Vista Gold Corp. (VGZ) Q3 2022 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter 2022 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 call is being recorded today is Thursday, October 27, 2022. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Thank you, Sergio, and good day, everyone. Thank you for joining the Vista Gold Corp. third quarter 2022 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 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 to everyone who's joining us on the call today. During the quarter, we advanced our work with CIBC to maximize shareholder value. In September, we participated in three industry conferences and hosted more than 40 one-on-one investor meetings. With the completion of the feasibility study and exploration programs and management's ongoing efforts to control costs, we achieved a significant reduction in expenditures quarter-over-quarter. We ended the third quarter with a cash position of $9.6 million and continue to have no debt. 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 September 30, 2022.

Thank you, Fred. Today, I'll provide a brief recap of our financial position and results of operations for the quarter ended September 30, 2022. Vista Gold's full financial statements and our MD&A are included in our Form 10-Q that was filed yesterday and is available at either sec.gov or sedar.com. As Fred mentioned, we ended the third quarter with a cash on hand position of $7.6 million -- sorry, $9.6 million, which reflects a net decrease of $1.5 million during the quarter. Year-to-date, our net cash position has decreased $3.6 million. Overall, Vista's expenditures have tracked well below planned and for the nine months ended September -- for the full quarter. This is largely due to cost reduction measures implemented by management in response to current economic and capital market conditions. Our 2022 fixed cost spending, which is the most significant portion of our total spending, is budgeted at approximately $7 million this year. Through September 30, these costs were running nearly 15% under budget. We've also done well in controlling our discretionary spending, which is highlighted by having come in about $600,000 under budget for the feasibility study work. In regard to cash inflows, we benefited during the first quarter from net proceeds of $2.5 million for cancellation of the remaining royalty interest at the Awak Mas project in Indonesia. With the feasibility study and drilling programs complete, our overall expenditures continued to trend downward this quarter and we're evaluating additional opportunities to reduce expenditures going forward. Vista Gold's results of operations continue to be aligned with management's expectations and reflect the efforts to reduce spending. We reported a net loss of $1.7 million for the third quarter of 2022, compared to a net loss of $3.1 million for the third quarter of last year. This decrease resulted largely from lower exploration and holding costs for Mt Todd, which were down from $2.3 million in 2021 to $900,000 this quarter. This $1.4 million reduction resulted from having completed the drilling and feasibility study work prior to the start of Q3 2022, while both programs were in progress last year. For the nine months ended September 30, 2022 and 2021, our net losses were $3.4 million and $6.9 million, respectively. The $3.5 million decrease between these periods reflects a $2.3 million decrease of exploration and holding costs because of the drilling and feasibility study work were active during much of 2021 and both programs were completed earlier this year. The balance of the decrease in net loss was largely due to higher gains associated with disposition of non-core assets and a reversal of a previously accrued contingent reclamation liability. As we look forward to 2023, we're planning to continue to manage our treasury in the context of current economic and capital market conditions. On a preliminary basis, we expect to reduce budgeted annual fixed expenditures by approximately 20% below this year's budget. We also expect to have significant less exploration costs at Mt Todd. In summary, our financial position and results of operations continue to track as planned and we continue to seek opportunities to monetize Vista's remaining non-core assets and further manage down spending. We believe we are in a good overall position with our cash on hand of $9.6 million and no debt. That concludes my remarks for today. Thank you for your interest, and I'll turn the call back over to Fred now.

