© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Victoria Gold video and conference call to discuss the third quarter 2021 financial and operating results. [Operator Instructions] Also note that the video call will be recorded and available for playback on the company's website.We will be making forward-looking statements, and I encourage participants to see our disclosure documents, including our corporate presentation and MD&A and the cautionary notes therein, which can be found on SEDAR and the company's website.I will now turn the meeting over to John McConnell, Director. John?
Good morning, afternoon or evening depending on where you are.I'm just going to quickly go through the operating results for Q3. It's a bit of a reiteration. Well, we had record production in Q3 of over 55,000 ounces of gold. And this was 58% higher than the same period in 2020. I'd just remind people that this is an open pit heap leach operation. And as is the case with all heap leach mines, there is a time lag in mining ore, stacking ore and the ultimate production of doré. The record gold production achieved in Q3 was largely made possible by increased ore mining and stacking that occurred in the first half of 2021. This is important as ore mined and stacked on the heap leach during the third quarter were markedly higher than the comparable period in 2020.3.1 million tonnes of ore was mined in Q3 compared to 2.1 million tonnes in Q3 of 2020. Ore stacked on the leach pad was 3.3 million tonnes during Q3, which is 73% higher than the 1.9 million tonnes stacked in Q3 2020. These mining and stacking rates position the company well for gold production in Q4 2021 and into 2022. I would also like to point out that we estimate there is approximately 106,000 ounces of gold in inventory, most of which is on the leach pad at the end of the quarter. While these ounces are accounted for in the balance sheet on a cost basis, the market value today is approximately CAD 250 million.Our sustaining capital spend for 2021 is on budget, and our maintenance operating teams on-site are very happy that the truck shop is near completion. This is expected to have an immediately positive impact on productivities.I will now turn the meeting over to Marty Rendall, our CFO, to summarize how these excellent operating results translate into financial results.
Thank you, John. Good day to all participants.With the record-breaking production numbers outlined by John, combined with the continued robust gold price, it stands to reason that we've experienced very good numbers across the income and cash flow statements. A reminder that all the numbers I'll be mentioning are in Canadian dollars unless U.S. dollars are specifically referenced.Revenue during the third quarter 2021 was $120 million, which is 48% higher than the $81 million revenue from Q3 2020. Operating earnings during the quarter were $52 million, resulting in a hefty operating margin of 44%. Net income was $32 million in Q3 or $0.51 per share outstanding.Cash costs were $892 per ounce of gold sold. On a U.S. basis, this is $708 per ounce over the third quarter. All-in sustaining costs for the quarter were CAD 1,211 per ounce. And again in U.S. dollars to compare to our peers, that's $961 per ounce of gold sold.Production was lower during the first half of the year while unit costs, including all-in sustaining costs, were higher during the first half compared to the quarter we just completed. Therefore, over the 9 months ended September 30, 2021, all-in sustaining costs were USD 1,256 per ounce.EBITDA or earnings before interest, tax, depreciation and amortization was $68 million during the most recent quarter. Free cash flow over the quarter was $32 million or $0.52 per share. We also made significant principal repayments against our debt during the most recent quarter of over $40 million.I'll now pass the meeting back over to John for a little further discussion.
