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

Thank you for standing by. Welcome to the 29Metals Limited Strategic Update. [Operator Instructions] I would now like to hand the conference over to Mr. Mike Slifirski. Please go ahead.

Thanks very much, Rachel. Good morning, ladies and gentlemen. You all know me, Mike Slifirski. We'll be speaking this morning to 29Metals' strategic update, which was released to the ASX this morning. This call and parallel webcast is being recorded and will be available for replay via the 29Metals website and also the Open Briefing website. 29Metals' Managing Director and CEO, Peter Albert, will talk to the presentation covering Cap Copper recovery plan and a full year outlook for Golden Grove. At the conclusion of the presentation, we'll open for your questions. Peter will be joined during Q&A by our Group Manager, Geology, Mark; our Chief Operating Officer and our CFO. So you can address questions to all those people. I'll now hand over to Peter to commence the presentation. Thanks very much. Peter?

Yes. Thanks, Mike, and thanks for the introduction. And thank you, everybody, for joining us today. As foreshadowed in our recent quarterly report, we're pleased to provide this 29Metals strategic update, which will focus on the plan for recovery and the restart of operations at Capricorn Copper and our medium-term production outlook for Golden Grove. As always, we encourage everyone to take note of the important information on Slide 2 regarding forward-looking statements, non-IFRS financial information, presentation, currency and rounding and of course, the exploration results of mineral resource and ore reserve estimates. Moving to Slide 3, where I'll first talk to some of the investment highlights of 29Metals' operating assets in Capricorn Copper and Golden Grove. Globally, there is an increasing appetite to gain exposure to copper assets from corporates and institutional investors alike. However, new copper deposits are hard to find, and those of scale are becoming harder to permit and build with the result being that M&A opportunities are scarce. Against this backdrop, 29Metals is in the privileged position to have not 1 but 2 assets in the best operating jurisdictions globally, i.e. Australia. They are long-life assets, both amongst the largest endowments of copper in the country and both with exceptional potential for further mine life extensions via expansion of existing resources and potential new discoveries. As we've previously communicated, we have a clear plan for a phased restart of operations at Capricorn Copper following the temporary suspension of operations after the extreme weather event experienced in March this year. We view a phased restart as the best way forward at Capricorn Copper for 3 prime reasons. Firstly, a restart of the asset allows us to generate a return on a fully permitted copper asset with infrastructure in place. As I said earlier, an increasingly rare asset. Secondly, operating the asset provides the best pathway to realize and grow the value of the sizable existing 62 million tonne resource at Capricorn Copper, noting that the current and potential future value of this resource has been demonstrated by the recent outstanding drill results from Esperanza South and the identification of a new exploration target near the Mammoth ore body. And finally, a phased restart will allow us to best manage the water volume and water quality on site over the longer term. This is an important point that I want to repeat and expand upon. In our view, operating the site provides us with the best opportunity to progressively manage the water volume and water quality on site, resulting in the best long-term environmental outcomes for all stakeholders. We'll also talk to the outlook at Golden Grove. In particular, we'll talk through our plans for metal production growth at Golden Grove, which is underpinned in the near term by increasing oil production from Xantho Extended. We are very excited about the future of Golden Grove. We see lots of opportunity to build on the asset's long history of mine life extensions and successful operations. And finally on this Slide 3, we touch on our balance sheet. As of 31st of March, we had substantial liquidity, which positions the company well to navigate the road ahead. Furthermore, we are continuing to progress a claim for insurance recovery, cost savings programs at Golden Grove, review the timing and scope of our near-term capital spend and current debt amortization profile with the intent to complete a refinancing in early 2024 to better align our facilities and investment profile. We expect all of these to have a positive impact on our cash flow profile. To focus on our recovery planning at Capricorn Copper, let's move to Slide 6. During the extreme weather event, there were 3 primary factors that contributed to the suspension of operations. First, we had significant water ingress into Esperanza South, flooding 1 of the 2 major mining fronts we have at Capricorn Copper. Secondly, there was flood damage to some surface infrastructure that was located at a low lying point on site. This included the water treatment plant, the workshop and the warehouse. And finally, we accumulated