OceanaGold Corporation (OGC) Earnings Call Transcript & Summary

Good morning, and welcome to OceanaGold's Waihi District Pre-Feasibility Study webinar. I'm Rebecca Henare, Director of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Bhuvanesh Malhotra, Chief Technical and Projects Officer; and Craig Feebrey, Chief Exploration Officer. The slides that we will be referencing during the webinar today are available through the webcast and on our website. 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 and news release as well as the risk factors set out in our annual information form and the accompanying NI-43-101 report filed on SEDAR. All dollar amounts discussed in this webinar are in U.S. dollars. I will now turn the call over to Gerard for opening remarks.

Thank you, Rebecca, and good morning, everyone. It's a pleasure to be here today to share the Waihi District Pre-Feasibility Study outcomes. This is a major milestone for us and our Waihi operation as we progress this exciting expansion project, underpinned by the development of the high-grade Wharekirauponga underground mine. New Zealand has a long rich history of mining dating back to the 1800s, and OceanaGold has been part of that for the past 35 years. In that time, we have safely and responsibly explored, permitted, developed, operated and rehabilitated mines in the country. We employ around 1,000 people in New Zealand and many more if we include contractors. We are proud of our track record of contributing to the local communities and the country's economy. The Waihi District study includes both the Martha Underground Mine or MUG for short, which is fully permitted and currently in operation and the construction, ramp-up and operation of the proposed Wharekirauponga underground mine, known to many as WKP. Throughout the technical report, we refer to the Wharekirauponga Underground as WUG for short. I'm excited that we are now able to declare an initial mineral reserve at WUG of approximately 1.2 million ounces of gold at a reserve grade of 9.2 grams per tonne. This grade is nearly 2.5x the average grades we are currently mining from MUG today and will allow us to deliver strong production growth and much better margins once WUG is in production. The PFS assumes the receipt of permits by the end of 2025, utilizing the New Zealand government's Fast Track approvals process. The Waihi District PFS study highlights the opportunity to continue mining for a further 15 years from today and generating strong returns for our shareholders. Waihi, including WUG, is projected to create and sustain more than 1,100 jobs in New Zealand over its reserve life, plus a peak construction workforce of an additional 200 people. We projected paying around NZD 360 million of corporate taxes over the current mine life and generating a range of economic benefits for local communities. The high-grade Wharekirauponga deposit remains open in all directions. The 14 new exploration holes since the PFS cutoff date all represent upside to the current resource estimate and upside to the life of mine and operation beyond 15 years. Our Waihi District PFS is based on a reserve gold price of $1,750 per ounce. And we've provided economics of both reserve pricing and at a $2,400 per ounce alternative gold price scenario, which is still well below current spot gold prices. At $2,400 per ounce, the PFS delivers an after-tax NPV at a 5% discount rate of USD 621 million and an IRR of 24%, which are some pretty compelling returns. Notably, these results are based on reserves only and do not include the 400,000 ounces of WUG-inferred resources or the additional exploration holes drilled since the end of May this year. Capital investment is projected to begin next year with the Board approving $40 million for early works construction activities and $8 million for exploration in 2025. You've heard us talk about our capital allocation framework before. Reinvesting into attractive growth options in our business is one of the best uses of our cash flow and capital. The Waihi District expansion represents one of the best projects, not only in our business, but in the industry, it being a brownfield mine expansion project, accessing a uniquely high-grade orebody. Based on our consolidated free cash flow projections, we expect to be able to fully fund the Waihi Project internally over the 8-year investment period without the need for external funding. Depending on gold prices, we also expect to continue to strengthen the balance sheet, which is already in a net cash position and to continue paying dividends and returning capital to shareholders through share buybacks. As we disclosed back in October, the Waihi North Project, which includes the proposed Wharekirauponga Underground mine, was included in the New Zealand government's Fast Track approvals bill. We expect this bill to be passed by Parliament imminently and that we will be submitting our application in Q1 of 2025 and for permits to be granted within the 9-month statutory time line. This will allow us to begin the decline in underground development in 2026. I do want to acknowledge all the fantastic work done by our teams in New Zealand and throughout the organization to complete this study. What you don't see in the study are the years of drilling, evaluation and broad authentic engagement with all relevant stakeholders over a long period of time. This has ensured we are positioned to submit our application for Fast Track in early 2025 and be shovel-ready for when the permits are granted. We are only just getting started with realizing the full value potential of this orebody. I look forward to providing further updates on the status of the permits, exploration and early works as we progress. I'll now pass over to Bhuvanesh, who will take you through more details of the project.

