Rox Resources Limited (RXL) Earnings Call Transcript & Summary

Okay. Good morning, ladies and gentlemen. Those of you that don't know me, my name is Stephen Dennis. I'm Chairman of Rox. It's 11 a.m. and a nominated time for the commencement of the meeting. I think it's being live streamed as well. We've got something like 19 people online, as I understand it. So welcome to them also. If you haven't already done so, and I'm sure you have, you've registered your attendance with Computershare. And you should have, for those of you in the room, a green attendance card if you're going to vote today. Phones off. I've even put mine off, so appreciate if you could do that. In terms of the meeting itself, there is a quorum present, and I declare the meeting open. Let me start with some introductions. Robert Ryan, on my immediate right, is our new Managing Director. On Rob's right is Dr. John Mair, and the 3 of us now constitute the Board of Rox. In terms of the senior management team, on my left is Chris Hunt, our Chief Financial Officer and Company Secretary. And somewhere over there is Matt Antill. He's General Manager of the Youanmi operations. Also present today, Michael Liprino from our auditors. I've lost sight of Michael. There he is, from our auditors, Pitcher Partners. Also welcome Adam Levine from our lawyers, K&L Gates. The way it's going to work today is that Rob will make a short presentation at the back end of the meeting, and you'll be able to get an update on our progress. And please feel free to ask questions. I offered some commentary in our annual report this year about the progress that we've been making at Youanmi. I don't propose to repeat that here today. As I said, Rob will provide you with an update. Since the annual report, though, we announced the completion of a scoping study for Youanmi, which demonstrated that the project does have a great significant economic potential. This study only took account of 20% of the total available mineral source, which today stands at 3.2 million ounces. And I have no doubt that once we convert more of that inferred resource to indicated resource that the economics of the project will improve even further. That, of course, will require additional drilling to convert that inferred resource across into indicated resource. And that will be the priority for this company over the next 6 months. We do remain confident that Youanmi will be mined. And as I said, Rob will talk a little later about those next steps and the pathways to development. Rob joined the Board in June, and he started with us as a Non-Executive Director. And just recently, we appointed him as our Managing Director, taking over from Alex, who's known -- Alex Passmore, who's known to most of you. This transition -- sorry, took place in conjunction with the release of the scoping study that I mentioned. It will be now up to Rob to take the project to the next stage. Those of you who don't know, he's -- far from his looks, he's an experienced mining engineer, and he's been involved in all aspects of project development throughout his 20-year career, including covering exploration, resource development, feasibility studies, project development, mining operations. And so we believe that the set of skills Rob has is ideal for what lies ahead of us at Youanmi today. I would -- Alex, isn't here today, but I would like to take the opportunity to thank Alex for his contribution to Rox. His legacy will be Youanmi. He's the one that brought the project to Rox back in 2019, and I can assure you, he worked passionately to make the project a success. I know that as our fourth largest shareholder, Alex will continue to follow our progress closely. So thanks to Alex. On the financial front, we recently, as you most would be aware, have completed a capital raising for $4 million. That includes Hawke's Point, who owned roughly 13.5% of the company. That includes them taking up their pro rata share, which will have to be approved as a technicality by shareholders in, at this stage, January. We're also 2 days away from closing an SPP to raise a further minimum amount of $1 million. Mr. Hunt here hasn't allowed me to say a lot about that, so I won't. But I can assure you the SPP response has been excellent. Our largest shareholder, Hawke's Point, as I mentioned before, is participating in the capital raising. And so their eventual interest will remain. I said 13.5%, it will be 13.18% to be precise. Earlier -- not earlier, but late last year, middle of last year, in August, we successfully spun out and listed all of our nickel and base metal assets via, you might recall, an IPO of Cannon Resources. You'll also be aware that Cannon is currently the subject of a takeover offer, and that offer has now gone on conditional. And so those shareholders who have retained their Cannon shares will be handsomely rewarded if they accept the current offer. Good news is Rox also retained, at the time of the IPO, 10% of Cannon. And so once we tend into that offer, that's expected to deliver an additional $3.8 million to the company. And that's a tremendous outcome when you look back at where we started this process in August last year. So with the capital raising, the SPV, the proceeds from the Cannon takeover offer will be well funded for the foreseeable future to undertake the programs that I mentioned before. The elephant in the room, of course, is our share price, and we're not alone. A lot of junior gold companies, their share prices have not performed at all well over the last year, including ours. But it is what it is. And all I can say is that as a Board, we remain confident that by continuing to steer the Youanmi project towards development, we will eventually see better days. Thanks also to shareholders for your ongoing support and also to the management team for their efforts as well. Turning then to the business of today's meeting. We get down to the technicalities from here. So please bear with me. There are some procedural matters to be dealt with. And the business, you will have seen, is set out in the Notice of Meeting that went to the ASX. The ASX now requires a poll on resolutions that deal with listing rule matters. And so all resolutions today being considered will go to a poll. To enable the meeting to proceed smoothly, that poll will be conducted at the same time and will take place at the end of the meeting after all the resolutions have been put and, if necessary, discussed. It will be supervised by [ Lisa ], wherever she is, over there. She's [indiscernible] at annual general meetings, but [ Lisa's ] from Computershare and she'll take us through the instructions on how to complete the voting papers at the time of voting. Computershare will then collate the voting papers, provide the company with the results. And those results will turn up on the ASX. When, Chris, this afternoon.

