29Metals Limited (29M) Earnings Call Transcript

Thank you for standing by, and welcome to the 29Metals Limited December Quarterly Conference Call. [Operator Instructions] I would now like to hand the conference over to Mike Slifirski. Please go ahead.

Thanks very much, Lexy. Good morning, ladies and gentlemen. We will be speaking this morning to 29Metals December quarterly activities report which was released to the ASX this morning. This call and parallel webcast is being recorded and will be available for replay via the 29Metals website and the Open Briefing website. 29Metals' Managing Director and CEO, Peter Albert, will present an overview of the quarter, the year and 2024 outlook before handing over to COO, Ed Cooney and CFO, Peter Herberts, to lead you through the details of the quarter and then we'll open for your questions. So now I'd like to hand over to Peter Albert to commence the presentation. Thanks, Peter.

Yes, Mike, and good morning, and welcome, everybody. Thank you for joining us this morning. Today, we have the Chair of 29Metals joining the meeting, Owen Hegarty. Owen is on the line. Owen, would you like to say a few words of introduction.

Couple of opening comments. Good on you, Peter. Well, thank you very much for that and thank you to you and to Mike. I really just wanted to, Peter, take the opportunity to thank you actually for the past several years that you've been with us here at 29M and prior to that, of course, managing the assets that are now inside 29Metals. So highly appreciated. You got us through to the point of IPO, got through the IPO, got through various other challenges there and now the company is in a strong position to go forward. And I look forward to continuing to work with you, Peter, during the next few months as we go through that transition. And as far as all that is concerned, I can report indeed, that particular executive search is on schedule, on time, on budget, on plan so that's going pretty much according to plan. So Peter, we deeply appreciate all of that and thought I'd take the opportunity to say that to everybody, apart from wishing everybody a Happy New Year for 2024. Look, as you say, Mike, looking ahead to this year, there's plenty of work about to come here, plenty of chat about the last quarter, strong quarter there. And plenty of talk about what's coming forward for this year. And we, I can assure you looking for, again, another strong performance, good turnaround, good improvement and good growth during '24. So pretty exciting. In terms of the macros out there that -- and I know everybody on the call here gets these things coming at them all day long. But we take a very positive approach to the outlook here. We're not unaware of course, of some of the macro headwinds and various other geopolitical uncertainties and so on. But generally speaking, we're looking for growth. The world will continue to grow. The energy transition has left the station and there'll be good commodities growth there for copper and zinc and that what we call the geopolitical tension was made sure that gold and silver stay under pressure, too. So we're looking forward to that. So it's an exciting year and very much looking forward to it internally and externally. And finally, I should say Peter and to everybody, if anybody has got any questions, queries or comments off me as the Chair or any of the other directors then as usual, please fire them through. We're open and very happy to talk to any of those particular items that you might be interested in addressing to us. So Peter, with that, a bit of an intro ramble there. Back to you, Peter.

