Superior Golds Q2 Production Results and H2 2022 Outlook

0:08 Hello everyone and welcome to today's live investment summit with Superior Gold hosted by 6. I'm joined today on the call by President and Chief Executive Officer Chris Jordan as well as Paul Olmsted, the company's CFO. As Chris is on site today, we'll be hopping in today just on the line, audio-wise. But Chris and Paul are going to walk us through the company presentation and after we'll move on to some live Q&A. We'll be accepting questions throughout today's presentation and you can submit any question you have using the Q&A panel found on the right-hand side of your screen. As always, this summit is being recorded and will be available to watch afterwards on six.com. Without further ado, Chris, Paul, I'd like to hand things over to you. Yeah, Ken, thank you very much. Can I just check whether you can hear me, given that our connection is a bit challenging today?

0:55 Absolutely, Chris, I can hear you loud and clear. All right, Fantastic. All right. So I'll be going off video. Just peel it from to greater bandwidth so we get the audio across. So if we can jump to the first slide. Once again, good day, everyone, and thank you for joining me to get an update on Superior Gold's Q2 production results and a forward look in the second half of this year. 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. Now moving on to the production highlights for the quarter. I'm very pleased with our improved and continually improving safety performance.

1:45 The 12-month moving average total recordable injury frequency rate has reduced by 24% as our people safety and risk transformation program continues to deliver improved results and we will progress with that program as time goes by into the future. And we would expect that to improve even further. Now, the second quarter provided some unexpected challenges on mainly 2 fronts. The first one, we had a 31 year all time high rainfall event in May. And the total rainfall in May was 143 millimetres, versus an average expectation historically of 15 millimetres in that period. In addition to that, we had a spike in COVID-19 cases this quarter that went up all the way up to 13 percent and we're typically operating between 3 and 5 percent in the stable scenario.

2:43 Production was 15,196 ounces in the second quarter which is a decrease of 21 percent over the same period in 2021. Sales, however, increased quarter on quarter by 6% to 16,726 ounces of gold, however decreased 12% compared to the same period in 2021 due to the lower production on the comparable 0.25. Now a little bit more colouring so far as the 2 main issues that we dealt with in the second quarter. Firstly, the aggregate rainfall event in May was an outlier and extremely difficult to plan for. Given the actual rainfall in May was almost 10 times the average and over 50% of the annual expected rainfall of 264 Within a year, the surrounding landscape did not have the ability to drain away the excessive water resulting in flooding in and around our airport runway, as well as the main pit benches, causing significant flight disruption and delays in accessing the early entry into the main pit development.

3:49 Additionally, following the removal of several COVID-19 restrictions within WA in April, we experienced a surge of COVID-related absenteeism and disruption with realized COVID-19 cases running up to, from 3 to 5 percent typically to spikes as high as 13 percent in May. Now this had a direct impact on 2 fronts. Firstly, availability of operators in the underground, impacting our ability to access high-grade ore, and in addition to that, as well as a shortage in specialised technical staff in specialised service providers, to maintain equipment causing extended downtime in our remote loading fleet. Now remote loading fleet is basically what we use to access our high grade ore in the underground.

4:37 Both the outlier rainfall levels and COVID absenteeism levels impacted our planned production, particularly in accessing the main mill feed that was originally planned for Q2. We continued to mitigate the COVID-19 issues by overmanning in critical roles, and we observed improvements in COVID-19 rates over June. During Q2, we issued a positive updated mineral resource and reserve statement, which incorporated an increase of mineral reserves of 66% up to 630,000 ounces and an increase in inferred mineral resources of 29% and 2% in measured and indicated. Now that's after we removed 368,000 tonnes of pillars from measured and indicated that was included in the previous resource and reserve statement.

5:28 The 43-101 technical report was also updated and reissued at the end of May. Now, finally, we report cash and cash equivalents totaling of $18.2 million at the end of this quarter. Jumping up onto the next slide, insofar as the second half is concerned. Now, the production, as we know, has been impacted by both underground and open pit operations due to the extraordinary regional weather conditions and of course COVID. This is not unique in the market or to Western Australian operations. We remain committed to achieving our targets in the second half of 2022. Now this entails, but is not limited to firstly, continue augmenting our teams to mitigate the impact of COVID.

