Aya Gold & Silver Inc.

Good morning. I will now turn the call over to Salisha Ilyas, AYA Gold and Silver's Investor Relations Officer. Please go ahead.

Thank you, operator. And welcome to everyone who has joined AYA's first quarter 2025 earnings conference call. Here with me today, I have Benoit Lassalle, President and CEO, Hugo Landry-Tolschuk, Chief Financial Officer, Ilyas Ilyas, Chief Legal and Sustainability Officer, Raphael Beaudoin, Vice President of Operations, and Debbie Lalonde, Vice President of Exploration. We will be referring to a presentation on this conference call, which is available via the webcast and is also posted on our website. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation news release, and MD&A, as well as the risk factors included in our annual information form. Technical information in this presentation has been reviewed and approved by Raphael Beaudoin, IAS Vice President of Operations, and David Lalonde, IAS Vice President of Exploration, both of whom are IAS qualified persons as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects. I would also like to remind everyone that our presentation will be followed by a Q&A session. With that, I would now like to turn the call over to Benoit Lassalle. Benoit?

Thank you, Celicia. Welcome, everyone, to this Q1 2025 earnings call. I would refer you to the PowerPoint that we have, the presentation. On the first page that you see now, you see the plant. that was billed last year, that was commissioned on December 30th, 2024, and for which the ramp up started in January. So Q1 2025 is the first quarter of the beginning of the ramp up. The plant was billed on budget. It was commissioned on time. It was delivered to us a little bit later than expected, but it was commissioned on time. and Q1 is the first quarter of this brand-new plant's operation. You have on page 2 and 3 the forward-looking statement, and on page 4 we have the highlights of Q1 2025. So this Gunder mine expansion ramp-up continues to give us improvement in production, in cost reduction in cost. It is a very smooth ramp-up. It's only three months. So we know that in our industry, ramp-ups can go above one year. Here we're in the first quarter of the ramp-up. We've had, for Q1, significant improvement in our gold production. Our gold production is at 1,069,000 ounces, which is obviously a lot more than the previous quarter. Also very important in Q1 is the open-pit ore mined equal approximately 68% of the ore mined during the quarter, reaching our target open pit slash underground split. You know, when we do talk to you regularly, we talk about 70%, 30%, 70 open pit, 30% underground. That's the shift that we did in Q4 and now are implementing in Q1. We are there now at 68%. at for the average of q1 as well the stockpile which we you know put together over the last two years uh was at the beginning of the year 300 000 ton of ore well at this quarter end the stockpile is at 281 290 ton so this is a buffer for the plant as we are bringing the open pit and the underground to the 3,000, 3,200 tons per day needed to feed the plant. Throughput and mill availability are good, are actually extremely good. Throughput exceeds already main plate capacity and mill availability are in the high 90s. So we're in a very good position. recoveries are still where we need to work, and we are working. We have identified the reason why the recoveries in Q1 were at 82%, knowing that in the feasibility study it should be at 89%. And the oxygen plant, which was designed and built by our EPC contractor, has not yet been working at its capacity. It's been having some issues, but we have been working on it. It's been fixed as we speak, and this will bring the recoveries to the level that we expect. You recall that our guidance for the year is mid-80s to 88, so we know that we're moving up from the 80 to where we are right now. So we understand why the recoveries were lower in Q1, And we also have been working on correcting the oxygen plant. And that is, as I said, is being done as we speak. So globally, when we look at the company, we had a very good quarter as a ramp up quarter with the million ounces of production. We will show you that we have a profit. We have positive cash flow. But one element that's been coming back to us is is our cash position. And as of today, I am pleased to tell you that, you know, with the cash and the restricted cash at 37 million, and you have looked at our financial statement, you saw that we had a year at quarter end, 11 million of accounts receivable. This was a sale that was done on the last day of the quarter, which was collected a few days into the next quarter. because as we sell in Geneva, we're paid within a few days. So when you look at that, the $37 million of cash and restricted cash plus the $11 million of accounts receivable puts us in a very comfortable position on a cash basis. Furthermore to this, after the quarter end, we have agreed with EBRD, our main and only banker, on a $25 million, $25 million U.S. dollar credit facility, which has been accepted at the EBRD board, at IS board, and is being put in place. So when you look at the $37 million, when you look at the receivables that were cashed in within the few days, and the additional $25 million facility, our liquidity position is extremely, extremely good. On the exploration front, as you know, AIA is always an exploration story. I mean, yes, we are in production at Zgounder, but the potential of Zgounder Regional and the potential of Boumadine is so unique that people are looking at us with understanding the upside. So we have drilled at Zgounder close to 3,000 meters on the main structure and 1,000 meters on Zgounder Regional. I was there last week on site. We've reviewed the Zgounder Regional target, and Zgounder Regional will be a very interesting program this year. We'll have a very interesting program this year as we're seeing many, many new targets. At Boumadzine, which is our big project, which is continuing to give, we've completed a very impressive 46,000 meters of drilling in Q1 on a program of 140,000 meters of drilling. As you know, we always set the program in a very conservative way based on results. We looked at how much more drilling we need, but in Q1, we did 46,000 meters of drilling at Boumadine. We've also, at Boumadine, published a mineral resource update, which was extremely positive, adding 100 million ounces of silver equivalent. On the ESG front, it's always a priority for us. Health and safety is a major concern to our operation. It's part of our values. And we've had another stellar quarter. And 100% of all the incidents are analyzed. And we always make sure we get better. And we, in the quarter, also gave 2,364 hours of training. And that is something that we take very seriously, especially now that we're increasing the number of employees at Gundaher. And we're also increasing the number of employees at Boumadine as the drilling program gets to be bigger and bigger. So, of course, the ESG priority for us is on health and safety. And we do give a lot of training to all the employees. On the corporate social responsibility, we've also expanded the tutorial program to the local communities. We do this all the time. And we began a new community engagement project where the local committees present their programs. We have a committee made of local representatives and company representatives, and we select projects that we all want to see And so it's a very dynamic process, and we've started that this year. So Q1 2025, again, a strong quarter, good production for a ramp-up period, you know, very good cash flow and good profitability. On page five, you have some of the pictures, and I know many of you have been to site in the past month. You see the quality of the construction. the quality of the operation. Again, a project like that built in North America would be north of 400 million, maybe 500 million. This project in Morocco is more like $140 million of construction costs. So it's strong, it's robust, and operating extremely well. On page six, you have some highlights, operational highlights. On the top left, you have the ore mine, so you see beautiful progress. We're mining thoroughly and