St Barbara Ltd

ASX:SBM

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to St Barbara's FY '23 Q3 March quarterly report and presentation. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to your first speaker today, Mr. Dan Lougher, Managing Director and CEO. Thank you. Please go ahead.

[Daniel Lougher, executive]

Thank you very much, and good morning, everyone, and thank you for joining us today for St Barbara's Q3 quarterly report briefing. I'm pleased to join you on this call from Perth, the land the Whadjuk or the Noongar people. And I have Lucas Welsh, our CFO; and Andrew Strelein, our Chief Development Officer, also on the call.

Today, I'll be taking you through our safety performance, the key points of the quarterly and details on the performance of each of our assets. Then Lucas will take you through our financial position. And to finish up, Andrew will outline the recent announcement of the sale of our Leonora assets to Genesis.

Please note the disclaimer on Slide 3. I would just like to do an Acknowledgement of Country. I would like to begin by recognizing the traditional owners and First Nations people of the lands on which St Barbara operates in Australia, Canada and Papua New Guinea and pay my respects to the elders past, present and emerging. As always, safety is first. And as we are moving into a significant change at St Barbara, it is critical that we maintain focus on our safety. It's bearing in mind that we are running 2 operating offshore operations. And as you're all aware, Gwalia, which is now mining sort of at -- down to like 1.8 kilometers without decline development. So quite a deep operation, and safety and how we performed at those operations is critical to the success of the company.

I am pleased to see a reduction in our group TRIFR, down from 4.7 to 4.3. Whilst it's sort of a downward trend, there's still a lot of hard work that we need to do, and we still managed to have 3 recordable injuries during the quarter across the group, which is 3 too many. We will continue to work at our operations to make sure that all safety aspects are well entrenched in the workforce, and we will ensure that at Gwalia and Leonora operations similarly, if -- when the deal goes ahead in July 1, that the operations will be in good and excellent condition for our partners.

Now I'd like to just touch on a few of the Q3 snapshots. The third quarter was another challenging quarter for us. We produced 59,000 ounces of gold at the all-in sustaining cost of $2,523 (sic) [ $2,553 ] an ounce. As we announced previously, we've had some issues at Gwalia in our stoping areas, which has impacted on obviously our tonnage mining rates, which delayed the overall tonnage coming through to the mill and also delayed accessing other stoping districts whilst we, I guess, repaired or fixed the stopes that were poorly blasted. So obviously, there is room for improvement, the issues which we are resolving with equipment and also with on-site training for personnel in accurate drilling of long hauls and also with the loading of the explosives as well, ensuring that we get good quality blasting, which is critical to -- in the mining of, I guess, 3 lift stopes, which is somewhat a bit more complicated than just one blast per stope and then straight into bog, et cetera, et cetera. So we are working on that. And I am sure that we will be seeing signs of improvement in the June quarter.

Pleasingly, though, the other 2 assets have performed mostly in line with expectation. We did suffer some production shortfalls in Simberi due to lower mining rates, and that was associated with per truck availability and long haul to waste dumps. And Atlantic has performed actually quite well in completing mining at Touquoy and transitioning the milling now from -- to stockpiles, which we've generated over the last 12 months.

Our cost per ounce basis came down despite the lower production, which of course, is a great result and driven predominantly by lower corporate costs and sustained CapEx and better cost performance, as I said earlier on, at Atlantic. Sustaining CapEx was lower, predominantly at Atlantic, which in the previous quarter needed to complete the final tailings lift, which enables us to process stockpiles until August, September this year.

As I've mentioned many times, we have downsized and are currently downsizing our corporate office and reducing our overall costs in this area. And whilst this will take, I guess, several quarters to actually get to the final sort of numbers of people and personnel and, obviously, bearing in mind the potential transaction effective 1st of July as well and how that impacts across the group as well. On April 4, we did announce an update to our Leonora and group production guidance, and we retracted the cost guidance. Today, we've updated Leonora and group cost guidance to reflect the production that we mentioned on April 4. The Leonora guidance now will ben $2,650 to $2,750 an ounce. And the group guidance as a consequence will be $2,500 to $2,650 an ounce.

