Vista Gold Corp

TSX:VGZ

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, welcome to the Vista Gold's Third Quarter 2023 Financial Results and Corporate Update Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded today is Wednesday, November 8, 2023. It is now my pleasure to introduce Ms. Pamela Solly, Vice President of Investor Relations. Please go ahead.

[Pamela Solly, executive]

Thank you, Kelsey, and good afternoon, everyone. Thank you for joining the Vista Gold Corp.'s Third 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 call over to Fred Earnest.

[Frederick H. Earnest, executive]

Thank you, Pam. And thank you, everyone, for joining us on call this afternoon. During the third quarter, we continued to work with CIBC Capital Markets. We maintained our ongoing cost reduction programs, managed our safety and environmental programs without incident and presented at the Precious Metals Summit in Beaver Creek, Colorado. As part of our work with CIBC, we continue to explore transaction opportunities and host Mt Todd site visits with interested parties. We remain diligent in the execution of our strategy to seek an appropriate transaction to maximize shareholder value, but understand the completion of a transaction may depend on sustained improvement and stability in the economy and capital markets.

Cost reductions are ongoing, and we are on track to achieve a 7% reduction in 2023 recurring costs compared to 2022. Vista continues to have no debt. In September, we attended the Precious Metals Summit in Beaver Creek, Colorado where we met with shareholders, potential investors, mining companies and others. The completion of the internal scoping study earlier this year generated interest among shareholders, investors and potential transaction parties. We remain committed to the health and safety of our employees and to our environmental stewardship at Mt Todd.

There have been no lost time incidents this year, and the site has now reached 690 consecutive accident-free days. I will discuss these topics in greater detail later in the call. But now I will now turn the time over to Doug Tobler for a review of our financial results for the quarter ended September 30, 2023.

[Douglas Tobler, executive]

Thank you, Fred. Today, I'll provide a brief recap of our results of operations for the quarter ended September 30, 2023, and our financial position at that date. 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 sec.gov or sedarplus.ca. Vista Gold reported consolidated net loss of $1.5 million or $0.01 per common share for the quarter ended September 30, 2023, compared to a consolidated net loss of $1.7 million or $0.02 per common share for the quarter ended September 30, 2022.

The loss for the current quarter was in line with our expectations, and it reflects an 11% reduction in operating expenses compared to the same period last year. For the 9 months ended September 30, 2023 and 2022, our net losses were $4.9 million and $3.4 million, respectively. The loss in 2023 was greater than last year's because the 2022 period included a $2.9 million gain on our disposal of the Awak Mas property and other income items totaling $413,000.

Excluding the effects of these 2 items, Vista reported operating expenses of $5.1 million for the 9 months ended September 30, 2023, compared to $6.8 million for the same period last year. This represents a 25% decrease in operating expenses period-over-period. We are on track to achieve our objective of a 7% reduction in recurring costs and other cost reductions at Mt Todd for exploration and site management programs.

Turning to our financial position. Our balance sheet remained in good condition at September 30. We ended with cash of $4.8 million, which compared to $6 million at June 30 of 2023. We also maintained our position of having no debt. That concludes my remarks for today. So I'll turn the call back over to Fred. Thank you.

[Frederick H. Earnest, executive]

Thank you, Doug. I will begin with a review of our ESG initiatives and performance and then review our third quarter achievements. We are committed to conducting our business in a responsible and sustainable manner. And we continually seek to align our business practices with ESG principles to ensure the long-term success and positive impact of our operations, and we are proud to be recognized for our record and environmental leadership in the Northern Territory.

We remain in compliance with our site environmental responsibilities and obligations. And as previously noted, our team in Australia has now completed more than 690 consecutive days with no lost time incidents. We are very pleased with our safety-oriented culture and the accomplishments of the team. We continue to maintain strong working relationships with the Jawoyn people and the leaders of the Jawoyn Association Aboriginal Corporation. We continue to work with the leaders and stakeholders in the Katherine area and more broadly in the Northern Territory as well as the Northern Territory government.

I'm pleased that our social license is firmly in place and strongly supported. We remain committed to responsible environmental management, protecting heritage sites and developing Mt Todd in a way and at the time that maximizes the benefit for our shareholders and stakeholders in the Northern Territory. I'm pleased to report we are working on our first ESG report and expect to publish the report in the first quarter of 2024.

