Earnings Transcript for SBM.AX - Q2 Fiscal Year 2021

Operator: Thank you for standing by and welcome to the St. Barbara SBM briefing on Q2 December FY21 Results. All participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Mr. Craig Jetson, CEO. Please go ahead.

Craig Jetson: Thank you very much and good morning, everybody, and thank you for joining us at St. Barbara's December Quarterly Report Briefing. On the call with me today, I have Garth Campbell-Cowan as Chief Financial Officer; Miss Val Madsen, AGM People; Mr. Evan Spencer, our Chief Operating Officer; Ms. Meryl Jones, Head of Business Development; and Mr. David Cotterell, Manager Investor Relations. I'd like to just point out on Slide 2 and encourage everybody to read through a standard disclaimer. I would also like to begin by recognizing our traditional owners of the first nation people in the lands of West St. Barbara operators in Australia, Canada, and New Guinea and pay my respects to elders of the past, the present and the emerging. So now moving to Slide 5. Four of our five commitments are related to operating safely and sustainably. Safety always empowered people and have diverse teams, stronger communities and respecting environment. As part of our commitment to the communities, we continue to support a number of programs including sponsoring the education and training of community members and partnerships with community groups. On Slide 6, Safety Always. We take a holistic approach to safety and is at forefront in everything that we do. Unfortunately, during the quarter, we had six recordable injuries, most of them extremely low severity and unfortunately, we had one lost time injury with the injured worker now returning to work. Three priority areas of focusing in the December quarter were

Operator: Thank you. [Operator Instructions] Your first question comes from Alex Barkley from Morgan Stanley. Please go ahead.

Alex Barkley: Hi, everyone. A few questions from me. Firstly, a question on the transitional ore impact recovery at Simberi, do you expect this to be a one-off for the quarter? And when do you expect those issues around the uncertainty of the senate [ph] ore to be resolved? And also what sort of outlook on oxide blend and recovery? Should we be expecting out till around FY23 before you hit your transitional FY24? Thanks.

Craig Jetson: Yes, Alex. All good questions. I think there are multi answers to each and every one of those. So we're currently going through a mine plan. So as you'd appreciate to understand the ore body even more than what we do now, we're frantically drilling to get as much ore body knowledge as we possibly can. The are high-grade material in cement, for example, and other areas of the mine still intact and we haven't been able to access those areas at this point and that will certainly come into the new mine plant. One of the things that we certainly need to make sure that we're well-versed on, is the transition from oxides to sulfides in a couple of years' time. The future drilling will certainly give us that that ore body knowledge. So, I expect to see a significant turnaround this quarter in Simberi's performance, but the oxide and sulfide transition material as the oxide runs out is becoming more and more problematic. It's certainly creating some challenges in the mine sequencing, but I'm optimistic that the technical team will get through and resolve those issues in the very short term. So as you can see, we're not changing guidance at this point, given the loss in this quarter. Because of this transition material, we'll certainly be on the lower end of guidance, but we still know we have some high-grade and we still know that we have improved reliability. So, with I guess some winds behind us, we'll certainly have a better quarter this quarter.

Alex Barkley: Okay. Beaver Dam, it looks like you're about to submit EIS and getting a response later this calendar year. At the investor day, you mentioned there might have been some flex [ph] in the timing around first coal production, maybe in FY23 or FY24. Do you know if you're any closer to knowing whether we should expect that earlier gold production? And could we get an update on that process, please?

Craig Jetson: Yes, sure. So one of the things that we've refocused in I guess the business and particularly the development of a business in Nova Scotia is the appointment of a General Manager, that's going to take the lead on that permitting, certainly interface with the first nations and all the key stakeholders to make sure that doesn't become problematic or managed accordingly and that permits are delivered on time from a sequencing-perspective and the project-perspective. So that's going very well, and leading the team are certainly engaging quite well. I think Beaver Dam, in terms of its sequence will be really subject to the permitting and I think we're working with first nations and the government. We've put it in their timeline where we think the permitting will be. In my view, that's conservative and we'll certainly try to shorten that timeline down without guarantees, of course. A lot of things have to work and as you'd know, Alex, the permitting is not really something that we can control other than work with. So, I guess the quality of our applications is extremely important, so we make sure that we answer all the questions, we have all the technical solutions in place, and one that really explains as we submit the permit. So, I'm confident that the timeline will be less than what we have in that project plan, and we'll certainly guide on that as time changes.

Alex Barkley: Yes, sure. And a last quick one at Gwalia, what kind of cost benefit did you see from that tolling of the third party ore? And where should we expect that number to sit for the remainder of the year?

