Automated transcript · Written by software from the replay's audio. It can mishear names and figures; the replay is the record.
26:59 I think we were a little too optimistic when last year we did get our agents on site during COVID, during the, I guess the beginning of it. In March, 2020, people didn't know what it was and what's going on and Mongolia completely shut down very smartly and proactively. So the borders were closed back then and we got lucky I guess, and with our support, we got that on in country last year. And we were probably pretty confident this year that we wouldn't be as impacted by COVID. So certainly we are, we've certainly updated the market in the last few releases. And it's certainly, again, it's only a small hiccup, I would say, small-term hiccup. So I would say the market will be updated as soon as we have reagents back on site, which means we start leaching. And the luxury we have is this is a quick cycle.
27:53 So when you start leaching, you could have your 1st Gold pour 2 weeks later. And that means you're generating cash flow 2 weeks later, 2, 3 weeks later. So certainly it comes in very quickly and we already have that inventory built up, there's no delay. So as we start leaching, we'll continue to mine, crush and stack and build the inventory, but we're already sitting on that circa 34,000oz-35,000oz on that recover basis of inventory today. So we're in a good position there to get to it. So that could be, I'm hoping that we announce that by next week, but honestly, you know, within the next couple of weeks, we should be able to update the market that we're back leeching. Great. Considering the problems or the hiccups that you've been experiencing, how will you manage phase 2 with the current team in place? Sure.
28:39 Well, I guess the hiccups, some of them aren't ours, I guess. You can't control global logistical delays or COVID. In fact, our first quarter of production last year during startup and ramp up was a fantastic result. So our team did an amazing job and that's all of our local Mongolia team. So when we identified a crusher bottleneck, we fixed it. So certainly you have to add a bit more bench strength as you move into phase 2, which is a different operation than the heap leach operation. And we've already identified partners and we have opportunities both locally and from a global technical expertise to add value and we'll continue to do so. So it's a different operation.
29:28 So it is a different operation than phase 1 and we have people who have that experience in country already. We're not, this is not the 1st CIL plant or flotation circuit to be built in country and certainly there's a lot of people who have that experience and we'll bring them on board where needed but I believe just like the heap leach, there's a lot of local talent that we'll certainly look at. We have been and Bata deals with them regularly. On top of that, We've been listed in 2018, so as soon as we were listed we had challenges with the social licensing and we fixed that in the first year. And the next year, 2019, we built the mine, we got all the permits within a 1 year time, and last year we commenced the production.
30:16 So as for the issues related to Iplij, I mean we're going fast-tracking as much as possible and fixing all the issues within on time hopefully and we do have a really good support from Mongolia and from the local people right now. So hopefully with the pace too it's going to be even much better and even in a less period of time than expected since we have the infrastructure and camp and the social licensing and everything in place. So hopefully the shareholders will be happier. Fair enough, thank you. Nigel asks, why did we choose BDOHK versus Deloitte, KPMG, PwC, et cetera, where we might have good connections that would not run interference with the independence issues?
31:06 Well, actually, Jeremy was at Deloitte for 10 plus years, our CFO. So he obviously was part of the search. And for reasons that I think will be made clear, you can see that BDO is still a global regarded firm. They're strong in Hong Kong. That's what the office we're working out of. And they actually have experience in Mongolia. There's not a lot of firms, KPMG included, that will have the strong exposure to Mongolia that some of these other groups did. So we did a search over the last year and we decided as a board that BDO was the best fit for our needs for the next 5, 10 years as we're growing. Okay, great. Thanks, Neil. Is that 25% royalty still in place for only phase 1 or for all of SGO?
31:57 No, it's in place until we deliver 46,000 ounces and I believe 325,000 ounces of Silver. So it's in about 2 years time, give or take, that will fall off. So it will never be 25% of our production. It'll be a maximum delivered ounces of 7,150, I believe, or 7,125oz. So again, on an assumption basis, purely this mathematical assumption here, if in 3 years we're producing 100,000oz of gold and we've already delivered that 46,000 ounces to Triple Flag, then all we're delivering on the 100,000 ounces of gold is 7,125. So, you know, on that basis, it becomes about a 7% on that basis. Now, if we're producing 150,000 ounces it becomes obviously closer to 4 or 5 So it is no No, yeah, so it's just 25% now until Until you deliver 46,000 ounces Okay. Thank you The government royalty is 5% just to be clear Thank you Is there a plan B in the case, gold would fall below $1,500 an ounce?
