Resolute Mining Limited (RSG) Earnings Call Transcript & Summary

Good morning, everyone. I'd like to welcome you to the Resolute Mining Limited June quarterly results call. Today, I'm joined by CEO, Mr. Terry Holohan; Group CFO, Mr. Doug Warden and Group COO, Geoff Montgomery. I'd like to hand over to Terry to start the call. Over to you, Terry.

Thanks, James. And again, welcome, everybody, this morning. Thanks for taking the time to listen to our presentation here. As you saw, the highlights went out this morning. What I'll do, I will go through the highlights quickly and then pass over to Geoff Montgomery. Geoff is new in his position as Chief Operating Officer. However, he's been working very closely with me over the last 12 months on the operation and continues now to focus on that area. And of course, Doug, you're familiar with from the previous calls, he'll take us through the financials. And then I'll just do the wrap before we do Q&A, and we'll try and limit this to 30 minutes. Okay. If we start with the highlights, safety. I think we're still improving there. We're quite proud of the fact we've hit what we think is a magical 0.9 rate on the recordable injury frequency. That's quite an aggressive number, but we're still focused on improvements there. And it's the lowest we've been for 12 months, which we think is quite an achievement, given we did the 60,000 man hour stoppage in the plant in the first quarter of the year. In terms of the Mali situation, we're also excited that the ECOWAS has finally withdrawn all the sanctions in early July. This was a month later than I think I gave you guidance on. We thought that would happen in June, but it happened in July. And the country is presently recovering, and it's focusing on the 2-year election process, which everybody is very excited about in the -- in Bamako City itself. In terms of the security situation, we have not had -- we're still monitoring the situation very, very carefully. We've not had any scares or interruptions. And at this point, we're just carrying on our business as usual as we have over the last several years. Going to production. We again, poured a little bit more gold than we thought we would do and planned. And we are now presently running at a run rate of where we expected to be of over 350,000 ounces per annum. And I think most -- more importantly, we have now recorded 4 quarters in a row of continuous improvement. That's important for us, it's important to all our shareholders, and it's having a huge impact with the operators in the field who are starting to get excited about what we're achieving. In terms of the operations, Mako is coming along. It's doing really well. The big story is the Syama Sulphides. We talked a lot about it last quarter. After 18 months of focus on the sulphide plant, the bottleneck is now firmly moving upstream to the mine, which is where it should be. And that's where we're focusing efforts there as well, are still looking at the plant to see where we can debottleneck it further and therefore, expand the process further. The sulphide plant is now operating at a run rate of about 2.4 million tonnes per annum. As you know, last year, we achieved 2.1 million, and that was a record. So we're expecting going forward to start hitting -- knocking records over consistently. And we believe we finally, after 30 years of operating on this ore body, ticked the box on the processing of sulphides, this challenging double refractory gold mineralization at Syama. I've said it before, but I will repeat it, that I think sulphides are the future of Syama. We already have a respect to 7 million ounces of M&I on our balance sheet, and I'll talk to it a little bit later, but we are now, again, adding to that number at quite a rate. So now we've got a stable sulphide operation. We can finally start focusing on the operational costs and efficiencies where opportunities do exist while we are continuously looking at expanding our sulphide operations. In terms of the oxides, we talked about the rains coming early. They did. They came in June with quite a bang. We spent a lot of time preparing our open pits, which are ready. The rains are not affecting our play. And we did a lot of work again this quarter on grade control and pre-stripping. If you remember, I mentioned that the grade control was a weakness previously. But we're now in a position where we're a couple of -- several months ahead of the mining. And that's important going forward, not just for this year, but for the subsequent years. And the mining plan -- sorry, the mining team, they maintained their position or meet their overall plan on oxides, which is always going to be back-end loaded with the highest grades coming through at Tabakoroni in the fourth quarter. With the cost and price pressures presently being felt across all industries, this is a circuit where we are most sensitive to fluctuations. So obviously, we were focusing -- we are focusing all our efforts on productivities as a priority. And it's worth noting that longer term, given that sulphides are our main focus over the life of mine, we