Challenger Gold Limited (CEL) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Jane Morgan, and thank you for joining us today for the Challenger Exploration Investor Webinar. Today, I'm joined by our Managing Director, Kris Knauer, who will run through the investor presentation, which was lodged with the ASX this afternoon, followed by a Q&A session. [Operator Instructions] Kris, I'll hand over to you.

Thanks very much, Jane. And I'd like to welcome all shareholders. What we'll do is probably a 20-minute run through, and then we'll sort of look at Q&A and work through all the questions we've got, of which there are quite a few. So a little quick update. Challenger, South American-focused, 2.8 million ounce resource in our lead project in Hualilan. That was announced about a week ago, significant upgrade and now a nice high-grade core of over 1.5 million ounces at 5. In Ecuador, we sit next to a 17 million-ounce ore body. I think the intercepts there speaks for themselves. We think we've got the other half of that system. And a first resource due in May, I think, will give the market an understanding. Corporately, probably the case there with management own 22% of the company. Myself, Sergio Rotondo, our Chairman, Company Secretary, have some serious skin in the game. So when the share price goes down, it hurts us more than it hurts you. And we're making decisions to try and improve the share price. We're not sitting here trying to protect a big salary. We don't have one. It's all about the share price. Current market cap is about $175 million. Cash, as we end this quarter should be around AUD 8 million. And look, the burn is being done now. We've gone from 9 rigs in Argentina to 1. We've gone from 2 rigs in Ecuador finishing the program. We're down to spending $3 million to $4 million a quarter, probably more at the free end. So we're under no pressure. We've got a 7- to 8-month runway in front of us. Just a bit, I've been asked a lot by shareholders, what happened? Why did the price fall from $0.35 down to as low as 11. So what I've done is I've got the share price over the last 3 years, and I've got some key events. So you roll through to December in 2020. I think that was when we put out 110 meters at 3. That was the first time the market had realized how big a project Hualilan could be. Some positive first metallurgical results and we were awarded for that. We then raised $42 million at $0.28 and unfortunately, only two funds stuck around, which was BlackRock and Regal, and we had a big sell off down to $0.24. Some high-grade results turned that around. You roll through to the end of '21, we basically got first Ecuador drilling results out. I think the market then realized that Ecuador is a big system. And we then sort of roll into the middle of 2022 and we get into disfalling gold price environment. Gold price fell from $2,000 down to as low as $1600. Unfortunately, we put out a 2.1 million ounce resource in the middle of that. We told the market 2 million-ounce resource or larger. We delivered that and we got sold off. We unfortunately came out into a situation where unless you were beating expectations by 50%, you're getting punished. We then traded along around $0.18. And then we get to this period where I think it's irrational. So we've had the gold price start to turn around. Challenger didn't sort of rally up with a lot of the other bigger gold stocks. You had some shareholders start to wonder what was wrong. I mean, I know I had people saying, well, is the company going broke? Are you going to lose the deposit? Or we got into a far stage where fear takes over. You couple that with the fact we started a roadshow around PDAC and learnings from that are, I'll never do an international roadshow around PDAC. Every mining company in the world is kind of do a roadshow. The investors have invested it too. You've got BMO conference. You had site visits of BMO that took just about every analyst out of action. And what happened there was 2 weeks into the roadshow, share price hasn't gone up and you had a wholesale panic, mainly with retail investors, which is unfortunate. We then put out a 2.8 million-ounce resource, and I think there was a great sign of relief. Project actually is good. It's a quality asset. So you see us now, we're basically trading at, I think, $0.165 today. So we've bounced nicely off the bottom. The project is in Argentina. Argentina has had all kinds of problems, 100% inflation there really in the last 4 or 5 months. A changing government in September will fix that. And we've had a lot of the U.K. funds that said, look, love the story. We'll take a really good look at you on a change in government in September. So that's part of the challenge we've got. The average gold developer right now in Australia is trading at $110 an ounce. If this project was 100 kilometers out of Kalgoorlie, right now, we'd be trading in the mid-20s to high 20s. We're not in Argentina. We've just got to basically wait out until the elections finish, educate the market that, look, San Juan is one of the top-rated mining jurisdictions in South America, and also get an Ecuador resource out, which I think will finally get some value for that. So in terms of milestones, you've got to look forward to. We bought the land. We had to. We paid $2 million for it. That land covers all the projects and infrastructure. How do we not bought that land. And to be honest, it was just pure luck. They passed the law a week after we bought the land that you can't actually lodge an EOI or get mining approval unless you own that