Ore Resources Limited (OR3) Earnings Call Transcript & Summary

Hi, everyone. Good morning, and welcome to Ore Resources webinar covering the lithium DSO fast tracking at Kangaroo Hills. We're just waiting for a couple more to join, understand the connection into the webinar can be a bit intricate. So we're just waiting for another 30 seconds, and then we'll kick off. All right. We've given everyone enough time to connect in. Thank you again for joining. We'll -- the formatting for today will be reasonably prompt. I'll give a high-level coverage of the key slides, and touching on the study, the key outcomes, the opportunity that we have ahead of ourselves and our next steps about our activity over the next 6 to 12 months. And at the end, there is a question function option for all attendees to ask questions. At the end, we'll cover off on those as well if anyone has any follow-up questions that we're not covering in the slide deck. And for information, this presentation is and has been released to the ASX on the platform this morning. So you can find all the details there if you want to go to the presentation after today's webinar. Diving straight into it, before we get into the study specifically, just covering off on the business at a high level, Ore Resources or OR3 listed on the ASX share price at $0.091 closing yesterday, market cap approximately $75 million with $6.8 million in the bank as of the last quarter or only a couple of weeks ago, months ago. Really wanted to highlight on this slide our tenure package. We have 800 square kilometers of tenure in the gold fields, of which what we're diving into being Kangaroo Hills is a small piece of the big pie that we have and a piece that fits in the Coolgardie project area, as you can see on the left-hand side there. But wanting to highlight outside of the lithium and outside of Kangaroo Hills, and what we're talking about today, the rest of our tenure, obviously, very prospective for gold, and you can go back through previous presentations to dive into that prospectivity, both at Coolgardie, particularly around Forrest and our regional targets and then obviously, what we've been able to acquire over the last 12 months at Kal East. Touching on the team and probably likely what sets us apart from most is we have a high-caliber Board who roll up our sleeves and have delivered projects, ranging from discoveries, exploration geologist expertise through to development going through development cycles and obviously into operating businesses. So comprising of Nev Power, Rob Waugh, myself and Robin Cox, a really good mix, as you can see there from commercial on the left-hand side to more of the technical exploration focus on the right-hand side. So we always like to describe ourselves as a business that likes to make discoveries, likes to lift the rocks, but also on the other hand, we also like to make sure we make money and realize value out of our assets as well. And the additional part there is we own approximately 8% of the shares on issue. So we are very aligned with our strategy and hence, why we are pushing ahead with the Kangaroo Hills DSO strategy today. To touch on the project and the study at a high level, needing to take a step back of how we got to where we are. We've delineated an initial mineral resource of 3.1 million tonnes at 1%. Within that, we had 2.8 million tonnes being indicated and the balance being inferred. And of that 2.8 million, we've then put over 2.4 of that into an economic pit shell. So we've actually been able to convert the bulk of that indicated into a pit shell, knowing that the pit shells that we've been able to deliver and the study is based on 100% indicated. So we didn't consider the inferred material, also didn't consider oxide material as well. So we have taken a really conservative view of mining and operating, obviously, with our focus on delivering on what we're presenting here in study today. And where we've ended up with, again, is a very good starting position of a Stage 1 development of 1.25 million tonnes, delivering a run rate of over 850,000 tonnes per annum of product. To summarize what we're planning to do, it is mine it, crush it, truck it, send it on a ship. It is a simple operation that you can compile with 1 to 3 contractors and of which we'll touch on in a minute, we are in the heartland of experienced and extremely capable mining contractors to deliver projects just like this. To talk about the economics, I think that's the -- one of the critical things here is this project is highly economic. It delivers a plus 50% margin over life. NPV 8 of $220 million, CapEx of under $25 million, of which we pay back that capital within 4 months of operation, and a net cash flow after paying back that capital of $237 million. And that's over a 16-month operation. So it's not cash flow that's drawn out over a long period of time. It's actually an extremely near term and very quick one payback and cash flow generation opportunity as well. And the other bit is we'll dive into where the project specifically sits, but we probably couldn't pick a better spot to be putting or to be making the discovery, access pretty much as you walk off our tenure on our tenure still, you walk on to or drive on to a sealed road. And from that, you have all your routes to port here. So it's a really simple opportunity here for us for not having complexity in terms of logistics. To wind back and how we got to the numbers and the parameters is the team and the study itself, and the approach we've taken and my experience has been in lithium project development through operation. We've been able to use a group of consultants, all of which who have experience with Australian operations and abroad, most of which are already in now production. So they've taken those projects through exploration through to production with a study manager being Sedgman. But