Orezone Gold Corporation

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Our Zone Second Quarter 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Patrick Downey, President and CEO. Please go ahead.

Thank you, and welcome to the Orozone Gold Q2 Results Conference Call. With me today, I have Peter Tam, Chief Financial Officer, who will run through the detailed financial and operating data later in the presentation. First off is our forward-looking statement, and I encourage you to read them. Health and safety, we had a very, very solid safety record and we continue to do so. 10.1 million, sorry, 9 million hours worked without an LTI. Q2 of this year, we had zero LTIs with over a million person hours worked during the quarter. This is a fantastic achievement for a young team and a well-deserved milestone for the group. Into the quarter. So the operational financial highlights, we had gold production of 35,482 ounces, gold sales of 33,608 ounces at an all-in sustaining cost of $1,109 per ounce. Our plant operated at 7% above nameplate. Our cash at quarter end was 32.3 million, and we also paid back over 19 million of principal senior loans. We also advance in all growth initiatives, including our expansion study, our grid power connection, and our next stages of our resettlement action plan. I will review these in more detail later in the presentation. I'll now hand you over to Peter Tam. Peter.

Thank you, Patrick. On to financial and operating highlights. We had another profitable quarter in the second quarter following a strong first quarter of the year. In the second quarter, we produced 35,482 gold ounces and sold 33,608 gold ounces at a realized gold price of $1,970 per ounce. Cash cost was $924 per ounce, and all-in sustaining cost was $1,109 per ounce for a cash margin per ounce sold of $861, or 44%. the company's gold sales remain unhedged. Revenue was $66.4 million with earnings from mine operations of $27.5 million after deducting cost of sales of $38.9 million. Pre-tax income was $19.7 million and income tax expense was $6.7 million, resulting in net income of $13 million. Net income attributable to ore zone shareholders was $11.4 million after deduction for non-controlling interest of $1.6 million. Basic and diluted earnings per share attributable to or zone shareholders were $0.03 per share. With respect to cash flows, operating cash flow before working capital changes was $25.2 million and after working capital was $20.2 million. Cash flow used in investing activities included our growth projects for the grid power connection and resettlement construction and compensation, totaled $12.4 million. This resulted in free cash flow of $8 million for the quarter. For the first six months of the year, gold production was 76,783 gold ounces, while gold sales were only a few ounces lower at 76,747 ounces. The average realized gold price was $1,926 per ounce. and cash cost was $854 per ounce, and all its sustaining cost was $1,006 per ounce. Earnings from mine operations was $67.2 million, and net income was $38.6 million. Basic earnings per share attributable to Orezone shareholders was $0.10 per share. Cash stood at $32.3 million at June 30th, after a $19.1 million of principal repayments on the course bank senior loans in the second quarter. Onto side six, I'll be talking about production and unit costs. On the mining front, we mined 5.1 million tons in the second quarter at a waste to ore ratio of 1.64. Ore tons process was 1.4 million tons, which continued to exceed the end plate performance, but down slightly from the first quarter as maintenance for the mill re-line and sizer shaft change-outs were undertaken. Average head grade was 0.87 grams per ton gold and process recovery was 91.1%, resulting again in 35,482 ounces of gold production. Head grades were down mostly from Q1 as the company depleted its stockpile of higher grade ore accumulated during construction, while recovery was marginally lower as the Beaumarie mine begins to encounter a greater quantity of transition ore as mining deepens in certain pits. Mine site unit cash cost was $20.91 per ton, which was a 10% increase quarter over quarter from Q1, cost of $18.95 per ton. Higher costs were driven mainly by more maintenance costs and lower throughput, and greater unit consumption of lime, grinding media, and power from the processing of more transition ore in the current quarter. With that, I'll hand this back to Patrick.

