Gold Road Resources Ltd
ASX:GOR
Earnings Call Analysis
Q3-2023 Analysis
Gold Road Resources Ltd
The company has thrived in a robust gold price environment, contributing to record revenue and free cash flow for the recent quarter. With a sharp focus on the Australian market, continuous safe operation, and efficient management of their Gruyere production site, which saw no lost time injuries, they achieved a record-high quarterly gold production of 88,668 ounces. The company's financial health is solid, boasting a net cash position of $209 million by quarter-end and carrying no debt.
The company's gold production aligns with their expectations and they foresee no change to the guidance for the calendar year 2023. The robust cash flow in the first half of 2023 has allowed them to continue rewarding shareholders with a fully franked interim dividend. Additionally, they maintain a strategic holding in Gruyere mining, signifying confidence in their investments. Their ongoing projects, such as the Pebble Crusher, are anticipated to enhance operations further.
Gold Road is leveraging its diverse and prospective exploration tenements across Australia, betting on the future by aiming to kick off mining at satellite deposits by 2026. The company has completed drilling at Golden Highway and is actively testing other prospects and anomalies in the Yamarna Southern Project area, which shows promise for the long-term strategy of discovering new mineable areas. In addition, explorations in Pilbara and Northeast Queensland bolster the company's pipeline for future growth.
A strong gold price across the quarter has been a major factor in generating record numbers, with $131 million earned from gold sales. These sales drove an operating cash flow of $94 million, culminating in $52 million of free cash flow for the quarter. The company's financial position is further reinforced with roughly $5 million on hand from unsold bullion and dore.
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Thank you for standing by, and welcome to the Gold Road Resources September quarter results call. [Operator Instructions]
I would now like to hand the conference over to Mr. Duncan Hughes, General Manager, Corporate Development and Investor Relations. Please go ahead.
Thank you, Harmony. Welcome, everyone, to our September quarterly analyst call. The quarter continued to see a strong Aussie gold price paid for our fully unhedged gold sales. This cost resulted in record revenue, leading to record free cash flow for the quarter.
In the presentation today, we will be referring to the quarterly results slides that can be viewed on the live webcast, our website or the ASX release. Those on the webcast and on the phone are able to submit a question for us to address at the end of this call.
On the call today, we have Duncan Gibbs, Managing Director and CEO; John Mullumby, our Chief Financial Officer; and Andrew Tyrrell, our GM of Discovery. Also on the call, we have Keely Woodward, our Joint Company Secretary.
Moving to Slide 3 now for a summary of the September quarterly results. Gruyere continues to operate safely and reported no lost time injuries during the quarter. Gruyere is now over 900 days LTI-free. This is a great result from the operation. Gold Road's 12-month LTI frequency rate is just over 2%, with no LTIs reported during the quarter. The September quarter saw gold production from Gruyere at a record high of 88,668 ounces produced, and this was an attributable all-in sustaining cost of AUD 16.82 per ounce for the quarter. As I said earlier, the strong spot price for gold and the increased gold sales contributed to record free cash flow generated during the quarter of just shy of $52 million. We closed the quarter with a very healthy net cash position of $209 million and, of course, no debt was drawn.
Quarterly gold production was in line with our expectations and calendar year 2023 guidance remains unchanged. Strong cash flow generation for the first half of 2023 show us continue returning to shareholders in the form of a fully franked interim dividend, and this was paid just after the quarter close on the 5th of October.
Our strategic investments continue to hold good value and following a placement by the Gruyere mining in early October, we returned our strategic shareholding in that company to 19.9%.
We continue to explore across our exploration portfolio throughout Australia, and we're currently drilling at Mallina and Yamarna. The strategy remains unchanged here. We are looking for mine, too.
I'll now hand over to Duncan Gibbs to take you through the quarterly results in a little more detail.
Thanks, Duncan, and thanks to everybody who's joining us on the call today. As we look at the quarter in a little more detail, gold production for the quarter is essentially in line with our expectations, improved quarter-on-quarter and certainly benefited from improved mining productivity as well as really ongoing consistent performance of the processing plant.
From the last quarter, we had an intense focus on drilling and blasting as well as the mobilization of new and additional mining fleet during the quarter and the quantities of ore and waste move progressively improved and increased during the quarter. We expect a further increase in the total mining volumes into the December quarter and then level out with more consistent production at higher levels next year.
