Ramelius Resources Ltd

ASX:RMS

Earnings Call Analysis

Ramelius Resources Achieves Strong Cash Flow Amid Strategic Developments

In the latest earnings call, Ramelius Resources reported a robust free cash flow of approximately $90 million, despite a slight decrease in quarterly gold production to 62,444 ounces, with an all-in sustaining cost of $1,965 per ounce. The company maintained its FY '25 guidance of 270,000 to 300,000 ounces at costs between $1,500 and $1,700 per ounce. The projected costs for the Mt Magnet mine are notably favorable, ranging from $1,300 to $1,500 per ounce. Encouraging exploration results at the Eridanus site have increased the resource estimate by 64%, further bolstering potential production opportunities.

Strong Financial Performance Amid Production Challenges

Ramelius Resources has reported a robust financial performance for the September quarter, generating approximately $90 million in free cash flow despite a slight decrease in gold production. This performance is a clear indication of the organization’s high margins, with an average realized gold price of $3,359 per ounce from the sale of 62,806 ounces of gold, contributing to a total sales revenue of $211 million. The increased average gold prices, which surged from $3,500 to $3,800 during the quarter, have bolstered the company's cash generation abilities.

Cost Guidance and Margins

The all-in sustaining cost (AISC) for the quarter was recorded at $1,965 per ounce, which is slightly higher than previous quarters due to a noncash charge of $376 per ounce related to the drawdown of existing stockpiles. Notably, the AISC margin remains healthy at 42%, calculated by deducting the AISC from the realized gold price. Guidance for FY '25 indicates an AISC range of $1,500 to $1,700 per ounce, displaying a commitment to maintain cost efficiency in the coming year.

Focus on Production Adjustments and Future Growth

Production challenges stemmed from a strategic focus on the development of new mining projects, particularly in the Cue area, which is expected to yield higher grades in future quarters. Current estimates suggest a production increase as higher-grade ore from Cue is processed. The costs associated with Mt Magnet’s operations remain competitive, with a guidance of $1,300 to $1,500 per ounce, expected to support healthy margins moving forward.

Operational Insights and Strategic Direction

The transition to Cue's higher-grade ore is a key component of Ramelius’s strategy to enhance production. At present, the all-in sustaining cost at Mt Magnet was noted at just over $1,500 per ounce, with anticipated improvements as production ramps up. Additionally, Edna May’s costs were reported at $2,799 per ounce, aligning with expectations amidst ongoing market conditions. The company's total closing cash and gold position stood at $438.6 million, supplemented by a $175 million debt facility, highlighting a significant liquidity position.

Exploration and Development Initiatives

Exploration efforts have also been a significant focus, particularly in the Eridanus area, where a mineral resource of 1.2 million ounces has been confirmed—marking a 64% increase from earlier estimates. Upcoming prefeasibility studies for the Rebecca-Roe combined project are anticipated to provide further insights into growth potential, with early drilling results appearing promising. The total anticipated capital expenditures for growth activities remain consistent, with expectations set between $20 million to $30 million for growth capital and $40 million to $50 million for exploration in FY '25.

Conclusions and Investor Considerations

In conclusion, investors should view Ramelius Resources as a company poised for growth through strategic production enhancements, operational efficiency, and solid financial management. The combination of high gold prices and a shift towards processing higher-grade ore underlines a positive outlook for profit margins. Furthermore, maintaining strong liquidity ensures that the company has the capability to invest in future growth opportunities while navigating the challenges inherent in the mining industry.

Earnings Call Transcript 2025-Q1

[Operator]

Thank you for standing by, and welcome to the Ramelius Resources Quarterly Teleconference. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.

[Mark Zeptner, executive]

Thank you. Good morning, everyone. Thank you for taking the time to dial in this morning. In addition to the quarterly report, we have released a presentation that we will speak to during this call. All documents have been uploaded on the ASX platform and will also be available on our website shortly. This morning, I'm again joined by our CFO, Darren Millman. Darren will provide some detail on the financials after I run through the highlights and touched on operational performance as well as our development projects.

