Orezone Gold Corporation

Thank you for standing by. My name is Hermione and I will be your conference operator today. At this time, I would like to welcome everyone to our Zone Q1 2024 results webcast and conference call. 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 a question, Press star 1 again. I would now like to turn the call over to Patrick Downey, President and CEO. Please go ahead.

Thank you very much and welcome to the ORAZONE Q1 2024 results conference call. With me today will be Peter Tam, CFO, who will be going through the financial aspects of the quarter. So during Q1, we had gold production of 30,139,000 ounces, which was right on plan. Gold sales of $31,229 at an all-in sustaining cost of $1,324 per ounce sold. Cash at the end of the quarter stood at $15.6 million. We also paid down a further $5 million of senior debt, which on top of the $34 million we paid in 2023, leaves us with approximately $56 million of senior debt remaining. We had zero LTIs during the quarter, worked of 1.4 million hours, which is another strong reflection of the operational excellence at the Bomboré mine. We also essentially completed the MV3 wrap. I'll talk about it in a little bit later on, but that now allows us access to mining in the south, and we're on track to meet full year guidance for 2024. We also announced that we'd be doing a phase two hard rock expansion. It'll be completed in two stages. We announced that last week. I'll talk about that later on in the presentation. And very importantly, we will be commencing another phase of exploration, which will be ongoing likely for several years, which will further unlock value at the operation. I'll now hand over to Peter.

