Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources 2021 Financial Year Results. [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 Full Year 2021 Results Conference Call. Joining me this morning is our Chief Financial Officer, Tim Manners, who is quite enthusiastically looking forward to showing some of the numbers with you. Now there have been a number of releases related to our 2021 results loaded on to the ASX platform this morning, but Tim and I will be talking more broadly to the results presentation itself. Once we have done that, there will be an opportunity for listeners to ask questions. So if we go to the presentation and start with Slide 3. We believe that in FY '21, Ramelius has delivered to shareholders. And we've done that by breaking a number of company records in the process. We've achieved record production of 272,000 ounces, up some 18% on last year, and this has translated into record sales revenue, EBIT, EBITDA, NPAT and operating cash flow. This has left the company in an enviable position, and also allowed the Board to approve a 25% increase on the dividend paid last year, resulting in a fully franked $0.025 per share dividend being declared today. Ramelius remains one of the smallest in terms of market cap, dividend payers on the ASX, and we are pleased to be able to provide our third full year dividend as we strive to make it like many aspects of our business sustainable over the longer term. On Slide 4, you can see that we have built up production from multiple sources like here in Western Australia, with these sources providing production flexibility that has allowed to consistent achievement of guidance over a number of years. Ever since Mt Magnet was recommissioned in 2012, we have been on a growth path. We now have 5 mining operations feeding into 2 processing plants with our sixth mining operation at Penny coming into full production in FY '23. Now growth in production is not value-adding unless it's leading to increased earnings, and our margin growth has been a key part of that. So now let me hand over to Tim to take you through this aspect and the financials in more detail.

