Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Regis Resources' Half Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Today's call will be joined by Mr. Jim Beyer Managing Director; and Mr. Jon Latto, Chief Financial Officer of Regis Resources. I would now like to hand the conference over to your first speaker today, Mr. Jim Beyer. Thank you. Please go ahead.

Okay. Thanks, Christian. Look, welcome, everybody, to our half year results for FY '20. Just as a bit of an intro, this isn't something that we've done in the past. But we've decided that just to help to flesh out some of the information, give people opportunity to hear our perspective on our financial results, we thought we'd run with this. As you would know, we have spent time already on the quarterlies going through the physicals in some detail. So we'll tend to use this session as an opportunity to talk through more -- focused on the physicals and the financials and the P&L and so forth. So look, in summary, just kicking off with that, we're very happy with the results. How could you not be? A record net profit of $93 million, up 17%, and that sits with a profit margin of a healthy 25%. Our EBITDA, up 27% to $186 million with a margin of 50%. These are a great -- from our perspective, they're a great set of numbers, and we're very happy with the way that the first half has gone. And combining that, we've also been able to declare an interim dividend of $0.08 a share. So look, that's a -- from our perspective, that's a very good performance, a very solid one. We're quite pleased with that. And what I'd like to do now is hand it over to Jon, who will go through those financial results in a little bit more detail. Thanks, Jon.

Thanks, Jim. So if we turn to Page 5, we see a summary of some of our key physical and financial information. So we had consistent output of approximately 178,000 ounces. We received statutory revenue of $371.4 million at an average price of $2,063 per ounce. And just in case you're wondering why our ounces of output times the gold price doesn't equal our revenue, it's because we had circa $7 million from preproduction assets that we had to offset against our capitalized spend. We had strong gross profit of $144 million, up 16% from H1 FY '19. We had a strong and record net profit after tax of $93.4 million. And again, that's up 17% from H1 FY '19. As Jim just mentioned, we have covered our all-in sustaining cost in some detail at the quarterly calls, so we won't repeat ourselves now. But if there are any questions, more than happy to answer them at the end of the call. If you turn over to Page 6 now, you'll see 4 charts covering revenue, EBITDA, net profit after tax and our earnings and dividends per share. It's pleasing to note that across all 4 of those graphs, what we see is a -- we continue to see a positive rising trend, which is obviously pleasing to see. Over on Page 7, we have a cash flow waterfall. Now that includes bullion on hand, and I'll just walk you through a couple of the various categories. So first of all, we see a strong cash flow from operations. Now that's before income tax, which is shown separately on the waterfall chart of $179.1 million. We see capitalized mining costs of $55 million, and that primarily relates to the capital cost of continuing to move forward with the Rosemont Underground, the capital costs of bringing new open pits online at Baneygo, Petra and Dogbolter. It also includes pre-strip activities at Duketon South, which primarily relates to pre-strip at Garden Well and Tooheys, as well as deferred waste costs at the new Dogbolter-Coopers satellite pit as well as at Garden Well, Erlistoun and Tooheys. So moving on from our capitalized mining costs. We then see exploration. So we continue to see a strong exploration spend of $20 million. And then we move into the other CapEx category. Now that's approximately $35 million. And that includes: the significant TSF expansion that we're undertaking at Garden Well; the airstrip and aerodrome upgrades that we've been doing, and that's substantial as well; as well as underground transformers, haul roads; as well as the acquisition of properties in New South Wales and the camp expansions at both Moolart Well and Garden Well. So next on the waterfall, we see our income tax payments. And obviously, we've paid a substantial amount of income tax, coming in at $33 million during H1. And then you see the other cost category. Now that's primarily our head office costs as well as a few other bits and pieces. So what you can see is that even with the significant capital spend that we've incurred over H1, that we've been undertaking on the Rosemont Underground, the new satellite piece as well as sustaining and growth PP&E, that our cash balance actually increased from $205 million to approximately $230 million during H1. Now that's before the payment of $20 million to triple our landholding in the Duketon Greenstone Belt as well as paying out $40.7 million in dividends. So you can see that we ended H1 with $168.8 million in cash and bullion on hand, which is a great result. Moving on to Page 8. It's pleasing to see that Regis has once again been able to declare an interim dividend of $40.7 million. That's $0.08 per share, and that's fully franked. To put that in context, that represents 11% of H1 revenue and 22% of EBITDA for the period. This brings total dividends paid by Regis since 2013 to $448 million or approximately $0.89 per share. Obviously, we'll continue to assess and review dividends against factors such as operational requirements, planned CapEx and the gold price. So having said that, I'll hand back to Jim for a summary of the half year.

