Thank you for standing by, and welcome to the Ramelius Resources December 2021 quarterly 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 the star key 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 in this morning. With me as usual is Chief Financial Officer Tim Manners. Following the standard course of events for these calls, I will run through the operational highlights from the quarter before passing over to Tim to delve into the numbers in more detail. We will then open the line to questions.
Despite COVID-19-related labor shortages becoming more apparent within WA, Ramelius delivered another solid quarter, producing 66,919 ounces at an all-in sustaining cost of AUD 1,493 an ounce. This was at the lower end of guidance for the quarter, influenced by a slight drop in grade and throughput at Mount Magnet and an inability to haul as much ore as planned from the Tampia and Marda sites due to those aforementioned labor shortages.
Based on the quarterly result, we have maintained our full year guidance of 260-300 thousand ounces at an all-in sustaining cost of AUD 1,425-AUD 1,525, with the current expectation that we will achieve within the lower end of that production range, while we are currently well positioned on all-in sustaining costs being around the midpoint of that range.
However, we have added the caveat that the actual impacts of the delayed WA border reopening, any potential COVID-19 infections to mine site personnel, and supply pipeline disruptions are difficult to accurately assess at this time. While we have made some allowances for these in the guidance, it is hard to say with any real certainty how they might affect the business over the next six months, and I don't think we're the only ones wrestling with these issues.
For the first time since we acquired Edna May in 2017, production from that operation surpassed Mt. Magnet in the December quarter. Even though we were restricted in hauling as much ore as we would have liked from Tampia and Marda, Edna May still produced 35,667 ounces for the period, while Mt. Magnet produced 31,552 ounces.
It should be noted that the labor shortages that have affected all haulage capacity has resulted in an increase in ROM stockpiles at Tampia and Marda of approximately 200,000 tons. There are now 785,000 tons of high-grade ore containing more than 40,000 ounces of gold sitting in those stockpiles.
At an assumed 2,500 AUD gold price, this all would generate over AUD 60 million in incremental free cash flow once processed. To expand a little further on this, our haulage contractor has the trucks, but not the drivers. Despite increasing pay rates significantly and adding a Ramelius paid-for bonus system into the total package, there are simply not enough truck drivers in Western Australia to satisfy both resource industry and general freight needs currently.
Unfortunately, we're also down a few additional drivers due to the February 5 border delay, with some drivers heading back east pre-Christmas on the understanding they could return, as well as a number of Eastern States-based drivers that were in the process of being onboarded with an intended start date of around February 5.
We will have to work with the government to see if we can get those drivers into the state because the current 14-day quarantine period, as opposed to the seven days currently used on the East Coast, will act both as somewhat of a deterrent and will also delay getting those truck drivers onto our mine sites.
Mandatory vaccine requirements imposed by the WA government have exacerbated labor shortages for many countless companies, but thankfully, the impact on Ramelius has been relatively minor, with only 2.5% of our workforce, which is seven out of the 300, and reportedly a similar percentage of our contractor employees affected. We remain open to welcoming these employees back should they become fully vaccinated, with some indicating they are holding out for the Novavax vaccine to become available.
Aside from observing the vaccine mandate, we continue to take steps to manage the threat of COVID-19 and believe we are well-prepared to handle an infection or outbreak on-site should that occur. We have secured sufficient supplies of PPE and rapid antigen test kits for any for-cause testing and have undertaken on-site and corporate emergency drills and scenario planning with a view to minimizing the risk of any potential disruption to operations.
At Mt Magnet, the focus of mining operations continued to be the Eridanus open pit. With sustained high production from the pit, we're able to preferentially mill higher-grade ore and stockpile surplus ore. The Shannon and Hill Sixty underground operations also continued to perform well. Vivian attributable mill production was 58,285 tons at just over four grams for almost 7,500 recovered ounces.
With the likelihood of deeper extensions to the Vivian ore body reducing, mining will focus on effective extraction of the remaining reserves in any remnant resource areas, which will likely involve a final open pit cutback once all underground reserves are depleted. At Edna May, all sources during the quarter included the historic low-grade oxide stockpiles, Greenfinch, Tampia, Marda, and the Edna May underground.
