MGX Resources Limited (MGX) Earnings Call Transcript & Summary

Thank you for joining today's teleconference for the release of MGX Resources' September Quarter Activities Report. MGX 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. Due to time -- sorry, 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 MGX website shortly after completion of today's teleconference. Thank you, and go ahead. Thanks, Peter.

Thanks, Lisa. Good morning all, and thanks for joining us to discuss MGX's activities in the September quarter. I'll give a brief overview before handing back to Lisa for any questions that may be there. And please note that any dollar references are to Australian dollars unless we indicate. So the first quarter of what is fiscal '27 plus the month of October that we've almost completed now, was significant for MGX at both the Central Tanami Project and at Koolan Island. The company now stands between the end of one era at Koolan and the start of a new one as we transition from an iron ore producer to an aspiring gold developer from a position of financial strength. MGX is one of the very few gold developers with the capability to self-fund its growth ambitions, with its strong balance sheet offering shareholders substantial downside protection. Cash and investments in the group totaled $408 million at the end of September, and that's equivalent to about $0.345 per share. Regarding our operations, I'd firstly like to cover our safety performance, and we saw a significant reduction in the total recordable injury frequency rate from 4.9 incidents per 1 million man-hours worked at the end of June to 1.6 at the end of September. This in part reflected reduced manning and activity levels at Koolan Island. However, it also reflects good work by those who were tasked with completing significant rehabilitation activities, demobilization of equipment and the wind down of activities at that remote site, plus it also reflects the ramp-up of activities on the Central Tanami Gold Project site, which I'll cover. Since we entered CTP, that's the Central Tanami Project Joint Venture in February this year, MGX has been working closely with its partner, Tanami Gold to really position the project for a development decision within the next 12 months. To that end, there were several key achievements in the September quarter. And in that period, MGX's share of expenditure was just under $15 million. It was actually $14.7 million. A key focus of activity has been on progressing the exploration decline into the Groundrush Gold Deposit. The joint venture executed a $38 million contract with Macmahon in late August and work commenced pretty quickly thereafter. Surface works to facilitate the decline construction, including preparation of laydown areas and the reestablishment of the main access ramp in the pit, are substantially complete. And Macmahon's team has now started work on the decline portals. Blasting of the initial bench to provide access to the main portal location was undertaken in mid-October, along with ground support work above both the main and secondary ventilation portal entrances. The first blast for of the ventilation portal occurred yesterday, and the main portal will also be blasted in the coming week. Macmahon's contract entails constructing a 3.5 kilometer decline to a vertical depth of approximately 350 meters below surface over the next 14 months. In the latter stages of that work, a 33,000-meter program of underground infill drilling will commence with the objective of converting over 400,000 ounces of Inferred Resources into the higher JORC Indicated category for detailed mine design and planning purposes. So it's a really important exercise for us to not only infill the resource there and improve that mine design confidence, but also it enables us to advance the underground workings effectively ahead of time. Meanwhile, at the Jims gold deposit further to the south, Resource definition and extension drilling has been progressing, where we expect the current 220,000 ounce resource to grow. Jims is a potential open pit, which could be a supplement to production from the Groundrush underground mine. At Jims, almost 14,000 meters of RC drilling within 95 holes was completed in the quarter. So that concluded the RC phase of the work and samples from that program are being processed in Perth and the results will be available in due course. Diamond drilling is now underway to provide core samples for metallurgical test work and structural and grade information for resource expansion purposes. And by the end of the quarter, we completed 3 diamond drill holes and the drilling is set to continue into the next 1 or 2 months. The metallurgical test work samples are important for the ongoing processing engineering determinations. And at this stage, the processing plant throughput has been reviewed at a rate of approximately 1.5 million tonnes per annum, and the design work is seeking to leave room available for future plant extensions as required. That will be part of the key study work that's been progressed over the next 6 months. In relation to site infrastructure, the joint venture has been working to improve the existing non-processing aspects, so the accommodation camp and utilities, electrical, water and communication systems to cater for the increasing manning and activity levels. This includes preparations for the coming wet season. So looking ahead for the CTP for the rest of this financial year, the work will remain focused on the decline construction at Groundrush, resource definition drilling, and that's both from surface and underground, as I've just mentioned, metallurgical test work, process engineering and design studies as well as a range of repairs and improvements to the on-site utilities and other infrastructure, and also very important on top of all of that, the advancement of the key permitting work streams with both the Northern Territory government and the traditional owner group led by the Central Land Council. So we have a busy and exciting year ahead. At Koolan Island, we're obviously feeling a mixture of pride as to what's been achieved over the mine life, but also sadness that the life is one of Australia's richest hematite iron ore mines has come to an end. The last 4 shipments of low-grade material totaling around 300,000 tonnes at an average grade of 42.7% Fe were completed in July, and that brought sales revenue into