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spk01: Welcome to the Grand Columbia Gold Q2 2021 Results Webcast Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you do have a question, press star then 1 on your touch-tone phone. Please note the conference is being recorded. And now I'll turn the call over to Mike Davies. Great. Thank you, John.
spk03: Good morning, and thank you for joining us today for our Grand Columbia Gold second quarter 2020-21 results webcast. With me on the webcast this morning is our CEO, Lombardo Paredes, and as is customary, I'll first go through our prepared remarks regarding our update on our performance in the second quarter and first half of 2021, and then Lombardo will be available as we open things up for the Q&A session. Before we proceed with the presentation, I would first like to draw your attention to our legal disclaimer regarding forward-looking statements that may be made by us during the webcast this morning. Last night we released our results for the second quarter and the first half. This was the first complete quarter with our investment in ARIS Gold being equity accounted. We had pre-released production back in mid-July and Segovia had a strong second quarter, and with gold prices still at the $1,800 level, and our cash costs at $767 per ounce, we turned in a solid quarter with adjusted EBITDA of $48 million, net earnings of $29.8 million, and adjusted net earnings of $23.6 million. As I've said in the past, the second quarter is always the quarter that bears the biggest burden in our cash flow given the income tax installment cycle in Colombia. The second quarter this year was no different. Yet even after paying $49 million of income taxes, our second quarter operating cash flow was $12.8 million. After $16 million of exploration, mine development, and capital expenditures, our second quarter free cash flow was minus $3 million. This was in line with our expectations, and in the second half of the year, our free cash flow will turn positive. We're pleased with our second quarter and first half results, and over the next several slides, I'll take you through some further details behind our performance. Last year, we celebrated our 10th anniversary, and over the last seven years since Lombardo joined the company, we have expanded and modernized our high-grade Segovia operations, stabilizing production at the 200,000 ounces level, repeatedly adding reserves and resources, and using Segovia's low-cost structure to generate solid free cash flow. Last quarter, we announced the next step in our strategy focused on growth through diversification with a takeover bid for GoldX. On June 4th, we closed the acquisition to add the advanced stage Toro Peru gold copper project in Guyana to our asset base. With the high-grade intercepts announced in July from Gold Access 2020-2021 drilling program, we couldn't be more pleased with our acquisition. To support our growth, on August 9th, we closed a $300 million notes offering. Combined with the $138 million of advanced deposits from the pre-existing Wheaton stream on Toro Peru, The development of this project is now fully funded. We're delighted by the success of this financing, one that was oversubscribed and attracted high quality institutional and retail investors who recognized our focus on a strong credit profile. The new senior unsecured notes carry a coupon at six and seven eighths and have been rated B plus by both Fitch and S&P. The financing represents a non-dilutive means to building Toro Peru, one of the largest underground developed gold projects in Latin America and sets us on the path to becoming a 400,000 ounce a year producer by 2024. We now have two cornerstone assets in our company, the high-grade Segovia project in Colombia and the Toro Peru gold copper project in Guyana. We are currently working with Nordman to prepare an updated mineral resource estimate for Toro Peru that incorporates the high-grade intercepts into the geological model. Nordman is also working on a preliminary economic assessment outlining our updated capital investment and mine plan to develop Toro Peru into another long life 200,000 ounce per year producer. We expect to have the results of Nordman's work in September at which time we can provide a full update on the construction timeline, the production profile and other fundamentals of this project. In light of the renewed focus on green metals, we're evaluating the potential to access the copper resources sooner to enhance our returns. We expect production will commence in early 2022 once we update the draft mining license to incorporate our intention to include underground mining in the operation. Our leadership team recently met with the president of Guyana and other senior government officials, and there was a tremendous support from the Guyanese government for this project. Earlier this year, we reduced our equity position ARIS Gold and we now account for its equity results. On Wednesday, ARIS announced that they are completing several early work projects in preparation for construction of the new deep zone mine at Marmato while optimizing performance at the existing operating mine. We're also encouraged to see that ARIS launched a 10,000 meter drill program in the second quarter at the Juvie project. Also in the second quarter, Denarius, the