33:14 I can imagine this would have consequences for the project timelines? I think once we understand what our operating costs will be, so what will it cost to produce an ounce of Gold for phase 2, then we can make that decision. So If it did cost $1,200 an ounce all in to produce and our margin's at only $300 if it's $1,500 gold, certainly you will look a lot harder and see if it makes sense. Now, 300 bucks margin on a larger quantity of production still makes sense, But we're obviously not in the forecasting business. We have to look at what the margins are. I mean, Gold was $1,500 not too long ago. It was $1,200 when we bought this project and built it.
34:00 We had the margin then and we assumed that we'll have the margin then. But I think given that we're a low-cost producer, both on phase 1 and we expect phase 2 as well to be sub-US$1,000, we have a nice buffer. So if it's US$1,500 Gold or US$1,300 Gold, it will probably make still a lot of sense to be in production and to expand. But maybe, as an investor pointed out, maybe it does make more sense from a capital allocation perspective to maybe draw out or amortize that expansion so that you'll incur a lot of costs when you're selling less gold at a lower price. But phase 1. Great, thank you. Willie asks, why don't you privatize the company? The share price looks like you could need rescue fundraising.
34:48 Yeah, you certainly don't need rescue fundraising. We have the ability to weather the storms. We've weathered it before. For those of you who knew the story, or knew where to the story, we listed this company in 2018 when there was no other IPOs. We were the only IPO, and unfortunately we couldn't raise more money. So we were always undercapitalized from inception, but we made it work and we still continue to grow and increase the value of this asset in the company. So we've done all that, and our large shareholders know that, and they're continuing to support. I agree, if our share price is like this in a year and we have cash flow, then you can reinvest in buying back your shares and moving that path. So certainly, we would, I guess, in the meantime, look at normal course, issue of bids or those type of opportunities where at least you can buy back some stock when it's undervalued, if you have the cash to do so. And we're always looking at that. We're owners, just like every other investor.
35:45 So long-term or short-term investors, we feel the same pain as everyone else, but we're in it to build a real company. And every time we update, good or bad, we're in it with you guys. And we're certainly in it for a longer period. This was never a flip, a list and sell opportunity. There's certainly a lot of opportunity. And as shareholders, whether it's privatizing, you can have other ways to deliver that return on investment. So return of capital, for example. So in 2, 3 years, if our share price remains undervalued, we can still buy back our shares, we can deliver dividends to our shareholders, including ourselves, and everyone can have a win that way. So, we're always looking ahead at all the opportunities to create value for investors.
36:33 I don't think going private is prudent at this point, certainly, but when phase 2 comes online and kicks off that much cash, certainly if it made sense, we've seen that in the past with others. Christoph in the audience asks, why are the corporate administration costs so high and rising, looking at 2021 versus 2022? Why are this year's costs higher than the next year's, you mean? I think this year's versus last year's. Yeah, oh certainly. I mean, we have more employees. This is the first time that we've issued cash or shares to employees. And, you know, that's, and we're also spending on some phase 2 things as well.
37:26 So certainly they creeped up. Some of those things are one-time charges, So they should normalize when we have normalized production as well in cash flow, which which we think you know the next 12 months Should show me so that leveling off on on the on the other corporate and administrative costs They have crept higher, But a lot of that is one-time charges as well. Okay, thank you. Simon asks, do you convert the Tugrik immediately to USD when you get the money from Mongolian Central Bank? Yeah, we can convert to USD anytime, but based on our expenses, we keep some from the US and keep on the local currency. Yeah so a certain percentage is converted in fact you know that's how we set up the stream which of a flag you're buying those equivalent ounces offshore with US dollars.
38:21 So, but given that we're, our operating costs are 60, 70% in local currency and the interest rate is higher domestically, it actually makes sense to keep it in local currency. You got interest, obviously, revenue, as well as those are your costs, local. Okay, thank you. How did you have a Crusher problem after commercial production was declared and shareholders were told everything was performing according to design parameters. So maybe just a bit of a clarifying answer there. Sure. Commercial production is when you hit a certain rate of production based on the output and production profile. So if we told the market we're producing 56,000oz, we produced 15,000oz in our first quarter, you've hit your commercial production. So your mining rate, your question rate, your stack rate, your recovery rate and your ounces produced. So that's commercial production. In fact, some people declare commercial production after the 1st Gold pour.
