Earnings Transcript for RRL.AX - Q2 Fiscal Year 2024

Operator: Thank you for standing by, and welcome to the Regis Resources Limited Half-Year Results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd now like to turn the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.

Jim Beyer: Thanks, Andrea, and thanks, everybody for joining us on this Regis Resources December half-year financial results for FY2024. I'm joined this morning by our CFO, Anthony Rechichi, and also our Chief Operating Officer, Michael Holmes. Now, before we kick off, I'll let you know that we'll be referring to various slides that are in a pack that we released earlier this morning. If you don't have it – if you don't have the document, it can be downloaded from our website or from the ASX. Well, it's been a satisfying half-year across a number of areas in our business. Top of the list has been delivering safe, consistent, and on plan operating performance. Pleasingly, our key injury frequency rate remains well below the industry average as reported by the MERS with an LTIFR, lost time injury frequency rate of 0.66. Gold production and all-in sustaining costs are right on guidance. And for the December half, we produced just under 221,000 ounces of gold at an all-in sustaining cost of AUD2,119 an ounce, and that included just a little bit over a AUD100 an ounce of non-cash, stockpile inventory change charges. Our half-year performance reflects the impact of a steady state at our new Garden Well South Underground mine, and also the contribution of the Havana open pit cutback, which is still settling into its rhythm, but expected to be steady by the end of this financial year. The resulting performance demonstrates the cash generating capacity of our operating business and our operating assets. This combined with the very significant step of closing out our hedge book in December and breaking free of the milestone means Regis has now very clearly moved into a much stronger state for profitability and cash flow generation at current gold price levels as we are now fully exposed to the upside potential that exists for the gold price. With this major change to our revenue profile going forward, we are expecting strong profits in cash build in the second half of FY2024. Further, the balance sheet is solid with low leverage ratios and the consistent operating cash flows will be used to support future growth options. What I'll do now is I'll hand over to Anthony to take us through some more of the detail on the half-year results.

Anthony Rechichi: Thank you, Jim, and good morning, everyone. I'll start by having you all turn to Slide 4 of the slideshow that Jim was referring today, where you can see that the period delivered a solid half-year of gold production, well on track to meet our full-year guidance expectations. The open pit material movement is as per plan for Duketon, but tracking lower period-on-period due to the destacking of Garden Well Stage 6 and the reduction in open pit sources at Duketon North, which has also impacted the open pit ore mined. Lower grade ore stockpiles offset the open pit ore mined for mill feed. Tropicana was slightly below the corresponding periods material movement due to their pit scheduling and ground control for wall stability. Underground development at Duketon proceeded above plan as the mine expands and opens up new mining fronts, which also positively impacted the period-on-period underground ore mined. Ore milled was impacted at Duketon by throughput rates due to the reduction in the softer material from the [indiscernible] pits and harder stockpile material being processed. The grade of the underground offsets the majority of the impact of the lower stockpile feed. Gold production was impacted by the reduced throughput with slightly lower period-on-period grade at Duketon. Now on to Slide 5 of the pack, which shows the consistently favorable sales revenue achievement bolstered by the higher prevailing gold spot prices, but still affected by the 57,000 and final ounces of gold we sold into the hedge book in the six month period. Statutory cash flows from operations were AUD126 million. The statutory loss was AUD92 million. However, the underlying EBITDA was a very positive AUD167 million. Slide 6 shows the cash and bullion movement during the period. You maybe familiar with this chart from our recent December quarterly report. The main thing to note there is that the company increased its cash and bullion balance by AUD90 million in the half-year before hedge deliveries and hedge book buyout costs. Those two things totaling AUD179 million. Hence why the cash and bullion balance has dropped since June. Anyway, what it's showing us is that there's a profitable cash generating underlying business. Additionally, AUD160 million was invested across mine development, exploration, the McPhillamys development project, and other plant and equipment. This meant the company finished the period with a cash and bullion balance of AUD155 million. Ahead of us in addition to much better cash generation expected from operating without any further hedge losses, we are also expecting AUD20 million tax refund in the second half of the financial year. Now look at the profit and loss over on Slide 7. This chart breaks down our income statement and reveals that the underlying business free of hedging would have created AUD47 million profit before tax, or say about AUD33 million after tax. After the 57,000 ounces of hedge deliveries made in the six months, the buyout of the remaining 63,000 ounces of hedge contracts and then the tax adjustment for the period, the statutory net loss after tax totaled AUD92 million. For your reference, Slide 8 illustrates the differences between the underlying EBITDA and the statutory net loss. What are those differences? Well, in this slide you'll see the company made inventory net realizable value adjustments and exploration write-offs of AUD7 million and spent AUD98 million closing out those final 63,000 ounces in the hedge book. We did that in December. Looking back on what I've talked to you about this morning, there are some complexities in there that has to be pointed out so that you can see the underlying business is profitable and most importantly, makes positive cash flows. The second half of this financial year won't have those hedge transactions to muddy the waters, and with these production rates and gold prices, I'll look forward to a simpler way to illustrate good business results. Thank you. And back to you Jim.

