Golden Minerals Company

Greetings. Welcome to the Golden Minerals Company second quarter 2021 earnings webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Karen Winkler. You may begin.

Thank you, operator. Good morning, everyone. On behalf of the Gold and Mineral team, I'd like to welcome you all to the company's inaugural earnings call, during which we'll be discussing operating and financial results for the second quarter 2021. Before we get started, please note that certain statements made by management today will be forward-looking within the meaning of applicable securities laws. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual events or performance be materially different from those expressed or implied by such statements. Please refer to our most recently filed Form 10-Q for details of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements. On the call today are Gold and Minerals President and CEO Warren Wenz and our Chief Financial Officer Bob Vogel. Following their prepared remarks, they will be available to answer questions. The event will also be available for replay on the company's website tomorrow. I will now turn the call over to Warren.

Thank you, Karen. As we predicted, we essentially broke even as a company based on our Rodeo Goldmine income in the second quarter of 2021. Our projections show strong positive earnings through the remainder of this year. Rodeo has been operating very well since startup, We commissioned the new ball mill at our oxide plant in the last days of April, about a month later than we had planned. However, our process plant throughput has exceeded expectations by nearly 100 tons per day since that time, and we expect the higher throughput to continue. We are now planning for an average throughput of at least 500 tons per day. This means we should be able to easily meet our forecasts for gold production of between 12,000 and 14,000 ounces this year and profitability for the year. Our work at Velardeña is progressing well toward a possible restart near the end of 2021. We have completed our bulk sampling and precision mining tests successfully and are now preparing the material to be sent to South Africa for the final metallurgical studies to complete the design criteria for the bio-oxidation plant and to optimize the flotation separation, maximizing gold reporting to the pyrite concentrate that will be treated in the bio-oxidation circuit. We should have results of this test work to report early in Q4 this year. I anticipate a positive decision on the restart of the mine in Q4. Exploration at Rodeo has continued to return positive results on two additional structures not currently in the mine plan. The structures are both east and west of the current pit and potentially within easy expansion access. We have just added a second drill rig to speed up the drill program to delineate gold mineralization on these two structures and to test additional targets. The reverse circulation rig that just started the last day of July is expected to drill about five or more times faster than the core drill. This means we should have the information we need to evaluate the potential extension of the mine life within the next few months. We are also drilling a project in Argentina that I'm quite enthusiastic about. The property is the Cerita Este property. which is immediately adjacent to the giant Takataka copper deposit in western Salta Province. We are drilling both a very interesting copper target and a compelling high-sulfidation gold-silver target. Initial results from the copper target should be available in the next few weeks. Our plans to drill at the Yokivo District in Chihuahua have been pushed back a few more months to accommodate our drilling at these other projects. not necessarily because the other projects are better exploration targets, all are quite good, but because of operational needs at Rodeo and based on a commitment to drill at Cerrito Este. Yoquivo remains a very attractive gold-silver district with excellent potential. We expect to start drilling at Yoquivo in Q4 this year as soon as the core rig at Rodeo is freed up. Our plans for production growth and sustainable profitability are in place, and advancing well. With Velardeña producing hopefully late this year, we will have accelerated our production growth over our initial plan and potentially be producing about 1 million ounces of silver with lead and zinc byproducts in 2022 while we are constructing the bio-oxidation facility. Once the bio-oxidation plant is complete, our projections show an additional 1 million silver equivalent ounces produced per year from the gold in pyrite. Our production from Velardeña once in full swing should be about twice the equivalent gold production from Rodeo and with a projected mine life of a decade and possibly more with exploration success. I will now hand the call over to Bob Vogels, our Chief Financial Officer, to present the financial results for the second quarter 2021. Thank you, Warren.