are already now looking at the feasibility of converting our oxide plant to a sulphide plant by adding a flotation section. And I'll hand over to Geoff shortly, and he'll give you just a little bit more color on some of those points. In terms of the cost, you'll see that the headline costs increased by 11% quarter-on-quarter, but I'd like to draw your attention to the fact that our pure cash costs, excluding the noncash adjustments were virtually flat due to the extra units produced. Of note, yes, the diesel prices in Mali, we saw some spikes there. But we've -- that's come down now. We're in the range of $1.20 to $1.30 a liter in Mali at this point. However, it's interesting to note that in Senegal, it still remains at about $0.76 per liter. So we're seeing a little bit of fluctuation there, possibly part of the ECOWAS sanction lifting, et cetera, but we expect the energy prices to flatten out going forward. Some of the extra one-off costs I mentioned is the open pit grade control and pre-stripping. We've put a lot of money into that over the last 6 months, and we will see the benefits, as I mentioned, over the next 6 months and next year as well. Also, some noncash costs due to the further release of gold in circuit in the sulphide operation, that is continuing. And we still have some more material to come out there as the roaster is performing, at least 10% faster than the milling circuit. So we still, as I mentioned before, vacuuming up some of our spillages that we've created over the last few years. The big story to me is the exploration. I think we'd be ticking the box on sulphide processing. This has become a step change for the project team at Syama. The geologists have gone rushing back out there. They started going out last year because we can see where this was going. And they started to discover high-grade sulphides very close to the complex. We returned to the original A21 pit, which is 4 kilometers north of the Syama complex. That was a very successful open pit operation prior to our involvement in this project. And in 2021, we upgraded this pit mineral resource, 1.4 million ounces at a grade of 2.14 gram per tonne. Majority of this being sulphide, and that's why it wasn't actually focused on previously. This year, we drilled a 2.5-kilometer fence line along the strike of that pit at 150 meters deep and 100-meter spacing holes. I think you appreciate that 100-meter spacing holes, they're not going to have much impact on each other in terms of modeling at this stage. So we are infilling those holes. But what we found is of the 97 holes that we drilled, we intersected gold on each occasion. And we did published some of the high-grade numbers, which were quite spectacular in a few weeks ago. As I mentioned, we're presently infilling this first pass. It will take most of the rest of the year to complete to give a full minimum resource estimate by the end of the year. We are conducting metallurgical test work, so we can start converting it to ore reserve also in the second half of the year. And the test work is demonstrating, it's very similar in behavior to the original Syama material, open pit material. We do, however, expect to publish an updated mineral resource of easily accessible mineralization by September, and this will give us time to develop the expansion of the underground over next year at a slower rate, we think, and gives us that opportunity to ensure we don't compromise on grade as we step up our underground mine from the 2.1 million to hopefully, up to 3 million tonnes per annum. We've also initiated a helicopter -- or sorry, HeliMag, low-level, high-density aeromagnetic survey over the whole 85 kilometers of strike. This is a 20 meters height and 50-meter line spacing, so the resolution is going to be at least 3x better than the original one carried out by BHP. And this will indicate if there's any more oxides and any more sulphides out there on the 85 kilometers. Also, I've mentioned, I call it exploration, it's really grade control though. The mining guys have actually built a drilling bay at the 950-meter level underneath the sublevel cave, which Alex is the higher-grade southern section, which we talked about in the history, which originally in the exploration model was responsible for about 5% of our ore reserve. Of note, that it is high grade, and we're going to start drilling that this month. So that will be easier access to get information from an exploration and grade control point of view. So we can look at long-haul stoping some of this material. Also from a debt point of view, we did pay down $15 million on our RCF. And so I think all in all, we think we've had a good quarter and more, a consistent quarter if you -- especially if you look at our last 3 quarters in a row. We're now -- 4 quarters have shown improvement. And we are maintaining our guidance, which I think is a first for this company for a while of 345,000 ounces for the year for 17 -- $1,475 per ounce. And with that, I'll pass over to Geoff, who just give you a little bit more color on some of the things that we're focusing on in the ops.

