Regis Resources Limited (RGRNF) December 2022 Quarter Update Earnings Call Transcript

Regis Resources Limited (OTCPK:RGRNF) December 2022 Quarter Update Earnings Conference Call January 24, 2023 7:00 PM ET

Company Participants

Jim Beyer – Managing Director and Chief Executive Officer

Stuart Gula – Chief Operating Officer

Anthony Rechichi – Chief Financial Officer

Conference Call Participants

David Coates – Bell Potter Securities

George Eadie – UBS

Operator

[Call Starts Abruptly] [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you.

I’d now like to welcome Jim Beyer, Managing Director and CEO to begin the conference. Jim, over to you.

Jim Beyer

Thanks, Pauli. And good morning everyone and thank you all for joining us on the Regis Resources December 2022 quarter update. Joining me this morning is Anthony Rechichi, our CFO; and Stuart Gula, our COO; and Ben Goldbloom is sitting with us as well.

The December quarter was another one of reliable delivery to plan for Regis. First on safety, our LTIFR, Lost Time Injury Frequency Rate, was steady and well below the industry average sitting at 0.6. As we always say, the health and well-being of our people continues to be a focus of the company. And I would say that in this period where we’re certainly seeing elevated levels of turnover that the challenge continues to be in front of us is to making sure we can maintain that safety performance.

We are very pleased to release – also during the quarter we were very pleased to release the 2022 sustainability report, we saw another year of improvements. And while on sustainability progress, the installation of our 9-megawatt solar farm at Duketon South is on track and we’re expecting it to be commissioned in the June quarter. This will be very beneficial initiative as that both reduces our carbon emissions and also results in direct power cost savings through the reduction of fuel consumed per ton processed at the DSO mills.

Across the business, we saw gold production delivered a plan as the transition of our assets into their production stages, some of our assets into their production stages. We’re very pleased with the progress, which we’ve now delivered three quarters in a row of reliable production. Pardon me. For the December quarter overall, we produced 117,316 ounces of gold for an all-in sustaining cost of $1,760 an ounce – and is Aussie Dollars.

The elevated cost environment continued in the quarter, however, we have seen some recent easing of this pressures in the area of cost of diesel, pleasingly. With the planned increase in production and a continued effort on cost management, we remain on track to deliver production guidance, but we are seeing – are expecting that our AISC will be at the top end of our guidance range.

With the approval of Garden Well mine exploration decline, which we announced earlier, and some short-term delays in declaring commercial production at Garden Well Underground and also at Havana, we have increased our growth capital guidance up to a range of $180 million to $190 million for this year. In line with the outlook of increasing production and reducing AISC and CapEx overall, cash – in the second half – cash generations’ forecast in the second half – improved in the second half of this year, FY2023.

Look, I’d now like to hand over to Stuart Gula, our CEO, who I introduced earlier, who will briefly cover the operational performance. Over to you Stuart.

Stuart Gula

Thanks, Jim. Thanks for the promotion. I think I’m only the COO.

Jim Beyer

What did I call you?

Stuart Gula

But I appreciate that. I guess, looking more closely at the operations, Duketon lifted to 82,000 ounces at an AISC of $2,000 an ounce during the quarter, while Tropicana remained steady at 35,000 ounces at an AISC of $1,119. Duketon North had lower production at 17,000 ounces which was at $2,959 due to high strip ratios and waste movements associated with bringing forward Stage 3 at Gloster, which we had to do more aggressively than what was originally planned due to some ground conditions. Cash margins at Duketon North will improve in the second half of the year as strip ratios decrease, overall material movement will drop and ore production is expected to increase as well.

Duketon South increased to 65,000 ounces at an AISC of $1,757 an ounce, as ore presentation improved in the open pits and grades in the underground returned close to reserve grades, which is as per the schedule.

At Garden Well South we had our first production start firing and it was delivered to the mill, and we are expecting underground ore time to increase as the year progresses. The team continues to work through the typical challenges associated with starting up a new mine and we expect the commercial production will be achieved in the second half of this year. While on Garden Well underground, during the quarter we released our bi-annual exploration update, and you’ll note that the results we’re seeing in the Duketon South underground mines continue to reinforce the consistency of both ore bodies and our belief that these mines will grow both laterally and at depth. The underground operations at Duketon South remain a key focus and are expected to deliver significant value as they continue to grow.

