Superior Gold Inc.

Thanks, Ian, and good morning, everyone. Thank you for joining us to discuss Superior Gold's second quarter 2020 results.

I hope that you and your families are all safe and well. I'd like to open this morning by acknowledging the contributions of our founder and outgoing CEO, Chris Bradbrook.

We appreciate the value Chris has brought to the Company, particularly with his tenacity, identifying and executing on the acquisition of the Plutonic Gold Mine. As a reminder, I'd like to ask everyone to refer to Slide 2 of our presentation, which is posted on our website, to view our cautionary language regarding forward-looking statements.

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

For those of you who don't know, I recently stepped into the interim CEO role, but have been an independent director of the Company since 2017. So those of you who don't know me, I've been in the mining industry for over 25 years, most recently in corporate development and investor relations roles with groups such as Newcrest Mining, Primero Mining, and IAMGOLD.

Prior to that, I was a professional engineer and investment banker in the sector, and I have experience with corporate development and strategic review processes. Joining me on today's call are Paul Olmsted, our CFO; and Keith Boyle, our COO.

Taking a look at the Company, as you know, our flagship asset is the 100% owned Plutonic Gold operations, located in the tier one mining jurisdiction of Western Australia. Plutonic Gold operations include the Plutonic underground goldmine, the Hermes open pit projects, and an interest in the Bryah Basin joint venture.

The Plutonic goldmine has been in continuous production since 1990, having produced more than 5.5 million ounces of gold, making it one of Western Australia's largest historic gold producers. Turning to safety, above everything, the health and safety of our people is our top priority.

We have successfully operated through the COVID-19 pandemic and continue to adhere to the measures that we've put in place to mitigate this threat. Early on, the Company developed an infectious disease management plan, which includes pre-flight screening protocols, mandatory self-isolation following international travel, and site isolation facilities for anyone showing symptoms.

Travel to site is controlled to limit exposure, despite returning to regular flight rosters in June. A number of other site-based measures have been implemented to minimize the risk of infection, including the practice of social distancing and enhancing personal hygiene practices, and ongoing employee education and assistance.

To date, we're pleased to report that we have no incidence of infection from COVID-19 at either our operations or corporate offices. With this change in management, I think it's worth taking a step back and reminding every one of the reasons why Superior Gold is such a compelling investment opportunity.

First, we own a producing world-class ore body with significant existing infrastructure in Western Australia, which is the top mining jurisdiction in the world, according to the Fraser Institute. As a result, we provide exposure to record high gold prices in Australian dollars, and with new management, we have a renewed focus on grade and cash flow generation.

Superior Gold has significant exploration potential, as a very large and under explored mineralized system, and we've always seen an opportunity for consolidation across the Plutonic Marymia gold belt. And finally, one of the most compelling attributes is the re-rate opportunity we represent compared to our peers.

Highlights of the second quarter include successfully operating safely through the COVID-19 pandemic. We produced 15,177 ounces of gold, and sold 15,536 ounces of gold in the quarter.

That gave us total cash costs were $1426.00 an ounce with all-in sustaining costs of $1547.00 per ounce sold, both of which were below our record realized gold price of $1608.00 per ounce sold. During the quarter, we repaid $1.9 million of our gold line, which is scheduled to be fully repaid in July 2021.

We're very pleased to report at best drill results since acquiring the Plutonic Mine, including an impressive intersection of 56.3 grams over 15.1 meters. Subsequent to the quarter end, we announced our 2019 mineral reserve and resource estimate, which achieved a 29% increase in measured indicator resources to 1.59 million ounces and 55% increase in inferred resources to 2.82 million ounces across our projects.

And importantly, we are now utilizing constrained block models in our reserve and resource estimates, which we expect will improve our mind planning accuracy going forward. I'll now turn the call over to our Chief Operating Officer, Keith Boyle, to discuss our operating results for the quarter.

Thank you, Tamara. Production in the second quarter of 2020 came in below our internal estimates.

The highlight of the quarter was the stope tonnage mined, which increased 51% over the first quarter of this year. We believe the underground physicals of the operations are actually performing at the highest levels since the Company acquired the asset.