Thank you, Mark, and thanks again for all of you taking time out to join us today. And apologies, you can't see me, so you'll have to visualize my enthusiasm to that. I remember presenting the equivalent set of figures this time last year. We had come off the back of a huge production quarter for the company, 86,000 ounces in June 2020. The gold price has started FY '20 at $1,900 an ounce, but have then gone on a huge turn to reach over $2,720 an ounce by quarter 3. The financial results for Ramelius in that year were beyond all expectations, and it smashed the previous year's numbers. So I'm sure I speak for the whole team here at Ramelius who want to say that we're very proud that we did more than just back up on the 2020 results. We have set another level. Another set of new records for FY '21 for nearly every metric we measure. It's been an incredible year. Yes, the gold prices remained strong, which has clearly helped. But particularly in the last 6 to 9 months, the resources industry as a whole has had to face the collateral effects of basically closed international borders and challenging people availability within our own country that this industry has not seen since the last mining boom. So with this backdrop to achieve production and financial records makes this year very special indeed. If I can draw your attention to Slide 5, this gives us the first snapshot of the key drivers to the results: record production for the year and record sales of 277,450 ounces. Our realized price rose 13% over the year, which matched the rise in our all-in sustaining costs, which were higher due, in part, to some of the cost pressures brought about by the people issues I mentioned, which were felt by us, our peers and major contractors in our industry. I'll talk a little more on costs shortly. However, with the 22% increase in gold sold and the maintenance of our margin overall in sustaining costs as the chart show, we managed to maintain the positive trends we began to set when Ramelius embarked on its growth strategy a number of years ago. Slide 6 gives us those hard numbers, reflecting the outcomes from those physical drivers of higher gold production, maintaining 2 mills at capacity and having substantial operating flexibility within the asset mix at both Mt Magnet and Edna May. $634 million in revenue, giving an EBITDA of $341 million and an NPAT of $127 million. As Mark mentioned, all new records for the company. Underlying cash flow of $148 million resulted in a closing cash and gold position of $234 million. The earnings and, in particular, the cash flow enabled a 25% increase in our dividend to $0.025 per share fully franked. Slide 7 demonstrates how these key metrics compared to prior years, with the last 5 years being shown here in a graphical form. Whilst this year, in particular, is a story of record production, strong gold prices and some solid controls around our costs, these charts hopefully illustrate that even back in FY '17 through to FY '19, we had a business that was steadily growing and building to position ourselves to benefit from the price side environment that we are now in. I think the key takeaway here is that we have plans to grow and we executed those plans and with a bit of luck thrown in, which we all need every now and then, we've achieved most of what we set out to do. However, I can assure you that we believe there is more to come, as evidenced by the 1.8 million ounce mine plan released earlier this month and the exciting development plans we continue to work on at both our primary operations. Moving to Slide 8, and I won't dwell too long on here. This has simply been provided to give you all a simple line of sight comparison of FY '21 to FY '20. It's also very easy to talk to all those metrics that we've improved upon, but there are 2 there that we didn't. The group cash flow was down a little on FY '20 due to 3 things: the repayment of the debt facility that we drew down in the prior year, the larger dividend payment made in FY '21 and also the shift by RMS to becoming a taxpayer, outlying around $25 million that was not there in the year before. As the footnote hopefully shows, if you notionally reverse the effect of those items, you'll end up back at the underlying cash flow number, which exhibited a 77% increase on FY '20 to over $148 million. Lastly for this slide, the EPS was down due simply to the fact that in FY '20, the shares used as consideration for the Spectrum acquisition were only an issue for part of the year. Hence, the denominator in that calculation was a fair bit smaller than that used in FY '21. Moving to Slide 9. We look more closely at the movement in EBITDA from FY '20 to FY '21. The increase of 33% was driven by improvements in both operations. Mt Magnet had a slightly higher cost profile due to more underground material in the blend and the deepening of the Eridanus pit meant the underlying unit costs were slightly higher. However, every ounce produced benefited from the higher gold price, which more than offset these movements in costs. At Edna May, it was a simple story of being able to run the mill at full capacity again, given the permitting delays we experienced in FY '20 at Greenfinch. With those issues behind us, the additional volume of material through the plant generated additional earnings to complement the higher gold price. Pleasingly, the EBITDA margin of 54% was only 2 points off the 56% we set last year, which we know was a sector-leading result. We're clearly delighted to hauled but maintain that level of financial return in our business. Moving to Slide 10. Only a couple to go. Slide 10 looks at cash generation, which is clearly critical to any business. The underlying cash flow, as I mentioned, of $148 million starts and ends with the $308 million of cash from operations, as shown by the far left-hand gold colored bar. This huge operating contribution enabled us to strengthen the balance sheet and to continue the development plans across our business with $165 million of that reinvested into both growth and sustaining capital. We are excited by the progress made at both of our latest gold mines, the development funding noted above has enabled Tampia to move into production with ore now being hauled to Edna May pretty much on a daily basis. And the groundwork for Penny is well underway, and we look forward to the development of one of the highest-grade mines in Australia, commencing later in FY '22, with ore being hauled to Mt Magnet early in FY '23. On Slide 11, it shows how our financial results for FY '21 have strengthened the balance sheet. We talk about it often, but pleasingly, our liquidity position has grown by 90% over that of last year. So along with the $234 million in cash and gold, we have approximately 70,000 ounces in stocks that gives us optionality, flexibility and helps us manage risk in the -- we hope unlikely event operations are impacted by COVID or indeed by any other business interruption event. Growth remains a big part of the RMS corporate strategy, be that by the drill bit or the checkbook. Ramelius is quite simply ready and financially capable to act on any opportunity that we believe fits our corporate aspirations. Very quickly on our hedge book. This continues to reduce in quantum and increase in average price. For us, we use price risk management tools to manage short-term cash flow expectations, whilst balancing long-term exposure to the spot gold price. As the slide highlights, approximately 90% of our new mine plan remains exposed to the spot gold price with only a portion of short-term production being hedged. And lastly, for me, Slide 12 touches upon the FY '21 dividend declaration of $0.025 per share. It is fully franked and notionally represents a 2.3% yield in the hands of the average Aussie shareholder. The dividend was calculated in accordance with our established policy, and the 25% increase reflects the uptick in earnings and cash flow for FY '21. Once paid, it will take the cumulative total of dividends paid over the last 3 years to over $43.1 million. On that note, thank you for hearing me out, and I'll pass you back to Mark.

Okay. Thanks, Tim. So if we can refer to Slide 13 now, and these are our focus areas for FY '22. Firstly, we continue to strive for operational excellence by achieving guidance, managing costs and improving our safety record. We're also heavily focused on the ramp-up to full production at Tampia, which has started ore haulage on schedule. We are committed to a significant investment in exploration, and we continue to believe in the ground that we hold or deliver the goods. We're always on the lookout, as Tim alluded to, for accretive acquisitions, ones that will deliver a step change for the company, and we believe we are well placed to capitalize on the right opportunity. We will continue to manage our capital in a disciplined manner and retain a strong balance sheet, whilst recognizing dividends, including the one announced today are an integral part of any shareholder-focused company. But finally, we'll continue to provide regular updates to the market on our progress with our mining studies, our annual resources and reserve statement, which is due next month and the move towards production at Penny, which is ready to commence the open pit phase of its development and really starting to look the part as it readies itself as the lowest cost mine in the portfolio. That concludes the presentation. I will now hand back to you, Bernadet, to open the line for questions, please.

