MGX Resources Limited (MTGRF) Earnings Call Transcript & Summary

Thank you for joining today's teleconference for the release of MGX Resources December 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. 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, Peter.

Thanks, Lisa. Good morning, everyone, and thanks for joining us to discuss MGX's Quarterly activities report. As usual, I'll give a brief overview before any questions. And the usual reminder, all currency we mention on this call is denominated in Australian dollars, unless otherwise stated. So as you're aware, our plans for the '25, '26 financial year were interrupted in October by the substantial rockfall we experienced on the eastern footwall of the Koolan Island Main Pit and safety concerns subsequently led us to suspend mining and withdraw production guidance and really to focus on achieving cash flows in other ways. We properly adjusted the operations to focus on monetizing stockpile lower-grade material and the financial performance for the December quarter actually beat our original expectations. Processing and shipping of low-grade stockpile material is now expected to continue to late in the June '26 quarter. Separate to Koolan Island, we're nearing completion of the exciting Central Tanami Gold Project acquisition, and that will underpin an exciting diversification into the precious metal sector for us. And I'll talk about that acquisition in a bit more detail shortly. And at the November AGM, shareholders have supported our move and approved a change of name to MGX Resources, which took effect before Christmas. So on to the quarter in a bit more detail. Firstly, in relation to safety, we had 2 reportable injuries during the quarter and one involved medical treatment and the other resulted in this restricted work outcome. The company's total recordable injury frequency rate consequently lifted a little from 4.8 to 5.3 injuries per 1 million man hours worked. But importantly, we still have not incurred a lost time injury for a long period, and our frequency rate remained at 0 on that measure. Our safety performance remains favorable when compared with applicable industry standards. However, obviously, any injury is unwelcome and significant focus continues to be applied by all at Koolan Island and in our Perth business to regain our long-standing trend of continuous improvement. In relation to the Koolan Island operations, while the quarter started positively, mining was necessarily suspended, as I mentioned, in mid-October following the football rockfall. Importantly, advanced warning was provided by the site's radar monitoring systems and geotechnical personnel and no injuries were incurred. So we were very fortunate and very pleased to have all those systems in place. Following subsequent geotechnical assessment, we determined that the potential for future instability posed too great a safety risk to immediately resume mining activities within the pit and mining operations were suspended. While monitoring has continued through the current wet season, and that's still in process now to further assess the ground conditions, and I note that we did experience further ground instability in November in that area, the primary focus of our activities switched to the sale of available high-grade iron ore stocks that we had at the time and then subsequently, the processing and shipment of stockpiled low-grade material that we had previously retained for slow blending purposes. This also necessitated substantial workforce reductions. And unfortunately, this resulted in approximately 140 employee redundancies and the loss of 130 contractor roles. Consequently, sales in the quarter totaled 0.8 million wet metric tonnes, and that was comprised 4 shipments of high-grade material averaging 62.6% Fe and 6 shipments of lower-grade material averaging just under 50% Fe. Shipments for the half year totaled 1.35 million tonnes, and that was 870,000 tonnes of high-grade material at 63.7% Fe and just under 0.5 million tonnes of low-grade material, as I mentioned, which was all in the quarter, just under 50% Fe. Given the success of the low-grade program to date, we're targeting to process and ship a further approximate 1 million tonnes of low-grade stockpile material and it is lower grade. That's in the 42% to 45% Fe range, and we're planning to do this in the June '26 half year period. Although they're sensitive to pricing, these low-grade sales are anticipated to substantially reduce the previously estimated net cost of $30 million to $40 million that we had for the sites post Rockfall activities in fiscal '26. Although any reduction to that estimate will obviously depend on the pricing and volume of material that's ultimately sold. This net cost estimate also includes progressive rehabilitation activities, which we have accelerated in the quarter, and that's using available equipment and personnel, which is the most cost-effective way for us to do this. Given the benign characteristics of iron ore mining and processing at Koolan Island, i.e., there are no tailings dam, it's basically mining and then resizing of rock material. The rehabilitation earthworks are progressing rapidly and completion of those earthworks is targeted for later in the current June half. In relation to insurance, as we indicated at the AGM in November, preliminary discussions are also underway with insurance providers with respect to a potential claim relating to the Rockfall incident, and we'll provide more updates on that as and when we can. In relation to the realized pricing, and that obviously improved in the quarter as far as the high-grade material is concerned. The index for 62% fines material averaged USD 106 a tonne, and that was up from USD 102 per tonne in the prior quarter. The high-grade material, and this is for the ships we sold early in the quarter, the 65% index improved slightly to USD 118 per tonne in the quarter. And the Australian dollar remained reasonably steady to average USD 0.656. Shipping freight rates from Koolan Island to China were reasonably stable, but they did lift by around USD 1 per tonne and averaged USD 13 per tonne. The 4 shipments of high-grade fines that we sold, and they averaged 62.6% Fe during the period, they realized average price of USD 85 per tonne that's FOB, so after shipping freight. And the 6 shipments of low-grade material, which averaged 49.6% Fe, realized an average price of