the quarter of approximately $14.4 million FOB. That income more than covered our expenditure for the physical rehabilitation works agreed under our divestment agreement with Crestlink and the various other site ramp-down, redundancy and demobilization tasks that we've undertaken to prepare for a handover to Crestlink. MGX has now substantially completed the rehabilitation tasks required under that agreement, and they've included landform profiling, topsoil spreading, contour ripping, and seeding, and as well as the removal of surplus site infrastructure and equipment. And you might see a photograph or 2 in some of our materials, there's one in today's quarterly report. Importantly, the critical task of flooding the Main Pit as required under our closure obligations was completed this week and a small channel was blasted in the ocean-side pit wall on Saturday, and the pit has progressively filled over the following 4 days. So the work has been planned and reviewed with relevant government agencies and the Dambimangari Traditional Owners, and we're very happy to have built a mutually strong and respectful relationship with them over many years and to be leaving them with a site, which is well set up for future business opportunities they may have. Costs that we allocated to rehabilitation works total around $7.5 million in the quarter. In relation to the Crestlink transaction, that means we remain on track for completion in late this year or early 2027. And importantly, Crestlink has recently advised that it's received both Foreign Investment Review Board and Australian Competition and Consumer Commission approvals, and they were the key regulatory approvals required as part of this transaction. On completion, Crestlink will pay MGX up-front and deferred consideration totaling at least $20.2 million and a future revenue share of up to a further $5 million, which is also CPI-indexed. In addition, Crestlink will at completion, assume the rehabilitation obligations remaining at that time, and they're anticipated to be in the region of approximately $30 million, and they relate primarily to the key infrastructure assets that are being retained by Crestlink for future use. In relation to the Koolan Island financial results for the quarter, the low-grade sales enabled it to generate a small positive operating cash flow of $0.3 million, and that comprised sales revenue of $14.4 million, other revenue of $4 million, which was mostly related to the sale of surplus equipment, less cash and operating costs of $9 million, and that equated to $28 per tonne sold, royalties of $1.4 million and the approx $7.5 million of rehabilitation work that I mentioned earlier. In relation to insurance, and we've obviously had a number of questions on this. As we noted in our full year results, we've already reached settlement with one of the insurers in relation to the October 2025 Main Pit Rockfall. And during the quarter, we received $9 million from that settlement. We continue discussions with the balance of the insurance panel over a potential claim. However, we are very cautious and it remains uncertain as to the likelihood or amount of further receipts, if any, at all. The matter is excluded from the Crestlink transaction and MGX retains management of the insurance claim and rights to any future proceeds. At a corporate level, the net cash change through the period or the net cash outflow was $5.1 million, and that comprised the Koolan operating cash flow of $0.3 million that I mentioned before, interest and other income of $13.2 million, which included the insurance proceeds just mentioned. And then we spent $14.7 million within the Central Tanami Project Joint Venture, which is our share of costs for that joint venture for the period and our corporate and exploration expenses of $3.9 million. So at period end, the total cash and investment reserves were $408.7 million, and the company, as has been the case for some time now, has no bank borrowings. Equity investments included within that cash and investment total have been made, and we make these investments in a number of smaller companies to see where there might be potential future opportunities. And at period end, those investments totaled $67 million. That portfolio includes a 3.8% interest in Queensland Copper miner AIC Mines, and that was valued at just under $35 million at quarter end, a 4.6% interest in nearby silver and base metals developer, Maronan Metals, which was valued at $6.1 million at period end and the 9.4% interest in Midwest iron ore producer, Fenix Resources, which was valued at just under $19 million at period end. And that position in Fenix arose from the 2023 transaction where our Midwest assets were divested to Fenix at that time. MGX also continued to advance exploration in both WA and the Northern Territory. In the Central Tanami, initial analysis of regional modeling commissioned by MGX identified several prospective structures, both within the joint venture and on MGX's wholly owned tenements. And many of these structures are largely untested by modern drilling. So they present a real opportunity for us in due course. Within Western Australia at the Edmund Basin tenement in the Gascoyne region, analysis of the Falcon Airborne Gravity survey was completed in the prior quarter, and that identified a number of drill targets. And following the end of the quarter, we obtained a funding commitment from the WA Government's Exploration Incentive Scheme of $180,000 for drilling at a specific location within the Edmund Basin. And that's obviously going to be quite exciting in due course. So discussions are now underway with Traditional Owners to ascertain the cultural survey requirement needs there. So in conclusion, the business has made a positive start to fiscal '27. The company has a robust balance sheet with which to progress the Central Tanami Project Joint Venture, and we expect a steady stream of news flow over the remainder of the financial year. We also look forward to completing the Koolan Island divestment and to totally focus on our new direction. So with that, Lisa, I'll hand back to you for any questions anyone may have.

Thank you, Peter. [Operator Instructions] We do not have any questions.

Thanks, Lisa, and thank you all for listening. If there are any further questions through the day, please contact us as usual, and a recording of the call will be placed on the website. Thank you.