Earnings Call: Q3 2021

Apr 28, 2021

Earnings release

I would now like to hand the conference over to Mr. Dan Clifford, Managing Director. Please go ahead. Thanks, Amanda, and good morning to everyone. Thank you for your time this morning. I have with me Peter Trout, Ian Poole and Adam MacKinnon as well. It's been a very active quarter for the company, to say the least, with an updated federation resource. We welcome Bob Bassi and Helen Gillies as new nonexecutive directors to the Board, and we also had the unfortunate retirement of Cobb Johnson, our Chairman, and the subsequent appointment of Susie Colette as our Interim Chair. Added to this was the completion of the Federation scoping study, significant exploration updates across the company, the integration of DARD's operation into the portfolio and strong output in performance as a group. All in all, giving us a quarter of 36,000 ounces at approximately $1400 a tonne and a year to date position of 80,000 ounces of gold, approximately 4,000 tons of copper and 18,500 tonnes each of lead and zinc, resulting in an all in sustaining cost on a year to date basis, approximately $1200 a tonne. This has put us in a well put us well on track for the full year guidance of 100,000 to 113,000 tonnes at $14.25 to $15.75 all in sustaining costs. This was also underpinned with a 42 percent reduction in our total recordable injury frequency rate and a cash position of $77,000,000 post all the acquisition costs through the quarter. And noting here significant builds in door, con and receivables at the end of the quarter that won't be seen in this cash position. Liam will expand and quantify on that later. There are, though, 2 areas that are firmly on our performance radar within the quarter. DAS in the quarter has been below our expectations by approximately 1200 to 1500 ounces, the primary contributor being development ore dilution and lower grades during February. This is caused by a lack of infill drilling, and that has been corrected with the infill drilling program that the company put into place during the handover of the business. And also the slow turnaround of grade control assays, and that will also be corrected during the course of this coming quarter. In essence, with development forming 50% of the mill feed during that month and the lower grades, With the sparse information, those lower grade materials actually went through the mill being the significant contributor to that month. March performed well, though, once we had better placement of development and better understanding with the information most recently gained out of the infill drilling. Stokes reconciled to plan throughout the quarter. And particularly in March, we had an impressive performance with 30,000 tonnes mined at 4.2 grams a tonne. If I ignore inventory movements or inventory build within that month, particularly in March, that equates to roughly $12.50 an ounce all in sustaining cost for production. The second area in particular for us is peak and our Kairos progress. Typical ground conditions, namely Tauch Shears, have resulted in 2 unsuccessful attempts for the escape way pilot hole. All our other infrastructure and development is in place. Works are progressing on the escape way, with this being the final milestone being required until stoping can commence later in this quarter. We're in a very strong position for delivery of the full year and the continued execution of our strategy. And with that, I'll hand over to Peter to run through the operations and projects. Thank you, Dan. Our 3 operations delivered a 120% increase in quarterly gold production, and that was driven by higher contributions from the peak and turbines supplemented by the first full quarter's production from the Dags mine. At Peak, our metal production reflected mill feed from ore sources having higher gold, lower base metal grades. This contributed to a 60% increase in quarterly gold production despite a 23% reduction in all processed. The processing plant continues to be constrained by underground mine production, which in turn has been impacted by labor shortages and difficult ground conditions in some areas. Establishment of the high grade Kairos mining area remains a focus of our underground activities, and it's significant to note that 11,000 tonnes of Kairos development ore was processed during the quarter, and that represents approximately 20% of the planned FY 2021 mill feed from the Kairos zone. Moving to Hera, the operation drove another consistent quarter of mining and processing activities. A doubling of the gold grade led to a corresponding increase in quarterly gold production to about 11,500 ounces. Modification to the stoping sequence brought forward better gold grades to the March quarter while deferring higher base metal grades from the North Pod into the June quarter. Gold production also benefited from a favorable gold grade reconciliation from stoping in the Far West Deep Zone. At DUGS, the operation was successfully integrated into