Resolute Mining Limited (RSG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Resolute Mining Limited 2022 Preliminary Financial Results Release. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Terry Holohan, CEO. Please go ahead.

Thanks, Melanie, and welcome, everybody. Good morning, and thank you for spending the time with us. I know it's a busy Friday for you. We'd like to take you through very quickly into the 20 minutes, the highlights and with a bit more color on the financials of our 2022 year. I've got the slide deck in front of me. It's on the website. If you look -- go straight to Slide 3 there, (sic) [ TRIFR ]. We're very proud of our improvements over this last year. This 0.41 is a company record for us going back on all our stats. And it's a big jump from where we were at the beginning of the year. And I'd just like to mention that while I was in [ Denver ] a couple of weeks ago, we actually clicked over 4 years at Syama without a lost time incident. That was a huge improvement -- sorry, a huge achievement, sorry, by the operators on the plant. And we know that safety is another destination. It's a journey. We are continuing to focus on that and break some more records going forward across the Group. Right now, we are on our sixth consecutive quarter of production growth, and we feel we're still on track. We're halfway through that. There's no surprises there at the moment. And again, as we've said, that we expect to have a fairly consistent year this year compared to last year, our production, 353,000 ounces all in at $1,498. We were better than the guidance on the ounces. Remember, we achieved that early on in the year and managed to maintain that through the rainy season. I think the big improvement that we saw across the year was the underground operation, the sulphide operation. I'll go into a little bit more in detail shortly. But the excitement there is the grade of the underground for the last 2 quarters was over 2.7g/t, and that is when the reserve is at 2.6g/t. It took us about 14, 15 months to tighten up all the mining to get into that position. And going forward, we believe that we've got that mine fully under control now. Revenue, $651 million, gold sales 357,000 ounces. Average price of $1,819, slightly above the spot prices because of our 30% hedge book that we've been carrying as part of the debt [indiscernible]. EBITDA, $148 million. And what we're really pleased about is we did have an underlying net profit of $20.3 million. I think that demonstrates the turnaround that we would -- expecting and talking about the last 5, 6 quarters, we're actually getting to where we expected to be. The big news on the horizon, which is coming at us like a train, is the Syama North. We're really excited about that. It was a surprise. We've now got 34 million tonnes. That compares to our 25 million tonnes underground at Syama mine, which is also growing. But that was really exciting. Open pitable material, 2.9 gram/tonne for over 3 million ounces. And we will be announcing in the next couple of days, probably next week, the new maiden ore reserve on that, which we're very excited about. I can't talk about that today, but we've actually spent quite a few hours looking at that this morning. Capital raise. As you know, that was successful. We were comfortable with that Canaccord and Sprott and really did a good job on that. We got what we wanted, slightly oversubscribed, which is great. And that settled our balance sheet for last year and put us in a strong position this year. We're in line with our peers now with a net debt of about $30 million, which is a huge improvement from the start of the year, but exactly where we expected to be. So if you go to Slide 4, you can see EBITDA of 23%. Operating cash flow, 25%. Those big improvements, and we expect to see those percentages climb going forward. Going to Slide 5. It's interesting to look now at the -- we've been comparing our quarters on a quarterly basis. Obviously, if you look at the annual numbers, very, very useful to look at. Start with the bottom bar with the sulphides. This is all material coming from underground so that we started in 2018. You can see 2020, we did 123,000 ounces, '21, 135,000. And then even though we stopped the mine -- sorry, the plant in '22 for 35 days, we did 161,000 ounces. A lot of that was from the 20,000 ounces that we found and got out of the gold in circuit after we fixed it in Q1, and that plant has been operating well with essentially those 20,000 ounces subsidizing the grade as it came up consistently from 2.4 to 2.7 in the last 2 quarters that I mentioned. So we're very excited with that. The improvements we got there, the reliability we're getting out of that plant now and the mine with the grade going forward, we think we're in a solid position. If you look at the gray section above that, which is the open pit. If you remember, we took quite a lot of pain in 2021. We stopped the open pits in 2022 to put a lot of great control in place, and we started to see the benefit of that towards the end of the year. 62,000 ounces, and you'll see this following year '23 with the higher confidence we reckon now, we're comfortably going to get about 73,000 ounces out of the circuit there. And if you look at Mako, Mako is a function of grade. We've been consistently running that plant at capacity. And the grade in the upper layers were pretty high. you can see 170,000 ounces in 2020. Grades came down to just over 2 grams/tonne in '21, '22. In '22, we squeezed a little bit more through the mill by putting a mill slice around the system. And I'll go into guidance on that a bit later on. But I think the production improvements we're very comfortable with. We think we've put ourselves in a very good platform going forward for the next couple of years. At this point, I'm going to hand over to Doug to take us through a bit more color on the earnings.

