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

Thank you, Ashley. Good morning, ladies and gentlemen. Thank you for joining us at such short notice to participate in this call today to discuss the announcement of the ramp-down of mining and milling activities at Capricorn Copper and suspension of operations. 29Metals CEO and MD, Peter Albert will speak briefly to the announcement before opening the call to questions. We only have limited time available before we have to join scheduled calls with other stakeholders, but we will endeavor to address as many questions as possible in the available time. We might not have definitive answers to all the questions as the number of work streams are still progressing, but we will endeavor to provide a further update with March quarterly expected to be released on April 23 and subsequent updates as work streams advance. I'll now hand over to Peter to lead you through today's announcement. Thank you, Peter.

Yes. Thanks, Mike. Today, we have announced a suspension of operations at Capricorn Copper. Over the past 12 months, the team at Capricorn Copper has worked tirelessly, facing considerable challenges during and after the extreme weather event experienced in March 2023 last year. That effort has delivered significant progress in recovering the asset, including reinstatement and enhancement of water management and diversion infrastructure, implementation of water recycling and reuse regime and the partial restart of operations in August of last year. However, between late January and mid-March this year, Capricorn Copper experienced an extended period of rainfall as a result of the weather in the region following consecutive tropical cyclones. And on top of the accumulative water of last year's extreme weather event, this has resulted in a steady accumulation of water held on site despite the best efforts of a team and 29Metals substantial investment in water management infrastructure, such as mechanical -- multiple mechanical evaporators and water treatment systems, however, impacted by an inability to discharge sufficient water at the levels prescribed by the regulator. As a result, water levels in regulated structures on site are currently at similar levels to the levels following the March 23 extreme weather event. This is not where we had hoped to be nearly a year post that weather event. And with water at these levels, 29Metals has taken the decision to halt dewatering of Esperanza South underground mine, ESS, and in turn, delaying the restart of mining at ESS outlined in the Capricorn Copper Recovery Plan required for the return to full operations. And given the delays to the restart of mining at ESS, the operational performance since August 23 and current water levels on site, we have had to take the very regrettable decision to suspend operations as the most prudent path to protect our people, manage environmental responsibilities and preserve value for the asset. Our focus now is on the safe transition of the workforce and asset to a suspension phase with the safety and well-being of the team at Capricorn Copper our first priority. 29Metals is providing all the necessary support for our people as we work through this difficult process. Mining and milling activity will ramp down and preparedness of the site for suspension of production will be progressed over the coming weeks. Thereafter, a small team will then be required at site throughout the suspension period. Capricorn Copper remains a tremendously valuable asset, which will deliver considerable value in the future. For the period wherein as mentioned, we will focus on the key enablers for a restart and recommencement of mining and milling stronger than ever before. These being reducing water held on site to stabilize water management infrastructure, establishing the long-term tailings storage capacity, installing the new water treatment plant and providing a reliable and sustainable source of water suitable for mining and milling operations, and achieving required regulatory approvals facilitated by Capricorn Copper's prescribed project and critical infrastructure project status as proclaimed by the Queensland government. And finally, evaluating opportunities to enhance and improve productivity and reduce the cost base. The asset remains a substantial Australian copper endowment with almost 65 million tonnes in mineral resources, 19 million tonnes of ore in reserves at 1.7% copper supporting an at least 10-year mine life. There aren't too many assets of this quality in the Australian landscape with established infrastructure and organic growth opportunities. During the suspension, 29Metals will continue to progress the growth potential at Capricorn, including the targeted exploration activity, which is currently underway to test the new mineralized zone identified last year, east of the Mammoth orebody. We're very excited about that potential new orebody. And from a balance sheet perspective, the suspension of operations will reduce cash outflows in the nearer term. In addition, 29Metals continues to focus on productivity, sustainable cost reduction initiatives and progressing the Capricorn Copper insurance claim and offtake finance arrangements to provide additional liquidity. On that note, I will stop there, and actually, we can open the call for questions and answer Q&A. Thank you.

[Operator Instructions] Your first question comes from Michael D'Adamo with Canaccord.

Thanks for the update. Just sort of touching on your tailings storage capacity and the crews obviously made through the government. But if that doesn't happen leading into the next wet season, do you kind of foresee that you'll be able to handle this as it is? Or do you -- is this sort of going to be like an ongoing thing, do you think you just sort of plan for a less wet season, I guess?

