Thank you for standing by, and welcome to the 29Metals 2022 first half- year financial results Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Michael Slifirski, Group Manager, Investor Relations. Please go ahead.
Thank you, Carly. Good morning, ladies and gentlemen. My name is Mike Slifirski, and welcome to 29Metals first half of 2022 financial result Conference Call. We'll be talking to the Appendix 4D and first half 2022 presentation that were released to the ASX this morning. The call is being recorded and will be available for replay via the 29Metals website and the Open Briefing website. 29Metals Managing Director and CEO, Mr. Peter Albert, will commence the discussion before passing on to CFO, Peter Herbert, to lead you through the results. When we work through the result, we will be talking to the presentation, and we will advise what page number we are on.
Other 29Metals executives will not formally be presenting, but our Chief Operating Officer, Ed Cooney, and our Group Manager, Exploration, Mark van Heerden, will be available during Q&A to address any operating or exploration questions. I'll now hand over to Peter to commence the discussion. Thanks, Peter.
Yeah, thanks, Mike. Thanks for the introduction. Welcome, everybody, and thank you for joining us this morning. I will provide a brief introduction and recap on key operational matters and key headline financials. Our CFO, Peter Herbert, will take us through in detail the 2022 first half- year financial results. Before we start, I'd like to say a few words on the market outlook. A number of key players, commentators, and forecasters have been stating their views of the future outlook for the copper market. I can say that I personally endorse most of those views, i.e., we are about to enter a copper age, the likes of which the world has probably never seen before, driven, of course, by the need to decarbonize and to transition to a green energy environment.
Whichever way one looks at it, conservatively or optimistically, there's going to be a significant deficit in the copper space over the next 10- years. It is possible that there may be an oversupply next year, as some have suggested. I'm personally doubtful, but after that, the demand will outstrip any possibility of the supply satisfying that demand by a number of millions of metric tons. Without too much speculation about the outcome of this deficit, it is apparent that 29Metals, with two high-grade underground mines with 10-year mine lives each and significant growth potential, is in the right space at the right time. I'll draw your attention to slide 2, the important information, and move straight on to slide 3.
For production on a copper equivalent basis, we made 34,000 tons of copper equivalent in the first half of this year compared to about 30,000 tons for the same period last year on a pro forma or like-for-like basis. On a cost basis, our C1 costs at $2.38 a pound were 11% lower than for the same period last year, again, on a similar basis. We continue to undertake and implement projects to support the long-term sustainability of operations, including significant ventilation upgrades at both sites, construction of a new paste plant facility at Golden Grove, and now that we're in production at Xantho Extended, implementing the 45-meter sublevel intervals, which enhances efficiency and reduces mining costs.
I'm also pleased to advise that the zinc regrind circuit at Golden Grove is back in operation, and that commissioning of the Golden Grove paste plant is well- progressed with first paste planned to be placed underground this week. Our growth aspirations have moved forward significantly during the first half of this year, with excellent drilling results coming out of ESS, Esperanza South, at Capricorn Copper, and Cervantes at Golden Grove. The latter, of course, coming off the significant Mineral Resources growth at Cervantes announced with our Mineral Resource and Ore Reserves update released in the March quarter this year. Our exploration program at Red Hill has delivered some quite exciting results, and we anticipate updating the market soon with a balance of those results from our first field season there in southern Chile.
We've also continued advancement of the pre-feasibility study at Cervantes and the optimized feasibility study at Gossan Valley. Both of these are on track for completion by the end of the current quarter. As a result of the good production as well as good commodity prices, we have seen operating cash flow grow to AUD 109 million, an increase of some AUD 68 million compared to the same period last year on a statutory basis. Our net cash position has increased to AUD 16 million, with cash and cash equivalents of AUD 220 million, and drawn debt unchanged at $150 million, but recorded in the balance sheet at AUD 213 million, using the lower exchange rate at June thirtieth.
Most importantly, the board is very pleased to determine a first dividend for the company. Albeit a modest dividend of AUD 0.02 a share, fully franked, it's a very positive signal of the company's intent and intention to return funds to shareholders. Given the progress we have made and the positive results, we thought it was very important to provide an initial modest return to shareholders as soon as we could. Turning to slide 5. Our sustainability and ESG goals and priorities have been well- articulated, and in the June quarter, we reported on progress made on all of our key priorities. Being safe and inclusive workplace, responsible environmental stewardship, and partnering with stakeholders. We continue to make progress on all of these items, and we'll provide further updates in upcoming quarterly reports.
On that note, I will now hand over to Peter Herbert, our CFO, to take us through in some detail the financial results.
