Earnings Transcript for RRL.AX - Q3 Fiscal Year 2023

Operator: Good day and welcome to the Regis Resources Limited Quarterly Results Briefing. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Jim Beyer, Managing Director and CEO to begin the conference Jim, over to you.

Jim Beyer: Thanks Paulie. Good morning everyone and thanks for joining us on the Regis Resources March 2023 quarterly update, which looks like it's a very busy morning this morning with a lot of reports coming out. So thanks for joining us. Firstly, I'd note that I am joined here around the table with our CFO, Anthony Rechichi; and also with Stuart Gula our COO; along with Ben Goldbloom, Head of Investor Relations. Despite production falling below expectations, we made good progress on our long-term plans during the quarter and we achieved a significant milestone at our growth project at McPhillamys. But first on safety, our LTIFR Lost Time Injury Frequency Rate was steady and well below industry average at 0.6. Goes without saying, but anyway the health and well-being of our people will always be a priority focus for the company. And we are proud of the progress that we've made. The installation of the nine megawatt solar farm at Duketon South is on track and we expect it to be commissioned in the June quarter of this year so just a couple of months away. And we're looking forward to the first power from the farm, as it not only reduces our carbon emissions, but it also delivers direct power cost savings through the reduction of diesel fuel that's consumed currently for the DSO mills. Over the last two years, we've invested heavily in growth capital at our operations totaling nearly $350 million. This investment phase is coming to an end with a declaration of commercial production coming up at Garden Well Underground and Havana pit in the June quarter. And with this, we start the transition from investment to cash bill. For the March quarter overall, we produce just under 104,000 ounces of gold at an all-in sustaining of $1,827 Aussie 1.47 an ounce. Our growth capital was $73.5 million with the lower than expected production in March, we adjusted and tightened our FY '23 full year production and increased our AISC guidance to $1,795 to $1,845 an ounce as was released back on the 17th of April. The June quarter has seen rates - production rates at Duketon South return to plan rates, while at Duketon North we're seeing the wet weather having an ongoing impact this month and Stuart will make some comment on that a little bit later. Notwithstanding the impact at Duketon North, we are expecting - a lifting gold production and gas generation to finish off this financial year. I'll now hand over to Stuart Gula, who will provide some more information on the operational performance. Thanks Stuart.

Stuart Gula: Thanks, Jim and good morning everyone. Looking more closely at the operations Duketon gold production was lower at approximately 77,000 ounces at an AISC at $1,919 an ounce, and Tropicana was also lower at just over 27,000 ounces at an AISC of $1,458. Duketon North had lower production at just under 15,000 ounces at $2,948 an ounce due to wet weather events limiting overall material movements. This was offset by decreasing strip ratios as geotechnical issues from the December quarter were addressed, enabling better access to all. Access to all will continue to improve in the June quarter, thereby improving its cash margins. However, we do know that wet weather and its impacts, has continued into April. And it's largely affecting mining at our Blenheim Pit which is our single largest high grade source of ounces of DNO. With DNO in the twilight of its current life, we like the previous flexibility to mine from alternative sources in these types of events. However, we see this as a timing issue only and don't currently see any further impact on our guidance. The situation will continue to be monitored though. We acknowledge the thin margins realized at Duketon North this year, and whilst the opportunity for potential exploration success remains along with resource to reserve conversion. A number of scenarios are being evaluated in relation to the value contribution that DNO makes to the Duketon life of mine. Duketon South production was also lower at just under 63,000 ounces at $1,673 an ounce AISC. As the processing plant experience maintenance events limiting throughput and ramp up of more delivery from the Garden Well Underground was slower than we expected. Garden Well Underground is a new mine. And we've planned for issues associated with ground conditions and dewatering. But ultimately what we provided for and what manifested in the field differed. However, the teams have successfully learned how to deal with and overcome the varying conditions that we've experienced. And we're now moving forward at more acceptable levels of performance in line of their expectations. Pleasingly Garden Well South underground delivered greater than 40,000 tonnes in March. And as this production rate continues into the June quarter, we will declare commercial production at the mine. The production maintenance issues experienced the DSO in the March quarter have since been rectified. And we are seeing a much improved performance in the June quarter. Across the Tropicana - Tropicana delivered a lower quarter and slightly more than 27,000 ounces with an AISC $1,458 as stated previously. The shortfall in gold production was in part driven from underground mines as they experienced issues with frozen stopes and result in lower ore production for the period. Open pit mining was also significantly lower as it was impacted by - lower fleet availability and productivity issues. The underground production issues just have been rectified. And we're expecting improved performance in the June quarter. We expect to declare commercial production at the Havana open pit as we see increased ore to mill feed and associated gold production. That's it from me and I'll now hand over to Anthony for the financials.