We've seen a good response from MACA and they own a piece in addressing the issues that we spoke to at the June quarterly, with improved operating practices as well as the mobilization of additional fleet. The average mine grade for the quarter at 1.22 grams, a little lower quarter-on-quarter, reflecting the areas available for mining. The ore quantities mined in the quarter increased to about 2.2 million tonnes from 2 million tonnes in the previous quarter, which resulted in some lower grade processing of stockpiles and in part is to assist us with throughput through the processing plant, thus result in the mill grade being slightly lower than the mine grade.
The ore tonnes milled are approximately 2.4 million tonnes for the plant or, on an annualized basis, we're sitting currently at about 9.6 million tonnes and reflects the operating practices, good plan availability and utilization as well as some benefits from the blending of softer oxide ore, which came from both the Stage 4 cutback and from high grade stockpiles.
The Pilbara crusher upgrade, which is an important step in further rate increases to the plant throughput remains on track for completion later this year. A recovery within the processing plant continues to be higher and increased to 93% during the quarter and reflects, at least in part, improved operating practices and reliability of the plant, some enhancements we've done to the reliability of the gravity circuit and a number of other sort of smaller improvements that have helped reduce recovery losses.
The all-in sustaining costs for the quarter were slightly higher quarter-on-quarter at $16.82 per ounce, largely attributed to the increased mining volumes, noncash adjustments to ore stockpiles and golden circuit inventory and increasing sustaining capital expenditure which related to both the commencement of the tailings and storage raise and the ongoing Pebble Crusher project. These variances, of course, were partly offset by the higher quarter-on-quarter gold production. Revenue benefit from the strong production, of course, as well as the continuing gold price and, of course, all of our sales are in page.
Our quarterly corporate all-in cost, so that's basically all cost divided by the ounces, sat at $19.59 per ounce and continues to be, like we suspect, is one of the lowest in the sector. And of course, it's also consistent with high cash generation that we are making.
No changes to guidance. So we're maintaining the previous update there. The mobilization of new drills and additional fleet will occur into 2024, and we've got some additional trucks being mobilized in this quarter. Truck is really not a constraint to mining quantities at the moment, but we will need some more trucks to maintain the haulage distance as they increase into the future. Accordingly, the rate of waste and ore mining will continue to increase in the second half of this year and into next year, in line with the 7-stage mining plan that Gruyere out to 2032.
As noted in the quarterly, the lifeline ratio now sits at about 4.5:1, with that increase relative to where Gruyere was at financial investment decision, and we've increased the reserve, of course, by about 1 million ounces since the project was originally committed with the new 7-stage pit design. We've also got high waste movement in the first half of the year. We've got a bit of catch-up to do with what we're seeing in the productivity. We're well on track to be able to do that.
As previously guided, the sustaining CapEx or the expenditure increases in the second half of the year. And as I've mentioned, that really just reflects the increase in capitalized stripping rates to Pebble Crusher capital project and the TSF raise.
We'll move on to exploration, and I'll hand over to Andrew to give you a short out on where we are there.
Gold Road continues to hold a diverse and prospective portfolio of exploration tenements throughout Australia, including at Yamarna, in the Pilbara and in Northeast Queensland. Drilling is now complete at the Golden Highway is feasibility studies have commenced to support mining of these satellite deposits by 2026.
At Yamarna, we have 3 drill rigs operating in the Southern Project area of Yamarna. Rig is testing previously underexploited strategically along strike south of Gruyere at our Hopwood and Jazz prospects. The RC and Diamond rig are following up with bedrock testing of defined anomalies at our Galloway prospect as well as targets at Seta and [indiscernible] South.
At the Mallina project and the Pilbara, the maiden RC drilling program over the Western package was completed. Drilling has an intersected encouraging alteration with some gold mineralization intersected as well. This includes 3 meters at 8.4 grams per tonne and 2 meters at 3.25 grams per tonne, a good result for our first pass program in that area. Additional follow-up drilling has just recently commenced as well and we'll follow up on those results.
On-ground operation activities continued at Greenvale, with a focus on surface mapping and soil and rock chip geochemistry. Rock sensing and geophysical surveys were completed, and these will assist in delineating our priority target pipeline for follow-up drill testing now scheduled for 2024. Agreements were finalized the copper and other base metal projects we held, with Gold Road retaining free to exploration interests.
I will now hand over to John Mullumby to take you through our quarterly financial results.
Thanks, Andrew. So as Duncan mentioned earlier, it was a strong quarter production-wise. This, combined with also a strong gold price environment across the quarter, to generate record revenue of $131 million from gold sales across the quarter and also generated a record $94 million of operating cash flow from Gruyere. This, in turn, generated [ $52 million ] of free cash flow and we finished the quarter with $5 million roughly on hand on unsold billion and dore as well.