Now switching to the Precious Metals Summit. As I indicated, in September, we attended the Precious Metals Summit in Beaver Creek. This conference always provides an excellent forum for our team to meet with shareholders, potential investors, mining companies, bankers and others. Our message about the opportunity for a smaller initial project at Mt Todd was well received. In particular, demonstrated initial capital less than $350 million to achieve annual production of 150,000 to 200,000 ounces of gold per year, combined with the opportunity to increase production through stage development over time, resonated with many of those with whom we met.

Interest in what is happening in the Northern Territory also caught the attention of investors. In April, the NT government announced plans to attract greater mining investment in the territory. The top government priority is to reform the current royalty structure. All indications suggest that the government will adopt an ad valorem royalty and adjust the rate to be more competitive with other Tier 1 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. For our 2022 feasibility study included NT royalties equivalent to a 7% to 9% ad valorem rate depending on gold price and other assumptions. We expect the Northern Territory government to complete the royalty reform by the end of the second quarter of 2024.

Now switching over to the ongoing work with CIBC. CIBC continues to generate interest in Mt Todd. The results of the scoping study announced earlier this year have generated greater interest in the optionality Mt Todd offers under different development strategies. Management continues to host site visits and respond to inquiries from engaged parties. We remain focused on recognizing value for shareholders through the completion of the right transaction one that realizes a greater portion of the intrinsic value of Mt Todd and provides ample opportunity for future additional value recognition.

Our efforts to -- in 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. And now in conclusion, the Mt Todd gold project is one of the largest and most advanced undeveloped gold projects in Australia.

With 7 million ounces of proven and probable reserves and following the completion of the Newmont -- Newcrest merger, Vista controls the second 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 project infrastructure at Mt. Todd provides very distinct construction time line and risk mitigation advantages. All the major permits for the development of Mt Todd had been approved. Of equal importance, we have earned the trust of the local stakeholders, and we are confident that our social license is firmly in hand. Our technical programs focus on derisking 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 and one of the most attractive development state projects, not just in Australia, but in all of the world. Our primary objective is to achieve a valuation 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 approvals for all major permits.

For a more comprehensive review of the work completed by Vista on the Mt Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity and that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold. This concludes our prepared remarks. We'll now respond to any questions from participants on the call.

[Operator]

[Operator Instructions] The first question comes from Heiko Ihle from H.C. Wainwright.

[Heiko Ihle, analyst]

Fred, can you hear me okay? Because there was just a little muscle there.

[Frederick H. Earnest, executive]

Yes, we were having difficulty hearing Kelsey as well. But we hear you loud and clear, Heiko.

[Heiko Ihle, analyst]

Fair enough. Okay is going into 2024, I mean, you're looking at a 7% reduction in recurring costs. I'm frankly amazed at how you plan on being able to do this, given how lean the ship has been run for the last many years I've been following the farm. Can you just give a little bit of color and detail on what exactly you plan on doing and maybe even quantify the effects?

[Frederick H. Earnest, executive]

Yes. I'm going to turn this question over to Doug to answer, Heiko.

[Douglas Tobler, executive]

The 7% is what we're tracking is our objective for this year. And I think we talked about this last quarter that that's 7% after considering the effect of inflation, which is kind of running high single digits, in some markets, it's even low teens. So we think we've done exceptionally well this year. We're not through our 2024 budget cycle yet, but we're seeing areas where we can continue to ratchet down our cost and our hold things stable.

I mean we've been very fortunate to keep our personnel costs in line and still keep a very motivated workforce. We've just got some people that have been exceptionally hard workers and they keep working well for us. As we move into next year, we'll continue to look at all the really exciting areas like insurance. Markets have improved a bit there. But also, we've taken a very aggressive approach to shopping our rates on all of these -- all of the products that we have.

Consultants and advisers are in another bucket. The easiest thing to do is don't use them, but the reality is you have to. And we've had some consultants that have been supported by being able to hold the rates steady. They can't do that forever. So we may see some bumps there. But in other cases, we've been able to successfully shop or shift our services to a less expensive but still productive service provider.

