Chrysos Corporation Limited (C79) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Chrysos Corp. Limited FY '24 Results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Dirk Treasure, CEO. Please go ahead.

Thank you, and good morning, shareholders. Thank you for joining us today for our full year FY '24 results presentation. As usual, I'm joined by our CFO, Brett Coventry. Brett and I will give an overview of the operational and financial results for the year. Slide 3, please, operator.

Thanks, Dirk, and good morning. Our agenda for this morning is, firstly, our financial year 2024 results highlights followed by PhotonAssay overview, which will recap some of the details here for those who are new to Chrysos; next, to our financial year '24 summary; then moving forward to our FY '25 guidance. Following this, we will open the floor for some questions. Also, in the back of the release today, you will see some of our Chrysos notes and slides we previously published for some more detail for some of the background information.

[indiscernible] please, operator. And thank you, Brett. In an ongoing story of sustained high growth, I'm pleased to present the highlights for FY '24. Firstly, our total revenue was $45.4 million, a substantial increase of 69% year-on-year and in line with our revised guidance provided earlier this year. Ongoing increasing revenue is reflective of the sustained adoption of PhotonAssay by the global gold industry, particularly during a period where gold exploration expenditure remains depressed. Our EBITDA has increased by 156% over FY '23 to a total of $9 million. Importantly, our EBITDA conversion has improved to 20%, and that's compared to 14% in FY '23, illustrating improved operational leverage bolstered by our strategy of clustering units, leading to reduced unitized costs. We remain very well positioned from a funding perspective with $61 million cash on hand, which is further supported by an undrawn $95 million banking facility with the Commonwealth Bank. Mindful that each of the units’ costs start shy of $4 million to build and the business is operating cash flow positive. This gives us a solid runway of circa 40 additional PhotonAssay units from our current [ topic ]. We finished the year with a total of 29 units deployed, having started the financial year with 20. In addition to the 9 new units, we've also successfully redeployed 2 units during the year, highlighting our growing installation capability as well as showcasing our ability to pick up and move a PhotonAssay unit when required, which allows us to be nimble and make changes in line with market demand. Post year-end, we've inked 4 new contracts, 2 of which we discussed during our recent 4C with a further 2 signs between the 4C release and now. Slide 5, please, operator. The 2 new additions to the contract book are both for deployment to SGS, which is one of the world's leading laboratory companies. We're currently installing a unit with SGS for Barrick's North Mara Gold mine in Tanzania, which we had disclosed during our last 4C, but that's now a confirmed, signed contract. And this is further bolstered by our new agreement with SGS for deployment into Orange in New South Wales, Australia to support the major gold miners in that region. The Orange unit will operate in a hub-and-spoke laboratory. Our focus remains on building out our pipeline of deployment opportunities and diversifying our customer base to realign our deployment cadence with our manufacturing capacity. These 4 recent contracts support our growth plans for FY '25 as we continue to broaden our network of PhotonAssay units around the world. I'm pleased to announce that the first Nevada Gold Mines PhotonAssay unit with MSA has begun installation, and we anticipate that at least 3 units will be deployed in support of the NGM mining complex. This presents a broader opportunity for Chrysos apart from being an extension of our relationship with Barrick as part of their global adoption. The NGM complex is a joint venture with Newmont, which remains the biggest gold mining company in the world. We expect that our operations within NGM will provide us with better access to Newmont once our PhotonAssay technology is being used on the site. With one unit beginning installation, we've also completed manufacture of another unit, which maintained a total of 14 units available, having passed factory acceptance testing to support our FY '25 PhotonAssay rollout. Slide 6, please operator. We continue to achieve record sample volumes from our deployed units. Our customers span laboratories and miners, and we count some of the world's biggest gold miners as our direct and indirect customers. We are also well supported by our laboratory partners, which are some of the biggest laboratory companies in the world, and it's through these strong partnerships that we're able to deliver PhotonAssay to our customers around the world. It's important to note that all of these samples originate from the mining companies themselves. So growth in sample volume is a function of 2 things: first, increasing sample volumes processed by existing customers, which is supported by broadening application of PhotonAssay; and secondly, by adding new mining projects to our customer base. Accordingly, growing sample volume is indicative of broader use of the technology by new and existing customers. Slide 8, please, operator. I want to take a moment to talk through Chrysos' business model and why our technology is so successful in the global gold industry, so apologies for those familiar with Chrysos’ journey to date if I’m going over old ground. Very briefly, we build what is called PhotonAssay units. We deploy them to our customers, which are miners and laboratories, and then we charge them a fee for use over a long equipment lifetime. PhotonAssay is a gold analysis technology which uses high-powered X-rays to measure gold in a sample. Analysis is a nondiscretionary spend for miners, and we're typically displacing an existing analysis method called fire assay. We're seeing rapid adoption of our technology all over the world because it offers substantial advantages. First developed by CSIRO, PhotonAssay is well protected by our mosaic of patents on a global basis. That would make