As usual, there will be an opportunity for listeners to ask questions at the end. So for those who have downloaded the presentation deck, I'll be speaking initially to Slide 3. On Slide 3, we generated $89.6 million in underlying free cash flow during the quarter. And whilst our cash and gold levels remained at a similar level to last quarter at approximately $440 million, the balance does take into consideration our additional $97 million investment in Spartan Resources in July. Our quarterly gold production of 62,444 ounces was at an all-in sustaining cost of $1,965 an ounce. The all-in sustaining cost, whilst higher than full year guidance is in line with our plan, and it should also be noted that the all-in sustaining costs, excluding the noncash component, would be $1,589 per ounce.

Our FY '25 guidance remains unchanged at 270,000 to 300,000 ounces at an all-in sustaining cost of $1,500 to $1,700 an ounce, with production weighted -- being weighted to quarter 2 onwards following the introduction of higher-grade Cue ore and improving grades at Penny. Pleasingly, our production for the quarter was achieved without any lost time injuries as we continue to focus on this area since marking the 12-month LTI-free milestone in May 2023.

Development activities at Cue are now well underway. We commenced ore mining in the quarter with the entire Mt Magnet open pit mining fleet now mobilized to this project. At Cue, we moved over 1 million BCM in the quarter, which was mainly focused on the high-grade Break of Day pit. Exploration and resource development activities focused on Eridanus in the quarter, given the promising results we've seen at this deposit today.

On to Slide 4. Just draw your attention to the table on the left, which breaks down the quarterly production for the last 12 months. The lower production for the quarter is the result of focus on the development of Cue, lower volumes from Penny due to mine sequencing and lower grades from the stockpiles across Edna May as expected. Grades and volumes from Penny are expected to increase across the balance of the financial year. And this, along with the introduction of high-grade ore from Cue, will see production increase in the coming quarters.

On to Slide 5, which looks at the company's quarterly production stats. As expected, our total tonnes mined reduced from the preceding quarter with the focus on the development of Cue. However, what is planned to see is the impact the introduction of higher-grade Cue ore has on the mine grade, which increased 33% despite less ore from our highest grade ore source, Penny, during the quarter. Mill throughput levels were maintained during the quarter with the drawdown of existing stockpiles across Edna May. However, the lower stockpile grade and less Penny tonnes have resulted in a lower mill grade for the quarter with the resulting reduction in gold production compared to prior quarters.

On to Slide 6, where we show the operating highlights for Mt Magnet. Production from Mt Magnet totaled 41,019 ounces at an all-in sustaining cost of $1,525 an ounce. Mining of the Brown Hill and Eridanus open pits work was completed during the quarter with the entire open pit mining fleet now relocated to concentrate on accessing the higher-grade Cue ore, as mentioned previously. Underground operations feeding Mt Magnet are now focused on the Galaxy and Penny mines.

The Galaxy mine is well into commercial production after development in the prior year. And as a result, we saw a 90% increase in tonnes mined, a 44% increase in mine grade and the resultant 172% increase in contained gold mined. At Penny, we did see a drop in production in the quarter, which was not entirely unexpected with the planned development of the next levels within the mine. We are expecting to see production from Penny improve from this quarter onwards, returning to levels seen in the second half of FY '24.

Before I move on from this slide, I'd like to highlight that in the quarter, we mined at an overall grade of 3.43 whilst the mill processed grades were some 20% less than this at 2.91 grams per tonne. If you look back a couple of quarters to the March 2024 quarter at Mt Magnet, we processed ore grades at 3.42, similar to the current quarter's mine grades. And we did that at an all-in sustaining cost of $1,030 per ounce with operating cash flow from Mt Magnet of $79 million at an average realized gold price of just over $3,000 an ounce.

