Earnings Call: Q1 2024

May 14, 2024

Earnings release

Good morning, and welcome to the Victoria Gold Video and Conference Call to discuss the company's Q1 2024 Financial Results. Listeners are encouraged to read Victoria's 1st quarter audited financial results report and MD and A available on both the company's website and SEDAR. I am Marty Rendell, Chief Financial Officer and also on the call today are John McConnell, President and CEO and Mark Aranteau, Chief Operating Officer. Please note that listeners and viewers will be muted while management provides a short review of results. After the review, there will be an opportunity to ask questions. To register a question during the presentation, please do so in the chat function and the question will be addressed during the Q and A. You can also use the raise your hand function after the presentation to ask questions. Also note that this video will be recorded and available for playback on the company's website. We'll be making forward looking statements on this call and encourage participants to read our disclosure documents, including our corporate presentation, AIF and MD and A and the cautionary notes therein, which can be found on SEDAR and the company's website. I'll now turn the meeting over to John McConnell, Director and CEO. Thank you all for joining the call. I'll provide a brief summary of the Q1 and then pass the call to Marty and Mark to provide more details. 1st and foremost, starting with safety. We had no lost time injuries in Q1 and our total recordable injury frequency or TRIF for the Q1 was 1.79, amongst the best in our industry. Operationally, as is not uncommon during the winter in Yukon, the Q1 of 2024 saw the Eagle Gold Mine face some challenging conditions. Although our ore tonnes stacked were more or less the same as Q1 of 2023 and we successfully demonstrated our ability to stack year round for the 2nd year in a row. In Q1 of 2024, the total tonnes of ore delivered to our heap leach pad was modestly below our internal expectations. We have successfully resolved many of these small issues we faced during the winter and are now seeing both mined and stacked tonnes increase. We expect production levels to increase each quarter through 2024, which will result in progressively lower unit and per ounce costs as our largely fixed cost base is amortized over more ounces. Despite Q1 being what we expect to be our lowest quarter of gold production for the year, we nonetheless generated free cash in the quarter and we are benefiting as we are benefiting from a strong U. S. Dollar gold price and a relatively weak Canadian dollar. We continued to deleverage our balance sheet in the Q1 as we made a scheduled US8.3 million dollars payment against our term debt facility. I will now turn the call over to Marty Rendell, our Chief Operating Officer. Chief Financial Officer? Chief Financial Officer. We'll leave Mark to the operating section. Hi, everyone. I'll briefly discuss our financials before passing it over to Mark. Currency will be in Canadian dollars unless specifically mentioned otherwise. During the quarter, we sold 30,491 ounces of gold. This is about 8,000 lower than Q1 of the previous year, with the entire difference attributable to lower gold production, which Mark will discuss shortly. As a result of the lower ounces of gold sold, quarterly revenue fell from CAD 97,000,000 to CAD 83,000,000 year over year. Quarterly production costs as well as cost of goods sold were constant year over year at $72,000,000 $57,000,000 respectively. As we said before, much of our costs are of a fixed nature at the Eagle Gold Mine. The lower gold sales and revenues during the quarter, combined with similar costs year over year, result in a decreased gross profit, operating earnings and net income before and after tax. Net loss after tax in Q1 2024 was CAD 9,000,000 compared to net income after tax in Q1 2023 of CAD 1,000,000 If we strip out foreign exchange losses and derivative losses, the adjusted net loss in Q1 2024 moves to an adjusted net income after tax of $4,000,000 versus $10,000,000 in 2023. At the end of March 2024, the company held cash and equivalents of 28,000,000 compared to CAD 15,000,000 at the end of December 2023. Note that the March 2024 cash balance includes CAD 10,000,000 in flow through financing, which we completed in March 2024 and will be used on qualifying exploration spending. I would like to remind listeners that we use our revolving credit facility to manage our treasury. Therefore, our cash balance generally stays fairly constant, while debt will fluctuate to match liquidity needs. Working capital at the end of March 2024 was CAD148,000,000 compared to CAD 147,000,000 at the end of December 2023. During the most recent quarter, total capital incurred was 12,000,000. Dollars This is comprised of sustaining capital, capitalized stripping and growth capital and exploration. A detailed breakdown is shared within our MD and A. I'll now review our