Automated transcript · Written by software from the replay's audio. It can mishear names and figures; the replay is the record.
23:20 As I mentioned, we do have a significant inventory of silver. Some of those silver, we do produce silver bars and gold bars. That is a decision we made early on, given the significant silver content. And so we are looking to sell silver on a quarterly or longer basis versus the gold. We sell our gold every 2 weeks to TDB, the largest bank in Mongolia, also our main lender. Just in terms of the unit costs, I know people ask the question. The mining costs coming in around, we expect mining costs or total costs per tonne around $15.
24:11 Mining around $6, processing between $4 to $6 and G&A anywhere between $2 to $3 are the sort of expectations there. As I mentioned, cash costs, we expect to come in around $5.50 life of mine for the oxide project. We are getting asked about the phase 2 cost. We would note the Urdine feasibility study, I think was around 734. We would expect our project to be at or below that, given obviously we have significant infrastructure already spent in respect of our project. We have an operating mine, we have a camp, we have infrastructure, we have roads, we have water, et cetera.
25:00 So, those are just some highlights on operations. Just in terms of, I think Anil talked a bit about exploration as well, but just in terms of the outlook, I think, you know, we expect to finish the year in and around 35,000 ounces of gold sales. And so, you know, with similar costs to those seen in 0.25 3, we expect to, you know, to, you can probably make the, the, the, make the assumption sort of operating cash flow before depreciation and depletion, in that sort of 35 to $36 million range, which is a pretty outstanding result, I think for a ramp up phase.
25:52 I think it's worth commenting that, you know, when we started this project, I think we have been criticised sometimes for the approach we've taken, which is to build that oxide quickly rather than build the whole project. We always felt the best way to operate and run this mine was to start with cash flow, generate cash flow early, build that cash balance up and enable that to, you know, to fund the large expansion. And that's really the way this has played out. We've been helped out by the gold price. But I think our approach has been sort of borne out as the right one here. We've been able to generate good cash flow and that just gives us a lot more optionality in terms of not just operations in phase 2, but also corporate development opportunities.
26:45 We very quickly become the largest gold producer in Mongolia. And that obviously plays very well. We're generating royalties and taxes for the Mongolian government and all our stakeholders want to see that support. A lot of companies spend lots of time exploring and developing. We got into production early and I think that approach has certainly been seen to be the right one. We expect to do, as mentioned, between 50 and 60,000 ounces in 2021 and 22. You know, we expect the run rate of gold production to go up as we, you know, actively accelerate through the 001, 2021.
27:37 As mentioned, we have completed construction of the final leach pad liners. So we now have a completed leach pad infrastructure. We are now stacking on cell 2, we'll stack into cell 3, 4 and 5. That'll be the layer one. We expect to get to around about 4 million tonnes of stacked ore by the time we've completed the leach pad process. So we are looking at increasing to that 1.5 million tonnes per annum. Talked a bit about the Bank of Feasibility Study. We have retained DRA Global and Basement Laboratories to work on that. And that's well underway.
28:25 The infill drilling, obviously done in 0.25 3, will form part of the resource update. We do need an upgraded power solution for the fresh rock phase. That will most likely be a combination of a grid solution. We are looking actively into a grid solution as well as redundancy through diesel generators and possibly some renewable options, which are, you know, renewable energy is quite well developed in Mongolia. We are also working on a tailings dam study with a leading engineering firm. Financing strategies for the ATO gold mine, as mentioned earlier, advancing in parallel with the BFS process.
29:16 And we have retained advisors in that regard and underway with that process. With that, I'll hand it back to Anil and maybe get into some questions. Thanks, Jeremy. I think we want to spend as much time as we can on Q&A. I think I saw a lot of questions coming across and so Jane if you could assist there we can start hammering away on some of the questions. All right. Hi, everyone. First of all, thank you for taking us through the presentation. We did have a lot of questions come in, so let's try to get through as many as we can. Our first question is from Arl.
30:02 He's asking, how are the ongoing drill programs going at the ATO and the Mungu locations? And what is the exploration target? Who'd like to take that? The current drilling that's ongoing at ATO and Moong, which should be wrapping up now by mid-November here, it does get cold, is really focused on infill drilling to put that maiden resource on Moong. So infill and extensional drilling on Mung, as well as the ATO deposits, ATO 1, 2 and 4. So that's really our focus has been with our 3 drill rigs this year and all resources. And as mentioned earlier, All that drilling will be tied into our resource update on all 3 ATO projects, deposits, as well as our maiden resource on the Mungu deposit, which as we mentioned, it should be on track by the end of this year. Or if we miss that mid-December window, then it'll be in the new year, not too far future.
