Allied Gold - Q4 2023

Transcript

Operator (participant)

Thank you for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but are not limited to, statements with respect to estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices, and the cost and timing of the development of new projects.

For a complete discussion of the risks, uncertainties, and factors which may lead to actual financial results and performance, which may be different from the estimates contained in the forward-looking statements, please refer to Allied Gold press release issued March 26th, announcing fourth quarter and full year 2023 results, as well as the management discussion and analysis for the same period and other regulatory filings in Canada. I would like to remind everyone that this conference call is being recorded and will be available for replay later on today. Replay information and presentation slides accompanying this conference call and webcast are available on Allied Gold's website at alliedgold.com. I would now like to turn the meeting over to Mr. Peter Marrone, Chairman and CEO. Please go ahead.

Peter Marrone (Chairman and CEO)

Operator, thank you very much, and thank you to everyone for participating on this call this morning. Let me begin by saying that, the importance of and some of the achievements in 2023, we set out to establish the sustainability of the production platform, for the existing operations of the company, and Q4 certainly demonstrates the capacity for sustainable production at a run rate that we have said we expect to be at 375,000 oz per year. We began the year with 79,000 oz in the first quarter. We ended the year with approximately 95,000 oz. In the fourth quarter, we had a second half of the year that was stronger than the first half. We had an uptick in production quarter-over-quarter.

We expect, we'll have more to say on this in a few moments, but we expect that the pattern will continue in 2024, although from a higher base. Q4 is also important in that it allowed us to evaluate the potential of the assets, the strengths and weaknesses, not only of the assets, but also of the people involved in the organization, management, contractors, and others. Allowed us to assess where and how to better plan, create consistency, and to optimize. In 2023, we also advanced the Kurmuk project. It is now planned as, at 6 million tons per year as capacity. We've increased the capacity expectation of the project. We are optimizing throughput, increasing production, and taking into account significant exploration upside that will increase mine life. 2022 is also important because we implemented the phased expansion at Sadiola.

Although more importantly, rather than saying that it is a phased expansion, we should be referring to Sadiola as an optimization of the mine. We're finding new oxide areas. We're taking a phased approach, although it is an integrated approach. Phase 1 will move immediately into Phase 2. We see this as an integrated project that ultimately gets production to a level that is in excess of 300,000 oz per year. This will see us increase production and reduce costs beginning in the second quarter of this year, with the contributions coming from Diba in particular.

We will be increasing production from 175,000 oz to a range, depending on the year, of 200,000 oz-230,000 oz, and ultimately, then, by 2029, we expect to be at in excess of 300,000 oz with a range of 300,000 oz-400,000 oz. We're stabilizing production and processing, and we're moving forward with this optimization plan for Sadiola. 2023 also saw the increase in mineral reserves and mineral resources. We demonstrated the importance of exploration to increase our in-the-ground inventory, and we saw mineral reserves increasing by a full 190% over mining depletion. We expect that to continue in the next several years, given that exploration potential that is there.

We began to tackle mining and processing inefficiencies, including changing mine contractors and improving performance at our operations. As we move then into 2024, we expect then that we will be at a production level, as I mentioned, of 375,000 oz minimum. Our range is 375,000 oz-405,000 oz, and we will see cost reductions that set the foundation for what to expect in the years to follow. We are advancing and will continue to advance the Kurmuk project. In respect of Kurmuk, we are advancing detailed engineering and procurement, early works in civil and infrastructure works. We intend to spend approximately $155 million this year.

We expect soon to award the mine contract or mine contracting to advance the mine preparation, beginning as soon as this year. And we must remember that we already own the SAG mill. It's in storage, ready to be deployed. We look at Sadiola, and we have completed the access road to Diba, the Diba satellite area. We've begun mine preparation. We're advancing other oxide satellite areas. We are conducting studies to further increase recoveries, and we're preparing the mine for that higher mining rate and the higher throughput through the new plant. Initially, the modifications to the existing plant and then the new plant, going forward. In terms of outlook, we've already indicated where we expect to be this year and then into the years to follow. Daniel will be providing a little bit more color and view on that outlook.

The important thing that I would like to mention is the impact of that on our operating cash flow. While the production growth of this company increases significantly to in excess of 100% in the next several years, less than a handful of years, it is outsized by comparison to operating cash flow because all these new ounces are coming in at lower costs. We expect to continue with the drill bit successes, and particularly at Kurmuk and the Côte d'Ivoire, that extends mine life. And we have a budget that is commensurate with that, with $32 million that is allocated for exploration in 2024. We've talked about before about financial flexibility. The 2023 saw us generate $83 million in operating cash flow.

