Hillgrove Resources Limited (HGO) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hillgrove Resources Limited June 2025 Quarterly Results Call. [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, and good morning, everyone. Thanks for joining us for the Hillgrove Resources June 2025 Quarterly Report. My name is Bob Fulker, MD and CEO, and I'm joined on the call for his first quarterly report with Hillgrove by Luke Anderson, our new CFO and Company Secretary, who recently joined the company in June this year; and Joe Sutanto, our CTO and Head of Investor Relations. We appreciate your time taking the call and listening in today. I'm pleased to report on what has been a milestone June quarter for Hillgrove. We not only delivered good operating results, but also achieved a series of strategic advancements that set the foundations for long-term value creation. The team's continued focus on execution, cost discipline and proactive development has enabled us to meet key milestones ahead of schedule while also positioning K2 for a more robust second half. The foundations have now been laid to increase throughput and lower unit costs. Operationally, as we highlighted in the June 20 production update release, the mill feed grades declined due to short-term stoping challenges in June as we advanced our major development work. It is important to note that this is a deferral of grade into future quarters as opposed to an issue with the grade reconciliation. We've already seen an uplift this month heading back towards the reserve grade. Due to this, we produced just under 2,600 tonnes of copper for the quarter, which keeps us on track to meet the bottom end of our full year guidance of 12,000 to 14,000 tonnes of copper. Importantly, there are multiple key achievements through the quarter. Over 2,000 meters of underground mine development completed, up 10.7% for the March quarter. This reflects our strategic decision to prioritize development to access new mining fronts and support long-term flexibility. An annualized processing rate above 1.4 million tonnes was achieved with 353,000 tonnes processed at an amazing 95.2% recovery. And lastly, the accelerated Nugent development has enabled first ore to be exposed and mined ahead of schedule. Setting us up to mine the first stope during Q4 and only 370 decline meters before we break the decline through, establishing a truck loop and creating a second lens of egress. This is critical -- is a critical turning point for Hillgrove. The Nugent development began in earnest in late April. And in just 2 months, we were able to deliver development ore to the mill through the '10, '20 level crosscut. This early success was made possible by the decision to accelerate development rates and invest strategically. Nugent gives us multiple new mining fronts, improved scheduling flexibility and sets us up to increase mill throughput from 1.4 million tonnes to a run rate of 1.8 million tonnes in H1 2026. This is not just about short-term [tonnes]. It's about building a sustainable, scalable operation that can deliver consistent production and cash flow. This investment is about building for the future by de-constraining the mine through the development of multiple new access points and mining fronts. We are significantly increasing operating flexibility. This enables more efficient mining by reducing reliance on any single area of the mine, improving equipment utilization and lowest congestion underground. It also provides greater optionality to blend ore from different sources, which supports more consistent grades and metallurgical performance of the plant. As throughput increases, we expect to drive down unit costs by leveraging our large fixed cost base, resulting in stronger margins and more reliable cash flow. On the exploration front, our confidence in the broader Kanmantoo system continues to build with each round of drilling. In quarter 2, we completed over 17,700 meters of diamond drilling across 79 holes, targeting both near mine extension and infill drilling. Some of the key highlights in the quarter included at Nugent, drilling intercepted multiple high-grade copper gold zones beyond the existing mineral resource envelope. These results extend known mineralization to 300 meters -- 380 meters below the historic open pit. At Kavanagh, we achieved the deepest intersection to date at West Kavanagh, hitting copper mineralization about 200 meters below the current workings. This confirms the down plunge continuity of this ore body. And at Valentines, we intersected a previously untested authorization zone about 180 meters below the known mineralization, a potential new source of copper within our mining lease. Over the coming quarters, we'll continue to update the market with regular drilling results as they become available. We've also commenced drilling to test the Emily Star, Critchley and Paringa zones, all of which are on the mining lease, making for exciting times in the drilling results over the next 6 months. Looking ahead to the second half of 2025, our strategy is clear: ramp up production at Nugent to increase overall copper output, deliver further extensional and infill drilling results with the annual mineral resource and ore reserve update planned for quarter 4. Continue to advance our exploration programs, not just underground, but also in the regional tenements and reduce development meters back to sustainable levels required for long-term production and working on continuous improvements and cost reduction initiatives. Examples of these are the installation of our first ore [path], which has increased stope extraction rates significantly, and we are reviewing major contracts for extensions with improved rates. We are entering the second half of the year with momentum on all fronts, operationally, financially and geologically. Lastly, before I hand over to Luke, I'd like to thank everyone for their support in the capital raise, which was concluded this quarter. I'll now hand over to our new CFO, Luke Anderson, to walk through the financial performance and capital allocation for the quarter.

