Vista Gold Corp. (VGZ) Q3 2021 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter 2021 Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. Today is Thursday, October 28, 2021. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Lisa. Good day, everyone, and thank you for joining the Vista Gold Corp. Third 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 and Form 10-Q for those notes regarding forward-looking statements in details of risks and other important factors 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. Our activities during the third quarter focused on several key programs that we believe will have a significant positive impact on shareholder value. Beginning with the Mt Todd definitive feasibility study, we made substantial progress during the quarter, and the study is nearing completion. The process to seek a strategic partner is advancing. Despite COVID-related travel restrictions, we continue to see strong interest in Mt Todd. We completed Phase 2 of our exploration drilling program. And based on the positive results to date, we expanded the program with additional drilling that is expected to continue into 2022. Finally, we significantly strengthened our balance sheet with quarter end cash of approximately $16 million, which Doug will talk about in a few moments. In general, our outlook with regards to the COVID pandemic is improving. We continue to enjoy in-person working relationships with all our staff in our corporate office. And in September, we attended our first in-person industry conferences since the start of COVID. In the northern territory of Australia, COVID control measures have been relaxed, but travel by international visitors into Australia continues to be severely restricted. Mt Todd continues to operate under an approved COVID-19 management and mitigation plan. We note that the Australian government recently announced it will begin to ease international travel restrictions for its full vaccinated citizens and permanent residents beginning in November and is working to define a plan to allow travel by -- international travel by foreigners. This is not expected to occur until sometime in early 2022. I'll discuss our third quarter achievements and 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 September 30, 2021.

Thanks, Fred, and also thanks to those on today's call. Our financial report for the third quarter was filed yesterday. My comments today will touch on the highlights from this report. For additional details, the full Form 10-Q is available at sec.gov or sedar.com. I'll start with our cash position. Cash and cash equivalents totaled $16 million at September 30, 2021. This was up $8.3 million since December 31, 2020, when we held cash of $7.8 million. It was important to strengthen our balance sheet to support key drivers in achieving our objectives of improving the economic potential of Mt Todd and increasing shareholder value. We have invested in programs at Mt Todd to refine technical aspects of the property and bring it closer to development stage. This includes completing a definitive feasibility study, essentially dewatering the Batman pit, obtaining approval of the mine management plan and continuing our exploration drilling program. A strong cash position also places us in a position of strength to support the company's partnering progress. We increased our cash position through 2 primary sources. The offering in July provided net proceeds of $12.3 million. This was the company's first offering transaction in 5 years. We also continue to source cash by monetizing our noncore assets, which produced a total of $2.4 million from the Los Reyes and Awak Mas properties. Vista's results of operations for the current quarter are in line with our expectations. We reported a net loss of $3.1 million for the third quarter of 2021 compared to net income of $4.2 million for the same quarter of last year. There were a few key areas that accounted for this variance. For the third quarter of 2021, we had no gains or losses on dispositions to mineral properties. By contrast, the third quarter of 2020 included a gain of $3.5 million as we recognized a previously deferred option gain upon transfer of Los Reyes to Prime Mining. Secondly, this third quarter had effectively no gain or loss from other investments, where last year's third quarter included a gain of $2.4 million, which related mostly to our sale of Midas Gold shares. From an expense perspective, exploration and property-related expenses were higher this quarter compared to the same period in 2020. This year, we expensed $2.3 million compared to $1 million for the same quarter of last year. The increase in 2021 over 2020 resulted primarily from $1.1 million related to the definitive feasibility study and $400,000 incrementally higher expenses for exploration drilling. And finally, our corporate and administration expenses remained relatively consistent quarter-over-quarter, with the third quarter expense being $800,000 compared to last year at $900,000. For the 9-month period ended September 30, our net loss was $6.9 million in 2021 compared to net income of $2.6 million in 2020. This year saw lower gains on dispositions of mineral properties and other investments with $2.1 million related to the Los Reyes property. Last year, we recognized gains totaling $8.5 million associated with Los Reyes, Awak Mas and the mining closures. For expenses, this year, we recognized incrementally higher expenses of $1.2 million for the definitive feasibility study, $1.6 million for exploration drilling and increased power costs to pump approximately 1.7 gigaliters of water from the Batman pit. Looking forward, we continue to focus on monetizing our noncore assets. Already in October, we've realized $340,000 from the sale of our Nusantara shares and are optimistic that we'll receive a $2.5 million option payment for cancellation of the remaining royalty that we hold on the Awak Mas property. On the spending side, our most significant discretionary programs over the next few quarters include the definitive feasibility study and traditional exploration drilling. We estimate total remaining cash expenditures for these programs will total approximately $4.4 million, with most of these funds being expended over the next several months. Other recurring expenses are expected to remain relatively consistent with the previous periods. That is it for my remarks for today. So I'll turn the call back to Fred. Thank you.

