MGX Resources Limited (MGX) Earnings Call Transcript & Summary

Thank you for joining today's teleconference for the release of Mount Gibson Iron's December quarter activities report. Mount Gibson Chief Executive Officer, Peter Kerr, will be leading the discussion and is joined by Chief Financial Officer, Gill Dobson; and External Relations Manager, John Phaceas. Mr. Kerr will provide a brief overview, after which there will be an opportunity to ask questions. Due to the time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will also be available via the Mount Gibson website shortly after completion of today's teleconference. Please go ahead, Peter.

Thanks, Erika. Good morning all, and thanks for joining us to discuss Mount Gibson's December quarter report. As usual, I'll give a brief overview before handing back to Erica for any questions from listeners. As you're aware, we previously disclosed the key points of our quarterly physicals in the operating update we released in December. However, I'll run through those points again as well as some other relevant matters. We're now very close to the return of access to the high-grade iron ore in the base of the Koolan Island Main Pit, following extensive waste stripping program that we've been undertaking. The program was more challenging than expected, given a range of matters, including COVID issues, resulting labor constraints and some supply chain cost pressures as well as the geotechnical ground conditions we've encountered which have required additional ground support work. As a result, activity in the December quarter continued very much the focus on the efficient waste stripping within the pit. We also completed the major crusher upgrade at Koolan Island, which sets us up to process increasing quantities of high-grade ore in 2022, so this year and beyond. All sales in the December quarter were 0.3 million tonnes coming from Koolan and the final -- additional fine shipments from Shine in the Midwest. Shipments for the half year period totaled 0.7 million tonnes as we previously disclosed. In the Midwest, the focus remained on the orderly ramp-down of activities at the Shine mine site and the completion of the final shipments. For the important investments we've been undertaken or undertaken in the December quarter meant that the cash draw was as previously flagged, although not quite at the level of the September quarter. And our cash and investment reserves were AUD 142 million at the period end. We're expecting a substantial lift in production and sales from Koolan Island in 2022. We're targeting total ore sales from Koolan in this financial year. So that's the year to 30 June '22 of 1.7 million tonnes, which will equate to group ore sales of about 2 million tonnes, including those already made from Shine. Importantly, the quality and the grade of sales from Koolan in the coming June '22 half year period that we've just started, will far exceed those at the December half year, with the ore grades expected to progressively increase towards the ore reserve estimate of 65% Fe through the period. Turning to the mining operations at Koolan Island in a bit more detail. We're now resuming mining in the high-grade zones in the western floor and in the eastern end of the Main Pit. Our sales grades will progressively build over the next few months, as I mentioned. We're also now moving into a phase in which the waste to ore stripping ratio will decline significantly from approximately 17 tonnes of waste for every tonne of ore in the December half year, as we've moved through our waste stripping program, to about 6:1 in the June half year. After that point, so from the middle of 2022, the stripping ratio will continue to progressively decline and is expected to average approximately 1.5:1 over the following 5-year period, resulting in a significant reduction in total mining movement and unit cash cost per ore tonne shipped and an anticipated substantial increase in operating cash flows. As mentioned, we also completed the crusher upgrade in the quarter and are now working through the usual commissioning phase. The upgrade will enable us to process the significantly increased volumes of the high-grade material expected as we ramp up. The first stage to reconfigure the crushers lump and fine stacker units was concluded in the prior quarter, and the second stage was completed last month involving the installation of a new ROM ore retaining wall, feed bin, jaw and cone crushers and upgraded screening, scalping and conveyor capacity. So operationally, we believe that Koolan Island is positioned for a much improved year ahead. I just wanted to say a couple of words on the COVID pandemic as well. Our workforce has responded positively throughout and obtain the required vaccinations and instituted the necessary workplace controls. It hasn't been easy at times. The company remains ready to respond promptly to evolving government restrictions noticeably as -- or notably as Western Australia progresses towards its borders reopening. Some of you may have seen last night's announcement from the West Australian government that the opening will now be deferred and undertaken on a phased basis. So we're obviously monitoring the government very closely for this. Like most other mining businesses, we are implementing enhanced virus screaming, cover testing and other associated procedures to respond to the additional risks posed by the expected increase in community transmission of the virus in due course. In relation to Shine, I'd just like to now touch on the quarter as to how we went there. The transition to care and maintenance during the quarter occurred smoothly and we're able to complete 3 shipments with 2 final fines cargoes complementing the final lump cargo that was anticipated. Sales from Shin consequently totaled approximately 0.3 million tonnes in the December half year, including 0.2 million tonnes in the December quarter. The site will now be held on a low-cost care and maintenance program, pending a reassessment of market conditions and reopening options in this year. The key areas we're looking at there are product discounts and shipping freight rates and, of course, the iron ore price. In the meantime, many of the company's employees at Shine have already been redeployed to Koolan Island, and that is helping to alleviate some of the ongoing labor pressures in certain areas of that operation. While in the Midwest, we've also stepped up our exploration activities on our increased footprint near the former Tallering Peak mine, approximately 120 kilometers inland from Geraldton and this is where we see attractive prospectivity for base metals. We've entered into some new farming arrangements in part of that area. During the December quarter, we completed an aerial electromagnetic survey to further prioritize prospective areas for drilling in the coming years. In relation to cash flow and our cash position. As expected, the cash outflow in the December quarter predominantly reflected the continued waste stripping program and various capital projects at Koolan Island. The operating cash outflow for the quarter of $89 million was comprised of investment at Koolan Island of $76 million, Shine net operating and suspension costs of $10 million, interest and other income of $3 million and exploration rehabilitation and corporate expenditure altogether totaling approximately $6 million. So after working capital movements and payment of the $12 million cash component of last financial year's final dividend, closing cash and investments balance at the end of the quarter was $142 million, as I mentioned. So in summary, we remain confident about the future, given that our waste stripping work at Koolan is substantially progressed and that Colin is one of the world's highest grade direct shipping hematite iron ore operations. This is strategically important for us given the increasing value of high-grade feedstocks in boosting steel mill productivity and in reducing the carbon intensity of steel production. High-grade ores continue to enjoy a healthy premium over the benchmark and lower-grade ores. In actual fact today, I see that the high-grade premium is approximately 17%, and this is expected in terms of a general premium to remain the case for the long term. So with that, Erica, I'll hand back to you for any questions that anyone may have.

