Earnings Call Transcript - VGZ Q2 2021

Operator, Operator

Good day, ladies and gentlemen. Welcome to Vista Gold's Second Quarter 2021 Financial Results and Corporate Update Conference Call. As a reminder, this conference is being recorded. Today is Friday, July 30, 2021.

Pamela Solly, Vice President of Investor Relations

Good day, everyone, and thank you for joining the Vista Gold Corp. Second Quarter 2021 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 and 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.

Fred Earnest, President and CEO

Thank you, Pam, and thank you, everyone, for joining us on the call today. During the second quarter, we achieved a number of significant milestones for Vista and our shareholders. Our most significant achievement by far was the approval of the Mt Todd Mining Management Plan, also referred to as the MMP. Vista also received approvals of the Aboriginal Areas Protection Authority Certificate for the exploration licenses and the Surface Water Extraction License for the project shortly after the MMP was approved. We continued to advance our exploration program and have now drilled 16 of the 18 planned holes. We also received the final $1 million Guadalupe de los Reyes payment, which completes the sale of the Guadalupe de los Reyes project to Prime Mining Corp. Following the end of the second quarter, we completed a bought deal public offering, commenced work to complete a definitive feasibility study, and extended our exploration drilling program. In general, our outlook with regard to the COVID pandemic is improving. Our executive team is now working full time in the corporate office in Denver, and we expect to resume corporate travel within North America in August. We also plan to attend several in-person investor conferences beginning in September. In the Northern Territory of Australia, COVID control measures have been relaxed, but travel by international visitors into Australia remains very difficult. Mt Todd continues to operate under an approved COVID-19 management and mitigation plan that is presently less restrictive than originally required. I'll discuss our second quarter achievements and other key programs 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 June 30, 2021.

Doug Tobler, CFO

Thank you for your interest in today's call. Our financial report for the second quarter was filed on Wednesday. I will highlight key points from this report, but please refer to our Form 10-Q for more details, available at sec.gov or sedar.com. Our cash and cash equivalents totaled $6.3 million as of June 30, 2021, down from $7.8 million on December 31, 2020. Given our increased activity during the first half of 2021, we are pleased to report a net cash reduction of only $1.5 million. We received a $2.1 million payment from Prime Mining for the de los Reyes project mentioned earlier, and we also generated just over $1 million from our ATM program. These cash inflows supported our ongoing exploration drilling, dewatering of the Batman pit, and various other programs. Our operating results were as expected, with a net loss of $800,000 for the second quarter of 2021, compared to a net income of $1.9 million during the same quarter last year. The variance can be attributed to a $2.1 million gain for the de los Reyes project this quarter, compared to a $2.6 million gain last year from the Awak Mas project in Indonesia. Our exploration and property-related expenses were higher this quarter, totaling $2 million, which included $700,000 for drilling and related costs. Last year, we did not drill in the second quarter, so those costs aligned more closely with our historical average of about $1 million per quarter. Additionally, our gain on other investments was $100,000 this quarter, down from $1.1 million in the second quarter of 2020, primarily reflecting the 2020 unrealized gain from the increased market value of Midas Gold shares we held. For the six months ending June 30, 2021 and 2020, our net losses were $3.9 million and $1.6 million, respectively, reflecting the same gains I previously mentioned from de los Reyes and Awak Mas. The first half of 2021 also included $1.1 million for drilling and related costs, and we pumped 1.7 gigaliters of water from the Batman pit. Looking ahead, we are making progress on several key programs. As mentioned earlier, we have initiated a definitive feasibility study, which will encompass additional engineering and design for the process plant, updated cost estimates, and project design aligned with the recently approved MMP. We also announced plans to extend our exploration drilling program by an additional 3,000 meters. Follow-up on some drill targets will also be evaluated as we move forward. We anticipate that costs for the feasibility study and additional drilling will be approximately $3.5 million and $1.5 million, respectively, with both programs expected to be completed by the first quarter of 2022. To support these initiatives and other anticipated requirements, we recently completed a $13.5 million public offering. Our pro forma cash position, which includes the cash on hand at the end of the quarter and estimated net proceeds from our recent financing, stands at $18.8 million. Our strong balance sheet will allow us to advance critical programs aimed at enhancing shareholder value, and I am happy to report that the company remains debt-free.

