Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Good day, and welcome to the Regis Resources Limited Quarterly Results Briefing. [Operator Instructions] Thank you. I'd now like to welcome Jim Beyer, Managing Director and CEO, to begin the conference. Jim, over to you.

Thanks, Paulie. Good morning, everyone, and thanks for joining us on the Regis Resources March 2023 quarterly update, which Looks like it's a very busy morning this morning with a lot of reports coming out. So thanks for joining us. Firstly, I'd note that I am joined here around the table with our CFO, Anthony Rechichi; and also with Stuart Gula, our COO; along with Ben Goldbloom, the Head of Investor Relations. Despite production falling below expectations, we made good progress on our long-term plans during the quarter, and we achieved a significant milestone at our growth project at McPhillamys. But first on safety, our LTIFR, Lost Time Injury Frequency Rate was steady and well below industry average at 0.6. It goes without saying, but any way, the health and well being of our people will always be a priority focus for the company, and we are proud of the progress that we've made. The installation of the 9-megawatt solar farm at Duketon South is on track, and we expect it to be commissioned in the June quarter of this year, so just a few -- a couple of months away. And we're looking forward to the first half on farm, as it not only reduces our carbon emissions, but it also delivers direct power cost savings through the reduction of diesel fuel that's consumed currently for the DSO mills. Over the last 2 years, we've invested heavily in growth capital at our operations, totaling nearly $350 million. This investment phase is coming to an end with the declaration of commercial production coming up at Garden Well underground at Havana Pit in the June quarter. And with this, we start the transition from investment to cash build. For the March quarter, overall, we produced just under 104,000 ounces of gold at an all-in sustaining of AUD 18 27 an ounce. Our growth capital was $73.5 million. With the lower-than-expected production in March, we adjusted and tightened our FY '23 full year production and increased our AISC guidance to $1,795 to $1,845 an ounce, as was released back on the 17th of April. The June quarter has seen rates at -- production rates at Duketon South return to [ planned rates ], while at Duketon North, we're seeing that where they're having an ongoing impact this month, and Stuart will make some comment on that a little bit later. Notwithstanding the impact of Duketon North, we are expecting a lift in gold production and cash generation to finish off this financial year. I'll now hand over to Stuart Gula, who will provide some more information on the operational performance. Thanks, Stuart.

Thanks, Jim, and good morning, everyone. Looking more closely at the operations. Duketon gold production was lower at approximately 77,000 ounces, at an AISC of $1,919 an ounce, and Tropicana was also lower at just over 27,000 ounces, at an AISC of $1,458. Duketon gold had lower production at just under 15,000 ounces at $2,948 an ounce due to wet weather events limiting overall material movements. This was offset by decreasing strip ratios as geotechnical issues from the December quarter were addressed, enabling better access to ores. Access to ore will continue to improve in the June quarter, thereby improving its cash margins. However, we do note that weather and its impact has continued into April, and it's largely affecting mining at our [ Blandon ] pit, which is our single largest high-grade source of ounces at DNO. With DNO in the twilight of its current life, we like the previous flexibility to mine from alternative sources in these types of events. However, we see this as a timing issue only and don't currently see any further impact on our guidance. The situation will continue to be monitored though. We acknowledge the thin margins realized due to North this year, and whilst the opportunity for potential exploration success remains along with resource to reserve conversion, a number of scenarios are being evaluated in relation to the value contribution that DNO makes to the Duketon life of mine. Duketon South production was also lower at just under 62,000 ounces at $1,673 an ounce AISC. As the processing plant experienced maintenance events, limiting throughput and ramp-up of ore delivery from the Garden Well underground was slower than we expected. Garden Well Underground is a new mine, and we've planned for issues associated with ground conditions and dewatering. But ultimately, what we provided for and what manifested in the field differed. However, the teams have successfully learned how to deal with and overcome the varying conditions that we've experienced, and we're now moving forward at more acceptable levels of performance in line with our expectations. Pleasingly, Garden Well South Underground delivered greater than 40,000 tonnes in March, and as this production rate continues into the June quarter, we will declare commercial production at the mine. The production maintenance issues experienced at DSO in the March quarter have since been rectified, and we are seeing a much improved performance in the June quarter. Across the Tropicana; Tropicana delivered a lower quarter at slightly more than 27,000 ounces for an AISC of $1,458 as stated previously. The shortfall in gold production was in part driven from underground mines, as they experienced issues with frozen stopes and resulted lower oil production for the period. Open pit mining was also significantly lower as it was impacted by low fleet availability and productivity issues. The underground production issues have been rectified, and we are expecting improved performance in the June quarter. We expect to declare commercial production at the Havana open pit as we see increased ore to mill feed and associated gold production. That's it for me, and I'll now hand over to Anthony for the financials.

