Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources 3-year Production Outlook and Study Updates Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.

Thank you, Cameron. Good morning, everyone, and thank you for taking the time to dial in this morning. With me once again is Chief Financial Officer, Tim Manners. Although it's not a quarterly call today, we'll still follow our familiar process; in that, I'll provide an overview before passing over to Tim to delve into the numbers in more detail. We'll then open the line for some questions. So just hit the same following the release of FY '23 guidance in July of this year and a steadying of market and operational conditions, the company is pleased to now provide a 3-year outlook, being a medium-term view of consistent production and a lowering all-in sustaining cost profile. Noting that this reducing all-in sustaining cost is largely due to the increasing contribution from the low-cost Penny mine over the period. As one of our analyst friends put it, we are getting a sugar hit from Penny in the next few years, but that probably underplays the excellent work that has been done elsewhere to bring new projects into production and keep the processing plants at both Magnet and Symes as full as possible. Now most of you will be familiar with the guidance set for this financial year, given that it was first provided back in July when we presented our June quarterly report. Now we have forecast for production of between 250,000 and 290,000 ounces in both financial year '24 and '25 with an all-in sustaining cost of between AUD 1,500 and AUD 1,700 per ounce in financial '24 and between $1,400 and $1,600 an ounce in financial year '25. The data used to establish these forecasts has been extracted from the mine plans prepared annually by each operation and represent a subset of the longer mine life expected at Mt Magnet and should Stage 3 open pit be approved also at Edna May. Just to run quickly through the mine deposits that are included in the outlook. Feeding through Mt Magnet, we have the Eridanus, Orion, Galaxy and Brown Hill open pits and the Hill 60, Penny & Vivien and Vivien underground. While feeding through Edna May, we have the Edna May underground as well as the Tampia, Marda and Symes Find open pit. That means a number of deposits and projects have not been factored into calculations and providing everything stacks up, as we move these projects forward, they will come into the mine plan over the following years. This list includes Eridanus Underground, Hill 50 Underground, which I'll talk about more shortly, Morning Star and Bartus East, all at Mt Magnet and the Stage 3 open pit at Edna May. Importantly, there's also no production assumed at this stage from our greenfields exploration project at Rebecca, where we are targeting a long-life operation in its own right. Now we acknowledge the interest in the Stage 3 open pit at this point, there is not a lot to update on beyond what was said in the September quarterly. Contractor pricing will be received and assessed this quarter. All other sections of the PFS are largely complete and development does need to commence next year to meet the mine plan schedule outlined in 2021. According to the schedule, meaningful production from Stage 3 is not required until 2026, which is obviously outside the 3-year plan time frame being discussed today. The more meaningful project updates on today's announcement related to Hill 60 Underground at Mt Magnet and the Symes Find deposit, which is down the road from Edna May. Scoping study on completing the rehabilitation of the Hill 50 underground decline to mine the depth extension of the Hill 50 banded iron mineralization as well as the remnant mineralization left behind at the bottom of the mine when it was closed in 2007. The mineral resource at Hill 50 is currently 1.9 million tonnes at 6 grams or 360,000 ounces. The scoping study itself incorporated, and I'm using some ranges here, 880,000 to 960,000 tonnes at between 7 and 8 grams for 210,000 to 230,000 ounces. This does include a proportion of unclassified resource below -- projected below, sorry, the classified results. This material is an exploration target where ranges are used, and that range is estimated between 150,000 to 230,000 ounces at 5 to 12 grams, thus the use of ranges when discussing the overall results of the study. Before we progress to a PFS, further work is required to convert this exploration target to mineral resources and ideally upgrade the inferred mineral resources to the indicated category. This will either be completed through surface drilling of deep diamond drill holes or through the rehabilitation of the decline to a deeper position followed up by underground diamond drilling. A decision will be made on this early next year. The Symes Find is a small but relatively lucrative project. Following the completion of an RC infill program, we have updated the resource model and the mineral resource assets at 1.4 million tonnes at 1.7 grams for 75,000 ounces. We have completed an initial scoping study, incorporating if I use midpoints, 550,000 tonnes at 2 grams for 36,000 ounces with relatively modest preproduction capital of 4.5 million ounces and an all-in sustaining cost of AUD 1,650 per ounce. The majority of the resources at Symes Find are located on granted mining leases, but we are applying for some additional tenure that will support -- sorry, will host supporting infrastructure and extensions of the main pit. Detailed hydro and geotechnical assessments are underway and contractor pricing will be chased up shortly. Now let me pass over to Tim for some more detail on the assumptions behind the production, operating and capital cost estimates over the outlook period. Tim?