Well, thanks, Jon, and well done to you and the team for pulling that together. Look, in summary, it's been a very pleasing first half. It resulted in, as you just heard, a very solid operational cash generation, which has allowed us to manage this capital-intensive phase that we're in with satellites, the satellite start-ups, the catch-up, stripping, Rosemont Underground, tailings, airport rejuvenation, if you like, a lot of capital-intensive work. It's also allowed us to purchase grounds to grow our exploration. And given our knowledge on that prospectivity, we're very excited on the potential of that and how that's going to really add to our future life. It just takes a little bit of time, given that we've only just picked it up. And then amongst that -- just while also doing that, we've also been in a position to pay a dividend. Bottom line is I think we're doing what businesses should do. We're financially solid. We're building for the future, and we're also providing returns to our current shareholders as well. All right. Well, on that note, I'll hand it back to Christian. And if you've got any questions, we're happy to do our best to help out. Thanks.

[Operator Instructions] Your first question today comes from the line of Levi Spry from JPMorgan.

Two questions, please. Firstly, just on guidance and CapEx, particularly CapEx, so CapEx remaining to be spent for the rest of the -- this year. Can you sort of just walk me through that?

Yes. Our guidance on CapEx, on our growth CapEx is unchanged. It was around $62 million for the year, and we still maintain that. So if you combine that with our all-in sustaining costs, that's how you can add Duketon -- that's how you can -- that's how we provided our guidance on capital spend in terms of quantum.

Yes. Okay. So I can map that up against the $35 million, probably. Yes. All right.

Yes.

And just in terms of like remaining reserves at the 2 operations, what is the average life of mine strip ratio that we should be looking at for those reserves?

Look, I haven't got those with me right now. From memory, I think they're in the reserve statement, but we'll take that on notice and get back to you, Levi. We just don't have that detail here on a pit-by-pit basis. But basically, what I can tell you is that the phase that we're in at the moment, and I think we've tried to put some color on this in the past, the overall strip ratio for the past few years has been quite low. There's no doubt that we've had to -- with bringing on the satellites, we've had to lift our investment in that front. And you can see it, I think, in the lifting of the strip ratio, even compared to this time last year in that half. And we've also indicated that we expect the stripping ratios that we're running with at the moment are probably going to hold -- particularly the ones with all-in sustaining, will hold for another -- the rest of this year obviously because that's in our guidance. And we see it in similar levels next year. It may be -- yes, it probably stays around the same. And then as you get -- because of the phase that we're in, that will start to drop off, and you'll see the all-in sustaining costs coming off in the -- after next year. And obviously, that's on -- off the back of what you'd expect with our current reserve life. When we do add some more in, and I'm fully confident that we will, then obviously that profile will shift a bit, but that will be something that we'll go through in detail at the time, go find it first.

Your next question comes from the line of Daniel Morgan from UBS.

Just a question. I guess one of the hallmarks of this -- of financial result is capital being spent to rejuvenate the business, if you like. There's been money put into the airstrip, the tailings storage facility, I think the camp as well you've called out. Just wondering if in principle going forward, there's anything you'd call out as needing to be rejuvenated in terms of capital spend? Or has this half been the heavy focus on that?

