Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. [Audio Gap] Lumi platform. This allows shareholders, proxies and guests to attend the meeting personally and virtually. All attendees can watch a live webcast of the meeting. And by using the Lumi platform, shareholders and proxies have the ability to ask questions and submit votes. I declare a quorum is present. No video recording -- no video or recording of this meeting has been approved or authorized. Please ensure that your mobile lines are silent or switch it off. I would like to introduce the rest of your Ramelius' Board of Directors: Natalia Streltsova, David Southam and Mark Zeptner. I trust that all attendees, including shareholders and persons present by proxy, have registered their attendance. Only attendees holding green or yellow cards are permitted to ask questions. For those attending online, questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions online from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on one topic, amalgamated together. It gives me great pleasure to address the meeting in my capacity as acting Chair following the retirement of Kevin Lines at the end of September. We will pay tribute Kevin and the tremendous service he has given shortly. But first, I'd like to take you -- I'd like to touch on the financial and operating performance of your company, which I'm sure you'll agree has been very pleasing indeed. For the financial year ended 30 June 2020, Ramelius reported net profit before tax of $149 million; net profit after tax of $113 million; gold sales of 228,000 ounces, generating revenue of $460 million; and cash and gold net of debt at 30 June stood at $161 million. Each of these results was a record for Ramelius, reflecting excellent underlying operational performance and disciplined financial management across our multiple mining centers and the Mt Magnet and Edna May production hubs. Such achievements are all or more meritorious considering the uncertainty presented throughout this year by the COVID-19 pandemic. I must applaud all in our team, particularly those on site, for the efforts in ensuring the business has been able to continue safely and largely unaffected despite the challenges everyone has had to work through. After putting in place a new dividend policy at the annual meeting 2 years ago and declaring a $0.01 per share fully franked dividend last year, our performance this year enabled us to double the fully franked payout to $0.02 per share. Being able to reward shareholders in this way is a point of pride and something we aim to keep doing. Balanced against returning capital to shareholders, we have kept a strong focus on growth, both through investment in exploration and continuing to move on sensible, value-accretive acquisition opportunities. The takeover of Spectrum Metals, launched and completed in the second half of the financial year, gave us ownership of the Penny project near Youanmi here in WA, one of the highest grade underground gold deposits in Australia. The feasibility study on Penny, which was handed down earlier this month, demonstrated just how financially robust the project will be. Based on the outcomes of the study, the Board has approved its development, while first production anticipated late in the June quarter next year. In terms of exploration, Ramelius invested almost $20 million across its portfolio during the financial year. The investment, combined with the addition of Penny, translated into a 15% increase in mineral resources and a 32% increase in ore reserves for the year after accounting for mining depletion. Last year, in handing down our life of mine plan, we passed the 1 million-ounce milestone for the first time. This year, it pleases me to say we have built on that significantly again. The life of mine plan handed down at the end of June detailed production of 1.5 million ounces primarily across the years to 2026. This new life of mine plan, predominantly on ore reserves and indicated resources, will underpin average annual production of 250,000 to 270,000 ounces at an all-in sustaining cost of $1,250 to $1,350 per ounce over that 6-year period. There are multiple studies underway, including on the expansion of the Mt Magnet mill and assessing the option of bulk underground mining at Edna May, that have the potential to further increase the production profile. While the company has expanded this exploration budget to the year to $25 million to $30 million, we also retained the balance sheet capacity to pursue additional acquisitions should they make sense and improve the quality of our asset base. Over the course of the financial year just gone, Ramelius benefited from rising gold price and continued to adjust its hedge book accordingly. That is, we have reduced the level of hedging cover gradually and not replacing 100% of the contracts as they mature. It can be a balancing act, ensuring a suitable level of downside protection through hedging and not overly limiting exposure to future upside in the gold price. And it's something we constantly have under review. Pleasingly, the production and margin growth that the Board has overseen in recent years is being increasingly appreciated by investors. From July 1, 2019 to June 30, 2020, the company's share price increased 176% from $0.72 to $1.99, while the market capitalization increased 236% to $1.6 billion. Subsequent to year-end and following the September quarter rebalance of the S&P/ASX index, Ramelius was, for the first time, included in the S&P/ASX200, a particularly important event to the company that strengthened our appeal with the broader investment community. Further recognition for the company came just last month when Ramelius was named Digger of the Year at the 2020 Diggers and Dealers Conference in Kalgoorlie. In my opinion, this was just reward for hard work and dedication to the cause demonstrated by a team led by Mark Zeptner and supported by all of our employees and contractors. Thank you all for your efforts and well done. It's been quite a journey for the company since the humble beginnings on the ASX in 2003 and bringing the Wattle Dam gold mine into production in 2006. Kevin Lines joined during those Wattle Dam days and has spent 12 years as a valued member of the Board and has also played an absolutely integral role in getting us to where we are today. Critically, he took on the position of Chairman in 2018 upon the passing of our great friend, Bob Kennedy. And it's with no small sense of sadness that we say farewell to Kevin today. It was a great pleasure to work with Kevin as Ramelius grew, and I know you will all join me in thanking Kevin for his services to the company and wishing him and his wife, Heather, all the very best in retirement. I look forward to welcoming a new Chairman once the search process has been concluded, and I can continue to serve alongside my fellow directors David, Natalia and Mark as Managing Director. Finally, on behalf of the Board, I would like to thank you, our shareholders, for your ongoing support and loyalty. Another prosperous year beckons for Ramelius. I will now call on Mark Zeptner to provide a presentation on the company's activities during the past year.

