In the third quarter of 2024, Orezone (ticker not provided) delivered a strong operational performance, as reported in their latest earnings call. CEO Patrick Downey highlighted the company's record gold production and the advancement of its hard rock expansion project. Despite facing challenges such as heavy rainfall and a temporary mill shutdown, Orezone managed to exceed its oxide plant's processing capacity and made significant strides in both production and financial health. The company is also actively pursuing exploration to expand reserves, with promising drilling results expected.
Key Takeaways
- Orezone's oxide plant exceeded its design capacity, processing 5.9 million tonnes, with a target to reach 6 million tonnes.
- The hard rock expansion project, which is fully financed, commenced construction with the first gold pour expected in mid-2025.
- Q3 saw a record gold production of 26,851 ounces, despite a four-day mill shutdown, and an all-in sustaining cost of $1,655 per ounce.
- The company reported a cash balance of $67 million after paying down $5 million in debt during the quarter.
- Orezone provided a production forecast of 110,000 to 125,000 ounces for the year, with all-in sustaining costs revised to $1,400 to $1,475.
- Significant exploration efforts are underway, with initial drilling results expected soon, and a resource and reserve update planned by the end of 2024.
Company Outlook
- Orezone anticipates a strong Q4 in production and cost management, with ongoing updates through 2025.
- The company has set a target to ramp up production from 2.5 million tonnes to 5-7 million tonnes per annum in the coming years.
- The Phase II expansion is on budget, with a pre-owned mill set to be delivered this year.
Bearish Highlights
- The all-in sustaining cost for Q3 was impacted by heavy rainfall and increased royalties due to higher gold prices.
- Ongoing arbitration with Genser regarding power agreements and discussions on VAT receivables are pending resolutions.
Bullish Highlights
- Record gold production was achieved in Q3, and the company remains focused on deleveraging its balance sheet.
- Exploration is showing positive signs with 200-meter drill swings at a depth of 240 meters below reserve pits.
- The hard rock expansion aims to increase production to over 170,000 ounces annually.
Misses
- The company did not provide specific details on the potential impact of ongoing arbitration and VAT discussions on financials.
Q&A Highlights
- CEO Patrick Downey stated that the company believes it has a 7 million to 10 million-ounce deposit, which justifies increased drilling efforts next year.
- Downey also mentioned that the current reserves are at 1,500 ounces and resources at 1,700 ounces, with updates to resource and reserve estimates expected by the end of 2024.
Orezone's Q3 2024 earnings call showcased a robust operational performance and a promising outlook for future production and exploration. The company is on track with its expansion projects and is actively managing its financial position to support its growth initiatives. Investors and stakeholders are likely to keep a close eye on the resolution of ongoing arbitration and VAT receivables discussions, as well as the anticipated updates on production and exploration results.
InvestingPro Insights
Orezone's strong operational performance in Q3 2024 is reflected in the latest InvestingPro data and tips. The company's market capitalization stands at $238.35 million, indicating its significant presence in the gold mining sector.
One of the most notable InvestingPro Tips is that analysts predict the company will be profitable this year, aligning with Orezone's record gold production and positive financial outlook. This forecast is supported by the company's impressive P/E ratio of 6.3, suggesting that the stock may be undervalued relative to its earnings potential.
Furthermore, InvestingPro data shows that Orezone's revenue for the last twelve months as of Q3 2024 was $259.26 million, with a quarterly revenue growth of 23.03% in Q3 2024. This robust growth underscores the company's successful operational strategies and expansion efforts mentioned in the earnings call.
The company's profitability is further emphasized by its gross profit margin of 43.92% and operating income margin of 23.19% for the last twelve months. These figures demonstrate Orezone's ability to maintain healthy profit margins despite challenges such as heavy rainfall and increased royalties.
It's worth noting that while Orezone does not pay a dividend to shareholders, as per an InvestingPro Tip, the company is focusing on reinvesting in its growth initiatives, such as the hard rock expansion project and exploration efforts.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into Orezone's financial health and future prospects.
Full transcript - Orezone Gold Corp (TSX:ORE) (ORZCF) Q3 2024:
Operator: Thank you for standing by. My name is Dee, and I will be your conference operator today. At this time, I would like to welcome everyone to Orezone's Q3 2024 Results Webcast and Conference Call. 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. [Operator Instructions] Thank you. I would now like to turn the call over to Patrick Downey, President and CEO. Please go ahead.