Correct.

I expect, and you'll be able to see them there. And following all of that, Rob, I'll hand over to. He'll provide presentation and feel free to ask any questions you might have. So on with the formalities, Notice of Meeting. That Notice of Meeting, together with the explanatory memorandum, it was dispatched to shareholders. Unless there's a contrary voice, I propose to be taken as read. In terms of minutes of previous meetings. The Annual General Meeting last year was held on 25 November. And those minutes have been signed if anyone wants to have a look at them. I hope you've got better things to look at, but if you do, they're available for scrutiny during the meeting. Proxies this year, 38 million shares. Proxies for 38 million shares have been received and the register of proxies available if you want to have a look at that. As I said before, the proxies will appear on the screen as we go through each resolution. The proxies have been -- are all in favor. So they are in favor of all resolutions, bar one, today, and we'll talk about that when we get to it, and that's resolution 6, which is approval of potential termination benefits which affects executives. As a matter of record, I intend to advise that I intend to vote in all open proxies that I've received in favor of resolutions being considered today. So I've mentioned that the resolutions will appear on the screen, and you'll see the proxies for each resolution. So let's then go through those matters that are contained in the Notice of Meeting. First up is the directors' report and accounts. This is not a matter that requires a resolution. We're happy to discuss any matter concerning the annual report, financial statements, the auditor's report for the year, which ended June 30, was the financial year. As I mentioned before, Michael Liprino is here from Pitcher Partners, if you've got any questions related to their audit. Are there any matters, questions arising out of the statements or the reports? If there's not, then we'll go to the first resolution. Always the case at annual general meetings is the remuneration report, the adoption of the remuneration report. You can see there the resolution as it appears on the screen. I don't propose to read it. If there's any -- and you can see the proxies also, for and against and abstinence. Any shareholder wishes to speak to that, please feel free to do so. If there's no discussion, I'll now to put motion. And as I noted earlier, this resolution will be decided by a poll once we've dealt with all resolutions. We then move to resolution -- on my paper here resolution 0, but it's a resolution 2, I guess, is it? And that concerns the reelection of Dr. John Mair on my far right. And if the meeting has considered and thought fit to pass that resolution, you can see it on the screen there, you can see the proxies. Anyone who wants to speak to that resolution. If not, then I now put the motion. And that, too, will be decided on the poll. Resolution 3, this concerns the placement shares that were issued earlier this year, 10 million shares, and the resolution appears on the screen there. You can see the proxies, for and against. Any shareholder wishes to speak to that? If not, I put the motion, and it will be decided by a poll at the end of the meeting. Resolution 4 concerns the ratification of options, which were issued to -- I think these are the Argonaut options. And you can see the resolution as it appears on the screen, proxies for and against. Anyone wish to speak to that resolution? If not, I'll put the motion, be decided by a poll. Resolution 5 is the adoption of an employee incentive plan. This resolution concerns only the plan itself. There's no business before the meeting today concerning the issue of any securities under that plan. This is simply putting in place the architecture that will enable us to do so should it be deemed appropriate and any securities that are proposed to be issued to directors, which for that matter would the Managing Director, would have to come before shareholders. So you can see the resolution for the adoption of the employee incentive scheme. Is there anyone who