In the first quarter of 2024, Orezone Gold Corporation (ticker: ORE) reported gold production of 30,139 ounces, aligning with their planned output. The company's revenue from gold sales reached $64.7 million, with earnings from mine operations at $26.9 million.
Despite a 43% increase in all-in sustaining cost per ounce compared to Q1 2023, Orezone paid down $5 million of senior debt, leaving $56 million remaining. The company is on track with its expansion plans, including the Phase II Hardrock project, and is set to restart exploration in the third quarter of 2024 to further unlock value at the operation.
Key Takeaways
- Orezone Gold Corporation produced 30,139 ounces of gold in Q1 2024.
- The company reported $64.7 million in revenue from gold sales and $26.9 million in earnings from mine operations.
- All-in sustaining costs per ounce sold increased to $1,324, a 43% rise from Q1 2023.
- Orezone reduced its senior debt by $5 million, with $56 million remaining.
- Plans for Phase II Hardrock expansion are underway, with first gold production expected in late 2025.
- Exploration to commence in Q3 2024, focusing on the Hardrock area.
Company Outlook
- Orezone anticipates increasing annual production to over 170,000 ounces by late 2025, with a potential of reaching 180,000 ounces in 2026.
- The company is confident in generating significant cash flow from the expansion, aiming for full debt repayment by 2027.
- The focus remains on the Hardrock exploration, while maintaining confidence in the current oxide grades.
Bearish Highlights
- Gold production in Q1 2024 was lower year-over-year due to depleted high-grade stockpiles.
- The company experienced a 43% increase in all-in sustaining costs per ounce, with unit cash costs rising to $21.05 per ore tonne processed.
Bullish Highlights
- Orezone has commenced construction for Stage 1 of the Phase II Hardrock expansion.
- The expansion is backed by an XOF-denominated bridge loan from Coris Bank, enhancing the company's cash position and liquidity.
- CEO expressed optimism about the company's growth prospects and the support from their local bank.
Misses
- There was a minor power issue reported, but the plant continues to operate well.
Q&A Highlights
- The CEO addressed the impact of blessing ceremonies on project timelines, reassuring that these events may expedite progress.
- The potential size of a new pit is estimated to be between 5 to 7 million tonnes per annum, with production possibly ranging from 100,000 to 140,000 ounces.
- The company expressed confidence in the exploration focus on Hard Rock and the consistent oxide grades for production.
Orezone Gold Corporation remains steadfast in its operations and growth initiatives. With the MV3 wrap completion allowing access to mining in the South and the commencement of the Phase II Hardrock expansion, the company is poised for increased production and exploration activities. Despite facing higher costs and production challenges, Orezone's strategic debt reduction and robust expansion plans signal a commitment to long-term value creation and operational efficiency. The CEO's participation in a house-moving ceremony and the initiation of construction for the expansion underscore the company's progress and community engagement. As Orezone looks forward to a strong year with exciting news flow, the market will be watching for the outcomes of their upcoming exploration campaigns and the anticipated increase in gold production.
InvestingPro Insights
In light of Orezone Gold Corporation's (ticker: ORZCF) recent performance and future prospects, InvestingPro has highlighted several key metrics and tips that may be of interest to investors:
InvestingPro Data shows a robust revenue growth of 103.34% over the last twelve months as of Q1 2024, signaling a significant increase in the company's financial performance. This is complemented by an impressive operating income margin of 30.17%, which indicates efficient management and profitability potential. The company's P/E ratio stands at a compelling 6.59, suggesting that the shares might be undervalued compared to earnings.
InvestingPro Tips for Orezone Gold Corporation include a perfect Piotroski Score of 9, which implies strong financial health and could be a reassuring sign for investors looking at the fundamental strength of the company. Another tip highlights that analysts predict the company will be profitable this year, aligning with the company's confidence in increasing annual production and generating significant cash flow from its expansion plans.
