Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2021-Q1

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Quarterly Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Dan Clifford, Managing Director. Please go ahead.

[Daniel Clifford, MD, CEO & Executive Director]

Thank you, Amanda, and good morning, everyone, and thank you for your time.I have Ian Poole, Peter Trout and Adam McKinnon with me as well this morning. I'll make a start with a key summary and overview of the quarterly performance, and then Peter will cover off asset performances. Adam will talk to both near-mine and regional exploration results or progression through the quarter. And then Ian Poole to cover off corporate and financials at the end.Before I do that, I'd like to take the opportunity and particularly on the back of Mike Menzies' retirement from the Aurelia Board last month and thank him very much for his service and dedication to AMI as one of our -- as our longest-serving director for the company. And myself, the management team and the Board wish him the very best in his retirement.Just taking a step back. We presented -- management team presented the full year results and a look forward in August. I'd just like a quick recap on that last conference call as it sets the groundwork for how this quarter has unfolded for Aurelia. On that call we covered the on-strategy execution for FY '20, that the NSR and margin approach for our assets would continue and that we articulated an extension of our then-stated strategy to take a look forward beyond the current assets that we operate. The key messages in that presentation and particularly outcomes from the strategy are: Of sweating our assets and our infrastructure, the deployment of our dollar to the highest return -- highest internal rate of return through either exploration or other investments, a portfolio approach to improving the group's costs and reserve base and a sustainable and trusted presence in all the areas we operate. And underpinning all of those aspects of the strategy, reliability, predictability and control remain front and center for the management team. And it's with this -- with this in view, it has been a strong quarter across the board.Our health and safety result has significantly improved in the quarter with the introduction of our Aurelia Metals Safe Metals program, delivering a 32% drop in our 12-month rolling TRIFR. And on an actual basis for our year-to-date, we have 0, and that has been a remarkable turnaround to the lead indicators on the business. Production of 30,000 ounces and a 9% drop in our all-in sustaining cost to $1,000 an ounce and a net cash position of $104 million, and noting that, that is pre the dividend that was paid during early this month, have put the company in a strong position for the rest of the year.Progress with Kairos is on plan. The Federation studies are moving well as we clearly define the hugely accretive nature of the asset, and exploration has continued to deliver for Federation and further extensions -- sorry further -- and that exploration has been further extended to Kairos again and now Great Cobar.With that being said, I'll hand over to Peter to take us through the asset performances.

[Peter Trout, Chief Operating Officer]

