Vista Gold Corp

TSX:VGZ

Earnings Call Transcript 2023-Q2

[Operator]

Good day, ladies and gentlemen. Welcome to Vista Gold’s Second Quarter 2023 Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Today’s Thursday, August 3, 2023. It’s now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

[Pamela Solly, Vice President, Investor Relations]

Thank you, Laura and good morning, everyone. Thank you for joining the Vista Gold second quarter 2023 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-Q 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 now turn the call over to Fred Earnest.

[Fred Earnest, President and Chief Executive Officer]

Thank you, Pam and thank you everyone for joining us on the call today. This morning, I’m pleased to highlight the extension of Vista’s agreement with the Northern Territory of Australia and actions taken by the Northern Territory to make the territory more competitive and attractive for mining investment.

The extension of our agreement with the NT government was a very important achievement as we continue our activities to de-risk Mt. Todd and demonstrates our strong relationship with the NT government and local stakeholders. Recent recommendations from the Northern Territory’s Mineral Development Taskforce reflect the territory’s commitment to enhance and increase mining investment in the territory. As these recommendations are implemented, we believe Vista and the Mt. Todd gold project will benefit in several ways. I will discuss both of these topics in greater detail later in the call.

Following Vista’s Annual General Meeting of shareholders in late April, we resized our Board of Directors from 7 members to 5 and named Tracy Stevenson as the company’s new chair. The strategic process with CIBC Capital Markets is ongoing, and we continue to take actions to implement cost reductions, which have had a positive impact on Vista’s financial position for a second consecutive quarter.

Vista continues to have no debt. We remain committed to the health and safety of our employees and to environmental stewardship at Mt. Todd. There have been no lost time accidents this year, and the site has now achieved 621 consecutive accident-free days.

I’ll now turn the time over to Doug Tobler for a review of our financial results for the quarter ended June 30, 2023.

[Doug Tobler, Chief Financial Officer]

Thank you, Fred. Today, I’ll provide a brief recap of our results of operations for the quarter ended June 30, 2023, and our financial position as of June 30, 2023. Vista Gold’s full financial statements and MD&A are included in our Form 10-Q that was filed yesterday and is available at either sedar.gov or – sorry, sec.gov or sedarplus.ca.

Vista reported a consolidated net loss of $1.5 million or $0.01 per common share for the quarter ended June 30, 2023, compared to a consolidated net loss of $1.4 million or $0.01 per common share for the quarter ended June 30, 2022. The loss for the current quarter was in line with management’s expectations and reflects a 16% reduction of operating expenses compared to the same period in the prior year. This was offset by lower nonrecurring other income. This reduction reflects our objective of achieving a 7% reduction in recurring costs, which is on track and other reductions for Mt. Todd exploration and site maintenance programs. The comparative second quarter net losses for 2023 and 2022 were similar, but there were offsetting variances that were in discussion.

First, we reported $300,000 lower operating expenses, which is the 16% reduction previously mentioned. We also received $60,000 more interest income during Q2 of 2023. These amounts were offset by lower other income in the current quarter because the prior year’s quarter reflected a $200,000 other income amount for a value-added tax refund and $240,000 for a reversal of a previously recorded reclamation accrual. For the 6 months ended June 30, 2023 and 2022, our net loss was $3.5 million and $1.7 million, respectively. The loss in 2023 was greater than 2022 because the 2022 period included a $2.9 million gain on the disposal of our Awak Mas property, and other income of $420,000 as I discussed previously.

Offsetting the effects of the 2022 gain and the other income items, Vista reported $1.4 million lower operating expenses for the 6-month period ended June 30, 2023. Consistent with the results for Q2 of 2023, this decrease for the year-to-date period reflects our overall reduction of recurring costs and other reductions for Mt. Todd exploration, completion of technical reports and site maintenance programs.

Turning to our financial position. Our balance sheet remained in good condition at June 30, 2023. We ended with cash of $6 million and maintained our position of having no debt.

