Orla Mining - Q4 2021

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Orla Mining's conference call for the fourth quarter and year-end of 2021. My name is Misty, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please be advised that this call is being recorded. I would like to turn the meeting over to Andrew Bradbury, Director of Investor Relations of Orla Mining. Please go ahead, Mr. Bradbury.

Andrew Bradbury (Director of Investor Relations)

Thank you, operator, and welcome everyone to Orla's conference call for the fourth quarter and year-end of 2021. Joining me on the call this morning is Jason Simpson, President and Chief Executive Officer, Etienne Morin, Chief Financial Officer, Andrew Cormier, Chief Operating Officer, and Sylvain Guerard, Senior Vice President, Exploration. During today's call, we will be making forward-looking statements. I would invite you to review the cautionary language on the first and second slides of today's presentation, which describes some of the risks and uncertainties that may affect Orla's performance in the future. I'd also like to mention that unless otherwise indicated, all dollar amounts discussed today will refer to US dollars. It is nearly the spring of 2022, and Orla is exactly where we need to be. We methodically permitted, financed, and constructed our first project, the Camino Rojo Oxide Mine, on time and within budget.

The operation has been pouring since December, and with ramp-up proceeding as expected, commercial production is expected imminently. Management will walk through what we have achieved at Camino Rojo Oxide Mine. We will also provide an update on our growth pipeline in Mexico and Panama, which includes the Camino Rojo Sulfide Project, the Cerro Quema Oxide Project, the Caballito copper-gold sulfide resource, along with our exploration plans in both countries. We also made a recent addition to the Orla team with the appointment of Chafika Eddine as Chief Sustainability Officer. Chafika will lead a number of areas within our business, including our ESG program, and we are very excited that she's joined us. We continue to execute on the plans laid out, and every year seems to top the last.

2022 will be another exciting year for Orla as we transition to a gold-producing, cash-generating company with eyes towards more growth and additional value creation. With that, I'll turn the call over to Jason Simpson, Orla's President and CEO.

Jason Simpson (President and CEO)

Thank you, Andrew. 2021 was a monumental year for Orla Mining, with the highlight being first gold pour at Camino Rojo in Mexico during December, only 12 months of construction. This impressive feat was made possible through the collective efforts of our entire team, and we thank them for their dedication and support. This momentum was carried forward into 2022 as we ramp up the operations through commissioning on target for declaration of commercial production in the first quarter. We have only days remaining in Q1, so are confident in achieving this milestone. This confidence led to us issuing our first annual guidance in February. In 2021, we also completed a pre-feasibility study for our Cerro Quema Oxide project in Panama, another low-cost, high-margin, low capital intensity project that could generate strong additional ounces and cash flow.

In addition to Cerro Quema Oxides, we are enthusiastic about the opportunities in Panama, including Caballito, a 1 billion-pound copper-gold resource. This exemplifies the potential of this largely unexplored area. Our exploration programs in 2022 will commence in the second quarter in both Panama and Mexico. Drilling will include a phase 2 program on the Camino Rojo Sulfides in Mexico, following from the success in 2021. In addition to drilling current resources across our portfolio, we will also be stepping out and attacking some of the regional drill targets. Our consistent delivery and execution has resulted in the share price performance you see on the right over the past three years, and we are just getting started. As you may have noticed, we are now referring to Camino Rojo Oxides as a mine rather than a project.

We are producing gold and ramping up to steady state. Commissioning activities at the Camino Rojo Oxide Mine are substantially complete. Mining and processing throughput rates and availabilities are in line with plan. In our first year of operation, we are guiding the market to 90,000-100,000 ounces of gold production for the full year and all-in sustaining costs between $600-$700 per ounce, which will generate healthy cash flows. Please note the all-in sustaining costs are calculated from the declaration of commercial production onward, so hence Q2 through Q4. As always, it's important to note that the team remains focused on our safety, health, and environmental responsibilities. We are fortunate to have not suffered any delays due to COVID, but we remain vigilant and continue to support the vaccination of our employees and various contractors that work on our site....

