Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aurelia Metals Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Dan Clifford, Managing Director. Please go ahead.

Thanks, Harmony. Good morning, and thank you for your time this morning, particularly on such short notice. I have Ian Poole and Peter Trout with me on the call. And through the call, we'll be referring to the presentation that is loaded up on the ASX site this morning called Dargues Life-of-Mine Update. Just getting us started. I think business, the way we look at business is about leaning in, getting our eyes on it and stepping forward. And where we're aware of risks sometimes, there is a step back to be taken. And disappointingly for us this morning, we have a step back and we need to flag to the market today an end-of-year noncash impairment at the Dargues asset. I will take us through -- around through the technical drivers leading to a range of approximately AUD 60 million to AUD 80 million on a post-tax basis. the time line of planning, drilling and modeling and also the priorities, production of the asset on the basis of these outcomes. Let's move to Slide 5. It's important just for context for the discussion this morning to look over ourselves on what the investment thesis for Dargues was about. It was an on-strategy bulking to our portfolio. What we were particularly aiming at was a rebalance or reweight towards gold in the portfolio, the introduction of an asset that actually improved our group cost structure. And what we can see during this was a resource that was mainly constrained by lack of drilling. You can see improving grades at depths and multiple extensional opportunities of the orebody. Move over to Slide 6. I think the ownership, I think everyone will be well aware that we immediately deployed particularly underground drilling and also a little bit later on surface drilling to be covering both infill from underground and exploration and infill from the surface to gain a better understanding of the asset. As we work through these drilling programs, and particularly with the results that have been coming in over the immediate past, complexity become really evident. And really, with the orebody and particularly below the initial 4 mine levels we acquired resulted in this increased complexity. One key area of the ore body is a key contributor to an actual downgrading in that area, but also then resulting across the resource with a grade reduction of approximately 15%. That led to the expected impairment range of the $60 million to $80 million. Just for us to better understand the technical drivers of that, I'll hand over to Peter to talk through the approach that we've taken. Thanks, Peter.

Thanks, Dan, and I'll start on Slide 7. I'll just skip on some of Dan's comments there. We've drawn on some new data to update our interpretation of the Dargues deposit. And this at the tonnage and grade estimates and life-of-mine plan. Dargues life-of-mine plan was developed just recently. It shows a loss of mineralization tonnage in some of the highest grade portions of deposit, and that's been partly offset by the addition of lower-grade material at depths. And Slide 7 provides more details and a long section through the mine design as it stands at present. By way of context, it's important to note that there's no reliable visual indicator of gold mineralization. In other words, it's not possible to see whether gold is present in the rock at Dargues. So infill drilling, site sampling and mapping are essential tools for our understanding of the deposit. Mineralized zones at Dargues were originally interpreted and modeled as being near vertical with some variability in the strike orientation. This original geological interpretation and modeling was supported by development, face mapping and sampling in the upper levels of the mine prior to acquisition, and was used for the 2021 life-of-mine plan, mineral reserves and ore reserve update and production target. As Dan mentioned, post acquisition, we've undertaken 2 underground drill campaigns to infill gaps in the mineral resource model. And this infill drilling has progressed from top to bottom as the underground drill sites have become available for mining. The LOM section on Slide 7 shows the 385 and 425 levels, which are the platforms for the Phase 2 infill drilling, that's currently underway. As a reference point, we're now developing to the ore body on 440 level, which is below the elevation of these 2 drill platforms. Turning to Slide 8. We'll see here some cross-sections through the deposit showing changes to the geological model over the past year. And the data sources columns show a more comprehensive data set that's been collected and used for interpretation and modeling for the 2022 life-of-mine plan. Compared to the previous wide space surface drill holes, the infill drilling has provided tighter definition of the mineralized zones, especially at depths. The information from the 50 new drill holes has resulted in a drill spacing of 25 meters or less in the active mining areas today, and this provides us with greater confidence in the mine design and our production schedules. The latest geological model also shows some localized areas where the grade is significantly lower or the mineralization is continuous or in a different orientation to the original interpretation, and Slide 9 provides sections through one of the key mineralized zones, Zone 8B. And it's in this lode where we've seen the greatest impact on the new data and modeling. And I will point out that this slide contains a substantial portion of the gold that was to be mined in the 2021 life-of-mine plan. Compared to the previous wide space surface drill holes, the infill drilling has provided tighter definition of the mineralized zones, especially at depth. The information from the 50 new drill holes has resulted in a drill spacing of 25 meters or less in the active mining areas today, and this provides us with greater confidence in the mine design and our production schedules. The latest geological model also shows some localized areas where the grade is significantly lower or the mineralization is continuous or in a different orientation to the original interpretation, and Slide 9 provides sections through one of the key mineralization zones, Zone 8B. And it's in this lode where we've seen the greatest impact on the new data and modeling. And I will point out that this slide contains a substantial portion of the gold that was to be mined in the 2021 life-of-mine plan. You've seen circled at the top of the LOM sections, the upper western portion of this high-grade zone, which was interpreted originally as being continuous between surface drill holes. Lower images are a plane view that illustrated [indiscernible] of the lode along strike in the geological model. And you can see how that's varied over the course of the past year based on the recent drilling and what we're seeing now in the life-of-mine plan. Infill drilling and mapping has just proved the original interpretation in that upper western area. And that's led to a removal of a significant tonnage, and more importantly, grades are above 8 grams per tonne gold. I will point out that the latest interpretation is not all negative. LOM sections also show that the recent drilling has extended the interpreted mineralization at depth, which has added tonnage to the 2022 mine plan at a lower grade. And this additional mineralization has partly offset some of the material that was removed from the previous model. With those points in mind, I'll hand back to Dan, who will discuss the next steps.

