Silver Lake Ontario Inc.

Thank you very much, operator. Good morning, everyone, and we are appreciative of you all giving us your time today.

With me on this call, as per usual, is Graham du Preez, Harte Gold's Chief Financial Officer, who will summarize our first quarter financials. And Harte Gold released its first quarter 2021 financial results at market close yesterday.

You can find our consolidated financial statements and MD&A on the Harte Gold website and under our profile on sedar.com. And as you would have seen last night, we've also announced revised 2021 guidance.

I will go over this momentarily. But first, I would like to update you on our past quarterly performance.

And as is prudent, I draw your attention to our forward-looking statements with such cautionary language outlining management's beliefs, opinions, and commensurate risks associated with our predictions in respect of the future. Now I'm referencing our live webcast, which is a link at the bottom of last night's press release.

We've also just uploaded it now to our website. So I'm on Slide 4 for the operational and financial highlights for the Sugar Zone mine, which again made further improvements in Q1 2021 as compared with both Q4 and Q3 last year when operations recommenced as well as the year-on-year quarterly reference, and this was across many of its key performance indicators.

Safety culture and tone set by our leadership continues to be of paramount importance to Harte Gold. COVID health and safety protocols remain in place, with no workplace transmissions to date.

We reported one lost time incident in Q1 2021, with a hairline fracture to an employee's arm from a slip-and-fall. This is the first lost time injury we have had since operations restarted in Q3 2020.

Well, we achieved record production of nearly 12,000 ounces, up 9% sequentially and 37% compared to Q1 2020. And while this also marked the fifth consecutive operating quarter of gold production growth, this was an internal miss for us, based on our ambitious internal budget goals, by nearly 20%, roughly split between tonnes and feed grade.

We did deliver with a strong, vastly improved performance in mine capital development, that's both combined horizontal and decline ramp development, of over 1,250 meters for the quarter and as a result, in part, of finalizing our transition to owner-operated mining. This Q1 2021 mine development of 14 meters per day was an improvement of 11.4 meters per day in Q4 2020 and 9.2 meters per day in Q3 2020.

However, I am now of the view that these improvements, while important, must be accelerated even further to provide the required flexibility to sustain 800 tonnes per day and launch to 1,200 tonnes per day. And I will discuss this shortly in our updated guidance.

The Sugar Zone mine -- mill, I mean, the mill processed an average of 716 tonnes per day in the quarter, up more than 40% from the previous quarter at 503 tonnes per day. This is partially benefiting from some final-remnant, larger-tonne Alimak stopes near the surface.

Now while we had targeted a run rate of 800 tonnes per day of ore before the end of Q1, there are a few recently evolving and much clearer root cause factors that have impacted throughput levels. And while fortunately recoverable, they will need accelerated spend to rectify, and I will address this shortly.

Average grade for the quarter was 6.1 grams per tonne gold, within 10% of budgeted grade for the period. which was a combination of mine sequencing timing, updated infill drilling, slightly altering priority stope locations and additional ore found not currently in the life of mine mineral reserve.

More on that later. Our Q1 2021 cash costs of $1,149 and all-in sustaining costs of $1,861 per ounce were again both improvements compared to Q1 2020, with all-in sustaining costs improving by 17% compared to a year ago, the same period.

However, it's still below our internal targets, due mostly to our 20% quarterly ounce sold shortfall against a largely fixed cost base. I will now pass the call over to our CFO, Graham du Preez, to briefly touch on Q1 2021 financials.

Graham?

Thank you, Frazer. Moving on to Slide 5.

In Q1 2021, we generated $27.4 million in revenue, and that's 75% higher than the comparable period in 2020 due to a 62% increase in ounces sold and a 15% increase in realized gold prices. In terms of production costs, our cash costs per ounce sold of $1,183 per ounce was in line with Q1 2020 due to the lower-than-planned production and sales levels in Q1 2021 and a mostly fixed cost structure since transitioned to owner-operated mining in the second half of 2020.

We generated $9.2 million in mine operating cash flow, up from $3.9 million in Q1 2020. Mine operating cash flow is calculated as revenue before hedge payments, less royalties, selling expenses and production costs.