Hello, everyone. I'm honored to lead the Waihi District Pre-Feasibility Study team as we develop this exciting project. We have made some big reserve gains for the Waihi District as a whole, and with the inclusion of Wharekirauponga underground, we have increased Waihi reserves by over 250%. As Gerard mentioned, we are excited to declare initial reserves at WUG totaling 1.2 million ounces of gold at a reserve grade of 9.2 grams per tonne. When combined with MUG reserves, our overall Waihi district reserves totaled 1.7 million ounces of gold, which represents a mine life to 2038. With further exploration success, we have plenty of opportunity to extend the life beyond that. WUG is located beneath Coromandel Forest Park and the company owns private land just to the south of the Park boundary, also known as Willows. Willows is where we will host all our WUG surface infrastructure. MUG is where we are currently operating from and is located below the town of Waihi. MUG and WUG ore will be both processed at the existing process plant facilities. Currently, MUG operates largely below the historic Martha Open Pit and ore is currently processed at the process plant. Tailings are deposited in TSF 1A and 2. And as part of the new PFS, we plan to construct TSF 3 to accommodate additional tonnes mined from WUG later in the mine life. The process plant will undergo select upgrades to increase mill capacity to 800,000 tonnes per annum while mining from WUG. These include installation of an upstream jaw crusher, a replacement of a ball mill with a larger capacity tar mill and refurbishment of the absorption circuit. The services trench hosting our power, water and telecommunications will form part of our early works construction activities and will deliver services from the process plant to Willows. Willows will host the WUG surface infrastructure, including offices and workshops, stockpiles and waste rock stacks and the main Willows portal site to access WUG and to connect WUG back to the process plant. From Willows portal, a 4.7-kilometer single haulage tunnel to the south will connect back to our processing facilities, while a 6.5-kilometer twin decline to the north will connect the portal site to WUG. Together, these will serve as our main haulage tunnel for ore to the plant. Access to the WUG orebody is planned via our multiple drives, enabling us to mine levels simultaneously to reach the targeted 800,000 tons per annum mining rate. Bulk mining will be done by transfer sublevel open stooping, while narrower portions of the orebody will be mined using Avoca and modified Avoca Methods. The PFS outlines two ventilation raises within the Coromandel Forest Park, which will have minimal surface impacts. The annual production for Waihi will continue in the range of 50,000 to 60,000 ounces per year with production initially coming from MUG. Our current mine plant has first development ore from WUG delivered in 2032 with stoop ore in 2033 and the peak gold production of over 250,000 ounces in 2035. All-in sustaining costs over the Waihi District 15-year mine life averages $994 per ounce. Higher grades at WUG drive the lower unit cost with all-in sustaining cost averaging $634 per ounce, putting WUG cost in the first quartile for the industry. These margins really demonstrate the phenomenal development opportunity we see at WUG. The growth capital consists of $556 million, of which $358 million is primarily related to the development of WUG Mine, including development of the twin declines and the haulage tunnel from Willows to the process plant. Other major capital items include upgrades to the water treatment plant, process plant and construction of TSF 3. The profile of the capital spend is spread over the eight-year time horizon between 2025 and 2033 and is expected to be fully funded by our free cash flow. In terms of operating costs, mining costs have been benchmarked using a combination of first principles and are based on Waihi's actual cost today. MUG mining costs reflect ongoing remnant mining. On the other hand, WUG is a new orebody and benefits from the lower underground mining cost as a result of more efficient bulk stooping methods. I will now turn the call over to Craig to discuss the exploration upside of the project.

