Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources Life of Mine Plan Conference Call. [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 taking the time to join the call. With me this morning is company CFO, Tim Manners. Today, as you'll be aware, we have released a new life of mine plan for our West Australian gold operations, which includes the newly acquired Penny Gold Project, which lies to the southeast of Mt Magnet. I will run through a brief presentation, which has also recently being lodged on the ASX platform this morning, and that endeavors to capture the key points of the earlier, more detailed release before we open the line for questions. If we skip the corporate summary on that presentation, jump to Slide 4, the headline number of the life of mine plan is 1.45 million ounces, some 34% larger than our last published mine plan this time last year. The chart features Mt Magnet in gold, which is apt; Edna May in blue; and with the Penny Gold Project shown as part of Mt Magnet in a slightly darker shade. Given our recent upgrade to FY 2020 reduction of between 225,000 to 230,000 ounces, we are pleased to report that guidance for FY '21 is 270,000 ounces at the midpoint equaling production growth of almost 20%. This is also an upgrade on the 250,000 ounces we flagged for FY '21 2 weeks ago. Saying that, we do believe our plan is realistic and achievable, and we have been typically conservative with the start date of the Penny Gold Project with product ion commencing late 2022. As far as costs go, over on Slide 5, the 1.45 million ounces will be delivered at an average of between AUD 1,250 and AUD 1,350, marginally higher than last year's plan. We also provided estimates on upfront capital and exploration expenditures, giving the market the sort of visibility that not many of our peers can boast. Slide 6 demonstrates that the plan is mainly made up of all reserves and indicated resources, with just 12% only inferred resources, which increases as you roll through the year as one would expect to see. Slide 7 is the most telling in the pack, in my opinion, the June '20 plan versus the June '19 plan. We're demonstrating increased production for longer with significantly more ounces even after producing a record in the current year as they are not counted in the 1.45 million. The 34% growth comes primarily from the Eridanus open pit and underground along with the Penny Gold Project, not surprisingly. At this point, I'd like to take the opportunity to thank the team for all the hard work in putting this plan together, whilst at the same time for breaking production records of our production center. Before I go into Penny and Eridanus, it is worth mentioning in the next 2 slides, I'll skip over but the headline. Our -- at Mt Magnet, keeps on delivering, simple as that; and at Edna May, the parts are coming together, leading to significantly higher production starting next year. If we move to the Penny Gold Project on Slide 11, we are moving as quickly as possible with this project. Acquisition on less than 5 months, pre-feasibility study completed in less than 3 months. We recognize this is a high-grade project that needs to be brought on and online as soon as possible. Our work has realized slightly lower tonnages in terms of reserves and resources but higher grades for similar ounces to our predecessors. But importantly, drilling at both Penny North, Penny West and also further to the north will recommence in July. Over on Slide 12, we can see the PFS results with initial production of 230,000 ounces at an all-in sustaining cost of $703 an ounce from Penny confirming our expectations that the project would be one of Australia's highest-grade, lowest-cost gold mine. Development of Penny will require only a modest CapEx of $23.5 million, as I stated earlier. And similar with most Ramelius projects, this project will be developed on an as soon as possible basis with the expectation that first production will occur in late '22. However, the operations team will be doing their best to bring that time line forward. And if they are successful, we would expect it to have a positive impact in '22 on both production and unit costs. Over to Eridanus. Along with Penny, the other key driver behind the increase in the production profile over on Slide 14. Back at the end of April, we detailed a significantly larger open pit development that will take place at Eridanus and has increased the mine life at Mt Magnet out beyond 5 years. And this was carried out off the back of the success we had in the Stage 1 pit. Over on Slide 15. The new LOM includes preliminary scoping study results on a proposed bulk underground mining operations starting in FY 2024 beneath the planned Eridanus pit. We expect to finalize a new model for Eridanus pits based on the high-grade veins and remodeling of the Eridanus pits resource in the September quarter. And this will be used as the basis for an updated scoping study that will focus on the potential to target potentially higher grade portions of the ore body that would deliver lower cost ounces into subsequent mine plan. And finally, on Slide 17, there are a number of studies already underway or planned over the next 12 months that we expect to ultimately lead to a longer life of mine with higher conversion of resources, continuing the trend that has been established over recent years. These include a number of underground studies at Mt Magnet as well as a cost-benefit analysis on expanding the capacity of the Mt Magnet processing facility, largely using decommissioned infrastructure -- existing decommissioned infrastructure. Down at Edna May, we are looking at a larger underground operation there also as well as dusting off the stage 3 open pit, which has the potential to increase overall mine life out to approximately 10 years at Edna May. Thank you. We'll now open the line for questions, please.

