Golden Minerals Company

Greetings and welcome to the Golden Minerals Company full year 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Karen Winkler, Director of Investor Relations for Golden Minerals Company. Please go ahead.

Thanks, Operator. Good morning, everyone. On behalf of the Gold and Minerals team, I'd like to welcome you to today's earnings poll, during which we'll be discussing operating and financial results for the full year 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 results or performance to be materially different from those expressed or implied by such statements. Please refer to our most recently filed Form 10-K 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 Golden Minerals President and CEO, Warren Ring, and our Chief Financial Officer, Bob Vogelf. Following their prepared remarks, they will be available to answer questions. This webcast will also be available for replay on the company's website beginning tomorrow, where it will remain posted for approximately 30 days. I will now turn the call over to Warren.

Thank you, Karen, and thanks to everyone joining our call today. 2021 was a transformational year for Golden Minerals. We moved from exploration firm to junior gold silver producer, reporting two quarters of bottom line net income based on our Rodeo mine operations. We also completed a resource expansion drilling program at Rodeo, increasing mine life by about six months, and we conducted drill programs at two potentially significant exploration projects. Notably, we also moved Velardeña closer to a possible resumption of production, thereby focusing our efforts on achieving the sustained profitable production that's a critical piece of the gold and minerals strategy. We began processing gold-silver mineralized material from our Rodeo open pit mine in Durango State, Mexico in January 2021, and Rodeo performed strongly for the company throughout the year. We realized sequential quarterly growth in both revenue and net operating margin from the Rodeo operations and reported over $25 million in revenue and $12 million in net operating margin for the full year 2021. Rodeo's total cash cost per payable gold ounce net of silver credits decreased sequentially throughout the year, coming in at $754 per ounce in the fourth quarter, and averaging $937 per ounce for the full year. Rodeo generated over $12.3 million of net operating margin in 2021, surpassing our guidance of 10 to 11 and a half million. We also exceeded our 2021 guidance for payable production of between 12,000 and 14,000 ounces of gold and 25,000 to 30,000 ounces of silver, as we reported production figures of approximately 14,400 ounces of gold and 51,000 ounces of silver. During the fourth quarter of 2021, we completed a drill program targeting resource expansion near the Rodeo pit. As a result, we've been able to expand the resource to the southeast of the current pit and also, to a lesser extent, to the north end of the pit. We've added around six months of mine life to the project and currently anticipate operating profitably at Rodeo through the third quarter of 2023. The updated resource represents about a 25% increase in gold ounces as compared to the previous 2020 resource estimate. The drilling program also allowed us to truly delineate the lower grade resource, which we are stockpiling, and depending on metals prices, will likely process after the primary higher grade resource is mined out. For the full year 2022, we estimate processing between 175,000 and 185,000 tons of material through our oxide plant at an average rate of 500 tons per day. Available extraction is estimated at approximately 12,000 to 14,000 ounces of gold and 42,000 to 47,000 ounces of silver. Where those average grades in 2022 will be approximately 2.9 grams per ton for gold and 9.4 grams per ton for silver. These grades are lower than what we mined in 2021 as we work our way into lower grade parts of the resource, but they are fully in line with the mine plan. Mill recoveries are expected to remain around current levels of 80% for both gold and silver. Higher anticipated total throughput in the plant in 2022 compared to 2021 will offset the lower gold grades anticipated, resulting in similar payable gold extraction in 2022 as we had in 2021, but at a higher unit cost. Cash costs per payable gold ounce net of silver byproduct credits are expected to be between $1,100 and $1,200 during 2022. We continue to work on advancing our Velardeña underground silver gold mines ahead of making a production restart decision. We're in the final stages of testing pyrite concentrates for optimum processing using bio-oxidation technology in South Africa. And we estimate we will receive final results in April. These results will enable us to complete the detailed design of the proposed bio-oxidation plant. We're also conducting test mining underground this spring to ensure that with our chosen mining subcontractor, we can control mining dilution, which is critical to the ultimate success of the project. Upon completion of test mining, we plan to make the formal decision on a resumption of mining activities around mid-year. If we make the decision to restart mining activities at Billardania, construction of the biox plant would take roughly one year, running into mid-year 2023. The timing of production startup will depend in part on metals prices. It is conceivable, as I related to you last year, that we could begin mining activities with a three- to four-month ramp-up period and begin to sell silver lead and zinc concentrates while stockpiling the pyrite concentrates, which contain most of the gold, while the BIOX facility is being completed. Last week, we published updated technical reports for both our Velardeña and Rodeo projects at the PEA level. because of the new SEC disclosure regulations. The Velardeña report included updated operating and capital costs for the proposed BIOX plant. As anticipated, underlying costs associated with building the BIOX plant have risen. However, higher recent metal prices offset higher costs and support an estimated $119 million in pre-tax net present value at an 8% discount rate.