water within on-site water storage structures as a result of the extreme weather event, which prevented uncontrolled release to the environment. This means the water levels within these storage structures are now materially elevated above the levels on site prior to the extreme weather event. Our immediate response during and after the event was: to ensure the safety and well-being of our teams on site; to protect the environment; to cut costs; and to engage with and inform all of our stakeholders, i.e., employees, local community, insurers, investors, regulators and bankers. Engagement with all parties has been understanding and supportive. So we'll need to reinstate flood-damaged surface infrastructure required for the restart, such as the workshop and warehouse. That is a relatively easy part. And more significantly, we need to firstly implement strategies for the management of water quality and quantities at site. We can do this in parallel with Phase 1 of the restart, which is scheduled in mid-September quarter 2023. Secondly, we need to dewater and rehabilitate Esperanza South. This will take more time and will be Phase 2 of the restart, which we currently estimate to be around the end of quarter 1 2024. Ensuring we have the requisite environmental approvals and strong stakeholder engagement, including with the regulator, will, of course, be key to the successful implementation of our planned phased restart strategy. Moving to Slide 7. A common question we've been asked since the extreme weather event has been, "What are you going to do to ensure this doesn't happen again?" So looking at Slide 7, we attempt to address this question. The team has been very focused on taking learnings from the extreme weather event and progressing plans for ongoing controls and improved water management strategies to increase the site's resilience against future weather events. On this slide, we describe these planned future controls against the 3 key site areas that were impacted. Specifically, at Esperanza South, we plan to invest in additional and enhanced water diversion infrastructure. With regard to the flood-impacted site infrastructure and specifically, the water treatment plant workshop and warehouse, this, as I said earlier, is a relatively easy one as we will establish replacement facilities at a higher and different locations. And finally, regarding the water storage structures, through the restart of operations, we plan to implement strategies that will provide greater flexibility to deal with elevated water levels on site. And I'll talk to specifics of these strategies now as we turn to Slide 8. So moving on to Slide 8, engagement with the regulator and development of water management strategies that support a full restart of the operations have been a key focus of our initial response. And as I said earlier, very positive engagement with the regulator on these points. The table on the left of this slide provides a summary of the key water management strategy focus areas. Rather than talk through each one in isolation, I'll instead talk to them through in -- [ walk them ] through in the context of how they will be implemented in relation to the planned phased restart. The immediate step is to scale up mechanical evaporation capacity on site. No regulatory approvals are required to implement or operate evaporation units, and we expect this measure to have a substantial impact on reducing water quantities on site and our modeling supports this. Beyond mechanical evaporation, engagement with the regulator is critical to our overall recovery plan as we look to put a strategy in place to progressively manage the water volume and water quality on site. With the appropriate and positive engagement with the regulator, we plan to bulk treat water within on-site water storage structures to a quality capable of release to the environment. Release to the environment will be dependent on both regulatory approval and water flow rates in the release location. This means release of significant volumes will most likely be limited and occurred during the wet season from November to April. It's very important to note that this bulk treatment within on-site water storage structures is a similar methodology implemented and approved in previous wet seasons. Beyond evaporation and bulk treatment and release, increased recycling and reuse of water will be a key pillar of our restart plans. Upon restart, the site will work towards a negative site water balance for ongoing operations enabled by increased water recycling and reuse. This will minimize site fresh water requirements and assist in ongoing control and reduction of site water levels. I want to emphasize the importance of this step. It will be critical in managing overall site water levels going forward and will increase the overall resilience of Capricorn Copper to future potential weather events. By achieving a negative site water balance, we can progressively manage down the water levels on site and hence, improve the overall environmental standing of the site over time. Dewatering and rehabilitation of Esperanza South will obviously be a key enabler for Phase 2 of the restart. A key strategy for this will be the bulk water treatment within