Earnings Transcript for RMS.AX - Q1 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to the Ramelius Resources September Quarterly Conference Call. [Operator Instructions]

I would now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead. :

Mark Zeptner: Thank you, Ashley. Good morning, everyone. Thank you for taking the time to dial in to the Ramelius September 2023 Quarterly Conference Call. As usual, our CFO, Tim Manners is with me, although this may well be his last conference call before he moves on to another role. I'm also joined this morning by Ben Ringrose, who is our GM of accounting. Welcome back. Following the standard format for these calls, I'll run through the operational highlights for the quarter before handing to Tim to go through the financials. Once that is done, we will open the line for questions.

As you will have seen this morning, we reported gold production of 55,523 ounces and all-in sustaining costs of [ $19.64 an ounce ] for the 3 months to 30 September. And whilst we've previously flagged a softer start to the financial year due to the mine sequence at Penny delivering increased volumes of development ore, the September quarter actually performed in [ exceedance ] of our internal forecast, which has production effectively getting stronger over the course of the financial year. I have to say it's great to see gold companies generally making money for investors and for Ramelius to produce an operating cash flow of $44.3 million and an underlying free cash flow of $6.4 million from what we expect to be our lowest quarter for the year points to strong cash flows as we move forward. :

If we look to the December quarter, we are guiding for production of 60,000 to 70,000 ounces, resulting in a first half guidance of 115,000 to 125,000 ounces. Second half should be significantly strong again with production forecast to come in between 135,000 and 150,000 ounces, underpinning our original full year production guidance of 250,000 to 275,000 ounces. All-in sustaining guidance -- cost guidance has also been retained for the year that is at $15.50 to $17.50 an ounce. :

As anticipated, we are seeing Mt Magnet reclaim the [ mantle ] of our flagship operation, just over 30,000 ounces produced at an all-in sustaining cost of $18.79 for the quarter. You can see there the impact from the high-grade ore from Penny, albeit at lower volumes than expected for the rest of the year has on unit costs at Mt Magnet. By comparison, Edna May contributed 24,813 ounces at all-in sustaining costs of $21.96 for the period. Costs of Edna May are expected to be positively impacted as more ore from our Symes open pit, which is a shallow mostly medium grade open pit faster feed into the next. Haulage from Symes to Edna did commence in September and will ramp up over this current quarter. A total of 36,406 ore tonnes grading 11.01 grams per tonne was hauled from Penny to Mt Magnet during the December quarter or a bit over 12,000 ounces recovered. With quad road train movements at the anticipated rate throughout the period, accumulated stockpiles at the mine are sitting at what we would call normal operational levels, i.e., less than 1,000 tonnes. :

Moving on to resources and reserves. We released in mid-September of our annual statement reported a mineral resource increase of 23% to 7.6 million ounces, whilst all others have reduced slightly this year, it is worth adding, we have a significant number of resource ounces that are the subject of mining studies in FY '24 and hence, the potential for conversion to reserves. Studies in question contain some 4.3 million ounces of mineral resources. Not long after that, we also updated the mineral resource for Penny, adding 70,000 ounces of high-grade material to a total of 320,000 ounces, underlying the potential to extend life of the operation into FY '26 via targeted resource development programs. Underground diamond drilling continued through the September quarter with Penny with more high grade results received, clearly 3.3 meters at 49 and 5 meters at 23.5 as per tonne. :

Other exploration highlights for the quarter including [indiscernible] 17.5 meters at 3.9 from [indiscernible] and a shallow hit of 9 meters at 7.81 grams per tonne from AMT target #4 at Mt Magnet, 1 of several targets we have identified through the use of passive seismic AMT, which is ambient noise tomography, I think [indiscernible] and on a previous call. that's what AMT stands for to get physical technique we have employed to help identify more blind intrusive anadyrite-hosted deposits like that. For more information and exploration programs on our various projects you can obviously be found in the quarter itself. :

On the project side, the Galaxy Underground at Mt Magnet's progression development reaching the fifth [indiscernible] and the new mass [indiscernible] developing further at depth. A lot of side Symes, which feeds into Edna May, the Galaxy Underground is 1 of the key capital projects for the company this year. :

And then moving over to the Eastern Gulf field a row. We started with our first drilling program since taking ownership of the project and drilling commenced again in September. We have a 14,000 met drill program of resource definition diamond drilling aimed primarily at converting underground inferred resources. I think you indicated at Bombora additional programs are planned well infill areas around the planned open pits and see into the mining studies currently underway. :

