Mount Gibson Iron Ltd

ASX:MGX

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for joining today's teleconference for the release of Mount Gibson Iron's June quarter activities report. Mount Gibson 's Chief Executive Officer, Peter Kerr, will be leading the discussion and is joined by Chief Financial Officer, Gill Dobson; and External Relations Manager, John Phaceas. Mr. Kerr will provide a brief overview. After which, there will be an opportunity to ask questions. Due to time constraints, only institutional participants will be invited to ask a question at that time. A recording of the call will also be available via the Mount Gibson website shortly after completion of today's teleconference. Thank you, and go ahead. Thank you, Peter.

[Peter Kerr, executive]

Thanks, Lisa. Good morning all, and thanks for joining us to discuss Mount Gibson's June quarter activities report. As usual, I'll give a brief overview before handing back to Lisa for any questions you may have.

I'm pleased to be able to confirm that the hard work of our personnel and the significant investment we've made over the last couple of years at Koolan Island, as you're all aware of, is now paying off operationally and financially and carrying on from the turnaround that was commenced in the prior quarter. As you can see from our June quarterly report, which we released this morning, all facets of our performance were generally positive in the period. Iron ore sales doubled to 1.25 million tonnes in the quarter, unit cash costs reduced to AUD 62 per wet metric tonne that we sold FOB, and our cash flow almost tripled to $89 million, which meant that our cash and investment reserves almost doubled to AUD 162 million by quarter end. And that was also after repayment of the $25 million that we drew down on the company's [ annual ] corporate credit facility in previous quarters as we were repairing the crushing plant that was damaged in last year's fire.

In full fiscal year '23 terms, our total sales, beating our post-fire guidance of just over 3 million wet metric tonnes, and our unit cash operating cost averaged AUD 77 FOB per wet metric tonne before inventory build and royalties.

Meanwhile, in the Mid-West, as you would be aware, we recently reached agreement to realize the unrecognized value of our surplus iron ore asset in the region by way of a plus $25 million transaction with a junior producer, Fenix Resources that will see us become Fenix' largest shareholder and retain exposure to its high-grade operation and successful road haulage business.

So just now looking at Koolan Island in a bit more detail, iron ore production increased by almost 5% out of the pit to just over 1.1 million tonnes in the quarter as we moved out of the wet season and into the start of the dry season. Importantly, the waste-to-ore strip ratio also continued to decline to average 1.1 tonnes of waste for every tonne of ore in the June half year, and that was from over 3.5:1 in the prior half year period. Stripping ratio remains on track to average around 1.2:1 over the remaining 3- to 4-year life of the operation. And then the key driver of cash costs at Koolan Island, in combination with the increased shipping rates that we're now seeing, this is obviously fundamental to further reducing our unit costs and our -- increasing our cash flow.

After the crusher repairs were completed in early April, as we reported in our last quarter report, processing throughput accelerated rapidly to more than 1.1 million wet metric tonnes for the quarter. And at quarter end, our high-grade ore stockpiles, which were mined and available for processing, totaled 1.1 million tonnes, which at current prices is worth over AUD 150 million once it's processed for sale.

Our increased processing performance enabled 17 shipments totaling 1.25 million wet metric tonne, as I mentioned, to be dispatched in the quarter. And that included 7 shipments made in the month of June, which is a recent record for us.

The average shipped iron ore grade in the -- sorry, iron grade in the quarter was 65.5% Fe as planned. And for the full year, we were just over 3 million tonnes, as I mentioned, at an average grade of 65.3% Fe.

With the main plant now operating productively as a separate mobile contract crushing team in place on the island to help process the stockpile material, we are targeting 5 to 6 shipments per month during the dry season, which typically runs from April through to late in the year around December and at least 4 shipments per wet season, which typically runs during the March quarter. These shipping rates are sufficient for us to target sales of circa 4 million tonnes per year going forward, and we will release more detailed guidance in our upcoming financial results released later in August.

In relation to the repairs arising from last year's fire in the processing plant, we've obviously maintained and now claimed on relevant property damage insurance policies for the Koolan Island operation. We've now received progress payments totaling approximately $8 million from our insurers, and we're working with the insurers and their loss adjuster to assemble our final claim. We're now also liaising with the insurers regarding a potential business interruption claim arising from the fire, although at this stage, the likelihood of potential quantum of such a claim, if any, remains uncertain.

The robust operational results in the quarter accelerated the significant turnaround in underlying financial performance, which began in the March quarter. So on the numbers side of things, our ore sales revenues totaled AUD 186 million FOB. And I just note that we report our numbers FOB, so at Koolan port and not CFR for delivery in China. And so the revenue of $186 million was $74 million more than the prior quarter and equated to an average realized price of USD 103 per tonne FOB, which was a little over AUD 150.

Shipping freight rates for Panamax vessels on the Koolan to China journey have remained competitive and range between USD 12 and USD 14 per tonne shipped in the quarter, and that was similar to the March quarter. At current prices for which 65% Fe iron ore is around USD 130 a tonne CFR for delivery in China or around USD 118 FOB, each Koolan shipment is worth around AUD 11 million at Koolan before royalties.