That concludes my remarks for today. I’ll now turn the call back over to Fred. Thank you.

[Fred Earnest, President and Chief Executive Officer]

Thank you, Doug. I will begin with a review of our ESG initiatives and performance and then review our second quarter 2023 achievements. We have established a record of environmental leadership in the northern territory. We continue to maintain this leadership position through the execution of our site management plans.

With the wet season recently concluded, I’m pleased to report that even with significantly higher than normal total rainfall, we had no unplanned discharges or water from the site, and we’re in complete compliance with our environmental obligations. As previously noted, our team in Australia has now completed 621 consecutive days with no lost time accidents. We are very pleased with our safety-oriented culture and the accomplishments of the team.

We continue to maintain a strong working relationship with the traditional owners at Mt. Todd, as many will know, we have agreements in place with the Jawoyn people and work closely with them and the leaders of the Jawoyn Association Aboriginal Corporation. This quarter, we have worked very closely with the Jawoyn Rangers in the design and execution of prescribed burns in a way that has allowed us to achieve joint land management objectives, preservation of Goldin Finch habitat and the protection of assets at the Mt. Todd project.

Presently, we are also collaborating with the Board of the Jawoyn Association to finalize and implement a cross-cultural training program for employees and contractors at Mt. Todd. We continue to work with leaders and stakeholders in the Katherine area and more broadly in the Northern Territory. I am pleased that our social license is firmly in place and strongly supported. We continue to aggressively pursue best governance practices across our organization and are pleased with the inclusive atmosphere that is part of our culture. I note that during the quarter, we announced the retirement of 2 long-serving directors and the resizing of our Board. More on that in a moment.

Let me now turn to and talk a little bit more about our agreement with the Northern Territory. On May 25th of this year, we signed an amendment to our agreement with the Northern Territory of Australia, which was set to expire at the end of this year. This extends the term of the agreement to December 31, 2029, and gives us the option for an additional 3-year extension. This is a significant achievement as we continue to de-risk Mt. Todd. It not only reflects the clear commitment by the Northern Territory government, but also the strong relationship that has developed over years of working together with the NT government, the Jawoyn people and other project stakeholders. We believe the amended agreement also demonstrates the Northern Territory’s desire to achieve shared goals and objectives.

Pursuant to the agreement, Vista will continue to manage the Mt. Todd site and fulfill its environmental, cultural and social stewardship commitments. The company continues to have no environmental liability for the condition of the site prior to its involvement in 2006. Vista’s sole option may elect to proceed with the development of Mt. Todd by giving notice to the NT government, which will then result in the transfer of the NT government-owned assets at Mt. Todd and all pre-existing historical rehabilitation liabilities for the project from the NP government to the company. We remain committed to the responsible environmental management of the site, protecting the sacred and culturally significant sites and developing Mt. Todd in a way and at a time that maximizes the benefit for our shareholders and for stakeholders in the Northern Territory.

I’ll now discuss the recommendations of the Northern Territory Mineral Development Taskforce. During the quarter, we announced the release of a report prepared by the Northern Territory Mineral Development Taskforce that outlined positive recommendations to enhance the importance of the mining industry and increased mining investment in the territory. As these recommendations are implemented, we expect Vista and Mt. Todd to benefit in several ways.

Most notably, the report emphasizes the importance of updating the current royalty regime to make it more competitive with other leading mining jurisdictions and developing local skills to support a growing mining industry. This potentially means moving to a simpler ad-valorem royalty structure and aligning the royalty rate more closely with other mining jurisdictions where rates typically range from 2.5% to 5%. This represents a very meaningful opportunity for improved project economics and earlier shareholder returns at Mt. Todd.

Our 2022 feasibility study included NT Royalties equivalent to a 7% to 9% ad-valorem rate depending on the gold price and other assumptions. Skills development will also be an important benefit given that we strongly support the use of a local workforce at Mt. Todd over the more traditional fly-in, fly-out staffing practices common elsewhere in Australia. The NT government is presently undertaking a consultation process with stakeholders and members of the mining industry to obtain feedback on the best approach to implement the key recommendations and specific actions proposed in the report. Vista has submitted recommendations as part of this process.