Thanks, Stuart. On to the financials now for the quarter. We sold just over 105,000 ounces of gold at an average price of $2,477 an ounce, which includes the effect of the hedges. This delivered $261 million of gold sales, which included some of the record -- some record spot prices for the company. Operating cash flows remained strong. Overall, we generated a total of $99 million in operating cash flows, again, including those hedges, with approximately $58 million from Duketon and $41 million coming from Tropicana. Talking on an accruals basis, as we see in Table 1 of the quarterly report, our mine site capital expenditure during the quarter was $93 million. In addition, exploration and McPhillamys expenditure for the quarter was $18 million. Growth capital was higher this quarter at $74 million due to the ongoing development of the Garden Well underground and the Havana cutback. And this time, also an increase in preproduction activity at DSO's Ben Hur mine. With the Garden Well underground and Havana open pit transitioning to commercial production in the June quarter, growth CapEx reduces accordingly, with costs then reporting to all-in sustaining costs for those mining areas. I'll now point you to Figure 4 of the quarterly report, which outlines the quarter's cash flows. Cash from bullion closed at $204 million at 31 March. You can see that operating cash flow cash flows were $128 million. Partially offsetting this was $29 million in hedge losses owing to the delivery of a further 25,000 ounces into our hedging program. You can see that over to the right, the waterfall chart where the hedge losses come in. Furthermore, we spent $89 million on CapEx, $15 million in exploration in McPhillamys and corporate and finance costs were $9 million in the quarter. We also received a significant cash tax refund. As flagged in the December quarterly report. In March, we received a $67 million tax refund relating to the loss carryback tax offset arrangements. In closing, I note that increasing gold production in the June quarter should provide an improvement in cash generation to finish off the year. Thank you, and back to you, Jim.

Thanks, Anthony. Look, on the growth front, our projects have made good progress during the quarter. As you've heard, Garden Well Main underground, and I draw your attention to -- sorry, the good progress at Garden Well South underground at Gardenville Main Underground, I draw your attention to Figure 5 in the release, which shows progress of the decline and the initial target zone. The underground exploration decline -- at that decline, we've now completed nearly 550 meters to date, with the first diamond drill cores being delivered to the surface. And on that, we're very excited to see some fine grained visible gold observed in course veins hosted by altered basalt, which means we're seeing what we hope to see and where we hope to see it. So it's still early days, but it's very exciting. We're expecting assay results in this current quarter, and we're also on track for the decline in the diamond drilling to be completed by the end of this calendar year. We expect that when we released our resource and reserve statement for 2023 in June some time, along with the exploration update, we'll be in a position to provide some more information on the progress of this work. But it's safe to say that we remain very excited about the potential growth of this Garden Well underground area and are expecting this to deliver some significant value for the company. The underground story at -- and storyline at Tropicana is very similar to Duketon. Continuity of the underground is progressing as planned, with reserves actually outplacing depletion, so in the last 12 months, we replaced depletion, and we added another 50,000 ounces. That's at 100% in calendar -- as in CY '22, which was announced earlier this year. And basically, it's great to see exactly as we were anticipating Tropicana underground is replacing its depletion and adding a little bit of life as well, which is very pleasing to see. At McPhillamys, we achieved a major project, a major approvals milestone with the New South Wales Independent Planning Commission, giving the final state approval for the project. This is recognition of the substantial amount of work that the McPhillamys team in New South Wales have done, in working with all of the stakeholders to make this an approvable and a viable project. In relation to completing the feasibility study and taking this project to FID, we still have a bit of work to do. With a multitude of modifications such as layout changes and arrangements on the site that occurred during the planning approval phase of 3 and a bit years, we've seen -- we have a need to revisit some of the work done previously before finalizing the cost in the schedule. A good time-consuming example of this is the geotech drilling we're wanting to undertake on site, because some of the major equipment has been moved around crushers, the high-pressure rollers have been moved. We need to do the geotech drilling before we can finalize the Class III estimation. Now this work is currently on hold while we close out the Section 10 application that's on the mining side. I've mentioned this Section 10 previously, and we are still confident it will be resolved, and now that the IPC decision is clear, we think this time is fast approaching. We see this completion of the feasibility study, along with confirmation of the funding strategy, resulting in a final investment decision targeted for late in the March quarter of FY '24. Overall, it's very exciting moving into the next phase for all involved with McPhillamys, and we look forward to progressing our project that has significant potential value for Regis. So on wrapping up, what the March quarter brought us was despite the lower gold production, it was another quarter of solid operating cash flows and good progress on our long-term plans. We saw a significant milestone in McPhillamys being delivered, and we've got big milestones to come now at Garden Well South underground and the Havana open pit. While cash generation has been lower than expected year-to-date with gold production set to increase and growth CapEx starting to drop away in the June quarter, we're expecting cash generation to finish higher, as we close out the financial year. So as we now transition the business to the cash building phase at our current producing assets, and we're making some very exciting progress with our growth projects. It certainly is an exciting time at Regis. Okay. So I'll hand it back to you, Paulie, and we'll take any questions.

