Ramelius Resources Ltd

ASX:RMS

Earnings Call Transcript 2023-Q2

[Operator]

Thank you for standing by, and welcome to the Ramelius Resources December 2022 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, Winnie. Good morning, everyone. Thank you for taking the time to dial in a little earlier this morning. Hopefully, we aren't clashing with too many other calls this way. With me once again is Chief Financial Officer, Tim Manners. Following the usual course of events, I'll run through the operational highlights for the quarter, referencing the December 2022 quarterly activities report released on the platform this morning before passing it over to Tim to go into the numbers in more detail.

We'll then open the line to questions before finishing off with some closing remarks. As most, if not, all will be aware, earlier this week, we also announced a significant piece of news with the deferral of the Stage 3 open pit at Edna May. As stated then, this decision was about maintaining a disciplined approach to capital investment and not simply seeking to fill out a production profile with ounces that don't meet our financial return criteria. By continuing the environmental permitting processes for the project, we remain ready to be able to revisit the project should key economic variables change, giving the company optionality over a large mineral resource right next to an operating mill.

If you happen to have any questions around any of the detail provided on the Stage 3 announcement, we encourage you to put them to us when the line opens later in the call. Just to reiterate, the deferral of the Stage 3 project does not affect the 3-year production outlook released by the company in November last year, which shows a consistent production profile of between 240,000 and 290,000 ounces of gold per year and also features our reducing all-in sustaining cost profile.

Back to the quarterly now. Good gold production for the period came in at 56,756 ounces at an all-in sustaining cost of AUD 2,153 per ounce, while gold sales were 4% higher than the previous quarter at just over 62,000 ounces. Both of our production centers saw an increase in operating costs during the quarter, with Mt Magnet adversely affected due to less higher grade feed being available as the Shannon and Vivien underground operations wound down combined with the ongoing ramp-up of haulage from Penny and that Edna May was impacted by lower grades from the underground and the higher sustaining capital spent on the plant.

Mill throughput at Mt Magnet increased as expected in the prior quarter with the introduction of oxide feed from the Orion open pit and a total of 458,000 tonnes was processed. At Edna May, the depletion of historic low-grade stockpiles situated proximal to the mill led to lower mill throughput compared to the previous quarter with some 493,000 tonnes processed.

As has been flagged previously, the second half of the financial year is expected to see an improvement in all-in sustaining costs, driven by the increased ore tonnage contribution from the high-grade Penny mine. Now this will really start to kick in once the haul is upgraded and completed in February, allowing for the movement of larger loads of ore via triple road trains to Mt Magnet for processing. Today, some ore has been hauled from Penny less than 10,000 tonnes in the quarter using smaller double road trains, which didn't really make a dent in the stockpile last quarter, which will continue to grow. That's the stockpile will continue to grow until triple road trains are introduced later in the quarter. We note that currently, there are 7,000 ounces of gold ready to be hauled to Mount Magnet at [indiscernible] and at a gold price of 2,750. This represents approximately $17 million in net revenue, which is yet to be seen in the cash flow.

Still on the subject of ore haulage, Pleasingly, the ore haulage from Tampia and Marda to Edna May increased 13% on the September 2022 quarter despite a slowdown during the Christmas period, which is mainly related back to good old COVID, which spiked late in the quarter. Haulage for the month of January to date has significantly improved on December with additional drivers to also shortly become available from the Vivien haulage route, which bodes well for the second half. In fact, the extrapolated figure in the chart in the quarterly uses the average daily haulage figure up until the 22nd -- sorry, the 23rd of January to arrive at a figure for the month similar to that achieved in October '22. If we are to use the daily average of the last week of haulage, then we will land bank on our budget rates of around 140,000 tonnes, which is represented by the dotted line for those with access to the report.

It is worth noting also that Tampa exceeded expectations during the December quarter with the operation, recording its best quarterly mining performance with a total of 457,000 tonnes at 2.26 mined for over 35,000 ounces of contained gold. And at the end of the quarter, almost 1 million tonnes of ore feed was stockpiled at the mine ready for haulage to Edna May.

