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Earnings Call Analysis
Q4-2023 Analysis
Ramelius Resources Ltd
During the June 2023 Quarterly Conference Call, Ramelius highlighted their strongest quarter for the year with gold production reaching 68,752 ounces, a notable 27% increase from the previous quarter. This was achieved at an all-in sustaining cost (AISC) of AUD 1,648 per ounce, marking a 12% improvement in costs. The boost in production was largely driven by the high-grade Penny operations, which delivered larger volumes of ore after the company secured necessary haulage approvals. Despite inflationary pressures, Ramelius met its full-year guidance at the lower range, with annual production totaling 240,996 ounces at an AISC of AUD 1,895 per ounce.
The increase in gold production at Penny contributed to the company's robust cash generation from operating activities, which stood at $42.6 million for the quarter. Ramelius continued to invest in growth, notably in the development of the Galaxy underground at Mt Magnet and in exploration, amounting to $20.5 million. Additionally, the completion of the Breaker Resources acquisition added $75.1 million in cash, bringing the company's total cash and bullion to a comfortable $272 million. These results reflect the company's strong financial position and commitment to asset development.
Looking forward to FY '24, Ramelius predicts gold production between 250,000 to 275,000 ounces, with an anticipated AISC ranging from $1,550 to $1,750 per ounce, presenting improved cost efficiency. The majority of the annual production is expected to occur in the second half of the year. The company cited a sequencing at the Penny mine and the development schedule for the Symes open pit, which will feed into the Edna May Hub, as reasons for the backloaded production distribution.
Ramelius plans to increase exploration spending to broaden its geological understanding around established targets at Mt Magnet and Penny, as well as the recently acquired Roe and Rebecca projects. A combined pre-feasibility study (PFS) for these projects is anticipated to be finalized by March of next year.
In corporate activity, Ramelius finished the acquisition of Breaker Resources in May and is actively advancing its bid for Musgrave Minerals. With a recommendation from Musgrave's Board for shareholders to accept the offer, Ramelius had secured 79.7% acceptance as of the call. The acquisition complements their strong M&A strategy and enhances their exploration footprint.
Gold sales for the quarter were at their peak for the year, totaling 68,368 ounces at an average realized price of $2,753 per ounce. The company reported reven.
Thank you for standing by, and welcome to the Ramelius Resources Quarterly Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.
Good morning, everyone. Thank you for taking the time to dial in to Ramelius' June 2023 Quarterly Conference Call. Alongside me once again is Chief Financial Officer, Tim Manners.
I will follow the usual course of events. I'll run through some highlights from the quarter, referencing the activities report released earlier this morning before handing over to Tim, who will go into the numbers in more detail. We'll then open the line to answer any questions you may have before finishing off with some closing remarks.
We provided the headline production numbers for the June quarter in the operational update released at the same time as we announced our recommended offer for Musgrave Minerals at the start of July. But to recap, we delivered our strongest quarter of gold production for the year in the 3 months to the end of June, producing 68,752 ounces at an all-in sustaining cost of AUD 1,648 an ounce. Production was 27% higher than in the March quarter, and costs improved some 12% as we're able to treat larger volumes of the high-grade ore from Penny, including stockpiled materials that had built up on site as we awaited haulage approvals. That approval came through on the 11th of May, which allowed us to convert from double to quad road train.
Now the excellent June quarter ensured that we're able to meet full year guidance albeit at the lower end, producing 240,996 ounces at an all-in sustaining cost of AUD 1,895 an ounce over the 12-month period. It also showcases the cash generation -- generating capacity of the business as Penny moves into full production.
As we have said previously, in the current inflationary environment having an asset like Penny, one of the higher -- highest grade gold operations going around offers a real point of difference from our peers. Stockpiles at Penny have now been reduced to nominal levels, and haulage from the mine to Mt Magnet is matching mined tonnes. Positive cash flow impact from the increased production for Penny was apparent in the $42.6 million generated from operating activities in the quarter, and this was after investing $20.5 million back into capital growth projects those mainly being the development of the Galaxy underground at Mt Magnet and our exploration expenditure.
