Westgold Resources Limited (WGX) Earnings Call Transcript & Summary

Good morning or Good night, depending on which side of the globe you're on for today's presentation. I'm joined by Wayne Bramwell, CEO of Westgold Resources, to discuss recent news and update the market on all things Westgold. Wayne, how are you this morning?

Fantastic, Romeo. Thanks for the opportunity.

Awesome. So for the folks in the room, here's how today is going to work. I've got a number of questions for Wayne just to discuss recent news. But today is an interactive event. So please do feel free to ask questions for Wayne during today's chat. [Operator Instructions] If for whatever reason we don't get your question today, we run out of time, it's only a half hour slot for today's discussion, or for any other reason, it's off topic, I'll make sure the Westgold team gets your question, can get back to you. They'll also have your e-mail and phone number, so they'll be able to get back to you at their leisure. The other thing I'll say is today's event is being recorded and will be available probably before tomorrow morning Perth time and probably by midday Eastern Time. So it will pop right in your inbox. It will also be available on 6ix's YouTube channel and right at this link that you're currently watching it on.

But let's jump right into the [indiscernible], Wayne, if you don't mind. I know there's been a lot of -- perfect. There's been a lot of positive news flow lately with the record Q4 results and the fiscal year '26 guidance. I'd love if you could just quickly walk us through all the key developments since that Q3 fiscal year '25 quarterly results and what should investors be looking for?

Look, there's a lot to like about how Westgold is tracking at the moment, Romeo. I mean our June quarter results showed -- gave people a glimpse of the momentum the business has got and its trajectory. In that quarter, we had a record production of 88,000 ounces, which shows people what this business can do when our mines start to deliver. Now for a full year ending June 30, the business delivered 326,000 ounces, again, over 112,000 ounces higher than the previous year. So we're very much now after 12 months of integrating the ex Karora Southern Goldfields assets, starting to feel that the business is at an inflection point. So there's a lot to like. That plus what we're doing with the drill bit. I mean, we released the maiden resource for the Fletcher Zone at Beta Hunt, which literally, it was double our expectations. So there's a lot to like about this business. A lot of it is both value being created by the drill bit and starting to see glimpses of what the business can do when these assets fire.

Great. I know this morning, you released full year results. So I'm curious, what should investors be excited about looking for as they read through those?

Look, again, we -- FY '25 results in some sense, were always going to be tough because of the costs associated with the merger. But look, no buyer's remorse whatsoever from the Karora assets. The Beta Hunt mine is a fantastic. It's already a multi-decade mine. It will be -- continue to be a multi-decade mine, and it's getting bigger and it's getting better. We knew in the previous 12 months, we'd have to invest significant capital in upgrading the mine capital. Happy to say all of that's behind us now. Even more pleasing is the Higginsville package, which we acquired in the merger. I mean the little Two Boys mine has made money for us every month since acquisition. We're mining open pits in the Higginsville area now, and we're starting to see consistent increases in throughput, grade and recovery at the Higginsville mill. So overall, our Southern Goldfields business now is a really efficient business and getting more efficient and that efficiency is driving higher mine output and cash flows. In the North, the Murchison, again, is probably a little bit further behind than where we'd like it to be, and we've spoken to that in some detail about the slow ramp-up of South Junction at our Meekatharra mine. But overall, the business, for those who watch it quite closely, very much June was a record month. The June quarter was a record month, and that should give people confidence that the plan that we've set out is achievable.

Awesome. Now I know that you mentioned that the multiyear outlook is expected in September following that '25 mineral resource and ore reserve update. I'm curious if you could share your strategic vision for where you see Westgold positioned in, let's say, 3 to 5 years, particularly given that stated goal of becoming a leading Australian gold company.

