Earnings Call: Q1 2022

Oct 25, 2021

Slides

would now like to hand the conference over to Mr. Dan Clifford, Managing Director and CEO. Please go ahead. Thanks, Rachel. Good morning, everyone. I have Ian, Peter and Adam with me this morning as we step through our September quarterly performance. For ease of reference, we'll be referring to the presentation titled AMI Investor Presentation September 2021 Update and Outlook posted on the platform this morning. Just before we dive in, a couple of opening comments. I think for those who have listened or heard from myself or the team, we're not actually that renowned for the use of or the common use of words such as fantastic, stunning, excited. But I have to say, as we look through these results and what we've achieved, it's actually getting very difficult not to use those words. And it's a good problem to have for us. And I think just to make a start on these, if you could just move over to Slide 5. Performance, particularly our operating performance with some great results across sustainable development, production, especially DOGS and at a group level beating our Q1 gold forecast for the quarter. Moving through into exploration and it feels as a team, every time we put a hole in the moment, we're snapping back in our chairs with the success of the results we're getting from this program. And then on to our growth projects, where we're moving well beyond Blue Sky thinking and Arm Waving actually into execution now. So move on to Slide 7. With our performance to plan, it's fantastic to see the momentum in our sustainability performance with solid and repeated gains across both recordable injuries and reportable environmental incidences. Move over to Slide 8. Our run rate put us spot on track for this year as we progress through, with goal ahead of the September quarter, as I mentioned earlier, and our full year guidance across the board being reaffirmed as a business. So I'll hand over to you, Peter. Thanks, Dan, and I'll talk to Slide 9 initially. As the charts on the right of the slide show, we delivered a strong result for the September quarter with higher gold production underpinned by really good performance out of the DOGS operation. Our zinc yield output was supported by higher grades at Peak and Heron, and we processed more lead zinc tons in this quarter through the Peak concentrator, which contributed to that zinc output. At Peak, we put in more tons for the concentrator and we're in 1 lead zinc ore campaign and 1 copper ore campaign. In this quarter, there was less copper ore processed and that led to the lower copper metal production quarter on quarter. We did see some exceptional lead zinc grades and high gold grades come through from the Kairos and Kronos mining areas and that contributed to the strong metal production and lower all in sustaining cost from peak. Over at Hera, our stoping occurred in areas where the grades were above the life of mine reserve grades in the case of 50% for base metals. These higher grades offset the lower processing tonnage, which was impacted by 2 factors. Firstly, ore supply was mine constrained for a period as we encountered poor than expected rock mass conditions that delayed stope access, particularly in a portion of the North Platte area. And secondly, towards the end of the quarter, the process plant was bottlenecked at the concentrate filter with daily base metal grades of up to 20% lead zinc being treated. These very high base metal grades will continue to restrict mill feed tonnage in the current quarter, but obviously support very strong metal production. At Harrah, we also concluded a competitive tender process for both the Harrah and Federation mining contracts with Redpath Australia selected for both work programs. The new Harrah mining contract will commence in January with the Federation exploration decline development planned for later in 2022. Moving to Slide 10, which goes into some more detail around Dargs performance. I think it's fair to say that the Dargs mine delivered to expectations in the September quarter. The feed grade, the mined ore tonnage, backfill placement and processing volumes were at planned levels and contributed to record quarterly mill throughput of 91,000 tons and 10,800 ounces of gold production. The feed grade of 3.9 grams per ton gold was 63% higher than the prior quarter as the mill treated higher grade stope ore that was deferred from the June quarter. Also of note was the proportion of development ore on the mill feed, which fell from 46% to 30% on a quarter to quarter basis. Looking forward to DOGS, our mine plan continues to show that gold grade and metal production will further increase over the life of the asset as stoping areas access higher grade at depth. I'll now hand over to Ian, who will discuss our group financial performance for the quarter. Thanks, Peter. Another good quarter as Aurelia attracts to its FY 2022 operating guidance. Aurelia finished the September quarter with $66,000,000 of cash on hand and is well positioned to continue to fund its exploration program and its Federation and Great Tow Bar Growth Projects. At DAGS, due to timing of concentrate sales and shipments, there was an increase in gold concentrate at the end of the quarter. The increase in working capital impacted cash generation during the quarter. The market value of the concentrate on hand at the end of the quarter was $6,800,000 In the December quarter, DAGS is transitioning