Orezone Gold Corporation (OTCQX:ORZCF) Q3 2022 Results Conference Call November 14, 2022 8:30 AM ET
Company Participants
Patrick Downey – President and CEO
Peter Tam – CFO
Vanessa Pickering – Manager of IR
Conference Call Participants
Don Blyth – Paradigm Capital
Craig Stanley – Raymond James
Chris Thompson – PI Financial
Operator
Good day, and welcome to the Orezone Gold Third Quarter 2022 Financial Results Conference Call. All participants will be in listen only mode [Operator Instructions]. After today’s presentation, there will be an opportunity [Operator Instructions]. Please also note this event is being recorded.
I would now like to turn the conference call over to Mr. Patrick Downey, President and CEO. Mr. Downey, the floor is your, sir.
Patrick Downey
Thank you very much. And welcome everybody to the Orezone Q3 webcast and conference call, updating you on progress through Q3 and next steps through 2022 and into 2023. So with me today will be Peter Tam, CFO of Orezone Gold; and Vanessa Pickering, Manager of IR. Obviously, forward-looking statements, just take note of those as we move forward here. I’m going to hand it over to Peter now just to walk through quickly on the operating highlights and financial highlights.
Peter Tam
Thanks, Patrick. So in Q3 2022, the company processed 212,590 tonnes of ore at an average head grade of 0.89 with a recovery rate of just under 92% percent, resulting in recovered gold of 5,572 ounces. Those ounces were not sold in a quarter but was sold subsequently in October. Please note Q3 the tonnages process started with hot commissioning at the end of August. On the next slide, I’ll speak here about the company’s cash liquidity. The company’s cash position at September 30th stood at $7.4 million, along with 4,923 ounces of gold bullion and ending inventory. Working capital at quarter end was negatively impacted by the Genser power plant issues, which led to a later than planned start of hot commissioning in August and a shortfall in gold sales in September. Working capital was further affected by the temporary stoppage of gold production in October. Fortunately, we were able to resume gold production in late October and have operated continuously since then. With cash being replenished by gold sales, we have been able to meet our trade obligations as they have come due without issue. In addition, it should be noted that a significant portion of the trade payables and accruals at September 30th do not fall due until 2023. These payables include the power plant, construction retentions, employee bonuses and retirement liabilities and certain costs to the mining contractor.
However, we did recognize that the longer than anticipated commissioning period would strain our cash resources. We proactively entered into discussions with Coris Bank about deferring interest payments to provide the company with the extra time needed to reach commercial production, which would bring about meaningful cash flow generation on a sustained basis. In October, Coris Bank agreed to defer $3.2 million in interest payments and have given a favorable indication that they are open to providing additional assistance if required. It is important to note that the short term loan with Coris Bank shown under current liabilities at September 30th do not have scheduled principal repayments until 2023. Coris Bank has been an incredibly supportive lender for us and we thank them for their continued support.
With that, I’ll hand it back to Patrick.
Patrick Downey
Thanks, Peter. So I’ll walk you through the commissioning and ramp up. We obviously — just as a reminder, we have a 5.2 million tonne per annum oxide plant built on time and under budget, which was a fantastic achievement and also helped us where we’re at today over 5 million hours we’re at an [LTI], again, testament to the team. We actually had a very smooth commissioning at the process plant and then ramp up into August. And as Peter said, we poured first gold in September. The plant performance was trending extremely well, and we we’re very happy with it, generally above design and also better in recoveries, et cetera. So we were very excited about where we were going towards Q3 into Q4. Our first gold shipment was in early October, and then operations were interrupted in October due to power plant breakdowns. And this was really on OEM equipment, which was quite a surprise to us. We recommenced plant feed in late October and now trending towards fall design throughput.
