Calidus Resources Limited (CAI) Earnings Call Transcript & Summary

Good morning, and thanks for joining us on this investor webinar for Calidus Resources. I'm Paul Armstrong from Read Corporate. After some challenges associated with the production ramp-up at Warrawoona Gold Project in the Pilbara, Calidus has been getting some solid runs on the Board recently. This has been reflected in the company's share price, which has moved up from $0.13 earlier this month to $0.23 last week. The increase has come on the back of some important announcements, including 111,000 ounce Maiden resource of 4.1 grams per tonne at the Bulletin deposit near Warrawoona. This is all part of Calidus' strategy to continue growing the inventory production and mine life around Warrawoona and enable it to leverage the existing production infrastructure they have there. Calidus has also unveiled a deal with global lithium major SQM. That will see SQM become a 40% shareholder in the Pirra Lithium joint venture in the Pilbara alongside Calidus, which also has 40%. Calidus' Managing Director Dave Reeves will talk about both these developments as part of today's presentation. [Operator Instructions] Over to you, Dave.

Thanks very much, Paul. I think you've hit most of the highlights here that I wanted to talk about. Maybe I should hand the presentation to you in the future, but all good. Thank you very much, everyone, for listening in. It has been a while since we've done a webinar and there's quite a bit to go through. Going to be touching on the quarterly results. And then, as Paul said, really focusing on why we see this as a pivotal time for the company with a lot of the announcements we've put out recently regarding both gold and lithium. And how that will impact us as a company moving forward, and why we are very excited about all of those various bits of the jigsaw puzzle that are finally coming together. So just to -- we are going to talk about various names. So just to orientate everyone as we walk through the presentation. Our main operation, which we call Warrawoona, is based around the Klondyke open pit. We will be talking about the Blue Bar deposit, potentially Mickeys Find; and also Bamboo Creek, which does host the Bulletin deposit. So all situated in the East Pilbara of WA around the town of Marble Bar. I think a couple of key things before we delve into the quarterly. We will talk in a lot more detail about where we're heading, both with gold and lithium, but I also think it's worth reflecting on where we've come. We did -- as Paul said, we did have a difficult start to life into production. A lot of those issues have now been solved from a technical aspect with mills, water, mining rights, et cetera. And a special shout out to everyone involved in the company and the operations to the enormous amount of work that, that has taken. During this time, debt has reduced from $110 million to $75 million. Our hedged ounces has reduced from a maximum of 165,000 ounces to 95,000 ounces. So those liabilities are rapidly decreasing and will continue to do so, especially with what we've got planned over the coming couple of years. So touching on the quarterly, it was a soft quarter. It will be a soft first half with a lot stronger second half. It's partially due to a mill shutdown in the first quarter, but also to do with the access to higher grade ore in the Klondyke pit, which I'll take you through on the next slide. Even with such a soft quarter, the operations still generated $7 million in operational cash flow. Our cash position did go backwards because we also have debt and interest payments of $8 million and the hedging loss of almost $7 million. So what we're seeing at the moment is obviously cash inflow from the operation is not quite matching the cash outflows, and we intend to address that by both increasing ounce production, which increases cash flow. And we're in discussions currently with our lender to adjust our hedge and debt repayment profile to better match the ounce production profile that we see coming with these new initiatives. So if we look at where we are in the mine. So I've talked -- we've talked about strip ratios dropping as of the start of next year. This cross-section shows that -- where we're currently mining in the pit. We are mining this cutback on the southern side of the pit. That's a lot of waste we're having to move at the moment. So our strip ratio is higher. With a higher strip ratio, that's more material move to month, which is more cost per month. So we're actually going to be dropping our total event rate by about 100,000 BCMs a month, and that costs around $15 to $17 a BCM at the moment to move material. So call it $1.5 million saving in cost per month at the beginning of next year when we don't have to move that waste. The other thing that -- with that cutback that's impeded is our access to really the guts of the ore body. These cutbacks are recurring in the middle 1 kilometer to 1.5 kilometers of the pit, which is where our highest grade ore is. And from a safety point of view, we can't have people operating underneath that cutback area. And as such, we've had to mine the peripheral areas to the east and west of the ore body during the quarter and the coming quarter, which is why you see the grade down slightly in these 2 quarters. And that will again go up in the first half of next year. So reduced costs to the reduced movement, increased grade due to accessing the main part of the ore body. Again, add those two together and you're seeing some significant turnaround in cash generation from the -- just from the open pit itself. Talking of grade, we did come out with a new resource model at the end of June '23. I'm very pleased to say that resource model is reconciling 100% with what we're seeing in the pit metal. That helps enormously with our long-term planning and our confidence in where we're heading. We have a very good understanding of the geology of the deposit, and that certainly assists us planning where we're heading over