even introduce backfill in our mine in Australia, which could be anywhere from $35 to $45 per ounce, that is a huge cost saving. Our trucking for a 60-kilometer distance in Australia is about $6 to $8 a ton, that same cost in U.S. in Nevada would range about $42 a ton because of the truck sizes. The currency, the FX is huge that allows us to mine at a lower grade and the economics. So all these factors coupled together really, really have an impact on our ability to successfully mine much wider and make money at 2.5 to 3 grams. So these all have factors, it is not just one. It is one of those death by a thousand cuts where all of them actually have a tremendous impact to reducing our costs. So that's a little more color on it.
And there are no further questions at this time, I will now turn the call back to Mr Paul Huet for closing remarks.
Thank you everyone for joining us on the call today, but we certainly have some exciting time for ourselves and our shareholders as we continue to unlock the value and we continue to deliver. So we really look forward to reporting our progress next quarter and some exploration results in the coming weeks. I wish everybody a good health and remain safe and whenever possible try to stay at home.Thank you very much and have a great day, everyone.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation and ask that you please disconnect your lines.