Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Cobb Johnstone, and I'm the Chairman of Aurelia Metals Limited. I welcome you to Aurelia's 2020 Annual General Meeting. I, firstly, wish to thank everyone online today for utilizing our online AGM meeting facilities and allowing us to respect the COVID-19 related social distancing restrictions that would limit shareholder access to a physically convened AGM. If we do experience any technical issues today a short recess or an adjournment may be required, depending on the number of shareholders being affected. If this occurs, I shall advise you accordingly. All our Board members are present online for our 2020 AGM. With me in Sydney, our Nonexecutive Director, Susie Corlett; Lawrie Conway and Paul Harris as well as our company Secretary, Gillian Nairn. Also with me in Sydney is Scott Jarrett, representing the company's auditor, Ernst & Young. Mr. Jarrett is available to answer any questions in relation to the audit of the company. Joining us from Aurelia's head office in Brisbane are our Managing Director, Dan Clifford; Chief Financial Officer and Company Secretary, Ian Poole; Chief Operating Officer, Peter Trout; and Group Manager Geology, Adam McKinnon. Under our constitution, a quorum for a shareholder meeting is 2 members. We have a quorum present, so I now declare the meeting open. I propose that the notice of meeting dated 19th of October 2020, which was made available to shareholders, be taken as read. Moving to the agenda of today's meeting, I will deliver a brief address. This will be followed by the formal business, which is to receive and consider Aurelia's financial year '20 financial statements and reports and to put 6 resolutions to shareholders. The resolutions cover the adoption of Aurelia's financial year '20 remuneration report; my own reelection and that of Susie Corlett under the Director rotation rules in the company's constitution; approval to issue performance rights to the Managing Director; the adoption of a new constitution and an approval of an increase in the Nonexecutive Director fee pool. Our Managing Director, Dan Clifford, will then deliver a presentation on the company and operations. There is one contingent item of formal business, which is a Spill Resolution. This resolution, Resolution 7, will only be put to the meeting, if at least 25% of the votes cast on resolution 1 are cast against the adoption of the remuneration report. The online voting platform will allow for votes to be cast on all resolutions, including Resolution 7. However, Resolution 7 will not be taken to have been put to the meeting and will have no force or effect unless at least 25% of the votes cast on Resolution 1 are cast against the adoption of the remuneration report. Before the close of the meeting, I will advise whether or not there has been a second strike against the remuneration report and whether or not Resolution 7 will be put to the meeting. As you will appreciate, participation in the business of the meeting and asking of any questions is confined to shareholders and those persons entitled to vote on behalf of shareholders. There will be an opportunity for shareholders to ask questions on each item of business. [Operator Instructions] I will now move to the Chairman's address. Good morning, and thank you for joining us. The past year has been a challenging one for business and communities everywhere. Since our last AGM, the appointment of Dan Clifford as CEO; and Peter Trout, as COO, has enabled the company to establish an extremely high-quality leadership and executive team, providing bench strength capable of taking the company to the next level. This has been evident across every aspect of our business. Staying safe and protecting those around us has taken on further meaning, again, in the age of COVID-19. Aurelia has responded and well. The business introduced extensive measures to minimize the risk of potential COVID-19 transmission at our work sites and amongst our surrounding communities. Small, traceable work teams lie at the heart of this. I'm proud of the way our leadership team has implemented these processes and the way our people and contractors have embraced them. A further word on operational safety. I've said before, that this is a value that lies at the core of everything we do at Aurelia. A safe workday is the only kind that can be successful. Whilst we have made further progress in this area over the past year, there remains more we wish to achieve. Our senior management team is resolutely focused on delivering significant additional gains on this front. The recent September quarter safety performance was a further strong step in the right direction. Increased depth of management capability has also been invested in supporting sustainable operations, responsible environmental management and community engagement is central to the way in which Aurelia operates. We will continue to invest in further enhancing our overall social license to operate. Against the backdrop of COVID-19, Aurelia delivered a robust set of operating and financial outcomes in 2020. Full year group gold production was 91,672 ounces, at a group all-in sustaining cost of $1,520 per ounce. Annual