Vista Gold Corp. (VGZ) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. . As a reminder, this conference is being recorded. Today is Monday, May 1, 2023. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead. Pamela Solly: Thank you, Jenny, and good day, everyone. Thank you for joining the Vista Gold Corp. first 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. Frederick Earnest: Thank you, Pam, and thank you everyone for joining us on the call today. During the first quarter, we completed an internal scoping study to evaluate the technical and economic merits of smaller scale development alternatives from Mount Todd, while preserving the opportunity for subsequent expansion or stage development. The work completed in the study leverages off of the 2022 feasibility study and gives us confidence that a smaller and easier to build initial phase of the project is viable and economically attractive. We recently announced results of the Mount Todd surface exploration program, the retirement of two of our directors and positive recommendations from the Northern Territories mineral development task force regarding the Northern Territories royalty structure. 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 our quarter and financial position. Vista continues to have no debt. We remain committed to the health and safety of our employees and to environmental stewardship at Mount Todd. There have been no loss time incidents this year and the site has now achieved 523 consecutive accident free days. I will discuss these topics in greater detail later in the call, but will now turn the time over to Doug Tobler, our CFO, for a review of our financial results for the quarter ended March 31, 2023. Douglas Tobler: Thank you, Fred. Today, I'll provide a brief recap of our results of operations for the first quarter of 2023 and discuss our financial position as of March 31. Vista Gold's financial statements and MD&A are included in our Form 10-Q that was filed last Friday, and is available at either sec.gov or sedar.com. I'm pleased to report that our results were in line with management's expectations for the quarter, and recurring costs are tracking toward our objective of achieving a 7% reduction compared to our 2022 results. From an overall perspective, we reported consolidated net losses for the three months ended March 31, '23 and '22 of $2 million and $300,000, respectively. The higher loss for the current quarter resulted from a few main components. First, we had a one-time gain of $2.9 million during the first quarter of 2022, which was realized as we closed out the sale of our interest in the Awak Mas project in Indonesia. There were no similar items this year. Offsetting this change in realized gain, we saw substantially lower expenses during Q1 of 2023. Notably, Mount Todd exploration and holding costs decreased by $1 million from $1.8 million reported for Q1 of '22, down to $800,000 for Q1 of '23. This related largely to having completed the drilling program and the Mount Todd feasibility study last year, plus overall reductions in our recurring costs in Australia. Our administrative expenses were also down to $1.2 million for the current quarter compared to $1.4 million for Q1 of 2022. Turning to our financial position. Our balance sheet remained in good condition at March 31, 2023. We ended with cash of $6.6 million and maintained our position of having no debt. That concludes my remarks for today. I'll turn the call back to Fred now. Frederick Earnest: Thank you, Doug. I'll begin with a review of our ESG initiatives and performance, then review our first quarter 2023 achievements, and conclude with an outlook for the remainder of this year. 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 of water from the site, and we're in complete compliance with our environmental obligations. As noted previously, our team in Australia has now completed 523 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 Mount Todd. As many will know, we have agreements in place with the Jawoyn people and work very closely with them, and the leaders of the Jawoyn Association Aboriginal Corporation. Presently, we are collaborating with the board of the Jawoyn Association to finalize a cross cultural training program for employees and contractors at Mount Todd. We also work very closely 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 two long serving directors, and the resizing of our Board. More on that in a moment. Moving on to some of our accomplishments during this quarter. In March, we announced the completion of an internal scoping study, in which we evaluated the development of the Mount Todd project at a smaller initial scale. The results were very promising and contemplated significantly lower initial capital costs, while preserving the opportunity for subsequent expansion or stage development. Work to date indicates that a nominal 5 million tonne per year project or 15,000 tonnes per day could be designed and constructed with an initial capital expenditure of less than $350 million for scenarios that include contract mining, and would achieve annual production in the range of 150,000 to 200,000 ounces of gold per year. Operating costs analysis suggests that all-in sustaining costs would be higher than those estimated in the company's 2022 feasibility study on Mount Todd, largely as a result of the higher unit operating costs resulting from contract mining, the loss of certain economies of scale and adjustments for inflation. But the all-in sustaining costs would still remain very competitive in today's environment. The results of the scoping study have been made available to potential strategic partners and other parties who have signed confidentiality agreements. We also announced the results of the most recent surface exploration program on two specific areas within the exploration licenses at Mount Todd. Both targets returned