wish to speak to that? If not, I put the motion, and that will be decided at the end of the meeting. Resolution 6, I mentioned earlier, approval of termination benefits. It's a resolution which was designed to give the Board the ability or the discretion to -- with certain leaving executives to deal with any vesting conditions and so forth that might attach to any securities that they might hold. The alternative to this resolution not getting up is that those matters will have to come before the meeting. And I say that because on the proxies that have been received, the resolution is not going to get up. And before we put it to a motion, is there anyone else that wishes to speak to the resolution? If not, I put the motion, and it will be decided via poll. But I think you can see from the proxies here that it will not succeed. Resolution 7, approval of the 10% placement capacity. This gives us the ability to issue additional shares should it be deemed appropriate as we move forward. This is an ability to issue 10% of securities on top of your -- as a right, entitlement to issue up to 15%. It's a special resolution, so it requires a 75% vote. You can see the resolution as it appears on the screen. You can see the proxies. Anyone wish to speak to that resolution? If not, I will put the motion, and that will be decided later on. Resolution 8, it's an amendment to the constitution, a little technical. This gives us the ability to hold virtual meetings in the future. This not for virtual meeting today, even though it's being live streamed, but it does require a technical amendment to the constitution. You can see the resolution, it appears on the screen. Anyone wish to speak to that? If not, I put the motion, and it will be decided via a poll. Good news is that that's the end of the resolutions that we have to consider today. And it's now time to conduct that poll, and [ Lisa ] is going to come up and provide us with the instructions on how that will take place.

Thank you, Chair. We will now conduct a poll on all resolutions. The persons entitled to vote on the poll are all shareholders, representing, an attorney of shareholders and hold green admission cards. On the reverse of your green admission card is your voting paper and instructions. Proxy holders have attached to their admission card a summary of the proxy votes, which details the voting instructions. By completing the voting paper, you were deemed to have voted in accordance with those instructions. In respect of any open votes a proxy holder may be entitled to cast, you need to mark the box beside the motion to indicate how you wish to cast your open votes. Shareholders also need to mark a box beside the motion to indicate how you wish to cast your open votes. Please ensure you print your name where indicated and sign the voting paper. When you have finished filling in your voting paper, please lodge it in a ballot box to ensure the votes are counted. I will now walk around the room with the ballot box, at which time, if you require assistance, please let me know.

[indiscernible]

Chairman, [indiscernible].

Sorry there?

I believe [indiscernible].

All right. Thanks, [ Lisa ], very much. And as I indicated before, these results will be released to the ASX later today. The voting is now closed. I'm about to hand over to Rob, but I've been informed of one question online, which I'll deal with before I hand over to Rob. Relates to Rob's remuneration. Rob is on a base salary of $380,000. On top of that, he's entitled to the statutory superannuation, which all employees received. At this point, he has not received any short-term or long-term incentives. There is a framework for us to be able to incentivize Rob, which we intend to do eventually. But that, I can assure you, will revolve around a set of KPIs or key performance indicators, which we will agree with Rob. And once we've done that, then he will have an eligibility to receive up to a certain percentage of his -- based on incentive securities. All right. So Rob, I'm sure everyone is looking far more to your presentation for a bit of excitement rather than listening to me. So it's over to you.