[Operator Instructions] And your first question comes from the line of Matthew Frydman from MST Financial.

First question is on the comment that you've got in the report around evaluating scenarios for Duketon North. Just wondering if you can go into maybe a little bit more detail on exactly what's being contemplated there? Obviously, the results in the March quarter are not ideal, given not a particularly broad cash margin generated there. So is it really around, I guess, the economic -- I guess, the economics of future reserves and I guess particularly noting that you've got a decent tail of low-grade stockpiles there currently in the mine plan, would that material still be economic currently?

Yes. Okay. So -- it's a good question. And so look, the situation at Duketon North, and I think as you pointed out in your question, our plans have been to finish the open pit mining and finish the direct run of mine feed phase of Duketon North and then run off into the low-grade stockpiles that we've got, and we have some substantial stockpiles there -- some pretty old stockpiles. Basically, with this -- now we also have some opportunity in the area. We've been talking about the potential for Commonwealth and a couple of other potential small deposits. The price and the cost movements over the last 9 months or so and the inflationary impacts, we're really taking a careful look at what those plans are like at the moment and whether they still make as much sense as they did 12 months ago when or -- and before that, when we were planning on running these low-grade stockpiles down. There was always a view that the low-grade stockpiles are really not going to make too much. They had the potential to make money. They certainly weren't going to make a profit, but they would make cash. As we're looking now and flowing through some of the inflationary costs, we're seeing that there's -- we've got to make sure and do a lot more work to make sure we're confident that, that's the case. And if it isn't, then adjust our strategy accordingly. So really, there's no new material to be in the equation at Duketon North. What we're doing is we're wanting to work through and make sure that the plans that we had in the previous cost environment of 12 months ago is still applicable. And if it isn't, then how would be -- should we be cutting the clock at Duketon North. And we're working through that at the moment. And we'll obviously have a clearer picture on that. We'll update the market.

That's pretty clear Jim. One hypothetical scenario...

Sorry, Matthew.

No, you go ahead.

Matthew, yes, the other part of your question was talking about the costs at Duketon North for the quarter and they are high. And part of the reason why they're high is we've still been -- while the total material movement is starting to drop away, which is what we're anticipating as you come to the end of the mine life and these pits are all pretty small. So, you run like a cut snake for a couple of quarters to mine the waste and then you produce the ore. Last quarter, our production was lower and that really dragged our all-in sustaining cost up. So, we anticipate that if things run to plan and we're able to get on top of the wet weather issues in the Blenheim pit, which we are anticipating that we'll see the all-in sustaining cost drop there because production will be higher and also the waste movement will be lower.

Yes, so just in terms of what would potentially be considered hypothetically, I mean, if you ended up with a scenario where you determine that the cash margins that could be generated from the stockpiles aren't particularly attractive, would you then potentially look at putting the Duketon North infrastructure on care and maintenance pending successful further exploration discovery? I mean, is that one hypothetical outcome?

Yes, that's one end of the spectrum of options that we look at for sure.

Okay. And the other end?

