Vista Gold Corp Q1 FY2023 Earnings Call

Good day, ladies and gentlemen. Welcome to Vista Gold's First Quarter 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. Today is Monday, May 1, 2023. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Thank you, Jenny, and good day, everyone. Thank you for joining the Vista Gold Corp. first quarter 2023 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-Q 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. During the first quarter, we completed an internal scoping study to evaluate the technical and economic merits of smaller scale development alternatives from Mount Todd, while preserving the opportunity for subsequent expansion or staged development. The work completed in the study leverages off of the 2022 feasibility study and gives us confidence that a smaller and easier to build initial phase of the project is viable and economically attractive. We recently announced results of the Mount Todd surface exploration program, the retirement of two of our directors, and positive recommendations from the Northern Territories mineral development task force regarding the Northern Territories royalty structure. The strategic process with CIBC Capital Markets is ongoing and we continue to take actions to implement cost reductions, which have had a positive impact on our quarter and financial position. Vista continues to have no debt. We remain committed to the health and safety of our employees and to environmental stewardship at Mount Todd. There have been no lost time incidents this year and the site has now achieved 523 consecutive days without accidents. I will discuss these topics in greater detail later in the call, but will now turn the time over to Doug Tobler, our CFO, for a review of our financial results for the quarter ended March 31, 2023.

Thank you, Fred. Today, I'll provide a brief recap of our results of operations for the first quarter of 2023 and discuss our financial position as of March 31. Vista Gold's financial statements and MD&A are included in our Form 10-Q that was filed last Friday and is available at either sec.gov or sedar.com. I'm pleased to report that our results were in line with management's expectations for the quarter, and recurring costs are tracking toward our objective of achieving a 7% reduction compared to our 2022 results. From an overall perspective, we reported consolidated net losses for the three months ended March 31, 2023 and 2022 of $2 million and $300,000, respectively. The higher loss for the current quarter resulted from a few main components. First, we had a one-time gain of $2.9 million during the first quarter of 2022, which was realized as we closed out the sale of our interest in the Awak Mas project in Indonesia. There were no similar items this year. Offsetting this change in realized gain, we saw substantially lower expenses during Q1 of 2023. Notably, Mount Todd exploration and holding costs decreased by $1 million from $1.8 million reported for Q1 of 2022, down to $800,000 for Q1 of 2023. This related largely to having completed the drilling program and the Mount Todd feasibility study last year, plus overall reductions in our recurring costs in Australia. Our administrative expenses were also down to $1.2 million for the current quarter compared to $1.4 million for Q1 of 2022. Turning to our financial position, our balance sheet remained in good condition at March 31, 2023. We ended with cash of $6.6 million and maintained our position of having no debt. That concludes my remarks for today. I'll turn the call back to Fred now.

