Orezone Gold Corporation (ORZCF) Q4 2023 Earnings Call Transcript

Orezone Gold Corporation (OTCQX:ORZCF) Q4 2023 Earnings Conference Call March 27, 2024 11:00 AM ET

Company Participants

Patrick Downey – CEO
Peter Tam – CFO

Conference Call Participants

Kul Gill – TD Securities
Sean Fieler – Equinox Partners
Bryce Adams – CIBC
Alex Terentiew – PI Financial

Operator

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orezone Gold Corporation’s 2023 Year-End Results and 2024 Guidance Webcast and Conference Call. [Operator Instructions]

I would now like to turn the conference over to Patrick Downey, CEO, Orezone. Please go ahead.

Patrick Downey

Thank you, and welcome, everybody, to the webcast and conference call. Obviously, we will be making use of forward-looking statements in this presentation, so please read at your leisure. So a quick summary of Q4 and full year 2023 results. We finished the year very strongly. Q4, we had gold production of 33,916 ounces.

Our gold sales were 33,782 ounces at an all-in sustaining cost of $1,246 per ounce sold. And at the end of the quarter, we had cash of $19.5 million. 2023 was a very strong year, first full year of production for the company. We achieved our production and cost guidance. Production was 141,425 ounces, at an all-in sustaining cost of $1,127 per ounce sold.

Our plant operated extremely well at 11% above nameplate design. We had zero LTIs with 4.4 million hours worked for the year. And we repaid $33.8 million of senior debt, leaving us with $62.3 million outstanding at the year-end 2023. We also released a robust Phase 2 hard rock expansion during the year.

I’ll now hand over to Peter Tam, CFO, who will walk you through the financial and operating highlights.

Peter Tam

Thanks, Patrick.

For Q4, we produced 33,916 gold ounces, up 10% from Q3 and sold 33,782 gold ounces at a realized gold price of $1,986 per ounce. Cash cost was $1,083 per ounce and all-in sustaining cost was $1,246 per ounce for a cash margin of $740 per ounce or 37%.

Revenue was $67.6 million with earnings from mine operations of $16.1 million after deducting cost of sales of $51.5 million. Cost of sales consisted of $31.4 million in production costs, $5.2 million in government royalties, $6 million in depreciation and depletion, and an $8.9 million noncash write-down to net realizable value on our long-term stockpile or inventory, which is projected to be processed at the end of mine life.

Q4 royalty costs reflect the increased royalty rates in Burkina Faso that came into effect in October 2023. Net income after minority interest was $4 million and basic and diluted earnings per share was $0.01 for the quarter.

In terms of cash flows, operating cash flows before changes in working capital was $21.9 million and after working capital was $13.9 million. Cash used in investing activities was $13.4 million, which included spending for the grid power connection and our ongoing RAP. Reinvestment in these growth projects, along with our sustaining capital resulted in free cash flow of $0.7 million for the current quarter.

For the full year of 2023, our Bomboré mine and team delivered an impressive set of financial and operating results, marked by the production of 141,425 gold ounces and sales of 139,696 gold ounces at an all-in sustaining cost of $1,127 per ounce. Both production and all-in sustaining costs met the company’s published guidance.

The average realized price per ounce sold was $1,940 per ounce, resulting in a strong cash margin of $813 per ounce or 42%. The company’s gold production remains fully unhedged, which has benefited from the further run-up in gold prices in early 2024. 2023 earnings from mine operations was $97.2 million after the previously noted write-down in long-term stockpile.

Attributable net income was $43.1 million after deductions of $13.2 million for income taxes and $6.5 million for minority interest. Basic and diluted earnings was $0.12 per share after minority interest.

Operating cash flow before changes in working capital was $104.8 million and after changes in working capital was $80 million for 2023. Free cash flow after deducting CapEx from operating cash flow was $36 million. Cash ended the year at $19.5 million after principal repayments totaling $4.9 million on our senior debt in Q4.

Working capital at December 31, 2023, was a negative $30.5 million. Significant amounts contributing to this working capital deficiency include $20.2 million in scheduled monthly repayments in 2024 on the Coris Bank senior debt, an $8 million accrual to Genser Energy that is under dispute.

As a reminder, we have launched an arbitration claim for damages against Genser for their failures under the previous power purchase agreement. And $10.9 million in VAT receivable re-class from current to noncurrent due to the timing uncertainty of VAT refunds in Burkina Faso. These three mentioned amounts total $39.1 million.

As noted in our Q4 disclosure documents and in our press release on March 26, the company continues to work collaboratively with Coris Bank, our senior lenders, to secure the additional requisite financing for our Phase 2 hard rock expansion. In the interim, to strengthen the company’s current cash position and to allow the company to continue with its 2024 business plans uninterrupted, we are in advanced stages of securing a bridge loan from Coris Bank and expect to announce a loan closing and first drawdown later in April. Next slide, please. Production and unit cost summary. Operationally for Q4, firstly, for mining, 5.9 million tonnes were mined at a strip ratio of 1.1.

