Superior Gold Inc. (OTCPK:SUPGF) Q2 2022 Earnings Conference Call August 17, 2022 10:00 AM ET
Company Participants
Chris Jordaan – President and Chief Executive Officer
Russell Cole – Vice President-Operations and General Manager-Plutonic
Paul Olmsted – Vice President-Finance and Chief Financial Officer
Andrew Bigg – Vice President-Business Development and Long Term Planning
Mike McAllister – Vice President-Investor Relations
Conference Call Participants
Phil Ker – PI Financial
Ryan Hanley – Laurentian Bank
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Superior Gold’s Second Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being broadcast live on the Internet and recorded.
I would now like to turn the conference over to Chris Jordaan, President and Chief Executive Officer. Please go ahead sir.
Chris Jordaan
Thank you. And good morning to everyone. Thank you for joining us to discuss Superior Gold’s second quarter 2022 results.
As a reminder, please refer to Slide 2 of our presentation, which is posted on our website to view our cautionary language regarding forward-looking statements. In addition, please note that all amounts discussed are in U.S. dollars unless otherwise noted.
Today I’m joined by Paul Olmsted, our CFO; Russell Cole, our VP for Operations as well as General Manager of Plutonic; Andrew Bigg, our Vice President of Business Development and Long-Term planning; and Mike McAllister, our Vice President, Investor Relations. They will all participate in presenting specific parts of the presentation today.
A few highlights of the second quarter of 2022 include the following: firstly, as per our previous updates, we are developing our licensed business plan following our December 2021 resource and reserve statement released in May and subsequent lodgement of the NI 43-101 on the 6 of July.
As a reminder, the highlights are also further Proven and Probable Mineral Reserves increased by 66%. The ounces going to 630,000 ounces, sorry I just had a technical problem here, and it contained gold of 3.5 grams per ton demonstrating significant increase in the life of mine.
Measured and Indicated Mineral Resources because of the mineral reserves is up 2% to 1.92 million ounces of contained gold at 3.5 grams per ton. This plan so far as the license business plan will include a base plan, underground expansion and other improvements, the increased resources and reserves have enabled comprehensive life of mine plan. We look forward to sharing those outcomes later in this year.
I’d like to hand over to Russell Cole, our VP Operations to elaborate on the operational highlights and I just like to call out these – an issue with a narrative insofar as that slide is concerned. And we will revert back. So at this point I’d like to hand over to Russell.
Russell Cole
Thanks, Chris. As we mentioned, a ton of gold operations produced 15,196 ounces of gold in the second quarter as compared to 19,356 ounces of gold in the same period in 2021. The decrease is largely a result of processing lower grade ore and the shift in mining activity from Plutonic East and Perch open pits to the development of the Main Pit Deeps project, which was impacted heavily by rainfall during the quarter.
Operationally, we achieved a stope grade of 2.5 grams, which was slightly below our targeted grade of 3 grams per ton due to the shortage of development underground, which was in part due to higher than expected COVID-19 absenteeism rates.
Our mill grades in the second quarter of 2022 was lower than the comparable period in 2021. We expect our mill grade to improve as we progress through 2022, reflecting the impact of both higher underground grades and replacing lower grade legacy stockpile material with higher grade, open pit mill feed.
Gold recoveries remain strong during the quarter, second quarter of 2022, at 85%.
Finally, the total ore milled in the second quarter was 30% higher than the same period in 2021, which reflects the successful mill shutdowns in Q1 and Q2, and the mill is now running at 5000 tons per day, which will support our higher production of gold in the future.
I’ll now hand over to Chris to recap the production and financial position.
Chris Jordaan
Yes, thank you very much, Russell. I’d just like to circle back to the previous slides and highlights specific elements here. Firstly, our safety performance improved during the quarter with a 24% reduction in total injury frequency rates achieved during that period. We produced 15,196 ounces of gold and sold 16,726 ounces of gold at realized price of $1,877 per ounce.
Total cash costs resulted in $1,748 per ounce and all-in sustaining costs of $1,929 for the quarter.
Cash flow from operations, of $8.8 million despite the challenges that we incurred during the quarter was achieved. We ended up the quarter with a solid cash position of $18.2 million.