Craig Jetson: There's a few parts to this and I think the real issue, with your question is, a lot of commerciality tied up in these agreements, which I'm certainly not going to talk about. But the fact of the matter is, it makes some very good cash for our business, it's above [ph] and the shareholders. It's certainly in the benefit of our business. We need to make sure we get the development of the mine sites, so Gwalia mine to a point where it's robust, it's stable, and it can deliver its maximum that it can deliver. In the meantime, while we do that development, we've got this light and capacity that we could fill and we're doing that by obviously, the tolling agreements. We've gone into an agreement with Linden, which I'm very excited about and Meryl and the team has done a great job landing that forth for the next 20 odd [ph] months and there are other opportunities as well. So while we have our mine [ph] being developed and growing for the future and being optimized, we will top the mill up with cash generating production, that helps us. If you look at it like a byproduct, for example, like a copper credit or whatever, it is good cash, reduce their overall operating costs and it's a good business to be in. But in terms of those actual numbers and commercial terms, that's in confidence at this point.

Alex Barkley: All right, no problem. Thanks, Craig. That's all the questions for me.

Craig Jetson: Thanks, Alex.

Operator: Thank you. Your next question comes from Levi Spry from J.P. Morgan. Please go ahead.

Levi Spry: Good morning, Craig and team. Happy New Year. Thanks for the call. Just on Slide 16, on your bar chart on showing the milling you made. Just talk me through critical path to delivering that extra 400,000 pounds [ph]. And then displacing the toll milling stuff later on with your own feed post 2023. Started drilling the shallows, what are the milestones along the way?

Craig Jetson: Levi, again, good questions. I wish I had a crystal ball for a lot of them. But what we're certainly focusing on is primarily getting the shallows drilled out to get a good understanding of what that opportunity would look like -- and we'll talk about that hopefully, in a lot of detail at the end of this quarter. What that's going to do is open up another significant mining area to the bottleneck around mine site. So, with some tailwinds if that comes online at some stage, that will certainly displace the tiling material. Now, the tiling material itself as I said, is commercially sound, it makes a lot of cash for us. We have the facility, it's low cost for us in particular. That's making cash for now. Longer term, I prefer to iron ore and certainly as you can see, by a drilling program, we're not only developing the shallows, but also the region and we have some really good targets to be able to do that. We still need to put into play where harbor lights, and Tower Hill fits in the scheme of production and future production. But over the next two years as we grow that strategy and understand the region and the province playing a lot more detail, we have this capacity to make some money. So if we look at the Gwalia mine for now for the next two years, is capable of X amount of tons. Then we've got the mill sitting there that's capable of Y times and there's a significant delta in between. So we're going to feel that with cash material. The third part of that is there are a lot of juniors, a lot of startups, there are a lot of other opportunity for tolling arrangements in the region, in the future years to come. So what does that look like for our mill? Fill it from our own material first, top it up, above that or whatever we can possibly do with short-term tiling arrangements. But then if we also have in a province plan to upgrade that mill and be a tolling mill for the region for years to come as their mind gets deeper and lower grade, then we have more opportunity to mill. That could be a really good business plan for long term for Gwalia. It's a long story, but quite exciting with the opportunity we have in the region and particularly some of the tolling material that's becoming available for us that's, quite good material for us to process.

Levi Spry: Craig, but so maybe just if I can remember [ph] for a little bit. So the shallows, you go drill some more and then you're going to revise the resource. Did you say at the end of the quarter?

Craig Jetson: I'm hoping to do to have enough information by the end of the quarter to do that, Levi, yes.

Levi Spry: Okay. And just in terms of the potentially expanding the plot, how do we sequence these things? We're talking about the 1.3 to 1.4 that you're talking about. Is that correct? And why you're flagging so early when we're still filling in the yellow and orange?

Craig Jetson: Yes. Again, I think the opportunity to fill the mill is now and there's some good contracts and some good opportunity out there. And Meryl and the team have certainly been proactive in that space. So I think for my mine at the moment, we're trying to get the province playing to such a mature level that we can understand what that looks like in three and five years and beyond -- not just one year and two years. And when you look at the province of what's available -- not just on air tenements, but also what's growing in the region -- we've got some significant opportunity to be the miller of choice for the region. All that is going to be coming to a strategy that we're currently building internally, with our province plan. It's way too early to call it. It's a vision if you like but it's opportunity and it's becoming real as we do more and more work on it. So we'll talk about that at the end of this quarter because we'll have more information and we'll also talk a lot more because we'll have I think we've got about eight holes to drill this quarter and we'll get the results in and be able to see what the opening up the Gwalia Shallows will actually do for us. What that does them for topping up the middle of their own material, so in the middle with their own material. And also, as you've seen in the exploration slides, there are some tags very, very close to our operation, on our own tenements that we're looking at. So optimistic, but you've got to put it together in a province plan, not a budget, which only lasts one or two years, and that's what we're pursuing at the moment.