Okay. Thank you very much for the introduction, Stephen, and thank you for the good looks comment. Don't know how true they would be, but thank you very much, anyway. Look, it's pleasing to be here in front of everyone and shareholders and presenting online as well. The Youanmi projects, I think, that I've admired from afar for a number of years, I've always known about the project even since its mining days in the mid-'90s. So I think it's been an area that's been forgotten over many cycles of gold investment and development, and there's been a lot of resets over the years. And Youanmi, unfortunately, hasn't been a part of that, but it's fortunate for us as shareholders because we get to realize what the true value is of this asset. And this is a high-quality asset. We've produced the scoping study that shows that it will produce a high-value gold concentrate. I've got a strong background in marketing gold concentrates. I know what value Youanmi will provide to our shareholders moving forward. There's significant upside when we look at the scoping study. I foresee that we will be able to not only increase the scale and life of the project. Running through the technical teams and some of the recent optimizations that we've conducted does show that there is a lot more material here that we can build into our plan. We need drilling to be able to convert that and that is what we're going to do over the course of the next 12 months. There's also, with the [ funding ] component, I'd like to thank existing shareholders for their participation in the SPP. It has been very successful today and understand that we -- Chris may not let us disclose how successful, but it's been fantastic to see the support from shareholders to support the company moving forward. We've also received strong support from new investors with $4 million per placement. We had a lot of new investors come on board. And what we will see is then we share in the success of Rox moving forward. The valuation of Rox is low, and it has been a tough year for the gold market. Attributable value per resource ounce is about $14 an ounce. Now when you consider that it equates to around $45 an ounce for a lot of unique tiers and the like to explore for an ounce, there is a 3x uplift in valuation there from where we're [ training time ]. So I do see a lot of value here in Rox. And as we continue to develop the asset and we continue to grow the resource, we should see more and more attributable value as we progress the company through the feasibility process. We've got a strong leadership team, myself, Steve and John. I'd like to thank them guys for the opportunity to be able to steer the company moving forward. I'd like to thank Alex for putting together the asset and being the strongest supportive shareholder because it's been a real tough time to be able to pull these assets together, take them out of what is effectively a private company and be able to get this asset ready for production. The Youanmi project is located just outside Mt Magnet. It's a fantastic [ oil belt ]. And as I said before, it's steeped in history, and it is an area that hasn't seen a lot of development in cases where a lot of areas around the gold fields and Leonora and everywhere else have over the past over 15 and 20 years. Youanmi is a district that has sat dormant, and the last real exploration success was down at Penny West. And that was in Spectrum Metals only in the recent time. And that was the first real company doing any decent amounts of exploration in the area. And the production history is a history of high-grade gold production, and we want to continue that when we go and develop this asset ourselves. And when you start looking at the historic mining, a lot of the gold was mined at 15 grams a tonne, even up to the mid-'90s when the underground was producing sort of 10 grams a tonne. So what we do see is an asset here that will be a long-life asset, producing high-grade material over a significant period. Now when you consider they shut this mine down in the mid-'90s when the gold price was USD 400, USD 450 an ounce, there's been a significant upscale in the potential revenues that you can produce from the similar mining methods. It was a profitable operation when it shut down. And the company doing [ MA ] at the time, when they transitioned into the [indiscernible] copper line, they focused all their efforts up there and then sold off all their West Australian assets and shut them down. Didn't work out too well from [indiscernible] copper. In the end, they went into administration about 3 years later, and I'm sure their future would have been a lot different if they continued [indiscernible]. Because it is a big resource. And when you drill it, you grow it, and it is a significant endowment already. So this 4 million ounces nearly employed total endowment within this belt, it's only 3.5 kilometers along strike. Now what we see is these high-grade plunging shoots where we've had exploration success