Vista Gold Corp. (VGZ) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call is being recorded, today is Wednesday, May 8, 2019. It is now my pleasure to introduce Vista's Vice President of Investor Relations, Ms. Pamela Solly. Please go ahead, Ms. Solly.

Thank you, Shelly. Good morning, ladies and gentlemen, and thank you for joining the Vista Gold first quarter 2019 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 CEO; and Jack Engele, Senior Vice President and Chief Financial Officer. In the course of this call, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Vista to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to our most recently filed Form 10-Q for a detailed discussion 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.

Thank you, Pam. Since our last conference call in February, our metallurgical testing programs have made good progress and are nearing completion. We have added a new Director to the Board. We are working closely with the Northern Territory Department of Mines in the review of our mine management plan. We look forward to updating the preliminary feasibility study for the Mt. Todd gold project in the coming months as we are able to incorporate new test results in current economic parameters. I'll discuss these topics in greater detail later in the call, but I'll now turn the time over to Jack Engele.

Thank you, Fred. Good afternoon, everyone. I'll start with our statement of income and loss for the quarter ended March 31, 2019. We reported a net loss of $2.7 million or $0.03 a share for the quarter. Principal components of the loss are $2.1 million of operating expenses and a $0.6 million mark-to-market loss on our investment in Midas Gold Corp. This was slightly offset by other income of about $0.1 million. The main components of the $2.1 million of operating expenses are; $0.7 million of cash site holding costs at Mt. Todd; about $0.3 million of Mt. Todd cash discretionary costs; and about $1.1 million of fixed corporate G&A costs. Our Q1 2019 holding costs for Mt. Todd were about 25% lower than in Q1 2018 with a relatively weaker 2019 Australian dollar accounting for about 40% of this reduction. Other factors included lower than planned water discharge from the Batman Pit as a result of the relatively lower precipitation during the wet season and reduced 2019 scope of certain baseline monitoring activities. Certain discretionary programs in 2019 was also reduced from 2018. Q1 2019 corporate administration costs also trended about 20% lower than Q1 2018. As our 2019 first quarter costs do not include some of the additional costs experienced in 2018, related to the completion of the 2018 Mt. Todd PFS update, which affected investor relations, regulatory and compensation costs. Turning to our balance sheet for March 31, 2019, our working capital totaled about $10.7 million on March 31, 2019 and this included cash and T-Bills of about $6.4 million. On April 23, we received the second $1.5 million option payment for the Guadalupe de los Reyes project starting with interest of $67,000. On a pro forma basis this was additional cash. On March 31, total cash and T-Bills total about $8 million. The company continues to be debt free. Looking ahead, we continue to believe that our existing working capital together with potential future sources of non-dilutive financing, will be sufficient to fully fund our currently planned fixed costs and discretionary programs for more than 12 months. Potential sources of non-dilutive finance include the future option payments for the Guadalupe de los Reyes project in Mexico. I would note that the next payment of $1.5 million is due in October this year. The sale of some or all of our Midas shares depending on market conditions of course, the sale of our used mill equipment. A.M. King Industries continues to market the mill equipment for us, and we continue to receive credible enquires, and the possible monetization of some or all of our royalty interests. That concludes my comments. Over to you Fred.

