Roxgold Reports First Quarter 2021 Financial Results

TORONTO--(BUSINESS WIRE)--Roxgold Inc. (“Roxgold” or the “Company”) (TSX: ROXG) (OTCQX: ROGFF) today reported its first quarter financial results for the period ended March 31, 2021.

For complete details of the unaudited Condensed Interim Consolidated Financial Statements and associated Interim Management’s Discussion and Analysis please refer to the Company’s filings on SEDAR (www.sedar.com) or the Company’s website (www.roxgold.com). All amounts are in U.S. dollars unless otherwise indicated.

Q1 2021 Highlights:

During and subsequent to the three-month period ended March 31, 2021, the Company:

Corporate

• Announced entering into a definitive arrangement agreement with Fortuna Silver Mines Inc (“Fortuna”) whereby Fortuna will acquire all of the issued and outstanding securities of Roxgold. Under the agreement Roxgold shareholders will receive 0.283 common shares of Fortuna and C$0.001 for each Roxgold common share held. The exchange ratio implies a consideration of approximately C$2.73 per Roxgold common share based on the closing price of Fortuna common shares on the TSX on April 23, 2021, representing a 40.4% premium to the closing price of the Roxgold common share on the TSX on the same date. The closing of the Proposed Transaction is subject to approval by the shareholders of both companies, court approval, regulatory approvals and certain other customary closing conditions.

Safety

• No Lost Time Injury incidents in the quarter and a 12-month rolling lost time injury frequency rate (“LTIFR”) of 0.36 per one million hours worked

Operations

• Produced 35,308 ounces of gold at an average grade of 8.0 grams per tonne compared to 32,380 ounces at 8.7 grams per tonne in Q1 2020
• Achieved cash operating costs¹ of $564 per ounce and all-in-sustaining cost¹ of $963 per ounce
• Processed 127,667 tonnes of ore compared to 125,879 tonnes in Q1 2020

Financial

• Sold 33,962 ounces of gold for a total of $60.6 million in gold sales (30,126 ounces and $48.0 million respectively in Q1 2020)
• Achieved an adjusted EBITDA¹ of $27.6 million and adjusted EBITDA margin of 46% compared to $19.8 million and 41% respectively in Q1 2020
• Generated cash flow from mining operations¹ totalling $32.5 million for cash flow from mining operations per share¹ of $0.09 (C$0.11/share)
• Adjusted net income¹ of $8.6 million or $0.02 per share (C$0.03/share) compared to $4.2 million or $0.01 per share ($C0.01) in Q1 2020
• Produced a mine operating margin¹ of $1,108 per ounce
• Generated a strong return on equity¹ of 21%

Growth

• Delivered a Feasibility Study for the Séguéla Gold Project with a Roxgold attributable after tax NPV of $380 million and 49% IRR at a gold price of $1,600 per ounce and an NPV of $451 million and 56% IRR at a gold price of $1,750 per ounce
• Announced a new high grade discovery Sunbird prospect at the Séguéla Gold Project
• Extended Koula down plunge with deeper drilling intersecting high grade mineralization at least 300m beyond the conceptual pit limit, with SGRD1101 intersecting 6m at 10.8 g/t Au highlighting the potential for an underground project at Koula
• Acquired the outstanding 1.2% Net Smelter Royalty (the “NSR”) on the Séguéla Gold Project and sold a new 1.2% NSR to Franco-Nevada Corp. on a cash neutral basis. The newly entered agreement with Franco-Nevada includes the right to buy-back up to 50% of the NSR at the pro rata portion of the AUD$20 million purchase price for a period of up to three years following closing
• Expanded mineralized footprint at Boussoura returning 35m at 4.1 g/t and 2.7m at 59.5 g/t among other high grade intercepts

“The Yaramoko Mine Complex continued to deliver another strong quarter, with production of 35,308 ounces at near record margins of $1,108 per ounce generating cash flows from mining operations of $32.5 million, commented John Dorward, President and CEO of Roxgold. “Yaramoko continues to be the cashflow engine of the company, allowing for high return reinvestment into organic growth opportunities. The proposed combination with Fortuna Silver is a natural next step for Roxgold and our shareholders, creating a low-cost global intermediate precious metals producer with significant free cash flow generation over the coming years, increased scale and diversification, a very attractive precious metals growth pipeline, increased liquidity and a lower cost of capital.”

2021 Production Guidance & Costs

There has been no change to management production and cost guidance for 2021.

