Mastermyne Group Limited (MYE) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Metarock Half Year FY '24 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Jon Romcke, Executive Chairman; and Jeff Whiteman, Chief Executive Officer and Managing Director. Please go ahead.

Thank you, Melanie. It's Jon Romcke here, Executive Chair of Metarock. I'd like to welcome all our shareholders and -- on the line and any other interested parties who are taking the time out to make the call and listen to what we've got to say this morning. I do refer to the investor presentation that we published on the ASX platform. That's our main guide for the [ dock points ] and the overview that we're going to talk to today. We'll give you a fair bit of detail in this presentation but then hand it over for a Q&A session after that [ area ]. So thanks for joining us. It's great to see that our turnaround plan that was devised late in 2022 and executed throughout 2023 has been delivered. And we've seen these strong earnings declared for the second half -- or the first half of the FY '24 full year. We've got a materially improved balance sheet with reduced gearing. We're moving towards an improved safety and -- environment. And that safety and work associated with safety is never ending, and we will continue improvements during the next 6 months as well. The Board itself has been refreshed over the last 6 months. And we've got a strong focus on risk, safety risk and commercial risk, associated with our current contracts and our future contracts. We've restructured the management team and we've established a fair bit of stability with [ a permanent appointment ]. That's Jeff Whiteman as CEO and Managing Director. He's joined the Board from February this year and it's great to see. We've attracted new work to the business, including the Savage River contract in -- with PYBAR in Tasmania, where they're developing an exploration [ order ]. And we've got new work at Whitehaven's Narrabri mine in New South Wales, underground longwall mine where we're taking on development activities in a longwall gate road as well. Our existing portfolio is also performing well. Now we've -- got rid of the legacy projects that were dragging us behind over the last 12 months. We've got strong relationships with the major mining houses such as Anglo American, Whitehaven, Peabody and Glencore; as well as many other emerging players with a strong pipeline. There's over $4 billion of opportunities across the group in underground coal and underground hard rock. And our cornerstone investor, M Resources, is very, very keen to use that strategic relationship that they've got in the [ resource center ] to bring new work wherever appropriate. So the outlook for the group is highly positive. We've got a stable foundation. Our -- all our projects are cash positive at this stage, and we're looking forward of growing the opportunity in this underground contracting space. I'd like to introduce Jeff. And Jeff is going to go through more of the technical and financial details, for the benefit of everyone on the call.

