Ramelius Resources Ltd
ASX:RMS
Earnings Call Analysis
Q2-2024 Analysis
Ramelius Resources Ltd
Ramelius Resources' December 2023 quarterly conference call led by Managing Director Mark Zeptner and acting CFO Ben Ringrose highlighted the company's strong financial and operational performance. Gold production reached 68,524 ounces, maintaining the upper end of their 60,000 to 70,000-ounce guidance and aligning with forecasts demonstrating an increasing production trend. The quarter's success was notably driven by the Penny Underground and Sims open pit, signaling a ramp-up in operations.
The December quarter saw operating cash flow at $68 million, with underlying free cash flow peaking at $45.7 million - the best performance in this metric for several years. Such strong cash generation bodes well for Ramelius, indicating a sustainable trend for the financial year's remainder. With this quarter's production, the first half totaled 124,947 ounces at an all-in sustaining cost slightly below $1,900 per ounce, surpassing internal budgets.
Ramelius increased its second half production guidance to 140,000 to 155,000 ounces and the full year guidance to 255,000 to 280,000 ounces, slightly higher than the original forecast. The downward trend in all-in sustaining costs continues, with the full year estimated at $17.50 to $18.50 per ounce, contrasted with the earlier projection of $15.50 to $17.50. Higher costs are attributed to unexpected repairs at Mt Magnet and higher costs from the more expensive Edna May hub.
The hub-specific all-in sustaining costs at Mt Magnet were $16.68 per ounce, while Edna May's was over $2,000 per ounce, inclusive of significant noncash stockpile drawdown expenses. The quarter was marked by a 9-week outage of the Mt Magnet's main conveyor, which required repair but didn't hinder production goals. Despite the mechanical setback, 36,829 tonnes at 12.39 grams per tonne were sold from Penny to Mt Magnet, with expectations for improved production in the following half.
In exploration, Ramelius showcased positive drilling outcomes at Eridanus and the Mars ore body within Galaxy Underground, alongside promising initial results from the newly acquired Bombora deposit. Additionally, the completion of the Musgrave Minerals acquisition was announced, expanding the company's project portfolio.
Financially, Ramelius enjoyed a robust quarter with sales revenue of $194.5 million and free cash flow of $47.5 million, leading to capital investments and returns to shareholders. This included a dividend paid in October 2023, alongside the completion of the Musgrave Minerals acquisition. Ramelius closed the quarter with a record cash and gold position of $281.8 million, establishing a strong foundation for future growth and shareholder value.
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Thank you for standing by, and welcome to the Ramelius Resources' December 2023 Quarterly Conference Call. [Operator Instructions] I would now like to hand the conference over to Mark Zeptner, Managing Director. Please go ahead.
Thank you, Trevos. Good morning, everyone. Thank you for taking the time to dial in to Ramelius' December 2023 Quarterly conference call. I'm joined this morning for the first time in the speaking role that is by acting CFO, Ben Ringrose, who will provide some detail on the quarterly financials after I have run through the highlights. As usual, there will be an opportunity for listeners to ask questions before we finish up the call. As you will have seen this morning, we reported quarterly gold production of 68,524 ounces, an all-in sustaining cost of $137 per ounce, which is towards the upper end of our quarterly guidance of 60,000 to 70,000 ounces and also in line with internal forecast that has production increasing over the course of the financial year. Increase in the December quarter was primarily attributable to a greater contribution from Penny Underground and also mining at the Sims open pit operation ramping up. As I said, Ben will delve the financials further, but I wanted to highlight upfront that the increase in production, we saw a similar trend with cash generation. Operating cash flow was $68 million with underlying free cash flow totaling $45.7 million, our best performance on that front for several years. With that, we anticipate strong cash flows will continue over the rest of the financial year and beyond. So with the December quarter contribution, first half production totaled 124 and 47 ounces. All in sustaining cost of just under $1,900 an ounce, again, ahead of our internal budgets and at the upper end of guidance. You may have noted, we have upgraded second half guidance to 140,000 to 155,000 ounces. And consequently, full year guidance for this financial year has also increased to 255,000 to 280,000 ounces. By way of reminder, original guidance was 250,000 to 275,000 ounces. In terms of all-in sustaining costs, the guidance range in the second half is AUD 1,700 to AUD 1,800, which demonstrates a continuing downward trend and results in full year all-in sustaining costs for FY '24 of $17.50 to $18.50. This compares to our original all-in sustaining cost guidance of $15.50 to $17.50, with the higher costs attributable to set on conveyor pairs carried out at Mt Magnet in the quarter, which I'll expand on shortly, and also an increased production contribution from Edna ay, which is the higher cost production hub of the 2. The split in production from our 2 hubs is relatively even this quarter with Mt Magnet producing just over 35,000 ounces at all-in sustaining cost of $16.68. And Edna May also producing just over 33,000 ounces all-in sustaining costs up ticked over AUD 