Across the Tropicana we delivered a steady quarter at 35,000 ounces for an AISC of $1,119 an ounce. The underground mine provided a reliable gold production during the quarter, and as we extended deeper, all indications are that the ore bodies continue down plunge and in a consistent manner. Open pit mining activity was completed in the Boston Shaker pit during December, so going forward we expect open pit feasible will be from Havana pit and supplemented from stockpiles. So this achievement of commercial production, will see growth capital drop away and a commensurate change in AISC.

That’s it from me. I’ll now hand back to Jim.

Jim Beyer

Thanks, Stuart. Bad news, you’re back to COO. Look, just before I pass on to Anthony I just wanted to make a comment on Tropicana. We were very pleased with the building cash flow generating capacity at Trop. It is delivering and performing as we had anticipated when we purchased it back in the middle of 2021. Tropicana has returned now in the last quarter at its annualized production rate of 480,000 and in fact it’s been sitting there for the last six months. And I will just point out that while it’s sitting at that level, when we first picked it up it was operating over the first three or four quarters that we had at circa a little bit over 400,000 ounces per annum. So Tropicana is doing exactly what we anticipated it would do and build its production rate up to that, back up to that 450,000 to 500,000, obviously that’s all at 100%. The phrase gets thrown around a lot in our game in our industry, but Tropicana truly is a long-life, Tier 1 asset in a Tier 1 location and sits, we are pleased to say, very nicely in our portfolio.

So, now I’d ask Anthony Rechichi, our CFO, to summarize the financial points for the quarter.

Anthony Rechichi

Thanks, Jim. Onto the financials for the quarter, we sold 121,000 ounces of gold at an average price of $2,412 an ounce, and that’s after the effects of the hedges. This generated a total of $93 million in operating cash flow with approximately $36 million from Duketon, and $57 million from Tropicana. Operating cash flows from the operations does remain strong.

Capital expenditure payments during the quarter were $77 million. We saw about $61 million of growth capital, of which the majority of this expenditure related to the development of the Garden Well Underground and the Havana Cutback. As both of these projects reach commercial production in the second half of the year, growth CapEx reduces, similar to what Stuart was talking about earlier.

In other significant transactions, referring back to the quarterly report, if you take a look at figure three, the company’s paid $15 million in dividends and also received $20 million for the sale of a rural property in New South Wales related to McPhillamys. Now, I want to cover the tax refund opportunity we’ve noted in that quarterly report, where there’s clearly an opportunity for us to return more cash to our balance sheet.

As a bit of background information, one of the government’s economic incentives in response to COVID was to allow companies to use a loss carry back tax offset arrangement whereby tax losses can be used to offset taxable income in recent financial years. The losses applied against that previous taxable income effectively reduces the tax required to have been paid in those years and hence, a cash refund is paid back to the company for the difference.

Now, having said that, during the year ended 30 June 2022, Regis incurred $52 million of tax losses, that’s at the 30% company tax rate. Applying those losses back to taxes we paid for the 2019 and 2020 year, we are eligible for a refund under these pronouncements. The final amount of the tax losses we can retrospectively apply and the election to trigger a refund under the temporary provisions will be finalized with the lodgement of the company’s 30 June 2022 tax return in the March 2023 quarter. We’re nearing the completion of that work and looking to identify any more expenditure that will further bolster the available refund amount.

So, in summary, we’re increasing gold production, decreasing all-in sustaining costs and CapEx in the second half of the year, we expect a significant improvement in cash generation compared to the first half.

Thanks, and back to you, Jim.

Jim Beyer

Thanks, Anthony. Look, I’ll touch on growth – our growth projects have made some good progress during the quarter. Stuart’s already covered the progress at Garden Well South Underground, which is very pleasing to see. The Garden Well Main Underground exploration decline, which we mentioned earlier as well. We’ve now completed a bit over 240 meters heading towards the North.

And we’re expecting that the first diamond drilling program [indiscernible] will be kicked off during the March quarter. So with some results expected a month or so after that. We remain very excited about the potential growth of Garden Well Underground and are expecting this to deliver some significant value for the company.

We’re also seeing some very pleasing potential at South Rosemont or the – what we call the south end of the Rosemont Underground. And if you have a look at Figure 5 in the release, you can see the area we’re talking about, and some of the – I won’t go through the intersects that we’ve highlighted there but clearly there’s great potential for a new production area at the south end of Rosemont.

And the underground story at Tropicana is very similar to that at Duketon. If you see Figure 6 in the release, you can see the latest new potential area that we see down plunge of the already existing Tropicana mining area the underground Tropicana. That’s also of course, in addition to the potential that we’re seeing at Boston Shaker.