Fred Earnest, President and CEO

Thank you, Doug. As I mentioned at the start of the call, we achieved a number of significant milestones during the quarter and continued to advance several key programs to increase shareholder value in a cost-effective manner. We're pleased to announce that on June 14, the Mining Management Plan was approved. This approval is a very significant milestone for our company, and Vista now holds all major operating and environmental permits required for the development of Mt Todd. Following the approval of the Mining Management Plan, Vista received approval of the Aboriginal Areas Protection Authority Certificate for the area covered by our exploration licenses, which is required as a legal means to identify and protect sacred sites at Mt Todd. This complements the previously approved Aboriginal Areas Protection Authority Certificate for the area of our mining licenses. The Surface Water Extraction License was also approved, which provides Vista with the right to store and use 3.4 gigaliters of surface runoff each year to facilitate processing and mining activities associated with Mt Todd. This is expected to adequately supply all of the project's water requirements as the project is presently designed. I'll now discuss a number of programs that we expect will add value to Mt Todd in the near term and support our partnering efforts. First, we are excited about the commencement of a definitive feasibility study for Mt Todd, which is expected to be completed during the first quarter of 2022. This study, which will include more detailed engineering and design in the process plant area, updated equipment quotes and operating cost inputs, and economic analysis at prices that are more reflective of the current gold price, is expected to increase the reserves and mine life of the project. The results of the study, together with the results of our ongoing district-scale exploration program, are expected to further demonstrate the significant upside potential of the Mt Todd project and strengthen our position with potential development partners. Another program is our ongoing exploration program at Mt Todd. To date, the program has focused on identifying areas with the greatest potential for future resource growth, a long strike from the Batman deposit, approximately 1.9 kilometers north to the Golf-Tollis and Penguin targets. We have completed 16 of 18 planned holes or approximately 5,500 of the planned 6,000 meters in the previously approved programs. Each of the holes completed to date has intersected mineralization consistent with our geologic model and demonstrates both horizontal and vertical continuity of the targeted structures. Our recently announced results of hole VB21-011 encountered thickening of the mineralized structures that were targeted. Half of the length of this hole intersected mineralization with four significant sections of higher-grade mineralization. Hole VB21-012 is in progress and being co-funded by the Northern Territory's Geophysics and Drilling Collaborations program. This program is funded by the Resourcing the Territory initiative and aims to increase the intensity of exploration drilling and geophysics in under-explored areas of the Northern Territory. Vista is one of 15 companies receiving an award under the current round of program funding. This hole has been located and oriented to intersect mineralization in the Golf-Tollis target, test other targets further to the west at depth, and continue on at depth to intersect the bury intrusive. This hole is planned for 800 meters significantly deeper than our normal drilling and will provide significant information to help us better understand the source of gold north of the Batman deposit. We are extremely pleased with our drilling results to date and believe that there is opportunity for significant resource growth and an extended mine life at Mt Todd, which we believe is important to potential partners. Given the success of the current drill program, Vista recently announced additional holes for a third phase of drilling totaling approximately 3,000 meters. During the quarter, we continued to advance our efforts to seek a strategic partner for the development of Mt Todd. While the process has been slowed by COVID-19 uncertainties and international travel restrictions, we are continuing to engage with several companies in technical assessments and early-stage partnering discussions. Our technical work programs and the approval of all major permits provide a solid basis to move forward with prospective development partners. As we pursue a strategic development transaction that reflects the inherent value of Mt Todd to Vista's shareholders, we continue to focus on our strategy to further improve the economic potential of the project and increase shareholder value in a cost-effective manner. Looking ahead, we are excited about ongoing programs that present significant opportunities to realize shareholder value more in line with the value of Mt Todd. We continue to engage with potential partners and identify strategic opportunities to advance the development of the project. 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 appropriate opportunity for value creation by recognizing the intrinsic value of Mt Todd and minimizing the potential for future dilution. Our objective is to achieve a valuation 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 of the major permits for the development of the project. We believe 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 Vista Gold represents an exceptional investment opportunity for the investor 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 rate of approximately USD 1.6 billion and an internal rate of return of greater than 38%. Vista continues to advance and derisk 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 a strong market, although with somewhat volatile gold prices and governments around the world are still coping with the economic effects of the COVID pandemic. 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 and earlier this year, in 2021, 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, natural gas pipeline, freshwater storage reservoir, and tailings impoundment facility. The project improvements we have achieved along with our estimated mineral reserves and production profile have created a foundation for leverage to gold price and improved shareholder value. We have earned the respect of local stakeholders and believe that our social license is firmly in hand. We've worked hard to secure the authorization of all of the major permits. 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 expect the completion of the feasibility study and our ongoing drilling to further demonstrate the significant upside potential of the project and strengthen our position with potential development partners. I reiterate our commitment to finding a partner to advance the project and, at the same time, realize value for our shareholders. For a more 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 the investors looking for value, growth potential, low geopolitical risk exposure, and strong leverage to the gold price. This concludes our prepared remarks. Ashley, we will now respond to any questions from participants on the call.

