Calibre Mining Corp. (CXB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Calibre Mining Announces Temporary Suspension of Operations and Liquidity Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ryan King, Vice President of Corporate Development. Thank you, and please go ahead, sir.

Thank you, operator, and good morning, everyone, and thanks for taking the time to join the call this morning. Before we get started, I'd like to direct your attention to our forward-looking information. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although forward-looking statements are based on what management believes to be reasonable assumptions, actual results may turn out to be different to these forward-looking statements. For a complete discussion of the risks, uncertainties and factors, which may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to our latest MD&A filed on SEDAR dated December 31, 2019. Present today with me on the call is the executive leadership team, including a number of the team members based in Managua. We will be providing comments in regards to our news release, March 25, 2020, announcing the temporary suspension of operations and a liquidity update. With that, I'll turn the call over to Russell Ball.

Thanks, Ryan, and good morning, everyone. And again, thanks for joining us on such short notice. I want to take a moment to recognize and thank all the medical professionals around the world dealing with the COVID-19 pandemic and putting their lives at risk for others every day, every shift. It really does put the issues we are facing at Calibre in perspective. Before draining Slide 3 in front of you, I'd like to take just a few minutes to share my thoughts and the mindset with which this team is dealing with the challenges in front of us. Immediately after closing the transaction last October, we got together in Nicaragua as the new Calibre leadership team and came up with the company's vision, which is as follows. By thinking and acting like owners, we will responsibly deliver value for all our stakeholders. Simple but powerful, and I challenge the team to live the vision every day in everything they do. In addition, we agreed our core values are safety, social and environmental responsibility, integrity, teamwork and accountability. I'm very proud as CEO to say that we have been true to the vision and these core values over what has been an incredibly busy and challenging week or 2. We are all in unchartered waters, dealing with the COVID-19 pandemic, and Nicaragua is no exception. Yes, only 2 people have been reported as testing positive, but I would submit that represents the tip of the iceberg and is more a function of a lack of testing and testing capacity. As an organization, we implemented a suite of best practices to deal with the pandemic, including educating our workforce about the importance of hand washing and social distancing, restricting nonessential travel, limiting access to work sites and screening prior to access, enabling work from home wherever possible with technology, closing offices, mandatory 14-days self-quarantining for employees who travel internationally and providing literature and sanitary supplies to employees, their families and our host communities. And today, these efforts have been successful with no positive tests at any of our locations. But we recognize this pandemic is different from similar ones in recent memory in regard to both the rate of infectiousness and the death rate for those infected, particularly for the elderly and those with asthma and similar medical conditions. Your management team believes that despite our best efforts, it is simply a question of when, not if. So yes, we weighed the consequences of continuing to operate in the current environment for another week or 2, maybe 3, but the reality is we were going to have to shut down once one of our 3,000 employees and contractors tested positive. In addition, borders are closing. And while we have consumables and reagents on site to continue operating, the ability to keep the supply chains open is decreasing every hour, as the world shuts borders, self-isolates and flattens the curve. The team's considered view is it was better for all stakeholders to proactively shut down in a controlled and orderly fashion, maintaining operational readiness in order to be able to ramp up operations efficiently and safely when required. And so that is what we are in the process of doing. And Just because we have suspended operations doesn't mean we are not continuing to work on improving the business, reducing costs and the like. To quote former Chief of Staff to the Clinton Administration, Rahm Emanuel, "You never let a serious crisis go to waste." And what I mean by that it's an opportunity to do things you think you could not do before. So with that brief introduction, I will take you through where we are and what the path forward might look like. Referring to Slide 3. As we announced, we're in the process of working with employees, contractors, suppliers, the union leadership, the Ministry of Labor and the Ministry of Energy and Mines to suspend operations in a controlled and orderly fashion. I expect the operations, including exploration, will be suspended over the next week or so as we drain tanks, [ forward the ray ] and then get the plants into a state of operational readiness for when we are able to resume. We will maintain a skeleton crew, including safety and security personnel at both operations, to ensure environmental compliance and related reporting capabilities. We will also be progressing social, permitting and technical program, whilst maintaining operational readiness. Exploration drilling will be suspended as holes are completed in an orderly fashion, and we will be providing updated drill results for the first quarter once as those are received, and that will be likely sometime in the first half of the second quarter. So look for those updates, both from Limon, Libertad and our exciting new prospect, Amalia. The first quarter 2020 production numbers will be announced or at least I expect them to be announced on April 15, and then the Q1 financial statements, MD&A and related filings are expected to be made on May 12. Turning to Slide 4 and a liquidity update. We ended 2019 with $33 million in cash and debt-free other than the $15.5 million we owe to B2Gold as part of the purchase price. Having learned a thing or 2 from the 2008, 2009 global financial crisis as CFO at Newmont, the strategy for Calibre has been and always will be to have a very conservative balance sheet. As former Newmont Director, Seymour Schulich, once told me as part of my education, quite simply, well, the problem with debt is you have to pay it back. I'm glad to say we're in a position that I think when this situation turns, we'll be in a great opportunity or in a great position to take opportunities that are in front of us. So when John Seaberg took the CFO role, I told him he only had 2 rules he needed to worry about. Rule one, never ever run out of money and rule 2, see rule 1. I'm happy to say he's a pretty quick study. In that regard, we worked with B2Gold over the last couple of days to defer by 6 months or potentially more the remaining $10 million we owe for the purchase price and the $5.5 million we owe them for the working capital adjustment based on the October 13, 2019, close. So those amounts due, the USD 15.5 million has been moved from October 15, 2020, to April 15, 2021. My thanks to B2Gold, our largest shareholder, for their assistance and support. We estimate a monthly burn rate during suspension of somewhere around $2.5 million, most of which is labor for the furloughed hourly workforce. The good thing about being a small and nimble company is that we don't carry a large corporate overhead. This team will be doing its utmost to minimize spending and maximize the value of what is spent between now and when we are able to resume operations. Before the alignment with employees and shareholders, the senior leadership team is taking a 20% reduction in salaries during the suspension, effective April 1. We're committed to keeping all stakeholders informed as and when circumstances change. I have no idea how long we will be suspended, and the reality is nobody can say for sure. I'd obviously have the organization in the best possible place whenever that date may be, and that's what we are working on. With that, operator, we're happy to turn it over to you and the folks on the line for any questions for myself or the broader management team.