non IFRS annual performance measures. Once again, quarterly metrics, along with the detailed numerical breakdown and commentary on the calculation, is within our MD and A. During this section, I will use U. S. Dollars for unit based numbers to allow for uniform peer comparisons. The average realized price per ounce of gold sold in Q1 2024 was US20.19 dollars This compares to Q1 2023 where we realized US1867 dollars per ounce. Cash cost per ounce of gold sold during Q1 were US1368 dollars and this compares to Q1 2023 where cash costs were US11.15 dollars per ounce. All in sustaining cost per ounce of gold sold in Q1 2024 were US1708 dollars and this compares to the previous year where all in sustaining costs were US14.20 dollars per ounce. Free cash flow before and after working capital in Q1 2024 was positive CAD7 1,000,000 and positive CAD13 1,000,000 respectively. This compares to free cash flow before and after working capital in Q1 2023 of positive CAD 10,000,000 and negative CAD 15,000,000 respectively. EBITDA, earnings before interest, taxes and depreciation and amortization, in Q1 was CAD 12,000,000 or CAD 0.19 per share compared to Q1 in the previous year where EBITDA was CAD 26,000,000 or CAD 0.41 per share. I'll now turn the call over to Mark Aranteau, Chief Operating Officer. Mark, if you just want to unmute. There you go. Thanks, Marty, and good morning, everybody. First, reiterate John's emphasis on safety. As John noted, the Eagle Gold Mine performed very well across all safety metrics in the Q1. The safety of our employees is our top priority, and our track record bears this out. In the Q1 of 2024, the Eagle Mine produced approximately 30,000 ounces of gold. Although gold production was expected to be lower quarter over quarter largely due to lower grades and lower than planned stacking rates in Q4 2023, as John mentioned, production in Q1 was modestly below our internal expectations. This was largely due to slightly lower than expected stacked tonnes and the timing of placing those tonnes under leach. We stacked 2,000,000 tonnes of ore on the heap leach facility at Eagle in Q1 at an average grade of 0.63 grams per tonne, and we mined a total of 4,900,000 tonnes of ore and waste in the quarter for an average mining rate of 54,000 tonnes per day. Q1 production was impacted by lower than expected mine tonnages largely due to equipment availabilities And this relates primarily to our cat drill rigs and slower than expected delivery of OEM parts required to maintain these drill rigs. This issue has since been resolved and mining tonnages have increased significantly. Both stacked tonnages and grades are expected to increase through 2024. This will result in increased gold production primarily in the second half of the year. The warmer temperatures we experienced during the summer months allow greater operating efficiencies and allow certain heap leach activities such as the use of sprinklers to leach our side slopes on our heap leach facility. Similarly, the benefit of placing additional stacked but not yet leached tonnages under irrigation will primarily report to our gold production in the second half of twenty twenty four. Our leach pad performance remains strong in the Q1. Recoveries are continuing to trend in line with our forecasted levels. Notably, we saw an approximate 2,500 ounce reduction in our recoverable mineral inventory in the quarter as ounces stacked in prior quarters were recovered at dore and this is expected under our leach recovery model. Stack grade of 0.63 grams per tonne in the Q1, while it's slightly below our overall average reserve grade, remains in line with the sequencing of the Eagle ore body in our mine plan, which life of mine has reconciled well to actual production results. The grade we stack in Q1 reflects mine sequencing, the impact of slightly lower grade bonus ore, which in our reserve model was considered waste and we have converted it from waste to ore, and a small amount of lower grade stockpiles processed in the quarter. We are expecting grades stacked to increase through 2024. And John, back to you for concluding remarks. Thanks, Mark. In summary, although we dealt with some challenges this winter at the Eagle Gold Mine, we are pleased to demonstrate our ability to stack year round at the mine. We are looking forward to production increases each successive quarter throughout 2024 as we execute on and optimize the operating platform we have at Eagle. Thank you all for listening and we will now open the call for questions. Hi, everyone. To ask a question, please electronically raise your hand. The raise your hand function is located in the reactions tab on the menu bar. We've got a question from Bob Apage. Bob, I will ask you to unmute and go ahead with your question. Hi, it's Bob Page. I'm with WGM Consultants in Toronto, calling in on behalf of a client of WGM. Can you comment on when Victoria will release an updated resource on Raven and possibly some comments on what