Ramelius Resources Ltd

ASX:RMS

Earnings Call Transcript 2022-Q4

[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]

Good morning, everyone. Thank you for taking the time to dial in this morning. With me, as usual, is Chief Financial Officer, Tim Manners. Following the standard course of events, I'll run through the operational highlights from the quarter before passing over to Tim to go into the numbers in more detail. We'll then open the line to questions.

As you will have seen this morning, we announced group production of 258,625,000 ounces for financial year 2022. Within the revised guidance range of 255,000 to 260,000 ounces provided just over a month ago and only marginally below our original guidance posted this time last year. By way of a reminder, the revision to production guidance was necessary mainly due to some untimely rain events affecting haulage routes and ongoing staff shortages related to the labor market itself, COVID-19 and the flu season. All-in sustaining costs for the full year came in at $1,523 an ounce, right at the top end of guidance as the team did an admirable job in an obviously inflationary environment that has become more difficult each quarter.

Focusing on the June quarterly performance, the company has produced 67,418 ounces at all-in sustaining cost of $1,564 an ounce for the period, actually representing the highest production quarter for the whole financial year. The split between the 2 production hubs was 31,413 ounces from Mt Magnet, at an all-in sustaining cost of $1,374 and 36 -- and 36,005 ounces recovered from Edna May at an all-in sustaining cost of $1,737.

Now the reopening of the West Australian border in early March did result in improved road train driver availability and consequently saw a 20% quarter-on-quarter increase in ore haulage rates from Marda and Tampia to the Edna May plant. But as we know, the Board at reopening also brought with it a surge of COVID-19 infections, and this became a factor in us falling slightly short of our haulage forecast for the June quarter.

We have assumed a gradual ramp-up in haulage rates from these levels in FY '23. To provide some perspective of how COVID-19 has affected staffing during the June quarter, we recorded almost 300 positive cases and a further 88 close contacts that were required to isolate for 7 days.

This is out of a total workforce of around 1,000. Therefore, we still have around 60-odd percent workforce yet to be affected. And so given the recent news of short turnaround reinfections, this is going to take some time to work its way through. On the project development front, today, we unveiled the first Ramelius-generated mineral resource, the Rebecca project east of Kalgoorlie, which was acquired in the takeover of Apollo Consolidated, which completed earlier this year.

Based on just 9,070 meters of infill drilling completed since February, Rebecca and its satellite deposits, Duke and Duchess are now estimated to contain 31 million tonnes at 1.2 grams per tonne for 1.2 million ounces. Noting we're only partway through the drill program with the focus so far being more on infill holes rather than extension or so we look forward to completion of the wider program to test the full potential of the Rebecca tenement package.

The new resource does represent a modest 9% increase in overall ounces, but importantly, 85% of those ounces are now in the indicated category, which now has increased some 22%. So there is a high level of confidence in the integrity of the resource. We continue to view the broader Rebecca project as under explored and look forward to additional discoveries as our geological understanding growth.

Over at Penny, we're making good progress with capital development after filing the portal in April. We are now fast approaching the first Penny load ore level with first production anticipated this quarter. You may have noted, we received a pleasant surprise progressing development of the uppermost access drive encountering 1 to 1.5 meter wide quartz vein interpreted to be the southern extension of the Penny North lode.

One occurrence of coarse visible gold was observed in the vein but further work is required to assess if this is economic, but it is some 90 meters south of the current resource boundary. A nice if unexpected problem to have and one will assess at a later date once we have our underground drill rig in place. With regards to our mining studies, work is progressing on the Hill 50 underground scoping study at Mt Magnet with encouraging geotechnical outcomes thus far.

On Edna May Stage 3, a review of inputs used for the PFS during 2021 was undertaken this March, with the increase in fuel price and notable additional costs, but not surprisingly. A new mine design has been generated with the intent to seek pricing on this open pit from contracting and equipment leasing groups. This process is expected to be completed later this year and a decision on the development status of the project will be taken thereafter. Development work must begin on Stage 3 in 2023 to meet the mine plan schedule delivered last year, whereby meaningful production needs to hit the mill by FY '26.

On to exploration, RC and diamond drill at the Bartus East prospect at Mt Magnet continues to deliver strong results pointing to its underground potential. Noting we are still waiting assay results from the deepest drill hole, which contain visible gold. At our Galaxy project, specifically below the Saturn mine plan, recent drilling suggests the types of extensions we're expecting in the BIFs, the BIF units were the 6 meters at 6.8 grams with the base as a whole also continuing to intersect a wider BIF breacher zone of 72 meters at 1.84 containing including, sorry, 25 meters at 3.8%, which may well be the top of our new bulk mining zone.

Finally, before I hand over to Tim, guidance for FY '23 is being set at 240,000 to 280,000 ounces at an all-in sustaining cost of $1,750 to $1,950. The midpoint of that range Mt Magnet will contribute 150,000 ounces in Edna May, 110,000 ounces.

