Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Resources Quarterly Update. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.

Thanks, Kaley, and good morning, everyone. Thanks for joining us on the Regis Resources June 2021 Quarter Update. I note the quarterly was released earlier today. And occasionally, we'll make some reference to some of the diagrams and figures. Well, what a quarter it's been. Firstly, on the key area of safety, I'm very pleased to report our safety metrics continued to improve as we saw the 12-month moving average lost time injury frequency rate, the LTIFR, continued to drop, and it dropped to 1.3 from 1.5 at the end of the -- which is what it was at the end of the prior quarter. This LTI rate is the lowest for many years for Regis, and it's now below the WA gold industry average, which, obviously, we're very pleased to have been able to get there. But that journey never ends on safety. To date, there have been no confirmed cases of COVID-19 on site. And the impact to operations and business has been controlled and well managed by the team, albeit with a marginal direct impact on our costs, although we, like others, are seeing challenges in relation to labor availability start to bubble away. Like most, we know how -- that the rollout of vaccine continues to build speed as, in my view, the real solution to the labor availability is returning Australia to the high workforce mobility that we enjoyed prior to the COVID outbreak. Look, I would say that the biggest outcome of the quarter was certainly the closure of the deal to purchase 30% of Tropicana from IGO. The transaction has provided several key strategic elements, as you'll see. These include expanding and diversifying Regis' production base, strengthening our operating cash flows. And as you'll note, Tropicana is still ramping up to its normal production level, and it's currently targeted to return to a production range, this is at 100%, of 450,000 to 500,000 after FY '22 and certainly considered by the JV partners to have a life beyond 10 years. At this point, I'd also like to acknowledge the support coming from AngloGold Ashanti. We've had a number of meetings with the team and the teams there. And many, many questions and requests have been fired into that group. And Mike Erickson and the team have been very engaged and very helpful. And we just want to say thanks -- thank you certainly at this early stage of the -- of our working together. Now I need to set a scene for our reporting of Tropicana as well. The deal -- there's a number of dates associated with this transaction, legal ownership, economic ownership, effectively. But the deal was completed and legal ownership took -- occurred on the 31st of May. But based on the advice from our auditors, we'll be reporting the results of Tropicana in our accounts as of the beginning of May. So just setting that scene, and we can explain if people want to know why, we can explain it, but it's actually pretty clear. So on to our operations. On the production front, for the June quarter, we produced a record 114,145 ounces at an all-in sustaining cost of $1,387 an ounce. And there are 2 parts of this, of course, from that record result. The first is Duketon, and the second is Tropicana. Now Duketon, Duketon itself had a record production quarter at 96,829 ounces at an all-in sustaining cost of AUD 1,254 an ounce, which was a significant drop on costs from the prior quarter. And we saw 2 months of production at Tropicana at 17,000 or just over 17,000 with an all-in sustaining cost of $2,121 an ounce. I'll touch on that in a moment. So the full year production for our business was 372,870 ounces at an average all-in sustaining of $1,373. Now that was Duketon in for a full year at 355,600 ounces at an all-in sustaining of $1,336. And of course, we have the extra 2 months of production of the -- just over 17,000 ounces as well on top of that. Looking a little bit more detail of the granularity at Duketon itself through the quarter. Moolart Well had a softer performance with a production of just over 19,000 ounces, and this reduction was primarily driven by a drop in grade and in the recoveries. Now these lower recoveries were associated with complex material that we hit a little earlier than we were planning to. And as a result, the plant wasn't fully set up for it. However, we've got on top of that now, and this has now been dealt with. And we don't expect that trend to continue. Moolart Well, its all-in sustaining costs increased, and this was primarily driven by the lower gold production. Rosemont saw a substantial improvement in performance with production of around 32,000 ounces, which was 21% up on the prior quarter. And of those ounces, about 65% came from the high-grade underground Rosemont. It certainly came home with a wet sail. All-in sustaining costs decreased by 16%, driven by lower volumes, lower mining volumes and the higher ounces produced. At Garden Well, we also saw an uptick in production with a 23% lift to around 45,500 ounces gold production. And accompanying that was a 16% drop in the all-in sustaining costs relative to the March quarter. Across Duketon, the growth capital was $16.8 million, of which probably about half was Moolart -- pre-strip at Moolart, 1/3 was the Garden Well underground development works, and the rest was just at -- minor works at -- other works at Garden Well -- sorry, Rosemont, sorry. Now looking at the 2 months of Tropicana, total production on a 100% basis was 57,700 ounces, which gave us, as I mentioned before, just over 17,000 for the 2 months. The mill head grades still remain relatively low to historic levels as stockpiles are drawn down, while the Havana pit cutback continues to progress as we chase the high-grade ore down. Production in June was also light, specifically end June, with