Superior Golds Q3 Financial Results Recap & Outlook to Finish 2022 Stronger

0:08 Hello, everyone, and welcome to Superior Gold's live investment summit today, hosted by 6. I'm joined today by their president and CEO, Chris Jordan. He's going to walk us through a presentation and after we're going to move into a live Q&A session. And as a reminder, if you have any questions, please ask them in the Q&A chat on the right hand side of your screen at any time during today's presentation. And as always, this summit is being recorded and is going to be available in the coming days on six.com. So look out for that if you want to refresh. But Chris, let's get started. I'd like to hand things over to you. Thank you very much, Cam, and good day to everyone. Thank you for joining me to get an update on Superior Gold's Q3 financial results and outlook for year end in 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.

1:01 I think firstly what I would like to start with is the highlights for the third quarter in 2022. The safety performance has improved markedly again with our total recordable injury frequency rate reducing 27% since the previous quarter. And that is down 56% since December 2021. Production went up relative to Q2 by 5% to 15,946 ounces. And the sales was at 14,875 ounces at an average realised price of US$1,877 per ounce. Total cash costs were 1,789 per ounce sold and all in sustaining costs were $1,989 per ounce sold, representing similar costs to Q2.

1:58 We generated cash flow from operations of $1.9 million after working capital changes and exited the quarter with a cash position of $11.6 million. We also secured a $10 million Australian debt financing with AuraMet International, similar to the previous debt financing in 2020, which provides enhanced financial flexibility for the business. In the third quarter, the company realised an 8% increase in production from the process plant. And that's following on the successful shutdowns that we had in the first half of the year. Post-period development rates for the underground have markedly increased and the mine is now pointing towards a continued improvement of our development rates.

2:53 There's a complete improvement program which is currently in implementation and which also includes the purchase and commissioning of a new jumbo development rig. The higher development rates are expected to add additional slope inventory to the mine over time while providing greater operational flexibility. We are on track to meet our revised 2022 guidance. Moving on to the next slide, the first 9 months of 2022 were softer due to the planned mill shutdowns, unprecedented rainfall, high absentees and due to COVID, specifically in WA, and labour shortages, as well as our decision to temporarily suspend the open mining operations.

3:40 Heading into Q4 and 2023, The operational focus will revert solely to the underground mine. The goal is to accelerate development and to unlock access to a greater number of higher-grade stoves. As previously mentioned, we are realising success in improving the development rates, which is expected to add additional stock inventory to the mine over time, while providing greater operational flexibility. Our cash position as of September 30th is US$11.6M and has decreased 43% from the end of 0.25 2021, reflecting lower production revenue and higher sustaining exploration capital expenditures. A detailed review of all our cost inputs across the operation has identified several opportunities, many of these already implemented, that are targeted to reduce our cash costs in the fourth quarter and into 2023.

4:45 Summarising the quarter, we face several ongoing challenges in the third quarter. The impacts of absenteeism due to COVID during the first half of the year, as well as wider labour and skilled shortage, skilled contractor shortages affecting the Western Australian mining sector combined to continue to negatively impact our development, production and then ultimately, of course, our cash flow during the third quarter. The labour shortages resulted in lower lateral development that reduced the available higher grade stock inventory, thereby negatively impacting mine head grades and resulting in lower Gold production. Additionally, the operational underperformance of the main Petit's project resulted in reduced tonnages and lower grades being delivered to the mill.

5:31 Looking ahead to the remainder of this year and into 2023, our operational focus is purely on the underground mine. Our goal is, once again, to accelerate the development to unlock new mining areas of the mine, as has been identified following our successful mineral exploration programs over the last 2 years. I would again like to mention that post-period, we continue to see a marked improvement in underground development rates following the delivery and commissioning of a new development jumbo rig late in the third quarter as part of the execution of a broader development improvement plan. As we target sustained higher development rates, we expect to add additional stoke inventory to mine over time while providing greater operational flexibility.

