Gold Fields Limited (GAU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Judy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Galiano Gold Inc. conference call. [Operator Instructions]. Mr. Matt Badylak, President and CEO of Galiano Gold, you may begin your conference.

Thank you, operator. Good morning, everyone, and thank you for taking time to join us on the call this morning. With me today, I have Matthew Freeman, our CFO; Makus Felderer, our SVP of Corporate Development. Before I begin, I'd like to direct you to the forward-looking statements on Slide 1. We will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our press release from this morning as well as this slide of the accompanying webcast presentation. The slide deck will be available on our website at galianogold.com, along with a press release in our most recent 2023 AIF and the Q3 MD&A. All dollar figures we use today are in U.S. as unless otherwise stated. Moving on to Slide #2. This morning, we announced that after a period of negotiation with Gold Fields, who have been our 50-50 joint venture partner since 2018. We have agreed upon terms to acquire their portion of Asanko Gold mine. This transaction is transformational for Galiano. I'll get into each of these points further in the presentation, but just to highlight, the transaction creates a company of relevant scale with annual gold production set to average 240,000 ounces per year over the remaining life of mine. Their attractive transaction structure is highly accretive on multiple key metrics. It leads Galliano in a robust financial position with nearly $130 million of cash and treasury upon close. It puts forth a compelling value proposition to our current and future shareholders. It allows for a single focused vision for the operations at the AGM. And finally, it transforms Galliano into a uniquely positioned high-growth gold producer. Moving on to Slide 3. Here, I'd like to touch on some key transaction terms. So just to recap, Galliano will acquire Goldfield's 45% interest in the Asanko Gold mine under the following terms: $20 million be satisfied by the issuance of Galliano shares, resulting in Gold Fields owning up to 9.9% of Galliano. A deferred payment consideration consisting of two tranches: the first being $25 million payable on or before December 31, 2025. The second being $30 million payable on or before December 31, 2026. A contingent payment of $30 million is due upon the production of 100,000 ounces from the Nkran deposit. A capped 1% royalty -- NSR royalty on gold produced from the Nkran deposit. This applies to ounces produced following the $30 million contingency payment and is limited to a total of 447,000 ounces of production from the deposit. Galliano has retained the right of first refusal for any full or partial sale of this royalty by Gold Fields. On the cash to be paid upon close, with $65 million is equivalent to Goldfield's proportionate interest in the current JV balance, meaning that we are essentially paying them their interest in the joint venture cash balance. The investor right agreement allows for a 12-month standstill. Regarding conditions, neither party requires a shareholder vote. We do need governmental, regulatory and exchange approvals, but bear in mind that this is a transaction where we are simply reverting to the previous ownership of Asanko Gold Mine, we do not anticipate any roadblocks or timing delays on this front. And finally, on timing, we are expecting all of this to close relatively quickly by the end of Q1 2024. Moving on to Slide 4. Looking at the transaction rationale. Over the past year, I cannot count how many conversations I've had with shareholders who have questioned the structure of the joint venture. Admittedly, it has been a challenge of the operator of the asset to be doing 100% of the work for 50% of the reward. This transaction immediately doubles gold production and with the ramp-up of mining now well underway, we have line of sight to further double production over the next 18-month period. This represents a 250% increase in gold production over the next 6 quarters. The company will also see immediate doubling of attributable cash flows, reserves and resources as well as realizing 100% of any future exploration upside. Importantly, upon closing Galiano's pro forma consolidated cash position will stand at $128 million. One key point that I'd like to stress is that the Asanko Gold mine is one of the largest producers in West Africa that is currently not held by a major. On top of this, we hold a large underexplored and highly prospective land package on which we expect to see continued resource growth through the execution of our aggressive exploration program. Previously, I took you through the key metrics of the transaction. So here, I'd just like to reinforce that Gold Fields proportionate interest in the joint venture cash provides a majority of the upfront consideration. The deferred payments are timed to be funded from periods of the elevated cash flows. We have minimized share dilution to the benefit of Galliano shareholders and Gold Fields remains a supportive shareholder through a 10% increased shareholding. The AGM life of mine remains fully funded. Again, this transaction is highly accretive from both financial and operation metrics. It enhances gold leverage and results in attractive acquisition multiples, which will drive market recognition of value. Moving to Slide 5. In this slide, I would just like to highlight Galiano's robust balance sheet following the completion of the transaction. The transaction unlocks the value of the cash, which we have built up in the JV over the last 18 months by returning to Gold Fields their attributable portion and consolidating the remainder under Galliano. You can see here that after acquiring Goldfield's 45% interest in Asanko Gold mine, Galiano's pro forma cash position actually increases to $128 million. This results in sufficient cash to fund the life of mine plan and to continue to see accretive growth opportunities. The table on the left highlights the minimal dilution of the transaction with $28 million basic shares issued at Gold Fields, resulting in a pro forma market capitalization of $167 million. Moving on to Slide 6. This is a quick recap of my previous points. The AGM is one of the leading gold producers in the West Africa region with significant annual production and a reasonably low life of mine all-in sustaining cash cost. Galiano also holds one of the largest underexplored yet highly prospective land packages in the country. On a reserves and resource basis, we will have 2.1 million ounces in the proven and probable category at a grade of 1.3 grams per tonne and 3.5 million ounces at a grade of 1.32 grams per tonne in the measured and indicated category inclusive of reserves. Again, we remain confident that these reserves and resources will continue to grow as we advance our exploration efforts at the AGM. Moving on to Slide 7. Returning to my earlier comment regarding Galiano being a high-growth producer. The chart on the right shows our current attributable gold production under the joint venture structure and a 250% increase we expect to see by the year 2025. It is important to point out this production growth profile is unique in that it is highly derisked. Our production immediately doubles on the back of this transaction and increases further through the delivery of high-grade ore to the fully permitted processing facility, which continues to operate at the current run rate of 5.8 million tonnes per annum. This fully funded organic growth is not linked to any risks related to development of a new mine, upgrading of infrastructure, acquisition of permits or financing. The chart on the left shows that from a market capital perspective, on a pro forma basis, we are still training our peer group. This despite the new management team having successfully demonstrated our technical understanding of the asset delivering the cost and production guidance over the past 6 consecutive quarters, advancing the exploration upside and building a sizable cash balance, taking us in a position to consolidate the asset and drive long-term value. We do see a significant re-rate potential that will bring us in line with our peer group to the benefit of our shareholders. Moving to Slide 8. The same comment can be applied here as we look at Galiano on an enterprise value per ounce of 2024-2025 production. We are significantly undervalued and would anticipate that as we progress through our next milestones, delivering on our production goals and growth targets, we will begin to narrow the gap in our valuation versus our peer group. And finally, the summary on Slide 9. The transaction with Gold Fields to consolidate the asset is indeed transformational and positions Galiano for the next leg of growth. We are doubling our production profile, we are doubling our cash flow and doubling our reserves and resources. By consolidating the Asanko Gold Mine in a leading West African mining jurisdiction, we will streamline the management processes and reduce inefficiencies, ultimately becoming a more nimble and agile organization. The transaction itself is highly accretive on many fronts. We have put to use the cash that we have built up in the joint venture, minimize dilution to our shareholders and provide flexibility with the deferred payments to Gold Fields. Once we understood the complexities of the asset and completed our technical report earlier this year, we set out our vision to optimize the joint venture, achieve our targets and begin to deliver meaningful value to our shareholders. I am pleased to report that we have delivered to our promises and we'll strive to continue to do this into the future. With that, I'd like to take this opportunity to thank our team both here in Canada as well as in Ghana, who have helped make this happen. I would like to -- I would also like to extend my sincere appreciation to Gold Fields who have been and continue to be a supportive shareholder in Galiano. With that, I'd like to open it up for questions. Thank you, operator.

