Resolute Mining Limited (RSG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Resolute Mining Limited September 2020 Quarterly Conference Call U.K. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Gale, Interim CEO. Please go ahead.

Thanks, Kelly, and thank you all for joining us today to go through Resolute's September quarterly conference call. Joining me today in the office in Perth is Dave Kelly, our Chief Operating Officer; James de Crespigny, who's just arrived at Resolute, who is our Head of Business Development; and James Virgo, who's our Financial Controller. I'll start off by making a few opening remarks before handing over to Dave to provide an update on the operations, then come back and work through a few financials before heading into the Q&A. Before we get into the detail, though, I'd just like to make a few comments about John Welborn's departure, which was announced on Monday. John has been at Resolute for the last 5 years, and over that period has worked really hard to reposition and transform our business. A couple of the key achievements that John has overseen in his tenure as CEO and MD was the Syama underground development, commissioning and operations, our acquisition of the Mako mine in Senegal, the listing on the London Stock Exchange and then, of course, late last year, early this year, the sale of Ravenswood. John is a dynamic and charismatic leader and all of us at Resolute wish him all the very best for his future endeavors. Importantly, John has built a fantastic team, which is led operationally by Dave Kelly. The team has been doing an outstanding job on all of our sites to keep the mills running under some pretty challenging times over the last 6 to 9 months. Please be assured that myself and the executive remain absolutely focused on working to deliver operationally and ensuring that Resolute is a successful gold miner. Turning to our September quarter. The company's results certainly reflect another consistent performance from the Mako mine. It keeps delivering week in, week out and month in, month out. It's very consistent. Clearly, there was also some industrial impacts that had an effect on operations at Syama, and that resulted mainly in the 15,000 ounce reduction that we saw in the gold produced during the quarter. As we outlined in the quarterly, we undertook some extensive negotiations through our Resolute site-based employees, together with the union and the labor inspector in Mali to conclude a conciliation agreement. And ultimately, that's resolved the strike action and has canceled any future striking activity. The team at Syama have done a great job in resolving the situation in certainly some pretty trying circumstances, and they were able to achieve that while ensuring we managed all of our regulatory obligations and treated all the people impacted by that very respectfully. Reaching this agreement at the end of the September quarter provides a solid basis for Syama as we move into the December quarter. Of course, we also experienced a coup in Mali, which occurred on the 18th of August. There's been a transitional government appointed in Bamako on the 25th of September. And importantly, this transitional government has received the support of ECOWAS, who have now lifted the sanctions they previously imposed on the transportation of materials into Mali. From our perspective, that's really important because we've now been able to open all the supply links into Mali and the transportation of key consumables to Syama has been reestablished. Pleasingly, Resolute's safety performance continued during the quarter. And you see our TRIFR of 1.12 was very consistent with the prior period. This is a really good outcome, particularly when considering the COVID environment that we're operating in and the restrictions that are in place around travel, which have impacted our rosters, and obviously, the amount of time that people have been spending on site. The operations so far in October at Mako and Syama are performing really well. And we've achieved throughput and recovery at our forecast levels. We're currently mining higher-grade oxide ore from the Cashew open pit, and that will be the primary source of oxide ore for Syama for the quarter. We're in a good position to achieve our targeted performance for the December quarter, and that will deliver full year results towards the lower end of our revised guidance. So with that, I'll hand over to Dave Kelly for an operations update.

