Superior Gold Inc.

Thanks, Amy, and good morning, everyone. Thank you for joining us at the Superior Gold's Fourth Quarter and Full Year 2020 Results Conference Call.

I hope this finds you and your family safe and well. 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.

And in addition, please note that all amounts discussed are in U.S. dollars unless otherwise indicated.

Joining me on today's call are Paul Olmsted, our CFO; and Keith Boyle, our COO; both Keith and I are dialing in from sunny Western Australia. And turning to Superior and you're aware, superior Gold is a TSX listed gold producer that owns 100% of Plutonic Gold operations located in the Tier 1 mining jurisdiction of Northern Australia.

The Plutonic Gold operations include the underground gold mine, the Hermes open pit projects and an interest in a Bryah Basin joint venture and now Plutonic main pit pushback. We hold a large prospective land package along with Plutonic Marymia Gold Belt with several other gold deposits in close proximity to our existing infrastructure.

The Plutonic Gold Mine has been in continuous production since 1990, having produced over 6 million ounces of gold, making it one of WA's largest historic gold producers. Our investment highlights.

We believe the key investment highlights for Superior Gold are that, our operations are located in West Australia, which is one of the top land intersections in the world according to the Fraser Institute. We own a world-class operating gold mine with significant established infrastructure.

We have a clear and concise optimization expansion plan, which I'll discuss in more detail soon. We have significant mineral resource base plus additional exploration upside, given our very large and under-explored mineralized system.

And finally, one of the most compelling attributes is the re-rate opportunity we represent compared to our peers. Taking a look at our growth strategy at the period, it's straightforward and well defined.

First, we're looking to reestablish steady-state production from the underground mine and return it to a state of significant free cash flow that we saw back in 2017. Then to supplement the underground feed, we plan to add open pit production, first from a number of near-mill, past-producing open pit projects, including Plutonic East, Perch, Salmon, Hermes and Hermes South.

The time frame and CapEx to put these into production is relatively short and relatively low. And with the recent announcement of the Plutonic main pit pushback, we now have a longer-term steady supply of open feed.

We also have the luxury of having a secondary mill that is currently on care and maintenance. New sources of feed may come from exploration on our existing properties, both from several other sources along to Plutonic Marymia Gold Belt, provides us the opportunity to increase production at Plutonic to well above current levels with minimal capital expenditures because of significant infrastructure that we already own.

Finally, as the potential for new discovery as we invest in exploration at Plutonic. We have certainly been very encouraged by our recent drilling results and as we now have a third drill rig on the property, which is dedicated to following up on previous exploration results.

Above everything else, health and safety of our people is our top priority. We continue to successfully operate through our COVID-19 pandemic, and we adhere to strict measures that we've put in place at the beginning of the pandemic.

To date, I'm pleased to report that we've had no expenses of infection from COVID-19 at any of our operations. We've also been putting a lot of effort into safety, into introducing a culture that is committed to a workplace free of accidents.

We have been conducting safety workshops on-site to ensure that we have the buy-in of our people. We've been introducing SLAM hazard identification cards and a felt leadership program, all of which are having a positive impact and ensuring that our people know that they are our most important priority.

Turning to the fourth quarter highlights. These include -- we produced 15,838 ounces of gold, which was in line with our internal plan, sold 15,855 ounces.

And that at a realized price of $1,726 an ounce. Total cash costs were $1,566 with all-in sustaining cost of $1,685 million.

Costs in Australian dollars remained relatively flat in the fourth quarter, but U.S.-denominated all-in sustaining costs were impacted by the continued strengthening of the Australian-U.S. dollar exchange, which is currently nearing five-year highs.

We generated positive operating cash flow prior to the repayment of $2.1 million under the gold line and then the repurchase of the Northern Star royalty at $4.7 million. Stope grade increased by 35% of the previous quarter.

This is the second consecutive quarter of improvement in our stope grade mines and represents 29% improvement relative to the second quarter of 2020. Both underground mine grade and mill grade also increased the second quarter.

We're also very happy to announce the results of robust main pit pushback project, which we'll talk about later. And lastly, we ended the quarter with a strong cash position of $17.3 million following the completion of our equity financing in October.

So for the full year, we did hit a number of important milestones for the Company. We safely operated through COVID-19.

For the full year, we produced 63,065 ounces of gold, which was within our revised production guidance range. We completed our first mineral reserve and resource estimate using constrained wire-framed models, which we believe will better predict the grade and distribution as part of a mine planning tool.

And we increased measured and indicated resources by 54% and inferred resources by 68%. As I mentioned before, the PEA was released.

