© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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 Ramelius Resources' quarterly teleconference. [Operator Instructions] I would 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 highlights in the quarter and make a few reference to the actual quarterly report itself before passing over to Tim to discuss the numbers in a little more detail. After that, we'll open the line for questions. Although we, like others in the industry, have experienced ongoing COVID-related labor shortages for some time, it really became apparent for Ramelius during January and February this year with a noticeable impact on the road haulage capacity feeding out Edna May mill. This was the main driver for delivering a lower production figure of 58,602 ounces at an all-in sustaining cost of $1,596 for the quarter. Despite this, with the WA Border reopening on the 3rd of March, we are seeing significant improvements to road haulage tonnages to Edna May with the month of March being up nearly 50% on the January and February average. This has meant all haulage performance above our planned levels for the first time this financial year. But perhaps more importantly is the fact that we do expect to do even better in Q4.
In addition, it just so happened that both processing facilities had planned biannual shutdowns during March, which should allow us full milling capacity in quarter 4, indeed for the next 6 months. As a result, we have maintained that the lower end of our original full year guidance will be achieved, and we are expecting to come in at the upper end of our cost guidance, which is logical, I would have thought. That is, we are now expecting 260,000 to 265,000 ounces at an all-in sustaining cost of $1,475 to $1,525.
I reiterate that we are talking about original guidance here announced last July, not a number that has been adjusted along the way. And I would go as far to say that anyone who is achieving original guidance in the current environment is not doing too badly at all. The return to higher haulage tonnes and overall gold production levels in March and then into Q4 is shown quite clearly in figures 2 and 3 of the report itself.
We have had positive COVID-19 cases both on-site and off-site, but our processes have managed to keep the numbers to just a few here and there at any one time. It's hard to measure the actual impact of these positive cases and the associated close contact quarantine requirements, but our best estimate is a slight impact to production and costs. And while we have increased -- enjoyed increased numbers of road train drivers since the border reopened, there is no doubt that ongoing shortages pretty much across the border are affecting not only miners but many industries across the state. Ultimately, this is unlikely to be resolved by Eastern States labor alone. We will need access to overseas skilled labor to ease the widespread shortages in the market. On exploration, our exploration team continues to deliver some excellent results. Whilst the exploration section of the report is very comprehensive, it is worth highlighting some results from 2 of our projects, Bartus East at Mt Magnet and the Rebecca Gold project. At Bartus East, some deeper drilling has intersected some excellent high-grade results, such as 13 meters at 8 grams per tonne, 11 meters at 7 grams, 24 meters at 6 and 30 meters at 10, as shown on Figure 13 in the report. Bartus has similar geology to Eridanus being only a few kilometers to the south. The potential for not only pit cutbacks on the shallow or low-grade mineralization but for an underground operation on these deeper higher-grade areas is significant. More drilling needs to be carried out, but the feedstock of projects coming through at Mt Magnet is very healthy. Bartus is not included in our most recent mine plan, but we do look forward to its inclusion at a later date. At Rebecca, we are in the early stages of a 75,000-meter drill program, but already we have some nice results coming through at the main Rebecca deposit itself. The 8 meters at 8.6 grams per tonne is significant as it provides further evidence of continuity of the Jennifer footwall lode, which now has a number of high-grade results, but as yet is not included in the Rebecca results or any of the previous pit optimization. This, we believe, shows the exciting potential of this project to grow from its current resource base of 1.1 million ounces. Please refer to Figure 18 to see what I'm talking about here. On the project development front, we have received approvals to commence the Orion pit at Mt Magnet, which is pretty much adjacent to Eridanus. This pit, whilst relatively modest in size, will provide an important oxide component to the mill blend, enabling the Mt Magnet mill to increase throughput in coming quarters. Also at Mt Magnet, we have kicked off work at the Galaxy Underground to reenter the top section of the historic Hill 50 decline, which will essentially be rehabbed as required on the way down to new takeoff positions for access drives to be developed across the Mars and Saturn ore bodies. I have stated previously that given the nature of the ore bodies at Mt Magnet that we would expect extensions to these deposits. Recent drilling generally below the current mine design already points to this likelihood, especially the 9 meters at 4.73 grams, some 110 meters below mine design at Mars and 7.8 meters at 6 grams directly below the current Saturn mine design as depicted on figures 10 and 11 of the report. Last but certainly not least, at Penny, after completing the pit cutback during the quarter, the first portal blast was filed yesterday on schedule of this high-grade low-cost project, which is a credit to the entire team as it was being delivered on schedule, and they have included a rather sticky shot of the blast initiation on Page 9. But the team won't be resting on their laurels as high-grade ore will be hitting the Mt Magnet mill in the September quarter. With that, I will now hand over to Tim.
