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Antero Resources Corp T.AR


Primary Symbol: AR

Antero Resources Corporation is an independent natural gas and natural gas liquids (NGLs) company. The Company is engaged in the acquisition, development and production of unconventional properties located in the Appalachian Basin in West Virginia and Ohio. The Company targets large, repeatable resource plays where horizontal drilling and advanced fracture stimulation technologies provide the means to economically develop and produce natural gas, NGLs and oil from unconventional formations. The Company operates through three segments: the exploration, development, and production of natural gas, NGLs and oil; marketing of excess firm transportation capacity; and midstream services through its equity method investment in Antero Midstream Corporation (Antero Midstream). The Company holds approximately 515,000 net acres of natural gas, NGLs and oil properties located in the Appalachian Basin, primarily in West Virginia and Ohio.


NYSE:AR - Post by User

Post by ARGONAUTGOLDon Mar 06, 2024 4:42pm
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Post# 35919062

Argonaut Gold Inc. Q4 2023 Earnings Call Transcript

Argonaut Gold Inc. Q4 2023 Earnings Call Transcript
Richard Young
 
Well thank you, Joelle and hello, everyone.
 
Let's start with Slide 3. I want to express my gratitude to all of our shareholders who have said vastly supported Argonaut throughout the past year. Last week, when we announced our 2024 guidance, we witnessed a 35% sell-off of our stock. Despite this unexpected turn of events, we believe that Magino will one day be one of the largest and lowest cost gold mines in Canada.
 
Our financial results for 2023 were either largely in line or better than the prior year. As a result, we'll focus today's call on the most pressing issues we face as a company, namely the ramp-up of the Magino mine and mill and the refinancing of our current debt facility to support both our short-term liquidity requirements through the ramp-up of Magino and an expansion of the Magino mill. While both the ramp-up of the mine and mill have been slower than we anticipated, it is not a reflection on the team at Magino. They are as capable a group as I've ever had the pleasure of working with.
 
We have hosted several groups to site as part of the refinancing and all groups have acknowledged their tenacity and their focus and their excellence. All to say that the team at Magino understands what the issues are and have solid plans to address each of them.
 
Normally, at this point, I would be turning the call over to Marc Leduc, our COO. However, given the importance of Magino, I will now turn the call over to Chuck Hennessey, our Vice President of Canadian Operations, who continues to navigate the ramp-up of Magino and we'll speak to the progress to date. And Marc will be available for the Q&A. Chuck?
 
Chuck Hennessey
 
Thank you, Richard. Turning to Slide 4. Overall, 2023 consolidated annual production was 1% less than the low end of the company's annual guidance of 200,000 to 230,000 gold equivalent ounces. Our Florida Canyon mine in Nevada and our Mexican mines had a solid year, surpassing the top end of production guidance on a combined basis by 9%. Magino met the target start date of commissioning the mill in mid-May. However, ramp-up of the mining mill is taking longer than anticipated, resulting in the company missing consolidated production and negatively impacting the company's liquidity during the second half of the year.
 
Turning to Slide 5. Mined ore grades were lower than anticipated for 2023 as a result of lower-than-planned mining rates that delayed the release of higher-grade material. We also experienced challenges with selectively mining the high-grade parts of the ore body, which led to higher dilution. We have learned a lot about the ore body and have used that knowledge to improve our mining practice. We expect significant improvements in mine performance through the first half of 2024. Several catalysts are expected in the mine, including the implementation of the fleet management system, which is well underway and we have already benefited from improved mining accuracy and increased productivity.
 
Lastly, the commissioning of four-haul trucks in Q1 and an additional PC3000 shovel in Q2 will increase material movement ensuring we meet design tonnage grades. The current 13-week plan, beginning February 1, shows the total contained gold is projected to be within 1% of the reserve model as compared to grade control polygons. We are pleased to report that these changes are improving performance. For the first time, overall tonnage, grade and ounces mined were in line with plan for the month of February.
 