The results outlined in our Bi-Annual Exploration Update released back in November further reinforced the potential to grow on the existing plans both laterally and down plunge at really, at all our underground operations. At McPhillamys, we achieved a major approvals milestone with the New South Wales Department of Planning and Environment, the DPE referring the project to the Independent Planning Commission of New South Wales for final determination.

The DPE did in a statement consider the project was approvable subject to conditions. And these conditions are in line with our expectations and not expected to material impact the project although we do note that they are still subject to finalization by the IPC in the event that it finds a positive – makes a positive decision.

Now, the next stage in the IPC process, because it already has kicked off is the public submissions are currently underway. There’s a – in fact, there’s a portal where you can go and register your support for the project. It’s either at the IPC website or if you go to the Regis Resources homepage, there is a link there that will take you to a place where you can make a positive submission if you like and read some more about the project.

Now the public hearings, which were originally scheduled for early December, which got delayed due to tragic circumstances with one of the IPC members passing away unexpectedly. It has been rescheduled for early Feb. In fact, it’s about two weeks’ time. I think its kicks off about February 6. And that will run for three days. That will be starting to see the wrap up of the submissions. And then somewhere within three months of those hearings, we’re expecting a final IPC recommended decision.

Now, this is a very exciting phase for the project and a very quite, a material one. It’s been a long time where there’s going to be – it’s going to happen. There’s a decision soon and we’ve seen that stretch, but we’ve actually got the recommendation by to go forward from DPE was quite a significant step, which I’m sure, anybody on this line that’s been listening to the story for the last few years realizes and recognizes.

So wrapping up, what did the December quarter brought us was another reliable quarter of production at both Duketon and Tropicana. Costs are elevated in the quarter, and we are continuing our efforts and we are not Robinson Crusoe they are clearly the environment, the general economic environments putting a lot of pressure on all miners.

And we are continuing our efforts on cost management. We are maintaining our full year production guidance for the reasons that we outlined. However, we do expect, as I said, that our all-in sustaining costs will fall at the very top end of our guidance range. We saw significant milestones at Garden Well South Underground, and as I just went through at McPhillamys, and we’ve made some very good progress at the Garden Well exploration decline.

The cost environment does remain elevated, but with our planned higher production reducing our AIC and our planned lower CapEx in the second half of the year. We’re looking forward to some more free cash flow generation as the year progresses.

So on that note, we’ll pull it up and I’ll hand it back to Pauli for questions. Thanks, Pauli.

Question-and-Answer Session

Operator

Thanks, Jim. [Operator Instructions] And your first question comes from the line of David Coates from Bell Potter Securities. Your line is open.

David Coates

Good morning, and thanks, Jim. Thanks, Stu for the opportunity to ask the question this morning and good work on the quarterly. A couple of questions. So let’s see at Tropicana, good steady performance costs coming down. Duketon sort of stay again, but across there’s still particularly due to North, you’ve run us through a couple of the issues there. But I’m just wondering if what you are thinking is on Duketon North? Are you prioritizing production at Duketon South to kind of keep the wheels on it, sort of the more important operation, sort of other factors they’re driving the costs higher at Duketon North.

Anthony Rechichi

Yes. Thanks, David. Yes, look, just touching first on Duketon North, and we do – they are two really – those two sites North and South are quite separate. The only real connection between the two is a shared airport. And also we have a line running between them to send water in either direction depending on which area needs it. So I wouldn’t say that we would be prioritizing the South against North or vice versa. Our philosophy and our drive with Duketon North is, clearly the reserves there are starting to – currently are starting to run down at current reserve base. We will finish mining of open cut, direct feed material this time next year possibly even a little bit earlier than that.

And then we run onto low grade stockpiles for at least two to three years. So what we are seeing at Duketon North at the moment, right now, it’s almost on a month by month or quarter by quarter basis. The all in sustaining costs are right up through the roof, as you can see. And that’s because we are doing a lot of waste mining. Production levels are a little bit off, but it’s the waste mining that’s really pulling that all in sustaining cost up to nearly $3,000 an ounce.

What we are and we’re already seeing is that the total material movement up at if Duketon North starts to drop away, that immediately starts to – we’ve demobilized – I think we’ve already demobilized a digger up there and so we’ll see the gross spend drop off. We’ll see the AISC start to lift as well. And then actually for some of the pits right in the final quarter in the June quarter, we actually start to overproduce or, and put it on the stockpile, which is something we haven’t done up there for quite some time.

