Thank you for standing by, and welcome to the 29Metals full year 2021 financial results 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 like to hand the conference over to Mr. Michael Slifirski. Please go ahead.
Thanks, Ivan. Good morning, ladies and gentlemen. My name is Michael Slifirski. Welcome to 29Metals FY 2021 full year result call. 29Metals Managing Director and CEO, Peter Albert will commence the presentation before handing over to CFO, Peter Herbert, to take you through the detail of the result. The full year result and presentation are available on the ASX platform and on the 29Metals website. The presentation is also available on the Open Briefing website. At the conclusion of the presentation, the operator will invite your questions. 29Metals COO, Ed Cooney, and Group Manager Exploration, Mark van Heerden, will also be available at that time to answer any questions. I'd now like to hand over to Peter Albert to commence the presentation. Thanks, Peter.
Thanks, Mike. Well, good morning, everybody, and thank you for joining us today. It is indeed an auspicious day for 29Metals with the release of our first full year financial results. Mike's done the introduction, so I won't go through that again. Hopefully you've got access to the presentation. Peter and I will refer to slides on the way through. Slides 2 and 3, I draw your attention to the important information slides. These regarding forward-looking statements in the presentation materials and the non-IFRS financial information. Moving straight to slide 5. First of all, some key outcomes. Our safety performance was very good. We did have too many minor injuries, mostly hand, which has been a little bit frustrating, but our lost time injuries and high potential incidents are very low.
At 68,000 copper equivalent tons produced, we exceeded our prospectus forecast for copper equivalent production. With the polymetallic mines such as Golden Grove, the profile, as you all know, can be a little lumpy at times. While the third quarter was a bit challenging, the fourth quarter, especially for copper, was very good. Capricorn Copper, of course, had a great second half of the year. Like the rest of the industry, we experienced significant cost pressures exacerbated by COVID and border closures, but we nonetheless achieved an AISC outcome of $3.41 a pound US. For the group, with a very healthy margin against the average copper prices for the year of $4.22. Remembering, of course, that 29Metals reported AISC includes capitalized development, and the only things it doesn't include are growth capital and group exploration.
The EBITDA outcome at AUD 254 million on a pro forma basis is especially pleasing when compared to our prospectus forecast of AUD 221 million. Most importantly, we're well-positioned to execute our growth strategy. We have low gearing combined with near-term growth options, which we are currently pursuing, particularly at Golden Grove, which is a great success in 2021. We're working on creating new options through our exploration program in 2022, and a little more of that later. If I can move to slide 7. Presenting our results for a year where we completed an IPO mid-year brings an added layer of complexity. In the materials we've released today, you will see that we've presented our statutory results, and we've also presented results on a pro forma basis.
Statutory results for 2021 are for the Golden Grove Group on a standalone basis for the first half of the year, and the consolidated group, i.e., including Capricorn, Red Hill, corporate, etc., for the second half of the year. The 2020 results are the Golden Grove Group's standalone results. This all reflects the timing of completion of the IPO transactions in early July and the determination that Golden Grove Group was the acquirer for accounting purposes. The pro forma results present the operating and financial performance of the 29Metals Group for the full 12 months to 31 December 2021, as if the restructuring and the IPO transactions and debt repayments took place prior to 1 January 2020.
This is consistent with the way that the pro forma financial information for the 29Metals Group was presented in our prospectus for the IPO. It is important to note that the statutory results are audited and the pro forma financial information presented today is non-IFRS financial information and is unaudited. We have also provided some additional 2022 guidance today in relation to D&A and other financial metrics. Now I'll hand over to Peter Herbert to take us through the financial results in more detail and our 2022 guidance. I'll come back a little later to discuss briefly our growth pipeline. Over to you, Peter. Thank you.
Thanks very much, Peter, and welcome to everyone, and thanks for taking the time to join the call today. As Peter mentioned, today we reported our statutory results for 2021, and those results do indeed reflect the complexity and timing of the various transactions undertaken to form 29Metals. Starting with the statutory results summarized on slide 8, revenue increased materially on the prior year, reflecting the impact of including Capricorn Copper in the second half and materially higher copper prices than we've seen in 2020. This was partially offset by lower production from Golden Grove, particularly by-product metals, due to lower grades in 2021 and a higher Australian dollar.
