Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aurelia Metals Fundraising Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Graham, Interim CEO. Please go ahead.

Thanks, Darcy, and thanks to everyone for joining us today on what is actually a very important day for Aurelia Metals, and I'll get to that in a moment. I'm joined on the call today by Martin Cummings, our CFO, who will talk in detail about the funding package and equity raise we're conducting today. Also joined by Peter Botten, our Chair; and Paul Harris, NED from our Board and Chair of the Rem and Nom Committee, who can talk to the other announcement we put out today, which is in relation to the new MD and CEO. But the intent will start off on funding. And as I mentioned, in my mind, this is a very important day for Aurelia in that it allows us to be fully funded to get on with the projects that we've talked about a number of times in Federation and then also Great Cobar. If I step back, when I took on this role 6 months ago, one of the things I was keen to explore in relation to funding was offtake funding. The [ BD ] offtake funding for a business like ours and particularly out of Peak where there's tonnes aren't spoken for is there's a real synergy that could be had there with the offtake or getting benefit from the offtake itself and allowing competitive interest rates on the debt. And we certainly see that in the package we released this morning. Just -- I am pleased to be able to talk to this package, which with Trafigura, one of the world's biggest commodity traders, and that strengthened their support for our business, I think, speaks volumes for what we're sitting on with the Federation and Great Cobar projects as well as the Peak mine itself. So I will talk to the pack that was released on the ASX this morning, the pack Federation financing and equity raising presentation. I know that there's a number of releases this morning, but that's the one we'll flick through today. I don't intend that we'll talk to every slide in the pack. There's a lot of detail there certainly, as particularly retail holders think about investing in the business and supporting the raise. There's information there that you can refer to. But we will talk to key slides and obviously take Q&A at the end. Again, so I'll start on Slide 6. And as I mentioned, the package released this morning fully funds our business. And when I mean fully fund, the reality will develop Federation immediately, and we'll talk a little bit later on about remobilization plans effectively then Federation gets exposure to very, very high-grade zinc and lead with precious metals and copper. Within that funding package, and I talked about it being fully funded the business, we're intending them to develop Great Cobar out of cash flow in due course. And Great Cobar, I think, is very key exposure to copper and gold, one of the highest grade undeveloped copper resources in Australia at the moment, which is sitting only kilometers away from an existing plant. And so when I think about the highlights a key piece, which we talked about a little bit in the past, is that these developments that we're talking about, Federation and then Great Cobar, are just mine developments. And they're very capital efficient because we're using and leveraging the existing plant capacity within the Aurelia Group and within that Cobar region. The development of these 2 projects then organically transitions Aurelia to being a base metals producer. And if I jump on to Slide 11 of the pack, it's a slide that you will have seen before. But I think it's important that everybody is on the same page. Ultimately, with the development of Federation, as I mentioned, zinc and lead, particularly, but with good credits in gold, silver and copper and Great Cobar, subsequently, very much a copper resource, a very, very good grade gold of 0.7 grams gold. We transitioned from what we had on the left-hand side of Slide 11, the FY '22 profile, very much about half gold and silver producer and the rest made up of base metals to being very much a well-balanced base metals producer with a good hedge and a good credit on precious metals. And I think going forward, where we stand at the moment, near on AUD 3,000 gold. It's great to have that gold exposure as we transition to base metals, I'm sure we'll be well supported by a world that requires more copper and more zinc, particularly, which will then flow through to price. Now since joining us in early December, Martin Cummings, our CFO, has effectively been -- I asked him this morning, what percentage of your time has been on financing? Is it about 50%? He said about 50% of normal CFO business, plus about 70% on financing. The reality is he's done an immense job and a tremendous job in working through the options and getting to the package we put before you today. So I am, without any further ado, going to hand over to Martin and get him to talk through the process we followed in some of the key features of the package we're talking about.

