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AUMN Golden Minerals

Participants
Karen Winkler Director of Investor Relations
Warren Rehn President and Chief Executive Officer
Robert Vogels Senior Vice President and Chief Financial Officer
Jake Sekelsky Alliance Global Partners
Heiko Ihle H.C. Wainwright & Co.
Chen Lin Lin Asset Management
Siddharth Rajeev Fundamental Research Corp.
Call transcript
Operator

Greetings. Welcome to the Golden Minerals Company Second Quarter 2021 Earnings Webcast. At this time all participants are in listen-only mode. A question and answer session will follow the formal presentation. [Operator instructions] Please note this conference is being recorded. I will now turn the conference over to your host Karen Winkler.

You may begin.

Karen Winkler

Thank you, operator. Good morning everyone. On behalf of the Golden Minerals team, I would like to welcome you all to the Company’s inaugural earnings call, during which we will be discussing operating and financial results for the second quarter of 2021.

Before we get started, please note that certain statements made by management today will be Forward Looking within the meaning of a applicable Securities laws.

Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual events or performance to be materially different from those expressed or implied by such statements. Please refer to our most recently filed form 10-Q for details of risks and other important factors that could cause actual results to differ materially from those in our forward looking statements. On call today, our Golden Minerals President and CEO Warren Rehn; and our Chief Financial Officer, Bob Vogels.

Following their prepared remarks, they will be available to answer questions. The event will also be available for replay on the Company’s website tomorrow. I will now turn the call over to Warren.

Warren Rehn

Thank you, Karen.

As we predicted, we essentially broke even as a company based on our Rodeo goldmine income in the second quarter of 2021.

Our projections show strong positive earnings through the remainder of this year. Rodeo has been operating very well since start-up, we commissioned the new ball mill at our oxide plant in the last days of April, about a month later than we had planned.

However, our process plant throughput has exceeded expectations by nearly 100 tonnes per day since that time, and we expect the higher throughput to continue.

We are now planning for an average throughput of at least 500 tonnes per day. This means we should be able to easily meet our forecasts for gold production of between 12,000 and 14,000 ounces this year and profitability for the year.

Our work at Velardeña is progressing well, for the possible restart near the end of 2021.

We have completed our bulk sampling and precision mining tests successfully and are now preparing the material to be sent to South Africa for the final metallurgical studies to complete the design criteria for the bio oxidation plant and optimize the flotation separation, maximizing gold reporting to the pyrite concentrate that will be treated in the bio oxidation circuit. We should have results of this test for to report early in Q4 this year. I anticipate a positive decision on the restart of the mine in Q4. Exploration at Rodeo has continued to return positive results on two additional structures not currently in the mine plan. The structures are both east and west of the current debt, and potentially within easy expansion access.

We have just added a second drill rig to speed up the drill program to delineate gold mineralization on these two structures, and to test additional targets. Reverse circulation rigs that just started the last day of July is expected to drill about five or more times faster than the core drill. This means we should have the information we need to evaluate the potential extension of the mine life within the next few months.

We are also doing a project in Argentina that I'm quite enthusiastic about. The property is the Sarita Este property, which is immediately adjacent to the giant [Taca Taca] (Ph) copper deposit in western Salta province.

We are drilling both a very interesting copper targets and a compelling high sulphidation Gold Silver target. Initial results from the copper targets should be available in the next few weeks.

Our plans to drill at the Yoquivo district in Chihuahua have been pushed back a few more months to accommodate our drilling at these other projects. Not necessarily because the other projects are better exploration targets all are quite good, but because of operational needs at Rodeo and based on a commitment to drill at Sarita Este. Yoquivo remains a very attractive gold silver district with excellent potential.

We expect to start drilling at Yoquivo in Q4 this year, as soon as the core rig at Rodeo is freed up.

Our plans for production growth and sustainable profitability are in place and advancing well. With Velardeña producing hopefully late this year, we will have accelerated our production growth over our initial plan and potentially be producing about one million ounces of silver with legumes and byproducts in 2022 while we are constructing the bio oxidation facility. Once the bio oxidation plant is complete our projections so an additional one million silver equivalent ounces produced per year from the gold in pyrite.

Our production for Velardeña, once in full swing should be about twice the equivalent gold production from Rodeo and with a projected mine life of a decade and possibly more with exploration success. I will now hand the call over to Bob Vogels our Chief Financial Officer to present the financial results for the second quarter 2021.

Robert Vogels

Thank you, Warren.

