Challenger Gold Limited (CEL) Earnings Call Transcript & Summary

Good morning. I'm Jane Morgan, the Investor and Media Relations Manager for Challenger Gold. Today, I'm joined by our CEO and Managing Director; Kris Knauer, who provide a company update, followed by a Q&A session. [Operator Instructions] Kris, I'll hand over to you.

Thanks, Jane, and welcome, everyone. So look, I'll do a 10- to 15-minute update of Challenger and then we'll go straight to Q&A. So Challenger snapshot to start 2.8 million ounce resource in Hualilan, high-grade core of 1.6 million ounces at 5, which is the focus of this current scoping study. Ecuador, we've announced a maiden resource larger than we anticipated, 4.5 million ounces of gold equivalent at just over 0.5 gram gold equivalent. It does have a high-grade core. There's 1.5 million ounces of a gram, 1 million ounces at 1.2 and then 0.6 million ounces at 1.5. And really, this resource now transforms us into a 2-project company, combined resources of 7.2 million ounces. Corporate, we've just completed a $10 million raise. Clearly, the book wasn't as good as I was led to believe. However, without that money, we possibly would have had to look at closing the company down. We are now funded for the next 12 months, and that will get us through a pre-feasibility study at Hualilan, which effectively opens the window up to non-dilutive royalty funding gets to 12,500 meters of exploration drilling, looking for a second Hualilan and also on Ecuador on as well. I'll talk about the mineral resource estimate in Ecuador first. So what's the resource look like 270 million tonnes at 0.52 grams gold equivalent, predominantly gold, that breakdown is 0.4 grams gold, 2.6 grams tonne silver, just under 0.1% copper, virtually identical to Lumina Gold Cangrejos deposit, which sits 2 kilometers north of our tenement boundary. And I think this resource shows that we do have the other half of that system. And you can see on the right, I'm showing you here is a map of gold and copper and soil anomalies. We've got 15 large regional anomalies. We've drilled 14 of these. 7 of them will produce significant interception intersects greater than 500 meters. And this first 4.5 million ounces really comes from just over 2 of those. There's a little bit of [ GUIC ] that got into it, but not much. We've also got the last 5 holes that aren't in there, including a hole we've got 600 meters at 0.5 gram on [ GUIC ] We will update that resource again once we complete the -- once we get the assays back for these last 5 holes. But this resource gives us critical mass in Ecuador. It is exactly the same as Cangrejos -- Cangrejos 70 million ounces. They've just finished prefeasibility study. And most importantly, they've drawn down although got a $300 million stream financing facility where they've just drawn down the first $12 million of that. So that's USD 300 million towards predominantly getting a bankable study done and also project production. So Ecuador, a really positive resource, and we're only just starting there. What does it look like? So this is a cross-section through the main sort of section with the higher-grade part, the pink and the red and the yellow are the high-grade components. And as you can see at top there, because it outcrossed its surface and sits on a big hill and in Ecuador, you go to the hills mineralization. We haven't been able to get a rig to drill really the top sort of 200 meters of that resource. So what we're starting now is a surface rock saw channel sampling program, which should let us get this area at the top where we've just had no drilling into the resource. The other thing that we have done, we've split this resource up in the sort of 2 some domains of the high-grade mineralization, and we've been quite conservative on that. As you can see there that we've only extended the high-grade 100 meters from drill holes. We think it's quite likely that this high-grade zone goes all the way to surface and then the resource at various cutoffs. Cangrejos next door has actually done their resource in a 0.25 gram a tonne cutoff. If we'd reported that, we wouldn't have had 4.5 million ounces. We would have had 5.2 million or 5.4 million ounces. However, we'll basically update that resource as soon as we've got the next 5 holes back. Again, this just shows you the potential. So you can see here this high-grade domain in purple, where we're really limited by the drill holes that we could get in. We couldn't get a rig up at the top of this sort of hill there to transit too steep. So where the red is now, we're basically they will cut a channel into the rocks, which out crop, it will be effectively 1.5 inch x 1.5 inch, same size as a drill core. It will be treated exactly the same as a drill core, same QAQC procedure and will effectively be able to use those surface some samples at the same way we