ELKMF - Gold Road Resources Limited (ELKMF) Q3 2023 Earnings Call Transcript

2023-10-26 00:54:07 ET

Gold Road Resources Limited (ELKMF)

Q3 2023 Earnings Conference Call

October 26, 2023 08:30 p.m. ET

Company Participants

Duncan Gibbs - Managing Director, Chief Executive Officer

John Mullumby - Chief Financial Officer

Andrew Tyrrell - GM of Discovery

Keely Woodward - Joint Company Secretary

Duncan Hughes - General Manager, Corporate Development, Investor Relations

Conference Call Participants

Daniel Morgan - Barrenjoey

Alex Barkley - RBC

Al Harvey - JP Morgan

Mitch Ryan - Jefferies

Paul Kaner - Ord Minnette

Presentation

Operator

Thank you for standing by, and welcome to the Gold Road Resources September Quarter Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to Mr. Duncan Hughes, General Manager, Corporate Development and Investor Relations. Please go ahead.

Duncan Hughes

Thank you, Harmony. Welcome everyone to our September quarterly analyst call. The quarter continued to see a strong Aussie gold price paid for our fully unhedged gold sales. This of course resulted in record revenue leading to record free cash flow for the quarter.

In the presentation today, we will be referring to the quarterly result slides that can be viewed on the live webcast, our website or the ASX release. Those on the webcast and on the phone are able to submit a question for us to address at the end of this call.

On the call today we have Duncan Gibbs, Managing Director and CEO; John Mullumby, our Chief Financial Officer; and Andrew Tyrrell, our GM of Discovery. Also on the call, we have Keely Woodward, our Joint Company Secretary.

Moving to slide three now, for a summary of the September quarterly results. Bryah continues to operate safely and reported no lost time injuries during the quarter. Bryah is now over 900 days LTI free. This is a great result from the operation. Gold Road's 12-month LTI frequency rate is just over two, with no LTIs reported during the quarter.

The September quarter saw gold production from Bryah at a record high of 88,668 ounces produced. This was at an attributable all-in sustaining cost of A$1,682 per ounce for the quarter. As I said earlier, the strong spot price for gold and the increased gold sales contributed to record free cash flow generated during the quarter of just shy of $52 million. We closed the quarter with a very healthy net cash position of $209 million and of course no debt was drawn.

Quarterly gold production was in line with our expectations and calendar year 2023 guidance remains unchanged. Strong cash flow generation for the first half of 2023 saw us continue returning to shareholders in the form of a fully-franked interim dividend. And this was paid just after the quarter closed on 5 October.

Our strategic investments continue to hold good value and following a placement by De Grey Mining in early October, we returned our strategic shareholding in that company to 19.9%. We continue to explore across our exploration portfolio throughout Australia, and we're currently drilling at Mallina and Yamarna. The strategy remains unchanged here. We are looking for mine 2.

I'll now hand over to Duncan Gibbs to take you through the quarterly results in a little more detail.

Duncan Gibbs

Thanks, Duncan, and thanks for everybody who is joining us on the call today. As we look at the quarter in a little more detail, gold production for the quarter is essentially in line with our expectations, improved quarter-on-quarter and certainly benefited from improved mining productivity, as well as really ongoing consistent performance of the processing plant.

From the last quarter, we had an intense focus on drilling and blasting, as well as the mobilization of new and additional mining fleet during the quarter, and the ore and the quantities of ore and waste moved progressively improved and increased during the quarter. We expect a further increase in the total mining volumes into the December quarter and then level out with more consistent production at higher levels next year.

We've seen a good response from MACA and their owner Thiess, in addressing the issues that we spoke to at the June quarterly, with improved operating practices as well as the mobilization of additional fleet.

The average mine grade for the quarter at 1.22 grams, a little lower quarter-on-quarter reflecting the areas available for mining. The ore quantities mined in the quarter increased up to about 2.2 million tonnes from 2 million tonnes in the previous quarter, which resulted in some lower grade processing of stockpiles and in part is to assist us with throughput through the processing plant, thus resulting in the mill grade being slightly lower than the as mined grade.

