Orezone Gold Corporation

Good day and welcome to the ORAZONE Gold Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. If you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star then two. Please also note this event has been recorded. I would now like to turn the conference call over to Mr. Patrick Downey, President and CEO. Mr. Downey, the floor is yours, sir.

Thank you very much and welcome everybody to the ORAZONE Q3 webcast and conference call updating you on progress through Q3 and next steps through 2022 into 2023. So with me today will be Peter Tam, CFO of Orzo Gold, and Vanessa Pickering, manager of IR. Obviously, forward-looking statements, just take note of those as we move forward here. I'm going to hand it over to Peter now just to walk through quickly on the operating highlights and financial highlights.

Thanks, Patrick. So in Q3 2022, the company processed 212,590 tons of ore at an average head grade of 0.89, with a recovery rate of just under 92%, resulting in a recovery goal of 5,572 ounces. Those ounces were not sold in the quarter, but were sold subsequently in October. Please note, Q3, the tonnages process started with hot commissioning at the end of August. On the next slide, I'll speak here about the company's cash liquidity. The company's cash position at September 30th stood at $7.4 million, along with 4,923 ounces of gold, bullion, and ending inventory. Working capital at quarter end was negatively impacted by the Gensler power plan issues, which led to a later than planned start of hot commissioning in August and a shortfall in gold sales in September. Working capital was further affected by the temporary stoppage of gold production in October. Fortunately, we were able to resume gold production in late October and have operated continuously since then. With cash being replenished by gold sales, we have been able to meet our trade obligations as they have come due without issue. In addition, it should be noted that a significant portion of the trade payables and accruals at September 30th do not fall due until 2023. These payables include the power plant, construction retention, employee bonuses and retirement liabilities, and certain costs to the mining contractor. However, we did recognize that the longer than anticipated commissioning period would strain our cash resources. We proactively entered into discussions with Chorus Bank about deferring interest payments to provide the company with the extra time needed to reach commercial production, which would bring about meaningful cash flow generation on a sustained basis. In October, Chorus Bank agreed to defer $3.2 million in interest payments and have given a favorable indication that they are open to providing additional assistance if required. It is important to note that the short-term loan with Chorus Bank shown under current liabilities at September 30th do not have scheduled principal repayments until 2023. Chorus Bank has been an incredibly supportive lender for us and we thank them for their continued support. With that, I'll hand it back to Patrick.

