Vista Gold Corp. (VGZ) Q1 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter 2020 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. Today is Friday, May 8, 2020. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Cody. Good morning, everyone, and thank you for joining the Vista Gold Corp. First Quarter 2020 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 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 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, and thank you, everyone, for joining us on the call today. I'd like to begin this morning by addressing the COVID-19 pandemic, which has and continues to have a significant impact on human life and health and on the global economy, financial markets and commodities. The health, safety and well-being of our employees and other stakeholders remains a priority for Vista Gold. We wish good health and well-being for everyone as we adapt to the conditions and constraints that face us individually in our families and as local, national and global communities. While government leaders and medical professionals continue to address this pandemic, we affirm our commitment to conducting our business in accordance with the guidelines and restrictions in each jurisdiction where we have activities. Since our last conference call in February, we've published the results of an independent benchmarking study for the Mt Todd gold project, which covered costs and schedules, we've hosted 2 technical workshops with the Northern Territory Division of Mines to assist in their review of our mine management plan, we've conducted our efforts to identify, and we've continued our efforts to identify and engage in discussions with potential development partners, and we have received a cash payment from PT Masmindo to cancel 50% of the Awak Mas royalty. I'll discuss these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler for a review of our financial results for the quarter ended March 31, 2020.

Thanks, Fred, and thanks, again, to everyone on the call today. We do appreciate your interest in Vista. My discussions today provide an overview of our recently reported financial results and other information presented in our Form 10-Q for the quarter ended March 31, 2020. I would encourage you to review this document for an in-depth analysis. I'll start today's financial report with a discussion of our working capital. We ended the first quarter 2020 with working capital of $4.9 million, which included cash and short-term investments of $3.2 million. This reflects a decline in working capital of $2.8 million since December 31, 2019, of which $1.1 million resulted from a noncash unrealized loss on other investments. Our holdings in Midas Gold was the largest component of other investments. Midas' share price, like many others, declined sharply in March and created this unrealized loss. Fortunately, Midas' share price has since recovered much of its value. As of March 31, 2020, we held 6.2 million Midas Gold shares, and we also have an additional 1.3 million shares of Nusantara Resources. Aside from the unrealized loss on other investments, our uses of working capital remained largely consistent with the first quarter of 2019. While not occurring during the first quarter of 2020, as Fred mentioned, we recently realized cash flow of $2.4 million for partial cancellation of the royalty to Vista Gold in the Awak Mas gold project in Indonesia. This royalty is among the noncore assets that we manage and are seeking to monetize as nondilutive sources of working capital. This transaction will be reflected in our second quarter 2020 working capital. [ This is a closer look ] on our balance sheet, Vista continues to have no debt. Just a few comments briefly now on our statement of income and loss. For the first quarter of March 2020, our net loss was $3.5 million compared to a loss of $2.7 million for the same period last year. The largest component of our net loss was operating expenses, which were $2.3 million and $2.1 million for the quarters ended March 31, 2020, and 2019, respectively. The slight increase in operating expenses resulted from $300,000 of additional stock-based compensation expense, which was mostly related to the timing of the grants. The other major component of our net loss was the loss on the investment that I discussed above, and this is a fair amount value mark-to-market, mostly related to Midas. And as I discussed previously, for the quarter ended March 31, 2020, we had a loss of $1.1 million. The comparable loss for the similar unrealized loss last year was $600,000. Management continues to focus on monetizing nondilutive sources of funding. This will include sales of the Midas shares and Nusantara shares, future optional payments in the Awak Mas royalty and as well as option agreements, sale of new equipment and monetization of other royalties in our portfolio. Looking forward, we believe our existing working capital, together with other potential future sources of nondiluted financing, will be sufficient to fully fund our currently planned activities for more than the next 12 months. Our expenditure profile remains well controlled and is expected to be generally consistent with 2019. We also have a $10 million aftermarket agreements in place that is subject to an effective registration statement that can allow us to opportunistically raise equity proceeds. With that, I'll conclude my comments and turn the discussion back to Fred.