2,000 per ounce. That breakdown gives an insight into the real impact of pending on cost at Mt Magnet. Although it should be noted that the Edna May or in sustaining figure does include a reasonably significant noncash component, which relates to the drawdown of existing stockpiles. I'll let Ben explain the actual unit cost detail later. During the quarter, a total of 36,829 tonnes at 12.39 grams per tonne for 14,386 recoverable ounces was sold from Penny to Mt Magnet. At Penny with multiple stoping areas becoming available production is expected to improve significantly in the second half. On to CBR1. Mill throughput at Mt Magnet was impacted by repairs to the main conveyor structure, which goes from the crusher to the core soil stockpile referred to as CV1. That put it out of action for approximately 9 weeks. We were, however, able to maintain plant feed, albeit at a slightly lower rate through the use of the mobile crushing solution. Thankfully, the conveyor outage didn't prevent us from meeting production targets as the site team and external contractors managed the situation very well, but we did incur some extra costs, both sustaining capital for the repairs, and operating costs associated with the mobile crushing and haulage operations, which added almost $180 per ounce to Mt Magnet's quarterly all-in sustaining costs. The appears were completed by mid-December, and we have reviewed our structural integrity regime and have taken steps to reduce the likelihood of similar unplanned repairs being required elsewhere in the plant in the future. The quarter saw completion of mining operations at Magnet with real have activities now being carried out while remaining stockpiles are being held to Edna May. At the end of the period, there was almost 450,000 tonnes grading 1.71 grams per tonne in stockpiles at Magnet. A similar situation is playing out at Tampere mining operations faced in the middle of last year. And there, we have just over 635,000 tonnes at a grade near to 1.5 grams per tonne of stockpiles at the end of the quarter. On to exploration. Highlights from the quarter include results from resource definition work undertaken at Eridanus, targeting higher-grade mineralization for potential underground mining below and outside their plans of the current open pit. Among the better intercepts from the 12-hole RC program were 13 meters of 10.4, 12 meters at 12.8 and 10 meters at 18.1. Important to note, all significantly better grade than what we are seeing at depth previously at Eridanus. At Galaxy Underground diamond drilling targeting the Mars ore body produced results including 2 meters at 28.9 and 4 meters at 17.8, whilst diamond drilling at the Bombora deposit, part of the Road project acquired from Broker Resources, reduced first results, which included 4.5 meters at 18.7 and 4.2 meters at 11.1, which were from mature underground lode. Lastly, in terms of the highlights, we wrapped up the acquisition of Musgrave Minerals in October, having reached the compulsory acquisition threshold of 90% acceptances. Infill and extension of diamond and RC drilling is underway at the key project targeting the whole grade Break of Day resource, but also the new biartar prospect. We've only received limited results at this time. Further information on the exploration program. There's plenty of detail in the quarterly itself. That covers the highlights from me. So I'll now hand over to Ben.
Thank you, Mark, and it's a pleasure to be here with you all today. December quarter was indeed a very strong one financially for Ramelius with sales revenue of $194.5 million and an associated underlying free cash flow of $47.5 million, which is after growth and exploration investment. On both metrics, the December quarter was the best since June 2020. During the quarter, we sold just over 68,000 ounces at an average realized gold price of $2,855 an ounce, which included a mix of spot and committed forward sales. As Mike mentioned, the all-in sustaining cost for the December quarter was $1,837 per ounce. Pleasingly, both production centers reported a lower all-in sustaining costs than the prior quarter. At Mt Magnet, the 8% reduction in the all-in sustaining costs was achieved despite the increased costs associated with the one-off CDO1 repairs, which, as a reminder, added $179 per ounce to the Mt Magnet all-in sustaining costs for the quarter. Impact of Penny is evident here, along with the increased tonnages and grades from Mt Magnet's own open pit operations. Moving on to Edna May. The improved all-in sustaining cost was the result of increased throughput and grades, most notably the introduction of the high-grade ore on sims. Whilst Edna May reporting a higher all-in sustaining cost to Magnet, it is important to note that this includes a $227 per ounce noncash charge with the drawdown of existing Tampia stockpiles. This noncash component of the Edna May all-in sustaining costs will increase over the second half of FY '24 as the existing Tampia, Made and sign stockpiles continue to be drawn down and monetized. The resulting operating cash flow from the business was $68 million, from which $20.9 million was invested in growth capital, exploration and resource definition. The quarter also saw amelio return $17.3 million in cash to shareholders by our FY '23 dividend paid in October 2023, as well as complete the Musgrave Minerals acquisition with a final consideration payment of $2.1 million. The $10.5 million investment in growth capital for the quarter mainly related to the Galaxy Underground mine and the $10.4 million spent on exploration and resource definition in the quarter focused on the Rebecca and Roy Gold