ENGLEWOOD Jul 29, 2015 (Thomson StreetEvents) -- Edited Transcript of Alacer Gold Corp earnings conference call or presentation Tuesday, July 28, 2015 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Lisa Maestas Alacer Gold Corporate - Director, IR * Rod Antal Alacer Gold Corporate - President, CEO, Director * Mark Murchison Alacer Gold Corporate - CFO ================================================================================ Conference Call Participants ================================================================================ * Michael Slifirski Credit Suisse Group - Analyst * Cathy Moises Evans & Partners - Analyst * Stefan Hansen Morgan Stanley - Analyst * Phil Russo Raymond James - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Alacer Gold second quarter 2015 operating and financial results 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, Mrs. Maestas. -------------------------------------------------------------------------------- Lisa Maestas, Alacer Gold Corporate - Director, IR [2] -------------------------------------------------------------------------------- Welcome everyone and thank you for joining us today for Alacer Gold's Q2 2015 operating & 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 the 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 today on the company website and on CEDAR.com. Telephonic replay of the 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 a Q&A session. If I could please direct you to turn 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 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 Corporate - President, CEO, Director [3] -------------------------------------------------------------------------------- Thanks, Lisa and hello to everyone and welcome to our second quarter call. I convey our apologies for starting a little bit late. It appears we have a technical issue with our Australian dial in number. We continue to present an impressive safety record. As of 30th of June, the mining of 6 million man hours of work or 857 days working without a lost time injury. Once again, Copler delivered a solid quarter, with gold production of approximately 53,700 ounces, with total cash costs of $396 per ounce and all-in sustaining cost of $598 per ounce. Copler continued to generate significant operating margins and generated $24.4 million in operating cash flow in the quarter. Even with the recent deterioration in gold price, we expect Copler to continue to producing gold at an excellent margin, resulting in further accumulation of cash on our balance sheet. However, we are not going to sit idle. As always, we'll continue to focus on maximizing our free cash flow from the operations. We continue to mine sulfide ore and have added another 0.5 million tonnes to the stockpile, increasing it to 4.2 million tonnes at 3.88 grams per tonne or approximately 530,000 ounces of contained gold. As you know, we have started using the reduction - oxidation, "redox" boundary as a discriminator for oxide ore and sulfide ore, as well as a number of other improved ore control methods. In the main pit, we are mining in the redox boundary and as expected, are seeing some variation in the classification of oxides and sulfide ores. Based on this, we now expect to mine approximately 1.3 million tonnes of sulfide ore in 2015 and this will be offset by mining less waste. Importantly, we expect Copler to remain on track to meet the 2015 guidance. I'd like now to hand the presentation over to Mark, for an overview of our financial results, which are outlined on slide 4. -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [4] -------------------------------------------------------------------------------- Thanks Rod and hello everyone. A few highlights from slide 4. Over 104,000 ounces of gold was sold in the first half, at an average price of $1,202 per ounce for gross sales of $126 million. Copler's production costs have trended down, due to an increase in recoverable ounces on the pad and reduced mining costs. DD&A use to date is approximately $235 per ounce and in line with expectations. And we expect DD&A to be in the range of $215 to $235 per ounce for the full year. Combined, those generated a mining growth profit of $58 million for the half. Our G&A charges remain notably low, as demonstrated by our first half results. The year to date accounting effective tax rate is approximately 1%, in line with expectations and previous guidance. Putting it all together, we delivered after-tax earnings for the first half of $41 million and this equates to $0.10 per share attributable earnings. Moving to slide 5 and our cost metrics. Our total cash costs or C2 costs have trended down from Q1 to Q2, resulting in a first half C2 of $414 per ounce. The downward trend is the result of increased gold sales, recognition of additional recoverable ounces on the pad in March, that impacted all of the months in the second quarter, reduced mining costs and a royalty credit due to a lower payment made in June, relating to the prior year's royalty. Our all-in sustaining costs have also trended down, resulting in a first half all-in sustaining cost of $643 per ounce. The primary drivers in this downward trend are the reduction in total cash costs just mentioned and lower G&A costs. For the second half of this year, we do expect cost metrics to increase due to a higher strip ratio, declining grade and an increase in our sustaining and growth CapEx spend. For the full year, we expect our cost metrics to be in line with previously announced guidance. The strength of the balance sheet continues to grow and at the end of June, we had cash of $357 million, no external debt and $419 million of working capital. Please turn to slide 6 and I'll hand back to Rod. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [5] -------------------------------------------------------------------------------- Thanks Mark. Before I discuss the sulfide project, just a quick update on the heap leached pad phase 4 expansion. The construction of the pad remains on track and I'm pleased to advise that the initial stacking of ore commenced on the expansion area in June this year. The sulfide project continues to progress and as we previously announced, detailed engineering began in April with AmecFoster Wheeler. The project teams has been relocated to Istanbul, where our project hub is now based. The initial earthworks in the permitted area for the plant site, have also started. A letter of intent was recently signed with Air Liquide for the oxygen plant. They are now undertaking detailed engineering on which the construction and long-term gas supply and operating contract can be agreed. Importantly, the letter of intent allows Air Liquide to commit to the manufacturing queue for the oxygen plant. Now I'd like to take a moment to discuss the permitting status. On June 7, Turkey's national elections took place and on July 9, President Erdogan issued a formal mandate to form a new government within 45 days. If they're unable to form a coalition government within the 45 days, there may be another election. The land use permits require to begin project construction