Chalice Mining Limited (C8U.F) Earnings Call Transcript & Summary

Thanks very much, and good morning, everyone. Obviously, great to be sharing some good news this morning regarding our Gonneville project in Western Australia. As everyone will recall, it's a very unique large-scale palladium, nickel, copper development project here in WA. And over the years, obviously, we've been doing a lot of work on this project and really had a razor focus on the metallurgy. It's one of the -- obviously, the key drivers of value for this project. And the news out today is a big leap forward in our metallurgical understanding of the project, but also just the simplicity and from a value equation, a big step forward. So the breakthrough is in basic terms, we've generated saleable base metal concentrates, nickel and copper concentrates from the low-grade material at Gonneville. And for context, we, over the last 3 years, have been unable to do that. We were never able to generate a saleable nickel concentrate below around about 0.2% nickel head grade. And now we're seeing saleable concentrate across the full grade spectrum. So that is a real fundamental change in the nature of the project. It means that we can use a fundamentally different and much, much simpler process flowsheet. And more importantly, it takes out the need for a complex and high-cost unproven hydromet process on the nickel concentrate side. So we will have a copper concentrate that grades plus 22% copper with a lot of precious metals content within it. We've always had success producing saleable copper con, but where we've had trouble over the years of being on the nickel side. And now we've shown that our nickel concentrate will grade 7.5% to 8.7% nickel, 0.8% cobalt and approximately 20 grams of precious metals within it as well. So we know the -- through discussions with various offtakers, the saleability sort of threshold is around 6%. So to be comfortably above that is a big step forward for the project. And obviously, we've spoken previously about using leaching techniques to recover additional palladium and gold. In the scoping study of last year, we talked about using some unconventional leach technologies. Now we've done some test work on CIL, so standard gold on precious metal industry technology. And we've basically got a big step change there in CIL performance as well, getting very good recoveries, but with significantly reduced reagent consumptions and hence, operating costs. So we're something like 70% down on the expected reagent consumption for that circuit. That CIL process as well, given that we are looking at processing palladium, which is a critical mineral on the Australian critical minerals list, we expect that will qualify for a 10% tax offset as well on those operating costs. So -- and if we're not paying tax, we will receive that 10% in cash in lieu of the tax offset. So that's another positive. So we -- in basic terms, we have removed some very complex and high-cost parts of the flowsheet, reducing the technical risk, reducing complexity and really taking capital and operating costs down by a big degree. And so how does that look in terms of what does the project -- what do we go forward with now? I guess the bulk open-pit mine plan is very much back in the equation. So the low-grade material that we thought was going to be challenging and required a high price environment to incentivize, that looks now like we've taken that threshold down considerably. And so if you look at using obviously consistent macroeconomic assumptions, our bulk open-pit mine plan from the scoping study, we expect to be enhanced from a margin perspective considerably. So a number of big steps forward. We are still doing some test work and still have our variability program ahead. and that will no doubt result in more fine-tuning around recoveries in particular, but we are really now getting to the pointy end of the pre-feasibility study, which is targeted for completion in the middle of this year. And importantly, I think we've taken some of the piloting and derisking steps out of that critical path to cash flow. We've now -- we've really streamlined things here by simplifying the project, bringing it down in scale, we think generates a simpler and much faster pathway to developing this project. Obviously, we remain, as I said there in the announcement, we remain in a very strong financial position with about AUD 90 million in cash and listed investments as well, which means that we are very much funded through to our expected and targeted FID date in 2027. So I will pause there. No doubt, there will be some questions on the line. So over to you, Travis, to go through questions.

[Operator Instructions] The first question today comes from David Coates from Bell Potter Securities.

Alex, thanks for the presentation this morning and congratulations on what looks like, again, pretty game-changing kind of update. First question is just on -- in the announcement, you talked about new reagents and [ flowsheet options ]. Can you just sort of run and maybe give us a bit more color on what's been the catalyst for being able to make these changes?

