Orezone Gold Corporation

Hello, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the ORA Zone Q1 2023 conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Patrick Downey, Chief Executive Officer. You may begin.

Thank you and good morning. Welcome everyone to Orzone's first full quarter of reporting of operations and financial performance. As stated, all figures are in US dollars and less stated. Today I have with me Peter Tan, Chief Financial Officer, who will be walking through the financial data and performance for Q1. I also have Ryan Goodman, VP Legal Administration, and Kevin McKenzie, VP Corporate Development and IR. I will be making forward-looking statements, so please have a read of this disclaimer in your own time. So firstly, just a quick walk through the summary of the Q1 highlights. Gold production for the quarter was 41,301 ounces. Gold sales were 43,139 ounces at an all-in sustaining cost of $926 per ounce. Our plant operated at approximately 13% above nameplate which is an exceptional performance and really a testament to the team down on site. Zero lost time injuries, and I'll walk through that later on and what it means. Our cash at the end of the quarter was $45.2 million, and we also repaid $9.8 million of principal senior loans. Also importantly during the quarter, we're advancing on all growth initiatives, the phase two expansion study, the grid power, and our phase two and three wrap. I plan to go through these, the above, in a little more detail later on in the presentation. So health and safety, we've had a solid safety record. I think, in fact, we're right up there with the best in the industry. In Q1, we had zero LTIs with 928,000 hours worked. Since taking records of work on the project, we have over 10 million hours now and over 1,600 days without an LTI. We are extremely proud of this achievement, and again, it is testament to the quality of our on-site leadership. We have ongoing safety initiatives, which we started right off the get-go from production, including emergency response training and mine rescue training. We brought in an international team who are experts in these areas to train, manage, and oversee these programs. And also, very importantly, we have a lot of ongoing local community training and awareness. We're building up our local community capability for small contracts and community work projects. And pre-qualification to tender includes safety training and an understanding of all our safety protocols and procedures. And with our RAP Phases 2 and 3, all of these contractors are local, which puts all of the money back into the communities. On this, I'll now hand over to Peter Tam. Peter.

Thanks, Patrick. On financial and operating highlights, the first quarter of 2023 was our first full quarter of commercial production, and it's reflected in our higher gold sales, production, and income figures as compared to the fourth quarter of 2022, where we only had two months of running operations. Our first quarter was strong financially, led by the sale of 43,139 gold ounces, at a realized gold price of $1,892 an ounce. Cash cost was $799 an ounce, and all-in sustaining cost was $926 an ounce, which resulted in a cash margin of $966 an ounce sold, or 51%. Revenue was $81.7 million, with earnings from mine operations of $39.7 million, after deducting costs of sale of $42 million. Pre-tax income was $28.5 million, which attracted an income tax expense of $2.9 million for the quarter. Tax loss carry-forwards available for immediate deduction have now been fully applied against income earned by our BOMBA rate operations over these past two quarters. Tax attributes from historical exploration and evaluation costs remain, but they are only allowed to be deducted over the life of mine for Burkina Faso tax purposes. As a result, we expect our effective tax rate and tax expense to increase in future quarters going forward. After income taxes, net income was $25.6 million and net income attributable to ORAZONE shareholders after deduction for non-controlling interest was $22.6 million. Basic earnings per share attributable to ORAZONE shareholders was $0.07 per share. Switching from earnings to cash flows, operating cash flow before working capital was $41.1 million and after working capital was $38.9 million. All this led to a healthy cash balance of $45.2 million at March 31st, 2023, meaning that we are well-positioned to fully repay our short-term senior loan as it comes due with Coors Bank in Q2, while continuing to fund our growth initiative. Moving on to slide six. Production and unit cost summary. On the mining front, 4.6 million tons were mined in a quarter at a waste-to-ore ratio of 1.1. Ore tons processed was an impressive 1.44 million tons, which exceeded nameplate by 13%. Average head grade was 0.96 gram per ton, and process recovery was a steady 92.2%, resulting in 41,301 ounces of gold production. Mine site unit cash costs declined 21% quarter over quarter from $23.93 per ore ton process to $18.92 per ore ton process, driven by greater mill throughput and lowering of fixed unit costs. Q4 2022 unit costs were higher as the process plan was still under commissioning for part of the quarter. We continue to control costs closely wherever possible, driven by improved operating practices for reagent dosage and consumption. Our unit consumption is below budget for all major reagents, including lime and cyanide, and this has had a positive impact on processing costs. However, we continue to see cost pressures from a strengthening local currency and from persistently high diesel prices in-country, which we had budgeted to fall in reaction to falling global oil prices in the second half of 2022. We have not yet seen falling diesel prices materialize. However, we will continue with our cost control efforts and we'll look for other controllable ways to manage costs. With that, I'll hand it back to you, Patrick.

