Ramelius Resources Limited (RMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ramelius Resources Half Year Results Briefing. [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. Joining me again this morning is Acting Chief Financial Officer, Ben Ringrose. Given that today's focus is on the financial accounts, I'll leave Ben to do most of the talking, especially around the presentation that has been released to the ASX this morning before as always, opening up the line for questions. Before handing over, I will give an overview on how we saw the first half. By way of an overall assessment, we believe this is a very competitive set of underlying results with improvement seen pretty much in all key metrics when compared to the prior corresponding period. The company continues to be in a strong financial position despite the continuation of a challenging labor market and inflationary pressures seen throughout the industry in the second half of 2023. In terms of production, as we announced late last month, total gold produced for the 6 months to 31 December came in at just over 124,000 ounces, up slightly on the prior period. Based on the half year production result and our expectation of an increasing production profile in the second half, we remain confident of meeting our upgraded full year guidance of 265,000 to 280,000 ounces at an all-in sustaining cost of between $1,750 and $1,850 an ounce. If listeners can turn to Slide 3 of the presentation where we see our 5-year production profile and at the midpoint, FY '24 is predicted to deliver record production. That is record production from our portfolio of assets that can be seen both in the production chart breakdown on the left and obviously, on the map over on the right. Where we do manage a dynamic mix of assets, but that mix also affords us a degree of production flexibility. We move to Slide 4, where we have the key physical production numbers for the half, ore tonnes were mined down, which is not a concern for us, given that we have over 4 million tonnes in stockpiles, but more importantly, both mined and processed grades are up. When combined with marginally higher mill throughput achieved despite Mt Magnet's CV01 conveyor repairs led to higher gold production. Also worth noting on this slide -- also worth noting on the slide is sorry, half -- second half FY '24 guidance bars in aqua blue, where we see an expected increase -- material increase actually in gold production and a corresponding drop in all-in sustaining costs in the second half. They speak for themselves, I think, with that. I'll now pass over to Ben.