company in which we own 27%, completed its acquisition of the Lomero Polymetallic Project in the Iberian Pyrite Belt in southern Spain and recently announced that they now have the exploration permit that will allow them to commence their 23,500-meter drill program in September. We are very encouraged by the potential of the Lomero Project to create shareholder value. Denarius also recently announced that they have commenced a drill program at their Guia Antigua project in Columbia. With the closing of the GoldX acquisition in June, we issued 36.8 million shares to the former shareholders of GoldX, bringing our issued and outstanding number of shares to 98.5 million. We also honored 9.4 million GoldX warrants that represent the equivalent of 6.5 million Grand Columbia shares at the exchange ratio. On a fully diluted basis, we would have 132 million shares, and if all warrants and stock options are exercised, the incremental cash proceeds to the company would total approximately 100 million U.S. We have continued to pay our monthly dividend of Canadian 1.5 cents per share through the first half of 2021, and the next payment takes place on Monday. This represents almost a 4% annual yield at current share prices. And with the increase in our shares outstanding following the GoldX acquisition, this translates into a return of approximately 1.5 million Canadian dollars each month to our shareholders using our free cash flow. I mentioned earlier that Segovia had a strong second quarter, producing more than 52,000 ounces of gold, which brings its first half total gold production to 101,000 ounces. July's production of just over 15,000 ounces brings the trailing 12 months total gold production at Segovia at the end of July to about 202,000 ounces, up 3% over 2020's annual production. We continue to be on track to meet our annual production guidance again this year. In the second quarter, Segovia processed an average of 1,581 tons per day at an average head grade of 12.6 grams per ton, resulting in just over 52,000 ounces of gold and 54,500 ounces of silver. This brings the plant's processing rate for the first half of 2021 to an average of 1,526 tons per day with head grades averaging 12.7 grams per ton. The expansion of Maria Dama to 2,000 tons per day is proceeding as planned and will be completed before the end of this year. I mentioned earlier that July's production was just over 15,000 ounces of gold. Grades averaged 13.4 grams per ton in July, but the daily processing rate for the month dropped to an average of 1,270 tons per day, reflecting the scheduled four-day semi-annual maintenance shutdown. With the work completed during the maintenance shutdown, we expect to recover some of this shortfall compared to our normal monthly levels over the next few months. Last quarter, we also mentioned the new polymetallic plant that Lombardo and the team are constructing in Segovia to recover zinc, lead, gold, and silver from our tailings into concentrate. Construction is expected to be completed in the third quarter, and we should start to see returns on this investment starting in the fourth quarter. Gold prices continued to hover at the $1,800 per ounce level in the second quarter, and we generated $96 million of revenue, up from $77 million in the second quarter last year. You may recall that our second quarter 2020 production was adversely impacted by a slowdown in operations due to the early stage of the COVID quarantine in Colombia last year. So a large part of the improvement was just getting back to normal volumes. That being said, gold prices this year were still up over five to 10% compared with the second quarter and the first half last year and our silver production at Segovia has also strengthened this year. Excluding Marmato, our trailing 12 months revenue from just our Segovia operations at the end of June 2021 totaled $380 million, up 9% over Segovia's total annual revenue in 2020. Last quarter, we mentioned that our cash costs at Segovia saw a step change in the third quarter last year when we responded to the higher gold price environment and increased the rates we pay our contract miner and the artisanal miners in Segovia who had not seen an increase in rates since 2017. The increased gold prices over the past year have also raised our production taxes on a per ounce basis, as have the additional cost we're incurring to maintain the COVID safety protocols in our operations. That being said, our second quarter cash costs at Segovia decreased to $767 per ounce from $825 per ounce in the first quarter this year. The improvement in production in the second quarter reduced fixed costs on a per ounce basis, and we also saw some cost reduction as a result of the devaluation of the peso against the US dollar. We continue to expect Segovia's cash costs to hover around the $800 per ounce level if gold prices remain at this level this year. Our ASIC in the second quarter at Segovia decreased to $1,101 per ounce from $1,120 per ounce in the first quarter of this year. While we saw a reduction in cash costs, our spending on sustaining capex increased, keeping us at about the $1,100 per ounce level, which is our expected run rate this year. Our capital programs are running at more normal frequency this year. With the onset of the COVID pandemic and the quarantine in