Resolute Mining Limited (RSG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Resolute Mining Limited September 2021 Quarterly Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Stuart Gale, CEO. Please go ahead.

Thanks very much, Travis, and good morning to everyone. It's a pleasure to be here to present the September quarterly report to you all. I'm joined on the call today by Doug Warden, who's being the CFO now for nearly a couple of months and also by Terry Holohan who is our COO. Both Terry and I are in Dakar at the moment. I've had the opportunity over the last week or so to spend quite a bit of time at our site at Mako. And it's been a really terrific -- it's a terrific operating site there, and the team are running that asset really very well. And I think you can see that from the quarterly report, the Mako operations continue to deliver quarter after quarter and month after month for that matter. So it was a real pleasure to get there to the team. We've also taken the opportunity to meet a number of key members in the administration in Senegal whilst we're here. So that was also quite important. And I'm heading to Syama. Well, I'm heading to Mali in actual fact on Saturday, and then we'll get across to Syama and have a chat to the team there. But as we look at the quarter, I think the quarter was relatively consistent with the previous quarter from a production perspective. We produced just over 76,000 ounces of gold during the quarter. Sustaining cost was up a bit, and that really was driven by a really wet September quarter in Mali. And you can see that is reflected through the performance of the Syama oxide operations in particular, where it was just a real struggle for us to get into the mining activity. Haulage was a challenge, particularly from Tabakoroni and also the results from a processing perspective were also down a little bit because it was tough to manage that material as we saw just a lot of water during that period of time. As I said, Mako was very much in line with expectations and with its target. We, from a balance sheet perspective, were able to close out the Bibiani sale process and received $30 million of the $90 million total in cash during that period. So that was a very pleasing outcome for us. And as a result of that, we saw our overall debt position decrease and we ended the quarter with net debt of around $212.9 million. Very clearly, we put an announcement out a few weeks back now. We've noted that we were deferring the shutdown of the roaster from October into February. The roaster shutdown is obviously important for us, and we still will have about 7 days worth of shut during October and November, which is important for some regular maintenance. And that's one of the things that we're seeing at the moment is we are just seeing some challenges at the Syama sulfide operations, which are maintenance related. It will be good to get that maintenance program done and sort it out and then move forward. But we've got absolute confidence in the performance of the roaster. The monitoring equipment, which we've put in place there allow us to have that confidence. And also you can see from the production and the recoveries at the Syama sulphide operations that things are moving along reasonably well there. So as we look at the operations in particular, is something that I think is really pleasing is that we've also been able to wrap up a couple of our efficiency initiatives. And we look at, in particular, the mill slicer program that's been put in place at Mako and the efficiencies that we're able to achieve from that mill slicer program, which is essentially ensuring that we're able to maximize mill throughput through the mill there at Mako. That's going really well. It was great to actually see the output of that as long -- in Mako during the course of this last week. Also, the transition to a wider operator for our underground development is progressing well, and we're starting to see some cost savings flow through from that also. And just finally, before I hand over to Terry for an update on the operations. I think it really is worth saying that the campaign to vaccinate all of our employees at both Syama and Mako continues to go really well. So we've done almost 1,600 employees now. And contractors have been fully vaccinated. There's another 300 or so who've received a single dose. So again, I think that's a fantastic achievement in collaboration with both the governments in Mali and Senegal to put that number of vaccinations out there and ensure that we've got a healthy workforce that's able to keep our operations moving forward. So Terry, I think with that, why don't I hand over to you for an update on the operations.