use drill core and release. And that should allow us to get all of this updip material where we just can't get a drill rig into the resource, which we think will add significant ounces of higher grade, and basically get us to the point where we do have this nice high-grade starter sitting at service. As I said, in Ecuador, we really are only scratching the surface. This resources from 2 of the 7 main anomalies that are mineralized. Where do we change the scale? So these are the CV-A and CV-B anomalies in the north of our concession. Before we've done any drilling, we've come out with 4 million to 6 million ounce exploration targets on both of these anomalies. You can see the first pass exploration work that we've done, not enough drilling there to actually calculate a resource, but that drilling we've done effectively confirms those exploration targets. So for more drilling, we can certainly, we think, more than double that resource in the first pass. And then we've got another sort of 3 of these 7 anomalies as well that we know are mineralized. So a long way to go, another 12,500 meters of drilling there, we think, could potentially double the resource. Value drivers and strategy. How do we take the company from where we are now to going forward. So where are we now? Same share price as we were back in 2020 before we delivered a 2.8 million ounce resource in Hualilan before we delivered a 4.5 million ounce resource in Ecuador. We've got a combined resource base of 7.2 million ounces and AuE or fully diluted market value of $140 million. Again, it's not pretty, but the alternative is we didn't have any money, and we had to shut the program down. This $10 million raise now lets us to generate some significant value in terms of what rerates the company over the next 9 months. Number one, search for a second Hualilan. This program funds 12,500 meters of regional exploration. We're generating those targets now. We probably start this regional exploration drilling in about 3 months. Hualilan scoping study, very important. At the moment, the market doesn't understand Hualilan, they don't know if it's an open cut and underground the combination of both. They don't understand if it's high CapEx or low CapEx, I think when that scoping study comes out in July, will speak for itself. There will be an upgraded Ecuador resource, which will add, we hope, some new surface high-grade ounces. And then the other program that is ongoing and to start it is basically a round of metallurgical test work. It looks like the low-grade material at Hualilan is not refractory and at heap leaches. And if that material heap leaches, it basically lets us take the scoping study, which is based on this high grade, 1.5 million ounces and rather than look at an expensive expansion to add a flotation plant. We can do it with a heap leach option, which is really low capital intensity, well understood in Argentina. So if the deposit heap leaches that lets us access is 1.2 million ounces of lower-grade material. And then we're funded to complete a pre-feasibility study, which will start as soon as the scoping studies finished and this metallurgical test work is done. Pre-feasibility study very important. It will open the window where we can actually access royalty funding if we decide to if the markets are closed for business. What's not a key driver, this resource at 2.8 million ounces, my view of the current market is that us going to spend another $5 million, taking that resource to 3.5 million ounces. I don't think adds any value. It's big enough as it is. We've got the flexibility to look at a high-grade startup. We've got the majority of the resourcing indicated. Yes, it's still open, and it will get better. But we've got to focus on studies now and move towards production. The resource is big enough now that it stands by itself. What is a key driver of the scoping study. You can see there, it will be a combination of a low-risk open-pit starter with then high-grade underground material, low capital expenditure, low cash cost, high margin and optimize to deliver the best earnings per share. Again, we're not going to look at squeezing the last drop of blood out of it and turning it into a big project that we can't fund. And then the pre-feas, as I said, will evaluate that heap leach option once we've done the test work. But again, look out for this scoping study, I think that is a key event. The market, I don't think understands what Hualilan looks like and its low cost like CapEx nature. The other key value driver at Hualilan, it's basically finding a second Hualilan. What I'm showing you here on the left is the current 2.8 million ounce resource, the pink are the intrusives, they're the heat engine. They created the fluids that carried the gold. If you had a look at that resource correlates virtually one for one with the pink underlying intrusives, you