Earnings Call: Q4 2021

Jul 27, 2021

Earnings release

I would now like to hand the conference over to Mr. Dan Clifford, Managing Director. Please go ahead. Thank you, Bernadette. Good morning, everyone, and thank you for your time today. With me are Ian Poole, Peter Trout and Adam McKinnon. We have a slight change to how we will update this morning and it's particularly driven off the back of our recent market announcements covering exploration updates across all our sites, the mineral resource and reserve report, the latest June quarterly activities report and the accompanying FY 'twenty two guidance contained within that report. As such, we'll be referring to a presentation lodged this morning on the ASX titled June 2021 Quarter Update and Outlook. This is our first opportunity to review the year, both in terms of commitments made for the year and the steps taken to get our strategy executed on the ground. I'll move to Slide 3. The combination of the sustainability effort and the results with our asset base has put us in an incredibly well has incredibly well positioned us with a footprint that is gold dominant, contains incredibly high value based metals, including Federation and well advanced organic copper exposures, namely Great Cobra. Set up with the diversity of 3 operating assets with a fantastic exploration potential in front of all three is driving improving reserve and cost basis, commodity mix and mine lives to steer through the start of relevant commodities. Moving on to Slide 5. Let's now hone in on the year and pull out the key aspects of the year's performance. The momentum gathered across sustainability, particularly health and safety and environment community and more recently diversity and climate change has been great to see with substantial reductions in events causing harm across our business. FY 'twenty one guidance was in its entirety net or beaten. We've added and integrated DOGS into the portfolio and continued a large investment into exploration across Federation, Great Tobar and Kairos and DOGS with results on all three fronts. These results have driven a large bow wave of material in our resource and represents a 63% increase in resource growth across the business. And with the completion of the Federation scoping study, enabling works and feasibility study underway and with the PFS at Great CohBar, there is the potential to unlock significant conversion of resources to reserves through FY 'twenty two. Moving on to Slide 6. Our operations leadership and all our people and contract partners have lent into this performance to achieve a 58% reduction in injuries and a remarkable 82% reduction in reportable environmental incidents over the year and is absolute credit to the whole team for that performance through the year. Moving on to Slide 7, with performance against FY 'twenty one guidance. Gold was on with a 13% year on year increase. Underlying that, an increase of 22% in piece contribution to gold, the addition of 6 months of DAS and the Herrad and Herrad was down as has been previously flagged approximately 30% on a year on year basis. Lead was a beat and zinc was on. The combination of these 2 commodities up 23% year on year, predominantly driven by peak and following the upgrades in 2019 2020 to the mill. Copper was a beat, although down on previous years. All in sustaining cost was also a bit with OpEx costs on target sustaining capital slightly under and a solid base metal pricing giving our all in sustaining credits boost. Moving on to Slide 8. Turning further down into the June quarter was primarily impacted by Hera's quarter on quarter flagged reduction in gold and to a lesser extent, DAS being under planned for the quarter. Moving through to Slide 9. Underlying and cost throughput performances across the site were met or beaten, including that the Harrah and Peake sites mills I saw a 10% improvement in throughput from the FY 'twenty year. Peak although did experience some headwinds from labor shortages, particularly through the early stages of half 2 and later into Q4, and DAG saw delays in some planned high grade starts pushing into FY 'twenty two. We will go further into DAGs with this shortly with Peter, but noting contained in the reports that the July is seeing a 47% increase in grade in comparison to June and a 19% increase in grade compared to the full year performance with the investment thesis well intact. I'll now hand over to Ian. Thanks, Dan. On Slide 10, during the June quarter, Arelia maintained its cash on hand. At the end of June, there was a cash balance of $74,500,000 During the quarter, the company funded from operations paid capital of $14,500,000 which is primarily represented by $8,200,000 of exploration, including in drill drilling at preparation and $5,000,000 of growth mine development at Peak and Gargs. It also repaid $4,100,000 owing to Aurelio's term loan, which is scheduled to be fully repaid by September 2023. Avelia also cashed back $4,300,000 of its