Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2022-Q1

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals September FY '22 Quarterly Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Dan Clifford, Managing Director and CEO. Please go ahead.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Rachel. Good morning, everyone. I have Ian, Peter and Adam with me this morning as we step through our September quarterly performance. For ease of reference, we'll be referring to the presentation titled AMI Investor Presentation September 2021 Update and Outlook posted on the platform this morning. Just before we dive in, a couple of opening comments. I think for those who have listened or heard from myself or the team, we're not actually that renowned for the use of -- or the common use of words, such as fantastic, stunning, excited. But I have to say, as we look through these results and what we've achieved, it's actually getting very difficult not to use those words. And it's a good problem to have for us. And I think just to make a start on these, If you could just move over to Slide 5. Performance, particularly our operating performance with some great results across sustainable development, production, especially Dargues and at a group level beating our Q1 goal forecast for the quarter. Moving through into exploration. And it feels as a team, every time we put a hole in the moment, we're snapping back in our chairs with the success of the results we're getting from this program. And then on to our growth projects, where we're moving well beyond blue sky thinking and arm waving actually into execution now. We move on to Slide 7. With our performance to plan, it's fantastic to see the momentum in our sustainability performance with solid and repeated gains across both recordable injuries and reportable environmental incidences. Move over to Slide 8. Our run rate is put a spot on track for this year as we progress through with gold ahead of the September quarter, as I mentioned earlier and our full year guidance across the board being reaffirmed as a business. So I'll hand over to you, Peter.

[Peter Trout, Chief Operating Officer]

Thanks, Dan, and I'll talk to Slide 9 initially. As the chart on the right of the slide show, we delivered a strong result for the September quarter with higher gold production underpinned by really good performance out of the Dargues operation. Our zinc output was supported by higher grades at Peak and Hera, and we processed more lead/zinc tonnes in this through the Peak concentrator, which contributed our zinc output. At Peak, We put in more tonnes through the concentrator and in 1 lead/zinc ore campaign or 1 copper ore campaign. In this quarter, there was less copper ore processed, and that led to the lower copper metal production quarter-on-quarter. We did see some exceptional lead/zinc grades and high gold grades come through from the Kairos and Chronos mining areas, and that contributed to the strong metal production and lower all-in sustaining costs from Peak. Over at Hera, our stoping occurred in areas where the grades were above the life of mine reserve grades in the case of 50% for base metals. These high grades offset the lower processing tonnage, which was impacted by 2 factors: Firstly, ore supply was mine constrained for a period as we encountered more than expected rock mass conditions that delayed stope access particularly in a portion of the North Pod area. And secondly, towards the end of the quarter, the process plant was bottlenecked at the concentrate filter with daily base metal grades of up to 20% lead/zinc being treated. These very high base metal grades will continue to restrict mill feed tonnage in the current quarter, but obviously support very strong metal production. At Hera, we also concluded a competitive tender process for both the Hera and Federation Mining contracts with Redpath Australia selected for both work programs. The new Hera mining contract will commence in January with the Federation exploration decline development planned for later in 2022. Moving to Slide 10, which goes into some more detail around Dargues' performance. I think it's fair to say that the Dargues mine delivered to expectations in the September quarter. The feed grade, the mined ore tonnage, backfill placement and processing volumes were at planned levels and contributed to record quarterly mill throughput of 91,000 tonnes and 10,800 ounces of gold production. The fee grade of 3.9 grams per tonne gold was 63% higher than the prior quarter as the mill treated higher-grade stope ore that was deferred from the June quarter. Also of note was the proportion of development ore in the mill feed, which fell from 46% to 30% on a quarter-to-quarter basis. Looking forward to Dargues, our mine plan continues to show that gold grade and metal production will further increase over the life of the asset as stoping areas access higher grade at depth. I'll now hand over to Ian, who will discuss our group financial performance for the quarter.

[Ian Poole, CFO & Company Secretary]

Thanks, Peter. Another good quarter as it really attracts to its FY '22 operating guidance. Aurelia [indiscernible] the September quarter with $66 million of cash on hand and is well positioned to continue to fund its exploration program and its Federation and Great Cobar growth projects. At Dargues, due to timing of concentrate sales and shipments, there was an increase in gold concentrate at the end of the quarter. The increase in working capital impacted cash generation during the quarter. The market value of the concentrate on hand at the end of the quarter was $6.8 million. In the December quarter, Dargues is transitioning from bulk concentrate shipments to containerize shipping. We can improve cash flow, reduce costs and working capital. Aurelia made debt repayments of $4.1 million relating to its term loan, which is scheduled to be fully repaid by September '23. Aurelia also cashed back $4.3 million of its bank guarantees, which are used for environmental bonding. During the September quarter, Aurelia spent $2.1 million on its Federation and Great Cobar growth projects as well as $5.8 million on its exploration program, which was focused on Federation, Kairos and Great Cobar. Adam will now provide an update on the outcomes of these programs.