So that covers the highlights for me. I will now hand over to Tim. :

Timothy Manners: Thanks, Mark. Gold sales for the period, very similar to production of 55,614 ounces with an average realized price of $27.52 an ounce generating revenue of approximately $153.1 million. As Mark mentioned, the operating cash flow from the business was $44.3 million from which $27.7 million is invested in growth capital, exploration and resource definition. There was also a net payment of $17 million for the acquisition of Musgrave Minerals with a further $2 million to be paid this quarter upon the completion of the compulsory acquisition process. The $18 million in growth capital spent in the quarter was split largely between Galaxy Underground and Brownhill open pits at Mt Magnet and the Symes open pit at Edna May, while $9.7 million was spent on exploration and resource definition in the quarter. The impact of the acquisition of Musgrave was the key reason behind the drop in cash in gold to $259.2 million from the $272.1 million at 30 June.

As Mike mentioned, whilst the financial and operational results are not as strong as those in the last quarter, they are still nonetheless all better than our internal forecast which means we remain on track for the FY '24 guidance for production, costs and cash flow. We have no reason to doubt that FY '24 will be a very strong year for RMS. :

The Aussie dollar spot gold price at 30 September was largely unchanged from 30 June, finishing at $2,874 an ounce. Since then, we have seen an increase in the Aussie dollar spot stock price to above $3,100. The recent increase appears to have come from continued global political and economic uncertainty, leading to a shift back into the safe haven of U.S. dollar gold which has also been coupled with the weakening of the AUD. With a higher proportion of our production over the coming months being available for spot sales. This further enhances the cash flow potential of the business in the second half of this year. :

During the quarter, we continued to gradually run down our fixed price contracts, delivering 30,000 ounces into maturing contracts and replacing about 17,000 ounces of these at an average price of $3,109 an ounce. At the end of the quarter, forward gold sales consisted of 198,000 ounces of gold at an average price of $2,831 an ounce over the period October '23 to March '26. :

On a final note, as touched on earlier, Ramelius' takeover for Musgrave Minerals closed on the 15th of September, with the company owning 91.37% triggering compulsory acquisition of the outstanding shares, which were completed last week. Musgrave marks the seventh corporate or project acquisition done in the last 6 years, providing Ramelius with a longer high-grade mine life at Mt Magnet, bolstered the mine life at Edna May since that asset itself was acquired in 2017 and provided a number of project development options in a new exciting region for RMS east of Calgary. Ramelius is 1 of the few companies that has truly played its part in the consolidation of the WA Gold industry and created demonstrable value at the same time. :

On that note, I will sign off on what will be my 25th and last quarterly for Ramelius. And I will now hand you back to Ashley for questions. Thank you. :

Operator: [Operator Instructions] Your first question comes from Andrew Hines with Shaw and Partners.

Andrew Hines: Just a quick question on the cost. So the cost this quarter obviously well above your full year guidance, which obviously, as things improve towards the second half and Penny becomes more of a contributor. Those numbers will come down. Just a couple of things on that cost number though. Tim, could you just explain the -- that noncash drawdown of Tampia, what the impact of that was? And is that -- that's like presumed as a one-off this quarter and won't be ongoing?

And then secondly, just on the Penny costs. I think you've guided historically as a Penny is operating just below $800 an ounce on sustaining given your early production from that and what you see now, are those numbers still pretty much [indiscernible] for Penny or as cost at Penny gone up at all? :

Timothy Manners: Andrew, look, in terms of the noncash component of the all-in sustaining cost, that's -- as you point out, it's driven by essentially the drawdown of stockpiles at Tampia. So in essence, as you know, the dollars have been spent putting that ore in place. So from a cash flow perspective, the spend has gone. But obviously, we still recognize the value -- carrying value of that ore as it goes through the mill. So it's not a one-off for the quarter. It will continue whilst there is Tampia material going through the mill. Indeed, it will also increase slightly as we do the same for Marda, slightly less in terms of dollar value and quantum, but the impact, if you like, is still technically the same.

And with Penny, yes, look, there's no reason to think that over the last Penny, will still be that sub-$1,000 an ounce mark. It's, I suppose, where we are in the mine, as Mike mentioned, and the low grade in quotation likes of only 11 grams, is really sort of -- it's not at its peak. We are still pushing forward with obviously the development and accessing the stopes. And when we get into the real sweet spot, you'll see those costs come down at a pretty rapid rate. And as we mentioned, no reason from where we stand to change any of our cost forecast in this year or indeed further out for those assets. :

Operator: Your next question comes from Richard Hart [indiscernible].