steadily. We're increasing this. Obviously, we need to bring the ore production to 3,000 ton minimum per day to the plant, so we do have a program to bring the open pit to 2,000 ton a day, the underground to 1,000 ton a day, plus or minus 10% on both. And then we're following that. So on the oil process, again, another extremely important KPI for us. And you see that we've done extremely well comparing Q1 2024 to Q1 2025. Now in our ramp up, the plant is working extremely well. So the plant was at main plate capacity within a couple of weeks. It's now steady above main plate capacity. And you see this. on the OAR process. On the right-hand side at the top, you have the average grade for Q1 2024 and Q1 2025. The grade is something that we're working on. The grade issue came mainly from the underground. We are addressing this, and you will see grade improvement over the coming quarters. This is Of all the KPIs, this is the one that we're working on. Now, obviously, in the ramp-up, we do take ore from the stockpile. You saw we took some ore from the stockpile, and the stockpile runs at about 150 gram per ton. So that's something normal. And while the recoveries are not where we want them to be in the high 80s, it's normal to have a little bit lower grade, which we have at this time. To compensate for that, The plant capacity is exceeding main plate, which is compensating currently for the lower grade that we're putting through the plant. On the bottom left-hand side, you have your silver production. Obviously, a major change here from Q1 2024 to Q1 2025. We understand this is a new plant in its ramp-up phase. but we're still showing way above a million ounces of production. The average net realized price went from $22 to $31.87. Now, a major difference in 2025 is with the new plant, we do not produce a concentrate anymore. Whereas in Q1 2024, we were producing a concentrate which, once sold, was not giving us 100% of the metal value, but more like 85% of the metal value. Now, we do not produce a concentrate anymore, so the 1 million ounces that was sold in Q1 was mainly ingots, and in Q2 it will be 100% ingots. Hence, That's for the company and as a net realizable silver price, it's much better. The cost per ounce is something that we've guided that will be much below 18, but in Q1 last year and in Q1 this year, there's a small improvement. Again, in the ramp-up period, it's normal. We do have too many people still have on-site, and it's something that we're addressing. but the priority is really to get the plant to be above main plate and steady at its new tonnage, is to get the grade back up, to get the recoveries back up, and all of that will push the cash costs down. Then coming to page seven of the presentation, we are confirming the guidance for this year. So the guidance that was presented to you last March, for the 2024 financial results. So the guidance is the same with the silver production between 5 and 5.3 million ounces for this year. We will exit the year on 1.5 million per quarter in Q4. This is our objective. This is our goal to be at 1.5. The cash cost will be between 15 and 17 and a half. In this case, the sustaining capex is very small. So on the ASIC, you have to add about a dollar, a dollar and a half only to the total cost here. The recovery is something we've discussed. The guidance is between 84 and 88. Feasibility study was saying it should be around 91. Our goal is to really be on a consistent basis around 89, 90. and hopefully push it even higher. The focus is on this, is on the underground grade and on the recoveries. The guidance for the year is that the grade globally should be between 170 and 200 gram per ton. We're seeing some higher grade pockets that we will be attacking this year as well, which will be part of the production going forward. And the exploration is always so important. at Secondaire and Boumadine. The exploration program in dollar is between 25 and 30 million. In meters, it's around 160 to 180,000 meters of drilling. I also go back to the drilling cost in Morocco. The drilling costs are extremely reasonable. We're seeing drilling costs between 125 a meter to 160 a meter, depending where we are and on what project and if it's core or diamond drill or if it's RC drilling, but the costs are extremely, extremely reasonable. Looking at the financials, I think it's very, very interesting to see Q1 2025 with revenue of 33 million. Of course, you know, we're comparing to Q1 2024, but 1 2024 was just the old plant now we have the new plant so it's hard to compare but these are record you know revenue it's it's a record quarter on every line the gross profit at 10 million the operating income at 3.3 the net income is almost 7 million and the operating cash flow is at 7.893 or 7.9 million and uh It's a robust quarter. These are robust results in a first quarter ramp up. And again, I come back to this because often we seem to forget that it's like a little baby. We're one year old. We're learning to walk. And people are saying, yeah, he's not running or she's not running fast. I don't know. It's like one year old here. We're three months old. We're running. This is running well above main plate, but it does take time to become smooth, consistent, grade to be higher, recoveries to be where they need to be, and costs will be coming down. But this is where we are. It's built. It's well built. We have identified the reason for the recoveries, and we are working on that. And you're in a position where we're already profitable. Q2, Q3, Q4 will be even better as production goes up, as costs will come down. So we expect the coming quarters to look even better. But this quarter here generated 7.8, 7.9 million of operating cash flow. So going on the bottom part of this slide, you see that the cash and restricted cash is at 36. that receivable that we kept for the end. Now, let me explain to you why this is there. Because we do want to beat the average price of the silver market. So we are very choosy on how we sell our silver because we have liquidity, we're well-funded, so we don't need to rush. So we build inventory in Geneva, we have the silver available for a transaction, and we sell it normally by moving the market up. We will price it above market and we wait for the market to move up and come and hit, you know, the bid to come and hit our offer. And we're offering metal. It's not paper silver. It's metal. It's identified as such. And we normally beat the average of the month or average of the quarter. So if you look at the average realized price by aya and compare that to average silver price of the quarter we beat it steadily and that is being very disciplined on how we sell it and excuse me the reason is we sold last day of the quarter a large amount of silver and that created a receivable which technically had we sold this three days before it would all be in in the cash balance And as I said, the EBRD credit facility of 25 million, that is done. We need to finalize the documentation. It's been approved. And with this, we are in a position where total liquidity available for the company is about $73 million. So we are very comfortable going forward for the year. And next year, as Gunder keeps generating, you know, strong cash flow. The exploration program, as I've mentioned to you, you see the drilling here on page nine. We have two large domains, Gunder and Boumadine. Those are our main two domains. And the drill program, you know, at Gunder, at the mine, will be between 10,000 and 15,000 meters. At Boumadine, it will be between 100 and 140, but we're already at 42, so You can imagine that this will continue as it continues to give very, very good results. The TZ zone this quarter was increased from two kilometers to 2.2. We have lots of targets to the north of the main zone. We're drilling the south as well. We're continuing to drill the south. There's some eastern extension, and this project will just continue to grow as it has in the past two years. We're continuing there, and we're also adding additional ground on a regular basis. The Gounder Regional, very interesting, because at Gounder, as you know, if we add another structure where we have another source of ore, we will be able to push the plant