KGL Resources Limited (KN6.F) Earnings Call Transcript & Summary

Thank you all for coming. Welcome to today's Annual General Meeting of KGL Resources. I respectfully acknowledge that we meet today on the lands of the Turrbal people and pay my respects to the elders past, present and emerging. I also acknowledge the traditional custodians of the land in the southern Northern Territory, represented by the Central Land Council and our past and present traditional custodians of the land on which Jervois Copper Project is located and pay my respects to their elders past, present and emerging. Let me commence our business for today with some introductions. Present are my fellow directors: Brian at the end of the table here; Ferdian is on video conference, Ferdian is somewhere there, I'm assuming. And I'm also very pleased to introduce our recently appointed CEO, Mr. Philip Condon, sitting next to me. And also present is our CFO Anthony Liaw at the back. And Phil has been with us since June this year and was appointed CEO in August and has already been to site and met with all the key stakeholders in the Jervois project. Phil has over 30 years of mining experience and has a track record of successfully developing and operating mining projects. Also present today is Kylie Anderson, our Company Secretary; and Anthony Whyte, representing our auditor BDO. As you know, Denis Wood has been a significant supporter of and contributor at KGL. He resigned from the Executive Chairman's role in March due to health reasons. Unfortunately, Denis is not able to attend today. However, he's always been and continues to be a great support. I want to also recognize a significant contribution made by Kylie as the interim CEO which he replaced Denis until Philip was appointed. Kylie maintained our focus on the employees, upgrading the safety program, the exploration program and the activities to update the feasibility study during this time. The success of the company can be attributed to these key people and the employees that have supported them. Today, we've got 3 resolutions. One to reappoint me as independent non-executive director. I was appointed to the Board as a director of the company on the 31st of May 2022. Since Denis' resignation in March this year, I've filled the position of independent chairperson. The second resolution is to appoint Ferdian to the Board. Ferdian has served on the Board since April 2016, representing our largest shareholder KMP Investments. KMP have been and continue to be a strong supporter of the company participating in all capital raisings. Ferdian is also the MD of MACH Energy Australia. And the third resolution is the remuneration report. And we'll -- with that sort of introduction, I think I'd like to attend to the voting on the resolutions. I've been advised we have a quorum present, and I declare the meeting open. Proxies -- I better put that up on the screen. Sorry, and I'm not there. Okay. So this slide is the proxies as we currently have them. At today's meeting, all resolutions will be decided by poll rather than a show of hands. I will advise you what to do at the time. Final confirmation of the votes will be released to the ASX after the meeting. The notice of Annual General Meeting was sent to all members of the company in accordance with the statutory requirements. And as explained in the notice of meeting, I will be voting all proxies open to me in favor of the resolutions. First order of business is financial report. And the first item is to receive and consider the financial reports of the company and the reports of the directors and the auditor for the period ended 30th of June 2024. Shareholders are entitled to ask the auditors who undertook the audit of the company's financial statement, any relevant questions. So I open the floor, are there any such questions in relations to the company's statements and reports? I'll take that as a no. As I previously said, all resolutions will be decided by a poll. I hereby appoint Link Market Services as the returning officer for voting. Those of you who are shareholders and have not already lodged a proxy will have a yellow voting card, and the resolutions you are voting on are as follows: One, reelection of Director, Jeff Gerard; resolution 2, reelection of Director Ferdian Purnamasidi; and Resolution 3, remuneration report. Are there any questions in relation to any of these resolutions? No? So please complete your yellow voting card and hand it to the returning officer. Final results on the resolutions will be released to the ASX later today. I'll give you a little time to do that. Maybe for this next bit, I will stand up. Okay. Good. Just a few brief words from me before I hand over to Philip. So KGL has continued to progress the Jervois project since the maiden feasibility study was released in November '22. This included -- this has included drilling activities to upgrade the resource and the reserve statements and rescheduling and updating the feasibility study. As you would be aware, the Jervois project is highly leveraged to the Australian dollar copper price. Analysts continue to be bullish on the copper demand, the future price expectations for copper are generally 1.5 to 2x higher than historical levels or levels today. So to -- and this is because of incentivizing production to meet these fairly significant demand expectations. This slide is just the copper price. The copper price over 2024 has been a continual consideration that we look at to provide a signal for the development of the Jervois project. To date, we've seen a peak above USD 5 per pound. However, this has been generally short-lived. Although supply chains have recovered from the past few years, local impacts such as hyperinflation, interest rates and labor availability remain sticky. The key copper demand drivers such as geopolitics and growth in key consuming nations together with commitments to carbon reduction targets and net 0 initiatives continue to be variable in the outlook. Existing miners and scrap metal merchants are expected to respond to demand increases albeit their overall ability is expected to diminish its grades fall and the cost of production increases. I expect that whilst these uncertainties prevail, the price response will continue to be subdued, but volatile. KGL's acutely aware that to maximize shareholder value, we need to be ready and able. We're involving Tier 1 contractors for capital management, project construction, operations and stable offtake, which are all key. KGL is positioning the Jervois project to be development ready to capture the higher prices and margin as the demand grows. It's not about if demand grows and price escalates, but rather win in our view. In the meantime, our exploration successes, our ability to migrate the project risks and the preparation we do are our priorities for the long-term success in creating value for the shareholders. Finally, I'm pleased with our continued safety and environmental performance to date and see these aspects of the business as a precursor to delivering a world-class project. I'll now hand over to Philip to cover in more detail these important aspects of our business, which include our exploration achievements, the 2024 resource upgrade that was issued just a week ago or earlier this week and exploration planning and the feasibility update. So Phil?

