Vista Gold Corporation (VGZ) Q1 2013 Earnings Call May 8, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to Vista Gold’s First Quarter 2013 Financial Results and update on recent activities. (Operator Instructions). Following the presentation, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded. Today is Wednesday, May 8, 2013.

It is now my pleasure to introduce Vista’s President and Chief Executive Officer and your host, Mr. Fred Earnest. Please go ahead, Mr. Earnest.

Thank you, Valarie. Good afternoon, ladies and gentlemen. Thank you for joining Vista Gold Corp’s 2013 Q1 financial results and second quarter project update conference call. I am pleased to be joined on this call by Jack Engele, our Senior Vice President and CFO. Also present with us here in Denver is Connie Martinez, our Director of Investor Relations.

As everyone knows, the market for gold equities, in general, has been extremely challenging this year. Year-to-date, Vista Gold is down 43%, roughly in alignment with the performance of the Market Vectors Junior Gold Miners ETF or GDXJ. Although the gold price has recovered some ground since its precipitous drop in April, we think it is prudent to be prepared for a continuation of volatility in the gold and gold equity markets.

Accordingly, we have developed and are continually evaluating strategies that will help to ensure that we remain fully funded through non-dilutive means, thus ensuring that we meet our compliance and environmental responsibilities.

We believe that our plans will allow us to continue to add value and advance the Mt. Todd project in preparation for development of the project when market conditions improve. In the course of this call, we will be making forward-looking statements. These statements involved known and unknown risks, uncertainties and other factors, which may cause the actual results’ performance or achievements of Vista to be materially different from any future results, performance, or achievements expressed or implied by such statements.

Please refer to our Form 10-K for a detailed discussion of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements.

I will now turn the time over to Jack Engele. Following his discussion of the financial results, I will provide an update on the status of our core projects.

Thank you, Fred. Good afternoon, everyone. I’ll start with our statement of income and loss for March 31, 2013. We reported a net loss of $27.4 million, or about $0.34 a share for the three months ended March 31, 2013. The largest component of this loss was an $18.2 million mark-to-market loss, net of tax, on our Midas shares. We expensed a total of $7.1 million during the quarter for exploration and related work, mainly at Mt. Todd, where we completed a significant water treatment program.

Other operating activities include work on the Mt. Todd feasibility study and advancing the project permitting process. During the quarter, we also incurred general and administrative expenses of $1.9 million. Activity at Guadalupe de los Reyes was minimal during the quarter, as our principal focus right now is Mt. Todd. I should point out that these exploration and G&A expenses company-wide include a total of about $900,000 in non-cash stock-based compensation expense.

Turning to our balance sheet, our cash and cash equivalents decreased a net of about $2 million during the quarter to $16.3 million.

We saw this as a fairly priced non-dilutive source of liquidity during a very difficult equity market. And it gives us the ability to continue our evaluation at Mt. Todd, where we expect to complete a Pre Feasibility Study shortly and significantly advance the project permitting process, neither of which is particularly capital-intensive.

Some of the key features of the loan are that it preserves our flexibility, because it can be extended for a year, provided certain conditions are met. And the proceeds from the sale of Colomac mill equipment when it sells, and I should point out we don’t have a buyer for it at this time, but when it sells, we do not have to use the proceeds to repay the loan. And the Mt. Todd assets are not encumbered as security.

The interest rate on the loan is 8% per annum payable monthly. The March 31, 2013 fair value of our position in Midas Gold was $40.7 million. This is a reduction of $28.8 million during the quarter. This reduction is consistent with the recent steady decline in the junior notes equity values. The number of Midas shares we hold remains unchanged.

We continue to believe that it would not be in the best interest of our shareholders to sell in this market. Our working capital as of March 31 totaled $31.7 million. This is a decrease of $28.6 million since December 31, 2012. The largest component of this decrease is the change in fair value of our Midas shares, net of a reduction of the related deferred tax liability. And of course, we’ve always added a $9.8 million current liability related to the term loan.