some of the other consultants we've used through resource, mining engineer have also worked at a number of operations globally and domestically, of which as you can see behind me on the board, that's the Arcadia Lithium project that's now one of the largest lithium operations in Zimbabwe and the world that I've worked on, of which some of the consultants also work there. So really capable team that can deliver on projects. And as we've said, because of our proximity to Kalgoorlie and access to a vast amount of mining crushing logistic contractors, we're able to actually pull together a package of services that can deliver the project with really low CapEx, bringing in their own equipment, bringing in their own maintenance capability, building everything themselves as part of the contract because we're less than 50,000 out of Kal where most of their yards are and their workforce is. And it really lends itself to not only a lower cost operation, but just a simpler and easier operation to execute on. And that's really where the important part is delivering on the project itself in addition to just the numbers. And as we said, low technical risk on the resource being 100% indicated, which is a key category for us to fast track what we're doing. Power on the Coolgardie belt, you've got power down to the Burbanks mill, there's mills and gold mills and operations in the area. This would be a very low power generating activity, of which would be a small generator, -- one of the contractors would bring in to power the crusher, they bring in their own generator. And obviously, for generally a couple of donors for an office equip room. And then the contractors would also bring in their own maintenance yards for vehicles, of which, again, that is built into their costing for the services. And the other thing here is that, again, workforce ability to operate comes into play. But as we've come out today and delivered -- yesterday, sorry, we delivered that initial resource and the pit shell, there's plenty more room to grow, of which we've been drilling recently to additionally extend our mineralization near pit and also cover a number of regional targets. So we're continuing to grow our footprint now that we have a really good feel of the opportunity here just with the startup pit, let alone the bigger opportunity, which is that RF 100 pit shell we'll talk about a bit later that we think we can now with the mining lease, with ticking off a number of native title and also the flora and fauna aspects of a project delivery, we're in a pretty good stead to rapidly advance what we're doing. Key parameters. This is really good for the basis of the economics. What are you putting in? What are you putting out? What's your time frame? And really what it sets us up of showing is that the running -- the rate of mine that we've delivered has been based off majority of the contractors' capability in terms of sizing of buckets and equipment, of which you're mining at a rate of over 85 meters vertical on a per annum basis, of which you'll find -- you'll see shortly the total pit depth is only 100 meters. But the key outputs of that is the low strip ratio, we're actually able to mine an in-pit grade of 1.13%, of which we're pulling out 1.07% diluted, which again is a really attractive product grade. And recently, we announced the clarification of the iron of the product, which we clearly see a true iron content of much lower than 1%, which we're looking to explore as well. But the other key part there is just the sheer volume of the DSO quantum that we're able to deliver being 1.2 million tonnes over a 16-month period. And we've gone through and looked at a number of scenarios here, port capacity, trucking capacity can deliver on this. And again, that run rate of 750,000 tonnes per annum equivalent, we think that's a really good sizing for delivery of the project and not only that, but potential to upscale as well. And the one thing here is with these parameters, we've sized these parameters with a smaller pit shell, knowing that the much larger pit shell of over 2.4 million tonnes of economic ore, we can actually go and look at larger equipment, mine it faster, condense that cash flow at a much larger cash flow into a shorter period and deliver much more product if, again, market conditions permitting. And secondly, depending on the scenario we're looking at and the partner we're selecting moving forward. We've covered off on the high level of financials, but it's good to sort of understand where the basis of the financials have come from, the inputs that have pulled out those outputs. The key thing there is we've gone through contracting quotation for all of the services. We've got a really good feel for our cost base. And then the second part is our price assumption, which we put forward, which we put quite a bit of rigor into apologies from a number of aspects, one being DSO material typically doesn't have a traded price. It's been opaque and only been really run when operations are coming into production. So if there was a concentrator coming into production, generally, you'd start mining before the processing plant would turn on and there's the mismatch of timing, so it would send ore just to generate some cash flow instead of leaving it on the stockpile or waiting for the plant to turn on. So it's more of just sell it, get the price that you can get. Really, what we've done is gone back to first principles. We've gone back to go and speak with customers, speak with the market, understand what price linkages are, of which there are 2 clear ones. Obviously, lithium or DSO turns into spodumene concentrate and then that spodumene concentrate then turns into a lithium chemical. So we can see both linkages along that chain, of which we are presenting the lithium carbonate linkage and have done quite a bit of valuation on that. But