6:13 We've implemented short interval control measures to ensure that we respond effectively to any variations in our operational planned performance. We continue to optimise our integrated mine plan covering the open pit and the underground to increase tonnes and grade for the increased ounces that it will deliver. This optimization includes 3 main thrusts. Firstly, safely accelerate the mine plan to include wider benches in the open pit, which will minimize the impact of rainfall while stabilizing the extraction of ore. Secondly, revising the schedule and design of our stopes to ensure adequate grade representation taken into consideration the first half of this year as we increase production from the underground.

7:02 Finally, to ensure targeted total material movement is achieved from the underground, we are building in redundancy in the underground equipment as well as increasing active capacity in the fleet by firstly adding a new jumbo to increase development, an extra truck and an extra remote loader to increase the total material movement rate. And then also we will also renew 2 existing loaders and trucks with rebuilt remote loaders and trucks. Now The augmentation of equipment will have a positive impact on development meters and tons derived from the underground and in the latter part of Q3 and Q4. Insofar as the open pit is concerned, we've fully kitted now with all the mobile equipment and resources required to operate them.

7:48 Moving on to some of our achieved and upcoming catalysts, we have a number of upcoming catalysts worth noting. Firstly, going forward, we expect to continue to provide regular underground exploration updates. I would like to draw your attention to the latest exploration update scheduled for the 31st of May 2022 on Indian access. In addition, results from the surface exploration that commenced in 2022 is expected to be published in the second half of this year. We've also announced our mineral resource and reserve, and we expect more opportunities for improvement as we continue the full potential assessment specifically for the underground operations as we develop the life of mine and optimizing the life of mine. Now, this may point to further expansions for the underground.

8:35 In addition, we continue to consider commercial options for ore feed to utilise the latent milling capacity. We also expect to commence and announce the results of the heritage survey, which will provide clear direction on the main-pit pushback project, as well as clarify the timing of the Hermes South project. Over the next 12 months, it's clear that we have a healthy pipeline of development and exploration catalysts to look for. In summary, thank you very much for listening. This will conclude our presentation, and I'd like to open the floor for some questions. Over to you, Cam. Wonderful. Thanks, Chris, for the great presentation. Just as a reminder to everyone in the audience, you can ask questions using the Q&A tab found on the right hand side of your screen.

9:22 But begin with, regarding guidance for the fiscal year of 2022, can we still expect 80 to 90,000 ounces of gold for the year? So I think to answer that question, we have to look at what we did in the first half. So Q1 was a good result. The second quarter, as we described, was below our expectation. There's a number of strategies that we're implementing to fundamentally address the challenges that we had in the second half and to optimize the outcome of that. If there's any change in our guidance, we will inform the market as such, but our plans are all designed and continually being reviewed to still target that specific items.

10:10 Great. When should 1 expect full production level from main pit deeps? So my pit Deeps was affected, as we said before, mainly because of the rain situations that we've had. I did an inspection on the open pit mine on Monday this week and I'm happy to report that The benches and the settling of the benches is progressing really well. We've seen an uplift in this month on the performance of the open pit compared to the previous month. There's a big piece of work we still need to do in ensuring that the levels of the benches are all equalized, and that will, of course, allow us to extract the ore on a more consistent basis and also improve the process flow of the mobile fleet.

10:59 We would expect in this quarter to see quite a significant uptick in the operation of the open pit and settling down at a specific rate according to our forecast. So I would think that if I look at our current forecast, the progress that we've achieved up to now, we'd see that ramp up happening in Q3 for the main open pit. The benefit we have is that the additional ore that we'll be bringing up from the open pit will be able to send through the milling circuit. As we reported, the mill delivered 407,000 ounces in this quarter. More importantly, in June, we've seen quite a significant uptick after we finished the initial shutdowns in March and those shutdowns that were held in May for the reline of the ball mill and the sag mills.

11:54 We've seen the production rate from the mill increase quite significantly and in June we were heading very close towards 1.8 million tonnes annualised rate. We also in addition to that have an engineering team working on looking at ways how we can de-bottleneck that mill so that any additional ore over and above 1.8 million tons that we can still accommodate within the mill. Now that work is currently underway. So as we ramp up the open pit, even if we accelerated and produce more in a month that we would currently mill, the mill is certainly picking up in so far as its production rates concern and we're comfortable that we'll be able to accommodate higher production from the open pit in the mill.

