Regis Resources Ltd (OTCPK:RGRNF) Q1 2023 Earnings Conference Call October 26, 2022 8:00 PM ET
Company Participants
Jim Beyer – CEO, MD & Director
Anthony Rechichi – CFO
Conference Call Participants
Alexander Papaioanou – Citi
Andrew Bowler – Macquarie Research
David Coates – Bell Potter Securities
Patrick Collier – Crédit Suisse
Alexander Barkley – RBC Capital Markets
Operator
Thank you for standing by, and welcome to the Regis Resources Limited quarterly update briefing. [Operator Instructions].
I’d like to turn the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.
Jim Beyer
Thanks, Nick. Good morning, everyone, and thanks for joining us on the Regis Resources September 2022 quarterly update. First of all, I’d just like to introduce you all to who’s sitting around the table with me. We’ve got Ben Goldbloom, Head of Investor Relations; Stuart Gula, who is our Chief Operating Officer; and Anthony Rechichi, who is our newly minted CFO, 3.5 weeks into the role. Welcome to everyone, and a special welcome to you, Anthony.
Anthony Rechichi
Thank you.
Jim Beyer
Look, the September quarter was one of — another one of reliable and planned business performance for Regis. First, if we look at safety, our lost time injury frequency rate reduced to an arguably sector-leading level of 0.6. A pleasing result, but, look, as we reflect on the tragic industrial fatalities that have occurred in recent weeks in the mining industry, this is a very clear reminder that as individuals and as an industry, we have to remain vigilant. We can never afford to rest on our laurels. We need to be proactive and even more so now as we see the potential for elevated risks where access to experienced and skilled personnel remains tight.
On another front, we released our 2022 sustainability report a few days ago on 25th. And also on the sustainability front and the cost-reduction front, we approved the 9-megawatt solar farm at Duketon earlier in the September quarter, and we’re expecting that to come into service middle of next year. Across the business, we saw gold production and costs delivered to plan as the improvements made in FY ’22 continue to be realized. For the September quarter overall, we produced 114,831 ounces of gold at an all-in sustaining cost of $1,782 an ounce.
Now while labor availability and inflationary cost pressures have shown some stabilization, they do remain at elevated levels and remain an area of risk in our business and the broader industry, of course, as we all know. And we continue hard to work on managing these risks. Notwithstanding these, we’ve maintained our guidance for the year, noting a number of factors that are planned to deliver a stronger second half performance.
In line with this outlook, cash generation is forecast to increase in the second half. And with this positive outlook and a comfortable balance sheet, the Board was pleased to declare a fully franked dividend of $0.02 per share back in August with our full year accounts. And this will be paid this month. In fact, I think it gets paid tomorrow.
Looking more closely at the operations. Duketon was on plan at 78,000 ounces, all-in sustaining $1,996, while Tropicana delivered its best quarter since Regis acquisition of 37,000 ounces at an all-in sustaining of $1,243. Duketon North improved production to 23,000 ounces at an all-in sustaining cost of $2,042. And this was driven off better ore presentation from Coopers, Gloster and Moolart pits. All things being equal, we expect to see cost decrease at Duketon North through the year as the total waste movement start to reduce in the second half.
Duketon South delivered 55,000 ounces at $1,977 all-in sustaining, in line with expectations. Production was lower than the prior June quarter with a couple of factors impacting the short term, one being Rosemont Underground mining lower grades as it mines through sections of low-grade stopes. This is all part of the planned schedule.
We also experienced consistent — not really deluge-type, but consistent wet weather, which caused some delay to surface haulage, but this is very short-term impacts. However, what we did see was that this weather caused some geotechnical instability in oxide transition zones in our Rosemont North pit, which required some rescheduling of production and moving — working around that. This is delayed some ounces, but only until later in the year.
I would comment, as I think I have in the past, Rosemont Underground and, in fact, Garden Well, will see the same when it comes online over this year. We’ll see mine grades move up and down as schedules dictate. However, over the medium to longer term, the grades will revert back to reserve grade as you’d expect over the life. And our grade control, which is performing well, is reinforcing this view.
Most pleasingly, our drilling to extend the Rosemont Underground is returning results that support potential lateral as well as depth growth of that underground mine. Later in November, we will be putting out our biannual exploration report, which will have considerably more discussion on this and some of the other points, which I’ll touch on today.
At Tropicana, as I mentioned before, we delivered our best quarter since Regis acquisition, 37,000 ounces at $1,243 an ounce all-in sustaining. Open pit mining had clean access to high-grade ore at the bottom of the Boston Shaker pit, and the underground once again delivered to plan. We know Boston Shaker pit will finish up in the December quarter.