Very much. Look, we're driven now by the purpose and the purpose is very clear, to become a leading Australian gold producer. I mean we can see big opportunity within the portfolio of assets we've got. We're guiding the market towards sort of midpoint around 370,000, 380,000 ounces for this current FY '26 financial year. And that's a very conservative view of what we think it can do. So in the 3- to 5-year plan, which will roll out early in September, without giving the game away, the investors will see what that 3- to 5-year outlook looks like. And I can assure you, there's been a lot of work that's sat behind that, but this business has the ability to generate a lot more gold at a lower cost and generate a lot more free cash. And the investment from FY '25, some of those things now are starting to pay dividends.

Great. Now I do know that you initiated a divestment program for the smaller assets like Comet, Paddy's Flat and others to focus on those higher-grade operations. I'm kind of getting your head, how do you balance the immediate cash flow benefits these assets provide against the kind of strategic value of simplifying your operations?

In some sense, Romeo, it's a well-trodden path. We're trying to up-tier our asset portfolio now where we've got a range of smaller underground mines or smaller assets, which we just don't think will have scale. All of those mines are higher cost producers. This is absolutely the time now to basically divest or joint venture some of these smaller assets out to other people. So how do we balance our approach to capital? It's really return on investment with a view of, okay, this $1 in this asset, can this generate $1.50 of return? If it can only generate $1.10 worth of return, well, then obviously, that asset starts to move down our list of priorities. And the key point about this whole divestment program is, I mean the portfolio we've got now, 3,200 square kilometers of Western Australia. We've got 3 underground mines on care and maintenance. Two of those would effectively be project starters or would be cornerstone assets in a much smaller gold company. We have the ability now to joint venture or divest some of these things, which will start to bring new producers into the Australian market. And if we can assist an explorer who wants to become a producer by handing them or divesting them an underground mine and also giving them a milling solution, well, that's good for both groups of shareholders. And case in point, for those new to the Westgold story, we did a very -- what I think is some pretty clever commercial deal with an ASX company called New Murchison. Really good explorers. We gave them the opportunity to get access to our processing infrastructure at Meekatharra. So literally, that Crown Prince mine, they're mining high grade there now. First ore from Crown Prince to Meekatharra will be in the next quarter. And so for them, as a small company, all they've had to focus on is mine development. They haven't had to go down a path of trying to develop a new mine, a new camp and a new processing facility, which the level of complexity with that and the time to approval is very long. So I think the opportunity around some of the divestments that we've got potential divestments in the pipeline is to provide a better pathway to production for others, of which the ore is most likely going to come back to one of our processing facilities. To me, that's a win-win scenario for 2 groups of people. We've got sunk capital, our processing plants. We've got 4 large processing plants. If we can have a different stream of ore coming to those mills, mined by other people to supplement the ore that we mine, I think that's all about lifting the grade to these mills and lowering our costs. So anyway, this divestment and JV concept, very live, and it's all about trying to up-tier the package. What we really want is larger processing plants and larger mines and where we have a multitude of sort of mid-scale mines. If they don't quite fit our metric, those ones and someone else can do them more competitively, great. Happy to help them out to do that, particularly if we bake in ore purchase agreements where the ore comes back to our sum capital.

Great. No, it makes sense to me. I got a technical question here. So I know the transition from transverse to longitudinal open stoping at Bluebird-South Junction represents a pretty significant technical shift. So just looking at your view on -- if you could elaborate on what drove the decision beyond ground conditions and how the experience might influence mining approaches at your other underground operations.

