Half Year 2022 Resolute Mining Ltd Earnings Call 1 Perth Aug 25, 2022 (Thomson StreetEvents) -- Edited Transcript of Resolute Mining Ltd earnings conference call or presentation Thursday, August 25, 2022 at 1:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Douglas Warden Resolute Mining Limited - CFO * Terence Neil Holohan Resolute Mining Limited - MD & CEO ================================================================================ Conference Call Participants ================================================================================ * Andrew Bowler Macquarie Research - Analyst * Tom Prendiville ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Resolute Mining Limited 2022 Half Year Financial Results Conference. (Operator Instructions) And finally, I would like to advise all participants that this conference is being recorded. Thank you. I'd now like to welcome Terry Holohan, CEO, to begin the conference. Mr. Holohan, over to you. -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [2] -------------------------------------------------------------------------------- Thank you very much, and welcome to everybody, both in North America, Europe and in Australia here. What I plan to do today is to go through the highlights very quickly. I'll then hand over to -- sorry, I'll go through the highlights and a bit of an update on the operations, then hand over to Doug to go through financials, and then I'll talk at the end about exploration and then do the wrap at the end. Okay. If you look at the highlights, I think you -- most of you have listened to the last 2 quarters. Safety, I think we mentioned we're starting to see the benefits now of programs that we've put in place over the last 12 to 18 months. And obviously, a lot of it was focused on shut earlier in the quarter -- sorry, early in the half year, and we're picking up a lot of momentum from that. And we're starting to see improvements on both operations at this stage. In terms of gold poured, you see there's a 5% increase in half year against half year. And that remember, despite our sulphide plant being off for 35 days, which just underscores the fact that we're -- our sulphide plant is operating extremely well now. Just as a reinforcement on that, if you remember, last year we managed to get 2.1 million tonnes of ore through that or equivalent to that roaster last year and plant. This year now, we're operating at 2.2% to 2.4%. We're actually stepping up to 2.4% as we speak right now. The main focus is now the secondary milling, which is a bottleneck, and we're hoping to debottleneck that a little bit. But the roasting stage itself, that is sort of fading as a main topic of conversation in our production meetings. That unit is now operating somewhere between 3 million to 3.2 million tonnes per annum equivalent and we are even looking at putting oxygen in there to take it up to about 3.5%. That's a lot of work that's ongoing at the moment going forward. Now obviously, our mining underground operation, that's operating somewhere between 2.1 million, 2.2 million tonnes. And I'll talk a little bit towards the end of where we think the extra material is going to come from. But we are planning over the next couple of years to step up that sulphide plant further and hence, bring our costs down. So we're pleased with our gold production and we're obviously halfway through a quarter right now. There's nothing changed. We're still on track. It is the rainy season at the moment. And I'd point out that the rain has not actually stopped our open pit operations at all this year. We had a bit of trouble last year, if you remember. We explained that to you. Because of all the planning and preparation we did in the first half of this year, and it put a bit of pressure on our costs, we have actually had a very smooth run now. In fact, ironically, we've had some very spectacular rainstorms in that part of the world in West Africa at Syama. However, ironically, the underground was stopped once just as a drill because of the water coming in. As you remember, it's a sublevel K, which is actually like a shift. Any water coming in on top of straight down underneath. And we did a drill around that. So we evacuated the mine. But that did not affect -- it never affects our production in those situations because we do have 6 to 8 weeks of stockpile in front of the plant. So generally, we're comfortable with the rainy season. We're looking forward to a good quarter coming forward. Doug will go into more detail on costs, et cetera. Costs we are slightly higher. We always were higher at the front end of the year because we planned a lot of great control drilling on the oxides. We planned a lot of removal of materials to make sure we could cope with the rainy season. That is all coming in. And also as of the 1st of April, if you remember, I said to you that the roaster and the sulphide plant is operating well, that was a point at which management could really start turning their attention to cost reduction, and I expect that we're going to start seeing cost reduction initiatives taking place over the next 6 months at Syama in particular. In terms of Mako, Mako is operating exceptionally well. We're starting to hit some really good numbers there. At the head of the curve, our internal targets