Thanks, Bob. Good morning, and good to meet everyone on the call. This morning, I'll walk through the financial performance for the June quarter. Our June quarter results reflect the continued strategic focus on growing the Kanmantoo operation through accelerated mine development with record development during the quarter. With this, we have seen higher major capital costs with $5.1 million spent on the Nugent accelerated project during the quarter. This has been funded through the recent cap raise, which was completed in May with the receipt of $5 million from the SBP and $2.6 million from the Tranche 2 placement. While headline cash flow was impacted by lower copper production, the strategic capital allocation this quarter, particularly towards accelerating Nugent has set us up well to deliver tangible results in the near term. This quarter was about building the capacity to scale production, grow the business and unlock value over the long term. The reduction in copper produced for the quarter resulted in payable copper sold reducing from 2,909 tonnes last quarter to 2,572 tonnes for this quarter. This reduction in payable copper sold was slightly offset by an increase in our average realized copper price of $14,340 per tonne compared to $14,137 per tonne in the prior quarter. The copper price continued to strengthen during the quarter with strong copper demand currently trading at $4,800 per tonne and remembering that our reference pricing is the LME. Now turning to cash flow. Operating mine cash flow for the June quarter was $6.4 million. Net mine cash flow was negative $4.8 million after accounting for quarterly capital expenditure of $11.2 million, which included $4.7 million in sustaining capital, $5.1 million in accelerated Nugent development, exploration of $1.1 million and $0.3 million on other major capital works. This result reflects our decision to bring forward investment in Nugent ore body and significantly expand our exploration drilling program and was a major reason for the recent fundraising. As we move forward, that capital would transition into more ore tonnes mined to utilize our available mill capacity and generate increased cash flows. It is also worth highlighting that the Nugent capital is largely nonrecurring. The major access decline at Nugent will be completed over the next 2 quarters, reducing development intensity, increasing production fronts and enabling a ramp-up in copper output and revenues. All-in costs, excluding Nugent for the quarter increased from USD 3.79 per pound to USD 4.40 per pound with the increase in activity. However, the headline increase in all-in costs is largely a reflection of reduced production due to the temporary shift in stope sequencing and ore grade as referenced by Bob. Having said this, costs continue to be a focus as we demobilize contractor activity associated with the Nugent development over the next couple of months and renegotiate contract terms with some of our major contractor parties. And whilst all-in costs, excluding Nugent of USD 3.44 per pound is above the cost guidance range, we expect to remain within full year cost guidance of USD 3.40 to USD 3.90 per pound, albeit at the higher end. We expect a return to more favorable cost metrics in the second half of the year as high-grade ore is mined and processed, resulting in our unit cost decreasing. Turning to our liquidity and fund -- funding position. We ended the June quarter with $24 million in total liquidity, an increase from $20.9 million that we had in March and includes the remaining cap raise proceeds received in May of $7.6 million. The working capital balance comprised of the following: $10.6 million in cash, $11.9 million in receivables, which reflects a large concentrate sale at the end of June and $1.5 million in unsold concentrate. We remain debt-free and fully funded to complete the Nugent development acceleration project, which remains on budget. Our risk management framework also includes a prudent hedging policy. At quarter end, we had 5,950 tonnes of copper hedged at an average price of $14,272 per tonne, locked in for delivery through to September 2026. This hedge book covers roughly 30% of our forecast production over the period, providing downside protection while leaving the majority of our volumes exposed to any potential upside in the copper market, a position we feel confident about given the long-term structural demand of copper. We are deeply focused on deploying shareholder capital efficiently and transparently. Whilst this quarter reported negative net mine cash flow, this is a function of investment we are making in the future. That investment has already begun to yield results with Nugent development ore processed ahead of schedule. We are confident that this will pay dividends over the coming quarters. And with the bulk of the heavy major capital work behind us in the next couple of months, we anticipate a step change in both production and free cash flow conversion. In summary, we maintain tight financial discipline during the phase of major project execution. We continue to manage our liquidity during this high capital development. Unit costs, while elevated this quarter, remain under control and are expected to ease as production eases in the second half. Capital investment has been strategically focused on growing the business. And our 0 debt position gives us maximum flexibility for further growth going forward. Thank you for your continued support. And with that, I'll hand back to the operator to open the line for any questions.

[Operator Instructions] Your first question comes from Chris Drew from MST. [Technical Difficulty] There are no further questions at this time. I'll now hand back to Mr. Fulker for closing remarks.

Thanks, Darcy. And Chris, if you can hear us, we'll give you a call later. You didn't come through, so we'll try and answer your questions offline. Look, closing comments, we look forward to the coming quarters as we release more exploration results and we start to reap the benefits from the recent development success. So really looking forward to the next 2 quarters to show you some more results in the positive [indiscernible] mark. Thanks, everyone, and talk to you soon.

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