Patrick Downey: Thank you, and welcome to the Q3 Orezone webcast and conference call. With me today will be Peter Tam, EVP and Chief Financial Officer, who will run through most of the financial and operational metrics. Standard disclaimer, so please read this as you go through this presentation or afterwards. So, quick summary of where we're at today. Obviously, we built our oxide plant. It was designed for 5.2 currently running at a run rate of 5.9 million tonnes per annum expected to run up to around six million tonnes per annum, so running extremely well. We're in the next stage of our expansion, which will bring us up to over 170,000 ounces a year, which is a 2.5 million tonne hard rock plant. The project financing is secured. Our construction has commenced, and I'll update you on that with first gold expected in mid-2025. And very excitingly, we really believe we're on a Tier 1 potential here. It's a very large orogenic system, 14 kilometers strike extent. Drilling has started on a multiyear program. The first results were extremely robust, and we'll walk through that a little later on in the presentation of what next steps are in that regard as we continue to expand this operation. So Q3 highlights. A very good quarter in terms of health and safety, 0 LTIs. 1.31 million hours worked during the quarter, and 3.68 million hours work year-to-date, again, a testament to the system and the team down there in Bomboré. Our production was at 26,851,000 ounces, a record throughput through the mill of 1.5 million tonnes, which is at a run rate of six million tonnes per annum. Even though we had a four-day mill shutdown, including a full ball mill reline in late September. The all-in sustaining costs were affected somewhat by heavy rainfall events really this time, which restricted access to the higher grades and the sites, which meant that we had to process some lower-grade stockpiles during the quarter and also impacted by the higher royalties due to the higher gold price. Very robust in terms of the balance sheet, $67 million in cash at the end of the quarter, $68 million of senior debt. In that quarter, we also advanced all of our capital projects, including the hard rock expansion, and we walked you through what we spent during the quarter later on. We paid down an additional $5 million in senior debt, and we did add significant cash to the balance sheet during the quarter. Our Hard Rock expansion, as I stated, is well underway, project financing announced on July 10th. Our first goal is expected in Q4 of 2025, and that will increase our throughput by approximately 50%. And our exploration program, first two holes were up to 240 meters below the life of mine reserve pit. There were big swings, and we'll walk you through that, but we're very excited about our exploration potential as we continue to expand the reserves and resources on the project. Our three-year production forecast, our full year guidance remains at 110,000 to 125,000 ounces, slightly revised all-in sustaining cost of $1,400 to $1,475 and then strong production growth into 2025, 2026 of 170,000 ounces a year run rate and then continue beyond that into Stage 2. Hopefully, we can bring that forward in the time line to 225,000 to 250,000 ounces. And our focus will be on deleveraging the balance sheet, continuing to build a strong treasury and a renewed focus on exploration. I'll now hand you over to Peter Tam, who will go through the operational and financial highlights.
Peter Tam: All right. Thanks, Patrick. On financial and operating highlights, the gold production in Q3 rose slightly quarter-over-quarter to 26,581 ounces as mining progressed south into Siga East and Siga South. Mining is projected to ramp up in Q4 with more ore from the Siga pits, which should help drive better fourth quarter gold production as evidenced by the 12,096 gold ounces produced in October. All-in sustaining cost per ounce remained elevated in Q3 at $1,655 per ounce, driven by a higher strip ratio due to mine sequencing and from the drawdown of lower-grade stockpiles in August as heavy rainfall events and pre-stripping at Siga South temporarily affected the volume of ore mined from the pit. Furthermore, government royalties, which are calculated on a sliding scale, rose in tandem with record gold prices. The company's Board officially approved the Bomboré Mine Phase 2 hard rock expansion in early July, leading to $6.2 million in expansion expenditures in the third quarter. Additional expenditures are expected in the fourth quarter as the company rapidly moves forward with engineering and procurement towards achieving first gold by Q4 of next year. With the help of strong gold prices, the company was able to generate free cash flow of $14.1 million in Q3. The company exited the quarter with a healthy cash balance of $66.9 million and is expected to continue to generate free cash flow for the remainder of the year. The Phase 2 expansion, as mentioned earlier, remains fully funded. Next (LON:NXT) slide. On production and unit costs, notable highlights. Mining, as noted earlier, commenced at both Siga East and Siga South in Q3 and began to only contribute meaningful ore volumes in September. The mining contractor struggled to keep up with the mine plan in Q3 due to low equipment availabilities and wet ground conditions from heavy rainfall events, resulting in a mining of only 4.1 million tonnes for the quarter. Mining rates are expected to jump in Q4 as new heavy-duty excavators and haul trucks are placed into service by the mining contractor at the beginning of November. Mining cost per ore tonne processed rose in Q3 to $9.58 per ore tonne from the higher strip ratio and unit mining costs, both of which are expected to fall in Q4 as the strip ratio normalizes and less drill and blast and higher mining volumes help lower mining costs on a per tonne mine basis. For processing, mill throughput is expected to reach another record in Q4 as no major maintenance is planned and grid availability is forecasted to remain stable. Head grades will see an improvement as higher grade ore from the Siga pits make up a greater percentage of the mill feed in Q4. Processing cost per tonne processed saw an expected decline in power costs as grid utilization improved significantly in Q3 to 92%. However, processing costs and throughput were impacted in the quarter by the mill reline and other maintenance activities. Unit processing costs are expected to be lower in Q4 as well from less estimated plant downtime and maintenance. With that, I'll hand it back to you, Patrick.
