MGX Resources Limited (MGX) Earnings Call Transcript & Summary

Thank you for joining today's teleconference for the release of Mount Gibson Iron's March quarter activities report. Mount Gibson Chief Executive Officer, Peter Kerr, will be leading the discussion and is joined by Chief Financial Officer, Chill 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 time constraints, only institutional participants will be invited to ask questions at that time and a recording of the call will also be made available via the Mount Gibson website shortly after completion of today's teleconference. Please go ahead, Peter.

Thanks very much, Luke. Good morning, all, and thanks for joining us to discuss Mount Gibson's March 2023 quarter activities report. As usual, I'll give a brief overview and then hand back to Luke for any questions you may have. Overall, the March quarter reflected a good turnaround for the Koolan operation with the processing plant returned to full capacity at quarter end and shipment rates now increasing. This was despite the usual northern WA wet season constraints and in particular, the impacts on our road transport and barging logistics as a result of the Kimberly mainland flooding events in January and February. The improved operational performance meant we generated solid positive cash flow, enabling the company to double its cash and investment reserves to just over $83 million at quarter end. At the same time, we further built our stockpiles of mine high-grade ore to 1.2 million tonnes ready for processing and this stockpiles worth over AUD 170 million at current prices once it's crushed for sale. In relation to Koolan Island in a bit more detail, mining activity was in line with forecast, with all production similar to the prior quarter at just under 1 million tonnes. Importantly, the waste-to-ore strip ratio, as expected, continued its rapid decline. The strip ratio averaged 1.3 tonnes of waste for every tonne of ore in the March quarter, down from 3:1 in the prior quarter and is on track to reduce further in the June quarter and average around 1:1 in the current half year. From mid-2023 onwards, we expect the average life of mine strip ratio to be only around -- or to be around only 1.2:1 for the remaining 3 to 4 years of the mine life. The strip ratio is a key driver of cash operating costs at Koolan Island, and so reductions to these levels, along with increasing ore shipments are expected to see ongoing reductions in cash operating costs and significant growth in operating cash flows. Processing activities continue to be constrained, while repairs to the damaged product screening area from the August 2022 fire incident were undertaken. The interim processing activities utilized the undamaged crushing and screening sections of the main plant and were also supplemented by the commencement of the contract crushing contractor late during March. Processed volumes were sufficient to maintain an average rate of 3 shipments per month across the quarter. So as a result, 9 shipments totaling 664,000 tonnes were completed in the quarter, slightly better than forecast in our prior market update and included 5 shipments in March, which was a great result. This made up the wet season interruptions and delays to the processing plant repairs related to transport disruptions that we had earlier in the quarter from the Kimberly flooding events. And that limited our sales to 2 shipments in each of the first 2 months of the quarter, Jan and Feb. The average shipped in grade for the quarter was 65.3% Fe as planned and confirms Koolan Island as Australia's highest grade direct shipping iron ore operation. This meant that sales for the 9-month year-to-date period totaled 1.78 million tonnes at an average grade of 65.1% Fe. Consistent with the decision that we made when the processing plant fire occurred in August last year, we continued to mine ore from the open pit in line with the mine plan and have assembled a substantial mined ore stockpiles available for processing as the crushing capacity ramps up. At period end, as I mentioned, these stocks totaled over 1.2 million tonnes. In relation to insurance [indiscernible] August '22 plant fire incident. Mount Gibson does maintain relevant property damage and business interruption insurance cover for the Koolan Island operations. And up to the end of the quarter, progress payments from our insurers totaling $2.7 million have been received and further interim claims are made and to be paid in due course. The improved operational results underpinned a significant turnaround in Koolan Island's underlying financial performance in the March quarter as you can expect. Ore sales revenue totaled AUD 112 million FOB, reflecting an average realized price of USD 121 FOB equivalent to around AUD 180 at the current exchange rate. This revenue was also inclusive of positive provisional pricing adjustments for various shipments arising from subsequent ore price increases. These adjustments reflect the fact that most of Koolan sales are contracted on a deferred M+1 or M+2 basis where the price ultimately paid by our customer is based on the average of the first or second month after the shipment is paid. Shipping freight rates for Panamax vessel journeys from Koolan Island to Northern China range from USD 11 to USD 14 a tonne in the March quarter compared with USD 12 to USD 16 per tonne in the preceding quarter, and current shipping freight rates for the Panamax vessels that are used at Koolan Island are around USD 14 a tonne shipped. At current prices, each high-grade shipment from Koolan Island has a market value of approximately AUD 12 million FOB before royalties. Operating cash flow from Koolan Island totaled AUD 31 million for the quarter, a substantial turnaround from the outflow of $3 million reported in the previous quarter. All sales revenues totaled $112 million as noted, and the key outflow items were cash operating costs of $55 million, inventory build of $14 million, royalties of $11 million and net crusher repair costs of $1 million after insurance proceeds that taken into account. The operations and unit cash operating costs were AUD 84 per tonne FOB in the quarter and [ $4 million ] inventory build and royalties. These are expected to reduce in the June quarter, so that we can achieve the annual target of around AUD 75 FOB before the inventory build in royalties for the year. And we also expect these to reduce again in the coming '23/'24 financial year. In relation to the group's financial performance for the quarter, the group's cash flow totaled $28 million, and that comprised the $31 million operating cash flow from Koolan that I noted above, plus a net inflow from our Midwest operations of $2 million after exploration costs of $1 million and net corporate other costs of $4 million. After positive working capital movements totaling $14 million, and that included the receipt of the provisional pricing upward adjustments I mentioned earlier. The company's cash and investments balance increased to $83 million at the end of the quarter, and that compares with $41 million at the end of December last year. So as a result of the performance, no further drawn down will be necessary on the company's existing $100 million revolving credit facility and the existing drawn amount of $25 million is expected to be repaid in full in the June quarter. In relation to our Midwest business, cash flow includes the rail credit refund we received, which is accruing at a rate of about $2 million per quarter. The total credit that we received is capped at a maximum of approximately $35 million, subject to indexation. And to date, we've received total cumulative proceeds of approximately $32 million. We expect to receive the final payment later this year. We also continue to receive and consider external inquiries regarding our Midwest infrastructure assets, in particular, key rail sidings and port storage sheds from where we already received some income from third-party usage arrangements. Discussions remain in progress regarding further arrangements for the utilization of that capacity within those assets. So looking forward, in accordance with our recent guidance, we're targeting total high-grade ore sales of approximately 2.9 million tonnes in the current '22-'23 financial year. and unit cash operating costs are expected to reduce in the June quarter to achieve our annual target of around AUD 75 per tonne FOB for royalties and inventory build, as I mentioned, and then to reduce further in the coming financial year ahead. So wrapping up, the March quarter was a key positive inflection point for our business, as you can see, that the processing plant repairs were completed and shipping rates started to increase. Sales and cash flow are expected to build substantially in the June quarter. Based on the operations forecast mining and shipping profile, including the extensive mined ore stockpiles that have been built in recent months, the business is well positioned to achieve its targeted increases in sales and operating cash flows going forward, and we look forward to reporting on that at the end of the June quarter. So with that, I'll hand back to you, Luke, for any questions that listeners may have.

[Operator Instructions] We don't appear to have any questions. I'll hand back over to Peter and the team for any further or closing remarks.

Okay. Thank you, Luke. We know that it's a busy morning. So I appreciate everyone's time on the call. If you do have questions, please come back to John and myself on the usual numbers, and we'd be happy to help you. Have a good day. Thanks, Luke.

Thank you, and that concludes today's Mount Gibson Iron March quarter activities teleconference. All participants may disconnect.