Earnings Call: Q1 2021

Oct 19, 2020

Earnings release

I would now like to hand the conference over to Dan Clifett, Managing Director. Please go ahead. Thank you, Amanda, and good morning, everyone, and thank you for your time. I have Ian Poole, Peter Trapp and Adam Witkinen with me as well this morning. I'd like to start with a key summary and overview of the quarterly performance and then Peter will cover off asset performances. Adam will talk about near mine and regional exploration results or progression through the quarter and then Anne Poole to cover off corporate and financial at the end. Before I do that, I'd like to take the opportunity particularly on the back of Mike Menzies' retirement from the Oralia Board last month and thank him very much for his service and dedication to AMI as one of our longest serving director for the company and myself, the management team and the Board wish him the very best in his retirement. Taking a step back, we presented management presented the full year results and a look forward in August. So I just wanted a quick recap on that last conference call. It sets the groundwork for how this quarter has unfolded for O'Reilly. On that call, we covered the on strategy execution for FY 'twenty, that the NSR and margin approach for our assets will continue and that we articulated an extension of our then stated strategy to take a look forward beyond the current assets that we operate. The key messages in that presentation and particularly outcomes from the strategy are of sweating our assets and our infrastructure, deployment of our dollar to the highest return highest internal rate of return through the expiration of other investments, a portfolio approach to improving the group's costs and reserve base and a sustainable and trusted presence in all the areas we operate. And underpinning all of those aspects of the strategy, reliability, predictability and control remain front and center for the management team. And with this, everything in view, it has been a strong quarter across the board. Our health and safety result has significantly improved in the quarter with the introduction of our O'Reilly Metals, Safe Metals program, delivering a 32% drop in our 12 month rolling TRIFR. And on an actual basis for a year to date, it is 0. That has been a remarkable turnaround, the lag indicators on the business. Production of 30,000 ounces and a 9% drop in our all in sustaining cost of $1,000 an ounce and a net cash position of $104,000,000 and noting that that is pre dividend that was paid during early this month has put the company in a strong position for the rest of the year. Progress to Comoros is on plan. Federation studies are moving well as we clearly define the hugely accretive nature of the asset and exploration has continued to deliver for federation and further extensions sorry, further and that exploration has been further extended to Kairos again and now Great CohBar. With that being said, I'll hand over to Peter to take us through the asset performances. Thank you, Dan, and hello to everyone on the call today. I'm very pleased to report consistent quarter on quarter performance at both our operating assets measured by the ore mined and process and the underlying unit costs. The crude metal production decreased slightly from the June quarter, which really reflected the mix of ore sources and the grade variability in our polymetallic ore bodies. The expected lower gold grade at Hera was partly offset by higher grades at the peak, which led to a 9% reduction in quarter on quarter gold production. The crude oil in sustaining cost dropped to $1,000 per ounce, strong result from peak more than offsetting Heritage higher unit cost. In relation to COVID-nineteen, we continue to manage actively the protocols to prevent COVID-nineteen transition to operations. During the quarter, we saw cross border travel restrictions limit some of the movements of our management, technical and operational personnel. Whilst we experienced some minor efficiency and productivity impacts, it's more important that there be no reported COVID cases in the Qatar region nor at our sites. Turning to operations and starting with peak, we saw the continued benefit of the process plant upgrade during the September quarter where we treated multiple copper and lead generation coal campaigns. We drew down on all stockpiles that carried over from the June quarter. And in August, we achieved an annualized throughput rate of just over 800,000 tonnes per annum through the process plant. Our ore production was sourced predominantly from the Cronos and Perseverance B series, which delivered higher NSR value ore and also slightly less tonnage from the prior quarter. The major operating focus was on accessing the new Kairos deposit and that was about 2 thirds of all developments during the quarter compared to around 12% of total development in the June quarter. And that element was Kairos will take a majority of our growth capital expenditure in the group. The lower decline to