Anthony Rechichi: Thanks, Stuart. Onto the financials now for the quarter, we sold just over 105,000 ounces of gold at an average price of $2,477 an ounce, which includes the effect of the hedges. This delivered $261 million of gold sales, which included some of the record - some record spot prices for the company. Operating cash flows remained strong. Overall, we generated a total of $99 million in operating cash flows again, including those hedges, with approximately $58 million from Duketon and $41 million coming from Tropicana. Talking on an accrual basis, as we see in Table 1 of the quarterly report, mine site capital expenditure during the quarter was $93 million. In addition, exploration and McPhillamys expenditure for the quarter was $18 million. Growth capital was higher this quarter at $74 million, due to the ongoing development of the Garden Well Underground and the Havana cutback, and this time also an increase in pre-production activity at DSOs Ben Hur mine. With the Garden Well Underground and Havana open pit transitioning to commercial production in the June quarter. Growth CapEx reduces accordingly, with cost then reporting to all-in sustaining costs for those mining areas. I'll now point you to Figure 4 of the quarterly report, which outlines the quarter's cash flows. Cash and bullion closed at $204 million at 31 March. You can see that operating cash flows, cash flows were $128 million. Partially offsetting, this was $29 million in hedge losses owing to the delivery of a further 25,000 ounces into our hedging program. You can see that over to the right of the waterfall chart where the hedge losses come in. Furthermore, we spent $89 million on CapEx $15 million on exploration and McPhillamys and corporate and finance costs were $9 million in the quarter. We also received a significant cash tax refund as flagged in the December quarterly report in March we received a $67 million tax refund relating to the loss carryback tax offset arrangements. In closing, I know that increasing gold production in the June quarter should provide an improvement in cash generation to finish off the year. Thank you and back to you, Jim.

Jim Beyer: Thanks, Anthony. Look on the growth front our projects have made good progress during the quarter. As you've heard Garden Well Main Underground and I'll draw your attention to sorry to good progress at Garden Well South Underground. At Garden Well Main Underground I draw your attention to Figure 5 in the release which shows progress of the decline and the initial target zone. The underground exploration decline - at that decline, we've now completed nearly 550 metres to-date, with the first diamond drill cores being delivered to the surface. And on that we're very excited to see some fine grained visible gold observed in quartz veins hosted by altered basalt, which means we're seeing what we hope to see and where we'd hope to see it. So it's still early days, but - it's very exciting. We're expecting assay results in this current quarter. And we're also on track for the decline in the diamond drilling to be completed by the end of this calendar year. We expect that when we release our resource and reserve statement for 2023 in June sometime along with the exploration update, we'll be in a position to provide some more information on the progress of this work. But it's safe to say that we remain very excited about the potential growth of this Garden Well Underground area and are expecting this to deliver some significant value for the company. The underground story and storyline at Tropicana is very similar to Duketon. Continuity of the underground is progressing as planned, with reserves actually outpacing depletion. So in the last 12 months, we replaced depletion and we added another 50,000 ounces that's at 100% in calendar as in FY '22, which was announced earlier this year. And basically it's great to see exactly as we were anticipating Tropicana underground is replacing its depletion and adding a little bit of life as well, which is very pleasing to see. At McPhillamys, we achieved a major project, a major approvals milestone with a New South Wales Independent Planning Commission, giving the final state approval for the project. This is recognition of the substantial amount of work at the McPhillamys team and New South Wales have done in working with all of the stakeholders to make this an approvable and a viable project. In relation to completing the feasibility study and taking this project to FID, we still have a bit of work to do. With a multitude of modifications such as layout changes, and arrangements on the site that occurred during the planning approval space of three and a bit years. We've seen - we have a need to revisit some of the work done previously before finalizing the cost and schedule. A good time consuming example of this is the geotech drilling, we wanted to undertake on site, because some of the major equipment has been moved around crushes, the high pressure rollers have been moved, we need to do the geotech drilling before we can finalize the Class III estimation. Now this work is currently on hold while we close out the Section 10 application that's on the on the mining site. I've mentioned this Section 10 previously, and we are still confident it will be resolved. And now that the IPC decision is clear. We think this time is fast approaching. We see this completion of the feasibility study along with confirmation of the funding strategy, resulting in a final investment decision targeted for late in the March quarter of FY '24. Overall, it's very exciting moving into the next phase for all involved with McPhillamys and we look forward to progressing, our project that has significant potential value for Regis. So on wrapping up, what the March quarter brought us was despite the lower gold production, it was another quarter of solid operating cash flows and good progress on our long-term plans. We saw a significant milestone at McPhillamys been delivered. And we've got big milestones to come now at Garden Well South Underground, and the Havana open pit. While cash generation has been lower than expected year-to-date with gold production set to increase and growth CapEx starting to drop away in the June quarter. We're expecting cash generation to finish higher as we close out the financial year. So as we now - transition the business to the cash building phase at our current producing assets and we're making some very exciting progress with our growth projects, it certainly is an exciting time at Regis. Okay, so I'll hand it back to you, Paulie and we'll take any questions.

