Calidus Resources Limited (CAI) Earnings Call Transcript & Summary

Hello. Thanks for joining us for this Calidus Resources presentation. I'm Paul Armstrong from Read Corporate. Calidus is ramping up production at its Warrawoona Gold Project in W East Pilbara. Calidus Managing Director Dave Reeves and his team have done a remarkable job building Warrawoona in what have been very challenging circumstances. We've had COVID, as you know; labor shortages; and substantial cost inflation, particularly in Western Australia. The company has released its September quarterly report today. It's also published an operational update for the month of October. That update is on the ASX platform and will be part of today's presentation. Dave will now give a short presentation and then take questions. [Operator Instructions] And we will endeavor to put as many of those questions as we can to Dave at the end of the presentation. Over to you, Dave.

Thanks very much, Paul. And good morning or good afternoon, everyone. Thanks very much for joining us. This is labeled the Euroz Gold Day presentation. It is an update for October but also an overview of where the company is going that I'll be presenting later today to the Euroz-sponsored gold day, hence the change in title. Just to remind everyone: Warrawoona Gold Project ramping up, targeting 90,000 ounces per annum. Nothing is changing in that. Go through that in October, that is still, we believe, eminently achievable and just around the corner. Stage 2 expansion from our recently released Blue Spec definitive feas takes us to 130,000 ounces per annum. And we will touch on where we are with lithium as well, although obviously our core focus at the moment is Warrawoona. Obviously been a tough period for gold miners in general; and us, particularly in the last month, regarding the most recent operational update, which I hope will show we're back on track to a large degree as we work through today's presentation. I think a couple of things just to touch on here: cash and bullion just under $30 million, September 30, so a lot of cash in the bank. If you have a look at our quarterly that just went out, because we don't separate development and operations, it's a bit hard to get an overview, but basically operations themselves lost about [ 2 million ] for the quarter on what was a really disappointing quarter for us. The remainder of the cash was either in interest; or in ongoing development, being airports which is due to completion at the end of this year, critical spares that are still coming in; et cetera, but the actual operations, even though it was a really tough quarter, almost washed their face. And I think that's worth bearing in mind. I think also, if you, we just touch on the drop in gold stocks. It was really interesting to see the Argonaut group has put out a -- it's launching a gold fund, a countercyclical gold fund. In the darkest days, it's often easy to get lost in where we are, but I think that's a really interesting move. And certainly gold, at some time, we fully believe, will start to shine again. And the reversal across the whole sector, we'd expect that to change when that occurs. So just refreshing on the September quarter, where we were. There's a lot of positives and some negatives. I think, just starting with the positives: The mill is superb. It's 98% recoveries. We were doing [ up to ] 7,200 tonnes a day at times, so we know it can easily achieve nameplate and beyond. We commissioned the LNG power station to have steady supply of LNG coming in, which is obviously a huge cost saving, Other real positive, and we'll go into these in more detail, but grade control still reconciling 100% on grade to the resource model. But the single biggest issue we faced last quarter was that mill grade was not reflecting that grade-control grade. And that's something we've spent a lot of time on in the last 6 weeks and we'll go through next. So let's just talk about grade, where we are. So this is a planned view of our grade control model in the central portion of that pit. You can see there's one very wide continuous sign of mineralization at Warrawoona. That holds together very well, very good grade continuity and is on average 20 to 30 meters wide. What you'll then see is that there's some footwall and hanging wall loads off to the side. And this is where we're seeing the drop in tonnage, down roughly [ 30% ]. It's in this footwall load. And it's sort of a bit variable, doesn't hang together as well as our resource model suggested. Now whether that continues into the future or not, we're unsure. We're still in the transitional zone. When you move into [ fresh ], things tend to tighten up, so we're optimistic that, that tonnage differential will reduce, but again