excellent anomalous gold assays from surface soil sampling, including up to 4 grams of gold per tonne at the Irwins target. The exploration licenses at Mount Todd encompass 1,650 square kilometers and are largely under explored. As part of our annual exploration program for the exploration licenses, we collected more than 600 rock chips and soil samples from targets on the Cullen-Australis and Batman-Driffield Structural Corridor. The results demonstrate strong geologic similarities to the area in the mining licenses where we previously delineated four highly prospective exploration targets potentially representing up to an additional 1.8 million to 3.5 million ounces of gold through our 2021-'22 drilling program. Obviously, we are very encouraged by the tenor of these results, which reinforce our belief that the Mount Todd land package has tremendous discovery potential. As I indicated, after more than 25 years of serving Vista Gold and its shareholders, Mike Richings, Chair and non-Executive Director and Tom Ogryzlo, non-Executive Director retired upon the completion of their terms at Vista's 2023 annual general and special meeting of shareholders that was held last week on April 27. The Board of Directors approved a reduction in the size of the Board of the Directors of the company from seven to now five members. On behalf of the Board and management team, I'd like to thank Mike and Tom for their leadership and commitment to the company. Their contributions have played a significant role in the execution of a number of transformational transactions and advancing Mount Todd into one of the largest and develop-ready gold projects in Australia. Mike and Tom have served with the highest degree of professionalism and acted with the shareholders' best interests at heart. We have all learned a great deal from each of them, and it's been a privilege to work with them, and we wish them well. Now one bit of news that was very exciting to us is subsequent to the end of the quarter, we reported that the Northern Territory Government released the final report of the mineral development task force, which outlined a series of recommendations and actions to increase and enhance the competitiveness of the Northern Territory as a mining investment destination. As these recommendations are implemented, we expect them the Mount Todd Gold Project to benefit in several ways. Most notably, the report emphasizes the importance of updating the current royalty regime to make it more competitive and highlighted the importance of developing local skills to support the mining industry. This potentially means moving to a simpler ad valorem royalty structure and aligning the royalty rate more closely with other Tier 1 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 Mount Todd, where our 2022 feasibility study included Northern Territory 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 support the use of a local workforce at Mount Todd over the more traditional fly-in, fly-out approaches that are common elsewhere in Australia. As a next step, the Northern Territory Government plans to engage with stakeholders and the mining industry to obtain feedback on the best approach to implement the key recommendations and specific actions proposed in the report. The strategic process with CIBC Capital Markets continues to generate interest and positive feedback on the technical merits of Mount Todd. Since announcing the completion of the scoping study, there has been both new and renewed interest in the optionality Mount Todd offers under different development strategies. But interested parties continue to maintain a cautious approach to new large scale development projects. 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 Mount Todd and provides ample opportunity for future additional value recognition. 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. At current project expenditure levels, our annualized costs for preserving the value of Mount Todd are less than $0.80 per ounce of proven and probable reserves. We believe this is a very respectable holding cost. Looking ahead, our priority is maximizing shareholder value. We continue to execute our plans for improved cost effectiveness and efficiency. Our internal evaluations at Mount Todd continue and include the assessment of value-creating development options and a grinding area study that would lead to additional improvements in planned operational efficiencies. With the wet season behind us at Mount Todd, we will have a small field exploration program planned for the exploration licenses to meet our annual expenditure commitments. This program will consist of additional field mapping and soil sampling. We will be participating in the industry consultation process with the NT Government as they embark on the path of implementing the recommendations found in the mineral development taskforce report. And finally, we continue to work with CIBC Capital Markets to realize the full value of the Mount Todd Gold Project. In conclusion, we have completed over the last several years -- the work we have completed over the last several years, including the feasibility study and the internal scoping level study, has positioned Mount Todd as 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, Mount Todd provides a number of other advantages for those interested in a potential transaction. Mount Todd is ideally located in the Northern Territory, an extremely stable and mining friendly jurisdiction. The existing basic infrastructure at Mount Todd including paved roads, power lines, and a natural gas pipeline to the site combined with the operational infrastructure comprised of the freshwater storage reservoir and tailings impoundment facility provide a very distinct construction timeline and risk mitigation advantages. All the major permits for the development of Mount Todd have been approved. Of equal importance, we