Orla Mining Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 9 speakers on the call.

Operator

and gentlemen, and welcome to Orla Mining's Conference Call for the Q1 2024 Results. My name is Ian, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Please be advised that this call is being recorded. I would like to turn the meeting over to Andrew Bradbury, Vice President, Investor Relations and Corporate Development.

Operator

Please go ahead, Mr. Bradbury.

Speaker 1

Thank you, operator, and welcome to Orla's Q1 2024 results conference call. We will be making forward looking statements during today's call, and I would direct you to the first and second slides of the presentation, which contains important cautionary notes regarding these forward looking statements. All dollar amounts discussed today will refer to U. S. Dollars unless otherwise indicated.

Speaker 1

The oral executive team is on the call this morning, and I'll now pass the call to Jason Simpson, President and CEO.

Speaker 2

Thanks, Andrew. Our Q1 highlights include continued strong performance at Communalovo on safety, environmental management, operations and costs. We have maintained consistent low cost gold production, which coupled with an increasing gold price has led to margin expansion and strong cash flow generation. Exploration ramped up in Mexico in the Q1 and we look forward to providing updates on the exciting Camino Rojo extensions. We recently completed the acquisition of Contact Gold and we are integrating the Pony Creek property into our portfolio and expanding our exploration efforts in Nevada.

Speaker 2

With respect to our interests in Panama through our Cerro Cayman project, we have suspended investment and are pursuing legal remedies without preference be a constructive resolution with the government of Panama that results in a positive outcome for all stakeholders. We have the entire executive team on the call to provide specific updates. So first, I'll pass it over to Andrew Cormier, our Chief Operating Officer for a Q1 operational update.

Speaker 3

Thank you, Jason. We are pleased to carry out the positive operational performance from 2023 into 2024. This was demonstrated by the strong Q1 minuteing and processing performance at Camino Aurojo while maintaining the health and safety of our team. We mined over 1,900,000 tonnes of ore at a strip ratio of 0.45. The average gold grade of ore processed during the Q1 was 0.82 grams per tonne.

Speaker 3

We also achieved an average stacking rate of 19,597 tonnes per day. The mined ore tonnes and grade continue to reconcile well to the block model. During the second half of twenty twenty three, we initiated a program to test the impact of reducing the crusher product size from a PAD of 28 millimeters to 23 millimeters. The initial results of this test program are positive and we're seeing higher gold recovery from the heap leach as a result. The testing will continue in 2024 to quantify the positive impact that the crush size will have on the various types of ore going forward.

Speaker 3

We produced 33,223 ounces of gold during the Q1, setting us up well to deliver on our 2024 production guidance of 110,000 to 120,000 ounces of gold. In terms of permitting, we're continuing to work through permitting delays in Mexico. Our operating team have adjusted our mine plan to not only maintain the tonnes in grade feeding gold production, but also stripping approximately 90% of our plant waste for the year. In Nevada, we are continuing our baseline environmental data collection and studies required to develop the environmental impact study and overall permitting process. We are currently in the federal NEPA process working with BLM and expect permitting to continue through 2024 2025, ideally allowing construction through 2026 and production in 2027.

Speaker 3

Based on this timeline, we expect to begin engineering optimization, updating estimates and procurement in 2025. As you can see from this chart, Camino Rojo has been a consistent gold producer quarter over quarter. It is our objective to maintain predictable operational results as a foundation for our business. And with that, I'll pass the call to Etienne Moret, our Chief Financial Officer, who will now discuss the financial results for the quarter. Thanks, Andrew.

Speaker 3

During the quarter, we sold 32,000 ounces of gold at

Speaker 4

a realized price of 2,059 dollars per ounce, resulting in $67,000,000 in revenue for the period. Our all in sustaining cost for the Q1 was $909 per ounce, tracking very comfortably within our annual cost guidance range of $8.75 to $9.75 per ounce. As per our plan, the first half of twenty twenty four includes higher sustaining capital as we complete the Phase 2 expansion of the heap leach pad at Camino Row. As previously communicated, all in sustaining cost is expected to remain in the higher end of the range in Q2 and expected to come down in the second half of the year as we complete these projects. Total capital expenditures in the first quarter was $8,500,000 of which $5,000,000 was sustaining capital and $3,500,000 was non sustaining related to capitalized exploration in Mexico.