Thanks, Jeff. Good morning, everyone, and welcome. Today, I'm very pleased to be presenting a review of the KGL activity and achievements for 2024 and our aims for 2025. First of all, though, I'd just like to briefly introduce myself. I won't go into the detail of the last 35 years or so. There's quite a bit in there. But in summary, my background is the development and operation of open cut and underground hard rock mining operations in copper and base metals and precious metals in Australia, Indonesia, Middle East and Africa. And indeed, it is because of my background that I'm attracted to KGL and the Jervois Copper Project. I first started my career in the mining industry at the famous CSA underground copper mine in Cobar in Western New South Wales. The mine that was started in 1965 and is still going today. I see some very strong similarities between the very successful long-lived CSA Copper Mine in the Jervois Copper Project. One of the most attractive things about the project in a general sense is the average grade of the resource. Many people say, in business, cash is king and rightly so. In mining, in my view, grade is king, which is one of the many attractive aspects of this project. I'd also like to take the opportunity to acknowledge and thank the hard working KGL team for your support and assistance over the last 4 months or so and your ongoing support in the future. Okay. So I'll go through the presentation. Throughout the presentation, I will skip over a few slides. So please take the opportunity to download the full presentation from the kglresources.com.au website or the ASX website as well. Okay. So a quick corporate snapshot. I'm sure you're familiar with all of those figures there. The forward through to an overview of the Jervois project. So 2024 has been a year of significant steps forward for KGL. Our Jervois project, which is located about 380 kilometers Northeast of Alice Springs, along the Plenty Highway, now boasts a robust 27.45 million tonne of resource grading at 1.87% copper. This represents 513,400 tonnes of contained copper, which makes it a true standout among its peer group. With comprehensive regulatory approvals secured, engineered solutions in place for all key infrastructure and with ongoing prospective exploration potential, we are well positioned to transform this high-grade project into a profitable mine. Too far. The project is positioned along the crustal-scale Jervois Fault with a unique mineralization style, blending SEDEX and IOCG characteristics. Exploration results to date demonstrate the rationale for pursuing a systematic approach to unlocking the project's immense value. Our 2024 exploration program. Drilled a total of 75 holes for 23,037 meters, targeting Rockface, Reward, Deeps and Marshall. Roughly 90% of all of that drilling in terms of meters was diamond core drilling and the remainder being also a reverse circulation. And most of that was completed. Most of the RC was completed in the last month or so. Method. Our methodical approach has yielded positive outcomes, adding 4.1 million tonnes to the underground resource, driving increased resource to 27.45 million tonnes. Importantly, the program enhanced geological understanding, improved resource categorization and confidence in mineralization continuity at depths. Jervois mineral resource for November 2024. So this was released earlier this week. The mineral resource estimate for the Jervois project has increased by 17% from 23.37 million to 27.45 million tonnes. This was accompanied by marginal reduction in the copper grade from 2.02% to 1.87%, reflecting improvements in copper price and outlook. A notable feature of the new resource is the growth of the underground resource, which has increased by 4.1 million tonnes, a 26.4% improvement from that previously reported. Contained copper, silver and gold have increased by 42,700 tonnes of copper, 2.8 million ounces of silver and 22,400 ounces of gold increase. We exceeded 500,000 tonnes of contained metal, quite a milestone for the company, and it's tantamount to the significance of this project. As a result of this, we are pleased to have passed an important threshold of 0.5 million tonnes of contained copper, increasing from 472,000 tonnes to 513,000 tonnes contained silver and gold also increased to 22.4 million ounces of silver and 215,000 ounces of