Regis Resources Limited (RRL) Earnings Call Transcript & Summary

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

Thanks, Sari, and welcome, everybody, to our call on the full year financial results for FY '22. Joining me is Elena Macrides, our co-Sec; Ben Goldblum, Head of Investor Relations; Tony Bevan, our Interim Chief Financial Officer; and Stuart Gula, our Chief Operating Officer. All right. So you should see on your screen 2 things, a PowerPoint presentation, which we'll step through and a phot of myself, unfortunately, for you. All right. So turning to Page -- Slide 2, please, operator. I'd just draw your attention to the cautionary statement. We do make some forward-looking comments and discuss targets later on. So I'd just draw your attention to that statement. Slide 3, thanks. Look, we've had a year with record production, as we've noted earlier, and it's great. It's been our first full year of production from Tropicana contributing to our performance as well. At the same time, we've been making a considerable investment in the future and our future production levels. overlaid with this has been a very challenging environment with the impacts of COVID and the inflationary conditions clearly having an impact on our results -- on our financial results. Our EBITDA was $336 million. That was after a $74 million write-down, giving us an EBITDA margin of about 33%. Our cash flow is still reflecting the strength, I think, of our operating business, $347 million. We ended the financial year with 30 June of cash and bullion at $231 million. And that's after getting an AISC through the full year of $1,556, giving us a margin of $756 an ounce, but also noting in there that we had $161 million in growth capital through that period as well, as I mentioned before, considerable investment in our future. That led us after a noncash post-tax adjustment of $60 million to a statutory net profit of $14 million. Now with this context, as I mentioned, of the external impacts and importantly, a couple of aspects here, the conservative nature of our balance sheet and what we see and our Board sees as a positive outlook for our operations. The Board had confidence in delivering a full year dividend of $0.02 fully franked shares. So that's a bit of a high-level summary of our financials. If we turn to Slide 4, and I know that today has a focus on our financials, but there's a couple of things I just wanted to touch on around our ESG front. Slide 4, please, operator? So the first thing is I just highlight the fact that our safety, as measured by lost time injury frequency rate, is still quite a pleasing level. I mean you're never happy until the number is 0, of course. But we do sit more than 40% below the industry average. Our diversity is quite -- very strong, I think. We have around about 23% female as a measure of diversity, which is certainly above the industry average, which is sitting a few percent below that. Looking at our environment, we had 0 noncompliances and no significant incidents. Pleasingly, I guess, and the one thing I did want to also highlight on this slide was we've approved and are underway with the construction of a 9-megawatt solar farm at Duketon. Of course, this has got 2 advantages to us. No doubt, people are pleased to see that the impacts of carbon reduction and reducing our carbon intensity over time with this. But also, importantly, this has a quite significant impact on reducing our power costs as this will be fed into the power grid that we have down at Chiton South. So a great project that will take about 12 months or so to get that online completely, but we're pleased that we've been able to get that 1 moving. So what I'd like to do at this stage now is hand over to Tony, who will talk through a little bit more of the detail of our results and background to the full year. Thanks, Tony, over to you.

