Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources Half Year Results Briefing Teleconference. [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 dial in to our half year results call. As usual, joining me this morning is Chief Financial Officer, Tim Manners. In terms of the order of events for the call, we will refer to the half year results presentation released this morning, amongst other documents. I'll start with an overview of the highlights, and then Tim will take over to delve into the numbers in a bit more detail. And after the presentation, we will open the line for questions. So if we turn to Slide #3 of the presentation. The half year to 31 December was another very strong period for the company driven by better-than-forecast production of 144,240 ounces at an all-in sustaining cost at the lower end of the guidance range at $1,261 an ounce. Essentially, you'll find that Ramelius has set new records pretty much across the board with many of the key financial metrics comparing very favorably with our ASX peers. Net profit after tax for the half was a record $81.3 million, an increase of 297% on the previous corresponding period, whilst we finished the half with net cash and gold of $213.4 million, a 32% increase from the end of financial year 2020. The improvement in net cash and gold came despite significant investment in capital projects and exploration plus the $16 million payment of a fully franked $0.02 dividend and $14 million stamp duty payment that fell due on the Spectrum, Explaurum and Marda acquisitions. It is fair to say we have set ourselves up very well for another excellent full year results. As you would have seen, there were no dividends recommended on the back of the half year result. But in keeping with recent practice, we will assess dividends at the end of the full year results for FY 2021. During the half, we completed the Penny feasibility study with the project delivering a pretax NPV of $301 million, [ using ] a 5% discount at a AUD 2,300 gold price, giving the Board confidence to proceed with its development. Mineral resources at Edna May were upgraded and [ topped ] 1 million ounces with a pre-feasibility study on Stage 3 open pit moving towards completion by the end of the current financial year. The Eridanus Deeps scoping study is scheduled for completion at around the same time after being pushed back to allow for the consideration of potential upside from adjacent targets and alternative portal positions that may result from the development of deposits such as Orion. Development commenced at Tampia where last month, we bought out our minority partner as well as purchasing the farmland on which the project is situated. Highlights on the corporate side during the half included the company's admission to the ASX 200 and the appointment of Bob Vassie as Non-Executive Chair. Given that it was announced on Christmas Eve, Bob's appointment didn't meet with a great deal of fanfare. But I can assure you, we are very pleased to have a director of his caliber on the Board. On that note, I will now pass over to Tim.