secondly, there is a spodumene valuation conversion, which we've got a bit of information on as well. And linking that to a lithium carbonate price of $24,500 CIF delivers a DSO CIF price of AUD 430. And so what we've been is presenting, obviously, we're delivering product in CIF, delivering it to China and then getting pricing in China to align with that. But coming back to those metrics as well, turning over $500 -- plus $500 million of revenue, operating cash flow of $260 million. Once we paid back the capital, $237 million in our own pockets within that 16-month period, which obviously generates an incredible $220 million NPV and a 5,000% IRR. So strong economics. And you can see then by that margin that even if there are falls in the market, we have a very healthy margin to see that period as well. May not be of interest to all, but we think it's a good thing to -- for investors to understand and look at is what is the site layout, what is the pit design. There's really -- the top image is pretty critical, in my opinion, for what the greater opportunity is. As you can see the pit outline that we've kind of pulled up there being the 1.26 or 1.2 scenario. And then the red and the yellow and the blue is the resource. So you can quite easily see we really have the ability to extend that. And by the way, this is the smaller pit shell. So there's quite a bit of room there to grow even on what we already know. And the next step is how do we convert more of that resource, apologies -- into a pit shell, of which it's obviously optimizing your cost, looking at scenarios, how you can do that and a function of price as the market moves over time as well. But in terms of an operation, the pit that we're looking at here is 400 meters long, 200 meters wide with a max depth of 100 meters for the main pit. So really simple mining, really shallow mining and hence, how we've been able to deliver a low strip ratio outcome there. And if you look at that smaller pit, which is Potoroo, Rocky, , that's a 20-meter deep pit. So simple operation, again, coming in valuable tonnes near surface, obviously generating a meaning to positive from really strong outcomes there. Simple operation, you can see at the bottom 3D render, you dig it up, trucking over to the ROM pad. You then have the mobile crusher there feeding ore into that mobile crusher. That crusher is then fanning the product. You'll then have trucks coming in, as you can see, picking up that product, turning back and then making their way down to port. So very, very simplistic, but again, that is what this type of operation is in terms of how you would execute it. And as I said, the revenue factor that we've picked up and using for this pit shell is 54 with the RF 100, revenue factor 100 being the 2.4 million tonnes scenario. So it really is a low-risk, rapid or fast-paced opportunity to get into production. With DSO, logistics are a key component. You really need to understand logistics. It's 1/3 -- almost 1/3 of the cost of our operation. And so this is what means ourselves potentially in a stronger position to most others considering is that sealed roads decide from Coolgardie and then there's a direct -- you'd go back up to Coolgardie and then you've got the highway all the way down straight into the port and the storage at the port. Or you can bypass from the south. There's an Nepean road to Higginsville haul road already in place that you could pursue as well as an alternative solution or utilize both as well. So it does position us that there's no roads that need to be built. There's no large-scale permitting that has to follow suit with that. It's just all sort of laid out ahead of us, which again helps us on the OpEx cost timing and timing to market. The key bit now is we've got the economics. We're putting forward our pathway into production within the next 12 months, subject to funding and approvals. But we obviously are very advanced with the approval process and focused on ticking all those off in a very prompt period of time. And the other bit there is we've made mention of it in the last couple of months, but have been having discussions with strategic parties of which offtake and prepayment funding arrangements are the priority and are what we're looking for as a primary source of capital to fund the project. And so obviously, now that we've released that the study, it now is sort of the last penny or the last piece that we've got to go through and work with all the parties and find that right party to move forward with. Some other opportunities we're looking at is ore sorting. We have commenced that ore sorting test work. We did a number of weeks ago, just getting the results back shortly in interpretation. So looking forward to see what those generate. Typically, with ore sorting, it can increase or improve ore that was previously uneconomic, making it economic through the removal of waste or other deleterious elements such as feldspar. And what that really does is it means you can able to lift the grade of what you can deliver out of those zones, which then obviously lifts the value of the product. Alternatively, by removing the waste, you're also removing the material, the cost from moving all that waste material as well. So there really are a lot of good opportunities there to consider both in terms of price capturing upside and obviously, cost reduction. And the other part there is just finalizing all the communition optimization so that we're making sure that we're maximizing our recovery as with crushing and mining as well. And as I mentioned before, we have undertaken some lithium exploration extension drilling and regional target drilling and looking forward to that coming out in the coming months. What we really wanted to touch on is we've come in, as we said, with a conservative base case position of Stage 1, but there are a number of upside opportunities