Galiano Gold Inc. (GAU) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the inaugural Galiano Gold Video Cast. At our Annual General Meeting on April 30, our shareholders approved changing the name of the company, which provides a clear distinction between the corporate level entity and the Asanko Gold Mine, our 50-50 joint venture with Gold Fields. It's located in Ghana, West Africa. The focus of this videocast is our Q1 2020 results. So please refer to our financial statements and MD&A on our website or filed on SEDAR for further details. So first, let's take a look at the Q1 results from the Asanko Gold Mine, which is managed and operated by Galiano. All information related to the Asanko Gold Mine is discussed here on a 100% basis. The operation delivered its best quarter since achieving commercial production in April 2016. We hit records across the board, including production, revenue, all-in sustaining costs, free cash flow and net income. During the quarter, the AGM produced 66,333 ounces of gold as the processing plant continued to perform very well, with 1.4 million tonnes of ore processed at an average feed grade of 1.6 gram per tonne gold with gold recovery averaging 94%. From a revenue point of view, proceeds totaled $104.6 million during the period on gold sales of 67,820 ounces with a realized gold price in the quarter of $1,542 per ounce. Now turning to costs. The mine's cash operating costs were $599 per ounce, with all-in sustaining costs of record low of $805 an ounce. Now all-in sustaining costs are expected to still be generally in line with our guidance for the year of $1,000 to $1,100 an ounce as our sustaining capital spending increases in Q2 and Q3 as we complete the next raise of our tailings storage facility, and we ramp up stripping at Akwasiso and Esaase. The mine's record performance enabled it to deliver operating cash flows before changes in working capital of $56.5 million. Operating cash flows after working capital changes were $37 million, and free cash flow was $27 million for the quarter. The increase in working capital is primarily a result of investment in critical inventory as a response to COVID-19, building our inventory to 8 to 9 months of critical supplies on-site as well as a 3-month supply of diesel in a storage facility. A significant operating cash flow, the joint venture distributed $45 million to the JV partners during the quarter. The balance sheet remains strong at the joint venture level with $65.6 million in cash, receivables and gold bullion. This includes the drawdown of the $30 million revolving credit facility, which was drawn in March to secure U.S. dollar liquidity during this time of economic uncertainty in the world. Now these results are exceptional, given the current global pandemic backdrop. We've been fortunate that Ghana has done a tremendous job at tracing, tracking and quarantining those with COVID-19, effectively controlling the spread of the coronavirus. This has allowed us to remain operating in a safe fashion, along with continuing to advance our key capital projects, the Tetrem village relocation and the next raise of the tailings storage facility. And we continue to monitor the situation closely, and the Asanko Gold Mine is maintaining operations with strict hygiene, monitoring and social distancing protocols in place in accordance with the Ghanaian Ministry of Health guidelines. Corporately, at Galiano Gold, our equity accounted net income was $21.8 million, with adjusted EBITDA of $21.9 million for the period. And importantly, the company's cash position increased to $50.6 million as at March 31 with no debt outstanding. We also continue to return capital to shareholders through our share buyback program. And during Q1, the company repurchased and canceled a total of 2.4 million common shares for a total of $2 million. Now on top of a fantastic quarter operationally, we've also been able to relaunch our exploration program at the Asanko Gold Mine joint venture. 2019 was a disappointing year for exploration as we didn't execute on our exploration plans. So during Q1, we've taken some important steps to reboot the program. We recently brought on board Paul Klipfel as our Senior Vice President of Exploration, who will head the program. He has extensive experience in Ghana on the Asankrangwa Belt, and he's previously worked on the Esaase deposit. And we pulled the exploration team out of the operation structure, and they'll report directly to Paul, who will report directly to me. So essentially, we're running the exploration program like it was a stand-alone business with its own budget, its own approval processes and its own KPIs. Now for 2020, we've allocated $10 million with a 3-pronged exploration approach. Firstly, our focus is on replacing depletion for mining activity in 2020 and 2021 through targeting drill-ready targets that have known mineralization on our current mining leases. Now this program has approximately half of the 2020 budget allocated to it. Secondly, at the same time, we'll be advancing medium-term targets to improve the business plan for 2023 to 2027. The focus will be on finding near-surface ounces with better economics and margins than the current life of mine plan. And finally, we'll also be looking at potential transformational targets, requiring work including soil sampling, ground geophysics and drilling and are longer term in nature to extend the life of mine. Now currently, drilling is underway at Nkran South, Akwasiso, Abore and at Adubiaso with 4 operating drill rigs. A fifth drill rig is expected to commence drilling in Q2. So what you can expect from the company over the next year is continued execution on delivering stable and consistent operating results, progress on our cost initiative program and advancement of our exploration drilling. And to date, we're tracking to our annual production guidance, and we're maintaining our cost guidance for the year. So with continued strong gold prices and limited capital expenditure planned in the near term, we are expecting to continue to generate free cash flow from the joint venture operations and continue to build cash on the balance sheet. So thank you for watching. I look forward to our next videocast in July, when I'll update you on our second quarter results.