Thank you, Mark, and thank you all again for joining us this morning for Ramelius' financial results for the half year ended December '23. It is indeed a very strong set of financial results with all key metrics comparing positively to the prior corresponding period and continuing to build on our strong second half in FY '23. At the macro level, whilst we have seen a slowing in the rate at which cost have climbed, they still remain high. But pleasingly, we are noting that the labor constraints faced in the past have eased to an extent since the new year. It is in this environment, high-grade ore sources such as Penny will be the ones that stand out with Mt Magnet to be further enhanced with the integration of the Cue gold project, which has a fast track development and production. With its proximities to Mt Magnet, the majority of infrastructure for Cue is in place, and we aim to be able to deliver a new mine plan for Mt Magnet incorporated in Cue in this current quarter. Before moving on to the presentation itself, I will have a brief discussion on operational performance for the half year. At Mt Magnet, open pit mining saw a notable increases in not only tonnes but also grade. This is the result of mining of Eridanus, which is the main source of open pit ore. Progressing -- this pit has progressed past the known lower grade portion of the ore body, and this is a trend that we are seeing continuing into the second half. Further complementing this is the excellent deeper drill results of Eridanus, which were released in the December quarterly. The underground operations at Mt Magnet focused on the development of the Galaxy mine, which will provide a steady supply of feed in the coming years. This had a flow-on effect on tonnages, which were down on the prior period. However, with the increased contribution from Penny, the mine grade increased 50% to 5.7. In fact, if we look at Penny in isolation, the mill grade for the period was an impressive 11.7, which was achieved despite most of the feed coming from development ore. With multiple stoping areas becoming available in the second half, we expect the greater Penny to increase to reserve levels. H2 guidance for Mt Magnet is approximately 85,000 ounces, an increase from H1 and the resulting in full year guidance of 150,000 ounces. This is a 17% increase on FY '23 achieved on the back of increasing contributions from Penny and increasing grades at Eridanus. Turning our attention to Edna May, now where we see Symes was brought into production during the period, which provided an additional high-grade source of ore. Mining at Symes focused on the shallower satellite pits with a significant stockpile has been accumulated. Operations have now moved on to the deeper main pivot Symes which, along with the stockpiles, will provide feed for Edna May throughout the '24 calendar year. Importantly, across the Edna May hub, stockpiles now total 1.3 million tonnes at a grade of 1.6. The underground operations at Edna May were extended beyond the expected levels that the water issues faced late in FY '23, now under control. Development works there are now complete and operations are solely focused on harvesting the remaining ore body. This has led to a noticeable increase in tonnes mined when compared to the prior reporting period. With the introduction of Symes as a third haulage route and improved underground tonnages, mill throughput at Edna May increased 4% on the prior period. Guidance for Edna May for the second half of FY '24 is approximately 65,000 ounces, which is an increase on the first half again and the resulting guidance for FY '24 of 122,000 ounces, an 8% increase on the prior period. Now returning to the presentation itself, and Slide 5. There, you'll see that Ramelius generated record half year revenues of just under $350 million, which was achieved on higher gold production and an improved gold price of over $2,800 an ounce. At the group level, the EBITDA was a tad over $140 million, which represents a 40% increase from December '22 and an impressive 40% margin. Whilst peer results are still being released, we believe this will compare very favorably. The EBITDA increased with the growing contribution from Penny, which had a margin of more than 70%. With such a standout asset in Penny, it is easy for other operations to be overshadowed, but it's worth pointing out here the performance of Symes and its importance to Edna May. Symes generated an EBITDA of $20 million at a margin of 65%, which is, I'm sure you will agree, a stellar performance for an asset we bought for $2 million. Moving on to Slide 6 and looking at the earnings by operation, we can see that these are weighted to Mt Magnet, which is as we would expect being our flagship asset and the contribution of Penny. The EBITDA for Mt Magnet is 54% or over $1,500 an ounce, which leaves Ramelius with a positive earnings outlook that will only be further enhanced with the addition of Cue. At the gross profit level, the operating costs at Mt Magnet were $154 a tonne, which included a significant D&A charge relating to the Penny acquisition. With the increased mill grade, the resulting cost per ounce at Mt Magnet was $2,000, a 7% decrease on the prior period. Remaining on Slide 6 and moving on to Edna May, where the operating cost was $121 a tonne, which had increased costs with more tonnes being hauled to the mill. The cost per ounce was $2,300 with Edna May continuing to generate healthy returns for the business. Resulting NPAT for the group was $41.2 million for the half year, a 42% increase on the prior period. Now moving on to the cash flow of the business, and Slide 7. We reported an underlying cash flow, which includes the increase in the value of gold on hand of just over $52 million, representing our second consecutive half year period in which the underlying cash flow was more than $50 million. Operational cash flows for the half year, including the increased bullion holdings were $121 million, with $90 million of this invested in mine development, exploration and the acquisition of Cue. After taking into account the return to shareholders by way of the dividend payment of $17 million in the period and the net cash outflow for the acquisition Cue of $19 million, our ending cash and gold balance was $282 million. Cash flow is expected to be particularly strong over the remainder of the financial year with increased contributions from Penny, high-grade mining from Eridanus and the monetization of stockpiles across Edna May. For those who follow Ramelius will know, we've invested well in our business over the years, and we are now entering a very strong phase of cash generation with these prior investments coming to fruition. The final slide for myself is Slide 8, referring to the balance sheet, which is one of our most important assets. This has never been stronger and not only due to our cash and gold balance and debt free position, but we also have significant ore stockpiles, which give Ramelius security of ore feed over the coming years as well as a strong cash generation outlook. Our working capital position is $294 million with trade and other payables of $72 million, which includes $14 million of stamp duty on the acquisition of Breaker and Musgrave, which we expect to be settled in this calendar year. This leaves a true payables balance of $57 million, which represents creditor days of 36. Our operations rely heavily on mining and haulage contractors, and we pride ourselves on diligent creditor management. Final point on our balance sheet before moving on. The net assets of the group have now grown to in excess of $1 billion. This is a remarkable milestone coming from $170 million when I first started here in 2017. Our hedge book currently sits at 192,000 ounces at an average price of over $2,900 an ounce. What you will see going forward and this is an accelerated reduction in this position. Further details on this will be provided in the next quarterly report, but we expect the book to be closer to 160,000 ounces by June 30. So before handing back to Mark, the financial highlights here are clear, $282 million in cash and gold, which we expect to see increase as the second half unfolds, ideally ending somewhere around $400 million by June 30. We are debt-free with $100 million in available finance facilities, and we have over 145,000 ounces of gold in stocks and in circuit, which have a book value of just over $200 million, but importantly, would generate cash flow well in excess of this amount, particularly at the current oil prices. With that, I'll now hand you back to Mark to summarize.