Thanks, Peter. So a little update on our guidance. So our all-in sustaining costs have been revised modestly upwards. This has been really due to some lower gold production and hit grades. Also higher budgeted fuel prices. Our fuel price in Burkina is significantly higher than other West African countries, and we have not seen any change in that. Also, our Forex and our government royalties as we've done our budgets at 1700 gold being above that is another 1% royalty on top of that, so that added a little to our guidance. Our gold production is expected to be the lower end of guidance, which is mainly due to unaccounted historical artisanal depletion, which we have really encountered in Q2. I'll go through that a little bit in the next slide and I'll show some detail there. And we're really setting the foundation for the future. We've reduced our debt by 33 million in two quarters. That's quite a significant achievement. Sorry, by 28 million. We have 33 million budgeted for 2023. Our WRAP progress is proceeding to allow us to access the remainder of the mining permit, including the southern oxides and the hard rock for the next part of the expansion. And a grid power connection will materially reduce our life of mine power costs going forward. So a little bit on the evidence of the historical artisanal activity. We really mainly evidence this in the H1 pit area, which is the highest grade pit on the project. Now below 40 meters down depth into that pit, so we see less evidence of that, but you can see this was something we had not accounted for going forward in that area. So it did affect our production in that period of time. The model is solid, I can tell you that, and we had a review by a third party. No issues expected as we move forward here. So really this was a depletion in an area of high grade in one particular pit. Okay. On to our expansion current, sorry, growth projects. Our 130 kV power supply project, we're tying into the national grid with a switching station right there, a 19-kilometer transmission line, and an on-site substation with step-down transformers. All major procurement has now been awarded. Deliveries are ongoing. Contractors are in the field and established and progressing well. and the substation work concrete being poured. Our foundations are going in for a power line. We expect to start the power line erection in late August, and we're trending on schedule and on budget. And this will significantly lower our ASIC going forward. Our phase two wrap, which is also critical to the growth of the company. All contracts have been awarded to local bidders. We made a particular effort to go locally for this type of work. We've over 1,200 structures to build. It was delayed due to community sacred rituals on the ground. Our owners team and contractors and additional contractors have now been put in place. And this photo shows what we progressed during June and July. So we really made most of the progress during that period of time. We expect an accelerated ramp up of construction for the rest of the year. On to the expansion study, which is really the future of the company and the next key value driver. It's on track for completion in late Q3 2023. The resource estimates are now complete. The mining pit optimizations are complete and design is in progress. And mine scheduling is expected to start in mid-August. Our metallurgical test work is complete, which has been a very strong positive for us. You can see the layout of the expansion right there on this photograph. The process and infrastructure design is complete and costing is well advanced in near completion and we expect the first draft of the capital cost in the coming weeks. We have firm bids received for the sag mill and prices in line with expectations. It is the long lead item and the critical path item. And our tailing storage is just an expansion of what we are doing today, but all the feed and geotech programs are complete, and the design is now complete. So it is a simple circuit. Originally, the 2019 feasibility study had us producing around about 134,000 ounces a year for the first 10 years. We're now targeting greater than 250,000 ounces per year. It's a duplicate CIL, exactly the same as we built in 2010. The CapEx per annual ton process, I expect to be probably around 50% of what you would expect to see on a normal CapEx project. So our return on invested capital will be one of the best in the business. There's lots more of exploration as well. We've got lots of targets based on the drilling that we did in 2022. So we have further targets to drill and future growth. So this is really only the next stage of expansion as we see for Bamboré. So that's it for Q2. Thank you for listening, and I'll hand it over for any questions.

The floor is now open for your questions. To ask a question this time, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Jeremy Hoy with Canaccord Gunny.

Your line is open.

Hi, thanks for taking my question.

I guess I'll start on the switch over to the power grid. Given the the full operating quarters that you've had, can you give us a rough idea as to the projected savings for power per ounce when Bob Borey switches over to grid power at the end of the year?

Yeah, thanks, Jeremy. Well, I think we did, operational-wise, just let me look at the number, 76,000 in the Over an annual period, based on what we're paying for diesel right now versus what the grid power would be, it's going to be about 20 to 22 million savings per annum. So that would be over Q1 and Q2, that would be roughly $150 per ounce reduction in all-in sustainings. So, I would expect going forward you'd be sort of looking at that range between $100 to $150 per ounce savings all in sustaining cost per ounce going forward.

So, quite significant. Yeah, no, absolutely.

Thanks for that. My next question, shifting over to exploration. So notwithstanding the near-term focus on advancing the Phase 2 expansion, what are the company's plans in terms of exploration moving forward? I do recall there was potentially a new geological understanding emerging of a unit associated with potentially higher grades.

Yeah, so we're actually sending – a third party in, I think it's next month, to review all of the results. We've got several targets, Jeremy, but we're going to review the overall structural setting of the deposit. We're seeing now this unit is now appearing throughout the length of the deposit. We really only thought it was confined to the southern end. That is not the case anymore. Particularly, we had it in P8, P9. We've had it in Maga Hill now. which is right up at the north. So we really want to figure out where is this all tied together. It's wide open in the south, I can tell you, and there's further exploration to go there. The last hole we drilled to the most northern end hole was 12 meters or 4 grams just below the surface, so it's still quite an exciting exploration project. But it's also really how does it tie into the rest of the overall structural setting. And we want sort of fresh eyes on that to look at it as we identify some of those targets. Some of them are easy targets to identify. We're really trying to figure out on a bigger, broader sense what this means for the deposit.

