Bathurst Resources Limited (BRL) Earnings Call Transcript & Summary

Hi, everyone. Welcome to the release of our Quarter 4 Results. I'll just share the screen and we can get started. Very good. Everyone you see that. Right. We'll get moving on. Our usual disclaimers. Look, not a lot has changed in our sort of the corporate snapshot, still very low levels of debt. We've got about $141 million in cash at the end of June, same sort of issue of shares on issue and a very similar shareholder demographic. So we'll cover most of the other issues as we go through. We've had a number of lost time injuries over the last quarter, which has really blown out our stats in this last quarter. Our main response really is we've been looking at some of the sort of key causes around this and finding that operator training is showing up quite often in these investigations. So we've implemented a learning management system across the whole of the company. As part of that, we've done a full benchmarking audit, looking at mobile plant operator competencies in particular, and we are looking to kick that off actually this month at Maramarua mine. Just put that on full screen, sorry. Make a little bit easier to see the screen. In terms of our New Zealand operations, I'm sure most of you are aware of where we're operating in New Zealand, but just in case you're new to the business, we've got 2 mines in the North Island, Maramarua and Rotowaro, producing a sub-bituminous coal that mainly goes into steelmaking with New Zealand's largest steelmaker. Stockton is on the West Coast of the South Island. That's our export mine. So the coal from there it goes to Japan, Korea, India, China out via the port of Lyttelton, which is in Christchurch. We've got a distribution yard in Timaru, and then we've got our Takitimu mine right down south, which supplies process heat coal into value-add to New Zealand prime production. So in terms of the sort of running through briefly to the key areas with export first. We've had quite a significant reduction in EBITDA for the full year. That's mainly on the back of reduced pricing from a record year in FY '23. But also, we had a reduction in tonnage that was built up really over the second and third quarter. We had 7 weeks outage on a couple of different incidents in the Buller Gorge. And then finally, another incident with a tunnel, which we'll talk about as we go further forward at Reefton, which is on the way through to Lyttelton. So look, disappointing result really. We were aiming to definitely hit our target with the total tonnage. Obviously, we knew that the export pricing was going to be down, but we ended up with -- because of that, particularly the final slip in the tunnel in Reefton it meant that we had a boat that slipped out of this year's schedule and into FY '25. And again, we'll discuss that a bit more as we go further forward. Major effect on the Rotowaro business really has been delays in production getting into the new Waipuna West Extension area. We have had a planned step down in sales with major customers in process heat, but also in steelmaking, taking less coal as part of their scale-down process as well. And we have an increased strip volumes coming out of the Waipuna West Extension once we have got going. Maramarua, pretty consistent results across Maramarua. Again, we are starting increased stripping into the M1 pit, which we gained resource consent for during the year. That will have a peak during this year of overburden and then dropping back to sort of more normal levels after the FY '25 year. Takitimu a good year, slightly increased sales, decreased costs. We're coming towards the end of the mine though. And even though we had a sort of a slight reduction in volume, we actually made up with it in terms of increased price received, but also decreased costs, so an increase in the EBITDA. And as I said, we've got one -- really one full year of production left, and then we'll be closing the mine into FY '27. So in terms of the consolidated result, we ended up with just over $90 million, $90.5 million EBITDA for the full year, and it's very disappointing. I mean we were well and truly on track up until really the halfway through June when they had this incident with the tunnel at Tawhai. And it's meant that we have had that boat sort of slip out the back of the sale program into July, and it meant that we just didn't get the sale booked in the -- for the export side of the business. So we were down about -- just on $4 million, so about 5% down for the year. And this is the first time that we actually haven't met our guidance since we really reestablished the business back in 2015. So again, disappointing result in that way and obviously, quite a considerable step down from last year, but we were looking at sort of record export pricing. So -- but look, the business is still in good stead. We've got $141 million in cash. We've got no real debt. We've got some yellow goods, that's all. Of the $141 million in consolidated cash, about $23 million of that is in restricted short-term deposits that support bonding. The remainder is available. So we're anticipating that for FY '25, we're going to be in a range of $55 million to $65 million EBITDA. And again, I'll run through a bit of a waterfall in a second as to where the major changes are. And we've got a good net asset backing versus our sort of $0.81 over the last few days. We're actually double that in terms of the assets that are backing the major capital. So consolidated cash, we had $163 million at the end of June 2023. Obviously, we generated just over $90 million or just under $91 million EBITDA. Biggest impacts really, we had a large tax bill, obviously, from a highly profitable year in FY '23, '24. Obviously, the