Standing by, welcome to the Ramelius Resources Half Year FY23 Financial Results teleconference. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.
Good morning, everyone. Thank you for taking the time to dial into our half year results call. Joining me as usual this morning is Chief Financial Officer, Tim Manners. Given that today's focus is on the financial accounts, I'll leave Tim to do most of the talking, especially around the presentation that has been released to the ASX this morning, before opening the line up to questions as always. Before handing over, I'll give an overview on how we saw the first half and some of the key issues. By way of an overall assessment, this is a very competitive set of underlying results. The company continues to be in a strong financial position despite the inflationary pressures seen throughout the industry and a drop in first half gold production.
We announced a few weeks ago, production for the six months to December 31 came in at 118,000 ounces, down 11% on the previous corresponding period. We've reduced contributions from both Mount Magnet and Edna May. At Mount Magnet, we saw a lower head grade across the period as the high-grade Shannon underground was largely completed and replaced with lower grade feed from the Hill Sixty underground mine. The grade profile at Mount Magnet will improve this half with the introduction of more feed from Penny, which is one of the highest grade gold mines in Australia, as has been well telegraphed to the market. At Edna May, production was down mainly due to lower throughput as we worked through the historic low-grade stockpiles close to the point of depletion.
The lower throughput was offset somewhat by high-grade material trucked in from the Tampia and Marda satellite operations. Based on the half year production result and the expectation of an improving production profile in the second half as Penny ramps up and haulage rates increase, we remain confident of meeting full year guidance of 240,000 oz-280,000 oz at an all-in sustaining cost of between AUD 1,750 and AUD 1,950 an ounce. If listeners now turn to slide three of the presentation where they see our portfolio of projects across WA that give us a certain amount of production flexibility, especially in times such as COVID. The first half could be best characterized as a period of investment into this portfolio, with almost AUD 100 million pumped into capital development and exploration over the six months. The primary development focus was obviously Penny.
The Galaxy underground at Mount Magnet and the Die Hardy open pit at Marda were other projects that were funded during this period. Exploration expenditure has been maintained slightly above the annual run rate and mainly incurred at Rebecca and Mount Magnet projects such as Bartus. Seemingly, like a lot of our peers, we are very much second half weighted in terms of higher production, lower costs, and therefore higher free cash flows. We recently demonstrated with the deferral of Edna May Stage 3 in January that we remain very disciplined in our approach to delivering returns to shareholders. There is a threshold that must be met and if it is not, we simply won't go through the investment. This applies equally to organic growth projects such as Edna May Stage 3 and strategic acquisitions. I think our track record to date on this has been pretty good.
With that, it's now time to pass over to Tim.
Thank you, Mark. Thank you all again for joining us this morning for the presentation of Ramelius's half year results ending 31 December 2022. As Mark mentioned, we're referring to the short presentation that we released this morning, so hopefully you have that handy, as I will be making some references to it. As Mark mentioned, whilst a challenging period in many respects, Ramelius stuck firm to its business model and its core competency to deliver a very respectable result for the six months to December 2022. Cost pressures are there for all to see now. There is a lot of debate as to whether these costs have peaked or whether there is more to come. I guess only time will tell, but I personally believe that there can be some quite lengthy time lags in cost increases becoming visible.
Whilst I hope we are near the peak, I don't think we will get through to the other side of this just yet. As such, ensuring your business remains resilient by cost reduction programs and high grade ore sources, I think will prove a differentiator in the next 12-24 months. The other impact, whilst improving slowly, has been seen in slight reductions in operating productivities and efficiencies that are still present due to the higher turnover levels than we have seen for some time, plus the absenteeism we still see as a consequence of precautions taken around COVID cases across the operations. Moving firstly to slide four, we can see some of the production highlights as they compare to the prior corresponding period.
Whilst ore mined was largely comparable to the prior corresponding period, the completion of the Greenfinch pit at Edna May and the shift to developing Die Hardy at Marda were the two biggest factors behind this small variance. Ore tonnes on hand, though, is one thing we are not short of at Ramelius Resources, as I will come to. Probably the single biggest impact on the physical results this period was, as Mark mentioned, the reduction in contribution of high-grade ore from Shannon and to a lesser extent Vivian that both feed Mount Magnet. We've spoken at length about the significant contributions that both these mines have generated to the Ramelius Resources bottom line.