The ore tonnes milled approximately 2.4 million tonnes for the plant or on an annualized basis. We're sitting currently at about 9.6 million tonnes and reflects the operating practices of the plant, good plant availability and utilization, as well as some benefits from the blending of softer oxide ore, which came from both the Stage 4 cutback and from low grade stockpiles.

The pebble crusher upgrade which is an important step in further increases to the plant throughput remains on track for completion later this year.

Gold recovery in the processing plant continues to be higher and increased to 93% during the quarter and reflects at least in part improved operating practices and reliability of the plant. Some enhancements we've done to the reliability of the gravity circuit and a number of other sort of smaller improvements that have helped reduce recovery losses.

The all-in sustaining cost for the quarter was slightly higher quarter-on-quarter at A$1,682 per ounce, largely attributed to the increased mining volumes, non-cash adjustments to all stockpiles and golden circuit inventory, an increase in capital, sustaining capital expenditure, which related to both the commencement of the Tailings dam storage raise and the ongoing pebble crusher project. These variances of course were partly offset by the higher quarter-on-quarter gold production.

Gold revenue benefit from the strong production, of course as well as the continuing gold price and of course all of our sales are being uphedged. And quarterly corporate all in cost, so that's basically all costs divided by the ounces sat at A$1,959 per ounce, and continues to be what we suspect is one of the lowest in the sector and of course is also consistent with the high cash generation that we're making.

No changes to guidance, so we're maintaining the previous update there. The mobilization of new drills and additional fleet will occur into 2024 and we've got some additional trucks being mobilized in this quarter. Trucks really not a constraint to mining capacities at the moment, but we will need some more trucks to maintain the haulage distances they increase into the future. Accordingly the rate of waste in ore mining will continue to increase in the second half of this year and into next year, in line with the 7 Stage mining plan that takes Gruyere out to 2032.

As noted in the quarterly, the life of mine strip ratio now sits at about 4.5:1 with that increased relative to where Gruyere was at financial investment decision and we've increased the reserve of course by about a million ounces since the project was originally committed with the new 7 Stage pit design. We've also got behind a bit in waste movement in the first half of the year and we've got a bit of catch up to do with what we're seeing in the productivity. We're well on track to be able to do that.

As previously guided, the sustaining CapEx for the expenditure increases in the second half of the year and as I've mentioned, that really just reflects the increase in capitalized stripping rates, the pebble crusher capital project and the TSF raise.

Moving on to exploration, and I'll hand over to Andrew to give you a short update on where we are there.

Andrew Tyrrell

Thanks Duncan. Gold Road continues to hold a diverse and prospective portfolio of exploration dependents throughout Australia, including at Yamarna, in Pilbara and in Northeast Queensland. Drilling is now complete at the Golden Highway with feasibility studies having commenced to support mining at these satellite deposits by 2026.

At Yamarna, we have three drill rigs operating in the southern project area of Yamarna. The Aircore rig is testing previously underexplored strategically a long strike south of Gruyere, at our Hopwood and Jatz prospects.

The RC and diamond rig are following up with Bedrock testing of defined anomalies at our calico prospect, as well as targets at Feta and Hopwood South. At the Mallina project in the Pilbara, the Maiden RC drilling program over the Western Tenement Package was completed.

Drilling has an intersected encouraging alteration with some gold mineralization intersected as well. This includes 3 metres at 8.4 grams per tonne and 2 metres at 3.25 grams per tonne; a good result for a first class program in that area. Additional follow-up drilling has just recently commenced as well, and we’ll follow up on those results.

On ground exploration, activities continue at Greenvale with a focus on surface mapping and soils and rock chip geochemistry. Remote sensing and geophysical surveys were completed and these will assist in delineating a priority target pipeline for follow-up drill testing now scheduled for 2024.

On that, agreements were finalized for the Copper and other base metal projects we held with Gold Road retaining free-carrying exploration interests.

