AuMEGA Metals Ltd (AAM) Earnings Call Transcript & Summary

Thanks, everyone, for joining us today at Matador Mining. My name is Adam Kiley, I'm an Exec Director. I'm also joined by Keith Bowes as well, the other Exec Director of the company. Matador mining, for those that don't know, has the Cape Ray gold project, which is in Newfoundland in Canada. And we've actually just released a scoping study last week -- yesterday, sorry, for the project, which we're extremely happy with. [ We're looking out ] for a 7-year gold operation with production of just under 90,000 ounces per annum for the first 4 years, with life of mine production coming through to some 500,000 ounces. The key outputs from that study were -- that we really looked at and was really impressive for us was a rapid payback of less than 2 years, potentially at 1.75 years, which decreases even further if you use current gold price as well as an extremely robust IRR of over 50% with an NPV at just under $200 million. When you compare that from a market capitalization today of just under $25 million, you're looking at a P/NAV of just about 0.1, and most of our peers are trading at 0.2 to 0.4. The key driver for our impressive result for the scoping study was the exceptional high-grade, open-pittable mining from the project. So during the first 4 years of production, we're mining an average of 2.6 pounds per tonne and life of mine that's around 2 grams per tonne. So if we compare that to most of our open pit peers globally, which the grades are [ troughing ], obviously, with a high gold price at the moment, we're in a very good position. The point of the scoping study, which it always is, is actually to outline or examine so you'll have a viable gold project, and we believe that is what we did at this site. But we're not really going to stop there. What we really see as the long-term driver for this company is the exploration potential that we have. We've got 80 kilometers of this shear completely locked up. And that's something that we're really going to have a real good crack at this year. Based on last year's exploration program, we had a lot of success. We're drilling. Discovery cost per ounce was around $12 per ounce, or around 15 ounces discovered per vertical meter drilled. And if you actually have a look at where we had the most success at one of our [ resources ], Window Glass Hill, we were actually discovering gold at around $5 per ounce. And in terms of Newfoundland, it may not be as familiar with the Australian market, but Newfoundland is on the East Coast of Canada. It's obviously first world jurisdiction, being in North America, and we're really fortunate, we're supported by a fantastic infrastructure, running 25 kilometers away from the [ town ]. We're 15 kilometers away from the Trans-Canadian Highway. And we've also got some of the [ low-cost ] power in the world [ at the moment ]. So we've got grid power access, with that cost coming through at around $0.06 per kilowatt hour. In terms of cash at the moment, we're sitting at just under $4 million in cash with a market cap of circa $25 million. We've got a current Board of 3 at the moment, but we are looking to strengthen the Board at the moment. And hopefully, we'll have the announcement regarding at some point in the near future. So just going into the scoping study inputs and outputs in a little bit more detail. As mentioned, we're looking at gold production of around 90,000 ounces per annum for the first 4 years. We've got really strong head grade of around 2.6 grams per tonne. During the first 2 years, we actually see that grade higher than that. We see it, especially during the first year, of more than 3 grams per tonne before it comes down for life of mine average of around 2 grams per tonne. But as I mentioned before, the real strong sort of outputs that we get from all that is an extremely robust NPV and IRR, which increases significantly when current gold prices are applied as well. The current gold price after-tax NPV is $260 million and pretax NPV of just under $400 million which, again, compared to the market cap of just $25 million at the moment, is a lot of upside for the company. As mentioned before, we've got the strong open pit head grade, which is really [ going perfect all the way ] through, which is driving a very competitive all-in sustaining cost of just $776 per ounce. Some of the other key inputs for the projects were we've got a current mine life of 7 years, which we're looking...

Sorry, Adam, just to jump in there, could you please come a bit closer to mic?

Yes, sorry.

Thank you.