Gross profit of AUD 137 million on a statutory basis increased by AUD 28 million on the prior period, as higher costs partially offset revenues for the period, reflecting labor and cost pressures reported in the September quarterly report. Statutory NPAT for 2021 of AUD 121 million includes a material tax benefit for the period of AUD 119 million, resulting from the entry of Golden Grove into the 29Metals tax consolidated group. It's also after IPO transaction expenses, including a provision for stamp duty. Normalizing for non-recurring expenses and reversing the impact of IFRS accounting impacts on the pre-IPO Golden Grove partnership structure, adjusted NPAT of AUD 56 million was lower than the prior period by AUD 27 million, reflecting the impact of unrealized losses on derivative financial instruments and foreign exchange.
This is a reversal on the prior period, which recorded gains on both those items during 2020. Turning to slide 9, which sets out our net debt for 29Metals. 29Metals finished the year with a low net drawn debt balance of approximately AUD 3.5 million, a reduction on the prior period balance of AUD 113 million. During the year, 29Metals completed a refinance of the Golden Grove debt facilities with new group facilities, providing greater headroom at a lower cost of funding. Cash and equivalents of AUD 197 million means we are well-positioned to reinvest in growth opportunities in our portfolio. During 2021, a provision of AUD 26 million was made for stamp duty in connection with the reverse acquisition of Golden Grove. This amount remains outstanding and is subject to confirmation by the WA revenue authorities.
Turning to slide 10, we outlined the historical hedging arrangements in place as at 31 December 2021. In summary, 7,200 tons of copper were settled over the period January to September 2022. This had a mark-to-market liability of approximately AUD 31 million as of 31 December 2021. Beyond September, 29Metals is completely unhedged to copper. Golden Grove has 44,000 ounces of gold hedged over the period to 2025, with a mark-to-market asset value of AUD 1.5 million as of 31 December 2021. 29Metals has no other commodity hedging in place. Turning to slide 12, which summarizes 29Metals' pro forma results for 2021, shown against the prospective pro forma forecast for the same period.
On a pro forma basis, revenues of AUD 710 million were supported by higher commodity prices and higher copper production for the period, reflecting strong production results in Capricorn Copper, offset by lower byproduct production from Golden Grove. 2021 EBITDA of AUD 254 million exceeded pro forma forecast by AUD 33 million, with revenues partially offset by higher costs and includes the impact of lease accounting of AUD 27 million for the year. 2021 NPAT was AUD 10 million lower than pro forma forecast, reflecting unrealized foreign exchange losses, unrealized losses on derivative instruments and higher net interest costs relative to the pro forma forecast. Turning to slide 13, we set out the commodity mix for revenues in 2021.
This shows that copper was the dominant, commodity for 29Metals in 2021, accounted for 65% of revenues, assisted by higher copper prices for the year and a higher relative share of production, particularly driven by the strong performance of Capricorn Copper in the second half of 2021. Turning over to slide 14, the results reflected in the segment outcomes. Capricorn Copper exceeded pro forma EBITDA forecast by AUD 36 million, more than offsetting a weaker Golden Grove result, which was AUD 7 million lower than forecast. On slide 15, we step through the EBITDA bridge, taking pro forma actual EBITDA outcomes to the pro forma prospectus forecast. The result was supported by higher Australian dollar metal prices than forecast in 2021, partially offset by higher operating costs, including realization costs such as royalties.
A buildup in inventory over the year also improved cost outcomes, reflecting concentrate and ROM stockpiles building up by year-end. The result also included an AUD 7 million realized gain on foreign exchange from the refinancing of the Golden Grove asset level facilities during the year. Turning now to slide 16, where we set out our guidance for next year, including operating cost guidance, which was released with our December quarter report. In addition to this guidance, we also provide today guidance on depreciation and amortization for 2022, which we expect to be between AUD 135 million and AUD 155 million, reflecting full-year outcomes and purchase price accounting post-completion of the various acquisitions to form the 29Metals group.
