Regis Resources Limited (RRL) Earnings Call Transcript & Summary

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

Thanks, Travis, and good morning, everyone, and thank you for joining us on the Regis June 2024 Quarterly Update. Today, I'm joined by our COO, Michael Holmes; our CFO, Anthony Rechichi; and our Head of Investor Relations, Jeff Sansom. So kicking into the results. Firstly, on safety. We had a very pleasing outcome in our safety performance. Specifically, our 12-month moving average lost time injury frequency rate was 0. It means we had a full year clear of any lost time injury. This is an -- this outcome is certainly in line -- it's an impressive outcome, and it's certainly in line with our purpose of creating value safely and responsibly. Although I would note that while it's a great outcome and well done by the team, this is a journey with no end, and we will keep working hard to maintain this performance. Talking about our purpose of creating value, now let's talk on cash. I want to start off by pointing out to the cash-generating capacity of our business. Since December 2023, our gold production has been fully leveraged to the gold price, and we've delivered record cash flow and record build of cash and bullion. Given that these results were pre-released, it shouldn't be a surprise, but I wanted to iterate that the business is in a great position, and we're working to continue to deliver ongoing cash build now that we're free of the shackles of our previously long-standing legacy hedge book. On to our operations and high-level financial metrics across the business. Our operations continued their recovery from the weather impacts of the prior quarter, albeit and not with full recovery, and Michael will talk some more on that in a moment. As we expected, the quarter delivered much stronger production at 106,700 ounces of gold at an all-in sustaining cost of $2,247 an ounce. At Duketon, assets recovered very well following the weather impacts and delivered 76,000 at an all-in sustaining of $2,249 an ounce, while Trop has been slower to recover and ongoing challenges related to additional rain events, poor labor availability and unplanned equipment downtime has meant that Tropicana delivered only 30,800 ounces at an all-in sustaining at $2,145 an ounce. For the full financial year, despite the impacts related to the weather, we're pleased that at a group level, our production, our AISC and our growth capital all fell within the guidance ranges that we declared at the beginning of the year. And our expenditure and exploration in the McPhillamys were slightly below. At a more granular level, Duketon delivered production and AISC within guidance, and Tropicana production was slightly below its guided range but within the guidance range on unit costs all-in sustaining costs. I'll note that for June quarter, we saw some noncash inventory adjustment costs as we drill on our stockpiles, albeit at lower volumes to the prior quarter and something that will continue into this year. Michael will provide more insight into the operational drivers and Anthony will provide more detail on the all-in sustaining cost drivers shortly. From a growth perspective, I'll talk to this a bit more in detail towards the end, but we made significant progress on our organic growth. Commencing the development of the Garden Well Main underground extensions at Rosemont called Stage 3. And earlier this week, we released the McPhillamys DFS, which confirmed McPhillamys as a long life, low operating cost open pit mine that delivers robust financial metrics and significant leverage to the gold price. So for now, that's it from me, and I'll hand over to Michael, our Chief Operating Officer, to discuss operational performances. Over to you, Michael.