it very difficult for anyone to compete with a similar technology. We also keep a very close watch for any alternative gold analysis techniques in the market. The technology has quickly become adopted by the industry. It's been used in JORC and NI 43-101 compliant releases, and we have now processed in excess of 10 million samples. Slide 9 please, operator. Our vision is to become the world's leading provider of innovative assay services and technologies, and that really starts with our PhotonAssay technology. The goal with PhotonAssay is to convert all major gold mining projects around the world, displacing their incumbent analytical technique. We're building strategic partnerships with our customers, as evidenced during the year with our announcement of global adoption by Barrick as well as our broadening relationships with ALS, which operate PhotonAssay in Australia and North America; Intertek, which operates PhotonAssay in Australia and Ghana; and now our expanding relationship with SGS, which will operate PhotonAssay in Australia and Tanzania. We consider these partnerships as key to our success and work closely with our partners on new opportunities. Our business model, which operates as a fee per sample, reduces barriers to entry, minimizing the investment required by our customers, making for a very simple adoption proposition. Our commitment to availability and performance of the equipment, supported by our global maintenance team, derisks adoption for a technology that becomes critical infrastructure for the mine site. For Chrysos, this business model offers a long-term annuity-style revenue post deployment, where our economics are supported by our minimum monthly assay payments. We also retain exposure to industry upswings where our additional assay charges can drive unit profitability higher. On the right-hand side, we illustrate market penetration into our total addressable market. Our TAM is made up of hub-and-spoke laboratories, accounting for around 200 deployment opportunities, and the mines, which account for around 410 opportunities. Once a mine is large enough, it requires on-site analysis to operate. Otherwise, it would effectively be running its process plant and mining operations without any information. As a gold mine processes more tonnes, it generally correlates to a higher volume of samples. We've estimated our total addressable market at those mines around the world which are mining at least 40,000 ounces of gold a year, which equates to around USD 100 million in revenue. There are also plenty of opportunities for PhotonAssay beyond gold analysis. We currently analyze commercially for copper, silver and gold. We also offer a moisture service, allowing customers to process wet materials. We are also actively developing other elemental capabilities. Slide 10 please, operator. This leads us to the question, why are we seeing miners adopt this technology around the world? Firstly, it's significantly faster, reducing analysis time from hours to minutes. It's more accurate, particularly where miners have conflict mineralogy. It allows reduced sample preparation, which reduces overall analysis cost and time. It's completely automated with a technician needing only to place a sample onto an input conveyor and then remove samples from an output conveyor post [ analysis ]. It has reduced labor requirements where we have a number of partners running both fire assay and PhotonAssay in the same facility. They've told us that it's about 1/3 of the labor to run a similarly-sized PhotonAssay compared to a fire assay operation. PhotonAssay samples are also 10 to 20x the sample mass that is processed by a fire assay, leading to a more representative subsample for analysis. Slide 11 please, operator. For every PhotonAssay that displaces a fire assay, we reduce CO2 emissions by 50% and we have no waste product. So as we grow our penetration in the industry, this impact continues to grow. From the roughly 10 million samples that we process, we've already reduced carbon dioxide emissions by over 5,200 tonnes and reduced hazardous lead-contaminated waste, which would otherwise go to landfill, by over 3,500 tonnes. We're also very proud to drastically improve health and safety for operators. In the fire assay process, operators are exposed to lead, which gets into their bloodstreams and causes all sorts of nasty side effects. The WHO has come out and determined that there is no safe level of lead contamination. And yet, when performing fire assay, it really isn't a question of whether lead contamination will occur, but to what extent? Just recently, a laboratory in Western Australia was fined for having their operators’ lead contamination levels dramatically exceed allowable levels. And this is occurring in Australia where there are relatively stringent controls. Often, laboratories in developing countries can be much worse. Slide 12 please, operator. Moving back to our business model, our equipment requires an initial capital outlay and then generates secure revenue over a long lifetime. While the equipment is high CapEx, our agreements with key suppliers allow us to delay payment of a large proportion of this cost to align with the revenue generation of a deployed unit. You can see from this chart that our initial outlay for a unit is in the order of $100,000 to secure long lead time components, which occurs approximately 18 months prior to factory acceptance testing. We then proceed to order the complete PhotonAssay unit approximately 9 months ahead of factory acceptance testing, and we [ spend ] around 20% of the unit’s capital at this point. Once the equipment is built, we then pay an additional 20%. This model basically means that [ 50 ]% of our capital outlay for the equipment is delayed until after we begin to generate revenue from the PhotonAssay unit. Once deployed, we operate typically on a 5-plus-5-year lease contract, but fully expect to be deployed for the life of the equipment, which we estimate at around 20 years. Accordingly, each PhotonAssay unit that we deploy has an NPV exceeding $20 million based on the revenue, cost and CapEx that we currently experience. Slide 13 please, operator. And I'll pass to Brett so he can go into some further detail around these numbers.