• Gold production between 120,000 and 130,000 ounces
• Cash operating cost¹ between $580 and $640/ounce
• All-in sustaining cost¹ between $895 and $975/ounce
• Sustaining capital spend between $25 to $30 million
• Non-sustaining capital spend of $5 to $10 million
• Growth spend (includes Exploration and Séguéla study spend) of $15-$20 million

The production and cost guidance assumes no material operational impacts due to COVID-19. A prolonged COVID-19 related delay or significant deterioration in operating conditions may have an impact on production and cost guidance.

Q1 2021 Highlights

Response to the COVID-19 Pandemic

Management of the current global COVID-19 crisis is ongoing particularly as various jurisdictions implement measures to re-open or close again, their economies. The Company has been proactive in its response to the potential threats posed by COVID-19 and has implemented a range of measures to protect the health and well-being of its employees and host communities while continuing to operate to the extent possible, in ordinary course of business. These measures include, but are not limited to, quarantine, reducing on-site crew sizes, enhanced cleaning and disinfecting protocols, requiring workers with symptoms to self isolate and promoting preventative measures including social distancing and frequent handwashing. All employees returning to site are required to complete a testing and screening process. As a result, operations at Yaramoko to date have not been materially impacted by COVID-19. The Company is continually assessing the evolving situation, including the health and safety risks to the Company’s personnel and contractors at its operations and offices.

Whilst production at Yaramoko has been maintained, if a COVID-19 related interruption were to occur it may have an impact on the Company’s operations, financial position and liquidity.

Review of Q1 2021 Financial Results

Mine operating profit

During the quarter ended March 31, 2021, revenues totalled $60.6 million (2020: $48.0 million) while mine operating expenses and royalties totalled $20.4 million (2020: $16.9 million) and $3.6 million (2020: $2.9 million), respectively. The increase in sales is primarily due to a 12% increase in the average realized gold price, and a 13% increase in ounces sold. Total mine operating expenses included $0.9 million COVID-19 related costs, reflecting incremental costs primarily relating to personnel, camp and transportation costs. During the quarter, the Company achieved total cash cost¹ per ounce sold of $677 and a mine operating margin¹ of $1,108 per ounce sold.

For more information on the cash operating costs¹ see the financial performance of the Mine Operating Activities section of this MD&A.

During three-month period ended March 31, 2021, depreciation totalled $15.8 million compared to $13.4 million in Q1 2020. The increase in depreciation is a result of the continued investment in the underground development of 55 Zone and Bagassi South combined with higher throughput.

General and administrative expenses

General and administrative expenses for the three-month period was $1.6 million compared to $1.3 million in Q1 2020, primarily as a result of increased corporate development activities.

Sustainability and other in-country costs

Sustainability and in-country costs totalled $0.3 million for Q1 2021 compared to $0.4 million in the comparative period. These expenditures are incurred as part of Roxgold’s commitment to responsible operations in Burkina Faso including several sustainability and community projects.

Exploration and evaluation expenses (“E&E”)

Exploration and evaluation expenses totalled $5.9 million for the three-month ended March 31, 2021 compared to $7.8 million in the comparative period. However, the decrease in costs expensed was due to the commencement of capitalising all costs directly attributable to Séguéla to mineral properties under development within Property, Plant and Equipment. During Q1 2021, costs related to the project that were capitalised totalled $6.1 million.

Exploration activity at Boussoura and Yaramoko totalled $4.9 million. Significant drilling activity continued at the Boussoura project with drilling expenses totalling $3.5 million for the quarter.

Share-based payments

Share-based payments totalled $0.8 million in Q1 2021 compared to $0.2 million in Q1 2020. The increase is mainly due to an increase in the Company’s share price.

Other income (expenses)

Other expenses totalled $4.0 million in Q1 2021, respectively compared to $1.6 million in the comparative period. The increase is mainly attributed to a foreign exchange loss of $2.5 million in Q1 2021 due to the stronger USD compared to a foreign exchange gain of $1.0 million in Q1 2020.

Current and deferred income tax expense

The current income tax expense totalled $2.6 million for Q1 2021 compared to $1.2 million in compared period largely due to higher mine operating profits. The higher effective tax rate is also driven by the increase in exploration expenditures in 2021 incurred in Burkina Faso and Côte d’Ivoire not being tax effected due to the Company’s status under the tax regulations.

Net income & EBITDA

The Company’s net income was $5.6 million in Q1 2021 and compared to net income of $1.9 million in Q1 2020. The Company’s EBITDA¹ was $24.5 million for the three-month period ended March 31, 2021 compared to $17.5 million in the comparative 2020 period.

