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's 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 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, Lisa. Good morning, everyone, and thank you for joining us to discuss Mount Gibson's December '23 quarterly activities report. As usual, I'll give a brief overview before handing back to Lisa for any questions. And just as a quick reminder, all currency we mentioned on this call is denominated in Australian dollars, unless we otherwise say. So as you all would have seen from this morning's report, Mount Gibson performed well in the December quarter and half year period to deliver record high-grade sales from Koolan Island and do generate significant positive cash flow, which has led to a rapid review of the company's cash reserves. Iron ore sales from Koolan totaled 1.2 million wet metric tonnes, grading at 65.3% Fe in the quarter, and that's well on track with our fiscal '24 shipping guidance. Our shipments for the half year consequently totaled just over 2.5 million tonnes, grading at 65.4% Fe, and that actually beat the previous half year record for Koolan Island of 2.1 million tonnes achieved some time ago. Cash operating costs averaged $62 and that's obvious, as I mentioned, per wet metric tonne FOB, up slightly from the $56 per tonne mark achieved in the prior quarter. And that prior quarter benefited from the drawdown of previously mined ore stockpiles. For the half year, cash operating costs averaged a comparative $59 per wet metric tonne sold, and we remain on track to achieve our guidance range for the year, which also reflects the seasonality of the operation. I'll touch more on that later. Sales revenue totaled $228 million FOB for the quarter with the group's cash flow increasing to $123 million and reflecting an average all-in cash margin of AUD 108 per wet metric tonne that we sold. Over the half year, free cash flow totaled $247 million on sales revenue of $436 million FOB. So after normal working capital movements, the company's cash and investment reserves grew by $101 million at the close of period at $358 million. This figure excludes the recently acquired 8.6% shareholding plus the additional option holding in Mid-West iron ore producer Fenix Resources with that holding valued at approximately $18 million at the end of the quarter. We remain pleased by the consolidation of our former Mid-West mining and infrastructure assets in the Fenix and that provides Mount Gibson an ongoing exposure to growth in bulk commodity exports from that Mid-West region. And if you haven't seen Fenix has already made some additional progress in boosting its output and resources through a number of positive third-party arrangements. We also continue to pursue our early stage to base metal exploration efforts in the Mid-West region, and to expand our exploration joint venture and acquisition search initiatives, which I will talk a bit more about. Firstly, on the safety front, which is obviously a fundamental priority for our business. We continued the overall safety improvement trend over the last couple of years. The rolling 12-month lost time injury frequency rate reduced to 0 incidents per 1 million man-hours worked at the end of the quarter, and that was down from 0.7 incidents at the end of the previous quarter and from 2.2 at the end of December '22. Our rolling 12-month total recordable injury frequency rate, which reflects LTIs as well as other lower order injuries increased slightly to 6.8 incidents per 1 million man-hours worked at the end of the quarter, and that reflected 2 non-life threatening restricted work injuries that we incurred and still remains below the level of 9 reported at the end of '22. But safety is a continuous activity in our business and our efforts are focused on achieving further improvements. In relation to Koolan Island in more detail, iron ore mining was slightly below the quarter or prior quarter at just over 0.9 million wet metric tonnes with mined grades at similar levels. Mining was resequenced to adjust for the central footwall rock slip, which occurred in the September quarter and also the title working confines and ground support activities on the high-grade pit floor in the Western end of the main pit. The waste to ore stripping ratio remained low at 0.8:1 in the quarter, similar to the 0.7:1 figure in the preceding quarter. The stripping ratio as many know, is a key cost driver for the Koolan Island operation and although it will times rise for limited periods in the next 12 months, in line with what we're doing is haul ramp repositioning and our waste extraction cycles in the main pit. It is expected to remain at a low average rate of approximately 1.5:1 over the remaining 3-year life of the operation. As we reported at the time back in the September quarter, the localized rock pool on the eastern footwall of the Main Pit island-side of the pit occurred in August, the event that we detected in advance by the site's continuous radar monitoring systems and no injuries or equipment damage occurred. The impacted area wasn't being mined at the time and all production wasn't scheduled to commence at that location until late in the current March '24 quarter. So in the December quarter, the surrounding area around that rock fall was cleaned up and the underlying exclusion zone has been maintained. The company continues to review the mining schedule and production sequencing to minimize any potential impact by near-term production. The affected area is located in the middle of the pit at the intersection of the western and eastern sections and it enabled production to continue in both the Western end of the Main Pit before it transitions primarily to the eastern end at the start of the coming June '24 quarter. So as a result, we'll broadcast this affected area for at least the duration of the wet season, and that will enable us to see the impact of wet season rain and other conditions before we proceed with our proposed remedial ground support activities. Production from higher benches in the eastern part of the Main Pit has consequently been accelerated and mining expected to resume in the affected area at a later date. We'll provide further updates on that in due course. Processing. Processing continued at planned rates in the quarter and totaled 1.1 million tonnes as you've seen, as we largely exhausted the remaining high-grade mine ore stockpiles build up last year. We've also committed to add a small tertiary crushing circuit to the main plant at a cost of about $8 million. And the purpose of this is to deliver a more efficient and actually economic and cost effective ways to treat the harder oversize material from the lower central and eastern areas of the Main Pit. This circuit is expected to be operational in April. In relation to shipments, as noted, we completed 15 shipments in the quarter, totaling 1.2 million tonnes at 65.3% iron and our half year sales were at 2.5 million tonne figure rating 65.4% higher. Shipments from Koolan Island are undertaken in Panamax vessels, and that's always been the case. And typically, the math on each vessel is between 70,000 and 80,000 tonnes of iron ore. Just as a footnote milestone was achieved in early