31:07 Obviously, with the material update, that would have a lot of eyes on the story. And as we run into the December lull, you might lose a couple of weeks. So I guess we're on track by the end of this year or very early next year to release that to the market based on the drilling to date. So we didn't really get a chance this year to focus on any other discovery drilling. All our resources really had to go to get to this advancement of the feasibility study and get this meat and resource out on Moong and tighten up ATO 1, 2 and 4 as well. All right, I hope that answers your question, Simon, as well, since the resource update will be approximately end of this year, as Anil said.
31:54 I did get a few questions here in the Q&A panel asking about the production numbers. Should investors be concerned about the recent production numbers, and even though the cash flow situation— Councillor interjecting. Councillor CUMMING So you broke up at the end there, Jane. Yep. The question was, there are several questions here asking, should investors be concerned about the production numbers, even though the cash flow situation remains strong? Yeah, I think production, you know, we're in ramp up phase. So, you know, I think the numbers are going to jump around a little bit. You know, we've, you know, as you can see from the revenue, we're pretty much, you know, 0302, almost identical revenue numbers. Obviously, production was down a little bit, but we continue to work through the ramp up phase and we'll see some more consistency through into 2021, 2022.
33:01 But we think we'll get to 35,000oz by the end of December, which I think is a pretty good start to the year. Given the situation this year, we are in startup ramp-up mode. Everyone knows this is a new mine. It takes quite a few quarters to get to your run rate production and our target of the 50,000oz. We're hoping to be a bit more aggressive this year. As we mentioned, we had the construction of the crusher and we've had to make adjustments and actually purchase another one. All those are campaigns that you work through. In all of that, we're actually still generating cash and building up cash. All you're doing is deferring some of that production into the new year. You're not losing it. I think that's just part of it. If you look at other new producers out there, you'll see the first 3 to 4 0.25 are going to be a little volatile in terms of production and costs. And I think you're seeing that here the same. But our goal hasn't changed.
34:03 On a yearly basis, we want to hit that 50,000 to 60,000 ounces from the oxides. In fact, we would like to produce as much as we can possibly from the oxides in 2021 and 2022, because that will take as much cash as we can out from the oxides to fund the expansion into 2023, where then you're just now running a CIL plant in floatation circuit and there's no more leach pad, no more additions to the leach pad. Great, thank you. Here's another question from Arl, he's asking what's the production target for 2020 and what expansion is the impact of construction completed for the leach pad extensions at cells 3, 4 and 5?
34:52 I can take that. As I mentioned, 35,000 ounces is our target. We probably have 3 more gold pours this year. We're feeling reasonably confident we'll get that. So in terms of, you know, the leach pad construction, you know, as I mentioned, we completed construction of cells 3, 4 and 5. So, you know, those cells aligned and ready to go so we can just keep stacking. So we have very little residual CapEx to go on the oxide zone. Great. Thank you very much. Here's a different question from Harry. He's asking about Eric Sprott being one of the shareholders of both Erdene and Step. Has he discussed combining these both operations with you and do you see any synergies at all here?
35:44 Yeah, well, obviously, even before Eric was involved, people look at the map of the UK project and see that Erdene's bordering our license. So it's a question that's come up all the time. If, you know, is consolidation makes sense? Are there synergies with Erdene? The bottom line is we haven't even done enough work on our own license. It's a 14,400 hectare highly prospective exploration license that we haven't drilled ourselves. So it doesn't make any sense from a strategic perspective to consolidate if we don't know we have our own package. We believe there could be a mine itself on our own license and that's what we're really going to focus on. We want to get to drilling on the license. It's highly prospective given what Erdene has accomplished and been very successful at. So we really want to focus on our own project first. And I guess there hasn't been any influence or discussions from Eric as being a new investor in both our companies on that strategy. Of course, we've seen him do that before in other countries and in jurisdictions, but nothing has been brought to our attention. And as you can see, our goal is to focus on what we have first.
