OceanaGold Corp

TSX:OGC

Earnings Call Transcript 2023-Q1

[Operator]

Good morning and afternoon ladies and gentlemen, and welcome to the OceanaGold 2023 First Quarter Results Webcast and Conference Call. At this time, all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] Also note that this call is being recorded on Wednesday, May 3, 2023 at 10:00 AM Eastern Time.

And I would like to turn the conference over to Rebecca Harris. Please go ahead.

[Rebecca Harris, Director of IR]

Thank you, operator. Good morning and welcome to OceanaGold's first quarter 2023 results webcast and conference call. I'm Rebecca Harris, Director of Investor Relations. We are joined today by Gerard Bond, OceanaGold's President and CEO; Scott McQueen, Chief Financial Officer; David Londono, Chief Operating Officer Americas; and Peter Sharpe, Chief Operating Officer Asia-Pacific. Also present is Craig Feebrey, Chief Exploration Officer; and Brian Martin, Senior Vice President Business Development and Investor Relations.

The presentation that we will be referencing during the conference call is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in US dollars, unless otherwise noted.

I will now turn the call over to Gerard Bond for opening remarks.

[Gerard Bond, President and CEO]

Thank you, Rebecca. And welcome to OceanaGold. It's great to have you and your experience on the team. And good morning everyone. Thank you for joining us.

We had a solid first quarter in all respects. Our results are in line with guidance and we remain on track to deliver our full-year 2023 production, capital and cost guidance. I'll begin with safety, where I'm delighted to say that in the first quarter, we achieved another company record. Our total recordable injury frequency rate of 1.9 per million hours worked on a 12-month rolling average basis was the lowest ever for the company and a decrease from the 2.3 reported for 2022.

Now, we may not be able to sustain such low injury rates every quarter given the small number of injuries it would take to cause an increase, but you can be sure we remain absolutely focused on the safety of everyone coming through the gates at OceanaGold every single day.

From a production perspective, both Haile and Didipio performed well in the first quarter. In New Zealand, as previously disclosed, we had a challenging first quarter. Macraes was affected by having to take one of the ball mills down for a major repair and Waihi experienced challenges due to extreme weather events which caused sliding in parts of the Martha Underground and prevented access to the higher grade stopes in these areas.

Pleasingly we completed a temporary repair of the Macraes ball mill at the end of March, and it has returned to full milling capacity in April. At Waihi, we are progressively regaining access to all areas of the underground mine and expect to deliver more tonnes at better grades through the remainder of the year. Peter is going to talk to both items later on the call.

During the quarter we also made progress on our organic growth options notably the Haile Underground project with our main production decline now advanced 550 meters. The decline has now reached the top elevation of the orebody and we remain on track for delivery of our first ore from Horseshoe Underground in the fourth quarter. With this enhanced access from underground, we also expect to begin underground exploration drilling at Horseshoe in the second quarter targeting both resource conversion and growth.

On the topic of exploration, we continue drilling at Wharekirauponga in New Zealand as we work towards delineating this high-grade deposit. In the first quarter, nearly 800 meters of drilling was completed focused on infill of the main UG vein and we expect to be able to update the market with results later this year.

So we produced around a quarter of the midpoint of 2023 guided production in the first quarter. We expect the second quarter to be the strongest production quarter of the year for the company and we are well-positioned to generate strong free cash flow at these current metal prices. I'm pleased to say that we also paid our previously announced $0.01 per share semiannual dividend recently in the month of April.

Now moving on to some highlights from the first quarter. You can see we produced 118,000 ounces of gold and 3,500 tonnes of copper both in line with full-year guidance. Our all-in sustaining costs for the quarter were $1,567 per ounce and 112,000 ounces of gold sold. From a financial perspective, we reported an adjusted net profit after tax of $39 million which equates to an adjusted EPS of $0.06 per share.

We did report negative free cash flow of $16 million, slightly below plan due to over 6,000 ounces of gold at Haile being produced but not sold at quarter end. Other working capital outflows associated with planned Philippines annual tax payments and annual employee incentive payments for 2022 which were made during the quarter.