On a net basis, we do not expect to be in a tax payable position for 2022 following the outcomes of the IPO and in particular, the entry of Golden Grove into the 29Metals tax consolidated group. Thank you everyone for listening. I'll now hand back to Peter Albert to wrap up.
Oh, thanks, Peter. I know today is a financial results presentation, but I'll spend a couple of minutes just talking about our pipeline, our growth opportunity. Slide 19, before we move to Q&A. Slide 19 talks to the vision and strategy that we articulated in the prospectus, i.e., to execute and deliver on our plans. As you can see from this slide, we've achieved a number of significant successes in 2021, along with the financial results, of course, reported today. This slide also talks to our approach to growth via our existing pipeline of organic growth opportunities. If we go to slide 20, at Golden Grove in slide 20, there's a cross-section there in slide 20. Xantho Extended is a very rich ore body there under the Gossan Hill mine.
We're mining from this area now, although the true value of this ore body will be delivered progressively over a number of years to come. Really exciting ore body we've got there. Gossan Valley on this slide, of course, we've talked about this a few times. The work completed to date gives us confidence that it will become a third mining front at Golden Grove, and we see additional opportunities to optimize Gossan Valley and looking at how to integrate it with the other opportunities we have, such as, of course, at Cervantes. That optimization work is currently underway. The Cervantes results, of course, and Cervantes sitting there under the Scuddles mining front have been outstanding and continue to be outstanding. We're working on scoping studies today, and we'll be assessing the optimal outcomes for the business in coming months.
Really at Golden Grove, we are blessed with those options, and we're hoping to make some decisions in the second half of this year. Slide 21, at Capricorn, of course, at the three mining fronts, we're testing depth extensions at Mammoth, Greenstone, and at Esperanza South. On our 1,800 km² tenement package, the regional targets that we'll be focusing on there this year, at Grey Ghost and Eagle's Nest in that, in one of those tenement packages you can see in the bottom left-hand corner there. At Red Hill, where we've commenced work, the first ground exploration work there for a number of years.
At the conclusion of the current season, we would expect to have a greater understanding of the potential at Red Hill, which will inform our future drilling programs. Very briefly, just to recap on our growth opportunities. Now, Aman, I'll hand back to you, and I think we can go to questions and answers.
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 speaker phone, please pick up the handset to ask your question. Your first question comes from Rahul Anand from Morgan Stanley. Please go ahead.
Oh, hi, Peter and team. Thank you very much for the opportunity. Look, Peter, perhaps if you continue the conversation there in terms of growth, I just wanted to touch on two things, if I may. Scuddles Extended, you said the ore body gets exciting as we go, and you know, absolutely the zinc grades do get better. But in terms of scheduling, when do we expect the crux of that to start hitting the production numbers, especially in light of the paste plant? That's the first one.
Thanks, Rahul. If I may, I'll hand over to Ed Cooney, the COO. He can handle that question, Rahul. Thank you.
Yeah. Morning, Rahul. In terms of the paste plant, I think we had advised expected commissioning sort of later in the Q2 this year. That enables a higher zinc contribution from Golden Grove in the second half. Further out, you know, progressively, the overall tons contributed by Scuddles Extended increases year-over-year over the coming sort of 4-5-year horizon.
Okay. In terms of the material contributions going into, let's say, calendar year 2023, is there a proportion as such that you can provide, or how should we think about the grade uplift, perhaps?
Yeah. We probably haven't disclosed that far out, Rahul, at this point in time, with some sort of life of mine activities ongoing as we speak, c ertainly increasing contribution each year from Capricorn Copper.
Okay. Sure. Look, the next one was about Gossan Valley perhaps being the third front. I also wanted to perhaps touch upon Cervantes. W hat I wanna get my head around is basically could this be a four mining front ore body, or could this basically be only a three front where Cervantes perhaps starts earlier than Gossan Valley, given the success that you've had in your exploration program? How are you thinking about it internally in terms of your growth options, and how do you view whether it's a four front or a three front or whether Cervantes comes before Gossan Valley or not?
