Orla Mining Ltd

TSX:OLA

Earnings Call Analysis

Record revenues, reduced costs, and increased production guidance

Orla Mining reported a record $85 million in revenue for Q2 2024, driven by strong gold production and higher realized prices. The company sold 35,000 ounces of gold at $2,332 per ounce. All-in sustaining costs dropped to $782 per ounce, leading to a net earnings of $24.3 million. The robust financial performance enabled debt reduction and increased free cash flow to $44 million. Due to strong operational execution, Orla raised its 2024 gold production guidance to 120,000-130,000 ounces and lowered cost guidance to $800-$900 per ounce. The company continues to advance its projects in Mexico and Nevada.

Navigating a Strong Quarter

In the second quarter of 2024, Orla Mining achieved remarkable financial results, selling 35,000 ounces of gold at a realized price of $2,332 per ounce, leading to a record revenue of $85 million. This performance marks a significant milestone for the company, demonstrating strong operational capabilities amidst fluctuating gold prices. A critical aspect of this success is the reduction of all-in sustaining costs, now forecasted to be between $800 and $900 per ounce, down from the earlier guidance of $875 to $975 per ounce.

Elevated Earnings and Cash Flow

Orla's earnings for the quarter reached $24.3 million or $0.08 per share, showcasing strong financial health. After accounting for adjustments, adjusted earnings remained robust at $23 million, maintaining an impressive operating margin of 64%. Additionally, the company generated a remarkable free cash flow of $44 million ($0.14 per share), further reaffirming its financial stability and operational efficiency.

Mining Performance and Future Expectations

The operational performance in Mexico continues to shine, with the production of over 33,000 ounces of gold. Orla has increased its full-year production guidance to 120,000 to 130,000 ounces based on strong mining trends and improved recovery rates. This adjustment reflects the operational excellence achieved, including advancements in mining techniques and resource management.

Ongoing Investments and Debt Reduction

Orla's commitment to financial prudence is evident as it actively manages its debt, repaying $10 million during the quarter and an additional $20 million post-quarter, reducing the current credit facility balance to approximately $58.4 million. The company ended the quarter with $154 million in cash and a net cash position of $76 million, underpinning its strategic intent to fuel further internal project growth and exploration.

Exploration and Development Initiatives

Looking ahead, Orla is actively engaging in exploration activities, having commenced the 2024 exploration program at South Railroad in Nevada and continuing substantial drilling efforts at the Camino Rojo sulfide extension. The company plans a 30,000-meter drilling program in 2024 to expand the resource potential. Early results have demonstrated an increase in gold recoveries by 3% to 5%, substantiating the effectiveness of ongoing operational enhancements.

Commitment to Sustainability and Community Engagement

Orla Mining emphasizes its sustainability strategy, aligning company operations with environmental and community stewardship. The second sustainability report is anticipated soon, detailing efforts to maintain low carbon emissions and ensure environmentally responsible mining practices. Engaging with stakeholders to address their concerns remains a priority, fostering trust and collaboration while reinforcing Orla's reputation in the mining sector.

Future Outlook and Market Position

Overall, the results from the second quarter reshape Orla’s market positioning positively, reflecting continued operational success and strategic foresight. With robust cash flow generation, ongoing debt reduction, and a proactive exploration strategy, Orla is well-prepared to capitalize on favorable gold market conditions and deliver sustainable shareholder value.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to Orla Mining's Conference Call for the Second Quarter 2024 Results. My name is Kayla, and I will be your conference operator today. [Operator Instructions] Please be advised that this call is being recorded.

I would like to turn the meeting over to Andrew Bradbury, Vice President of Investor Relations and Corporate Development. Please go ahead, Mr. Bradbury.

[Andrew Bradbury, executive]

Thank you, operator, and welcome to Orla's Second Quarter 2024 Results Conference Call. We will be making forward-looking statements during today's call, and I would direct you to the first and second slides of the presentation, which contains important cautionary notes regarding these forward-looking statements. All dollar amounts to discussed today will refer to U.S. dollars, unless otherwise indicated. The Orla executive team is on the call this morning, and I'll pass the call to Jason Simpson, President and CEO.

[Jason Simpson, executive]

Thanks, Andrew. During the second quarter, Camino Rojo continued to produce higher-than-planned ounces at low costs, all the while maintaining the health and safety of our workforce and consider it of our local environment.

