Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Thanks, Stacy, and I'll start, obviously, by welcoming everyone to the call today. Really, we're here to talk about the Hera Life of Mine and the impact that has on guidance. Just so you can follow along, the intent is to talk to the investor presentation that was uploaded to the ASX website earlier today, so -- as I make references to page numbers that's referencing. First of all, as I mentioned at the AGM, clearly, I'm not seeing this as a caretaker period, albeit the role is currently an interim CEO role, and certainly, from the point of view of how we're managing the business, we're not just saying as that caretaker period waiting for a new team structure to be announced. So we said that there's a lot of work ongoing and a lot of work that needs to be done. The first slide, on Slide 3, goes into a bit of that on the high level as to how we're looking at things. So I touched on all these at the AGM, but thought it worthwhile just to give you a quick round-out on the other things we're doing and then how that flows into the work today. But clearly, first of all, on safety, is a top priority for us as a business. And we were pleased in the November month not to have any recordable injuries. So we're very [ content ] it's the same for December at this stage. So it just reiterates to us the need to remain vigilant on what we're doing, on that safety front, and we'll be talking about that with our various sites and employees through this month as we come into that festive period. Obviously, beyond the operational piece, which we touched on with Hera and guidance, touched briefly on Federation, the work is ongoing on the Federation front. We did talk at the AGM about the optimization piece in which we were thinking about flows of ore, the capital to start Federation and how we can extract early revenue from the mine plan. All of that work is ongoing. And I'll touch on that a little later on the call because some of what we're doing at Hera has a flow-on impact to that piece of work on Federation. Also, on Federation funding, that process is active, as we talked about around the AGM. The intent is to bring that to a head in the first quarter of next calendar year, and we're on track to that at the moment, actively talking with a range of potential financing sources, either bank, nonbank lenders, offtake financiers, royalty providers, those types of groups. Very active process and is on track for a first quarter resolution. And finally, on the leadership renewal, you've noticed Martin Cummings is on the call today, our new CFO. He hit the ground running, very active in those bank funding and other funding discussions that we've got active. And further updates on the leadership piece will come largely through our Board in due course. Anyway, just turning then to the main topic of the call, the intent today within that operational delivery and cash management piece of our Organization Renewal Program, we wanted to update you on changes we're making for the Hera Life of Mine and also then how that flows through to guidance. So I'll just turn over to Slide 4 for those following along. The reality is every asset in any business, but certainly within our business, needs to generate cash every day. That hasn't been the case for Hera, as you would have followed along over the last quarters. And it's not a situation that we could continue into the future. So it was really a trigger for action. The intent was to take account of where the asset was up to, the various items related to its period in its life, and let's be honest, Hera is towards the end of its life. There's a few items noted on this page, things like deteriorating rock mass and effectively geotechnical issues, constrained stoping sequence with less inventory to select from the number of stoping areas we can have open. We have suffered from lower grade than expected through the early part of this year. And obviously, the operating cost pressures, both from an inflationary environment, but also it's an off-grid plant exposed to [ LNG ] power. So looking at all of this coming together and looking at an asset that's not generating cash or hasn't been generating cash, there was a clear need to do something different. So I set a simple challenge for the group, which was how do we maximize cash from the remaining inventory that we had at Hera. We weren't targeting towards a particular life. We weren't targeting towards anything other than maximizing cash from that remaining inventory. Turning then to Slide 5, which is really the action that was picked up and -- silver linings and all these sorts of things. One of the silver linings for me in this was the collaborative way in which our corporate technical team and our site team worked together to work on that challenge and how do we maximize cash from Hera, given all of those constraints, some of which I just touched on before. A few things, and then the section to the right of that slide gives you a sense as to the inventory we've ended up with. But there is more inventory than that available at Hera. And the team did a very detailed piece of work starting with all of the inventory that was available within that mine footprint. And thinking about it from a geological point of view, our level of understanding, a geotechnical point of view, the ability to extract that safely and effectively, how those designs might look, how they might then sequence in a sequence of extraction that made sense, taking account of things like backfilled and those types of things, where some of the levels in this mine actually are flooded, so the ability to access the inventory, all the various factors that go into developing a Life of Mine plan. It was done in a lot of detail from the ground up on every single one of those inventories, including an element of thinking about risk and thinking about what's the practicality and certainty we have of getting that inventory out. And with all of that multiple scenarios within run, they were then costed. We're looking at, again, trying to maximize the cash generation from that inventory. And from that, we then landed on a mine schedule, which is as depicted in that section. Let's talk about that in a little bit more detail, so you have a bit of a sense as to what comes out. So in effect, the bulk of the inventory, about half of the inventory, is in the Far West breach in the mine, the FWS on that plan. The other key area for us in inventory is the Main South section. We're actually active in both of those areas right now. Just to comment on risk in the Far West area. As depicted, we're moving from right to left on that section, which is returning to a retreating or closing pillar, which does have some geotech