OceanaGold Corporation (OGC) Earnings Call Transcript & Summary

Good morning and afternoon, ladies and gentlemen, and welcome to the OceanaGold 2023 First Quarter Results Webcast and Conference Call. [Operator Instructions] Also note that this call is being recorded on Wednesday, May 3, 2023 at 10:00 a.m. Eastern Time. And I would like to turn the conference over to Rebecca Harris. Please go ahead.

Thank you, operator. Good morning, and welcome to OceanaGold's first quarter 2023 results webcast and conference call. I'm Rebecca Harris, Director of Investor Relations. We are joined today by Gerard Bond, OceanaGold's President and CEO; Scott McQueen, Chief Financial Officer; David Londono, Chief Operating Officer, Americas; and Peter Sharpe, Chief Operating Officer, Asia Pacific. Also present is Craig Feebrey, Chief Exploration Officer; and Brian Martin, Senior Vice President, Business Development and Investor Relations. The President -- the presentation that we will be referencing during the conference call is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars unless otherwise noted. I will now turn the call over to Gerard Bond for opening the part.

Thank you, Rebecca, and welcome to OceanaGold. It's great to have you and your experience on the team. And good morning, everyone. Thank you for joining us. We had a solid first quarter in all respects. Our results are in line with guidance, and we remain on track to deliver our full year 2023 production, capital and cost guidance. I'll begin with safety, where I'm delighted to say that in the first quarter, we achieved another company record. Our total recordable injury frequency rate of 1.9 per million hours worked on a 12-month rolling average basis was the lowest ever for the company and a decrease from the 2.3 reported for 2022. Now we may not be able to sustain such low injury rates every quarter given the small number of injuries, it would take to cause an increase. But you can be sure we remain absolutely focused on the safety of everyone coming through the gates at OceanaGold every single day. From a production perspective, both Haile and Didipio performed well in the first quarter. In New Zealand, as previously disclosed, we had a challenging first quarter. Macraes was affected by having to take one of the ball mills down for a major repair and Waihi experienced challenges due to extreme rain events, which caused sliding in parts of the Martha's Underground and prevented access to the high-grade stopes in these areas. Pleasingly, we completed a temporary repair of the Macraes ball mill at the end of March, and it has returned to full milling capacity in April. At Waihi, we are progressively regaining access to all areas of the underground mine and expect to deliver more tons at better grades through the remainder of the year. Peter is going to talk about both items later on the call. During the quarter, we also made progress on our organic growth options, notably the Haile underground project with our main production decline now advanced 550 meters. The decline has now reached the top elevation of the ore body, and we remain on track for delivery of our first ore from Horseshoe Underground in the fourth quarter. With this enhanced access from underground, we also expect to begin underground exploration drilling at Horseshoe in the second quarter, targeting both resource conversion and growth. On the topic of exploration, we continue drilling at Wharekirauponga in New Zealand as we work towards delineating this high-grade deposit. In the first quarter, nearly 800 meters of drilling was completed, focused on inflow of the main Ag vein and we expect to be able to update the market with results later this year. So we produced around 1/4 of the midpoint of 2023 guided production in the first quarter. We expect the second quarter to be the strongest production quarter of the year for the company, and we are well positioned to generate strong free cash flow at these current metal prices. I'm pleased to say that we also paid our previously announced $0.01 per share semiannual dividend recently in the month of April. Now moving on to some highlights from the first quarter. You can see we produced 118,000 ounces of gold and 3,500 tonnes of copper, both in line with full year guidance. Our all-in sustaining costs for the quarter were $1,567 per ounce 112,000 ounces of gold sold. From a financial perspective, we reported an adjusted net profit after tax of $39 million, which equates to an adjusted EPS of $0.06 per share. We did report negative free cash flow of $16 million, slightly below plan due to over 6,000 ounces of gold at Haile being produced but not sold at quarter end. Our other working capital outflows associated with planned Philippines annual tax payments and annual employee incentive payments for 2022, which were made during the quarter. We do remain in a strong financial position with $191 million of net debt, a leverage ratio of 0.3x and liquidity of $158 million at the end of the quarter. And this gives us the financial flexibility to continue investing in the exciting growth projects across our business. I'll now turn the call over to Scott McQueen to provide an overview of our Q1 financial highlights.

