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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the Gold Road Resources December 2021 Quarter Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Duncan Hughes, Manager of Corporate Development and Investor Relations. Please go ahead.
Thank you, Darcy, and welcome, everyone, to our December quarterly analyst call. December quarterly production showed a considerable improvement on the September quarter with record production throughput and improving grades, improving recoveries and improving cash flow. Unfortunately, delays accessing higher grade parts of the open pit resulted in lower grades than projected in our guidance. On the exploration front, today, we announced a 70% increase in our 100% owned Yamarna resources. So they now sit at 0.5 million ounces. 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 are now also 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 recently appointed CFO; Andrew Tyrrell, General Manager of Discovery; and Hayden Bartrop, our company secretary and GM of Corporate Development. I'll now hand over to Duncan Gibbs to talk you through our quarterly results in more detail.
Thanks, Duncan, and thank you, everybody, for joining us on the call today. As Duncan has just indicated, the December quarterly saw improvements across the board. Production totaled 67,813 ounces produced at Gruyere for the quarter, the best quarterly production in 2021. All-in sustaining cost was $1,526 per ounce for the quarter, lower quarter-on-quarter but higher than anticipated due to lower ore production and forecast. Pleasingly, our 12-month lost time injury frequency rate continued to fall, ending the quarter at 2.3. Next, we go to cash flow generation. During the quarter, our cash and equivalents lifted to $135.5 million. Gold Road continues to carry no debt. We continue to make good progress on the exploration funds with encouraging signs seen from several targets tested on our 100% owned Southern Project Area at Yamarna. The quarter also saw us grow at 100% owned Yamarna resources to 0.5 million ounces with the majority of these resources in the Southern Project Area. Now turning to the quarterly in a little more detail. Total material movement increased again quarter-on-quarter by about 0.3 million tonnes. The total rate of ore mining lifted again to record highs at an annual equivalent of 12.7 million tonnes per annum. The mine grade lifted in the December quarter but not as much as we expected, reflecting a delay in accessing some of the higher grade parts of the Stage 2 pit. The delay of progress was in part due to challenges in rostering key blasting personnel, combined with some short-term interruptions from inclement weather in December. The processing rates continued to rise to an equivalent annualized rate of 8.9 million per annum despite the disruptions to the ball mill that we reported early in the quarter. Overall plant utilization lifted to 91%. Metallurgical recoveries also improved, in line with the higher head grades and less processing interruptions. Head grade was up but owing to the lower-than-expected mine grade was lower than we expected, resulting in anticipated quarterly production and annual production falling slightly short of guidance. As a result of that, our attributable all-in sustaining cost had been slightly above guidance. Gold ounces sold lifted quarter-on-quarter to 35,460 ounces at an average price of $2,309 per ounce. Delivery in the forward sales as a product was approximately 25% of our production in the quarter. Our all-in -- sorry, our corporate all-in cost was lower this quarter at $1,924 per ounce. Turning to the next slide. In line with our 3-year production outlook that we put out a year ago, our production will continue to improve in 2022. Our annual production will increase to a forecast range of 300,000 to 340,000 ounces or 150,000 to 170,000 ounces attributable. Lower all-in sustaining cost is guided between $1,270 and $1,470 per ounce. We view our guidance as incorporating an appropriate allowance for operational issues, which we expect to have less of in 2022. That said, we have not allowed from major force majeure events, extended impacts, including those from COVID-19 or other issues. Improved production is driven by increasing grades through the Stage 2 and 3 pits, as shown in the image here, with grade lifting through the year and increasing throughput rate as previously communicated in our 3-year outlook. Quarter 1 includes 2 plant shutdowns, a reline of the SAG mill and a reline of the ball mill with lower planned utilization in this quarter. Our opportunistic use of the rehandled fleet, as we've seen in the December quarter, is likely to continue into 2022 with most movement being brought forward from future years, which has been factored into our all-in sustaining cost guidance. Bringing forward this total material movement allows for greater processing flexibility. And it provides a buffer to some of the industry headwinds currently being expected in Western Australia, including labor availability, supply chain concerns and potential COVID-related staffing disruptions to mining. Drilling [ the rest of ] the Gruyere resource was completed during the quarter. Assay results are still awaited for 3 holes, and all our results have received a full assessment of the updated geological model be undertaken before determining our next steps. You will note from this long section that shows that September 2021 ore reserve a 1.1 million ounce increase. And the long section also shows the open pit mineral resource as it was communicated in December 2020 and the underground resource as communicated at February 2021. Both of these resources will be updated as part of an annualized reporting cycle in February 2022. We anticipate seeing a transition between the open pit and underground resources pushing deeper given the second pit slopes reported in the recent reserve update. Referring to the next slide, if we move on and look at our balance sheet and cash position. We remain debt free, and cash and equivalents lifted to $135.5 million. In October, we paid a fully franked dividend for the 6 months to the 30th of June 2021. The cash flow waterfall summarizes the movements in cash equivalents over the quarter. It is worth noting the gain on our short-term investment with the -- consolidated during the quarter of $3.6 million. Free cash flow was $15.7 million before the gain on Apollo shares and payment of the interim dividend. I will now hand over to Andrew to talk through the exploration update.
