Toubani Resources Limited (TRE) Earnings Call Transcript & Summary

Good morning, everybody in North America. Good afternoon, everybody in Europe, and welcome to the webinar for an update on the company. And more importantly, the latest definitive feasibility study questions. My name is Danny Callow. I'm the Chief Executive Officer of African Gold Group, and we'd like to take you through an update and most recent definitive feasibility study results. I'll point you to the disclaimer in the presentation. And also just to let you know that this presentation will be available on our website post this webinar. So as you know, we own the flagship Kobada project, which is around 200 kilometers southwest of Bamako, the capital of Mali. We're in the prolific Birimian Greenstone belt, surrounded by a number of producing mines and most of the large gold producers are operating in Mali, which makes Mali probably around the third or fourth largest African gold producer, and we are right in the middle of that. We believe we have highly attractive investment fundamentals. And as we take you through this presentation, we will show you some of the road map of where we've come from and where we are going. But if you have a look at this project now after the delivery of the DFS, we have delivered an updated study that shows 100,000 ounces of production for the first 10 years of the mine life, moving along to a 16-year mine life. We're showing a USD 733 million pretax cash flows over the life of mine, and that translates into a very healthy USD 550 million, posttax and royalties. We're fully permitted and ready to build, which means we have our mining license in place, and that is valid until 2045. Some very encouraging posttax NPVs and IRRs of $355 million and IRRs of 38%. And I think importantly, for investors on the call, we have a huge share price upside potential. If you have a look at Canaccord current target price who covers us in research. We're talking around $0.80. And currently at $0.16, you can see there's substantial upside here and a re-rate possibility on the stock. And as I've mentioned in prior webinars and a number of interviews, what excites me about this project is this huge resource upside potential that we have. We've increased the resources and the reserves substantially over the last 2 years. We believe we are still only scratching the surface of what this deposit has to offer. We have a very experienced Board of Directors, pretty international. We appointed Doug Jendry recently. He's based out of Australia, and that's a testament to a number of -- or a growing number of Australian investors that are investing in our stock. Doug has a very strong track record as a geologist and has held numerous Board positions within ASX-listed companies. And I think most of you know the rest of the Board. We have Scott and Pierre out of Canada; John out of the U.S.A.; and Jan-Erik Back out of London. So I think from a Board perspective, we cover most of the bases where our investors are sitting and a very small, but competent management team. We've always maintained a very strong corporate responsibility focus. We always look at the environmental, the social and the governance side. The latest DFS update is aligned to the UN Sustainable Development Goals. And when you read NI 43-101 report, you will see that we align to many of those sustainable development goals. Environmentally, we're looking at not only a HGP-lined tailings dam that performs to international tailings dam standards, but also looking at a hybrid solar thermal plant, which will allow us to significantly reduce our emissions and also significantly reduce our reliance on carbon fuels. In the same vein, socially, we have a responsibility to the communities that surround the mining operation and also the region, and we continue to make headway in forging very strong relationships with most of the local police chiefs and local business people. And on the governance side, as we've mentioned before, we have a relationship with SAFe that will ultimately help us with our supply chain, all the way through to prove provenance of our gold from mine site to end user. As most of the mining companies have probably reported, we've also been affected by COVID-19 in the sense that we had multiple lockdowns in Mali. Thankfully, not one of our employees on-site got COVID, and we've managed, through awareness programs, to make sure that we maintain that record. Likewise, on the health and safety side this year, I'm very pleased to report we've had no lost time injuries on all of the work that we've been doing on the exploration side. And as I mentioned, on the environment and the social, we're forging ahead quite hard there. The capital structure of the company has remained pretty stable since earlier this year, 180 million shares outstanding, 53 million warrants and a market cap sitting between CAD 25 million and CAD 30 million. We have seen good support from our existing institutional shareholders, Nero fund, Ixios, L2 Capital and Pala. So on to the project definitive feasibility study. Most of you will see -- have seen the press release that we released about 10 days ago. As you can see, very, very robust numbers. We're very happy with them. We've also managed to incorporate