Pretium Resources Inc
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Thank you for joining us this morning. Welcome to the Pretium Resources Third Quarter 2020 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference call today is being webcast live and available along with presentation slides on Pretium's website at pretivm.com. I will now turn the call over to Mr. Jacques Perron, Pretium's President and CEO.
Good morning, everyone. Welcome to our third quarter 2020 operating and financial results call. Before we discuss this quarter's performance, I would like to reiterate that no quarter at Pretium is considered a success unless it is accomplished safely. With that in mind, I want to acknowledge everyone at Brucejack and Smithers and here in Vancouver for their hard work that contributed to another profitable quarter. On today's call, I will briefly highlight some key achievements in the quarter as well as the current status of our operations. Joining me on the call today is our Chief Operating Officer, Patrick Godin, who will provide some insights into our production and operating results in the third quarter. Also participating on the call is our Chief Financial Officer, Matthew Quinlan, who will review the financial highlights. Following that, I will close off with a look ahead to the remainder of 2020. At the end of the presentation, we will open the call to your questions. Before we begin, note that our statements contain forward-looking information and future-oriented financial information based on certain assumptions and subject to risk factors. I refer you to the cautionary language included in our news release yesterday as well as the management discussion and analysis for the same periods. These are available on our website and have been filed on SEDAR. Please note, all dollar amounts mentioned on this call are in U.S. dollars, unless otherwise noted. The Brucejack mine continues to generate strong cash flow. We remain on target to achieve our annual production cost and cash flow guidance. To date in 2020, we have produced over 259,000 ounces of gold at an all-in sustaining cost of $1,016 per ounce sold, resulting in just over $191 million of free cash flow. We ended the quarter with a growing cash balance of $175 million. During the quarter, we welcomed 2 new additions to the executive team. In August, Patrick Godin joined Pretium as Vice President and Chief Operating Officer. In September, Matthew Quinlan came on board as Vice President and Chief Financial Officer. Both have been busy getting familiar with the team and the mine. We look forward to working with them, and I am sure their broad knowledge and experience will contribute to Pretium's continued success. Unfortunately, early in the quarter, we were reminded of the critical importance of safety in all aspects of mine site operations. As we previously disclosed, an incident at the end of July led to the tragic loss of one of our employees. We renewed our commitment to work very hard to improve the safety culture across our business and we'll do everything we can to avoid the repeat of such an event. Safety remains a core value. We have taken significant steps to mitigate the spread of COVID-19 and to protect our staff, their families and communities. To date, we have not had a case of COVID at Brucejack. Operations have continued, and there was no direct impact on third quarter production, sales or our supply chain. We continue to monitor the situation and operate under the guidance and directives provided by authorities. I will now turn the call over to Patrick to review our operations highlights for the third quarter of 2020.
