Vista Gold Corp. (VGZ) Q4 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's 2020 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. [Operator Instructions] As a reminder, this conference is being recorded, today, as of Monday, March 1, 2021. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead, Ma'am.

Thank you, Eduardo, and good day, everyone. Thank you for joining the Vista Gold 2020 financial results and corporate update conference call. I'm Pamela Solly, Vice President of Investor Relations. On the call today is Fred Ernest, 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-K 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 Ernest.

Thank you, Pam. And thank you, everyone, for joining us on the call today. We're extremely pleased to achieve many of our 2020 corporate objectives, in spite of the challenges presented by the COVID-19 pandemic. Before summarizing our 2020 highlights, I'd like to begin by addressing the impacts of the ongoing COVID-19 pandemic. The health and well-being of our employees, and the communities in which we live and work continues to be a priority for our company. Our corporate activities continue with the executive team working remotely and on a limited in-office basis. Until the pandemic subsides, video conferencing has replaced corporate travel and in-conference or in-person conference participation. In the Northern Territory of Australia COVID-19 cases are almost nil and control measures have been significantly relaxed. Now, Todd continues to operate on an approved COVID-19 management and mitigation plan that is presently less restrictive. To-date, our workforce in both the U.S. and Australia remain healthy. During 2020, we achieved strong financial performance, as we executed and delivered on our initiatives to strengthen our balance sheet, identified opportunities to advance and bring greater value to our Mt Todd gold project, maintained our social license strong and commenced exploration opportunities, targeting resource growth adjacent to the Batman deposit. I'll discuss these topics in greater detail later in the call. But I will now turn the time over to Doug Tobler, our CFO, for a review of our financial results for the year ended December 31, 2020.

Thank you, Fred, and thanks for those on the call listening today. I'll start today by discussing the strength of our balance sheet at December 31, 2020. Overall, we had a very solid year and achieved our goal as Fred said. We successfully realized sufficient proceeds from our non-core assets to fully cover our 2020 expenditures, build our cash position and importantly, win dilution. We also put a few deals in place for additional sources of cash that will come during 2021. We ended 2020 with $8.2 million of cash and short-term investments. That's up about $3.5 million from $4.7 million on hand at the end of 2019, and we also remain debt free. This increase in cash was achieved through several means. First, we kept our spending in check, with year-over-year total expenditures of just over $7 million for each of 2020 in 2019. Secondly, we successfully monetized several non-core assets during 2020, which provided us with cash proceeds of just under $9 million. And this included sale of Midas Gold shares, partial cancellation of a royalty on a property in Indonesia, and the final payment for the sale of a project in Mexico. And I should mention that Indonesia and Mexico transactions were the ones that included potential additional cash payments to Vista of up to $4.6 million during 2021. And I can report that we've already received $1.1 million of this amount. And as a final note on cash flows, these non-core transactions allowed us to keep our dilution to a minimal. We issued just over $2 million shares during 2020, and realized net proceeds of $2 million as a way to provide additional balance sheet stability. Also, these issuances were very effective, with those realizing net proceeds of about 1% above the trading price on gains when the shares were issued. Turning to our income statement, we reported income of $400,000 for 2020. That compares very favorably to our 2019 loss of about $9.5 million. In a nutshell, this report from a loss of income came from just over $6 million in gains from Indonesia and Mexico transactions, and another $2.5 million from sales of Midas Gold shares. Expenses and everything else on our income statement remain largely consistent and offset each other on a year-over-year basis. I'll close the financial review with a brief outlook for 2021, our current balance sheet and the prospect of additional cash inflows from non-core assets puts us in good shape to cover our corporate expenses, and Mt Todd holding costs, all of which we expect to remain consistent with the last couple of years. We also have room to effectively dewater the Batman pit, the ongoing drilling program that we're doing now, and at least a follow-on program that Fred will discuss in few minutes. Success of these drilling programs will help to influence our path for a few other things that we're evaluating, generally we should be able to keep the issuance to a minimum similar to 2020. In larger issuance, of course, which favorably signal distinct opportunities to improve Mt Todd's evaluation and prospects by accelerating on-the-ground programs. That concludes the financial review, I’ll turn the call back over to Fred. Thank you.

