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Thank you for standing by, and welcome to the Ramelius Resources December 2021 Quarterly Teleconference. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to Mr. Mark Zeptner, Managing Director. Please go ahead.
Good morning, everyone. Thank you for taking the time to dial in this morning. With me, as usual, is Chief Financial Officer, Tim Manners. Following the standard course of events for these calls, I will run through the operational highlights from the quarter before passing over to Tim to delve into the numbers in more detail. We will then open the line to questions.Despite COVID-related labor shortages becoming more apparent within WA, Ramelius delivered another solid quarter, producing 66,919 ounces at an all-in sustaining cost of $1,493 an ounce. This was at the lower end of guidance for the quarter, influenced by a slight drop in grade and throughput at Mt Magnet and an inability to haul as much ore as planned from the Tampia and Marda sites due to those aforementioned labor shortages.Based on the quarterly result, we have maintained our full year guidance of 260,000 to 300,000 ounces at an all-in sustaining cost of $1,425 to $1,525, with the current expectation that we will achieve within the lower end of that production range, whilst we are currently well positioned on all-in sustaining costs being around the midpoint of that range. However, we have added the caveat that the actual impacts of the delayed WA border reopening, any potential COVID-19 infections to mine site personnel and supply pipeline disruptions are difficult to accurately assess at this time. Whilst we have made some allowances for these in the guidance, it's hard to say with any real certainty how they might affect the business over the next 6 months. And I don't think we're the only ones wrestling with these issues.For the first time since we acquired Narembeen in 2021, production from that operation surpassed Mt Magnet in the December quarter. Even though we were restricted in hauling as much ore as we would have liked from Tampia and Marda, Edna May still produced 35,367 ounces for the period, whilst Mt Magnet produced 31,552 ounces.It should be noted that the labor shortages that have affected all haulage capacity has resulted in an increase in ROM stockpiles at Tampia and Marda of approximately 200,000 tonnes, and there are now 785,000 tonnes of high-grade ore containing more than 40,000 ounces of gold sitting in those stockpiles. At an assumed AUD 2,500 gold price, this ore would generate over $60 million in incremental free cash flows once processed.To expand a little further on this, our haulage contractor has the trucks, but not the drivers despite increasing pay rates significantly and adding a Ramelius pay for bonus system into the total package. There are simply not enough truck drivers in Western Australia to satisfy both resource industry and general freight needs currently. Unfortunately, we're also down a few additional drivers due to the Feb 5 border delay with some drivers heading back east, pre-Christmas on the understanding that could return as well as a number of Eastern states based drivers that were in the process of being onboarded with an intended start date of around Feb 5. We will have to work with the government to see if we can get those drivers into the state because the current 14-day quarantine period as opposed to the 7 days currently used on the East Coast will act both as somewhat of a deterrent and will also delay getting those truck drivers on to our mine sites.Mandatory vaccine requirements imposed by the AA government have exacerbated labor shortages for many companies. But thankfully, the impact on Ramelius has been relatively minor, with only 2.5% of our workforce, which is 7 out of the 300 and reportedly a similar percentage of our contractor employees affected. We remain open to welcoming these employees back should they become fully vaccinated with some indicating they are holding out for the Novavax vaccine to become available.Aside from observing the vaccine mandate, we continue to take steps to manage the threat of COVID and believe we are well prepared to handle an inflectional outbreak on site should that occur. We have secured sufficient supplies of PPE and rapid antigen test kits for any 4-course testing and have undertaken on-site and corporate emergency drills and scenario planning with a view to minimizing the risk of any potential disruption to operations.To the operations at Mt Magnet, the focus of mining operations continue to be the Eridanus open pit, which sustained high production from the pit, we're able to preferentially mill higher-grade ore and stockpile surplus ore. The Shannon and Hill 60 underground operations also continued to perform well. Vivien attributed mill production was 58,285 tonnes at just over 4 grams for almost 7,500 recovered ounces. With the likelihood of deeper extensions to the Vivien ore body reducing, mining will focus on effective extraction of the remaining reserves in any remnant resource areas, which will likely involve a final open pit cutback once all underground reserves are depleted.At Edna May, ore sources during the quarter included the historic low-grade oxide stockpiles, Greenfinch, Tampia, Marda and the Edna May underground. Mining progressed well at both Tampia and Marda, improved haulage from both those operations, albeit as discussed at a rate below what we're anticipating was the primary reason behind the quarter-on-quarter lift in production from Edna May.Project development. On the project development front, the small Magenta pit at Penny