For the second quarter our operating margin and Rodeo operation increased significantly over the first quarter as expected to about 2.5 million with throughput at the processing plant exceeding our internal projections following the start up of the new reground mill circuit beginning in May.

As Warren mentioned, we now expect the plant to operate at a higher throughput level of at least 500 tonnes per day throughout the remainder of the year. Cash operating costs net of silver byproduct credits also significantly declined in Q2 due to the higher mill throughput, just over $900 per payable ounce of gold produced. We should continue at this cost level or slightly better for the rest of the year as the higher throughput continues to going forward. At the expected higher throughput levels for the remaining two quarters of 2021 and given a continuation of current gold and silver prices, operating margins at Rodeo should be higher for the remainder of 2021.

As noted in our 10-Q filing we are estimating an operating margin of between 10 million and 11.5 million the full-year 2021. Despite the significantly improved operating margin from Rodeo, we still reported a narrow net loss of about 800,000 for Q2. Due in part to non-cash stock compensation awards granted in the second quarter. Other levels of expenditures for exploration of El Quevar, G&A, Velardeña care maintenance were similar to prior quarters and are expected to continue at approximately those levels going forward.

With the higher operating margins expected for the remainder of the year, we are projecting positive net income in the second half of 2021. We ended the quarter was about seven million of cash, net cash flow for Q2 was negative 1.1 million and was a negative 2.9 million on year-to-date basis. Due primarily to costs incurred in startup Rodeo operation that occurred primarily in the first quarter. Those startup costs included approximately 1.2 million for the installation of the new reground no circuit and the buildup of working capital for the Rodeo operation. Primarily related to dore inventories and the value added tax or VAT receivable. We noted in our 10-Q that our normal course refund claims with the VAT related to the Rodeo operation, occurring at a slower than anticipated pace due to delays in processing the refund claims in Mexico, as Mexico deals with the economic fallout of COVID pandemic. The VAT receivable increased by about 800,000 quarter two and we are currently incurring a little more than 250,000 of VAT per month.

We are forecasting the pace of refunds to pick up in the second half of the year and believe we will collect all the existing VAT receivables on our books within a year's time period.

Now that we are in full operating mode at Rodeo and providing metals prices remain at current levels, we expect we will have positive net cash flow through the remainder of 2021 and into 2022.

As reported in the second quarter 10-Q, we expect our cash balance to grow to around 9.5 million to 11.5 million over the next 12-months through June 30, 2022. And this does not include the 1.5 million we expect to receive in Fabled Silver Gold in December 2021 according to the terms of our farm out Agreement with the Santa Maria property. The cash projection also does not assume any other forms of debt or equity finance. I will now turn the call back over to the operator, who will take your questions.

Operator

And at this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is from Jake Sekelsky with Alliance Global Partners. Please proceed with your question.

Jake Sekelsky

Hey guys, thanks for taking my questions.

So just looking at the expiration program that you guys outlined at Rodeo. We obviously saw some results in Q2. When do you think we will see a broader update there and I guess you expect to formally update the PEA or do you think you just go ahead and sort of tack on some of that new material to the [indiscernible] you discover it?

Warren Rehn

Thanks for the question Jake.

So we will have additional results out here in the next few weeks on the Rodeo progress.

As noted in my presentation remarks, it has been slow going with the core rig, but it will become a lot more accelerated.

Now that we have the RC rig in there drilling as well.

I think it will probably take us a couple months before we have enough data to update the resource. I don't think, we will update the PEA, but we will probably internally update the resource and have some commentary around that, we will have to see just how big of a incremental or transformative increase for resources. And right now, it is just not clear, we do have those very interesting. And no gold bearing structures on either side of the existing pit, which certainly will add to resource. It is a question of how much and at what period.

Jake Sekelsky

Okay, and do you think we will see that resource by Q4 of this year?

Warren Rehn

I think it will be in Q4 Jake, realistically just based on the lead time for assays. Mow we are using the commercial labs, because our own internal lab is mostly taken up with the mine assays that we need you know a very rapid turnaround now.

So, I would expect it in Q4 and can't tell you exactly when that will be, but we will get it out there as fast as we can.

Jake Sekelsky

Got it, okay. And then just on Velardeña from a timing perspective, it sounds like you guys might be ready to make a restart decision by the end of this year. Can you just remind us with a ramp up timeline is sort of from that positive restart decision to the two-ish million silver equivalent ounces a year that we might see from there?

Warren Rehn

Yes, I can sort of go through it.