Thanks very much, Terry, and good morning, everybody. I'll start with Mako, the key highlights points from the quarter. Starting on safety, primary focus, of course, for us. We've achieved 0 LTIs, which I'm very happy with. On the mining side, we achieved better grades from the pushback area than we had budgeted, which reduced the impact from our scheduled mill stoppage. In addition to this, the TSF lift was completed. The mill optimization software project is now nearing completion, which means we're achieving a better grind and better recovery. So recoveries are up about 2% on budget, sitting around about 92.5% which we predict for the rest of the year. With the mill optimization software, we have not been able to reduce our four mill relines per year to three mill relines per year. The AMS contract extension is almost completed. That will last until the end of mining. We currently have initiated a cost reduction exercise. And in general, we are promoting a culture of continuous improvement. Moving on to Syama. Again, I'm very pleased to announce that we had 0 LTIs for the quarter. However, it still maintained as a primary focus for us. We are focusing on costs there as well again, promoting this culture of continuous improvement. Moving on to the sulphide circuit, starting with the underground. We're focusing on the underground fleet availability. It's not where we want it to be. And we're also looking at the type of fleet we're using. Terry mentioned the long-haul stopping and Syama site, and we're expecting to mine that next year, depending on the grids. With respect to the roaster performance, we are now putting through 10% above the mill equivalent, and roaster is performing extremely well, achieving the sulfur and [ core ] eliminations that we have budgeted and in times exceeding that. With respect to tails, we are expecting to start deposition into the old Beta pit in quarter 4. What that means is that the last capital-intensive TFS risk has been done, and we will not be required to do that again for a number of years. In addition to this, one of the outcomes of the successful shutdown and the reline of the roaster is that instead of having to do biannual shutdowns, we are now able to move them out to 5 years. So we will do one in 3 years for this first cycle because we need to do some work on our burners and the spray cooler. However, following that, as I mentioned, it will go out to 5 years. We're maintaining the focus on debottlenecking this milling circuit, which is a constraint. And we're utilizing a consultant to do that, and he's working on that at the moment. On the oxide circuit, we completed the wet season preparations during quarter 2. That has minimized the effect of the rains on the mining operation. We're expecting the pre-strip at Tabakoroni to be complete in quarter 3. And from that, we will see a significant reduction in the strip ratio in quarter 4, reduced costs. And it will also give us access to higher grade ore. I'm also very pleased to note that grid control drilling has now -- is now several months ahead of mining. So we've got past the point of living harm to mark. However, there will be continued focus on control of grade dilution at the pits. The other point of note with improved materials handling and the oxide combination circuit, we have managed to achieve an additional 4% throughput. And that's the end for me.

Good. Thanks, Geoff. Thank you, Geoff. Doug, do you want to take us through the financial points?