Colombia last year, Our capital programs in Segovia were disrupted, and many didn't get started until later in the year, giving the appearance that our ASIC was increasing as 2020 progressed, when in reality it was more of a timing issue. Through the first half of 2021, we have spent almost $20 million on sustaining CapEx at Segovia, up from $13 million through the first half of 2020. We're still on track to spend about $40 million this year on our sustaining capital programs, which include the ongoing mine development and our 40,000-meter in-mine and near-mine exploration program. With stronger gold prices this year and production back to more and more levels compared to the second quarter last year, it is no surprise we had a solid second quarter this year with $48 million of adjusted EBITDA, bringing our first half total to $94 million. At the end of the second quarter, our trailing 12 months adjusted EBITDA totaled $194 million, up 3% over last year. Turning to our cash flow metrics, excluding ERIS, our operating cash flow in the first half of 2021 was $36.5 million, compared with $38.2 million in the first half last year, even though Segovia's income tax payments this year exceeded the amounts we paid last year. Our free cash flow, also adjusted to exclude ARIS, in the first half of this year was $11.8 million, compared with $20 million in the first half last year. The lower result in the first half this year reflects the increased level of income tax payments at Segovia and the increased level of capital spending in the first half of this year, as I mentioned earlier when discussing our ASIC results. The main point here is that we continue to be a solid cash flow generator on an annual basis, although the heavy impact of income tax payments in the second quarter each year can distort the picture if you only look at the second quarter in isolation. Our free cash flow results are expected to improve in the second half of the year now that the taxes are settled for this year. When we pre-released production in mid-July, we also announced that our cash position at the end of June was about $57 million. In the second quarter, we used $10.4 million of our cash position to complete an early redemption in May of 10 million principal amount of gold notes ahead of schedule. This was in keeping with our process of deleveraging over the last two years, getting us to a solid balance sheet position that enabled us to move ahead with the new 300 million senior unsecured notes we issued earlier this week as part of our capital structure to build Toro Peru. The notes will be listed on the Singapore Exchange and with the proceeds of the offering and repayment of the remaining 18 million of our gold notes on September 9th, Our cash position will be more than $325 million. At our current annual adjusted EBITDA run rate, our leverage ratio will be about 1.7 times. And during the Toro Peru construction phase, provided gold prices remain at the current level, we expect our leverage to remain at or below two times and then dropping to about one times once Toro Peru is in operation. The overwhelming success of our notes offering was a testament to our strategy of growth through diversification and our continuing focus on maintaining a strong credit profile. In June, we announced results from the latest 13,000 meters of in-mine and near-mine drilling at our operating mines, and the latest 3,000 meters of brownfield drilling at Segovia. The Sanberque and El Silencio results continue to impress, both in terms of grades and widths, and will undoubtedly lead to an important resource growth coupled with a greater flexibility for mining. In addition, we reported a further high-grade result from VERA and an initial high-grade result from the Marjito mine, both part of our brownfield program, which will expand to include Crystalis and San Nicolas in the second half of the year. In July, we announced the discovery of two additional high-grade veins at the El Silencio mine, close to the mine workings currently in production. which further provide evidence that our main mines remain underexplored and have the potential to be larger than what we understand today. We're continuing the 60,000 meter of drilling programs planned for 2021 and expect to have further results to share by the end of the third quarter. An area of pride for both management and our employees is our commitment to our ESG initiatives. In June, we published our inaugural sustainability report, a copy of which can be found on our website. We've received a lot of positive feedback on this report, which demonstrates our commitment to have a positive impact on the communities in which we live and operate. This is clearly being demonstrated by one of our latest initiatives in Colombia, where we have purchased 8,000 Sinovac vaccines to treat our workers and their families. To date, we've administered more than 5,000 first doses, covering almost 97% of our eligible employees, and we are just getting started to administer the second doses. We are one of the largest employers in the Antioquia region of Colombia and the first mining company in the region to undertake such an initiative. It's been great to see that this response has been positively received by all of our employees. And with that, John, let's open things up for the Q&A session.
