Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Limited September Quarter Results Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Mr. Bryan Quinn, CEO and Managing Director. Please go ahead.

[Bryan Quinn, executive]

Thank you all for joining our quarterly call to present our Quarter 1 results. We'll be presenting the presentation slides that were released within the ASX announcement today. We're actually presenting from Peak Mine, where some of us are staying from Peak Mine and others where from Federation in Brisbane stay.

I'm joined today by our Chief Financial Officer, Martin Cummings; Chief Development and Technical Officer, Andrew Graham; and our Project Director for Federation Project, Michelle Tracey.

Before I take you through the quarter results, I want to thank all of our stakeholders and shareholders for their ongoing support. And as we are presenting from various locations, pay my respects for all the traditional owners past, present and emerging for our locations. And thank our other important landowners who host our operations also.

As we've presented before, FY '24 is about building a stronger Aurelia Metals through redefining the vision and strategy of the organization with strategic focus on delivering with confidence, improving our margins, right people, right mindset and optimizing the Cobar Basin to set up Aurelia to fill our mills with low-cost and high-grade ore, while confidently delivering our business guidance results in '24 and beyond.

So if I can get you to turn to Slide 3. Aurelia team and contacting partners have delivered -- have continued to deliver the business plan and deliver the strong production results on the back of some retreating base metal prices. Our good financial results were underpinned by production exceeding our Quarter 1 plan and delivering well within guidance, and also our continued focus on cost efficiencies and cash generation across the operating assets and corporate office.

Some of the highlights include our revenue was ahead of plan at $70 million for the quarter. Our cash balance is strong at $100 million with current operating cash flow from the operations delivering $12.6 million for the quarter. Our cost efficiencies has delivered mining unit costs for Peak, reducing to $127 per tonne from $108 per tonne 12 months ago, representing approximately 30% improvement.

Our development leaders across Peak and Federation continue to increase quarter-on-quarter, which is derisking the FY '24 and FY '25 production volumes and setting us up for further growth. And our key growth for Federation remains on track to deliver our first key milestone -- first stoke ore in Q1 2025 in that line with our approved budget.

Also, our exploration team continued to deliver some positive results, supporting our growth plans around the Peak Mine with high-quality results as reported in the ASX last week. We continue to also restructure our corporate organization with good cost reductions from October onwards, circa $3 million per annum annualized. And the Board is progressing their reduction line with rightsizing right skills and reduce costs, as was outlined in the [ Chair ] of letter of FY '23 annual report.

We are progressing our strategy at filling mills as soon as practical and considering a commercially sensible options. And the focus at Dargues has been to lock in the cash flow potential from this asset and harvest cash to mine life end. And Martin will talk through some of our hedging process we have commenced.

So lots of pleasing progress for the business over the quarter against my CEO 100-day plan. And looking ahead, it's pleasing to advise that guidance for the remainder of FY '24 is unchanged and impacts from inflation will be offset from volumes and cost efficiency programs.

I'll just turn to Slide 4 on overall production costs. We remain focused on delivering safe and stable production with increased cost efficiencies and the cost efficiency programs are currently forecasting better costs within our guidance. Gold price continues to increase and base metals has continued -- remain consistent while we're waiting for China to release policies to improve demand.

The results we are presenting today and that were looking forward for the Q2 forecast provides a clear context. We're on track to deliver our commitments around FY '24 guidance for production costs. The operations have achieved strong gold production -- sorry, the operations achieved strong gold production in this high gold price environment, and we are set up to increase base metal tonnes and grades for the remainder of the year in line with guidance.

We also expect the cost efficiency program with organization changes planned to continue to progress over the coming a couple of months with cost efficiency benefits realized each quarter for the remainder of the year.

So turning to Slide 5, safety and environment. Our underlying safety principles is that our people go home safe and well over their shifts, and we minimize the impact on the environment and work with our community as a good neighbor. We have 4 recordable injuries in Quarter 1, which is 4 too many, and unfortunately, the majority of which were slips and trips.

