Vista Gold Corp. (NYSE:VGZ) Q2 2022 Earnings Conference Call July 28, 2022 12:00 PM ET
Company Participants
Pamela Solly – Vice President-Investor Relations
Fred Earnest – President and Chief Executive Officer
Doug Tobler – Chief Financial Officer
Conference Call Participants
Heiko Ihle – H.C. Wainwright
Operator
Good day, ladies and gentlemen. Welcome to Vista Gold’s Second Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday — apologize, Thursday, 28th of July 2022.
It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.
Pamela Solly
Thank you, Michelle, and good day everyone. Thank you for joining the Vista Gold Corp. Second Quarter 2022 Financial Results and Corporate Update Conference Call. I’m Pamela Solly, Vice President of Investor Relations. On the call today is Fred Earnest, President and Chief Executive Officer; and Doug Tobler, Chief Financial Officer.
During the course of this call, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance or achievements of Vista to be materially different from results, performance, or achievements expressed or implied by such statements. Please refer to our most recently filed Form 10-K for details of risks
and other important factors that could cause actual results to differ materially from those in our forward-looking statements.
I will I’ll turn the call over to Fred Earnest.
Fred Earnest
Thank you, Pam. And thank you everyone for joining us on the call today. During the quarter, we advanced our work with CIBC Capital Markets to seek a partner or other form of transaction to achieve greater value recognition for our Mt Todd gold project. Vista and CIBC are working diligently toward this goal and we are pleased with our progress to date.
In June, we announced the comprehensive results of our Mt Todd exploration drilling program that was completed earlier this year. We are extremely pleased with the results of this program and we believe there is an opportunity for significant resource growth and extension of the Mt Todd mine life. We ended the second quarter with a cash position of $11.1 million. Completion of the exploration program and management’s ongoing efforts control costs resulted in a significant reduction in expenditures this quarter. I’ll discuss these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler, our Chief Financial Officer for a review of our financial results for the quarter ended June 30, 2022.
Doug Tobler
Thank you, Fred. And for those on the call today, thanks for taking your time to join us. Today, I’ll provide a brief recap of our financial position and results of operation for the quarter ended June 30, 2022. Vista Gold’s full financial statements and MD&A are included in our Form 10-Q that was filed yesterday and is available either at sec.gov or sedar.com.
We ended the second quarter with cash on hand totaling $11.1 million, which reflected a net decrease of $1.8 million during the quarter. Year to date, our net cash position has decreased about $2.1 million. Net expenditures this quarter were about $400,000 less than expected, because we came in under budget for the feasibility study work, tracked slightly better than planned on other expenses and received a refund of value added taxes paid in Mexico. We also benefited during the first quarter from net proceeds of $2.5 million for cancellation of the remaining royalty interest at the Awak Mas project in Indonesia. With the feasibility study and drilling program complete, our expenditures trended downward this quarter and we’re evaluating opportunities to continue reducing overall expenditures going forward.
Vista Gold’s results of operations continued to be in line with management’s expectations. We reported a net loss of $1.4 million for the second quarter of 2022, compared to a net loss of $800,000 for the second quarter of last year. There were a few areas that accounted for this variance. First, we had no gain from sales of non-core assets during Q2, 2022, while we recognized a $2.1 million gain for the Los Reyes project during Q2 of 2021. However, during the most recent quarter, we had other income of $400,000 compared to nil for the same quarter of last year. This quarter’s other income included the value added taxes paid refund that we got from Mexico and the reversal of previously accrued continued reclamation costs that we no longer believe are probable being incurred.
We also benefited from lower exploration, property valuation and holding costs, which were $1 million this quarter compared to $2 million for Q2 of 2021. Looking at the six month period ended June 30, 2022 and 2021, our net losses were $1.7 million and $3.9 million, respectively. The variance between these periods reflects the same components that I discussed previously for the second quarter, plus this year during the first quarter we recognized a $2.9 million gain for canceling the remaining royalty interest on the Awak Mas project, but had no gain during the first quarter of 2021.
In summary, our financial position and results of operations continue to track as planned. The feasibility study and drilling program provided important steps forward from Mt Todd and were accomplished within budget. We’ve also been able to supplement our liquidity position by monetizing non-core assets and effectively managing other expenditures. Management continues to seek opportunities to monetize its remaining non-core assets and further manage down [spending] (ph). We believe we are in good overall position with cash on hand of $11.1 and no debt.
That concludes my remarks for today. So I’ll turn the call back over to Fred. Thank you.
Fred Earnest
Thank you, Doug. I’ll now move on to discuss several of our second quarter achievements in more detail. As most of you know, earlier this year Vista appointed CIBC Capital Markets as its strategic advisor to assist in evaluating a broad range of alternatives to unlock the value of the Mt Todd gold project. CIBC’s mandate includes leading a process to complete an accretive transaction with the objective of maximizing shareholder value. Our primary focus during the second quarter continued to be the advancement of our work with CIBC. And as mentioned earlier, we are pleased with our progress to date.
