Orezone Gold Corporation

Thank you for standing by. Welcome to Orzone Q2 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 your question, press star one again. I would now like to turn the call over to Patrick Downey, President and CEO. Please go ahead.

Thank you and welcome to the ORAZONE Q2 results webcast. I will have Peter Tam, Executive Vice President CFO with me today on this call. As you know, we will be making forward-looking statements, so please read the disclaimer. So a quick summary of Q2 results. Our gold production for the quarter was 25,524 ounces, which was slightly ahead of budget for the quarter. Our gold sales were 24,937 ounces at an all-in sustaining cost of $1,613 per ounce sold, which I will go into in detail a little later in the call. Cash at the end of the quarter was $11.5 million. And we also repaid a further $4.9 million of senior debt. Critically, again, we had zero LTIs at 1.3 million hours worked. And we also completed the MB3 RAP. Again, I'll talk about that a little later on, which was essential for access to the southern mining area. And we remain on track to meet fall year 2024 guidance. So during the quarter, Our results were impacted by a number of factors, mainly the low grid power availability. As you know, we built a power line in 2023. We connected to the grid at the beginning of this year, which allowed us to have power at around 21 cents per kilowatt hour for the operation. But that grid power availability was quite low during the first half of this year, and in Q2 was 34% availability to the plant. and the mine. This was due to a temporary reduction in power exports from Côte d'Ivoire and Ghana, really due to the dam levels in Ghana and power plant issues in Côte d'Ivoire, which have also been explained by other mining companies in the region. This actually resulted in the use of higher cost on-site diesel power generation and impacted the all-in sustaining cost by approximately $110 per ounce. It also significantly impacted throughput due to the power interruptions, which totaled 176 hours of unscheduled downtime, or 8% of total plant availability. And this further impacted costs and production. However, I am happy to report that since July, we've had greater than 95% availability, and that has continued into August, where we're approximately 96% availability to date. which has resulted in throughput's steady state of 500,000 tons per month. And really, this is because of the ongoing onset of the rainy season, and we expect that to continue throughout the year. During the quarter, we also had scheduled lower grade. This was part of the mine plan due to mine sequencing, and mining was confined to the northern portion of the mine pyramid until we completed the wrap in the south. As you can see to the right, the MV3 community has been completed and is now fully occupied, and we've now got full access to Seega East. We've also got access to Seega South, and we're now doing all the grade control drilling there. MV2 is ahead of schedule and should be completed by October, which will give us full access to the southern mining zone. This will allow us to mine the higher-grade softer oxide ore from the south, which will result in greater ounces produced in the second half of 2024, and obviously a lower cost because these tons are softer ore, less drill and blast, easier through the mill, so that will result in the oil and sustaining costs coming back to our guidance for the year. I'll now hand over to Peter Tam to do the financial and operating highlights for the quarter.

Thanks, Patrick. Yeah, so on slide five, just touching on the main items, we produced 25,524 gold ounces in Q2, which we expect to be the lowest production quarter for the year. Gold production is expected to tick upwards as mining advances to the south, into SIGA East and SIGA South, which will provide access to higher-grade soft oxide ores. that will help boost head grades and lower the percentage of transition ore in the mill feed for the second half of 2024. All unsustaining cost per ounce sold of $1,613 per ounce was elevated this quarter due primarily to the low grid availability and high number of power interruptions. Including the effect of the high power costs and lower plant availability, all unsustaining costs would have been below $1,500 per ounce and in line with our internal budget The lower production combined with higher costs contributed to a sequential decline in revenue, earnings, and cash flows for Q2, partially mitigated by a higher realized goal price of $2,334 per ounce. In upcoming quarters, we expect improvements to revenue, production, all in sustaining costs and earnings for reasons stated earlier. Quarterly operating cash flow before changes in working capital was $15.3 million, and after working capital changes was a negative $51,000, reflecting the ongoing buildup of VAT receivables, long-term ore stockpiles, significant tax payment made towards our 2023 Burkina income taxes, and a general reduction in accounts payable. Next slide. For production and unit cost summary, mining was confined to the north until June, when mining primarily and waste began at SIGA East. All release from SIGA East is expected to wrap up in Q3 to be followed by the expected mining start at SIGA South in Q4. Plant availability, as stated in the previous slide, was hampered by power issues in the current quarter, which led to significant downtime. In response, our plant operating team continue to show their resiliency in the face of these challenges by taking initiatives to improve plant throughput, such as increasing the mill's power draw and reducing the retention time in the CIL circuit, amongst other initiatives. This led to a monthly record of 525,000 tons processed in June, with this better performance continuing into Q3. The main item on the cost that I want to highlight is that in processing, unit costs were expected to be lower in Q2, with the availability of lower-cost grid power after the successful energization of the transmission line to the national grid at the end of January. However, as explained earlier, grid availability was low in Q2 at 34%. which we estimated had an approximate $2 per ton impact to processing costs for the quarter. We expect a reduction in processing costs for Q3 and beyond as grid availability normalizes. With that, I'll hand the call back to Patrick.