Our low-cost production, combined with higher gold prices is driving increased margins and cash flow, which is being used to pay down debt and invest in our growth. Some of that growth includes the Camino Rojo sulfide extensions with recent drilling showing impressive high grades and strong initial metallurgical results.

We have the executive team on the call to provide specific updates in various areas. The year-to-date outperformance at Camino Rojo enables us to increase our full year production guidance to 120,000 to 130,000 ounces and decreasing our all-in sustaining cost guidance to $800 to $900 per ounce gold sold. I am very proud of our team's efforts in delivering the consistent execution quarter-over-quarter.

Now over to Andrew Cornet, our Chief Operating Officer, to discuss more on this operating performance.

[J. Cormier, executive]

Thank you, Jason. As mentioned, our operating team in Mexico has delivered another strong quarter. It is imperative to Orla that we maintain a safety-first culture and always consider the impact of our actions on our stakeholders.

During the quarter, we mined over 1.9 million tonnes of ore at a strip ratio of 1.08. In the second half of the year, we plan to continue to increase the rate movement to a strip ratio of 1.5. As we previously indicated, we'll be mining at least 90% of the material planned for the year.

The average gold grade of ore processed during the second quarter was 0.87 grams per tonne. We also achieved an average stocking rate of 19,717 tonnes of ore per day.

I would like to provide an update on the recovery improvement program we started in August 2023. The objective of the program was to increase the gold recovery by reducing the crusher product size while maintaining the daily throughput. The program has resulted in an increased gold recovery between 3% to 5%, and we will continue with the testing in 2024.

With the continued strong mining and operating performance in the second quarter, we produced over 33,000 ounces of gold. And year-to-date, we have outperformed on tonnes, grade and recovery for both gold and silver. With the continued operational execution and performance, we are increasing our production guidance for the full year to 120,000 to 130,000 ounces of gold.

The increased production guidance for 2024 is a result of the increased total stock material and improved recoveries. Overall grades for the year will remain in line with plan.

It is worth noting that we are continuing our permitting efforts to expand the mine in Mexico and have the flexibility of the current mine plan. The permitting process also continues in Nevada. We are working through the federal permitting process with the Bureau of Land Management, the lead agency for the permitting.

All 19 supplemental environmental reports have been submitted for review, of which 13 reviews have been completed. We anticipate permitting will continue through this year and next year in advance of the target construction start in 2026.

And with that, I'll pass the call to Etienne Morin, our Chief Financial Officer; to discuss the financial results for the quarter.

[Etienne Morin, executive]

Thank you, Andrew. During the quarter, we sold 35,000 ounces at a realized gold price of $2,332 per ounce resulting in a record $85 million in revenue for the period. All-in sustaining costs for the second quarter was $782 per ounce, lower in part due to higher gold production and improved silver recoveries.

With a strong gold production and cost management, we're reducing our 2024 all-in sustaining cost guidance to a range of $800 to $900 per ounce of gold sold down from our initial guidance of $875 to $975 per ounce. This low-cost production, coupled with the higher gold prices are driving strong earnings and cash flow generation.

Our earnings for the quarter was $24.3 million or $0.08 per share. And after adjusting for unrealized foreign exchange gains and other small items, adjusted net earnings was $23 million or $0.07 per share. These strong earnings are reflected in peer-leading operating margins of 64% in record free cash flow generation.

During the quarter, exploration and project costs were $9.7 million, of which approximately or $6.6 million as expense and $3.1 million was capitalized. Cash flow from operating activities before changes in noncash working capital was $53.2 million or $0.17 per share for the quarter. Meanwhile, we generated a record $44 million in free cash flow or $0.14 per share.

As per our plan, sustaining capital costs will ramp down in the second half of the year as the Phase 2 expansion of the heap leach pad was completed in early Q3. The total capital expenditures in the second quarter was $7.9 million, of which $4.9 million was sustaining capital and $3 million was nonsustaining and related to capitalized exploration in Mexico.

So here on this graph, we've shown -- we've actually shown this chart in previous quarter, but it's worth reiterating our commitment to pay down our debt as we continue to generate strong cash flows. During the quarter, we repaid $10 million towards a credit facility, and we ended Q2 with $154 million in cash, $78 million in debt. and resulting in a $76 million net cash position.