Thank you, Mike. It certainly has been a landmark year for the company, made possible by the state government and the general community who have been very supportive of the mining industry since the COVID pandemic hit our shores back in March. This morning, as is customary, I will focus on FY 2020 and its highlights before taking you through the current status of the asset portfolio and then finishing with the reasons why Ramelius remains a sound investment option amongst the current market volatility. I will be making some forward-looking statements, but I will refer you to our website if you wish to read these in their entirety. Before I get to the FY 2020 highlights, I'll briefly touch on the corporate summary. The balance sheet is strong with net cash of $205 million as at the end of September. And the institutional side of the register is now up over 60% and growing, with a healthy group of analysts now covering the stock. If you are chasing research on the company, a number of their reports are either posted or referenced on our website. In terms of Board and management, we are all sad to see Kevin Lines go. But we do retain a core group of directors and employees that are committed to the future success of the company. No matter which way you look at it, FY 2020 was an exceptional year for the company. We had record production, which, in turn, translated into a record net profit after tax of $113.4 million, up more than 5x the previous year. Our share price performance, as Mike mentioned, was best-in-class compared to a very well-respected peer group, up some 176%. We doubled our fully franked dividend, resulting in a $16 million payout last month. And finally, we recently entered the S&P/ASX200 index, which arguably gives Ramelius a wider appeal across the generalist investment market. And in preparation for ASX200, we have ramped up the focus on safety and ESG. We will commence reporting our key safety stats shortly. But I can tell you whilst our total reportable injury frequency rate, or TRIFR as it's called, it's higher than we would like at around 15 or 16. It is on a downward trend, which is encouraging. If I touch on our 4 key ESG focus areas. Our business is strong, and we have added a Risk and Sustainability Committee at Board level in the last 12 months. We are committed to our people and especially in the COVID-19 environment are becoming even more critical to success. We endeavor to be an integral part of our communities in which we operate. We contribute both directly and indirectly to the prosperity of those communities. And finally, we are mindful of the need to minimize the impact on our environment, and we have a very good example at Greenfinch down at Edna May to show you as evidence of that. So in 2020, we delivered excellent results in virtually all key areas. Reserves and resources grew, with the reserve figure comfortably over 1 million ounces for the first time, which is particularly pleasing. Gold production was up 17% on 2019, along with the gold price received being up by a similar amount to over $2,000 an ounce, again, for the first time. The reduction in all-in sustaining costs, albeit by only 2% to $1,164, is a very satisfying result and continues a string of annual results below AUD 1,200 an ounce, putting Ramelius into a space where its margins are as good as anyone's. Going to the financials a little further. The company produced another strong set of numbers. I say another because 2020 is the sixth consecutive year of profits and a record one at that. I will point out that our EBITDA margin at 56% was one of the best in the Aussie gold space. And our earnings per share of $0.164 was a significant step-up from the year prior, resulting in a doubling of the dividend, as flagged earlier. As the second subtitle says, we have strengthened our balance sheet with all key metrics up between 70% and 100%, notwithstanding we have a modest corporate facility in place, which was drawn down at the start of the COVID pandemic when credit markets were particularly nervous. Now Ramelius continues to build on its record of being a dividend payer, following up last year's inaugural dividend with another fully franked payment last month. The chart shows that we are indeed the smallest when measured by enterprise value, or EV, of all Aussie gold dividend payers. But one does sense that dividends are becoming expected from today's gold producers. I've also included a simple summary of our dividend policy, for those who are not aware, which has 2 hurdles: $50 million of cash and a 5-year mine plan; and then payments range from a minimum of $0.01 per share, up to a maximum of 30% of free cash flow at Board discretion. Hopefully, this is relatively easy to understand and provides excellent future visibility. In the last few years, our business development arm has certainly been open for business, adding several value-accretive projects, whether by a straight asset acquisition or some form of corporate action. 2020 was no different with the acquisition of Spectrum Metals, owner of the Penny project, which is proximal to Mt Magnet with both near-term production and exploration potential. Penny has added 300,000 ounces of high-grade material to resources and 230,000 ounces to reserves and, along with Edna May, Marda and Tampia, makes it the fourth asset acquired in the last 3 years. Now let's have a look at the asset locations and outlook. As you most likely are aware, we have 2 production centers: At Mt Magnet to the Northeast and Edna May halfway between Perth and Kalgoorlie. Mt Magnet has been in Ramelius' own production since 2012 and includes the Vivien underground project some 300 kilometers to the East, which has itself been in production since 2015 with the ore hauled across, as indicated by the arrow. Edna May was acquired in late 2017 and the Marda and Tampia projects being acquired principally during 2019. Solid arrows mean trucking is underway, and dotted lines mean that we plan to. Resources and reserves are roughly split 50-50 between the 2 production centers, a bit more resource at Mt Magnet with slightly more reserve at Edna May. We do refer to Ramelius as a growth story. And it's primarily due to production growth upon which this claim is based, seen here in the yellow bars. 21.5% average production growth achieved over a 6-year time frame with a further 17% expected this year. Excellent cost management over the same period, shown by the orange line, where our all-in sustaining cost has pretty much stayed in a range between $1,150 and $1,200 an ounce, has meant significantly expanded margins over the period, especially in the last couple of years. All things being equal, and this doesn't include $100 an ounce movements on a nightly basis, as you've seen in recent times, means that this is expected to continue in FY '21. Growth in production has been accompanied by growth in resources and reserves, with resources represented by the columns and the reserves by the black line. Now this growth, which has accelerated in recent years, has been driven by both exploration and by acquisition. And the split between the 2 is closer to 50-50 than some would think. These resources and reserves form the foundation of the current mine plan, which leads to a reliable high confidence result. But we are making a concerted effort this year to increase the conversion of resources from current levels, especially at the large endowment areas of Mt Magnet and Edna May. In terms of the mine plan, yellow represents the Mt Magnet production center. Orange represents the key Penny project, which is linked to Mt Magnet, and blue represents Edna May. We saw 34% growth in the mine plan compared to the one published