Calidus Resources Limited (CAI) Earnings Call Transcript & Summary

Good morning, and thanks for joining us for this Calidus investor presentation. I'm Paul Armstrong from Read Corporate. Calidus announced just before Christmas that they had agreed to buy the Nullagine Gold Project in WA. The acquisition delivers a host of significant operational and financial benefits for the company. At the same time, Calidus has been laying the foundations for a strong second half of FY '24. Managing Director, Dave Reeves, will outline the Nullagine acquisition and the production outlook as part of this morning's presentation. We will then take some questions. [Operator Instructions] Over to you, Dave.

Thanks very much, Paul, and thank you all for tuning in this morning and a happy New Year to you all. Just before Christmas, we announced the consolidation of the East Pilbara through the acquisition of Nullagine Gold Project and proposed a webinar early in the New Year, which this webinar is focused on. However, having said that, we've also put out some news yesterday on Bulletin and today [indiscernible]. So we'll also talk through those bits of news. I am joined today by Richard McLeod, who is our new Chief Operating Officer. Richard is a hugely experienced mining operations manager. He was General Manager at both Tropicana and Sunrise Dam, COO at Macmahon, brings a wealth of operating knowledge and we'll be here for Q&A at the end, and we welcome Richard. But as I said, the purpose of this is to touch on a couple of the recent announcements. Just out of interest, we've got 2 mills on the front there. On the left is the Warrawoona mill. On the right is the Nullagine mill, which we've just bought. So 4.2 million tonnes of installed capacity that we're now the proud owners of. Let's start with the December quarter. It was a soft quarter, and we knew it would be a soft half, and we're very happy to be through that half. We did have limited access to the higher-grade ore due to the CapEx that's been going on, and you can see that on our graph on the right. Without access to the main pit would be mining [indiscernible] loads, and I'll take you through that shortly. But as you can see, our mine ounces moving through the rest of the year, just continues to climb on the back of both access to the higher grade at Klondyke, but also the first of our satellite pits, Blue Bar, which will take you through as well. Also, what gives us confidence in these numbers. The mineral resource we put out is reconciling very well to our grade control model and our grade control model is reconciling extraordinarily well to our ounces produced. So good certainty in the ounce estimation that we have now. Guidance as a result of not quite completing the cutback is 32,000 to 37,000 ounces. So no huge improvement on half 1, but we didn't quite get there in time and we've had a bushfire, which has obviously impacted ounce production as well. [indiscernible] water pipeline, we announced that just after Christmas and a special thanks to all the people involved in getting up and running again there. Out of interest, Blue Bar December averaged just under 44% for the month. It had its record temperature of 49.3%. Just we're now trying to reweld all these poly pipes, so an extraordinary effort by the whole team at Warrawoona to get back up and running after that bushfire. We will see positive impact, as I said, with Blue Bar and Klondyke. So let's have a look and try and understand a bit more about where we are in the pit. And I think picture says the thousand words. So if we have a look at the pit in July 23, there's a couple of areas I'd like to focus on, and we will zoom in. But firstly, out to the West, this is an area we've hardly ever touched. And same out to the East, an area we haven't really touched all of our mining was in these main 2 areas. And we did have this sort of settle in between, which we're using for access that did split the pit and [indiscernible] as well. If we go on to the next month, exactly the -- sorry, 6 months' time exactly the same view and bear in mind keep looking to the right and the left and the saddle area. You'll see we've done a lot of mining, there's peripheral areas. They are lower grade than the main area, which we call our cutback. But you'll also notice that our saddle area has disappeared, really opening up the floors. To show that in more detail, if we zoom in on that left side of the pit, we can again see our saddle area. We can see the original ramp. We can see the new ramp coming in and the cutback that we're doing to the south of the pit. And this is in July 1, 2023, let's have a look at it. And the yellow arrow represents the working areas. It's pretty constrained. Let's have a look where we are at the end of December. And you'll see that the saddle area is going, that whole temporary ramp in CapEx gone. We've left a little bit of the cutback at the far left to access higher up to the west. But we've really opened up wide areas and we can now access the bottom of the pit again, which we couldn't access before. So a lot of pain during this half to get where we are, but we're back now into the higher grade ore. There's a little bit left of the cutback to do, just a sliver along to the east here that will