With a further 75.1 in cash added through the takeover of Breaker Resources, which completed without fuss. In May, we finished the period in a very strong financial position with just over $272 million in cash in bullion.
Moving on to guidance for financial year FY '24, we are forecasting production of 250,000 to 275,000 ounces at an all-in sustaining cost ranging between $1,550 and $1,750 an ounce. At this point, I will point out that there is an error in Table 4 of this morning's release, which we will look to rectify post this conference call.
There will be again be a weighting to the second half of the reporting period, largely due to mine sequencing at Penny and the development schedule for the Symes open pit, which will feed into the Edna May Hub more strongly later in the year.
At Penny, FY '23 development activities have continued into this quarter, and we're expected to result in a slightly lower mine grade than anticipated over the following 3 quarters. Now this is nothing more than a function of mine sequencing in which lower grade development stoping areas just happened to be accessed more so this quarter than for the remainder of the year.
Mining of Symes, a shallow, low strip high-grade open pit in relatively close trucking distance to Edna May, should also create significant cash flows at a pretty competitive all-in sustaining cost, which will also be in full swing come the second half of the year. And as a result, we expect overall gold production to be approximately 10% to 15% higher than in the first half.
We are forecasting growth capital over to 2050 of $50 million for the year, lower than the $71 million spent on growth projects in FY '23 which again points to stronger cash flows in FY '24. The majority of this investment will go towards the Galaxy underground again, and this initial setup of the Symes open pit, which I've just talked about.
On the exploration front, we anticipated expenditure increasing as the company invests into expanding its geological knowledge around known targets at Mt Magnet and Penny, but also at the more recently acquired Roe and Rebecca projects, where work is continuing as part of a combined PFS scheduled for completion or now scheduled for completion in the March quarter next year.
Along the highlights, I won't read them all out from the exploration and resource definition drilling activities completed in the June quarter. We once again achieved some high-grade results from Penny North indicating strong mineralization and extension of the [indiscernible] up to 90 meters south of the existing resource including 6.1 meters at 44.5 grams and 4.5 meters at 75.2 grams. And we also have received some new results since this preleased results I just referred to, which include 3.5 meters to 7.6 and 5 meters at 10.8 a little further to the South, which is obviously encouraging.
On our Penny West asset, returns have also indicated economic mineralization within the high-grade funds is predicted by our grade control models with better results, including 1.3 meters at 57.5 grams and 3.9 meters at 8.5.
Resource definition and exploration Diamond drilling is continuing at Bartus and Mt Magnet, testing the mineralized [indiscernible], intrusions beneath and adjacent to historical open pits. By the returns and decent results, including 24.9 meters at 8.9 grams and 11.1 meters at 7.3. There is a more in-depth summary of exploration that can be found in the quarterly itself.
And lastly, before I hand over to Tim on a couple of pieces of corporate activity we've been involved in recently. I mentioned earlier that we wrapped up the takeover of Breaker in May after moving to compulsory acquisition. While our recommended offer for Musgrave Minerals is still open and now beginning to gain some traction, as of yesterday, we had secured 79.7% acceptances. And I noted earlier this week that the Musgrave Board reiterated the shareholders should accept the Ramelius bid without delay from that.
With that, I'll now hand over to Tim.
Thanks, Mark, and good morning to everyone. In the same vein as production, gold sales for the quarter were the highest in the year at 68,368 ounces at an average realized price of $2,753 an ounce for revenue of approximately $189 million. As Mike touched upon, the underlying cash flow from the operations was $42.6 million, was a significant improvement on the $8.5 million inflow reported in the March quarter. The positive cash flow result was after investment in the development of our asset portfolio, including $12.1 million on the underground development at Galaxy and $7.6 million on exploration and resource definition across a number of our projects.
Given the wind down and ultimate closure of operations at Vivien and Tampia, our working capital position improved with a $10 million reduction in payables across the business. Cash and bullion position, as Mike mentioned, at the end of the year was $272.1 million, bolstered by the $75.1 million acquired as part of the Breaker acquisition.