So a little bit update on the plant. The plant is under a power purchase agreement, so obviously they purchase the equipment, they run it, they operate it and they supply us power. It is with a company called Genser Energy Burkina, very well known name in West Africa, and we signed it in 2021 to supply power at very attractive rates to us based on LNG and solar. Currently, the power plant design consists of 4×3.5 megawatt dual fuel units. The layers were encountered with delivery and we had two 3.5 megawatts available for commissioning, which was generally sufficient for commissioning. But we did take some proactive action there. And we augmented it with it 1×1.2 megawatt rental unit, so that we would have absolutely sufficient power for startup and ramp up. The third 3.5 megawatt unit was delivered in early September. And then equipment breakdown started to occur in late September, requiring significant replacement parts and started recurring on a constant basis. We started to ship those over from Florida. There was some unforeseen delays there due to the hurricanes, the two hurricanes, one after the other. And then they arrived in France and obviously, we had the coup in Burkina and delayed resumption of AIR FRANCE cargo shipments, and that delayed us by 14 days and that was on a day by day basis that we waited to load those pieces and parts onto AIR FRANCE Freight into Burkina. We got them back online on October 3rd and the unit is currently undergoing — the third unit is currently undergoing updated repairs, and is scheduled to be able to deliver power by the end of this week.
So we took action into our own hands, they were very proactive company, we did not wait around. We — even though this was a power purchase agreement, it was up to this group to fix these units and give us power. We took action ourselves. We commenced the search for a reliable alternate temporary power supply in late September. Very quickly, we did secure 8 times, 1.3 megawatt Caterpillar plant in excellent condition, and it’s independently operated by a group called African Power Services. We fund that through our own group and also through our consultants, like [Podium] and their subsidiary ECG, which was great, the help that they give us in that regard. We sourced the power plant, we transported it and installed and commissioned it within six weeks. So that’s quite a remarkable achievement and just showed how proactive we were in making sure that we had power to move forward here. I stated here the full power was imminent. Well, that’s actually changed now. We’re up and running with it. So that’s great news. And we’re starting to place through to design throughput. As of this morning, we were running over 630 tonnes per hour, which is very close to nameplate. So we do have spinning reserve right now and we’re running power through to the system, and it was a very smooth transition over to that APS system.
Our power requirements at full nameplate is approximately 7 megawatts. We will have available power now 13, so we’ve got more than adequate power to run the system. One thing to note here is that the power plant, again — the plant is performing extremely well and drawing less power than design to do the throughput. So we’re quite happy about that as well. So we’ve got more than adequate power now to run the plant and it’s up and running. And it’s been running since late October but now we have all that APS system ready to run and supply power to the plant. And there you see there’s the Genser units in the background, the old process plant right behind that and then you can see the [APS] units installed and now running in the foreground with the fuel system behind that. So we’ve taken action and we’ve rectified the situation. So what’s next steps? The — get the plant running at full tonnage, and so we’ve now got that and we will be looking to push more than full tonnage. As I said, the plant is operating better than design so we believe we can actually push more tonnes than the design of 5.2.
In that regard, we have over 1 million tonnes of high grade ore on the round pad and over 5 million tonnes of medium and low grade in stockpiles. So we will be direct tipping from the pits and augmenting it with the high grade stockpile, as we push the tonnage through the plant. We are mining from four main pits, so we got great flexibility in that regard to push the tonnes, and we will be doing that as we move forward here in Q4 into 2023. We plan to operate the design throughput for the rest of November and declare commercial production likely by the end of November, which will be quite rapid. We were hoping to do it beforehand. And if we had full power from those Genser units, we certainly would have done that. The plant was certainly running extremely well and trending towards commercial production in September. We are close to be on nameplate, we hope to see where we can go with the plant and that will help us to guide what 2023 feed rate will be in terms of design, what our gold production and cost would be and we expect to announce that early in Q1 of 2023.
During all of this, we were still exploring. As Peter said, we have got incredible support from our lender, even though we were having commissioning problems, we did not stop drilling. We did not stop mining. We continue to mine and drill. So we were confident that we were getting back on-track here and we were confident we knew what our cash and liquidity position was. We did over 43,000 meters of diamond and RC drilling in 2022 and drilling is ongoing. Results from P17 have been excellent and have shown significant resource growth, and there is further upside there and that resource modeling there is now well advanced for P17. We’re well advanced. I think we have almost finished Siga now and obviously, results are ongoing. We have been a bit of a backlog with sample, prep and assays as everybody has been around the world recently. And we will release those results imminently once those final assays are received for that whole area. That’s on resource conversion from inferred to M&I. I expect it to be positive based on what we have seen to date, and from that modeling we’ll commence in late Q4. We’re now drilling at Maga to convert again in third of the sulfides into M&I, and that drilling will be completed in December. And again, results expected through Q1 2023 with modeling immediately thereafter. And these results will support our Phase II sulfide expansion, which is planned to occur through 2024 into 2025, which we expect will show a significant increase in production over the life of mine of the project.