land. So if we had waited another week, that land wouldn't cost us $2 million, it would cost us $20 million. So in terms of going forward, as of 2 months ago, when we sort of started dropping the rig count, we split the exploration team up into a northern and southern group. They've been out mapping a long strike, 2 to 4K north and south, looking for regional targets. We've now got the first batch of rock chip samples starting. You'll get a look at what that looks like this quarter. And then you start to get some news out on some of these, where do we find another Hualilan. Scoping study due at the end of the second quarter, and we'll roll straight into a pre-feas. Having said that, if we can roll straight into bankable, we'll do that. Ecuador, almost 99% completed the drilling program now. Maiden resource due in May, and I think that resource will be the point where we'll finally get some value for Ecuador. And look, if we don't, we've had some preliminary discussions with Canadian brokers about spinning that off. There's an asset there of value and it's got to pay for itself. One way or the other, we'll get some value for Ecuador. I won't go into this too much, just suffice to say, and you can see the trend there. The green is the high grade. The yellow is the lower grade mineralization. You can see that line of hills that extends to the top of the page, another 3 to 4Ks. Same thing, to the bottom of the page. We've now got some interesting grades, 4 kilometers north, a couple of kilometers south. Hualilan is a long way from being drilled out. Still open in all directions and will get bigger. And I'll talk to what we did with the drilling a little bit later. The resource, 2.8 million ounce resource. The best way to look at this resource is, you take our 2022 resource that was 2.1 million ounces at 1.4 grams gold. You take the best, 2.1 million ounces of the highest grade, 2.1 million ounces in the current resource. 2.1 million ounces at 3.1. So we more than doubled the grade of that top 2 million ounces. So we've now got the quality project, nice high grades. Importantly, 70% of that resource is an indicated category. And you've also got some serious flexibility. You look at it on the right is the grade cutoff distribution at $2,000, $2,100 gold, it's probably a big [ IPP ] with 2.8 million ounces at 1.3, 1.4 grams gold equivalent. At $1,500, $1,600 gold, it's a 1.6 million ounce deposit at 5 grams and a very nice simple high-grade [indiscernible]. Still is open in all directions. You can see some of the intercepts there, and I've got a couple of slides that show that. This just shows the grade distribution. There are high grades at surface there. So we've got start-up pit options. And if you have a look, the high grades of the pink and red and a lot of the high grades are all grouped together. So it also is -- you don't have too much underground development. It doesn't look like as well, but that will be covered in the scoping study. Section showing you what I mean. So this is the [ sub-current ] resource. You can see here, hole 750 -- sorry, hole 711, deepest hole we've drilled on the Verde Zone in a sector 42 meters at almost 6 grams. Mineralization open below it and significantly higher grades in that hole and then the hole is up due for that. So that's the style I think we're seeing here. Having said that, we're at the point now where we got this resource to 2.8 million ounces with 90,000 meters of drilling, Half of that was infill that did cost us ounces. If we would have spent the entire 90,000 meters extension drilling, I have no doubt, we'd be sitting here with the resource of 3.2 million ounces. However, it would all be inferred, and we'd have another $7 million to $8 million worth of drilling before we could do anything with that in terms of run a scoping study, get some economics out, running to pre-feas. So we had to make the hard decision that, look, we're going to turn half of this drill budget into infill, so that we've actually got a resource that we can progress towards production. Otherwise, when that resource came out, we then needed to raise $10 million at whatever the price was, it wouldn't have been pretty to actually then advance that resource to a point where more than half was an indicated category, and we could physically do something with it. But the fact that we've turned around and did a lot of infill definitely costs us ounces, Hualilan still open and will get bigger. I'll just talk about the footprint here. So orange is us. Blue is Newmont. You can see the outline of the ground that we purchased there. We bought 20,000 hectares. So we now own the land that covers 8 kilometers north, south, east and west. All of the project infrastructure will go on that land. It just makes all approvals so much easier. The other reason we've got this 600 square kilometer footprint is you simply don't find 3 million-ounce ore bodies by themselves. I mean the best place to find a mine is near mine. And up until now, the surrounds of Hualilan have been totally unexplored. And just to talk to that. So what I'm showing you here on the right is the zoomed inversion. The pink is a big intrusive complex depth. It's the engine that created Hualilan. What you've got is adept this hot body with all these hot fluids carrying gold, silver in it. It comes up and at the edges of that, you drop the gold out into the sedimentary rocks. And what you can see there is the current 2.8 million ounces wraps around the western side of this circular anomaly. The other 2/3 of that totally under cover, we haven't had a chance to explore it. We've been chasing 9 rigs. We now get a chance to look at that. And if you step back and look at our tenement or part of our tenement proper, there's not just 1 of these engines for Hualilan. There's another 5 or 6 of those. They're all there marked in pink. Number three, there outcrops, it's exactly the same age and same type of intrusives that created Hualilan. Same thing for #5, they're down at the bottom of the page. We've got some 10 and 20-gram material at surface at #3. I don't know where it goes yet, but we have it. #5 is interesting looking alteration as well. The way to think about this is around those engines, we've got 25 kilometers of prospective strike. At Hualilan, we've got 2.8 million ounces over 2.5 kilometers of strike. Now it's not going to be everywhere, but that's a tremendous opportunity. 