higher. Currently, we're limited by the amount of ore that we can take out of the main structure, so we're drilling 10,000-meter you know, on Zgounder Regional where we've done detailed mapping. We have identified many targets and we are looking at some specific areas where we're seeing silver at surface. We have grab samples, we're seeing gold. And so it's very encouraging what's going on right now at Zgounder Regional. On Amismiz, the spin-out was completed. The MX2 mining Company is now a standalone. We had our first board meeting. The board's in place. The financing closed with $16 million. And MX2 is now on its own with the chairman, Rick Clark, and the team. I think they're picking up a lot. I think I know they're picking up a lot of ground. In Morocco, they're looking at different projects. And as well, they have the Amis Leeds project, which is very interesting. So that's a done deal for us. We own 42% of it. We're going to watch them develop this over the next few years. We're extremely pleased with the spin-out. And it just makes, you know, it gives management more time to focus on Zgounda, Zgounda Regional, and on Boumadine. On page 10, it's something you saw in February. It's in Q1. It's the updated resource model for Boumadine. Boumadine keeps giving. When you look at the silver ounces equivalent, it's 450 in total when you add indicated and inferred. But it's very good grade. It's close to 500 grams per ton. It's a very robust project. We've touched the tip of the iceberg on the main structure, which is the Bumazin structure, the main structure. We've drilled it down to 600 meters, but we did the resource calculation going down to 250 meters. It's got extension to the north. It also has extension to the south. It's got extension at depth, but at surface already, we're looking at 450 million ounces. If you prefer that in gold equivalent, It's like five million ounces of gold at five grand per ton. So it is a very strong tier one asset in a tier one country being developed. Often the question is, is it going to be an open pit underground? You see on the slide, it's about 50-50. 49%, we say, is pit constrained. 51% is underground. So in Morocco, underground mining is not an issue. Underground miners are available. The cost of underground mining is extremely low compared to Canada or the world. And of course, open pit is also straightforward and quite easy. So we are drilling this. We've already drilled 200,000 meters. We're continuing to drill. And this project is a project that we want to push towards production. And we are working on each phases of the PEA. But as long as we keep drilling and we keep finding, well, the size of the plant and the flow sheet has not yet been defined. This is, we always say, this is like the magic map or the secret map. This is the geophysics of Boumadine. In the middle, you see the main permit, you see the main structure, and then you see all these other targets that we have. And we currently own about 700 square kilometers of ground. Boumadine is already a mining permit, so it is ready to go. We've done all the work. We have started the chapters of the PEA because for us, to be convinced on exactly where we're going to put the tailing, where's the water coming from, where's the power coming from, knowing that the grid is at site, so the power is coming from the grid. But it is a unique project with tremendous potential. You see this east-west structure at the bottom. It's 21 kilometer long. It's giving us in gram samples copper and silver. It's different than the main zone, which is north-south, which is more gold, silver, lead, and zinc. The bottom, so the northeast structure, and there's a few that you can see on this map, are more copper and silver. So the east-west are copper and silver, and the north-south are gold and silver. So very interesting land package. We are looking to add the little pieces that are missing We are the only player in the area because we have most of the land. We have the team there. We have a very large team. The exploration team there is a little bit more than 200 people. There's between 12 and 14 drills turning. It's a large program, but that's giving some very, very good results. So recent development, I touched on a few. We saw the MX2 transaction in the quarter. AmuseMise was transferred into MX2, so that's done. As I indicated, we own 42%, and two of us, myself and Hugo, our CFO, sit at the board of MX2, and it will have a life of its own with strong shareholders, Good funding, $16 million, and some very good assets. We've also announced last Friday the April production, which we show continued progress. We're showing very good plant availability, very good throughput, very good mine throughput. Mining production was good. At the plant, it was good. Availability was excellent. And again, the element we need to work on is the recovery, but we explained why, and we explained it last Friday as well, that the main issue with the oxygen plant, which was mechanical, and that's being fixed. And last but not least is our partnership with EBRD that goes way above or beyond the $25 million credit facility. EBRD is our lender. We have $100 million construction facility with them. We've already started the discussion that this should probably get transferred into more of a long-term debt and not a construction facility. And that's something that they understand and that we're going to be looking at in the coming months, in the second half of the year. The $25 million is the credit facility. just to give us additional liquidity, though we have close to $40 million of cash and restricted cash, and the restricted cash is with EBRD, so it's all the same family. And it's also indicated that they will support any initiative that we have in Morocco, including Boumadine and any other project that we want to look at, any other assets. So EBRD is our long-term financial partner. in Morocco, they support the country, they support AYA, and they absolutely like to work with us and the way we work with our ESG values going forward. So these are great developments that just occurred post the quarter. And so what's coming? The drill program is fairly ongoing with what we've done at Boumadine and at Gounder. So that is is being done, and it will continue throughout the year. We are working steadily on the PEA at Boumadzine. The chapters are being completed. The environmental chapters are just about done, and there's more work being done on the PEA. As I said, the right sizing of it is not yet all done because it's 450 million ounces right now of silver equivalent. but we keep finding. So we'll see at one point we're going to stop the resource and we'll do a phase one PEA just to see where we are and also bring in the metallurgical aspect of it, which is being worked on as we speak and where we've already identified all the solution for metallurgy. Next catalyst is 3,000 tons per day at Zgounder. We are there. This is ongoing. The ramping up is in steady state. It was a great quarter of Q1. We're continuing into Q2. It is a ramp up. So yes, we do have to fix the oxygen plant. And yes, we're changing a few pumps to make the plant even more efficient. Raphael and his team are looking at all aspects of debugging certain small parts of it to make it even more efficient. And though we're way above nameplate capacity, the plant's well built. It's in a great area where, you know, we're not stuck with water or rain or rainfall or snow or, you know, winter and ice. You know, it is beautiful. It's an area where, you know, you've got sunshine more than 300 days a year. And the plant is working extremely well. So we will provide a mid-year Boumadine update, which will come in the second half of the year, where we're working on which will include all the chapters of the PEA. And we're also finishing some drilling on the main zone. We're still hitting, as you see when we put out the press releases, very good grades and very good pockets. So we are working on a new Gounder plan, on a new Gounder model, and on a new technical report which will be available before the end of the year. So this completes my presentation. I would like to turn it over back to the operator for the question period. Thank you.