This figure represents a good proxy for the cash flow generation potential at the asset level. The full reconciliation of this and other non-IFRS terms can be found in the company's MD&A.

The company also generated EBITDA of $1.6 million in Q1 2021 compared to $300,000 in Q1 2020. EBITDA takes into account gold hedge payments, exploration costs and general and administrative expenses.

Finally, net income of $5.8 million was recorded compared to a net loss of $16.1 million in Q1 2020. The net income for the quarter is the result of a $17.3 million reduction in the fair value of the gold hedge derivative liability.

I will now pass it back to Frazer to comment on our revised outlook and guidance for 2021.

Thanks, Graham. Moving now to Slide 7.

This is referencing our change in guidance as you may have read in the aftermarket released quarterly update. Harte Gold has revised its guidance and outlook for 2021, down approximately 15% to 17% in ounces, with a corresponding levered increase in costs.

Before I go into details on the revision, I would like to provide colors with recent insights into what has happened at the Sugar Zone mine more recently to prompt our change in guidance. In late 2020, I instituted a tracking system soon after I joined to track key operational metrics to provide the company with the ability to better monitor and evaluate key trends at the mine.

I believe I've been very transparent in what I have shown to the market, some of which includes key metrics like meters of development, available stope access locations and mineral resource grade reconciliation. More recently, the root causes of evolving trends have become more evident, which I will summarize now.

Over the course of the past 2 weeks, myself and my team have been working on translating what these challenges mean for 2021 and beyond. Ultimately, the company has determined that achieving 800 tonnes per day of ore will only occur late this year.

Despite the current cash constraints, The 1,200 tonne per day expansion remains a core deliverable objective, which would underpin a healthy cash-generating asset through the production of an average annual gold production of nearly 100,000 ounces. This has not changed despite my view that some critical work streams will need to be further accelerated to provide that foundation necessary for 800 tonnes per day, which is the same foundation for 1,200 tonnes per day.

On Slide 8, the key 4 focus areas needing additional support and earlier cash injection and leading to the change in 2021 guidance are, and I will speak to the mitigative measures briefly in a moment, are as follows: number one, availability of the workforce. Stabilizing an owner operate underground mine workforce, while instilling a culture believed conducive to the safe, effective and efficient mine production, has led to higher-than-anticipated, although steadily declining, turnover rates.

This, coupled with ongoing competition across Canada to attract and retain skilled employees, primarily in the underground mining and partially in the mobile maintenance, has presently prevented the company from achieving its budgeted workforce complement, which is currently 20% below plan. Number two, improved understanding of the gold distribution within the orebody.

The definition drilling completed year-to-date has continued to confirm the continuity and the consistency of the mineralized veins, with negligible, faulted or structured offsets. This is good news.

In some areas, this infill drilling, used to update our budgeted grade control resource model, has resulted in grade and tonnage adjustments and, in other areas, the identification of mineralization previously outside of the planned reserves. As a result, and in some scenarios, the company has had to modify stope sequencing or develop to new areas previously not planned for.

Number three, mine production flexibility. Most critically, the increased rate of advance for our 3 main capital decline ramps needs to not only increase somewhat to meet our internal budget targets, but we believe now needs to further advance by 25% to 30% to access more future stope workplaces.

This capital development progress to date, in addition to some changes to mine planning and stope sequencing, especially in the North zone, are temporarily impacting the availability of mineable tonnes. Accessing tonnes previously not planned for during 2021 results in delays due to unplanned stope preparation time and reduces overall mine flexibility and efficiency.

And finally, number four, reduced equipment availability. The equipment availability targets above 80% have not been met for some of the higher planned utilized gear due to the condition of some of the underground fleet, due to supply chain delays on certain critical spares and due to outstanding key maintenance hires and the new larger capacity workshop, which is not quite yet completed.

As I now show on Slide 9, we are addressing these operational issues with additional and planned accelerated mitigated measures, which is conditional on part in improving our financial capacity, and we will be acting decisively to derisk planning, significantly increase mine flexibility and unlock these additional tonnes. So the following are mitigative -- mitigation measures we are both implementing where capacity is available and planning to implement as financial liquidity improves, all to support the first priority of the ramp-up to 800 tonnes per day by now the end of this year.

