Orla Mining Ltd

TSX:OLA

Earnings Call Analysis

Orla Anticipates Net Cash Position by Year-End

Orla Mining Ltd. steered its way through challenges and achievements in the third quarter, highlighted by significant exploration investments and steadfast progress towards strengthening its balance sheet. With over $12 million funneled into exploration activities, primarily at the Camino Rojo sulphide deposit and the South Railroad project in Nevada, the company stays on track with its $35 million 2023 exploration plan. The dedication to advancing these projects underpins Orla's commitment to future growth and value creation for its stakeholders. Amidst ongoing operations and strategic development, executives anticipate Orla reaching a net cash position by the end of the year, gleaming a positive outlook for the company's financial health amidst industry cycles.

Commitment to Safety and Operational Excellence Drives Strong Quarter

Highlighted by stellar environmental management and operational performance, the company achieved a third quarter marked by success. Recognition came in the form of the prestigious 2022 Silver Helmet award for open pit mining, which underscores the dedication to safety. Furthermore, operational excellence was demonstrated at Camino Rojo, leading to an uptick in the 2023 gold production guidance, signifying both the asset's robustness and the team's adept execution that bolstered cash flow and solidified the balance sheet.

Record Gold Production and Financial Resilience

The period saw record gold production, with 32,425 ounces poured, notably exceeding the plant's capacity. Robust sales translated into substantial revenue, and the company realized net income along with slightly higher adjusted earnings, reflecting prudent financial management and the effect of investments in exploration and growth. Notably, the company managed to maintain an impressively low all-in sustaining cost, alongside significant investments in expansion and sustained strong operating cash flow. With substantial debt repayment, an improved credit facility, and a fortified cash balance, the company is poised to achieve a net cash position by the end of the year, signaling financial resilience and strategic foresight.

Cultivating a Sustainable Future Through People Engagement and Development

The company is devoted to fostering a culture that prizes safety, health, and professional development, which is instrumental to its long-term viability. Investments in people were emphasized by the successful renewal of a collective bargaining agreement, ensuring fairness and competitive compensation. This approach to employee relations showcases the company's values of transparency, engagement, and mutual growth, all of which contribute to a stable and effective operating environment.

Advancing Exploration Frontiers for Continued Growth

With an exploration budget exceeding $12 million for the quarter, the company has made significant progress in expanding the Camino Rojo sulphide deposit and in the Nevada South Railroad project. Drawing near to completing the majority of its planned drilling program, the intention is to enhance the understanding of the deposits, which shows the potential for underground development and a stand-alone processing option. The investments in exploration are a testament to the company's commitment to discovering new opportunities and securing future growth prospects.

Navigating Uncertainty in Panama with a Thoughtful Approach

Despite acknowledging the operatively strong business fundamentals and successful sustainability practices, the company recognizes the current uncertain climate of resource development in Panama due to political and legal challenges. In particular, the company optimistically received environmental permits for its promising Cerro Quema project and noticed positive developments in mining investment. However, recent events, including a moratorium on extraction activities, have introduced uncertainty. In response, the company has adopted a cautious spending strategy while closely monitoring the situation to determine the future course of action.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to Orla Mining's Conference Call for the Third Quarter 2023 Results. My name is Chris, and I'll be your conference operator today. [Operator Instructions] Please be advised that this call is being recorded. I'd like to turn the meeting over to Jason Simpson, President and Chief Executive Officer of Orla Mining. Please go ahead, Mr. Simpson.

[Jason Simpson, executive]

Thank you, operator, and welcome to Orla's Third Quarter 2023 Results Conference Call. We will be making forward-looking statements during today's call and I direct you to the first and second slides of this presentation, which contains important cautionary notes regarding these forward-looking statements. All dollar amounts discussed today will refer to U.S. dollars, unless otherwise indicated.