So in summary, plant was operating extremely well and at better than the design, reliable power is now in place and now operating, and which should drive increased production. Stockpiles and the mine delivery will allow ramp up to plant feed and beyond design. We are probably confident of that. We are looking at a long term power solution with well advance should our issues with Genser continue. And remember, this is a power purchase agreement, they are supposed to supply power at a fixed rate over a fence to us. So we will see where we can resolve those issues going forward. But I can tell you, we are taking matters into our own hand for a longer term power solution. In that regard, when we did the study and started construction of Bomboré, we did not have reliable grid power, that was not in existence at the time. Burkina has now connected to both the Ghana and Cote D’Ivoire reticulation systems. There are now reliable systems in place. There is a 135 KV line running within 12 kilometers of the mine site, and it is reliable 24, 365 power. And we are in advanced negotiations on hooking up to that power supply, should we not resolve our issues with Genser in the coming months. And as I said earlier on, expiration is now driving future expansion, which we’re quite excited about. So that’s the presentation. Obviously, a little bit of a hiccup in October, September, October with Genser. We resolved that ourselves to our satisfaction. We now move forward and drive our production and operations through Q4 and into 2023 and we look forward to continuing to update on our production costs and expansion as we move forward here into 2023 and 2024.
So I’m now open to take any questions, should there be any on the line.
Question-and-Answer Session
Operator
Thank you, sir. We will now begin the question-and-answer session [Operator Instructions]. The first question we will take will come from Don Blyth of Paradigm Capital.
Don Blyth
Patty and team, congratulations on the fairly smooth start-up excluding the power issues. The commercial production by the end of November, you were saying that’s a bit of [bryce]. What’s your definition of commercial production in terms of percentage of nameplate for what period of time?
Peter Tam
Just on your question there. So the criteria we’ve set forward with in terms of reaching commercial production is reaching at least 70% nameplate of mill throughput over a consecutive 30 day period with recovery in line with what we expect through the plant design there. So obviously with the reintroduction of ore in late October, as I said earlier, we have been able to operate continuously close to name plate. So if it continues to trend favorably in that direction for the rest of the month, we think by the end of the month we could be in a position to declare commercial production.
Don Blyth
And just on the power purchase agreement with Genser. What kind of timeframe are they — obviously they’re supposed to deliver the power. What kind of timeframe is there in the contract for them to resolve issues? Obviously, you felt you had to kind of proactively fix the situation yourself, but how long do they get to try to fix?
Patrick Downey
I really don’t want to start discussing contractual issues on the call here. We’ll resolve those between ourselves and Genser. But obviously, Don, based on where we’re at, we’re looking at — and thankfully there is grid power there at a very reasonable cost and low capital for us. So we’re going to advance that should we not reach any agreement with Genser on what’s occurred here and how we expect them to rectify that situation.
Operator
Next we have Craig Stanley of Raymond James.
Craig Stanley
Just curious, roughly what type of power costs Genser promising you versus what you’re seeing right now with the rental units, and how much maybe grid power would cost?
Patrick Downey
Well, it wouldn’t have been a lot of difference, Craig, this year, because the Genser have got to bring in all of the LNG infrastructure. So it was always going to be a period of time on diesel anyway, so that was not going to be much different. We were going to be paying for diesel. So there’s not really any impact on where we were going to see things over the coming months. Grid power will be something around $0.18, $0.19 per kilowatt hour.
Craig Stanley
And how’s — I mean, again, with the balance sheet, so you’re not foreseeing any issues given where the plan’s running right now and with the power costs that you’re getting from the rental units [Multiple Speakers] going those for the next year?
Patrick Downey
No, that’s fine. We’re in good shape as long as — obviously we want full power and we want it on a constant, reliable basis, that’s why we took action into our own hands. We saw nothing wrong with the plant and all that good stuff. And that’s where our lenders have been extremely sort of favorable and accommodating to us, because they’ve seen where we’re at and how well the plant’s running. And so we don’t see as we move forward here, provided that the power remains constant, we’re in good shape here.