[Operator Instructions] Your first question comes from Andrew Hines with Shaw and Partners.

I have a couple of questions. First of all, just looking at the cost profile going forward, the costs go up for the next couple of years and then come down quite sharply in year 3 and year 4 of the plan. I presume that's to do with the tonnes coming from Penny West. But just talk through some of the key drivers behind, a, the rising costs and then the falling costs at year 3 and 4?

Andrew, it's Tim here. I'll jump in, if I can. Essentially, the trend, as you see, is largely just, I suppose, a math thing. In the next 2 years, we have a larger contribution from the Edna May source -- or production center than that at Mt Magnet and then what we've had in certainly in the current financial year. So we know Edna May is a slightly higher cost operation. So we just simply have more ounces from a higher cost operation, which just lifts the average a little bit higher. And that's particularly evident in FY '22 where Mt Magnet is at a low point essentially. And you're right, going forward, the fall in cost is attributable largely to Penny. As Mark said, Penny has a life of mine all-in sustaining cost of essentially $700 an ounce, and that impact is obviously very clear. And I guess the other thing, as Mark mentioned, whilst we have, we think, a very deliverable time frame and the development of Penny, we'll be pushing pretty hard to bring that forward, simply the financial impact and the production impact is obviously very clear. And anything we can do to bring it forward will have a big impact on FY '22. If you -- one thing I will note, if you do remove the plus -- the FY '26 to '28, which is a combination of essentially 2.5 years' worth of low-grade stockpile, the 5-year profile is 1.3 million ounces at less than $1,200 an ounce. So overall, yes, the costs have gone up. But when you combine those first 5 years, it's still a very competitive cost profile.

Yes, absolutely. And the second question, just on the exploration budget numbers, which are up a little bit. So you're spending a little bit more on exploration. Can you talk us through what that's focused on? Is that on the existing resource that we know? Or are you doing any sort of greenfield work around the region?

Andrew, it's largely brownfields. And the reason for the increase is primarily the Penny project. We recognize the exploration potential there, and we want to, over the next 12 months, really hit that quite hard but not forgetting exploration around Mt Magnet and Edna May. There's a very small amount of greenfields associated with our project in Nevada. But it would be less than $0.5 million out of the $25 million to $30 million that we flagged.

Great. And just a final question for me then on the forward plans, it's interesting to see that you're rethinking about the big open pit at Edna May, which maybe you can just give us a bit of a history lesson on what was the decision point a couple of years ago and that why the other way? And what's changed now that might make that a more sensible approach?

I suppose if you wind the clock back to the decision point between underground as we obviously did versus the open pit, we're looking at probably a $1,600 gold price. We're looking at a cutback, which goes into 3 figures. Whilst it did give us a 7-year life with a plus 500,000-ounce production profile at the time, given where we were in our cycle and our balance sheet, it was a higher risk option at a much lower gold price. And I suppose, gold price now -- the need to, I suppose, extend mine life and having a resource that's sitting there for a higher gold price begs the question, is that day coming? So we took the low-CapEx, low-risk option 2 years ago, but it's time for a revisit. That's pretty much the history in a nutshell.

Your next question comes from Hugh Stackpool with Petra Capital.

Look, just in regards to possible mine life extensions, I think there's good details about Eridanus and Penny, and you've outlined some options at Mt Magnet. Are any of those that kind of screen higher in the priority? Obviously, the 470,000 ounces of resources and that plant expansion, are the things that you'd kind of draw out as being at the top of that pile, so to speak?