We do remain in a strong financial position with $191 million of net debt, a leverage ratio of 0.3 times and liquidity of $158 million at the end of the quarter. And this gives us the financial flexibility to continue investing in the exciting growth projects across our business.

I'll now turn the call over to Scott McQueen to provide an overview of our Q1 financial highlights.

[Scott McQueen, CFO]

Thank you, Gerard, and good morning everyone.

First quarter financial results were broadly in line with expectations, given the temporary challenges faced by the New Zealand operations during the quarter. While the small quarter-on-quarter reduction in sales volume revenue was $244 million, a $6 million increase relative to the prior quarter due to higher average gold prices we see.

Also note, our first quarter gold sales were lower than gold produced reflecting the timing of sales around quarter end and gold in transit. We expect to benefit from the reversal of this timing difference in the coming quarter.

EBITDA for the quarter was $100 million with a $9 million reduction relative to the prior quarter with the first quarter impacted by the timing of sales around quarter-end as mentioned, higher G&A costs and a $2 million non-cash unrealized FX loss relative to a $16 million FX gain in the prior quarter. These non-cash FX adjustments mainly relate to movements in the New Zealand dollar exchange rate during the period.

Net profit after tax of $39 million was broadly consistent with the prior quarter. When adjusted for the non-cash unrealized FX loss this equates to an EPS of $0.06 per share will be diluted. Operating cash flow equated to $0.40 per share fully diluted both slightly ahead of analysts' consensus estimates.

While the first quarter EBITDA, net profit and EPS were sound, an improvement quarter-on-quarter on most measures this quarter free cash flow was lower at negative $16 million. It's mainly due to the delayed sales previously mentioned combined with typically high first-quarter working capital requirements, which included the payment of some annual Philippines taxes, annual insurance premiums, annual bonding and the payment of annual employee incentives as Gerard mentioned.

We expect to see these impacts normalize as the year progresses and we remain well on track to deliver strong free cash flow at current prices across the full year. As outlined at the start of the year, we continue to expect stronger group gold production and free cash flow in the second quarter relative to the first. Overall at the end of the first quarter, we will remain well on track to deliver our full-year guidance.

I will now turn the call over to David Londono to discuss the Haile operation.

[David Londono, COO, Americas]

Thank you, Scott, and hello everyone.

The Haile operation continues to maintain a low injury frequency rate with 1.6 recordable injuries per million hours worked at the end of the quarter, a 15% reduction compared to the end of 2022. Safely and responsibly delivering production is the highest priority at OceanaGold and I am very pleased with the continued efforts of the Haile team to keep each other safe.

First quarter gold production of 40,000 ounces was higher than the previous quarter primarily due to higher grades mined in New Zealand, which was offset by slightly lower mill tonnage as a consequence of these events that occurred in late 2022 combined with that shutdown earlier in the quarter. Haile expects to remain with full-year all-in sustaining cost guidance achieving $1,552 per ounce sold in Q1, while continuing to integrate continuous improvement projects in key operational and capital areas.

A cost of $673 per ounce sold in Q1 were impacted by timing of gold sales but slightly offset by lower operating costs. Q1 was an exciting quarter that's right. At the beginning of March, we hosted a well-attended Analyst and Investor tour and then on March 6, we welcomed investors to celebrate the opening of the Horseshoe Underground.

We have made significant progress on the underground since receipt of the ASCIS in Q4 of 2022 and are on track for first ore in Q4 2023. We also continue to invest in exploration with a healthy $7 million on the budget this year and in the first quarter, we continued our daily focus at Palomino and have a underground real schedule to begin drilling at both Horseshoe and Horseshoe expansion later this quarter.

It is somewhat declining on the underground path, the focus during Q1 was on advancing development of the main decline of ventilation portals. The decline has now made an important milestone reaching the 10.35 level, which represents the top elevation the Horseshoe underground orebody. Year-to-date, we have completed 341 meters for total development for an average of 273 meters per month.