Thanks, Peter. So we'll walk you through the commissioning and ramp up. Obviously, just as a reminder, we have a 5.2 million tonne per annum oxide plant built on time and under budget, which was a fantastic achievement and also helped us where we're at today. Over 5 million hours without an LTI, again, testament to the team. We actually had a very smooth commissioning of the process plant and then ramp up into August. And as Peter said, we poured first gold in September. The plant performance was trending extremely well, and we were very happy with it, generally above design and also better in recoveries, et cetera. So we were very excited about where we were going towards Q3 into Q4. Our first gold shipment was in early October, and then operations were interrupted in October due to power plant breakdowns. And this was really on OEM equipment, which was quite a surprise to us. We recommenced plant feed in late October and now trending towards full design through pot. A little bit update on the plant. The plant is under a power purchase agreement. Obviously, they purchase the equipment, they run it, they operate it, and they supply us power. It is with a company called Genser Energy Burkina, a fairly well-known name in West Africa. We signed it in 2021. to supply power at very attractive rates to us based on LNG and solar. Currently, the power plant design consists of four by 3.5 megawatt dual fuel units. Delays were encountered with delivery. We had two 3.5 megawatts available for commissioning, which was generally sufficient for commissioning, but we did take some proactive action there. And we augmented it with a 1 by 1.2 megawatt rental unit so that we would have absolutely sufficient power for startup and ramp up. The third 3.5 megawatt unit was delivered in early September. And then equipment breakdown started to occur in late September requiring significant replacement parts and started recurring on a constant basis. We started to ship those over from Florida. There was some unforeseen delays there due to the hurricanes, the two hurricanes, one after the other. And then they arrived in France, and then obviously we had the coup in Burkina and delayed resumption of Air France cargo shipments. And that delayed us by 14 days, and that was on a day-by-day basis that we waited to load those pieces and parts onto Air France freight into Burkina. We got them back online on October 3rd, The third unit is currently undergoing updated repairs and is scheduled to be able to deliver power by the end of this week. We took action into our own hands. We're a very proactive company. We did not wait around. Even though this was a power purchase agreement, it was up to this group to fix these units and give us power. We took action ourselves. We commenced the search for a reliable alternate temporary power supply in late September. Very quickly, we did secure eight times 1.3 megawatt caterpillar plant in excellent condition, and it's independently operated by a group called African Power Services. We found that through our own group and also through our consultants like Apodium and their subsidiary ECG, which was great, the help that they give us in that regard. We sourced the power plant, we transported it and installed and commissioned it within six weeks. So that's quite a remarkable achievement and just showed how proactive we were in making sure that we had power to move forward here. I stated here the full power was imminent. Well, that's actually changed now. We're up and running with it. So that's great news. And we're starting to push through to design throughput. As of this morning, we're running over 630 tons per hour, which is very close to main plate. So we do have spinning reserve right now and we're running power through to the system. And it was a very smooth transition over to that APS system. Our power requirements at full nameplate is approximately 7 megawatts. We will have available power now 13. So we've got more than adequate power to run the system. One thing to note here is that the plant is performing extremely well and drawing less power than designed to do the throughput. So we're quite happy about that as well. So we've got more than adequate power now to run the plant, and it's up and running. It's been running since late October, but now we have all that APS system ready to run and supply power to the plant. And there you see, there's the genser units in the background, the old process plant right behind that, and then you can see the APS units installed and now running in the foreground with the fuel system behind that. So we've taken action and we've rectified the situation. So what's next steps? You know, get the plant running at full tonnage, and we've now got that, and we will be looking to push more than full tonnage. As I said, the plant is operating better than design, so we believe we can actually push more tons than the design of 5.2. In that regard, we have over one million tons of high-grade ore on the round pad, and over 5 million tons of medium and low-grade in stockpiles. So we will be direct tipping from the pits and augmenting it with the high-grade stockpile as we push the tonnage through the plant. We're mining from four main pits, so we've got great flexibility in that regard to push the tons, and we will be doing that as we move forward here in Q4 into 2023. We plan to operate a design throughput for the rest of November and declare commercial production likely by the end of November, which will be quite rapid. We were hoping to do it beforehand, and if we had full power from those gen-ser units, we certainly would have done that. The plant was certainly running extremely well and trending towards commercial production in September. We post to be on nameplate. We hope to see where we can go with the plant, and that will help us guide what 2023 feed rate will be in terms of design, what our goal production and cost will be, and we expect to announce that early in Q1 of 2023. During all of this, we were still exploring. As Peter said, we've got incredible support from our lender. Even though we were having commissioning problems, we did not stop drilling. We did not stop mining. We continued to mine and drill, so we were confident that we were getting back on track here, and we were confident we knew what our cash and liquidity position was. We did over 43,000 meters of diamond and RC drilling in 2022, and drilling is ongoing. Results from P17 have been excellent and have shown significant resource growth, and there is further upside there, and that resource modeling there is now well advanced for P17. We've well advanced, I think we've almost finished SIGA now, and assay results are ongoing. We've been a bit of a backlog with sample prep and assays as everybody has been around the world recently. And we will release those results imminently once those final assays are received for that whole area. That's on resource conversion from Inferred to MNI. I expect it to be positive based on what we've seen to date. And from that, modeling will commence in late Q4. We're now drilling at MAGA to convert, again, a third of the sulfides into M&I. And that drilling will be completed in December. And again, results expected through Q1 2023, with modeling immediately thereafter. And these results will support our Phase II sulfide expansion, which is planned to occur through 2024 into 2025, which we expect will show a significant increase in production over the life of mine of the project. So in summary, the plant was operating extremely well and at a better than design. Reliable power is now in place and now operating, which should drive increased production. Stockpiles and the mine delivery will allow ramp up to plant feed and beyond design. We're fully confident of that. We are looking at a long-term power solution. It's well advanced should our issues with Genser continue. And remember, this is a power purchase agreement. They're supposed to supply power at a fixed rate over a fence to us. So we will see where we can resolve those issues going forward. But I can tell you we are taking matters into our own hand for a longer-term power solution. In that regard, when we did the study and started construction of Bombori, we did not have reliable grid power. That was not in existence at the time. Burkina has now connected to both the Ghana and Cote d'Ivoire reticulation systems. There are now reliable systems in place. There is a 135 kV line running within 12 kilometers of the mine site, and it is reliable 24365 power, and we are in advanced negotiations on hooking up to that power supply should we not resolve our issues with Gensar in the coming months. And as I said earlier on, exploration is now driving future expansion, which we're quite excited about. So that's the presentation. You know, obviously a little bit of a hiccup in October, September, October with Genser. We resolved that ourselves to our satisfaction. We now move forward and drive our production and operations through Q4 and into 2023. And we look forward to continuing to update on our production costs and expansion as we move forward here into 2023 and 2024. So I'm now open to take any questions, should there be any on the line.

Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time a question has been addressed and you'd like to withdraw your question, please press star, then 2. Again, it is star then one to ask a question. At this time, we'll just pause momentarily to assemble our roster.

The first question we will take will come from Don Blight of Paradigm Capital.

Please go ahead.

Hey, Patty and team. Congratulations on the fairly smooth startup, excluding the power issues. The commercial production by the end of November, you were saying, that's a bit of a surprise. What's your definition of commercial production in terms of percentage of nameplate for what period of time?

Yeah, Don, it's Peter Tam here. Just on your question there. So the criteria we've set forward in terms of reaching commercial production is reaching at least 70% nameplate of mill throughput over a consecutive 30-day period with recovery in line with what we expect through the plant design there. So obviously with the reintroduction of ore in late October. As I said earlier, we have been able to operate continuously close to the nameplate, so if it continues to trend favorably in that direction for the rest of the month, we think by the end of the month we could be in a position to declare commercial production.

Excellent. And just on the power purchase agreement with Gensler, what kind of timeframe are they, you know, obviously they're supposed to deliver the power, what kind of time frame is there in the contract for them to resolve issues? Obviously, you felt you had to kind of proactively fix the situation yourself, but how long do they get to try to fix it?

I really don't want to start discussing contractual issues on the call here. We'll resolve those between ourselves and Gensler, but... Obviously, Dawn, based on where we're at, we're looking at, and thankfully, there is grid power there at a very reasonable cost and low capital for us, so we're going to advance that should we not reach any agreement with Gensler on what's occurred here and how we expect them to rectify that situation. Okay, fair enough.

Thanks. Next, we have Craig Stanley of Raymond James.

Good morning, everyone. Thank you for taking my call. Just curious, roughly, what type of power costs were Gensler promising you versus what you're seeing right now with the rental units and how much maybe grid power would cost?

Okay, well, there wouldn't have been a lot of difference, Greg, this year because the gens are going to bring in all of the LNG infrastructure, so it was always going to be a period of time on diesel anyway, so that was not going to be much different. We were going to be paying for diesel, so there's not really any impact on where we were going to see things over the coming months. Grid power will be... something around 18, 19 cents per kilowatt hour.

Okay. And how's, I mean, again, with the balance sheet, so you're not foreseeing any issues given where the plant's running right now with the power cost that you're getting from the rental units? Yeah, that's fine.

We're in good shape as long as, obviously, we want full power and we want it on a constant, reliable basis. That's where we took action into our own hands. We saw nothing wrong with the plant and all that good stuff. And that's where our lenders have been, you know, extremely, you know, sort of favorable and accommodating to us because they've seen where we're at and how well the plant's running. And, you know, so we don't see, you know, as we move forward here provided that, you know, the power remains constant, we're in good shape here.

And just following up, I mean, on the coup, everything's been fine on the ground in regards to security, moving around?

