Ramelius Resources Ltd

ASX:RMS

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by, and welcome to the Ramelius Resources Quarterly Teleconference. [Operator Instructions]

There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to Mr.. Mark Zeptner, Managing Director. Please go ahead.

[Mark Zeptner, executive]

Good morning, everyone. Thank you for taking the time to dial into Ramelius' March quarterly conference call. Alongside once again, is Chief Financial Officer, Tim Manners. Following the usual course of events, I'll run through the operational highlights on the quarter, referencing the March 2023 quarterly activities report released on the platform earlier this morning. Before handing over to Tim to go into the numbers in more detail. We will then open the line to answer any questions that you may have before pinching off with some brief closing remarks.

As you will have noted, I have seen this morning, we reported gold production of 54,244 ounces at an all-in sustaining cost of $18.73 an ounce for the 3 months to 31st of March. Production was 4% softer than the December quarter primarily due to the conclusion of mining at Vivien and delay securing approval for the newly upgraded Penny haul road. This affected output from Mount Magnet, but was offset to some extent by a 29% improvement in the high-grade Edna May compared to the prior quarter.

The delay with the Penny haul road approval has meant that we have had to persevere with running double road trains with a max payload of 50 tonnes on day shift only as opposed to stepping up to 100 tonne payload quad road trains around the clock, and this has resulted in the buildup of some 30,000 tonne ore stockpile that currently sits at the mine. However, we are confident that Main Road's approval for the larger configuration will be received on or before the 10th of May. And once that comes through, there is a schedule in place that will see the stockpile effectively reduced to nil by the end of June as well as ensuring the additional tonnes that are mined through the quarter also hauled to Mount Magnet obviously.

We plan to do this by utilizing twice the number of road trains we would need in normal circumstances, giving us a monthly haulage capacity of around 40,000 tonnes per month for a period of time, instead of 20,000 tonnes per month capacity that will be needed going forward. Down to Tampia and Marda or haulage to the Edna May plant from Tampia and Marda during the last quarter remained comparable with the December quarter, but we did see some decent improvements in March and for the month to date in April so far as we're able to redirect some haulage capacity from Vivien, as I mentioned, where mining is now concluded to those operations further south.

The upside of the March quarter performance is that we have tightened our full year guidance to 240,000 to 250,000 ounces at the upper end of the all-in sustaining cost range of $1,750 to $1,950 an ounce. If you do the math, this means that we are forecasting a very strong finish to the year, in fact, our best quarter of the year with June quarter guidance, by 67,500 to 77,500 ounces at an all-in sustaining cost of between $1,700 and $1,800 per ounce as more of a Penny ore feed to the Mount Magnet plants. We, therefore, expect the June quarter to be an excellent one from a cash generation point of view as the high gold production will combine with lower non-sustaining or growth capital expenditure from underground projects such as Penny and Galaxy and from the Die Hardy open pit at Marda. Moving to exploration.

There have been a few highlights to note, including those from infill drilling at the Galaxy Underground mine, where if I just -- our focus on the broader intercepts only have included 3.9 meters at 166.7 grams per tonne, 12 meters at [ 9.8 ] grams per tonne, 3.1 meters at 44.6 grams per tonne. We'll be commencing ore drilling at Galaxy shortly. And from the Rebecca project, where infill and extensional resource drilling has returned results including 32 meters at 1.68 and 15 meters at 3.34 grams per tonne at the Rebecca deposit itself and 25 meters at just over 2 grams per tonne as a nearby Duchess deposits. A more in-depth summary of exploration conductive can be found within the quarter itself.

The PFS for Rebecca is progressing well and remains on track for completion by the end of June, noting that if we are successful with the break as far as takeover, then this may prompt a rethink as I believe I have mentioned previously. At Symes, proximal to Edna May, the PFS was delivered during the quarter with positive findings that were pretty much in line with the previously released scoping study. The Board has given approval for development of science to go ahead once we have received all regulatory approvals, and we expect those by the middle of the calendar year. On a final note, before I hand over on March 20, Ramelius announced the recommended all scrip takeover for breaker resources.

Owner of the Lake Roe Gold project, 100 or so kilometers [indiscernible] which is in close proximity to our own Rebecca project. We have discussed the rationale behind combining Lake Roe and Rebecca at length on previous calls. So I don't intend to go into that in detail again this morning. Just noting that as of the close of business yesterday, we had reached acceptance of just over 39% from back to shareholders after declaring the offer best of the final last week. And with that, I hand over to you, Tim.