When their contributions reduce, as they have done, and are not fully replaced, it becomes noticeable, as it has done these last six months. We have, though, as most will know, a more than acceptable replacement coming in the high-grade Penny underground. Ideally, this all would have slotted in nicely as Shannon and Vivian wound down, but sometimes these events don't quite line up. Due to some slight delays at Penny that we flagged in the quarterly report, we won't see this material hit the mill with force until late quarter three, mainly quarter four and beyond. For the short term, short-term reduction in high-grade material feeding Mount Magnet, coupled with the exhaustion of low-grade stocks at Edna May, saw our gold production for the half fall 11% to 118,000 oz.
Coupled with the cost pressures noted previously, our all-in sustaining costs increased to AUD 2,044 per ounce for the six months. There was, however, a 7% increase in gold price seen in the first half, which helped reduce the impact of falling ounces, leaving our revenue only 2% down at AUD 304.8 million, as shown now on slide five. From an earnings perspective, I will talk to underlying figures, due mainly for us, at least, to the pre-tax AUD 30 million gain we recognized in the prior corresponding period as a result of the sale of the Kathleen Valley Lithium royalty. Underlying EBITDA of AUD 106.3 million gave us a margin of 35%, which remains very competitive amongst our peer group, indeed, some of our larger peers also.
The underlying NPAT of AUD 32.7 million was again an excellent number, particularly when benchmarked across our sector. Pre-tax cash from operating activities was over AUD 108 million, which was invested in some key projects in the group, particularly those feeding our flagship operation at Mount Magnet. The Penny and Galaxy undergrounds drew the large portion of the AUD 84 million invested in project development, along with projects like Orion at Mount Magnet and Die Hardy at Marda. We finished the year with AUD 154 million in cash and gold, which I will talk to you shortly. Moving to slide six, we've provided a simple reconciliation between the underlying EBIT figures for the last six months and the prior corresponding period.
I think the chart clearly shows that whilst we benefited from a higher gold price, the underlying results were impacted equally between higher costs and lower production levels. Of note, though, approximately AUD 8 million of the higher costs relate to a net non-cash NRV provision being made against our ROM stock position, most notably the low-grade portion of the Eridanus stockpile at Mount Magnet, which has largely been allocated now as a non-current asset, which requires you to assess its net realizable value using more conservative financial assumptions. Moving to slide seven, we look at cash flow from July 1 to December 31, 2022. As Mark mentioned, this was a period of investment for Ramelius. Operations generated over AUD 108 million, which after leases and some mine-minor other items, reduced to AUD 91.7 million, as shown in this waterfall chart.
Of note also is that this is approximately after AUD 15 million spent on building ROM stocks at Tampia, Marda, and Eridanus. We expect the substantial inherent cash within these large stockpiles to be realized over the next 12-36 months. The adjacent bars show that this net inflow was invested back into the business, as we said, by our sustaining and growth capital of AUD 48.9 million and AUD 38.9 million, respectively. Exploration total, AUD 13.5 million. Working capital was approximately AUD 3.9 million for the six months, leading to an underlying cash outflow for the period of AUD 13.5 million. Favorable movements in asset sales and a tax refund, plus the cash component of our FY 2022 dividend of AUD 7.2 billion, gave us a closing cash of AUD 138.5 million.
Coupled with bullion on hand, our cash and gold was AUD 154 million at the end of the period. On the topic of investing in projects, we thought it important to remind everyone that we believe Ramelius has a potential differentiator coming in the case of the high-grade Penny underground. Slide eight has been released before, as it comes from the three-year outlook we released to the ASX back in November last year. The simple aim of this chart is to provide an extract from the Ramelius mine plan for the next two to three years. It shows, production remains consistently between 240 and 300,000 oz. Importantly, the potential impact that Penny will have on the group's physicals, costs, margins, and financial results is clear and cannot be understated.
At this point, it's worth noting that the cost models behind the data are current. Indeed, it also allows for an element of ongoing wage increases year on year. It's not based on outdated cost information, and we believe it's a realistic forecast of unit costs at this point in time. Lastly, for this slide, it was prepared on the basis that Edna May Stage 3 would be deferred. This has now been confirmed, the recent release regarding this project has no impact on the three-year outlook. Moving to slide nine, this takes this projection a little further. Noting there's no new information in this slide, just presented in a way that demonstrates the turnaround in margins we are expecting in the next few years.
On the basis, broadly, that the spot gold price holds and that we deliver into our hedge book as it matures, then the all-in sustaining cost profile shown on the prior slide should deliver some of the highest all-in sustaining cost margins Ramelius has ever produced. As I mentioned at the outset, companies with a robust forward-looking cost profile and a strong, resilient balance sheet will be best placed to ride out this period of inflation we are in right now, and we feel we have that in our portfolio. Moving to slide 10, my penultimate slide. This just provides some backup data to support the strength of the RMS balance sheet. We believe we have a number of quality assets in our portfolio, but as CFO, I view our balance sheet as one of the most important of them all. Highlights here I think are pretty clear.
