Ramelius Resources Ltd

ASX:RMS

Earnings Call Transcript 2021-Q3

[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 William Zeptner, MD, CEO & Director]

Good morning, everyone, and thank you all for taking the time for dialing in. Joining me as usual this morning is CFO Tim Manners. Following the usual course of events, Tim and I will run through the main points contained in the quarterly before opening the line to questions. The March 2021 quarter saw another strong operational performance from the company with gold production of 66,029 ounces at an all-in sustaining cost of AUD 1,370 an ounce, within guidance on both fronts. Mt Magnet was, again, the mainstay of production delivering 41,832 ounces. Edna May contributed 24,197 ounces, with the bulk of those coming from the Greenfinch open pit. Tim will provide further details around the financials shortly. Suffice to say that the balance sheet is strong, and our cash reserves grew quarter-on-quarter despite a lower realized gold price and some significant one-off items, such as the FY '20 income tax payment. On the development front, our 2 key projects, Tampia and Penny, continue to progress well. Following the acquisition of the farmland of Tampia, mobilization of the open pit mining contract has taken place and site establishment works are underway. Grade control drilling is also commenced in the 100-person camp on the outskirts Narembeen; has been operating for several weeks now. At Penny, the process of arranging the necessary approvals, contracts and long lead items is now in full swing. Site works are expected to commence next month and open pit mining in the September 2021 quarter, in line with the previously communicated production schedule. Today, we also announced a 52% increase in the Eridanus mineral resource to 760,000 ounces based on deeper diamond drilling contemplated -- completed during the past 2 quarters, and maiden resource of 220,000 ounces at the nearby Orion-Franks Tower project, both at Mt Magnet. This total is almost 1 million ounces in resources within 5 kilometers of the processing plant at Mt Magnet, which is the subject of both underground and open pit scoping studies for Eridanus and Orion, respectively.The prefeasibility study examining the potential of a Stage 3 cutback to the Edna May open pit remains on track for completion at the end of June. It is worth reminding the audience that the Edna May study is based on an existing 1 million ounce resource industry, highlighting the growth potential at both of our primary production centers. Further information on exploration activities conducted at the company's various projects during the quarter, where we have also seen a change in senior management, is contained in the full report itself and which can be read at your leisure. Our new GM Exploration Peter Ruzicka brings with him a wealth of gold, copper and base metals exploration experience within Australia as well as countries, such as Indonesia, China and PNG. Most recently, he's been at Norton's Gold Fields Paddington operation, where he oversaw a significant growth of the mineral resource of plus 10 million ounces. So we are looking forward to his contribution here at Ramelius. I will now hand over to Tim.

[Timothy Peter Manners, Chief Financial Officer]

Thank you, Mark, and good morning, everyone. Mark, as you pointed out, gold production for the quarter was 66,029 ounces at all-in sustaining cost of $1,370 per ounce. The corresponding gold sales of 65,420 ounces at an average realized price of $2,242 per ounce. The all-in sustaining cost margin was down on the prior quarter, albeit to a still very strong $872 per ounce. This reduction in margin is due mainly to a fall in spot gold price of 10% and also an increase in our all-in sustaining costs of approximately 7%. Notwithstanding, the cash flow generation was still very healthy. In fact, underlying cash flow increased 12% quarter-on-quarter to $38.7 million. For those who may be interested, the all-in costs for the quarter were $1,660 per ounce. The underlying cash flow generated in the quarter was used to fund the Tampia JV buyout, the acquisition of the Tampia farmland. As Mark mentioned, we've been paying $20.3 million to the ATO. This payment was a one-off amount closing out our FY '20 income tax liability. Going forward, our income tax payments will be based upon the ATO's monthly installment regime, which is a standard for a business of our size and nature. All up, we increased our cash and gold position by $9.1 million to $230.6 million as of the end of the quarter. Debt remained at $8.1 million for net cash and gold position at the end of the quarter of $222.5 million. All outstanding debt will be repaid in June this year. Whilst in the background, we are working on refreshing and upsizing our syndicated facility to potentially support any future material growth initiatives we identify. Before looking forward, a quick update on the hedge book. During the quarter, we delivered into 38,000 ounces at an average price of $2,186 per ounce and added 17,500 ounces, at an average of $2,331 per ounce. The hedge book at the end of March is now down to 209,250 ounces at an average price of AUD 2,310 per ounce. So with 1 quarter of the financial year to go, we have refined our full year guidance to 275,000 to 280,000 ounces at an all-in sustaining cost range of $1,280 to $1,330 per ounce. We note that the all-in sustaining costs for the June quarter are expected to be approximately 4% higher than that previously published with a midpoint of $1,290 per ounce compared to $1,240 per ounce released previously. This is due to a change in the mix of the ore sources being processed and also labor cost increases being felt within the WA resources sector. The production forecast for the June quarter remains between 65,000 and 70,000 ounces. CapEx for the quarter was largely in line with expectations, but we have increased our forecast for the full year by 5.4% to $106.7 million. The increase has been driven by the development of the new King Brown pit at Marda and slightly higher camp and ancillary construction costs at Tampia compared to the original feasibility study. I will now hand you back to the operator to open the line for questions.