That was on the basis of 343,000 oz at roughly $1,600 all-in sustaining costs. We expect production this year to be in excess of that, in the range of 30,000 oz-50,000 oz more at better costs, and we must emphasize that we're at higher gold prices. Roughly $250-$300 better gold prices presently than what was the average realized gold price last year. So between cash available, although modest credit, including our revolving credit facility, our operating cash flow, and further non-equity financial options that are available to us, we are fully funded to develop the projects that we have and to advance our work.

The order for the balance of this presentation will be the following: Basie will go into detail on the operations, Jason will discuss our financial performance, Daniel, as I mentioned, will deal with our outlook, and I'll come back with some closing comments. And with that, perhaps if I can pass the call to Basie.

Basie Maree (COO)

Thank you, Peter, and good morning, everyone. Let's take a look at our operating results, starting with an overall summary as follows. In the fourth quarter, we produced 94,735 oz of gold, bringing our full year total to 343,817 oz. Our producing mines are expected to exceed the minimum annual production level of at least 275,000 oz, as evident by the run rate delivered in the fourth quarter. And this is before the further efficiency and optimization and cost improvements currently underway. Production and all-sustaining costs during the fourth quarter were impacted by the mining performance at Agbaou, where mining contractor was put on notice and subsequently replaced in early 2024 to improve our future cost performances.

The full year cost of sales, cash costs, and all-in sustaining costs per ounce sold were $1,300, $1,418, and $1,569, respectively. This is within the 2% variance from our guided all-in sustaining of $1,550 per ounce for 2023. Looking at the quarterly results by mine, starting with Sadiola, we produced 41,150 oz and sold 40,863 oz. The cost per ounce sold stood at $1,541, cash cost $1,429, and all-in sustaining $1,592 per ounce. The quarter's performance aligned with our projections, a direct result of optimizing the ore blends with high-grade fresh ore stockpiles.

After closing the Diba transaction, we started road construction in December, setting up for drilling and the build-out of the mine infrastructure in early 2024. Moving to Bonikro, production for the quarter was 74,233 oz, with sales in line with this production. Cost of sales was $1,502, cash cost $176, and all-in sustaining $1,220 per ounce sold. During the quarter, we benefited from high-grade ore from the main Bonikro pit, as anticipated by our mining sequence. A Q4 circuit audit highlighted some losses, which prompted us to tighter controls. We're now applying these enhanced audits across our other assets to ensure best operating practices. Moving to Agbaou, the production was 19,373 oz, with sales at 70,882 oz.

Costs were higher, with cost of sales at $2,100, cash costs $1,947, and all-in sustaining $2,308 per ounce sold. The quarter's results were significantly influenced by the performance of our mining contractor. As Peter referenced in his opening remarks, in pursuit of improved performance and cost efficiency, we've made the decision to replace the contractor, especially considering the extended mine life of this asset. With this overview completed, I'll pass the floor to Jason for the financial review.

Jason LeBlanc (CFO)

Great. Thank you, Basie, and good morning, everyone. Turning to our financial performance for the quarter, we generated revenue of $179.7 million and a gross profit, excluding DD&A, of $44.5 million. Attributable net earnings for the quarter were $5.4 million. However, after adjusting for one-time tax and non-recurring items, we had an adjusted net loss for the quarter of $4.6 million or $0.02 per share. The fourth quarter was our first full period following the transformative go-public event in September last year.

As a result, we incurred expenses and cash flow impacts stemming from the business combination, resulting in earnings and cash flow volatility in the third and fourth quarters. This volatility stems from transaction costs, normalization of working capital, and various one-time accounting and other events. Net cash generated from operating activities was -$4.8 million, reflecting outflows related to the transaction expenses accrued previously, but paid out this quarter. These outflows are not indicative of the underlying efficiency of our mining operations, nor of the company's capacity for cash generation. Adjusting for these items, normalized cash flow from operating activities was shift from the recorded outflow to an inflow of about $10 million. At year-end, the company's cash and cash equivalents stood at $158.6 million, after spending $24.3 million in Q4 on CapEx and capitalized exploration.

Looking beyond near-term volatility, our growth is expected to deliver a significant increase in earnings and cash flow from 2024 onwards. Our ability to generate higher cash flow and profits is supported by our 2024 guidance. We're projecting gold production for the year to range between 375,000 oz and 405,000 oz. Our cash costs are anticipated to be around $1,250 per ounce, with mine site all-in sustaining costs estimated at approximately $1,400 per ounce. In terms of investments, we plan to allocate $32 million to exploration activities and another $29.5 million to sustaining capital, not including pre-stripping of $25 million at Bonikro that is included in AISC. We've also allocated $198.5 million for growth CapEx, primarily for Kurmuk.