Roughly coinciding with our appointment of CIBC, Australia lifted restrictions on international travel to and from the country for fully vaccinated individuals. I’m pleased to say that the elimination of these restrictions has had a positive impact on our work in country and our process to complete a strategic transaction by allowing greater in person interaction between senior management, local stakeholders and interested parties.
In June of this year, Vista announced the completion of the exploration drilling program at Mt Todd. The program was comprised of 26 holes, totaling 8,887 meters, which consistently intersected mineralization predicted by the company’s geologic model and demonstrated both horizontal and vertical continuity of the targeted structures. The program successfully identified four exploration targets with a combined potential to add 1.8 million to 3.5 million ounces of gold to our research base. Several other early stage potential targets along the 5.4 kilometer portion of the 24 kilometer Batman-Driffield Trend were also identified.
The work is conceptual in nature and was not intended to and did not yield additional mineral resources or mineral reserves. When appropriate, future drilling can be undertaken to efficiently drill out these targets and define additional gold resources. As Doug mentioned, we ended the second quarter with a cash position of $11.1 million and we continue to have no debt. We believe our strong balance sheet will be very important as we advance toward the goal of completing a transaction that will maximize shareholder value.
We continue to engage with those who have expressed an interest in Mt Todd and are evaluating a range of strategic opportunities to achieve greater value recognition for the project. We remain focused on completing the right transaction, one that creates value by recognizing a greater portion of the present value of Mt Todd and provides ample opportunity for future additional value recognition. Our primary objective is to achieve evaluation for Mt Todd that is reflective of the gold production profile, long operating life, excellent gold recovery. The project’s location in Australia’s low risk northern territory, favorable low operating costs, robust project economics as demonstrated by the recently completed feasibility study and the fact that we hold approvals for all major permits.
The work of CIBC is continuing, and we will provide additional process updates when it is practical to do so. Continuing, for the investor looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price, Vista represents an exceptional investment opportunity. At a gold price and foreign exchange rate of approximately $17.50 and [$69.05] (ph), that’s close to today’s market conditions for gold price and exchange rate.
The Mt Todd project economics demonstrated an after tax NPV at a 5% discount rate of approximately $1.35 billion and an IRR of 24.5%. We find ourselves in a market with weaker gold prices, although improving over the last couple of days and lower equity values across the entire sector — gold sector. Ongoing hostile activities in Ukraine, higher inflation, rising interest rates and fears of recession are creating greater uncertainty in the markets. Presently, these factors have a negative impact on the price of gold, with the exception of the last few days, but we believe that the gold price will rebound in the coming year. Furthermore, these factors have had a significant impact on the operational cost of gold producers across the globe.
The work we have completed over the last several years along with the recently completed feasibility study has positioned the Mt. Todd gold project as one of the largest and most advanced undeveloped gold projects in Australia. With 7 million ounces of proven and probable reserves, Vista controls the third largest reserve package in Australia. Mt Todd is ideally located in the northern territory of Australia, an extremely stable and mining friendly jurisdiction. The existing basic infrastructure at Mt. Todd including paved roads, power lines and the natural gas pipeline to the site, combined with operational infrastructure comprised of the freshwater storage reservoir in Tailings and [indiscernible] facility provide very distinct construction timeline and risk mitigation advantages.
Our technical programs and focus on designs that are capital efficient with low operating costs have created the foundation for the leverage to the gold price and improved shareholder value that the project enjoys. We have worked hard to secure the authorization of all of the major permits. Of equal importance we have earned the trust of the local stakeholders and are confident that our social license is firmly in hand. We believe that Mt. Todd is a superior asset located in a politically stable and mining friendly jurisdiction and one of the most attractive development stage gold projects not just in Australia, but in the world.
We believe the completion of the feasibility study and the recently completed drilling program further demonstrate the significant upside potential of the project and strengthen our position as we evaluate a broad range of development partners, transaction structures and other alternatives for realizing a greater portion of the intrinsic value of Mt Todd. I reiterate our result to seek a partner or other form of transaction to achieve greater value recognition for the Mt Todd gold project.
For a more comprehensive assessment of the value accorded the Vista and the Mount Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity for investors looking for value growth potential, low geopolitical risk exposure and strong leverage to the gold price. And that current prices represent a tremendous opportunity to establish a position or increase one’s holdings in Vista Gold.
Michelle, that concludes our prepared remarks. We’ll now be happy to respond to any questions from participants on this call.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Heiko Ihle of H. C. Wainwright. Please go ahead.
Heiko Ihle
Hey, Fred. Greetings from Europe. I hope everybody is well. Can you hear me okay?
Fred Earnest
We can. Good morning, Heiko.