Operator, Operator

Your first question comes from Heiko Ihle with H.C. Wainwright.

Marcus Giannini, Analyst

This is Marcus Giannini calling in for Heiko. Just last week, you announced that you're commencing a feasibility study on Mt Todd. I know we're still a ways away from the anticipated publication in Q1 2022. But just thinking out loud here, can you walk us through anticipated results of this study as much as you feel comfortable sharing? And on that same token, can you elaborate a bit on some of the direct or indirect benefits seen from your continued derisking efforts to date?

Fred Earnest, President and CEO

Yes, certainly. I may not provide as much detail as some would prefer, but looking back at the preliminary feasibility study, the reserves were estimated based on a pit design using a $1,000 gold price. With the current gold price over $1,800 per ounce, we can see that the pit design is conservative. Therefore, we expect that the feasibility study will lead to an increase in reserves and extend the mine life. Additionally, conducting the feasibility study now will enable us to gather current pricing for all equipment, structural steel, concrete, and operating costs, which will give us a precise estimate for today's market conditions, aiding us in our discussions with partners. We're advancing engineering work in piping, electrical, and instrumentation design for the process plant, which will increase certainty. Following the approval of the Mining Management Plan, minor design adjustments will be made to align with its conditions and requirements. Furthermore, completing the feasibility study at this stage will counter any belief that there has been an inherent issue preventing the project from progressing; we have always asserted that this isn't the case, and this study will dispel those concerns. Upon completion, the feasibility study will comply with the new U.S. regulation, S-K 1300, and the existing Canadian regulation 43-101. We believe these factors will greatly enhance our ability to secure a partnership and diminish perceived risks from a potential partner's standpoint. We hope that finalizing the study now will provide significant reassurance and certainty for discussions in the next 6 to 12 months.

Marcus Giannini, Analyst

All right. That's really helpful. And then my second question was, you sort of hinted at this on the last quarterly call as well. But can you maybe provide some updates on the impact of the continued travel stop to Australia? I assume this is getting progressively more difficult to handle, but we keep hearing stories of immigration exceptions. What are you seeing? And how does this impact you guys given a lack of face-to-face interaction with your community stakeholders?