For the second quarter, our operating margin from the Rodeo operation increased significantly over the first quarter, as expected, to about $2.5 million, with throughput at the processing plant exceeding our internal projections following the startup of the new regrind mill circuit beginning in May. As Warren mentioned, we now expect the plant to operate at a higher throughput level of at least 500 tons per day throughout the remainder of the year. Cash operating costs, net of silver byproduct credits, also significantly declined in Q2 due to the higher mill throughput level, just over $900 per payable ounce of gold produced. We should continue at this cost level or slightly better for the rest of the year as the higher throughput continues going forward. At the expected higher throughput levels for the remaining two quarters of 2021, and given a continuation of current gold and silver prices, operating margins at Rodeo should be higher for the remainder of 2021. As noted in our 10Q filing, we are estimating an operating margin of between $10 and $11.5 million for the full year 2021. Despite the significantly improved operating margin from Rodeo, we still reported a narrow net loss of about $800,000 for Q2, due in part to non-cash stock compensation awards granted in the second quarter. Other levels of expenditures for exploration in Elkivar, G&A, Bellardania Care and Maintenance We're similar to prior quarters and are expected to continue at approximately those levels going forward. With the higher operating margins expected for the remainder of the year, we are projecting positive net income in the second half of 2021. We ended the quarter with about $7 million of cash. Net cash flow for Q2 was negative $1.1 million and was a negative $2.9 million on a year-to-date basis, due primarily to costs incurred in the startup of the Rodeo operation that occurred primarily in the first quarter. Those startup costs included approximately $1.2 million for the installation of the new regrind mill circuit and the buildup of working capital for the Rodeo operation, primarily related to DORA inventories and a value-added tax, or VAT, receivable. We noted in our 10-Q that our normal course refund claims for the VAT related to the Rodeo operation are occurring at a slower than anticipated pace due to delays in processing the refund claims in Mexico as Mexico deals with the economic fallout of the COVID pandemic. The VAT receivable increased by about 800,000 in quarter two, and we are currently incurring a little more than 250,000 of VAT per month. We are forecasting the pace of refunds to pick up in the second half of the year and believe we will collect all the existing VAT receivables on our books within a year's time period. Now that we're in full operating mode at Rodeo and providing metals prices remain at current levels, we expect we will have positive net cash flow through the remainder of 2021 and into 2022. As reported in the second quarter 10Q, we expect our cash balance to grow to around $9.5 to $11.5 million over the next 12 months through June 30, 2022. And this does not include the $1.5 million we expect to receive from Fabled Silver Gold in December 2021, according to the terms of our farm-out agreement for the Santa Maria property. The cash projection also does not assume any other forms of debt or equity finance.

I will now turn the call back over to the operator, who will take your questions.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we pull forward questions. And our first question is from Jake Sikelski with Alliance Global Partners. Please proceed with your question. Hey, guys. Thanks for taking my questions.

So just looking at the exploration program that you guys have going on at Rodeo, we obviously saw some results in Q2. When do you think we'll see a broader update there? And I guess, do you expect to formally update the PEA, or do you think you just go ahead and sort of tack on some of that new material to the mine plan as you discover it?

Yeah, thanks for the question, Jake. So we'll have additional results out here in the next few weeks on the Rodeo progress. As noted in my presentation remarks, it's been slow going with the core rig, but it'll become a lot more accelerated now that we have the RC rig in there drilling as well. I think it will probably take us a couple months before we have enough data to to update the resource. I don't think we'll update the PEA, but we will probably internally update the resource and have some commentary around that. We'll have to see just how big of an incremental or transformative increase the resource is. And right now, it's just not clear. We do have those very interesting and gold-bearing structures on either side of the existing pit, which certainly will add to resource. It's a question of how much and at what grade.

Okay. And do you think we'll see that resource by Q4 this year?

I think it will be in Q4, Jake, realistically, just based on the lead time for assays. We're using the commercial labs because our own internal lab is mostly taken up with the mine assays that we need a very rapid turnaround on. So I would expect it in Q4 and can't tell you exactly when that will be, but we'll get it out there as fast as we can.

Got it. Okay. And then just on Zillardania, you know, from a timing perspective, it sounds like you guys might be ready to make a restart decision by the end of this year. You know, can you just remind us what the ramp up timeline is sort of from, from that? positive restart decision to the, you know, two-ish million silver equivalent ounces a year that we might see from that?