that we've set for them, they're operating extremely well at this point in time. So in terms of operations, we're very, very comfortable at this point in time. We've just made-up Jeff Montgomery now as the Chief Operating Officer and we've got a stable workforce there. So we're actually looking forward to a good 6 months. Okay. I'm going to hand over to Doug now to go through the financials. I know there's quite a lot there. And then I'll come back to what we think is the big story, which is the exploration. That is what is really getting us excited going forward. Okay, Doug. -------------------------------------------------------------------------------- Douglas Warden, Resolute Mining Limited - CFO [3] -------------------------------------------------------------------------------- Okay. Thanks, Terry. Turning to the P&L, and I'd just like to bring your attention to Slide 8 of the presentation that was released this morning. So Resolute reported a net loss after tax of $24.1 million for the half. However, when we adjust for abnormal noncash items of $27.8 million, the underlying NPAT or net profit after tax was $3.6 million. The majority of these abnormals relate to FX revaluations on loan accounts of about $23 million and a noncash write-off of a legacy tax asset accounting for the remainder. Look, I'll just take a few moments to walk you through the other key elements of the P&L. Revenue up 22% due to an additional 22,000 ounces sold. That was a result of a sell-down of bullion as well as better production and recovery from GIC in particular. And we also had about $100 improvement in the gold price realized half-on-half. Our cost of sales were up 46% or $60 million. There are a number of elements to this half-on-half comparison, which are important to understand. I'll just take you through those. About half of that cost of sales increase relates to the inventory cost associated with additional ounces sold from gold in circuit and the drawdown of bullion. About 10% of it relates to inflationary pressures we're seeing with higher fuel costs and consumables, which we talked about in the first and second quarter of this year and is being felt by the whole industry. The third major component is another noncash item and it relates to a change in accounting treatment of lower-grade ore at Mako half-on-half. So previously, we capitalized low-grade ore cost to inventory to be treated at the end of the mine life. Now those costs associated with those material, that low-grade material, are charged on a more regular basis through the cost of sales. Turning to the income tax expense on the bottom of that page, an amount of $16.1 million, looks like a large number in the context of the underlying profit before tax. So it's important that I'll just take you through that a bit. It's important to understand that only $3.9 million of that relates to actual cash tax paid during the half, and that is in relation to withholding tax paid on the Senegalese government Mako dividend. Of the remaining amount, about $2 million relates to the minimum tax we pay in Mali, where we pay out the 25% of taxable income or 1% of revenue, which averages the higher. However, it's important to understand that, that amount was offset against our VAT receivable. So as we've explained previously, the Malian government ceased VAT refund some years ago, but we are able to offset those VAT receivables against certain taxes. About another $8.5 million relates to provisions raised for amounts that we are disputing and just under $3 million relates to provisions for legacy tax matters. Turning to Slide 9 and the cash flow waterfall. Operating cash flow for the half of just over $60 million. CapEx of $35 million includes just under $14 million for tailings storage facilities, both at Mako, but predominantly, that number relates to Syama. About $4.5 million of the CapEx number also relates to the roaster shut. Remembering also that part of that -- the cost of that roaster shut, probably another $5.5 million, was sunk in the prior year for long lead items. And the other main component is about $12 million associated with waste stripping at both Syama oxide and Mako. The asset sale proceeds is predominantly the second tranche of Bibiani being $30 million and the sale of our Orca and Turaco shares constituting the rest of that amount. Debt repayments comprised of the $25 million half yearly installment on the term loan and a voluntary payment on the RCF of $30 million. Interest is self-explanatory and the government dividend withholding taxes, again, relates to the Senegalese government share of the Mako dividend and withholding tax on the same amount. Turning to Slide 10, our net debt and the hedge book, which we covered at the quarterly, but a reminder that the net debt finished the half at $182.8 million, which included cash and bullion of $81.8 million. Hedge book there of 230,000 ounces of forwards at an average U.S. dollar price of $18.75. And then finally, on Page 11 of the presentation, just an update on the final tranche of the Bibiani proceeds, which were due a few days ago. We've come to an agreement with Asante on some deferred payment terms, which are outlined there, essentially $10 million next month, a further $10 million in October and the remainder, including