Yes. We'll do. Thanks, Terry. Yes, I'll just take a few moments to put some additional color around the all-in sustaining and cash costs -- cash unit costs, cash flow for the quarter and an update on the hedge book. So look, as Terry has alluded to, the June quarter, cash cost per ounce of $1,472 were broadly in line with our March performance of $1,486 at a cash level, with higher sulphide and eco throughputs and grades offsetting some higher cash costs, which is common throughout the industry, additional tailings storage CapEx in the quarter of -- which is detailed in the quarterly, and reduced quarter-on-quarter benefit from gold recovered from circuit also having an influence there. Whilst the unit cash costs were broadly in line, the all-in sustaining cost was up 11%. As we've noted, $1,540 versus $1,383 in the March quarter. And this was largely due to noncash inventory movements, which we outlined on Page 2 to do largely with the roaster shut and the large amount of gold recovered in the March quarter. And that's sort of reversing itself somewhat in the second quarter. I guess the way to think about this, for the half, notwithstanding that some of these movements in inventory noncash adjustments, the group all-in sustaining cost in the first half was $1,463 and the total noncash adjustment was a net benefit of $14 an ounce. So I note that the June all-in sustaining cost also includes higher sustaining capital with $16.8 million in the second quarter versus $10.6 million in the first quarter, and this was largely relating to the tailings facilities. And that, while it's not a one-off, it might be repeated anytime soon now that we have those tailing storage facilities in place. Moving to the cash flow and the waterfall in the quarterly report. Operating cash flow of $42.3 million for the quarter. CapEx was $19 million, as I've talked about. A big chunk of that was sustaining capital exploration, broadly in line with previous quarters at $4.4 million and some really good results, as Terry's talked about, was largely the brownfields exploration programs at Syama and summit Mako. The working capital, we do go into a bit of detail in the quarterly. That's an adverse cash flow item of $23.9 million for the quarter and essentially relates to a paydown of creditors and as well as some buildup of inventories in the quarter given the inflationary environment we're facing, together with the wet season that we're preparing -- we've been preparing for and the Mali -- or the ECOWAS sanctions against Mali. So they're sort of contributing factors as to why we've been building up inventories a little bit, and also the pay down of creditors following the roaster shut and the capital works in the first quarter. We would expect that working capital movement to normalize in the third quarter and to be neither a significant draw on cash or contributed to cash. Asset sale proceeds are around our sale of Turaco, a small listed vehicle that we sold during the quarter for $4.5 million. Sold our interest here, I should say. Terry has already talked about the $15 million we paid off the revolver. And the government dividend withholding tax, that's larger than normal because we pay an annual dividend out of Mako and we pay withholding tax on that dividend once a year, and that was paid in the last quarter. So $4.5 million of that amount was that withholding tax. Net debt as at 30th June was $182.8 million after taking into account cash and bullion balances. And finally, the hedge book, just a requirement as -- under our debt facilities is to have 30% of the next 18 months forecast production hedged. And at 30th June, we had a total of 230,000 hedged at USD 1,875 an ounce. With that, I'll hand back to Terry to wrap up and take questions.

Thanks, Doug. And I think you'd appreciate, it's been a busy 12 to 18 months for us, especially with the focus on Syama. We have been heavily distracted. We're trying to fix that circuit. We think we're there now. I certainly don't think it's the optimal. Geoff and his team are still spending a lot of time and effort on improving it further. We look at debottlenecking further. We're focusing on the mine. But I think the key thing is now the management have got a bit of free time to start thinking about what they're doing. And as per normal, when you get to this point in an operation, when you can actually rely on your circuit, now you can start focusing on costs, you can start looking at your operational costs and you can start looking at -- sorry, your variable and our fixed costs. So that is a big area that Geoff has mentioned that we're focusing on. And I think the bottom line is we are maintaining our guidance. Thank you very much for that. And I'm more than happy to take questions.

Yes. And as you know, Terry, the questions have come through in written format on the Team's call. The first one is really for me. Is there any reason why you're keeping $81 million as cash on your balance sheet when you have significant debt? Good question. We get that one a bit. Essentially, if you think about our total cash costs annually, around $500 million, so 12 months' worth of -- and that -- I'm sort of including everything in that exploration capital. So if you look at that on a monthly basis, it's a bit over $40 million a month. So we sort of look at it as, at least around $50 million just to run the business and have enough working capital to meet our cash requirements or our creditor payments, if you like, on a monthly basis. So why is it not $50 million? Why is it $81 million? Also, we've got an amortization profile on our debt, which is well publicized. And so we like to keep a bit up our sleeve as we head into some of those payments so that we're comfortable that we've got that money ready for payment to our banks. The -- that's the only question there at the moment. I'm not sure if there are any further questions, but please send them through, if you do have any additional questions. Just while I'm not even certain if there's any further questions I would add that, that is cash and bullion at $81 million. So the bullion balance is really just a timing thing across the month and we obviously convert that bullion into cash as quickly as we can that we are pouring at the end of the month, and it's sitting there as bullion balance. So it's just really timing. At this stage, no further questions. So Terry, I might hand back to you to wrap up.

Good. Thanks, Doug. Again, thanks for paying attention, listening to us. I think the key takeaways from here is we think we've got a process now for sulphide. That means we can look at our balance sheet and look at how we can treat that in more realistic time frames. It means the exploration guys are out there. And the focus for us is obviously to keep improving the unit systematically. We've had 4 good quarters. We're looking forward to another 4 good quarters off here, and we expect to see improvements on our unit cost going forward. Thank you very much.

That concludes the call for today. Thank you very much.