I will now hand over to John Mullumby to take you through our quarterly financial results.

John Mullumby

Thanks Andrew. So as Duncan mentioned earlier, it was a strong quarter production wise. This combined with also a strong spot gold price environment across the quarter to generate record revenue of A$131 million from gold sales across the quarter and also generated a record A$94 million operating cash flow from Gruyere. This in turn generated A$52 million of free cash flow and we finished the quarter with A$5 million roughly on-hand of unsold bullion and Dore as well.

Now on the slide – on the screen currently you should be seeing the usual cash flow waterfall slide, which summarizes the movements in cash and equivalents across the quarter. Not a great deal to talk to here. It was a very steady state BAU quarter for us of harvesting cash. So I'll just close off this slide by saying that we closed the quarter out at September 30, with a very healthy $209 million of cash and equivalents on hand, and we remain debt free and our corporate revolving facility of A$150 million is sitting there ready to be utilized at any time.

Subsequent to the quarter end a couple of things I'll just bring to your attention, firstly, a dividend. We returned A$11 million to shareholders via a fully franked dividend, which is a continuation of our consistent dividend payment policy over the last several years. And secondly, our investments are a big part of our balance sheet. They were valued at A$345 million at the end of the quarter, but soon afterwards we subscribed for $59.7 million in shares in De Grey at $1.05 per share and this returned our position in De Grey to 19.9%.

Assuming De Grey shareholders approved the second tranche of displacement on November 9, Gold Road will then hold 368 million in shares in De Grey. And lastly, as of market close last night, that investment in De Grey was valued at A$470 million – sorry, A$440 million at the closing price of A$1.19.

Thanks. That's it for me. I'll hand back to Duncan Hughes.

Duncan Hughes

Thanks John. So that brings our results presentation to a close. Now, I'd be very happy to answer any questions you may have. So I'll hand the call back to Harmony to see if there's any questions on the phones.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Your first question comes from Daniel Morgan from Barrenjoey. Please go ahead.

Daniel Morgan

Hi Duncan and team. Firstly, the Pebble Crusher which is due to be commissioned at the end of this year, can you just remind us of what that's expected to do to milling volumes noting that you're running at 9.6 million tonnes this quarter? Thank you.

Duncan Gibbs

Yeah, well I mean the proof will be in the pudding when we turn it on. I guess we're probably doing a little bit better than we expected from the two Pebble Crushers we have in operation at the moment. We're operating them basically both at the same time whenever we can.

So, next year what it helps us do is basically get the pebbles out the mill and then optimize the mill. So it's a kind of a mill deep offer making surface opportunity. We've always spoken to a target of getting up to 10 million tonnes. I think that will take a little bit of time and as well as with Pebble Crusher, there’s ongoing reliability improvements in the circuit that will be part of the contributing factor there.

Daniel Morgan

Thank you. Staying with the mill just processing recoveries are a little bit higher. Was that the benefit of the drawdown of gold in the circuits or is there something else you're working on and we should be thinking about? Thank you.

Duncan Gibbs

Look I think we're starting to see a reasonably consistent pattern of better recoveries and I mean it's real, it's not an inventory adjustment kind of things. There's a number of contributing factors to that. I guess that the ore body ones, there is a slight correlation of higher grade, higher recovery. There's also slightly better recovery from oxide material. If I can take you back to the Test Worker Feasibility Study, that was predicting I think a 91.7% recovery.

So we're starting to see a bit better than that. I think the technical factors on the site that is helping that more consistent operations reduce sort of unplanned losses, more consistent reliable performance of the gravity circuit. The team on sites have done some good work to enhance that.

We've also done some slight improvements around solution losses, so there's less gold going out with the water out for tails [ph] then. And then probably the other thing we've got is really what is industry leading technology, where we do on stream analysis of the carbon. That lets us do a lot tighter control of the leaching circuit than most operations do.

So, I think it's really just a collection of all those factors that are giving us a better recovery than what was modeled out of test work out of the original Feasibility Study.