considerations as we head towards the end of the mine life. The other elements of Main North and also the Upper Hays region, really active supplements to those other 2 feed sources over the remaining life. And the work, I was very pleased, as I say, with the due diligence that was put into coming up for the plan. But unfortunately, the outcome, if I turn to Slide 6, it results in a mine life out to about March 2023 with about 140,000 tonnes of ore mined. The key for that is that inventory we're mining there will generate cash, as forecast through that period. There are a few points that help us generate cash, which are noted there on Slide 6. We're developing, at the moment, to the Main North area. But beyond December, the real need for any development drops away. So ultimately, those areas that are in that stoping plan become just a stoping sequence, which should have a flow-on impact for us on focusing what we're doing, but also in cost. We also had a larger proportion of our uphole stopes. The benefit to that is just less backfill, which will then help us in sequencing those remaining stopes and on balance, proportionally more gold in that remaining sequence. I did flag some risks there, particularly on the Far West region, we're retreating to that pillar. But it is a late-stage operation. So it's not without risk. And one of the things is to move it to a cash-generative position, which is what this plan aims to do. But the key is then to monitor that and ensure that it continues in a cash-generative way all the way to the end of its mine life. We've got the TARP plan in place, a trigger, action, response, plan in place, to think through. If anything occurs, we lose a key piece of equipment, we lose a stoping area or anything like that, we can respond quickly to ensure that we continue to generate cash. Just to note on the workforce, obviously, a critical focus for us. Engagement has begun. [ They are ] in workforce [ today ]. They obviously use implications on a shorter mine life for our people, especially with the fact at the moment, we can't offer a direct flow to Federation until we fund that and get that up and running. There is some possibility for our Hera employees at both Peak and Dargues, which we'll be looking to place people in those roles. But the reality is there will be a need for some redundancy out at Hera. Moving on to Slide 7, and you're talking about silver linings. We are, as I mentioned, very active thinking about optimization at Federation. We are looking at what we do with early ore from Federation. One thing with Hera being moved to a period of care and maintenance is that doesn't become a kind of a hurdle for us in thinking about what we do with ore. We get greater revenue from our Federation material, putting it through the Peak plant, where we produce 2 individual concentrates in zinc and lead and the copper [ reporting ] into the lead. So there is a benefit that will come from putting those early tonnes up the road to the Peak plant before we then bring back the Hera plant from care and maintenance at the appropriate time once Federation is ramped up. Another element that we're working through around reducing capital is obviously the plan was to run at Hera. As it came off, Federation would have been starting up and run the two concurrently for a period, with Hera Mine closing at this stage in March next year. We don't see the two will run together. So it does provide us an opportunity to take some equipment and other infrastructure out of Hera and redeploy that into Federation, hoping it'll save us capital. That bit of work will be factored into our overall Federation optimization piece, which is ongoing. It intends to be out sometime in the first quarter of next year -- next calendar year with an update on that. The other element, as I announced earlier or flagged earlier was just funding activity is ongoing, and again, timed to be out in the market in the first quarter of next calendar year. So for those changes, we get to an update of guidance. Just to touch on a few things. So clearly, the change at Hera has a large -- in the lion's share of the impact on guidance, that accounts for all of the change in gold and a large part of the change in zinc and lead guidance. I suppose it comes from a point that it's about making tonnes and ounces that make money as opposed to just making tonnes and ounces, which is a key part of the change that we're talking about today. A few other things have flowed into that guidance. There was meant to be a bulk sample coming out of Federation. Obviously, the Federation currently paused. In those sense, it will be at the point of being able to extract that bulk sample in this financial year. We've replaced that with Peak [ mine ] inventory, which does have an impact, particularly on zinc and also impacts the [ all-in ] sustaining because of the high margin at Federation material. Few other changes that are playing through, for those following Peak, the S400 stopes. It's very much almost copper, almost lead, zinc kind of an ore. It's like in-between sort of an ore, which we have been treating as copper ore. It had been pulling a fair bit of lead into that copper, causing us some grief. So going forward, we'll be treating that as lead/zinc or -- and pulling the copper into the lead concentrate for payables, which obviously impacts the payable copper that provides us greater payable lead and zinc. We have suffered, as I mentioned at the start, on base metal grades at Hera for the year-to-date, which does have a flow-on to the all-in sustaining, just on byproduct credits and some of the additional costs that we've seen at Peak, particularly. As you would have seen in the first quarter of this financial year, we were going to be able to catch and make up for some of those costs through the rest of the year. But in some instances, we've -- think we won't be able to achieve that, which is reflected now in this guidance. So that's all we wanted to cover today, other than to give you an opportunity to ask questions about all of that. The reality, closing a mine or giving an end date of a mine, which is a lot earlier than people may have expected, it's not a good theme for us from the point of view of an employee base who are very important to us. And we're doing what we can to manage through that and then redeploy people as best as possible. We also recognize it's pretty tough this side of Christmas and this close to Christmas with the intent in coming out clearly on to -- let the market know where we were as soon as we knew, but also come out as early as we can to give our employees as much time as possible to think about life beyond Hera as a mining operation. So I might pause there and go to anyone with any questions.