So just going through in terms of mine life at the moment, we're looking at 7-year mine life, which we're obviously going to look to grow going forward. Conservatively, we're saying that if we grow the mine, like, give or take about 100,000 ounces per annum, by the time we plan to commence production, that's going to give us an additional 300,000 ounces of mineable resource very conservatively, which gives us somewhere close to that 10 years of around 100,000 ounces of production per annum. The throughput is 1.2 million tonnes with an average life of mine strip of just under 10. We were quite conservative with some of the assumptions that we used there. We were using quite generous slopes to the pits at around 50 degrees, which we think we can probably improve on in the future, especially when you consider some of the depth of our pits. The average depth of 5 of the pits is around -- is a maximum depth of around 120 meters from surface. So when you have a look through some of the other costings as well, we've got mining costs of around CAD 2.80 per tonne. That's largely in line with what St Barbara is doing at Atlantic. But it's quite a bit higher than what Marathon, our closest peer, just put out to the market at $2.50. The mining costs -- we've got a small underground mining portion as well. We've assumed conservatively $90 per tonne, again, we believe we can improve on that, and our processing cost at $21 per tonne. Again, the main driver for that on the downs, which drove the costs lower was around the power costs, which came through at around $0.06 per kilowatt hour. We do see improvement in that further in the future. We believe we can really optimize and reduce the amount of reagents regarding that as we move through option studies as well as PFS thereafter. In terms of capital costs, we're looking at around $135 million at the moment, plus an additional $8 million in mine development. Again, we're being conservative on some of those assumptions, and we're really going to look to improve on that as we sort of progress the project through option studies as well as the PFS thereafter. When you have a look at some of the outputs based on those inputs, the real key one for us is really the payback period. So looking at the payback for any gold project, if you come in at less than 2 years, it really highlights that you've got a viable project. And as mentioned before, that was using the gold price, which is about 10% lower than where the current spot price is today. If we actually use spot price, we're coming down at around 1.5 years. The other, obviously, upside there is in terms of the NPV. Again, if we're using the spot price, as you can see in the graph, we've got a lot of upside sort of to come through. And so based on all those financials at the moment, which we're going to continue to look to improve on through further refining some of the numbers, we're looking at an average EBITDA, give or take, of about AUD 100 million per year when this comes through [ to production ]. What we've done here in this graph, and we can't show us on there because all of these projects are actually producers, is when you have a look at current operations around the world for open-pit gold projects, predominantly in first world jurisdictions quite the same as us, you're noticing the head grade is dropping significantly over time. When you have a look at most of our peers on there, they're looking at head grades of less than 2. And more often than not, it's usually about 1, or just above that, grams per tonne. There's obviously other factors which come into account such as strip ratio. But where it's really showing us is we're going to be in a very, very favorable position and sort of stand out amongst our peers because when you have a look at projects, which are producing in excess of 2 grams per tonne, it's really quite thin in terms of that. And we're seeing some really good exploration potential to really continue to grow that into the future. And just going through our exploration potential a little bit more. As mentioned, we've consolidated the southern portion of the Cape Ray shear. For those unfamiliar with the Cape Ray shear on Newfoundland, our closest peer is Marathon Mining, which is a TSXV-listed company with a market cap circa $350 million, with about 4 million ounces. The geology of their project is very, very similar to what we have at our Window Glass Hill deposit, and they're really the larger company in the jurisdiction. What we did by consolidating the whole region was really make sure that we've locked up that whole area. And in the future it may favor itself to a centralized facility. All of the deposits that we have at the moment are all outcrop in its surface as well. We haven't really done any exploration where there's been a low level of till cover. But we have identified a number of high priority targets for this year that we're going to look at further. Those key targets at the moment include Keats Find, down towards the south; and Benton, up towards the north. Up at Benton, we're got some rock chips at surface of around 200 grams per tonne, and we really haven't explored that area at all since acquiring the project. When you have a look at the work that we have done, we've really focused last year around Central Zone and then at Window Glass Hill. So when you look at the strike of the work that we've done more recently, you're probably only looking at about 5 kilometers of strike. When you consider we've got 80 kilometers of the shear tied up with very little work done by ourselves or anyone else for that point since the 1980s, we're really excited by the greenfield exploration potential of the project, and we'll be coming out with an announcement regarding the exploration strategy as well as a bit more detail on the potential going forward. And just on some of the brownfield targets. As we've mentioned before, Window Glass Hill was a real good success for the company last year. We grew the resource there from around 120,000 ounces up to 230,000 ounces. We also increased the grade up from 1.2 to 1.6 grams per tonne. But it's really the discovery cost that we had out there, which is really the standout compared to a lot of our peers. So we're finding gold at about $5 per resource ounce or 27 ounces per meter drilled. And the program that we did out there, as you can see on the screen, the red outline was the historic resource at Window Glass Hill before we completed the program last year and came up with a resource upgrade in January. The first -- one of the first holes that we did in the program last year was at CRD060. What we did that, that was a 240-meter step-out from the previous resource boundary, and we hit mineralization. That came through at a depth of, give or take, about 60 meters from surface. Quite simply then what we did with the rest of the program was basically infill from that mark. And we were hitting gold consistently, somewhere between about 40 to 60 meters from surface. We also tested outside of that area around CRD085, and we hit gold mineralization out through there. In the program this year, we'll look to step it out further out towards the west and down towards the South as well. When we have a look at the boundary towards the south, we haven't done any drilling ourselves through that area. But we do have historic drilling going down through Window Glass Hill where it does show the gold mineralization is continuous on that way through. There's also a number of high-grade rock chips at surface as well. So we see no reason why Window Glass Hill won't continue to grow in terms of a large, shallow, open-pittable project. The other project, which we haven't really done any work on to date but we're going to take a much closer look out in the new year, in the new exploration season, which we've started in the summer, is up at Isle Aux Morts. So Isle Aux Morts is around 7 kilometers away from Central Zone, and it was included in our scoping study. And it has a resource at the moment of around 60,000 ounces at 2.5 grams per tonne. The depth of Isle Aux Morts at the moment goes down to around 90 meters and, again, falls in line with our strategy of targeting shallow, open-pittable gold. What the plan is out there this year, we're going to do a little bit of trenching first off as well as a little bit more greenfield exploration before we go out there and we drill some more of those structures that really are quite promising in terms of the potential we see out there. So just in terms of really wrapping up the summary of the company as it stands at the moment before we go into some questions. It's a scoping study for the company which came out just yesterday. It really highlighted for us that do we have -- do we have a project which is going to be a gold mine? Yes, we do. We've proven that by having a payback period of less than 2 years with mine life of 7 years at the moment. And we also proved that with an extremely strong IRR as well as robust NPV. We're in a first world jurisdiction in Canada, in Newfoundland. We're surrounded by fantastic infrastructure, including water power as well as skilled workforce. Every day, we seem to still get countless e-mails from locals wanting work, which have worked in the industry before. But really, the key driver for the company now going forward is going to be the exploration potential. So we see fantastic potential around our brownfield targets, namely at Isle Aux Morts as well as Window Glass Hill, which we'll do further work on this year, but it's really the greenfield potential of the company. As mentioned, we really haven't scratched the surface yet across the 80 kilometers of shear, which we've completely locked up. And if you look at our valuation compared to our peers, we're trading at the moment of around $25 per EV per resource ounce when most of our peers are trading plus $50 an ounce. But more importantly, now coming through with the scoping study numbers, we're trading at basically 0.1x NAV. When you look at most of our peers, they're trading somewhere between 0.2 to 0.4x NAV. So through this year, the news flow will continue to be strong as we move forward. We've delivered a resource upgrade in the first quarter of this year. We just delivered the scoping study. The focus for the company now moving forward is going to be really focused on exploration as we move the project through the exploration season which will commence in the North American summer. Thanks. So if there's any questions, we open up the floor for myself and Keith.