our operating portfolio following the change of ownership in mid December. The underground mine ramp up is progressing very well and remains on track to steady state ore production of 30,000 tonnes per month by the end of the June quarter. Quarterly gold production of just short of 9,000 ounces was below expectation due to the February result shown in figure 5 and as explained by Dan. Looking at our growth projects, the Federation scoping study was completed in the March quarter, offering very encouraging results. The study looked at a range of project configurations, and these converged upon a preferred scope of a new underground mine at the Federation site and leveraging the established infrastructure at Hera for ore treatment through either a new or modified process plan. The scoping study had the benefit of our operating experience at Hera. And in turn, this provided high confidence in the underground mine design, infrastructure requirements and operating costs, and that confidence supported the decision to proceed directly to a feasibility study. We expect that study to be completed by the middle of next calendar year. We're also pursuing regulatory approvals that will allow us to further evaluate the Federation deposit using an underground exploration decline for drilling and collection of a box sample. Work to support the environmental impact statement for the full project configuration is also progressing in parallel. At Great Coban, the pre feasibility study is continuing with samples from the current drill campaign being used to prepare an updated mineral resource estimate and to inform geotechnical, mine design and metallurgical activities. And this program is expected to be completed late this calendar year. I'll now hand over to Ian Poole, who will discuss our quarterly financial results. Thanks, Peter. The March quarter's all in sustaining costs were $14.29 an ounce, and year to date, all in sustaining costs were $11.99 per ounce. Its cost performance has been really a well placed to meet its full year guidance of all in sustaining costs of between $14.25 dollars and $15.75 per ounce. On the 31st March, there was $77,000,000 cash on hand, which included a $6,000,000 build of working capital due to the timing of debtors. Arbelia also held higher than typical levels of dore and base metal and gold concentrates due to the timing of shipments. This finished product was valued at the cost of 21,000,000 dollars Working capital is expected to be released in the June quarter. The key drivers impacting the reduction of cash in the June quarter were cash flow from operations after sustaining capital of 21,000,000 dollars including the continued ramp up of DAGs continued investment in growth capital of $11,000,000 increased payments of tax, which were $7,000,000 based on forecast FY 'twenty two profits the initial term loan repayment and cash backing and bonding of $8,000,000 which relates to the financing arrangements put in place for the Diodes acquisition and stamp duty payments of $30,000,000 which was flagged at the last quarterly and led to the Diodes acquisition. During the quarter, Avelia maintained its hedge book with 53,000 ounces of gold hedged with the company's financials for the next 12 months at an average floor price of $24.37 per ounce. I'd now like to hand over to Adam. Thanks, Anne. So this quarter has again seen extensive surface and underground drilling across all of the company's sites. As reported to the market, in March, the first results from Oralia's Phase 1 drilling program at the Darges mine produced very strong initial results, including 36 meters at 5.4 grams per tonne gold, 14 meters at 8.8 grams per tonne, 26 meters at 4.8 grams per tonne and 15 meters at 7.8 grams per tonne gold. The results from the plumb load in the eastern part of the mine were particularly encouraging, demonstrating high grade mineralization is open at depth and a long strike. Through the quarter, the company has had 2 surface rigs and an underground rig operating at DOGS, aimed at increasing confidence in the existing resources and reserves and targeting extensions along strike. Results of the deeper extension of drilling are still pending and will be released late in the current quarter. Moving to the Peak Mine and the most recent results from the lower portion of Kairos continue to demonstrate the outstanding high grade potential of the deposit. New in sets reported in March included 13 meters of 50.7 grams per tonne gold and 16% lead zinc and 16.5meters at 6 grams per tonne gold and 14%ledzinc amongst an array of other very strong intercepts. The latest drilling is extended deposit along Strive to the North and the high grade gold lead zinc mineralization remains open at depth. We're also highly encouraged by the presence of broad zones at copper mineralization encountered immediately to the east of the Kairos deposit, including intercepts of 38 meters at 2.3 percent copper and 46 meters at 1.6 percent copper. Further work will evaluate the