that, one, we can today capture and now converting and looking at how we capture over the next couple of months with our discussions and what we -- our operations. The first is clearly that additional plus 1 million tonnes of indicated material that we haven't included in the study. That's just a no-brainer. We're looking at how we optimize that part and obviously looking at subject to market conditions, the best mine schedule for how you would deliver that bigger mine life, take it out over 3 years and obviously, those economics that follow suit as well. The second part is obviously now do we consider inferred with our continued drilling? Are we converting that inferred to indicated, therefore, converting more from the resource into the pit shell, as well as optimizing our OpEx costs, which again, they can bring in some more material. I mentioned the drilling we've undertaken, really looking forward to that coming out again over the coming month or so. Ore sorting another key part for me that I'm getting pretty excited about to see what those outcomes look like and then therefore, looking at how they affect exactly what we're planning to do here and we can incorporate it from obviously a lot of work that we're doing. And inclusion of ore sorting in a flow sheet is a nominal CapEx amount. But obviously, the economics have to make sense to pursue that. Another key thing is basis of our study is pursuing a route to port. Alternative strategy is -- alternative outcomes could possibly be a domestic ore sale, of which there may be advantages of shorter logistics, therefore, reduction of cost, and obviously, port costs. So in terms of our OpEx structure, circa $50 per tonne of the $210 per tonne OpEx cost that we have is related to port being sea freight and handling costs at the port. So there's quite a bit of opportunity there depending on various scenarios and outcomes that we can -- and are exploring there. And the last part is the tantalum byproduct or credit. We've excluded it from the study, but just important to know that the grades that we have in our ore body are akin to current lithium operation grades in tantalum that they are producing economic concentrates of tantalum and then obviously receiving those credits. So something that we are considering and think that we can explore with various partners over the discussions in the next couple of months. This is just a really good picture to give everyone a visualization of what some low-hanging fruit is again on that pit shell. You can see the yellow outline of the bigger pit shell and the starter pit that we've put forward. Obviously, the ramp is in the north here coming down and the diving to the bottom part of the pit. And then obviously, the resource being the red, the green and the gray, apology, if anyone is color blind, but I'll follow my cursor, on the red, the green and the gray. And just showing you that how we explore and how we grow and convert more of that resource into the pit shell and into our mining plan moving forward. So next steps, as we mentioned, very focused now with working with the strategic partners and finding that commercial outcome and primarily sourcing a nondilutive funding solution here, which is very akin to the lithium industry, which I've gone through a number of times at various companies and projects in my career, but also you would see it more recently also happening in DSO product. Upside ore sorting, metallurgical test work, derisking the project while also trying to capture upside, something we're really excited about. The exploration drilling, again, continuing to grow what we're doing, we think there's continued growth. And then now just finalizing and putting through all the final approvals to meet our FID objective of mid next year. And look, that's it in a nutshell. We're rapidly approaching that time frame. But again, we've laid out a clear pathway on how we're going to execute on this plan and looking forward to hitting these milestones in due course over the coming months. So that's the summary of what I'll be presenting today. And here are just the key points for everyone to review and consider. And also, we've attached all the supplementary information below this, so that is on the ASX announcement presentation that you can go through the breakdown of the CapEx, the OpEx, cash flow, all the further details. I'm happy now to take a minute, open it up to any questions anyone might have. And then following questions, close out the webinar

Yes. So just to tackle on the first question, was really about can you accelerate your mining rate? Can you increase your rate of mine? Absolutely, yes. Again, we have taken, I would call it, a conservative approach and found right-sized equipment to what we want to deliver. And again, sizing our run rate has really been about the route to port. Can we go bigger? Absolutely, yes. Can you mine it faster, mine it deeper quicker? Yes. So that is an alternative scenario. Again, with that bigger pit shell, there is an opportunity then to go through and pursue that as well. So thank you for that question. Yes. On permitting, good question. Really, it is our 2 main pieces to now materially unlocking our next steps is the permitting and the funding, clearly. On the permitting, everyone would have recently seen we've hired an approvals manager, Alan Tandy to join the team. And obviously, a very timely point in our plan. Talk about Alan's experience previously was worked in permitting and approvals at Bald Hill, moving that through to production. And then you've -- he then went to Bellevue and obviously went through their permitting journey, and now they're in operation as a gold producer, for which his most recent role was at Meeka, again, coming at the start of that company's journey and taking that all the way through to its recent success in permitting operations. So really good