Thanks, Dirk. And we should be on Slide 14 now. We introduced this slide earlier in the year as part of the maturing of our information we provide to give more visibility to the business and for those doing their own models a view to the direct costs associated with the deployment of PhotonAssay. We continue to [ see ] very strong margins, achieving 76% per unit this year. We've also [indiscernible] [ unit ] the indication of underlying minimum of the assay payment of course being [ stable ], locked-in revenue for the year. This is important as the minimum monthly assay payment is the baseline revenue for the business, while the additional assay charges will fluctuate with market conditions. Noting the revenue achieved with MMAP per unit grew by 85% to $39.5 million this financial year. The opportunities exist both on the revenue side with the ability for additional assay charges driven by increased utilization and the cost side with increased reliability and clustering of our units amongst the drivers of this. Next slide, please. Revenues across the globe increased by 69% with revenues outside of Australia now representing 55% of revenues globally, up from 33% in the previous financial year. Both our international regions had strong growth with 211% growth for the EMEA region and 203% across the Americas. We expect the growth to continue in these regions with ongoing deployments, including LATAM, or Latin America, with our first sales manager employed in this region. Next slide. Revenue growth has continued in line with the growth in the fleet of PhotonAssay units across the globe. A quick reminder here, revenue commences from SAT, or Site Acceptance Testing, [ beginning ] the date we hand the PhotonAssay unit to our client. At the same time, costs associated with operating these units are in line with expectations [Technical Difficulty] in a strong market. For parity, when we talk about PhotonAssay expenses, this is the all-in expenses of operating PhotonAssay, being the maintenance, spares and employee costs of operating our units. The achievement of the EBITDA position at $9 million is in line with our original guidance and is reflecting ongoing improvement in margin conversion as our business matures. We expect our operating expenses to become increasingly incremental, and this year's results are reflective of our business' ability to be agile, adapting to change and manage costs and deliver our financial goals. We note there was an improvement in loss before income tax of $0.5 million. Movements in income tax are the pickup of the deferred tax assets as they become realizable over the next few years. As last -- as we did last year, we've guided to EBITDA, but we do have a view moving forward to NPAT. Movements will be largely driven by the depreciation profile. We touched on SAT just before. Depreciation commences at the same time. From an accounting view, we have segment depreciation primarily depreciated over the first 10 units with parts of the assets having a 20-year useful life. In short, [ due to ] the capital nature of our business, we do expect to see our D&A expense continue to grow, noting this is timed directly to revenue generation of those units. Next slide, please. Annual cash flow continues on a positive basis at an operating level and contributes to the ongoing investment in deployment of PhotonAssay. Those following closely from the fall announcements would see a movement down of the operating cash by around $1.3 million, not a change in total cash flow. However, this relates to repayment of customer deposits due to them under contract, which appear in the balance sheet as borrowings and have previously been classified in our cash flow as repayment of borrowings. We've spoken throughout the year of our collections from some of our regions we operate in. We have high-quality counterparties and no major concerns, but particular [Technical Difficulty] collections can be slight. We expect to increase capital expenditure in the coming year aligned with the performance for the future year. From a funding perspective, we have $61 million in the bank and during a year’s time expanded $65 million of our debt facility, taking our available debt to $95 million, which is currently undrawn. And as Dirk discussed earlier, our funding allows for approximately 40 more PhotonAssay units before we consider the positive cash flow impact of deploying each unit. Next slide. Our balance sheet remains strong and [ we’ll place ] the continued deployment of PhotonAssay across the globe. We expect the balance sheet to continue to grow in noncurrent assets as we deploy more PhotonAssay units with 29 units deployed and contracts to deploy a further 25, taking the total of contracts and deployed units to a total of 54. And with that, Slide 20, please. And Dirk?

