St Barbara Ltd

ASX:SBM

Earnings Call Transcript 2018-Q3

[Operator]

Thank you for standing by, and welcome to the St Barbara March 2018 Quarterly Report Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bob Vassie, CEO. Please go ahead.

[Robert Scott Vassie, MD & CEO]

Thanks very much, and good morning, everyone. Thank you for joining us for St Barbara's March 2018 quarterly report briefing. Today, as usual, I have Garth and Rowan with me; also, Stean Barrie, GM, Tech; and Lucas Welsh, GM, Finance and Procurement.It's been another very positive quarter for the company. Though for once we have had no new production records, our operational cash contribution was the same as last quarter at $79 million, and our cash balance grew $46 million to a total of $262 million, demonstrating the robust cash flow generation of our operations in what was planned to be a lower production quarter.We continue to invest in promising exploration companies and made strong progress in our organic growth projects, studies and exploration. At Simberi, we've increased guidance, and at both Simberi and Gwalia, we're kicking off new and very interesting studies and exploration campaigns with the potential to have significant impact on the company.Turning to Slide 4 for the highlights. We produced 86,000 ounces in December quarter at an all-in sustaining cost of AUD 982 per ounce, a moderate quarter by our standards but not unexpectedly so with both mines performing to plan. Year-to-date, we are at nearly 284,000 ounces, so tracking appropriately to meet our increased guidance of 375,000 to 392,000 ounces. Guidance has increased largely due to some various ongoing excellent performance, and we're on track there for our fourth consecutive year of production growth. Later, I'll touch on our Life of Mine Plan for Gwalia out to financial year, what, 2031 and also look at our free cash flow generation and how we've been using it.Slide 5 covers safety, as we usually do. Our injury frequency rate increased slightly during the quarter because of a single [indiscernible] low-severity injury, one injury, a cut to the arm. Our serious injury management, which is lost time injury frequency rate, remains the same as last quarter, well below the benchmark rate. So to put that in context, that's [ 8 ] relatively minor injuries so far this year, sort of sprained ankles, hand injuries, lacerations and the like. We only had 5 last year, and that shows us that 0 is indeed possible and that was what we'll be shooting for.Slide 6 covers the consolidated production and cost profile. And in detail, Slide 7, Gwalia had a lower-production quarter as we predicted, in line with our expectations. Just to explain why that is. Obviously, we're in very stunning grade, but the impact was on tonnage, and 3 factors impacted the tonnage for the month. Firstly, we chose to prioritize South West Branch. We had been mining West Lode, which we have always wanted to set up. But given that we're constructing the GEP projects, we wanted to get back in the South West Branch and had to catch up development there to get rock on the ground. But also at the same time, it became time to reset the chevron of our mining front.As most of you will know, we manage ground conditions well by doing center-out mining, creating a V-shaped mining front over a number of levels or what we call chevron. As Gwalia dips downwards at 45 degrees, it also plunges away to the south, meaning that the point of the chevron over a couple of years just to the north has to be periodically reset back to the center. A reset means the first state from a new level rather than aligning with the center of the previous level was, in fact, under the third or fourth state in the southern side of the orebody. This can only be managed by delaying the start of a new level until the stopes above have overtaken where the reset point of the chevron needs to be, meaning, effectively, long way of saying, that we only have limited numbers of mining bases available, maybe 2 and in some cases, rather than usual, 4.Now we're through all that now. It has to be done to maintain our favorable geotechnical situation. But as I say, we've taken the opportunity to do that now. Fortunately, we did that reset when we were producing from some very high-grade stopes, giving us a record average high grade for the quarter of 15 grams per tonne, which mitigated the drop in tonnage somewhat.In addition, and I'll talk more about this shortly, we're going flatout with some extent -- with some of the extension project work task that require mining resources, and this was an appropriate time to be using them in non-immediate production tasks. And also, with the raiseboring now underway and going pretty well, we're dealing with more wastes, as we've always planned to do. But now we're set up, got stopes online and we've moved the chevron development in place and we're still in the high-grade part of the orebody. So we're expecting a very strong final quarter from Gwalia, and that's why we've maintained our guidance.In Simberi, moving on Slide 8, produced 29,000 ounces for the quarter. A illegal strike in March had an impact for 7 days. So let's say roughly 21,000 ounces might have been lost there, which we're catching up. Generally, that was a bit of a misunderstanding around leave and rem structures, which is a bit odd as these structures have existed for 3 years and conditions have improved significantly since our ownership of the operation.While it was an illegal strike under PNG law, we don't have a unionized workforce there. And rather than terminate people not coming to work, we chose a more conciliatory path given the strong relationship we have with the communities on their island. So we took time to involve the Department