Earnings Call Transcript - IAUX Q3 2022

Operator, Operator

Good morning, afternoon, and evening. My name is Jake, and I will be your conference operator today. I would like to welcome everyone to the I-80 Gold Corp. Third Quarter 2022 Financial and Operation Results Conference Call. Mr. Downie, you may begin your conference.

Ewan Downie, CEO

Hi, and thank you for everybody for attending today's conference. Today, we will be discussing our third quarter financials as well as provide some updates on what the company is doing. On Slide 2, the participants from management in this call are myself, Ewan Downie. We have Matt Gili, Matt Gollat, and Ryan Snow attending. Ryan will be presenting the financial portion of the presentation. On Slide 3 is our standard disclaimer statement, which also deals with forward-looking statements, and I urge everybody to read this when you read our presentation. On Slide 4, our company is a U.S.-focused gold producer, developer, and explorer. We are one of the largest holders of gold and silver resources in the state of Nevada and we have several exploration programs ongoing within the company as we advance our plan to become one of the largest producers in the state. In terms of our extensive resources, our company has approximately 6.5 million measured and indicated gold ounces and more than 8 million ounces inferred, with almost combined 180 million ounces of silver. I will pass over the next slide to Ryan Snow, our CFO, and he will take you through this quarter's financials.

Ryan Snow, CFO

Thanks, Ewan, and good morning to those listening today. Yesterday, the company reported our financial statements and MD&A for the third quarter of 2022, and they can be found on SEDAR, EDGAR, and the company's website. On Slide 5 of the presentation, you'll see a graph of our production and sales by quarter for the year. This production is from the residual leaching activities at both Ruby Hill and Lone Tree, and as highlighted by a record third quarter where we produced 9,332 ounces of gold. Moving to Slide 6 of the presentation, you will see our total cash cost and all-in sustaining costs by quarter for the year. Our third quarter all-in sustaining cost was $1,138 per ounce, and year-to-date is $1,204 per ounce. Additional highlights for the quarter include the ending cash balance at September 30 of $76 million in addition to $32.7 million in restricted cash. We also continued to advance our exploration programs at Granite Creek and Ruby Hill with 27,551 feet of core drilling composed of 10,526 feet at Granite Creek and 17,025 feet of core drilled at Ruby Hill. The company continued the engineering study on the autoclave refurbishment on plan and advanced the exploration ramp at Cove by 838 feet for a total advance of 1,938 feet year-to-date. On Slide 7 of the presentation, highlights our record revenue of $16.1 million, bringing year-to-date revenue to $25.3 million. This revenue generated mine operating income of $4.1 million for the quarter and $7 million year-to-date. The company reported a loss for the quarter of $11.3 million or $0.05 per share. When adjusted for the impact of mark-to-market gains on the company's convertible debt, outstanding warrants, gold prepay, and silver purchase and sale agreement, the loss was $15.5 million or $0.06 per share. The company is in a loss position of $15.3 million or $0.06 per share for the year and when adjusted for the items previously mentioned, it was in an adjusted loss position for the year of $50.2 million or $0.21 per share. Finally, the company recorded $10.8 million in exploration, evaluation, and predevelopment expenditures during the quarter, bringing the year-to-date investment to $32.2 million. On Slide 8, the company's production highlights for the quarter include the production and sale of 9,332 ounces of gold at a cash cost of $1,045 and an all-in sustaining cost of $1,138. Our average realized price per gold ounce sold in the quarter was $1,712. Year-to-date production highlights include 14,328 gold ounces produced and sold at a cash cost of $1,061 and an all-in sustaining cost of $1,204 per gold ounce sold. On Slide 9, the company's liquidity position shows that we ended the quarter with $76 million in cash and had an inventory balance of $24.9 million. Current assets were $110.5 million, while accounts payable and accrued liabilities were $10 million. And total current liabilities were $48.8 million. This resulted in a current ratio for the company of 2.3:1. I also want to highlight that the company has $32.7 million in restricted cash and ended the quarter with total net assets of $396.7 million. With that, I'd like to turn the call back over to Ewan Downie.

