Bathurst Resources Limited (BRL) Earnings Call Transcript & Summary

Hi, everyone. I'm Richard Tacon, CEO of Bathurst Resources. Thanks, everyone, for coming along and for the presentation of our quarter 3 results. I hope, trust everyone can see the presentation, and we'll kick this off. A little disclaimers. Haven't had a lot of change in the corporate overview since the last quarterly update, a little bit more cash in the bank. There's about $13 million more in the bank. Of that, about $13 million is to the Bathurst account. Really no great change in our market capitalization either, I'm afraid. No real change in our overall shareholder base. So anyone that's new to Bathurst or needs a bit of an update, really, the company is -- operates in 2 separate areas. We've got New Zealand, which is depicted in the slide before you. We've got 2 operations in the North Island, Maramarua and Rotowaro, which principally supply New Zealand steel and a couple of other large agri businesses and including some domestic sort of coals for heating purposes, but mainly New Zealand steel and steelmaking process. The Stockton mine in the South Island and the West Coast is 100% export to Japan, Korea, India and China. And then we've got Takitimu into the South, which is 100% owned operation, which supplies really process heat coal to value-added New Zealand prim production. So again, that's a dairy advertise, vegetable manufacturing, mainly for export. So we've got head office in Wellington, and we've got regional office in Christchurch, which manages the joint venture. So the 2 North Island mines and the South Island mine, Stockton are owned through a joint venture structure with a large New Zealand privately owned company, and we own 65% of those operations. So in Canada, we've got 2 projects, the Crown Mountain project we've been involved in since 2018, and then the recently acquired 100% owned Tenas project. So Crown Mountain is owned with a joint venture with an Australian listed company called Jameson. We hold 22% of that project at the present time with the option at FID to go to 50%. So one is in the Elk Valley, well-known hard coking coal district and the other is north of Vancouver as a greenfields project in the Telkwa area. So looking at our safety stats over the last quarter, well, this is the year-to-date. We've had one lost time injury, unfortunately, at the Rotowaro mine with a twisted ankle to a worker getting out of the Canada fuel truck. We've had a number of injuries across the whole of the business. A lot of sort of relatively minor injuries that have required off-site treatment. So our medically treated injury rate and our overall total recoverable injury rate are nowhere near where we find to be acceptable and very high. So we started a program. I mean, some of the indications here were that our training system was a little bit disjointed. So we're starting a learning management system across the whole of the company. And also, we've got an extensive program of audits and also dealing with the site management teams around the use of risk management tools, which we found again to be some of the contributing factors. So just looking at the quarterly result, we've -- I'll just go back to that one. For the export part of the business. We're pretty much on target for the year. Obviously, the pricing has been a little bit higher than what we originally thought in the budget when we put that together back in June last year. Our production tonnes have been quite heavily impacted over the last couple of quarters by outages on the rail, which has meant we've had to then continue on with overburden removal, which has been really up to target, but we've had to restrict where we're operating in terms of production to be able to then meet the needs of immediate shipments because we've been down in terms of the amount of tonnes we've been on of rail. And we are anticipating that's going to -- that shortfall is going to carry through into quarter 4 with the potential loss of around about 50,000 tonnes for the full year. Not that we'll lose those tonnes, will flow into the next year, but that will be offset in terms of the overall earnings by still high prices being held up by the benchmark price. Rotowaro is quite a way under. We've had quite a lot of issues with production in the Waipuna West extension mine, part of the mine, equipment, weather. So -- and also in terms of trying to man up during this period with quite an extensive rise in the amount of overburden removing risk going into that new block. The older block, Waipuna West is actually performing very well. We've got a lot of coal under like cover there now. And so that coal will be flowing through into the next 2 quarters. But we have got quite a high strip ratio. And I've got another slide on that as we go further forward looking -- looking into a bit more forward-looking stuff. Maramarua has been performing very well. We've had increased tonnage out of the K1 pit. Most of that coal is going to steelmaking and to a large dairy producing customer, and we are pretty much on target for the year and a little bit in front for the quarter. Takitimu is performing very well. We've got increased production on the back of increased sales. The average price is better and our actually lower overall cost has meant that we are in front in terms of EBITDA and profit and cash generation. So the mine is performing very well. And in terms of looking at our safety stats, Takitimu and Maramarua have had 0 lost time injuries for the last 12 months. In fact, Takitimu hasn't had a lost time injury for 5 years. So we've sort of got 2 very different parts of our business with Stockton and Rotowaro, but with both of them with a reasonable fourth quarter coming up in front of them. So overall, again, our revenue is up, our EBITDA is up, our profit is up for the quarter, and