Looking ahead, we’ve completed a comprehensive review of our budget for the remainder of the year to identify those programs that can be scaled back or deferred until market conditions improve. As a result, we expect Mt. Todd’s burn rate to average $3 million to $3.5 million per quarter for the rest of the year, a significant reduction from the first quarter burn rate, mainly because of the completion of the water treatment program in Q1.

Our G&A burn rate is expected to average $1.3 million to $1.5 million per quarter for the remainder of the year and we’ll incur relatively modest other costs, mainly debt interest averaging about $250,000 a quarter. We will continue to review all spending and manage our costs in this manner going forward, so that we will be poised to make further reductions or deferrals as necessary. With these changes, we believe our current cash balance of $16.3 million will be sufficient for the remainder of 2013.

Possible future non-dilutive funding sources include the sale of the Colomac mill equipment, which we expect will net us in the range of $10 million, the investment Los Cardones project, which would result in a $20 million payment to us, and we’re considering alternatives for monetizing all or a portion of our Guadalupe de los Reyes project in Sinaloa, Mexico.

That concludes my comments on our financials. I’ll turn this back to Fred now to give you an update on our projects.

Thank you, Jack, for discussing Vista’s financial results for the first quarter of 2013. I will provide a brief overview of our projects, starting with our non-core projects and concluding with, most importantly, with the Mt. Todd gold project.

I will start with the Awak Mas gold project in Indonesia. Our partners, One Asia Resources Limited, continued to make progress with the evaluation and permitting of the project. Meetings related to the final approval of the environmental permit and the acceptance of the project feasibility study were held with the respective Indonesian authorities in the last two weeks.

At the Los Cardones gold project, formally the Concordia gold project in Baja California Sur, Mexico, the Invecture Group has advised us that permitting is moving forward, although at a slower pace than expected. In meetings with the Invecture Group earlier this week, we were advised that Invecture believes it will be in a position to submit both the environmental permit and Change of Forest Land Use applications later this summer.

This leads us to believe that we might see the Earn-in Right exercised in the fourth quarter of this year. As previously reported, we have retained A.M. King Industries to manage the orderly sale of the mill equipment, all of which is in storage in Calgary or Edmonton.

Two companies have expressed interest in the mill equipment and have either completed inspections or are working with their process engineers to evaluate the suitability of the equipment for their respected projects. While we hope to see the sale progress in the near future, we have no certainty regarding the timing of the sale of this equipment.

Moving onto the Guadalupe de los Reyes project in Sinaloa, Mexico, as we stated last quarter, this is a non-core project and we are evaluating strategic options. Since announcing the results of the preliminary economic assessment for the project on March 4, we have signed confidentiality agreements with several companies with interest in Sinaloa, some of which are advancing their own independent evaluations at this time. Jack has indicated that this is one of the options that we are considering monetizing.

Finally, at Mt. Todd, good progress has been made at the Mt. Todd gold project in Australia. In a thoughtful and methodical way, we continue to add quality people to our project team. We’ve recently hired a Site Manager to permanently fill the position that had been filled on an interim basis. Like our General Manager, our new Site Manager is a resident of the Northern Territory. His previous experience includes site management, mine operations and construction experience.

The wet season at Mt. Todd has now ended and I’m pleased to report that we have successfully completed the water treatment program in the Batman pit. We have treated approximately 11 gigaliters or 11 million cubic meters, and successfully removed approximately 99.7% of all metals. The pH of the water is now approximately 7.8, compared to a pH of 3.3 when the treatment program was initiated.

The preliminary results of ecotoxicological tests being completed in accordance with our Discharge License lead us to believe that we will able to discharge nearly all of the treated water during the next wet season. The tremendously improved quality of the treated water is expected to result in a discharge mixing ratio in the range of one to 25 to one to 50.

This compares to the mixing ratio of one to 20,000 required prior to the water treatment program. The discharge pumping and piping system is installed, tested and operated briefly near the end of this past flood season.

We are all proud of the results and I am pleased to indicate that our successful water treatment program has been nominated for two environmental awards. I would refer those of you who would like more detailed information about the water treatment program to go to the Mt. Todd project website at www.mttodd.com.au.

