Superior Gold Inc.

Hi, good morning everyone. And thank you for joining us this morning to discuss the Superior Gold's third quarter 2020 results.

I hope that you and your family are safe and well. As a reminder, I'd like you please refer to slide two of our presentation to review our cautionary language regarding forward-looking statements.

Joining me on today's call are Paul Olmsted, our CFO; and Keith Boyle, our COO. As you're likely already aware Superior Gold is TSX-V listed gold producer that owns a 100% of the plutonic gold operations, located in the tier one mining jurisdiction of Western Australia.

Plutonic gold operations include Plutonic underground goldmine, the Hermes open pit projects, and an interest in the Bryah Basin joint venture. We held out a 640 square kilometers perspective land along the Plutonic Marymia gold belt with several other gold deposits in close proximity to our existing infrastructure.

Plutonic goldmine has been in continuous production since 1990, having produced more than 6 million ounces of gold, making it one of Western Australia's largest historic gold mine. When it relates to key investment highlights, the Superior Gold are that; we own a world-class ore body with significant existing infrastructure.

Our operations are located in WA, which is considered the top mining jurisdiction in the world according to Fraser Institute. We have a clear and concise optimization and expansion plan, which I'll discuss in more detail on the next slide.

We have a significant mineral resource, base with additional exploration upside potential, given a very large and underexplored mineralized system. And finally, one of the most compelling attributes is the re-rate opportunity we represent compared to our peers.

Our growth strategy at Superior Gold is straightforward and well-defined. First, we are looking to reestablish steady state production from the underground mine and returns with data significant free cash flow generation, which we saw back in 2017.

To supplement our the underground feed, we'll be looking to add open pit production from a number of neon mill cost producing open pit projects, including Plutonic East, Perch, Salmon, Hermes. Time spend and CapEx to put these pits into productions relatively short and relatively low.

We also had the luxury of having a secondary mill that is currently on care and maintenance. Many sources of all feed may come from a push-back into Plutonic main pit or from several other all sources along the Plutonic Marymia gold belt.

This provides the opportunity to increase production from Plutonic, well above current levels with minimal capital expenditures because of the significant infrastructure that's already in place. And finally, there's potential for new discovery as we invest in expiration at Plutonic.

We've certainly been very encouraged by our recent drilling results earlier this year. Above everything the health and safety of our people is a top priority.

We have continued to successfully operate through the COVID-19 pandemic and adhere to the strict measures that we put in place early on to mitigate this stress. But we're fortunate as Australia has been very successful in their fight against coronavirus, mining has been deemed an essential business in Australia and with WAs and [indiscernible] strict COVID protocols in place, we've had zero instances of debar.

For us, it's essentially been business as usual this quarter. We're putting a lot of effort into introducing a safety culture that's committed to workplace free of accidents.

With the site GN conducting safety workshops to ensure we have the buy-in from our people, introducing SLAM hazard identification card and Felt leadership program, all of which is having a positive impact and showing that our people know they are our most important asset. This quarter we saw a number of positive changes at Superior and operationally we delivered in line quarter, with costs being impacted by the FX movement during the quarter.

We produced 15,699 ounces of gold and sold 15,492 ounces. Total cash costs were $1,471 per ounce sold and all-in sustaining costs were $1,617 per ounce sold, both of which were below our record realized gold price with $1,756 per ounce sold.

During the quarter, operating cost in Australian dollars declined to their lowest level. In 2020 we're negatively impacted by the strengthening of the Australian to U.S.

dollar exchange rate, which adversely impacted our all-in sustaining costs by approximately $130 per ounce relative to the second quarter of 2020. Operating cash flow was $2.4 million before the repayment of $2 million to the Auramet short-term gold loan.

We're on track to deliver on our revised 2020 full year production guidance of between 60,000 and 70,000 ounces. We're pleased to have increased our underground grades during the quarter and advanced additional sources of ore.

Underground stope grades mined increased by 23% over the second quarter. This is a key performance indicator for Plutonic.

Development grades also increased by 36% over the second quarter. We also commissioned and progressed the Preliminary Economic Assessment of the Plutonic Main Pit push-back potentially an important new source ore Plutonic.

And finally, more recently with we strengthened our balance sheet. Subsequent to the quarter-end, we announced and closed an equity financing raising CAD $7.3 million, strengthening our cash position so that we can execute on that strategy of increasing drilling and development and thereby production and cash flow for Plutonic Gold operations.