Thanks, Peter. So I'll just give a brief update on a number of other key issues for the company that happened during the quarter. First of all, the hard rock expansion, which will be a 2.5 million ton hard rock expansion. We actually announced our financing package early in July. It's now fully financed, which includes a $58 million term loan with Corus Bank. It's a three-year term loan, interest rate at 11% per annum, and the first drawdown replaces and repays the existing bridge loan. We also announced a $47 million private placement with Naoka Resources, which was priced then at a 7% premium to market. We're now fully financed to complete the expansion, which is current estimated capex of $85 million. Early works is now complete. We've advanced the engineering and procurement. The four long lead items have been ordered, which includes the sag mill, the jaw crusher, vibrating grizzly, and apron feeder. The rest of the components are essentially similar to the oxide and will be ordered throughout the coming months. Major works will commence in Q3, and we expect to start pouring concrete in Q4, which will keep us all systems go for first gold in late 2025. Just briefly a quick look at the layout. Very simple plant. It's really partially a replica of the oxide, which is in gray to the left-hand side. We've got a jaw crusher at the front end, single stage, which will be sized for the full expansion of approximately 5 million tons per annum, then into a sag mill, and sag mill into five leach tanks, which are exact same size as the existing CIL with the same equipment, same intertank screens, same agitators, same pumps, et cetera. And we use the same gold plant that's existing. So a fairly simple, straightforward expansion that we expect to keep you updated on throughout 2024 and 2025. This will obviously lead us to a higher production profile over the next three years. Obviously, for 2024, we're guiding 110,000 to 125,000 ounces per year at an all-in sustaining cost of 1,300 to 1,375 per ounce. The expansion will result in strong production growth to 175,000 to 185,000 ounces per year by 2026. We will focus on deleveraging the balance sheet, paying down debt, building a strong treasury, and we also have a renewed focus on exploration The Stage 2 hard rock will really be built once we have reduced the debt from Stage 1. So we really want to use that and then use cash flow to build the expansion into Stage 2, which will take us to approximately 225,000 to 250,000 ounces per year. And we think there's ample room for growth beyond that, which I'll explain in the coming slides. So we announced a multi-year exploration program in late July of this year. Initial will be first past 30,000 meters. The drill rig is on site. We'll commence at Magga, which you see in the red rectangle, to the north. But we will be exploring the full 14-kilometer belt, which includes all the reserves right down to P17. I think we've got some very exciting targets. Even one of these would be a great target for any mining company. We've got approximately four main targets here. We'll be testing down to depths of 400 meters, likely below that as we go along. Just want to remind you that the reserves of 2.3 million ounces, which are done at $1,500 an ounce, are currently contained within pits to an average depth of under 40 meters, which gives you really the expansion growth that we face here in terms of what lies beneath those pits. We're really looking at the high-grade plunging subzones. We've identified several of these now. We're quite excited about targeting them. The first one, as I said, is MAGA. And if you look at a section of the MAGA pit, you can really see what we're looking at. The average depth of the MAGA reserves, which are the dark blue line, at a reserve pit of $1,500 an ounce, go down to an average depth of 100 meters. Very, very shallow, at a strip ratio of 2 to 1. But you can see the targets that we're looking at, they're quite clustered. They seem to form in groups. We're really focusing in on that. And you can see these targets are all outside of the reserve pit, or these hits outside of the reserve pit, and significant amount outside the resource pit, which is at $1,700 an ounce. So we will be infilling on these and targeting at depth below these. And that will continue right down throughout the project into SIGA, into P8, P9, and right down to P17 South, which is the highest grade portion of the ore body that we have discovered to date. So looking forward to that. It should be a lot of exploration results to the second half of 2024 into 2025 and beyond. So it should be quite an exciting year for the company as we also build phase two. With that, I'll hand you back to the operator for any questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your 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 one to join the queue. Your first question comes from the line of Jeremy Hoy of Canaccord. Please ask your question.