To put a new touches to the finish there, if this is the impacts of data beyond the current mining horizons for this year, there is minimal impact on the FY '22 guidance. We will revise over the course and as results come in, particularly on the back of outstanding core logging processing and assays. We'll be revising the more production target for the asset over the next few months. We're aiming for release of that in July this -- in the next financial year. The final actual value, as everyone, I think, will be able to understand is we're flagging a range, it's going to be dependent on price decks, tax treatment, the outstanding results from cores and assays coming in, order sign off and ultimate Board approval with the FY '22 full year results. Just move on to Slide 11. I'm not going to dwell on the timetable, but what I'd like to point out is that we have quite a constant flow of business planning through the business starting in quarter 1 with risk moving through strategy LOM and budget at the end of the year to set and ready for the next year. These drilling programs aren't actually timed with this planning. It's actually, the drilling programs came in on an ASAP basis. As soon as we could get the resources in the rigs and also importantly, underground real estate to position the rigs to get the best angles for the drilling for confidence levels. Factor the incompleteness -- sorry, the incoming results, so over the back of the long period is a timing coincidence, but actually put us in quite a good shape or in good position to be able to quantify these ranges really quickly and disclosed, and that's why we're here this morning. Let's move on to Slide 13. The key priorities -- I'll summarize this. The key priorities really are about completing as much as we can in the LOM drill out, the finalization of these results in backlog of core and assay and really settle the assay down by adapting it to the outcomes of these results and maximizing the outcomes with the hand we have. 3,600 odd meters of logging to be completed, assays coming in on both infill and exploration holes, and that enables us and will inform the estimation and therefore, the revised LOM planned production target in preparation for the FY '22 annual impression target for July this year. Moving on to Slide 14. And then back to the investment thesis of an under-drilled resource, particularly the extensions. We still firmly believe those opportunities remain. And that part of the thesis remains intact. We have both surface and underground exploration, particularly orebody extension, and we're going to start moving to the regional near-mine targeting that we've assessed on the operation. And in addition to that, the permitting that's required to extend the life of the assay is continuing. We do consider that future to be still prospective and the asset continuing to move forward. Thanks, Harmony. I think it's best that we move on to questions now.

[Operator Instructions] There are no questions at this time. I'll just hand back to Dan for closing remarks.

Look, I think it's pretty clear to say we've had a step back. But myself and the management team and the Board still think the asset can and will still continue to step forward. We will be next in market with exploration update, federation update on how project is progressing and also the quarterly results in the second half of April for the March quarter. So thank you again for your time on such sort notice. We appreciate that. And we will keep the market up-to-date with progress. Thanks very much.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.