Athabasca Minerals Inc. (OTCPK:ABCAF) Q1 2020 Results Conference Call May 28, 2020 1:00 PM ET
Tanya Finney – IR
Robert Beekhuizen – CEO
Mark Smith – CFO
Dana Archibald – COO
My name is Tanya Finney and I am the Director of Investor and Stakeholder Relations at Athabasca Minerals. Today I’m joined online by Robert Beekhuizen, our Chief Executive Officer; Mark Smith, our Chief Financial Officer; and Dana Archibald, our Chief Operating Officer. We have posted a slide presentation on our website, which we will reference during this webcast.
For this webcast, you’re welcome to submit your questions through the Q&A feature in Zoom. Due to the current situation and requirements for webcasting services, we had to go to a new service provider. With regards to our webcast, if there are any technical issues, a recorded version will be posted to our website following this presentation.
Before we start, I would like to draw your attention that this presentation contains forward-looking information regarding our business. The slide deck will be posted on our website. Following this call, which will allow participants and interested parties time to review the contents, also in relation to detailed and qualifications noted on slides 2 and 3 regarding forward-looking information and statements. Without reading every qualification, here are some noteworthy excerpts.
By their nature, forward-looking statements and information involve known and unknown opportunities, costs, risks and uncertainties that may cause actual results to differ materially from these — those anticipated. With respect to the forward-looking statements and information contained in the management presentation, Athabasca Minerals has made assumptions regarding, among other things, the stabilities of the interest in which it operates, the price of certain commodities, the creditworthiness of Athabasca’s customers, access to capital, and whether credit or debt and on terms acceptable to Athabasca.
Within the meaning of applicable securities laws, forward-looking statements are statements that are not historical facts, and are often but not always identified using words or phrases such as anticipates, plans, intends, projects, potential or similar expressions, or stating that certain actions, events, or conditions will, would, may, might, could or should occur and be achieved in other similar terminology. A number of factors, risks and uncertainties could cause results to differ materially from those anticipated and described herein.
Now, I will turn the call over to Robert Beekhuizen, our Chief Executive Officer.
Thank you, Tanya. And good morning, good afternoon, depending on where you are in the continent. I hope you are healthy and safe. As Tanya mentioned, I’m joined today by Mark Smith, our Chief Financial Officer, who is online in Calgary, and he will provide context during this presentation of the corporation’s financials. I’m also joined by Dana Archibald, our Chief Operating Officer, who is also online from Edmonton and he will provide context on AMI’s divisional performance and operational highlights.
I’m starting on Page 4 of the presentation, which provides an agenda of what we will be discussing in today’s quarterly investor call. The agenda includes how AMI is addressing and responding to the COVID-19 impact to our business, a recap of our business model and 2020 strategic objectives, our quarterly highlights from Q1 and outlook for 2020, the AMI Advantage and our goal of building long-term shareholder value, Q&A to respond to investor questions-and-answers. Based on your last investor call, we expect this to be a 20 to 30 minute quarterly update in today’s session.
On Slide 5, with the COVID-19 pandemic continuing to impact the economy as well as regional and national markets, I would like to highlight the proactive measures AMI has taken in terms of its business and operational responses. Our first priority is to run our business and operation in compliance with best practices and government protocols regarding COVID-19 precautions and ensuring the safety and wellbeing of our employees, our supply chain, stakeholders and our customers. Most of our staff are working remotely, but our Edmonton and Calgary offices remain open as an essential service. Social distancing and proper hygiene are being practiced at all times and our health and safety manual is being updated accordingly. Our revised protocols have been cascaded to the field level at Coffey Lake Pit and throughout our logistics network teams — network for RockChain. We also have regular weekly town hall sessions with staff to update on COVID-19 progress.
Secondly, we continue to run our company as an essential service provider during the COVID-19 pandemic. Aggregates are an essential staple to construction, infrastructure and energy related projects. AMI continues to provide ongoing support, especially via RockChain and regionally from our base Aggregates division at Coffey Lake to ensure regional clients and local community needs are met and safely addressed.
Thirdly, our response to COVID-19 has been one of fiscal responsibility with proactive steps taken in order to ensure cash management. These steps include, for example, accessing government benefit loan programs, near-term adjustments and flexibility associated with the Coffey Lake bank loans for site clearing and construction. We have also taken additional measures to optimize AMI’s payroll to further support cash management.
