Second Quarter Financial Results Recap and H2 Outlook

0:07 Hello, everyone, and welcome to Superior Gold's live investment summit today, hosted by 6. Today, I'm joined by President and Chief Executive Officer Chris Jordan. Chris is going to walk us through a company presentation, and after we'll move on to a live Q&A session where we'll be accepting some questions. You can submit your questions using the Q&A panel found on the right hand side of your screen at any time. And as always, the summit is being recorded and we'll be able to watch afterwards on six.com. Without further ado, Chris, I'd like to hand things over to you to kick things off. So good day to everyone and thank you for joining me to get an update of Superior Gold's Q2 production results and outlook for the second half of 2022. As a reminder, please refer to slide 2 of our presentation, which is posted on our website to view our cautionary language regarding forward-looking statements. I think I'd like to jump in straight away with a few highlights of the second quarter.

0:58 Safety performance continued to improve marketly and truffle went down to 20 or 24% since December 2021. Production was 15,196 ounces of gold with sales of 16,726 of ounces of gold at a realized price of $1,877 per ounce. Gold ounces produced were 20% lower than Q2 2021 with a decrease mainly a result of processing lower grade ore and the shift in the mining activity from the platonic use and perch open pits to the development of the main pit deeps project, which was impacted by heavy rainfall during the quarter. Total cash costs were $1,748 per ounce sold and all in sustaining costs $1,921 per ounce sold.

1:46 Up 24% and 27% respectively on the second quarter of 2022. This is due to the higher total cash costs as well as higher sustaining expiration and capital expenditures with lower production. We generated cash flow from operations of $8.8 million of working capital. And despite all the headwinds, exited the quarter with a robust cash position of $18.2 million. In the second quarter, the company realised improved throughput following the successful mill shutdowns, and the mill is now running at improved rates, which are close to its nameplate capacity 1.8 million times fatter, something we haven't achieved for quite a long period. An improved understanding of the geology and mineralization at Plutonic has led to the mineral all-body extensions.

2:33 Additionally, we released an updated mineral reserve and resource statement indicating a 60% increase in mineral reserves to 630,000 ounces. Moving on to annual production and the financial position, it's worth recapping the improved performance of the business on the operational financial fronts since 2020. While the first half of 2022 was softer due to the planned mill shutdowns in Q1 and Q2, as well as the unprecedented rainfall and high absenteeism due to COVID-19, We are making investments this year designed to deliver on the company's strategy to fully optimise the underground operation and ramp that production up.

3:23 When combined with the addition of a new source of open-pit feed, more specifically the main pit feeds, we expect positive contribution to the company's overall profitability. We continue to target a production rate towards 100,000 ounces on an annualized basis towards the end of the year. Our cash position has remained strong in the second quarter at $18.2 million, representing a 4% improvement from the end of the second quarter in 2021, reflecting improved operating performance and of course the repayment in full of our gold loan at the end of the second quarter in 2021. Moving on to guidance, we are carefully monitoring and reviewing operations, and we did so over the last few months, for further potential disruptions from COVID-19 or other causes which could adversely affect our production costs.

4:14 Therefore, after a thorough operational review, management believe it's prudent to adjust production guidance to a range between 69 and 75,000 ounces for 2022 and an increase in all in-state costs to 1,800, between 1,800 and $1,900 per ounce. We've taken a measured approach on guidance, incorporating learnings from the year to date, in particular, operating in a COVID-19 environment, and its impact on absenteeism, as well as responding to the operational challenges from unprecedented rainfall as the open pit was being re-established. We are targeting a run rate of first 100,000 ounces per annum on an annualised basis towards the end of the year. We would expect a commensurate drop in cash costs and all-in sustaining costs for the quarter.

5:08 Looking forward, we have a number of upcoming catalysts worth noting. Firstly, going forward, we expect to continue to provide regular underground exploration updates. In addition, results from the surface exploration that commenced in FY22 is expected to be published in the second half of this year. We announced the positive results of the updated reserve and resource update. Today, with reserves increasing by 66% to compare to the December 2019 reserve prior to depletion. We expect more opportunities for improvement as we continue the full potential assessment on locked labour capacity and the operations, with a specific focus on the life of mine on the back of the new resource and reserve statement that we published earlier this year. We also expect to be commencing and announcing the results of heritage surveys, which will hopefully have some positive impacts on the main bed pushback project and make clearer the timing of the Hermes South project.

