Earnings Call Transcript - VGZ Q3 2022

Operator, Operator

Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter 2022 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 call is being recorded today is Thursday, October 27, 2022. It's now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead.

Pamela Solly, Vice President of Investor Relations

Thank you, Sergio, and good day, everyone. Thank you for joining the Vista Gold Corp. third 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.

Fred Earnest, President and CEO

Thank you, Pam, and thank you to everyone who's joining us on the call today. During the quarter, we advanced our work with CIBC to maximize shareholder value. In September, we participated in three industry conferences and hosted more than 40 one-on-one investor meetings. With the completion of the feasibility study and exploration programs and management's ongoing efforts to control costs, we achieved a significant reduction in expenditures quarter-over-quarter. We ended the third quarter with a cash position of $9.6 million and continue to have no debt. 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 September 30, 2022.

Doug Tobler, CFO

Thank you, Fred. Today, I will provide a brief recap of our financial position and results of operations for the quarter ended September 30, 2022. Vista Gold's full financial statements and our MD&A are included in our Form 10-Q that was filed yesterday and is available at either sec.gov or sedar.com. As Fred mentioned, we ended the third quarter with a cash on hand position of $9.6 million, reflecting a net decrease of $1.5 million during the quarter. Year-to-date, our net cash position has decreased $3.6 million. Overall, Vista's expenditures have tracked well below planned, due in large part to cost reduction measures implemented by management in response to current economic and capital market conditions. Our 2022 fixed cost spending, which is the largest component of our total expenditures, is budgeted at approximately $7 million this year. Through September 30, these costs have been running nearly 15% under budget. We have also successfully controlled our discretionary spending, coming in about $600,000 under budget for the feasibility study work. In terms of cash inflows, we benefited during the first quarter from net proceeds of $2.5 million from the cancellation of the remaining royalty interest at the Awak Mas project in Indonesia. With the feasibility study and drilling programs complete, our overall expenditures continued to trend downward this quarter, and we are exploring further opportunities to reduce spending. Vista Gold's results of operations continue to align with management's expectations and reflect efforts to cut costs. We reported a net loss of $1.7 million for the third quarter of 2022, compared to a net loss of $3.1 million for the same quarter last year. This decrease was mainly due to lower exploration and holding costs for Mt Todd, which dropped from $2.3 million in 2021 to $900,000 this quarter. The $1.4 million reduction came from completing the drilling and feasibility study work before Q3 2022, whereas both programs were ongoing last year. For the nine months ended September 30, 2022 and 2021, our net losses were $3.4 million and $6.9 million, respectively. The $3.5 million decrease in losses between these periods is primarily due to a $2.3 million reduction in exploration and holding costs since the drilling and feasibility study activities were active for much of 2021 and were finished earlier this year. The remaining decrease in net loss was largely attributed to higher gains from the disposition of non-core assets and a reversal of a previously accrued contingent reclamation liability. As we look ahead to 2023, we plan to continue managing our treasury in light of current economic and capital market conditions. Preliminary estimates suggest we expect to reduce budgeted annual fixed expenditures by around 20% compared to this year's budget. We also anticipate significantly lower exploration costs at Mt Todd. In summary, our financial position and results of operations are in line with our plans, and we are actively seeking ways to monetize Vista's remaining non-core assets and further reduce spending. We believe we are in a strong position with our cash on hand of $9.6 million and without any debt. That concludes my remarks for today. Thank you for your interest, and I'll turn the call back over to Fred now.