Thanks, Andrew. And it's right, it does give me pleasure to be able to take you through the financing arrangements that we've announced today. We've undertaken an extensive process to get to this point, and we did consider multiple funding options. And I will note that it has taken a little bit longer than we originally anticipated to get to an announcement today. But the option that we will take you through really does provide the business with a cost-effective and flexible funding solution, which will support the restart of development of Federation. And as Andrew said, in due course, the development of Great Cobar. So I'll just talk mainly to Slide 13, which has a lot of information on it, but gives you an overview of this transaction in its entirety. So we've entered into a financing facility for around $100 million with Trafigura. As Andrew mentioned, Trafigura are a global trader. But for those of you who aren't familiar with them, they're active in metals and minerals, oil and gas and renewable energy markets. They do have an active presence in Australia as the owner of the Port Pirie lead smelter and the Hobart zinc smelter and also through the Puma Energy and Impala Terminals businesses. So the Trafigura facilities comprise a USD 24 million loan note advance, which is the equivalent of around AUD 36 million today as well as AUD 65 million environmental bonding facility. So the loan note will provide liquidity to fund Federation and Great Cobar, whilst the environmental bonding facility will replace Aurelia's existing bonding facility. Both of these facilities have a term of 4 years from financial close. As you can see, the interest rates on these facilities are highly competitive with the loan note rate set at the U.S. dollar benchmark plus 6% and the bonding facility at a straight 6% rate. And pleasingly, there are no establishment fees payable on these facilities. Prepayments on the loan note and the cash backing at the bonding facility are weighted to the second half of the term, which does provide us with the space to get Federation constructed and into production. In addition, there are no financial covenants, no early repayment penalties, and there is no requirement to implement mandatory commodity price hedging. But that said, there is an ability to do it if we choose to. Alongside these facilities, we have entered into an offtake agreement to deliver a total of 700,000 tonnes of any combination of copper, lead and zinc concentrate that's produced from the Peak processing facility. The structure of the offtake agreement does provide us the flexibility to optimize the sequence of the various concentrates that Peak can produce. And that is advantageous rather than needing to preferentially treat one type of ore to meet offtake requirements. The terms of the offtake agreement are linked to common benchmark. And finally, as part of the overall package with Trafigura, that will be issued 120 million Aurelia warrants with stock price of $0.25. And as we all know, that is well above the levels that we're currently trading at. The warrants also have an expiry term of 4 years from issue. One of the conditions precedent to drawing down on the Trafigura facilities is the requirement for a minimum equity raise of $40 million, which is aligned with what we've announced today. The raise is fully underwritten and comprises a $10 million institutional placement and a $30 million entitlement offer. If you refer to Slide 31 and 32 of the presentation, we've outlined the key terms of the raising and the timetable, which, at completion, runs through to early July, which will then enable us to draw down on the Trafigura facilities. So I'll just turn now to Slide 14. And whilst I've discussed most of the financing facilities and equity raise and its tables, I'll just point out a couple of other note -- points to note. Firstly, when we reach financial close, we'll repay the term loan facility and replace the performance bond facility. That will release the $46 million of cash that's held as restricted cash against the guarantee facility, and that is an important part of our funding sources that we've been able to unlock. The primary use of these financing facilities is to fund construction of Federation. And as you'll recall, in April, we disclosed capital to first stope ore of $76 million and a total capital budget of $143 million. We're showing capital of $108 million in this table, and that's the amount we use for debt sizing, which is when we consider Federation to reach commercial production. That is expected to occur early in calendar year 2025. And to give you a sense of what that milestone is, it's where the operation is covering its own operating costs and is producing at a rate of around 20,000 tonnes per month. And as we know, that's roughly the amount that will fill the spare capacity in the mill at Peak. The remaining cash in the table, along with operating cash flow, will then fund the remaining capital for Federation and in due course, Great Cobar. And just to quickly touch on Slide 15. Again, I've talked to a lot of the information on this slide already. But the key takeaway I want to leave you is that we've reset the balance sheet now with over $110 million of net cash on a pro forma basis and additional liquidity available from the loan note. The flexibility in the loan note means we don't need to draw that down at financial close, and we can leave that undrawn until we need it. And the advantage there is we'll save on interest costs. In summary, this is an exciting milestone for Aurelia with the business now fully funded and enables us to restart development of Federation. There are many people who have played a key role in to this point and a number of them are on the call this morning, both from the team at Aurelia and also from our advisers. And whilst there are too many of you to name individually, I'd just like to personally send my thanks to you all for the tireless efforts to get us to this point today. So thank you for your time this morning. I'll now hand back to Andrew.