Okay, great. Well, I'm looking forward to seeing that story evolve. Yeah, thanks.

That's it for me. I'll hand it off to you.

Yeah, quite excited.

Okay. Our next question comes from Ron Stewart. with IA Capital Markets. Your line is open.

Good morning, Patty. Good morning, team. Congrats on the quarter. You guys are doing real well. Patty, I wonder if you can just talk a little bit to us about the situation over in Niger and how it's impacting or if it is having any impact at all on the situation in Burkina Faso. Lots of noise. Obviously, it's probably impacting the market and market sentiment towards things. Any impact at all?

We definitely haven't seen it. It's all quiet where we are. We have an office in Ouagadougou as well. Nothing there either. I think there's a lot of background diplomatic discussions going on. We understand or have heard that they're going to appoint a president which will be a non-military guy. So we think there is something happening there. There is noise around it, obviously, for us. I mean, it's West Africa. We're in the region. We just have to wait and see how it all ends up. But it's not affecting anything we're doing. There's been no delays in deliveries of equipment, supplies, et cetera, on the project at all. or in the country as far as I know.

Okay, well, that's good. That's kind of what I expected, but certainly it's kind of noisy. In respect of the project itself, I noticed that the retention time in the tanks is going to drop to about 24 hours to get the recovery. What's the current retention time in the oxides that you're processing right now? Is that similarly 24 hours? It's exactly the same.

It's exactly the same circuit, Ron. It is 24 hours. We do get the leaching occurring a little before that, but it's quite rapid kinetics. So it will be exactly the same retention. We will really have one extra tank. We're duplicating the circuit. So it's 4.4 million tons. So if we place the tons, we will have capacity for that if the mill performs better than planned. Really, where that came from, we originally had 42 hours, which was obviously a bigger lead circuit, more tanks, more equipment. But with the addition of oxygen into the tanks, that reduced that. The kinetic accelerated. So that's a big savings for us. So all the equipment, like the agitators, the tanks, the pumps, the top of tank steel work, is an exact replica of what we put in in 2022. Understood.

Listen, and I noticed that you're looking to bump the throughput to about 10.1 million tons per annum. Is that just optimizing the entire circuit collectively?

That's just using the current throughput through the oxide. The oxide is now really at a main plate of 5.7. We don't see it being anything below that. So we can feed it with that, with the oxide. So that's what we're going to do. And then the 4.4 on the hard rock, Obviously, we hope the hard rock, like every other plant in West Africa, also does 5% to 10% greater throughput, but we'll get to that when we build it.

All right. Well, listen, thank you very much. Keep up the good work, and congrats on the quarter. Let's hope things settle down for you.

Thanks very much, Ron.

Next question comes from Don Blythe. with paradigm capital. Your line is open.

Thanks. Hi, Patty. Congrats on a reasonably good quarter. A couple of startup bugs, but nothing too major. On the unexpected artisanal depletion, first, I assume this is entirely historical from before you started development. The site is secure. You don't have any current issues with the artisanals?

That is correct. Yes, look, there's nothing current at all. And we've actually, you know, when we moved all the artisanals off, we moved and they built a village elsewhere, etc. But, yeah, this is all historic. You know, we had mapped quite a bit of the, you know, the artisanal workings that we thought were there from when we got on the site. Obviously, there was more than we had thought because obviously there had been more going on before we got there. And it's really in one high-grade zone run. We don't have quartz really on the project, but there are little quartz stringers in this that are barren of gold, but it seems to be right along that quartz where they were mining. And it was quite a shock to us of mining. All of a sudden, this wood started coming out of the mill, and we realized we weren't getting the proper reconciliation on the grade. But we've mapped all of that now, and we're pretty comfortable where we are. But it's Absolutely historical. It's not going forward. There are none there.

Any sense of how deep they might have gone? You said the lower benches are showing less artisanal depletion.

We would say about 40 meters it appears based on our benching. We're mapping every opening. Now we're into the bottom. We don't see that now as frequent as we had when we were when we started going down into that one particular area, which is called H1. So the rabid worm that they had created in that area really doesn't exist below a 40-meter level on average. Excellent. Thanks.

And just on the grid power, what is the ultimate source of the grid power? Could there be any cost increases? Or do you have sort of locked-in pricing? And how reliable has that grid power been for other operations?