over an 11-year mine life in the plan, that plan including inferred resources.

Moving on to the exploration side of our business, earlier this year, we reported positive results from a second drill program completed in late 2021 at our Yoquibo gold-silver project in Chihuahua, Mexico. Drilling hit multiple potentially economic-grade areas of mineralization with the high grade zone open to the south. We've now identified several new veins at Yoquibo, yet to date, we've only explored a small portion of this district scale opportunity.

We plan to begin a third drill program this year.

In January, we reported results from the first ever drilling program conducted at our Cerrito Este project in Salta, Argentina. Cerita Este is located in the well-known and highly mineralized Argentina porphyry belt adjacent to the large Taka Taka copper porphyry deposit owned by First Quantum Minerals. Drilling at the Seco target at Cerita Este discovered shallow oxide gold mineralization with widths and grades that are potentially economic. We plan to continue drilling at this new gold discovery to determine the size of the gold system. In closing, we continue to move forward with work designed to achieve sustained profitable production and continued exploration success. Rodeo continues to provide cash flow that is used to support work at both Velardeña and our portfolio of promising exploration projects. I will now hand the call to Bob Vogels, our CFO, to present the financial results for 2021. Thank you, Warren. For the full year 2021, our operating margin at the Rodeo operation was approximately $12.3 million from the sale of approximately 14,400 ounces of gold and dore. The plant operated at a rate of just over 400 tons per day, and the average grade of gold processed was 4.1 grams per ton for the full year 2021. Following our ramp up to full production by the end of Q2 2021, the plant averaged approximately 500 tons per day. Cash operating costs, net of silver byproduct credits, was about $937 per ounce for the full year 2021. While the operating margin from Rodeo in 2021 was positive, we reported negative after-tax net income of about $2.1 million for 2021. Expiration expenses were approximately $5.3 million compared to $5.0 million in 2020. During 2021, we advanced several projects, including drill programs at Rodeo and in Argentina at the Cerrito Estate property, and in Mexico at the Yoquibo property. G&A costs were higher for 2021 at $4.8 million compared to $3.7 million in 2020, due primarily to bonuses paid to employees and other compliance costs. Expenditures in 2021 for Elkivar and Velardeña care and maintenance costs were similar to 2020, and are expected to continue at approximately those levels going forward. Stock-based compensation in 2021 was approximately $1.6 million compared to $0.9 million in 2020 due to additional long-term incentive awards granted to executives. Income taxes of just under $0.5 million were incurred in 2021 due to the profitability of several of our Mexican entities. With the expected continued positive operating margin from Rodeo, the company is anticipating at least break-even net income in 2022. As noted in our 10-K filing, we are estimating an operating margin of between 7.0 and 9.0 million for the full year 2022. This assumes plant throughput levels of approximately 500 tons per day with slightly lower grades compared to 2021 of approximately 2.9 grams per ton for gold and 9 grams per ton for silver. as Warren mentioned. This operating margin estimate assumes prices for gold remaining around $1,800 and silver remaining around $25, both below current levels. We ended the year with about $12.2 million of cash. Net cash flow for the year was positive $2.5 million, due primarily to the increased operating margin at Rodeo. Positive cash flows for the year also included the $1.5 million received from Fable for payment on the sale of the Santa Maria property. We expect the final cash payment of $2 million will be received near the end of 2022, according to the terms of our farm-out agreement with Fabled Gold and Silver. We also received $2.7 million early in 2021 from shares issued via our ATM and warrants that exercised. We spent approximately $1.6 million on upgrades at the Bella Redania processing plant. Assuming metals prices average $1,800 per ounce for gold and $25 per ounce for silver, below current price levels of the market, we expect our cash balance to remain around $11 million to $13 million over the next 12 months through December 31, 2022, depending on actual metals prices, spending on exploration projects, and costs associated with a potential restart of the Velardevi mine. These projections include the $2 million we expect to receive from Fabled in December 2022, Cash projection does not assume any other forms of debt or equity financing. I will now turn the call back over to the operator, who will take your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press star 2 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. Our first question comes from the line of Heiko Ehle with HC Wainwright. Please proceed with your question.