of Labor and clear things up properly.Slides 9 and 10 cover our cash balance and cash flow and what we've been doing with it. We've been building robustly our cash balance even with some significant extension project spending, income tax payments now that we are paying tax. Dividends, glad to be paying dividends again, and indeed, investments in the exploration companies happening over these quarters. It's also worth noting that cash contribution from operations was unchanged at $79 million quarter-on-quarter even with the lower production. Very pleasing to see that.Moving on Slide 11, Gwalia Extension Project updates. That's our main organic growth initiative. It's a $100 million project commencing in March of last year and is on time and on budget. The full project is expected to complete -- be completed at the earlier end of our guided range as we announce scheduling and committing to current raiseboring activities, doing more than one at a time in some parts of the sequence.So we had guided a 2.5- to 3-year project lock to completion. With the sort of concurrent activity, it'll be closer to the 2.5-year time frame and might be even earlier. Obviously, raiseboring is something that you can't always predict to accurately, but the current raise-bore shaft is going pretty well. But we're confident we can bring in those in a good time.The PAF component of the project, which is the paste aggregate fill equipment that crushes our waste and mixes that with our paste and keeps all that waste underground as we fill the stopes, is essentially a project within a project. It's not by itself on a critical path, but we hope to have it in relatively early. It has been delayed, but it doesn't impact the overall path -- critical path of the project, which is dependent on raiseboring.On PAF, the manufacture and delivery of all components of the PAF system is now complete. We've got the pump in last week, but it was late. We've got the equipment supply late. Further, we made some design changes for the benefit of long-term maintainability and operability of the system, which delayed the final design and execution of stripping out the cabin's [ berth ] to place the equipment in. For example, we want monorails over here to be able to lift pieces of equipment out. We want access to the side to be able to maintain and clean easily.Finally, the long hole for the high-voltage feeds straight from the surface, down to 1420 level, heading straight into the PAF equipment has experienced some difficulties hitting the target. That's got to hit right into where we need it to come out from the surface. And all this means we'll likely complete PAF in October. And while this will not impact the overall Gwalia Extension Project cost and completion time, the sooner we can get PAF done, the sooner we can deal with all the waste generated underground. Fortunately, the team has been able to set up more stopes to carry disposal waste and even use raise-bore chippings to shoot the raise. So I think it's better to make sure we get this project right and set out for the long term.As I mentioned, raiseboring is going well. We're halfway through our first 5-meter wide, 923-meter long raisebore to surface. And the pilot hole for the second surface shaft is heading downwards, now past 160 meters. Just in terms of the guidance of growth capital, obviously, with a bit of a delay in PAF, that's pushed out some of the costs into the next financial year. And as a result of that, we've revised our guidance for growth capital now to $45 million to $50 million rather than $50 million to $55 million as was previous. So that's just a timing impact.Gwalia Mass Extraction, Slides 12 and 13. Last quarter and our half-year report and presentation, we outlined our 5-year plan for Gwalia and our long-term plan and vision for Gwalia based off a pretty sound pre-feasibility study entitled Gwalia Mass Extraction, or GMX, as we call it. The project, much like our currently running extension project, combines what are already proven, reliable component technologies and techniques in innovative ways. The feasibility study is now -- work is now underway.Slide 12 just gives you an outline at which we discussed last time on the basic concept. Essentially, we're just boring and we're not making shafts. We're boring 4 holes down to 1,500 level. Two of those will be pumping holes to production rate to pump the material to surface. One will be a backup with the pumps. So that if we maintaining a pump, we can always run 2 lines. And there's a return line to return water down. And of course, crushing -- 2-stage crushing and high-pressure rollers infrastructure to crush our ore down to the size of sands and mix with 50-50 of water pumped at a single stage to the surface.A bit more detail of what would happen on 1,500 level, as a flow sheet, is presented on Slide 13. The feasibility study is going to carry a few variations on the theme and for that circuit in terms of how we actually get the size down, what's the final step after 2-stage crushing, so high-pressure rollers or something else. And also, we will carry options with 2-stage pumping that we're pretty confident coming off the shelf, pumping equipment that would be able to go up in one stage.Slide 14 just covers the deep drilling. Obviously, we don't have any particular results this quarter, but there's a lot happening in the next quarter because currently, our deepest yet, 2,600 meter below surface hole, is within 100 meters of the target today and we'll finish within this month So we're staying tuned for that. In addition, next quarter we're going to drill the holes off one of our recent 2,000 to 2,200-meter below resource definition holes to further investigate a potential southern extension. We've received the