[Operator]

[Operator Instructions] Your first question comes Andrew Hines from Shaw.

[Andrew Hines, Senior Analyst]

Well done on a good quarter despite the outages you had. Just a quick question on the costs to you, Tim. The all-in sustaining cost, obviously, upper end of that range in that third quarter. Can you quantify how much of that do you think was impacted by that SAG mill outage? If I look at your fourth quarter guidance of $1,290 on pretty much the same production rate in the third quarter, down about $80 an ounce. Is that roughly the impact you think you felt from that SAG mill outage on your cost base?

[Timothy Peter Manners, Chief Financial Officer]

I think it's a fair estimate, Andrew. I think there's a few things that are contributing to the slight increase in costs. We did have a lot of grade through the mill in the quarter, that obviously has an impact. We did experience the outage. So physicals through the mill were a little bit down. There are some labor cost pressures that we've spoken about before that are certainly creeping into the business, and we are obviously not alone in that front. I mean there is a little bit of a change in the mix of ore source going forward for the June quarter than previously published. There's a few -- as you know, there's a few ingredients to how all these costs come together. But I think each one on their own right just added a little bit to that underlying number.

[Andrew Hines, Senior Analyst]

Great. Obviously, the point of the question, just trying to get to sort of ongoing what's happening with the cost base going forward, although the cost pressures we can certainly see there, but how much of that in that quarter was a one-off impact. And I think that $80 down, it sounds like about right. The second question for you, Tim. On the hedge book, you're now down to only 2 years of forward hedging. I think when we first started looking at you guys, you were sort of 3 years out. Is that a deliberate sort of shrinkage of the time lines out on hedge book? Or is you're just taking advantage of whatever the market is at the time?

[Timothy Peter Manners, Chief Financial Officer]

It's a little bit of the latter and the former. We had -- and we've mentioned it previously on calls that we've made a conscious call to wind down the quantum to around about sort of 200,000 ounces by the end of this financial year. We're on track to do that. We assess this position essentially daily, weekly as we go. The natural consequence, I guess, in the shape of the forward curve means we're not putting a lot of ounces further back in time. A lot of positions, if we do put them on are generally short-dated. Backwardation is quite steep at the moment. So that's probably a natural consequence from a time perspective. And the 200,000 ounce sort of level is where we're heading for, and we'll sit around and assess at that point as to where we go from there and how the business looks going forward.

[Andrew Hines, Senior Analyst]

Great. And final one for me for you, Mark. Bob Vassie stepping in as the nonexec chair. He's been there now for most of this year. Any thoughts about the way that you and he are interacting, anything changing in terms of the strategy of the company, M&A, different targets, different focus, organic, inorganic-type approach to growth?

[Mark William Zeptner, MD, CEO & Director]

Well, it's pretty early days on that, Andrew, but definitely keeping me honest, a mining engineer looking after another mining engineer, and Bob obviously brings a wealth of experience. We recently had our strategy session. So it's obviously a good time for him to start to get into the nuts and bolts of the company and help us going forward, and now we look forward to this contribution.

[Operator]

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

[Unknown Analyst]

Guys, congratulations yet again. It's getting a bit boring, but well done for meeting guidance each time. The first question is really about Tampia. You've said you're starting -- I think the camp was finished. Have you actually extracted any ore yet? And if so, any idea of the grades that you're extracting?