Yeah, I can sort of go through. So this is all pending, you know, official decision to progress, but we're getting close, in my opinion, to having all the information we need. But assuming that we decide to go forward, you know, we'll ramp up over the course of about three to six months to full production. And I think that full production for the silver lead zinc con sales will be in the order of 300 tons per day, which is the approximate capacity of that flotation plant. Now, we won't get to the full gold recovery portion until we have the biox plant built. So assuming that we start production from the silver lead zinc concentrate sales late this year, early next, it'll take about a year to build a biox plant. We would presumably stockpile the pyrite concentrate during that period of time. And then once that biox plant is operational, which would likely be 2023, assuming all goes well, we would then be able to be in the full production mode as contemplated in the PEA with approximately the 2 million silver equivalent ounces being produced on an annual basis the way we have it scoped out in the PEA right now.

Got it. Okay. That was very, very helpful. That's all for me. Thanks again, guys.

Thank you, Jake.

And our next question is from Heiko with AC Wainwright. Please proceed with your question.

Hey there. Thanks for taking my questions, and thanks for doing this call.

Of course. Glad to have you.

Hey, you mentioned you incurred $700,000 in capital expenditures during the quarter, mostly related to the regrant mill circuit. Are there any other meaningful items that were in there? I mean, it seems like everything is running good now, and you're getting the better throughput rates. And also, is there anything else on the horizon that we should anticipate in the longer lasting item category?

Yeah, great question. The mill construction involved a couple of parts that we hadn't initially contemplated. It's a variable control system that was undersized initially. We had to get a larger one. That added a bit to the cost. We ended up having to actually put in a cooling system for the electric motor for the mill. We had initially planned to go with a synchronous motor. We went with an asynchronous, just electric motor on it at the end because the synchronous motor wasn't fixable, the one that we had purchased used. There was a number of details in that mill installation added to the cost beyond what we had initially suspected. And it wasn't obvious until we actually tried to start the mill. And so that's what led to the month, let's say, of delay getting that mill up and running and a bit to the cost. Now, we've had some minor additional costs in the vibrating screen. repair and things like that, but that's normal sort of care and maintenance costs for the mill. So we don't anticipate any further significant capital costs for the mill. It's up and running, going great, and everything else will be minor repair and replacement items.

That's what I hoped you'd say. Okay, fair enough. You've got the outlook in there until the end of June of 2022 with the $3.8 million in exploration activities. in as much detail as you're willing to do and then see in writing from people like me. Can you break it down between your different assets?

No, we haven't really disclosed a detailed breakdown, Heiko, but I think I can say that we are planning to spend about $600,000 at Cerita Este. We're planning to spend close to half a million at Yokivo. The initial spend plan at Rodeo was about $300,000, but we'll go over that fairly significantly based on positive results that we've had to date. So that's the level of detail I have right now for you. And then there's, of course, there's care and maintenance items for the claim costs and the the general overhead for the exploration group in there as well. Bob, do you have any additional comments on that?

No, I think that's right, Warren. Our spend is $1.2 million to $1.5 million just for sort of holding costs, as Warren said, the holding costs for the exploration group, property, concession payments, those sorts of things. So the majority of that spend is planned drilling and exploration in the field.

Makes sense. I actually thought that was a plenty detailed answer. So thank you very much and stay well.

Thank you, Heiko. Our next question is from Chen Lin with Lin Asset Management.

Please proceed with your question.

Hi. Thank you for taking my questions, guys, and thank you for hosting the conference call. Yeah, most of my questions actually have been touched, basically, about the two mining operations. One thing I heard you said in the conference call is the Barrick exploration. So can you remind us what exactly Barrick is looking for? And you said you are expecting results in a few weeks?

I was talking about the Cerita estate property, which is not part of the Barrick deal. It's a new property that we haven't talked much about in western Salta Province. But now that you've asked about the Elkavar project that Barrick is earning into, they're still doing their surface exploration work. They are preparing preparing to get ready for a drill program. I expect them to propose a drill program sometime next year in all likelihood, but there's no confirmation of that yet. But BEREC is looking for a world-class gold deposit at Elkavar. Their target is about a 5 million ounce gold deposit, and they're doing their work very methodically to get to the point where they drill their best targets and see whether they have indications of such a thing or not.

Okay, great. Thank you. And you said you're drilling your own property adjacent to it, or is that also in Argentina?