Thanks, Owen. And I'll, so, move into the presentation of the quarterly results outcome and the guidance for 2024. Thank you, Owen. So in this last quarter, we've made significant progress at both Golden Grove Capricorn Copper. As always, the safety and well-being of our people is our primary focus. The total recordable injury frequency rate TRIFR continues to fall and is now at 6.5 for the group. Although we did have 2 lost time injuries during the quarter. It is worth noting that for the 12 months period, our TRIFR is down by approximately 35%, and our lost time injury frequency rate is down approximately 25%, really outstanding great results and a testament to our operating team's focus on safety. During the quarter, we also implemented mental health awareness training across the company via the Black Dog Institute. We extended our Mental Health First Data program at Capricorn Copper and completed the new statutory supervisor training required under the WA Western Australian -- Western Australia Mine Safety Management System at Golden Grove. Turning to production. At Golden Grove, we achieved a very significant increase in metal production with nearly 21,000 tonnes of zinc and over 5,200 tonnes of copper. Compared to 8,600 tonnes and 5,500 tonnes, respectively, for the prior quarter. Zinc production in the quarter was impacted by an overcall on grade for a particularly high-grade stope out of 3 mill during the -- milled during the quarter. Ed will explain in more detail later on. Overall, we met copper and gold guidance for the year, but the underperformance of the 1 stope at Xantho extended in December meant we missed zinc guidance by less than 5% and about 2,400 tonnes in gold guidance by approximately 1,000 ounces. Overall, a good production quarter from Golden Grove, especially Xantho extended demonstrating the high quality of this ore body and the benefit of the debottlenecking projects we completed during 2023. At Capricorn during the quarter -- sorry, saying Golden Grove during the quarter, we made the submission to the regulator for the next tailings facility at Golden Grove called TSF4 and subject to regulatory approval, we plan to have this facility in operation in the first half of 2025. At Capricorn Copper, the focus remained on recovery. with significant reduction of on-site water and continued production from the Mammoth and Greenstone ore bodies. Our tailings thickener shaft failure in November impacted planned copper production although continued improvement in copper production was achieved with 2,400 tonnes produced, the thickener was repaired and came back online earlier in January. The most significant outcome for Capricorn Copper during the quarter was the Queensland government's declaration of prescribed project status well as critical infrastructure project. This provides the Office of the Coordinator -- Coordinator-General as called the OCG, the [indiscernible] to facilitate timely decision-making for key approvals. An extremely strong show of support for the full recovery of operations and the long-term future of the site. Another significant achievement at Capricorn has been the reentry into Esperanza South, a sub-level cave, which was flooded in the extreme weather event last March. To date, we have removed approximately 160 megaliters of water from the cave and rehabilitated the first upper levels of the mine. Consistent with our expectations, inspections of the upper levels indicate the fiber fruit is largely undamaged, with both requiring replacement. During the quarter, we also made a revised application to increase the holding capacity of the Esperanza Pit called the EPit and resume tailings deposition into the EPit noting we have previously put tailings into that facility. A number of discussions have been held with the Department of Environment Science and Innovation called DESI as well as the OCG and other government departments in respect of this application, and we anticipate an outcome in this current quarter. As most on this call would note securing our ability to resume depositing tailings into the EPit is our pathway to continuous operations as we complete the design, approval and construction of the long-term tailings facility at Capricorn, TSF3, and we expect to submit the application for TSF3 in the near future. As has been previously advised, our refusal of the application, in fact, were to happen, to redeposit tailings into the EPit would result in Capricorn Copper being put into care and maintenance for a period until TSF3 was constructed. As I noted previously working very closely with the government departments to secure the approval to be able to put tailings into the EPit. Costs across the group were well controlled in the quarter despite materially higher activity and higher production. In the face of continuing inflationary and labor pressures, overall costs for the group were within or below guidance. And we estimate that the cost out and productivity initiatives across the business achieved approximately $20 million of savings, and this will have -- this focus will have renewed effort in 2024. Unaudited cash at 31st of December was $162 million, and Peter Herbert will talk to financial outcomes shortly. On the exploration front, the first of the 2 holes to be drilled at Capricorn Copper across the total fall at Mammoth encountered poor ground and was pulled up a little short although the approximate 500-meter drill that was drilled did result in some good and encouraging geological outcomes. The second hole is -- drilling has commenced. And at Golden Grove, the advantage program has concluded and the results are being incorporated into the resource and reserve estimation, which is due for publication by the end of February. The insurance bank for Capricorn Copper recovery remains in progress, and we will advise outcomes as they are realized. Now turning to guidance. 2024 guidance is released today with the December '23 quarterly report. Given the current uncertainty around Capricorn Copper, we're not providing full year guidance for Capricorn at this stage. Golden Grove year-on-year improvement for all metals reflects an increased production from Xantho extended. Copper metal guidance is 18,000 to 22,000 tonnes against approximately 18,000 tonnes produced in 2023. Zinc metal guidance, 54,000 tonnes to 61,000 tonnes against approximately 51,500 tonnes produced in 2023. Gold metal guidance of 17,000 ounces to 25,000 ounces against approximately 14,000 ounces produced in 2023 and silver metal guidance of 700,000 ounces to 1 million ounces against 775,000 ounces produced in '23. And with respect to cost guidance for Golden Grove increases in guidance from mining and processing cost, which combined is $320 million to $365 million as compared to '23 outcomes of $306 million, this increase is due to increased activity and continuing inflationary pressures. An increase in TCRC guidance of $68 million to $78 million compared to $51 million in '23, reflecting a production profile, changes to benchmark terms and zinc concentrator TC escalators. And an allocation of $7 million to $8 million of corporate cost to the site previously reported as centralized costs. This allocation principally relates to Golden Grove share of group insurance and labor costs incurred to directly support operations. The combined sustaining development and growth capital guidance is $59 million to $75 million compared to $50 million in '23. And with the growth capital comprising TSF4 construction and a proportion or a portion rather of Xantho extended development capital. For the group, exploration guidance between $4 million to $7 million is to support the planned drilling east of the Mammoth ore body at Capricorn and continued resource conversion drilling at Golden Grove. Corporate cost guidance of $20 million to $23 million is after the allocation of some group costs to operations as previously noted, for Golden Grove. So now I will hand over to Ed Cooney to talk in more detail about our operations and then he will hand over to Peter Herbert to talk in more detail about financial outcomes. Over to you, please, Ed.