Thanks, Jim, and if we could turn to Slide 5, please. So this is just a highlight summary and some of the further slides will talk in more detail around the net profit and cash flow, but I'll just highlight there the increase in production and revenue. Revenue increased by about 24% over the year, and cash flow from operations also increased as well as $347 million. And I suppose that's largely as a result of the impact of the full 12 months of operations at Tropicana. Just the other point I'll make on figures on this page are the EBITDA for the current year of $336 million, that's after a $74 million noncash adjustment for NRV write-downs. So if you could just turn to Page 6, we'll go into more detail on the net profit result. So profit was obviously below expectation, and I suppose that's been impacted by 2 significant events or 2 factors. The first is the noncash write-down as an impairment, which totaled $85 million before tax, and cost increases that're particularly felt in the second half of the year with fuel and the -- I suppose, the effects that has on the broader business as well. So just in terms of the noncash write-downs and impairments totaling $85 million, $74 million of that was the write-down of net realizable value of the 4 stockpiles, and the 2 major factors contributed to this write-down. We -- when we reviewed the life of mine in the second half of the year, we pushed out the timing for when we were going to process those stockpiles. So as a result, by pushing those, the timing of those -- that processing further out, the gold price used in the NRV assessment is slightly lower because it's based on the consensus price. So that has an impact on the NRV assessment. So that was the big factor in the write-down. And also the other factor is the cost to complete have increased, so that was the other factor. So that -- as I said, that NRV write-down was $74 million. And it's a noncash adjustment, which is included in the EBITDA. I'll also just on that slide, point out the significantly increased depreciation and amortization associated with the Tropicana purchase. This obviously does have an effect on net profit, but does not impact cash or EBITDA. If we can turn to Slide 7. So the -- this is a summary of -- a waterfall of the cash flow for the year. And you can see we started the year at $269 million of cash and $1 billion on hand and finished the year with $231 million. Cash from operations of $378 million. So that's -- the operation has generated a very positive -- very healthy cash flow. And in those next 3 bars, the $219 million mine development, the $56 million exploration and McPhillamys and the $78 million of other CapEx, they're all investment in future growth. So we generated $378 million, and we spent $353 million on the future. So I think that's a very positive message. So really, that's the cash flow summary for the year. And that includes a dividend of $22 million, which is paid during the financial year. If we then turn to Slide 8. The cash and bullion balance, as I've mentioned, of $231 million. In our quarterly report, we did highlight the fact that since year-end, we have -- there have been some significant one-off payments, which have reduced this cash balance. And that related with the payment of the stamp duty on Tropicana, and also our property purchase in New South Wales. And that total -- the total of those 2 transactions was about $60 million, which has reduced the cash balance since year-end. Our net debt is $69 million as at 30 June. So that's made up of the $231 million cash and bullion on hand, less the $300 million syndicated finance facility, giving you that net debt of $69 million. That $300 million finance facility matures in -- towards the last -- in the last quarter of FY '24, and we're obviously looking at refinancing options associated with the McPhillamys development. Our hedge book, we reduced the hedge book by 100,000 ounces during the year. And so there's only -- there's 220,000 ounces remaining as of 30 June, and that will be that hedge book will be closed out in the next 2 financial years. So currently, 75% of our gold ounces sold are unhedged and exposed to the spot gold price. I'll now hand back to Jim.

Thanks, Tony. Okay. Well, look, if we just turn to Slide 9, there's not a lot to point out there. That's our guidance, which we've already noted earlier this financial year. Our group guidance in total, 50 -- between 450,000 and 500,000 ounces, all-in sustaining sitting between $1,525 and $1,625. Our growth capital, as noted, $145 million to $155 million, and our exploration and including McPhillamys is around $72 million. So no change on that front. If you could turn to Slide 10, please. So this is, again, something that isn't new, but it's just a good point for us to show. This is where we're heading. And when we talk about the investment that we've made this year -- or sorry, in the prior year, it's helping us to -- it's all part of our plans and our approach to target this 500,000 ounces per year by FY '25. We see that by our 2 operations, Duketon, we can -- we see -- our target there is to get that up to around 350,000. And at Tropicana, we're anticipating the target there of 150,000 is quite imminently doable. The key change coming through Tropicana this year is actually the Havana cutback. While it will continue for a pretty significant area of activity for the next year, it will start to be a significant contributor to production as we expose a lot more ore and can really start feeding that into the mill and displacing some of the lower-grade feed coming off stockpiles at the moment. So it's planned, of course, as you can see, it does involve a steady reduction in the growth capital decreasing through FY '24. And as you look out to FY '26 and beyond, it's sort of a hazy sort of bluey mixture of colors. We do look at the potential out there for McPhillamys. Although we obviously haven't included that in that growth capital from Duketon and Tropicana. But we see that there are a number of options for us to be able to get to 500 -- target of 500,000 and also to be able to certainly maintain that going forward from FY '25. If I could just turn to Slide 11, please, to wrap it up. Thank you. So what we see here is, just as a reminder, we have a strong financial platform. Tony just talked through the net debt position, and we're certainly in a position to start being able to generate more cash in the future as we move from our -- this capitalization phase that we've been in. We are generating from an operating point of view, strong cash flows, long reserve life with a production profile that does grow, as I've indicated. We do operate clearly in a Tier 1 location. We have a progressive and measured approach to ESG, and by that, means we are moving forward. But we are making appropriate -- we're not making outlandish comments or commitments. We've been steady and considered, but also we are making very strong progress, as identifying and highlighting in our earlier -- my earlier points on ESG. We are looking at our businesses to return to a more consistent plan in delivery. Although we do continue to see as you normally get with a bit of ebb and flow with movements from quarter-to-quarter. But we are getting our operations back on a more reliable basis from where we were at the end of calendar '21, which is very pleasing to see. And we don't touch on it, but I have mentioned earlier some of the very exciting exploration results we're starting to see come through from our exploration program from the last couple of years that we've been stepping up, particularly around areas such as Maverick and the like in that Rosemont trend, Rosemont Baneygo trend. Anyway, we'll pull out there. Today was about the financial results. So I'd like to hand it back now to Sari and open it up to any questions.

