Westgold Resources Limited (WGX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Westgold Resources Full Year Results Conference Call. Your speakers for today are Wayne Bramwell, Managing Director; and Tommy Heng, Chief Financial Officer. I'll now hand over to Wayne to commence the call.

Thank you very much, Shane. Straight to Slide 5. FY '24 year in review. What a year it has been for Westgold. The transformation of the business continued, and we have returned the business to meaningful profitability through the delivery of safe, comfortable ounces. The graph on the left depicts just how far we've come in what is a very short space of time. $95 million profit this year is a fantastic achievement and a testament to the efforts of our teams. Key to this, of course, has been our focus on safety, which has seen continued improvement. The improvement in our safety culture has come hand in hand with changes to our organizational culture more broadly, a culture which is now more focused on operational excellence, profitability, and shareholder returns. Of course, this remains a work in progress, and there's much more to achieve. We achieved our revised production and cost in FY '24, numbers which were adjusted following the decision to pause mining at Paddy's plan, which was assessed to be missing the profitability hurdles Westgold requires. Westgold became fully unhedged at the end of FY '24 with the completion of our zero-cost gold program. We remain debt-free with our $100 million corporate facility yet to be drawn. Shareholder returns is something this company takes very seriously and in FY '24 24, we were pleased to declare a total of $0.0225 per share in dividends. We completed our merger with Karora at the end of FY '24. FY '25 sees the business now capable of plus 400,000 ounces of production from an all-Australian production base. Westgold 3.0, as we call it internally, is now unhedged and has 2 strategic footprints in some of Western Australia's most productive gold rigs. Slide 6. Safety and sustainability delivers results. It's hard to overlook the vast improvement Westgold has delivered in the safety space. All the improvements we've delivered from a financial perspective couldn't have been possible before first tackling the cultural shift toward safety. Our TRIFR has fallen from 22 to 6.9% at the end of the financial year through a conscious overhaul of systems and practices as our offices and operations. To deliver an 18% reduction against our FY '23 numbers is a fantastic outcome, though it is one we do not take for granted. There is still much work to be done here. In regard to sustainability, during FY '24, we completed our clean energy transition project, which has seen the construction of 82 megawatts of hybrid power across our operations. All our mines and mills now operating on high power in the mergers, we are reducing our diesel consumption, carbon emissions, and importantly, our costs. Slide 7, top end of adjusted FY '24 production guidance. In FY '24, we produced 227,000 ounces of gold at an all-in-sustaining cost of just over $2,000 an ounce, allowing us to achieve the top end of our adjusted production guidance and lower end of our cost guidance. The prudent decision to pause the underperforming Paddy's flat mine inevitably put some pressure on our original guidance set in August 2023 and negatively impacted year-on-year comparisons. That said, it was the right business decision and demonstrates our resolve to prioritize cash flow and profitability over production. We invested $157 million in growth capital over the full financial year. The focus was the great Fingall development, Big Bell expansion, and most importantly, the expansion of Bluebird-South junction. Tommy will break this down further by discussing the year-on-year movement. Finally, we invested $25 million in exploration during the year. Exploration puts mine life and uses the platform for building a long-term sustainable business. With that, I hand over to Tommy to talk through the details of the results.