Thank you, Dan, and hello to everyone on the call today.I'm very pleased to report consistent quarter-on-quarter performance at both our operating assets, measured by the ore mined and processed and our underlying unit costs. The group metal production decreased slightly from the June quarter, which really reflected the mix of all sources and the grade variability in our polymetallic ore bodies. The expected lower gold grade at Hera was partly offset by higher grades at Peak, which led to a 9% reduction in quarter-on-quarter gold production. The group's all-in sustaining cost dropped to $1,000 per ounce, with the strong result from Peak more than offsetting Hera's higher unit costs.The -- in relation to COVID-19, we've continued to manage actively the protocols to prevent COVID-19 transmission to operations. During the quarter, we saw cross-border travel restrictions limit some of the movements of our management, technical and operational personnel. Whilst we experienced some minor efficiency and productivity impacts, it's more important that there have been no reported COVID cases in the Cobar region nor at our sites.Turning to operations and starting with Peak. We saw the continued benefit of the process plant upgrade during the September quarter, where we treated multiple copper and lead and gold campaigns. We drew down on ore stockpiles that carried over from the June quarter. And in August, we achieved an annualized throughput rate of just over 800,000 tonnes per annum through the process plant. Our ore production was sourced predominantly from the Chronos and Perseverance Deeps areas, which delivered higher-NSR-value ore and also slightly less tonnage than the prior quarter.The major operating focus was on accessing the new Kairos deposit, and that was about 2/3 of all developments during the quarter compared to around 12% of total development in the June quarter. And that development towards Kairos reflected the majority of our growth capital expenditure in the group. The lower decline to Kairos has reached the elevation of the first stoping block, and the internal ramp is now advancing upwards, where we'll meet the upper decline, as well as continuing downwards to access new mining levels. We've also broken off to the first production level at Kairos. In the upcoming quarter, we'll be raise boring a large internal ventilation [ route ] and we remain on track for first stope production in the March quarter.Unit cost at Peak fell as a result of the mix of operating and capital development, our stoping activity levels and also the timing of expenditure. In particular, our sustaining capital expenditure will increase in the coming quarter as we commence a TSF embankment raise and perform statutory compliance and plant refurbishment programs as part of our budget. Peak's all-in sustaining cost decreased significantly to $594 per ounce on the back of higher gold sales and lower site costs.At Hera, we have transitioned to ores that have a lower average gold grade and higher base metal grades. And this transition can be seen in the quarterly gold and base metal production numbers. The lower gold production was the main contributor to Hera's all-in sustaining costs of $1,250 per ounce.Our operating focus at Hera is to maximize the ore through the mill and reduce unit costs to partially offset the lower gold revenue from the lower gold grades. We saw the benefit of several initiatives over the September quarter. These include actively managing the number of unplanned stoppages in the process plant, blending our ores to give a more consistent base metal grade to the flotation circuit, reducing variability in the process circuit through changes in our control system strategies and also targeting reagent additions to reduce consumption whilst maintaining our metal recoveries. In terms of capital development, we continued the North Pod incline during the quarter and started development towards a drill site that will allow us to test a potential mine life extension in the main southeast area. We're also establishing access to an historically backfilled stope that will become a source of future waste rock backfill for new mining areas.Moving from Hera to Federation. We've made good progress on the scoping study with a number of work streams underway. The study program has been performed in conjunction with the infill drilling and environmental baseline studies so that we strip them on the time line to permitting and a potential mine development to sustain production from the Hera facility. The recent study work supports an underground mine development and the recovery of both gold and base metal concentrates. Some of the initial findings include an assessment of the geotechnical conditions, which are similar to those at the Hera Mine; the presence of gold as coarse grained particles that are suited to recovery through a gravity circuit; and mineralogy work and grind size analysis that suggests separate lead, zinc and copper concentrates can be produced from a flotation circuit or circuits. We'll continue to advance the various work [ spends at ] Federation over the next quarter and incorporate the findings into one or more project configurations that we can take forward to the next stage of evaluation and permitting.And with that, Dan, I'll hand back over to you.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Peter.In terms of exploration, Adam will take us through near-mine and regional exploration. Thanks, Adam.

[Adam McKinnon, Group Exploration Manager]

Thanks, Dan.The past quarter has once again seen extensive exploration and evaluation work conducted at Federation. In August, the company released new results confirming the presence of exceptional gold grades at Federation with intercepts including 21 meters at 32 grams per tonne gold and 45% lead/zinc and 20 meters at 17 grams per tonne gold and 44% lead/zinc. These results are amongst the highest-grade intercepts ever drilled in the region, exceeding even the best results of the nearby Hera Mine. Intensive evaluation work is continuing into the current quarter with follow-up drilling further testing the gold, lead, zinc, copper and silver potential of the system. Ongoing collection of geotechnical data will also occur to support mining studies for Federation. Given the magnitude of drilling at Federation since the release of the maiden resource in June this year, an updated resource estimate will be prepared for release due in early in March quarter, if not earlier.Moving on to Peak now. A new drilling platform has been established in the lower Kairos decline and diamond drilling has recently commenced there. Drilling will initially target the first high-grade stoping area at Kairos. This platform will also provide a stage for testing extensions to Kairos at depth with the system still remaining open.Further north, a surface drilling program has now commenced at the Great Cobar deposit. Great Cobar is an important asset for the company with a current indicated and inferred resource of 4.1 million tonnes at 2.2% copper and 0.8 grams per tonne gold. The program will target both infill and extensional targets and will provide additional confidence to the resource estimates. Drill core for confirmatory geotechnical and metallurgical work will also be collected.Consistent with the company's continuous disclosure commitments, we expect to provide an update on drilling results of Federation and Peak during the current quarter.Thanks, Dan.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Adam. I'll hand over to Ian to cover corporate and financials, please.

[Ian Poole, CFO & Company Secretary]

Okay. Thanks, Dan.Sales for the quarter of $107 million were slightly down on the $112 million on the prior quarter due to lower volumes, which were largely offset by higher prices achieved. The group's all-in sustaining costs of $1,000 per ounce for the group during the quarter was $104 less than the prior quarter, due primarily to lower mining costs and the timing of sustainable capital. The company is maintaining its all-in sustaining cost guidance for the full year of $1,500 to $1,720 (sic) [ $1,750 ] per ounce.The company's net cash balance at the end of September of $104 million was an increase of $25 million on the June balance. This was achieved following good operating and sustainable capital performance at Hera and Peak. The company invested in growth capital of $10 million made up of the Kairos development and exploration and evaluation of Federation.All in all, a very good and consistent performance for the quarter.