was completed and a pit cutback at Penny West commenced to reestablish suitable long-term ramp access and a portal location in the North wall. Dewatering of Penny West itself has also begun pumping into the Magenta pit to the north. High wall preparation for the underground portal is expected to occur towards the end of this quarter, and we look forward to commencement of underground mining and subsequent production from this high-margin operation shortly.Work continued on mining studies, including the Galaxy underground pre-feasibility Morningstar underground concept study, St. George underground remnant study and the Hill 50 underground concept study at Mt Magnet as well as the Edna May Stage 3 open pit pre-feasibility study. We will provide a more fulsome update on the status of each of these in February.Of course, with the completion of the takeover of Apollo Consolidated, we have added the Rebecca Gold Project, East of Kalgoorlie to our list of development projects. Exploration under Ramelius management is scheduled to begin in February and we intend to pick up where Apollo left off with technical studies as soon as possible. We have included $4.6 million of expenditure in this half at Rebecca, which should demonstrate our intention to go pretty hard at this project.There's plenty of information and exploration in the quarterly report, which I'll leave you to digest at your leisure, although some highlights have made the front page, including RC and Diamond results at Bartus East, at Mt Magnet and some new results from the RC program at the Mt Finnerty JV, 200 kilometers from Edna May. Mt Finnerty JV is a relatively new project for us. It's early stage, but significant encouragement can be gleaned from the first round of drilling, we believe.In summary, we continue to see excellent returns from our investment in exploration. We spent some $14 million in the first half with an even bigger second half forecast of $18 million. With that, I'll now hand over to Tim.
Thanks, Mark. As you pointed out, Ramelius was not immune to the impacts of COVID during the December quarter, in particular, the labor shortages you spoke about. Whilst we remained inside guidance, gold produced was at the lower end with quarterly production of 66,919 ounces, giving a total of 132,605 ounces reduced for the first half. Sales were stronger in the quarter at 77,225 ounces, but this was largely due to a reversal of the buildup in bullion seen at the end of the prior quarter. The average price received increased to $2,357 an ounce, reflecting the runoff of lower-priced forward contracts and a generally higher spot price environment.Despite some of the issues that impacted the company this quarter, we still believe our all-in sustaining costs remain very competitive at ASD 1,493 an ounce for the quarter and AUD 1,473 an ounce for the half year. We have retained both production and all-in sustaining guidance for the full year, albeit, as Mark highlighted, we are guiding to the lower end of the production range.Forecasting the all-in sustaining cost for the second half is a challenge given the number of variables that the industry is currently facing. There is no doubt, as I mentioned, cost pressures are being seen across the business. However, at this point, we are comfortable keeping the full year all-in sustaining cost range as it is, but we will keep the market informed by exception as the year unfolds.There was also a lot of activity on the corporate front in the December quarter with the off-market acquisition of Apollo Consolidating -- Consolidated being completed in just 36 business days in the quarter. Despite a couple of bumps in the road, it was a very efficient transaction and a credit to all who were involved. You will note that recall that the purchase consideration, which has an equity value of approximately $150 million contained a material cash component, which was the single biggest reason for the drop in our cash and gold balance to $164.5 million at the end of the quarter, down from $273.9 million at the end of September 2021. The underlying operating cash flow remained positive at just under $45 million for the quarter, from which nearly $25 million was spent on development at Tampia, Penny and exploration activities across the group. The underlying cash flow from operations was, therefore, approximately $13 million.As I mentioned, the net cash impact of the Apollo transaction was an outflow of about $67 million, which along with $20.4 million in dividend payments and approximately 1.5 years' worth of income tax payments totaling $31.6 million saw us end the quarter with $164.5 million in cash and bullion.Importantly, all major outflows to the Apollo transaction are now complete, except for stamp duty, which will follow once assessed. Furthermore, given the tax payments in the quarter represented more than a full year's worth of a liability, we would expect our tax installments to be lower going forward, all else being equal.Lastly, a quick update on the hedge book. During the quarter, we delivered into 62,500 ounces of contracts at an average price of AUD 2,344 an ounce and added 85,000 ounces at an average of AUD 2,494 an ounce. With the spot price back above AUD 2,500 an ounce and the forward curve returning to contango, we took the opportunity to add some slightly longer-dated positions and excellent forward prices to help ensure our short- to medium-term cash management and development programs can be supported. The hedge book at the end of December is now 218,500 ounces at an average price of AUD 2,419 an ounce.I will now hand you back to Harmony to open the line to any questions.