a whole lot more flexibility into this project, and we'll talk a little bit about that. But as you can see, some really good pretax NPVs of $506 million, pretax IRRs of 45% and some very, very good payback numbers when you have a look at producing from first gold to full payback of the capital expenditure. This will translates into some very substantial pretax cash flows, as I mentioned, of USD 773 million, and that gives us that 100,000 ounces of production over the first 10 years. All-in sustaining cost numbers of $972 an ounce still sits in the lower end of the region in terms of what we're seeing in all-in sustaining cost at the moment. And as I mentioned before, we've now delivered a 16-year life of mine for this project, which is up from around 9 years in the 2020 study. All of this is capable because of the 3.1 million-ounce total resource that we've delivered. So splitting that up, around 1.7 million ounces in measured and indicated; and about 1.4 million ounces in inferred. Again, I'd like to point out that inferred is not just holes poked all over the property. There is a very good opportunity to upgrade a fair amount of this inferred resource into measured and indicated through some very targeted drilling. And all of that rolls into this very, very encouraging uplifted 1.25 million ounce proven and probable reserve. The project remains still very straightforward. As we've spoken about before, it's still an open pit mine. We will still pretty much mine this as a free big operation for the first 6 years of the mine life. The major change between the study in 2020 and the updated study from 2 weeks ago, is that we have now incorporated the sulfides or the fresh rock into the study as well. Now that opens up massive opportunities for future growth in terms of being able to treat anything that we throw at this process plant. Obviously, as we move into the sulfides, as we go deeper, we will need to start to do some additional blasting -- drilling and blasting. But ultimately, this process plant now has the capability to treat oxides, sulfides and a mix of both of those together. And what that enables us to do is be a whole lot more flexible on the optimization of the mine plant to be able to produce this 100,000 ounces a year for the first 10 years. Capital numbers are around $166 million to deliver this project. You can see that also includes working capital and owners' preproduction costs. Overall, we're very confident on those numbers. You can see the big numbers there are the plants in the infrastructure coming in at $88 million; the tailing storage facility at $29.4 million; and the pre strip and the mine development at $23.6 million. Ultimately, we are very confident in these numbers. The engineering company, SENET, which is part of the larger DRA Group, have just delivered a very similar project to this across the border in Guinea, and we are seeing very similar cost structures that they have already delivered to what we believe that we will see once we move this thing into construction. We're seeing a much reduced -- lower power cost through using the hybrid power plant. And most of you will have seen the fuel price going up quite substantially over the last 12 months. The benefit of going for the hybrid plant is that solar power is effectively free. So overall, we're seeing a blended power cost of around $0.20 per kilowatt hour versus most of the mines that are operating on full carbon fuel plants of around $0.30 per kilowatt hour. So a huge saving, and that obviously translates into fuel savings on the operating cost side. Operating costs of around life of mine $880 an ounce, again, still in the lower half cost profile of most of the West African operations. And we're very comfortable that these numbers are conservative enough to be able to drive costs down even further. As I mentioned, a much-improved operation schedule from a prior year definitive study. Now we're seeing 10 years at 100,000 ounces. You can see, obviously, the x-axis here is assuming that we would be able to start the development of this mine in early 2022. But if we just have a look at the profile, we're seeing pretty comfortable 100,000 ounces a year for the first 10 years, and we're seeing that tail off in the last 6 years, which we are very confident that we will be able to replace that with new resources as we continue to drill through the mine life. And all of that translates into some very substantial discounted cash flows after tax. You can see that number, up $60 million for the first couple of years, drops down to $40 million, and then hovers around the $20 million to $30 million mark right the way through the life of mine. So some really substantial free cash flows being generated here throughout the life of the operation. I mentioned upfront that we have really had a strong focus on trying to improve the integrity of this project. And part of that is to really understand the geology and block model and the resource model. You can see that we inherited a 2016 resource model that translated into our 2020 resource update of 2.3 million ounces. There wasn't too much difference there, but we were much more confident on those ounces. The big jump came in the last 12 months with the additional drilling that we did, and