It had an NPV of AUD120 million with an after-tax IRR of 35%. We have had a number of exploration successes in a number of areas, including some of the best results since the acquisition of the mine, which include 56.3 grams or 15.1 meters and 40.4 grams or 6.5 meters.

We revitalized our underground mining fleet and had an exploration dedicated to drill rig. We added new institutional shareholders and new management.

We completed an oversubscribed equity financing, as I said. We repaid $8 million of our $12 million Auramet gold loan.

The full amount will be repaid by the end of June this year. And finally, we eliminated the 2% royalty that Northern Star held on the property.

And now I'm going to turn it over to Keith to discuss our operating results for the quarter.

Thanks, Tamara. As mentioned, the Plutonic operations produced 15,838 ounces of gold in the fourth quarter.

And that's as compared to 20,084 ounces in the same period in 2019. The decrease largely was a result of increase in the contribution of lower grade legacy stockpiles that replaced higher grade tonnage from the Hermes mine.

In addition, the low-grade legacy stockpiled material processed in the fourth quarter included oxide ore, which required the mill to operate at a slightly reduced throughput rate. Gold sold during the quarter decreased by 3,044 ounces to 15,855 ounces versus the comparative period in 2019.

The 16% decrease was primarily due to the absence of tonnage from the higher grade gold mill from Hermes. That was replaced with the low-grade legacy stockpiles milled in the quarter and a marginal decrease in the underground grade and tons milled versus the prior period.

The highlight of the quarter was the underground stope grade mined of 3.1 grams a ton, which represents an increase of 29% for the second quarter of this year as we continue to execute on our strategy to focus on higher-margin ounces from the underground operation. Recoveries were 84% in the fourth quarter, a slight increase from 82% in the third quarter this year following the commissioning of our gravity circuit during the quarter.

We continue to focus on improving productivities, which we expect will benefit from the recent arrival of the new mobile mining equipment aimed at improving equipment availability and materially lowering our maintenance costs. I'll turn over the call now to our Chief Financial Officer, Paul Olmsted, to discuss our financial results for the quarter.

Thanks, Keith. For the fourth quarter, we generated revenue of $27.4 million from the sale of 15,855 ounces of gold, a slight decrease from $28 million from a sale of 18,889 ounces of gold for the same quarter of 2019.

Gold revenues were, therefore, lower as a result of 3,034 fewer ounces being sold, which was partially offset by an increase in the realized gold price to 1,726 per ounce from 1,478 per ounce. Cost of sales were $27.1 million for the quarter, a decrease of $1.98 million from $29.2 million for the fourth 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 $1.3 million. Lower haulage costs in 2019 were a result of the Hermes stockpile, which is located 65 kilometers southwest of the mill, which has been built up prior to the stoppage of mining in the second quarter of 2019, whereas in the current quarter, haulage costs pertain to the low-grade legacy stockpile, which is located close to the mill.

This was partially offset by an impact of the higher foreign exchange rates in the current quarter on Australian dollar costs, while depreciation and amortization increased as a result of asset additions during the year. Adjusted net loss for the quarter amounted to $0.7 million or $0.01 per share compared to the adjusted net loss of $3.2 million or $0.03 per share in the same quarter of 2019.

That's primarily due to higher operating loss in the comparative prior period. For the quarter, cash used in operating activities was $6.6 million, while cash flow from operating activities was $10.5 million for the fourth quarter of 2019.

The decrease in cash generated from operating activities was predominantly a result of repayments under the gold loan of $2.1 million and the purchase of the Northern Star Royalty, $4.7 million, whereas cash generated in the fourth quarter of 2019 was a result of the inclusion of the proceeds from the gold loan of $10.1 million. You'll note on the chart on the right, highlights that for the full year 2020, cash flow from operations before working capital changes and repayment of the gold loan increased significantly by $9 million compared to 2019.

And as at the end of the end of the quarter, the Company had $17.3 million in cash and cash equivalents. Going forward, we continue to focus on executing on our strategy of targeting higher grade stopes.

While improving productivities, which we expect will allow us to generate free cash flow for our shareholders as operations continue to improve throughout the year. I will now turn the call back to Tamara to continue with the rest of the presentation.

Thanks, Paul, and thanks, Keith. As you all aware, we are currently focused on unlocking value in the underground through production growth, margin optimization and systematic exploration.

So firstly, we're very focused on optimizing our grades in the underground. Stope grade continues to be the most important factor in determining our profitability.

And as a result, we are fully engaged in driving towards an average to grade it better than 3,000. We're implementing improvements into an estimation processes by increasing the amount of data that we have informing them and by increasing our grade control drilling and increasing our sample sizes.

