Mount Gibson Iron Ltd

ASX:MGX

Earnings Call Transcript 2019-Q3

[Operator]

Thank you for joining today's teleconference for the release of Mount Gibson Iron's March quarter activities report. Mount Gibson Chief Executive Officer, Peter Kerr; Chief Financial Officer, Gill Dobson; and External Relations Adviser, John Phaceas. Mr. Kerr will provide a brief overview, after which, there will be an opportunity to ask questions. [Operator Instructions] A recording of the call will also be available via the Mount Gibson website shortly after completion of today's teleconference.Go ahead, please, Peter.

[Peter W. Kerr, Chief Executive Officer]

Okay. Thanks, Bree. Good morning all and thanks for joining us to discuss Mount Gibson's March quarter activities report.As you know, it was a quarter of transition for Mount Gibson, during which we completed the final DSO sales from our Iron Hill deposits in the Mid-West business. And we then changed our operational center of focus to Koolan Island with the start of operations at that site. Last week, as we announced, we achieved the key milestone in that transition when we shipped our first cargo of high-grade find from Koolan, and the shipment was the culmination of over 2 years' worth of work in construction, refurbishment and preproduction activities returning the island to production status. I'll talk about coal in a bit more shortly, but first, just to cover off on the Mid-West business. It continued to be a positive contributor right up to the end of the Iron Hill deposit mine life, so the DSO sales from Mid-West in the quarter totaled over -- just over 400,000 tonnes. And we worked our way through our last remaining mined ore stocks from the Iron Hill deposit. So that means that for the 9 months ended 31 March, 2019, sales from the Mid-West business totaled 2.6 million tonnes, which was a good performance relative to our initial target of about 300,000 tonnes more than our original guidance and reflected great efforts from the site operating team in extracting the maximum from the Iron Hill resource.Sales revenue for the quarter was AUD 29 million FOB, and that was a solid result given the final tonnages that we did fill. And the sales for the 9-month period totaled AUD 168 million FOB.Lump sales represented about 2/3 of the total, or just under 2/3, 254,000 tonnes, and fines totaled 148,000 tonnes. The grades were a bit lower than previous periods because we were in the final stages of the mine plan, so our lump grade averaged around 58.5% iron and the fine is a little lower than that at 58.2% iron.So even with those grades, our realized price has benefited from an improved benchmark Platts 62% CFR price in the quarter, and that averaged USD 83 per dry tonne for the 3 months, up from USD 72 in the previous quarter. So that meant that our lump product from Iron Hill realized USD 58 a tonne FOB in the March quarter, and the fines a little lower than that at USD 44 a tonne. So those realized price was in line with the kind of experience we've had in previous quarters.All-in cash costs for the Mid-West business were good at AUD 33 FOB per tonne sold. And that meant for the 9 months, that was AUD 37 per tonne. And our guidance for the year was a range of AUD 38 to AUD 42, so very pleased come in just below the bottom end of that level. And as a result of this, our Mid-West business continued to generate a positive operating cash flow and this quarter generated AUD 16 million, so a great result for an operation that was originally due to close full grade a month ago.So again, I would really like to thank and congratulate past and present teams across that business who've contributed to that performance. And as a result, that helped offset the spend on the restart of Koolan Island that we incurred in the quarter, enabling us to report total cash reserves and liquid investment of AUD 394 million at 31 March, 2019, well above our internal planned level.So before I go to Koolan Island, there are 2 final points I wanted to raise on Mid-West. Firstly, as we reported previously, Mount Gibson is now entitled to receive a partial refund of the historical rail charges we've paid on the rail network there, and that refund comes in the form of, in effect, a credit charge based upon the volume of the third parties' rail across certain segments of the Mid-West network. The total refund to which we are entitled is about AUD 35 million. And based on current rail use rates across the network, we would expect to receive that over about a 4- to 5-year period. The amounts are paid every 6 months, and the first payment would be due toward the end of the September quarter.Second point is, and this is driven by the strength in the recent iron ore prices, with that strength and also with increased customer interest in some of our lower-grade ores, we have been able to revisit our efforts to monetize some of the remnant low-grade stockpiles at the Extension Hill mining site. So we're in the process of finalizing arrangements to commence shipments later this quarter, and we expect those shipments could continue over approximately 6 months, but that would be fully dependent on market conditions. So although the resulting cash flow from these sales is likely to be modest, they will also assist in the financial site rehabilitation works.So now turning to Koolan Island. We are pleased we have obviously resumed sales, and the first shipment of 65% iron fine worth around AUD 8.5 million for this shipment FOB at today's prices went out last week. Spending in the quarter was in line with plan as we completed the last of the key preproduction activities and stepped up our mining movement rates, so the total spend was $41 million and that was similar with the prior quarter relating to preproduction mining and crushing, a range of different equipment purchases and also infrastructure refurbishment.Dewatering is now complete in the east end of the pit, with only a small volume of water remaining at the west end. And importantly, the seawall embankment that we constructed over the last 18 months and the seepage barrier contained within it continue to perform well and as designed.We've also taken delivery of all 4 additional leased haul trucks in our plan and that provides us with the truck haulage capacity needed in the first couple of years when the waste movement is at its highest. During the quarter, we managed to move just over 4.1 million tonnes of waste material. And in the last week of March, we gained access to the top peak of the first bench of high-grade ore in the pit. So ore volumes are now expected to increase as we aggressively expose more of the orebody in the center of the pit. And as with most of the restarts, we did experience some additional slow going. And no doubt, we'll experience a few more challenges as we get through the next 3 to 4 months, but we still managed to produce the tonnages we were expecting. We had some light wet season conditions during March and actually also in April, which slowed us a little. And we now expect sales in the June quarter from Koolan to be slightly below our original target of around 700,000 tonnes. So the forecast site cash costs however for the first quarter of production, so this June quarter, remain in line with guidance. And importantly, based on current iron ore prices and given the grade of product that we're shipping, the island is expected to be cash flow positive from May 2019 onwards, which would be a great result.So we're understandably excited about Koolan Island given that it is Australia's highest-grade DSO hematite mine, and the average reserve grade of 65.5% in low impurity levels are giving it a good profile at the moment and making it for Mount Gibson a key value-generation opportunity for the company.So that's it for a very brief summary of the quarter. And so if I hand back to you, Bree, for any questions that anyone might have. Thanks.

[Operator]

[Operator Instructions] We don't have any questions at this stage.

[Peter W. Kerr, Chief Executive Officer]

Okay. Very good. That's fine. If people do have questions, then they can certainly make contact with us. Contact details for myself and John are at the base of the release, and we hope everyone has a good day. Thanks, Bree.