Thanks, Rahul, for that question. A little bit early. That's perhaps I didn't make it clear enough. That's what we're doing at the moment in terms of understanding the best way to optimize these opportunities that we have. I don't have the answer to that question right now, except to say we've got opportunities and how it plays out, we'll see over the coming months. Having both Cervantes and Gossan Valley as options or opportunities is an enviable place to be. I can't really answer that question right now. A little early for us, Rahul.
That makes sense. Okay, just one quick follow-up there then, perhaps. In terms of the Scuddles hoist, what type of tonnages can it max out at?
We've sort of been able to achieve about sort of 2,500 tons per day maximum out of the hoist. That's been reinstated during 2021 and performing pretty well at the moment.
Okay, perfect. Look, I'll let someone else ask the question now. Thank you.
Thank you. Your next question comes from Matt Greene from Credit Suisse. Go ahead.
Hey, good morning, gents. Congratulations on your first results. My first one's just on capital management. A s we move into 2022, what you're thinking is potentially on introducing a dividend policy.
The dividend, is it?
Yeah.
Thanks, Matt. Thank you for that. W hat we've said in the release here, it's let me just elaborate a little if I may. Of course, as we stated in the prospectus last year, that we didn't anticipate and that we would be paying a dividend for the year 2021. Of course, last year, very positive, very good results. A good cash outcome, of course. That's a great position to be in. Of course, the very low gearing position gives us opportunities and options as well. Subject to sustained performance this year and sustained prices, we should be in a pretty good position going through the year.
As indicated here in the announcement, the board intends to consider at the half year whether a dividend outcome is the right result for the company and the shareholders. It's a work in progress, very much front of mind, Matt. That's probably hopefully a little bit of color to what's in that statement there.
Thanks, Peter. I guess just on the growth theme, you were reported in the media looking at some opportunities out there. Can I ask where would you know, if the right opportunity were passed to you, where would you feel comfortable pushing your leverage and gearing to? Do you have a sort of, I guess, a sweet spot in terms of potential size of an acquisition?
I don't think we've considered that in the context of things. I think that reflects our position of being very much focused on, internal growth options. I think it's very much we are opportunistic in the inorganic space, Matt. We'll look at, first of all, an opportunity has to make sense for the company and add value for shareholders. I say what the right gearing is for any future acquisition is, it's clearly something that will be assessed as each individual opportunity presents itself, not something that we've got a prescribed sort of leverage function for.
Got it. That's fine. Thanks. I guess just on tax, you mentioned the stamp duty there. Appreciate that the timing is somewhat out of your control, but do you have a rough sort of expectation of when you will pay this? T hen are there any tax catch-up payments expected this calendar year?
Starting with the second one first, there's no tax catch-up payments. In fact, when you get a chance to go through the accounts, you'll see there's an income tax receivable, yeah, actually in our accounts. In terms of the timing of the stamp duty payment, look frankly, we thought we would have paid this last year. Our understanding is that you know the various government authorities there are short staffed like many other businesses in that state. We do expect to pay it in the March quarter, but we have expected it to be paid last year previously. It is a little delayed there. Yeah, we wait and see.
Yeah, that's great. Appreciate it. Look, lastly, just given the statutory accounts, a bit tricky to get this right. Can you just help me on you mentioned a ROM build up at the end of the year, but your inventory is at about AUD 76 million. How should we be thinking about that number, I guess on a go forward basis?
The sort of stockpile movements number you're referring to there, Matt?
Yeah, on a working cap, just on the inventory levels here, how should we be thinking about that?
Yeah, look, I mean.
How much-
It is a difficult thing to forecast. A s Peter mentioned in the at the top there we do have you know lumpy flows from time to time. It's not one that's easy to give you know strong guidance on as to how that moves. Look, we try and obviously you know keep those stockpile buildups as low as possible. We try and get sales out as quickly as you can, but we are impacted by you know the vagaries of shipping and timing of certain things.
Look, it's not one that it's easy to give firm guidance on, other than to say that we obviously try and keep the sort of the buildup of inventory as low as possible.