Our third quarter was highlighted by: an environmental management, including a safety award, Andrew will highlight; continued operational and cost performance at Camino Rojo. As a result of our continued outperformance at Camino Rojo, we have increased our 2023 production guidance, a testament to our team's continued execution as well as the strength of the asset. Because of our cost management and the strength of operations, we continue to generate strong cash flow and strengthen our balance sheet.

Our net balance at quarter end stood at $3 million. I'm also pleased to communicate that we renewed our collective bargaining agreement with our team in Mexico. A vote of confidence for the strength of our relationship with this team. We continue to systematically work through our extensive exploration program with a focus on Mexico and Nevada, which will support our growth ambitions.

The ongoing events in Panama are something I'll discuss on this call. We have the full executive team on the call to provide specific updates. Over to Andrew Cormier, our Chief Operating Officer, for the Q3 operational update.

[J. Cormier, executive]

Thank you, Jason. The third quarter was marked by continued strong mining and processing performances at Camino Rojo. We did this while maintaining the health and safety of our team. This year, Camino Rojo was awarded the 2022 Silver Helmet award for open pit mining by the Mexico Mining Chamber, CANIMEX. This award is the highest award in the Mexican mining industry recognizing companies and workers for safety at their operations.

1.8 million tonnes of ore was mined at a strip ratio of 0.59 and an average grade of 0.81 grams per tonne of gold. The average grade of ore processed during the quarter was 0.85 grams per tonne of gold. An average stocking rate of 19,205 tonnes per day was achieved, another quarter above plant nameplate capacity.

Mined ore tonnes and grade are reconciling well to the block model and processing recoveries remain in line with the metallurgical recovery model. Gold production in the third quarter was a record with 32,425 ounces of gold poured. Subsequent to quarter end, October was a record month for gold production with 11,760 ounces of gold produced. We are well on track to achieve our increased guidance range of 110,000 to 120,000 ounces of gold.

Based on laboratory column tests, we made some adjustments to our crushing circuit and decreased our final product size during the quarter. The initial operational impacts to recovery have been positive, and we will continue to monitor the results. Stay tuned for future updates on this initiative.

As previously mentioned, we are mining less waste than initially planned this year as we await permit amendments from the Mexican authority. We've had some positive indications from SEMARNAT, and we hope to have amendments in hand by year-end, which will allow us to start mining in these areas in early 2024.

I will now pass the call over to Etienne Morin, our Chief Financial Officer, to discuss the financial results for the quarter.

[Etienne Morin, executive]

Thanks, Andrew. During the quarter, we sold 31,000 ounces of gold at a realized price of $1,921 per ounce, resulting in $60 million in revenue for the period. Our net income for the quarter was $5.4 million or $0.02 per share. After adjusting for a few items, including unrealized foreign exchange gain and the loss on the early settlement of our credit facility. Adjusted earnings were $6.6 million or also $0.02 per share.

It should be noted that during the quarter, we expensed about $11 million in exploration and project costs as we continue to advance our growth pipeline in Mexico and Nevada. All-in sustaining costs for the third quarter was $743 per ounce. And on a year-to-date basis, our all-in sustaining cost is $712 per ounce. It's worth mentioning that we're going to accelerate the construction related to the third expansion phase of the heap leach pad at Camino Rojo and we'll be bringing forward an additional $4 million in sustaining capital into Q4, spending that was otherwise scheduled to be taking place in the first half of 2024. The remaining $8 million in sustaining capital for this project will be spent in Q1 and Q2 of next year.

Even with this additional capital in the fourth quarter, we remain confident in achieving our revised all-in sustaining cost guidance of $700 to $800 per ounce for the year. Cash flow from operating activities before changes in noncash working capital was $21.8 million or $0.07 per share for the quarter, and we added close to $19 million in free cash flow in the third quarter.