spk01: Thank you, and I'll begin the question and answer session. If you do have a question, press star then 1 on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. Once again, if you do have a question, press star then 1 on your touch-tone phone. And our first question is from John Basler from Basler Capital Partners.
spk02: Hi, good morning. Thanks for taking the question. Good morning. I believe you are expecting a 12 million VAT tax reimbursement in the quarter, but I still see that receivable. Was that received yet?
spk03: Yeah, the VAT had been delayed, as we previously said, in the first quarter. We caught up in April with our VAT, and that was also one of the elements that helped us to meet our tax payment requirements in Q2. So at this point, we're back at the normal level of VAT. based on the filing and recovery cycle. So everything's been cleared up.
spk02: Got it. And then what led to the increase in taxes in the second half of 21? And how should we think about your taxes going forward, especially given some of the political environment in Columbia and the budget issues?
spk03: I think the The main driver for the increase in the tax payments this year has really been two things. One is the increased profitability last year as a result of the higher gold price environment that we found ourselves in last year. And so I think with gold hovering at the same level this year, I think our taxes next year related to this year will probably be similar in that respect to this year, although the tax rate in Colombia has dropped from 32% last year to 31% this year. The other factor affecting our tax payments is, as we announced at year end, we've now entered into a position where monies being remitted from Colombia to Canada are attracting withholding taxes at the Colombian level. So we've got a couple million dollars of tax payments that we made this year related to monies that we've brought up from Colombia. And that will continue to be something that we'll have to contend with moving forward.
spk02: Okay. That's helpful. And then on production of gold ounces, do you expect sequential improvement in the second half? Martin, do you want to talk about production for the second half and what your thoughts are?
spk05: Yeah, Mike. Normally during the second part of the year, we have increased the production. Basically because, you know, the plosives in Colombia are... And usually they have some delays in delivering the process during the first part of the year, which create problems, especially with the artisanal miner and the contract miners. That situation is under normal flow now, so the contract miners and the artisanal miners, they will have explosives without any problems, so their production will increase. This is one of the, also this year in special, we are increasing the number of contract miners, of traditional miners, operating contracts that we have from the traditional miners. It's growing from, it's growing now from, in this, in the second part of the year, will grow from 52 to close to 70, you know, it's a big increase. So each contract miner do not provide a lot of mineral, but add production and add ounces to our production profile.
spk03: Yeah, and if I can comment on that, through our latest 12-month trailing gold productions around 202,000 ounces, we're still trending to be within the range of our guidance this year of 200 to 220 ounces.
spk02: That's helpful. Thank you. And then I don't think you give EBITDA guidance, but if we expect production to continue to improve, does it make sense to have a somewhat sequentially higher EBITDA? And then could you just kind of walk through the major components of the free cash flow bridge?
spk03: Yeah. Well, if you look through the first half of the year, we've had EBITDA of, you know, 94 million. Last year it was 188 million. I think, you know, given we're halfway through the year and with 101,000 ounces of production, I think you'd see EBITDA at a level that's comparable to last year with the current run rate. We've got, as I mentioned in our comments, $40 to $42 million this year of sustaining capex planned, and we've got... Another $10 million of non-sustaining CapEx with about $4 million of that earmarked for the brownfield drilling program that we're doing and $6 million for the plant expansion and the investment that's going with that. So that plus the other thing that comes off of EBITDA to get to free cash flow is the income tax payments. So I think from a free cash flow perspective this year, We're probably somewhere between the $50 million to $60 million level, similar to last year, if all remains as it is with the gold price these days.
spk02: But you'll see the second half of the year will start to show. Right. Improvement.
spk03: Yeah, so you'll see the second half of the year free cash flow starting to build now that the income tax payments for this year are out of the way.
spk02: But you're saying 50 to 60 free cash flow for the year. Does that include interest expense?
spk03: No, interest expense and dividends are paid out of free cash flow. So our free cash flow is our operating cash flow minus our capital expenditures.