Now the March 2024 quarter only included the high-grade Penny material with no Cue ore. As we sit here today, we have Cue ore stockpiled at grades over 10 grams per tonne and gold spot prices over 35% higher than the realized prices back in March. As a result, we are looking forward to some extremely positive numbers from Mt Magnet for the remainder of FY '25.

Just on Slide 7, you'll note a picture of the construction works of the intersection with the Cue access road with the Great Northern Highway. Works on the haul road between Cue and Mt Magnet continue, mainly the [ bitumization ] of this intersection with ore haulage expected to commence shortly. As of today, we have 35,000 tonnes of oxide ore at a grade above 10 grams for 11,500 ounces of contained gold, which is only awaiting haulage and processing. This all will obviously generate significant cash flows once those stockpiles begin processing.

On Slide 8, Edna May highlights for the quarter. Gold production totaled 21,425 ounces at an all-in sustaining cost of just under $2,800 an ounce, with production being sourced from the existing high and low-grade stockpiles available across the hub. The all-in sustaining cost, excluding the noncash component was $1,712 an ounce. As at the end of the quarter, there remained around 900,000 tonnes of both higher and low-grade stockpiles, which will provide feed for the mill into the March 2025 quarter.

Slide 9, Eridanus. Earlier this year, we released a mineral resource for Eridanus of 1.2 million ounces, which was a 64% increase on the June 2023 mineral resource despite the continued mining depletion. Our studies on Eridanus are continuing, and we've added a new exploration target over and above the stated 1.2 million ounce resource of 1.6 million to 3.7 million tonnes between 2 and 2.5 grams per tonne for -- between 100,000 and 300,000 ounces. This is a new target that sits underneath the already contemplated open pit cutback. In terms of the cutback, we've set a new production target for that open pit between 12 million and 16 million tonnes at a grade between 1.2 and 1.6 grams per tonne for -- between 575,000 and 775,000 ounces, which is a 25% increase on the previous production target if you take the midpoints with our mill expansion studies now firming at around 3 million tonnes per annum.

Our targeted outcomes from these mill studies, not surprisingly, include increased gold production, a reduction in operating cost per tonne for all tonnes that go through the mill and ideally leading to a lower overall all-in sustaining cost for the Mt Magnet mine plan.

Before handing over to Darren, I'd also like to highlight further detail on the exploration and project development programs underway at our various mines that I've not covered can be found in the quarterly report itself. And I'd also like to add, we're very much looking forward to sharing with you the PFS results on our Rebecca-Roe project with some encouraging RC drilling results received in the quarter, further enhancing the economics of that project. That covers the highlights from me.

I will now hand over to Darren.

[Darren Millman, executive]

Thank you, Mark, and it's a pleasure to be here with you all today. I will be initially speaking to Slide 10 of the presentation deck. On Slide 10, we show financial highlights for the quarter. The September quarter has been another strong quarter for Ramelius with approximately $90 million of free cash flow being generated. What is really pleasing about this is despite the lower production in Q1, which was in line with our expectations, cash flow remains very strong, demonstrating the high margins being generated by the business.

During the quarter, we sold 62,806 ounces at an average realized price of $3,359 per ounce, which included a mix of spot and committed forward sales. This resulted in total sales revenue for the quarter of $211 million. The gold prices showed incredible strength for the quarter, increasing from $3,500 to $3,800, a run that is further extended into the current quarter with spot prices currently sitting above $4,100.

As we have previously flagged, we continue to wind down our forward contract hedges, which now sits at 127,000 ounces at an average price of $3,123 per ounce. The all-in sustaining cost for the quarter was $1,965 per ounce, which was up from the prior quarter, but within internal expectations. This all-in sustaining cost includes a $376 per ounce charge at the group level from the noncash drawdown of existing stockpiles. Excluding this noncash charge, the group all-in sustaining cost is $1,589 per ounce. I will talk more -- to this more shortly. The resulted all-in sustaining cost margin, which is the realized gold price of $3,359 less the all-in sustaining cost of $1,965 remains strong at 42%. Cost guidance for FY '25 remains unchanged at $1,500 to $1,700 per ounce.