Yeah, the Burkina have locked in their prices. It's off of hydro, and Burkina contribute a solar piece to it, which they've built and have tied into the system, like actually two solar plants. And it's tied into two separate grids, and it'll be tied into the Nigerian grid in the next coming year. So it'll be a very, very reliable source. What others are tied into it? Well, if you want to look at Burkina, it would be Hyundai, Winyon, Yaramoko and Mane. If you look at those, if you really take Hyundai, for example, you see that the overall cost per ton in the processing plant, which is where you really see it, has not really changed in Hyundai over the years, around about $11 and something cents per, sorry, dollars per ton, simply because it's tied into that and it's not tied to diesel. If you were on diesel, you would definitely see that cost going up. And it's very reliable. We have talked to the other users of this. We've done a detailed analysis of this with an outside company that put in all of these connections called ECG, and it is very reliable in the 98% to 99% reliability. Once it's tied into the Nigeria grid, it will be pretty much 100% reliable.

Excellent. I'm sure you're looking forward to that. And I was impressed that's... a larger savings than I was anticipating.

Yeah, well, diesel prices have remained very high in Burkina. You know, we're around about $1.90 a litre, I think. In the region, it's around about $1.27. So Mali, Cote d'Ivoire, et cetera. You know, we were expecting it to normalize. You know, during the year, it didn't, which really affected our ASICs. We were predicting a lower cost. that did not occur, so it's really outside of our control, and that also kept our power costs at a higher level than we were expecting to produce. Obviously, we're in dispute with the guys who were originally to supply that power, and this will be part of our arbitration dispute, this higher cost that we're paying now this year versus what we should have been paying for the power this year.

Perfect. Thanks very much.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad.

We have another question coming in from Aline.

Clark Krantz with Retired. Your line is open.

Yes, hello. I'm quite pleased with the second quarter results. I'm just wondering about the royalties. Do the royalties go up with the price of gold if they go over $2,000? And what are the royalties now?

No, the royalties... Sorry, go ahead.

Yeah, go ahead. You can answer that one, please.

Yeah, so the royalties are capped out at over $1,700. So we had budgeted our 2023 production and costs at a $1,700 gold price, which assumed a royalty, you know, I think a maximum at that point was 5%.

Yeah, the royalties on gold sales or gold production in Burkina is actually 5% maximum. And so we've reached that level. If gold prices exceed $1,300, obviously we realize the gold price in the quarter above $1,900. So that's the maximum royalty we are paying. And on top of that 5%, there is another 1% local development tax. So overall, it's really 6% royalty on the top line there. So that's the maximum? But the higher the gold price, the bigger the royalty? Well, the bigger the dollar amount of the royalty. And so for us, in terms of our guidance in the all-in-sustaining cost, we had budgeted $1,700. As the gold price for 2023, obviously, we are well above that for the year to date. And so that obviously means that the dollar amount of the royalty costs have been higher than what we budgeted for. And that obviously has an impact on the all-in-sustaining costs that we've reported so far this year.

Okay. And you don't expect the government to increase the royalties to go over $2,000 as they need a lot of money?

No, we don't. We obviously monitor that in the Chimera Mines, which is very active in the country, but we have seen no evidence of that happening at this point in time.

Okay, and my final question is, from what I understand, we can expect the third quarter profits to be lower because of the previous artisan mining and the price of diesel. Is that so?

I think it is. Third quarter will likely be our probably lowest quarter. That's the rainy season, obviously, and then we ramp back up again in the fourth quarter. On a quarter-by-quarter basis, you can make what you want of it, but I think we're pretty confident where we're going overall for the year. That's really the mine plan, and you work to your mine plan. You generally mine in the upper part of the ore body in the third quarter, because you do have rain into the pits, so you don't mine at the bottom of the pits. You go back into the bottom of the pits once you pump them out in the fourth quarter. So all good, all part of the mine plan.

And what is the expected grade going to be going forward?

I think, well... Probably what we said we were going to generally average minus a little bit of artisanal depletion. And then we get back into the south in 2024, which allows us to get back into the higher grade in the southern end of the project in 2024. And then 2025, we've got the hard rock expansion, which obviously significantly upticks our grade.

Thank you very much. I'm quite pleased with the way things are going forward.

Thank you very much.

There are no further questions at this time. Mr. Downey, I turn the call back over to you.

Thank you very much, and thank you very much for everyone for attending today's call. We obviously are looking forward to a few key catalyst events in 2023 going forward. the release of our study, our expansion study, which we think is a major catalyst for us. Obviously, we're looking forward to our structural review of the project and where we go with exploration targets. And obviously, connecting to the grid, which is a major part of our all-in sustaining cost reduction going forward. So it should be a very exciting remainder of 2023 into 2024.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.