Ewan Downie, CEO

Thank you. This year, we've achieved significant success with our exploration program across multiple company projects. Our entire focus is on the United States, specifically in Central Nevada, mainly within the Battle Mountain and Getchell Trends. This area, along with the Carlin Trend, represents one of the most productive gold districts globally. Next to Nevada Gold Mines, the largest producer in the district, I-80 Gold holds the most gold resources and aims to become one of the leading producers in the state over the coming years through the development of several projects. We plan to construct four operations that will feed into a central processing facility at Lone Tree. All of our projects are either fully permitted or in the permitting process, they are road accessible, have grid power, and we possess water rights. One key competitive advantage is that we are one of only three companies in the state with a processing facility capable of handling refractory ore, which is crucial for our longevity since many simpler oxide open pit projects have been depleted and most operations, including those of Nevada Gold Mines, are transitioning to sulfide ore. This year has been particularly successful in drilling, as we are second only to Nevada Gold Mines in gold resources within the Carlin-Battle Mountain trends and third overall in the state. We have two major drilling campaigns either underway or completed and are aiming for a 20% increase in gold resources by year-end, with new resources to be released primarily in the first quarter of 2023. At Granite Creek, a 30,000-meter underground surface drilling program has just concluded, and we have expanded our program at Ruby Hill due to our significant success. We're also working on upgrading our Blackjack and Buffalo Mountain deposits to resource status, with drilling ongoing at Buffalo Mountain, expecting a considerable increase in our gold endowment when we release our new resources. The deposits within our portfolio rank among the highest grades compared to other heap leach and underground projects in all of North America. Our underground projects have high grades, with Granite Creek and Cove exceeding 10 grams per ton, and our drilling at Ruby Hill consistently shows grades much higher than previous estimates, with expectations for a significant grade increase upon our upcoming resource update. We have two processing facilities, including Lone Tree, the autoclave facility near Battle Mountain, which is set to become the hub for our operations, fed by four deposits—three underground mines and one small open pit at Buffalo Mountain. By 2025, we’re targeting production of around 250,000 ounces per year, with further organic growth from multiple deposits we are developing. Significant oxide mineralization has been noted at Ruby Hill and Granite Creek, and we are working on potentially restarting the oxide plant at Ruby Hill. Granite Creek is Nevada’s newest high-grade gold mine, with ongoing developments aimed at reaching the South Pacific zone in 2023, which is a significant discovery. Granite Creek is situated just south of Nevada Gold Mines' Turquoise Ridge operation, one of the major complexes in their portfolio containing millions of ounces of gold. We have an interim processing agreement in place to expedite development with a focus on the Ogee zone, and we’re currently stockpiling oxide mineralization. The South Pacific zone has shown substantial success in our drill program, with demonstrated consistent mineralization over more than 600 meters in strike length and is open for expansion. Ruby Hill has also been a standout project this year, not just due to our successes in gold drilling but in new polymetallic discoveries we continue to explore. Our results from a recent scoping study indicated a potential restart of the facility as an oxide plant, with aspirations to later convert it for base metals. The Hilltop discovery stands out as one of the highest-grade new base metal finds in 2023, with further results to come as we continue drilling. We are in the permitting process for twin declines from within the Archimedes pit, expecting to proceed with development early in the second half of 2023. We are conducting a 30,000-meter drill program focused on expanding the Ruby Deeps and 426 zones, with new discoveries including Hilltop, 007, and BlueSky. Ruby Deeps remains open for expansion, and the Blackjack deposit is pending development into a 43-101 resource, alongside the promising Hilltop discovery. The Ruby Hill area is home to several high-grade CRD deposits, historically overlooked since the days of significant production in the Eureka District. We are advancing development at the Cove mine, an advanced exploration project aiming to commence a drill program ahead of a feasibility study. We believe we’ve identified a major gold deposit here and are preparing for underground drilling shortly. Our current strategy includes a platform for extensive underground drilling, targeting significant inferred resources with plans to complete a feasibility study post this drilling phase. To sum up, our company is committed to sustainability and being a good corporate citizen within our operational communities, boasting a strong health and safety record. We ensure minimal environmental impact and have a solid growth platform, aiming to become Nevada's second-largest gold producer as we continue to develop and explore our reserves and resources. I will now open the floor to questions.

Operator, Operator

We will hear first from Michael Fairbairn with Canaccord Genuity.

Michael Fairbairn, Analyst

A few for me, really around some of the work that you have on the go at your various operations but I want to start just with Granite Creek and the ore that you've been mining there. Just wondering how much oxide ore you've been able to stockpile on surface so far as you advance that operation?