Yes, definitely. The underground potential at Mt Magnet -- when we started back in 2012, Mt Magnet was mined by Ramelius' open pit only. And we've obviously expanded that once we had -- on a solid balance sheet, we had a production -- some production credibility. And we've gone into the underground at Shannon and Hill 60, but it's fair to say we're going to look very seriously at some of these deeper resources now that we've got underground and open pit presence on-site and capable operating teams. So you're right, that's probably at the top of the list. And then though Edna May has got a time potential as well, but Mt Magnet underground and Mt Magnet potential mill expansion are probably at the top.

Okay. Yes, makes sense. And then just noting the recovery at the Penny project at 92% despite some pretty solid grades there. Is there kind of a reason for that? And is there potential as more studies are done that, that could improve? Or is that kind of what we should be thinking?

That's the number at the moment. When we go through our full feasibility over the next 3 months, we will bring in additional met test work. We'll also look, obviously, very closely at our ramp-up profile. There is effectively a year of open pit mining to establish a box cut and then waste development across to the ore body, which when you add on almost a year of approvals and site set up, establishing camps, the air strips, et cetera, there's the best part of 2 years. So we'll look at what we can do there. So we'll look at every aspect of that. But at the moment, again, being slightly conservative, 92% is the number. I'd like to think that we could get to 95% which is potentially people's expectations, but the number at the moment is 92%. We need more test work effectively to have a population you can have ultimate confidence in.

Your next question comes from Paul Kaner with RBC.

Just a quick couple of questions from me. Firstly, that capital spend on Slide 5 of your presentation. Is that purely growth CapEx? Or is there any sustaining element in there?

Paul, it's Tim here. No, sustaining CapEx goes through the all-in sustaining line. And the CapEx that is shown is essentially that is growth capital. It has increased since last year's life of mine plan. But I guess when you add new projects like Penny, Eridanus underground and even the cutbacks of the existing Eridanus pit, you're going to spend more capital, and we've got some 400,000 ounces more for it. And there are the 3 main areas where capital has increased, and that's essentially, yes, where the numbers come from.

Yes, great. No, that's what I thought. And then just quickly, secondly, on the Penny Gold Project. I mean, are there any mineralogical differences there that requires any mill modifications/tweaks to the checkers processing plant?

Not that we believe. Very high gravity recovery to their averages of around 50% to 60%. So quite a nuggety ore body. But at the moment, we believe that we can put that through the process plant with really no change. It's actually quite a softer -- it's softer than the material we put through at Mt Magnet. So it will naturally grind a bit finer anyway. So no, we don't think there'll be any requirement to change anything at Mt Magnet. Looking forward to that.

[Operator Instructions] Your next question comes from Brett McKay with Petra Capital.

Great result. Look, I just wanted to get an idea of the strategy for rolling this plan forward. You've obviously done it a few times now, and each time, it's got just better and better. Should we expect to see another sort of life of mine plan update in 12 months' time? Or do you think you'll bed down what you've got and look to update as and when appropriate?

I'd like to say as and when appropriate, even though the market is probably becoming to -- starting to expect that every 12 months, I probably made a ride for my own back there. But I think when you have projects -- new projects come in, it makes sense. So it may not be every June and July, depends on when things happen. But I like keeping the market informed on what your life of mine plan approximately every 12 months. I don't think it's a bad idea.

Yes, I agree. And I mean the amount of granularity you provide is second to none. So I think you should be applauded for that.

Thank you.

Thank you.

[Operator Instructions] Your next question comes from [ Jack ], a private investor.

Excellent work. Just wondering, now you've got 6, 7 years of ore to chew on, what are you thinking as far as more mergers and acquisitions next 12 months, because you have had a pretty busy couple of years?

Tim, do you want to answer that one? No, I'll answer that one. Look, we've long targeted -- along the last sort of 3, 4 years, we've targeted 300,000-ounce-plus production profile. You can see the profile with 2 assets means that we don't quite get there. So I suppose you can draw your own conclusions that we would be looking at a third asset. But given what's happened over the last 2 years, especially, we don't feel pressured or feel in a hurry to make that happen. We recognize that the third asset has to be at least as good as what we currently have. Ideally, an upgrade on what we have, which means long-life, low-cost quality assets. So we'll be patient when it comes to any additional assets into the portfolio.

There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you.