Touching briefly on the retirement of two directors, as indicated at the company’s 2023 Annual General Meeting of shareholders, two of Vista’s long-standing board members retired, including the Chair of the Board. As a result, we reduced the size of the Board of Directors of the company from 7 members to 5 and appointed Tracy Stevenson as the new chair. Tracy has served on Vista’s Board since November 6, 2007, and has contributed greatly to the company’s many successes, including advancing Mt. Todd into one of the largest and most advanced gold projects in Australia. Tracy is the chair of the Audit Committee and a member of the Compensation Committee and the Corporate Governance Nominating Committee. As we turn to a new page, we look forward to continued success under his Board leadership.

I’ll next talk briefly about the work that CIBC Capital Markets continues to do. The strategic process with CIBC continues to generate interest and positive feedback on the technical merits of Mt. Todd. Since announcing the completion of the scoping study earlier this year, there’s been both new and renewed interest in the optionality Mt. Todd offers under different development strategies.

Across our industry, producers continued to maintain a cautious approach to new large-scale development projects. That said, we are pleased with the ongoing development activity or ongoing evaluation activities of interested parties and confirm that the optionality represented by Mt. Todd continues to be an important factor. We remain focused on recognizing value for shareholders through the completion of the right transaction, one that realizes a greater portion of the present value of Mt. Todd and provides ample opportunity for future additional recognition.

With regards to cost reductions, reducing costs and maximizing cost effectiveness are high priorities for 2023. We have taken actions to further reduce recurring costs by approximately 7% and continue to evaluate and implement opportunities for additional cost reductions. Some of you will have noticed that we have moved the location of our corporate offices as part of cost savings activities. At current project expenditure levels, our annualized cost for preserving the value of Mt. Todd are less than $0.80 per ounce of proven and probable reserves, which is a very respectable holding cost.

In conclusion, the Mt. Todd project is 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. In addition to its size, Mt. Todd provides a number of other advantages for those interested in a potential transaction. 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 includes paved roads, power lines and natural gas pipeline to the site, combined with the operational infrastructure comprised of the freshwater storage reservoir and tailings pump facility provide very distinct construction timeline and risk mitigation advantages. All the major permits for the development of Mt. Todd have been approved. Of equal importance, we have earned the trust of the local stakeholders and are confident that our social license is firmly in hand.

Our technical programs focus on de-risking the project and incorporating designs that are capital efficient with low operating costs. We believe the proposed changes to the NT Royalty regime will help improve project economics, enhance the project’s leverage to gold price and provide a stronger foundation for improved shareholder value. We believe Mt. Todd is a superior asset with one of the most attractive development-stage gold projects, not just in Australia, but in the world. Our primary objective is to achieve evaluation for Mt. Todd that is reflective of the gold production profile, long operating life, excellent gold recovery, favorable operating costs, robust project economics as demonstrated by the completed feasibility study and the fact that we hold all major permits.

For a more comprehensive review of the work completed by Vista on the Mt. Todd project, I refer to our corporate website which can be found at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity and that current prices represent a tremendous opportunity to establish a position or increase one’s holding in Vista Gold.

We will now respond to any questions from the participants on this call.

[Operator]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Heiko Ihle from H.C. Wainwright. Please go ahead.

[Heiko Ihle, H.C. Wainwright]

Hello Fred and team. Can you hear me, okay?

[Fred Earnest, President and Chief Executive Officer]

We can. Good morning Heiko.

[Heiko Ihle, H.C. Wainwright]

Excellent. Good morning. But yes, well, good morning to you guys on the west. A sentence in your release really piqued my interest and you sort of hinted at it earlier on this call, but maybe just a little bit more clarification. I mean this whole that the NT Government is moving towards implementing some recommendations with the royalty regime to make it more competitive when looking at their peers. Can you provide some color on their undertakings? Would you expect to see some ideas for timelines, maybe some investment goals and then if you want to really go out there, maybe some sort of like, subsidies you might be able to see or get, other sweeteners for people investing in the areas, like that kind of stuff I think would be very helpful to listeners on this call and myself.