potential for this area to host a potentially mine well copper means. And continuing with the copper theme, Aurelia also reported its first significant drilling into their Grakova deposit following the acquisition of the Peak mines in 2018. Cracabar has a current indicated and inferred resource of 4,100,000 tonnes at 2.2 percent copper and 0.8 grams per tonne gold with the latest drilling aimed at increasing the confidence in the grade and tonnage estimates and providing samples for additional metallurgical and geotechnical test work. Encouraging intercepts from this program included 60.5 meters at 2.2 percent copper and 0.3 grams per tonne gold with a higher grade portion in this hole of 12 meters at 4.4 percent copper and 0.6 grams per tonne gold and another intercept of 9.3 meters at 3.5 percent copper and 1.9 grams per tonne gold. The program also intercepted some strong mineralization in the Western led zinc lands at Great Covey, the best of which was 15 meters at 26% led zinc. Drilling is currently ongoing with the focus now shifting to potential resource extensions in the poorly drilled areas up and down dip of the high grade points of the Great Kaba resource. Thanks, Dan. Thanks, Adam. Just didn't wrap up. I think it's fair to say the combination of the 3 assets, incredibly value exploration, country and opportunities and federation that are keys in our strategy. In looking forward, it's about delivery of the full year, continued exploration at all three operations and federation feasibility studies targeting in the vicinity of 600,000 tonnes per annum throughput. And these priorities for the quarter, looking forward and into the year, firmly set our platform for returns growth from the business. And with that, I'd like to hand over to questions. Thanks, Amanda. Thank you. Your first question comes from Dylan Kelly from Ordinance. Please go ahead. Yes. Good morning, Tim, and congrats on a great result and what is one of the busiest quarters I think I've seen in terms of news flow. So I'll keep on coming back, but let's just start off with the scoping study for Fed. First of all, where is it? I read it and it doesn't seem to contain it's as if the whole thing's being sanitized by the regulator. What's happened there? And is this to do with the high amount of inferred material that was being modeled in the state that was trying to be released? Dylan, I'm sure you'll agree with me that the ASX has a number of key issues or protocols with the releasing of scoping studies. Throughout this exercise, the scoping study for us has been about informing us internally, particularly as to the boundaries for the EIS and environmental approvals and enable us to take it forward directly into feasibility. So there is a lot of there is a number of delicate issues in releasing the scoping study. And to be blunt about it, we don't need to. We don't need to release the scoping. So I think it's important for investors to understand time frame and where we're heading. I've just indicated where the feasibility is targeting in terms of throughput to the business. And with extensive drilling yet to go, a growing resource, future resource to reserve conversion. There's a fair bit of water to get under the bridge yet in terms of exact capital numbers for project valuations. Okay. Fair enough. So if this is internal and or a combination of not being able to release because of the amount of inferred material that was there in the first pass, does this mean you're going to be looking to provide like an update based on the revised resource model as it comes to pass? Or how do you think about in terms of milestones that we can expect to come out about it? I think the first milestone is the group resource and reserve report time for July this calendar year, of which, Federation and other exploration activities will make into there into a certain proportion. The key is that is the key milestone beyond that really is the completion of the feasibility study such that we go to final investment decision. And that we've indicated that during the course of the next financial year. Okay. Fair enough. So just turning to peak and the emissions that you've had there just with the egress. Can you just walk us through what's going on? I didn't quite understand what happened in relation to some of the talc shares that you're moving through. And if you could just talk to if that's the reason why, say, Rome was notably weaker for the period and development rates have come back? Good morning, Dylan. It's Peter here. I'll respond to your question. So the situation at Kairos is we have everything in place of ventilation, decline access and the upper and lower ore drives in the first stoping block. Where we've encountered challenges is putting a pilot hole down to establish a separate shaft within which we can install a ladder line that provides a second means of egress in an emergency and makes us compliant with the New South Wales Mining Regulations. We have had 2 unsuccessful attempts at