Thank you, Doug. I'll begin with a review of our 2020 achievements and then provide an outlook for the remainder of the year. As part of our 2020 objectives, we diligently focus on strengthening our balance sheet through the successful monetization of non-core assets, and a disciplined approach to managing our costs and capital spending. As Doug has stated, we ended the year with a $0.2 million of cash and positioned the company to generate additional cash of up to $4.6 million during 2021, of which $1.1 million was received in January. We are very pleased to have zero debt. Looking at opportunities to advance and bring greater value to Mt Todd, we are focused on advancing the Mt Todd project and seeing a greater portion of project value reflected in our share price and market cap. With this end in mind, we have advanced or commenced several initiatives. First, an update on the mine management plan. We are pleased to have effectively worked with the Northern Territory Division of Mines and the newly formed Northern Territory Department of Industry, Tourism and Trade, of which the Department of Mines is part to advance the review and approval of the Mt Todd Mine Management Plan, also referred to as the MMP. It is our understanding that the NT government is finalizing its review and we believe that the MMP will be approved in the very near future. With regards to exploration, we initiated the drilling program to test the continuity of mineralization, extending north from the Batman deposit, which includes holes across the mineralized structure, as far as 500-metres north of the last modeled mineralization. Today, we have reported assay results for holes one through four, and we'll be reporting results of the next three holes in the coming weeks. We're very excited about the results of the program, and are adding a second drill to extend and accelerate the program. Our water management program achieved significant results in 2020. Through continued dewatering, the water level in the Batman pit was lowered by 23-metres in 2020, and we expect the Batman pit to be effectively dewatered by mid-2021, representing an important milestone for the project and future development decisions. Also, in 2020, the company updated its project sensitivity analysis based on the sustained higher gold prices. Mt Todd demonstrated significant project level leverage to the gold price. And as shown in the updated sensitivity analysis, for every $100 increase in the gold price, after tax net present value at a 5% discount rate increases approximately $200 million. We also initiated internal evaluations related to higher gold prices. Our 2019 preliminary feasibility study was completed using a gold price of $1,350 at an exchange rate of $0.70 U.S. per Australian dollars, and estimated an after-tax NPV at 5% discount rate of $823 million and an after-tax internal rate of return of 23.4%. At a gold price of $1,750 at an exchange rate of $0.78, the after-tax NPV5 is estimated to be approximately $1.1 billion with an after-tax IRR of 34.2%. Of note, the Batmen open pit design and reserve estimates in the 2019 preliminary feasibility study are based on a $1,000 gold price, which in today's market is very conservative. With higher sustainable prices, we have begun evaluating the economic impact of modestly changing the gold price used for mine planning, considering $1,100 and $1,200. This has the potential to increase reserves i.e. more tons with only slightly lower overall grade, and at the same time to extend the life of the project. Early in 2020, we announced the positive results from an independent, benchmarking study of the 2019 preliminary feasibility study. This benchmarking study confirmed that estimated capital and operating costs and schedules for construction, commissioning and ramp-up are in line with those experienced by the peer group projects. Maintaining our social license, our strong social license continues to be another top priority for our company. In November 2020, we announced that we had reached an agreement with the Jawoyn Association Aboriginal Corporation to update our existing agreement, to include a sliding scale royalty and mutual cooperation and support commitments. The sliding scale royalty replaces the Jawoyn Association's previous rate to become a 10% participating joint venture partner in Mt Todd, and provides Vista with greater flexibility in its decisions to develop and operate Mt Todd. The modernized agreement also formalizes our commitment to create greater cultural awareness to be an industry-leader in protecting cultural heritage sites, and to work closely with the Jawoyn Association to identify, and provide economic opportunities for Aboriginal people, as integral components of the development of Mt Todd. Moving to our share price, our share price performance at December 31, 2020. Our shares closed at $1.08, which is up 49% from our December 31, 2019 share price of $0.73. Vista shares significantly outperformed the GDXJ, which increased 28.3% during this same period. Looking ahead, we are excited about ongoing programs that present significant opportunities to realize shareholder value, more in line with the value of Mt Todd. As part of these efforts, and based on the early success of our current drill program, we are adding a second drill to extend and accelerate the ongoing exploration program. In addition, we look forward to a few of our upcoming catalysts including, final approval of the Mt Todd Mine Management Plan, which we believe is forthcoming in the very near future. Drill results are expected over the coming weeks and continuing well into the second quarter. And as I made reference to completion of the dewatering of the Batman pit later this year. We continue to engage with potential partners and identify strategic opportunities to advance the development of Mt Todd. As a result of the COVID-19 pandemic, this process may take longer than anticipated. However, we remain focused on completing the right transaction, one that meets three criteria. First, recognizes the intrinsic value of Mt Todd and appropriately reward shareholders with value creation. Second, preserves maximum project ownership for our shareholders, and third minimizes future dilution. We believe that debt and dilution needed to build Mt Todd on a standalone basis is not in the best interest of our shareholders. Our objective is to achieve evaluation for Mt Todd that is reflective of the size of the gold deposit. Together with its location in Australia is in low risk Northern Territory, favorable low operating costs, robust project economics and the fact that we hold approvals for all major environmental permits and expect to have the operating permit or the mine management plan in the very near future. We believe that these factors coupled with the technically advanced stage of the project and the excellent infrastructure place Mt Todd on a shortlist of the most attractive development stage gold projects in the world. Our exhausted technical studies provide a solid basis for engagement with prospective development partners. And current market conditions demonstrate the robust economics of the project. We continue to believe that Vista Gold represents an exceptional investment opportunity for the investor looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price. And today's gold price and the foreign exchange rate, the Mt Todd project economics demonstrate an after-tax net present value to 5% discount rate of approximately $1.1 billion, and an after-tax internal rate of return of greater than 34%. Vista continues to advance and de-risk Mt Todd and is well-positioned in the current gold environment to consider prospective development partners, who we believe will recognize the value of Mt Todd, and appropriately reward shareholders. In conclusion, we find ourselves in a market with strong although somewhat volatile gold prices, and governments around the world on the cusp of approving additional stimulus packages. We believe this bodes well for sustained and modestly improving gold prices in the coming 12 to 24-months. The work we have completed over the last several years, but especially in 2020, has positioned our Mt Todd gold project as the largest undeveloped gold project in Australia, with 5.85 million ounces of proven and probable reserves, Vista controls the third largest reserves package in Australia. At the current gold price, and foreign exchange rate, I reiterate that the project has exceptional economics, with an after-tax NPV of approximately $1.1 billion, and an after-tax IRR greater than 34%. Mt Todd is ideally located in the Tier 1 mining jurisdiction of the Northern Territory of Australia, with paved roads to the site and other existing infrastructure including power lines, a natural gas pipeline, freshwater storage reservoir, and tailings impoundment facilities. The project improvements we have achieved along with our estimated mineral reserves and production profile, have created the foundation for the leverage to gold price and improve shareholder value that we have experienced. We have earned the trust of local stakeholders and believe that our social license is firmly in hand. We've worked hard to secure the authorization of the major environmental permits. And as I have iterated, we believe that we are very close to receiving the authorization of the mind management plan. We believe that 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. I reiterate our commitment to finding a partner to advance the project, and at the same time, realize value for our shareholders. For a more comprehensive assessment of the value accorded to Vista in 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 investors looking for value, growth potential, low geopolitical risk exposure, and strong leverage to the gold price. We will now take any questions from participants on the call.

