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spk00: Welcome to the Grand Columbia Gold Q3 2021 results webcast. My name is John. I'll be your operator for today's call. At this time, all participants are in a listening mode. Later, we will conduct a question and answer session. During the question and answer session, if you do have a question, press the R1 on your touchtone phone. Please note the conference is being recorded. And now I'll turn the call over to Mike Davies.
spk02: Thank you, John. And good morning, and thank you for joining us today for the Grand Columbia third quarter 2021 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 an update on our performance in the third quarter in the first nine months of 2021, and then Lombardo will be available as we open things up for the Q&A session. Before we proceed with this 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. Our strategy at Grand Columbia was focused on growth through diversification while returning value to our shareholders through our monthly dividend payments. In June, we took a major step forward with the acquisition of the 85% interest in the Toro Pru Project in Guyana that we did not already own. Not only does this add geographic and project diversification in our assets and our future revenue profile, but it will give us exposure to copper down the road. In August, we closed our $300 million senior notes financing, and at the end of September, we had approximately $330 million of cash, and the gold notes had been fully retired. Together with the existing Wheaton Street facility that came with Gold X, the construction of the Toro Peru project is fully financed. Our technical advisors have been completing some of the mine optimization studies related to the design of future operations at Toro Peru, and we expect we'll be releasing the results of an updated mineral resource estimate and PEA in December. Meanwhile, at our flagship Seville operations, everything is moving along as expected this year, and we have narrowed our production guidance for 2021 to between 203,000 and 210,000 ounces of gold. Our growth initiatives in Segovia focus on exploration and development, expansion of the Maria Dama plant to 2,000 tons per day, and the addition of the new polymetallic plant are all progressing well. We also remain committed to the health and safety of our employees, and in the third quarter, we were the first mining company in the Antiochia region, where Segovia is located, to secure COVID-19 vaccinations to immunize our employees and their families. We are very pleased with the progress that we have achieved so far this year. Last night, we released our results for the third quarter and the first nine months of 2021. I'd like to remind you that the results for 2020 reflect the Marmotto operations now owned by Aris Gold on a consolidated basis, whereas in 2021, with the loss of control of Aris Gold in February, the results from Marmotto are now equity accounted. making some of the year-over-year comparisons a little like apples and oranges. In mid-October, we pre-released our production results. Segovia had another solid quarter with 50,000 ounces of gold produced. The gold price is still about the $1,800 level. Our cash cost at $845 per ounce. Our adjusted EBITDA for the third quarter was about $40 million. Net earnings in the third quarter was $25.3 million and adjusted net earnings came in at $14.4 million. Operating cash flow amounted to $26.7 million in the third quarter and our free cash flow turned positive coming in at $12.1 million. As we noticed in our press release last night, the tax authority in Columbia has applied a modification in the local tax reform that will see our refunds for VAT claims related to 2021 Delated until the first half of 2022. While it does have a short-term impact on cash and cash flow metrics, it is expected that we'll receive these refunds in advance of the due dates to pay our 2022 corporate income tax installments. In the grand scheme, this is all part of our working capital management and will not impact the execution of our strategy. Over the next several slides, I'll take you through some further details behind our performance this year. We currently have 98.5 million common shares issued in outstanding. At yesterday's closing price of 566 per share, our market cap stood at 557 million, up 17% from where we were at the Q2 webcast in mid-August. We also have a fully diluted share count of about 132 million shares, and in October, we announced we had renewed our normal course issuer bid for another 12-month period, So we have it in our arsenal should circumstances arise that necessitate we use it to defend our stock. We have seen a strengthening in gold prices of late, and we're pleased to see that it's now being reflected in gold company valuations. We've continued to pay our monthly dividend of Canadian 1.5 cents per share throughout this year, and our next payment takes place on Monday. Our dividend rate represents about a 3.2% annual yield at current share prices. Through the end of September, we have returned a total of $8 million to our shareholders through our monthly dividend program. In September, we were pleased to add Canaccord Genuity to the list of analysts covering the Grand Columbia story. Canaccord's initiating report has a buy rating with a target price of $9.50 per share. Red Cloud and Fundamental Research also continue to actively cover our stock, with target prices also well above the current share