12:41 Okay, great. Are you seeing cash cost improvements in terms of American dollars? Yeah, I, you know, certainly in the second half of this year, we have very specific targets that we're going after. We've seen in the previous year, in 2021, we typically operated at, you know, heading towards that 100,000 ounce annualized rate in a specific month, had a significant impact on our fixed cost dilution. So given where our cost is now, we would expect our cost to drop in the second half of this year compared to the first half. Right. A couple of questions about the underground grade. You know, it seems to be decreasing. Is that just a result of lack of development? And do you expect the grade to return above 3% going forward?

13:28 So that's in fact exactly what we're doing in our revision of our operations in the underground mine, given the challenges that we had in the second quarter, our ability to access those high-grade stop stopes decreased. We're picking that up in the 3rd and the 4th quarter, and we would expect that our stock grade target will be achieved in Q3 and into Q4. Okay, awesome. A couple of questions about the average grade for the second half of the year, you know, talking about To reach the fiscal year 2022 guidance, you're going to need to produce 48k in the second half. Will you be able to average 24,000 ounces in Q3 and Q4? At our current forecast, if we look at our analysis, it shores it up, or it's pointing towards that. What we are doing now is to try and further optimise that plan to shore it up, just in case there's other headwinds that we might experience in the second half.

14:31 And wouldn't at this stage expect a rainfall situation. I think we are in a much better position to accommodate high rainfall now in the open pit now, given that the benches are much larger. In addition to that, we would expect that the increased grade from the underground will also augment that throughput from the operation. The milling circuit, certainly very encouraging in so far as throughput is concerned, So it's an absolute focus on grade for the next few months. OK. Tim wants to know if anything has been solved with Van Gogh mining. At this stage, we are compiling our assessment of the legal costs. These are very strict and descriptive or prescriptive format as well as consideration of legal costs that will be considered that's payable back to us. And you would remember that the court ruled that 80% of our legal cost be paid back to to Superior Gold.

15:42 That is nearing completion we would expect to submit that to court very soon. Insofar as our legal or the litigation is concerned, more specifically the follow-on from the initial litigation that happened, We have not yet received any indication as to the date when that appeal will be heard. We're hoping to hear from the court, you know, in the next month or so in setting a date for that appeal. Okay, thanks Chris. Some interest regarding the situation with COVID in Australia currently. What's your opinion? Will there be potentially further restrictions on the horizon? And can you talk about any experiences you guys have learned in the past couple of years that you think will help you out going forward?

16:35 Yeah, I look, I can, I can, it's a bit like a question, what do you think is going to happen to the gold class? You know, it's very difficult to speculate what's going to happen. I have to say we, we very actively watching what's happening in the east of Australia where there's been a significant increase in number of COVID cases. We're seeing an increase of COVID cases here in WA as well. And that's certainly something that we have first and foremost in our minds as to how we will respond to it. The major way in which you address this is to make sure that you have access to additional labour, that in the case of people being affected by COVID that we can put other people into those roles.

17:27 So I have to say that that's probably one of the key things that we need to do. In addition to that, we try and keep the operation COVID-free, so anyone that shows any signs whatsoever has a direct instruction from the general manager not to board any plane. In addition to that, we've been able to, with the measures that we have on site, secure and cordon off anyone that shows any signs of COVID positive. I think at this current time, we only have 1 positive case on site, and that's out of 340 people. That person is fully isolated and won't pose any risk to anyone else at the moment.

18:15 So it's a question of sustaining the controls that you have in place, in addition to that anticipating that there might be further increases in COVID cases or surges in COVID cases. And the only real way that you can deal with it is making sure that you have additional labourers as I've spoken and we've put that in place. If we haven't done that, I think the situation would have been worse in this quarter. In addition to that, we are continually reviewing our stoping schedule to make sure that with the available resources that we have, both from a mobile equipment perspective as well as people perspective, that we get the best grades that we can out of the underground as well as the open pit.

