Good day, welcome to the Metarock Group Limited Capital Raising and Strategic Investor Briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. For operator assistance throughout the call, please press star 0. Finally, I would like to advise all participants that this call is being recorded. Today's conference is presented by Managing Director, Paul Green, and Chief Financial Officer, Jeff Whiteman. I'd now like to welcome Paul to begin the conference.
Thanks, Anthony. Welcome to all shareholders and interested parties. No doubt people have seen the ASX announcement, the H1FY '23 report, and the strategic investor presentation. The first half of FY '23 has been a very tough financial period for the business. We're confident that the information we've provided supports the turnaround plan and also the recapitalization, that we will talk through. We understand that people will have questions, and we're happy to answer those at a later time if we don't have time today. The reality is that we're not able to change the past, and for this reason, we will mostly talk about and focus on the future in this presentation. The board, Jeff and I have been motivated by a couple of things .
One of those is we've got two very successful businesses, PYBAR and Mastermyne, in spite of the recent troublesome period with strong historical performances. We also have a number of amazing employees, clients, and very loyal shareholders. The purpose of our briefing today is to explain why we are where we are, what our plan has been, and also the recapitalization opportunity that is available to us. We'll largely talk through the strategic investor presentation, and if we could commence on page 6, please. The business has had 3 investments in a very short time frame: PYBAR, the Crinum Whole of Mine, and the Cook Whole of Mine , which required significant funds, planned financing, and also working capital. The business had a number of one-off events.
The Crinum contract being the first, where we tragically lost one of our great work mates. Following this, we had to invest significant funds into the recovery of the roof fall and the drift, the cost of which was not able to be recovered . This resulted in significant losses. The second is the Thalanga contract, which went into receivership, owing the business over AUD 7 million, which was not recovered. In addition to the above, during the purchasing of PYBAR, the business identified that it had two contracts that were loss-making, the assumptions made on the timing and the effort to turn them into profitable contracts were not realized, resulting in losses over a longer period of time than expected. This included the Peak contract and the Thalanga contract.
The financial impact of the Crinum, Peak, and Thalanga situations created gearing and cash flow pressure, necessitating a turnaround plan, being a number of measures to improve our cash flow and also a substantial equity injection. Can we just move to page 7, please? Stage one of our turnaround plan involved numerous elements. The board engaged new management. The termination of the Crinum contract occurred in October 2023, and then had full and final mutual settlement of that contract in February 2023. We exited from the PYBAR loss-making contracts, being Thalanga contract, which self-terminated when Cromarty Resources went into receivership in October 2023, and the mutual termination and settlement of the Peak contract in March 2023. If we could just move to page 8, please. We continue working on our core operations.
It was important to keep delivering our baseline revenue and gross margins. We continue to drive efficiencies of our current contracts, delivering on the safety commitments, delivering services on time and on quality. We ramped up the Whole of Mine operation within a tough labor market, and we continued growing the Wilson Mining ground consolidation business across the coal and the hard rock sectors. We sold some idle plant and are still continuing to do so to reduce debt and also obtain cash. The first development panel, which was ex-Crinum, sold to a third party in February 2023, and we're looking to sell the second panel, development panel as well. A process was also commenced in selling the idle PYBAR plant.
As part of the turnaround plan, it was evident that the magnitude of the impacts from the one-off events and the longer than anticipated time in addressing the loss-making contract in PYBAR required a substantial equity injection. This was to stabilize the business and set it up for growth. By growth, I mean the ongoing working capital needs for new projects to replace expiring contracts. If we can just move to page 10 now, and I'll hand over to Jeff, our CEO, who will take us through the recapitalization.
Thanks, Paul. I should say CFO.
CFO.
Good morning and, yeah, I'm pleased to advise of a strategic investment by a company called M Resources.
M Resources is privately held. They're based out of Queensland, and they've got a range of investments across the value chain in the coal industry, including OneRail, Stanmore Resources, Bowen Coking Coal, and the Millennium Mining Complex. We've been in discussions with M Resources for a while, the outcome is that they've agreed to make a placement of AUD 25 million, which is conditional upon shareholder approval at a forthcoming shareholder meeting. The AUD 25 million will acquire a stake of around about 51%. It's in combination with an entitlement offer for existing shareholders, which will be up to AUD 3.9 million.
