Oceana Group Ltd

Good day, ladies and gentlemen, and welcome to the Oceana Gold Third Quarter 2020 Financial and Operating Results Conference Call Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, October 29, 2020. And I would like to turn the call over to Santazuki. Please go ahead, Sam.

Thank you, Sylvie. Good evening. Good morning. Welcome to Oceana Gold's third quarter 2020 results webcast and conference call. I am Santazuki, the Vice President of Investor Relations for Oceana Gold. I am joined today by Michael Holmes, President and CEO of Oceana Gold, along with Scott McQueen, Chief Financial Officer, Mark Kadzo, Chief Development Officer, and and Jim Whitaker, Executive General Manager of the Hale Goldmine. Before we proceed, note that the references in this presentation adhere to international financial reporting standards, and all financial figures are denominated in U.S. dollars unless otherwise stated. Also note that the presentation contains forward-looking statements, which by their very nature are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate, as future results and events could differ materially. I refer you to disclaimers on the forward-looking statements in our presentation. I will now turn it over to Michael Holmes.

Thank you, Sam, and good morning, good evening to all. I hope everybody is staying healthy, and thanks for joining us today to review our third quarter operating and financial results. Moving on to slide four, our third quarter results reflect the impact that COVID-19 pandemic has had on our business. During the quarter, we revised our 2020 outlook, which was driven by lower production expectations out of hail. We are currently tracking to the low end of guidance at hail, and on a consolidated level, we expect to produce approximately 300,000 ounces of gold at consequently higher oil and At Hale, production and costs in the third quarter were below expectations, with positive COVID cases increasing from two to over 20 at quarter end, and with 330 workers self-isolating since the beginning of March, including 220 from the 1st of July to the 21st of October, this represents 40% of the workforce. Also, year-to-date, the site has experienced a 35-year record high rainfall. These factors impacted operational productivity and prevented us from advancing mining rates as originally planned, resulting in delaying access to high-grade ore zones. Uncertainties around COVID-19 remain as cases in South Carolina continue to increase. These are real challenges for the HAL team. but ones they are addressing to safeguard the health and wellbeing of our workforce and delivering on expectations which include maintaining higher plant throughputs, improving recoveries and staffing up to counteract workforce destruction due to illness and absenteeism. In New Zealand, McRae's is tracking to their full year guidance of 140,000 to 150,000 ounces of gold. McRae's has bounced back well from the second quarter suspension and the team is delivering on all fronts. On the North Island at Waihi, despite the five-week development hiatus in the second quarter related to COVID restrictions, the Martha Underground is on track for first production in the second quarter of 2021. We have advanced over two kilometres of underground development during the quarter and over five kilometres year-to-date. By year end, we expect it to be developing approximately 900 metres per month. At a total company level, our financial results are consistent with underlying operational performance and broadly in line quarter-on-quarter. A higher gold price helps to offset generally lower gold sales as a result of no sales from the Dipio and lower than expected gold sales from Hale in the third quarter. Quarter on quarter, adjusted EBITDA increased from strong production from the craze and a higher gold price. Subsequent to quarter end, we made the difficult decision to permanently lay off approximately 900 full-time and contract workers at the DPIO, given the inaction related to our FTAA renewal and ongoing blockade of the access road by the local government units and the minority of individuals who are ideologically opposed to mining. Our net loss of $154 million year-to-date and $97 million in the third quarter reflects the pre-tax impairment charge of $80 million related to the carrying value of the DPO. Our third quarter adjusted net loss of $24.9 million resulted in an earnings per share of negative four cents, which was flat quarter-on-quarter. Cash flow per share was 11 cents year to date and 2 cents in the third quarter, excluding the gold pre-sales for each period. Despite the challenging year we've had, we remain committed to delivering the most value to our shareholders over the long term. And we will achieve that by progressing our dynamic organic growth pipeline and executing on our operational plans while managing the continued risks we face. During the quarter, we finalised optimisation of the Hale Underground, the Horseshoe Underground at Hale, while solidifying our long-term vision for the asset. Martha Underground at Waihi is progressing well. And Golden Point Underground at Macrae's, the development will begin this quarter with first production expected in late 2021. Permitting and exploration is ongoing in New Zealand, setting the stage to realise the full potential of the Greater Waihi District.

Turning to slide five.

We have strict protocols in place at all sites to maintain the health, safety and wellbeing of our workforce. This is a top priority for us. These protocols enforced at all sites and for our corporate staff include workplace health screening, staggered shifts, rigorous cleaning practices and working from home where practical or mandated. As of October 22nd, the Hale operation has recorded 25 positive COVID-19 cases, including five cases in the fourth quarter thus far, with only one active case along with another nine presumptive positive cases under watch currently. Over 330 Hale workers have had to self-isolate for two weeks at some point in time since the beginning of March, including 120 in the third quarter and 50 thus far in the fourth quarter. The New Zealand government lockdown in the second quarter successfully managed the spread of the virus and to date we've had no positive COVID cases at Lecraige or Waihe. To date, 30 of our workforce has tested positive for COVID-19, 25 based at Hale, 4 at Zipio and 1 from our corporate team. Despite these challenges, our patient performance remains relatively stable quarter on quarter, resolving in the company's total recordable injury frequency rate, trending to 2.9 per million hours worked. During this uncertain time, we continue to achieve strong safety results and will continue to do so through strong leadership and communication to ensure the trend continues in the right direction. Moving on to slide six, we have operated a sustainable business for the past 30 years by applying robust ESG practices across our business. And this year, we continue to advance key initiatives to keep us at the forefront of best practice globally. We are progressing our approach to climate change with the development of work plans, measures and targets related to this very pressing global issue. This includes our commitment to provide short-term targets in line with the Taskforce on Climate-Related Financial Disclosure by the end of 2022 and our commitment to other long-term goals. The work is already happening on how to reduce emissions across our business particularly as we deliver our organic growth plan. We are evaluating mine plans and designs within the context of using low-emission fleets, particularly in our underground operations. So the innovation and focus on change is underway. We look forward to sharing more details on our climate change-related work before year-end. In addition, we received assurance on our first phase of compliance with the World Gold Council's Responsible Gold Mining Principle and expect to be in full compliance with these standards by the end of 2022. Our overall ESG performance has been recognised by the major ESG rating agencies and most recently we maintained our A rating with the MSVI, an outperformer ranking by Sustainalytics, putting us among the elite ESG performers in the mining industry.