39:21 We waited a few months in July, 2020. As you mine, you continue to mine more material. That's new material that you'd never mined before. So if a boulder, you encounter bigger boulders than you did at surface, that is something you can't foresee. So you adjust, that's a startup and ramp up. Everyone understands that, that You can declare, but then you still have, you could run into hiccups along the way and that's what optimization, that's why it's called startup and ramp up mode for the year. So that's something we announced and we adjusted And like I mentioned before, we've actually increased our pricing rate to date without those hiccups. So when you have new material in real time, you can't control it.
40:10 I mean, this is real-time mining. You encounter higher grade. So Our grade for the mine was 1.25g and we were encountering 2g material for the first almost 2 years now. I guess how could we not foresee that? That's a positive. So there's positives and negatives in real-time mining, But certainly that was a commercial production announcement. There's nothing needed to reverse there. A lot of mines continue and you optimize along the way. That's a mining business, certainly. But we've certainly encountered it. But that was just one of, you know, I'm sure many others that, you know, our team had fixed both from a safety perspective, environmental perspective and an operational perspective that, you know, there's things that go on in the background every day that we're doing to optimize and drain the ponds, clear the pipes and all these other things that continue to help and that will help achieve better success in the future.
41:12 Thank you, Neil. Why is BFS taking so long? Yeah, sure. No, that's an easy one. We're in that COVID world, unfortunately, for over 18 months now. We're not the only ones. I can name 10 companies that have delayed their PFSs, BFSs, production numbers, financials based on COVID. So, we ran into obviously delays with sending samples out. I think we've made this very clear, right? Because our initial target for the BFS, Bankable Feasibility Study, was March, April of this year. But it also took almost 2 to 3 months extra to even get the samples, the additional samples for a network out of the country.
42:04 I think, Bhatia, they stood in the warehouse there for months until we could send the exam loops in BC. That's a logistical issue that we can't control, we're paying flights to get that out. So you can't, you know, it's not our delay, it's a logistical procurement delay if you want to look at it that way. And we're not the only ones, but certainly we want it out as fast as possible, but we want it done properly. So the samples alone, I would say, were the biggest setback in terms of the feasibility study. When you can't do that work to come up with a phase 2 plan, those are delays. So, everyone sees delays because of COVID and that's really a delay. But I guess On the positive side, we're almost at the finish line. This is a feasibility study that all the banks will receive, the markets will receive, and it should be in final form, I would say, within a month. So there's certainly no real bottleneck anymore because that heavy lifting has been done in the last 6 to 8 months after we dealt with the delays that really aren't ours.
43:13 Yeah and also I mean even though the previous owner, Sinterra Gold, had all these met tests done, we actually read it and make sure everything is in place and everything matches. Yeah, exactly. Good point, Bata. So Sinterra in 2012 had done met work on all the sulfides, And now we've made that more robust. 1, because we've added more ounces. So ATO 4 and 2 are bigger. And we have more ounces, obviously, and we wanted to make it a bit more robust in terms of test work. So we didn't just rely on their recovery numbers, which actually were economical. We've added more and that cost us more money and time. Okay, great. Thank you very much.
43:58 What's your view on listing Step gold warrants publicly? I don't think it makes sense because it's really concentrated holders. The $3 warrants are only with Eric Sprott. So I don't think he wants to list them. You certainly ask him, but and the $2 warrants that have just under 2 years left on them are held between, you know, triple flag, I think 40% of those and insiders and a few family offices that came in all at $2, you know, $2 warrants. So it's quite a concentrated group of investors. I'm not sure if it makes sense at this point, but it's something we can look into. Maybe that is a way to trade hands a little bit easier because they are non-transferable warrants at $2.
44:53 Maybe it makes sense over the next 2 years to allow some of those investors to trade those and maybe bring some new investors in on the warrants side. We'll look into that actually. Good question. Great, thank you for that. Can you provide a status on equipment selection? The phase 2, probably. Yeah, for phase 2, right? Presumably. I think we'll be, you know, mid-September is when we'll be able to kind of finalize all that. We're we still have multiple sources in quotes and part of the feasibility study that's in there. But I would say very quickly by mid-September on the back of the release of those numbers, we will have already shortlisted or confirmed who each of the equipment providers will be for the major long lead items.