Atlantic and Simberi production and all-in sustaining costs has been maintained, though we are now guiding that Atlantic will come in at the bottom end of its production guidance and probably as it [ comes up again ] towards the top end of its cost guidance. We generated $30 million in cash from our operations this quarter, $26 million coming from Atlantic and Simberi. You can do the math work out what came out of Gwalia. I think it's $4 million. The news we announced 2 weeks ago marks a new era for St Barbara. The sale of our Leonora assets to Genesis, I believe, is the best path forward for our company. The transaction produces a debt-free vehicle for delivering a fully valued Simberi and Atlantic while giving our shareholders direct access to the Leonora consolidation through the distribution of Genesis scrip.

Andrew will address the transaction shortly. But firstly, I'll go through some of the details on how each of assets performed in the quarter. So we're currently on Slide #8 which is the Leonora Q3 results. Leonora produced 31,000 ounces of gold in the quarter. Disappointing, which as we had anticipated this to be a much stronger quarter than Q2. And as I mentioned earlier on, I guess, a domino effect of not achieving good outcomes in some of our blasting in our big stopes meant that access to other parts of the stoping fronts were not available to us. And not going into too much detail, but the rework to actually reaccess the stopes and to basically blast the ore that was left and which shouldn't have been left behind, but unfortunately takes a bit of time, and that knock-on effect basically pushed us into what we got as our Q3 result. But obviously, we have to work hard to ensure that these poor practices don't continue.

And as I said earlier on, the -- it's not just a one area, it actually impacts through the full cycle of drilling, loading explosives, firing and then getting in and bogging and then obviously finishing off with -- during the paste filling. So some of these stopes have up to 60,000 to 70,000 tonnes of ore, so we don't want to leave any of that behind. But unfortunately, it does mean that there's a knock-on effect with the delivery of the quarter. Additional development ore was mined in an attempt to reduce -- to drop settlement, reduce stoping tonnes, and we should be moving into a much better FY '24.

We did talk about other drivers in terms of where we are in the mining sequence and having some, I guess, grade reconciliation issues, which we are now resolving. We've done a significant amount of grade control drilling on the 1,820 level, which will give a lot more confidence into the sort of next 4 years' production. But that's work in progress. The all-in sustaining cost for the quarter was marginally higher at $2,809 per ounce compared with $2,796 in Q2. So not a huge cost increase but really, I guess, the production ounces being lower was the main driver there.

We've also looked at our sustaining capital guidance has been changed from $60 million to $70 million down to $50 million to $60 million due to some changes in the philosophy of the development CapEx versus the operating development down below the current stoping fronts. And our growth capital guidance was also reduced, down $5 million to $10 million from $10 million to $15 million with -- really driven by deferral of some of the Leonora province plans that we had early in the year. -- We have had some success at Gwalia with rationalization of contractors in terms of removing one of the contracts in the upper part of the mine, and that transition has gone extremely well with no extra equipment, et cetera, and reduction in basically staffing levels.

But as I mentioned earlier on, one of the key areas is to maintain our maintenance of the equipment, so we can get them down into the stopes and into development. And that's another part which we're in discussions with our incumbent contractor. I believe that these are starting to pay off, and we will see even better improvements in this area going forward as more and more of the initiatives are entrenched to Gwalia.

Moving on to Simberi. Simberi's production was marginally lower than the prior quarter due to a short haul with dumping options and lower truck availability. And the main driver there is really was we had a massive truck engine failure on our trucks, and we had to import, I think, in the order of 10 new engines. So we are under investigation to find out what was the issue with 10 engine failures, and we will be reviewing, obviously, the type of trucks for our future operations. But with Simberi, everything that fails, you've got to import, so the logistical chain is quite important. So anyway, but overall, a very satisfying result from Simberi.

We now turn on to Atlantic operations. As mentioned, we have completed the open pit at Touquoy in early February and now only processing stockpiles exclusively, and that was a very good team effort in getting to that point. It produced 11,371 ounces of gold for Q3, 5% higher than previous quarter. Some of the grades coming out of the pit were higher grade in the final benches. So that basically pushed some good grades into the mill for the quarter. But we have had -- quite to be aware that earlier in the year, but it's actually been quite mild in recent times. So not really having the major storms that they suffered in previous years, although they did suffer one in October, which stopped production for several days.

So again, I guess, Andrew will cover off on some of the, I guess, the strategic drivers that we were looking at Simberi and Atlantic now, but all hands on deck. I will now hand over to Lucas to go through the cash balance on Slide #11.