Operator: Thank you. [Operator Instructions] And your first question comes from the line of [Matthew Friedman] from MSC Financial. Your line is open.

Unidentified Analyst: Sure, thanks hi Jim and team.

Jim Beyer: Hi Matt.

Unidentified Analyst: First question is on the comment that you got in the report around evaluating scenarios for Duketon North. Just wondering if you can go into maybe a little bit more detail on exactly what's been contemplated there. Obviously, the result in the March quarter, not ideal given not particularly broad cash margin generated there and so is it really around I guess the economic I guess, yes the economics of future reserves? And I guess particularly noting that you've got a decent tail of low grade stockpiles there currently in the mine plan would that material still be economic currently?

Jim Beyer: Yes. Okay. So it's a good question. And so look the situation at Duketon North and I think, as you pointed out in your question. Our plans have been to finish the open pit mining and finish the direct run at mine fee phase of Duketon North and then run off into the low grade stockpiles that we've got, and we have some substantial stockpiles there some pretty old stockpiles. Basically, with this now, we also have some opportunity in the area. We've been talking about the potential for commonwealth and a couple of other potential small deposits. The price and the cost movements over the last nine months or so, and the inflationary impacts, we're really taking a careful look at what those plans are like at the moment. And whether they still make as much sense as they did 12 months ago, when or and before that, when we were planning on running these low grade stockpiles down, there was always a view that the low grade stockpiles down. There was always the view that the low grade stockpiles are really not going to make too much. They had the potential to make money. They certainly weren't going to make a profit, but they would make cash. As we're looking now and flowing through some of the inflationary costs, we're seeing that there's, we've got to make sure and do a lot more work to make sure we're confident that that's the case. And if it isn't, then adjust our strategy accordingly. So really, there's no new material to be in the equation at Duketon North. What we're doing is we're, wanting to work through and make sure that the plans that we had in the previous cost environment of 12 months ago, is still applicable. And if it isn't, then how would be - should we be cutting the cost at Duketon North. And we're working through that at the moment, and yes will obviously have a clearer picture on that we'll update the market.

Unidentified Analyst: Yes, thanks that's pretty clear, Jim was wondering - go ahead.

Jim Beyer: Sorry, sorry, Matthew thank you. Yes, the other part of your question was talking about the costs at Duketon North for the quarter, and they are high. And part of the reason why they're high is we've still been, while the total material movement is starting to drop away, which is what we're anticipating. As you come to the end of the mine life and these pits are all pretty small. So you're unlike to cut snake for a couple of quarters to mine the waste and then you produce the ore. Last quarter, our production was lower, and that really dragged our dragged our all-in sustaining costs up. So we anticipate that if things run to plan, and we're able to get on top of the wet weather issues in the Blenheim Pit, which we are anticipating that we'll see the all-in sustaining cost drop there, because production will be higher. And also, the waste movement will be lower.

Unidentified Analyst: Yes, that makes sense. Thanks for that. Yes, so just in terms of what would potentially be considered hypothetically, I mean if you ended up with a scenario, where you determined that the cash margins that could be generated from the stockpiles aren't particularly attractive. Would you then potentially look at putting the Duketon North infrastructure on care and maintenance pending successful further exploration, discovery? I mean, is that one hypothetical outcome?

Jim Beyer: Yes, that's one end of the spectrum of options that we look at to show.

Unidentified Analyst: Okay. And the other hand end?

Jim Beyer: No point running a business, if it's losing money, but that's what we're working on at the moment its understanding. The options that we've got with some of the deposits that we've been drilling and working on, it's understanding, and they working with the lower grade that we've got, as the lower grade is still as attractive as it looked. With the continuing movement in some of these prices, they can be quite sensitive. So we're, just wanting to make sure we don't undertake something that actually loses his cash.