the main point here, the grade control model is saying the grade is there. This isn't an issue where other companies in the past have done grade control and the grade is just not there compared to the resource grade, which is a fundamental issue. The fundamentals here are saying that the grade is there. So that then gets us on to what happened in September and what's happened in October -- or the September quarter. So as we put out previously, we're 23% down in the mill feed grade that we reconciled out compared to what we thought we were feeding. There's a lot of factors that go into this, the first factor lack of people. So the lack of people, both mining and control and geology, meant that, with the lack of people in mining, we didn't move as much as we'd like at the beginning of the quarter. And as such, we had to drop our cutoff grade for our ROM feed from 0.5 to 0.4, which obviously lowers your grade. And we had to feed low grade as well at times. And that's all a grade issue, if you like, but then what it also meant was we tried to catch up. So we put 200-tonne diggers into ore blocks, when we said we'd only put 100-tonne diggers. So you've got bigger buckets in there. There's more dilution. With a wider ore body, we didn't think it would be as problematic, but obviously the reconciliation showed us that it potentially was. When I also talked about lack of people, it was lack of control. We were struggling with geologists and pit techs between COVID and labor shortages, so we just didn't have enough control. And we've changed the way we control our ore block movement. And in particular, one of our biggest changes is how we predict where the ore has gone post blast because, as you can imagine with some of those smaller loads, if you're out by a meter on a 5-meter ore block, that's 20% dilution. So you have to be pretty precise in how you predict where the ore has moved in a blast. And in a blast, it generally moves up to 5 meters along strike and a little bit across strike as well. So we changed to OREPro, which is a software program. It takes all the inputs from the blast, the timing, the powder factors. It takes [ drones ] before and after. And it uses some of our own blast monitors. And it puts them all together in -- through some algorithms and, in 3 dimensions, transposes your ore, so when you're going through it, mining at various [ aerials ], you can predict a lot better where the ore has gone. So our initial target was to look at achieving 10% dilution. It's delivered 23%. And I'm pleased to say, in October, we're already at that mark. We're at 10% dilution, so our next target will be moving on to 5%, which would be about as good as it can get, so even though we have gone a huge way to correcting the reconciliation issue, there is still room for improvement. And that's something we're focused on, but this will be in small stages over the next 3 to 6 months. We'll try and improve up to that 5%, but really pleasing to see such a rapid turnaround. And that's just a great effort between the whole mining crew. That's Macmahon's and our own guys on blasting; how we manage the diggers; how our geologists are predicting ore movement and controlling the digging; and just a really good team effort to so quickly turn that around and give us confidence, now that we know the [ grade we see is very controlled ], we can mine it properly. We've pretty well ticked that box, which is obviously always the most important when you're starting up a new mine. This is a bit of a fly-through of the mine at the moment. This is what we call King. We're still taking the top off the mountain here, a lot of clay. And we'll touch on that shortly. In these top reaches, it's quite tight digging, as far as it's not big, wide areas. We are opening it up rapidly. And it's improved greatly in the last month to what you see now, but before that, it was pretty narrow at top. And then we move to what we call Cuban, another section of the pit where it really has opened up. And we're starting to see some good productivities through this part of the pit. And as you can see, we've got a lot of floor space open, so there is a lot of flexibility in how we do grade control and freeing up a lot of areas [ for drilling blasts ] so we can get our cycles up and running; and really dramatic improvement in the last 4 weeks in particular. I spent a bit of time up there last week with Richard McLeod, the COO of Macmahon's. And instead of just listening to me talking about it, I thought it would be handy to get Richard's point of view on what he saw up there and where the performance of Macmahon's is and what he's seeing from his visit up there. So there are some facts and figures on this graph. And I'll hand over to Richard, who's with me.

