Earnings Call Transcript - GAU Q2 2025

Operator, Operator

Good morning. My name is Jenny, and I will be your conference operator today. I would like to welcome everyone to the Galiano Gold, Inc. Second Quarter 2025 Financial Results Conference Call. Mr. Matt Badylak, President and CEO of Galiano Gold, you may begin your conference.

Matt Badylak, President and CEO

Thank you, Jenny, and good morning, everyone. We appreciate you taking the time to join us on the call today to review Galiano Gold's second quarter 2025 results that we released yesterday after market close. On Slide 2, we'll be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our most recent MD&A as well as this slide of the webcast presentation. Yesterday's release details our second quarter 2025 financial and operating results. They should be read in conjunction with our second quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR. Also, please bear in mind that all dollar amounts mentioned on the conference call today are in U.S. dollars unless otherwise noted. Moving to Slide 4. With me on the call today, I have Michael Cardinaels, our Chief Operating Officer; Matthew Freeman, our Chief Financial Officer; and Chris Pettman, our Vice President, Exploration. For this presentation, I will initially provide a brief overview of the quarter. Michael will give an operations update. Matthew will discuss the financials, and then Chris will review the recent exploration success his team has had at Abore. I'll then provide some closing remarks and open the call for Q&A. Here on Slide 5, we can see the team commenced building momentum during the quarter towards a stronger second half of the year. I'm pleased to report that we saw a reduction in significant safety incidents during the period with no lost time injuries and no total recordable incidents. Looking at operations, our mining contractor increased ore production from the Abore and Esaase by 5% quarter-on-quarter and the stripping of the Nkran deposit advanced ahead of schedule during the period. On the processing side, progress on the secondary crusher accelerated towards completion during the quarter, and I am pleased to report that the commissioning of the circuit commenced slightly ahead of schedule in late July. Michael will provide more details on this and highlight the production benefits we expect to realize post commissioning and optimization of the circuit. Gold production increased to just over 30,000 ounces in Q2. This is an increase of 46% from Q1 and brings our year-to-date production to just over 51,000 ounces. Moving to our financial performance. We saw a 10% reduction in all-in sustaining cash costs during the quarter, which saw us generate $36 million in cash flow from operating activities, ending the period with $115 million in cash and no debt. Matt will provide more details on this shortly. Finally, I will briefly touch on exploration. We saw positive results from our deep step-out drilling program at the Abore deposit with mineralization intercepted in all four holes across a 1,200-meter strike length. This included a particularly strong intercept of 36 meters at 2.5 grams per tonne. The program confirmed that the Abore Granite and mineralizing system continues 200 meters below our current mineral reserve pit shell over a significant strike length. Chris will provide more commentary on the program later on the call. Now turning it over to Michael and a discussion on our progress in operations during the quarter. Slide 6, please.

Michael Cardinaels, Chief Operating Officer

Thank you, Matt, and good morning, everyone. As Matt just highlighted, we saw positive momentum in the second quarter of the year. We focused on operational safety and rolled out several safety campaigns to increase awareness around key areas that impacted previous quarters, such as hand injury prevention, fatigue management, and energy isolation with our staff and our business partners. I'm happy to report there were no recordable injuries during the quarter, and our lost time injury and total recordable injury frequency rates both improved to 0.42 and 0.97, respectively, per million hours worked. Looking at our mining performance during the quarter, we continued to see strong production performance at the Abore pit with an 18% increase in ore mined versus Q1, extracting 0.8 million tonnes. Esaase continued steady production, also producing 0.5 million tonnes of ore, which enabled us to execute on our plan to feed a blend of fresh Abore ore and softer Esaase ores. The forecast for the second half of the year continues to be on track to deliver more ore tonnes than the first half of the year. Nkran waste stripping continued and benefited from a full quarter's production, increasing 113% compared to Q1. The mining contractor is also mobilizing additional fleet, and we expect to see further increases in volumes in the second half of the year. On to Slide 7, please. On the processing performance, we also saw some positive momentum in the plant with an increase in the number of tonnes treated on the back of improved plant availability and an increase in overall recovery, which contributed to a quarter-on-quarter increase in gold produced and sold. We sold just over 29,000 ounces and produced just over 30,000 ounces for the quarter. Following the encouraging performance in Q2 and the installation of the secondary crusher, we are maintaining production guidance towards the lower end of the range that was outlined at the start of the year between 130,000 and 150,000 ounces. Another key project completed during Q2 was the installation and commissioning of the new carbon regeneration kiln, which we expect to deliver long-term economic and operational benefits to the milling circuit. On to Slide 8, please. Continuing on with projects, I'd like to give an update on the secondary crusher. As we have previously communicated, the hardness of Abore ore was a limiting factor to our mill throughput, and the installation of the secondary crusher is critical in achieving a material feed size that will enable us to process harder ore and reach design throughput of 5.8 million tonnes per annum. I'm extremely happy to report that the crusher was brought online at the end of July, on budget and without incurring any incidents or injuries. We are currently working to optimize the secondary crusher performance and will be completing several small upgrade projects during August, but we are very pleased with the initial performance. The delivery of this project marks a significant milestone for AGM, and we expect to ramp up production in the latter part of the year as planned. And with that, I would like to turn it over to Matt Freeman to discuss the company's financial results. Slide 9, please.