putting that pilot hole down with a diamond drill rig. The first one was a steered hole. The second one was aimed between the interpretation of talc shears. In both cases, we encountered talc and simply couldn't pass through those zones with the diamond drill bits. We're now on the 3rd hole, which we're piloting with the raised bore bit. And that hole has reached design depths overnight. We're now going to survey that hole so we can steer the underground development to break through into the pilot hole, attach the reamer, excavate the raise and then install the latter way. So it's all going to plan in that regard. We do expect 1st oak production in June. The broader issues around the performance at peak and identified the development being less than planned was heavily impacted by labor. We're in a very challenging labor market right now, and we're filling that most acutely through the underground operations. We're working with the underground mining contractor to get manning back up to appropriate levels and support sustained development and production numbers in the mine plan. Okay, fair enough. I'll pass it on and I'll circle back. Thank Your next question comes from Michael Evans from Ocova Capital. Please go ahead. Good morning, gents. Thanks very much. I think it's following on from Dylan's question in some way. I'm just looking at your figure 3 in the announcement, which has got the peak throughput and cost per tonne. I appreciate there's moving parts. But how should we think about the average sort of cost per tonne going forward into FY 'twenty two? Since the throughput comes down to $120 a quarter, the costs seem to push out towards $300 a tonne. Is that sort of correlation no reason why that shouldn't change? And hence, if you get your annual throughput back closer up to, I don't know, 6 what is it, 650 or something? Is that the goal for FY 'twenty two, for argument's sake? And then AI on sustaining costs closer to 200 dollars I appreciate it will move around each quarter. But how should we think about that for the life of mine at stake? I'll take that one, Michael. It's Dan. We set we haven't given an indication of what LOM cost structures look like, but I will focus on FY 'twenty one guidance for peak. And the throughput ranges of for people are planned to be somewhere between 620,000,660,000 tons throughput through the mill for the year, at an all in sustaining cost of between $2.25 $2.50 a tonne sorry, not all in, cost per tonne of $2.25 to $2.50 odd a tonne. We're well on track for those. And on a year to date basis, we're sitting at about $2.25 a tonne for peak. And noting too that, that increase in volume to, call it, a midpoint of 640,000, 650,000 tons, the 20% improvement over the prior year in terms of throughput, of which was another 25% improvement over the FY 'nineteen. So you're right, as tons of go up, costs come down. We do we will see a bit of noise through the asset. But in going forward, we indicate well, the plan for us is to take peak up to capacity of the mill and with the polymetallic feed or multiple ore body feeds somewhere between sort of 700 in and around 750,000 tons to 800,000 tons a year is the objective over the coming years, and that will naturally bring down the cost per tonne. Okay. So that's a good answer. So over the coming years, you do expect that to come down? Because mainly driven by the economies of scale at the higher throughput despite the fact of lots of moving parts, I suppose, if there'll be more just thinking out loud now, but there'll be more sustaining across some use. We'll see developing its mine areas, etcetera. And Karas is quite deep, I understand as well. So that's good. Thanks, Ben. Ben. It moves around you're dead right, Michael. There is a lot of moving parts in the business. I think long term, we look at significantly building confidence in Great Cobalt. And once we get a bit further spread out with the operation, at the moment, our focus is primarily on Kairos and getting Kairos opened. There's 1,000,000 tonnes there at 7 odd grams a tonne sitting there, and I think that will grow. I think that's important for us. But in the medium to long term, it's having that mill jammed. And that's going to take a little bit of time and effort in terms of development and sustaining and growth capital to get it there, but that is the target. Yes. Okay. That's great. And just so I've got you on DAGs. At the beginning of the call, you mentioned there a couple of challenges which you're dealing with in terms of the additional dilution and development or I think did you stand into a slightly lower grade than you expected? Just so there's nothing you've seen in the experience in mining to date and the reconciliations taking into account adjusting for your more than expected dilution if that's the case, but nothing you've seen that suggests that the reserve grade, there's any issues with the reserve grade? No. No, there isn't. I think the it's quite we clearly knew in the acquisition that there hadn't been