the preliminary MET testing looks like? And lastly, does Victoria see Raven as potentially feeding the current operation? And if so, what would the timeframe be for bringing it in? Thank you. Hi, Bob. Yeah, it's John McConnell, the CEO. Couple of comments on Raven. We've had since we put out the first resource update, we've had 2 summers of drilling. We have reviewed that information now and we feel we need another summer of drilling out there before we make a update to the resource. So we have that plan for this year. On the metallurgy, we haven't completed all the metallurgical test work. It's going well and when we do, we'll put out a release with the metallurgical results. Hey, we've got a question through the chat function. The first question is, what are the priorities for free cash flow? Our priority for free cash flow is definitely debt repayment. We have US16.6 million dollars remaining on our term loan with our Canadian syndicate of banks. We'll be repaying that over the next two quarters in June September of this year. So that's a primary use of our free cash flow. Production increases as we expect and gold prices stay high. We'll certainly have excess cash flow beyond that and we'll look to reduce our revolving credit facility with that free cash flow. Another question through the chat function. Again, it's on cash allocation. So we just answered that one. We'll switch back to a raised hand. Mitch, I will unmute you, and you can go ahead and ask a question. Yes. Good morning. Can you hear me? Yes. Yeah. I've got a couple of questions. I've, one of them, I think you may have answered already. Question is in relation to your life of mine production schedule. I noticed in the technical report for the Eagle, the updated technical report April 10, 2023, page 33, it refers to the production schedule. And a couple of questions I have is, first of all, are you guys do you guys follow that schedule fairly closely or how much can I rely on that as an investor to kind of see what's going on? Mark, you want to address that? Yes. Good morning, Mitch. That schedule we do follow reasonably closely. That is a life of mine plan that you're going to see. We do have short term and medium term mine planners at site. We have a strong technical group. So there are some variances to that plan. And then the but the sequencing really remains quite robust relative to that plan. Timing sometimes changes depending on how many tonnes we get to mine as we just discussed. But our actual performance reconciles very well to that mine plan. So, I'm just I guess I'm a little bit concerned about the numbers, the millions of tonnes. For example, the ore mined to crusher in 2024, the plan is showing that it's going to be about 10,400,000 tonnes, 10,500,000 tonnes. I don't think we're getting anywhere near that, 2,000,000 tonnes a quarter, it's going to be pretty tough to hit that 10,500,000 tons. The other one I'm looking at here is the waste and the mind waste mine. We're calling for over 20,000,000 tonnes in 2024. At this stage, the waste mine is, I don't have the right in front of me, but I think it's around 2,500,000 tonnes of that. So, I don't know how we can hit these targets unless we're you know, mining this amount of ore. I mean, the grades, for example, you know, when you look at the grades we're mined 0.86 grams per ton. What was it last year? This year, we're mining at about 0.64. There's only one way to produce more gold is you got to put more on the pad, seems pretty straightforward, yet that doesn't seem to be keeping up with the plan. So how do we plan to get to this 165 to 85 level if we're not stacking more ore? And how and I guess, how do you plan to meet that in the next three quarters? I mean, curious to see what your plan is on that. Yeah, Mitch, I think you're making maybe a statement as much as asking a question, but I'll answer it like a question. We just went through our results. And Q1 is always and you can look back historically, always our challenging period. We are in the Arctic. Material handling is always more of a struggle. A good reminder, Mitch, last, we're a bit disappointed in what we stacked this year relative to last year. But last year was also a record, stacking rate in Q1 where we demonstrated that we had stacked year round and it was very successful. We are marginally off what we'd hoped to achieve in Q1 of this year. Grades are lower because of sequencing in the pit. So I said the life of mine plan reconciles fairly well. Sequencing wise, it does. Timing, it can be off a bit. I can tell you most of our waste stripping comes from Phase 3 where we need to get down to the ore body while we mine out ore in Phase 2. And to be honest, in our budgets, we don't give this granularity, but we didn't have a lot of waste stripping up in Q3 or I'm sorry, up in Phase 3 during Q1 because of some of the cold weather challenges. You can look back at last year and previous years and Q2 and Q3 are very strong for us. I'd mentioned