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

Good morning, and welcome to the Calibre and Marathon Conference Call. [Operator Instructions] I will now turn the call over to Ryan King, Senior Vice President of Corporate Development and Investor Relations of Calibre Mining. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for taking the time to join the call this morning. Before we commence, I would like to direct everyone to the forward-looking statements on Slide 2 and on Slide 3. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although management believes that our forward-looking statements are based on fair and reasonable assumptions, actual results may turn out to be different from 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 the joint press release dated November 13, 2023, announcing the transaction, the slide deck to be made available on the websites of both companies and our respective 2022 annual MD&A and 2022 AIFs available on our website as well as on SEDAR+. And finally, all figures are in U.S. dollars unless otherwise stated. Present today with me on the call are Darren Hall, President and CEO of Calibre Mining; and Matt Manson, President and CEO of Marathon Gold. We'll be providing an overview on the accretive merits of today's announced agreements. Following the presentation, we'll be happy to take questions. The slide deck we'll be referencing is available on our website, calibremining.com, and Marathon Gold's website, Marathon -- www.marathon-gold.com. You can also click on the webcast found in today's news release to join the live presentation. And with that, I'll turn the call over to Darren.

Good morning, everyone, and thank you for taking the time to join Matt and I this morning. I'm very pleased to announce that Calibre and Marathon have agreed to combine in what I believe presents a compelling opportunity for the shareholders of both companies. Our vision at Calibre has always been to establish a quality mid-tier gold producer, initially by generating strong operating cash flow to fund organic growth, while seeking attractive opportunities to diversify and grow. The first step in that journey was the acquisition of our Nicaraguan assets from B2Gold in October 2019. Since that time, the team has made considerable progress in generating value through implementation of our hub-and-spoke strategy, which has delivered year-over-year production, cash flow and earnings growth. The rationale for the combination with Marathon is as clear as it is compelling. The Valentine Gold project is typically robust, long-life, low-cost open pit located in a fantastic jurisdiction with significant exploration upside. Valentine will complement Calibre's existing portfolio of assets, resulting in a peer-leading production growth to 500,000 ounces annually. Importantly, Calibre has the available cash to fully fund Valentine into production. With our combined continued focus on delivering into commitments, we'll be well positioned to achieve higher multiples to drive share price appreciation and strong returns for all shareholders. Turning to Slide 5. Under the terms of the proposed transaction, Marathon shareholders will receive 0.6164 of a Calibre share for each share held, equating to a consideration of CAD 0.84 per Marathon share, which is a spot premium of 32% or 61% based on the 20-day VWAP. Pro forma, Calibre and Marathon shareholders will hold 66% and 34% of the company, respectively. Importantly, voter support agreements are in place with officers and directors of both Calibre and Marathon. Additionally, B2Gold, Calibre's largest shareholder at 24%, has provided their support. The existing Sprott facility rolls over with no frictional costs. Shareholder votes will be required and are expected to be held in January 2024, with closing shortly thereafter. Turning to Slide 6. Benefits to Calibre's shareholders include the combination establishes a solid foundation for exceptional value creation, repositioning the combined company for higher valuation multiples benefiting all shareholders. The addition of Marathon's Valentine Gold project to the portfolio, which is a typically robust, long-life, low-cost asset with first gold expected in early 2025, resulting in 60% of the company's NAV being located in North America. Valentine will deliver 195,000 ounces per year at an average cost of $1,007 per ounce for the initial 12 years. Based on consensus, the company has peer-leading production growth of 80% to 500,000 ounces by 2025. Additionally, Valentine has a significant mineral endowment with exceptional exploration upside. Matt?

Thanks, Darren. I mean from the Marathon point of view, where do we stand? Our project's going well. We're about 50% complete on an [ earned ] progress basis. But I think it's been well understood in the market that our funding program still needs to be completed. There was additional funding required to complete the project. And I think everyone understands that the market is an extremely challenging one to build a new mine as a single asset developer. So we've been working for the last several weeks and months to present to our board a number of different options, financing options, and also alternative options such as the deal that we present today. And very much, I think our Board has benefited from having multiple options. And this opportunity with Calibre to combine our businesses is a very compelling opportunity for us that we're happy to support. What we're contributing to here is the creation of a significant new gold mining company in Canada; 500,000 ounces by 2025. It's a terrific opportunity for us, our shareholders, our employees, our vendors and suppliers in Newfoundland or communities in the province of Newfoundland & Labrador as well.