[Timothy Manners, executive]

Thanks, Mark. Gold sales for the quarter were 52,787 ounces with an average realized price of just under $2,600 an ounce, generating revenue of approximately $137 million. The underlying cash flow was $8.4 million, which was an improvement on the $21 million outflow reported in the December quarter. So nearly a $30 million improvement, which was largely a result of reduced expenditure compared quarter-on-quarter. The positive cash flow result was after the investment in the development of our asset portfolio was touched upon earlier, including $16 million on underground development at Penny and Galaxy, $3.5 million on the Die Hardy pit at Marda and $4.5 million on exploration. There was also the first and final stand duty payment of $8 million that was made in January for the acquisition of Apollo consolidated which owned the Rebecca project.

That $8 million was accrued for in the financial statements of 30 June 2022. Our cash and bullion position as a result of the above ended the quarter at $154.4 million, which is slightly ahead of where we were at the end of December. And we still have the undrawn $100 million debt facility in place should we wish to access it for any growth opportunities we see. Projected nonsustaining CapEx requirements for FY '23 have increased, however, to just under $71 million with $12.8 million now forecast for the June quarter. The increase in CapEx relates primarily to the development of the Die Hardy open pit at Marda and the Galaxy underground at Magnet. I'll touch upon both quickly. But in general, these are timing differences or reclassification differences only. At Die Hardy, waste material was moved in preference to ore mining during the March quarter.

There was no impact at Edna May or its gold production as there was sufficient stockpile for haulage to continue uninterrupted. So essentially, what we've done there is bring forward waste removal costs while overall mining cost for the pit remain within expectations. Galaxy, all development will commence during the June quarter, as Mark noted, as progress is made towards reaching commercial mining physicals, which is slightly later than previously forecast. This will result in more capital cost being classified as nonsustaining as opposed to sustaining not a material change overall, more of a reclassification from one category to another.

On the hedging front and gold price front, we did take advantage of the strong $8 gold price during the quarter, which despite today's spot, the quarter averaged $2,770 an ounce, which seems like a world ago. The contango in the forward curve enabled us to achieve an average price in the quarter for new contracts of $2,911 an ounce, with the highest contract being more than $3,200 per ounce. At the end of the quarter, forward gold sales consisted of 222,000 ounces at an average price of $2,702 an ounce over the period April 23 to September 25.

Lastly, in line with managing margins, not just the top line, we have started a very modest program of fixing diesel prices. It's one of the few input costs you can actually hedge. So we have dipped our toe in the water on this front. And as you will have seen, we've only secured prices on a very small quantity of the fees that we expect to use. But importantly, we have the facilities to expand that if we see fit. And with that, Darcy, can we please open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Alex Barkley from RBC.

[Alexander Barkley, analyst]

A few questions around that Penny trucking. I think previously, you mentioned an upgrade to triple road chain. So why the change to Quad -- also what exactly was the permit delay? Is that something to do with the quad trains you're looking at? And then once you do get the permit, how are you looking for the fleet and appropriately ticketed operators. Is that all good to go once you get that permit?

[Mark Zeptner, executive]

I'll go over that one, Tim. Thanks, Alex. I think that the answer to the first question about triples and quads, there is little difference. They both haul approximately 100 tonnes. One is the PBS triple, which runs that you can haul slightly more per trailer as opposed to more of a traditional quad. The reason why we're now talking about quad is in line with our -- the contract that we intend to use for the Penny haulage who have quads available, PBS triples, a special order in a way, and we use them for the Marda and Tampia haulage routes. But -- so it's more about availability. It's the same category of haul road approval largely. -- without getting into the detail of that because there's a whole number of network categories that main roads use less, there's no difference in the tonnage at the end of the day, and we're lining that up with availability.

And that probably answers your third question. The contractor we have awarded that work to has trucks coming off another job ready to go and have obviously people with that as well. So we're pretty well positioned timing-wise for that. The delays, I think it's a process that we've done a number of times before. Unfortunately, in this case, it's probably been the longest process that I can remember. And I can put it down to probably a couple of things. New people that we've had to deal with 2 jobs Sandstone and Magnet. We've never dealt with Sandstone before.

So dealing with new people and new people even at Mount Magnet Shire and new people on our mines up until duration changes with the Vivien team going down to Penny. So -- and I think just generally, local government shires are taking longer to put in place with usage agreements and are asking for more and just like most approvals processes, they're typically a bit longer. There's a few learnings for us out of this. Our approach in the past hasn't been as effective this time around. Ideally, we catch up by 30 June and all its "forgiven". But yes, it hasn't been ideal and has taken longer than we would have liked.

[Alexander Barkley, analyst]

Okay. And what gives you confidence in that 10th of May date, which is quite a specific date you've given there.