No point running a business if it's losing money, but that's what we're working on at the moment. It's understanding the options that we've got with some of the deposits that we've been drilling and working on is understanding can they work in with the low-grade that we've got, has the low-grade still as attractive as it looked. With the continuing movement in some of these prices, they can be quite sensitive. So, we're just wanting to make sure we don't undertake something that actually loses its cash.

Second question around Garden Well South underground and in particular, I think Anthony you touched on the point that, that will be entering commercial production in the June quarter. Obviously, it was a pretty strong quarter from an all-in sustaining cost perspective at Duketon South and part of that was the mining cost, the AUD 38 million there or thereabouts during the quarter. Just wondering what the quarterly impact to all-in sustaining costs in rough terms will be from Garden Well South entering commercial production?

Yes. Well, it will be a bit of a mixed result there. I mean, for a start, the quarter -- the ounces produced from underground at Garden Well will be obviously a lot more than they have been because we hit steady-state stoping production and actually, the grades coming out of some of those stopes are pretty good in this -- on the levels that they're in. So, that would pull down the all-in sustaining costs. But of course, as you move into commercial production, the growth capital stops being defined as growth capital and starts being defined as sustaining capital. Now there will be some elements of the growth capital like specific pump stations and some ventilation infrastructure that's a little bit more -- what's the right word, sporadic that will drop out and go in surges. But the decline in a lot of the development, which was previously classified as great capital will then shift across and now being included in AISC. So, it will be a bit of a shift from one area into the other, but all of that will now have cost classification, but all of that will now be divided over more ounces. So overall, a better outcome.

So, in broad terms, you'd expect positive impact all-in sustaining costs from the commercial production from Garden Well South?

Well overall, it will be a positive impact on cash flow because the similar cost expenditure, whether it's classified as growth or whether it's classified as all-in sustaining, the sort of the cost of running the business is roughly the same. It's just what buckets it's going in, but overall, gold production is up. And that's actually a similar scenario to what we see -- what we expect to see at Tropicana with the Havana pit as well.

Your next question comes from the line of Alexander Papaioanou from Citi.

On McPhillamys, I appreciate that [ formal ] numbers will come with the feasibility study. But I wanted to get your thoughts on what OpEx costs might look like, particularly given labor availability in New South Wales might not be as tight as it is in WA?

Yes. Look, it's still early days. We're -- well, it's not early days, it's probably not the right way to describe it. I think, we're -- there's -- are we seeing pressures on what we anticipate the operating costs to be relative to what we anticipated it would be a couple of years ago and back in 2017? Yes, clearly, we are. I think we're not -- we haven't updated and we won't be updating any specific more guidance around AISC until we've completed that works. But as a sort of a general question on your -- are we seeing the same pressure on labor costs as we are in Western Australia? Look, I think for us, it's a little bit early at this stage to say whether we're seeing that explicitly because we just -- we're not out there trying to recruit a mining team or a contract is not giving us the feedback on it. So, I couldn't answer that one specifically. I mean I think from overall impacts on what with the information we're getting at the moment on how the construction costs are likely to be, there's certainly been a little bit of an easing of contracted demand, which means that their margins are becoming a little bit tighter. So, that element where you'll see flow through or we're anticipating seeing flowing through into our final CapEx number. But in terms of the impacts on the operating costs, as I said, it's going to be more than what it was back in 2017 the last time we put some detailed numbers out. How much more is still -- we'll see. A lot of it depends on the competitiveness as well of the contractor landscape on the East Coast, which we think may actually be better than we have experienced in the last couple of years.

[Operator Instructions] Our next question comes from the line of Matt Greene from Credit Suisse.

Look, just a follow-on from McPhillamys there. Jim, I just want to confirm, once you get the Section 10 in place, from a permitting perspective, there's no other potential hurdles or appeals or anything that could potentially delay the time line to FID?

Not that we anticipate, but that's not to say that -- look, I mean once the Section 10 is cleared, on that basis, we then get on and get out in the field, and we've got a few months of geotech drilling and assessment. Once -- when we -- in the event that we have a final investment decision that's a go, then there's -- I think there's around about 3 months' worth of additional permits that we'll need to get, but they tend to be more perfunctory just permits that you have to get like a permit to realign the road, things that we haven't been able to get until we got IPC approval, and frankly, with some government departments, they don't engage with you until you have committed to the project. But in terms of anything that could be a major, a major stock for us, there's nothing in the formal process, whether somebody comes out of left field, I don't know that we're not expecting that. So, from here, we -- once we've got the Section 10, we see that trial, but there's always -- you can't be 100% certain.