Looking at Mt Magnet in isolation, the all-in sustaining cost was just over $1,500 per ounce. The higher cost in the quarter was driven by a couple of factors. Firstly, the focus on development of Que as opposed to the higher-grade sections of the Eridanus pit in the prior quarter, less production being sourced from the lower-cost Penny operations and development costs for Galaxy now being considered sustaining as opposed to growth capital. Production is expected to increase and cost to decrease across the balance of the financial year at Mt Magnet with higher grades and tonnage from Penny and the introduction of high-grade ore from Cue.

Cost guidance for Mt Magnet remains at $1,300 to $1,500 per ounce for FY '25, peer-leading in the industry. At Edna May, the all-in sustaining cost was $2,799 per ounce, which is again in line with our expectations. Given the prevailing gold price, we are milling lower grade material, which having a higher cost is still generating meaningful cash flow. The Edna May all-in sustaining cost, including $1,087 per ounce of noncash charge at this asset level for the drawdown of existing stockpiles across the hub. Excluding this, the all-in sustaining cost for Edna May would have been $1,589 per ounce. While this noncash charge is higher than flagged in our guidance, it is not expected to continue at this level for the remaining quarters and free carry low-grade stockpiles now being the source of mill feed.

We still expect the noncash charge over FY '25 to be approximately $500 per ounce and our cost guidance for Edna May at $2,525 to $2,725 remains in place.

On Slide 11 and 12, we show a breakdown of free cash flow metrics for the quarter and historically. Gold sales of 62,806 ounces generated operational cash flow of $111.2 million with $68.4 million coming from Mt Magnet and the balance of $42.8 million from Edna May. A total of $22.5 million was reinvested in mine development, resource definition and exploration in the quarter, which focused on Eridanus, Cue development and the Roe-Rebecca project. The resultant free cash flow for the quarter was $89.6 million, with the closing cash and gold position being $438.6 million, which was after the investment of $97.6 million in Spartan Resources.

Our closing cash and gold position of $438.6 million, coupled with the new $170 million (sic) [ $175 million ] debt facility leaves us with over $600 million in available liquidity. It is not only our cash and gold that points to a strong balance sheet, but our working capital position with sizable stockpiles available going forward.

Lastly from me, I would highlight that the growth capital and exploration spend for the quarter was in line with expectations and our guidance for this spend remains at $20 million to $30 million for growth capital and $40 million to $50 million for exploration. However, such expenditures in H2 of FY '25 is dependent on the outcomes associated with Eridanus and mill expansion studies mentioned earlier. Although any material spend associated with those projects are not realistic or likely to come in until FY '26.

With that, I'll now hand it back to Mark.

[Mark Zeptner, executive]

Thanks, Darren. So this last slide, we have summarized our key focus areas for FY '25, which are pretty much unchanged from those previously released. We'll continue to improve our safety performance group-wide and deliver FY '25 guidance in line with our -- we deliver and do it safely, core company value. We'll continue to develop Cue and deliver first ore to Mt Magnet as planned this quarter. We'll complete the Eridanus underground open pit studies by December, along with the Mt Magnet processing facility study due for the same time frame, along with the Roe -- the Rebecca-Roe combined prefeasibility study in December also, while increasing exploration drilling at Mt Magnet, Cue, Penny and, last but not least, Rebecca-Roe.

If we can now open the line up for questions, please, Darcy.

[Operator]

[Operator Instructions] Your first question comes from Andrew Bowler from Macquarie.

[Andrew Bowler, analyst]

Just looking at the comments on Page 7, you just talked about some grade control drilling in the lower areas of Penny and you talked about the northern mineralization seeing some thinner spread out in multiple veins for Penny. Just wondering what that could do for the remaining inventory of Penny -- or are those changes to modeling considered immaterial?