Thank you, Patrick. Our financial and operating highlights. For the first quarter, we produced 30,139 gold ounces consistent with our mine plan and grades and sold 31,229 gold ounces at a realized gold price of $2,066 per ounce. Cash cost was $1,127 per ounce sold and all in sustaining cost was $1,324 per ounce sold. for a healthy cash margin of $742 per ounce, or 36%. Gold production in the first quarter was lower than the comparable quarter in 2023, as the prior period mill feed benefited from the reclaim of high-grade stockpiles, which were fully depleted by the end of June 2023. Revenue from gold sales was $64.7 million, resulting in earnings from mine operations of $26.9 million after cost of sale of $37.8 million. Cost of sales was comprised of $30.1 million in production costs, $5.1 million in government royalties, and $5.7 million in depreciation and depletion, partially offset by a $3.1 million write-down reversal to our long-term or stockpile inventory, driven by an increase in the consensus long-term goal price during the quarter. Pre-tax income was $20.4 million, and then after-tax net income was $13.6 million. Net income after minority interest was $11.7 million, and basic and diluted earnings per share were both $0.03 for the quarter. In terms of cash flows, operating cash flows before changes in working capital was $20.4 million, and after working capital was $13.6 million. Cash used in investing activities was $11.6 million, which included growth spending of over $6 million for the ongoing RAP, finalization of the grid power connection, and early works for the Phase II hard rock expansion. This resulted in free cash flow of $2 million for the current quarter. As stated by Patrick earlier, cash at March 31, 2024 stood at $15.6 million after principal repayments on a Coors Bank senior debt of $5 million in the first quarter. To improve our cash position and near-term liquidity, the company closed and drew upon an XOF-denominated bridge loan of approximately 20 million U.S. with Coors Bank after the end of the quarter on May 10th. We are in advanced discussions with Coors Bank for the project loan on our Phase II hard rock expansion and expect to conclude a binding debt commitment before the end of June in order to allow the expansion to proceed. Next slide. Production and unit cost summary. Operationally, for Q1, we mined 5.5 million tons at a trip ratio of 1.3. Mine tons were 20% higher than the same quarter in 2023 as mining rates in the current quarter were increased by the assistance of a second mining contractor that mobilized the site in July of last year in order to help keep pace with the mine plan. For processing, we processed 1.36 million tons in Q1 2024 at an average head grade of 0.78 grams per ton gold with a recovery rate of 89%. resulting in gold production of 30,139 gold ounces. When compared to Q1 2023 gold production of 41,301 gold ounces, gold production declined by 27% due to an 18% decrease in head grades, a 6% decline in plant throughput, and a 3% decrease in plant recoveries. The reclaim of higher grade stockpiles as supplemental mill feed contributed to the higher head grades in 2023, As for plant throughput and process recoveries, they are lower in the current quarter due mainly to the greater proportion of transition ore as mining deepens in certain pits and lower plant availability experienced in the quarter. Specifically, the presence of harder transition ore results in slightly lower metallurgical recoveries, lower plant throughput, and additional plant maintenance, while plant availability was also impacted from commissioning activities to connect to the national grid in January. followed by the unexpected shortage of grid power from Sanibel beginning in March. We do expect, however, planned throughput, head grades, and recoveries to improve from a greater blend of oxide ore once mining commences at SIGA East in Q3 2024. From a cost perspective, all unsustaining cost per ounce sold was $1,324 in Q1 2024, a 43% increase when compared to Q1 2023 all-in sustaining costs of $924 per ounce. The higher all-in sustaining costs is attributable to lower gold production, greater per ounce royalty costs from the new royalty rates that came into effect in October 2023, and increased mining costs. Unit cash costs covering mining processing site G&A was $21.05 per orton process in Q1 2024, an increase of 11% from $18.96 per ore ton in Q1 of 2023. The increase is due to the higher mining and site G&A costs and from fuel ore tons process. Mining costs have moved higher as lower benches are mined, resulting in longer hauls and more transition material that requires drill and blast prior to excavation, combined with a higher strip ratio and more contractor management fees with the use of two mining contractors. Site G and A costs reflect greater security spending as mining and RAP activities progressively increase in the southern half of the Bonebrae mining permit. Processing costs per ore ton have remained relatively steady from $9.21 per ton in Q1 of 2023 to $9.24 per ton in Q1 2024. Unit processing costs were expected to decline in Q1 2024 from 2023 levels upon connecting to the national grid at the end of January. However, power cost savings were offset by the greater blend of transition ore, resulting in higher per-ton consumption of power, grinding media, and main reagents, more plant maintenance to address higher equipment wear, and from lower plant throughput. Furthermore, the mine relied on more self-generated power using diesel beginning in March from the lower-than-expected availability of the national grid towards the end of the quarter. We do expect unit cash costs to improve once full mining access commences at Tiga East, with greater release of near-surface oxide ore from the starter pits in this area, beginning in the second half of 2024. With that, I'll hand it back to Patrick.