25 kilometers basically totally unexplored apart from the 3 kilometers where Hualilan is. You walk 4K's North, there's old workings in the hills. Same thing you walk a kilometer south as old workings in the hills. We know it's mineralized. We've just been too busy to go look for it. So as I said, we've now split the team up into a Northern and a Southern team. They've been out there mapping and taking samples for the last 2 months. In a perfect world, I'd actually do what [indiscernible] have done and get 3, 4 air core rigs in and build a regional geochemical map. Unfortunately, can't get air core rigs in Argentina. We may well actually look at importing some later. But the chances of finding another Hualilan, there'll be another Hualilan there somewhere. I just hope that we're still in control of the project, and we haven't been taken over by the time we find it. Quickly on El Guayabo in Ecuador, which I think will see add value. So I'm showing you a snapshot of the project on the right is a planned view map, you can see that box, that's Lumina Gold's Cangrejos project, 17 million ounces at 0.6 gram gold, waiting on a pre-feasibility study. They're listed on the TSX trading at about [ AUD 190 million ]. We've got 15 regional anomalies that look exactly the same as the footprint of Cangrejos. We've drilled 14 of these, 7 of them are discoveries with more than 500 meters of mineralization. Where we are now is we're focusing on our 100% underground there in the circle. And we're drilling up basically the main discovery zone, which is the A anomaly and the B anomaly, which is the gold block. That A anomaly has got a nice high-grade zone there in yellow in it. They're both big systems. We've now extended the strike to 900 meters on the A anomaly and it now looks like it's the least 500 meters wide. And in the middle here, these two the A and B anomaly look like they're joining in its one big zone of mineralization. I'll just quickly go to it in plan view. This is showing you the high-grade zone in the main A anomaly. You can see the core there in the left. It's pretty impressive stuff. Then, we've got a hole in there that went 50 meters at 5. It's a coherent zone 250 meters long, circular, subvertical, but it's a pipe body that hopefully has 20 million tonnes of high-grade material in there. And we also see something similar on the B anomaly. This is showing you a section of the A anomaly and the B anomaly across both. On the A anomaly, we're actually north of where the high grade zone is. But what I'm showing you is this hole we announced this morning, almost 1.2 kilometers of mineralization from surface to the end of the hole. That actually, the top half of that hole is between the A and B anomaly. You can see hole 23, I think it is, that basically was also drilled in the middle, it was mineralized and then hole 24 here, which got 108 meters of 2.4 or 54 meters at 4 in the B anomaly. That actually sits directly below an historical hole, we've got 150 meters at 3. So this B anomaly also has this discrete high-grade zone in it as well that like the A anomaly, [indiscernible]. And then just to sort of scale, I'm showing you a planned view here of about 50% on ground in the north, where we're in a joint venture at Colorado V. Key takeaway here is basically almost 3 years ago, based on the historical drilling, we wrapped some exploration targets around those 2 anomalies, exploration targets on each of 4 million to 6 million ounces. We've now done a bunch of drilling on these two anomalies, not enough drilling to generate a resource, but certainly enough drilling to know what's there and what it's going to look like, and that drilling has done nothing but support those 4 million to 6 million-ounce exploration targets. So we've got a significant opportunity here in El Guayabo as well. And I think really the key is probably not how big this first resource is. It's -- is that high-grade core there? Is it more than 1 million ounces because if we've got that high-grade core of the 1 million ounces plus it's got the potential to make the 17 million ounces that we're even holding at Cangrejos. Much more economic because you have a deposit where you're treating 0.5 gram material. If you can get a gram material through the mill for the first 2 years, you produce double the amount of gold. You pay it back in half the time you take a project, it's marginal to a project, it's very economic. Well, to wrap up, valuations and milestones. What we've done is we've been given a bunch of questions. Jane has been kind enough to email me the ones we had as of last night. So what I might do is just work through these one after the other, and then we'll go and see if there are any additional questions that have come through.