The next key ore source from open pits, the Havana area. Havana cutback has continued well and progresses, and we’ll see increased gold production ore from Havana with greater presentation of ore as the year progresses. Tropicana just continues to deliver reliable and strong cash flow. We’re expecting this to continue for many years and remain excited about its growth prospects, particularly laterally across the Havana underground and down plunge from the existing underground operation — the underground ops.
On the financials, we sold 106 — roughly 106,000 ounces at an average price of $2,294, and that’s after taking into account the impact of hedges. This generated a total of $76 million in operating cash flow with approximately $19 million from Duketon and $57 million at Trop. The reduction in operating cash flow relative to the prior quarter was primarily driven by the lower production. Capital expenditure was $68 million, and we saw $52 million of this on growth. Approximately 35% of that $52 million was underground development associated with — mostly associated with underground — with development at Garden Well South and associated infrastructure. The remainder of the growth CapEx was predominantly around Havana.
If you look at Figure 2 — and sorry, I forgot to mention at the start, it should — if you have access to the quarterly report, which we released, I’ll make reference to some of the diagrams. In Figure 2, the cash waterfall, you’ll see that during the September quarter, the company paid significant one-off costs equating to $60 million or totaling $60 million. These related to the stamp duty for the Tropicana acquisition of last year and also the purchase of a rural property related to the development of McPhillamys, both of these which were flagged in the June quarter results. It’s worth noting that the rural property has since been sold last week for $20.5 million, with funds from the sale expected in the current December quarter to be back into our accounts.
The property purchase was undertaken to lock in a key high-voltage line easement required for the McPhillamys project. The rural property came on the market midway through our negotiations for the access easement that we undertook to purchase in subsequent sale to lock in the easement and avoid what we consider to be a material risk for the costly negotiation for the easement with the new third-party owners or alternatively, having to go a much more expensive reroute.
On growth, growth projects made good progress during the quarter. Garden Well South, our new mine, is starting up. Progress was made with raise boring raises, ladderways and development, level development. First of from development was delivered to the process planned in the September quarter and pleasingly performed as expected. This new mine is in its very early stages, and the experienced team is working through the usual start-up learnings.
Garden Well South has included considerably wet ground requiring well-planned dewatering. And also, we see buggy ground in some areas, which just requires some learnings as to how to safely mine through that, but the team is getting on top of that. And while the team works through these protocols and learnings, I’m pleased to say that we’re still expecting first stope production later on in this December quarter with commercial production expected in the second half.
Also at Garden Well Underground and the exploration decline into the Garden Well Main area, which I previously highlighted as an opportunity, was approved. The prep work commenced and, in fact, mining development of the stage 1 of that is underway. Figure 4 in our release shows the planned decline schematic — roughly, approximate design, but it also shows the proposed drilling program.
And the key thing to note in that is, as you can see, the drilling program extends all the way across. We think that whole area from the South — on this South out — the underground South area, all the way through to the main underneath the deepest part of the pit is all high-potential exploration area. And this decline will be used to establish drilling platforms and undertake expiration drilling to target these potential areas. The first area, we should be getting an assessment of within the next 6 months. It can — that decline can then be used as the initial access for new mining areas as they get delineated. We view this area as having some of the best, most exciting prospects in the potential to build on our existing underground production plants.
At Tropicana, the Havana underground prefeasibility study and Havana Link continued. Figure 5 shows you the general layout of that link drive. The link development will extend from the existing Tropicana underground towards Havana and will be used, one, to access high-grade mineralization between Tropicana and Havana. It will allow infill drilling once it gets there to the — to inform on the Havana PFS and also provides, in the future, potential additional infrastructure benefits for the Tropicana Underground.
Look, just like Garden Well and Rosemont, underground at Duketon, we view the undergrounds at Tropicana as having very exciting potential to grow on the existing planes, both laterally and down plunge. Regis will provide more information and context on this in the biannual exploration update that I mentioned earlier that will be later in November.
Finally, at McPhillamys, I’m pleased to say we’ve now completed all outstanding requests for information and our application now sits with DPE planning for final consideration. So pleasing progress there as well.
So wrapping up, before I hand it over for Q&A, the September quarter — what did the September quarter bring us? A solid start to the year, reliable production at Duketon, increased production at Tropicana. Look, we see inflationary cost pressures have shown some stabilizations. They do remain at elevated levels. And as I mentioned before, remain an area of risk in our business and for the broader industry that we continue working hard on to manage. And whilst costs were elevated in this first quarter, we remain on track to deliver full production and cost guidance in FY ’23, noting as I did a number of factors that are planned to help deliver that stronger second half performance.