Thanks, Peter. I'd now like to walk through our expansion plans and our exploration plans for the coming year and beyond that. So, obviously, we built the oxide plant. It's up and running, running well. We did it on time, under budget. We're now planning for a phase two expansion stage one hard rock plant. It is completely independent at the front end, and it combines the back end. I'll show you a little bit of a simplified flow sheet later on. And then stage two will take us to above 225, but we're not exactly sure the full run rate will be, but it'll be better determined by ongoing exploration. And the exploration, we're really looking at how do we unlock the value of this project. We had some phenomenal drill results right up to the end of 2022. We've done no drilling really since then. And we're looking forward immensely to restarting exploration in Q3 of this year. So we announced last week our staged expansion plans. Strong production growth up above 170,000 ounces a year by 2026. It'll take about approximately a year to build this Phase 1 plant. The focus will obviously be on deleverage in the balance sheet, building an ongoing strong treasury. There's obviously a renewed focus on expiration, and then we'll evaluate the timing and size of Phase 2 as we unlock the value from the expiration and look at how Phase 1 performs. So stage one, a very simple flow sheet. It somewhat mirrors the oxide plant. The only real difference is we've got a jaw crusher in the front end. We have a sag mill, which we have identified now. And once the debt package is signed, we'll move on that very quickly. Five leach tanks, which will be exactly the same size as those in the existing plant. And then the existing gold recovery circuit is capable of processing all the carbon from both the Stage 1 hard rock and the oxide plant, so no further modifications required there and no further infrastructure required. So it's a very modest capital cost to add 2.5 million tons of high-grade hard rock to the plant. And then we can expand it by adding a ball mill and a pebble crusher and a number of other tanks, et cetera, and we can bring it up to 5 to 7 million, depending on what size this looks like in a couple of years' time. So very flexible from the point of view of expansion. So we're really positioning ourselves for growth going forward. A solid Q1 sets the platform for 2024. The wrap is now complete. We actually had the key handover ceremony this past weekend. We've been able to get in and put in some of the mine infrastructure, including the mine haul roads and do the advanced grade control. The community were very accommodating to us in that regard. They will now start moving to their new houses. The chief has taken the keys in that ceremony, which gets the move going. It may get us in a bit earlier, so we're hoping to do that, to get into that softer, higher-grade ore in the south for the second half of the year. As I said, stage one is announced. We'll start construction. We have started early works already. We have done upfront engineering. We have identified our sag mill. I think we've got our jaw crusher vendor selected, and then the rest is exactly the same equipment as the oxides, so we'll just be buying from those vendors So it should take about 12 months to build. Same team has built the Phase 1, so right on cue to get going here. Approximately 80 million of CapEx, which will be funded from debt and cash flow, with first gold in late 2025, which will push our production to above 170,000 ounces a year, probably closer to 180,000 in 2026. And then excitingly, we'll be starting an exploration campaign in Q3. We identified some great targets from our drilling in 2022, some brand new targets to follow up on, follow up on what we did at P17, which we expect to add high-grade ounces there. The phenomenal thing about this deposit, we've got 2.3 million ounces of reserves to an average depth of less than 40 meters, which really gives you an idea of the strike extent and the footprint of this project. The multi-million, approximately 5 million ounces of resources down to a depth of less than 200 meters. And during that drilling in 2022, we identified several high-grade targets along strike, mainly around P17, P8, P9, and MAGA. which we want to now follow up on by doing this project in stages, which will give us the opportunity to do that, and we will go after that starting in Q3, which will really, I think, start to open up the exploration and size potential of Bonvore. So it should be an exciting year. We are positioning ourselves for growth. We've got the support and strong support of our local bank, Corus, and the plant is running and running well, so we're pretty happy with that. As Peter said, we have a little blip with the power. That was nothing to do with our power supplier. It was really to do with the feed from Ghana. I think everybody else experienced it in the area the first time that it happened. So we hope that that smooths out here and keeps us running smoothly for the rest of the year. I'd also want to take this time, we announced a board change with Mike Halverson stepping down, and I really want to thank Mike. He's been at my side now the whole time I've been at Orzone. He's been a phenomenal guy to work with. He will remain as chairman emeritus, which is a testament to how well he has served this company, and I look forward to working with Mike in the future. But a big thank you out to Mike there for his stellar work throughout his time at Orzone from its formations. Thank you, and I'll hand you back to operator for questions.

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and turn the key. If you would like to return a question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Jerry Mahoy with Panacard Genki. Please go ahead.

Hi. Thanks for taking my question, Patty. Yeah. A quick question on the RAP program. There was just a bit of a delay due to some blessing ceremonies for MV3, which is the first of three stages. Any impact expected for the second two stages from having to do similar ceremonies?

Not that we know of, but you can never really plan these things. I mean, we were... It didn't really affect phase one because of COVID, so we had a lot of extra time to get it done. So it never really came up on the agenda. But now that we know about it, obviously, we'll be looking to start it earlier. And these things are really down to the community. Jeremy, they... We'll determine when the various people can come out to bless the ground, etc. And I don't know how it all works, to be frank with you, but you have to respect all of their customs, and which we do. But we caught up most of it, to be honest with you. Our guys did a hell of a job in terms of the construction, etc., And the key ceremony, which again takes a bit of time with the chief, that happened very quickly. They were very cognizant of our timing. So we will look into it. We don't expect it to delay anything. The other key thing is that they are very small villages further on, so we're not expecting a major delay there. You learn more about this construction as you go on and what you can do, so we're pretty comfortable we can deal with it.