[Timothy Manners, executive]

I've had to dig into the processes quite closely to understand and to have some confidence. The final step in the process is when main roads actually load onto their system -- onto their heavy vehicle mapping system. Once it's loaded on to that, which is basically an online system, then you're good to go. They do that every Wednesday. We've actually got a site inspection tomorrow of the section of road that needs to be upgraded. There's about a 27-kilometer section that we've upgraded that needs inspection by main roads -- and then there's a process of inputting the data and updating the mapping tool. And talking to main roads in Perth. There's a possibility it could be a bit earlier, but I'll shop for the 10th of May, which is finally the Wednesday giving it enough time for the inspection and the information to flow through to main roads per incident to upload.

[Alexander Barkley, analyst]

Okay. That's quite clear.

[Operator]

Your next question comes from Paul Kaner from Ord Minnett.

[Paul Kaner, analyst]

Just on that increased capital expenditure guidance. I know you mentioned that at Die Hardy, you've preferenced waste mining. Does that mean we can expect growth CapEx to be a bit lower in FY '24 at the end of May hub?

[Timothy Manners, executive]

Paul, this is Tim. The -- if you like, the shuffling costs has come a little bit out of the quarter we've been in and will come a little bit out of the quarter that we're about to be in now and the subsequent one. So there's no particular sort of period or month that has suddenly now come down by $5 million. It's just a case of -- as we often do, we recheck and update our schedules on a monthly basis. And given the amount of stockpiles that we have available to us, the most optimal sort of dirt moving during the quarter was to move to waste. We've done that. It will end up sort of meaning we move less in subsequent quarters. But look, it's not going to be July, for example, is suddenly $5 million lower. It will be spread across a 3-, 4-month time frame.

[Paul Kaner, analyst]

Yes. No, understood. And then maybe just a follow-on from that. How should we really think about group growth CapEx in FY '24 relative to FY '23?

[Timothy Manners, executive]

From where we sit today, we would expect it to be lower. Obviously, we have broken the back, I would think of certainly places like Penny and the Galaxy mine. There's not a huge amount of development left at the Edna May underground. Mount Magnet, you never know there's always areas which require development as we move along. So I think all else being equal...

[Mark Zeptner, executive]

The end of May Hub specifically, Paul, we've got the Symes project. So that's not a big part. I think that's less than $5 million. So you're getting into some real [indiscernible]. And overall, I expect that number to be lower.

[Timothy Manners, executive]

I think the next big ticket item is more than likely going to be something on the lines of Rebecca or one of the other potential projects that sit within the Mount Magnet sort of sphere.

[Paul Kaner, analyst]

Yes. No, that's very clear.

[Mark Zeptner, executive]

Thanks, Paul.

[Operator]

[Operator Instructions] The next question comes from Richard Hart, Private Investor.

[Unknown Attendee]

Thanks very much. Good morning, Mark and Tim. Thanks again for your hard work in your presentation. It looks like an exciting quarter from the production point of view, cash point of view and the takeover point of view. So I wish you well, and I'm sure you're up to your neck in work, but good luck with all that. One query about the report that occurred to me, the Galaxy underground drill results. I often in the past, they would have been referred to as Bonanza, which is a shareholder I like to immediately affects the share price. I'm just wondering about the criteria, you rarely produce drill results. I'm wondering other criteria you used to decide whether drill results should be independently notified or just added to a quarterly like this.

[Mark Zeptner, executive]

Thanks, Richard. Good question. Mount Magnet is one of those places where you can get numbers that on the surface of it look like they need a separate report. And whether we think of processes or material, we think this is more typically what you get at Mount Magnet. It's a mixture of higher grade, lower grades. So the GOs they thought that this was something that needed to be reported separately, then we go along those lines. In saying that, we're quite happy with those numbers, and we can't wait to get into those ore drives at Galaxy. And you'll have some patches of really good stuff, and you have some patches that are a bit lower as well. But that's Mount Magnet. I suppose history has taught us not to get carried away with an odd result here and there as much as shareholders would like us to.

[Unknown Attendee]

Yes, that's almost the answer I was looking to give. It's all that context, I suppose rather than, again, just being selfish as an investor because whenever Bonanza is mentioned, it does have a healthy effect, but I understand where you're coming from. So thanks for everything.

[Operator]

Your next question comes from Ashley Chan, Private Investor.