Thanks, Adam. Thanks for that comprehensive overview. I know we're running a little bit -- we started a little bit late there. So you went through that really quickly and really well. We do have a couple of questions that have come through in the last couple of minutes. So where are you planning on focusing the upcoming drilling program? And is it on track to proceed as planned?

Perhaps if I could take that question. It's Keith Bowes here, I'm the Technical Director. So with regards to the drilling program, as Adam's outlined in the presentation there, we've really got 2 focuses for our drilling. We're looking at our brownfield exploration potential, which is going to be at Isle Aux Morts and at Window Glass Hill. And we're going to be doing some greenfield exploration as well, which is going to be at an area called The Granites, which is close to Window Glass Hill, and then probably up further north as well on some of the new tenements that we have looked at. And we would see a dual strategy going ahead. We'd be having geos in the field on the ground doing mag surveys and soil samplings in our greenfield areas. Based on the results from there, we would look at some trenching work as well. But at Isle Aux Morts and Window Glass Hill, we'd probably go straight into some drilling areas. So we already have identified where we believe the extensions are, and we'd be looking at drilling in those areas. As to the timing of it, as Adam has mentioned, we always do our field seasons in Canada in summer. So those normally start off around the end of May, beginning of June. But of course, at the moment, we do have the issue with COVID-19, which is impacting some of our planning going forward. We are hoping that Canada is going to open up, and we're going to be using some Canadian consultants. So the expectation at this point is probably beginning of July, we think, we'll be able to get on the ground and we'll be able to undertake our drill season from then until, as we said, end of October, beginning of November. There are 4 or 5 months of field program for us this year.

Right, and actually commencing in that exploration season. We will be coming out though. The aim is sometime later this month with overview of the exploration program as well as the strategy going forward in a little bit more detail as well.

Thanks, Adam and Keith. And how well placed are you to take advantage as you capitalize on an increasingly stronger gold price we have seen in recent weeks?

Well, listen, I suppose it's too bold on that one. There's another point which I'll mention as well. Obviously, with the scoping study coming out, it's sort of now -- it's the first time people have really been able to wrap their head around the economics and the potential of the project. And it's obviously given a lot of rise to the sector overall. You're obviously seeing -- producers' valuations are fantastic at the moment, but it hasn't really seemed to flow through too much to the developers at the moment. We're hoping that, that will actually start flowing through, especially as now we've actually got the scoping study numbers out. And I think as I mentioned before, when you look at it on an NPV basis at the moment, it would be -- based on the current spot price, post tax, we're looking at around $260 million NPV. So that's really strong. The other point that I should mention in that point, you should start seeing a lot more of the money flow through to the guys at the smaller end in terms of the market cap at the moment. So our closest peer, as we mentioned before, is Marathon Mining, which has circa $350 million market cap. They just did -- they actually just completed a capital raise in last week, which was, I believe, around CAD 27 million that they raised. We've had a lot of inquiries following that from a number of other groups, which were participating in that raise, because they're really seeing the potential of the whole region going up. So yes, we see a lot of interest coming through, hopefully starting to come through to more of the developer side of the market.

Thank you, Adam. Good to hear for your investors on the call. And thanks to Keith as well. Thanks for the presentation today, guys.

Perfect. Thanks very much.

Thanks, everyone.

Thanks, everyone, for listening. We'll be back in a couple of minutes' time. Stay on the call. We'll see you soon.