Yes. Thanks, Dave. And it's really good to have the opportunity to come in and talk to the project, especially after being up there last week for a few days with the team. I mean really, really good to see the way the pits are opening up. I think, [ I mean ], you touched on the King pit still being on topography. Well, the interesting thing about a topography pit like that is, as you go down, it will actually open up more space. And that -- we see that opening up in King. And that's going to lead us to better, sustainable productivities, I would think, in the Cuban pit where we're well and truly off topography now. And it's really, really good to see that space opened up the way it is. Fantastic to get around the table with the combined teams and talk about the drilling and blasting and the improvements that have been implemented there and get out and actually spend some time on the ground with the blast crew. And how that was communicated and spread through the joint teams has been, I think, a really, really good achievement. I mean good to see that in October we're well on track for the ore production that's required and that -- I would expect that to continue. I think the productivities are going to naturally come up as we get off that topography, as I've said. And I think, lastly -- I think you've touched on it, but the challenges around staffing the -- across the board with COVID and those challenges, I think we're largely seeing that come off; and that we've got a good, solid workforce in there now that's pretty stable. And I would expect that -- with our combined HR team that -- I'm absolutely focused on that, but we're largely through those challenges. And then I think really important, I mean this is just my view after visiting there but -- is around the blasted stocks. And the team is focused on that. As you can see in the graph below, it's been absolute. And we'll look to keep those blasted stock levels up, and that opens the productivities [ up further so ]. Really again thanks for the opportunity to get in and just talk about the project. It's a great little project to be involved with.

