Chrysos Corp Ltd
ASX:C79
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Thank you for standing by, and welcome to the Chrysos Corporation Q3 FY '24 Quarterly Call. [Operator Instructions] And finally, a reminder that this conference is being recorded. I would now like to turn the conference over to Dirk Treasure, Managing Director and CEO. Please go ahead.
Thank you, Paul. I appreciate the introduction. Good morning, shareholders, and welcome to our March quarter 4C investor update. As usual, I'm joined by Brett Coventry, our Chief Financial Officer. And together, Brett and I will be running through an operational and financial report for the quarter. After the presentation, Brett and I will be available for Q&A. [Operator Instructions]
Slide 3, please, operator. Chrysos has had an excellent quarter from a revenue perspective, with 92% growth year-on-year and 28% growth quarter-on-quarter. The bulk of this growth is coming from our EMEA and Americas regions, which have had 190% and 479% growth, respectively, year-on-year. The third quarter represents our second quarter -- or second ever quarter of having more than 50% of the company's revenue coming from international rather than Australian operations, and we consider that there remains substantial growth opportunity in both of these markets.
During the quarter, we analyzed around 1.1 million PhotonAssay samples representing the 21st quarter of record PhotonAssay volumes. We finished the quarter with $70 million of cash on hand, and we've had our $95 million debt facility with the Commonwealth Bank certified as green funding under the green technology criteria, which is a substantial endorsement and aligns with our focus to provide safer and more environmentally friendly analysis to the mining industry.
From a deployment perspective, we completed deployment of 3 PhotonAssay units during the quarter, and that included our first deployment into Europe. We're currently installing a further 2 units, 1 into Canada and another into Africa. Unfortunately, we have continued to see site readiness challenges from our customer base leading to further delays to some deployments.
At this point, with only 9 weeks left of the financial year and installations requiring typically 8 to 10 weeks for completion, we consider that we will end the year with a total of 29 operating PhotonAssay units consisting of the 9 new deployments and including 2 redeployments being completed during the financial year.
While we remain confident that the site readiness challenges will be resolved in the short term, we're actively focused on building out our sales pipeline and diversifying our customer base. With a broader pipeline, we'll have the opportunity to redirect unit deliveries to those customers ready to receive units and shift other customers further down the delivery pipeline if they're not ready. We're continuing to increase the strength and depth of our sales team and remain committed to our focus on direct-to-miner relationships, which will support this initiative.
On a positive note, we've secured a further lease agreement, bringing the total number of leases from 49 to 50, and this new agreement is for deployment of a second unit by MSALABS to the Kibali gold mine for Barrick, which is routinely analyzing sample volumes on-site greater than the capacity of 1 PhotonAssay unit. This is the first additional lease agreement related to our previously announced partnership with Barrick, and we anticipate further related new lease agreements to follow.
Slide 4, please, operator. We continue to build up our presence in key mining hubs around the world, growing adoption in these regions and driving down total cost through our hubbing strategy. Our regional sales team are now also working closely with our deployment teams to focus both on new unit sales but also on driving additional volume into existing units.
It's important to note that while we've experienced delays to deployments, our manufacturing as well as our global deployment capability has advanced substantially. During the quarter, we manufactured an additional 5 PhotonAssay units demonstrating manufacturing capacity of 20 units per year. This addition of 5 units brings the total number of units that we have having passed factory acceptance testing to 11 units, each of which are ready for imminent deployment as we overcome customer readiness delays and broaden our customer base.
Slide 5, please, operator, and over to you, Brett.
Thanks, Dirk. We are well placed moving forward with our increased global footprint, which is the revenue growth and market diversification increasingly visible across the regions, which we have established ourselves. We've also spoken about the current state of the Australian market in previous calls. We can see that consistency here and the revenue opportunity associated with the latency in our units. PhotonAssay can be activated immediately versus fire assay, which requires people, supplies and takes longer to deliver. This is a good position to be in with gold prices at close to record highs and some of our peers indicating they are seeing green shoots upstream or downstream from us, so obviously, a good strong position to be in.
This will be the revenue slide we use to move forward, retiring the AAC and MMAP slide still included in the appendices here. This is reflective of our business' increasingly maturing reporting structure and building reporting capability on the backdrop of a larger fleet of units. We feel this provides better information to continue giving you greater insight to our business.