Next, we continue to improve our front-line planning and scheduling, and we've reintroduced a reconciliation program, which wasn't being done in the recent years at Plutonic, but which is now providing invaluable information to our block model. In mining operations, we've revitalized our underground mining fleet with the addition of two new trucks and loaders, three already have been delivered with the final loaded due on-site later this month.

This has already improved our equipment availability and reduced our maintenance costs. And we're also focused on minimizing equipment movement around the underground with a more strategic mine planning.

At the mill, which operates very well and as Keith noted, we recently commissioned the gravity circuit, which is having a positive impact on our recovery. We're also completing a number of economic studies, whereby we're looking at opportunities to increase our production rate as well beyond the current levels with low expansion cost.

And likely most important is that during the third quarter, we added an additional third underground drill rig, which is dedicated to expanding into new mining fronts. We've seen some promising results so far, and we look forward to continuing with additional exploration results.

Turning to our guidance. Our production guidance for 2021 is between 65,000 and 75,000 ounces of gold.

We expect production in the second half of the year to exceed production in the first half as we commence open pit mining at Plutonic East around midyear, and we continue to build up and developed underground inventory. Taking a look at exploration.

We recently announced additional results from our new underground drilling program, which commenced in December 2020. This slide shows there is significant intercept in close proximity to existing infrastructure as well as ore grade intercepts located beyond the kilometer outside of the mineralized north-east.

So looking at the cross section, in the near term, our focus is on exploring and developing new mining fronts, so that there's a less of the line share of Plutonic on remnant mining. So Plutonic gold operation was very profitable in 2017 when it was mining a combination of these urgent stopes as well as supplemented determent mining, and we look forward to returning to this state.

We believe that the new mining front exist along the western mining front and in the Baltic gap, as shown in the slide. So two weeks ago, we announced results of the drill program completed in the Baltic region, extremely pleased to report that each drill hole intercept is significant intercept, proving that our geologists are really understanding the geology and the mineralization extension here.

We are pleased to report significant intercepts that included 13.7 grams over 8.9 meters and 52.7 grams over 1 meter. You can see from the image on this slide that although these mineralized intercepts will go outside of our existing resources, they're still within around 50 meters of existing infrastructure, which allows us to infill drill and bring these results into reserves and resources and the mine plan in short order.

So moving on -- so to consider these latest drill results in conjunction with the results that released in June, July 2020, it becomes clear that mineralization is being extended along the entire western mining front from the Caspian, through the Indian and Baltic. In addition, drill results in the Baltic gap are beginning to fill in the area that has never been fully drill-tested.

So it's quite amazing to see that the deposit of this side, 6 million ounces of historic production and 5 million ounces of total global resources is still open in order actions, including a debt. It really is a world-class ore body here.

Looking at our upcoming catalysts, we have a number with catalyst worth noting. Going forward, we expect to provide more regular underground exploration update now that we have that third drill rig operated and dedicated exploration.

We look forward to repaying in full out GAAP gold loan in June this year, which we expect will be a turning point for the Company, as investors recognize the free cash flow being generated by the operation. We also expect to be commencing and announcing results of our heritage surveys, which will hopefully have some positive impacts on the main pit pushback project and make clear the timing of the Hermes South project.

And finally, we expect to begin production for Plutonic East and to provide updated mineral reserves and resources later in year. And over the next 12 months, we have a healthy pipeline of development and exploration cattle as we look forward to releasing to the market.

Slide 19, just a quick summary of our analysts currently covering the stock, our key shareholders, and our capital structure. We're very encouraged by the support that we received from some significant long-term gold funds in our recent financing.

And we know that analysts certainly see a significant upside to our current share price. We also maintain a tight share structure with just 122 million shares outstanding.

And in closing, I cannot go without highlighting the significant re-rate opportunity that exists in Superior Gold. So you can see on this slide that as we continue to deliver on our commitments, we believe the Company will revalue with a significant upside that exists between our current rating and that of the current consensus estimates for us.

In addition, our current market cap is well below just the main PEA that we announced at the end of last year. So together, we're focused on repositioning Plutonics for long-term success and unlocking that shareholder value.

So I encourage you to take a closer look at this opportunity. With that, we conclude the presentation.

And so operator, can you please open the line for questions?

Tamara, just a question, maybe you could address where you're at with your strategic plan and the whole direction of the Company, a leadership perspective, a new CEO, et cetera?

Sure. Thanks, Pierre.

Thanks for joining us and the questions. So we don't comment on M&A, and we haven't been commenting on the strategic review process.

It's just a policy of the Company. The Board has been clear that when there's something to announce this material, they'll update the market.