Thanks, Jim, and good morning, everyone. Within our operations, we had a mixed recovery from the severe weather events in March that continued to impact the final quarter of FY '24. At Duketon, the recovery from the weather impacts was relatively rapid and both Duketon North and South delivered ounces in line with expectations. During the quarter, Duketon South produced 66,000 ounces at an all-in sustaining cost of $2,094 per ounce, with open pit mining producing just over 55% of gold from our Garden Well, Ben Hur, Tooheys Well and Russell's Find to open pits. During the period, we did have some small rain events, which delayed activities in certain areas, but nothing material. The Garden Well South and Rosemont underground performed well and delivered 29,600 ounces. We commenced the development of the Garden Well Main mining area, as well as the extension of Rosemont South called Rosemont Stage 3. We expect to commence first stoping of ore from Garden Well Main and Rosemont Stage 3 in quarter 1 FY '26. So that's in about a year's time. At Duketon North, we produced 9,500 ounces at an all-in sustaining cost of $3,328 an ounce with ore mined from Eindhoven, Gloster and Blenheim open pits. Production was up and costs were down compared to the last quarter as we drew less from our low-grade stockpiles and ran our mines -- and run the mines and the mill towards care and maintenance. As of now, all process -- the process plant and all mining activities have ceased and DNO is transitioning to care and maintenance. We will continue, however, to explore with the exploration activities in the DNO region as we look for ounces that could support a restart in the future. We did continue to draw on stockpiles and the all-in sustaining cost of $3,328 per ounce includes a noncash cost component of $438 per ounce. Looking to FY '25 and with DNO transitioning to care and maintenance, all gold production will be centered around our Duketon South operations. We expect that Duketon South will continue to produce ore from the underground and the open pits of Garden Well, Ben Hur, Russell's Find and Russell's Find, Tooheys Well and with Russell's Find finishing up towards the end of FY '25. As for Tropicana, their recovery from the weather impacts has been slower-than-expected, but several other issues have also impacted its performance, primarily the open pit performance this quarter. Overall, Tropicana produced 30,800 ounces at an all-in sustaining cost of $2,145 per ounce. Operations within the open pits continued to be challenged in the June quarter. Firstly, dewatering of one of the Havana open pit stages continued into late April, reducing access to that ore. Ongoing rain events have continued to saturate the access roads impacting road quality and disrupting supply routes, delaying the supplies of mining equipment parts and consumables. Poor labor availability also caused by seasonal illnesses and worker absenteeism, combined with unplanned equipment downtime also reduced open pit mining volumes. The sum of these impacts was that Tropicana open pits delivered only 12,100 ounces for the quarter. This underperformance of the Tropicana open pits was a primary driver for Tropicana being below the FY '24 guidance range. As for the underground, operations delivered 13,400 ounces. At the end of the quarter, Tropicana was still not performing to expectations, however, is forecast to progressively improve in the coming quarter. And looking towards FY '25, mining will continue in the Havana open pits, the Boston Shaker underground. An assessment of the potential Havana underground project is continuing and is progressing to Board approval. Across all our mills for the June quarter, Duketon performed to expectations with no unplanned downtime. However, throughput at Tropicana was lower than planned due to reduced availability. Across all the processing plants, low-grade stockpile material, supplemented mill throughput, which will continue into FY '25. I will now hand over to Anthony to discuss -- who will discuss the quarterly financials.

Thanks, Michael. First off, to close off on what Michael mentioned. In this quarter, with an improving production profile and less reliance on stockpiles, we saw our all-in sustaining costs improve across the board compared to the March quarter. In the June quarter, group all-in sustaining cost per ounce were $2,247 an ounce. And for the year, our all-in sustaining costs at the group and site levels were within guidance ranges. Moving on to our financial performance. Regis has had another great quarter and delivered a few financial records. We sold just under 115,000 ounces of gold at a record average price of $3,528 an ounce, receiving a record $404 million of gold sales revenue. With the high prevailing spot gold prices and sales revenue, in turn, we delivered record operating cash flows of $166 million with $106 million from Duketon and $60 million coming from Tropicana. Now, if I just point you towards Figure 2 in the announcement and the changes in cash and bullion for the period. As we've noted, unencumbered with the hedge book, we delivered a record cash and bullion balance growth of $109 million for the quarter, ending with, again, a record cash and bullion balance of $295 million at 30 June. Looking back on the hedge book buyout in December, it did, in fact, turn out to be a beneficial outcome as we had expected. Taking into account the difference between the average buyout price of those 63,000 ounces we closed out and the average spot gold price we've got for selling them into the spot market, we're about $14 million better off for having closed out the hedge book when we did. Capital expenditure was $50 million for the quarter, which included a $34 million of underground development and waste stripping costs at both Duketon and Tropicana, and $6 million of growth capital primarily related to Duketon underground development works, including initial works on Garden Well Main and the extension of Rosemont Stage 3. Exploration and McPhillamys expenditure was $16 million. Now on to tax. Included in the June quarter was $20 million of proceeds from a tax refund, which was mentioned in the previous quarterly conference call. This tax refund was made available for the last time for Regis through the ATO's loss carry back tax offset provisions, which allowed the company to effectively recognize carry forward tax losses immediately. And in turn, we received a cash refund. We don't expect any further tax refunds of that kind. So those are the main messages on the financials. And now back to you, Jim.

