Vista Gold Corp Q1 FY2022 Earnings Call

Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter 2022 Financial Results and Corporate Update Conference Call. As a reminder, this conference is being recorded. Today is Tuesday, May 3, 2022. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Thank you, Chris, and good day, everyone. Thank you for joining the Vista Gold Corp. First Quarter 2022 Financial Results and Corporate Update Conference Call. I'm Pamela Solly, Vice President of Investor Relations. On the call today is Fred Earnest, President and Chief Executive Officer; and Doug Tobler, Chief Financial Officer. During the course of this call, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Vista to be materially different from results, performance or achievements expressed or implied by such statements. Please refer to our most recently filed Form 10-K for details of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements. I will now turn the call over to Fred Earnest.

Thank you, Pam, and thank you, everyone, for joining us on the call today. As announced in February, we achieved a significant milestone with the completion of the feasibility study for our 100% owned Mt Todd gold project, which increased gold reserves by 19% to 6.98 million ounces of gold and extended the life of the mine to 16 years and confirmed the robust economic returns of the project even after taking into consideration the inflationary pressures being experienced on a global basis. The completion of the 2022 feasibility study represents a significant step in derisking Mt Todd and readying the project for development. We subsequently announced the appointment of CIBC Capital Markets as Vista's strategic adviser to lead a formal process to assist us in evaluating a broad range of alternatives to unlock the value of Mt Todd and in a ranging and accretive transaction. During the quarter, we also successfully completed the exploration drilling program at Mt Todd, continued to monetize core non-core assets and maintained the strength of our balance sheet with quarter-end cash of $12.8 million. I'll discuss these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler for a review of our financial results for the quarter ended March 31, 2022.

Thanks, Fred, and thanks to everybody on the call. We appreciate your interest. I'm pleased to report that our first quarter financial results were in line with management's expectations. I'll start today with a brief recap of a few measures of our financial position. Our cash liquidity position is the first metric I'll discuss. At March 31, 2022, cash totaled $12.8 million, as Fred mentioned, which reflected a net decrease of $300,000 during the first quarter. We benefited from net proceeds of $2.5 million for cancellation of the remaining Awak Mas royalty, and the cash inflow was largely offset by expenditures of $2.8 million. The key programs that we advanced during the most recent quarter included the additional exploration drilling, work necessary to complete the feasibility study, related engineering and design work and several other technical studies. Another important metric that we track is our working capital position, which is measured as current assets less current liabilities. Again, we performed well this quarter with working capital at $12 million at March 31, 2022, and this reflected a decline of just $200,000 during the most recent quarter. The largest offset in our working capital calculation is accounts payable. At March 31, 2022, our payables still included remaining amounts due for several drilling and feasibility study vendors. We'll make final payments for this work during the second quarter of 2022, and then we expect our spending pattern to reduce to our more normal and typical historical level. I'll close the financial review with a brief summary of our results of operations. We reported consolidated net losses for the 3 months ended March 31, 2022 and 2021, of $320,000 and $3.1 million, respectively. The decrease in the loss for the quarter compared to last year's first quarter is almost entirely related to having a $2.5 million payment for cancellation of the remaining Awak Mas royalty. This amount, plus a previously deferred option gain of $383,000, were recognized as income. For last year's comparable period, there were no similar income amounts. Otherwise, our corporate administration and Mt Todd expenses were consistent period over period. As noted earlier, we've now concluded our exploration drilling and feasibility study. So beginning with Q2 of this year, we expect to see our Mt Todd expenses decline back towards historical levels. That concludes my remarks. Fred, I will turn the call back over to you.