have progressed all the way through the regulatory process and are currently awaiting final approval. It appears unlikely that we will receive movement on these permits until a new government is formed. In the meantime, we continue to work with the regulatory authority to progress our permitting to approval. Also, I'd like to remind everyone of the $250 million finance facility commitment that was announced with our quarter one results. We are in the final stages of executing a documentation and anticipate that this will be completed in quarter three. This credit facility, plus Alacer's strong cash position, and Copler's oxide cash generation, not only ensures our ability to fund the sulfide project, but also provides is the flexibility to execute on our growth strategy. Before I turn the call over to questions, I'd like to reiterate that the sulfide project is progressing to plan and remains on track for the first (inaudible) in late 2017. And with that, let's open up the conference call to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Michael Slifirski, Credit Suisse. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse Group - Analyst [2] -------------------------------------------------------------------------------- The discussion around that redox boundary, can you help me understand that a little? So you're saying that more sulfide but less waste, so it doesn't actually mean more sulfide and less oxide? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [3] -------------------------------------------------------------------------------- On a total basis, Michael, what I'm saying is on a total tons mined for the year, we'll still be the same, those oxides, sulfides and waste. The classification of the ore (inaudible) we're going through, through the redox boundary, particularly in the main pit. And the reason why we have to be careful, is because we're moving into the manganese pit later this year and the marble pit, so we might not see the same effects. But we've been getting more tons of sulfides than we expected, but on an overall basis, for the oxides, we're getting less tons but higher grades, so we're getting the same output. So it's a tonnes movement but on an overall basis, our ounces that we're mining are still about the same as what we're producing for the oxides and a little bit higher than what we're producing for the sulfides. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse Group - Analyst [4] -------------------------------------------------------------------------------- On the schedule, I noticed on that chart of the schedule that you have extended the permitting period to the end of 2015, but are my eyes deceiving me or does that construction bar start a little bit before the permitting bar ends? Is that implying that you can actually start some construction before permitting? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [5] -------------------------------------------------------------------------------- We already, in some ways, are, Michael. As I've mentioned, we've started on -- there is some parts of the process plant footprint that we currently have that is on permitted ground. So the start of the initial removing of shrubs and other things on the site, site preparation, that's really the construction process on that permit of land. So it's not major. It's not like we're doing the major compaction yet, but it is the start of the earthworks. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse Group - Analyst [6] -------------------------------------------------------------------------------- Finally, the comments around the currency depreciation but risk of inflation; is the implication in the unchanged cost guidance that what you're expecting from inflation will broadly offset what you're seeing in currency? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [7] -------------------------------------------------------------------------------- If you're just trying to predict where the currency is going to go against inflation, it's a bit hard. So at this point, we consider that they'll hold through where they are an we'll just have to see how that plays out for the rest of the half. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse Group - Analyst [8] -------------------------------------------------------------------------------- Right. At this stage, you're ahead because the currency is favorable and you haven't seen the cost inflation through anything you're buying at this stage? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [9] -------------------------------------------------------------------------------- Yes, that's correct. So in the first half, we have benefited from the depreciation of the lira. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Cathy Moises, Evans & Partners. -------------------------------------------------------------------------------- Cathy Moises, Evans & Partners - Analyst [11] -------------------------------------------------------------------------------- Rod, I think you, in part answered in answering Michael's question, but just wondering if you could comment on how the reconciliations are tracking in this quarter? It sounds like, from your comments, the oxides are falling and the sulfides are back on line. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [12] -------------------------------------------------------------------------------- The oxides are almost spot on, Cathy, actually, from a contained ounce perspective. As we said in the first quarter, where there was a trend, we were slightly under in quarter one, but it's really that 5% to 10% tolerance that we would expect. The sulfides, from a contained ounce perspective, I would say are positive reconciliation, which is really that extra tonnage that we got out of the redox boundary. -------------------------------------------------------------------------------- Cathy Moises, Evans & Partners - Analyst [13] -------------------------------------------------------------------------------- So is it strongly positive Rod, or just a little bit? -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [14] -------------------------------------------------------------------------------- On an overall basis, on a global basis, it's not the high reconciliations we saw previously, before we put out our resource model and it swings around about, Cathy. So on a global basis, it's above the 10% that we would want to maintain as a predictor, but it's not in that sort of 50% ranges that we saw. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) Stefan Hansen, Morgan Stanley. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [16] -------------------------------------------------------------------------------- On the permitting for the sulfide project, do you have any idea if there is another election called and say there was a six-month delay to getting those final permits, is that going to risk pushing out startup by six months or is there enough work that you can do to offset any potential permitting delay? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [17] -------------------------------------------------------------------------------- It's a really good question, Stefan and it's obviously the one that we most (inaudible) now, as we're progressing the sulfide project. The requirements to get the permits, as we've always said, is really the end of the year is the day when it starts to impact the project. If we don't have the permits to start the full construction, besides some of the land clearing there we're doing, then it would start to give us another -- we'd have to look at the project in a different way to figure out ways that we can keep it moving along, without it impacting the end of 2017 startup date. So, we've still got some months before we get to that point, so importantly, as we did earlier in the year, was to progress it to get it through the beau acratic process. The elections have slowed things down for sure in Turkey. It is in the final stage; we're just waiting for one signature for the final authorization. But hopeful that we'll see some resolution to the election process and that some coalition is formed and we get back to normal. The reason I mentioned it was that if they don't form a government within the 45 days, then the alternative is to go back to the election process. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [18] -------------------------------------------------------------------------------- Another question on oxide expansion. I'm just wondering if you could give us an update on the engineering works to look at the new pad and I guess any exploration work around the regional deposits or near mine for additional oxides? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [19] -------------------------------------------------------------------------------- The focus area for us has been the Yakuplu and still remains that. We had a bit of a hiatus over the winter months for the drilling programs around the Yakuplu. It's hard to get up there. We, in this quarter just gone, we started our program back up, so some of the drilling is targeted at looking at the extensions of those three areas that we have up there. That work will continue until we get enough data to do the interpretations and initial metallurgical work to understand what we have. So it's progressing and we need to do a bit more work yet, before we really understand what it is that we have up there in that area. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [20] -------------------------------------------------------------------------------- And what about engineering work for a new pad? Is all that contingent on getting positive results from Yakuplu? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [21] -------------------------------------------------------------------------------- We've progressed some work on getting some scoping studies done, in terms of what they will cost. We haven't hit the trigger on it just yet, until we start to see what we do have in Yakuplu. But I guess with the fact of the gold price deterioration in the last little while, we're probably going to hit the pause button a little bit on that until we see where we end up. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [22] -------------------------------------------------------------------------------- And just one point to clear up; did you mention you plan on mining 1.3 million tonnes of sulfide ore in the second half, was that? -------------------------------------------------------------------------------- Mark Murchison, Alacer Gold Corporate - CFO [23] -------------------------------------------------------------------------------- That will be on a total basis for the year. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [24] -------------------------------------------------------------------------------- So that's a little bit above the revised guidance that you came out with earlier in the year. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Phil Russo, Raymond James. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [26] -------------------------------------------------------------------------------- Gold price came down $100, you touched on the last question there, but has anything changed for you guys here? You've obviously got ample liquidity, but from a corporate level, is it still full steam ahead on the sulfides or do you start looking at other things a little closer than you perhaps did when gold was $100 higher? Just looking for some of your commentary on that. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [27] -------------------------------------------------------------------------------- It obviously makes you take pause for a moment when you see the sudden drops on pricing and we have to go back and consider our long-term views on the gold price. The thing for Copler as a current day operation, one of the benefits and the things that we enjoy, which we guard jealously and we manage very well is keeping it as a low-cost producer as we can. That's the best way for us to manage through these highs and lows in the gold price. This quarter demonstrates the quality of the asset from an oxide perspective, that the industry will be in hot water before it really affects us in terms of margin returns and getting cash flow. As we look forward to the sulfide project, gold price, as you know, is one of a number of the input factors that we would look at the project itself. Obviously it's an important one. It's the revenue line. It is the one factor that affects the cash flows that we get, more than probably an y other. But as a project, we look at it entirely in terms of its life, it's cycles, it's internal rate of return, plus all the other factors that we're working on now as we're going through the detailed engineering for the CapEx and OpEx and other factors that will affect the overall view of the project as we move along. It's not just one data point. Obviously it gives us a point to go ahead and have another look at things, but we have to take the whole package into consideration as we move forward. So it's still a robust project and as we see here, $1,100 gold price, it still does provide favorable economics as we move forward and we're still very confident, at these levels, that we can fund it. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [28] -------------------------------------------------------------------------------- It sounds like you're comfortable with how this project sits, versus other things. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- There are no further questions at this time. I'll hand the call back over to Mr. Antal for closing remarks. -------------------------------------------------------------------------------- Rod Antal, Alacer Gold Corporate - President, CEO, Director [30] -------------------------------------------------------------------------------- Thank you all for joining us today. We continue to execute according to our plans and look forward to keeping you informed of our progress as the next quarter come along. So thanks very much everyone. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- 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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