Thank you, Gerard, and good morning, everyone. First quarter financial results were broadly in line with expectations given the temporary challenges faced by the New Zealand operations during the quarter. While a small quarter-on-quarter reduction in sales volume, revenue was $244 million, a $6 million increase relative to the prior quarter due to higher average gold prices received. Also note, our first quarter gold sales were lower than gold produced, reflecting the timing of sales around quarter end and gold in transit. We expect to benefit from the reversal of this timing difference in the coming quarter. EBITDA for the quarter was $100 million. It was a $9 million reduction relative to the prior quarter, with the first quarter impacted by the timing of sales around quarter end as mentioned, higher G&A costs and the $2 million noncash unrealized FX loss relative to a $16 million FX gain in the prior quarter. These noncash FX adjustments mainly related to movements in the New Zealand dollar exchange rate during the period. Net profit after tax of $39 million was broadly consistent with the prior quarter. When adjusted for the noncash unrealized FX loss, this equates to an EPS of $0.06 per share will be diluted. Operating cash flow equated to $0.14 per share fully diluted, both slightly ahead of analyst consensus estimates. While the first quarter EBITDA, net profit and EPS was sound and an improvement quarter-on-quarter on most measures. First quarter free cash flow was lower at negative $16 million. This was mainly due to the delayed sales previously mentioned, combined with typically high first quarter working capital requirements, which included the payment of some annual Philippines taxes, annual insurance premiums and your bonding and the payment of annual employee incentives as Gerard mentioned. We expect to see these impacts normalize as the year progresses, and we remain well on track to deliver strong free cash flow at current prices across the full year. As outlined at the start of the year, we continue to expect stronger group gold production and free cash flow in the second quarter relative to the first. Overall, at the end of the first quarter, we will remain well on track to deliver our full year guidance. I will now turn the call over to David Londono to discuss the Haile operation.

Thank you, Scott, and hello, everyone. The Haile operation continues to maintain a low injury frequency rate with 1.6 recordable injuries per million hours worked at the end of the quarter, a 15% reduction compared to the end of 2022. Safely and responsibly delivery in production is the highest priority at OceanaGold, and I am very pleased with the continued efforts of the Haile's team to keep each other safe. First quarter gold production of 48,000 ounces was higher than the previous quarter, primarily due to higher grades mining mills on, which was offset by slightly lower milled tonnage as a consequence of the freeze event that occurred in late 2022, combined with that shutdown early in the quarter. Haile expect to remain with the full-year on sustaining cost guidance, achieving $1,552 per ounce sold in Q1 while continuing to integrate continuous improvement projects in key operational and capital areas. As cost of $673 per ounce sold in Q1 were impacted by timing of gold sales, but slightly offset by lower operating costs. Q1 was an exciting quarter at side. At the beginning of March, we hosted a well-attended analyst and investor tour. And then on March 6, we welcomed visitors to celebrate the opening of the Horseshoe Underground. We have a significant progress on the underground since received the receipt of SEIS in Q4 2022 and are on track for first ore in Q4 on 2023. We also continue to invest in exploration with a healthy $7 million budget this year. And in the first quarter, we continued our real focus of Palomino and have an underground risk scheduled to begin drilling at both Horseshoe and Horseshoe expansion later this quarter. To give some more detail on the underground part, the focus during Q1 was an advancing development of the main decline of ventilation portals. The decline has now made an important milestone, reaching the 1025 level, which represents the top elevation of the Horseshoe underground ore body. Year-to-date, we have completed 341 meters of total development for an average of 273 meters per month. Meanwhile, work has been advancing on our surface project as well with progress being made at both the West PAG facility and tailings storage facility expansion. We are pleased with the more been done on the surface as the expanded footprint allows additional operational flexibility and optimizes material handling. The water treatment plant expansion all the pipe installation has been completed, and the plant is now energized. Commissioning began at the end of April, and the plant is expected to be fully operational this quarter. Overall, the Haile expansion project remains on schedule, and I'm very excited about the future of the mine. I will now turn the call over to Peter Sharpe to discuss Didipio and our New Zealand assets.

Thank you, David, and hello, everyone. Starting with Didipio. The mine continues to be one of the safest operating mines in the Philippines and the mining industry in general and reported a 12-month moving average record injury frequency rate of 0.8 injuries per million ounce worked at the end of the quarter. First quarter gold production of 33,000 ounces was 14% higher than the previous quarter, with copper production of 3,500 tonnes being consistent with previous quarter, a good start to the year and sets us up really well to meet the full year production guidance for Didipio. The Didipio's first quarter all-in sustaining costs was $585 per ounce or cash cost of $566 per ounce, which helped deliver strong margins for the period. The 45% quarter-on-quarter decrease in all-in sustaining costs is mainly due to higher gold sales along with lower sustaining capital expenditure. We do expect sustaining capital expenditures to increase through the year and expect Didipio all-in sustaining costs to be within full year guidance ranges. We continue to study the options for increasing underground mining rates at Didipio to at least 2 million tonnes per annum and expect to be in a position to share the findings from this work by the end of this year. On the exploration side, we began follow-up drilling on the 2 recent discoveries we announced in December, and we'll continue delineating these and other targets throughout the remainder of the year. Moving over to Macraes. The operation reported a 12-month moving average recordable injury frequency rate of 2.9 injuries per million hours at the end of the first quarter, a much improved 43% reduction compared to the end of the previous quarter. Macraes produced 27,000 ounces of gold for the first quarter of 2023, 33% lower than the previous quarter. Reduced build throughput and lower average feed grades were the key drivers of this decrease. The throughput impact was caused by the cracked trunnion on the ball mill that Gerard mentioned earlier, while the lower grade was predominantly due to the lower underground ore tonnes in the quarter. The repair to the ball mill trunnion was completed at the end of March and normal mill throughput rates were achieved in April. We also completed a planned shutdown of the ball mill in mid-April to inspect the condition of the repair. And pleasingly, everything looked good. We are undertaking an engineering assessment now and expect to have a full feed-end replacement designed and ready for installation in early 2024. Underground mining at Golden Point Underground was impacted by a fall of ground in late February, resulting in a decision to upgrade ground support in all of the intersections and turnout in the main decline. This work was completed at the beginning of April, and development rates are expected to return to full capacity by the end of Q2. Stoping rates are unchanged from original plan, which is to hit full capacity in Q3. Stronger operational performance in Macraes is expected through the rest of 2023 as the mill has now returned to full capacity and high-grade ore from common point underground is being processed. Now for Waihi. Waihi produced 10,000 ounces of gold for the first quarter. This was broadly in line with the previous quarter. As previously reported, the North Island of New Zealand and Waihi operation experienced abnormally high rainfall at the beginning of 2023. Over 1 meter of rain fell during the first 6 weeks of the year to put this into context. This impacted productivity in the underground mine, especially in the areas of Edward and Empire West, and the mining had to be developed into alternative areas of the mine due to flooding. On the expectation that rainfall will continue to moderate as it did in March and April, the company expects to be able to access the previously flooded areas in the second quarter, which will allow the first quarter production impact to be recovered across the balance of 2023. I will now turn the presentation back over to Gerard.