Hey there. Can you hear me all right? Yeah, I can hear you fine, Heiko. Go right ahead. Wonderful. Let me start by thanking Bob Ogles for his many years of tirelessly answering my questions on these calls and I really want to congratulate Julie on her appointment as well. I'm looking forward to working together. Let's talk a bit about the market value of your asset base. I think the Lardinia gets the majority of its market value attributed to it correctly. But in my view, Rodeo just sort of gets lost in the fray. And I see this when I do investor calls as well. I mean, there's probably also close to zero value assigned to Elkavar in the market. And frankly, I realize that we're somewhat guilty of this as well. I mean, we're only assigning $15 million in value to everything besides Velardeño and Rodeo combined. Anyways, point of all of this, what would you tell investors with regards to asset valuations besides them being low? And how can we maybe have the market respect all the work that's done at Altivar a bit more?

Great question, Heiko. Thanks. You know, the value at OKVAR, I think, has been understated because it's currently under contract with BEREC, but it is a very interesting asset. It still does have that value established by the 2018 43-101 report. I think we'll be able to get better recognition of that when we update that report according to the new SEC SK-1300 regulations and be able to bring in that net present value from the Yacht Day silver deposit at Elkavar more effectively. I expect that value, once we've redone that study, which we'll do this year, will be closer to $100 million in discounted NPV. We'll have to verify that, of course, with a report. But that should substantially aid investors in evaluating the net asset value of the company, along with also a better appreciation of the Rodeo value, which does have some additional value based on the low-grade operating scenario. Still profitable, lower profitability than the current scenario with the three-gram range type grades that we're seeing, but still important to the company. So I think as we As we update these reports and get that word out, perhaps we can get a bit more recognition of that net asset value of the company assets. Great question, Heiko. Thank you.

Being cognizant, that was probably more like four questions. Just following up on this just a little bit, do you have some metrics in particular that you think people should focus on when they do their value for your non-core assets?

Well, I think the big metrics to look at are the total resource base, whether looked at as gold equivalents or silver equivalents. We've historically looked more of it as silver equivalents. Summing up basically the sort of resource base we have, the likely value assignable to that resource base, and then comparing against, of course, the market cap of the company. Most evaluations that I've done using metrics that are reasonable based on other examples out in the market show that we're grossly undervalued relative to our resource base. And so I think that approach is the best approach to take.

Perfect. I'll get back to you. Thank you all so much, and congratulations on all the changes. Thank you, Heiko. Appreciate it.

Thank you. Our next question comes from the line of Jake Skielski with Alliance Global Partners. Please proceed with your question.

Hey, guys. Thanks for taking my questions. Hey, Jake.

So, you know, Rodeo obviously had a nice year, and you were able to extend the mine life there a bit. Do you think there's any more opportunity to extend the mine life, you know, by a quarter or so there, or do you think you've pretty much outlined the mine life?

There are still open drilling opportunities at Rodeo, especially on the south side of the pit. And we do intend to do a bit more drilling there. And beyond that, there are also exploration opportunities in the nearby district on ground that we also control. So we will do additional drilling, and I do expect that we'll be able to get additional extensions. I haven't seen indications that there will be No hugely significant, but no two or three months is certainly a very good possibility, and there is the opportunity, of course, to make a major new discovery of a similar size system to the one that we're mining now at rodeo.