I'll now pass the call to Andrew Cormier, our COO, to discuss the construction and ramp-up progress in greater detail. Over to you, Andrew.

Andrew Cormier (COO)

Thank you, Jason. As Jason mentioned, project construction is nearly complete. During the fourth quarter, the main construction activities completed included the ramp-up of all mining activities, mechanical completion of the crushing system, conveyor stacking systems, and Merrill-Crowe plant, as well as the completion of the camp facilities. Wet commissioning of all of these process areas was also completed during the quarter. In August, we began placing overliner ore material on the heap leach pad, and in October, we began stacking crushed ore. Cyanide leaching then began in mid-November, leading to our first gold pour of 1,280 ounces on December thirteenth, 2021. We have continued to ramp up mining, crushing, and stacking rates in 2022, while increasing the solution flow rates to the Merrill-Crowe plant.

The 2022 construction activities have also included the installation of heap leach liner and completing placing of the overliner material on Cell 2 of the heap leach, commissioning of the third and final overland conveyor, and construction of the airstrip. In 2021, we mined just over 2 million tons of ore at an average grade of 0.71 grams per ton and stacked 1.2 million tons. Year to date, in 2022, we have mined almost 1.2 million tons at a grade of 0.67 grams per ton. Stacking rates for 2022 are achieving the ramp-up plan and have averaged 15,000 tons per day as we progress to our 18,000 tons per day nameplate capacity. This has resulted in 1.1 million tons of ore being stacked.

Ore tons and grade are reconciling well to the block model. One positive we are seeing is that some material that was modeled as waste is coming in as low-grade ore. This material is being stockpiled for processing later in the mine life. The metallurgical reconciliation is also coming in as predicted, having now gone through an entire leach cycle. With that, I'll pass the call to Etienne.

Etienne Morin (CFO)

Thanks, Andrew. In addition to being on schedule, construction remains within budget. Capital expenditures for Camino Rojo were just over $120 million at the end of February, against a project total initial capital of $134 million. The remaining project spend is expected to occur in the first half of the year. Also worth noting is we have about $3.5 million in contingency that is not currently forecasted to be spent. As a result, we anticipate the mine will be completed within the total project capital estimate. Cash balance at December 31 is $20.5 million, which included our first recorded gold sales of 2,303 ounces for revenues just over $4 million.

As of today, we have a cash of approximately $32 million, and as you can tell, we're in a critical and exciting phase of development where we go from consuming cash to generating cash. Over the next few months, we're going to continue to incrementally pay our final bills under construction and begin building our cash balance. During the fourth quarter, we had a net loss of $5 million or $0.02 per share. For the full year, 2021, we had a net loss of $26.8 million, or $0.11 per share. Note that we've early adopted the amendments to IAS 16 related to revenue recognition and cost of sales. Under the old rules, revenue earned before commercial production went to reduce the capital costs.

Under these amendments, we present revenue and cost of sales on the income statement, and we have recognized an asset in metal-in-process inventory. We received a few questions recently about our VAT recovery process in Mexico. Happy to report that since November of last year, we've seen a steady flow of refunds amounting to approximately $5 million out of an accumulated balance of $26 million to date. As we transition to producer status, we will look at ways to optimize the business. Reducing the overall cost of capital was always an objective, and as we near commercial production, we'll be looking at refinancing our current debt facility to reduce our cost of capital to a level that reflects the reduced risk profile of Orla. I pass the call back to Jason.

I'd like to recognize and thank our finance teams across the organization, whose efforts are often on scene and behind the scenes, but always very much appreciated. With that, I'll pass the call back to Jason.