I am now going to turn call over to our Chief Operating Officer, Keith Boyle to discuss our operating results for the quarter.

Thank you, Tamara. As mentioned by Tamara, the Plutonic Gold operation produced 15,699 ounces of gold in the third quarter as compared to 16,627 ounces of gold in the same period in 2019.

The decrease was largely the result of an increase in the contribution of lower grade legacy stockpiles that replaced the higher grade tonnage milled from Hermes as the company ceased operations at Hermes in May 2019. This was partially offset by higher underground tons and grade milled.

The variance from the second quarter from underground grade was the result of scheduling and developing higher grade stopes and focusing on operational improvements to reduce dilution. Gold sold during the quarter decreased to 15,492 ounces versus the comparative period in 2019.

The 13% decrease was primarily due to the absence of tonnage of higher grade milled ore from Hermes that was replaced with the low grade legacy stockpiles milled in the quarter, partially offset by higher underground grade and tons milled. The highlight of the quarter was the underground stope grades mined which increased by 23% over the second quarter of this year, as we execute on our planned to mine higher grades, higher margin ounces from the underground operation.

Similarly, our development grade increased by 36% relative to the second quarter. Recoveries dipped slightly during the quarter, as we were mining in areas that had higher than normal arsenic content.

Recoveries will continue to fluctuate quarter-over-quarter, but remain confident that the long-term recovery rates of between 84% and 85% are achievable. We're also focused on improving productivity, which we expect will benefit from the recent arrivals of the new mobile equipment, aimed at improving equipment availability and materially lowering maintenance costs heading into the fourth quarter and beyond.

I will now turn the call over to Paul Olmsted, Chief Operating -- Chief Financial Officer to discuss our financial results of the quarter. Paul?

Thank you, Keith. For the third quarter, we generated revenue of $27.2 million compared to $26.6 million in the third quarter of 2019.

Revenues were higher as a result of an increase in the realized gold price to $1,756 pounds from $1,483 per ounce, partially offset by fewer ounces being sold. Cost of sales were $25.6 million for the quarter, a decrease of $4.2 million from $29.8 million for the third quarter of 2019.

Cost of sales were lower in the current period versus the same period in 2019, predominantly due to a reduction in haulage costs of $1.6 million. Haulage costs were from the Hermes stockpile in 2019, located approximately 65 kilometers southwest of the mill, which had built and built up prior to its stoppage of mining in the second quarter of 2019.

The current quarter haulage cost pertain to just the low grade legacy stockpile, which is located close to the mill. This decrease was partially offset by the impact of higher Australian dollar foreign exchange rates in the current quarter.

Adjusted net loss for the quarter amounted to $1.3 million or $0.01 per share compared to an adjusted net loss of $3.9 million or $0.04 per share in the same quarter of 2019. That's primarily due to the higher operating loss in the comparative prior period.

For the quarter, cash from operating activities after working capital was $377,000 or $0.00 per share compared to cash operating activities of $730 in the same quarter of 2019. Decrease in cash generated from operating activities was primarily a result of payments under the company's gold loan of $2 million and restructuring payments of $1.2 million in connection with the departure of the company's Chief Executive Officer during the quarter.

In addition, the impact of working capital changes in the current quarter was $4.2 million lower as the comparative quarter reflected the reduction of inventory mostly due to the drawdown of the Hermes stockpile. These amounts were partially offset by a smaller operating loss, excluding depreciation expenses.

You'll note in the chart on the right highlights after the first nine months of the year, cash flow from operations before working capital and before the repayment of the gold loan increased significantly by $7.1 million compared to the first nine months of 2019. As at quarter-end, the company had $14.1 million in cash and cash equivalents and subsequent to the quarter-end, we strengthened our balance sheet with the closing of an equity financing for gross proceeds of $17.3 million.

Going forward, we continue to focus on executing on our strategy of targeting higher grades stopes, while improving productivities, which we expect will allow us to generate free cash flow or shareholders as our operations continue to improve. I'll now turn the call back to Tamara to continue with the rest of the presentation.

Thanks, Paul and thanks Keith. During the third quarter, project progress was made in a number of key areas.

On the exploration front, we recently added a third drill rig underground that will aim to expand into new mining funds, as well as expand existing mining areas. As we follow up on our recent drilling successes from earlier this year, including our best intercept, which was 56.3 grams or 15.1 meters.

