Sheffield Resources Limited (SFX) Earnings Call Transcript & Summary

Welcome, everyone. This is the quarterly webinar for Sheffield Resources. I think most of you are quite familiar with the format. Bruce will do a presentation, and then we'll move on to Q&A. [Operator Instructions]. Bruce, over to you.

Thanks, Peter, and thanks, everyone, for joining again. As Peter said, pretty much the same format we've had for previous ones. I'll -- sorry, is it background noise there, Peter?

Not on my end.

I've got someone doing something outside.

No, no. I can't hear anything you're fine.

All right. Sorry about that. Yes. So normal -- generally the same format, just covering off the June quarter, which is just finished in the results we released last week. All right. Just a reminder of corporate overview, focus on mineral sands predominantly on Kimberly Mineral Sands, the Thunderbird mine, and that's what we'll speak mostly about today. We do still have the option for the South Atlantic project. However, as we've previously highlighted, we've retained the option, but we're not currently funding that. So all of our cash reserves and our focus is currently on making sure that Thunderbird is a success. Sort of some pictorial updates for Thunderbird, where we are in June. Left-hand picture is the mine, an aerial view of the mine. Just wanted to highlight a couple of things here. This area here, that's where we started mining. That's actually our first in-pit tailings cell. The wall is largely complete and the infrastructure is being installed. So we expect to be starting in-pit tailings deposition during the September quarter. We're currently mining in this direction here. And that's an area we're mining in currently where there's very little overburden. So we are able to -- it's free digging. So we're not actually having to do drill and blast at the moment where we're able to just the overburden off the top and that is expected to continue for the best part of FY '27. So that's quite positive from a cost perspective. So we're working our way in that direction, and we'll follow that basically go back up in the opposite direction, generally not having to do drill and blast for most of the upcoming financial year. On the right-hand side, the process plant, a lot of ilmenite stockpile on the stockpiles and so on. No real change with the process plant. In terms of the business plan, remember from March '25 when we highlighted what our plan was, we obviously had -- we had a couple of rough quarters, and we'll cover that off as we go through the presentation. But in terms of implementing this plan, the progress, we've previously done the drill and blast, although we're not drilling blasting at the moment, we are in a position to do so when required. The waste contractor and large fleet has been working for over a year now and is very effectively able to clear waste at a rate fast enough to sustain a higher mining. In the May, so in the quarter just passed, we separated all mining and DMU operation, which has made -- it was an important step to improve the availability of both the ore mining fleet and the DMU, and we are seeing that benefit in the current quarter's production. There is still more work to be done. So we are continuing to do some refurbishment works on the DMU to make sure that, that enhances the availability going forward. Overall, we still expect to achieve this plan, however, now later in FY '27 rather than Q1, given the challenges we had earlier in the year. In terms of mine throughput, blue line at the top all mined, so significant step back up in the June quarter compared to March and to a lesser extent, the December quarter were impacted by both DMU and fleet availability. Those -- both those sort of situations have improved significantly in the current quarter. Grades fairly consistent. And so as a result, we ended up with improved rough head feed production for the quarter. The other benefit of the fourth quarter over the third quarter or June over March was that in the March quarter, we still have some -- what we have is when we have the main weather impacts from the wet season. June quarter, very little weather impact. In terms of the process plant recoveries, significant improvement quarter-on-quarter, basically back to around design and what we've been achieving historically. The basic issue there from a recoveries perspective, returning the plant back to its original design parameters and then reoptimizing from there and generally a focus on plant hygiene to ensure that we're getting optimal separation in the -- particularly in the WHIMS units, the wet high-intensity magnet units. And that appears to have overcome those challenges, and we now feel comfortable that we should be able to maintain the design recoveries going forward. I touched on ore production previously is showing in another form, including the forecast for the current quarter. As I said, we've got the KMS improvement plan underway. We have seen significant improvement in Q4 in the June quarter over the prior quarter. Noting that April was actually a similar month to the first quarter. April is still fairly heavily impacted by both DMU and fleet availability. And so really that better quarter largely reflects a stronger May and June and not over a full 3 months. The first quarter forecast is to either achieve that or do better either side of 3 million tonnes. We still have some refurbishment works, which may impact all mining during the quarter, hence, the wider range of potential production for the coming quarter. In terms of zircon concentrate, the production was up quarter-on-quarter, largely reflecting the fact that we mined more ore and we had the improved recoveries. Shipments lagged that improved production, mainly due to one vessel. We had a colo ilmenite and zircon due to ship late in the quarter. The vessel in the end was booked and arrived early in July. And so those sales slipped into the September quarter. The forecast for the September quarter is to a minimum achieve the production around about the production we just achieved and a comparable amount of sales and then with the potential to do effectively an extra 10,000 -- up to an extra 10,000 tonnes depending on overall mine availability, et cetera, that would reflect -- if we would achieve the upper end of that guidance, that would be a record quarter for zircon production. Ilmenite concentrate production, a similar story in terms of the production rebound, higher ore mined and improved recoveries. Again, the deferment of that shipment in -- from June to July did impact the shipments. We expect to catch-up shipment here in Q1, and so expecting a further improvement in ilmenite production quarter-on-quarter and higher ilmenite shipments as well. Briefly touch on this. We've only produced it a couple of times once a year or so ago and then starting in the December quarter into March. And then, however, by early June, we could see that the market was relatively weak for this product, and so we stopped producing it. However, we did ship what was produced. The reason for the market weakness was that, that product is for a reasonable amount of the value in it is actually -- is monazite as well as zircon and higher titanium ilmenite. And the market for monazite containing concentrates in China weakened a fair bit as a result of some changes in the permits or the availability or the ability to sell monazite concentrates on to monazite processes within China. There's been some changes in the regulations there. And so there was a reluctance from -- or has been a reluctance from processes to buy monazite containing concentrates. We will look to restart that should the market uptick. It's really -- it's not a core part of the product suite. But if we are able to sell it, it does allow some additional revenue. In terms of cash costs, fairly similar quarter-on-quarter. There is a very strong focus on cost at KMS with the restructuring of some contracts and so on, we are -- the KMS team is continuing to drive savings, which we would expect to see flowing through to these figures going forward, partly higher volumes, but also lower underlying costs in a number of the key contracts. And then from a cash flow perspective for the quarter, showing it as negative operating cash flow. You may remember in March, we actually had -- we had a deferral of a supply payment, which then occurred in this quarter. So there's a fair bit of movement quarter-on-quarter. I think as a rule, until we reach steady state, the cash flow will tend to bounce around a little bit from quarter-to-quarter. But overall, I think where we stand right now is we continue to be at current production and certainly at current pricing, operating cash flow positive on the basis of selling what we produce. And yes, so it's a bit of an artifact of the numbers that shows the negative operating cash flow. The reality is if the revenues and costs were properly -- the timing was aligned correctly with the periods, then the cash flow would have been -- operating cash flow would be positive. To put that in context, we do have a monthly cost burn circa AUD 20 million. So even if you -- it's only a couple of weeks of costs that are deferred, that's a pretty big swing on these cash flows. I think that's all I had in terms of prepared slides. Before we go to Q&A, just probably worth touching on a little bit on the zircon market. I don't have a slide on the market for zircon concentrate, but we did note in the quarterly that we had seen prices increase quarter-on-quarter again from June over March. And that reflected the fact that it's really a supply-driven story. Demand in China has held up okay for zircon, predominantly from non-ceramic applications. So there's a lot of industrial production in China. So there's reasonable demand for foundry and chemical-based demands, not so much ceramics. And the Chinese market has a much higher share of market for those non-ceramic applications than what you see in the rest of the world. So the demand held up quite well despite the fact that ceramics is weak. Supply -- as we know, there's been a number of unplanned supply disruptions around the world. And while some of those operations have restarted to a greater or lesser extent, there has still been less supply around than people anticipated. So we continue to see strong interest for product. And that seems to be likely to be sustained at least through the current quarter. And I think overall, the outlook being shared by a number of industry commentators is that previously, there was a sort of view that, yes, it was -- this year, it was going to be strong for a couple of -- stronger for a couple of quarters, but no one really knew what the back end of the year would look like, there seems to be a bit more confidence that the market will hold up at sort of at or even above these levels for the foreseeable future, which is encouraging. It's certainly reasonably significantly higher on where it was year-on-year or at least the back end of last year as prices came off, we have seen a reasonable price recovery since then. I'll stop there and take questions.