We're committed to take the necessary steps to ensure the incidents do not happen. And our teams are ramping up efforts of field leadership, making sure robust planning is being done before any work starts and improvements in training are being rolled out for inexperienced team members as we increase our resources in line with our growth plans.

Also, our price risk management has ramped up and will continue to mature over the coming 12 months to be normalized in how we make decisions to really assess and ensure threats to our business and operational areas are well understood and in control. We'll continue to bring third-party expertise to allow us to mature at the right pace for these initiatives.

Turning to Slide 6, Peak operations. Peak is significantly to development rates this quarter with further plan to increase these rates going into Q2. Development improvements has really helped the business in terms of having confidence for the next 12 to 18 months, which continues to provide confidence also in delivering our volumes and upside in FY '24.

The cost efficiencies have also been a priority and focus at Peak as reported in my CEO 100-day plan. The team have delivered a 30% reduction over the last 12 months on a cost of tonne basis, and continue to implement various operating efficiency initiatives that have been identifying a working smarter program, which are mainly IT support from the shop floor.

Overall utilization of available mining equipment has improved substantially now that Peak's resourcing is approaching target levels. The all-in sustaining capital for Peak -- all-in sustaining cost at Peak at $15.84 per ounce reflects these cost efficiencies have started and the higher expected base metals production for the remainder of the year will drive cost down as per our plans.

So this quarter, the focus on the operations has been mining the lead/zinc stopes from the South Mine, both Kairos and Chronos, which has yielded good gold results. And for Quarter 2, we completed the lead/zinc stopes, which carried out from Quarter 1 moving to copper stopes in Perseverance Deeps in the South Mine and Jubilee in the North Mine. This will be followed by commencing higher-grade lead/zinc towards the end of Q2.

Copper and gold reserves that are coupled currently production drilling and all development is progressing well in the Upper Chronos, which positions Q2 well for guidance targets. Development is also currently underway in Jubilee and Upper Chronos to prepare for Q3 in copper and lead/zinc stopes to meet our Q3 numbers.

Turning to Slide 7, Dargues operations. At Dargues, we continue to sustainably maximize the cash from this business while setting up the closure in 2025. And our current Quarter 2 week forecast shows we are well on track to deliver the guidance results based on the planning and derisking underway.

Dargues development has been a plan and will finish in Q2, which will continue to derisk the complexity of the mine with the key priories switching to production drilling, backfilling, remnant mining in the remaining high-grade ore pillars.

Obviously, as the mines within 12 months of completion, the focus is on retention of good people to work with us, and we are working with our contracting partners to retain the people, but also applying a hybrid employee and contracting model to try and keep the best people working for Aurelia. Obviously, we'll be working and looking to continue to attract good quality talent that we can to bring across to the Cobar region in the future where our growth will continue to occur.

Turning to our critical minerals growth project on Slide 8, Federation, which has been reported as one of the highest base metals project constrained with a resource grade of approximately 6.7 zinc equivalent. We have commenced the project well with 0 recordable injuries. I'm happy and we are tracking very well with our development leaders and construction works on the surface.

In fact, I was actually there yesterday. I'm very happy with the standard and quality of the work being achieved by Aurelia management and the Redpath team. The focus for Aurelia under the leadership of Michelle Tracey, who is on the call today has been to derisk the project cost and schedule by bringing on high-quality capable staff with expertise across various work packages of mining, shale sinking, service infrastructure works and project management construction activities as well as commercial areas.

The team is actively searching for companies to partner with, with strong backgrounds and credibility in the delivery of these work packages. As highlighted in the presentation, all work packages are in progress and scopes continue to be refined with the ultimate goal to build the mine well and achieve first stope ore by Q1 '25 and our first milestone.

Also in the presentation, you can see the green arrow highlighting the work completed until the end of Q1 and in yellow is the work completed up until someday this week.

During the quarter, we've also mobilized drills on site to set our potential upside on extensions to the west. And in Q2, are planning on installing a drill rig in one of the [ caddies ] to commence drilling underground. Currently, we're happy to report we are on track to deliver the overall project on budget and schedule while making inflationary pressures across the industry.