Also worthy of mention in terms of mining are Vivien and Penny. After 7 years of operation, much longer than originally planned, Vivien hauled its last truck of ore to the surface on the 11th of January. Surface stockpiles will be hauled to Mt Magnet by The end of the month, and surface reclamation work has commenced.

Provisionally, 260,000 ounces has been produced from Vivien after starting with an ore reserve just above 100,000 ounces. We will provide more reconciled details next quarter, but I wanted to thank the Vivien team, many of whom have been retired within the business for their efforts in what has been effectively a great mine for the company.

Now we believe Penny will be even better. In fact, a lot of the management and technical staff have just recently moved from Vivien to Penny. Whilst we're still ore driving at Penny currently, we're stoping to Vivien shortly. We are all encouraged to see the [ 21-gram ] basis like the 1 in the quarterly.

On the project front, we are continuing to develop the Galaxy Mine at Mt Magnet with lateral development commenced across to the [indiscernible] with upload grades also carried out on the power and pumping systems. We are fast tracking the Symes project near Edna May as much as possible with mining lease and mining proposal applications pending. And we are moving forward with the Rebecca project pre-feasibility study, and we'll be able to provide a more definitive time line for the project's ultimate development in the next 5 to 6 months.

With that, I'll now hand over to Tim.

[Timothy Manners, executive]

Thanks, Mark. As you pointed out, gold production for the quarter was 56,756 ounces, and gold sales were just over 62,000 ounces. Those ounces were sold at an all-in sustaining cost of $2,153 per ounce. Now whilst the physicals were lower than our internal expectations and the costs higher, we do remain on track for achieving our full year guidance for both of those key metrics. We will clearly need to rely on a strong second half, but that has always been the case for FY '23 and recent internal forecasts reaffirm our view that guidance should be achieved.

As Mike mentioned, in quarter 2, Mt Magnet was impacted slightly by delays at Penny, in particular, the haul upgrade but mainly due to the reducing contribution of 2 high-grade very profitable sources being Shannon and Vivien, which are now all but complete. Whilst the full life of mine review of these mines has not yet been done, we know they have both brought significant financial returns to the company. And whilst Penny will be an asset that will more than compensate for their completion, the high-grade underground is not quite ready to make that contribution.

The Penny mine, however, is progressing well, and the ore body appears to be performing in line with expectations. As we have said previously, we are hauling material to the mill at Mt Magnet, but at the moment, it is at a reduced rate while the haul road is being upgraded. The quantity of Penny ore hauls and process at Magnet is expected to increase in quarter 3 and increase again in quarter 4 to what we would then expect it to be its natural run rate going forward of approximately 20,000 tonnes per month.

Costs in the quarter were higher than last quarter and higher than our own expectations. Whilst we have seen any easing cost pressure from some inputs like diesel, the single biggest cost pressure remains people the availability of people and the interruptions of inefficiencies that come about through the turnover levels that we, our peers and our contractors are all experiencing.

On the positive side, gold price is in a favorable trend. And whilst general market and economic conditions remain conducive to a positive year-on-year U.S. dollar gold price, the strength of the U.S. dollar itself is less favorable and potentially less predictable. So what the AUD gold price does over the short to medium term remains difficult to judge.

Having said that, the achieved sales price for RMS rose by 4% over the prior quarter to $2,536 per ounce, a combination of improved spot and improved hedge book deliveries in the quarter. We continue to actively manage our price risk management by progressively settling all hedge contracts as they mature and adding ounces when we see upward movements in the AUD gold price.

As a result, the hedged physical, which has remained reasonably consistent for around 18 months now was 202,000 ounces at the end of December. However, our average price continues to increase. At the end of December, the average price of the hedge book sat at $2,606 per ounce. Most of the contracts we have added recently have been between $2,850 and $2,950 per ounce. This supports one of the key reasons to hedge, and that is to enable our operations and technical teams to plan and design new projects with a higher degree of certainty around a minimum achievable gold price.

And lastly from me, the cash balance for the quarter dropped $10.8 million, and the gold on hand fell in value by approximately $12.4 million. Whilst the operations generated approximately $15 million in cash flow, this was offset by some of the following key expenditure items. $7.2 million was distributed to shareholders in the form of a fully franked dividend for the last financial year. A little less than $20 million was spent on nonsustaining capital, including items such as [ Diatec ], which is the next open pit at Marda and also at Penny; nearly $8 million spent on exploration and resource definition. And there was also a small reduction in working capital, which was offset by a tax refund of a similar amount.