Sure. Okay. That's great. That's it for me. Thanks very much, gents.
Thanks, Matt.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Once again, if you wish to ask a question, please press star one on your telephone.
Okay, Aman, if there's no further questions.
We have the next question.
Oh, okay.
Yeah. I'm sorry. Just one question. Thank you.
That's all right.
The next question is from Hayden Bairstow from Macquarie. Please go ahead.
Yeah, morning, guys. Just a question on the production outlook. I know this would have been indications of, it should be stronger based on the end of the second half of the year, just based on what we can see on grade profiles. Is there any sort of more color you can provide on that or sort of any key variability that we might need to think about in the sort of first half versus the second half? Thanks.
Probably only all that we've mentioned in the prior December quarter, I think, Hayden, in terms of copper outlook should be fairly consistent throughout the year. Certainly zinc with higher contribution from Golden Grove paste plant commissioning and delivering in the second half, that should see higher zinc production out of Golden Grove in the second half. Higher zinc. Zinc weighted to the end of the year. Apart from that, probably nothing else to add at this point, Hayden.
Okay, great. Just with the border opening obviously the being able to move the executives from some site to site has been impossible. What do you see as some potential advantages of being able to now finally freely travel between Cap and GG?
Yeah, looking forward to that, Hayden. Ed and I already booked our first tickets to get across to Golden Grove. In fact, we got up to Capricorn Copper a couple of weeks ago. Starting to move around from a, as you said, from a corporate perspective, which is great. We have a tremendous sort of communication link that is happening all the time between the two sites. Really good relationship. We're sharing of information that happens almost on a daily basis. We have had already a handful of people who have transitioned from one operation to the other.
Now what we'll be able to do is actually send people across to counterclockwise, so to speak, to each operation, and to share learnings on the ground, and to potentially transfer people as they wish and as a company wishes. I think that will build for us over the coming months. Great opportunities there and quite rightly, as you understand. A little frustrating to not have been able to do that to date. We're really looking forward to those sharing opportunities in a greater context than we've been able to achieve so far. So it is a great outcome as far as I'm concerned.
Okay, great. Just one last one. Just on the commodity prices are pretty decent levels. I s there much you can do in short-term mine plan adjustments to sort of take advantage and maybe get material outside of reserves that with an economic basis? Or is the mine plan fairly rigid to sort of this year?
We do constantly test that, Hayden, in terms of shorter-term engineering processes. We look to maximize metal and tons that are economic under current metal prices as we take each stope, obviously. We tend to do that day to day, week to week.
Okay, great. I'll leave it there. Thanks, guys.
Thank you. Our next question is a follow-up question from the line of Matt Greene from Credit Suisse. Please go ahead.
Hi. Thanks, gents. Just one last one from me on Gossan Valley. The study you completed, I appreciate you looking to optimize that. But are you able to give some color as to what made it unfavorable? I guess the economics potentially unfavorable. Was this really a cost push or were there any sort of technical challenges that arose when you were finalizing that study?
I'm sorry, Matt, but it's a little confusing there. We've never suggested it was unfavorable. Quite the opposite. It's definitely favorable, and what we've identified is opportunities to make it even more attractive. Then of course, Cervantes coming up close behind, we have to consider the best solution for the business, and the outcomes for shareholders. No suggestion whatsoever that there's anything unfavorable about it, quite the contrary.
Okay. Are you able to give us some color as to what sort of returns it stands at the moment? A ssuming that the optimization goes well, where that could go to?
Not at this stage, Matt. We haven't put that out in the results, so we couldn't be talking about that here today, I'm afraid. You know, what we have said is that the results supported what we had done in the pre-feasibility study, and that information I think was in the prospectus. That's as good a starting point as any, Matt.
That's great. Thanks for clarifying. Cheers.
Thank you. The next question comes from Michael Evans from Acova Capital. Please go ahead.