can see there, these high-grade surface samples we've announced recently, we will extend that resource. We've got high-grade material, another couple of hundred meters to the east. But really for us, where I think we add value is we get 1 or 2 drill holes, 2 to 3 kilometers away from the current resource where we get a nice intersection. And I think the market gives us 50% of the value of Hualilan overnight. And I'll talk to that on the next page. But effectively, we'll zoom out now and look at the regional potential. What I'm showing you here is the current resource where you can see the black dots, which are the drill holes, the pink are the intrusives, the yellow is the edge of those intrusives where you should get the high-grade mineralization. Now we've only just started regional exploration. We're about 10% into it at the moment. Great results. So we've got some high-grade material, 26.9 grams gold, 2 kilometers north of the current resource. That's a series of old workings we're still mapping now, but it looks like mineralization extends from the boundary of the current resource at least 2 kilometers north. And then we've got another high-grade system, 10 kilometers north of Alpine. Next steps on that are we'll do some ground mags so we can image the underlying intrusives that we think have been a source of that gold, and that will help us target some drilling. But when you look at that gold there, it's angular. It doesn't look like it's cover very far. So we think we're close to that underlying system. Valuation and milestones. So what have you got coming in the next 9 months? Number one in Hualilan, you've got a scoping study, where shareholders will finally be able to understand the value of Hualilan and what's it worth as an asset should also generate some new analyst coverage as well. Drilling of these regional exploration targets at Hualilan starting in 3 to 4 months. And again, one drill hole there, I think, significantly changes the way the market looks at us. You've got the second round of metallurgical studies, really important. It can take -- it can add another 1 million ounces to what the output at Hualilan looks like. And then we'll move straight into a pre-feasibility study, aim is to complete that in the first quarter, and that will allow us to access royalty funding if the markets are close to the business like they almost were this time. Ecuador, you've had a maiden resource out. You've got the last 5 drill holes, ongoing surface rock-saw channel sampling to get those high grades surface right into the resource. And then there'll be an updated mineral resource based on those last 5 holes in the rock saw channel samples. Again, so milestones, as I said, we're sitting here where we were 2 years ago. We've got 7.2 million ounces in resources in terms of how do we add value scoping study, I think, is a key milestone. At the moment, I don't know that the market is really that interested in large low-grade resources, but we will get an updated Ecuador resource there, drilling to find a second Hualilan and then finish a prefeasibility study, which allows us to access non-diluted funding, if which is to -- at the moment, we're trading at $50 an ounce based on Hualilan only. Australian developers are trading at more than double that. It's not really -- it's a bit misleading to adding Ecuador numbers there. I think if you want to understand what the Ecuador resources worth, look at Lumina Gold who've got Cangrejos next to us, they're trading at about $12 an ounce. So my view is that, that Ecuador resource should have added $50 million to $60 million to our market cap. And unfortunately, it hasn't at the moment. Where do we get to long term? So look, Hualilan will be a mine. It will provide the cash flows to fund the rest of the company and look at Equator, which is to -- it happens to sit so we can look at a sensible stage start-up where we access the high-grade material first very cheaply and then expands out of cash flow. Key focus now is on finding a second Hualilan. I think if we find a second Hualilan, then we value very differently and also finishing the prefeasibility study, which will allow us to access royalty funding and also give the market a much more confidence in Hualilan. Ecuador, we put out our first resource. We think it's a great result. But in this market, we have to be sensible. At the moment with Ecuador, I think we would have spent more money drilling Ecuador to take it from 4.5 million ounces to 10 million ounces. We probably don't get any value. So we're going to run a process to explore external funding in the short to medium term. And Ecuador really -- once we've got that funding in place and then we'll go back and we'll do some more drilling in Ecuador, and we'll take that resource to a much sort of larger position. Thank you, Jane, and happy to answer any questions.