6:04 And over the next 12 months, we have a healthy pipeline of development and exploration catalysts to look forward to. Augmenting this, our recently appointed VP of Business Development and Long-Term planning, Andrew Bigg, will lead the team as we intensify our focus on growth opportunities. We are focused on repositioning Plutonic for long-term success and unlocking shareholder value and we encourage you to take another look at this opportunity. So in summary, what I would like to add is the issues that we had with regards to COVID, the impact thereof, the unprecedented rainfall of 143 millimetres in May, which typically over the month would have run up to a maximum of 15 millimetres in history, has had a significant impact and has delayed some of our initiatives going forward.

6:49 However, we stay on track to deliver on those results. With that, I will conclude the presentation and open up for the call for questions. Thanks, Ken. Oh, Absolutely. Thank you, Chris. We already have a bunch of questions coming in, so we're going to get right down to it. I continue to recommend to the audience that you ask questions, keep asking questions, and we have plenty of time, so we'll keep going for it. First question from Mark regarding updated guidance. Guidance drop for the year is understandable, but do you still aim to leave 2022 at a 100,000 ounce run rate? Yeah, so what we have seen is the impact of the second quarter has had a delay on the initiatives to ramp up. In fact, we wanted to achieve it for the whole period in the second, sorry, in the second half.

7:38 The way that our plans are forwarding is that we're gonna get very close to it in the fourth quarter. And then the aim is to sustain that going forward into 2023. And we're working fervently, I made the comment around the work that Andrew Biggin and his team is doing and the growth opportunities. So they're focusing pedantically on making sure that we line up our next array of open pits. I think what's worthwhile noting is that our expectation, although the main pit deeps has been delayed, some of the reassessment on the open pit has shown that it might have a little bit longer life with the main pit deeps, which we'll see the main pit deeps operating into 2023, where our initial thoughts were that it would end in 2022. Right, thanks for that. Dave wants to know if Q3 COVID absenteeism is trending up or down when you put it up against Q2?

8:32 Yeah, it's a very interesting question. So we're tracking it literally on a daily basis. So what we've seen is that May was the worst month. We were way up in the double digit in people being affected by COVID and related illnesses. We've seen that drop down to single digits. So slowly but surely, we're seeing a decline. The challenge that we have with COVID, it's really unpredictable, and you never know when the next wave will hit. And unfortunately, WA is probably treading behind the rest of the world in so far as it's just, you know, it's, it's, let's say, setting down in this new world with COVID because of its isolation earlier in the piece. But I mean, I'm glad to say I'm slowly but surely seeing a declining trend. But that of course doesn't say there won't be another flare up. But on average, yes, we're seeing it coming down.

9:30 OK, great. Trade playables came in high, around 3.5 million higher than standard levels. Is this a one-off or do you expect them to stay high in Q3 and beyond? No, I think that was to a large extent a one-off. Of course, we're very wary on our expenses. These are significant initiatives that we're trying to reduce our cost and to minimize cash outflow out of the business, but still making sure that we do the appropriate and meaningful investments. So I think it's once again, following a balanced approach to making sure that we deliver our results that we wanted to achieve. Right. How much CapEx did you spend for the mill upgrade? And was this all booked in Q2?

10:18 Yes, all the costs has been declared in Q2. Now, there were 2 parts to that middle shutdown. The one was the work that we did to the footings, the bearings, etc. And if I remember correctly, maybe, Mike, you can just see whether you might have the detail handy. The actual numbers, I can't recall exactly, but it was probably, if I remember correctly, to the tune of $1.8 million for the mill. That's the sag mill work and slightly less for the millery line. In fact, the millery line, we did all 3 mills. One would say, what was really necessary to do the shutdown certainly have to do the mill reliance, which is done on a very set, regular basis.

11:11 The fact that we were able to address the bearings and so forth, 1 shouldn't underestimate the fact that we can now run that mill with confidence, leading up to its installed capacity. And we're seeing that we're in the third month now after the shutdown, and the mill right has increased considerably towards 1.8 million tonnes per annum. Absolutely. Are there any other reasons for the jump in All-in Sustaining Costs besides low Gold production? What sort of AISC are you expecting at the end of the fourth quarter when you achieve 100,000oz annual equivalents? Yes. The one thing I can say is that we certainly expect the material drop in All-in sustaining costs specifically for the fourth quarter. And we would see the average all in sustaining costs for the year drop because of that.

12:03 When we look at what basically drive or drove that increase in all in sustaining costs, I think there's a number of reasons for that. There's certainly COVID related inflation insofar as what we're paying for services, what we're paying for labor, but there's an indirect impact of COVID as well. And that is the quality and speed of services from specifically technical support, from the Western Australian regions that we draw from. As we were impacted by COVID, so did our service providers, were they impacted. So service delivery was definitely slower and that certainly had an impact more specifically on availability of mobile fleet, et cetera. So the impact, we really felt it on 2 fronts. The one is availability of our own people and redirecting people to that, to the key operational activities.