Great. Thanks, Stuart. And again, good morning to everybody. I think I will go through, Syama on the ground first and Syama output and then Mako. Just a general comment before I start is that I think I mentioned last time, we had a lot of key positions vacant in the previous quarter. We've -- we're excited now to state that we've actually filled most of those positions in both operations and the technical support teams. And we've just got 2 positions vacant, but we've got a shortlist that we're working on. We've managed to get some good people at the top of the game, and we're starting to see the benefits of those people already as we're getting stuck into the operation. So I'll start with the Syama underground. As I mentioned previously, we did back off slightly on tonnage from underground after the first half of the year. And the grade did come up slightly as we expected. This was not because of overdrawing so much as having more flexibility now and draw points, being more selective and putting more grade control in underground. We did mix that ore with about 10% of stocks, which on the books was somewhere between 2.3 and 2.5 gram a tonne, and we managed to maintain that grade from underground 2.46 in the plant, and we got slightly better recoveries through that period. As I previously mentioned, we're expecting the grades to improve over the next 6 months. As we focus on new team, as Stuart mentioned, we've consolidated now the owner-operator status with going through all the training. We've got 95% of the employees from the contractor and we're just aligning them with our teams, our new teams on the ground. And we're starting to bring in the expertise from the 3 new cabling experts that we've actually brought into the business. The modeling itself, I mentioned we're expecting the new model for the cave early next week, which will underwrite our outlook going forward in our life of mine. We've already had -- I think I reported it last time, we had the mineral resource confirm the numbers. We're just now waiting for the cave models to be able to declare the ore reserve there. In terms of the plant, we've now started up and handed over the new power plant. We did have quite a few bugs in the system, mostly in the SCADA system. We had to helicopter in a few SCADA experts. We've got some random power outages, which were bugging those, but that has all been sorted out and handed over now. We've also completed the construction on the new cleaner cells and the onstream analysis system for the flotation plant. If you remember, this was originally designed to give us finer control on the sulfur content feeding the roaster. But the byproduct of that will also give us an opportunity, hopefully, to see slightly improved recovery across the flotation circuit. So therefore, presenting decreased tonnages to the roaster, which we all know is the main bottleneck on the plant. So it gives a little bit more opportunity going forward and that should happen over in October. So as Stuart mentioned, now we've ticked a few of the boxes there. Going forward, we're now focusing on scheduled maintenance, improving productivity of the sulfide plant. And this is both the improved systems that we're putting in place and the new people that we've employed experts in this game. As we speak now, we've got a short 7-day stoppage. As Stuart mentioned, we've delayed the roaster given that the condition monitoring in [ settlements ] were not getting any more deterioration over time, but we are making some improvements to the crushing, the milling and the roaster ancillary equipment in readiness for the major shut next year in February, where we expect another 20% extra throughput to be able to be realized in that engineering improvements and enhancements that we've got planned. So as I mentioned, in October now, we are busy with the commissioning of the float cells and the [ OSA ]. So I should be able to report on that progress over the next quarter. So we see the sulfide circuit as this last quarter has been a quarter of consolidation, some improvements there, and we expect those improvements to continue going forward. The open pit mining, this was the frustrating part of the businesses last quarter. If you remember, I mentioned that we had to stop Cashew because of the geology. It's a far more broken and different in angle than we originally thought it was. So we switched all our equipment over Tabakoroni. Unfortunately, that was the worst time to start in a new section of the pit, given the rainy season, we did have a tougher rainy season. And yes, we have operated in the rain before. But given that we had to start at the top, and it is a laterite ore body. And it was a very, very muddy situation, and it caught us out badly. So as a result, we did treat some medium- and low-grade stocks next to the plant. So we had to mix a combination of 1.8 grams that we could get out of Tabakoroni and our stock which were 0.8 and 1 gram a tonne. So we operated about 1.2. still making a little bit of money, but we understand it's not where we should be. So in the meantime, while all this was happening, we've improved a lot of work on our grade control drilling. So obviously, we're not going to make the same mistakes, and we spent quite a bit of money on that. And we followed up on recent discoveries at the [ Beta ] pit. And we actually started that pit that -- we started mining that last week with our new models and far more efficient models. And we started stripping the overburden a week ago, and we are expecting to access some higher-grade materials starting this weekend. When talking higher grade, we're looking for the 2-gram a tonne again. So the oxide circuit is sitting on a tough quarter. But again, we expect to see improvements going forward. Some tough lessons learned there. And Mako, yes. As Stuart said, Mako is doing what we said it was going to do. The cutback is almost finished, on schedule. We knew we were going to treat some lower grades while that cutback was taking place, but we're starting to see better grades now coming up back up to the 2 grams a tonne. The mill control, that is quite an amazing system we've got there. The mill, traditionally, I mentioned, has been operating at 6.9 to 7.1 megawatts. Now this last period with the new mills slicer control on it. Because we can actually virtually see inside the mill, we can now operate that from 7.1 to 7.4 megawatts. And not only control the mill loadings better but also the power usage. So the aim being there to just squeeze a few more tonnes through that machine. And despite the heavy rains also at Senegal, that had no material impact on the mine despite it now be the net collector of water, given that the pitcher has now gone below ground level for the first time. And just on a positive note on the environment. We're very happy to show some films of chimpanzees wandering around our waste dumps, and this is the first time they've been recorded in that area since the construction period. So I think the Mako project continues to tick all the boxes. That's the summary. Stuart, I'll hand back to you and take questions, if there are questions, at the end.