that drill availabilities were tough, which also really prevented us from mining at a rate that we had planned to. But we're not far off and we have addressed those issues and we've significantly increased. So I think the technical report remains strong, particularly on sequencing. And we're pushing to get the tonnages both in ore and waste that are required for us to execute on our annual guidance. Thanks, Mark. Mitch, if you got further questions, we will get to them. But I'm going to go to some more questions in the text at the moment. There's a question, once the debt is repaid, will we still need to hedge part of production? And it's a good question. Our hedging is directly related to our debt. And while we have debt and significant commitments to repay it, we do hedging. We do expect hedging will be reduced or eliminated as our debt is reduced and eliminated. So a strong linkage there. Another question in the text. With a potentially bad fire season ahead, are there any precautions you're able to take to limit the potential effects to the operation? Yeah, that's a great question. And we did get evacuated last year. One of the upsides of that, we had a strong presence for the WiLAN Fire Services team. Out at Eagle last year, we did a lot of burning adjacent to and surrounding Eagle. So the amount of fuel available for forest fires, if one comes close, has been reduced significantly, which is good. We always take precautions. We most certainly have already got our water tanks. In the wintertime, we convert those vehicles to sanding for sanding purposes. In the summertime, we put water tanks on those vehicles. That's already been done. And last year as a result of the forest fires, we had completed a pretty comprehensive assessment. So it is really dry. There's no doubt. It's dry across most of all of the West. And it's something that we're cognizant of. But I think we're in far better shape than we've been and that was largely a result of the large burns that were around Eagle last year. I would also add that the current fires in Northern British Columbia have recently affected Internet services, including at Eagle, but we have a fully redundant system. So well in Whitehorse, they may not have had Internet, we had full Internet services at Eagle. So that is one of the precautions we've taken in case of forest fires. Next question. The projection for gold is 165,000 to 185,000 ounces for 2024. We produced 30,000 in the Q1. That leaves 145,000 at the midpoint of guidance. I understand you're not going to provide quarterly guidance, but my math assumes you produce $40,000 in Q2 and around 52 for Q3 and Q4. Is that approximately correct? Mark, did you want to comment on production for 2024? Sure. And As the person noted, we aren't providing and we don't provide quarterly production, which is standard across the industry. I think the what you can do if you look back at previous years and more specifically previous quarters, look at quarter back, maybe 1.5 years and you can have a good projection on what gold production is going to be. And there are slight seasonal adjustments to that. As we know, Q1 is always a little more challenging and we often have a bit of deferred gold production, while we just weather related to get ore under leach. So I think hopefully that answers the question with enough granularity. Thanks, Mark. Next question. For the benefit of investors, can you refresh, folks, how long is the mine life? And how do you plan to keep or extend that mine life during 2024? The life of mine plan currently goes I believe to 2,034. And we do have very near term targets at Eagle to extend Eagle laterally and at depth. It's quite common in heap leaches to find that happen. As well, we have the Olive deposit, which we may or may not get to further exploration this year, but certainly contributes to the overall life of mine plan. But I think there's a lot of opportunities honestly to extend Eagle's life in addition to the exploration stuff that we're doing, a little more distal but still in close proximity to Eagle. Thanks, Mark. The current price of gold is about $300 per ounce higher than in the Q1. Can you talk about how that impacts cash flows if these prices stay at or above these levels? Thanks for the question. The math is pretty easy. As we've said earlier, much of our cost base is fixed. And so when the price of gold goes up or production goes up, much of it does fall right to the bottom line. So that $300 per ounce increase from Q1 to Q2 will increase earnings and cash flows very materially. And again, as I said earlier, with those excess cash flows, will put us in a much better position to repay excess debt this year. I think that's it for questions through the text. Any final questions from the room? Okay. Thank you, everyone, for your questions. We'll be back here a quarter from now, looking at Q2 and answering more questions. We'll now close the session. Have a great day. Thanks everyone. Thanks everyone.