Vista Gold Corp Q3 FY2023 Earnings Call

Ladies and gentlemen, welcome to the Vista Gold's Third Quarter 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in listen-only mode. Following the presentation we’ll open the line for a question-and-answer session. And as a reminder, this conference is being recorded. Today is Wednesday, November 8, 2023. It is now my pleasure to introduce Ms. Pamela Solly, Vice President of Investor Relations. Please go ahead.

Thank you, Kelsey, and good afternoon, everyone. Thank you for joining the Vista Gold Corp.'s third 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 differ materially from the 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 this afternoon. During the third quarter, we continued to work with CIBC Capital Markets. We maintained our ongoing cost reduction programs, managed our safety and environmental programs without incident, and presented at the Precious Metals Summit in Beaver Creek, Colorado. As part of our work with CIBC, we continue to explore transaction opportunities and host Mt. Todd site visits with interested parties. We remain diligent in the execution of our strategy to seek an appropriate transaction to maximize shareholder value but understand the completion of a transaction may depend on sustained improvement and stability in the economy and capital markets. Cost reductions are ongoing, and we are on track to achieve a 7% reduction in 2023 recurring costs compared to 2022. Vista continues to have no debt. In September, we attended the Precious Metals Summit in Beaver Creek, Colorado, where we met with shareholders, potential investors, mining companies, and others. The completion of the internal scoping study earlier this year generated interest among shareholders, investors, and potential transaction parties. We remain committed to the health and safety of our employees and to our environmental stewardship at Mt. Todd. There have been no lost time incidents this year, and the site has now reached 690 consecutive accident-free days. I will discuss these topics in greater detail later in the call. But now, I will turn the time over to Doug Tobler for a review of our financial results for the quarter ended September 30, 2023.

Thank you, Fred. Today I'll provide a brief recap of our results of operations for the quarter ended September 30, 2023, and our financial position at that date. Vista Gold's full financial statements and MD&A are included in our Form 10-Q that was filed yesterday and is available at either sec.gov or sedarplus.ca. Vista Gold reported a consolidated net loss of $1.5 million, or $0.01 per common share, for the quarter ended September 30, 2023, compared to a consolidated net loss of $1.7 million, or $0.02 per common share, for the quarter ended September 30, 2022. The loss for the current quarter was in line with our expectations, and it reflects an 11% reduction in operating expenses compared to the same period last year. For the nine months ended September 30, 2023, and 2022, our net losses were $4.9 million and $3.4 million, respectively. The loss in 2023 was greater than last year's because the 2022 period included a $2.9 million gain on our disposal of the Awak Mas property and other income items totaling $413,000. Excluding the effects of these two items, Vista reported operating expenses of $5.1 million for the nine months ended September 30, 2023, compared to $6.8 million for the same period last year. This represents a 25% decrease in operating expenses period-over-period. We are on track to achieve our objective of a 7% reduction in recurring costs and other cost reductions at Mt. Todd for exploration and site management programs. Turning to our financial position, our balance sheet remained in good condition at September 30. We ended with cash of $4.8 million, compared to $6 million at June 30, 2023. We also maintained our position of having no debt. That concludes my remarks for today, so I'll turn the call back over to Fred. Thank you.