Finally, we had good progress on our growth projects at Garden Well South. Exciting start to Garden Well Main. McPhillamys progressed as well. And also last but not least, very pleased that we approved and installation is underway at the solar farm in Duketon.
So on that note, I’ll hand it back to Nick and open up for any questions. Thanks, Nick.
Question-and-Answer Session
Operator
[Operator Instructions]. The first question comes from Alexander Papaioanou from Citi.
Alexander Papaioanou
Two question from me. Thanks for providing additional color on some of the key metrics. Noting your earlier comments on the variable underground grade at Rosemont and Garden Well. In what time frame can we expect underground grades to move towards that reserve grade of 2.8?
Jim Beyer
We’re expecting the grades to improve this month — this quarter.
Alexander Papaioanou
All right. And then second question, can we expect a similar D&A charge of $808 going forward?
Jim Beyer
Look, I think that’s — with what we’re looking at, at the moment, that’s as reasonable as we can — guidance that we can give. I mean we don’t normally give guidance on D&A, but that’s what I’d say at the moment.
Operator
Next question will come from Andrew Bowler from Macquarie.
Andrew Bowler
Jim, you commented on the $52 million of growth CapEx in the quarter. That’s clearly above the annualized run rate of number. I guess that’s mainly Tropicana. But can you just provide us a bit of an update on how that CapEx profile might look for the rest of the year?
Jim Beyer
Well, We haven’t changed the guidance on our growth. There’s definitely — I mean, what we’ll see at Tropicana as Havana moves — as Havana pit moves into what would be commercial production, which we’re expecting at the moment to be very early in the new calendar year, so early in Q3. Basically, that capital will not be deemed as being growth and will then be deemed as being sustaining. And we’ve already factored that into our all-in sustaining cost guidance for Tropicana.
I mean — so basically, what we’ll see is that the growth capital at Trop will drop right away, but the all-in sustaining costs will lift, but it won’t — you can’t — you’ve also got to recognize that production will grow as well. Because as Havana comes online, that’s where we get more tonnes and more grade. So while there’s a — you might say there’s a negative because it’s now — it stops being growth and starts to become sustaining, it’s also got a larger divisor under it because of the production lifts with Havana pit high grades and tonnages.
In terms of other areas, the — at the moment, there is the key area of — growth capital still sits around Garden Well, and that will sort of run off the back of commercial production. We have things that we may end up changing our guidance might be — for example, we’re currently considering Commonwealth up in Duketon North to see whether that might be a viable additional pit source. And if that came on, that will require a little bit of setup costs, which we haven’t gotten any yet because those ounces aren’t in any of our guidance, it’s not in any of our costs. But that will be a good story for us because it’s more production. But at the moment, as I described it, it is as it stands.
Andrew Bowler
Yes. No, it sounds like it’s pretty unchanged from previous commentary. Just back to — on to McPhillamys I mean I sort of have to ask. It seems like there’s some pretty decent milestones ticked off during the quarter, the creation of that specific-purpose access license potentially providing the pathway to get the surface water licensing. Can you add some more color around that? I mean I know time is sort of — kind of a bit of a dirty word for this project. But is there any more information that you have that may sort of affect our view? Or is it just still wait and see on McPhillamys?
Jim Beyer
Yes, good question. If I could take you literally and say how could you describe it, kind of put some more color around it, I would probably, 6 months ago, frustratingly been describing my color around it as being red with a tinge of yellow, but now I’m certainly much more positive on the green side.
Look, at the end of the day, timing on the decision and recommendations from the department is something that’s outside of our control. The pleasing part for us in what we consider to be quite a significant step forward is that we have no outstanding queries to respond to. So that’s not to say that we might not get another one as the Department of Planning starts to come in and finalize its views on its recommendation. We’re not aware of anything at this point in time, so we take that as being positive, certainly a significant positive.
And as I think I’ve mentioned, we’re also pleased with the progress, but we’re still waiting on the outcome of the Section 10 as well. So I think from where we were on the last call that we had, it’s definitely become a — more of a greeny tinge than a red tinge. But in the end, you can’t do much. And I’ll be a pleased when I’ve got something more clearer in my hands in black and white, but I’m certainly feeling — I’m certainly pleased with the way it’s progressed.