Yes. Great. Thanks, Terry. Thanks for the update on all of that. I'd like to hand over to Doug now to give a summary on the financial and balance sheet components for the quarter.

Okay. Thanks, Stuart, and good morning, everyone. Just I want to take a few minutes to walk you through the cash flow for the quarter. The net debt position at 30 September, which Stuart has already covered and an update on the hedge book. So just starting with the cash flow waterfall on Page 5 of the quarterly. The operating cash flow for the quarter was $43.6 million which benefited from a $23.3 million drawdown in bullion during the quarter, which helped drive strong gold sales of 89,326 ounces. Royalties were higher than the previous 2 quarters due to these stronger sales. The next bar along VAT and tax. This was comprised largely of the VAT leakage that we've spoken about that we're currently offsetting in Mali against our royalties there and a smaller legacy tax payment associated with the prior year audit item. The CapEx of $11.5 million was largely sustaining CapEx of about $7 million and underground development at Syama of about $4 million. Exploration was really comprised of resource drilling at Tabakoroni underground as well as oxide exploration drilling at Syama North. And you would have seen the results of these drilling programs in our announcement in late August, which is very pleasing. The working capital item is a small reduction in creditors during the quarter. Debt repayments of $53.6 million, which was comprised of the $25 million first installment on the term loan and $30 million paid off the revolver from the Bibiani proceeds with a small difference being a small drawdown in the local overdraft facility in Mali. Interest is fairly self-explanatory. The final bar there is government dividends and withholding tax of $8.2 million. This comprised of a dividend installment payment of $2.4 million to the Senegalese government, who has a 10% stake in the Mako project, and the balance is withholding tax of 10%, which is payable on the full dividend that we've declared of $65 million up to the parent companies to dividend the money out of Senegal. The net debt, as Stuart has said, reduced by $6.9 million during quarter 3 to $212.9 million at the end of September. And finally, just on the hedge book, a reminder that our banking facilities require us to have a minimum of 30% of the next 18 months forecast production hedged. At 30 September, we had a total of 176,000 ounces hedged, which comprised of 123,000 ounces in U.S. dollar gold forwards at an average price of $1,783 an ounce. We had 23,000 ounces in euro, forwards at $1,501 an ounce and 0 cost collars we had there of 30,000 ounces which have a put option at $1,700 and sold call at $2,059. So out of the money at this point in time, both of those option strikes, and these will expire in the fourth quarter. That's all for me. And with that, I'll hand back to Stuart to wrap up.

Great. Thanks, Doug. So look, just in closing, it's -- we've been speaking about the people at Resolute for the last couple of quarters. And it's certainly great to have Doug on board. And obviously, Terry's -- this is Terry's second quarterly report through to the market. So the executive team now has been fully developed, which is very good. And as Terry alluded to, it's also great to have most of the key operational people now in place. So as we look at our team across the board, we've got the people that we want in the roles that we want. And that's the first time for a long time that we can say that. I think the other important thing is that we've been focusing on systems and process, and we continue to do that. And that's something that we won't be taking our eye off for some time yet. We're making some small inroads into those areas. We can see the benefits of a number of the different initiatives that we've put in place and we should continue to get improvements in those benefits as those systems and process are further better down. The cost base is largely driven by our production performance and the denominator impact of that. I think it's important to have a look at what our overall site operating costs are on a per ounce basis. And look, there's no doubt we had some challenges at the Syama oxide operations during the course of the quarter. But we certainly did see an improvement in terms of our operating costs at the sulfide operations at Syama. And of course, Mako was in line with our expectations as we continue to cut back there. So we're starting to see some improvement from Syama sulfides. And we should see improvement as the oxides and these dry out the oxides, get into better grades as well. So we're looking forward to that in the December quarter. And look, I think very clearly, it's not quite where we want it to be yet. There's no doubt about that. We're continuing to focus on all of the things that are pretty basic to our operations to get an improvement across the board. So I do think our team -- it's been a challenging period of time. I can assure all of you on the call and all of the shareholders that we are working really hard to turn the operations around, and that focus will stay. So with that, Travis, I think I'll hand over to questions.

