Westgold Resources Limited (WGX) Earnings Call Transcript & Summary

Today are Wayne Bramwell, MD and CEO of Westgold; Paul Huet, Executive Chairman and Managing Director of Karora, and he is joined by Oliver Turner, Executive Vice President of Karora Resources. I'll now hand you over to Wayne.

Thanks, Shane, and welcome, everyone, to today's webinar. As Shane said, I've got Executive Chair and CEO, Paul Huet in Toronto online; and Oliver Turner, Executive Corporate Development. We'll dive straight in today's presentation, and this is an important day in terms of building a new 400,000 ounce per annum Australian gold producer. Straight to Slide 6. This merger has scale. It has funding. It's got enhanced capability, and most critically, the expanded business is fully leveraged to the gold price. Together, bringing Karora and Westgold together, it is -- makes perfect sense to me. We bring together 13 million ounces of resource and 3 million ounces of reserve. We think the opportunity to expand that reserve number is very strong. We talk about diversified gold production and now the expanded business really has 2 legs across two of the most prolific gold teams in Western Australia. Critically, the new business is very well funded with over $160 million available to it to fund growth that we see. We put together 2 teams, which, in some sense, are very, very similar. Karora owner miners as our Westgold, bringing those 2 teams together equipment and fleets gives this new business, a lot of talk and a lot of opportunity to ratchet the growth within the business. There are very few 400,000 ounce gold producers on the ASX or the TSX. This new business has the potential for a significant market rerating. Slide 7. The strategic rationale. I'm going to speak to the detail in the oncoming slides, but on the next few slides, I'll just talk to the headlines. This combination of Karora plus Westgold creates a new leading mid-tier Australian gold producer. This business will be fully exposed to the gold price and choose your own adventure there because the gold price is moving every day into unchartered waters. There is material synergies between the 2 business and both Westgold and Karora have shown that they can drive cost out. We see collectively the opportunity to drive more cost out of this business, which will go straight to the bottom line. Diversified production in the Tier 1 jurisdiction. In some sense, we're bringing Beta Hunt and Higginsville home. So this will be an Australian company with Australian management with Australian assets. And I'm sure Paul will talk to that point later in the slide deck. Expanded organic growth pipeline. We are going to be spoiled for choice here. And our real appeal in this deal is what we've seen in Beta Hunt. The opportunities at reserve ounces to this mine is significant, and we will talk to that during this presentation. The balance sheet will remain strong. Again, Westgold and Karora have both been restructuring their businesses over the last 2 years for exactly this time. We're both in good shape, and this will continue. Overall, the new business will have enhanced capital markets profile. I mean, both of us sitting around 250,000 to 200,000 ounces are interesting, but put it together and you've got a business of 400,000 ounces per annum, that is internationally investable. I'll switch over to Slide 9 and hand over to Paul.

Thanks, Wayne. What a privilege and honor to be here alongside you here tonight, very exciting to merge these 2 companies together. Very exciting day for both our set of shareholders. Just to talk about some of the merger summary here. The proposed combination is 50.1% Westgold with 49.9% in Karora, total consideration. I'm not going to read through every bullet, but it's about CAD 590 million for the shareholders. And the leadership in governments will -- we're going to add to the already strong Westgold Board. We're going to have Leigh Junk, who's been our Managing Director in Australia, and Shirley In't Veld will join the Board immediately. I will remain on as an adviser for initially 6 months. And if that is required to be extended, Wayne and I will decide at the time, we will do whatever is best for our shareholders. Regular approvals are customary for our shareholders to get 66%. Look, and I just want to talk about real quickly, we have been bringing a couple of them and discussing some wall crossing some shareholders. I'll just talk about one specific one, Eric Sprott, who's been a fairly long time shareholder of Karora since the very beginning. He's fully endorsed this deal, loves the exciting opportunity that we're talking about between 400,000 and 450,000 ounces a year and a completely unhedged position, as this thing unfold. As soon as we close it, it'll be completely unhedged, very unique situation. One of the things that we had to take into consideration was remaining listed on the TSX for a time at least for 6 months to a year, we'll decide with our shareholders. We'll see how the liquidity goes. That's something we're going to be monitoring really quickly. But something we both agreed was very important to the deal right up the onset. We have a break fee together of about CAD 40 million. We believe in this deal together. So while we're looking for both Wayne and I are not to collect the break fee, we're looking to get this deal across our finish line, and we're quite excited about all the work we've done together with 2 amazing teams and -- but the proposed timing on this is probably somewhere middle or end of July. So another quick time frame, but we're quite excited for the next couple of months as we continue to deliver this to the end line here. So back over to you, Wayne.