In the underground, we've reconfigured the mining fleet with four new pieces of mobile equipment, including two trucks and two loaded. Tracy's machines are now on stock, the second loaded GURs [ph] at the end of the first quarter of 2021.

This should significantly improve our equipment availability and lower maintenance cost beginning in the fourth quarter. Something I'm happy to say we've already started to see The improvement in our stope grade in the third quarter was promising, as we are working to improve our geological interpretation and modeling as we implement better grade price control drilling and overall minded design and planning practices, with the goal of further improving grades underground going forward.

We're also pleased to report that our open pit plans advancing well with mining expected to commit in 2021 with the introduction of open pit phase in Plutonic feed and Perch open pit. Finally, as mentioned earlier, during the quarter we commenced and advanced a PEA study of our Main pit push-back at Plutonic.

Overall, we had a productive quarter as we continue to optimize the underground operations, plan to include open pit material in the nature and move forward with our exploration and development projects. Moving to that guidance.

The company is on track to meet its production guidance for the year of 60,000 to 70,000 ounces of gold. Although, asset level operating costs in Aussie dollars were the lowest level in 2020 due to a 9% strengthening in the Australian to U.S.

dollar exchange rate in the third quarter, our all-in sustaining costs were adversely impacted by $130 per ounce. And as a result to reflect the changes in foreign exchange rates, the company has revised its 2020 cost -- cash costs guidance to between $1,375 and $1,425 per ounce, and its all-in sustaining costs between $1,500 and $1,560 per ounce.

Upcoming catalysts. Over the next 12 months, we have a healthy pipeline of positive exploration development.

A catalyst in the near term, we find to advance the PEA on Plutonic Main pit. This project could potentially provide the company with important new source of open pit feed supplement the underground production on a long-term basis.

Also during the fourth quarter, we're planning to exercise our option to repurchase the Northern Star royalty, which will serve to significantly improve that projected cash flow over the next two years. And lastly, we expect to provide investors with an exploration update as we seek to expand mineralization and develop into new mining fronts at Plutonic.

Slide 14 is just a quick summary of our capital structure, our current analyst coverage and our key shareholders. Following our recent financing, we still have a higher share count with just 122 million shares outstanding.

In addition to rising CAD $17.3 million, we were fortunate to add a group of high quality long-term investors to our register. And finally, I'd like to finish with just highlighting that strong revaluation opportunity that we see for Superior.

As shown on these bars and as I've mentioned many times before, you can say that as stock continues to be significantly undervalued across various metrics compared to our peers. We understand the historical reasons folded, and we're now focused on the opportunity that exists to close the gap.

That’s the end of our presentation, so I want to pass back to the operator to open the lines to the questions.

Hi, guys. I just -- a couple of questions on capital spending.

What is a good run rate to use for like Q4 of this year and into 2021?

Thanks, Rich. Keith, do you want to talk about CapEx?

Yeah. So our -- we're pretty much on guidance.

Run rate so far is a bit below what the guidance shows, but fourth quarters is going to take up a little bit to meet -- we'd be in and around that area.

As far as 2021, Rich, we are in the middle of our budget process right now. So, we really don't have a number for you as we'll be incorporating the open pits as well.

So, when we come out with our guidance for next year is probably the first time you'll see that.

Okay. And then just on that topic, I mean, when do you think that PEA for the push-back will be done and will that be done in timely for your 2021 guidance, is that you are saying?

Yeah. Look, it's hard to say.

As far as the PEA, it has a life of its own. The smaller pits we do see incorporating into our 2021 guidance, but the PEA is ongoing.

We're pushing hard on it. We hope to release something in either -- probably the first quarter.

But again, there's a lot of capital offsets that we're trying to juggle with that. So it's hard to give an exact answer.

So I don't expect the PEA to be incorporated into the 2021 guidance.

Okay. Thanks.

Yeah. Thanks everyone.

Congrats on the quarter and looking forward to the future here. Could you just give some better clarity with respect to the impact on the FX rates?

Was it -- is there a certain costs or was it more related to some of the sustaining items that you were buying during the quarter?

Thanks, Phil. Paul, do you want to just discuss some of the impacts that were Australian?

Sure. I think, given pretty much all of our costs are Australian dollar based, in Q2, we were on the order of $0.65, $0.66 Australia.

And then in Q3, we were pushing $0.71 to $0.72. So, I mean, right there, you can see the significant impact on all of our Australian dollar costs for the quarter.