Thank you, Doug. I'll now move on to discuss several of our third quarter achievements in more detail. Beginning with the strategic process. In March of this year, we appointed CIBC Capital Markets as our strategic adviser to assist in evaluating a broad range of alternatives to unlock the value of the Mt Todd gold project. CIBC's mandate includes leading a process to complete an accretive transaction with the objective of maximizing shareholder value. During the quarter, we continued to advance our work with CIBC to seek a partner or other form of transaction to greater -- to achieve greater value recognition for Mt Todd. Volatility in the economy and equity markets, including inflationary pressures, higher interest rates and lower gold prices, have resulted in a number of interested parties adopting a more cautious near-term business strategy as they manage the impacts of these conditions. We believe that the completion of an acceptable transaction may be dependent on sustained improvement and stability in the economy and capital markets. We remain focused on completing the right transaction, one that creates value by recognizing a greater portion of the present value of Mt Todd and provides ample opportunity for future additional value recognition. Our primary objective is to achieve a valuation for Mt Todd that is reflective of the gold production profile, long operating life, excellent gold recovery, the project's location in Australia's low-risk Northern Territory, favorable operating costs, robust project economics as demonstrated by the recently completed feasibility study and the fact that we hold all major approvals and permits for the project. Moving on to cost reductions. We are very pleased with the results of the cost reduction measures that we have implemented during 2022. As Doug has just reported, year-to-date, we have achieved nearly a 15% reduction in fixed cost spending and expect this trend to continue through the remainder of the year. I'm pleased to note that additional spending reductions are being planned for 2023. Moving on to Mt Todd. Across the globe, regional and local economies are struggling with the impacts of inflation, currency valuations and supply chain issues, not to mention political instability in certain regions and the armed conflict in Ukraine. We continue to monitor the impacts of inflationary pressures on Mt Todd's project economics. The strength of the U.S. dollar relative to other currencies, especially the Australian dollar, has provided some distinct advantages for the Mt Todd gold project. For example, at the current exchange rate this morning of $0.649 per Aussie dollar, the estimated capital cost of the Mt Todd project is $823 million. This is compared to the feasibility study estimate of $892 million, which should be noted as having captured a significant part of the inflation experienced prior to the start of 2022. Assuming 8% inflation for this year indicates that on a U.S. dollar basis, the current estimated capital costs for the Mt Todd project are materially unchanged from the feasibility study. Operating costs enjoy some similar benefits from the foreign exchange rate, but the drop in gold price, which is down a little over 10% for the year, has had a predictable impact on project economics. Based on the feasibility study economic model, adjusted for inflation and current foreign exchange rate and gold price, today, we estimate the NPV of the project at a 5% discount rate to be $1.1 billion with a 21.5% IRR. This confirms our belief that Mt Todd continues to be a robust gold project in today's economic environment. If I could, I'd like to turn to the balance sheet for just a moment. As Doug mentioned, we ended the third quarter with a cash position of $9.6 million and we continue to have no debt. We believe our strong balance sheet will be very important as we advance toward the goal of completing a transaction that will maximize shareholder value. I will conclude with some comments with regards to the investor opportunity. For the investor looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price, Vista Gold represents an exceptional investment opportunity. We find ourselves in a market with weaker gold prices and lower equity values across the sector. The ongoing hostile activities in Ukraine, higher inflation, rising interest rate and fears of recession are creating greater uncertainty in the markets. Presently, these factors have a negative impact on the price of gold, but we believe that the gold price will rebound in the coming year. Furthermore, these factors have had a significant impact on the operational cost of gold producers across the globe. The work we have completed over the last several years along with the recently completed feasibility study has positioned the Mt Todd gold project as one of the largest and most advanced undeveloped gold projects in Australia. With nearly 7 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 stable and mining-friendly jurisdiction. The existing basic infrastructure at Mt Todd, including paved roads, power lines, a natural gas pipeline to the site combined with the operational infrastructure composed of the freshwater storage reservoir and tailings impoundment facility, provide very distinct construction time line and risk mitigation advantages. Our technical programs and focus on designs that are capital efficient with low operating costs have created the foundation for the leverage to gold price that we enjoy as well as improved shareholder value. We've worked hard to secure the authorization of all of the major permits for the development of the project. Of equal importance, we have earned the trust of the local stakeholders and are confident that our social license is firmly in hand. We believe Mt Todd is a superior asset and one of the most attractive development-stage gold projects, not just in Australia, but in the world. With our gold -- with our share price where it is today, there's a tremendous investment opportunity. 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 and increase one's holdings in Vista Gold. This concludes our prepared remarks. We'll now respond to any questions from participants on this call.

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

Let's talk a little bit about the inflationary impact. So you alluded to some of this earlier on the call. But I mean in our view, Mt Todd is able to cope with inflation quite a bit especially in an environment like we're having right now where it runs rampant and some of the other mines that we work with are getting hit with these headwinds and it really hurts their ops. I assume your cost to build out stuff get hit with the same thing, but the important thing to note here is that the Aussie dollar was at 70 -- 0.75 a year ago, and it's at 0.65 today. You mentioned something similar to this earlier on the call. Can you just quantify the expenses that you expect that would get requoted given that they are in Australian dollars and maybe some of the big line items that you see getting hit by that?