Kairos has reached the elevation of the first stope in the block and the internal ramp is now advancing upwards where it will meet the upper decline as well as continuing downwards to access new mining levels. We've also broken off to the 1st production level at Kairos. In the upcoming quarter, we'll be right lowering a large internal ventilation rate and remain on track for 1st production in the March quarter. Unit cost at peak fell as a result of the mix of operating and capital development, our stake in activity levels and also the timing of the expenditure. In particular, our sustaining capital expenditure will increase in the coming quarter as we commence a TSF embankment rate to perform statutory compliance and plant refurbishment programs as part of our budget. Fixed all in sustaining costs decreased significantly to $5.94 per ounce on the back of higher gold sales and lower site costs. At Hera, we are transitioning to orders that have a lower average gold grade and higher base metal grades. And this transition can be seen in the quarterly gold and base metal production numbers. The lower gold production was the main contributor to Hera's all in sustaining cost of $12.50 per ounce. Our operating focus at Harrah is to maximize the ore through the mill, reduce unit costs, partially offset lower gold revenue and the lower gold grades. We saw the benefit of several initiatives over September quarter. These include actively managing the number of unplanned stoppages in the process plant, blending our ores to give a more consistent base metal grade to the flotation circuit, reducing variability in the process circuit through changes in our control system strategies and also targeting reagent additions to reduce consumption whilst maintaining our better metal recoveries. In terms of capital development, we will continue the North Pod incline during the quarter and started development towards the drill site will allow us to test potential mine life extension in the main southeast area. We're also establishing access to an historically backfilled site that will become a source of future waste rock backfill in the mining areas. Moving from Harrow to Federation, we've made good progress on the scoping study with a number of work streams underway. Our study program is being performed in conjunction with the infill drilling and environmental baseline studies, so that we strip on the timeline for permitting and the potential mine development to sustain production from the Harrah facility. Recent study work supports an underground mine development and the recovery of both gold and base metal concentrates. Some of the initial findings include an assessment of the geotechnical conditions, which are similar to those at the Harrah mine, the presence of gold as coarse grain particles that are suited to recovery through a gravity circuit, and mineralogy work and grind size analysis that suggests separate lead, zinc and copper concentrates can be produced from a flotation circuit. We'll continue to advance our various work streams of deterioration over the next quarter and incorporate the findings into 1 or more project configurations that we can take forward to the next stage of evaluation and permitting. And with that then, I'll hand back over to you. Thanks, Peter. In terms of exploration, Adam will take us through near mine and regional exploration. Thanks, Adam. Thanks, Ken. The first quarter has once again seen extensive exploration and evaluation work conducted at the Federation. In August, the company released new results confirming the presence of exceptional gold grades at Federation, intercepts including 21 meters at 32 grams per tonne gold and 45% lead zinc and 20 meters at 17 grams per tonne gold and 44% lead zinc. These results are amongst the highest grade intercepts ever drilled in the region, exceeding even the best results of the Nihai Jarrah mine. Intention and evaluation work is continuing into the current quarter, with follow-up drilling further testing gold, lead, zinc, sulphate and silver potential of the system. Ongoing collection of geotechnical data will also occur to support the mining study for Federation. Given the magnitude of drilling, our Federation since the release of the Mademar at all start in this year, an updated resource estimate will be prepared for release due in early in the March quarter, if not earlier. Moving up to peak now. A new drilling platform has been established in the lower Cairo peak line, and diamond drilling has recently commenced there. Drilling will initially target the 1st high grade sloping area at Cairo. This platform will also provide a gauge for testing extension for Kona's asset, with the system still remaining open. Further north, a surface drilling program has now commenced at the Great CohBar deposit. Great CohBar is an important asset to the company with a current indicated and inferred source of 4,100,000 tonnes, at 2.2 percent copper and 0.8 grams per tonne gold. The program will target both in build and extensional