Now this so this is all pending, no official decision to progress. But we are getting close, in my opinion, to having all the information we need. But assuming that we decide to go forward, we will ramp up over the course of about three to six months to full production. And I think that full production for the silver lead zinc con sales, now will be in the order of 300 tons per day, which is the approximate capacity of that flotation plant.

Now, we won't get through the whole gold recovery portion until we have the [BIOX] (Ph) plant built.

So, assuming that we start production from the silver lead, zinc concentrates sales late this year early next. It will take about a year to build the BIOX plant, we would presumably stockpile the pirate concentrates during that period of time. And then once that BIOX plant is operational, which would likely be 2023.

Assuming all goes well, we would then be able to be in the full production mode as contemplated in the PDA with approximately the two million silver equivalent ounces being produced on an annual basis, the way we have it scoped out in the PEA right now.

Jake Sekelsky

Okay that was very, very helpful. That is all for me thanks again guys.

Warren Rehn

Thank you Jake.

Operator

And our next question is from Heiko Ihle with H.C. Wainwright. Please proceed with your question.

Heiko Ihle

Hey there, thanks for taking my questions and thanks for doing this call. Hey you mentioned you incurred 700 grand in capital expenditures during the quarter mostly related to the reground mill circuit. Are there other any other meaningful items that were in there? I mean, it seems like everything is running good now. And you are getting the better throughput rates? And also, is there anything else on the horizon that we should anticipate it in the longer lasting item category?

Warren Rehn

Yes Heiko, great question. The mill construction involves you know a couple of parts that we hadn't initially contemplated. It is a variable control system that was sized. Undersized initially we had to get a larger one that added a bit to the cost, we ended up having to actually put in a cooling system for the electric motor for the mill. We had initially planned to go the synchronous motor, we went with an asynchronous just electric motor on it at the end, because these synchronous motor wasn't fixable, the one that we had purchased use.

So there was a number of details in that mill installation that added to the cost of beyond what we had initially suspected. And it wasn't obvious until we actually started, tried to start the mill.

And so that is what led to the month, let's say of delay getting that mill up and running, and a bit to the cost.

Now we have had some minor additional costs and the vibrating screen repair and things like that. But that is normal sort of care and maintenance costs for the mills.

So we don't anticipate any further significant capital costs for the mill. It is up and running, going great. And everything else will be no minor repair and replacement items.

Heiko Ihle

That is what I hoped you would say.

Okay, fair enough.

You get the outlook in there until the end of June of 2022 with the 3.8 million in exploration activities. It is much detail as you are willing to do and then see in writing from people like me, can you break it down between your different assets?

Warren Rehn

We haven't really disclosed the detailed breakdown, Heiko, but I think I can say that we are planning to spend about 600,000 at Sarita Este.

We are planning to spend close to 0.5 million at Yoquivo. The initial spend plan at Rodeo was about 300,000, but we will go over that fairly significantly based on positive results that we have had to-date.

So that is the level of detail I have right now for you and then of course there is courses care and maintenance items for the claim costs and the general overhead for the exploration group in there as well. Bob, do you have any additional comments on that?

Robert Vogels

No, I think that is right, Warren.

Our spend is 1.2 million to 1.5 million just for sort of holding costs, as Warren said that pulling costs for the exploration group property concession payments, those sorts of things.

And so majority of that spend is planned drilling and exploration in the field.

Heiko Ihle

Makes sense. I actually thought there was a plenty of detailed answer.

So thank you very much and stay well.

Warren Rehn

Thank you Heiko.

Operator

Our next question is from Chen Lin with Lin Asset Management. Please proceed with your questions.

Chen Lin

Hi, thank you for taking my questions guys and thank you for hosting the conference call. Most of my question actually has been touched, basically about the two mining operations. One thing I heard you said in the conference call is a Barrick exploration.

So can you remind us what exactly Barrick is looking for and usually expecting, you said you are expecting results in a few weeks?

Warren Rehn

Hi Chen. I was talking about the Sarita Este property, which is not part of the Barrick deal. It is a new property that we haven't talked much about in Western Salta province. But now that you have asked about the El Quevar project that Barrick is earning into. They are still doing their surface exploration work. They are preparing to get ready for drill program, I expect them to propose a drill program sometime next year, and all likelihood. But there is no confirmation of that yet. But Barrick is looking for now world-class gold deposits at El Quevar, their target is about a five million ounce gold deposit. And they are doing this, their work very methodically to get to the point where they drill their best targets and see whether they have indications of such a thing or not.

Chen Lin

Okay, great, thank you.