Meanwhile, work has been advancing on our surface project as well with progress being made at both the Westpac facility and Tailings storage facility expansion. We are pleased with the work being done on surface, as the expanded footprint allows additional operational flexibility and optimizes material handling.

The water treatment plant expansion, all the piping installation has been completed and the plan is now energized. Commissioning began at the end of April, and the plan is expected to be fully operational this quarter.

Overall the Haile expansion project remains in schedule and I'm very excited about the future of the mine. I will now turn the call over to Peter Sharpe to discuss the Didipio and our New Zealand assets.

[Peter Sharpe, COO, Asia-Pacific.]

Thank you, David, and hello everyone.

Starting with Didipio. The mine continues to be one of the safest operating mines in the Philippines and the mining industry in general and reported a 12-month moving average recordable injury frequency rate of 0.8 injuries per million hours worked at the end of the quarter. First quarter gold production of 33,000 ounces was 14% higher than the previous quarter, with copper production of 3,500 tonnes being consistent with previous quarter. A good start to the year and sets us up really well to make the full-year production guidance for Didipio.

Didipio's first quarter all-in sustaining costs was $595 per ounce or cash costs were $576 per ounce, which helped deliver strong margins for the period. The 45% quarter-on-quarter decrease in all-in-sustaining cost is mainly due to higher gold sales along with lower sustaining capital expenditure. We do expect sustaining capital expenditures to increase through the year and expect Didipio all-in-sustaining costs to be within full-year guidance ranges.

We continue to study the options for increasing underground mining rates at Didipio to at least 2 million tonnes per annum, and expect to be in a position to share the findings from this work by the end of this year. On the exploration side, we began follow-up drilling on the two recent discoveries we announced in December and we'll continue delineating these and other targets throughout the remainder of the year.

Moving over to Macraes. The operation reported a 12-month moving average recordable injury frequency rate of 2.9 injuries per million hours at the end of the first quarter, a much improved 43% reduction compared to the end of the previous quarter. Macraes produced 27,000 ounces of gold for the first quarter of 2023, 33% lower than the previous quarter.

Reduced mill throughput and our average fee grades were the key drivers of this decrease. The throughput impact was caused by the crack trunnion on the ball mill that Gerard mentioned earlier. While the lower grade was predominantly due to the lower underground ore tonnes in the quarter.

The repair to the ball mill trunnion was completed at the end of March, and normal mill throughput rates were achieved in April. We also completed a planned shutdown of the ball mill in mid-April to inspect the condition of the repair and pleasingly everything look good. We are undertaking an engineering assessment now and expect to have a full fit and replacement designed and ready for installation in early 2024.

Underground mining at Golden Point Underground was impacted by a fall of ground in late February, resulting in a decision to upgrade ground support in all of the intersections and turnouts in the main decline. This work was completed at the beginning of April and development rates are expected to return to full capacity by the end of Q2.

Stopping rates are unchanged from original plan which is a ticket for capacity in Q3. Stronger operational performance in Macraes is expected through the rest of 2023 as the mill has now returned to full capacity and higher grade ore from Golden Point Underground is being processed.

Now for Waihi. Waihi produced 10,000 ounces of gold for the first quarter. This was broadly in line with the previous quarter. And as previously reported, the North Island of New Zealand and Waihi operation experienced abnormally high rainfall at the beginning of 2023. Over 1 meter of rain fell during the first six weeks of the year to put this into context.

This impacted productivity in the underground mine, especially in the areas of Edwards and Empire West and the mining had to be developed into alternative areas of the margin on the expectation that rainfall will continue to moderate, as it did in March and April, the company expects to be able to access the previously flooded areas in the second quarter, which will allow the first quarter production impacts to be recovered across the balance of 2023.

I will now turn the presentation back over to Gerard.

[Gerard Bond, President and CEO]

Thanks, Peter.