[Operator Instructions] Your first question comes from Dylan Kelly from Ord Minnett.

Two questions from me. The first, just in terms of how we should think about closure costs from here. Do we think about a lump sum trailing after the March quarter? Could you give us your sense around rehabilitation obligations and exactly where that sits at the moment?

Yes. Thanks, Dylan, and I'll take this one. From the point of view of closure costs, firstly, it's important to recognize we're not talking about closure. We're talking about a shift to care and maintenance. The asset base that we have at Hera is critically important for us, going forward, particularly in the development of Federation. So we will take the surface facilities to a period of care and maintenance. We've -- roughly, we've done some -- obviously done work on what that might look like. If you wanted a rough estimate, we'd be talking about $0.5 million, that kind of ballpark. The intent's, obviously, to clean everything out and make things weatherproof, and ensure that when we go to turn it on for Federation, it does actually turn back on as efficiently as possible. And there'll be a small holding cost then, obviously, to keep deciding care and maintenance. Obviously, it's an active ML so we're going to need to be doing everything we currently do around environmental monitoring, those sorts of things and also the work required just to ensure that the plant stays in good shape to that to be reused.

Okay. Understood. And can you just walk us through the current cash flow? It's my understanding that the December quarter looks to be negative in terms of cash outflows for the period so far? And if so, can you just walk me through where each asset is currently at?