Next slide, please. This is a relatively new slide. And while there's a lot of information here, the key takeaways are the following. We are deploying infrastructure-like assets with a projected lifetime return in excess of $20 million. The deployed cost is just under $4 million. The initial capital outlays are small at the time of ordering the long lead times, around $100,000, but the majority of expenditure occurs at the time of the unit being deployed at site acceptance testing or SAT, which we refer to it as, which is when we hand the unit over the customer and start earning revenue.
It should be noted that pricing structure applies to the current 11 units that have reached factory acceptance testing. Obviously, there are some little storage charges associated with that but immaterial in the context of things. And the upside is we are ready to ship these units as soon as customer readiness issues are overcome.
We expect some renewal costs around the 10-year mark of our units to about 40% of the initial capital outlay, which is expected to take the unit through its full 20-year useful life. Like I mentioned earlier, there is a lot to invest here. So let me summarize.
18 months out, we commit to ordering the long lead time items, primarily the linear accelerators, approximately $100,000 of just under the $4 million we spent [ per ] unit. Around 9 months from deployment at approximately 20% of the cost is laid on confirmation of the 4 unit manufacturing with a further 20% at the time the unit prices FAT, or factory acceptance testing, which is when it's ready to ship. Of course, that's the normal course of business with the few delays at the moment.
And then that payment in that normal course of business would be around site acceptance testing or when we're starting to generate revenue from the unit. On deployment or SAT, we have approximately 50% due to our manufacturers. And at the same time, we start to generate revenue.
We have used the currently deployed fleet revenue of $1.8 million per unit. Obviously, there's some upside as we use some of that latent capacity, but over the last period of time, that $1.8 million per unit is the average to work through the cash return in excess of $20 million.
At approximately 10 years, we will expect to have a rebuild cost of around 40% of the unit deployment cost. And ongoing, we have an annual cost of, at the moment, $425,000, which is down from what we had originally estimated in our prospectus. As these costs are improving at a unitized level, we thought we should also introduce some more metrics, and we've obviously got better reporting [ table ] of that, which leads us to the next slide. Next slide, please.
We're pleased to be able to provide the unit economics going through historical revenue costs and the margin per unit. At the time of our prospectus, we spoke to the $375,000 of direct costs and approximately $100,000 of variable labor costs. We can demonstrate an improvement on this, which sees us operating with a strong gross margin between 70% and 80%. This performance is in the backdrop of inflation rate of around 6% over the last 18 months. There are reflecting of our hubbing strategy across the globe and deeper engagement in our maintenance sales teams across the tiers of maintenance and driving additional PhotonAssays to the unit; a strong position to keep on improving and disrupting a dated and unfriendly analysis method, and we look forward to sharing this graph with you going forward.
With that, I'll hand back to Dirk.
Thank you, Brett, and Slide 8, please, operator. Summarizing for the quarter, a 92% increase in revenue year-on-year and a 28% increase quarter-on-quarter are an excellent outcome. Continued revenue diversification has led to the bulk of this revenue now coming from offshore with each of the locations in which we operate offering further growth potential. All over the world, we're exploring both additional opportunities for deployments as well as making use of latent revenue capacity with our laboratory partners who are well positioned to capture any industry upside related to an increase in gold price.
We're maintaining strong unit economics with consistent revenues and reductions in unitized costs. This is helping us achieve gross margins in the order of 80% to 90%. As Brett outlined earlier, this includes Chrysos' maintenance engineer costs, spares for the unit, external costs, so that effectively, we're providing a full picture of the deployed cost of a unit, which is the detail required to properly understand Chrysos' financial model and the opportunity of Chrysos.
Taking our current revenue per unit, expected life and costs of the unit, the lifetime return of a PhotonAssay unit is in excess of $20 million. We're maintaining a focus on these margins even as we deploy new units around the world, with each new unit adding accretive revenue and EBITDA to the company.
With the end of the financial year fast approaching, we have provided final guidance for the year with EBITDA of $8.5 million, reflecting a 143% increase on FY '23 EBITDA, comfortably within our initial guidance for the financial year. With regards to total revenue, we provided final guidance for the year of $45 million, representing a 69% increase on FY '23 revenue, which is a little lower than the range that we provided and is reflective of delays to deployment. In spite of the lower revenue, we've achieved higher EBITDA conversion on a unit-by-unit basis, allowing us to achieve that higher EBITDA.
