29Metals Limited (29M) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the 29Metals Limited December quarter report. [Operator Instructions] I would now like to hand the conference over to Mr. Mike Slifirski, Group Manager, Investor Relations. Please go ahead.

Thanks very much, Winnie. Good morning, ladies and gentlemen. Mike Slifirski here. Welcome to 29Metals' December quarter and full year 2022 production report and conference call. The call is being recorded and will be available for replay via the 29Metals' website and also accessible from the open briefing website. 29Metals' Managing Director and CEO, Peter Albert will commence the discussion, before passing to Chief Operating Officer, Ed Cooney, who will lead through our operating performance. Ed will pass to our CFO, Peter Herbert, to discuss the financial performance before handing back to Peter Albert to facilitate Q&A. Also in the room is Mark van Heerden and Cliff Tuck, both of whom will be available during Q&A if you've got any specific questions on exploration and sustainability and ESG. So I'd now like to hand over to Peter Albert, please, to commence discussion. Thanks, Peter.

Yes. Thanks, Mike, and thanks for the introduction, and welcome, everybody. Thank you for joining us this morning. On today's call, we will cover 29Metals' performance for the December quarter and group guidance for 2023. You will recall, we released an operational update to the market on the 21st of December, which was prior to the finalization of our December quarter results, full year outcomes, plus we also released preliminary guidance on our 2023 outlook. Starting with safety. A generally encouraging quarter with our TRIFR, total recordable injury frequency rate, continuing to reduce, now sitting below 10 per million person-hours worked. And our LTIFR increased as a result of 3 lost time injuries in the group for the quarter. Turning to overview of production performance. Let me say how pleased we are with the performance in the December quarter. At our last quarterly, we were on target to achieve a good finish to the year, especially in zinc from Golden Grove. In the December quarter for the group, we produced 22,000 tonnes of zinc as well as 8,000 tonnes of copper. Golden Grove produced its highest quarterly copper equivalent production result for the year at 14,251 tonnes of copper equivalent. Overall, for the group, we incurred net C1 costs of AUD 66 million, down approximately 30% on the previous quarter, supported by strong by-product credits. And whilst absenteeism concerns, which are always more prevalent at GG than -- Golden Grove than Cap Copper have largely abated, labor pressures remain across the industry. Nonetheless, turnover rates of both operating sites appear to be stabilizing in recent months, and we have successfully recruited a number of key roles. The labor pressures have also put significant pressure on contractors off-site and on-site as well as regulators in both states. In the September quarter 2022, we signed a new 5-year contract with Byrnecut at Golden Grove, which commenced from the 1st of October 2022. And we are now in discussions with Byrnecut in relation to the contract at Capricorn Copper, which comes up for renewal this quarter. Now some more details around production. As noted previously, overall production for the quarter was pleasing, enabling us to deliver against or exceed our 2022 guidance metrics. On a 2022 annual basis, 29Metals met or exceeded our guidance for all metals, i.e. copper of 40,800 tonnes, zinc of 57,600 tonnes, both within the lower half of guidance as guided earlier in the year. Gold of 26,600 ounces and silver of 1.57 million ounces met or exceeded guidance. The strong finish to production for the year supported copper equivalent production for the quarter of 19,700 tonnes, with full year copper equivalent of 73,400 tonnes compared to 2021 copper equivalent production of 68,200 tonnes. Ed will discuss production outcomes in more detail shortly. Turning to commodity prices. Copper prices have been slowly but surely climbing during the last quarter, with copper rising from about USD 3.47 to USD 3.80 a pound and more recently as high as USD 4.28 a pound. Zinc during the quarter was broadly flat at around $1.35 a pound but has risen in recent weeks to as high as $1.53 a pound. And notwithstanding commodity prices recovering as many industry participants had predicted, our focus in any price environment is on delivering production and managing costs. We remain very positive about the outlook for the commodities we produce, supported by the inevitable demand requirements for copper to support the transition to a greener global economy. Turning to costs. And in relation to costs, net C1 mine operating costs have been well managed with a reduction of about 33% over the previous quarter, supported by strong by-product credits. This is also evident in the full year results with mine operating costs across the business of approximately $75 million per quarter, yielding a competitive C1 cost of USD 2.46 a pound. Capital development sustainability projects growth and exploration investment for the