Levi Spry: Okay, thanks. Thank you.

Operator: Thank you. Your next question comes from Matthew Seidman from Goldman Sachs. Please go ahead,

Matthew Seidman: Thanks. Morning, Craig, Happy New Year. Firstly, just wanted to follow up on the reconciliation issue that's been buried. Just wondering if you can expand on that a little further. Was that mining reconciliation or resource model reconciliation issue? Was that isolated to the stem at pit? And then I guess how does that affected thinking around the drilling density required at Simberi particularly thinking about obviously, your pretty large reserve and down and do you then have any questions around doing further infield drilling in certain areas to better understand that?

Craig Jetson: Yeah, look, I think the summit was a bit of a surprise, but not a total surprise. And if you look, I think at the way that we've technically managed the operation for a number of years given I think the life of Simberi year on year has probably been 18 month, two years for the last four or five years, so a lot of uncertainty. That's led us to obviously, the feasibility into the sulfide project. And we really have been learning over the last three or four years whether we had a project there or not. So that really, I guess, allowed us to under develop, where we'd like to be. And that's not the position we wanted to be in. So submit or body knowledge is nowhere near where it should be. So the reconciliation really bid as hard. We notice some high grade that we still in the ground and we'll go after to catch up. I think the biggest issue that we face at that operational moment is not the transitional material, I think we're getting a very good handle on what that could look like with the mind plan and the extra drilling we're doing. We're also doing some infield drilling as we speak. And we'll get the mind planned a lot more robust and reliable over this quarter, then it's potentially been for a number of years. And we'll have to do that twofold. One is you just saw the, I guess the result of not having good ore body knowledge in that one specific area, that pit. I don't have that knowledge to transfer all the way of operating to the other areas of the operation. But we're doing a significant amount of drilling looking for extending oxides, but also getting this sulfide ore body knowledge want to truly understood before we go into that program. So it really is an operation that is towards the end of life for oxides, but with some upside potential. And hopefully we can talk about that at the end of this quarter with the drilling that's going on there at the moment. But we're increasing our ore body knowledge from a sulfide perspective before we go into the sulfide projects. So we do have very clear and robust and good mine plans and strategies going forward. So it's a bit of a juggle at the moment to get things right. Now coupled with the recovery issues that we've had in the in the middle, because of the amount of sulfide material being fed to the mill herders as well, along with some reliability issues, but now that we have the right that's in theory should be no longer an issue, considering we've replaced all the built now. But the fleet reliability still becomes problematic that even in the team we are working on to resolve that problem through building brilliance. So, I think some theory will bounce back. But it has some catch up work to do before it bounces back fully as well. And that's clear.

Matthew Seidman: Thanks, Craig. And then I guess you've reiterated that you're looking to take the FID on the self watch project to the board before the end of the quarter. Are you expecting any update, I guess in terms of the financial agreement, or the mining act agreement from the PNG government before the board makes a decision on the project, or will that decision basically be predicated on, the current terms of the mining lease, the current financial agreement, etcetera. And just underpinned by, I guess the status quo?

Craig Jetson: Yeah, look, I think it'd be underpinned by the status quo there. There are some things that, the PNG government is certainly not progressing the mining act and in the mining act changes. The level of the assurance that we do have there and it doesn't not need to be I think until 2028-2029. And we'll actually we'll be into the sulfides project we paid for and will be into some serious cash before; we have to worry about a new AML. What we have been doing in the recent two weeks, for example, has been talking to local level government, the land owners, and certainly the provincial governor of where we're at, what we're doing, what we need from the government to get board across the line for the investment in country investment, and certainly what does it mean, moving forward for projects and legacy projects, in particular, to help people of the island and [indiscernible], so it's coming together quite well. We have certainly got significant support from the provincial government, the governor, and the landowners. We just now need to make sure that we're working very closely with the key people in the MRIs at the mining house. And we're not held up by PNG [ph]. So it's all going well, but it's all verbal. And we will look for future commitments in writing from the government over the next few months.

Matthew Seidman: Sure, thanks. Just switching over to the building brilliance program, you've said there in the text that you're looking to, I guess, track that or report on the cash contributions from that program in future quarterly, just wondering what we can expect there in terms of how you're going to present that that data. Are you measuring that versus say FY ‘20 cost base, FY '20 production base? How should we think about the way you present that AUD80 million to AUD120 million target and what are you tracking versus that?