Thank you very much, Stuart, and good morning to everyone, and I think in a few cases, for those still in Australia, good evening. Look, as discussed, the September quarter was down from what had been a very solid performance in June. It's important to put that into some context. Our expectation for the quarter was a little lower than we'd achieved in June, where we achieved 107,000 ounces of poured gold production. And that was principally because the grades that were going to be available for our oxide processing plant were always expected to be larger in this quarter. At that stage, we were working our way through the stockpiled lower-grade material from Tabakoroni, pending the commencement of operations at the Cashew pit in the final quarter. However, the industrial disputes that we did experience at Syama were, by far and away, the largest cause of the reduction, both relative to June and to our own expectations for the quarter. The industrial action particularly affected the sulfide plant at Syama. And this is, to a large degree, because of the manner in which the plant was shut down, which meant that we had to really slowly reheat and restart the roaster in the aftermath of that shutdown, which means that a relatively brief dispute that we did have with the unions at that point in time had a more significant effect on the roaster and then ultimately on gold poured from the sulfide circuit. There were a couple of other minor operational interruptions mainly due to overruns on planned mill reline shutdowns at both Mako and the sulfide plant, but they were relatively minor inconveniences. So essentially, what was going to be a slightly lower quarter production, as a consequence of that low grade coming into the oxide plant, was exacerbated significantly by the industrial issues and the consequences that, that had particularly for the sulfide plant at Syama. On a much more positive front, with that dispute behind us, October has commenced, as Stuart has mentioned, very strongly for us at both mines. And we are confident of a much better quarter this quarter. All 3 plants are operating according to both our internal forecast and consistent with the revised guidance that's been provided to the market. The roaster is running at design throughput, and both the underground mine and sulfide mills are actually, at the moment, chugging away a little bit above nameplate capacity. So we have the 3 key elements of the sulfide business all operating very much on track. Finally, the ore grades from the underground, which were down a little in June, have improved and are sitting at just under 3 grams at the moment. So we have a substantial stockpile of that material. The processing rates are up. And as a consequence, we'll get much better sulfide production this quarter. Finally, as Stuart mentioned, we're now mining ore at Cashew. We commenced waste stripping late in the September quarter. We're now into ore. So rather than processing low-grade stockpiles that were compiled during mining at Tabakoroni, we'll be operating in oxide ore from Cashew at grades of above 2 grams. So that will have an immediate effect on gold production through the oxide circuit. So overall, despite some of the challenges of the last quarter, we are set for a very good and solid final quarter. And I think the results that we're pursuing there should be more akin to what we achieved in the June quarter than perhaps the most recent one. And with that, Stuart, I think I'll hand back to you and wait for any other questions that might occur at the end of presentation.

Great. Thanks, Dave. I'll just really quickly touch on exploration and the Tabakoroni update before getting into the finances. So a couple of weeks back now, we released the update on the Tabakoroni underground development. Positive results from that review, which saw our resource increase to just over 1 million ounces. We'll continue to work at the Tabakoroni underground area and look at improving the potential for this development. In the meantime, Bruce Mowat and the exploration team will be carrying out additional near mine oxide operations drilling, and in particular, around the Splay pit. We obviously have Cashew and there are several other targets that we'll be looking to develop from an oxide perspective at Syama. So we see these satellites as an option which will support our several years' worth of ongoing production before we need to continue to develop -- or to start the development at the Tabakoroni underground. In addition, we continue our strategic review at Bibiani. That process, as we know, has been extended and impacted by the restrictions around travel that COVID has bought with it. So the opening of the borders in Ghana, in particular, have made the potential for site visits and due diligence a much more realistic thing. We remain hopeful of a conclusion of that process by the end of this year. Just turning to finance now. We ended the quarter with cash and bullion of $106 million. There is a summary on Page 9 of the ASX release which just sets out the key movements in our cash balances over the period. I just want to highlight that we paid $17 million worth of tax which was previously flagged and in relation to our oxide operations' taxable -- tax requirements from 2019. We paid $3 million in the June quarter and then this $17 million in this quarter. So that's now done. And that's why we see that VAT tax number which is pretty elevated within that waterfall. We also drew down on our revolving credit facility. That facility is now fully drawn. Part of that was used to repay some high-cost bank overdraft. And the balance of it was drawn down as a precaution as we entered the political instability in Mali in the middle of August. So ultimately, that's left us with a net debt of $234 million, which is an increase of $14 million from the June period. And clearly, that increase in net debt is reflective of a shortfall in the production over that period of time. Looking to the tax challenges that we've had or we have in Mali. Look, we continue to work with the tax department in Mali and the Ministry of Finance to come to a sensible resolution of that. We are -- we've taken the steps, as we've flagged to the market previously, of offsetting our royalty and other taxes against the balance of VAT which is payable. That is progressing and has been progressing for a number of months now. However, it's slow going. And again, our target is to conclude an agreement with the tax office in Mali by the end of the year. Our hedging position is set out on Page 10. You can see that the forward contract position has decreased from the June quarter. And we have an obligation, which we've discussed previously, to ensure that we maintain a certain level of hedging. Over the last little period of time, we've been using zero-cost collars to satisfy that hedging requirement. So we now have 20,000 ounces of zero-cost collars that sit between $1,600 and $2,300 an ounce. And we're pretty comfortable with that -- those sorts of instruments at the moment to help us to manage those hedging obligations. From a guidance perspective, you'll note that we reinstated our guidance. Production guidance was reinstated at between 400,000 to 430,000 ounces at an all-in sustaining cost of between $980 and $1,080 per ounce. We will be at the lower end of that guidance and at the upper end of the cost guidance as we run through this December quarter. But we're certainly expecting, based on the current performance through October, to achieve those targets. So in summary, look, it was clearly a challenging September quarter for us. We had a number of external issues to deal with. But we're off to a good start for the December quarter, as Dave mentioned, and I mentioned that the production and the processing performance across all operations has been very positive thus far in performance. So look, we've got a dedicated team of people and a very committed workforce, and we're absolutely focused on delivering on the targets that we've set ourselves. And we have a strong basis to carry that commitment forward. So I think with that, I'll hand back to you, Kelly, to open it up for Q&A.