[Adam McKinnon, GM of Exploration & Business Development]

Thanks, Ian. Aurelia once again had an extremely successful quarter with respect to drilling and exploration with significant extension results at all 3 of our operations. Referring to Slide 13 of the presentation. Our recommencement of exploration at Great Cobar has produced immediate results with follow-up drilling beneath the current resources, delivering a spectacular intercept of 5.4% copper over 13 meters and the second intercept of 2.6% copper over 37 meters including 4.2% over 12 meters. Latest results led high-grade copper and gold mineralization, completely open at depth with the next round of drilling to test the massive potential of this area. Moving to Slide 14, very strong copper has also been intercepted at Kairos in a new area immediately along strike to the north of the current development and stoping area. The grade tenor of a number of these intercepts is quite exciting including 5.9% copper over 7 meters, 5% copper over 6 meters and 43-meter intercept of 2.4% copper, including 5.7% over 6 meters. A number of the high-grade copper intercepts occur close to established and planned underground development, offering a convenient platform to access this new mineralization. The copper mineralization remains open up and down dip and along strike in both directions and immediately -- and we are planning immediate follow-up drilling. Moving to Slide 15 of the presentation. Last quarter saw a record of 17,000 meters drilled at Federation as we move the project closer to operating status. New results from the program continue to see the Tier 1 grade profile of Federation confirmed and extended with the potential emergence of a new high-grade gold corridor on the southwestern boundary of the deposit. This includes a new intercept of 9.7 grams per tonne gold over 23 meters, including 42 grams per tonne over 5 meters. Further course-grained gold has also been noted in other drilling from this area with all lab assays still pending. To further highlight the incredible grade tenor of Federation, an intercept released from the central part of the deposit in June this year of 70 meters at 18% lead/zinc still represents on a link weighted basis the best base metal intercept released by any ASX-listed company this year. These results are likely to provide upside to the resource profile currently being examined as part of the feasibility study. It is also worth reflecting that on the current trajectory of the project and subject to necessary approvals, we could see early production from Federation, a little over 3.5 years from the point of discovery, an amazing feat considering industry norms of 7 to 12 years. Intensive drilling is continuing into this quarter with our geologists continuing to push the extent of a known deposit in multiple areas. Finally, moving to the Dargues mine on Slide 16. This quarter saw the receipt of the final results from the Phase 1 drilling program, which was the first substantive exploration of the project since 2017. Of particular significance was an intercept of 4.2 grams per tonne gold over nearly 10 meters that represents the deepest ore-grade gold mineralization identified at Dargues to date, some 80 meters down-plunge and to the east of the current main load resource. Combined with previous results announced earlier in the year, this area has significant potential to expand its positive depth. The company has already commenced the Phase 2 drilling program at Dargues with an underground rig now drilling the lower part of the Main and Bonanza Lodes. Refinement of our geological and structural understanding gained from the Phase 1 program along with detailed underground mapping and handling has contributed strongly to the design of the Phase 2 drilling program. This includes the identification of numerous new mine targets, priority target for long strike of Dargues to the east and to the west and nearby regional targets with surface drilling to commence during this quarter. Back over to you, Dan.

[Daniel Clifford, MD, CEO & Executive Director]

Just moving over to Slides 18, 19 and 20 move through these. So Pete, just to summarize, Kairos is on the EIS is ahead of plan and the drilling that we're achieving and the results we're achieving from, Great Cobar more recently, just go straight over the top and right in conjunction addition to -- conjunction in addition to the current PFS that we're running. Moving over to the Hera-Federation. Its boots on ground in that photo in the background all the peers in for the camp expansion. Those modules are all in place now. The enabling work for the projects across the civils and the decline for the Federation development or operations development are well and truly on track for the business. At Dargues, as Adam mentioned, Stage 2 exploration drilling is now in place ahead of schedule. And we're significantly front-end loading the approvals process for the extension of this operation. So if we just take a step back, we've just seen, heard from the team through 3 key areas. It's fantastic to see the performance to plan. This is driving certainty in our operating platform side with the standing results from our exploration continuing to deliver in the business. There's a real balance that's shifted here with our exploration program. These aren't just intercepts now. These are all material life extensions to operations and at high grade. And as Adam mentioned, some of these high grades, they're the best in the market at the moment, and we're well and truly moving beyond just this intercept methodology. And then for our projects, exciting to see, we've actually got people on the ground now executing on these projects with really clear line of sight to value generation or creation for our shareholders. So with that being said, I think, Rachel, it's a good time now to move into Q&A, please.