[Operator Instructions] Your first question comes from Andrew Bowler from Macquarie.
Obviously, you're just talking about the difficulty finding truck drivers at the moment. I was just wondering what the plan is when Penny's scheduled to come on with trucking. I mean, obviously, Vivien is winding down. Is it just a case of reallocating resources away from Vivien towards Penny? Or that -- will there be a little bit more pressure on the business in terms of satellite trucking once Penny comes online? Cheers.
Thanks, Andrew. Yes, largely, it will be reallocation away from Vivien. We've been able to go to a -- what they call a super quarter at Vivien which is a slightly higher tonnage truck, which will help us and will need obviously less effective trucks. And also, Penny, given the high-grade nature is not high tonnage. So there's not a massive requirement there as opposed to the Tampia and Marda circa 2 grams per tonne, you need a lot more trucks to move a similar amount of ounces. So we've got a plan in place for that. And that will really kick in more June, July, and we'd like to think we're in a better place from all the stuff that we talked about by then also.
No. And just the last one for me. And obviously, you've talked about some preparations for when cases -- when COVID cases pick up here in Western Australia. Have you heard anything from the department about any potential exemptions for the mining industry? I mean, obviously, given the current definitions of close contacts and isolation requirements and that sort of stuff, I think it's pretty safe to say that under the current definition in Western Australia is probably pretty untenable for the mining industry. So are there any exemptions given obviously with the extremely high book 100% vaccination rate in the mining industry that you've heard of?
I believe that today, the Disaster Council is meeting, and they're looking closely at that. We obviously would prefer a 7-day regime rather than 14 days, but we'll have to await the outcome of that. So things like a road train driver, I can't believe I'm saying it, but it's become an essential and critical skill that we've got a shortage within WA. So we'll certainly be arguing that point because it goes further than just East Coast that potentially again have to tap into overseas skills to fill the needs that we have currently. Some of these iron ore mines, with iron ore prices going back up, need 50 to 60 truck drivers just for one small iron ore mine. So they have a pretty big draw on the industry. And then we've heard about general freight and the ability to fill shelves and things like that. I think that's the point the end of what we're seeing with this shortage.
Your next question comes from Mathew Collings from Morgan.
Stuck on mute. Mark, could you just go through the schedule of works, what's been going on and what's coming up at Penny had slower than you did in the intro?
Thanks, Mathew. I thought I was quite deliberate. What's happening at Penny, we've completed the small Magenta pit. We started the cut back. The cutback is well advanced. The cutback should be finished later this quarter, and then we'll be preparing the high wall above the portal position, which is in the northern part of the Penny West pit. We've already awarded an underground contract and working out mobilization timing and things like that to be actually having underground crew there by the end of this quarter. Initial development with production really starting to kick off more in the September quarter.
No, it was good. My talking is just not up to pace.
No worries. I suppose in summary, in the current environment, the schedule we basically met, we're on track at Penny, I think the guys out there have done a really good job to achieve that.
Your next question comes from Michael Scantlebury from Euroz Hartleys. Your next question comes from Alex Barkley from RBC.