EBITDA and net operating cash flow exceeded $100 million, the third consecutive year of this significant outcome. The Aurelia balance sheet is in excellent shape. At balance date, we held cash of $79 million, and the business was debt-free. This is after the payment of a maiden fully franked dividend of $0.02 per share during the year, which totaled $17.5 million. This had increased to over $100 million by the end of the September quarter. Our investment in the future has also started to bear fruit. The major upgrade of the lead/zinc circuit at the peak processing facility was completed, commissioned and ramped up during the year. It has successfully unlocked the ability to treat lead/zinc rich ores at higher rates and delivered the targeted step jump in lead/zinc production capacity going forward. Our investment in accelerating access to the high-grade Kairos deposit has also delivered with the lower Kairos decline, having reached the ore body by year-end and subsequently, we have just commenced our first development drive in ore. Production development activities are well underway with first doping ore expected to be achieved in the first half of calendar 2021. What a year it was on the exploration front. Our geological team has truly delivered the goods. In particular, the Federation discovery is one of the most significant in the Cobar Basin of recent decades. The maiden federation resource that we announced in June 2020, was 2.6 million tonnes at 7.7% lead, 13.5% zinc, 0.8 grams per tonne gold and 9 grams per tonne silver. It is only the beginning. Subsequently, high-grade gold intercepts have indicated the presence of a steeply plunging high-grade gold corridor within the Federation mineralization. Modeling of this corridor is set to be incorporated into the next resource estimate. The deposit also remains open at depth and along strike. We have two diamond drill rigs continuing to work around the clock at Federation in pursuit of further exceptional results over the coming months. We have also commenced a scoping study to investigate project development options for Federation -- for the Federation deposit. This work will consider the range of mining, processing and infrastructure scenarios available. The current base case is the processing of Federation material would likely occur by our existing plant at the Hera Mine, providing an attractively capital-light development pathway. We look forward to keeping you abreast of the news flow to come from our intensive work program at Federation over the year. Last week, we announced a landmark transaction. Aurelia has executed an agreement to acquire the Dargues Gold Mine and exploration tenements in Southeast and New South Wales. Alongside this announcement, we commenced a fully underwritten $130 million equity raising process to assist in funding the purchase consideration for Dargues. Dargues is a recently constructed underground gold mine that is in the ramp-up phase. It is expected to produce an average of 45,000 to 55,000 ounces of gold per annum, at a forecast average all-in sustaining cost of $1,150 to $1,350 per ounce. The acquisition sees the addition of a third strategic asset into the Aurelia mine portfolio. It reweighs our business further towards gold and significantly improves the group's all-in sustaining cost profile. It also offers significant further upside potential in the form of both mine design and process improvements identified by Aurelia, and attractive extensional drill targets that we believe will deliver clear mine life extension potential. Completion of the Dargues acquisition is expected in late 2020 or early 2021, as it's subject to New South Wales ministerial consent and other customary conditions for such a transaction. I'd like to thank our entire team of dedicated people at Aurelia. COVID-19 delivered a year to test even the most resilient groups, and you have come through with flying colors. I'm grateful for your diligence and application to task. Thank you also to the Cobar and Nymagee communities for your ongoing support of the Aurelia business and people. To our contract partners and consultants, thank you for your significant contribution to the ongoing success of Aurelia. A special thank you also to Mike Menzies, who recently retired from the Aurelia Board. Mike was the company's longest-serving director and made an invaluable contribution over many years. Finally, to our shareholders, thank you for your continued support and trust in Aurelia, its assets and its people. I hope you look forward to the journey ahead with as much enthusiasm as I do. We will now move to the consideration of the formal items set out -- consideration of the formal items of business for today's meeting. The notice of meeting sets out the resolution proposed -- the resolutions proposed for the meeting. No notice of other business has been received, in accordance with the Corporations Act. So the only items of business to come before the meeting today will be those specified in the notice of meeting. Firstly, I would like to explain today's voting procedures as stated in the notice of meeting. I have determined that all resolutions will be put to a poll. I appoint [Michelle