Earnings Call Transcript - ORLA Q4 2024

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Orla Mining's Conference Call for the Fourth Quarter and Year End 2024 Results. My name is Abby, and I will be your conference operator today. Please be advised that this call is being recorded. And I would like to turn the meeting over to Andrew Bradbury, Vice President, Investor Relations and Corporate Development. Please go ahead, Mr. Bradbury.

Andrew Bradbury, Vice President, Investor Relations and Corporate Development

Thank you, operator, and welcome to Orla's fourth quarter and year-end 2024 results conference call. We will be making forward-looking statements during today's call, and I would direct you to the second and third slides of the presentation, which contain important cautionary notes regarding these forward-looking statements. All dollar amounts discussed today will refer to U.S. dollars unless otherwise indicated. The Orla executive team is on the call this morning. And I'll now pass the call to Jason Simpson, President and CEO.

Jason Simpson, President and CEO

Thanks, Andrew. During the fourth quarter, Camino Rojo had continued strong production at low costs. This production strength and low cost in a record gold price environment drove strong margins and cash flow. Notably, we announced the transformational acquisition of the Musselwhite Mine in Ontario that will more than double Orla's production profile. We continue to advance our exploration and development portfolio in Mexico, Nevada and now Canada. Part of our growth investment we'll discuss today is the construction planning for our growth at the South Railroad project and exploration in Nevada on the broader South Carlin complex. We have the executive team on the call to provide specific updates. Stepping out from the quarter and looking back at the full year, 2024 was a transformational period for the company. As Camino Rojo achieved record production, and we expanded into Northern Ontario with the acquisition of the Musselwhite Mine. By every measure, 2024 was a tremendous success for Orla, and we will build on this momentum as we advance the South Railroad project in Nevada and the sulfide project at Camino Rojo in Mexico. We expect 2025 to be a catalyst-rich year for the company with the integration of Musselwhite and initial underground resource for the Camino Rojo sulfides and an updated resource for South Railroad. Our preliminary guidance for 2025 at Camino Rojo is 110,000 to 120,000 ounces of gold produced at an all-in sustaining cost of $875 to $975 per ounce gold sold. We intend to provide updated guidance inclusive of Musselwhite in the second quarter. Our Chief Operating Officer, Andrew Cormier, will now discuss our operating performance.

Andrew Cormier, Chief Operating Officer

Thank you, Jason. As mentioned, our operating team in Mexico delivered another impressive quarter while remaining committed to the health and safety of all of our employees. During the quarter, we mined over 1.8 million tonnes of ore at a strip ratio of 1.54. The increased strip ratio in the second half is in line with the mine sequence plan for the year. The average gold grade of ore processed during the fourth quarter was 0.94 grams per tonne, in line with our plan. We also achieved an average stacking rate of 18,487 tonnes of ore per day. With the continued strong mining and operating performance in the fourth quarter, we produced nearly 27,000 ounces of gold. As a result, we produced a record 137,000 ounces of gold for the year, meeting the increased 2024 production guidance range of 130,000 to 140,000 ounces. As Jason mentioned, our preliminary gold production guidance for Camino Rojo in 2025 is 110,000 to 120,000 ounces. Permitting of our expansion in Mexico continues as we resubmitted the permit applications to the federal government in November with the full endorsement of the state government. Following productive discussions with the new administration in the fourth quarter and early this year, we anticipate the new administration will be prepared to respond to our permit application this year. In Nevada, permitting for the South Railroad project continues to progress, and we're anticipating the posting of the notice of intent by mid-year. The supplemental environmental reports have been submitted to the Bureau of Land Management, BLM, and are under review with the local office in Elko. Once finalized, the notice of intent will be reviewed by the state and then the federal BLM offices in advance of the final notice of intent publishing expected mid-2025, with the targeted record of decision, the final permitting decision by mid-2026. Following this approval, earthworks on the South Railroad project will commence, and the first full production anticipated in the second half of 2027. The EPCM contract was awarded to M3 Engineering & Technology in the first quarter with basic and detailed engineering proceeding this year and into 2026 to align with construction following the record of decision. Long lead equipment will be identified and purchase orders will potentially be placed in 2025. Now over to our Chief Financial Officer, Etienne Morin, to discuss the financial results for the quarter.

