Welcome to the Gran Colombia Gold Q2 2021 Results Webcast Conference Call. My name is John, and I will be your operator for today’s call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note, the conference is being recorded. And I will now turn the call over to Mike Davies.

Great. Thank you, John. Good morning, and thank you for joining us today for our Gran Colombia Gold second quarter 2021 results webcast. With me on the webcast this morning is our CEO, Lombardo Paredes. And as is customary, I’ll first go through our prepared remarks regarding our update on our performance in the second quarter and first half of 2021, and then Lombardo will be available as we open things up for the Q&A session. Before we proceed with the presentation this morning, I would first like to draw your attention to our legal disclaimer regarding forward-looking statements that may be made by us during the webcast this morning. Last night, we released our results for the second quarter and the first half. This was the first complete quarter with our investment in Aris Gold being equity accounted. We pre-released production back in mid-July, and Segovia had a strong second quarter, and with gold prices still at the $1,800 level, and our cash costs at $767 per ounce, we turned in a solid quarter, with adjusted EBITDA of $48 million, net earnings of $29.8 million, and adjusted net earnings of $23.6 million. As I've said in the past, the second quarter is always the quarter that bears the biggest burden in our cash flow, given the income tax installment cycle in Colombia. The second quarter this year was no different, yet even after paying $49 million of income taxes, our second quarter operating cash flow was 12.8 million. After $16 million of exploration, mine development, and capital expenditures, our second quarter free cash flow was minus $3 million. This was in line with our expectations, and in the second half of the year, our free cash flow will turn positive. We're pleased with our second quarter and first half…

And our first question is from John Basler from Basler Capital Partners.

Hi. Good morning. Thanks for taking the question.

Good morning.

I believe you’re expecting a $12 million tax reimbursement in the quarter, but I still see that receivable. Was that received yet?

Yes. The VAT had been delayed as we previously said in the first quarter. We caught up in April with our VAT, and that was also one of the elements that helped us to meet our tax payment requirements in Q2. So, at this point, we're back at the normal level of VAT based on the filing and recovery cycle. So, everything's been cleared up.

Got it. And then what led to the increase in taxes in the second half of ’21? And how should we think about your taxes going forward, especially given the - some of the political environment in Colombia and the budget issues?

I think the main driver for the increase in the tax payments this year has really been two things. One is the increased profitability last year as a result of the higher gold price environment that we found ourselves in last year. And so, I think with gold hovering at the same level this year, I think our taxes next year related to this year, will probably be similar in that respect to this year. Although the tax rate in Colombia has dropped from 32% last year to 31% this year. The other factor affecting our tax payments is, as we announced at year-end, we've now entered into a position where monies being remitted from Colombia to Canada, are attracting withholding taxes at the Colombian level. So, we've got a couple of million dollars of tax payments that we made this year related to monies that we've brought up from Colombia. And that will continue to be something that we'll have to contend with moving forward.

Okay, that's helpful. And then on production of gold ounces, do you expect sequential improvement in the second half?

Lombardo, do you want to talk about production for the second half of the year, sir?

Yes, Mike. Normally during the second part of the year, we have increased the production basically because the processes in Colombia are monopolistic state. And usually, they have some delays in delivered process during the first part of the year, which create problems especially with the decent miner and the contract miners. That situation is on the normal flow now. So, the contract miners and the additional miners, they will have a proceed without any problems. So, the production will increase. So this is one of the - so and also, we see it adding pressure. We are increasing the number of contract miners - of additional miners operating countries that we have with the additional miners, is growing now from - in the second part of the year, will grow from 52 to close to 70. It's a big increase. So each contract miner do not provide a lot of mineral, but add production, and adds ounces to our production profile.

Yes. And if I can add to that. Through the - our latest 12 month trailing gold production is around 202,000 ounces. We’re still trending to be within the range of our guidance this year of 200 to 220.

That's helpful. Thank you. And then, I don't think you give EBITDA guidance, but if we expect production to continue to improve, does it make sense to have a somewhat sequentially higher EBITDA? And then, could you just kind of walk through the major components of the free cash flow bridge?