Yes. Look, obviously, Dylan, I don't want to jump ahead and start talking about the quarterly result before we have a quarterly result, but I'll give you guidance to where things are, obviously starting with Hera. Clearly, we wouldn't be talking about this change if Hera was generating us substantial cash. So this intervention is really around turning that back into cash generation. So it's fair to assume that Hera consumed cash in the first 2 months of this quarter. We have been mining to an updated mine plan from early December. And part of the reason for that, even though we haven't finished the actual detailed Life of Mine planning piece of work, we did need to make some change to ensure that the sequence to what you're seeing now could actually be achieved. So we did effectively create the option for this by starting to change that sequence early December, which is the sequence now we continue through to the end of March. So I suppose you can read into that, our expectation, that December turns us back into a mining and cash-generative ores, which we see for the remainder of the life. The Dargues has been performing as it pretty much does. I think each quarter, we talk about the consistency out of Dargues. It continues to do that. Peak has had some issues in the first part of the of the financial year, which we talked about in the first quarter. And the sense is on top of those. And Peter may want to make some additional comment there. But we're certainly seeing the transition costs we have with the change from Pybar Mining to owner-operated mining now coming back out to a more normalized sort of level. Peter, did you want to add anything to that?

Perhaps, Andrew, just to pick up the point I think on quarterly -- the Q1 quarterly results call. We have carried extra labor through the first quarter, and then we start to see those labor numbers come off around workforce in particular through the second quarter. And we've moved on to a more stable basis now with our operating platform, with our owner mining team supported by Pybar doing a number of other [ past stores ] at the mine. There's more work to go there, but certain trajectories improved over what we saw in the first quarter.

Your next question comes from Mr. Trent Allen from CLSA.

I just -- my question's about other potential ore sources around Hera. Now I suspect that you've thought this through. Maybe it's a bit too early to ask, but like in the past, you're looking at an Nymagee as a potential source of copper ore. You set that aside for metallurgical reasons in 2019. There are explorers and developers sort of to the west of you that might enjoy having a plant nearby. Are you still open to those kinds of conversations or thinking about other ore sources? Or do you really just want to keep it for Federation in the future?

Thanks, Trent. I'll pick this one up. And the reality is we're realist around the time it takes to permit in New South Wales. We're well advanced on our permitting process in relation to Federation. But what we're talking about is taking the Hera plant to care and maintenance for a period until Federation is on, and Federation is almost permitted. So in some ways, when I look at the time frame for that and the time frame for other people to get something up and to then perhaps use the plant, I'm not sure it necessarily will fill that gap. But we're always open to conversations where we can see an opportunity to create shareholder value. In relation to Nymagee, again, there's a bunch of work required there, including drilling to really extend that inventory beyond what we have in resource today. So again, it's not sort of sitting there in the queue ready to start a [ decline ] and start development. In the time frame we're thinking about the plant being on care and maintenance, probably unlikely that it would fill that void. But again, as I say, to your overarching question, we're always open to talking to others about the potential to create shareholder value.

Okay. I guess just a follow-up question. Can you fill Hera with Federation ore in the longer term? Or will there be spare capacity, being mindful you can't just put any tonne through for metallurgical reasons?

Yes. Look, the plan we've got at the moment sees about 40% or so of the material head up right to Peak and the remainder go through Hera, that will largely utilize the capacity at Hera. As always, the plants, once you think about the fees you've got and what it does around bottlenecks and filters or flows or whatever it happens today, there's opportunity to look for capacity extensions or to see if there is spare capacity that we could use for other things. So as we finalize the plan on Federation, we'll think about that question and think about how you would otherwise feel that, recognizing that the full plant is better than a partially full plant when it comes to dilution of fixed costs.

Your next question comes from Adam Baker from Macquarie.

Yes, Andrew, just a question on the balance sheet. Just wondering if you could maybe talk to what shape it's in. I think, at the end of September quarter, you had cash of around $46 million and a component of restricted cash of, I think, $36 million and a little bit of debt as well. Just wondering if you could talk us through that and how that's looking at the moment. And maybe if you could give us some information about the restricted cash component on your balance sheet.

[ I am ] going to see if Martin wants to jump in and talk about those items, particularly the restricted cash, which we see as a real opportunity for us.

Yes. Thanks, Andrew. Adam, look, the balance sheet is, in terms of restricted cash and term loans, the next payments are coming up for that at the end of December. So that's really our focus managing cash through the quarter. And then yes, so no real change in terms of our repayment schedule.

Sure. Great. Can you just remind me what the scheduled repayment is, the [ quantum ] of that in December?