Yes. No, look -- thanks, Dave. It's an obvious question. I think first and foremost, like credit to the technical team, our metallurgists and our laboratories working with us. There has been just a level of grit and determination with all those guys to really crack the code on the met. So just hundreds and hundreds of iterations and experiments and experimentation with different reagents has really been the fundamental, I guess, breakthrough. We've used some newer reagents in the industry as well that are probably more commonplace outside of Australia. So particularly reagents that assist with selectivity as in separating nickel away from copper and likewise separating the copper and preventing that from floating into the nickel con. So we've really sort of been through a very, very long list of reagents used across the world. And I think the other real key difference as well is that with the scoping study, we took the approach that we really started with a high-grade optimal flowsheet -- a flowsheet that was optimized for high-grade material, and then we ran variability across the low-grade portion of the resource. We've really flipped that on its head this time around. So we've really built composites based on that bulk sort of mine plan that obviously we suspected was going to be the way this project was going to be developed. But until we can -- really you get those models run, it's one of those things. So we've really now got an optimal flowsheet that's really been tailored and designed for that low-grade end. And obviously, the high-grade end, we've never really had any challenges with in achieving good recoveries and good concentrate grades. So those, I think, are the sort of the fundamental approach differences that have generated the breakthrough. We've also gone slightly finer on grind size in the scoping study checks where we went to 38 micron, but we weren't sure whether it was 38 or 53. We've now made the definitive call that 38 looks optimal. And then we've done lots of small adjustments to flotation parameters around agitation, froth height, et cetera, that cumulatively, all those factors combined, obviously, they're not individually significant, but cumulatively adding them all together has really created that big jump in performance. And for context, I think as well that the low-grade test work on low-grade samples during the scoping study phase, we were getting no better than 4% or 5% nickel concentrates. So to leap now to sort of 8% is a big achievement and certainly really changes the nature of the project.

Excellent. And second question is just on the impact on CapEx. And from reading the announcement, it's a bit of a guide at this stage, but it talks about a CapEx saving or cost removal, I suppose, of AUD 510 million compared with the 15 million tonne case in the 2023 scoping study. Can you just give us a bit of a breakdown on what comprises that CapEx saving like obviously the hydromet plant, but I don't know, is it infrastructure or other kind of contributions to that number?

Yes. So the AUD 510 million reflects, I guess, the hydromet plant cost for a 15 million tonne per annum scale. So I guess, upfront, we were looking at something like AUD 260 million for the hydromet plant in terms of preproduction capital costs. That obviously now comes out from our sort of CapEx total. We are looking at starting at a slightly smaller scale as well. With the scoping study, we were looking at starting at 7.5 million to 15 million tonne per annum throughput rate. We are looking now at starting slightly smaller than that. That reflects also a more conservative price environment. We are at what we believe is the low point of the commodity price cycle. So we need to obviously temper the -- and really phase our CapEx and deploy our CapEx efficiently. The other minor changes to sort of the infrastructure, plant design, et cetera, we expect, obviously, the comminution circuit is going to look quite different now with the inclusion of HPGRs. Previously, we're assuming 3-stage crushing, SAG-ball milling. Now we've got HPGRs in the circuit. So all of those things combined, we think, brings down that upfront capital cost considerably from where we were in the scoping study. But obviously, we will come to market as soon as we have a better understanding of that number in due course.

The next question comes from Al Harvey from JPMorgan.

I just wanted to get a bit of an understanding. You did flag the lower payabilities for the nickel, cobalt con by selling that con rather than MHP. But I had thought that one of the challenges with the nickel con had actually been the payability on the PGMs that report into nickel con. I think it was about 20% to 25%. So just kind of want to get a sense of if that's still a challenge. I know bigger one, you've got 4-plus potential customers for the offtake. Just trying to get a sense of that. Is part of that addressed by the CIL leach? Any kind of update there would be helpful.

Yes. Thanks, Al. It's a good question. I think the first point is we were thinking there was going to be far more precious metals reporting to that nickel con than what we've actually seen in test work. So we've been very successful in, I guess, trying to push as much pressures into the copper con where you get very, very good payability, sort of plus 90% payabilities on precious metals in copper con. We inevitably do have some precious metals reporting to the nickel con and that's just because there are some associations. We know there's a portion -- a small portion of the palladium that's locked in the nickel minerals in the pentlandite. So it's going to float in with that nickel concentrate in any case. So yes, you do take a slight reduction in overall payabilities. But I think what we've seen over the last year, especially since there's been blood on the streets in the nickel space, you've seen a huge amount of nickel sulphide concentrate just being turned off. So the smelters are very much hungrier for feed, and that is being reflected in sort of -- we're obviously talking to all of the players in the nickel space and the terms are definitely trending upwards. So in terms of precious metals, sort of exactly what will get paid in the nickel con, we think it's going to be in the order of 60%, 70% ballpark. We have stated that publicly as well that, that's where we expect the precious metals payability to go. We do now have a new nickel product though. So we do need to circle back to those smelters and then go back and retest. But I think the general trend is, yes, we've been pleasantly surprised at sort of how those terms have been trending up over the years. So I guess the negative of going down on payabilities through producing MHP, we think that's tempered to a degree by improved payabilities on nickel con.