we're pretty much now matching where we said we were going to be for the full year. So again, as we've sort of shown in some of these past presentations, we've got about $145 million in the bank today. We've got 0 debt outside of some small-scale yellow good financing. Strong earnings, we're still anticipating we're going to be in that range, $95 million to $105 million. And we've got a net asset backing of about $1.64 based on the half yearly result. So we're in a good position. In terms of our guidance, we are anticipating we are still going to be in that range of $95 million to $105 million. Some movements in the export, obviously, with some tonnage dropping out. But as I said, we are having -- enjoying higher benchmark pricing over this quarter and anticipated to go through into the next quarter. We've also got hedging that helps to hold up that position as well. We're going to be a little bit negative in the North Island overall, but we are going to be net positive in the South Island. So Telkwa, a small amount of going into that at the moment, mainly around the environmental assessment application process. And again, there's a bit more of an update when we get into the next phase. I mean the forward curve is relatively flat. We have seen it coming off a little bit. But if you then translate that further forward by another 12 months, we see it sort of coming up, and it's really in contango going out to about $261, I think, was the pricing over the weekend after 12 months out. So obviously, that's forming now part of our buildup on our hedging program. And also we'll be trying to take guidance from that in terms of setting up for the next financial year. I mean there is an increase in supply coming out of Australia, which has really been filling the spot markets, which a lot of the benchmark price is made up, obviously, of the average of the spot over the last 3 months plus 1. And we are seeing sort of at the moment, a bit more of that spot coal available. The Indian and Chinese market have been quite flat with the internal pricing has been down a bit. But indications are that early in the next financial year, past June of 2024, we will start seeing an uplift in steel production and demand for, in particular, coking coal, but also iron ore. So I think around about that 250 mark that we've been talking about as being a long-term price. I think we'll be able to sustainably be looking at that for our pricing for next year. But obviously, we'll give some more guidance on that around when we put out our quarterly results for quarter 4 and the full year result for next year -- for last year. So looking ahead, again, anyone that's new to the company, we've got the 2 major areas. We've got North Island supplying, again, principally into steelmaking in a domestic steel plant, and we've got the export business from Stockton going out into the international coking coal market. So we've got a number of growth projects that are associated with both of those hubs. And the reason we're calling that is because we've got fixed infrastructure there that we don't have to replicate to bring on further coal reserves. So in the case of Stockton, that's the export hub, the wash plant, the aerial system that gets the coal to the rollout facility and obviously, existing contracts in the customer base allows us then to bring other projects on that dovetail into the existing production remaining within the Stockland holdings. So that's forming part of an overall plan that will look to try and maintain the existing rates of production around about 1.2 million tonnes out about another 20 years. So we're in sort of feasibility to pre-feas, depending on which project we're actually in at the moment, and looking to sort of pull that together, which, again, fits into the fast track process that the government has announced. And again, we'll talk about that in another couple of slides. With the North Island, it's centered around the infrastructure that exists at Rotowaro. So again, there's a washery, there's a rail loader, there's a rail unloader, storage capacity, water control and all the other infrastructure required to really then allow us to develop into other areas that are around about 3 kilometers from that infrastructure of the hub. So our existing operations are to the south of that infrastructure and the areas we're talking about expanding into to the north of that and around about the same distance. And again, coal will get to that in a combination of private and public roads. So relatively simple infrastructure and relatively low cost to get us into that production. With Maramarua, again, it doesn't utilize stock and infrastructure, but it's a coal that doesn't require washing. It's a single seam of coal that hasn't been underground worked before. So we don't have the influence of dilution. The mine gets -- the mine mines the coal clean and that goes directly to the customers. And we're anticipating that's going to be more and more going into the Glenbrook steel plant. So just looking at Rotowaro, we have moved into the new area, which we call Waipuna West extension. We've got 2 years, which we're around about a year through now of quite extensive overburden removal. The overall strip ratio there is 20:1, so a high strip block. Obviously, the revenue we're receiving for it compensates us for that. But we've got 2 years of fairly extensive, more than 10 million BCM per annum. And that's anticipated to start scaling back in August '25 based on their forecast today. And then from that period on, then we move into a future production phase where we'll have a lot of coal under light cover. We'll have a significant reduction in the overall cost, and we'll have around about 350,000 tonnes of coal coming out per annum out to 2028. So we've got a period now where we've got probably our highest production risk, most