Mining progressed well at both Tampia and Marda. Improved haulage from both those operations, albeit as discussed at a rate below what we're anticipating, was the primary reason behind the quarter-over-quarter lift in production from Edna May. Project development. On the project development front, the small Magenta pit at Penny was completed, and a pit cut back at Penny West commenced to reestablish suitable long-term ramp access and a portal location in the north wall.
The ordering of Penny West itself has also begun pumping into the Mt Magnet pit to the north. Highwall preparation for the underground portal is expected to occur towards the end of this quarter, and we look forward to commencement of underground mining and subsequent production from this high-margin operation shortly.
Work continued on mining studies, including the Galaxy underground pre-feasibility, Morning Star underground concept study, St. George underground remnant study, and the Hill 50 underground concept study at Mt Magnet, as well as the Edna May Stage 3 open pit pre-feasibility study.
We will provide a more fulsome update on the status of each of these in February. Of course, with the completion of the takeover of Apollo Consolidated, we have added the Rebecca Gold Project east of Kalgoorlie to our list of development projects.
Exploration under Ramelius management is scheduled to begin in February, and we intend to pick up where Apollo left off with technical studies as soon as possible. We have included AUD 4.6 million of expenditure in this half at Rebecca, which should demonstrate our intention to go pretty hard at this project. There's plenty of information and exploration in the quarterly report, which I'll leave you to digest at your leisure.
Although some highlights have made the front page, including RC and diamond results at Bartus East at Mt Magnet, and some new results from the RC program at the Mt Finnerty JV, 200 km from Edna May. Mt Finnerty JV is a relatively new project for us. It's early stage, but significant encouragement can be gleaned from the first round of drilling, we believe.
In summary, we continue to see excellent returns from our investment in exploration. We spent some AUD 14 million in the first half with an even bigger second-half forecast of AUD 18 million. With that, I'll now hand over to Tim.
Thanks, Mark. As you pointed out, Ramelius was not immune to the impacts of COVID during the December quarter, in particular, the labor shortages you spoke about. While we remained inside guidance, gold produced was at the lower end, with quarterly production of 66,919 ounces, giving a total of 132,605 produced for the first half.
Sales were stronger in the quarter at 77,225 ounces, but this was largely due to a reversal of the buildup in bullion seen at the end of the prior quarter. The average price received increased to AUD 2,357 an ounce, reflecting the runoff of lower-priced forward contracts and a generally higher spot price environment.
Despite some of the issues that impacted the company this quarter, we still believe our all-in sustaining costs remain very competitive at AUD 1,493 an ounce for the quarter and AUD 1,473 an ounce for the half year. We have retained both production and all-in sustaining guidance for the full year, albeit, as Mark highlighted, we are guiding to the lower end of the production range.
Forecasting the all-in sustaining costs for the second half is a challenge, given the number of variables that the industry is currently facing. There is no doubt, as I mentioned, cost pressures are being seen across the business. However, at this point, we are comfortable keeping the full year all-in sustaining cost range as it is, but we will keep the market informed by exception as the year unfolds.
There was also a lot of activity on the corporate front in the December quarter, with the off-market acquisition of Apollo Consolidated being completed in just 36 business days in the quarter. Despite a couple of bumps in the road, it was a very efficient transaction and a credit to all who were involved.
You will no doubt recall that the purchase consideration, which had an equity value of approximately AUD 150 million, contained a material cash component, which was the single biggest reason for the drop in our cash and gold balance to AUD 164.5 million at the end of the quarter, down from AUD 273.9 million at the end of September 2021.
The underlying operating cash flow remained positive at just under AUD 45 million for the quarter, from which nearly AUD 25 million was spent on development at Tampia and at exploration activities across the group. The underlying cash flow from operations was therefore approximately AUD 13 million.
As I mentioned, the net cash impact of the Apollo transaction was an outflow of about AUD 67 million, which along with AUD 20.4 million in dividend payments and approximately one and a half years worth of income tax payments totaling AUD 31.6 million, saw us end the quarter with AUD 164.5 million in cash and bullion. Importantly, all major outflows for the Apollo transaction are now complete, except for stamp duty, which will follow once assessed.
Furthermore, given the tax payments in the quarter represented more than a full year's worth of a liability, we would expect our tax installments to be lower going forward, all else being equal. Lastly, quick update on the hedge book. During the quarter, we delivered into 62,500 ounces of contract at an average price of AUD 2,344 an ounce and added 85,000 ounces at an average of AUD 2,494 an ounce.