Well, certainly, Heiko, and thanks for this question. In our -- the capital cost estimates that have been prepared for the project, approximately 65% of the capital cost of the project are in Australian dollars. Certainly, all of the labor, concrete, part of the steel, many of the other components outside of major equipment items are directly affected by the Australian dollar foreign exchange rate. When we look at the impacts of inflation and the impacts that they have on the project, certainly, major equipment items are -- we're seeing some inflationary pressures affect the cost for major equipment items like mills and crushers and mining equipment. Additionally, we've seen early on, and a big part of these inflationary adjustments were captured in the feasibility study, but steel and concrete costs rose very quickly a little over a year ago and then seemed to have tapered off a bit, but we continue to monitor those. Wages in Australia are another area where we're seeing over the last six months or so, an increase in wages in Australia. We monitor these factors on a regular basis. We're not out in the market actively requoting major equipment items, but we do touch base with manufacturers and tend to adopt a more general approach to the inflation on those big dollar equipment items, but some of the other things we monitor very closely in. And as you noted, we are not immune, nor are the major producers. We are all very much subject to these inflationary pressures. As we -- as I noted in our prepared comments, one of the distinct advantages is that, as I mentioned, about 65% of our capital costs are denominated in Australian dollars. And with the changes in foreign exchange rate and our inflation adjusted estimate of the capital cost is within $3 million of what our feasibility study predicted at the start of this year. So while we're subject to the impacts of inflation, we receive tremendous benefit from the strength of the U.S. dollar relative to the Australian dollar and exchange rate, and that's been the offsetting factor for us, which is obviously a very distinct advantage for us with our project.

So a very good and detailed answer. I appreciate that. Next one I think is a little bit easier. Can you provide some color on the spending reduction? I mean I always thought that you guys ran a pretty lean operations. So just a bit of color, how sustainable is it? And anything else that you expect to get done in the next, call it whatever, six, nine months?

I'm going to turn this over to Doug Tobler, our CFO, to answer that question. Doug, go ahead.

Thanks, Fred. Heiko, yes, well, let me set the stage just so it puts it in context. When we talk about the spending reductions, we're talking about a total under budget on our fixed costs through September 30, pushing up towards $700,000. So it's a real and meaningful number for us as far as a reduction. And you can't do that without giving things up and incurring some pain. One of the big areas, in fact, the biggest area, because it's the biggest area of our budget, is personnel costs. And we've had some reduction in staff and we've had some adjustments in terms of what total compensation for others will be expected for the year. So that's about 40%, 45% of our reduction right there, is just personnel-related activities. The largest second budget is in outside services and that would include, for example at corporate mostly, reducing our legal, reducing our tax fees. We're not taking undue risks, but we're dialing down where we can. We're asking our service providers to scale back as best they can and control their charges to us. On site that includes some outside services, some things that we contracted for in the past, we've been able to move to our internal staff. And then everything else becomes a little bit -- there's a bunch of little pieces. Basically, every line item has a reduction. But if you looked at a couple of areas, it would be in our back office admin costs and in travel costs. We're taking the people that need to go and no extra people are going. And as you know, we don't travel in business class. We sit in the back of the bus and we don't stay in fancy hotels or eat out at fancy restaurants. So almost every line item has contributed to the balance of the change. And then of course, we've had to deal with inflation. At least for the Australian piece, that's been largely offset by the FX benefits that we've seen. So that's really it, Heiko. And yes, we do think we can carry it in going forward on a sustained basis. In fact, we think we'll see some minor additional reductions. As I said, next year's budget on a preliminary basis looks like we'll be about 20% lower than this year's budget.

[Operator Instructions] Your next question comes from Bruce [indiscernible] from [indiscernible].

Bruce, I don't know if you're on mute, we can't hear you.

Yes, my company, we're -- we have facilities worldwide. I wanted to know if the climate is impacting Mt Todd. How is the water situation there, too? Are you having any difficulties or are you planning for any kind of possible difficulties?

