Vista Gold Corp. (VGZ) Q2 2021 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's Second Quarter 2021 and Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Today is Friday, July 30, 2021. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Good day, everyone, and thank you for joining the Vista Gold Corp. Second Quarter 2021 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-K for details and 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. During the second quarter, we achieved a number of significant milestones for Vista and our shareholders. Our most significant achievement by far was the approval of the Mt Todd Mining Management, the approval of the Mt Todd Mining Management Plan, also referred to as the MMP. Vista also received approvals of the Aboriginal Areas Protection Authority Certificate for the exploration licenses and the Surface Water Extraction License for the project shortly after the MMP was approved. We continued to advance our exploration program and have now drilled 16 of the 18 planned holes. We also received the final $1 million Guadalupe de los Reyes payment, which completes the sale of the Guadalupe de los Reyes project to Prime Mining Corp. Following the end of the second quarter, we completed a bought deal public offering commenced work to complete a definitive feasibility study and extended our exploration drilling program. In general, our outlook with regards to the COVID pandemic is improving. Our executive team is now working full time in the corporate office in Denver, and we expect to resume corporate travel within North America in August. We also plan to attend several in-person investor conferences beginning in September. In the northern territory of Australia, COVID control measures have been relaxed, but travel by international visitors into Australia remains very difficult. Mt Todd continues to operate under an approved COVID-19 management and mitigation plan that is presently less restrictive than originally required. I'll discuss our second quarter achievements and other key programs 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 June 30, 2021.

Thanks, Fred. And for those of you on the call today, thank you for your interest. Our financial report for the second quarter was filed on Wednesday. Today, I'll speak to the highlights from this report, but please refer to our Form 10-Q for additional details. You can find a copy of that at sec.gov or sedar.com. Our cash and cash equivalents totaled $6.3 million at June 30, 2021, which compared to $7.8 million at December 31, 2020. Given our level of increased activity for the company during the first half of 2021, we're pleased to have seen a net reduction in cash of only $1.5 million. We benefited from a $2.1 million payment received from Prime Mining for de los Reyes project that Fred mentioned. We also realized just over $1 million from our ATM program. These cash inflows supported our ongoing exploration drilling program, dewatering of the Batman pit and a number of other programs. Vista's results of operations were in line with our expectations. We reported a net loss of $800,000 for the second quarter of 2021 compared to net income of $1.9 million for the second quarter of last year. There are a few key areas that accounted for this variance. First, we recognized a $2.1 million gain this quarter for de los Reyes project compared to a $2.6 million gain last year for the Awak Mas project in Indonesia. Exploration and property-related expenses were also higher this quarter compared to the same period of 2020. This quarter, we expensed $2 million, which included $700,000 for drilling plus other related costs. We were not drilling last year during the second quarter, so exploration and property-related costs were more in line with our recent historical trend of just about $1 million per quarter. And finally, our gain on other investments was $100,000 this quarter compared to $1.1 million for the second quarter of 2020. Most of this difference reflects the 2020 unrealized gain from the increase in market value of the Midas Gold shares that we held at the time. For the 6 months ended June 30, 2021 and 2020, our net losses were $3.9 million and $1.6 million. The variance between these periods reflects the same gains that I discussed previously from de los Reyes and Awak Mas. And the first half of 2021 also included $1.1 million for drilling, which covered the full first half of this year plus other drilling-related costs, and we pumped 1.7 million -- or sorry, 1.7 gigaliters of water from the Batman pit. Looking forward now, we are progressing several important programs. As Fred mentioned, we've started a definitive feasibility study, which will include additional engineering and design in the process plant, updated cost estimates and project design to be consistent with the recently approved MMP. We also recently announced plans to add 3,000 meters to the exploration drilling program. Follow-up of some of the drill targets will also be considered as we progress this program. We estimate feasibility study and additional drilling costs will be approximately $3.5 million and $1.5 million, respectively, with both of these programs planned for completion during the first quarter of 2022. To support these programs and provide for other expected requirements, we recently completed a $13.5 million public offering. And I'm pleased to indicate that our pro forma cash position, inclusive of the cash we had at quarter end and the estimated net proceeds from our recent financing, is $18.8 million. Our strong balance sheet will enable us to advance key programs that are expected to increase shareholder value over time. I'm also pleased to report that the company still has no debt. That concludes my remarks for today, so I'll turn the call back over to Fred. Thank you.