a year earlier with production levels now above the 250,000 ounce per annum level. The main contributors to this increase are Eridanus, both open pit and underground, and the newly acquired Penny project. In FY '22, we see the opportunity to grow production from Mt Magnet, where you do see a dip, either by extension of the Vivien mine or earlier-than-planned commencement of the Penny project, either of which would obviously push us closer to our targeted 300,000 ounce per annum level. Now some brief project updates. At Penny, we are moving as quickly as humanly possible to bring one of Australia's highest grade gold mines into production. We completed the takeover in 5 months, resulting in a 14- to 15-gram resource reserve, which is primarily related to the Penny North project, on the right on that section. Magenta blocks, by the way, represent plus 20 grams per tonne. Completion of the feasibility study and confirmation by the Board -- of commencement by the Board has resulted in bringing forward some of the CapEx related to Penny, as you'll see in the table, even though it's a little hard to see. There's about $16 million associated that's being brought forward from FY '22 into '21 associated with Penny. The financial metrics are compelling, and this project will be a serious cash flow generator from very early on. Importantly, we have recommenced exploration drilling at Penny, looking for extensions to both ore bodies and for repetitions to the north. At Eridanus, the Stage 2 pit is well and truly underway, as you can see on the photo, and this photo is probably about a month old. Eridanus is already 0.5 million-ounce resource. And after the success of the Stage 1 pit in the center, it was decided in June to commence the Stage 2 pit, which essentially encircles Stage 1 and pushes to a final depth of 230 meters below surface. Whilst on this case we do not show a long or a cross section, the ore body is tending to increase in width and grade with depth. And additional deeper diamond drilling is underway to grow the already meaningful resource base. We can see Eridanus being a baseload feed source for many years to come. Now at Edna May, we have significantly increased the resource to over 1 million ounces following an underground diamond drilling program and an update to the resource model. The indicated resource now extends to 480 meters below surface with the inferred resource extending another 60 meters below that, well below the underground plan development you can see on the section. Now we progressed our assessment of the bulk underground option as compared to our current high-grade lode-only method. But we feel that we do need to consider these options, along with the potential Stage 3 pit, due to the obvious interaction that would be encountered at some point, with study completion targeted by the end of the year. Obviously, the price here is quite large. Now at Greenfinch at Edna May also. Things are progressing very nicely with environmental impacts kept to a minimum, as I pointed out earlier, and the ore body also reconciling very well against our resource model. In the photo, you can see the original Stage 2 open pit in the background and the processing plant also very close by, top left. Now whilst the ore body extensions at Greenfinch will need to be assessed, the open pit itself may very well provide a backfill option for a Stage 3 pit and can also effectively reclaim that land for rehabilitation. So let's see how the studies pan out. To further south to Tampia, where we've commenced longer lead capital items ahead of planned production next year. At Edna May, where the ore will be processed, the vibrating screen has been installed and is up and running, and the leach thickener work has commenced with installation scheduled for February next year. On approvals, negotiations are advancing with the landowners. And we are very well advanced with our statutory approvals processes. Work will commence on road upgrades while Shires agreement's in place, and there's a whole raft of work going on and around the mine camp just into the north of the town of Narembeen. And ore haulage and mining contracts are in the process of being tendered. Finally, on the project updates. Marda is in full swing, some 170 kilometers north of the Edna May plant, with mining of the 4 pits shown in the photo having commenced late last year. Mining has focused on what's called the Marda central area to date. But there's also a sizable resource at Marda north of around 100,000 ounces that we're in the process of converting a percentage of those to reserves. The result of mining starting several months ahead of haulage means that we've built a stockpile of over 300,000 tonnes, which represents about 6 months at our max run rate of approximately 60,000 tonnes hauled per month. The combination of Marda and Greenfinch, along with the Edna May underground, has led to Edna May once again producing at full capacity, as was shown in the quarter 1 performance. And so whilst Ramelius has had an outstanding FY '20 year, what makes us still a great investment? Well, it's things like this, further growth through conversion of existing resources. We're currently working on open pit, underground and mill studies at Mt Magnet with various completion dates through the financial year. Also as discussed, at Edna May, we're looking at how best to mine that ore body. The nature of the ore body itself being a large lower grade [ nose ] with high-grade lodes within lends itself to various options, and we are running the numbers objectively to deliver the best return. Speaking of returns, we have a track record of generating excellent returns from our inorganic or our M&A growth projects right back to the early days of the company. By a project here, we show the purchase price in blue, cash generated in yellow and the net cash being the red dot. We have a nice trend established here. Yes, it increased investments over time, but ideally for larger and larger returns. Vivien and Edna May and Marda are all in production. We remain confident of generating excellent returns consistent with that trend at our 2 newest projects, Tampia and Penny, which are effectively in the development phase. Our balance sheet remains such that allows us to consider opportunities as and when they arise. Now to summarize with our FY 2021 focus because you're only as good as your last year, or your last quarter in this game. We will continue to strive for operational excellence by achieving guidance, managing costs and improving our safety record as well as delivering on our organic growth projects. We are committed -- we have committed significant dollars to exploration and continue to believe that the ground we hold will deliver the goods. We're always on the lookout for accretive acquisitions, the type that would deliver a step-change for the company. And we believe that we are well placed to capitalize on the right opportunity. We continue to manage our capital in a disciplined manner and retain a strong balance sheet while recognize that dividends are an integral part of any shareholder-focused company. And lastly, we'll continue to provide regular updates to the market on what is expected to be quite a busy program of news flow. Finally, I was honored to accept the Digger of the Year award at the annual Diggers and Dealers Conference in Kalgoorlie last month on behalf of Ramelius. It is great recognition in what has been the culmination of a number of years of hard work by the team. But it doesn't end there. We always look forward to bigger and better things in the future. Thank you. I'm happy to take any questions related to the presentation. If not, I'll hand back to Mike.