Thanks for that, Paul. Jumping forward to Slide 10. This business will change significantly. On closing of this deal, it is immediately cash flow accretive, 400,000 ounces per annum with no hedging in place, that is the appeal. Our strategy remains the same. We're focused on free cash flow, and this gives us an opportunity to enhance that. Now we will speak about the business going forward actually gets simpler. We'll end up with a business which we'll talk to the northern part and the southern part. And those 2 gold fields themselves addresses which we're very happy to operate in. Slide 11. Ore reserves and resources, 13 million ounces of resource, 3 million ounces of reserve. We absolutely committed to growing that reserve number very quickly. And what we've seen within Beta Hunt, which is the price, gives us the opportunity to do that. Slide 12, significant mine life and growth potential, and I'll leave this slide to hang here in terms of how we will compare to our peers. Mean Westgold and Karora, as I said, at the bottom end of the curve start to move up towards the top and can start to stand head and shoulders alongside some of the biggest names in the Australian gold sector. Key point. This thing will have international and global investment appeal. Slide 13. We talk about culture and we talk about people. I mean, our experience with the Karora team in the last few months has been very, very easy in some sense. I mean, we're at the same group of people. We've got a very similar corporate experience. Corporately, both businesses have been restructuring over the last several years to get to a point where they can do something transformational. Hence, this is the time. We very much welcome Leigh and Shirley to the Board. And with Paul remaining as an adviser, we can see continuity going forward. Jumping over to Slide 14 and back to Paul.

Thanks, Wayne. Look, this is probably one of the most exciting slides that I get to share about this entire deck here. The potential for the synergies here are amazing, their textbook synergies. Years ago, many of you who know me and know my background know that I worked for Newmont at the Midas Mine for 7 years. I was part of a very big team that was with Newmont and Barrick that looked at the consolidation that eventually formed about gold mines. The reason I bring it up is those synergies that formed eventually Nevada Gold Mines were about $500 million annually back then at a 53% lower gold price. What we're looking at here on an annual basis could be in the neighborhood of $60 million to $70 million every year. And this starts right at the top here. Right at the Board level, we're combining this Board. We look at our Perth office. We're right around the corner from each other. The synergies here, again, are [ textbook ] We're able to reduce the G&A in North America. I have the privilege of going to each operation with Simon and Wayne with a couple of my guys here recently and what I thought was absolutely amazing. Combined with our 2 mills, we're going to have 5 processing plants here. One of the advantages we have here is Westgold, as many of you know, used to be a contractor. Now they're owner operator. But as a result of that, they own a tremendous amount of gear. And look, let's face it, buying equipment today is expensive. They have about $200 million of equipment combined with all the new equipment that we have bought at Karora that makes a heck of a company. We have about 30 pieces running our operations. So you think about the lead time to buy a new piece of equipment, a new piece of gear at $1.5 million, $2 million. But then the lead time on this, it could be anywhere from 12, 18, all the way to 24 months. We have all that in front of us, a great opportunity to unlock some of these things like Spargos that we've had in front of us to add some drills into the area over at Higginsville. The synergies here for me are just unbelievable and something that I'm going to continue to talk about day in and day out because they truly are some of the amazing synergies that will turn back into shareholders. In fact, I was on a call earlier today with our very large shareholder, he's probably #2 of our shareholder, Eric Sprott. And he brought this up to me even in the discussion look, Paul, synergies for me as a shareholder return right back into a drill bit or right back into value on a per share metric. And that's what we're looking at here. The combination here is absolutely outstanding with the merger of these 2 companies at this point in time. So it's going to be hard to hold me back on the passion I have with this synergy because I've lived it before. I watched this thing in the previous lifetime. Now to be more part of it and actively engaged in it. I can tell you that I'm pretty excited about what the future holds for both of us, for this 1 company, but more importantly, for all of our shareholders together. Over to you, Wayne.