mill availability, which was impacted by a scheduled shutdown of, I think it was around, 36 hours. So it was this lower production in short which really drove the higher all-in sustaining costs, no surprise there. And keep in mind that really, it was only 2 months of production. So the longer the period, obviously, the more you see those elements tend to smooth out. So looking at the cash movements for the business. And you can see in Figure 1 in our release, it's the cash and equivalent waterfall. Now just for simplicity, and making the graph a little bit sensible to read, we've actually netted off the big inflow that we got from the equity and the debt raising. And also, we've netted off against the price that we paid. And we've just showed the net change as a result of the raising, which is enough, of course, a positive, and the price, which was a negative. And I think you can see there, the net change is about $44 million. In summary, our operational -- from an -- I'm looking at the graph now in a little bit more detail, our operational cash flow from Duketon was $82.7 million. Tropicana was $25.8 million, giving us a total of $18.5 million (sic) [ $108.5 million ]. And we had -- and the major outflows, as I said before, apart from the acquisition of Tropicana, was $39.8 million on capitalized mining costs across our sites. We spent a total of $13.4 million on exploration and feasibility projects, which includes McPhillamys, around about another $7.6 million on minor CapEx and $5.5 million on corporate. Then we saw additional nonoperating cash movements -- sorry, these aren't cash movements, they're just not operating, of $17 million in tax. And as I mentioned before, there was a residual $44 million from the raising and the price. Now these movements left us with a cash and equivalents at the end of the quarter of $268.7 million. Now if you ignore the residual, we added about $23 million to our cash and equivalents from operations. Looking more at some of the corporate financing side. On the hedging front, I think we mentioned during the quarter, we've changed the structure and delivery profile of our gold hedges. We changed them from a spot deferred to a flat forward. This has simplified the position. And I just would also note that Regis retains the right and the ability to pre-deliver into those hedges at a faster rate if we chose to do so. So as at 30 June, the company had 320,000 ounces hedged at $1,571 with a delivery schedule over the next 3 years. Looking forward from here and in relation to guidance for the group. Our guidance range is 460,000 to 515,000 ounces. Our all-in sustaining will range -- we're giving a range of AUD 1,260 (sic) [ AUD 1,290 ] to AUD 1,365 an ounce. Growth capital, $155 million to $165 million, and exploration sitting around $43 million. That's for both Duketon and Tropicana. Duketon is expected to see a modest increase in production this year with the contribution from Garden Well, really the Garden Well underground not really starting to have an impact until right at the very end of the June quarter. In fact, I think at the moment, we're anticipating commercial production from Garden Well in June. So that's certainly back ended there. The guidance range for Duketon overall is 340,000 to 380,000; all-in sustaining, $1,340 to $1,410 an ounce; growth capital sitting between $85 million and $90 million; and $35 million on exploration. We are expecting the September quarter to be a bit softer than the June quarter, than the one just finished, as we undertake a number of major scheduled mill shutdowns. And the Rosemont underground as well settles back into a steady state. We were certainly running it pretty hard in the June quarter as we worked to try and catch up what we hadn't managed to achieve in the March quarter and even earlier in April. So we want that settled back a little bit. And strip -- while strip ratios across the operations are reducing over the year, at Moolart, it will be higher in FY '22. In other words, we're expecting Moolart to be higher this year relative to FY '21. And that's what's pushing our all-in sustaining costs up at Duketon. Looking at the growth capital, approximately 75% of that growth capital is actually for all of the Garden Well underground development until that gets to a point where we can declare commercial production and start allocating all the costs to all-in sustaining. Looking a little bit more closely at Tropicana. Our guidance range there, 120,000 to 135,000 ounces; all-in sustaining of $1,140 to $1,230; our growth capital in the range of $70 million to $75 million; and exploration of about $8 million. Now we see Tropicana, we'll also anticipate it to deliver a modest lift in its production relative to the prior year, as the operation really focuses on -- it continues with its investment phase associated with the ramping up of the Boston Shaker underground and also progression of the significant Havana pit cutback. AISC continues to be impacted by the gold production levels, the cutback in early life establishment and the cutback -- sorry, the early life establishment and buildup of the Boston Shaker underground. And the capital cost that we note there is only -- the spend is only associated with the new major Havana cutback -- or the existing major Havana cutback. Overall, the recent growth at Duketon, combined with the addition of Tropicana and its modest growth as well, is delivering into our growth strategy that Regis has been implementing in recent years. This planned growth in production for FY '22 is illustrated in the graph in Figure 2. I would, at this point, also note in the guidance that there is a major corporate one-off expenditure that we're expecting somewhere through FY '22. And that's the stamp duty associated with the acquisition of Tropicana, which we think currently is -- we've provided effectively for up to $44 million. And we think that's a pretty bullish estimate of what that's going to be. In addition to the guidance, some of the other highlights of the quarter are reserves and resource growth. During the June quarter, we declared an increase in our group resources and reserves, and this was highlighted by an increase in our group reserves of 30%. We've now got 7 years of reserves at both Duketon North and Duketon South with an extra 400,000 ounces added. And also, we had another 800,000 ounces added to reserves from Tropicana. Our group mineral resources increased by 35% to 10.4 million ounces with an addition of 0.4 million at Duketon and 2.3 million ounces of resource at Tropicana. Garden Well underground has been progressing with decline development for the quarter of 434 meters (sic) [ 436 meters ]. And we're about to put in our first drilling platform turnout for grade control in the upper areas. We're getting in early this time, and we're certainly learning from our experiences at Rosemont. A reminder that Garden Well underground currently has a mining inventory of 1.8 -- of over 1.8 million tonnes at 3.2 grams a tonne for 190,000 ounces. You see it in Figure 3, which also shows where the development is up to. We're expecting to reach first ore later in the December quarter. Now this mine, like Rosemont underground, will be a valuable addition to our production portfolio. I'd also note that Garden Well underground is open at depth down plunge of the existing development, presenting exciting prospects of further life extension, much like we're seeing at Rosemont Underground as well. So once production is established, work will continue to grow that resource by drilling from those underground platforms. At McPhillamys, we continue to work with the New South Wales depot in relation to permitting for the project. Progress has been made on advancing with the administrative aspects still being closed out, with the outstanding elements in the water licensing area as well. And we're anticipating a recommendation by DPIE to the IPC has the potential for the first half of FY '22. But at the end of the day, we don't have guaranteed visibility on that timing. But we are working closely with DPIE. The DFS work has continued. However, we have seen COVID-19 is having an impact in a couple of areas. Clearly, travel and availability restrictions are limiting access to site for engineering and potential vendor inspections. And this, along with the heat that we're seeing in the construction market certainly here and on the East Coast, has been impacting on the team's ability to complete the assessment of schedules and costs in what we've seen in the vendor proposals for some of the construction packages. We are seeing pressure from both labor and commodity pricing. And when I say commodity pricing, we all love the fact that iron ore is up over $200 an ounce where it was. But of course, that has a flow on to things like steel, and projects need steel. So we are seeing flow-ons there. And we see other COVID-related risks impacting on the project. But we're still working through the detail here to really flesh it out and really understand what the real impacts are and might be on our projects. The DFS is still capable of being completed in the current quarter, noting that finalization is actually still dependent on receiving DPIE approval conditions as these may impact on elements of the DFS that may not have been taken into account. We certainly like to think that we're on top of those, but we just need to stay attuned to that. So works are underway to ensure that in the event of a favorable decision from the IPC, the project will be as ready for FID. Shovel ready is practical. Look, on exploration, the point here is I haven't covered exploration and the quarterly doesn't. The company -- we've made a decision that we're going to transition this routine exploration reporting to a more 6-monthly basis. And we will report on exploration separately during September and April. We'll probably -- April will be -- or the April update will be in conjunction with our reserves and resource update. But rest assured, when we do find our next Garden Well or significant -- very significant discovery, we will immediately be letting the market know. We're just trying to be a little bit more efficient with our reporting. So in summary, the quarter was looked very pleasing on the safety front. But as I said before, in this area, you can never rest or relax. We completed the acquisition of a 30% interest in the Tier 1 Tropicana gold mine, which is genuinely transformational for Regis. And we welcome the addition of Tropicana production. We saw record production at Duketon. We've had good progress at Garden Well South underground, at the underground project there. Progress continues at McPhillamys. And finally, the resource and reserve growth that replaced depletion has extended our Duketon life out to 7 years. The June quarter has been a very significant one for Regis. We've continued to grow the business as a profitable one, producing at a rate of approximately 0.5 million ounces per annum with an outlook EBITDA margin of over $100 an ounce at current spot prices. If you -- sorry, $1,000 an ounce. Thanks, Jon. Good point. EBITDA margins of $1,000 an ounce at current spot prices. And if we look at our all-in sustaining costs and put it in U.S. dollar terms, we're at or just depending on the foreign exchange rate, obviously, but around or slightly below USD 1,000 an ounce. We have nearly 5 million ounces of reserves, and we have over 10 million ounces of resource. The company is well positioned for the future, and we're looking forward to improving that position further. Okay. I would like to hand it back to Kaley and open up for any questions.