Lorenz] of the Automic Group, the company share registry, who have examined and prepared summaries of the proxy forms received to act as returning officer and to conduct the poll. Shareholders who have registered to vote will see instructions on your screen on how to log into the online voting portal and vote on resolutions being put to the meeting today. Please be aware that you should not click next until you have selected your vote for all resolutions. Resolutions 2, 3, 4 and 6 are ordinary resolutions, meaning that to be carried they require 50% of the votes cast by members who are entitled to vote on the resolutions. Resolution 1 relating to the remuneration report is advisory only and Resolution 5 relating to the adoption of the new constitution is a special resolution, which means to be passed, it needs the approval of at least 75% of the votes cast. As noted earlier, Resolution 7 is a contingent resolution and will only be put to the meeting, if at least 25% of the votes cast on Resolution 1 are cast against the adoption of the remuneration report. Resolution 7, if put to the meeting, will be considered as an ordinary resolution. Resolutions 1, 4, 6 and 7 are subject to voting exclusions and further details are set out on the notice of meeting. As each resolution is discussed, we will be showing the wording of each resolution and the proxies received prior to the meeting for each resolution on the screen. The proxies received prior to the meeting represent 458,278,717 shares or 52.4% of the issued capital of the company. To the extent permitted by the Corporations Act and the ASX Listing Rules and subsequent to voting exclusions detailed in the notice of meeting, all valid undirected proxies or open votes that have nominated the Chairman of the meeting is that proxy will be cast in favor of each resolution in the notice of meeting, other than Resolution 7, which is the contingent Spill Resolution, in which case, all valid undirected proxies or open votes will be cast against the resolution. Directors and executives identified as key management personnel will not be voting undirected proxy votes given to them for Resolutions 1, 4 and 7. Are there any questions on voting procedures. I'm going to pause for 30 seconds to allow any questions to may be submitted. There are three general questions we've received so far, which given they are general will be after the presentation by the Managing Director. We have not received any questions on the voting procedures. So we will start the polling. The polling, and therefore, online voting portal is now open and will remain open until I declare the poll closed. Your votes must be submitted prior to the poll being closed for them to count. Voting on all resolutions via the online portal, including Resolution 7, must occur before the poll is closed. However, Resolution 7 is contingent on the outcome of Resolution 1 and will not be taken to have been put to the meeting unless there's a second strike against the remuneration report. Where there is no second strike, voting on Resolution 7 will be ignored. I'll move to the first item of business, financial statements and reports. The first item is to receive and consider Aurelia's financial year '20 financial statement, the Director's report and the independent auditor's report. As no resolution is required, there will be no voting on this item of business. Scott Jarrett from Ernst & Young is available to answer any questions you may have in regard to the audit. We did not receive any questions prior to the meeting, and the auditor has advised that he also did not receive any questions from shareholders. Are there any questions from shareholders regarding the financial statements or the audit or questions or comments on the management of the company? Please enter your questions now. We have not received any questions. There being no questions, we will move to Resolution 1. Resolution 1, adoption of the remuneration report. Resolution 1 relates to a nonbinding resolution required by the Corporations Act in relation to the financial year '20 remuneration report. The wording of the proposed resolution is shown on the screen. The presentation of the remuneration report is a requirement for all listed companies. The company's remuneration report is included in the company's 2020 annual report. The remuneration report sets out the remuneration of Aurelia's directors and key management personnel and Aurelia's remuneration policies in respect of key management personnel. In accordance with the Corporations Act, this vote is advisory only and does not bind the directors or the company. The proxies in relation to this resolution is shown on the screen. Are there any comments or questions on the remuneration report? We've not received any questions. I'll therefore put resolutions -- put to the meeting Resolution 1. Please record your vote in relation to Resolution 1 by clicking on the for or against or abstain voting buttons on your screen. Shareholders are reminded not to click next until you have selected your vote for all resolutions. We now move to Resolution 2 as this item relates to my own reelection, I will hand the chair to Susie Corlett for this item.