on-site water structures. We're also investigating the additional opportunity of a water treatment plant solution to produce a high-quality water which could enhance water management options, which would be a water treatment plant option specific to the recovery period, likely a temporary solution -- or a temporary outcome and would be a separate consideration to the reestablishment of the existing water treatment plant. And as a final point, linking back to planned future controls mentioned earlier, plans are in place for improved water diversion infrastructure. This will also enhance resilience against future extreme weather events. So in summary, our water management strategy includes a combination of increased evaporation capacity, water treatment in on-site bulk storage structures and release, increased recycling and reuse and potential additional water treatment via a dedicated water treatment plant to produce a dischargeable high-quality water. Moving on to Slide 9. Here, we provide a visual of the mining fronts that will be utilized in each phase of the restart. Specifically, mining from Mammoth and Greenstone, which were unaffected by the extreme weather event, will support the Phase 1 restart in the mid-September quarter coming up. Until Esperanza -- this will be until Esperanza South can be dewatered and rehabilitated to enable Phase 2 of the restart planned for the mid-first half 2024. On this slide, we also touched on some of the benefits of a phased restart. These benefits include the retention of employees and contractors, revenue generation and the ability to accelerate implementation of strategies for water recycling and reuse. There is another benefit to restart of operations that is not explicitly spelled out on this slide but it is implied in the visual of the Capricorn Copper mineral resource estimates. Capricorn holds a huge 62 million tonne mineral resource with significant intrinsic value in its substantial contained metal endowment. In addition to that, significant portions of the mineral resource estimate remain open, and we have a significant number of targets for exploration, which all means we are extremely excited about what the future holds for Capricorn Copper. We have a clear path to bring the asset back into production and capitalize on this potential. This potential was reinforced by recent drilling results, including a result of Esperanza South plunging down the existing mineral resource that included 70 meters at 2.8% copper and over 1,000 ppm cobalt (sic) [ carbon dioxide ] and also results from a new target for exploration near the Mammoth mine that included 36 meters at 3.9% copper, results like these which show potential for wider zones and higher grades at depth [ for the Esperanza South claim ]. The claim process and engagement with the insurers is progressing well. However, it's too early to make a comment on the claim process with regards to amounts or timing. Slide 12 identifies opportunities and risks associated with the restart at Capricorn. And whilst there are always risks and perhaps some unknowns, we also see a number of opportunities to improve both time and cost for the recovery. So that's a summary of the Capricorn Copper section of the presentation today and the release this morning, and I'll now move on to Golden Grove starting at Slide 15 of the pack. And before I talk to this slide and Golden Grove, some context behind the updated outlook for Golden Grove. The prospectus set out 29Metals' growth aspirations, and these aspirations were supported by detailed mine plans at that time and an independent technical report. These profiles created a reference point for the life of mine plans for each asset. As we all know, operating conditions across the industry for the balance of 2021 and for 2022 were characterized by supply chain and labor availability challenges, which negatively impacted our operations along with those from most others in the industry. Specifically, at Golden Grove, these industry-wide challenges, along with other factors, meant we did not complete the [ rights ] of development as per prospectus, especially at the very rich Xantho Extended ore body, resulting in a disconnect between where we are in the mine plan now versus what was forecast in the key reference document, i.e., the prospectus. This presents particular challenges in relation to understanding and modeling of a polymetallic volcanic-hosted massive sulfide system, such as Golden Grove, as the variability and timing of mine sequencing can cause significant variation on quarter-to-quarter outcomes for this type of asset. To this end, today, we aim to reset where we are with the mine plan and also to provide an update to the production outlook for the coming years. For those unfamiliar with Golden Grove, Slide 15 provides an overview of the potential ore sources within the mineral resources estimate and the mine sequence strategy, which I'll talk through now. The immediate-term focus and the key near-term value driver at Golden Grove is a ramp-up production from Xantho Extended. This is our largest and highest-grade ore body at Golden Grove. Ramp-up of tonnes from Xantho Extended will be a key driver of near-term metal production growth. Ore