Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Limited Quarter 4 FY '23 Results Call. [Operator Instructions] I would now like to hand the conference over to Bryan Quinn, Managing Director and CEO. Please go ahead.

[Bryan Quinn, executive]

Thank you. Welcome to everyone for joining this call to allow us to present our June quarter results update for 2023. I'm actually dialing in from the news and morning conference today where I'll be presenting tomorrow actually more detail on Aurelia Metals and our quarter results. So please look at -- look after this information as it will be registered tomorrow on the ASX.

On the call joining me from Aurelia Metals, I have Andrew Graham, who is the Interim CEO; Martin Cummings, Chief Financial Officer; and Peter Trout, the Chief Operating Officer.

We're actually excited to present to you the fourth quarter results today, and I will continue -- commence by talking through some of those highlights for Aurelia. It's actually been a very strong quarter and half year for Aurelia in terms of financial improvement and setting up for FY '24. Firstly, I would like to emphasize the outcomes of safety at the operating assets. The operating assets and projects have made safely exceptionally well. We have major step changes achieved in reducing total approval increase. And in fact, I was on site this week celebrating Dargues with 12-month entry free lunch for by an underground visit to the operating stopes.

Production from the operating assets have delivered in line with our financial year 2023 guidance and so has the all-in sustainable cost for the business. We've experienced some welcomed tailwinds on prices from some of the commodities, for example, gold, balanced out by some of the softer prices in other commodities like zinc. So Martin will talk through some of these details in a couple of minutes during the presentation.

Obviously, we'll provide the full year results, financials, on these outcomes in our reporting period in the next couple of months as well.

During the quarter, some material activities have been completed, including the Hera care and maintenance. And as we reported in the March quarter, we've also now transitioned the owner operator at Peak and resourcing up to delivery into FY '24 with Aurelia employees and equipment. We've also made some excellent decisions to fully pay back all debt on the balance sheet in the June quarter, which puts Aurelia Metals in an excellent position to take on the new financing facility for a next major Federation project. This also positions us very well to look at project pipeline to self-fund our next projects after Federation's successfully completed in -- which obviously kicks off in August 2023. We'll provide more details on the sort of outlook in the full year results.

To set up fixed success for Federation during the June quarter, once the funding solution was delivered, we've been focused on remobilization of Redpath, our underground construction contractor. In addition to tendering our packages and focus on crude pipe items to ensure we deliver the project on time and cost. We've also appointed a very experienced project director, Michelle Tracey, who will report to myself and lead the project who is on the ground at Federation as we speak.

Lastly, I've spent the last 5 weeks getting to know the people, the assets, the potential in our resource and some of the shareholders and investors. And thanks to all of those who we have provided me feedback. And as a result, I've developed a focused 100-day plan, which I'll talk to you towards the end of the call. This is aimed to really leverage the improved performance over the last 6 months and set up our company for exciting outcomes over the coming years.

So in summary, a very good finish to the year in the last half of FY '23 and safety operating production balance sheet and cash, setting up project Federation and importantly, setting ourselves up for an exciting financial year 2024. So as you get in through some of the details, I'll firstly hand it over to Andy Graham, who is the interim CEO to talk in more details on the guidance outcomes for the past quarter. Over to you, Andrew.

[Andrew Graham, executive]

Thanks, Bryan, and also like Bryan, I'm at the Mesa conference this week. So if there's a bit of background noise, I certainly apologize for that. Those who joined us at the AGM in December or November, which is appreciated at that stage. There's a few things absolutely critical to me and my time as interim CEO. One of those was doing what we said. So delivering on guidance. And those who are following along in the presentation on Slide 4, we provide a summary of that. I'm very, very pleased to say that we have achieved guidance across the board on all commodities and also on all-in sustaining cost for the full year.