6:18 With that, I will conclude the presentation and open up the call for questions. Thank you, Ken. Yeah, absolutely, Chris, and thank you for the great presentation. And as a reminder to everyone in the audience, if you do have questions, please ask them in the Q&A chat found on the right hand side of your screen. Chris, we've already received some questions in advance though, so let's dive into those. And the first one is this, you know, given that you've just completed about 2 months of the fourth quarter, how's the company tracking? Is development improving and is production looking better? Yeah, there's no doubt that our development is improving significantly. In fact, in October, we achieved the highest development right for any month within this financial year. That's not still at the level that we're targeting. We wanna move that up to about 250 meters per jumbo per month, and that is ultimately about 750m per month. That will give us certainly in due course access to a much larger array of stokes in the underground mine. We can then selectively decide which stokes we are mining to make sure we get the right blend and ultimately then seeing an increase in grade. The benefit that we had from the shutdowns that we had earlier in this year is those benefits we're seeing into Q4 as well. The mill is really reliable and running up to 5,000t per day, which is at its design capacity of 1.8Mt per annum. So once again, that gives us the assurance that whatever we get from the underground,

7:48 we can confidently send it through the process plan. I think also importantly, if you look at our recoveries 2 years ago, it was in the late 80s. We've been able to increase that to the mid higher 80% recovery rates, which of course gives us that additional benefit. Fair enough. And to deal with that question and somewhat of your answer, once development is caught up, what do you envision as a quarterly Gold ounce production? Well, we are in the process now to not only focus on development, but we're also looking at the complete inventory of what we call consumables. And if I say consumables, it's really the engineering work for the so-called area plans that we're pulling together. And we're busy building an inventory of that engineering work way ahead of the mining plan. That will ultimately inform what stokes we will have available at what stages during the year. So we might see some fluctuation from 0.25 to 0.25 in production.

8:52 We are in the process now of finalising the 2023 physicals forecast. That will be finalised somewhere around December and very early in January, I think it's around the 15th of January, when we make our quarterly production results, declare our production results for Q4, we'll also then provide the necessary guidance from a production perspective. Right. Howard wants to know if you have enough money left both to continue exploring underground and seek new JVs or properties outside of Australia? So The main focus for us, as I said, is purely on the underground. We really need to go through 2 stages of improvement on the underground.

9:38 The first one is getting ahead of development so we can open up appropriate inventory of stokes, once again, providing that operational stability. Once we achieve that, we will then recommence with our mineral exploration for underground. And that will also ultimately put us in a position to better understand the opportunities we have into new mining areas. However, we are in fact already moving into those mining areas and expecting in Q1, 1 area for instance, to move into Indian access, which is, as we've communicated to the market before, has rendered some really good exploration results from our exploration programme. Once we've settled the underground mine, we will then consider next steps for exploration.

10:28 In the short term, All the investment we did in the last 2 years in so far as mineral exploration is concerned has rendered a significant amount of additional inventory of ore in the underground mine. As an example, our mineral reserves increased from about 380,000 ounces in 2019, the end of 2019, to 630,000 ounces in 2022. Now, in addition to that, with the way that we analyse the underground mine, We've rolled it out to other targets on our property and we hope to see those ounces ultimately reporting to resource and reserve during our next revision. Absolutely.

11:14 Tim wants to know if there's been any progress with the Van Gogh mining? Yes, insofar as Van Gogh is concerned, as you know, we have taken the case to court insofar as the roofers are concerned. As you might remember, the 2017 ROFA judgment went in our favour, so we have now the right to earn in up to 50% of the K2 tenement on their property. We have established a JV committee, which is working fervently to ultimately pull together what we will be taking forward on K2 with regards to potential mining, the milling, et cetera, for that operation.

12:02 In addition to that, the appeal case, we expect to be heard in the first quarter of next year. That appeal is specifically on the 2016 ROFA, which where the judgment did not go our way. We'll be sitting in court to present our appeal case in Q1 next year, and if that goes our way, we will then have a right to earn into 40% of all tenements on the Van Gogh property. So that's where we are in so far as that's concerned. At this stage, the primary focus, as I said before, the primary focus is on K2. All right. Question about the labour market in Western Australia.

