Vista Gold Corp Q1 FY2021 Earnings Call

Good day, ladies and gentlemen, welcome to the Vista Gold’s First Quarter 2021 Financial Results and Corporate Update Conference Call. As a reminder, this conference is being recorded. Today is Tuesday, May 4, 2021. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Thank you to everyone. Thank you for joining the Vista Gold Corp. First Quarter 2021 Financial Results and Corporate Update Conference Call. I’m Pamela Solly. The President of Investor Relations on the call today is Fred Earnest, President and Chief Executive Officer; 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 to differ materially from those expressed or implied in 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 everyone for joining us on the call today. We’re pleased to report that during the first quarter of this year, our management team achieved solid cost and capital management performance and strong execution toward our core objectives, including advancement of the Mt Todd mining management plan to the final stage of review and approval, and excellent results from our ongoing drilling program. Additionally, we continued efforts to seek a strategic partner for the development of Mt Todd, maintained our outstanding safety record having achieved 1,437 days without a lost-time incident, substantially de-watered the Batman pit, and held the first meeting of the newly formed leaders forum with the Jawun Association Aboriginal corporation. Our corporate activities continue with the executive team transitioning from working remotely to working in the office in smaller teams on a more regular basis, and video conferencing continues to replace corporate travel and in-person conference participation. In the Northern Territory of Australia, COVID-19 cases are almost nil, and control measures have been significantly relaxed. Unfortunately, travel by international visitors into Australia remains very difficult. Mt Todd continues to operate on an approved COVID-19 management and mitigation plan that is presently less restrictive than originally required. I’ll discuss several important Mt Todd programs in greater detail 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 March 31, 2021.

Thank you, Fred. And thanks to those on the call today. I appreciate you joining us. I’m pleased to report that we continued solid financial performance, allowing us to close the quarter in a strong cash position. I’ll speak to a few of the highlights today, but please refer to our Form 10-Q for more information. Cash and cash equivalents totaled $7.2 million at March 31, 2021, compared to $7.8 million at December 31. The decline in cash during the quarter was expected given our ongoing drilling program and the significant amount of water that we were able to pump from the Batman pit during the first quarter. We also benefited from receipt of $1.1 million from prime mining and about $600,000 from limited ATM activity. By ending Q1 with a strong cash position, we are well-positioned to proceed with our continuous drilling programs. Our results of operations were also in line with expectations. We reported a loss of $3.1 million for Q1 2021 compared to a loss of $3.5 million for the first quarter of 2020. The narrowing of our net loss resulted from a couple of factors. First, we recognized a small loss of $30,000 on other investments this quarter compared with a $1.1 million loss for Q1 2020. This year’s loss was an unrealized loss for marking the new Senterra shares to market. Last year, the loss was largely an unrealized mark-to-market loss that related mostly to the Midas Gold shares held at the time. Secondly, the on-ground programs at Mt Todd were expensed according to our accounting policies, which included about $400,000 for the drilling program and $200,000 for water pumping. We did see a negative impact from the strengthening of the Australian dollar, which was about 5% higher than expected. However, other cost controls that remain strong allowed us to largely offset the FX impact. Looking forward, we have a couple of discretionary programs in process and being planned for the balance of 2020. These include ongoing exploration drilling and a Mt Todd technical report to meet the newly required provisions of SEC Regulation S-K 1300, which replaced SEC Industry Guide 7 for fiscal years beginning on or after January 1, 2021. Of course, we will continue to focus on monetizing non-dilutive sources of funding, including agreements in place for a final $1 million payment due from prime mining this summer and an option payment from new Senterra resources. By the end of January 2022, our team is also seeking opportunities to monetize other non-core assets. That concludes my comments for today, so I’ll turn the call back over to Fred. Thank you.