Daniel Morgan

Thank you, and just last question, I mean there's a few capital items this year like the pebble crusher etcetera. Just turning our mind to 2024, is there any large capital items that you'd call out or is capital going to be a little bit lower next year do you think?

A - Duncan Gibbs

Look, the TSF continues and that should get finished around about March/April. There's a lot of other kind of project capital, obviously waste volumes as we've been fagging, continue to step up next year with fundamentally what's another mining fleet operating at Gruyere.

Daniel Morgan

Okay, thank you very much.

A - Duncan Gibbs

Thanks Dan.

Operator

Thank you. Your next question comes from Alex Barkley from RBC. Please go ahead.

Alex Barkley

Hi Duncan and team. Just looking at all the exploration you've done at Yamarna, just wondering when we might see some of those assays coming back and maybe circle back and do a bit more diamond drilling perhaps. Just wondering the timeline of the exploration there when we might see results and when does that campaign sort of conclude?

A - Duncan Gibbs

The exploration at Yamarna, we're progressing through a whole bunch of prospects currently. Drill testing those, actively drill testing those now. Obviously results will continue to come in, but we're still obviously waiting on those assay results from the lab. We expect the drilling to continue through till the end of the year and then looking at next year's plan for further drilling at more of our, I guess advanced prospects as well. So we'll just continue to drill and release results as they come in.

Alex Barkley

Okay, sure. And just another quick one on timelines. That potential Golden Highway mine, I think you mentioned maybe production 2026. When can we expect a bit more study details and when might construction begin on that?

Duncan Gibbs

Well Golden Highway, basically that Andrew didn't speak to is we ran all the drill programs on that for the first half of the year. So that's now all drilled off. All those results are in resource modeling kind of in progress. That very much just leads into feasibility study kind of level work, coming up with detailed pit designs and the like for Golden Highway. We also need to work through the normal sort of permitting and what have you for all of that.

Current plan is Golden Highway will be part of the all supply mix for Gruyere from about 2026. Probably mined over two to three years, something like that. Not really a construction projects. We'll need a few rides and things like that, but it's only 25 kilometers away from Gruyere. So it's not like we're building another mine out there. It's simply a satellite, series of satellite pits that come across to Gruyere.

Alex Barkley

Okay should we expect any sort of releases of studies or we'll just sort of find out a bit closer to the date when it's all getting built?

A - Duncan Gibbs

Look, I think it'll just – I mean, it's not a – it augments Gruyere. I think the progressive updates will come through as we update on normal annual guidance and that kind of stuff. Normally of course we put out annual guidance in the first calendar quarter of each year.

Alex Barkley

Okay, thanks for that. That's all my questions. Thanks guys.

A - Duncan Gibbs

Thanks.

Operator

Thank you. Your next question comes from Al Harvey from JP Morgan. Please go ahead.

Al Harvey

Yes, good day Duncan and team. Just wondering with the comment in the note on the exploration side of things, so more drilling at Gilmour ongoing, currently a 300,000 ounce resource. Just wondering if you can just refresh my memory, like that's progressing towards – looking to progress that towards mine development. Just wondering if that's likely to go through the JV in time or if you're planning to kind of roll that in with further exploration success on some of those other southern project area prospects?

A - Duncan Gibbs

Yeah, look, at this stage I mean we'll keep either of those options open. We're still drilling some quite interesting targets which Andrew spoke to, where the results of those will come in over the next quarter or probably well into next year by the time it actually gets back from the assay lab.

But Gilmour, we are looking at progressing that, so it is shovel ready, and that's likely to be what we budget for there next year. We're still working up all of the detail on there and that's to give us some optionality on alternative or supply to Gruyere. But at the same time, if we discover a significant resource down at Yamarna, we've still got it on hand for that.

Al Harvey

Yeah, sure. And maybe there's another one. The Mallina drilling looks quite interesting. I think you've noted that the alteration characteristics are pretty similar to other mineralization in the region. I assume that's a decent comp with Hemi. I was just wanting to get a sense of how much interaction there is with the Mallina geos and the De Grey team, if there's any cooperation there.