Thank you. And as a reminder, to ask a question, that's star 11. Once again, that's star 11. To remove yourself from the queue, please press star 11 again. One moment while we compile the Q&A roster. Our first question will come from the line of Cosmos Chu from CIBC. Your line is open.

Thanks, Benoit and team, and congrats on a very solid Q1. Maybe my first question is on your balance sheet here. Just to confirm, Benoit, as you mentioned, There was $11.6 million in receivables at the end of Q1, which were related to sales that were made at the end of Q1 or shipments into Q2. Was the entire $11.6 million received in Q2? So if I were to look at your cash balance, I'd just take your Q1 and a quarter cash balance and add 11.6.

Cosmos, thank you for the question. Yes, so the 11.6 was a receivable at the end of Q1, so it was sold. It was booked as a sale in Q1 because it was sold, except the money was not yet transferred because there's a couple of days with our refiner where there's a process. and we have to wait a few days. So the money was indeed received in the first few days of Q2, and it was in our cash balance. Now, knowing now that we do produce over a million ounces per quarter, you have a lot of receivable, you have a lot of rollover, but normally we would try to sell the week before the quarter end, so we have booked the sale and we have the cash in the bank, but again, as I indicated, we're waiting for the right price. I mean, sometimes 50 cents or $1, the volatility is so high that we wait for 33, 33 and a half, and hence that created this kind of discrepancy at quarter end of a very high receivable, which was converted into cash in the first few days. But the 11 million is in the sale of Q1, and it's just not in the cash. It's in the receivables.

Yeah, I just want to make sure that the entire $11.6 million, essentially plus minus, can be viewed as cash. And I think you confirmed that answer for me. And then maybe on the balance sheet as well, as you mentioned, Benoit, you have another $25 million line of credit from EBRD. As you mentioned, I think it's been approved, but you still need final documentation. So In terms of timing, when can you, if you need to, when can you start drawing on that line of credit? When does it become available to you? And in terms of the terms around that additional facility, I don't think I have seen any details yet. Are there any details that you can share with us at this point in time? Or how does it compare to the construction facility that was put in place by EBRD a few years back?