Good morning, gents. Thanks very much for your time. A quick one from me. On your headline results, you've got EBITDA of AUD 177 million and operating cash of AUD 75 million, the 75 million down from AUD 130 million last year. I noticed in the back there's some tax and some one-offs which sort of explain some of that. I assume there's some working capital in there. Can you just give us some more color on that operating cash side? It's just a bit lower than we expected. Should we expect any? I think you made the comment that you don't expect a tax liability generated this year or to pay any tax, but there was quite a significant tax item. Just trying to get a better feel for cash this year.
Yeah, sure. Thanks. It's on the cash result itself. You're right. There is a fair bit running through the accounts in terms of working capital changes this year, and in fact, I appreciate you haven't had a chance to absorb this, but when you look at the sort of reconciliation between the balance sheets in terms of those working capital items, you'll see that there was a fair bit of cash that went to address those matters. In fact, of course, the IPO was designed to raise funds in order to pay down debt and improve working capital in terms of the business in some respects.
The combination of that, plus the build up of the inventory, which on a year-to-year basis is in the order of sort of AUD 30 million swing there plus the one-off item transaction costs, they all did impact the cash generation as reported today. Just making sure in terms of that EBITDA number you mentioned, that is the statutory result. That's just the second half of Capricorn and Golden Grove for a full year basis. That's some of the key things there that do impact the cash movement. Your second question there on tax is correct.
One of the advantages of this transaction is that we do get the opportunity to reset the tax cost base of Golden Grove as that enters the 29Metals tax consolidated group. What you'll see in the accounts is a tax benefit rather than a tax expense coming through the accounts this year, roughly AUD 119 million. The depreciation of some of those amounts means we don't expect on a net basis to be paying tax this year.
There's about AUD 23 million in the account for cash out, tax out the door, but you don't expect that this year. Okay.
That's right.
Great.
Correct. Yeah.
Okay, thanks very much for that answer. Thank you.
Thank you. Our next question comes from Kate McCutcheon from Citi. Please go ahead.
Hi. Good morning, Peter. A quick one from me. With zinc prices where they are, have you thought about hedging some of that? Is that something you're able to do or something you've thought about?
We've certainly looked at it, Kate, and in fact we do consider that. The board does look at that from time to time. At this stage, I think we're pretty clear we're looking to provide exposure as much as we can to commodity prices. In fact, at the point of time we looked at it, everybody thought it was looking good, and then it went up. I think we are believers in the zinc price. We think it probably an underappreciated metal in terms of its outlook. Look, at this stage, I think we're pretty clear that we're not looking to hedge commodities.
That said, it is something that we will consider and review on a regular basis.
Yeah. Just to be clear, the strategy moving forward is to roll off all the hedges you've got and become unhedged in totality.
Yes. That's correct. I mean, just to expand, I mean clearly we will continue to assess that. In fact obviously as things change and evolve in the future , if there are requirements to put in hedging as a function of debt or anything else, then that's obviously something that we'll consider. But at this stage, that is the stated strategy, yes.
Yeah. Thanks for the color.
Thank you. There are no further questions at this time. I will now hand back to Mr. Albert for closing remarks.
Yeah, thanks, Aman, and thanks everybody for joining us today, and thanks for the good discussion and questions. I know it's a very busy time. Plenty of results coming out today. The recording of this webcast will be published on our webpage, so you can pick it up again there. 2021 was an incredible first year for 29Metals. The first half of the year was dedicated to getting the IPO away. No mean feat. One of the biggest mining IPOs in recent years. Post the IPO to deliver against our plans, where the operating environment got a whole lot tougher. COVID, inflation, extended border closures, which we've talked about, operating the business from behind our computer screens.
We did it, and the teams across the whole business performed extremely well at all of our operations and offices around the country. Our shareholders and investors, thank you for your continued support and recognizing that we at 29Metals, we have a winning formula. One of the aspects of our business which we have focused on significantly since listing is ESG. Just to touch on that briefly, we're currently completing our first sustainability report, which will be included in the annual report later this half. We also intend to present our roadmap to TCFD reporting, which will identify our ESG commitments and strategy over the next three years and beyond. We're now well into 2022, and we won't be resting on our laurels.
I have no doubt that 2022 will be another great year for us. Thank you once again for being part of the company and joining us here this morning. Back to you, Aman, and thank you very much.
Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you.