Thank you, Doug. During the quarter, we continued to de-risk Mt Todd and undertook several programs to increase shareholder value in a cost-effective manner. We’ve been working with the NT Government since late 2018 on the approval of our mine management plan. The mine management plan is similar to an operating permit in North America and is Vista’s most important near-term de-risking activity. The technical review process and preparation of the formal approval documents are complete. It is our understanding that the final NT government approvals are in process. With final approval of the mine management plan, Vista will hold all major permits required for the development of Mt Todd. We continued our drilling program during the quarter and are very excited about the excellent results so far. As many of you may recall, our initial program of nine holes totaled 2,640 meters and was completed during the first quarter. Results from eight holes have been announced to date, with each hole intersecting mineralized structures approximately as targeted. Intercepts were generally thicker than anticipated and encountered higher than expected gold grades. The first phase of drilling provided our geologists with greater understanding of the location and interrelation of mineralized structures and cross structures connecting the Batman deposit and the Gulf-Tallis targets. In March, we made the decision to expand our drilling program by adding an additional 10 holes or approximately 3,000 meters of drilling, to focus on deep drilling from the structures and cross structures connecting the Batman and the Gulf-Tallis targets. Ongoing drilling is focused on the hinge points and the intersections of these structures, which typically provide the best conditions for the deposition of gold and quartz, calcite, and sulfide veins. Our historical success in significantly increasing the known size of the Batman deposit through deep drilling has reaffirmed our belief that there is opportunity for significant resource growth at Mt Todd. We believe that the potential to significantly extend the life of Mt Todd is important to potential partners. Our present drilling program is planned to demonstrate that potential and unlock the door to greater value recognition. Our next release of drilling results will focus on holes drilled approximately 500 meters north of the Batman resource model limits. Drilling on this section has focused on two distinct structures that are separated by approximately 250 to 300 meters. We invite you to watch for that release. Water management is a top priority for Vista and Mt Todd during the most recent wet season and through the first quarter of this year. We pumped approximately 2.5 gigaliters of water from the Batman pit in accordance with our water discharge permits. This included 1.7 gigaliters during the three months ended March 31, 2021. The remaining half a gigaliter of water will be pumped from the pit in due course, requiring only four to six weeks to complete. Achieving this milestone reflects the long-term success of our water management program and provides greater certainty related to timely future mine development. Community engagement is another top priority for our company. I’m pleased to report that since the start of the year, we have now held two meetings of the leaders forum with the Jawun Association Aboriginal corporation. As contemplated in our updated agreement with the Jawun association that was announced in November of 2020, the Jawun association is a key stakeholder, and the leaders forum provides a direct opportunity for Vista and the Jawun people to work together on a range of topics. During the quarter, we continued to progress our efforts to seek a strategic partner for the development of Mt Todd. While the pandemic has slowed our partnering efforts, we continue to work toward this objective. We believe Mt. Todd’s attributes provide a solid basis to engage with prospective development partners. Key considerations in any potential partnership transaction include value creation by recognizing the intrinsic value of Mt Todd and minimizing future dilution to Vista shareholders. Vista’s share price performance continues to outperform its peers. Year to date, Vista shares are up approximately 1% compared to the GDXJ, which is down 8.7%. Looking ahead, we’re excited about ongoing programs that present significant opportunities to realize shareholder value more in line with the value of Mt. Todd. A few of the important upcoming catalysts to be mindful of include the final approval of the Mt Todd mine management plan and ongoing drilling results from the continuing drill program. We continue to engage with potential partners and identify strategic opportunities to advance the development of Mt. Todd. 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 an appropriate opportunity for value creation by recognizing the intrinsic value of Mt Todd and minimizes the potential for future dilution. Our objective is to achieve evaluation for Mt Todd that is reflective of the size of the gold deposit, together with its location in Australia’s low-risk Northern Territory, favorable low operating costs, robust project economics, and the fact that we hold approvals for all major environmental permits and expect to have the operating permit in the near future. We believe that these factors, coupled with the technically advanced stage of the project, and 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, and current market conditions demonstrate the robust economics of the project. We continue to believe Mt Todd and Vista Gold represent an exceptional investment opportunity for investors looking for value, growth potential, low geopolitical risk exposure, and strong leverage to the gold price. At today’s gold price and foreign exchange rate, the Mt Todd project economics demonstrate an after-tax NPV with a 5% discount of approximately $1.5 billion to an IRR of greater than 35%. Vista continues to advance de-risk 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 the market with strong, although somewhat volatile gold prices and governments around the world approving additional stimulus packages. 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, but especially in 2020, 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. Vista controls the third largest reserve package in Australia. Mt Todd is ideally located in the Northern Territory of Australia, an extremely mining-friendly jurisdiction. Mt Todd is favored with paved roads to the site and other existing infrastructure, including power lines, a natural gas pipeline, freshwater storage reservoir, and tailings facilities. The project improvements we have achieved, along with our estimated mineral reserves and production profile, have created the foundation for leverage to the gold price and improved shareholder value. We have earned the trust of local stakeholders and believe that our social license is firmly in hand. We have worked hard to secure the authorization of the major environmental permits and believe we are close to receiving the authorization of the mine management plan. 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. I reiterate our commitment to find a partner to advance the project and at the same time realize value for our shareholders. For a more comprehensive assessment of the value according 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. We will now respond to any questions from the participants on this call.

