Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Resources Full Year Results Briefing Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director; and Mr. Jon Latto, Chief Financial Officer. Please go ahead.

Thanks, Rachel. Good morning, everyone, and thanks for joining us on the Regis Resource Full Year Results for FY '21. I'd note that the appendix 4E and report and an accompanying presentation were released earlier today, and we may make occasional references to these. So before I hand over to Jon, I'll just touch on some of the key financial elements, and then I'll leave it to Jon where Jon can discuss the results in more detail. So for FY '21 year, we saw gold production of approximately 373,000 ounces at an all-in sustaining cost of AUD 1,372 an ounce, and a C1 cash cost of $1,051 an ounce. Now this drove the net profit after tax of $146 million, which gives us with a net profit after-tax margin of 18%, which reflects the strength of the business. EBITDA was $403 million, with a very strong EBITDA margin of 49%. Cash and bullion $269 million at year-end, and that was after a payment of $61 million in fully franked dividends during the year. A final fully franked dividend of $0.03 per share has been declared by the Board for -- giving a full year fully franked dividend of $0.07 per share for FY '21, giving a basic yield of 2.8% and a grossed-up yield of 4%. Overall, a strong result with another dividend return for our shareholders. So I'd now like to pass it over to Jon. Jon?

Thanks, Jim. FY '21 saw a solid performance by Regis with an NPAT of $146 million, a solid net profit margin of 18% and an EPS of $0.26 per share. EBITDA was up 2.3% in FY '21 to $403 million, with a healthy EBITDA margin of 49%. As previously reported in our quarterly results, cash and bullion set at $269 million at 30 June '21, with debt of $300 million, which we took on as part of the acquisition of 30% of Tropicana, which we completed earlier this year. So using those 2 metrics, net debt sat at $31 million at the 30th of June. A couple of points that I'd like to make in relation to our net profit after tax of $146 million for the year, which was lower than the previous year, primarily due to an increase in the noncash components of cost of goods sold. Firstly, there was an increase in our noncash costs for depreciation and amortization. So if we look firstly at depreciation, we see an increase in depreciation charges of approximately $20 million, which was driven by our first full year of depreciation associated with the Rosemont Underground assets; an increase in right-of-use asset depreciation, again driven by the first full year of the Rosemont Underground being in commercial production; the commencement of depreciation of the Garden Well Stage 3 TSF during the year 'and, of course, recognition of depreciation charges for May and June associated with Tropicana property, plant and equipment that we acquired as part of the acquisition that we completed. Secondly, we see an increase in amortization, which increased approximately $60 million year-on-year, predominantly because for the last 2 to 3 years, we've been mining above long strip ratios and the deferred waste associated with that is being amortized. In FY '21, we saw a significant capital investment in the company's existing operations. If you look at the cash flow statement in our financial accounts, you can see that payments for mine development of $138 million, and that included significant pre-strip and deferred waste expenditure at the due to open pits, which obviously needs to be amortized. Again, the first full year of commercial production at the Rosemont Underground and therefore, the first full year of amortization of capitalized underground costs as well as the recognition of amortization charges for May and June associated with our 30% interest in Tropicana. We did also see a 16% increase in our cash cost of production from $307 million to $355 million in FY '21. And that was driven by a couple of factors, including our production, as Jim mentioned, at approximately 373,000 ounces, were 6% higher than in the previous year. And secondly, we have experienced some increases in our cash costs, primarily being the first full year of Rosemont Underground being in commercial production, whereas in the previous year, it was only in commercial production for 2 months. And we've got 2 months of cash costs associated with our investment in Tropicana. So if we move over to Page 4 of the presentation, you'll see a summary of our financial results for FY '21. As mentioned, we saw a production of approximately 373,000 ounces, which was 6% up on the previous year. And again, I'll note that our FY '21 figures include 2 months of production from our 30% interest in Tropicana. We sold 367,285 ounces of gold during the year at an average price of $2,229 an ounce. That is the average price we secured after selling into approximately 80,000 ounces of our most out-of-the-money hedges. I'll expand upon that a bit later. I'll expand upon that a bit more later on. We had sales revenue of approximately $819 million in FY '21, which was a year-on-year increase of 8.3%. If we move across to Page 5, it's pleasing to see that Regis has again declared a dividend. The final dividend for FY '21 is $0.03 per share, which results in a total payment for the interim -- sorry, for the final dividend of approximately $22.6 million. This is 10% higher than the payment made in respect of the