Osisko Metals Incorporated (OM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Osisko Metals Pine Point Preliminary Economic Assessment. [Operator Instructions] And please be advised that today's conference is being recorded. I would now like to hand the conference over to Robert Wares, Chairman and CEO of Osisko Metals. Please go ahead.

Thank you, and welcome, everyone, to the Osisko Metals Pine Point PEA. I'll start by going through the key points, key results of the study, and then we'll follow with the question period. So let me add that we are very pleased with the results of PEA. We went into a lot of detailed trade-off studies in order to produce this in collaboration with BBA, WSP Canada and Tetra Tech. So as you all saw in the press release, we have an internal rate of return after tax of 29.6% and an NPV after tax of $500 million using USD 1.15 long-term zinc and USD 0.95 long-term lead; preproduction CapEx at $555 million; average annual life of mine zinc production of 327 million pounds and lead production of 143 million pounds. This potentially -- these numbers could potentially could make Pine Point a top 10 zinc producer globally. Life of mine, 10 years; and total mineral resources that we're including in the plan is 39.1 million tonnes out of the total resource of 50 million tonnes, the 50 million comes from the updated MRE; and the diluted average zinc equivalent grade at 6.17%. Mining dilution was fixed at 12%, mostly for the open pit operation. I remind everyone that these are near-surface deposits. And 80% of the resource in the study will be mined via open pit and 20% via underground. Digital results in the gross revenue after royalty in the life of mine of $4.37 billion and after-tax operation -- operating cash flow of close to CAD 1.1 billion. C1 mining costs, C1 including smelting, transport and royalties, at $67 a pound -- $0.67 a pound zinc; and estimated all-in costs, including CapEx, OpEx, at $0.82 per pound zinc equivalent. So moving on to the breakdown of the capital costs. We're looking at CAD 555 million for initial CapEx, sustaining CapEx of CAD 458 million over life of mine for a total of approximately CAD 1 billion. Operating costs, broken down to surface mining costs, an average of CAD 3.05. That is a weighted average of ore, overburden and waste rock; ore estimated at $3.50, waste at $3.25 and waste -- sorry, overburden at $2. These numbers were -- are higher than what was estimated in the original MRE. Underground total mining costs -- total costs, $31.54 for the West Zone and $41.54 for the Central Zone. So we did take into account distance from the potential mill site. Processing costs fixed at $12.18, G&A at 7 -- approximately $7.60 per tonne. Annual metal production, quite impressive, peaking at about 450 million pounds of zinc in year 3 with a life of mine average of 327 million pounds of zinc. So those are the essential numbers, results from the PEA. Again, I emphasize that they're quite planning actually, and we believe that this could make Pine Point one of the top 10 zinc producers in the world. There will be opportunities and further studies to enhance the value of the project, mainly through 5 points. And we expect that we will resource expansion laterally along the pit-constrained boundaries of the deposits. And that is due to 2 factors. Many of the tabular zones were left open in Cameco days. So there is definitely opportunity to expand those zones laterally and, of course, potential for discovering new vertical prismatic deposits throughout the property. That's one main opportunity to expand the resource, which we will try to exploit over the next 2 years. Second factor, which will -- should improve the numbers in the study are the 3D Hydrogeological and groundwater modeling to optimize the dewatering management plans. A significant cost will be related to dewatering in the mining operations. In this case, it will be controlled mostly through grouting and pumping. We totally excluded the opportunity -- or sorry, the potential for [ free walls ]. Metallurgical testing and material sorting efficiency will also be further optimized to maximize recoveries and increase sorting of coarse material fraction. Geotechnical testing will also reduce open pit wall angles and strip ratios. I want to emphasize, in this study, part of the cost increase is related to fixing pit wall angles at 45 degrees rather than 50, which was originally used in the initial [indiscernible] MRE last year. But personally, I believe that this pit walls can be increased very significantly and reduce strip. We're essentially talking about shallow pits and flat-lying sedimentary environments. And there's no doubt in my mind and see if the geotechnical studies will lead to much steeper pit walls. And finally, incorporation of automation to reduce camp and personnel requirements. Some of the exploration potential. There are approximately 11 deposits or a dozen deposits out of the total of 47 that are still open. So these will be the focus of detailed drilling in the next year or 2. The drilling will focus on 2 things: essentially, the