[Daniel Clifford, MD, CEO & Executive Director]

Okay. Thanks, Ian.Let's take a couple of -- a few closing comments before we go to questions.Just to add to Ian's comments. It has been a strong quarter, and our guidance is reaffirmed. The cost per tonne and throughput are positive and improving, particularly at Peak. And although amongst those controllables, we will see variability in the forward quarters in comparison to this quarter in gold and all-in sustaining cost. The controllable cost per tonne and throughput are our measure of reliability and predictability and control. As a result of the head grades coming and the phasing through the year of particularly Peak again, we don't expect the December quarter to be at the levels of gold production that we've seen in this quarter. And therefore, our guidance is reaffirmed at 80,000 to 90,000 ounces between $1,500 and $1,750 an ounce.And with that, I'd like to open up to questions, please, Amanda.

[Operator]

[Operator Instructions] Your first question comes from Dylan Kenny -- Kelly from Ord Minnett.

[Dylan Kelly, Senior Research Analyst]

Congrats to the team on a great result. It's really pleasing to see some momentum on safety and tonnes in, well, effectively across the board. 2 questions from me. I just want to drill into your last point, Dan, around grade and expectations for December quarter and what that means rolling into the second half. Can you just remind us what the timing is for Kairos coming in and to what extent we can expect that grade profile to shift? So we're going, what, down from, what, 3.9 to, what, 3.5, 3, and then rebounding as Kairos sort of starts to come in. Or is that going to be more sort of 4Q dated in terms of timing?

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Dylan. I think the key theme with this, I'll just reconfirm what we outlined at the prior conference call during August, is that Kairos -- meaningful volumes at Kairos -- well, we start producing meaningful volumes during late in the March quarter. And due to the early nature of that ore body, we won't see huge tonnage contributions from Kairos really until 2022 -- sorry, FY '22. So we are on track to be there, but we're not going to see large volume contributions from that ore body during the course of this year. So in essence, in -- when it comes to guidance or what the next 3 quarters look like and -- we are expecting reasonably steady numbers through the quarters. And pretty simply, I look at it and take the 30,000 ounces off the midpoint and divide that by 3, with some variability in those, and that's roughly what we're expecting to be achieving for the balance of the year.

[Dylan Kelly, Senior Research Analyst]

Okay. Understood. Second question just in regards to Great Cobar and the commentary that you provided in the update there. It seems like you've got some easy wins there to add some mine life pretty quickly. Can you just remind us where you're at in terms of environmentals, how you're going to be accessing the ore body in terms of decline or exploration drive? And any sort of rough CapEx estimates on how much it will cost to get into it?

[Peter Trout, Chief Operating Officer]

Dylan, Peter Trout here. We're currently in the process of advancing the EIS for Great Cobar. So we received, during this year, a list of criteria that we have to address, and we're well advanced in preparing our response to those. In terms of accessing Great Cobar, we're looking at an underground decline from the new Cobar complex across to the deposit itself and then ventilation shafts through the surface to provide our ventilation and services access. I'm not in a position to be able to provide capital guidance. We've got work to do with the drilling program that Adam has outlined and also some more technical work which will allow us to move up those mining schedules and cost estimates.

[Dylan Kelly, Senior Research Analyst]

Okay. Just referring back to the previous commentary around, say, a $20 million exploration decline. Is that still the -- how we should be thinking about it in terms of the first step? Or are you thinking you can do most of the drilling from surface rather than run one over from, where would it be, Jubilee?

[Peter Trout, Chief Operating Officer]

At this point in time, a surface drilling gives us access to results far quicker and at lower costs than extending the decline. So at this point in time, there's no plan in this financial year to push ahead on the decline. We're going to get these results back from the surface programs and look at those to give ourselves the best orientation for the decline.

[Operator]

Your next question comes from Brian Chu from Australian Gold Funds.

[Brian W. B. Chu, Founder]

Dan and team, well done on your rather exceptional September quarter performance. Now in terms of the Hera Mine and the potential for developments in the Federation deposit, can you remind us again on what the time line is looking to be like for the Federation deposit to be -- starting to be feeding into the processing plant so that we can see the production increase and the cost to reduce? Or is that something that will be in the further foreseeable future?

