Mount Gibson Iron Ltd

ASX:MGX

Earnings Call Analysis

Earnings Call Transcript 2024-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 he 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 questions at that time. A recording of the call will also be available via the Mount Gibson website shortly after completion of today's teleconference. I will now hand you over to Peter Kerr. Thanks, Peter.

[Peter Kerr, executive]

Thanks, Lisa. Good morning, everyone, and thanks for joining us to discuss Mount Gibson's June '24 quarterly activities report. As usual, I'll give a brief overview before handing back to Lisa for any questions. And as a reminder, all currency we mentioned on this call is denominated in Australian dollars, unless we otherwise state.

So as you will have seen from this morning's report, Mount Gibson had a strong production and financial performance for the full '24 financial year, which incorporated a steady June quarter production result but with the June quarter cash flow is unfortunately impacted by adverse provisional pricing adjustments relating to both prior and current quarter sales. Iron ore sales from Koolan Island increased by a little over 20% on the prior quarter to 0.9 million wet metric tonnes, grading at 65.2% Fe. And that took full year sales to 4.1 million tonnes, near the upper end of our annual guidance for the year.

Cash operating costs for the full year were $74 per wet metric tonnes Free on Board before royalties and capital projects, and that was approximately 5% above our guidance target, and that was after averaging $97 per wet metric tonnes FOB in the quarter. As expected, cash costs for the June half year period were above those for the first half in which we had the benefit of higher sales from previously established ore stockpiles. These stockpiles have now been processed and shipped. So going forward, our shipping rates will be more closely aligned with ore extraction from the main pit.

Sales revenue for the quarter totaled $105 million FOB, which was after the adverse provisional pricing adjustments totaling $29 million, with full year ore sales revenue totaled $670 million FOB. Operating cash flow was $30 million for the June quarter before the provisional pricing adjustments, which obviously reduced the quarter's net cash flow to $1 million. On a full year basis, our financial performance was strong with group cash flow of $290 million before tax and working capital movements. The group's cash and investment reserves increased over the financial year by $274 million, and that was from $162 million at the start of the year to $436 million by the end of the June quarter, excluding the circa $20 million investment we hold in Midwest iron ore producer Fenix Resources. The total cash and investment position held by the company is the equivalent backing of more than $0.37 per MGX share, and we remain free of any bank borrowings.

Now touching on the operations. Firstly, in relation to safety. We continue the overall safety improvement trend of the last 2 years. The rolling 12-month lost time injury frequency rate remained at 0 incidents per 1 million man-hours worked at the end of June, and our rolling 12-month total recordable injury frequency rate, and that reflects LTI as well as other injuries reduced from 5.4 to 4.4 incidents per 1 million man-hours worked. And this is a good trend and a good result. And safety is obviously highly correlated with production performance and we're focused on achieving further improvements.

So at Koolan Island in relation to mining, work on the operation during the June quarter focused on completing the final ventures in the Western zone of the main pit, and preparing for the transition of future ore production to the eastern half of the pit. Mining in the western end was completed in June at a planned final depth of approximately 170 meters below sea level. The western end of the pit is now established as a water collection sump to assist with groundwater management and discharge from the main pit. Mining also continued on some upper eastern ventures, whereas previously reported, production had been resequenced to adjust for the central footwall rock slip, which occurred back in August 2023. So operations are now transitioning to the central and eastern parts of the pit involving a reconfiguration of the primary haul ramp. Now this work will occur during the current September quarter in which shipment rates and cargo grades will be temporarily reduced. Ground support remediation has also begun on the central footwall area impacted by the '23 rock fall, and that will enable future extraction of the underlying high-grade iron ore in that location.

Ore production in the June quarter totaled 0.7 million tonnes and just over 3.7 million tonnes for the full financial year with the waste-to-ore strip ratio averaging 0.5:1 for the quarter, and 0.6:1 for the year. Stripping ratio, as we know, is a key cost driver for the Koolan operation. And although it will rise for some period in the next 12 months, in line with the haul ramp repositioning and the waste extraction cycles in the pit is expected to average approximately 1.8:1 over the remaining 2- to 3-year mine life of the operation.

Processing volumes were steady at 0.9 million tonnes for the quarter, taking total ore processed for fiscal '24 to 4 million tonnes. As noted earlier, with the historical high-grade ore stockpiles now depleted, processing activities going forward will be more closely aligned with ex-pit ore extraction. The mobile crushing contractor remains temporarily on site to supplement the main plant to process harder oversize material from the central and eastern parts of the pit until the new tertiary crushing circuit is commissioned. Commissioning of that unit is imminent.