interim dividend paid earlier this year, and that's driven by the increased number of shares that the company has on issues following the Tropicana acquisition. At $0.03 per share, this final dividend brings dividends declared for FY '21 to $0.07 per share. It gives a basic dividend yield of 2.8% and a grossed-up dividend yield of 4%. It also represents 29.5% of our FY '21 net profit after tax and 10% -- 10.7% of our FY '21 EBITDA. It brings the total dividends declared by Regis since 2013 to well over $0.5 billion, and indeed, that now sits at $532 million in total. As we have noted previously, we will continue to assess the level of future dividends in the context of gold price, operational performance and capital expenditure requirements. Page 6 of the presentation provides a cash flow waterfall that plots our movement in cash and gold on hand across FY '21, and I'll just talk to a few of those categories. Cash flow from operations of $378 million for FY '21, which is the first part that you'll see is basically cash flow from operating activities shown in the cash flow statement adjusted for income tax and other costs, which is primarily head office expenditure, which is shown separately in the waterfall. We've got mine development costs of $138 million, and that primarily relates to pre-strip activities at the Duketon Northern pits, and that's primarily at Moolart Well, Baneygo and Dogbolter. We've got capitalized deferred waste at the Duketon open pits, primarily at Garden Well and Tooheys. We've got capitalized underground costs at the Rosemont Underground and obviously, preproduction costs at the Garden Well Underground. In addition to that we also have deferred waste at Tropicana for the Havana and Boston Shaker open pits for May and June. Moving on to the next component of the waterfall. We see exploration and McPhillamys costs for the year of $45 million. And the next bar in the waterfall shows other CapEx costs of $42 million for the year, which primarily includes 2 main areas of expenditure. Firstly, there's payments for property, plant and equipment, which was approximately $21 million. And that includes TSF 3 work undertaken at Garden Well, new lifters and liners a new workshop for the Garden Well underground, portal support works at the Garden Well Underground and electrical substations and fans for the Rosemont Underground. And the second component of that other capital expenditure, which accounts for the balance, is finance lease repayments. Moving on to the other category, in the cash flow waterfall, we see a spend of $10 million, and that's primarily corporate overhead, but it does also include a couple of minor adjustments associated with the Tropicana acquisition. What this then shows is that the company's cash and bullion balances increased from $209 million to $353 million before the payment of dividends, taxes and before the impact of any residual funds retained from the capital raising. The waterfall chart clearly shows that Regis continues to be a substantial taxpayer with an actual income tax payment of $77 million for FY '21. The next bar shows that while dividend payments were approximately $61 million in total for FY '21, some shareholders elected to participate in the company's dividend reinvestment plan, leading to a lower cash outflow of $51 million. Finally, we have some residual cash retained from the capital raising, and this will primarily be used to pay stamp duty associated with the acquisition of Tropicana. I should note that we funded the acquisition of Tropicana through a $650 million equity raise and a $300 million loan. Now clearly, we haven't shown those flows on the waterfall as that would make the axes on the graphs meaningless. So what we have done is show the residual funds that we retain after executing that transaction. And the factors that I've just gone through are really the key drivers behind why the company is sitting with a cash and bullion balance on hand at the end of FY '21 of $269 million. Before I hand back to Jim, I'll just talk briefly about the company's hedging and the debt that we have. During FY '21, we continued to execute our strategy of selling into our lowest-price hedges, and we met the target that we set of selling into 80,000 ounces of those hedges across FY '21. This means that our hedges reduced from approximately 399,000 ounces at June 20 to 320,000 ounces at June 21. In late May 2021, we announced that we had changed our hedging structure from spot deferred to flat forward. And that did a number of things. Firstly, it's locked in or set a gold price for all of our remaining hedges of $1,571 per ounce. It moved up to a product that is better understood in the market, and it still gives us the flexibility to increase sales into our hedges if we choose to do so. And what we have done from the 1st of July is we have increased our sales into our hedges from 80,000 ounces -- sorry, from 80,000 ounces per year or 20,000 ounces a quarter in FY '21 to 100,000 ounces per year or 25,000 ounces per quarter across FY '22. And finally, I note that the company now has $300 million of debt, which had put in place to partially fund the acquisition of Tropicana. Subsequent to the end of the financial year, the company worked with Bank of America to syndicate the debt for which there was very strong demand. And we've previously announced that the syndicate members are now Macquarie, HSBC, NAB and Westpac. And having said that, I'll hand back to Jim.