targets and will provide additional confidence for the results of permits. Drill bore, confirmatory, geotechnical and metallurgical work will also be collected. Continuing with the company's continuous disclosure commitments, we can provide an update on drilling results consideration at Sky and Peak during the current quarter. Thanks, Dan. Thanks, Adam. I'll hand over to Ian to cover Corfin Financial. Please. Thanks, Ben. Sales for the quarter of $107,000,000 were slightly down on the $100,000,000 of the prior quarter due to lower volumes, which are largely offset by higher costs achieved. Group's all in sustaining costs were $1,000 per ounce for the group during the quarter, $104 less than the prior quarter due primarily to lower mining costs and the timing of sustainable capital. The company is maintaining its all in sustaining cost guidance for the full year of $1500 to $17.20 per ounce. The company's net cash balance at the end of September of $104,000,000 dollars was an increase of $24,000,000 on the June balance. This was achieved following good operating and sustainable capital performance at Hera and Peak. The company invested in growth capital of $110,000,000 made up of the Kairos development and exploration and valuation of Federation. All in all, very good and consistent performance for the quarter. Thanks, Ian. Just to make a couple of new closing comments before we go to questions. Just to add to Ian's comments, it's been a strong quarter and our guidance is reaffirmed. The cost of timing throughput are positive and improving particularly at peak. And although amongst those controllables, we will see variability in the 4th quarters in comparison to this quarter in gold and all in sustaining cost. The controls of cost of ton and throughput are our measure of reliability and predictability and control. As a result of the head grades coming and the phasing through the year, particularly peak again, we don't expect the December quarter to be at the levels of gold production that we've seen in this quarter. And therefore, our guidance is reaffirmed at 80,000 to 90,000 ounces between $15,750 an ounce. And with that, I would like to open up to questions please, Amanda. Amanda. Thank Your first question comes from Dylan Kenny from Ordinance. Please go ahead. Good morning, everybody. Congrats to the team on a great result. It's really pleasing to see some momentum on safety and tonnes and effectively across the board. I just wanted to drill on your last point, Dan, around grade. I know you're pressing for December and what that means rolling into the second half. Can you just remind us what the timing is for Kairos coming in and to what extent we can expect that grade profile to shift? So we're going down from what 3.9 to what 3.5, 3 and then rebounding as the Kairos also come in or is that going to be more sort of 4Q update on the timing? Thanks, Dylan. I think the key thing and I'll just reconfirm what we outlined at the prior conference call during August is that, Kairos, meaningful volumes of Kairos, well, we start producing meaningful volumes during late March quarter. And due to the early nature of that ore body, we won't see huge tonnage contributions from Cairo really until 2022 sorry, FY 2022. We're on track to be there, but we're not going to see large volume contributions from that ore body during the course of this year. So in essence, when it comes to guidance or what the next three quarters look like, And we are expecting reasonably steady numbers through the quarters. And pretty simply, I look at it and take 30,000 ounces off at this point and divide that by 3 with some variability around those. And that's roughly what we're expecting to be achieving for the balance of the year. Okay, understood. Second question just in regards to the Cobar and the commentary you provided in the update there. It seems like you've put some easy wins there to add some mine life pretty quickly. Can you just remind us where you're at in terms of environmental's, how you're going to be accessing the ore body in the pipeline or exploration drive and any sort of rough capital on cost of Dylan, Peter Trout here. We're currently in the process of advancing the EIS for Great Coburn. So we received during this year a list of criteria that we had to address and we're well advanced in preparing our response to those. In terms of accessing Brett Cobar, we're looking at an underground decline from the new Cobar complex across to the deposit itself and then ventilation shafts through the surface to provide our ventilation and services access. I'm not in a position, Mel, to provide capital guidance. We've got work to do with the drilling program that Adam's outlined and also some work which will allow us to move up those mining schedules and cost estimates. Just referring back to the previous commentary around the, say, dollars 20,000,000 exploration decline. Is that still the how would you be thinking about it in terms of the first step? Or are you thinking you could do most of the