Thank you, Doug. I will begin with a review of our ESG initiatives and performance, and then review our third quarter achievements. We are committed to conducting our business in a responsible and sustainable manner. And we continually seek to align our business practices with ESG principles to ensure the long-term success and positive impact of our operations. We are proud to be recognized for our record of environmental leadership in the Northern Territory. We remain in compliance with our site environmental responsibilities and obligations. As previously noted, our team in Australia has now completed more than 690 consecutive days with no lost time incidents. We are very pleased with our safety-oriented culture and the accomplishments of the team. We continue to maintain strong working relationships with the Jawoyn people and the leaders of the Jawoyn Association Aboriginal Corporation. We continue to work with the leaders and stakeholders in the Katherine area and broadly in the Northern Territory, as well as the Northern Territory government. I'm pleased that our social license is firmly in place and strongly supported. We remain committed to responsible environmental management, protecting heritage sites, and developing Mt. Todd in a way and at the time that maximizes the benefit for our shareholders and stakeholders in the Northern Territory. I'm pleased to report we are working on our first ESG report and expect to publish it in the first quarter of 2024. Now switching to the Precious Metals Summit. As I indicated in September, we attended the Precious Metals Summit in Beaver Creek. This conference provides an excellent forum for our team to meet with shareholders, potential investors, mining companies, bankers, and others. Our message about the opportunity for a smaller initial project at Mt. Todd was well received, in particular demonstrated initial capital of less than $350 million to achieve annual production of 150,000 to 200,000 ounces of gold per year combined with the opportunity to increase production through staged development over time resonated with many of those with whom we met. Interest in what is happening in the Northern Territory also caught the attention of investors. In April, the NT government announced plans to attract greater mining investment in the territory. The top government priority is to reform the current royalty structure. All indications suggest that the government will adopt an ad valorem royalty and adjust the rate to be more competitive with other Tier 1 jurisdictions where rates typically range from 2.5% to 5%. This represents a significant opportunity for improved project economics and earlier shareholder returns as our 2022 feasibility study included NT royalties equivalent to a 7% to 9% ad valorem rate depending on gold price and other assumptions. We expect the Northern Territory government to complete the royalty reform by the end of the second quarter of 2024. Now switching over to the ongoing work with CIBC. CIBC continues to generate interest in Mt. Todd. The results of the scoping study announced earlier this year have generated greater interest in the optionality Mt. Todd offers under different development strategies. Management continues to host site visits and respond to inquiries from engaged parties. We remain focused on recognizing value for shareholders through the completion of the right transaction, one that realizes a greater portion of the intrinsic value of Mt. Todd and provides ample opportunity for future additional value recognition. Our efforts to reduce costs and maximize cost-effectiveness are high priorities for 2023. We have taken actions to further reduce recurring costs by approximately 7% and continue to evaluate and implement opportunities for additional cost reductions. In conclusion, the Mt. Todd gold project is one of the largest and most advanced undeveloped gold projects in Australia, with 7 million ounces of proven and probable reserves, and following the completion of the Newmont-Newcrest merger, Vista controls the second-largest reserve package in Australia. In addition to its size, Mt. Todd provides a number of other advantages for those interested in a potential transaction. Mt. Todd is ideally located in the Northern Territory of Australia, an extremely stable and mining-friendly jurisdiction. The existing project infrastructure at Mt. Todd provides distinct construction timeline and risk mitigation advantages. All the major permits for the development of Mt. Todd have been approved. Critically, we have earned the trust of the local stakeholders and are confident that our social license is firmly in hand. Our technical programs focus on de-risking the project and incorporating designs that are capital efficient with low operating costs. We believe the proposed changes to the NT royalty regime will help improve project economics, enhance the project's leverage to gold price, and provide a stronger foundation for improved shareholder value. We believe Mt. Todd is a superior asset and one of the most attractive development-stage projects not just in Australia but in the entire world. Our primary objective is to achieve a valuation for Mt. Todd that correctly reflects the gold production profile, long operating life, excellent gold recovery, favorable operating costs, and robust project economics, as shown by the completed feasibility study and the fact that we hold all approvals for all major permits. For a more comprehensive review of the work completed by Vista on 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 and that the current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold. This concludes our prepared remarks. We'll now respond to any questions from participants on the call.

The first question comes from Heiko Ihle from H.C. Wainwright. Please go ahead.

Hey, Fred, can you hear me okay? Because it was just a little muffled there.

Yes, we were having difficulty hearing Kelsey as well. But we hear you loud and clear, Heiko.

Fair enough. Cost savings going into 2024; I mean, you're looking at a 7% reduction in recurring costs. I'm frankly amazed at how you plan on being able to do this, given how lean the ship has been run for the last many years I've been following the firm. Can you just give a little bit of color and detail on what exactly you plan on doing and maybe even quantify the effects?