Patrick Downey: Thanks Peter. So, just into 2024 production and cost guidance, our gold production guidance remains unchanged. We expect to be around the middle to the -- just above the middle of that guidance for the year. All-in sustaining costs have been revised to $1,400 to $1,475, a slight revision there. That's mainly attributable to the higher power costs we experienced in the first half of the year due to low grid availability, which was experienced throughout the region and affected several mining operations in that -- in the region. We have seen a significantly better availability. And in fact, most recently, we've been run 95% to 100% availability on the grid. It was also affected by higher government royalties due to the better realized gold price currently calculated at around $40 an ounce. So, really mostly the guidance is affected by outside of the operations itself. Sustaining capital remains unchanged at $14 million to $15 million for the year. Growth capital excluding the Phase 2 expansion remains unchanged at $16 million to $17 million. And the growth capital, which no guidance was provided, we weren't really into it before the start of the year. The early works, approximately 3.6%, which are now complete and the growth capital of between $15 million to $18 million, which I'll walk through later on in the presentation that will be -- for the year, we're guiding for the year based on current activities on the project. Into the Hard Rock expansion and our exploration update. On our 2.5 million tonne per annum hard rock expansion, I'm extremely pleased with the progress-to-date. Estimated CapEx of $85 million, which is fully financed. The early works is complete. 100% of the process equipment has now been procured. So, we know all of the costs there in. The concrete contract was awarded and mobilization has commenced three months ahead of schedule. Our tank plate work has been awarded. We expect to award the structural mechanical piping contract later this quarter. We've received the first delivery of the Hard Rock mining fleet, which is being used currently on the oxide and as Peter said, is giving us better availability, which will continue on through Q4 into 2025. And the major works on the project will commence in Q4 of 2024, with first gold expected in Q4 2025. Just a quick pictorial and we will do a monthly video updates here as we go forward as we did on the oxide. As you can see, the oxide plant on the left-hand side. The CIO tank platform is now complete. The laydown area for the contractors is in place to the top end of that photograph with the contractors for the concrete in place with plants there, so we expect to start pouring concrete this quarter. And the rest of the earthworks are complete for commencement of works in Q4 and into 2025. So, very pleased with progress-to-date on the Hard Rock expansion. As you know, this is a 14-kilometer strike extent. We really have not drilled a lot to any depth on this project. We've got a 2.4 million ounce reserve, delineated along that strike, average pit depth of 40 meters and essentially 0.1% or less than 0.1% of being between 250 meters to 300 meters of the holes drilled on this project. So, really totally under-explored even at medium depth. So our exploration is really focusing on expanding that. The first two holes are which will show you a long sections BB and AA here, which is the first pits to the North. It's really not our highest priority target, but we're starting in the North and working our way down. And they were extremely successful. We took big swings here on an orogenic system. Normally, you would take 40 to 50 meter type of swings. We took 200 meter swings down at depth, and we are very successful. We really wanted to prove the robustness of the system. So looking Southeast along Section BB of that previous slide. You can see we're down 240 meters below the reserve pits. I think are very good grade ore. We're moving to the North and South of that right now. We should have results from there later this month. As I said, this is our first target. We believe it's not even our best target. So we're very excited about this. On the next slide, along Section AA, the long section, you can see where we are there and below those reserves and resource pit. The dark blue is the reserve. The light blue is the resource. So you can see where this really would expand this down to 320 meters, and we have now drilled to the North and to the South of that, which would really take us 600 to 700-meter strike extend along that first Section, and we will release those hopefully in the next couple of weeks here to really show the robustness of this project and where it can go. Obviously, if this continues to provide the results that we expect, we do not expect to be mining at 2.5 million tonnes for the next 40 to 50 years. We would like to make this a very large, robust project in the 5 million to 7 million tonne per annum range, which will be our goal here in the coming months and years. And that concludes our Q3 presentation, and I'll now hand it back to the operator.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Bryce Adams from CIBC (TSX:CM). Please go ahead.