Importantly, and as expected, the Koolan Island operations unit costs reduced substantially by over 25% to AUD 62 per tonne FOB before royalties, and the operating cash flow as a result almost tripled to $89 million in the quarter, up from $31 million in the prior March quarter. Consequently, the company's cash and investment reserves almost doubled to $162 million by quarter end, and this was after full repayment of the $25 million amount drawn from our corporate credit facility early in the year, as I just mentioned.

Before leaving Koolan, I'd like to say a final word regarding the operation's safety performance. As many of you would appreciate, any remote and logistically complex operation has challenges, and the team on-site is focused very closely in safety awareness and initiatives throughout the last year. And during which, we've seen the rolling 12-month total recordable injury frequency rate, and this is a measure that captures medically treated restricted work and lost time injuries. Its rate has more than halved from 10.7 injuries per 1 million man-hours worked at the start of the year to 5.2 currently. So the site team and the whole workforce there is very highly commended for this performance.

The Koolan team also continues to work actively with the RFDS and administering emergency assistance to the growing number of tourists to access the remote Kimberley region. You may not hear about it, but there are a large number of incidents that occur, and we lend assistance whenever we're able.

In relation to Mid-West, on top of the performance at Koolan Island, we're also pleased to finalize the transaction to realize significant unrecognized value from our remaining Mid-West iron ore assets, the plus $25 million sale of our Geraldton Port ore storage and handling assets along with the Shine and Extension Hill deposits will on settlement deliver us $10 million in cash as well as 60 million shares and 25 million options in successful Mid-West producer Fenix Resources. Our initial unital 8.6% shareholding in Fenix will make the said company large shareholder with the potential to increase that in the future. Fenix is also assuming our remaining environmental rehabilitation obligations at both Shine and Extension Hill, and these are currently being provisioned on Mount Gibson's books at approximately $9 million.

The transaction represents an attractive opportunity to realize value for assets, which were not reflected in Mount Gibson share price and to participate via a direct equity interest in a growth-focused high-grade regional mining and bulk materials logistics business. Importantly, it also enables Mount Gibson to focus on maximizing cash flow from Koolan and to pursue new longer-term resources investment opportunities. We expect the settlement of the Mid-West transaction with Fenix to occur shortly.

Elsewhere in the Mid-West, we retain our early-stage base metal exploration holdings around the former Tallering Peak mine, along with our entitlement -- or remaining entitlement to the Mid-West credit -- sorry, rail credit refund. To date on that refund, we've received approximately $33 million of the capped $35 million amount, and we expect to receive the balance in the current financial year.

So with Koolan now performing strongly and in line with internal targets, we're targeting sales of circa 4 million tonnes per year over the remaining life of the operation. We also expect cash costs to reduce from fiscal '23 levels to reflect the lower go-forward stripping ratio and higher shipping rates. And as I mentioned, we'll provide more detailed guidance at our financial results next month.

So in summary, the June quarter was a strong indicator of significant sales and cash flow we expect to generate from the Koolan Island operation over the next few years and underlining its value as Australia's highest grade direct shipping ore in a tight operation.

On the back of this progress, we're excited about the outlook for the current year, in particular. As for iron ore prices, the outlook there remains reasonably solid, and the weaker Australian dollar is providing us with additional support. We remain focused on the rapid buildup of our cash reserves from the Koolan operation, particularly as this will provide a robust platform to pursue new investment opportunities, complementing the potential upside of our new Mid-West investment.

So with that, Lisa, I hand back to you for any questions that listeners may have. Thanks.

[Operator]

[Operator Instructions] We have one question. It's from Jon Scholtz from Macquarie Group.

[Jon Scholtz, analyst]

Just on the shipping rates, what's the constraint between winter and summer periods? Why is they're more in the one than the other if you can just elaborate on that?

[Peter Kerr, executive]

Sure. Look, the seasonality there is quite marked in that in the wet season from that December through March period, there are a lot of weather interruptions, obviously heavy tropical rains, and there are times where there are many lightning interruptions as well. So it just means from a productivity point of view, the operation is reduced. And we have learned over many years that if we continue or try to continue the rates that we have in the dry season, we typically incur the murage and other costs that we want to avoid. So we basically look for lower rates during that period.

[Jon Scholtz, analyst]

Awesome. Makes sense. And if you can just remind us, are the ore sources around on Koolan Island. At what stage are of those are you able to access them? Or is it just an issue of phasing to get those ore sources?

[Peter Kerr, executive]

Jon, it's a good question. Most of those are price sensitive so -- and sit within Main Pit. So along strike from the Main Pit in the western end, there is additional material. That's the bulk of the existing Main Pit resource. There are also 1 or 2 other satellite pits as well. The Main Pit resource is the higher grade one that does but a strip ratio, so it's a continual economic as well as technical assessment. The satellite pit resources are lower grade and higher impurities. And we work through the approvals process for those. We have approval to mine some, and we're working on others. But they represent really an option value at this point of time based on future iron ore prices.

[Jon Scholtz, analyst]

Yes, makes complete sense.

[Peter Kerr, executive]

Okay. Thanks.

[Operator]

Thank you, Peter. We don't have any further questions.

[Peter Kerr, executive]

Okay. Thanks, Lisa, and thanks all for listening to us. Please, if you have any questions, contact us directly, and have a good day. Thank you.