Rox Resources Limited (RXL) Earnings Call Transcript & Summary

Good morning. I'm Robert Ryan from Rox Resources. I'm the Managing Director, and I'm here to present to you our plan to develop the high-grade Youanmi Gold Project. Youanmi offers significant value. There is a large gold resource, and we've developed a plan that will produce a high-grade, low arsenic gold concentrate from the Youanmi Gold Project, that will be in significant demand on the global market. The scoping study released earlier this year only includes about 20% of mineral resource that's available for extraction. So I see a lot of upside when we start progressing through the feasibility stage of the project. We also have the ability to divest some of our noncore assets. There -- we've got the Mt Fisher project as well as the Mt Eureka Project that both offer significant upside in terms of exploration, and that will present significant value for us moving forward. And when you look at the comparison to Youanmi against our peers, we're significantly undervalued when we start looking at the cost per resource ounce, and we're even trading well below the cost per discovery ounce as well. As a bit of a corporate snapshot, the Board is headed up by Stephen Dennis and myself, and John Mair. And we've got the appropriate expertise to be able to take the project forward through the development process and into production. We've also built an extensive management team with Matt Antill and Gregor Bennett, who experts in the field to be able to advance the project through the feasibility phase. The project is located just outside of Mt Magnet in [indiscernible]. It is a fantastic corridor to be a part of. There's multimillion ounce deposits all the way through this area. The Youanmi Belt has been pretty well unloved over the past 20 years, with no significant mining operations other than this recent discovery of Penny West by Spectrum Metals, which was acquired by Ramelius Resources. Youanmi, itself, we've done a fantastic job of building a robust resource here of over 3 million ounces, and it gives the project scale to be able to move through the feasibility phase and it's deep in history. There's been lots of high-grade gold production throughout the district over a number of years. Through varying mining campaigns, there's been over 600,000 ounces of gold produced from this belt. And it's only 3 kilometers in strike so it is quite a rich endowment over quite a short span of the area. The mine last operated in 1997 and has effectively closed down when the gold -- prevailing gold price was AUD 450 an ounce. So when you start looking at today's terms with the gold price well in excess of 5x multiple or that, there's a lot of upside to go in and really reform this operation and get it back into production. And there is a significant build in deposits. There's over 4 million ounces of gold endowment here when you look at the past production and the resource that we've defined. It's got consistent high-grade hits throughout the resource. And we've drilled over 100,000 meters of drilling to really confirm the recent -- the past interpretations as well as the new discoveries at Link, Hill End as well as having a look at Midway as well. The main load to the -- is the initial mining campaign that was conducted here in the mid-90s. And that main load shows consistent grades, good widths and some of our recent drilling has confirmed what has been mined here in the past. The Youanmi Gold Project, the scoping study came out in October, and it showed around 4 million tonnes at 5 grams in a mine plan. So it does -- it is in a significantly high-grade deposit. We'll mine 570,000 ounces over an 8-year life. And when we talk about increasing the scale of the operation, I see a lot of opportunity to be able to ramp up from the 70,000 ounces that we have in a plan at present. The overall all-in sustaining costs are about $1,500 an ounce. And as we introduce more scale to this project, I expect to see that all-in sustaining cost number reduce. There is a moderate capital requirement of about $100 million. And what we see here is the ability for what is going to be a minor increase in capital can potentially add around a 20% to 30% increase in the overall throughput. And if we start looking at getting a higher throughput from the operation and more ounces per annum, obviously, all our costs will drop and our NPV will increase over time as well. But already under the current scale down version of the project, it is an attractive investment opportunity with the preproduction CapEx shown at 3x multiple to the NPV. And then when you look at the enterprise value of rocks in comparison to the project NPV, and the attributable NPV at our holding is 70%, it does show that there is a significant upside here at our current market valuation. So we are planning to produce a golden concentrate. Now gold concentrates mean that there's significantly less capital to get the project up and running. There's a shorter payback period and there's a shorter preproduction period, and you don't have as many risks, in terms of construction costs and the like. It's a simple process. It is a well-trodden process that a number of operators are using, and it does significantly derisk our planning moving forward. And it will produce a high-quality gold concentrate that will be in significant demand. The historical production as well as the test work that we've completed today shows that we will produce a consistent gold concentrate that runs over 40 grams a tonne gold and sub-2% arsenic. When we look at the historical production, it backs up all the tests that we've done to date, and all the variability test work that we've done in the recent drilling campaigns just goes to show that it will be a consistent producer of a high-quality gold