Thanks, Martin. And as I mentioned, I certainly concur with Martin's sentiments. This is an exciting moment for the business and certainly extend my thanks to the large group of people who are involved in getting us to this place. I will turn to Slide 22 for those following along just to talk a little bit about where the business is up to and the plan from here, and then we'll talk a bit about the quarterly performance on the quarter to date to help you think about the investment in the business. So firstly, on Slide 22, just on time lines. There's the 2 key elements that we'll initiate, one of those, we'll initiate today; one is already going, I'll talk through that. But we will -- we have been talking through Peter Trout, our COO, to Redpath, who's our mining contractor, who will be involved in the development of Federation. Those who were involved last year will know that they began work. So if you go and we put photos up previously. But if you did go to site, effectively, for all intents and purposes, looks like a mine site. There's plenty of area cleared, which will ultimately become stockpile areas and crushers and those sorts of things. There's a change house, there's a workshop, there's a box cut, and there's a decline, which go down about 90 meters already. We have kept that decline dry throughout. There was a bit of rain earlier in the year, which did put a bit of water down there, but we have been pumping it out to ensure that when we are ready to go, it's a very quick restart. So the conversations with Redpath will then ramp up from today. They've already been thinking about which equipment they have available to remobilize to the site and already started thinking about people. Probably people and manning up what we need to develop the site and will be the critical path to being able to get back underground and get back developing. But the intent is to work that through June and into July and until we're back there at the phase. The other activities that are ongoing is in relation to secondary approvals. And you'll recall earlier this year, we announced development consent for the Federation project, which we did secure at the end of March, which does allow us to really move forward and deliver what we expect to be delivering according to that schedule on Slide 22. A few additional activities ongoing. We have, and we are in the process of securing a mining lease over the area. It becomes quite a procedural activity once development consent is there, but we're active on that. The other area we're putting a lot of energy into is the development and management plans, which are required under development consent. Some of those just need to be developed and others have submitted to various government departments, others of those require approval from the government department. We're obviously running 3 mines already in New South Wales at the moment. So we know what needs to be in those management plans, and we are putting them together to be specific to the Federation side. The third area, which is active as conversations with local councils around voluntary planning agreements, and those conversations are well advanced. So we don't expect permitting to get in the way of the time frames that we've outlined here. Really critical path is around remobilization, Redpath and then underground development. Let's switch over then to Slide 25, just to talk through where we find ourselves. You will remember this slide, if you followed along our March quarterly, which is really what we had achieved to date. Obviously, a much, much improved quarter in March, which allowed us to maintain guidance. At this stage, we continue to maintain full year guidance as provided in December. Turn the chart here, you'll see in the end of March, we were well advanced on achieving our target in gold, well above sort of run rate and well placed in relation to base metals. Also, our all-in sustaining, it come back to a level that made us comfortable in achieving that guidance. We do quarterly forecasting here. And based on the quarterly forecast in Q4, we don't see any reason to change the guidance that we've previously provided. A few things have impacted the quarter, which were fully expected and factored into that forecasting. The first of those, obviously, we talked about previously in putting in the man-riding cage of the conveyance at Peak, which did push us out of that mine for a short period. We were able to relocate the people to North mine to maintain some continuity of production. The other thing which we've also talked about is we did the reline of SAG mill at Peak early in April, which did impact production over April, but that was factored into that Q4 forecast that I previously mentioned. The last thing to flag, again, well and truly telegraphed, is we took care -- took care of maintenance through April. That was delivered on budget and on time, which the team down there at Hera has done an excellent job of delivering through that project or through that line over the remainder of its life when we change that mine plan in December. And similarly, they've again delivered in taking that site to care and maintenance. I might just touch on a few things that we've got ongoing. So I've mentioned already in relation to Federation remobilization. At Peak, we've been working extremely well over the last few months in relation to the Working Smarter program, has delivered benefits, although at Peak, we are looking at additional interventions we can take in the site to improved productivity and reduce costs, recognizing that Peak becomes core to the business going forward, irrespective of when. Ultimately, it's the integration with Federation means Peak, particularly through its plant, is very critical. The other piece of work we're doing is just thinking through the optimization across Cobar. So ultimately, you'll have the Peak mines, you'll have a Federation mine. And we'll have a processing plant with multiple capabilities at Peak and also additional processing capacity at Hera. And we're just thinking about how do we optimize what we have in that region going forward. And that piece of work will be done. It started a bit little work through the first quarter of the next financial year. And finally, just to touch on Dargues. This pack does suggest a mine life of about 1.5 years. That's based on the latest drilling and also our view of costs and gold price going forward. I think it's fair for people to base their expectations on Dargues continuing for about 1.5 years. Although we are still doing some work around bringing the mining areas up in the shallow areas just thinking about what they may do for us. So there's still some work ongoing. But Dargues is what the company believes it was, at the time of the acquisition, and we're not seeing a huge amount of extension there within the existing mine, albeit it's a very prospective piece of ground, and we do have a very large tenant package around Dargues, which we are contemplating at the moment. I'll pull up there in relation to talking through the funding for the business. Reiterate again, Martin's view that this is an important day for the business and a very good day so giving us certainty to move forward. The other change that we announced today is obviously a new MD and CEO, Bryan Quinn. So I'm going to hand over at the moment to Peter Botten, our Chair, just to talk about that.