from Gossan Hill and Scuddles will account for the balance of mill feed to complement increasing ore from Xantho Extended. This takes us up to 2026. And subject to requisite approvals and final investment decision, we plan to introduce Gossan Valley into the mine plan. Importantly, Gossan Valley will provide a relatively shallow and independent production front to derisk overall ore production and availability. Outside of these near-term ore sequencing priority focus areas, the team remains focused on potential mine life extensions from progression of Cervantes, target areas for organic growth and priority targets for exploration. As depicted on this visual, there are significant near-mine targets for exploration, and large portions of existing mineral resource estimates remain open at depth. This asset, Golden Grove, has been operating for over 3 decades. With these opportunities for mine life extensions and considering the huge existing 61 million tonne mineral resource, it's possible that this asset has many, many more decades of production to come. Moving to Slide 16 and referring back to the previous point about Xantho Extended being our largest and highest-grade ore body at Golden Grove. This chart, grade on the y-axis, shown as, in this graphic, as copper equivalent, and tonnes on the x-axis. The bubble size represents the metal endowment, the darker shading being copper and the lighter shading, copper equivalents. Two key points to draw out here. Firstly, in addition to reserves and ore sources, we have also shown a bubble for the Cervantes resource. The relative size and position of the Cervantes bubble highlights the opportunity for mine life extension from the progression of Cervantes studies and integration into the mine plan. The other key message to draw from this chart is obvious, as it clearly shows a large size of high grade at Xantho Extended, noting that the relatively high zinc grades at Xantho Extended partially drive the high copper equivalent grade outcome. With that bubble chart on Slide 16 in mind, let's move to Slide 17. Here, we can see the focus areas with regards to our mine sequence in Xantho Extended and Gossan Valley. Other ore sources include Gossan Hill and Scuddles. Two things to highlight here. Firstly, we are targeting 1 million tonnes of ore per annum from Xantho Extended by 2025. This is a key driver to increase metal production outlook, as shown in the bar chart on the right side of this slide, and will be an enabler for us to meet our mill throughput target of 1.75 million tonnes per annum by 2026. Secondly, Gossan Valley remains a key focus for us with an aim to bring that ore source online from 2026. Again, Gossan Valley is strategically important as it will provide a relatively shallow and independent production front to derisk overall ore production and availability. Slide 18 covers -- moving to Slide 18, which covers costs and capital outlook. In respect of capital, 2024 and 2025 are expected to be capital-intensive years as we invest in the future of Golden Grove with development of Gossan Valley, a life-of-mine tailings storage facility, conversion of the paste plant to be able to treat wet tailings and ongoing ventilation improvements. And after 2025, capital expenditure is expected to reduce to a normal annual basis. I'll take Slides 19 and 20 as read, while Slide 21 deals with the opportunities and risks associated with the outlook. It is worth dwelling for a moment on Xantho Extended. There are a number of opportunities that we will seek to implement to improve and accelerate production from this ore body, such as improving ventilation conditions, options for improved and faster drilling outcomes, incentivize contracted KPIs and alternate stope designs that minimize overall development requirements. All of these are a key focus for the team at Golden Grove. Slide 23 provides revised Capricorn Copper and group guidance for 2023, which you'll be able to read on that Slide 23. And before opening up to take questions, the 3 key messages I'd like to leave you with today are as follows. Firstly, against the backdrop of strong copper market fundamentals, 29Metals is well positioned with not 1 but 2 assets that are in the best operating jurisdictions globally. They're both long life assets, both amongst our largest endowments of copper in the country and both have exceptional potential for ongoing mine life extension for expansion of existing resources as well as potential new discoveries. Secondly, we strongly believe there is significant long-term value to be unlocked with Capricorn Copper through extraction of its existing substantial resources, which look to be getting wider and with higher grades at depth at Esperanza South and via ongoing exploration success. We view a restart of operations is the best way to realize this value, and we have a clear plan to make that happen. And finally, in relation to Golden Grove, metal production growth in the near term will be driven by Xantho Extended. In the longer term, we see lots of opportunity to build on the assets' long history of mine life extensions and successful operations. And with that, I'll finish the presentation. And Rachel, we can open to any questions. Thank you very much.