Hi, good morning. Thanks for taking my questions. First one from me is just wondering what you guys would identify as critical path items for stage one construction.

Good question. It is the sag mill, but we've actually purchased what we call a new used sag mill. It was bought and purchased for another mine, was never installed. We've gone down, we've done a detailed review of it, and we've now purchased that and we're shipping it down for some additional works around the refitting of the liner system that we need. So that would have been the critical item, but that has taken about seven months off of that critical timeline. So really now it's the jaw crusher, but that's not a long, long lead item. So the sag mill was, but we've removed that as part of the long lead.

Okay, fantastic. Thank you. And with the plan to access the SIGA pits in the back half of the year, you know, clearly you guys are confident in progress of the wrap. I was just wondering if you guys could provide a little more detail on what's happening there.

Well, the wrap is, MV3 is complete. The full move is done. I was down there. I visited it last month. It was very, very well executed. MV2 is ahead of schedule. As you do these things, you learn more and more about building houses. In fact, I think we could build a holiday resort right now in Mexico. We've got a system now that works extremely well for us. We're ahead of schedule on MV2. I can tell you with the very, very high confidence of the community in the company, these moves happen very fast. So once the houses are built, the community centers, the clinics, et cetera, are built, the actual relocation of the people occurs extremely rapidly. We really have nothing to do with that. They move it all themselves and they know exactly which houses they're moving to and it's all very well organized within the community. So we actually may be ahead of MV2, but we're just saying October right now, but we're easily on schedule for that.

Patrick, maybe one thing to add as well is MV3 actually involved the construction of over 1,200 structures. Yeah. And MV2 is actually much smaller in size, around 25% of that number, so around just 300-plus structures. So that's why we do expect that community to be constructed on a much shorter timeline than MV3. Yeah.

And the other thing is the MB3 community have given us permission to build access roads down to Seega South to do advanced grade control drilling, etc. So that keeps us well on schedule for our production for 2024.

Okay, great. Yeah, I saw that access was in place and that it started. On the exploration drilling You've got a rig there on site as of July, and if I remember correctly, it was 5,000 meters that was planned to be drilled around Mega in the first year. Just wondering what we can expect for the pace of release of results.

Well, the holes aren't that deep, but I would expect that we would be releasing first results late Q3, early Q4. We have a meeting this week on that, I think, Kevin. But I would suggest that that's when we release them in batches. We're not going to release them one hole at a time. So we'll wait until a certain batch is completed in MAGA, MAGA Hill. I can't remember which one's first. Is it MAGA Hill or MAGA? And once that batch is completed, we will release that full batch, which will really show what we're targeting. That's the key thing that we want to show here is what are we focusing on.

Okay, great. Thanks. That's it for me. Appreciate it.

Once again, if you wish to ask a question, please press star 1 on your telephone keypad. Again, it is star 1 should you wish to ask a question. Currently, we don't have any more questions from the line. I would now like to turn the conference back over to Patrick Downey for any closing remarks.

Okay, thank you. So that ends Q2. We look forward to the second half of the year. As I said, we've now got steady power, around about 96%. which brings our operating costs back in line to where we want to be. And we expect the throughput to continue to improve throughout the year and the grade to continue to improve throughout the year. And as I said, we will be announcing updates on the expansion as we go through the second half of 2024 and updating exploration results as well. So it should be a very busy second half of 2024 for Orzo. Thank you.

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