Thanks, Jon. Look, I would just like to take a moment to cover up again on our guidance for FY '22. We are expecting a very strong year of growth within our business as production continues to lift at Duketon. And we also see the impacts of a full year of Tropicana starting to come in. So our guidance for gold production of 460,000 to 515,000 ounces across the year, an all-in sustaining cost of AUD 1,290 to AUD 1,365 an ounce. Growth capital, a range of $155 million to $165 million. Exploration across both sites, both Duketon and the Tropicana area, $46 million. And finally, about $26 million at the moment on McPhillamys. Now look, as we noted previously, the September quarter is expected to be a soft one for Duketon. That's at Duketon. And this is due to -- we had some major scheduled mill shutdowns and a motor change out during the month of July. We've also been undertaking some pit rescheduling requirements in the short to medium term. This was due in part to some preventative geotech work on catchment fences that we did both at Rosemont and Garden Well as a preventative action. And also, we've just seen a slower-than-planned ramp-up in some of our mining activity, surface mining. We're confident and we know that we'll be able to pick this up. It's just will have an impact on this certainly on the September quarter. And we also see Rosemont Underground rebasing into its steady state. We ran it pretty hard during the June quarter. And we just got to get that back to a stable point. And so we're getting some rebasing on Rosemont Underground production. So look, coming out and closing out on FY '21, it was a big year for Regis Resources. The acquisition of 30% interest in the Tropicana Gold Project, clearly very significant. The ramp-up of Rosemont Underground, a good thing to see that we're seeing the potential for extensions clearly possible there with our drilling. We're particularly excited about that. We've commenced the Garden Well Underground and plenty of strong indicators of both more material at depth and also potentially an additional mining area just to the north about 800 or so meters to the north of Garden Well Underground, and that's sitting underneath the main pit, that's looking -- certainly got some potential in it as well. Now this all -- we delivered a net profit after tax of $146 million, fully franked dividends of $61 million paid. For FY '21, as Jon mentioned, total declared dividends of $532 million, over $0.5 billion since 2013. And if you include franking credits, that's $750,000 million in value nearly to our shareholders. Look, Regis continues to build on its history of growth and dividend return. Last year, we delivered -- last financial year, we delivered on major increases and continued to work on growth. We grew Duketon's life through reserve addition, and we continue to optimize the operations there. We delivered a step change through the addition of Tropicana, and we're also anticipating increases in this operation -- in production from this operation coming over the next 12 months or so as we start to round out on the end of the pre-strip cycle and the stripping associated with the Havana cutback. We continue to push forward on the next step at McPhillamys. And we continue to be convinced that there's still plenty of value defined across the Duketon Greenstone belt as is reflected in our exploration program and funding. And all the while, we're just keeping alert for other external opportunities as well. It's been a big year. And we are so much better set up for the future now. And the exciting part is we know that we're only just getting started. So look, on that note, I'd like to hand it back to Rachel, and we'll open up for any questions. We can see there's a few there. So back to you, Rachel. Thank you.

[Operator Instructions] Your first question comes from Matthew Frydman with Goldman Sachs.