the next couple of years. Where are we heading over the next couple of years? So at the moment, we're showing a 7-year mine life averaging around 85,000 ounces per annum. But I think the key things to look at here is we are not including any of what we call the Haoma joint venture deposits, and I'll talk about that next and our relationship with Haoma. But those deposits have the potential to add at least 30,000 ounces per annum to us moving forward. So you can imagine where that takes us as a run rate. And also, if you look beyond financial year '27 on. We are treating higher-grade underground ore through the milling. So our tonnages have dropped even though our ounce production doesn't. But that spare mill capacity gives us a lot of optionality to increase production with some of these satellite ore deposits as well. And that some of those opportunities that we're starting to turn our attention to now. The baseload of the next 5 years is -- well, firstly our competitor is going to be moving into the underground. Just to remind people, we've really only drilled back to 170 meters average below the pit. It is open. As I say, we've got a lot better understanding on the geology. What we'll be targeting in the underground, the main load. It's performing very well in the main open pit. So we'll be intending to do some grade control drilling shortly on that. We're starting to get relief portal positions, where are we going to put them, what do we need to do to get typically to get ready for that. And their mine is starting to turn towards the underground because it is providing a lot of the base load moving forward. What I really wanted to focus on today, though, is where we see significant near-term upside. So we've got a joint venture with a company called Haoma. We've also formed Pirra Lithium with Haoma. So we've got a very long and established working relationship with Haoma, who are an Australian-based company. Haoma's operated up in the East Pilbara for over 40 years. They have a lot of deposits through the East Pilbara and they're half lies at Bamboo Creek, which is 60 kilometers away from Warrawoona. Well, they actually mined 220,000 ounces at just under 9 grams themselves back in the '80s and '90s. If you have a look at the size of deposits Haoma have, they're generally smaller than the big baseload at Klondyke. And when you have a look at what we've got. We've got a big, efficient mill, low-cost, some spare capacity coming up. So if you combine the smaller, if you like, semi-stranded deposits with our big efficient mill. It's a win-win situation for both Calidus and Haoma. And as such, we've structured a joint venture, 60% Calidus, 40% Haoma to exploit these deposits. I really want to focus in on Bulletin, which is at Bamboo Creek. But just to touch briefly on Blue Bar. Blue Bar is only 22 kilometers from Warrawoona and Klondyke, and there's existing stockpiles there. We've declared a Maiden Inferred Resource 2.5 grams, so well above our own resource that sits around the 1 gram mark. We are intending to do a small pit there in the first half of next calendar year and start seeing some of that grade coming through. And that -- combined with what I talked about before, the Klondyke open pit and cost reducing and grade going up, we'll see a dramatic turnaround in our ounce profile in the first half of next calendar year. As I say, it is small, so where do we go from next? So we recently announced Bulletin. So the Bulletin deposit was drilled by Haoma back in 2003. And they did a small trial line on Bulletin. We've gone and remodeled all the historic drilling, and we've come up with an inferred resource of 832,000 tonnes at 4.1 grams for 111,000 ounces. So that is an incredibly high-grade open pit for this day and age. It is inferred. Even though the drill density is to an indicated spacing, it is historic results. So we have that in the third category. So our priority here is to get that into Indicated Reserve status, and we'll be looking to get that drilled out before Christmas to an Indicated status. And as those results come in early next year and with the final pit designs and permitting, with the aim of commenced mining in the second half of next calendar year. And this provides some of the real game changes to the production profile over the next few years. Couple of -- just to point out, it's really only with 200 meters depth below surface. There's some absolute cracking intercepts. At the deepest point: 30 meters of almost 5, 10 meters at 9.5, 15 at 3.5, 16 at 6, and 6 at 19. These are all the bottom sort of intercepts of that ore body. There's nothing to say it doesn't continue at depth. And certainly, as part of this drilling, we had to put a couple of deeper holes in as well and start to see how big Bulletin could really be because this sort of grade would be really easily extracted from an underground scenario and could provide that steady feed source to Warrawoona over years to come. So very excited about that. We need to get that into the production profile, and that really changes both our ounce profile and our cash flow significantly. And as I say, aiming to get that into production second half of next calendar year. Beyond that, we continue with our own exploration. We've talked about our sulphide plant previously to treat Blue Spec and Gold Spec. Just to remind you, that end in [ Milligan ] about 70 kilometers away, 190,000 ounces at 24 grams a tonne. So again, another incredibly high-grade deposit. It does require flotation. So we sell at concentrate, hence many credit pays for the smelter charge. And hence it's now a critical metal. So we are actually getting a lot of inbound interest into that. For the moment, we've pushed that out, especially with those kind of deposits. We've pushed that out of the financial year '27. So look at commencing that. And at this time as well, we look a bit more at Felix. So Felix is an amazing discovery, 5 kilometers west of Blue Spec. [indiscernible] spans on 4, 41 meters at 2.4. There's really