I've passed it over to Igor. Igor did all the negotiation with ENIAS, and he can give you all the detail and the timing of it, Cosmos. But, yeah, we have all the information, too, that we can share.

So, hi, Cosmos. Hi, Igor. Thanks, good thanks. So we've secured it, so it's gone through approval at EBRD, so now we have to do the documentation. Our objective is to have that done before the end of Q2, and then it would be available to draw. It's a corporate loan, so it's a loan to AYA Canada. We're providing some security on some of our subsidiaries in Morocco, EBRD already has a lot of the securities anyway because they're a secured creditor on Zgunder. In terms of the loan parameters, it's very similar to our construction loan. I think we announced it. So it's two-year term, bullet payment at the end, and the interest rate is exactly the same as our construction loan. So it's still for plus five.

Great. Thank you. Maybe switching gears a little bit on GRADE. Benoit and team, you know, very solid in Q1, 163 gram per ton. But, you know, in your April numbers, it might have dipped a little bit again. And so I guess two parts to my question. Number one, you're targeting 170 to 200 gram per ton for your average for the year to get to your guidance. Could you maybe talk about, you know, to the point where you can share with us what that quantum of increase could be like when are we going to start seeing the 170 or even 200 gram per ton is it q2 or is it q3 or is it q4 and then going back to the month of april what happened you know that caused the little dip once again in april was it again as you talked about benoit the underground performance or you know anything else you can share with us

Yes, well, look, Cosmos, I'll defer over to Raphael, who's in Morocco, as you know, he's always on site, and he oversees operation. And you're right, the April grade was a little bit lower. And maybe, Raphael, would you comment on, you know, why April, and as well, what kind of improvements? you're seeing with the team going forward, knowing that for Q4, you know, our objective is to be around 200 in the open pit and probably 170 in the underground. So, but that being said, Raphael, I'll pass it over to you.

Hello? Yes.

Okay, well, maybe we've lost... Okay, so I guess we've lost Raffaele. That's why he's on site.

He's always on site. I was with him three weeks ago, so I can attest that.

Yes, yes. And the Internet is good on site, so he shouldn't be gone. He should be there. But that being said, look, in April, the issue is that with the open pit. The open pit, we have three meters spacing on the drilling. We're very precise. We know exactly what we're mining, where we're mining it. The underground is where, because of the spacing, at 12 meters spacing, we are making sometimes the wrong decision on dilution or missing the structure. So we are addressing this. The open pit doesn't need any addressing. The open pit is, you know, we're in the top level. As we discussed in Q1, we did hit at one point a couple of zone of oxide. So that had a small effect on the recovery, but that's not permanent. That's just the top layer. The open pit is hitting the grade that we're looking for. This deposit has some pockets of very high grade material. It's got some lower grade area. So look, we're still comfortable that in every quarter, the grade will improve. uh from this quarter it will improve and we we are keeping our guidance between 170 and 200 um we know that so far in may uh you know the the throughput of the mine is excellent uh we're getting the tonnage out we haven't yet confirmed all the grade but it's it's now that the recovery is kind of done it's not done because we're fixing it now but we know the problem the only KPI left for us to really focus on is making sure the grade falls in line, and it will. The deposit is there, you know, and we've done a lot of tests to make sure that you know, it's all there. It's just mining it correctly and we're working on that. So it will improve every quarter. The objective is in Q4, as I said, to be around 200 in the open pit and hopefully 172, you know, around there with the underground.

I don't know if Raphael has joined us yet, but I was going to also ask a question on recovery, 80% recovery. You're targeting 84 to 88 in terms of you know, the quantum of increase quarter over quarter, could you give us a sense or in terms of, is that, could that go up faster than your potential increase in grades, given that, you know, you've identified the issue. It sounds like it's a mechanical issue. How fast can we see it hit, say, even the lower end of your guidance of 84%? Yeah.

So Cosmos, I'll pass it over to you. Go sits on the production meeting every day. And they, you know, of course it's a top, top priority. So you go, do you want to?

Yeah. So on recoveries, we have a very specific issue. It's on the oxygen plant. We have a repair team there. currently as we speak and we have the equipment provider that's going to be on site as well this month. Is it going to take two weeks or three weeks or four weeks to fix? We're assessing that right now, but it's not like the equipment and it's repairable. So we're going to repair it and then once that's done, we expect recoveries to go up. One of the really important things for us was to ensure that we had no or leaching issues. So we've bottle roll tested all of the tails. There's absolutely no issue. We've never had a recovery issue at Zwinder. And so as soon as this mechanical issue is solved with dissolved oxygen, we expect recoveries to improve. There's nothing suggesting that once this is solved, it will not be.

Great. Thanks, Ben. While you go and team, those other questions are on. Thank you.

Thank you, Cosmos. One moment for our next question. Our next question will come from the line of Bryce Adams from Des Jardins. Your line is open.

Good morning, Ben. Thanks for the presentation and for taking my questions. The first one is on cash balances again. When does the restricted cash become available? The disclosure talks about final completion of the expansion. Obviously, that's different to commercial production. Can you add colour when that cash becomes available? And at the same time, I know it can swing around with working capital changes, but are you able to comment on the current cash balance as of mid-May?