Matthew Gili, CFO

All right, Michael, it's good to hear from you. So, can I say how many tons of stockpile… but I want to be good, Michael, and I don't want to give out guidance unduly. Let's use a nominal amount of about 10,000 tons of stock of oxide that we stockpiled on surface. We've broken that into three stockpiles: the high-grade stockpile above 5 grams, a mid-grade stockpile between 3 and 5, and a lower grade stockpile around 3 grams. Right now, Michael, as Ewan has alluded to, we have started to transport the mid- and low-grade stockpiles over to Lone Tree for a very dedicated leach, high-intensity leach on the subset of the pile there, and that work is progressing. What we're doing right now, Michael, is really analyzing what we're going to do with the high-grade oxide that we have accumulated at Granite Creek, which direction we want to move that and what's best both short term and long term.

Michael Fairbairn, Analyst

Okay. Perfect. And a follow-up question there. I saw you came out with the study on a possible restart of the Ruby Hill oxide circuit earlier this week. Any indication on the quantum of material that you'd like to have to move ahead with the restart of the Ruby Hill oxide plant?

Matthew Gili, CFO

Michael, I mean, we haven't got to that stage of the analysis yet. We've really come out with looking at our option for oxide and those plants nominally at 1,000 tons a day in its previous life. And that material right now, if you're looking at sources of oxide for that, it would be from the higher elevations of the Ruby Hill underground gold as well as what we're encountering on the Ogee side of Granite Creek, just be very careful to keep you up to date there. We are encountering some oxide mineralization on the Ogee side. We're not seeing that on the South Pacific, which looks to be very, very much majority refractory mineralization.

Michael Fairbairn, Analyst

Okay. Perfect. And staying with Granite just for one more. Are you able to share how much ore you've sent over to Nevada Gold Mines so far?

Matthew Gili, CFO

So, Michael, what I can tell you is we have not yet sent the entire 10,000 tons that constitutes the first dry run or test parcel for Nevada Gold Mines. So, we continue to ship over there. They continue to stockpile it for us on site, but we have not yet gotten the first 10,000 tons.

Ewan Downie, CEO

About 20% of the mineralization we've developed so far has been refractory and 80% is oxide, which has been a bit surprising to us. The previous operator did not maintain great records regarding cyanide solubility, so we assumed it would primarily be refractory. However, it has mostly been oxide to this point. We are conducting dedicated metallurgy on that material to find a long-term processing solution. One option is to put it on our dedicated leach at Lone Tree, which is what we are currently doing with the oxide development material. Additionally, as you may have seen earlier this week, we are considering our own facilities as a longer-term solution, particularly looking at the Ruby Hill plant.

Michael Fairbairn, Analyst

Are you still expecting to reach 10,000 tons this quarter and recognize initial production through the toll processing agreement with Nevada Gold Mines this quarter? Or might that extend into 2023 due to continued mining of more sulfide ore?

Matthew Gili, CFO

Look, we're certainly targeting that, Michael, and we're certainly working towards that. We've got two sublevels we're mining right now on the Ogee side, and we're about 15 meters from ore on the third sublevel. It's really that ratio of oxide to refractory. That's going to be what determines whether or not we finish out that first 10,000-ton parcel this year or we roll that over to next year.

Ewan Downie, CEO

Our drill program in the Ogee continues to suggest that the oxide only in the old zone really continues to considerable depth even our deepest drilling we've completed so far and that does have significant oxide. It is transitioning in our deeper drilling. There is both oxide and sulfide, but in the upper levels, we're finding it to be primarily oxide mineralization. And because of that, we've prioritized the decline to depth; to date, we're approximately 60% of driving the decline to the depth we need to have it as to drift over to the South Pacific zone, and we're prioritizing that development so that we can start delivering hopefully reach by the end of next year towards our 1,000 tons a day processing arrangement that we have with Nevada Gold Mines. And that's consistent with when we started this program, we stated that we did not expect to be at that 1,000 ton a day mark until at the earliest, late in 2023, as we're ensuring that we have substantial levels of development so that it provides additional flexibility for mining. And the South Pacific zone has become the priority for the project. So, we've actually, in the upper levels of the Adam and Ogee Peak, have really slowed down any development in those areas to prioritize getting the decline to depth and drifting to the South Pacific zone.

Michael Fairbairn, Analyst

That's great information. I want to shift the topic a bit and discuss your major base metals discovery at Ruby Hill. Are you considering bringing in a partner to help advance that and alleviate some of the capital expenses you might encounter while you concentrate on the gold aspect of the business? Or is it still too early to think about that?