Now on the slide -- on the screen, currently, you should be seeing the usual cash flow waterfall slide which summarizes the movements in cash and equivalents across the quarter. Not a great deal to talk to here, it was a very steady state BAU quarter for us of harvesting cash. So I'll just close off this slide by saying that we closed the quarter out at September 30 with a very healthy $209 million of cash and equivalents on hand, and we remain debt-free and our corporate revolving facility. $150 million is sitting there ready to be utilized at any time.
Subsequent to the quarter end, a couple of things I'll bring to your attention, firstly, dividend. We returned $11 million to shareholders via a fully franked dividend, which is a continuation of our consistent dividend payment policy over the last several years. And secondly, our investments they be part of our balance sheet. They were valued at $345 million at the end of the quarter. But soon afterwards, we subscribed for 59.7 million in shares in De Grey at $1.05 per share, and this return our position integrated to 19.9%.
Assuming De Grey shareholders approved second tranche of this placement on November 9, Gold Road will then hold 268 million shares in De Grey. And lastly, as of market close last night, that investment in grade was valued at $4760 million -- sorry, $440 million at the closing price of $1.19.
Thanks. That's it for me, and I'll hand back to Duncan Hughes.
Thanks, John. So that brings our results presentation to a close. And now I'll be very happy to answer any questions you may have. So I'll hand the call back to Harmony to see if there's any questions on the phones.
[Operator Instructions] Your third question comes from Daniel Morgan from Barrenjoey.
Just firstly, the Pebble Crusher, which is due to be commissioned at the end of this year, can you just remind us of what that's expected to do to milling volumes, noting that you're running at 9.6 million tonnes this quarter?
Yes. I mean, the proof is in the pudding when we turn it on, I guess we are probably doing a little bit better than we expected from the 2 pebble crushers we had in operation at the moment. We're operating them basically both at the same time whenever we can. So next year, what it helps us do is basically get the pebbles out the mill and then optimize the mill. So it's a kind of a mill debottlenecking surface opportunity. We've always spoken to a target of getting up to 10 million tonnes. I think that will take a little bit of time and as well as the pebble crusher, there's ongoing reliability improvements in the circuit that will be part of the contributing factor there.
Staying with mill, just processing recoveries are a little bit higher. Was that the benefit of the drawdown of gold in the circuits? Or is there something else you're working on and we should be thinking about?
Look, I think we're starting to see a reasonably consistent pattern at our recoveries. I mean, it's real, it's not an inventory adjustment kind of things. There's a number of contributing factors to that. I guess for the ore body ones, there is a slight correlation of higher grade, higher recovery. There's also slightly better recovery from oxide material. If I can take you back to the test worker feasibility study, that was predicting, I think, a 91.7% recovery. So we're starting to see it better than that. I think the technical factors on the site that is helping that more consistent operations reduced sort of unplanned losses, more consistent, reliable performance of the cavity circuit. The penalties have done some good work to enhance that. We've also done some slight improvements around solution losses. So there's less gold coming out with the water out [indiscernible].
And then probably the other thing we've got is really what is industry-leading technology where we do on-stream analysis of the carbon. That lets us do a lot tighter control of the leaching circuit and most operations do. So I think it's really just a collection of all those factors that are giving us some better recovery than what was modeled out of test work out of the original feasibility study.
And just last question. I mean there's a few capital items this year like the pebble crusher, et cetera. Just starting on mind that 2024, is there any large capital items that you'd call out? Or is capital going to be a little bit lower next year, do you think?
Look, the TSF continues in. That should get finished around about March, April. There's a lot of other kind of project capital. Obviously, waste volumes, as we've been flagging continue to step up next year with fundamentally what's another mining fleet operating at Gruyere.
Your next question comes from Alex Barkley from RBC.
Just looking at all the exploration you've done at Yamarna, just wondering when we might see some of those assays coming back and maybe circle back and do a little bit more diamond drilling perhaps. Just wondering the time line of the exploration there when we might see results and when does that campaign sort of conclude.
The expression at Yamarna, we're progressing through a whole bunch of prospects currently, actively drill testing those now. Obviously, results will continue to come in, but we're still obviously waiting on those assay results from the lab. We expect the drilling to continue through until the end of the year and then looking at next year's plans for further drilling at more of our, I guess, advanced prospects as well. So we'll just continue to drill and release results as they come in.
And just another quick one on time lines. Potential Golden Highway mine, I think you mentioned maybe production 2026. When can we expect a bit more study details and when might construction beyond that?