So I think it’s certainly – Duketon is – Duketon North really is a story of we’re working at the moment barely, well, arguably it’s not, but barely to wash its face keeping it running. It’ll do well – it’ll do okay on cash flow when it’s running through those lower grade stockpiles. And really it’s to hold that – hold it in an operational state, not – it’s not expected to make enormous amounts of cash flow, but it keeps it running.

Last thing we want to do is unnecessarily close it and then reopen it again in a year’s time because we’ve proven up some more reserves. So, we’re sort of holding that, we’re trying to follow that pattern of keeping it running while we exploration continues to look for something material. But we’re not doing that in a way that means we lose money other – but it’s just – it’s quite variable from quarter-to-quarter just because it’s sort of, I guess it’s in the tail end of its business if you like. I hope that makes sense?

David Coates

Yes, Duketon South is quite…

Anthony Rechichi

Yes, Duketon South is quite a different story. We – it’s improvements and lifting of its production come from the underground. Garden Well – Garden Well South, sorry, is just starting to – it’s quite exciting there actually. We are doing a bit of stoping on the 8 Level and 9 Level where 8 Level and 9 Level is that, that ore bodies, like a lot of our ore bodies up in that area, they tend to pinch and swell as they go down in depth. And the 8 Level and 9 Level, which are the first area of the underground are right where it was pinching. So there weren’t a lot of stopes there. And a couple of the ones we thought we were going to get it just didn’t carry. But we are down, we’re now mining on the 10 Level, 11 Level, and 12 Level.

And we’ve been – we’ve drilled that out all to gray control and we’re very pleased with what we’ve seen there. It’s really stacked up well. We’ve got multiple development headings in there because that we’re now, that area is down into the thick part of the ore body. We’re not narrow vein sort of benching. We’re actually transverse stoping just as an indication of just how much how media these stopes are. And we’ve got a lot more headings in ore as well. So, we are just getting into that now and obviously that’s where a fair chunk of the extra ounces for the second half come from.

And Tropicana; look, Tropicana is in an interesting space at the moment. It’s all-in sustaining is certainly looking good, but as Stuart said, we are shifting and moving as Havana comes online, we’ll see the, it will declare commercial production. We are expecting that sometime in the next couple of months. As we do that, the expenditure that we’re putting into the waste mining, which has defined as growth capital, will basically shipped across into AISC and we’ll see a commensurate lift in the AISC. The key thing to note about Tropicana is that it’s probably in the heaviest part at the moment of its waste, whether it’s defined as growth or sustaining material movement, it’s kind of irrelevant. And we like to think that we make it how that’s defined as less relevant, because we just make our numbers transparent. We don’t – if it’s not in growth, it’s in sustaining. If it’s not in sustaining, it’s in growth. It’s pretty easy to figure that out.

But what we do see at Trop [ph] is, as we head into next year, the amount of material moved associated with Havana starts to drop away, not by a huge amount next year, but maybe 10% or 15%, something like that. But then it really starts to drop off as you know, the pit gets all its waste, breaks the back of all the waste mining and just starts to become more the strip ratio, instantaneous strip ratio drops. So, we see Trop will continue along its path. The production levels will increase a bit. The cash costs – the overall costs probably stay similar, it’ll just shift. But over the coming next year or so, we’ll see every – all the unit costs start to drop, which is really great because that’s where we – that’s what we were planning.

David Coates

Thanks, Jim. You just answered my other questions. I did have one other. You have touched on it in the call just around the cost environment. COVID disruptions and labor availability have been and that disrupting production has seems to have been a big driver of high costs across the sector. You mentioned diesel costs easing, but are you starting to see those sort of COVID disruptions and labor availability and all that sort of stuff also starting to ease as well and helping the cost outlook?

Jim Beyer

Look, it’s a mixed bag, Dave. The – we are not seeing some of the direct costs that we saw of COVID where we were testing and time loss for all of that. But we are still seeing absenteeism, people are still getting COVID. They’re still, as a result, getting crooked. They’re not coming to work. We are seeing empty seats and that is having an impact on production, it’s technical side of things. It’s okay. Or in the office environment, it’s – people can still work from home and you can sort of roll with that punch. But if you don’t have an operator on site to drive a truck, it just doesn’t happen. So yes, we are – it’s not as bad as what it was.

David Coates

It’s not so bad

Jim Beyer

Yes, you got that for that. Yes. Yes. Yes. Not yet. So it is – that continues to be, as I said, probably not as bad as it was, but it’s still there and having an impact, agree with that.

David Coates

Sure. Yes. Absolutely.