19:04 In addition to that, I think a key element here is making sure that we limit the impact of any downtime that we might have on key mobile equipment and therefore the replacement of key pieces of mobile fleet with rebuilt units, which will provide better reliability, as well as having some redundancy in specifically our boggers and our remote boggers and trucks, will help us a long way to ensure that when we mine, we mine the best tonnages and grade out of the underground mine. So it's a combination of things that we put in place. I think some of the things that we've learned over the last, you know, year, a little bit more than a year that we're dealing with it, I think that the key here is to make sure that you keep the operation as far as possible isolated from any potential positive cases.

20:02 So anyone showing signs needs to be isolated immediately. RATs are done as well as PCRs if RATs are positive. And those people are then appropriately managed to ensure that we don't expose anyone else on the operation. And that's helped us a long way. Insofar as the movement of people in Perth, where most of our employees come from, that's very difficult to control other than to encourage people to make sure that they comply to the necessary restrictions that are in play at the moment. So that's the way that we deal with it at the moment. Fair enough. Tim wants to know if there are going to be more assays from Indian Access?

20:50 Yes, there will be. What we're doing at the moment in addition to that is looking at what the block model would look like, What are those additional ounces we found and how soon can we get it into the schedule if it makes economic sense. So that work is currently underway. We hope to have those results available soon. All right. Wonderful. John wants to know if the problems in May have changed any plans for opening new mining fronts in the underground. It has most certainly had an impact on our stop sequencing for this year. And I think that is that's probably the biggest change that you will see.

21:37 Insofar as whether it will change in which areas we mine, there's certainly a stronger movement in the second half of this year towards Timor, which is traditionally known as the higher grade area in the underground mine. So that, I guess, would be probably one of the only changes that you would see apart from just purely the sequencing of certain stokes. Okay. Mark wants to know if you're considering any extra near-term financial facility to ensure adequate liquidity going forwards. So as we consider our operational performance and our forecasts, that automatically flows out of that, you know, whether we would consider or need to consider financing.

22:26 At this stage, we don't see that yet, but we will continually monitor to make sure that we respond appropriately if that need arises. I think insofar as our cash position is concerned, we've held it really tightly up to now, you know, through some really difficult situations or times. And, you know, that same diligence will continue with. Absolutely, thanks Chris. Tim wants to know when you can look forward to there being a report on Big Fish? That work is not complete yet. I would, As I noted somewhere in the presentation, I spoke about some of the drill work that we did from an open pit perspective to make some announcements in the second half of this year.

23:15 Big Fish will be, I would guess, would be part of that. We're not doing any drilling at Bigfish at this stage, but we're nearing completion of the full analysis of that open pit area. Right, and Howard would like you to reiterate maybe how much cash you have on hand in US dollars. $18.2 million, if I remember correctly. I just want to make sure that I get that number correct. I think it is. $18.2 million US. That's US and that's US. At the end of June. Yeah. Wonderful. OK. That's right. So we still remain debt-free at this stage. So I think from that perspective, we're in a good position, despite the challenging times that we went through.

24:05 Absolutely. And given the pullback in gold price, will that affect cash flow to projects and slow the development of growth projects? Well, I guess it's going to be a function of 2 things, right. The first thing is what can we control, because we cannot control the price. What we can control is our costs. And we are continually looking at opportunities to reduce costs. There's been a number of efficiency improvements that we've really achieved. The fact that we increase our milling rate will increase ultimately at the right grade increase our production on gold. That immediately will bring through our further fixed cost solution and ultimately reduce all in sustaining costs. And of course, that will immediately increase your margin.

24:58 So we absolutely primarily focusing on increasing gold production and through that reducing our costs and thereby creating a better margin. So at this stage, it's probably a question of, you know, what will happen to the gold price. It's very difficult to see where this might be going. It is under pressure without a doubt. Although Many punters believe the price would go up. Once again, from our perspective, our focus is on the things that we can influence, and that is increasing production, increasing our rates, being critical about what we spend our money on, and then ultimately increasing that margin on a per ounce basis.