Yes. I'm going to turn this question over to Doug to answer, Heiko.

Hey, Heiko. How are you doing? The 7% is what we're tracking as our objective for this year. And I think we talked about this last quarter that that's 7% after considering the effect of inflation, which is kind of running high single-digits. In some markets, it's even low-teens. So we think we've done exceptionally well this year. We're not through our 2024 budget cycle yet, but we're seeing areas where we can continue to reduce our costs and/or hold things stable. I mean, we've been very fortunate to keep our personnel costs in line and still have a motivated workforce. We’ve had some exceptionally hard workers who continue to perform well. As we move into next year, we'll continue to look at all the areas where we can optimize costs. We've taken a very aggressive approach to negotiating our insurance rates, and markets have improved a bit there. We've also shopped around for our service providers, and in some cases, we've transitioned to less expensive yet still productive options. We're working to reduce our office and administrative costs, keep our rent low, and ensure all other support costs are as low as possible. So it’s not huge savings from any one area, but we look at every category and try to extract savings. I’m hopeful that we can at least hold the line as we move into 2024 and offset most, if not all, of the cost of inflation.

That's fair. That's a fair answer. Just looking at where the shares are currently sitting; there's clearly value there. I mean, Gold’s last price was at $1,950. If you run a sensitivity analysis, even with conservative numbers, there is clearly a meaningful value disconnect between the value of the company and the share value for lack of a better word. What is the market missing? And how does one explain it to them that they're missing it? Or is it just that all junior miners are beaten down and nobody cares?

Yeah. Heiko, that's a very interesting question. And I'm sure it's a question that many CEOs and shareholders alike are asking themselves across the board in our sector. There is a disconnect between the gold price and the intrinsic value of projects, compared to market caps and recognized value in companies. Certainly, we find ourselves presently under a greater-than-normal amount of selling pressure. We're not sure if that's tax loss selling that commenced in the middle of last month or if it's just part of a broader market phenomenon that gold stocks are a little out of favor. We know that in Australia specifically, that lithium seems to be the flavor of the day, while gold companies have seen a decline in interest. I think in the background of everyone's mind are questions about when Vista is going to successfully complete a transaction. That is, in many respects, out of our control. As I reported, we continue to work with CIBC, and they continue to generate leads and attract new interest to Mt. Todd, which is reflected in our site visits and due diligence work. I'm hopeful that as we head into the New Year, we’ll see a shift in our sector and begin to see transactions that involve developers such as Vista, whereas this year the majority of transactions have been producers transacting with other producers. I think once that pendulum swings back, the size of the project, its location, the fact that it’s fully permitted, and that Mt. Todd is essentially shovel-ready will bode well for us. In the meantime, we're being very efficient with the financial resources we have, and I’d like to think we’re among the top of our peers in what we achieve with the money we spend. So it's something that weighs on our minds as it does for many investors.

Fair enough. Good answer. And I'll get back in queue.

Thank you.

And your next question comes from Mike Schultz. Please go ahead.

Okay. Can you hear me?

We hear you loud and clear, Mike.

I'm a private investor, and I have two questions that I'll ask one at a time for clarity. First, does Vista have the capability to borrow $350 million to mine the gold themselves, or is borrowing not an option based on the project's type and company? I've calculated that even with high interest rates, the projected gold production, after accounting for production expenses, would yield a significant return relative to the current stock price. Knowing that you could potentially borrow if necessary is important to me. Additionally, borrowing and mining could serve as a last resort if there are no other options to raise funds through a stock offering within three quarters. Please address that question first if you don't mind.

Yeah. Hi. This is Doug Tobler. I'll take that one on. So it sounds like your analysis would tell you the same thing that our analysis would. In terms of borrowing, just to be clear, we wouldn't seek to ever borrow 100% of the $350 million that we outlined in our scoping study. A typical mining project would finance 60% with some form of leverage, debt streams, and royalties—those types of things. Typically, the balance would come from an equity infusion from partners or the broader market itself. From what we see, Mt. Todd's economics are robust, especially at the current gold prices when you look at the valuation on a discounted cash flow basis. So we see that the typical 60–40 debt-equity ratio is achievable should we ever move in that direction. We still see that there's great value opportunity in some other form of transaction that provides an immediate and longer-term uplift as well. So we're not boxed out. We've got optionality, and I think your analysis makes sense.