Thank you, Mark, and thank you all again for joining us for the presentation of Ramelius' financial results for the half year ended 31 December 2020. As most will recall, we finished the second half of FY '20 very strongly, and I'm pleased to be able to sit here and report that the strength of the business continued into the first half of the FY '21 financial year with Ramelius posting another set of record fiscal and financial results. As Mark noted, both our gold production and gold sales were up markedly over the same period last year. Coupled with the gold price being stronger, the increased gold sales led to some spectacular financial results when compared to the prior corresponding period as Slide 5 shows. Our sales revenue more than doubled to $342 million. Our EBITDA nearly tripled to $193 million, and our NPAT was just shy of a fourfold increase to $81.3 million. Pleasingly, our EBITDA margin, which provides an indication of the amount of sales revenue we managed to retain as operating cash flow, was a record 56.3%. This even beat FY '20 result of 55.6%, which was at the time an industry-leading measure. The cash from operations was up 196% to $161 million. After investment into both sustaining and growth capital projects, our net mine cash flow increased to $84.6 million. And we finished the year, as Mark said, with $213 million in cash and gold -- in net cash and gold primed for the second half of this year. Lastly, our earnings per share for the 6 months was $0.101 per share. Doubling this gives you a notional full year EPS of $0.201 per share, meaning that at present, RMS is trading at less than 7.5x earnings, which is way below our peers' average of 21x earnings. Moving to Slide 6. The waterfall chart on Slide 6 explains, at its most basic level, what has driven the earnings before interest and tax from $30.5 million in H1 2019 to $118.3 million this reporting period. As mentioned, at its basic level, we produced and sold more gold, and we did so at a much better average price. We have a slide coming up which shows how consistent our cost profiles have been. So this slide is largely a reflection on price and the margin achieved from the higher sales volume. The main driver behind the increased volume was head grade at Mt Magnet through a higher proportion of underground feed in the blend and a 6-month period from Edna May, which was at full capacity with ore from Greenfinch, Marda and the Edna May underground. The higher price was achieved from simply a higher spot price environment coupled with the settlement of hedge contracts that had a higher average price. On the subject of hedging, at the end of December, our hedge book totaled 229,750 ounces at an average price of $2,288. Moving to Slide 7. I mentioned earlier that our costs have been very consistent over the 6 months results period. In fact, they've been incredibly consistent over the past 6.5 years, varying less than 4% over that time. With the increasing price and the increasing production, our margins are improving year-on-year. The margin over all-in sustaining costs has risen from 20% to 42%. And if we meet guidance for the FY '21 year, then this will improve even further. Our teams on site have a commitment to safe and responsible cost control and a clear focus on maximizing cash flow. On Slide 8, we shift to cash flow, which some would argue is the only metric that really counts. One of the key and obvious takeaways from this slide is that the operation has generated a substantial amount of cash. The gold sales revenue was $149 million more than the sustaining production cost of the business, and that was just [ only ] for the 6-monthly period. Some of this surplus was reinvested in the future growth of the company, like project development and exploration activities and as Mark mentioned, into the trailing M&A transaction costs, such as stamp duty for Penny and Tampia, which is $14.3 million for the 6-monthly period. And the other large item was, of course, the $0.02 fully franked dividend paid to shareholders of $16.1 million in October. The increase in net cash and gold over the period was $52.3 million. Slide 9 will be familiar to some. We always monitor the gross and net cash flows for the major business decisions and investments that we have made over the past years. This chart shows just that, dating all the way back to some more humble beginnings with Coogee in 2012 where a $1 million investment returned $9 million back to the company, to now where if you look at the 3 assets we have in production, Vivien, Edna May and Marda, where we have invested $64 million and returned over $202 million so far. And keep in mind, they're obviously still operating [ today ]. What's more is that we hope there is even better to come because we've only just started the development of Tampia and Penny, both of which are expected to generate significant cash flow for our shareholders in their own rights. Moving to Slide 10. It looks at the balance sheet status of Ramelius and how well we are positioned for growth, both organic and external to the business if the right assets can be found. We have over $312 million in current assets. We have shareholders' equity of $582 million. We have approximately 80,000 ounces in inventories ready to be monetized. We have minimal debt. But importantly, we have a large debt-carrying capacity if we need it to support organic development or a strategic acquisition. We're extremely well positioned to fund the growth of Ramelius when required to do so. At the bottom left on this slide, you can see a couple of financial metrics that capture how effective the company is managing the capital entrusted to it. Return on equity annualized for the 6-month period was 29.6%, and return on capital employed was 25.8%. Indeed, the returns Ramelius has attained in the last 18 months have been a front-runner in our industry. The last slide shows how our EBITDA margin and our NPAT margin compare to our peers over the last 12 months to June 2020 and the 6 months to December 31. We are top of the class or very near to the top in both measures. I'd now like to hand back to the operator to begin the Q&A.

[Operator Instructions] Your first question comes from Hugh Stackpool from Petra Capital.

Excellent result, guys. Congratulations. A few changes in the gold price, and sometimes that can influence mine plans. So I mean, I know you guys have a fair few different assets. Just wondering if there are any kind of levels where mine plans might change, any assets that may change, whereas some of the others are pretty locked in with their mine plans. How to be thinking about that if the dollar or the gold price continues to change a bit, whether there might be changes to the mine plan kind of near term, medium term, so to speak?

I'll have a go at that one, Tim. In terms of our budgeting process, we're moving into that process at the moment. So it is topical. But like most prudent companies, we run a trailing price, so we leave ourselves some headroom. So [ we'll -- 2 of the miners ] are probably talking around $2,000. So unless the price is going to be demonstrably different to a number around that level, then we see no reason to change. What you don't want to be doing is changing mine schedules and mine designs too often and just leave yourself some headroom so that you're obviously mining profitable ounces.

Yes. I mean you've got a fairly strong margin there across the business. Would there be any particular part of the business that might change? Or it's not really material enough to kind of [ ponder upon ] at this point?

Quite naturally, your lower-grade, lower-margin projects are the ones that are most sensitive to this. Obviously, a Penny project doesn't really [ -- it almost ] doesn't matter what gold price you plug in. It's the Edna May Stage 3, the Eridanus Deeps that are going to be a bit more sensitive. So we'll run the appropriate sensitivity studies and consider that appropriately.