[Operator Instructions] Your first question comes from Richard Hatch with Berenberg.

I've got a few questions. First one is just on processing costs, which I'm just kind of looking at the processing costs over the last few quarters and looking at the feasibility study of the mine plan from a couple of years back. I'm just sort of wondering, what sort of time frame should we be thinking that, that sort of $26-odd a tonne trends down towards that $19 a tonne level and below with the power plant? I just wondered whether you might be able to give a bit sort of color around that.

Sure. Rich, I'll hand over to Dave just to talk you through the ins and outs of that.

Yes. So Richard, the power plant, which is in the advanced stages of construction and delivery, should start delivering power at the end of this year and be fully commissioned early next year. So we expect to get the full benefit of that reduction in power costs over the course of 2021. To put it in context, it's probably about USD 1 million a month, we think, we'll save in power costs, which obviously principally applies to the sulfide processing costs, which is the largest consumer. Precisely how that will land us in terms of cost per tonne will be certainly substantially lower than the $26 that we're currently costing, bearing in mind that those numbers are a couple of years out of date. And so there will have been some increasing costs since then. But we certainly would see a material reduction in the $26 or thereabouts that we're incurring at present. And I think the other thing I'll just add to that, Richard, as well is obviously volume on a per tonne basis has a bit of an impact as well. So our target is to be processing a couple of hundred thousand tonnes per month through the plant. So I think as we bring those volumes up, it's going to help have a per tonne and per ounce improvement. It's a good point because, obviously, the labor and other components of our cost base are fixed, and clearly disseminating them over more ore tonnes will also reduce that unit cost.

Okay. Got it. And then just while we're on the cost, that $208 per ounce stockpile adjustment, can you just -- would you mind just giving a bit more color on that? And is there any other sort of adjustments like that we need to be thinking about as we move into Q4?

Well, I think what you see with that, Rich, is ultimately, we drew gold in circuit down. So if you look -- I assume you're looking at the appendix at the back of our quarterly.

Yes.

You picked that up. So you can see that we drew down 939 ounces of gold in circuit through that period. So that's where you're just seeing the stockpile adjustment come through. And look, in previous periods, what you're seeing -- you've actually seen a build in that. So I think it will -- in actual fact, if you turn the page and have a look at the adjustment for the full year, you can see that we've actually built gold in circuit. We would expect that if we're building gold in circuit at some point in time, you're going to draw it down and that's what we did during this quarter.

Right. Got it. Okay. Are we -- okay. Fine. So we should potentially expect a little bit more of that in Q4, if you've managed to squeeze a bit more out of the circuit versus what you've poured in -- or what you've produced?

Yes, potentially. Yes.

Okay. Cool. On VAT -- the third one just on VAT. What's the -- can you just clarify what the current cash -- is there a cash burn rate on the VAT at the moment for Syama? Or is it -- I'm just trying to think about how that sort of translates into cash flow as we move into Q4. And I suppose, off the back of that, like with a better production quarter and Syama running better, should we therefore expect to see that net debt number sort of trend down into Q4?