Understood. That's good if you're getting more of the PGMs reporting into the copper con as well. Maybe just my second one. Obviously, you've had the MOU with Mitsubishi locked in last year. I just wanted to get a sense of how that's changed thinking on the project. I think it was flagged back then that there was going to be fairly broad collaboration across technical, finance, marketing. So maybe you can kind of give us a sense of what their influence on the project has been and where it's been most pronounced?

Yes. No, I think, as you know, Mitsubishi is the biggest player in Japan, the largest of all the trading houses. They have the biggest trading presence in PGEs as well, and they are very much interested in nickel and cobalt as well for the battery sector. Players like Panasonic and others in Japan are very much relying on players like Mitsubishi going out and securing the raw materials for this new sector. Look, they've been very useful as, I guess, our nonbinding strategic partner thus far, particularly in the marketing area. We are dealing with -- our concentrates are quite specialty concentrates in terms of the precious metals content within them. They are not typical concentrates. So Mitsubishi in that area, especially been very, very useful in sort of guiding us to where they think the optimal offtake solution is and the optimal downstream process facility is. And they obviously maintain a strong interest in the project, a strong interest in taking offtake of these products into Japan. In terms of the relationship, we've got a very, very strong relationship I think given that we are looking about now at scaling down the project, I think that drive for us to require an equity partner in the asset is probably less so now, but we are -- we think also we have a much, much more broader set of strategic relationships now to build just given that now we just don't have anywhere near the level of processing complexity required. So you don't need to be, in our view, now a processing specialist to really develop this project. So we think that is going to really broaden the list of interested parties from a strategic sort of financing offtake perspective.

The next question comes from Adam Baker from Macquarie.

Just one on the upfront CapEx and I understand you're working through the optimization still with regards to throughput and mining rates, et cetera. But I think going back to the scoping study, the 15 million tonne per annum scenario, that was about AUD 1.6 billion in upfront CapEx with the hydromet plant about AUD 190 million of that. Just wondering, if you were to do the 15 million tonne per annum scenario, would it be as simple as removing that from the sub total? Or are there other optimizations we should consider?

Yes. Look, I think if you -- it was AUD 190 million of direct CapEx for the hydromet plant in that case. Once you put a bit of indirect and other costs in there, it worked out around about AUD 260 million of upfront capital to build the hydromet plant for the 15 million tonne per annum case. So I think you get to around AUD 1.3 billion number, just doing math on that. There has been a few little changes now to the flotation, like I said, the comminution circuit as well. So it's going to move around a little bit, but we don't think that's going to change materially for that sort of scale. What's harder to know is, I guess, we did get cost estimates during the COVID period during a pretty hot time in the market. We're obviously eagerly awaiting sort of new guidance from our engineers on that as to sort of what new costs look like in the new sort of industry dynamic. Clearly, they're just nowhere near the level of activity in the development space, obviously, outside of gold. So I think that we're expecting a cooling off of some of those pretty hot sort of price points. And as well, we need to remember, we're building something that's on the outskirt of the metropolitan area. So we don't have anywhere near the level of indirect sort of travel, temporary accommodation, those sorts of costs. So yes, we expect it to be as competitive and as executable sort of capital project as you could probably get in WA.

And maybe for my second question, does this update with regards to the flowsheet, how does that change your thinking around potential future underground development?

Yes. Look, I mean we haven't spent a lot of time thinking about it, to be honest, because I guess we've always been fairly high conviction that there was going to be a multi-decade open-pit phase to begin this project. So we've got the benefit of the first 4 years or that first phase of the project has considerably higher grade. Some of the best mineralization, best high-grade mineralization that we hit early in the discovery sits within the first 200 meters. So there's quite an uplift on that sort of average grade profile in the early years. So it certainly doesn't look like underground competes in that first stage. But yes, how it might come into the latter stages is a bit sort of unclear at this point. What is great, though about our asset is that it is a scalable -- it's a largely adaptable project with different macroeconomic parameters. So with these improvements and that grade tonnage profile that we have, we can really sort of move and adapt the project to the movements in market conditions. I think that doesn't mean to say that once we are at the end of an open-pit phase, let's say, in 20 years' time, obviously, we'll be looking at a completely different set of economics, metals prices, et cetera. So you could either see the project continuing on in a sort of a life extension open-pit phase or we are looking at caving methods as well as a potential sort of life extension option. Again, haven't done -- haven't spent a lot of time thinking about it, but we do think either a block cave or sublevel cave is probably the approach of interest rather than sort of smaller scale long-haul open stoping or sort of more selective underground mining.