Thanks, Jacques. I've now been with Pretium for a few months and have spent a significant amount of time at Brucejack. I've been impressed by both the dedication of the team and the quality of the asset. I look forward to building on our momentum and continue to deliver on results. Turning to operations on Slide 7. We continued our lateral development at our targeted rate of approximately 1,000 meters per month. We processed approximately 325,000 dry tonnes of ore through the mill, equivalent to 3,537 tonnes per day. During the quarter, the mill operated below the permitted level of 3,800 tonnes per day due to the scheduled and unscheduled maintenance and our focus on lateral development and stope availability. Production costs were $192 per tonne milled in the third quarter. The increase is due to the additional lateral development and definition drilling and costs associated with COVID-19 safety protocols, mainly related to employee salaries and travel costs. These protocols have increased costs by $6 per tonne milled in the quarter. In the third quarter, we produced just over 86,000 ounces of gold. The mill feed averaged 8.6 grams per tonne gold, and the recovery rate was 97.6%. When you look at the quarterly gold production this year, you'll see that we have maintained our production level within plus or minus 5% of the midpoint of our guidance range. As most of you know, Brucejack is a high-grade variable deposit. We will continue to see fluctuation in production on a quarterly basis but still expect to deliver on annual guidance. Going forward, our objective is to optimize production, reduce the quarter-to-quarter fluctuations and, at the same time, look for opportunities to increase our production. In order to improve our knowledge of the ore body and set up a mine plan to reduce the variability, we have 2 main priorities. Our first priority is to increase our access underground. As we've progressed through 2020 and into 2021, lateral development will continue to advance at a rate of over 1,000 meters per month. The increased development rate will improve access to new areas of the reserves, advance our production front and also allow us to increase our long-hole drilled-off inventory. Our target is to have about 400,000 tonnes of long-hole drilled tonnes and stope ready to be blast by the end of Q3 2021. This will provide more flexibility to improve blending quarter-over-quarter from multiple areas and support more consistent production. Advancing development will also give us the ability to properly establish a mining sequence, so we'll be able to soften production at 3,800 tonnes per day on average over the year, which is the limitation imposed by our environmental permit. Our second priority is to increase our understanding of the ore body at Brucejack. With any variable resource, it is important to have as much data as possible to properly estimate the grade locally and design the mining approach. To improve the local modeling, we have significantly increased the amount of infill diamond drilling. This year, we have targeted about 85,000 meters of infill drilling and we expect to increase this rate of drilling over the next few years. As you can see on this slide, our development rate has been increasing. In Q1 of this year, in March, in particular, we were affected by COVID-related restrictions. We had to reduce the level of activities at site, but we recovered in the second quarter. Turning now to Slide 11. We have a section view of the underground development looking north. Until recently, mining has been limited to only 2 mining horizons at Brucejack. The mining horizons consist of 4 mining levels, each about 30 meters in height. Recently, we opened up mining on the lower horizon of the 1,080 level. We now have 3 mining horizons to operate from: the 1,080, the 1,200 and the 1,320 levels. On the lower 1,080 level, we are continuing to advance development for the remainder of the year and expect to be mining from that horizon early next year. This year, we have also been developing access into the fault zone, which is just west of the Brucejack Fault on the 1,200 and 1,320 levels. We are starting to open and prepare these areas for mining in 2021. In the second half of next year, we will increase access for mining from 3 to 5 areas, which will provide significantly more flexibility in terms of production compared to previous years. Infill drilling to improve reserve definition ahead of mining was put on hold at the onset of COVID at the end of the first quarter to limit nonessential personnel at Brucejack. By the end of the second quarter, diamond drilling activity had resumed and continued through the third quarter with 4 diamond drills conducting infill and resource drilling and a fifth drill arriving in November. Here on Slide 12, we have a section view of the underground development looking east. You can see the drill target areas for this year highlighted in yellow. At the end of September, we had about 57 meters of diamond drilling completed. This year, we are targeting 85,000 meters of infill drilling, mainly in the areas where we are actively mining and the new adjacent areas within the current mining resource shell. For the first time since production started at Brucejack, we are conducting resource expansion drilling. This year, we are targeting 25,000 meters of resource expansion drilling. At the end of the third quarter, approximately 5,000 meters of drilling was completed. The resource expansion drilling outside the resource shell is focused north of the Valley of the Kings Zone, toward the West Zone, where previous drilling intersect mineralization. Now I will turn the call over to Matthew to review our financial performance for the third quarter of 2020.