And then just secondly, on Garden Well South, some of the, I guess, ramp-up challenges you had there, you've highlighted ground conditions. I was just wondering if you could then elaborate please, on -- was this quite an isolated event? And I guess, what have you done to sort of help rectify some of those challenges you've got?

Look, I guess the thing that took us -- we'd always planned for learning what the ground conditions were like and making provisions in our times and schedules for difficult ground structures, those sorts of things as we just get used to what ground sport regime is required. What kind of -- what we ended up finding was that particularly in the upper areas, we started to come across a number of bugs, which are like voids underground, some of them can be full of water. Some of them might be the size of a car. Some of them might be a little bit bigger. Some of them would be the size of a football. You just get these bugs full of crystals and geologically interesting, but geotechnically a pain in the back side. And if it's in the sidewall, for example, you can figure out how to manage it. But if it's in the backs or if it's in the floor, you've got to come up with the right protocols because you don't want to be driving over a [ wagon ] and potentially disappearing down into it in an extreme place. So, it just took a while for us to direct to develop our protocols around that. And it means that a certain heading that might have had 100 meters a month in it or something like that, we had to slow that down in the early stages. What we found is that as we've progressed with depth, they've become less in number. So, that's making it a little bit easier, less in size. But that's not to say that they've gone away, so -- but the pleasing thing is that Stuart and the team on Northern side have worked their protocols out. So, instead of sort of frankly, coming across it and sitting there scratching their heads for a couple of days, trying to figure out how to safely manage it and work on ideas, they've now got their protocols as how to deal with that, so -- and move much more quickly through it. Anything you wanted to add to that, Stuart?

No. I mean, I think that it's not conditions that are unusual. It's just everyone -- a lot of the team have done it in other places. This is the first time the team has actually got together and all done it together at Garden Well South and they have to work it out, which they have.

And the other was water. We had -- we've always known the mine was going to be quite wet. We've put in provisions. We've got in quite large pump stations as I think we've put photos in some of the quarterlies in the past. But sometimes the water doesn't come out exactly where you expect it to be. And so you've got footholds in different directions and allow time for the water to drying and we understand that a lot better now. So, we're now putting our deep watering holes not where we think they should go, but where we know they should go because of the experience on the level above or 2 levels above.

Sorry, go ahead.

No. That's it, Matt.

So, it sounds like this is quite a sort of isolated circumstance in the upper levels. It's not really sort of changing your view on, I guess, scheduling or stope design on a go-forward basis. Just quite happy where that sits.

Well, I'd much rather if it wasn't there at all and every mine is different. I guess that's the point we're probably trying to make is that every mine is different. And when you start up, you get these events -- these situations that you might have thought a bit about and planned for. And sometimes, it goes exactly the way you think it's going to go and other times, you might have over-planned for it or you might have under-planned and our point is that in this case is we're only just getting into the -- we're getting into the production areas that we're producing now. And it just takes a while to understand how you get into a rhythm. If a mine has been going for 3 or 4, 5 -- for years, you understand how to deal with the issues and everybody is sort of well drilled on it because every mine is different. If you're lucky, you go off without a hitch. I've never heard of that happening, but sometimes, I guess it must do. But just got to -- as much as we -- we learned some lessons from Rosemont, and we've -- in that -- there's basically very little provision for this sort of thing and we copped it pretty hard when we were starting that up. So, we made a lot more careful thinking about how we plan around these events. If we hadn't have done it, it would have been much more significant of an impact than it was, but it was still there. But basically, we've learned, we've moved on and the issues are still there. Water is still there and the bugs are still there. We just -- the bugs are disappearing a bit more with depth or becoming less of a scale size issue. But the issues are still there. We just know how to deal with them more efficiently now.

There are no further questions at this time. I would like to turn the call back over to Jim for closing remarks.

All right. Thanks, Paulie. Thanks, everybody. Appreciate you joining us, and thanks for the questions. And if anybody has any follow-up questions, please give us a call, get in contact through Ben. And otherwise, have a good day. Thanks very much.

This concludes today's conference call. You may now disconnect.