The next question comes from Richard Knights from Barrenjoey.

Yes, just a quick follow-up on Adam's question really about the impact on the mining side. So just to be clear, there's now not going to be or no requirement for any selective mining based on mineralogy and the bulk mining scenario basically means open pit from the beginning, you'll be obviously trying to maximize grade early on. But how should we think about that grade profile? And I suppose the question is also, is there any element of an advantage from being selective on mineralization?

Yes. We have -- thanks, Richard. I think we have tempered the dilution assumptions a little bit. We have gone down in block size overall. So we do believe there will be a level of selectivity in the initial years of mining. But it's not -- it doesn't look like now we're going to be deviating dramatically from the sort of mine plan and profile that we saw in the scoping study. So ultimately, even in the scoping study cases, there was a nice sort of high-grade period in the early years. and that's exactly the case, what we see going forward. I think that what's different though is, I guess, we have now -- it looks like we can cut our OpEx by a very significant sort of in percentage terms, which also reduces cutoff grades. So we're actually driving down on cutoff, which drives down on strip ratio as well, but doesn't appear to do much to the grade profile relative to where we were in that scoping study case. So I guess, yes, that's probably the best guidance we can give is that it is back to a bulk open pit mining phase that will have different throughput, absolutely, but we think sort of a level of blending and stockpiling as always, we'll always look to front-load as much high grade in the mine plan as possible. but we don't think that's going to be materially different to the profile that we had in the scoping study. Does that answer the question, Richard?

Yes, yes. No, that's great.

The next question comes from Hayden Bairstow from Argonaut.

A great result on the project, obviously. Just keen to understand now that the timing, obviously, you're still working through the study in a midyear release. There's a comment in there about FID in '27. Just confirming the key steps between now and then and then obviously, what an 18-month, 2-year build to the surface production '29 or something?

Yes. So I think, broadly, you're right, Hayden. I guess what's left to go until PFS completion is, obviously, there's still a number of lock cycle flotation tests to go. There's a number of some CIL tests to happen on those flotation tail samples that we will generate. We also need to get our cost estimates, particularly around the plant into PFS level accuracy, so call it plus or minus 20% to 25%. So all of that is happening sort of in the lead up to the middle of the year. And obviously, then we'll make the final refinement to mine design, optimizations, et cetera. Looking at sort of ballpark around about 12-month period for feasibility, so again, crunching aero margins down to the plus/minus 10% to 15% sort of level, which takes us into sort of mid-2026. Financing, obviously, the tail end of approvals, all those things, we think will probably take us through to 2027. But whether it's early or late '27, probably a bit early to say at this point. I think overall, we were thinking a 2-year construction period in the scoping study. That was probably influenced to a degree by the complexity around the hydromet. I dare to say, probably we can crunch that a little bit, maybe down into 18 months in terms of construction period, but hard to know exactly today as well until we sort of really lock down the scope. But yes, if you think sort of target around sort of the end of the decade or just before, then that, I think, is realistic for where we are today. I think that -- I mean, the key point is that level of piloting and demonstration to prove unconventional technology, that is now just gone. So we are really starting, and we have much more of a streamlined sort of more rapid simpler pathway to production.

Okay. And just on the asset sell-down sort of process, I mean, you sort of indicated you're not as interested in doing it. But I mean, with these metrics, it looks like you're in the teens on IRR even at these spot prices now. I mean, surely, that would get interest of a potential 10%, 15% sale at the asset level, which could really change how you fund it?

Yes. Look, I think, look, our sort of high-level view is now we're less reliant on sort of sharing the capital around. We think this is now a very much executable project for Chalice to go alone on and indeed for any sort of mid-cap sort of company to execute. You just don't have the level of complexity and the level of capital upfront that we thought we did. I think as well, I mean, I just think it has broader appeal now to a whole range of different sort of strategics and offtakers. Obviously, there's lots of copper smelters out there that are very, very hungry for products. So there's sort of financing possibilities that come with that. In the nickel space, obviously, there's fewer nickel smelters around. But like I said earlier, there's also just far less nickel sulphide concentrate around as well. So I think just generally, the base metal space is very, very lean on large-scale credible new projects in the Western world. So I think we're in a very good position. And I think the precious metals contribution from palladium, I certainly think we're looking at a much more positive outlook now with sort of changes in policy settings around electric vehicles, incentives, sort of green funding. I think we're looking at sort of internal combustion and hybrid engines, hybrid vehicles for a much longer period now. So I think all that sort of bodes well for the sort of general desirability of our commodity basket.