the interest that's payable on those amounts, to be paid on the 18th of November. The interest is to be charged at normal sort of commercial rates. That's all for me. And with that, I'll hand back to Terry to wrap up before we take questions. -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [4] -------------------------------------------------------------------------------- Thanks, Doug. Okay. Just Doug did mention about tailings and I'd just say that we are on track. We will be in the second half of the year switching over to putting tailings into a pit, and that should give us a little bit of a CapEx holiday on building up tailings for Syama. We have finished mining now at B2 West. So we're down to 2 oxide pits in prep for that, all on track. And as I say, what we're going to be able to do is go to a slightly cheaper operation in -- for the next couple of years by putting tailings into one of the old pits. But I think the important or the big story that we're excited about, and we have alluded to it previously, is the Syama North area. This is where up to 4 years ago we were taking oxides out of the pit. Bruce and his team here have been doing some drilling there for the last 18 months, and it's getting really exciting. Bruce is going to work over the weekend and finish off his presentation -- sorry, his announcement. We hope to get something out next week. And why we're trying to get it out next week is so we can talk about it at ADU. And we expect to have the next resource there available. But this is where we're thinking that, as I say, we're debottlenecking that plant more. We don't want to force the underground to meet and keep up with the plant because, as we all know, unless you do that in a controlled basis over a year to 18 months, you start losing grade. So what we're looking at doing in that time frame is hopefully starting to take material out of the Syama North open pit. And we're very excited about that. As I say, we've gone down from 2 oxide -- from 3 oxide pits to 2 oxide pits. We have equipment available. We're not paying for standby at this stage, but that stuff is all there ready. We're just waiting for the mineral resource to come out, which I say with a bit of luck we can get that out next week. It will take us about 2 months to get the ore reserve calculations out and with a bit of luck again, early Q1 we'll be able to start moving into those pits. As I mentioned, we do have 2 months of stockpile in front of the sulphide plant, but as we rack that plant up, it's going to start demanding material over the course of next year. But we think we'll be in a good place. So in summary, I think in terms of guidance, I just want to underline our guidance again. We do not see any change in our guidance. We're still on 345,000 for $1,425 and we're feeling comfortable at this stage. Okay. That's the -- and we hand it over to questions. Thank you very much. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Andrew Bowler from Macquarie. -------------------------------------------------------------------------------- Andrew Bowler, Macquarie Research - Analyst [2] -------------------------------------------------------------------------------- Just a quick couple for me. Just talking about the Bibiani final consideration there. Obviously, some delays in payments compared to the original deal. Can you just talk about drivers behind that? And if there's any risk to those payments coming in and fall over this calendar year? -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [3] -------------------------------------------------------------------------------- Thanks, Andrew. We don't see any risk there. I mean we all know that re-engineering of debts happens a lot. We've been in close contact with the team for quite some while. They give us a heads up a couple of weeks ago or 10 days ago. They do have money there. It's not an issue. It's really just a case of releasing money. Doug, I don't know if you want to add any further comments to that? -------------------------------------------------------------------------------- Douglas Warden, Resolute Mining Limited - CFO [4] -------------------------------------------------------------------------------- No. Look, I think, that pretty much sums it up Terry. Nothing further to add from me. -------------------------------------------------------------------------------- Andrew Bowler, Macquarie Research - Analyst [5] -------------------------------------------------------------------------------- No. And just another one. Obviously, you're talking about the roster now doing above what it sounds like the ultimate capacity of the underground could be and bringing in that Syama North stuff to fill that gap. In the meantime, is there potential for some great -- should I say, recovery improvements through that sulphide plant? Or is flotation recovery still a bit of a factor there? -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [6] -------------------------------------------------------------------------------- That's a good question. I think you've tracked us. We did install a flotation cleaning section about 8 months ago, but we've had problems commissioning it. We did actually start commissioning it last week. So we -- as we speak now, that's exactly what we're trying