Thanks, Peter. I'm pleased to welcome some new faces to our Board and management team. Linda Broughton has been recently appointed to the Board of Directors and brings with her a successful track record as an accomplished executive in the mining industry. In the environmental geochemistry, water and tailings management, mine reclamation and closure as well as risk management will provide us with a unique perspective and add tremendous value to our Board and to our shareholders. We also recently announced the appointment of Marius van Niekerk, Chief Financial Officer, who will join us towards the end of this month. Marius is a very capable and dynamic executive with global commercial and financial expertise, both in the resources and technology industries. I'm very confident he will help sustain the integrity of our financial reporting and government systems as well as generate significant value for the company. Marius will be with us for a while yet, I'd like to take this opportunity to thank Scott McQueen for his more than 6 years of dedicated service and high-quality contribution to OceanaGold, what a high-caliber, high-integrity CFO, and we appreciate his commitment to support the onboarding and transition to Marius as well as completing several important projects throughout 2023. I'm confident Scott is going to get a few more farewells and best wishes before he eventually leave us. But for now, I'm going to take the opportunity to acknowledge his contribution to the company and to the excellent support and wise counsel he has provided me over the past year. So in summary, we remain committed to our goal to safely and responsibly deliver on the production and financial expectations set at the beginning of this year, which we know to be a very quiet market. We're focused on safely and responsibly maximizing the free cash flow generation of the company and we've made good progress in our journey of realizing the organic growth potential in our portfolio. Shareholders can be certain that our objective is creating shareholder value and generating higher returns to shareholders. With that, I'll now hand the call to the operator, and we will open the questions.

[Operator Instructions] Your first question will be from Ovais Habib at Scotiabank.

Congrats Gerard and OceanaGold team on the Q1 beat. This is despite challenges of the New Zealand operations. So great job there. Just a couple of questions from me. Number one, great to hear that Haile Underground expansion remains on track. You guys are doing the underground decline is advancing to the first production level. Have you -- as you progress to the production stope that you're looking to develop, have you started doing any sort of grade control drilling? And if so, have the results been in line with your expectations?

David?

I can answer the question. So we actually haven't started drilling yet. We have the drill in transit, and we plan to start in the next couple of weeks.

Okay. And then just then moving on to Palomino. You're looking to convert resources to reserves in early 2024. Will you be releasing an updated underground study on the back of this resource to reserve conversion? Any thoughts about there?

I mean, I'll take that. I guess, we'll be [ data-driven away ]. So I guess the drill results and the magnitude of what that means for the mine and its materiality will govern that. But we do have a study underway. The study will be informed firstly by the drill results. And yes, as and when it's of the magnitude that caused there to be a material change that will compel us to do an updated study.

Got it. And my last question, just on the Q4 conference call, you mentioned that Oceana is kind of working on optimization study that I believe it was Macraes, Didipio and Waihi. Are you looking to release these studies to the market? And if so, when should we expect these results? Also, any sort of progress on those studies and any sort of expectations that are being built up within the company?

Look, sure, as we went -- listen, they're all in progress, and they're variously to -- at Macraes, we have the Round Hill option study, which we provided some detail on, as you say, in the Q4 results. That's underway and will be -- as soon as it is completed, and again, subject to it's been materially different to what is the current flight path of the asset, we would update the market. A lot of the other studies that are going on across the business relate to underground optimization, particularly at the Didipio and that I think Peter mentioned on the post now, the part as though need take it to from its current underground mining rate. And as you'll appreciate those, any time, at any of our underground mines at any of our sites, when we can get more from underground, whether that be at Macraes, Didipio and of course, Haile, the benefit that we get from a grade perspective and then a waste hand perspective is really powerful. So a lot of work being done to see if we can increase the demand of material that we get from underground at all sites with those underground operations. But yes, as a general statement, you can be certain that as and when we complete the studies and we've got something to say, we'll be all too pleased to share that with the market.