Aurelia Metals Limited (AMI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aurelia Metals Limited Half Year Financial Results for the period ended 31st December 2024. [Operator Instructions] I would now like to hand the conference over to Mr. Bryan Quinn, Managing Director and CEO. Please go ahead.

Thank you for joining us today. Glad you could attend the Aurelia Metals Half Year Financial Results for FY '25. I recognize we've delivered -- we released detailed operational exploration and project information for quarter 2 only a month ago. So my introduction update will be reasonably brief and focus on highlights and alignment of strategy. And then I'll allow Martin Cummings, Aurelia Metals' CFO, to present the financial results in more detail. I'd also let you know that I have Angus Wyllie, our Regional Operations General Manager; and Andrew Graham, our Technical and Business Development Officer, on the call with us today to allow us to work through any questions you may have at the end of the presentation. We'll be using the presentation that was released today to the market, and we'll call out the slide numbers as we progress. So you can obviously follow along and understand what we're talking about. So I'll just move to the third slide, Slide 3. Firstly, and most importantly, I would like to highlight the safety performance has continued to improve through the first half with a 34% reduction in total recordable injuries. Importantly, this focus can never stop, and we need our people attending work and departing work injury-free. We finished the first half at 5.68 total recordable frequency injury rate. Operationally, all guidance ranges for production and costs are on track at the end of the half, and our forecast is on track for the full year numbers also. Gold was at the lower end of guidance and copper at the upper end of guidance, and this is all about the sequence of stoping within the 12-month plan, which will be ironed out over the remainder of the year. Federation processed 16,500 tonnes through the Peak mill and fair to say the results have exceeded our expectations with quality concentrates in lead, zinc, gold and copper. The ramp-up plan for Federation is still focused on 100,000 to 140,000 for the FY '25. Our group operating costs have been lower for this half, FY '25, noting that Dargues' costs were only reported in quarter 1 and not quarter 2 as compared to FY '24, which had both quarter 1 and quarter 2 in the numbers. Group operating costs for FY '25 is slightly less than FY '24, which is a good outcome. So overall, on costs, we are tracking okay. We've got significant work to do, obviously, in terms of productivity improvement and reducing relative costs, but we're still on path with our overall plan and strategy. We've delivered stronger operational performance with the assistance of stronger gold prices. We are still, however, managing our way through challenging inflationary issues and wages and mining and construction materials. But overall, underlying EBITDA for this half is $49.7 million, which is up 53% from half 1 FY '24. More importantly, the business is now profitable with an underlying NPAT of $15.6 million, which is up $17.4 million from previous. Additionally and importantly, our underlying EBITDA margin continues to improve half-on-half as our business ramps up in production. So these positive results all contribute to our cash balance being very healthy at $96.7 million. I think the standout item to note for Aurelia Metals is the balance sheet has continued funding the Federation project capital and exploration capital in half 1, also with cash flow generated mainly from Peak. In fact, cash flow from operating activities, excluding Dargues, has moved from $14.8 million in half 1 FY '24 to $50.7 million in half 1 FY '25, which reinforces our focus on improving our underlying business performance and productivities. This goes to show our business and focus as an organization on reliably delivering our commitments in productivity and generating cash is setting us apart from our peer companies as a solid investment. What's important to highlight is we are -- if I can move to Slide 4, the next slide. What's important to highlight is we are on a journey to build this company to be very profitable as we continue to execute our strategy, which is to operate with discipline, which is basically delivering our safety, cost and volume each quarter through our mine operating systems being implemented properly. It's about having the right people, the right mindset, seeking to recruit and retain people who have loyalty with our work and want to grow with our business. We have a much high -- a very high focus on growth at the moment in terms of delivering our Federation project into commercial production in half -- half 2 FY '25 and hit the various milestones we need to deliver against that and also bring our next set of projects in half 2 to the board for FID. We also focus on sustainability, delivering value. That is basically continuing to work with our community on growing our business, looking at ways to reduce water, energy and build a long-term sustainable business in the regions we work. So I might just hand over to Martin to run through the financials, and I'll come back and talk about our growth plans.