Yes. Look, it's a really good question. In our Murchison business, the Bluebird-South Junction mine is pretty much now the engine room of the Murchison. This mine is something, which we still don't know how big it is. We keep drilling it and it keeps getting bigger. Case in point, when we started this mine as an underground operation, it was producing around 250,000 tonnes per annum, a pretty simple long-haul open stoping operation from what we call Bluebird. We kept drilling this thing. Bluebird, the side of the mine kept getting bigger. We got it to 0.5 million tonnes per annum. We started to drill and we started to infill the South Junction side and think about this mine of having 2 legs, the Bluebird side, sort of a narrower higher grade zone and South Junction side, much wider stopes up to 30 meters wide, sort of still lower grade, but sort of around 3 grams. Think about Bluebird as 4 to 5, South Junction, 3 to 4. The issue we've got with this mine, we keep drilling, and it just keeps getting laterally bigger and it's open at depth. So really, the transition in the mining method or the mining method we used in the narrow side of the mine, narrow, 6 to 7 meters in the Bluebird side was probably not the right approach for the South Junction side. So what we can see is that there's the base load from this mine long term or in the immediate term will come from South Junction. The change to mining method there is really about ensuring certainty about that tonnage and trying to knock out some of these variations, which our previous mining method was giving us. But yes, Bluebird-South Junction currently, 2 mining fronts. And there's a third mining front at which we've been drilling called Polar Star, which again, this Polar Star lode, and this is a set of stack lodes, still don't know how big it is. And the real risk in these businesses is -- and we've done it, we've been guilty of this. We've rushed into ore bodies too quickly without enough drilling. And then in an underground mine, you put in your capital infrastructure where you think it should go, you keep drilling and then you go back and go, maybe should have put this infrastructure in a different place. Bluebird-South Junction, so critical to the business, we're continuing to drill South Junction and Polar Star, but this thing next up, 1 million to 1.2 million tonnes per annum of output. And what we want is consistent output. And that's been a criticism of Westgold in the past. Our mine outputs have been quite erratic. And a lot of that is directly driven by not having enough drilling into them or trying to execute too quickly. So in Bluebird-South Junction now, the level of drilling is accelerating. Our output is now steadily creeping up to be sustainable, not these erratic things, which trying to manage a business like this with erratic mine output directly knocks on to erratic financial output. And that's what we're trying to do. We're trying to become a more consistent producer and that around fewer, bigger mines and much larger processing plants. And that's really the key. A simpler business with less moving parts centered around big underground operations, Beta Hunt, Bluebird-South Junction, Big Bell, Starlight, supported by sort of medium-scale high-grade mines, things like Great Fingall, which we'll talk about when the market will see more from Great Fingall over the next few quarters. So simplistically, that's the business. We've got currently 4 processing plants, 6 underground mines running with a seventh to start. What we like is fewer larger underground mines, which generate more output at a lower cost, and that underpins the business generating much higher margin.

Great. I do know that despite record production, my understanding is you missed the lower end of the FY '25 guidance due to trucking issues at Beta Hunt and some development delays. What operational improvements are you implementing to ensure that more consistent delivery against guidance going forward?

Look, you're right. We missed the bottom end of our guidance by about 1%. A lot of that was driven by the fact we had to stand down our trucking fleet at Beta Hunt late in the quarter. The underground trucking fleet there was much older than the equipment that we were running in the north. This equipment, I won't name the supplier or the brand, let us down significantly in the last quarter. And we were so close to this bottom end of our guidance. A 1% miss is still a miss. So what have we done? That older trucking fleet now has been parked up for probably about 6 weeks. And now that underground fleet is being replaced with newer, more efficient equipment so we can have more certainty about the sustainability of our haulage outputs from that mine. So that was -- that really hurt us. And when we think about a trucking fleet in this mine, the trucking fleet in Beta Hunt is 10 to 11 trucks. It was constrained during the last quarter where I think the most we could run was maybe 6 to 8 on some days, either due to reliability of the equipment or ventilation. Ventilation in these mines, certainly at Beta has held back its productivity. Happy to say now both the trucking fleet is replaced and the issues around ventilation now have been removed. So we're feeling -- we're seeing good performance out of Beta Hunt. And again, it needs to be steadily increasing, not this sawtooth graph, which knocks on to our financial results.

Great. No, good to hear. Now I know with $270 million in nonsustaining CapEx planned for FY '26, but a strong balance sheet of $364 million in cash and investments. How are you looking at capital allocation between growth acquisitions and returning capital to shareholders?