The expected increase in gold production for 2024 is attributable to the supplemental oxide ore feed at Sadiola and improved feed grade at Agbaou from Agbaou. Achieving the upper end of our guidance relies on the transition to a new contractor at Agbaou, which is currently in progress and nearing completion. Mine site, all-in sustaining costs are expected to show a significant improvement over last year, with year-over-year savings of approximately $170 per ounce. Cost improvements are expected to come from better performance at Sadiola and Agbaou, while Bonikro is entering a stripping phase to access higher-grade ore during the outlook period that temporarily causes higher AISC. Spending on exploration is focused on our strategic objectives, namely, increasing oxide ore inventory, particularly at Sadiola, further extending mine life in Côte d'Ivoire, and expanding mineral inventory at Kurmuk to increase strategic mine life.

I'll now pass the call back to Daniel to discuss our longer-term outlook.

Daniel Racine (Director)

Thank you, Jason. Although not factored in our official annual guidance, our operating outlook, informed by our mineral reserves and exploration potential, aligns with our aim to deliver substantial growth at much lower costs. At Sadiola, we anticipate year-over-year increase in gold during the outlook period, targeting 230,000 oz annually. This expected increase is driven by the incorporation of additional oxide ore, Diba, and complementary targets such as Sekekoto West, FE4, and S12, which will complement the Phase 1 expansion. For 2025, we expect Sadiola's all-in sustaining costs to remain between $1,150-$1,250 per ounce.

Although there might be a modest increase in all-in sustaining costs in 2026, we're looking to maintain it below $1,350 per ounce, accounting for preparation for the second phase expansion later that year. With the availability of oxide ore on Diba and other targets, phase one execution is now targeted to start in late 2024, with production commencing in early 2026. In the near term, Bonikro is on track for a modest annual increase in gold production, aiming to surpass 110,000 oz per year. The 2024 stripping phase is set to reveal higher-grade material, significantly reducing all-in sustaining costs to below $1,050 per ounce by the end of the outlook period. The full potential of Oumé, including advanced resource drilling at Oumé West and North, along with the Akissi-So target, could lead to additional gain.

At Agbaou, consistent annual gold production is expected with a flow of 90,000 oz, identified additional mineral reserve in Agbaou, and operational enhancement are driving improvement, with the mill effectively processing harder rock than an increasing oxide feed. Significant investments are being made to progress the Kurmuk project, which we anticipate will begin production by mid-2026, contributing over 175,000 oz of gold in the latter half of that year. We're investing significantly in project and also continuing to explore the significant exploration upside at near mine target around Dish Mountain and Ashashire, and in addition to the Tsenge prospect. To support a strategic mine life of at least 15 years at mine site, all-in sustaining costs below $950 per ounce, with further potential cost saving from a low-cost hydro contract.

With the establishment of Allied project management framework, the appointment of the EPCM contractor, the initiation of the detailed engineering and early work, and the procurement of critical project services and infrastructure, along with strengthening relationship and engaging with local stakeholders, we are on track to deliver the project on time and on budget. Putting this all together, Allied expects significant near-term improvement in production and cost, ongoing optimization and exploration. With the ramp-up of Kurmuk in 2026, envisions reaching production level of over 600,000 oz at a cost below $1,225 per oz for 2026. In the longer term, the Sadiola Phase 2 expansion completes its transition to a world-class mine and brings our production to approximately 800,000 oz at a targeted all-in sustaining cost below $1,000 per oz.

Underpinning our long-term growth and our commitment to sustainability, let's look at our safety and environmental performance. In 2023, we achieved a lost time injury rate of 0.49 and recorded no significant environmental incident throughout the year. We've also laid the groundwork for highlight ESG targets for 2024, which coincide with the rollout of our revised ESG framework, which is an important activity for us this year. We are establishing our multi-year strategy with specific targets and objectives, which will be impactful for supporting the UN's sustainable development goal. This will enhance our health and safety culture and promote the inclusion and fairness across our operation through national employment and gender equity targets. Furthermore, we're developing a sustainability management framework focused on risk management, integration, and adherence to international best practices and standards.

We are committed to sustainable, safe operation at Allied, and Gwennael and her team, along with the rest of senior management, are committed to fostering and achieving the best possible result for employees and stakeholders. With that, I will hand the call back over to Peter.