Thanks, Duncan. The discovery team continued to focus their efforts on systematic and targeted exploration over the priority prospects within the Southern Project Area of the Yamarna project. In 2021, the team achieved a significant amount of drilling with over 155,000 meters of aircore, 36,000 meters of RC and 8,000 meters of diamond completed. While exploration made encouraging progress from prospects such as Earl, Waffler, Abydos and Warbler, as with most of the exploration sector, we are still awaiting assay results from most of the drilling completed in the December quarter. However, early results received to date have been encouraging. A budget of $30 million has been allocated to the discovery projects for 2022, which is slightly less than the final 2021 budget spend. 2022 will see an increased rate of RC and diamond drilling as the company focuses on deeper drill testing in these numerous regolith gold anomalies and mineralized trends defined by aircore and RC in the last 6 to 12 months. There is currently an RC rig on-site as I speak, and a diamond rig will be remobilizing shortly. A further 2 aircore rigs are also expected soon. Today, we announced a 70% increase in our 100% owned Yamarna resources. They now total 0.5 million ounces at an average grade of 2.44 grams per tonne gold and include an increase to the Gilmour resource of 40,000 ounces, which includes a small underground component; 45% of the Gilmour resource reports to the indicated category at a healthy grade of 6.55 grams per tonne of gold; the Maiden inferred open pit resources declared for Smokebush and Warbler; and an increase of 30,000 ounces at the Renegade resource located just north of the Golden Highway. As you will note, the bulk of the resources are located in close proximity to each other in the Southern Project Area and show potential to be incorporated into any future stand-alone processing operations in this area. Looking at the Southern Project Area in a little more detail now. We continue to push forward with our exploration assets within this area. Activities completed in the Southern Project Area have highlighted several very encouraging and large areas of regolith anomalism and favorable geology. From this, several priority targets are emerging. In particular, these include: At Waffler, we completed an RC program at the 4-kilometer long regolith anomaly and are still awaiting most of these results. In addition, we completed another phase of aircore at Waffler that continues to show strong drilling results in the regolith, which will need to be followed up with further RC drilling in 2022. Follow-up RC drilling at the Earl target located southeast of Smokebush, along with Smokebush Shear Zone, has result -- returned some encouraging results. And these include 17 meters at 1.27 grams gold, 15 meters of 1.18 grams per tonne gold and 10 meters at 1.05 grams. Further work will include more planned RC and diamond drilling. At Abydos, our program of RC drilling was commenced in the December quarter, designed to test beneath our 4-kilometer long regolith anomaly with results still pending. The RC program will recommence early -- in early February of this year. At Warbler, we completed a program of RC drilling along strike the northwest of the Maiden resource. Drilling intersected the same sequence of rocks with similar encouraging alteration observed as their results are still awaited. And finally, at Kingston at the Beefwood camp, Gold Road intends to complete infill aircore drilling to better understand the large anomalies defined in this area by aircore drilling in 2021. That brings a close to the exploration update, and I look forward to any additional questions you may have. I will now hand back to Duncan Hughes.
Thanks, Andrew and Duncan. So that brings a close to the results presentation. We'd now be very happy to answer any questions you may have, and I'll hand the call back to Darcy.
[Operator Instructions] We have no phone questions at this time.
Okay. Well, perhaps we'll start with some webcast questions and return to see whether there's any phone questions at a later date.
The first question comes from [ Robert ]. Who is the current leadership of exploration?
Andrew Tyrrell is our Exploration Manager -- or sorry, our General Manager of Exploration. And he ran through the exploration announcement on the call.
Yes. Our Exploration Manager is currently James Davis, someone we promoted internally. He has the right level of expertise as well to hold that role.
Thank you. Our next question comes from [ Jemca ], is, "When do you expect more returns to be delivered to shareholders?"
Well, I think Gold Road has a strong track record of creating returns to shareholders, particularly since the inception of the company. Of course, we're one of the few companies that have come up into production, that pay a dividend and no debt. And by having commenced paying a dividend, I expect to keep doing that. And I think the exploration results that we've got at the moment are quite encouraging, obviously, still not there yet in being able to develop a second mining operation off 0.5 million ounces. But some of the scale of the geochem anomalies that we'll be actively RC and diamond drill testing this year have put us in a pretty good shape to progress those forward and with the objective of developing a second mining operation.
We got another question from [ Michael ] from Euroz Hartleys. "Could you please outline the expected grade and throughput for calendar year 2022 to reach guidance?"