purchase of Telkwa and also the support of Telkwa to bring forward in the environmental assessment process took about $10 million. And then we've also across BT and Bathurst, we've had quite a bit of money put away in capitalized stripping and development costs, particularly at Rotowaro and Maramarua with the developments into the new areas there. So it's led that we've got consolidated cash within the business at spread between BT and Bathurst of $141 million. So in terms of our guidance, obviously, we made $91 million for the financial year ending June 30. The biggest impact is export with the reduction in pricing and then also now with the -- looks like the tunnel closure is going to go on for a little bit longer. Even though we've instituted a trucking program, which is going to deliver about 20,000 tonnes a week, we are still going to see around about a $20 million negative impact because of that. So a combination of the pricing plus the reduction in tonnage, small reduction in our North Island, mainly due to the slowdown of sales. South Island domestic is around about the same thing and then also some increased development on the Telkwa project. So again, so we're anticipating we're going to be somewhere between $55 million and $65 million EBITDA for the FY '25 year. The key impact on that will be if we can get this tunnel open earlier, and that's really in the hands of [indiscernible], our logistics supplier, then obviously, we can reschedule. At the moment, we're anticipating that's going to be going through until December with a reduced tonnage, and then we'll go to 7-day a week haulage to try and bring back some of that tonnage, but we're still going to be about 100,000 tonnes down for the year. So the tunnel, we had 2 sort of quite minor falls, where this is an old tunnel that was formed in the 1890s. It's a brickline tunnel with a concrete base. It's relatively unconsolidated material that's passing through, and that's why the importance of the brick lining. It appears that there have been some movement in the sidewalls, which has allowed the brick lining to sort of unravel, which has meant then the material has fallen in. So there was 2 small fall areas. The tunnel has been reaccessed, so they've actually got access back into there. They're coming up with a recovery plan now, which we are hoping we're going to be seeing in early August. And then really, we'll be relying on [indiscernible] to give us the advice around when they're reopening. But at the moment, as I said, we're sort of erring on the side of caution, and we're saying it's going to be 5 months based on what their preliminary discussions were. And then we'll update the market and yourselves as we go further forward. In terms of export pricing, we've taken a view that it's going to be around $250. So forward curve is slightly higher than that at the present time, and it's been relatively flat now for quite a while. So we are using USD 250 at a $63, I believe, for our forward projections for the export side of the business. We are seeing still strong demand, particularly in the Indian market, particularly for our coal. We've had a long-term customer who went to alternative supplies around the COVID period has come back, which is really refreshing and a good thing to see. So even though some of the steel pricing has come off a little bit, we are still seeing strong demand, particularly for our low ash, [indiscernible] coals. Look, one of the main things I wanted to cover in the presentation, and we've had a number of questions and queries, particularly from existing shareholders, but also potential shareholders is what does the future look like? Obviously, we've got established assets in New Zealand. We've got the 2 projects in Canada and British Columbia, which we'll talk about. And we've got a strong export base across India, South Korea and Japan and with a small amount of tonnage going into China, mainly in the sort of the lower range with our long-term customers in Japan, which next year would have been with the company for 50 years or -- sorry, not with the company with the asset with Stockton. So we're anticipating, again, around 2 million tonnes of production, about 1 million tonnes going into export and about 1 million tonnes going into New Zealand domestic use, but mainly in steelmaking again. So this graph really depicts the journey that we've had since 2019, really since we took over the assets of the state-owned enterprise in New Zealand. We've seen a steady reduction in the use of coal in processing, which is really the non-steel part of the business. That's as companies have made decisions around decarbonization and moving away to alternative fuels or we're just closing their businesses down altogether. But we've seen really consistent use of our coal in domestic steelmaking and consistent demand for our coal in the export steelmaking. We've got a really supportive coalition government. National Act and New Zealand first have all come out either separately or jointly and stated that the development of minerals and mineral resources within New Zealand is an important part of the recovery of the economy that's required, particularly post-COVID, and particularly with a high inflation environment, we really need economic development in New Zealand, and they are seeing minerals as being an important part of that, both internally but also export. So a bill has been introduced into the New Zealand Parliament back in March. Public submissions have now closed. There was an extension through to May, and we are waiting on that select committee report. Haven't heard really any negative reports coming out. Obviously, there's been a lot of interest in it, both positive and negative. There's a lot of