Yes. Look, Rich, just at a high level, the target obviously is to deliver from a production perspective. If we can deliver from a production perspective at gold prices somewhere around $1,900 an ounce -- just looking at the quarter, we lost 15,000 ounces worth of production at $1,900 an ounce. It's not quite $30 million, but it's not far away. So if we just think about that, then you start to turn cash-positive. And that very, very clearly is where we want to be. It's disappointing that we haven't been there and we need to get into that space. So upfront, that's what we need to do. And there's no one who's under any misconception that, that's not what we're here for. . When we look at it, in the quarter, we had $7 million worth of tax that we paid as well. So that's a bit of a one-off and we should take that out moving forward. But from a VAT perspective, it is a bit tricky. The VAT, if I can really simply put it, when we pay our bills in Mali to our local suppliers, we have to pay them VAT. So they give us an invoice for $100 worth of services. That invoice has VAT of $18, which is added to it. We pay the supplier $118 for that service. And that's where we're building that VAT. That's where that VAT continues to flow through and that's what's continuing to build that balance up. Of course, in other countries, we would be recovering that VAT that we've paid to the suppliers. We'd net it all off. And at the end of the month or at the end of the quarter, we would get that back. Unfortunately, we just haven't been in a position to be able to achieve that with the Mali government at this point. We're working with the Mali government to resolve that, together with the tax dispute that arose earlier this year. But what we are doing, Rich, is that we are using the VAT that we've paid and that is owing to us to offset our royalties and other taxes which we owe to the government. And we're getting that agreed with the tax office on a monthly basis. So that is the way that we're recouping it. But it's quite difficult to sort of look at that and say -- how do we come back and provide you with guidance. You're not the first person to ask, so we're going to have to come up with a way of providing you with a little bit of input so that you can figure out that cash rate on VAT.

Okay. Okay. And last one, sorry. I appreciate I'm asking quickly. Just on the sulfide circuit, the recovery, Dave, you talk about the recovery rate moving beyond 80% in Q4. Just sort of as we move into 2021, is the expectation that you sort of -- you touched around the low 80% just as a steer?

Yes. Yes, that's -- I think that's correct, Richard. And I think there's a couple of reasons for that. One, obviously, recovery to some degree is grade-dependent. So as the grade picks up to the more typical life of mine averages this quarter, then we'll see an improvement. We're typically getting now in just under 80% -- just under 90% recovery of gold in the float circuit and about 92% recovery of gold in the lead circuit. So you multiply the 2 together, that's essentially our sort of base position from hereon in. There's some further incremental work we're doing in -- particularly in the flotation circuit. We think we can improve recovery there. We're restoring an onstream analyzer and the cleaning circuit. And we're also -- the cleaner circuits, sorry, I should say. And we're also doing a little bit of work on reagent addition systems in that plant, all of which will just incrementally hopefully extract another 1% or 2% of recovery. So that's kind of the base position and the aspiration maybe for the next 6 to 12 months is to take from 81% to 82% to 83% sort of recovery and we think that's an eminently sustainable number. And that doesn't require us to recommence any leaching of the float tail, which at the moment we're not undertaking.

Okay. Got it. And then just -- and then on the Syama oxide. So obviously, we've mined Cashew now. So does that -- would that therefore mean or imply that the process grade picks up a bit as it mines -- that the open pit growing actually picks up in grade? Last time I looked, it was sort of near 1.7 grams, something like that. Is that your kind of expectation? So we have a bit of a better quarter perhaps trending up more towards that 20,000 ounces. Is that a fair assumption?

Correct. Yes. So we should be -- and we are delivering ore close to a couple of grams now. It's taken a while to get into it, but now we are. And so for the remainder of this quarter, we would look to maintain head grade over 2 grams through to the end of the year. The good -- we're actually mining at a rate in excess of what the mill can process. So it will allow us to be relatively selective about what we process for the next quarter and into -- in fact, into 2021.

Okay. Helpful. And sorry, my last one is just on VAT again. Stuart, you're offsetting the VAT build versus royalties. Is it a bit of -- is it predominantly -- or most -- much of it is a wash? Or are you -- is there still some form of build? So obviously, royalties is $105 an ounce or $106 an ounce for the quarter on average, based on the appendix. And now I'm just trying to back out what the VAT would be. But it's still kind of a cash burn, but not as much as it potentially could be because you're not paying that royalty in cash. Is that a fair way to look at it?