Thanks, Andrew. Thanks, Martin, and thank you, everybody, who's on this call. We have [indiscernible] circumstances, I'll have to [ simply leave ] relatively soon. I'm going to chair another company AGM. I would like to say, firstly, I'll reiterate what our management team has said that this is a really significant day for Aurelia. In our view, it resets the company and provides a really strong platform to really build the organization and build value in the company in a predictable and acceptable way. That's not been the case over the last 12 months or so. And you've seen significant changes to management, which were required. You've also seen the necessity to formulate a comprehensive competitive finance package, which I say, allows us now to move forward with the development of our Tier 1 assets of Federation and Great Cobar. With that comes a change in leadership at the top, and it follows a very comprehensive review process -- recruitment process, which came down to 2 very good candidates to fulfill the role as CEO of the company and lead us into our next iteration as a company. And the Board finally chose Bryan Quinn to fulfill the role of Managing Director and Chief Executive. Bryan joins from -- joins Aurelia from OZ Minerals, where he led the growth strategy, exploration and sales marketing businesses over the last 12 months, and was seen as a potential successor for the CEO there. Prior to this, Bryan spent more than 27 years at BHP where he had a range of responsibilities, had a series of senior executive roles, operational business improvement functions and included President Joint Venture Americas, Africa, Global Chief Technical Functions and various Asset President. He comes with enormous experience in driving improvement in the business, project development and successful delivery of significant, major new developments as part of his portfolio. He will be joining the company on the 6th of June, which will allow us to very rapidly rebuild and build on this platform of strong balance sheet and availability of funds to drive Federation in its next phase of development. On behalf of the Board, I sincerely would like to thank Andrew Graham, who is an outstanding candidate to become CEO, for his real commitment and dedication and leadership over the last 12 months or so. Andrew's done an outstanding job in revitalizing the organization and with Martin going through the process of significant and complex refinancing, which is not an easy task as well as significantly improving the predictability of our operations. And Andrew's done with Martin, an outstanding job in taking us to where we are today. So with a refreshed management team, a competitive, flexible financing package in place, we're really well positioned to deliver on value-adding growth trajectory. This represents really a pivot point for the company. And we look forward to providing our shareholders with reliable value enhancement which this platform now will give us. As I say, I'd like to also thank all the people that have been involved. And there is a big team of Aurelia people where -- and in terms of legal and advisory support to bring us to today. But I especially thank Andrew for his efforts in leading the organization over the last 12 months. We now move on with Bryan's leadership and input, and look forward to delivering value for our shareholders that really was missing as we've turned around the company over the last 12, 18 months. So Andrew, back to you. Unfortunately, I'm going to have to step away to chair this other AGM. If there are any questions, I'm sure Paul Harris can help in answering those. Alternatively, I'm very happy to get to our shareholders later in the day after this other commitment.