Thanks, Mark, for that terrific presentation. We now move to the formal part of the meeting, ladies and gentlemen. The Notice of Meeting dated 23 October 2020 were sent to all shareholders. I take the Notice of Meeting as being read. Thank you. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, for those attending online, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit submit or enter, as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time. I will give you a warning before I move to close the meeting. For those of you here at the Fraser Suites, I will deal with the poll procedures at the end of discussions on the items of business. 362 proxies have been received, representing 455,321,337 shares. A further breakdown of the proxies received for each resolution will be detailed prior to the voting for each resolution. The first item of business is to receive and consider the financial statement and reports of the directors and the auditors for the year ended 30 June 2020. They were sent to shareholders and are now before the meeting for discussion. Are there any questions on the financial statements and reports for management or the company's auditors? Noting if there are any questions for the auditor, Mr. David Newman of Deloitte is present to answer them. Are there any questions? The first resolution to be considered today is the adoption of the remuneration report and is set out on the slide behind me. In accordance with Section 250R of the Corporations Act 2001, the company submits to shareholders for consideration and adoption by way of a nonbinding resolution its remuneration report for the year ended 30 June 2020. The remuneration report is a distinct section of the directors' report that deals with the remuneration of directors and key management personnel of the company. The remuneration report was included on Pages 70 to 79 of the annual report and is now before the meeting for adoption. The number of proxies received for this resolution are shown up on the screen. I now move resolution 1, as set out in the Notice of Meeting, that for the purposes of Section 250R(2) of the Corporations Act and for all other purposes, the company adopts the annual remuneration report as set out in the directors' report for the financial year ended 30 June 2020. Are there any questions on this motion?

