Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aurelia Metals Limited FY '24 Financial Results. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Bryan Quinn, Managing Director and Chief Executive Officer. Thank you. Please go ahead.

Thank you. Hello, and thank you all for joining us to hear about Aurelia Metals results for the financial year 2024. I'm joined today for this presentation by Martin Cummings, who's the CFO; Andrew Graham, the Chief Development and Technical Officer; and our newly appointed Regional General Manager for the Cobar region Angus Wyllie. Before I start on the first set of slides, I just want to highlight, we will be using the presentation released today as our talking points, and we'll refer to the slides as we progress through the topics. Some of the key highlights for FY '24 are provided in Slide 3. The company provided a solid performance this year, both operationally and financially, with good advance on our growth projects and sort of great exploration results sitting up for our future. The operation is a little bit above budget tonnages at both Peak mines and AGs and the cost per tonne were also better than our budgets. These 2 value drivers assisted our company deliver guidance on an all-in sustaining basis and also on a gold equivalent basis for the various commodities we have. What is delivered, finally, was an uplift in underlying EBITDA of about 45% and $81 million. We also had a 19% improvement in cash flow from operating activities and ultimately, a very strong balance sheet of $116.5 million at the end of FY '24 and approximately $152 million of liquidity in total available. It's actually great when our operating cash flows can fund our growth projects and exploration projects, and we have no debt to repay. Some standard items supporting this was very strong development performance at Peak. We started FY '24 with very little lead time to prepare the stopes and ended the year with several months of lead time and contingency options also. Mining cost per tonne reduced quarter-by-quarter, which has been a key to really unlock FY '25 performance going forward and also help to look at how we can unlock our future reserves. Our growth project, Federation, recommenced in August 2023, 1 month post the Board approval. This was an amazing cold start for a project to build a mine given significant headwinds and rainfall and water delays throughout the year, and we still remain on track for first stope ore in Q1 FY '25. Ramp-up will progress through FY '25 and deliver commercial production in July 25. Trucking will commence once we have sufficient ore to move to Peak for our batch sample. Lastly, our exploration results are continuing to deliver some impressive results, which I'll ask Andrew to talk to in a few minutes. I'll continue to reinforce the message though that we are really working in a highly prospective geological footprint in the Cobar region. What limits us is really our drilling. We have good access with all the land owners we're engaging with, and we really have a great future in terms of what's in front of us for base metals. Just to move to Slide 4. Before I move into details of the results, I'm keen to highlight our performance for FY '24, we actually delivered a 92% increase in share price, which is a significant turnaround for our shareholders. As mentioned, we started FY '25 with a solid balance sheet and our budgeting process to really enable our growth going forward. This all supports our vision to be a developer and operator of choice for base metals that power the future. So we really are in a good position to move forward as a company based on the performance as you can see from this sheet and the numbers on the balance sheet. I'll just turn to Slide 5 on the sustainability front. Over the last 12 months, we had too many recordable injuries for our employees and contracting partners. Although they are all slips, trips and cuts to hands, we really have a lot of work to do to turn this around and work with our people to really make sure they leave home, come to work, leave work safely and in the same condition every day. It's imperative for us, and we are committed to make that happen. On a positive side, we've made some significant improvements in our reportable environmental incidents, as you can see from the graph on the page. We continue to work well with our communities to support them and to continue to be a good neighbor. Actions for FY '25 to really sort of work hard on our safety is to improve quality field leadership, reinventing our fatal risk protocols and frontline leadership training. Like I said, it's actually imperative our people go to home the same way they come to work every day, and it's important that we continue to help them work safely. I just want to point out the photo on the slide. It's one of our team members providing a gift to really help the local community working groups to prosper and to be a good neighbor and be good a citizen and add value to the community. I'll pass on to Martin to talk through our financial results before I'll talk more about the Federation project, and then I'll pass on to Andrew for exploration update and achievements to date. Over to you, Martin.

