Orezone Gold Corporation (ORE) Earnings Call Transcript & Summary

Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Orezone FY 2022 Conference Call and Webcast. [Operator Instructions] Thank you, Patrick Downey, CEO. You may begin your conference.

Thank you very much, and good morning, everyone. On behalf of Orezone, I am very proud to present our inaugural financial and production report for the year 2022. 2022 was a transformational year for the company. And I'll talk about that and what we're doing next and where we're going. But first, I just want to bring your attention to the forward-looking statements on Page 2 of the webcast. As I stated, 2022 was a transformational year for the company. We built our Phase 1 oxide mill on time and under budget. We reached commercial production and achieved rapid ramp-up. We also completed a very successful drill program, which will set us up for our next stage of growth. And I'd like to say that we did this all without an LTI, a single LTI, which I think is an amazing achievement for a young team, and I want to acknowledge the team for that achievement. 2023 will be a year of bedding in the oxide plant and also setting the stage for our next stage of growth, which we are very excited about. As I stated, we reached commercial production on December 1, 2022, we had some power issues with our power supplier, which negatively impacted production during commissioning, but that's now squarely behind us. And you'll see that as we go through the presentation. And the rental system is in full operation and running well. The process plant has ramped up rapidly and is performing above expectations. We are 4% above nameplate for 2022 and 12% above nameplate for the first 2 months of 2023, which has continued into the third month, which I think will set us up for a great first quarter of 2023. Process recoveries are consistent with design levels, and we are now initiating certain improvements, which we believe will improve those recoveries. With strong gold production and performance in 2022 has carried right into Q1 2023. As you can see, we started ramping up in September 2022. We had first gold and then we had the power issue, so absolutely 0 in October. But we rapidly turned that around, got a power plant in. Got it started up within a month, which I think is a remarkable achievement. We were 348,000 tonnes in November. And then you can see we're above design throughput for December, January, February, and that's continued into March. So that's reflective of the type of design we've done on the plant and the team that we have on the ground. I'm now going to hand it over to Peter Tam, Chief Financial Officer, who will walk you through the financial and operating highlights.

All right. Thanks, Patrick. So the financial and operating highlights for Q4 and full year 2022. For gold production, the company produced 22,258 ounces in Q4 and 27,831 ounces for 2022. Gold production commenced in September with our first gold floor on September 10. Production was intermittent in the month due to unreliable power from the site power plant. Production was halted at the end of September due to a major failure to one of the two operating Sensor Genset. Production was restarted at the end of October when two of the three delivered Sensor Gensets were brought back into operation. At the -- restarting production, [indiscernible] was registered due to insufficient power and concerns remain about the reliability of the Genset Power Plant and a highly slightly going to further breakdown. But through perseverance and good fortune, we were able to store a turnkey power system in very short order from [indiscernible] providers. This rental system was mobilized the site at the end of October and became operational in the first half of November. The full power in hand, the Bombore processing operations began to show its true potential in December, with throughput exceeding nameplate by 4%, as mentioned by Patrick earlier. As such, Q4 gold production of 22,258 ounces represents less than 2 full months of steady operations. As shown earlier, the process plant is operating ahead of expectations in the first quarter of 2023, and we expect to report strong quarterly production for Q1 later this year. For gold sales, our first sale was made in October. Therefore, our gold sales revenue and all the sustaining cost per ounce sold are the same for Q4 as they are for the year. In Q4, the company's total 24,676 ounces at an average realized price of $1,760 an ounce for revenues of $43.4 million. All-in sustaining cost was $1,075 an ounce sold, which includes the combination of commissioning and commercial production analysis. Q4 was a profitable quarter, leading to net income of $3.8 million and earnings per share of $0.01 attributable to shareholders of Orezone. Operating cash flow was $23.2 million for the quarter and $6.6 million for the year. Cash at year-end stood at $9.2 million, and I've set a bit more detail to show on that in a later slide here. Next slide. Yes. So on the production and operating highlights, we processed 807,000 ounces -- or sorry, tonnes in the quarter, fourth quarter and just over 1 million tonnes for the full year. Head grade was 0.93 grams per tonne gold for Q4, and 0.92 grams per tonne gold for the 2022 year. Coincidentally, plant recovery was 91.9% for both the quarter and the year. In terms of unit cash cost, processing cost was $12.47 per tonne for Q4 and $11.86 per tonne for 2022. The site G&A costs were $4.87 per tonne for Q4 and $5.32 per tonne for 2022. One key point to highlight is that unit cash cost for processing and site G&A were elevated during the period and not representative of steady-state operations. Already for this first quarter of 2023, with higher monthly throughput and efficiency achieved, we have seen a downward trend in mutant cost for processing and site G&A. Next slide. So in cash and liquidity, we -- as mentioned earlier, we ended the year with $9.2 million in cash, which was an increase of $1.8 million from the previous quarter. This is after repaying $5.1 million in deferred interest and fees, accumulated in the second half of 2022 on the Coris Bank Senior loan. Working capital was negatively impacted by the longer-than-expected commissioning, which led to our working capital deficit at year-end. However, I'm happy to report that cash and working capital have improved dramatically during Q1 of 2023. As there's strong gold production and sales and the high gold prices. The final point to add is that we have commenced principal repayment on the Coris loans in the first quarter of 2023. Even with debt repayments, we do expect to report a healthy and significant greater cash balance at the end of the first quarter. Hand that back to you now, Patrick.