To quickly summarize some of the quarter-over-quarter variances in net income. We've provided a simple graph to show the key changes. This quarter, we saw more exploration spending, predominantly in Nevada, where we took advantage of the dry summer season to advance our work programs. Cost of sales was higher this quarter as we sold more gold during the period, and we had a onetime charge of $1.4 million related to the accrual of wages and bonuses resulting from the successful completion of our collective bargaining agreement in Mexico.

During the quarter, we amended our credit facility to have $150 million revolving facility at a lower cost of capital. The new facility removes mandatory quarterly repayments and extends to August 2027. I'd like to thank our lenders, Scotia, BMO and CIBC for their continued support.

Of the $150 million facility, we had $113 million outstanding at the end of the quarter. And subsequent to quarter end, we made a $25 million repayment which brings our current outstanding balance to $88 million. A quick reminder that in December, we'll be making our third and final payment of $22.8 million to Fresnillo as part of the layback agreement.

We had a cash balance of nearly $133 million at quarter end and continued operational cash flow generation at Camino Rojo and the debt repayment, including the Fresnillo payment. Our balance sheet is improving every day, and we anticipate to be in a net cash position by the end of the year. Over to Chafika, our Chief Sustainability Officer now, who will provide some update on our people approach.

[Chafika Eddine, executive]

Thank you, Etienne. Last quarter, I discussed how proud we were with the release of our inaugural sustainability report. Certainly, an important milestone for our growing company. This quarter, I would like to talk about our approach to people as well as to mention the successful agreement we achieved with our collective bargain agreement renewal at our Camino Rojo in Mexico.

Our employees and workers, including contractors are vital to our business. We want and need them to be aware that they are part of our shared success. We aim to have a productive, safe and healthy work environment where we operate with consistency, work together and support our mutual growth.

In order to have our people wanting the company to succeed, we must take care of our employees basically a safe and healthy work environment, clearly defined work and fair and competitive compensation and benefits. We provide our employees with access to training and development that will help them advance their skills and get them closer to their aspiration. Employees help the company operate in a stable, healthy and productive way through communication and effective actions to mitigate risk.

We are honest and open. We lead all our relationships with care, including the one with our repayments. We believe this generally a transparent approach helps our shared success to increase our long-term sustainability as a business.

As for our relationship with our employees' union, we see them as our operating partner. We understand their position. They recognize our position and together, we seek to work productively. As an example, Orla worked to ensure medical and health benefits were universally available without exclusion.

This was a voluntary initiative from our company. Something we believe was a benefit to our workforce. In short, our employees are critical to our success, and we work hard to nurture this important relationships. And with that, I'll pass the point to Sylvain Guerard, our Senior Vice President, Exploration.

[Sylvain Guerard, executive]

Thanks, Chafika. In the third quarter, we invested just over $12 million into exploration on our projects as we advance the Camino Rojo sulphide deposit and exploration at South Railroad in Nevada. As a reminder, our 2023 exploration project across the portfolio is $35 million, mostly focused on Mexico and Nevada.

At the end of the third quarter, we had incurred $26 million out of the $35 million. At Camino Rojo, a large portion of the 2023 program is focused on the sulphide infill drilling and approximately 80% of the planned 34,000 meters has been completed. The intention of this program is to advance our understanding of the deposit.

Approximately 20% of the 2023 sulphide drill holes are planned to be extended beyond the boundaries of the current open pit resource estimate to test the down plunge continuity of the gold mineralization. As reported earlier this year, one of the drill holes intersected significant polymetallic sulphide replacement mineralization beneath the Caracol Formation hosted Sulphides along and adjacent to the Dike Structural Zone.

Based on an updated geological model and success of hole 15C, a drill section was designed to follow up on historical drill results, 250-meter down plunge of hole 15C. Based on visual core results from holes on the section, sulphide mineralization remains open at depth in drilling this plan to [ fewer ] assess the potential of the sulphide extension. We will look to provide the results once we complete this year program.