amount of overburden removal. One of the issues we've had year-to-date is that we've been down in terms of the overall production on a month-by-month basis. And so we haven't been putting as much of the C1 cash cost onto the balance sheet, which has then affected the EBITDA that we've been reporting. But in terms of a cash basis, we're not moving the debt, but we're also not spending the cash. So obviously, at some point in time, we can't allow us to keep slipping out. We've actually had some over -- the reconciliation between the coal anticipated to the coal mine has been good. And we've also had a -- we're a little bit in front of overburn removal in the Waipuna West pit, which is the one you see at the bottom half of the picture here with quite a lot of coal on the light color. So we also have extensive coal stocks that we've been having to draw down on to be able to meet our constant sales. So the big push at the moment is to actually, we're up to forming now is to get ourselves in a position where we are meeting our targets on a month-by-month basis. We are moving very fastly towards that and anticipated that for the remainder of the period up until August '25, that we will be in that high cost but also high productivity region. So production in Canada, sort of touched on this briefly before, the 2 projects, 2 different districts and really 2 sort of totally separate projects. Obviously, as we said, the Crown Mountain project is owned through Jameson. With Jameson, we hold 22%, and we've got the opportunity of taking that up to 50% by paying CAD 106 million, really when the final investment decision is made. So that's after permitting and after the remainder of the project finance has already been established. But with the Tenas project, we completed that acquisition in late '23, December '23. We'll be moving on with that. That will be 100% owned by Bathurst and is anticipated to be a production rate of around 1 million tonnes a year, whereas Crown Mountain will be around 2 million tonnes a year. So about 1 million tonnes in terms of equity tonnes for us. With the Tenas project, as I said, we've taken over full ownership of that now. We've got a small team we inherited as part of that project, which we're very pleased about, mainly mining engineers and some people on the ground up in Smithers Telkwa area where the mine is located. Engagement with First Nations and the local community has been very positive. And I think one of the statements of that is the project assessment agreement is expected to be signed off very soon. So that's quite a clear step that really then allows us to then start crossing off some of the request for information that we've got from the regulator in terms of then getting to the next or the final stage of the permitting process. With Crown Mountain, it really is the only steelmaking sort of coal development project in Canada that's actually got to the joint federal and provincial review phase. So we've just been going through and doing the formal public and technical review phases, which really meant there's a lot of open houses. There were 6 open houses planned and executed as part of that earlier this year and then moving on to the more technical study aspects of the environmental assessment and the application phase. So that's a good step to move into that next phase. Obviously, coming out of that is sort of one phase behind where Telkwa is up to for Tenas project. So yes, we're anticipating it's probably going to be about 12 months in terms of development behind the Tenas project. So really in terms of cash spend and in terms of intensity of action, that's probably going to be a good thing. So putting all that together, again, anyone that's been following the company a while would have seen this graph before. Our South Island business is anticipated that we're going to sort of be starting to run out of customer there in '28, '29. That lines up with the existing reserve within the existing operation. We have got a growth projects associated with that. But really, what we're hearing from our major customers in the area is that they are going to move on to other fuel sources and/or shift production. So we're anticipating that, that part of the business will end around '28. Obviously, we're still making -- we're not anticipating any slowdown at all, particularly within the time frame we're talking about out to 2040. So the current business within Stockton carries us through until '34. And then we've got the expansion project, as I highlighted before, which then comes in starting in '28, which then allows us to make up for those additional tonnes and carry through around about that 1 million to 1.2 million tonnes. North Island business is the same, supplying the same customers and going through to 2040. And again, around really the northern growth of the business, utilizing existing hub. Tenas coming in into the '26, '27 period and again, going into the coking coal market and Crown Mountain coming in the year later, '27 to '28, at around 2 million tonnes a year into the hard coking coal market. So really underpinning, particularly the New Zealand developments is we have a change of government came in late last year, late '23. That's a national ACT and New Zealand first coalition. Part of that coalition agreement was that there was a general agreement across those 3 parties that the resource management process and also the general permitting and resource allocation process needed something to happen. There's been some large projects in New Zealand that have been planned for a long time that have been fully funded that just haven't occurred. And that's not just private sector, that's public sector as well. So the solution that's been come up with that's being pushed forward by the national government at the present time is a Fast Track Approval Bill. Now the Fast