In this current environment, we want to give a wider range than previously on costs, whilst we have used a similar range for production as last year to allow for what no doubt will be another somewhat unpredictable period ahead. I want to stress, we are working hard to maintain our margins in the face of inflationary pressures. For several years, we've led our peers in this area, we don't intend to give up our cost control ethos easily. Tim will now add more on this. And with that, over to you, Tim.

[Timothy Manners, executive]

Thanks, Mark. In the midst of some very tough operating conditions, as Mark mentioned, that we are, as an industry, all feeling right now. It's pleasing to see that the fourth quarter delivered an excellent result for Ramelius. 67,480 ounces in the quarter gave us a full year production figure of 258,625, which put us within half of 1% of our original annual guidance, as Mark noted. Given the significant impact of COVID and other consequential events had on the business, this is an achievement we're all still very pleased with.

Furthermore, we managed to keep inside the top end of our annual cost guidance with the all-in sustaining cost for the year, finishing at $1,523 per ounce. Again, credit to all our teams at every site and here in Perth office for what, again, is a great result in this environment. But what is clear and evident from reading the quarterly reports published by our peers so far is that the cost environment has well and truly moved. That's not new news to anyone, but I guess the real question is how long are these elevated costs going to be here and what can we actually do about it.

There's certainly anecdotal evidence that these costs have peaked, but only time will tell. We've had a solid track record of being one of the lowest cost gold-only producers in Australia. And I think when this reporting season is over, our all-in sustaining cost will still sit near the bottom of that curve. The challenge is to keep that record up over the next few years as inflationary pressures make the short- to medium-term cost outlook very unpredictable, but clearly with that underlying upward trend. In the past few years, Ramelius has worked hard on focusing on those costs that we can control. And I'm talking about the real underlying costs here and not the cost per ounce as they will always be influenced more by grade than by any other input costs.

A lot of good work has been done on cost management, and that needs to continue. The grade is and always will be king and its impact on every financial metric is obviously significant. This has been evidenced well at Magnet, where on top of active cost management, there has always been a high-grade source of ore in the blend that has given us those extra ounces and kept those unit costs at the low end of industry numbers. Vivien has been a constant source of low-cost ore at Mt Magnet for a number of years now, as has Shannon underground in more recent times.

The early stages of Eridanus outperforming expectations also gave us some excellent cost outcomes. The Edna May Stage 2 open pit also proved to be a great asset that outperformed as it came to its completion a year or 2 ago. This gave that processing hub, the ability to remain cost competitive for a period of time, that, in turn, enabled us to bring Marda and Tampia into the mix and extend the asset life.

So in the context of these high underlying input costs, it is grade will still come to the fore and offer the ability to drive unit cost down, margins up and differentiate one asset from the next. For us, that is Penny. Although we are guiding to higher all-in sustaining costs in FY '23, these costs are likely to be higher in the first half than the second with higher cost development ore from Penny in half 1 being replaced but in H2 by steady state development and stoping production cycles, delivering very high-grade ore to the Mt Magnet mill. However, the real benefit will be seen in FY '24 and '25, where production from Penny is expected to almost double from what is forecast for FY '23. Given it will be 1 of the highest-grade, lowest-cost mines, in Australia, we are confident that the all-in sustaining cost profile at Mt Magnet will reduce and return to levels we are more accustomed to.

So moving on to the revenue side of things. Sales in the quarter were 67,632 ounces at an average price of $2,508 per ounce. The average price received is just over $100 an ounce higher than last quarter, which continues to reflect both the runoff of lower-priced forward contracts and a continued strong spot price environment. From a cash flow point of view, the operations added just under $40 million in operating cash flow and underlying cash generation of $12 million after CapEx, exploration and resource definition drilling.

As a result, the closing cash and gold balance increased 5% to $173 million. A quick update on the hedge book. During the quarter, we reduced the total commitments to around about 196,000 ounces, which have an average forward price of $2,512 per ounce. RMS remains well funded with a healthy cash balance, over 120,000 ounces of gold contained in ROM stocks and GIC and an undrawn corporate debt facility of $100 million. We remain very active reviewing a number of business development alternatives to expand and improve the asset portfolio with the focus at the moment well and truly on the potential to acquire a third production center. On that note, I will now hand you back to Mark.

[Mark Zeptner, executive]

Thanks, Tim. Before we open the line to questions, let me quickly recap on a few points. Ramelius has posted a solid FY '22 performance with competitive all-in sustaining costs in a tough environment, both in terms of cost inflation and labor shortages. FY '23 production levels are expected to be similar, albeit at a higher all-in sustaining cost due to some high-grade feed sources dropping off, and there being a slight lag before the new low-cost Penny mine ramps up. FY '24 and '25, we'll have the full positive impact of Penny production, where we expect to see all-in sustaining costs back to around FY '22 levels.

And we continue to have exploration success at Mt Magnet, specifically Bartus and the Galaxy project, while the new Rebecca project has had a 9% lift in resources on the back of relatively few new infill drill holes. Darcy, can we please open the line for questions?