Matthew Freeman, Chief Financial Officer

Thanks, Michael. Good morning, everyone. On Slide 9, we've highlighted key financial metrics for the quarter. We reported revenues of $97.3 million in the second quarter with an average realized price of $3,317 per ounce, considering the impact of hedges. Income from mine operations was $37.2 million, although net earnings were negatively impacted by fair value adjustments to our hedge book due to rising gold prices; we still achieved net income of $21.6 million or $0.7 per share. Adjusted EBITDA was just under $40 million. We generated $35.8 million in cash flows from operations and concluded the period with a strong cash balance of approximately $115 million, which includes a $6 million income tax payment to the Ghanaian Revenue Authority. Given these solid cash flows, we plan to allocate more capital to accelerate the waste strip at Nkran. As noted, we expect Nkran's mining volumes to increase in the latter half of the year. With production having significantly increased since Q1, we've seen a substantial reduction in all-in sustaining cash costs (ASIC), and we expect this trend to persist as production grows in the second half. We anticipate that ASIC will trend towards the higher end of our production guidance due to our production expectations following a slow start to the year. We want to emphasize that there are ongoing factors beyond our control that were not anticipated when we established our guidance that have affected AISC. Higher royalty costs due to elevated gold prices and an additional 2% sustainability levy imposed by the Ghanaian government from April are expected to add about $100 per ounce to AISC at current spot prices. Additionally, there was an unexpected rise in the currency against the U.S. dollar during the second quarter, which will put further pressure on ASIC throughout the year, even though our overall cost structure is still largely based in U.S. dollars. Moving to Slide 10, despite these pressures on reported AISC, we are focused on managing our mine's cost structure and are pleased to report that fixed operating costs like processing and G&A have remained consistent with recent quarters. Notably, the processing cost per tonne has decreased as throughput has improved quarter-over-quarter, with a 10% decline in unit costs since Q1. We expect further reductions on a unit basis as we realize the full benefits of the secondary crusher in the second half of the year. Mining costs at our producing deposits, Abore and Esaase, have remained stable on a per tonne mined basis and consistent with the fixed unit rates of our mining contract. While we expect mining rates to slightly increase as we explore deeper into these deposits where haul distances grow, Nkran mining costs are also governed by a fixed-rate mining contract, and we expect unit costs to decrease as volumes rise over the next 12 months as fixed management costs are distributed over more tonnes. We continue to be disciplined with capital allocation, spending only where necessary and with clear prospects for value creation. We are pleased that the secondary crusher project has stayed within budget, and the main ongoing project is Raise 8 at the tailings facility, expected to be completed in 2026. Overall, costs have been well managed, and we should see improvements in unit rates as the year progresses now that the secondary crusher is in operation, allowing us to process more tonnes and produce more ounces. This will enhance operating margins and cash flows for the business. As showcased on Slide 11, as our AISC decreased in Q2 as anticipated, our cash margins have improved significantly with rising gold prices. Despite investments in development capital for the secondary crushing project and waste stripping at Nkran, along with the tax installment, we continue to maintain a robust balance sheet with about $115 million in cash and no debt. Now, I’ll pass it over to Chris to discuss the encouraging drilling results we continue to see at Abore.