We've mentioned the AUD 154 million in cash and gold, which we expect to see increase as the second half unfolds, ideally ending somewhere closer to AUD 200 million by 30 June. We have AUD 100 million in available, yet undrawn debt. We have 145,000 oz of contained gold in stocks and in circuits. Our inventories in total are carried at AUD 193 million, but have a net realizable value in cash well in excess of this amount, particularly at current gold prices. We also have a hedge book that sits at 202,000 oz, which is approximately 25% of the next three years' production, at an average price of AUD 2,606 per ounce.
This is designed to ensure that we can operate with a high degree of confidence around achievable prices and ultimately margins. Importantly now, we have also made minor inroads into securing a ceiling price on a small portion of our diesel usage. At present, the quantities are small, but we will update the market as if this should change materially. Moving to slide 11, my final one. It's our usual reflection on the cash returns we have accumulated on all our external acquisitions made over the past years. As flagged in our last quarterly, the Vivian Underground is now on care and maintenance, having logged its last ore in January. It was acquired for just AUD 10 million in 2014 and has generated over AUD 130 million in free cash.
It's been a sensational asset for RMS, generating over 13 times the investment over eight years of life. Edna May has also been an excellent acquisition, now having generated over AUD 140 million in cash flow compared with the AUD 51 outlaid in the initial costs and the subsequent deferred payments. With Marda and Tampia complementing this acquisition, this trio of assets will no doubt generate another very healthy return for RMS. Next is Penny, which we've spoken about already, this asset will no doubt prove to be a superb investment. Lastly, Rebecca, which is still in its early stages, is one project where we are building an inventory profile which will inform a PFS completion later this year. Before we move to questions, I will hand you back to Mark for some final words.
Thanks, Tim. To summarize on Slide 12, while we believe we are so well-positioned, not only for the second half, but also beyond that, we have been able to retain large parts of the management team that's performed so well for the company over a number of years. We do have, Tim pointed out, a strong balance sheet and a disciplined approach to any investment decisions, and remain ready to act on any doable acquisitions that are also accretive. We continue to support both brownfields and greenfields exploration and believe we continue to add resources, especially at Mount Magnet and Rebecca, noting that we will recommence exploration at Penny in the June quarter.
Lastly, keep an eye out for progress on the production ramp up at both Penny and Galaxy, as well as our study updates as the technical team continues to deliver in a timely fashion. With that, Lucy, if we can please open the line for questions.
Thank you. If you wish to ask your question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Andrew Bowler from Macquarie. Please go ahead.
Yeah, Tim Manners and Mark Zeptner. Just a couple from me. Firstly, just talking about Vivian now in care and maintenance. Are you guys seeing a divestment opportunity there, or just happy to have it in the portfolio and keep tinkering around with exploration in the meantime?
Hi, Andrew. Thanks for the question. It's Mark. We will look at that as an option. Definitely we think we've depleted the current economic resources, but there still be some remaining resources on the, on the package. We will look at that option over the next six months in terms of a divestment option for us.
Yeah. Just obviously you gave us a pretty detailed update. At Penny in the quarter, just wondering for a little bit more color around that and how's the haul road upgrade going and I think Tim mentioned in his presentation that you're expecting some more tons towards the back end of the quarter, but more a lot, you know, more in the fourth quarter. Is that sort of tracking a little bit ahead or behind the update we got in the quarter?
I think it's pretty much on par with what we said in the quarterly. We will have the upgrade completed, end of February. We're currently hauling with double road trains. There's a likelihood we can get the triple road trains started late this quarter, as Tim's flagged, which gives us a little bit of slack, in terms of permitting and main roads approvals and shire, you know, just signing of agreements and final stamps. Obviously we're going through a tender process as well with haulage contractors. Like to get started in March with some triple road trains. We'll be going in quarter four at the very latest, I believe.
The last one for me, probably more of a Tim Manners question, just about DNA. Are you expecting DNA to step up in the second half as, you know, Penny starts to ramp up or, and sort of how are you thinking about that over the next couple of years with Penny? Cheers.
Andrew, yeah, look, it's a fair question. We obviously have to at some point amortize Penny, not just the capital development cost, but obviously the acquisition costs. They will start to flow through obviously once Penny starts to produce in volume. I think across the rest of the business, it's probably gonna come off a bit. Obviously Vivian's done, and Edna May will be pretty minimal, but no, the Penny DNA will kick in, which will affect obviously the bottom line earnings, but obviously no impact on cash flow, which is really what we're focused on from Penny.