Thanks very much, Jon. I'll start off with the financial results. And I'm certainly very pleased to report a marked improvement from 12 months ago. Revenue for the half was about $234 million, a little bit down on the first half in FY '23 of $259 million. That's due to the exit of various legacy contracts. EBITDA, [ though ], $25.5 million; and that's before a profit on asset sales of $4.2 million. That's resulted in bottom line profit before tax of $10.9 million versus a loss this time last year of $73.4 million. And even normalizing the first half of FY '23, EBITDA was $8.8 million; and this year, [ doing almost threefold in the way of EBITDA ], $25.5 million. These positive earnings have converted into our good underlying operating cash flow of [ $18 million ]. And that assisted in covering the ATO plan repayments and cessation costs associated with Cook. And also we had some delayed receipts at the period end which we expect to reverse. CapEx has been well managed through the period. And whilst growth CapEx is to be expected as we move forward and certain new opportunities are won, the CapEx burden of the legacy projects have ceased. And in terms of the turnaround plan. [ That's obviously ] we've achieved a number of milestones. We've exited the legacy loss-making contracts, with the last one achieved in the half by a mutual agreement [ announced ] at the Cook mine. We've improved our safety and operational performance at all our sites with restructured responsibilities and, I think, a much clearer focus on the priorities and really refocusing on our core capabilities in mining services. We've recapitalized the businesses. So as you would know, in May last year, when -- M Resources came onboard with a $25 million placement. And that's been coupled with the sale of surplus idle assets. And mostly those were intended for the Cook and Crinum projects [ and not includes ] the transactions that we announced on the 30th of June last year but actually closed in the first half. The combination of asset sales and positive operating cash flow has enabled the [ total combination ] of debt, deferred consideration for PYBAR and the ATO payment plan. That's almost halved from $120 million roughly in December '22 to $62.8 million at the end of this half, with the ATO been fully repaid in December, on time. We've continued to manage our working capital facilities very collaboratively with Westpac such that the current facilities are now extended out to September of this year. And given the positive recovery in our earnings, there's strong appetite from prospective lenders to be involved in a refinance; and we're well progressed in discussions with a number of parties in that regard. And turning to safety performance. We've talked a bit previously around elevating our safety performance. That remains the core theme for us. And we're working on a range of direct measures in that regard, but from my perspective, probably the most reassuring aspect is that we've recently run an all-employee survey across our Mastermyne side of the business. And together with engagement with the PYBAR project leadership, both of those have really confirmed to us that working safely is a core value for all of our fleet across the group and it is central to our culture. It's not just something that we're saying at a corporate level. It actually is held in high esteem across all of our people. Just turning quickly to the divisions and the performance across the business. Mastermyne. We're continuing very strong relationships across Anglo American with [ their 3 ] Queensland mines. We've been building our presence at Whitehaven's Narrabri mine off the back of strong operational performance. And we've recently won some new work at Peabody's Centurion Mine as well. [ All of that is within our ] core contract mining services capabilities. Our [ specialty Australia ] support business, Wilson Mining, has had a very good first half underpinned by healthy demand for our products and services. In PYBAR or in the hard rock space, we've ramped up 3 new projects in the half. So Rosebery, which started in April, has really hit its straps. The Maxwell project started in July and is well progressed. And we've just recently started the Savage River stage 1 project in Tasmania. So that started in December. And on top of that, we've also started a small raise bore project at Aurelia's new Federation projects as well. Now PYBAR has maintained its strong performance at various -- and -- projects in the Mount Isa [indiscernible] region for Glencore and AIC; and also then the raise bore operations in Carrapateena, which is now owned by BHP, then in South Australia. Now the outlook for PYBAR is very positive. And despite 2 longer-term projects approaching the end of mine life, so that's Dargues and Black Rock, the opportunity pipeline for PYBAR has built markedly in recent months. So in terms of the outlook going forward. Firstly, I'm very proud of the whole team across Metarock. So Mastermyne, PYBAR, Wilson Mining and MyneSight, they've really come together over the past 15 months to deliver the results that you're now seeing, so I think -- so I can't be prouder of the team for doing that. The legacy issues have been dealt with and stability has been regained, and we're now in a position to really look forward with confidence and focus on the future strategy and operational excellence. Now the outlook for the balance of FY '24 and beyond is positive. It's underpinned. We've got a $466 million order book. And possibly more importantly, we've got a $4 billion opportunity pipeline. So that's the end of the presentation. And I'd like to hand over to Melanie to open the floor up for Q&A.

Thank you, Jeff. It was a good presentation. And yes, keen to hear any questions that we've got from the call.

[Operator Instructions] Your first question comes from John Burgess with RaaS Group.

Congratulations on the turnaround and in particular the level of disclosure across the business. Makes it easy to -- probably to have a look at the numbers. A few questions: One is, I guess, looking at the EBITDA number for first half, $25 million, adjusted. Should we consider that to be a sort of a low, mid- or high point in terms of your earnings potential?

Thanks, John. I would say it's a good indicator of where the underlying EBITDA is. We do -- with Wilson Mining business, the demand for that product is driven by ground conditions at various mines. And so that demand can vary month on month, and certainly in the first half, we've had probably 3 pretty good months out of that business. And over the longer term, we expect that to continue and grow, but I suppose [ that system probably is the ] one area where the demand can vary month to month and therefore impacts on the EBITDA for a 6-month period.

But in terms of like, I guess, people utilization and equipment utilization across the business, is that -- are you pretty full? Is there room to win contracts?

Yes, there's certainly capacity to win new contracts. And we are -- as I said, we're focused on the opportunity pipeline across the business; and again, actively growing, involved in live tenders now for Mastermyne, Wilson's and PYBAR. [ All are in ] growth contracts. I'll say that the takeaway on that is it is we are taking a very measured approach to growth this time. It's in an area of core capability. We're very focused on the commercial risk we're taking on and the safety risk, [ but I feel it's something out there ] growing the business.

Do you have, again, a historical conversion rate of pipeline to contract; or an expectation, I guess?