Unidentified Analyst: Yes, no, that makes perfect sense. Thank you for that. Second question around Garden Well South Underground and in particular, I think Anthony touched on the point that that will be entering commercial production in the June quarter? Obviously, it was a pretty strong quarter from an all-in sustaining cost perspective at Duketon South and part of that was the mining cost $38 million thereabouts during the quarter. Just wondering what the quarterly impact to all-in sustaining costs in rough terms will be from Garden Well South entering commercial production?

Jim Beyer: Yes, well it will be a bit of a mixed result there. I mean for a start, the quarter the answers produced from underground Garden Well, we'll be obviously a lot more than they have been because we hit steady state stoping production. And actually the grades coming out of some of stopes are pretty good in this on the levels that they're in. So that would pull down the all-in sustaining costs. But of course, as you move into commercial production, the growth capital stops being defined as growth capital and starts being defined as sustaining capital. Now there'll be some elements of the growth capital, like specific pump stations and some ventilation infrastructure that's a little bit more, what's the right word sporadic, that will drop out and go in searches. But the decline and a lot of the development, which was previously classified as growth, capital will then shift across and, now being included in AISC. So it will be a bit of a shift from one area to the other, but all of that will now have cost classification. But all of that will now be divided over more ounces so overall, better outcome.

Unidentified Analyst: So in broad terms, you'd expect?

Jim Beyer: From a cash…

Unidentified Analyst: Positive impact all-in sustaining costs from, the commercial production from Garden Well South?

Jim Beyer: Well overall it will be a positive impact on cash flow. Because the similar cost expenditure, whether it's classified as growth or whether it's classified as all-in sustaining the sort of the cost of running the business is roughly the same. It's just what buckets it's going in. But overall gold production is up.

Unidentified Analyst: Yes, that's pretty good. Okay. That's helpful, that's helpful. Thanks Jim.

Jim Beyer: And that's actually, that's actually a similar scenario to what would see - what we expect to see at Tropicana with the Havana pit as well.

Unidentified Analyst: Okay, thank you that's helpful. Thank you very much, Jim.

Operator: Your next question comes from the line of Alexander Papaioanou from Citi. Your line is open.

Alexander Papaioanou: Hi, Jim and team on McPhillamys I appreciate that former number will come with the feasibility study. But I want to hear your thoughts on what OpEx costs might look like, particularly given labor availability in New South Wales might obvious tighter than it’s in WA? Thanks.

Jim Beyer: Yes, look it's still early days. Well it's, not early days, that's probably not the right way to describe it. I think - there's, are we seeing pressures on what we anticipate the operating costs to be relative to what we anticipated it would be a couple of years ago, and back in 2017? Yes, clearly, we are. I think, we haven't updated and we won't be updating any specific or guidance around AISC until we've completed that work. But as a sort of a general question on your, are we seeing the same pressure on labor costs as we are in Western Australia. Look, I think for us, it's a little bit early at this stage to say, whether we're seeing that explicitly, because we just we're not out there trying to recruit our mining team, or a contract is not giving us a feedback on it. So I couldn't answer that one specifically. I mean, I think from overall impacts on what the information we're getting at the moment on how the construction costs are likely to be there's certainly been a little bit of an easing of contracted demand, which means that their margins are becoming a little bit tighter. So that element we'll see flow through we're anticipating seeing flowing through into our final CapEx number. But in terms of the impacts on the operating costs, as I said, it's going to be more than what it was back in 2017. The last time we put some detailed numbers out how much more it's still, we'll see a lot of it depends on the competitiveness as well as the contractor landscape in on the East Coast, which we think may actually be better than we have experienced in the last couple of years.

Alexander Papaioanou: Yes, understood, that's it from me. Thanks.

Operator: [Operator Instructions] And your next question comes from the line of Matt Greene from Credit Suisse. Your line is open.

Matt Greene: Hi guys, good morning. Look, just follow-on from accelerate there, just want to confirm once you get the Section 10 in place, from a permitting perspective, there's no other potential hurdles or appeals or anything that could potentially delay timeline FID?

Jim Beyer: Not the way anticipate, but that's not to say that look that I mean, once the Section 10s cleared on that basis, we then get on and get out in the field. And we've got a few months of geotech drilling and assessment. Once when we - in the event that we have final investment decision, that's go, then there's, I think there's around about three months' worth of additional permits that we'll need to get, but they tend to be more - perfunctory, just permits that you have to get, like a permit to realign the road, things that we haven't been able to get until we got IPC approval. And frankly, with some government departments, they don't engage with you until you've committed to the project. But in terms of anything, that could be a major stop for us. There's nothing in the formal process, whether somebody, comes out in the field, I don't know that we're not expecting that. So from here we - once we've got the Section 10, we see that everything's pretty well in our control. But there's always you can't be 100% certain.