Fred Earnest, President and CEO

So we continue to interact regularly with stakeholders via Zoom. Fortunately, we have an outstanding team in Australia that is managing many of these affairs on a personal face-to-face basis. As you indicated, international travel restrictions continue to be in place regarding travel to Australia. We have recently begun the process of applying for special business visas for several team members here in Denver, which once granted, will allow us to apply for exemptions to the travel restrictions, but there are no guarantees. All of these things are being done to be as prepared as possible once they begin to decrease the restrictions regarding travel to Australia. I would say that we have been fortunate with a combination of technology and the team that we have in Australia that our relations with local people have really not suffered as a result of the pandemic and the travel restrictions. It's not as convenient, and it's not as efficient as meeting face-to-face. But the technology, Zoom, and our ability to have conversations via that technology have allowed us to maintain and advance many of our initiatives. You're aware that in the midst of the pandemic, we completed negotiations with the Jawoyn Association, the aboriginal group that owns the surface land in the project area, to modernize our agreement. I consider that to be a very tangible measure of the success that we've achieved in maintaining relationships and fostering our relationships and advancing our objectives, even though we've not been able to travel. So we continue to hope that travel restrictions will be lifted. Right now, it looks like it's going to be sometime next year, but we're doing all that we can to manage all of the affairs of our business without being able to travel. Certainly, the biggest impact of the travel restrictions is not being able to get people to the site for site visits to advance our discussions with partners. And that's one that we're just living with.

Kip Herriage, Analyst

Congratulations on the quarter regarding the equity raise and the successful completion of the MMP. You had a lot going on this quarter, congratulations. Marcus asked my question about the feasibility study, but I want to add to that by asking how pursuing this on your own as a small-cap gold miner affects your negotiating power and potential leverage with partners.

Fred Earnest, President and CEO

I'm sorry, how does completing the feasibility study ourselves affect that? I just want to make sure I understand the question, Kip.

Kip Herriage, Analyst

Yes. Exactly. How might that affect your ability to use a little more leverage in negotiating with potential partners?

Fred Earnest, President and CEO

Yes. Certainly, and Kip, thank you for joining the call this morning. You've been following us for a long time. One of the reasons we manage feasibility studies and technical studies ourselves is that it allows us to choose and collaborate with what we consider to be the best organizations in each area involved in these studies. This approach helps us produce a high-quality product that we fully understand, including all the assumptions and work that has gone into it. The benefit for us is that, due to our long-standing relationships with many of these consultants, we can directly connect these top professionals with companies conducting further technical evaluations and due diligence. This enables us to provide timely and thorough answers to the companies seeking information. As we progress toward completing a feasibility study, we are aware that a potential partner might want to make changes or conduct additional engineering; we understand that possibility. However, at this time, we believe that finalizing a feasibility study, along with having a current estimate of all our capital and operating costs, puts us in a strong position for discussions with potential partners. We are not aware of any other project of this size as Mt. Todd that has all of its permits approved. With the next 4 to 5 months ahead of us to complete the feasibility study, we certainly believe this places us at the forefront of projects that should attract interest from leading gold producers.

Kip Herriage, Analyst

I think from previous discussions, the expectation was that you might be able to secure a deal that would allow you to maintain a 40% to 50% stake in Mt Todd in the end. I assume that completing this on your own, which I know you were previously waiting to do with a partner for the feasibility study, means you are now looking to retain a larger percentage of Mt Todd.

Fred Earnest, President and CEO

Well, certainly, that's one of the things that is always on our minds, Kip. And along with that is increasing the value. At the end of the day, it's all about the value that's created for Vista shareholders. Whether that value is that 50% or whether it's at 35%, the important thing is the value recognition for the Vista shareholder immediately and longer term. And that's what we're focused on.

Kip Herriage, Analyst

As you continue to drill new holes, when can we expect to see your reserve investments start being adjusted based on the new drilling?

Fred Earnest, President and CEO

That's a great question because that's not the objective of this program. The objective of the program is to identify those areas that have the greatest potential for future resource growth. We're not drilling on the kind of spacing that would be required for resource estimation. Rather, this is a district-scale exploration program, and we're trying to understand the geology and string things together. And like I mentioned in the prepared remarks, hole #11 we've been following structures and bands of structures going north from the Batman deposit, and hole 11 encountered a zone where these structures are thickening. This is exactly what we're looking for. That thickening of these structures represents an opportunity to add more resources in a more confined area, and obviously, will be one of the focuses of future drilling when we get to resource conversion. But at this point in time, the purpose of the program is to demonstrate the potential for resource growth to potential partners and to demonstrate to them that while we wave our arms and we talk about geology and we point things out to them, that we've actually put some data behind this and can demonstrate true results that the life of the Mt Todd project can very reasonably be expected to be much longer than what it's currently estimated to be.