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Full transcript - Orezone Gold Corp OTC (ORZCF) Q1 2024:
Operator: Thank you for standing by. My name is Hermani, and I will be your conference operator today. At this time, I would like to welcome everyone to Orezone Q1 2024 Results Webcast and Conference Call. [Operator Instructions]. I would now like to turn the call over to Patrick Downey, President and CEO. Please go ahead.
Patrick Downey: Thank you very much, and welcome to the Orezone Q1 2024 Results Conference Call. With me today will be Peter Tam, CFO, who will be going through the financial aspects of the quarter. So during Q1, we had gold production of 30,139 ounces, which was right on plan. Gold sales of 31,229 at an all-in sustaining cost of $1,324 per ounce sold. Cash at the end of the quarter stood at $15.6 million. We also paid down a further $5 million of senior debt, which on top of the $34 million we paid in 2023 leaves us with approximately $56 million of senior debt remaining. We had 0 LTIs during the quarter, worked of 1.4 million hours which is another strong reflection of the operational excellence at the Bomboré mine. We also essentially completed the MV3 wrap. I'll talk about it in a little bit later on, but that now allows us access to mining in the South, and we're on track to meet full year guidance for 2024. We also announced that we'll be doing a Phase II Hardrock expansion. It will be completed in 2 stages. We announced that last week. I'll talk about that later on in the presentation. And very importantly, we will be commencing another phase of exploration, which will be ongoing likely for several years which will further unlock value at the operation. I'll now hand over to Peter.
Peter Tam: Thank you, Patrick. Our financial and operating highlights. For the first quarter, we produced 30,139 gold ounces consistent with our mine plan in grades and sold 31,229 gold ounces at a realized gold price of $2,066 per ounce. Cash cost was $1,127 per ounce sold and all-in sustaining cost was $1,324 per ounce sold for a healthy cash margin of $742 per ounce or 36%. Gold production in the first quarter was lower than the comparable quarter in 2023 as the prior period mill feed benefited from the reclaim of high-grade stockpiles, which were fully depleted by the end of June 2023. Revenue from gold sales was $64.7 million, resulting in earnings from mine operations of $26.9 million after cost of sale of $37.8 million. Cost of sales was comprised of $30.1 million in production costs, $5.1 million in government royalties and $5.7 million in depreciation and depletion, partially offset by a $3.1 million write-down reversal to our long-term ore stockpile inventory, driven by an increase in the consensus long-term gold price during the quarter. Pretax income was $20.4 million and the after-tax net income was $13.6 million. Net income after minority interest was $11.7 million, and basic and diluted earnings per share were both $0.03 for the quarter. In terms of cash flows. Operating cash flows before changes in working capital was $20.4 million and after working capital was $13.6 million. Cash used in investing activities was $11.6 million, which included growth spending of over $6 million for the ongoing wrap, finalization of the grid power connection and early works for the Phase II Hardrock expansion. This resulted in free cash flow of $2 million for the current quarter. As stated by Patrick earlier, cash at March 31, 2024, stood at $15.6 million after principal repayments on our Coris Bank senior debt of $5 million in the first quarter. To improve our cash position and near-term liquidity, the company closed and drew upon an XOF-denominated bridge loan of approximately USD 20 million with Coris Bank after the end of the quarter on May 10. We are in advanced discussions with Coris Bank for the project loan on our Phase II Hardrock expansion and expect to conclude a binding debt commitment before the end of June in order to allow the expansion to proceed. Next slide. Production and unit cost summary. Operationally, for Q1, we mined 5.5 million tonnes at a strip ratio of 1.3. Mine tonnes were 20% higher than the same quarter in 2023 as mining rates in the current quarter were increased by the assistance of a second mining contractor that mobilized the site in July of last year in order to help key pace with the mine plan. For processing, we processed 1.36 million tonnes in Q1 2024 at an average head grade of 0.78 grams per tonne gold with a recovery rate of 89%, resulting in gold production of 30,139 gold ounces. When compared to Q1 2023 gold production of 41,301 gold ounces. Gold production declined by 27% due to an 18% decrease in head grades, a 6% decline in plant throughput and a 3% decrease in plant recoveries. The reclaim of high-grade stockpiles at supplemental mill feed contributed to the higher head grades in 2023. As