price. These reports all reaffirm our belief that a significant re-rating potential exists in our stock, and we are confident that our strategy to grow through diversification is the path to unlock this potential as we strive towards 400,000 ounces of gold production by 2024. Our cornerstone operating asset, Sevillevia Operations in Columbia, continues to be ranked as one of the top five highest grade underground global gold operations. In the latest study published in the Kitco commentaries in September, Sevillevia continued to rank number four with a mine head grade of 12.8 grams per ton in the first quarter of 2021. This level of grade at Segovia is not an anomaly. Since we acquired Segovia in 2010, we have produced a total of 1.45 million ounces of gold in this historic mining district at an average head grade of 13.65 grams per ton. With over 100 years of mining history in Segovia, a solid mineral resource base, and a well-funded ongoing exploration program, we are confident that Segovia will continue to be in production for more than the next 10 years. I mentioned earlier that Segovia had a solid third quarter, producing 50,000 ounces of gold, which brings its first nine months total gold production to 151,000 ounces. October's production of approximately 19,500 ounces brings the trailing 12 months total gold production at Segovia at the end of October to about 203,700 ounces, up 4% over 2020's annual production. With gold production through the first 10 months of 2021 of 170,560 ounces, we remain on track to meet our annual guidance for Segovia, and we've narrowed the range to between 203,000 and 210,000 ounces for the full year. In the third quarter, Segovia processed an average of 1,487 tons per day at an average head grade of 12.6 grams per tonne, yielding the 50,000 ounces of gold and just over 52,000 ounces of silver. This brings the plant's processing rate for the first nine months of this year to an average of 1,513 tons per day with head grades averaging 12.7 grams per ton. The expansion of the Maria Dama plant to 2,000 tons per day is proceeding as planned and completion is now expected in the first quarter of 2022. after experiencing some pandemic-related delays in receiving steel deliveries. I mentioned earlier that October's production was about 19,500 ounces of gold. Grades averaged 13.8 grams per ton in October, and the daily processing rate increased to an average of 1,576 tons per day for the month. A great start to the fourth quarter, and the reason we are confident that we will meet our production guidance for the sixth consecutive year. Turning to revenue, I'll first remind you that our consolidated revenue in 2020 and prior years included the Marmotto operations. Revenue in the first nine months of 2021 included only one month of Marmotto's revenue prior to the loss of control, which was $5 million. Looking at just our third quarter revenues, 2020 included $13 million from Marmotto, while 2021 did not include any revenue from Marmotto. The other $9 million decrease in our third quarter 2021 revenue compared to Q3 last year was largely driven by lower spot gold prices, which reduced our realized gold prices by about 5% to an average of $1,784 per ounce. And for the first nine months of 2020, consolidated revenue included $30 million from Armada. Stovia's revenue increased by 9% from $261 million in the first nine months of 2020 to $284 million in the first nine months this year, reflecting a 5% increase in the average realized gold prices to $17.97 per ounce, a 3% increase in the volume of gold sold, and a $1.7 million increase in silver revenues. In light of our production guidance for this year and the continuing strong gold prices, which have reached the mid-$1,800 level in the last couple of days, We expect solid performance in revenue for the fourth quarter of 2021. We mentioned in previous quarters that our cash costs at Segovia saw a step change from the third quarter of 2020 when we responded to the higher gold price environment and increased the rates we pay our contract miner and the small-scale miners in Segovia who have not seen an increase in rates since 2017. If you look at our cash cost per ounce for Segovia over the last four quarters since the change was implemented, Segovia's cash cost has ranged from $767 to $845 per ounce sold and has averaged $816 per ounce over that period. In the third quarter of 2021, we saw Segovia's cash cost increase to $845 an ounce, impacted by a change in the mix of material processed to our plant with a slightly higher proportion sourced from the higher cost contract minor and small scale minor sources than typical. We continue to expect Segovia's cash cost to hover in the low $800 per ounce level based on our typical blend of material that we process in Segovia. Our all in sustaining cost in the third quarter of 2021 at Segovia increased to $1,218 per ounce from $1,031 per ounce in the third quarter last year. The increase was in part due to the higher cash cost in the third quarter this year that I mentioned on the previous slide. In addition, our spending on sustaining CapEx increased from $9.2 million in the third quarter last year to $11 million in the third quarter this year, representing about a $44 per ounce increase in our own sustaining cost. And our social contributions at Segovia increased by 650,000 in the third quarter this year, compared to the third quarter a year ago, representing an increase of about $15 per ounce in our ASIC. For the first nine