Slide 8. Thank you, Wayne, and hello to everyone on the call today. This slide talks to our high-level financial metrics. I'm proud to deliver these outstanding financial results for FY '24. We increased our revenue year-on-year, and that's despite the lower production as we course heavy split. Revenues, no doubt benefit from the increased spot price and increased exposure to it, which I'll address in more detail shortly. In FY '24, our EBITDA and NPAT materially improved year-on-year, mainly as a result of margins. Free cash flow, as defined by operating cash inflows, less investing cash outflows benefited from spot price exposure, offset by higher investing expenditure in FY 2024. Finally, improved our balance sheet position with our net assets and cash pulling and liquid positions increasing considerably year-on-year. Slide 9. One of the key drivers of this year's improvement has been the large increase in revenue. There is no question that the elevated gold prices delivered all gold producers' revenue windfalls. Westgold has worked over the past 2 years to capitalize on this by eliminating its forward sales contracts. The graph on this slide demonstrates the proportion of revenue attributed to the fixed forward sales denoted by the yellow bars, sold at a price different spot. In FY '22 and FY '23, half our gold sales were sold at spot. In contrast, in FY '24, more than 90% of our gold sales was sold at spot price, allowing us to make the most of the elevated gold price and grow our revenue despite the lower year-on-year production. Westgold is now fully leveraged to the gold price, having completed both our fixed forward sales contracts and 0 cost collars before the start of the new financial year. Slide 10. Coinciding with our increased revenue, FY '24 saw reductions in total all-in-sustaining costs, thus helping to increase AISC margin year-on-year. Total AISC reduced by 4% to 95 million. Key points to note here are the lower total all-in-sustaining costs. In lower mining activity with the suspension of Paddy's flat and reduced mine development at the Big Bell sublevel cave that was completed in FY '23. Increased mine development in growth projects, reducing the amount of mine development in existing mines. In Q2 FY '24, Westgold launched a new remuneration and benefit strategy program, which has delivered over 40% improvement in our staff turnover. These costs to the tune of $10 million are spread between mining, processing, admin, and corporate costs here. Increased sustaining capital at our existing setting up these assets for continued profitable operations. Slide 11. So, increased revenues and reduced total costs ultimately led to increased margins and gross profit. That is easily seen in the profit waterfall comparing FY '23 with FY '24, where we delivered an NPAT of $95 million in FY '24. We had increased corporate costs as we invested in our workforce via our upgraded remuneration and benefits strategy. Of course, when you make substantial profits, you end up having to pay substantial tax to the tune of $38 million in our case. That resulted in Westgold delivering an 852% increase in NPAT year-on-year. Slide 12. In FY '24, Westgold found a balance between maintaining balance sheet strength, investment in our near-term growth options, and delivering shareholder returns. We invested $157 million in our array of near-term high-value projects, the result of which we saw commercial production from Fender from 1 July 2024. In FY '25, our organic growth pipeline will see early production from an expanded Bluebird-South Junction mine, first all from Great Fingall, and from the Long Hole Open Stop mine and Big Bell. Continued investments in the Southern Goldfield assets will unlock substantial value in H2 of FY '25 in what is strategically located yet vastly under-explored gold field. With this investment, the stage will be set for a very different Westgold, one with a substantially different production profile and cash-generating potential. Slide 13. Notwithstanding the substantial investment made this year on our growth projects, Westgold still generated $1 million in cash, billing, and liquids bill. We have now achieved this across 6 consecutive quarters. Slide 14. The graph shows our cash flows for the year and depicts closing cash pooling and it grew by $71 million year-on-year. Our revenue increased due to the spot price exposure movement with fewer hedged ounces, partially offset by this reduction whilst operating costs reduced year-on-year as discussed. Overall, our operating cash for the year was $210 million as defined by revenue, less operating cash costs, less sustaining capital. As we spoke earlier on, FY '24 was a growth capital-intensive year and reflected in the growth capital and PPE segments of the graph. Our investment in exploration continued over the year, aimed at extending mine lives in our existing operations. We have already demonstrated some of the fruits of that investment with increases to reserve and resources at Bluebird-South Junction and resources at Starlight. In September, we expect to release a group reserves and resource statement in which we will be able to articulate the full gamut of benefits this investment has delivered to date. Working capital movements reflect the timing of payments, which is not unusual for the size of our cost base and the investment made this year. During the year, we invested $6 million in Aragon. This is reflected in the payment for financial asset segment. And finally, we paid out $5 million in dividends, which represents the cash payment of the $0.01 per share interim dividend we declared in February 2024. With all that, we finished the year with $263 million of closing cash pulling and liquid assets. The last point I'd like to make on this slide is that we remain debt-free. Slide 15. And speaking dividends, this slide goes into more detail. Westgold declared $.025 per share of dividend for the full financial year, resulting in a 12% free cash flow dividend payout ratio, striking what we believe is a good balance between shareholder returns, reinvestment of our strong growth pipeline, and balance sheet strength. In February 2024, we declared a $0.01 per share interim dividend, which was paid within the financial year. In July 2024, this year, we announced a fully franked dividend of $0.0125 per share final dividend, which will be paid in October 2024. These payments fell in line with Westgold's dividend policy, which seeks to pay $0.01 per share as a minimum up to a maximum free cash flow payout ratio of 30%, subject to maintaining a minimum cash balance of $100 million and at full board discretion. Slide 16. Last slide for me before I hand back to Wayne. Like I said, I'm really pleased with these results. Revenue is up while the time to be an unhedged gold producer. We are maintaining our focus on margin and cost, helping us to achieve a good EBITDA. Strong profit numbers for the group, a result of delivering on our strategy, which prioritizes safe and profitable ounces over production at any cost. The graph at the bottom here shows the history of these metrics over the last 4 years. I think it demonstrates that Westgold is in a strong position with a solid platform. With that, I'll hand it back to Wayne to talk more about that.