25:49 Absolutely. Michael's wondering what innovation and technologies Superior is leveraging to improve work processes. Wow, That's a very interesting question. I in fact pulled a summary together for one of our board members today and maybe I can just call out a few. I think first and foremost from a technology perspective is the way that we apply our all-body knowledge in defining and designing a life of mine. Now that's a mouthful of things but fundamentally what that means is utilising 30 years worth of data, having the right process within which we augment that data to turn it into information, which is then fed into the appropriate technology from a modeling perspective, and then coming up with an appropriate life of mine and block model. Now, interestingly enough, we reported at the end of Q1 that the rate at which we were mining out of reserve increased from typically 8 to 12 percent in the last 5 years up till the end of 2021, increased to 54 percent in the first 3 months.

27:05 It's now edged up over 76% mining out of reserve. So that goes a long way in describing the success we had in utilizing technology and being much more predictable as to where we're mining. So that's the first thing from a technology perspective. If I jump at another opportunity here is the way that we have considered or are considering the process plant throughput so once again using big data analysis trying to understand what are those correlations that you know at first glance is very difficult to understand, but through data and analytics will put us in a position to understand what those correlations are so that we can have a better handle on those levers that we can pull to improve performance on the processing plant. And that will ultimately influence our production rate.

28:10 It will influence our recovery. And very importantly, it will give us insight into the blend of ore that will give us the best results. I'm going to give you an example. Certain areas in the mine is higher in arsenic as other areas, and we all know if you have high levels of arsenic in your ore, recovery drops off. By knowing exactly where that is, we can unequivocally demonstrate the impact it will have on recovery, depending on where we mine. And that can then circle back into the scheduling of our stoves so that we over time consistently ensure that we have the right ratios of ore coming from the underground mine and optimizing that for recovery.

28:57 But once again, you know, the key thing there is to drive and, you know, ultimately for grade but also then overlaying it with an understanding of the ore chemistry that we're mining and how we can get the best return from our processing plant. From a technology perspective, in addition to that, the technical report that we expect over the next few weeks will give us an indication as to further improvements that we can do on instrumentation and automatic control. Now, this is not yet at that level of machine learning. This is really the first step making sure that you have the basic control systems in place that operate automatically and that will be a key enabler for us to consistently operate the mill at higher rates and do so effectively. So that's another piece of technology that we'd be looking at in the near term. So that's just a few examples that I've quickly think about.

30:02 Absolutely. Thank you for that, Chris. Steve would like to know, to increase underground production beyond current goals, do you need more miners or more equipment, or can you achieve it through bigger stokes? I think it's probably a combination of all 3. I think the way that we're geared now with the additional truck, bogger, and replacement of the old jumbo with a new jumbo, which will give significantly improved productivity, That'll probably, the way that our plans are working will put us in good stead to be able to deliver up to 1 million tons per annum right. To take that further, my expectation is yes, we would typically need additional trucks, boggers as well as jumbos. So exactly how many we need, we don't know that yet, that's why we're doing the life of mine, something that will come from the life of mine will be to have a clear understanding of what is that activity-based resources that you need to be able to operate at those levels.

31:16 Right. Okay, Chris, that looks like all the questions we received for today. So I want to thank you for going through the great presentation, looking at the results and your second half of the outlook. I'd like to remind everyone that if you have any questions that you didn't ask today, that you can, of course, get in touch with the Superior Gold team through the information that you can of course see on your screen now. But Chris, before we wrap up for the day, I'd like to hand things back to you for some final words. Yeah, thank you very much, Cam. So it's no doubt been a challenging second quarter. Once again, I don't think we're different than many of the other operations out there. The key for us is to make sure that we make fundamental change in our capability and capacity, as well as our review of our options in optimizing our operations, and that we believe will stand us in good stead to deliver the best result that we can.

32:16 We've got some audacious goals there that we wanna achieve, and we're backing that with real change insofar as, just to mention a few things, the sequencing of our stokes, the additional mobile fleet that we're bringing in. And we are bringing in additional people to operate these pieces of equipment. But also more importantly, over and above that is creating some redundancy in our mobile fleet that ultimately will stand us in good stead if we do run into some availability issues with the fleet, which happens from time to time. So I think the key message here is, despite the second quarter, we have real activities and actions currently underway that will focus on a much improved performance in the 3rd and 4th quarter and certainly want to take the operations up to those targets that we've put out.

33:11 Thank you