to do. We're obviously looking on the roughing stage to pull harder, increase recovery. Now we've got the facility to put -- use the cleaners to clean that up and present the same grades of specifically sulfur, but try and maintain that higher recovery with, as you know with any sort of flotation cleaning section, with the middlings or the tailings going back to the mill for a further cleanup before they represent to the float. So we originally justified that with a 1% to 2% upgrade on recovery. And as you know, when you're commissioning float plants like that, it normally takes you about 6 to 8 weeks to commission it to tune it up, but that's really a focus of the metallurgist right now as we speak. We are behind on it, but we're chasing that recovery because we're in the high 70s. In laboratory, you can get 1%. Normally, you discount that by 1% to 2% on a plant scale. So we should be 79% to 80%. So that really, as you correctly point out, is where we are focused at this point in time. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Your next question comes from the line of Tom Prendiville of Canaccord Genuity. -------------------------------------------------------------------------------- Tom Prendiville, [8] -------------------------------------------------------------------------------- My question just relates to cost inflation, both in terms of what you've seen over the last few months and what your expectations are for the remainder of the year and moving into CY '23. Obviously, you set your all-in sustaining cost guidance back in February this year. And over the past 6 months, some industry cost pressures such as fuel and steel costs have been intensifying. I guess I'm just curious if you're seeing some of these cost inflation pressures now abating as some of your peers have flagged, and I guess if so, do you expect these inflationary pressures to continue to ease over the remainder of the year? -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [9] -------------------------------------------------------------------------------- That's a good question. And as I said before, our answer to that was squeezing more units out, and I think you'll see that we are in the process of doing that, and we'll maintain it. But maybe I'll hand over to Doug. We are under a bit of cost pressure. We've seen spikes, especially in diesel. Diesel spiked in Mali $1.50. It's come down to about the mid-$1.20s now. Remember that, however, the -- we do have the HFO plant at Syama. And that was originally justified on the discount of HFO versus diesel and strangely enough, we're seeing for the first time a reasonable discount. So our leveraging against diesel is not as high, let's say, as some of our peers. But it's obviously one of the major risks, I would say, that we are managing at this point in time. Doug, I don't know if you want to -- -------------------------------------------------------------------------------- Douglas Warden, Resolute Mining Limited - CFO [10] -------------------------------------------------------------------------------- I think you covered most of it, Terry. I mean, Tom, look, it's -- we've talked about it at the quarterly. We certainly experienced in the first quarter 20% to 30% increase in most of our consumables. And fuel, obviously, as Terry said, diesel upwards of $1.30, $1.50 at -- in Mali. And to give you a reference point, that was probably more like $0.70 last year before the oil price spiked. It's a bit more stable, the diesel price, in Senegal because the government manages the price there. They do pass it on eventually if there's sustained increases in the oil price. But we've been buffeted from that in the first half. Obviously, with the oil price coming off its highs, we're hoping going forward that diesel will follow suit and start to track downwards, but that sort of hasn't really happened as yet in Mali. There tends to be a lag, goes up fast, but it comes down slowly. But we just have to wait and see how that pans out. It's pretty hard to predict as you can well imagine. Haven't seen too much further increase in consumables, but obviously hefty increases in the first half -- or first quarter predominantly. And then wages where we've been pretty good on that. There hasn't been any activity at either of our sites from a wage perspective. So all in all, yes, it's definitely hurt in the first half. The big one is the diesel price. As Terry said, HFO hasn't gone up as much. It's gone up a bit, but that's a big part of our energy consumption at Syama. So we are buffeted somewhat because it's not increased as much as diesel has. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- (Operator Instructions) And there are no further questions at this time. So I'd like to turn the call back over to Terry Holohan. -------------------------------------------------------------------------------- Terence Neil Holohan, Resolute Mining Limited - MD & CEO [12] -------------------------------------------------------------------------------- Good. Again, thank you very much for your time today. I know you've got a busy schedule. But I look forward to talking to you again in a couple of weeks' time with another good quarter under our belt. Thank you very much. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.