Thank you, Doug. As I mentioned at the start of the call, we achieved a number of significant milestones during the quarter and continued to advance several key programs to increase shareholder value in a cost-effective manner. We're pleased to announce that on June 14, the Mining Management Plan was approved. This approval is a very significant milestone for our company, and Vista now holds all major operating and environmental permits required for the development of Mt Todd. Following the approval of the Mining Management Plan, Vista received approval of the Aboriginal Areas Protection Authority Certificate for the area covered by our exploration licenses, which is required as a legal means to identify and protect sacred sites at Mt Todd. This complements the previously approved Aboriginal Areas Protection Authority Certificate for the area of our mining licenses. The Surface Water Extraction License was also approved, which provides Vista with the right to store and use 3.4 gigaliters of surface runoff each year to facilitate processing and mining activities associated with Mt Todd. And this is expected to adequately supply all of the project's water requirements as the project is presently designed. I'll now discuss a number of programs that we expect will add value to Mt Todd in the near term and support our partnering efforts. First, we are excited about the commencement of a definitive feasibility study for Mt Todd, which is expected to be completed during the first quarter of 2022. This study, which will include more detailed engineering and design in the process plant area, updated equipment quotes and operating cost inputs and economic analysis at prices more reflective of the current gold price, is expected to increase the reserves and mine life of the project. The results of the study, together with the results of our ongoing district-scale exploration program are expected to further demonstrate the significant upside potential of the Mt Todd project and strengthen our position with potential development partners. Another program is our ongoing exploration program at Mt Todd. To date, the program has focused on identifying areas with the greatest potential for future resource growth, a long strike from the Batman deposit, approximately 1.9 kilometers north to the Golf-Tollis and Penguin targets. We have completed 16 of 18 planned holes or approximately 5,500 in of the planned 6,000 meters in the previously approved programs. Each of the holes completed to date has intersected mineralization consistent with our geologic model and demonstrate both horizontal and vertical continuity of the targeted structures. Our recently announced -- the recently announced results of hole VB21-011 encountered thickening of the mineralized structures that were targeted. Half of the length of this hole intersected mineralization with -- including 4 significant sections of higher-grade mineralization. Hole VB21-012 is in progress and being co-funded by the Northern Territory's Geophysics and Drilling Collaborations program. This program is funded by the Resourcing the Territory initiative and aims to increase the intensity of exploration drilling in geophysics in under-explored areas of the Northern Territory. Vista is one of 15 companies receiving an award under the current round of program funding. This hole has been located and oriented to intersect mineralization in the Golf-Tollis target, test other targets further to the west at depth and continue on at depth to intersect the [ bury ] intrusive. This hole is planned for 800 meters significantly deeper than our normal drilling and will provide significant information to better help us -- to help us better understand the source of gold north of the Batman deposit. We are extremely pleased with our drilling results to date and believe that there is opportunity for significant resource growth and an extended mine life at Mt Todd, which we believe is important to potential partners. Given the success of the current drill program, Vista recently announced additional holes for a third phase of drilling totaling approximately 3,000 meters. During the quarter, we continued to advance our efforts to seek a strategic partner for the development of Mt Todd. While the process has been slowed by COVID-19 uncertainties and international travel restrictions, we are continuing to engage with several companies in technical assessments and early-stage partnering discussions. Our technical work programs and the approval of all major permits provide a solid basis to move forward with prospective development partners. As we pursue a strategic development transaction that reflects the inherent value of Mt Todd to Vista's shareholders, we continue to focus on our strategy to further improve the economic potential of the project and increase shareholder value in a cost-effective manner. 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. We continue to engage with potential partners and identify strategic opportunities to advance the development of the project. As a result of COVID-19, this process may take longer than anticipated. However, we remain focused on completing the right transaction, one that achieves a structure that provides appropriate opportunity for value creation by recognizing the intrinsic value of Mt Todd and minimizing the potential for future dilution. Our objective is to achieve a valuation for Mt Todd that is reflective of the size of the gold deposit. Together with its location in Australia's low-risk Northern Territory, favorable, low operating costs, robust project economics and the fact that we hold approvals for all of the major permits for the development of the project. We believe these factors coupled with the technically advanced stage of the project and excellent infrastructure, place Mt Todd on a short list of the most attractive development-stage gold projects in the world. Our exhaustive 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 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. At today's gold price and foreign exchange rate, the Mt Todd project economics demonstrate an after-tax NPV with a 5% discount rate of approximately USD 1.6 billion and an internal rate of return of greater than 38%. Vista continues to advance and derisk 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 strong market, although with somewhat volatile gold prices and governments around the world are still coping with the economic effects of the COVID pandemic. 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, and earlier this year, in 2021, has positioned the 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 reserve package in Australia. Mt Todd is ideally located in the Northern Territory of Australia, an extremely mining-friendly jurisdiction. Mt Todd is favored with paved roads to the site and other existing infrastructure, including power lines and natural gas pipeline, freshwater storage reservoir and tailings impoundment facility. 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 improved shareholder value. We have earned the press of the local stakeholders and believe that our social license is firmly in hand. We've worked hard to secure the authorization of all of the major permits. 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. We expect the completion of the feasibility study and our ongoing drilling to further demonstrate the significant upside potential of the project and strengthen our position with potential development partners. 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 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 investors looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price. This concludes our prepared remarks. Ashley, we will now respond to any questions from participants on the call.

