Mount Gibson Iron Ltd

ASX:MGX

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for joining today's teleconference for the release of Mount Gibson Iron ore September quarter 2022 Activities Report. Mount Gibson's Chief Executive Officer, Peter Kerr, will be leading the discussion. And he's joined by Chief Financial Officer, Gill Dobson; External Relations Manager, John Phaceas. Mr. Kerr will provide a brief overview, after which there will be an opportunity to ask questions. Due to the time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will be available via the Mount Gibson website shortly after the completion of today's teleconference. I will now hand you over to Peter Kerr. Thanks, Peter.

[Peter Kerr, executive]

Thanks, Lisa, and good morning all, and thanks for joining us to discuss our Gibson September quarter activities report. As usual, I'll give a brief overview before handing back to Lisa for any questions. So the September quarter, as people know, was obviously dominated by the impact of the mid-August fire within the product screening area of the processing plant at Koolan Island. And our focus since then has been on recovering from that incident as quickly as possible and getting back to increasing shipment numbers as soon as we're over.

The fire was obviously very disappointing as it interrupted what had been a very strong improvement trend at Koolan as we started to realize the operational benefits of last year's investment in both overburden stripping and the ground support programs as well as various other capital improvement projects at the site. So after a strong start to the quarter in which we completed 4 high-grade shipments before the plant fire on the top of August, processing and shipping from then on was restricted, and that had a corresponding temporary adverse impact on our revenues and cash flows in the quarter.

Repairs to the fire damage product screens section of the plant are going well, while our interim processing strategy of utilizing mobile crushing capacity is now also being optimized and improving. The net effect is that we expect to be back to full capacity in January, while the strong performance of the mining team in building up stocks of high-grade iron ore for processing as the main plant comes fully back online, that does position the operations strongly to significantly increase sales in the June '23 half year period.

Consequently, we maintain our current sales guidance 3.2 million to 3.7 million wet metric tonnes of high-grade ore in this financial year, fiscal '23. Obviously, weight to the second half at an average cash operating cost before royalties for the full year of AUD 70 to AUD 75 per wet metric tonne FOB that we sell.

So looking at the activities at Koolan in more detail. Total ore sales were 451,000 tonnes of 65% Fe material in 6 shipments, 2 of which were completed after the plant fire in August. From a mining perspective, performance was good. Total material movement lifts to 4.6 million tonnes of waste and ore. And importantly, the stripping ratio reduced further in line with the planned averaging tonnes of waste for every tonne of ore in the period, on track to average 3.5:1 across this current half year and then 1:1 in the June 23 half year period. So from today forward, the average stripping ratio for the approx 4.5-year life of the mine in the main pit is only 1.3:1.

Assisting the mining productivity, the replacement of the primary mining fleet is going well, with the last 2 of 8 new haul trucks being delivered to site this week. These trucks are well suited for the main pit, and we'll continue the progressive demobilization of the old pre-2014 haul truck fleet in coming weeks. Similarly, we are replacing the aged primary production excavators with the first of 2 new units to be operational in the main pit within the next week.

Importantly, now that the peak waste stripping phase is effectively complete and the upper footwall ground support works are now finished, high-grade iron ore production rose to 915,000 tonnes in the quarter, extracted from the main pit. That was 38% higher than the June quarter as access to the ore body further opened up across the floor of the pit.

With processing temporarily restricted, we made the decision to continue mining in accordance with the production plan. and to build substantial high-grade ore stocks for processing once the main pit comes fully back online. Accordingly, run-of-mine ore stocks in front of the plants currently total well over 0.5 million tonnes, and this will enable a rapid processing catch-up as crushing capacity returns. It will also provide us with some added flexibility to mitigate any disruptions during the coming Kimberley region wet season.

In relation to processing during the quarter, just over 600,000 tonnes was crushed and 2/3 of this was obviously before the fire incident. In terms of for recovery progress, our key focus is obviously on the recovery activities as quickly as possible. And as we reported previously, the fire occurred in the product sizing screen area of plant, and that was during a maintenance shutdown. All personnel in the area were evacuated and there were no injuries other than some smoke inhalation treatment. The fire damaged unfortunately, the product screen equipment, the associated feeder and conveyor equipment as well as some of the surrounding steel structures. The processing recommenced in early September, and that's utilizing the undamaged front-end components of the main plant. Mobile crushing equipment was mobilized during the month to process oversize material that requires further crushing and screening to meet shipping specifications. So crushing capacity utilizing these interim arrangements has steadily increased and is presently running at approximately 70%, some -- excuse me, some days more than that of normal capacity while repairs to the plants are undertaken.