nice intercepts down there. Looking at the grade at Mosquito Creek Basin, where only over 1.5 million ounces has been identified before. It certainly appears to be the largest soil anomaly ever seen at Mosquito Creek. And some base -- some work done by UWA shows on probability gold distribution, shows the discovery of potential as a deposit. So we certainly intend to spend more time proving up there and maybe we can get a bigger hub going down in [ Milligan ] . So that's touching on the gold. Setting a base through improved operations at Klondyke, and then really accelerating production and cash flow through the inclusion of the Haoma joint venture projects. Moving on to Pirra Lithium. So there's been a few announcements out on Pirra in particular SQM having a shareholder in Pirra, which I think is a fantastic tick of approval in the prospectivity of the ground. So at completion of the deal we'll have further 40%, SQM 40% and Haoma 20%. We did talk about IPO-ing Pirra earlier on. But we did do a bit of naval gazing and reflection and look at what gold [indiscernible] have done with their lithium ground previously. And there's a few examples there, Ramelius to Liontown $30 million to $3 billion, Ora Banda to Delta $11 million to $415 million, and Breaker to Global from $87 million to now $360 million. So we see that there's been significant value generator in this project, and we feel the best way of providing that value to Calidus shareholders is to keep that in Calidus term to medium term depending on results. We'll see what makes sense as we go. Certainly, not ruling out IPO at some point in the future. What we want to do is just get on the ground and start exploration because we have had that on hold for the last year. There's 3 main areas: the Tabba Tabba South project in Port Hedland, the East Pilbara projects and our earlier stage Northampton project. So focusing on Tabba Tabba South to start with. This is an area of great excitement at the moment. The Tabba Tabba shares well-know geological structure through the West Pilbara. FMG have defined an 11 million tonne resource on their small extent of tenure. Wildcat are having some phenomenal success on a fully diluted basis, I think they're over $1 billion now market cap. Some really nice intercepts through their land holding. We'll move into the De Grey tenement. De Grey did a soil sampling program through here and just drilled 2 holes. We're right down on the boundary with our tenement, which is shining grade, a pure tenement. And they had some very nice intercepts in there, 17 meters at 2.5, 13 meters, and they made a find from 27. So there is a lithium pegmatite in only a few hundred meters from their tenement boundary. All our geology comes into our tenements. And as such, we see that as a very high priority. So we'll be putting out an update on that very shortly. We have commenced works on the ground there with some sampling, and we look forward to providing an update on how we're going to move Tabba Tabba South forward in the very near future. In the East Pilbara, we have, as part of bringing in SQM. They identified a package that Haoma had out to the west of Spear Hill as being of interest. It covers a lot of greenstones near granites where you often find larger pegmatites. So as part of this recent transaction, we bought in another 300 square kilometers of ground into Pirra with that, and it's added into the extensive ground holding out in the East Pilbara. Just to remind people, Global Lithium have Archer, over 10 million tonnes near Marble Bar. What we've got is a couple of tin, tantalum mining areas at [indiscernible], Spear Hill. These are the places you want to look quite often near the old tin and tantalum areas is where you see some of our largest lithium deposits to watch there [ Watchma ] and [ Togingura ] . That's where they started life. We did do some very limited drilling out at Spear Hill when we met an outcrop. It was in a couple of meters at 1% lithium flat line, but it does show we've got the right chemistry in the granites, and we need to get that back out on the ground. More mapping, more remote sensing and now we're well-funded at Pirra with $5 billion at its disposal, and we can get cracking on the grade of ground holding. As Paul said, the share price has recently but still a long way off. We're very aware of that. We are very well aware as well that we can look into the future. And we're looking at that plus 100,000 ounce run rate. The cost are getting up, we're through the hedge. We generate significant cash flow. And really, this is now an exercise in patience as we reconstruct our cash flow. And our repayment profile, bringing in these new deposits, looking at what successes we have with lithium, and we see some really exciting times ahead for all shareholders. And I do thank you for your patience during this time, but I think over the last 6 months in particular with the strategy we've adopted, we really have some good platform for growth moving forward. So that's it in summary. So just going over the main points. Starting next year, Klondyke costs drop back into the grade material. So we start to see great cash flow coming out of that. We start tapping into the Haoma high-grade deposits. So see a significant boost in production very quickly. A good baseline moving forward with the underground, good optionality with our sulphide plant when we break that in. Some good exploration potential, not just on their own ground but also Haoma's further down the line. So the gold business really starting to look at backfilling that spare milling capacity, increased ounces and growing mine life. In the meantime, we've now got a fund of lithium -- stake in a fund of lithium company with SQM and their great technical expertise across all various projects in WA. We are on the ground. We hope to see some good news coming out of that. And we do see a very exciting year ahead for Calidus. So on the back of that, Paul, I think I'll hand back to you, and let's tackle some questions.