bank guarantees, which are used for environmental bonding. During the quarter, we made $8,900,000 of tax payments, and working capital fluctuates from quarter to quarter depending upon the timing of trade receivables, prepayments and payables. And during the June quarter, there was a cash inflow of $9,900,000 I'd now like to hand back to Dan. Thanks, Ian. Moving on to Slide 11. And before we shift into forward looking for the company, it's really worth reflecting on the continued strong track record in growth from 2014 to now. This is across exploration, development and operations at Hera, acquisition, operations and expansions at peak and now an acquisition and operations to date at DAS. This has and whilst the chart shows gold production, actually resulted in a gold equivalent record for the company of approximately 180,000 ounces with both expansion and extension opportunities at all three complexes, setting us up for the next 3 or 4 years for the continued growth of the company. Moving to Slide 13. Looking at guidance for FY 'twenty two, gold was lifting 13% at the midpoint, and that's ranging between 112,000 and 123,000 ounces. Underlying this, peak is steady. There's a full year of contribution from DOGS this year, and HERA is actually halving as has been well flagged to the market as gold grades reduce and we switch to higher grade base metals over the coming 2 years. Lead is steady at 24,500 to 27,000 tons and zinc is rising 30% at the midpoint to 31,000 to 34,500 tonnes with both Hera and Peak contributing to that lift. Copper is falling 25% at peak to 3,500 to 4,000 tonnes with medium term orebody phasing and lower grades this year. AISC is rising to 1500 to 1700 an ounce, driven by peak and DOGS 1st full year and continued ramping of gold grades. Staying capital lifts to $61,000,000 to $69,000,000 As a result, there's no further growth capital development at any of the sites and the inclusion of DOGS into the estimate. Growth capital subsequently reduces as a result of the shift away from growth capital and is wholly directed at Federation and Great CohBar projects growth for the company. Exploration rises 28 to 31, reflecting directing dollars to the best return and an increasing footprint on the ground. I'll now hand over to Peter for the detail of the individual assets. Thank you, Dan, and good morning to everyone on the call. I'll be talking to the FY 'twenty two guidance at an asset level, and that's shown on Slide 14 of the presentation deck. And I'll also give commentary around the production ramp up at our DARS mine. Looking at the individual sites, Peak Mine will continue to ramp up processed ore volumes in FY 2022 in line with higher mine tonnages. This tonnage increase will partially offset lower planned gold, lead and copper grades, while we're expecting a slight increase in zinc grade. The year on year change in operating unit costs and all in sustaining costs reflects a doubling of sustaining capital expenditure compared to FY 2021. There are 3 major contributors to the higher sustaining CapEx. The first is that all mine capital development has transitioned to sustaining CapEx following the completion of growth capital development in the Kairos mining area. And mine development in the sustaining CapEx accounts for approximately half of the site sustaining CapEx budget for FY 2022. Secondly, we're also embarking on fixed plant refurbishments on some of our long serving infrastructure and compliance upgrade projects to meet current regulatory requirements. We're also raising the TSF embankment and that will be about 11% of the total capital spend for the site. Looking at Heron, the operation in FY 2022 reflects the planned reduction in gold grade and the higher base metal grades. And these higher base metal head grades will bottleneck at concentrate filter and in turn that will lead to a slight reduction in the mill feed tonnage. The unit operating costs are expected to be comparable to FY 2021 as we see less underground mine capital development expenditure, which offsets the lower tonnage process through the plant. At the Garge mine, we'll see our 1st full year of production under Araya's ownership. Gold production is expected to range between 45,000,501,000 ounces as the mine grade improves and ore production moves towards the permitted cap of 355,000 tonnes per annum. The site's unit costs are forecast to be similar to those achieved in the second half of FY 2021 with FY 2022 decline development now being classified as sustaining rather than growth capital expenditure now that the operations ramped up to nameplate capacity. And no further growth capital expenditure is planned at DUGS in FY twenty twenty two. We also expect to see a significant reduction in all in sustaining costs in FY 2022. Guidance of $1500 to $1700 per ounce is driven by the higher gold production denominator as shown in the top table on Slide 15 that compares the FY 2022 outlook against the FY 2021 actual performance. Moving