approvals to commence drilling the north and south of Gwalia seismic targets that we've been talking about that came from 3D seismic survey that arrived alongside our Gwalia orebody, the ones about halfway down to the north and ones to the south. You can see a couple pictures of that in the long section and plan on Slide 27 in the appendix. So we're about to pump a couple of holes into those targets and see how we go there. In addition, we've identified potential features within the 15-kilometer square area we've surveyed around Gwalia. And we're going to do some more seismic surveys, 2D surveys to the north just on a reconnaissance basis and 3D surveys to the south on a more definite feature that we think might exist there.Our regional exploration of Horsepaddock Well, which is 20 kilometers north of Gwalia, bearing in mind that we got [ 60Ks ] of strike of grounds up that trend covered and now packaged. So we've done -- we've gone in there with induced polarization and sub-audio magnetic techniques, and that's been completed and we're looking at the results which feature the characteristics of the disseminated sulfides that we're looking for. And so we're very likely to be drilling in that area in the future.Just more broadly, we're starting out in trial in Leonora province landholding of 320 square kilometers, but then we tend to speed up our IP and same-type exploration. There's a large number of mature and greenfield types prospects there. Usually, these are being drilled to a shallow level a long time ago. But now that we're building up expertise in modern and deep performance of geophysical exploration, we're going to accelerate our exploration program in our own backyard.Our other exploration areas, Slide 15, are progressing well. We're due to actually start our Back Creek project in New South Wales in the coming quarter with various -- and also various ongoing RC and AC programs in Pinjin, northeast of Kalgoorlie. We're there [ rowing in ] on 3 main areas in Pinjin. That's Graham's Find, Yindi station and Mulgabbie trend. All 3 are going to be explored further.We're doing 2 new things at Simberi Island, both very positive and exciting. We're diamond drilling a single hole beneath our existing Pigiput pit for porphyry-type mineralization. Obviously, we're doing that with our joint venture partner, Newcrest, in the other islands, but this one's beneath our working area, so we're doing that ourselves. And we're doing an RC program for sulfides beneath Sorowar Pit, hoping to significantly increase the sulfide deposit size in order to improve the development case for that orebody with existing 1.4 million ounces at 3.5 grams, and if we can increase that, that will make a lot more attractive to us.On Tatau Island under our option and farm-in joint venture with Newcrest, we've -- our initial diamond drilling campaign of the Talik North porphyry target is complete. So we were just planning 3 diamond holes there. We've got results of 2 of them back. So we've done 3 holes and have results for 2. Some copper and gold is present as well as plenty of mineralization distinctive to porphyry style systems. The plan is now to move on to drill test in a similar fashion the other 2 primary porphyry targets that we have and then look at all 3 of them and work out our plans from there.Growth pipeline, Slide 16. You've seen that now, so I won't dwell on it much. Obviously, we're populated a bit more inorganically with the -- at the early-stage projects due to the mining that happened just in this current quarter and ABM. Both of that, I won't talk in further detail there, but both ABM and Duketon are consistent with our previously announced criteria for investment where we like the ground, that got a strong ground or dominant ground position in their area and have got good teams and putting the money into the ground.Slide 17, just to keep you on track with our various organic projects and exploration and their time lines, just to put that all relative to each other. And I'll finish with Slide 18, which is our strategy. I think we talked about this before at a high level with -- it's pretty simple, but a lot of work has been going with the management and the board to establish our strategy for where we want to take the business. And it relates to inorganic opportunities as well because we are seeking to diversify our production base. We've got such a wonderful asset at Gwalia and great opportunities at Simberi. But we want to be able to have a more diversified gold production base.And if we can do that, then we want to be able to go longer and that might mean look at second waves of acquisitions in terms of perhaps being more interested in development projects that go out a bit longer, and then make sure that we've got a quality grade pipeline that's well stopped in each -- of each of the phases' early stage through the studies and through to development and operations. And we can only do that with talented people who deliver. And as we all know, in the world today, you can have all those things in place but you got to be trusted to operate where you operate.So in conclusion, we've had a moderate production quarter as planned but with continuing excellent free cash flow from the business. We're making good progress on exploration and our organic growth opportunities, especially the Gwalia Extension Project. We're working hard on the future of Gwalia with the Life of Mine Plan now out to 2031 and only limited by drilling. We continue our focus on potential inorganic growth, and we're well positioned to do this with our balance sheet and where we are today and bid only where it makes sense.We're now happy to answer any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from Michael Slifirski from Crédit Suisse.