Thanks, Bhuvanesh. It's very exciting to be here today after a fantastic effort by the team and to see our initial reserve realized after many exciting exploration announcements. Although the PFS report is a milestone in the development of the WUG deposit, we envisage many more meters of drilling to realize the full potential of this exceptional deposit. The WUG resource we've spoken about today is referring to the EG and closely associated hanging wall and footwall veins that are mineralized for over 1 kilometer of strike and represent a growing resource. It's one of three significant veins identified for drilling, the other two being T-Stream and Western veins that are relatively untested targets, though highly prospective with economic widths and grades intersected in both. Their close proximity to WUG and confirmed mineralization makes these a significant opportunity for future upside to the resource. Drilling will continue on the EG vein system through 2025 as we aim to grow and further define the resource. As drilling to date has been limited by the number of drill pads currently available under the access arrangement, we intend to apply for additional drill pads under the Fast Track system next year. As discussed, there are 1.2 million ounces of reserves declared today, plus an additional 400,000 ounces at 9.6 grams per tonne gold of inferred resource. That inferred resource is not included in the mine plan and represents further upside to reserves as we continue drilling. Beyond the reported inferred resource, we've drilled 14 new holes, which demonstrate geological and grade continuity of the EG vein to the south by more than 200 meters beyond the existing resource. The EG vein system, just one of the three major veins, remains open and unconstrained in all directions, up dip, down dip and along strike. So, we're very excited about the prospect of continuing to significantly expand the resource over the coming years. That's it for me, and back to you, Gerard.

Thank you, Craig. As I mentioned at the beginning, we are all really pleased with the results of this PFS. It's great to be able to declare an initial high-grade reserve at WUG, extending the life of our Waihi operation. The project provides strong economic returns at both reserve pricing and at our $2,400 per ounce alternative gold price scenario. The capital investment is manageable and something we expect to fund from our projected free cash flow. I look forward to what the next two years will bring for this great project with the Fast Track approvals bill expected to be enacted early next year. We look forward to sharing more with you on an ongoing basis as we advance our drilling, permitting and development plans.

Thanks, Gerard. We will now open the webinar for Q&A. [Operator Instructions] Our first question is from anonymous and asks, what is the potential for ounces at WKP? How big could it be?

I think this is a question for you, Craig.

Thanks, Gerard, and thank you for the question. Firstly, it's very pleasing to report a significant indicated resource at high grade and the inferred resource. That resource has been established on the EG Vein, which extends for about a kilometer and as we've said, it's open in all directions. 2025 will be focused on drilling the EG Vein again. We'll have about $8 million allocated and a similar amount of meters we'll drill on the EG Vein. Immediately to the west, we have T-Stream and Western Veins, where we have some historic drilling, and that drilling has established similar widths and grade to the EG Vein. So, we see a lot of upside on both of those veins. We won't drill those veins until 2026. And as part of Fast Track, we expect we'll have significant more drill pads, which provides us flexibility on where we drill and a number of more drill rigs that provide increased productivity. So overall, we feel there's significant upside to increase the resource here at Wharekirauponga.

Thanks, Craig. Our next question comes from Jeremy Hoy at Canaccord. The question is multi-part, so I'll start with the first part. Is the tunnel WUG being driven from a single heading only? Is there an opportunity to accelerate its construction by advancing multiple headings, for example?

Thanks, Jeremy, for the question. So, the WUG tunnel is in actually 2 parts. The first one is a single decline, which is on our own land at Willows, which is roughly 1.2 kilometers and then the remainder part of it is in actually 2 tunnels. There are twin tunnels and the productivity has been included where we could operate 2 jumbos basically and as a result, we can actually drive at a faster rate as well. So, there are 2 headings that are taking the remainder of the tunnel back to the orebody.

Thanks, Bhuvanesh. The next part of that question says, can you comment on what has contributed to higher MUG cost versus those in the last technical report?

That's a great question. I think there are 2 reasons for the increased cost in MUG that we are seeing. The first one is obviously related to some of the Geotech challenges that we have actually been seeing. And then the second part, which is probably the more contributing part is the remnant mining. The remnant mining now contributes to a significant portion of our mining requiring some changing to the mining methods, which is what we're calling it the modified Avoca mining methods, and that's primarily the reason for the MUG cost to be high.