So I think there's excellent exploration upside potential in the district and it's a matter of getting some more drilling done.

that's helpful. And then just switching gears a bit, looking at Velardinia, I'm just curious on cost inflation, which you've seen across the board, not only our industry, but most others. Do you expect any cost inflation on the CapEx for the Velardinia restart, or are you looking at maybe recosting the Biox plant? I'm just curious how you guys are looking at that.

I think we've factored in the inflation aspect of the cost at present. These materials are still going up in cost, and so there may be some additional increases, but we did increase our estimate of the cost of construction by 100% basically over the 2020 estimate. In part, this was because of the additional cost of materials since that March report, but also was related to understanding a bit more fully the details of the construction design with better sources of information. So we increased the cost estimate from $6 million to $12 million for the basic plant construction. That should include most of the apparent inflationary cost increases. But as inflation continues, of course, during the process of building, we may be faced with some

I would think minor additions to that. Okay, that's helpful. That's all on my end. Thanks again. Thank you, Jake.

Thank you. Our next question comes from the line of Sid Rajiv with Fundamental Research Corp. Please proceed with your question.

Good morning. I appreciate the insights and congratulations on the results. I should say that both revenue and EPS did beat our estimates. I'm trying to find out the variability or variations in recoveries and grades. I looked at nine months and four-year results. It seems like grades were significantly higher in Q4, close to five grams per ton, but recoveries were much lower, less than 70%. What's the correlation there? Higher the grades, we are seeing a lower recovery.

Yeah, great question, Sid. Thanks. Interestingly at Rodeo, there seems to be an inverse correlation between grade and recovery. That's unusual in many deposits. What we think we're seeing that affects the gold recovery is stronger silicification with the higher grade ores, higher grade mineralized material that makes it more difficult to get the higher metallurgical recoveries. Basically, the gold is somewhat encapsulated by the silica. And although we're grinding it as finely as we can, we don't seem to be able to liberate that last bit of gold that's tied up tightly in the solicitation. And the degree of solicitation seems to be directly related in the center of the deposit, at least to the higher grade material. So that seems to be the explanation. That's what we're working with, at least as a working hypothesis.

That makes sense because when you look at the new resource, the high-grade resource, the average grade is 3.1-ish, and you're expecting 2.9 next year with higher recoveries, close to 80% versus 75% last year. So I guess this explanation helps. Is that the reason why you're expecting lower grades and higher recoveries next year?

Yes, exactly. That's what we've seen operationally in 2021 is that as the grades decrease a bit, we do get the higher recoveries more in line with what we found in the pre-mining metallurgical test work that we did. And so that's why we've predicted the 80% type recoveries with the slightly lower average resource grade going forward in 2022 and 2023. Okay.

How do you plan to fund Velodinia's CapEx in case you decide to move ahead?

I think I'll turn that to Bob. We've looked at a whole number of different sources of funding. Bob, do you want to comment on that? Sure. I would just say that at this point, we're exploring all sorts of possibilities. Of course, we've got our current cash balance, which is substantial. But as Warren's alluded to, with a total cost of capital approaching $15 million now for a dollar a day in your restart, our current cash balance wouldn't be sufficient. So we've certainly discussed in the past that we are looking at alternatives for financing, which will include everything from potentially off-take type agreements with traders who would be purchasing our products to... various other forms of leverage and potentially some equity as well. But we're favoring leverage at this point so that we don't have to dilute shareholders, but it doesn't mean that that's not a possibility. We also have an ATM program which could raise some money potentially. So we're looking at any number of items. One good thing is we certainly don't need a lot of cash other than what we have on our balance sheet currently to get things well underway with respect to this project. It'll take some time, you know, a course of a year to build the plant, and we'll start mining activities sometime, you know, prior to the completion of the biox plant. But with our current cash flow and operating margins at Rodeo, we can ease ourselves into looking for more capital, that wouldn't necessarily be a precondition to us starting the project. So we have a lot of options out there in front of us, and we'll look to select the best one for the company.