Slide 17. Westgold's FY '25 platform. Thanks, Tommy, what a platform we have to build from now on. On the 1st of August, we completed our merger with Karora, giving Westgold now 2 strategic footprints in some of the most prolific gold regions in Western Australia. We are now a top 5 gold producer in Australia with a pro forma production profile in excess of 400,000 ounces per annum. In closing, we are really excited about the future ahead for Westgold. We now have 3,200 square kilometers of Western Australia, 5 processing plants, 6 underground mines operating, seventh in development, and over 1,900 staff. This is a platform which we can now leverage. We're looking forward to continuing to deliver safe and profitable ounces for our shareholders and much higher returns into the future. With that, I'll throw the floor open to questions from the audience.

Thanks very much, Wayne. [Operator Instructions]. The first question comes from Andrew. And it says, can you please remind us of the announcement disclosure schedule that will lead into FY '25 guidance? When will FY '25 guidance be?

Thanks, Andrew. The schedule ahead is quite simple. We'll be going with our updated reserve and resource statement early in September, shortly followed by the FY '25 guidance. One really feeds into the other.

Thanks, Wayne. Your next question comes from Mark, and he is asking a question about trade payables. He's noticed an increase from $78 million to $148 million. Tommy, would you like to comment at all on trade payables and the reason for the increase?

Absolutely. Thanks, Shane, and thanks, Mark, for the question. Essentially, as you see in FY '24, it has been a heavy investment year on our growth projects in Great Fingall, Fender, and the Big Bell long hole open stoping. Naturally, the creditors and payments will increase as a result of that investment.

Thanks, Tommy. I had a question from Hayden. Can you provide some updates on key management changes and timing on new appointments.

Certainly, Shane, thank you very much. Hayden, most recent changes to the executive team here has been the appointment of Andrew McDougall as Chief Technical Officer as we start to step up the execution of our mines and our footprint now is much larger with the Southern Goldfields assets coming in. We need to expand the executive team. So, Andrew has been with us now for just over 4 months, and he's been a key member joining the team.

Thanks, Wayne. We have a few multipart questions. I'll start with the first question. On the merge question, which underground mines, if any, might return to production in FY '25?

Thanks for that question, Kathleen. We've currently got comments on care and maintenance. South Emu-Triton on care maintenance to Paddy's flat. Of those 3, the most likely to return to production is probably South Emu-Triton, which is being reworked as we speak.

And how big will South Junction Bluebird get production-wise?

Fantastic question. Bluebird-South Junction is targeting a 1.2 million tonne per annum run rate by the end of this year. But the real answer to the question is we don't know. We keep drilling this thing. We haven't found the edges of it. The potential scale is much larger than the 1.2 run rate that it will hit by the end of this calendar year.

And when can we expect first oil from Great Fingall?

Great Fingall is really exciting. Again, first stope plan for Q4 of this financial year.

And moving to the Southern Goldfields. Just how big could Beta Hunt get?

We are so excited about Beta Hunt. And at this stage, we don't know. It's next stop in terms of production is 2 million tonnes per annum. But again, $2.5 billion won't be too far away. The drilling that we're planning could see the scale of this mine expand significantly. And it's all about how quickly and how many rigs we can get underground to start drilling the Fletcher zone.