Thanks, Mark. As you pointed out, the impact of labor shortages during the quarter did hit home quite hard in January and February, which led to the slight reduction in gold production to just above 58,600 ounces. Furthermore, the lower production translated directly to higher Q3 all-in sustaining costs of $1,596 per ounce. In the quarterly report, as Mike noted, you will see that we provided additional information to support our Q4 forecast, which should see us complete FY '22 in line with the bottom end of our original guidance of 260,000 to 265,000 ounces. The costs have not escaped the impact of these labor shortages or indeed other COVID-related consequences. Our all-in sustaining costs are likely to finish the year somewhere between $1,475 and $1,525 per ounce. Despite being higher than we would like, these costs still compare favorably to our peers, which is a trend we strive to continue as we focus on maintaining and improving our margins where we can. Although sales were lower than production this quarter, this is simply a timing difference between the production and sales of gold poured in the last week of March. We would expect this to reverse in the current quarter, leading into 30 June 2022. The average price received continues to increase with a lift this quarter to $2,405 per ounce. This reflects both the runoff of lower-priced forward contracts on a slightly higher spot price environment. From a cash flow perspective, the operations added $13.2 million in underlying cash flow, which is after the impact of approximately $12 million in sustaining and project CapEx and $7 million in exploration. Closing cash and gold balance of $164.7 million was also after the final payments for the Apollo acquisition of $3.8 million, an additional $9.2 million in income tax installments. Whilst there was no material change to the liquidity of RMS during the quarter, we remain a well-funded organization with significant balance sheet capacity that can generate positive underlying cash flow even in tough quarters like the one we just experienced. In addition to our existing financial reserves, we took the opportunity at the end of March to add further financial optionality by finalizing $100 million corporate revolving syndicated debt facility. At this stage, the facility remains undrawn, but it is now in place for potential use to support either a corporate transaction or to provide additional capacity for existing project development opportunities. Lastly, just a quick update on the hedge book. During the quarter, we delivered into 45,500 ounces at an average price of $2,373 and added 35,000 ounces at an average price of $2,660 an ounce. The hedge book at the end of March was 208,000 ounces at an average price of $2,470 per ounce. Thank you all for your time, and I'll now hand back to the moderator to open the line for questions.
[Operator Instructions] Your first question comes from Alex Barkley with RBC.
Correct me if I'm wrong, but I think I heard you say haulage labor is not likely to be quickly resolved with operators coming over from the Eastern States anytime soon. With the higher planned haulage tonnes in the next few quarters, do you see any risks to that plan?
Thanks, Alex. It's Mark. Well, maybe you misheard me. I think since the borders reopened out, we're seeing a step change, and you see that quite clearly in the additional graphs that we put in the quarterly. March is up almost 50% compared to the average of January and February, and we would expect that to continue. In fact, we're actually forecasting better again. So we've noticed quite an increase in access to Eastern States road train drivers. I think I was making more of a reference to shortages in the industry in general. That's not going to be resolved quickly, but we've actually had a nice step change increase in our road train drivers. Apologies if I didn't make that clear.
Okay. No, that's okay. That's been quite helpful. And just sort of a background question on Edna May, we see the original purchase price from Evolution. How are you tracking versus that 200,000-ounce production figure? And if you don't expect contingent payments to reach $50 million without project or the Stage 3 cutback approval, is that going to feed into your decision whether to go ahead?
Alex, Tim here. I can sort of chip in there. Look, if we don't ultimately produce the quantum that fulfills the full $90 million, then we're obviously not obliged to pay that difference. Stage 3 would certainly see, based on the scoping study that we released, would see the full $90 million paid across to Evolution over time. And look, the royalty component of the acquisition clearly does have an influence through the whole financial decision-making progress for Stage 3. But I think in the scheme of things, we're going to be sort of influenced probably more so by gold price and mining costs than sort of a trailing royalty back to Evolution.
Okay. And if Stage 3 wasn't approved, what sort of fraction of the contingent payment would likely be paid?
Well, we've paid obviously the 40, and we've paid approximately, I think the number is about 18 million through the 50. So we would anticipate current mine plan, we're excluding Stage 3, probably another 5 to 10 being paid. And then with Stage 3 coming on, the balance would kick in.
To be clear, Alex, we're well in excess of the 200,000-ounce hurdle. So we've already started paying $100 an ounce on our underground production. But we see that underground going for some considerable time. So without a Stage 3, ultimately, you would get there one day. It will take you, obviously, a fair bit of additional production to get there. We're up to, what, 58 of the 90 as it stands today approximately.