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

This is Marcus Giannini calling in for Heiko. Just last week, you announced that you're commencing a feasibility study on Mt Todd. I know we're still a ways away from the anticipated publication in Q1 2022. But just thinking out loud here, can you walk us through anticipated results of this study as much as you feel comfortable sharing? And on that same token, can you elaborate a bit on some of the direct or indirect benefit seen from your continued derisking efforts to date?

Yes, absolutely. I may not be able to go into as much detail as some people on the call would like. But certainly, when we look back at the existing preliminary feasibility study, reserves were estimated using a pit design at $1,000 gold price. With today's gold price of $1,800 or more per ounce, we all recognize that pit shape is conservative. And so one of the things that will happen is that the feasibility study will -- we expect an increase in reserves, and with that, an extension of the mine life. Additionally, completing a feasibility at this time will allow us to obtain current pricing for all of the equipment items, the structural steel, concrete, as well as the consumables and operating cost factors, giving us the most accurate estimate possible in today's environment, which will be very beneficial as we engage with partners. We are completing engineering in the piping, electrical and instrumentation design of the process plant. This obviously will provide greater certainty and eliminate doubts. With the recent approval of the Mining Management Plan, there will be minor design changes that will incorporate the conditions and requirements of the Mining Management Plan, putting everything tied together. Also, I think that completing a feasibility study at this stage will take away the argument that some may have that those who harbor the belief that there is some intrinsic flaw that has prevented us from advancing the project to a feasibility study, we have always maintained that's not the case, and this will certainly lay those beliefs. We will -- with the completion of this feasibility study, we have a feasibility study that's compliant with the new U.S. regulation, S-K 1300, as well as the existing Canadian regulation 43-101. We believe that all of these considerations and outcomes directly benefit our efforts to reach an agreement with a potential partner and eliminate the risk from a partner's point of view. Completing the study at this point in time, we believe we'll add a great deal of comfort and certainty to the discussions that we hope to be having in the coming 6 to 12 months.

All right. That's really helpful. And then my second question was, you sort of hinted at this on the last quarterly call as well. But can you maybe provide some updates on the impact of the continued travel stop to Australia? I assume this is getting progressively more difficult to handle, but we keep hearing stories of immigration exceptions. What are you seeing? And how does this impact you guys given a lack of face-to-face interaction with your community stakeholders?