Thanks, Patrick. I'm delighted to be joining the team at Pretium and look forward to working in partnership with Jacques, Patrick and the rest of the management team to unlock the value of this unique asset. We continued our track record of positive cash flows and profitability again this quarter as we have every quarter since achieving commercial production on July 1, 2017. For the quarter, we realized gold prices of $1,935 per ounce, an increase of 30% over the third quarter of 2019. Revenue increased by 17% compared to the same period in the prior year, lower than the percentage increase in the gold price as a result of the timing of sales relative to production in the quarter. Adjusted earnings reached a record of $50.9 million in the quarter, an increase of 50% compared to the prior year period. Turning to Slide 16. During the quarter, we generated $66.8 million of free cash flow for a total of $191 million so far in 2020. Strong operating cash flow of $83.4 million in Q3 reflects increased revenues as well as increased levels of working capital compared to the comparative periods. Total capital expenditures of $16.8 million reflect the increased investments in lateral development and other construction activities in the quarter as well as increased seasonal activity during the summer months. Our balance sheet continues to strengthen, and we ended the quarter with $175 million of cash on hand, an increase of approximately $50 million after repaying $16.7 million under our term loan. Debt at September 30 of approximately $450 million comprises of bank debt of approximately $350 million and convertible notes of $100 million. Turning to Slide 17. Our AISC in Q3 of $1,016 per ounce remains within guidance for the year and increased by $105 per ounce from $911 per ounce in Q2. AISC in Q3 includes $25 per ounce of COVID-19-related costs and $17 per ounce relating to the transition of management. Lower production cost per ounce and higher by-product credits were offset by higher seasonal sustaining capital, and the timing of sales relative to production had the biggest impact on AISC relative to Q2 as we sold approximately 8,000 less ounces than in the second quarter. This increased AISC by $79 per ounce in the quarter relative to the second quarter. For reference, AISC for the year-to-date is also within guidance at $971 per ounce and includes $26 per ounce of COVID-19 costs and $20 per ounce of costs associated with the transition of management. Turning to Slide 18. Our guidance for 2020 is maintained. We expect to produce between 325,000 and 365,000 ounces of gold in 2020 at an AISC of between $960 and $1,120 per ounce. You will note from our MD&A that we've modestly lowered our expected range of sustaining capital from $36 million to $40 million to between $30 million to $33 million and this primarily relates to the timing of these capital expenditures. With free cash flow of $191 million year-to-date, we expect to be comfortably in the range of our free cash flow guidance. And with that, back to you, Jacques.
Thanks, Matt. Stepping further out from the Brucejack mine, we hold over 12,000 square kilometers of mineral claims in the Golden Triangle in BC. The 2020 regional exploration program on the company's Bowser Claims is complete and we are now awaiting assay results. The program included drilling at the Hanging Glacier Zone, the A6 Zone, the Koopa Zone and the Haimila Zone. Those drill results are pending, and we will report back later in the fourth quarter or early next year. There are also several high-priority zones even closer to the Brucejack mine where limited work has been done over the last few years. We intend to start prioritizing those proximal targets in 2021. We continue to believe the best value for our shareholders is to invest a portion of our cash flow in exploration of our existing claims and, in particular, near the Brucejack deposit. In the quarter, we released our third annual sustainability report. The 2019 report once again highlights some of the remarkable ESG achievement at Brucejack, particularly in regards to our reputation in the region and our limited environmental footprint. We have established positive relationships with the local communities and the First Nations in the region. About 25% of our total workforce, both employees and contractors, come from First Nation communities. Brucejack mine does not have a tailings dam. Our tailings and waste rock are disposed of into a glacial lake or returned underground as backfill. We are connected to the BC Hydro power grid at Brucejack. Not only does that provide inexpensive power, but it results in a very low carbon footprint. Our greenhouse gas emissions were just above 0.05 tonnes of CO2 equivalent per ounce of gold produced. This positions us significantly below the average for the intermediate gold producers. Looking ahead to the remainder of the year, we remain on track to achieve our 2020 production, AISC and free cash flow guidance, assuming that we're not impacted by COVID or any other major incidents. We will continue to emphasize safety with a focus on what we can do to improve the safety culture. We will also maintain our strict COVID safety protocols to minimize the potential for an outbreak at site. Based on our production and gold price estimates, we expect to generate a significant amount of cash this year. Through the remainder of the fourth quarter, once we are through some scheduled maintenance, including our 7- to 10-day shutdown in November, we will begin to ramp up to establish operations to sustain run at 3,800 tonnes per day in January and maintain that rate going forward. Looking further ahead, we will continue to advance our exploration efforts mainly near the mine and regionally with the intent to expand our resources. Thank you. That concludes the formal part of the presentation. We will now turn the call over to the operator, who will open the lines for your questions. Operator?