Unknown Analyst: Thank you, both, Mark and Tim. Tim, good luck with your next venture. My question was the gold project because as everyone I'm sure is aware, jumping a couple of hundred dollars Australian, that is significant. It's a stage right at Edna May constantly being reviewed or does this sort of change impact decision-making on that? Or is it too far away and too risky?

Mark Zeptner: I'll go over that one. Richard, again, it's Mark. We don't constantly look at these projects. We decided to defer Stage 3 earlier this year. I dare say we wouldn't all of a sudden bring a project out and dusted off on the basis of what I suppose is being a short-term bump in the gold price. But we probably will look at again in the new year. And we're just looking for some stability in that gold price and also in costs because costs are still moving as well. You can't make a decision on something like Stage 3 and the investment that's associated with that on, I suppose, that course relative to short-term movements in gold price. But look, we'll probably look at that again in the new year. And I think I've said that publicly previously.

Unknown Analyst: Yes, that's probably [indiscernible] and seems quite sensible. Just what you touched on that just quickly. I know you were just gently having a look at hedging with oil, does that prove useful to you? Or is it such a small program and then it hasn't affected anything?

Timothy Manners: Richard, we have Tim here. And thanks for the earlier comment. We have hedged -- well, a fair bit of diesel from our perspective. But I guess what I think people generally assume is that mining company that seriously expires to the diesel price. We're actually not too bad. But we have done some hedging. I think we've got about 7 or so million liters left. It has proved to be a good decision so far. And look, we continue to assess it. But the thing that, I guess, to keep in mind, as you know, though, is that as our haulage, particularly to Edna May, as that rate comes down, as Tampia and Marda complete, albeit we do have signs for this year, our exposure becomes less and less. So it's not a huge cost to us, particularly beyond FY '24.

Operator: Your next question comes from Paul Kaner with Ord Minnett.

Paul Kaner: A couple here, if I may. And sorry if I missed this. But first question, just an accounting question on cash tax, $2.3 million paid during the quarter. How should we sort of be thinking about cash tax for the remainder of FY '24?

Timothy Manners: Paul, for the remainder of this year, I'm just looking for [indiscernible], we are -- it's a -- we do a refund from Breaker. We'll have our own tax bill. And broadly speaking, I think they'll offset give or take $1 million. Going forward, we do have access to more losses from some of these acquisitions, but they're relatively small. I would probably expect to see some cash tax payments or installments in FY '25, maybe late '24, but more likely '25. What they will be will all be driven by what the revenue is and what our installment rates are. So it's very difficult for us to determine exactly what they are until you now. But I would expect to see some cash tax payments, particularly begin again in FY '25.

Paul Kaner: Yes, that's great. No, that's what I was after. And then just secondly on Musgrave and Q, when can we sort of expect to get some study news flow on that? I understand it's still very early days with your hands on there, but how are you sort of initially thinking about this? And how quickly can that Q material come to the mill?

Mark Zeptner: Thanks, Paul, it's Mark. We're looking to bring Q into the Mt Magnet production profile in early FY '25. So a little earlier than 12 months from now. We actually have a plan to move it's primarily an open pit project to move from the [indiscernible] Mt Magnet and move the open pit team north to Q at that point in time. So we are in the process of reviewing mining proposals, which were fairly advanced with the Musgrave team to have all approvals meet that time frame. So we've gone pretty hard to get that into production sooner rather than later. In terms of what that production profile looks like, along with everything else on Mt Magnet, I'd look to the new year to have a consolidated Mt Magnet to a Penny mine plan, if you like, to complete the picture.

Paul Kaner: And by new year, you mean sort of financial year, not calendar year there, Mark?

Mark Zeptner: No, early calendar 2024.

Operator: [Operator Instructions]

Mark Zeptner: If there are no more questions, actually, if I could just wrap up, if I may, please, with 2 additional points or 2 points in summary. First one, we -- as I explained, we expect the September quarter to be the softest of the financial year, albeit still featuring some free positive cash flow, the production increasing from this quarter. And obviously, cash generation is expected to increase in line with this. And secondly, the Musgrave acquisition is complete, unsold or payments of consideration and issuance of all shares have completed. On that, thank you for listening in this morning. Enjoy the rest of your day.

Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.