Thank you for joining us today. For a more comprehensive assessment of the value according to Vista and the Mt Todd project, please refer to our corporate presentation available on our website at www.vistagold.com. We believe that Vista Gold offers a remarkable investment opportunity for those seeking value, growth potential, low geopolitical risk, and strong leverage to the gold price. We are now ready to answer any questions from the participants on this call.

We received one question by email that I would like to address before we open the lines for questions. This question simply says, 'Could you please ask CEO, Mr. Earnest, to explain the process of application and approval for the NT mine management plan in greater detail on the call today?' I’m delighted to do that. The mine management plan is the formal authorization by the Northern Territory government for the operations for any mine in the territory. The process starts with the submission of an application and the presentation of a mining plan, which includes all of the management plans for mine operations, processing, tailings disposal, environmental management plans, water management, air quality management plans. All of these are prepared by third-party independent consultants and experts that are compiled into a comprehensive plan that includes the reclamation bond calculations, which are submitted to the NT department of mines. The NT department of mines then begins their exhaustive review of the documents and the plans. It often involves an extensive process of questions and answers and requests for additional information. In our case, a number of requests for independent third-party validation of our recommendations. I’m pleased to report that this process was completed in the fourth quarter of last year. At that point in time, we began to anticipate the ultimate approval and final approval of the mine management plan. In early December, the Minister of Mines of the Northern Territory made a surprising announcement at a public luncheon, indicating that the approval of the Mt Todd mine management plan was imminent. In hindsight, we realized that the political process of the final approvals has taken longer than expected. Subsequent to that announcement, we received copies of the formal approval documents for review and comment. Our counsel has worked with the legal counsel for the Ministry of Mines, and I’m happy to report that the approval documents are in their final form and have been signed off. The final approval of the mine management plan requires a signature from three government officials: the Director of the Department of Mines who supervises the technical review of the document, the signature of the Chief Executive of the Department of Mines, and lastly, the signature of the Minister of Mines. To date, we now understand that both the Director of Mines and the Minister of Mines have signed off, and the approval package has been forwarded to Minister Nicole Madison. We continue to believe based on my conversations that there will be no reason for her to delay or impede the approval of our mine management plan. The document resides with her department, and we are waiting for an indication that the mine management plan has received the final signature and the approval required according to the Mining Act. We continue to believe this will happen in the near future. We’re frustrated – I would say that we’re more frustrated than anyone that this has taken as long as it has. These approvals can be political. And the timing of their announcement may be timed to meet the best needs of the Minister or the sitting government. Regardless, we have great confidence that the mine management plan will be approved. We continue to be hopeful that it will be in the near future, and we encourage you to stay tuned. We expect that this will have a very significant impact on the value of the project. Certainly, it’s one of the most important de-risking activities that we have going on right now. I believe that answers the question that I received. If you would like to open the lines for questions from participants, I will be happy to take those at this time.

Thank you. Your first question comes from Jake Sekelsky of Alliance Global Partners. Your question please.

In just looking at the expansion of the original exploration program, it seems like you’re accelerating things here a bit. Do you think we could see another expansion of the program in the second half of the year, or is it just too early to tell at this point?