As a result of the higher dilution that I mentioned earlier, the average grade to the mill is expected to be approximately 5% to 10% lower than in the technical report over the next two to three years during the period of selective mining of the higher grade ore. It is important to note that life-of-mine grades and ounces are not expected to be impacted. Based on February's mine performance, we are confident that we can achieve mining rates as laid out in the tech report. The focus moving forward is to continue to refine the short-range planning model and to improve drill and blast and mining practices to reduce dilution.
 
Turning to Slide 6. The graph on Slide 6 highlights solid strides made by the Magino mill team towards achieving daily nameplate throughputs in Q4. During the period, we have demonstrated that the mill is capable of achieving the nameplate throughput rates on a per hour basis. In fact, the mill has demonstrated daily throughput rates well above the nameplate 10,000 tonnes per day. On average, the shortfall on daily tonnes is mainly attributed to shortfalls in operating target. Fortunately, the major contributors to mill downtime are well understood and the mill team is hard at work systematically addressing. No recovery rates are in line with technical report design rates.
 
Now 2024 is off to a slower start as the team works through material handling challenges in the crushing plant. The most significant downtime events have been caused by poor quality belting, poorly designed material transfer issues. As of today, two of our three major belts have been changed out, and the third belt is staged and ready to be replaced in the event of failure or in an upcoming mill shutdown. Additionally, we have engaged third-party specialists in re-engineering problematic areas and we expect this to be a relatively low-cost solution.
 
During the scheduled January mill shutdown, we experienced a rubber line shoot fire downstream of the segment. Fortunately, nobody was injured and the team promptly extinguished the fire. No permanent damage was done. However, 1/3 of the consumable discharge [trauma] panels were damaged. Spare panels had been ordered several months prior, but had not yet arrived.
 
Therefore, the damaged panels needed to be field modified prior to the mill start-up. This temporary repair led to reduced mill throughput rates as well as several follow-on downtime events totaling 60 hours. The procurement team expedited panels to site. However, the panels did not arrive on site for four weeks and they were installed immediately, neither the SAG nor any associated equipment sustained permanent damage.
 
Also during the January shut, a 3D ball mill liner scan was completed, indicating several months of liner life remaining. However, the liners began delaminating in February, resulting in two unplanned liner replacement shutdowns totaling 56 hours of mill downtime. The process team is working with relying contractors schedule the timely replacement of the remaining low-quality liners to minimize process interruption.
 
During the plant's ramp-up, the team has struggled with premature failure of wear parts causing significant unplanned downtime, which has been exacerbated by a shortage of parts that have extended these downtimes. Overall, we expect to have the majority of the remaining known issues to be resolved over the next few months.
 
However, the key focus is establishing robust maintenance processes as the operation matures. Overall, the plan is to complete the necessary works to improve equipment reliability and circuit optimization by mid-year, enabling an increase in mill throughput by approximately 10% by Q4.
 
I'll now turn the call over to Dave Ponczoch, our CFO.
 
David Ponczoch
 
Thank you, Chuck. Please turn to Slide 7. Our detailed financial results for 2023 are outlined in our financial statements and MD&A that have been filed on SEDAR and are available on our website. Overall, our key financial metrics for 2023 were either largely in line or better than the previous year. I'll focus on the expected cost and capital spending plans for 2024. At Magino, cash costs and ASIC per gold ounce sold are expected to be higher than the 2022 technical report given that production is lower and the operating costs and sustaining capital expenditures are higher than the technical report.
 
For 2024, we expect sustaining capital at Magino of $61 million to $63 million compared to $47 million in the technical report with the largest amount spent on the next phase of the tailings management facility and also including construction of a temporary truck shop, completion of the assay lab construction, mill upgrade projects and equipment leases, which are running higher because of the requirement to bring equipment forward and the higher interest rates.
 
Total operating costs and cost per tonne are expected to be higher in the first half of the year but improved in the second half of the year. Operating costs and unit costs are significantly higher than the technical report. Our focus for 2024 is to ramp-up mining and milling to the planned rates in the technical reports. Once we have achieved that objective, we will then focus on improving efficiencies and lowering costs. The largest driver of improving our unit and per ounce costs is to increase the mine and mill to create the scale required to maximize site cash flows.
 