Okay, that's helpful, Colin. Thanks. My next question is on stage two of the phase two expansion. So I think it's pretty clear what to expect from stage one, and we'll look for finalization of the debt financing from Chorus. But on stage two, I was hoping for a little more color on how you're thinking about that. Is that contingent on finding additional resources, or does that look attractive even with current resources? And, you know, when could we expect to see a potential CapEx number for that and additional technical details? Any color you have on how you're thinking about stage two would be helpful. Thanks.

Okay, well, stage one right now is 2.5 million tons per annum. We can expand that up to around six or seven. We could do it very simply at five by just adding a ball mill and tanks and another elution column. That would be a fairly... Maybe 100 million, maybe less than that. But obviously with the drilling, right now we've got a large resource base. We're redoing all of our reserves at 1,700 or just around 1,700, sort of below the long-term gold price, but still reasonable. That has probably added close to 40 million tons to our reserve base. So we can go to likely around six or seven million tons. It's really round about where do we see the upside. I mean we had a couple of big hits outside in the foot wall of P8, P9 in a large granite diorite block. We really don't know what that is and where it's gonna go and how it sizes up that pit. So it could be larger but it likely will be between 5 to 7 million tons per annum. If it's 5, it'll be somewhere around 100. If it's 7, it'll likely be something around 140. That would be our current sort of rough estimates.

Okay, that's really helpful, caller Patty. Thank you. And that's it for me.

Okay, thank you.

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Someone popped in. Our next question comes from the line of Alan Harkin with Arizona Mining. Please go ahead.

Yes, good morning. I'm saying we should be happy the price of gold is up, but I'm wondering with the expansion, $80 million plus the debt you already have, with the low cash flow, how long do you think it will take to pay back the debt?

Well, obviously, the cash flow goes up with the expansion because we're pushing the production. The grade goes significantly up with that hard drop, particularly coming from P17. So all of that model has gone to the debt provider, and so that's where the debt package comes from. So they understand, and they use a different gold price than we do. Obviously, Alan, they take a bit more conservative approach to these things. We're fairly confident on that debt. The debt package is provided by the lender based on the model that we give them that they review, and they put their gold price to it. That's where we see that. We're pretty confident and comfortable ourselves with it. I think the bank is very comfortable with it.

I'm just wondering how many years you think it'll take to pay it back at the price of gold, $2,300. Have you made any calculations?

$2,300 would be very quick.

Yeah, we're just working on that to finalize all of that. But I would say, look, if we get the Phase 2 expansion Stage 1 completed in late 2025, we'll be generating significant production and cash flow starting in 2026. And I would expect with the debt we have now and the additional debt we expect to receive from Chorus for this expansion, we'll have the... the combined debt repaid sometime in 2027.

And lastly, I just want to know about the grades. Are you going to be able to bring it up to one gram with the exploration you've done for the oxide?

No, there's very little exploration in the oxide. We're really focusing on the hard rock. The oxide, there are other oxide targets that we have not really fully drilled. We will look at those at some later date. That's not the focus at this point in time. But we're generally comfortable with the oxide grades in terms of production now and what it does. It's really the focus on the hard rock, which will drive the cash flow as we go forward.

So the grades will stay around a 0.8 then? Okay. Thank you.

Okay.

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I will now turn the conference back over to Patrick Downey, President and CEO, for closing remarks.

Okay, thank you, everyone, for listening in, and we look forward to a strong 2024 and commencing the Phase 2 expansion and the drilling in the second half of this year. It should be a very exciting news flow-filled year. Thank you.

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