gold, which will obviously provide a meaningful byproduct credits. Our Reward resource of 15.1 million tonnes at 1.65% copper represents an asset of significant value. Recent drilling has substantially enhanced our geological conference. And with the conductor remaining open at depth and with compelling exploration potential surrounding the project, Reward has scope to grow further yet. Rockface resource is 5.25 million tonnes at an exceptional 2.5% copper, there's that grade number again, and represents another high-value strategic asset. There is good exploration potential here as well, and the conductor is also open at depth. Project infrastructure. So the current development plans include 2 open pit mines and 3 underground mines. The open pit operations will utilize conventional, earthmoving equipment and a conventional open cut hard rock mining techniques, and the underground mines will also use long hole stoping methods. The plant will utilize a conventional crushing, semi-autogenous grinding and ball mill comminution circuit and energy-efficient Jameson Cell technology in the flotation circuit. Process role. The process plant capacity has been designed to handle 2 million tonnes per annum, which could achieve a target of 230 tonnes of contained copper in the concentrate per year. This would have -- this concentrate would have a copper content of around about 27% as well as additional gold and silver credits. So the gold and silver will actually be in the concentrate itself and would be transported by road to Mount Isa smelter for further processing. Supporting infrastructure includes substantial accommodation camp with a capacity of 250 to 300 rooms to house mining personnel, a water pipeline water plant -- sorry, power plant, I should say, with considerations for incorporating renewable energy options, airstrip and comprehensive telecommunication systems to ensure efficient operation and communication across the project site. We intend to update the mine plan as a result of the latest mineral resource estimate. They are also in the process of -- sorry, we are also in the process of engaging an independent technical expert to conduct a review of CapEx and open cut estimates and then go on to the underground estimates based on a revised underground mine plan. We will also continue to work with the contractors to further improve and optimize the contracting costs and look forward to updating the investors on the outcomes. So an independent technical review will initially be carried out on the completed components of the feasibility update whilst the underground mine plan and schedule are revised, reflective of the newly released resource, upgraded resource. The independent technical review will then verify the underground component of the feasibility to complete the independent technical review. Once the feasibility and the independent technical review are fully completed, the feasibility will be released in its entirety. As well as optimizing the feasibility study to incorporate the increased resource, the company continues to aim to grow the resource further. The company is currently reviewing the exploration results for 2024, including the enhanced geological data gained from the deep drilling and geophysical data. So that's the downhole EM and gravity, the mags and so on, to develop an exploration plan for 2025. The plan will be completed for approval before the end of this year. KGL has a number of critical near-term workflows on its way to becoming a producer, which include the feasibility update independent technical review, project funding and making a final investment decision subject to market conditions. We also intend to initiate early works focus on operational readiness and continue the exploration program aimed at increasing reserves and extending the mine's operating life. To leave you with a summary of why we believe KGL represents a compelling investment opportunity today, Jervois is a significant high-grade copper project with completed approvals and an offtake agreement with Glencore. Driven by an experienced team, the project offers a pure ASX copper exposure that stands to leverage strong medium-term market fundamentals. The Jervois copper project in my opinion, is one of the most attractive copper investment opportunities in Australia at present. And with that, I will now hand back to Jeff.