12:56 And then secondly, as I said, having access to top quality technical support in this case, for instance, in our mobile fleet. Right, okay. What's strip ratio for main pit deeps do you expect for the second half of the year? And can you remind us of the total ounces you expect from main pit deeps? Yeah, so main pit deeps, at this stage, conservatively, we're expecting over the full life to get, we initially anticipated about 18,000 ounces. We're heading to about 14,000 ounces out of that Mainpit. And the reason for that is we've taken a conservative view on the performance of Maine-Pit Deeps. From a strip ratio perspective, it varies. At the current rate, we're running at about 7 to 1 strip ratio on the Maine-Pit deeps.

13:48 So that's an average. We expect that to drop further as we settle down the benches on the same level. What we've asked you to deal with was mine-put deeps, which was cherry-picked shortly before it shut down many, many years ago. So we had to reestablish the main for deep so we can start appropriate mining activity. So we would see, and we have seen already an increase in rights from the open pit. Okay. And there's a follow-up question and just about main pit deeps. You know, what's the current plan for above ground feed once it's exhausted? So yeah, that's a great question. And that's also one of the reasons why we put up our long-term planning function and our projects function, which we recently resourced. So we expect Mainpit deeps to run towards definitely in the second, sorry, first quarter of next year into the second quarter of next year.

14:40 That will give us an opportunity and we currently are setting Hermes South as the next opportunity. There's about a million tonnes at early assessment that's available there. From there, we just finished drilling the initial drilling work at Central Ball, which potentially could bring another million tonnes into the fray. So that will easily close the gap up to the point by which we want to start the main pit pushback. Great. Okay. There is, of course, sorry, I just wanted to add, there is, of course, 2 other opportunities that we are looking at. I don't want to really talk about it at this moment. You know, I want to give the technical guys appropriate time to work through those opportunities. But as it stands now, it'll be Hermes, South Central, Borg, and pushback. John wants to know what rate of Gold production can we expect from 5,000t per day mill operation and what grade?

15:36 So it depends, it clearly depends on the grade. The first thing is making sure we have consistent mull throughput. What we have seen with mine per deeps coming on stream is that our recovery is in fact edged upwards. We typically achieve 85, 86. At this stage, we're typically on a day hitting 87, 88% recovery, so that gives us a little bit of extra opportunity there. The target that we're heading towards is trying to get to that 1.8 to 2g per tonne overall grade into the mill. That's ultimately the goal that we want to get to. That to a large extent is going to be a function of ramping up our underground.

16:23 We want to take the underground up to 1Mt per annum annualised in the fourth quarter. So really the fourth quarter is going to be the period in which we can settle down into a consistent feed into the mill. But indications, it's a number of building blocks that we're putting in place. First, the goal of the rank was to get the mill fixed and running at full tilt. The second thing is to settle down main for deeps, which we are very close to doing. And then also ramping up the underground mine towards the end of this year. Right. Okay. And there's a great follow-up question just talking about Q4 specifically. But where do you see all in sustaining costs for that quarter? We would expect all in sustaining costs for that quarter to be below $1,500 an ounce.

17:09 Okay. And then, could you elaborate a bit on your investment in the mining fleet? What have you replaced in the first half of the year? What additional equipment will you have on site? And also is the fleet growing? Yeah, but both on both those questions. The first one is we initially operated on lane plus 0 scenario operating for the underground. So We basically manned up for trucks and boggers, remote boggers specifically, only the number that we needed to achieve our goal. What we've done now, we're moving to an N plus 1 scenario. So we will have appropriate number of trucks and boggers to achieve our goals insofar as the production rights that we want to achieve. In addition to that we will both on the truck fleet as well as on the bogger fleet will have 1 spare unit on surface ready to engage if we have any extended downtime on any of the machines down in the underground. And that's a situation we haven't had before. We hope to achieve that by October, early enough October this year. And that's gonna be fundamentally part and parcel of ramping up the underground mine. So that's on the one part. The other part, of course, you cannot ramp up underground money if you don't accelerate the development.

18:24 Now, we have run 2 jumbos and a modified unit that we used as a jumbo. We've now replaced that modified unit with a brand new jumbo. It arrived early August. It's underground and it's providing a lot more consistency on achieving targets for development. We want to see that ramping up further. So that to a large extent is the main fleet changes that we've done. In addition to that, we've changed out a number of light vehicles, control rooms, et cetera, mobile control rooms, et cetera, for the underground mine. So it is a significant investment for us, but it's something that we have to do to ensure that we get consistent and reliable performance of our underground fleet.