Thank you, Peter, and good morning to everyone on the call. Thanks for your time and attention. Starting on page 5, the basis of preparation. For a brief reminder of what 29Metals is reporting today. Today, we report statutory results for the half- year to 30 June 2022, representing results for the group, and statutory results for the prior corresponding period, being the half- year to 30 June 2021, representing results of Golden Grove only, i.e. a pre-IPO result. Because the statutory result for the prior corresponding period are limited to Golden Grove, we have also disclosed pro forma results also for the prior corresponding period, representing results of the group. The pro forma results were prepared as if the group was formed and the IPO occurred prior to 1 January 2021, including provision for group corporate costs, but excluding IPO costs.
Turning to page six, we highlight key results for the group, which were supported by higher- production and sales, stronger prices, and a weaker Australian dollar. This has supported delivery of AUD 356 million in revenue, an increase of 23% on the pro forma result. AUD 94 million in EBITDA, also up 23% on the pro forma outcomes, and operating cash flows of AUD 109 million for the first half of 2022. Now moving to slide seven, where copper remains the dominant commodity in our sales mix, contributing 62% of group sales for the half. Golden Grove and Capricorn Copper both contributed to increased group copper production, which was up 17% on the pro forma result for 2021. Group cost outcomes are set out on page eight.
29Metals demonstrated cost discipline in a challenging business environment given industry-wide cost pressures. While site operating costs increased 13% on pro forma outcomes for 2021, highe- activity levels were a key driver of the increase, with mining and milling up 3% and 8% respectively in the first half of 2022. 29Metals was not exposed to the inflationary pressures associated with East Coast energy markets in the first half through 29Metals grid power connections at both Golden Grove and Capricorn Copper. It's worth noting that 29Metals high-grade, low-tonnage mines moderates our exposure to inflationary costs linked to activity levels, for example, diesel consumption. Lower stockpile credits in the current period compared to statutory and pro forma outcomes reflects the timing of sales, with strong sales, including provisional invoices, received prior to 30 June 2022, supporting cash generation in the first half.
This focus on costs and higher- production achieved a reduction in C1 unit costs of approximately 11% relative to the prior period on a pro forma basis. An increase in depreciation and amortization in the first half reflects higher- activity levels and investment in and utilization of tailings facilities. Stepping through the EBITDA bridge now on page 9, you can see the impact of higher- volumes and prices on revenues for the current period. The increase in revenues is net of QP adjustment losses for the first half of approximately AUD 31 million, reflecting the reduction in prices towards the end of the first half, and is net of TCRCs for the first half of AUD 29 million, which were higher on account of zinc TCs, including escalators linked to the zinc price.
As discussed, higher- site operating costs of AUD 25 million in the first half reflects higher- activity levels and industry-wide inflationary pressures. Improved volumes, prices, and higher- unit freight costs account for the AUD 11 million increase in royalties and other selling costs. Now stepping through the cash bridge on page 10. Operating performance delivered AUD 109 million in operating cash flows, reflecting the matters discussed previously, including the timing of sales in the period to 30 June. I note that operating cash flows are net of AUD 19 million in settlements of commodity hedges during the first half. Investing cash flows captured mine development, paste plant, and TSF expenditures during the first half. Financing relates primarily to AASB 16 lease accounting outcomes.
Turning to page 11, 29Metals cash flow delivered a net cash position as at June 30, a function of operating results, commodity prices, and the timing of sales towards the end of the first half. As a reminder, the interim dividend Peter talked to is not brought to account in the half- year results today, given it will be paid after period end. 29Metals term loan remained unchanged in US dollar terms at $150 million, or AUD 213 million in Australian dollar terms. Amortization of the group's term loan will commence in the second half with $12 million in principal repayments. As a further reminder, stamp duty remains outstanding with a provision of AUD 26 million maintained in the half- year accounts.
Finally, on hedging, as set out on slide 12, the company settled the majority of its remaining copper hedges during the first half, the balance of which will be settled during the September quarter. Post which, 29Metals will have full exposure to copper prices. Remaining hedges remain solely to gold with 37,000 ounces priced at AUD 2,590 an ounce. These will settle over the period of 2025. Thank you all for your time. Back to you, Peter.
Thanks, Peter. Kelly, back to you, in terms of coordinating any questions and answers. We go to Q&A now.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Adam Baker with Macquarie. Please go ahead.
Hey, Peter and team. Yeah, just wondering if you've got a going forward dividend policy or, you know, what should we read through or what should we model based on, you know, the current dividend payment you're expecting in the second half this year?