Etienne Morin, Chief Financial Officer

Thank you, Andrew. In the quarter, we sold 33,000 ounces of gold at a realized price of $2,669 per ounce, generating $93 million in revenue. The all-in sustaining costs for the fourth quarter were $826 per ounce, partly due to increased gold sales and higher silver by-product credits. For the entire year, the all-in sustaining cost was $805 per ounce, positioning Camino Rojo among the lowest-cost gold mines worldwide. Our low-cost production combined with higher gold prices is fueling significant earnings and cash flow. Our net earnings for the quarter stood at $26.1 million, or $0.08 per share. After adjustments for the gain related to the change in fair value of gold forwards connected to the gold prepay facility on the Musselwhite acquisition, as well as other items like unrealized foreign exchange gains, the adjusted net earnings were $22 million, or $0.07 per share. These strong earnings correspond to an operating margin of 64%. Exploration and project costs for the quarter were $12.2 million, with $2.6 million capitalized and $9.6 million expensed. For the full year, exploration project costs totaled $47.9 million, comprising $13.3 million capitalized and $34.6 million expensed, aligning with our 2024 guidance of $34 million. Cash flow from operating activities before changes in non-cash working capital was $46 million, or $0.14 per share, for the quarter. We also generated $39 million in free cash flow, equating to $0.12 per share. In the fourth quarter, total capitalized expenditures amounted to $5.2 million, with $2.8 million being nonsustaining related to capitalized exploration in Mexico, and $2.4 million being sustaining. We fully repaid our revolving credit facility in the fourth quarter, achieving debt-free status. This allowed us to leverage our strong balance sheet and financial flexibility to fund the purchase of the Musselwhite Mine without necessitating upfront equity dilution for shareholders. The $810 million upfront cost for the Musselwhite acquisition was financed through $250 million of bank debt, $200 million in senior unsecured convertible notes led by Orla's cornerstone shareholders, and a $360 million prepaid facility. The gold prepay involves a three-year commitment to deliver approximately 145,000 ounces in equal monthly deliveries starting this month, based on gold forward prices averaging $2,834 per ounce over that period. Post-acquisition, the company's outstanding debt is $450 million, with net debt at around $260 million. We plan to utilize our substantial cash generation to reduce debt over the next three years while preparing to fund the construction of South Railroad. Our cash balance at the end of February was nearly $190 million. Now, I will hand it over to our Senior Vice President of Exploration, Sylvain Guerard, for a brief update on exploration activities.

Sylvain Guerard, Senior Vice President of Exploration

Thank you, Etienne. During the fourth quarter in Mexico, the company completed the drill program at the Camino Rojo extension, now referred to as Zone 22. The first year of drilling in Zone 22 successfully defined mineralization up to 0.9 kilometers from the current resource boundary. The system remains open down plunge and at depth. An updated underground resource of the Camino Rojo sulfide deposit is planned for the second quarter of 2025, and its focus on the Caracol in the upper 500 meters of Zone 22. In Nevada, 2024 marked another successful year of exploration at the South Carlin Complex with significant drill results at multiple targets over the entire 30-kilometer property strike land. The results from the 2024 drill program included multiple high-grade intersections within and beyond the feasibility study open pit at Dark Star and Pinion, demonstrating potential for extensions and resource growth. Drilling in the south area of the property, which was extended by the acquisition of Contact Gold's Pony Creek property early in the year, increased our confidence in potential for additional oxide resource definition. At the sulfide targets within the north area, drilling tested the extension of the North Bullion deposit as well as skarn type targets, which returned significant mineralization. This sets the stage for high priority follow-up drilling. The results of the 2024 drilling program support our Nevada strategy to enhance project value and extend mine life by identifying additional oxide resources and making new discoveries across the land package. An updated resource and reserve estimate is expected to be completed in the second half of 2025. I will now pass the call back to our Chief Sustainability Officer, Silvana Costa.

Silvana Costa, Chief Sustainability Officer

Thank you, Sylvain. Over the past two years, we have made significant strides in strengthening our ESG performance framework and reflecting our unwavering dedication to responsible and sustainable business practices. As a result, we are proud to report notable improvements in our ESG ratings from Scotiabank in the last quarter as well as above industry average in our first year participating in the S&P Global Corporate Sustainability Assessment. Both S&P Global and Scotiabank have recognized our overall ESG performance as exceeding industry benchmarks. Also during the fourth quarter, we continued our community engagement and strategic investment initiatives at Camino Rojo and South Railroad while maintaining a strong focus on environmental performance and fulfilling our social commitments. On the people front, in the fourth quarter, we prioritized a smooth transition for the Musselwhite Mine, welcoming new team members and addressing key processes like benefits, payroll and employee records management. These efforts have been vital in retaining critical talent and supporting onboarding. To reinforce our commitment to personal engagement, members of our executive team visited the site on our first day as owners and will return this week for a second town hall to warmly welcome Musselwhite employees to the company. With that, I'll hand the call back to Jason, who will share more about the Musselwhite Mine acquisition.