Thanks, Anthony. As I mentioned upfront, we had a great financial quarter. And aside from delivering significant financial performance across the board, we also made significant progress on delivering into our growth strategy. So from an underground perspective, across Duketon and Tropicana, our underground reserves grew at a rate that outpaced depletion for the third consecutive year. And in the release, I just draw your attention to figures 3 and 4. In fact, at Tropicana, not only did we exceed underground depletion, we also exceeded open pit depletion in the underground reserves, which is a great outcome. Now, given the style of mineralization we see at both of these assets, this is a trend we expect will continue into the future, which gives confidence in the sustainability of our undergrounds well beyond their existing reserves. Now, just take a step back for a moment and understanding what our broader strategy is certainly at Duketon. And we really -- as I think people have seen in our past presentations, we show our target of -- at Duketon of 200,000 to 250,000 ounces per annum. And we're driving to establish that region as a production center that can sustain that out beyond 2028. And to do this, we're targeting to establish 4 or 5 underground mines. And between these mines, we target to hit and sustain production of that 200,000 to 250,000 between them. Of course, it goes without saying that if we find new pit reserves on the surface, not sure where you'd find pit reserves underground. But if we found pit reserves on the surface, this will add and top up the production by utilizing spare mill capacity. Delivering into this strategy, we announced the approval and have commenced the development of Garden Well Main and the extension of Rosemont and that extension is called Stage 3, which Michael talked on before. Garden Well Main will add additional annual production ounces, while Rosemont Stage 3 is more of a major extension to the life of Rosemont underground. Now, while we're there, we're currently drilling at Garden Well, both South and Main and Rosemont to convert inferred resources into indicated resources and thereby continuing the expansion of our mineral inventory down plunge of the existing mineralization and reserves. Based on our local geological knowledge and other exploration data, today, we're confident on delivering further underground growth at the Garden Well South and Main and Rosemont. We also continue to drill across several prospective additional underground mine targets and have a good line of sight over our potential fourth and fifth underground area that I was -- underground mine area that I was talking about. And if you have a look in our release, we highlight the opportunities these potentials at Ben Hur and Tooheys Well, which are 2 -- 1 Ben Hur is a pit in production at the moment. Tooheys Well is an old one that's been done. And then the other one that's in our release is [indiscernible], which has both underground and open pit potential, a little bit earlier stage, though, than the other 2. So moving on from Duketon, we now -- our large growth -- the final growth pillar. And after the end of the quarter, we completed and released the details on the McPhillamys DFS. Take you back on a little bit of a journey. McPhillamys was acquired by Regis back in 2012. And in 2017, we released the PFS in conjunction with the reserves -- maiden reserves. Since then, we've continued to progress the study works and very pleased to have reached this major milestone and derisk stage of the project. With the DFS that we released, we updated the ore reserves to 56 million tonnes at 1.1 grams per tonne for a contained 1.89 million ounces. Now, the project itself is a proposed plant with a capacity of up to 7 million tonnes per annum, and that will recover 1.7 million ounces over just under 9.5 years of processing in the current plan. The average annual production rate would be about 187,000 ounces per annum, and when at full production after ramp up. And it's maximum production, which occurs at the back end when we've got the higher grades coming through is up to 235,000 ounces per annum. Now, the average life of mine all-in sustaining cost is estimated to be just less than AUD 1,600 per ounce. That's Aussie. So with these impressive operating metrics and looking at a $3,500 gold price, which is about $167 an ounce less commodities at the moment, $150 an ounce less than spot. The project delivers a pretax NPV of $1.3 billion. It has an IRR just under 25% and a payback period of 3.5 years. Now, on top of the current contained gold that we talked about in that 1.7 million ounces have recovered. There is -- exploration has intersected gold mineralization down plunge of the current design pit. And this includes 3 meters at 8.4 grams per tonne. It also takes -- has 52 meters at 4.5 grams per tonne, including within that 26 meters at 7.6 grams per tonne. It's 26 meters at 7.6 grams per tonne. This indicates the exciting potential down plunge of current mineralization, which we really have yet to fully explore. These are the first serious holes that have been put in this down plunge mineralization. It's very exciting. We also have 400,000 ounces of resources down the road at Discovery Ridge. And, of course, we've got the intercept across the road from McPhillamys at Kings Plains. It's a property that we hold there with 1 hole in it of 85 meters of 1.5 grams per tonne. We believe there is significant value embedded within McPhillamys in the surrounding area, and this will -- can only enhance the scale and improve the current economics. As discussed before, we continue to progress our application for a modification to our development consent. And the Section 10 -- Federal Section 10 ATSIHP Act application is still being considered by the Commonwealth. On obtaining the approval of the Mod and the satisfactory resolution of the Section 10 application, the project will be ready for final investment decision, which is expected to be in FY '26. McPhillamys is one of the largest undeveloped open pit gold projects and a great investment option to have in our portfolio. Now, on to our outlook and our FY '25 guidance. At Duketon, the production range reflects the reduction in ounces produced as DNO transitions into the previously well-flagged stage of care and maintenance. This leaves all Duketon production coming from Duketon South open pits and underground and well within the sustainable target range of 200,000 to 250,000 ounces per annum, which we've been talking about. The guidance for this year is for Duketon is 220,000 to 240,000 ounces of gold at an all-in sustaining cost of $2,500, $2,800 an ounce and growth capital of $110 million to $120 million. Now, I would point out that that all-in sustaining cost includes approximately $190 an ounce of a noncash element that relates to stockpile drawdowns. Reminding people that all-in sustaining cost is not necessarily cash costs of the period. The all-in sustaining guidance range reflects this overall reduction in production, along with the increased proportion of underground ore being mined and increased mining depths within the open pits. The growth capital expenditure reflects the cost of the previously announced development of Garden Well Main and the extension of Rosemont at Stage 3, both of which are key projects of the Duketon underground strategy. Turning to Tropicana, since the severe weather events in March, which Michael talked through before, this year, recovery of the open pit mining activities has been constrained by the ongoing supply disruptions, poor labor availability and reduced equipment availability. This has led to a gold production guidance for this year of 130,000 to 140,000 ounces at an all-in sustaining between $2,300 and $2,600 and minimal growth capital sub $5 million. Mining activities at Tropicana are yet to normalize. And the FY '25 production guidance reflects the flow on impacts with the lower-than-expected or delivered mining rates have resulted in, for example, access to open pit ore production. So this drives the need and the reduced availability of ore coming out of the pits has driven the need to pull down on lower grade stockpiles to supplement mill feed. This also results in those all-in sustaining costs having a $90 an ounce noncash element in the AISC. What does that mean for the consolidated group? We've got 350,000 to 380,000 ounces of production, $2,440 to $2,740 in all-in sustaining cost, of which about $150 of that is noncash. We've got growth capital of $110 million to $125 million, most of it associated with the undergrounds at Duketon. Exploration, $50 million to $60 million and McPhillamys fitting $15 million to $20 million. So to summarize the June quarter, we delivered another quarter of safe performance. Our mines delivered a solid operational outcomes underpinned by a record gold price we achieved, record free cash flow performance. We continue to deliver on our growth strategy by growing our underground reserves ahead of depletion for a third year in a row. We commenced the development of our third underground mining area of Garden Well Main, and we also commenced the major extension of Rosemont via Stage 3. And we released the McPhillamys DFS, the culmination of 12 years of work that confirmed a strong value-accretive growth option. I would say, this DFS, as I mentioned, it's a culmination of many years of work, of people who are with the company and people who have also moved on from Regis. And I'll just take the opportunity to thank all of the people that were involved over the many years to get the project to this state. And while I'm on it, I'd also like to make a comment on Duketon North as we progress that to care and maintenance. There would be hundreds, if not thousands of people who, over the years, have contributed to the very successful status of the Duketon North operations. Site that is heading into care and maintenance, but over the period since its production has produced over 1.2 million ounces of gold. So thanks to everybody that was involved in that over those many years. All right. Well, look, that sort of covered off the -- our message from the quarterly. So I'd like to hand back now to Travis and help out where we can with any questions from the listeners. Travis?