Thank you, Doug. I will start with a discussion of our ESG initiatives and performance, provide an update on our first quarter achievements for 2023, and finish with our outlook for the rest of the year. We have built a strong reputation for environmental leadership in the Northern Territory and are actively maintaining this position through our site management plans. After the recent wet season, I’m happy to report that despite significantly higher than average rainfall, we had no unexpected water discharges from the site and are fully compliant with our environmental obligations. Our team in Australia has now achieved 523 consecutive days without any lost time accidents, showcasing our commitment to a safety-driven culture and the team's efforts. We also uphold a strong cooperative relationship with the traditional owners at Mount Todd, working closely with the Jawoyn people and the Jawoyn Association Aboriginal Corporation. We are currently collaborating with their board to finalize a cross-cultural training program for our employees and contractors at Mount Todd. Additionally, we engage closely with leaders and stakeholders in the Katherine area and throughout the Northern Territory. I'm pleased to say that our social license is solid and well-supported. We're actively pursuing best governance practices within our organization and are encouraged by the inclusive culture that we foster. During the quarter, we announced the retirement of two long-serving directors and reduced the size of our Board. I’ll share more on that shortly. Now, moving on to some highlights from the quarter. In March, we announced the completion of an internal scoping study that evaluated the development of the Mount Todd project at a smaller scale. The results were promising, indicating significantly lower initial capital costs while retaining the potential for future expansion or staged development. Initial work suggests that a nominal project of 5 million tonnes per year could be developed with a capital expenditure of less than $350 million for scenarios that involve contract mining, potentially yielding annual production of 150,000 to 200,000 ounces of gold. Although our analysis predicts higher all-in sustaining costs compared to the company's 2022 feasibility study due to increased operating costs from contract mining and inflationary adjustments, these costs remain competitive in the current market. We have shared the results of the scoping study with potential strategic partners under confidentiality agreements. We also released findings from our latest surface exploration program on two areas within the Mount Todd exploration licenses. These targets showed excellent gold assay results from surface soil samples, including up to 4 grams of gold per tonne at the Irwins target. The Mount Todd exploration licenses cover 1,650 square kilometers and remain largely underexplored. As part of our annual exploration program, we collected over 600 rock chips and soil samples from specific targets, revealing strong geological similarities to areas in the mining licenses where we identified four highly promising exploration targets that may represent up to an additional 1.8 million to 3.5 million ounces of gold based on our 2021-2022 drilling efforts. We are very encouraged by these results, affirming our belief in the exceptional discovery potential of the Mount Todd land package. As I mentioned earlier, after over 25 years of service to Vista Gold and its shareholders, Mike Richings, Chair and non-Executive Director, and Tom Ogryzlo, non-Executive Director, retired after the completion of their terms at the company's recent annual meeting. The Board approved a reduction in its size from seven to five members. On behalf of the Board and management, I thank Mike and Tom for their leadership and dedication to the company. Their contributions have been vital in executing several transformative transactions and advancing Mount Todd into one of the most significant and development-ready gold projects in Australia. They have exemplified professionalism and acted in the best interests of shareholders. We have learned a great deal from both of them, and it has been a privilege to work together, and we wish them all the best. Another exciting update is that following the quarter's end, we reported that the Northern Territory Government published the final report of the mineral development task force. The report included a series of recommendations aimed at enhancing the competitiveness of the Northern Territory as a mining investment hub. As these recommendations unfold, we anticipate various benefits for the Mount Todd Gold Project. Significantly, the report calls for updates to the current royalty structure to improve competitiveness and stresses the need for local skills development to support the mining sector. This could lead to a simpler ad valorem royalty approach, aligning rates more closely with other top-tier mining regions, where rates typically range from 2.5% to 5%. This represents a valuable opportunity for improved project economics and earlier shareholder returns at Mount Todd, where our 2022 feasibility study included royalties equivalent to a 7% to 9% ad valorem rate, depending on gold price and other factors. Skills development will also play a vital role as we support a local workforce at Mount Todd, moving away from the traditional fly-in, fly-out model prevalent in other parts of Australia. The Northern Territory Government plans to engage with stakeholders and the mining community to gather feedback on effectively implementing the main recommendations and actions related to the report. The strategic process with CIBC Capital Markets continues to generate interest and positive feedback on the technical merits of Mount Todd. Since we announced the completion of the scoping study, there has been both new and renewed interest in the development options Mount Todd presents. However, interested parties remain cautious regarding large-scale development projects. Our focus is on delivering value for shareholders through completing the right transaction that maximizes the present value of Mount Todd and creates future value opportunities. We are prioritizing cost reduction and effectiveness in 2023, having already implemented measures to reduce recurring costs by around 7%. We continuously seek and evaluate further cost-cutting opportunities. Currently, our annualized costs for maintaining the value of Mount Todd are under $0.80 per ounce of proven and probable reserves, which we consider a respectable holding cost. Looking forward, our priority remains maximizing shareholder value. We are following through with our plans to boost cost effectiveness and operational efficiency. Evaluations at Mount Todd are ongoing, including a study on value-creating development options and an assessment of areas that could enhance operational efficiencies. With the wet season behind us, we have a small exploration program planned to meet our annual expenditure obligations, which will involve additional field mapping and soil sampling. We will participate in the consultation process with the Northern Territory Government as they implement the task force report's recommendations. Additionally, we are continuing our work with CIBC Capital Markets to unlock the full value of the Mount Todd Gold Project. In conclusion, our recent work, including the feasibility study and internal scoping study, has positioned Mount Todd as one of the largest and most advanced undeveloped gold projects in Australia, boasting 7 million ounces of proven and probable reserves. Vista controls the third largest reserve package in the country. Beyond size, Mount Todd offers numerous advantages to potential investors. Its location in the Northern Territory, a stable and mining-friendly jurisdiction, along with existing critical infrastructure such as paved roads, power lines, and a natural gas pipeline, contributes to a distinct timeline for construction and risk mitigation. We have secured all major permits necessary for Mount Todd's development, and we have built strong trust with local stakeholders, ensuring our social license remains intact. Our technical programs focus on designs that are capital efficient with low operating costs. We believe the anticipated changes in the NT royalty regime will enhance project economics and bolster shareholder value. We see Mount Todd as a premier asset and one of the most attractive development-stage gold projects not only in Australia but worldwide. Our main goal is to achieve a valuation for Mount Todd that reflects its gold production profile, long operating life, excellent gold recovery, favorable operating costs, robust project economics demonstrated in the feasibility study, and the fact that we hold all major permits. For a detailed overview of our work on the Mount Todd project, I encourage you to view our corporate presentation on our website. We believe Vista Gold represents an exceptional investment opportunity, and current prices provide a tremendous chance to establish or increase one’s stake in Vista Gold. Jenny, this concludes our prepared remarks, and we are now ready to answer any questions from participants on the call.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question is from Heiko Ihle from H.C. Wainwright. Please ask your question.