Thank you, Doug. I'll begin with our achievements during and subsequent to the quarter ended March 31, 2020, and then provide an outlook for the remainder of the year. First of all, the benchmarking study. As we've addressed in previous calls, in 2019, we commissioned an independent benchmarking study to assess the appropriateness of capital and operating cost estimates, construction and ramp-up schedules, owners' costs and other key components of the project. The study was completed prior to the release of the updated 2019 PFS. In March of this year, we published a public version of the study and posted it on our corporate website. The analysis, review and positive results of the study are an indication of our commitment to ensuring that project designs, schedules and economic analyses are reasonable and appropriate. Next, the Awak Mas royalty. As you may recall, in November of last year, we amended the company's royalty agreement for the Awak Mas gold project in Indonesia to grant PT Masmindo the right to cancel the NSR royalty held by Vista. Detailed information regarding the agreement with PT Masmindo can be found in our news releases dated November 4, 2019, and April 30, 2020. I'm pleased to report that earlier this week, Vista received the first option payment in the amount of $2.4 million, which canceled 50% of the NSR royalty. PT Masmindo retains the right to cancel the remaining 50% of the NSR royalty for an additional payment of $2.5 million by April 30, 2021. If PT Masmindo does not make the $2.5 million payment by April 30 of next year, Vista will retain the remaining royalty interest and can pursue alternative monetization strategies. Next let me talk about permitting. We continue to work with the Northern Territory division of mines on the approval of the Mt Todd project mine management plan, which is equivalent of a mine operating permit in North America. Earlier this year, we hosted 2 workshops with the division to assist them with understanding some of the more technical information included in our mine management plan. We believe the workshops were helpful and expect to receive authorization of the mine management plan in the coming months. Once approved, Vista will hold all major permits for the Mt Todd gold project. Moving on to our share price performance. Vista shares are up approximately 10% year-to-date. Our shares, like most companies, have been negatively impacted due to the COVID-19 pandemic and its impact on financial markets. Beginning April 1, Vista shares have been steadily increasing and outperforming the GDXJ. As mentioned in previous calls, Vista is highly leveraged to the price of gold, and we understand the value of higher gold prices as it relates to project economics. Since November 13, 2018, the date when gold broke out of its sideways trend, through May 5 of this year, the gold prices improved approximately 41.4%, while Vista's share price has improved by 81.8%. This is almost 2x the improvement in the gold price on a percentage basis. This compares to the value of the GDXJ improving 1.5x the improvement in the price of gold. Looking ahead, our primary focus for the remainder of this year will be to evaluate and engage a strategic partner for the development of Mt Todd. We continue to believe that the debt and dilution needed to build Mt Todd on a stand-alone basis is not in the best interest of our shareholders. Our objective is to achieve a valuation for Mt Todd that is reflective of a multimillion ounce gold deposit in Australia's low-risk Northern Territory, where we enjoy favorable costs, robust project economics, environmental permits already in hand. We believe that these factors, coupled with the technically advanced stage of the project and the excellent infrastructure, place Mt Todd on the shortlist of the most attractive, development-stage gold projects in the world. The 2019 preliminary feasibility study provides a solid basis for engagement with prospective development partners, and current market conditions demonstrate the robust economics of the project. Our goal is to provide appropriate reward for our shareholders. In addition to seeking a strategic partner, we will continue to derisk Mt Todd in a cost-effective manner, work with the Northern Territory Department of Primary Industries and Resources to receive authorization for the Mt Todd mine management plan and monetize other noncore assets when opportunistic. And finally, with continued improvement in gold price, we are evaluating the positive impact of higher gold prices on the mine plants and project economics. 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, a freshwater storage reservoir and tailings impoundment facility. The project improvements we have discussed today along with our estimated reserve and production profiles have created the foundation for the leverage to gold price and improved shareholder value that we enjoy. We have earned the trust of the local stakeholders and believe that our social license is firmly in hand. We have 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 are extremely pleased with the results of the updated 2019 preliminary feasibility study, which demonstrates a net present value at a 5% discount rate of $823 million with an internal rate of return of 23.4% at a $1,350 gold price and a $0.70 foreign exchange rate. At current gold prices of approximately $1,700 an ounce and a foreign exchange rate of USD 0.65 per Australian dollar, the project economics demonstrate an after-tax net present value at the same 5% discount rate of more than $1.6 billion and an IRR of 40%. We believe Mt Todd is a superior asset located in a politically stable and mining-friendly jurisdiction and one of the most attractive development-stage gold projects, not just in Australia, but in the world. For a more comprehensive assessment of the value accorded to Vista and the Mt Todd gold 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, low geopolitical exposure and leverage to the gold price. That concludes our prepared remarks. We'll now respond to any questions from participants on this call.

[Operator Instructions] And we'll take our first question from Heiko Ihle with H.C. Wainwright.

You guys mentioned the share price earlier and the large scale leverage, and I think that's really showing, I mean, in so many currencies, we just had all-time highs in the local currencies. And I think that really benefits Vista. Speaking of things that sort of benefit Vista, Australia has been reasonably lucky with this whole COVID-19 nightmare that's roaming around the world. Can you guys provide a little bit of color on impacts that you have actually seen? And my gut feeling is the biggest thing is that none of you are actually able to go to Australia. But I mean, besides that, what are you seeing, what are you hearing from the people on the ground there? What's going on?