But with that said, we've been doing a lot of work at Plutonic, both in and around the operation, and we certainly see a lot of upside with respect to where Plutonic is located, all of its surrounding infrastructure. And the other deposits that are in and around our assets within sort of 100, 150 kilometers.

There's quite a number of deposits that don't have dedicated mills themselves. So we've been doing a lot of work on that front and understanding really what that upside, how we can leverage that infrastructure.

With respect to the leadership of the Company, again, the Board doesn't comment, but it has been running a process to understand what we will do with respect to payments going forward, and it's very encouraging, and we look forward to updating the market. I hope over the next quarter or two.

And could you just clarify in terms of the open pit contribution, where you think that will be within the context of your guidance for the year?

Yes. So it's pretty simple.

If you take a look at our guidance for this year, you can break out the fact that we publicly disclosed that we see Plutonic East coming in around midyear. So we only have half a year of production from open pit material.

And we've always said that the smaller open pits would contribute in and around 15,000, maybe up to 20,000 ounces a year or so. Half of the 15,000 is the 7 million that you would sort of see come into our guidance this year.

So it's a pretty simple take away from that. But at the same time, we're obviously also looking to increase the grade of the legacy stockpile material that we're putting through the mill, and obviously, the grade of the underground.

Okay. And last question.

With respect to the Western mine front. How -- I mean, is that the future?

I mean, you're talking about world-class and everything. And so does that mean that the existing resource base have limitations in terms of how much further optimization?

And then if you -- if we get any real performance, it's going to have to come from these new discoveries where you're not doing remnant mine and where you can have more easier access?

Yes. Look, I'll turn it over to Keith.

But in summary, we're looking to optimize our productivities in the underground. And as you can appreciate where mining involves going in and around old stopes, et cetera.

So it is just by definition, less productive than if we're able to open up consecutive stopes that are sequential and that you can put together and a dedicated mine plan to mine one stope after the other and keep your equipment in a smaller zone rather than having to move it all over the mine. So Keith, not sure if there's anything more specifically you would like to add there.

Yes. And I mean I understand where Pierre is coming from.

I guess, Pierre, the second part to that answer is that our resource base really has two bits to it. One is a lot of higher-grade remnant stopes, but then there's also the larger bulk potential that still needs a lot of study.

So I think to answer your question, one, get the mining front outside of the remnant's going so we can be more efficient; and then look at the bulk opportunities, but still contributing or the remnant's still contributing some of the production, but not full reliance on it.

So Keith, when do you think the bulk potential could become a factor? And is that going to take a number of quarters to figure that one out?

Or...

Yes. We're -- I mean, part of our resource update and going to the constrained wire frames is to better understand in space what that material is that is left over.

The high-grade shoots are easier to track than the lower grade halo, if you will. And so that's been a lot of our effort in the last year and a bit okay.

Kind of following up here on the previous questions on the Western mining front and the news release a few weeks back, noted some of this mineralization located just 50 meters from existing underground infrastructure. Is it -- and bringing that into the mine plan resource, et cetera, is it just a function of more drilling required from different levels to fine-tune and define those panels of mineralization that can be brought into stope production?

Keith, why don't you take that?

Yes. I mean, the short answer is, yes.

What we're looking at doing is trying to make a larger extent so that we're not nibbling added, if you will. We're setting up a proper mining front.

So the first bit will be to grow a bit more to better understand the full extent and then go back and start infilling.

Okay. And then based on the preliminary evaluation of the model and existing infrastructure, key zones to be targeted how much development would be required and what sort of cost or capital cost would you be looking at required to complete that?

Yes. That's -- we're right in the middle of drilling that now.

God willing.

Yes, we're still drilling the extents of it. So, a little premature to say, what our development plan look like.

Okay. But I guess time -- I think what Pierre and I are kind of trying to get at is, when can we ultimately start to see the effects of these deals coming into the mine plan?

And it sounds as if, number one, first, we need more drilling; and number two, it needs to be worked into resource and mine plan; and then ultimately more of 2022 timing?

Right. So that's pretty true.

Yes, I think that's probably fair, Phil. Yes.

It's fair. But obviously, if the Company had a focus on it, is possible.

It's certainly possible to drill this off and bring it in earlier. But as Keith said, what we're trying to do is deliver on our 2021 plan and set the future up for Plutonics so that you've got a very a higher value future going forward as well.

Okay. Thanks, operator.

Thanks, everyone, for your time today. We've had a number of important achievements throughout 2020, and we look forward to holding up on that this year.

Obviously, we've got a number of projects that we want to see ourselves advancing. And most importantly, we want to get that revitalized exploration program up and running at full speed, so that we have a steady supply of exploration results.

And we look forward to updating you on all of that going forward. Thanks for joining us, and have a great day.