So we continue to interact on a regular basis with stakeholders via Zoom. Fortunately, we have an outstanding team in Australia that is managing these -- many of these affairs on a personal face-to-face basis. As you indicated, international travel restrictions continue to be in place with regards to travel to Australia. We have recently begun the process of applying for special business visas for a number of team members here in Denver, which once granted, will allow us to apply for exemptions to the travel restrictions, but there's no guarantees. All of these things are being done to be as prepared as possible once they begin to decrease the restrictions with regards to travel to Australia. I would say that we have been favored with a combination of technology and the team that we have in Australia that our relations with local people have really not suffered as a result of the pandemic and the travel restrictions. It's not as convenient and it's not as efficient as meeting face-to-face. But the technology, Zoom, our ability to have conversations by that technology has allowed us to maintain and advance many of our initiatives. You're aware that through the midst of the pandemic, we completed negotiations with the Jawoyn Association, the aboriginal group that owns the surface land and the project area to modernize our agreement. And I consider that to be a very tangible measure of the success that we've achieved in maintaining relationships and fostering our relationships and advancing our objectives even though we've not been able to travel. So we continue to hope that travel restrictions will be lifted. Right now, it looks like it's going to be sometime next year, but we're doing all that we can to manage all of the affairs of our business without being able to travel. Certainly, the biggest impact of the travel restrictions is not being able to get people to site for site visits to advance our discussions with partners. And that's one that we're just living with.

Your next question comes from Kip Herriage with Vertical Research Advisory.

Congratulations on the quarter on the equity raise and on the successful completion of the MMP. You had a lot going on in this quarter, congratulations. Marcus asked my question about the feasibility study, but I'll add to that question is what -- doing this yourself as a small cap at this point, gold miner, how does this impact your negotiating ability and potential leverage with partners?

I'm sorry, how does completing the feasibility study ourselves affect that? I just want to make sure I understand the question, Kip.

Yes. Exactly. How might that affect your ability to use a little more leverage in negotiating with potential partners?

Yes. Certainly -- and Kip, thanks for being on the call this morning. You've followed us for a long time. You know that one of the reasons we manage feasibility studies ourselves or technical studies ourselves is because it gives us the be able to select and work with what we consider to be a team organizations in each of the different disciplines that comprise a part of these studies. And so by doing that, we're able to, we believe, generate a high-quality product that we understand completely all of the assumptions, the work that's gone into it. And the advantage to us is that we -- because of the long-standing relationship with many of these consultants as we have conversations, and as there are companies that are undertaking additional technical evaluations and due diligence that we're able to put them directly in contact with these top-notch individuals that performed the work, and we're able to get answers for the companies that are asking the questions in a very timely manner, it's thorough. Certainly, just advancing to the completion of a feasibility study. We recognize that as we get the detailed engineering that a potential partner may want to make changes and want to undertake additional engineering, we recognize that, that's a possibility. But at this point in time, we've reached the point where we believe that completing a feasibility study, having a current estimate of all of our capital costs and our operating costs places us in a very distinct position with regards to discussions with potential partners. We're not aware of any other project of this size of Mt Todd with all of its permits approved. And now with -- within the next 4 or 5 months, being able to say that we will have completed a feasibility study, certainly places us at the top of the list of projects that we think should be of interest to senior gold producers.

And I would -- I think from previous talks, the ballpark had been that you might be able to strike a deal that would still give you 40% to 50% stake in the Mt Todd at the end of the day. I mean I'm assuming that completing this on your own, which I know previous to this, you were waiting to get a partner to complete the feasibility study. But again, I'm assuming that you're now looking at keeping a larger percentage of the Mt Todd.

Well, certainly, that's one of the things that is always on our minds, Kip. And along with that is increasing the value. At the end of the day, it's all about the value that's created for Vista shareholders. And whether that value is that 50% or whether it's at 35%, the important thing is the value recognition for the Vista shareholder immediately and longer term. And that's what we're focused on.

And the last question on -- as you continue to drill your new holes, at what point will we expect to see your reserve investments begin to be modified based on the new drilling?

That's a great question because that's not the objective of this program. The objective of the program is to identify those areas that have the greatest potential for future resource growth. We're not drilling on the kind of spacing that would be required for resource estimation. Rather, this is a district-scale exploration program, and we're trying to understand the geology and string things together. And like I mentioned in the prepared remarks, hole #11 we've been following structures and bands of structures going north from the Batman deposit and hole 11 encountered a zone where these structures are thickening. And this is exactly what we're looking for. That thickening of these structures represents an opportunity to add more resources in a more confined area and obviously, will be one of the focuses of future drilling when we get to resource conversion. But at this point in time, the purpose of the program is to demonstrate the potential for resource growth to potential partners and to demonstrate to them that while we wave our arms and we talk about geology and we point things out to them, that we've actually put some data behind this and can demonstrate true results that the life of the Mt Todd project can very reasonably be expected to be much longer than what it's currently estimated to be.