Andrew Bowler
No, thanks, I certainly appreciate the color analogy. And it sounds like it’s not many road blocks left, [indiscernible].
Jim Beyer
No worries.
Operator
Next question will be from David Coates, Bell Potter Securities.
David Coates
Just a quick — just sort of touch on like the costs at Duketon. You got a sort of a 25% reduction to bring them back into the guidance range. If I picked it up correctly earlier, Jim, it’s reduced stripping ratio, improved underground grades. Are they the kind of key drivers of bringing those costs into the guidance range?
Jim Beyer
Yes, so if — we look at it in 2 parts. Because if we look at Duketon North, our plans see a very clear reduction in the total material moved, which is a big — a key contributor to all-in sustaining costs. The biggest lever of sustaining costs is waste movement for an open pit anyway. If I look at what we moved as total material moved in — at Duketon North in the first quarter relative to what we’ll be moving in Q4, it’s less than half. So basically, at the moment, we’re starting to run down to the end of that waste movement phase and as I was saying, it will — we will see the gold production still stays at its current level, but the cost burden of carrying that extra, whatever it is, 3 and a bit million BCMs that we moved last quarter will be significantly less than that. Now that’s on the basis that, that remains our plan.
As I said, the thing that we would look at there would be if there’s an additional pit that we bring in, but that’s a completely separate justification, right? Certainly, on Duketon North, the costs are expected to be driven coming down by way of that lower TMM. In the South, it’s all off the back of increasing production. We’ll see Garden Well South come in, and we will also see some of that high-grade material that we — from the pit that was impacted by those — that geotech issues with the wet weather. We’ll see that material starting to come back into the feed as well, so that’s a — that will lift our production and that drops the divisor.
Duketon North is about reducing the overall cost because the TMM has come down. Duketon South is more around production levels increasing and reducing any costs from that point of view.
David Coates
Okay. And then you mentioned getting back to the 2.8 gram reserve grade. Really, the commentary, it sounded like there was going to be a bit more variable as you sort of — the underground ramped up and high-grade and low-grade stopes. But just from what you were saying a minute ago to Andrew, I think that 2.8 gram reserve grade is going to remain pretty steady once we — once you hit it. Is that correct? Or still going to be…
Jim Beyer
No, no, no. It won’t stay steady once we hit it. I guess the point that I was trying to make on that is that these mines — I mean, we get to really get into any kind of rhythm at all with Garden Well because we haven’t even started production. We’ve got the drilling on 8 to 9 level, which will be our first production area, which are pretty — a couple of scratchy stopes here and there. We don’t get down into the meat of the ore body until next year, next calendar year, where it’s a lot more consistent.
But our experience tells us that at Rosemont, just because of the way we tend to manage — the schedule was managed, it goes in surges. For a couple of months, we’ll be producing out of the high-grade area while we’re over in the Duketon South area developing stopes, and then we’ll flip and we’ll move — we’ll finish production in one — in the high-grade areas and then we’ll move back to the lower grade area. And so what that means is that you tend to — it can go for a couple of months where things don’t look great, but they average out overall.
I mean one of the quite interesting things that we’re seeing at Rosemont is this area called Rosemont South, which has got some pretty decent grades in it. So that — if that starts to hang together like we hope it will, that might help us do a little bit more of — getting a more steady feed grade to the mill. But at the end of the day, it’s what’s best for the schedule, so we just manage it that way.
David Coates
No, cool, understood. And again, I guess sort of just on that sort of the variability of that outlook, big uplift in production at Tropicana this quarter. And from what you’re saying we should expect some of those capital costs go more from growth to sustaining in the second half of this financial year, but that production rate’s — obviously, great to see that up. Is that sort of still in a bit of a bumpy kind of ramp-up phase as well? Or are we starting to get to that — see that sort of steady state in between that 450,000, 500,000 ounce annualized run rate on a 100% basis coming out of Tropicana from now on?
Jim Beyer
Yes, I think what we’re expecting to see as we transition from the Boston Shaker open pit to the Havana open pit, there will be a quarter or so where we just see some volatility or some variability and then we’ll be much steadier towards the back end of this year.
Operator
The next question will be from Patrick Collier, Credit Suisse Limited.
Patrick Collier
Just following on from Dave’s first question on the costs, specifically focusing on the numerator. So you called out a reduction in mining costs at Duketon North. But I mean how does that compare to the additional costs that come in? You talked about Tropicana growth capital converting into sustaining capital in the back half of the year. And then, I guess, Garden Well Underground also potential increased absolute costs. So just weighing those 2 together and whether there’s anything else to consider that might fall out of the absolute cost base across the remainder of FY ’23?