Yes, that's exactly right. That's exactly right, Rich. So that's what I mean. We'll have to come up with some form of methodology maybe that might help folks in terms of calculation of the cash flows on that.

Your next question comes from Hunter Hillcoat with Investec.

Thanks, Richard. You asked some of the questions for me. Just you mentioned the way that the Syama plant was closed down then started up and it's operating well, particularly the roaster, are you quite comfortable that the integrity hasn't been compromised in any way by the shutdown during the course of the strike?

Yes. And I think the sort of gentle way in which we reheated it and got it started again was entirely based on our commitment to preserving the integrity of the roaster. I think, to be honest, in the past, we might have been in more of a hurry. And it's thermal shocks to the roaster, rapid heating and rapid cooling events that pose the greatest risk to its integrity. So we're at pains to avoid doing that. The penalty we pay is it takes a bit longer to get back into normal operation.

Okay. Good. And I appreciate that it's still 2020, but obviously in the market, we are looking towards next year. Have you got any -- not necessarily guidance, but feel for how next year is going to perform from a production viewpoint? And I'm talking specifically about the oxides, given the continuation of oxide operations into the next year, but the limited contribution that Cashew can make through the course of the year.

Yes. Well, I think if you look at it as a whole of business, Hunter, I think from an underground -- Syama underground perspective, we understand what that can deliver, and that's broadly going to be within that 160,000 ounce range. And we've published the Mako life of mine plan, and we can see what that looks like for the next year. So you've got those 2 areas there. So I guess your question really revolves around the oxides. And we'd certainly be targeting 80-odd thousand ounces at this stage from the Syama oxide production. But we have said previously that we'll come out and we'll provide more detail on that, and we're currently working on that. So again, we'll provide more detail on the oxides over the course of this quarter, and then that really will give you the Resolute life of mine plan for the whole of the business moving forward.

[Operator Instructions] The next question comes from Joe Mares with Trium Capital.

I guess I'm trying to sort of make sure I understand the comment on the Tabakoroni sort of underground. I guess -- I don't know whether you've sort of specified a date for either making that decision or when roughly you think that investment needs to be made. It seems from your commentary that you're -- because of the success in finding other resources, that, that sort of has been pushed out because you have sort of better near-term options. Is that a fair way to think about it? Or I'm not sure whether that means that, that's based on a few months or years. Or is it too early to make that sort of projection?

Yes. Thanks, Joe. And yes, it's several years, I would say, that we're pushing it out for. So we're looking at somewhere around '22, '23 would be our hope before we need to get into the Tabakoroni underground. And of course, what that does is it just provides us with additional time to improve that overall resource and then turn it into a reserve. So as I said before, our teams are working on that. And at the same point in time, we're also working on proving up the oxide capacity from our satellite pits. So we have a number of those pits, which we will be opening, and we'll be in and out of those pits relatively quickly. But we certainly think it can give 2 to 3 years' worth of oxide production before we need to spend the capital to bring Tabakoroni up and running. So that's good from a capital allocation perspective because the satellite pits are pretty low in terms of their capital requirements. They're all fairly shallow and don't require a whole lot of input in the first instance. So to the extent that we can push out our capital investment decision around Tabakoroni, then that makes sense.

We are showing no further questions at this time. I'll now hand back to Mr. Gale for closing remarks.

Great. Thanks, Kelly, and thank you all for joining us. Just again I'll wrap it up by reiterating that we are absolutely focused on delivering on our production. We want to produce at a lower cost. Cash flows will ultimately strengthen our balance sheet for growth, as with our operations, and make it really clear and straightforward from a Resolute perspective. That's our objective. So in summing up, I would actually like to thank our team. They have done a fantastic job in what's been pretty trying circumstances, not just in the last quarter, but really for the whole of 2020. And it's going to be that case, I expect, through -- right through to the end of 2020. But look, we are really well positioned. We've made some significant investments. We have been through some challenging times in September, but we've got a strong basis to move forward on and that's what our intention is. So thank you all for your attention and I'll hand back to Kelly to close the call.

That does conclude our conference for today. Thank you for participating. You may now disconnect.