[Operator]

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

[Dylan Kelly, Senior Research Analyst]

Two for me. Starting off with Dargues. Great to see the run rate ratchet up pretty quickly there. Relative to the cap that you've got on production and what you produced during this quarter, how should we think about how you manage production from this point onwards?

[Peter Trout, Chief Operating Officer]

It's Peter here. The cap at Dargues, that's 355,000 tonnes per annum applies over a calendar year. So clearly, we want to maximize and use that capacity over each calendar year. And you'll see where we are year-to-date from the previous quarterlies that we're on track to do that.

[Dylan Kelly, Senior Research Analyst]

Okay. Fair enough. Just in terms of the concentrate sales, you mentioned trying to tighten up the working capital by using -- was it containers versus, what, is it just a bulk at the moment? How can that tighten things up in the future, just to give us some clarification on that?

[Ian Poole, CFO & Company Secretary]

Okay. Thanks, Dylan. It's Ian. We -- currently, with our bulk shipments, they go out of roughly 5,000 tonne increments. When we go to containerized load -- containerized freight, that will be reduced down to 1,000 to 2,000 so we'll have more a more regular shipments, that's how will reduce our working capital and get better cash flow.

[Dylan Kelly, Senior Research Analyst]

Okay. That's also clear. Just finally, on...

[Daniel Clifford, MD, CEO & Executive Director]

Dylan, it's Dan. Just wanted to add to that. I mean what you can clearly see between the assets is you look at the deltas between gold produced and gold sold. You can see the Peak and Hera on a vast majority of time, anyway, would sell pretty close to what they've produced. At Dargues is not the case. You can see because of that buildup to get to a decent number of trains and the shift load, that can sit here towards the end of the quarter. And you can see the delta there between those tonnes produced -- sorry, ounces produced and ounces sold being close to 3,000. By going to the containerized, we'll be moving stock off for sale on a lot more frequent basis rather than waiting for it to build up, and that will stop these movements between building inventory and sold.

[Dylan Kelly, Senior Research Analyst]

Okay. That's quite clear. Just finally on Hera, I didn't quite understand the pullback in tonnes, and have those problems being sold? Can you just give us a bit of detail around that? And how much longer you could perhaps be tapping such high grades relative to the resource model in its current state?

[Peter Trout, Chief Operating Officer]

Dylan, it's Peter again. So I mentioned in the first part of the quarter that we had some issues getting into stopes in the North Pod, which we've now resolved, and we had some remediation work to do around existing developments, lower down in the line which we've now resolved as well. So getting back into consistent ore delivery. And in fact, for the quarter, you'll see actually produce more tonnes mined than milled. In the second half of the quarter because we didn't have the blending capacity available we're feeding much higher base metal grades into the circuit, and that thoroughly bottleneck the process plant. Going forward, we expect in the current quarter to see those higher grades continue but back off post that time. Having said that, I'm always happy to have better-than-expected grades through the concentrator.

[Dylan Kelly, Senior Research Analyst]

I can imagine. Does this open up the opportunity to perhaps start tracking some more North to Peak to handle that high grade? Or is that still something that's a little bit down the line?

[Daniel Clifford, MD, CEO & Executive Director]

That's a bit further down the line, Dylan, predominantly on the basis of consenting.

[Operator]

[Operator Instructions] Your next question comes from Andrew Bowler with Macquarie.

[Andrew Bowler, Analyst]

Obviously, the vaccine rollout in New South Wales has been pretty handy today. I was just wondering the assumptions you made around your guidance with respect to restrictions and whatnot. Obviously, there's a little bit more free movement these days or whether or not your guidance was predicated on a pretty insular model that at you sites?

