Orezone Gold Corporation

Thank you for standing by. My name is John and I will be your conference operator for today. At this time, I would like to welcome everyone to the Our Zone Q3 2023 conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker 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, please press star one again. Thank you. I would now like to turn the call over to Patrick Downey, CEO. Please go ahead.

Thank you, and welcome to the Ozone Q3 webcast and call. I also have today with me Peter Tam, CFO, who will be going through the financial and operational details. We will be making forward-looking statements today, and I encourage you to read these in your own time. I'll just go through a quick summary, and then we'll hand over to Peter. to go through the operational and financial details. But during Q3, we produced 30,726 ounces. Our gold sales were 29,167,000 at an all-in sustaining cost of US $1,306 per ounce sold. Our plant operated well, 13% above nameplate design, which for the rainy season, we were very pleased with. And our cash at the end of the quarter was $27.7 million. We also continue to have a very strong safety record during the quarter with zero LTIs and another 1.13 million hours worked without an LTI. We advanced in all our growth initiatives and I will walk through these in more detail later in the presentation. I'll now hand over to Peter to go through the financial and operating details.

Thanks Patrick. Q3 marked another quarter of profitable performance for the company. During Q3, we produced 30,726 gold ounces and sold 29,167 ounces at a realized gold price of $1,910 per ounce. Cash cost was $1,152 per ounce, and all in sustaining cost was $1,306 per ounce, for a cash margin per ounce of $604, or 32%. Revenue was $55.8 million with earnings from mine operations of $13.9 million after deducting the cost of sale of $41.9 million, which included $8.3 million in non-cash depreciation and depletion. Pre-tax income was $8.9 million and income tax expense was $2.7 million, resulting in net income of $6.2 million for the quarter. Net income attributable to ozone shareholders was $5.2 million after deduction for non-controlling interest of $1 million, Basic and diluted earnings per share was $0.01 for the quarter. With respect to cash flows, operating cash flows before changes in working capital was $16.5 million and after working capital was $7 million. Cash flow used in investing activities was $11.3 million and included spending on our two main growth projects for the grid power connection and resettlement construction and compensation. This reinvestment resulted in negative free cash flow of $4 million for the quarter. For the first nine months of 2023, gold production was 107,509 ounces, with gold sales trailing slightly below at 105,914 ounces. The average realized price was $1,922 per ounce, and cash costs was $936 per ounce, and all the sustaining costs was $1,088 per ounce. Earnings from mine operations was $81 million, and net income was $44.8 million. Basic and diluted earnings attributable to ore zone shareholders were 11 cents per share. Cash stood at 27.7 million at September 30th after quarterly debt interest payments of $2 million. Next slide, production and unit costs. On the mining front, 4.9 million tons were mined in the third quarter at a waste to ore strip ratio of 1.19. Mine volumes in Q3 were slightly below Q2 volumes as Q3 is the wettest quarter of the year. which affects productivity during rainfall events. To improve mining rates, we mobilized a second mining contractor to site on a temporary basis beginning in late July. The benefits of this decision are now being realized as Q3 volumes were ahead of budget and Q4 is shaping up to be a record quarter. In October, over 1.9 million tons removed, while November is on pace to exceed 2 million tons. On processing, quarterly ore tons processed was 1.45 million tons, which was a 4% improvement from Q2. The process plan continues to operate consistently above main plate design, and we expect this performance to continue into Q4. We continue to investigate for opportunities to make further incremental improvements in plan throughput, which in October included placing into service the mobile crushing system to treat ball mill scat stockpile in earlier months. We will also apply learnings from this past rainy season to enhance operating practices in future periods. On cost, mine site unit cash cost was $21.57 per ore ton process, which was a 3% increase quarter over quarter from Q2 cost of $20.91 per ton. Higher cost for those quarters was driven mainly on the mining front as unit mining costs increased in Q3 to reflect higher contractor management fees from the addition of a second mining contractor, higher pit dewatering costs, more drill and blast as the quantity of transition material increases, and greater grade control costs as more expensive contractor drills are utilized to keep pace with grade control requirements. Next slide. In terms of our 2023 guidance, our guidance remains unchanged in the quarter except for a reduction in our forecasted RAP spending. Specifically, we reaffirm goal production as tracking slightly above the low end of our production guidance of 140,000 ounces. We expect Q3 to be the lowest production quarter as head grades are expected to be better in Q4 for mine sequencing and greater ore release and reduced influence of artisanal depletion. All unsustaining cost is expected to fall within the midpoint of the guidance range of $1,100 to $1,180 per ounce. However, growth capital spending has been revised downwards from a previous range of $33 to $38 million to a lower and narrow range of $28 to $31 million. This revision is attributable to lower RAP spending as RAP construction is both below budget and behind plan, with certain 2023 construction spending shifting into 2024. With that, I'll pass the call back to Patrick.

