Hillgrove Resources Limited (HGO) Earnings Call Transcript & Summary

Good morning, everyone. This is Jane Brunton, Head of Investor Relations and Growth at Hillgrove Resources. Welcome, and thank you for joining the Hillgrove Resources June 2026 Quarterly Update. With me today are Mr. Bob Fulker, CEO and Managing Director; and Mr. Luke Anderson, Chief Financial Officer. Today's session is audio-only. Bob and Luke will run through our quarterly update before we move into a question-and-answer session for analysts covering Hillgrove. I will now hand over to Bob to begin.

Thank you, Jane, and good morning, everyone. Thanks for joining us for the Hillgrove Resources 2026 June Quarterly Results Webinar. It's been another strong quarter for the business. And today, we'll take you through the operational and financial performance as well as the progress across our projects and the broader development pipeline. The June quarter reflects the continued momentum across the operations, disciplined cost management and the advancement of our key strategic initiatives that positions the company for the sustained growth. I'll begin with the operational highlights for the quarter. The key highlights are we produced 3,170 tonnes of copper, the fifth quarter-on-quarter increase whilst increasing our mining rate in June to an annualized 1.8 million tonnes. The mine generated $23.3 million of operating mine cash flow with a net mine cash flow of $11.2 million after capital and rehabilitation expenses. This resulted in an increased cash balance of $7 million, increasing the group cash balance by 28% to $32.2 million. And the all-in sustaining cost reduced to $5.76 per pound of copper sold at the lower end of our 2026 guidance range. Overall, we are on track to deliver the 2026 production guidance and expect the full year all-in sustaining cost to land at the lower end of our range. During the June quarter, we also produced 1,825 ounces of gold and over 23,000 ounces of silver, bringing copper equivalent production to 4,013 tonnes. The increased gold production reflects the output of ore from Nugent, which has a higher grade -- higher gold grade compared to Kavanagh. The 2026 diamond drilling program at Emily Star commenced on the 4th of April, with 11 holes totaling 4,632 meters completed by the end of June. Drilling to date confirms the geological continuity with no material geotechnical risk identified. Some of the significant intersects included 19 meters at 1.49% copper and 15.87 meters at 1.53% copper. Subsequent to quarter end, the Board approved the commencement of the Emily Star development as a third underground mining front for Kanmantoo. The remaining capital required to bring Emily Star into production is estimated to be $20 million to $22 million. This is in addition to the $2.9 million spent to date. Importantly, the development of Emily Star will be funded from the company's existing operational cash flow. Stoping at Emily Star is planned to commence in the second half of 2027. And when online, Emily Star is anticipated to displace a portion of the lower-level Kavanagh production, whilst the Kanmantoo operation will increase to greater than 2 million tonnes per annum. As the processing plant increases throughput, the fixed cost will be absorbed over a larger production base, and this will result in further reductions in our all-in sustaining costs. Development of the Kavanagh North exploration drive advanced 27 meters by the end of June. This development is to establish a drilling platform to target Kavanagh North at depth with a diamond drilling program planned for early 2027. Underground diamond drilling continued to progress according to plan with over 12,000 meters completed by the quarter end, inclusive of the 4.6 kilometers drilled at Emily Star. Underground diamond drilling at Kavanagh returned strong results that exceeded the average grade of the Kavanagh current mineral resource estimates. Call-out intersect included 15 meters at 2.05% copper and 14.5 meters at 2.02% copper. These results have materially updated our interpreted geomonitoring of the Kavanagh East load with increases in both strike length and width relative to the 2025 mineral resource estimate. We also advanced the surface drilling program designed to test the Kavanagh mineralization depth extension, and one of the significant intersects there was 24 meters at 1.69% copper. This is the deepest significant intersect recorded at the Kavanagh -- at the Kanmantoo deposit to date, and it sits more than 250 meters below our current decline level. All drilling to date will be incorporated in the 2026 mineral resource and ore reserve estimate update, which is scheduled for the December quarter. Looking at our growth pipeline. During the quarter, we entered into a binding farm-in agreement with Havilah Resources. That gives Hillgrove the right to earn an 80% interest in the Mutooroo Copper project. This has allowed us to commence the Mutooroo prefeasibility study. The study team has finalized the budget and work schedule, which is now included in our revised 2026 major capital guidance. We expect Phase 1 of the study, which focuses on derisking all logistics and metallurgical testing to be concluded in the December quarter, which will enable us to -- which will enable the Stage 2 decision to be made. On regional exploration, we received all approvals to commence drilling at Kanappa, with drilling commenced in June. This program will continue into the September quarter, and we'll keep you informed as data becomes available. Post the quarter end, we revised the 2026 major capital guidance from $8 million to $10 million to a $15 million to $17 million range for 2026. This includes both the Mutooroo PFS work and approximately $6.5 million to $7.5 million for the commencement of the Emily Star decline. All 2026 major capital expenditure programs will be fully funded from the company's operating cash flow. As a company, we have grown over the past 12 months. We are focused on delivery with an eye open for value-accretive copper growth opportunities. To better reflect who we are and our future-looking strategic path as a copper producer focused on growth, we have put to our shareholders a proposed company name change from Hillgrove Resources to Kantra Copper. We believe the new name Kantra Copper strengthens our identity as a copper producer, whilst being granted in our heritage at Kanmantoo, Kan is taken from Kanmantoo Copper mine, our foundation operation and Tra is a variation of Terra for earth. At the same time, we are proposing a 1 for 15 share consolidation to ensure our capital structure appropriately reflects our position in the ASX copper sector. Neither the name change nor the share consolidation is a precursor to a capital raise. We have a strengthening cash flow and a strengthening cash balance. As mentioned, the Emily Star development and Mutooroo prefeasibility study will be funded from the company operating cash flow. In closing, the June quarter has seen a continued growth of copper production at Kanmantoo which has resulted in both an increase in cash at hand and a decrease in our AISC quarter-on-quarter to the lower end of our cost guidance. This is in a year which is back-end weighted due to the increasing mining tons. We are on track to meet our production and cost guidance, and we have a growth platform, which we can fund internally. I'll now pass it over to Luke to discuss the financial performance.