Yes. I'd just like to make a couple of general comments and then we'll be open for questions. And as Lenora said, you can raise your hand or you can put a question in the chat box.I'd just like to discuss the ongoing COVID pandemic. We believe the keyword here is ongoing. I'll just back up to the start of my comments on COVID. The COVID pandemic is ongoing, and I believe the word ongoing is important. COVID continues to have a material effect on our business, and this will continue through 2022. Inflation has led to higher prices of almost everything, including labor and fuel, which are the 2 major cost drivers for us. Employee turnover is high and many protocols, from masking, to distancing, to travel restrictions remain in place. With all of these challenges in mind, we have delivered an outstanding quarter. This is the result of an exceptional team of people that I have the pleasure of working with at Victoria.On the exploration front, during 2021, we completed one of the largest programs in company history. We drilled deep holes at Eagle, well below the current reserve and resource. We undertook our biggest program to date at the exciting Raven target. We also drilled early stage Lynx target and the Rex-Peso silver target.That said, we have not released results to date. Delayed laboratory results are an annual challenge in our industry. However, this year has been much worse than usual. As frustrating as this has been, results are now coming in, and we anticipate being in a position to release exploration results in the near future. I'm not able to provide a lot of information with respect to 2022 as we are deep in our budgeting process at the current time, and we will issue production and cost guidance early in Q1 of 2022.I do want to briefly mention Project 250. We aim to increase annual gold production from Eagle mine to 250,000 ounces per year by 2023. To achieve this, we plan to scalp fines from the crushing circuit, allowing increased capacity through the overall plant. We will also be adjusting our seasonal stacking plan to reduce the winter no stacking period. Detailed engineering on Project 250 is underway, and we're currently ordering long lead equipment, and we look forward to providing further updates to the market in the very near future.Thank you all for attending. I will now open the meeting for questions.
[Operator Instructions] We have a question from Chris Thompson.
Just a couple of quick questions, I guess. I wonder if you could just quantify some of the inflationary pressures on operating costs that you're experiencing and foresee experiencing in terms of percentage.
I'll let Marty handle that one, although he looks like he's in the dark there.
Yes, the clouds have come over. Chris, it's a good question. It's a little bit hard to answer, but we can give you a bit of an idea of what we're seeing. John mentioned that a couple of our major cost drivers are labor and fuel. We've all seen the fuel prices, and it's 20% to 30% over top of our budget at the current time. Obviously, we'll work this into our '22 budgets, but that's certainly affecting our costs.The labor side is a little stickier as we all know. It is going up. It's getting more difficult to find people. And turnover has been high. So labor is also creeping up and that will happen again next year, but you're probably closer to 5% to 10% on labor. We're also seeing increases across our consumables from lime to cyanide, although not quite as much as on the fuel side. If I had to give you a number of an estimate of inflation this year, my estimate would be 10% over top of what we had expected, and I would expect that to increase a little bit going into next year. Maybe it's another 10% next year. So it's some big numbers on the inflationary side.
Great, Marty. And I guess my next question would be, how do you plan to operate through the winter by way of seasonal stacking? Maybe you can just quickly talk about that in Q1?
Yes. We shut down for, I think it was close to 9 weeks last year. We plan to reduce that to about 5 weeks this year. So the coldest month of the year, we'll probably shut down the end of the first week in January and get started stacking again mid-February. That's as much predicated by some maintenance work we have to get done, some annual maintenance and some belt replacements and that sort of thing. So it's much easier to bring in contractors to do that work and get a concentrated effort around the maintenance for that 4 or 5 weeks. But it's our intention to reduce from 11 or 12 weeks down to 5 weeks in 2022.
Great, John. And then finally, just a little bit of color, I guess, on that in-pad gold inventory. When do you expect to see that sort of drawing down?
I will start and then I'll let Marty, but I don't see that drawing down until much later in the mine life. That's probably going to be pretty steady state for the next foreseeable future.
So you see it basically no net drawdown but basically continuing to build?
I don't think it'll go much higher. We're pretty much at steady state now. We're stacking roughly 1 million tonnes per month. And as long as we get areas under leach, we draw the gold out, but I think the inventory will stay pretty steady at roughly 100,000 ounces.
How do you see revenue per employee working out from last year for the next 2 years?
Marty, you want to...
Sorry, was that revenue per employee?
Yes.
Our employees are probably fairly steady now. As we said, we're having a little bit of challenges on turnover, so we're probably 5% or 10% under where we'd like to be. We do not see that growing very significantly over the next couple of years, so we might have 5% to 10% growth over the next couple of years in employees. And yet, we're going to see our revenue grow significantly. Obviously, this is subject to gold price. But as John mentioned, we're working on Project 250. So as our gold production increases from close to 180,000 this year towards 250,000 goal in 2023, that's some significant revenue increases and gold production. So revenue per employee should increase significantly over the next couple of years.
