ENGLEWOOD Oct 26, 2015 (Thomson StreetEvents) -- Edited Transcript of Alacer Gold Corp earnings conference call or presentation Monday, October 26, 2015 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Lisa Maestas Alacer Gold Corporation - Director of IR * Rod Antal Alacer Gold Corporation - President & CEO * Mark Murchison Alacer Gold Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Michael Slifirski Credit Suisse - Analyst * Cosmos Chiu CIBC World Markets - Analyst * Cathy Moises Evans & Partners - Analyst * Kurt Walker Morgan Stanley - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Alacer Gold's Q3 2015 operating and financial results conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) At this time, I'd like to turn the conference over to Lisa Maestas, Director of Investor Relations at Alacer Gold. Please go ahead. -------------------------------------------------------------------------------- Lisa Maestas, Alacer Gold Corporation - Director of IR [2] -------------------------------------------------------------------------------- Thanks, Brock. Welcome everyone, and thank you for joining us today for Alacer Gold's Q3 2015 operating and financial results conference call. Joining me on the call are Rod Antal, our President and Chief Executive Officer, and Mark Murchison, our Chief Financial Officer. You will find Alacer Gold listed on the Toronto Stock Exchange as ASR, and on the Australian Stock Exchange as AQG. This conference call is available via webcast. The link and slides to accompany our remarks can be found in our earnings press release on our website at AlacerGold.com. You can access all documents released yesterday on the Company's website, and on SEDAR.com. Telephonic replay of this call will be available for one month, and an archived webcast will be available for three months following today's call. Following today's presentation, we will open up the call for Q&A. If I could now direct you to slide 2 of the presentation. This call will include forward-looking statements. Please refer to the forward-looking language included in our presentation, press release and the MD&A. Additionally, all dollar amounts in this presentation are expressed in US dollars, and on a 100% basis, unless otherwise noted. I will now turn the call over to Rod Antal, if you could please turn to slide 3. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [3] -------------------------------------------------------------------------------- Thanks Lisa, and hello everyone, and welcome to our third-quarter earnings call. It was another quarter of delivery from Copler, as we poured our 1 millionth ounce of gold, and the mines surpassed 7.2 million hours without a lost-time injury. These milestones represent significant achievements by our employees and contractors. Once again, Copler delivered a solid operating quarter, producing 53,700 ounces of gold, at a total cash cost of $517 per ounce, and an all-in sustaining cost of $672 per ounce. Copler continues to generate significant operating and cash margins, where we generated $32.7 million in operating cash flows during the quarter. As expected, the Oxide Grade mine declined in quarter three. This will impact our quarter four production, due to the heap leach kinetics, which takes approximately 60 days before we realize ounces off the pad. We anticipate the grade to slow the increase later in quarter four, as we mine deeper into the higher grade manganese and marble pits. More importantly, Copler remains on track to meet our 2015 production and cost metric guidance. We continue to mine sulfide ore in the quarter, and have added another 360,000 tons to the stockpile. This has now increased to 4.6 million tons, at 3.81 grams per ton, or approximately 560,000 ounces of contained gold. As we highlighted last quarter, we are mining the Redox boundary in the main pit, and are encountering some variation in the classification of oxide and sulfide ore. Based on this, we now expect to mine closer to 2 million tons of sulfide ore in 2015, and this will be offset by mining less waste. I'd also like to provide an update on the gold reconciliation year to date. Through September, the overall oxide gold reconciliations is within the plus or minus 10% range, and well within the normal operating margins you would expect. However, for the sulfide reconciliation, it has remained positive, and is running at year to date at about 50% higher in gold ounces. That's 50%, five zero. The variance in sulfide is higher in both grade and tons. I'd now like to hand the presentation over to Mark for an overview of our financial results, as outlined in slide 4. -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [4] -------------------------------------------------------------------------------- Thanks Rod, and hello everyone. In Q3, the Corporation generated attributable earnings of $0.03 per share, and year to date, this has generated attributable earnings of $0.13 per share. The result has been driven by continued strong production from Copler, with over 158,000 ounces produced year to date, at a continuing low cost per ounce. While cost increase in quarter three as expected, due to the declining grade and higher strip ratio, they do remain amongst the lowest in the industry. In Q4, it is anticipated that these costs will continue at these low levels. DD&A year to date is approximately $230 per ounce, and is in line with expectations, and is expected to remain at this level for the full year. Exploration and evaluation costs and G&A costs remain steady, and are expected to hold around these levels in Q4. Other costs include share-based compensation, FX re-evaluation, and expiration expenditure in joint venture entities. The Q3 