Turning to Slide 7. This transaction will position Calibre as a significant operator in Tier 1 jurisdictions as it grows its annual production to 500,000 ounces a year while concurrently doubling annual cash flow on a significant resource base in excess of 12 million ounces. Moving to Slide 8. This transaction results in peer-leading production growth, with 60% of the combined company's net asset value coming from Canada and the United States. Moving to Slide 9. The combination repositions the company for significant re-rate across all valuation metrics to the benefit of all shareholders. Through our combined continued focus on delivering on our production and growth targets, we'll be exceptionally well positioned to achieve multiple -- higher multiples to drive share price appreciation and strong returns for all shareholders. Moving to Slide 10. Since partnering with B2Gold and becoming a gold producer in late 2019, Calibre has consistently delivered on all commitments, including: responsibly permit and built 4 mines; delivered year-over-year production growth of approximately 20%; grown reserves net of depletion 370%; delivered into production and cost guidance quarter-over-quarter; and importantly, after all that, built cash after all investments from the end of 2019 at $4 million to $97 million at the end of Q3. Moving to Slide 11. The key to our success has been our ability to efficiently add low capital intensity, high-return production by debottlenecking Limon and de-orphaning satellite deposits like Pavon and Eastern Borosi, which both went from permit to plant in less than 18 months. As we progress our exploration and development programs, we see several opportunities to leverage off the installed capacity at Libertad with expansion of new discovery potential across the portfolio. Turning to Slide 12. The Pan Mine is an established and reliable operation, contributing approximately 45,000 ounces of gold per year to our production profile. The very prospective and underexplored 222 square kilometer land package coupled with a proven operating discipline, significant exploration results and a Tier 1 jurisdiction provides a fantastic platform for future organic growth. Moving to Slide 13, and Matt, if you can provide an overview of Valentine.

Yes. For those of you who are unfamiliar with this project, Central Newfoundland, Marathon has been working on this project since 2010. It's now well on track to be Atlantic Canada's largest gold mining operation and the largest mine of any type on the [ island of ] Newfoundland. Our numbers you're seeing there are from a December '22 updated feasibility study, which presented a 3-pit mine, Leprechaun, Berry and Marathon orebodies. We started construction in October '22, and as I said previously, we're about halfway through the build. Recently, we received a release from our environmental assessment for our 3rd pit, Berry, and also positive guidance on the federal level for that as well. So we are on track to deliver first gold in the first quarter of '25. If you go to the next slide, these are some of the numbers that we published in our December '22 feasibility study. This is a very robust project with a long mine life, good cash flow potential. And I think I want to stress here that what we're doing in this transaction is we're not doing any more streams and royalties here for Marathon. We're not impairing that asset and that cash flow with additional debt. We're not issuing additional shareholder equity. This preserves the full potential of this project for shareholders through this larger vehicle, and that's an important message here that we're going to communicate. These robust economics, we're using a $1700 gold price. So when you track these through to the current gold price environment, it's a very attractive asset. Next slide. 50% complete, as I said. On schedule for first gold first quarter '25. And we're illustrating the build here with 2 photographs. The top photograph is our process plant site from October '23, bottom photograph is our tailings facility, the same month, October '23. If you go onto our social media this weekend, you'll see photographs of the steel going up for the grinding building, that's on track for completion by the end of the year. We're showing these 2 photographs deliberately because this project has passed the 2 big technical risk areas are traditional in the building of a new mine: earthworks at the process plant site, earthworks at the tailings facility. We've gone past those moments. This is a significantly derisked project. Yes, like every project developer out there, we see our fair share of cost pressure, but this project is going well. And those 2 photographs are designed to illustrate how well it's going. So happy to be telling that story and talking about our first gold in the first quarter of '25. And one of the attributes of this transaction for us is to allow us to refocus as a combined company on the exploration potential with Valentine. And Darren has mentioned this previously, this has been a very prolific project and the discovery of nuances. In fact, since I came on as CEO in 2019, we've added the Berry deposit, that third ore body, to the mine plan. That's a 32-kilometer long shear zone, and a very richly endowed part of the world for gold mineralization, Central Newfoundland. All of those stars are areas where we're currently exploring. And this transaction allows us to refocus on the exploration potential here. Necessarily as a stand-alone company, we've pulled in our horns on exploration because we're building the mine, and we're doing that on project financing. This bigger vehicle allows this project, again, to refocus and to reassess the upside potential. And we think we're just getting started in terms of the gold endowment on this project. Darren?

Thanks, Matt. In closing, as you've heard, both Matt and I are confident this transaction presents a compelling value proposition for the shareholders of both Marathon and Calibre. This transaction builds on Calibre's commitment to deliver shareholder value by adding a high-quality asset in the final stages of construction with significant exploration upside in one of the top mining jurisdictions in the world. With a strong balance sheet and continued free cash flow, Calibre will self-fund Valentine and grow annualized production to 500,000 ounces a year within 2 years. I look forward to working with the Marathon team, and I want to acknowledge the excellent job that Matt and his team have done since 2019 in derisking and advancing construction of the Valentine project to the quality asset it is today and with significant runway in front of it. And with that, we're happy to take questions at this time. And back over to you, operator.