Both the conditional placement and the entitlement offer will come with options, which have the same terms as each other, and those options will have an exercise price of AUD 0.23. These options will raise further capital as and when they're exercised over the next period of time. In terms of the board, M Resources will have the right to put two directors on the board, and they'll also nominate the initial independent chairman to go on the board. Paul Green, the Managing Director, and the founders of Mastermyne and PYBAR, Andrew Watts, Paul Rouse, are also going to remain on the board going forward.
From a banking perspective, our bank's been very supportive, and you would have seen the recent announcements that they've extended our working capital facilities at this stage through to the end of September. That's with a view to resetting the facilities on a longer-term structure once we've got through the equity raising. M Resources have also come to the table in terms of helping us through the next couple of months until the placement's complete, and they've offered to provide an interim funding facility of just over AUD 10 million. Turning to page 11. The advantages that we see in the investment by M Resources, in particular with them being a strategic investor, and quite an active one at that.
They really do bring very deep sector knowledge, and a great range of contacts for us as well. We see potential for us, even though the intention is for Metarock to continue to operate independently and remain as a listed company, we certainly see the opportunity to leverage that relationship that and relationships that M Resources bring to the table. I mentioned earlier that there'll be a shareholder vote. As M Resources will end up over 50%, we need to go to an extraordinary general meeting. We'll be issuing the notice of meeting and the explanatory memorandum in due course. At this stage with that shareholder meeting expected to be held during May.
I'll just move on to page 12. Sorry, page 13. In terms of the plan going forward, I suppose it's a little bit more of the same. Continuing to manage our working capital closely. The investment certainly helps reset the balance sheet and particularly the, I suppose, the funding shortfall that we've been facing recently, which was primarily caused by the Crinum and PYBAR issues that Paul referred to. Going forward, we anticipate our working capital to be in much better shape and also plenty of opportunity to further reduce our debt and gearing going forward. We still have some idle assets and surplus assets for the business.
We're continuing the sale processes around those, and the intention is that predominantly those proceeds will be used to reduce debt. We're also looking at our risk/reward balance, which I see is also a topic across some of the other contractors that have been facing challenges as well. From our perspective, it's very much about trying to avoid contracts that are really high risk and sitting with contracts that are completely within our capabilities zone and making sure we fully understand the risk and then price that risk appropriately. When we talk about risk, not just financial risk, but also looking at the safety and commercial aspects as well.
As we continue to look at new projects, the return on invested capital is going to be a particular focus for us on new tenders. Finally on that aspect, probably really seeking to have a better balance within the contract portfolio. We've terminated three contracts in the last 4 or 5 months, which were probably skewing the portfolio towards the high risk and high capital end. As we go ahead, we'll seek a better balance across the business and tie them back with the core strategy on diversification. The final point going forward is around having a measured cost out program.
We've already commenced on this and taken out some of the discretionary costs in the business. There is scope for further efficiency to both enhance profitability and re-build cash flow as well going forward and realize the synergies within the group, which probably if we haven't hit that opportunity as well as we could have done over recent months. That's very much part of the plan going forward. That's that. That finishes my part of the presentation, and maybe hand over to the facilitator for questions at this point.
Thank you for the presentation. At this time, I would like to remind everyone, in order to ask a question, please press star, then 1 on your telephone keypad, and we'll pause for a moment to compile the Q&A roster. Again, if you would like to ask a question, please press star, then 1 on your telephone keypad. Your first question comes from the line of John Burgess from AAS Group. Your line is open.
Thanks for taking my question. Could you give us a guide possibly on, given the sort of asset sales and stuff of, sort of sustainable CapEx going forward?
Sorry, John, can you just be a bit more precise on the question, mate? I just didn't quite hear you.
Well, what sort of CapEx levels do you think the business need? What sort of a, you know, sustaining CapEx level for the business into 2024 and 2025? Maybe if you can break that up between PYBAR, Mastermyne, and Cook.