[Fred Earnest, President and Chief Executive Officer]

That’s a great question, Heiko. The Mineral Development Taskforce report identified a number of areas where the territory needs to make some significant strides in being competitive. As we indicated, the royalty regime is one. They, in May, embarked on a public consultation process. That consultation process closes tomorrow. And the next steps will be, obviously, analysis of public comment. And then the start of a legislative project to craft the legislation to formally revise the royalty regulations for the territory. I know that this has been expressed by the Minister of Mines, the Deputy Chief Minister as a very high priority item for government. Originally, they thought that they could complete this legislative project by the end of this year. I think realistically, it will be sometime towards the end of the first quarter of next year, possibly even into the second quarter before there is legislation that is set for approval. Nonetheless, we view this as very, very positive. Right now, the royalty rates and it’s almost more like a severance tax is – in the Northern Territory is easily double what many of the other leading mining jurisdictions charge. And so the territory has through this taskforce, and I am very pleased to see this. This is a conversation that’s been ongoing between Vista and the Department of Mines and Treasury for a number of years. We have been raising this issue. But I am pleased that they are taking the steps to finally address what is a very significant issue for the mining industry, and now they recognize that it’s an important issue for the territory if they want to attract greater mining investment. The objective, overall, the territory has a goal of growing the economy of the Northern Territory to a level of $40 billion by 2030. And in their view, mining investment and new mining projects will be an important part of that effort. It appears based on the recommendations of the taskforce that they are going to – they are seeking not only to incentivize the development of new mines, but also value adding upgrade to mineral products within the territory as well. With regards to subsidies and other things, really not included in the recommendations of the taskforce. However, I think it’s fair to say and inform everyone that the Australian government has created something called the Northern Australia Infrastructure Fund that has been – is now on its second fund and has more amply originally, that was aimed at increasing investments in infrastructure. In meetings with people at the fund, the second part of the fund is including mining as part of the development of key activities across Northern Australia. And so there will be money that will be available at very competitive rates compared to conventional financing, and we believe that Mt. Todd will qualify it for that at the appropriate time. Doug, I don’t know if there is anything else that you might add in response to Heiko’s question.

[Doug Tobler, Chief Financial Officer]

Yes. Heiko, just to frame the discussions around the NT Royalty, obviously, we don’t know where they will land. They have been very straightforward saying they want to become more competitive. But in terms of the opportunity for Vista and at Mt. Todd, if you go back and look at our 2022 feasibility study, which we ran at a $1,600 gold price. So, that would be considered very conservative for other studies coming out today. The NT royalty that we modeled into that was almost $700 million. So, if you start to factor in any type of meaningful reductions in the royalty rate by the government, there is a very substantial impact available for Vista if they get into that competitive range. So, that’s just a framework for it. There are some other smaller funds available with the NT also for employment, a number of jobs that you create and those types of things. I would assume that some of those would stay intact or possibly be enhanced through the recommendations of the taskforce. But those are relatively minor compared to the pool of dollars that we have had opportunity with respect to the royalty.

[Heiko Ihle, H.C. Wainwright]

Fair enough. And then just one more, I did a bit of math today and I went through your last couple of annual financials. 2021, you spent an average of $986,000 per quarter in corporate administration, 2022, in an inflationary environment that went down to $942,000 per quarter. Last quarter and yet again another inflationary period, you actually managed to decrease that to $878,000. Now, if one assumes, call it, 10% inflation per year, which is probably a fairly more real number than what the government gives you, you are essentially cutting by 20% every year close to it in real terms. Walk me through how exactly you are doing that and how much more meat is still on the bone, so to speak?