a drill hole or an underground infill hole put into the asset. Now that was our first lever we pulled, and that's been fundamentally about near term understanding of the mineralization and the nature of that mineralization and the tenure of that mineralization. Those infill results have done twofold for us. 1 has closed up our information spacing from probably 50 meters now to in the vicinity of sub-twenty meters in terms of hole spacings or core spacings. So that increases their knowledge and enables us to much better engineer the environment down there to make the most of that grade that we can see. That's the first thing. And then secondly, I think it's also fair to say that the the infield drilling, as a bare minimum, has only given us more and more confidence in the grade tenor within the asset. I think at this stage, having that information such that we can design and lay the mine out well and appropriately is key. No doubting that we will see different interpretations of the ore bodies if that drilling continues, but better to know it now. But in short, no, there isn't anything at this stage for us that gives us a concern on the overall average grade of the resource and reserve. No, that's great. It's good to see some drill rods come out of it. Thanks, Dan. Just one other point on it, Michael, if it's still there. I just want to reemphasize is that when we acquired the asset, we did acquire it with resource and reserve report from 2017. During our DD, we did trim that average grade to the asset down by 10% to get us to a range that rough range of 4.9% to 5.5%. That is the line in the sand for us in terms of where we need to get the asset. And we will rerun the resource and reserves report for the asset in the course of this calendar year. Your next question is a follow-up question from Dylan Kelly from Minute. Sorry guys, back again. Just can you just talk us through DOGS again in terms of some of the different modifications or changes you're trying to make on-site, Dan? Have you had much luck in terms of being able to install like an on-site laboratory yet to speed up turnaround times? How is development going? Any progress or any sort of updates in terms of how you're thinking about the permitting process for maybe expanding the current scope? Yes, just like a general update on that front. Yes. In terms of we talked about the infill drilling, and that was the first lever. The second lever, that's timely information for particularly development and grade control performance is the assaying, rapid assay turnaround. And we will be reducing assay turnaround now from a couple of weeks now down to a couple of days during the course of this month sorry, during the course of May. So that is effectively a combination of on-site and off-site work to bring that in, close it down, get much better control. So that initiative of having to build an on-site lab, we are hoping to avoid and reduce the capital costs of that and focus on external provider on quick turnaround. So that's going into place during May. So that's, I think, the final or the second, I should say, second lever in getting the engineered environment of that operation correct. Ongoing from that, I think you asked development performance. I would say, month on month, actually, during the quarter, the guys' team overperformed. And we're averaging in around 400 meters a month, which is good performance for the asset. And as Peter mentioned earlier, there's a couple of key numbers we have in our mines. That's 30,000 tons mined, 30,000 tons yield, which bear generally the capacity is under the consent, 5 grams a tonne, 4.9 to 5.5 grams a tonne and 400 meters of development to sustain that operating performance. And all those milestones have been hit. In fact, I'll go one step further when in leading to the second part of your question. Actually, during March, the milled volume or milled tons was actually closer to a 400,000 ton per year run rate. We typically milled over 30,000 tons in that particular month. So that's a great performance for the business. And I think it underlines part of their investment thesis that there's latent capacity within that mill up towards that 10% to 15% improvement over the 355%, which is what it's consented at. In terms of look forward in consenting, the key catalyst for us taking a clear view on what that consenting looks like in both mine life extension and capacity expansion will come after we get the results from the surface exploration holes, testing, depth and strike of both the main and the plums load, and we expect those results during the course of this financial year. And that then clearly informs the next steps in terms of a consent extension for the operation. Okay. That's quite clear. Adam, you were talking before about Great CohBar and some of the results there, which just look quite staggering, very, very interesting, particularly amidst Dan's clear strategy around being copper ready. How much of the drilling is extensional at this point and