So first question, price of CEL sold off 72% from the highs of 39%. Over that time, the gold price has increased 13%. Additionally, we've spent a lot of time and money, produced a 2.1 million ounce resource. Basically, yes, please explain on what's happened to the share price. Now again, I went through this, it's unfortunate and believe you may, it hurts me a lot more than it hurts shareholders. Unfortunately, what has happened is we put out this first resource into a market where gold price is falling. There was 0 interest in gold. This time 18 months ago, it was a wonderful time to be a gold explorer. You had all the generalist funds desperate for gold exposure. We've had a consistently falling gold price. We got to the point where we're putting out good news and the share price kept falling, which created panic amongst the retail shareholders. Also hasn't helped that I think we've got some shorts in the market as well. What was particularly unhelpful was one of the meetings I had when I was over around doing U.S. ratio with U.S. funds who said, look, love the stock at $0.15, but we're not going to participate in the placement. Placements at the moment are basically coming in and trading below the placement price. We're going to buy it in the market, and of course, my look was a bit dumbfounded was what placement are you talking about? So there have been some brokers over there trying to solicit interest. Certainly, we've given no instructions from us. And I think you've seen some shorting on the back of that as well. And unfortunately, it's the retail shareholders who panicked out at $0.11. We've got this resource out now, which has stabilized and I think the market has realized it is a quality asset. And hopefully, that Ecuador resource and then probably more importantly, the economics around Hualilan will do a lot to basically turn that around sentiment. Yes. As I said, I think we should be trading in the mid-20s and we would be if we were -- our asset was in Kalgoorlie, not in Argentina. How much more drilling do we need to do to get to 3 million ounces? Again, we rolled 45,000 meters into infill. How do we knock down that would have been north of 3 million ounces. But we'd have been sitting there with a resource we couldn't do anything with unless we spend another $8 million or $9 million on it. And the market would have known that and it would have been painful. But look, it's open in all directions. It's going to get bigger. But I don't think spending another $7 million or $8 million drilling another 45,000 meters to get it to 3.2 million ounces, it's going to add much more value. I think now it's time to move it towards production and actually get some dividends to shareholders and explore from a position of strength. The real re-rate feature for us is going to be one drill hole somewhere away from the current resource that shows we're potentially onto another Hualilan, and we probably add $0.10 to $0.15 overnight. And the one rig we've got there is eminently capable of drilling the holes we won in these regional targets, which I suppose rolls into the next question. One rig operating, and look, that rig will spend, it's time for the next couple of months drilling some of these high-grade targets at depth and extending the resource, and then really, that rig is designed to go drill these regional targets after we've got the assays back from all the rock chips and soils. And we've got to the point where we can accurately target some of these targets away from Hualilan. What's the probability of discovering another Hualilan? Best place to find a mine is near mine. There's 25 kilometers of untested strike. There'll be another one there, but it's exploration. Do I think we'll find it? Yes, it might take some time. And hopefully, we're still here when it is discovered, but there will be another Hualilan there. You don't find 3 million ounces by itself. Question 5, what's the current and projected quarterly cash burn rate. And based on our cash position, yes, what goals of significance can we achieve with these funds? Quarterly is not due for a month. We will run into the end of March 31, we will have just over $8 million cash with 1 rig going in Hualilan, your burn is down to sort of $3 million, $3.5 million maybe this quarter because we've got a little bit of the Ecuador drilling for the last few weeks that goes in there. So we've got 7 to 8 months runway that gets us a first resource in Ecuador. It gets us a scoping study in Hualilan. It gets us a real good look at drilling most of these exciting regional targets in Hualilan. So we've got three events there that all are potential re-rating events. An update on Ecuador. So at the moment in Ecuador, we lost one of the rigs about 10 days ago. The current rig is finishing up the last hole now, which should be finished in another day. So we're stuck to that. All in all, finish March 31. Number of rigs, timing for that first resource? It will be May, sometime during May. What achievements are required at Ecuador to add value? Look, I think this first resource goes a long way to doing it so long as it's got that high-grade ore in there, and I think demonstrates that this will be based on 2 of 7 anomalies. Those 7 anomalies combined, hopefully give us something similar to Cangrejos. So I think if this first resource can show we're on track for that, then I think all of a sudden we will get some value. And again, look, if we don't, we'll actually do something that will realize value for Ecuador. It cost us a couple of million dollars a year to hold it. We won't be owning it past the end of this year if we don't get some value for it. What size of resource do we think Ecuador will end up with? I'd love to answer that, but I can't. Whatever I say, I say a big number and we don't meet it. I say a small number, and people are disappointed. The number will be what the number will be. And we haven't had a first look at what it looks like yet. But I'm pretty confident that high-grade hangs together when you look at the sections. Geological aspects to progress Ecuador. Again, we've been through that one. It's really got to pay its way. And if it doesn't, we'll do something that gets value. Explain what achievements are required at Hualilan to transition to mining and refining and estimated CapEx? So at the moment, we're doing a scoping, aim will be to finish that middle of the year, roll straight into pre-feas or potentially direct to a bankable feasibility study. That bankable feasibility study will take 12 months. You've then got basically probably 6 to 12 months of financing and project construction. In terms of overall CapEx, probably the best analogue to look at is Lindero. That's up at altitude, it's a 5 million to 6 million tonne per annum operation. Overall CapEx for that was USD 330 million. Now we're not going to build Hualilan that way. They didn't have that high-grade core of 1.5 million ounces of 5. The aim for us will be start at 1 million tonnes per annum and then scale up out of cash flow. And I think, 1 million tonne per annum plan, generally, in most places in the world, you can do it for under USD 150 million. Long-term strategy for both projects? Do we develop or farm them out? Look, we're going down the path of developing Argentina. We've run a search, which is right at the back end for someone who's quite capable of building and operating Hualilan. That same person will then have import in Ecuador as well. Do I want to go out and build Ecuador right now? No, I don't. It will be $1 billion CapEx, but it looks different when you're in production in Argentina. Will I farm Ecuador outlook? We've had a bunch of approaches, but no, we won't. I mean the day that I farm a major into Ecuador, we're left there with 20% to 30%. There's only 1 buyer, and we're a hostage of their timetable. You basically destroy value. Is there any takeover interest? We do get approaches from time to time. I have not let anyone into the data room, and we've had some approaches recently. I think we need to get a scoping study out to market, and then we'll see what the market does. So I might sort of take us off screen share and pass back over to Jane. And if we've had any other questions, then Jane can sort of work through them.