[Michael Slifirski, Managing Director]

A couple of little questions. First of all, with respect to that Sorowar Pit drilling, what you've done to date. I don't think you reported in your results, but are you seeing the extension of sulfides that you're hoping to see?

[Robert Scott Vassie, MD & CEO]

Yes, what we are -- yes, it's a good question. We've just -- we initially tried to get our grade control down, rig down and drop holes down to the bottom of the pit. But it didn't have enough [ holes ]. So we've got a booster arrived and we're now drilling properly. What -- the holes that were starting to get into the target depths, which is between 50 -- positive 50, minus 50 RL on that regime, are -- which isn't that far away, is -- all of that area is sulfide. So we are seeing sulfides but below the oxidized level. But it would appear that what you've got to do is find these high-grade shoot areas because that's exactly what we're seeing in the existing reserve, the 1.4 million ounces largely on the Pigiput. And so it's going to take a bit more drilling to see how -- and we are seeing those type of features, but we'll need -- we're doing 60 by 60. So we'll have to -- initially. So we'll have to do a bit of drilling to see if it's going to make up for some of the pictures in the next drill bit.

[Michael Slifirski, Managing Director]

Do you have a concept as to if this is successful, how long it takes -- it might take to get the drill depths to the end to define whatever is there that gives you -- gets you to a decision point as to whether you have enough ounces to get the return to make the capital project work?