I now would like to recap to something real performance of the business and operational and financial [indiscernible]. While the first half of 2022 was softer due to the plant mill shut down, unprecedented rainfall and very high absenteeism due to COVID-19, were experienced during this period, and we continue to invest in our business to deliver the Company’s strategy to fully optimize the underground operation and when combined with the addition of new sources of open-pit feed, are expected to positively contribute to the Company’s overall profitability. We continue to target production rate towards 100,000 ounces towards the latter part of this year.
Our cash position has remained strong, as I said before at $18.2 million, representing a 4% improvement from the end of the second quarter in 2021, reflecting improved operational performance and the repayment [indiscernible] of our gold loan towards the second quarter of 2021.
I will now turn over to our Chief Financial Officer, Paul Olmsted, to discuss our financial results for the quarter.
Paul Olmsted
Thanks, Chris. During the second quarter, total revenue was $31.5 million from the sale of 16,726 ounces of gold, a decrease of $2.9 million from $34.4 million from the sale of 19,099 ounces of gold in the second quarter of 2021. Gold revenues were slightly lower as a result of 2,373 fewer ounces being sold, offset in part by an increase in the realized gold price to $1,877 from $1,801 in the prior period.
Cost of sales were $31.5 million for the second quarter of 2022, an increase of $2 million from $29.5 million for the second quarter of 2021. The increase in cost of sales in the current period versus the same period in 2021 was primarily due to the variance in the Change in inventory category, Change in inventory reflected decreases in the golden circuit in the second quarter of 2022 resulting from the timing of sales versus production. The buildup of stockpile in inventory due to the plant 15 mill shutdown in the first quarter, and the timing of production, which occurred during the first quarter of 2022.
Adjusted net loss for the quarter of 2022 decreased by $3.7 million to a loss of $2 million or $0.02 per share compared to an adjusted net income of 1,720 – $1.7 million or $0.01 per share in the three months ended June 30, 2021. And that’s primarily from operating losses of $2.5 million and net finance cost of $422,000 and that was offset by a tax recovery of $990,000.
During the three months ended June 30, 2022, our cash used in operating activities before working capital changes was $156,000, a $2.7 million decrease over cash from operating activities before working capital of $2.6 for the three months ended June 30, 2021. The decrease in cash generated from operating activities was predominantly a result of $5.3 million of lower operating earnings in the three months end June, 2022 in comparison to the three months into June 30, 2021.
Cash flow from operations after working capital was $8.8 million for the quarter, an increase in $4.1 million from the same period in 2021, before the repayment of the gold loan. As its quarter end, the company had a strong cash balance of $18.2 million.
And I will now turn the call back to Chris to discuss our revised production and cost guidance.
Chris Jordaan
Thank you very much, Paul. We continue to carefully monitor and review operations for further potential disruptions from COVID-19 and other causes, which could adversely affect our production and cost. Therefore, after a thorough operational review take into consideration everything that we’ve learned in first half, we believe is prudent to adjust our production guidance to a range at 69,000 ounces to 75,000 ounces. For 2022 an increase all-in sustaining cost between $1,800/oz to $1,900/oz.
We’ve taken a measured approach in this case on guidance incorporating the learning’s from the year-to-date in particular, operating in a COVID-19 environment and its impact on absenteeism, as well as responding to the operational challenges from unprecedented rainfall as the open pit was being reestablished. We are targeting a run rate of close to 100,000 ounces per year towards the latter part of this year in Q4. And we would expect a convention to drop in cash costs and all-in sustaining costs for the quarter. So in essence, what we saying is that the initial plan has been delayed due to the factors that we’ve already identified.
Our exploration expenditures range has increased year-on-year as we ramp up our exploration efforts on new open pit targets, as well as continue with underground programs. Moving onto the announcement of December 2021 Mineral Resource and Reserve, I’d like to hand over to Andrew Bigg, our Vice President for Business Development and Long Term Planning.
Andrew Bigg
Thank you very much, Chris. Effectively, what we’re going to discuss on this slide is, is how our increased reserves and resources has really enabled us and set us up to do a comprehensive Life of Mine plan. As you would note, we did release our Resource and Reserve statement at the end of May. And then we had a subsequent lodgement out of our NI 43-101 in early July. Just a quick reminder, looking at the bottom right hand at the slide there on the chart, our reserves were up 66% at an average grade of 3.5 grams per ton indicated measured an indicator mineral resources were up 2% at an average grade of 3.5 grams per ton. And our Inferred Mineral Resources were increased by 29% at an average grade of 3.8 grams per ton. And effectively that’s really set up a great platform for us to develop a comprehensive Life of Mine plan.