for plant throughput and process recoveries, they are lower in the current quarter due mainly to the greater proportion of transition ore as mining deepens in certain pits and lower plant availability experienced in the quarter. Specifically, the presence of harder transition ore results in slightly lower metallurgical recoveries, lower plant throughput and additional plant maintenance, while plant availability was also impacted from commissioning activities to connect to the national grid in January, followed by the unexpected shortage of grid power from Sonabel beginning in March. We do expect, however, plant throughput, head grades and recoveries to improve from a greater blend of oxide ore once mining commences at Siga East in Q3 2024. From a cost perspective, all-in sustaining cost per ounce sold was $1,324 in Q1 2024, a 43% increase when compared to Q1 2023 all-in sustaining cost of $924 per ounce. The higher all-in sustaining cost is attributable to lower gold production, greater per ounce royalty costs from the new royalty rates that came into effect in October 2023 and increased mining costs. Unit cash costs covering mining processing site G&A was $21.05 per ore tonne processed in Q1 2024, an increase of 11% from $18.96 per ore tonne in Q1 of 2023. The increase is due to the higher mining and site G&A costs and from fewer ore tonnes processed. Mining costs have moved higher as lower benches or mine, resulting in longer haul and more transition material that requires drill and blast prior to excavation, combined with a higher strip ratio and more contractor management fees with the use of 2 mining contractors. Site G&A costs reflect greater security spending as mining and wrap activities progressively increase in the southern half of the Bomboré mining permit. Processing cost per ore tonne have remained relatively steady from $9.21 per tonne in Q1 of 2023 to $9.24 per tonne in Q1 2024. Unit processing costs were expected to decline in Q1 2024 from 2023 levels upon connecting to the national grid at the end of January. However, power cost savings were offset by the greater blend of transition or resulting in higher per ton consumption of power, grinding media and main reagents, more planned maintenance to address higher equipment wear and from lower plant throughput. Furthermore, the mine relied on more self-generated power using diesel beginning in March from the lower-than-expected availability of the national grid towards the end of the quarter. We do expect unit cash costs to improve once full mining access commences at Siga East with greater release of near surface oxide ore from the starter pits in this area beginning in the second half of 2024. With that, I'll hand it back to Patrick.
Patrick Downey: Thanks, Peter. I'd now like to walk through our expansion plans and our exploration plans for the coming year and beyond that. So obviously, we built the oxide plant that's up and running, running well. We did it on time, under budget. We're now planning for a Phase II Stage 1 Hard Rock plant. It is completely independent at the front end and it combines the back end, I'll show you a little bit of a simplified flow sheet later on. And then Stage 2 will take us to above 225, but we're not exactly sure that full run rate will be, but it will be better determined by ongoing exploration. And the exploration, we're really looking at how do we unlock the value of this project. We had some phenomenal drill results right up to the end of 2022. We've done no drilling really since then. We're looking forward immensely the restarting exploration in Q3 of this year. So we announced last week our staged expansion plans. Strong production growth up above 170,000 ounces a year by 2026. It will take about approximately a year to build this Phase 1 plant. The focus will obviously be on deleveraging the balance sheet, building an ongoing strong treasury. There's obviously a renewed focus on exploration and then we'll evaluate the timing and size of Phase 2 as we unlock the value from the exploration and look at how Phase 1 performs. So Stage 1, a very simple flow sheet somewhat merged the oxide plant. The only real difference is we've got a jaw crusher on the front end. We have a sag mill which we have identified now and we -- once the debt package is signed, we'll move on that very quickly. Five leach tanks, which will be exactly the same size as those in the existing plant. And then the existing gold recovery circuit is capable of processing all the carbon from both the Stage 1 Hard Rock and the oxide plant. So no further modifications required there and no further infrastructure acquired. So it's a very modest capital cost to add 2.5 million tonnes of high-grade Hard Rock to the plant. And then we can expand it by adding a ball mill and a pebble crusher and a number of other tanks, et cetera, and we can bring it up to 5 million to 7 million depending