And is there a time line for bringing Spargo underground and sorry, Pioneer 3 open pit into production?

At this stage, no, we've had the keys to the Southern Goldfields assets for 4 weeks. So, we're reviewing all of these targets now. And what we are seeing is specifically around the Higginsville area, there are a lot of other larger opportunities outside of Pioneer.

Okay. So, the final question is from this call. It's a little bit open-ended. Just to comment on any other levers that Westgold might be able to use to further enhance the business.

Absolutely, Kathleen. Well, you've asked some very sharp questions here. This question really gets to synergies. We can see the ability to drive a lot more cost out and profitability up by taking a different approach to what we consume in the Southern Goldfields and how we do it. What we see within the business that we've acquired in the Southern Goldfields is a business which really is far more reliant on third-party supply than our merchants and operations. The approach we're taking in the Murchison, we will take to the Southern Goldfields. And with this much larger footprint, we can now find ways of leveraging the scale of the business and driving additional costs out.

I've got a question from David, and it's about depreciation. It's noted that the depreciation charge has come down in FY '24 relative to FY '23. Is this a function of the increased resource base?

Thank you, David. Absolutely, and as well as with the Paddy's flat in carrying maintenance, that also plays into the D&A.

Niman, a better comment on this, but the question from Andrew is similar to that. Can you provide any commentary on pro-forma D&A for FY '25 and beyond?

It really depends on the D&A on how our operations with the growth projects go on. I would expect it to increase as Great Fingall will come online and together with the now enlarged Westgold encompassing the Southern Goldfield operations.

A question from Tom. In theory, in what time frame could the Fletcher load be mined?

Thanks for that question, Tom. We've got access to the top of Fletcher now and first or should be in the second half of FY '25.

Just a further question on guidance. Are you expecting to release guidance for 2 to 3 years or just for FY '25?

Just for FY '25 at this stage.

Okay. We have a question on hedging from Shane. At what point would Westgold consider downside protection for gold price? It looks like there to continue upward. However, is there a strategy for future price protection?

At this stage, our history with hedging has been quite poor, Shane. I mean our best protection against the downside is really better delivery in our mines. So there's no -- we review our hedging policy every month, but at this stage, the real protection is to execute our mines better and continue to drive costs out.

[Operator Instructions]. A question from Larry. Thanks, Wayne. The Higginsville plant only ran around 60% throughput capacity over FY '24 in Karora's ownership. Will you look to increase fee from the stockpile as a change in strategy over FY '25?

Thanks for that question, Larry. We're super excited about Higginsville. We can see the ability to keep that plant full from others, other opportunities other than stockpiles. Watch your space.

[Operator Instructions]. A question from Kathleen. Could you provide some commentary on what expansions the plants within the portfolio might be capable of?

Kathleen, another 2 great questions. We are now facing the first well problem of a much larger Bluebird-South Junction getting up to 1.2 million tonnes per annum sitting alongside a processing plant in Meekatharra, which currently does about 1.6 million tonnes per annum. With the increasing scale of the business in Meekatharra, we can see the ability to expand the mill at Bluebird without actually spending any capital. And how do we get the 1.6 million to 2.2 million tonnes at Meekatharra? It's basically develop some softer open pit targets to blend with the harder underground ore.

The second part of the question is, could the 2 Karora plants see large upgrades in hybrid power supplies to cave capital?

Absolutely. I mean, we've just completed this or FY '24, the completion of 82 megawatts of hybrid energy in our merchant business, which that project in itself won some awards recently. We're really comfortable with hybrid energy and how to install it. We're starting to look at that specifically now for Higginsville. And that for us is it provides the ability to reduce the operating cost in that facility.

Wayne, I'll hand the call back to you for any final closing remarks.

Thanks for that, Shane. Thank you, everyone, for taking the time to listen to this presentation today. Full credit to the team who put it together. I think really, if you read no more than the first slide and showing the changing financial performance of the business, which has happened in a very short time frame. If the trend is your friend, this is what we're aiming on, continuing to increase the returns to our shareholders and build a much larger long-term sustainable business.

Thanks Wayne, and that concludes today's call.