Yes, absolutely, Heiko. The Australians reacted very early, very quickly and strongly to the COVID-19 pandemic. They have restricted international travel into the country. Additionally, as indicated, our project is in the Northern Territory. The Northern Territory has implemented interstate travel restrictions and intrastate travel restrictions and have done a lot of work to limit the movement of people. I know that, that's sometimes inconvenient. But the Northern Territory has had 28 confirmed cases of COVID-19 in a population of approximately 0.25 million people. They have 3 active cases right now. And the plans are that if they can go 28 days after these 3 recover without any new occurrences that they will begin to open up and to ease on some of the restrictions. I think part of the reason -- well, not I think, I know, having talked to government officials, the reason that they've been so strong in their responses that they view the aboriginal population of the Northern Territory, which is about 1/3 of the population, to be at very high risk. In part due to their culture, their lifestyle, their habits and the fact that they don't often seek health care as early as perhaps they should. And so they've taken a lot of measures that are much more stringent than what we have here in the United States and Canada in order to protect those indigenous people. What it means for us is that we're not able to travel to Australia present time. In fact, we may not be able to travel to Australia until late this year. But we, like many other companies, have locally, we have -- our site has been determined to be a critical business. We have presented and have approval of a COVID-19 management and mitigation plan. We conduct all of our activities in Australia in accordance with that plan. We have in our Denver office, we're similarly complying with local executive orders. But we have become much more efficient at the use of technology, video conferencing and other things. And I think that I can say with a great degree of confidence that our inability to travel has not affected our ability to conduct business. I think that the workshops that were conducted by videoconferencing are an example of the fact that while we face this pandemic, it's not had any significant impacts on our ability to undertake business and conduct business.

A very comprehensive answer. And building on what you just said, can you maybe just venture a guess on G&A savings during Q2? I mean, earlier in your response to the last question, you mentioned that it may not change a whole lot until late this year with travel to Australia. But can you just maybe provide a little bit of color on G&A savings for the stoppage to travel, conference attendance, et cetera? We have seen a [ variety of shows hit the wall ]. But I mean, how meaningful of a number is that to your company and how sustainable do you think these impacts are?

Maybe I'll let Doug Tobler respond to the quantum, the numbers in that question. Doug, do you want to respond?

Sure. Yes. I mean, obviously, travel being restricted, we've had virtually no travel expense since the first week of February, we canceled of some trips. We've got some credits that will be used at some future date. But I think it's important to make sure everybody is aware of when the plane flies, you won't see a Vista person sitting in the front of the plane. So we have a pretty ratcheted down expense policy [ reviewing it ]. But we could be looking at somewhere between $100,000 to $200,000 of cost reduction this year because we're not traveling. And some of that will be made up because we'll have some turnover to make up at later dates, whether that will be starting in the third or fourth quarter, it's hard to speak to. But generally, the things that have occurred to date were pretty much permanent changes. But I'm going to say, we're not riding in the front of the bus. So our expenses haven't been that great at any point in time.

That help, Heiko?

Yes. It does. And I've complimented your expense policy in the past and once probably here again, keep up with the good work.

Thank you, Heiko.

[Operator Instructions] Since there are no additional questions at this time, I'd like to turn the conference back over to Mr. Earnest for any additional or closing remarks.

Very good. Thank you. And thanks, again, to everyone who's taken time to be on the call today. These are unprecedented times. They're certainly not without their challenges. We at Vista Gold continue to press forward with all of our goals and objectives, although adopting different technology to achieve the ends that we desire. We're very pleased with the gold price. Tremendously pleased with the demonstrated leverage that the Mt Todd gold project has to these gold prices, and we continue to be optimistic that we will be able to find a partner to help us advance and develop the Mt Todd project. And while our travel, as Doug indicated, has been restricted, we continue our outreach and continue all of our activities to identify and engage with those potential partners. We encourage all to continue to watch for forthcoming news with regards to the company and our advancement in achieving the approval of the mine management plan. That will be a significant event we anticipate in the coming months. And we'll mark the point at which we have all of the major permits for the project, and we'll be in a position to move forward without further delay as we find the appropriate partner and as conditions permit. So again, we thank everyone for their continued interest in Vista Gold, for your support of the company. And we hope that all of you are well and that you stay safe, and we wish you all a very pleasant day. Thank you.

Thank you. And that does conclude today's conference. Thank you all for your participation. You may now disconnect.