Speaker 4

Net earnings for the quarter were CAD17.5 million or CAD0.06 per share and after adjusting for unrealized foreign exchange gain and other small items, adjusted net earnings was CAD16.8 million or CAD0.05 per share. It should be noted that during the quarter, expense exploration and project costs were $4,700,000 of which approximately $1,700,000 was exploration in Mexico and $2,000,000 was project development costs in Nevada. Cash flow from operating activities before changes in non cash working capital was $21,700,000 or $0.07 per share for the quarter. So as outlined on this chart, we've continued to pay down the debt and strengthened our balance sheet. We ended the quarter with CAD118 1,000,000 in cash, an increase of CAD21 1,000,000 during the Q1.

Speaker 4

And subsequent to quarter end, we repaid an additional $10,000,000 on our credit facility, bringing the outstanding balance down to $78,000,000 So at March 31, our net cash balance had improved to CAD30 1,000,000 We'll continue to evaluate opportunities to reduce debt, particularly in this strong gold price environment and allowing us to minimize interest charges and remaining and maintaining rather our financial flexibility to fund our internal project pipeline. We also continue reinvesting into our business through our exploration programs and that is a helpful segue to pass the call over to Sylvain Guerra, our Senior Vice President of Exploration.

Speaker 5

Thank you, Ittjen. In 2023, we increased our exploration efforts company wide and we are maintaining that momentum this year. In the Q1, our exploration efforts were concentrated on drilling at Camino Rocco in Mexico and preparing our drilling program in Nevada. Throughout the quarter, we drilled nearly 13,000 meters focused on Camino Rocco oxide and sulfide extensions. We also issued a number of press releases highlighting the results of the exploration activities from the second half of twenty twenty three at the Camino Rojo and soft railroad projects.

Speaker 5

As part of the near mine exploration at Kaminohoho, we are focusing our 2024 efforts on the promising Camino Rocco Extension. We have designed a 30,000 meter drilling program aimed at testing and expanding the potential of this still open mineralization at the extensive Caminarocho deposit. This program targets polymetallic replacement style sulfides and skarn tight mineralization beyond the current resource boundaries. During the quarter, we drilled over 10,000 meters and 10 holes with assays and metallurgical testing in progress and we expect to report initial results shortly. As part of the Camino Rocco Sulfide Project Planning, a preliminary underground resource estimate on the Camino Rocco Sulfide is anticipated to be completed in the second half of twenty twenty four.

Speaker 5

Methylogical study of the recent phase of Camino Rocco Sulfide infill drilling is expected to continue throughout 2020 4. In Nevada, along the carbon trend, we have an exciting drill program starting this month. With the acquisition of Compact Gold, we have increased the 2024 exploration budget by 3,000,000 dollars bringing the planned total exploration spend at Salt Railroad and Pointe Creek to 14,000,000 dollars Our 2024 exploration program is progressing well with drilling operation on the way in Mexico and soon to commence in Nevada. We look forward to providing updates on our progress and results as we advance. I will now pass the call to Tafika Eden.

Speaker 6

Thank you, Sylvain. On the sustainability front, there are 2 relevant updates to note. First, I would like to highlight our systems leadership program that we call LEAD. This leadership training program is the cornerstone for our people strategy and for building our culture. We started implementing the system in 2023 to improve our team leaders' understanding of leadership and how they are critical in creating and maintaining a positive working environment.

Speaker 6

The system also provides our leaders with skills to better understand our business and improve their contribution to Orla. We have trained more than 110 leaders across the 4 countries where we operate. And with this system, we are providing a safe space for our team leaders to grow, to share their experiences and to learn from each other. Despite being a young company, we are proud to see how our investment in training is cementing a positive culture at Orlov and contributing to our employees' personal and professional development. Another significant development in our ESG efforts is that we have updated our materiality assessment to continually prioritize our efforts on what matters to different stakeholders.