[Operator Instructions]. And your first question comes from the line of Heiko Ihle from H.C. Wainwright.

Hey, Matt -- Matthew and team, nice to see this reasonably logical transaction getting done right before the holidays here. Well done.

Thank you, Heiko. Yes, the teams work very hard to get it across the line in time.

Is there a reason why this has to get done in 2023? Or is it just how the negotiations happen to go?

Yes. There's no real reason apart from, obviously, I think both parties once we got to a certain point within the discussions, we wanted to move ahead expeditiously and finalize the announcement. So yes, I mean, I think you could say that both parties are motivated to get it done. But we weren't pressed for time to be forced into a pre-Christmas announcement, that's for sure.

Got it. Okay. On the NSR, is there an internal value that you have assigned to the NSR? And how exactly was that cap of 447,000 ounces derived?

Yes. So basically, the way that you should look at it is it's obviously capped at that 447 ounces and it's post the first 100,000 ounces being produced at Nkran, and it's 1% of those 447. So yes, I mean it's not a material value in the context of the transaction. But it's importantly, it certainly it is capped and we made sure that we define that it was capped. And it basically relates back to our technical report that we released earlier this year, where we described a mineral reserve at Nkran of 5 what is it just over because I'm applying the recovery here. So as I think about 550 odd or it was higher than that. 580-odd in situ ounces, you imply a recovery to that of 94%. We dropped down to 547 minus the initial 100,000 ounces that are produced, that leaves you with 447, which is consistent with the technical report. So any additional upside that we see at Nkran, whether that be open pit expansion or whether that be underground expansion over and above the 447 ounces, that royalty falls away and we see the 100% of the value going forward.

