Develop Global Limited (DVP) Earnings Call Transcript & Summary

Good morning, and thanks for joining us to discuss what is a transformational deal for Develop and its shareholders. First of all, I would like to thank everyone involved in this deal, from my Board, senior management team and our advisers, Sternship, Canaccord, our legal team, Ashurst and our due diligence, independent due diligence, extreme metallurgy, NewExco and NTEC, fantastic result and an unbelievable team effort to pull off this transaction so quick into the company's existence being only around 7 months. I would also like to welcome the incoming Heron team. They have done an amazing job in keeping this mine in fabulous conditions during the care and maintenance phase over the last year or 2 and also navigating an administration process during that. As you can see, we have done an absolutely cracking deal. We've secured an exceptional asset at a highly attractive price, and we are in no doubt that we will increase its value substantially as we apply our core strengths of expertise and capital. Opportunities like these are difficult to find, particularly when the acquisition criteria is as demanding as ours. Woodlawn meets all our criteria and then some. The price is right. We're paying $30 million upfront for an asset which costs $340 million to establish. For our $30 million, we get a fully permitted operation and a substantially developed underground mine, a new processing plant, a significant JORC resource and reserve base and extensive infrastructure throughout the operation. The growth potential is exceptional. The mineralized licenses at Woodlawn are open in a number of areas, especially down depth. We will immediately implement an underground drilling program, utilizing the existing underground and some additional development. This will maximize the speed and substantially reduce the cost of extending this now mineralization. We believe there is significant potential to grow the inventory in this way. The drilling will also be aimed at upgrading much of the inferred resource and target downhole EMs conductors that industry-leading geological consultants NewExco identified for us during the due diligence. On a more macro level, Woodlawn fits into our wider strategy perfectly. Develop is centered around acquiring, exploring and developing clean, future-facing metals in Tier 1 locations and helping others do likewise. We aim to create shareholder value by acquiring the right projects at the right price in the right locations and then applying our competitive strength of access to capital and expertise, particularly in underground mining and geology to these assets. Woodlawn is tailor-made for this formula. Importantly, it also dovetails exceptionally well with our Sulphur Springs copper and zinc project in Western Australia. The ability to leverage our core assets across multiple projects is a key part of our strategy. Woodlawn and Sulphur Springs are ideal stable mates in this respect. Moreover, the production potential of these assets in the future demonstrates that Develop now has the foundations to become a major Australian base metal producer. Such companies are rare on the ASX and in strong demand among global investors. The strength of this acquisition is reflected in the terms of the equity raising we'll announce today. Our major shareholders, including mineral resources and myself, have already agreed to take up their respective rights at a premium to the 5-day VWAP and yesterday's close. This is a further investment of $4 million from myself. As you know, raising money at a premium in such circumstances is virtually unheard of. And I think it's fair to say that our major shareholders are known for being prudent and through investors in the resource space. So we are delighted that they have supported development and this transaction so strongly. As well as funding the upfront consideration, the proceeds of the raising will be used to fund the drill platform excavation underground, the initial exploration program at Woodlawn and keeping the mine on care and maintenance. To be clear, we have no intention of restarting production immediately at Woodlawn until we have achieved our primary goal of increasing the mineral inventory. We have not set a target in that respect. There are many variables which will be taken into account as part of any restart decision. But suffice to say, we would be looking for a considerably longer mine life than is currently the case. That said, the capital required to do that restart in the future is significantly less and substantially reduced in execution risk due to the sunk capital by prior owners. I will now take you through the investor presentation. So at your leisure, please go through the disclaimers. I will now go on to Slide 11 of the pack. So Woodlawn, as I said, it's a compelling acquisition, where our acquisition includes a new underground mine, new processing plant, significant resource reserve all established at a cost of $340 million. We're acquiring that Woodlawn zinc and copper project in New South Wales, and we have an extensive tenement package for $30 million upfront plus some success-driven milestone payments that I'll take you through later