Good. Thanks, Peter. Look, as Peter flags, this will most likely, barring anything going majorly wrong, be my last investor call as Interim CEO. I thought I'd take the chance to thank everyone for their support over this time. Support's come in a whole lot of different ways from inside the business and also outside. And it's supported as getting to the position we are today. If I cast my mind back to my first presentation at the AGM in November last year, I think I committed to 3 priorities at that time. One is safety. And obviously, we're going through a very tumultuous period as a business with a lot of change, and I knew there was a lot the change to come, which is -- the safety should always be the priority, but I knew that was the time that we really had to focus on ensuring that people weren't distracted by what was going on in the business. So I'm extremely pleased to be able to say that we are 5 months recordable injury free. So all of calendar year '23 recordable injury free, which means a lot to me because it means that every day, our people are going home in a fit state to enjoy life outside of work. It's really a good -- and I think it's a really good achievement, which is really not to do with me, to do with the fact every single person turns up to work, looks after their safety but also looks after the safety of their workmates. The second item we committed to -- I committed to was operational delivery. Clearly, in November last year, things were not going well from the point of view of cash flow and operational stability in that period. And just, I think the March quarter really speaks to it. We very quickly returned the business to cash flow. That included some pretty difficult decisions like taking Hera to care and maintenance. In making that decision that would impact the lives of all of the people who work on that side. But those are the sort of tough decisions we had to make to ensure the ongoing strength of the business going forward. So it's certainly pleasing to have seen that turn around through the March quarter, and we hope to be able to show you a similar kind of results through this current quarter. The final thing I committed to was funding Federation. And unfortunately, it's taken until the end of May to be able to tell you that's the case. I know we have previously tried to be done by the end of March. As Martin has talked to, in order to get the package that we wanted in place, it was worth taking that extra time. Also, I suppose this earlier point around operational delivery and the fact that we took the business back to stability allowed us that ability to leverage that position and end up with a better overall outcome on the funding than would otherwise be the case. So I'm proud to say that we did exactly as promised at that AGM. We returned the business to a stable footing. And through this funding package today, we unlock what should be a really bright future for Aurelia as a base metals mining company. So I'm going to pause at that point and open the floor to questions.

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

A couple of questions -- and apologies, I haven't read the whole presentation that's in there. Apologies. Just on Great Cobar, I mean it's a great resource. And clearly, the ambition there is to fund it out of cash flow. What -- can you just remind us what the plan is there in terms of the feasibility study done, I think, in January last year? How relevant is that? I mean there's been obviously some changes in the plans at Federation since early last year. So is that feasibility study that was done in January last year sort of still relevant plus cost escalation? Or is it a different plan? It talks about getting that Peak plant to 800,000 tonnes per annum. Is that still realistic at some point in time over the next few years? And that's the first question, long winded. And the second question, just on the offtake. How does it tie into -- can you just remind me what your existing offtake agreements are? And how does that tie into any existing offtake agreements? And how does that play into Federation or what Federation might potentially go to Hera versus Peak?