on what size this looks like in a couple of years' time. So very flexible from the point of view of expansion. So we're really positioning ourselves for growth going forward, a solid Q1 sets the platform for 2024. The ramp is now complete. We actually had the key handling over this past week end. We've been able to get in and put in some of the mine infrastructure, including the mine haul roads and do the advanced grade control the community where we're very accommodating to us in that regard. They will now start moving to their new houses. Their chief has taken the keys in that ceremony, which gets the move going. It may get us in a bit earlier. So we're hoping to do that to get into that softer higher-grade ore in the sites for the second half of the year. As I said, Stage 1 is announced. We will start construction. We have started early works already. We have done upfront engineering. We have identified our SAG mill. I think we've got our jaw crusher vendor selected, and then the rest is exactly the same equipment as the oxides who will just be buying from those vendors. So it should take about 12 months to Same team has built the Phase 1, so right on cue to get going here. Approximately $80 million of CapEx, which will be funded from debt and cash flow with first gold in late 2025, which will push our production to above 170,000 ounces a year, probably closer to 180,000 in 2026. And then excitingly, we'll be starting an exploration campaign in Q3. We did -- we identified some great targets from our drilling in 2022, some brand-new targets to follow up on what we did at P-17, which we expect to add high-grade ounces there. The phenomenal thing about this deposit, we've got 2.3 million ounces of reserves to an average depth of less than 40 meters, which really gives you an idea of the strike extent and the footprint of this project. The multimillion, approximately 5 million ounces of resources down to a depth of less than 200 meters. During that drilling in 2022, we identified several high-grade targets along strike, mainly around P-17, P8, P9 and MEGA, which we want to now follow up on by doing this project in stages, which will give us the opportunity to do that, and we will go after that starting in Q3, which will really, I think, start to open up the exploration size potential of Bomboré. So it should be an exciting year. We are positioning ourselves for growth. We've got the support and strong support of our local bank, Coris. And the plant is running and running well. So we're pretty happy with that. As Peter said, we have a little blip with the power that was nothing to do with our power supplier, it was really to do with the from I think everybody else experienced it in the area is the first time that it happened. So we hope that, that smooths out here and keeps us running smoothly for the rest of the year. I'd also want to take this time. We announced a board change with Mike Halverson stepping down, and I really want to Mike. He's been at my side now at the whole time I've been at Orezone. He's been a phenomenal guy to work with. He will remain as Chairman Emeritus, which is a testament to how well he has served this company, and I look forward to working with Mike in the future. But a big thank you to Mike there for his stellar work throughout his time at Orezone from its formation. Thank you, and I'll hand you back to the operator for questions.
Operator: [Operator Instructions] And your first question comes from the line of Jeremy Hoy with Canaccord Genuity.
Jeremy Hoy: Just a quick question on the RAP program. There was just a bit of a delay due to some blessing ceremonies for MV3s, which is the first of 3 stages. Any impact expected for the second 2 stages from having to do similar ceremonies?
Patrick Downey: Not that we know of. But you can never really plan these things. I mean we were -- it didn't really affect Phase 1 because of COVID. So we had a lot of extra time to get it done. So never really came up on the agenda. But now that we know about it, obviously, we'll be looking to start it earlier. And these things are really down to the community, Jeremy. They will determine when the various people can come out to bless the ground, et cetera. And I don't know how it all works, to be frank with you, but you have to respect all of their customs and which we do. But we caught up most of it, to be honest with you. Our guys did a hell of a job in terms of the construction, et cetera. And the key ceremony, which again, takes a bit of time with the chief. That happened very quickly. They were very cognizant of our of our timing. So we will look into it. We don't expect it to delay anything. The other key thing is that they are very small villages further on. So we're not expecting a major delay there. We -- you learn more about this construction as you go on and what you can do. So we're pretty comfortable we can deal with it.