I'm pleased to welcome some new faces to our Board and Management team. Linda Broughton has been recently appointed to the Board of Directors and brings with her a successful track record as an accomplished executive in the mining industry. Being an executive in the environmental geochemistry, water and tailings management, mine reclamation and closure as well as risk management will provide us with a unique perspective and add tremendous value to our Board and to our shareholders.

We also recently announced the appointment of Marius van Niekerk as Chief Financial Officer, who will join us towards the end of this month. Marius is a very capable and dynamic executive with global, commercial and financial expertise, both in the resources and technology industries. I'm very confident he will help sustain the integrity of our financial reporting and governance systems as well as generate significant value for the company.

Marius will be with us for a while, yet, I'd like to take this opportunity to thank Scott McQueen for his more than six years of dedicated service and high-quality contribution to OceanaGold. Both a high-caliber, high-integrity CFO and we appreciate his commitment to support the onboarding and transition to Marius as well as completing several important projects throughout 2023.

I have complete confidence, Scott is going to get a few more farewells and best wishes before he eventually leaves us. But for now, I'm going to take the opportunity to acknowledge his contribution to the company and to the excellent support and wise counsel he has provided me over the past year.

So in summary, we remain committed to our goal to safely and responsibly deliver on the production and financial expectations set at the beginning of this year, which we know to be a key requirement of the market. We are focused on safely responsibly maximizing the free cash flow generation of the company and we've made good progress in our journey of realizing the organic growth potential in our portfolio.

Shareholders can be certain our objective is creating shareholder value and generating higher returns to shareholders.

With that, I'll now hand the call to the operator and we'll take questions.

[Operator]

[Operator Instructions] Your first question will be from Ovais Habib at Scotiabank. Please go ahead.

[Ovais Habib, Scotiabank]

Thanks, operator. Congrats Gerard and OceanaGold team on the Q1 beat this is despite challenges of the New Zealand operations so great job there. Just a couple of questions from me. Number one, great to hear that Haile Underground expansion remains on track, you guys are doing -- the underground decline is advancing to the first production level. Have you -- as you progress to the production stope that you're looking to develop have you started doing any sort of grade control drilling and if so have the results been in line with your expectations?

[Gerard Bond, President and CEO]

David.

[David Londono, COO, Americas]

I can answer the question. So we actually haven't started drilling yet, we have the drill in transit and we plan to start in the next couple of weeks.

[Ovais Habib, Scotiabank]

Okay, Thanks for that. And then just that then moving onto Palomino you are looking to convert resources to reserves in early 2024, will you be releasing an updated underground study on the back of this resource to reserve conversion? Any thoughts or color there?

[Gerard Bond, President and CEO]

Ovais, I mean I'll say that I mean I guess we'll be data-driven Ovais again the drill results and the magnitude of what that means for the mine and its materiality will govern that, but we do have a study underway. The study will be informed firstly by the drill results. And yes, as and when it's often magnitude that causes there to be material change that will compel us to do an updated study.

[Ovais Habib, Scotiabank]

Thanks, Gerard. And my last question just on the Q4 conference call, you mentioned that Oceana is kind of working on optimization study that I believe it was Macraes, Didipio and Waihi, are you looking to release new studies of the market and if so when should we expect these results? Also any sort of progress on those studies and any sort of expectation that are being built up within the Company?

[Gerard Bond, President and CEO]

Look, so as and when they are all in progress and they are variously to -- at Macraes it's we have the Round Hill option study, which we provided some detail on, as you say in the Q4 results. That's underway and will be -- as soon as it is completed and again subject to being materially different to what is the current fly path of the asset we will update the market.

A lot of the other studies that are going on across the business relate to underground optimization, particularly at Didipio and that I think Peter mentioned on the post now, the part as though need take it to from its current underground mining rate.

And as you appreciated those any time, at any of our underground mines, at any best sites when we can get more from underground, whether that'd be at Macraes, Didipio, and of course Haile, the benefit that we get from a grade perspective and then a waste handling perspective is really powerful.

