Hillgrove Resources Limited (HGO) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hillgrove Resources Limited March 2025 Quarterly Update. [Operator Instructions] I would now like to hand the conference over to Mr. Bob Fulker, Chief Executive Officer and Managing Director. Please go ahead.

Thanks, Darcy. Good morning, everyone, and welcome to the Hillgrove Resources March 2025 Quarterly Report. My name is Bob Fulker, Managing Director and CEO, and I'm joined today on the call by Joe Sutanto, the CFO and Company Secretary. We appreciate you taking the time to listen in today. It's certainly been an eventful quarter, both within the company and externally. The external issues are having their effects across the sector. With the uncertainty, we have seen gold reach the heights. But despite the intraday volatility of the share market and the commodity price cycle, copper has remained relatively elevated at USD 9,400 a tonne, approximately USD 4.25 per pound. But more importantly for us, AUD 14,600 a tonne or AUD 6.65 per pound. Internally, we've also had a busy quarter with continued operational improvements with numerous metrics at record levels. On the diamond drilling front, several great results at Nugent and the Valentine's program. And finally, significant support from our shareholders and the market within the capital raise and SVP being oversubscribed. With all of this in the background, our strategy remains constant. Continue to improve the financial and operating metrics at Kanmantoo, increased the mining tonnes further with the Nugent decline and breakthrough to the 920 in later this year and further increase our resources and reserves in 2025 for aggressive drilling within the mining lease and beginning exploration work on several of the numerous greenfield targets that we have within our business. As I have mentioned on previous occasions, we have 2 strategic imperatives, and these are driving everything we do. Firstly is to consistently deliver strong operating cash flows, which we did this quarter of $12.7 million and then grow the business. During the March quarter, we invested $6.5 million in mine development with $2.6 million of this in the Nugent growth capital to increase mine production by 25%, leveraging a high level of fixed costs inherent in our cost structure. Just to remind everybody, the additional $8 million for the accelerated Nugent decline will come into next quarter's reporting, and we'll separate it so everyone can see it. Once Nugent development decline breaks through on the 930 during the December quarter, development expenditure will normalize to lower levels. Our strategic priority #1 is to deliver the business. Over the last 3 quarters, the site team have demonstrated a theme of continuous improvement, which is coming through in the improved operating metrics, copper tonnes, mill recovery and mine development. These are the visible metrics, but the team is also improving the site systems and processes in anticipation for when we become a 1.8 million tonne operation in the not-too-distant future. Remembering that the underground team has only been stoping for just over 12 months, and we are still working with the constraints of limited work areas whilst we build developed stocks over the coming quarters. But despite this, they achieved a 9% increase in ore tonnes and a 12% increase in development meters. What this tells me is as we increase the space between the mining processes, more improvements will occur and the systems we are developing will pay additional dividends into the future. This continuous improvement mentality is also evident with our processing team, where we gained another record improvement to 94.2% recovery. This is outstanding considering our grind size of plus 200 microns and a mine head grade that we are processing. Despite this, they are now looking for the next set of improvements, and I'm confident that over time, they will achieve it. We heard the feedback from the last quarter, and we'll continue to update the market on our operations regularly. As I mentioned in our announcement on the 8th of April, we are again mining through a lower grade zone in April, but the grade is expected to improve for the remaining quarter with production for the June quarter higher than the March quarter. As we open up more work areas and as we complete the accelerated Nugent decline development, we will experience lower month-to-month grade and production volatility as we'll have greater flexibility in our mining schedule. The second strategic imperative is to grow the business. We are investing to grow Kanmantoo's production with the acceleration of the Nugent decline breakthrough, but we also have on lease exploration targets of 25 million to 40 million tonnes announced in February. What better way to increase our on-lease resources than to take advantage of our underutilized plant. To this end, we intersected some great results in Nugent announced over the last quarter, 18 meters at 5.7% copper and 1 gram per tonne gold, 16 meters at 3% copper and 0.4 grams per tonne gold and 21 meters at 1.8% copper and 0.6 grams per tonne gold. These holes were outside the previously envisaged mine plan, where we were actually attempting to identify the extremities of the mineralization. However, these hits were intersected with some visible gold. We need to follow these up with additional holes to further identify the extent of the mineralization. It's not a bad problem to have. Additionally, during the quarter, we commenced testing of the Valentine's zone. This was a technical success where we not only found the mineralization zone, but intersected some interesting grades. This will be followed up with additional holes later in the year. This region is independent to the current operating mine and has a potential exploration target of 1.9 million to 2.8 million tonnes at 0.7% to 1.1% copper. And with this intersect of 0.99% copper, it sits within the upper range of this exploration target. This could be great incremental plant feed, especially when considering its location is on the way to Emily Star, an existing resource with a further exploration target of 3.3 million to 5 million tonnes. Other exploration targets we'll be testing this year include Critchley, Paringa and Emily Star. We have 3 drills progressing to drill of 60,000 meters this year, and the team is working on the next update for the MROR in the December quarter. Lastly, before I hand over to Joe, I just want to thank everyone for their support in the recent raise. Your support is appreciated and will enable us to fast track the Kanmantoo's growth to a larger copper producer in the coming years. And with that, I'd like to hand over to Joe, our CFO, and he will update you on the financials.