let us get back to the full width of the pit across its whole length and that will be complete in the next few months. So yes, pain with that, but set up now for a lot better productivity across the majority of the pit, accessing high-grade ore across the majority of the pit, and we will access the full pit during this quarter. The other big step change that we're seeing in half 2 is Blue Bar. This is the first of the Haoma joint venture satellite pits, a refresh on that 60% profit share to us, 40% Haoma, some of their resources. Blue Bar is a little satellite pit 22 kilometers from Warrawoona, 18,000 ounces at just under 2 grams in resource. We've mobilized most of the mining contractor fleet now. We're beginning haulage of the historic stockpiles that estimated to contain 10,000 tonnes at 1.5 grams. So it will be commencing imminently. Blast-hole drilling will be commencing in the next week. And Blue Bar will pull out between 7,000 and 8,000 ounces in this half. That will be going straight through the mill and provide a welcome boost to the higher-grade Klondyke and hence a lot stronger half 2 than the half 1 we've just been in. We did announce our first results of Bulletin confirmatory drilling. I think a couple of key takeaways here is, a, it confirms the high-grade tenor of this deposit. Remember, there's 111,000 ounces of 4.1 grams a tonne. That's already been defined to around about 100, 125 meters depth -- open at depth. A couple of the key intercepts here, the first 114 meters at 8.6 grams a tonne. That's 50 meters downhole. It's only about 38 meters below surface. We're really starting to get into some GC parts of the ore body. Other ones like the second number, 32 meters at 3.4 grams. This sits below the current mineralized or mineral resource. So we're definitely seeing extensions at depth. And 3 of the first 10 holes were drilled beneath the mineral resource and hit significant intercepts. So we do believe there's good potential to expand that resource and potentially that pit. And we will aim to have all those results out in the next week to 10 days. Mineral resource later this month reserved early the month after. So we can look at finalizing permitting, and we would like to commence mining this in the third quarter of this calendar year. So that July, August, September period. On to Nullagine, and this will take a bit of time to work through. This is quite a significant acquisition for us. We didn't choose to acquire at this time, Novo put the project up for sale, and it makes absolute sense for us to be the end owner with the Nullagine project and the access to the Haoma joint venture, we now control or have access to all of the [indiscernible] gold deposits within 100 kilometers of the mill, which I think is essential when we look at how we can maximize value by profiling grade and costs through Warrawoona. It also gives us an option looking at a sulphide processing strategy, which I'll take you through later regarding our own Blue Spec, but also some of the Nullagine tenements. But it was quite a unique transaction as well, and that we did only pay $250,000 in scrip and there is $5 million in the deferred production milestone considerations. The -- there is a rehab liability of $45 million as on Novo's balance sheet that we're picking up. That's for the whole rehab of the plant, the camp, tails dam pits, et cetera. We obviously want to use that camp. We are obviously looking at using the plant with sulphide strategy, and we're looking to remind the pits. So over time, we'll see ourselves chipping away at that and certainly nothing that is overly concerning to us. Well, I said we wouldn't have looked at this opportunity this time normally. We obviously got a lot on our hands, and we didn't really want another large area that we needed to potentially have to have on care and maintenance. We've got an excellent working relationship with [indiscernible]. We've co-funded the Marble Bar Airport. We're working right next to the Blue Bar. They've got the [indiscernible] mine. So we have discussions with them. They are looking to build or upgrade the main road between Roy Hill and McPhee's project, which is halfway between Nullagine and Marble Bar, and they needed to look at a camp to house the construction workers and then eventually hauliers. We needed 40 to 50 rooms for our Blue Spec operation. So what we've agreed is to license the camp for them for $14 million cash consideration upfront, but keeping 50 rooms available for us to use [indiscernible] oxide mining, along the Blue Spec mining, et cetera, and we see that as a real win-win situation for both companies. So delving into a bit more detail on what is at Nullagine. And I do caution that all of these numbers are from previous operators and competent people. So Nullagine is at the Mosquito Creek Basin, is 23 million tonnes at 1.6 grams to 1.2 million ounces of gold in the last declared resources. And the Mosquito Creek Basin itself. That was operated to about 2018, produced a pretty steady run rate of around 80,000 ounces per annum at 1.65 grams a tonne. But at the time, the gold price was $1,500 to $1,600 an ounce. They were hitting some of these refractory deposits of depth, one thing led to another and the mine closed. It was then