[Lucas Welsh, executive]

Thanks, Dan, and good morning, everyone. So our cash position increased to $60 million over the quarter. This was largely due to the $20 million drawdown in January that we did from our syndicated debt facility. So as you can see, the operations generated about $30 million of cash flow, but majority of that was coming from Atlantic and Simberi, with Atlantic generating $30 million, but a result of the consistent production we're seeing through there. But with the cash we're getting the benefit of the reduction in mining costs as now they have completed the Touquoy piece and now transition to processing stockpiles only.

Simberi also generated $13 million. Although production was lower compared with the prior quarter, Simberi was able to reduce the buildup in gold-in-circuit, which we've seen over the prior 6 months returned as GIC to normal operating levels. And this has allowed us to sell more gold than it produced during the quarter. And at Leonora, the $4 million cash generation, that really reflects the lower production that we saw during the quarter.

As Dan mentioned, we've commenced the process to reduce our corporate costs during the quarter, largely through reductions in our corporate office. This resulted in a reduction of our corporate costs from about $7 million in the prior quarter to $5 million in this quarter. Obviously, we'll continue to review our corporate activities to ensure that the -- offers enough overhead as appropriate for the requirements of the company going forward.

Those are always going to highlight this. So with that, I'll hand over to Andrew, who'll take us through the recently announced transaction with Genesis. Thanks, Andrew.

[Andrew Strelein, executive]

Thanks, Lucas. So on April 17, as you probably all know, we announced the sale of the Leonora assets to Genesis for $600 million. Just to recap, under this revised structure of an asset sale, we've agreed to sell the Leonora assets for a headline value of $600 million. The consideration comprising cash of $370 million, Genesis scrip of $170 million at the announcement date, and additional scrip of $60 million, which will be contingent upon Tower Hill achieving source production. Again, those numbers were at the transaction date share price.

Results in share -- St Barbara shareholders having exposure still up to 19.5% of Genesis of the Leonora consolidation. St Barbara itself will be free of debt, a strong pro forma balance sheet with approximately $197 million cash. There'll be a clear focus for the company on delivering the full value from Atlantic and Simberi, where there's still 5.9 million ounces in mineral resources and 3.5 million ounces in reserves.

We also announced -- or Genesis announced that the raising of $470 million, including $70 million via unconditional placement, which has already been offered and filled. A few clarifications in relation to the previous structure. There will be no cross-shareholding under the current proposal, whereas previously, there was a 20% cross-shareholding. Obviously, there's additional cash sitting in the St Barbara entity. The royalties that we're going to apply over Atlantic future production have been removed. And of course, that's a much simpler transaction, giving us a much shorter and clearer path to close. There's no net debt covenant -- sorry, condition precedent, and there's a much simpler predeal arrangements with the removal of the requirements for a scheme of arrangement.

The asset portfolio, as I mentioned before, the -- we've still got 6 million ounces of resource and 3 million -- 3.5 million ounces of reserves lift in St Barbara in those 2 projects, which gives us a lot of gold to work with, particularly at these gold prices. There'll still be pro forma FY '23 production guidance ex Leonora will be 110,000 to 130,000 ounces. So it's still quite a relevant producer in the ASX gold sector, and the combination of cash and listed investments provides us with the strong liquidity and flexibility we need to implement the strategies we've outlined for Atlantic and Simberi.

So in terms of the strategic focus, so we're now on Slide 17. Taking the opportunity to reset the corporate culture and identity, it will be a smaller focused organization with the 2 overseas assets. The overarching strategy along with the key points, advancing Fifteen Mile Stream with Atlantic with and including repurposing of the Touquoy processing plant. Resource extension drilling at Simberi is crucial this calendar year. And with that, plus a number of parallel studies, we'll be refreshing the project development concept next year. We're actively managing -- we'll be actively managing the portfolio. So we have a decent list of investments in royalty and exploration portfolio, which will get greater sunlight.

At Atlantic specifically, we've mentioned in the earlier announcements back in December and then again, earlier this month, outlined the key priorities for us in Atlantic and Simberi. I won't repeat them on the call. They're in front of you. But they are quite an exciting phase for us with the balance sheet to match. So with that, I'll hand back to Dan to close.