Jim Beyer: Thanks, Anthony. And now I draw you to Slide 9. You can see and as we've mentioned already, the production and our cost guidance remains unchanged. Of note here, we make a couple of observations. While the first half has been solid, we are expecting a slightly softer Q3 as Tropicana’s in particular, Havana still settles into consistency, but Q4 will be back on some. But we are maintaining our guidance there, so nothing to get concerned about. Looking a bit further out, I draw your attention now to Slide 10, which outlines our pathway to 500,000 ounces per year, which is really our target from organic growth. And that production level is a combination of the steady state that we see for Duketon and Tropicana along with our major project at McPhillamys. At Duketon, we are excited to see our potential underground projects at Rosemont Stage 3, which we've highlighted before, and also Garden Well Main, which is at the end of our exploration decline underneath the Garden Well pit, both move into the final evaluation stages. This work is progressing our plan of seeing more life enrolling reserves in the underground, and also increasing the proportion of production that comes from underground. Look, we expect the final decision on these projects over the coming months, and if all goes to plan, we anticipate starting these growth capital projects within the current financial year. If you move to Slide 11, our life on the McPhillamys project progresses with the DFS due for completion in the coming months. The Section 10 assessment is still in its final evaluation, and while we continue to be frustrated with the delay, we remain optimistic as a positive outcome. On Slide 11, we've also highlighted some of the real value that we are seeing in McPhillamys. It's not just the pit itself, it's some of the resources and the potential resources and reserves that are sitting in the area around it. We just think this is a great region to work for this project to come to fruition. The timing of the final investment decision on McPhillamys will be dependent on financing considerations and also any further modification approvals that maybe appropriate for us to pursue for capital efficiency. Closing now on Slide 12. Overall, while the headline profitability for the first half is less than inspiring, the fact is our business was being held back by the hedge book. And if I can borrow some words of the very talented Freddie Mercury, we wanted to break free. Now with the closeout of the hedge book, we have broken free and the cash flow generating potential of our business will transition from going to do to real outcomes. We are now in a position moving forward where our strong underlying business performance will be clearly reflected in our financial results. We are very excited about this new phase we've entered as we are now very well positioned, if not perfectly positioned for a significant turnaround in profitability. As we look more at the global environment and the global financial environment where the value of gold can only be seen to be improving, what a great time to be in gold. All right. I'll hand it back to Andrea now and will answer any questions that you may have. Thank you.

Operator: Thank you. [Operator Instructions] The first question comes from Andrew Bowler of Macquarie. Please go ahead.

Andrew Bowler: Yes. Hi, Jim, Anthony, and Michael. Just a bit of an update on your growth capital expenditure guidance for this year. I remember back on the quarterly call you noted that projects are ahead of plan and you might be exceeding that over this year, just given the rate of development you're seeing at the moment.