And importantly, when do you sort of kick off the final sort of full approvals process? Is that pre-feasibility study mid-year?

Yes. So we referred early last year. So that was sort of the initial look that the regulator got at the scope. As it was made public, we referred up to a 15 million tonne per annum processing throughput up to 300 million tonnes of tailings storage on the existing farmland footprint that obviously we own the farmland. So we've given ourselves some headroom in terms of sort of permitting at the upper end of sort of a bulk mine or a bulk scale project. I think that really the full form sort of environmental submissions will be probably towards the end of this year. Obviously, they've been waiting on really the finalization of scope around mine plan, but also processing. So now we're very much upping the ante and sort of sprinting towards getting all those major submissions in. They need to go to obviously Commonwealth and state regulators. We haven't had any reservations or concerns raised through our extensive consultation with both regulators to date. I think just generally as well, governments, both state and federal, are very, very supportive of the project, very formally advocating for the project. So I think we've got everything working in our favor there that we strongly believe this will be permitted -- trying to estimate that on what sort of time frame that's the hard part. But yes, certainly, there's a lot of desire out there in the government at all levels to bring new projects like this online.

The next question comes from Levi Spry from UBS.

Just a point of clarification around the Table 3, the first 4 years high grade. So what throughput is that based on? Is that the 7.5 million to 15 million? And can you just confirm, I guess, the -- any changes in scope for PFS?

Thanks, Levi. Sure. I guess the way we've gone about composites was premised on the scoping study mine plan. So yes, I guess that's how to read that, year 1 to 4 composites were made by looking at sort of the approximate grade profile of a 15 million tonne per annum mine plan from the scoping study. There's a little bit of more work to be done there. Obviously, we've still got some lock cycle test results to come back on those composites. So it is just guidance and indicative for the time being. And actually, what -- obviously, now we've obviously got a level of selectivity in mining as well, and we've got a smaller block size in the resource model. So we expect probably will be -- there could be some uplift to the grade profile in those early years as well. So yes, obviously, that all is going to come together as part of the PFS. In terms of other scope changes, we probably don't see a lot of other deviations from where we were in the scoping study in terms of mine life, in terms of sort of overall pit shells. It is looking like this does -- these cost reductions do drop cutoff grade and therefore, drop strip ratio, as I said, and that's the sort of the -- that's just the nature of our grade tonnage profile. But yes, I think overall, it now, from a mining perspective, looks pretty similar to a scoping study in terms of grade profile and pits.

The next question is a follow-up from David Coates from Bell Potter Securities.

Just a quick follow-up. Alex, can you just give us a bit more detail on how those tax offsets will work or likely might work in practice?

Yes. Thanks, Dave. It's a good question. So yes, effectively, the way the legislation has been drafted and approved has been that any substantive processing of critical minerals beyond a concentrate is expected to be classified as eligible expenditure for the tax offset. So for example, when we're using CIL to recover palladium from the flotation tails as well as from the oxide material, we expect that component of those operating costs will be eligible. So we're looking at -- if you say, it's in the order of sort of AUD 4 to AUD 5 a tonne of cost on a per tonne of processed basis, we will get either -- if we're sort of not yet paying corporate tax, we will get a 10% credit in cash on our tax return or if we are paying tax, obviously, in later years beyond the payback period, then we will get a 10% credit on our tax bill. So that's, I guess, the crux of what it looks like at the moment. There is still some vagaries around the exact scope, and there's obviously a level of consultation now we need to do with treasury, et cetera, but we've had some early engagement, which has given us the confidence that those costs will qualify.

Okay. And that's 10% of the AUD 4 per tonne, is that what you're saying?

That's right. That's right. So broadly, that's right, the processing costs associated with CIL.

At this time, we're showing no further questions. I'll hand the conference back to Alex for any closing remarks.

Thanks, everyone, for joining. Obviously, yes, I just -- I guess I'll finish with where I started that this is a major reset now on the nature of our project. And credit to the technical team again for what they've done and what they've managed to achieve. There were certainly not many people at the outset that thought we would ever be able to upgrade a 0.15% nickel head grade to saleable plus 8%. So we've really proved them wrong, and it's a credit to the team. We're certainly looking forward to our new COO, Dan Brearley, commencing early next month as well. He's really got the specialization in the construction phase, the later stage studies, development readiness and then construction. So very much looking forward to him coming on board as well and really moving now into a development pathway for the project. Thanks again, everyone, for tuning in.