from bulk concentrate shipments to containerized shipping, which can improve cash flow, reduce costs and working capital. Aurelia made debt repayments of $4,100,000 relating to its term loan, which is scheduled to be fully repaid by September 23. Aurelia also cashed back $4,300,000 of its bank guarantees, which are used for environmental bonding. During the September quarter, Aurelia spent $2,100,000 on its Federation and Great CohBar growth projects, as well as $5,800,000 on its exploration program, which was focused on Federation, Kairos and Great CohBar. Adam will now provide an update on the outcomes of these programs. Thanks, Anne. Eurelia once again had an extremely successful quarter with respect to drilling and exploration with significant extensional results at all three of our operations. Referring to Slide 13 of the presentation, our recommencement of exploration at Great CohBar has produced immediate results with follow-up drilling beneath the current resources, delivering a spectacular intercept of 5.4% copper over 13 meters and the 2nd intercept of 2.6% copper over 37 meters, including 4.2% over 12 meters. Latest results leave high grade copper and gold mineralization completely open at depth with the next round of drilling to test the massive potential of this area. Moving to Slide 14, very strong copper has also been intercepted at Kairos in a new area immediately along strike to the north of the current development and stoping area. The grade tenor of a number of these intercepts is quite exciting, including 5.9% copper over 7 meters, 5% copper over 6 meters and a 43 meter intercept of 2.4% copper, including 5.7% over 6 meters. A number of the high grade copper intercepts occur close to established and planned underground development offering a convenient platform to access this new mineralization. The copper mineralization remains open up and down dip and a long strike in both directions and immediately and we are planning immediate follow-up drilling. Moving to Slide 15 of the presentation. Last quarter saw a record 17,000 meters drilled at Federation as we move the project closer to operating status. Year results from the program continue to see the Tier 1 grade profile of Federation confirmed and extended with the potential emergence of a new high grade gold corridor on the southwestern boundary of the deposit. This includes a new intercept of 9.7 grams per tonne gold over 23 meters, including 42 grams per tonne over 5 meters. Further, coarse grain gold has also been noted in other drilling from this area with full lab assays still pending. To further highlight the incredible grade tenor at Federation, an intercept released from the central part of the deposit in June this year of 70 meters at 18% lessening still represents on a length weighted basis the best base metal intercept released by any ASX listed company this year. These results are likely to provide strong upside to the resource profile currently being examined as part of the feasibility study. It is also worth reflecting that on the current trajectory of the project and subject to necessary approvals, we could see early production from Federation a little over 3.5 years from the point of discovery, an amazing feat considering industry norms of 7 to 12 years. Intensive drilling is continuing into this quarter with our geologists continuing to push the extent of the known deposit in multiple areas. Finally, moving to the Dyerks Mine on Slide 16. This quarter saw the receipt of the final results from the Phase 1 drilling program, which was the first substantive exploration of the project since 2017. Of particular significance was an intercept of 4.2 grams per tonne gold over nearly 10 meters that represents the deepest ore grade gold mineralization identified at Diodes to date, some 80 meters down plunge and to the east of the current main lobe resource. Combined with previous results announced earlier in the year, this area has significant potential to expand its positive depth. The company has already commenced the Phase 2 drilling program at sites with an underground rig now drilling the lower part of the Main and Ben Angelo. Refinement of our geological and structural understanding gained from the Phase 1 program along with detailed underground mapping and sampling, has contributed strongly to the design of the Phase 2 drilling program. This includes the identification of numerous near mine targets, priority targets along Strideford dives to the east and to the west and nearby regional targets with surface drilling to commence during this quarter. Back over to you, Dan. Thanks. Just moving over to Slides 18, 19 and 20, move through these. So Pete, just to summarize, KAROS is on the EIS is ahead of plan and the drilling that we're achieving and the results we're achieving from Great CohBar more recently just go straight over the top and right in conjunction addition to the current PFS that we're running. Moving over to the Harrah Federation, it's boots on ground. You'll note in that photo in the background all the peers into the camp expansion. Those modules are all in place now. The enabling works for the projects across the civils and the decline for the Federation development or operations development are well and truly on track for the business. At DOGS, as Adam mentioned, Stage 2 exploration drilling is now in place ahead of schedule and we're front end significantly front end loading the approvals process for the