[Mark Zeptner, executive]

Andrew, it's Mark. Yes, look, the ore body looks a little more complicated than what we've seen so far on the northern end. I think the geological term is bifurcation, where the vein has split in certain areas, and it wasn't shown up in the earlier drilling. But on -- and so we're still trying to understand. We've only recently drilled and we're recently developing. But it looks like it's stronger on the south end and could go for longer. So to understand the total overall impact, we're not quite there yet. But there is some complication down in the lower northern part of the ore body that we weren't predicting, and that's what we were talking about in the quarterly.

[Andrew Bowler, analyst]

And last one for me, maybe one for Darren. From what I could see, there wasn't any cash tax paid in the quarter, but you guided circa $90 million over the year. Can you just give us a bit of an idea how that might come out? Is it relatively even between the remaining 3 quarters? Or is it back ended into the second half?

[Darren Millman, executive]

Yes. Probably third quarter, yes, probably looking about $70 million is sort of the space. So yes, it's sort of back-end loaded.

[Operator]

Your next question comes from Michael J. Scantlebury from Euroz Hartleys.

[Michael Scantlebury, analyst]

Just a question around the Mt Magnet mill expansion. How should we be thinking about the grade profile or production profile given the expansion you're looking to go 3 million tonnes per annum?

[Mark Zeptner, executive]

I don't know the grade off the top of my head. Obviously, the average grade of Eridanus is 1.4, 1.5, but it has a profile of being lower grade towards the top as we saw when we actually mined the current pit and improves with [ depth ]. So we need to throw all that into the mix. But essentially, if you're going from your 2 million to 3 million tonnes, there's probably an additional 1 million tonnes of Eridanus material, which has that improving grade profile that I talked about. But I don't know the grade on an overall basis, let alone year-by-year basis, Mike, just yet.

[Michael Scantlebury, analyst]

No worries. And then is there any kind of color you can give on CapEx? Or do we have to wait for the study? Just obviously, you're looking at going at that 3 million tonnes and you listed out a few items that you need to work on the plant to get there.

[Mark Zeptner, executive]

Yes. No, we're working with [ GRES ] on that at the moment. I wouldn't want to throw numbers out there at this stage, but we think it's [indiscernible]. Maybe looking at what Capricorn has done will give you some sort of indications of where we're probably thinking. And broadly, if you're doubling production, you're building a new mill, it's probably going to cost you $200 million. So it's less than that, but it doesn't come for free, as you know.

[Michael Scantlebury, analyst]

Makes sense. Makes sense. And then do I hear correctly just on the timing for the spend would be in FY '26?

[Mark Zeptner, executive]

Yes, that's the feeling. If we like what we see come the end of the year and even if you're pushing buttons and board approvals and you get the ball rolling with permitting and contractors, I can't see a lot of spend in the second half of FY '25. It will mainly be material in FY '26. So whether there's another $20 million or $25 million or so spent in the second half, and that's why we've always pointed in terms of growth capital to FY '25 being very similar to the $50 million or so we spent in FY '24. We can't see that changing.

[Operator]

Your next question comes from Alex Barkley from RBC.

[Alexander Barkley, analyst]

Another question around Eridanus. Thanks for the comments around the production target and exploration target. A couple of questions there. Is there a reason the production target grade is a bit lower than the resource? Is that just around dilution? And then with the exploration target, just interested how that might come into play. Could that get added into a cutback design before you do -- make the final decision around the mine and the mill, just sort of timing how that one might enter?

[Mark Zeptner, executive]

Thanks, Alex. It's Mark. I beg to differ on the exploration target being a lower grade. It's between 2 and 2.5 grams per tonne. The production target doesn't go as deep. The exploration target effectively sits below the pit shell that you see. And in line with the improving grade at depth, the deeper you go, the higher grade you get. So yes, the actual cutback production target at 1.4, 1.5 grams per tonne is lower than the midpoint of 2.25 grams per tonne but that's not unexpected given the nature of the ore body as we are understanding it. And sorry, what was your second question, Alex?