Very good. Thank you, Jack. First of all, I would like to begin by welcoming Pam Solly, as Vista's new Vice President of Investor Relations. She joined us on April 1 and brings with her more than 25 years of public company experience. Pam has extensive expertise in developing, coordinating and executing Investor Relations in corporate communications programs and we look forward to working with Pam and enhancing our Investor Relations programs. I'll now spend a little bit more time talking about some of the detailed -- in more detail about some of the topics that I introduced at the start of the call. I'll start with the metallurgical testing. During the quarter, we continued to undertake additional metallurgical testing to confirm the results of the preliminary fine grinding tests announced in August of last year. This additional testing has demonstrated the efficiency of sorting higher grade ore and our ability to effectively achieve a final grind size of 38 to 45 microns in both vertical and horizontal stirred media mills. The grinding tests have generated materials for leach recovery tests that we expect to confirm higher gold recoveries over a broad range of feed grades in support and update of the project economics. In April of this year, we announced the fine grinding tests on 470 kilograms of samples from Mt. Todd were complete. The preliminary grinding test results confirmed the results of previous tests, which indicated that the power required to achieve the target grind size of 38 to 45 microns was less than we estimated in the 2018 preliminary feasibility study. The tests at both the laboratories of FLSmidth and Core Metallurgy labs confirmed lower anticipated power requirements and provide the basis for a favorable adjustment in our project evaluation. With the anticipated completion of the leach recovery tests in the coming weeks, we expect to generate grind size leach recovery curves covering a wide range of potential ore feed grades. The relationship between the grind size and gold recovery on Mt. Todd samples is well established. We believe that the results of these grinding and leaching tests indicate the gold recoveries exceeding 90% maybe achieved for the Mt. Todd gold project as compared to the 86.4% assumed in our January 2018 PFS. Analysis indicates that each 1% improvement in gold recovery could add approximately 0.5% to Mt. Todd's after tax IRR and approximately $25 million to after tax NPV at a 5% discount. In addition to these improvements in gold recovery, which result from the final grind size, the U.S. dollar to Australian dollar foreign exchange rate has changed favorable to the project since January of last year. As approximately 65% to 70% of the capital and operating costs are denominated in Australian dollars, this also has a significant positive impact on project economics and will be included in the updated preliminary feasibility study. Next, let me talk briefly about changes to the Board of Directors. In March, we expanded the size of the Board of Directors of Vista Gold Corp. from 6 to 7 Directors and appointed Deborah Friedman as a Director of the company. Ms. Friedman is a successful mining company executive with over 38 years of international and domestic industry experience with major, mid-tier and junior companies and is also a retired partner from the law firm of Davis Graham & Stubbs LLP in Denver. We believe that Ms. Friedman's past experience with domestic and international development project joint ventures, project and -- corporate and project finance, business combination, mine development and mine operation matters and exploration joint ventures will be a benefit as the company continues its efforts to realize shareholder value in line with the intrinsic value of the Mt. Todd gold project. We welcome Deborah to the Board. Next, let me provide you with an update on permitting. In February, we reported that we had prepared and submitted the final Mine Management Plan, equivalent of a mine operating permit in North America, to the Mt. Todd project in November of 2018, and anticipated receiving authorization of the MMP during the latter part of Q2 of this year. Following the recent conversations with the Northern Territory Department of Mines, we understand that the department does not have adequate resources to complete the review in line with their previous communications to us, and we now expect to receive authorization sometime during the second half of this year. Once approved, we will hold all major permits for the Mt. Todd project. Next, let me talk about -- what's next? The final -- with the final results of the additional metallurgical test work that are expected to be released in two parts, the first in mid-May and the second in early June, we will then incorporate these results into an updated preliminary feasibility study, which is expected to be issued in the coming months. With the upcoming conclusion of our planned project optimization programs, it is important to state that Vista will not -- I repeat, will not be embarking on an aggressive program to finance and develop the project in this gold market. Our actions over the past several years have demonstrated our commitment to creating, enhancing and preserving the value of Mt. Todd. Our priority is to achieve a valuation that is reflective of a very large project in a low-risk jurisdiction with favorable costs and robust project economies. We believe that these factors, coupled with the permitting status of the project, the ease of access, and the existing infrastructure of our technically advanced project make Mt. Todd an exceptional project whose value has not appreciated. Let me talk for a moment about share price performance. I would like to specifically talk about Vista's leverage to the gold price. We all understand the value of higher gold prices as it relates to project economics. However, the last 3 months have demonstrated the leverage that our share price has to the gold price in an interesting way. Over the period, from November 13 through the end of April, the gold price improved 6.4%, while Vista's share price improved 41%. This is 6.4 times the improvement in the price of gold on a percentage basis. This compares to the value of the GDXJ improvement by 12% or 1.9 times the improvement in the gold price. We believe that the ongoing optimization work will further enhance the leverage Vista share -- Vista's shareholders enjoy relative to the gold price. Finally in conclusion, our Mt. Todd gold project is the largest single deposit, undeveloped gold project in Australia. With 5.85 million ounces of proven and probable reserves, Vista controls the third largest reserve package in Australia. It is ideally located in the Northern Territory of Australia. With paved roads to the site, and other existing infrastructure such as power lines and natural gas pipeline, fresh water storage reservoir and tailings impoundment facility. The project improvements we have to -- discussed today have created the foundation for the leverage to gold price and improved shareholder value that we have seen over the last 3 months. We have earned the trust of the local stakeholders and believe that our social licenses from land hand. We've worked hard to secure the authorization of the major environmental permits, and are now focused on gaining the authorization of the Mine Management Plan. We're excited about the results of the ongoing optimization programs and look forward to the announcement of updated technical and economic results in the coming weeks and months. For a more comprehensive assessment of the value accorded to Vista and 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 for the gold investor looking for value, growth potential and leverage to the gold price. That concludes our prepared remarks. We'll now respond to any questions from participants on the call.