I appreciate all the detail you've provided on the financial results. But wondering if I can just ask for a quick update on the McPhillamys approval process. It appears that the DPIE is still waiting for further information, obviously, related to the DA and has been waiting since February. Is that still the case? Or has that information been provided? And just wondering if you can give us an update on the expected time line, at least for the approvals part of the process from here?

Yes. Look, it's an interesting process, to say the least, that we're trying to work our way through here with the with the New South Wales government. There is outstanding elements that -- or queries that they've got with us. To be honest, the outstanding nature of that relies on information and guidance from an internal government department itself, which is what we're working on. And we're working quite closely with the DPIE Planning as they're called or the Department of Planning, Infrastructure and Environment. So -- and they've been very constructive and helpful as we try and work our way through this. As we've mentioned before, the key area that we still working on here is -- at this point, is the surface water licensing and how that's calculated and how those licenses can be estimated, allocated and locked down. And that's basically the area that we continue to work and try and establish clarity that provides the clear path forward, which is what DPIE Planning is waiting -- they're reluctant to -- as I said, they're supportive of the project, but no one wants to get a project recommended to IPC without having the Is dotted and the Ts crossed. So that's what we're working through. Timing-wise, look, we'd love to -- we've -- I guess, we've been dealing with the uncertainty of the totem lines, frankly, over the last probably 10 months or so as we've been anticipating things would be happening from these areas faster than they have been. We'd love to work on the basis that we hear something constructive and moving forward sometime in the December quarter. But at the end of the day, that really sits with government as we try and work through this -- through the various bureaucrats to get resolution on this area of uncertainty.

Got it. Yes. And then I guess just on your, I guess, the recutting of the numbers on McPhillamys, I see that you've got unallocated segment assets of nearly AUD 600 million. Just wondering if maybe Jon can give us an idea of roughly what component of that is McPhillamys? And is there potential or is it likely that when you do get an opportunity to complete that revised DFS, do you expect that, that may trigger a reassessment of those carrying values?

I'm not sure that I can give you precise numbers, Matthew. Perhaps, I'll have a look into it, and I'll have a chat with you after. I don't have the exact breakdown off the top of my head.

Okay. No problem. We'll pick that one up offline. And then maybe just finally, Jim, you mentioned the, I guess, the Tropicana stripping profile. Clearly, there's a component of that in growth capital next year or in FY '22, I should say. Can you give us a bit of a sense of the ongoing stripping requirements for that asset maybe in terms of total material movement levels? Is the TMM going to stay broadly flat over the medium term? And just wondering whether we might see a shift over time from either capitalizing that stripping to expensing those stripping costs. Just wondering how much of that capitalized stripping is expected to carry forward.

Yes. Look, I think -- I mean, what we're seeing in the growth capital at Tropicana, as we've noted in the -- in our guidance, the reality is you end up with these 2 different approaches almost to how stripping can be defined. Now under the all-in sustaining cost version, certainly, the bulk of -- in fact, I think all of the growth capital, as it would be defined for all-in sustaining, will be completed this year. And then it will move into a phase of just sustaining a lower strip ratio type of work because, obviously, at the moment, I think most of this year or a big chunk of this year, a lot of the material moved out of Havana is all waste as they get down -- as we get down and get access to the ore. So I'd expect that to drop over time. We haven't given any specific guidance at this point, and we're still working on what that longer-term strategy story is that we're able to convey to the market. And when we're in position to do that, we'll give some better guidance on it. But I would certainly be anticipating that, that stripping ratio will drop off as we get well into the realms of mining and processing ore. And of course, there's nothing coming out of it or virtually nothing coming out of it at the moment.

Your next question comes from David Coates with Bell Potter Securities.

Just quickly just following up on that. That's CY '22, I assume, you're talking about, this calendar year that "growth capital" expected to be completed by Havana cutback?

Yes, sorry, what was the -- just say that again?

Just following up from Matt's question that you were talking about the growth capital, the great ore pre-strip Havana being complete this year. I assume you're talking about calendar '22 or FY '22?