With the spot price back above 2,500 AUD an ounce and the forward curve returning to contango, we took the opportunity to add some slightly longer-dated positions at excellent forward prices to help ensure our short to medium-term cash management and development programs can be supported. The hedge book at the end of December is now 218,500 ounces at an average price of 2,419 AUD an ounce Aussie. I will now hand you back to Harmony to open the line to any questions.
Thank you. If you wish to ask a 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.
Thanks for taking, Tim. Obviously, you're just talking about the difficulty finding truck drivers at the moment. I was just wondering what the plan is when Penny's scheduled to come on with its—with trucking. I mean, obviously, Vivian's winding down. Is it just a case of reallocating resources away from Vivian towards Penny or that, you know, will there be a little bit more pressure on the business in terms of satellite trucking once Penny comes online? Cheers.
Thanks, Andrew. Yeah, largely, it will be reallocation away from Vivian. We've been able to go to a super what they call a super quad at Vivian, which is a slightly higher tonnage truck, which will help us. We'll need, obviously, fewer trucks. Also Penny, given the high-grade nature, is not high tonnage.
There's not a massive requirement there as opposed to the Tampia and Marda, you know, circa two grams per ton. You need a lot more trucks to move a similar amount of ounces. We've got a plan in place for that. That'll really kick in more June, July, and we'd like to think we're in a better place from all the stuff that we talked about by then also.
No worries. Just the last one from me. Obviously, you talked about some preparations for, you know, when COVID-19 cases pick up here in Western Australia. Have you heard anything from the department about any potential exemptions for the mining industry?
I mean, obviously, you know, given the current definitions of, you know, close contacts and isolation requirements and that sort of stuff, but, you know, I think it's pretty safe to say that under the current definitions in Western Australia, it's probably pretty untenable for the mining industry. Is there any exemptions given obviously the extremely high, well, 100% vaccination rate in the mining industry that you've heard of?
I believe that today the disaster council is meeting, and they're looking closely at that. We obviously would prefer a seven-day regime rather than 14 days, but we'll have to await the outcome of that. Things like a road train driver, I can't believe I'm saying it, but it's become an essential and a critical skill that we've got a shortage within WA, so we'll certainly be arguing that point.
Because it goes further than just East Coast that potentially you're going to have to tap into overseas skills to fill the needs that we have currently. You know, some of these iron ore mines with iron ore prices going back up need 50-60 truck drivers just for one small iron ore mine. They have a pretty big draw on the industry. We've heard about general freight and the ability to fill shells and things like that. I think that, you know, that's the pointy end of what we're saying with this shortage.
No, that's all for me. Thanks, Tim.
Thanks, Andrew.
Thank you. Your next question comes from Matthew Collings from Morgan. Please go ahead.
Sorry, gents. Stuck on mute. Mark, could you just go through the schedule of works, what's been going on, and what's coming up at Penny, a tad slower than you did in the intro?
Thanks, Matthew. I thought I was quite deliberate. What's happening at Penny, we've completed the small Mt Magnet pit. We started the cutback. The cutback's well advanced. Cutback should be finished later this quarter, and then we'll be preparing the high wall above the portal position, which is in the northern part of the Penny West pit.
We've already awarded an underground contract and, you know, working out mobilization, timing, and things like that, to be actually having underground crew there by the end of this quarter. Initial development with, you know, production really starting to kick off more in the September quarter.
Thank you. No, it was good. My typing's just not up to pace. Thanks. That's it.
No worries. I suppose in summary, in the current environment, the schedule we've basically met, we're on track at Penny and, I think the guys out there have done a really good job to achieve that.
No worries. Cheers.
Thank you. Your next question comes from Michael Scantlebury from Euroz Hartleys. Please go ahead.
Hey, guys. Actually, my question was just answered then before it got to our turn in the queue. Thanks again. Cheers, guys.
Thanks, Michael.
No worries, man.
Thank you. Your next question comes from Alex Barkley from RBC. Please go ahead.
Oh, hi, Mark and Tim. Just on that, you sort of suggesting the lower end of production guidance is gonna be achieved. How would you expect that change in forecast to be split across the site? Is that a bit more focused at Mt Magnet where you've called out those haulage, labor issues or something a bit different?