Thanks, Bob, and good morning, everyone. As Bob mentioned, we have a clear vision of where we want our business to be. And for us to achieve this, the first step is for us to deliver what we said we would do from our foundation asset, Kanmantoo. This comes from consistent production that is sold at an all-in cost within our guidance, which then enables us to generate positive free cash flows and thereby strengthen our balance sheet. Delivering this will create value for our shareholders. From a financial perspective, we are heading in the right direction, and we are indeed delivering what we said we would do. Firstly, our all-in cost of USD 3.79 a pound is within our guidance despite our production forecast being back-ended for 2025. Secondly, the limited impact of the volatility in the commodity markets due to our prudent risk management. Thirdly, we generated operating cash flow of $12.7 million for the quarter, which saw us increasing our liquidity balance despite the significant CapEx we are spending currently. And lastly, our strengthened balance sheet, not just from the capital raising we conducted in March, but from internal free cash flow generation. This enables us to embark on our organic growth opportunities that Bob talked about. Starting with our all-in costs, I would like to commend those that have contributed to Kanmantoo's outstanding performance this quarter. Bob has already talked about the achievements on the physical side, but I want to outline that this is all done with a focus on costs also. The combination of the cost control, along with the record copper production led to the reduction in unit cost from USD 3.97 a pound to USD 3.79 a pound, which is all the more impressive when you compare on a like-for-like basis with previous quarters. We have brought corporate G&A this quarter in those figures and our denominator is now using copper sold rather than produced. Without these changes, it would have led to an even more significant reduction in unit cost from USD 3.97 a pound to USD 3.59 a pound. What this hopefully shows for those reading the quarterly as well as those listening today is the fixed cost nature of our business, where the incremental cost of our higher production for us is very low. And it is this that I'm excited with. I am interested to see where we will be this time next year when we complete the accelerated Nugent project that will see us increasing mining output from 1.4 million tonnes per annum to 1.8 million tonnes per annum. And in addition to this, how much lower unit cost can go with potentially new mining from areas like Valentine and Emily Star not far beyond that in the horizon, which could see us further increasing our mining output. Overlaying all of this is our spend on major capital items such as the accelerated Nugent development projects, which will significantly drop in 2026. All this is expected to lead to increased free cash flow generation. Secondly, and despite the volatility in commodity markets and deliveries into some of our lower-priced hedges, we still averaged a healthy realized price of $14,137 a tonne during the quarter. Looking forward into the next quarter, subject to copper prices maintaining where it currently sits, we expect a further improvement to this. Firstly, due to the low price hedges nearly all being delivered into already. And more importantly, secondly, we will deliver to 1,000 tonnes at a price of circa $15,400 a tonne. This was from the hedge that we placed in March just before the turmoil that was recently seen in the markets. We will continue to prudently manage our risks and exposures. With our cost being well below the average realized price, we generated a healthy $12.7 million in positive operating cash flows for the business last quarter. From this, we invested $6.5 million into our future mine development, of which, as I mentioned earlier, we included $2.6 million into Nugent growth capital spend, which will significantly reduce again this year. Despite these chunky investments, our liquidity continued to increase this quarter, which has strengthened our balance sheet. This strengthened balance sheet, which was both as a result of our strong operational performance I just outlined as well as the successful capital raising that was announced in early March, sees us with available liquidity of $20.5 million at the end of March. A further $5 million was received under the share purchase plan in the first week of April as well as a further $2.6 million in proceeds from the tranche 2 placement, which is expected next week. This, along with any further free cash flow generation from our operations, places us on a strong financial footing and give us the right platform to execute the numerous organic growth opportunities that Bob mentioned earlier on our call. Thanks for listening. And I will now hand back to Darcy to open the lines for questions.