45:48 On the plants, obviously the crusher has already been identified and it's already been purchased and it's being installed. But on other long lead larger items, I think by mid September or by end of September, we should have all that finalized. Because again, this is not a release of a feasibility study and then waiting a year or 2 to build it or fund it. This will be a release and expansion imminently. And so we would move very quickly. Given that we already have the camp and infrastructure like Bata mentioned this expansion becomes a lot easier than phase 1 given that we had to get permitting that was you know took a year We had to build roads for the first time, water for the first time, the camp, a lot of that heavy lifting is done.
46:40 So September sometime I guess is the short answer. Fair enough, thank you. Simon wants to know, will the recovery rate rise in the future? Now it's at 70%. Some mines provide over 90%. Higher is better. Will the production in full power in the winter? It helps the boiler house to increase recovery rate. Yeah, listen, we're using 70% recoveries on the Gold and 40% on the Silver and we're certainly seeing the path to that. You don't get all that in the first year as a heap of work, but by year 2 and 3, it takes a few, you'll know where your ultimate recoveries are. Given the grade and what we've seen here so far on our initial production to date over the last year, I certainly believe, and we've heard that from our technical staff and as well as others, that they expect our ultimate recovery to increase above 70% for the Gold on the oxides certainly. And yes, more is better. And our goal is to get as much cash as we can from these oxides over the next couple of years before phase 2 comes online.
47:45 And so the higher recoveries, the better. And with the higher grade, that certainly is, we think, achievable. But I can't give a forecast that's gonna be 75% or 80% or 85% or 90, but certainly I believe ultimate coverage could hit above 70%. Okay, thank you. Will you end the year with any cash in the till without any dilution or increased debt exclusive to phase 2 spending? So assuming that, obviously we're quite positive, but it's something we cannot control, is that, is obviously the ability to get the reagents on site. As long as the reagents are on site imminently, which we expect, then yes, we're going to try to build another 10, 15 million US of cash, net cash on our balance sheet from these ounces that we produce between now and the end of the year.
48:46 Okay, great. Is there an option to stock up on extra reagents? Yeah. Yes. So right now we're expecting the reagents from China, it's going to be enough for the end of the year. But even though we are actually right now increasing our capacity of the chemical storage facilities and starting from now, once the border issues are resolved, we're going to stop much twice more than that, as used to. Okay. I think we've learned from this issue that it'd be better to get as much in-country and on-site as possible, and it'd be nice to have an extra 6 to 12 months of those agents in-country so that we don't have this issue.
49:33 Okay, fair enough. How many ounces will STEP produce in 2021? Again, without knowing when we're restarting, which can happen again in a week or 2, It's harder to forecast, but given that we have 34-ish ounces sitting there ready to be recovered, and we know we can produce on a monthly basis between 5,000 and 8,000 ounces, you can extrapolate that way if everything goes well from now to the end of the year. Given what we've produced is over 7,000 today, September, October, November, December is 4 months, you could add another 20,000oz to 30,000oz to the 7,000oz that we've produced. Again, that's just a simple forecast that we cannot control at the moment and dictate until we're back to leaching. The good thing is when we're back to leaching, we have inventory there and the good thing is we've built an inventory over this last little while too. So really just a deferral of some of those ounces in cashflow.
50:39 Great, thank you. Are there any other stock-based compensation charges to corporate administration costs planned for the future? Certainly we want to incentivize our employees going forward. We did our first stock-based issuance to all employees on site last summer. It was the first time ever, and we wanted to wait until we were actually in production to do so, but now they're aligned, they have ownership, they have a sense of, and that's a very great way to align your interests with your employees, to have them as owners as well. I think it's very important to do so, and we would certainly look at that in the future. Absolutely. Okay, great. So the step team seems to be keep, continue to face unexpected challenges that have resulted in delays. Could you please speak more to that and how you plan on readjusting so that you prevent further obstacles and what keeps your team motivated every day despite these challenges?