A - Duncan Gibbs

Look, I mean obviously we're a shareholder in De Grey. I mean we know a lot of the geos at a personal level. But some of them used to work for us here or worked with me in the past in other companies. So there's plenty of – there's the industry I guess in WA is pretty small. But De Grey, they don't give us any special insights into their geology or what have you.

Al Harvey

No worries. Thanks Duncan.

Operator

Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.

Mitch Ryan

Good morning Duncan and team, thank you. A quick question just on as that pebble crusher comes online, will the plant be taken down to tie that in? Should we expect any impact to production in the fourth quarter?

A - Duncan Gibbs

Look, most of the major tie-ins are actually done in the third quarter. And really the risk of any disruptions to the plant as a result of the pebble crusher or delays from the pebble crusher are very low. So we're not budgeting or expecting any kind of impacts as a consequence of bringing it online.

Mitch Ryan

Okay and sort of as a derivative of that, are there any other major shutdowns planned in the next quarter? I guess the heart of my question is, can we sort of – assuming production continues at similar rates, can we take this quarter's production and drill right?

A - Duncan Gibbs

Look, I'd like to think so, and routine practice of course is for us to do, a major mill reline technically once a quarter. Occasionally it coincides that we're doing a reline of both the mills. I don't have in my head exactly when that next one is. But yeah, we'd like to think that the plants operating pretty consistently.

I think utilization for the quarter was about 93.56%. So we're getting out there with good industry practice. I said excellent, so I think for Gruyere would be about 95%. And the team on site, they are doing some good work and steadily improving the reliability of the plant from quarter-to-quarter.

Mitch Ryan

Thank you. That's it for me.

Operator

Thank you. [Operator Instructions] Your next question comes from Paul Kaner from Ord Minnette. Please go ahead.

Paul Kaner

Hi Gents. Thanks for taking my question. Another exploration one here for Andrew I think. Just on your exploration portfolio, how are you sort of ranking these prospects internally? I guess what's exciting you the most and then how are you allocating your exploration budget towards this?

Andrew Tyrrell

Yeah, thanks Paul. So obviously we've got our own internal processes for ranking our targets based on their technical merits. And then we have also internal peer review processes where we bring in the brains trust to obviously assess the guys work and see quality and rationale of targeting I guess.

Across the portfolio we do have a suite of, I guess, exciting prospects and targets. One that excites me currently the most is Mallina in Queensland. I think there's some fantastic targets, early stage targets that are coming out of those. Yamarna still has some legs in it. There are some interesting results there.

We did a big push this year to do I guess a series of retargeting, trying to get the guys to reassess the belt and come up with some new ideas and new targets. And out of that came I guess a good suite of targets which we're testing now actually. And you know it's early days, but yeah, they look good geologically. We'll wait for the assays to tell us what's there. But yeah, so we do have a process internally to rank and prioritize.

We obviously allocate our budget based on I guess the quality of those targets and obviously through that peer review process as well.

Paul Kaner

Yeah, maybe just drilling down a bit more, excuse the pun, just on the ones in Queensland. What's getting you excited there?

Andrew Tyrrell

Well, they are intrusive related gold systems. So we're an area that basically has not been touched for the better part of 20 years. It was previously explored by Normandy back in the day, and they actually detected some – indicated a gold mineralization with these intrusive related gold type systems. The guys have been on the ground over the past three four months; understanding the geology, doing the targeting, trying to understand the quality of these targets.

And again it's early days but they are conceptually good targets and there's some good indicators just around I guess the location, the geology and as well as through the geophysical data sets we have. They're still early days but it's just from a conceptual level looks pretty good.

Duncan Gibbs

Yeah, so if I can just add to that. So there's – I mean one of those targets has got historical, in fact two of them have got historical drilling on. One of the holes we're re-assaying, but it's got fairly obvious alteration. There's a historical Normandy hole that had something like 60 metres of the gram in it, and we've probably got five separate systems to drill tests from what we know at the moment.