[Operator Instructions] And our first question comes from the line of Tom Gallo with CGF.

Actually 2 questions. First, are you maintaining paying all staff or just staff on site? And number two is, do you have an estimated cost of what the care and maintenance bill would be, like, either on a daily basis or a monthly basis?

Tom, Russ. I'll ask Darren to deal with the second one. But we've worked with the unions and the governments. And what we're doing is, it's on a month-by-month basis. But for the first month, all staff, employees will be receiving 15 days' pay, so effectively half a month. And the procedure is we get 30 days approved and then towards the end of, in this case, April, we'd have that discussion around May. The statutory minimum is 6 days. So we're significantly above that, which we think is the right thing to do as an organization, with the workforce we have, a lot of which have been with the organization for many years. So we'll be paying, as I said, half a month salary for the first. And then the total burn rate is about $2.5 million, and I'll ask Darren Hall, our CEO, to break that down a little further, if you're looking for more detail.

$2.5 million per month, right?

Yes, correct.

Okay. Yes. Sure. And then yes, if Darren could speak to the operations, et cetera?

Go ahead, Darren.

Yes, Tom. Is there anything that's in particular you'd like to understand because that $2.5 million that we talked about there is an initial estimate. And we still got some work to do to fine tune it. And as Russ alluded to earlier, I think, it's an opportunity to improve that cost profile. But that's from covering every cost in the organization, including salaries from Russell through to the environmental technicians at El Limon, including cost on a month-on-month basis.

So that's just sort of keeping things on care and maintenance, keeping water out of the underground, keeping the plant in ready to go, but that's not -- there is no processing of residual stockpiles or anything like that, right?

No. During the month of April, we will continue to wind through in circuit inventory and wind that out over the early part of the month, but there's no processing of fresh holes per se. But there will be technical work done. We'll continue with the majority of the exploration team in play. They'll be looking at data and analyzing some of the historical information that's available to us, some of the new information that's come valuable. I mean all of those -- all of that work will basically move from turning big rock into little rock into looking at that -- what's in front of us going forward from a technical perspective, both on the mine planning, the geology end. We'll be looking at organizational changes into those. So yes, this is a shift in the effort. The majority of the people that will be impacted will be people that typically come to work and drive truck, operate [ time ].