A great question, actually. I mean, in terms on the capital side, we have effectively got 2 development projects in the business. Our Great Fingall mine at Day Dawn at Cue is just about to start production. It won't get to commercial production until the new year, but we are effectively handing this high-grade mine off to a contractor, Barminco, which they're on site now and will start in earnest in September. There's still capital to spend on Great Fingall to get it to steady state and steady state will be in sort of calendar '26. The other big capital project is still Bluebird-South Junction. This mine, as I said, keeps getting bigger. The South Junction side has required more capital development, an improvement or increase in ventilation, and that's where the capital is going. Back to your question about how do we think about capital in the business or really around all of these assets compete for capital. The good thing is Westgold has the free cash flow to fund these things. I mean, ideally, 2 development projects at the same time is not ideal. Fortunately, for us, Great Fingall is further ahead than Bluebird-South Junction. So it sort of moves off the risk around execution there will diminish as Barminco start to ramp that up in the second half. In terms of M&A, we're very much on the other side of that. We call it M, A and D. We're in the divestment phase. I mean we are 12 months on post the merger of Karora. And look, as I said, no buyer's remorse at all. I mean the Karora assets were fantastic, and we're starting to show the market. The market is starting to get a glimpse of just how good and how big Beta can be. So really, the next 12 months for us is about let's tidy up the portfolio. The portfolio is big. Some of these smaller targets, like I said, we've got 3 underground mines on care and maintenance. They're sitting there and they cost us -- standing still costs money. If one of those mines can be handed off to a third party and they want to start mining and that ore comes to us without our management sitting on top of it, look, that's a model that I really like, and we're already running that model with New Murchison, and it's a model I think we can deploy elsewhere across the portfolio. So next 12 months, divestment is the key. The business in many instances or many areas, hopefully, what people are starting to see is an evolution in our operating model that our output should become more consistent as we're starting to mine these ore bodies better, but also is our approach to capital and capital returns. I'm really happy today that the Board signed off on a $0.03 per share dividend, which was -- with the year that we had, which was a transformational year, that was a significant uplift in our dividends. More importantly, also the Board, in a signal that they are confident about the plan, approved a share buyback, which for North American investors, that's a very important signal about how we're thinking about the business. So dividend and share buybacks appeal to 2 different investors. Australian investors very much like the dividends. North Americans, very much it resonates more when we speak to share buybacks. The business now has evolved to a point where we can consider both options.

Great. I do want to talk about AISC for a second because I know your guidance of AUD 2,600 to AUD 2,900 per ounce for FY '26 obviously reflects the current cost environment. How is Westgold generally managing inflation pressures across labor, energy, consumables?

Look, it's a great question. And for people not sitting in Australia now, that AUD 2,600 to AUD 2,900 an ounce, certainly, every Australian gold producer that -- who are our peers are seeing their all-in sustaining cost lift. Cost of labor here is a little higher. I mean it's probably more plentiful, but the cost of labor post-COVID certainly hasn't dropped. A lot of the Aussie businesses, maybe I don't know, most of our Australian peers run a business model, which we call hub and spoke, the processing plant being the hub, multiple mines as spokes feeding these hubs. We've got 4 hubs, and we've got multiple spokes. And one of the key points is that haulage cost from a remote mine to back to the hub is one of the places we've seen the highest inflation in our business. Case in point, we are hauling -- within the Murchison, we are hauling ore from our Cue operations back to our Meekatharra operations. That's a haulage distance of 120 kilometers. That's really -- it's not the longest haul in Australia. Some people are hauling over 200 kilometers, but this is one of the functions, which is driving our cost base up. How do we fix it? We have bigger hubs and shorter spokes. So when we get to the point soon, and this is what Bluebird-South Junction is about. Bluebird-South Junction over the next 12 months will get to a point where it can feed the Meekatharra hub, it can underpin that production. Bluebird-South Junction is about 600 meters from the processing plant. But because that mine has been slow in its ramp-up, we've had to haul ore from Cue back to Meekatharra. 120 kilometers, an expensive haul. That's what's driving our -- been driving our costs up. So what investors can start to expect is as the grade starts to come up in our processing plants, our outputs will increase. And as our mines' -- mine outputs lift, we are less reliant on tramming or trucking ore long distances. And once we -- it will be evident in our costs once our costs start to fall that this component of haulage in our business is starting to shrink. So Romeo, that's been something which has hurt a lot of the Australian producers who run this hub-and-spoke model because haulage often is not a component which we manage. It's -- we don't own our own trucks for road haulage. It's a third-party supply, and you have to pay a margin on that function. But that's probably been one of the biggest cost escalators in the business over the last 12 months.