drilling from surface rather than run one over from what would have been Jubilee? At this point in time, the surface drilling gives us access to results quicker and at lower cost and extending the decline. So at this point in time, there's no plan in this financial year to push ahead on the decline. So we're going to get the results back from the surface programs and look at those to give ourselves the best orientation for the decline. Okay, got it. I'll pass it along. Thank you. Your next question comes from Brian Chu from Australian Gold Funds. Please go ahead. Hi, Dan and team. Welcome on your rather exceptional quarter performance. Now in terms of the Hera mine and the potential for development in the Federation deposit, Can you remind us again on what the timeline is going to be like for the Federation deposit starting to be feeding into the production plant so that we can see the production increase and the cost of juice? Or is that going this that will be in the further foreseeable future? Brian, the timeline that we've talked to in terms of federation is one that's in the hands of the hours approved through our state and regulatory approvals. From a start, it is usually several years, 2 to 3 years. We're now pretty much 6 months into the study, so we're expecting it's in that 2.5 year period. And that is matching theoretically with the remaining life of Hera. We won't see our plan at this point in time based on the approval time line is that we will see on the basis of successful studies and phase through federation that it would come in towards the end of Herrad's life. So that's still 2 odd years away, 2, 2.5 years away. And if we look at that as reasonably low risk, although not without risk in terms of getting approvals for mining operations through the New South Wales planning system. And I'd say that I think it's low risk in that it is a satellite ore body. It's 10 kilometers from our main infrastructure area and tailings and cat facilities. Therefore, we are really minimizing our environmental footprint as a business to bring on this asset. And one further question, if that's okay. Would it be fair to say that the Harrah production that we are seeing now going to be the trend? Or would you be seeing bumping right ahead? Brian, it's Steve here. In the results, we flagged the gold profile at Hera will move towards the reserve grade and we'll also see higher base metals over time. And I think the Q1 of this financial year is just reinforcing that. It's accordance with what we see in the order we and our mining plans. Okay. Appreciate that. Looking forward to another good quarter in December. Appreciate it. Thanks. Thank you. Your next question comes from Mike Mulligan from Uros Hartley. Please go ahead. Yes, good afternoon guys and congrats on a very good quarter. Just a very quick one from me in regards to guidance. Will you be revisiting estimates after the first half? Thanks for that, Mike. We will be we'll continuously review what our forward projections look like. So if and when we see through continuous disclosure the need to adjust our guidance, we'll do it then. Okay. Cool. And also just on Federation, resource update coming in the March quarter, scope and study releases that in the June quarter, is that the expectation? In terms of federation at this point, Mike, that's all the studies we're doing are quite internal. We will assess those as they go. That is effectively our timing. As to the extent and the timing of release, we'll update as we progress through those studies. Your next question comes from Mark Petruira from Foster. Please go ahead. Yes. Hi, guys. Good results. Just a question on the sustaining CapEx. I was just wondering, in terms of guidance, obviously, you did less in this quarter. I was wondering regarding the balance to meet the guidance, it's going to be sort of evenly spread over the remaining 3 quarters and also where is that going mostly sort of targeted? Mark, sustaining CapEx is minimal at Hera. Most of our sustaining CapEx over the remainder of the year will be a peak. And that will vary over the course of the remaining three quarters. Right. So, if they sort of consistently have the 3 quarters, will they take a quarter where it might be more than 4 quarters? I'll just say it's quite evenly spread, Mark, in that as Peter mentioned earlier, we've got at the moment, a lot of our CapEx certainly for this quarter has been focused on IROS and that's in growth. We do start to shift that from a development mix into sustaining. And as Peter mentioned, the compliance and sustaining capital investment into the surface. And the tailings storage facilities. What we will see, thank you. That was my question. What we will see as the year progresses is the tailings storage upgrades will come through over the next two quarters. That will keep that spend reasonably consistent. All right. Okay. Thanks. Thank you. Your next question comes from Stuart Todd from Renaissance Asset Management. Please go ahead. Thank you, guys. And I guess everyone