Mark and Tim, just on that, you're sort of suggesting the lower end of production guidance is going to be achieved. How would you expect that change in forecast to be split across the site? Is that a bit more focused at Edna May where you called out those haulage labor issues or something a bit different?
I think, Alex, it's Tim here. I think it's going to be pretty even, to be honest, between both. I mean we're hoping that, as you pointed out, that the availability of truck drivers improves, if that does happen, then I think you'll see a little bit more out of the Edna May processing center. But in general, it's a pretty even profile. It was at the start of the year and still remains the case. So I wouldn't expect a major variation from either one, to be honest.
Okay. Sure. And a last question for me. On the project studies coming up instead, obviously, we're seeing labor cost pressures right now. And I do appreciate those studies are still in progress. But if you do find the cost and economics that is temporarily not in your favor. Is that something you might sort of delay, revisit the studies themselves for those costing estimates or potentially the project start dates themselves? Do you think the economics aren't being fairly represented at this time?
Very much so, Alex, and that's the case with Edna May Stage 3. We've completed some drilling at Golden Point. We're obtaining all of our final results. We're going to put that into a model, see what that does to our optimizations at our last assumed open pit price. But yes, getting -- to start on a large open pit like Edna May Stage 3 in the current volatile contractor market, that's exactly what we're doing there. We're obviously waiting for things to settle down for labor to not be as stressed as it is. Some of those Mt Magnet studies are earlier stage, and we can, I think, make some assumptions at this early stage to see whether those projects have got legs and move forward. But in terms of decision-making, what you say is perfectly valid.
No problem. No, that's good context for what's coming up in February. Thanks very much, guys.
[Operator Instructions] Your next question comes from [ Richard Hart from Top Wheel. ]
Mark and Tim, Congratulations again on making guidance despite the conditions because I'm sure it's not easy. One question about trucking, everyone is talking about trucking. Is there any sort of priority with regard to access to trucks and drivers or is it just Doggy dog?
Pretty much the latter. We've raised the pay rates effectively through our contractor a number of times. A truck driver is getting offered $60 an hour in iron ore plus bonuses, plus, plus, plus. They're getting quite well paid now, and they're dragging people or truck drivers out of general freight. And the guys with the most money can pay the most, and it's pretty much a doggy dog, you don't have any preference. And you've got grain harvest and things like that to move around as well. So it's a pretty paled situation at the moment is the way we're talking to our contractors. It's pretty difficult to -- at the moment, it's about keeping your -- the truck drivers you have to get extras at the moment is very difficult.
Right. Did we have a wheat harvest, by the way?
I had a record year. Remember, we talked about how well it was and how it impacted on our Marda haulage. That was all -- that all played into a record year for the WA harvest. So they had plenty of grain to move around as well as increased requirements from resource industry.
So does that mean as wheat plan as we actually benefited too?
Indirectly.
Indirectly, our community group that farms the surrounds of the Tampia mine. I haven't seen their books, but I assume they did very well.
Okay. And then quickly, I don't want to waste any more of your time. The trading holder at Westar, we have an interest there. There was no statement from Ramelius. Is that not necessary? Is it not significant enough to have an impact on us, I just wondered why there was no statement by Ramelius on Westar?
I made the front page, [ Richard, ] they're early stage, and it's all about materiality.
It's not material, [ Richard, ] for us to go into a whole is bottom line.
No, they're nice looking early results, and we hope that, that turns into a mine and -- but early days, and we'll take it from there.
Your next question comes from Stuart McKinnon from The West Australian.
Mark and Tim, I just wanted to clarify, when you talk about the shortage in truck drivers, is that specifically road haulage? Or is it also your sort of whole pack of drivers on site? Is it across the board? Or is it mainly restricted to the road train guys?
For us, and because we've got a road haulage business. It's really for us, it's in that area. And that's what has affected our ability to truck from our satellite sites. I have no doubt there are shortages across the industry, but not as acute as we are seeing and not having a bigger impact as the ore haulage truck drivers have had on us in recent times.
[Operator Instructions] Thank you. There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.