Peter Marrone (Chairman and CEO)

Daniel, thank you very much, and thank you to everyone else who's participated on the call. As part of my concluding comments, I would like to say that as we are close to completion of the first quarter, it's important to showcase what we expect for the first quarter and what that portends for the 2024 full year. So we anticipate a stronger second half by comparison to first half, not dissimilar to last year, where we began the year with 79,000 oz, and we ended the year in the fourth quarter with approximately 95,000 oz.

We're beginning this year with a production platform of approximately 85,000 oz and guidance indication of 85,000 oz-88,000 oz, and we expect that to increase quarter-over-quarter due to mine sequencing, operational enhancements, and a similar pattern to 2023, that saw a steady rise in that production, as I mentioned a few moments ago. Production enhancements are anticipated with the completion of the mine contractor transition at Agbaou, as Basie touched on, process improvements at Bonikro, and the introduction of high-grade oxide ore from Diba at Sadiola. Unifying the mine contracting at Bonikro and Agbaou will lead to higher expected production. That transition is in progress and is expected to be completed within the next few weeks or so, or certainly by early in the second quarter.

We have engaged in process plant maintenance and improvements at Bonikro in the first quarter that will lead to reduced production for the quarter, still within that 85,000 oz-88,000 oz that I mentioned a few moments ago. Although mining was strong in the first quarter, and it's very similar to what it was in 2023. That stockpile ore will be processed through 2024. That will lead to increased production, quarter-over-quarter, as I mentioned. We've already highlighted the contributions that Diba and other satellite areas will make to Sadiola beginning in May. In terms of upcoming milestones, we expect to provide a detailed exploration update on Kurmuk in early April, followed by insights on drill results at Sadiola and Bonikro.

We're focusing on oxide at Sadiola, as Daniel and others mentioned, Sekekoto, FE4, S12, and of course, Diba. We will be updating the drilling at Tsengé at our Kurmuk project. This supports a strategic goal of total mineral resources of in excess of 5 million oz that will support an expanded production of 275,000 oz per year, not for the current mine life of just over 10 years, based on proven and probable reserves, but well over 15 years of mine life. We are carrying 2.6 million oz in inventory as reserves presently. We're carrying 3.6 million oz in resources. We want that number to increase, and our strategic goal was at least 5 million oz.

We will provide drilling and resource model updates for Oumé at Bonikro that supports a transition from a strategic mine life of 10 years to an established plan supporting that outlook. You've heard us say strategic several times. If there is exploration potential, we're drilling, and we're finding that that potential is manifesting itself into ounces in inventory. We want to take the word strategic out, taking strategic goals to life of mine plans as soon as possible. We expect Q1 results to be delivered on May the 9th, and we will provide an update on key corporate initiatives, including the contribution from Diba and the Phase 1 expansion of Sadiola throughout the year, and a Kurmuk construction update in the fourth quarter of this year. So ladies and gentlemen, that's our presentation, and we'll open it up to questions.

Operator (participant)

Thank you. We now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. If at any time you wish to cancel your question, please press star two. Thank you. And the first question is from Mr. Justin Chan, SCP Resource Finance. Please go ahead.

Justin Chan (Head of Research)

Hi, thanks, thanks for the update and, for taking the questions. My first one's on, on, Sadiola. Clearly, there's a, there's a big AISC improvement. I'm just wondering, just, especially given your remarks on, on this year being back half weighted, how, how, how quickly we can, should, should we be modeling improvement on AISC as we go through this year? Will we see a big step down in Q1, or is that, you know, a pretty sharp step down in the second half instead?

Jason LeBlanc (CFO)

Yeah. Hey, Justin, it's, I think Peter referenced it, during the call, but it, really, it comes with that, the, the contribution of the Diba ore, so we expect that into, into Q2. So, considering, you know, Q1 more like, what we saw last year in 2023, and then with Diba Q2, we really see those, those costs come down with the, more oxide feed and, and the better grades and recovery.

Justin Chan (Head of Research)

Got you. So it'll be a pretty, pretty steep transition, we could say, on the, on the numbers at least?

Peter Marrone (Chairman and CEO)

Yes.

Justin Chan (Head of Research)

Okay, thanks. And just in terms of on your CapEx, especially at Kurmuk, this year, I think Sadiola is pretty understandably, you know, back half weighted. On Kurmuk, how is the spend profile for the year?

Peter Marrone (Chairman and CEO)

So we mentioned the $155 billion for the year. You're asking, Justin, sort of how does, how do you.

Justin Chan (Head of Research)

Yeah, just scheduling in terms of, quarter-to-quarter.

Jason LeBlanc (CFO)

Yeah. Yeah, Justin, I think Q1 is pretty, pretty light. It'll be similar to what we spent in Q4 last year, Colin, and then it, you know, you know, go fat pencil if you want average balanced out over those last three quarters.