[Daniel Clifford, MD, CEO & Executive Director]

Brian, the time line that we've talked to in terms of Federation is one that is in the hands of how it is approved through stoping and regulatory approvals. It -- from a start that is usually several years, 2 to 3 years. We're now pretty much 6 months into the study, so we're expecting it in a 2.5-year period. And that is matching theoretically with the remaining life of Hera. So we won't see -- our plan at this point in time based on the approvals time line is that we will see, on the basis of successful studies and feeds through Federation, that it would come in towards the end of Hera's life. So that's still 2-odd years away, 2, 2.5 years away. We look at that as reasonably low risk, although not without risk, in terms of getting approvals for mining operations through the New South Wales planning system. And I'd say that if I think it's low risk in that it is a satellite ore body, it's 10 kilometers from our main infrastructure area and tailings and camp facilities. Therefore, we are really minimizing our environmental footprint as a business to bring on this asset.

[Brian W. B. Chu, Founder]

And one further question, if that's okay. Would it be fair to say that the Hera production that we are seeing now is going to be the trend? Or would you be seeing a bumpier ride ahead?

[Peter Trout, Chief Operating Officer]

Brian, it's Peter here. I think at the annual results we flagged that the gold profile at Hera will move towards the reserve grade. And we'll also see higher base metals over time. And I think the first quarter of this financial year is just reinforcing that. It's in accordance with what we see in the ore body and our mining plans.

[Operator]

[Operator Instructions] Your next question comes from Mike Millikan from Euroz Hartleys.

[Mike Millikan, Resources Analyst]

Congrats on a very good quarter. Just a very quick one from me in regards to guidance. Will you be revisiting estimates after the first half?

[Daniel Clifford, MD, CEO & Executive Director]

Thanks for that, Mike. We will be -- we'll continuously review what our forward projections look like, Mike. So if and when we see through continuous disclosures the need to adjust our guidance, we'll do it then.

[Mike Millikan, Resources Analyst]

Okay. Cool. And also just on Federation, obviously, resource update coming in the March quarter. Scoping study release, is that going to be the June quarter? Is that the expectation?

[Daniel Clifford, MD, CEO & Executive Director]

Look, in terms of Federation at this point, Mike, that's all the studies we're doing are quite internal. We will assess those as they go. That is effectively our timing. As to the extent and the timing of release, we'll update as we progress through those studies.

[Operator]

Your next question comes from Mark Fichera from Foster Stockbroking.

[Mark Fichera, Executive Director & Head of Research]

Good results. Yes, just a question on the sustaining CapEx. I was just wondering sort of the in terms of guide. It's obviously you did less in this quarter, and I was wondering regarding the balance to meet the guidance. Is that going to be sort of evenly spread over the remaining 3 quarters? And also where is that going to be mostly sort of targeted?

[Peter Trout, Chief Operating Officer]

Yes. Mark, sustaining CapEx is minimal at Hera. Most of our sustaining CapEx over the remainder of the year will be at Peak, and that will vary over the course of the remaining 3 quarters.

[Mark Fichera, Executive Director & Head of Research]

Right. Will it be sort of consistent over the 3 quarters? Or will there be a particular quarter where it might be more than the other quarters?

[Daniel Clifford, MD, CEO & Executive Director]

At this stage, it's quite evenly spread, Mark, in that, as Peter mentioned earlier, we've got -- at the moment, a lot of our CapEx certainly for this quarter has been focused on Kairos as -- and that's in growth. We do start to shift back from a development mix back into sustaining and, as Peter mentioned, the compliance and sustaining capital investment into the surface.

[Ian Poole, CFO & Company Secretary]

And the tailings storage facility...

[Daniel Clifford, MD, CEO & Executive Director]

What we will see -- thank you, Ian. That was my point. What we will see as the year progresses is the tailings storage. Upgrades will come through over the next 2 quarters. That will keep that spend reasonably consistent.

[Operator]

Your next question comes from Stuart Dodd from Renaissance Asset Management.

[Stuart Dodd, Portfolio Manager]

I guess everyone else has congratulated you. So well done on the quarter. My question has actually been covered by Mark. So thanks, anyway.