Now, I am pleased to report that the Life of Mine plan is on track and Life of Mine plan is a clear purpose to deliver the best value plan for Superior Gold. The plan will include scenarios for value optimization including a base plan, underground expansion; internal and external open pit feed options, including the Main Pit push-back Hermes South, Central Bore and other prospective targets externally and also internally. And then a large pit open – large open pit development and substantial infrastructure upgrade. We will look at all the scenarios and choose a preferred plan, which offers the best value for Superior Gold.
As I mentioned before, the increased reserves and resources has enabled us to embark on a comprehensive Life of Mine plan. And we look forward to sharing the outcomes at a later date this financial year.
I’ll now hand over to Mike, our Vice President of Investor Relations to present on the capital structure and market end of the business.
Mike McAllister
Thanks, Andrew. Slide 10 is just a quick summary of the analyst currently covering the stock, our key shareholders and our capital structure. We’re very encouraged by the support of our significant shareholders and long-term gold funds who have continued to support the stock and our story. Our average trading volume remains at levels over 200,000 shares a day across all markets. We also maintain a tight share structure with just over 123 million shares outstanding.
I may – I would also like to point out that there’s just one small type of on this slide that the cash position as at June 30, 2022 is $18.2 million.
And with that, I will now turn the presentation back to Chris to recap.
Chris Jordaan
Thank you very much, Mike. We have a number of upcoming catalysts worth noting here. Firstly, as we’ve done previously, we’ll continue to do so. We’ll provide the market just regular underground exploration updates. And now also in addition to that our surface exploration results. We announced the positive results of the updated Resource and Reserve as Andrew has referred to previously; we expect more opportunities for improvement as we continue the full potential assessments on lock lining capacity in the operations with the specific focus on the Life of Mine optimization now with the completion towards the end of this year in 2022.
We also expect to be commencing and announcing the results of heritage surveys, which will hopefully have further positive impacts on the Main Pit push-back project and make clearer the timing of the Hermes South project. And over the next 12 months, we have healthy pipeline of development and exploration catalyst to look forward to, now augmenting this is a team Andrew will lead as we intensify our focus on growth opportunities, both brownfield and external to our business. So, we are focused on repositioning Plutonic long-term success and are locking shell the value and we encourage you to take another look at the opportunity.
Thank you. With that, I’d like to conclude the presentation portion of the call.
Operator, you can now open the line for questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] Your first question comes from Phil Ker of PI Financial.
Phil Ker
Good morning, everyone. Thanks for hosting the call today. Just two questions. First, I wanted to start-off with the Main Pit lay back since delivering the PEA, it’s been fairly quiet on that front. Could you give us an update of what advancements, if any are taking place there?
Chris Jordaan
Yes. Thank you very much. So we knew that the Main Pit Pushback is going to take some time to pull that together. More specifically and as far as getting the heritage surveys done so we can allow for appropriate drill program to augment the results from the PA. As you know, more than 80% of the reserves within the PA is only an inferred, so we need to really improve on that categorization. And as far as the project is concerned, we very well organized now and structured to give this project appropriate attention.
I think at this stage, I’d like to turn over to Andrew to give you further insight as to the progress on the Main Pit Pushback project, which we believe will be a key mainstay supply for the current mill.
Andrew Bigg
Yes. Thank you, Chris. Like Chris mentioned, we have reorganized, so we’ve on-boarded a very experienced studies manager who lead not only this study, but the collection of studies that come of our Life of Mine plan. We are progressing the heritage study conversation and we expect to have that completed sometime in the near future. In the interim, we’re obviously looking at various options for the main pushback. There are a number of different scenarios that can play out there. We will be looking to optimize, I guess, the resource extraction through the Life of Mine and that’ll give us guidance as we lead into further on the PA as to what – what are the options we would like to explore in the future. So part of the Main Pit Pushback one-end is a small cutback and another end is on the extreme end is a very large open pit, which I referenced on my previous slide. So there’s a bit of a continuum in between those options, Phil?