year combined at about AUD 112 million are in the middle of the guidance range, with sustainability and growth projects focused on ventilation upgrades and paste plant installation at Golden Grove. Now turning to capital investment. Capital investment in sustainability and growth projects are investments in our future. A number of key projects have been advanced in the December quarter, including the paste fill plant at Golden Grove has now delivered paste to a number of underground stopes at Gossan Hill, progressively delivering paste to deeper stopes. The chiller plant at Gossan Hill was delivered and commissioned by year-end, considerably enhancing underground operating conditions. Likewise, at Capricorn Copper, a new chiller plant facility has significantly improved operating conditions at the Mammoth mine. And new ventilation facilities at both sites have been impacted by breakdown of equipment and commissioning challenges. We're working closely with the vendor to rectify these challenges as soon as we can as soon as possible. The latest TSF extension at Golden Grove was completed and operational in the December quarter. And the next TSF lift extension at Golden Grove was submitted for approval in the last quarter -- in the December quarter, and is anticipated to be approved with construction commencing in this quarter, March 2023. The next TSF lift extension at Capricorn Copper was initially submitted for approval in August 2022 and is anticipated to be approved in this March quarter. New high-volume evaporators were commissioned during the quarter and are now operational at Capricorn Copper. Unfortunately, there was a delay due to equipment delivery, but they're now making a significant impact on water management at Capricorn Copper. And the Cervantes and Gossan Valley studies were completed, and the results released to the market during the last quarter -- December quarter. In terms of financial outcomes, Peter Herbert will discuss in greater detail but a couple of highlights. Strong revenue of close to $209 million for the quarter, unaudited net debt of $32 million at year-end. Copper hedge is now fully closed off with final settlement occurring early in October 2022. And 29Metals paid its first dividend, an interim dividend of $0.02 per share also in October. Those are the headline numbers, if you like, for December '22 and end of the full year. Let me turn to 2023 guidance now released today with the December '22 quarterly report. In December, we released preliminary guidance for 2023 with an operations update and guidance released today adds granularity to our announcement late last year. Copper metal guidance of 36,000 to 43,000 tonnes against approximately 41,000 tonnes produced in 2022. Zinc metal guidance of 54,000 tonnes to 61,000 tonnes against approximately 58,000 tonnes produced in 2022. Gold metal guidance of 20,000 ounces to 23,000 ounces against approximately 27,000 ounces produced in 2022 and silver metal guidance of 1.15 million ounces to 1.33 million ounces against 1.57 million ounces produced in 2022. Guidance for copper and zinc reflects our expectations of the impact from reduction in milling rates at Capricorn Copper being implemented to manage tailings capacity as we continue to work through the regulatory approval process for the next planned tailing storage facility lift, the recent ventilation fan challenges at Golden Grove and previously reported shortfall in development advance, particularly during the first half of 2022 at Golden Grove. Guidance for precious metals reflects the grade profile of planned ore sources as a result of the direct and indirect impacts of COVID-19 and labor market pressures in 2021 and 2022. And zinc guidance reflects a very strong finish to the month we had in December. Currently, 29Metals anticipates returning to normal milling rates at Capricorn Copper early in the June '23 quarter. In respect of cost guidance, operating cost guidance had a total of $643 million to $740 million as compared to 2022 total OpEx of $659 million, generally higher for 2023, reflecting activity and the impacts of cost inflation continuing to be experienced in the sector. Capital cost guidance of a total of $113 million to $143 million as compared to 2022 total CapEx of $111 million, reflecting investment in tailings capacity and higher capitalized development. Our capital cost guidance for 2023 includes growth capital of between $20 million to $25 million associated with early-stage planning works on life of mine tailings storage facilities and a portion of development capital at Xantho Extended, which will support longer-term production outcomes as production ramps up from Xantho Extended. Also included in capital cost guidance is exploration costs of between $9 million to $14 million, including resource conversion drilling, which was previously reported to sustaining capital. I'll now hand over to Ed Cooney, the Chief Operating Officer on production activities at the 2 operating mines and exploration activities for the group. Ed will then hand over to Peter Herbert to talk about financial and commercial outcomes. So thank you. Over to you, please, Ed.