[Mark William Zeptner, MD, CEO & Director]

Thanks, Richard. We have started moving some dirt but it's really at the north end of the pit where it's in waste; we need some of that waste to help complete some of the infrastructure around site. Meanwhile, at the south end of the pit in the [ Mates ] area, particularly, we have a great control rig. So that's working flat out to obviously work up the ore blocks in that area. So ore mining is not far away. So I can't really report on how that's looking, but that will be the first area of ore mining that we do carry out. And to just remind you, I suppose, the schedule that we did put forward was that delivery to the mill wasn't until July, but if we can get it a little earlier, then we will, but it won't be much earlier given where things sit right at the moment.

[Unknown Analyst]

Right. I heard there's a bit of noise being created around Narembeen, so I assume you are busy. With those grades, are they meeting expectations? Are you allowed to say?

[Mark William Zeptner, MD, CEO & Director]

Look, at Tampia, at the moment, we basically started a grade control program. So don't really have enough with that results to get a report back on that. So as we do dig some boxes down into the mill, we'll start reporting what the reconciliations look, but we just don't have enough information to hand. And yes, a lot of accounts folk were present at the first blast about a week ago, but still only all far enough away to see that and quite interested, which is good for us generating a bit of interest around town and hopefully, a bit of support around town at the same time.

[Unknown Analyst]

Good. Look, I -- what I mention, Orion, those grades you're at today, they're quite impressive, a few of them. Is it too early to have any rough idea of how that might progress? Or is it going to take a while to form any plans?

[Mark William Zeptner, MD, CEO & Director]

It was suggested that the 12 meters at 196 should have had its own release. It's quite a deep intercept, and it's not really supported by holes around it. So we generally take a cautious approach with those sort of results. But Orion is looking quite interesting from an open pit potential close to the surface, and we've [ deeper hit ] that, hopefully, also an underground potential.

[Operator]

[Operator Instructions] Your next question comes from Michael Scantlebury from Euroz Hartleys.

[Michael Scantlebury, Resources Analyst]

Well done for having building cash that's done in CapEx and in tax payments during the quarter. My question was just around your feel for FY '22 guidance. I understand you guys will be putting out your life of mine update into this quarter. But just to get a feel on the kind of pressures going forward just with whether there's going to be positive or negative around giving you an extension, and you flagged here Tampia and obviously at Penny West. And then maybe just if you could touch on potentially the Tampia throughput optimization as well, whether your plant is going to be -- the [ mates ] running at closer to your -- above your -- or closer to the current run rates? Or will you be dialing it back to get that finer grind size? If you could give us some color on that, that would be handy.

[Mark William Zeptner, MD, CEO & Director]

Thanks, Michael. Vivien will obviously produce in FY '22 forecast or on guidance, if you like. And we're hopeful that we can get a little more out of Vivien and that's looking positive. We didn't have any drill results in this release, but we're hopeful there. The FY '22 plan, I think production-wise looks similar when you look at the life of mine, and that's my feel for it. The guys are, on a daily basis, having budget meetings and working through the detail. We do ground-up budgeting here from the operations and several reviews that this process goes through. In terms of the cost profile, when you look at the life of mine, it actually is higher than the year beyond that, and that's mainly due to Penny not having a significant contribution to FY '22 as opposed to the years after. And so we're very closely looking at Penny and whether we can bring that in early. I'm not sure if you have any more comments on that, Tim. But the costs around the levels of where we are is probably what we expect before we can get back to more of $1,100 to $1,200 an ounce where historically, obviously, brought about by Penny, which is sort of $600 to $700 an ounce, which will grade that overall corporate cost down.

[Timothy Peter Manners, Chief Financial Officer]

No, I think you're right, Mark. It's -- there's a lot of work going on at the moment, Michael. We'll obviously provide the updated life of mine June-July time, and we'll provide some transparency at that point.

[Mark William Zeptner, MD, CEO & Director]

And the last point on the Edna May mill processing of the Tampia ore, we haven't put anything through the mill just yet. But the mill has had all of its modifications. We put in some screens, a leach, a [ fixnut ] and a few other bits and pieces, then we spent the best part of $6 million to $7 million there. We're well ahead of schedule. So that's to be tested. We will be slowing the mill down somewhat to get that finer grind and monitoring the recoveries very closely. So we need to really play that one by ear, Michael, and I can't give you any results or how that's going just yet.

[Operator]

Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.