Thanks, Peter. So now on to guidance. So based on Q1 performance, we are reiterating guidance with production being stronger in the first half of 2023, showing gold production guidance of 140,000 to 155,000 ounces a year at all sustaining costs of just over $1,000 to $110 per ounce. Sustaining capital is still projected at between $15 million to $16 million with growth capital of $33 million to $38 million. I just want to point out that that sustaining capital of $15 million to $16 million now includes a Phase III tailings lift which will allow us to save approximately $3 million over the two-year period and also provides us with the foundation for the growth that we're talking about later on in the project. Our growth capital includes $18 to $20 million for RAP Phase 2 and 3 and the grid power connection of $15 to $18 million. As Peter said, we really are setting the foundation for the future. We expect debt reduction of $33 million for 2023. We have repaid $9.8 million in Q1. Our RAPs Phase 2 and 3 allows access to the remainder of the mining permit, including the southern oxides and all of the hard rock on the project. Our grid power connection, which is expected to be completed in Q4, will materially reduce the life of mine power costs. And I just want to state that in Q1, our costs per kilowatt hour were 63 cents, which included diesel, rental of equipment, and operating costs for the equipment. With the grid power in place, we would be at approximately 20 cents. That's a 66% savings. Or if you look at Q1, if we were connected to the grid, Our all-in sustaining costs would be approximately $800 an ounce, which is truly best in class for a single-stage junior mining company who have just got into operation. It would equate to $20 million of savings per annum going forward. That's a significant difference. It would be about $150 of savings in all-in sustaining costs over the year. So a critical project. But really, where are we going with Orzona and Bombori? Well, it is truly the phase two expansion study. Our updated study is unscheduled for Q3 2023. This study will include an additional 100,000 meters of drilling since our 2019 feasibility study and resource update. The resource modeling is well advanced and mine design planning is now underway. Our metallurgical studies are essentially complete They have been excellent. These confirm the rapid leach kinetics that we expected. It supports a 24-hour leach versus the 42-hour leach in the 29 feasibility study. So if you look at that photograph, what we'll essentially be doing is replicating what we built for the phase one. So we know how to build it, we know what it costs, and we know how long it takes to build. So the major equipment, such as tank sizes, agitators, in-tank screens, pumps, etc., are exactly a replica of what we've just built. Our flow sheet is frozen. The equipment and capital costs are well advanced. We're actually going out for full detailed quotes on the long lead items, the sag mill, the jaw crusher, and the thickener. It is a simple process circuit, a primary crusher, single-stage sag, and a 24-hour leach. And it contemplates commonality of the leach circuit, the reagents, and all plant site services. So a pretty simple operation. We've completed all of the foundation geotech, not just for study, but for construction. So we're getting ready to start building this plant. And we've done the same for the TSF expansion. So all soil analysis and trenching and drilling is complete. And the design is well underway. So again, this will be ready to build. And it will be exactly the same as the existing TSF. It's just an extension of it. I also want to say that we will be using the same design and build team as the successful phase one plant, Lycopodium for the design and construction, Knight P for the tailings and onsite water management, and our own existing OPSA owners team. So with the same team, we expect the same results on time and under budget. So what does this mean? Our existing 2029 feasibility study contemplated Production of 134,000 ounces a year for the first 10 years with a three-year tail, based on 5.2 million tons of oxide throughput for the first three years, and then reducing to 3 million tons in year three, with a 2.2 million ton hard rock plant coming up to augment that in year two. That is no longer the case, and I strongly recommend you ignore it. The brownfields expansion will be the current oxide plant running at 5.7, current throughput, and maintaining that throughput, and a separate 4.4 million tonne hard rock plant contemplated. And we're targeting greater than 250,000 ounces of production per year. So it's a significantly different study from what we're talking about, and we expect to run right into construction of this study. Onto our projects update, which are critical to getting the next stage of expansion ongoing. A grid car power connection, which is obviously a critical project and serves both the oxide and hard rock. So there's no further capital for the hard rock on this line. All long lead items of equipment are now placed for this project. Our installation contracts have been awarded and mobilization has commenced. Our alignment survey is complete. and a ground clearing for the spur line of 23 kilometers will commence later this month. And as I stated, our grid power connection is scheduled for it to be energized in Q4 of this year, with future cost savings estimated between 60 to 70% from current onsite costs. RAPS phase two and three, the earthworks is complete for the largest village and all the water supply systems are in place. The contracts have been awarded to several local construction companies, and our main housing construction at MB3 is now underway. I'm not going to dwell on the next slides, but I really want to include them. You cannot build and successfully operate a mining project without strong support from the local communities, and I'm really proud of our record in this regard. As I say, I'm not going to dwell on this. I'm just going to flick through these slides, but they're included as an example of the work we have done and continue to do, which are critical to the support of the local communities. I'm really also proud to say that we have several technical people working on the plant and mining operations that are from these local communities that have gone through training programs. So it's not just jobs for drivers or drill operators, et cetera. We really are also focusing on education and giving long-term training and support for the local communities in the region. Again, that next slide shows you further work. All of our onsite uniforms are made by the local communities, which is great, and they are of a high quality, I must say. So in summary, Our zone has built a very simple and highly effective Stage 1 operation that is working extremely well. It is run by a strong and focused local team. We have very, very few expats on this project, I got to say. And our general manager is a local guy, and his team below him are generally local people. And they're doing a great job, as can be seen from our results in Q1. And we now look forward to fully bedding it in and advancing towards the next stage of growth, which is extremely exciting. We'll have further drill results in 2022, really along our oxide expansion testing of new targets. Our updated feasibility study is scheduled for completion in Q3, grid power in Q4, and RAPs phase one, but the critical aspects in 2023 with ongoing RAP in 2024. I've got to say we have also had preliminary discussions with our local lender, Corus Bank. We walked through the study with them and where we see the capital cost, et cetera, and they are very determined that they will be our supporting lender as we move forward here. So that will allow us to order lead equipment early on and keep our schedule on target for first goal from the expansion in the middle of 2025. With that, I'll hand it back to the operator.