[Daniel Clifford, MD, CEO & Executive Director]

I'll take that one. Andrew, it's Dan. Well, in fact, the reaffirmation of our guidance probably does have a fair bit to do with the situation with COVID, and we're 3 months into the year. We're seeing restrictions easing, and I'll come back to that point following this comment. Our view is once we start seeing restriction easing, what we typically see at these inflection points of where there's a change is that scarcity of labor comes on again. And every time we get a change between ourselves and our major contract partners, we can settle things down over a period of time. But when we start seeing these changes or inflections and the gates open for want of a better term, we believe we -- were of the view that labor scarcity or shortage will continue during -- when this period of opening up a restrictions happened. So we are quite cautious about what that means for us. Additionally, in terms of the protocols we're putting in place, I think we mentioned this at the last quarterly. Now Aurelia is in a position of all 3 of its operating assets being in regional New South Wales. We are clearly still seeing a gap between the state average and the regional averages, particularly by separate LGAs, And as a result of that, our protocols are not changing. We are holding on to significant, I guess, protocols in terms of mitigating or eliminating the chances of COVID hitting our sites. And with that is -- will still be some of the ongoing inefficiencies as a relation in relation to those restrictions. We'll keep an eye on that. But at this point in time, our guidance has been -- the reaffirmation of the guidance has taken into account COVID, and I think to a degree, the fact that we're still 3 months into a 12-month guidance period.

[Andrew Bowler, Analyst]

In terms of, I guess, vaccination rates, I mean, obviously, it's well reported, as you mentioned, that the vaccination rates in region New South Wales aren't quite as high as metro areas. I mean obviously, just the minerals industry in Western Australia has mandated vaccines for staff. Is that something that New South Wales is looking at? Or I guess, is it a bit more pro choice over there?

[Daniel Clifford, MD, CEO & Executive Director]

More pro choice. The minerals industry or resources industry didn't make the cut in terms of the state government's directions on mandatory vaccination. I think like many producers in New South Wales, we're watching that incredibly closely as to what that means for us. And therefore, from our perspective, when we are aware there is a gap from generally in our LGAs to the state average, we will be holding on to these protocols to ensure that we minimize the chance of our break on the site. So it's actually -- we talk about climate change being fast-moving COVID exactly that as well for us. We're confident in the control that we have probably been, I would say, overly cautious until we get a better line of sight at an individual level on where people are in terms of status. And I think like many are an operator in the state, we're probably on the fence when it comes to what our views are on mandatory vaccination versus not. And we've made a decision to encourage, provide additional vaccination opportunities for people on our site and within our community until we get a better fix on what those numbers look like, and then we'll reassess that decision pretty much on a probably a 2 weekly to a monthly basis. And just to expand on that a bit further, I think people can see that vaccination rates are appearing to come off a bit. What that's enabled us to do as a business is get pop-up clinics actually on our sites now. So not just for the benefit of all our people, but also open to the communities, particularly in and around the Nymagee Hera area, and hopefully, as we go further in the Peak and Cobar area. And that's just something we can do for the community, but it also makes it a lot easier for our people to get vaccinated.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Clifford for closing remarks.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Rachel. Just in closing, I think the terminology I want to use here is I think you have seen the fact that we're around the corner of this complexity, particularly with our operations performance and the underpinning strategy, it's really -- for us now, it's simple. It's the highest grade ore is prioritized to the mills. It's our cost per tonne for our all-in sustaining costs by our throughput for us equals cash flow. Now we talk about complex ore bodies. That management's job to control that complexity. That's drill out model, plan, plan, plan, execute. So for us, our role is to turn this as simple as we can for our investors. It's durable. And you can see from the results we're getting in exploration, just the sheer opportunity to be extending our mine lives here really is incredibly valuable. And I think also the commodity mix for us with gold-dominant high-grade base metals and copper now really go to the heart of what our strategy is. I just think about a bit of a recap across the 3 areas we covered and really call it out for what it is. We reset this paradigm of complexity with simplicity through our operating performance, supercharge the IRRs with our exploration and development and the opportunities that sit in front of us are tested near term and tangible across the spread of precious and base metals. As we get around that corner, I think you're probably sensing there's this -- I thought about this perhaps a better word, but either way, an infectious sense of excitement with the business, underpinned by absolute confidence, conviction for what the team is driving out here and putting us and our investors in a really compelling position with the platform that's laid out. We're looking forward to the one-on-ones post this presentation over the course of this week and next. And also importantly, just as a reminder, to everyone, the Aurelia AGM to be held on the 4th of November. And with that, thank you very much, everyone, and we will talk later on in the quarter. Thank you.