Thanks, Peter, and good morning, everyone. In the December quarter, production performance was good with significantly higher zinc, gold, silver and lead offset by lower copper. At Golden Grove, mining activities, volumes and development events were all higher relative to the September quarter. Production was sourced from zinc-dominant ore sources, consistent with the mining schedule. And at quarter's end, there was approximately 70,000 tonnes of ROM stocks ahead of the mill comprising predominantly copper ore. At the Xantho Extended ore body, a new service cooling plant was successfully commissioned with encouraging improvements to underground operating temperatures. Overall development advance was pleasing with consistent capital development progress and a significant increase in lateral ore body development relative to the September quarter. Production from each of the stopes at Xantho Extended has performed in line with expectations with good grade reconciliation and geotechnical performance. A paste fill plant commissioning advanced with 3 stopes now filled higher up in the mine and a fourth stope currently being filled lower down in the mine. And in parallel, underground reticulation was extended further towards the Xantho Extended ore body. In terms of the mill, throughput was significantly higher than the September quarter, reflecting higher run time and higher throughput rates as a result of the higher proportion of primary zinc ore mill, which is typically softer than copper mineralization. Higher feed grades and lower pyrite levels in the zinc feed contributed to higher recoveries, except for copper, which was lower due to the lower copper grades in the zinc ore. Application for a further lift on TSF3 was submitted midway through the December quarter, with an approval anticipated in the March quarter and construction to commence immediately following. This lift is intended to provide approximately 2 years capacity with engineering well progressed on a fourth and life of mine tailings storage facility for Golden Grove. The application for this life of mine facility is expected to be lodged later in the September quarter. The procurement of 2 important new booster fans intended to increase ventilation volumes to Xantho Extended, and supporting higher mining activities has been delayed. And we are engaging closely with the vendor to manage this delay. Moving on to the Capricorn Copper, which had a softer quarter due to lower tonnes milled and lower feed grades. Mining volumes were impacted by poor truck availabilities and ventilation constraints in the sublevel cave, which was driven by commissioning issues with the new surface fans. We have since reinstated underground primary ventilation to partially restore mining activities in the sublevel cave while the surface fan commissioning issues are resolved during the March quarter. Tonnes milled were lower, reflecting a planned shutdown, which was well executed. However, run time was then impacted by a subsequent downtime to replace the trunnion bearing on the SAG mill. Feed grades and recoveries were lower due to a combination of lower grade greenstone material in the ore feed and a lower proportion of higher-grade material from the sublevel cave. The approval process for the next lift of the Esperanza TSF remains ongoing, with milling constraints being implemented during the March quarter as the process continues. And post quarter end, in line with planned reduced processing in the March quarter and coinciding with heavy rainfall, the site team took the opportunity to release treated water, consistent with the site's environmental permits. And positively, 3 new high-efficiency evaporators were successfully commissioned in early December. These have significantly higher flow rates relative to the previously installed equipment and will contribute to reduce the volume and store water on site. And additionally, 2 rental surface chiller plants were also commissioned, with encouraging improvements to underground operating temperatures at Mammoth ore body being measured. In terms of exploration, during the quarter, drill testing and resource conversion drilling continued at both Capricorn Copper and Golden Grove. At Golden Grove, drilling at Cervantes continued in the December quarter with a focus on upgrading the mineral resource category within the central portion of the ore body as well as testing for potential mineralization to the north of the interpreted feeder position. Drilling is proceeding well and will continue into the March quarter. The results of the bulk of the Cervantes drilling conducted in the December quarter is expected to be included in 29Metals' update on mineral resource and ore reserves estimates, which are expected to be reported in the March quarter. Xantho Extended resource conversion and extension drilling, targeting the deepest parts of the known Xantho Extended resource, was concluded in the December quarter. And the ore body remains open down-plunge with drilling activities planned to resume early in the June quarter. Exploration activity at Capricorn Copper during the quarter also included regional drilling and ground-based geophysical surveys across multiple prospects on the exploration leases. Surface drilling at Esperanza South continued in the December quarter, targeting approximately 100 meters down plunge of the mineralized intercepts from the drilling reported previously in the September quarter. And this drilling will conclude early in the March quarter. Underground drilling was conducted across Greenstone, Mammoth and Esperanza South in the December quarter and assay results are pending. At Redhill, there was limited activity during the period, reflecting the seasonal nature of the exploration work in the southern part of Chile. I'll now hand over to Peter Herbert to discuss the financial outcomes of the quarter.

