Musgrave Minerals Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources Corporate Update and Takeover Offer for Musgrave Minerals. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.

Good morning, everyone. Thank you for dialing in at short notice. With me as usual for these events is CFO, Tim Manners, and between us, we'll cover 2 important announcements this morning. The first is the production update for the June 2023 quarter and the full year ending 30 June 2023. The second announcement, which will come to shortly, is the joint release by Ramelius and Musgrave Minerals, outlining our agreement to move forward with a recommended takeover offer by Ramelius for 100% of the issued capital of Musgrave. Before we discuss this, I want to first focus on the stand-alone results released by Ramelius this morning. We're very pleased to announce that our June quarter and full year production guidance targets have been met with a total of 68,752 ounces produced in the June quarter giving a full year production of 240,996 ounces. This achievement was coupled with an impressive quarter of operational free cash flow of $42.6 million. Remembering this is a total cash movement figure, with nothing left out except the $75.1 million, which was acquired via the Breaker acquisition. This gave Ramelius an end-of-year cash and gold total of $272.1 million. In the current environment of high cost in a top labor market, the ability to generate cash at these sorts of levels is an outstanding result for Ramelius and is a testament to our entire team who focused on producing gold for the lowest expenditure whilst maintaining high standards of safety. Whilst we have not finalized our all-in sustaining costs just yet, we expect them to be within guidance, but closer to the upper end of the $1,750 per ounce to $1,950 per ounce range. Now despite Penny being in its early phases of stope production, the contribution of this high-grade ore obviously helped push production, gold production and cash flow higher at Mt Magnet. We also benefited from the high-grade open pit ore from Marda and Tampia feeding into the Edna May plant, the cash flow benefit that is, of reducing ore stockpiles built over the last 12 months, and we should see that positive cash flow trend to continue. Now on to the Musgrave Offer, which I'll hand over to Tim for along with his BD team, has done the bulk of the work bringing this to fruition. Tim?

Thanks, Mark, and good morning to everyone. As you will have seen, Ramelius and Musgrave Minerals are in a position today to announce a recommended takeover offer for Musgrave, owner of the Cue Gold Project, just 35 kilometers north of our own Mt Magnet processing hub in the heart of WA's Murchison province. As addressed on Slide 5 of the presentation, also released this morning, for those of you who have it handy, the offer is in keeping with our strategic objective of executing value-adding acquisitions to sustain and where possible, grow production from our 2 existing WA production hubs at Mt Magnet and Edna May. Whilst Magnet has had for some time now a solid pipeline of production opportunities in front of it, the potential to add a high-grade, low-cost project, like the Cue Project, is an exciting development for all of Ramelius' shareholders, including, obviously, those Musgrave shareholders open to accepting our offer. For those unfamiliar with Musgrave's flagship assets, the Cue Project currently contains a total mineral resource of 12.3 million tonnes at 2.3 grams per tonne for 927,000 ounces, including the very high-grade Break of Day trend deposits, which contain 928,000 tonnes at 10.4 grams per tonne for 327,000 ounces. The deposits discovered at Cue to date have only been drilled to a relatively shallow depth and all remain open at depth. There also remains significant potential for additional gold discoveries within the broader 310 square kilometer tenement package. If you have the presentation, you turn to Slide 7. The key offer details are outlined there. We are, of course, very pleased to have secured the endorsement of the Musgrave Board for our offer, which comprises 1 Ramelius share for every 4.21 Musgrave shares held and an additional $0.04 in cash per share held, representing an implied offer price of $0.34 per Musgrave share. This is a 19% premium to Musgrave's last close on 30 June, a 39% premium to the 5-day VWAP prior to Westgold's announcement of its unsolicited offer for Musgrave on 6th of June 2023 and a 47% premium to the 30-day VWAP prior to the Westgold offer. Additionally, the Ramelius offer represents a 27% premium to the implied Westgold offer price based on Westgold's closing price on Friday, 30th of June, and includes the added certainty of the cash component. These various premiums are set out clearly on Slide 8. Along with the recommendation of the Ramelius offer, we have secured prebid acceptances from the directors of Musgrave and Musgrave's largest shareholder, Westminex and its associated entities for their holdings in the company. Together, the prebid acceptances totaled 12.13% of Musgrave's issued capital and provide a strong starting point for the offer. It is our view that Ramelius has the financial capacity, the operational experience and exploration expertise to continue the excellent work done by the Musgrave team to date at Cue and together, maximize the value of the asset for both sets of shareholders. Musgrave shareholders that accept the offer will also benefit from having an equity position in a company with 2 established production centers in WA, thereby reducing exposure to construction, commissioning and cash flow volatility that can be experienced by single asset companies. The financial health of Ramelius and the significant positive impact on cash flow from the high-grade Penny mine now operating at close to full capacity is evident in the production update Mark has already discussed. As we have made clear over the past few years, another strategic objective of ours is to add a third production hub to complement Mt Magnet and Edna May. It's important to note that should the Musgrave offer be successful, it will not in any way impact our financial capacity or our operational capability to continue to pursue that aspect of our growth strategy. Further details regarding the Musgrave offer will be contained in Ramelius' bidder statement and Musgrave's target statement, which are expected to be dispatched to Musgrave shareholders by mid-July. Importantly, the offer is not subject to further due diligence and only subject to limited conditions, including achieving minimum acceptances to 50.1%, along with standard regulatory conditions you find with nearly all off-market takeovers. With that, I will now pass over to the operator to open the lineup for questions. Thank you.