Thank you, Doug. As I mentioned at the start of the call, our activities during the third quarter focused on our #1 priority of increasing shareholder value. We are concentrating on 3 key activities. First, the definitive feasibility study. In July, we announced that we commenced work to complete a definitive feasibility study for our Mt Todd gold project. I'm pleased to report that engineering and design work for the definitive feasibility study are 80% complete and that the study is on track and on budget. As a reminder, the mine plan in the definitive feasibility study is being updated using a higher gold price. This change is expected to increase gold reserves and extend the mine life. This study will also address recommendations from the 2019 preliminary feasibility study and will also include minor updates for the project design to be consistent with the approved mine management plan, finalize process area engineering and detailed costing in all areas of the project. We are also evaluating several trade-off opportunities such as contract power generation and contract mining, which have the potential to lower our capital costs with an offsetting increase in operating costs. We're also looking at autonomous truck haulage. Results of the definitive feasibility study are expected in early 2022. In addition to the increase in gold reserves, longer mine life and improved project economics, management expects the definitive feasibility study to strongly support the company's partnering process by providing a higher level of confidence with regards to project designs and cost estimates. Second, our development strategy to increase value. The process to seek a strategic partner is advancing. This is despite COVID-related travel restrictions. In particular, mining companies outside Australia have been limited in their ability to complete site visits and perform other in-country due diligence activities. Nonetheless, we continue to see strong interest in Mt Todd and extensive activity in our virtual data room. Presently, there are options available for prospective partners to complete due diligence using in-country consultants. But once Australia's borders reopen, we expect opportunities to directly conduct on-site due diligence to improve. Our technical work programs, the approval of all major permits and the completion of a definitive feasibility study are expected to provide a solid basis to move forward with prospective development partners. 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. And third, the exploration drilling program. Moving on to this program, the primary objective of this program is to demonstrate the potential to efficiently add resources at Mt Todd by drilling exploration targets adjacent to the Batman deposit and extending Northeast towards the Quigleys deposit, all of which are within our mining licenses. The drilling program has focused on identifying connecting structures and mineralization between previously interpreted discrete deposits and demonstrating the potential for efficient resource growth with future drilling. To date, Vista has completed 18 holes and drilled 6,365 meters in the first 2 phases of the program. Each of the holes completed has intersected mineralization, consistent with our geologic model. The last 2 holes in Phase 2 were VB21-012 and VB21-013. Hole VB21-012 intersected over 100 meters of mineralization, including 3 zones of plus 1 gram gold per tonne material. Phase 3 drilling will include an additional 2,650 meters, mostly located northward toward the Quigleys deposit, bringing our drill program total to approximately 9,000 meters. Drilling is expected to continue into the [ new year ]. We are extremely pleased with the drilling results to date and believe there is an opportunity for significant resource growth and an extended mine life at Mt Todd, which we believe is important to potential partners. 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 to identify strategic opportunities to advance the development of the project. As noted, 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 from Mt Todd that is reflective of the gold production profile, the long operating life, excellent gold recoveries, the project's location in Australia's low-risk northern territory, favorable, low operating costs, robust project economics, the fact that we hold approvals for all major permits and will soon have a completed definitive feasibility study. We believe that these factors, coupled with the 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. We believe the completion of the definitive feasibility study will significantly enhance the attractiveness of Mt Todd as a joint venture opportunity. We continue to believe that Vista Gold represents an exceptional investment opportunity for the investor looking for value, growth potential, low geopolitical risk and strong leverage to the gold price. At today's gold price and foreign exchange rate, the Mt. Todd project economics demonstrated after tax NPV 5 of approximately $1.6 billion with an IRR of almost 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 an interesting market with strong, although somewhat volatile gold prices and governments around the world that 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 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, a number of which is expected to increase with the completion of the definitive feasibility study, Vista controls the third largest reserve package in Australia. Mt Todd is ideally located in the northern territory in Australia, an extremely mining-friendly jurisdiction, is favored with paved roads to the site and other existing infrastructure, including power lines, natural gas pipeline, freshwater storage reservoir and tailings impoundment facility. Our ongoing technical programs focused on designs that are capital-efficient with low operating costs, these have created the foundation for the leverage to gold price and improved shareholder value that we enjoy at the project. 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 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 definitive feasibility study and 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 investors looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price and that current prices represent a tremendous opportunity to establish a position for increased holding in Vista Gold. This concludes our prepared remarks. We will now respond to any questions from participants on this call.

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

Just thinking along, you are in a pretty crazy world when it comes to inflation. Mining share is reasonably well so far. But how do you expect the initial CapEx and OpEx costs for Vista to change? And on that same token [ with reference to ] global increases in the costs, but I mean, what are you seeing with the cost estimates, please?