Thanks, Bryan. We'll turn to Slide 6, which is the group finance performance. And I'll acknowledge there are a lot of numbers on this slide, but the key message I want to leave with you is that our focus on transforming Aurelia into a stable, efficient and cash-generative business is well underway. As you can see on this slide, every metric has improved significantly. Bryan's mentioned a few of these, and you've been tracking our performance in terms of cash and all-in sustaining costs during the year, but this translated into a 45% higher EBITDA on an underlying basis, now up to over $80 million. Pleasingly, we had a return to a positive underlying net profit after tax of $0.6 million, and our operating cash flow was up over 100% or 119% to over $100 million. So just turning to Slide 7, and I just want to show visually some of those metrics and the improvements. There's no doubt that commodity prices have provided some tailwinds to our results, but it was not the entire story. For context, our realized gold price this year was up 18%. Our silver and copper realized prices were up 12%. On the other side, our realized lead price was flat, and our realized zinc price went down 11%. So our cost performance made an important contribution to these improvements as seen by the reduction in the metrics and in our all-in sustaining costs. At Peak, mining rates were about 17% up, and we delivered that at a lower dollar spend than the previous year. And that translated into the material reduction in unit rates we've been presenting in the quarterly reports. But it's a similar story with processing at Peak with tonnes around 16% higher and spend slightly lower. There's still more opportunity to improve our costs, and we'll be going after them during FY '25. At Dargues, it was a great year cost-wise with all-in sustaining costs 13% lower and below $2,000 to $1,976 an ounce. Dargues provided fantastic returns as the site transitioned towards the end of life, and I'd just like to commend the team there for their dedication to deliver that outcome. So just moving on to Slide 8, and we do present this chart regularly, but it is worth revisiting it on an annual basis. We started the year with around $39 million in the bank, and we completed our refinance in August. So essentially, on a proforma basis, we started the year with around $111 million of cash. Our sites generated $75 million of cash after sustaining capital, and that effectively funded all of our growth capital investment at Federation and our exploration programs from that operating cash flow. Our corporate costs reduced again this year, and our Hera care and maintenance costs were in line with plan. I will note within the corporate interest and other column is the tax refund that we received in January of just under $18 million. But in summary, the key message is that we kept out refinance proceeds intact this year whilst investing $65 million into our growth project. Our loan note remains undrawn and provides us with over $150 million of liquidity to continue with our growth ambitions. Finally, I'll just cover off guidance on Slide 9, but noting there is more detail on our FY '25 guidance in Appendix 2 of this presentation. So firstly, on gold production. We're guiding 40,000 to 50,000 ounces of production this year. That is lower, obviously, with the cessation of operations at Dargues this quarter, and so we were expecting our gold production to fall. We're guiding around up to 5,000 ounces from Dargues with the final couple of months of production, with all of that concentrate being shipped by the end of September. As a comparison, Dargues produced 35,000 ounces of gold in FY '24. But offsetting some of that reduction is the impact of strong forecast gold production from Peak. Our mining activity is higher in the North Mine this year with higher volumes of copper gold ore coming from Chesney and Jubilee. We're also getting some benefit of higher grade from the South Mine in Perseverance Deeps and the S400 area. And our copper production will benefit from that higher copper-gold ore, too, with guidance up to 2,500 to 3,500 tonnes. In terms of lead and zinc, apart from volume reductions in the South Mine, we are expecting some grades to fall this year as well, which will drive a slightly lower lead and zinc production from Peak. As you know, we will expect our lead and zinc production to increase as Federation mining rates ramp up over the next couple of years. For FY '25, we're targeting ore mined of between 100,000 tonnes to 140,000 tonnes. After we've built some run-of-mine stockpiles at Federation and at Peak, we expect to process around 85,000 tonnes to 125,000 tonnes of that ore through the Peak mill. The forecast contributions from Federation to group production on the slide, and that revenue will be capitalized, along with the associated operating costs, up until the point where we declared commercial production. As I've mentioned previously, based on our plans, we still see that happening sometime around the end of this financial year, which would mean that from the 1st of July 2025, we would commence reporting Federation in operation. That's something we'll monitor throughout the year and keep you updated on. And for cost guidance, we've made a change to the way we guide this year. With Dargues closing and Federation starting to produce but still being capitalized as a project, we've chosen to provide cost guidance in raw dollars instead of on a unit metric basis. The summary here and there is more detail, obviously, in the appendix. So these operating costs include both on-site costs for mining, processing and administration, but also include offsite costs for transport, refining, treatment charges and royalties. We will report cost metrics within our quarterlies. Capital guidance is also provided with Federation guided at $70 million to $80 million for the year. As I mentioned, this does include capitalized revenue and some operating costs relating to pre-commercial production. I'll hand back the call to Bryan, who can talk a bit more about what's been happening at Federation, but just before I do, I'd like to acknowledge and thank both our Aurelia team and our colleagues at Ernst & Young. Year-end processes are always intense time, so your efforts are very much appreciated. Thanks very much, and back to you, Bryan.