Wonderful. Thank you for that, Kris. [Operator Instructions] So let me kick off with a couple of here now. So now that you've given the maiden resource for Ecuador, do you intend drilling out this resource? And if so, how will you raise the money to do this?

Yes. So as I said, I mean, at the moment, it's the most difficult market I've seen for a long, long time. The market is simply not paying for large bulk deposits. Right now, the market is worried about how you fund it. So what we'll do is we'll run a process, look for external funding rather than dilute shareholders, the money really has to go to Hualilan and moving Hualilan along and getting into production. Once we've got some external funding, be it royalty or an investment at the project level, then we'll circle back and spend more money on it. Ecuador at the moment, we've got to be sensible and focus on Hualilan.

Thanks, Kris. Sorry, I'm jumping around a little bit here. So have you had any recent success with finding additional deposits in Argentina?

Yes. So look, we have, I mean, basically, we've only just started. We're 10% into it. We've got 26 gram material at surface 2 kilometers away, which is a series of basically old workings up in the hills that extend from the northern boundary of the resource, 2 kilometers north. And then at Alpine on where we've effectively now got a new gold center where we've got high-grade material, better than 50 grams of surface. We're up doing another round of sampling there at the moment. And I think we've also got something that looks interesting south. We're waiting on assays back as well. So yes, look, there are going to be some really interesting regional targets that pop out. We're only starting now. But look, you don't find 2.8 million ounce ore bodies sitting by themselves and then the best place to find a mine is next to a mine, and that's what we're starting now.

Thank you, another one. So is an underground style rig in Ecuador available that could allow up holes so to infill the hilly portions of the reserve.

Yes, it is. It is available. So basically, you can get man-portable rigs in Ecuador or you can get a track-mounted rig. It's something that post securing external funding for Equator, yes, we certainly can revisit a couple of those drill pads and drill holes angled at sort of 45 degrees up to actually get the top of that into the resource if we don't get enough [ draw ] with the channel sampling.

Thanks, Kris. I know you talked in detail and you had a slide on this, but I want to just reiterate about the strategy to create value for shareholders.

Yes. So, [indiscernible] carries right value from value here. I mean the stock is clearly too cheap. Unfortunately, that's a hangover of getting fully funded for the next 12 months. The book in the placement clearly wasn't as good as I was led to believe. So we're going to have some indigestion in the next week or 2. In terms of what do we focus on as a company, #1 finding a second Hualilan. #2, getting a scoping study out where the larger institutions and the analysts and the market, in general, can understand that the company is really silly cheap trading down here. #3, getting external funding for Ecuador. So we're funding that in a non-dilutive manner and then #4, finishing a prefeasibility study where we do have access to non-dilutive royalty funding if we choose to go that way in Argentina.

Thank you. This has come from a few times, and I might just combine them actually. So has anyone been in the data room recently and with interest in the company, one particular attendee is asked for any large gold producers if they're coming on to strategic investors as well.

Look, we're having discussions all the time. In terms of in the data room, yes, there's a couple of groups that want to get into the data room. Have I let them into the data room down here at where we are now, I have it, I think it would be madness. We'll revisit that post the scoping study. And yes, look, we get approached all the time from larger gold companies exploring things with us when we've got something to say about that, we need to make an announcement, we will.

Just a couple more coming through here. So is it possible to list on the Canadian market for Ecuador?

Yes, look, it is possible. We've had some Canadian brokers telling us that they think we should do it and telling us they'd love to do it. Again, we'll run a process. I think in terms of where we are now, the silliest thing we can do is make knee-jerk decisions and rush decisions. You've got to think calmly and rationally. We'll run a process looking for external funding. That process will also include looking at an IPO. I don't think you get an IPO in this market right now in Canada. I think that's something you look at later on in the year, probably in the fall in North America. But yes, look, there's certainly been some interest in the brokers wanting to do it.

Thanks, Kris. Again, you touched on this in your presentation, but so obviously, the recently completed cap raise, what will shareholders be looking forward to now from a news flow perspective?

Yes. So, step 1, look for a scoping study. Step 2 look for regional ongoing exploration in Hualilan. That will probably be surface sampling and channel sampling to start and then drilling as we define those targets to the point where we can actually -- we've got something that we're comfortable drilling. There will also be a regional sort of geochem program as well, but we'll run and some more magnetics. You'll get an updated resource in Ecuador and then you'll get effectively a scoping study in Argentina as well in consider. I mean we'll have regional exploration ongoing the whole time while we're doing the studies, we'll run both in tandem.

Okay. What else -- sorry, let me just quickly go through these. We just had a question about share consolidation. Maybe if you want to make some comments on that?

Look, I mean, not on the agenda at this stage. I think if we start getting told by investors, we have to look at it and you listened. But having said that, I mean, to gray, other companies have got lots of shares on issue. I think our immediate concern is getting the stock, which is trading at a significant discount to its value trading, what we think is more in line with valuation. And that's something to look at later at this stage, no.

Okay. Kris, I think that might be everything that we've covered for today. But I want to thank you all for joining us. A copy of today's recording will be available online in the coming days. If you've missed any questions, please feel free to reach out via the contact details on the bottom of the ASX releases. But otherwise, thank you all for your time. Thank you, Kris.

Thank you very much, Jane, and thank you, shareholders and anyone who's got any additional questions, feel free to pop me an e-mail.

Wonderful. Thank you.

Thanks.