Hi, Fred. How are you?

We are very well. Thank you, Heiko.

Excellent. A few weeks ago, you put out some release about surface exploration for additional gold targets at Mount Todd. And particularly at one point you mentioned 4 grams per tonne gold at the Irwins. Can you just sort of walk me and the other participants in this call through your plans there for the rest of the year, or in general I guess with exploration?

Absolutely, Heiko. The work that we've done on the exploration licenses has started with a very broad range of surface geology mapping. We have followed that up with magnetic surveys to some high-level geophysical work to identify those areas where we see magnetic anomalies, which are typically associated with intrusive, and hence the heat engine for gold deposits in the district. And then we follow that up with surface soil sampling on a grid pattern. The initial work that is completed is done on a very broad spacing. And then as we have interesting results, we close in the spacing of the grid. We began to undertake some of that work of closing the spacing in last year. And these are soil samples collected on 25 meter centers and 100 by 100 grids sometimes. And the bottom line is that the results that we achieved while anomalous were very encouraging. Typically, as you're aware, we often see soil sample results in the parts per billion range. And that's very interesting when we see those results in the very surface soils to have soil samples in the four parts per million or 4 grams per tonne range is particularly interesting. We will be doing some more work in the areas of some of these higher-grade samples, as well as continuing to reach out and close in spacing where we've had other results in the past. Our team last year also did some mapping of outcrops and collected rock chips, and we will be undertaking more work in those areas as well. Again, as I indicated this year, our target will be to spend the amount of money required to meet our exploration commitments to maintain the exploration licenses in good standing. We believe that this work continues to demonstrate to potential partners and others who would be interested in attraction at Mount Todd that there's tremendous exploration upside. We continue to be very bullish about the work that's going on. Again, this will be grassroots level exploration. We have not yet progressed any of these targets to the point of bringing in a drill rig.

Helpful. Okay. Gold is at just under 2,000 right now. At some point, a trend becomes maybe the new normal. Walk us through the potential and what you see implications wise, given the potential for a smaller scale development that you released about two months ago for the site? The way I look at it is for $250 million, I can build 150,000 to 200,000 ounces in production. Somebody is missing something. And maybe can you go through some color on what you think the market is missing or misunderstanding or not giving you enough credit for?

Absolutely, Heiko. The feasibility study that we completed for Mount Todd evaluated the Mount Todd project at a 17.5 million tonne per year rate, 50,000 tons per day. All of the engineering and the designs associated with the feasibility study were targeted and undertaken with the idea of designing a project that would be very attractive to a senior gold producer. The capital expense of building that initial project while a large number for us at almost $900 million was actually a very capital efficient number, actually in the lowest quartile on a per ounce of gold produced over the life of the project compared to our peers. However, the fact remained that it was a very large number. And so with the feedback that we received from the process initiated by CIBC Capital Markets a year ago, we undertook an internal level scoping study to evaluate what a project built at a smaller scale and more to what I think the best term would be fit for purpose design level might look like. I and several members of the team visited some smaller scale Australian operations in the middle of last year, and formulated some ideas about what the standards might look like and what a typical mid-tier or smaller Australian company would use as design criteria. We then brought in a new engineering firm that had not been extensively involved in the design of the feasibility study plant to redesign the process plant area using concepts that we gleaned from visiting other operations. This has allowed us to design an operation that smaller could be built more quickly and more efficiently. And as we indicated, at this smaller scale, the capital cost is estimated to be less than $350 million. Now in doing this work, we have not tried to estimate the economics for a life of mine project at 15,000 tonnes per day. Simply stated that would have a mine life in excess of 40 years. But we carried the life out far enough to get a good idea of what the economics were. And we've been very careful so as to not condemn any part of the existing reserve. We've maintained the optionality specifically, and some of the work that's ongoing at the present time is looking at a simple 50% expansion of the plant that we designed. We've also looked at, and are looking at and evaluating what a project would look like, using the principle of staged development by building the first 15,000 tonne per day train, and then adding another 15,000 tonne per day train and possibly a third to ultimately reach something very close to the 50,000 tonnes per day that we had originally proposed. We've incorporated contract mining as a way to further reduce the initial capital expense. All of these things have been done to demonstrate to partners the optionality of developing Mount Todd. Mount Todd does not have to be developed at 50,000 tonnes per day. And while we've done an extensive amount of work at that scale, we've been able to leverage off of the feasibility study level design work in the evaluation of a smaller project. This smaller project concept has resonated with a number of companies. Additional confidentiality agreements have been signed since we announced the completion of this study. It has also put the news out there and we've had interest from those who are not necessarily interested in a smaller scale project. And so it's been a way to once again draw serious and genuine interest to Mount Todd and to the development opportunities potential that exists there.

