Mastermyne Group Limited (MYE) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Metarock Group Limited Fiscal Year 2024 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Jon Romcke, Executive Chair. Please go ahead.

Good morning everyone, and thank you very much for joining us this morning as we run our full Year '24 results for the company. And I'm very happy to say that it's a situation where we can notate a record profit for the company at now 39.6% as a result of the group's turnaround plan that's been running for about 18 months now. It's a combination of returning to well-performing and profitable operations as well as the contribution by the sale of the pie bar business, which completed on the 31st of May at an enterprise value of $65 million. We also sold idle assets during the year and have delivered, at the end of the period, a net cash position of $21.8 million. Some of those milestones achieved during the turnaround plan, I include the exit from a number of loss-making and legacy contracts that were negotiated at conclusion and the divestment of the noncore assets that I mentioned, lower overheads and the equity investment from M Resources to the tune of $25 million. Post period, we've also renegotiated future finance facilities and established a data finance facility with Scottish Pacific, and it replaces the previous Westpac facility for the company going forward. Our core business now operates through Mastermyne, Wilson Mining and MyneSight, which are our key brands, and they've performed exceptionally well during the year. We have a robust order book of $280 million and a pipeline that we're actively engaging with to the tune of $1.4 billion. Certainly, the turnaround has successfully concluded, and we probably won't talk about the turnaround plan in the future, but we will certainly talk about ongoing profits and our net cash position as we go forward, stable growth of the business. I'd like to introduce Jeff Whiteman. It probably doesn't need the introduction, but Jeff is going to run through some of the detailed financial overview of the operation and where we're heading in the future. Thanks, Jeff.