Yeah. John, we're still working through some of the detail around that because we're just still considering the right gearing level that we need going forward. Also, we need to have the right amount of plan for new projects coming up. It is a work in progress. However, we are looking at a lower capital level than what we've had over the past couple of years. That's to make sure that we have the right revenue and margins coming in to be able to cover the refinancing costs across the board.
Okay. Presumably depreciation will come down with these asset sales. Has there been a... Because I remember when PYBAR was acquired, they had quite an aggressive depreciation policy. Has there been a review of that policy, under new management?
Look, we will review all the accounting policies. Obviously, we've just put out a half year report on Friday as well, that's got the accounting policies in there. We will be looking at, again, at the remaining useful asset lives across the business. We have, I suppose, in PYBAR, with both the Peak project and the Thalanga project in particular. They're both sizable projects, with both of those coming to an end, we do have a fair amount of idle equipment coming out of that. We're just still going through the process of looking which of our equipment we keep and redeploy into new projects, which of equipment we'll be looking to sell.
At the same time, that'll help determine our, I would say the appropriate fleet size going forward and also, we'll refine our depreciation lives through that, through that period. I suppose just one point to mention on the CapEx side is that we certainly envisage CapEx being materially lower over the next 12 to 18 months, with the forecast level that we've anticipated in what we put out in our guidance. There's not really any more significant CapEx required and we can use our existing fleet to manage that. I'll probably see the CapEx returning to a more sort of normal level of sustainable spend in FY 2025, unless we see some rapid growth through FY 2024.
Great. The final one, could you just give us an update as best you can on Cook and the ramp up? Obviously it looks like in 2024 you still got the sort of sales revenue forecast that were originally there, and would that represent sort of a nameplate 1.2 million tons production per annum at that sort of revenue level?
Yeah. At Cook, we are continuing to ramp up there . We are having some challenges around our labor pool because there's a lot of competition in the market at the moment. So we are looking at running with 2 units in the Cook portfolio, whereas originally it was 3 units. So that tonnage will be adjusted back to a 2-unit scenario. And both us and the client see that as quite sustainable going forward at this point in time.
Does that extend the project then?
Yeah. Yes, it will potentially. You know, we also need to perform in that contract. Our efforts right at the moment are making sure that we're performing. You know, there's lots of opportunity at Cook, as well going into the future. We're hoping to, you know, continue doing a good job there. You know, as long as the coal price stays where it is, which we're pretty confident it will, it'll stay quite high, there'll be lots of further opportunity at Cook.
Great. Thank you.
Your next question comes from the line of Jonathan Mills, Private Investor. Your line is open.
Yeah. Hi, guys. Thanks for taking my questions. First one is in relation to the proposed entitlement offer. Is there any reason why it's so low? I mean, it's one for 5.2 to raise around AUD 4 million. I mean, you're still gonna be highly leveraged even if everyone takes up their entitlements, which I think is gonna be pretty unlikely given the terms.
Yes, I'll pick that up. I suppose the entire equity raise has been based around trying to bring on board a strategic investor. Clearly, they're looking for a 51% shareholding or slightly higher. That brings the advantages of having a meaningful investor on board, but at that level rather than a higher level. It means also that they're content for the company to continue operating independently. We see that as being a good balance between us.
I suppose the ratio between AUD 25 million to provide in terms of the placement and then the entitlement issue just shy of AUD 4 million, they're really around driving those ratios, but also giving the existing shareholders a right to participate on the same terms as M Resources if they choose to.
Okay. That makes sense. Am I correct in thinking that Paul Rouse and Anthony Watts will take up their entitlements?
I think they're considering that at this point in time. They have shown interest in that, but, you know, that will be what it may turn out to be at that point in time.
Yeah. There's obviously Paul and Andrew, obviously, both major shareholders and remain major shareholders going forward. Yeah, as Paul says, in regard to the entitlement offer, they're both currently contemplating it.
Okay. No worries. My final question is, are you able to give some indication of, I guess, the value, the book value of the idle assets at PYBAR and Crinum that you're trying to sell?