Paul Kaner

Yeah, no understood. Thanks for that Duncan. Thanks Andrew. That's it for me.

Operator

Thank you. There are no further phone questions at this time. I'll now hand the conference back to your speakers to address your webcast questions.

Duncan Hughes

Thanks Harmony and thanks to all those. Lots of questions on the phone. So as a result of that some of the webcast questions I think have already been answered. So thank you Michael for your question. I think Paul Kaner asked pretty much the same there, so I take that as done.

One from Bradley from Bell Potter. Congratulations on a great quarter. Could you provide us an update on your view of the inorganic growth landscape? Are you seeing value in ASX listed gold developers and explorers now, looking beyond your investment in De Grey, given their relative share price under performance relative to producers?

Duncan Gibbs

Look, I guess we monitor that space. Obviously a lot of the junior explorers are struggling to raise cash in the market. That's resulted in a lot of property offerings kind of coming through the door. Typically what you get is lots of low interest stuff, put it like that, coming through. But probably the quality of those opportunities is starting to pick up.

Situation in North America, they are probably even more financial market constrained and there's a lot of junior things of interest over in that part of the world. But by and large, I mean we obviously look for opportunities to trade up the quality of exploration portfolio, but we haven't found anything at the moment that has enticed us to do that.

Duncan Hughes

Thank you. One more question from Glenn [Ph]. He wanted to ask and I'll hand this to Andrew. What type of drilling are you planning to do in Queensland and when do you think you'll get on the ground there to do that drilling?

Andrew Tyrrell

So the aim, we’ll be looking to start our drill campaign after the wet season next year. The drill types we'll be looking at is a combination of RC and diamond, and as Duncan mentioned, we have a handful of targets to follow up. So the team are going through the process now of planning those drill programs, which will set us up for after the wet season next year.

Duncan Hughes

Thanks very much Andrew. And one from Peter. Is now a time to lock in hedges in these high gold price environments?

Duncan Gibbs

Look, we really look at hedging as a risk management strategy. I think the track record of the industry playing that kind of gambling game, locking in the hedging at a higher gold price has often been counterproductive.

Where that of course leads us to is the market movement of Gold Road will mirror the gold price. Our view is most investors invested in gold companies to get that leverage and upside to the gold price. So of course if you do significant hedging you either dampen that or if you're in an inflationary situation like we've seen in the last year, you can actually create quite a significant margin squeeze where the cost of your inputs go up and you fix the gold price.

So broadly our policy is not to be hedged. There are of course good reasons to be hedged. As for example, you take on significant debt such as financing projects or things like that. Obviously with our strong cash position of plus A$200 million, we're a long way from needing to consider hedging for that kind of purpose.

Duncan Hughes

Thanks Duncan. That's it for the webcast questions. I think all the – there were a few others there, but I think they were answered by the phone questions.

I'll just quickly check with Harmony to see whether we've had anything else come in on the phone. Anything else Harmony?

Operator

Thank you. There are no further phone questions at this time.

Duncan Gibbs

Thanks for that. Thanks everyone for your interest. That closes out our call. I'll just summarize with slide eight. I think most people agree it was a good quarter. Record production, record revenue led to record cash flows.

Gruyere, we're very happy to have as a long life asset. Our investment portfolio is strong, valued at about A$440 million today. Most would have seen during the quarter we repositioned ourselves at 19.9% from our 19.7% at the Gruyere. Very happy with that strategic investment.

Thanks for all the questions on exploration during the call. It is a big part of our business and we are now a national explorer. We look forward to testing those targets at Mallina and Queensland as well as continuing at Yamarna.

Cash equivalents remain strong. Thanks again to that free cash flow and of course we are a dividend payer and have been consistently for three and a half years or so now. So a strong business with growth opportunities and strong production.

Thanks and see you next time.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

For further details see:

Gold Road Resources Limited (ELKMF) Q3 2023 Earnings Call Transcript