infill drilling to convert the remaining inferred resource to indicated resource but also to expand on the open zones. I invite all of you to go to our website to download the latest corporate presentation, which includes the results of the PEA, and one slide that I think is an excellent example of a potential [indiscernible] across the camp on deposits, so [ N-27 ] and T-37, which clearly shows potential around [each of those] zones for significant expansion. On the sensitivity side, again, we used $1.15 zinc. $1.15 zinc is our forecasted long-term zinc price, which we believe is reliable for the purposes of this PEA. I remind the audience that the 3-year trending average for zinc is currently USD 1.20 per pound. At current zinc prices at $0.90, we believe that, that is not sustainable. Globally, 20% of zinc deposits worldwide are underwater at these current prices. Furthermore, the $1.15 is backed by data from third-party market data providers. So we're confident with that figure. However, at $1 zinc, more conservative -- $1 zinc and $0.90 lead, the project still generates an after-tax NPV of $250 million, an IRR of -- just shy of 20%. And at spot price, which, again, we believe is unsustainable, $0.90 zinc and $0.78 lead, Pine Point still maintains an NPV of $147.8 million and an IRR after tax of 15.1%. So these numbers are also -- are quite sensitive, of course, to metal prices. And our bullish scenario, long-term $1.25 zinc, we have very impressive after-tax NPV of CAD 636 million and IRR of 34.5%. So again, these are very robust numbers, certainly, context of the PEA. And that, of course, includes what many of you might regard surprisingly high CapEx of $555 million. I want to emphasize that a lot of work went into that number. Most PEAs, in my opinion, tend to underestimate CapEx. However, at 8%, this is an important -- it's a reliable number. And even though it's a high number, we still maintain a quite an interesting IRR. So moving on to mining. Open pit mining, 80% in the current model; 20%, underground. The underground mining method will be using Long Hole and Room and Pillar based on the geometry of the deposits, whether they're tabular or prismatic, operating at 11,250 tonnes per day over a 10-year mine life. That's a relatively short mine life, but trade-off studies indicated that, that -- those are the numbers that life of mine plan IRR and NPV. Scenarios between 6,000 and 11,000 tonnes a day were considered. Average strip ratio for the open pit portion of the mining operation will be 5.2. On the metallurgical and processing side, Pine Point -- we maintain that Pine Point will be producing or could produce an exceptionally high-grade clean concentrate. 58% zinc, this corresponds to historical production [ of Cameco ] days. This will be the result of XRT or X-ray mineral sorting system that will reject approximately 40% waste material. And it's -- the key is that it will significantly reduce material that goes into the ball mills for grinding. So the overall XRT life of mine recovery will be 93% zinc and 99% for lead, and standard flotation recoveries should bring in 93% zinc and 94% for lead, producing overall recoveries of approximately 87% in zinc and 93% for lead. And Table 5 in the press release, again, that's beside the fact that this is -- zinc concentrate will be exceptionally clean, well below the typical smelter penalty threshold for most of the deleterious elements, with the exception of magnesium also sitting at threshold values. So [concentration] is the quality are extremely rare for local markets, and we believe this material will be sought after by most [ suburbs ]. Moving on to the MRE. The newest MRE points to 12.9 million tonnes indicated at 6.29% zinc equivalent and inferred resource at 37.6 million tonnes for 6.8% in zinc equivalent. Resource were a total of approximately 50 million tonnes [indiscernible]. This is 2 million tonnes lower than our previous MRE. Again, the reason we're short 2 -- about the 1.5 million tonnes with respect to previous MRE, again, pit -- essentially, pit parameters will change, lowering pit wall -- a more conservative pit wall angles and also increasing operating costs from the previous study, which fixed mining costs at $3. In terms of mining material, 39 million tonnes compared to 50 million tonnes in the current MRE. That again is due to increasing the overall mining costs, also introducing a 12% diluting factor into the -- a minable -- or potentially minable resource. But dominantly, the decision was made for the West Zone deposits to convert to underground operation from open pit operation. The study -- trade-off studies clearly indicated that underground approach to the West Zone deposits will be more predominant, saving 90 million to 100 million tonnes of waste. Some of that -- we believe some of that resource will be recaptured in further studies by optimizing mining costs. So that pretty much wraps it up as an overview. We can now move on to the question period. And I'll invite the operator to field the questions.

[Operator Instructions] And currently showing no phone questions.