Moving on to Hale on slide seven.

Hale, with the many challenges we've faced their year to date, continues to see safety improvements. The TRIFA Permanent Recordable Injury Frequency Rate trended lower in the third quarter to 5.4 versus 6.3 in quarter two. I attribute this to the strong leadership we've put in place at the operation, ingraining our safety culture that requires continuous employee engagement. The third quarter at Hale was as expected given the challenges we faced. COVID cases increased dramatically and exceptional rainfall hindered productivity. Rainfall totaled 51 inches through September, the highest amount on record for the last 35 years. Despite these impediments, the team at Hale has kept the operation moving forward in all aspects of the mine activity and project development. 30% of our workforce self-isolated in the third quarter, due to the COVID and positive cases increased tenfold. The disruption in workforce resulted in the haul truck utilisation rates of 60% year-to-date, which is much lower than our expectations for the year. Quite simply, because of these factors, we were unable to advance our mining rates as expected, resulting in delayed access to the high-grade ore zones. Production was lower and costs were higher during the quarter. Mining and processing unit costs increased 26% and 23%, respectively, quarter on quarter. Higher mining unit costs reflected increasing headcount and training to offset absenteeism impacts, a 30% increase in the cost of diesel during the quarter, and more drilling and blasting of material in the open pits as the mine plan progresses. Higher milling costs reflect utilisation losses from wet in-circuit material, plus a three-day pay and maintenance shutdown, which was brought forward from October. Quarter on quarter, we had quite a bit of noise, but year on year, there is a trend of improvement across the board. 2020 year-to-date figures over 2019 results have shown significant improvements in total material mines, ore mining increasing, mill feed increasing, recoveries improving and costs improving. We're on the right path at Hale and despite the detour of 2020, we have not lost sight of the long-term potential of the asset.

Turning to slide eight.

Here you'll see proof of the points related to the challenges we faced in the third quarter and continue to manage at Hale. The reality is that the Carolinas continue to experience excessive rainfall. and although we have factored in rain when establishing our budgets and guidance, it is a variable that we cannot predict. Despite the rainfall, take note that we are moving more of South Carolina than ever, averaging 3.3 million tonnes per month since the beginning of this year. Despite receiving more rainfall than ever, we've experienced since the beginning of the operation. We continue to work through expanding the and mining through the clays and sapperlites to get to the harder rock, which we expect will improve productivity independent of weather events. Concurrently, we've been successful at reducing total turnover to less than 25%, attributable to better recruiting practices and employee targeting, as well as on-the-job training. We're also increasing staffing levels to mitigate and manage absenteeism from COVID and turnover. COVID-19 remains a challenge for us, as cases in South Carolina continue to escalate. But with our strict protocols in place, we have prevented the spread at sites thus far. Notwithstanding the continued risks associated with the pandemic, we expect continual improvement from the team at Hale.

Turning to slide nine, at McRae's.

During the third quarter, McRae's operation reported two reportable injuries, bringing the year-to-date total to three. The resulting total recordable injury frequency rate was 2.3 per million hours worked. The operation continues to see a significant reduction in the number and severity of injuries as compared to last year. In the third quarter, McRae's produced approximately 35,000 ounces gold and increased quarter on quarter as we resumed full-scale mining and processing post-government-imposed COVID-19 restrictions in quarter two. Open pit and underground mining costs generally increased quarter on quarter with the resumption of normal operations during the quarter relative to quarter two. Processing costs also increased quarter on quarter due to planned maintenance shutdowns completed during the quarter. All in sustaining costs of $14.82 per ounce sold were noticeably up quarter on quarter, reflecting the resumption of the pre-stripping activities relative to quarter two. and increased sustaining capital spend related to a public road realignment project. The road realignment project is imperative to facilitate the mine life extension to 2028 that was shared as part of our updated technical report. We expect McCrae's to produce over 1 million ounces at an all-in sustaining cost of approximately $1,000 per ounce sold over the next eight years. The development of Golden Point Underground and additional open pit opportunities at Deep Bell, Innes Mills and Gay Pan have increased the mine life. We expect to invest approximately $15 million to develop the Golden Point underground, which effectively replaces the Fraser's underground. And we will invest an additional $30 million annually in sustaining capital with the open pit expansions. For 2020, McRae's is tracking comfortably within the full year production guidance. of 140,000 to 150,000 ounces of gold. We continue to expect the quarter to be the highest quarter of production at the lowest corresponding oil and sustaining costs, particularly as sustaining capital investments taper off. Moving on to slide 10 in Waihi, recorded zero injuries during the quarter, and it's maintaining its total injury total recordable injury frequency rate relative to quarter two. Development of the marker underground continues to progress on budget on schedule for the full year despite the temporary containment in the second quarter due to COVID-19 related restrictions. With total advance rates continuing to increase, and at the end of quarter three, we completed 2.2 kilometres of underground development. First production of soap ore from Martha Underground is tracking to the second quarter of 2021, and that will be supplemented with stockpiles, development ore as we advance the project. Looking ahead, the processing plant, which was shut down in February after completion of soap mining at Carenzo, will resume batch processing this quarter with ore from Narrowbane Mining in the Upper Carenzo and Lewis veins. We're expecting 7,000 to 8,000 ounces of gold production from Waihi in the fourth quarter, bringing total production to approximately 20,000 ounces of gold this year. Moving on to slide 11 and the DPIO. Our focus at the DPIO is on lifting the operating restraints of the mine and renewing the FTAA. During the third quarter, the community of the DPIO held a general assembly on September 10th. and 400 community members participated, representing the majority of the Zipio family. The General Assembly passed resolutions supporting the resumption of free travel for Zipio mine supplies and products, effectively supporting the removal of the blockade, and requested that the Zipio Council, which has been active in establishing and maintaining the blockade, support these resolutions. To date, the resolutions of the General Assembly have been opposed by the local leader and his coalition on the Zipio Council. and as such the blockade remains in place. Despite the efforts of the General Assembly, the Mayor and the Municipal Council, agreements to remove the blockade and the anti-mining activists demanding the blockade could not be achieved. As a result, and in accordance with the Philippine labour laws, we terminated the employment of 496 employees and 400 contractors on the 13th of October. This is a very disappointing outcome for us and most especially our dedicated and skilled Filipino workforce, as well as the Borough of Barangay. The DPO is a significant source of jobs, social development, taxes and revenues that we believe will be critical in contributing to the Philippines' post-COVID-19 recovery. With the permanent layoff of the majority of the workforce, Our focus has been turned to transitioning the BPO to a state of operational standby. Our expected timeline for resumption to full operations has now extended to up to 12 months, as it would take considerable time and effort to rehire and retrain our highly skilled Philippine workforce. We continue to seek temporary injunction against the Governor's order restraining the operations. We have received word that our appeal to the Court of Appeals for temporary injunction has been denied and we are currently evaluating the option to appeal this decision to the Supreme Court. Currently we remain in dialogue with the appropriate representatives at the national level on the renewed status and currently our understanding is the FDAA remains with the Office of the President for approval but we do not have visibility on a timeline for action from the President.