Thanks, Paul. Slide 15. 5 processing plants, 7 operating mines and 3,200 kilometers of tenements. This business will have talk to accelerate cash flow -- free cash flow across a much broader package of assets. We have been speaking to Westgold as being a portfolio company. Well, now the portfolio has got bigger. Slide 16. I won't talk to this in detail. But again, for those who want that gives a snapshot of the 4 legs within the business, well, the 2 legs, both north and south. Our Murchison and operations in the Bryah will start to rename as North. Beta Hunt and Higginsville will start to talk about the South, a much more simplified story with a lot more capability to deliver free cash. Slide 17. And if there is ever a slide that tells you the rationale for this business, it's this. By putting these 2 companies together, the expanded Westgold can supercharge its free cash flow. 7 operating mines, 4 projects in development with Great Fingall coming on in FY '25. The Fletcher Zone at Beta Hunt excites us a lot. We've been up close and personal with this ore body. We've seen it. We know what it can deliver. We've got multiple mines, which we can bring back on. I'm happy to say being able to reprioritize some of these things gives us broader opportunities to focus on grade, not volume. Jumping forward, Slide 18. Westgold's growth projects have scale, grade and longevity. And why is that? Because we've drilled them. Our team has shown the value of investing in drill meters. We drilled -- spent $19 million last year on drilling these assets. We will spend $25 million on drilling this year. What has that done? It's seeing Bluebird-South Junction expand, Big Bell deeps now or Big Bell as a mine has 16 years of mine life, Great Fingall starts the game with 8 years. We can see the value of investing drill meters. Slide 19. And really, this segues nicely for Paul in terms of the assets that Karora owns.

Thanks, Wayne. Over to Slide 19, you could see on the far left, first and foremost, our flagship, I always call it the Beast Beta Hunt. Look, it speaks for itself. We've got about 7 kilometers of strike. And most of you will recall that in the beginning, Beta Hunt had this massive royalty with Maverix. We've been drilling this thing for about 3 years, even though I've been here almost 6 years, we weren't drilling it all at the beginning. And you can see that. I'm just going to flip back and forth to 2 slides here. But if you go to Slide 20, you have a really good chart on the right-hand side, and you can clearly see the resource and growth we've had over a 4-year period. This is a result of us being able to drill after we renegotiated the royalty at Beta Hunt. Once we renegotiated the royalty at Beta Hunt, we really got busy putting in dollars into our own assets and investing into Beta Hunt. And through the drill bit, we found the Fletcher Zone. We found Cowcill. We found Larkin. We found Sorrenson, all these are new areas. Many of them have yet to be included in this massive resource. If you look at our September '23 sitting at about as a company, total resource -- sorry, just Beta Hunt, just Beta Hunt not as a company. 2.7 million ounces. And again, what's really critical about that is that new Fletcher Zone or Cowcill or Sorrenson, which all appear to have a better grade than what we've been mining for the last 5 years. The grade we've been mining for 5 years has consistently had about 2.6 gram. Everything we see from the drill bit, we've been showing our shareholders, we show everybody in Fletcher, we show you the results of Mason & Cowcill and Sorrenson. They are all better grades than what we have mined for the last 5 years. So when you think about Beta Hunt and the size potential it could be, look, we're close to 3 million ounces now. We started with 400,000 ounces. And just as a quick reminder, we started with 80,000 ounces of 2P reserves. We've poured over 600,000 ounces of gold as a company here. I'm back on Slide 19. So Beta Hunt, you can see a long section. And over on the middle slide, you can see Spargos. We had thought that originally for $5 million, we mined the open pit. There is an underground there. This is one of the advantages of those synergies I was talking about. Having spent all that time with Wayne and Simon and their GMs, the mindset, you could clearly see that the fans, the power stations, the equipment that we're going to be able to take from their assets, from their sites, bring them over to Spargos and start that mine up. All we'll need is people. It's already permanent. It's ready to go. Spargos is a matter of turning the key on, getting the right gear and adding it into our portfolio. Now Henry, well, there is a tremendous opportunity. That area, we have not drilled it because we've been very, very focused, as most of you know, at Beta Hunt. The Mountain which got a 459,000 ounces of 2P reserves. When you look at this entire portfolio and you combine this together with the Westgold assets, this new company has tremendous growth opportunity in front of ourselves. All we have to do is continue drilling. And again, I flip back to that Slide 20. There's no better result than seeing that bar chart of those ounces increase year after year after year, the best return we've seen for our shareholders and making money for them has been through the drill bit. And that's come as a result of a couple of things. The renegotiation of the royalty at Beta Hunt, which we reduced by approximately 40%. The elimination of the Morgan Stanley royalty at Higginsville, which was handcuffing this district for years, like 3 decades. The royalty at Higginsville has been hurting people for years. It is completely unlocked now, allowing us as a pro forma company to go back in there and really use this area. And then when we talk about Spargos and that one's already drilled out. Mt. Henry, that's in front of us. It's -- we've got it in our processes and certainly an area we're going to be focusing on with Leigh and Wayne as a new company. So those are slides 18, 19 -- or sorry, 19, 20 together. Wayne over to you on 21.