Thank you, Peter. I'm going to walk through guidance for 2023. Our guidance is 140,000 to 155,000 ounces. As we said, we've upped our all-in sustaining costs a little bit to $1,010 per ounce to $1,110 per ounce. The reason for that is we're bringing forward a tailings raise from 2024 to 2023. That saves us over $3 million in rehandling costs and it also allows us really to get flexibility for the sulfide expansion. So we felt it was an appropriate thing to do instead of waiting until 2024, which would have been a little bit more tight in terms of the time line for the sulfide startup and expansion. Sustaining capital remain -- sorry $15 million to $16 million, growth capital remains at $33 million to $38 million with the RAP $18 million to $20 million, which has commenced and is rapidly advancing. And the grid power connection, which is $15 million to $18 million. And I'll talk a little bit more about that in a separate slide. We have debt repayments of $33 million in 2023. And as Peter says, that has started already. And we expect to have a pretty strong year in 2023 to really set us up for our growth going forward. So really, the 2023 is going to be betting in the company, but really setting ourselves up for the next stage. And that expansion study is underway. We have drilled over 100,000 meters since the last resource update. We've had new discoveries, including the high-grade P17 north extension, which remains wide open. Our drill program has targeted infill for inferred resources and expanding zones such as P8P9, which I'll show you in the next slide. Again, we're very excited about this, and I hope you'll see exactly what we're looking at here. Our expansion study is underway. Metallurgical test work is complete. Design is well advanced. I'm happy to say that the plant will be very simple. The lead circuit will be exactly the same as the current oxide lead circuit 24 hours same lead sizes. Same equipment, everything is exactly the same. The gold recovery start to remain as is. And we've really been putting a SAG mill and a single-stage pressure in front of that. And that's basically what it is. So again, a very simple circuit that we will put into production sometime in 2025 as planned. Our study results are expected in Q3 2023 and we will then rapidly move forward towards the commencement of production, which is -- sorry, construction, which is planned for mid-2024. And as you can see, at P8P9, just to highlight the success of our drilling that we've had in 2023, the top of that shows the reserve pit from the 2019 study, which really is still out there in the market. It's the only document that is valid in the market. We've done quite a bit of drilling since. And you can see the type of intercepts that were heading below that and how significant this can be for this expansion. These two slides are 175 meters apart. So it just goes to show you the sort of expansion potential and exploration potential, we still have here. And the program that we did in 2023 was absolutely a great success for us. It exceeded our expectations in what we were planning for it. And so we're really excited as to what this will mean for us. And I think it will put us in the upper echelons of West African producers. What's the time line for that? Well, obviously, a few things on catalyst coming forward. As Peter mentioned, Q1 production results early April, we're very much looking forward to putting those out followed by our financials after that, our updated feasibility study in Q3 which includes, as I say, 100,000 meters of drilling grid -- and the grid power connection, which is a significant opportunity for us in terms of reducing our overall all-in sustaining costs. We expect to make a production decision for expansion sometime in the first half of 2024, and then hit the ground running in Q3 2024 with about a 12-month planned construction phase, starting up in sometime late Q2 2025 or early Q3 2025. And as I said, it's a very simple circuit. We've built it before. We know what we're doing, and we've got the same team. Grid power for us is a huge milestone. We will be connecting to an existing 132 kV line. The grid reliability is very strong. We know other mines that are connected to it and get over 99% reliability, simply because Burkina is now connected to both the Ghanaian and Cote d'Ivoire and systems. So we get the reliability of that plus Burkina has upgraded its own system and added two significant solar power inputs into that line. We expect that it will cost between $15 million to $18 million. We actually have placed all the orders for all the long lead equipment. We've placed the order for the contractor. We've awarded it. We've done all the plant alignment. So we expect to get going here very soon, and there should be a rapid construction phase, and we hope to be up on connected by Q4 of this year. That will bring our overall cost down in terms of energy savings between 60% to 70% of what we're paying now in terms of diesel generation. So that's going to be a big change to our all-in sustaining costs and makes us even more profitable as we move forward. So as I say, 2022 has been a year of achievements. We've had a strong ramp-up to commercial production, very, very rapid uptick to nameplate and beyond. The plant is running extremely well. We've had shutdowns already in terms of maintenance. Just to look at things, see how they're wearing, see how things are going. It's been very, very good. We're really pleased with how the plant is running. We are initiating programs now to improve recoveries, to improve throughput. I expect those will happen this year. We're strengthening the balance sheet, and that's really -- gold price is helping as well, but also the operation, how well it's running. And we are investing in cost reduction opportunities such as the power plant. And really, the key message here, we're positioning ourselves for growth. We've got this plant running that's running well. We think we can improve it, but we think we're now setting ourselves up for a major growth step-up, which will put us up there with the [ Hundai ] and the other bigger mines in West Africa. So I want to thank you, and I'll hand it over for questions.