[Alexander Barkley, analyst]

The sort of timing around the exploration target being sort of lower confidence in the resource, when might that become resource? And does that enter your time?

[Mark Zeptner, executive]

Yes. Look, ideally, Alex, that comes with the mineral resource update in December when we ideally convert that -- most likely that exploration target to an inferred resource given its depth and the number of drill holes we've got. I think there's about a dozen holes into it. So I think we'd be able to get that into the classified category.

[Operator]

Your next question comes from Paul Kaner from Ord Minnett.

[Paul Kaner, analyst]

Just another one on the mill expansion there at Mt Magnet. You mentioned that 3 million tonne per annum option seems most likely. Can you maybe just flesh that out a bit more? I guess, what's keeping you at 3 million tonnes per annum and not going higher? Is that an ore constraint, space constraints or capital issue?

[Mark Zeptner, executive]

I think it's more related to capital, Paul. And obviously, we're working through that at the moment. But you do get to a point where rather than adding or upgrading certain parts of the mill, you do get to a point where you've got to look at pump sizes, conveyor sizes and you're almost building another mill. So there is a step change in CapEx that does help dictate your decision-making.

[Paul Kaner, analyst]

Yes. No, understood. And then just on that Cue mining, I know it's still relatively early days there, but that material you've mined, I guess, has that come in at a higher grade than you expected?

[Mark Zeptner, executive]

I think it's fair to say the Break of Day pit average grade is 4.5. There is also a lower grade stockpile. There's another 35,000 tonnes at, I think, 1.7 sitting alongside the high-grade stockpile, even though I was up there last week, and we can't tell the difference between the 2, funny enough. The average grade of 4.5, I'd actually guess that the higher-grade portion is outperforming. And we did flag that if any ore body is going to outperform, it's going to be the high-grade portions of Cue, given the top cuts and given, I suppose, how conservative we are with our resource-to-reserve processes. So there might be some uplift there, but it is early days, I will caution.

[Paul Kaner, analyst]

Yes. Great. And, I guess, how much should we assume sort of comes in the next quarter, I guess, from those stockpiles?

[Mark Zeptner, executive]

We're obviously just going to kick off haulage very shortly. We just finished the intersection. We do have to haul-through Mt Magnet down, so -- and turn right to head out to the Mt Magnet mill. So we might not be going at maximum production rates, but we'd like to think that we'll get obviously that high-grade portion into the mill by the end of the quarter.

[Operator]

Your next question comes from [ Rob Wolf ], a private investor.

[Unknown Attendee]

Just a couple of quick questions regarding the possibility of the expansion of the mill at Mt Magnet. First one, regarding grind size. Obviously, with gold price high, is the finer grind going to be looked at to try and get that little tiny bit extra on recoveries?

And the second question linked in really is, will the large stockpiles of low grade and reasonably low grade at Mt Magnet be considered in that 3 million tonne expansion for later in the processing option for that mill?

[Mark Zeptner, executive]

Thanks, Rob. Good to hear from you. One of the key outcomes, I didn't mention it on verbally, but it's in the release was to maintain our recoveries, which -- last time I looked, we were pretty handy. They're around 95%. You're starting to push the mix to get much more than that. Well, obviously, we don't really think we need a finer grind than what we currently got. We're reasonably fortunate with our ore sources, but we'll always keep an eye on those recoveries.

In terms of the stockpiles, I think they're 0.9 grams or 3 million tonnes at average, they'll find a place in the mine plan, which best suits. And at this point in time, I think it's at the end of the mine plan. Unfortunately, they'll have to wait because we've got higher grade to put in first.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Zeptner for closing remarks.

[Mark Zeptner, executive]

I'd just like to thank everyone for listening. Enjoy the rest of your day. Thank you.

[Operator]

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