11 shipments were completed in the quarter, totaling 0.9 million tonnes, taking full year shipments to 4.1 million tonnes. And the average grade shipped through the year was 65.2% Fe.

Operating cash flow from Koolan Island in the quarter totaled $28 million before the adverse provisional pricing adjustments of $29 million. Key expenses in the quarter comprised cash operating costs of $84 million, which was the equivalent of $97 per tonne shipped, capital costs of $12 million including the tertiary crushing circuit and the footwall remediation ground support projects and state government and third-party royalties totaling $10 million.

For the full fiscal '24 year, operating cash flow from Koolan Island was robust. It totaled $284 million on ore sales revenues of $670 million FOB. Cash expenditure for the year comprised cash operating costs of $302 million, which was equivalent to a unit cash operating cost of $74 per tonne shipped, as well as capital projects totaling $24 million and royalties totaling $64 million.

Volatile iron ore prices in the quarter significantly impacted the financial results, as you will have seen. The benchmark 62% Fe price averaged 10% lower than the March quarter at USD 112 a tonne CFR and briefly dipped below $100 a tonne before then moving back up to $120 a tonne in the middle of the period and retreating to current levels of around USD 107 or USD 108 per tonne. The price for 65% Fe fines are also declined, and it averaged USD 126 a tonne in the quarter, but with the high-grade premium widening a little bit to average 8% compared with 5% in the March quarter. Australian dollar also strengthened slightly to average $0.669 (sic) [ $0.659 ] in the quarter.

The shipping freight rates for Panamax vessel journeys from Koolan Island to China, these remain steady and they average between $14 and $15 per tonne in the quarter.

As the final price of our shipments are typically settled 2 months after shipment, the resulting provisional pricing adjustment of $29 million, which related to both prior and current period sales produced the notional realized price of the fines products from USD 103 to USD 81 a tonne FOB in the quarter when that provisional pricing adjustment is spread over just the tonnes we shipped in that quarter, and that was compared with USD 124 per tonne FOB in the March quarter and for the full financial year, USD 110 per tonne FOB. So these provisional pricing adjustments obviously work both ways and that while negative adjustments are incurred in a weakening market, positive adjustments are realized in a strengthening market, and that's obviously occurring on a lagged basis.

Beyond Koolan Island, the company increased its investments in several junior resources companies in the quarter, whereas considered the future financing or strategic opportunities may arise. The market value of these holdings totaled approximately $19 million at quarter end, excluding our investment in Fenix Resources compared with $5 million at the end of the March quarter. Our strategy remains focused on production and cash flow maximization from Koolan Island to provide a strong base for opportunistic investments and acquisitions to expand the business and generate returns. On the back of a successful fiscal '24, significant work is being undertaken in this area.

So before we close, I wanted to make a few comments on our fiscal '25 outlook. Mining in the September quarter, as I mentioned, is focused on repositioning the main ramp in the Koolan pit, the haul ramp rather, as we move to the eastern half of the high-grade main pit. And we're also advancing the eastern footwall remediation ground support activities to ensure we can extract the high-grade material line below that area. As a result, September quarter shipping and cargo grades will be temporarily reduced and shipping rates will thereafter increase such that we're targeting a total of 2.7 million to 3 million tonnes shipped in fiscal '25, and this will increase further into the following financial year.

And finally, as also noted in the quarterly report in accordance with our disclosure obligations, we expect to report an accounting impairment of Koolan's carrying values as at 30 June '24 in the context of the prevailing iron ore price and outlook. And this is obviously a noncash charge, which will effectively bring forward depreciation and amortization charges that would otherwise be incurred within the next few years.

So to wrap up, while the June quarter was adversely impacted by lower prices and result in provisional pricing adjustments, Mount Gibson recorded a reasonable production result for the quarter, and pre-provisional pricing cash flows as well, and also recorded a strong production and financial performance for the '23-'24 financial year. So we enter fiscal '25 with a robust base from which to generate cash flows from the high-grade Koolan operation and to pursue new investment opportunities for the business.

So with that summary, I'll hand back to you, Lisa, for any questions that anyone may have. Thanks.

[Operator]

[Operator Instructions] Peter, we have no questions.

[Peter Kerr, executive]

Thanks, Lisa. Thank you all for listening. If you do have questions, our contact details are on the quarterly report, and we appreciate your call. But otherwise, have a good day. Thank you.