Thanks, Ben. I'll try not to lose where I'm up to this time. We are on Slide 9 and to summarize why we think we're so well positioned for not only 2024, but going forward. Just briefly, we do have largely the same management team that's performed so well for us over the years. It's still in place. I think there are no small feat in the current labor market. We do, as Ben has pointed out, have our strongest balance sheet ever, and we retain a disciplined approach to any investment decisions. We continue to support -- strongly support greenfields and brownfields exploration, and we believe we'll continue to add resource ounces. As highlighted by the recent RIU presentation, given by our AGM Exploration, Peter Ruzicka. And as we've been talking about for a little while, keep an eye out for the new Mt Magnet mine plan this quarter and the Rebecca/Roe PFS closer to mid-year. Thanks. Harmony, if we can now open the line for questions, please.

[Operator Instructions] Your first question comes from Hayden Bairstow from Argonaut.

Just a couple of questions. Just firstly on Rebecca/Roe, just keen to understand the range of outcomes and the feasibility. So not so much on CapEx and a little bit more just on timing. I mean what are you thinking on how much work needs to be done on the project itself and then also the whole approvals process?

Thanks, Hayden. Obviously, at Roe, we're still drilling, particularly the underground Tura Lodes and Northern Flat Lodes, looking to convert Inferred ounces to Indicated ounces. So the Roe side of the project, obviously, is further behind -- is behind Rebecca, which is we've done a fair amount of drilling there and actually at Rebecca, where we're looking for water sources, and we're very advanced in those other bids that PFS requires. We've already commenced work on the approvals process. We'd be looking to lodge that, I believe, later this year. And there's sort of 2 parts. We've assumed the worst case, which is a Part IV assessment as opposed to a Part V and there's about a 12-month difference. We'll be able to obviously provide a lot more detail on timing to the market in and around time of the PFS itself around midyear.

Yes. Okay. And then just keen to understand as you get into these Cue assets, just the mix on sort of tonnage from pit versus underground [ before they met ] 2 million tonne mill. I mean what -- is it likely to be a bit of a shift there? Or was your Penny still getting decent grade as the key focus? But just keen to understand how that might look.

Yes. Well, look, without been able to quote numbers, Hayden, obviously, the highest grade goes in first. So Penny will always go in first. Cue were really -- it's largely open pits in the first 4 or 5 years, at least. So that will really -- those open pit tonnages will largely replace both Eridanus and Brown Hill. And then the top-up will come from the underground at Mt Magnet, which is -- by the time Cue gets up and running, largely Galaxy. So we'll be replacing Eridanus, let's say, 1.2, 1.5 grams with potentially 4-gram open pit material, probably not of the same volumes from Cue. So there will be still some makeup from stockpiles. Like I said, I can't give you the numbers, but we're looking at some very strong gold production out of Mt Magnet in FY '25 when Cue comes in.

Perfect. And just one final one. Can you just compare the timing? Do you want to mention the start just on the release of Mt Magnet plan and then the PFS for Rebecca?

Yes, this quarter, Hayden? Thank you. Yes.

For both.

Now this quarter for the Mt Magnet mine plan. What was the second one? Sorry, I missed.

Rebecca PFS.

Rebecca is midyear.

Your next question comes from Andrew Bowler from Macquarie.

Just following up from Hayden's questions on Rebecca, I mean, obviously, heading towards the PFS, so just wondering how you're thinking about funding for that project. I mean, obviously, you're heading into quite a strong period of cash generation. And in light of that, with the up to 30% free cash flow payout for the dividend, are you considering sort of maintaining the cadence of the divi given the Rebecca funding coming up? Or are you looking for other ways to fund Rebecca?

To be honest, at this point in time, it hasn't occupied a lot of our thoughts in terms of funding. I think we've been a very good place to have a lot of options in that regard. And in terms of the cadence of the divi without speaking for the Board and prior to making any decisions on that, we would look to have a sustainable dividend that we do build upon. But I think with $400-odd million in the bank and strong cash flows going into FY '25, we'll have plenty of options with the facility that Ben mentioned also, we'll make those decisions at the time. The first thing is to produce -- to produce the study, make those decisions from there, but we do have a number of options, Andrew.