Earlier this quarter, we submitted a draft version of the Environmental Impact Study for review by the Environmental Protection Agency of the Northern Territory. The agency actually suggested that we submit a draft for the purpose of reviewing the completeness of our EIS prior to its formal presentation after the completion of the Preliminary Feasibility Study. Their willingness to review a draft version of the EIS, and their initiative in requesting this, demonstrates the agency’s desire to expedite the approval process and minimize the potential for unseen delays.

On April 11, the Minister of Mines and Energy announced that the Chief Minister of the Northern Territory had granted the Mt. Todd gold project Major Project Status. Major Project Status is awarded by the NT Government to projects that have the potential to provide significant economic opportunities to the territory and its citizens.

Major Project Status provides a process and a structure for decisions regarding matters of importance to the project to be made in an efficient and timely manner. Major Project Status is coordinated by a Cabinet-level committee and implementation is supervised by the Office of the Chief Minister and is expected to minimize the potential for delays in obtaining critical decisions.

We are pleased with the recognition that Major Project Status brings and the commitment by the Northern Territory Government that is manifest by the award of Major Project Status.

Last, and perhaps most important to many on the call, will be the topic of our progress on the Preliminary Feasibility Study. Since our last conference call, the Vista team and its consultants have completed detail evaluations with mine plans developed at cut-off grades of 0.4, 0.45, 0.5, 0.55 and 0.6 grams of gold per ton.

They have varied the internal economic thresholds for the mine plans and have used discount rates of 5%, 10%, 15% and 20%. They have evaluated the economics of 15,000, 20,000, 30,000 and 45,000 tonne per day process plants. These evaluations have been undertaken for the purpose of defining an optimal project in the light of current market conditions.

Following the evaluation of many combinations of mine plans and process plans and after reviewing National Instrument 43-101 rules related to the announcement of results, we have decided to present two different development scenarios. One will be a 30,000 tonne per day operation with a higher cut-off grade and a shorter mine life, while the other will be a 45,000 tonne per day operation with a longer life and a cut-off grade consistent with our previous technical reports.

One of these two cases will be identified as the base case in the announcement of the Preliminary Feasibility Study results. We have chosen this approach because the Mt. Todd project is a robust project that can be adapted to deliver the most appropriate project at the time we make a development decision. Both scenarios will be reported at the same gold price and economic conditions to allow easy comparison between the two. NI 43-101 requirements dictate that our report contain comprehensive information for both cases. You will appreciate that our decision to report results in this manner has created additional report preparation requirements for all of our consultants.

We are planning to have final results later this month, i.e., later in the month of May, and expect an announcement with a detailed explanation prior to the end of this month. With the completion of the Preliminary Feasibility Study imminent, our next focus will be the completion of the Environmental Impact Study. This will be via, this will be followed by a series of discussions with the Northern Territory Government on key fiscal, environmental and energy initiatives. Work on the Feasibility Study, which in some areas is substantially complete, will resume once we see improvements in the market.

I know that this has been a lengthy conference call and I would like to thank you for your interest and patience. We are optimistic that market conditions will turn more favorable, but, of course, have no way of knowing when that will be.

In the meantime, we will remain focused on Mt. Todd. We are controlling our costs and keeping an eye on our treasuries. Our team is focused on achieving results and is committed to regular assessment of our programs and strict budget controls. We believe that we are adequately financed.

Our monthly level of expenditure has decreased, now that the water treatment program has been completed, and we will continue to seek further reductions in our expenditures. The debt facility is intended to provide the cash required until we can complete the sale of the Colomac mill equipment and Invecture succeeds in obtaining the permits for the Los Cardones project and subsequently completes the Earn-in to the project.

We are on track to receive the environmental permit for the Mt. Todd project and are very pleased to have been awarded Major Project Status. I might add that the only other project in the Northern Territory that enjoys Major Project Status is a $34 billion LNG project in the port of Darwin.

The water treatment program has been a tremendous success and has served to further cement our good standing with the local community. We are encouraged by the results of the recent work being undertaken at Mt. Todd.

In closing, I would like to express my appreciation to the Vista team and our consultants for their dedication and hard work. And I look forward to continued good results as we move forward. This concludes managements’ report and portion of this call.