Well, Jake, you’ve known us for a long time and certainly, we make decisions based on results. Right now, the results that we saw in the first part of the program were very encouraging. The continuity of the mineralization has turned out to be very close to what our geologists expected, and many of the holes exceeded our expectations. As I indicated, the current drilling and the next announcement of results will include results for holes drilled on an east-west section approximately 500 meters north of the limits of the Batman deposit resource model. We’re very pleased with the results that we’re seeing and we’re anxious to announce results once we get the last assays in for one hole that’s pending. If we continue to see the kind of results that we have seen to date, I believe that it would be reasonable to expect that the program will continue through the latter part of the year. But I reiterate that that will depend on results. We will be monitoring that closely in conjunction with John Roselle, our Senior Vice President, and ensuring we are appropriately citing and locating holes to maximize geologic information, but also to thoroughly test and gain an understanding of the potential for increased resource growth that might change the Mt Todd project from being an isolated deposit to a bona fide gold district.

Okay. That makes sense. And I guess just building off that a bit, I’m curious if there is sort of a time frame yet for a resource update. I mean, even maybe moving down the line on a feasibility study and I’m just curious on your thoughts on maybe the timing of that as we move into the second half of the year.

Yes. First of all, I think it’s very important that everybody keep clearly in their minds that the drilling we’re doing is not resource definition drilling. This is really resource discovery drilling. We’re drilling very wide spacings north to south along sections. We’re drilling at somewhere between 75 and 100 meters face spacing to understand the geology. While some of the drilling from the first program was drilled very close to the pit and the north extension of the Batman deposit. It’s expected there will be a minor improvement in resource, and that could affect the mine plan. Regarding the question about completing the feasibility study, for U.S. listeners, many may not be aware that we have a new reporting standard here in the U.S. SEC Regulation S-K 1300 replaces industry guide 7. By the time we file our 10-K next February, we will need to have an S-K 1300 compliant technical report. We are currently evaluating whether this is the right opportunity to complete a feasibility study and move the project to that stage or whether we should remain at the current level. The bottom line is that we will be publishing a new technical report that will be compliant with the new standard, as well as meeting the current Canadian standard which is the NI43-101. That decision will be made in the near future, but the bottom line is we will be completing a new technical report in order to be compliant with the U.S. standard prior to the end of the year.

Your next question comes from Heiko Ihle of H.C. Wainwright.

This is Marcus Giannini calling in for Heiko. Your states that you plan to close the gap between your market cap and the intrinsic value of Mt Todd by continuing drilling to demonstrate the potential to dramatically expand gold resources and advancing feasibility studies. Can you just walk us through some of the investor outreach and other methods you guys are utilizing to further enhance shareholder value?

Yes, absolutely. Pam Solly, who’s on the call with us, works diligently to maximize the benefit we receive from conference participation and outreach programs. So far this year, we’ve participated in a number of conferences that have been held virtually. Most recently, we participated in the H.C. Wainwright mining conference and the World Gold Forum sponsored by the Denver Gold Group. In addition, we continue to undertake participation in virtual meetings that replaced lunches we would have held two years ago. We participate in webinars and continue to do many things to reach out to investors in a tight-knit forum. All of that outreach is still occurring virtually. While our team has now been vaccinated and is prepared to travel, we are waiting until groups begin to open up safely. Another important aspect of outreach is social media. Over the last 12 months, Vista has taken steps to significantly increase its social media footprint. The amount of traffic we’re seeing and the volume of readers visiting our website has increased substantially. I would conclude by reminding listeners that tremendous opportunities exist as we execute our strategies. Right now, at today’s gold price, the NPV of the project on an after-tax basis with a 5% discount rate is approximately $1.5 billion and we’re trading at about 10% of that. Our goal is to see our shares increase. While it’s not reasonable to expect we’ll achieve that full valuation without being a producer, we see that as our target. Completing activities that make the project lower risk, like getting the mine management plan approved, will be essential. With approval, we will hold all major permits for the project. Additionally, completing other programs that address questions from potential partners is part of our strategy. We believe we’re adding value for a future potential transaction with a partner through these efforts.

Okay, awesome. Appreciate that. And then switching back over to drilling, I guess, can you elaborate on the significance of the most recent results at Mt Todd from a structural standpoint and how some of this data is shaping your drill plan going forward?