months of 2021, our consolidated ASIC increased compared to the same period a year ago, for very similar reasons to those experienced in the third quarter. Our all-insustaining cost in the first nine months of 2021 includes three full quarters of the increased cash cost level at Segovia, compared to only a partial quarter in the first nine months of last year. In 2020, our capital programs at Segovia were disrupted by the onset of the COVID pandemic and the national quarantine in Colombia, and many didn't get started until late in the year, given the appearance that our ASIC was increasing as 2021 progressed. sorry, 2020 progressed, when in reality, it was more of a timing issue. Our capital programs this year are running at a more normal frequency, and we have increased our investment in exploration and development compared to last year as part of our growth strategy. Our social contributions this year, about a million dollars higher in Segovia, due to the financial support that we have provided to New Farm Operations Segovia Inquiry in 2020 as part of our ESG initiatives in the district. Our adjusted EBITDA in the third quarter of 2021 was $40 million, down from $56.7 million in the third quarter a year ago, which included $2.4 million from the Marmato operations. The lower gold prices and the higher cash costs at Segovia that I'd mentioned earlier were the key factors contributing to the decrease in Q3's adjusted EBITDA. When you consider the first nine months of 2021, Segovia's adjusted EBITDA was $134 million, down from about $140 million in the first nine months of 2020, due mainly to the increase in cash costs. At the end of the third quarter of 2021, our trailing 12-months adjusted EBITDA totaled $177 million, compared to the $188 million last year. About $4 million of that decrease was related to Marmotta's adjusted EBITDA included in the 2020 results, and the balance primarily relates to the changes in civilians' cost structure on cash costs starting in Q3 of 2020. That being said, we do expect that our full year 2021 adjusted EBITDA will continue to be more or less in the same range as our 12 months trailing number of $177 million. Looking at our cash flow metrics, our consolidating operating cash flow in the first nine months of 2021 amounted to $53 million. included 10 million used by ARIS Gold prior to the loss of control in February. In the first nine months of 2020, our consolidated operating cash flow was 107 million, including about 5 million provided by ARIS. If you exclude the impact of ARIS Gold activities in the current prior years, our operating cash flow in the first nine months of this year decreased by $39 million compared to the first nine months last year. And this can largely be attributed to an increase in income taxes paid in the first nine months this year to $67 million, and $46 million paid in the first nine months last year. There's also been changes in our non-cash working capital items, including the delay in receiving 2021's VAP refunds. That's had about a $12 million impact on our free cash flow this year. And the reduction in adjusted EBITDA from the SCOBY operations also had an impact on our operating cash flow this year. Despite these factors, the reality is that we continue to be a solid operating cash flow generator, and this has been more than sufficient to fund our capital programs, pay our dividends, and meet our debt service. Our free cash flow through the first nine months of 2021 is lower than the same period a year ago, in part due to the decrease in operating cash flow, but also due to an increase in capital spending. Both the sustaining CapEx I mentioned in the discussion on our ASIC as well as non-sustaining capex of $6.8 million related to growth initiatives at Segovia, and another $2.4 million of non-sustaining capex related to our Toro Peru project. Since 2018, we have focused on a strategy of deleveraging our balance sheet. In the third quarter of 2021, we used a portion of the net proceeds from the senior notes financing fully retire our gold notes, more than two years ahead of schedule. At the end of September, we had about $330 million of cash in our balance sheet, of which $268 million represents the remaining net proceeds from the senior notes financing and is earmarked for the Toro Peru project and general corporate purposes. We also have another $138 million of financing available for Toro Peru's development and to a stream facility with Wheaton that had been arranged several years ago by GoldX. We're happy to say that we are fully funded to build the TOR approved project based on our expected capital costs for the project. We're also pleased to report that both S&P Global Ratings and Fitch Ratings issued B-plus ratings for the new senior notes that were issued in August. Over the next couple of slides, I'd like to comment on a few of our initiatives to grow through diversification. As I noted earlier in this webcast, we're very fortunate to own 100% of one of the top five highest grade underground global gold mines in the world. One with a rich history of production that's still not fully explored or exploited to its full potential. We announced earlier this year that we are executing a 60,000 meters drill program in Segovia in 2021. our biggest annual program to date, to continue to expand reserves and resources near mine and in mine at our producing mines and to explore our highest priority targets in the brownfield form of producing mines within our title to identify future