Chris Pettman, Vice President, Exploration

Thanks, Matt. So Abore was the primary focus of exploration efforts in Q2 and was the sole focus of our near-mine efforts with the commencement of an expanded Phase 2 infill drill program and the completion of the first deep drill test, which I will discuss shortly. While we continue to have success in our near-mine programs, we also continue to advance our regional generator program with work progressing at the sites and Sky Gold B targets through the quarter. The IP survey at Sky Gold was completed in June, and initial results suggest a new interpretation of the underlying geology, which will likely lead to new potential drill targets. Q2 prospecting activities along the Nkran area at the specified target area, which is located southwest of Nkran, returned multiple high-grade quartz vein grab samples within the initial 5-kilometer long gold and soil anomaly, further highlighting the prospectivity of the area. An IP survey is currently underway and will be used for final refinement of drill targets planned for testing in the second half of this year. The Phase 2 infill drilling at Abore began in early Q2 and is the immediate follow-up to the positive results of the first phase of drilling completed and announced in Q1 of this year. As a reminder, Phase 1 drilling was focused largely on testing for continuations of mineralization immediately below the mineral reserve and resource at the southern end of the deposit and returned significant results, some of the highlights of which are listed at the bottom of this slide. Phase 2 has been expanded to cover approximately 1.5 kilometers of strike length, extending to the northern end of Abore. Next slide, please. This image shows the priority target areas of the Phase 2 infill drilling currently underway on a long section of Abore that shows the existing drilling, including that from Q1 infill Phase 1 holes. Current drilling is focused on testing for the presence of potential north plunging low-angle ore shoots across the entire strike length of the deposit as well as possible south plunging conjugate structures carrying mineralization, as well as to determine the potential for open pit reserve and resource expansions. Drilling has progressed under budget and ahead of schedule with the majority of the planned 8,900 meters over 35 holes now complete, and we expect to be in a position to release results in the coming weeks. Slide 14. As discussed in our July press release, the primary objective of the deep drilling completed in Q2 was to test for continuations of the Abore mineralizing system well below the current mineral resource and prove it is carrying grades and widths that could support an underground bulk mining operation. In this, we were successful as all four drill holes intersected significant widths of mineralized granite with three of them returning significant assay results, including, as Matt has already mentioned, 36 meters at 2.5 grams per tonne, but also 16 meters at 3.1 grams per tonne gold and 18 meters at 1.9 grams per tonne. The system remains open in all directions at depth and is the first proof of concept for an eventual transition to an underground mining at Abore. Results from this work will be integrated with the assays being received from the current Phase 2 infill drilling at shallower depths to determine the next steps for further drill testing, which may result in additional open pit expansions. Next slide. This is a plan map showing the wide spacing of the four deep drill holes across approximately 1.2 kilometers of the total 1.8 kilometers strike of Abore and demonstrates how we really have only just begun to test the full strike extent of deeper mineralization. Next. Here, we show an image of a long section through Abore with gram meter contours for existing drilling as well as the four new deep holes. This provides a visualization of how these holes were really just our initial probe of the mineralizing system below the mineral resource and how there is significant room for additional growth at depth. The next two images I'll show are taken from the July press release. This first image shows hole 350, which intersected 36 meters at 2.49 grams per tonne gold, approximately 90 meters below the mineral reserve at Abore main pit. Seeing these widths and grades in our first pass testing of these deeper zones is a major success of the program, and it confirms that the system does carry mineralization that could support a potential bulk underground mining operation. It's also important to note that grades are significantly better than those currently modeled in the bottom of the inferred portion of the mineral resource at this cross-section shows. The final image I'll show today is a cross-section through the northern end of Abore. In this area, our deep test intersected the Abore Granite approximately 200 meters below the current reserve, again, with very good width and grade. This image shows how open the deposit remains for further drill testing and the scale of potential growth that we see at Abore. We see Q2 as another successful one in the exploration space at AGM as we continue to advance our growth opportunities in both the near mine and regional programs. We are well-funded and supported by Matt and the Board and expect to put forward additional drilling at Abore in the second half to build on the continued successes we're seeing there. With that, back to you, Matt.

Matt Badylak, President and CEO

Thank you, Chris. With the team building momentum and the secondary crusher now online, as we previously guided, we anticipate production will be stronger in the second half of the year. Galiano is well positioned as Ghana's largest single asset gold producer with compelling fundamentals across many key areas. We maintain a robust five-year production outlook with strong financial discipline, including a solid $115 million cash position while remaining debt-free. Our exploration program at Abore is delivering results, and we continue to advance multiple greenfield exploration targets across our extensive land package. The stripping to access high-grade ore at the Nkran deposit is progressing ahead of schedule, and the mill throughput is expected to ramp up to 5.8 million tonnes per annum now that the crusher is commissioned. Operating in Ghana provides us with a safe and stable jurisdiction with a mature regulatory framework under which we can execute our organic growth profile and drive value for our shareholders. I will highlight that our current market valuation is less than 40% of analyst consensus net asset value. With AGM highly leveraged to gold price, a robust organic growth profile and record high gold prices, the potential for value creation as we continue to build on our current momentum remains high. With that, I'll turn it back to the operator and open up for any questions. Thank you.

Operator, Operator

And your first question is from Heiko Ihle from H.C. Wainwright.

Heiko Ihle, Analyst

So your capitalized development pre-stripping costs at Nkran were $6.9 million during Q2, just over $10 million year-to-date. Any idea what we should expect to model out for just pre-stripping for the remainder of the year, just in general?