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

Congratulations on a record year. It's a record all across the board. So well done. A couple of questions for me, one for you, Mark, just around the impact of COVID and the impacts of having on the business. Tim sort of addressed it from a cost perspective. But are there any points where you're sort of seeing red flags around just actual access to people whatsoever. Is there anything that you just can't get people to do things. And I'm sort of thinking in the context of specialist roles in the mines or the construction of the Penny project, just access to labor, just delaying plans in any way?

Thanks, Andrew. Yes, look, it's getting harder for everybody at the moment. There are some particular critical areas such as geologists. We need to get them out of tax season back on the mines. So that's a difficult area. And I think just across the board, everybody is feeling the pinch. Fortunately, a project like Penny were largely manned up on the Ramelius side, we're able to move some of our mega contractors from the recently completed Greenfinch project at Edna May, directly up there to start the open pit. And finally, on the underground side, I'd like to think we -- when you've got a high-grade, high-margin operation, people -- and it's new, people tend to want to work at those operations. So I'm quietly confident that we can find the people to run that. And it's not a large operation by any means. It's sort of 60 to 70 people. So I'd like to think that we can man that up effectively later this financial year.

Yes. Great. And a question -- a couple of questions for Tim. Tim, the -- one of the big increases in cost, not a cash cost, but the D&A charges coming through, so your D&A charge this year was $163 million, up from $103 million the year before. Are we going to see further increases do you think in that coming through? Or are we now at the level where given the past expenditure, that's now sort of at that sort of -- that's a level going forward?

Thanks, Andrew. Look, I think you'd see probably more of a comparable rate going forward. As you rightly pointed out, we have had some projects come online that have inherently increased that D&A charge. At 168, I would imagine that, that is a reasonably sustainable number going forward. Potentially, there are areas where at an asset level, it will reduce. But we do have the likes of Tampia clearly now and Penny coming on board and get those acquisition costs will need to be written off over the sort of the life of those projects. So for all intents and purposes, for modeling purposes, at those current levels, I think that's a fair assumption going forward.

Great. And then final one for me, just on the dividend. Tim, can you just remind us what the dividend policy is. The $0.025 was -- is obviously welcome, but it was a touch below, I think, what I was modeling, $0.005 lower. But what is the actual dividend policy? And how do you come to that number?

The policy is a minimum of $0.01 per share, assuming you get through 2 gates, which is effectively a 5-year mine plan and a $50 million cash balance. So we clearly got through those okay. And the maximum is 30% of free cash flow. The $0.025 sat somewhere in between those 2 metrics. It's not at the top end. It's also not at the bottom end, but what we felt was appropriate was to ensure that it's sustainable. So it wasn't going to put long-term pressure on us. It was an increase because we made more money, so we feel we should return a little bit more to shareholders. But our key focus, as Mark mentioned, is to make sure that this is part of our business going forward and that it remains a sustainable part of that. So if you were to do those cash flows, you'll probably come up with a number that's a little bit higher than $0.025 per share. That's where the Board and management sort of landed, and we felt it was an appropriate sort of balance between those minimum and maximum levels.

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

Thanks very much again for your work on our behalf. Thanks for stacking your money away, and congratulations. There's just a couple of things. The $30 million that was mentioned a while ago in the statement, can I assume that's a very good company that's actually in our bank accounts now?

Yes, it is, Richard, it came through. I think it was very early in August that, that was settled.

That's good. So our bank can't -- is probably looking quite healthy. Thanks for the dividend, that will buy a few cups of coffee. The only other question I have is with Tampia, last I heard you, I think, moving about 1,600 tonnes daily. Is that a sort of ongoing situation? Will that carry on as a regular situation there?

Thanks, Richard. The annual run rate that we're shooting for is circa 700,000 tonnes per annum. So that's probably closer to -- yes, your number, probably be closer to 2,000 a day. It's been very wet in that part of the world. So there has been some impacts, and we've had -- we actually moved some trucks. I think we've mentioned on previous calls from Marda down to Tampia and then vice versa because of the large stockpiles at Marda, we're keen to knock that on their head as well. And the background there is that getting trucks and people is a little bit of a challenge at the moment as well. But -- yes, run rate of 1,500 to 2,000 tonne a day out of Tampia is our planned rate, if you like.

Great results. So is Marda getting back to what you call normal or is it still a problem?

It's not a problem other than the accountants not liking a 400,000 tonnes stockpile. The weather is maybe taking a turn for the better. Unfortunately, if you have a day's rain, you lose 2 or 3 days before the Shire reopens the road, it drives out and you can get hauling again. But we'd like to think that from here on in, hopefully, we get a better run over the next 6 to 12 months.