[Operator Instructions] And we'll take our first question from Chris Thompson with PI Financial.

Congratulations. Just a couple of little questions if you wouldn't mind. What sort of grade are you putting through the mill at the moment? I mean you have mentioned that you expect, I guess, production this year to be weighted more heavily in the first half?

We expect to put an average of 0.9, Chris. Obviously, when we have that power plant shutdown, we created a significant amount of stockpiles, which we're going through. So we're going through both mill and stockpile right now. So I would say, on average, 0.9.

And you say that you're going to -- you're working on recoveries. I mean, the recoveries in last year are actually pretty good. Can you give us some visibility on maybe what you can get to?

Well, we just -- the team on the ground have been working on some initiatives. One of the key things is just reducing the SG of the in-tank slurry. And we're seeing that we're getting better at loading of the carbon and probably pushing it up 1% to 2% more is what we're looking at here. So we're just going to do some more testing on that. But so far, what we've done, it looks very promising. And so that will be a nice uptick for us if we get an extra 1% to 2% here from that.

Great. Obviously, you mentioned the stockpiles. Can you quantify that and just give us a sense of what sort of draw down rates you're looking at?

Well, we had about 6 million tonnes of stockpiles...

I think Chris was probably more referring to the higher grades that we're actually putting through in the first half of this year. So it's been about a couple of hundred thousand tons a month here once.

A month, yes.

Okay. And just to quantify nameplate, I mean, 5.2 million tonnes a year, and you're looking at 12% above, that's -- what is that 16,000 tonne a day? Is that what you think the client can do on a consistent basis?

Yes, we believe we could do that on a consistent basis. We believe we had a meeting last week with like a podium not last week, sorry, 2 weeks ago, we PDAC with our plant processed, it pretended to came up to Toronto. We spent quite a bit of time looking at some of the key areas that we could improve that on. And we think we could get above that. We're going to test some of those out right now in Q2. So -- but I would say, yes, 16 plus is a pretty good number.

Fantastic. And then I guess the final question would be, you do mention a reduction in energy cost 60%, 70%. Could you quantify that in, I don't know, maybe unit cost per tonne or even pronounced.

Well, we expect it will be somewhere around $100 an ounce reduction in more of that. We haven't finalized our contract with SONABEL but knowing what it sort of generally is out there. And right now, we're paying $0.48 to $0.50 a kilowatt hour for the diesel. So we would expect we'd be somewhere around...

Yes. I would guess, probably, Chris, right now from what we're seeing in the first quarter here, our power cost per tonne process is around just over $4 a tonne. And I would expect if we get grid power and depending on negotiation with the SONABEL, the supplier, the national electricity company there. We can get that below $2, I would say, somewhere between $1.50 to $2.

[Operator Instructions] I'm showing no further questions. I'll turn the call back over to Mr. Patrick Downey, CEO, for any additional or closing remarks.

Yes. Thanks very much. I just want to close by saying really one of -- thank the Orezone team for such a successful year in building and running up a plant and getting it over nameplate. I think 2023 will be a very exciting year for us. A lot of big catalysts in terms of our growth, and we're really looking forward to that. So I look forward to presenting further quarters as we move forward into 2023.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.