And so you are drilling your own property adjacent to it or is that also in Argentina?

Warren Rehn

Yes. It is about an hour and a half to the West. It is almost on the Chilean border. And it is immediately adjacent to First Quantum’s Taca Taca copper project, which is a huge feasibility stage, copper porphyry.

So we have combination - two different targets, or three, that is day one is a copper target, which could have some similarities to the Taca Taca project. And then there is also the project that we were initially interested in there that appears to be a high sulphidation gold silver prospect with some very interesting gold values on surface. We just haven't talked too much about it yet Chen. But we will be releasing some results here in the next few weeks to perhaps a little bit longer, because of the essay delay it might be up to a month.

Chen Lin

Great. That is interesting. How many holed did you drill so far?

Warren Rehn

We have drilled about a thousand meters more or less of a 3,000 meter planning program. And they are about six holes drilled Chen.

Chen Lin

Great and I’m looking forward to that.

Okay great and also you have a very nice new discovery a Rodeo. And you have more results and you have a new resource in Q4. What are you hoping for with what you have seen so far, you hope to extend it for another year or another six months of this open pit operation or do you need to go underground?

Warren Rehn

Let me be clear, we don't have an added resource yet. We think we will be able to expand the resource. But we are still dependent on drill results.

Now we have the initial drill results that were positive in several holes in the June press release. And we will have some additional results to publish here within let's say, the next few weeks on the Rodeo.

So it is showing progress, we have no indication of how much it might affect the resource or how much it might extend the mine life. In my opinion, there is indication that we are getting the positive results should lead to that sort of resource expansion, but there is no way I can tell you how much additional production time we will get out of that resource. If in fact, it does increase it as I think it will.

Chen Lin

Okay, thank you. Congratulations for your first breakeven quarter. Continue the good work.

Warren Rehn

Thank you very much Chen, I appreciate that.

Operator

And our next question is from Sid Rajeev with Fundamental Research Corp. please proceed with your question.

Siddharth Rajeev

Yes. Congratulations for your strong quarter. My question is on Rodeo. Recovery rates have been slightly lower than PEA estimate. Do you think next year - I’m going to get a feel about of the production for next year. Do you think recovery rates and the costs can move towards PEA estimates next year?

Warren Rehn

Yes, thanks Sid for the question. Yes, we are focused entirely on bringing up those recoveries, the gold recoveries from what were reported was about 78%, I think in Q2, versus the bench scale and previous work that we have done that showed an estimated 85% recovery for gold that was used in the PEA, we are sure we can improve it.

Now, we had a bit of side effect from the faster throughput, you know oftentimes recovery rate and throughput are balanced opposite of each other.

And so because we put the higher throughput in May, June to sort of make up for the slower than expected mill commissioning in April, I think we probably have a slightly lower recovery than we will have if we dialed back to somewhere closer to 500 tonnes per day.

So, I'm confident that will improve the recovery. I can't tell you exactly to what points, but I expect to come very close to the PEA published recovery of about 85% for gold.

Siddharth Rajeev

And Velardeña, I think from one of the last points earlier. Is it fair to say that you have spent most of the CapEx there for this year?

Warren Rehn

At Rodeo, no, we have not spent the CapEx there.

We have spent a fairly minor amounts of money doing the bulk sampling and the preparation for the test mining.

So, we have done some test mining studies.

We are anticipating doing a bit more and there is still a development capital required or development cost required. Once we have made the go ahead decision which we have not made on Velardeña yet, I'm hopeful that we will make that positive go ahead decision late this year. And at that point, we will have to continue to spend some CapEx, in quotes for development and also for the completing the BIOX feasibility and construction.

So, we have not spent the capital for Velardeña, we won't until we have a go ahead on that project, so that is still pending.

Siddharth Rajeev

What is your estimate for that development CapEx spend?

Warren Rehn

We haven't changed our estimates. And once we start, the PEA contemplated about 10 million for the project, three to four, I think was in start-up costs, working cap and developments and about six for the BIOX facility. And that would be spread overtime in 2022. If we make the decision to go ahead.

Siddharth Rajeev

And based on internal cash flow estimate, it seems it can be self funded. We don't have to go back to the market to raise capital.

Warren Rehn

Yes, that is what we have been saying. Bob, do you want to comment on that, please?

Robert Vogels

Yes.

Our internal projections for cash flow show us as I mentioned, balances $10 million to $11 million of cash by June 2022. That does not include yet any kind of a spending estimate for a Velardeña project should have said it before.