Look. I know people do use rules of thumb on win rates. I think when -- a, the business has obviously been through some turmoil in the last 2, 3 years, [ save ] -- I think, with a new Board and restructured management team, I think how we approach tenders now is -- probably is so different. And I'm not sure historical rates apply, but probably more importantly, I think our approach to business development and new work is quite different. And we're very focused on targeting clients we want to work with, on projects we want to be involved in; and working with those clients [ to develop a scope ] and contract; and less sort of us sort of just waiting for requests for tender to drop on the doormat [ and lap ] and sort of apply to as many, on a hope that we win 1 in 10 or 1 in 8 or whatever. So probably this is a different approach to BD.

Okay. In terms of your debt, well, do you -- 2 things. One, can you quantify that timing difference in the invoice facility at the year-end? And then two, do you have a target sort of debt-to-EBITDA or EBIT or whatever metric that you'd be comfortable with?

So firstly, just on the timing [ issue. So I'd ] refer you to Page 6 in the investor presentation. There's a chart there that's got a $5 million normalization for -- to cash flow for that timing difference [ of December there ]. In terms of leverage, again I probably don't have a firm leverage multiple in mind at this stage. It's very much been [ more and ] removing what I would say is a debt that's been more of a [ millstone ] around the business. [ And that seems like ] the ATO payment plan [ and so on ], which were very helpful to get us through that tight position, but it's not a -- not debt that we would like in the business going forward. And I [ suspect the ATO -- probably it's ] repaid as well, but in terms of -- if there's a bit of asset finance required to finance new assets as we're going into new projects, I'm far more relaxed about that type of debt, so...

I think that's a good point, Jeff, but we're not -- [ have got not in our ] capital management system at the moment, "Do we have a specific target?" It's more relating to those growth opportunities and where those opportunities include equipment acquisition and we're quite comfortable in taking on debt associated with that. So we're not afraid of future debt, but we need debt that is clearly linked to EBIT-earning projects and new projects in the future that include the repayments associated with it.

Yes. And I would say I think that's been one of the biggest changes over the last 15 months. Clearly the business was heavily overgeared in December '22. And where we've gotten to now, that leverage ratio is in fundamentally better position and would be sustainable in about the level that we're at. And that -- but it's not a firm target.

Yes, no, okay. Just one on, I guess, sustaining CapEx versus depreciation. So property, plant, equipment depreciation is around 20 million over the year. And sustaining CapEx usually is a relationship to that, but obviously your CapEx is very low in first half; and probably, excluding new projects, sort of pretty low over the year, so I'm just interested in what is your sustaining level of CapEx in your view.

Again I think with depreciation there are some historical challenges in there as well which we haven't [ sought ] to go back and normalize, so I think worth bearing that in mind when you look at it. The -- we're running -- Mastermyne currently is run fairly light in terms of plants; and in PYBAR, where probably the depreciation is a heavier charge, but the fleet is in excellent condition there. And so it's not something that we really need to be spending a large amount on. We are doing extension-of-life work on the fleet, and -- but generally we maintain the fleet in excellent condition as we go. And really it's the CapEx I'm probably more focused on is around growth CapEx as we're winning new projects, and that's probably more what we're looking at.

Yes. So you're saying that -- because the depreciation policy then looks aggressive relative to your equipment balance, so you're saying it is aggressive [ and -- ] depreciation.

Yes. Well, the depreciation, also there's depreciation in there that would relate to a number of the assets that have been disposed of during the period as well, so I think our depreciation charge will look a bit high compared to what it might be going forward. And we are also just reviewing some of the depreciation policies as well, but as -- I think it's more to do with the level of [ plant ] that we actually have.

And it's fair to say, Jeff, that CapEx in these 6 months is probably not representative of the future. If you looked over 5 years, yes, there will be equipment replacement that will need to be factored in, but those sorts of decisions will also be made in conjunction with contract renewals and for that sort of work going forward.

Yes. And one final one, sorry, but I guess, what conditions, financials are you looking for to think about a resumption in dividend payments?

I'll pass that one to Jon...

That was dividend...

Dividends...