No, I appreciate that. I want to talk about Fletcher Zone really quickly because I know that maiden resource of 2.3 million ounces from just 1 kilometer of 2-kilometer strike is very impressive. What's your development philosophy for that asset? And how are you kind of sequencing exploration versus development for cash flow?

Yes. Look, a couple of -- love to talk about Fletcher. We were -- look, we were absolutely blown away. Our expectation around that 1 kilometer of the 2-kilometer zone was that we'd find -- we told the market our expectation was that within that 1 kilometer, we'd deliver 800 to 1 million ounces of resource. We delivered 2.3 million. It was like, wow, this thing is far better than we think, and we've only drilled half of it. When we announced it into the market here, it was like -- it sort of hit the market, nothing happened. And we're like, wow, we must have really written that release badly. But it's a slow [indiscernible]. I think we've had an analyst visit to Beta Hunt recently and the penny is starting to drop. This thing is a cracking ore body, which is big, and we've only drilled half. So the sequence of development really looks like this. We're back in there drilling the second kilometer of Fletcher. We're also infilling the first kilometer. But it just keeps getting bigger. It's -- I think as a corridor, it's a couple of -- it's 200 meters wide. There are multiple zones within it. But our risk is here that if we rush into it too soon without the right amount of drilling, we'll put the infrastructure in the wrong place. So I really see this sort of 6 to 12 months of infill drilling of Fletcher now infill and extensional to really quantify the size of the prize because our expectation was the size of this prize was 1 million ounces. That drilling gave us 2.3 million. We drilled the other kilometer. It's a 4-million-tonne zone -- a 4-million-ounce zone. It's possible. So yes. So in the next 12 months, absolutely, currently today, I think we have 9 drill rigs at Beta Hunt. Obviously, all of them are underground. The bulk of them are into Fletcher, Mason, Western Flanks and Larkin. So we've not slowed down our drilling at all. But yes, watch this space. Fletcher is not going to get smaller.

Great. I want to talk about hedging strategy. I know Westfield remains 100% unhedged, which obviously, in this cost -- gold price environment is hugely beneficial. But how are you evaluating the ongoing risks of that strategy as you scale up production?

And again, just reaching from my phone for the offshore investors, Australian gold today, AUD 5,203. We sold gold on Monday. I think we sold it at AUD 5,225. And these are Aussie dollars, but these are numbers which still in my lifetime, I never thought I would see. So our approach to hedging in some sense is really straightforward. Every Australian gold producer is a price taker. We -- nothing we can do to affect the price. We can make a decision about the price, and we can hedge. And for -- as soon as you do that, well, the price is going to go up or down. So we look at the gold price every day and go, fantastic. That's not something we can control. Our best hedge in this business is really to focus on our costs. That's something we can control. And we're still -- our cost base is still higher than we'd like. We're very much working on simplifying the business and making it more efficient, focusing on grade, not volume, and that will drive our costs down. So simplistically, our approach to hedging is our best hedge is to make sure we are on top of our costs and continuing to drive costs out. So we were going to remain unhedged because we're fully funded to do everything we need to do. We don't have any major capital projects, major capital projects in the house, which requires us to hedge. And even the debt facility, which we have, which is undrawn, there's no mandatory hedging within that. So that -- when we cut that deal with our banking syndicate, it was a little unusual for some people because we were in a really strong position. We said hedging is not something we want to do. So we have access to, as we sit here today, another $250 million of capital where if we draw on that capital, there's no hedging associated. So we're in a really strong position.

Great. Now there's time for about 2 questions from the audience. I'm just going to grab 2 and then I'll let you go for the day, Wayne. So first one around hedging...