Just to close out on some of the M&A components, they should be Musgrave transaction proceed and succeed the cash consideration to be paid across the Musgrave shareholders would be approximately $24 million, which can be more than comfortably funded by our balance sheet and operating cash flow generation.
As most will know, we are debt-free. However, our approach at Ramelius is to ensure that we have access to capital through the cycle and particularly as we continue our search for our third production center. Accordingly, we still have the undrawn $100 million debt facility in place should we wish to access it for growth opportunities.
Over the quarter, the Aussie dollar spot gold price fell around 2% to finish the year at about $2,880 an ounce. On the hedging front, for Ramelius, we delivered into all of our maturing contracts, but added 23,000 ounces to the hedge book at an average price of $3,152 an ounce. At the end of the quarter, forward gold sales consisted of 211,000 ounces at an average price of $2,772 an ounce over the period July '23 to December '25. The gradual reduction in our hedge book is likely to continue as we approach the maturity dates of some of our lower-priced contracts. But importantly, we start to see the benefit of contracts to have prices well in excess of spot, indeed, some slightly longer-dated contracts of prices comfortably over $3,100 an ounce.
We continue with a very modest program of fixing diesel prices during the quarter which aligns with our strategy to focus on margins within the business that have now fixed a total of 10.2 million leases at an average price of $0.91 a liter, which excludes freight and taxes over the 18-month period to the end of 2024. We have the facilities in place to do more if we deem this to be a prudent call.
Over this and other recent reporting periods, several companies have commented that they are starting to see signs that inflation in the mining sector has peaked or at the very least started to plateau.
Now looking at the all-in sustaining costs and the all-in costs, it does appear that the June quarter will be the lowest cost quarter for FY '23 for some, if not all of us, and that includes Ramelius. Now whilst this points towards a possible easing and costs, I would caution against making too early a call on this. Whilst cost per ounce may be down, this seems to me at least to be more a function of grade than a sustainable drop in operating costs.
There is evidence in parts of the business that show a calling in cost, which is great. But given the majority of the costs within our businesses or people costs, both direct and indirect and with only slight signs of this market beginning to stabilize, I personally don't see costs in absolute terms coming down materially in the short to medium term.
As we approach financial results season, we may see some more information on cost trends that are moving through our industry. But for now, I think the ability to withstand the current cost environment, maintain cash margins via solid operational practices, the benefits of scale, where possible, and as always, a high-grade ore source or 2 will help differentiate some from the rest of the pack.
And with that, I'll hand back to Zach to open the line for questions.
[Operator Instructions] Your first question comes from Richard RK Hart from [indiscernible].
As you're possibly aware, I'm always interested in your corporate maneuverings. I don't know how much you can answer this, but I'm just wondering given the offer for Musgrave 2 weeks ago with just over 12%, say, and as of yesterday, it's 70%, do you have anything you can share about the progress of the offer from Musgrave or anything else?
Richard, Tim here. Look, I can certainly give you some insight I can share what I'm, I suppose, permitted to share. As you know, we have done a few of these. The rate of acceptances and almost the pattern, if you like, that they follow, do tend to be quite similar. We have obviously completed the mail out. I don't think it was the quickest of mail outs as far as Australia Post go. We know we had some people who were sort of only receiving their paperwork last week. So it's a little bit slow on that front. Unfortunately, that's out of our control. But we're pretty confident now that everything is out there. People have the ability to accept. And I think that the profile that we've seen, we are starting to get, as Mark mentioned, a little bit of momentum, and we will see sort of peaks and troughs as various events through this process occur as we head towards, firstly, obviously, the 50.1 as our conditional point. So we're quite happy with where it is at the moment. We'll obviously keep the market informed via our change in substantial shareholder notices as they occur. But we have no cause for concern, and look forward to bringing in the Musgrave shareholders to the Ramelius Group.