Okay. Any plans for hedging moving forward?

It's certainly part of a discussion, but nothing planned at this point.

Okay. And then I was trying to take some notes down Tamara, but I missed which pits may have been targeted initially here open-pit production in 2021.

I think you said Plutonic East and Perch.

That's right. Sometimes we call it Area 4 or A4.

But that's -- it's Plutonic East and Perch, the first one they're permitted. And they're ready to go.

As -- maybe mid-year or some sort of guideline to when you'll start to see this contribution kick-in.

Yeah. Look, again, we're going through the budget process now, but I would hope that it comes in before midyear.

Okay. Thank you.

Yeah. Hi.

Could you give me what your unit costs were -- just so we can understand how that's going irrespective of the exchange rate?

Yeah. Sure.

So in Aussie dollars all-in, it's about between about $110 to $120.

Okay. And is that …

Quarter-over-quarter.

Okay. So -- yeah, that's my point.

Is that mostly where you want, or can you be -- keep trying to bring that down or?

Yeah. Absolutely not where we want it.

We do see a lot of opportunity to bring it down as you can appreciate the current remnant mining is what's impacting our unit costs. So, as we get out into the new fresh mining areas, we do expect to be able to bring those unit costs down.

I would call it materially from the 120 level.

Okay. And so then brings up a point.

So, your stope material came down about 14% from Q2. How is that trending?

I mean, are you look -- looks like you're trying to focus on grade at the expense of tons, which is not a bad thing, but what is a more, let's call it, steady state look like in terms of -- particularly for the stope material mine?

Yeah. Look, I think I'll pass it to Keith.

But at a high level Pierre, what we're trying to do is improve out our frontline planning and practices, so that we're not all over the place as you know, the big mine. And so, there are certainly areas that present higher grades for it and it's a matter of how we sequence and put that into our mind plan moving forward.

But absolutely, we are focusing on higher grade material. And that -- at this point in time, given the stope inventory we have ahead of it, has a slight impact on tonnage, but moving forward as we build that inventory, it should even out.

So, Keith, I don’t know if you have anything else to add there?

No. I mean, we did shift our approach to going after the higher grade.

And so in order to do that, we lowered the tonnage a little bit to in order to do that.

So, Keith, what do you think? I mean, your reserve rate, I think, is four grams.

The resource grade is five grams and you're still grade -- for the quarter was just under three grams. So, do you just need to be more selective or do you need to find higher grade areas to be able to blend and be able to offset some of the dilution there?

Yeah. We have to focus on the higher grades in order to bring that grade up consistently, and that's just developing out in front of us to be able to translate that.

Okay. So, really, it's a function of the amount of development -- or so we can expect for more development material to be mined next quarter.

Is that what …?

More development -- not so much more development or -- well, as we reported our development grade had increased substantially as well. And so, that's really the key indicator looking forward that we're on track to increase our grade.

Okay. So, it sounds like, it's just a function of just being more selective.

And so, we'll see -- I'm assuming similar tonnage from the underground complimented by some this low grade stockpile again for Q4, something like that.

Yeah.

Okay. Thanks.

We have a couple of questions on the website. So, one question was about our average realized gold price pool and why it's lower than the LVNA [ph] cost.

Do you want to comment on that?

Yes. Under the gold loan that we have with Auramet, we deliver 440 ounces per month to Auramet and that's at a set gold price of Australian 2,166.

And that's recognized as revenue given the nature of the loan. So, as you can see, that's below the spot price.

So that's partly one of the reasons. The second is that in conjunction with the loan, there are a number of calls outstanding that we deliver into on a quarterly basis as part of the arrangement and given the significant increase in the Australian dollar gold price, we are delivering into those calls at prices below the current spot.

So, that has an additional impact.

Thanks. And I have another one from the website here, asking about if we've considered buying Alchemy 20% share in Hermes Bryah joint venture.

And so I can confirm that we do continue to talk -- to all of our partners and close neighbors Alchemy, I met with them when I was down in pits, there's absolutely a path forward there with respect to that joint venture. It's not core for them at this point in time.

So, there's an opportunity there, but we always have to come to the right price on that.

I think that that's the last question I can see here on the website. So, thank you very much everyone for joining us today for our Q3 conference call.

We appreciate your time, and we look forward to giving you an update on our PEA and our exploration results as we go forward.