The stope grade remained below the reserve grade and continues to be our focus for the second half. We believe with continued results from the underground optimization program that we initiated earlier this year, forming part of our five-year underground plan, that the stope grade will progressively improve over that time.

We are also pleased to report that the initiatives underway are starting to achieve positive results, as subsequent to the quarter end, stope grade has increased in averaging over three grams a ton to date for the third quarter. I'll now turn over the call to our Chief Financial Officer, Paul Olmsted, to discuss our financial results for the quarter.

Thank you, Keith. For the second quarter, we generated revenue of $25 million compared to $31.6 million in the second quarter of 2019.

Lower gold revenues resulted from 8,401 fewer ounces being sold, partially offset by an increase in the realized gold price to $1,608.00 from $1,320.00 per ounce. The reduction in ounces sold was due to fewer ounces being produced as a result of the decreased feed from Hermes, as well as lower grades from underground operations and lower recoveries, which was partially offset by an increase in production from other low-grade stockpiles.

Cost of sales were $24.2 million for the quarter, a decrease of $8.6 million from $32.7 million for the second quarter of 2019. Cost of sales were lower in the current period versus the same period in 2019, predominantly due to a reduction in the mining cost at Hermes of $5.7 million, following its stoppage in May 2019.

And again, that was offset by higher payroll and maintenance costs at the underground operations. General administrative expenses for the quarter were consistent in comparison to the same quarter of 2019.

Adjusted net loss for the quarter amounted to $603,000 or $0.01 per share, compared to adjusted net loss of $1.9 million or $0.02 per share in the same quarter of 2019, primarily due to the higher operating loss in the comparative prior period. For the quarter, cash from operating activities before working capital was $579,000 or $0.01 share, compared to cash and operating activities before working capital of $4.2 million in the same quarter of 2019.

The decrease in cash generated from operating activities resulted mainly from repayments under the gold loan with Auramet of $1.9 million, partially offset by a smaller operating loss, excluding depreciation expenses. Despite continuing to invest in exploration and development and repaying our gold loan, our cash position remained largely unchanged from the first quarter, as we could continue to benefit from the strong Australian dollar gold price, which is currently at all-time highs.

The chart on the right highlights that although the ounces produced in the first half of 2020 is below the first half of 2019, that the cash flow from operations before working capital changes and the repayment of the gold loan actually increased significantly. In the near term, we are focused on executing on our cost reduction program that targets higher-grade stopes while improving productivity, which we expect will allow us to generate meaningful cash flow for our shareholders as the operations continue to improve.

I will now turn the call back to Tamara to continue with the rest of the presentation.

Thanks, Paul, and thanks, Keith. As announced last week, we now anticipate production of between 60,000 and 70,000 ounces of gold in 2020, and as Paul just mentioned, have refocused our efforts on a cost reduction program that targets high-grade stopes, while improving productivity.

We expect cash cost to be between $1250.00 and $1350.00 per ounce, and all-in sustaining costs of between $13.50 and $14.50 per ounce, providing us with a healthy margin to the rising gold price. Our expiration guidance remains unchanged at $6.5 million, as does our guidance for sustaining CapEx and non-sustaining CapEx of $7 million and $2.5 million, respectively.

In addition, we continue to advance the work necessary to bring our open pit ore sources into production. On the exploration front, we are extremely pleased with the results that we reported earlier this year, which continue to demonstrate that the mineralized system at the Plutonic is open in multiple directions.

During the second quarter, we announced positive expansion results from the Indian and Baltic zones, with further drilling scheduled for Q3 and q4 for both of these areas, and for the Caspian zone, and we look forward to updating the market as these results come in. During second quarter, we announced results from drilling that targeted potential extensions with gold mineralization within the Indian zone.

As illustrated on Slide 12, the following high-grade drill results were reported, 56.3 grams over 15.1 meters, which was our best drill result since we've acquired the asset in 2016, 10.2 grams over 7.1 meters, and 11.9 grams over 5.3 meters. The drilling was completed over a strike length of approximately 200 meters and a vertical extent of more than 100 meters.

The mineralization remains open, both up and down depth, and along strike, resides close to existing infrastructure, and is only approximately 600 meters from surface. We also reported positive drill results from the area between the Baltic and Baltic deep zones, which was highlighted by intersection of 40.4 grams over 6.5 meters, including an intersection of 232 grams over 0.9 meters.