Thanks, Dave. A couple of questions about your exploration spend. Essentially, a couple of people are asking, is the exploration budget restricted by the debt arrangements?

Yes. So we haven't done a lot of exploration because we've been very mindful of our cash position. But when we talk about, say, the drilling at Bulletin for instance, we only need to do about 3,000 meters of RC to bring that into reserve. That's a couple of hundred thousand dollars. We have been doing exploring. We have the team out in the field this year doing lower cost exploration. So we've done a lot of infill source happening, a lot of mapping, especially down at Pilbara to better understand the structures before we drill again. We know there's something there but before we start with our expensive drilling programs. Again, we actually have used this time very well to understand the deposit in a lot more detail. So our drilling is a lot more targeted and a lot more effective when we start drilling again.

And a couple of questions, Dave, regarding the Haoma arrangements, et cetera, essentially on the lines of are you including Haoma's share of the joint venture in your production guidance? And how does it work? Is it a 60-40 JV? Does that assume 60-40 as a profit split after costs?

Yes. So in our 7-year graph there, there's no Haoma deposits included at all. So we haven't provided guidance with Haoma. We really can't until we get Bulletin into reserve. So that would be first quarter of next year, then we can put out a totally revised mine plan and explain how would -- that can look. On how the joint venture works? Yes, it's essentially a 60-40 profit share. So we'll put the capital in, which is these deposits outcrop at surface. There's no real capital needed at all. Bamboo Creek's got a combination, comms, water. So there's really no capital and then we look at sharing the profit 60-40 out of the deposits as they put through the plant.

And also a couple of questions through the debt. Are you aiming to renegotiate that restructure, et cetera?