I will now turn the presentation over to Scott to take you through our financial results. Thank you Michael, and hello everyone.

The next few slides, as Michael said, will summarise our third quarter financial results. Getting to slide 12, which provides a snapshot of our balance sheet. As noted, as of 30 September, our cash balance was $127 million, while our net debt stood at $187 million. We have been actively managing our liquidity position for some time in response to the suspension of operations at the DPIA as well as the planned production pause at Waihi. This has included debt amendments late last year, the sale of our interest in GSB in Q1 and the gold pre-sale arrangements executed to better align our near-term operating cash flow profile with our 2020 capital investment plan. Our 2020 plan included a strengthening operating cash flow consistent with increasing mine grades at both Hale and Macraes across the third quarter, and even more so into the fourth quarter. However, the five-week COVID shutdown at Macraes impacted mining progress, and in doing so, delayed access to some higher-grade zones in the context of the third quarter. Hale has experienced similar timing challenges, with the management of COVID resulting in increased workforce absenteeism due to isolations and case management. Again, this contributed to reducing mining productivity and delayed access to higher-grade zones in the third quarter. While we have proactively managed the material impact these short-term challenges have had on liquidity, and we expect improved performance in the fourth quarter, the key to realising the value in OGC is not just managing these short-term risks, but at the same time ensuring we can commit to delivering the significant organic growth projects in our portfolio despite these risks. To keep these goals, we felt additional equity was the best path given the increased risk over the DPO timing, while also considering the significant capital investment commitments required to bring these projects to fruition over the next few years. The equity raised announced in September was completed this month and as noted, a total of 81.6 million common shares issued for net proceeds of approximately 122.4 million. The completed transaction included the exercise of an over allotment option of 8.6 million shares. As previously evoked, the bulk of the proceeds are earmarked to underpin the Horseshoe Underground Mine development at Hale, development of opportunities in the Waihi District and importantly also ongoing exploration to further enhance the value already evident in the Hawaii region. While we continue to face uncertainty over the trajectory of COVID in the US and broader economic risks remain, we believe we can now move forward with confidence and commitment to delivering operational performance and seeing significant value enhancing growth projects while at the same time retaining their full value and optionality in the hands of the shareholders. The overall third quarter result was a net loss of $97 million, which included an impairment charge of $80 million related to GDPR. This followed the announcement of the planned workforce terminations in the third quarter, the first tranche of which occurred in mid-October. These terminations will result in an expected change in the status of the asset, as Michael has explained, effectively As previously highlighted, the operation will transition from a state of operational readiness for rapid restart to a reduced status of operational standby. This change is expected to materially impact the timeline required to resume full operations subsequent to a resolution of blockade or the decision by the Office of the President on the renewal. As such, the carrying value of the asset was reassessed at the end of the quarter to include this change in assumption and its reassessment resulted in an impairment chart as included in the third quarter results. Carrying value of Padipio will continue to be reviewed based on the situation on the ground and with respect to progress with the FTAA renewal. Should a positive outcome be achieved and the operational ramp-up happen more quickly than anticipated, the carrying value may also be reassessed on that basis. Aside from the non-cash impairment recognized, the underlying third quarter financial results were consistent with the operating performance during the quarter and both were broadly consistent with the previous quarter. The year-on-year reduction in both EBITDA and revenue largely reflects the lower gold production and sales at Edipia, but also the planned production pause at Waihi, where there has been no production in the second and third quarters. The marginally higher average gold price realized combined with stronger production quarter from McCrae effectively offset the small reduction seen at home. The adjusted third quarter results, excluding unrealised edge gains and the impairment charge, was a loss of $24.9 million or negative $0.04 per share, fully diluted. On a quarter-on-quarter basis EBITDA was largely comparable. The adjusted EPS improved by $0.01 per share and the cash flow per share before working capital movements was flat at 2 cents, bringing the year-to-date total to 11 cents per share. Generally, our financial outlook for the final quarter is materially stronger, based on higher production from both McRae's and Hale, combined with a restart of the plant at Waihi to batch process accumulated narrow vein ore stocks. Based on current gold prices and its improved production outlooks, we are targeting a return to underlying profitability in the fourth quarter. As per the cash flow summary at the bottom of the slide, year-to-date operating cash flow has increased due to the receipt of $155 million from the previously announced gold pre-sales, which totaled 88,000 ounces. 48,000 ounces are due for delivery in 2020, with the remaining 40,000 for delivery in Q2 2021. During the third quarter, the first 12,000 ounces due this year were delivered. The remaining 36 will be delivered in the fourth quarter. The year-to-date investing cash flows reflect increased capital investments for growth projects, partly offset by proceeds from the sale of our G3 investment earlier in the year. The quarter-on-quarter increase in investing cash flow largely reflects increased pre-stripping activities and growth capital at home. Cash used in financing for $6 million reflects financed lease repayments, with our debt facilities unchanged during the quarter. Turning to slide 14, which provides some additional detail on the capital expenditure for the quarter. As outlined at the top of the table, total capital expenditure was approximately $82 million, a 50% increase on the prior quarter. Just under half of the quarter's capital spend is attributable to increased capital investments at Hale, where major work included the completion of the second TFF wall lift, commencement of work on the third lift, plus heavy earthworks related to PAG cell construction. Hale also saw higher pre-strips consistent with the mine plan. The balance was split equally between Macraes and Waihi, both approximately $20 million each. At Macraes, sustaining capital increased with a full quarter of mining including ongoing pre-strip for Coronation North Stage 4, plus the road realignment project being a key feature in the quarter. Waihi included the continued development of market underground, plus increased exploration covering both Martha and WJP. I will now turn it back over to Michael to discuss our exciting Organic Growth Pipeline Server.