Slide 6 gives examples of AMI’s fiscal responsibilities — or fiscal responsibility during COVID-19 which I was highlighting. In April Athabasca secured a $40,000 loan for AMI Silica, and another $40,000 loan for AMI RockChain through the Canadian Emergency Business Account program to support the businesses through the COVID-19 pandemic. Both loans are interest-free and require no principal repayments until December 2022. In May, AMI received the first monthly subsidy of $44,000 associated with the Canadian Emergency Wage Subsidy program. From May to July of this year, principal repayment of the $1.5 million bank loan for Coffey Lake Public Pit and the True North Staging Hub construction was deferred three months with interest-only payments.
A series of payroll reductions and optimizations at all level of company, up to and including the Board, have been implemented with a resulting payroll cost improvement of 30% year-to-date. A revised salary and Board fees program where AMI stock is used as a form of compensation that reduces cash draw while increasing ownership at all levels of the company, including employees, management and Board of Directors is in implementation.
Turning to Slide 7, this is a recap of Athabasca’s business model and how we are diversifying, growing and fortifying the company with a multipronged value proposition that fits with our three piston engine where AMI Aggregates, our basic division, is focused on revenues from our conventional gravel operation and assets; where AMI Silica’s sand division is focused on revenue generation and developing premium domestic sand projects; and where AMI RockChain, our technology enabled midstream business is focused on networking resource operations and transportation supply chains across Western Canada with a goal of determining optimal delivery solutions for customers that are also safe and reliable.
Each AMI piston or subsidiaries have profit and loss division in our segmented financial reporting, with its own budget and strategic objectives that complement and fortify each other, while diversifying the parent company. In AMI Aggregates, we have operationalized Coffey Lake and we are actively leveraging select corporate pits, particularly Pelican and Kearl in 2020, the third-parties to generate revenues. We have established several indigenous partnering relationships for Aggregates’ development and marketing purposes that support the corporation’s ESG commitment, as well AMI’s 3 piston engine. Year-over-year, our base division continues to be operational and cash flow including the Q1 2020. AMI Silica, our sand division holds AMI’s Duvernay, Montney and Firebag assets and projects. The business objective of this division is to provide premium domestic sand to the Western Canadian region and substantially improve market prices in relation to imported American sand, which continues to dominate the regional supply chain.
We’re making steady advancements with our Duvernay Silica project as will be addressed by our COO in a subsequent slide. Given that we are in project development mode, we are striving to have AMI Silica operational and cash flow in the second half of 2021. AMI RockChain, the third piston of our portfolio is our innovative and growing midstream business. Here we are delivering aggregates at optimized prices using our proprietary RockChain digital platform, which connects hundreds of pits and transportation companies into the supply chain and using our bid calculator, as well as our solution finder algorithm to determine low cost solutions in a fraction of the time compared to traditional industry methods. This subsidiary is just over a year old and is already engaged with over 60 prospective customers, has been called upon for more than 300 industry quotations and bids since its inception. We will expand on AMI RockChain in the coming slides.
On Slide 8, we show tangible strategic objectives in 2020 that align with our three piston business model just described. We started with a corporate focus on cash management as a key 2020 objective. With a number of strategic initiatives underway to diversify, grow and fortify the company, this requires measures to ensure that we are financially responsible and running our businesses nimbly and in sync with the fluctuations in the economy, including repercussions from COVID-19.
As mentioned and outlined already, AMI has reduced payroll impact on cash by 30% through a series of reductions and optimizations year-to-date. Our base division AMI Aggregates had a strategic mandate to open up Coffey Lake Pit in 2020. We were able to do so ahead of schedule with production and revenue generation underway already in March. In tandem, we secured approval for the True North Staging Hub located your Coffey Lake and are on our way to bringing that into operation in the Q2, Q3 timeframe. AMI Aggregates also had a strategic goal to expand its asset base and operations beyond Alberta and into other diversified demand markets. Our Q1 2020 announcement on the Buckhorn Quarry joint venture, 90 minutes from the Greater Toronto Area and Ontario demonstrates our commitment towards achieving that goal.
AMI Silica and AMI Silica team continues to progress the Duvernay Silica Sand project. In Q1, we secured an important five year offtake agreement with Shell Canada and attracted the attention of a pending industrial partner to develop what we aim for being the greenest silica operation in North America. Our COO will give more details on progress in a subsequent slide.
AMI RockChain team and business is increasing in activity and expanding across Western Canada. We reached a $1 million order milestone with one customer already and remain very active bidding a large number of — and volume of aggregates for the upcoming construction cycle in 2020. We remain focused on technology improvements and have a roadmap for operational excellence with a campaign also to grow our client base as well as our supply chain network.