We are bolstering our mine workforce. And while we are focused on prioritizing hiring and retention strategies for our employees, and while we expect this to have a positive impact in the medium to long term, we still anticipate labor shortages to continue through 2021.

Therefore, for now, we are also seeking temporary additional support from specialists, contracted mining operators to assist in designated key development areas of the mine. We expect to start seeing the benefits of this by midyear for contracted mining and a more gradual increase in the Harte workforce in parallel throughout the year.

We have increased definition drilling or plan to increase definition drilling rather from 30,000 meters this year to up to 40,000 meters. Adding 10,000 more meters of more tightly spaced diamond drill coverage across the orebody will provide an increased understanding of the orebody, especially the grade and tonnage profile of current reserves and the potential to identify additional economic material not identified within the reserve.

And this, in turn, will allow a more organized, efficient mine planning, mine geology function to support the operations. This also will allow then more future budgeting -- efficient future budgeting, and forecasting and ore and waste extraction.

We expect to see the benefits of this action in the second half of this year. We plan to increase our mine capital development rates to increase the mine production flexibility and access by descending deeper within the orebody.

Mine capital development remains one of the most critical indicators for operational success as it provides access to more ore haulage horizons. We plan to accelerate capital development from an average of 14 meters per day to now 18 meters per day for the final quarter of this year.

We will be focusing on decline ramp development as opposed to, but not to the detriment of, horizontal capital development, again, which I know you all appreciate, and I repeat, expanded horizontal and ramp development is the most critical indicator for operational success as it provides access sooner to more haulage horizons and additional stope bases. We expect to see the benefit of this action starting towards the end of this year and advancing through mid-next year.

We are also enhancing our underground equipment by adding more mobile gear or a few additional pieces of mobile gear, and we are pursuing options to either acquire, lease or rent this additional gear in parallel with the time motion study we are initiating. This equipment is expected to further improve availability constraints and can also be leveraged as we prepare for the 1,200 tonne per day expansion.

Tracking key maintenance metrics such as mean time between failure and progressing planned maintenance practices will help clarify critical spares for lead orders while only moderately increasing inventory holdings. Again, the expected timing to see these benefits will be mid this year.

On to Slide 10, on our revised guidance. As a result of these aforementioned factors and after planning and modeling production for the rest of the year and due to the additional mitigative measures being implemented or planned to be implemented, yesterday, we announced we are revising our 2021 production guidance from 60,000 to 65,000 ounces of gold down to 50,000 to 55,000 ounces of gold.

The revised production estimate reflects the delay of the ramp-up of the Sugar Zone mine to 800 tonnes per day of ore originally envisioned by the end of Q1 2021 now to the end of this year. We have also revised our expected cash costs upward to $1,100 to $1,250 to reflect the accelerated infill drilling, labor initiatives and most importantly, the lower ounce production throughput.

And we have revised our all-in sustaining costs upwards to $1,800 to 2,200 to reflect accelerated mine development and other capital and, again, most importantly, the lower ounce production throughput. I appreciate this is a broad range of cost guidance.

But we continue to assess what accelerated life-of-mine costs will fall into the 2021 year, and we plan to provide further clarity of what that cost will be in our Q2 release. I appreciate that revising guidance downward is disappointing, but it is important for us to identify, to understand and to address these issues as they evolve and become clear while we continue to stabilize the operation and to maintain perspective of where we have come from only recently in Q3 2020 and not lose sight of our ultimate goal shared in the feasibility study expansion.

I still believe in the exceptional long-term value potential of both the Sugar Zone mine and the vast exploration potential of the surrounding property, and this remains intact. However, I believe this true inherent asset value may only be unlocked in the context of a stronger balance sheet with more financial flexibility, which would allow us to better outlast these fluctuations, which happen in mining, and especially for such a young operation, and this is why we are initiating a strategic review process.

I'd like to turn the call over to Graham to discuss the balance sheet and development surrounding liquidity and capital resources.

Thank you, Frazer. Looking at Slide 11.

We also took a couple of steps in Q1 2021 towards strengthening our balance sheet, diversifying our shareholder base and giving us more financial flexibility. We welcomed New Gold as the newest major Harte Gold shareholder in March.