Thank you. As a reminder, if anyone would like to ask a question, please press star then 1 on your telephone keypad, and we'll pause for just a moment to compile the Q&A roster. Again, star 1 if you'd like to ask a question. Our first question is from Don Blyth with Paradigm Capital. Your line is open.

Hey, Patty and team. Congratulations. An amazing first full quarter of production. You've done a pretty remarkable job getting this thing built during COVID. And the startup has gone remarkably smoothly, all things considered. Could you talk on just basically the geopolitical situation in Burkina tends to be getting worse. You are located at least in the best part of the country, if you will, central part away from the sort of problematic areas. But is there any sort of impact on your day-to-day operations just from the geopolitical standpoint?

Thanks, Don. No, actually, we've been in and out of country a few times, and we obviously keep a very close watch on everything. I would say that the current president is extremely popular with the local Burkina Be population, and they see him doing a really positive job in pushing back against some of the things that happened over the past couple of years. We also get that feedback from our local bank, who obviously have branches all over the country, and they give us feedback on what they see happening in the regions, and they echo that feedback. But obviously, the situation remains tense in the area and in the region. As you said, for us, we have not seen anything. We go in and out. We do not need armed escorts of equipment and materials and supplies. They just come directly in and out. Our operation has run extremely smoothly, very little turnover of personnel and no big supply delays. You know, I would say, Peter, our longest would be cyanide because it comes from Korea, I think.

Yeah, even then, it's not a long lead time required. So we're definitely well stocked.

Yeah, so our working capital remains quite steady throughout the quarters and the weeks. So we're running this as like a normal operation, to be quite frank.

Excellent.

Great to hear.

Again, that's star one if you'd like to ask a question. And it appears that we have no further questions. I'll turn it back over to Mr. Downey for any closing remarks.

Well, I hope the fact that there's no questions is everybody's as excited as we are with what we've achieved and what we expect to achieve. So that's great. Thank you very much. And we look forward to continuing to keep you updated on Orzone and Bombori's activities.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.