So yes, it's just over $4 million per quarter through to September.

Sure. And maybe just with the guidance update, I appreciate the changes in metals and costs. Just on the growth CapEx, assuming that number, the $44 million that's getting pushed out for FY '23, and what about exploration and growth CapEx, excluding Federation, is that looking similar to what you had in the previous guidance updates? Or is it you just can't put a finger on that at the moment?

Yes, Adam, I'll just talk a little bit to growth CapEx. Obviously, we've chosen not to guide on the Federation-related spend because until we have certainty on the timing on that, and quite obviously, it's difficult for us to talk about what will be going out this year. Just on physicals, though, there's really not a lot of activity going on around Federation currently since we paused the [ decline ] work. We did finish some work around sheeting, the surface works and the surface area, to ensure it stayed good to any wet and also that it was ready to go again when we were ready to go. We're also in the process of installing a small-diameter pipeline through to Hera, which will just allow us to better manage water between the 2 sites. But beyond that, there's really not a lot of ongoing spend at Federation. More broadly, I'll cover exploration, and Peter might just touch on some of the other capital across the operating businesses. But in exploration, as part of our cost reduction activity in the near term as we thought about funding, we did pull back on particularly surface drilling, so the surface program, Federation, some of the surface drilling in Dargues Mine and also around Peak, which has taken that kind of, let's call it, 15 as a round number to like 10 for exploration for the year. We are still doing underground drilling at Peak in a number of areas, with the [ VSPs ] being that if we discover additional material near existing workings at Peak, that very quickly turns into part of the mine plan and gets sent into a mill. Similarly, we're also still drilling underground at Dargues, particularly in an extensional and infill drilling below the current lowest level in the mine plan, has had some success, which is good. And the intent and the hope is that we were able to then bring back those lower levels into the mine plan, extend the mine life there at Dargues. And we'll come out on that in more detail as we work through what the updated forecast is for Dargues. Peter, did you want to touch on any of the capital investment we've been doing around the other operating sites?

I think, Andrew, just in growth capital, the major project we have is the completion of the TSF lanes at Peak. That's been underway for some time now. We flagged at the last quarterly that, that was due to finish this quarter. We have had some heavy rain in the region, and there's potential for that CapEx to slip over into quarter 3. But by and large, the bulk of that work and the spend is complete. Apart from that, there's a routine sustaining CapEx, for example, decline development at Dargues, but not a lot of other capital spend across the group. Thank you.

[Operator Instructions] Your next question comes from Michael Evans from Acova Capital.

On Hera at the -- at June 30, I think you had about 600,000 tonnes in reserves. And so I suppose a couple of years left. So correct me if I'm wrong, but you're cutting it short, based on that, for a bit over a year, which -- for good reasons, I understand that. So if you mine a couple of hundred thousand tonnes, you're leaving 400,000 tonnes in there. Was there any scope or analysis done on trucking that to Peak? And you might have to remind me, I forgot the permits. I know there was some discussion at the AGM. But if you had a permit for 100,000 or 200,000 tonnes, would you look at the analysis of just mining Hera and taking it to Peak? And obviously, the Peak processing plant has some capacity. So was that analysis done or considered? Or is there no trucking capacity, and therefore, that analysis, no point in doing that? Or it takes too long to get the approval for the trucking capacity and in the interim, you'd be losing money at Hera? So is it therefore still an option down the track? I know it's a very long-winded question.

Yes, Michael, and thanks for your questions. It's clearly ahead with it. So just on the trucking piece, first of all, we are permitted to truck from Hera to Peak, at the moment, up to 100,000 tonnes in the calendar year. One of the -- and we did consider, particularly in managing a tail or any tail that we would have out of Hera as to whether trucking it made more sense, clearly running a plant like Hera, which is off-grid and out of the camp and all those sorts of things on anything other than near sort of full capacity becomes a bit questionable because of those fixed costs. So we did look at it. The issue we do have at the moment is that we haven't -- there's various intersections that we would need to upgrade between Hera and Peak in order to truck. We intend to do those upgrades of those intersections as part of the Federation project. And we're actually, as an aside, in the design stage of those intersections as we speak. But in order -- in the time frame based on the inventory we saw that we believe was economic and [ unextractable ], and the time it would take to then get those intersection upgrades done, it didn't make any real sense to try to push some of that up to Peak because we effectively, to your last point, we ran out of the feed that we would have for Peak before we got to a position where we could actually truck.