new mines. The program has already yielded high-grade intercepts, which we have reported earlier this year, including the discovery of some new veins. We're currently assembling another drilling update, and we expect to release further results from this program before the end of the year. I've also highlighted with a red star on this map the location of the GUI Antico project owned by Denarius, in which we own 27%. Denarius started a drill campaign on this target in mid-2021 and should be announcing results in the near future as well. Another initiative focusing on growth through diversification is our new polymetallic plant at our Sadovia operations. We purchased this plant earlier this year from a third party for $7 million and spent another $1.2 million to complete construction by the end of the third quarter. The plant is in the commissioning phase and is expected to produce its first concentrate in the fourth quarter this year. Our Maria Dama plant produces about 120 tons per day of solid concentrates called leach tailings which have been stored in our Bolivia tailings storage facility for years. The polymetallic plant has a daily solids processing capacity of 200 tons and will receive fresh production of leach tailings from Riadama, plus a portion of leach tailings stored in Bolivia. We've also installed a washing plant to treat the Bolivia tailings, which are then fed to the polymetallic plant through a transportation system. Ultimately, the payback from this investment will be achieved in two ways. we will gain additional revenue and profit from the recovery of commercial quantities of zinc, lead, gold, and silver contained in the tailings. And second, according to our environmental manager, Erwin Wolf, this initiative is a clear example of the evolution in the processing of mining waste, which will dispose of the waste in a harmless way, thereby reducing eventual environmental impacts and eliminating potential health risks. There's no better way to explain our ability to grow through diversification than the acquisition of the Toro Peru project in June of this year in a share-for-share exchange with GoldX Mining valued at approximately 187 million US dollars. Based on GoldX's 2019 PEA, Toro Peru is one of the largest undeveloped gold deposits in the Americas with over 7 million ounces of measured and indicated resources and another 3 million ounces of inferred resources. In 2020 and early 2021, GoldX completed a drilling program which identified a four-kilometer strike length of structurally controlled high-grade gold mineralized structures. Since closing the acquisition, we've been working with SRK and Morgan to complete an updated mineral resource estimate and PEA for Tollaproof that incorporates this new information. After completing various studies, including mine optimization for the design of the eventual mining operations, We expect that we'll be in a position to announce the result of this work in December. In the meantime, Lombardo is already leading our effort to carry out a number of pre-construction activities, including hiring the project team and key contractors, preparation of the camp facilities, revamping of the local airstrip to enhance logistics and access to the site, design and civil works related to the camp road and water management, electrical network design, permitting, design of our initial ESG initiatives, and various other studies associated with the environmental matters of this very important project for Grand Columbia. We also wanted to draw your attention this morning to our newest equity investment this year, Denarius, a new company listed on the Venture Exchange earlier this year, created through an RTO. Grand Columbia is the largest shareholder with a 27% equity stake in the company. and is providing managerial and technical assistance as Denarius gets off the ground with its exploration programs. In addition to its two Colombian projects, Denarius has joined the rank of companies targeting the Iberian pyrite belt in southern Spain, home to the largest concentration of massive sulfides in the world, with its acquisition in April of the Lomero project, a former producer with a historic resource of over 20 million tons containing 3 grams per ton gold, 62 grams per ton silver, 0.9% copper, 0.9% lead, and 3% zinc. Fully funded, Denarius has just started a 23,500 meters drilling campaign to drill the Lomero project, initially validating some historic holes within the existing mine and later carrying out extension drilling. We see Denarius as another exciting opportunity to enhance value for our shareholders as it carries out its programs and its exploration projects to bring them forward as key mining projects down the road. In previous webcasts, we've highlighted the integral nature of ESG to our operating style at Grand Columbia. It has been a critical element to maintaining our social license to operate, and our inaugural sustainability report a copy of which can be found on our website, 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 administered over 12,000 vaccines to immunize almost 100% of our workers and their families. We're the first mining company in the Antioquia region of Colombia to undertake such an initiative, and it's been great to see that the response from our employees has been terrific. With that, John, I think we can open things up for the Q&A session.
spk00: Thank you. We'll now 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 Gary McCurry from Canaccord Genuity.