Well, Peter might answer that in a second, Adam, but of course, the dividend policy always under review, and we'll consider that, and the board continues to consider it. We have a dividend policy which is stated from last year, and we'll review that going forward. We're not refreshing that at this point in time.
I think that's well- captured, Peter, and I think very much at the moment a qualitative dividend policy reflecting the work ongoing around, you know, matters including Cervantes and Gossan Valley. Over time, as those things become clear, and clearly those policies will be reviewed, not only for those outcomes, but for other matters as they change in front of us.
Okay, great. There's no delay to the Cervantes PFS or Gossan Valley optimization studies. They're still expected this quarter? Is that right?
Well, yeah, thanks, Adam. As we've stated, I think probably a number of times and restated this morning, looking to complete those internally this quarter. And then post that, we'll update the market with those outcomes and any decisions we will make as a consequence of that work.
Okay, great. What about income tax benefits? Do you have any tax benefits remaining? You know, when should we start modeling, you know, tax payments into the future?
Yeah, there are some tax losses on the balance sheet. That's set out in the accounts. You know, clearly how they become utilized as a function of, you know, our performance and commodity prices going forward.
W e have seen pricing improve since the end of the June quarter. I'm just trying to get the mechanics around your provisional pricing agreements and settlement times. Can you just tell me, is most of your copper concentrate being sold to Glencore currently? If so, can you just provide a bit of color on the mechanisms around pricing and settlement timing once a shipment occurs?
Yeah, sure. The majority of our material is actually sold to Trafigura, although we do deliver into Mount Isa. At Capricorn Copper, I'm talking about, of course, which is a Glencore facility, but the purchaser is not Glencore for that. It's actually Trafigura. Now in terms of the QP mechanics, typically our sales settle anywhere between one and three months after the date of shipment. The purchaser, the offtaker, has the first call as to the time period over where they want that to settle. We would then have the option of choosing, you know, either month two or three in that period.
Our objective here is clearly to try and spread the material over the year in a way that gives us an even spread of pricing. We achieve that through the options that we have to select months after the offtake has made the decision or not made a decision, as the case may be. It's a fairly dynamic exercise that requires us to manage it, you know, proactively. The mechanics in our offtake mechanism allow us to spread those sales in a way that we can achieve the average of the price given for the year.
Okay. That's helpful. Since the month of June, has that settlement period narrowed closer to a month or is it being quite similar to what you saw in the June quarter?
Look, I mean, based on where prices are today from 30 June, you know, that QP loss will turn around. I mean, clearly that moves on a day-to-day basis. I don't have, you know, a current today figure there and can't talk to that. You know, where we end up at the next quarter will be a function of where prices go to from here. You know, clearly from 30 June, prices have improved somewhat since then.
Yeah. That's I appreciate the color. Thanks a lot. Okay. If I could just move on to Golden Grove. The paste fill plants, you mentioned that first paste is getting delivered this, or next week, I think you said. How long do you expect the commission to take? Where are you focusing the filling? Y ou started on the shallower levels where you're mining and then look to migrate to the deeper levels once commissioned, once fully commissioned.
Yeah, I might ask Ed to comment there, Matt.
Yeah. Thanks, Peter. No, you're spot on. We're well- advanced in terms of commissioning, sort of high 90%, with the expectation that we will send paste fill underground later this week. Initially to a nearer surface void, just to mitigate any risks, and then further on into Xantho Extended. Just in terms of risk, you know, we do have the mitigation of existing cemented hydraulic fill that we can always deliver around the mine, including to Xantho Extended. P reference for us is to get the paste fill to that ore body. You know, the delivery times are quicker, the curing times are quicker, and it will allow us to turn over stopes more quickly. A lot of focus and dedication from the site team on that very point at the moment.
Yeah, that's great to hear. Are you willing to give a bit of a timing on when you expect to get down and get the paste down into Xantho Extended?
Well, following first pour into a nearer surface void, I would expect that we'll be delivering paste fill, probably in the fourth quarter to Xantho Extended at this point.
That's great. Thank you. Look, congratulations on scoping the first large scope at Xantho Extended. I'm just keen to hear about your development schedule. You mentioned with the June quarter you were 20% behind plan. I presume this is probably an average across the mine, but how are your development rates tracking at Xantho Extended in isolation?
Yeah, that was a whole of mine reference, that 20% that we are behind at Xantho Extended. A couple of initiatives with the chilled air being delivered directly to the decline. We've got a couple of new jumbos being delivered to site imminently. Look, we probably won't recover that position, as I think we said in the June quarter, but you know, we should be able to maintain current position in terms of development rates from here on in.