Turning to Slide 9, exploration. As for the release last week on the ASX, we continue to invest in exploration new Peak with numerous high-priority targets and we continue to be pleased with the results that our programs yield. And for those who know the region around Peak, this is not very surprising and keeps giving and demonstrates the prospectivity of our business.

In the South Mine corridor, assay results from the Upper Chronos, Perseverance Zone A and Perseverance Deeps areas have confirmed continued extensions of significant mineralization in the Upper, Lower and in low-margin Perseverance Deeps deposits. The strong grades in the sector as shown on the presentation and ASX release, are particularly encouraging to the striking similarities with the Chronos deposit. Acknowledging this is deep, but these grades could offer extensions for filling our mills in the coming years.

Moving to the North Mine corridor. Assay results from Chesney South deposit has confirmed extensions of mineralization staff from the Chesney deposit in close proximity to the recent report of major mineral resource at Burrabungie. This area has significantly -- significant further potential for exploration success due to the presence of this no mineralization. The higher copper and gold grades in particular in these near-mine locations are to be subject to further exploration and evaluation activities in the medium term and are well like underground infrastructure.

At this point, I will pass to Martin to speak to the financial slides.

[Martin Cummings, executive]

Thanks, Bryan. And I'll be talking to Slide 10. And the key message on this slide is that our balance sheet now is in great shape. We have $110 million of cash on hand, and that was really driven by some major milestones in the quarter, as I've updated in the results call recently with the receipt of proceeds from the retail entitlement offer and the cash backing returned after we reached financial close on the Trafigura facility.

Our cash is expected to be boosted further this quarter from a tax refund of around $21 million. And please remember our loan note facility remains undrawn at USD 24 million, providing further liquidity.

For our operations, it was a solid start to the year for both Peak and Dargues. Peak's operating cash flow was $9.2 million, benefiting from strong gold production and from lower operating costs and capital spend. Our copper production was also higher and pleasingly, we were able to send the copper shipment during the quarter. Our lead and zinc production was slightly down driven by grade. But as Bryan said, we expect that will increase in the coming quarters from a combination of higher ore mined as well as high-grade ore.

Our Dargues cash flow was $3.4 million, which was lower than the prior quarter. In this quarter, we had planned to have one more shipment depart, but that will instead depart in the December quarter. Our costs were higher due to planned relines of the crusher and ball mill and also from the impact of our new electricity contract, which commenced on the 1st of July. The new rate in that contract is approximately 60% higher than the previous rate, but I would not stress that this increase was included in our budget and is factored into our cost guidance.

During the quarter, we also completed planned component replacements on our mobile fleet. And given that fleet has a useful life post Dargues at either Peak or Federation, we'll continue to maintain that equipment in accordance with the standard maintenance regimes.

The team at Dargues are doing a great job to ensure that we maximize cash from the operation during its remaining life. But at the current gold price in Australian dollars, it also presents an opportunity to enhance those returns relative to our plans.

To lock in that opportunity, we have commenced a hedging program for up to 100% of the payable gold production from Dargues out to September '24 quarter. To date, we've done about 40% of the planned volumes, and we'll look to add to that in the near future. The context Dargues produces about 50% of our group gold production, so we still have a meaningful unhedged goal position at Peak.

To accompany those gold hedges, we considered it prudent to also hedge some base metals. Our plan is to hedge up to 25% of our lead and zinc cable production from Peak, which will provide some price protection to our byproduct credits. Again, we're looking at the time period out to September '24, which coincides with first stope ore from Federation. So lead and zinc, we haven't executed any hedges yet, but we'll look to do some certainly.

And on Federation, it was a really pleasing start to the project led by Michelle. As said earlier, development meters are ahead of plan, and the team have made some really good progress on the other main packages for the road upgrade, ventilation and raise boring. We spent $10.6 million in the quarter. And pleasingly, that was funded from the operating cash flow generated by Peak and Dargues in the quarter.

Spend is planned to ramp up in the coming quarters as development rates increase, and we progress with those major packages. And just to remind you, we've guided capital for Federation of $70 million to $80 million for FY '24.