[Operator Instructions] Your first question comes from Daniel Morgan from Barrenjoey.

Just on the just the stockpiles under the impairment. Could you talk about maybe what the breakeven gold price you think you need to process there? Just to help us think about if the gold price goes up or assumptions change, might these come back into the mine plan?

These are in the mine plan, Daniel. From a cash point of view, these stockpiles are actually quite valuable. The write-down was because the way that they are done from a statutory reporting point of view, those stockpiles have both -- they carry a cost, if you like, of history. And when we sat down and looked at the timing of it, and as Tony said, we've pushed some of those stockpile treatments because we've been able to reschedule things, we pushed them out in time a little bit. And we also see some increased cost to processing. From a profit point of view, they were in the red, which is why we had to take the write-down. From a cash flow point of view, those stockpiles are still highly valuable and the gold price would need to be considerably lower than what it is today for them to be not worth the price of processing. They're actually quite valuable to us because, from a cash point of view, they're basically all paid for. All they've got to cover going forward is the cost to pick it up and process it through the mill. So any gold price involved in not processing those stock piles would be pretty low. And understand they've been written down from an accounting point of view, they are still stockpiles that sit in our mine plan because they add considerable value from an NPV basis.

And just further on that, when do they roughly sit in the mine plan? And does it relate to Moolart Well? Or is it throughout the business?

It's throughout the business. So it's varying between Moolart at the moment. It could be a couple of years out, whereas down at Duketon South, there could be certainly 4 or 5 years out.

Okay. And just -- could you refresh us on Moolart Well? What is the plan on mining, processing and life there -- or life extension there?

Sure. Moolart, at the moment, based on our reserves, we will be moving to -- we'll be mining ore and direct feeding into the mill this year and into part of next year. And after that, we start to deal with some of those stockpiles that we've been talking about. However, we have some opportunities -- some growth opportunity there in an area called Commonwealth, which is sitting well and truly within the isopach of distance from the Moolart mill. And we haven't -- we haven't finalized our reserves on that, but they certainly -- we've been out there drilling over the last couple of months and the results there are particularly encouraging. So we're anticipating that as those come through that, that life at Moolart will gain something from that. And we've got a few other things that are very interesting there, but we're not quite ready to break cover on. So as a minimum, we see probably, including the stockpiles that we've got there, I think Moolart will be around for at least another 3 or 4 years. So there's a couple of years of stockpile treatment. But if we manage to deliver on the plan that we're following, we'll be able to feed in some good material coming from deposits such as Commonwealth, which will add another -- well, as many as we find it will add, I guess.