Initial drilling into the Camino Rojo Sulphide continues to intercept wide zone higher-grade gold minimization and in conjunction with metallurgical results from 2022 continues to support the potential for underground development and a stand-alone processing option for Camino Rojo Sulphides.

The 2023 infill drilling is planned to be completed in the fourth quarter and is expected to inform a future update to a potential underground resource estimate, mining methods and production decisions. It's also worth noting that the near mine layback oxide drilling was completed. This new information would be reflected in the year-end 2023 resource and reserve statement to be provided early next year.

In addition, the regional exploration drill program is testing priority targets in an effort to make new satellite discovery. Approximately 85% of the planned 15,000-meter regional program has been completed to date with a focus on Camino Rojo mine trend and at other regional targets.

In Nevada, our exploration program is progressing well since the acquisition of Gold Standard Venture less than 16 months ago. The exploration objectives at South Railroad are to upgrade and grow resources and drill test multiple targets for new discoveries.

Drilling ramped up in the second and third quarter focused on infill drilling to support upgrading resource at North Bullion deposit, testing the pit extension potential of the Dark Star and Pinion deposit and drilling other targets across our large land position. We are excited about the opportunities ahead at South Reload and look forward to keeping you updated on our future development. I will now pass the call back to Jason.

[Jason Simpson, executive]

Thanks, Sylvain. As the executive team has outlined for you, the Orla business fundamentals are strong based upon excellent sustainability performance. Overachievement in production and our discipline to maintain our position as one of the lowest cost producers in the industry. I think it is important that we touch on the ongoing resource development prospects in Panama. Like many, we are following the recent events in Panama, meeting up to the 2024 elections.

Earlier in 2023, we saw great progress in the country to support mining investment and fiscal stability. First, we received the environmental permit for our Cerro Quema project which was an important step for its development. Then a new contract was agreed upon between the government of Panama and First Quantum, which they subsequently passed into law another positive step. However, more recently, in response to opposition of the newly ratified law for Cobre Panama, the government is seeking judgment from their Supreme Court on its constitutionality and placed a moratorium on resource exploration and development.

The impact of these recent developments on the company's Cerro Quema project remains uncertain. The company expects that various factors, including potential court challenges in the May 2024 for Panamanian general election may impact its strategy in Panama.

The company will continue to monitor these developments and make an informed assessment of its strategy once additional information is available. We have and will continue to take a conservative approach to spending and development in Panama, awaiting more certainty to inform our strategy.

Our Cerro Quema project in Panama is a potential area for growth for Orla, among others. It's a solid project with solid economics. We also believe that the responsible development of Cerro Quema would be an important social and economic contributor to the host communities and governments.

Finally, the presence of copper and gold on our property and the geologic potential for more in the nation has not changed and could be developed in a responsible way for the benefit of all stakeholders. I'd like to give special attention to the members of our team, the government of Zacatecas as well as our industry colleagues who supported us recently as we evacuated Acapulco, Mexico.

There was a large mining conference taking place in Acapulco, where our Camino Rojo team was receiving the Silver Helmet award recognizing our achievements and people safety. Hurricane Otis, the largest hurricane to ever hit the Pacific Coast made devastating landfall during the conference, resulting in significant human and property destruction.

It was the solidarity of our team and this industry that allowed us to return home safely. In a world where various destructive scenarios have unfolded, please consider making positive differences where you can.

As we drive toward year-end, we are on track to achieve our increased production and reduced cost guidance. That performance has us on track to be net cash positive in the near term. Thank you to our team who remain steadfast in their commitment to Orla's strategic objective of creating value for stakeholders. At this point, I'd like to turn the call to the operator for questions.

[Operator]

[Operator Instructions] It appears that we have no questions. I'll turn it back to Mr. Simpson for any closing remarks.

[Jason Simpson, executive]

Since there are no questions, I would like to thank you for your time never hesitate to reach out to Orla should you have any follow-up questions.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.