Jim Beyer: Yes. Look, there's a couple of things at play on this one. We are still closing the loop on that question. But also, I guess the other thing that sits there will be the decision that we are approaching on Stage 3 and the Garden Well Main because we do think that the timeline that we are looking at there will be within the next couple of months for a decision to proceed, which has also got the potential to impact on growth. So we don't – we're not really seeing anything material that's impacting on our – the unit costs of our growth capital. Some of it now is likely to be driven by maintaining that speed of being ahead of plan as we highlighted before. What we're just trying to balance now is as we come to make these decisions on assuming that we proceed with Stage 3, which we've got to make that call on Rosemont and also on Garden Well Main, we've still got some balancing there or do we keep pushing on hard. So that's – we'll make that decision obviously pretty shortly and once we've done that, we'll update the market on what that impact that has on growth capital guidance for the rest of this year.

Andrew Bowler: Thanks. And I have to ask just on the royalty claim by South32 on Trops. Number one, have you got an idea of sort of how long all these processes might take? And two, I guess, is there any change in your position or any advice you've received from [indiscernible] et cetera since that announcement that you put out in early Feb?

Jim Beyer: Yes. Thanks, Andrew. Did have to ask. Look, the royalty, our position is unchanged right from what it was before. In fact, this was – this potential was identified back when we acquired or went through the process of acquiring Tropicana. And we did the due diligence at that time. We got advice on the situation, the circumstances, and we came to the conclusion that there wasn't a case for the payment of the royalty. We are still of that view and that's the position that we still hold. Anything else around that – this question? I think it's probably appropriate that we just leave it with the response that I just gave you.

Andrew Bowler: No worries. Fair enough. That's all for me. Thanks, guys.

Jim Beyer: Thanks, Andrew.

Operator: The next question comes from David Coates of Bell Potter Securities. Please go ahead.

David Coates: Thank you. Good morning, Jim. Good morning, Anthony. Thanks for the call this morning. Just – let’s cover off on a couple of my questions. But I might just go on a couple other details. Can you give us – you mentioned Tropicana might be sort of slightly slower quarter in Q3. So I just didn't quite catch the drivers. That is grade or more material movement. What was the key kind of drivers there please?

Jim Beyer: Yes. Look, it's just, I mean, what's the best way to describe it. There's probably a couple of parts here. Anglo run on a calendar financial year, and as we all know, when you get towards the end of your financial year, you push pretty hard and you pull a few levers to make sure you get things done. And there can be a little bit of a hangover for the first month or so of the following year. And then you make it up over the rest of the year. That's part of what we're seeing here, and it's just – we know that's all part of the scheduling that we see. And so bottom line is the pits – that's part of it. The other part is that there's just some scheduling in Havana pit, as I said, is still getting into its rhythm. We had – a while ago there was some geotech issues in one of the wall that was – it's a short-term issue. It's actually a wall that gets taken out in the long-term, but that just had some impact on moving the plans around. Nothing that spook us at all, it was just well managed. It just impacts on timing. So there's really two things that are driving that, both of which we expect to be out of probably by the time we get into March, as we come through March and into the next quarter.

David Coates: [Indiscernible] if you just give us an indication, Anthony, on D&A, just which way that's heading relative over the next couple of halves perhaps are relative to current levels.

Anthony Rechichi: Yes. Thanks, David. Same as last time, I guess. So we don't – although we don't typically give the D&A guidance, there's no reason at this stage to believe it. It's not going to track any differently, materially to where it currently is. So now we expect it'll keep – it'll maintain at similar levels going forward for those couple of periods that you're talking about.

David Coates: No worries. That's it for me. Thanks so much guys. Cheers.

Jim Beyer: Thanks, Dave. Don't forget when you're modeling the profit, you don't have to include the hedges anymore, just in case…

David Coates: Yes. No, they're gone.

Operator: There are no further questions at this time. I'll now hand back to Mr. Jim Beyer for closing remarks.

Jim Beyer: Thanks, Andrea. Thanks, everybody for joining us this morning. As always, if you've got any questions, please drop us a line and we'll do our best to get back to you with the answers as soon as we can. All right. Thanks very much and have a nice day.

Operator: That does conclude today’s conference. Thank you for participating, and you may now disconnect.