Right. Okay. And just to be clear, you said there's no fresh ore processing. Is that effective immediately? Or is that effective April 1?

It will wind down over the next week or so.

Tom, just one other point to add. The reality is, even if we were able to produce ore with the flights shutting down, it'd be very difficult, if not impossible, to get it out of the country.

And our next question comes from the line of Geordie Mark with Haywood Securities.

Nice to have a proactive decision process making structure in place. In terms of potential sort of ramp-up series, et cetera, what do you need to see in your supply chain network to be able to sort of bring people back? Are there differential time frames between the low end of the TAM? And on the other side, are there differential times for when the high end periods for when individual forecasts for the operations would be modified because I'm guessing, ultimately, you could run a lot more material through Libertad given the latent capacity?

Geordie, Russ. I'll take a stab and then Darren can add his perspective. But the way we're looking at the operations now is really as an integrated -- the hub and spoke. We've chatted to a number of folks, I think including yourself about. So we really look at them as one and the same. So you shouldn't view Limon and Libertad as being anything different. We'll essentially treat the organization as one because we're moving all backwards and forwards from one operation to the other, essentially from Limon and ultimately from Pavon down to Libertad, where we have the surplus capacity. So we aren't treating them any different. As far as the ramp-up, Darren, you want to speak to that, timing? What you'd need?

Yes, absolutely. Going into this transition, we've -- what will likely be a difficult sourcing period for the industry, we are currently well positioned with probably 3 to 4 months of the key consumables on hand at each of the sites, which will really help them facilitate the recommencement of operations after the temporary suspension. So our ramp-up won't be impeded by any sort of commodities or supplies. We're in good shape, whether it be [indiscernible]. We're in good shape. From a resource perspective, yes, people will still be at the gate. They'll still be available to us. So I would imagine we'll have a very efficient start-up. And that's the whole purpose about winding this down in a proactive manner, winding it into the situation where all of a sudden we've got a level of chaos in the community and we're trying to then go through an orderly shutdown there. So it would lead us in a very detrimental situation as we're trying to restart. And yes, just to reiterate Russ' comments on the hub and spoke, and he and I have talked about this at late. We are rolling material between the 2 properties now. We continue to evolve that. We're servicing ore from Pavon and traditional miners there. So yes, no, we're evolving this, and I think that this hiatus in activities for a brief period will give us a chance to be able to sit back, reflect and probably do a bit of a strategic planning as well as what we could do at Limon and optimize process feeds for Libertad. So I think we'll turn this what looks like a bit of a problem into an opportunity for us.

Geordie, Russ. I'll just add. We've been kicking this around, and we actually had a question from one of the Board members on yesterday's call as how long do you think this is going to be and what's the signal to go back? And I'd just say like everyone else in the industry, we're learning on the go. This is, like I said earlier, uncharted waters. But if you look around, there seems to be a consensus that somewhere around 8 weeks is a reasonable expectation, if you look at the experience in China and Wuhan, in particular. And that's what we're hearing from some of the medical experts, particularly in North America. Demographically, we have a fairly young population in Nicaragua. And there's a number of theories that this virus doesn't do as well in warmer climates and tropical climates, and that's exactly what we have. So I don't know. But my best guess, somewhere around, I don't know, 6 weeks, if someone had to try and pen a number. We're planning for worst and managing to beat that. So like I said, it will be a day-to-day. And we're committed to providing you with what we know and providing regular updates through Ryan, myself as the situation unfolds. But as Darren said and to use the Rahm Emanuel quote, we're going to be a better organization coming out of this, whenever that date is. And we've got a great balance sheet. Thanks to B2, we've pushed out the debt we owe them. And we'll come out stronger, leaner and ready for business. And notwithstanding what's going on today, I think we're in a great market for the commodity we produce, unlike some of the other producers for the base metals, the zincs, the oil and gas guys, where you're dealing with the coronavirus, but your underlying commodity is suffering from either demand destruction and/or increased supply in the case of oil. So I feel very good that once we get through this, we're going to be in great shape. And we're prepared as well as anyone. As Darren mentioned, we have somewhere around 3 months' worth of supplies, and we'll be ready to go. And it's never quite like flicking a light switch, as you well know. But we believe we will have the organization the best possible place to hit the ground running when we get the green light.