Jeremy Hoy: Okay. That's helpful color. My next question is on Stage 2 of the Phase 2 expansion. So I think it's pretty clear what to expect from Stage 1, and we'll look for finalization of the debt financing from Coris. But on Stage 2, I was hoping for a little more color on how you're thinking about that. Is that contingent on finding additional resources or does that look attractive even with current resources? And when could we expect to see a potential CapEx number for that and additional technical details? Any color you have on how you're thinking about Stage 2 would be helpful.
Patrick Downey: Okay. Well, Stage 1 right now is 2.5 million tonnes per annum. We can expand that up to around 6 or 7. We could do it very simplified by just adding a ball mill and tanks and in other additional columns, that would be a fairly -- maybe less 100 million, maybe less than that. But obviously, with the drilling, we may -- right now, we've got a large resource base. We're redoing all of our reserves at $1,700 or just around $1,700 sort of a lot less below the long-term gold price, but still reasonable. That has probably added close to 40 million tonnes to our reserve base. So we can go to likely around 6 million or 7 million tonnes. It's really around about where do we see the upside. I mean we had a couple of big heads outside of -- in the footwall of P8, P9, and a large granodiorite block, we really don't know what that is and where it's going to go and how it sizes up that pit. So it could be larger, but it likely will be between 5 million to 7 million tonnes per annum. If it's 5, it will be somewhere around 100. If it's 7, it will likely be something around 140. That would be our current sort of rough estimates.
Operator: [Operator Instructions] Our next question comes from the line of [indiscernible] with [Aurizon] mining.
Unidentified Analyst: I'm saying we should be happy to price the gold is up. But I'm wondering with the expansion, $80 million plus the debt you already have with the low cash flow, how long do you think it will take to pay back the debt?
Patrick Downey: Well, obviously, the cash flow goes up with the expansion because we're pushing the production, we're pushing -- the grade goes significantly up with that Hard Rock, particularly coming from P17. So all of that model has gone to the debt provider. And so that's where the debt package comes from. So they understand and they use a different gold price than we do. Obviously, they don't use. They take a bit more conservative approach to these things. So we're fairly confident on that debt. The debt package is provided by the lender based on the model that we give them that they review and they put their gold price to it. So that's where we see that. So we're pretty confident and comfortable ourselves with it. And I think the bank is very comfortable with it.
Unidentified Analyst: Yes. So I'm just wondering how many years you think it will take to pay it back at the price of gold $2,300? Have you made any calculations?
Patrick Downey: At $2,300 I'd be very quick.
Peter Tam: Yes. We're just working on that to finalize all of that. But I would say, look, if we get the -- or the Phase II expansion stage 1 completed in late 2025, we'll be generating significant production and cash flow starting in 2026. And I would expect with the debt we have now and the additional debt we expect to received from Coris for this expansion, we'll have the combined debt repaid sometime in 2027.
Unidentified Analyst: And lastly, I want to know about the grades. Are you going to be able to bring it up to 1 gram with the exploration you've done for the oxide?
Patrick Downey: No, the oxide -- there's very little exploration in the oxide. We're really focusing on the Hard Rock. The oxide -- there are other oxide targets that we have not really fully drilled. We will look at those at some later date. That's not the focus at this point in time. But we're generally comfortable with the oxide grades in terms of production now and what it does. It's really the focus on the Hard Rock, which will drive the cash flow as we go forward.
Unidentified Analyst: So the grades will stay around 0.8 then?
Patrick Downey: 0.7, 0.8.
Operator: [Operator Instructions] There are no further questions. I will now turn the conference back over to Patrick Downey, President and CEO, for closing remarks.
Patrick Downey: Okay. Thank you, everyone, for listening in. We look forward to a strong 2024 and commencing the Phase 2 expansion and the drilling in the second half of this year. Should be a very exciting news flow filled year. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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