Thanks, Bryan. Turning to Slide 6 and just to recap on our production and cost outcomes this half, and it was a very solid start to the year. Our gold production of 21,500 ounces was slightly behind where we planned, but was driven by the sequence of high-grade gold stope, which has now been mined and processed. Important to note that the prior period on this slide included a full half from Dargues, which produced just over 17,000 ounces in that period versus only about 3,500 ounces in this period. So underlying peak increased from around 14,000 ounces to 18,000. The mining sequence in H1 mined more copper ore and resulted in the higher copper production with mining at Peak in half 2 more dominant in lead zinc ore as a result of -- and as a result, much higher volumes of Federation ore will increase production of those metals. So just moving on to Slide 7, and this is quite a comprehensive set of metrics, but it really shows the improvements in profitability, culminating in an underlying profit of $15.6 million after tax and a statutory profit after tax of $18 million, which equates to just over $0.01 per share for the 6 months. So on to Slide 8, where I've just called out a few of these metrics. And you can see here that really shows the journey of where we are to ramp up productivity and profitability. Our underlying EBITDA margin for the half was around $50 million, which lifted the business back into profit after tax, as I said, $15.6 million underlying and $18 million on a statutory. But really, the pleasing thing for us is in that lower left chart where you can see the improved cash flow from operating activities with the contribution from Dargues isolated to give you an underlying result, with Peak benefiting from higher production volumes and higher prices, but also importantly, its ability to keep costs in control. And as you can see on the group all-in sustaining cost chart, it means that we've been able to realize the benefit of the higher gold price to further strengthen our balance sheet as we invest in Federation. So looking ahead for the second half, and we do see opportunity to do better than this. Firstly, in line with our guidance, we do plan to deliver higher production this half. Most of that production lift comes from the ramp-up in volumes from Federation with all indications that we'll be able to achieve the commercial production milestone by the end of the half. Secondly, we see opportunity from ongoing higher commodity prices and the weaker Australian dollar, which ultimately translates into higher revenue for us. In particular, the average gold price realized in this half was just under $3,700 an ounce, which is well below where gold is currently trading. And finally, we do see opportunity to keep making inroads into our costs, particularly in mining and maintenance. Our focus at the moment is on improving productivity of our mine development activities, but we're also looking at identified opportunities to lower costs for contractors and through our contracts through effective management of them and continuing to recruit Aurelia employees to reduce contractors in full-time equivalent roles. Just moving on to the group profit slide. And as you can see, we're building up from a 0 base here rather than from the prior period movements. And I really just wanted to show that Peak is currently our engine room with almost $48 million of EBITDA for the half. And as we transition commercial production from Federation and ramp up those mining rates, that number will continue to grow. As I said, we'll continue to make -- we'll monitor the performance of Federation and look to declare commercial production this financial year. Worth noting as well on this chart, there was a sale of zinc concentrate from Federation in these results. But as I took you through on the December quarterly call, the way we're accounting for pre-commercial production at Federation is that the revenue is reported with an offsetting operating cost. So it's actually reported as a 0 EBITDA for this period. And finally, just on to the balance sheet. And as the slide says, our balance sheet is in great shape. We started the year with $116.5 million cash and finished it with a balance of $96.7 million. Our operations generated $45 million in free cash flow. That only included a couple of months from Dargues, but exceeded what we had invested in Federation and our exploration programs. This has been a pleasing theme for a while now and is a key reason why our balance sheet strength -- balance sheet strength has been retained. I just want to note that, that net depletion of $20 million over the half, about $10 million outflow of that was to cash back a performance bond. We will still have some smaller amounts that we have to cash back through this half as our rehab estimates are updated, but this cash is sitting in term deposits earning interest. And whilst restricted for now, once we work through the upsize of our performance bond facility, that cash will be able to be returned. So in summary, it's been a really pleasing half with a strong operating performance resulting in Aurelia returning to a profit after tax and retaining a very strong balance sheet to continue executing our growth ambitions. I do just want to call out the Aurelia finance team and the EY team for their efforts to prepare this release. Some of you are on the call today, so thank you. It's been actually a very smooth half year-end. So thanks for all your efforts. With that, I'll hand it back to you, Bryan.