further to DAGs, we've had mixed performance over the quarter from the asset. The production physicals traveled well and met our expectations with the operation demonstrating required monthly development, ore production, backfill placement and mill throughput volumes. However, quarterly gold production of 5,200 ounces was below plan, primarily because ore was mined from lower grade sources that are outside the original mining schedule. The 3rd high grade stake ore from quarter 4 is now being delivered to the process plant and we're seeing the head grade increasing throughout July as this material enters the plant. We're also gaining more knowledge of the deposit, especially from the recent 12,000 meters of close spaced infill drilling, mapping of new underground development exposures and production reconciliation. And this knowledge is being used to engineer the underground environment and refine the mine layout to suit the local conditions. The information from our recent fuel campaigns and analysis has been incorporated into the mineral resource or reserve and production target statements that were released last Friday. And I should point out that these statements don't include all the drill results that were released to DAGs earlier this month. The lower table on Slide 15 compares the life of mine parameters from the June 2021 production target against the acquisition model's outlook as of November last year, and recognizing that these comparisons are across different time periods. There are three points to note. Firstly, the production target contains 200,000 ounces of in situ gold with other scheduled measures being consistent with our expectations at the time of acquisition. A recent drilling and work has confirmed that the gold grade increases with depth leading to the life of mine outlook. And the average grade is expected to be towards a lower bound of the acquisition model, which has led to an uptick in the forecast all in sustaining cost. I'll now hand over to Adam MacKinnon, who will discuss our recent mineral resource, oil reserve and production target statements. Thanks, Peter. Now with the reference to Slide 17 of the presentation. It's been an absolutely standout year for resource growth across the group. A record 141,000 meters of surface and underground drilling was completed, which along with the acquisition of Diodes resulted in a group resource total of 27,000,000 tonnes, an increase of 63% net of depletion. At peak, resource growth of 51% included strong contributions from Great CohBar and Kairos, while the resource growth of 67% for the Hera Federation complex is primarily the result of doubling the resource tonnage from the exceptionally high grade Federation deposit over the year. Diodes also saw resource growth of 35% after only 6 months of drilling. The strong resources growth has flowed through into a 53% increase in the group's production target, now sitting at 7,800,000 tonnes. Supported by new data and modeling, the production target now includes material from the Great Koba deposit for the first time. Group reserves of 4,400,000 tonnes have remained relatively steady for the year. FY 2021 saw a significant increase in reserve confidence with over 50% of the group tonnage upgraded to the proven classification. The company is also now very well positioned for strong reserve growth in FY 'twenty two with a maiden reserve for the Great Khobar deposit expected in the December quarter of this year and a maiden reserve reduction target expected duration following the completion of the feasibility study mid next year. Moving on now to Slide 18. The focus on infill and extensional drilling at peak has seen a 48% increase in the production target to 5,600,000 tonnes. Strong copper gold and also the lead zinc results from Great Copper have seen resources there grow 43% to 5,800,000 tonnes, now containing more than 120,000 tonnes of copper and over 130,000 ounces of gold. Upside potential at Great Koba remains exceptionally high and late in June they reported high grade copper intercepts extending mineralization at depth. This includes 7 meters of 6.3 percent copper, 6 meters of 3.4 percent copper, 7.5 meters at 3.3 percent copper and 6.1 meters of 3.1 percent copper. Due to assay timing, these results were not included in the new resource, the Great CohBar and leave the deposit completely open at depth. We're drilling to continue into FY 'twenty 2. The decline development access from the new Kva mine permitted and the maiden reserve declaration expected in the December quarter, Great Kva is likely to be a strong value driver for the peak operations into the future. Adding to the results of Great Cove, ongoing exploration and evaluation work has seen resources at the high grade Kairos deposit grow 68% to 1,600,000 tonnes. Recent drilling has demonstrated high grade mineralization remains open at depth and along strike. And with development access in place and production commenced, Corus is also likely to