decrease in these items is primarily driven by FX re-evaluations of the balance sheet items and other miscellaneous items. The income tax expense in Q3 is primarily the result of the devaluation in the lira, and the resulting tax payable on unrealized gains generated on US dollar cash balances held in Turkey. This component of tax expense will move with changes in the FX rate. For example, if the current lira rate of approximately 2.9 is maintained until year end, the unrealized FX gained for the year will decrease, and also the associated tax expense. Putting it all together, the Corporation has generated $52 million in after-tax earnings year to date, driven from the strong production results and continuing low cost per ounce. Moving to slide 5, and an overview of the low cost per ounce metrics. The Corporation continues to build its financial strength and produce low-cost ounces, with the year-to-date all-in sustaining cost of $653 per ounce. As announced last quarter, total cash cost per ounce, or C2 costs, were expected to increase in the second half of the year, due to lower grade and a higher strip ratio. The Q3 total cash costs were $517 per ounce, and year-to-date total cash costs of $449 per ounce, which is in line with our full-year guidance. All-in sustaining cost per ounce for quarter three increased to $672 per ounce, reflecting the higher C2 rate. Included in this cost metric is sustaining CapEx for the heap leach pad Phase 4 expansion. The total cost of the expansion continues to be estimated at $30 million over 2015-2016. While we anticipate the spend rate to increase in Q4, deferral of some costs into 2016 may be achieved. For the full year, it is anticipated our all-in sustaining costs will be in line with guidance of $700 to $750 per ounce. As expected, sulfide project spend is concentrated in Q4, as commitments are made for long lead time items. Year to date, just under $35 million has been spent on the project, which includes approximately $7 million for the finance facility. Full-year expenditure in the sulfide project is likely to be less than the $85 million previously guided, due to dependency on receiving permits and phasing of spend. At this time, it is difficult, however, to estimate the full-year number. The strength of the Corporation's balance sheet continued to grow in the third quarter, with further free cash flow generated, and the signing of the $250 million finance facility. At the end of September, the Corporation had $369 million of cash, no external debt and the undrawn $250 million finance facility. I'll hand the call back over to Rod as we move to slide 6. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [5] -------------------------------------------------------------------------------- Thanks, Mark. We've completed a lot of work, and achieved some major milestones during the third quarter. As Mark just mentioned, we signed the $250 million project finance facility on very competitive terms. We signed a letter of intent with Air Liquide for the oxygen plant, and importantly, we started earthworks for the plant site. We achieved all of this while continuing to progress the detailed engineering and the procurement of the long lead time loans. As you know, we are still waiting to receive the necessary land use permits to begin the sulfide project construction. As was said, we need our permits by the end of this year, and will keep monitoring the situation and assess any potential impacts to the schedule once the permits are received. Pleasingly, we have seen a number of permits approved in the last three months, including some of our own exploration permits. This indicates that the process is still moving, and we continue to work with the regulatory authorities to progress our permits to approval. With the recent increase in volatility in Turkey, we continue to monitor the situation very closely through our in-country intelligence, and will remain vigilant. We have not experienced any impact to our operations. Now before I turn the call over to questions, I'd just like to recap. Copler continues to provide low-cost, safe production. Our financial position continues to strengthen, and we continue to hit a number of key milestones for the sulfide project. So with that, Brock will open up the conference call to questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- We will now begin the question-and-answer session. (Operator Instructions) Our first question today comes from Michael Slifirski of Credit Suisse. Please go ahead. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [2] -------------------------------------------------------------------------------- Thanks. Can you talk a little bit about the elections on Sunday? And what the implications might or might not be? How relevant they are to you? Is there an outcome that might be more favorable, in terms of government process and moving forward on the permits? And then with respect to the permits, I'm interested in the outstanding one for the heap leach. When does that actually start to impact oxide production? Is there a period to which you get, beyond which you can't progress? And down that -- I'm just trying to understand, can you partly use that pad? Or if the permit isn't forthcoming, I just need to know, so when you need to see that, to avoid any sort of production impact? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [3] -------------------------------------------------------------------------------- Why don't I start with the second one first? It would affect us if we don't receive that permit by the latter part of next year. So as you know, the pad Phase 4 is already under construction. And in fact, we are already stacking on the new portions of the pad now. But if it went beyond the latter portion of next year, then that would start to have any impact to our stacking rates. In terms of the election, yes, you are right. The reelection is scheduled to take place this Sunday. And I'm not in the game of trying to predict the outcomes of the election, other than to say that whoever ends up taking the majority, and ends up in power post the elections, that we would be very happy to work with. In terms of how that might impact our permits, look, it's -- I think having an election result, and having a government in place. I think we will hopefully see a return back to something that we may see the other process start to get freed up again. And it's not because we haven't seen permits come through. As I said, we've received recently exploration permits that we've been waiting on, as well, but it's definitely been slow. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [4] -------------------------------------------------------------------------------- Okay. Thanks, Rod. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- The next question comes from Cosmos Chiu of CIBC. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [6] -------------------------------------------------------------------------------- Good evening Rod, Mark and Lisa, and thanks for hosting the call. A few questions here. Maybe first off, on the lower stack rate in Q3, was that expected? I only ask because I seem to recall that, in an earlier conversation, earlier conference call, you had indicated that the overall grade in 2015 will likely be in the range of 1.3 to 1.5 gram per ton. And so what happened with the decrease in stack grade in Q3? Was that expected? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [7] -------------------------------------------------------------------------------- Yes, that's right, Cosmos. So it was just the mining schedule that we had, and the grades were expected, in quarter three, to decrease. But we are still getting the runoff from the higher grade that was stacked in quarter two. That is why you don't see the direct impact through to production done during the quarter. But that will obviously start to roll off now in quarter four, and that is why we're saying we're firmly within the guidance that we put out. And the grade -- our grade expectation for the full year is still within what we said with guidance, between that 1.3 grams per ton. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [8] -------------------------------------------------------------------------------- Okay. So as you mentioned, Mark, you will likely see some of the impact of the lower grade stacked in Q4 2015? That's the leach kinetics. That's what I want to ask, as well, in terms of when does it impact? Is it one quarter, or is it two quarters? Or is it -- how does it work? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [9] -------------------------------------------------------------------------------- As I said, Cosmos, the grade, actually, we're going to mine during Q4 will start to go up, as we get into the manganese and marble pits. So again, it's just scheduling where we are in the current mining. So that will start to get mined at a higher grade in quarter three. But as we get beyond this month, which is October, coming to the end of October, that is pretty much we're going to see start coming off the leach pad, from a mining perspective. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [10] -------------------------------------------------------------------------------- Okay. And then I guess Rod and Mark, you mentioned earlier that it looks like you are not going to reach or spend the $85 million that you had for CapEx, that you had expected for the year 2015. So should we assume that whatever doesn't get spent in 2015 will likely appear in 2016? Or is it, right now, too early to tell? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [11] -------------------------------------------------------------------------------- Yes, Cosmos, it would definitely be timing, and just phasing show, to the extent not spent this year, it would be expected in the overall project, going to next year and the year after. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [12] -------------------------------------------------------------------------------- Okay. And then Mark, maybe one last question here. I'm still a bit confused about the taxes in the quarter. It sounds like it is taxes on unrealized gains. But to me, when I look at the financial statements, I also look at the cash flow statement. It looks like it is actually a cash tax. It looks like it is actually a real cash outflow. Is that correct? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [13] -------------------------------------------------------------------------------- It is, Cosmos. The gain that we are recognizing on the movement, the devaluation [of the year] on our US dollar balances does give rise to that unrealized FX gain, which in Turkey, that is taxed. So we will pay that tax. That's right. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [14] -------------------------------------------------------------------------------- Okay. So if, on a future date, it reverses, do you get a check back from the Turkish government, then, in a return in taxes? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporation - CFO [15] -------------------------------------------------------------------------------- If it's -- Cosmos, if -- within the same year, so when I referenced that if the current lira rate, for example, continues, or was in the 2.9 at the end of this year, than we would have a credit to the tax expense, and we would have less test expense. Because the FX rate at the end of the quarter was 3.04. If it went down to 2.9, then it would be effectively reversing a part of that. So within the year, yes it would. If we then had a decrease in the FX rate, or a strength in the lira in a future year, we could use that against other income, within the relevant entity, to offset taxable gains. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [16] -------------------------------------------------------------------------------- Okay. I think it is a bit clearer now. Great. That's all I have. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- The next question comes from Cathy Moises from Evans & Partners. -------------------------------------------------------------------------------- Cathy Moises, Evans & Partners - Analyst [18] -------------------------------------------------------------------------------- Morning, Rod. Just the 50% positive reconciliation on the sulfide. I presume that's against the upgraded model to try and account for the reconciliation. And from memory was, it was tracking positively. I don't think it was tracking that positively earlier in the year. Just wondering if there's particular areas where it's over-calling very significantly, relative to other areas? And when you will actually look to maybe try to apply some of that positive into the mine plans for sulfide? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [19] -------------------------------------------------------------------------------- Yes. Hi, Cathy. It is a little bit hard to hear you, but I think I've got most of it. So if I don't address everything, just call me up after I answer it. But yes, look, it is on the new model. That's what we have done the comparison to. And I said I always hesitated to give the numbers until we have had enough data to do a realistic comparison. And really, the -- if you look at it, the main driver for the sulfides right now is the variation we are seeing in the Redox boundary, where we are getting allocations where we're -- they might have been considered oxides, are actually coming out as sulfides. So it -- a lot of it, primarily, is Redox boundary generated. So I wouldn't get excited to say we're going to extrapolate that as an indicator for the future because I think once we get through that boundary areas, across all the pits, we should see it return back to normal. And you're got to take into consideration, too, the amount of tons that we've have mined, and the amount of gold. So it is not significantly material for this year, as it is, but it's obviously a material variance. -------------------------------------------------------------------------------- Cathy Moises, Evans & Partners - Analyst [20] -------------------------------------------------------------------------------- Okay, thanks, Rod. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- The next question comes from Kurt Walker of Morgan Stanley. -------------------------------------------------------------------------------- Kurt Walker, Morgan Stanley - Analyst [22] -------------------------------------------------------------------------------- Hi, Rod, I think you just answered my question with Cathy's. But following on from that, do you have an indication of how long you're going to be encountering this Redox boundary for? And if it's -- is a nicely scheduled out over a six-month period? Or can we expect it to come through in drips and drabs for quite a while? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [23] -------------------------------------------------------------------------------- It's really hard to hear. I don't (inaudible) or it's the volume. We're going to turn it out. It's probably going to make some really weird noises. But I think your question was, how long are we going to be in the Redox boundary? -------------------------------------------------------------------------------- Kurt Walker, Morgan Stanley - Analyst [24] -------------------------------------------------------------------------------- Yes, correct. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [25] -------------------------------------------------------------------------------- Yes, look, it's going to depend on the -- again, on the mining schedule. So you remember the Redox boundary is different in each of the pits, and the way that it has been defined. Because in the marble and manganese pit, we have the contact zones with the dye rod intrusions, and so it's interpreted different to what the main pit is. But as we keep stepping out in the main pit, and taking the cup out, and making the pit bigger, we will always, at some stage, cut through a Redox boundary, until we get to the ultimate pit [shape]. And that will be years down the track. But the tons will get less and less. -------------------------------------------------------------------------------- Kurt Walker, Morgan Stanley - Analyst [26] -------------------------------------------------------------------------------- Sure. No worries. Thank you very much. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- There are no further questions at this time. I will hand the call back over to Mr. Antal for closing remarks. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporation - President & CEO [28] -------------------------------------------------------------------------------- Thanks everyone, again, for attending our call today. We continued to execute according to our plans, and obviously look forward to keeping you informed of the progress for the remainder of the year. So thanks very much, everyone. And with that, good evening and good morning. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
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