Thanks, Bob, and good morning, everyone. I'll now walk you through the financial performance for the June quarter. All amounts I refer to are in Australian dollars and all unit cost metrics are calculated on a payable copper pounds sold basis, unless otherwise stated. As Bob has mentioned, the June quarter delivered another solid financial performance as the company continues to build a more robust financial base to support the business' growth going forward. The headline results include the highest underground quarterly copper production of 3,170 tonnes was achieved at an all-in sustaining cost of $5.76 per pound within the lower range of the 2026 guidance range of $5.75 to $6.25 per pound. 3,027 tonnes of copper payable was sold at an average realized price of $17,096 per tonne or $7.75 per pound. And Kanmantoo generated $23.3 million in operating mine cash flow contributing to the net group cash flow of $8.3 million and a quarter-end cash balance of $32.2 million. The copper market continues to experience numerous challenges. Recent global copper supply has been affected by disruptions at numerous major mines, smelter and refiner concentrate shortages, and the war in Iran has created economic uncertainties. Against that backdrop, demand has continued to increase as artificial intelligence data center development continues, driving downstream needs for electricity generation. These developments come on top of base level growth from urbanization and energy transition. These dynamics contribute towards a structurally tighter market for copper concentrate, and Hillgrove is well positioned to benefit from the current market environment as we continue to grow production. Higher copper prices saw the average realized price for copper sold during the quarter of $17,096 per tonne, up from $16,629 in the March quarter, which also included delivery into a number of lower-priced hedges. As a result, revenue increased 18.4% for the quarter to $63.8 million, reflecting an increase in copper tonnes sold at a higher realized price and $4.9 million uplift in byproduct credits. The increase in byproduct credits resulted mainly from higher gold production at Nugent with 1,825 ounces of gold produced in the quarter, up 109% quarter-on-quarter. Mine operating costs increased 2.9% in the quarter to $40.4 million, reflecting greater activity and some impact from higher fuel and transport costs with some offset from lower offtake charges. Sustaining capital increased $2.9 million to $8.2 million. This is largely due to increased development at Nugent and Kavanagh in line with the 2026 plan. The operations spent $3.3 million on major growth capital with $1 million spent on Emily Star, $400,000 on the Kavanagh North exploration drive and $1.9 million on underground assets and exploration, an additional $400,000 was spent on Mutooroo transaction costs. Overall, operating mine cash flow for the quarter increased 60% to $23.3 million to generate total group net cash flow of $8.3 million. This has seen the company's cash balance increased to $32.2 million at 30 June with a trade and other receivable balance of $6.6 million and unsold stockpiles of $5.9 million. Moving to hedging. The company closed out 1,350 tonnes of copper hedges at an average realized price of $14,466 per tonne during the quarter. As the hedge price was below prevailing spot prices, these settlements tempered the revenue benefit from the stronger copper market. At 30 June, the company had 850 tonnes of copper hedges outstanding at a weighted average price of $14,707 per tonne scheduled for delivery from July to September 2026. No new hedges were entered into during the quarter. Moving to costs. All-in sustaining costs for the quarter were $5.76 per pound within the lower end of the 2026 cost guidance range. Unit mining costs reduced to $3.78 per pound of payable copper sold reflecting the benefit from higher throughput. Unit processing costs were in line with the prior quarter. The impact of higher diesel prices on site operations has been tempered by the relatively short underground mine halls and the processing plant operating on grid power. We have, however, experienced concentrate transport costs increasing in line with the broader fuel pricing environment. On the corporate front, we have been undertaking a competitive process to select a Tier 1 banking partner to support the next phase of the company's growth. Establishing a relationship with a banking partner will enable us to consolidate our security arrangements provide the South Australian government with a security bond for the Kanmantoo rehabilitation liability of $6.6 million, establish corporate hedging lines and provide the potential opportunity for debt financing if required in the future. This work forms part of our ongoing efforts to strengthen our financial platform to match the scale and maturity of the business. We hope to announce the completion of these arrangements shortly. So in summary, another good quarter. Our highest underground quarterly copper production of 3,170 tonnes and copper equivalent of 4,013 tonnes, an increasing cash balance of $32.2 million from strong cash flow generation, costs within the lower end of guidance and establishing a robust financial base to continue to grow the business. I'll now pass back to Jane for any questions.