[Unknown Attendee]

Thanks for the update and report. Just got a -- your question on if you're able to provide some color or an update on the hedging strategy going forward. If looking at Page 22 of the quarterly report, it looks like that the other strategy previously was hedging half of production 2 years ahead. So you see that for the coming quarter, you've hedged 34,000 ounces, if I'm correctly reading it at $2,568 so that would have been done a couple of years ago hedging half of your forecast production. And I just want some comment on whether you're keeping a track of the cost of this because if you multiply the current spot price by the hedging price, you're coming out to sort of something like $15 million a quarter that of forgone revenue and whether you've got some comment on how that relates to how much you'll be hedging going forward given that you're also focusing on hedging on trying to fix your costs as well?

[Timothy Manners, executive]

Actually, it's Tim here. I'm happy to respond. The policy broadly speaking in terms of volume is essentially a years' worth of production over no more than 3 years. We have a policy that weights production to short term rather than long term or weight to ounces, sorry, to short term rather than long term. I would, and I mentioned in my call, it's very easy to say, well, the price today is $3,000 an ounce. The average price for the quarter just gone. It was -- approximately $160 an ounce higher than what we achieved. So yes, there are some dollars that are being foregone. It's in the order and the quarter just gone of some $7 million to $8 million, if my mental math is right. That does vary. We would expect that to reduce over time as the price in our hedge book increases. But at the moment, we value the certainty that we get through contracts.

There are some legacy contracts, as you pointed out, in our book. Certainly, some of the shorter-dated stuff from here was put on a number of months, even years ago. When the prices went through $2,000 an ounce, it was deemed to be sort of, if you like, a whole new brave world and to lock in margins at those levels was considered, we thought to be quite prudent and we stand by that. And we will always monitor the policy. The policy is set by the Board. We implemented, it's reviewed and tested at least quarterly, if not more frequently. But I think if you were to sort of need a guide as to what to expect going forward, I would be working broadly along those assumptions, as I mentioned, that approximately 1 years' worth of production, so 240 to 250 at the moment, over no more than 3 years with a weighting towards short-dated positions rather than longer-dated positions.

[Unknown Attendee]

Much appreciated.

[Timothy Manners, executive]

No problem.

[Operator]

Your next question comes from Josh Chiat from Stockhead.

[Unknown Analyst]

Mark, just following on from that a bit, but a little bit more generally. We've seen gold equities kick up. You noted that you had a hedge contract there at $3,200 an ounce. Do you think that the corners sort of being turned to sentiment and investor interest in the gold space?

[Mark Zeptner, executive]

Thanks, Josh. No, it certainly has improved in recent times. 2022 was a pretty ordinary year for gold. Everything else seemed to be more popular. But it comes and goes quickly, Josh. But at the moment, yes, it's certainly a better place to be. And for the gold price to be around 3,000, there's been a bit of catch-up on the gold price as compared to cost increases that we've all seen. So there's probably a bit of evening out where margins have stabilized. And obviously, in the case of Ramelius with our lowering cost profile actually started to expand again, which is something we're looking forward to.

[Unknown Analyst]

And on the cost profile, obviously, you've spoken quite a lot about Penny and the impact of having the higher grade ore coming in. But are you seeing any easing of some of the more general costs around the industry, labor shortages, availability and things that give you confidence it can sustain a margin at the moment?

[Timothy Manners, executive]

Josh, it's Tim. I might just jump in on that. We're obviously seeing a little bit of pullback in some of the input costs like diesel, for example. I think/hope that the pressure that we've seen on the labor market, I mean, I guess the short answer is, I don't know. But from what we're seeing, the situation seems to have sort of stabilized. It's certainly not on its way back down. And I think that's going to take some time to happen. But it's sort of I hate to say, but hopefully, the worst is now behind us. But we still have periods where vacancies pop up. They seem to come in waves.

But at the moment, we're in a lot better place than we were 12 or 18 months ago, that's for sure. But in terms of costs, labor is a key part of it, both our own employees and those who work for our contractors. So that's an area that we have to be very mindful of and closely watch because it does drive probably 60% of our underlying costs are people and the ancillary costs that flow from people as well. So yes, hopefully, that gives you some sense for what we're seeing.

[Operator]

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

[Mark Zeptner, executive]

Thank you, Darcy. So just to wrap up, I'd like to emphasize if I could just 3 points. The quarter was okay, where without a significant contribution from Penny, we were able to still generate over $8 million of free cash flow, and that's before the stamp duty payment for the Apollo transaction last year. The June quarter looks extremely strong for the company, higher ounces, lower costs, both OpEx and CapEx, leading to significant cash generation expectations, both internally and until externally, so the Breaker to take over. The Breaker takeover is progressing well towards 50.1% and the offer then being declared unconditional, which we will then expect it to generate further momentum in the process after that point. Thank you for listening in today. Enjoy the rest of your day.

[Operator]

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