project and the recently acquired Gold project. Both capital and exploration spend is in line with our forecast, and we have maintained our full year guidance on capital and project development expenditure of $50 million to $60 million and exploration and resource commission expenditure of $30 million. The closing cash and gold position of $281.8 million was our best on record, leaving Ramelius in a very healthy financial position. Further to this, a total of $9.2 million was received from the -- was due from the ATO in December. However, the late payment of this by the ATO, met these funds were only received by Ramelius in the first week of January. Notionally, including this, the reported cash and gold at 31 December would have been $291 million. In addition to this strong cash and gold position is our $100 million debt facility, which remains in place and undrawn. The Aussie dollar spot price increased 5% over the December quarter, finishing at just under $3,030 an ounce. In fact, the Aussie dollar gold price has had a daily closing price of above $3,000 every day since the 12th of October 2023, a trend that is continuing into the March '24 quarter. What is even more encouraging about this is that this $3,000-plus gold price was maintained despite the strengthening Aussie dollar, pointing to a fundamental increase in the U.S. dollar gold value. During the quarter, we continued to gradually run down our fixed price contracts, delivering 30,000 ounces into maturing contracts and replacing 24,000 of these at an average price of $3,259 an ounce. At the end of the quarter, forward gold sales consisted of 192,000 ounces at an average price of $2,918 an ounce over the period January 2024 to June 2026. As you will note, our committed ounces have decreased over the financial year, and we expect this trend to continue for the remainder of FY '24. Our disciplined hedge book maintenance over the past 12 months leaves the book in a very healthy position. Last note on gold sales is that with the increased production forecasted for H2, our exposure to the spot price will increase in the second half of FY '24. With that, I will now hand back to Mark.
Thanks, Ben. Travis, if we could please open the line up for questions.
[Operator Instructions] The first question today comes from Hayden Bestel from Argent.
Pretty impressive result. It's a aging-wise. I mean just get a sales of view to the second half and obviously, you push guidance a bit higher about Edna May, but I mean, despite that mill shutdown, I mean how are we looking in the second half on ounces into Magnet? It looks like it's going to be a pretty sizable increase?
Yes. Hayden, it's Mark. I don't have the numbers off the top of my head, but it's driven obviously by increases at Penny combined with the gradual ramp-up at Galaxy, but probably more importantly, at Magnet is the reducing strip ratio at Eridanus and improving grades at depth. We're seeing that back into it. There was a bit of a lower-grade section that we mined through for 12 months, but we're back into much better grades at Eridanus. So the combination of those 3 things leads to a very strong second half at Magnet. I'm not sure if you've got the numbers been, but I won't put you on the spot with that. But yes, we can provide some numbers, Hayden.
Yes. And just on, I guess, sort of more beyond 25%, just given you're locking in hedging at almost $3,300 an ounce. I mean does that start to make the Stage 3 cutback at Endemol a more attractive option for you guys to sort of deliver production decline there?
Potentially, you're a little bit ahead of where we're focused on right at the moment. We will be putting out this quarter a new Mt Magnet mine plan, and then probably turning our attention to see sort of 12 months on from when we made the decision to defer Stage 3 where we stand. We're obviously seeing some things in the market labor-wise that are starting to ease. Unfortunately, that's brought about by some closures of operations. But we think in a couple of months' time, we'll dust that off and see where we're at, Hayden.
Okay. And the Mt Magnet plan, is that that obviously incorporates all the stuff, I presume. Is that going to come with an upgrade or an update to that through your guidance?
Yes. The idea with the Mt Magnet mine plan is obviously including any Penny extensions, which we've already flagged. The 2 project in its entirety, and then obviously, the portfolio of projects at Mt Magnet itself, including Bartus, et cetera, a whole list of number. So everything that goes into Magnet out for the foreseeable future.
The next question comes from Alex Barkley from RBC.
A question on that strong Edema production this year. Is that mostly around accelerated mining and haulage -- does that mean it might get pulled forward from FY '25? Or is there other -- some other component to the strong result this year?
It's Mark again, Alex. Stronger performance out of the underground, definitely. Since we've addressed the water issues, which were prominent mid to late last year. The team out there is really hit some decent production numbers. It's a small underground, but they are pushing towards 30,000 tonne a month there. So that may bring forward some production there into '24. The haulage, I think, has been pretty consistently ramping up and the inclusion of signs sort of has added to that. And I think some of the times grades are probably a little better than we might have expected in certain areas of the pit as well. So I don't think we're robbing Peter to pay par. At Edna May, I think it's better performance in the underground a bit better grades and sort of consistent haulage if I could sum there.