In July and subsequent to quarter end, we repaid an additional $20 million towards our revolving credit facility, bringing down the current balance outstanding to $58.4 million. We'll continue to evaluate opportunities to reduce debt, to reduce interest charges while maintaining our financial flexibility to fund our internal project pipeline, including our exploration programs.

And with that, I'll pass the call over to Sylvain Guerard, our Senior Vice President, Exploration.

[Sylvain Guerard, executive]

Thanks, Etienne. In the second quarter, we continue to advance our 2024 Exploration program with ongoing drilling at Camino Rojo in Mexico, and the commencement of our 2024 exploration program at South Railroad in Nevada. Throughout the quarter, we drilled over 10,000 meters with approximately 7,800 meters on the Camino Rojo sulfide extension and 2,300 meters at South Railroad.

We issued a press release in late June, highlighting positive drilling intersection and metallurgical results from Camino Rojo extension in the first half of 2024. additional news releases providing results from our Camino Rojo and our South Railroad drill programs are planned for late '24.

As part of the near-mine exploration at Camino Rojo, we are focusing our '24 effort on the promising Camino Rojo extension. We have designed a 30,000-meter drill program aimed at testing and expanding the potential of the still-open mineralization at the expansive Camino Rojo deposit. The program targets polymetalic replacement style sulfide and skarn-type mineralization beyond the current resource boundaries.

At the end of the quarter, we have drilled over 18,000 meter and 23 holes with assay and metallurgical testing and progress. The drilling results indicate potential expansion of the Camino Rojo sulfide resources at depth, extending beyond the current mineral resource, down launched by at least 500 meters. The remainder of the current exploration program will focus on extending mineralization from half to 1 kilometer down launch of the current limit of the mineral resources along the dike structure.

This drilling is expected to test the open mineralized trends to assess the broader potential of the growing Camino Rojo deposit. The initial metallurgical results have been quite positive and are consistent with the results of last year. Gold recoveries of 81% to 96% for bottle roll and 85% to 88% for rougher flotation, highlighting the potential for compatibility of this new mineralization style with both standard cyanide processing and flotation methods.

As part of the Camino Rojo sulfide project planning, we are advancing an initial on-the-ground resource estimate but will not yet include any of the extension drilling, which remains ongoing. Metallurgical studies on the recent phase is also ongoing.

In Nevada, along the current trend, we have an exciting program underway. With the acquisition of Contact Gold, we increased our 2024 exploration budget by $3 million. We started our drilling 2024 in late May and by the end of the second quarter, has drilled more than 2,000 meters and completed 9 RC holes. Testing extension of nondeposit with assay resource spending. The 2024 exploration program will continue to test potential extension of mineral zones, including targets on the edge of the Pinion and Dark Star deposits, while also test new exploration targets across the South Railroad project.

Our 2024 Exploration program is progressing well with drilling operation underway in Mexico and in Nevada. We look forward to providing updates on our progress and results as we advance.

I will now pass the call to Chafika Eddine.

[Chafika Eddine, executive]

Thank you, Sylvain. On the sustainability front, we keep advancing our towards 2030 sustainability strategy to produce a net positive benefit for our stakeholders where we can add more than we track into society, the environment and the economy. Our second sustainability report will be released shortly, and I would invite you to have a look to learn about the targets and key performance indicators that measure our progress.

We have many reasons to be proud of our sustainability efforts. This includes how we are collaborating to protect and restore ecosystems and the low carbon intensity index from our Camino Rojo mine, which remains consistent with our 2022 level. This performance continues to position our Camino Rojo mine among the lowest global emitters in the gold sector.

Embedding the sustainability strategy into the business targets means creating actions that are economically feasible and operationally achievable, and that can create superior outcomes for the company and its stakeholders. We strive to foster a fair, safe and healthy working environment. where everyone genuinely wants the company to succeed.

We also keep engaging with all stakeholders to listen to their concerns and aspirations and to develop partnerships to maximize benefits. Openness is critical to build trust and achieve positive relationships. This is the way we are cementing Orla's reputation and culture for our company to remain recognized as a desired place to work for and to work with.

I'll now pass the call back to Jason.