And then, of course, we work to ratchet down our office and admin costs, keep our rent low, keep all of our other support costs as low as we possibly can. So it's not big dollars in any one bucket, but we look at every bucket and try to scrape out a few dollars. So I'm hopeful that we can at least hold the line as we move into 2024 and offset most, if not all, of the cost of inflation.

[Heiko Ihle, analyst]

That's fair. That's a clear answer. Just looking at this award of shares are currently sitting, I mean, there's clearly value there. I mean, gold's last when I wrote this question up was at 19 50. If runs a sensitivity analysis -- and again, I'm happy to use pretty conservative numbers here, there is obviously a meaningful value disconnect between the value of the company and the share value for lack of a better word. What is the market missing? And how does one explain it to them that they're missing it? Or is it just all junior miners are beaten down and nobody cares?

[Frederick H. Earnest, executive]

Heiko, that's a very interesting question. And I'm sure it's a question that many CEOs and shareholders alike are asking themselves across the board in our sector. There is a big disconnect between gold price and intrinsic value of projects compared to market caps and recognize value in companies. Certainly, we find ourselves presently under a greater-than-normal amount of selling pressure. We're not sure if that's tax loss selling that has commenced in the middle of last month, or if it's just part of a broader market phenomena that gold stocks are a little bit out of favor.

We know that in Australia, specifically, that lithium seems to be the flavor of the day and gold companies are -- have fallen a little bit out of favor. I think in the background of everybody's mind or questions about when Vista is going to successfully complete a transaction? And that is in a very great detail out of our control in many respects. As I reported, we continue to work with CIBC, and CIBC much to their credit continues to generate leads and attract new interest to Mt Todd.

That's reflected in our mentioned to site visits that are being held and the due diligence work that's being undertaken. I'm hopeful that as we head into the new year that we'll see a shift in our sector that we'll begin to see some transactions that involve developers such as Vista, whereas this year, the majority of transactions that have occurred have been producers transacting with other producers. That's been something that we haven't been able to seem to break as a sector of the industry.

But I'm hopeful that, that will happen. And when it begins to -- when the pendulum begins to swing back the other way, I think that the size of the project, where it's located, the fact that it's fully permitted. The fact that we -- the Mt Todd is essentially shovel-ready will bode well for us. But in the meantime, I think the key factors are, as Doug has pointed out, that we're being very efficient with the use of the financial resources that we have. I'd like to think that we're amongst the top of our peers in what we're able to achieve with the money that we spend. So it's something that weighs on our minds as it does, I'm sure, on many investors mind.

[Operator]

And your next question comes from Mike Schultz.

[Unknown Attendee]

Okay. Can you hear me?

[Frederick H. Earnest, executive]

We hear you loud and clear, Mike.

[Unknown Attendee]

Right. Yes. So I'm a private investor. And so I have two questions. I'm going to ask them one at a time just so that I can be clear on what I'm going to ask. So the first question is, does Vista have the ability to borrow the $350 million and mine the gold themselves? Or is borrowing based on the type of project, the type of company out of the question? And I said that because I've just kind of done the numbers with even astronomical interest rates and what you're projecting for gold production, net of production expenses would provide a pretty significant multiple over with the current stock price.

So just knowing that you guys, if worse comes to worse, could borrow would mean something to me and borrowing and mining could be an option of last resort. If it's in 3 quarters, there's not a way to range any additional money through stock offering or whatever. So just to answer that one first, if you don't mind.

[Douglas Tobler, executive]

Yes. This is Doug Tobler, I'll take that one on. So it sounds like your analysis would tell you the same thing that our analysis would. In terms of borrowing, just to be clear, we wouldn't seek to ever borrow 100% of the $350 million that we outlined in our scoping study. A typical mining project would finance 60% with some form of leverage, debt streams, royalties, those types of things. And typically, the balance would come from an equity infusion, and that can come from partners or it can come from the broader market itself.

So from what we see, Mt Todd's economics are robust. They're very robust at the current gold prices when you look at the valuation of -- on a discounted cash flow basis. So we see that, that typical 60-40 debt equity ratio is something that will be very achievable should we ever move towards that direction. We still see that there's great value opportunity in some other form of transaction that provides a longer -- a more immediate and then longer-term uplift as well. So we're not boxed out. We've got optionality, and I think your analysis makes sense.