Speaker 6

The update will help us to keep addressing relevant issues of material matters on the environmental, social and governance setting. We continue to transparently report the information that is considered important to all our stakeholders. Now I'll pass the call back to Jason.

Speaker 2

Thank you, Shafika. The recent gold price strength in combination with our low cost production is resulting in margin expansion and continued cash flow generation. This cash is being reinvested into our business and repaying debt to strengthen our balance sheet, thus enabling us to advance our future projects that will support the growth of Orla. As always, I would like to thank our team who remain committed to our vision of building the emerging gold producer of choice and delivering value to all of our stakeholders. At this point, I'd like to open the call to questions and pass the call back to the operator.

Operator

Thank you. Our first question comes from the line of Bryce Adams with CIBC Capital Markets. Your line is open.

Speaker 7

Thank you, operator. Thanks all for the presentation. I have a couple of questions, if that's okay. First one is for Jason. Any thoughts on the Mexican election and what changes that could bring?

Speaker 7

Is there an immediate impact to your business? I'm thinking of the layback land use permit, but are there others?

Speaker 2

Thanks, Bryce. And good to hear from you. Yes, in relation to Mexico, we know that the election will take place at the beginning of June with the inauguration at the beginning of October. And I think it's safe to say that the current administration has not been helpful to the permitting processes, not only in mining, but more broadly across the country. So as we prepare and resubmit our permit amendments, we'll do so during the transition with the expectation that the new administration will be making decisions.

Speaker 2

And we're hopeful that the new administration will take a more positive view to all industries, including mining.

Speaker 7

Okay. And the land use permit, that'd be resubmitted after the elections. Is that the right way to think about that?

Speaker 4

Well, I think what I

Speaker 2

would characterize it, Bryce, is we're going to submit all of the amendments that we require to grow the mine in Mexico under a single resubmission. We're currently selecting the environmental consultant that we're going to do that work with And we anticipate we'll be able to resubmit it after the election, but probably during the transition period, enable the technical people within the government to begin processing it. And the final decision for the permit amendments to come in the new administration. So that's going to happen throughout this summer into the fall with the decisions being made within the new

Speaker 7

Camuno Sulfides, we get the underground resource later this year. On the back of that, do you have a rough timeline for when a PEA or a technical report could be made public?

Speaker 2

Yes, we haven't talked about the timing for the next steps in the engineering process. What I have said is that people can expect, as you pointed out and we repeated today, the underground resource in the second half of this year, we're on schedule to deliver that. That resource, of course, will be needed to inform the next steps. And we will take the well known and predictable steps of engineering starting with the PEA, all of that engineering leading towards a development plan, so that we can be producing in the sulfides before the end of the decade.

Speaker 7

Okay. Two more questions if I can hold the microphone for a little bit. Arbitration in Panama, sorry if I missed this in the disclosures, but is there a value that you've included in the arbitration case? Like if it goes down that path, how much are you looking for?

Speaker 2

Yes, we haven't included a value yet, Bryce, you didn't miss it. Where we are in the process is we've filed our notice of intent to arbitrate, which kicks off a period that we can work with the government to find a resolution. If that is unsuccessful, we'll move to the next step, which is our request to arbitrate. We anticipate that that will happen around June. And at that time, we will also need to communicate the sum, which will be arbitrated.

Speaker 7

Okay. Thanks. Last one in Pony Creek, what gets you most excited about that property? What's the most obvious impact it can have on the South Railroad Economics?

Speaker 2

So I'm going to start this off and then I'll let Sylvain carry on the answer because he's probably the most excited about it. Really as he's explained to me, it comes down to the fact that we were able to, through our due diligence process, determine that the geologic structures continued in the southern part of our property continued onto the contact property through different geochemical and soil signatures that progress down there. So there's that is the reason that we thought that that modest tuck in would be important geologically. We've also gotten a lot of interest from some of our key shareholders about the potential not only in Otter property, but now this expanded case and maybe I'll defer to Sylvain to finish the answer of why we're excited about the addition of Pony Creek. Yes, certainly.