Jim Beyer
Yes. Look, I think if you look at our guidance, broadly speaking, looking at Duketon North, our all-in sustaining costs are obviously sitting above our guidance range for the quarter. And we’re anticipating that, that will come down because the — a key driver of all-in sustaining, the total material movement, would just sort of start to fall away. So that sort of — that’s one that’s coming — brings it down.
I think if you look at the all-in sustaining costs for Tropicana, which was $1,243, that’s actually, I think, sitting below the guidance range. And so we’re as — we’re anticipating that the all-in sustaining costs for Trop will start to lift. So they’re both actually doing, I suppose, what we were expecting them to do in this first quarter, reflecting the sort of very short-term nature of 3 months of activity.
Yes, certainly, a key element of the Duketon South costs coming down is the elevated production. You’re right, there’s certainly — that will come with costs from the underground, although Garden Well South is a little bit more of a bulky approach than Rosemont, so we’re anticipating that will be a bit better costing on a cost per tonne basis, but we’re also factoring — anticipating that there will be some softening. While we don’t see softening in the inflationary costs as we are assuming in that there’s a bit of a drop down in fuel prices as well, which we’ll see some flow-through, if that doesn’t eventuate, then obviously, we’ll keep the market informed as to what impact that might have.
Patrick Collier
Okay. Yes. It sounds like the fuel price might be pivotal. So can you remind us what — firstly, what percentage of cost broadly is exposed to that and then also what you’re assuming over the remainder of the year?
Jim Beyer
Yes. So I’ll — what I’ve done is I’ve talked about the prior cost for last year. So we — last year, we used about 100 million liters of fuel across the Duketon business, and probably half of that was in power generation and half of that was in earth movement. And you can do the math and figure out that if the fuel price goes down by $0.10, well, there’s, what, $10 million less cost dollars per ounce for the year over what, I don’t know — so 350,000 ounces, whatever number we want to put in there. You can see that, that’s — what is that? $40 an ounce? Something like that? It is, I think, in round numbers, it’s probably around 12% to 15% of our overall costs. I have to check that. Don’t quote me on that one. Unfortunately, it’s moved a bit up since — but — and our current assumptions on the fuel price going forward, I think, we averaged — what is it, ? That’s our average assumed for the rest of the year.
Operator
The next question will be from Alex Barkley, RBC.
Alexander Barkley
You mentioned you don’t expect to pay any corporate tax this year, and you’re also looking at your tax position in FY ’21, ’22. So can you talk us through why you’re not expecting that tax payment and what the potential extra refund might be?
Jim Beyer
Okay. So I’m going to put him into the limelight and hand that over to Anthony for him to, yes, answer that question. Over to you, Anthony.
Anthony Rechichi
Thanks, Jim. Alex, look, we’ve got — there’s a couple of benefits that potentially will come our way from — mainly, we’ll be taking advantages of the allowances that we’re getting now. For predominantly the FY ’22 year just gone, there will be some benefits from the temporary full expensing allowances that we can capitalize on, where we get to take quite a significant amount of immediate deductions for that window that’s been open for that sort of couple of years or so.
Look, more importantly as well, we’re focusing on the benefit we’ll get with cash refunds via the loss carryback allowances as well. So that’s moved us from looking at that now with the types of capital costs that will be immediately deductible in FY ’22. That’s moved us to a position where we’re reasonably confident that we’ll be able to take a cash refund through those allowances, which is — and also as well, removes our provisional tax payments that we would have ordinarily made over the course of this financial year.
Alexander Barkley
Okay. So you’re saying you might actually get some refunds during the course of this year, but still determining what that might be?
Anthony Rechichi
That’s right, yes, we’re working through that now.
Jim Beyer
I think that’s what — we stated that in the — we noted that in the report, Alex. We think that it’s a reasonable opportunity for us. So we’re taking advantages of the that we get as well from the Tropicana acquisition, which is helpful.
Operator
[Operator Instructions]. No further questions at this time. I will now hand the call back to Mr. Beyer for closing remarks.
Jim Beyer
Okay. Thanks, Nick. I’d just like to thank everybody for joining us on the call. And once again, welcome Anthony to the team. And if anybody has got any follow-up questions or anything that they’d like to ask us, we’ll do our best to answer them as we can with disclosure, et cetera. Please give us a call. Get in touch with Ben, and we’ll do what we can. All right. Thanks, everybody. Have a good day.
Operator
That does conclude our conference today. Thank you for participating. You may now disconnect.
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