Jason Simpson (President and CEO)

Thank you, Etienne. Before Sylvain outlines our exploration program for the year, I'd like to provide an update on our sulfide work in Mexico. As you all know, this project has size and scale, and we are working to maximize value through a systematic evaluation of the different development scenarios. The scenarios being considered to potentially form the basis of a preliminary economic assessment include, first, an underground mining option, second, an open pit mining option, both with processing at a to-be-constructed sulfide facility at Camino Rojo, and third, an open pit option with processing at Newmont's Peñasquito Plant. Based on the additional drilling and test work to date, all development options remain possible. In 2021, we completed a directional drill program into the ore body at a more optimal southern orientation.

This 6,000-meter program confirmed wide higher grade zones, and it provided fresh material for a new metallurgical study with encouraging results. We are in the process of finalizing the geometallurgical model of the deposit to define the distribution and types of mineralization and the processing options, with the initial results to be released shortly. These results necessitate follow-up work, and we will be infill drilling the deposit at this optimal southern orientation and reducing the spacing and enhancing the modeling. This drilling, in combination with the extensive historical drilling, is expected to support the updated resource and help advance development work for the PEA targeted by year-end. With that, I'll pass the call over to Sylvain, who will provide more exploration detail.

Sylvain Guerard (SVP, Exploration)

As Jason mentioned, the positive results in 2021 is leading us to follow up with the 8,250-meter drill program. The Camino Rojo Sulfide Project has tremendous potential, and with each step, we get closer to unlocking the value within this large resource. To date, most of our effort and exploration investment has been dedicated to Camino Rojo expansion and development of the current deposit. But in 2021, in anticipation of a cash flowing 2022, we began a program of new target definition on our large exploration portfolio. We will seek to expand current resources and discover new deposits. This target generation include detailed airborne magnetic drone survey, IP survey, as well as RAB and multi-element soil geochemistry.

The new exploration targets generated are located at the intersection of the northwest-southeast structure associated with the original San Tiburcio fault zone and northeast-southwest trending structure on or parallel to the Camino Rojo mine trend. 10,000 meters of RC drilling is planned to test priority targets along the mine trend and south of the Camino Rojo deposit. New deposit discovery is the objective. We feel optimistic and excited to advance this early exploration phase near a massive deposit like Camino Rojo. Closer to the mine, 2,500 meters of drilling is planned in the layback area of the oxide reserve. We believe mineralization continues past our exploration boundary, and our drilling will seek to confirm this. Moving now to Panama. As you may recall, we released an initial resource for the Caballito copper-gold deposit in late 2021.

The deposit is about a billion pounds of copper in indicated and inferred resource categories. Our work this year on Caballito is threefold. One, infill the deposit to upgrade the resource. Two, step out drilling to determine continuity of mineralization and potential extensions. And three, drilling to provide the material for metallurgical testing. Outside of Caballito, we are planning to drill several targets, including La Pelona, which has a similar geological setting as La Pava and Quemita deposit and has historical mineralized drilling intersection in oxide. La Prieta is a target with a large IP and coincident geochemical anomaly, with characteristics indicative of the porphyry-style copper-gold mineralization. Again, the exploration focus in 2022 is on upgrading and expanding current resources and making new discoveries on targets proximal to existing deposits in both Mexico and Panama.

Jason Simpson (President and CEO)

Thank you, Sylvain. As the team has laid out, we have more work and milestones ahead. Commercial production at Camino Rojo is days away. We are also advancing our extensive development and exploration pipeline, including the Camino Rojo sulfides, which we are working towards a PEA on, the Cerro Quema Oxide Project and the Caballito copper-gold resource, and the targeted drilling across our large prospective portfolio. We endeavor to be a company that sets ambitious targets and consistently delivers. We look forward to providing updates throughout the year. Orla is now a company that explores, develops, and produces, and we will continue to lean on our further growth and shareholder value creation. At this time. Questions? The questions?

Operator (participant)

At this time, if you would like to ask a question, press star one on your telephone keypad. Again, that is star and the number one. We will pause just for a moment to compile the Q&A roster. There are no questions on the phone line.

Jason Simpson (President and CEO)

Since there are no further questions,I would like thank the entire team for their continued efforts in advancing our key projects. Reach out to Orla should you have any follow-up questions, I'd like-

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.