Yes, it's about an hour and a half to the west. It's almost on the Chilean border. and it's immediately adjacent to First Quantum's Takataka copper project, which is a huge feasibility stage copper porphyry. So we have two different targets there at Serita Este. One is a copper target, which could have some similarities to the Takataka project, and then there's also the project that we were initially interested in there that appears to be a high-sulfidation gold-silver prospect with some very interesting gold values on the surface. We just haven't talked much about it yet, Chen, but we will be releasing some results here in the next few weeks to perhaps a little bit longer because of the assay delay. It might be up to a month.

Great. That's interesting. How many holes did you drill so far?

We've drilled about 1,000 meters, more or less, of a 3,000-meter plan program, and there are about six holes drilled to date.

Okay, great. Looking forward to that. Okay, great. And also, you seem to have a very nice new discovery at Rodeo, and you will have more results. I'm standing here and have a new resource in Q4. What are you hoping for with what you've seen so far? You hope to extend it for another year or another six months of this open pit operation, or do you need to go underground?

Let me be clear. We don't have an added resource yet. We think we will be able to expand the resource. but we're still depending on drill results. Now, we have the initial drill results that were positive in several holes in the June press release, and we'll have some additional results to publish here within, let's say, the next few weeks on the Rodeo, so it's showing progress. We have no indication of how much it might affect the resource or how much it might extend the mine life. In my opinion, There's indication that we're getting the positive results that should lead to that sort of resource expansion, but there's no way I can tell you how much additional production time we'll get out of the resource if, in fact, it does increase it as I think it will.

Okay, thank you. Congratulations for your first break-even quarter. Continue the good work. Thank you very much, Jen. I appreciate that.

And our next question is from Sid Rajav with Fundamental Research Corp. Please proceed with your question.

Yes, congratulations for your strong quarter. My question is on Rodeo. Recovery rates have been slightly lower than the PEA estimate. Do you think next year, I'm trying to get a feel of the production for next year, do you think recovery rates and the cost can move to a PEA estimate next year?

Yeah, thanks, Sid, for the question. Yeah, we're focused entirely on bringing up those recoveries, the gold recoveries, from what we reported was about 78%, I think, in Q2, versus the bench scale and previous work that we've done that showed an estimated 85% recovery for gold that was used in the PEA. We're sure we can improve it. Now we had a bit of side effect from the faster throughput. Oftentimes recovery rate and throughput are balanced opposite each other. And so because we had the higher throughput in May, June to sort of make up for the slower than expected mill commissioning in April, I think we probably had a slightly lower recovery than we will have if we dial back to somewhere closer to 500 tons per day. So I'm confident that we'll improve the recovery. I can't tell you exactly to what point, but I expect to come very close to the PEA published recovery of about 85% for gold.

Yeah, pleased to hear. And, Velodinia, I think from one of your responses earlier, Is it fair to say that you have spent most of the capex there for this year?

At Velardeña, no, we have not spent the capex there. We have spent a fairly minor amount of money doing the bulk sampling and the preparation for the test mining. So we've done some test mining studies. We're anticipating doing a bit more, and there's still a development capital required or development cost required once we have made the go-ahead decision, which we have not made on Velardeña yet. I'm hopeful that we'll make that positive go-ahead decision late this year, and at that point, we will have to continue to spend some CapEx, in quotes, for development and also for the completing the BIOCS feasibility and construction. So we have not spent the capital for Velardeña. We won't until we have a go ahead on that project. So that's still pending.

What's your estimate for the development capex then?

We haven't changed our estimates and once we start, the PEA contemplated about $10 million for the project. Three to four, I think, was in startup costs, working cap and development, and about six for the BIOX facility. And that would be spread over time in 2022, if we make the decision to go ahead.

And based on internal cash flow estimates, it seems it can be self-funded. You don't have to go back to the market to raise capital?

Yeah, that's what we've been saying. Bob, do you want to comment on that, please?