Thank you, Ed. Good morning, everyone. 29Metals' unaudited revenue of $209 million in the December quarter was increased [indiscernible]. Higher unaudited revenues for the quarters reflects stronger by-product sales [indiscernible] revenues as a result of stronger production in the December quarter. This is offset by materially lower copper sales [indiscernible] during the same quarter. Unaudited revenues included a net positive [indiscernible] of approximately $25 million for the quarter as prices generally improved, having positive impact on realized [indiscernible] sales than scheduled. Lower copper sales during the December quarter reflects timing differences between production and sales, particularly at Golden Grove and higher zinc throughput at Golden Grove as well. Turning to costs. Group site costs were approximately $15 million higher than the prior quarter, driven by higher activity levels at Golden Grove, including higher mined tonnes and development meters and cost escalation on certain inputs and the impact of contractual rise and fall at Capricorn Copper. Group selling costs were higher as a result of higher TCRC costs, driven by a higher proportion of zinc sales, partially offset by a slight reduction on the group transport costs. Group C1 costs reduced by approximately $27 million quarter-on-quarter [ $67 million ], reflecting higher by-product sales at Golden Grove. The increase in unit costs recorded in the December quarter reflects higher site costs as discussed, partially offset by higher by-product credits and lower copper sales recorded during the quarter, particularly at Golden Grove. This resulted in December quarter C1 unit costs of USD 2.76 per pound and USD 2.46 for the full year. Given sector-wide cost pressures, cost control remain a key focus for management as we look ahead to 2023. Unaudited cash at 31 December was $172 million, down from the balance of 30 September of $189 million. This cash balance was after payment of debt service costs, including principal amortization of USD 6 million, final settlements of copper hedges and gold hedges during the quarter totaling $2 million and receipt of tax refunds of $18 million; and finally, a payment of approximately $10 million for 29Metals interim dividend. Following final settlement of the copper hedges, 29Metals' copper production commencing in the December quarter is fully unhedged. On a net basis, the group had unaudited net debt of $32 million at the end of the quarter, being roughly in line with the result of 30 September. Post scheduled amortization, drawn debt reduced to USD 138 million, and 29Metals' drawn term facilities will continue to amortize on a quarterly basis. Stamp duty payable in connection with the acquisition of Golden Grove remained outstanding, and 29Metals maintains a $26 million provision in relation to that stamp duty. Thank you very much. Back to Peter.

Thanks, Peter, and thanks, Ed. So Winnie, I think we can go to Q&A from here, please.

[Operator Instructions] Your first question comes from Mr. Matt Greene from Credit Suisse.

Just a question on guidance to start with. The CapEx at Golden Grove. Last year, your commentary was suggesting that was for sort of major capital with the paste plant and the vents upgrade. So just keen to know why we're seeing CapEx -- growth CapEx more than doubling into 2023.

Sure. So I think the 2 major items of growth capital there, Matt, that comprise early works on life of mine tailings facilities, a new TSF facility at Golden Grove that we believe will provide a life of mine solution. In addition, when we look at the development meters, which we expect to improve year-on-year for the reasons that we discussed, a portion of that capital does relate to sustaining future production beyond what we expect to achieve at Xantho this year, and a portion of that becomes capitalized into the growth capital bucket.

Okay. That's helpful. So how should we be thinking about growth capital then beyond '23 at Golden Grove? I mean, aside from Cervantes and Gossan Valley, in the current operations, anything that we should be aware of?

I think we'll have more to say on the tailing facility as we advance the works on that. I mean, the capital allocated for this year is early stage, so we don't have anything definitive to say on the longer-term outlook for that at this point in time. And in terms of Xantho Extended, it's very much a year-to-year proposition. The only reason to allocate capital to growth out of that is if there is work to support expanding production in future years. And that's not something that we expect to be every year going forward, but it is an assessment that we'll need to make at the start of each year.

Okay. And I guess just keeping on Xantho Extended, how are the ventilation constraints impacting development mine grades? If you could just provide a bit more color as to what you're sort of seeing at the moment.

Yes. I'll take that one, Matt. So in 2022, we've now extended a number of ventilation, fresh air rises down to the lower operating levels. We've also, as we said, commissioned an additional surface chiller plant. So operating conditions, as we currently stand, are pretty reasonable, certainly a marked improvement on what they were previously. Looking ahead, the 2 booster fans that we've mentioned, the purpose of those is to add additional volume later in the year to support even higher mining activities, truck haulage, et cetera. So then they're key for us to successfully be installed and commissioned to support higher mining activity levels in the latter part of the year.

Okay. That's great. So we're not seeing -- I mean, you had sort of 20% behind on development last year. We're not seeing a risk of you falling further behind on your development.