[Operator Instructions] We have one question, just one moment while I introduce the guest. We have our first question from Jon Scholtz from Macquarie.

Peter and team, good to see that we're getting close to the end of the stripping program. I was just wondering if you could run us through that timeline again. When do you expect to get the first high-grade ore from that bench? And -- or what does the ramp-up profile kind of look following that?

Sure, John. Look, the ramp-up profile occurs progressively over the next few months. So the status at the moment, we're obviously in the Northern Australian wet season at the minute. And so we're fairly conservative on what we'll do in January and February. We're actually already sitting on the ore in a couple of locations with the pit. And so it won't too far before we start to extract top levels of some of that material. I think our shipments at this stage from the plan perspective, will be building towards the end of the March quarter. And then the June quarter will be better again over the general March quarter. So that's the profile. And then once we've hit that point and in effect at that point, substantially completed most of, if not all of the waste stripping activity, then of course, the ore quantities are quite significant month-to-month.

Excellent. And booking in those ships, how are you seeing shipping costs during those periods? Like do you think we'll have some price coming off the shipping costs? Or is that elevated shipping rates still within your forecast?

The elevated shipping rates has come down a little. They haven't come down to the longer-term averages. So I think when we talked last quarter, our shipping -- the shipping freight rates for Koolan were up around USD 25 a tonne mark to Northern China. And that has now moved to more like USD 17 or USD 18 a tonne. And long-term averages for Koolan are more in the $10 to $12 a tonne area. So we have seen it come off a bit, and we'll see what happens in the next quarter. What we're doing now is we previously focused on Panamax vessels, so loading shipments of 72,000 tonnes each. In more recent times, we focused on what are called Kamsarmax vessels, so slightly larger Panamax and those take in the order of 80,000 tonnes each. So there does seem to be a building in the Kamsarmax fleet. So we'll continue to pursue that market with our customers.

[Operator Instructions] We don't seem to have any other questions through at this time. So if you're happy, I can hand back over to you, Peter, and close the Q&A.

Sure. Thanks, Erika. So I appreciate people coming on the call, and have a good day. If you do have any questions, then please do contact either myself or John at Mount Gibson, and we can respond as quickly possible. Thank you.

Thank you. That now concludes today's teleconference. Thank you for joining, and enjoy the rest of your day.