Thanks, Martin. So as Martin sort of highlighted and I've spoken earlier about Federation project is advancing towards first stope ore with 3,000 tonnes on the ROM at present. We are really sort of putting all efforts to make sure that we're seeing the mine up for success both initially for the first stope ore and obviously, developing for a ramp up for the rest of this year. It's important we continue to advance all the other project work for Federation, including civil works, which are due to be completed by Q2 FY '25. That's ROM pads, haulage roads and other sort of infrastructure. We'll also have power station upgrades to continue, and ventilation work to upgrade as well. This forms part of what's in the budget for the rest of this year. On a priority basis, our work really is going to be focused on developing the decline to get to the next set of stope levels and also infill drilling to unlock the potential of reserves and our production targets. I want to put a big thanks out to the team members for looking for solutions also for our reducing costs. As I've mentioned in previous updates, we have had, obviously, headwinds with both rainfall and delays to our development in-fill drilling. We've also had obviously inflationary issues and obviously, higher costs on many of our fixed price activities. What's been encouraging is to see that our teams have continued to come up with solutions to reduce costs to de-scope items that we don't need to take forward as part of this business in Federation and for the Cobar region. Really, the team has been focused on preparation for ops during this to ensure that we kick off FY '25 budget and also the first stope ore really as a new mine with a great future. This is actually ideal for us to have the right culture at Federation and the Cobar region to have a team that's really looking for ideas to look at how to improve cost, how to make sure it's safe and how to make sure we can maximize our productivity out of this fantastic ore body we have in front of ourselves. With that said, we are still tracking to be within our budget approved based on the fact that we have obviously de-scoped and looked at how to reduce and improve costs and even against those various headwinds I just discussed. So it's a good sort of a wrap-up for the team who's been involved with that. I'll just pass on to Andrew to talk through exploration, and then I'll take over from Andrew after that. Thanks, Andrew.

Thanks, Bryan. So as well as our financial results and guidance that Martin has spoken to, today, we also released our annual mineral resource and ore reserve statement as well as our production target. If I step back from the presentation on Slide 11 for those following along, when I think about it really, there's a couple of things that really excite me and I think differentiate us from others. Firstly, as Martin talked about, we've got a strong cash balance and no debt. Secondly, and Bryan's talked about this previously, we've got processing infrastructure within the Cobar Basin, both at Peak and Hera. But also and I'll talk about this now in some detail, we've got a very strong resource base and very strong exploration potential. So turning firstly to the resources. We reported that we have got 26 million-tonne resource today, and that will really underpin the business going forward. We've talked about Peak's transition to copper. You can see in the resource and reserve statement, that transition playing out in numbers. We've got a copper resource at Peak, for example, of 16 million tonnes at 1.8% copper and 0.9 grams gold, very, very good grades. So it will really underpin that transition to copper that we're going to see at Peak. And you couple that with Federation where resource holds at about 5 million tonnes of extremely high-grade zinc and lead with gold ore and the 2 of them coupled together to really underpin future for our business. There's some other interesting items in our resource and reserve statement worth touching on. Firstly, we declared a maiden resource for Queen Bee this year, 560,000 tonnes at 2.2% copper, so very, very good grade copper. And I've got no doubt that will grow as we do more work on Queen Bee. Also, for those who follow along the Nymagee results over many years, the resource there has grown from 1.9 million tonnes last year to 2.3 million tonnes this year on the back of drilling. If you want to see more information about that, really, we reported that in February this year. Probably a good lead into exploration and I'll put on my explorationer's hat now and you'd always love a bigger budget for exploration, particularly given the prospectivity of the tenement package we have but also the track record we've got of exploration success and discovery. But I think where we're pitching exploration this year is good. As in the guidance that Martin touched on, we've got a very healthy budget for this year, but it's prudent given where the business is going forward. So this year, in exploration, there will be a mix of extensional work around on ore bodies as well as laying the foundations for the future and future discovery. So as summarized on this slide, clearly, we're going to be drilling at Federation, especially targeting that Northern offset, the really exciting Northern offset that potentially gives us that Western extension at Federation. We talked about that if you look back in our release in April this year, certainly more information on that. We'll also clearly be following up the success we had at Nymagee with further drilling, and that drilling is due to start very shortly. I mentioned, it allowed us to grow our resource to 2.3 million tonnes. I've set a challenge really for Todd, Owen and the exploration team for this year. But we want to see that grow to a target of 5 million tonnes and really give us a chance to have a stand-alone economic mine development there in Nymagee. We've got a range of programs, obviously, at Peak. We're going to continue Kairos, Chesney, New Cobar depth extensions. We're going to follow up the successful drilling we had at Jubilee North. So plenty of activity going on in and around Peak. And in addition, we'll advance some of those targets that we chatted about Queen Bee, Young Australian, the next one along to the south in the north line there at Peak, and also a host of targets around the Nymagee district. So looking short, our mineral resource or reserve and production targets certainly demonstrate the strong mineral inventory that we've got at great grade, and we'll continue to work on converting the potential of our tenement package into future discoveries. That's all I was going to cover. I'll pass back to you, Bryan.