Yes. Look. When we've got the business generating positive cash flow and when we've reformulated our approach to our capital management going forward, we'll make that known to the market and be able to declare dividends in the future, but right now, as you're well aware, we're not in a cash position to do it in this half. Hopefully, at the end of the year, we'll -- the Board will get together. And we'll address that issue, naturally.

Your next question comes from [ Paul Walker with Karago Corporation ].

I was just wanting to ask any feedback from M Resources on the half result. And have they indicated any aspirations; or any -- made it clear, any objectives that they want to see Metarock achieve in the next 6 months?

Yes. I think the initial feedback is that M Resources are happy with the result and the progress of the turnaround plan. And they're also clearly focused on growth opportunities and are very keen to continue the support to the business aiming at future growth. And we're very keen to leverage that connections that M Resources has in the resource industry as a whole, to take those opportunities as much as we can, so yes, it's a positive story. And they're looking for us to certainly grow the business in a sensible way and in a cash-positive way and EBIT improvement way, so...

And has Metarock -- as a management -- the Board at Metarock, have they been particularly concerned about the very low liquidity; and in my mind, the perceived no interest from the market in general on the Metarock story today and in particular, over the last 6 months, just the volume of shares that have traded very low?

I think, [ Paul ], the -- clearly the business is -- as I think most people on the call would be aware, it's been through a very tough period of time. We are very well progressed on the turnaround. And as I say, we've been through 2 consecutive periods of good underlying earnings now. And this -- that was still based on normalized earnings in the second half of FY '23. We've now delivered in first half and -- without having to normalize earnings, but it's all still quite fresh, so I think that's -- and I think the other thing, and it's been a sort of deliberate strategy on behalf of the management team, is to really sort of -- not trying to keep it below the radar, but they haven't been out there blowing our trumpets in that progress because we've been trying to achieve the milestones on the way through. And I think, having got to where we are, we'll be engaging with the market a bit more. And the -- well, I would hope to see somewhat more interest in the share trading over the next sort of 12 months compared to what it would have been over the past 12 months.

And once upon a time, winding the clock back maybe 2 or 3 years, Metarock -- or at that time, it may have been Mastermyne. They used to put out an earning guidance, so a particular range that they anticipated [ and ] achieve for EBITDA in the next -- or in the forthcoming period. Is that something that management are considering to reinstate in the future?

It's certainly something we're going to discuss at the Board level over the next couple of months and see when we're comfortable to do that. I think it's a good idea for public companies to be able to do that where we do have a stable and a positive story going ahead, so we'll certainly consider that, Paul, and come back to you.

Yes. And just a final question, this $4 billion pipeline of opportunities. What are some of the actions that, let's say, the River Street office has undertaken? And main focus. Like has there been any deliberate engagement of new back-of-house resources to be able to deal with this opportunity pipeline? Or is it still too early in the development process to start putting new people on seats?

No. We're starting and have been over the last [ 3 months ] starting to engage with key parties and, i.e., companies that have underground projects on their books. And there's plenty of information in the market; and information about new approvals, [ underground ] mine approvals and et cetera that give us the pointers of where to go. And with the network of connections between myself, M Resources people and Jeff's experience in the industry as well, that gives us in to open those conversations and then make representations on our capabilities. And we've got a broad range of capabilities in the underground hard rock area, underground coal area, in the ground stabilization and also in the training and setting up new mines with proper and sensible training regimes through our MyneSight business. So we offer those suites of services to those companies that are going to head underground over the next 2 or 3 years. And I'm very confident there's going to be 3, 4 and 5 new mines over the next 3 to 4 years developed. And Metarock is going to be there and be part of those businesses wherever we can...

Yes. I appreciate your comments. And I think you've -- over the last 6 months, you've done a very good job in running the business and steadying the ship.

I was just going to add, I think, on that point around business development and converting these opportunities. Again, we've probably taken a slightly different approach to what the company may have done previously. And very much, the business development does not fall on 1 or 2 people sitting in the [indiscernible]. The business development responsibility is across the organization, from project managers at existing sites and certainly across different leaders of business units and so on, so it's -- it very much is a very good level of [ resource ]. Certainly I think, 12 months ago, people were focused on a lot of firefighting and not very focused externally or looking at BD. And it's that removal of that noise. And the clarity that we have now is what's really allowing people to look outside the company. And that's really what's building a pipeline and will also enable that pipeline to be successfully converted.