Net income was higher compared to Q1 2020 primarily as a result of higher average realized gold sales price and higher gold ounces sold, offset by higher mining expenses due higher tonnes processed and higher depreciation.

Income Attributable to Non-Controlling Interest

For the three-month period ended March 31, 2021, the income attributable to the non-controlling (“NCI”) interest was $1.2 million. The Government of Burkina Faso holds a 10% carried interest in Roxgold SANU SA and as such is considered Roxgold’s NCI. The NCI attributable income is based on IFRS accounting principles and does not reflect dividend payable to the minority shareholder of the operating legal entity in Burkina Faso.

Financial Position

As at March 31, 2021, the Company had $56.5 million in cash on hand, with $31.1 million of long-term debt. The restricted cash totalling $2.0 million relates to funds restricted for the purposes of future restoration costs of the Yaramoko Gold Mine. The Company's current assets exceeds its current liabilities by $21.0 million.

With the existing cash balance and the forecasted cash flows from operations, the Company is positioned to fund its cash requirements for the next twelve months which relate primarily to the following activities:

• Underground development at the 55 Zone
• Exploration programs at Séguéla and Boussoura
• Principal debt and interest repayments

The Company manages its capital structure and adjusts when necessary, in accordance with its objectives and changes in economic conditions.

The Company’s total assets as at March 31, 2021 has increased by $0.9 million when compared to March 31, 2020.

Events subsequent to March 31, 2021

On April 26, 2021, the Company announced that it had entered into a definitive arrangement with Fortuna whereby Fortuna will acquire all of the issued and outstanding securities of Roxgold. Under the agreement, Roxgold shareholders will receive 0.283 common shares of Fortuna and C$0.001 for each Roxgold common share held. Based on the closing price of Fortuna common shares on the TSX on April 23, 2021, the exchange ratio implies a premium of 40.4% to Roxgold shareholders. The transaction is expected to close in late June or early July 2021. The transaction will be effected by way of a court approved plan of arrangement under the Business Corporations Act (British Columbia), requiring the approval of at least 66⅔% of the votes cast by the shareholders of Roxgold voting in person, virtually or represented by proxy at a special shareholders’ meeting to consider the transaction. The issuance of Fortuna common shares pursuant to the transaction will require approval by a simple majority of the votes cast by the shareholders of Fortuna voting in person, virtually or represented by proxy at an annual and special meeting of Fortuna shareholders' called to consider, in addition to certain annual meeting matters, the issuance of Fortuna shares pursuant to the requirements of the TSX. In addition, the transaction is subject to approval by the Supreme Court of British Columbia, and TSX and NYSE approval and the satisfaction of certain other closing conditions customary in transactions of this nature.

Yaramoko Mine Complex

Mine Operating Activities

Health and safety performance

Safety is a core value of Roxgold. There were no Lost Time Injury (“LTI”) incidents in Q1 2021 and a 12-month rolling LTIFR of 0.36 per one million hours worked.

Operational performance

The Company’s gold production in Q1 2021 was 35,308 ounces at a head grade of 8.0 g/t compared to 32,380 ounces at 8.7 g/t in Q1 2020.

Mining activities totalled 153,256 tonnes of ore mined at a grade of 6.9 g/t (includes low grade ore mined totalling 53,284 tonnes at a grade of 2.6 g/t) and 913 metres of waste development. This compares with 134,473 tonnes of ore at 7.9 g/t and 1,357 metres of waste development in Q1 2020. The 55 Zone mine produced 97,516 tonnes at 7.1 g/t and the Bagassi South mine contributed 55,740 tonnes at a grade of 6.6 g/t.

The mining tonnage was attributable to the ramping up of stoping activities at the Bagassi South mine with stoping operations expanding following the completion of mine development in Q3 2020. During Q1 2021, approximately 73% of ore produced came from stoping activities and 27% from development.

Decline development at the 55 Zone mine reached the 4614 level, approximately 710 metres below surface. Ore development continued down to 4634 level with two levels developed during the quarter. The development of the Bagassi South mine was completed in Q3 2020 with the main decline reaching 5044 level, approximately 260 metres below surface. Ore development was mostly completed in Q4 2020 with some minor ore stripping and development works occurring in Q1 2021.

Diamond drill rigs continued grade control and resource definition drilling at the 55 Zone and at Bagassi South with a total of 7,228 metres completed in the quarter.

The throughput for the quarter was 127,667 ore tonnes processed (includes 28,202 tonnes of low grade ore processed), at a head grade of 8.0 g/t, gold recovery of 97.9% and, plant availability of 96.8%; compared to Q1 2020 when 125,879 ore tonnes were processed at 8.7 g/t head grade, 97.9% gold recovery and, availability of 96.4%.