[Operator]

[Operator Instructions]

The first question comes from Andrew Bowler from Macquarie.

[Andrew Bowler, analyst]

I think you answered my question about early indications that inflation seems to be peaking. So moving on to the next one. Obviously, you talked about how COVID impacted trucking from satellite pits over the year. And you also indicated that reinfections could cause a bit of a long recovery to this skilled labor shortage. How much of the impact or how much of a recovery in trucking rates are you assuming over FY '23? Or are you assuming it's pretty flat with the fourth quarter rate from this year and assuming it's not going to get much better?

[Mark Zeptner, executive]

Thanks, Andrew, it's Mark. What we've assumed is our quarter 4 actuals as the baseline with a gradual ramp-up through FY '23, which is baked into our FY '23 production numbers. So we expect it to get better, but slowly.

[Andrew Bowler, analyst]

And obviously, Penny, as you've outlined pretty clearly, I think, should have a pretty strong impact on group costs. Is there any scope to bring any of that forward? Or is the development running flat out there at the moment?

[Mark Zeptner, executive]

Yes. We'll be running flat out. I think we'll do something like 50,000 ounces this year, and it's almost double that next year, and it's just the nature of mining and the mining method that we have to follow that we put the development in first, and then stoping comes thereafter. So now the guys are focused. They know how important they are to the business and they'll be mining as quickly as efficiently and safely as they can.

[Operator]

[Operator Instructions]

Your next question comes from Alex Barkley from RBC.

[Alexander Barkley, analyst]

Mark and Tim. Just a question around the cost guidance for next year. You obviously did very well this financial year and finished the fourth quarter well, which was certainly a good achievement versus some of your peers. But then we've seen that lift in FY '23 guidance. I think it's up sort of 30% higher than where you said it from 12 months ago. Just wondering why the move in that year's guidance despite doing quite well over the past 12 months?

[Timothy Manners, executive]

Alex, it's Tim here. Thanks for the question. And it's obviously a very pertinent one and one that's very close to our heart. Look, as you know, there are a few moving parts in our business. I guess the main drivers are obviously, a continuation and we've assumed a continuation of this sort of higher cost environment notwithstanding, I think there is that anecdotal evidence that maybe it has peaked, who knows, but we've assumed that it does continue. .

We do, however -- sort of we lose the benefit that we've had before of having the ore sources, as I mentioned, like Vivien. We don't have the real high-grade Vivien ore in the mix at Magnet anymore. The remainder of the underground is sort of at a modest sort of 3, 4-gram dirt.

We don't have Shannon underground, which we had last year and particularly the year before, which really was a huge driver of our unit costs. And as you know, the leverage that grade has is quite significant. You take those out of the business, notwithstanding you replace it with development from Penny, and you see those costs really sort of kick in.

Penny. Well, as we said, we will bring those unit costs down in the second half versus first, as Penny really sort of starts to hit straps. But it won't be until FY '24 and '25, as we said, where Penny really will kick in and those costs will come back down to what we're more, I suppose, used to. But it's a combination of a continued cost pressure and the loss, if you like, 1 or 2 low-cost, high-grade sources.

[Alexander Barkley, analyst]

Okay. Well, when you set that FY '23 number last year. I presume you would have sort of leaning on the reserve life at Shannon and Vivien, which do -- can extend, but I presume you sort of cut it at the reserve. Were you predicting a little bit more gold in FY '23 than the case? I mean I just would have assumed that you already knew about the gold dropping off in FY '23. And indeed, your gold forecast number next year is pretty much unchanged in guidance and flat year-on-year. So just sort of wondering how -- is that a change?

[Timothy Manners, executive]

Look, it's more about, I suppose, product mixes. It's also a case with some of the operations, particularly around Edna May, we really started to draw down on some of those stockpiles. So there is a, if you like, a noncash component that sits in those all-in sustaining costs as we draw down those stocks. It's hard to sort of really elaborate and disclose those in these sorts of documents. But we do have to wear those costs that we got the benefit for in the past. So look, it's minor changes on a number of different fronts, really.

[Alexander Barkley, analyst]

Okay. Just a last one around when you might put out an updated life of mine plan so we can sort of have some refreshed numbers over the next few years. Would that likely sort of be timed with the Edna May PFS release just so you sort of have a better picture about what's happening at Edna May?

[Mark Zeptner, executive]

Yes, Alex, after your last comment, we're probably wary about putting out any new mine plans because you'll come back a year later and point out where we've gone wrong. Now look, we're working on that. I can't really give you a timing. Obviously, not many people have gone out beyond, some have even gone out 6 months, some people haven't even gone out with forecasts. So we've already been wary in the current volatile environment, putting something out that people are going to say, hey, do you know that's going to be right? What have you used? So we're working on that all the time in the background. And we'll let you know and the market know once we're ready to put something out. But hopefully, sometime in this calendar year.

[Operator]

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