Oh, cash balance as of in May is basically what we've had, what we had in our as of the end of March, plus our receivables and a bit of working cap. So it's similar to what we had at the end of March, plus a few million.

And the restricted cash, that stays restricted until? Until the end of the loan.

Until the end of the loan. So it acts as a debt service recovery account. So if ever, for whatever reason, there wasn't, it's an additional security for the secured creditor. So if ever we didn't have the cash to cover our biannually interest or principal payments, then we would use that cash to pay for that at that time.

Okay, thanks. I had a different understanding, but that clears it up. My second question is on the open pit mining rates. What's the size of the fleet today? How many trucks and loaders were added this year? And from the site visit a few weeks ago, thanks very much for hosting us, I got the contract rates as $2 per tonne waste and $4 per tonne ore. Has that or does that change with further fleet increases at Zagunda? could those rates potentially reduce with economies of scale?

Yeah, so yeah, on the costing, that's about right, but that includes drilling, blasting, hauling, analysis. So I think that's all in. And then, yeah, as time goes and the fleet increases, we expect to see a little bit of cost improvements there. And as we've changed our plan here, we're in discussions with our mining contractor as we speak on that.

Yeah, the fleet has increased. I don't know if Raphael is back on because he would know this by heart, but Hugo and I were not in that detail. But Bryce, if you want, you can drop us just a note, and we'll forward that to Raphael, and we'll send you the answer back today.

That would be grand. Thanks so much.

One moment. Thank you. Our next question will come from the line of Don DeMarco from National Bank. Your line is open.

Thank you, Operator. And good morning, Benoit and team. Congratulations on a great quarter. So, Benoit, first comment, question is on throughput. So throughput's been running consistently above nameplate. You know, we see from the April update it was 3,025 tons per day. Is this attributed in part because you've been processing some of that softer oxide ore in the upper open pit? And with that, as you get deeper in the pit, would you expect the throughput to maybe normalize down to nameplate? Or is 3,000 tons per day just kind of the new standard?

Thanks, Don, for this question. I think it's the quality of the construction, and we, you know, and Raphael said it from the beginning, it's going to produce much more than the nameplate because it's just well built, it's well designed, it's extremely good equipment. We needed to go through the ramp up to debug certain pumps and a few little items, which is totally normal, but the throughput At 3,025 is on the low end. We believe that we will be able to maintain more like 3,200 going forward with the plan that we have right now. And then Rafael and his team are going to look at optimizing that because there are little items that can be done, a few things that could be done, and even push it even further. But, yes, so the throughput, you're right, we reach nameplate in two weeks. and we hit it, we then did not hit it consistently. Now we are hitting it consistently above nameplate capacity, and it will continue this way. The plant is very, very well built, very robust. As you saw it, it's open air, so it's got a lot of room to maneuver. There's lots of room for maintenance, and the oxide or the hard rock did not make much of a difference. the capacity, the jaw crusher and the cone crusher and all that. We have capacity. We even have spare part capacity. We have a full cone crusher as a spare part. We do have capacity to grow. So no, the plant is just built that way. We always knew it was built that way. And as you know, we even build it bigger that at the right time, we can add another ball mill, two more tanks and really grow its capacity by probably another 50%. So it's, uh, the plants overbuilt, oversized. We knew it. We know that the limiting factor is, is the mining. We know that. And that's why we're pushing so hard on the regional play to find, we'd love to find a satellite pit and, uh, and then be able to just push the plant even further.

Okay. Well, that's great. And it's, uh, yeah, certainly I saw the plant looks very well constructed. And, um, You know, I heard you talk about the expectation to increase recoveries. Is it fair to say, too, you know, that increasing recoveries isn't going to compromise the throughput rate in any way?

Not at all. Not at all. The recovery is a mechanical issue. And we understand why. Rafael is there with a full team. And we've done the test, as Hugo said, the bottle roll test. It's not related to metallurgy. It's really mechanical. Sadly, you know, and again, when you use an EPC contractor, you have some pluses and some minuses. And it was a fixed price contract. You remember, it was a very good fixed price contract. They've done, you know, a good job. The plant's robust. The plan, the oxygen plan, is substandard to what we would like to see and we're fixing it now. And we were right. I mean, we tried to change it throughout construction, but we were not able to due to the nature of our contract. And now, well, we're fixing it. So, it's really the oxygen plan that's causing the recovery to be a little bit lower. uh, when you have, you know, when you're starting the ramp up, you know, we're putting some, some of the stockpile through it, which is 150 gram per ton. So the, the, you know, we're, we're not pushing any, you know, high grade material. If, when we are going to get into the high grade zone of the deposit, which we have, uh, we'll definitely want the, the, the recoveries to be in the top eighties and not low eighties, uh, just because, you know, we don't want to send silver to the, uh, to the tailings dam. So it's, uh, The recovery is a separate issue. The plant is working very well and it will continue to work well. And we have a very good crew on site that are operating this plant. Look, you saw we even take all the crushing and milling from the old flotation plant. We send that over to the new plant. There's no more concentrate being produced. It's all now ingots. And the Merrill Crow system is operating well. It's robust. It's operating well, so there's no issue. It's now fixing the recoveries and making sure the grade from the underground is where it should be and will be off to the races.