at Kathleen Valley [indiscernible], and we expect to see a lot more of these plunging shoots as we continue to drill beneath the old open pit and the light to the north and south. The area, we've only conducted about 100,000 meters of drilling over this area. And I think as we continue to drill here, we'll not only to continue to increase the confidence in the resource, but we will also be able to add additional ounces. The scoping study shows a high-grade mine plan with the [ ADM ] production life producing around 70,000 ounces per annum. We see this to be able to grow as we continue to conduct the feasibility studies because there is a lot more resource here that we can add into a plan. It's got a modest preproduction CapEx of about $100 million. And we see, for only an incremental increase, are being able to increase their production rate quite significantly. And the valuation gap is huge. So when you look at the preproduction capital and the overall NPV of the project, it's a 3:1 valuation. Most projects are fundable at around a 2:1 valuation. So this shows that there is room to be able to grow where we are as a company and where we will be as an investment opportunity. The 70% [indiscernible] investment at its $30 million market cap, attributable NPV of the project is about $212 million. So it does show that there is a significant valuation gap between where we're [ trading ] today and the future NPV of the project we will develop. Now we want to produce a gold concentrate and I know many people probably aren't as familiar with the gold concentrate market as well I am. I've conducted a number of studies looking at developing projects to produce gold concentrate as well as working with operators who do produce gold concentrate. It is a very low-capital and low-risk alternative to building what can be a quite expensive Albion processing facility or Biox or box or the like. When you're looking at the scale that we'll produce at Youanmi, although it will justify a stand-alone facility, the CapEx hurdles are quite significant. So low CapEx to get into production for what we're planning to do is produce a gold concentrate does set us apart. And there's significant demand for high quality. There is significant demand for high-quality gold concentrates. The benefit of Youanmi is that we will produce a gold con around about 2% in arsenic. It is highly attractive to global metal traders to get low arsenic gold concentrates. It is in short supply, and there is a premium applied to these products. The offtake that I negotiated with [indiscernible] gold actually had exceptional capabilities, 90% plus at varying grades of that gold grade. So it does show that there will be a high-value alternative to producing gold bars. And the gold bar market is a significant market. 12% of the world's gold production comes from gold concentrate. A lot of it's produced in South America, in Europe, a little bit in Australia. But what it does -- what the market is generally searching for is low arsenic gold cons, and that's predominantly because of changes to regulations in China in the past 18 months. Now China introduced rules where any arsenic, any gold con over arsenic percentage of 6% attracts a 15% VAT charge. Now what traders have been able to do then is all the high arsenic con that's produced in the world, they will then offer full payment terms. They then get by low arsenic concentrate at premium. They blend the concentrate down to get under that threshold and then they'll be able to get it into China, not attract the VAT and then they pocket 15% VAT extra. And it's been something that traders has been working on for a number of years. And it's not something that's new in WA. It's probably not talked about as much with the concentrate production. Deflector at Silver Lake produced a copper gold one and have been doing it for a very long time. Even Newmont added Boddington. It's probably one of the biggest mines in WA, and they've been producing their copper gold con for a number of years. The other sources of production. When you look at the Mt Carlton mine in Queensland, that is a large producer of a copper gold con. And when you go down to Victoria, you've also got the [indiscernible] mine. Now this is a small scale, probably around a 15,000 tonne per annum, 20,000 tonne per annum concentrate producer, producing gold and [indiscernible]. So what this shows is that gold concentrate production can be done at varying scales. Very large when you start looking at your Newmonts, your Boddingtons, your Mt Carltons and all the way down to small scale when you're looking at your Deflectors at Silver Lakes and your [indiscernible]. Your Deflector gold mine is something that I attributed Youanmi to look very similar to. It's a same style of mineralization and narrow high-grade gold producing your gold concentrate. And it's probably one of the best producers in the Silver Lake portfolio. And the valuation gap that sits between us and our peers is largely