I'll talk in a little bit more detail about that. March was very strong. So when we look at the June quarter compared to the March quarter, it does seem a bit softer. The first thing people should be aware of is that we didn't have Hera in the June quarter. So March includes 3 operating assets. June quarter includes 2. So therefore, we did see a reduction in production of commodities. That said, particularly Peak was making a lot of base metal on less gold. And therefore, we did see a shift to base metals in the June quarter than we saw say gold.

I look at cost, it's probably the one that was concerning me most. And when we talked in the March quarter, we look at the commodity graphs, all were on track to achieve guidance. And I'm pleased to say that they did and gold at the top end of that range. Price cost was probably the area we need to focus to achieve our target of 2,300 for the year. Pleased to say the half year came in below 2,000, which recall, traveling through Sydney, meeting investors very early in my time as interim CEO, and that was the one area most people believed wasn't achievable because of that. We need to achieve below 2,000 all-in sustaining. As you can see on the graph on the right, we did that, and therefore, came in on guidance around that 2,300 all-in sustaining per ounce. Critical to us as a business, demonstrating that we say what we're going to do and then we do what we say. And that's something you can expect from us going forward.

Similarly, around the time of the AGM and in the same theme of doing what we say, I did flag with people that safety is a key item for me. I'm a strong believer that safe production and production go hand-in-hand with safety. It's certainly what we've seen, and I'll talk about at the moment in relation to Dargues. But across the whole group, we had a very pleasing results for the 6 months and that we had no recorded injuries through the end of June. That has meant our total recordable frequency rate has dropped into the 5s, which is a fantastic result when you consider we were operating 3 underground mines.

The other thing to consider and keep in mind there is that it wasn't steady state. Things weren't stable. The business is going through quite a state of flux corporately. But also operationally, and Bryan touched on it, we turned off Hera at the end of March and had to take that site to care and maintenance, slight moving to the end of its period of operation, into care and maintenance and certainly weigh on the minds of people as well as introducing a whole bunch of work to business as usual.

The other item that Bryan touched on is we took Peak to one operated mining as well through that period. And it was extremely pleasing to see us come out of pilot [indiscernible] operator and not have any safety [indiscernible] in that period of time.

Everyone touched on in Slide 5 is our record of environmental incident frequency rate. Just saying that our group management environment, John Thompson, sector with the architect of that, and it has been recognized as a finalist in the use of all mining at awards. Pleasingly, to say our set target for the year of 3, and we've come in at 2.9. So as well as not harming people, we're pleased to say we're having a nil impact on the environment as well.

I did talk about good safety results going ahead and with good operational results. And the reality we move to Slide 6, which is the dire result. And for an underground mine in Australia, this is really quite incredible, in that they have not had a recordable injury in 12 months, and therefore, total recordable injury frequency rate, which is a 12-month moving average, had moved to 0.

That's something stats that is incredible. But if you think about what they're actually means, it means we haven't hurt people to the point of the recordable injury in the last 12 months. And that's what safety is all about. People come to work, do their jobs and can go home, as we just stated, better state than they arrived. And you go further on Slide 6 of a chunk of our workforce, underground workforce particularly, all very pleased with that outcome.

And hat's off to the safety outcome to Peter [indiscernible] as well as our 3 operations and the managers for driving that. It doesn't happen with no work. And it's really great to see everyone focused on their own safety, but also the safety of their workmates to ensure continuity of operations and the production performance that we saw on achieving guidance for the full year.

That's all I'm going to cover. And to cover the assets in a bit more detail, I'll hand across now to Peter Trout.

[Peter Trout, executive]

Thanks, Andrew, and good morning to everyone on the call today. As you can probably pick up from Bryan and Andrew's comment, it was a very busy quarter across our business in all the sites. So I'll discuss each site's results for the quarter with reference to the presentation slides released this morning.