36:57 Got it. Thank you, Anil. Let's talk a little bit about COVID. I know Jeremy mentioned this a little bit. There's currently, or there's recently been a lockdown in Mongolia, so how are the restrictions gonna impact operations and the supply chain? Basa, did you wanna chat about that? Yeah, Mika. Yeah, So recently we have a lockdown in the UBCT, but thankfully we don't have any issues or any cases, COVID cases in Mongolia yet and we don't have anything. And over the last 10 months we had cases only coming from different, from outside of Mongolia.
37:45 So we've been, the government has been doing a really good job and recently there were like 4 to 7 cases and the lockdown is only in the city and the provinces and it's going to continue until December 1st and hopefully everything will be fine by then. And the full lockdown is only for the people, but we're still able to bring in chemicals, reagents, and mining equipment from China or from Russia. So transportation of equipment and food and services are fine. It's only the travel for the people. So, so far, the operation is going well and fine. And on a weekly basis, the main mining companies are actually having a meeting with the inspection agencies and the ministries and we're updating all the information, sharing the information with the government.
38:45 And just last week, we also provided the masks and health kit tools to small local communities and we're connecting with this virus together as much as we can. And yeah, Hopefully by December 1st everything will be same as usual. And also with this COVID-19 restrictions there are a list of 10 items which we are able to use and travel And one of them is everything related to mining industries. So anything related to the mining industries can be transported and can be used. So you are able to have services and people to use for the mining services.
39:40 Great, it's good to hear that. Now, here's another question asking about are there other explorations around and outside or just near the ATO and Munk areas? Have you found higher reconciliation grades? On the exploration side, I think there's a lot more work to be done. We haven't had a chance. We haven't had really the time or resources in the last couple of years to get to really step out and see what more discovery opportunities exist on this footprint. This is a mining license over 5,000 hectares with 2 exploration licenses also.
40:26 So surely there's opportunity for more exploration and we just haven't had a time. So that's probably part of our re-assessment over the winter to focus on what's next for this ATO and Moong project. We have had initial success in expanding the footprint there. ATO4 is now probably almost double the size than originally. So We've had success in reinterpreting the core deposits from Sentaro's interpretation and our new, including adding Mungin to the fold. But I don't think we can answer that question without doing more work. We're hoping to get back to using our cash flow to fund some further real exploration. This was taking a project and trying to grow it in an organized and lower risk manner to get here and get the cash flow online. And now we can focus on some of the exploration potential that exists both on our assets and maybe some other assets that we don't own today.
41:23 On the grade reconciliation, we've seen positive grade reconciliation to date on the ATO1 deposit. We don't have enough information. I think the resource update, when we do have the new model out, like I said, end of this year or early next year, you're going to see what the overall grade reconciliation looks like today, I believe, both on ATO 1, 2 and 4. We'll see if there's some positive grade reconciliation or recapturing some more higher grade pockets that were missed in the original model and both from our drilling that we've completed now. So we'll have more information on the grade reconciliation if that will be uniform across all deposits, both from the oxides and sulfides, I believe in New York. Great, so can you be, are you able to comment specifically on the grades that you anticipate when steady state or will you have to wait for the update?
42:19 This is a question from Chris Thompson. Jeremy, do you know the answer to that? I think on the oxides, we don't have the firm number of what we expect on a steady state. The life of mine expected grade was 1.25g per tonne. That's when we bought the project. Now a lot has changed. We've obviously had the additional drilling, we're mining now, we're seeing that grade reconciliation. I think we need to wait for the revised model and then we'll know what the run rate, life of mine, average grade will be, which should be higher than 1.2. Yes. I mean, we've obviously got some idea, Chris. We've done a lot of sampling.
43:05 We're seeing 12-months out as probably 1.6 to 1.7 in the next 12-months, to go with the 1.9 or so. Probably if you take an average of those 2 over the first couple of years, be around 1.8, something like that. But that's, you know, I think what we've found with this deposit is, you know, we certainly know a lot more when we mine it. So, you know, we'll have better data as we go. But that's what we're seeing in the mine plan for 2021. Great. Thank you for that. Here's another question from Chris. It talks a little bit about expenses. Chris is asking, what additional sustaining expenses do you anticipate over the next 6 to 12 months?
43:56 Sustaining, I mean, I think we're seeing, I think as you will see from the table, we see sustaining capital running at around 300,350 0.25. We have no reason to expect that won't go up or down too much. We had some catch-up expenses in Q2 and Q3. We actually expect expenses to go down a little bit going forward versus the run rate in that first sort of 6 months or ramp up. But you know, nothing, you know, We've finished the construction of the leach pad. You know, the 2021, the numbers, you should see the 2021, you should see costs coming down a little bit, I would think, on a sustaining cost basis.