Matt Badylak, President and CEO

Hi, it's Matt here. Yes, I think we will be accelerating through the second half of the year. It's not going to be too dramatic. Obviously, we need to strategically stage mobilized equipment for the rest of the year. So I anticipate a modest increase in Q3 and then a bit more gain in Q4. We expect to step up from the $6.9 million this quarter into the next, and then show a little more growth in the following quarter. But we're not talking about anything like tripling.

Heiko Ihle, Analyst

I understand. However, relying on a trend line might be too cautious, so let's aim higher. That's great. Your balance sheet continues to strengthen, with nearly $150 million in cash, specifically $115 million. I realize that mining operations can encounter unexpected issues, which makes having a financial cushion important. But at what point is enough enough? When will you be in a position to start returning capital to your shareholders, and what method do you prefer for doing that?

Matt Badylak, President and CEO

Thank you for the question, Heiko. We are aware that we are currently building cash. However, we are also in a significant capital allocation phase focused on Nkran. We see substantial value in accelerating that program, provided our cash situation allows for it. This acceleration is expected to deliver considerable value for our shareholders as we begin to extract higher-grade ore from Nkran. Thus, our main priority right now is this reinvestment. As we move forward and our cash flow improves, we will explore additional ways to return value to shareholders, but our current focus is still on reinvesting in the asset, especially as we continue stripping Nkran.

Heiko Ihle, Analyst

Right. No, I fully agree that it should be your primary use of cash. I mean, you know how we feel about the growth of the company.

Operator, Operator

And your next question is from Raj Ray from BMO Capital Markets.

Raj Ray, Analyst

I have a couple of questions. The first one is for Michael. I'm not sure if you already addressed this, so I apologize if I missed it. In the presentation regarding the commissioning of the secondary crusher, you mentioned some modifications needed for the downstream equipment. Could you explain what those modifications are? Additionally, while you mentioned aiming for a steady state, could you provide more specific timing? Are you expecting to reach around 5.8 million tonnes per annum by the end of Q3? My second question is for Matt. Are we still anticipating non-sustaining CapEx to be in the range of $60 million to $65 million for the year? Also, how should we approach modeling the sustaining portion related to the deferred strip for the second half? That's all.

Michael Cardinaels, Chief Operating Officer

Thanks, Raj. I'll start here. Some of the upgrade projects that we're looking at are involving primarily the drives for our conveyors. So we're increasing speeds of the overland conveyor to now be able to accelerate the throughput off the back of better production out of the secondary crusher. We're also looking at optimizing the settings on our primary crusher. And we've got a number of options to look at for our vibrating screen, which feeds the secondary crusher. So we're looking at screen aperture sizing to optimize the feed to the secondary as well as total throughput. So we expect that to yield some benefits. We also have to do some modifications to the discharge grade size in the SAG mill. So we expect to have a lot of these modifications completed by the end of Q3.

Matt Badylak, President and CEO

Matt here. From a development capital perspective, this year’s main focus was on the Nkran strip and the upgrades to secondary crushing. Most of the costs for these upgrades occurred in the first half of the year, with some continuing into the early part of the third quarter. We’ve commissioned these upgrades in July, so the majority of the expenses have already been accounted for. You can expect additional costs related to the crushing circuit in the second half of the year. Regarding Nkran, we anticipate an increase for the remainder of the year beyond the approximately $7 million spent in the third quarter, so keep that in mind moving forward. There are also other project development costs, such as early works on village relocations, but these will not be significant this year. It’s possible we won’t reach the fully guided amount this year, but we are maintaining our guidance. A lot will depend on how quickly we can mobilize equipment in Nkran and our comfort with accelerating those efforts. So, while it’s a bit of a vague response, those are the main areas to consider, and we shouldn’t expect anything else significant.

Raj Ray, Analyst

Okay. That's helpful. And then on the sustaining part of the deferred strip.

Matt Badylak, President and CEO

Yes. Again, that's always a tricky one to guide to, as you know, because we're looking at different phases of different pits and the way the accounting works on that. But ostensibly, I'd say that we're getting towards a more steady-state mine plan with respect to Abore. So I think you can probably extrapolate what we've seen in Q2 moving forward for the next little while, the strip rate is starting to come to be more consistent at both Abore and Esaase, though Abore is going to be the focus of the second half of the year. So I think you can kind of intimate that fairly well from what we've seen in the last quarter. That helps.

Operator, Operator

There are no further questions at this time. Please proceed with closing remarks.

Matt Badylak, President and CEO

Thank you, Jenny. I appreciate you moderating the call today, and I appreciate everyone dialing in and asking your questions. And I wish you all a good day. Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.