So whilst we experienced a small drop in cash and gold, we remain in a very strong financial position with $154 million in cash and gold and a fully committed yet undrawn debt facility of $100 million. Whilst very healthy, we still look forward to bolstering that cash position with an improved second half to this financial year.

Thank you all for listening in today, and I'll now hand you back to the operator for any questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Paul Kaner from Ord Minnett.

[Paul Kaner, analyst]

Just on the various moving parts there at Edna May. Just trying to get a sense of what the production profile is going to do in the second half of this financial year. I mean grades came down a bit this quarter. But could you maybe just touch on where you think grades and throughput are going to do in the second half of this financial year?

[Timothy Manners, executive]

Paul, it's Tim here. I think we put in the quarter that we still expect the full year for Edna May to be around about 110,000 ounces, which is, I guess, the midpoint of our guidance. It's produced, I guess, 60,000, I think, for the first 6 months. You're looking at about 50-odd for a midpoint second half. I think the -- you'll probably get a similar sort of trend, I think, as Mark mentioned, largely depleted the low-grade stockpiles at Edna May. So the feed really does comprise Marda, Tampia and the underground. I don't have the exact numbers in front of me, but I will be working off sort of a similar -- maybe a slightly lower tonnage figure and a similar grade as we've seen in the first half. I don't think there'll be a dramatic difference from that first 6 months to the second half.

[Paul Kaner, analyst]

Yes, too easy. And then maybe just moving across to Mt Magnet and Penny coming online there properly post the haul road completion. I think you said was at 20,000 tonnes per month from Penny post the haul road completion.

[Mark Zeptner, executive]

Yes, that's correct, Paul. [ Haul ] sort of production rate is around that 20,000 tonnes per month, which should be there from a mining sense by March and slightly thereafter from haulage. So yes, you should be hauling 60,000 tonnes and mining [ 50,000 ] tonnes or thereabouts per quarter from Penny. We obviously hauled 10,000 in the last quarter, so just highlighting what's to come for Penny and how significant that's going to be.

[Paul Kaner, analyst]

Yes. So then if we take for the March quarter, you'll get 20,000 tonnes there post that ore completion in Feb. And then You'll have how much from the existing haulage now?

[Timothy Manners, executive]

At the current rate is running at around about that 10,000, 15,000 type tonne rate. So when the upgrade is done, you're right. We will shift to essentially triple road trains, which, on an annualized basis, will be running at that 240,000 tonnes per annum rate. I guess the question will depend when we swing from doubles to triples when the road is complete and approved, Difficult to say with a degree of certainty exactly when that date will be, but I think we'll find that during Q3, we'll run doubles for as long as we can and bring triples in as soon as we can. And then Q4 will be, I'd imagine, a solely sort of triple structure at that 20,000 tonne per month rate.

[Mark Zeptner, executive]

Just to clarify, Paul, the doubles are not 2/3 of a triple. They're effectively 50-tonne load where a triple is 100. So you can get twice the tonnage out of the triple road trains. So we could do 30,000 tonnes for quarter 3 as opposed to 60,000 with triples. The reason we did 10,000 last quarter is because we started hauling the doubles in December, around the same time as the road update commenced. So if that gives you a little bit of color there.

[Paul Kaner, analyst]

Yes. No, that's great color. .

[Operator]

Next question comes from Andrew Hines from Shaw and Partners.

[Andrew Hines, analyst]

Just a couple of things for me. First of all, on Mt Magnet and the Penny ore coming in, is the Penny ore body reasonably homogenous in terms of grade? Or is there going to be sort of grade variability as you ramp up initially higher grade or lower grade initially? And then secondly, on the decision not to go ahead with the Mt Edna around Stage 3, I note that you haven't changed obviously our 3-year plan and it has an impact on that. But clearly, there's some implications here for Edna May beyond '25. And obviously, it's little well away yet, but interested in your early thoughts about what are your options to keep that mill, that infrastructure full if you're not going to go ahead with that Stage 3.