[Robert Scott Vassie, MD & CEO]

Yes, what we are doing is being poised there. So the 60 by 60 program should be completed in June. So we're not far away, and we're getting a good rate of holes into it now. And that will tell us -- that will give us a good broad indication if it looks similar to the other pit and give us a bit of an idea of whether we are now going to double that deposit or add a significant chunk to it. And if that's the case, we really would accelerate our efforts at that point while we go and do 30 by 30 until -- or potentially from the mapping that we're doing targets, certain high-grade areas. Anticipating that we might be fortunate there, we are gearing up. I mean, we're already working on the EIS for the sulfide project. And some of those long lead items of -- and we've put the renewal of the mining lease. And so we're dusting off ideas that we might look at as to whether we'd put more milling capacity in the front of the plant or even consider oxidization on the island as opposed to putting a concentrate out. You can start one way and finish another, but we're gearing up to hit it pretty hard. But I think it will be over the next couple of months that we'll be able to see if the orebody is going to support a harder push.

[Michael Slifirski, Managing Director]

So broadly, you're seeing the potential that you might actually have a production hiatus between the end of the oxide and perhaps sulfides? Or does it still look like there could be surprises?

[Robert Scott Vassie, MD & CEO]

Look, I think there would probably likely be a hiatus, but there's a couple of options there because you would perhaps use your workforce to build the -- to help you build the floatation plant and concentrate handling. But also, we have the ability to narrow our costs quite down to look at low-grade stockpile areas that have [ formed and now they're cut off before ], and also high-grade sulfides that we recover horribly in the plant, but you could still push them forward through. For example, if you got 50% recoveries on your sulfides through your normal leach plant, you'd be throwing gold away, but the grades more than double where our current oxide. So there might be some nifty little things you could do to help yourself in the interim. But we'll be able to get a better picture on that at the end of the financial year.

[Michael Slifirski, Managing Director]

And then with respect to the Simberi guidance upgrade you gave a little while ago, what delivered that? Is that fundamentally just better plant performance, greater reliability than you assumed? Or is it something you've done that's allowed you to push a little harder? Just trying to understand what drove that upgrade.

[Robert Scott Vassie, MD & CEO]

Look, I think if you look back at the data, the mining phase has been going really well. We bought secondhand gear, as you know, and -- but we've got 400 to 1,200 excavators, so they're not running around the pit. They're just solidly poking out the depth, and just increased training and effectiveness in getting those tonnes out. And that allowed us to really get waste out of the way and have access to different parts of ore so that we weren't getting waste down or more muck around in the mine plan. The [ rope cons ] has been going fantastically well, and we are planning, given how well it's going and the potential to use it longer into the future with the sulphides, is we are going to do some major work on that probably early in the next financial year just to make sure that we keep it structurally solid. And then the plant has really just hit its strides. It's just going flat out in the [ segment ]. So all of those features are working well together. I think you'll also notice over time, we have been able to consistently hit the middle -- the recovery that our metallurgy suggests we should get. And all those features have come through to -- and consistency of performance. There was a bit of an upset to have 7 days delay, but it looks like we're on track to really be making that up and deliver quite an amazing year for Simberi.

[Michael Slifirski, Managing Director]

And then finally, the terrific Gwalia grade was -- and you've talked about this many times in the past, the high-grade shoots that you don't model, it was 15 grams as per modeling? Or was that better than what you'd expected?

[Robert Scott Vassie, MD & CEO]

Look, it was 2 things. One is that, that the -- we don't have many choices of which stopes we take. So we can't say, look, we're going to be down on tonnage. Let's just go to these high-grade areas geo-technically. But what had happened is we had developed our south to South West Branch some 80 meters away. And we actually were mining South West Branch, which is a bit lower grade. We're actually using pillar island method there to get a longer strike, which is what we'll use in the future in some areas. And -- but given that we are raiseboring and we could see that we have to reset the chevron, we re-prioritized back to South West Branch. We -- and the stopes that we could take in that sequence while we're waiting for the reset did have high-grade shoots in them. But we won't -- apart from prioritizing South West Branch away from West Lode, we didn't have the choice of which stopes we took in terms of [ best picks ] and high-grade ones. Those ones had -- but we're in the real high-grade part of the orebody. That's where the shoots tend to pop up as well.

[Operator]

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.

[Robert Scott Vassie, MD & CEO]

Thank you.