groups that are feeling that this process is going to assert the environmental protections that have been long in place in New Zealand. And I can guarantee you that's not part of any of our plan. We're not planning on using a fast-track process to try and get through a substandard project. We've got projects in front of us now that are 15- to 20-year mine lives. what we don't want to be doing is taking backward step on where we've achieved in terms of our rehabilitation, in terms of our management of water and in terms of our payback to our communities that we operate in. And we're in some of the sort of the regional areas of New Zealand, the middle of the North Island and particularly on the West Coast and down South. And we've made commitments, and we're going to stick to those. So in terms of being eligible for the fast-track, you need a project that's been identified as a priority by either central or local government will give significant regional or national economic benefits. And I think any business that's sort of generating around about $400 million in revenues is going to fit into that basis. And also the project supports development of natural resources within New Zealand without damaging the environment. And again, I think our track record stands for that. So just sort of looking at BT Mining, that's the joint venture that we formed with the Tele group of companies. We've got really until around FY '27 with the existing businesses as they stand now. And then we've got a tail that can flow really due to other projects coming on. So on the export side of it, we're anticipating this year, we're going to generate somewhere around about $80 million EBITDA. Maramarua will generate around $7 million and the Rotowaro mine will generate around about $16 million, down a little bit from where we've been. But what we are seeing is that we've got a tail of projects that can then flow on from these existing bases. And the key thing here is we've got infrastructure hubs with washeries, with rail load outs and with access to market. So -- and with existing customer bases that sit with them. So the projects that we're looking to bring on will not have large looks of capital to bring them. We've really just got to get through the fast-track and/or the traditional consenting process to bring those tonnes into play. So with the flow on of the Stockton Extension project, Maramarua, we've got what we call M2, which is a cutback on the existing M1 project, which we're just getting into now, which will take us through to around about 32. And then with Rotowaro, again, depending on where the demand is there for in New Zealand steelmaking, we've got a project that will take us through to around about FY '38. And with the export side of the business on the BT assets only, we've got potential to take the life of mine through to about '36. So that's sort of -- I've already covered most of these. There's the Mount Frederick South extension of Stockton. So there's a couple of assets to Stockton. We've got -- we're covered by coal mining license. We need to really -- it's a bundle of rights that we need to extend past 2027. And then we've got other resources, including the Mount Frederick South that we can bring on, which is about another 4 million tonnes. And the domestic projects, as I said, Rotowaro extension, 12 years at 400,000 tonnes. And with Maramarua, it's really an extension of the existing operation around 200,000 tonnes a year going into steelmaking mainly. With the Bathurst side of it, 100% owned by the company, we -- I've got Takitimu. As I said, we're going to be moving to closure at Takitimu around FY '27. That really coincides with our major customers in the dairy industry, decarbonizing by moving to alternative fuels. So that's been well flagged. But in terms of the Buller project, as we get capacity being freed up within the Stockton infrastructure, which is allowed for by the joint venture agreement, we will then look to be bringing on both a project that we're going to take through fast-track, but also our existing Stockton mine, which is already consented and has access arrangements in place to fill some of that capacity, and then ultimately building up to around about 1.2 million tonnes in the later life. So we're aiming for around about 800,000 tonnes annual capacity out of the Buller project. And again, we'll utilize infrastructure that already exists. We'll have to form a haul road between the Buller and the Stockton Plateaus. We've done a lot of that work on that so far. And obviously, that cash flow is going to be 100% to Bathurst. So it will be available for dividends and for project funding with our either future developments here or into Canada. So what we're aiming to do really is then we've got the existing base at Stockton, adding in the Bathurst tonnes, which then takes us through to about 1.4 million tonnes coming out of the complex. And the same seams and the same types of coal we'll be mining on the Denniston Plateau as we have been traditionally mining on the Stockton Plateau. So that will go into the very same customers and has got the same properties, low ash, [indiscernible] and high fluidity. So again, feeding exactly into the existing customer base that we've got long established. And really, this then brings us on to the next part of the story. I mean anyone who's been following the company for a while now is well aware that we've got involvement in British Columbia with Crown Mountain project being the first of those, but then also with the recent purchase earlier this year or finalization of the purchase of the Tenas project. So we've got Crown Mountain down in the Elk Valley, which is obviously a long established and well-known coking coal district within the