[Operator Instructions] Our first question comes from line of Heiko Ihle from H.C. Wainwright.

Thanks for taking my questions.

Good morning, Heiko. Good afternoon your time.

Yeah, 5 p.m. Can you provide some color on what's still required and the anticipated costs for the PFS that you expect to complete over the next few months and notably, the expenditures for the leach recovery testing program that you're going through?

I'm sorry, can -- you broke up just a little bit Heiko, I'm in Australia. Can you repeat the questions?

Of course. Can you provide some color on what is still required and that the anticipated costs for the PFS that you expect to complete throughout the next couple of months, and notably, the expenditures for the leach recovery testing program?

Yes. So the work that's being completed with the grinding test work, and then the leach test work has -- it started last year with drilling of 1,700 meters and it included shipping ore to Germany for crushing and sorting tests, and then returning that material. The test work that we're undertaking right now has a value of -- that we're completing right now, Heiko, has a value of a couple hundred thousand dollars. The total program is a little bit more than $1 million. And with that expenditure, we've been able to, or we believe we'll be able to demonstrate that the gold recovery at Mt. Todd will increase from 86.4% to over 90%. Getting improvements in gold recovery is the challenge of the industry, and we all work very hard at it. I think that the expenditure that Vista has made to gain this, something on the order of 4 to 4.5 percentage point increase in gold recovery has been money that's been very well spent.

Okay. And I assume the answer is no, but can you just confirm for us, is there any work related to the PFS that's dependent on receiving any more fund inflows? I mean again, I assume the answer is no, especially given the Guadalupe de los Reyes option money was received and the balance sheet is actually pretty strong as it stands.

No, you're absolutely right, Heiko, the answer to the question is no. We do not require additional funding to be able to complete this work. It's rather just a matter of completing the test work, and then updating designs accordingly and completing the financial analysis. And then undertaking the appropriate checks and benchmarking exercises that are part of any kind of an exercise, Heiko.

Got it. And then well, just one more. Your exploration property valuation and holding costs were down more than 38% year-over-year and $946,000. And I mean they're also quite -- down quite a bit when you compare it to the $4.8 million you spend in 2018, which, if you just trend line it out is $1.2 million per quarter on average. And it's again, it's based on the water discharge, we use baseline monitoring, all that good stuff. But can you give just some guidance on where we should expect to see this figure for the remainder of the year? And if you feel bold, maybe even sort of just some guidance quarter-by-quarter of cash outflows for that please?

Yeah. Jack, would you like to respond to that question?

Sure. Heiko, with regard to the relatively low Q1 costs at Mt. Todd, we characterize some of that as timing. In other words, for Q2 we're going to spend the money that was not spent in Q1. Well, our total burn -- let me just give you a little color on our total burn for 2019. We're looking at about $66.5 million spend through the course of 2019. That's for holding costs and corporate costs, and these stood about 55% corporate, 45% stake holdings. That's about 7% lower than in -- of 2018 costs. So, I'm talking U.S. dollars here. Our discretionary programs are going to come down as well about 15% from 2018. Bear with me, I could maybe give you a little color on the quarter. As I suggested, our -- at Mt. Todd, because Q1 was inordinately low given some timing differences, Q2 is going to come up a little and it's going to be very similar to Q1 spending. Normally we expect Q1 -- sorry.