you can see that jump of around 48% -- or 40%, which kept -- took us up to 3.15 million ounces of resource. The reserve side is rather more dramatic. Reserves obviously generated from resources, but the more confident you are in your resources, the more confident you are in your reserves. And there, we inherited in 2019 a reserve of around 511 million ounces. And you can see we have substantially improved that over the last 2 years to the 1.25 million ounces that we're now talking about in the new definitive feasibility study. I think we're now very comparable to a number of other operations in West Africa. You can see on this graph at the bottom that our current provider 2021 life of mine production is around 1.2 million ounces with about a 16-year life of mine, which is pretty large compared to some of the other operations there and a fairly encouraging posttax NPV as well. So we're definitely now comparable to a lot of these other operations, but significantly undervalued, and I think that's the important point here. If you have a look at most of these other operations and the companies that own these projects, most of them are trading at multiples of what AGG is trading at, which gives us a lot of confidence that we do have this massive re-rate opportunity in this current market. Some of the drivers that make ours a very good project are simple, low-cost operation, simple metallurgy, low-cost reagent consumption and a long life of mine. And remember, long life of mine equals much more flexibility when you want to start having a look at optimizing the production out of this process plant. Again, just having a look at valuations. Another very good measure for companies in the similar situation to us is enterprise value to total resource. You can see African Gold Group there, the red block, sitting at around $8 to $10 per ounce of resource in the ground versus any one of these other companies operating in similar circumstances that are all up in the $40 to $60 range, which seems to be a fairly typical number for the TSX-listed companies, and upwards of $60 to $100 an ounce for ASX and London-listed companies. So you can see that even if you have a look at share price to possible multiple re-rate to EV to total resources, you can see that we have this great opportunity to re-rate, to get up to some of our peers in the industry. Obviously, we spend a lot of time trying to understand why we haven't re-rated yet, even though we've continued to deliver much better and better news into the marketplace. This is a fairly standard type chart. Obviously, if we have a look down the life cycle of a junior company, you generally get a very good kick up in the early stages from concept through discovery, partly because you're able to deliver some really good news into the market fairly frequently as you're drilling, but also because it really starts to show that you have a project available. What then typically happens is, as you're moving from announcing your first resource into delivering your feasibility study, and this is generally pre fees, and then bankable feasibility study, you tend to see a bit of a tail-off in the share price. That is pretty common across a number of our peers in the industry. And part of that is because a lot of investors are thinking, okay, fine, you've got the resource now. You've got a great study. You've got a great opportunity to deliver some really good free cash flows. But how are you going to raise the money to get from this decision to construct through to first gold out of the plant? And obviously, we believe we are sort of sitting in that trough at the moment, but that also gives us this amazing opportunity to have this significant re-rate as we start to move up this financing curve. And I think that's really important to note. We've seen this with a number of junior producers over the last 2 years, and I think most of you will know who those are. As I mentioned right up front, one of the things that attracted me to this in 2019 was the exploration potential. I know I keep talking about this, but it blows my mind how fantastic the outside opportunity is here. Where my little mouse is right now, you can see these red blocks. This is our 4-kilometer strike and this is our resource shell. The resource shell of 3.1 million ounces is effectively sitting on only 4 kilometers of shear zones on our property. To put that into perspective, we own 3 contiguous concessions here, our mining permit in the middle, Faraba the north and Kobada-Est to the South. Overall, we believe we have around 55 kilometers of shear zones on the property, and we've only drilled out 4 kilometers of those 55 kilometers, and we've already got 3 million, 3.1 million ounces of resource in the bag and 1.25 million ounces of reserve. Clearly, there's a great opportunity to continue to develop this resource. And part of the way we will do that is to have a look at the parallel shear zone to us. Now last year, after our study was released, we spent some time drilling in here. We delineated around 750 meters of strike over a possible 8 kilometers of strike. All of the holes that we drilled hit gold. The gold grades were slightly higher than we were seeing in the main shear, around 1.1 grams a tonne, and we've got some