Thank you, Scott. Moving on to slide 15. During the third quarter, we delivered a comprehensive update of our exciting portfolio with the finalisation of the technical reports for our operating assets. The results demonstrate real value over the long term. and we believe delivering our dynamic organic growth pipeline is critical to creating shareholder value. The future of Oceana Gold is in two top tier jurisdictions, the Americas and New Zealand. Beginning with the growth in the Americas, we finalised the optimisation of the horseshoe underground at Hale in the third quarter and solidified our view of the asset's long-term potential. We see an exciting underground future at Hale, supplementing the open pit operations, and it is our desire as a true digital bit to continue to increase the life of the underground project. We envision Hale as a 200,000 plus ounce producer at a sub $900 per ounce all in sustaining costs, and the near-term investment in waste storage facilities supports this vision and generates active life of mine free cash flow and activates. The company is in the final stages of the Supplementary Environmental Impact Study process to expand the HAL operation. The SEIS facilitates continued development of the existing HAL footprint, expansion of the TSS and waste dumps, and the commitment of the mining from the underground horseshoe mine. To date, there have been no objections by any stakeholder group to the SEIS. and at this stage the company anticipates a successful record of the decision and completion of the process by the first quarter of next year. The majority of exploration activities are in New Zealand, where we have operated responsibly for the past 30 years, creating significant value for shareholders and socio-economic benefits for host communities, regions and the country. Martha Underground underpins the greater Waihi District as we currently see it. It is fully permitted, currently in development, and on track for first production in Q2 2021. As we develop the Martha Underground project, we will continue to invest in the drill bit. We believe the Waihi District represents the largest value-creating opportunity we have in our portfolio, and exploration is expected to continue for years to come. At McCrae's, the updated 43-101 technical report reflected a mine life extension to 2028, with the development of the open pit opportunities and the Golden Point Underground. Golden Point Underground is expected to replace the Fraser's Underground and extend the mine life of McRae's at production levels of 150,000 ounces to 180,000 ounces a year and all in sustaining costs of around $1,000 per ounce. We continue to expect McRae's to be a major source of free cash flow generation for many years to come. Turning to slide 16 for hail growth, as I stated before, the exciting future of hail is underground. During the third quarter, we completed the optimisation of the horseshoe underground, including pursuit of a bottom-up mining approach with the use of a cemented rock-filled backflow. Portable development for the horseshoe is expected to begin next year with the receipt of the SPIS, and first production is currently tracking the 2022 year-end. The Horseshoe Underground is one of several underground exploration targets at Hale, which was recognised as part of the original due diligence. These targets stretch over one kilometre from the Horseshoe in the east to the Palomino in the southwest. In 2016, we drilled the upper portion of Horseshoe with some excellent results that have now converted to a reserve of approximately half a million ounces, along with the substantial inferred components still to be converted at deeper levels. Significant extensions to horseshoe also remain to be tested, as highlighted in the figure on the left, with 64 metres at 15 grams per tonne of gold. Palomino was the next opportunity for drill, with a substantial inferred resource of approximately 600,000 ounces being booked earlier this year. As part of this work, we also identified the Snakeshoe and Pisces targets with excellent drilling tests in addition to a large conceptual target still to be tested called Aquarius. Each of these substantial opportunities will be advanced over the next several years. In addition to exploring underground, we continue to drill ahead of the open pit operations and expand opportunities at surface.

Turning to slide 17,

Martha Underground is advancing for first production in the second quarter of next year and is the foundation asset for a district with enormous potential. Exploration efforts unit aid at Martha Underground have focused on resource definition in support of feasibility level studies currently underway. We have not fully defined the resource at Martha Underground to date, with additional areas highlighted for further drilling programs and definitions. Located 10 kilometres to the north of Waihi, we continue to believe that WKP will grow into a multi-million dollar ounce deposit, and we will dedicate the drilling resources to highlight this. WKP is a major discovery, with a resource of 1.1 million ounces grading between 12 and 13 grams per tonne, based on only 35,000 metres of drilling. Throughout 2020, the company has been focused on step-out and infill drilling of the eastern raven vein to further delineate the resource. Also, during the third quarter, the mining permit application for WKT was approved, granting us exclusive right to the WKT mineral resource. We look forward to continuing our robust exploration program there, along with other technical and environmental studies. Turning to slide 18. At McCrae's, the development of the Golden Point Underground underpins the mine life extension. Services and earthworks around the portal have already commenced and we expect to begin portal construction for the Golden Point Underground before year end or early next year. In addition, we are progressing an open pre-feasibility study for the Roundhill Golden Point area. As part of this, an evaluation will be undertaking a comparison between the underground and open pit mining options for the existing resource.