[Operator Instructions] Your first question comes from David Coates with Bell Potter.

Congratulations on the quarter. Great to see your record production out of Duketon. Just a couple of questions, one on Tropicana. You touched on the reporting of the 2 months production. Can you just sort of run through that? And then secondly, what longer-term guidance might look like if you guys are going to be in a position to sort of lay out sort of a longer-term life mine plan for Tropicana now that the acquisition is complete?

Sure. Well, what the -- there's actually 3 key dates associated with the acquisition of Tropicana. The first is, well, Jon, I'll answer the long-term question first and if you answer that question on the economic reporting and the legal ownership. So answering your second question first, Dave. Look, both of the JV partners are -- our position and our view is that we -- the Tropicana will transition to -- back to its normal range of 450,000 to 500,000 ounces after this financial year. And so that's the view and that's where our plans are sitting at the moment. Obviously, as time progresses, we'll be able to give a little bit more -- build a bit more of a picture around that, but I think that's pretty clear. Certainly, Anglo have been talking about that since earlier in the year. And with our works together, that's certainly our joint view. So we see -- in summary, we see 450,000 to 500,000 ounces being the rate that the place will run at after this year. Jon, did you want to cover over the...

Yes. Thank you, Jim. So David, in response to your question, there are sort of 3 key dates that we have to think about. There was economic ownership, which essentially occurred on the 31st of March. Then there was the acquisition date for accounting purposes that we determined in conjunction with our auditors, and that's the 30th of April. And then there's the 31st of May, which was financial close. So the impact of those 3 days essentially means that from the 1st of April to the 31st of May, the net benefit that we -- that accrued to us from owning Tropicana essentially was adjusted against the purchase price. So you might recall that when we first announced the deal, we came out with an acquisition price of $903 million that subsequently, as a result of the benefits that accrued to us from the 1st of April to the 31st of May, that was reduced to $889 million. So that's certainly a very positive outcome for us. And then for June, obviously, we just recorded our share of the revenue and expenses in the ordinary way.

Right. Okay. So basically that...

So that essentially means that within these results, because of the determination of the acquisition date being the 30th of April for accounting purposes, we've reflected 2 months' worth of Tropicana in our numbers.

Right. Okay. And that's -- and effectively, that's come through in that original price adjustment. And we have sort of -- presumably, the revenues and all that sort of stuff will be reported on an accrued basis in the full year accounts as well then?

That's right.

Yes. That's correct, yes.

It is -- to say that it's a bit of a woven path that we land on. But yes, there were 3 key dates. But effectively, what -- as Jon said, our accounts will reflect as if we took ownership. Our accounts will reflect ownership from effectively the 1st of May.

Through the P&L.

Through the P&L. But the price that we actually paid was with the economic adjustments of the 1st of June. And it's taken a while for us to get our heads around how that all works, but that's what you'll see. So you will see in our full year accounts effectively 2 months' worth of production and profit from Tropicana for FY '21.

No problem. I think that helps. And secondly, the Rosemont Underground made -- yes, looks like it made a pretty big contribution in the last quarter. Can you just sort of maybe give us a bit more of an insight into, I don't know, if you have some development catch-up to do or something in September and the early part of FY '22 in order to sort of get those production rates more sustainable?

Look, I think not quite. We -- at Rosemont, we had an exceptional -- the team there did an exceptional job. In those last couple of months, we got some extra gearing. We were working our stopes harder. But the reality was we were probably plugging the mine a little bit harder than we really wanted to in steady state as we were trying to catch up some of our -- the shortfall that we've missed for the prior -- for the earlier couple of months. We were producing easy over 100,000 tonnes a month out of there, and we see that -- we don't see that as being sustainable. And so we're backing -- our plans see that backing off. And that's what we'll do. We're probably back off to about, I don't know, 70-odd percent of that, 65%, 70% of that for the average for the year. Of course, tonnes are only one element. The other part is grade. But it will still be a significant contributor. It's just we need that to settle down. Otherwise, we'll just end up in too much of a whiplash cycle with Rosemont. We want it to be smooth rather than up and down.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Beyer for closing remarks.

Okay. Thanks, Kaley. Look, we can see -- thanks very much, everybody, who's joined. We do appreciate it. And if anybody has any follow-up questions, of course, please get in touch. We're more than happy to fill in any gaps and explain what and where we can. Thanks very much for joining. Have a nice day.