really good hits in this area. So this gives us a lot of confidence. But as we continue to upgrade this resource, we still will be able to bring a lot more ounces in from this Gosso shear zone in the medium term. The other thing that we did over the last year was to continue to drill within this existing resource shell. What we've seen there is a conversion of inferred oxides and sulfides into measured and indicated. We upgraded a fair amount of that into this year's study. We still believe there's around 284,000 ounces of low-hanging fruit. In other words, gold that we can convert quite easily into measured and indicated and reserve, and all of that is laid out in future drill programs in this area here. And obviously, the longer-term, bigger picture view is if you have a look again at our 3 concessions. Where my mouse is right now, you're seeing where our current resource shell is. You're seeing these huge extensions to these shear zones right through to the northeast-southwest, and we believe that all of these are highly prospective. We're seeing evidence of mineralization all the way through these shear zones in old artisanal mining workings. And therefore, we do believe that we have this great upside opportunity to continue to drill this deposit through the life of the mine. And again, I'll make that very clear. One of the things that we will always intend to do, and we've always said this is, even when we move this project into construction and operation, we will still continue to drill this deposit with the free cash flows that are generated to be able to continue to upgrade this resource even more than we have done in the last 2 years. I think the last couple of slides really try to highlight what we've set out to do 2 years ago when we got involved in this project. Part of it is to move to an execution plan and the other part was delivering on promises, and that's really important to me. My background is in large corporates. It's in building and operating large-scale mines. All of that has to be driven by the technical data. You have to understand the technical data to be able to build a platform to be able to invest in, and that's what I think we've done very successfully over the last 2 years. As you can see, we've delivered a 3.1 million ounce resource, which is fairly sizable, but it's really still the tip of the iceberg. We've spent a lot of time on the metallurgy, understanding all the various types of ore that our process plant needs to treat and make sure that our process plant was designed to do that, and we can tick the box on that one. We've also now brought in the sulfides. About a year ago when we delivered the last study, there was some criticism that we had excluded the sulfides. The reason we did that was, was we had not done enough test work to understand how they would react in our process. I'm very pleased to say now that the sulfides can be treated through exactly the same process plant as our oxides, with very similar recoveries of 94%, 95% gold. And that means now that we've included that into this study. We've also delivered a really fantastic upgraded, proven and probable reserve of 1.25 million ounces. And we've also increased that life of mine from about 9 years to 16 years. And I think again, what we've proven in this last feasibility study is that we have demonstrated the very strong and robust nature of the economics of this project. What have we still got outstanding? We have had to update our environmental permit. That is on the Minister's desk. We expect to see a positive outcome on that over the next little while. That will give us all the requirements that we need to be able to put first shovels in the ground there. And obviously, then going through the process, which is probably one of the toughest things on this list of securing the financing for the construction. So I think as an investment case, really, the way I see this project is a robust project with this massive upside potential, both in terms of valuations and also in terms of resource growth. We're construction-ready. There's not many of us around in West Africa. We can deliver this project in 19 months from start of construction. We've delivered a very good, updated, robust, definitive feasibility study, showing some really good improvements in annual gold production of 100,000 ounces over the first 10 years of the mine life. As I've mentioned, we have a good upside potential in terms of valuation. We definitely have the clear strategy for growth, which we've talked about on numerous occasions, which is that the cash flows that we generate from here, part of those can be going to increase or fund organic growth, and potentially have a look at some M&A. Resource expansion side. I've talked about it time and time again. We believe there's still 51 kilometers of shear zones on this property yet to be drilled. That is substantial. We already have 3 million ounces of gold in measured indicated and inferred resource on just 4 kilometers. And I think that just in terms of the team and the Board, we have a very experienced team. We've done this before. We know what we need to do. So I think that's the presentation as it stands. We do have a number of questions that have come in. So I'm just going to flick to those.