Bryce Adams: Hi there. Thanks all for the presentation. Since you reported the October production, which looks pretty strong, can you say what the grade profile was in October? And should we take that October number and then triple it for Q4 production expectations?
Patrick Downey: The grade was higher because we're in the South around 0.81, I think. We do expect to be up in that range, maybe not 0.81 through the quarter, because we will be mining from other areas and then continuing in the North. But yes, we do expect quite robust production. The other thing that you will expect Bryce is we will not have the same strip ratio because we have stripped off that area in the South as well. We actively stripped that during Q1. We could do it during the rainy season, where we were totally affected by that. And the other thing is we will not be having drill and blast, which also affected the cost in Q1. But yes, I expect a fairly very robust quarter in Q4.
Bryce Adams: Thanks Patrick. It sounds like a lot of operational momentum into year-end. That's all I had all the best for the Phase II expansion.
Patrick Downey: Yes, very much. So that was always the case price. We expected it to be stronger at -- in Q4.
Operator: Our next question comes from the line of Jeremy Hoy from Canaccord Genuity. Please go ahead.
Jeremy Hoy: Hi, Pat and Peter. Thanks for taking my question. Appreciate it. First question is on the expansion. In the last update, you guys mentioned some pretty significant savings from purchasing the previously owned mill. Are you guys able to quantify that at all and how that impacts the overall CapEx of the project?
Patrick Downey: Well, on the equipment, we're very much in line on budget, maybe a bit below. We really have to see the structural mechanical piping, which will be the main contract that will really tell us where we're trending. We don't expect -- we're not dipping into any contingency even with the contract award, and we expect award the plate work pretty soon here. So we're pretty happy with that. So we really -- we generally do a detailed update at a certain point through the project, which will likely be in January, February, and we'll update everybody at that time.
Peter Tam: Jeremy, I will add the figure that we've provided in terms of the Phase II expansion did take into consideration that we were buying this pre-owned use, but really never placed in service mill. So that's been factored into the figure, and we're tracking towards that number.
Patrick Downey: Yes. And the other thing is what it does is that mill will be delivered to site this year. So it will be sitting on site, ready to go, which is a big part of the schedule in terms of getting things moving forward. We're not going to be waiting for the mill to be delivered.
Jeremy Hoy: Got it. Okay. No, that's really helpful. Another question is on the Stage 2 of the Hard Rock expansion. What's your latest thinking on when you'll inform the market on a potential decision on additional expansion for the Hard Rock?
Patrick Downey: We're looking at that carefully right now, actually, in terms of what we may want to do in 2025 to pull some of that stuff forward. Obviously, well, today, maybe not, but very robust gold prices out there or putting cash on the balance sheet, we're obviously drilling to show that it's bigger and better. So there's no point in waiting two, three years to do an expansion, which is sitting in front of us. So if things continue the way they are, we will likely look to bring that forward here and maybe update the market sometime in 2025 in that regard.
Jeremy Hoy: Okay. That's great to know. And I guess the last one I had is on the Genser claim. What is the timing of the potential conclusion of that? And can you remind us what the claim was for the amount?
Patrick Downey: Yes. So Jeremy, we're right in the middle of that, obviously, in terms of the arbitration proceedings. I think it'll come to a conclusion sometime within the first half of next year. We obviously, are pursuing significant damages against Genser for the fact that we were not delivered the fixed price, low-cost rate tariff that we would have been enjoying under the power purchase agreement that was signed originally with Genser. So there's that aspect of the claim as well as obviously additional costs to obviously run our power plant on diesel until we got on to the grid. And there is also a slight differential between the grid cost and what we would have otherwise enjoyed under the power purchase agreement. So when you wrap all that in, it's a multimillion dollar damage claim that we are going after Genser. I won't get into the details, obviously, in terms of just the fact that we are the midst of this arbitration. But suffice to say, we're looking for significant damages here.
Jeremy Hoy: Okay. Fair enough. That’s great color. Appreciate it Pat and Peter. Thanks very much.
Patrick Downey: Okay. Thanks, Jeremy.
Operator: Our next question comes from the line of Alex Terentiew from Ventum Financial. Please go ahead.