Thanks, Mark. In relation to the outlook provided to you today, there has been a lot of consideration given to both the key costs and physical input parameters used. As most would appreciate as actual cost change in our business, it requires us to reassess our forward-looking assumptions. This can, in turn, affect parameters such as cutoff grades at each mine, which in turn change physical and financial outcomes and so the process rolls on. The iterative process is complex and needs a great deal of input from each site base mining and processing team, technical support and the accounts team here in Perth. The point being, this is not a model that has been pulled together at a high level. This is a bottom-up costed model that forms the basis of our short- and long-term planning process each year. This outlook is a snapshot of the first 3 years of each site's longer-term production and cash flow models. As part of the preparation for this 3-year profile, the focus was on confirming a robust physical profile based heavily on high-confidence material. Indeed, 97% of the contained ounces in this profile are based on ore reserves or measured and indicated resources. We then looked closely at where our input costs have been and what a reasonable forward projection of these costs may look like, particularly in areas that are likely more sensitive to the inflationary environment we are in today. Our major costs, be it directly or indirectly are people. The recent trends in salary and wage movements have been used to guide future costs where we feel appropriate. We've also used current prices for all of our major consumables like steel, diesel and reagents and considered whether or not on a cash-by-case basis, to apply further cost escalation to what the industry has already seen. Hopefully, you'll understand that we have not simply applied an inflationary factor to historical costs across the business. We have worked hard to put forward a model based on sensible assumptions around physicals and costs. However, as always, one thing is certain, and that is that those assumptions will be wrong. But we would like to think that the end results will fall within the $200 per ounce range provided in the all-in sustaining cost figures and the $20 million per annum range in capital. The other big driver in all -- any all-in sustaining cost calculation is grade. Whilst the all-in sustaining cost is simply an amount spent on producing gold, the cost to reach ounce is driven as much by the ore source of that expenditure itself. As most will be familiar, the underground at Penny is progressing well towards a meaningful contribution in the second half of the current financial year. But as you can see from the chart, it's no coincidence that the increase in ounces from Mt Magnet and the reduction in costs over the 3 years correlates well with the increase in ore from Penny and importantly, the shift over time, as the ore is sourced more and more from high-grade stoping activities, the development costs of which would have already been expensed. Whilst Penny is a significant contributor to production and reducing costs, it can only generate those returns due to the reliable large tonnage operations to underlying Mt Magnet over this time frame, like Eridanus open pit and other large tonnage undergrounds like Galaxy. Whilst we are yet to make a decision on Stage 3, the production from Tampia, Marda, Symes Find and Edna May underground generate excellent cash returns from the capital invested to date and as we release the inherent cash flow from the plus 1 million tonnes of high-grade open pit ROM stocks, particularly at Tampia. Overall, we believe the outlook provided is a robust view of the Ramelius business out to 30 -- 2025. This profile provides a solid base upon which to grow our business through organic opportunities, some of which I discussed in the release itself and inorganic opportunities if and when they arise. As the release makes mentioned, there is also an excellent opportunity we have at Rebecca for it to become its own stand-alone operation once drilling and studies are complete. None of this excellent potential has been included in this outlook at this time. So on balance, this outlook should further add to the financial strength of Ramelius and build upon our balance sheet strength and positioning us well as we continue our goal to deliver superior returns to shareholders. I will now hand you back to the operator, Cameron, to open the line for questions. Thank you.

[Operator Instructions] the first question comes from Andrew Bowler at Macquarie.

Just looking at the Hill 50 scoping study, correct me if I'm wrong, but it looks like it's roughly 1.5 kilometers deep. Can you just give us an indication of what the ground conditions there were like back in 2007 and are you expecting any deep drilling at that depth? Or is it pretty decent the rest of the mining that is there?