[Operator Instructions] Your first question comes from Ben Wood from Wilsons Advisory.

Congrats on the strong production this quarter, guys. It's good to see the operational controllables flowing through. I just have 2 questions today, if that's all right. Initial production and AIC guidance was issued in the December quarterly report, which was prior to the announcement of the accelerated Nugent development. You guys have reiterated guidance in the March report now. But I'm now thinking with the CapEx being brought forward for this development and production not to be influenced until CY '26, how much further do you sort of anticipate the AIC remaining within the $340 million to $390 million AIC guidance band sort of for the remaining quarters this calendar year? Do you sort of see it sustainably staying at current levels? Or do you still see that declining promisingly over the course of this year?

I think it depends -- thanks for the question, Ben. It's Joe here. I think it depends what you're classifying as major capital. So I mean, if you're including the major capital from the Nugent acceleration, then we're probably going to be slightly higher than the $379 million that we released this quarter. But yes, I mean, if you exclude with the higher production, you would think with our sort of fixed cost nature of our business, it's expected to drop. I guess what I'm trying to say is, on a like-for-like basis, we do not include that additional Nugent particularly in the next sort of quarter or 2, there will be sort of -- it will be lower than the current quarter.

So Ben, from our perspective, we've reiterated the $340 million to $390 million AIC. We're working towards delivering below the $390 million, including the Nugent spend. And that includes using sold not produced, and it includes the inclusion of the G&A. I'm still trying to push that down further, okay? But the guidance is still sound, and our aim is to actually deliver within that guidance, including the spend on Nugent.

And just sort of the last point for me is that $12.7 million in mine operating cash flow, $7.7 million in CapEx spend, that's sort of $5 million difference there, am I right in thinking that $2.5 million has flown through to the additional liquidity that you've reported. But the other sort of $2.5 million of that, am I right in thinking that's just going to payment of sort of lease liabilities as well as sort of CapEx timing of cash flows?

Yes. Yes, you are spot on. You've got exactly as you said there. So we did generate, obviously, sort of $12.7 million, we still with some CapEx. And then there was a couple of costs outside of the AIC being group costs as well as lease payments and so on. So that should translate to our change in liquidity you can see.

[Operator Instructions] Your next question comes from Chris Drew from MST.

It looks like another good quarter, plenty of records in there. Just one that was a little bit behind the processed tonnes for the quarter fell a bit behind the mine tonnes. Is that just a function of the kind of batch processing that you run? Or was there anything else going on there? Should we sort of expect that to flip the other way around in the June quarter, more processed tonnes over mine tonnes? How is that sort of shaping up?

Chris, it's just the batch style. It depends when the 7 days falls in the actual 28-, 30-day month. Anything from 0 to plus 4% or 5% movement into month is actually about normal.

And another quick one, if I can. Just on the -- I guess, on the liquidity, obviously, in pretty good shape post the cap raising, are you still looking to refi that working cap facility that's, I guess, expiring shortly if it hasn't already, the Freepoint facility?

Yes. No. So the debt facility expired on the -- I think it was the 23rd of April. So we're in the process now of -- we've been there for a few months, trying to replace that facility. We're probably still 4 to 6 weeks away from having it into shape where we'd like it to be. So I'm hoping that we can announce something coming through the next quarter. And it is to replace the Freepoint facility, but that's a work in progress.

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

Thanks, Darcy. And I just wanted to stress, as I mentioned earlier, with Kanmantoo now in commercial production and the strong demand from Aussie investors for new copper stories, we'll be increasing our engagement with our investors and analysts. I do think we have a great story here. I do think we have a great delivery, and we've got a great future. So thank you, everyone, for your time today. Cheers.