Yes. The - well, if you look through the first half of the year, we've had EBITDA of $94 million. Last year it was $188 million. I think, given we're halfway through the year and with 101,000 ounces of production, I think you'd see EBITDA at a level that's comparable to last year at the current run rate. We've got, as I mentioned in our comments, $40 million to $42 million this year of sustaining CapEx planned, and we've got another $10 million of non-sustaining CapEx, with about $4 million of that earmarked for the brownfield drilling program that we're doing. And $6 million for the plant expansion and the investment that's going with that. So that would - that, plus the other thing that comes off of EBITDA to get to free cash flow is the income tax payments. So, I think from a free cash flow perspective this year, we're probably somewhere between the $50 million to $60 million level, similar to last year, if all remains as it is with the gold price these days. And so the second half of the year will start controls.

On the income tax payment - right, improvement.

Yes. So, you'll see the second half of the year free cash flow starting to build, now that the income tax payments for this year are out of the way

But you're saying 50 to 60 free cash flow for the year. Does that include interest expense?

No. interest expense and dividends are paid out of free cash flow. So, our free cash flow is our operating cash flow minus our capital expenditures.

Right. That's fair. Okay. So that's before interest expense of roughly, I guess, on an ongoing basis, 21 million.

Yes, starting with our first payment next year. Yes.

Okay. That's helpful. And did you give a estimate of the total cost of the new mine development? I know you're still working on a budget.

Yes. I think at this point, we won't provide an estimate for what we think it’s going to be. We still - we’re working through our work with management and the technical team. And the PEA for Toroparu was about $378 million. We believe with the work we're doing and new information, we'll probably have a number that's lower than that, but it's still probably premature to have - to give out an estimate. The one good thing with the financing - as I said, we raised the $300 million, plus we've got $138 million still to come from Wheaton during the construction phase of the project. We certainly have more liquidity on hand for this project than we expect we're going to need, which is a good spot to be in as we start into the project. That's extremely helpful. And when would it become positive free cash flow?

At the moment, given the expected timeline for construction, we would expect that it would be in operation in 2024. So, at that point, we'll be generating cash flow at Toroparu.

Thank you very much. That's very helpful.

Our next question is from Siddharth Rajeev from Fundamental Research.

Gentlemen, good morning. How much of the cash cost was for maintaining COVID protocols?

At this point, we're spending about $5 to $7 an ounce on the COVID protocols in our cash costs. A little bit less than last year. Last year had a lot of the first time upfront cost to put in. So, we spent over $1 million last year on it, but this year, it seems to be running about $5 to $7 an ounce right now.

Okay. So, it's not that significant. And it definitely seems like activities are back at pre-COVID levels at Segovia, but how are things in general at Segovia and Marmato? Daily new cases are coming down in Colombia. I noticed. So, is the COVID situation now under control?

Lombardo?

Yes, right. In fact, the situation in Colombia now is - I’d say that it’s normal. The COVID peaked during the first part of the year. Now it’s getting levels more acceptable. We are vaccinating all our people. So, we expect that we will have total normality by the end of September. That will help because the public of the poll - even if you like or you don’t like, but that will impose some constraints on productivity. I mean, the social unrest in Colombia is just disappear now. So, by the way, the social unrest in Colombia did not affect our operations in Segovia, not even in a month. So, no, I think that the situation will be very nice for the rest of the year.

The $300 million financing that puts you in - I mean, you have more than enough cash to develop Toroparu. Will some of these funds be used to pay down your existing debt, or is 100% allocated for just Toroparu?

The only portion of the net proceeds that will be used for something other than Toroparu, will be the $18.8 million that we'll use on September 9 to retire the remaining portion of the gold notes. That was one of the commitments we made on our use of proceeds for that money, but everything else will go towards Toroparu.

Okay, got it. Just one more question. What's your long-term plans with Aris? You have 44% equity interest in the company. Will you try to maintain your ownership or what's your long-term plan for that investment?

I think at this point, we're certainly in sort of a comfortable position. The new team at Aris, as I mentioned, is moving forward with the development plan in the deep zone, and certainly working on the optimization of the upper mine as planned. So, at this point, we're not in a rush to make any decisions with respect to the Aris investment. Obviously, as we've said in our materials, we do have a standstill on selling our position without Aris’s prior consent within the next 18 months. But we certainly believe that as they execute the strategy, that investment should become more valuable to us and in time, we can then look at what we'll do and see.

Got it. Thank you, gentlemen.

We have a question from Lennart Lengeling from Algebris Investments. And I'm showing no further questions at this time.

All right. Well, thanks, John. And I want to thank everyone for attending this morning. Absolutely, if you have any follow-up questions, please reach out to us, but stay tuned. We'll continue to provide updates on our progress as we move ahead, and look forward to catching up with you again on our third quarter call. Thanks.

Thank you.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you for participating. You may now disconnect.