concentrate. And the concentrate market is growing and is significant already. More than 12% of the world's gold is produced via golden concentrate. It's forecast to increase over the next 5 years. And one of the biggest issues in and around the concentrate market is the ability to be able to find low arsenic gold concentrates. Changes to regulations in China means that any arsenic over -- any concentrate with arsenic over 6% needs to be blended down, in order to not have to pay a [ 15% ]% VAT charge. Now when you look at Youanmi, at sub-2% arsenic, it is going to attract a premium from traders and suppliers to be able to take the concentrate and blend it with some of the high arsenic concentrates. It puts us in a really niche market where the concentrated Youanmi will attract a premium by traders so they can get better payabilities on their remaining portfolios. And the concentrate market isn't something new. It is something that's been in operation in Australia for a very long time. It's no different to a lot of your base metal concentrate production. But even when we start looking at gold concentrates, the deflector mine in -- with Silver Lake Resources that produces the copper gold con. There's the Mt Carlton mine in Queensland that does the same. There's a cost of [indiscernible] mine down in Mandalay Resources and they produce the gold and [indiscernible]. And there's also St Barbara mines who have just acquired the Bardoc Gold Project, and that was a gold -- a hydrate gold concentrate as well where the payabilities were very significant on what the concentrate production was forecast to be. So it is not a strange process. It's something that's in operation throughout Australia at the moment, and we see a lot of upside in being able to use the Youanmi gold concentrate and position the project well within traders in the future. Now when you look at conservative attributable enterprise value, and if we just look at the measured and indicated ounces that Rox Resources have in the ground, we are currently valued at about $34 an ounce. Now if you were to include the inferred resources as well, we would basically be about sub-$14 an ounce on EV per resource ounce basis. If you're just looking at the higher end, higher quality ounces and you compare that with our peers, we have higher grade, and we have more ounces and we have a more attractive valuation. So I see a lot of ability for us as we start to increase the project financials and the project metrics as we progress through the feasibility studies are getting the rerating that this project deserves. And when we talk about the scoping study and the availability of extra resources to have within the plan, we've done a number of stope optimizations to have a look at material that will form part of a larger mining plan. And as you can see in the picture below, there is a significant amount of inferred resource that we can look to drill out and add to the current mining plan. Now if you can consider having to look at the picture below, there's more than 50% extra ounces, when we start looking at the overall project and the ability to upscale the project from here. Now whether we look at that as a longer life, so increasing the current 8-year mine life out to 12 or more. Or whether we increase the production rate to get that up, those are the options we will consider as we start transitioning through the feasibility process. The Mt Fisher and Mt Eureka belts. They're highly prospective areas. We recently released a resource upgrade for the gold resource here, and there's the 187,000 ounces at 1.65. It does show that there is a lot of exploration upside at Mt. Fisher, and there is the potential to really go hard at the exploration here and look to significantly grow that. However, we will look at all options in the future. Whether we look to advance through exploration or whether we look to divest the tenements to be able to fund our future work as well. We also have the Northern [ ground ] with the Cullen joint venture that stretches to the northern part of the basal contact that was recently acquired that Cannon Resources own and was recently acquired by private equity group, Kinterra. The northern extensions of that basal contact are at a highly prospective for nickel, and I'm sure there will be a lot of interest from Kinterra as well as other parties looking to acquire that exploration ground and grow their nickel resource there. To wrap it all up, Rox does offer significant value, and the quality of concentrate that we'll produce here will be in significant demand in the global market. I've already spoken to a number of off-takers who do show interest in the Youanmi Project and looking to start discussions early days, so we can get the project moving forward. There is significant upside when we look at the mining plan and the ability to be able to increase the scale and the life of the asset by drilling out our inferred resources. There is ongoing exploration as well. There's a lot of area within the Youanmi district that does present exploration upside. We will look at selling our stake in Cannon Resources that will help fund our feasibility studies. So with an additional $3.8 million as well as the recent capital raise, that will put us well funded to go through the full feasibility process as well as we start looking to run potential divestment of noncore assets to take the funding options even further. We offer attractive value when we start looking at our resource enterprise value against our attributable resource. And we think as we continue to progress the project and take it through the feasibility process, that we'll continue to gather upside and gather the momentum required to build this project in the next few years. Thank you very much, everyone, and I'll open the door to any questions.