[Operator Instructions]Our first question comes from Mark Mihaljevic of RBC Capital Markets.
I guess first question from my end. You guys had highlighted prudently that you want to maintain a bigger cash balance than you normally would in case there are any disruptions around COVID. And you've obviously done a great job of that with the free cash flow you've done. So is there a level -- or kind of what's the target level you'd like to keep in terms of cash on hand before you started actually directing that to the debt repayments like it had been previously planned?
Mark, so you're correct. We always said that we want to be conservative with our cash and maintain a good cash position in case we have issues or an outbreak at site and we have to make decisions to suspend operations or anything of that nature. Currently, we're developing our budget for 2021, which will be done in the next 4 or 5 weeks. And we're -- our plan right now is to keep on the balance sheet about 3 months of cash -- of equivalent cash for operations, about 3 months. We're spending about $30 million a month right now. So let's say, anywhere between $90 million to $100 million is the level of cash we want to keep. As part of the budget, we're looking at what we have to do next year in terms of capital expenditures, infrastructure. We're also looking at the increased level of diamond drilling we're going to be doing going forward. And once that is established, there's going to be some -- we believe, some cash left. And the intent is to allocate that cash to discretionary debt repayment. So that's our plan for now.
Okay. Perfect. And then on the cost side of things, you guys have kind of bumped the guidance with -- at midyear, but you're trending very much in line with the old guidance and towards the low end on the updated guidance. So assuming there are no interruptions, is it fair to say that you should be trending to like kind of in line with what you've been delivering so far year-to-date and could be really well positioned versus the current guidance you've got out there?
Well, I think, Mark, like we said, we're maintaining our guidance. We think who knows what's going to happen in the coming months. But so far, we feel comfortable with the guidance that we have, both on production and cost and we think we're going to be in there.
Okay. Sure. And then I guess just one more question on the stope inventory. If I'm not mistaken with the Q2 results, you'd said you were at about 185,000 tonnes, which seems to have ticked down a bit during the quarter. And then also the commentary was, I believe, late Q2, early Q3 to get to the targeted 400,000 versus end of Q3 now. Can you give a little more color on those 2 changes?
Well, as you know, it's a question of variability. In date of -- today, we have this inventory back at the same level. So it's just a question of variability in terms of the mining and the stoping and also on the -- the grade in the stope, and we are processing more -- more focusing on quality than tonnes. It's what's mainly the impact. Going forward, we are lying, as I said, in -- previously to be, at the end of Q3, at a level of 400,000 tonnes of drilled-off inventory, ready to blast. We are overdrilling compared to what we need in the current -- on the day-to-day basis to make sure that we are building up the inventory for this. But basically, it's just a question of the end of the month. Today, we're back to the number that we have at the year. We're back -- we're close to be at 200, actually.
Our next question comes from Heiko Ihle of H.C. Wainwright.
And I hope everybody is staying safe. Your COVID-19 costs...
Yes. We're all good. We're all healthy.
That's very important this year. Your COVID-19 costs are "$6.8 million to date". This has been going on for, what, 7 to 8 months so far. I mean if we model $1 million in completely incremental cost per month for the remainder of the pandemic and I understand there is no set time line for this. But I mean let's just assume this goes on for another year or so and we use $1 million a month. Is that a fair assumption of purely incremental expenditures?
You're not far off. It's Matthew here. Thanks for your question. I hope you're safe too and healthy. Yes. That's a fair assumption. As we said, we spent $6.8 million year-to-date, and we all know how long this terrible occurrence has been with us. So you're not too far off. In Q3, we actually spent a little bit less than $3 million. We spent $2 million over the 3 months. So we were a little bit below that.
So using $700,000 might actually be better than using $1 million?