[Doug Tobler, Chief Financial Officer]

Well, frankly, Heiko, it’s been across the board in every aspect. Labor costs are obviously the biggest pot within the organization. And we were able to trim some costs. Guys are working a little bit harder, but a lot smarter at Mt. Todd. And we had a little bit of turnover through retirements down there. And the rest of the team was able to shuffle their rotation schedule and pick up the load. So, that was a big part of it. We have reduced some of our overhead costs, things like just basic office costs. We moved the Vista office here in Denver that had been a 20-plus year office. We downscaled and downsized and it’s working out just fine for us. So, there is pockets of $25,000 to $50,000 kind of through our entire G&A structure that have come down. Can we continue that, we think there is a few other pockets, but there is always a point where you are basically starting to become penny wise and pound foolish. So, we see a few more opportunities, but I think the trend that you have described will level off. What we would like to do is at least be able to maintain our cost structure now even though we would expect to still see some inflation, kind of in that 4% to 6% range over the next 12 months to 18 months. So, it’s been very positive. It’s been exceptionally helpful in us managing our treasury.

[Heiko Ihle, H.C. Wainwright]

Thank you.

[Doug Tobler, Chief Financial Officer]

Did that help?

[Heiko Ihle, H.C. Wainwright]

Very much, so now I appreciate the answer. Okay. That’s all for me. I will get back in queue.

[Fred Earnest, President and Chief Executive Officer]

Thank you, Heiko.

[Heiko Ihle, H.C. Wainwright]

Thank you, Fred.

[Operator]

Thank you. Your next question comes from the line of Michael Bashera. Please go ahead.

[Michael Bashera, Baird]

Hi, can you hear me?

[Fred Earnest, President and Chief Executive Officer]

Good morning Michael. Yes, we can.

[Michael Bashera, Baird]

Alright. My question is quite simple. I have a question regarding the company value and the share price. There seems to be a huge disconnect between the two, and I just wanted to see if I can get your comments on this, especially considering what the gold price is and considering the projects in a safe jurisdiction with permits in hand. Thank you.

[Fred Earnest, President and Chief Executive Officer]

That’s a question that we ask ourselves on a regular basis, Michael. We are not the only ones that are experiencing this severe disconnect in this market. It’s particularly prevalent amongst developers. We think that one of the big factors has to do with the market’s perception around financing and where that money will come from. Specifically, in our case, we have completed a feasibility study for a very large project. We have announced a scoping study for a smaller project, which is much more capital efficient. But presently, I think the biggest source of the disconnect between the real value of the project and the market cap of the company centers on our plans to find a partner rather than develop it ourselves. And the markets belief that we will ultimately try and develop it our self, and that will result in significant dilution. And until we can complete a transaction and definitively answer this question, put this issue of whether we will build it ourselves to bet through announcing a transaction, I believe that there is an overhang on the stock.

[Michael Bashera, Baird]

Thank you so much.

[Operator]

[Operator Instructions] There seems to be no further question at this time. I would now like to turn the call back over to Mr. Earnest for any closing remarks.

[Fred Earnest, President and Chief Executive Officer]

Thank you, Laura. And thanks to all of you who have taken time this morning to join us for this corporate update and conference call. We are very pleased with the achievements of the past quarter, both with regards to cost cutting, the extension of our agreement with the Northern Territory of Australia and other work that is ongoing. Alright, we look forward to the activity, the results of the work that’s currently underway, and we invite you to stay tuned to stay involved.

As I always do, I conclude with an invitation there for you.. If you are looking for an opportunity to have exposure to large gold deposit in a safe jurisdiction that’s well advanced, Mt. Todd ticks all of those boxes. And I think that there is a tremendous investment opportunity here that will ultimately reward shareholders very handsomely. We invite you to consider an investment in Vista Gold. And if you need further information, please feel free to reach out to Pamela Solly. And for the questions require another member of the team will be happy to get on their call.

So, with that, we conclude this update conference call, and we thank all of you for your participation and wish you all a very pleasant day.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.