Phil Ker
Okay. And I appreciate the color there.
Chris Jordaan
So the early entry into the Main Pit Deeps which is in fact mining, a section of Main Pit Pushback it’s just a much easier accessible area. And what we’re seeing now is that the Main Pit Deeps would provide all towards beyond Q1 of next year, which gives us a little bit more breathing space in augmenting that would be recognizing that there’s a sequence of open pits that will come online as we continue with the study on the Main Pit Pushback and that’ll be Hermes South Central Board, et cetera as we progress further. So there’s a clear recognition that we need to fill the gap between now and the Main Pit Pushback through other options as well.
Phil Ker
Okay. That’s great color. Appreciate that. And just building on the exploration kind of discussion here, just with the – in terms of the – the lot of the high grade intercepts you’ve put out from the western and eastern mining front, where are you at with the geology model and having enough confidence is started to warp those new high grade zones into a mine plan and how much capital would be required just [indiscernible] I guess given the fact that some of the zones are fairly close to current infrastructure, but just thinking above and beyond where the mine plan could be going here?
Chris Jordaan
Yes, excellent. I think that’s a fantastic question. Andrew is a lot closer to this and that’s also one of the reasons why we brought Andrew in, use to run with our long-term planning and specifically the Life of Mine – the life of business plan falls within his agreement, so I’m going to hand over to Andrew to give you a more certain answer to your question.
Andrew Bigg
Yes. Thanks Chris, and great question, Phil. We’re actually actively doing that work right now. So in our previous update, we spoke about our approach to applying our geological or body knowledge that is giving us up-to-date feed which we’re updating our model zone. So we actually adjust in the midst of doing mine design for Indian Access, so it feel question we’ve got enough information there to actually build some reserves in there and start a detailed mine design process that is part of our active Life of Mine study at the moment?
In terms of further exploration or the geological piece, what we have developed is we’ve got a clear study of what areas are more than economic? What areas in the mine are marginal? And what areas of the mine currently don’t have answers to go and pursue? Given the work that we’ve done now we’ll have a clear plan of where we’re going to direct our expiration and in-mine expiration activities given prospectivity and how many additional ounces we need in the respective areas. So we’ve got a very sort of formalized logical and business returns approach to the way we’re trading the Life of Mine plan.
Phil Ker
Okay. So I guess on a timing basis, is there the potential to start to work these new zones or couple of these new zones into the Mine Plan next year and into that underground sequencing?
Chris Jordaan
Yes, absolutely there is. There is even potential to pull one or two of the easy access areas into the plan this year. However, like I said we’re literally going through the optimization process at the moment, so that’ll give us a clear single ores [ph], it doesn’t make sense to go in there right now, or it doesn’t make sense to go in there after we’ve completed a bit more development in the areas and set it up a little bit more.
Phil Ker
Understood. Okay. Thank you. Good for me, right.
Chris Jordaan
Good question. Thanks Phil.
Operator
[Operator Instructions] Mr. Jordaan, there are no further questions on the phone lines at – oh, pardon me. We do have a question from Ryan Hanley of Laurentian Bank. Please go ahead.
Ryan Hanley
Just before the buzzer there. Good morning, and thanks for taking my questions. Just wondering just on your CapEx for the quarter here. It looks like it came in about $7.7 million all in if I take sustaining and non-sustaining, just wondering, given the, as the heavy rainfall and maybe some limited access to the pit, did you end up having to take on extra waste stripping that might have been above, what you had initially expected at the beginning of the year?
Chris Jordaan
Yes, I think that’s a very pertinent question. I’m going to hand over to Paul to fill that question for us. There’s certainly been an impact in so far as weather is concerned. He’ll give you a little bit more insight as to what that impact is. Paul over to you.
Paul Olmsted
Yes, sure. So just a quick update on, so of the capital that we spent in the quarter just a little less than half was attributable to the Main Pit Deeps project. And so you’re right that the strip ratio was higher, not necessarily because of the rain, but just because of the original setup, the rain effectively delayed everything from, what our original anticipated entry into the Main Pit Deeps was.