New Gold made a $24.8 million strategic investment in the company to acquire a 14.9% interest. As a result of this financing event, the company closed Q1 2021 with $21.1 million in cash and cash equivalents, an increase from $8.2 million at the end of December 2020.

We also announced at quarter end that we received a nonbinding indicative proposal from BNP Paribas to reschedule payments under the company's senior debt facility, which would defer approximately $50 million in debt payments in 2021 and 2022 and provide us with significant financial flexibility. Under the proposal, the maturity of the BNP term loan would also be extended from June 2024 to June 2025, and the maturity of the revolver would be extended from June 2022 to June 2023.

Negotiations are ongoing and subject to a number of conditions, including extension of the Appian credit facility from June 2023 to June 2025, for which shareholder approval will be required. We were originally seeking shareholder approval at our shareholder meeting in June.

However, subsequent to quarter end, in light of the updated guidance announced last night, we are deferring shareholder approval to the extension -- of the extension to the maturity of the Appian facility until the company can confirm that no changes to the terms of the BNP proposal are required. The company is now targeting Q3 2021 to obtain shareholder approval of the extension to the maturity date of the Appian facility.

As a result of deferring the effective date of the proposed BNP refinancing, the company does not expect to be in compliance with current financial governance of the BNP facility on June 30, 2021, which would constitute an event of default under the BNP facility and the Appian facility. The impact of the shortfall in guidance of approximately 10,000 ounces recovered gold for 2021 creates a revenue shortfall of approximately $22 million for the year.

In addition, this revenue gap is compounded by the fact that we have mostly fixed cost base, ongoing sustaining capital development, commencement of expansion capital and the scheduled debt payment of $3.3 million to BNP on June 30, 2021. As a result, the company does not expect that it will generate sufficient cash from operations to fully fund planned investment activities and debt service obligations, including the $3.3 million principal repayment to BNP due at the end of June, and it will require additional funding within the next few months.

We intend to seek a waiver of anticipated covenant breaches and the deferral of the $3.3 million payment due June 30, 2021, but there can be no assurance that such waivers or deferral will be granted by BNP. I'd like to turn the call back to Frazer to discuss our strategic review and for closing comments.

Frazer?

Thanks, Graham. So look, in conclusion, while we continue to make progress, the bar for our required production and financial target achievements to ensure a sustainable success must be set high.

And given the early life of our asset and our current capital structure and debt obligations, this is a must. So the Board and I, in parallel, while focusing on our operational improvements, will immediately launch a strategic review that will allow a structured process to identify all value-creating opportunities and alternatives within our business for all shareholders.

No reasonable option is off the table: be it debt restructuring, coupled with capital investment for planned accelerated capital activities; equity investments, strategic or otherwise; business combinations, even considering a sale upon receipt of nonbinding expressions of interest. We feel this is the most prudent way forward while we continue to give additional attention to our operation.

So for that, now I would like to turn the call back to the operator if there are any questions, of which Graham and I will answer.

Frazer, just wondering if you could elaborate a little bit on your capital requirements. I recognize it was a shortfall of $22 million.

So how is that going to look going forward in terms of achieving 800 tonnes per day and then from there, going on to 1,200. So it's really 2 parts.

First of all, what are the capital requirements? And secondly, just what -- how are you going to raise that in terms of financing?

What are you considering at this point?

Yes. Thanks, Pierre.

Look, so it's a combination of 2 things. Obviously, it's the working capital we spoke about with a mostly fixed cost base, a little bit lower because of the labor shortage, but we'll backstop that with contractors.

But -- so it's essentially how we deal with the 20 -- $22 million shortfall that we planned for this year. As for the accelerated development, for the continued and even greater success of this operation, whether it's the infill drilling, you can do the math on that when yourself, another 10,000 meters is not really an awful lot at about $100 a meter.

And the equipment, we're not talking a major amount. It's really about the capital development acceleration that if you saw our press release on the expansion, in January 20, I think we had about $40 million to $45 million in 2022 and 2023 and where capacity allows, we'd look to accelerate some of that into 2021 and 2022.

So between that development, the labor initiatives we're taking and the infill drilling, I'm not going to give you an exact answer. It's backwards reflected into that AISC number we gave you because we're still seeing what we can manage and based on our strategic review on the funds that will be available.