No. So the development activity in Q4 was good. We achieved the highest ore body lateral development that we have year-to-date, and that was using the current ventilation system. But those new booster fans do support higher activity levels again from what we were seeing in Q4.

Okay. That's helpful. And I guess just on the medium-term profile at Golden Grove, I guess, guidance this year and, I guess, last year was -- is quite different to what you presented in your IPO. So how should we be thinking about the zinc profile at Golden Grove into '24 and '25? You've upgraded your reserves since the [ Tenoroc ] report, changed your stope heights and sequencing and obviously, some of the challenges around development. How should we be thinking about grade uplift, I guess, over the medium term? I mean, I appreciate you're not giving any guidance, but relative to what was presented a couple of years ago, how should we be thinking about this?

Thanks, Matt. Today's focus really is on 2023, of course. And certainly, we have a keen interest in looking beyond 2023. We're working through that, and we'll have more to say in coming periods -- so coming weeks, but not in a position to say too much more in this forum today.

Your next question comes from David Radclyffe from Global Mining Research.

My first question is on the impact on '23 numbers through the cumulative impact of development issues, ventilation and the tailings approvals. So how are you may be changing your approach to planning in this tough environment? Are you actually going to bring forward maybe any required future projects to try and avoid similar issues? Just trying to get some color around how this is impacting on the way you plan for projects, both current and future growth ones.

Yes. Thanks, David. Certainly, looking to bring forward -- or not bring forward, to initiate activate projects in a timely fashion and no question there. These impacts that we currently have in terms of approvals and ventilation, we anticipate those will be relatively short-lived. Hence, as we've indicated an impact on the first quarter production, looking to get back into normal activities post that. So -- and I'm not looking to accelerate anything to advance any other projects that we currently have working towards the longer-term outcome for both projects. So if you're thinking of Gossan Valley and Cervantes, for example, the plan there is, as we've indicated, certainly for Gossan Valley is to get that approval into the regulated sort of third quarter this year. Cervantes drilling is ongoing, and the resource conversion ongoing. So both of those projects are very attractive, but they've got to go through a process to bring them to fruition. And we're not changing that disciplined process that we're going through as we get to conclusion on both of those projects.

Okay. And then just wondering if you could provide more color on the comments about pulling back on regional drilling. It seems sort of unusual at $4 a pound plus copper price. So is this just more of a you're trying to preserve some cash or does it go to the prospectivity you see?

I think what we've -- no, not to prospectivity. I mean the regional opportunities at Capricorn are extensive and very attractive. And we will -- and as you point out, copper prices are doing very well so that will generate more revenue, more cash, and we'll deploy funds appropriately. And of course, exploration is -- and the opportunity at the Mount -- all around the Mount Isa Inlier very attractive for us. So I anticipate doing quite a bit of work there this year subject to, of course, performance and revenue.

Okay. So then given how tough the environment seems to be in terms of building new projects, how much focus corporately do you think you'll have in '23 to adding new projects or optionality for -- and growth compared to last year? Is it something that you think is more relevant this year than last?

I don't think it's any more relevant this year than last year. We're focused on bringing on those projects in terms of the growth -- organic growth projects we have, if that's where your question is focused. I mean those are brownfield developments and certainly very attractive in just about any scenario. And we will, as I said earlier on, be bringing those along in the disciplined fashion that we have described to the market previously.

Your next question comes from Alexander Papaioanou with Citi.

Regarding the tailings and permitting process at Capricorn Copper, what is the likelihood of the approval time line you've guided to blowing out? And can you also provide some more color on what the long-term tailing strategy is for Capricorn Copper?

What was the first part of the question, what's the timing of the approval and likelihood of it blowing. Thanks. So we're working very closely with the regulator and have been doing for quite some time as you will understand and certainly anticipate that we'll get that approval in this quarter, and we're in preparation for that and in preparation for completing the works on that. And as indicated in the quarterly report, looking to get back into normal production in the June quarter. If that were to change, we would update the market accordingly as soon as apparent, but that's certainly our expectation right now. In terms of longer term, we are focused on the -- as I think we've indicated in here, life of mine tailing storage facility designs at both projects, and that work is advancing and again working with the regulator on those activities in terms of the design and then ultimately the construction and operation of the long-term tailings facility at both sites. Both sites, of course, have got plus 10-year mine lives, and we're looking at the life of mine tailings facility to support that and probably beyond that, given the resource potential of both operations.