[Operator Instructions] The next question comes from Dr. Richard Hart from Top Wheel.
Hello, Mark and Ben, and Happy New Year to you, and thanks for another great performance, which I thought a brilliant performance, particularly with different problems. Obviously, I had a question about it and May, everybody does about what happens next, but I'll leave that 1 alone. One thing I remember talking about I think we time was your hedging oil, I see you have hedged 5 million liters. I just wondered how does that 0.91 price hedge at. I won't judge your great. I'm all for hedging for insurance. But how does it compare with current price?
Richard, thanks for the question. It's Ben here. We put that diesel hedging program in place probably 12 months ago. It's served us quite well, I guess, over the last 12 months and continues to do so, and we have had some cash returned on those hedges, which is good. That $0.91, the price we're paying to that is $0.98. So it's marginally in the money. It has been more in the money over the past 12 months. But getting closer.
It's the rebated figure that...
That's right. Yes.
It's already not the price you see at the service station.
Yes.
No, I understand that. Well, again, congratulations. And interesting area for you to go into, but well done being winners again. Anyway, thanks for all you've done.
[Operator Instructions] The next question comes from Ashley Chan from shareholders.
Thanks again for a nice quarter and a hard work for it. I just have a question on the -- also on the hedging strategy. Can you give some more details on your thinking now for the next 2, 3, 4 years in regards to hedging. You can see production -- production were to be 550,000 over 2 years. Your current hedge book is about 33% hedged. Are you expecting to reduce that to 25%, 20%? That was my first question. And second question or something completely different. As you probably know, the government has put a positive duty on employers to prevent harassment -- sexual harassment at work and the Australian Human Rights Commission probably spot the iron ore industry, Rio and at HP in its sites at the moment, but eventually will come around to the gold industry. What programs or what anti-harassment programs are -- is remaining plan on to implementing or planning to implement over the next couple of years?
Thanks, Ashley. I'll take those ones, Ben. In terms of hedging policy, I think Tim managed late last year reported that the Board is in the process of reviewing our policy. And if there are any changes, obviously, there's not a lot of Board meetings through December, January. But if there is any change, then we'll obviously inform the market on that one. In the meantime, we're gradually running off our book as we have been for some time. In terms of our duty to prevent harassment, it's not something that we've waited to be told that we should look at it or we're planning to. We've been reasonably proactive in that area. When people start with the company, they run through workplace behavior, training. We have a whistleblower line. I think a lot of the goldies have -- a lot of these things in place. We've assessed our sites for safety and security. And we're basically taking no tolerance approach to those who cross the line. Unfortunately, there have been a few cases and those people are no longer working for us or the contractors associated with us. So we've done a lot in that area, and we continue to try to improve.
[Operator Instructions] The next question comes from Stephen Garson from Arie Funds Management.
Just a quick question around Musgrave. What have you seen to date since the acquisition? And when do you expect to -- for us to start thinking about when we should be seeing Musgrave ore coming through the mill?
Thanks for the questions. Dave, I'll answer that. It's Mark. Look, what we're seeing is that the team at Musgrave did an excellent job in terms of drilling the ore body out and preparing resources and mine plans that are pretty close to production ready. Our optimizations and reruns of pits are very similar and very close, which is always comforting. It's not what you always want like that. In terms of production, we hope to be developing in the second half of this calendar year with, I'd say, or first or sort of September -- August, September, obviously ramping up through that period. So perhaps I sense that's earlier than some expect. We've already submitted our mining proposal, and we're on like the third back and forward with the department on that. So assuming we get approvals prior to June, then we should be ready to go from July onwards.
The next question comes from Andrew Bowler from Macquarie.
Quick one for me. Obviously, and the tax refund post quarter end. Just wondering if you're expecting any more over the remainder of the financial year? Or is that -- what are you expecting to see?
Andrew, it's Ben here. I'll take that one. No, that tax refund related to the 2023 tax turn. It's a one-off, I guess, and we don't expect that to be recurring throughout the financial year.
At this time, we're showing no further questions. I'll hand the conference back to Mark for closing remarks.
Thank you, Travis. I'd just like to make 2 points to wrap up. Ramelius is one of the few oligo producers actually upgrading guidance. And therefore, we are expecting to deliver very strong cash flows in the second half of FY '24. I mean as already mentioned, we are on track to deliver our new Mt Magnet mine plan this current quarter, which promises to include Penny, Q as well as other portfolio of projects at Mt Magnet itself. Thank you for listening in this morning. Enjoy the rest of your day.