19:12 Absolutely. Thank you for that. Sorry, excuse me. Do you have any forward sales of gold left? Forward sales of gold? No. All right. What's the situation on cost inflation? Have input prices steadied? I think there's probably 2 areas where we find quite challenging in so far as costs are concerned. The one is labour costs. And It's twofold, right? It's paying higher salaries to get people to join the organisation, but on the other hand is getting the availability of appropriately skilled people is also a challenge, specifically in WA.

20:00 That ultimately leads to further inflation to salaries, but it also makes it more difficult to get the right people. So 1 often finds oneself whereby you draw on a contract which comes at a premium. So that's one area where we see inflation. On The other side, of course, on diesel for the underground fleet, we covered insofar as gas supply is concerned. We still have another, if I remember correctly, another 3 years left on our contract, so we're fine on that fuel cost. And then the other one, of course, are contracts that we have that are related to typical input costs like labour, like fuel, etc. That does have an impact on our supply, cost of supply. So those are the critical areas where we see increase in cost. But at the end of the day, we're not putting ourselves in a position by which we just accept that.

20:57 Both on the price side and more specifically on the demand side, we're being a lot more critical on how much we use, what our typical consumption would be typically when we look at the usage of reagents in the processing part, which we saw a significant increase in price. I don't know whether anyone on the call would remember I mentioned a few weeks ago, a few months ago, in fact, that we've signed up an engineering organisation that's doing an analysis on our processing plant and looking for opportunities for improvement. In fact, one of the opportunities that they've come up with was quite a significant reduction in the usage of cyanide, which we know would have a significant impact on reagent costs.

21:45 So the point I want to make here is, yes, we're getting challenging so far as pricing is concerned, but on the other side is we have a number of initiatives currently underway to reduce the demand so that we can balance out that impact of pricing on our overall costs. Great. Thank you for that. Do you have any currency hedges in place? No, no, we don't have any hedges in place whatsoever. OK, And when do you expect new mining fronts at Time Ore to begin providing ore to the mill? Are there other new fronts? Yeah, absolutely. So towards the end of the year, we see we're moving into the new fronts and that's also in line with our strategy to access more fresh ore or, you know, new mining fronts compared to using the remnant mining, which has been a key feature of our underground mine. We've already started that conversion to more fresh ore, but into the future, the remnant mining, because of the extent to which gold has been left behind in the remnants, will continue to mine in the remnant piece, but continue to grow our new mining fronts, which will typically be, you know, the Western mining front, the West, sorry, Western mining front, Eastern mining front.

23:06 And we currently assessing Indian access. Wonderful, thank you. Another question, you know, is management going to be buying in the market to show belief in the story? My order is in. And the, I got a note from our Vice President for Business Development and Long Term Planning. He's already bought in. So In my case, I'm just waiting for the transaction to go through. In addition to that, personally, I'm heavily vested in long-term incentives that's been awarded. So certainly, fully into the story and the fact that I'm personally putting, taking cash out of my own pocket and buying shares into the business should put out a very strong sign of my personal belief in the business.

23:55 I know what's coming and I hope other investors can see that. But We know given the challenges we had in Q2, we need to rebuild that trust relationship. You know, with any operation like this, from time to time, you will get some headwinds. For us, it's a question of how we stand up from those headwinds and recover from those situations. And I can confidently say we're not leaving a single rock unturned, not unintended, to get the most Gold out of that underground and open pit mines. All right, Chris, I want to thank you for coming on today. I also want to thank you for taking us through such a great Q&A period. Before we wrap up for the day, I wanna pass things back to you for some final words. But before we properly do that, I would like to remind everyone that this recording will be available in the coming days and that thank you for joining us. But Chris, over to you.

24:49 Yes, Ken, thank you very much. I think what the market should not estimate is the impact that COVID has, not only in the time that people are ill and they cannot be back at work, but as has been the story up to now with many people, some mitosis friends as well, is that the impact of COVID is quite long lasting after you've recovered from having that infection. So we certainly seen that playing out. For us, it's very important to manage the health and wellbeing of our people. And by allowing ourselves to getting more people on shift, making sure that if people feel ill or whether they don't feel up to do their job, we give them a day to rest, we could bring somebody else in to do that role.

25:47 So it's a question of waiting the time at this point. However, there's a host of technical work that we've also done in reassessing our underground for the second half of this year, as well as our open pit to make sure that we do the best that we have with the fronts that we have available for us. So thank you very much Cam, I appreciate it.