Yeah, no problem at all with us. I mean, I was there last, was it last week? Last week and the week before last, down on site, you know, went through WAGA, no problem. It's never really been an issue for us, to be honest with you. You know where we're at, where we're located. It's an hour from the capital on a paved highway. So no issues there. The only issues that we had was we had routed those units through Air France. We didn't know there was going to be a coup, obviously, out of Florida. And then when they got to Charles de Gaulle, they sat there for 10 days. So that did delay us a little bit on getting the Genser units back up and running.

Okay. And the issues that Genser is having, they're not in any way related to the coup?

No, no, not at all. Not at all. It's to do with equipment.

Yeah, we were already seeing delays and issues well before the coup that happened there a few weeks ago.

Yeah, it was nothing to do with the coup. It's purely to do with malfunctioning equipment and component failure from OEM. All right, thank you.

Thanks, Guy. And I look forward to coming to the site next month.

Yeah, absolutely. Again, as a reminder, if you'd like to participate in today's Q&A, please press star, then 1 on the touch-tone phone.

Again, at a star, then 1 to ask a question. Next, we have John Wollstonecroft, investor.

Hello. I was just wondering, when you say commercial production, how do you translate to number of ounces produced, I mean, number of ounces of gold produced each month?

Well, once we get through commercial production, we should be running at nameplate. So that will obviously depend on sort of the head grade that goes through the plant. But, you know, as we indicated in our feasibility study, we think in year one we could be doing somewhere, you know, depending on head grade, you know, around 150,000 ounces. But all of that will come through once we get through our budgeting exercise that we're undertaking now. And as indicated earlier, we'll be coming out with our guidance for 2023 early in the new year.

Thank you. Next we have Chris Thompson of PI Financial.

Hi. Good morning, everybody. Thanks for taking my questions. Congratulations there, Patty, on what you've achieved to date. Just a quick question. I noticed that you're delaying the resource updates and the feasibility study. Is this a first half of the year, next year sort of expectation for the delivery there?

Probably the latter half of the first half or early in Q3. Really what happened, Chris, was P17 grew beyond what we fully expected, so we just kept drilling it. So the results were good. We ended up putting three rigs So it's still wide open, to be honest with you. We just ended up just cutting it off and just going on to SIGA and MAGA. So we will come back to P17 and drill off some of the areas, but that was obviously driving it, so we didn't want to stop because the results were so compelling, we just kept drilling it.

Great, thanks for that. And then just I guess you did mention your high-grade and medium-low-grade stockpiles. Could you just tell us what are the grades there on those stockpiles?

The grade on the higher grade is around a gram. Medium grade is 0.7. Is it 0.6, 0.7?

Yeah, average up to closer to 0.6.

Yeah, and then the low grade is around 0.5.

Thank you very much. Thanks, Gavin.

The low grade is obviously from the OCR. which we mined in 2021-22, and that was for the water supply system for the plant. That was always going to be a low-grade pit, and we mined it accordingly because we didn't want to be mining a high-grade pit for a water supply system.

Right, right. Great. Thank you very much.

Okay.

Well, at this time, we're showing no further questions. We'll go ahead and conclude today's question and answer session. I would now like to turn the conference call back over to Mr. Patrick Downey for any closing remarks. Sir?

Okay. Thank you very much, everybody, and great to update everybody and sort of indicate where we were, where we're at, and how we've overcome a little hiccup and moved on from there. I really want to take an opportunity here to also talk Thank, Coris. It's very rare that you will get a senior lender like these people. They are a Burkina Bank. They've supported us right through this, and they've been very accommodating as we've sort of engineered our way through this little hiccup here. So I really want to send out a sort of word of thanks to them as we move forward here. Great bank, and the fact that they're local and can visit the site has been a huge positive for us. That's it. We look forward to updating you in the very near future, obviously with drill results and then obviously with the Q4 production and into 2023 guidance and production from here on in. So thank you very much and we'll close up at that.

And we thank you, sir, for yourself and to the rest of the management team for your time today. Again, the conference call is now concluded. Thank you, everyone. At this time, we may disconnect the lines. Thank you. Take care. Have a great day.