Resolution 2 reelection of Colin Johnstone. The next item of business is Resolution 2, which is the reelection of Mr. Colin Johnstone as a nonexecutive director. The wording of the proposed resolution is shown on the screen. Mr. Johnstone was appointed a non-Executive Director on the 28th of November 2016. Mr. Johnstone is a mining engineer with extensive experience operating mines in Australia, Asia, Africa and Canada. He held the position of Chief Operating Officer for African copper Miner Equinox Minerals until its acquisition by Barrick Gold in Mid 2011. Prior to that, he was the Chief Operating Officer for China-focused gold miner Sino Gold Mining until its acquisition by Eldorado in late 2009. Mr. Johnstone's career spans more than 30 years. And he has served as a general manager for some of Australia's largest mines, including the Kalgoorlie Super Pit in West Australia, Olympic Dam in South Australia and Northparkes in New South Wales. Mr. Johnson is a member of the Board's Remuneration and Nomination Committee and Sustainability and Risk committee. His reelection is unanimously supported by the Board. The proxies received in relation to this resolution are shown on the screen. Are there any comments or questions on Resolution 2? We have not received any questions. I put to the meeting Resolution 2. Please record your vote in relation to Resolution 2 by clicking on the for or against or abstain voting buttons on your screen. Thank you. I will now hand the chair back to Cobb Johnstone.

Thanks, Susie, and I'll return the favor by working through Resolution 3, the reelection of Susie Corlett. The next item of business is resolution 3, which is the reelection Susie Corlett out as a nonexecutive director. The wording of the proposed resolution is shown on the screen. Ms. Corlett was appointed as a Director of the company on 3 October 2018. Ms. Corlett is a geologist with over 25 years' experience in exploration, mining operations, mining, finance and investment. Ms. Corlett serves as a nonexecutive Director of ASX listed Iluka Resources and as a Director of not-for-profit organization the Foundation of National Parks and Wildlife and the AusIMM Education Endowment Fund. During her Executive career, Ms. Corlett was an Investment director for global mining private equity fund Pacific Road Capital Limited and worked in mining, credit risk management and Project finance for Standard Bank Limited, Deutsche Bank and Macquarie Bank. Ms. Corlett is the Chair of the Board's Sustainability and Risk Committee and a member of the Board's Audit Committee. Her election is unanimously supported by the Board. The proxies received in relation to this resolution are shown on the screen. Are there any comments or questions on Resolution 3? We have not received any questions. I put to the meeting Resolution 3. Please record your vote in relation to Resolution 3 by clicking on the for or against or abstain voting buttons on your screen. We now move to Resolution 4. Resolution 4, seeks shareholder approval to issue performance rights to the Managing Director and CEO, Dan Clifford, under the company's performance rights plan. The wording of the proposed resolution is shown on the screen. Because Mr. Clifford is a director of the company, shareholder approval of the proposed issue of performance rights to Mr. Clifford must be obtained under ASX Listing Rule 10.14.1 before performance rights can be issued. The grant of performance rights will in due course involve the issue of ordinary shares in the company. One ordinary share for one performance right. If the performance rights vest upon the satisfaction of certain vesting conditions, which are measured over the 3-year period from first 1 July 2020 to 30 June 2023. The proxies received in relation to this resolution is shown on the screen. Are there any comments or questions on Resolution 4? We have not received any questions. I put to the meeting Resolution 4. Please record your vote in relation to Resolution 4 by clicking on the for or against or abstain voting buttons on your screen. Please remember not to click next until you have selected your vote for all resolutions. We now move to Resolution 5. Resolution 5 seeks shareholder approval to adopt a new constitution. The wording of the proposed resolution is shown on the screen. The company's existing constitution was adopted in 2012 and amended in 2014. Since that time, there have been a number of amendments to the legislation governing corporations, particularly the Corporations Act and the ASX Listing Rules. The proposed new constitution reflects amendments to the Corporations Act and ASX Listing Rules since existing constitution was adopted as well as reflecting technological changes, corporate governance changes and the current practices of the company. I have a signed copy of the new constitution, which is in the same form as the version available on the company's website. And I now table this at this meeting. The proxies received in relation to this resolution are shown on the screen. Are there any comments or questions on Resolution 5? We have not received