Your next question comes from [ Jonathan Peter Scales with Metro Capital ].

The -- so this is a question to do with risk. We get to see historically what the -- sorry. [indiscernible]. We get to see what historically the margins have been, but we don't get to see what risks have been taken to get those margins. And so in the future, is there a way of actually giving us an assessment of what risk is being taken to increase margins? Or can you give us a handle on what the risks of the business are?

Boy, it's a -- that's a good question, [ Jonathan ]. And I think it's a difficult one in terms of disclosure, not only around the confidentiality and commerciality but also [ attempting to try and ] describe it in a clear sense.

[indiscernible].

But very much, I think, when you look through sort of nature of the contracts and where some of the contracts have been before, the level of risk that was put on the company in terms of achieving production and in some cases taking on [ coal price ] risk and so on -- we're not in that game now, so the contracts we're taking on now are sort of traditional mining services type contracts and -- whilst a number of our contracts will have margins that might vary based on achievement of different KPIs around both, say, production and safety. [ So we're happy to be taking ] that sort of risk on but certainly making sure [ we're covering ] our costs and then also getting some upside where we're compared to -- as we are, [ we're prepared with better ] capability in terms of achieving good performance and good safety outcomes. So that's really where -- [ the company's answer ]. And I think the disclosure would be more if we're taking something on that's outside of our norms. That's probably where we would be expecting to disclose.

So is that something you will disclose in the future? If you'll take on more risk, then you'll disclose that...

I think the problem is, [ Jonathan ], how do you describe it. And how do you measure it? There's no sort of standardized metric to [ measure risk by it ]. It's so much of it is subjective in nature; and will change from contract to contract, mine to mine, but we'll take onboard your comments. And we'll have a discussion at Board level and -- on whether that's something we can look at and develop and maybe do some comparators between different margins or different mines or contract arrangements in the future, but it's certainly something at Board level we discuss but very hard to get a measure that is going to be meaningful to the market, I think. But we'll take it onboard as something to consider.

Okay. The other -- then the other question is I noticed in the presentation there hasn't been really much focus on value per share. And I think it's an important metric. As shareholders, we don't care about how big the company is. We just care how much the earnings per share is and what the earnings per share growth is. Can you sort of state where that is going to be a focus on an earnings per share basis, the growth of this company?

Yes, going forward, but certainly it is a pretty normal metric for companies to focus on. Obviously, the last 15 months, we've been focused on trying to get our recovery moving. And that, by default, was going to improve the position per share. You can see in the appendix 4D, obviously, there's some [ statutory ] disclosure there and the -- with the improvement. The earnings per share has improved, but yes, that will be a focus going forward. Obviously there was a diluting effect when M Resources came on last year. That -- without that placement, the company might have been in a very different position, so I suppose [ it was then the needs, must at the time ]. I think, certainly, bringing M Resources on has been a game-changing move for the business in -- not just financially but, as Jon said earlier, strategically as well. But yes, having done that, we are not intending just to go and sort of creating diluting events [ for the sake of it ].

Okay. And then just on capital management, there may be a conflict between what M Resources wants and what minority shareholders want in the form of dividends or buybacks. Is there any indication as to what the desire there is, or is that just something that's a work in progress?

Look. There's, yes, nothing that we can address at this stage in relation to that. We're certainly going to be sensitive to that, but I'm -- certainly the metric, but what's good for our large shareholders is also good for minority shareholders, normally. And where there's unusual situations arise, we'll be very transparent to the market.

Okay. And also the last question is CFO. Is that something that you're looking at? Or...

Yes. So [ we're up and ] going to make some moves on that, but at the moment, we've got -- certainly got some excellent sort of help through some consultants that have -- and very experienced CFOs. And so that's on top of a very capable finance team within the business, so that's certainly getting us through, but yes, I'll be looking to resolve that in the not-too-distant future.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Romcke for closing remarks.

Thanks very much, Melanie. And thank you and -- shareholders and others that have participated in the call. We're certainly going to be moving forward and being as transparent as we can to the market as we move forward and also capture opportunities for the future and be looking forward to also engage with the market as those unfold. So yes. Thank you, Jeff, for taking us through the detail. And I'll sign off.

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