Very difficult for us to make this assessment, and you don't disclose all your conduct, specifically your misconduct. As we discussed last year at this AGM...

Sorry. Just grab a microphone?

Yes. Yes. Sorry. Difficult for us to make an assessment of the remuneration report because as we discussed last year, I don't believe you disclosed all -- or you disclosed your misconduct in relation to the case that we talked about last year. My specific question is, can you confirm for me that when you took that decision not to disclose to all the members, was that -- do you -- that you, in your own mind, made that decision in good faith and for a proper purpose?

Is this in relation to the remuneration resolution?

Yes, the conduct of the Board.

I believe the Board conducts itself in an exemplary fashion at all times. This is -- Greg, you came to the AGM last year with the matter. It's been to the courts. It was -- and it went through a court process. And that process was dealt with by the courts last year.

Yes. And you must know then that...

We have -- we had -- you asked that same question last year, and it was answered on the basis of materiality.

So can I gather from your answer that you're not prepared to say that you made the decision in good faith and for a proper purpose?

We are comfortable with our disclosures to the market.

Yes. So you won't make that...

We are comfortable with our disclosures to the market.

[indiscernible] actions so far.

I'm here to as questions not to make -- answer questions, not make declarations.

So your answer is that you believe you've made in good faith -- you made this decision in good faith and for a proper purpose.

I believe we've kept the markets fully informed, Greg, and disclosed all our obligations to the Board of Directors.

In court, they've been deemed to have been of breach of the Listing Rules.

That -- you're now straying into topics of your opinion/supposition. I'm happy to have this conversation with you off-line, outside the meeting. But as far as I'm concerned, the matter was dealt with by the courts last year. And we answered your question last year, in -- that it was dealt with in terms of materiality.

All I'm saying is that your remuneration reports may well be struck down by court in the next 12 months and that we may all be back here.

Greg, I'm -- my modus operandi in life is to keep most of the people happy most of the time. We have a situation where if you look at the proxies on the screen, so the resolutions that have gone up, in my conversations with shareholders over the last 12 months, most of -- the overwhelming majority of people are not happy -- Greg, are happy. Greg, you are not happy. If you're not happy, I'm sorry. But there's a lot of people whose time...

My judgment is based on what everyone thinks. Or what do you think?