Okay, that's great. Xantho, are you around that 20% mark or is it higher than that, behind time?
Well, the decline itself, I think is about 300-odd meters behind where we had wanted to be. You know, that still affords us position to bring some of those early stopes online. Yeah, just focus on getting the decline down and further ore development on the sub-levels.
That's great. That's all for me, gents. Thanks very much.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Oh, hi, Peter and team. Just wondering on the studies which are due in September, which we'll hear about just after, is that going to be linked to a final investment decision at all, or is that for the market to digest? Thank you.
No, it was for the board to digest, first of all, and then for us to consider, in the context of life of mine, the optimum outcome in terms of which and when. The board will consider that, and then as appropriate, we'll update the market accordingly. Can't pre-judge that, but anticipate that we'll be, you know, looking internally to a path forward in the coming weeks, and then update the market from there.
Thank you. You announced a dividend of AUD 0.02, which was just a surprise to me. I was just wondering how you judge that versus that decision versus, you know, the capital commitments you might have if you were to press the go button on these studies and, you know, expanding the mill potentially.
Yeah. I'm certainly not looking to expand the mill at this stage of the process. Of course, if one of those studies requires or indicates a mill expansion, we'll consider that. In terms of your main comment there, Daniel, I mean, AUD 10 million, AUD 0.02 a share is a relatively modest outcome and was really perceived by the board as a strong signal to our very supportive investors. It doesn't really compromise our ability to execute either or both of those projects. That's it really in the scheme of things, you know, a modest outcome.
Thank you very much.
There are no further questions at this time. I'll now hand back to Mr. Albert for closing remarks.
Just check with Mike. Are we clear to go to closing?
Look, perhaps see if there's any final questions before we close. If there aren't, we'll let Peter make some concluding comments.
That's star one on your phone if you wish to ask a question. We do have Daniel Morgan from Barrenjoey. Please go ahead.
Everyone's shy today, so I thought I'd have another crack. Could you just reiterate for the investment case over the next couple of years, you know, grades are supposed to, you know, improve materially. Can you just talk through that, when we can expect it to occur? Yeah, thank you.
Well, Ed might jump in here, Daniel, but I think what the best thing for us to do is, well, t he Xantho Extended grades and what that delivers as we get into the heart of that ore body has been well- articulated. Of course, as Ed has indicated due to other factors and some of the absenteeism and the COVID-related issues earlier this year and redeploying some of our operating staff to production outcomes. That's a little behind, but nonetheless, the Xantho Extended ore body at GG is a tremendous ore body. As we get into the guts of that really delivers great results for the business.
Likewise, at Capricorn Copper, we recently, I think in July, put out some results for, it was just early August, results for the Esperanza South ore body. That ore body that delivers 60%-70% of the feed to the mill. Just fantastic results coming out of that ore body at depth. That's thicker and wider and higher- grade outcomes there at depth at Capricorn Copper. Not immediately coming at us, but you know, in the medium term, sort of a year or two, I expect that's when we'll be into that.
That was a real upside to Esperança South, and we continue to do drilling at Esperança South. Mark may make a comment there, but we're very pleased with the results. Really, those results supported what we've said for quite some time, that getting into the depth of that orebody it will increase in grade, and we anticipated that it would get thicker, and those results have achieved both of that. Going back to your original comment there, Daniel, yes, as we get into the next year or two, we would expect to see those grades improving to increasing rather at both operations and continuing to deliver great results.
Thank you very much.
There are no further questions at this time. I'll now hand back to Mr. Albert for closing remarks.
Well, thanks, Kelly. Closing remarks really on page 13 of the presentation. I just probably will read through those because I think they're all four good points and important points. During the half, higher- production delivered increased revenues and reduced operating unit costs compared to the same period last year. Strong cost discipline in the face of significant industry-wide cost pressures. We've all seen that. We've all seen it reported elsewhere. My view and opinion is that 29Metals has managed that really very, very well over the last six-month period. Strong cash flow generation delivered a net cash position, maintaining that balance sheet strength that Peter was talking about earlier on.
Of course, the AUD 0.02 per share, fully franked dividend, delivering returns to shareholders and indicating our intention to continue to do that or do so otherwise, everything else being equal, i.e. production, commodity prices, et cetera, et cetera. We believe that's a good strong signal for the market and our very loyal investors. With that, Kaylee, we can close the meeting. Looking at Mike, I think we can close the meeting. Thank you very much for your time this morning. As usual, happy to catch up at any time through Mike or directly through Peter or myself. Appreciate, as I say, your time today. Goodbye and thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.