Mined tonnes in Q4 were 21% higher than the previous quarter as Q4 mining rates benefited from the addition of a second mining contractor, mobilized during Q3 and from the end of the rainy season in October. The higher mining rates resulted in greater ore release and delivery of better ore grades to the mill.

For 2023, 20.5 million tonnes were mined in accordance with our mine plan. For processing, Q4 ore tonnes processed was 1.45 million, nearly identical to ore tonnes processed in Q3. Average head grade in Q4 was 0.82 grams per tonne gold, up from 0.74 grams per tonne gold in Q3, while process recovery remained steady at 88.9% for both quarters.

As mining deepens in certain pits, the quantity of harder transition ore is increasing, which results in slightly lower metallurgical recoveries, along with greater consumption of power and steel balls for grinding and major reagents for gold extraction. For cost, mine site unit cash costs covering mining processing site G&A was $22 per ore tonne processed in Q4, which was a 2% increase quarter-over-quarter from Q3 cost of $21.57 per tonne.

The higher unit cash cost is attributable to greater reagent consumption, [indiscernible] more transition ore, higher planned security spending and from the recognition of a year-end inventory adjustment to parts and stock, offset by the benefit of a lower strip and unit mining costs in Q4.

With that, I’ll hand it back to you, Patrick.

Patrick Downey

Thanks, Peter.

So in terms of 2024 guidance, our gold production guidance range between 110,000 to 125,000 ounces at all-in sustaining costs of between $1,300 and $1,375 including sustaining capital of between $14 million to $15 million and growth capital, excluding the Phase 2 expansion, of $16 million to $17 million.

For sustaining capital, the major items are $5 million to $6 million for ongoing tailings lifts and $6 million for mine equipment and infrastructure, which includes two new grade control drill rigs, a new explosives magazine and extension of the main haul road into the southern area for mining in 2024.

Growth capital includes the continuation of Phase 2 RAP, which I will go into a little detail on the next slide and associated compensation and livelihood restoration programs associated with that movement of villages. Our guidance for the Phase 2 rock expansion would be provided once all the debt and binding commitments are received and Board approval has been received at the Board.

And bulk earthworks have been completed, and front-end engineering and design remains ongoing. So in terms of our 2024 guidance, in 2023, we mined exclusively in the northern portion of the property shown by the large blue square. Mining in H2 continues to be centered — sorry, H1 continues to be centered in the northern portion in 2024. We were hoping to have full access to all of the southern portion of the deposit, but we will now have staged access due to the timing of the RAP. Really, that’s the only issue that we have.

And we will be mining in the Siga portion in the second half of 2024 following the relocation of the MV3 community in that area. Overall, what happens is we pushed a lot of the higher grade that was planned to be mined in 2024 into 2025, particularly in the southern area of the deposit, which means that we have to mine some more transition over in the North during 2024 with a slightly higher strip ratio and obviously slightly lower recovery, as Peter said, which does affect the all-in sustaining cost for 2024. So in terms of outlook, we obviously had an excellent first year at Bomboré. It has really set the foundation for the growth of the company. We achieved our guidance of 141,000 ounces at all-in sustaining costs of just over $1,100 per ounce sold.

We have over 14 million hours worked without an LTI, including 4.4 million in 2023. We’ve now established our grid power and finished our commissioning during Q1. And we’ve materially deleveraged the company by reducing the senior debt by $33.8 million during that year. So during 2024, $57 million remains — debt remains by the end of Q1 2024. We will finance and start construction of Phase 2 hard rock expansion.

We’ll be evaluating an exploration program. We’ve completed a Phase 1 structural — geological structural review of the Bomboré deposit. I’d like to remind everybody, this is a 14-kilometer long system. The average depth of the reserve in the study released in 2023 was 38 meters. So it’s still wide open.

We have completed some early work, and we expect to release some of these results in the coming weeks in regards to that. We’re quite excited about what we see here, and Bomboré remains open very much so. And we do continue to evaluate accretive M&A opportunities in the West African region. We do believe we will be part of that — the M&A that continues to proceed in West Africa and there are some very interesting opportunities as we look forward to 2024 and 2025.

With that, I’ll hand it back to the operator. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question is from the line of Kul Gill with TD Securities. Please go ahead.

Kul Gill

Hi folks. Just a quick question for me. Just on the potential financing package that you’re going to announce later this year, is that still going to be 100% debt? Or are you looking at maybe a mix of debt, equity, maybe a stream or alternative financing? Any details you can provide on that would be appreciated.

Patrick Downey

Yes. No, absolutely, it will be just a debt with our current lender plus cash flow from the operations as we proceed through 2024 and 2025. Obviously, we’re looking at that quite closely how we execute on that. But we will not get ourselves in. It will be a very disciplined expansion, prudent and disciplined, so no equity, no streaming and no royalties.

Operator

[Operator Instructions] Your next question is from the line Sean Fieler with Equinox Partners. Please go ahead.

Sean Fieler

So your income tax that you have due, is that Canadian or is that in Burkina? And when exactly does that due that $18 million? It’s a current liability, but can you give us some sense in terms of what kind of cash obligation that is for you guys?