Please turn to Slide 8. To provide sufficient liquidity during this ramp-up phase and for our future growth objectives, we have been working to complete a refinancing of our current debt package. We have received several favorable term sheets that support our liquidity needs each remain under consideration, as we are targeting to close the refinancing by the end of April. Management believes a successful refinancing along with the expected cash flows from operations, provide the liquidity to continue the ramp-up and expansion of the Magino mine as well as the leach pad and CIC projects at Florida Canyon.
 
I'll now turn the call back over to Richard Young.
 
Richard Young
 
Well thank you, Dave. Now turning to Slide 9. While the ramp-up of Magino has been slower than expected, as Chuck mentioned, we expect the mine and mill to have completed their respective ramp-ups by the end of the second quarter. Further, the mill optimization work is expected to offset the expected lower grades compared to the technical report, put us back on track in 2025 to the tech report in terms of production.
 
As Dave mentioned, we plan to complete the refinancing over the next 30 to 60 days to enhance liquidity and flexibility and enable us to achieve our expansion goals to take the Magino mill to a target of 15,000 tonnes per day. The higher throughput through the mill expansion should significantly improve free cash flow generation in the coming years. As I mentioned at the outset, we believe Magino will be one of the largest and lowest cost gold mines in Canada.
 
Operator, I'm sorry, Joelle, can you please open the call for questions.
 
Question-and-Answer Session
 
Operator
 
[Operator Instructions] Your first question comes from Wayne Lam with RBC.
 
Wayne Lam
 
Just wondering if you might be able to provide a little bit more detail on the lower mine grades to date at Magino in terms of reconciliation and dilution issues. And just wondering, if you could clarify on the grade guidance. Is that 5% to 10% lower this year and then a rebound back to the 1.4 gram level next year? And if it's lower grades anticipated near term, is there an offset to that in the back end of the mine plan? And any read-through to a great impact with the upcoming reserve update?
 
Richard Young
 
So Wayne, let me start off, and then I'll turn it over to Marc. So the guidance that we gave last week was that over the next three years in the tech report, the average grade is about 1.35. And we expect, based on what we're seeing as we reblock on standard mining units, we're not -- we're seeing more medium grade. So the grades are coming down by 5% to 10% over the next three years, but we don't expect the overall grade of the reserve to change or ounces and we saw that through the month of February where we saw lower grade of the high grade, but we saw a very good match of the overall grade mined and ounces mined. And I'll turn it over to Marc to talk about why we're seeing lower grades in the first part of the year.
 
Marc Leduc
 
So the biggest issue we had is we had a particularly small mining block. I'm going to get into the weeds here a little bit. So we -- previous in the plans, we thought we'd be better able to high grade the deposit, get more tonnes at that grade. But what tends to happen is this mix together through just naturally making mineable shapes, which are more than 4x bigger than those blocks. And then also through blasting, you get natural mixing. So we see a loss of high-grade total tonnes.
 
We don't lose the ounces but it makes it more difficult for us to select the big mine and therefore get a higher grade through the mill. So that's -- we really struggled with that the first part of the year. We also had a lot of different technology we threw we now have at the mine with a very advanced fleet management system with high positioning GPS and shovels, I believe improves what we're doing there. We have just came up from the first full operating month in February. So we're tracking -- now we have that data accurate numbers on the trucks before it was all hand calculating sheets. So I would say going forward that 5% to 10% is probably real and going to be there.
 
We are going to be -- look, when we were doing our reserve and resource updates, we're going to be planning on using the big blocks and reporting on that. So you'll that will all be encompassed in any resource statements. We're using that right now in our long-range and short-range planning. So we basically now see -- we can predict what we mine it comes as seen. We are getting post-blast reconciliations. This is all new data because of the advanced systems we have.
 