[Operator Instructions] Your first question comes from Alex Barkley with RBC.

Mark and Tim, thanks for the call. Just a question on -- given you've got a few potential mining options at Mt Magnet already and even a few sites that weren't in your 3-year outlook, like that Hill 50 Scoping Study looked pretty interesting. Why have you gone for this alternative ore source? Should we be reading anything into your thoughts on your own pipeline? Or was it just really compelling value? Just want to sort of understand how you've gone for this external alternative?

Okay. Thanks, Alex. Thanks for the question. Look, we just saw value, and it really fits our hub-and-spoke model that's very close. We truck much further than this, it's by road, it's sort of 50, 60 kilometers. And it may displace -- may well displace some lower grade and push out, which we -- the mine life at Mt Magnet, which we're very confident, and we've got a lot of phase in Mt Magnet, over 6 million ounces to date, and lots of projects on the go, but high-grade open pit ore and then underground ore is valuable, and we see value with the offer that we've made. Tim, do you want to add?

I just kind of repeat, Mark, that's pretty much the logic behind the move. We think it's a quality asset. We think it's something that would fit very nicely into the Mt Magnet profile. As we said, Magnet does have life absolutely. And one of the things we've always sought to add into our portfolio is a higher-grade feed -- source of feed that can follow on from Penny, and we believe this certainly gives us that opportunity to maintain obviously, a consistent base load through all of our operations, but the addition of high-grade feed is always a little bit more challenging to find, and I think this gives us the opportunity to keep that high grade component in the mix for much longer.

Yes. Okay. Sure. And just a quick 1 on the operations. Edna May looked a little bit softer quarter-on-quarter. Is there any issue to call out there? And also is Symes Find, I think you had that in for guidance next year. Is the permitting and development of all that going on plan?

Firstly, on Symes, Alex, we're going through the process of permitting. We're confident we'll get that near term. So we'd like to think that it's about a 12-month mine that we get that mine largely in FY '24. So we'll have more to say on that, hopefully, come the full quarterly later in July. And nothing out of the ordinary at Edna May. Edna May has got the underground, it's got Tampia, it's got Marda and the trucking of those latter 2 sources has improved over the year to be more stabilized as the trucking labor force has improved. So nothing out of the ordinary there. I think it just looks lower compared to Mt Magnet, especially in the quarter with that Penny impact.

Our next question comes from Andrew Bowler with Macquarie.

Just wondering a bit of an update on the PFS for Rebecca. Are you expecting to push that out and include the Breaker stuff in that now, now that that's all done? Or are we expecting that shortly with another update a little bit later?

Thanks, Andrew. I think I'll flag publicly -- privately that it makes a lot of sense for us to combine the 2 projects, and in certain aspects, like Roe, has got a bit of catch-up to do. So we'd look to most likely push that out and have a combined project rather than coming out with details on Rebecca and then have to take a step back and get our arms around Roe as well. So a bit more detail probably in July quarterly also on that one.

Your next question comes from Paul Kaner with Ord Minnett.

Firstly, just following on from Alex's question a little bit. How do you sort of see or view Cue fitting into the mine and processing plant at Mt Magnet. Would this give you justification to increase that processing capacity at Checkers? Or is it more to sort of provide mine life longevity post-Penny's completion, assuming you don't find too much more there?

Paul, Tim here. I think as we responded to Alex, the high-grade nature that the Cue Project offers is a logical addition to Mt Magnet in that sort of 18 to 24-month time frame from here. The expansion is something that is always there for us to consider. But I think at the moment, we're focused on firstly, getting this transaction across the line. There's a lot of studies, as you know, being done on Hill 50 Deeps and Bartus and the like around Magnet. So we're not in a position at this point to really go back and have a look at that expansion opportunity. I'm sure we will at some point. But from a cash flow modeling perspective, I would assume that the mill stays as it is. And the expansion just remains options for us at a potential later point in time.

Yes. And then just secondly, on that time frame, just permitting and how long it would -- assuming the deal closes, how long would it take you to sort of get that material to Magnet and through the mill?

Well, the work we've done, our view would be no earlier than 18 months, 2 years. Now look, we could be pleasantly surprised, but we also don't want to overpromise. We know there's complexity coming in with various new bits of legislation that we all need to get our head around. The team at Musgrave have done a lot of great work on that. But I think at this point, we don't want to be saying 6, 12, 18 months when in reality, it's likely to be closer to that 18-month, 2-year time frame at this stage from what we understand.

Your next question comes from Andrew Hines with Shaw.