Turning to Slide 7 for our Peak operation. Over the quarter, the volume of ore mined and processed at Peak was stable relative to the prior quarter. This quarter though, the majority of the mill feed were sourced from lead zinc ore which made up around 2/3 of the feed tonnage compared to about 50% of the tonnage in the prior quarter. The net then flowed through into the metal production as reported today. Zinc and lead metal production was higher, with a substantial 78% increase in zinc metal, which is due to the higher grades we saw from the Chronos deposit in accordance with the mine plan and also the greater proportion of lead zinc ore in the mill feed. Correspondingly, copper metal production was down about 453 tonnes, and that was because less copper ore was processed and we treated lower grades over the quarter. And gold production reduced by 37% to 6,400 ounces, which was in line with the lower mine feed grades.

During the quarter, we completed major planned shutdowns on the shaft-hoisting system and the process plant. And more work is planned during the September quarter to replace structure still in the mill and perform remediation tasks in the South Mine shaft system. So we can bring it back into full personnel lining capability.

I would like to comment on underground mining performance at Peak because whilst we completed the underground mining transition, it's not where we want to be. So there's been a series of initiatives in place to lift productivity and ultimately, our ore production rates which are the important drivers of the unit cost and operating margin at Peak. As part of this program, development rates were ramped up from the March quarter and will increase further into the current quarter as we establish access to future stoping areas. And these include the recently delineated Chesney East zone at the North Mine. We've seen positive results from these initiatives across the site, and we'll continue to pursue them over the current and future quarters.

If we move now to Slide 8, which talks to our Dargues mine. We produced a bit over 9,000 ounces of gold for the quarter, and that contributed 57% of the group's total gold production for the quarter. Remember now that we don't have Hera as part of the mix. The strong production volumes at site were maintained, slight increases in the tonnes mined and processed. And we've made full use of the development consent modification received in mid-December last year to increase volumes through the process plant.

As we mentioned in the March quarter results, development rates have reduced in line with the mine plan, and this is contributing to a reduction in site spend, but also unit cost. We've now completed the development of the lowest mining level and are now focused on development in the upper remnant mining areas where we are seeing some good grades coming through there, and we'll set that area up for production over the coming quarters.

Another important activity during the quarter was the update to the Dargues Life of Mine plan, which consolidated the results we've received from the infill and extensional drilling programs that were completed in the March quarter. Life of mine plan confirmed that mining and processing will finish during the first half of FY '25 and shows we can deliver a strong cash contribution from Dargues over the remaining period of its mine life.

Turning now to Slide 9. We transitioned the Hera site to care and maintenance during the quarter, and completed the mobilization of contractors, personnel and plant. That process went very well. And as Andrew noted, it's not an ordinary activity for us, and the effort from the site management team there and the contribution from our contractor employees was key delivering that result. The final process point cleanup delivered 540 ounces of gold, which provide a nice revenue contribution. On the slide you can see there -- on the other can see on Slide 9 shows that final bar forward from Hera. Activities at the site are now focused on preservation of the existing assets for use in the Federation project and future processing operations.

I'd also like to comment on the Working Smarter program, which is covered on Slide 10 of the presentation deck. This is a real highlight for the business over the last 8 months or so. We've seen a number of cost and efficiency benefits banked from this program, which was launched in November last year. And this is all about drawing upon the knowledge and ideas from our workforce. So it was really good to see over 600 ideas submitted and 220 of those validated and taken through implementation.

Example on Slide 10. So each members of our underground service crew at Peak, who were just finished setting up a 3D load scanner that gives us real-time feedback on the volume of rock load in a 12-foot tray. And by use of this data, we can provide feedback to our loader operators, so they can fully utilize the trade capacity and thereby improve the payload move per load. Just a small example of one of the many productivity and cost initiatives underway at Peak at the moment.

And when we stand back and look at the Working Smarter program, we set ourselves a really challenging target back in November to deliver $24 million in benefits, and we really knew that was a stretch for the business. So getting to that final result of $25.6 million in benefits is a real credit to everyone who's contributed to that program across our entire organization.