Thank you. [Operator Instructions] We'll now take our first question from Jake Sekelsky at Alliance Global Partners. Please go ahead.

Hey, guys. Thanks for taking my questions.

Good morning, Jake.

Thanks. Following up on Doug's comments on the balance sheet, what are your expectations around the timing of the remaining $3.5-ish million in payments that you're set to receive?

Sure. So the one I'm about to speak to is an option agreement, it would be $2.5 million, and that would come during Q2. And then potentially another $1 million would come in Q3. So that'd be $3.5 million and we already received $1.1 million.

Got it. Okay. So Q2 and Q3.

Yes.

And then, shifting to exploration. Fred, you mentioned that you added a second drill rig. Is that more to accelerate the existing program? Or should we view this as an expansion of the initially planned exploration activities?

It's actually both. The results that we've seen so far, the intersection of the projected mineralized zones north of the Batman deposit have been very encouraging. We want to be able to get results back faster and make decisions with regards to where to drill next in a more efficient manner. And as a result, we've added the second rig. And so, it will be both, an expansion to the program, we're going to be drilling more meters, we're going to be drilling more sections, trying to string together and closer spacing, the continuity of the extension of the mineralization. But also, because we want to drill more sections, we want to be able to generate results more quickly, and hence the decision that we've made to bring in a second drill.

Okay. That's helpful. And then lastly, just on permitting, and I know you're expecting the MMP shortly. Once that's in hand, are there any other permits that are needed or the project fully shovel ready at that point?

Alright. That will be the last major permit for the project. There will be a number of other minor permits. We will require an explosives use permit. There will be individual construction permits. But the pathway to getting all of the other permits is very short, and in many cases, only involves presenting designs plans, paying fees and receiving the appropriate approvals. So this is a very significant milestone one that we've been working on, really since the latter part of 2018, and it will be a tremendous milestone in advancing the project.

Got it. Okay. That's all for me. Thanks again.

Thanks for being on the call this morning, Jake.

We'll take our next question from Heiko Ihle at H.C. Wainwright. Please go ahead.

Hey, there. Good morning. Nice to see you guys outperforming the index last year. Let's talk a little bit more about drilling, with a question with Jake earlier. With the second rig, what's the cost? I assume the availability is secured. And if you could maybe just provide or touch more color than you did earlier on the planned outcome of the drilling?