[Operator Instructions] The first question today comes from Alex Papaioanou from Citi.

Just appreciating that year-on-year Tropicana has some challenges. So I'm just trying to think how should we think about costs beyond FY '25 when things normalize?

Well, look, we -- obviously, we don't give and haven't given the guidance out beyond where we are. But I would certainly make a comment that this year is an unusual -- or not an unusual year, but a less than normal year for us in the way that the costs are rolling out. Obviously, there's a combination of the production levels are probably a little bit lower than we were initially anticipating, and that's part of the gold production levels a bit lower than anticipated, and that's resulted in, obviously, low production, not kidding. But what's also happened, and we sort of talked through the reasons for that, which we believe very firmly that the operation can work its way through. The other thing that's impacting on the costs for this year is, as a result of the underperformance of the mining during all of that wet weather period in areas, not just the production of ore, but in the movement of waste, which is effectively the waste associated with the Havana cutback. That's probably -- we've had to -- we see an increase in the TMMs for this year, this current year, to help sort of, I suppose, catch-up, if you like. So we certainly would like to believe that we will see production levels at Tropicana lift in the future years. And, of course, as the cutback starts to wind down at Havana that the total material movement will wind down or the waste will wind down, and that will take the pressure off that current all-in sustaining cost that obviously has a fair bit of pressure on it. So we don't see this as being a permanent shift. This is just, at the moment, a difficult year. And obviously, the team there are doing a lot of work to see what can be done to improve on this situation. But as it stands at the moment, that's what we decided to run with in terms of our outlook.