Yes. Thanks, and good morning, everyone, and thank you for dialing into our results presentation. Hopefully, you've got a copy of the presentation put on the ASX this morning in front of you. I'll refer to that. If you don't, then it's online for you to look at a bit later on. So I am very pleased to be presenting the results of FY '24. And as Jon said, obviously, it's -- we've been through a pretty tough time, and the turnaround has really done its job. And here we are, we're seeing really good results. As context, reading through the accounts and the presentation, we've been following the accounting standards and the PYBAR segment is now classified as discontinued operations as a result of it being sold. And effectively, Mastermyne, the Mastermyne segment is the continuing operations. So whilst Mastermyne revenue of $294 million, was down due to the exit from the onerous Cook and Crinum projects, there was underlying growth in the Mastermyne business at 10% across our core activities, including contracting services and polymeric products in particular. EBITDA from continuing operations was $31.8 million, and that was up $42 million from a loss last year. Similarly, NPAT from continuing operations of $21.2 million was up by $52 million from last year and set a new group record. Including PYBAR in the mix, total comprehensive profit was $39.6 million, and that was an improvement of $114 million on FY '23. And finally, we've reversed the net debt position last year to the tune of $115 million to finish this year in a net cash position before leasing of about $21.8 million. So just turning to Page 4 in the presentation. Looking at earnings, so here you can see there's a table showing a bit more detail around the profit and loss and the movements from the prior year. The total comprehensive profit of $39.6 million comprises a $21 million of NPAT from Mastermyne and $18.2 million NPAT from discontinued operations. The latter mostly relates to a $16.5 million profit on sale of PYBAR, which I should note, from a tax perspective, that sale actually resulted in a capital loss, so it won't be accessible. No tax payable on that. The tax benefit line that you might see in the accounts, so we have a tax benefit in the year of $3.5 million. That relates predominantly to the recognition of income tax losses that we incurred in FY '23 and prior years. So the impact from continuing operations did benefit from a $4.3 million gain on sale of noncore plant, which was offset partially by onerous contract expenses of $1.1 million. You'll see the chart on the right of Page 4, showing the last 5 years. And it clearly demonstrates both the challenges that the company has been facing and also the successful turnaround that's now been completed. And then just turning now to Page 5 and looking at cash flow. You'll see that significant improvement in EBITDA did translate into the underlying operating cash flows of $39.7 million. So looking at the chart on the right, you will see moving from the statutory operating cash flow to adjustments to take you to the underlying cash flow. And that was $11 million, repayments of the ATO payment plan. And then we incurred about $11.5 million cash cost in relation to you exiting the Cook project in the first half of the financial year. If you look at the cash flow table there, you'll see below operating cash flow, the capital expenditure in the year was markedly lower. And that is primarily the result of, again, exiting the Cook and Crinum projects. So they incurred a pretty significant level CapEx on those projects in FY '23, and that was absent in FY '24. And we achieved -- that's a pretty significant reduction in debt repayment of borrowings, $72 million, and that was really achieved through that strong operating performance of the core business in addition to application of sale proceeds from PYBAR and the -- and noncore assets. Right. Coming now to Page 6 and the balance sheet. Firstly, the balance sheet does look quite different with that PYBAR and particularly, you'll notice the property, plant and equipment line. So PYBAR was a fairly capital-intensive business. And so with that going, the plant and equipment line is totally lower. Pleasingly, the bottom line net assets is also markedly different. So $73.6 million this year, which is more than double where net assets was at the prior year-end. The -- in terms of other line items that are a bit different, so right-of-use assets and lease liabilities, they're all smaller as well. And mostly that's tied into the divestment of PYBAR. Working capital is increased to $21 million. And you'll see in there that the prior year, it was only $2.8 million, and that's where the payment plan in the PYBAR consideration were actually set off against working capital in the prior year. So that actually explains why the prior year was probably a slightly strange balance, totally paid those off. $21 million working capital this year is probably more reflective of where we see the working capital in the business going forward. Looking at the chart on the right, again, you'll see the net debt position, which actually peaked at December 2022. It was sort of around about $120 million, including the deferred consideration on PYBAR and the ATO payment plan. And so there's been a pretty material turnaround since December '22 through to today. And as I say, that's been achieved really through solid improvements in operating cash flow in addition to asset sales. Turning now to Page 7 and what have we got left with Mastermyne. So Mastermyne segment, as we're growing our -- stretch this undergoing business and got a broad and deep range of mining capabilities and proven expertise, really, across the whole value chain and typically in underground coal mining. We have 3 fully evolved recognized brands. So Mastermyne is the primary brand and is how we deal with most of our projects. And we offer coal mine services, so a high range of services, assisting our clients in terms of doing development work for them, but also a lot of mine support services and supplying products and consumables and some equipments as well. We've also got a technical services team, and so they get involved in terms of new mines and expansions, but also with existing mines around optimization and improvement. Wilson