Thank you, Luke. We're now entering the Q&A session open to analysts. [Operator Instructions] Sam, please unmute and go ahead.

Yes. Can you hear me guys?

Yes, Sam.

Yes. great quarter, everything going to plan, largely. So two questions from me. Firstly, just on the gold grade. I think that was obviously a pretty positive surprise. You don't disclose gold grades, but I'm sort of implying around 0.25 grams a tonne during the quarter. I think Nugent's gold grade is 0.3. Do you think that level of grade is sustainable into the second half? You'd expect that to temper a little bit? That's the first question.

Yes. You're close on your math, close enough, I guess, I should say. Gold grade, I'm expecting it will remain through the second half, and Nugent ranges from that 0.3, but we do have some stopes which get up to like 0.5 and 0.6 just depending on where it is in natural stoping sequence. But also through the months and through the quarters, the percentage of Nugent will increase and decrease just from the general variability of the mining, Sam. But we've always said the second half would be a higher gold grade purely because of Nugent than the first half, and we're starting to see that effect in the second quarter.

Okay. All right. And then second question, again, good quarter. So it might be being a little bit picky, but I was a little surprised that your ore processed was basically flat Q-on-Q, given that you got to the 1.8 million tonne run rate in June. Was there shutdowns earlier in the quarter or any other issues that can sort of help explain that?

Yes. Look, the easiest way to explain it is that April and May were a lower tonnage rate commensurate with the quarter before. June was the one that we lifted up and June did actually get to that 1.8 million tonne run rate. But it was around the 155-ish sort of run rate for the month which gave us to 1.8 million for the year. We did have ROM stocks and coal stocks at the end of the quarter. And with the higher run rate, Sam, I expect that they will normalize at about the level that we got at the end of the quarter. As you can expect, you're running at a 1.8 million tonne rate for the rest of the year. At the end of every quarter, we're going to have some on the coals and some on the ROM, just like we're going to have some concentrate unsold or in progress of being sold and loaded on ships. So that's just a variable of time.

And the April and May run rate being lower, is there any particular reason for that?

The plan was in June that we bring it up, and that was because that was when the third production drill rig came in. We had 2 production drill rigs in Q1. We brought the third one in back end of April, beginning of May. We got the drilled meters up and that allowed us to get the extra tonnes. We're drilling at that right now and have been for the last month. So that should continue.

Thank you, Sam. [Operator Instructions] Thank you. There are no further questions at this time. I will now hand it back to Bob for closing remarks.