Thanks, Richard. Richard will be remaining for Q&A as well to help out with any question-and-answers you might have on the mining. So I think, where we are, we're pretty well there with the grade, a few minor tweaks to go, mining improving greatly. The frustrating part for us as a group is -- has been tonnages, and this has to do with water. As I said, we [ ran that of ] over 7,000 tonnes per day in the second half of September. We know it can dig more than that. And then what happened, as we moved into October, we shifted where we decant our tails. And the water back to the decant, which makes up 20% of our water, decided to go elsewhere. And it's learning how we manage that water best on the tails dam. In addition to that, as we mentioned, in King, out on the top, we hit, we've hit quite a bit of clay over the next 10 meters. That will drop off substantially. And what happens with clay is it actually absorbs water. Normally you put 1 tonne of water and 1 tonne of rock. [ And where you go ], you recover that in a thickener, but it's actually absorbing a lot of water. And that water goes out with the clay to the tails dam. So what this all means is, October, unfortunately, instead of doing the 200,000 tonnes that we're targeting, we're sitting around 155,000 tonnes, but we have swung into action to address the water once and for all by the end of this quarter. So in the next week, we're equipping 2 more bores to pump into the system. About a week ago, we implemented a viscosity modifier. This is in a thickener. It helps us improve water recovery with the thickener and that has been a success. We're certainly seeing improved water recovery there now. On Friday, we've got a rig just fine-tuning where a couple of new water bores will go and undertaking further water exploration. And in about 3 weeks, we've got another water bore rig heading up to put in another 2 bores and, hopefully, as the exploration rig goes forward, probably a couple after that to ensure that we have plenty of water redundancy. We're also looking at dualizing some pipe. We've got a spare bore out in our furthest bore fields, and we're seeing what we can do at the cheapest cost and the quickest time to bring a bit more water out. And that [ single bore ] is actually already built. And all of this will see a steady-state improvement by the end of December to full capacity. Things outside our control like the clay and how the thickener goes, that will improve over time as we move into [ fresh ], but what we are planning on is having more than enough water to deal with clay, no tails dam returns, so that this underperformance on tonnes never happens again post the end of December. So what does this all mean cost-wise? So to provide a bit more clarity on where we are: Our mining costs from DFS are up about 20%, so $10 to $12 per BCM. It's mainly in fuel; and explosives; and to some degree, rise and fall. Processing is very pleasingly still on budget even with all the cost inflations [ in ] reagents. Our actual reagent usage is lower and is sitting around $15 a tonne. Administration has also increased greatly. We've got extra medics on site due to COVID. We've got a lot more compliance for some of our permits. Flights have gone up in price, so when the airport gets up and running, that will help. So there's areas where we can certainly trim that administration cost. And overall, that's -- it works out at about $1.6 million per month looking forward or 18%. So if you assume the same ounces, 18%, you're talking about $250 an ounce. So that's around the $1,550, and I think that's a fair number to look at. That $1,550, $1,600 is where we want to be for the first quarter of next year once that mill is properly humming. Photo on the right. Solar farm has been installed, not yet hooked up, but that will be hooked up in about a month's time, with battery. That obviously reduces fuel burn in the power plant as well, so that will be great, a little cost [ down ] going on there as well. So the main takeaways. The grade is there from the grade control. The reconciliation is almost at industry standard. We'd like to do a bit better than that. So I think we've pretty well ticked that box on grade, which is fantastic. The mining has improved greatly. The broken stocks is ahead of us. As Richard said, that allows us for better productivity. And we just have to keep a close eye on manning to make sure all of that equipment is properly manned up. The mill tonnage is [ a lot ] lower than planned, but we have a plan in place to fix that once and for all by the end of the quarter and bring in far more water than we think we need. We do fully understand our costs now after a few months of standard operation. And we see a clear, clear pathway in quarter 1 to some very good cash generation commencing out of Warrawoona. And when I say commencing, we actually [ have ] to make some reasonable cash in the current quarter as that mill starts to ramp up with that improved grade. Just briefly touching on Blue Spec. We put out the DFS recently: all-in sustaining, including inflation, $1,640; peak capital $34 million. That permitting is underway. It's going through the process. We continue to work on things there. We're doing some geotech drilling [indiscernible]; doing some work on water [ suppliers ], et cetera; and quietly tinkering away with that in the background, but obviously, as always, the core focus is Warrawoona and getting that to where it should be as a nameplate. I think one of the exciting things with Blue Spec is this week we've got a rig kicking off to the west of Blue Spec. So keep in mind Blue Spec's "24 grams a tonne" resource. And we're just heading to the west of that, a few kilometers. It's never been drilled before; really good soils, really good mapping and alteration, so we'll try and prioritize some samples through the lab. We are, hopefully, seeing lab times reduced. And hopefully, we'll get some of those priority samples back before Christmas, but certainly our geologists are really excited to get that drilling and see what we can find there. Over time, at Klondyke, we'll start to look deeper. Towards the end of this year, early next year, we'll start to look out to the east with further drilling as well. That will come. And we'll also be drilling Marble Bar later this year, where we've got a couple of nice intercepts of a couple of meters [ a day -- a couple of meters at 6 ] near surface, so that will be some good, positive news flow to come. Just touching on the lithium briefly. We have had a -- one dedicated geologist working on that, mapping, sampling as we go. And with that, obviously we've announced previously down at Spear Hill that we've discovered outcropping lithium pegmatites. We have drilled them. We finally have all those results, so the results will be out in the next week on that. We're getting final QA/QC sections drawn up, et cetera. And that will allow us to plan what happens next at Spear Hill. Now in addition to that, we as Calidus have had a look and said, well, the lithium space does look quite interesting. We are learning a lot about it from what we're seeing at Spear Hill, so the lithium team had to look at geology through the state; and very much liked the geology at Northampton, very similar to the Gascoyne where there are some pretty interesting lithium projects and drilling underway intersecting some good lithium deposits, so we've applied in our name 100% for that. And because we are looking [ at something at ] 100% in our own name and not just in Pirra which we've got 50%, we are looking to restructure on how we combine the 50% of Pirra and our own 100% projects and to demerge that as previously mentioned. So that is a wrap-up of where we are. The 90,000 ounce per annum stage 1 is very much on the cards once we get this mill up and running. I think we've ticked all the other boxes now, Blue Spec permitting underway to get us towards that 130,000 ounces. The lithium strategy is growing by adding more bulk to it. And we'll be providing more details on the demerger once we're in a position to do so. And more exploration ongoing both with gold and lithium and very excited with our Blue Spec and Marble Bar drilling. And we certainly see 2023, between all of the above, being a really good year for Calidus; and thank shareholders for their patience. September quarter wasn't what we wanted it to be. And December will be below par as well because of the mill tonnages, but by the end of December, as I say, we believe, we'll have the water and more than enough water in to handle any situation. And from that point on, we'll be delivering what we said. So Paul, I'll hand back to you for any questions that might have come in.