Heiko Ihle
Excellent. I had some issues on other calls today. You’re sitting on $11.1 of cash on working capital. I mean, you and I both know that you run the firm quite lean and, obviously, we comment that. You and I are very aligned in that way. Any thoughts on cash burn for the remainder of the year? And if you’d be willing to share some ideas where your spending was during July? I assume it wasn’t a whole lot different than during June? And can we just extrapolate the cash balance for end of Q3 by that?
Fred Earnest
Yes, I’m going to turn that to Doug Tobler to respond to your question, Heiko.
Doug Tobler
Hey, Heiko. How are you doing?
Heiko Ihle
[indiscernible]
Doug Tobler
Yes, I’m good. So for the balance of this year, we’ll probably run towards the lower end of the range of our expenditures. We typically look at something $1.5 million to as high as $2 million per quarter. When it’s at the high end, that’s when we’re dealing with all of the compliance issues around the 10-K and those things, annual meetings. So I think the lower end of $1.5 million per quarter for the rest of the year is probably a good way for you to extrapolate forward.
Heiko Ihle
Perfect. And Doug, you’re going to appreciate this. My second question was actually intended for you. Earlier on this call, you hinted at monetizing some of your non-core assets. I mean, just as much detail as you’re willing to get into given the setting we’re on. Where exactly are we with this? I mean, clearly, there is nothing like that that CIBC process that you described earlier for Mt Todd. It’s nothing else because we’re looking at smaller earlier stage assets, much low evaluation data, but maybe just help us out a bit and tell me what you think we should expect to see over the next, call it, three, six, twelve, whatever you’re willing to get at the month’s please.
Doug Tobler
Yes. So let me tell you what the non-core assets are first that we’re working with. We have seen some used mill equipment that we’ve had for a number of years actually. And it’s being marketed through a third-party, hoping to find somebody that’s looking for a faster development track with a project. Basically, it’s difficult to gauge the timing there. There’s various stages, there’s been three, four groups looking at it at a time, sometimes there’s only one or two. So we would hope to do something with that asset over the next — I wouldn’t put it in that six to nine months horizon, but by the end of 2023, we’d like to see something done with that. And we feel that for the right party we can work with people on terms for that to get something that works for us and for whoever is acquiring it.
Secondly, we have a royalty interest on a project called Long Valley and that asset is held by a company called Core Mining. There’s, obviously, a lot of activity in the royalty space right now and it’s relatively small in terms of what we suspect the value is. But at the same time, it’s something that with a little bit of marketing, we think we might have an opportunity to move that by the end of next year as well. So those are the two key elements. As I mentioned, we got a small refund of value added tax during the current quarter. We’ve got some more down in Mexico, this relates back when we had Guadalupe de los Reyes and we’ve been chasing these refunds for a while. So those are probably less likely to come in in the window I’ve described, just simply because they’re involved with the government, governments are always slow.
That’s really the [indiscernible] assets are at this point.
Heiko Ihle
You’re not set on — earlier, you just — moment ago, you just talk about firms. I assume you’re not set on a sale. You’d be willing to take some money, have somebody advance the project and then do like [indiscernible] or anything like that, right?
Doug Tobler
Well, cash is always king. But again, with the right party, there’s opportunity for us leverage that asset on a longer term basis.
Heiko Ihle
Fair enough. Yes, I mean, I just feel like some assets are very underappreciated right now and I was feeling you are not going to walk away with as much cash as you’d probably like. I appreciate your question — the answer to my questions and I’ll get back in queue [indiscernible] queue here. Thank you guys so much and talk to you soon.
Fred Earnest
Thanks, Heiko.
Operator
[Operator Instructions] There are no further questions from the phone lines. I would like to turn the conference back to Mr. Fred Earnest for closing remarks.
Fred Earnest
Thank you, Michelle. And thank you to each of you who have taken time this morning or this afternoon, wherever you may be, to join us. As we have reported, there were some very significant accomplishments and things that were wrapped up in the second quarter. I reiterate that the work that we are doing with CIBC is continuing and I promise that we will provide additional process updates when it is practical to do so. We’re pleased with where that process is at the present time and we look forward to being able to announce updates as practicable.
As Doug has indicated, we are very mindful of the market conditions and we feel that we have a strong balance sheet. We are already and are continually looking for ways to be more cautious and careful in expenditures. We are looking at cost cutting measures as I think most are. And we look forward to being able to report the next quarter’s results that outperform our expectations. I’m very confident that we’ll be able to do so.
With that, I would just like to wish all of you a very pleasant day. And thank you for taking time to join us on this call and we encourage you to continue to stay tuned for news as the work that we’re doing with regards to the Mt. Todd project continues to unfold. With that, we wish you all a pleasant day, and thank you for joining the call.
Operator
Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank everyone for participating and ask you to please disconnect your lines.
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