Speaker 2

Pony Creek, it's a natural extension of the

Speaker 5

same geology. Structural setting extends to the south as well. And we also have indications that the mineralization extend onto the Pointy Creek property. There's 3 mineralized zone already defined, and we have very good working solid geochem trends that also extend onto the salt area. This is part of the what is called the railroad district.

Speaker 5

So as I said, it's a natural extension. It belonged to the same project, and we are very pleased to have it and we'll be doing it later this year. Bryce, our philosophy in Nevada

Speaker 2

is consistent with Mexico, which is to get the 1st mine oxide mine up and running and based on that cash flow from the oxide mine in Mexico and future oxide mine in Nevada, we can continue exploring both of those properties, not only discovering more oxides to extend the mine life, but then transitioning the company into the next phase, which would be the sulfide development starting in Mexico and then likely continuing into that.

Speaker 7

Perfect. That's it for me. Thanks so much. I'll jump back in the queue.

Speaker 2

Thanks, Bryce.

Operator

Our next question comes from the line of Andrew Mikitchik with BMO Capital Markets. Your line is open.

Speaker 8

Jason, I guess lots of questions have already been asked. But can we just come back to this permitting in Mexico? You've been quite clear your answers, but and your position. Can you just offer any context? Are you seeing any movement in your region or nationally that would suggest that there's any change in behavior in the permitting authorities at all or is it just unchanged?

Speaker 8

Yes.

Speaker 2

Right now, Andrew, there would be no change. Everybody is focused on the election process in Mexico and we're not going to be able to get anything achieved under this

Speaker 8

current Okay. And then still on permitting, but moving to Nevada, you guys put in fairly clear wording again in the text of the press release, but the expectations for the BLM to publish the notice of intent. Any guidance on timing that we should expect to see that? I guess that would be publicly disclosed.

Speaker 3

Hello? Yes.

Speaker 8

Did I get cut off?

Speaker 1

No. No, I think we got cut

Speaker 2

off, Andrew. I apologize for that. Hopefully, you heard the response on Mexico. Did you hear that?

Speaker 8

Yes. Yes.

Speaker 2

We're preparing for the next administration and we'll look for resolution in Mexico in the next administration. I hope that you heard in Andrew's response that our technical team in Mexico has done the necessary redesign so that not only is gold production confirmed, but we'll actually be able to strip about 90% of the waste that we had originally planned. So we've mitigated all the risk to the business as it relates to the delay in the expansion permits in Mexico. I think your next question was about Nevada and what we've updated the market on with these results is we are in the NEPA process, We are completing the supplemental environmental reports that will be the foundation for the EIS through SWICA, the consultant that we and BLM work with to produce the EIS. Milestones within the NEPA process, which you've asked about, notice of intent and record of decision are key.

Speaker 2

If we can achieve notice of intent by the end of this year, beginning of next, that should put us in good shape to be fully permitted, I. E. Record of decision, so that we can be constructing in 2026, which on the timelines of these style of constructions has us producing in 2027. The details of that permitting process are there are 19 environmental reports that our team in Nevada is completing. We've submitted 18 of them to BLM, received 14 back with initial comments.

Speaker 2

So that's all evidence that we're progressing our work with BLM and some of those costs are included in what we described as growth project costs. Hopefully that helps with some timelines and some color on the process in Nevada.

Speaker 8

No, that's perfect. Thanks for the little bit further detail on what we should expect. Just last extension question here is the

Speaker 4

I guess

Speaker 8

the new mining stripping plan for Camino Rojo, that change in stripping location, I guess, but not a material change in tons. That would be essentially an in line expectations for what was guided for the year in terms of stripping impact on all in sustaining costs that we shouldn't expect any material change in?

Speaker 2

Yes, that's the way to

Operator

think about it. For the year?