In closing, it's been a really solid start to the year from our operations and our projects, generating good cash, and really, we now have the balance sheet position to support those growth opportunities.

Thank you for your time, and I'll hand the call back to Bryan.

[Bryan Quinn, executive]

Thanks, Martin. So to summarize the Q1 and looking forward to Q2, we focused on improving our current HSEC performance and ensuring that tight controls in place for all our series to our business, both HSEC and financially. Our cost efficiency at Peak to improve cash flow and also unlock the 9 million tonne resource at the mine is a large prize for us to go after.

Delivery of the cash flow from Dargues sustainment system there is obviously impairments. Delivering the rapid advancing development of Federation underway projects is well on track and a key focus. We'll continue to invest in drilling, which is yielding very positive results for our future, both in new proximity Peak and also in Nymagee region.

Our progress on the Great Cobar Project for this financial year will be a key deliverable towards the end of the year. And we'll continue to be at Cobar -- in the Cobar region to leverage our assets, focusing on filling our mills with high value ore while also working through various synergies and cost savings in the region to improve our business if it makes commercial sense.

So I'd like to hand it over to the [ duties ] and now look at questions and answers section of the presentation, please.

[Operator]

[Operator Instructions] Your first question comes from William Thurlow from Ord Minnett.

[William Thurlow, analyst]

Just touching on Federation. Look, obviously, you've noted development ahead of schedule. Are you able to provide some color in terms of how the other part are filling part of Federation at the moment. So kind of looking on items like raise bores and infrastructure, how do you kind of see contract availability in timing looking in those kind of places?

[Bryan Quinn, executive]

Yes. Thanks, Will. Look, I'll briefly answer then I'll hand over to Michelle to put some more color on the question. In terms of the development you're saying here, we are ahead and that's obviously an integral part to getting to first ore as is having ventilation to the raise bore. At the moment, the team has started pretty much on the 1st of August to get those tenders out and seek the best companies to work with us that have the right HSEC standards and can do the job of the equipment and the resourcing at the right price, obviously, to make that happen. So the team has been going through quite an intensive process to get those tenders out and get to the final stage. So that's been across the board for both the ventilation fans and also the road works.

At this stage, they're all sort of moving in the right direction and not impacting our critical parts. But that's where they currently all work. But Michelle, would you like to answer any -- additional comments to that questions to add.

[Michelle Tracey, executive]

Sure. Thanks, Bryan, and thanks for the question. With respect to the rightful rigs, we are in the final stages of securing the contract. We have the rig and the people secured, ready to mobilize the preconstruction of the raise bore Colin has started in the field. So that is all well progressed on the road, which is just off the critical path, that is an important community project for us as well. We are hauling pre-crush materials onto the road. And so we've seen ourselves the good progress and construction commencing.

[Bryan Quinn, executive]

Does that answer your question Will, okay?

[William Thurlow, analyst]

Yes. No, it does. Yes, absolutely. And maybe just touching on Peak, just looking at those development rates, what's driving such an increase? Is it just a volume basis where you guys are targeting more heading? Or is there kind of continuous improvement initiatives that are kind of unlocking a lot of latency out there?

[Bryan Quinn, executive]

I think there's a combination of all of the things you mentioned with, Will, I think there's definitely an efficiency drive in terms of putting the jobs and the right heading in the right sequence. We've also got, I guess, a jumbo on both the South Mine, North Mine now, which is unlocking the potential for the mine. And the focus is really about getting meters in the plan, which will give us sort of good security of production over the next 12 to 18 months. That will roll over and continue to roll over.

Our large product is also getting -- we've done the transition, if you recall, from contractor to overall prior early in the calendar year. So resourcing, being the right people in, having the right managed schedules and having the right mine plan to the engineering construction is very important.

[Operator]

[Operator Instructions] Your next question comes from Roy Hill, Private Investor.

[Unknown Attendee]

Roy here. Yes. Very interested in the Dargues plant and what is the plan for that after the mine is closed? Is it going to be used elsewhere, say, at Peaks or whatever?