Thanks, Doug. During the quarter, we continued to advance and derisk Mt Todd and initiated a strategic process to identify and evaluate a broad range of development alternatives for the project. Let me first talk about the feasibility study. We completed a feasibility study for the Mt Todd project and announced the results on February 9 of this year and filed the S-K 1300 technical report summary and the National Instrument 43-101 technical report on February 24 of this year. The 2022 feasibility study highlights a 19% increase in gold reserves increasing from 5.85 million ounces as reported in the company's amended 2019 prefeasibility study to now 6.98 million ounces of gold, and this extends the life of the mine to 16 years. Average annual production of 479,000 ounces of gold during the first 7 years of commercial operations and a low operating cost profile that delivers significant cash flows established Mt Todd as a compelling investment opportunity. This study addressed recommendations from the 2019 preliminary feasibility study. It reflects minor updates of the project designed to be consistent with the approved mining management plan and advance the levels of engineering and detailed costing in all areas of the project. As a result of favorable trade-off study results, the feasibility study includes contract power generation, which insulates the project from certain construction and operating risks while resulting in direct economic benefit to the project. A few economic highlights from the study include an after-tax net present value at a 5% discount rate of $999.5 million, or $999.5 million to be more precise, and an IRR of 20.6% at a gold price of $1,600, the official study price. The after-tax net present value at a 5% discount rate at a $1,900 gold price is estimated to be $1.7 billion with an IRR of 29.4% and after-tax cash flow of $2.3 billion in the first 7 years of commercial operations at a $1,900 gold price. These results all assume a foreign exchange rate of USD 0.71 per Australian dollar, almost exactly what the foreign exchange rate is today. For more study details, I invite you to refer to our February 9 news release and feasibility study webcast or download a copy of either the S-K 1300 or NI 43-101 compliant report, all of which can be found on our website at www.vistagold.com. Now let me turn your attention to the appointment of CIBC Capital Markets as our strategic adviser. As indicated, in March of this year, we appointed CIBC as our strategic adviser to assist in evaluating a broad range of alternatives to unlock the value of the Mt Todd gold project. CIBC's mandate includes leading a formal process to complete an accretive transaction with the primary focus on maximizing shareholder value. I am pleased with the progress of CIBC's work to date and confirm, as announced yesterday, that the formal process has commenced. Coinciding with the work of CIBC in February of this year, Australia lifted restrictions on international travel to and from the country for fully vaccinated individuals. We believe this action will have a positive impact for the formal process by allowing greater in-person interaction between senior management, local stakeholders and interested parties. I'll now turn to the exploration drilling program. As you're all aware, for the last 18 months, we've been undertaking drilling at Mt Todd, and we've now completed this exploration program with final drilling completed in March, and we are now awaiting final assay results. The drilling program focused on identifying connecting structures and mineralization between previously interpreted discrete mineralized occurrences, and it also confirmed the potential for efficient resource growth with future drilling along strike from the Batman deposit, approximately 1.9 kilometers north of the Golf-Tollis and Penguin targets. This program also successfully achieved our goals of demonstrating the potential along a 5.4-kilometer portion of the 24-kilometer Batman-Driffield Trend and outline areas where future drilling can be undertaken to efficiently define additional gold resources. Vista completed 26 planned drill holes for approximately 8,900 meters. The drill holes consistently intersected mineralization predicted by our geologic model and demonstrated both horizontal and vertical continuity of the targeted structures. Looking ahead, management believes the results of the 2022 feasibility study will appeal to potential partners, investors, and lenders as we continue to focus on maximizing shareholder value. We believe the size, location, permitting status, and recently completed feasibility study positioned Mt Todd as one of the most attractive development-ready gold projects in the world. In addition, with total cash of $12.8 million at quarter end March 31 of this year, our balance sheet is strong and our prospects for unlocking shareholder value have never been greater. With Australia's recently lifted international travel restrictions for fully vaccinated individuals, several members of Vista's senior management team, including myself, have traveled to Australia. With open borders, we believe due diligence activities will also be more easily undertaken by potential partners and other interested parties. We continue to engage with those who have expressed an interest in Mt Todd and are evaluating a broad range of strategic opportunities to advance the development of the project. It's important to note that we remain focused on completing the right transaction, one that creates and achieves a structure that provides appropriate opportunity for value creation by recognizing a greater portion of the intrinsic value of Mt Todd. Our primary objective is to achieve a valuation for Mt Todd that is reflective of the gold production profile, the long operating life, the excellent gold recovery, the project's location in Australia's low-risk Northern Territory, favorable low operating cost, robust project economics as demonstrated by the recently completed feasibility study, and the fact that we hold approvals for all major permits. This is a very comprehensive list, and we believe that these factors, coupled with the excellent infrastructure, will present opportunities for us to evaluate a broad range of development partners, structures, and alternatives as we continue to focus on maximizing shareholder value. Now let me talk about investor opportunity for a moment. For the investor looking for value, growth potential, low geopolitical risk exposure, and strong leverage to the gold price, Vista Gold represents an exceptional investment opportunity. At a gold price and foreign exchange rate of approximately $1,900 and USD 0.71 per Aussie dollar, that's close to today's market conditions, the Mt Todd project economics demonstrate an after-tax NPV at 5% discount rate of approximately $1.7 billion and an IRR of 29%. This is well positioned to evaluate a broad range of development alternatives and transaction structures as we continue to focus on maximizing shareholder value. In conclusion, we find ourselves in a strong market with, although somewhat volatile gold prices, recent hostile activities in Ukraine and higher inflation are creating greater uncertainty in the markets. We believe this supports a view for sustained strong gold prices in the coming 12 to 24 months. The work we have completed over the last several years, along with the recently completed feasibility study, has positioned the Mt Todd gold project as the largest undeveloped gold project in Australia. With 7 million ounces of proven and probable gold reserves, Mt Todd controls and Vista controls from Mt Todd the third largest reserve package in Australia. Mt Todd is ideally located in the Northern Territory of Australia, an extremely stable and mining-friendly jurisdiction. The existing basic infrastructure at Mt Todd, including paved roads, power lines, and a natural gas pipeline to the site, combined with the operational infrastructure comprised of the freshwater storage reservoir and tailings impoundment facility, provide very distinct construction timeline and risk mitigation advantages. Our technical programs are focused on designs that are capital efficient with low operating costs, creating the foundation for the leverage to gold price and improved shareholder value that we enjoy and are seeking. We have worked hard to secure the authorization of all of the major permits. Of equal importance, we have earned the trust of the local stakeholders and are confident that our social license is firmly in hand. We believe Mt Todd is a superior asset 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. We believe the completion of the feasibility study and the recently completed drilling program further demonstrates the significant upside potential of the project and strengthens our position as we evaluate a broad range of development partners, transaction structures, and other alternatives for realizing a greater portion of the intrinsic value of Mt Todd. I reiterate our commitment to focus more intensely on maximizing shareholder value as we move forward. For a comprehensive assessment of the value accorded to Vista and the Mt Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity for investors looking for value, growth potential, low geopolitical risk exposure and strong leverage to the gold price and that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold.