Well, Golden Highway, basically, that Andrew didn't speak to as we ran all the drill programs on that for the first half of the year. So that's now well drilled off. All those results are in resource modeling kind of in progress. That very much just leads into feasibility study kind of level of work coming out with detailed pit designs and the like with Golden Highway. We also need to work through the normal sort of permitting and what have you for all of that. Current plan is Golden Highway will be part of the also mix for Gruyere from about 2026, probably mined over 2 to 3 years, something like that. Not really construction projects, we'll need a few roads and things like that. But it's only 25 kilometers away from Gruyere. So it's not like we're building another mine out there. It's simply a series of satellite pits that across to Gruyere.
Okay. Should we expect any sort of related studies? Or will we just sort of find out a bit closer to the date when it's all getting built?
Look, I think it will just, how can I put it, it augments for a year. I think progressive updates will come through as we update on normal annual guidance and that kind of stuff. Of course, we put out annual guidance in the first calendar quarter of each year.
Your next question comes from Al Harvey from JPMorgan.
Just wondering with the comment in the note on the exploration side of things. So more drilling at Gilmore ongoing, currently [ 300,000 ] ounce resource. Just wondering if you can just refresh my memory, like that's progressing towards looking to progress that towards mine development. Just wondering if that's likely to go through the JV in time or if you're planning to kind of roll that in with further exploration success on some of those other Southern Project area prospects.
Yes. Look, at this stage, I mean, we'll keep either of those options open. We're still addressing drilling some quite interesting targets, which Andrew spoke to, where the results of those are coming over the next also are all probably well into next year by the time it actually gets put back from the assay level. But at Gilmore, we are looking at progressing that so it is shovel ready, and that's likely to be what we budget for the next year. We're still working up all of the detail on there. And that's to give us some optionality on alternative or supply to Gruyere but, at the same time, if we discovered a significant resource down at Yamarna. We've still got it on hand for that.
Yes, sure. And maybe just another one, the Mallina drilling looks quite interesting. I think that the alteration characteristics are pretty similar to other mineralization in the region. I assume that's a decent comp with Hemi. I was just wanting to get a sense of how much traction interaction there is with the Mallina geos and the De Grey team, if there's any cooperation there.
Look, I mean, obviously, we're a shareholder in De Grey. I mean, we know a lot of the geos at a personal level. Some of them used to work for us here or worked with me in the past in other companies. So there's plenty of -- the industry, I guess, in WA is pretty. But De Grey, I think give us any special insights into their geology or what have you.
Your next question comes from Mitch Ryan from Jefferies.
Quick question just on as the pebble crusher comes online, will the plan be taken down to tie that in? Should we expect any impact to production in the fourth quarter?
Look, most of the major signs are actually done in the third quarter. And really the risk of any disruptions to the plant as a result of the pebble crusher or delays from the pebble crusher are very low. So we are not matching or expecting any kind of tax as a consequence of bringing it online.
Okay. And then sort of as the drilling, are there any other major shutdowns planned in the next quarter? I guess the heart of my question is, assuming production continues at similar rates, can we take this quarter's production and drag right?
Look, I'd like to think so, look, and routine practice, of course, is for us to do a major mill reline typically once a quarter, occasionally at [indiscernible] that we're doing a reline of both the mills. I don't have it in my head exactly when that next one is. We'd like to think that the plant is operating pretty consistently. I think utilization for the quarter was about 93.5%, so we're getting up there with good industry factors. I said excellence, I think for Gruyere would be about 95%. And the team on site there doing some good work and kind of steadily improving the reliability of the plant from quarter-to-quarter.
[Operator Instructions] The next question comes from Paul Kaner from Ord Minnett.
another other exploration one here for Andrew, I think. Just on your exploration portfolio, how you sort of ranking these prospects internally. I guess what's exciting you the most? And then how are you allocating your exploration budget towards this?
Yes. Thanks, Paul. So obviously, we've got our own internal processes for ranking our targets based on their technical merits. And then we have also internal peer review processes where we bring in the brain thrust to obviously assess the guys' work and see quality and rationale of targeting, I guess. Across the portfolio, we do have a suite of, I guess, exciting prospects and targets. One that excite me currently the most is Mallina in Queensland. I think that's some fantastic targets, early stage targets, that are coming out of those. Yamarna still has some legs on it. There are some interesting results there. We see a big push this year to do, I guess, a series of retargeting, trying to get the guys to reassess the belt and come up with some new ideas and new targets. And out of that came, I guess, a good suite of targets, which we're testing now actually. And it's early days, but yes, they look good geologically. We'll wait for the assays to tell us what's there. and so we do have a process and selling to rank and prioritize oil allocate our budget based on, I guess, the quality of those targets and obviously through that peer review process as well.