testing depth and trying to grow the resource? Or is this largely an infill exercise to date? Yes. Thanks, Dylan. Greg Trevor at the moment, we've basically completed our infill portion of that program, and we're now exclusively focused on extensional drilling. So for the last 2 months, maybe a little bit longer, we have been testing both updip and down dip. I think we've mentioned previously that there is quite a long turnaround time at the moment for assay results. So a majority of those results are actually still pending. And as Dan said, we'll update the market when we're able to later in the quarter. Your next question comes from Joshua Haynes from Rist Investments. Please go ahead. Thanks. Good day, everyone. Just wanted to understand a bit of just the manning issues at peak, particularly in the context that, I guess, you've effectively reconfirmed guidance. So are we expecting grades there to continue to offset the slower mill tons? Or are we expecting manning to improve? Joshua, it's Peter here. I'll respond to your question. We've already seen an improvement in filling vacant rolls in the underground workforce, and we're seeing that transform now through into improved physicals on the underground mine. We also resumed development in the new Cobar complex in March, and that's helping us opening up additional stoping areas and provide additional mill feed going into quarter 4 and also the next financial year. In conjunction with that, we've got multiple areas developed in the Peak Mine, and it's a matter of turning over those stopes to extract the ore backfill stopes and take the next one in the sequence. So certainly looking for a better set of physicals in the June quarter relative to the March quarter. Okay. That's good to hear. So I guess just in terms of and maybe I misinterpreted sort of previous comments, but certainly, grade was better than I had expected. So was that part of the mine plan? Or did you sort of prioritize high grade because the throughput is clearly a bit lower? It was a combination of where we were in the mine plan. And remembering it's polymetallic deposit in the previous quarter, we're mining for areas of higher base metal grades, lower gold grades. So I've transitioned through into some areas which have clearly much higher gold grades, Perseverance Deeps, case in point. But we did also benefit from some better than expected reconciliation results in areas. So a combination of where we were mining and favorable outperformance of what model for our grades. Okay. Great. Thanks for that. Thank you. We are showing no further questions at this time. I will now hand back to Dan for closing remarks. Pardon me, we do have a further question. Your next question comes from Bill Murray from W. Murray Superfund. Please go ahead. Just a quick one or quick two. The group advancing for year to date since 11.99 and the financial year guidance is 14.25 to 15.75. It's sort of painting a very cool picture of the final quarter. Could you care to sort of expand on that, please? Bill, it's Dan. There's a couple of things that we'll just draw out here. 1, we will see Harrah's gold grade or head grades decline quite a lot during the June quarter. We did actually have a change in order of some of the stopes during Hera from Q4 back into Q3. So we will naturally now see a more rapid decline in the head grades at Hera during Q4. So that is a contributor to that all in sustaining going up. We'll also see a shift of development activity at peak from growth into sustaining or operating costs that will go to the all in sustaining costs at peak as well. So the combination of those 2, in particular, drive the group full year result into that range. Okay. One final one. On the CCC minutes for the Peak Mine, I noticed the total workforce, I'm not sure what the actual exact dates are these, but the peak workforce went up from 134 to 141 and the pie bar went up from 192 to 202. Presumably, they weren't being used in underground. What was the reason for the increase in employment during the quarter, please? Bill, it's Peter here. I think as I referred to previously, we had a number of vacant roles in the underground workforce. And that really started to impact through in the December quarter. And over the March quarter, a number of those roles have been progressively increased, leading to the higher numbers that you've quoted there. Yes. Okay. Thanks very much. Thank you. There are no further questions at this time. I will now hand back to Dan. Thanks, Amanda, and thank you, everyone, for your time this morning. Hopefully, investors can clearly see the platform in which it's being set up for the company. Next news flow for us will be on delivery of the full year with the June quarterly report and in and around and probably just prior to that group exploration update as a result of the continued exploration efforts within the company. So with that, thank you very much for your time, and we'll talk in July. Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.