I think one of the questions that often comes up is, what is happening on this next phase of our life cycle, which is the financing side? Obviously, I can't talk specifics, but I would like to say that since we've delivered this recent definitive feasibility study, we've had a number of very positive conversations. Some of them have been picked up from conversations that we had after our study last year. We've obviously, as we've said before, focused very strongly on debt providers. We have no intention of going out and diluting existing equity holders by raising the equity for the project first. So we're going out and talking to debt providers. What's very interesting to us is a number of senior debt providers have actually approached us in the last 2 weeks to start conversations. That's very encouraging because obviously, that's a very good cornerstone of debt that we would like to get into the project. And I think that those are actually moving ahead in a fairly rapid way. So I think a lot of the foundation work that we did through last year and post the 2020 study is now allowing us to move a little bit quicker into discussions in the second half of 2021, and I'm very positive that we will be able to eventually raise the money that we require to build this project. Another question that's just come up. The -- is there any potential for corporate consolidation in Mali? Are you actively looking for potential M&A targets? Look, I think the gold space has been a little bit depressed over the last 6 or 8 months. We've seen that. It's been quite quiet. Obviously, that's all been renewed recently with that very large merger that was announced recently. There's always spin-offs when mergers like that are announced, and I think that we are going to see some increased M&A activity in the gold space. Obviously, we'd like the gold price to pick up a little bit. But again, I think that being realistic at current gold prices, all of these projects are highly profitable, which means that a lot of the producers are carrying huge cash on their balance sheets, and that does enable them to go out and start to have a look at near-term projects. Again, I can't be too specific, but we have had a number of very interesting corporate discussions. Clearly, at current pricing, we have to be very careful about valuations, and we would never do anything that will potentially jeopardize our -- the value in the company for our existing shareholders. But I think it's safe to say that there is a fair amount of discussions around possible corporate activity, as I may have mentioned before. Another question, in the event of financing -- in the event of not financing the money required to build it, what is plan B, selling the project? Or starting production at a lower level? Well I think that's a good question, and it's one that we've had a number of conversations about. We're very confident that we will raise the money to develop this project, and we've seen a number of junior miners over the last 2 years, having taken some time to raise the money, being able to close out and raise the capital. We don't believe that we would be any different there. But obviously, One of the options is -- for us is to continue to drill. We have, as I mentioned, 285,000 ounces of very easy-to-get gold sitting within our current resource shell and inferred resources. That is easy to drill out. We also have this massive upside potential across the property. So in the event that the financing of the main project is taking some time, we can always look at the opportunity to put the drills back in the ground. You've seen our success rate in growing the reserves around about 150% since we took over in 2019, and we believe that we can continue to grow the reserves through more targeted drilling programs as well. So we have this great opportunity to be able to continue the forward momentum of the company, even if it takes a little bit longer to raise the money that we need to build it. I -- just to see if there are any more questions coming in. One of the questions that just came up now is, why didn't you increase the production profile to 150,000 ounces in the new feasibility study? That's a great question. I think my answer to that is how long is a piece of string. I think we were pleasantly surprised at the increase in the reserve from 755,000 ounces to 1.25 million ounces. When that was put through the mine optimization and the 16-year mine life dropped out, it did beg the question then, should we not be looking at a slightly larger plant, from 3 million tonnes per annum to maybe 4 million tonnes per annum, and push for that 150,000 ounces? I think that we will do all of those exercises. We definitely do have enough ounces to play with now, and we certainly see an opportunity to be able to front-load the production here to be able to get more than 100,000 ounces out without making the mine life too short to start to create some sort of longer-term problems. So I think that, that is definitely a potential. And I think that's something that we'll definitely look at as an exercise over the next 3 to 6 months. What I will say about the way that we've designed this plant is that it's very modular. So we have the ability to add additional modules to it quite easily without disrupting production in separate phases so that if we started with a 3 million tonnes per annum plant, we've left enough space for another gravity section, more CIL tanks, space in the gold room for additional furnaces, et cetera. So we've always had it in mind that with this massive resource upside potential that we have, we've always had this feeling that this project is going to be bigger than 100,000 ounces, hence the reason why we've designed this in a very modular way. Ideally, when you design it in a modular way, what you would like to do is try and fund future expansions out of your own cash flow, and that's obviously opportunities that we have because we now, with this latest study, do generate some very sizable cash flows. I haven't had any more questions come in. So I think I'm going to leave it there. I'd like to thank everybody for their time for dialing in. And we do like to try and do these fairly regularly. And therefore, I look forward to speaking to everybody again in the next month or 2 as and when we start to get some more updates on the progress on the financing side. So thank you very much for your time, and I look forward to speaking to everybody again. Finally, I think you can see on there the contact information, and Daniyal is our VP, Corporate Affairs. Please feel free to phone him or drop him a line. We tend to try and answer all of the questions that we get within 24 to 48 hours. So we'd like to keep on top of them. So thanks a lot, and I look forward to chatting to you soon.