And so we're really digging into that and understanding where our issues are and working better. I'm actually really happy with the mine. The [Paula Ana] our GM is up there and Jeremy Gulliver, our mining manager has done a fantastic job up there that really turned things around at the mine. The mine is doing very well I find. I don't know if that answered your question, but happy to talk if you will have a follow-up.
 
Wayne Lam
 
Yes. No, that's really good detail. And then just curious with some of the challenges that you've had the past few months at the mill in terms of availability. Just wondering if there's any kind of performance guarantees in place with Ausenco, where you might be compensated for the replacement in some of these components or the longer than anticipated ramp-up to design?
 
Chuck Hennessey
 
Wayne, this is Chuck. A lot of these failures are really just consumables. They're of a lower quality than we had had put in our stock frankly. So things like the three belts, they're major belts, I've not seen belts fail this way before and I've got a maintenance background, I've been in the industry for 36 years. So is there a performance guarantee from Ausenco, this is -- this always boils down to does the plant do what it's supposed to do. And I tell people this is a very well-designed plant. These consumables have been problematic. They have caused some downtime, particularly changing belts. The first time you do it is always a bit of a struggle and then you get a bit of a rhythm going to set up different areas for splice stations. So likely not a lot to claim back on Ausenco. Those things that we can, we obviously do. But for us, the focus with the team has just get through the issues and move forward.
 
Wayne Lam
 
And then just moving to Florida Canyon, it seems like quite a capital spend this year for the construction of the additional leach pad. Was there any consideration to kind of placing the mine on pause to kind of preserve the balance sheet amidst the ramp-up at Magino? And in terms of optimizations at the mine, which have been kind of evaluating over the past few years, how should we kind of think about the longer-term production and cost outlook there?
 
Marc Leduc
 
It's Marc, Wayne, and Rich may comment a little bit add to this but I'll just go into sort of technical side. We were running out of pads space, so we really can't run Florida Canyon unless we build the Phase 3 in pad. So it's -- it would be a concept of shutting down the mine.
 
On a cash cost basis, it makes money. And it's going to make money for the next six or seven years of what we know. I think it's got a lot of good oxide potential, which is sold by a deposit there. I'm not going to make too much of that but we still want to understand to see if there's some potential there. But certainly, it will continue to be producing in that 60,000, 70,000 ounce range of these kind of grades and stripping ratio -- 0.5 stripping ratio.
 
The key to Florida Canyon is driving time, lots of times of putting a lot of mine in there. We've got crushing plants. So we do about 900,000 tonnes through the crusher and then another 300,000 or 400,000 tonnes a month run of mine. And if you do that, it starts to get a good divisor and you can get through your G&A costs and it makes money. So that's been the key to doing it.
 
But when we push the tonnes, we also need to upgrade our processing plant, so we can handle more flow. So tonnes equals more flow. So we're doing that, and that's all, unfortunately, a lot of things in Florida Canyon got delayed because of the building of Magino and now the chickens have kind of come home to roost. We have some obligations for hedges, and so these are profitable cash cost ounces that make the company money. And they've done a really fantastic job the team there. Greg Robinson, our GMO there has really kept things in line and the team -- the whole team has worked to make it pretty well.
 
I don't know, Richard, if you want to add anything, it's kind of painful that we do it and you're absolutely right. But it's really hard to lose those ounces.
 
Richard Young
 
Yes. Wayne, I think Marc covered it off. So from a financial standpoint, the refinancing that we're doing provides the liquidity over the next six months, this period of half -- high capital spend both at Magino and Florida Canyon that really can't be avoided to optimize the NAV of the assets and address the hedge book. And so we've had several refinance years, look through the financials and provide term sheets that give us that flexibility not only to address the liquidity through the first half of the year, but as well is complete that expansion as we talked about in December with the equity raise to 15,000 tonnes per day. So again, until the -- we finalized the refi, we can't really talk in detail about it but it will provide the flexibility that we need operationally and financially to move forward.
 