Thanks, Andrew. So as I continue to reinforce every quarter, our ambition in the short to medium term is to fill our mills with quality ore and maximize our shareholder value. What we have that differentiates us, I believe, is we have the great infrastructure that you've heard us talk about, and we're looking at how we can optimize that to even create more value. We have really good talent in our team and joining our team to help us deliver that, who are hungry to deliver that. We also, as Andrew just mentioned, have this great exploration potential and really good geological prospectivity under our footprint, which we continue to unlock and deliver value against. And as Andrew said, if we could drill more, we'll unlock more, but we need to be obviously mindful of doing it in a smart way. What's important, we have a strong balance sheet to support all these. So really looking into FY '25 as a focus area, really our first and first focus right in front of us right now is to get our Federation first ore for this quarter and then the ramp-up, and make sure it's done safely with the right sort of quality checks to make sure we get this batch sample across from Federation to Peak and start doing the business. That's one big step towards filling these mills, at least at Peak starting point. Number two, we really continue to see the operational performance improve. We've got very much a large focus on improving our unit cost in mining and processing. Through the operating model of the region now, we're having one Cobar regional model, one management team overseeing it all. We believe we can really get synergies and benefits to really help drive that performance through sharing equipment, people, skills, talent and actually basically having a much more efficient process in that region. As I spoke about, attracting and retain talent is a priority in the industry right now. Obviously, we've seen a reduction in turnover, which is great, and also on unplanned absenteeism, which is great, but we need to continue to make sure we've got the right attraction and retention processes in place because obviously, people will enable this plan to be unlock and we really value that and have the right culture going forward to make sure this business is successful beyond what we've actually started this last 12 months or so. Number four, really on Cobar optimization and great Cobar investment decision is work that is pretty much on the forefront of our minds right now to get those projects and sort of assessments done over this next period of time in FY '25 to really understand what is our potential to increase our value even beyond what is our base case and obviously set up our future through great Cobar investment decision also into FY '25 and beyond. As Andrew spoke about, number five is really to make sure that we set up exploration to deliver further organic growth options. Really has had great success so far in unlocking value through these organic growth options, and I think we have the right team, the right focus and also the right vision to really sort of unlock that going forward for our future in base metals. So look, with that said, they are the focus areas. Underpinning all that, obviously, is making sure we do things in terms of making sure it's safe for people, making sure we have high environmental standards, making sure we're working and dealing with our communities and our neighbors in a very respectful way to bring them with us and obviously, making sure we're always thinking about the health of people in our organization as we build our companies as well. So all that said, I'll pass now over to Jody, so we can open up for questions from people online. Back to you, Jody.

[Operator Instructions] Your first question is from Paul Kaner from Ord Minnett.

A few here, if I may. Just firstly, on Federation and that grade for FY '25, what sort of grade should we sort of expect for that ore that's mined there?

In terms of the breakdown of the grades, obviously, we'll have -- I won't go through the specific numbers. We can get some more details on that soon. But really, our focus is going to be zinc and lead and obviously, with gold and a small proportion of copper coming here in this next period of time for the first 12 months as we ramp up.

Paul, Martin here. Some of the comments, I mean, there is a decent proportion of what you call development ore this year. So the grades are slightly lower than what they would be once we're in full ore. So yes, combined sort of lead-zinc, we're looking around 10% to 12%.

So I should have been a bit more specific in terms of the zinc grade I was sort of after, how that's going to look relative to reserve, I guess?

Yes, a bit lower. And obviously, we're at the top of the ore body. It's obviously, as we get into the ore body, it's going to be obviously more and more value-add, so...