Justin Chan (Head of Research)

Okay, gotcha. And then, are there any kind of seasonality or anything to note in terms of, I see your guidance on tax is about $60 million through the year. Again, is there any specific timing issues that we should think about there, or is that kind of similar to when profits are accrued or maybe one quarter delayed?

Jason LeBlanc (CFO)

Yeah. Pretty flat. Q2 tends to be the largest. I mean, Q2, Q3 are the biggest ones. You maybe call that, you know, sixth bank and then balance in Q1, Q4.

Justin Chan (Head of Research)

Okay. Okay, great. Thanks. I realize there's a lot of just asking quarter-to-quarter stuff, but, it's always, always helpful to get a sense, especially for new reporting entity. Thanks, guys. I'll free up the line, maybe join again if, if I have more.

Operator (participant)

Thank you.

Peter Marrone (Chairman and CEO)

Justin, anything else you or others need for your models on a quarter-to-quarter basis, please do reach out.

Justin Chan (Head of Research)

Thanks very much. Thanks.

Operator (participant)

Thank you. The next question. Just a reminder, once again, please press star one on your device keypad if you have a question. The next question is from Ms. Anita Soni from CIBC Capital Markets. Please go ahead.

Anita Soni (Managing Director)

Hi, good morning, Peter, everyone. So a few more quarter-to-quarter questions. Just one on looking at Q2, you mentioned the costs come down dramatically, but does, is there a should we expect the production to also rise as much in Q2? Or is it more sort of like a sort of like a modest change from Q1 to Q2 and then a big change in Q3 and Q4?

Peter Marrone (Chairman and CEO)

It would be very similar to last year. So we expect an increase in production in Q2 and Q3, and there will be a reduction in costs quarter-over-quarter as well. Not all of that is the result of increase in production. Some of that is a result of better recoveries, the processing of oxides, for example, coming from Diba, Sadiola, that will allow us to be able to improve costs as a result of grade and as a result of other factors. So it's a combination of things that would allow for a reduction in costs beginning in Q2, but we will see a production uptick in Q2 that will continue.

Anita Soni (Managing Director)

And then the second question was.

Peter Marrone (Chairman and CEO)

Anita, sorry, my apologies. We start with the production. We, as I mentioned in the presentation, we're now in development at Diba. We start production, we're expecting to start production May, June of this year. So there will be some impact coming from Diba in the second quarter, but a more significant impact coming in the third quarter.

Anita Soni (Managing Director)

Okay, and then the second question was with respect to capital. Is there anything that we should be aware of in the timing of the sustaining capital spend and the development capital spend?

Jason LeBlanc (CFO)

Nothing, nothing significant, Anita. I mean, you can average out exploration, you can more or less average out sustaining. Maybe it's a little bit more weighted to the kind of the middle of the year. Like, like most, we, we tend to be slow out of the gates in terms of our sustaining, so it's a little bit weighted to, you know, Q2, Q2 through Q4 in terms of sustaining. In terms of the, the development capital, as I mentioned, it's really Kurmuk driving, driving that, and it's the, the, the spend really average between Q2 and Q4 there.

Operator (participant)

Thank you. Right now there are no further questions registered. I would now like to turn the meeting over to Mr. Marrone. Please go ahead.

Peter Marrone (Chairman and CEO)

Thank you very much, once again, for those who participate on the call or who will be listening in on a rebroadcast. As we mentioned, this call is recorded. We've spent a significant amount of our effort this morning talking about the prospects of the company, but we can't have the prospects without the efforts that we've undertaken, beginning in 2023, but more particularly in the fourth quarter of 2023, that will continue through this year. The future does look bright for the company. We do expect to see an uptick, as Daniel and Jason mentioned, an uptick in production this year over last year. That will continue again with an uptick in 2025 over 2024. And then we see a very robust increase in production beginning in 2026 as a result of Kurmuk coming into production.

We're taking all the steps that are necessary to ensure that we've managed capital effectively, that, you know, there have been questions about back-end loading or the timing or the spending of capital. We want to make sure that we're generating cash flows and building up cash balances in order to pay for those capital expenses. But just as importantly, we also want to make sure that we're driving toward a responsible production expectation from Sadiola's expansion and just as critically from Kurmuk. We expect to be in production in the second quarter, 2026 at Kurmuk. We are very early in the process, but it does look as if we've taken steps that have actually advanced the project, and we're ahead of schedule on those steps that we've taken.

With that, ladies and gentlemen, thank you very much for participating on the call, and we look forward to hearing from you further on our next call.

Operator (participant)

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.