I think, Alex, Tim here. I think it's gonna be pretty even, to be honest, between both. I mean, we're hoping that, as you pointed out, that the availability of truck drivers improves. If that does happen, then I think you'll see a little bit more out of the Edna May processing center. In general, it's a pretty even profile. It was at the start of the year, and still remains the case. I wouldn't expect a major variation from either one, to be honest.
Okay. Sure. A last question from me. On the project studies coming up in February, obviously we're seeing the labor and cost pressures right now. I do appreciate those studies are still in progress. If you do find the cost or the economics a bit temporarily not in your favor, is that something you might sort of delay the, you know, revisit the studies themselves for those costing estimates or potentially the project start dates themselves, you know, if you think the economics aren't being fairly represented at this time?
Very much so, Alex. That's the case with Edna May Stage 3. We've completed some drilling at Golden Point. We're obtaining all of our final results. We're gonna put that into a model, see what that does to our optimizations at, you know, our last assumed open pit price.
Yeah, getting to start in a large open pit like Edna May Stage 3 in the current volatile contractor market, that's exactly what we're doing there. We're obviously waiting for things to settle down, for labor to not be as stressed as it is. Some of those Mt Magnet studies are at earlier stage, and we can, I think, make some assumptions at this early stage to see whether those projects have got legs, and move forward. In terms of decision-making, what you say is perfectly valid.
All right. No problem. No, that's good context for what's coming up in February. Thanks very much, guys.
Thanks, Alex.
Thanks, Alex.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Richard Hart from Top Wheel. Please go ahead.
Good morning, Mark and Tim. Congratulations again on making guidance despite the conditions, because I'm sure it's not easy. One question about trucking. Everyone's talked about trucking. Is there any sort of priority with regard to access to trucks and drivers, or is it just dog eat dog?
Pretty much the latter. You know, we've raised our pay rates effectively through our contractor a number of times. You know, a truck driver is getting offered AUD 60 an hour in iron ore, plus bonuses, plus. They're getting quite well paid now, and they're dragging people or truck drivers out of general freight.
And the guys with the most money can pay the most, and it's pretty much dog eat dog. You don't have any preference. And you've got, you know, grain harvests and things like that to move around as well. It's a pretty palaver situation at the moment is the way we're, you know, talking to our contractors. It's pretty difficult to... At the moment it's about keeping your, the truck drivers you have. To get extras at the moment is very difficult.
Right. Did we have a weak harvest, by the way?
We had a record year. Remember we talked about how wet it was and how it impacted on our Marda haulage. That all played into a record year for the WA harvest. They had plenty of grain to move around as well as increased requirements from resource industry.
Does that mean as wheat farmers, we actually benefited too?
Indirectly.
Indirectly. Our community group that farms the rounds of the Tampia Mine. I haven't seen their books, but I assume they did very well.
Okay. No, quickly, I won't waste any more of your time. The statement is the trading halt at Westar, we have an interest there. There was no statement from Ramelius. Is that not necessary? Is it not significant enough to have an impact on us? I just wondered why there was no statement by Ramelius on that.
It made the front page, Richard. You know, they're early stage, and it's all about materiality.
It's not material, Richard.
All right.
-for us to go into a whole... No. Is-
No.
bottom line.
That's what I assumed. Okay.
Is for the.
No, they're nice-looking early results, and we hope that, you know, that turns into a mine and, but early days, and we'll take it from there.
Good. Thanks for your time, and well done again.
Thanks, Richard.
Thank you. Your next question comes from Stuart McKinnon from The West Australian. Please go ahead.
Oh, g'day, Mark and Tim. I just wanted to clarify, when you talk about the shortage in truck drivers, is that specifically road haulage or is it also your sort of Haulpak drivers on site? Is it across the board or is it mainly restricted to the road train guys?
For us, and because we've got a road haulage business, it's really for us in that area. That's what has affected our ability to truck from our satellite sites. I've no doubt there are shortages across the industry, but not as acute as we're seeing and not having as big an impact as the ore haulage truck drivers have had on us in recent times.
Okay. Thanks, Mark.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We'll pause a moment for any further questions to come through. Once again, to ask a question, please press star one. Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.