Understood. Then just moving on to that sort of gross CapEx guidance for Federation of $70 million to $80 million. Could you just maybe just break that up a little bit more, sort of what are the big ticket items there?

So the primary spend from now is mine development and pushing the decline down. Surface-wise...

The infrastructure on the surface and other works is around $14 million.

Yes. So around over half of the spend this year will just be on pushing the decline down.

And in-fill drilling.

Yes.

Yes, great. Then I guess, taking all of this into account, how should we sort of be thinking about the ramp-up in FY '26? Or is it a little bit, I guess, too early to say it right now?

We're still targeting the full production rates during calendar year '26. So that is -- so calendar, not financial. That is when we hit that sort of 50,000 tonne run rate. It's really, as we've talked about before, pushing that decline down and getting those additional levels open over the next sort of 18 months and track up to that full production rate.

And then just squeeze one more in. Just moving to that R&R and maybe one for you, Andrew, just looking at those maiden resources for Queen Bee and Nymagee, obviously, some pretty good grades there and tonnes as well. I guess how should we think about that in the context of future mining?

That's a good question, Paul. Look, I think in my mind, neither of those reflect the possibility that they have. They are what they are. We've done limited drilling, particularly at Queen Bee. We've done some more drilling at Nymagee over many years. But there's plenty more work to do on those. So I think the grade is a good guide as to what can be expected. We obviously want to grow out those tonnages. 560,000 tonnes at Queen Bee doesn't make a mine, but we're all very confident here that, that will grow with further work. We're also going to do some work around the land that we drilled to see if we can add some additional tonnes for vertical meters as a lateral extent, which then makes a mine development much more possible. Similarly, Nymagee, look, the goal -- it's been talked about for many years, the goal is to really grow that inventory this year to a point that we can make some sort of decision on it. We won't be making a mining decision this year, but it'd be really nice to know whether that becomes our mixed feed source on Great Cobard, for example. It has the potential to. We've just got to do the work to prove it. So I think the real key takeaway for people, we've got a very exciting tenement package with work and targeted work. We will get the next ore body and the next ore body first couple of cabs off the rank at the moment, Nymagee and Queen Bee, and there'll be plenty of other ones.

Yes. Sorry, just one more. Following on from that, if we think about your exploration budget then for '25, what's the main focus in FY '25 and how those dollars, I guess, split up?

Yes. It's pretty well spread as you would expect. So we're putting a fair bit of work into Federation, a fair bit of work into Peak. So the lion's share of the budget really comes off those targets as well as the big chunk on Nymagee. We are keeping some of the budget aside to ensure that we can continue to advance some of our regional prospects. But I think you could assume that the split is really focused on that ore that will make it to a mill within the life of buying kind of plans, with appropriate amount then put in for regional work.

[Operator Instructions] There are no further questions at this stage. I will now hand back to Mr. Quinn for closing remarks.

Look, as highlighted in all the slides and the ASX release pack sent out today, it's been a very solid year, a good performance for Aurelia in what I'd call a transformation year. But the business is really setting us up for success going forward in our mode of growing the business. Like I said earlier, really aiming to fill our mills with quality ore. What I'd say is we have the infrastructure, we have the geological prospectivity and we actually have the people to do it now. So really, I think we're in a really good position to go forward. I want to take the opportunity to really thank the shareholders for supporting us along this chain in the last 12 months. Our employees, if I can do a call out, obviously, Dargues coming to the end in August this year, really sort of delivered well over the last 12 months. Obviously, now we've moved that business into care and maintenance and towards closure. So some big wins for the company there by getting our Dargues successfully finished and maximizing our recovery out of the operation. Also to the Cobar regional team, really pushing this last 12 months to get these additional tonnes out at lower costs and really taking the initiatives to set up Federation for success. Like I said, with several headwinds at the doorstep, they were able to push through and really have continued to make the business set up so we can really advance through first stoping and obviously, in a ramp-up phase. Some big call-outs also to our exploration teams and our other teams who have worked tirelessly through the year to help set up us for the future. We're a small organization with, I think, lots of potential. And really, it's now a matter of us following our growth road map, doing the things that we said we're going to do and deliver our commitments. Hopefully, you can continue to observe that over the next 12 months as we report quarterly against those commitments. So once again, thanks for everyone joining us and listening, and I'll pass back to Jody to wrap it up.

Thanks very much. That does conclude the conference call for today. Thank you all very much for attending. You may now disconnect your lines.