Got it. Now that answer makes a lot of sense. Okay. And then just finally, a quick one. I assume the answer is nothing because it's not listed. The contingent consideration was $30 million on the production of 100,000 ounces of gold. There is no time limit to that. In other words, if it doesn't come in, in 2028 or take a year it's essentially just sort of like a lien attached to the whole thing. And if it comes in 2035, I hope it doesn't, but if it were to be like that, it just comes then.

Yes, that's right. The trigger is 100,000 ounces produced out of Nkran, where whenever that may be. So it's not time-based. It's production based, yes.

Got it. Okay. Actually, one more thing. Closing Q1, I mean, Q1 starts in 11 days. Is it fair to say that you think this might be January? Or are we talking more like late March?

No. I think, listen, we'll probably need about 2 months at the minimum to get to acquire the regulatory approvals. As I said in the actual presentation, it's going to be a relatively simple transaction to get across the line from what we've been from what we understand. We're just reverting, as I said, to the previous structure of the ownership structure of the Asanko Gold Mine. So there's nothing new about that for the regulators in the country. And we've received advise that it should be a relatively quick process.

[Operator Instructions]. Your next question comes from the line of Raj Ray from BMO Capital Markets.

Thank you, Alberta. Good morning, Matt and team, a fantastic transaction this morning. I know it was a bit of an endeavor, but this is great results. My first question is on the cash payment -- upfront cash payment to Gold Fields. Does that trigger any kind of government payment?

Matt, I'll revert to you on that one.

No, there's no trigger from the up pump cash, Raj. There are some fees associated with regulatory approvals, but they're immaterial in the grand scheme of things and [ indiscernible ].

Okay. Okay. That's great. And then Matt with respect to you workflow. Now that [ the mine ] is gone, does it change anything? Do you want -- I mean, are you looking at any more optimization and accelerating some of the programs? I mean if you can give some color to us that will be great.

Yes. Listen, Raj, I mean we're always looking at optimization. I mean, that's a constant process when you're running any mine, as you know. So listen, it doesn't fundamentally change what we do, but it certainly, I think freezes up from some of the bureaucracy that existed within the joint venture with regards to wanting to be more nimble as a junior company should be. So that certainly provides us with a little bit more ability to move quicker if we identify opportunities for optimization. But yes, I mean, listen, I have spoken before about the fact that we are looking at certain things such as larger equipment for certain mine pits, which we've already actually executed upon at Borax, there's much larger fleet there. So there's some upside there compared to the technical report. We do feel that there's opportunities for ore sorting technology to be utilized at [ indiscernible ] and hence, increasing the grade that we haul cross the 30-kilometer distance there to the process facility, the other upside of -- or sorting at [ indiscernible ] is that it can convert suboptimal or sub profitable grade into ore through an upgrade. So it has the potential to grow the resource at [ indiscernible ] as well. So there's a few things there that we're looking at, including the addition of some additional residence time in the CIL circuit that is not necessary, but it would be nice to have. All of those things, Raj, we look at as well as adjusting our sequence of mining in different pits, if we need to, right? Those kind of things are always looked at by the technical team.

Okay. That's great, Matt. And then with respect to there's a standstill in terms of Gold Fields, the 19.9%, but is there a lockup in terms of Gold Fields potentially selling the shares at any point? Is there a lockup period or not at all at this moment.

Yes. I mean in the IRA, there is a 12-month standstill that I pointed to as well. So they're unable to sell unilaterally, their positioned in that 12-month period. There are some restrictions in terms of who they can sell, and we need to we need to approve any sale of shares if it occurs in a 12-month period, after which they're free and clear.

Okay. That's great. And then one last question. With respect to -- given that the transaction is expected to close towards the latter part of Q1. How is the Q1 sharing of economics going to be. Is it still going to be 100% to Galiano or until the deal closes the current JV structure sense?

Yes, that's right. I mean, listen, until we actually closed the transaction, everything that currently exists under the JV structure will continue to be in place. And then upon closing that just moves to a 100% basis for Galiano.

But Matt, the cash position has been decided based on December 20? Or like if the cash flow increases at the JV until the deal closes.

The cash what you see here in our news release, Raj, is the final numbers. There is no working capital adjustment that occurs upon close, right? So these numbers are locked in. Any cash that is built at the JV is 100% our's from this point forward.

Thank you and there are no further questions at this time. I would like to turn it back to Mr. Matt Badylak for our closing remarks.

Thank you, operator. I'd just like to thank everyone for joining us on the call today. Certainly, please don't hesitate to reach out if you have any questions, I am available for the remainder of the day and also tomorrow. But with that, I'd just like to wish everyone a Merry Christmas and a successful 2024. Thank you. Thank you, operator.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a lovely day.