Thank you, Kris. Look, we've had a couple of questions just on [indiscernible]. So has there been any movement on [indiscernible]. Does it still remain a wildcard asset?

Still a wildcard. I mean, yes, look, it's there. It's a real asset. It doesn't cost a lot, costs us a couple of thousand dollars a year, that's it. The South African government is still working through their legislation. We're not going to get rid of it because if it ever does get awarded, there's some real value. I know that Challenger before we're involved had $100 million farm at on the table. And Shell Gas is more attractive now than it was, particularly in Africa. So look, no real movement, we'll just -- it doesn't cost us anything. And hopefully, one day it gets awarded and it doesn't fit with Challenger anymore. We'll do something to get value for shareholders.

Okay, wonderful. Look, I think that might actually be all the questions that we've got for today.

Actually, we got one more. Have we about altitude?

Yes. Sorry. Someone interrupt.

So -- look, are we at altitude? No. So we're 1,000 meters above sea level in Argentina. We're probably the only project or development project in Argentina that's not affected by the glacier water and not affected by the new watercourse law. You can work all year round, rain is there a couple of days a week. We've got a double-lane still highway through site from an equivalent of being 100,000 out of Kargooli and Ecuador. Same thing with Coastal, we're at about 1,100 to 1,200 meters above sea level. The only sort of negative is in winter, you get fog. So you basically either stay in the property at night or you got to leave by 3 o'clock to drive that sort of [indiscernible] not at altitude in either project.

Wonderful. I think that is actually all the questions we have for today. And if we've missed any questions, please feel free to reach out by the contact details on the bottom of our ASX releases, but thank you all for joining us today.

And thanks very much for hosting, Jane. Appreciate it.