[Mark Zeptner, executive]

In terms of the grade at Penny, I suppose it's as homogenous as a gold ore body can be, which is not very homogenous. You will see that the greater material truck to Mt Magnet to date and the stockpile grade is slightly lower than the average reserve, and that's based on the fact that you're at the top on the peripheries of the ore body and your ore driving. So you're taking more -- typically more dilution than it would from a stoping point of view. .

So in the early part, that's expected. Once you're in the full stoping, we should be hitting around that [ 15 gram ] per tonne. At the moment, we're more like 10 or 11, but I'm encouraged by sort of [ 20-plus-gram ] phases that we're starting to see on just the third level down, if you refer back to the long section.

In terms of Stage 3, yes, look, we did have some time, and we did look at options in the area to extend life, both in our own portfolio at [indiscernible] and also in the region. Southern Cross is not too far away, for example. We did make the comment -- I think we were asked the other day that Edna May Stage 3 provides at the moment, the longest life potential, but it doesn't mean that we won't look to tack on a year or 2 here and there, which again buys more time for Edna May Stage 3 to potentially come back at a later date under the right economic conditions.

[Operator]

Your next question comes from [ Stephen Massies ] from [ Webcam ].

[Unknown Analyst]

Negotiating a native title agreement can be a fraught exercise. Can you provide a bit of clarity around Rebecca and the mention there of progress in a native title review and application?

[Mark Zeptner, executive]

We have -- there's 2 mining leases at Rebecca. One has already been granted and the second, which is a much smaller extension effectively to the granted lease is subject to native title. So we're in the processes of establishing a relationship with the Native Title group and going through the process, and that will all be part of the sort of the [ gap chart ] time line for development of the Rebecca project. So we don't have an agreement, and we didn't inherit an agreement, but we'll be working on one going forward. .

[Operator]

[Operator Instructions] Your next question comes from [ Richard Hart ] from [ Top View ].

[Unknown Analyst]

Just one question. I saw your results from the joint venture of [ Affinity ] this morning. I'm aware there's been big delays in laboratories. And I'm just wondering, firstly, is that improving at all? And secondly, could you give me a rough idea of any results that are particularly significant that you're waiting on?

[Mark Zeptner, executive]

Thanks, Richard. It's Mark. I don't get a sense that things have improved that much in the turnaround of samples. If you're going to go and drill a diamond drill hole, you've got to drill it, get a cut, get it to the lab, and you're talking like a [ 24-month ] process. I'm obviously not aware of significant results that are coming. We released them not every hole we get, but we release them in, I suppose, reasonable batches. Otherwise, we would be updating the market sort of for every hole. We don't think that makes sense. But I'm not aware of think that's outstanding they'll come in from all parts of the portfolio as they come in, but there's quite a lag, as you'd appreciate.

[Unknown Analyst]

Right. Okay. When I said significant ones come in, obviously, you don't know is as significant until they arrive. I was just trying to get some idea here is anything you guys were particularly excited about and waiting for that result. I imagine you won't tell me. So it's fine. .

[Operator]

[Operator Instructions]

[Mark Zeptner, executive]

Doesn't show there's any more questions. So thanks, Winnie. Just to wrap up now, I'd like to emphasize 3 points. One, as expected, Ramelius posted a quarterly result that was somewhat similar to Q1, although the lack of hauling and processing and Penny material made it look worse than reality. We have approximately $17 million worth of ore ready to truck to Mt Magnet at [ ping ] and we'll be up to full mining and hauling run rates by Q4. .

Haulage rates, whilst better, this is Edna May haulage rates, whilst better in Q1 than -- better in Q2 than Q1 we're marred by somewhat poor December. Despite this January to-date figures show or support the fact that we're back on track, and the road train driver shortages are slowly becoming less of an issue.

And three, we have shown capital discipline with our recent decision to defer Edna May. Through our mission of delivering superior returns, we trust that this gives investors the certainty that they were looking for and allows us to focus on delivering the cash flows that are expected from the current portfolio.

Thank you for listening in today, and enjoy the rest of your day.

[Operator]

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