Appreciate it. Thanks, Bob. You were talking about asset valuations earlier. It seems like LQR, sorry for my bad pronunciation, but There's not been many updates on that, and maybe that's why the market is discounting probably. Any updates from Barrick? Do they give you updates often? How do you deal with this project at this time?

Yeah, thanks, Sid, for that. So we do get a quarterly update from Barrick. They've been fairly slow getting exploration work done. I think we haven't specifically disclosed any details. However, they have applied for a drill permit. They do plan to do some drilling this year, according to their public statements in Argentina. We just haven't gotten any real detail about the starting date on that. So they are continuing their exploration work at a fairly slow pace. And I guess that's why you haven't seen any updates on that. I expected it to be a faster-paced exploration project for them, but it seems like it's been slowed down a bit, first due to COVID, and then I think due to other company focuses. But we will be able to, this year, update the technical report according to the SK-1300-US rules, and that will allow us to talk about the net asset value along with our other net asset values more easily.

Perfect. Again, thank you so much, and congratulations on the excellent results.

Thank you, Sid. I appreciate that.

Thank you. Ladies and gentlemen, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Ken Lynn with Lynn Asset Management. Please proceed with your question.

Hi, Warren. Congratulations for a great quarter. Most of my questions have been answered, actually. And I just want to confirm with you, Sal, that you plan to mine valedanian even without the bio plant. At current metal price, you potentially, with your existing mill, you can have a cash flow even positive. Is that correct?

Yeah, thanks, Chen. We could, and at current metal prices, it looks attractive. What we really need to see to be very gung-ho about mining Velardeña without the biox plant is a silver price in the mid $20 per ounce range. So to the extent that silver would maintain a base price of around, say, $25, $26 per ounce, it is attractive economically in our view, and I although I haven't received the approval from the directors to go ahead with the startup without the biox plant, we're certainly going to consider that. And so we'll look at that when the time comes. Expect to make a decision about how to proceed about mid-year this year, once we have all the information in for the biox plant construction plans and have completed our mining test just to make sure that we have the ability to control dilution and provide the ore or the mineralized material at the head grades that we have in the plan.

Okay, great. Thank you. So without the bio plan, how much CapEx do you have? The underground is pretty much there, right? Do you have additional CapEx, a couple million to get the ore out or...? How much would it cost you to get it started? I know your mill is there, right?

Yeah, there's really no significant capex to get restarted without the biox plant. The only pre-production cash that we would have to supply would be basically working capital for that period of time from when the costs start coming in and we actually get payment for the concentrates. So it would be a fairly minimal amount of cash, Jen. I don't think I have an exact number, but it would be perhaps $1 or $2 million in pre-production costs before net income started flowing in. So yeah, it certainly is a possibility and one that I've kept open as one of the options going forward.

Right. Yeah, recently I visited another Mexican mine who has the refractory gold and silver as well. They did something, and they just fine grinding. Fine grinding, they increased almost double the recovery of the gold and silver. I don't know if there's something you would consider, or you mostly decided on the biology.

We looked very, very closely at the fine grinding to see if it could make that same difference at Velardeña, and unfortunately it does not. Even fine grinding did not move that payable gold per ounce, payable gold amount, or payable gold percentage recovery above very low percentages in the, let's say, 20% range. So even with a fairly high cost fine grinding capital system put in, it really doesn't change the economics. So it's not worth considering. In the case of Velardein, it's just a bit of a different beast. The gold is very, very finely held in the pyrite at basically the atomic scale. So the fine grinding doesn't liberate it.

Okay, understood. I mean, the other mine go to 50%, but I guess it depends on the different ore. But thank you. Thank you for the question. Good luck.

Thank you, Chen. Appreciate it.

Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Ms. Winkler for any final comments.

Thanks, operator. This concludes today's call. Thanks for joining us today, and we look forward to talking with you again next quarter. Have a great day. Thank you, everyone.

This concludes today's conference call. You may now disconnect your lines.