This study is expected to be completed in the first half of next year. In summary and moving to slide 19, 2020 has been a challenging year.

This is not where we expected or wanted to be. We saw many of you have reflected on 2020 and feel the same as we all face an unprecedented global pandemic. My team and I have had to make some challenging and courageous decisions heading into the fourth quarter. On October the 13th, we permanently laid off 496 employees and 400 contractors at the DPO, which was extremely disappointing. Given the impact of COVID-19 on the Philippines, it is hard to understand. We are responsible contractors for the national government, and we can assist them on so many levels. I use the term courageous because it's not easy to terminate employment of nearly 1,000 Filipinos that I help hire. As difficult as the process is, it is the right path for Oceana Gold. It is the right path for us to take on behalf of each of you, our shareholders. Six days after the permanent lay-off at the DIPIA we closed our board deal offering. And this also was not an easy decision for us. We evaluated all options before moving forward. As we close out this year and look to the future, our approach will not falter. We will not deviate from a path that delivers the most value to our shareholders over the long term. And we believe that path means progressing our dynamic organic growth. Looking to the future, we see our most promising growth projects coming online. and we will continue to make the hard decisions to keep us on the right path to deliver enduring value. It has been a difficult year. The uncertainty of the DPO and the conditions of HAL have been challenging. However, nothing has fundamentally changed with our assets. In fact, we are accelerating our exploration focus in New Zealand and at HAL to convert resources to reserves, better define our assets in development and deliver the enormous potential we see today. Nothing has fundamentally changed with our team. We are operating in top tier jurisdictions with decades of experience. We have all the right ingredients for success. We have a solid plan to deliver on quality assets in top tier jurisdictions under the stewardship of good management. We expect improved performance in the fourth quarter and the key to realising value within OGC is not just managing these short term risks but at the same time ensuring we can commit to delivering significant organic growth projects in our portfolio in face of these risks. We are focused on progressing our growth, which means building three underground mines, Hale, Martha and Golden Point, expanding our open pit operations and continuing to explore the Greater Waihi District. We believe this translates to real value for current and prospective shareholders over the long term. Early next year, I look forward to sharing more details, including our path forward and our vision for the future of Oceana Gold. In the meantime, we'll be heads down, executing on the day to day and focusing on our path forward to deliver value over the long term. We are a resilient and dynamic gold miner with a strong, sustainable future ahead of us. Our organic growth pipeline is one of the best in the industry, and it represents decades of opportunities for our company, and my team and I look forward to delivering that value.

Now back to Stan. Thank you very much.

Thank you, Michael. So that concludes the formal presentation segment of the webcast. I will now turn it over to the moderator to facilitate the Q&A session.

Thank you. Ladies and gentlemen, if you do have a question at this time, please press star followed by 1 on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And should you decide to withdraw your question, simply press star followed by 2. And if you are using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star 1 now if you do have a question. And your first question will be from Oves Habib at Scotiabank. Please go ahead.

Hi, Michael and team. Thanks for taking my questions. Just starting off at Hale, based on the implied production needed to meet the lower end of guidance, obviously Q4 needs to be a pretty strong quarter. Can you give us any color on how Q4 is going based on what you've witnessed in October so far?

Yeah, thanks for that.

Look, it has been a bit challenging, as you mentioned, at Hale, and we are focused on delivering the guidance. We're opening up the areas at Skate Phase 2. We're finishing off the Redhill Pit and mining into the Leadbetter Phase 1. And so we are actually getting down into the higher-grade portions, and October is advancing us per the expectations. This will be an important quarter for us. And it has been necessarily a high rise, but we're advancing to the expectations to deliver that at the lower end of the guidance.

So then in terms of, you know, you said that, you know, employees that are in quarantine, basically, you know, the number of quarantine in Q3 were 160 employees, and then it's come down to about 50 employees. I mean obviously then utilization of the equipment has moved higher and has that helped kind of move material even further?

Yeah so part of the actions that's been taken on site and Jim can talk a bit more of this is that we've actually, because of the impact of the absenteeism on site during the third quarter, We've engaged a local labour company that actually has been supplementing the workforce, and so we're actually using a greater pool of people to ensure that we're actually moving through with the number of people on site, which improves the utilisation of the equipment. So that has improved, and that's been an action that's been taken on site to mitigate the absenteeism impact of COVID.

Candice? Just again, in terms of the amount of tons you mined, I mean, it was about 707,000 tons of ore at 1.69 grams per ton, and you milled 864,000 tons at 1.26. Can you give us a breakdown of what tons in grade came from stockpiles and what tons in grade came from the mined material? And I'm assuming you have a high-grade stockpile going into Q4.

I'll actually hand that question over to Jim with some of the more specific sort of details.

Thanks. Yeah, hi. This is Jim here. Yeah, great question. Thank you very much. And glad you're here with me again. Yeah, the focus is obviously, as you see, we mill more than you were mined up to the mill, and that's slightly due to tons. We have quite a bit of stock up to a million tons at about 0.7. That's why you see that impact. The plan going forward into this final quarter, over 70% of the material is really going to be focused on Snake Phase 2, and that will be both tons and grade will be higher from that area. We're also, about 20% will be from Leadbetter, where we're opening up the center of the mine. The grade's slightly lower, but the tons, again, about half of what we're getting from Snake Phase 2. So we've we've really positioned ourselves into the center of the oar body, opening up the middle part, and connecting snake and red seal. Got it.

And again, I mean, anything you need to do going forward to mitigate the risk of additional wet weather going forward? I mean, is there, I mean, obviously, you know, kind of getting used to the fact that, you know, there's a lot of rain in this area, and that has been impacting your kind of mind rates on and off. Is there anything additional you need to do to kind of mitigate that risk?