I said, okay.

Okay. Normally we expect Q1 costs at Mt. Todd to be the highest quarter spending because of the water discharge activities and any related activities, Q2 is going to look a lot like Q1. Q3, we expect to come down a little. And Q4, we expect to come down a little. So the total burn on the year, as I suggested, is going to be in the $2.7 million to $3 million ranging west.

That's very helpful. I appreciate it. Thanks for the color there.

Okay. Sure.

I'll get back in queue. Thank you.

Thanks Heiko.

[Operator Instructions] Your next question comes from the line of Jake Sekelsky from ROTH Capital Partners.

Hey guys, thanks for taking my questions.

Hello Jake.

I would start with the update on recoveries and costs in the PFS. Are there any other changes we should expect to see, I mean I'm thinking more along the lines of FX rates of gold prices used. Just any color on that would be helpful?

The biggest anticipated changes in the update of the PFS will be gold recovery and that will be supported by the testing programs that we've discussed. The other big change will be the foreign exchange rate in January of last year. At the last update of the PFS we had a foreign exchange rate that was close to $0.80 U.S. per Australian dollar and that was the rate that we used. Today we see the exchange rate somewhere in the range of $0.71. And we will likely use a rate that's just slightly conservative to that. But obviously, roughly at 10% change in foreign exchange rate will have an important impact. We are not anticipating at this point we -- the design -- the evaluations of the grinding and things like that are not indicating that there will be any significant changes in capital costs. We are recoding all of the capital costs components, both major equipment and minor equipment. We're also recoding all of the consumable materials for the project. And so there will -- all of that will be updated as well. With regards to gold price, we'll obviously take a look at this when we get a little bit closer to the release of the results that -- in January of 2018, we used the $1,300 gold price and reported sensitivity analysis at $50 increments above and below that price with a gold price in the $12.80 range. I think that if the gold price at the time of announcement of results is anywhere between $12.75 and $13.25 we'll probably continue to use a $1,300 gold price and report sensitivity as we have in the past.

Got it. That's helpful, that's helpful. And then just also in the -- off of the field cycles questions around the balance sheet. Just looking at the used mill equipment number. Then any interested parties of late in -- are -- who you still actively holding up for sale and marketing that?

We are still actively marketing it, A.M. King Industries continue to be our agent. As Jack indicated on the call, there have been -- we continue to have credible enquiries, people who are developing or thinking about developing projects or expansions that could use some or all of the equipment. We've recently had one interesting enquiry that I believe is going to result in a site inspection at the end of June. And if that materializes we'll be able to talk about it. But there continues to be interest and we're pleased that the interest is coming from companies with projects that they are trying to advance and that there's potential there. So that's obviously a high priority for us and being able to monetize or sell all or part of the mill equipment would be a very significant addition of cash to our balance sheet.

Very good. That's all for my end. Thanks guys.

Thank you, Jake. Have a wonderful afternoon.

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to Mr. Earnest for closing remarks.

Very good. Thank you, Shelly. I'd like to take this opportunity to thank all of you, who have joined us on the call this afternoon. We wish all of you a very pleasant day. As we indicated in the call, there will be an announcement of metallurgical testing results, specifically leach test results, in the coming weeks, middle of May and again in the first part of June we invite you to be attended to that. And then going forward from there, we will be looking to complete the update of the preliminary feasibility study and we're excited about those results. And we look forward to that announcement when the work is completed. I think that this is an exciting time in our sector. I know that the gold price has been quite dynamic and certainly for those people who are alert and attentive to opportunities and stories that are developing and progressing, there is opportunities in these markets to realize significant improvements and increases in value. We think that Vista Gold represents such an opportunity. And we invite all who are on this call and those who may listen to it subsequently to take a serious look at Vista Gold and the things that we're working on and the things that we're accomplishing. If you require further assistance, please -- and information, please feel free to reach out to Pam Solly and she will be happy to help you or direct you to the person who can help you get the answers to the questions that you have. So with that we thank you for your time and wish you all a very pleasant day and we'll conclude the call with that.

That concludes today's conference call. You may now disconnect.