Chrysos intends to provide guidance for FY '25 following the conclusion of FY '24. And based on the forecastable nature of both the revenues and costs of our units, coupled with additional units for deploying in FY '25, we do anticipate a strong increase in both EBITDA and revenue in comparison to our FY '24 figures.
Looking forward, we remain confident in our ability to continue to increase our market share in the gold analysis space, and we're well supported financially with around $165 million available between debt and cash on hand to continue to build and deploy PhotonAssay units.
I'll now move on to questions.
[Operator Instructions] Your first question comes from the line of Taylor Guyot from Barrenjoey.
Are you able to hear me okay?
Yes, we can, Taylor.
Could you just firstly talk through the factors that have led to the lower-than-expected deployments and maybe what you can do differently in the future to mitigate this risk?
Yes, absolutely. So look, we flagged and earlier on, I was talking about the absolute best thing that we can do here is to build out the deployment base, build out the available customers that we have and the locations that we can put these units. So to put that in context, instead of sending a unit to customer A in Mexico, if they're not ready to receive that unit, we can then deploy it instead to customer B in Tanzania. So that's kind of the ideal path forward for us.
I think it's important to point out that some of these things are outside of our control. So as we continue to mature, we can continue to allow contingency, continue to work really closely with our customers to make sure that they are ready, physically be on those sites, confirm that if concrete needs to be re-laid, it's actually done ahead of the time that a unit arrives. So that really then derisks our ability to deploy units, accelerates the rate at which we can deploy them and which is important now because we've really -- we've done a lot, over the last 12 to 18 months, in building out both the deployment capability but also that manufacturing capacity. So we're at a point now where we can fulfill the needs of a growing customer base as well.
And then can you just talk through how we can think about the forward deployment schedule now into FY '25 and what confidence you can give for the outlook for demand as well?
Yes, absolutely. So with regard to specific forecasts going into FY '25, I commented that we will provide guidance come the end of FY '24. So we're not guiding to a specific number at the moment, but we have talked about the manufacturing capacity as well. So I think in the last quarter, we've clearly demonstrated the ability to manufacture by manufacturing 5 units. We've demonstrated the ability to manufacture the equivalent of 20 units a year. So certainly, from our perspective, it then comes down to that customer readiness and the ability of customers to receive those units.
Okay. Perfect. And then last one for me. Just with the current agreement you have with MSALABS, are you currently receiving minimums for those at the moment? Or have those been waived?
Sorry, can you repeat that?
Yes, sorry. I was just saying the last question for me is under your current agreement with MSALABS, are you receiving minimums for those at the moment? Or have those been waived?
Right. So for any of the units that are deployed, we obviously turn on the minimum monthly assay payments at around the time of deployment. So Brett's talking about the sort of prepayments versus deployment timing, et cetera, et cetera. So typically, the MMAPs are turning on at the point of site acceptance testing.
Where we have had delays to deployments of units, often, we're not actually charging the customer ahead of time for those deployments. And you can see that come through in the revenue. At the end of the day, we need our customers to be building a sustainable business as well. We continue to work closely with those companies as we go forward.
Your next question comes from the line of Jules Cooper from Shaw.
Dirk, I've got 2. Firstly, you've talked about the focus on broadening the contracted base. That's -- we're really encouraged by that. But I guess we just wanted to get a perspective on how quickly that could take place. And would you expect to be active there in the next quarter? That's the first question.
Sure. So look, certainly, from our perspective, doubling down on that sales side working around the world on the ground near our deployed units as well, really looking to convert mining projects to PhotonAssay. So what are we seeing at the moment? We've certainly seen that initial conversion of the Barrick partnership that we announced in October last year with that 50th contract that we've now put in place. And certainly, from my perspective, yes, I see this as a significant derisk to our ability to deploy units on the time frame that we've laid out. So the goal is to start to deploying earlier rather than later obviously -- sorry, start signing up new units earlier rather than later, obviously without guiding to specific numbers at this point.
All right. And maybe the second question is you manufactured 5 units in the quarter. That's sort of the run rate you've indicated. Would you expect to manufacture another sort of 5 units in the fourth quarter getting ready for next year?