Alex Terentiew: Good morning, everyone. Great to see good operational progress being made that we should see start being delivered in Q4. Questions -- two remaining questions for me. First, just on the Chorus Bank loan -- that was originally signed, I believe, in July, you're guiding towards closing that the remaining $58 million available to you this month. I just want to -- just to double check, make sure there's -- are there any sticking points there that we should be worried about? Or it's just kind of a procedural item that's taking its time to get through?
Peter Tam: Yes, Alex, you hit the nail on the head there. Really, it's just sort of taking its time at which you were saying. There are inter-credit consents we've also got to work through. So it's a matter of just sorting through all that. Obviously, with the raise that we did back in August with the strong cash generation that we've been able to obviously create in Q3. We've been able to fully fund the expansion expenditures without affecting in any way that the schedule or on the expansion. So it's just a matter of really working through the final steps now, and we do expect to get that concluded here before the end of month here so.
Alex Terentiew: Okay. Okay. That's good to hear. And then just last one, you know, some -- been some talks about resources and the Phase II stage 2 expansion, but when do you think we could see a resource update on the sulfide? Obviously, you're doing some drilling there. Gold prices are a lot higher. There's simple revisions that could be made just by incorporating higher gold prices. But what do you think we could see timing on that front?
Patrick Downey: Yes. Great question, Alex. Well, first of all, when we looked at this, did quite a bit of work both internally with what we've seen on our own drilling, looking at a lot of data -- bearing in mind a lot of our stuff is an oxide. So you can't see structure. We have a structural review done by an independent structural geologists last year. We brought that all into the frame. And these holes we drilled. I mean, normally, you would not drill a 240-meter hole. You're going to drill a 40 or 50 step out and then look beyond that. So we'll put out some more results here. What we want to do now that we're pretty confident about where we're seeing we're seeing this model and what happening here is we'd like to add two to four more rigs on this project in 2025. And really drill it off very, very fast, and we'd like to do an update on the resources and reserves by the end of next year. You're right, very -- just to state our reserves were done at 1,500. Our resources were done at 1,700. Obviously, we will update all of that, bearing in mind the gold price environment. But when you take -- when you're going from 200 meters below reserve pits and still hitting bigger and thicker intervals, you obviously really want to outline what we believe this is. And we firmly believe this is a 7 million to 10 million-ounce deposit, and that will really set the sort of pipeline for how we want to expand this going forward.
Alex Terentiew: Okay. Sounds good. Thank you.
Patrick Downey: But the critical factor is we're going to do more drilling next year, a lot more drilling, and we're going to do it fast.
Alex Terentiew: Good. Good to hear.
Operator: [Operator Instructions] Our next question comes from the line of Sean Fieler from Equinox Partners. Please go ahead.
Sean Fieler: Hey, Patty.
Patrick Downey: Hi, Sean.
Sean Fieler: Let's see, your taxes receivable, that's mainly VAT, up at $34 million at the end of the quarter. And when and where do you expect that to peak out before it starts declining?
Patrick Downey: We are in discussions right now with government official. So there is movement in that regard, Sean. The latest meeting was yesterday, which I -- based on what I saw was quite positive. We do hope to see a start of reduction of that by the end of this year going into next year. So that's essentially what we're hearing. I'll -- when I get the first check, that's when I know I'm getting it. But this is what we have heard and the meetings have been fairly productive here going forward in terms of VAT receivables.
Sean Fieler: So does that -- hopefully, you get a reduction in it, but is it going to not keep growing? Is that --
Patrick Downey: It grows. It's a little higher with the VAT on the expansion. So the rate is higher. Peter, maybe you could comment.
Peter Tam: Yeah. So obviously, we are continuing with our Phase 1 oxide operation. Once we do ramp up spending in country on the expansion, obviously, there will be VAT on those expenditures as well. So for 2025 and really for Q4 this year, we are probably -- we'll be paying more VAT than we normally would. So the refunds we are hoping to receive are from earlier months in 2023 and the last quarter of 2022. So it's hard to predict, obviously, the size and the timing of the refund. So in terms of whether our VAT receivable will sort of stabilize or whether it's going to continue to grow, I would say, at this point, it's hard to predict. We'll probably have more visibility in the next quarter, hopefully, as we get our first set of refunds back from the government.
Sean Fieler: Thanks.
Operator: I will now turn the call back over to Patrick Downey for closing remarks.
Patrick Downey: Okay. Thank you, and thank you, everyone, for attending. As we said, we look forward to a strong Q4 in terms of production and costs and into 2025, expanding our -- both our exploration and our Phase 2 expansion. So we will be updating everybody on that on a consistent basis throughout this quarter and through 2025. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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