No. Look, there's no doubt it's been fairly heavy in the -- in this recent -- it's probably 6 to 9 months, we've certainly -- the airstrip was a double benefit. It did require a fix-up. But at the same time, we decided to do an upgrade to allow us to fly jets for a reasonably modest marginal increase over just giving it a plain old resurface. That obviously is allowing us, as we settle that in, to give us a reduction in our operating costs because of the efficiencies there. The TSF, no doubt, that's a significant thing that you can only keep down the road for so long. So we're getting in and dealing with that. And once it's built, and it should be finalized by the end of this year, that will be it for the current reserves. We don't need to do anything more there. So that's not an ongoing issue. The other element of the Rosemont Underground, the CapEx that we're putting in there, that as well is an initial CapEx phase. Because once we start commercial production there, which we're expecting may -- will be sometime in the middle of early -- mid to -- middle of this year, around the middle sometime, then certainly from an all-in sustaining cost point of view, we will -- and I'm not sure whether it's consistent with what everybody does, but we will be counting our ongoing decline development to open up new areas as part of the sustaining CapEx. That's what we're planning to do. We just want to make sure we're being consistent with how others treat the underground costs as well. But that will be not quite so lumpy. So that's a bit of a long-winded answer, but the short answer is no. At this point, we're not seeing -- in the future years, we're not seeing any big numbers that -- unless they're actually associated with another start-up, say, for example, if Garden Well comes up trumps, then that'll be another lump a little bit like Rosemont, really. But of course, that's not being done to sustain. That's being done to grow.

And then just wondering, the latest information that you can disclose on the Rosemont underground ramp-up. Obviously, you've got some development ore that's come in during the period. But just wondering when do you think you'll be in steady production. I think you called out then commercial production midyear. Is that steady stope?

Yes. Look, we've -- our expectation was that we'd be getting into stope production in the June quarter. We'll run at it 1 or 2, maybe -- the sensitivity here on is just around the timing. You spend a year getting -- developing the mine, you might be a couple of weeks here and there on when you do your first open -- bench stope trial. We're expecting that, that will be either later this quarter or early in the June quarter. But we're certainly expecting to be in commercial production during the June quarter at some stage. It could be April, it could be May, just going to depend on plus or minus a few weeks. In the grand scheme of things, it's just a bit of movement. But we're certainly expecting to be into stope production in the June quarter and a solid contributor and then running steady from then.

Just a last question on the dividend. How are you thinking about that? The $0.085 is kind of in line with previous halves. Is it -- are you thinking about it as a payout ratio? Or how do you think about that?

Well, first thing I do is I think it's bloody -- oops, I don't think I'm meant to swear on this thing. I think it's brilliant, being able to pay dividend and grow the business. Not everybody appreciates that, but we make a profit. We make a pretty good profit on our production level. We make enough cash to be able to continue to grow our business for the next phase, and we also see ourselves being in a position to be able to pay dividends. So I feel pretty happy about that, quite frankly. How do I -- do we look at it from a point of view of a payout ratio or anything such as that? No, we don't. I mean, yes, you look at everything, quite frankly. But we don't have a fixed policy or a fixed valuation metric that drives our opinion. The reality of it is, we look at what's the prevailing gold price, what's our cash-generating capability, how does it look like over our forecast for the next 2 or 3 years. Clearly, we've got McPhillamys coming down the track at us faster and faster, which is really exciting. We're starting to -- just as every week goes by, we get more and more positive progress on that. And I think that that's obviously something that as we get more confident and clearer in the timing, we'll -- we start to consider how do we finance that by debt and cash. So it's all of those sorts of things, the price, the upcoming spend profile, all of those sorts of things that influence our thinking on what the payout should be. I just like the fact that we have the problem of figuring that out. We're in a position to do it.

Your next question comes from the line of David Coates from Bell Potter.