Thanks very much for that, Paul. I jump straight to Slide 21. Westgold's added cash for the last 5 quarters. In some sense, Karora's turnaround has actually started beforehand in a very similar position. What we are doing here, we are adding together 2 cash flow-generating entities, and this is our key driver, free cash. Slide 22. We are well funded to execute growth. Again, key to the success of the expanded Westgold is having the financial resources going forward. This is how it looks going forward. And with the $160 million of opportunity or liquidity, the company will come out of the boxes in a very strong financial position. Slide 23. Back to you, Paul. Or actually, this is -- Oliver Turner will step in at this point.

Yes, exactly. Thanks, Wayne.

Yes. Thank you, Wayne, and good morning, everyone. Thank you very much. So one of the key things, as we all know in the markets today is scale and relevance in order to capture some of that generalist capital that we're all trying to draw into the sector. And I think the left-hand side of Slide 23 captures it very, very well. You look at the pro forma market cap of the new and large Westgold, the pro forma company up at $2.2 billion. And one of the first thing that jumps out of you, adding the fact that it's now well in the top ranks of scale in terms of size of mining operators in Australia, but also every other name of that site is included in the ASX 200. So when you start to think about the index inclusion game, which dictates a lot of capital flows these days, there will certainly be index buying for this entity from the ASX 200. Of course, additional for the ASX 300 as well as the GDX over in North America, as we mentioned, we'll be maintaining a dual listing for this company. So expect increased buying on the TSX as well. Switching over to trading liquidity. This is -- both stocks are extremely liquid for their size and scale. But when you combine them together, it gets even better with about $13 million per day in annual trading liquidity, which comes back to my original comment in terms of attracting those generalist investors that demand, the capability to move in and out of names. So that's a great place to be. Over on the right, we've got 12 analysts covering us. We've got Karora's great coverage combined with the good analysts that cover Westgold and will now be covered by 12 analysts on both sides of the Pacific. So truly round-the-clock coverage on both exchanges, generating lots of good content for investors to digest. So really pleased about that. Switching over to Slide 24. Paul mentioned a lot of the synergies that we have operationally. Well, we certainly have a lot of synergies when it comes to sustainability and our approach towards ESG, which, of course, is an increasing importance in today's capital markets. Westgold on the left-hand side of the slide has done a phenomenal job of installing over 82 megawatts of hybrid power and gas, solar and Karora's batteries across their operations. This has managed to reduce diesel consumption by close to 40 million liters per year and carbon emissions by 56%. And of course, all of this is accompanied by significant cost savings. So it really is a win-win situation. And what we're trying to do at Karora is replicate the success at Westgold. And of course, new Westgold shareholders and pro forma shareholders will benefit from both of these initiatives. At Karora, what we've done is we've signed a power purchase agreement to basically engage line power into our Higginsville operations, which makes a 7-megawatt generator redundant, reducing diesel just like Westgold have done and reducing carbon emissions. We set an initial goal of 20% reduction by 2030, and about 11% to 13% of these emissions are tackled right out of the gate. And of course, all of this comes with cost reduction. So really, a lot of sustainability focus and emissions-focused synergies across the asset base, and we're really looking forward to working with Westgold and combining these assets together. I'll pass it back to you, Wayne.