Jim Beyer

The other question was generally what’s happening with inflationary is another, the pressure is there, right? It’s certainly not as bad as it was probably four months ago, and fuel by far was the biggest impact because of the flow on that has on our rise and fall [ph] contracts.

David Coates

Yes.

Jim Beyer

And probably just about everybody else, I would imagine. But pleasingly, we have seen – we were probably in the first half of this year, we were paying bit over; I think, it was $1.56, $1.57 on average for the first six months. And we’re already, this month we’re seeing it down to about $1.30. So it’s softening, which is pleasing to see, but we’ve still got to – we’re not out of the woods by any stretch, and I’m talking about the industries.

David Coates

Thanks so much. Yes. No, I’ll pass it on. Thanks very much.

Jim Beyer

Thanks, David.

Operator

[Operator Instructions] And your next question comes from the line of George Eadie from UBS. Your line is open.

George Eadie

Yes. Thanks Jim. Just following my, my question was on cost…

Jim Beyer

Hey, George.

George Eadie

But maybe just changing to Havana Link drive, but maybe just a timeline on that development so when we start getting some expiration updates, firstly?

Jim Beyer

Look, Havana Link will be quite a while yet. I wouldn’t be expecting too much coming from that this year. I think it’s there and it’s something that we and Anglo are certainly excited about, but it’s in actual fact some of the, the priorities have shifted back to the areas that I mentioned before because it, it looks to be a bit more perspective. That’s not to say that the Havana Link has fallen off the, the edge of the earth. It’s just little bit lower down on the priorities at the moment. So we’ll keep you informed with the progress there, but I’m not – certainly not expecting to see anything material in this year – this financial year.

George Eadie

Yes. Okay, awesome. Thanks Jim. And just there as well on Tropicana, the full asset potential project. And I know you guys spoke to productivity and cost improvements but is there anything you can talk to a bit more detail there and how we should look at that going forward? Is there any even potential to look into other strategies to bring down cost to Duketon similar to how Anglo looked at trops?

Jim Beyer

Yes. Look, I think there certainly are some takeaways for us that we’re thinking about. We could and I know that Stuart’s been sort of giving that some thought as to what we could do to take the methodology and apply some of the concepts to Duketon. We’ve got, at the moment there’s a lot of focus quite frankly on making sure that we’re getting our under grounds up and running and that’s the best thing that can add value and continue to add value to our business. The full asset potential at Tropicana I think was quite a successful process. It identified a couple of things. It probably identified, that there wasn’t a huge amount of low-hanging fruit. The guys, that the team up there had already done a pretty good job of that, but it did result in a, rethink of the overall strategy of the place which also didn’t come up with anything I think substantially out of whack. But it’s a process that sort of forces you to go back and make sure that what you think is actually the right way to think.

And we are having a look at that and as we head into it, pardon me, as we head into our reserves and resources underestimation period in the, over the next few months, we’ll be looking to see what lessons of that assessment and what’s the right word? The scenario planning that we can look at in that area as well. And basically make sure we’re still running on the right overall strategy.

George Eadie

Yes. Awesome. Thanks Jim. So Garden Well updates coming in the March quarter. Will we get a resource reserve update for all assets then too?

Jim Beyer

Well, I think what I heard, the update, the drilling that we’re going to be doing at Garden Well Mine will be occurring during the March quarter. I’m not sure when we’ll get the results for it. I doubt whether it’ll be in the March quarter and that’ll only be, core results. It won’t be any modeling or anything like that because it’s pretty early, very early in the process. Our resource and reserves process is something that, we sort of kicking off now, but we don’t normally put our resource and a reserve update out until sometime in the June quarter, usually towards the back end of it. But so that’s the timing that we follow there. I’m not sure if I answered your question, George I…

George Eadie

No, that’s it sounds like back half the year we’ll get a bit more color there on Garden Well and resource, reserves coming through, so awesome. Thanks for that.

Jim Beyer

Yes, the two, they won’t be connected, as we get information and updates on Garden Well Mine we’ll let the market now, it won’t be tied-in with the R&R [ph] release sooner, the better as far as I’m concerned on that we get the info from Garden Well Mine.

Operator

There are no further questions at this time. I would like to turn the call back over to Jim for closing remarks.

Jim Beyer

All right. Thanks everybody for joining us. We know that it’s a, been a pretty busy morning this morning with a few releases no doubt a result of having Australia Day tomorrow. But look, we thank everyone for joining us. As always, if you’ve got any follow-up questions please drop us a line, get in touch with Ben and we’ll do our best to help you out. All right, thanks everybody. Have a good day.

Operator

This concludes today’s conference call. You may now disconnect.