Look, at probably this stage, I can't. As part of the notice of meeting an explanatory memorandum that's coming out, there'll be an independent expert report for the shareholders to be provided some more information. Certainly the value of the surplus assets or idle assets is expected to be part of that valuation consideration in that report. Yes, I'd encourage you to read that report when it's made available.
Okay, great. Thank you very much.
If you would like to ask a question, please press star one on your telephone keypad, and we'll pause for any final questions. There are no further questions at this time. Apologies. There is 1 further question from David Lawrence from Lawrence Cattle Company. Your line is open. Mr. Lawrence, you may now go ahead, please.
Sorry for that. You there, gentlemen?
Yeah, we can just hear you, sir.
All right. That person has been cleared from the queue. Your next question comes from the line again from Jonathan Mills, investor. Your line is open.
Yeah. Hi, guys. One last question. In going back to the entitlement offer, have you arranged anyone to underwrite it? If so, who would that be? I mean, would M Resources consider underwriting the entitlement offer as well?
We are considering underwriting the offer. It won't be with M Resources, again, partly because they're sort of happy in a 50%-55% range. If they underwrite the entitlement offer, I suppose it just starts putting their shareholding up a bit. The preference is not to do that. We certainly do have some other parties that are showing reasonably strong interest in underwriting. That's a path that we'll again, confirm over the next few weeks.
Great. Thanks again.
There's one more question from David Lawrence from Lawrence Cattle Company. Your line is open.
Good day, gents. Can you hear me, Tom?
Yeah, Dave. Gotcha.
Yeah. Ripper. My question is with relation to M Resources 's intentions for the company. Taking a 51% share in the company obviously gives them a lot of control. Is there any intention to delist? Is there an intention to stay on the ASX? Are you guys able to give any intel on that front?
Yeah. Thanks for the question, Dave. At this stage, the intention of M Resources is really aligned with what the business needs are. Their focus is to support us in continuing the turnaround plan and also to continue to grow the business. They are not looking to take any, you know, operational control. They're not bringing their own people in or anything like that. They're more than happy with the capability in the business and, you know, will meet, I suspect at a monthly basis at a board meeting where we'll be challenged appropriately and with the good governance that they will offer.
In terms of desires for ASX listing or not ASX listing, at this stage, M Resources has been very strong in saying that they're appreciating the ASX listing status, and that will remain at this point in time.
When they get the chance to fully declare their position on that call, it's a pretty important thing for me as a shareholder anyway, because if any group or M Resources has the ability to delist this company, which from what I can see they do, then us as shareholders have very little ability to trade the stock and benefit from it, in my opinion. Assuming that they continue to stay listed, what would be the dividend policy moving forward? Has this been discussed? Because Mastermyne's dividend policy was quite well known or easy to access. What would M Resources 's plan be from a dividend point of view?
Yeah.
Look, I think the, it's too early to talk about dividend policy at the moment. Obviously, we're sort of just coming out of a turnaround plan and still need to execute that and reduce our debt further. Certainly I think going forward, as an investor, M Resources is probably as interested in taking dividends as any other investor. It certainly will be reconsidered down the track.
All right. Thank you very much.
I'll just add one further point, David, on the point of liquidity. The options that come with the shares through both the entitlement offer and the placement, the intention is that those options will be quoted as well, I suppose some indication there that around M Resources' intentions on the benefits of remaining listed and also keeping the options or having options listed in addition to the shares as well.
I see your point. Thank you.
Thank you.
Thanks.
There are no further questions at this time. I would like to turn the call back over to Paul for closing remarks.
Thank you. Yeah, thanks to everyone for the interest in our business. As you're probably aware from reading the material over the weekend, you know, we do have two very strong underlying businesses, PYBAR and Mastermyne. We've intentionally taken the hit in H1 FY23. We've got a turnaround plan which we're executing in a very methodical manner. There definitely has been learnings from our recent past, we understand those, and we're already implementing changes to bring effect to those. We're very excited by the opportunity that M Resources provides for our future in a multidimensional way. As Managing Director and CFO, we fully endorse the recapitalization in its current form and encourage shareholders to consider and support this.
In closing, Jeff and I are more than happy to receive phone calls from anyone at a later date. Thank you very much.
This concludes today's conference call. Thank you for joining us. You may now disconnect.