any questions. I put to the meeting Resolution 5. Please record your vote in relation to Resolution 5 by clicking on the for or against or abstain voting buttons on your screen. We will now move to Resolution 6. Resolution 6 seeks shareholder approval to increase the nonexecutive Director fee pool. The wording of the proposed resolution is shown on the screen. The total aggregate fixed sum per annum to be paid by way of fees to nonexecutive directors in any financial year is to be determined by shareholders from time to time in a general meeting. Shareholder approval is sought to increase the nonexecutive director fees by $250,000 from $750,000 million to $1 million per annum. The proxies received in relation to this resolution are shown on the screen. Are there any comments or questions on Resolution 6? We have not received any questions. I put to the meeting Resolution 6. Please record your vote in relation to Resolution 6 by clicking on the for or against or abstain buttons -- voting buttons on your screen. Resolution 7 is only required to be put to the meeting, if at least 25% of the votes cast on resolution are cast against the adoption of the remuneration report. However, given that voting on Resolution 7 by the online platform must be undertaken before the outcome of voting on Resolution 1 is known, we will take any comments or questions on Resolution 7 now. Are there any comments or questions? We have not received any questions. We request that you now cast your votes on Resolution 7 on the understanding that this resolution may not be required and the votes on this resolution will be ignored unless there is a second strike against the remuneration report. Please record your vote in relation to Resolution 7 by clicking on the for or against or abstain voting buttons on your screen. As noted earlier, the online voting platform will now be closed. Can all shareholders voting online, please now ensure that you have submitted your votes, including for Resolution 7? I will allow another minute before I close the poll. [Operator Instructions] [Voting]

We have not received any questions on the voting procedure. I declare the poll closed. We have received a number of general questions, which we will deal with post the Managing directors' presentation. Our Managing Director, Dan Clifford, will now deliver a presentation on the business. Over to you, Dan.

Thank you, Cobb, and good morning to everyone online this morning. 2020 was indeed a challenge for the company. It was a year of change, challenge, correction of some key performance areas and a constant drive to continue improvement in the short-term and deliver long-term value. During my presentation, we'll cover the year-end review being financial year '20, our outlook in the short-term for FY'21 and our strategic pathway to that stated long-term value above. Upfront and as a platform for now and the future is how we plan for, shape our actions and execute our business to ensure the well-being of our people, the diversity of our people and our communities, our environment and our impacts on where our operating presence influences climate. Our assurance around these areas are also critical. Moving to Slide 5. Our sustainability approach has been front and center for the business. From a health and safety and environment perspective, we took great steps towards the end of the financial year with the introduction of a number of programs, including the Aurelia Metals - Safe Metals program, and mirror imaged programs across our environment to ensure our management and our performance in this area continued and we're driving for improvement. And I'm pleased to say that at the end -- whilst at the end of FY'20, our health and safety performance was not acceptable in the eyes of board and management. By September this year, we have recorded a 32% reduction in that number. We took steps to understand our issues and our performance across our people, our community areas and particularly assurance in place for those performance areas. We also took major steps forward in water self-sufficiency on both our assets and long-term water security via the recycling of older mined water areas. These are about durability and longevity of our business performance and a key component that informs our strategy. Moving to Slide 6. The strategic objectives for FY'20 were focused on 4 key areas: Optimizing our existing operations; focus on our returns; leveraging off our asset base and infrastructure and tenement base; and unlocking prospectivity in the region. Reliability and predictability being key to on the ground delivery of this strategy. And moving to Slide 7. The optimizing of our existing operations was one of delivery, a 43% improvement in development rates, the peak lead/zinc circuit upgrade on time and budget and a 23% increase in throughput capacity at peak amongst many of the achievements of the year. We completed a lot and a full drill out of Hera. And the optimization of the Hera plant to now dovetail into the Federation finder, which I'll cover later. And moving to Slide 8. These improvements and projects