Okay, great. Well, thank you for that. And something else that we're looking at is the inflection to free cash flow, okay? And so we saw with Q1 that your cash flow from operations is, you know, step change higher quarter over quarter. And... And so I'm just trying to understand, too, the pace of spend. I mean, commercial production was declared at the end of the year. We saw some capex in Q1. Do you expect that capex to kind of, you're changing to an open pit. Is there additional capex related to that? Or is the capex going to kind of moderate over these coming quarters? And what are your thoughts in terms of cash flow from operations and potentially, you know, the quarter that you might deliver free cash flow in?

Well, we were delivering free cash flow right now and in Q2. So there's no capex related to the open pit. The open pit is a contractor. It's a very large local contractor, very well financed contractor. They're putting in new equipment. Rafael will give us how many trucks and how many excavators there, but they're increasing the size of the trucks as well. And they're paying all that on their own. And we have a fixed price contract with them on waste and on ore. And it's a very good business relationship. So there's no capex there. The fact that we're going much larger open pit than originally planned last year, the capex to move the infrastructure is about a million dollars. So nothing really to – nothing important there. And sustaining CapEx really is the development of the underground because we want to go and develop the underground. So we need to bring the ramp back down. And there's about 8 million this year that we're going to do on developing the underground. So the sustaining CapEx is extremely low. When you look at this mine, it's really developing the underground because we know that we do have some very high-grade chutes at different level, and we want to bring it all the way down within the next 18 months to be at the bottom of the structure where we have also silver accumulation at the contact with the granite. So if you assume, and again, we're just going to do math, if you assume 1.2 million ounces that we're selling right now at 33, even actually 33.5 so far this quarter, but let's say 33 million, And if you use the cash cost that we had and the all-in sustaining cost, which is around 21 this quarter, it's going to be better in Q2, but let's use Q1. That gives us about $12 an ounce of free cash, and that's net of the sustaining capex and all that. So for Q2, you're looking at, and again, this is back of the envelope, but you're looking at about $12 million of cash flow. Hugo, do you want to add to that? Because you're controlling the numbers.

No, I think that's a good estimate.

So we are generating cash now. And, you know, absolutely. You know, our GNA is extremely low on an industry standard. And the costs are coming down. So we didn't even take that into account. But the costs are going to be coming down as the denominator increases. The production increases. As I said in the original and at the beginning, we have like still programmers for the computer system there. We have people for the plant. We have the oxygen plant. So we do have way too many people still that are affecting our cash costs and our costs. So it's over the next three quarters, Q2, Q3, Q4, you'll see the cash costs come down. And our guidance is still clear between 15 and 17 and a half, and we will be there. And hence, the free cash flow has started last quarter, continuing this quarter, and there's very little sustaining capex. Very, very little.

Okay. That's great.

Yeah, you know the big capex or cash component is our drilling program. which is between 25 and 35 million, but that's totally discretionary. It's a decision that we take, and we have all the money to fund that, so that's not an issue. But the discretionary here decision is to fund the drill campaign, which we will continue to fund because, again, Zgunde Regional looks super interesting, and Boumadzine is continuing to get.

Okay. Okay. Thanks for that. Maybe just as a final question, Benoit, you mentioned that there'll be a boomadine mid-year update. Just wondering if you could tell us what the scope of that update is. I know that one of the things some people have been watching is any potential improvements in recoveries. Is that something that might be covered in that mid-year update, and what else might we expect? Of course, this will probably be in advance of the PEA later on, early next year, I would imagine, right?

So look, we're looking, Boumadzine is an evolving project. We're getting some breakthrough on different aspects. So we didn't mention that we would have a mid-year study that will be published because we're working with outside engineering firms that specializes in the recovery of pyrite ore. And we will have that study in mid-year. However, we're working on other things, different things, so that may evolve a little bit, and we could, and it's not a promise, but we're looking to maybe have a PEA ready before 2026, maybe in 2025, but it's a dynamic process, so we can't commit to anything right now, because it's a very dynamic process, but it's dynamic in a very positive way, and that is something that could change a little bit the parameters of what we publish, but we'll keep you abreast of what's happening.

Okay. Okay. Great. We'll look forward to that. That's all for me, Benoit. Good luck with the rest of Q2.

Thank you, Don.

One moment for our next question. Our next question will come from the line of Ovias Habib from Scotiabank. Your line is open.

Thanks, Operator. Hi, Benoit and our team. Yeah, congrats on a good quarter. A lot of my questions have already been answered, but I do have two questions. Maybe sticking with cash costs. You know, Benoit, you talked about cash costs kind of coming down. You know, obviously we've seen cash costs decrease by about 30% quarter over quarter. You know, guidance for the year is around 15 to 17.50. Are we expecting a drop in cash costs again in Q2 or is more the second half is where we'll see the improvements in cost take place?

So, look, we are managing cash costs extremely, extremely tightly, and it will be a function of the denominator. So, you know, the denominator is a function of the recovery of the grade. But for us, we also manage costs on a per ton basis, and we're showing it to you on a per ounce basis. But I can assure you on a per ton basis, we are below our budget. which is we're managing it very, very tightly. If we meet the guidance, and again, because we don't know yet, Rafael is working on the recoveries and all that, but if we do meet our target budget that we have for Q2, absolutely you will see another step decrease in cash costs, and you'll see the same in Q3 and the same in Q4. It's a function of the denominator. But on a ton basis, we are where we want to be and even lower. So it's managed, and you will see a decrease, and that's why our guidance is between 15, and if Q1 is 18, and we want to be on an average at 15 and 16, we need to be lower than that in Q4. So you will see a decrease in cash costs, absolutely.