Our next question comes from Francesco at Scotiabank. Question for Bhuvanesh or Craig. Can you please provide more details on the assumptions underlying the latest WUG reserve estimate, particularly related to dilution, vein widths and mining method used?

Thanks for the question. I'll start first with the WUG reserve estimate assumptions. So, the key reason for the dilution that you would have seen from roughly 17% odd to 9.2% is related to the way we optimize the stooping widths as well. And the stooping widths actually are driven by 2 key primary factors. The first one is such a high-grade veins these are that allow us to join the 2 veins together as well. And as a result of it, we do see some dilution comes through as well. The vein widths are anywhere between 2 meters to close to roughly 7.5-8 meters and then in some places, even to 12 meters where we've deployed the transfers bulk mining method as well. So, those are the key assumptions that are being used. Roughly 60% of our ore or ounces, I should say, come from the transfers bulk mining method as well and roughly 40% of our ore comes from the Avoca methods, which are past just the Pinstripe veins that we mine towards the northern part of the orebody.

Our next question comes from Cosmos Chiu at CIBC. The 2020 PEA had some contribution from open pits. I no longer see that in the 2024 PFS.

Yes, that's correct because we found that the ore that we were actually mining from the WUG is much, much higher grade, and it is competing much more than from the open-pit places as well and the open pit would require some permitting pieces, which is probably in our overall plan at some point in time. But at this stage, we think MUG is a multimillion-ounce orebody that we could develop for many number of years.

A follow-up question from Cosmos. Has there been some issues mining the remnant area in the past year? How has that been factored into this new PFS?

That's a great question. As you would have seen, there is definitely a drop in our ounces that we are producing between now and 2032 as compared to the previous technical report that we had published, which is actually the reason that we're accounting for the slowness in the remnant mining. The remnant mining is a slow process as well, and it requires to be carefully managed and progressed, and that's been factored in this technical report.

The next question is a follow-up from Jeremy Hoy. It says, if permitting permits, how many drills can or would you like to put on WUG? What is the budget?

Look, I think Craig covered that in his earlier answer. But we are seeking a further 10 drill pads that would take us to 20 drill pads, that would allow us to have 6 active drills as opposed to the current 3. But, yes, we'd love to stick more drills onto and into this orebody and really accelerate the definition of its size and confirm its grade. And as it relates to budget, I mean, we have USD 8 million allocated for drilling of WKP next year. But as and when access expands, you can also expect that budget to expand. We see this as one of the premier drilling prospects in our industry for an orebody of this size or a deposit with this potential. And you can expect the constraint will be the permitting, and we'll be looking to maximize both the permits we have, the drills we have and then, of course, accelerate the results we get from it.

Our next question comes from Ovais Habib at Scotiabank. Question for Gerard. With Waihi being named in the New Zealand Fast Track Approvals Bill, what permitting milestones should we watch for between now and year-end 2025? Is there any opposition to this bill being passed in New Zealand?

Thanks, Ovais. The bill is being debated in parliament right now. I think its first reading was on the 10th of December New Zealand Time and we understand that the discussion on it will continue over the weekend. So, it's possible that the bill is passed very soon and before Christmas. If not, it would be the expectation of being passed early in the New Year. But right now, we're saying it is imminent because that's the status it has. Once the bill is enacted, we will submit our application for a Fast Track approvals process. And that we will do in the first quarter of this year. And we understand that the statutory requirement for review by the expert panel of such submissions is 9 months. So, it will be done inside of 9 months is our expectation. So, by the end of 2025, this time next year, hopefully, we can say that we have the consent or permit in hand, and that allows us to get going with the design in early 2026.

There are no further questions through the portal. So, I'll just pause for a few seconds to see if any last questions come in. No further questions online. So, I'll hand it back to Gerard for closing remarks.

Thanks, Rebecca, and thank you, everyone, for dialing in today. Today is a big milestone day for the team that's worked on this project over many years, the team in New Zealand and for New Zealand itself. It's a significant project for Waihi, for OceanaGold and also importantly, for New Zealand. Thank you very much for your time today. Have a good day.