And another question is the ore body at Federation. Is it transitioning from low-grade ore at the top down to hard grade? Or is it pretty much abrupt change? Yes, just like those answers.

[Bryan Quinn, executive]

Thanks, Roy. I'll open up the answer then hand that over to Andrew on both the questions.

In terms of the Dargues equipment, obviously, we've put together a project plan for closuring at Dargues. That involves looking at where best to we can use the equipment in the Cobar region, obviously. If we can utilize the equipment which we have identified some of to will come across, and we use both the Federation and Peak and hopefully for future projects as well. And where it doesn't make sense, we'll obviously look at a sales process for equipment. And I guess, and remediation that will occur setting out to put the left behind.

So at the moment, there is a project on that doing an assessment of trade-off for which is the right direction of good things but actively look at. So for example, we're looking at for emergency aggressive out of Federation, can we use and emergency equipment out of Dargues that will be effective demobilized as they retreat a certain parts of the mine.

So as an example, we're looking at those in a long gain basis, seriously can obviously use the equipment elsewhere and save money. But like I said, there's an overall project being formed at this point in time in between now and Christmas to finalize that.

In terms of the ore at Federation, the work we're doing right now is to look at the delineation or the extension potential to the rest of the ore body. And we're putting a drill again in the second quarter inside the mines to continue that work.

Andrew, do you want to talk to the rest of the question around the grades that was discussed?

[Andrew Graham, executive]

Yes, no problem at all, Bryan and Roy. Because I think when we put out the feasibility on Federation, we included quite a detailed plan for the license mine around tonnes and grade. If you look back at that, it's probably worth just finding that on the ASX, but we are in reasonably high grade straightaway.

It's not a case of starting on lower grade and waiting to get deeper to get higher grade. And we do get good grade out of Federation ore body. As Bryan mentioned, from drilling underground, we're going to try to get a better handle on things like gold and copper. It doesn't necessarily 100% align to the zinc grade. And getting a handle on that will help us think about what we do with that ore and get best effectively return from it through the processing options.

Just to touch on your first question as well, then flowing from that, Bryan, also just step through. As you mentioned, we are active on a piece of work on that. One thing we are conscious of is not trying to fit around pegging the square hole. So just because we have a ball mill at Dargues trying to find a place for that. It may not be the right thing for us in Cobar. But that said, if it is, and we do have one in the group, it's certainly useful. And when I look at the Dargues plans, it's near new. Got a grade 3-stage crushing circuit at the front end. It's got a good ball mill, good flotels, delta, those sorts of things. All of which may have a use for us in the Cobar Basin either at Peak or as we look to turn here back on us.

[Operator]

[Operator Instructions] Your next question comes from Rodney Sweetman, private investor.

[Unknown Attendee]

Yes. Just in relation to Federation, in a couple of the announcements or information packages have come out previously as referenced to the potential for them to be a dispute with Glencore. Can you tell me what that's about? And where is that? And if in any way, this is an overhang from 2015.

[Martin Cummings, executive]

Rodney, it's Martin here. If you refer to our equity raise presentation on the 31st of May, we actually just provide some details on the situation. There is a difference of opinion as to where Federation offtake should go. There is a process to resolve that, but that's probably as much as I can say right now.

I must stress though that as we did through the equity raise, our financing package with Trafigura is not contingent on the outcome of that process. And so we confidently move on with developing Federation, and we'll look to get resolution on that in due course.

[Operator]

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

[Bryan Quinn, executive]

Look, it's a final thanks to all of the Aurelia team members on the call today. I've noticed a few on here which was is great, and also contacting partners and other key stakeholders. Like I said at the start, for the ongoing support and hard work people are putting in to really look at how we can get a really metals driving value going forward.

As I said at the start of this presentation, we are on a journey, and I believe we've got the right sort of plan in front of us, and we're definitely on track to deliver our guidance and all the various components within that are on track at this point in time.

So I want to thank everyone for dialing in, and we look forward to presenting at end of second quarter, our results, and hopefully, we can have some more conversations about some of these projects and issues underway. So thank you all for your attendance and questions. We'll speak soon.

[Operator]

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