I think the big point there is that we've shown and demonstrated capacity for those deployments. We'll continue to balance the requirements of manufacturing and deployment going forward. I think the nice thing here is that we do have that latent deployment capacity that we can draw upon and units sitting there ready to go. So you can certainly imagine that as we roll into the next financial year, and we're continuing to manufacture units, it really does come down to having those -- that customer base ready to receive those units.
[Operator Instructions] And your next question comes from the line of Joseph House from Bell Potter.
I just got a few questions. So firstly, the additional MSALABS contract, is that part of the 10 additional unit deployments that are part of that contract you announced late last year? Or is it separate to that contract?
Yes, great question. So what we announced in October last year was the partnership between Chrysos, Barrick and MSA, so this would effectively be the first additional contract in relation to those units or to that partnership.
So the first additional are from the 3 that were contracted or part of the 10 that's -- that were undergoing due diligence, sorry?
Excellent question. Probably more the latter. So it's certainly in addition to the ones that we have going to Nevada Gold Mines.
And then my second question is around the other income. So it looks like just back-solving for -- from MMAP and additional assay charges, looks like there's about $600,000 in other income. Just keen to get an understanding of what's that in relation to.
Yes, absolutely. Brett, did you want to approach that one?
Yes. So we've relocated -- Dirk called out in the slide deck there, there's a couple of relocations during the year. There is a fee for doing that. We obviously don't want to be relocating the units if we don't have to, but this was relation to a unit being relocated. And that was the cost that was charged for and income that was associated with doing that. And we saw that happen.
Obviously, that's not something we want to be doing, but we do have 2 of those happening this financial year. The interesting underlying piece of that is obviously the customer during that process is still committed to those minimum monthly assay payments through that process as well.
And just looking at your cash flow statement, the receipts from customers for the quarter was $7 million. Year-to-date, that's $21.6 million, so roughly about $3 million -- sorry, $7 million per quarter. I would have imagined that as your deployment base increases, there would be increasing receipts from customers per quarter. Is there anything to look through past that? Or is it an increase in the time that customers can pay you back? Yes, any feedback is great.
For sure. No, thanks for the question. There's no -- there's been no change in trading terms. I think what we -- as we've grown across the globe, we've had to obviously set up local bankings in many of these countries, and then they follow through certain local registrations. We're now in a position in many of the jurisdictions that we're invoicing locally, but there were a backlog of a few invoices going out and they're obviously starting to be collected now. So we're starting to work through a cadence of freeing them back but didn't in terms of collecting those but didn't have a material effect in the last quarter but certainly something that we're in a stronger position to be able to do that now because your expectations around the cash are the same as mine, that we should be growing with those additional deployments.
And just lastly, just keen to get just some context around how the ramp-up of deployed units at labs in the past 12 months has compared to those at mine sites. Is there a difference in how quickly these units can ramp up, depending on which site or whether they're in a lab or whether they're at a mine site?
Yes. Look, I'll jump on that one. So often, we see -- we have a facility that's already running samples. So we have some established laboratory or a mine site with an established laboratory on the mine site. It's much easier just to interchange with PhotonAssay, so post deployment, being in a position to run the same amount of samples that were previously being run but now with PhotonAssay. So that's quite a quick ramp-up opportunity. Where we have seen new laboratories established, so for example, into a new area or a new customer in a new region, there is a longer period of time there because you've got a couple of things happening.
I mean one is building out awareness of the technology and growing the customer base than being the miners. I'm talking now about laboratories; but then secondly, within the laboratory itself, ensuring that all of the unit processes fit together well. If you've got to hire staff, you've got to have the sample preparation requirements getting into PhotonAssay jars before then going into units as well. So it is a little bit nuanced depending on who the counterparty is whether it's a mine site or whether it's a laboratory.
Your next question comes from the line of Liam Hegarty-Cremer from Morgans Financial.
Well done on a great quarter. A couple of questions for you. Maybe, one, broadly, Dirk, if you could talk about PhotonAssay technology more broadly. You've touched on acceptance and stuff. But how are the conversations going? And what I'm sort of leaning into is usability or max threshold per machine. I've got that on my end at roughly, call it, 45,000 per month. One, is that about right? And two, how do you see average usability today into the future? And how much room do we have per machine versus the average today if that makes sense?