January, just in the last week or 2, with the company exporting its 500th shipment of iron ore from Koolan Island since the operations acquired and restarted in 2007. And over that time, exports from Koolan has totaled 36.6 million wet metric tonnes. So that's a significant achievement and one of which or former and current Gibson and Koolan Island personnel, I should be very proud. Operating cash flow from Koolan Island increased in the period, totaling $129 million for the quarter compared with $115 million in the September quarter. So a very good result. Sales revenue of $228 million plus other income of $2 million, which related primarily to insurance receipts, had a total revenue of $230 million. Cash outflow items comprised cash operating costs of $74 million, capital projects and equipment purchases of $5 million and a fairly happy royalties built given the grade and the revenue we received of $22 million. For the December half year period, the operating cash flow was circa double all of those numbers, so $244 million from revenue of $439 million and less cash costs of $147 million, capital projects and equipment purchases of $6 million and royalties of $42 million. For a business of Mount Gibson's mid-tier size, it's obviously making substantial contributions in royalties and in other forms to the WA government and the local economy. In terms of realized pricing, as people know, prices improved notably in the December quarter. The Platts CFR price for high-grade 65% Fe fines averaged USD 139 per dry metric tonnes, and that was a grade-adjusted premium of 4% to the benchmark 62% Fe price. In the prior quarter, the 65% price was USD 125 per tonne. We also benefited from a weaker Aussie dollar, which averaged approximately USD 0.65 for both the quarter and the half year. Shipping rates for Panamax vessel journeys from Koolan Island to Northern China averaged around USD 14 per tonne shipped in the quarter, and that rate still applies this month. As a result, our Koolan high-grade fines realized an average free on board price at Koolan, so excluding the shipping freight of USD 128 per tonne or around AUD 197, so a good price. As previously noted, with the disconnect between the iron ore price and the Aussie-U.S. exchange rate, we've hedged a proportion of forecast fiscal '24 sales, and we currently have cover in place for 420,000 tonnes for the June half year period at 62% Fe CFR fines prices, which range from AUD 175 to AUD 195. These hedge contracts protect the substantial cash margin on these forecast tons. And in addition, on the currency side, we also hold a small number of foreign exchange collar contracts protecting USD 9 million of forecast in June quarter revenues, which we'll be converting to Aussie dollars. In relation to the insurance claim for the August '22 processing plant fire, and we talked about this a number of times in the last few quarters. The full property damage component has now been received for a total of approximately $10 million, of which just under $8 million was received last financial year, and $1 million received in each of the recent September and December quarters. We continue to liaise with the insurance group regarding a potential business interruption claim arising from that fire incident. However, the timing and quantum of such a claim remains uncertain at this time, and we'll obviously provide updates about this going forward. Just turning to the Mid-West now. Since divesting the majority of the company's Mid-West mining and infrastructure assets in July '23 to Fenix, as I mentioned, our primary interest in the region has been our result in shareholding of 8.6% and the options that we hold at Fenix. We also retain our rights to the long-standing historical rail credit refund resulting from third-party use of certain parts of the Mid-West rail network. And that refund arrangement, as many of you should know from our recent disclosures, expired in accordance with its terms in prior quarter and the final payment of just over $2 million is expected in the current March '24 quarter. Elsewhere in the Mid-West area, we retain our early-stage base metal exploration interest around the former Tallering Peak mine and at Butcher's Track exploration farming areas to the north. During the quarter, we completed the substantial soil sampling program to infill the gaps between 2 prospects at Tallering called Bailly and Gregory where we've previously identified a number of positive geological indicators. And we'll be looking to do some drilling work in those prospects this year. We've also significantly increased new project generation activities, site visits and discussions with a number of third parties regarding additional exploration and resource development opportunities. We continue to pursue acquisition opportunities in the bulk commodities and base metals sectors in Australia and equity positions with a combined market value of approximately $5 million are held in a small number of junior resource development companies where it's considered that future financing or importantly, strategic opportunities may arise. We're also presently involved in a number of active due diligence programs. So as we move ahead with Koolan in the next 12 months, we'll be putting considerable effort into the next stage of growth in Mount Gibson, and obviously, we'll look ahead training them to reporting on that in the coming months and quarters. In relation to outlook and guidance, we expect sales to moderate during the Northern Western Australian wet season. So that's right now that runs through until about April. And also into 2024, as we've now depleted the high-grade ore stockpiles that we mined in '22 and they've reversed to normal levels. However, the company is in a strong position to achieve its fiscal '24 annual guidance, which is 3.8 million to 4.2 million tonnes shipped at an average cash operating cost of AUD 65 to AUD 70 per wet metric tonne shipped FOB before royalties. And with iron ore prices remaining pretty well supported at the moment, the company is well positioned to continue to increase its cash reserves and obviously there's capacity for new investment opportunities. So to sum up, Mount Gibson has achieved a strong first half of the '23-'24 financial year. With the Koolan Island team demonstrating the operations robust cash flow generation potential in the quarter and underlying its value as Australia's highest grade direct shipping hematite operation. So Lisa, with that -- one more [ pick today ]. We're focused on the safe and responsible operation of Koolan. We know that it's a difficult operation this time but we will be looking to maximize cash flow generation over the next couple of years. And obviously to continue to build the company's cash reserves to provide a platform for what we do next. So with that, Lisa, I'll hand back to you for any questions that anyone may have.

[Operator Instructions] Peter, we have no questions.

Okay. Thanks very much, Lisa, and thank you, everyone, for listening. We know that we received some calls already. And if there are further queries or questions, then please feel free to reach out to John and myself of the numbers that are indicated, and have a good day. Thank you.