Kip Herriage, Analyst

Understood. Last question. I believe you're still using $1,000 an ounce gold for your reserve totals. Will you be raising that? And if so, when can we expect to see that?

Fred Earnest, President and CEO

Yes. So absolutely. That's part of the feasibility study. The gold price used to estimate the reserves will increase. We will disclose all of that when we announce results in the first quarter of next year.

Kip Herriage, Analyst

Congrats on the quarter.

Fred Earnest, President and CEO

Thank you, Kip.

Operator, Operator

Your next question comes from Matt Farwell with ROTH Capital.

Matthew Farwell, Analyst

Most of my questions have been answered. I was wondering if you could clarify why you're not planning to do more infill drilling with your current drilling plan to better inform the market. Additionally, what drilling results should we expect as catalysts in the near term? While we appreciate partnership announcements, it's the drilling results that will be crucial for us. Can you give us an idea of what we might see in the second half of the year from that perspective?

Fred Earnest, President and CEO

Yes. For those familiar with our corporate presentation, the distance between the Batman deposit and the Quigleys deposit is about 5.4 kilometers, and there are several previously identified gold occurrences in that area. Three years ago, we thought each of these occurrences was separate and unrelated. However, after 2.5 years of work, we now believe they are interconnected. Our exploration program aims to link these occurrences together and improve our understanding of the district's geology. Currently, we are drilling and expanding our exploration between 100 and 400 meters between sections. We are targeting areas that show the most potential for future resource expansion. To achieve significant resource and reserve growth, we will need to invest millions in infill drilling at spacings of 25 to 50 meters. We believe this expense is reasonable for a partner looking to advance the project. We are focused on establishing targets and preparing for the investment a partner will make, ensuring that investment is effective. We are ready to make a modest investment to validate geological concepts and clearly define the structures in the Batman-Driffield corridor, anticipating that a partner will be inclined to make a sizable investment in exploration to enhance resource expansion and project longevity. This forms a key part of our strategy to create value without imposing significant expenses on our shareholders.

Unknown Analyst, Analyst

Fred, I have a question concerning the partners. Do you think the travel restrictions are an advantage for the Australian companies which are interested in our property? Because when they act fast, they can make the deal and kick off the competitors.

Fred Earnest, President and CEO

You raised an interesting point. Companies with Australian assets have a distinct advantage because they are not restricted in the same way as those in North America. They are already in the country and face travel restrictions within the different states of Australia, which are constantly changing in response to the COVID situation. Your observation is very astute; those with operations based in Australia are not subject to the same restrictions as international companies, allowing them to progress during a time when others may not be able to.

Unknown Analyst, Analyst

Yes. Perhaps this will be an advantage for us.

Fred Earnest, President and CEO

It could be. Absolutely.

Operator, Operator

It appears there are no further questions, so we will conclude the call. We appreciate your participation. We're very enthusiastic about our achievements in the second quarter. Looking ahead to the drill results, we anticipate announcing them every 3 to 4 weeks as the program progresses. We are eager for the completion of the feasibility study. It's important to note that most of our engineering already meets feasibility study standards, and the ongoing work will finalize all engineering to those standards. This is a key reason we are able to complete the feasibility study within the proposed timeframe and at the relatively modest cost previously outlined. We’ve made significant efforts in the past to prepare the Mt Todd project for rapid advancement. This reflects the prior work and investment made. We encourage you to stay updated on our progress. We are excited about the work being done and look forward to sharing the feasibility study results and exploration outcomes in a timely manner over the next six months. Thank you for your interest and ongoing support, and we wish you all a pleasant day. Ladies and gentlemen, this concludes today's conference.