Ewan Downie, CEO

I'd say that's something we would definitely consider. The base metal opportunity is there; that is really both from historic work and our drilling has really emerged as a real priority target. We've been approached by several parties about the base metal opportunity here. And we are sharing data, and we continue to drill that project with the view that that could be an option for ourselves to move forward as a potential partnership on base metals or the project. So, we are keeping our options open and ensuring that we are in a position to advance multiple projects. But really, we've always viewed the base metal opportunity at Ruby Hill. Even when we did the due diligence, it's one of the things that had me very intrigued about the project because the autoclave facility once running at full capacity can do about 1 million tons a year but it's very difficult to get more than that. Really grade is our only option to get more ounces. So, using the Ruby Hill facility has been something that we've been internally discussing for some time. And in the recent study that we released by DRA, we also asked them to look at what an estimate of what it would take to convert it to a base metal plant and because the base metals or using that plant could result in significant additional gold or gold equivalent production for our company.

Michael Fairbairn, Analyst

Okay. Perfect. That makes a lot of sense. And one more at Ruby Hill in regards to the base metal. I think you mentioned that you were considering a drill program to test the area to the south of the Hilltop discovery. Have you decided on kind of the scale of what kind of a drill program would be appropriate to test that target?

Ewan Downie, CEO

Not yet. We've just completed the geophysical surveys, and we're compiling the final results of that. Combining that with historic surveys, like the Titan survey and magnetics gravity that was done and planning a program. We still believe we can do substantial step-out drilling in both the upper and lower Hilltop zones from existing platforms. And we did do a couple of holes, including one about 500 meters south of Blackjack that we're waiting on assays. We did see considerable mineralization in that hole, so we're waiting for assays. And from that platform that we drilled, we could do quite a bit of drilling along strike from Blackjack. So, we do have the opportunity to continue from our existing platforms, but we have to permit additional platforms to the south, and we expect that's probably going to be a 4- to 6-month process. The primary goal for the Blackjack is once we drive the decline into the 426 is a drift to the east and from that decline doing a detailed program on Blackjack from underground. I'd like to highlight that underground drilling on a per meter basis costs us about half of what surface drilling is. So, once we get the underground infrastructure like we have at Granite and ultimately, what we expect to have at Ruby Hill, we will be moving to have a lot of our drilling, including step-out drilling done from underground to reduce our costs that we have in growing our resource base.

Michael Fairbairn, Analyst

Okay. Perfect. That makes sense. So, I guess we'll stay tuned on more details to come there as you keep pushing everything ahead. That's it for me. I'll stop hogging the line here and turn it back over to you guys.

Operator, Operator

Ewan Downie, CEO

Thanks, Mike. There are some questions that we received online from Eleanor from Sprott, and Matt Gili will go through her questions and provide answers to those questions.

Matthew Gili, CFO

All right, Eleanor, I have your questions here. Your first question is about the progress with the faults at Cove; how much further did we get? We successfully crossed the gold fault at Cove last month, and we're now on the other side, preparing to establish the first drill station for the infill drilling program that Ewan mentioned in his part of the presentation. Regarding your second question about the current active headings at Granite Creek, we essentially have six active headings. We have two sublevels that we've cut across and backfilled the first panel on those sublevels. We're currently cutting towards the ore on the third sublevel and are about 15 to 20 meters from hitting the ore boundary there. We're also making progress on the main decline. So, those are four headings on the Ogee side and the main decline. Additionally, we typically work on about two other headings in the remnant pillars, which are considered opportunistic. The main goal, as Ewan mentioned, is to drop the main decline and continue developing sublevels on the Ogee side, then move over to the South Pacific and do the same. For your third question about ground conditions, we are experiencing the conditions we anticipated. They're not poorer than expected. The ground conditions at Granite Creek are solid and in line with what we expect for mining in Nevada. We haven't encountered any significant ground falls and we're moving smoothly on the Ogee side. So, the latest on ground conditions is as expected. No changes there. Your fourth question is about the expectations for residual leaching moving forward. I'm not providing guidance on that; we expect residual leaching to decline over time. We are ramping up production at Granite Creek, which will be our focus in the short term. For your last question about how many meters have been driven on Granite Creek, I don't have the exact number at hand, but we're targeting about 30 feet of vertical decline per month, averaging around 150 feet of development weekly, including some sublevel areas, monkeys, and pump stations. That’s the update I can offer regarding the footage at Granite Creek. I hope I answered your questions clearly. Yes. We have one additional question come in from Mark Smith, that is where will the replay of this call be posted. The replay link in the phone number will be available on our website later today and will be available until November 16.

Operator, Operator

Ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation.