Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Limited March 2021 Quarterly Activities Report. [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]

Thanks, Amanda, and good morning to everyone. Thank you for your time this morning. I have with me Peter Trout, Ian Poole and Adam McKinnon as well. It's been a very active quarter for the company, to say the least, with an updated Federation resource. We welcomed Bob Vassie and Helen Gillies as new Non-Executive Directors to the Board, and we also had the unfortunate retirement of Cobb Johnstone, our Chairman, and the subsequent appointment of Susan Corlett as our Interim Chair. Added to this was the completion of the Federation scoping, study significant exploration updates across the company, the integration of Dargues operation into the portfolio, and strong output in performance as a group. All in all, giving us a quarter of 36,000 ounces at approximately $1,400 a tonne and a year-to-date position of 80,000 ounces of gold, approximately 4,000 tonnes of copper and 18,500 tonnes each of lead and zinc, resulting in all-in sustaining cost on a year-to-date basis, approximately $1,200 a tonne. This has put us in a well -- put us well on track for the full year guidance of 100,000 to 113,000 tonnes at $1,425 to $1,575 all-in sustaining cost. This was also underpinned with a 42% reduction in our total recordable injury frequency rate and a cash position of $77 million, post all the acquisition costs through the quarter. And noting here significant bills in doré, con and receivables at the end of the quarter that won't be seen in this cash position. And Ian will expand and quantify on that later. There are other 2 areas that are firmly on our performance radar within the quarter. Dargues in the quarter has been below our expectations by approximately 1,200 to 1,500 ounces. The primary contributor being development or dilution and lower grades during February. This is caused by a lack of infill drilling, and that has been corrected with the infill drilling program that the company put into place during the handover of the business. And also the slow turnaround of grade control assays, and that will also be corrected during the course of this coming quarter. In essence, with development performing 50% of the mill feed during that month and the lower grades with the sparse information, those lower grade materials actually went through the mill being a significant contributor to that month. March performed well, though, once we had better placement of development and better understanding with the information most recently gained out of the infill drilling. States reconciled to plan throughout the quarter and particularly in March, with an impressive performance with 30,000 tonnes mined at 4.2 grams a tonne. And by more inventory movements or inventory build within that month, particularly in March, that equates to roughly $1,250 an ounce all-in sustaining cost for production. The second area, in particular, for us, is Peak and the Kairos progress. Difficult ground conditions, namely talc shears, have resulted in 2 unsuccessful attempts for the escapeway pilot hole. All other infrastructure and development is in place, whereas progressing on the escapeway, with this being the final milestone being required until stoping can commence later in this quarter. We're in a very strong position for delivery of the full year and the continued execution of our strategy. And with that, I'll hand over to Peter to run through the operations and projects.

[Peter Trout, Chief Operating Officer]

Thank you, Dan. Our 3 operations delivered a 120% increase in quarterly gold production, and that was driven by higher contributions from the Peak and Hera Mines, supplemented by the first full quarter's production from the Dargues Mine. At Peak, our metal production reflected mill feed from ore sources having higher gold to lower base metal grades. This contributed to a 60% increase in quarterly gold production despite a 23% reduction in ore processed. The processing plant continues to be constrained by underground mine production, which, in turn, has been impacted by labor shortages and difficult ground conditions in some areas. Establishment of the high-grade Kairos mining area remains a focus of our underground activities, and it's significant to note that 11,000 tonnes of Kairos development ore was processed during the quarter. And that represents approximately 20% of the planned FY '21 mill feed from the Kairos zone. Moving to Hera. The operations delivered another consistent quarter of mining and processing activities. Our doubling of the gold grade led to a corresponding increase in quarterly gold production to about 11,500 ounces. Modification to the stoping sequence brought forward better gold grades to the March quarter, while deferring higher base metal grades from the North Pod into the June quarter. Gold production also benefited from a favorable gold grade reconciliation from stoping in the Far West Deep zone. At Dargues, the operation was successfully integrated into our operating portfolio following the change of ownership in mid-December. The underground mine ramp-up is progressing very well and remains on track to steady-state ore production of 30,000 tonnes per month by the end of the June quarter. Quarterly gold production of just short of 9,000 ounces was below expectation due to the February result shown in figure slides and as explained by Dan. Looking at our growth projects, the Federation scoping study was completed in the March quarter, delivering very encouraging results. The study looked at a range of project configurations, and these converged upon a preferred scope of a new underground mine at the Federation site and leveraging the established infrastructure at Hera for treatment through either a new or modified process plan. The scoping study had the benefit of our operating experience at Hera, and in turn, this provided high confidence in the underground mine design, infrastructure requirements and operating costs. And that confidence supported the decision to proceed directly to a feasibility study. We expect that study to be completed by the middle of next calendar year. We're also pursuing regulatory approvals that will allow us to further evaluate Federation deposit using an underground exploration decline for drilling and collection of a box sample. Work to support the environmental impact statement for the full project configuration is also progressing in parallel. At Great Cobar, the pre-feasibility study is continuing with samples from the current drill campaign being used to prepare an updated mineral resource estimate and to inform geotechnical, mine design and metallurgical activities. And this program is expected to be completed late this calendar year. I'll now hand over to Ian Poole, who will discuss our quarterly financial results.

[Ian Poole, CFO & Company Secretary]

Thanks, Peter. The March quarter's all-in sustaining costs were $1,429 an ounce, and year-to-date all-in sustaining costs were $1,199 per ounce. This cost performance has a really well placed to meet its full year guidance of all-in sustaining costs of between $1,425 and $1,535 per ounce. On the 31st of March, there was $77 million of cash on hand, which included a $6 million build of working capital due to the timing of debtors. Aurelia also held higher than typical levels of doré and base metal and gold concentrates due to the timing of shipments. This finished product was valued at a cost of $21 million. Working capital is expected to be released in the June quarter. The key drivers impacting the reduction of cash in the June quarter: the cash flow from operations after sustaining capital of $21 million, including the continued ramp-up of Dargues; continued investment and growth capital of $11 million; increased payments of tax, which were $7 million based on forecast FY '22 profits; the initial term loan repayment and cash backing of bonding of $8 million, which relates to the financing arrangements put in place for the Dargues acquisition; and stamp duty payments of $30 million, which was flagged at the last quarterly and relates to the Dargues acquisition. During the quarter, Aurelia maintained its hedge book with 53,000 ounces of gold hedged with the company's financial for the next 12 months at an average forward price of $2,437 per ounce. I'd now like to hand over to Adam.

[Adam McKinnon, Group Exploration Manager]

Thanks, Ian. So this quarter has again seen extensive surplus and underground drilling across all of the company sites. As reported to the market, in March, the first results from Aurelia's Phase I drilling program at the Dargues Mine produced very strong initial results, including 36 meters at 5.4 grams per tonne gold, 14 meters at 8.8 grams per tonne, 26 meters at 4.8 grams per tonne and 15 meters at 7.8 grams per tonne gold. The results from the Plum's Lode in the eastern part of the mine were particularly encouraging, demonstrating high-grade mineralization is open at depths and along strike. Through the quarter, the company has had 2 surface groups and an underground group operating at Dargues, aimed at increasing confidence in existing resources and reserves and targeting extensions along strike. Results of the deeper extensional drilling are still pending and will be released late in the current quarter. Moving to the Peak Mine. And the most recent results from the lower portion of Kairos continue to demonstrate the outstanding high-grade potential of the deposit. New intercepts reported in March included 13 meters at 50.7 grams per tonne gold and 16% lead-zinc and 16.5 meters at 6 grams per tonne gold and 14% lead-zinc, amongst an array of other very strong intercepts. The latest drilling has extended the deposit along strike to the north, and the high-grade gold for lead-zinc mineralization remains open at depth. We're also highly encouraged by the presence of broad zones of copper mineralization in [indiscernible] immediately to the east of the Kairos deposit, including intercepts of 38 meters at 2.3% copper and 46 meters at 1.6% copper. Further work will evaluate the potential for this area to host a potentially mineable copper lens. And continuing with the copper team, Aurelia also reported its first significant drilling into the Great Cobar deposit following the acquisition of the Peak Mines in 2018. Great Cobar has a current indicated and inferred resource of 4.1 million tonnes at 2.2% copper and 0.8 grams per tonne gold, with the latest drilling aimed at increasing the confidence in the grade and tonnage estimates and providing samples for additional metallurgical and geotechnical test work. Encouraging intercepts from this program included 60.5 meters at 2.2% copper and 0.3 grams per tonne gold with a higher grade portion in this hole of 12 meters at 4.4% copper and 0.6 grams per tonne gold and another intercept of 9.3 meters at 3.5% copper and 1.9 grams per tonne gold. The program also intercepted some strong mineralization in the western lead-zinc lens at Great Cobar, the best of which was 15 meters at 26% lead-zinc. Drilling is currently ongoing, with the focus now shifting to potential resource extensions in the poorly drilled areas up and down depth of the high-grade lens of the Great Cobar resource. Thanks. Dan?

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Adam. To wrap up, I think it's fair to say the combination of the 3 assets, incredibly value exploration, country and opportunities and Federation are the keys in our strategy. And looking forward, it's about delivery of the full year, continued exploration at all 3 operations and Federation feasibility studies targeting in the vicinity of 600,000 tonnes per annum throughput. And these priorities for the quarter, looking forward and into the year, firmly set our platform for returns growth from the business. And with that, I'd like to hand over to questions. Thanks, Amanda.

[Operator]

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

[Dylan Kelly, Senior Research Analyst]

Congrats on a great result in what is one of the busiest quarters, I think, I've seen in terms of news flow. So I'll keep on coming back, but let's just start off with the scoping study for Fed. First of all, where is it? I read it, and it doesn't seem to contain -- it's as if the whole thing has been sanitized by the regulator. What's happened there? And is this to do with the high amount of inferred material that was being modeled in the state that was trying to be released?

[Daniel Clifford, MD, CEO & Executive Director]

Dylan, I'm sure you'll agree with me that the ASX has a number of key issues or protocols with the releasing of scoping studies. Throughout this exercise, the scoping study for us has been about informing us internally, particularly as to the boundaries to the ASX and environmental approvals and enable us to take it forward directly into feasibility. So there is a lot of -- there is a number of delicate issues in releasing of the scoping study. And to be blunt about it, we don't need to. We don't need to release the scoping study. What is important for investors is to understand time frame and where we're heading. I just indicated where the feasibility is targeting in terms of throughput to the business. And with extensive drilling yet to go, a growing resource, future resource to reserve conversion, there's a fair bit awarded to get under the bridge yet in terms of exact capital numbers for project valuations.

[Dylan Kelly, Senior Research Analyst]

Okay. Fair enough. So if this is internal and/or a combination of not being able to release because of the amount of inferred material that was there in the first pass, does this mean you look -- you're going to be looking to provide like an update based on the revised resource model as it comes to pass? Or how do you think about in terms of milestones that we can expect to come out about it?

[Daniel Clifford, MD, CEO & Executive Director]

I think the first milestone is the group resource and reserve report time for July this calendar year, of which Federation and other exploration activities we're making today and to a certain proportion. The key is -- the key milestone beyond that really is the completion of the feasibility study, such that we go to final investment decision. And that -- we've indicated that during the course of the next financial year.

[Dylan Kelly, Senior Research Analyst]

Okay. Fair enough. So just turning to Peak and the issues that you've had there just with the egress. Can you just walk us through what's going on? I didn't quite understand what happened in relation to some of the talc shears that you're moving through. And if you could just talk to if that's the reason why, say, ROM was notably weaker for the period and development rates have come back?

[Peter Trout, Chief Operating Officer]

It's Peter here. I'll respond to your question. So the situation at Kairos is we have everything in place, the ventilation, decline access and the upper and lower [ ore blocks ] in the first stoping block. Where we've encountered challenges is putting pilot hole down to establish a separate shaft within which we can install a ladder way that provides a second means of egress in an emergency and makes us compliant with the New South Wales mining regulations. We have had 2 unsuccessful attempts at putting that pilot hole down with a diamond drill bit. The first one was a [ steed hole ]. The second one was aimed between the interpretation of talc shears. In both cases, we encountered talc and simply couldn't pass through those zones with the diamond drill bit. We're now on the third hole, which we're piloting with the raise borer bit. And that hole has reached design depth overnight. We're now going to survey that hole so we can steer the underground development to break through into the pilot hole, attach the reamer, excavate the raise and then install the ladder way. So if all going to plan in that regard, we do expect first stope production in June. The broader issues around the performance at Peak and identified the development being less than planned was heavily impacted by labor. We're in a very challenging labor market right now, and we're feeling that most acutely through underground operations. We're working with the underground mining contractor to get manning back up to appropriate levels and support sustained development and production numbers in the mine plan.

[Operator]

[Operator Instructions] Your next question comes from Michael Evans from Acova Capital.

[Michael Evans, Executive Director & Co]

I think following on from Dylan's question in some way. I'm just looking at Figure 3 in the announcement, which has got the peak throughput and cost per tonne. I appreciate there's moving parts. And how should we think about the average sort of cost per tonne going forward into FY '22? And since the throughput comes down to 120 a quarter, the costs seem to push up towards $300 a tonne. Is that sort of correlation, no reason why that shouldn't change? And hence, if you get your annual throughput back closer up to, I don't know, what is it, 650 or something? Is that the goal for FY '22, for argument's sake? And then AI, all-in sustaining cost, closer to $200. I appreciate they move around each quarter, but how should we think about that sort of lice of mine at Peak?

[Daniel Clifford, MD, CEO & Executive Director]

I'll take that one. Michael, it's Dan. We set -- we haven't given an indication of what ROM cost structures look like, but I will focus on FY '21 guidance for Peak. The throughput ranges of -- for Peak were planned to be somewhere between 620,000 and 660,000 tonnes throughput through the mill for the year at an all-in sustaining cost of between $225 and $250 a tonne -- sorry, not all-in, cost per tonne of $225 to $250-odd a tonne. We're well on track for those. And on a year-to-date basis, we're sitting at about $225 a tonne for Peak. And noting, too, that, that increase in volume to, call it, a midpoint of 640,000 and 650,000 tonnes with 20% improvement over the prior year in terms of throughput, of which was another 25% improvement over the FY '19. So you're right, as times go up, costs come down. We do -- we will see a bit of noise through the asset. But in going forward, we indicate -- well, the plan for us is take Peak up to capacity of the mill and with the polymetallic feed or multiple orebody feeds somewhere between sort of 700 -- in and around 750,000 tonnes to 800,000 tonnes a year is the objective over the coming years. And that will naturally bring down the cost per tonne.

[Michael Evans, Executive Director & Co]

Okay. So that's a good answer. So over the coming years, you do expect that to come down.

[Daniel Clifford, MD, CEO & Executive Director]

Yes.

[Michael Evans, Executive Director & Co]

If you could -- mainly driven by the economy of scale, the higher throughput. Despite the fact there's lots of moving parts, I suppose, that there'll be more -- just thinking out loud now, but there'll be more sustaining across some, yes, let's see, developing mine areas, et cetera. And Kairos was quite deep and the [indiscernible] as well. So that's good.

[Daniel Clifford, MD, CEO & Executive Director]

It moves around a -- you're dead right there, Michael. There is a lot of moving parts in the business. I think long term, we look at significantly building confidence in Great Cobar. And once we get a bit further spread out with the operation at the moment, our focus is primarily on Kairos and getting Kairos opened. There's 1 million tonnes there at 7-odd grams a tonne sitting there, and I think that will grow. I think that's important for us. But in the medium to long term, it's having that mill jam. And that's going to take a little bit of time and effort in terms of development and sustaining and growth capital to get it there. But that is the target.

[Michael Evans, Executive Director & Co]

Yes. Okay. That's great. And just sort of I've got you on Dargues. At the beginning of the call, you mentioned a couple of challenges that you're dealing with in terms of the additional dilution and development ore. I think you said led to a slightly lower grade than you expected. Just -- so there's nothing you've seen in the experience in mining to date and the reconciliations taking into account adjusting for your lower-than-expected dilution, if that's the case. There's nothing you've seen that suggests that the lower grade is any issues with the reserve grade.

[Daniel Clifford, MD, CEO & Executive Director]

No. No, there isn't. I think the -- it's quite -- we clearly knew in the acquisition that there hadn't been a drill hole or an underground infill hole put into the asset. And that was our first lever we pooled, and that's been fundamentally about near-term understanding of the mineralization and the nature of that mineralization and the tenor of that mineralization. Those infill results have done twofold for us. One has closed up our formation spacing from probably 50 meters now to in the vicinity of sub-20 meters in terms of hole spacings or core spacings. So that increases our knowledge and enabled us to much better engineer the environment down there to make them nice to that grade that we can see. That's the first thing. And then secondly, I think it's also fair to say that the infill drilling as a bare minimum has only given us more and more confidence in the grade tenor within the asset. I think at this stage, having that information such that we can design and lay the mine out well and appropriately is key. No doubting that we will see different interpretations of the orebodies as that drilling continues, but better to know it now. But in short, no, there isn't anything at this stage for us that gives us a concern on the overall average grade of the resource and reserve. Just one other point on it, Michael, if you're still there. I just want to reemphasize is that when we acquired the asset, we did acquire it with resource and reserve report from 2017. During our [ DD ], we did trim that average grade to the asset, down by 10% to get it to a range, that rough range of 4.9 to 5.5. That is the line in the sand for us in terms of where we need to get the asset. And we will rerun the resource and reserve report for the asset in the course of this calendar year.

[Operator]

Your next question is a follow-up question from Dylan Kelly from Ord Minnett.

[Dylan Kelly, Senior Research Analyst]

Sorry, guys. Back again. Just on -- can you just talk us through Dargues again in terms of some of the different modifications or changes you're trying to make on-site then? Have you had that much luck in terms of being able to install like an on-site laboratory yet to speed up turnaround times? How is development going? Any progress or any sort of updates in terms of how you're thinking about the permitting process for maybe expanding the current stope. Yes, just like a general update in that front.

[Daniel Clifford, MD, CEO & Executive Director]

Yes. In terms of -- we talked about the infill drilling, and that was the first wave. The second wave, that timely information for -- particularly development and grade control performance is the assaying, rapid assay turnaround. We will be reducing assay turnaround now from a couple of weeks now down to a couple of days during the course of this month -- sorry, during the course of May. So that is effectively a combination of on-site and off-site work to bring that in, close it down and get much better control. So that's initiative of having to build an on-site lab. We are hoping to avoid and reduce the capital cost to that and focus on external provider on quick turnaround. So that's going into place during May. So that's -- I think the final -- or the second, I should say, second lever in getting the engineered environment of that operation correct. Ongoing from that, I think you asked development performance. I would say, month-on-month, actually, during the quarter, the Dargues team are overperformed, and we're averaging around 400 meters a month, which is good performance for the asset. And as Peter mentioned earlier, there's a couple of key numbers we have in our minds. That's 30,000 tonnes mined, 30,000 tonnes milled. There, generally, the capacity is under the consent, 5 grams a tonne, 4.9 to 5.5 grams a tonne and 400 meters of development to sustain that operating performance. And all those milestones have been hit. In fact, I'll go one step further when -- in leading to the second part of your question. Actually, during March, the milled volume or milled tonnes was actually closer to a 400,000 tonne per year run rate, which we milled over 30,000 tonnes in that particular month. So that's a great performance for the business. And I think it underlines part of our investment thesis that there's latent capacity within that mill up towards that 10% to 15% improvement over the 355, which is what its consent to that. In terms of look forward in consenting. The key catalyst for us taking a clear view on what that consenting looks like in both mine life extension and capacity expansion will come after we get the results from the surface exploration hole testing depth and strike of both the main and the Plum's Lode, and we expect those results during the course of this financial year. And that then clearly informs the next steps in terms of a consent extension for the operation.

[Dylan Kelly, Senior Research Analyst]

Okay. That's quite clear. Adam, you were talking before about Great Cobar and some of the results there, which just look quite staggering or very, very interesting, particularly amidst Dan's clear strategy around being copper-ready. How much of the drilling is extensional at this point and testing depths and trying to grow the resource? Or is this largely an infill exercise to date? p id="677932760" name="Adam McKinnon" type="E" /> Yes. Thanks, Dylan. Great Cobar, at the moment, we've basically completed our infill portion of that program, and we're now exclusively focused on extensional drilling. So for the last 2 months, maybe a little bit longer, we have been testing both up-dip and down-dip. I think we've mentioned previously that there is quite a long-term run time at the moment for assay results. So a majority of those results are actually still pending. And as Dan said, we'll update the market when we're able to late in the quarter.

[Operator]

And your next question comes from Joshua Hain from REST Investments.

[Joshua Hain]

Just wanted to understand just the manning issues at Peak, particularly in the context that, I guess, you've effectively reconfirmed guidance. So are we expecting grades there to continue to offset the slower milled tonnes? Or are we expecting manning to improve?

[Peter Trout, Chief Operating Officer]

Joshua, it's Peter here. I'll respond to your question. So we've already seen an improvement in filling vacant roles in the underground workforce, and we're seeing that transform now through into improved physicals in the underground mine. We also resumed development in the New Cobar Complex in March, and that's helping us opening up additional stoping areas and provide additional mill feed going into quarter 4 and also the next financial year. In conjunction with that, we've got multiple areas developed in the Peak Mine, and it's a matter of turning over those stopes to extract the ore, backfill the stopes and take the next one in the sequence. So we're certainly looking for a better set of physicals in June quarter relative to the March quarter.

[Joshua Hain]

Okay. That's good to hear. So I guess just in terms of -- and maybe I misinterpreted sort of previous comments that certainly grade was better than I had expected. So was that part of the mine plan? Or did you sort of prioritize high grade because the throughput could be a bit lower?

[Peter Trout, Chief Operating Officer]

It was a combination of where we were in the mine plan. And remember, it's a polymetallic deposit in the previous quarter. We're mining for areas of higher base metal grades, lower gold grades. So transitioned through into some areas which have clearly much higher gold grades, Perseverance Deeps, case in point. But we did also benefit from some better-than-expected reconciliation results in areas. So a combination of where we're mining and favorable outperformance of mine for our grades.

[Operator]

[Operator Instructions] We are showing no further questions at this time. I will now hand back to Dan for closing remarks. Pardon me. We do have a further question. Your next question comes from [ Bill Murray ] from [ W. Murray Super Fund ].

[Unknown Analyst]

Just a quick 1 or a quick 2. The group ASIC for the year-to-date is [ $1,129 ]. And the financial year guidance is $1,425 to $1,575. It's sort of painting a very core picture of the final quarter. Could you care to sort of expand on that, please?

[Daniel Clifford, MD, CEO & Executive Director]

Bill, it's Dan. There's a couple of things that we'll just draw out here. One, we will see Hera's gold grade or head grades decline quite a lot during the June quarter. We did actually have a change in the order of some of the stopes during here, from Q4 back into Q3. So we will naturally now see a more rapid decline in the head grades at Hera during Q4. So that is a contributor to that all-in sustaining going up. We'll also see a shift of development activity at Peak from growth into sustaining or operating costs that will go to the all-in sustaining cost for Peak as well. So the combination of those 2, in particular, drive the group full year result into that range.

[Unknown Analyst]

Okay. One final one. On the CCC minutes for the Peak Mine, I noticed the total workforce, I'm not sure what the actual exact dates of these, but the Peak workforce went up from 1.34 to 1.41, and the pie bar went up from 1.92 to 2.02. Presumably, they weren't being used in underground. What was the reason for the increase in employment during the quarter, please?

[Peter Trout, Chief Operating Officer]

Bill, it's Peter here. I think as I referred to previously, we had a number of vacant roles in the underground workforce. That really started to impact through in the December quarter. And over the March quarter, a number of those roles have been progressively increased, leading to the higher numbers that you've quoted there.

[Operator]

There are no further questions at this time. I will now hand back to Dan.

[Daniel Clifford, MD, CEO & Executive Director]

Thanks, Amanda. And thank you, everyone, for your time this morning. Hopefully, investors can clearly see the platform, which is being set up for the company. Next news flow for us will be on delivery of the full year with the June quarterly report and in and around and probably just prior to that, a group exploration update as a result of the continued exploration effort within the company. So with that, thank you very much for your time, and we're talking in July.

[Operator]

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