extension of this operation. So if we just take a step back, we've just seen heard from the team through 3 key areas. It's fantastic to see the performance to plan. This is driving certainty in our operating platform, followed with the stunning results from our exploration continuing to deliver in the business. There's a real balance that shifted here with our exploration program. These aren't just intercepts now. These are all material life extensions to operations and at high grade. And as Adam mentioned, some of these high grades, they're the best in the market at the moment. We're well and truly moving beyond just this intercept methodology. And then for our projects, it's exciting to see we actually got people on the ground now executing on these projects with really clear line of sight to value generational creation for our shareholders. So that being said, I think Rachel, it's a good time now to move into Q and A, please. Thank Your first question comes from Dylan Kelly with Autominant. Please go ahead. Good morning, team. 2 for me. Starting off with Doug's, great to see the run rate ratchet up pretty quickly there. Relative to the cap that you've got on production and what you produced during this quarter, how should we think about how you manage production from this point onwards? Good morning, Dylan. It's Peter here. The CapEx of 355,000 tons per annum applies over a calendar year. So clearly, we want to maximize and use that capacity over each calendar year. And you'll see where we are year to date from the previous quarterlies that we're on track to do that. Okay, fair enough. Just in terms of the concentrate sales, you mentioned trying to tighten up the working capital by using, was it containers versus what is it, just a bulk at the moment? How can that tighten things up in the future? Just to give us some clarification on that. Okay. Thanks, Dylan. It's Ian. We currently with our bulk shipments, they go around roughly 5,000 ton increments. When we go to containerized freight, that will be reduced down to 1,000 to 2,000 lots. So we'll help have more regular shipments. That's how we'll reduce our working capital and get better cash flow. Okay. That's nice and clear. Just finally on tariffs. Dylan, it's Dan. Just wanted to add to that. I mean, what you can clearly see between the assets is you look at the deltas between gold produced and gold sold. You can see the peak and here are on a vast majority of time anyway will sell pretty close to what they produce. At DARS, it's not the case. You can see because of that buildup to get to a decent number of trains and the ship load that can sit there towards the end of the quarter. And you can see the delta there between those tons produced sorry, ounces produced and ounces sold being close to 3,000. By going to the containerized, we'll be moving stock off for sale on a lot more frequent basis rather than waiting for it to build up, and that will stop these movements between building inventory and sold. Okay. That's quite clear. Just finally on Hera. I didn't quite understand the pullback in tons and have those problems been solved. Can you just give us a bit of detail around that? And how much longer you could perhaps be tapping such high grades relative to the resource model in its current state? Dylan, it's Peter again. So I mentioned in the 1st part of the quarter that we had some issues getting into stopes in the North Platte, which we've now resolved, and we had some remediation work to do around existing development lower down in the mine, which would now resolve as well. So we're getting back into consistent ore delivery. And in fact, for the quarter, you'll see we actually produce more tons mined than milled. In the second half of the quarter, because we didn't have the blending capacity available, we were feeding much higher base metal grades into the circuit and that thoroughly bottlenecked the process plant. Going forward, we expect in the current quarter to see those higher grades continue, but back off post that time. Having said that, I'm always happy to have better than expected grades through the concentrator. I can imagine. Does this open up the opportunity to perhaps start tracking some more north to peak to handle that high grade? Or is that still something that's a little bit down the line? That's a bit further down the line, Dylan, predominantly on the basis of consenting. Okay, fair enough. I'll circle back with more. Thanks, James. Thank you. Your next question comes from Andrew Bowler with Macquarie. Please go ahead. Yes, gents. Obviously, the vaccine rollout in New South Wales has been pretty handy today. I was just wondering the assumptions you made around your guidance with respect to restrictions and whatnot. Obviously, there's a little bit more free movement these days or whether or not your guidance was predicated on a pretty insular model at your sites? I'll take that one, Andrew. It's Dan. Well, in fact, the reaffirmation of our guidance probably does have a fair bit to do with the situation with COVID. And we're 3 months into the year. We're seeing restrictions easing, and I'll come back to that point following this comment. Our view is once we start seeing restrictions easing, what we typically see at these inflection points of where there's a change is that scarcity of labor comes on again. And every time we get a change between ourselves and our major contract partners, we can settle things down over a period of