Fred Earnest, President and CEO

Thank you, Doug. I'll now move on to discuss several of our third quarter achievements in more detail. Beginning with the strategic process. In March of this year, we appointed CIBC Capital Markets 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 process to complete an accretive transaction with the objective of maximizing shareholder value. During the quarter, we continued to advance our work with CIBC to seek a partner or other form of transaction to achieve greater value recognition for Mt Todd. Volatility in the economy and equity markets, including inflationary pressures, higher interest rates and lower gold prices, have resulted in a number of interested parties adopting a more cautious near-term business strategy as they manage the impacts of these conditions. We believe that the completion of an acceptable transaction may be dependent on sustained improvement and stability in the economy and capital markets. We remain focused on completing the right transaction, one that creates value by recognizing a greater portion of the present value of Mt Todd and provides ample opportunity for future additional value recognition. Our primary objective is to achieve a valuation for Mt Todd that is reflective of the gold production profile, long operating life, excellent gold recovery, the project's location in Australia's low-risk Northern Territory, favorable operating costs, robust project economics as demonstrated by the recently completed feasibility study and the fact that we hold all major approvals and permits for the project. Moving on to cost reductions. We are very pleased with the results of the cost reduction measures that we have implemented during 2022. As Doug has just reported, year-to-date, we have achieved nearly a 15% reduction in fixed cost spending and expect this trend to continue through the remainder of the year. I'm pleased to note that additional spending reductions are being planned for 2023. Moving on to Mt Todd. Across the globe, regional and local economies are struggling with the impacts of inflation, currency valuations and supply chain issues, not to mention political instability in certain regions and the armed conflict in Ukraine. We continue to monitor the impacts of inflationary pressures on Mt Todd's project economics. The strength of the U.S. dollar relative to other currencies, especially the Australian dollar, has provided some distinct advantages for the Mt Todd gold project. For example, at the current exchange rate this morning of $0.649 per Aussie dollar, the estimated capital cost of the Mt Todd project is $823 million. This is compared to the feasibility study estimate of $892 million, which should be noted as having captured a significant part of the inflation experienced prior to the start of 2022. Assuming 8% inflation for this year indicates that on a U.S. dollar basis, the current estimated capital costs for the Mt Todd project are materially unchanged from the feasibility study. Operating costs enjoy some similar benefits from the foreign exchange rate, but the drop in gold price, which is down a little over 10% for the year, has had a predictable impact on project economics. Based on the feasibility study economic model, adjusted for inflation and current foreign exchange rate and gold price, today, we estimate the NPV of the project at a 5% discount rate to be $1.1 billion with a 21.5% IRR. This confirms our belief that Mt Todd continues to be a robust gold project in today's economic environment. If I could, I'd like to turn to the balance sheet for just a moment. As Doug mentioned, we ended the third quarter with a cash position of $9.6 million and we continue to have no debt. We believe our strong balance sheet will be very important as we advance toward the goal of completing a transaction that will maximize shareholder value. I will conclude with some comments regarding the investor opportunity. 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. We find ourselves in a market with weaker gold prices and lower equity values across the sector. The ongoing hostile activities in Ukraine, higher inflation, rising interest rates and fears of recession are creating greater uncertainty in the markets. Presently, these factors have a negative impact on the price of gold, but we believe that the gold price will rebound in the coming year. Furthermore, these factors have had a significant impact on the operational cost of gold producers across the globe. 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 one of the largest and most advanced undeveloped gold projects in Australia. With nearly 7 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 stable and mining-friendly jurisdiction. The existing basic infrastructure at Mt Todd, including paved roads, power lines, a natural gas pipeline to the site combined with the operational infrastructure composed of the freshwater storage reservoir and tailings impoundment facility, provide very distinct construction timeline and risk mitigation advantages. Our technical programs and focus on designs that are capital efficient with low operating costs have created the foundation for the leverage to gold price that we enjoy as well as improved shareholder value. We've worked hard to secure the authorization of all of the major permits for the development of the project. 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 and one of the most attractive development-stage gold projects, not just in Australia, but in the world. With our share price where it is today, there's a tremendous investment opportunity. 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 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 and increase one's holdings in Vista Gold. This concludes our prepared remarks. We'll now respond to any questions from participants on this call.

Operator, Operator

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

Heiko Ihle, Analyst

Let's talk a little bit about the inflationary impact. So you alluded to some of this earlier on the call. But in our view, Mt Todd is able to cope with inflation quite a bit, especially in an environment like we're having right now where it runs rampant and some of the other mines that we work with are getting hit with these headwinds and it really hurts their ops. I assume your cost to build out stuff gets hit with the same thing, but the important thing to note here is that the Aussie dollar was at 0.75 a year ago, and it's at 0.65 today. You mentioned something similar to this earlier on the call. Can you just quantify the expenses that you expect that would get requoted given that they are in Australian dollars and maybe some of the big line items that you see getting hit by that?

Fred Earnest, President and CEO

Thank you for your question, Heiko. In our capital cost estimates for the project, around 65% of the costs are in Australian dollars. This includes all labor, concrete, some steel, and various components aside from the major equipment, all of which are impacted by the Australian dollar's exchange rate. Considering inflation, we are experiencing some cost pressures for major equipment such as mills, crushers, and mining gear. Initially, we captured the rapid increases in steel and concrete costs in our feasibility study, which spiked last year but have since stabilized. Wages in Australia have also increased over the past six months. We regularly monitor these factors. While we aren't actively seeking new quotes for major equipment, we do stay in touch with manufacturers and generally account for inflation regarding these high-cost items, while other elements are closely monitored. As I mentioned earlier, we are not exempt from inflationary pressures, and this holds true for major producers as well. Notably, around 65% of our capital costs are in Australian dollars, and factoring in the changes in the exchange rate, our inflation-adjusted capital cost estimate is only $3 million off from our feasibility study at the beginning of the year. Although we face inflationary impacts, the strength of the U.S. dollar against the Australian dollar has provided us with significant benefits, which is a distinct advantage for our project.

Heiko Ihle, Analyst

So a very good and detailed answer. I appreciate that. Next one I think is a little bit easier. Can you provide some color on the spending reduction? I mean I always thought that you guys ran a pretty lean operation. So just a bit of color, how sustainable is it? And anything else that you expect to get done in the next, call it whatever, six, nine months?

Fred Earnest, President and CEO

I'm going to turn this over to Doug Tobler, our CFO, to answer that question. Doug, go ahead.