Yes. Thanks, Terry. And turning to the profit and loss on Slide 6 of the presentation. Stepping through that, revenue for the year was up 19% or $102 million, due to a 13% increase in gold sold and a 5% increase in the gold price year-on-year. But however, we have seen a substantial increase in cost with a 27% increase in cost of sales. After adjusting for increased material movements in 2022 and inventory movements, we estimate that the inflation impact on cost to be upwards of 15% for the year. With lower corporate and exploration costs partly offsetting these cost increases, EBITDA increased [ 14% ] to $148 million with an EBITDA margin of 23% for the year compared to 24% in 2021. The reported net loss after tax was $34.7 million. But after adjusting for abnormal items of $55 million, the underlying net profit after tax was $20.3 million, as Terry has mentioned. The majority of the abnormal amounts relate to provisions raised for the Senegalese tax exoneration matter and historical tax matters, which are largely Mali and attributable to Mali, which together totaled $38.7 million. In respect to the Senegalese tax exoneration matter, this was first recognized in the 2021 financial statements, you'll recall, and we took an impairment as well as some provisions in the 2021 accounts. And a reminder that this relates as to whether Mako is entitled to a 5- or a 7-year tax holiday. We're currently 6.5 years into that tax holiday and continue to enjoy the benefits of the tax exoneration, and we're confident that we'll formally achieve the 7-year tax holiday, which would end in the middle of this year. However, because of the notifications received from the government in late 2021, the Senegalese government, we have continued to book provisions that assume the exoneration period is not extended beyond 5 years. The historical tax adjustments largely relate to legacy tax matters in Mali, the majority of which we are either disputing or expect to be able to offset against VAT receivables. As we stated in the notes there, approximately $3 million of this amount is the cash settlement that we are expecting in 2023 with the others being noncash offset against that receivables, as I said. The remainder of the abnormal items is a $16 million provision raised for obsolete store stock, which was taken up in the 2022 accounts. And this has resulted from a year-end review, where we've taken a conservative approach to provide for slow-moving consumables in the store. The majority of this provision relates to Syama with just over $2 million of it pertaining to Mako. Turning to Slide 7 and the cash flow waterfall. Operating cash flow for the year of $161 million. CapEx was $63 million, which the major items included just under $22 million for tailings storage facilities, the majority of which was at Syama. $4.5 million associated with the roaster shut -- remembering that I think I've said previously that about $5.5 million was spent on that in preparing for that with long lead items in 2021, but $4.5 million for the 2022 year. And just under $28 million in stripping and development costs made up of $8.6 million for Syama Oxide, Mako, $15.7 million, and some underground development making up the remainder. If we aggregate the operating cash flow, CapEx, exploration and the working capital bars, we get to a free cash flow from the business to the year of $39 million, which together with asset sale proceeds of $84 million, inclusive of Bibiani sale proceeds of $60 million and the remainder attributable to our investments in Orca, Turaco and Oklo shares, have helped pay down debt of $195 million in the year, which included $50 million of the term loan under the syndicated facility and $145 million worth of repayments on the revolving credit facility, $50 million of which is permanent amortization, the remaining $95 million being a voluntary pay-down of that facility. Working capital of negative $42.5 million includes a reduction in creditors of $28 million over the year, with the remainder being an increase in consumable stock. As I said on the quarterly call, with monthly cash costs of around $45 million, we see the current level of creditors where they ended 2022 in the mid-$60 million mark as being about the right level, so a reduction during the year as a result. The increase in consumables is due to a combination of higher prices, meaning it costs us more to hold the same amount of inventory and some increase in volumes, which we should see rectify over the course of 2023, which were taken on due to concerns around sanctions in Mali. The government dividend and withholding tax relates to the dividend to the Senegalese government in relation to Mako. Turning finally to Slide 8, net debt and the hedge book. As a result of that free cash flow generated plus the equity raise and the asset sales, net debt reduced from $229 million at the end of '21 to $31.6 million at the end of 2022. Finished with cash and bullion of $94 million and $95 million in undrawn facility with total liquidity of $189 million. The hedge book comprised 172,500 ounces in forwards at an average price of $1,886 an ounce. And with that, I'll hand back to Terry to wrap up and take any questions.