Rob, there is a question. The refractory ore [ stigma ] still seems [indiscernible] to the Youanmi resource. Some claim it's double refractory. Could you comment that? Speaker 0 Yes. So the Youanmi Gold resource, it's not double refractory. It is a highly -- it is an easily oxidized gold resource. So when you start having a look at the gold in concentrate and producing a gold in concentrate, you actually remove the whole need to go down a refractory processing solution because there is significant demand globally to be able to blend high-quality gold concentrates with lower, lower gold grade copper concentrates as well as high gold, higher arsenic, gold concentrates and process them in China, Korea, Japan as well as India and even in Africa. North America has box circuits as well as there's OceanaGold in New Zealand that also treat the [ sole ] of gold concentrate. So there's a lot of optionality for us to be able to produce a gold con, remove the necessity to be able to process it and oxidize it on-site and really get the value to shareholders a lot earlier.

Rob, the second question, Rox is aiming at delivering at PFS next year. Assuming some exploration success, what could be delivered? A feasibility study or EBITDA DFS?

Look, we don't want to overpromise. One of the things we want to make sure that we will do is we would do the significant planning that it is required to get this project into a feasible investment scenario. We've got the expectation that we've got a long life project here that will be able to produce much more than 70,000 ounces per annum than what we've got in the current scoping study. And we want to make sure that we have the reserve life to back it up, and we've got the adequate mine life to be able to justify an investment decision here that is going to look at a good gearing as well as a good equity turnout and really, as I said, really get a robust financeable project here.

Rob, the question from anonymous attendee. Why do you think the market has valued Rox at such a low dollar grants.

I think a lot of it goes with having a look at the current scoping study. When we start looking at the potential upside we have on the scoping study, I don't think that's being taken into account when we've gone to market. Now having a look at the larger resource base here and even showing those recent optimizations, you can see that there's a significant amount more gold here that is available to be able to grow the life of this project. And that's not just growing in terms of mine life. It is growing in terms of scale as well. So I think the more that we do the work and we do the engineering to understand this project. And really look to upscale it to a point where we can get a higher ounce production target, I think the market will come along for the right.

Rob, Hawke's Point is a cornerstone investor and Hawke's Point maintains full support of the Rox and the Youanmi Project.

100%. So I think what you will see in the recent capital raising is Hawke's Point have come along to maintain their holding within the company. So there will be an AGM next year, whereby they'll look to be approval for them to maintain their 13% holding. Now as we move forward, we need to make sure that we build out the register as well, so that we get more institutional investment. So the whole reliance to build the project isn't just on Hawke's Point as well. So that will be our targets over the coming 12, 18 months, 2 years as we look to build out the register and get a quality of the investor involved with the stock, who will look to fund this project through to production.

Rob, question regarding [indiscernible] deposit, which has been highlighted as a significant resource and an important early opportunity for gold production, but not reflected in the scoping study, only 7,000 indicated ounces. Could you comment, please?

So in [indiscernible] discovery, and it is a fantastic discovery and it's out in the granites. There is an oxide opportunity there that we can potentially look at mining a small open pit on. What we want to do is we want to make sure that we drill it out effectively, and we do have a robust starting base to be able to execute a plan off. There was some previous mentions in and around toll treatment of those -- of the resource and the like. However, when we start looking at the gold market at present with the recent cost increases. With a lot of the mining contractors as well as the pressures put on some of the current operators. And toll treatment probably isn't really as readily available as what it was 12 months or 24 months ago. So what we really want to do now is focus on building the resource and reserve at the project and look to add that as one of our primary goals as we start moving forward with the development of the asset.

Rob, another question. Long-term shareholders have seen a decline of the share price. Why should we continue to support the business?

Look where Rox is now. It is a fantastic investment opportunity. And that's hands down. I can't comment on the past, of what's happened here over time. But what I can say is the future of Rox is bright. We've got a fantastic asset here. The scoping study, I don't think really shows the full picture of what we can achieve and how we're going to move this forward. So I say to shareholders who have, obviously, won the tough times to continue to follow the company because I dare say that as we continue to progress down this path and continue to develop the asset, and continue to conduct our feasibility studies, we will be able to unlock the value of the project moving forward. Thank you very much, everyone. It's been a fantastic webinar, and it's been great to share my thoughts on the Youanmi Gold Project with you and some fantastic questions have come out here as well. So if anyone's got any further questions, feel free to jump on to the e-mail link below, and we'll make sure that we'll get your questions answered. Thank you very much, everyone.