51:35 Yeah, listen, I think on the motivation side first is we're owners. We built something from scratch. We're used to challenges. As I mentioned earlier, we listed and we're the only listing in 2018 on the main board. When no 1 wanted to give us money, we still did it. We still built our mine and got it permitted, very risky, in the fastest timeframe in 2018 to 2020. We brought production online in a very, very tough environment where no 1 thought we'd produce ever, and we still produce during the COVID. So those things are all and during that we've employed 300 people, we've given scholarships, we've done really good things in country and also we think from a perception we've highlighted Mongolia that you can do business, It is home to world-class assets and teams and skill set. So all of that, I think the difference we're making in country is what keeps us motivated.
52:25 The end result is obviously we all want a higher share price and we're fairly confident in that. Our team has done that before. So we've rode the ups and downs in the business cycle and we're really only getting started. So there's a lot more to go than, you know, 2.5 million ounces and a small heap leach. And so, you know, expiration, expansion, and that cashflow, once that comes online, is what keeps us motivated. Because you can do a lot of that cash in terms of contributing to not just the shareholders, but to the population. And that's the greatest achievement, seeing what we've achieved from when there was nothing here on the site to what we have today with all the people who are very happy and aligned with us in country, not just our employees.
53:13 Right, fair enough, absolutely. And maybe to that point, for any shareholders who've maybe lost a bit of trust, how do you plan to regain that shareholder trust? Absolutely, listen, yeah, I agree. I think communication is key, good or bad, on a regular basis. First of all, I think we're always happy to talk to investors. I talk to investors who own 100 shares to those who own millions and everyone in between on a regular basis. And I have time for all of them. And so does our team, the rest of our team. So one is any investors are able to reach out to us directly for any updates. We try to do these webinars and everything else to get people updated on a regular basis, but I think there was some there's a gap in communication sometimes and that's something we've learned from and you know the 2 ways that you can have trust with your investors is constant communication, good or bad.
54:10 And of course, execution. Well, you know, with hiccups and operations, we've still managed to increase our resource, we've managed to increase our profile. We, you know, so there's, I think, execution and communication, if that answers, hopefully, the question. And we're certainly working on more communication on a regular basis. So there's no holes. There's nothing left to perception, I guess. Great, absolutely. And just another quick question. But when will drill results from UK be released? Do they also have to be sent to Kamloops, BC? No. So all drill results are actually assayed in country. So what Kamloops, BC was was actually the the ore from the sulfides to be processed for recoveries. Drill results will be just simply processed today for the results of the grade, right, in the size of that. So that's done in country through ALS or SGS, depending on what UK product versus ATO.
55:14 And We're just at the mercy of the backup at labs. Every lab in the world is backed up today, in my understanding still. So you'll have some delays on the analysis and the turnover time. But UK has not even started drilling yet, just to be very clear. Our intention was to start drilling UK at the end of last year. Mongolia has gone through a series of lockdowns, more COVID cases than ever, and deaths, so they've been very safe. We were keeping our people safe. That's something very exciting that we want to get to, hopefully in a matter of weeks. And we'll announce the market once we have that drill rig on site and it's turning because, you know, the success Erdene has had around us has been phenomenal of late. And we want to be certainly participate in that with our own project that we've yet to drill. Nobody's ever drilled and we're dying to.
56:03 Okay, well, thank you very much. Listen guys, unfortunately, I think we're getting close to our time here. So I'd like to thank you for the presentation as well as everyone in attendance for coming in today. If you didn't have a chance to have your question answered or if you think of a question after the summit, don't worry we'll be sending out a quick survey for you to fill out. You can get in touch with the StepGold team and you can also always find more information at stepgold.com. So with that, Batta, I'm going to hand it back to you for some final closing words. So thank you very much for being the step up. As for this year, I mean, previously in previous few years, we had some issues, but we've been resolving all the issues on time hopefully. And as for operational wise, as for this year, the issues related to the border and reagents are expected to be resolved very soon.
56:53 And we will be back on production and we are using all the options and all the opportunities, potential possibilities to fix them as soon as possible. And with the regions in place, we do really do believe we are going to end the year with a strong cash position, and we're going to work full winter period this year compared to the rest. So thank you very much for being with us. Thanks. And with that, we will close things off for the day so have a good rest of your day I hope you guys stay safe and I'll talk to you