on in the presentation. Prior owners, as I said, invested significant capital into redeveloping this operation. Woodlawn acquisition meets all Develop's strategic and crude investment criteria. As I said, clean future-facing metals, well cast geological system that I'll take you through, and outstanding value for money. Our purchase price upfront is less than 10% of the previously invested capital. One thing I always look at assets is I always look at historical performance on any acquisition. And this mine has got a fantastic profitable 20-year production record, mining nearly 14 million tonnes at approximately 20% zinc equivalent. When this was running through that 20 years, it was the second highest grade zinc equivalent mine in Australia, second behind the world-class deposit of Rosebery in Tasmania. It's a quality VMS system. We're inheriting an existing reserve of 3 -- over 3 million tonnes at 13% zinc equivalent. And more importantly, an underground resource of over 7 million tonnes at 15.2% zinc equivalent. The mineralization is hosted in a VMS, typical geological system, and as I said, numerous lenses, which all remain open at depth in a number of directions as well. Our initial focus, as I said, is extending these lenses, immediate construction of our 1,000 meter underground development. This will enable drilling to be done from underground at a much cheaper and faster and more effective angles and shorter distances. Combining with our rapidly emerging Sulphur Springs copper and zinc project, this will transform the company into a major base metal group centered on those clean future-facing metals in Tier 1 locations. Develop will raise $50 million via $25 million placement and a $25 million accelerated nonrenounceable entitlements offer, which will be done at a 5% premium to the 5-day VWAP plus a director placement subject to shareholder approval, of course, to raise up to an additional $1 million. On to Slide 8, a quick overview. The asset is in New South Wales, 2 hours drive from Sydney and an hour drive from Canberra in a fantastic location here. It's been under care and maintenance since 2020. I've been on site for the last 2 days, and sometimes you see these sites were -- or development sites or people that put it on care and maintenance. You see a lot of care and very little maintenance. This is an amazing job on care and maintenance in what they've done. I struggled to see anything that was secondhand on site. In fact, I didn't. As I said, large infrastructure, a large underground reserve and resource. The total reserves and resources of the project are quite big. There's over 12 million tonnes at about 8% zinc equivalent and a total resource in excess of 18 million tonnes at nearly 10% zinc equivalent across the whole project. As I said, a huge track record. And to put that production and that tonnage and that grade into perspective, in today's commodity prices, that's about $9 billion of contained metal in ground, which is an amazing ore body. A large VMS system with multiple lenses, significantly under explored and very untested in a number of areas. On to Slide 9, so the terms of the deal. We're acquiring 100% of the shares in Heron Resources out of the administrators through a docker. The key terms of that docker are outlined on Slide 38 for your viewing. The upfront $30 million payable consideration to Heron to its secured and unsecured creditors comprises of $15 million payable in cash and then $15 million worth of fully paid shares in Develop, which will be at the 5-day trading -- 5-day volume-weighted trading price on the date of signing the agreement today. The $70 million payable in what I call success-driven milestone payments and to be quite honest, it's quite self-funding from the existing company activities is pretty much milestone-related payments. So there's a $12.5 million cash or scrip pair on defining in excess of 550,000 tonnes of contained zinc equivalent. And to put that in perspective, current reserves is around about 400,000 tonnes of contained zinc equivalent. Then another $7.5 million in cash and scrip upon defining 680,000 tonnes of zinc equivalent in JORC reserves. There is a $20 million payment on a positive final investment decision to go and restart the mine. And then the final balloon of $30 million is payable 18 months after continuous commercial production has been declared at Woodlawn project, and we can elect to satisfy this contingent payment in either cash, Develop shares or a combination of both at our sole election. Orion, Nomad and Castlelake, who hold in aggregate over 50% of the value of the total claims against Heron, have each executed binding co-op deeds to satisfy creditors and will vote in favor of the docker proposed by Develop. And the key terms of these cooperation needs are outlined in Slide 39. This will go to the second creditors meeting, which is scheduled for the 25th of February this month. As I said, our advisers on this transaction have been Sternship as corporate and Ashurst acting as our legal advisers. On to Slide 10, like the strategic rationale, I won't repeat, but it fits everything and ticks all the boxes of what we have told the market, what we wanted to create is well and truly satisfies