provide significant upside over the coming years. If we move now to Slide 19. In late June, the company released a set of exceptional exploration results from the Federation deposit, including amongst numerous others, 72 Netas at 18.4 percent lead zinc. For context, on a length weighted basis, this is believed to be the best base metal intercept released to the ASX this year. The focus on exploration and evaluation of Federation has led to 45% growth in indicated and inferred resources since the February 2021 update and is now sitting at 5,100,000 tonnes at 14.8% lead zinc, 0.9 grams per tonne gold, 7 grams per tonne silver and 0.3% copper. Drilling at Federation continues to see the incredibly high grades extended with the new resources having an average zinc equivalent grade of 17.9%. For those who like to think in terms of gold, this is roughly equivalent to around 8 grams a ton when calculated using a similar methodology. Related to resource numbers have firmly cemented Federation as one of the most significant discoveries in the region in the last 30 years with a Tier 1 grade profile. For comparison, Federation now has 40% more tonnes than the entire under flooded Hera mine to the north at a 27% higher grade and containing nearly 80% more metal on an equivalent basis. Strong growth in the Federation resources are expected to continue into FY 'twenty two with an accelerated resource conversion program currently underway to support the Federation feasibility study. The completion of the study will allow maiden reserve declaration for the Federation deposit in the first half of the twenty twenty two calendar year. Moving on to Dyax now on Slide 20. After the acquisition of the Dyax mine in December last year, the radially commenced an intensive surface and underground evaluation program, and we have now drilled close to 20,000 meters in the 6 months to June. In addition to in field drilling to increase company existing resources and reserves, the company has confirmed the presence of gold mineralization in a number of high potential extensional targets, which were identified as a part of the acquisition process. The drilling has seen an increase in resources of 35%, inclusive of mining depletion since mine production commenced. The dark mineralization remains open in a number of directions and extensional drilling is continuing. The area along strike to the west of Mainland and to the east of Plumblope remain very sparsely drill tested and are set to be targeted in FY 'twenty two. Thanks, Dan. Thanks a lot, Adam. With the burner debt, could you please open to question and answer time? And I'll do closing remarks after the Q and A, please. Thank Your first question comes from Dylan Kelly of Ord Minett. Please go ahead. Good morning, team, and congratulations on some pretty impressive charts at the beginning showing a trifah coming right down. Two questions from me. Just can we go back to Peter's points on Slide 15? You just help us understand what's happened to DOGS in terms of both the tons coming back and the grade being where it is? And just explain to us what's happening with the resource models since you've recouped the numbers? And do you have any indication as yet as to what the reconciliation is looking like? Or is it too early to say? Dylan, it's Peter here. I'll take your questions. Firstly, we saw the tonnes and the grade in quarter 4 come down, and we had a couple of drillers in different stoping areas there that deferred high grade production into this current financial year. And that was supplemented by lower grade feed from other sources. So some states were able to bring forward and significantly a higher proportion of development than was scheduled over the period. If you look back over the half year, we took about 40% of the stoping tonnage that we planned in the schedule as a result of a couple of delays in the stoping areas. We've now got some better information around that, particularly when it comes to ground support, better definition around the ore zones that we're feeding forward now into our mine designs, grade control models and resource reserve estimates. So having had that experience with the site, we're feeling more confident now about some of those parameters. You also asked about reconciliation and it is an early mark. I can say though that we've gone through a process of routine grade control updates now that we've got the infill drilling coming through and also the mapping and site sampling from development. And what we've seen from the grade control model that it's in line with what we've reconciled through the mill. So it's in 5% of the grade and through a bang on in the tonnage. If we go back and compare to the acquisition model, which we have done, the acquisition model actually called lower grades than what we mined and similar tonnes. So overall, we think from the big picture point of view at the resource level, we're actually tracking pretty well. We have had learnings at the local era