[Operator Instructions] Your first question comes from Farooq Hamed with Raymond James.

Darren, maybe just -- I'll start with a question for you. So Calibre didn't own any shares of Marathon prior to this transaction being announced. Can you discuss a little bit the due diligence process that you and your team went through with Marathon? And as a follow-up to that, as you look at the December 2022 technical report, is that what you're intending to follow through to first production in early 2025, or can we expect an update to that technical report from a Calibre perspective sometime in 2024?

Yes. Thanks, Farooq. I appreciate the questions. We did, as you'd expect, significant due diligence over the last couple of months as we've progressed discussions with Matt and the team. And we're extremely comfortable with what we've seen in terms of the derisking of the project and where it sits today. As foreshadowed by Marathon, the costs to complete are in that $320 million dollar mark. We feel comfortable with those estimates, but more importantly, what we feel comfortable with on the basis of the due diligence work that we've done, we have the available cash and cash flow from operations to be able to fund Marathon into production. So as it stands today, we're comfortable with estimates on time line and schedule. As Matt talked about, the project is significantly derisked as a consequence of the most of the work being done below ground. Now it's erection and finalizing the construction. So no, it's a quality project, great work done to date, and we intend to be able to continue along that path.

And then maybe just one follow-up for me. Obviously your team has been focused on growing production in Nicaragua and then obviously on your assets in Nevada. Do you have the kind of the breadth of bench to add Calibre executives or a Calibre team to the build at Valentine, or will you be relying primarily on the Marathon team there to complete construction?

No, Farooq, good question, but you know, if it's not broke, don't fix it, right? And the team at Marathon doing a fantastic job. And the focus for Matt and I during the next few months would be to ensure that everyone understands our approach going forward and to maintain the team in place to be able to deliver into cost and schedule safely and responsibly. So no, I feel very comfortable with the team and very comfortable with the ability for Calibre's 's organization to be able to bolt that jurisdiction onto our existing portfolio without overtaxing our existing infrastructure.

Okay. Great. Actually, just one -- maybe one last one for me. I was just looking over the summary of the Valentine project in the slide deck, having not been familiar with the project before. And I noticed that the difference between the annual cash cost and the annual AIC is about $140. And so you'd think that sustaining CapEx would maybe be just about $100 or so per ounce, which on a larger open pit, potentially could seem like a little bit of an understatement on sustaining CapEx. Can you speak to kind of the life of mine sustaining CapEx that you're seeing on this project? And is it right to assume that maybe the sustaining CapEx for this project is not as [ unrisked ] as it would be on other types of open pit mines?

Yes, I can take that. If you go to the December '22 technical report, you'll see a pretty detailed breakdown on the cost schedule. That sustaining capital profile includes lease payments for mobile mining equipment and to the extent those lease payments were paid during the operating phase of the mine. And it includes a capital that goes into -- actually there's also capital for Phase 2 of the mill, which is the flotation and regrind circuit, which would appear in 2027, 2028. So look, it's -- I don't think there's anything particularly unusual there in terms of the balance between cash costs and ASIC. Everything is in there. And it's a relatively simple mining operation, 100% open pit. The ore bodies are open at depth, but the 14-year mine plan is all open pit, 3 phases to each pit. And should be able to find everything you need in that technical report in terms of the breakdown on the cost distribution. And what I'll say is that we as a mine developer are building this mine on very fresh cost estimates. So that December '22 technical report came out a couple of months after we broke ground on the build and is using third quarter 2022 cost estimates. So I think we pride ourselves in the development world on having fresh costs in our guidance, and you get the benefit of that in that technical report.

Your next question comes from Allison Carson with CIBC.

Just one quick question. With the $40 million private placement, I was wondering if B2 will participate and keep their interest level in Calibre?

No. Allison, thanks for the question. And again, as part of that private placement, which closes tomorrow, no, I think it does a couple of things, right? It secures cash in the near term as we go through and look to closing this transaction. And importantly, what it does do is it signals and foreshadows the confidence that we have in the asset base as well. So hopefully that answers your question. I think I did.

[Operator Instructions] Seeing no further questions, I will now turn the call back to President and CEO of Calibre Mining, Darren Hall.

Thank you, operator, and thanks, everyone, for joining on the call today and your engagement. And Matt and I are available as required over the next days to answer any questions as they come up. And with that, take care. Have a safe day, and back to you, operator.

This concludes today's conference call. Thank you for joining us. You may now disconnect.