Thank you, Brett. Consistent with our 4C update last month, we provide the following guidance. Firstly, on revenue, we're providing guidance of $60 million to $70 million for FY '25, indicating continued strong growth of revenue of approximately 45% at the midpoint. Underlying this guidance, the 2 main levers impacting revenue are timing of deployments and revenue per year. From a deployment perspective, we've aligned our deployment team more closely with the sales team and more specifically as frontline in customer communications. We consider deployment timing to be more predictable going into FY '25. On the revenue front, the global gold industry remains in a relatively slow environment with low exploration spend and, accordingly, global industry sale volumes remain low. We consider that we're bumping along the bottom of this cycle and that Chrysos is incredibly well-poised to take advantage of a macro uptick when the cycle turns. The timing of this is uncertain. And for the purpose of guidance, we've assumed no change to the market, and that revenue per unit will remain similarly stable. Moving to EBITDA, we're providing a guidance range of $9 million to $19 million with the wide range in EBITDA driven by the revenue range. Our strategy of clustering units in key mining regions is allowing us to control our unit costs. And as we continue to deploy additional units, our overheads do not need to scale proportionately. Therefore, we're able to largely mitigate the impact of inflation and to drive EBITDA margin. Slide 21 please, operator. Summarizing FY '24, we've had continued top line growth with revenue up 69% and EBITDA up 156% year-on-year with both metrics in line with our revised guidance from earlier in the year. There are now 29 PhotonAssay units deployed around the world with 9 new units deployed during the year as well as 2 redeployments. We have a strong pipeline of contracts, which is further bolstered by our 4 new contracts signed post year end, which is supporting our efforts to expand our customer contracts and diversify our customer base. We've been very well supported by our customers via public endorsement of our technology, firstly with Barrick's global adoption of PhotonAssay announced in October last year, but further bolstered by Goldfields Australia, which talked about their exclusive use of PhotonAssay in Australia during our site visit earlier in 2024, mindful that both of these companies are top 5 gold-producing companies. More recently, Agnico Eagle, which is now the third biggest gold miner in the world, presented their adoption of PhotonAssay by their Fosterville gold mine at a recent [ OSM ]conference. We anticipate this interest in our technology to continue to snowball as adoption by these big miners derisks adoption for smaller gold miners and explorers. From a funding perspective, we remain well funded for future growth with over $145 million available for investment into PhotonAssay units, mindful that we're operating cash flow positive. I'd like to close with a quick thank you to the ever-growing Chrysos team for their dedication and hard work, without which we wouldn't be able to achieve what we have during the year, and I'm excited to see how FY '25 unfolds. Thank you, and we'll move to questions.