Yes, absolutely. So we have a sort of nameplate capacity for these units of 40,000 samples per month. So all of the numbers that we talk about are back in reference to those. Speaking then of adoption, and this is 1 of the really nice things that we've seen over the last 18 to 24 months and pronounced -- quite pronounced recently as well, for anyone that came to our Investor Day, we actually had goldfields standing up saying that they use the technology exclusively in Australia, so goldfields being a top 10 producer.
If you look at companies like Northern Star and their releases and where they've referenced PhotonAssay in their JORC tables in the back, you can start to build the story of exactly who's using the technology. And across the top 10 and certainly across the top 20 goldminers in the world, we are becoming more and more well used and just generally accepted.
I think part of that then is if you consider the way that the JORC Code and the NI 43-101 code work, so those are basically what companies need to adhere to for their releases to market. They're based on competent persons and qualified persons, basically being comfortable that the technology is fit for purpose.
So the more that you have ubiquitous use of PhotonAssay around the world, the more that it actually snowballs because when you've got big studies proving efficacy of the technology, which we do with a number of the large major goldminers, which have needed to undertake those studies to then adopt the technology, it just derisks it for the next biggest companies as well. So certainly, that adoption is something that we're seeing globally.
Yes. Okay. And then on redeployment, I'm guessing there's different reasons. But can you talk to -- I assume it's more geography based or proximity in terms of who takes up machine if someone doesn't want to renew the contract. Can you talk about, with your experience, has that been the same customer, i.e., ALS takes it up in a neighboring geography? Or is there no real link in terms of redeployment?
No, another great question. So proximity is definitely important, and there's 2 quite different kind of reasons for the redeployments that we have undergoing or 1 having undergone and 1 undergoing. So the -- just before going into that, though, important to note that neither of those is the end of a contract with one customer and the start of a contract with another. So the unit that we moved over in Africa was an MSA contract, remained an MSA contract throughout. And that was basically that their customer was no longer able to operate their mine. So they've picked up that unit working with Chrysos and redeployed it to another location with higher potential for sample volumes to come through from other miners. So that one is quite a specific requirement where you've had a mine, well, either reach end of mine life or in that circumstance, the mine itself stopped operating.
The other redeployment and other opportunity for redeployment is where a customer decides that there is a better place for a unit. And my understanding is that the other redeployment that we're undertaking was at the behest of their customer, essentially as a proximity piece that their customer felt if the unit were closer to their operations, they would get better turnaround time, better service and accordingly, actually asked our customer to move that unit. So that's where we're working quite closely with the customer there. But yes, intentional, neither of those is actually end of contract or end of life.
Okay. Yes. And just one final one, a softer point. But when you're hiring into new geographies, are you hiring -- one, how are you finding that hiring process? And two, do you hire on site? Do you hire technicians you know when they -- and they fly over? Can you talk about that hiring process and whether there have been any difficulties? And that's the last for me.
Do you want me to take that one?
Yes. So -- go for it, Brett.
Yes. No, I think it's a great question, and for anyone trying to get their head around how we do this, we do hire locally. We're pretty proud to have, I think it's currently 2 expats across our whole organization. One of those is the finance team member who's setting the Americas up and another one is a specialist physicist in the U.K. And outside of that, we do hire locally, and we start the process partway through, so that, ideally, they're coming onboard partway through deployment and they're able to be trained to the specificities of what we need for a PhotonAssay operation and maintenance.
But the quality of people we're seeing across the globe, whether that's our Canadian team or our team in EMEA is amazing. There are some -- they're generally of an engineering, either electrical or mechanical background, and there's -- we're getting great people across the globe. And it is pretty exciting to see and be part of.
I think it's 25-plus different cultures across our organization at this point in time, which is a pretty cool and diverse piece of our makeup of our business. And employing locals versus expats is also something that's great for our business.
Congrats again on a great quarter.
[Operator Instructions] And your next question comes from the line of Lachlan Rogers from One Fifteen.
I just wanted to get a sense of the outlook for additional costs beyond direct unit costs. Can we start to expect gross unit profit to start dropping more to the EBITDA line from now? Or is there going to be another step-up?