The next question comes from Andrew Hines with Shaw and Partners.
Well done getting through. It's obviously been a very tough period, and thanks for those charts in the quarterly, help me understand that step-up from February to March on the haulage, that's useful color. Just a couple of questions, just in terms of some of the exploration and new resources, just to get some sort of sense in the materiality of these. So you've made some comments that the Orion pit will gain some oxide material and that will then come into the Mt Magnet mill. Can you just sort of give me some sort of metrics around what that actually means? Is it a change in grade? How much throughput? What percentage of fee comes from Orion? And then secondly, the Bartus East prospect, obviously, you've gone through all the work at the moment sort of defining what that actually looks like. But again, in terms of materiality, just to give us a bit of a sense of how big that is, can you give us any sort of reasonable range around the size of the potential resource there?
On Orion, Andrew, you might have noticed that our throughput at Magnet quarter-on-quarter is down. And that's without having a decent oxide component and having purely a fresh rock feed. So let's say the grade is similar, but it will be a tonnes game and you'll be able to -- we still say that the Mt Magnet mill is full, but the reality is when you've got an optimal blend, you can get more tonnes through. So I would look back at previous quarters and would revert back to that. But -- so I wouldn't want to guess the number, but it's material in terms of additional tonnage that can go through that mill at a similar grade. In terms of Bartus, it's -- the [ GAs ] wouldn't want me to be guessing on resources and so I won't do that. There were some similarities with Eridanus, but it looks like there might even be some more higher grades. So it might be a smaller pit but have more potential from an underground point of view. So we probably need another 3 to 6 months of drilling to get close to a resource on that at the moment. We don't have anything on the books. The guys -- because it's the stock work with high-grade veins, it does need more drilling than just a simple geometry ore body. So we'll prefer to do that before we start to make sort of any estimates on resource and grade, et cetera.
I knew that it'd be your answer, Mark, guessing on it. But in terms of when you expect to report that it won't be with this -- it won't be with the June, July resource numbers that you normally put out. It will be sometime later in the year then?
Look, I'll probably push the guys to have something in June, July. That makes a lot of sense. So we'll do what we can. It's just drilling results, modeling, et cetera, et cetera, it takes longer than it used to. But look, that will be the aim is to get it into our resource report for that point in time, middle of the year.
Next question comes from Andrew Bowler with Macquarie.
I guess, I had a lot of my questions answered there. I guess just on Penny West. I did jump a little bit later. I heard you talking about it, maybe you mentioned it earlier. You talked about in the release of a potential decline to that area for a bit of exploration. I'm assuming the plan is there sort of get stuck into Penny North and get producing before that all happens?
Yes, thanks, Andrew. Definitely. I just made mention that we'll put in a little take off not far down from the portal to give us access across to Penny West. And we'll look at that probably in the next 12 months as to at what point we put in an exploration decline so that we can drill that Penny West resource, which I've got no doubt has got potential underground potential there. But you're right, we don't want to be distracting one bit from our Penny North production, which is definitely the focus. It will just be a stub takeoff and a bit of planning in preparation for that Penny West work.
And also just on the timing of Penny, I know, you sort of mentioned that it is on schedule for first or next quarter. Is there any sort of risk around a potential ramp-up in terms of stopping, staff shortages and that sort of stuff? And I guess before that, is [indiscernible] development tracking, I don't know, obviously you've only just started there. But are you expecting any impacts from labor shortages there or are you making it a priority and you're sort of manning up there first before anywhere else?
Yes, it is a priority. It's very important to the business going forward. And we do have the benefit of having rock mining as a contractor. We also have them at Vivien and at Edna May. So we can move some people around and ensure that our priority areas are looked after. So I think we're going to benefit from there from the content. It's relatively small number of people, 60 to 70, but we also get a benefit from the contractor that we've chosen.
Your next question comes from Stuart McKinnon with The West Australian.
I just wanted to drill down a bit further, Mark, on your comments around foreign labor. I don't know how much thought you've given to it. But I'm just wondering, are you thinking more along the lines of like an expansion of the permanent skilled migration program or is it more sort of around sort of temporary working basis or were you thinking that it would be helpful for reintroduction of something like the 457 visa system? I was just wondering how much thought you've given to how we could get more foreign labor into the country to aid that labor shortage?