Okay. And just on the 400,000 tonnes, I missed a few of your comments on the closure. But you made a couple of comments in the slide of a few technical issues. Is -- in your retreat, I don't know if your -- in your closure plan to the end of March, are you sterilizing that 400,000 tonnes by any chance or some of it, or all of it, or none of it?

It's a bit of a mixed bag, and I will get Peter to talk in a little bit more detail. But as I mentioned, geotech-wise, some of that inventory is seen as difficult, so perhaps not achievable. As we retreat back on, let's say, the closing pillar at Far West, it may be the further inventory then in decline is also not recoverable in the future. We have had some geotech issues at depth down in our pumping -- or near our pumping levels, which has impacted our ability to get in there, and there is a reasonable amount of water at the bottom level of the mine, which impact some of that inventory as well. Also, some of the inventory relies on having solid feed of a bit like how we're doing the mine plan for the end here from Far West. But the core feed supplemented by inventory from the periphery and certainly some of our remaining inventory sits on that periphery, it's there in the future. It won't go anywhere, clearly. But it's -- we're not actually going to do anything to stop our ability to get back into the mine. But obviously, in the future, if you wanted to come back, in particular, sits idle for the period, going to need a bit of rehab to getting back underground. Peter, did you perhaps want to talk any more to some of that remaining inventory?

I think you've covered off pretty well, Andrew. There are some areas there where we've chosen to take up [ hole ] stopes and retreat and not backfill. So we are leaving rock in pillars, and that material previously sat in the mine plan. At the same time, we're not putting development into the upper level to get a top access to those stopes. So it's been all about trying to maximize the value on that inventory and manage our risk as we retreat out of the mine. And there will be some areas there of mineralization that they don't actually stack up to a viable economic cash flow for us, based on our current costs and performance in the mine.

Your next question comes from from Canaccord Genuity.

Can you hear me?

Yes, we can hear you well.

Okay. That's fine. Just a question on your hedging of gold in the books, and the outlook for copper and gold looks potentially a lot stronger next year. And you've got very little balance sheet debt. Can you just explain how the hedge position looks at the moment in your books? And what you plan to have with that?

I might just pass that one over to Martin.

Yes, sorry, and I haven't got the numbers in front of me. But yes, look, the hedge position is just being delivered into each quarter. And that's a part of our debt facility, is that we have a level of hedging in place. Yes, we are feeling positive about the gold pricing and about where the price trajectory is for our base metal production as well. So we'll look at that as part of the refinance and what we want to do around the balance sheet as we reset it in the first quarter. The other piece is we are looking at managing our price exposure in the short term through QP hedging. And right now, the prices are -- they're holding up well, and we are putting in that protection within the time windows for each of the shipments.

Thank You. [Operator Instructions]. As there are no further questions at this time, I'll now hand the call back to Mr. Graham for any closing remarks.

Thanks, [ Sachi ] , and thanks, everyone, for taking the time to hear where we're up to and also ask some questions. I think it's been hopefully a useful call for you. I'll just reiterate a couple of points. And as I said at the start, we're not -- certainly not seeing this as a [ caretaker ] period. We can't afford it to be as a business. So we're getting on with things as you see today with our change in the Hera Life of Mine and the entire team [ brought ] down. We were entirely committed to realizing what is a very bright future for this business, particularly as we bring on Federation, ultimately, the copper around Peak. We're busy across a wide range of areas, as we touched on right at the beginning of the call. And we'll certainly be back in touch with the market and with you and shareholders in these types of calls as we land any of those. Otherwise, thank you very much for your time.