Thanks for the question. As you may be aware, the Mt Todd project is located in the very northern part of the Northern Territory. We enjoy two distinct seasons per year at the project, affectionately known by the Australians as the wet and the dry. During the dry season, which runs from roughly the middle to -- middle of April to first of May, all the way to the first of December, middle of December, we receive almost no precipitation. And then during the wet season, which is the balance of the year, we will receive on average about 1.3 meters of rainfall, most of that coming in the form of three or four major events. We don't really believe that the project is being affected by climate change in any real way. We have, over the course of our involvement in the project from 2006 to present, seen a variety of seasonal weather patterns and precipitation totals, but we continue to see -- our experience over that 16-year period, the average is pretty close to the average over the last 100 years. And so as far as water goes, we manage water. It's a big part of our site management responsibilities and we manage water in accordance with approvals and permits from the Northern Territory EPA and the Department of Mines. Looking forward and contemplating what the water situation will be at Mt Todd for an operating project, we have secured the permits and we've designed the project to be a water harvester. In other words, during the wet season, we will capture water during large precipitation events and store it for use during the rest of the year. The present freshwater storage reservoir will be -- the dam will be raised about two meters. And with that, we will have storage capacity for approximately two years' worth of water requirements for the project. We included in the design and have implemented a lot of water recycling and reuse strategies. The design and construction of the project will include a water treatment plant and any water that's discharged from the site will be drinking-water standard water and we're very pleased with that proactive approach. The overall, I think that water management has been one of our very strong suits at the project and has been instrumental in helping us to gain the social license, the trust of the local community at the Mt Todd site. When we acquired the project, there were some concerns with regards to management of the water on site as it had been conducted by the Northern Territory government before us. We changed the water management strategy and as a result of our actions and the transparent approach with which we've managed the water, we have gained a great deal of respect in the local community for being a company who is proactive and very concerned about its environmental stewardship and we share the community's regard for and place a high degree of importance on water management. So I hope that answers your question, Bruce.

Yes, it does. I follow your website and you've put a lot of effort, the group there has put a lot of effort in. But in the water, certainly, I just worry, because I have places -- we have places in Italy in the Po flow, in the Rhine Flow, and in China, we have some water issues there and Mississippi here in the States. So I didn't know if you were having some strained impact in Australia. I know it's very seasonal over there. But thank you, you guys are doing a great job and I highly recommend the stock as an investment. Thank you. Have a great day.

There are no further questions at this time. I'll turn the call over to Fred Earnest for closing statements. Please go ahead.

Thank you, Sergio. I'd like to just reemphasize a couple of points from our discussion today. First of all, we continue to seek cost-effective means to optimize the Mt Todd project and operations there. This will -- it has been a focus. I think we've been very successful in achieving some very, very important optimization results. We continue to evaluate, in a very very cost-effective manner, additional opportunities. We believe the -- maybe I'd just say this first. We remain focused on completing the right transaction for Mt Todd. And by that, I mean one that creates value by recognizing a greater portion of the present value of Mt Todd and provides ample opportunity for future additional value recognition. We believe that completion of such an acceptable transaction may be dependent on sustained improvement and stability in the economy and capital markets. And we, like many other people, are watching very closely the actions of decision-makers with regards to the economy. We're very pleased with the results of the cost-cutting measures that we have implemented during 2022. And I reiterate what Doug Tobler has said: Additional spending reductions are being planned, both at the operation in Australia and here in our corporate office in Denver. And we continue to operate in a very cost-conscious and in some ways an austere manner. We're very sensitive to the cost of maintaining the tremendous asset that we have at Mt Todd and aim to do so in a very, very efficient manner. We continue to believe that Mt Todd is an exceptional asset given its location, stage of development, permits being approved and all of the other factors we've discussed. We as a management team, as an executive team, are not happy with the valuation that we're accorded today. We feel that Mt Todd is deserving of a much higher valuation and our focus is on creating and realizing that value for our shareholders. We believe that at today's prices, that Vista Gold represents an exceptional value opportunity for new and existing shareholders. And we invite you to consider whether this is the time to initiate a position or increase your position in holding in Mt Todd. As always, if any of you on the call today have additional questions and would like to speak to a member of the management team, please reach out to Pamela Solly, our Vice President of Investor Relations, and she will be happy to connect you with the appropriate person in our team and make sure that your questions are answered. With that, I conclude my remarks. I thank each of you for taking time to join the call today and we wish all of you a very pleasant remainder of your day.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.