Matt Greene: Yes, no that's great. Thanks, Jim. And then just secondly on Garden Well South some of the, I guess ramp up challenges, you had there, you've highlighting ground conditions. I was just wondering if you could elaborate, please on, was this quite an isolated event? And I guess, what have you done to sort of help rectify some of those challenges you went?

Jim Beyer: Look, I guess the thing that took us we'd always plan for learning what the ground conditions were like, and making provisions in our times and schedules for difficult grounds, structures, those sorts of things, as we just get used to what ground spot regime is required. What kind of -what we ended up finding was that, particularly in the upper areas, we started to come across a number of bugs, which are like, voids underground. Some of them can be full of water, some of them might be the size of a car, some of them might be a little bit bigger, some of them would be the size of a football. You just get these bugs full of crystals and geologically interesting, but geo-technically a pain in the backside. And if it's in the sidewall, for example you can figure out how to manage it. But if it's in the backs or if it's in the floor, you've got to come up with the right protocols, because you don't want - to be driving over a bug and potentially disappearing down into it in an extreme case. So it just took a while for us to develop our protocols around that. And it means that a, certain heading that might have had 100 metres a month in it or something like that, we had to slow that down in the early stages. What we've found is that, as we've progressed with depth, they've become less in number. So that's making it a little bit easier, less in size. But that's not to say that they've gone away, so but the pleasing thing is that Stuart and the team have problem side at work their protocols are out. So instead of sort of frankly, coming across and sitting there scratching their heads for a couple of days trying to figure out how to safely manage it and work on ideas. They've now got their protocols as how to deal with that. So and move much more quickly through it. Anything you wanted to add to that Stuart?

Stuart Gula: No, no, I mean, I think it's not conditions that are unusual. It's just everyone - a lot of the team have done it in other places, this is the first time that teams actually got together and all done together at Garden Well South and had to work it out. So I wish had.

Jim Beyer: And the other was water. We had - we've always known the mine was going to be quite wet. We put in provisions. We've got in quite large pump stations, as I think we've put photos in some of the quarterlies in the past, but sometimes the water doesn't come out exactly where you expect it to be. And so, you've got foot holes in different directions and allow time for the water to drain and we understand that a lot better now. So, we're now putting out the watering holes, not where we think they should go, but where we know they should go, because of the experience on the level above or two levels above.

Matt Greene: Okay no, that's helpful. Thanks. Sorry, go ahead.

Jim Beyer: No, that's the treatment.

Matt Greene: Yes, no that's great. It sounds like this is quite as an isolated circumstance in the upper levels, it's not really sort of changing your view on, I guess scheduling or spoke design on the [indiscernible] basis you still quite happy as where that's sits?

Jim Beyer: Well, I'd much rather wasn't there at all. And every mine is different, I guess that's the point we're probably trying to make is that every mine is different. And when you start up, you get these events, these situations that you might have thought a bit about and planned for. And sometimes it goes exactly the way you think it's going to go. And other times, you might have over planned for it, or you might have under planned. And our point is that, in this case is we're only just getting into the - we're getting into the production areas, and we're producing it. And now, and it just takes a while to understand how you get into a rhythm. If a mine is been going for three or four, five - for years, you understand how to deal with the issues and everybody's sort of well drilled on it, because every mine is different and if you're lucky, you go off without a hitch. I've never heard of that happening, but sometimes, I guess it must be. But they just got to, as much as we learned some lessons from Rosemont. And we've - in that there is basically very little provision for this sort of thing. And we copped it pretty hard when we were starting that up. So we made a lot more careful thinking about how we plan around these events. If we've hadn't done it, it would have been much more significant of an impact than it was, but it was still - it was still there. But basically, we've learned, we've moved on and the issues are still there. Water is still there, and the bugs are still there. We just - the bugs are disappearing a bit more with depth or becoming less of a scale size issue. But the issues are still there we just know how to deal with them more efficiently now.

Matt Greene: Yes. Okay. That's great thanks for the color. That's all from me, thanks.

Operator: There are no further questions at this time. I'd like to turn the call back over to Jim for closing remarks.

Jim Beyer: All right, thanks Paulie, thanks, everybody. Appreciate you joining us and thanks for the questions. And if anybody has any follow-up questions, please give us a call. Get in contact through Ben and otherwise, have a good day. Thanks very much.

Operator: This concludes today's conference call. You may now disconnect.