So some closing comments. I want to thank the Jervois stakeholders, in particular, Central Lands Council, Bonya Community Lucy Creek, the Jervois Station pastoralists and the Northern Territory government for their ongoing support. And I know they're looking forward to helping us deliver the Jervois copper project. I also acknowledge the native titleholders with whom we negotiate an indigenous land use agreement in 2016. I'd like to thank our employees for their contribution and look forward to making significant progress over the next 12 months. And my sincere thanks to you, our loyal shareholders, for your patience and confidence in the company. KGL holds one of the few high-grade copper projects with significant silver and gold byproducts in Australia that can deliver a positive outcome for all our investors. In addition, the project has all the key approvals in place when the market conditions improve. Whilst we believe the company is trading at a substantial discount to the inherent value, we've ensured shareholders have the opportunity to participate in any capital raising as we continue to progress the Jervois project. We'll continue to look at growth strategies to maximize value of the company and continue to upgrade the planning to deliver a financially robust project on time and on budget. We remain acutely aware of how we operate and recognize the enormous support of all existing shareholders. So I thank you. And unless there are any questions. I mean that's really the end of the proceedings, but I'll open the floor to questions. Yes, Tom.

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We've done all the work, all the engineering work to -- we're highly advanced on that. And I guess where I started the presentation was about the market. There's been a number of small copper companies just recently who have folded the expectation of the price going up. We're watching those macro drivers, price, FX, interest rates, inflation, and to answer that question, so when the time is right, nobody gets anything for starting too early and having the project fall over. So the market is actually a big consideration. So if you can help me with that, Tom, I really appreciate getting the copper price up. Now, at the moment, it's just $4, $4.10. We did the original feasibility at $4.23. We're looking at a higher price in a couple of years' time. Our expectation is that we can arrange the funding, develop the project and be in operation by 2027. But we need some more confidence, I think, at this stage, in terms of the copper market. So it's driven by the copper market.

Yes. The classic case in copper is Escondida, which for 20 years persistent and then had that 1 big year where they made an absolute fortune because of the price of copper. So there's a bit of intuition goes into these things, and that's not just trade accounting. So whilst I can understand the logic of your approach, there's got to be a bit of forethought in those things because you don't want to have a high copper price and then say, well, let's build a plan there. Because you'll do a BMA then and build it after the price goes down.

Yes. No, absolutely right. I think what we're seeing from analysts is a structural change in the copper market, and that's been driven by green energy or electrification, by EVs, by data centers, by a number of them by the growth that we're seeing in India. So there's a lot of factors that have gone into the analyst view on the forecast. And no one -- although the copper price is volatile, the forecast difference between supply and demand is same. There's a structural change coming in the industry. I mean my view is that what we're going to see is as the price goes up, the recyclers and the current operators will take up some of that demand but with reducing grades and increasing costs, they can only do so much. So reacting to volatility is not the way to deliver a project, and having the structural change that people are forecasting is not about the 1-year opportunity. In fact, I think it was yesterday, BHP has come out with a $14 billion investment to find a 500,000 tonnes per annum of copper. But most of that's going to go, I suspect, to replacing capacity that's coming out of the system. And all the forecast is saying is that the existing production is really flat even if we spend a lot of money. And their cost of capital, I think, is probably double ours at this point in time. So it positions us quite well.

With BHP, if they've made a decision, it will be late.

Well, their decision -- didn't -- their decision, I guess, is over the next 10 years. They're not going to spend it all in one-go. And I think what you'll see is you'll see copper tonnes come on from BHP in a fairly slow rate culminating in 2030, 2032, I think, is their target to get most of those projects away.

Council really is don't be overly cautious to get a plant built?

Yes. Yes. Yes. And I think that's good counsel, but I have to be overly cautious about how we spend the shareholders' money and how we deliver this project. So -- but thanks, Tom. I appreciate those words. Anyone else? Tom wants to build a plant. Okay. Any other questions? Otherwise, no other questions. I'll now declare the meeting close. There's coffee outside if people would like to hang around and catch up and talk. Quite happy to do that. So thank you very much.