Yes. Our internal projections for cash flow show us, as I mentioned, a balance of $10 to $11 million of cash by June 2022. And that does not include yet any kind of a spending estimate for a bell or daniel project should decide to go forward with it so that would have to come out of that but as warren mentioned we'd be spending that capital through 2022 so we'd have the full year and additional months and quarters in 2022 to raise even more cash internally so yes it is possible to fund it internally And we're certainly going to be looking at some other options to maybe help that funding a little bit. Could take on a number of different alternatives in terms of raising a bit more money. But right now, all the options are on the table, and nothing has quite yet been decided.

Thank you so much, and I appreciate you doing this call.

Thank you, Sid. Appreciate your questions.

And just as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue. Our next question is from John Fenwick with Fenwick Consulting Group. Please proceed with your question.

Hey, Warren. Thanks for taking my call. I have three questions, if you don't mind, and the first could be answered by either you or Bob. Just regarding the cash flow that you've mentioned earlier, It seems like Bob just mentioned 10 to 11 million, but that's not factoring in Santa Maria with Fabled. And in talking to Peter, who's the CEO of Fabled, it seems like things are going well there. So I anticipate that you're going to be getting some type of additional compensation in Q4. Is that correct?

Go ahead, Bob, if you want to take that.

Their next scheduled payment is in December for $1.5 million. I agree, John. Their financials look pretty strong at this point. We've been a little bit conservative not throwing that in our official liquidity forecast at this point. Probably by the end of Q3 we'll feel comfortable enough to drop that in.

Okay, thank you. And then Following up another question regarding dilution, you know, Taylor Dart, who is a Seeking Alpha article, you know, author, just wrote yesterday on August 9th that, quote, there are more established producers out there that aren't diluting shareholders regularly. And so regularly, to me, seems to be an inaccurate statement, given your news flow that, you know, when I look at your website, it looks like the last financing was done 13 months ago. So can you, you know, state, you know, with some reasonable... that the company is pretty cashed up for at least the remainder of this year, please?

Yeah, John, we've said that, and Bob has said again that we're going to grow our cash balance into next year between $9.5 and $11 million within a 12-month period, and that's part of our disclosure. Bob, do you want to comment further on that? Yeah, I think what we've essentially done

you know, put out there is that we've turned the corner cash flow-wise and we should be adding to cash going forward at this point as long as we've got that Rodeo cash flow source. So there's no need for us to go out into the equity markets at this time. We've got Dordania on the horizon and we're going to look at what we do there, but a lot of options are on the table for that. And That doesn't seem like to me we would need any kind of major external financing for that. And we may choose not to have any external financing.

Okay. That's very positive. Thank you. And then the other two questions, you know, we've heard from a few analysts on this call. And would one of you be able to share with the listeners just, you know, what that analyst range looks like currently, please?

Yeah, let me just talk in general form on that, John. Our analysts, we have three analysts that have published price targets on the stock, and the range is between, I think, $0.91 and $1.10 per share. So that clearly puts their valuation of the company far higher than the current market valuation.

Okay. And then lastly, you know, I mentioned earlier Taylor Dart, and there's another gentleman named Christopher Aaron from iGold Newsletter who have made some misstatements, in my opinion, about gold and minerals in writing over the past few weeks. And, you know, for example, just to use an example from yesterday, Taylor Dart stating yesterday that the net asset value when looking at the company share structure is around 0.44 per share. And clearly, from what I'm hearing, that seems low. So, you know, how can I'm getting this question a lot, Warren, from my investors. How can such a large discrepancy exist? Has the company called or emailed either of these individuals to kind of explain the company's strategy? And has either responded, please?

Yeah, no, that's a great question, John. No, neither Taylor Dart nor Chris has had any direct contact with any of the officers of the company. So, no, they're more than welcome to call and get more clarity on We obviously think that their estimates are quite low. When you compare their estimates on value compared to the other analysts, a very respected analyst covering the company, you can see that the very low ball per share valuations that both Mr. Dart and Chris were we're putting forward are well below half of what the respected analysts for the company are putting out in their research reports. So I think that's pretty clear.

Very helpful. Thanks to you and Bob.

I appreciate it. Thank you, John. And we have reached the end of the question and answer session.

I'll now turn the call back over to Karen Winkler for closing remarks.

Thanks, Operator, and thanks, everybody, for taking the time out of your day today to attend our conference call. We look forward to talking with you again next quarter. Have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.