Now we have a question from John Tumazos.
John, could you try to characterize the normal seasonality? For example, for a 200,000 ounce trend rate, would it be something like 30,000, 60,000, 60,000, 60,000 ounces quarterly. And when you expand to 300,000 tonnes in several years, would it be something like 30,000, 90,000, 90,000, 90,000 quarterly or how might that configure?
Yes. John, it will actually be the second quarter, that's our lower number because we're not stacking in the first quarter. So it's probably more like 60,000, 30,000, 60,000, 60,000, in that area.
As we look at the cash flow, the 9 months had the big inventory accumulation, as you referenced. Should we expect that the money comes out of inventory and goes into the treasury and that funds the current maturity of the debt without an external financing?
I'll let Marty field that.
Yes. John touched on it a little bit earlier. The 100,000 ounces we now have on the pad really equates to a fully pregnant pad, so we expect the pad to remain approximately 100,000 perhaps for years now. Could it go up to 110,000, a little higher? Sure, but we now expect it to roll. So this year, we spent tens of millions of dollars in working capital to build that inventory. Next year, that inventory will stay constant. And so what we produce next year should roll right into cash flow, which we can use to repay debt or for other uses.
So the operating cash flow roughly equal to CapEx for the 9 months is normal and it's next year that we'll have the excess cash flow to repay the current debt?
That's right. Operating cash flow should stay fairly normal, but we won't have the working capital hit of $40 million to $50 million. And so that's a positive difference going into next year, that $50 million working capital difference.
John, if I could ask one more. Your success heap leaching in Canada is unique, but there's lots of projects in Canada, O3 Mining, Moneta Gold, First Mining Gold, all have these huge Ontario or Quebec deposits around a gram. Why aren't people coming to you asking you to show them how to heap leach in Canada? I expected you to be a pied piper with 20 companies following you.
Well, I think there's a difference in the jurisdiction there and mineralization. As you know, most of the Yukon has not been glaciated and taken that oxide gold away. Whereas in Ontario, the glaciation has stripped off the oxidized gold and they're really left with material that needs to be milled. But I have fielded a lot of questions from Eastern companies about heap leaching.
We're looking forward to the corporate development opportunities for you getting paid for your know-how, John.
Okay. We have a question from Rick and the question is, Orion has been selling large blocks. Are you aware of who has been purchasing? BMO Nesbitt is also making large share transactions on the open market. And do we know who is selling and buying?
We have a good idea who has purchased the Orion blocks, but it's not public information and buyers have the right to be anonymous. I would say you can ask that question to Orion.
Okay. And he has a second question. And it is, can you produce an updated chart of the large shareholders again like you did at the Denver conference?
Yes. I'm marketing next week, and we'll have an updated shareholder list there. That's as good as we can get based on the information we have.
Okay. And his third question is, did I miss the ounces produced for October? So I guess we just have to recount that.
We have not released the ounces for October. That will come out probably early January when we release the quarterly production results.
Okay. And then there's another question here from Pennies. What is your strategy with regards to delaying the release of the 2021 assay results?
Say that again. Is this talking about exploration results?
Yes. So what is your strategy with regards to delaying the release of the 2021 assay results?
I wouldn't say there's any particular strategy. We're certainly working with the labs to try and expedite the assay results, but they're having a terrible time hiring people right now as well. And all I can say is, I ask everyone to be patient. Once we have compiled enough results that we think are newsworthy, we'll release them.
Okay. Thank you. I don't see any more questions. If anyone has a question, they can raise their hand or put it into the chat function. Okay. It doesn't appear that we have any more questions, so I'll pass it back to John to close the session. John?
Yes. No, I don't really have anything else to say other than thanks for tuning in, and we'll have another call with Q4 and year-end results probably in mid-February. Thanks, everyone.
Thanks, everyone.