capability, obviously, across permitting in a plethora of aspects. And in its entire submission the final approvals, which are MDCP, major mining approval, but also specific expertise in lithium and gold, of which obviously, this study is based on lithium and our other assets are in gold. But to talk about the permitting, we've listed them in their entirety of the key permits and the plan moving forward. But really, it comes down to the main one being MDCP, of which we're in the midst of processing -- sorry, drafting, submitting processing that now, and we have a really good feel for the turnaround of those submissions. And if you were to take a step back and look at permitting risk, you really need to see what is the risk around this disturbance, how big is the disturbance or footprint? What is the -- what are the key risks? It's really around water tailings, heritage, of which we are firmly in that lower risk category due to -- there's no processing plant. We're not extracting huge amounts of water. We do have bore hole and water extraction licenses, but that's really for dust suppression, just for management if required. And then you've got flora and fauna, we've done our clearances and checks there. We don't have any tailings. There's just a waste rockpile because we're not retreating the ore and converting it or any rheology or converting it into anything else with water or chemicals or acids. And then the third is really about heritage of which we've undertaken our clearance for mining operation as well. So again, really low-risk profile, which we're pushing ahead and really fast tracking on our side as well. So a good question. It was about pricing. And look, obviously, we've taken a capture of what prices are, and this is probably -- it's a really good articulation or demonstration of what we're talking about here. This is the lithium carbonate price over the last circa 6 years. What you'll see there is the volatility, but also the incredible upside cases that present itself with lithium. The pricing we've captured and assumed in our study is $24,500. So you'll see it almost bang on where the market is today. And as I mentioned, we -- at that pricing, we're coming out with a plus 50% margin. So then you can kind of see to the bottoms of the cycles, we've got coverage within that range. But the leverage that we have is obviously leverage to lithium carbonate price or leverage to the lithium price, spodumene price or pricing is that for every dollar that increases, there's obviously just margin increase over and above that. So it's actually incredible leverage and what we think to be a really good risk-weighted return of -- this is a simple operation to execute simple operation to run and also easy to make changes in conditions as well in a short time frame. We're not talking about delivery over 5 years, 10 years, 20 years. We really see our point coming into the cycle and delivery under that stage in the cycle. Sorry, another good question around the pit shells. Obviously, the key bit that we just touched on with pricing is that the pit shell has been generated, the key input along with the costs that come in. So you've got pricing and then the cost and you work out what's economic. As that pricing, say, were to increase, that would then open up the RF 100 and increase the pit shell. So by virtue of changing no other factor, but by the market moving, you can then open up that pit shell and get even more ore out of that mineral resource. So taking that 2.4 increasing it up to the mineral resource number of 3.1. So that's an important bit to understand for anyone not highly involved in the mining industry is that there's obviously these inputs that produce this outcome. But as particularly price rises, the pit shell materially increases quite rapidly as well. So just linking that to pricing, that's obviously a really big factor there for as well as how it comes into economic ore and expanding that ore as well. And I'll probably touch on this last question. As we've mentioned with the drilling that we've undertaken, the vast amount of our tenure is underexplored for lithium. This kind of trace back to our history. We made the discovery of Big Red in the southern part where my cursor is in 2023 and have really concentrated the drilling of what you can see already captured in the resource and the pit shells today, of which there are regional targets, particularly in the north of Kangaroo Hills and obviously in addition to at Miriam as well, which are largely underexplored. So in addition to what we have, obviously, once we're operating, we've demonstrated what we can deliver here, additional tonnes we can discover, particularly tonnes that are akin to what we're seeing here at Big Red and Potoroo that are from surface, high-grade, thick concepts and shallow dipping, very, very mineable, which is how we've got to our economics. We are continuing to pursue that and obviously have recently drilled looking to extend particularly Potoroo to the North and West and some regional targets, which is, yes, again, pretty exciting, looking forward to that as well. So there's upside to not only just the general resource, but then obviously near mine or near pit capturing to open up the pit shell in addition to all the other upside opportunity there. So with that, we'll close the webinar. Again, we'll place this webinar on our website and on our various distribution platforms. And again, if you've got any follow-up questions, our contact details are on the presentation, happy to take questions, happy to have phone calls and talk anyone through specifics and obviously, the strategy ahead. So with that, we'll end the webinar. Thank you all for your time, and thank you for all the shareholders who have joined on the journey and obviously getting very excited for the journey ahead and look forward to hearing from you all soon.