Mining, that's a market leader in terms of the supplier specialist, polymeric products and services. Primarily that's around ground support, so secondary support and mine sealing. That's been probably coming to the fore recently with regard to a fire where that mine has been sealed off and we're involved in that project. And then cavity filling and resin injection, which is around strata consolidation. And then last but not least, MyneSight, which is a specialist training organization. And so we offer a range of training services right through to our complete outsourced training and compliance. And it goes to say, MyneSight, during the year, has picked up the contract for the new Coronado mine -- underground mine mammoth and so monetize doing the outsourced training for that project. Now turning to Page 8 and just looking at the operations of Mastermyne through the period. So Mastermyne did deliver vastly improved results in the year, got to an EBITDA margin of 10.8% underpinned really by very strong operational performance on the continuing project portfolio and particularly having exited the Cook and Crinum projects, which took us to a loss last year. We're continuing as -- in those largest contracts across their 3 Queensland underground mines at Aquila, Moranbah North and Grosvenor. We've just picked up a new 5-year contract for our Wilson polymeric grounds consolidation product. So that was signed just before the year-end and applies mostly from July onwards. Unfortunately, on the 29th of June, an underground fire broke out at Grosvenor mine. That's been reported, and we've made some announcements about that. That mine is currently obviously still going through -- the operations are still suspended. They're still going through the mine recovery process, and we'll be funding the mine reentry process at some point next year. So we are still involved on the mine in terms of the seeding and recovery process and hope to be involved in the reentry process down the track. But for the time being out of the 160-odd people that we had on site at the time, 140 roles will be -- or have been lost effective from the end of this month. We've already told you about 60 of those. And unfortunately, we had to let some other people go at this point, but hopefully we will have those back into the Mastermyne fold in the future. There's a potential for impact on manning levels that we're able to -- Anglo mines that we operate at Moranbah and Northern Aquila and that might arise where if Anglo is seeking to redeploy some of their growth people, to raise the mines themselves. At this point, that's still uncertain. I'd say, probably the latest is we certainly expect to be keeping people at those mines, but the manning levels are uncertain, and we'll provide further detail as and when that becomes clear. Turning to New South Wales, where our biggest operation is at -- right over at Narrabri mine, we've been performing very strongly there and perhaps it was recognized when I gave you some additional 3-year contracts that started in October last year to operate a second development panel. And just recently, that gives us a 2-year extension of the initial [ cut-and-flip ] development contract. So that contract now runs out till September 2026. In terms of some new mines that are happening in the -- around the traps, we've picked up some work with Peabody’s new Centurion mine. So we've been assisting with some operational readiness activities there. And another new client we've been getting into is Illawarra Coal, where we've been doing particularly some optimization work in supplying some products in there. But we see an opportunity to try and grow our presence in both of those operations. Our role at Integra Mine finished -- just to put it as a type in there, our role at Integra was finished in August this year, and that's where the mine owner has chosen to close that mine several months earlier than planned. But we were involved right through to the finish. And then we also demobilized from the Tahmoor and Broadmeadow projects during the year. Our order book is $280 million. So that's sort of consistent with the prior period. And that's probably a combination of winning some new projects and extensions and offset a bit by the inflection of time on the ongoing contracts, which currently expire in October. And we're currently in negotiations with Anglo around it, an extension on the Moranbah and Northern Aquila contracts. And then finally, we've got a deep pipeline of contract opportunities, about $1.4 billion, which is about double where it was this time last year. And these are all in our core contract mining services space and does include some renewals and expansions, but also new mining projects as well. So now turning to Page 9. I'll just talk about PYBAR quickly. And so we completed the sale of PYBAR on the 31st of May. It was based on an enterprise value of $65 million. And you can see the table on the left there shows the earnings, so you can work out the multiples. It actually went through a multiple of that 9.6x EBITDA. So -- and then the asset finance facility is about $17.5 million transferred with the sale entities. So we ended up with net cash proceeds of just over $46 million. So really good outcome to that sale process. And I think one of the key things that really drove that during the 11 months prior to completion, whilst revenue decreased, that was really due to, again, exit from loss-making projects, so not a bad thing. But so the -- commencing new projects with Maxwell, and Savage River ramped up another relatively new projects at Rosebery and Tasmania and also really focused on the remaining project portfolio in the Might Isa region and Carrapateena in South Australia. And so we've had operational performance improving. Again, you can see EBITDA increased in that period, a results of the 11 months and $13.9 million up to $22.7 million. And I think the removal of legacy issues, announced improvement in earnings is really what showed the buyer the potential for this business. So I'll just turn now on to Page 10 and talk a bit about safety and sustainability, obviously, critical issues in the mining industry. We've talked a bit in the past that 18 months of our elevating safety performance, that continues to be a priority