[Jason Simpson, executive]

Thank you, Chafika. Our execution and delivery at Camino Rojo continue to underpin Orla's success. We are holding our costs and seeing margins expand in this very healthy gold price environment, which is strengthening the business.

Thank you to our team in every country where we operate, who remain committed to their area in this business. It is their collective efforts that drive us forward towards our vision of becoming the gold producer of choice.

And at this point, I'd like to open the call to questions and hand the call back to the operator.

[Operator]

[Operator Instructions] And our first question comes from John Sclodnick with Desjardins.

[John Sclodnick, analyst]

Congrats on a great quarter and another year of increasing guidance. Just on the recovery improvements. Just wondering when you'd expect to start increasing that crush size and to the finer grind? And just on the impact of processing costs, if you have a sense of that at this point?

[Jason Simpson, executive]

Yes, certainly. Thanks, John, and good to hear from you and appreciate the acknowledgment. In terms of the reduced crush size, we began that in August of last year. So that's been underway for over a year now. And as time has progressed and we understand the kinetic effect in the leach pad, we are now able to communicate to the market the percentage increase and recovery that we're seeing.

And of course, as you would expect, that increased recovery is part of the reason that we've been able to increase our production guidance in addition to throughput in grades in the first half. But also we're lowering our all-in sustaining cost guidance this year, which also considers the effects of improved recovery.

So as we conducted that process beginning in August of last year, we're watching 2 things. One is, could we achieve the reduced particle size and maintain our stacking throughput. The answer to that is yes. And secondarily into your question, could we do so and still keep our costs within budget and guidance. And the answer to that is also yes.

[John Sclodnick, analyst]

Okay. Great. I appreciate that color there. And I guess last thing for me, just on the second half of the year. Just trying to get a sense on kind of gold grades. We've seen elevated levels first half. I'd assume you'd expect a bit of a decline. But just wondering if you can give a bit of a sense on -- to what degree in the second half? And then kind of same idea for first strip ratio on the opposite. And I guess I'd expect that to tick higher. Just wondering if kind of the 1.5 range is suitable or do you see it coming higher or lower than that?

[Jason Simpson, executive]

Yes. Let's start with the grade. One of the contributors to our overachievement in the first half has been grade, in addition to throughput and recovery that we just discussed. For the second half of the year, recoveries and throughput will continue to be contributors, but the grades will in fact, begin to level out. So we expect based upon our latest forecast to be in line with our planned grades.

If we can continue our first half performance, we'll expect to continue to overproduce and stacking. And we are now carrying through the recovery benefits that we described. So you're quite right. And as we communicated to the market today, we're expecting the overall year-end grades to be in line with plan. The benefits of the increased production guidance will be a function of recovery and stacking rate.

Now in terms of the waste, you also correctly picked up that we have increased our stripping ratio beginning in quarter 2. As we previously communicated, we needed to make adjustments to the mine plan to enable us to strip the amount of waste planned for this year. And that will, as you've noticed, will be second half weighted.

I think 1.5 that you cited is a reasonable number to expect in the second half of this year, such that by the end of the year, given the understripping in quarter 1 will result to within about 90% of our waste stripping plan for the year. The benefits of that, of course, are that we are not going to upset the cost profiles for the years to come, having been able to adjust the mine plan and achieve the stripping ratio that we originally intended in 2024.

[John Sclodnick, analyst]

That's great. I appreciate those details. And again, congrats on a great quarter and year so far.

[Operator]

[Operator Instructions] Our next question comes from the line of Bryce Adams with CIBC Capital Markets.

[Bryce Adams, analyst]

Just one question, and it's probably for Etienne, but maybe Jason started to touch on it there. For the accelerated stripping in the second half, how will those costs be classified, assume capitalized, but will they be inside or outside of all-in sustaining cost?

[Etienne Morin, executive]

Yes. Thanks for the question, Bryce. No, it will be expensed. So it will be part of flow through inventory and be part of cost of sales. So we don't do capitalized stripping at this point.

[Operator]

And at this time, there are no further questions. I will now turn the call back over to CEO, Jason Simpson.

[Jason Simpson, executive]

Thank you, operator. Since there are no further questions, I'd like to take the opportunity to thank you for your time and remind you that you can always reach out to Orla. Should you have any follow-up questions, our management team is fully available. Thank you for tuning in.

[Operator]

And this concludes today's conference call. You may now disconnect.