Yes. That's -- Heiko, you'll appreciate that we're still receiving quotes on equipment. But in a general sense, we believe that there will be a modest increase in the CapEx of the project, mostly resulting from changes in foreign exchange rates and an increase in the size of the power plant for the project, though may be surprising to many. Early indications are that there's been little change in major equipment in the mining fleet and the process area since our last study. Freight costs are up, and we will see that reflected in the equipment prices. Steel and operating costs are up. But these components comprise a relatively small part of the CapEx of the project. On the operating cost side, energy costs in Australian dollars, natural gas and diesel have seen little change since our last study. We will see some cost escalation in the area of reagents. We have, in the past, been very conservative in estimating labor costs. And this was -- of note, this was confirmed by the benchmarking study that we completed in 2019. Presently, we are expecting only a 2% to 3% increase in labor rates as we refine our numbers for the feasibility study. So in general, I think it's fair to say that we will see, as I noted, a modest increase in the CapEx of the project and a relatively modest increase in operating costs. I believe that these will significantly be offset by being able to use a substantially higher gold price for project economics and also by the increasing reserves. So that's the best answer I can give at this point.

Well, building on what you just said, obviously, not only is the price that you can use higher, but stock price is much higher than last time on and so...

That's exactly right. And I think this is an ideal time to be completing that feasibility study.

Fair. Okay. And one more, and this might be [ difficult ] to talk a bit. But I mean, earlier today, I went through your July 21 release on the feasibility study. Can you just walk us through the status of this study? And by that same token, are you still using Tetra Tech and the other consultants that are listed in the release? Or have there been any additions to people who are working on it?

Yes. That's a great question. Let me answer the latter first. The principal consultants that were announced in our July press release continue to be the principal consultants on the study. We are extremely pleased with the work that's been completed by Tetra Tech, by Proteus on the process area design, Mine Development Associates is well advanced with the mine planning and scheduling and designs and dumps in capital and operating costs. Power Engineers has done an exceptional job in power plant design and also in working with us on the trade-off study of identifying potential companies who would be interested in owning and operating the power plant and selling us power over the fence. We're -- we -- Heiko you and I have had the conversation previously about the way we manage studies, and we continue to do the same as we have in the past. We select teams and consulting groups that we believe represent 18 players in their respective disciplines, and we work very closely with them. We play an active role in the management of the study in order to get the most efficient and best result and to accomplish it in a shortest period of time. And speaking of that, where we're at with the study. As I indicated in our prepared remarks, the engineering design portions of the feasibility study are 80% complete. We believe that a big part of the reason why we've been able to accomplish this level of engineering completion in such a short time is through the extensive amount of engineering that was completed to feasibility study standards for previous studies. We expect that to be well advanced with the drafting of reports by the end of the year and to be able to announce the results of the study early in 2022. And so while me may look at this and say that 6 months for the completion of a feasibility study has almost unheard of, it's really built on the foundation of for a long period of time. We have been completing feasibility study level engineering and incorporating it into our previous studies, but we've not been getting much credit for that. So we're finally at a point where we're able to capitalize on those previous investments. It's resulting in a much shortened time required to complete the feasibility study.

[Operator Instructions]

I was just about to say that I don't have anybody else waiting in the queue. But Pam has just handed me a question that's come in over e-mail, and I'll respond to it. It says like much of the gold space, Vista shares are down significantly year-to-date. Can you talk about Vista's share price performance relative to its peers? In response, I would note that we closely compare ourselves to 13 other developers with advancing projects and also to the GDXJ. Year-to-date, we find our share price performance to be slightly better than the median performance of this peer group. And I note that we're not pleased with this performance. As at midyear, we were in the upper quantile with regards to the same group. Our financing in July, which resulted in post deal dilution of 12%, marked the first significant dilution of our shareholders since 2016. This was not well received by the market. We were quite surprised by this. Subsequent softness in the market has further eroded our share price, but we believe that the programs that are in progress will provide significant stepping stones for value creation in the coming quarters. We have a very solid project. We have a very solid strategy. We believe that things in Australia are moving in the right direction for us to be able to make significant progress toward finding and advancing our discussions with a potential partner, and that this is actually a very interesting time for Vista with some very important catalysts coming up in the coming quarters.

And there are no further questions. I would like to turn the call back to Fred Earnest for closing remarks.

Very well. Thank you, Lisa. We'd like to take this opportunity to thank all who have joined the call today. We're very pleased with the progress that's been made this quarter, both with regards to our balance sheet, progress -- tremendous progress on the definitive feasibility study, the drilling program and also the work that's ongoing with regards to finding a partner for the development of Mt Todd project. The management team here at Vista is focused on a very narrow list of key activities, each of which we believe will ultimately generate significant value for Vista shareholders. We encourage you to not let opportunities pass you by. As we indicated, today's prices represent a tremendous opportunity. Vista is undervalued. And as we proceed and are successful with the catalyst, the work that's ongoing, we believe that there will be significant improvement in our share price. We would like to see all benefit from the success of our labors and with the improved share price, and we invite you to seriously consider the merits of the investments in the Vista Gold. With that, we conclude our call. We thank you for your time this morning, and wish all of you the very best. Have a wonderful day.

This concludes today's conference. You may now disconnect.