Yes, depending on how granular your model is, Heiko.
Okay. Fair enough. Speaking of granularity in the model, I mean, you're guiding to 7.6 to 8.5 grams per tonne and 97% recoveries for '20. What have you seen in October thus far in regards to grades and recoveries? I don't know how much of that you're willing to get into on this call, but maybe just guide us up or down a little bit.
Yes. Heiko, I think we continue to maintain our guidance of 7.6 to 8.5. It's -- the 43-101 reserve grade is 8.4. As I said before, is it 8.4, is it 8.2, I'm not too sure. But that range -- we're happy with the range that we are currently guiding.
Got it. And then just building on the last cash balance question that came up. I was going to ask something fairly similar. But I'll expand it with a at what point in time do you think your shareholders would want to see a dividend?
Well, it depends who you talk to. All the shareholders have different opinions. Some would like to see a dividend now. Some would like us to put money back in the business. I think for us, right now, Heiko, with $450 million of debt on the balance sheet and all the other priorities we have, dividend is not on the radar at this time.
Fair enough, yes, and I concur with that. But the question comes up in conversations all the time.
Our next question comes from Anita Soni of CIBC World Markets.
First question is with regard to the reserve price for next year. Have you guys decided what reserve price you'd be using to estimate reserves?
No, we have not decided. It's not finalized. We're still debating what we're going to do. So we have not established that at this time.
Okay. All right. And then the next question would be with respect to the stope inventory, a little bit more color on that. So actually, let's go to the sustaining capital question. You guys mentioned that the sustaining capital was trimmed and it's timing of expenditures. Could you say -- could you tell me what expenditures were not spent this quarter and can be pushed into the next year or will be pushed into next year?
In terms of expenditures, it's mainly related to the COVID restriction that we have at site. We are -- we have to cut the dorms basically to maintain the social distance of 2 meters, and to make sure our employees are safe in this regard. So it's why we delayed investment. So the critical one will be completed. So we just delayed the investment that were not necessarily critical. Majority of the program is completed. It is just the installation that will be delayed to Q1, Q2.
Okay. So I am just looking for a little bit more color on what is critical and what's not critical.
We're talking about shops, dust collectors, stuff like that.
Okay. All right. And then in terms of the COVID-related costs, do you -- I think someone's asked a little bit about that, but is it -- do you expect that to be ongoing into next year as well?
Yes. Our plan right now, Anita, is that we're -- like I said, we're preparing our budget, and we're assuming we're going to be under COVID restriction for all next year. That's our assumptions at this time.
Our next question comes from Ovais Habib of Scotiabank.
Congrats on another good quarter. A couple of questions have been already answered. Just on my end, I was just looking at your infill drilling that you're doing. So you've done about 34,000 meters drilling in Q3. Like in terms of the information that you're getting, how far ahead of production are you in terms of grade control? And kind of what's your target on that front?
So our target is to increase -- to be in advance. We -- actually, we want to -- first, we want to have more mining horizons to be able to blend and to module our production on a quarterly basis, so to be more efficient, that's the objective. So actually, we explained to you that we have -- we're going to have 3 mining levels. We're going to get to 5. To do this, we need to drill more and to develop more. So it's what we are doing now and I'm pleased by the performance of the development actually. We did well in September. We are improving a lot in October. In terms of production drilling, we are drilling actually at a rate that is higher than what we need on the current mining process. So again, it will help to build up the drilled-off inventory. So -- and we are -- the fact that we are -- we actually have 4 drills. We're going to have the fifth one in the next week. And we are pushing hard also to add additional 2 drills before the end of the year or beginning of next year, mainly to increase -- to speed up the collection, the data gathering and the analysis. And the investment that we're going to do next year are all a function of that. Improve the -- increase the volume and the quality of the ore inventory that we have to play better our strategy in production going forward.
Got it. And this test drilling, this RC drilling that you're doing right now, you started that in Q2. How has that been faring out? Has that been giving you the right information that you're looking for?