Marc Leduc
 
And Wayne, just Marc, again, I just want to add it's not on Florida Canyon, but we have put on care maintenance like Colorado mine, there's money to be made there. It's a very good asset. But we had to balance which ones would keep in place. So we have had some pain on here to figure out our best move forward to control cost and capital.
 
Wayne Lam
 
And then maybe just a last one for me on the debt refi. Will that involve an increase in the current facility size? Or is that just deferring some of the start and the repayments? And then just curious if you're looking at a more comprehensive financing package that will also encompass the convert due next year as well?
 
Richard Young
 
So the refinancing is to take the banks out and provide a facility that matches our cash flow and growth needs. So again, we need more flexibility than the current structure allows. And so it will be a completely new facility. And it does not reflect taking out or incorporate taking up the converts next year. We'll deal with that next year. .
 
Operator
 
Next question comes from John Sclodnick with Desjardins.
 
John Sclodnick
 
Just first on, I guess, Magino, you contemplate some changes for the crushing and grinding circuit there just to improve throughput rates. Just curious if you're -- yes, really what's entailed in that and if there's going to be any impact to OpEx?
 
Chuck Hennessey
 
There's not a lot of design change. So it actually runs really well. The static at the primary crusher, we're replacing far more open area. We're moving -- trying to move away from everything being loaded in to the crusher with front-end loaders to being able to direct tip trucks that will reduce our costs. There's a couple of minor shoot modifications that we've got to get on with. But frankly, the design is fine and thing runs well. It's a matter of getting the last belt replaced, getting through these shoot issues. Some of it we found just because of the winter we've had. We've had freestyle cycles all winter long and so frost build up. It's really allowed us to kind of bed down the plant. I'm really pleased with the way the team is taking it on. So I'm not concerned at all. .
 
John Sclodnick
 
And then with the fleet modifications there, is that factored into the guidance? And what kind of timing are you looking at based on that guidance?
 
Marc Leduc
 
The fleet, we will okay, so it's important that Magino or release to get our tonnage up. And we are anticipating just the plant running better and being 1,000 tonnes a day coming in with it with just some additional optimization in the mills and some pulp lifter and they've got some, Chuck might give a little bit better color on that. So that's the reason we have we're getting that one more big shovel and the four new haul trucks and we're commissioning a Nicholas toll drill.
 
So yes, that's all worked into our costs. I think we automatically saw -- we went from around about 45,000 tonnes a day to north of 60,000 tonnes a day by just clicking on the fleet management system. There is a linear programming optimization of dispatching in that. A lot of it is people understanding the controls of time. So instantly, we saw being productivity jump just by having us in the truck, people starting on time, not overstaying their leaches.
 
So yes, I think we're actually going to knock it out of the park in the mine this year with that. So we will take that all into account on the -- it is in the guidance for the cost wise, but like I said, I'm not worried about the mine really, they're on the road to success. We've got lots of things to improve but we've given them all the tools they need to move forward.
 
Richard Young
 
Just coming back to the guidance. So the guidance reflects a weak Q1 because we're in lower grade areas of the pit. The lower throughput rates through the first half of the year as we work through those issues, and the lower expected grade in the high-grade areas of the deposit. So the $120 million to $130 million fully encapsulates all that.
 
John Sclodnick
 
And just last thing with the guys. Just curious what Canadian dollar assumptions are included there?
 
Richard Young
 
The Canadian dollar assumption, Dave.
 
David Ponczoch
 
1.35 was the assumption.
 
Operator
 
[Operator Instructions] There are no further questions at this time. Please proceed.
 
Richard Young
 
I just want to thank everybody for attending the call today. And I apologize for the challenges that we'll be going through the ramp-up has been much slower than we would have liked, but we are well on track both within the mine and the mill. Moving to target rates as laid out in the tech report. And we believe that, yes, we're going to see lower high-grade than was in the tech report but that should be more than offset as we exit the year with higher throughput, putting us back on track production wise, and we'll continue to work on the cost structure and the expansion to generate strong free cash flows as we expand this mine moving forward. Thank you for your time today.
 
Operator
 
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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