around USD 42 a tonne FOB. Pleasingly, in the circumstances, the Koolan Island operation generated positive operating cash flow of $15 million for the quarter. And I think that was a very good result for the team on site and the people in Perth who worked hard on this operation. And that comprised sales revenue of $71 million FOB less cash operating costs of $45 million. And within that $45 million, there was also $5 million of redundancy. Rehabilitation works totaling $4 million and WA government and third-party mineral royalties of $7 million. Reduced mining volumes helped lower the unit cash operating costs, as you'd expect, and they were down significantly from the prior quarter to $57 per tonne that we sold FOB. So that's at the Koolan port, equivalent to USD 37 per tonne FOB. And that meant for the half year, our average unit cost for the tonnes that we sold was around AUD 79 per tonne FOB. At a group level, free cash flow was the same as Koolan, so $15 million, and that comprised the Koolan operating cash flow that I just mentioned, other interest and other income of $4 million, and that more than -- sorry, slightly more than covered all of our corporate admin and exploration costs. So after some working capital movements and a $12 million increase in the value of the company's equity investment portfolio, total cash and investments increased to $497 million as at 31 December, and that's equivalent to approximately $0.42 per share, and that compared with $473 million at the end of the previous quarter. And the company has no bank borrowings. So turning now to our $50 million acquisition of a 50% interest in the Central Tanami Gold Project from Northern Star. There were 2 key steps that we achieved in the quarter. Firstly, the joint venture itself, that's the Central Tanami Project joint venture, updated its mineral resource estimate, and it was done to incorporate new drilling and align previously reported historical estimates with current JORC requirements. So the total resource was lifted to 31 million tonnes at an average grade of 2.8 grams per tonne gold for 2.8 million ounces of contained gold. That's a very good outcome. It makes the project one of the highest grade undeveloped gold projects in the country. It's obviously very exciting for us. Within the resource, the main ground rush deposit comprises 11 million tonnes at 3.3 grams per tonne gold for 1.2 million ounces, and that will be the core of the overall project going forward. The new estimates are all based on an assumed gold price of AUD 3,500 per ounce. And that's obviously well below the current spot price, which is circa double at around AUD 7,000 an ounce. The joint venture has also since reported further positive drilling results, especially at the Jims deposit, and that bodes well for future updates. And then secondly, in relation to the Tanami project, in December, we received Foreign Investment Review Board approval for the acquisition, and that followed on from the joint venture partners waiver of its preemptive right, and this is Tanami Gold NL back in August. In relation to the remaining conditions requiring -- and the main one is a further extension by the traditional owners of infrastructure arrangements on one particular tenement. We're encouraged by the relationships we've already started to build with the CLC, the Central Land Council in the Northern Territory, and we expect to complete the transaction well before the contractual due date, which is 31 March this year. Once the acquisition settles, we intend to work closely with Tanami Gold to push toward a development decision as quickly as possible, and that will obviously entail quite a bit of news flow as we go through the next 6 to 12 months on that project. In relation to the company's other investments, positive commodity prices helped boost the portfolio value to $42 million at quarter end, of which roughly half related to the approximate 5% interest in Queensland copper producer, AIC Mines and a further $5 million related to the 5% interest we have in Queensland-based metals developer, Maronan Metals. This is all in addition to Mount Gibson's 9.7% shareholding and option holding in Midwest iron ore producer FX Resources, and that was valued at approximately $38 million at quarter end. In relation to our regional exploration activities, we expanded our portfolio in recent months and now hold over 1,600 square kilometers of tenements in the Edmond Basin in Western Australia's Gascoyne region. The region is considered highly prospective for precious and base metals and has remained largely unexplored to date given its remoteness. So the next piece of work we're looking to do there is an airborne gravity survey of the tenements, and that's planned for the next couple of months. And before I wrap up, I again highlight the endorsement of shareholders we received at the AGM for our new direction, and that's evidenced by the support for our name change to MGX Resources, which you'll see on the various documents we now publish and reflects our pivot away from iron ore to precious and base metals. And then finally, we'll be releasing our financial results for December 2025 half year period on the 19th of February. And we have flagged that, that will necessarily require a review and write-down of the noncurrent asset carrying values for Koolan Island given what's occurred there. And therefore, we expect to report a noncash accounting impairment in the order of $55 million to $65 million before tax. This will obviously leave us with a very clean balance sheet and a very strong one. So in summary, operationally, we remain focused on maximizing the remaining value from Koolan Island and doing the rehabilitation work responsibly in that process as we monetize the available stockpile material. While for the Central Tanami Gold Project, we expect to shortly close out that acquisition, and we're very much looking forward to commencing development activities with our JV partner, Tanami Gold as soon as we can. So with that, Lisa, I'll hand back to you for any questions there may be.

[Operator Instructions] Peter, we have no questions.

Okay. Thanks, Lisa. I appreciate it's a busy reporting time ahead of the Australia Day holiday. So I wish everyone a very good safe Australia Day and long weekend. And if you do have any queries, please feel free to contact either John or myself, and we look forward to speaking with you soon. Thank you.