world. And then also with Telkwa, which is a greenfield site. There is some old historic mining there underground, domestic use only, but the site we're going into is very much a greenfield site. It's Crown land, it's forestry blocks, and we're really sort of quite a way down the path of the consenting process. We are aiming for Tenas to be around about 1 million tonnes of production. It's got somewhere around in excess of 15 years. There is some other development blocks that are available in the immediate area, but our main focus really here is getting through the British Columbia permitting process and really starting development of that mine in 2027. Again, anyone that's been following the company is well aware of the fact that we've got 22% of the Crown Mountain project. And if you look at in terms of the last box there, we've invested about $15 million so far. We've got the option on -- really on making financial -- the final financial decision point of investing another $106 million and taking us up to 50%. That's got a build cost of around about USD 300 million. On the other side, though, Tenas project, which we picked up again earlier this year. We are looking -- we've invested around about $3.3 million to date. We've got a final payment of $4 million on receiving the final permits and then 1-year later, another payment of $3 million. So that's in the final stages of the BC Environmental Assessment Office process. And also then there will be a permitting parallel with that, but in a later phase. So we are going through a review process at the moment. There's a number of requests for information that are being answered, and then we move into the effects assessment. With the Crown Mountain project, we're about a step behind that. The environmental application has been accepted, and it was actually executed back in January 2003. We're now working our way through really the communication phase. So there's a number of on-site meetings and also community meetings, which have been held. They are ran by the environmental assessment office themselves. And that really gets the testing of the project by the community and First Nations Group. So one of the key milestones for us with Telkwa, for instance, or Tenas, was that we bought a group of First Nations people across a number of different groups over to New Zealand to number one, show them our operations and how we operate here, how we rehabilitate, but also more importantly, how we interact with First Nations in New Zealand. And the relationships we've built up here are all at different stages. We've got very advanced relationships on the West Coast, probably less advanced in the North Island. And so it was an interesting exercise to bring those 20-odd people over and for us to interact with them as a Board as well, but -- and really get a feeling of where they're feeling that the issues lie with the project. And it's mainly around water. It's water and around rehabilitation and more importantly, around trust. Can they trust us to do the things that we say we're going to do, and that's what we're trying to demonstrate. So if you look at Bathurst, with the combination of the BT domestic, BT export, Bathurst export coming in over the top of that again, FY '27, bringing on the production out of Tenas, and then around '29 bringing on production out of Crown Mountain. We build up to around 3 million tonnes. This is on an equity basis. And obviously, any cash flow that comes out of the BRL owned assets is available for dividend and also for project financing for future development. So that's the business we want to get. I know there's been a lot of questions around where the cash is within the Bathurst business. Obviously, we report consolidated cash. And we have had small dividends coming out to allow us to be able to keep sort of business as normal going and also support the Tenas and our development projects within Buller. So we're not starved for cash, but we're not seeing that full amount, the $141 million being in our bank account today. It's actually -- it's in -- predominantly in the BT business. But also BT has got quite significant -- capital requirements, both in terms of the process around getting to consenting through the fast-track one-stop process, but also then some capital developments in terms of getting in and starting first blocks. So what we're trying to do is really explain where we're actually up to the moment. So breaking the business down into the key 3 areas. So the BT joint venture, 65% owned by Bathurst. There's about $200 million sitting in that joint venture at the present time. Obviously, the focus is on New Zealand assets and particularly on New Zealand steelmaking assets, and we're fully funded to bring those assets and the growth projects into play. So life extensions of around 400,000 tonnes a year in the North Island and very similar in the export business as well. Any dividend -- dividend coming out of the joint venture it requires unanimous decision-making. And again, I think we've covered that in past presentations. So with the Bathurst New Zealand business, 100% owned, again, by Bathurst shareholders, we're looking to use BT JV dividends for their approval expenditures and for initial capital. Domestic operations, we're going to be going into closure late FY '26 into '27, and we will require capital for some of the other -- like the Buller project development. So we're targeting 800,000 tonnes per annum. But again, any income we're generating out of that will then be available for Bathurst dividends. And we've got a sort of a capital spend required to bring that in at the moment, around about $25 million. That's mainly around developing a haul road and some minor offices and initial infrastructure