12:48 Are you still seeing inflation pressures? Yes, we are. However, it's not as steep as it used to be. We, in some specific skill areas or engineering areas, we see stabilization of remuneration. I think the other positive that we are seeing is that the impact of COVID has all but turned to 0. I think at this stage, we only have 2 people that are affected with COVID here in Perth, which are employees of us. And we expect to see them soon and hope to get them back to site in the next few days. So the impact of COVID has diminished quite significantly.

13:35 Our primary focus now is to make sure that the elevated performance level that we require from the underground mine is in fact achieved. Regarding the Australian 10 million debt facility, is any of that included in the cash balance of the US 11.6? No, no. And I think that's a very good question. And we heard it in one of our, you know, heard the same question in one of our previous presentations we did. That $10M is not included in the $11.6M net cash balance. The AuraMet loan was in fact, consummated, if I remember correctly, on the 7th of October, which will be post Q3. Right. And Tim wants to know if there's been any talks of joint venturing the second mill?

14:24 Yeah, I think the opportunity is always there. The important thing, and we've explored many opportunities during our assessment of the life of business plan, looking at adjacent properties, where does it make sense? What is the clipping point on grade and how far distance specific grades can carry to the mill? There are a number of opportunities without a doubt. You know, I think that that mill will probably, or may potentially in the future, play a role with external or providers. And, you know, we remain open to entertain conversations from that perspective.

15:11 Right. What's the target date of the main pit dips? So, Sorry, what is the target date of Main Cadets? Potentially. It reads Main Cadets. So it's really 2 things. Maybe I'll answer both. You can view it from 2 vantage points. The one is, you know, Main Perdiz, as we said, is a temporarily suspended operations there. In our assessment of the challenges that we had with the open pits, specifically from a technical perspective, and the interaction of voids with open pit mining, because we're going into main pit ditch, we start intersecting with some of the underground operations and the historical underground operations. Typically, where we want to mine is on the halo of extracted stoves, historically extracted stoves, which is extremely difficult from the way that we approached it.

16:05 However, we believe that by bringing that specific part of the open pit mine into the main pit pushback project will give us a much better opportunity to mine, if I might use that word, mine cleaner or get less dilution of the ore that we extract from that area. The reason for that is we'll be able to put forward a tenor for a significantly longer period, which means we can really settle down operations over a long period and ultimately render better results from that operation. So the gold hasn't gone anywhere. It's not sterilized in any way whatsoever. It's purely just forming now part of the main pit pushback project.

16:52 Right. Andrew wants to know what kind of further financing you're currently looking at? Well, at this stage, our financing will be internal. As I said, we focus our attention on the underground only. What we're going to do there and what we in the process we're doing is making sure that we get an appropriate inventory of higher-grade stokes available, bringing that to the surface and then converting that into Gold. I think also importantly that I might want to talk about is what we're doing to reduce costs. If we look at the time that we ran the open pit versus our run right now, we have on an annualised basis reduced our annual expenses purely on the open pit by $36 million per annum.

17:38 We've also restructured the organisation, went through a redundancy process to ultimately put a structure in place which is purely focused on the underground, which has given us further benefits. We've also converted from running the mill over a full month to campaign milling, given the fact that we only have underground ore, which in turn enable us to do further cost savings in so far as the use of consumables in the process plant. So those are, that's 3 examples of what we've done to reduce our costs and ultimately ensure that we remain financed. Absolutely. Well, Chris, that looks like all the questions we received for today. So I wanna thank you for taking us through such a great presentation and Q&A session, as well as everyone who's asked questions and participated today. But before we wrap up, I wanna hand things over to you for some closing remarks.

18:32 Yeah, thank you very much, Cam. I really appreciate it. It's always a privilege to speak to you and speak to people dialing into this call. I think there's no doubt we went through some challenging times. We're in the process of transitioning to a different operating model. We've implemented a number of the elements within that operating model. The key thing for us ultimately now is to remain focused on development, which once again will enable us to open up those areas that we've identified from our drill program in the past, which will now turn into cash for the business. Thank you