Thanks, Doug. So if we look at the guidance, we did put that out, and we're comfortable with that. We say on the sulphide, 160,000 ounces at a cost of about $1,400 with -- we think we're going to reduce our costs a little bit from last year. We think there could be a little bit of upside on the Syama sulphide if we can release more metal from GIC, but it's going to be a bit tougher this year. But obviously, our focus this year is going to be cost. We've focused for 18 months now hard on the physical side, and we're going to put the same attention now into the costs over this next year. So we expect to see those costs coming down. As I mentioned in the oxide, we think we -- based on the grade control we've got now, which is 9 months ahead compared to only a couple of weeks ahead previously, we're in a very comfortable position to be able to accurately say how many ounces we're going to get out this year and at what cost, and you can see a step-down in costs there accordingly. Mako, as I mentioned, is a function of grade through its mine life. And we're below the 2g/t this year, 117,000 ounces, and that takes those costs up. However, I will mention, you'll see it on the capital below on the nonsustaining, we're doing quite a bit of stripping for the next section of the mining over the next couple of years. And with that stripping costs going in, we're going to get back to the following 2 years at 130,000 to 140,000 ounces, and those will be close to $1,100 or less because of that upfront costs taking place. So we think 350,000 at $1,480. I don't necessarily see much upside on the cost of Mako, but I do see some potential upside on the cost that still at the Syama and Oxide as we still tinker with those circuits. And these are excluding Syama North, which will only really kick in firmly in '24. And we're just waiting for the pre-feasibility on that, which will come out probably midyear, to be able to tell us what the upside will be and the guidance will be for '24, '25, '26 at Syama. So on the CapEx guidance, this year, $34 million. You'll note there's no TSF big numbers there this year. We have got a little bit of a holiday on that for a couple of years now. All the TSF at Syama now finished. We're doing in pit filling of tails. And then we've just got one final lift sometime next year on the Namakan tailings dam. Some strip costs and then Syama project costs, we're looking at underground fleet replacement, et cetera, some minor sustaining projects. And then nonsustaining, I mentioned the Mako that will open a lot of metal going forward. And then we're purchasing the Mako power plant. The contract came to an end. We had an option to purchase it. We are purchasing it. We are in that number, enhancing it and improving the operation of that, essentially lowering the gas temperature, the ambient air temperatures going into the plant, which should reduce our diesel consumption and therefore, operating costs for the rest of the life of mine by about 10% on diesel there. Then we've got the expansion study projects. I mentioned the pre-fees will go straight into a [ fleet ] project study after that. And then we've also already started putting money into enhancement of the Syama sulphide circuit. We have already kicked off working on the crushing stages. And last but not least, on the exploration, we're again giving Bruce and his team $16 million. They have been finding gold for $10 an ounce since last year. I expect that to continue. Obviously, the priority is Syama North. Mako, we know we've got 4 targets there we're chasing down. and then we're doing some work in Guinea. We're also -- as part of that $16 million, we have already developed underground in the system so we can actually start exploring from underground at the sublevel cave. We know we've got some higher-grade materials in the Syama Underground South, and that would be accessed by long-haul stoping rather than sublevel caving. It's in the inferred, but I'd say it's higher grade, so we'll be doing some work on that this year. That's only about 600 of that $16 million. And with that, I'll hand you back to Melanie for questions.

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

Congrats on a decent set of numbers. Operationally, I think we're good, and it's good to see you guys keeping going on that. So congrats and keep up the good work. So my questions are unfortunately very boring and relating to financials. The first -- indeed. Accounts -- the apple doesn't fall far from the tree, right? Look, the questions on -- well, first one is on D&A. Doug, it's come down quite a lot in second half from what I can see. And versus previous years, it has been quite elevated, sort of running at that sort of over 120 -- sort of to $120 million sort of level. It's come down quite a lot this year. So what is the kind of forward guidance for D&A, just so we can get our numbers right for earnings? That's the first one.

Yes. Thanks, Richard. Come down largely because of the impairments taken last year. So that's the primary reason. And I think, you know, fair to say that relatively flat going forward is what we would expect. Obviously, Mako, shorter mine life. So it depends how far out you're going. But in the near term, next few years, relatively flat.

Okay. And then the second one is just on working capital. I mean thanks for the color just in terms of inventories and such like. How should we think about working capital this financial year, should we still -- how should we think about VAT, sort of cash flow, whether that impacts the cash flow on a negative basis or whether we should -- how should we think about that? Yes, just be good to get some kind of color on your thoughts on working cap and tax, please?

Yes. So on the working capital, yes, look, as I said, I think we've got to a decent -- a reasonable level of creditors now, that we're in a stronger financial position. So I don't see that being a major swing factor. And on the store stock now that the production performance has improved significantly. We're really, as Terry has said, focused on costs, and that includes the store. So I think really, shining a light on that and making sure that we are at appropriate levels in that store and reducing that working capital and chewing through the stores there as much as we can without obviously putting the operation at risk is a clear focus. So I won't be here, but I'd be very disappointed to hear if the store stock was going in the other direction. I think we'll see that come down this year as the operation really focuses on using what they've got and trying to minimize the working capital that's consumed in that area. And then your other question was on tax and VAT. We are still trying to get the [ Avana ] signs that's been going on for some time before I even got here, in fact, which would give us exemption from that, those VAT payments, which obviously don't get refunded, but do, in some way, get recovered by offsetting other usually legacy taxes as it's been. So until that is signed, we still have some VAT leakage as it were. And that's -- I can't give you a timeframe, but we continue to hope that we'll be able to achieve that [ Avana ] signing. But to date, we haven't been able to.

Okay. And the quantum of the VAT leakage is what?

It's a couple of $2.5 million a month.

Okay.

That's net of the royalties that we offset against that. So that's sort of when I talk about that leakage. It depends on obviously what we're spending on site. But somewhere in that range of, let's call it, $25 million to $30 million a year.

[Operator Instructions] We are showing no further questions at this time. I'll now hand back to Mr. Holohan for closing remarks.

Thanks, Melanie. And again, thank you for taking the time today. In closing, there's 3 things we're focusing on this year, and that is consolidation of all we've achieved on the production to make sure the systems carry it forward, organic growth and operating cost reduction. It's as simple as that. Thank you very much. Bye-bye.

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