Well, great, that's encouraging to hear as someone who supports the move. Just 1 last question, if I could. With time lines, I should have looked this up, but with the dividend that Ramelius, I assume, is still going to be committed by your guidelines to offer, the offer soon has to be unconditional by that stage. Does that time line fit in? Is it likely or possible that Musgrave shareholders will get the dividend off it?
Richard certainly from our indication, and as I mentioned, the typical sort of rate at which we see acceptances come in on takeovers like this, whilst I obviously can't make any firm promises, it does appear to us that those who accept the offer and we reached that state of being able to go unconditional, then yes, they would be Ramelius shareholders come record date, which gives them the entitlement to a dividend if it's declared later this year. So I think we're pretty confident that anyone who comes in will be there in time. But obviously, if there are any Musgrave shareholders on the line, we'd encourage you to getting quick just to make sure you are there for that date.
Or any dividend that may or may not be approved by the Board, Richard. So that's possible. Obviously, we've got a history last 4 years of paying a dividend. So you can go back and look at those record dates as a bit of an indicator. So yes, we need acceptances, we need unconditional, we need people to be allocated shares for that to happen. So maybe that perhaps encourages Musgrave shareholders somewhat.
Typically, Richard, as you're probably aware, those record dates tend to be a few days after our financial results, which come end of August. So broadly speaking, a record date will be probably in that first week in September.
Just to reassure you, it doesn't affect me that much because at several AGMs, I've been known to stand up and say, don't give me a $0.01 dividend. Please just double the share price. So having said that, thank you very much again for all the work you do.
Your next question comes from Paul [indiscernible] from RBC Capital Markets.
Mark and Tim, congrats on the solid quarterly result. I just wanted some quick extra detail around Symes final permitting and your expected time line, if you could just elaborate for me if you could.
Yes, thanks for the question, Paul. We're going through the permitting process as we speak. And effectively doing site setup works at Symes. So there won't be a large contribution in quarter 1. We expect to be up and running and tracking to Edna May in quarter 2, and obviously in full swing quarter 3 and 4. So thus, Symes is a contributor to the back end of the production for that reason.
We've seen no issues with our permitting. We're actually fair way through that, both haulage and mining approval. So we expect to get those through this quarter.
Your next question comes from Paul Kaner from Ord Minnett.
Just a quick 1 for me. Usually, you put out sort of 3-year guidance or a 3-year outlook in November. And obviously, this FY '24 guidance is a touch softer than what you put out previously. So I presume that's sort of inflationary related. But can we expect something similar this year, sort of a 3-year outlook, which could sort of provide further details around Musgrave, et cetera?
Thanks for the question, Paul. When you say we normally put it out in that and we've done it once, so I'm not sure if that's enough to form a trend. I think you'd appreciate with us combining Roe and Rebecca being live on Musgrave in the process of updating the Penny resources, both North and West, also pretty close to something on Bartus but it's probably not at the point where we could release a longer mine plan that would have enough up-to-date information. But look, we'll look at those opportunities going forward and obviously keep the market as informed as we can. We'll probably fall in line with a lot of what others are doing, which is just '24. Yes, it is slightly soft. I think it's $50 an ounce, higher on the all-in sustaining cost compared to the 3-year plan, and only marginally down on production. But you bring a hard market there, Paul. I think it's broadly in line with our 3-year plan for FY '24, I'd like to think. But thanks for the query.
[Operator Instructions] As there are no further questions at this time, I would like to hand the conference back to Mark for his final remarks.
Okay. Thanks, Zach. Just to wrap up, I'd like to emphasize 3 points, if I may. Obviously, it's a very strong quarter to finish the year, which was particularly pleasing given the delays and the buildup of the stockpiles at Penny. All things being equal, financial year 2024 should be a significant cash-generating year for the company, albeit with production skewed towards the second half. And thirdly, the Breaker takeover is complete and we are now, as we've discussed, looking to progress the Musgrave acquisition now that all the paperwork has been distributed.
Thank you for listening in today, and enjoy the rest of your day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.