44:45 What you will start to see though, is we'll start to look at long lead items for phase 2. We are looking at potentially a fixed crusher and some other items as we look at the power solution. You know, Power solution will be sort of 15, 20% of our CapEx and then start to look at capital equipment, which we think is around 30 to 40% of total CapEx on phase 2. So you'll start to see sort of some of that phase 2 expenses come through. Obviously, we've got consultants working for us on phase 2 and some of those expenses will start to flow into Q1 as well. Less, I wouldn't call them sustaining expenses, but we're pretty comfortable that, as I say, over the life of mine, we're going to be around around 550 and around 650 respectively on cash costs and all in sustaining in that oxide phase.
45:45 Great, thank you very much. The next question is from Terence. Your tax rate is going to go up starting next year. So what will be the tax rate and the cash taxes versus accounting taxes and deferred taxes? I've got a little bit of a deferred tax asset on the balance sheet, if you look to that. Corporate tax rate in Mongolia is 25%. There aren't a huge amount of timing differences, so we don't expect cash taxes to be materially different from that. We will have some tax shield, but it's not that significant. Yeah, maybe bring that down to an effective tax rate of maybe 21, 22%, But that would be our expectations for 2021 and beyond.
46:39 We are looking at indirect taxes and ways of mitigating indirect taxes, particularly taxes relating to our build out of phase 2. Thank you. Jeremy, you may have mentioned the tax benefit. Can you explain a little bit what the tax benefit means and where it's shown in the cashflow. Is it a tax paid that we'll get back or will it not be paid? Can you just explain that a little bit more for us? Yeah, so that, well, yeah, so the tax assets, it's minimal, But the tax benefit in 2020 is an exemption. We don't pay tax on Mongolian profits in 2020. So that's not an accrual. It's just a it's a non-payment, if you will.
47:33 So that's why there's no tax expense in the financials. But that obviously will change in 2021. Right, here's the next question. Aaron is asking, can you finance stage 2 with cash flow and minimise dilution? What kind of pre-work of stage 2 can already be built? So phase 2, we're working right now on a sort of a plus or minus 100 million US. We'll use project finance to assist with that. You can usually get 70 30 split on that 70% debt, 30% equity.
48:19 So if we need 30 million US just rough numbers, then we certainly expect to have that, well within our reach on our balance sheet. We have 37 million US cash and we're generating positive cash flow over the next 0.75 before we need to start spending that. So we expect we'll, you know, we don't expect we'll need to raise equity to fund our own equity portion, that 30% portion. But obviously, we haven't got the feasibility study in hand, but we are working through that. And we feel reasonably comfortable that we won't need to raise equity. Having said that, We are in the position of having a strong balance sheet, a transition from having a sort of a not very strong balance sheet to a very strong balance sheet. And we want to continue to ensure that we have, you know, a very meaningful cash cushion at all times.
49:20 Harry asks, will you commit to no further capital raises to fund phase 2? And if any, will you commit to raising funding through a capital raise available to all shareholders? Can you indicate with what amount of cash you model to have available barring any additional funding end of 2022? Any sort of modelling for 2022 is a little bit difficult, but we certainly, I think, as I mentioned, I think we want to maintain cash, a healthy cash cushion. That's a smart business. So, I wouldn't say anything more than that. Neil, did you want to comment on that or answer? Yeah, well, I think by the end of Q2 next year, when we hope to really start the expansion, I think your cash balance will increase.
50:21 Our target is hopefully to have from cash flow the next 0.75, essentially, another 15 to 20 million on the balance sheet. Jeremy, is that a good forecast or assumption? We're going to have capital items, so I would be at the lower end of that. The good thing is the cash flow will continue over the build. By the time you get to the end of 2022, you still have another year of production that's ongoing from the oxides with also the debt funding that's in place. So I think we need to say that there'll be a healthy cash balance by the end of 2022, after already completing construction. Our goal is to not have to raise any equity. We are funded, self-funded on the equity component of this buildup. So we don't need to raise any equity to expand only debt. So if there are investors, like Kerry's asking, who want to look at the debt tranche with our syndicated debt providers, we're certainly, we'll open it up to them on the same terms.