Yes, we were successful in our early exploration at Mt Todd at the Batman Deposit by drilling approximately 60,000 meters of drill holes, all of them core, ranging in depth from 200 to over 800 meters. We were able to triple the resource of the deposit. There’s been significant historic drilling conducted in the area of the Mt Todd project. However, most of it was very shallow, less than 100 meters in nearly all cases, and almost all completed using RC or rotary air blast drilling. The challenge with that drilling is that it grinds up the rock, and the material is evacuated as chips. The previous owners of the site were looking at grade, but not seeing the structure. This is a structurally controlled deposit, and we’ve learned many things from the 60,000 meters drilled in the Batman Deposit. Our geologists have spent a lot of time over the last 24 months to understand the structures that connect the Batman Deposit and the targets around it. Specifically, we focused on two sets of structures: the northern trending structures that project north, and also found in a parallel pattern to the northeast related to the structures in the Batman Deposit. Secondly, the cross structures connect these north-trending mineralized structures to one another. By studying these structural intersections, we are following targeted areas that we believe have significant potential for mineralization. We will continue to move north and drill underneath these areas to advance our understanding, with spacing wide enough for potential partners to see the connections and the project’s significant potential.

Okay, awesome. That was really helpful. And then last question. Once the watering of the Batman Pit is done, any ideas on what that will do to your cash burn? I’m assuming some pumps will still need to be running, but it should be a much more minor expense, right?

Yes. Just to put it in context, we pumped 1.7 gigaliters during Q1, costing just a fraction over $200,000. So it’s basically the cost of the electricity. The remaining water in the pit is about half a gigaliter. As Fred said, we can take that down in a matter of weeks, and the cost will be very low, under $200,000. Then going forward, there will be very little need for any pumping, almost negligible in our budget as we move forward.

Your next question comes from a private investor.

I have two questions. The first one concerns the mining plan approval. Is it a question of weeks or months? What do you think? The second question is about the negotiation with potential partners. When we get the green light with the approval, what do you think will begin? Is everything prepared with many potential partners waiting for the green light, or do you think that concrete negotiations will then start and possibly last 12 to 18 months? Could you explain that a little bit more?

I would be happy to, thank you for those questions. First, regarding the mine management plan, we’ve erroneously now communicated to the market that we anticipated approval within weeks for nearly a quarter. While we feel remiss, we believe that was indeed our expectation based on all information provided to us at each juncture. As I indicated, we know that we are now down to the last approval, and we’re not aware of any reasons for delays. However, the minister and the government may choose to announce at their discretion. I personally remain hopeful it will be within weeks. In the meantime, we are doing everything we can to address the second part of your question. The approval will be crucial for those undertaking due diligence. It will remove a considerable amount of risk and doubt associated with the mining project, providing clarity about the requirements and obligations to operate. Unfortunately, it will not catalyze everything immediately due to COVID-19 restrictions, affecting international travel. Those restrictions have delayed discussions with prospective partners because one key potential partner requires their CEO and executive team members to visit the site before proceeding with M&A activity. Despite this, we are utilizing this time wisely to resolve other questions from potential partners. Once we can host visits, we believe we’ll be ready to engage in substantive negotiations quickly.

There are no further questions at this time. I would like to turn the call back over to Fred for closing remarks.

Very good. Thank you, operator. Ladies and gentlemen, we thank you for joining us on the call this morning. This has been a very active and interesting call, and we appreciate your interest and participation. As Doug indicated, we continue to be very careful and cautious in the expenditure of the resources of the company, maximizing the value that’s returned for that. We’re very pleased with the progress that’s been made. We’re frustrated by the fact that we’ve not yet received the approval of the mine management plan, but we have no reason to give up hope and believe that this will be coming in the near future. We encourage you to stay tuned for results and announcements regarding approvals and drill results in the weeks ahead. We have two drill rigs running at a faster rate and are very encouraged by what we are seeing. We look forward to sharing the last assay results with you. We continue to be encouraged by the current gold market and the leverage we enjoy with the price of gold, believing that Mt Todd and Vista Gold represent remarkable investment opportunities for those seeking growth and value in a politically stable jurisdiction. We thank you for your time this morning, and we wish you all a very pleasant day. Bye for now.

This concludes today’s conference call. Thank you for participating. You may now disconnect.