Currently what we're doing, when we were working only in Snake and Red Hill, we were doing a lot of work in doing drop cuts off of the ramps and creating sumps so we could try to channel some of the water into the lowest part of the pit. In Leadbetter, it's a much more wider area. And we found that that methodology doesn't work so good. And typically what we're doing now, we're pulling water out of those three areas. We're putting the water into mill zone. And mill zone is actually our transfer pump, transfer point into the water treatment plant system. So really a couple of things. One is active something in the lower areas. Having a wider area that better also helps, but it's part of the mine design. And then the back end of the process plant, which is the water-treated plant, is very important to us to be able to manage this complete flow of water through the system from the mine into Mill Zone pit and then back out to the water-treated plant.

I think some other actions we've taken there, I'd say, that Jim's talked about is just some of the selection of the equipment, so a larger gradient fleet to manage... post the right events and allow us to apply for reentry, Tom.

Right, right. I appreciate the call on that. And just lastly, you know, Michael, regarding your credit facility that's due by the end of 2021, are you engaged with any of your lenders to potentially push that credit facility forward?

Yes, we've had a great banking group for a long period of time and post the equity raise it is an action that we're following up with Scott and the team to talk with the credit facilities and see what we can do there with regards to pushing that further out.

Thanks, Michael. And thanks for taking my question, that's it for me.

Thank you very much.

Thank you. Next question will be from Nick Herbert at Credit Suisse. Please go ahead.

Thank you. Hi, Michael and team. A few from being pleased on the dislo. It's sad to see the layoffs of staff there. I'm just wondering, since that, has there been any susceptible change in government engagement or or sort of none at all. It doesn't really sound like there has been any change, but maybe if you could just make a comment on that.

Yeah, well, thanks, Nick. Through the quarter we have had numerous discussions with the government. I've had discussions with the Secretary of the Department of Finance and the Deputy Secretary trying to get some further colour on if there is anything else outstanding that we require to do with regards to the recommendations that the working group gave to the President and try and get a bit more colour on what is happening with the timelines. At this point in time, the President is fairly busy with managing COVID within the country and certainly a lot of his support staff are managing that issue as well. We continue to be engaged with the Under Secretaries and the Deputy Executive Secretaries of the Office of the President. The renewal is still with the Office of the President and we're still in discussions with them, but unfortunately we just haven't been able to secure what some of the outstanding timelines might be with regards to the renewal process.

Okay, understood. Thanks. And then do you mind just stepping through the costs from here, sort of the redundancy costs, ongoing holding costs? and if there are any other sort of upcoming decision points or lumpy payments that we should be aware of.

Yeah, sure. So basically, the layoffs will happen in two trances. One trance was the 13th of October. The second trance will be around the 12th of November. The first tranche was sort of the Filipino workforce. The second tranche includes more of the senior workforce, both Filipino and expat. The total redundancy costs are around about $8 million U.S. And you'll see in the third quarter results there is an accrual of $3.2 million, so that we accrued for the first tranche in the quarter 3 of 3.2 for the remainder. 4.7 will come through in the fourth quarter if we don't see any advancement on the FTAA before the 3rd 8th of November. Ongoing cost then is just around about to keep it in the state of operational standby and to ensure that the asset is It's overrun by water. The majority of the cost is in power to water the mine, and that's an average cost of around about $1.5 million per month run rate for ensuring that the environmental compliance, the security of the assets and the security of the underground.

OK, cool.

So that pretty much covers it all. OK, great. And then maybe just one for you, Scott. Do you mind just talking through what the assumptions are about underpin that and written down values for that sort of 540 odd million recoverable values you have there at the WPO. Does that assume, or what does that assume, sort of full reserve recovery or sort of what goes into that number?

Yeah, thanks Nick. It's a fairly, I guess, unique situation. What's changed and the reason we had an impairment is probably where to start. Nothing's changed in respect to the renewal process. We're still working through that. We're still engaged with the government, as Michael said. What has changed materially and the reason that we reassessed the carrying value was the trigger being the termination of the workforce and the expectation that that will extend the time to restart the asset. Now the analysis around the carrying value is based on a number of scenarios which we feel is the most appropriate way to do it in this instance and the delay that we're assuming now to start to generate tax flow again from the asset beyond a decision to restart is a longer timeline to it and therefore the discounting practice starts to come into it. So essentially we're using a probability weighted analysis that now has a longer gap before we're likely to see any cash flow from the asset and that's what's driving the carrying value assessment and we'll continue to monitor that as we go forward obviously based on changes on the ground and as I said previously that we've got an assumption that the full 12 months plus some time for renewal etc is the current view, if we do better than that and we do get it up and running sooner, then that carrying value can be reassessed on that basis as well.

Okay, great. Thank you. And then final one, just a quick one. You might just be reminding me around the timing at hail in sort of the mining schedule when you get through into that, well, predominant sort of harder ore zone.

You've done sort of a Q1 next year.

Yeah, Nick, there's a phased approach with regards to opening up the hail ore bodies. You know, the ultimate pit sort of includes six ore bodies, and we've opened up mill zones. As we do future cutbacks with mill zone phase two, we've opened up snake one and currently opening up snake two and opening up lead bed one. So there'll be different phased approaches with regards to those zones, and that'll happen over the next... you know, five years, but the idea is that we start over the next three years. But the idea is that as we sort of open up the larger areas, as Judith explained, the lead there and the surface area, and getting into the harder rock, we've got a lot more optionality there. And so the impact of the weather with the harder rock as we open up the pits in stage phase three, lead better phase one, the cutbacks then won't have as much impact with regards to the weather as we'll have alternative places to mine. But from a pure mining point of view, we'll see the softer material be continued to mine to 2023.

Okay, understood. Thanks, guys. I'll hop in on that.

Thank you. Next question will be from Mike Parkin at National Bank. Please go ahead.

Hi, guys. Thanks for taking my questions. On tail, just flipping back to slide eight, you've got that line in there, 35-year monthly. Can you just remind us what the technical report kind of assumes, what your budget process? I don't think you used the 35-year average, if I recall correctly.

Yeah, thanks for that, Mike. I'm just trying to remember.