51:24 We've always, you know, besides the one and only investment with Eric Sprott, opened up our other rounds to all our supporters. So any investors will always have a chance to to come into a placement should we ever do one. But at these levels where our share price is trading today, there's no need to raise any equity given our increased cash balance from 0.25 to 0.25 going forward. We don't need to dilute these levels anymore. Okay, so if we take a step back and not just looking at the finances, looking at all aspects of the project, what do you think is the biggest challenge to getting phase 2 done? I think the procurement could be the biggest challenge. Like that's something we can't control.
52:11 If COVID worsens, restrictions worsen, That can be a delay. That can be a delay in procuring those longer lead items and critical items that we can't control, my guess. Jeremy, what do you think? Yeah, I mean, I think, you know, there's always things that outside our control, I mean, like procurement is 1, I think, you know, getting the power, getting the power solution in place, obviously, is important. But we think we have enough time to do that. We don't think raising the capital is going to be a delay. Having said that, you know, clearly, you know, getting people decide to do due diligence may delay things. We obviously have to get materials in and out of the country for sampling and so on for the feasibility study.
53:03 But we've tried to build in some cushions into our timelines and we are doing everything we can to, you know, to run our project finance in parallel with the feasibility study and the power work. We have the benefit of, again, we have an operating mine, we have an operating facility in this location. So that's a huge advantage in terms of having something to show people, cash flow ongoing. It's a huge advantage rather than just sort of starting a mine from scratch in a greenfield location with all the infrastructure issues. We've already, and as Butter mentioned, this is a fully permitted project. We already have the permits for an 11-year mine life. And, you know, so we have, you know, we've really broken the back of this. And that's good. Some people I think don't actually understand is that, you know, we've this is an 11-year project that we have, you know, we are a year into.
54:03 And that's how the Mongolian government sees this project. They see it as an 11-year project. That was what the permits were granted for. And that's really important. You know, things can go wrong. We'll obviously try to manage that. But as Bhattaraj says, we've managed to operate in a very tough environment. We also benefit from the fact we don't actually export anything. All of our product goes in a Brinks truck every 2 weeks to the banks. And we get paid the same day. So, you know, it's a simple business. And I think it's important to note that we do have the luxury of that production of the oxides extending. It's not just 2 years of mining left for the remaining of the oxide.
54:48 So if there is a delay, if things take longer, you can continue to produce from the oxides and still generate cash and grow our business in other ways or continue to build the cash position while we're waiting for the phase 2 to come online. I think having a nice buffer of a couple more years past 2022 on the oxides alone is a nice thing to have. You don't miss out on any cash flow if you miss a window and there's a 6-month delay or even longer, like there was at the beginning when we were building our first mine. We only had a limited amount of capital and any delays obviously you risk the dilution and everything else. So it's a much different situation and it's a nice buffer to have versus I guess phase 1.
55:36 Thank you very much. I think we only have time for one last question. So let's close off with this. What else can investors anticipate to hear from Step Gold by the end of the year, by December 31st, or even through to the new year in Q1 2021, besides the feasibility study results. Who would like to take that? So what else to look forward to in 2021 besides the resource update, besides the feasibility study, besides the exploration on the UK project that's never been drilled? I guess other opportunities in country.
56:24 Something we can't control. We can't control the pricing, we can't control the negotiations, but Maybe bulking up in addition to the, I think, a strong pipeline that we have, that we can organically grow. And as I see a question here about not raising equity, try not to raise equity to fund our own growth. I think we're going to work on that basis and continue to generate cash flow and use that to grow our business. And hopefully maybe that equates to maybe some M&A opportunities in countries as well that people, we can't control, but we're hoping for it. Anybody else? All right, Then I think that is all the time we have today for questions. Neil, I'll hand it back off to you to close things off.
57:11 Yeah, well, thank you. Thanks, Jane. And thank you, everyone, again, for taking the time for the update. I know there's questions here that we still haven't answered. So again, we're all accessible directly. Please reach out. You can email us. We can set up a call 1 on 1 and happy to run through any other questions you guys have. We do this on a daily basis with our investors and we are more than happy to speak to any other questions that we can answer on this call. Please reach out anytime. As we've highlighted here, we obviously have a lot of milestones, catalysts ahead of us. We're really just getting started. So please keep an eye and reach out anytime. All right, and stick around everyone. There's a survey after the close of this webinar. You can leave your details so that the Step Gold team can reach out and follow up with you directly to answer all of your questions.
58:01 That's it for now. Until next time, thank you everyone for joining. Have a good rest of your day. Thank you everyone. Bye. Thank you.