Jason Simpson, President and CEO

Thanks, Silvana. During the fourth quarter, Orla announced the acquisition of the Musselwhite Mine, expanding our operating footprint into Ontario and adding a second operating gold mine to our platform. The addition of Musselwhite is expected to more than double our annual production. To many of you, I have communicated that the two most important aspects of the deal to me are that, number one, there is highly favorable geology. And number two, there is a great team. These two fundamental pieces give us great confidence about the long future at Musselwhite. We intend to invest in both the team and the geology and we are launching an aggressive multi-year exploration program to outline that Musselwhite extends for more than just six years. An additional critical mass of new gold inventory will give us a pathway to improve the material handling to increase production rates in a material way and reduce operating costs. We will also look to the experienced team on site to bring their ideas forward on how to further improve the operations. Looking ahead to 2025, there are several catalysts for Orla. The integration of Musselwhite Mine into the business, expected permitting milestones in both Mexico and Nevada, resource updates for the South Carlin complex and the Camino Rojo sulfides, advancing study work on the Camino Rojo sulfides, and construction planning information from our South Railroad project in Nevada. In 2024, Orla delivered record production and cash generation, the transformational acquisition of the Musselwhite Mine, and discovered more gold and additional exploration highlights throughout the year. We continue to execute on our proven strategy to generate value to the benefit of all of our stakeholders. I am proud of what the team has been able to accomplish in 2024 with only more to come in 2025. Thank you to our teams in all the countries where we operate, whose commitment and delivery are driving this business forward. At this point, I'd like to open the call to questions and hand the call back to the operator.

Operator, Operator

And your first question comes from Wayne Lam with TD Securities. Your line is open.

Wayne Lam, Analyst

Yes, thanks. I’m curious about Musselwhite, which is clearly a significant acquisition. Can you share what we might expect in terms of upcoming guidance? I’d like to know if there are any substantial cost savings related to the improvements Newmont made before the sale, like the ventilation in the material handling system, compared to the $1,500 to $1,600 ASIC run rate observed over the past year.

Jason Simpson, President and CEO

Yes, thank you for the question. We will provide updated guidance in Q2, which will include our expectations for the remaining three quarters regarding the all-in sustaining cost. You are correct that we will benefit from some of the investments that Newmont made in the asset in previous years, such as ventilation improvements and cemented rock fill enhancements. This is one area where we will benefit without having to incur additional costs going forward. Another area for cost reduction is the size of the companies involved, as Orla will be able to operate on a different scale and achieve some cost savings. The third factor is on the denominator side, as increasing gold production will help reduce the all-in sustaining cost per ounce. Finally, we've had several productive discussions with the site team and identified multiple improvement opportunities in the underground mine that will support cost reductions. We look forward to updating the market in Q2 regarding our first year of production at Musselwhite, even though it will be a partial year.

Wayne Lam, Analyst

Okay. Great. Looking forward to that. Maybe at Camino Rojo, just wondering with the environmental permit for the layback now resubmitted, how are you seeing the regulatory framework now in Mexico? And just wondering if the timing for resubmission of the change of land use permit has been impacted? Just wondering if you could provide some color on what you're seeing in terms of the ongoing discussions in country.

Jason Simpson, President and CEO

Yes. To clarify for everyone on the call, the MIA we resubmitted on November 11 of last year is the main permit. There is a subsequent change of land use that involves an additional payment for the land, which is simply part of the process. As we mentioned earlier, we had productive meetings with the new administration last year and as recently as a couple of weeks ago, which gives us confidence that we are on track to secure that permit this year. All related permits required for normal operations will follow, and we aim to provide an update on that in the second quarter as well.

Wayne Lam, Analyst

Okay. Great. And maybe just last one, at South Railroad, similarly, just wondering how things are advancing on the permitting front? And just wondering what you're seeing with the notice of intent now expected in mid-2025 and the subsequent impact on timing for the record of decision?

Jason Simpson, President and CEO

Yes. As many are aware of our situation, we submitted 20 supplemental environmental reports to the Bureau of Land Management, which are currently under final review in the Elko office. These will later be transferred to Reno in Washington. We will monitor that progress over the next quarter. Once the notice of intent is filed, we can start collaborating with the cooperating agencies to navigate the Environmental Impact Statement process with BLM and our environmental consultant, aiming to begin earth movement in 2026. Our approach mirrors what we have done in Mexico; the Board approved the budget for construction engineering at the end of 2024 for the first half of 2025, which M3 is currently working on. This engineering will support a procurement process, enabling us to construct the project at a pace similar to what we achieved at Camino Rojo once we start in 2026. This strategy positions us to produce from Nevada, another open-pit heap leach operation, in 2027 with comparable low costs to those in Mexico, thereby establishing a portfolio of three producing assets in Mexico, the United States, and Canada, moving us closer to the 500,000-ounce production target.

Wayne Lam, Analyst

Okay, great. Looking forward to the updates and best of luck in the months ahead.

Jason Simpson, President and CEO

Thanks, Wayne.

Operator, Operator

And there are no additional questions at this time. I would like to turn the conference back over to Mr. Jason Simpson for closing remarks.

Jason Simpson, President and CEO

Since there are no further questions, I would like to thank you for your time. Never hesitate to reach out to Orla should you have any follow-up questions, and I'd like to thank the team for their continued performance.

Operator, Operator

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.