And then just switching to Tropicana. There's an asset review called full asset potential. What does that involve? How are you -- are you providing input into it? And what do you expect the timing will be on that? I know you said first half of this fiscal year, but just wondering if it's later or...

Yes. So the full asset potential is something that Alberta has got running right through our Anglo Gold. And it's actually quite similar to a program that was running in Newmont back when Goldberg took over. So that was several years ago now. And it was -- it basically looks at the business, looks at each site, looks at their bottlenecks, looks at opportunities for how has the place been run? I guess it's one of these activities where long-held sacred cows might get questioned, for example. There's also an examination of -- and looking at how the mine -- is the mine being run at an optimum point? So it's -- I would describe it as a great opportunity where the can gets kicked over and everybody has a look and see whether it's actually -- there's a more valuable way of running it. It's a well-structured process. It's buying the group that are partnered with that. Our role is the same as management's role. It's really a senior management's role. It's an oversight to see what happens. The team, there is a very well-structured process that goes -- that basically breaks down cost mapping exercises and things like that. So we watch and provide a bit of input and maybe suggest areas to look at, but it's a pretty thorough process on its own. It also looks at other elements of the cost to see whether there is opportunities to -- for the more general cost reduction of, do we need to use as many posted notes as we do? Okay, it's obviously a lot more serious than that, but -- so it's a really quite -- well-structured approach that comes in from both ways. How is the business run? Has it got the right mine plans? And are there -- where are the cost-out opportunities to make the business more efficient just running with the existing plan? Time-wise, it's underway at the moment. We won't -- nothing's changed from the timing expectations that we've given before. So I think there's an update due in the next couple of weeks, I think. Don't hold me to that. I can't remember exactly what that date is. Actually, I think it might be after the Denver Gold Show. And there's a program that where there will be some quick hits, but there's also -- anything that does get worked on will probably take several months to follow through. But we're particularly pleased that it's being done early in the cycle, running right across Anglo. So -- and the feedback from other operations that has been done already has been very positive. So we look forward to talking about the results in due course.

Your next question comes from Andrew Bowler from Macquarie.

Had a couple of mine to add. Just after a bit more color on how you're thinking about divvies over the next couple of years, just obviously given the potential for McPhillamys spend to start in the next little while?

Yes. Look, it's good -- thanks, Andrew. Good question. I think the idea that the dividend was paid, and obviously, there's a fair bit of discussion about it, but we -- it's as much a recognition of how confident we feel about all the work that we've been doing, not just in the last year, but the last couple of years really is starting to set the business as how that's looking. The -- what we will do with dividends, we will consider at the time as we were asked on a number of occasions, do we have a policy, and we don't. But we also recognize that the intention of a business is to make profit and return a combination of that profit to the -- to shareholders, while retaining some of it to continue to build the business in the future, which, of course, is so critical for mining resource companies. I think the payment -- Regis has got a great history of paying a dividend. We're certainly well and truly well over $0.5 billion in dividends being paid since we kicked it off. We will look at the future as to a combination of both the profitability of the business over the next 12 months and also what the demand might be for capital around McPhillamys and its timing. And also how we would -- whether we would decide to take an approach to try and fund that all out -- we'll look to fund that all out of cash flow or whether we do it with a combination of a bit of cash and a bit of debt, which is probably more the way we're thinking at the moment. So it's not a flash in the pan. It wasn't a decision that was made quickly. It was a recognition that both we're in a position where we could pay, but also where we were confident with the way the company was going to be performing over the coming 12 months in the future.

Your next question comes from Peter O'Connor from Shaw and Partners.

Congrats on the results. Jim, firstly, back on the dividend. Do you have a must-pay view at the board level?

No, because that would be a policy. No, but we...

Let me put another way, do you think that shareholders would expect you to continue because of your continuity of dividends? And is that something that's front and center of discussion when you have those deliberations?