[Unknown Attendee]

Okay. And then the second question, which you may or may not answer, but I'm going to ask it anyway. Is -- you commented a lot on wanting to find the right transaction that kind of represents the value of the project. And so as an investor, not seeing like what's going on, there would be appearance that even though we hear about a lot of activity, we don't know whether there's been actually any possible offers or even mention of offers that were not considered by Vista because it was nowhere near considered the right value.

So if there's a way you could shed light that there have been people that have been bonafidely interested, but not at the right value or if you can't comment, I don't understand. But we're just trying to size up what's actually going on among folks that are looking at it.

[Frederick H. Earnest, executive]

Yes, I'm not going to be able to answer the question to your satisfaction, Mike. But there -- over the last year, there have been discussions about value. And those discussions have not reached a point where for a number of reasons on either side of the table where they get to the point where there's anything that would be disclosable. But there is genuine interest, and there's been significant expenditures made to date on the parts of several companies in various levels of due diligence. And -- I mean I don't know where this is going to hit, but we'll see what plays out in the next quarter or 2 quarters.

[Operator]

And your next question comes from Adrian Day from Adrian Day Asset Management.

[Adrian Day, analyst]

I'm wondering how you would -- two questions, two-part question. How you would characterize the recent discussions you've had compared with discussions last year? And then how would you -- could you give us some idea of what seemed to be the biggest stumbling blocks to people making a positive decision to go ahead?

[Frederick H. Earnest, executive]

Yes. Adrian, I think that the biggest -- the easiest way to characterize the difference between discussions a year ago and discussions in the last 9 months is the impact of inflation and the uncertainties surrounding inflation. Our feasibility study is dated January of 2022. And within 6 months of that time, we started seeing a lot of talk and in reality, a lot of impacts of inflation and what that means to projects.

I think in answer to your second question, you know our industry quite well, and you know that many of the companies that should be interested in a project the size of Mt Todd are actually quite risk averse. And I think that the fundamental reason why we're seeing the consolidation of the transactions between producers and producers is that they're eliminating the development risk in today's market. And that weighs heavily on every discussion is how do you assign a value to that risk? And what ultimately is going to be the cost of development, even though we have very, very solid first principles cost estimates for CapEx and operating costs?

As of the fourth quarter of 2021, the question in everybody's mind is what are those costs really going to be today? And so it's really a matter of risk aversion. And that's the biggest issue that we see, and we think that that's driving the hesitancy across the board to engage in discussions, transactions with developers in today's market.

[Operator]

And there are no further questions at this time. Ms. Solly, you may proceed.

[Frederick H. Earnest, executive]

All right. Kelsey. Thank you. We appreciate the questions that have been asked. Mike and Heiko and Adrian, I appreciate your continued interest and the very thoughtful questions that were asked. As has been pointed out in the Q&A section, our share price is not where we would like it to be. But I think the flip side of that is that this represents a -- for those who can see the value -- the underlying value of Mt Todd in the asset and the fact that those ounces are not going anywhere, I think that there's a tremendous opportunity here and to establish or add to a position in Vista Gold.

We -- certainly, for those who have further questions and would like more information, I invite you to reach out to Pamela Solly, our Vice President of Investor Relations. Pamela will be happy to spend time with you, answer questions. And as needed, to get myself or another member of the team on the phone to help you understand the technical and financial aspects of the project.

We, as a management team, are disappointed with the market cap and the share price that we have today, but we continue to work to assess, to advance opportunities and to continue work on how we can further create value for the project as we derisk the project. And please know that the team is busy. We're certainly welcome by additional inquiries. We welcome investment. We think this is a tremendous opportunity. And we are hopeful that those who are on this call and those who will listen to it as a rebroadcast will give serious consideration to the investment opportunity that this represents.

With that, I would like to thank all of you for participating in the call, and we wish you all a very pleasant and a happy afternoon. Good day.

[Operator]

Ladies and gentlemen, thank you all so much for participating. And I hope you have a good rest of evening. Thank you.