Patrick Downey

I’ll let Peter answer that. Peter?

Peter Tam

Yes, Sean. So that income tax liability, you see at the end of 2023, that entirely relates to our Burkina operations and the income that we earned in the 2023 year and that payment is coming up due on the year-end filing later in the second quarter.

Sean Fieler

And how does it — how does income tax filing work in Burkina? Is it you just show up with a check on the day or you file and pay later? Or how does that work from a cash flow perspective?

Peter Tam

Yes. So in terms of that question there, Sean, we are in discussions with the Ministry of Finance. We right now have a substantial amount of our working capital tied up in VAT receivable. And so the plan now is to be able to use that and be able to offset that against the tax liability that is coming due in Q2 here. So — and that amount is due at the time of the filing of the 2023 return, which must be done before the end of April of this year.

Operator

Your next question is from the line of Bryce Adams with CIBC. Please go ahead.

Bryce Adams

Just one question. With regards to the MV3 resettlement and then the mining in the second half of this year, how much buffer room do you have in that time line? Is there a fair bit of wiggle room? Or is it pretty tight?

Patrick Downey

No, in terms of where we’re at in the 2024 mine plan, we’re pretty comfortable with that part. MV3 is almost finished. It’s really is the next village done. And it really all gets down to just these sacred ceremonies that they have to have and various shamans that come in and do various things, we were delayed on that. So we couldn’t get in to get that in and get built. So we really — we were hoping to get MV3 and MV4 completed and MV4 is a smaller village. It’s unfortunate. It would be quite simple to do. MV3 is the main one. I think we’re pretty much done on all the construction.

We’re going to start moving people at the end of Q1 into Q2. So we’re fairly comfortable with everything in that regard. It’s really the southern portion that we didn’t have confidence in, and we’ve taken it out of the mine plan for 2024 and moved it into 2025.

Bryce Adams

Thank you so much.

Operator

Your next question comes from the line of Alex Terentiew with PI Financial. Please go ahead.

Alex Terentiew

Yes. Good morning. Just got a question for you as it relates to your mine plan, thinking about cash flows and the cash flow that you expect to generate to help fund the Phase 2 expansion. So you noted grades for this year, a little bit lower because of delayed access to the southern zone, a little bit higher strip. The additional tonnes that you’re mining this year, were they to be mined in 2025? I’m just trying to think of 2025, I believe the mine plan had for a higher strip and slightly lower grade anyways. So would it be fair to lower the anticipated strip for next year? Or these tonnes that are being mined this year, where do they fit in the mine plan?

Patrick Downey

Yes. Yes, we’re just working on that right now. Alex, great question. Well, obviously, will be a positive effect as we move them into the higher grid with lesser strip in 2025. So we’re really just pushing those into there. We’re finalizing that plan right now. Obviously, we were hoping to get all that done this year. So we’ve had to change our nine plus three planning on that regard. We are doing ongoing grade control.

The other thing you should know is we — as I said to you, we are doing additional drilling based on some new thoughts around the deposit, and we will release some of those results next week or the week after, likely next week, which I think will show where we can improve things quite a bit. So just wait for that as well.

Operator

[Operator Instructions] Your next question is from the line of Alan Chartrand. Please go ahead.

Unidentified Analyst

I was inquiring about what the income tax rate is and if it’s changing every year? And also, I wanted to know about the expansion, when is it going to be completed for the second phase and whether or not you’re thinking of delaying it more until the interest rates go down lower?

Patrick Downey

Okay. So the tax — effective tax rate in Burkina right now for us under the current mining code is 27.5%. The royalties at $2,000 gold are 7% plus a 1% development fund. Would we delay it? No, we will continue with the expansion.

But I want to just — as I said earlier on, we will do it in a very prudent and disciplined manner. The beauty of Bomboré is that the hard rock and the oxides have got very, very similar metallurgy. So the leach time, et cetera, is all the same. So we will look at this depending on what level of debt we want to take on, how we manage it, et cetera, is all part of the decision-making in the coming months. So, one, I want to emphasize is that Orezone right throughout this process have got a very prudent capital management structure.

And basically, we look after the return on invested capital as we go forward. But in terms of the expansion, absolutely, we would be looking at commencing in the second half of 2024 with the plant coming online late in 2025. That’s what — that’s the plan, and that remains the plan.

Operator

And at this time, there appear to be no further questions. I will now turn the call back to Mr. Downey for any closing remarks.

Patrick Downey

Thank you. Well, obviously, 2023 was a very successful year as a junior company starting up in a remote region of West Africa. I think we achieved excellent results. Obviously, in 2022, we built our mine on time, under budget. We’ve operated at 11% above nameplate. We met all of our guidance. We’ve done a new study to show the expansion on the property. We continue to drill with results coming out in the near future. And we look forward to a very successful 2024 into 2025 for the company. Thank you very much.

Operator

This concludes today’s webcast and conference call. Thank you for joining. You may now disconnect.