picked up by Novo Resources. They picked it up mainly to the plant, so they could treat their Beatons Creek deposit. Beatons Creek still has 3.9 million tonnes at 2.2 grams, 276,000 ounces of gold there. They process their oxide material and then decided strategically that they were better off looking at their large ground holdings and exploring especially the West Pilbara. So shut up shop and it's been on care and maintenance for just over a year. So when you look at it, historical production in the order of [ 660,000-odd ounces ] coming through this mill. So it's a proven producer. We do love the opportunities with the current gold price, over 25 non-deposits. And one of our first task is to now work our way through all these resources with our own resource manager and then start to look at undertaking work with optimizations and mine planning to see what we can bring in the near term from an oxide point of view. So there's no doubt that with the Nullagine oxide, the Haoma pits, we are looking at a really interesting conundrum of how do we blend all these in, what do we back off, what do we bring in. But obviously, grade is hugely important. And both the Haoma joint venture and Nullagine offer there. So we will be undertaking a full 2-year review of what we're doing initially with Haoma and now secondly, with Nullagine over the coming period, and we look forward to announcing Nullagine can impact on production that were in the near term. When we talk about the near term, just a couple of examples here in this presentation. Golden Gate, they mined towards the end is Millennium. They have some outstanding drill results in financial year '19 that are still up on some of the last historic platforms. But the latest resource out there was 800,000 tonnes at 4.4 grams for 110,000 ounces. But what we also like is deposits like Condor and Crow where they have pre-stripped quite a bit of material often really into the ore body, which is plus 4 grams, and that would be very easy, we believe, to restart fully permitted. We just need to work through any changes we need to bring it to our arena. But that's one of the examples of the near-term open pit. If we look at sort of more near to medium term, Bartons Underground was an underground Millennium established. They've done all the hard work, cut the portal, put the declines in, done a lot of the level drives, and we're just starting to hit their rhythm with stoping when they closed. So mineral resource, again, of 100,000 ounces at a bit over 4 grams, but certainly open at depth and a lot of the hard work, as I say, establishing that underground done, so we could literally get back in there and start stoping once it was pumped out. So again, another of the options we'll be looking at early on. More longer term, if we look at the sulphide strategy, a lot of these deposits at depth were refractory or partially refractory in the Mosquito Creek Basin. We now have Blue Spec and Gold Spec deposits and our plan was always to track it back to Warrawoona, build a small flat plant on the side of Warrawoona and treat Blue Spec there. As you see, Blue Spec sits in the middle of this group, and we've now got a mill that's got to crush a mill or a CIL and all the workshops established. So really, all it needs for a true sulphide plant is in flight cells and the filter press for the concentrate. So certainly, one of the projects we'll be looking at is how could we best adapt that mill to provide a flotation plant for us for sulphides and shipping concentrate that also has the ability to treat 3 million gold that's part of that partially refractory material. So we'll be studying that. And we think that with that large mill, it really does open up a huge amount of the resources in Nullagine in addition to Blue Spec and could be a quite substantial producer in itself. So lots of work to be done there. We need to spend a bit of time, but certainly, that is our thesis in the longer term is trying to get a larger sulphide plant up and running at Millennium's, saves us on haulage costs in access with a lot more ounces and provides a second production site for Calidus. A couple of the other quick benefits with the acquisition, apart from obviously the cash from camp lease and the camp infrastructure for any work we want to do down there and a plant for the sulphide longer term. There's a lot of stores that we can use up at site, and it's quite a strategically located piece of ground where we've had inquiries from various parties already on how they could potentially work with us to utilize some of the assets we have. So we do see it as a huge positive to the company, and I'm very excited, both short, medium and long term for what Nullagine can offer us. So that is a quick run through of what we wanted to discuss today, being both the quarterly the catalyst for change [indiscernible] really looking forward to updating people on the journey as we move through both the Bulletin our resource reserve upgrade and then the Nullagine resource reserve upgrade and how that impacts production and gross production for Calidus into the future. So maybe over to you, Paul, and we can tackle some Q&A. Paul, can you hear us, we're on to Q&A, if you can and you are on mute at the moment, it looks like.