[Operator]

There are no further questions at this time -- pardon me. We now have a question. Your next question comes from Joshua Hain from REST Investments.

[Unknown]

Dan and team, good results, as everyone's mentioned. My favorite question, just in terms of the throughput rate to Peak. You've sort of left a little nugget in there that you did get to 800,000 tonnes per annum in August. What -- I guess, what do you need to work on to, I guess, remain at that level? Is it still development constrained? Or there are other bottlenecks that sort of needs to be ironed out over time.

[Operator]

Pardon me. This is the operator. The speaker line has temporarily disconnected. [Technical Difficulty]We now have the speakers connected.

[Daniel Clifford, MD, CEO & Executive Director]

I think we were at Stuart, I think, had a question.

[Unknown]

I think -- it's Josh here, if you can hear me.

[Daniel Clifford, MD, CEO & Executive Director]

Josh.

[Unknown]

Yes. I think Stuart's question -- he said that it's been answered, and then I jumped on, but I'm not sure you got my question. So I'll repeat it, perhaps. I just asked that given that you had sort of left us a little nugget of information on Peak doing 800,000 tonnes run rate in August, just wondering what is the constrain still going forward to maintain that level. Is it still on the development side? Or are there other bottlenecks within the plant that need to be worked through?

[Peter Trout, Chief Operating Officer]

Joshua, the main bottleneck we have at the moment is just getting enough stoping areas established in the mine to deliver and use that capacity in the plant. That August run was a very good run, no changeovers between ore feeds, good reliability in the circuit and good throughput rates, and that allowed us to draw down on some accumulated stockpiles. So the challenge is very much in the mine to make sure we've got sufficient stoping areas available to meet that ore demand and to do that through the switch between the copper and the lead/zinc campaigns.

[Unknown]

And just to my benefit, who's never run an underground mine before, is there not an option to just get a few more bodies down for a short period to sort of get ahead on development? Is there -- or you've sort of been constrained and, I guess -- and COVID constrained at the moment, I guess.

[Peter Trout, Chief Operating Officer]

It's probably a combination of factors, Josh. We have had a shortage of operators through our mining contractor, and that has been exacerbated with the travel restrictions, meaning we cannot fully man trucks consistently, or ships, and that's being dealt with. Secondly, in terms of production areas, we have sufficient production areas open. It's a matter of turning around the stope. So once we finish extracting ore from a stope, backfilling it and bringing the adjacent stope in line in a sequence. So where we are at the moment, we're at 5 or 6 active mining areas, and we're generally [ retreating ] from one end back to the -- along the axis. So just cycling through those stopes and making sure we've got the backfill available. We're moving the ore out and keeping the operation in a good rhythm.

[Operator]

Your next question comes from [ Lindsey Hage ], a private investor.

[Unknown Attendee]

Good results. We can clearly see how the new management team is turning this thing nicely. So well done. Last quarter, we spoke a little bit around getting the company, I guess, copper ready, and I totally agree with that. Just any sort of high-level commentary you can give around, over the quarter, anything you've seen that you've liked out there for us to have a look at?

[Daniel Clifford, MD, CEO & Executive Director]

Well, thanks for the question. I'll keep my answers, obviously, internal. I'm not at liberty to really be talking about external M&A. Internally, the things that we are really seeing that are positive for the business are we commenced the surface drilling program for Great Cobar to drive further certainty in that resource for our business, and we are also starting to see emerging copper coming through the Federation deposit for the business. So that is definitely getting our attention. And as for external opportunities, yes, we would inform the market if and when they come up.

[Operator]

Thank you. There are no further questions at this time. I will now hand back to Mr. Clifford for closing remarks.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Amanda.Just doing some closing comments. In summary, our strategy is on track for the year and for multiple years beyond that. The assets are running hard. Exploration is delivering and Federation is continuing to shape up well. And to mirror a few words from the other speakers on the conference: All in all, it's been a great start to the year and a strong quarter.In terms of next information flow for the business, as Adam mentioned, we will be along with continuous disclosure lines and aiming for potential exploration updates and then, towards the end of the year, if not into the March quarter, a resource update for Federation and the June -- the December quarterly results. We do have our AGM on the 19th of November. Unfortunately, with the multiple COVID restrictions, it's a fully virtual meeting, and those notices have been distributed to the market during the course of last week.Thank you very much, everyone, for your time, and we look forward to continuing Aurelia's progression through the course of the year. Thanks.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.