Thanks, Andrew. It's Mark. Ground conditions were challenging at 1.5 kilometers depth. As you would expect in a mine that was mining without paste fill with geotech -- I suppose, limited geotech systems that you have in place on a reentry. We've had AMC look at that in detail. We also believe that conditions will remain pretty similar from [indiscernible], so they're not going to get any worse. But there are depth issues that have to be addressed. They obviously weren't able to do that much in 2007 over the $500 gold price and a mine that was heading towards closure really quickly. So we expect to actually have a pretty good run down to the bottom in terms of rehab. But look, we don't underestimate that we are mining at a reasonable depth there.

No -- and also, again, just looking at the new providers, it looks like sort of roughly the top kilometer has raised or -- are you expecting it to go any deeper than what's the outline past the exploration target inventory? Are you expecting another lump of capital to put another raisebore down there? Or are you happy with what you think the events going to go up?

There is raisebores and obviously, refrigeration and a whole heap of things in that capital number, which will get us to the bottom of the study, but also beyond that, we believe. But there will be an extension of the system. We're actually looking at putting as part of the scoping study in raisebores in addition to what we're already installing at Galaxy. So Hill 50 does get a bit a little -- a bit of a free kick from the Galaxy underground mine, which is the top set of 400 meters vertical plus some ventilation infrastructure. But it won't need a whole revamp to go deeper, and that's one of the beauties of Hill 50. Once that capital is spent, assuming there's extensions to the ore body, which the vertical continuity geologically is wonderful. And we also haven't included any of the remnants which is always a trapped to the remnants higher in the mine that you see on Page 7 of the release. The remnants we refer to are the remnants right at the bottom of the mine that were developed but not expected. So there is some stuff that we're got to pick up on the way down, but we haven't based the study around that, which I think is important.

Your next question comes from Alex Barkley at RBC.

Just a question on all-in sustaining cost of Edna May. So you've got the gold production falling off FY '23 to '25. What should we be expecting around the unit costs? How much of that is fixed cost that might exit? And obviously, labor conditions aren't optimal right now? Is there sort of retention payments that sort of thing? Yes, just a comment on the cost there?

Alex, this is Tim here. And thanks for the question. Look, it's [indiscernible] obvious, particularly in FY '25, as we've assumed no Stage 3, no extensions to the existing assets that we have. Stage 3 costs -- all-in sustaining costs for Edna May by itself will be at the upper end of an expected range. A couple of things. There's a lot of drawdown -- pull down of stockpiles. So a lot of those costs would likely be or not a lot, but a fair chunk will be noncash in nature. I think if that was to be the profile, if there was no Stage 3 coming near that time frame, the mill would likely be reconfigured on a campaign basis to minimize costs where possible. I guess the bottom line is, though, that in that year and obviously, the 2 previous years, it's about generating positive cash flow and Edna May and it surrounds does that even at a sort of a [ $2,450 ] gold price, which is generally what we use in our sort of high-level models. Any retention payments. We have or in the throes of looking to put additional schemes in place, which tend to be share-based, not cash based. So they wouldn't have an impact on those operations at that point. So we're pretty confident that whilst production falls, the mill would likely be running at a suboptimal rate. It is still a cash-generative operation and hence should be continued through FY '23 through FY '25.

Okay. And just a follow-up on that, gold hedging Edna May as a stand-alone without the Stage 3 cutback, how would you think about that? And then the Phase III cutback itself obviously has strategic importance. Is there any merit in heavily hedging that expansion?

I'll deal with the first. The existing operations, we don't feel require any necessary hedging outside of what our current program covers. We feel it can generate the cash flows that we see in front of us offer a discount to current spot and see no need to put on any more cover for that specifically. However, in assessing Stage 3, along with a number of factors, hedging could play a part in understanding whether or not the operation can get across the line financially. I suppose the only point we'd make is that the hedging would be there to supplement and add value to Stage 3. If it's the hedge book, for example, we got Stage 3 across the line, then I think we'll be doing it for the wrong reason. It has to be able to stand on its own 2 feet with cost assumptions and gold price assumptions that we typically use across the business. And if we can add value by strengthening that with a project-specific hedge, then we would certainly look at it.

[Operator Instructions] Your next question comes from [ Richard Hart ] at Top Wealth.