Awesome. Thanks, Bruce. [Operator Instructions] We have had one come through already, Bruce. And this is on the waste mining being now put on to shifts and drill and blast being suspended. They're asking when does stripping resume and if it has any impact on the C1 guidance for FY '27?

There's a bit to unpack there. In terms of -- so we're currently not drilling and blasting. We are waste mining. We are waste mining day shift only and have been since that's been the situation since, I think, February this year. The current mine plan, which sees us continuing in the same direction and then coming back, would see that situation effectively staying the same for most of FY '27. We see it probably gets -- we haven't put guidance out for the full year. The guidance for the quarter showing relatively similar unit cost Q-on-Q does include that cost saving or that we're not spending that extra cost on waste mining. At some stage, we will resume drill and blast mining, and we will go back into ground where the strip ratio is higher, and therefore, we would need to mine waste day and night in order to shift enough material. But we don't expect that to change for FY '27.

Okay. Interesting. Just on the recovery plan, Bruce, you mentioned separating ore mining from the DMU operation. What does that actually entail? And how is that different to what you were doing before?

Look, physically, it's not different that we still mine ore and push it into the DMU. What it is operationally, where we were previously was the DMU is being operated by the ore mining contractor. So effectively, the DMU is being run as part of the mining operation. By separating the contract, we now run the DMU as part of the KMS operations. What that -- there's a couple of benefits there. One is that, obviously, you then -- it's not the tail wagging the dog, but the process is -- you're running the process and then making sure the ore is fed to it that one. So it's a good -- it's actually a logical split. The other piece is being able to take control of operations means that KMS has direct control over the maintenance, the decisions about how to maintain the maintenance philosophy in terms of preventative versus reactive and so on. And I think that's what we are seeing now is the emphasis is on doing a bit more refurbishment work, scheduled shutdowns, and that's designed to give us more predictability and more uptime. Now we've already done a fair bit of that, and we're already seeing that benefit in the current performance, but there's definitely more -- there's potential to improve the availability and utilization further.

Okay. Amazing. That actually covers the -- one of the other questions that's just come in as well. Bruce, you're talking about there's some further works being done in this quarter, which is why the range is I guess, a little bit wider than usual in terms of output. What sort of work is being done in the quarter going on at the moment?