Thanks for your questions, Michael. Always good for a question, which is good. I'll say that this pause have otherwise occurred. Look, I'll answer the first one. I'll get Martin to talk with the second one about offtake. Great Cobar, ultimately, the design that was part of the prefeas that went out previously is still absolutely relevant. So Great Cobar, [indiscernible] north of the existing development which is the intent is to push to parallel declines across there, putting a vent shaft and will be away. Conceptually, there's not a whole lot to it. We're not building a plant. We're not seeking to do anything different. It's within the footprint of Peak. That said, the intent in the plan is to do a feasibility study on that at the early part of the next financial year. And part of the reasons are, as you mentioned, the world is a little bit different. Inflation has certainly pushed on costs a bit. The other piece is we want to make sure that we are going about it the right way. For example, some exploration potential on the way to Great Cobar. Are we putting those -- that development in the right place to be able to access those should they turn into something. So there's a bit of work we want to do in that space. But I think people can assume that the prefeas went out previously is still a fair reflection of how that will be developed. One thing that has probably changed, we talked about earlier when we talked about Federation, is timing for Great Cobar and how they integrate. And it will continue to be an active piece as we work through life-of-mine plans. The reality when you look at Federation, super high NSR material. Like it makes sense to mine that material and get into a plant. You mentioned the 800,000-tonne capacity of Peak. We are only targeting about 550,000 tonnes a year of that at the moment, which means when we do get early ore out of Federation and the beauty of having development of -- we can move quite quickly to getting first production, is it that ore will go after to Peak, and we have the capacity then within that plant to treat that ore and turn it into valuable products. It doesn't create -- and I sort of talk about as a lever on -- Great Cobar as to when they choose to do that. Our current planning has us doing that midway through 2025. It will probably -- and it is a bit fluid in that if exploration team had some success in Peak of further high-value ore like we're currently mining at Peak, it can allow us the chance to potentially push Great Cobar back. But the other bit that may change in that time is the market. And obviously, the copper prices are a little bit depressed at the moment. But I think as people realize that the world is very, very short of copper, we may see that price rise, and it may want us to get across there to Great Cobar sooner. So we do have some optionality in that. As I mentioned at the outset, it's fully funded in our modeling based on cash flow from the business and the funding package we're putting in today. I'll turn across now to Martin. Michael?

Just -- so if you fast forward 3 years and you've got 800,000 tonnes of ore going through Peak, where does that come from? Does it come from -- does it come 2/3 from Federation and 1/3 Great Cobar or the other way around?

It's the other way around. So at the moment, we're permitted to take 200,000 tonnes up the road to Peak. Yes. We have assumed that it ends up a little bit higher than that, and we have to have conversations with the regulators about that, obviously, work through process. We had looked at options of the backhaul copper, for example, down at Hera. The issue there, though a good problem to have, is that the Great Cobar has very, very substantial gold. So you want to know you're going to get a good recovery out of that, [ too ]. There's a bit of work we'll do through the next financial year, in the early part of that financial year, just around how we optimize Cobar. I mentioned a little bit earlier, there is latent capacity within Peak in certain parts. It requires capital to unlock. And it's that classic problem of investing money in a certain piece to move the bottleneck and try to understand those bottlenecks and what some of the investments required and what the optimum kind of solution is. But that's a bit of work to be done. What we are holding up at the moment is 200,000 to 250,000 tonnes a year up the road from Federation to Peak, supplementing Peak feed. And Peak feed at the moment is from the existing mines, particularly South Mine and particularly out of North Mine largely on copper. As being Great Cobar comes on, it will take over that mine share of the Peak feed. And then the rest will go Federation then goes into a restart at Hera. And the plan was to restart Hera in about 2 years' time.

Okay. And just, frankly, on timing, you mentioned you did some more feasibility work on Great Cobar. Assuming that goes well, you expect to have a jumbo back in that development drive by Christmas or something like that?