Yes. And in terms of weighting of that recovery, would it be fair to say that production would be more 2H weighted with those recoveries hopefully happening in 1H?

Actually, it's interesting. When we look at our guidance, we're anticipating that H1 will be probably a little bit stronger than H2 across the board. So it's sort of -- it's almost counterintuitive to think that the issues that have flowed in the March and flow through into the June quarter of trough would sort of continue. But in actual fact, what we're doing now is, we're -- in simple terms, we're getting to the ore to produce from that we actually should have got to back in June, which is -- we didn't get to that ore in June, which is why we didn't meet our guidance, and we're getting to that now. And then it takes like it does in mining, it's going to take maybe another 6 months or so, and we start to -- we see a dip at Tropicana, and that dip is because of the waste that we haven't been able to move. It's sort of -- it's simple, but it's almost counterintuitive, but we're actually anticipating a slightly stronger first half for the business than we are a second half and then recovering at the back end of that second half into the following year. Does that make sense?

Yes, it makes sense. Clear. Thanks for the extra color. I'll ask one more if I can. Do you expect some of those noncash inventory adjustments at Tropicana specifically into FY '26 as well? Or are they just to FY '25 for now?

We expect as long as any of our operations are pulling material off stockpiles. There will always be a component in the AISC that is noncash. And we certainly expect that to continue at Trop and at Duketon. It's kind of interesting that the way the AISC is calculated as much as a sort of thought of as being the way that you should be calculating free cash flow. The irony is these stockpiles have been built up over the years, and now we're drawing down on them. They're actually free issue. They only -- only the cost of milling. But in the AISC point, you have to account for them as a cost, even though it's noncash. And the short answer to your question is, yes, we expect it to continue. To what extent and to what proportion of the all-in sustaining costs will just depend on what proportion of production comes from stockpiles.

[Operator Instructions] The next question comes from Matthew Frydman from MST Financial.

Sure. Maybe just carrying on from some of those noncash inventory questions. In FY '24, you guided to an expected noncash impact of $200 an ounce on your AISC. You actually ended up delivering, I guess, you can say, only a $91 an ounce impact. Can you talk through maybe some of the drivers at the end of the day that caused that difference? Is that a deferral of expected stockpile drawdowns into FY '25? And then in FY '25, you're guiding to $150 an ounce. Can you talk around, I guess, your confidence around whether that's the right number? And also, if I'm thinking back, I'm guessing that those inventory impacts because the stockpiles are carried at cost rather than at any sort of NRV value? Or is there any adjustment there that we need to think about the value of those stockpiles as you realize them in a higher gold price environment?

Yes. Look, I mean, the bottom line is that, if you produce more ore from your pits and your underground, you can feed into the mill and you're not drawing as much off the stockpiles, then your noncash component will reduce, right? Is that a good thing or a bad thing? Well, usually, what you produce from your pits and your undergrounds are a much better grade than your long-standing stockpiles. So overall, it's a better thing. And basically, it was just driven by less stockpile use. So -- and going forward, if I had what would -- we've made on our schedules, what we think will be the balance between across -- in fact, across both Duketon and Tropicana and what's considered to be the balance between underground production, open pit production and therefore, what's needed to be drawn off the stockpiles for -- to get to supplement -- to keep the mills full. If either one of your ore sources, be it underground or open pit overperforms and delivers more, then that's less. And as I said, that's usually pretty clearly on a basis of rather than putting in, I don't know, 0.5 or 0.6 grams dirt, you're putting in 1.3. So -- or 1 or whatever the grade happens to be that you're feeding in. So it's a better thing to do. And that stockpile material is always there for the future. It's not like it evaporates or deteriorate. So, we make an estimate based on what our schedules are saying. And if our reconciliations go a little bit better and we were able to produce more ore from the same benches or we're able to produce a bit faster than that has an impact on how much you draw on stockpiles, which then has a subsequent impact on what your noncash element is, but it's usually as a result of getting, pardon my grammar, but more better material.