Yes, I haven't given it a detailed thought, but the 457 program was pretty effective and I do remember we had employees under that scheme. At the moment, we have a certain number of vacancies and they fluctuate up and down, and I'm sure every other business has got the same thing. If they could be filled -- at the moment, you're not going to get to zero, I don't think you're going to get to zero in most scenarios, but you've got no chance in the current environment. And if you're able to fill them with overseas skilled labor, then we wouldn't be the only ones putting in our hand up. So, I'm not sure exactly what the detail of the design of the program is, but I think it's not going to solve itself and you probably heard that from a number of others.
And Mark, is it just -- currently is it just off the cards, like it's completely impossible to get foreign labor over and into working for the company, is that almost mission impossible?
Well, not that we've looked into that detail. But look, I imagine given borders just opening up and people are just able, I think it's really been impossible to look at that closely. What we're allowed to do, we'll be exploring, I think, along with others now -- going forward now that we've got borders and removing vaccination requirements, quarantine requirements, et cetera, it opens it up. But we have to go back and have a look and see what ability we have there because at the moment it hasn't been looked at for 2 years, let's be honest.
[Operator Instructions] Your next question comes from Larry Hill with AIMS Asset Management.
Just the timing of the debt facility and what that might mean for opportunities you're assessing and cash versus script offers and, yes, whether you do use that debt as -- are you thinking maybe ring-fencing that for some specific development opportunities for some [ drop out of some ] more inorganic opportunities?
Larry, it's Tim here. Thanks for the question. I suppose, fundamentally, we have the philosophy, I suppose, of putting debt facilities in place when you don't necessarily need them. Banks tend to be a lot harder to extract funds from when things are tight. So you put them in place when you don't necessarily need the funds. It's a 2-year plus 1 term and for all intents and purposes we can use it on whatever we like. There are obviously certain minor restrictions that apply to any facility of this type. But at this stage, we're really quite open to where it's used and where it's best used for the business. So flexibility is there for us. We don't and haven't yet assigned any sort of particular purpose for it. But I guess, as I say, the flexibility in potential uses remains. We'll see how the project development pipeline, particularly at Mt Magnet develops with some of the recent exploration results as Mark pointed out and with the Galaxy underground underway, we do have some very strong cash flow coming from Penny, that's one of our stronger assets looking forward. But look, it's there, it's available for use and around a corporate transaction, it would really depend on what type of transaction that is as to whether or not it's a debt cash script type mix. You would have seen what we've done in the past, and comparable sized transactions would probably suit a similar structure, but we'll have to wait and see for what that next transaction looks like.
Next question comes from [ Richard Hart ], a private investor.
The recovery in March with trucking was amazing, so well done. My first question is about the Magnet mill. I haven't heard anything lately about that. Is it still being considered an upgrade to increase throughput?
Thanks, [ Richard ]. At the moment, we put that on hold pending some of these studies and some more work at Mt Magnet. I think you'd know, there's a strong sort of plus 10-year runway to go back and look at that again. When we looked at it last time, the refurb was going to cost us more. And the return on capital just wasn't there. So we sort of understood that you'd need a really strong runway to maybe make a 13-year and bring that back into a 10-year life of mine because that's one of the things that does happen when you expand a mill, you reduce your mine life. So we're looking to build out our mine life at Magnet. So I suppose post our next mine plan update likely to be later this year, we'll potentially go back and have another look then.
One last question about the Bartus East, which has got some nice results, I must say. It seems like you're suggesting there will certainly be a mining effort there. The Bartus South is quite close to the Bartus East and looking at the drill results, is there -- actually, a bit put off on the right-hand side of that diagram, it goes from 100 to 300 below surface. But looking at the diagram, is it at all feasible that Bartus South could become part of a pit?
It's feasible, [ Richard ]. It's feasible. Back in the day, we must have an error on our scale, our debt scale, good pickup. I'll talk to our draftees on that.
I think that's 300 meter below...
It could be 200.
It could be 200, [ Richard ].
Yes. No, I worked that out on the other side. It's 200 on the other side is right.
Yes. The story goes that the original Bartus pits and Duncan Coutts, our COO was here in our mine though. In his terminology, they are real honey-pots. So he's, obviously very supportive of us drilling below and around these pits because they were very good back in the day at a much lower gold price. So look, we'll see what the optimizations tell us once we drill those things out. Bigger is better as we're seeing with Eridanus. So look -- we'll look to exploit everything that's there, [ Richard ] .
Okay. Well, sorry, carrying on from here. Has there been any drilling to the South or Southwest of the Bartus South?
I couldn't answer that question, [ Richard ]. But I'll go and ask the guys and look, because it becomes a focus, we'll look to put out some more detailed information going forward with maybe more than just one section, we'll put some plans out as well.
And well done in trying times.
[Operator Instructions] There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Thanks, everyone.