On that note, I'll hand over to Bryan to talk to the Federation project.

[Bryan Quinn, executive]

Yes. Thanks, Peter. Look, Federation is a very exciting project for Aurelia Metals and supports our ambition actually to take my ambition to take Aurelia Metals to be developer and operator of choice in base metals and namely copper and zinc. So we are resourcing our project with very experienced leadership and contractors to ensure we can meet our scheduling costs safely that we've committed to.

So the operating model that we're setting up really will be -- we will replicate for our future projects with a very experienced team. At present, the team is focused on remobilization, getting the safety management systems in place, vent shaft planning and tendering for various critical path activities, including rail freights, et cetera. I was recently on the site and can report the sites well set up for a remobilization and workforce camp is also ready to go in a very good condition. So with the appointment of Michelle Tracey, that's a massive opportunity for us to leverage her experience and her contacts and obviously, be able to deliver this project on a very disciplined way in line with our targets. We'll obviously be providing more updates on a quarter-by-quarter results basis on how we're tracking against this project. But once again, I'll just reinforce, it's a very exciting opportunity to really build this mine in a very, very good location close to our facilities in the Cobar province.

So I'll hand it back to Martin now to talk to financials.

[Martin Cummings, executive]

Thanks, Bryan. So I'll be turning to Slide 12. And in addition to the great outcomes on safety and operations that the team has taken you through, the June quarter also included our significant milestone of announcing the new Trafigura funding package and completion of the equity raise. This will now enable us to restart development of Federation, as Bryan has said. I'll now step through the waterfall items on this slide, and then I'll update where we are on the refinance process.

So we finished the quarter with a cash balance of $38.9 million. And as outlined in the June operating performance, we continue to focus on ensuring our assets are cash positive with just under $15 million of cash flow generated. As we flagged in the March quarterly, operating cash flow was expected to be lower this quarter with cessation of operations at Hera at the end of March and due to the March quarter, including some additional concentrate sales related to prior period production.

In addition to those items, this quarter, at Peak, we did incur some higher concentrate treatment charges with some of that due to the higher sales in the prior quarter, and we also invested in a new hall truck for the underground fleet. The Dargues operating cash flow remains strong. It is benefiting from the current favorable gold prices and from the planned reduction in mine development. In FY '24, our focus really is on continuing to maximize the operating margins of our assets, in particular, at Peak. A key enabler to lowering Peak's unit cost is to increase volumes, particularly given there is spare milling capacity available. And our attention as a management team is now firmly on realizing those activities improvements as well as rightsizing the operating cost base.

And as Dargues with the life of mine now forecasting the end of operations in H1 '25, as Peter mentioned, that asset really becomes an important cash contributor for the remainder of its mine life given those strong gold prices and the lower development requirements. And our plans are now focused on realizing that cash contribution through continued predictable performance and cost management.

We'll be pleased to give you more detail on our operating plans for FY '24 as part of our FY '23 results announcement, which we plan for late August.

As mentioned, Hera has now transitioned to care and maintenance. And pleasingly, we did recover that 540 ounces from the final cleanup of the plant. The Hera operating cash flow was modest this quarter, obviously, and it was impacted by some revenue adjustments from prior shipments and the final costs for the operation through March. We incurred a $4.8 million cost per care and maintenance transition this quarter. This was in line with our plan and did include just under $2 million for redundancies paid to staff. The other one-off costs related to demobilization of contractors and service providers, as Peter mentioned, and it does include the commencement of some of the ongoing care and maintenance costs at that asset. Those ongoing costs are expected to be less than $1 million per quarter going forward.

Hera was actually the main contributor of the unfavorable $2.9 million working capital movement as well. And within that, there's about $3.3 million in payments that we made for Hera suppliers. I do want to point out though that these movements are just the cash flow impact from the working capital unwinding, and they are not additional cost to what is being reported as operating cash flow for Hera previously.