[Operator Instructions] We do have a few questions coming through, Dave. One investor asks, what was the October gold production? Well, we're still in October, but -- so I'll see how much of a forward-looking person you are.

Yes. Look. We are still in October. As I said, we -- there's only a prediction there of sort of like the 155,000 tonnes. And you could see the grade where we were a couple of days ago. It's probably ticking up a bit because that grade is slowly improving as we get a better blend moving into the mill, but it will be between 4,000 and 5,000 ounces.

Right. And another question: Are there changes to the debt repayments expected? And if so, what impact will these have?

Yes. So the debt providers have been obviously very engaged, as have shareholders, over this period. And we're working very closely with them on a restructure. As part of the facility agreement, there was always going to be a restructure at the start once you understand where gold prices and everything are. Because that facility was put in place almost 2 years ago. And so we're working with that -- them on that and they've been very accommodating to date, I'm very pleased to say.

An analyst asks, Dave. He said, "On costs, the $1,550 to $1,600 an ounce figure for March quarter '23, I assume this is all-in sustaining cost." He said, "Where does it go once solar is up and running, flights are in out of Marble Bar, et cetera? And what's the time frame?"

Yes. So the airport should open in January, and solar in December. They're not going to have a significant cost impact versus your fuel price, et cetera, so there's areas where we'll be trying to fine-tune that, but I think it's fair to say somewhere in that order is where we believe it could be long term. Unless we start to see the diesel price come down -- and you'll see those explosives with energy price and diesel price based -- related to energy. If they come back down, then you'll see the costs dropping back down to closer towards the feasibility numbers.

And another analyst. Can you please elaborate more on what happened to the grade and how it's going to improve?

Okay. So it really was a mine-to-mill dilution issue, the bulk of it; poor blasting; putting on big diggers; poor control of the ore body; a lot of that general lack of people and trying to catch up because of the lack of people, COVID, key people out; new systems in place. So as I say, we're now running at 10% dilution, which is pretty industry standard, and we'll be aiming to move to 5% from our resource model. Within that as well, there's some fine-tuning we need to do. Within our [ own-grade ] and high-grade ore blocks, there are still lower-grade ore blocks that bring the overall grade to the mill slightly down from where we want it to be, so we need to look at tightening that up a bit or increasing throughput to accommodate, if you like, that's slightly diluted grade with the 0.3 to 0.5 material that we plan to stockpile. Some of that, you just have to take from a practical point of view and blend that through.

Okay. A follow-up question, do these challenges impact stage 2 at Warrawoona? And the bolting-on of Blue Spec, what's the timing of this now?

Yes. Look. We'll obviously look at that with available cash. We've always said it will be funded out of cash flow, so yes. Obviously we're down [ on where you want to be in ] cash flow, so it has the potential to either push out the start date of Blue Spec or slow it, slow, if you like, the development of it by feeding in what cash we can, but at the moment, very much our focus is on stabilizing the operations, providing that good cash flow. And from there, it's a lot easier to plan.

And yes, changing pace a little bit. Do you foresee any more capital raisings based on what you know at the moment?

What I know at the moment, absolutely not, $30 million in the bank. As I say, I think operations should make money this quarter, not as much as we'd like but should make money. And then next quarter, we're at full noise, so no, there's no need from an operating or company requirement that I can foresee at the moment.

What was the measurable impact of the lack of water on production? Can you...

Well, that's just a straight reduction in tonnage. As I said, we're down 25% almost on -- it was about 24% on where we want to be for the month and even more if you look at our targets to go beyond that. So that is the impact, but as I say, that will be fixed once and for all by the end of December, where we'll put so much water in. No matter what happens, we'll be prepared for it.

And another analyst asked, Dave. What dilution was occurring in those low grades?

What dilution was occurring at those lower grades? I'm not sure -- maybe they can refine that question...

Okay, let's change horses here. There's a lithium -- a couple of lithium questions, Dave. Given the interest in the lithium sector, when is the demerger planned? I think you addressed that to some degree.