And with respect to the infill drilling, Frazer, I mean, does that call into question the validity of the reserve? I mean it sounds like the infill drilling is pointing to different -- a different resource or something that might just need a lot tighter spacing to confirm what you think is there.

So it sounds like that's going through a whole revision or at least a rethink in terms of what...

Yes. No, that's a good question, Pierre.

So the short answer is no, in the sense that we've had the resource, 3 different QPs over 3 years come out in that, just about exactly the same resource from a global perspective. So that would imply, through our QPs, that gold is in the ground.

There's not an issue there. As you know though, and rightly outlined, we don't mine resources.

We mine mineral reserves. So that requires more granularity.

And so the good news is, apart from consistent veins, we're finding places where we didn't expect to find ore before and other places more in the North zone where there's some changes in the grade, and we bypassed a couple of sections just within the 2021 plan. So I would say, absolutely, no way impact, way too early to say on reserves.

You don't see that as an issue at all. However, what this does lead to is a rather more disorganized, difficult way to plan and do your mining when you're chasing veins even if they have gold in it.

So those are disruptions that, even if they come with additional gold, be it about the same or slightly lower grade, make it difficult to remain focused on our key objectives in terms of both development and the original stopes we had planned. So that's why, we believe, with progressing this infill drilling and tightening it up to 12- to 15-meter spacings from some of the 40- to 50-meter spacings we've had, that's a progressive activity accelerated that will give us better coverage for 2022 and 100% coverage for 2023 when we plan.

So what are the implications for grade? You had 6.1 grams.

What do you think -- I mean, relative to the resource reserve grade, where do you think that ends up after considering dilution?

Yes. Again, that's work in progress, but not that was -- the grades in our first quarter this year was always going to have a 6 in front of it.

It was always lower. As we said, we are about 10% of that, 6.1, 6.2 versus 6.7.

However, that wasn't just because we lost grade. There are other places where we gained and we changed our stope sequencing.

So really, generally speaking, we're finding reconciling overall. The resource is good, but we need more of that granularity just to help us with stope location and designs.

Okay. Last question.

Is there going to be any room in the budget for exploration drilling, testing other targets just to see what else is on the property?

Yes. So we still have $5 million in the budget that we are progressing for regional exploration based on CEE spend.

Mine exploration, while I think it's incredibly easier, low-hanging fruit, unfortunately, we don't have that financial liquidity now. But depending on how this strategic review goes, that would be something we haven't even spoken about, that would be, to me, a medium-term return.

But for now, we have to ensure that we take the existing reserve that we have and accelerate the capital development and the infill drilling and mine it even more efficiently.

Just a question about your hedges. Are they on full production?

And what's their -- is there a time line on their expiration?

Yes. So I'm going to hand that to Graham.

Just quickly, they are not production-related hedges. They're fixed 20,000 to 21,000 ounces a month -- sorry, 20,000 to 21,000 ounces a year for the next 3 years, and they expire essentially at the end of 2023.

But Graham, if you want to add some more light on our current 60,000, 61,000 ounces, I think it is, remaining on that hedge.

Yes. That's right.

Nello [ph], as Frazer said, the hedging is basically at about 20,000 ounces per year. If you look at Note 8.1 of our financial statements, there's a bit of description of that.

In that note, you will see that for this year, we have about 14,000 ounces left to deliver into that hedge. So it's about 1,500 a month, I would say.

Next year, it's about 23,000 ounces, and then it trails off in 2023 to about 11,000 ounces. There is a small amount for the next year as well, in 2024.

But we will be out of the hedges by June 2024.

And what's the price of that?

The ceiling price is generally around $1,400. So we don't -- we get paid up to a maximum of about $1,400 on the ounces as we specified there.

The rest of our production, we get full value for that.

So it's $1,400 basically?

Yes. It's roughly around $1,400, just below.

Thank you very much, operator. Again, I appreciate your time on the call today.

We -- I think the guidance update is clear. We will keep the market informed, how we progress through both the operational inputs and progress as well as our strategic review process that I'm working on with the Board.

And for now, we will sign off. Thank you very much.