project for us. We're refining all those as we go but it remains very focused on project leadership training. We're bringing in probably more psychological aspects, including behavioral, awareness training and also been focused very much on scoping of work and critical -- and making sure we've got the right critical controls in place, type of business, fatal risks. And then also just the nuts and bolts getting out there, making sure we're doing quality safety audits and plenty of coaching at the coal phase literally. Our safety performance has improved across the year. So we've gone from the TRIFR of 10.8% to 9.3%. The severity of incidents is generally lower than where it was a couple of years ago. But there's still work remaining to achieve our goal of 0 life-changing incidents. So it continues to be, very much, a priority for us. And obviously, I think as most shareholders would know, there were 2 fatalities, unfortunately, in the 2021/'22 period, and they are still doing some of those legacy incidents, so we are incorporating with the regulator in relation to their investigations and, very much, we've been taking the learnings from, not incidents, but also other incidents that we have. We make sure we learnings are built into our business systems. And I thought I -- as far as looking at our business planning and even the new work that we're looking at in the part time. From an ESG perspective, environmentally, obviously, the climate transition is well upon us. And so we're really involved in developing our environmental roadmap. That's tied very much into our risk management process. From a social side of things, as you can see from that earlier chart that I showed you of the last 5 years and the challenges and the profit impact and so on, that has had quite a big impact on the, I suppose, the morale and the resilience of our people through that period. And so we really are trying to refresh investments in our people. But they have shown the markable resilience over the last 2 years, which I thank them for. And so we are really trying to reinvest there to -- in the form of project leadership training. And also just trying to get our brand out a little bit more as well. We've been under the radar a bit for the last couple of years while we get our house in order, but very much now we're back out there with our sponsorships and advertising. So -- despite the turmoil the company had been through, I'm very pleased to say we ran an employee engagement survey across all the last line people earlier this year, and the engagement is very favorable. So whilst, obviously, there were some issues relating to our turnaround, but generally out of the 800-odd people that we have in the business, also being -- level of engagement is still very positive. And finally, on the governance side of the things, we have completed the refresh of the Board. Jon joined in September last year along with Peter Barker is another -- is an Independent Nonexecutive Director who chairs our Audit Committee. And the Audit Risk Committee chair has been rebalanced, really, to heighten focus on the risk management side of things, not just on the financials. So I'll just finish off on turning to Page 11. Just looking forward, so I want to talk a bit about our priorities for FY '25 and the outlook. So for FY '25, Metarock certainly now, has a pretty solid foundation to see growth within our core capabilities, but also potentially looking at diversifying into some adjacent activities, but really -- we've got to have a strong tie-in to what we're good at. Divesting PYBAR not only brought the sale proceeds in, but it also eliminated a fairly significant CapEx burden from us as well. And as Jon mentioned earlier, we've replace Westpac with a new Scottish Pacific working capital facility. They're also talking to us about an asset finance facility as well. So that fresh lending relationship with improved funding capacity and tenure, I think, will be very helpful to our plans going forward. Just on that. I would just like to say a quick thank you to Westpac as well, who have been very supportive through the turnaround. In terms of growth opportunities, we're looking at some M&A opportunities. There's quite a bit happening in the market, particularly around organic opportunities, and that's both through the market. But obviously, as part of the turnaround, we brought -- sorry, brought M Resources on as a majority shareholder in May last year M Resources do have a fantastic and extensive network in the industry. So we are seeing some opportunities through those guys as well. And in terms of our strategic priorities, so the first one is we are probably a bit overly reliant on our largest clients. And I'll come back to that in a moment. So certainly, our priority is around diversifying and expanding our client base and our project portfolio and then some other internal priorities around setting up the team for success, really enhancing our competitive advantage, driving efficiency and really making ourselves so valuable to our clients, it would be difficult for them to take us out of the picture. In terms of outlook, I've mentioned the order book of about $280 million. The key commercial risks, I've mentioned about the fire in Grosvenor, so that's put some uncertainty over our [ assets ] at Moranbah and Northern Aquila. The other thing in relation to Anglo is, again, it's public knowledge, it's Anglo's steelmaking coal has been put on the market. So there's a sale process in progress there, so creates a little bit of uncertainty. But I would note that we are the largest incumbent contractor in the steelmaking coal business across all 3 underground mines. And we've been there for many years. We have extensive knowledge and experience in those mines. So I think we are -- Mastermyne is very well-placed to assist whoever the successful bidder for those mines are. We're very well-posed to help out. And I think Jon confirmed our future of those operations going forward. In terms of other key risks, same job, same pay is obviously getting quite a lot of air play out there, which we are well tuned into. And then, obviously, finally, involved in a commodity business, so coal price fluctuations can have an impact as well. And so with that, I'd like to open the floor for Q&A.