The drilling was focused on the area to the northwest of the Indian zone, within an area that extends approximately 500 meters between the Indian and Baltic zones, which has yet to be fully drill tested. Overall, we are extremely pleased with these drill results, which we believe continue to illustrate the potential to extend and connect the Indian and Baltic zones, expand resources, and extend the mine life.

Subsequent to the quarter end, we announced our updated mineral reserve and resource estimate as at December 31, 2019, where we achieved a 29% increase in measured and indicated resources, and a 55% increase in inferred resources. Since we acquired the Company, we have increased reserves by over 100% increased measured and indicated resources by close to 80%, and increase in third resources by over 250%.

These results continue to confirm that Plutonic is truly a large mineralized system with significant upside and long-term potential. And I'd like to finish today by highlighting a strong revaluation opportunity.

As you can see on Slide 15, or on any metric that you look at, we are significantly undervalued across various metrics compared to our peers. We understand many of the reasons, and we're focused on the opportunity that exists to close this gap with our peers.

With that, we'll conclude the presentation portion of the call. And operator, can you please open the lines for questions?

Sorry about that. I was talking to myself on mute.

Thanks for taking the call. But my question - Tamara, can you give us an update just on how the open pit scenario was progressing?

Timing, catalysts, and just a general update of what to expect over the next, say, six months to 12 months on that front?

Sure. Thanks, Ian.

Thanks for the question. As we said in our release last week, the open pit work has progressed, but not to the rate that we had anticipated.

Due to COVID, we had restrictions on interaction with local indigenous communities. We have a heritage survey that needs to be done in order to progress some of the work.

I'm going to turn it over to Keith to talk about the technical side of it. But I do want to note that this is not something that we have removed from our future.

It is something that we're actively working on, and we look forward to coming to the market with a considered plan, and obviously see a lot of value in those open pit ounces.

Ian, I think the - in addition to what Tamara just said and to put some clarity around it, we've got to two permitted pit sites, Hermes and the Plutonic East, if you will, A4 Perch [ph] are the two deposits that, as we said, we're advancing and will be, in the next three months to six months, in a position to call it pull the trigger with what decisions we make and which ones we advance first.

And as you look at the geological targets that you have, is there - do you see an additional wave of these? And obviously, there's some nearer-term stuff that's been talked about for a couple months or more.

But do you see a continuous pipeline of these types of targets, just incrementally coming in over the next, say, the medium-term view?

Yes, part of our exploration program is a real step back and looking at the first 200 meters. Most of the drilling on surface was really focused within we'll call it the first 50 meters to 70 meters when they went through and did the oxide.

So now, we're stepping back and looking at the first 200 meters to see what hotspots we can follow up on. Having said that, with the change in gold price, we are really looking at the pits that had been mined.

So, there are many of them. And we're just walking through, and re-evaluating each of them, and ranking them based on potential.

Okay, great. Thanks.

I mean, I obviously look forward to an update on that when the time is right. Thank you.

Thanks, Ian.

Hello, Tamara and the others. I'm just curious, when I look at your company, you have one of the highest operating costs of production, your AIFC [ph]; Well, obviously you couldn't be operating if the price of gold hadn't shot up to these levels.

So where do you see your cash costs and your AIFC [ph] going over the next couple of years? How far can you get it down to look like you're viable if the price of gold were not to stay up or keep going up?

Thanks, George. Look, I appreciate the question.

Obviously, the costs that we've reported in the first half of the year are not at a sustainable level, and we are very fortunate with the Australian gold price. But this operation can deliver ounces at, I would call it, a materially lower right.

You can see our full-year guidance is between $13.50 and $14.50 an ounce, which is a good margin at today's gold price. But as we move forward and we look to increase those underground ounces, aligned with our five-year mine plan, and incorporate the open pit sources, we do see opportunity to reduce these cash costs and all-in sustaining costs.

We don't give any long-term guidance beyond what's available in our five-year mine plan. But you can see from that that these are materially lower than we're currently operating it today.

And that's the opportunity for the stock, to be honest, George, is us leveraging all of the practices that we have in place, focusing on the grade, and bringing down the cost of each ton of all that we mined

Okay. So that leaves it a bit bitty.