Understood. Last question. I believe you're still using $1,000 an ounce gold for your reserve totals. Will you be raising that? And if so, when can we expect to see that?

Yes. So absolutely. That's part of the feasibility study. The gold price used to estimate the reserves will increase. And we will disclose all of that when we announce results in the first quarter of next year.

Congrats on the quarter.

Thank you, Kip.

Your next question comes from Matt Farwell with ROTH Capital.

Most of my questions have been answered. I guess I was wondering, just to further clarify why you're not looking to do more infill drilling with the drilling plan that you have, just to sort of clarify that to the market. And also, what drilling results are really the catalysts that in the near term that we can be looking for that we can expect to see? Obviously, we love to see partnership announcements, but drilling results are really what we're going to see and we know we're going to see. And so can you just walk us through what -- give us a peek at what we might see in the next second half of the year from that perspective.

Yes. So those who are familiar with our corporate presentation know that within the mining licenses and projecting, looking northward from -- into the northeast from the Batman deposit between the Batman deposit and the Quigleys deposit is approximately 5.4 kilometers. And in that area, there are a number of previously identified gold occurrences. Our understanding 3 years ago was that each of those previously identified occurrences were individual, distinct, unrelated mineralized occurrences. Based on the work that we've done in the last 2.5 years, we now believe that this is all connected. And as such, our program, the exploration program that we're undertaking is meant to tie these things together and help us better understand the district geology. And as I indicated, in the course of doing this, and we're drilling, we're stepping out anywhere between 100 and 400 meters between sections that we drill. We are looking for those areas that will -- that offer the greatest potential for future resource expansion. To expand resources and ultimately expand reserves and generate that kind of -- those kind of increases, it's going to require additionally millions of dollars of drilling on infill drilling, drilling between -- on spacings between 25 and 50 meters. And at this point in time, we believe that, that's an expense that a partner would reasonably make to advance the project. And so we're trying to lay the groundwork, develop the targets and in essence, prepare the ground for the investment that a partner will make. And we want that investment to be very productive. And so we're prepared at this point to make a modest investment to demonstrate the geologic concepts and to more clearly define the structures that exist within the Batman-Driffield corridor with the idea that we know that a partner would be willing to make a significant investment in exploration to expand the resource and extend the life of the project. And that's part of our strategy to create value without significant expense to our shareholders.

Your next question comes from [ Christophe Rice ].

Fred, I have a question concerning the partners. Do you think the travel restriction are an advantage for the Australian companies which are interested in our property? Because when they act fast, they can make the deal and kick off the competitors.

You raised an interesting point. And those -- and not just Australian companies, but companies who have Australian assets have a distinct advantage. because they're not restricted in the way that we are being in North America. They are already in the country. They do have to deal with the travel restrictions from -- to and from the territory within the different states of Australia, which are ever changing as they respond to the COVID situation within the country. But your observation is one that's very astute that those who have operations are based in Australia, are not subject to the same restrictions as international companies and therefore, they can advance and move forward in this period of time when others may not be able to.

Yes. Perhaps this will be an advantage for us.

It could be. Absolutely.

[Operator Instructions]

Actually, it appears that there are no other questions. So with that, we will wrap up the call. We thank all of you for your interest in being part of this call. This is -- we are very excited about the achievements of the second quarter. And in fact, the first half of 2021, we now look forward to the drill results, and we expect that drill results will be announced every 3 to 4 weeks as the program moves forward. And we look forward to the completion of the feasibility study. I would just remind everybody that almost all of our engineering is already at feasibility study standards, and the work that we're doing will complete all of that engineering to those standards. That's one of the reasons that we're able to complete the feasibility study in the time frame that we proposed and also for the relatively modest cost that Doug has outlined previously in the call. We've done a lot of work in the past to position the Mt Todd project to be able to move forward quickly. I think that this is another manifestation of that previous work, the previous investment that's been made. We encourage all of you to watch what's going on. And we're excited about the work that's being completed and look forward to being able to deliver the results of the feasibility study and ongoing exploration results in a timely manner over the course of the next 6 months. So thank you for your interest. Thank you for your continued support, and we wish all of you a very pleasant day.

Ladies and gentlemen, this concludes today's conference.