Yes. Maybe just drilling down a bit more just on the ones in Queensland. What's getting you excited there?
Well, they are intrusion-related gold systems. So we're in an area that basically has not been touched for the better part of 3 years. It was previously explored by Normandy back in the day, and they actually intersected some indicators of cold mineralization with these intrusive-related gold type systems. The guys have been on the ground over the past 3, 4 months, understanding the geology, doing the targeting, trying to understand the quality of these targets. And again, it's early, but they are conceptually good targets, and there are some good indicators just around, I guess, the location, the geology and as well as through the geophysical benefits we have. It's still early days, but just from a conceptual level, it looks really good.
Yes, perhaps I can just add to that. So I mean one of those targets has got historical drilling on. One of the holes we're re-assaying, but it's got fairly obvious alteration. There's a historical Normandy hold that had something like [ 16 meters at 1 gram ] in it. And we've probably got 5 separate systems to drill test from what we know at the moment.
There are no further phone questions at this time. I'll now hand the conference back to your speakers to address your webcast questions.
Thanks, Harmony. Thanks to all those. Lots of questions on the phone. So as a result of that, some of the webcast questions I think have already the answers. So thank you, Michael, for your question. I think [indiscernible] asked pretty much the same there, so I'll take that as done.
One from Bradley from Bell Potter. Congratulations on a great quarter. Could you provide us an update on your view of the inorganic growth landscape? Are you seeing value in ASX-listed gold development and explorers now looking beyond your investment in De Grey given their relative share price on performance relative to producers?
Look, I guess we monitor that space. Obviously, a lot of the junior explorers are struggling to raise cash in the market. That's resulted in a lot of property offerings kind of coming through the door. Typically, what you get is lots of low interest stuff, put it like that coming through. Probably the quality of those opportunities is starting to pick up. The situation in North America, there's probably even more financial market constraints. And there's a lot of junior things of interest over in that part of the world. But by and large, I mean, we obviously look for opportunities to trade up the quality of our exploration portfolio, but we haven't found anything at the moment. But it's enticed us to do that.
Thank you. One more question from Glenn. He wanted to ask, and I'll hand this to Andrew. What type of drilling are you planning to do in Queensland? And when do you think you'll get on the ground there to do that drilling?
So the aim we're looking to start our drill campaign after the wet season next year. the drill types we'll be looking at is a combination of RC and Simon. And as Duncan mentioned, we have a handful of targets to follow up. So the team are going through the process now of playing those drill programs, which will set us up for afterward season next year.
Thanks very much, Andrew. And one from Peter. Is now a time to lock in hedges in these high gold price environments?
Look, we really look at hedging as a risk management strategy. I think the track record of the industry playing that kind of gambling game, locking in the hedging at a higher gold price has often been counterproductive. Where that, of course, leads us to is the market movement of Gold Road will mirror the gold price. Our view is most investors invested in gold companies to get that leverage and upside to the gold price. So of course, if you do significant hedging, you either dampen that or if you're in an inflationary situation like we've seen in the last year, you can actually create quite a significant margin squeeze where the cost of your inputs go up and you fix the gold price. So broadly, our policy is not to be hedged. There are, of course, good reasons to be hedged. As for example, you take on significant debt such as financing projects or things like that. Obviously, with our strong cash position of plus $200 million, we're on way from leading to consider hedging that offers.
Thanks, Duncan. That's it for the webcast questions. I think there were a few others, but I think they were answered by the phone questions. I'll just quickly check with Harmony to see whether we've had anything else come in on the phone.
There are no further phone questions at this time.
Thanks for that. Thanks, everyone, for your interest. That closes out our call. I'll just summarize with Slide 8. I think most people agree was a good quarter, record production, call revenue led to record cash flows. Gruyere, we're very happy to have as a long-life asset. Our investment portfolio is strong, valued at about $440 million today. Most would have seen during the quarter, we repositioned ourselves at 19.9% from our 19.7% at De Grey, very happy with that strategic investment.
Thanks for the questions on exploration during the call. It is a big part of our business, and we are now a national explorer. We look forward to testing those targets at Mallina at Queens and as well as continuing at Yamarna.
Cash equivalents remains strong. Thanks again to that free cash flow. And of course, we are a dividend payer and have been consistently for 3.5 years or so now, so a strong business with growth opportunities and strong production. Thanks, and see you next time.
That does conclude our conference for today. Thank you for participating. You may now disconnect.