Thanks, Martin. I'll take a few minutes to summarize where we're up to in our growth journey in the business and cover at a very high level where we are, noting that we spent a fair bit of time in the quarter 2 results talking about the projects and also exploration. But it's fair to say our growth work is at full strength at the moment. We have several streams of work underway to grow the business to be much more profitable, resilient and a strong cash flow in the future. We have the Federation project, which is on Slide 12. which basically has -- definitely on track and within budget as Martin said, is ramping up to basically meet commercial production in this half. If you look at what we've achieved over half 1, surface works have been completed. The first concentrate has been produced, power upgrade has been completed. The ventilation fan was installed and commissioned. And obviously, we're progressing our haulage submissions through the government at the moment as well for increased volumes. We also have on Slide 13, we continue to progress the Great Cobar and Peak plant optimization works through our studies, which is moving very, very well, and we hope to have both of these 2 projects progressing through to FID in H2, which means we can basically commence the work in FY '26, H1. Realistically, with these projects underway, they're not significantly complex. The Great Cobar project is effectively 2 declines and a ventilation shaft and some various surface works. And then the processing upgrade of the Peak optimization is also not a complex project, really involving the installation of a ball mill and some power system circuits and some material handling systems. So both those projects are well and truly on their way to FID for H2 and on track. If I move to slide -- exploration slide, obviously, as Andrew presented in the quarter 2 results, we continue to unlock the potential base metals basin in the Cobar region. I'm not going to report back on anything new from what Andrew spoke about at the end of Q2. But basically, we continue to build a pipeline of options for this region, and we're tracking well against that work. The focus has been on really extending the deposits in the North mine at Peak, recommencing drilling at Federation West and to assess the potential of the extension. And lastly, to basically move through the Nymagee program to understand what the resource potential looks like at Nymagee. So all that growth work is well and truly on track as we've committed and spoken about at the end of quarter 2. If I just move to Slide 15, our focus areas. It's fair to say our real focus areas has continued to be on making sure that we have people being safe and working in a sustainable way. Obviously, we're really focusing on getting more productivity improvements out of Peak. So obviously, that will improve our fundamental cash flow base for our business as we progress from South Mine to North Mine. It's to really focus on maximizing the cash generation via our productivity and costs to make sure that we can utilize the benefits of the stronger prices, but also make sure we've got the right quality and right volumes going out in line with our budgets and plans. Ramping up Federation, like I said, to commercial production is well underway and will likely be completed in H2 of FY '25, which is a great result, all within budget as well, which you don't hear very often. And as I said, the Peak optimization and the Great Cobar projects going to FID is well and truly on track as well. And as we just mentioned, we're spending the right amount of money to really look for the next set of options and projects that we can take this into the business to grow our business as we go forward as well. Obviously, what's important when we look at our growth options in our business is that we're looking at how to use our facilities we have and how to use the resources around us to fill those facilities as we've always talked about in the future. That's why the pipeline of exploration is really important organically for us as a company. I'll move to Slide 16. I just want to make it clear, our strategy and direction remains unchanged and is working to support our business being much stronger in the near future for our shareholders. Having the right people with the right culture and the right value is a fundamental foundation for our business. Having a strong focus on operating discipline, delivering quarter-on-quarter results, really starts at the shop front where we have shift by shift, day by day, week by week, month by month, quarter-by-quarter results, delivering in a wide way to deliver our full year budgets and our life of mine numbers. Having our focused growth on low capital intensity and organic is the best way for us to maximize our shareholder value at present. And when our business is fully valued and realized, we'll start to consider what inorganic options might be around us. But right now, close to our -- right now, setting up plans to use our processing facilities, which are close to our -- close to delivering full value of 1.5 million tonnes is where our focus is right now. And once we've sort of got all those plans in place and we know we can maximize value through our current processing facilities, obviously, we can continue looking for what options might be out there. Rest assured, we are ensuring every dollar of capital is being prudently assessed for alternatives and our shareholders are getting the best value for their dollar right now. With that said, I would like to go to questions, please.

[Operator Instructions] First question comes from Paul Kaner with Ord Minnett.

Two questions from myself, if I may. Firstly, on Federation, thanks for that additional granularity on Slide 12. Just for accounting purposes, when are you anticipating to hit that commercial production at the asset? I think you mentioned this half. Is that right?

Yes, this half, Paul. To be fair, it's more -- if it was in the half, it would be in quarter 4. I know my accounting team would prefer it to be 1st of July, but it will be somewhere in the fourth quarter if we went earlier than 1 July. But I think from 1 July onwards, it's safe to say we'd be there by then. The way -- how I'm monitoring it is just looking at the mine production coming out each month. Obviously, the price environment will play into it because we're working to essentially a 0 or positive EBITDA. But yes, sometime in the fourth quarter.

Yes, that's great. And then secondly, the CapEx for Great Cobar I think the PFS had sort of $35 million of preproduction CapEx back in 2022. Obviously, we're in a higher inflationary environment now. But anything you've seen or changed in the mine process that could potentially offset some of these inflationary impacts?