So a lot of work being done to see if we can increase the amount of material that we get from underground at all sites with those underground operations. But yes, as a general statement, you can certain that as and when we complete the studies, and we've got something to say, we'll be all too pleased to share that with the market.

[Ovais Habib, Scotiabank]

Thanks Gerard for the color and thanks for taking my questions. That's it from me.

[Gerard Bond, President and CEO]

Thanks, Ovais. Appreciate it.

[Operator]

[Operator Instructions] And your next question will be from Mike Parkin from National Bank. Please go ahead.

[Mike Parkin, National Bank]

Hi guys, congrats on the quarter. Just one follow-up to Ovais' last question there. The multi-year guidance, I would assume it doesn't factor in any potential optimization upside at the various undergrounds. Would it?

[Gerard Bond, President and CEO]

Look, I mean, there's a certain level of improvement, but not in terms of a step change in nature, no. So we don't have the kind of the step change in Didipio for example that Peter spoke about reflected therein. So it does represent upside to that multi-year outlook. But there is a degree of improvement in our multi-year outlook as well. So it goes that -- but with some of those studies, particularly again when at Didipio that represents quite a considerable change in potential.

[Mike Parkin, National Bank]

Okay, thanks for that. We're seeing a number of miners beat on earnings and noting an improvement on consumables. Your OpEx tracks very nicely relative to my estimate. Can you just highlight some of the areas where you're seeing the biggest wins? Diesel has been mentioned by some of your peers, is that something you're seeing improved quarter-over-quarter?

[Gerard Bond, President and CEO]

In short, yes, and diesel has had a commodity price exposure at its core has translated into better pricing, but that also relates to some reagent, I mean we really got stung with a burgeoning in reagent costs last year and that has pulled back to varying degrees. It does vary by reagent but we're pleased to say that certainly the rate of inflation has slowed.

In some cases, it has decreased in terms of price to again to varying degrees. I think that changes, the supply side response has lifted and some of those constraints, particularly those relating to shipping out of China, that you will all recall was constrained with the latest lift of COVID restrictions in country. What we've also seen is that speed of supply to the market has also improved. So yes, we haven't fully reverted to the pre-inflationary surge that we all experienced, as an industry last year, but certainly are getting some reversion on some elements this year.

[Mike Parkin, National Bank]

Excellent. And TCRC is with respect to Didipio, are you seeing any improvement on those contract prices or are they still kind of locked up for a period before renegotiation?

[Gerard Bond, President and CEO]

I believe there's subject of an existing contract. Scott McQueen, you can probably clarify.

[Scott McQueen, CFO]

That's right, Gerard. Our current contracts lasts about another 12 months, then we're in the process of getting ready to go through the proper commercial process to how we can improve that whole structure. So that will be part of it, but right now, they have been locked into the contracts for the last short period.

[Mike Parkin, National Bank]

Okay and then just one last question, we are down at site to see the Haile Underground it certainly show that the more challenging ground conditions seem to be behind you. Is that still the case here? You're Noting pretty impressive development rates of about 10 meters a day. Just any kind of comment in terms of conditions of the rock, inflow of water et cetera water was fairly modest when we are there, is it same. lower, higher?

[Gerard Bond, President and CEO]

David.

[David Londono, COO, Americas]

Yes. We've definitely seen a big improvement on the ground conditions and the water has been diminished. Yeah, we actually -- April was a very good month for us where we advanced 300 meters within the month. So it is ramping up really nicely.

[Mike Parkin, National Bank]

Great. Okay, that's it from me guys. Thanks so much.

[Gerard Bond, President and CEO]

Thank you, Mike.

[Operator]

[Operator Instructions] And at this time it appears we have no further questions. Please proceed with closing remarks.

[Gerard Bond, President and CEO]

Well, look, thanks everyone for taking the time [technical difficulty] the webcast. Basically I will be available on our website later today. On behalf of everyone at OceanaGold, really appreciate you joining us and wishing you all a very pleasant rest of day. Bye for now.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed concludes your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.