I'll give you rough numbers, Michael. So you'd be looking at throughput of somewhere between 9 million and 9.5 million tonnes and grade between 1.1 and 1.2. That should get us there. I think as we outlined in the quarterly, it's worth noting that this quarter that we're in now, because we're doing mill relines, it will be softer, and the grade and throughput will progressively increase through the calendar year.
A question from [ Robert ]. "Beefwood was looking very promising. What's its current status?"
Beefwood is a bit of an enigma. It is obviously quite a sizable geochem anomaly that sits there in both regolith and saprolite, lower saprolite. We continue to try to understand, I guess, the source of that. And we will -- that's why we planned a program this year to obviously try to factor into where we think the source of that gold may be.
A question from [ Tom ]. "What is the company guiding in terms of gold price for 2022 and its policy on hedging?"
Yes. Look, we don't -- and gold producers don't put out guidance on gold price. In terms of our hedge book, really, our hedge book runs through to the end of this year. It represents about 25% of production, and the strategy at the moment is basically to deliver into those gold hedges as they fall due. The general principle of what we do around hedging really is around risk management, and the hedging that we took on was really put in place when we knew we had to draw down some debt for the construction of Gruyere, obviously, with the gold price being substantially higher since the development of Gruyere than what was projected at the time of construction. And when we're in that financing phase, we ultimately paid down our debt facilities a lot faster than modeled at that point in time. So what you can really expect to see, barring some need for drawing down debt to grow the business, is that we'll continue to deliver into those hedges as they fall due.
A question now from [ Sabrina ]. "When will the decision be made as to whether a dividend will be paid for the December '21 half?"
The announcement of every dividend obviously follows the final audited accounts and the announcement of those accounts. So you'd expect it to come out after our financials are formally reported. And then the Board is able to determine the dividend at that point in time.
Our annual results will be released in the last week of March, along with our sustainability report.
A question from Scott, "Is the company still active in the M&A area?"
Yes. Look, I think it's no secret. We've looked at lots of opportunities. Obviously, Tropicana, well publicized and also the more recent -- have a look at Apollo. I guess we've also exercised discipline in what we are prepared to pay. So we're still looking for opportunities. But I guess we're also quite disciplined about they've got to create value for shareholders, not just getting a transaction done.
So thank you all for your webcast questions. That's the first time we've done that, and I think that worked really well. There's a few other questions I know that we haven't had time to answer on this call. We'll endeavor to answer those, and we'll get back to you on those questions in due course. I'll just quickly check in with Darcy if there are any questions from the phone. Otherwise, please hand back to me, Darcy.
Thank you. We do have a question from Paul Kaner from Ord Minnett.
Yes. Just on your '22 guidance, when we have a look at that compared to your previous 3-year guidance, which you put out in February of last year, there's about a 9% to 10% increase in your all-in sustaining costs. Could you maybe talk specifically what is driving this delta increase and how much is related to inflationary increases?
Yes. So I think as you're saying there, Paul, no state secret that WA is experiencing higher costs. So we've obviously factored those in. I'd also say they're not particularly sort of astronomical. So sort of a few percent is what you need to be considering around kind of CPI-type levels. But the other thing probably of note which I did make commentary on during the presentation is that we're pulling forward mining volumes, and we're doing that quite consciously really as a risk mitigation strategy around labor shortages and delays from COVID or either of those kind of events. Now of course, how that exactly pans out during the year will depend on whether any of those risks eventuate. But of course, over the life of mine, we're not actually spending more. It's purely an offset spending that this year rather than in future years in accelerating that waste movement. So we think that's a prudent strategy to really mitigate mining-related risks to production, but it does have a consequence of contributing to higher all-in sustaining costs during this year.
The other slight impact on that, Paul, as well as production guidance in terms of ounces is down very slightly on our initial outlook. And that, again, is just driven by slightly slower progress into those improved rates. So obviously, with slightly lower ounces, our all-in sustaining cost per ounce is impacted.
Yes. No, understood. And just remind me again on the stockpiles you have on-site at the moment as a sort of another contingency to these labor pressures that we're seeing?
Yes. Look, I don't have the exact number. But I mean, order of magnitude, 3 million, 3.5 million tonnes of total stockpiles. They're obviously a lower grade on average than the ROM grade. So they provide a bit of buffer in terms of being able to keep the mill going with any mining-related delays or disruption. But if we rely on those stockpiles, they obviously have a negative impact on gold produced.
There are no further questions on the phone at this time.
Thanks, Darcy. So I'll just close on Slide 11. Obviously, this is just a summary of our quarter. It shows, as we outlined, grades and throughput increased. We're still in line with our 2-year outlook. Gold Road's attributable resources are now lifted to 4.7 million ounces, thanks to the impact from Yamarna. We see continued encouragement at exploration, and we're excited now the rigs are returning to site. Our balance sheet is strong and very happy that our cash and equivalents grew by quite a considerable amount during the quarter. Thanks, everyone, for attending, and we look forward to speaking to you again next quarter.
That does conclude our conference for today. Thank you for participating. You may now disconnect.