So that would have to come out of that. But as Warren mentioned, we would be spending that capital through 2022.

So we would have the full-year and additional months and quarters in 2022 to raise more cash internally.

So yes, it is possible to fund it internally and we are certainly going to be looking at some other options to maybe help that funding a little bit could take on a number of different alternatives in terms of raising more money, but right now all the options are on the table. And nothing is quite yet been decided.

Siddharth Rajeev

Got it. Thank you so much and I appreciate you doing this call.

Warren Rehn

Thank you Sid. We appreciate your questions.

Operator

[Operator Instructions] Our next question is from [John Fenix] (Ph) with Fenix Consulting group. Please proceed with your question.

Unidentified Analyst

Hey Warren thanks for taking my call. I have three questions, if you don't mind. And the first could be answered by either you or Bob, is regarding the cash flow that you have mentioned. It seems like Bob just mentioned 10 million to 11 million, but that is not staggering in Santa Maria was labeled. And in talking to Peter who is the CEO of [Cable] (Ph), that seems like things are going well there.

So I anticipate that you are going to be getting some type of additional compensation in Q4. Is that correct?

Warren Rehn

Go ahead, Bob.

If you want to take that?

Bob Vogelszs

Yes, their next scheduled payment is in December for $1.5 million. And I agree, John, their financials look pretty strong at this point.

We have been a little bit conservative not throwing that in our sort of official liquidity forecasts, because - probably, but into Q3 will feel comfortable enough to drop that in.

Unidentified Analyst

Okay, thank you. And then following up another question regarding dilution. Taylor Dart, who is a Seeking Alpha article, author just wrote yesterday on August 9th, that quote, there are more established producers out there that aren't diluting shareholders regularly.

And so regularly to me seems to be an inaccurate statement, given your news flow that, I look at your website, it looks like the last financing was done 13-months ago, so can you state with some reasonable surety that the company is pretty cashed up for at least the remainder of this year, please?

Warren Rehn

Yes, John. We said that and Bob has said again, that we are going to grow our cash balance into next year of between 9.5 million and 11 million within 12-months period. And that is part of our disclosure. Bob, do you want to comment further on that?

Bob Vogelszs

Yes, I think what we have essentially put out there is that we turn the corner cash flow wise, and we should be adding to cash going forward at this point, as long as we have got that Rodeo cash flow source.

So there is no need for us to go out into the equity markets at this time.

We have got Velardeña on the horizon. And we are going to look at what we do there. But a lot of options are on the table for that. And that doesn't seem like to me we would need any kind of major external financing for that. And we may choose not to have any external financing.

Unidentified Analyst

Okay. That is very positive. Thank you and then the other few questions.

We have heard from a few analysts on this call, and would you be able to share with the listeners just what that analyst range looks like currently, please?

Warren Rehn

Yes let me just talk in general forum on that, John.

Our analysts, we have now three analysts that have published sort of price targets on the stock, and the range is between I think, $0.91 and $1.10 per share.

So that clearly puts their valuation of the company far higher than the current market valuation.

Unidentified Analyst

Okay. And then lastly, I mentioned earlier, Taylor Dart, there is another gentleman named Christopher Herring from I gold newsletter, who have made some misstatements, in my opinion about gold and minerals in writing over the past few weeks. And for example, just to use an example from yesterday, Taylor Dart stating yesterday that the net asset value when looking at the Company’s share structure is around 0.44 per share. And, clearly, from what I'm hearing that seems low.

So, how can - I'm getting this question a lot more from my investors. How can such a large discrepancy exists? The company called or e-mailed either of these individuals to kind of explain the company strategy and has either responded please.

Warren Rehn

Yes. No that is a great question John. No, neither Taylor Dart nor Chris has had any direct contact with any of the officers of the Company.

So no, they are more than welcome to call and get more clarity. We obviously think that their estimates are quite low. When you compare their estimates on value, compared to the other analysts, very respected analysts covering the Company.

You can see that the very low vol per share valuations that both Mr. Dart and Chris were putting forward are well below half of what the respective analysts for the company are putting out in their research reports.

So I think that is pretty clear.

Unidentified Analyst

Very helpful. Thanks to you and Bob. I appreciate it.

Warren Rehn

Thank you, John.

Operator

And we have reached the end of the question-and-answer session. I will now turn the call back over to Karen Winkler for closing remarks.

Karen Winkler

Thanks operator and thanks everybody for taking the time out of your day today to attend our conference call. We look forward to talking with you again next quarter. Have a great day.

Operator

This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.