In terms of the capital costs, obviously, we're taking that to the Board for FID in the -- with this half. It's fair to say that obviously, all these projects will have inflationary pressures based on just costs, materials and everything else. But the team is still working through the capital optimization, looking at what we -- what is in the capital, what's in the growth. But the mine sequence and the shaft sequencing is all very similar. It's not substantially different. So effectively, look, we're just trying to optimize that now, and that's -- we'll come back and report to the market once we have that sort of locked down.

The next question comes from Daniel Roden with -- analyst.

First one, I just wanted to get a bit of clarity just around the financing cost of $8.3 million, just given the interest-bearing loan balance. I just wanted to sort of break down what was behind that $8.3 million figure on the P&L.

Yes. So Dan, what's in there is the performance bond margin. And we also are amortizing costs relating to the refinance that we did back in 2023.

Perfect. And second one, just following on with the Great Cobar and pit expansion. So obviously FID path too. Just wanted to get a sense on, I guess, timing of the CapEx for both of those projects. I assume the plant expansion is going to be over '26, but Great Cobar as well, is that going to be FY '26, '27 kind of CapEx outlay if it is approved by the board?

Yes. So it's likely at the moment that the capital subject to FID would commence in FY '26. Now as you know, when you're developing declines, it's sort of -- it's capital cost of developing declines is a month-by-month cost. As you push your declines down, getting down towards where the shaft will be installed, obviously, then bringing the shaft up would cost. So there's not like any big lumpy numbers in there. It's more like, I guess, a cash sort of spend as we progress the declines and the shaft over a 2-year period is pretty fair to say at this point until we finalize the actual project. Yes, so that's kind of where the capital flow or cash flow side would look anyway over that 2-year period.

And maybe just on the quantum as well. So your major capital items for Great Cobar developments, obviously, the lateral decline from the existing underground infrastructure and some shafts that are going in. Outside of that, are there any other major bits of CapEx that need to go into, I guess, the Great Cobar development itself?

At the moment, obviously, they're the major ones. The other capital really required is some small adjustments to workshops. There's a good old sort of power work that we'll need to do, some additional services work that will need to be done. But in summary, the major capital will be focused around the development in the shaft.

Okay. And I suppose -- just following on from that, I suppose different scale of projects, but I would assume that on a relative basis, the Great Cobar CapEx for the developments and everything should be relatively similar to what was expended for Federation. Would that be a fair comment?

Look, I think the difference with Federation versus Great Cobar is Great Cobar already has a pit top. It's got ventilation in place from the Chesney fans. It's got workshops. It's got an office facility, it's got bathhouses. So you're really using a lot of existing infrastructure already, where if you think about Federation, Federation was kind of like a new mine site from scratch type of thing. So we'll be using a lot of additional -- we'll be using a lot of the existing infrastructure already in place using the new Cobar access into the area and basically mining off a road, which already exists. So it's sort of -- you're already in the mine effectively when you start Great Cobar. So on a cost per meter basis, we expect the conditions to be probably better than Federation cost per meter. But obviously, like I said, you're using existing facility, existing infrastructure, which is a big plus to us from a capital efficiency point of view. Andrew, is there anything you want to add to that at all?

I think that sums it up pretty well, Bryan. Just thinking about big capital items, Bryan did mention electrical. That certainly is one, but the benefit we get compared to Federation is the work we do puts us on grid as opposed to being off grid. So then we get the benefit ongoing of grid power at grid power prices and also the decarbonization that comes as the grid decarbonizes. The other one, which is slightly different to Federation is there's an old underground working that sits at Great Cobar, which will be not attached to where we are mining, but sits above. And the intention is to dewater that, obviously, for safety of the underground mine, but also as a source of water for the plant. There's obviously a cost for that but the benefit we get is in being able to process using that water.

The next question comes from Roy Gillespie.

Congratulations on getting [indiscernible] in the first half. My question is, has the processing of ore from Federation continued through January and February? And is the 140,000 tonnes production from Federation planned to be processed as well in that period?

Yes. Thanks for the question, Roy. Look, we -- obviously, we're doing stoping and stockpiling at Federation. And then we'll basically send a bulk sample, truck bulk sample all at once to Peak. So over January, February, we've been processing the Peak material, and then we'll basically be campaigning into March, April, the Federation material. So it's very much a bulk campaign at the moment as we progress. In terms of the total volume that we processed in the financial year, it won't be the -- whatever we do mine and stockpile at Federation won't all be processed, obviously, because we've got a bulk sample -- sorry, bulk haul to Peak and put it through in campaigns. It's important for us to get the campaigns and understand what the ore is processing like before we start looking at how to blend the ore. So it's kind of like, I guess, a methodological process to do the batches, understand and then look at how -- with the metallurgists on site, how we can actually blend it to optimize the flow-through as well. Is there any comments, additional comments, I guess, to that?