levels, but that's not surprising when you go from 50 meter spacings on surface drill holes down to something like the 25 meter intervals that we're seeing with the grade control drilling. So right at this point in time, globally, we're not seeing any areas that cause us concern with the resource mining. Okay. Fair enough. And just turning to the reserve and resource update from last week, I could see that the resources increased to just over 2,000,000 tonnes. Do you have any update as yet around including a submission based on that from its current levels or something that we should be thinking about more towards the end of '22, starting 'twenty three? Yes. We've got more work to be done around that. There's some very good results that came through late in the quarter that weren't picked up in the resource modeling. It hasn't flown through. So we need to bring those in and we've got some more drill drilling coming through and more results. And we need to understand the big picture first of all before we go and take that through the mine design phase. We will certainly be looking at what's required from long lead items there and particularly understanding what permitting requirements, modifications we might require. Okay, understood. Do you mind if we just switch into peak? I'm just trying to could you just help us understand why perhaps gold outputs remaining flat year on year based on the guidance of slightly weaker? Could you give us some color around where the targeted or where the ore is coming from in terms of Pecnorth, Kairos contribution, some of the different moving parts just so we can understand what's happening? I'll take that one, Dylan. It's Dan here. I think the I have ahead well, ahead of the call this morning a number of questions relating to particularly Kairos contribution. What's important to remember here is that Kairos is 1 ore body amongst 4 or 5 that we are feeding to the peak processing plant. It is a different ore body to the comparisons of Cronos, and we have indicated previously that Kairos, plus or minus a bit, roughly around 20% will be at roughly around 20% of the mill feed for the course of the next couple of years. As that resource grows, its life grows. And so in essence, for us, that's the limiting factor. It's narrow, it's deep and it's tight. And with overall volumes going up into the peak mill, it will form about 20%, give or take. Okay. Understood. I didn't realize there was buried in the presentation throughput rates for the sites. Do you have any sense as to what the regional lockdowns or how that could impact your production gross tons over the next couple of months? Or is that probably a little early to say? Dylan, it's Peter here. Probably too early to say. I can say that with the Sydney lockdown and more recently, Victorian and Queensland border restrictions, we have seen an impact over the last week with a number of employees from our contract workforce. It's too early to say what the implications are for that over the full year. And certainly from a guidance point of view, we have not made any allowance for COVID extended COVID disruptions to the sites. Okay, fair enough. I'll pass it along. Thank you. Your next question is a follow-up from Dylan Kelly of Ord Minett. Please go ahead. Okay. I'll keep it. If I don't mind asking about the reserve replacement from last year sorry, from last week. If you look at the bottom of Slide 17 there, could you just help us understand why reserves came back from 2020 levels from just above 3,500,000 tons back down to 2,500,000? Am I correct in thinking that you haven't, in fact, replaced depletion for the year? Sorry, which slide were you talking about there, 17? Slide 17, bottom left, under oil reserves. Yes. So that would be correct. We have replaced some of the material we took away over the year, but not the entirety of it. What we'll see coming into FY 'twenty two is that we'll as Dan said at the start of the presentation, we've got this doorway with our resources. And as we get more and more drilling and some of these studies coming through, we'll see a big increase in reserves in FY 'twenty two. Okay. Understood. And just so you can have a study here, What volumes from a great cobalt is going to be coming through into the reserves at this point? Is it I mean, there's 5 just over 5 at the moment. How do we think I didn't see any breakdown of that. Is it going to be like a 1,500,000, 2,000,000 tonnes of that ore of magnitude? Dylan, it's Dan. It's with respect, it's way too early for us to be answering those sorts of questions. We're drilling it. The ore body will be what it is. Then we'll put the minders up on around it, and then we'll be able to be a lot more accurate on what actual tonnage will come from that part of the asset. But you can see what it looks like in the production target and the growth in and the flow through of that material. But when we lock down on the studies and the decline and ongoing exploration, we'll hone in