Craig Jetson: Yeah, the building, the program itself has obviously been a bottom up and top down assessment, the entire business looking at value, value leakage and organic growth, and inorganic, as well, but mostly the organic growth, because that's what's really in our engine room, waiting to be developed. So what you'll see is a significant improvement in bottom line cash with performance, you will see things reported, like recovery improvements that the team is doing, and seeing at Atlantic, for example, development meters and specific KPIs that create the value, and at the back end of that will come as significant cash performance, over baseline. So we'll put that together in a bit of pitch [ph], women truly understood as we go forward, because this is part of that plan to get us to over or up towards that 500,000 ounce mark to get us to an additional AUD80 million to AUD120 million by 2023. It's a 280 months to two year project, I would like it to be less than 18 months, but we're calling it 18 month now. And it won't be a linear approach, you won't see production month on month on month on month, or quarter on quarter, I probably should say improve or increase, you'll see some headwinds, and some tire winds going to be [indiscernible] approach. But by 2023, our operations will be stabilized at a number that wasn't truly within their guidance and targets that we set out by building brilliance. But that will become more of a one page or report each quarter going forward because it's so important to creating that value in our business that the market sees how we're doing and where we're getting it from.

Matthew Seidman: Yes, sure. Thanks. And you've mentioned that you're already starting to see some of the fruits of those costs out programs, just wondering how much if any cost data is already baked into FY '21 guidance? I guess, given the, for the first half you are tracking above all in sustaining cost guidance. You're expecting a strongest second half purely on grade and volume or are you also expecting the cost production programs to have a material impact in the second half?

Craig Jetson: There is a lag between actually signing off that we've implemented in the project and seeing the cash come through the bottom line as you would expect it. There are a lot of projects and cash out projects that have already been implemented, which is great. But the ones that really move the needle and the high complex commercial agreements that we're reviewing are the ones that take the longest to deliver, but with a significant way down the road on those projects and delivering there were similar announcements hopefully at the next quarter review. We'll be going and what we're doing and what the value of those projects will deliver, as we will report, but the actual cash following through will be sometime down the track after the implementation because it takes a while for these things to kick in. So I'm very encouraged with, I guess, the building brilliant team and the organization, the way that take the cost out. These costs out are sustainable costs out, it's not just cutting costs for the sake of it, its strategic and certainly will give us a sustainable business for longer term. The grade and the times, given, I guess, the automation that we're rolling out and successfully rolling out at [indiscernible]. We're still learning. And we've seen significant improvement in drill meters per shift per day, we've now drilling and bogging across a shift that we're never used to. So all these small, incremental changes create an uplift in productivity that you'll see at the back end. But you know, with three months into this program, we've resourced it, developed a strategic plan to deliver it, announced what that and now we're starting to see some benefits of those. But that's in one quarter. So with a bit of luck, and some more tire wins, we'll certainly continue with that improvement.

Matthew Seidman: Thanks, Greg. That's all the questions from me.

Operator: Thank you. Your next question comes from Nick Herbert from Credit Suisse. Please go ahead.

Nick Herbert: Thanks. Hi, Craig and team. And just Craig, just clarify a comment made earlier regarding targeting the lower end of guidance. Was that some very specific on the issues or the challenges we've had there. Or you also expecting bottom end of range at Gwalia. And then also just on Gwalia can you just clarify, how much total treated was in the first half? And that 200,000 tons is still a target for the full year in terms of the total treatment? Thanks.

Craig Jetson: Yeah, look, I certainly can. And yes, was in the forecast. So the total treatment and the guidance of Gwalia, still remains the same. Everybody knows we had significant headwinds in the first quarter. The second quarter, we've rolled out building brilliance with certainly got back in front of the, on the horse, if you like. In the second quarter, we're building brilliance and some other initiatives to help us start to claw back to where we know we can operate, which is part of their one to two year plan for Gwalia anyway. So we've left the launch pad, it's going reasonably well. And it still got some opportunity. So look, I don't think the headwinds of the quarter one, the uplift of quarter two, and that we've already forecasted a strong second half. So that will be measured quarter on quarter. I think, and there's no change to the totaling tonnage as such. So I think the issue with Simberi is a bit more problematic. That's when I was talking about the bottom end of Gwalia guidance. That's the only one that I see that may be -- but knowing we have high grade notes, and that still got some high grade in the area. Nine we have improved programs on fleet reliability and availability. And now the [indiscernible], we should come home with a strong second half provided we get back on with grade should be, recovery should be and understand the pit a bit more, which even the team are working through. So you know, it's unfortunate, we've had the tough quarter at Simberi. It's still, you know, producing significant cash for the businesses, its operating safely. So I'm still optimistic about meeting guidance there as well.

Nick Herbert: Okay, great. Thanks for that and just are you able to disclose that the volume of top treated all that went through Gwalia in the first half or can follow up with David, later?

Craig Jetson: Follow-up with David, I think. Can -- quite many numbers; I don't have the exact numbers for the half in front of me now. But follow up with Dave that will be good.

Nick Herbert: Thanks.

Operator: Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.