have earned the trust of local stakeholders and are confident that our social license is firmly in hand. Our technical programs focus on designs that are capital efficient with low operating costs. We believe the proposed changes in 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 Mount Todd is a superior asset, and one of the most attractive development stage gold projects not just in Australia, but in the world. Our primary objective is to achieve a valuation for Mount Todd that is reflective of the gold production profile, long operating life, excellent gold recovery, favorable operating costs, robust project economics that are demonstrated by the completed feasibility study, and the fact that we hold all approvals for the major permits. For a more comprehensive review of the work completed by Vista on the Mount Todd project, I refer you to our corporate presentation which can be found on our Web site at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold. Jenny, this concludes our prepared remarks and we'll now be happy to respond to any questions from participants on the call. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. . Your first question is from Heiko Ihle from H.C. Wainwright. Please ask your question. Heiko Ihle: Hi, Fred. How are you? Frederick Earnest: We are very well. Thank you, Heiko. Heiko Ihle: Excellent. A few weeks ago, you put out some release about surface exploration for additional gold targets at Mount Todd. And particularly at one point you mentioned 4 grams per tonne gold at the Irwins. Can you just sort of walk me and the other participants in this call for your plans there for the rest of the year, or in general I guess with exploration? Frederick Earnest: Absolutely, Heiko. The work that we've done on the exploration licenses has started with a very broad ranging surface geology mapping. We have followed that up with magnetic surveys to some high level geophysical work to identify those areas where we see magnetic anomalies which are typically associated with intrusive, and hence the heat engine for gold deposits in the district. And then we follow that up with surface soil sampling on a grid pattern. And the initial work that is completed is done on a very broad spacing. And then as we have interesting results, we close in the spacing of the grid. We began to undertake some of that work of closing the spacing in last year. And these are soil samples collected on 25 meters centers and 100 by 100 grids sometimes. And the bottom line is that the results that we achieved while anomalous were very encouraging. Typically, as you're aware, we often see soil sample results in the parts per billion range. And that's very interesting when we see those results in the very surface soils to have soil samples in the four parts per million or 4 grams per tonne range is particularly interesting. And we'll be doing some more work in the areas of some of these higher grade samples, as well as continuing to reach out and close in spacing where we've had other results in the past. Our team last year also did some mapping of outcrops and collecting rock chips and we will be undertaking more work in those areas as well. Again, as I indicated this year, our target will be to spend the amount of money required to meet our exploration commitments to maintain the exploration licenses in good standing. We believe that this work continues to demonstrate to potential partners and others who would be interested in attraction at Mount Todd that there's tremendous exploration upside. And we continue to be very bullish about the work that's going on. Again, this will be grassroots level exploration. We have not yet progressed any of these targets to the point of bringing in a drill rig. Heiko Ihle: Helpful. Okay. Gold is at just under 2,000 right now. At some point, a trend becomes maybe the new normal. Walk us through the potential and what you see implications wise given the potential for a smaller scale development that you released about two months ago for the site? The way I look at it is for $250 million, I can build 150,000 to 200,000 ounces in production. Somebody is missing something. And maybe can you go through some color what you think the market is missing or misunderstanding or not giving you enough credit for? Frederick Earnest: Absolutely, Heiko. The feasibility study that we completed for Mount Todd evaluated the Mount Todd project at a 17.5 million tonne per year rate, 50,000 tons per day. And all of the engineering and the designs associated with the feasibility study were targeted and undertaken with the idea of designing a project that would be very attractive to a senior gold producer. The capital expense of building that initial project while a large number for us at almost $900 million was actually a very capital efficient number, actually in the lowest quartile on a per ounce of gold produced over the life of the project basis compared to our peers. However, the fact remained that it was a very large number. And so with the feedback that we received from the process that was initiated by CIBC Capital Markets a year ago, we undertook an internal level scoping study to evaluate what a project that's built at a smaller scale and more to, I think the best term would be fit for purpose design level might look like. I and several members of the team visited some smaller scale Australian operations the middle of the year last year, and formulated some ideas about what the standards might look like and what a typical mid tier or smaller Australian company would use as a design criteria. We then brought in a new engineering firm who had not been extensively involved in the design of the feasibility study plant to redesign the process plant area using concepts that we gleaned from visiting other operations. This has allowed us to design an operation that smaller could be built more quickly and more