[Operator Instructions] The first question today comes from Andrew Bowler from Macquarie.

Just wondering about the sign-offs operation. Obviously, you talked about impacts from range during the quarter. Obviously, you've got a mine grade of 1.8 and a process grade of 1.2. Is that just that trucking impacts leaving some ore at the pit at Tabakoroni?

Yes, Andrew. Yes, I think the reality is we were not able to mine as much ore from Tabakoroni as we had hoped as a result of the wet weather. And then obviously, getting it up to Syama, which is 35-odd kilometers away where the processing occurs, of course, is challenging as well in a very wet environment. And of course, it's challenging to get it through the processing plant. So what actually incurred during that period to keep the mill full was that we were diluting those grades down by using some of the lower grade stockpiles that have been put in place several years. So -- and that's the reason that you see that differential between what's being mined and ultimately, the grades that we're processing. But Terry, I don't know if you have anything else to add to that.

No, that's exactly right. We were running in Q2, we had 2 pits, Cashew and Taba. We switched off Cashew because it wasn't giving us a return. Swung everything down to Tabakoroni. And then with the rain, we just couldn't mine as fast as we wanted to. We wanted to double the rate of mining. We couldn't get up there because we had to go down the bottom of the pit where it's wettest, and we did experience pretty heavy rains. So it impacted both the mining and the haulage.

In terms of the owner operator transition for development at the underground at Syama, has that been underway for some time? Or is that sort of only in the last quarter and sort of a little bit into next quarter as well?

It's really high in this quarter, Andrew. So we obviously -- we had a good relationship with the contractor who was there, and that was fine. But as we look at this asset in particular, yes, we're going to be at Syama for a long period of time. And the team have taken on that development work really well. So we expect we'll see improved performance and benefits as they get to the swing of it during the December quarter and beyond. So it's transitioned well. And likewise, we'll be looking at other opportunities to transition some of our other contractor services at Syama across our owner operator. And look, to be honest with you as well, it gives us opportunities to think about how we might be able to manage some of our VAT balances. Every invoice that we pay to a contractor or services or goods has got VAT on it. Our VAT position is well discussed. And if we don't have to pay a contractor invoices, then we don't have to worry about the VAT component of that.

[Operator Instructions] The next question comes from Reg Spencer from Canaccord.

Just sticking with Tabakoroni for a minute. Obviously, those wet weather impacts are likely to be short term as you get deeper into the pit. But with Cashew out of the mine plan now by the looks of things, can you maybe give me some color on -- well, should we still be thinking about Tabakoroni in line with the life of mine plan that you guys outlined earlier in the year? Are there any likely to be any changes to that production plan over the medium to longer term as it sits today?

Yes. Look, I think it's fair to stick with that plan at this point, Reg. And -- but I would hasten however, that we are currently stripping at Beta and Beta is in the North. So it's one of those in the northern pits, and that wasn't actually in that mine plan. So as our exploration drilling campaigns have continued to advance, we've been picking up some more of these satellite operations, oxide satellite operations, obviously, that makes sense for us to get in and to mine. So that's important that we do, do that and capitalize on all of the oxide options that we've got available to us. But what we've really got to make sure that we do is we do the necessary infill programs and that we understand exactly where we ought to be mining and what we would be doing there to be as efficient as possible. So we've done that at Beta, and we've done that at Tabakoroni. So it's also really important for us to have a couple of pits going at any particular point in time as well. So the oxide strategy, as it is at the moment, that is that we're mining these smaller areas. We won't be in these areas for long periods of time. We've got Tabakoroni, Beta, Alpha, BA01, Tellem, Paysans and they are all of these satellites that we think can continue for the next couple of years. And as we continue our exploration programs, maybe we pick up a few more of those satellites.

That's useful, Stuart. And so I guess the risk around that strategy, it does sound like given the number of the various satellites that you do have some flexibility. So the main risk would be being able to complete the infill and that short-term mine planning in advance of any moving of your equipment and shift of mining activity to these other satellites. Is that fair?