FY '22.

Let's see, just -- yes, you mentioned the steady state at the Rosemont Underground and a couple of ramp-up issues at the open pits as you're sort of getting settled into the September quarter. Can you just give us a bit of background on some of those, some of the types of issues we may be seeing? Is it labor tightness? What are some of the underlying factors behind that?

Yes. Yes. Look, I've just been thinking about that first question that you asked. We are anticipating a little bit of growth capital will probably roll into the September quarter next year, which would put it in the very early stages of -- what would that be? FY '23. But it's certainly expecting that it will all be well and truly just running as sustaining CapEx in -- at the -- by the end of next calendar year. But yes, there will be a little bit in the September quarter anticipating. I hope I made sense on that one.

Yes, no, it makes sense.

Coming back to your other question as to these impacts. Yes, look, I don't think there's any doubt. It's a pretty consistent message we've around the tightness in the labor. It is having an impact. Different -- it hits at different areas. A fair chunk of our professionals work from the East Coast, and they've either -- we're now at that stage where everybody is either moved or given up and moved home. And that causes what I would call is a bit of a slow run down. You don't have quite as many geos or quite as many mining engineers as you would normally have. It doesn't have an impact on day-to-day, but it does mean that you're like a spinning wheel that hasn't got quite as much energy being with [indiscernible]. And so the business just starts to run down a little bit and gets a bit harder to achieve things. So we certainly -- we're certainly seeing that as a potential risk. Then on the near term, our contractors and their source of labor is certainly getting harder, and that is having an impact. If we were running at steady state, we probably would have been able to manage that. But because we've ramped up our activity on BCM movements from our pits at least for the next -- or we had a plan for the next 6 months, I think that's just causing some challenges because it is a sort of a lift and a drop. We believe that we've got the ability to cover that over the years. So we're not -- it's frustrating and having a short-term impact, but we believe that it can be managed over the longer term. The other area that we've just seen is our -- we've got to increase our drilling and blasting capacity because -- which I think is -- and we're mobilizing -- some more rigs are being mobilized at the moment for that. Just as we've been -- we've had to shuffle our activity around. It's just brought forward some of that additional drilling and blasting requirements. In terms of the geo tech, yes, as you know, last year, last financial year, we did have some impacts on the geotech and we've been watching that quite closely. These delays that we've had early in the September quarter -- or during the September quarter, have been less around actual values and more about, well, we want to put up some safety management, some catch fences, geotech fencing that captures loose rock as it scuttles down, it comes loose. And that is -- particularly as the pit starts to get towards the bottom, and you've got a lot of work occurring in a relatively confined space down the bottom, we just need to make sure we've got the right elements for risk management in place, and that takes time. And because you've got a narrow base while you're putting in the walls, you're basically -- yes, you've got to stay clear. And that's just caused that -- it's actually been pretty painful for us, but we'll come out of that and recover that, but it's a short-term issue, but it's definitely something we wanted to do for risk management. The mill shutdowns were just early routine, nothing out of the ordinary, just timing-wise, you can imagine, sometimes they might have originally been planned for June, but you push them over because that's what happens in June and we're just in a little bit of catch-up and just a little bit of work that was all scheduled to happen at the beginning of the year, which I prefer it to be at the beginning rather than at the end. So that sort of adds a little bit of flavor. We -- COVID also impacted our -- when we go into a lockdown, which we have done in this quarter, a month or so ago, that causes productivity issues for us because we can only run things like night shift crews only run for a certain amount of time before we have to give them breaks for fatigue. And they just have a bit of a cumulative effect. And in a quarter where we're expecting and planning for our activities to lift a bit, they have lifted, but not to the extent that we wanted it. So it's just they're having an impact on our immediate production this quarter.

If I might just pop 1 more on your thinking around changing the hedge profile?

Yes. Yes, that's right, David. So yes, we are increasing the sales into our hedges to 100,000 ounces a year. And I think at this stage, the intent is that we'll continue to sell down those hedges at that rate.

So there's a strategy behind it?