[Daniel Lougher, executive]

Thank you, Andrew and Lucas. Just to summarize what we've just, I guess, seen on the preso, it was a difficult quarter, but I believe there are encouraging signs and with some improved cost performance but despite lower production. We've targeted costs and productivity at site, especially at Leonora. And at corporate, we have reduced the size of our corporate office. And as I said, that's still ongoing. And that benefit will come through in our sort of future quarters. And Simberi and Atlantic did generate some good cash, and I'm pleased with how that went.

Andrew has covered off the actual transaction, but I'll just quickly reiterate. St Barbara shareholders received $600 million in consideration for the Leonora assets, which compares favorably to our enterprise value of $639 million. We will -- St Barbara will retain 100% of the 5.9 million ounces in mineral resource and 3.5 million ounces in reserves at Atlantic and Simberi. Very importantly, we will be free of debt with a great asset portfolio as well in addition to the gold in ground. And our shareholders will retain exposure to a consolidated Leonora province through the distribution of Genesis shares. I'm quite excited by this transaction between St Barbara and Genesis, and I do truly believe it to be the best way forward for our shareholders.

With that, we will now open up for any questions.

[Operator]

[Operator Instructions] The first question comes from the line of [ Gopal H. ].

[Unknown Shareholder]

I am not following the quarterly results as an investor, I'm a very retail investor like [ momentum investor ]. I have invested in SBM almost an average rate of $2.40. I'm not asking you a professional advice about my investment. But as a Board or as a managing people of the company, what are the chances that we will get back to that kind of share price? I know we have reduced the debt. Of course, we have diluted the asset also. But with all that in mind, I just want to ask or state an informed question, like $2.40 was my average share price I bought. Now we are sitting $0.60. So what is your take about the shareholders, retail shareholders mainly?

[Daniel Lougher, executive]

Yes. Look, that's a good question. I mean I think that, firstly, I guess, where we're sitting at $0.60 today, there are many reasons, I guess. And one of them is, I guess, you could argue, is a very poor performance. And across -- and more recently, specifically Gwalia with 2 quarterly downgrades, so that hasn't helped. We are in a much stronger gold, I guess, environment now. And I guess, as the Board post July 1, we have what we believe to be reasonably good ounces in the ground at the 2 sites. And now the job of the Board is to put in a strategy to deliver value on those 2 assets.

Now you could argue that we've always had those 2 assets, but the position of, I guess, the financial position of the company has been quite heavily indebted to the banks. And not being able to tell you exactly how many dollars we could or couldn't have put into growing those assets, but now we have a clear sight of being able to put more, I guess, focus on Fifteen Mile Stream, for example, over in Nova Scotia and getting into drilling the sulfide resources and converting those into reserves and reviewing our previous sulfide plant for Simberi.

So there is going to be some reviewing on capital requirements. I guess we've been asked, well, Dan, that's a lot of money, you've got $200-odd million. We do have a rehabilitation bond that we have to back, and we will -- we're working through that right now with the regulators in Canada. But your point is really valid. I mean the market, I guess, most gold stocks did have a bit of a plunge and not sort of the last months or so because it's been really probably stronger. Aussie gold miners haven't really done as well as other miners across -- in terms of value adding, which may be to do with our cost structures in where we're mining.

But I can tell you that the focus for all shareholders, including retail shareholders is paramount. And the return of the $170 million in Genesis scrip is obviously a part of adding -- giving our shareholders more value back. But yes, look, I don't think I can give you a hand on heart whether we'll get to $2.40. There's a lot of things in play. And of course, one of that is the gold, I guess, future view of where gold prices could eventually get to, which will drive all share prices up. So I'm not sure if that's answered your question, but thank you for the question.

[Operator]

[Operator Instructions] At this time, there are no further questions from the line. I would like to hand the call back to the management for closing.

[Daniel Lougher, executive]

Well, thank you for that. And it seems like it's a busy day with quarterlies coming out today, so good luck with that. Yes. As I said one more time, I mean, disappointing. But I think the transaction provides us with a new focus going forward. So I think that's what we will be working hard on now and also ensuring that over the May-June months that we deliver as well as we can at Gwalia before -- if the deal goes through and also making sure that Simberi and Atlantic get a reviewed, revitalized focus on future projects, et cetera. So thank you for that, and have a great day.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.