Thanks, Munro, for that. And just moving to, you talked about, you know, the team is working on improvements in the underground grid. Now, can you provide more color on this? I mean, do you need more great control drilling, more development, change of mining method? Any sort of color on that would be great.

Yes, so there's no change of mining methods. It's mainly more definition drilling. So definition drilling to be applied more systematically when we get to certain zone and enhance, not being forced to certain tonnage, but really forcing the team to respect more the grade than the tonnage while the open pit compensates for the tonnage. So that's why we're pushing the open pit to be higher at 70% of the total tonnage. And so there's no change in mining method. There's no change in how we approach it, except now we're focusing much more on grade. We have our GOs working on the mining plan, on grade reconciliation, on ounces reconciliation. All of that is there. It's not that the ounces are not there because we reconcile every quarter. Our problem was dilution and sometimes missing parts of the structure because our 12 times 12 definition drilling wasn't tight enough, and they did not have enough time to do more drilling because we wanted some throughput and some output from the mine. So we're slowing down when needed, and we're following this very closely. So no change in mining method, nothing like that, just going back to maybe more craftsmanship mining instead of bulk mining the underground.

That's great, Benoit. Those are my questions. Thank you for taking my questions. And, yeah, good luck on Q2.

Thank you very much. And, look, we'll stay in touch. Ove, thank you for your questions.

One moment for our next question. And we have a follow-up from the line of Bryce Adams from Desjardins. Your line is open.

Thank you, operator. Yeah, one follow-up question, please. On the O2 plant, it sounds as though some of the benefits are being realized already. Without knowing all the details of what happened there, is there any recourse against the EPCM for the delayed startup of the O2 plant, or that's not something that you would be considering?

No, we are considering that. Elias is on the call with us, our in-house chief legal officer, and we are absolutely considering recourse. We're assessing all of this. We're taking this very, very seriously and there is a cause for compensation and we are negotiating with them and the legal team. So yes, yes, we're taking this very, very seriously and hopefully in the next quarter or two, we'll be able to come up with a compensation package for this and a few other things that you know as you know with the EPC contractor when you finish the job it's it's never you don't go for a weekend of honeymoon you always have extras and things that you dislike and so we're not going on a honeymoon weekend in Marrakech we're actually going to go to debate this in in their boardroom but yes there is a recourse and we will you know in due course we will be able to establish the quantum but it's there is damage.

Thanks, Benoit. Appreciate that. Look forward to future updates.

We will keep you posted on all of this.

Thank you. I'm not showing any further questions. I would like to turn the call back over to Benoit for any closing remarks.

Thank you so much. Well, thank you everyone for being there. Look, it's been a long call over an hour. I think we've covered every part that needed to be covered. We take our KPIs very seriously at the mine site and we're working on them. Anything that we haven't covered, send us an email. We'll send that over to Raphael or David, who's online as well on geology, and we will reply to you very quickly. Look, we are into now free, as Don asked, free cash flow territory. We are starting to build on our cash balance. Obviously, the top priority stays for us, the drilling at Boumadzin, the drilling at Zgounder and Zgounder Regional. We have a beautiful plant that we've built for $114 million, which, as again, on a replacement cost value anywhere around the world would be like $500 million. It's very robust. I always give the example, if you go to Marrakech, that city was built 2,000 years ago. and it's still standing. So that's how they build things in Morocco. So look, we have a robust plant. It's really working well. We know the KPIs that we need to work on. But the big, big value creation swing will be on the boom-adding study that's coming through over the next few quarters. We are seeing great progress. We are seeing, you know, things that we will incorporate in a PEA. And that should be, you know, ready based on many variables on David's, uh, drilling program on new discoveries and all that it's affecting, uh, you know, the flow sheet and the quantum of production. Per per year. But that being said, it's already in, in gold equivalent, 5 million ounces at five gram. We did that in two and a half years. We've touched a small portion of the, uh, of the territory. There's much more to come. And again, this is a mining permit in a mining country. The time to construction is quick in Morocco. The permitting is already done. And financing of the project is spoken for with EBRD and a couple of other players in country. You know that AYA in Morocco is bankable with the local banks. And they did participate in the $100 million financing that was put together. And they will participate in EBRD financing on Boumadine. So, you know, there's no, oh, can they finance that? I would say it's there. Can they get permitted? It's already there. Are the answers there? They're audited. They're 43-101, and we're finding some more. So now we need to work on the PEA. That's going to be the big driver for the coming 18 months of value creation, plus Gunder producing. Gunder is our cash flow machine. It will produce. And as we've seen that in the past, we did this in the past. At Semaphore, we did exactly that. We had one small mine that paid for all the other mines. And at the end, we were producing many hundred thousand ounces of gold. So we're in the same position here. We have a smaller mine that will produce a lot of cash, which will allow us to develop this tier one asset, which is called Boumadine, which we're working on right now. So thank you very much for your time. I know we're above the one hour that it was set aside, but it was a good quarter. We're working hard on Q2, and we will be available throughout the Q2 and the summer to answer any of your questions. So thank you very much, and we'll be on the call in August for a review of Q2. Thank you.

Thank you for your participation in today's conference. This does include the program. You may now disconnect. Everyone have a good day.