But in our summary of operating results for the second quarter, all of the open pit mining was attributable to the Main Pit Deeps. So you can see that the strip ratio was certainly higher for that quarter. And as I mentioned, we capitalized the Main Pit cost during that quarter. And we should be seeing a commercial production, later in August or early September from the Main Pit Deeps when we call that.
Ryan Hanley
Okay, perfect. It doesn’t. Sorry, go ahead.
Chris Jordaan
Sorry. I was referring to Russell, whether he’d like to add anything?
Russell Cole
Not really more just to back up Paul, really. Yes. The unusual rain event, we probably ended up with about six months of the annual rainfall all in the month of May. And then you can imagine when we have those sorts of rain events, it really just slows down the development that we had him there. So it just slowed us right down for what essentially is a little bit of a pre-strip within the pit. Unfortunately we couldn’t predict the rain event.
Ryan Hanley
Yep. Okay. Fair enough. And then, I guess maybe just jumping in, jumping back to the overall CapEx. So given there wasn’t any change we needed the guidance update, is it safe to assume that the capital, I guess spending per quarter will just decline over the balance of the year to keep you within that that initial range that you had put out back in January?
Chris Jordaan
Yes. At this point, we haven’t changed our capital guidance for the remainder of the year. So, I think that it still remains that target. So, I think your assumption is in line with what we would expect.
Ryan Hanley
Okay, perfect.
Russell Cole
I think another that is, we’ve really spent a lot of time and effort to appropriately guide, what capital we need to spend. So there might be some capital that we moved out or capital that we canceled to try and stay within those limits.
Ryan Hanley
Okay. Makes sense. Maybe just one last one for me, just kind of switching gears over to the underground side of things. I think the grade that you mind out in the quarter was about 2.5 grams, and you’d already outlined the reasons in the challenges in the press release and earlier when you put out the operating results, but I’m just wondering, is that target of trying to get the underground grade or the stope grade, sorry up to three grams is that’s still the kind of the end goal. And where do you see the timing on being able to hit that number, given the delays encountered in Q2.
Chris Jordaan
Andrew, would you like to comment on that specifically, because in essence, why I’m asking Andrew to answer this question is, it’s primarily driven by the Life of Mine work that we currently doing. We had a view today as to what the typical average grades in specific areas in the mine is, and it is significantly different in various areas, where Timor is way up in the threes in these areas, which are, in the low twos. So it’s really important to understand and appreciate the work that’s going into the Life of Mine to get an assessment as to when we will see this great creeping up. But Andrew, could you give us more insight into that, please?
Andrew Bigg
Yes. Thanks. Thanks, Chris, good question Ryan. Yes, look effectively, there’s a couple of knock on effects here that we’ve seen in the first half. One is, as we have moved and dealt with absenteeism development rates did slow down. So, we weren’t necessarily developing at the pace. We wanted – towards some of the stopes we had identified. We have gone a good detailed review of our F2 forecast and have a plan back on track to lift the overall grade from the underground mine. And the Life of Mine I mean, the sole purpose of that is to deliver the best value plan and that includes, accessing the best value or underground early and bringing cash forward in the business. So, we were looking towards the end of half two and definitely into FY 2023 for that grade to lift.
Ryan Hanley
Perfect. That’s helpful. That’s it for me. Thank you for taking all my questions.
Chris Jordaan
Thank you.
Operator
Mr. Jordaan, there are no further questions on the phone lines at this time. Sir, please proceed. Mr. Jordaan?
Chris Jordaan
Hi, I was on mute. Apologies for that. Since there are no further questions, I would like to thank everyone for joining us today. While the second quarter was challenged, 2022 has presented managed with some unexpected challenges and some of them are beyond our control. Certainly for the management perspective, we’re trying everything we can to get back on track and to move up on that production growth trajectory that we’ve explained to the market already, that trajectory remains and tackled be it that it’s delayed and given the challenges that we’ve had.
Now, we will continue to advance the strategic projects necessary to reposition Plutonic for that long-term success and sustainable success. Specifically on the back of a quality Resource and Reserve that we’ve been able to pull together and the Life of Mine will give us much more insight as to what that would look like. We expect that these improvements will – sorry, will drive a continued improvement in our financial performance over the course of this year and beyond. Once again, thank you everyone for joining us. And have a great day.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.
Chris Jordaan
Thank you.
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