That's exactly right, Reg. You're exactly right. We need to make sure that we -- as much as everyone wants to, get as much gold out as you possibly can. It's really important that we've done the groundwork literally to ensure that we know exactly what we're doing and we can be as efficient as we possibly can.

Understood. Just shooting over to Syama. So mining costs were lower quarter-on-quarter. Is this a direct results of that shift to owner operated? And should we -- going forward, should we be looking at costs at the current level or lower? I know the original feasibility study had cost a lot lower than what we've achieved in the last couple of years. But just trying to get an idea of the directional trend of those mining costs.

Yes. Look, I think that's a fair point. It is quite interesting when you look at those individual line items in the appendix in the quarterly and refer them back to the prior quarter. you can see that the Syama sulfide operations have improved across the board there from a cost perspective. And unfortunately, we're all judged in the gold business on the all-in sustaining cost. And the all-in sustaining costs have a number of things, which are not actually cash related through. So -- but anyway, that's fine, that's what we're measured against. But yes, it is -- as I said, we're starting to see some of those initiatives that we've been talking about now for a quarter or so flow through into the operations. And the conversion of contractors is one of those initiatives. So it is very clearly targeted to improve our unit costs. But the big part of that, again, Reg, is also the denominator. And we've got to make sure we get our production [ up ]. So that's key.

[Operator Instructions]

Travis, I think if we don't have any more questions that are queued up, I'm sure everyone is very busy getting towards the end of reporting season. So perhaps since we're wrapping things up now, if you don't mind. So unless anyone's popped on the queue now.

We've actually just had a question registered from Jon Bishop from Euroz Hartleys.

Look, a very simple one for me. You've made some accelerated debt repayments in the quarter, certainly by virtue of the Bibiani sale. Can you indicate whether you've got any amortization of that -- of any of those facilities due this quarter? Or are you sort of ahead of the curve, and you can kind of park that money until next year?

Yes. Well, look, why don't I hand over to Doug on that in a second. But yes, the nature of our facility is that we've got a revolving credit line, which gives us plenty of flexibility to repay early when we've got available cash will draw down on it, depending on what's going on through the period. So we've utilized that revolver reasonably well. But Doug, why don't you give a rundown on where we're at from an amortization perspective?

Yes. Thanks, Stuart. Jon, so nothing on the term loan this quarter. We've made the $25 million in late September that we were required to make. And then March of next year, there's another $25 million due under the term loan. And then September next year, another $25 million. That's the profile that we have going forward into next year, but nothing in this quarter.

Perfect. And then just sort of around capital call, Stuart. When will you start committing capital towards Tabakoroni underground?

Yes. Well, we're still doing a bit of work on that range at the moment. So very clearly, we had, as you saw in an announcement we put out a couple of months back, some really good drill results there. So the team is still proving that up, and we're still working through a number of alternatives around Tabakoroni. But what -- the thing that we've said for a while now is we want to make sure that we've exhausted all of our options from an oxide perspective because a couple of the Tabakoroni underground opportunities might result in the conversion of that oxide plant into managing the material from Tabakoroni, which again is a double refractory sulfide ore body. So there's a few things up in the air at the moment, but we'll probably -- we're potentially a couple of years away from bringing that on. The grades are very good there, so it's shaping up really well. We continue to look at -- it's the highest priority project for us. So watch the space is about all I can tell you at this stage.

So is this sort of a soft guidance just around when the Board might look at taking final investment decision?

Yes, we probably need to be thinking about taking final investment decisions in around 12 months or so. So by the time you do that, you've made that decision, you move forward with the development of that asset and away we go. But it's probably -- it could be a little bit lighter, but it's pretty soft.

At this time, we're showing no further questions. I'll hand the conference back to Stuart.

Great. Thank you all for joining us. Thank you, Travis, for hosting us. Very clearly, we've had -- what would I say? The quarter in September was broadly in line with where we were before. A bit disappointed on our own expectations. And I'm pleased that a number of the initiatives we've been talking about for a while are starting to take hold there. And in particular, as we look again to move to slightly higher grades and get Tabakoroni up and running, and get Beta up and running at the Syama oxide operations looking to turn some of these numbers around a bit. But look, our team continue to work really hard. I'd like to thank them for their efforts and thank the team on the line back in Perth. So with that, I'll sign off. Thanks, Travis.