time. But when we start seeing these changes or inflections and the gates open for want of a better term, we believe we're of the view that labor scarcity or shortage will continue during when this period of opening up restrictions happen. So we are quite cautious about what that means for us. Additionally, in terms of the protocols we're putting in place, I think we mentioned this at the last quarterly, Aurelia is in a position of all three of its operating assets being in regional New South Wales. We're clearly still seeing a gap between the state average and the regional averages, particularly by separate LGAs. And as a result of that, our protocols are not changing. We are holding on to significant, I guess, protocols in terms of mitigating or eliminating the chances of COVID hitting our sites. And with that, it will still be some of the ongoing inefficiencies as it relates in relation to those restrictions. We'll keep an eye on that. But at this point in time, our guidance has been the reaffirmation of the guidance has taken into account COVID. And I think to a degree, the fact that we're still 3 months into a 12 month guidance period. Susan, in terms of, I guess, vaccination rates, I mean, obviously, it's well reported, but as you mentioned, the vaccination rates in regional New South Wales aren't quite as high as metro areas. I mean, obviously, just the minerals industry in Western Australia has mandated vaccines for staff. Is that something that New South Wales is looking at? Or is that, I guess, a bit more pro choice over there? More pro choice. The minerals industry or resources industry didn't make the cut in terms of the state government's directions on mandatory vaccination. I think like many producers in New South Wales, we're watching that incredibly closely as to what that means for us. And therefore, from our perspective, when we are aware there is a gap from generally in our LGAs to the state average, we will be holding on to these protocols to ensure that we minimize the chance of the outbreak on the site. So it's actually we talk about climate change being fast moving. COVID is exactly that as well for us. We're confident in the controls, but we are probably being, I would say, overly cautious until we get a better line of sight at an individual level on where people are in terms of status. And I think like many an operator in the state, we're probably on the fence when it comes to what our views are on mandatory vaccination versus not. And we've made a decision to encourage, provide additional vaccination opportunities for people on our site and within our community until we get a better fix on what those numbers look like and then we reassess that decision pretty much on a probably a 2 weekly to a monthly basis. And just to expand on that a bit further, I think people can see that vaccination rates are appearing to come off a bit. What that's enabled us to do as a business is get pop up clinics actually on our sites now. So not just for the benefit of all our people, but also open to the communities, particularly in and around the Nimaje Hera area and hopefully as we go further in the peak and Coba area. And that's just something we can do for the community, but it also makes it a lot easier for our people to get vaccinated. No worries. Thanks very much for that, guys. There are no further questions at this time. I'll now hand back to Mr. Clifford for closing remarks. Thanks, Rachel. So just in closing, I think the terminology I want to use here is, I think you're going to I think you have seen the fact that we're around the corner of this complexity, particularly with our operations performance and the underpinning strategy. It's really for us now, it's simple. It's the highest grade ores prioritized to the mills. It's our cost per tonne for our all in sustaining costs, higher throughput for us just equals cash flow. Now we talk about complex ore bodies. That's management's job to control that complexity. That's drill out model plan, plan, plan, execute. So for us, our role is to turn this as simple as we can for our investors. It's durable and you can see from the results we're getting in exploration, just the sheer opportunity to be extending our mine lives here really is incredibly valuable. And I think also the commodity mix for us with gold dominant, high grade base metals and copper now really go to the heart of what our strategy is. So just think about a bit of a recap across the 3 areas we covered and really call it out for what it is. We reset this paradigm of complexity with simplicity through our operating performance, supercharged the IRRs with the exploration and development and the opportunities that sit in front of us are tested near term and tangible across the spread of precious and base metals. As we get around that corner, I think you're probably sensing there's this I thought about this a better perhaps a better word, but either way, an infectious sense of excitement with the business underpinned by absolute confidence, conviction for what the team is driving at here and putting us and our investors in a really compelling position with the platform that's laid out. We're looking forward to the 1 on ones post this presentation over the course of this week and next. And also importantly, just as a reminder to everyone, the Oralia AGM to be held on the 4th November. And with that, thank you very much everyone, and we will talk later on in the quarter. Thank you.