Thank you. [Operator Instructions] Your first question comes from Josh Kannourakis from Barrenjoey.

First one, just one on signing some of the new contracts, can we talk a little bit more about just the potential for, I guess, expansion with SGS and just maybe a bit more context around maybe how much they're sort of doing on mine site? I know I think they did more of that than, say, an ALS or something. So I’m just interested in what their positioning is in that market versus sort of more the hub-and-spoke market that they also operate in.

Look, great question. So SGS, at least to my understanding, are the biggest provider of on-site laboratories in the gold space around the world. So we see that as a great opportunity for us. Any growing relationship with SGS, as you can see from the recently signed contracts, is excellent for PhotonAssay and for adoption. I mean, having effectively the world's biggest laboratory company advocating for our technology out in the industry also just helps to derisk the adoption by, well, small and large gold miners. So we're very excited by the growing relationship here with SGS.

Fantastic. Okay, that’s great. And just second one just around, I guess, on the MMAP side of things, so it's good to give the context on the dollar value. Just wondering, like, those new contracts around that, sort of are they signed at similar levels? Are they -- how should we be thinking about the incremental units signed in terms of what that does to some of the MMAP into -- leading into FY '25?

Look, good question. Again, so all of our contracts continue to adhere to the same type of metrics and economics. So you're talking about having a locked-in MMAP. The opportunity for additional assay charges coming through everything is on a long-cycle basis. So yes, you could assume that they are relatively consistent with the other deals that we have out in the pipeline.

That's great. And final one for me, and I know obviously, for many reasons which you explained last time, not giving sort of deployment level guidance, obviously, you've got those 14 units sitting there and ability to do more. How should we sort of think about just nearer term in terms of both deployment, but just in terms of the weighting across the year at that at the moment? Is there any extra -- maybe a bit of extra color you can give us on how we should be thinking about that?

That seems like a question we've had before, Josh. Good question. And certainly, from our perspective, the goal here is to move to a point where deployment cadence matches manufacturing capacity. So I think we've demonstrated manufacturing capacity in the order of 20-odd units a year. So certainly, the plan is to get deployment cadence to that level. As we continue to roll out more contracts and basically ink more deals around the world, these are ideally near-term deployments as well. So the 4 contracts that we've talked about that have been signed post period are all intended to be deployed within this financial year, so quite positive for the deployment cadence of the business, but without providing sort of specific color around how many to expect on a quarterly basis.

Yes. And just say the pipeline in general and -- do you just feel like – because I mean, there, it obviously feels like a little bit more activity in terms of some of the markets. Obviously, the backdrop still remains relatively favorable despite exploration levels still not really picking up too much. Like, how -- what are you seeing in terms of the sort of end market dynamics? Is there any sort of changes over the last few months or any other further inbound or pipeline activity that's worth noting?

I think the industry is getting more interesting again. I think I've commented before that we're bouncing along the bottom. I think that, with the gold price up where it is, people are taking notice of the gold market, which we would fully expect to translate through into an increased exploration spend. In saying that, though, as we've said before, we haven't specifically seen that, particularly in Australia, at the moment. But I think that there are a lot of exciting opportunities around the world. I think one of the big points for us, though, is that, as we deploy more of these units into these prolific gold mining regions, we are incredibly well-poised for when the industry turns. And that's just something that we keep an eye out for. So if you look at the unit economics on kind of a revenue per unit basis, we've managed to keep that relatively consistent even with the market where it is, but we think that there's an incredible opportunity there as the market starts to pick up.

Well done.

Thank you. [Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Treasure for closing remarks.

Thank you, operator, and thank you, everyone, for attending today. I'm actually incredibly excited by the year that we've had and the year to come. The global endorsement of our technology by the world's biggest gold miners, as well as the global footprint that we built out during FY '24, provides a solid foundation for success going into FY '25. At some stage, we feel that there will be an industry upswing for gold exploration, which will further bolster our unit economics and adoption. Admittedly, we had some misses during the year regarding deployments, but we've built the infrastructure within the business to support future growth. I look forward to providing further updates to the market and look forward to seeing you at either our AGM or during our next market update. Thanks again.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.