for the Buller project. And then thirdly, we've got the Bathurst British Columbia assets. And again, we're utilizing BT JV dividends for the approval expenditure as we speak. We are looking -- getting out of the permitting process later in FY '26, which then leads to first production in FY '27. Targeting around 750,000 tonnes per annum in the early stages. And we are going to be needing to do capital requirements of around about CAD 100 million to bring that into play. With Crown Mountain, we're looking around first production in FY '29. So that probably means that we're going to be looking at final investment decisions around late '27 into '28, targeting 1.7 million tonnes of production. And again, with all of that, any income coming out of that available for Bathurst dividends. But it's got a larger mix of capital. We're looking at around USD 300 million, USD 350 million. And obviously, we'll be looking at ways of funding that. It's about 1/3 is yellow goods, 1/3 fixed plant and 1/3 in initial mine developments, including infrastructure. So there's a number of avenues for funding of that. So really just finally, trying to pull that into a sort of a framework. We have got a strong balance sheet. We've got 0 debt sitting at present time. We've got large cash balances sitting both within Bathurst, but also within the joint venture. Investing in New Zealand, we've got a supportive government as already covered. We're looking to utilize the fast-track process once it gets legislated, which is looking in October, November this year, both in terms of the New Zealand life extensions of existing joint venture assets, so that's Stockton and Rotowaro, but also then leveraging the joint venture assets and infrastructure, in particular, which is allowed for by the joint venture agreement to allow us to bring on the Bathurst-owned projects as we get capacity freed up. So we are looking to continue to invest in growth in British Columbia. We do believe that British Columbia is a stable jurisdiction. We have seen some projects being knock back in particularly Alberta. But I think given the 2 jurisdictions that we're in, Elk Valley is a well-known coal mining area and Tenas being a greenfield's project, where there's really not a lot of other development. I mean it relies on forestry mainly, and there has been some quite large shutdowns of large forestry type processing plants. They are looking for jobs in those areas. So as long as we can prove we can do it in an environmentally sensitive fashion and not affect the water supplies in particular and the water-based ecosystems, particularly around salmon and other sort of food species, particularly from First Nations, then we do not see the headwind being there. So Tenas project, low unit cost, low strip ratio and relatively low capital. And then Crow Mountain project coming on after that with a combination of project financing and also utilizing cash being generated out of the other 2 sort of major areas of New Zealand and the Tenas project by that time. So we are definitely looking to develop those 100% Bathurst-owned operations, and that will lead then to dividend policies that we control that we can align them with the cash generation coming out of those operations. So thanks very much for being part of the webinar. As we've stated before, we very much encourage questions, and we'll try and turn them around early next week. So if you've got any questions, please reply back on those. There was a couple that have come through earlier, which I'll just cover briefly. One was around L&M. Obviously, that's been sort of an agile subject. Look, we have got the Supreme Court decision. That's now been tested through an arbitration. It's been tested through the high court. We had the final Court of Appeal that was bought by L&M over the High Court decision around the deed of the -- deep of guarantee and security. That was held in early May, and we're expecting a decision probably in October, November later this year. No indication really as to positive or negative on that. The couple of days we had in court seem to go reasonably well, but you just don't know with these things. But really, what it does highlight is, again, that the Supreme Court decision is fairly emphatic. We aren't booking any liability in relation to the performance payments because of the way that decision is structured. And again, another question has been if we do bring the Buller project, is that going to be the Buller project and the L&M parts of the Buller project into play through the Stockton infrastructure. Will that require any further payments to L&M? The only payments will be royalty. So there is a royalty payment for any coal that's sold, and that's factored into our financial modeling as well. So there's no performance payments will be triggered by that. It will only be royalties. And I think I've probably already dealt with in terms of the dividends coming out of the joint venture. I mean we are still working positively with our joint venture partners. We are still seeing -- we are still getting small dividends out that allows us to continue with developments, particularly in New Zealand, but also with Tenas project. And we'll update the market as we go further forward. But as we've tried to highlight in the last 2 slides in particular, we believe there is a path to dividends, and it is through development of 100% owned Bathurst projects. They're all based in steelmaking. They're all based around existing known products in the market, and we'll be looking to sell those products into existing customer base that we control. So again, thanks very much for your attendance. And again, any questions, please pass them on, and we'll get back to you early next week. Thanks very much.