efficiently. And as we indicated, at this smaller scale, the capital cost is estimated to be less than $350 million. Now in doing this work, we have not tried to estimate the economics for a life of mine project at 15,000 tonnes a day. Simply stated that would have a mine life in excess of 40 years. But we carried the life out far enough to get a good idea of what the economics were. And we've been very careful so as to not condemn any part of the existing reserve. We've maintained the optionality specifically, and some of the work that's ongoing at the present time is looking at a simple 50% expansion of the plant that we designed. We've also looked at, and are looking at and evaluating what a project would look like, use the principle of staged development by building the first 15,000 tonne per day train, and then adding another 15,000 tonne per day train and possibly a third to ultimately reach something very close to the 50,000 tonnes per day that we had originally proposed. We've incorporated contract mining as a way to further reduce the initial capital expense. All of these things have been done to demonstrate to partners the optionality of developing Mount Todd. Mount Todd does not have to be developed at 50,000 tonnes per day. And while we've done an extensive amount of work at that scale, we've been able to leverage off of that feasibility study level design work in the evaluation of a smaller project. This smaller project concept has resonated with a number of companies. And there have been additional confidentiality agreements signed as we -- in the period of time following the announcement of the completion of this study. It has also put the news out there and we've had interest from those who are not necessarily interested in a smaller scale project. And so it's been a way to once again draw serious and genuine interest to Mount Todd and to the development opportunities potential that exists there. Heiko Ihle: That's helpful. I appreciate it. I'll get back in queue. That was very extensive answer, and I'm grateful. Well done getting all this ad hoc here. Thank you. Frederick Earnest: Thank you, Heiko. Operator: Thank you. . Your next question is from Adrian Day from Adrian Day Asset Management. Please ask your question. Adrian Day: Yes. Good afternoon. I've actually got two questions to follow on from Heiko's. The first one is, can you quantify the cost of the exploration that you intend to do this year? Douglas Tobler: Yes. Hi, it's Doug Tobler here. It will be in the range of about $200,000 as part of our planned spend. Adrian Day: Okay. That's not a lot. Douglas Tobler: Yes. Well, it's surface work. There's no drill rig, so similar size and scale. Frederick Earnest: Yes, you can get a lot of surface soil sampling done for $200,000, Adrian. Adrian Day: Okay, good. Let me just type that. And then the second question, so it's been a little over a year since the definitive feasibility study. And I'm wondering if you can reflect or let us know the reactions you've had from companies or reaction you've had, I should say, both to the DFS and also to the scoping study? Are there things in the reaction that have pleased you? I don't want to put words in your mouth, but the number of companies, the variety of companies, or whatever? And are there things about the reaction that have frustrated or disappointed you? Frederick Earnest: Well, that's a very interesting question, Adrian. From day one, we have dealt with a headwind of people who remember Mount Todd from 1996-97 when it was operated in a gold price environment that the gold price was in the range of $300. And the operation shut down and the company who owned it went into bankruptcy. We've made a very significant investment. We very systematically and methodically completed test work and drilling and engineering. We've obtained all of the permits. We've worked hard on our social license. And I think that the gratifying thing for everyone here in the Vista team is that as we've gone through the due diligence process with a number of companies, the work that has been completed has been validated. The technical designs, the process flow sheet, the work that we've done to address how we crush and grind the hard rock that Mount Todd is so widely known for have all received very strong endorsement from companies who have taken the time to look at the data and review the test work. We've had companies come in and drill at their own expense to obtain fresh rock for their own metallurgical testing programs. And they have essentially confirmed that with our proposed flow sheet that the numbers -- the recoveries that we're proposing are quite reasonable and achievable, that the process flow sheet should function as we expect it to. Companies with much greater, larger resources, more people have been very complementary of the work that we have done in the local community to garner support for the project and to earn our social license. They are very respectful of the work that we've done with the Jawoyn Aboriginal people. And so the process that we've gone through has been the confirmation that has happened over and over and over again has been very pleasing. Now you asked if there was a disappointment. Well, obviously, the disappointment would be that we've done this and the market has been such that we've not to date reached that conclusion of being able to announce a transaction that would recognize the value, the full value of the project and appropriately reward shareholders who have been patient with the work that we've done over so many years. We started the process with CIBC Capital Markets a year ago. And within weeks of kicking that off, all we read in the headlines was news about interest rates going up and inflation. And all of a sudden, companies who we thought would be ideal partners and candidates for a transaction announcing that they were putting evaluations of development