Doug Tobler, CFO

Thank you, Fred. Heiko, let me provide some context. When we mention spending reductions, we are referring to being under budget on our fixed costs through September 30, totaling nearly $700,000. This is a significant reduction, but it comes with sacrifices and challenges. The largest part of our budget involves personnel costs, and we've reduced staff and adjusted expectations for total compensation for others this year. This accounts for about 40% to 45% of our overall reduction, stemming from personnel-related expenses. The second largest budget area is outside services, which involves cutting back on legal and tax fees, primarily at the corporate level. We are not taking unnecessary risks but are seeking to lower costs where possible, asking service providers to minimize their charges. On-site, we've transitioned some contracted services to our internal staff. Additionally, there are many smaller reductions across various line items, particularly in back office administration and travel costs. We will only send necessary personnel for travel, and we maintain budget-conscious travel practices, avoiding business class and upscale accommodations. Almost every expense category has seen a reduction. We've also managed inflation impacts, especially in Australia, which have been partially offset by favorable foreign exchange benefits. That's the summary, Heiko. We believe we can maintain these reductions sustainably moving forward, and we anticipate slight further reductions in costs. Preliminary budgets suggest that next year, we could see costs around 20% less than this year's budget.

Operator, Operator

Your next question comes from Bruce.

Fred Earnest, President and CEO

Bruce, I don't know if you're on mute, we can't hear you.

Unidentified Analyst, Analyst

Yes, my company has facilities worldwide. I wanted to know if the climate is impacting Mt Todd. How is the water situation there? Are you experiencing any difficulties or planning for any potential issues?

Fred Earnest, President and CEO

Thank you for your question. The Mt Todd project is situated in the northern part of the Northern Territory, where we experience two distinct seasons known as the wet and dry seasons. The dry season, which lasts from mid-April to early December, typically sees very little rainfall. In contrast, during the wet season, we average about 1.3 meters of rain, mainly from a few significant events. We don’t believe climate change is adversely affecting the project. Over our time involved in the project since 2006, we have observed various seasonal weather patterns, but the averages have remained consistent with historical data from the last century. We prioritize water management as a core part of our site management responsibilities, adhering to approvals and permits from the Northern Territory EPA and the Department of Mines. Looking ahead, we have obtained the necessary permits and designed the project to capture water effectively. During the wet season, we will gather water from significant rainfall events and store it for use throughout the year. The freshwater storage reservoir will be elevated by about two meters, allowing for nearly two years' worth of water needs for the project. We have integrated numerous water recycling and reuse strategies into our design, which includes a water treatment plant that ensures any discharged water meets drinking-water standards. We take pride in our proactive approach to water management, which has significantly contributed to building trust within the local community at the Mt Todd site. Upon acquiring the project, we encountered concerns regarding water management practices used by the previous Northern Territory government. We revised the water management strategy, and through our transparent approach, we have earned considerable respect from the community for our commitment to environmental stewardship, emphasizing the importance of water management. I hope that addresses your question, Bruce.

Unidentified Analyst, Analyst

Yes, it does. I follow your website and you’ve put a lot of effort into it. The group there has really worked hard. However, I have concerns about water issues in several places, including Italy, the Po River, the Rhine, and China, as well as in the Mississippi here in the States. I was wondering if you were experiencing any water challenges in Australia since I know the situation there can be quite seasonal. Thank you for your efforts; you all are doing a great job, and I highly recommend the stock as a worthwhile investment. Thank you, and have a great day.

Operator, Operator

There are no further questions at this time. I'll turn the call over to Fred Earnest for closing statements. Please go ahead.

Fred Earnest, President and CEO

Thank you, Sergio. I would like to highlight a few points from our discussion today. We are actively looking for cost-effective ways to optimize the Mt Todd project and our operations there. This has been a priority, and we have achieved significant optimization results. We are also evaluating additional opportunities in a very cost-effective manner. Our focus remains on finalizing the right transaction for Mt Todd, one that captures a greater portion of its present value and allows for future value recognition. We believe that completing such a transaction may depend on sustained improvements and stability in the economy and capital markets, and we are closely monitoring the actions of decision-makers regarding the economy. We are pleased with the outcomes of the cost-cutting measures implemented in 2022 and reiterate Doug Tobler's statement that further spending reductions are planned in our Australian operations and our corporate office in Denver. We continue to operate in a cost-conscious manner and are very mindful of the costs associated with maintaining the valuable asset we have at Mt Todd, aiming to do so efficiently. We believe that Mt Todd is an exceptional asset due to its location, development stage, and approved permits, among other factors. Our management team is not satisfied with the current valuation we receive and feels that Mt Todd deserves a much higher valuation. Our focus is on creating and realizing that value for our shareholders. We believe that at current prices, Vista Gold offers an exceptional value opportunity for both new and existing shareholders, and we encourage you to consider whether this is the right time to invest or expand your position in Mt Todd. If any of you have further questions and would like to speak to someone from the management team, please reach out to Pamela Solly, our Vice President of Investor Relations, and she will connect you with the right person to ensure your questions are answered. Thank you for joining the call today, and we wish you a pleasant remainder of your day.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.