Okay. Great. And maybe on the exploration front quickly. If we put an 8-week pin in it, for instance, thinking about keeping the same scale of exploration or that will be revised depending on time frame on coming back into production?

Yes. So I'll ask Mark, who's on the phone from Toronto, to give you his thoughts. So exploration, just we treat just as any other part of the business. We're ramping that down. As I said, as holes are done, we'll get the assets back and reports on the drilling, Panteon and Amalia in particular here sometime in the first, in the second quarter. But I'll give you -- I'll turn it over to Mark, who can give you his thoughts on the program, the resumption of our program. I'd say we still feel very confident we're going to get in the 50,000 meters. It will be slightly delayed for obvious reasons, but I see no reason why we don't get that 50 meters drill -- 50,000 meters drilled this year. But I'll let Mark fill in some of the details for you.

Yes. Thanks, Russell. Yes, I'm -- I'd echo what Russell just said in terms of our confidence to complete the execution of the program, notwithstanding the current hiatus we're looking at. In terms of tempo for ramping back up, I think that -- really the best way to think about that is we will adapt as the situation warrants. Looking forward, we've currently got 6 drills turning. As noted previously, we will shut them down as each hole in progress is completed over the next week or so. And then likewise, we'll ramp back up at a tempo that makes sense, in line with the rest of the operations.

And Geordie, Russ, and maybe for the broader group on the call, one thing I have asked the management team as Darren alluded to shifting the focus from breaking rocks to thinking about which rocks we're going to break. We're working diligently on an updated life-of-mine plan. As most of you are aware, in particular, Libertad, if you looked at Street consensus when we announced the transaction last year, had roughly a 6-month mine life ahead of it. So roughly July this year. What we're doing is updating the life of mine plan for the best information we have to date. And I feel very confident that that's at least 3 years, and we'll be moving out to 5. So part of the strategic work we're doing is really stepping back and looking at the combined assets -- the combined $2.2 million processing capacity and how we might feed that. And it's a great position to be in. We have roughly 1 million tonnes of permitted, paid for and stock processing capacity. So no additional capital to be spent. The opportunity in front of us is delivering from the drill bit and feeding that. And the next project for us is Pavon. So that will provide an ore source in 2021. And that's the kind of work we're doing right now is really thinking longer-term and pulling the district view together in an updated life of mine that we'll be able to share with folks, I'm thinking, towards the end of the second quarter. And obviously, it will show a significant extension in the life at Libertad from when we bought the assets back in October 15 last year.

[Operator Instructions] And our next question comes from the line of Justin Stevens with PI Financial.

Most of them have already been asked and answered. I mostly was wondering just what the status of the government was and particularly on the permitting side. Do you guys expect any sort of visible delays in getting, say, Pavon moved ahead right now? Or is that still progressing at pace?

No, that's -- it's a good question, Justin. That -- what I'd call outside the fence, the permitting and related social is continuing as planned. I'll ask Darren. He spent a fair bit of time making sure the organization remains focused on progressing those scopes of work, if you want, that can be progressed, and Pavon planning, permitting is on that list. So Darren?

Thanks, Russ. No, those activities continue to progress. We've seen no slowdown with the government with respect to these current issues floating around the planet. We're still receptive. We're still progressing things. We're still getting permits every day with respect to exploration drilling. So anticipate that to continue. There may be some interruption just as a consequence of the normal noise that will come with pandemic as it impacts communities. But we'll take this opportunity to push hard and progress over those permitting activities, and the exploitation permit at Pavon will be included in that. So it will give an opportunity, I think, for us to mobilize some of those things.

I'm not showing any further questions at this time. I would now like to turn the call back to Russell Ball, Chief Executive Officer, for any closing remarks.

Thanks, operator. And again, thanks all for joining. I just did want to recognize the team, particularly those in Managua. It's been a yeoman's effort turning the organization in a very short period of time. My thanks to all of them for their efforts and their ongoing work and dedication. And as we know more, we'll pass it on to you, guys, and keep you informed as to what's happening on the ground and what the future might hold for us. So with that, again, thanks for your time, and I look forward to staying in touch on a regular basis. Thanks. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.