But I mean, could you tell us what went wrong? I mean, something obviously went very wrong in your projections for this year to date.

So what exactly was the problem?

I think we need to start with the estimation at the mine. Obviously, as you're aware, we've recently come out with our revised reserves and resources, and one of the big things we talked about there was constraining our estimates within wireframes.

So we used to - we inherited and used to use here historically at Plutonic open block models. And now, we have constrained that mineralization into a wireframe, which really is just putting more controls around the estimation.

So I would say that that was a large piece of the contributing factor to why the first half did not come in as predicted. And then, as you can appreciate at any mining operation, there's a long list of the small reasons, which we've reported on in our public about.

But I'm encouraged that now that we've completed that reserve and resource block model that now going forward in H2, we have constrained block models around our mine plan and the answers that come in, and these are the kind of controls - in addition to that, you saw us bring down the total ounces. So we have a lot of comfort that that this will provide an improved accuracy in our mine planning going forward.

If I may, just one last question. In terms of the operation of the company, are you going to continue to run the company, or are you looking for somebody to run the company, both geologically and in terms of operating line?

Look, it's a good question. Obviously, I've come in.

The title is interim CEO. When the Board took a - obviously, we weren't happy with our first half results, George.

That's why there's been a change here. I was on the Board.

We have two other members that are independent, Mark Wellings and Rene Marion, and we literally talked about who was able to step in, who was able to sit on the special committee. And we divided the tasks amongst us so that Mark and Rene are on that special committee, and I have stepped in as interim CEO.

I think we're most focused on unlocking the value here at Plutonic, at the same time as being open to the unsolicited inbound interest that we have in the asset. And there has been material interest in Plutonic, as you can appreciate.

It's a producing gold mine with a with a long history in a great mining jurisdiction. So I am available to work with the Company as long as is needed, but at the same time, we will conduct a search for permanent CEO, and that may be someone who's located in Australia.

It may be someone that has an operating background. But this special committee has that mandate as well.

Thanks, Ian. We have a couple of questions on the webcast.

Given the increased grades being mined currently, almost 30% more, why was full-year guidance reduced so significantly? So I think to answer that question from Nick - thanks, Nick.

There's a small - it's a simple philosophy in mining. Tell the market what you're going to do and deliver on it.

And so, when we came in and took a look at the second half, we have no intent of missing our guidance. And so, we have brought it down to a level that we're very comfortable with.

It's the appropriate level for the line. So to answer it simply, we've had a very public history of not hitting our guidance, and we have no intent of doing that going forward.

One more question from the web. What is the plan for open pit operations with these gold prices?

Does it make sense to proceed? Keith, I think you're probably up to date on that one.

Do you want to -

Yes. So we mentioned earlier there, we have looked at the open pits.

We have two permitted ones, Hermes and Pluto East. And we're advancing Hermes South when COVID hit, and so we were unable to continue to advance it by meeting the community and doing some heritage surveys.

So what we've done is just taken a look at prioritizing which ones would come into play in the second half of the year. And we're in the midst of doing that.

As well, as I mentioned, we're also looking at the various pits that had been mined and looking deeper down to 200 meters at the potential for making those pits larger.

Thanks, Keith. One last question here.

You've had some really strong drill results recently. Can you elaborate on the timeline, when you would be able to mine these high-grade intercepts?

We're following up on drilling over the next two quarters, and we would see the possibility of entering those areas after those results come in on mine planning, probably towards the latter half of - the first half of - mid-year 2021.

Okay, that's all the questions from the webcast. So if there are no further questions, I'd like to thank everyone for joining us today.

While we were disappointed in the grade delivered in the second quarter, we continue to be encouraged by the underground physicals of the operations and the improvements we're seeing recently, now that we're utilizing this constraint block models. And we believe that with execution of our five-year underground plan, that the dope grade will progressively improve over time.

In the near term, we're focused on executing on a cost reduction program that targets high-grade stopes, while improving productivity, which we expect will allow us to generate meaningful cash flow for our shareholders. Finally, we remain fully committed to unlocking the potential of Plutonic through the drill bit, and we expect to provide investors with additional drill results in the coming quarters.

Thank you very much for your time today. Please stay safe, and have a great day.