Repairs are actually progressing ahead of initial expectations, and we expect them to be completed in January. Replacement screening equipment, structural steel and other components, even within this difficult supply market has been procured quickly and fabrication works are well underway. Accordingly, we anticipate returning to full processing capacity early in the March quarter with shipping rates increasing from that point to 4 to 5 shipments per month going forward at a moment. Also note that Mount Gibson maintains relevant insurance cover for incidents such as this and discussions are progressing with our insurers as we prepare to submit an initial claim.

On the cost front at Koolan Island, unit mining, logistics and administration cash costs, which include all transport and logistics charges for the Ireland-based operation were $12.26 per tonne of ore and waste moved in the quarter, and that was slightly improved on the rate of $12.49 per tonne in the prior quarter, and that reflected some good work from the site mining teams and ongoing productivity and cost focus. Unit cash operating costs equated to AUD 67 per tonne -- per wet metric tonne sold FOB, so that's at Koolan Island in the quarter before inventory build, royalties and some residual capital projects. And that figure compares with the AUD 77 per tonne FOB sold in the June quarter.

Unit costs are expected to be temporarily higher in the December quarter, while the plant repairs are undertaken and shipping remains restricted. And then they will progressively reduce over the March and June quarters thereafter, consistent with the company's financial '23 year cash cost guidance of AUD 70 to AUD 75 per tonne before royalties.

Sales revenue in the quarter totaled AUD 62 million FOB, reflecting a realized price of USD 96 per tonne sold FOB. So that's after shipping freight. This reflected the average Platts Index price for 65% Fe material of USD 115 CFR in the quarter and the average shipping rate freight charge of approximately $17 a tonne. Shipping freight rates have continued to decline in recent weeks and are currently around the USD 15 to USD 16 per tonne level.

The Koolan Island operation incurred a net cash outflow for the quarter of $22 million, reflecting the decision to continue to mine in accordance with the existing mine plan and build the substantial high-grade stocks, while the processing plant repairs are undertaken. And these stockpiles sitting ahead of the processing plant have a current market value in excess of AUD 60 million once they are processed. So you can see why we have continued to move ahead with mining.

Revenue for the quarter totaled $62 million and obviously, as I discussed, and key site outflow items were cash operating and sustaining capital costs of $30 million. The build of high-grade iron ore inventories, which has cost us $46 million, royalty is at $6 million and residual capital projects of $2 million, which related primarily to completion of the upper footwall ground support project in July.

In relation to the group, the net cash outflow for the quarter was $26 million, comprising the Koolan Island numbers I just mentioned. Net inflows from the Midwest assets are $1 million, including the ongoing royal credit, interest and other income of $1 million, exploration costs of $1 million and then corporate cost and realized foreign exchange and financial asset movements together totaling $5 million. But the working capital movements of $39 million, relating primarily to the substantial downward provisional pricing adjustments, most of which was provided for in the fiscal year '22 results. The company's cash and investment balance was $60 million at the end of the quarter.

So in terms of outlook, as mining to build the high-grade stocks will continue while repairs are completed in the plant. Our operating cash flow at Koolan is anticipated to continue to be negative in the December quarter before turning positive and substantially increasing as the plant comes fully back online in the March quarter and our shipment volumes rise. Accordingly, in the current quarter, we will also temporarily draw on the company's existing $100 million revolving corporate debt facility for a short period, and that enables us to continue mining as productively as possible. We expect strong cash flow generation in the June '23 half year as the substantial high-grade ore stockpiles are then processed and shipped.

So in summary, we're bridging through the temporary disruptions associated with the Koolan Island plant fire repairs and the good work is being done by the team on site. And we continue to export high-grade ore and build substantial ore stocks for shipping for when the plant comes back online fully. The fiscal '23 financial year will be a strong one for the company operationally and financially, notwithstanding this temporary setback as the benefits of significant mining investments, in particular, the waste cutback that was made in recent periods begin to deliver.

We, therefore, look forward to maintaining a rising production and cash flow trajectory and replenishing and growing the company's cash reserves as Koolan Island consolidate its position as Australia's highest grade direct ship ore hematite producer.

So with that, Lisa, I'll hand back to you for any questions that any listeners may have.

[Operator]

[Operator Instructions] We don't have anybody asking a question at the moment.

[Peter Kerr, executive]

That's fine. If people do have questions, and we expect there will be some, then please give us a call. But otherwise, thanks, Lisa, and thank you all for listening. Have a good day.

[Operator]

Thank you, Peter.