I'm halfway through my day, Romeo. So don't worry, I got a plenty of time.

Yes, fair enough. Now David from the chat asked while we're on hedging, does Westgold anticipate a window of time now in the future where long-term fuel hedging might become increasingly important?

Great question. In a -- well, previous management in the business did hedge fuel and got it wrong. And that was at a time whereby they hedged fuel and they hedged gold and the price went against them on both. So in respect to hedging fuel, what we really did 3 years ago was how do we reduce our exposure to oil. What we did, we basically converted all of our processing plants to hybrid energy, which was gas and solar. So back in those days, when we only had the Murchison, I think our diesel consumption every month was, I think, 8.5 million liters of diesel a month. And that was our processing plants, all our underground fleet. We converted to hybrid energy back then. It dropped our diesel consumption down to about 2.5 million liters a month because processing plants were then on gas and solar. The only thing that was consuming diesel was our underground fleet. We bolted on the Southern Goldfields assets and the processing plant at Higginsville is currently on diesel. So our consumption has gone up. But the next step is always thinking about how do we reduce our exposure to diesel and that price. In the Southern Goldfields, it's about putting Higginsville onto a gas and solar exactly what we did in the Murchison to reduce our exposure to that consumable.

I appreciate that.

Great question. Great question. I mean this is not -- we watch that price, but our exposure to it now, it doesn't drive -- it's not a big component of our operating costs. So it's not -- doesn't sort of consume too much thought time.

No, makes sense. And I can see certainly being traumatized by both gold hedging and fuel hedging going against you...

Fortunately, I wasn't here then, but I'm sure there would have been a lot of interesting robust discussions around the boardroom table about, wow, we thought the price is going to be this and it's that or price was this and it was that. So yes, hedging -- financial engineering is something we stay away from. We'll just focus on the ore bodies and costs. And if we get those 2 things right, the rest takes care of itself.

I appreciate the philosophy. Last question, Ganesh from the chat says, good to see you love the focus on safety and efficiency and focus on core strengths. When do you see exponential free cash flow? And where do you see the next positive catalysts and potential surprises coming from?

Look, I see financial year '26, the expectations we have set in the market are quite modest. Because we missed guidance last year, in some sense, that was very scarring for all of us. We are absolutely committed to basically delivering or beating our guidance this year. We can see we've got high-grade feed coming into our business through Great Fingall, something we own. We'll start to see that in the next quarter. High-grade oxide ore coming from third parties from Crown Prince starting in the second quarter. All of these -- many of these things, we've taken a conservative approach, and we've not baked them in completely to our guidance. So I think FY '26, with all the things we've got on, we're still going to spend $50 million on exploration because we know we can add value quickly with the drill bit. We can move Great Fingall into commercial production during the year and Bluebird-South Junction will start to be a consistent producer. So I think our expectations and choose your own gold price. If you ask me what the gold price is going to do, I'd say I don't know. But every day I wake up, it starts with the 5. As an Aussie gold producer, we go, okay, that's a good number. But I think this is going to be a strong year for cash flow. We are -- some of the capital we invested over the last 3 years is now starting to literally pay dividends in terms of higher throughputs in our mill, higher throughputs from our mines or higher grade, which has been defined from our drilling. So yes, this would be -- this year, FY '26 much stronger cash flow and financial performance than last year because last year, we effectively doubled the size of the business. We knew we were going to have to spend some capital across the business to stabilize it and for it to grow and people got a glimpse of that in the last quarter's numbers.

Awesome. Well, Wayne, thank you so much. Really appreciate your time this morning, running through all these questions. And for those in the chat, thanks so much for joining us. I know some of you are joining it all hours of the day or night, so I really appreciate your time. All the questions that we didn't get to today, I'm going to make sure the Westgold team gets them. And this replay will be available in short course, just probably a few hours from now. But Wayne, thank you so much. This is great. Really appreciate your time.

Always happy to chat. Thanks for everyone who patched in. Stay safe.

Awesome. Have a great day, everyone. Cheers.