I think the payment of dividend is front and center of the conversation. I mean it's a reason to be, right. It's part why does the business -- there needs to be a combination of growth and return. But ultimately, you've got to look at your return. We've done some -- it's certainly -- we've had a great record of that in the past. It's pretty safe to say that over the last couple of years, it's been a little bit harder for us, but that's also in part because we've been dealing with some of the historic hedges, which have had an impact on our ability to pay dividends at the levels that they were before. But I think the fact that we've done it and the fact that we've -- it hasn't been a great -- from a pure statutory accounting point of view, it's been a challenging year, but we still feel that it's appropriate to be paying dividends. As I said, a combination of where we currently sit and how we think we're going to be in the future. So the Board certainly takes a very strong consideration as to our ability to pay dividends, certainly in the full year. Whether you're talking to interims, I guess, is maybe a different question. But certainly every full year at least. And it will continue to do that. But if it means putting balance sheet at risk, then I think -- just for the h*** of paying a dividend and effectively, if you're saying, will we pay a dividend if we didn't think we could afford it or the business was positioned right, I think -- I don't think we'd be pressuring ourselves to do it just for the -- just to continue to feel good.

And back to the impairment. You make a really good point to sit it down about the -- its noncash impairment and these stockpiles are actually very valuable. Could you just put some numbers around that. So you took it, you got to pick it up, a couple of bucks a tonne. You've got to process it $20 a tonne. Is that kind of what I'm looking at from a cash perspective when I process that material?

Pretty much. Pretty much.

So from competitor gold price at AUD 2,500, AUD 2,600, I've got a pretty solid cash margin on those ounces despite the fact from an accounting perspective, they may be more marginal?

Well, as you say, it's a couple of bucks to pick it up. Processing cost per tonne are probably -- it's the high 20s. So you got to put a little bit on for tailings, the cost to build -- putting a tailing -- the tailings dams, we always estimate a $0.50 a tonne. You've obviously got to put it somewhere. So this is -- it's pretty -- it's low cost up. And some of the stockpiles are actually quite low grade. But I've always said, we put -- we just make -- some stockpiles are very low grade, and we -- specifically, from an accounting point of view, we don't put any -- they don't carry any value because they're the ones that you just -- you know you're going to get caught up with. These stockpiles where we took the write-downs on, they were sort of middling, I don't know, when you get a grade, I guess, the grade probably be sitting about 0.4 grams, something like that? That sort of grade. So they're not -- if they were ripping tonnes, we'd put the d*** thing through the mill already. so it's all part of the classic get in line category of grade management. So yes, but it's still -- they will still make reasonable cash.

And Jim, there the recovery declines with grade, is that how we should think about it as well when you put that 0.4 grams through mill or through recovery?

Yes. We adjust -- as you quite rightly point out, recovery is usually related as much to -- there's always a bit of gold that goes out in tails that you just can't get, and therefore, your recoveries drop as the grade goes lower. Yes, it's well noted, and that's all taken into account.

Okay. And I'm just intrigued about the use of consensus price deck. I'm sure your auditors must have had some flexibility, what you presented. Why wouldn't you present a forward curve?

Yes, it's a good question. And that is, it does become a point of discussion. I guess the more conventional way to run it is with a consensus price deck. If you -- arguably, if you're going to use a forward price deck, you could use that if you actually have locked everything in, which we haven't. So we use the -- we use data from the consensus price deck, which is pretty conventional.

Just philosophically, using data from a bunch of muppets like us instead of a forward curve, which is a much deeper liquid market. Seems odd. My next question is corporate and admin costs are up about $5 million. Is that just Tropicana additional costs? Or what's that?

Sorry, what was that last question? I was still trying to come to terms with you describing yourself as a muppet, Pete.

Speaking in the third person, not me. Corporate and admin costs, up $5 million year-on-year. Is that Tropicana and just the additional work with that? Or is that the going rate going forward?