No. All right. And just on Penny, I think you noted that stoping time's ramp up in the second half, you're expecting grades to sort of head towards reserve level. Can you talk about the sort of lumpiness of grade you're expecting there over the next year or so? Or once you get to that reserve level, you're expecting a reasonably consistent performance from that operation?

Unfortunately, Andrew, I say unfortunately, I think the average will be the reserve grade, but you will see some lumpiness. I'm seeing some daily reports with 20 grams a tonne on them, for example, and you'll get days where it's 7. It depends which part of the ore body you're mining. If you're mining the narrow ends, you'll get a lower grade; if you're mining right in the heart of the ore body, you'll get higher grades. So I'd like to say it's an even 14, 15 every day. Unfortunately, this ore body doesn't work like that, but we'll end up at about the same point with some swings in roundabouts.

Your next question comes from Paul Kaner from Ord Minnett.

Question. Most of them have been answered already, but maybe just one on Edna May Stage 3. Is anything sort of changed in the current environment for you to reconsider that option?

Paul, it's Mark. Thanks for the question. I think we mentioned on the quarterly call, I'm just checking it a couple of weeks ago that we would get our Mt Magnet mine plan out and then potentially have a look at that. We made it clear that, yes, there was labor and inflationary issues more at play in the second half of last year. It was well-documented changes in lithium and nickel, a little bit of heat is coming out of the market, and we have seen a little bit of pressure coming out of the labor market. Our vacancies are sort of at probably 2-year lows. And some -- the prices of some things are going down and the rise and fall is not in contractor -- contracts are not always going up as they had seemed to do previously. So we'll have a look at that probably in sort of March, April, and we see where we're at with that project. So we've got a bit of, we've got Mt Magnet, we've got Edna May, we've got Rebecca/Roe all in this half dealing to them.

Yes. No, understood. And then just maybe just one more on the -- incorporating Cue into the mine plan. Just with the approvals process and permitting, is there anything specific there that we should be worried about?

Nothing that anyone should be worried about. We submitted early December mining proposal, and it's already gone back and forth a couple of times. It's pretty much for us like a Mt Magnet additional mine approval. It's quite different than Rebecca/Roe, which is more of a greenfield site. So there's a lot of differences between them and that cause for concern from what we've seen back from the department. In fact, we might actually have our approvals before we have finished mining at Eridanus, which is around the middle of the year, because we plan to move that open pit crew once we finished Eridanus.

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

Mark and Ben, thanks again, as a shareholder. Well done, given [ conveyor belt ] problems and employment problems in COVID to get where you have. I must say I'm more excited about the future because it looks very rosy. You've got a [ smorgasbord ] with the drilling you're doing at Mt Magnet and Penny and then Cue coming online. I'm being impatient. I'm wondering, I have Ben say again, the -- well, the 2 go hand-in-hand, the new mine plan for Mt Magnet and feasibility study for Cue. Are we looking at the end of the quarter or more inland or can't you tell me?

Our guys are working on it. It will come out when it's ready to go. And also given our commitment to the market is that it will be within this quarter, Richard. We have got -- this call, we've got the BMO conferences in the U.S. and things like that. But as soon as it's ready, we'll release it to the market.

That's exactly what I expect. [ I just saw and have a try ]. The other thing is with the Cue which is even a harder question. You just said about mining Eridanus at the end, is there any rough idea when the Musgrave or might hit the wrong part of Mt Magnus or is that too hard a question?

No. I think we've stated that the December 2024 quarter. We're hoping to be mining in the September quarter with ore pretty close to surface, first ore anyway in the December quarter of 2024.

Well, again, congratulations. You've got a whole range of options for Mt Magnet and the drill results keep coming. So thanks again for all your help.

Thanks, Richard.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Zeptner for closing remarks.

Okay. Just to wrap up, in summary, I'll only add that upon delivering a solid profit result in this half just gone with a forecast to perform even better in the second half, we're very well placed to deliver our tenth, yes, consecutive full year profit and potentially, its consecutive annual dividend later in the year. Thank you for listening in. Enjoy the rest of your day, everyone.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.