Craig Stanley
And just following-up, I mean, on the coup, everything’s been fine on the ground in regards to security and moving around?
Patrick Downey
Yes. No, problem at all with us. I mean, I was there last — was it last week? Last week and the week before last, down on site went through wagon. No problem. It’s never really been an issue for us, to be honest with you. Where we’re at, where we’re located, it’s an hour from the capital on a paved highway. So no issues there. The only issues that we had was we had rooted those units through France, we didn’t know there was going to be a coup obviously out of Florida. And then when they got to Charlotte, they sat there for 10 days. So that did delay us a little bit on getting the Genser units back up and running.
Craig Stanley
And the issues that Genser’s having, they’re not in any way related to the coup?
Patrick Downey
No, not at all. It’s to do with equipment…
Peter Tam
Yes. We were already seeing delays and the issues well before the coup that happened there, a few weeks ago.
Patrick Downey
Yes, it was nothing to do with the coup. It’s purely to do with malfunctioning equipment and component failure from OEM.
Operator
[Operator Instructions] Next we have [John Bustin Croft, Investor].
Unidentified Analyst
I was just wondering when you say commercial production, how do you translate to number of ounces produced, I mean, number of ounces of gold produced each month?
Peter Tam
Well, once we get through commercial production, we should be running at nameplate, so that will obviously dependent on sort of the head grade that goes through the plant. But as we indicated in our feasibility study, we think in year one we could be doing somewhere depending on head grade around 150,000 ounces. But all of that will come through once we get through our budgeting exercise that we are undertaking now. And as indicated earlier, we will be coming out with our guidance for 2023 early in the New Year.
Operator
Next we have Chris Thompson of PI Financial.
Chris Thompson
Thanks for taking my questions. Congratulations Patty on what you have achieved to-date. Just a quick question, I noticed that you are delaying your resource update and the feasibility study. Is this a first half of the year next year sort of expectation for the delivery there?
Patrick Downey
Part of the latter half of the first half or early in Q3. Really what happened, Chris, was P17 grew beyond what we fully expected, so we just kept drilling it. So the results were good. We ended up pudding three rigs on it. So it’s still wide open to be honest. We just ended up, just cutting it off and just going on to Siga and Maga. So we will come back to P17 and drill off some of the areas. But that was obviously driving it, so we didn’t want stop because the results were so compelling we just kept drilling it.
Chris Thompson
And then just I guess you did mention your high grade medium and low grade stockpiles. Could you just tell us what are the grades there on those stockpiles?
Patrick Downey
The grade on the higher grade is around a gram, medium grade 0.7 or 6.7…
Peter Tam
Yes, it average out to closer to 0.7…
Patrick Downey
And then the low grade, it’s around 0.5.
Chris Thompson
Thank you very much.
Patrick Downey
The low grade is obviously from the OCR, which we mined in 2021, ’22 and that was for the water supply system for the plant. That was always going to be a low grade pit and we mined it accordingly, because we didn’t want to be mining a high grade pit for water supply system.
Operator
At this time, we’re showing no further questions. We will then conclude today’s question-and-answer session. I would now like to turn the conference call back over to Mr. Patrick Downey for any closing remarks. Sir?
Patrick Downey
Okay. Thank you very much everybody and great to update everybody and you sort of indicate where we were, where we are at and how we have overcome a little hiccup and moved on from there. I really want to take an opportunity here to also thank Coris. It’s very rare that you will get a senior lender like these people,they are a Burkina bank. They have supported us right through this. And they have been very accommodating as we have sort of engineered our way through this little hiccup here. So I really want to send out sort of word of thanks to them as we move forward here, a great bank. And the fact that they are local and can visit the site has been a huge positive for us. That’s it. We look forward to updating you in the very near future obviously with drill results and then obviously with Q4 production, and into 2023 guidance and production from here on in. So thank you very much, and we will close off at that.
Operator
And we thank you, sir for yourself and to the rest of the management team for your time today. Again, the conference call is now concluded. Thank you, everyone. At this time, you may disconnect your lines. Thank you. Take care, and have a great day.
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