No, we're on track within the guidance, as Bryan touched on, there'll certainly be material on the ROM pad at the end of the month at the end of June that won't get trucked up, but we'd hope to minimize that. I think we just restarted trucking on Sunday. So we're aiming for the next campaign of processing early in March.

Does that answer your question, Roy -- understand the context?

Yes, I do.

The next question comes from Anthony Wallace, private investor.

A terrific half, really disciplined finance, and you can just see the change, which has been fantastic. Just a very simple question on one of your slides was about your infill drilling to inform mine design. Is that a normal thing that as you're getting deeper in, you're changing your resource model at all?

Yes. Look, I think we infill drill across Peak South, Peak North and obviously, Federation. As we reported at the end of the quarter 2, there was -- some changes in orientation of lens sizes in Federation that we obviously want to understand more. And obviously, it's prudent for us to make sure that we're designing our mine to maximize productivity. So the more you can infill drill, the more you can sort of lay out your stopes and efficiency of your development, the best you can, which reduces costs and maximizes volume. So it depends on the deposit of the mine. It depends on what the sort of structure of the mine is. In our case, we're doing this -- we do it quite regularly at Peak, and we're doing it now at Federation as well. Andrew, is there any other comment you want to add to that at all?

Yes. Look, spot on, Bryan. The reality is underground base metal mining, indeed, most mining, you always infill drill. So we'll drill a fairly wide spacing to declare a resource. And then as we get closer to mining, we'll tighten that up. For example, we'll have a resource on about a 50-meter spacing of drilling, whereas we will have infill to about a 12.5-meter spacing before we mine. It's very normal, also manages cash flow, no point spending all that money to infill before -- long before you're going to be there, but also you need to be there to efficiently do it. So you need the underground accesses in order to do the efficient drilling from underground. So yes, very normal process, certainly a process we do across our entire business. And I'd say everyone in the base metal space is doing exactly the same.

I might just add, I think it's important because, obviously, our processing, we want to maximize efficiency recoveries of processing and the campaigns we have. So having that extra information allows our mets to really plan the campaigns well and the throughputs well as well, so we can sort of really get our quarterly forecast sort of on target as we need to rather than sort of having a high-level guess.

Yes. Okay. No, that makes perfect sense. I thought there'll be something like that. And just one other quick question is what's your thoughts at this stage of what you're going to do with the Hera processing plant? Any further thoughts on that one?

Yes. So in the -- basically, our view at the moment is with the work we're doing on optimization, which is focused on taking all the Peak material and the Federation material to Peak and processing it, that gets us to 1.1 million to 1.2 million tonnes, which is significantly -- if you consider that against FY '24 numbers going through Peak, that's double basically what Peak was producing. Then really, Hera, if that goes ahead as far as the project is concerned, then we're on track to deliver those sort of volumes, which is going to significantly uplift our copper equivalent numbers as a company and profits. So therefore, Hera is obviously left ready for other options. So we're obviously continuing to look at exploring in that region. We have the Federation extension drilling. We have the Nymagee drilling. They're all within 8 to 10 kilometers away from the Hera plant. And also there's also some interest in third parties looking at wanting to potentially toll material through that plant. So in a nutshell, we -- once we sort of move past the Cobar project -- Great Cobar project and the optimization project and moving to FID, we'll be looking very carefully in the next phase of what do we do with Hera in terms of how do we generate value at Hera. And that takes us from 1.2 million to 1.5 million tonnes throughput, again, allowing us to significantly increase our copper equivalents and whether it's our volumes or someone else's volumes that we're tolling, it's making a commercial decision on what makes sense and makes money for us and the shareholders.

There are no further questions at this time. I'll now hand it back to Mr. Quinn for closing remarks. Please go ahead.

Thanks very much for everyone dialing in today, and thanks very much for the questions for clarifying those points. Look, I just want to once again call out a big thanks to the Aurelia team, our contracting partners and the community and the people that support us. I think as a company, as you can sort of see, we really are focused on delivering quarter-on-quarter, half-on-half and delivering what we committed to as a company. And we got a really good strong leadership team, really focused on making those results work for our shareholders. And obviously, we really appreciate the support we're getting from the current shareholders and hopefully future shareholders as well. So once again, thank you very much for today and look forward to communicating our next set of results in quarter 3 for this financial year and look forward to the questions to come with that. Thank you, Ashiya.

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