Andrew, sorry, just to add in terms of Penny Mining while we're on the subject. We are in the process of commencing the first stope on the third level, at Penny, so it's pretty exciting times for the mine. We've got largely the Vivian management team in place down there, and they're ready to start stoping. Full steam ahead at Penny.
No worries. Thanks for answering.
Thanks, Andrew.
Your next question comes from Alex Barkley from RBC. Please go ahead.
Morning, Mark and Tim. Only extra question I had was around the tax refund. What sort of are you expecting around cash tax going forward in the next few halves?
Well, firstly, the tax refund, as you know, you pay in installments. Those installments are really done on a, if you like, an estimate on where you think you'll end up. We were, as we tend to be, slightly conservative on our assumptions, we paid a little bit more than we probably needed to, so we got the refund back. That's really what reflects in the accounts. Short term, we're not expecting to pay cash tax. I'd imagine that will start to flow when Penny really starts to kick in in the next sort of 12, 24 months. Short term, we're not expecting any material tax payments.
Is that just around the taxable income you're expecting?
Yes.
Okay. All right.
Be able to get the write off, you know, a lot of these acquisition costs, et cetera, and they'll all start coming through the deduction for tax as well as just for accounting.
Yep. Yep. No worries. Okay. Thanks, guys.
Thanks, Alex.
Your next question comes from Andrew Hines from Shaw and Partners. Please go ahead.
Hi there. Thanks, guys, for the call. Mark, I'm just interested in your observations around the M&A activity in the gold sector at the moment. Obviously, you're still out there looking and ambitions to add another 100,000 oz per annum hub to the portfolio. You know, obviously, you have Newmont coming into Newcrest Mining Limited. We've got, you know, Raleigh Finlayson and what he's doing around Genesis Minerals and around Leonora. Just your observations about the environment we're in right now, how easy it is to find assets and, you know, what sort of expectations are you seeing from vendors at the moment?
Thanks, Andrew. I think, I'll hand Mark a couple of comments and then hand over to Tim to add his. Look, I think valuations and prices have come down. Obviously the gold market has had a bit of a rough time over the last 12 months, so it's made valuations a little more realistic. As, you know, we've been talking about this for probably 12 months, and we haven't been able to achieve, you know, our desired outcome in this area. It hasn't made it any easier necessarily, 'cause we've got to tick all the boxes and we've got to get that return. For us, it's really about meeting our criteria. We haven't been able to do, but we're still, you know, we're still in there looking and we still think, you know, we can achieve what we set out to do.
Yeah. Andrew, Tim here. Look, I'd echo Mark's thoughts. There's still opportunities there. It is a bit tougher, although valuations, as Mark said, have come down a bit. You know, there's a few companies out there that are in a little bit of, you know, financial distress. The way we look at it is we're a little bit spoiled in that regard, in that we are financially pretty strong, and we have the ability to not so much be selective. We still know what we want to achieve, what we don't want to do is to destroy our balance sheet by taking on something that's, you know, a loss-making company or a cash burning company.
There are certain things that we are on the lookout for and we need to be wary of through due diligence type processes. We're still confident we'll find what we're looking for. And, you know, we've got the team working hard on all fronts.
Thanks, guys.
Thanks, Andrew.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Richard Hatch from [Topwell]. Please go ahead.
Good morning to you too. Thanks for your time and the presentation. Thanks for the optimism for the next four months. It's quite exciting. Quite a difference to last six months. My question was actually going to be, being aware you talk about Rebecca as a fourth, fifth hub, fourth hub. I was also gonna ask about any progress on the third hub you can share, but I suspect, I'm quite happy you don't because it's hard to get a bargain, as the world knows. If you make any comments about the third hub, I'll appreciate, and if you don't, just thanks for your time and your effort.
Richard, it's Tim here. You know, look, our criteria, I suppose, for, you know, the third hub remains pretty consistent. It's that, the sort of the circa 100,000 oz level, something that is close to or in production. Those factors haven't changed. We're still looking for something with the potential to have a 10-year mine life. There's not a huge list, but the list that is there, we are certainly working our way through. As I mentioned before, you know, fingers crossed, we can find a way to a potential opportunity and a consummated deal at some point in time. It is still a little bit challenging, but we're certainly putting all our efforts towards it.
Thanks for everything you do, and I will watch with bated breath. Good luck.
Thanks, Richard.
Thanks, Richard.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Thanks, everyone.