Thanks, Oli. Slide 25, a strong cultural fit. We speak to culture a lot in Westgold. And in terms of integrating the Karora team, they're the same people and the same culture. We think this integration is going to go very, very well because our corporate history, our professional histories are very, very similar. The Karora team strongly exposed to underground mining, the Westgold team, that's what we do. We do our best work in the dark. Slide 26. Really, this is the closing slide today. And if Paul and I and Oli seem a little bit fried, that's because we've been working on this quite intensively. This merger delivers transformational growth. Westgold has been quite clear about our views of M&A. And our M&A metrics has been clearly stated. We've been looking for bolt-ons that can deliver better than 85,000 ounces of production a year and can lower the group all-in sustaining cost. The Karora acquisition does that. Karora and the West Australian assets guide towards 170,000 to 200,000 ounces per annum at a lower all-in sustaining costs. Put that together with the expansion of our business and the focus on grade, not tonnes, we've got a pretty powerful machine. This business, the new business, the new expanded Westgold will be globally investable. We're going to have a massive resource base and -- which to look for the next assets on the next suite of mines, and we're going to have the resources to do that. This is about Aussie assets with an Aussie management team across 2 of the most prolific gold camps in Western Australia. Our focus won't be diluted. Will actually be increased. The business is fully leveraged to the gold price with nil fixed forward sales. I mean, certainly for a North American or a European audience, that is a key selling point for this, and there are very few opportunities at this scale on the ASX. We are going to be spoiled for choice. And we -- as we've spoken to in the past, the expanded business will take the same model. We see drilling as an investment not a cost. We will very quickly throw rigs into Beta Hunt once this deal closes. And with the Karora team and our team and working together, the ability to add ounces quickly to that ore body is real. Paul made a very good point and I'll reiterate it. The Beta Hunt system is 7 kilometers long. There is infrastructure across 4 kilometers of that shallow system. There are 3 kilometers out of the 7-kilometer system, which are effectively undrilled. At the end of that 7-kilometer system, there is 1 high-grade drill hole that's never been followed up. So in terms of being able to add ounces to this business and to this mine, we are very confident that if you invest the drill meters, you'll get the return. Synergies for us, look, the potential synergies here are real. But again, that's not what drives us. Adding resource ounces and growing this business to supercharge the cash flow is what it's about. And where the gold sector is at the moment, scale is important and what this business can do is leverage a larger scale. We are confident, and we've shown the business -- well, the market that Westgold can drive cost out. We can certainly see the opportunities to drive cost out of the Karora business. And with the larger scale business, we can play to that scale and continue that trend. Enhanced capital markets profile, well, the proof will be in the pudding here. But certainly, the North Americans will take a different view to the expanded Westgold as were the Europeans. The Australian investors should also welcome that. These Aussie assets are coming back to an Aussie company with an Aussie team, and we absolutely welcome the Karora team back to the expanded Westgold family. With that, I'll really -- Paul -- and maybe there's some closing comments before we jump to the indicative time line. But look, if I sound excited and Paul sounds excited about this, it's for good reason. This is a much bigger business with a much more talk to the gold price. It's fully leveraged to that. And every day, we look at that gold price moving and we get more excited about the rationale for doing this.

Yes. Look, I just want to reiterate what Wayne said here. It's hard to contain your emotion and not get passionate about this. This is exactly what companies try to do and strive to get to. We've been watching Wayne very closely for 2 years. And what he's managed to do in 2 years has been nothing short of amazing. We were there ourselves about 5 or 5.5 years ago. So it's impressive to see these 2 stories finally combine together to create this 400-plus thousand ounces a year. And I can't help but not just say that one of the advantages we're always going to have over anyone else is our nickel optionality. That's certainly something. We've got over $1 billion worth of nickel as a pro forma company drilled out here. And some of the best grades you're ever going to find on the planet. So look, I had the privilege of watching Wayne present a couple of years ago or even about a year ago, and I've always been amazed watching stand up at the podium. And he's always said something that's caught my attention, and I said this to my Board. He stands up there and says, we make no apologies for shutting down mines that make no money, and we're here to make money. And what an attitude to have to lead this company into the future as we continue to run it from Australia. So for us and my shareholders, very excited to be alongside here with Wayne, with that Board, with the team, very exciting future together.

Next slide is the indicative timetable. It's mapped out here. And if it all goes to plan, this transaction will close on the 19th of July. As I said, I'll close with 1 point, very much looking forward to working with the Karora team. The culture is similar, the people are similar. We're all focused on one thing, generating free cash and turning this business into something much larger than it is now. Thanks very much. We'll just open up the floor to questions. Shane?

Thanks, Wayne. [Operator Instructions] The first question comes from John. And what was the time line for the process noting that our investments in, until 3 weeks ago?

Paul, do you want me to take that one?

Sorry, I didn't hear the question. It was -- what was the -- apologize.

As the time line for the process noting that RMS was an exclusive [ data ] with Karora until 3 weeks ago.

Yes. So look, we were unable to speak to anybody during the RMS due diligence. Obviously, that didn't come to fruition. But the truth is, we've been looking at this for over 2 years. I went to all of their assets, Westgold assets, on a 10-day tour myself with our former MD and visited every mill, every underground, and it was quite impressive. At the time, it was just a different timing in Karora's history and the company's history before Wayne was there. So it's certainly something we've been monitoring for a very long time.

Thank you. The next question is from Philip. Can you please explain Westgold's all-in sustaining cost and Karora's all-in sustaining cost and the new projected AISC.

Thanks for that, Shane. And John (sic) [ Philip ]. If you go into the appendix on Slide 29, we basically -- there's a pro forma snapshot for Westgold, Karora and the large Westgold really talks to the overall all-in sustaining for the group. Again, that's pro forma as it sits now. That's before we start to drive cost out of this thing.

Your next question comes from John. Could you please provide some granularity on synergies? How do you actually realize 5% or 60% of your operating costs over the 10-year estimated operating life?

Yes, Wayne?