Thank you, Peter. I'll just go through some of the growth projects and where we're at and what's happening. And the grid power connection, which is a critical project for us. All our towers are now completed. I'll show you some photographs in another slide. We've got the switching station well in hand now and the substation well advanced. We're trending on budget at 18 million. And commission and completion is scheduled for December. So we've got all of our teams ready in place for that now. Our forecast reduction in power costs will come from about 58 to 60 cents per kilowatt hour down to 21 cents per kilowatt hour, which will see a significant reduction in our all-in sustaining costs as we move forward into the year per ton. The system design, and this is critical for the oxide plant, which we're currently running, and for the Phase II hard rock expansion. And just to show you where we're at, This photograph was taken in September on the left. I was there then, actually. The last tower you can see in the bottom right-hand corner was in place. We were just working on the substation. The photograph on the right is early November. You can see all of the main connectors, insulators, and everything are in place. The line stringing is ongoing. The transformer for this site is landed in port and is in transit to site by truck now, and it should be in by this weekend. And our team is set up now for operational readiness connection and commissioning, which will occur in late November, December. RAP, as Peter said, it'll move into Q2 2024. This is really just because of the late start. We only got started in May of 2023. due to the late ceremonies that had to be performed on site. But really, progress from there on in has essentially been on schedule, but we are most definitely under budget and we will complete in Q2 of 2024. Very importantly, we announced our brownfields expansion. We will go from 5.9 million tonnes to 10.1 million tonnes. A very simple operation. essentially a mirror of what we've already got, with the exception of putting in a drug crusher and a sag mill in the front end, but everything else really mirrors what we've got on site. It's a very robust expansion. First of all, three years of 231,000 ounces, all in sustaining just under 1,100 an ounce. And we've got significant opportunities to increase production from these levels, which we hope to put out into the public market in the coming months. A life of mine production of 2.11 million ounces over just over 11 years. We're really sticking on schedule here. I'll walk through that in a little bit detail, but really we're aiming for first gold in Q3 of 2025. On the next slide, I'll walk through a little bit on the progress. Our debt negotiations and due diligence with our senior lender, Corus Bank, is progressing well. They are the senior lender for phase one. They are in country. They know us very well. We're very comfortable with each other. We expect a binding term sheet by the end of the year. Our SAG mill order was awarded to Metso, a very well-known mill fabricator, with a 52-week delivery from the date of order. So we placed that order at the beginning of November. Early bulk earthworks have commenced on site. And our front end engineering and design has been awarded to Lecapodium who completed all the detail engineering and the EPCM for phase one. In that regard, all the key consultants and the owner's team from phase one is expected to continue into phase two. And that's the team that delivered phase one on time under budget during COVID. So we hope and expect the same result for phase two. So that sort of concludes it. You know, as Peter said, we had a pretty good Q3. Bearing in mind it was our first quarter during a wet season operating the mill, performed very well. Now we're getting back into the proper mine sequencing in Q4. We're off to a roaring start in that. So I think we expect to have very good results and a good full year for ore zones first in 2023. Thank you. I'll now hand it back to the operator for questions.

This time, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Chris Thompson from PI Financial. Please go ahead.

Good morning, James. Congratulations on a good quarter. Just one little question. Just relating to the purchase power agreement, when do you anticipate getting that, or is there any potential for delay there?

The purchase power agreement with the in-country Sonobel?

Yeah, that's right, yes.

I think we're well. I think we've got that in IP.

We're well in hand on that, Chris. We actually have now a draft copy of the power subscription agreement with Sonobel. We're just working through the review of that, and we expect to have that in place sometime in December, well before we energize it.

Okay, great. And I wonder if you'd just help me sort of translate those kilowatt-hour cost savings into, I guess, per ounce.

Well, per ton processed, it's probably around $3, Peter, $3.50, I think, around about a ton. I think it takes, if you look at 140,000 ounces over this year, it would likely be over $100 an ounce, all in sustaining cost difference.

Yeah, actually be north of that. Yeah, so we're, you know, I think... You know, at a run rate of sort of $5.9 million, as we're expecting next year, we expect our savings to be, I would say, somewhere around $150 an ounce or so. Yeah. Okay. There you go.

Great. Lovely. Thanks, James. That's the guy who does the numbers. Right. Thanks, guys.

Okay. Thanks, Chris.

Again, if you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. Thank you. Your next question comes from the line of Alain Chartrand with OurZone. Please go ahead.

Yes, hello. My question is I want to know how the drilling is, exploration drilling is going and if we're going to get any results soon.

The which, sorry?

the exploration around the mine?

We completed all the exploration last year in regards to the resource update, and then we're looking now at where we would be drilling in 2024. That goes into the 2024 budget. So we really would only be announcing that, but obviously we've got some great targets to follow up on based on what we drilled last year. So we're really going to rank those targets and then come back with a budget and a program, it'll probably be done in, I would think, January, we'd look at it.

Okay.

Again, if you would like to ask a question, please press star 1. As there are no questions at this time, I would now like to turn the call over back to Patrick Downey for closing remarks.

Okay, thank you. Obviously, we look forward to updating everybody on the year-end results. Expecting a strong Q4. The next stage on the project development as our hard rock expansion continues forward. So it should be another... Busy and exciting year and quarter for Eurozone. Thank you very much.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.