Right. Apologies, everyone for that. A couple of [indiscernible] in the new system. We do have a few questions today. And a big turnout for today's presentation, too, a lot of interest. First question is what strategies do make Calidus to generate with Nullagine project and why we would be able to make it work with the previous owners [ off shore ]?

Yes. So I think everyone's got their unique situation and story. If you are looking at Millennium, as we discussed that they were hitting some refractory and partially refractory at depth that they couldn't treat. So they were turning over small oxide pits very rapidly and trying to fill a 1.8 million tonne per annum mill with that. For our strategy with the oxides, we're just looking at it as an add-on into our existing ore flow. So we're not trying to fill a 1.8 million tonne per annum mill. We can be very selective about the high-grade portions we want to mine out of that and bring that back. So that's why I think the oxide works for us in that it's a supplement, not trying to fill a mill. And then we've already talked about the sulphide plant in that Millennium didn't have the ability to treat that. They tried to put in a quasi sulphide plant, but I was only there to try and get a couple of extra pit percent recovery. We're looking at a full flat plant to ship concentrate, which increases the gold recoveries into the mid-90s. And is a totally different beast. And with our own depositories in Blue Spec and Gold Spec and over 200,000 ounces as a base, at least 700,000 ounces that we know of at Nullagine, there's 1 million ounce base before you look at turning that on, and we can size out to what we need to do because of the grades that we're seeing, it doesn't necessarily need to be 1.8 million tonnes per annum.

Okay. Another question, Dave. The operational performance in the past 2 quarters and perhaps the next looks to be falling short of loosening the loan and hedge miles, there hasn't been any progress with Macquarie to allow Calidus to improve the financial position going forward.

Absolutely. I think if we look at the last half, it's exceptional what we have managed to achieve, which is over 20,000 ounces off the hedge sort of about $12 million of debt repayment through pretty lean times. And when you look at our once profile heading forward, a, the hedge becomes a lot less of a encumbrance as a percentage, but we're also bringing it down into the realms where as we add more reserves, it's easier to roll out that hedge and you'll see that working in conjunction with Macquarie, we've rolled out 3,000 ounces in the coming quarter, into 2025 to take some of that burden of going to allow more access to spot. So it's a combination of working with Macquarie, who have been really good with rolling at 3,000 ounces as a starting point and us increasing our own ounce production to make sure that's less of an encumbrance. But if you look at it now, we are pretty well 50% way through feeding that hedge. So at the end of next quarter, we'll have completed 55%, 60% of the hedge from [indiscernible]. So we really are knocking it down rapidly at the moment.

Right. Another question, Dave. You report $10.5 million in cash and equivalents at the end of the quarter. Does this factor in a trade creditors, i.e., those grades in 30 days?

So all our trade creditors are in line with contracts. So -- and the vast majority of them are 30 days or under. I think there's only one contract that we have an allowance for above 30 days. So yes, is the answer.

And do you expect the mill to be operating above nameplate capacity in the second half of this year, if so, to what degree?

Look, it has that capacity. But -- and there are a few things we're looking at to try and improve our water supply to allow that as a sustained basis, but that's really not our focus. Our focus is in feeding higher grade. We have a mine plan that delivers that higher grade into the mill at its run rate of 2.4 million tonnes. And at the moment, that's what we're budgeting on. I would be great if we can run harder than that, but we're certainly not budgeting on that.

And moving to Blue Bar. One dear asks, why does the Blue Bar project will have a mine reserve? And is this a risk given that mining that start?

It's got a mine -- on mining leases. So I'm not sure. Yes, it's fully permitted. It's on mining leases. So it is all good to go 100%.

Now Dave, in respect to moving to the Haoma JV. One viewer or analysts ask with the Haoma JV being a profit share, will the future reported quarterly cash balance to be reconciled from profit share payments in that quarter? Or will we have to wait the mining as [indiscernible] before knowing how much profit was shared?