stage projects on the back burner, some of them for as long as four to six quarters. So the failure of things to move to the completion of a transaction today is the disappointment. But the other side of it is that the confirmation of the technical merits of the project and the confirmation of the extensive amount of work that Vista has completed on a budget that's far less than what other companies would have spent has been very satisfying, and confirms that our patience is justified that there's no reason for us to be in a hurry to complete a transaction that we do have genuinely a world class asset. And that ultimately gives us confidence that we will be able to complete a transaction at the right time that will reward our shareholders. Adrian Day: Okay, that's really helpful. Thank you. Frederick Earnest: Thank you for the question. Operator: Thank you. . Frederick Earnest: Jenny, it appears that we have no other questions. Operator: Yes, sir. There are no further questions at this time. Please go ahead. Frederick Earnest: All right. Well, thank you everyone for taking time to join us for this update and discussion of our first quarter results. We're very excited about the implications of the recommendations of the Northern Territory's mineral development taskforce, the potential impact of reducing the effective ad valorem rate from 7% to 9% that we saw in the feasibility study under a different royalty regime to something more competitive with other jurisdictions has tremendous impact for the project. As we've discussed in response to questions, the field exploration programs will be kicking off soon with the onset of the dry season. We're very pleased with the progress that's being made at Mount Todd in those regards. We're very pleased with our track record for environmental compliance, health and safety of our employees. And we look forward to moving forward with the newly configured Board of Directors as we seek to and focus on maximizing shareholder value. Again, we reiterate that our work with CIBC Capital Markets is focused on generating the realization of the maximum value, full value for the Mount Todd project, and that we'll continue to hold the line on that. While there were questions about developing Mount Todd at a smaller scale, I wish to reiterate that we have no intentions at this time to develop Mount Todd on our own. We see that there's better ways to generate value for shareholders through being patient and waiting for the right transaction. With that, I'll conclude our remarks. We thank you for your time and interest. We invite you to seriously consider either increasing your position in Vista Gold or initiating a holding, and we look forward to seeing all of you and meeting you and having you as shareholders. And with that, we wish you all a pleasant day. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for participating. You may all disconnect.VGZ Ratings Summary
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Vista Gold Corp. (VGZ:AMEX) Advances Mt Todd Project with Strong Financial Position
Vista Gold Corp. (VGZ:AMEX) has recently shared its unaudited financial results for the first quarter of 2024, revealing a strategic focus on strengthening its balance sheet and advancing the Mt Todd project in Australia. With a cash total of $11.9 million at the end of March, the company is well-positioned to pursue its goals, including a smaller-scale initial project with options for staged expansion and maximizing shareholder value in collaboration with CIBC Capital Markets. The company's commitment to health, safety, and environmental initiatives remains strong, underscoring its responsible approach to development.
The financial health of VGZ is further evidenced by its receipt of the second payment of $7 million under a recent royalty agreement, with a final payment of $10 million expected to enhance its balance sheet. This influx of funds is crucial for the company as it continues to evaluate and develop the Mt Todd project, which is one of the largest development stage opportunities in Australia. The project's updated feasibility study, reflecting current gold prices and cost estimates, suggests that the economics of the project are stable or slightly improved, offering a promising outlook for the company's future.
VGZ's operational efficiency and financial metrics provide a deeper insight into its current standing and future prospects. Despite a negative price-to-earnings (P/E) ratio of -9.64, indicating that investors are currently valuing the company's earnings negatively, VGZ's high price-to-sales (P/S) ratio of approximately 917.62 and enterprise value to sales (EV/Sales) ratio of around 719.07 highlight the market's optimistic valuation of the company's sales revenue. These ratios suggest that investors see potential in VGZ's operations and future growth, despite the current earnings valuation.
Moreover, VGZ's debt-free status, as indicated by a debt-to-equity (D/E) ratio of 0, positions the company favorably in terms of financial health and risk management. The company's impressive current ratio of 10.59 demonstrates its ability to cover short-term liabilities with its assets, further emphasizing its strong liquidity position. However, the enterprise value to operating cash flow (EV/OCF) ratio of -7.84 reflects challenges in generating cash flow from operations relative to the company's enterprise value, underscoring areas for potential improvement in operational efficiency.
As VGZ continues to advance the Mt Todd project and explore opportunities for growth, its financial strategies and operational initiatives are crucial for enhancing shareholder value and ensuring the project's success. The company's focus on a phased project development, coupled with its strong financial metrics and commitment to environmental and safety standards, sets a solid foundation for future growth and profitability.