Despite the COVID-19 shock to the economy AMI RockChain has augmented the base division and vice versa. The operational synergies between the two, has improved our effectiveness as a corporation.
Finally, as a company, we continue to pursue strategic acquisitions and joint ventures. During the any given quarter, including Q1, we’re actively assessing opportunities in conducting due diligence. We’re excited about the possibilities and synergies with certain potential relationships that support our goals and objectives to grow, diversify, and fortify our revenues in the future.
I’ll ask Mark Smith, our CFO, to address our financial results for the first quarter of 2020.
Thanks, Rob. I will now provide an overview of our Q1 2020 financial results. So moving to Slide 10, we have provided a summary balance sheet for the first quarter of 2020. At the end of the quarter, we had $1.7 million of total unrestricted cash and our book value per share was $0.30. We believe Athabasca is undervalued at the current share price given the book value of our assets and our growth initiatives.
So moving on to Slide 11 we have provided the highlights from the first quarter of 2020. So typically the aggregate business is seasonally slow during the first quarter. However, we were able to exceed our target for AMI RockChain and we were also ahead of schedule for bringing Coffey Lake online in advancing revenues early in the year. Our aggregate sales revenue increased in Q1 2020. AMI RockChain was operational during all of Q1 2020 versus the previous year when it was still being established and was at the pre-revenue stage. This was offset by lower management services revenue in our AMI Aggregates division since Coffey Lake opened on March 21, 2020 whereas in 2019 Susan Lake was operational throughout the quarter.
For Q1 2020, AMI RockChain contributed 64% of total revenue to the corporation. We reported a total and comprehensive loss of $816,000 versus a total loss of $1.1 million in the previous year. This improvement was due to improved revenues and gross profit with little change to our non-operating income and interest income. At the end of the quarter, our net working capital was $1.9 million.
We would now like to provide some operational highlights for each division, to why we see 2020 as a strategic transition year that will diversify AMI.
With that, I’ll pass it over to Dana Archibald, our Chief Operating Officer, to speak to AMI’s operational highlights. Thank you.
Thank you, Mark. Moving to Slide 13, we had a number of activities take place in Q1 2020. As Rob mentioned, we announced the opening of Coffey Lake in late March 2020, ahead of the Q2 expected opening. And we completed the first order generating $560,000 of revenue. We also announced that we formed a strategic joint venture with a mandate to develop the Buckhorn Quarry in Ontario, approximately 90 minutes from the Greater Toronto Area. We’re actively working on the regulatory and permitting process with a goal to be in production in the second half of 2021 pending regulatory approvals.
AMI intends to pursue a similar JV approach for the development of the Richardson Quarry project, north of Fort McMurray or the next couple of years, and we are currently engaged in ongoing discussions with interested parties. Royalty agreements remain in place with strategic partners interested in harvesting aggregates from several of our corporate pits. We are also targeting to bring online additional pits in 2020 to generate revenues.
Although we are experiencing some impacts from COVID-19 in relation to the rhythm of projects, there are projects on the horizon and orders pending at Coffey Lake and some of our corporate pits that will lead to cash flow in 2020. We also listed in a couple of non-core gravel assets for sale in order to enhance AMI’s cash position.
Moving to Slide 13, for AMI Silica, in February 2020, we achieved a critical milestone on our Duvernay project by securing a five year offtake agreement with Shell Canada Energy. In April AMI Silica and its pending industrial partner issued a competitive tender to five qualified contractors in Canada and The United States. The purpose of this tender is to update the front-end engineering and development for Duvernay project with the option to convert to an EPC, Engineer, Procure, Construct when the project is fully sanctioned and permits are in place. We aim to develop the greenest silica sand processing facility in North America based on unique synergies for a target price under $40 million for Phase 1 development.
Sand products and byproducts will be serving customer demand in the energy, construction and environmental sectors. AMI’s Montney project in 2020 will focus on further delineation of preparing of NI 43-101 Technical Report to validate the resource for development purposes. The Montney activities will be conducted at a pace that fits with proven cash management.
Moving to Slide 15, and AMI RockChain, we’ve made some important structural changes to the AMI RockChain in the past few weeks. As a COO of Athabasca Minerals, I will be also providing executive leadership as President of this division moving forward. Since inception AMI Rock team has completed 335 bids for 64 client companies and counting. The division accounted for 64% of our revenue in Q1, showcasing the important role that this division plays in AMI’s future growth.