Yes. So, right now we're anticipating increasing the budget from what we had for last year to something on the order of $1.2 million to $2 million for additional drilling. The planned outcome of the drilling is as those who are familiar with our corporate presentation, there's the Batman deposit is located at the southern end of a structural corridor, that's known to host mineralization trending from the southwest to the northeast, across the boundaries of the mining license, from the Batman deposit on the southwest end to the Quigleys deposit on the Northeast. For many years, we thought that there were a number of very localized gold occurrences between these two deposits, we now believe that the mineralization is much more continuous. And the purpose of the drilling that we started last fall was to test more on the level of proof of concept to validate the work that our geologists had done in mapping, and trying to better understand the geology and the structural domain that hosts the gold. Based on the drilling that we've completed, we have a high degree of confidence that there's significantly greater continuity of the mineralization between these two deposits. And the purpose of the drilling program is to try to identify both the continuity and to locate the major structures that host the mineralization that hosts the gold at the Batman deposit, i.e., the quartz and calcite veining with the sulfides in the appropriate structural domain. And so, we believe that ultimately, that the work that we're doing right now will lay the foundation for an increase in resources, ultimately with significantly more drilling, an increase in reserves, and an extension on the life of the Mt Todd project. So, Heiko, you'll appreciate that these are all very exciting things, and we hope that as we're able to announce the results of the last four holes in the original program in the coming weeks that the market will understand our enthusiasm for the results, thus far, and why we made the decision to go forward with another drill.

Completely, completely different question. Very helpful, by the way. Thank you. The Jawoyn, are you seeing the community relations are unchanged following your amended agreement that was done three months ago, pretty much to the day, right? I mean, it was announced November 30, if I remember right. Are they slightly more positive for the company? Is it unchanged? What are you hearing through the grape line?

Our relationship with the Jawoyn Aboriginal people is excellent. The modernization of the agreement was an initiative that we started, and they jumped in with some things that they wanted to achieve. One of the parts of that agreement was the formation of a Leaders Forum. And we held our first Leaders Forum meeting a couple of weeks ago, the Jawoyn are very excited about the opportunity to work more closely with us more formally, as we execute on our goals and on our objectives of being an industry leader with regards to the protection of cultural heritage sites. We work very closely with them, we pay them a monthly consulting fee right now to make, to help us identify and make sure that we know where these sites are, and we don't disturb any of them, we treat them with the appropriate care and respect. But we're working with them to develop a policy and to refine our procedures for how we're going to treat these. Of note, we had a visit from the Northern Territory Minister of Mines, a couple of weeks ago. And unbeknownst to us prior to visiting the Mt Todd site, she visited Wurmbrand Aboriginal Community, which is a community within the Jawoyn people. And she reported that she was very surprised to find the people of the community, the elders there, very supportive of the development of the Mt Todd project, and commented that that was and start contrast to what she has observed when she's visited the Aboriginal people around other mine sites. And so she was very complimentary of the work that we've done to engage with them, the Jawoyn Aboriginal people. Lastly of note, we're very proud of the fact that over half of our workforce at Mt Todd is Aboriginal. And we expect to continue to provide employment opportunities for the Aboriginal people as we develop the project.

Very helpful. Thank you so much for your comprehensive answer, as always. And stay safe.

Thanks, Heiko. Have a great day.

Are there any other questions?

It appears we do not have any more questions. I'll turn it back to you, Fred.

Very well. Well, we appreciate everyone's time this morning, this afternoon, as the case may be, wherever you are. We had a very successful year in 2020, and we expect to follow that with another exceptional year in 2021. We have a lot of work cut out for us. And we're very excited about where the company is positioned. As I indicated with regards to the prospects of finding a potential partner. The impact of the pandemic has resulted and is taking longer than we expected. But bear in mind that we are focused on three things. The first being, recognizing the intrinsic value of Mt Todd and appropriately rewarding shareholders with value creation. Second, preserving maximum ownership for our shareholders. And third, minimizing future dilution. Those continue to be our priorities as we seek a partner. We continue to believe that this is the best way to create value. We're very excited about the exploration work and the potential that this is creating. And we encourage you to stay tuned and be watchful for updates and exploration results. Last of all, as the questions have been asked, please be mindful that we believe that we are very close to receiving the approval of Mine Management Plan. And with that, the project will then hold or Vista will then hold all of the major permits environmental and operating for the development of the project. We're not aware of very many other developers in our space and certainly none others of the size that the Mt Todd project is, who have achieved this point of permitting success. This represents a significant de-risking of the project, and we're very pleased with the results of our hard work over the last number of years. Again, we thank you. We hope that you'll continue to follow Mt Todd, and that you'll talk about what you've heard on the call today with your friends and associates, and encourage them to learn more about Vista Gold, as well. Again, thank you for your time. And we wish all of you a very pleasant day.

This concludes today’s call. Thank you for your participation. You may now disconnect.