We basically use around about a month of rain impacts in our budgeting process. A 35-year history basically doubles that amount of impact. So it takes it up to around about 55 days. So we've historically sort of haven't looked at the At the 35-year, you know, extreme events, we've taken the last sort of... Well, previous to 2018 and 2019, that's taken the last sort of 10-year average. OK. Which has historically been around about that 4 to 6 inches a month. So we're seeing some excessive. So going forward, part of the process that we have done is we've sort of taken that into account. We've built some additional rain-affected days We've reduced the total amount of material mined, as we highlighted in the technical report, down to 45 million tonnes from that 50 to 55 million tonnes going forward. So what we are doing is we're accounting for that. We haven't finalised the budgeting process this year to understand some further risks and this mitigation around how we manage the total process and having a core. So we'll dialogue that towards the end of the, you know, beginning of next year with our guidance reset. But we're certainly in the NI43 way. I want us to position ourselves to actually understand that and better management, but as well as, you know, the management of the impact of the rain on certain facilities and certainly the clays and the saprolites.

Right. And if you go back kind of a year plus, there's a pretty dramatic improvement there on tonnage despite what's clearly still rainy weather. Is that a function of just getting the open pits opened up, but also the benefit of the new mine fleet that was coming into service around that time?

Yeah, Mark has been a bit of both. Basically, we've found We've initially just sort of paid back the purchase in two areas we used, with sort of little smaller pits into mill zone and then snake pit. And during this process, we've set to uncover the old body and unlock the value. We need to move a lot more dirt. We reflected on the previous fleet and then that upgraded the fleet and basically doubled the size of the fleet and hence we've been able to double the movement and still looking for improvement on top of that.

Okay. Just looking at the other chart there, the 12 months rolling average employee turnover, obviously a good improvement from a year ago. If it's still sitting north of 20%, I recall from past mine tours, there's a partial kind of drive of just a safety culture decision of management saying, you know, you're not fit to work here, kind of, if you don't want to wear your safety goggles, that kind of thing. Is that still the case of why, you know, you're north of 20%? You're still seeing, you know, a bit of a safety culture unwillingness to adopt the standards that you guys are trying to implement to keep your workforce safe, or is Another dynamic that's kind of taken over is the dominant one causing the turnover.

That is a good question. Just with regards to the safety, if you have a look at the figures and the total record of injury frequency rate improvements, there's certainly been, you know, and certainly reduced turnover assists that. There's been an enormous improvement. from the 14s to 18s when we first started the project back down to now the 5.4, which has been a great improvement. So there's a lot more buy-in by the workforce at this point in time, and that's been fantastic. Predominantly what we're seeing, and Jim can sort of answer a little bit more to this, is that there are a few people that still aren't taking up our belief on the culture of safety and so the percentage of employees that leave generally due to personal reasons as of employees that are terminated would probably, I think, be around the 50-50 percentage.

So we still have active management of people on site.

So I just think that it's pretty Okay.

That's it for me, guys. Thanks very much.

Thank you. Next question will be from Daniel McCombie at Rossport Investment. Please go ahead.

Yes, hello, Michael and everyone. A couple of questions. Didipio, remind me, do you have any option to go to arbitration if necessary?

Daniel, thanks for that. This is arbitration in the contract. It is an FTAA. It is the first FTAA that the government is working through. There are conditions within the FTAA that have defaulted.

Just remind me, what does the FTAA stand for?

Financial and Technical Assistance Agreement. So basically we provide finance and the technical expertise to the government to extract the resources and it's a 50-40 split after the cost of capital. So we're fundamentally being a contract with the government and with every contract there is the ability to go to arbitration.

Okay, great. Second for Hale, maybe a simpler question with the water issues. I guess I've not been there. It sounds like it's a trickier, it's unlike most North American mines in terms of mining in wet weather because of the satellite. Can you maybe just explain why it's more difficult in heavy rainfall than it would be elsewhere in North America, if that's the case?

I think Jim's living it, so I might hand that one over to Jim to run through where the areas of concern are and how they're going in managing that.

Okay.

Yeah, it's definitely run the nature of the rock. I mean, we've been basically mining or developing this site through initial pioneering down through the upper levels of the open pit mine, and you'll find a lot of sand, a lot of saprolite, and then a lot of, you know, compressed material. Looks very confident, and some bit we actually have to blast, but when you start to drive trucks over it and rainfall, it just really turns into mush. So there's a lot of just getting through these upper layers, um, getting down to a firmer base and more competent material. Um, and that is the benefit of, of opening the pit up in the center, which is the better pit. Um, so typical conditions, as Michael mentioned, we've had to bring in a heavier, greater equipment. We've, uh, looked at ways to keep thumps active. Um, it's not typical. Uh, I've, I've worked in some very, very wet mines, um, in the frontier in the highlands of Peru. It's quite a bit different where the water can be trapped in long-term permanent thumps and rock and pumped out. We're mining through these benches and trying to connect the thumps and really just chasing around this perch water. So it is quite a bit different than other sites that I have seen in extremely wet conditions, where you have you know, if you're pumping in some strength space, you can readily manage the water. In this case, in hail, we spend quite a bit of time trying to chase it through the sand list.

As time goes on, will you, and you open the pit up more, you'll be more into the base, into the harder rock, and this will be less of an issue. Is that a fair statement?

That's correct. I think it was, Michael brought it up previously, When we look at our longer-term phase plan and we actually look at our longer-term pit plan, we're tracking the amounts of material in our block models by sand, by sap or light, by fill materials, and also by what we call competent rock. We're expecting right now we're somewhere between, say, 60% to 70% competent rock. That will get up into the 80s past 2023 and then remain fairly constant as you're down into the deeper pits.

So obviously we do expect this to improve in time. You know, you're looking at sort of... It's relatively... The competent rock is relatively dry from our geological and hydrological drilling. And so, you know, getting the underground up and running and then sort of having a base of production from underground of that 90,000 ounces per year certainly assists. And then for us, that future is how do we expand that underground to sort of continue that 90,000... tons, ounces a year of gold production for greater than five years and that's the underground life to be able to get live and that's the potential that we see as well. So that's a big couple for the other events from a great proportion of the underground of the milky.