attributable to not having that clear clarity on our production outlook and probably getting the market to understand that this will be a highly profitable operation. Looking at $34 per resource ounce, and that's just on the measured and indicated resources. So as soon as we continue to drill out the inferred mineral resource, that valuation gap is going to get bigger and bigger, and there's going to be a lot of interest taken in to Rox as a result of that. Now when we look at the potential scale of the operations, so the scoping study is a 70,000 ounces per annum over a 8-year production life and it's good financial metrics on a result of that, producing 100,000, well, ounce per ounce margins. Now recent optimizations, and as you can see here, show a significant amount more of material that can make it into that plan when we drill out the inferred resource. Drilling out that inferred resource then allows us to increase the scale of this asset. And there is a significant amount of material there that we can look to increase the production. Now do we want to continue at 70,000 ounces per annum over 8 years or potentially 16 years if we continue to add more and more and more of this material into the mine plan? Or do we want to upscale and produce more ounces over a shorter period of time? The Mt Fisher and Mt Eureka projects, they're noncore [ asset ones ] at the moment. Especially at Mt Fisher, we've recently done some drilling out there, a resource upgrade. There's about 180,000 ounces of supergene mineralization there. And what you find is generally in supergene areas where you get sort of high-grade mineralization, there is a feeding system somewhere in [ fresh rock ]. Now with Mt Fisher, it's probably better suited to someone who's going to take that effort to explore that area and significantly invest in the deeper drilling to find those systems. We want to make sure that our main focus is at Youanmi and developing that project and pushing it forward. The Eureka area is a highly prospective for nickel. The Kinterra guys, obviously, they've just acquired Cannon Resources. They've got about 20 kilometers of the basal contact, and that continues on to our ground with a joint venture in Cullen. And we've got about a 30-kilometer strike at this basal contact that hasn't been explored. So we see a lot of potential there to amalgamate those assets, and both discussions will continue on in the coming months. And we offer significant value for shareholders. Look, where Rox is trading today and like a lot of the gold space is undervalued and Rox probably more so than their peers. What we see developing moving forward is we've probably got a clearer production plan and a clear plan to get in production than many others of our peers in the exploration phase. We've got a team that's being built that can execute projects that's been there and taking projects through the feasibility [indiscernible]. And I see a lot of upside when we start looking at the plant. At 70,000 ounces per annum, being able to drill out the inferred resource, can we upscale that? Can we increase the life? I think there's a lot of potential here at Youanmi to be able to do that through the feasibility process. We've got the cash to be able to do it now with the support of our shareholders and also the new shareholders that came on board as part of the placement, we've got the cash to be able to drill out this resource and take it forward through the feasibility process. And as I said, when we look at the valuation against our peers, we are significantly undervalued, and we will continue to communicate the message how we're going to develop the project, and we will turn that around for our shareholders. Thank you very much for your time today, and I'll open it up to any questions, if we have any from the room.

So my question's [indiscernible]. So you say there's still probably some shortage -- sorry. Do you see a shortage over the next 12 months for [indiscernible]?

Yes. So obviously, when we start looking at the labor market, it has been tight for a significant period of time. We're starting to see a number of operations struggle with that. Some of our developing peers have had to close down operations and focus on going -- moving back into exploration and the like. However, things are starting to calm down. I think what you're starting to see now with borders reopening, people coming back into market, we're starting to see a settling of the overall labor environment. And I think that will continue over the next 12 to 18 months and probably puts us in a very good position once we complete our feasibility studies of looking to get this project into production. Thank you.

All right. If there's no further questions, I will thank you for coming along today. I can't offer a cup of coffee to the 19 people online, but I can certainly offer -- give a couple of [indiscernible] coffee. I'll declare the meeting closed at whatever time it is, Chris. Thanks again, and please join us.