else has congratulated you. So well done on the quarter. My question is actually being covered by Mark. So thanks anyway. Thank you. There are no further questions at this time. Pardon me. We now have a question. Your next question comes from Joshua Haynes from Rist Investments. Please go ahead. Good day, Dan and team. Good results as everyone's mentioned. My favorite question, just in terms of the equal rate of peak, you sort of left a little target in there that you did get to 800,000 tonnes in August. What I guess, what do you need to work on to, I guess, remain at that level with the steel development constrained or are there other bottlenecks that need to be ironed out over time? Pardon me. This is the operator. The speaker line has temporarily disconnected. I think we're at. Stuart, I think had a question. I think it's Josh here. Can you hear me? Hi, Josh. I think Stuart's question, he said that it's been answered and then I jumped on, but I'm not sure he's got my question. So I'll repeat it. I just asked that given that you had a little negative information on 8 100,000 tonnes run rate in August, just wondering what is the constraint going forward to maintain that level? Is it still on the development side? Or are there other bottlenecks in the sand that need to be worked through? Joshua, the main bottleneck we have at the moment is just getting enough stoping areas established in the mine to deliver and use that capacity in the plant. That August run was a very good run, no changeovers between all feeds, good reliability in the circuit and good throughput rates. And that allowed us to pull down on some accumulated stockpiles. So the challenge is very much in the mind to make sure we've got sufficient stoping areas available to meet that ore demand and to do that through the switch between the copper and the liquid campaigns. And just to my benefit, who's never run an underground mine before, is there not an option to just get a few more bodies down for a short period to sort of get ahead on development? Is there or you sort of constrained and I guess we've been quite constrained at the moment, I guess? It's probably a combination of factors, Josh. We have had a shortage of operators through our mining contractor and that has been exacerbated with the travel restrictions, meaning we cannot fully make trucks, particularly oil ships and that's being dealt with. Secondly, in terms of production areas, we have sufficient production areas open. It's a matter of turning around the stopes. So once we finish extracting the ore from the stopes, backfilling it and bringing the adjacent stope in line in a sequence. Where we are at the moment, we're at 5 or 6 active mining areas and we're generally retreating from one end back to the along the axis. So it's just cycling through those stopes and making sure we've got the backfill available, we're moving ore out and keeping the operation in a good rhythm. Thank you. Your next question comes from Lindsay Hague, Private Investor. Please go ahead. Good afternoon, I thought we'd do so. Just any kind of high level commentary you can give around over the quarter, anything you've seen that you liked out there for us to have a look at? Well, thanks for the question. I'll keep my answers obviously internal. I'm not at liberty to really be talking about external M and A. Internally, the things that we are really seeing that are positive for the business are commenced the surface drilling program for Great CohBar to drive further certainty in that resource for our business and we are also starting to see emerging copper coming through the Federation deposit to the business. So that is definitely getting our attention. And as for external opportunities, we would inform the market even when they come up. Thanks. Thank you. There are no further questions at this time. I will now hand back to Mr. Griffith for closing remarks. Thanks, Amita. Just in some closing comments, in summary, our strategy is on track after the year and for multiple years beyond that. The assets are running hard. The exploration is delivering and Federation is continuing to shape up well. And to mirror a few words from the other speakers on the conference, all in all, it's been a great start to the year and a strong quarter. In terms of next information flow for the business, as Adam mentioned, we will be along the continuous disclosure lines aiming for potential exploration updates. And then towards the end of the year, if we're into the March quarter, a resource update for federation. And the June the December quarterly result. We do have our AGM on the 19th November. Unfortunately, with the multiple COVID restrictions, it's a fully virtual meeting. On those notices have been distributed to the market through the course of last week. Thank you very much everyone for your time and we look forward to continuing O'Reilly's progression through the course of the year. Thanks. This does conclude our conference for today. Thank you for participating. You may now disconnect.