all that. On to Slide 11, it's worth actually taking time to look at the history of Woodlawn. It had a very long profitable history of a high-grade underground operation or both open pit operation and underground. And I will point out in 1998, when it did close its doors as an underground mine, it was depressed commodity prices back then. Zinc and copper were very, very low. But what brought that company unstuck really was their coal assets, went into administration, which brought the whole group down. So -- and you can see that from the data guys when you look at the mine only went down to 600 meters below surface. The lenses are open. And literally, there's no drilling. So they literally pulled up stop shop and went out, so it's a stunning sort of opportunity. On to Slide 12, looks at the site, as I said for the last couple of days. amazing job on care and maintenance, brand-new infrastructure. The stickers are still on everything, and the team have done an amazing job to keep that. I couldn't find a Coke can or a wrapper up against the fence. It's amazing. Everything change rooms offices, first aid rooms, everything is brand spanking new. So I think I'm already pinching a few things for Sulphur Springs as we spoke. On to Slide 13, the historical learnings, I guess, what brought down the previous owners of this asset, we've addressed well and truly. And there's a couple of key points there that had significant cost overruns and delays on constructing a project. The project is now constructed. The infrastructure is in place. As I said, they spent $340 million into this asset and literally developed only 25 horizontal meters away from the main high-grade Kate Lens that was part of -- a big part of the underground mine plan. Heron's mine plan relied heavily on retreating old tailings, which encountered obviously recovery in issues and ramp-up issues during construction and commissioning. We are not treating old tailings. It is not part of our plan. We're really focused on defining a robust underground mine plan where the metallurgy is well known over its historical production in 20 years. Underground mining productivity issues during the ramp-up with not reaching Kate Lens prior to the care and maintenance getting called. Look, we can leverage off our extensive underground capability and expertise, and we are one of the most productive underground miners in the world. Insufficient working capital buffer to resolve ramp up issues. We have scale. We are well capitalized ahead of a potential restart in years to come, and we'll ensure a sufficient buffer to work through plant commissioning. And one of the key things I looked at this asset is if we do restart this in years to come, that barrier to entry to restart is really, really low from a capital perspective and can be fund from debt. There's minor modifications in the plant, and we're basically funding the working capital to start developing the ore drives. The first 3 levels of the underground mine have already been grade-control drilled, so 25 meters off the first ore drive. So we basically just got to refund the working capital to develop the ore drives and bring it into production in years to come. So very low barrier to entry. And if you look from a banking perspective, the bank's biggest risk is building the processing plant infrastructure. Well, that's done and it's defined, and it's worked before. So a fantastic derisk for traditional funding in the future. Look on Slide 14, this is some of the money shots. I've always bought assets for their geological potential. I've never bought a system that doesn't keep extending or along strike and in out of the page and at depth It's a very large mineralized system. It's open. It's a very similar system to like the Golden Grove and Rosebery deposits. Very extremely untested compared to other VMS systems around Australia and abroad. As I said, everything is open at depth, and we've identified a lot of targets here. And on to Slide 15. This is my money shot for me and why I bought the asset. When you look at a cross-section of these ore bodies, I should just point out the C lens. The C lens is where predominantly where all the historical production coming out, 14 million tonnes at 20% zinc equivalent. First 10 years took out the top of that lens in a pit. And then the next 10 years, we'll see the underground taking that out. And when you look at these guys, there's only 4 drill holes below that C lens. And as I said, there was $9 billion in today's terms of contained metal in that lens and has 4 drill holes below a $9 billion ore body. And when you look at the orientation of those holes, it looks like a little bit of that miss so. And you see this time and time again, I think I've bought 14 mines now, 13 or 14 mines, and you see this time and time again. And I want to point out all the other lenses, they're open at depth. Look at some of this drilling, 14.5 meters at 31% zinc equivalent. The bottom of the lens there, 30 meters at 2.6% copper. These are the last holes in those now on those guys. And we've also identified, as I said, some downhole conductors through NewExco, so that will be part of our testing in the coming 24 months. On to Slide 16. It's just a diagram. You can