Actually, we are operating the RCs. We are -- 3 were in operation actually. And yes, it's useful because we're using all the data to mainly increase this -- the collection of the information. And yes, it's performing well for now.
Our next question comes from Marlaena LeMaitre of Paulson & Co.
This is actually Marcelo Kim. I have a question. At the midpoint of guidance, $20 an ounce on your ounces is about $7 million of separation expenses. This is on top of $4.5 million that were paid last year. Just wondering what changes in the agreements with new employees you guys have made so that we avoid triggering similar payouts in the future.
Marcelo, I'm not sure I understand your question. Could you repeat that, please?
Yes. In the last 2 years, you guys have paid almost $11.5 million by the end of this year of separation expenses to employees. And I'm wondering if you've made any changes to the contracts that you write with employees so that you avoid paying these golden parachutes out.
Yes. Okay. I understand your question now. So our contracts -- the agreements, the new agreements that are in place, mine and Patrick and Matt are fairly standard agreement compared to what was in place at the company in the past. They're market and different than what was done in previous years. But again, they're definitely market and matches what is being done in the mining business at this time.
Can you be a little more specific as to how they are different from the prior contracts?
I would say that the previous one were more generous, Marcelo, and the new ones are, like I said, more market.
Our next question is a follow-up from Anita Soni of CIBC World Markets.
Two questions. First off, the drilling that you're doing this year, how will it be incorporated next year into your new, I guess, year-end reserve resource estimate? Will you be incorporating that new drilling and reevaluating your reserves? Or is it just -- or is there some other plan?
No. We -- Anita, we are not planning to incorporate the drilling that we're doing in the reserves at the beginning of next year. Next year, we'll just do a depletion calculation. We want to accumulate more data. So we think by, I don't know, third -- midyear, third quarter, we're going to do a cutoff, and then we're going to start to integrate all the information in our block model. So we can have a new reserve coming -- a new formal resource and reserve coming out in early 2022.
Okay. And then secondly, if I'm just looking at Slide 7, and I can see the mining rate, as you mentioned, is ahead of the mill throughput. My understanding is that you don't have any stockpiles, it's just broken ore inventory. So when you're talking about this mining rate, it's basically everything that remains is -- what you've developed is broken ore inventory but still not hauled to the mill yet?
No, no, that's not correct, Anita. The mine tonnes are reported as wet tonnes and the mill tonnes are reported as dry tonnes, something we're going to change next year, but the difference is moisture. So there's no -- we're not building a mine tonne inventory.
Okay. All right. So effectively, you're mining at the same rate as the mill will pick?
Approximately, yes. Yes.
All right. Okay. So the differential there, if I divide, that's about the approximate differential. Okay.
Our next question comes from Bill Fleckenstein of Fleckenstein Capital.
Jacques, I was wondering if you had -- as a follow-up to the dividend question that was asked earlier. I was wondering if you guys have given a thought to a target debt level you'd like to get to in either 2021 or some other time before you're going to consider what you might want to do from a dividend perspective?
Yes. I think, Bill, our level of tolerance for debt, I'm not a fan of debt, but we think we would be fine with $100 million to $150 million debt on the balance sheet. That's where we say -- but again, I made some comments regarding the dividend, but I just want to make sure that you understand that a dividend is a decision of the Board. It's not my decision. It's not a management team decision. It's a Board decision. But at the end of the day, the management team feels like $100 million to $150 million of debt on the balance sheet would be acceptable. Hopefully, that answers your question, Bill.
It did.
This concludes the question-and-answer session. I would like to turn the call back over to Mr. Perron for any closing remarks.
Well, thank you, everyone, for dialing into our earnings call this morning. We appreciate all the comments and the questions, and we look forward to updating you in the coming months. Once again, I would like to conclude the call by thanking the entire Pretium team for their dedication and hard work as we continue to operate through the unprecedented time. Thank you, and have a good weekend.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.