Growth capital, exploration and corporate costs were up slightly, driven by some higher corporate costs. And as you will know, the growth capital will start to ramp up from this quarter with the recommencement of development at Federation.

So on the waterfall, the final movement relates to the refinance process with a positive movement of $1 million for the quarter. And with that, I'd just like to turn to Slide 13 to take you through where we're at with the refinance process. So the steps on this chart are in line with the refinance steps that I outlined on the call on 31 May. So during the month of June, we did receive the proceeds from the institutional placement and entitlement offer of $23.4 million. As Bryan said, we also repaid our term loan in full, which was $8.6 million, and we fully cash back the out performance bond facility for another $10.6 million. These were critical steps that is allowed -- as it allowed our existing banks to release their security, which will now clear the path when we come to reach financial close of the new Trafigura facility. We paid $3.4 million in fees in June, and they relate to the institutional equity raise and part of the debt arranging fees. So that was the positive $1 million net movement during June. But as you can see, there are some significant cash flows that will come in through July.

So in early July, we received the proceeds from the retail entitlement offer of $16.4 million. And we also paid the balance of the fees relating to the retail offer and the [ debt arranging ] fees of another $2.5 million. So those fees were all in line with the fees outlined in the equity raise presentation.

So where we are now is that we're focusing on finalizing satisfaction of the conditions precedent for the Trafigura facilities, and that will allow us to draw down on the performance bond facility. We expect to satisfy those CPs very shortly within this month. Once we replace the performance bonds, the existing banked will then return the $56.8 million there holding its cash backing. And along with the cash on hand of $38.9 million that we have, we'll take our cash on hand to around $110 million. And as I've outlined previously, we do have the Longroad advanced facility, and we'll keep that undrawn for now. but that facility provides further liquidity up to around $145 million.

So in summary, it has been a transformational quarter for Aurelia and for our balance sheet with the balance sheet now set up to fully fund its next stage of growth. Thanks for your time. I'll hand the call back to Bryan.

[Bryan Quinn, executive]

Thanks very much, Martin. So if I just move to the slide which describes the 100-day plan, really how we're unlocking future value for the company and for our shareholders. I think as I described at the start of the presentation and as my colleagues have actually presented as well, we have a more stable platform in the last 6 months to build our full potential for our shares going forward. So using the feedback and information I've received, which I'm still gathering as I progress, 100-day plan is very focused on 5 areas in the immediate period not in any order of priority, but one really is we need to continue to attract and retain and develop quality people. This is the key for our long-term success. We need to safely deliver a step change in our cost base and [indiscernible] to fill our mills so we can deliver higher share of value through all the commodity price cycles at Peak. And obviously, we're working through a plan to understand what's required to deliver lower half the cost of performance in the medium term.

Number three is really safely maximize value from Dargues operation over the remaining life of the asset. Obviously, we're running the business very well there. Management is doing a great job at Dargues. And we just need to continue to make sure we maximize the value to the very end of that business and do it in a sustainable safety way.

Four, setting up Federation to success to deliver safely on time and budget, but importantly, make sure we set up a long-term success for Federation as well so we can maximize the value of that full resource.

And fifth is to optimize our Cobar province and to consolidate all of our organic options to fill the mills with good quality ore, which should deliver a superior share of value in cash, including completing stages in [indiscernible] which will form one of many of our future projects in our hub-and-spoke model in the province.

We will talk more about this in upcoming presentation releases against those sort of focus areas and against our business plan. But in summary, a very good finish to the year in the last half and the last quarter for FY 2023 in both safety, operating production, balance sheet and cash and setting up Federation project and importantly, setting ourselves up for exciting financial year in 2024 and one of the most important people are going home safe every day as they come to work, they're going and better than they actually started the shift with. So that's very important to us and something we very much value as an organization.