That concludes our prepared remarks. We will now respond to any questions from the participants on this call.

I have a question for you. You spent a considerable amount of time during this call discussing valuation. It seems to me that the company is likely worth more than what I've observed on most earnings calls throughout my career. I'm curious about what analysts might be overlooking concerning the value gap for the company, as there appears to be something significant that isn't being recognized. From my own analysis, I have a price target of $3, while the stock is clearly trading well below that. I'm trying to understand what people might be missing based on the inquiries you're receiving.

The last 10 days have been quite eventful in the markets, particularly in the gold sector. We briefly approached $2,000 an ounce and have since decreased by $75 to $80 from that peak. Following this, we've witnessed a nearly 25% decline in the company's value. There is a significant disconnect between the value of Vista Gold and the Mt Todd project. As I mentioned, the feasibility study was completed at a conservative gold price of $1,600, showing an NPV5 of just under $1 billion. At today’s gold prices, that NPV is around $1.7 billion. This disconnect seems to stem from market uncertainty about how Mt Todd will be financed and built. I'm pleased that we have started a process with CIBC Capital Markets to identify potential opportunities and will begin a formal process that we trust will lead to a successful accretive transaction. I believe that once this transaction is announced, the financing discussion for Mt Todd will be clarified, serving as a crucial catalyst for unlocking value for Vista's shareholders.

What is the current spending trend, possibly on a monthly or quarterly basis, and what challenges have you faced so far this year? It is now May, and what do you anticipate seeing by the end of the year?

Yes. So you can see our first quarter results. And again, we were running two very heavy and important programs being the drilling and the feasibility study. As we move back down to our more normal pace, what you'll see is our recurring burn rate will be something just about $1.5 million, slightly above that on a quarterly basis. And that's a good kind of 60-40 Australia versus the corporate organization. We've got a few other programs in the works, but those will almost be lost in the rounding. So figure somewhere just north of $1.5 million a quarter.

There are no further questions. I'd like to turn the call back to Fred.

Thank you, Chris, and thanks to everyone who has taken the time to join the call this afternoon and to those who will listen to the rebroadcast available on our website. We are entering an exciting period for Vista Gold. With the completion of the feasibility study earlier this year and the appointment of CIBC Capital Markets as our strategic adviser, we are making progress. We are executing the strategy we outlined over a year ago to unlock value for shareholders. The formal process has started, and I am very pleased with the work CIBC has accomplished so far. We encourage you to stay tuned for updates. We will not make any announcements until we have an official statement to share. However, I urge you not to let this opportunity slip away. Given the current gold price and our share price, I believe there is a significant opportunity to increase your holdings in Vista Gold or to invest if you are not already a shareholder. If you need further information, if you would like to chat with a member of the management team, I invite you to contact Pamela Solly, our Vice President of Investor Relations. She will answer your questions, and if need to be, she will get somebody else on the phone to also talk with you. We believe that this is a tremendous opportunity, and we believe that there will be a significant opportunity for value creation and for wealth creation for shareholders who recognize the potential value and the catalyst that lies before us with the work that CIBC is doing. I invite you to seriously review this and not miss this opportunity. I conclude with finally the statement, I'm not aware of many other gold projects across the world that meet the criteria that the Mt Todd project meets. It's of large size, tremendous production capacity with almost 500,000 ounces per year on average over the first seven years of the project. It's located in a very stable and mining-friendly jurisdiction, that of the Northern Territory of Australia. The all-in sustaining costs are lower than the average all-in sustaining costs of the major gold producers. All of the major permits, environmental and operating permits are already in hand. We enjoy an outstanding relationship with the stakeholders and I feel very comfortable stating that our social license is firmly in place. When you add all of these things together, along with the very robust project economics, estimated recently taking into consideration the inflationary pressures that we've seen in the latter part of last year, you have a very clear picture of what the Mt. Todd project can deliver. And I don't think there's very many other projects that can say the same. We're undervalued; tremendous opportunity to buy with the blue light flashing. Thank you for your time this afternoon. I hope that you'll look at Vista Gold, and if appropriate, for your portfolio, we invite you to make an investment. Thanks for your time, and we wish you all a very pleasant afternoon.

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