We see a question here on the Q&A. "So of the implied PEA resource, 39.1 million tonnes, what percentage is underground?" So it roughly track with [indiscernible]. It's what we track with what you see in the MRE. So we have about 20% underground in the MRE. In the PEA itself, just about 15% of the tonnes come from an underground scenario, again, those are tonnes largely in the West Zone and as well in the Central Zone, where we do have some tonnes that are accessed from the existing pits or from pits that we will develop during the mining operation.

We have a second question. "Can you provide a clear path forward drill budget, meterage timing for permitting, et cetera?" This is Jeff Hussey, President and COO. On the drilling, we'll probably start off exploration drilling within the year and continue on. We've scoped out indicated drill budget to get the indicated and exploration. The meterage, to get everything indicated and explore targets that we see to date, it could be up to 100,000 meters. Regarding the permitting. The permitting, we started it back in January. We're putting together a project description, of course, this milestone PEA. What we'll be doing is bringing those details into project description, communicating with the communities to get feedback on the project. And we hope to do that in the very near future and to then add the feedback into the project description and submit it to the government for the environmental assessment initiation. Typical permitting would, paid at this point, what we foresee as about 3.5 years to get the construction permit. And then that will be followed by 18 months of construction. This is, at this point, a PEA time line. We look forward to trying to optimize that time line. We want to meet what is forecasted in the future as a market that will be deficient in zinc con in about 4, 5 years. So we want to meet that opportunity. And so we're aiming for 2025 [indiscernible]. Another one is, "What are the planned next steps to start the feasibility and timing?" I think, to answer that question, as I just said, we're starting the permitting process and looking at schedule optimization. Our PEA is a fairly detailed PEA. We put together quite a bit of trade-off studies with regard to metallurgy, which is exceptional in this case, looking at the dewatering, et cetera. So we'll start with the mitigation of a [ pin ]-- of the items, dewatering being one, and incorporating and then bringing that further in the mine plan. But I would say the feasibility study is -- it's not scheduled right now, but it will be scheduled as soon as it is possible. Another question, "What are the all-in drill costs per meter?" When we say all-in drill costs, we include camp cost, the logging, the assaying, everything, the nuts and bolts, and that comes in at about CAD 300.

Canadian.

Canadian. Is there any other questions on the web? Maybe we would ask some of our -- oh, there are. "Aside from steepening the pit walls, do you see other low-hanging fruit to improve economics in the feasibility study?" As discussed, there are some opportunities to enhance value on the overall project. Largely, one is exploration. But on the operational side, we put together a dewatering plan at the PEA level. We think we can optimize that further. So that would help us to reduce OpEx or retain CapEx. As Bob mentioned, there's the optimization of pit walls. Once we do some geotechnical testing, we should be able to steepen those. On power efficiency, I think there's also some room for improvement. But in a general sense, I would say optimizing the mine plan with the dewatering we plan on -- now that we have basically the geology in a 3D model, we'll be able to do a 3D Hydrogeological model. We didn't have it as ready as we would have liked for the PEA. But with that in hand now, that will be probably our next step.

I want to emphasize on the exploration side here. This is Killian Charles. When it comes to exploration costs, I pointed -- it's hard to remember from a historical perspective, but Cameco and especially Cameco era portioned, they did not drill a lot of the tabulars when -- they would occasionally line tabulars, but they would not fully drill enough. So that's why when we see the opportunity to increase laterally in deposits, it is very much a real reality of -- obviously, we have the examples listed in the press release and on our website. But at the same time, we feel that this is something that can be done across the property. We do have a number of ports and drillholes, but these are mineralization -- high-grade mineralization that have not been followed up by Cameco or anyone until now. Those are clear opportunities for us to find potential new tabulars across the property. You've got to remember that we are dealing with a [indiscernible] [ scale project ], 50 kilometer. So there is -- the opportunity for finding new mineralization is quite high at Pine Point.

Yes. Bob Wares too as well. In terms of answering the question on other low-hanging fruit project economics, I want to emphasize that dewatering, if you include initial CapEx as sustaining, we're looking at total life of mine CapEx just on dewatering and water management side of CAD 150 million, which is very significant. And again, those were based on very preliminary historical studies. So there is ample opportunity with better water management and a better model to significantly reduce those costs, which will have a very significant impact on overall mining and water management operations.