And a great movement in cash generation, and I guess 2 ways to think about it: the ability to pay dividends and the building of a war chest. Just what are you seeing on the kind of inorganic growth front at this point in terms of the expectations of the different players? Have sales expectations changed? Has there been a bit of a wait-and-see approach? Just wondering how that might play out given you've obviously got the ability to do something should you choose to from a financial perspective.

Hugh, it's Tim here. Look, I guess, we obviously remain on the lookout, as we mentioned, for the right asset to fit within the business, be that a bolt-on like a Penny or a more substantial sort of [ further ] production center. But I think each party is still their own, whether or not they have a different view on life with the pull back in share prices, whether or not they want to be at certain levels. I think each board, each management team have their own expectations. I guess all we can do is assess the project, the company, assess value, assess returns. If there is something that we think is worth pursuing, we'll literally put our best foot forward. And if [ it takes, it takes ]. If not, then we're not such that we will push forever and a day. We'll move on to the next one. So I think it can vary, to be honest.

Yes. Understood. Look, it's a -- yes, it's a good result and kind of you delivered [ sort of an amazing one ] for us analysts as well. So well done, guys.

Your next question is from Andrew Hines from Shaw and Partners.

Again, congratulations on another terrific result. It's good to see a company with such strong cost discipline, which I guess is the point of my question. You've done such a good job keeping those costs under control, 6 years in a row, around the $1,200 all-in sustaining cost number now. I know costs are going up next year as more of the production comes from Edna. But is there anything that you're identifying at the moment that could keep that cost number down and keep those margins expanding even if the gold price doesn't leg up next year?

The obvious one for me, Andrew, would be earlier production out of Penny. Obviously, Penny being a circa $600 an ounce project that can move the dial for us as a company. So -- and once that is in full production, we are expecting more like $1,100 to $1,200 an ounce costs overall. So I suppose if you look at by project, then Penny is the one that can move things for us. And obviously, that's encouraging us to move into production as soon as physically possible, and we're headed down that path at the moment. In terms of cost pressures, the labor cost is the big one, Tim, that people are talking about. We're starting to see a little bit of that, but we still feel comfortable with our cost forecast and meeting the numbers we put out to the market.

Yes, I think that's right. And Andrew, we're in sort of cash harvesting mode at a lot of our projects. But the ones that we have coming on stream, be it Tampia or Penny, are both pretty robust. Certainly, Penny is very strong, as Mark said, in any gold price environment. So I think we're reasonably comfortable with what's in front of us. Labor costs could pose some pressures across the industry, not just us, and that will affect everyone. But I think as Mark said, we're trying to bring our best assets forward and focus on, I suppose, the cash margin as the way we run our business. So yes.

Yes. Great. All right. And another question just on the Penny acquisition. You're bumping up your exploration expense a little bit to really go after some additional resources around the Penny project. Have you had any -- can you give us any early color on how that's all going, what you're finding there, what you're seeing? Is it -- are you getting a lot of encouragement so far?

We have put out -- Andrew, we have put out sort of some initial results. We haven't found another Penny North yet. We have seen some [ slope ]. We've seen some alteration at depth and along strike, but we didn't expect [ to hit it with ] the first sort of small program. So we're basically putting together plans to continue drilling there, so just keep an eye out for that. But we're very keen to not only extend the Penny North and the Penny West, but to find another Penny North. And we'll spend the rest of this probably calendar year embarking on that.

Your next question comes from [ Richard Hart from Top Wheel ].

I suppose from the hedging point of view, I bet you're relieved, like I am, just to be shutting all the [ windows ] up now your hedge price is the same as the spot price. Hopefully, you'll get a bit of a break about that. But my first question is about Vivien. Vivien is due, on your statements, to finish early in 2022 financial year, which is in months really. What do you think the chances of that changing are? I mean you're drilling, I understand. So do you have any more accurate time line on it? Or are you just going to see what happens?

We have carried out some drilling, and we're assessing that drilling at the moment, [ Richard ]. We're hopeful for -- to extend that operation beyond the current October completion. I think last time I was asked that question, I said ideally by the end of this quarter, maybe early June quarter, we'd be able to provide a bit more information on that. Fingers crossed that we can continue Vivien for some time yet.