on what that looks like. Your next question comes from Michael Evans of Bikova Capital. Please go ahead. Good morning, guys. Thanks very much. On your guidance and your mill throughput, you sort of got there on the separate slides, 800,000 tonnes at peak, 480,000 at Terra, 355,000 at DAS. Is that what I mean, I haven't crunched through the numbers yet for FY 'twenty two, but is that what are those the throughputs we should be assuming the 3 operations for next year? The Mike, it's Dan. How are you going? Yes. Good. Thanks. The indications we're giving for throughputs individual assets are on Slide 14 on those ranges from the left hand vertical axis of each of those individual asset descriptions. So you can see peak rising from $560,000,000 in 'twenty through to $620,000,000 $6,000,000 $630,000,000 in FY 'twenty one and then up to that range in and around the $700,000 for the year. That's what you should be assuming. The production target descriptors in the Slide sort of 17 through implied from those are implied from production target. Great. And can you just a second question. On the production targets released last week, if we take peak for example, you've got a cut off of 100 and I think our production utilizes $150 per tonne NSR cut off for most areas. I think you've got $130 for Chestnut and Jubilee. And then you look at your costs and they're sort of significantly higher than that, correct me if I'm wrong, but around $2.30 in the last quarter. Do you have to get the way I have to figure that is you have to get those costs down to access all that ore in those production targets? Or is that ore those production targets accessible at your current unit cost mining, drilling, admin rates, your cost per task, is all that production target accessible or does those will that also have to come down? Michael, it's Dan. We've just got a technical issue there with Peter. Adam, is that something you can handle? Just bear with us, Michael. Sorry, Michael, it's clearly here. I've lost the call. I had to join it. Sorry. That's okay. Joe, he will take the question. No, I got the question. I was just done with the response when I hit the cancel button rather than the new button. James, to your question, the $150 cutoff is the lower limit and the average value sits above that. So the key point is that the average grades going through have to be above that MSR to be economic. And with that, when we put a stoping outline around a block, we look at the total value inside that block and determine whether it goes to the mill or not. The other part to note is that I think you've given this before, there is capacity in the plant and we're desperately working to get the mill volumes up through all delivery from the mine. And with that will come a natural reduction in the unit cost. Does that answer your question? Yes, I think so. So I mean those unit costs, I suppose in forecasting, we'll just sort of keep them in an absolute basis. Any reduction was more likely to be driven from that an increase in the mill throughput other than other operating factors as such. There's certainly other things we're working on to drive down our cost, and you'll see that trend in the peak performance in particular. So I wouldn't just attribute it solely to volume. We're working on the cost side as well. Yes. And just while I've got you sort of showing on from Dylan's question because it seems to be Keith. You missed your Dagh's production for the quarter, But what the ore that you did end up mining, that grade reconciliation came within 5% of what was expected. Is that a fair comment, Sumerik? Yes. There's 2 components. 1 is the in situ estimation, and that's the response I gave to Dylan on reconciliation. And the second one is spatial compliance with the schedule. And in quarter 4, most particularly, it was a miss on the spatial compliance that led to high grade stopes being pushed into the current financial year, and they were substituted with lower grade speed by some stoping and development. Okay, great. Thanks very much. Just wanted to clear that up. Thank you. That's enough for me. Thank you. There are no further questions at this time. I will now hand back to Mr. Clifford for closing remarks. Thanks, Bernadette. In closing, we're well down the path with this strategy and set up with gold dominance, high grade based metals and copper ready. During the year, we've seen a quantum shift in harm event reductions across our business. Our guidance was met, and that guidance included increased throughput commitments from both SARS and Hera sorry, Peak and Hera. And with extensive success in drilling, adding to a significant growth in our resource of 63%. Our plans are being met with an asset added and strong expectations of reserve conversion during FY 'twenty two. And with that, I'd like to say thank you to everyone for your time this morning. We look forward to further update the company over the coming months. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.