The Yaramoko Gold Mine continued to maintain a low cash operating cost¹ of $156 per tonne processed driven by increased throughput and cost control.

Financial Performance

Gold sales in Q1 2021 totalled $60.6 million from 33,962 ounces of gold. The Company’s average realized gold price was $1,785 per ounce sold, 12% higher than the average realized gold price in Q1 2020.

The Company maintained a cash operating cost¹ per tonne processed of $156 per tonne. The cash operating cost¹ per ounce produced totalled $564 per ounce for the period compared to $146 per tonne and $566 per ounce in the comparative period.

The total cash cost¹ of $677 per ounce sold in Q1 2021 was higher compared to $657 per ounce sold in Q1 2020. This was primarily impacted by the processing of lower grade stockpiled material which had an impact of $53 per ounce sold and the higher gold price in Q1 2021 which increased royalty payments by $10 per ounce sold.

The Company achieved a lower site all-in sustaining cost¹ of $906 per ounce sold and a lower all-in sustaining cost¹ of $963 per ounce sold in Q1 2021 compared to $1,003 per ounce and $1,058 per ounce sold, respectively in the comparable period. The lower all-in sustaining cost in the quarter is attributed to a decrease in underground development expenditure which had an impact of $82 per ounce sold and an increase in ounces sold compared to Q1 2020.

The Company generated a mine operating margin¹ of $1,108 per ounce in Q1 2021 which was 18% higher than in Q1 2020 mainly due to the higher average gold sales price and lower sustaining capital spend.

The Company invested $7.2 million in underground mine development at the 55 Zone and $0.4 million at Bagassi South in Q1 2021, compared to $6.1 million and $4.3 million respectively for the comparable period in 2020.

The Company generated strong cash flow from mining operations¹ of $32.5 million in Q1 2021, and cash flow from mining operations per share¹ of $0.09 (C$0.11/share). Comparatively, the Company generated cash flow from mining operations¹ of $25.4 million and $0.07 cash flow from mining operations per share¹ in the Q1 2020.

Exploration activities

Exploration drilling testing the near surface potential on the Yaramoko permit continued during Q1 2021, with emphasis on the 109 Zone, Bagassi South environs, and stratigraphic and scout drilling of the eastern and western projected extensions of the structure hosting the 55 Zone mineralization. Several other early-stage opportunities have been identified across the Yaramoko property as part of a regional targeting exercise that will be followed up over the next 12 months to assess further near-surface mineralization opportunities.

Figure 1. Yaramoko regional prospects

Séguéla Gold Project

Exploration activities continued to progress to delineate additional mineral resources within close proximity to Antenna, primarily focussing on infilling the high grade Koula deposit and deep extension drilling to determine the underground potential. Target generation and project development continued across the permit, with a new prospect named Sunbird, located approximately 600m south west of Boulder, returning high grade intersections from first pass scout drilling.

Project update

Feasibility Study

On April 19, 2021, the Company announced the results of the Feasibility Study and Mineral Reserve estimate for the high-grade Séguéla Gold Project in Cote d’Ivoire. The Feasibility study considers an operation with an initial nameplate of 1.25 million tonnes per annum and mine life of approximately 9 years. At a gold price of $1,600 per ounce, the Feasibility Study resulted in LOM after tax net cash flow of $536 million, a Roxgold attributable after tax NPV of $380 million and a Roxgold attributable after-tax IRR of 49%. The Feasibility Study also included an initial proven and probable mineral reserves estimate of 12.1 million tonnes grading 2.8 g/t Au totalling 1.1Moz Au which Roxgold believes positions Séguéla among the highest-grade open pit gold projects globally. Please refer to the Company’s press release dated April 19, 2021 for further details.

Mineral Reserve Estimate

Advancement of Séguéla Gold Project

• EPC Contractor Selection: Roxgold has awarded preferred contractor status to Lycopodium Minerals Pty Ltd. and is currently negotiating the engineering, procurement and construction ("EPC") agreement for the processing facility and other supporting infrastructure at Séguéla.
• Long-Lead / Critical Path items: The Company has commenced detailed engineering and procurement of long-lead time items.
• Infrastructure Early-works: The Company has continued to advance its early works program at site including upgrading of the site access road and construction of the accommodation village.

Roxgold Inc. Graeme Jennings, CFA Vice President, Investor Relations 416-203-6401 gjennings@roxgold.com