That's helpful. I appreciate it. I'll get back in queue. That was a very extensive answer, and I'm grateful. Well done getting all this ad hoc here. Thank you.

Thank you, Heiko.

Thank you. Your next question is from Adrian Day from Adrian Day Asset Management. Please ask your question.

Yes. Good afternoon. I've actually got two questions to follow on from Heiko's. The first one is, can you quantify the cost of the exploration that you intend to do this year?

Yes. Hi, it's Doug Tobler here. It will be in the range of about $200,000 as part of our planned spend.

Okay. That's not a lot.

Yes. Well, it's surface work. There's no drill rig, so similar size and scale.

Yes, you can get a lot of surface soil sampling done for $200,000, Adrian.

Okay, good. Let me just type that. And then the second question, so it's been a little over a year since the definitive feasibility study. And I'm wondering if you can reflect or let us know the reactions you've had from companies or reactions you've had, I should say, both to the DFS and also to the scoping study? Are there things in the reaction that have pleased you? I don't want to put words in your mouth, but the number of companies, the variety of companies, or whatever? And are there things about the reaction that have frustrated or disappointed you?

That's an interesting question, Adrian. From the beginning, we've faced challenges from people who recall the issues at Mount Todd when it was last operated in the late 90s, during a time when gold prices were around $300, which led to its closure and the bankruptcy of the owning company. We have made a substantial investment and have carefully conducted testing, drilling, and engineering work. All necessary permits have been acquired, and we have put significant effort into building our social license. It is rewarding for everyone at Vista to see that through our due diligence with various companies, our completed work has been validated. The technical designs and process flow sheet we developed to handle the hard rock at Mount Todd have received strong endorsements from those who reviewed our data and tests. Some companies even drilled their own samples for metallurgical testing, confirming that our proposed recovery rates are reasonable and achievable, and that the flow sheet should work as planned. Larger companies have praised our community engagement and the relationship we've developed with the Jawoyn Aboriginal people. The recurring validation of our efforts has been gratifying. However, a disappointment remains that despite our progress, the market conditions have prevented us from announcing a transaction that reflects the project's full value and rewards our patient shareholders. We began the process with CIBC Capital Markets a year ago, but shortly after, rising interest rates and inflation led potential partners to pause evaluations of development projects, some for up to six quarters. While we are disappointed that we haven't reached a transaction, we find satisfaction in the confirmation of our project's technical merits and the extensive work we've completed on a budget that is significantly lower than what others would have spent. This reinforces our belief that we don't need to rush into a transaction. We truly have a world-class asset, and we are confident we will complete a transaction at the right time that will benefit our shareholders.

Okay, that's really helpful. Thank you.

Thank you for the question.

Thank you. It appears that we have no other questions.

All right. Well, thank you everyone for taking time to join us for this update and discussion of our first quarter results. We're very excited about the implications of the recommendations of the Northern Territory's mineral development taskforce, the potential impact of reducing the effective ad valorem rate from 7% to 9% that we saw in the feasibility study under a different royalty regime to something more competitive has a tremendous impact for the project. As we've discussed in response to questions, the field exploration programs will be kicking off soon with the onset of the dry season. We're very pleased with the progress that's being made at Mount Todd in those regards. We're very pleased with our track record for environmental compliance, health and safety of our employees. We look forward to moving forward with the newly configured Board of Directors as we seek to focus on maximizing shareholder value. Again, we reiterate that our work with CIBC Capital Markets is focused on generating the realization of the maximum value, full value for the Mount Todd project, and that we'll continue to hold the line on that. While there were questions about developing Mount Todd at a smaller scale, I wish to reiterate that we have no intentions at this time to develop Mount Todd on our own. We see that there are better ways to generate value for shareholders through being patient and waiting for the right transaction. With that, I'll conclude our remarks. We thank you for your time and interest. We invite you to seriously consider either increasing your position in Vista Gold or initiating a holding, and we look forward to seeing all of you and meeting you and having you as shareholders. And with that, we wish you all a pleasant day.

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