Right. It sounds like it's a bit of a learning curve though just on the open pit just in terms of going through this stuff because it isn't standard but on the underground The underground is obviously going to be almost 100% in the carpet and rock. Is that right?

That is correct, yes. Yeah, 100% in the carpet and rock.

Great. Thanks very much, guys.

Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one on your touch-tone phone. And your next question will be from David Taylor at Taylor Asset Management. Please go ahead.

Hi there. I've done more of a statement than a question, but I'd love to hear your comments afterwards. I'll just start off by sort of stating the obvious at the performance. I mean, this is just being a complete disaster. I mean, this might be one of the worst performing gold stocks in the galaxy. I found it frustrating, your comment, when somebody asked you about the dip here and what happened, and your response was that the president, you know, has more things to worry about like COVID. And when I sort of think about it, I mean, I've been a long-term shareholder, both institutionally and personally, and I think about different strategies here. You know, you could be either being proactive or reactive, and proactive strategies in the Philippines could have involved some of the things that Nick talked about in the past, like a like they do a listing or selling a piece of the asset to a local, or selling the asset outright, a local sponsorship, or a local board member having some of the influential on your side who clearly didn't have the right people, who didn't have a year of the president's office. Instead of being proactive, you guys were reactive, and you relied on the courts. You always believed that the Philippines was the land of courts, the land of laws, but you lost at the local level, you lost at the provincial level, and now I sort of listened to what your strategy is, and your only strategy is is relying on the Supreme Court, but you've lost at every court level, which to me, I think that's naive. And it leads me to believe that there's more to it than COVID and the president having other things to worry about. I believe that the local governor who's anti-minor or is looking for a bigger piece of the pie has the ear of the president's office. And if your only strategy is relying on the Supreme Court, you're going to lose like you've lost at every single court level. So I guess my question is,

What are your alternative strategies here other than just relying on the courts where you failed in the past? Yeah, well, thank you for that, David.

And, you know, we are especially frustrated with the process. The Court of Appeals and the Supreme Court process that we're looking at is really just about the injunction about the barricade. So that doesn't have any impact on the STAA. It was more about the injunction for a quick resolution to the barricade. We were planning to actually pull that from the Court of Appeals before the results, but just due to the process, we sort of missed that window to do that. So we're still considering that. We still have the major... appeal to the Regional Court, basically on the validity, which is the initial case. So that's something that we're still going through. We've got to the Office of the President and it has taken us a while and we're still with the Office of the President. So while we're still seeing positive actions With regard to that, we haven't had any sort of negative comments back and we're still in discussions with the government. So we're still considering, you know, that as a pathway forward and we've had to make some difficult decisions with the workforce. So, you know, we're not relying on the courts with regards to the FPAA. We're relying on the discussions with the President and the work that we've done and showing the government and the President that we're responsible for gold miners. And so there is still activity there. I mean, it is still the first FTAA and we're still working with the group to ensure that we understand our frustrations because we're living with those frustrations every day. We understand the asset is a lot more valuable in our hands. But, you know, we have some definite trigger points to have a look at what else we need to do if things advance or don't advance. and we'll be continuing to review those as we move forward. But for us, you know, it has been... The FDA has been, you know, taken back down to the working group and has been recommended by all the departments, Department of Finance, the Mines, Geosciences and Bureau and the Department of Environment and Natural Resources have all recommended us and the FTAA should be on the same position.

Do you have a letter from the Finance Minister that says you could operate without an FTAA and that paper proved to be completely worthless?

Yeah, we had a letter from the Mines and Geosciences Bureau, not the Department of Finance. Yeah.

Yeah, well, I understand this continued dialogue, but I guess if the president was to do something, he would have done it before you were required to fire, or before you fired basically all, he let all the employees go. And the fact that you pulled, I understand you pulled from the appeals before there was a decision, but let's be honest, I mean, a year went by before the appeals court even, I mean, they never even decided on the case.

Anyway... That's correct, and we're still...

We're still working through, David, and for us it's still in the state that we're still talking to the Executive Secretary and the Executive Department and we're still having positive engagement there and so we're still working towards finalising the FTA and moving forward.

Okay, just my last question then. Other than you being a bunch of Australians trying to negotiate in the Philippines, maybe you can talk about who do you have, you know, a senior standing in the Filipino community that is working on your behalf to get the ear of the president?

Yeah, so we've got an internal resource, the president of OGPI in-country, and we're working with... with some of the congressmen and the governor of supportive province working with those two or three people that have put along sort of standing histories and great relationships with government officials.

Okay, thank you and good luck. Thank you.

Your next question comes from Paul Keener with RBC Capital Markets. Please go ahead.

Yeah, hi Michael and Shane. Just a quick one for me. Just on your hedging profile, could you maybe just outline your strategy there and how many ounces you plan on hedging going forward in the near term?

Yeah, well, thanks, Paul. At the moment, we've got around about 29,700 ounces hedged in New Zealand at the New Zealand $2,000 book option. and the rest have been the pre-sales, the sea trunks of the pre-sales. Historically, we've hedged just the McRae's ounces and to ensure that we have a good margin as we operate within McRae's. It has got a very low mining and milling dollar per tonne rate, but a low rate. So it's really been to ensure that we get a return and a good margin from the McRae's operations. We don't have, you know, that's probably the way that we look at hedging at this point in time, and we don't plan to do any hedging in the future. We have to deliver into the gold pre-sales, as Scott has mentioned, and that's been delivered in this quarter, and we pushed this quarter and then quarter two of next year.

Yeah, great. Thanks, Bill. That's it from me. Cheers.

There seems to be no further questions at this time. Please proceed.

That concludes our webcast and conference call. A replay will be available on our website later today. On behalf of Michael, Scott, Mark, Jim, and the rest of the team, thank you for joining us. Bye for now.

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