Priorities for AMI RockChain over the next three to six months will include: The improving and advancement of our proprietary technology. We have brought on board a contract director of technology for a two month contract to develop and execute on a systems roadmap with a focus on the product architecture, user interface and experience, data analytics, automation and process improvement, increasing geospatial capabilities and geographical expansion of the digital platform. We have and continue to optimize our P&L divisions to create a more integrated team between AMI RockChain and our project, operation and quality personnel within the other divisions to strengthen our execution capabilities. We also will be focusing on continued advancement of our [BD] sales and marketing strategies with providing an expanded service offering to our clients and continuing to increase our bidding opportunities while improving our win rate.
With that, I’ll pass it back to Rob to close off the presentation.
Thank you, Dana. On Slide 16, we see how AMI stock has been affected since the beginning of 2020. The company, however, proves to be resilient and shows the ability to recover value in correlation with incremental progress on our strategic objectives. Our share price has outperformed our peer group against whom AMI is often compared.
Coming to the end of our presentation on Slide 17, we want to remind shareholders and investors that AMI is continuing to transform and reposition the company for the future. We have three distinct division — three distinct business units with operational synergies, we’ve proprietary long life resources in their base division and in AMI Silica. We have strong client, community in investor relations capabilities and connections. We also have a resourceful and dedicated team. The corporation has a purposeful focus on diversification and growth. And we have disciplined cash management to ensure a balanced approach to our projects and our strategic initiatives, and we’ve improved technology and innovation to drive cost effective business solutions in AMI RockChain.
We have also added to our Board with the appointment of Mr. Robert Logan as Advisor relating to AMI’s strategic business interest and capital market strategies. We have started off 2020 strong and we remain fiscally responsible. Despite the impact of COVID-19, we have a game plan and we remain buoyant in the face of market adversity and being able to achieve meaningful progress on our strategic initiatives and business opportunities in 2020.
Now, we will address and take some questions that we have received.
The first question relates to our blackout period for directors and executives. Question is, now that you’re out of blackout, will executives and directors begin buying shares?
Yes, there has already been some share purchasing in the open market. We’re also introducing a new program where 10% of compensation of employees, management and Board members will be applied for the purchase of AMI shares.
Our second question is about the second round of payroll reductions and optimizations in Q2 and [what are these] consistent? How many people have you let go?
Although it was a difficult decision, we knew we needed to streamline our operations and therefore we had to let a few people go. We have tighter integration now where the operational strengths of the base division is supporting AMI RockChain as well for improved efficiency and delivery. Additional payroll reductions and optimizations have also been recently achieved with a program offering either a reduced work week our 10% of compensation paid in AMI shares. Board fees have been optimized as well and include payment for services in shares. We’re currently finalizing the details and this program will take effect on June 1, 2020. Additional details will be provided in the Q2, MD&A and financials.
Another question. How has your mandate of having a cash position of $2 million changed?
Managing our cash position remains of utmost importance to AMI. In the Q1 results, we had $1.7 million in unrestricted cash and $1.9 million in net working capital. We believe this is sufficient to fund our ongoing operations, particularly given the cost optimizations mentioned and implemented.
Next question is, what is the win percent rate to the number of bids for AMI RockChain?
This isn’t a number that we publicly disclose, but we can say that we are seeing a win rate increase. We are contacted frequently for any budget quotations. We also track these numbers and are able to generate a lot of quotations rapidly using our technology. It’s become a useful service to the industry and we’re looking at creative ways to monetize this in itself.
Another question we have, will you be spinning out AMI RockChain?
All of AMI’s divisions are structured for spin up? We have a progressive program to continue to grow the functionality and business outreach of AMI RockChain. At this time, there are also tremendous internal synergies with RockChain and our other divisions. We’re not contemplating a spin off just yet.
We have another question. You’ve listed gravel assets for sale to boost your cash position. How much do you expect to raise?
AMI is addressing the sale of non-core assets, for example, or Warrensville land, which is two-quarter sections. These are listed with a realtor currently at $224,000 a quarter to generate up to $450,000 as the transaction goes through.
We have one additional question. What is AMI doing to increase investor exposure, low daily trading volumes in 2020, for example, what is the Board and the company is doing in regards to the low investor interest?
Thank you for this question. With regards to Investor Relations, we are building out IR strategies to address new marketing initiatives. As marketing has changed in the current environment, webcast, webinars and virtual networking will help us gain further investor exposure.
In closing, I want to thank the entire team at AMI for their continued hard work and dedication. We also appreciate the support of our shareholders. So any questions we were unable to address, please contact Tanya Finney. Her contact information is on the last slide. It can also be found on our website. Thank you for your time and attention.
End of Q&A