I'm not sure you've ever done a 3-year projection before, but anyway, it's of interest, obviously. I just want to go back to Hill 50, I'd just like all the grades naturally and they're on site. It's hypothetical, but if Hill 50 goes ahead and becomes mined and ore hits the mill, give any idea sort of time line?

Thanks, Richard. Yes, we haven't done a 3-year outlook previously. But remembering it is a snapshot or a piece of an overall mine plan and obviously building on our 1-year guidance put out in July. Mt Magnet and Hill 50 -- Hill 50 wouldn't need to come into the mill until sort of years FY '26 to '27. It gives us time to assess how things are going at Galaxy, which is effectively the top part of the mine, and we're establishing that and getting that into production. So we're not in a hurry, and that's one of the beauties of Mt Magnet. We've got a number of ore sources, haven't mentioned really much about Bartus East, which looks like quite a promising underground much closer to surface. So we'll slot that into a more fulsome mine plan at the right time. I probably won't talk about mine plans or guidance probably until the middle of next year at this point in time.

Great. Look, considering all the tracking that goes on wet weather in roads, it's quite refreshing there's such good promise on site. From an investor point of view, it's quite nice to think we don't have to cart everything for couple of hundred kilometers just to get it to the mill. One other thing I could ask, mentioned about oil, oil is very topical -- energy is very topical. You said that you were considering whether to hedge against an oil price was a strategy to use? Did you go any further with that?

Tim?

To be honest with you, it's still debating that amongst a number of different ways we can execute that type of strategy, and we're just very much at the point end of determining which one we're going to use. So I would expect that we may well look to put some cover in place. We would typically just use sort of a steady-as-she-goes approach. It won't be a boots and all type situation, but I wouldn't be surprised to see an element of diesel hedging cropping up in the not-too-distant future.

Okay. Well, again, thank you, guys, for all the work you do for us, people who just sit at home trying to make money. So I appreciate it the Golden Horse be very kind to me, and I appreciate the work you guys and all your staff put in.

Thanks, Richard.

Your next question comes from William Thurlow at Ord Minnett.

Just a quick one for myself. I was just hoping to get some clarity on the underlying components driving the growth profile or growth capital profile in FY '24 and '25 and Mt Magnet production in FY '25?

Tim, it sounds like it's got a bit in detail, so I'll let you take about that.

Well, just to confirm, you're trying to get into a little bit more detail on the production increase across the time frame at Mt Magnet?

Yes. So just, I guess, what's constituting Mt Magnet production in FY '25? And then, I guess, at a group level, the gross capital profile in '24 and '25.

I'll deal with the production first. Quite simply, it's sort of, as I mentioned, there is a solid baseload set of ore sources at Mt Magnet with Eridanus. And obviously, Galaxy also provides a fair amount of consistent production or will do in the coming years. But I guess it's simply put, we have a growing increase of Penny material in the blend. It gets higher grade typically as we go deeper just because there's more stopping activities undertaken and less development. So in essence, the feed, I mean, the mill throughput at Mt Magnet is pretty consistent, but the grade does tick up from 23% to 24% to 25%, and that's really driving the ounce profile. On the capital side, it's really just -- we've gone in and obviously, we've refined to not a great degree, but we have refined the production profiles very slightly, and things have moved forwards or backwards and schedules, and that has moved the capital a little bit from one year to another. But capital is a cost. It's not immune to the inflationary pressures either. So I think over the 3 years, our capital number is higher than where it was published to be in FY '21, I think about $20 million across the 3 years. So that is largely a cost impact with a little bit of timing and sort of rescheduling thrown in there, too.

We are showing no further questions at this time. So I'd like to hand back for closing remarks.

Okay. Thanks, Cameron. To wrap up, Ramelius has today delivered a robust 3-year outlook, which displays consistent production and reducing all-in sustaining costs, which we'll argue is a rare feature in the Aussie gold space. We have delivered 2 mining study updates ahead of schedule, evidence that the team continues to work hard on delivering resource to reserve conversion for shareholders. Thank you for listening in, especially those who ask questions and enjoy the rest of your day. Thank you.

Thank you, everybody. That concludes our conference for today. You may now disconnect your lines.