Okay. And then the second question, which you may or may not answer, but I'm going to ask it anyway, is you commented a lot on wanting to find the right transaction that represents the value of the project. As an investor, not seeing what's going on there would give the appearance that although we hear about a lot of activity, we don't know whether there have been any possible offers or even mention of offers that were not considered by Vista because they were not seen as the right value. If there's a way you could shed light that there have been companies that have shown genuine interest but not at the right value, or if you can't comment, I understand. We're just trying to size up what's actually going on among folks that are looking at it.

Yes. I'm not going to be able to answer your question to your satisfaction, Mike. But there have been discussions over the last year about value. And those discussions have not reached a point where, for a number of reasons on either side of the table, they get to the point where there's anything that would be disclosable. But there is genuine interest, and significant expenditures have been made to date by several companies in various levels of due diligence. I don't know where this is going to end, but we'll see what plays out in the next quarter or two.

Great. Thank you. The comments were helpful. I appreciate it. Thank you. I’ll hop back in queue.

All right.

Thank you. And your next question comes from Adrian Day from Adrian Day Asset Management. Please go ahead.

Yes. Hi. Good afternoon. I'm wondering how you would characterize the recent discussions you've had compared with, say, the discussions last year. And then, could you give us some idea of what seems to be the biggest stumbling blocks to people making a positive decision to go ahead?

Yes. Adrian, I think the biggest—the easiest way to characterize the difference between discussions a year ago and discussions in the last nine months is the impact of inflation and the uncertainties surrounding inflation. Our feasibility study is dated January of 2022. Within six months of that time, we started seeing a lot of talk and, in reality, a lot of impacts from inflation and what that means for projects. I think in answer to your second question, you know our industry quite well, and you know that many of the companies that should be interested in a project the size of Mt. Todd are actually quite risk-averse. The fundamental reason we're seeing the consolidation of transactions between producers is that they are eliminating development risk in today's market. That weighs heavily on every discussion. How do you assign a value to that risk? And what ultimately is going to be the cost of development even though we have very solid first principles cost estimates for CapEx and operating costs? The question in everybody's mind is what are those costs really going to be today? So it’s really a matter of risk aversion, and that's the biggest issue we see, which is driving the hesitancy across the board to engage in discussions and transactions with developers in today’s market.

Okay. Great. Thank you.

Thank you. And there are no further questions at this time. Ms. Solly, you may proceed.

Kelsey, thank you. We appreciate the questions that have been asked. Mike, Heiko, and Adrian, I appreciate your continued interest and the very thoughtful questions that were asked. As has been pointed out in the Q&A section, our share price is not where we would like it to be. But I think the flip side of that is that this represents a tremendous opportunity for those who can see the underlying value of Mt. Todd and the asset. The fact that those ounces are not going anywhere means there is a tremendous opportunity to establish or add to a position in Vista Gold. Certainly, for those who have further questions and would like more information, I invite you to reach out to Pamela Solly, our Vice President of Investor Relations. Pamela will be happy to spend time answering questions and, as needed, to get myself or another member of the team on the phone to help you understand the technical and financial aspects of the project. We, as a management team, are disappointed with the market cap and share price we have today. However, we continue to work to assess, advance opportunities, and create more value for the project as we de-risk the project. Please know that the team is busy. We welcome additional inquiries and investments. We think this is a tremendous opportunity, and we are hopeful that those on this call and those who will listen to it as a rebroadcast will give serious consideration to the investment opportunity that this represents. With that, I would like to thank all of you for participating in the call, and we wish you all a very pleasant and happy afternoon. Good day.

Ladies and gentlemen, thank you all so much for participating. I hope you have a good rest of your evening. Thank you.