Michael, we're not -- we're obviously working through the time required in terms of the suspension and I'm not in a position to be clear about that at this point in time because we've got a few work streams in progress, as Michael said earlier on. In terms of tailings, 2 activities there. One is the continued application for putting tailings into the EPit that hasn't gone away. We're still focused on that and still looking to execute that and get an approval there. And that's -- that provides us with a relatively short-term tailings solution. Our longer-term tailing solution is always TSF3, the long-term tailing solution, which when expanded will give us effectively a life of mine tailing storage facility. That is -- that process is still very much ongoing and submission for that application in the near term. So that's our focus on tailings. The commitment from the Queensland government in terms of Capricorn Copper, prescribed project status, the critical infrastructure project remains in place. And so we're very confident that we get the right outcome in terms of a future tailings storage facility.

Your next question comes from Mitch Ryan with Jefferies.

Peter and team. Just wondering if you can put any color around what you think the current suspension period is likely to be? Or what you would see -- need to see for it to commence -- recommence operations?

Yes. Thanks, Mitch anticipated question, of course. It's a bit challenging to respond at the moment. I know that will provide some frustration, Mitch. As indicated in the announcement and my words earlier, we're focused on 2 or 3 things to achieve that outcome. Obviously, we have to reduce the current water inventory held on site. We're working on that. We're working with the relevant departments in the Queensland government on that, establishing the long-term tailing storage capacity, which is a previous question from Michael. The detailed design procurement of water treatment plant facilities, other 3 key components to bring us back into operation. We're focused on all of those and plan is to update the market yourselves as soon as we have some clarity in terms of the time line associated with each of those activities. So I can't give you a definitive at this point in time a fair bit of work to happen, of course, Mitch, and we will update as soon as we possibly can.

Okay. And finally, my other question is, does the suspension in any way impact the discussions you're having with the insurers on the insurance payout?

No, no. As indicated, insurance activities in terms of that claim ongoing. And we're obviously in regular dialogue with the insurers and likewise with in respect of potential additional offtake finance arrangements, which we've described to the market in the past. So no change to any of those, Mitch.

[Operator Instructions] Your next question comes from Adam Baker with Macquarie.

Peter and team, a bit disappointing, no doubt, but you can't control the rain, unfortunately. Just wondering, with the regards to suspension of operations, what does this now mean for the company from a perspective for environmental bonds? Are you going to require any additional payments to Capricorn moving forward now that you've suspended it. And also just on the balance sheet, how you're looking at? I know you had over $160 million in cash at the end of the December quarter. But what does this mean for the covenant relief that you did have outstanding on the debt? Are there any changes now that Capricorn is suspended on that front?

Yes. Thanks. I'll just lead off, and we have Peter Herbert on the line as well, Adam. So I might pass to Peter to address a couple of those comments or questions you've made there, but not anticipating any change in respect of environmental bonds, et cetera, in terms of our interface interaction with the government and various government bodies. We are very much in close contact with the government, and they remain very supportive of Capricorn Copper, understand the regretful decision today, and we will be working closely with them to get this operation back up as fast as we possibly can in a better state than we had it before and focusing on productivity and reducing costs. But if I may, over to you, Peter Herbert to address Adam's subsequent questions there.

Sure. Thank you, Peter, and thanks, Adam. Look, no direct and immediate payments as a result of this. However, naturally will be wind down operations and there will be some costs associated with those -- with that wind-down of operations on site. The covenant waivers that you referred to, no change to those that we previously secured back in August, October of last year as a result of the announcement today.

Thanks, Peter. Okay. And do you have any idea what your suspension might has costs would be for Capricorn moving forward. Do you have the kind of ballpark figure that you think you could indicate?

Adam, I don't give anything definitive as it's one of the -- obviously, the work streams and there's a fair bit of activity, as you would imagine, in terms of contractors and our team, et cetera, that we've got to bed down, notwithstanding that one where you might want to look at it is what was our cost during the suspension period of the June quarter of last year. That's probably the best feed we can give you at the moment. Obviously, we will finance those numbers and look to manage them appropriately. But that's probably the best feed I can give you at this point in time, Adam.

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

Okay. Well, thanks, Ashley and thanks, everybody. Adam, Mitch, Michael, for your questions. I'm sure there will be plenty more questions as you digest the announcement and work through that. And like Mike said upfront, I appreciate people coming on the call at such short notice. Obviously, we couldn't give a lot of notice on this as it's very live and just come out this morning. Please follow-up with any questions you might have for any of the team. Mike, obviously, the key focal point, but we'll endeavor to address anything else that comes through. But as indicated through the call, plenty of work and activities happening. So we're -- and as we work through those and we get resolution and we get the outcomes in terms of timing and cost, et cetera, we will seek to update the market as soon as we possibly can. Thank you, everybody. Thanks, Ashley, and have a good day. Thank you.