Thanks. And a good thought process. We still obviously have incremental costs that come with operating a global business. We're starting to see the benefit of those hubbing and already being some countries. So it -- the increment becomes slower as opposed to what the step-up we saw this year, but we would certainly still see some incremental costs coming through but just not at the same rate as we have. We're still entering new countries, entering new markets. Obviously, the labor we're applying to the cost of goods.
And just for clarity, Dirk spoke before about 80% to 90%. That's obviously the direct costs that come from external at this point in time, sitting in that 80% to 90% overall, including our labor sitting between 70% and 80% gross margin. But -- so we're seeing those things start to come through the business. And we will see increasingly more cash flow and more profitability come to the business, but it is still a growth story in terms of rolling things out.
Obviously, we've had a positive year, albeit in terms of deployments being slower, you can see the impact as our rate of growth against our entire business grows on the EBITDA margin improvement. So we would expect to see some increasing costs but not at the same incremental rate.
Sure. And just I noticed in this quarterly on the cash flow statement, there was no intellectual property spend. Is that a change in focus? Or is that just a timing thing?
No, not a change in focus, a change in where the cash was allocated across the business, and it comes down to that -- there's actually about [ $300,000 -- $314,000 ] there. It's sitting as a credit. Obviously, from a tax point of view, when your Australian taxable income is less than $20 million, you get cash rebate. Once you go over $20 million, it actually becomes tax accounting. And from an audit point of view, that was picked up in the half yearly review and it was a correction between where those cash flow spends had been because it no longer -- once it's a tax credit, no longer goes as part of the rebate to our actual intellectual property.
So going forward next quarter, there will be purely the cost as opposed to the cost less the rebate of the R&D. So no change in focus. Just a change in accounting practice with our growth as we've gone through a tax ceiling in Australia.
You have a follow-up question from Jules Cooper from Shaw.
Dirk, just one more. I guess what we've been impressed over the last couple of years is just the broadening out across customers and regions. And we've seen Europe added in the last quarter. You -- previously, you've talked around South America, and I guess probably there are some opportunities in Central America as well. But they seem to be regions that you're not having a unit deployed. Is that an expectation near term that you would have units in some of those regions that you're not in currently?
Yes, absolutely. Absolutely. And thanks for the follow-up question, Jules. So certainly, from our perspective, I think we've done a lot of these different countries now around the world, and we have comfort going into new ones. So there are some big mining opportunities in South America and certainly in South and North America, Mexico, for example, that would be on the radar for our future. Again, not guiding to sort of specific timing on that but definitely on the radar.
Your next question comes from the line of Dan Stein from OC Funds.
Brett, at the first half, you capitalized about $600,000 of intangibles. Can you confirm, is that sort of run rate we should be expecting?
Thanks, Dan. Yes. And that's -- obviously, that's probably [ just to support ] that cash piece in terms of how we were treating it. That was the net rate of capitalization during that period. Obviously, there's a correction there for the tax treatment going forward. So you'd expect that kind of that will pop up a little bit given there's no capitalization there. So it will be slightly higher and probably be a little bit closer to the $1 million a quarter going forward.
Yes. Okay. So run rate is roughly $4 million per annum.
Yes.
Great. And some of those other revenues, and you may have mentioned like silver, copper [indiscernible], et cetera. Like what kind of -- when does that sort of get turned on? And when does that start to have an impact?
So we have those services running on a handful of machines. Obviously, it's very regional based in terms of what the geography for the samples is like. That obviously is an important piece of that, but there are geographies where that's already in place. The one that's not being charged at this point in time, which is still going through its development stage is the solutions, but that's certainly getting some good traction. And certainly, we see some good capacity there in terms of longer-term growth. It's probably more focused towards mine site deployment because it can potentially take another piece of equipment or personnel in the laboratory, but equally, laboratories in a hub and spoke may choose to use it as well. But certainly, we'll see increasing capacity for those over the periods.
We're working through information around that. Obviously, we'd like to be able to give more clarity on that as we go forward. It's something we're actually actively working with our software team about how we can start to build some information around that because we obviously contract and obviously can charge for those different analyses as we go forward.
And this does conclude our Q&A session for today. I would like to turn the call back over to Dirk for closing remarks.
Thank you very much, Paul. And thank you to shareholders. I appreciate your continued support and look forward to providing you our next update. Thanks very much.
This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.