[Operator Instructions] Your first question comes from Kate McCutcheon with Citi.

Just on the water treatment plant at Cap Copper, in the deck, it mentions that decision is being deferred into 2024. Are you still trying to understand what state that plant is in? I would think that having a fit-for-size water treatment plant will be key to discharging water and ensuring the wet season readiness in the future.

Okay. Yes, thanks for that, Kate. Ed's here. [indiscernible] I'll pass to him. He can answer that question in some detail.

In the first instance when we don't have access to ascertain the current water treatment plant condition, we probably [indiscernible] realistically that it will require replacement. Realistically, the time frame to do engineering and civil construction and approvals for a new water treatment plant, it takes that time line to 2024. In the shorter term or the medium term, we are implementing plans to utilize existing infrastructure [indiscernible] as a water treatment facility, which will enable the appropriate quality water to provide water to the processing plant and the underground mines to recommence production. And then separate to that, in terms of potential release, that would be in a separate infrastructure, one of the storage facilities on site, which is how we have typically treated the water for release during prior wet seasons.

Okay. I understand. And then maybe a question for Peter. So I think you mentioned in your deck some capital cost for a water treatment plant. Is there anything you can say on the magnitude of the likely insurance claims, the timing we can expect there? And then just related, some comments on your confidence in the balance sheet based on the existing outlook. And just -- and then another part of that, sorry, will those one-off recovery costs likely to be included as a one-off in your P&L?

Yes, sure. A bit to work through there, Kate, so please let me know if I miss anything in the response here. But look, in terms of the insurance, as we sort of outlined in the presentation, it's a fairly material process that we're going through. At this stage, I can't give any guidance as to timing and quantum, but we're working through that as expeditiously as we can, of course. And look, obviously, we'll keep people updated as to when and how that progresses. In terms of the balance sheet, as we reported at the end of March, we had substantial liquidity on the balance sheet in terms of cash and undrawn facilities. And they will, obviously, support our activities as we progress through this year. We're obviously keeping a close eye on that as we progress through our activities. But yes, that liquidity gives us comfort to commit to the plans that we've outlined today. Just thinking, Kate, about what have I missed there.

Just on -- do you have any guidance on how you account for those one-off costs in your P&L this half?

Thank you. Yes, look, we're working through that. A lot of the expenses are operating in nature. So we expect the P&L to be a major feature there rather than capitalizing a huge amount of these costs. But we're working through the detail of what that looks like, and we'll provide further guidance on that in due course.

And then just a final question before I re-queue. So the medium-term outlook for Golden Grove you've released seems to be about 20% lower on metal at the midpoint versus their prospectus in 2021. What are the key drivers that -- you made some comments on the call, but surely COVID impacts, just to firm metal as sequence changes? So has something changed around your grade expectations or tonnages there?

I'll take that one, Kate. So probably many and varied things. From a schedule perspective, the update, we have incorporated current phase positions. So that clearly is a deferral relative to where we were previously. The import assumptions also consider things like development, advanced tracking capacities, geotechnical parameters, all those things. In addition to that, there have also been changes to the reserve input assumptions over time in terms of metal price assumptions, operating cost cutoffs that has had some effect in terms of a couple of ore bodies. Changing some of the copper ore bodies, for example, will probably have additional inventory in them, while others are probably scheduled a little later over the life of mine relative to earlier assumptions, which therefore contributes to later metal production probably outside the outlook period.

So metal has been delayed by a few years is the read-through here you're saying? Those factors are -- it's a delay that's material. Is that what you're saying rather than a fundamental change in grade? Because you talked about cutoff grades coming up, so that would imply higher metal in the mine -- higher grades in the mine plan.

Yes. So probably sequencing would be a key point, Kate, there in terms of deferral outside the outlook period. And I'm thinking of a couple of specific ore bodies, namely, Oizon and Hugo, which were copper -- heavier in copper. And so in the outlook period, there's more zinc near term. Whereas outside the outlook period, there will be higher copper production.

Your next question comes from Daniel Morgan with Barrenjoey.

My first question is just on the insurance proceeds -- process and maybe what's in scope and not in scope. So when we look at the guidance you've outlined for Cap Copper recovery costs of $70 million to $85 million in '23 and then $17 million to $20 million in 2024, like are these costs what's in scope for what you're trying to do with your insurance? Or what else might be in scope? Just could you outline what's in scope and not?

What I can say rather than commenting on the specific point here is that the company maintains comprehensive insurance policies, including property damage and business interruption. And look, we're working through all of those facets in a fairly methodical and detailed way. As you'd expect, it's -- as we've said, it's a material process and a substantial claim. So we're working through the detail of that under the range of policies that the company has in place.