Speaker 2

Yes, that's the way to think about it certainly, Andrew. When we guided for the year, we anticipated doing the necessary stripping that we require to assure production as well as do some of the catch up from 2023. So we already guided anticipating that we would be able to strip waste. And now we have done the necessary engineering so that we'll be able to strip at least 90% of that waste. So everything should be as expected as it relates to our budget, which set up our guidance for tonnes and the associated costs to enable us to produce and strip for future production.

Speaker 8

Great. Thank you very much for answering my questions. I'll pass the microphone.

Speaker 2

Thanks, Andrew.

Operator

Your next question comes from Bryce Adams of CIBC Capital Markets. Your line is open.

Speaker 7

I'm back again. I must add too much coffee this morning. I want to ask about external growth.

Speaker 2

Sorry. Sorry. Again, I'm sorry to interrupt you. Yes.

Speaker 7

I was going to ask about external growth. I'm sure you look at opportunities as part of normal course, normal business process. How many appears have a preference for producing assets over projects. How do you think about buy versus build? My instinct is that it's more of a build scenario leveraging your skill sets, I wanted to double check on that point.

Speaker 7

So when you look at external options, bigger ones as compared to contact gold, Is it still leaning towards projects?

Speaker 2

Yes, thanks for the question. I always start this answer, Bryce, as I have with you in the past is that the team needs to be focused on our organic pipeline. We have a lot of growth in our company already and we need to focus on permitting, engineering, construction and so on in our organic pipeline. However, of course, we will keep our eyes open for opportunities that could potentially accelerate that growth for Orla if it means acceleration that creates value for our shareholders. Now to get precise on what we look for in our company, and each company has to select a strategy that works for them.

Speaker 2

For us, we would be looking for something that is permitted because we are already in permitting processes on other projects that we could begin construction on. We will extend that search all the way over to producers, but as the knowledgeable person in industry knows, you'll pay more, particularly in this gold price environment for producers. We're happy to be constructors. And if we can find the right project that's permitted, ready for construction, I have great confidence in Andrew Cormier and his teams to repeat the successes of the past. So, we'll focus on our organic work to grow the company.

Speaker 2

And if we can find an accelerant to that growth with the right inorganic opportunity that adds value for shareholders, then we'll transact.

Speaker 7

Thanks, Jason. That's very clear and understood. Thanks again.

Speaker 2

Thanks, Bryce.

Operator

There are no further questions at this time. I would like to hand things over to Jason for some closing remarks.

Speaker 2

Thank you, operator. Since there are no further questions, I'd like to thank everybody for their participation on call. Thank my teams both here in Toronto, but also in Mexico and Nevada for their continued efforts.

Speaker 3

Thank you.

Operator

Thank you all. This concludes today's conference call. You may now disconnect.

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Key Takeaways

  • Continued strong operational performance at Camino Rojo with 1.9 million tonnes mined at a 0.45 strip ratio, an average processed grade of 0.82 g/t, and 33,223 ounces of gold produced, sustaining low costs and margin expansion.
  • Financially, Orla sold 32,000 ounces at a realized price of $2,059/oz, generating $67 million in revenue with all-in sustaining costs of $909/oz, producing $21.7 million in operating cash flow and ending Q1 with C$118 million cash and C$30 million net cash after debt reduction.
  • Exploration accelerated with nearly 13,000 m drilled at Camino Rojo oxide and sulfide extensions, a planned 30,000 m program underway with initial results expected in H2 2024, and the Contact Gold acquisition expanding the Nevada budget to C$14 million.
  • Permitting updates include adjusted mine plans in Mexico to offset permit delays with a resubmission planned post-election, a NEPA process in Nevada targeting construction in 2026 and production in 2027, and a suspension of Panama investment with arbitration proceedings ongoing.
  • ESG efforts advanced through the launch of the LEAD leadership training program for over 110 team leaders and an updated materiality assessment to sharpen environmental, social and governance reporting.
AI Generated. May Contain Errors.
Earnings Conference Call
Orla Mining Q1 2024
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