Track is not really a misnomer. They are looking to try and get projects approved and out the door faster. But really, the key part here is that one application will then lead to multiple permits, consents, approvals, authorizations. So for any major project in New Zealand, particularly a mining project, you've generally got -- you've got district council consents or land use consents, you've got regional council consents. If you're on public land, you've either got a lien sign-off or you've got a Department of Conservation sign-off in terms of access and/or you might have concessions with Department of Conservation. There's also wildlife permits and a number of other authorizations that are required to actually start your project. Generally, what's happened in the past is each of those have had a slightly different set of conditions or more importantly, a slightly different test, and so there are slightly different applications and different time frames. So you may well get your resource consents from the District Council. They may be appealed by interested parties, which then carries you through the court system. And then parallel or series with that, you then run a number of other application and review processes leading to hopefully, at the end of it, a consent or an authorization. So the idea of the bill is it actually consolidates all of that into one panel process where a panel then produces a set of conditions based around an approval. And then out of that, you get the individual consents or authorizations that you require to actually go and operate the mine, the infrastructure project, the wind farm, the aquacultural project, whatever it happens to be. The other small change -- well, actually, it's not a small change for coal miners, but there's the Resource Management Act was amended a couple of times during the last year of the last labor government. One of the major changes that was it put a real sunset clause on the ability for coal mines, and exclusively coal mines to be able to actually apply for new consents under the freshwater environmental standards and also the national policy statements in relation to indigenous biodiversity. And that was unique to coal mining. So obviously, it was an attempt to actually cut down the supply of coal. But even though the users are still anticipating using coal well past 2030, whether it's for value-added prime production, steelmaking, cement making or a number of other processes that lead to economic development within New Zealand. So this government is looking to unwind those changes and make it a level playing field. So it doesn't matter if you're mining gold, acquiring for aggregates for cement or regional development or coal, you'll be treated in the same way. So it's not a lowering of environmental standards. It's basically just leveling the playing field. What we've -- just going back to this graph, one of the questions that has come up lately was what is the impact of having the extension projects? And what part of that is Bathurst 100% owned coal and what part of those, particularly New Zealand projects are owned through joint venture structure. So if we look at the export extension, about 50% of that extension is going to be BRL 100% owned coal and 50% of that will be BT coal. The NAS project is obviously 100% owned by Bathurst and about and 50% at the moment of Crown Mountain will be owned by Bathurst, which is outside of the existing New Zealand-based joint venture. So in terms of what that looks like going out, say, 2030, it means that the share of Bathurst only coal that's not tied up within a joint venture will be significantly higher. In fact, it will take us up to about 1.5 million tonnes of coal going into steelmaking that is not covered by a joint venture structure. Another question that came up was around the joint venture structure and where are we up to with that? I mean the joint venture works very well. I mean just really, if you look through that presentation, all of the -- really the cash-making operations in the portfolio are owned by the joint venture. And really, there's no real change to that structure at all. At the moment, the cash is tied up there is tied up in deposits at the best possible rate. And I suppose the JV position has been and continues to be that the cash is available to reinvest into suitable projects, which may well include the projects that I've outlined. So obviously, some of the New Zealand assets that we're going to expand into are going to require cash to bring them forward. We're looking at somewhere in the range of $30 million to $40 million in the North Island and the South Island, probably a little bit less than that. On the BRL side, though, we're requiring sort of somewhere between $40 million and $50 million. And then with the Tenas project and Crown Mountain, Tenas is going to need around CAD 100 million and the Crown Mountain project, as I said, is going to need CAD 106 million to get us to the 50%. And then also there will be some further project financing required, whether that's through debt or cash injection from the joint venture partners to bring that project on. That's about a CAD 300 million spend in total with that first CAD 106 million coming from our cash in. So thanks very much. As we said before, we're not running the sessions as a straight Q&A. It's a bit unfair for anyone that can't come on to the call directly. But if you do record or send through any questions, after the last quarterly, there was a couple of comments that we -- again, we didn't actually put out a Q&A. That's because we got no questions coming through. So welcome to take questions, and I'm more than happy to answer them, and we'll do them as a general announcement to the whole market. Again, thanks very much for your attendance, and I look forward to catching up with you again soon. Thanks very much.