led to unplanned gold, 91,000 ounces and stable mine cash flows and a successful combination of investment into the future on infrastructure, life of mines, Kairos development, expiration successes and a strong cash balance, including a return to shareholders of a $0.01 dividend. And moving to 9, the leveraging of our infrastructure is key in the short and the medium term. The prioritization of the highest NSR material to the mills, having them running at full capacity are the key to long-term value and a front and center for our business. Peak recorded an 18% increase in reserves. Kairos reached the bottom -- we reached the bottom of the Kairos deposit and the finding of Federation and the shaping up of Federation. Moving to Slide 10. As Cobb mentioned, 1 of the most significant discoveries in the Cobar Basin in decades, 2.6 million tonnes and an NSR of $373/tonne. We have high base -- high value-based metals emerging gold and more recently, the emergence of copper is putting the Hera, Federation complex and Aurelia in a very strong position moving forward. Moving over to 11, the financial year's results summary is positioned off a strong balance sheet with $79 million at closing and close to $103 million by September. Solid EBITDA are greater than $100 million and EBITDA margins in the order of plus 30%. And moving to the business outlook on Page 13. FY'21, I should say, has started well, particularly in respect to safety, with the 32% reduction in our recordable injury frequency rate. Production and costs and cash and the progression of Federation, all right on plan for the company. Noting that December is expected to be lower than the June and September quarters, respectively, which is driven by the ongoing variability at Peak, but aligned with our plans. So moving to Slide 14. We have reaffirmed our guidance, 80,000 to 90,000 ounces and all-in sustaining cost of $1,500 to $1,750 an ounce as we are on plan, and the business is taking into account variability at Peak. Our underlying throughput and cost per tonne are also in line. With 2021 progressing well, we can move our mines to the strategic path covered on Slide 16. Our strategy has been focused on our sustainable operating presence in our existing assets and the tenements. And while that remains front and center, a gain for the business in terms of returns and IRR, we have now extended this thinking to -- with the inclusion of a stated growth profile, a gold dominance with high-value based metals and a portfolio approach to the future of the business. In summary, for me, I draw this to 3 key points. We're sweating our assets with the first two, leveraging off the asset base and the maximizing of returns. The following three are aimed at directing the dollar to the highest return. That's setting up tension between our exploration efforts and our future investments via M&A. And moving to gold being more dominant or remaining more dominant in our revenue mix. And a 4-5 operation base that is driving at lower group costs and improved reserves across the group. And the final two -- sorry, the final one of cycle-proof mine lives is about the creation of value with mine life and commodity mix decisions. During November, and along with this strategy, Aurelia announced the acquisition of the Dargues Gold Mine. Covered on Page 17 of the presentation. This is right online with our strategy, and it is a great move towards the setting of the tension with our group exploration results. The asset fits the Aurelia strategy diversifies our asset base it bolts on to our existing operations, logistics lines and presence in New South Wales and firmly establishes us now as a mid-cap gold producer. It's a significant improvement towards our group cost structure. It further reweighs our revenue mix to gold, and it increases the reserves that the company operates. We have -- most significant is the upside potential under a Aurelia's ownership. Immediate plans for resource extension targets, optimization of the plant and how the mine operates from planning to execution are areas we believe that Aurelia can add significant value to the existing asset. In summary, FY'21 has been a challenging, but I can say, extremely exciting. The sweating of our infrastructure and assets by leveraging off those assets and maximizing our returns; the continued directing of our dollar to the highest returns; and that tension being between a two-pronged approach of exploration and further future M&A.; a shifting of gold in our revenue mix; and the driving of improvement of group cost and resources -- reserves. Longer mine lives will create long-term value and returns both. And decisions in commodity mix will continue over time. We look forward to updating our shareholders on these -- on this path over the remainder of FY'21. Thank you very much for your time. Back to you, Cobb.

Thank you very much, Dan. But I am going to go back to you. We've received a number of questions, and I think you are the most appropriate person to answer them. So they've been sent through -- to you, if you could address those questions, that would be great.