Okay. On your balance sheet, you've outlined a lot of investment in both recovery and also investment in growth at Golden Grove. How much of these plans have been stress tested to lower commodity prices? And what would the reflex be from the company to lower commodity prices? I.e., would you defer some growth at Golden Grove? Would you seek additional financing? Just how would you think about that?

Yes. Look, it's a good question. I think a few points to bear in mind. Obviously, at the moment, as we've outlined, we go into this process with substantial liquidity through cash and undrawn facilities on the balance sheet. I'd say we've been methodical and careful in the way that we've put these plans together in terms of the detail and the -- our assumptions around operating and capital costs with respect to the near-term period, in particular, with the recovery efforts at Capricorn. We're comfortable with those at the moment. But look, as we go through this year and as commodity markets evolve, if those plans need to be reviewed, then we'll take a look at it as, of course, we would. But as I say, at the moment, we're comfortable this plan gets us through in the sort of the environment that we're working in. In terms of looking out beyond 2023, as was outlined in the presentation and Peter's talked to, we'll look at our financing facilities that we have in place at the moment, having regard to the fact that we're acknowledging that we are entering into a more capital-intensive phase at that Golden Grove and ensure that those facilities are fit for purpose in terms of what we want to achieve there. And we're targeting that to have something early 2024 in that respect. So that's sort of how we're thinking about at the moment. Daniel, I hope that answered your question.

Yes. So just a slight follow-up on that. Does that mean that you would seek an expansion of your debt facilities like a lift in them, or just changing the amortization schedule of existing facilities?

Look, I think we'll look at it holistically at that point in time, and it could be one or both of those things depending on, obviously, our discussions and where we finish 2023 and what we're trying to achieve in the coming years. So look, I think all those things are on the table, but it depends on our assessment of where we are at the end of this year.

Okay. And just last question, if I may. On Golden Grove, you're going to bring on more mining fronts. And so it looks like under this plan, you'll have more mining flexibility. Can you just outline what is the maximum mining output of the different mining fronts at Golden Grove under the plan, both individually and then at a total level? Because I think you'll have more mining capacity than milling.

Yes. So we're assuming 1.75 million tonnes is the max rate out of the whole system, if you like. So that would be the 3 mines: Gossan Valley, Gossan Hill and Scuddles. Over the time, the ore body contributions of those vary. So a little bit difficult to give you definitive answers on what the maximum is, but the total is 1.75 and that, we believe, will fill the mill.

Yes. So the mill is 1.75, but the mining infrastructure would be able to do more so that if things go wrong in terms of -- well, naturally, things sometimes go wrong in mining, you'd have flexibility in mining fronts above the [ mill size of that ].

Yes. So I mean, the delta there is probably Gossan Valley. And yes, that can probably sustain a bit more in terms of incremental lift. So yes, perhaps the total is -- from the mine is higher than the mill, as you say.

Your next question comes from Sam Berridge with Perennial.

Just the stamp duty, I think, was that $26 million or something that was still outstanding? Do you have any update on the expected payment of that?

No, nothing to update there, Sam.

Nothing at all? I mean, best guess, what do you think, this calendar year or not?

Sam, I appreciate the question. Of course, we probably expected it would have been paid well before now. I think it's prudent to assume that, that is a high likelihood that it is payable this year, but we've been thinking that for some time. So that's sort of where we are in terms of our thinking. That's how we're looking at it.

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

So questions on Capricorn. And obviously, the recovery isn't going to be linear. But in terms of the lower ore mined in the first half of '24 versus the second half of '23, could you maybe expand on what's driving that? I would have thought we might have been up a bit with Esperanza South coming in. Or is the read-through that Mammoth and Greenstone become development constrained?

No. For the Phase 1 through until the April period '24, it's only Mammoth and GST operating. And they have a contribution of the order of sort of [ 50,000 to 70,000 ] tonnes on a monthly basis, which is a demonstrated rate out of those 2 mines. And then obviously, post April period 2024 or mid-first half, that's when ESS then comes back online to fill the mill.