spk02: Hey, good morning, guys. Just on the Toro Peru PA, I know you're still working on it, but is there any comments you can make about what you're looking at versus what Goldbeck said previously looked at? Yeah, I think at this stage, and we're a couple of weeks, hopefully, or two and a half weeks away from having the results available, and then in early January, we'll get the full document published on CDAR. I think it's safe to say at this point that we're still looking at CapEx that will be within the number that was in the 2019 PEA that GoldEx had published. We're still going to have a long life asset with more than 20 years of production. We're looking at mine optimization right now with the combination of open pit mining to start and then later on getting into underground mining, starting to access the The higher-grade mineralization at depth, it was identified through the Gold X drilling. I think the results from the PEA will ultimately be an improvement from what we saw in the July 2019 PEA from Gold X. Sounds good. In terms of once the PEA is done, what's the next steps then before a construction decision gets made? Lombardo, do you want to speak to that?
spk01: Could you repeat, please, the question?
spk02: After we get the PEA done, what will be the next steps that we'll go through to get construction started?
spk01: Well, yeah. But let me ask you a question. The project, the idea with the project is to build it on a fast track basis. That's the reason because we are initiating construction activity, building the camp, the street, you know, the water management works. And also we are selecting the contractors to build the project. We are going to use two EPCM contracts. One will be for all the civil work related to the mine, and the other contract will be related with processing plant and the facility related with the processing plant. We are going to be ready to award those contracts in the first quarter of next year. The idea is to have the first commercial operation in the first quarter of 2024. We are expecting to have only an execution phase of the project of around 26, 28 months. Just the same scheme that the Indiana Gold Field followed with the Aurora Mine. We are sending the project management team in January 2022. The team will be fully assembled, and also the contractors will be selected. So we are confident that we can build this project on a fast track basis on a 28-month maximum. Sorry, go ahead.
spk02: Yeah, Kerry, was that clear? I know Lombardo's line this morning seems to be having a little trouble from Columbia. I guess the other question is just obviously there's a lot of cost inflation in the industry. I know your costs are up this quarter. We talked a little bit about the cost going forward, but I guess what should we be expecting in terms of 2022? We're working on our 2022 budgets and plans at the moment, and we'll have our guidance early in the new year, but I wouldn't expect significant changes from what we've seen in the last few quarters. In terms of average cost, we'll still be in the low 800s for cash costs. And, you know, ideally, depending on the amount of exploration we do around the mines, which I think will be consistent next year with what we've done this year, we'll still be in sort of that $1,100 to $1,150 basic number for stability as we go forward.
spk01: We are not expecting initial prices in Segovia. The production will continue to be above $200,000. The cash flow is going to be around $800,000. And of course, the capital expenses related with the exploration will continue. We will expect next year to have another $50,000 of drilling with the exploration process, 20,000 will be allocated to the brownfield and 40,000 will be allocated to the mines, the existing mines. Our expectation, in fact, is to have a good result. We are expecting good results with our brownfield problem. in the sense that we expect that we can build a new mine in 2024. And we are expecting that that new mine will be located around a base that we call Crystalis. So we don't expect any surprises in Segovia. Segovia will continue to be an external operation.
spk02: Okay, thank you. Okay, thanks, Gary.
spk00: Once again, if you do have a question, press star then 1 on your touch-tone phone. And, Mike, I'm seeing no further questions at this time.
spk02: Okay, I've got one question that's come in through the web. Congrats on the good quarter. Wondering what our view is on grades at Sevilla going forward and if the increased tonnage at Maria Dama will lead to higher production in 2022. That's the first part. I think, as we said, we're still finalizing our plans for next year, including throughput based on the timing of the expansion of the plant. It's just a little early to give Too much guidance, but as we said, we've processed at Segovia historically over the last 11 years now with an average of 13.7 grams per ton. This year it's averaging about 12.7. We're still, as I said, looking at our plans for this year, but we don't see significant reductions in grade because we're expanding production tonnages. So we'll follow up and give more guidance on that later. early in the new year once we finalize the mine plan for next year. And then the other part of that question is what kind of cash credit we expect to come given the current market prices once the polymetallic plant is up and running. And again, we'll provide more information on that early in the new year once we've seen the first concentrates coming through and we've got our plan set for expected volumes next year. All right, well, John, if there's no other questions on the line, we'd like to thank everybody for joining this morning. Stay tuned. We've got further press releases coming up over the next several weeks related to both the results of Toro Peru as well as the results of our drilling program. The next dividend is paid on Monday, and the next dividend declaration amounts will go out Monday. So thank you very much, and we'll see you next time. And if you need to reach out to us, please do so, and we'll follow up with any questions that you have. Thank you.
spk00: Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating, and you may now disconnect.
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