see this proposed drill drive that we're putting in here. And I should emphasize, we're very close to this Kate Lens. And this was only discovered in 2013 guys, and that's 40 years post the initial discovery. And this is like a couple of hundred meters below surface, and it's in the known lenses. So it's amazing what you can find in this. So we'll spend $30 million over the next 24 months on the inventory growth and care and maintenance. As I said, we'll drill that platform. We'll do about 33 ks of underground diamond drilling and test all those horizons that I went through. On to Slide 17, again, just a bit of a planned view of our plan on this. We'll do that take off. I went down there and I had to look at that take off. We've got power. We've got ventilation. That's not far off ready for development. So we'll get into that very quickly once we get the keys. And the whole strategy on this mine plan that we want to target is we're really targeting that 7- to 10-year initial mine plan. So effectively taking the reserve now and doubling it. As I said, a great package guys in the Lachlan Fold geological belt. This is a cracking asset in signed right. This is a fantastic belt. I think does not get the recognition globally for what it should do when you start looking at the asset base of things like Cullerin, Ridgeway and North Parks and all these quality assets that sit through this system. So now we've got a lot of historical opportunities here. There's historical mines that they mine years ago. The old Cullerin deposit that we own, 10ks, 0.5 million tonnes come out of that 13% zinc and 1.6% copper still open in the data and a number of other things. And this would be a huge market cap company just on that regional package alone. On to Slide 19. Look, on through a few of these points, but it's very transformational for us. We now sort of have 3 advanced stage high-grade base metal projects in Tier 1 locations. This acquisition increased our reserves by 145%, increases our resources by 94% and Woodlawn and Sulphur Springs concentrate products are predominantly as of July, the bulk of that vast majority of them actually unencumbered, which I think is a huge win because this will be a very green producing asset with its energy mix there being underground and obviously, undergrounds, I guess carbon emissions per tonne of payable metal are substantially lower from open pit operations. So that coupled with the electricity crude over here and surrounding wind farms and bioreactors, there's some really, really good green energy to power this operation in the future. I'll just quickly go on to Slide 21 and 22. Please go back and have a look at our Sulphur Springs asset. We put out a fantastic drill results in December. We put out up to 60% of our results last week, some huge results in that. This is shaping up to be a great project and a mine of the future. And we're still advancing that, getting approvals in there, and we're already doing site establishment early works to start our exploration decline in the June quarter. Look, I'll go on to quickly under the capital raising, so on Slide 24. So we've got a fully underwritten $50 million equity raise comprising of a $25 million institutional placement under our existing placement capacity. We're also raising $25 million through a 1/4, 18.6% accelerated nonrenounceable entitlements offer, a really good way to look after all existing shareholders. And approximately 15 million new shares will be issued under this equity raising, which is approximately around about 11% of existing developed shares on issue. So I think it's a very accretive deal for our shareholders. All new shares will be treated equally under the equity raise and will be issued at a price of $3.30 per new share, which represents a basis of 4.1% premium to yesterday's close at $3.17, and 5.2% premium to the 5-day VWAP, which is a fantastic result for the company. I think it really shows the massively strong support from shareholders on this deal. Funds will be used to pay upfront cash consideration for the proposed acquisition. That will be $15 million. Other $30 million will be spent on the exploration program we just outlined and the care and maintenance costs during that period, and $5 million for working capital and transactional costs associated with this deal. As I said, major shareholders, myself and mineral resources will take up our full entitlements. So another $4 million I'm putting into the company from my account. And as I said, this is fully underwritten by Canaccord who has done a fantastic job as our lead manager, underwriter and bookrunner on this deal. Look, the time tables are out there. You can run through that. So look, I'll just turn my attention now to summary. I'll now tell you, we couldn't be happier with our purchase. Woodlawn is an exceptional opportunity, which is perfectly suited to our company. And when we put Woodlawn alongside Sulphur Springs, we have a case of 1 plus 1 makes 4. We are now well down the path to achieving genuine scale in the business of clean future-facing metals. A big thanks again to our existing shareholders for supporting the company and this transaction so strongly. We are super excited, and thanks for joining us today.