Thanks very much, Thanks, Betsy. If you could run the Q&A program for us, that would be great.

The first question comes from Daniel Ireland with Petra Capital.

Jeff and Jon, well done on the result. Just referring to Slide 8 in relation to the gross new mine. Can you just give us an update as to what Anglo is saying there in terms of the time line? Have they provided that to you? Or what are your expectations around that?

Yes. Thanks, Daniel. Obviously, this has been a pretty challenging time for Anglo. The fire is still pretty recent, 29th of June. And it -- obviously, the immediate focus was on bringing the fire under control and trying to protect the people initially. And that was done very quickly. The next focus was on trying to protect -- put the fire out and protect the asset and the surrounding environment. So Anglo, rightfully, have been very focused on that. And Mastermyne have been helping as required through that. Where Anglo is now moving to is looking to redeploy the people from Grosvenor elsewhere. So in terms of Grosvenor itself, we've been told about 27 ongoing roles at the moment, although that might still change yet, the 27 ongoing roles at Grosvenor, which is primarily around seeding activities. And then in terms of Moranbah and Aquila, we've been told the numbers of people that they are offering, their people at those 2 operations, but still not being given any firm guide of where our numbers might go to. I would say, based on what they told us so far around the numbers they're offering, certainly, even if all of their people were redeployed and all have the same capabilities, there's not enough people to completely take us out and Moranbah and all [ 30 ] rise on. Very confident around that, that we will have an ongoing presence at Moranbah and all. And certainly, in terms of both Moranbah and Aquila, we have some capabilities that the Anglo team don't necessarily have and so confident that we've all retained people, essentially, across all 3 mines for going forward. We're currently in discussions with contracts at the moment that expire and that's all right. It's in October and we're currently fairly advanced in the negotiations with -- around an extension to those contracts, which will probably take us through to post the sale process outcome, I would say. And then it'd be back to the table to have discussions with whoever the successful buyers.

Okay. Right. And just referring to the contract opportunities, $1.4 billion relative to $0.7 billion in '23, significant uptick there. How do we think about conversion of those contract opportunities to the order book? You said it's in the core contract mining space. I'm just trying to get a feel for, just -- of contract wins that you think that you could get from those opportunities.

Yes. Look, I think there's -- I would say we're pursuing a number of things in the industry. So in the particular moment, there is a lot of that, that's happening. And just to give an idea, in terms of new or expanding mines Peabody Centurion is effectively a new mine. It's an old one that's been reopened. So that's only just starting to get ramped up at the moment. It's [ Fitzroy's owned ]. That mine is a new one that's ramping up. Carra is opening a new underground mine mammoth. BHP is opening a new mine at Broad Manos and Rosebery is exploring opening a new mine in the next year or 2, pending approvals. Stanmore has just acquired the Eagle Downs' site from South32, and so we're looking at getting that one going. And then you've got a couple of others like [indiscernible] and Ensham that are also expanding at the moment as well. So in terms of underground coal in Queensland, there is an enormous amount of things happening. And we are actually targeting work across all of those. I would say we're not looking for a sort of big bang $500 million project that's in one place like where we went down with Cook and Crinum at par. We're looking at really sticking to our core capabilities and talking to all of these mine owners and would hope to pick up places, some work across each of these type of opportunities. Turning to New South Wales we are already involved in a significant number of mines down there. And typically -- at Narrabri at the moment, so Narrabri is a pretty sizable operation. We've got 3 contracts there. But a lot of the other mines have smaller operations, but we are operating at a new one with Glencore. And we are seeing some growth across those areas as well. So it's sort of growing, expanding -- growing current projects into sort of a larger scope. And then probably the biggest opportunity we see in New South Wales is in the Illawarra Mining company and we're getting probably a fairly warm reception there, where we have operated it before. We've gotten good experience. But in particular, M Resources and their partner, GEAR, actually, as of yesterday, I think it was completed on the acquisition of the Illawarra mines, that's Dendrobium and Appin mines, both very sizable metallurgical coal operations. And so we are certainly talking to the new owners about getting that on-trade back in -- down to those projects.

[Operator Instructions] There appear to be no further questions at this time. I'll now hand the call back to Mr. Romcke for closing remarks.

Thank you very much, Betsy. Well, thank you, everyone, for listening about our results for the end of the financial year. We look forward to publishing a more full annual report in a month or so's time. And certainly, we'll keep the market absolutely informed as our opportunities for growth come forward. So it's been a pleasure to be able to share some good news about the company this year and to see the turnaround that's occurred and to acknowledge the great efforts from our peo9ple within the business. And I'll be looking forward to an AGM later in the year. So thanks, everyone, and I'll sign off for now. Thanks, Jeff.

Thank you, and have a good day.

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