spk02: Right. That's fair. Okay, so that's before interest expense of roughly, I guess on an ongoing basis, $21 million.
spk03: Starting with our first payment next year, yeah.
spk02: Okay. That's helpful. And did you give an estimate of the total cost of the new mine development? I know you're still working on a budget.
spk03: Yeah, I think at this point we won't provide an estimate for what we think it's going to be. We still are working through our work with Nordman and the technical team in the PEA for Toro Peru was about $378 million. We believe with the work we're doing and new information, we'll probably have a number that's lower than that, but it's still probably premature to give out an estimate. The one good thing with the financing, as I said, we raised the $300 million plus we've got $138 million still to come from Wheaton during the construction phase of the project. We certainly have more liquidity on hand for this project than we expect we're going to need, which is a good spot to be in as we start into the project.
spk02: That's extremely helpful. And when would it become positive for cash flow?
spk03: At the moment, given the expected timeline for construction, we would expect that it would be in operation in 2024. At that point, we'll be generating cash flow out of Torpor.
spk02: Thank you very much. That's very helpful.
spk01: Great. Thanks. Our next question is from Sid Rajeev from Fundamental Research.
spk00: Good morning. Good morning, Sid. Hey, Mike. How much does cash cost for maintaining COVID protocols?
spk03: At this point, we're spending about $5 to $7 an ounce on the COVID protocols in our cash costs. A little bit less than last year. Last year had a lot of the first-time upfront costs to put in, so we spent over a million dollars last year on it, but this year it seems to be running about $5 to $7 an ounce right now.
spk00: Okay, so it's not that significant, and It definitely seems like activities are back at pre-COVID levels at Segovia, but how are things in general at Segovia, Marmardo? Daily new cases are coming down in Colombia, I noticed. So is the COVID situation now under control? Marmardo?
spk05: Yeah. Yeah, yeah, right. In fact, you know, the situation in Colombia now is I can say it's normal. The COVID peak during the first part of the year now is getting levels more acceptable. We are vaccinating all our people, so we expect that we will have on total normality by the end of September. That will help because the COVID protocol Even if you like or you don't like, but that thing impose some constraints on productivity. And in the social unrest in Colombia, this just disappeared now. By the way, the social unrest in Colombia did not affect our operations in Segovia, not even in Armada. So, no, no, I think that the situation will be very nice for the rest of the year.
spk00: Now, with the $300 million financing that puts you in, I mean, you have more than enough cash to develop Toro Peru. Will some of these funds be used to pay down your existing debt, or is 100% allocated for just Toro Peru?
spk03: The only portion of the net proceeds that will be used for something other than Toro Peru will be the $18.8 million that we'll use on September 9th to retire the remaining portion of the gold notes. That was one of the commitments we made in our use of proceeds for that money. But everything else will go towards ToroPro.
spk00: Okay, got it. Just one more question. What's your long-term plans with Ares? You have 44% equity interest in the company. Will you try to maintain your ownership, or what's your long-term plans with that investment?
spk03: I think at this point we're certainly in sort of a comfortable position. The new team at ARIS, as I mentioned, is moving forward with the development plan in the deep zone and certainly working on the optimization of the upper mine as planned. So at this point we're not in a rush to make any decisions with respect to the ARIS investment. Obviously, as we've said in our materials, we do have a standstill on selling our position without ARIS' prior consent. within the next 18 months. But we certainly believe that as they execute the strategy, that investment should become more valuable to us. And in time, we can then look at what we'll do and see. Got it. Thank you, gentlemen. Great. Thanks, Sid.
spk01: Once again, if you do have a question, press star then 1 on your touchtone followed. We have a question from Lennart Lingling from Algebras Investment. Once again, if you do have a question, press star then 1 on your touch-tone phone. And I'm showing no further questions at this time.
spk03: All right. Well, thanks, John. And I want to thank everyone for attending this morning. Absolutely. If you have any follow-up questions, please reach out to us. But stay tuned. We'll continue to provide updates on our progress as we move ahead and look forward to catching up with you again on our third quarter call. Thanks.
spk01: Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating. You may now disconnect.
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