So really excited by the opportunity we have ahead of ourselves in the business. And now I'll hand over for questions.

[Operator]

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

[William Thurlow, analyst]

Just a couple for probably [indiscernible] At Peak, just wondering how should we be thinking about mining rates between the copper and the lead zinc portion of the asset? Are they kind of going to deplete in kind of lockstep? Or would the lead zinc get depleted at a higher rate than the copper?

[Peter Trout, executive]

Yes. Will, on that one, depends on the time frame we're looking at. So over the next couple of years, we'll continue to feed a mixture of lead zinc ore and copper ore source from the South Mine and North Mine. Beyond that, when Great Cobar and its production, we'll see the lead zinc contribution decline based on current outlook, but much higher copper volumes coming in. But as Bryan mentioned before, that's just the baseline, and we are looking at other options in the district with our hub-and-spoke model to get the best mix of feed into those process plants.

[William Thurlow, analyst]

Okay. And maybe switching to Dargues, how should we be thinking about the growth profile there to the end of mine life? I guess, is that going to be broadly reflective of [ media ] history? Or could there be kind of some kind of reversion to the grade in the 2022 production target?

[Peter Trout, executive]

Well, I think probably the best response there will come out in coming weeks when we release our mineral resource and a reserve update for the market and the production target, and that will give you a more quantitative feel given the horizon of the mine life at Dargues and what those grades are going to be.

I will say though that this area, we're back into the upper levels of the mine. We're already seeing some grades some development there that are higher than the quarterly grades we've seen in the June quarter.

[Operator]

Your next question comes from Kash Petropalo from Canaccord Genuity. Apologies. Your next question comes from Wolfgang Kissel, private investor.

[Unknown Attendee]

Yes. I have a question to your zinc production, which you highlighted as very positive. Now as a side product of zinc production, we have gallium and germanium. Have you any plans to utilize your zinc to that -- to produce also gallium and germanium, especially that these 2 [indiscernible] are considered in the forefront of the -- sorry. Yes, high-tech production of hardware.

[Peter Trout, executive]

Wolfgang, it's Peter here. No, we don't. Our processing facilities at Peak are set up to recover a concentrate. We don't have the ability to extract any further metals on site apart from the gold that we produce. So the extraction of any of those other elements really is something that happens with the smelting and refining in.

[Operator]

Your next question comes from Kash Petrapala from Canaccord Genuity.

[Unknown Shareholder]

I'm Kash, I'm a shareholder. I was at the company, has been there a long time. This question is directed to Bryan Quinn. So just previous managing directors have sort of run this company from a head office and not got their hands dirty and go to site and meet and build confidence within the employees.

What's your plan, Bryan? Are you going to go out to site? And I know you've got managers on the ground and supervisors and all that. But proactively, you're talking to employees to build up morale and just to put your presence there and get a bit of confidence for the employment to improve productivity.

[Bryan Quinn, executive]

Yes. Thanks for the question. Look, so I've been with the company for 5 weeks, and I've been at site for 2 of those weeks, 2.5 of those weeks. I spent 2 weeks at Cobar for 1 week each and also been a Dargues this week and the previous weeks as well. So my intention is to work with the teams to support the teams. Obviously, I've got many stakeholders I need to work with, and employees are definitely one of those stakeholders. And our role is to obviously hold them accountable, but also support them so we can maximize the value for the company. So in answer to your question, definitely will be around the sites on office within the projects in Brisbane and with the stakeholders and investors on a very sort of routine basis.

[Operator]

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

[Bryan Quinn, executive]

Well, thanks, everyone, for joining the call today. We look forward to presenting the full year results in the coming weeks and look forward to further questions. And I just want to reiterate, I'm really, really happy with the quarter results and the last half results. The team has been able to work together with. So we look forward to speaking to you very soon about the full year results and the guidance going forward. That's all. Thank you, everyone, for joining, and we'll speak soon.

[Operator]

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