Thanks, Peter, and good morning, everyone. Well, there is -- to our safety metrics outcomes for the quarter. So let me begin with the progress in our recovery plan at Capricorn Copper. A relatively dry November and December period has made further water reduction during the quarter. With [indiscernible] in compliance in terms of water storage volume at the prescribed date of 1st of November, representing a vertical drop of approximately 2 meters. The ordering rates from the underground Esperanza South progressively increased during the quarter with the north cave now fully dewatered and the decline which transitions from the north to the south cave currently undergoing final dewatering and ground support rehabilitation [indiscernible]. Larger capacity submersible pumps are on site and are waiting completion of planned dewatering holes, which once installed will further increase underground dewatering rates from the south cave. In the absence of rainfalls during the December quarter, there was no opportunity for treated water release. However, with the recent rainfall in the Creek Catchment controlled releases have since commenced from the flooded workshop area. Overall, notwithstanding recent rainfall, the input of Esperanza South water from underground into the pit, the expanded evaporation system, limited freshwater take from the lake plus the release of water to the creek have largely maintained the reduced Mill Creek down water level. And an approximate 3-meter vertical reduction in water in the Esperanza Pit. In terms of production activities, while the December quarter saw an improvement on the September period of all mined, milled, feed grades and copper production, failure of the tailings stick and a shaft exacerbated water quality issues being managed in the settlement funds. This had a direct impact on mining and process plant run time, negatively affecting copper production outcomes in late November and December. The shaft was replaced ahead of the planned commencement of January's milling campaign. Nonetheless, copper production for the quarter at about 2.4 kilotons was a significant improvement on the prior quarter. Looking ahead, progress continues to be made on a number of key capital projects with a focus on design and on-site serve activities for a new long-term store -- tailings storage facility. Completion of these works will lead to the application submission for this facility expected in the near future. Design of a replacement water treatment plant has progressed from concept level to the detailed stage. As Peter mentioned, we submitted a revised application for an amendment to the design storage allowance with an Esperanza Pit and approval to resume deposition of tailings for an interim period until the new tailings facility is approved and constructed. With existing remaining tailings capacity in the Esperanza TSF until the end of April, we continue to work closely with various government departments to enable sustained production outcomes including a return to full operations with Esperanza South coming back online in the second quarter. Moving on to Golden Grove, mining revenues were marginally lower than the prior quarter due to a greater proportion of ore trucked from depth that Xantho extended while mill tons were consistent with the prior quarter. During the year, a number of debottlenecking activities were undertaken, including commissioning of the new ventilation circuit, introduction of auto mine and the commissioning of a new underground fuel bay. And despite the ventilation fence encountering multiple commissioning problems, mining activity as measured by both development and production increased down to extended quarter-on-quarter. And for the full year, tonnes mined from Xantho extended increased to approximately 330 tonnes, which was a -- sorry, 1,000 tonnes, which was a significant lift from the 180,000 tonnes mined in '22. In terms of full year metal production, copper performed well and was in line with guidance. However, as Peter mentioned, we fell short on zinc. The site team put in a tremendous effort to successfully mine and mill the planned ore sources required. However, expected zinc grade from one of the planned high grain sources underperformed, resulting in a circa 2,500 tonnes shortfall in zinc production. The zinc grade underperformance was primarily due to additional chalcopyrite within a broad zinc ore zone, not previously identified at the current 20-meter drill spacing. And the net result was greater copper produced from the stope but less zinc. We do retain a very high level of confidence in the geological resource models with overall zinc reconciliation at Xantho extended within 3% of the model estimates to date. Development performance of Xantho Extended continued to improve during the December quarter with another record achievement set and the site team remain absolutely focused on further ongoing improvements in this area, which is a key driver of future production growth from the old lake. Peter mentioned the '24 guidance ranges earlier for Golden Grove. We anticipate additional volumes through the process plant this year as we benefit from no mill kit -- throughput curtailment as we experienced in the first quarter of 2023, partly offset by an additional plan to miller loan. Increases to production across all metals is expected as we deliver further year-on-year improvements to production rates from Xantho Extended. Zinc guidance, in particular, reflects a mining schedule updated for closing phase positions at the end of 2023. With a significant improvement in development performance at Xantho Extended in the second half of '23, only partly offsetting earlier -- underperformance earlier in the year. In terms of approvals activity, an important application for the sites new tailings facility was submitted in the December quarter, and our subsequent information request response has been provided in January. Procurement fall associated long lead items and the design is currently progressing to plan. Additionally, we anticipate submitting our application for Gossan Valley approval later in the month quarter. I'll now hand over to Peter Herbert to discuss financial outcomes of the quarter.

Thank you, and thanks, everyone, for joining us this morning. I'll start with the revenue outcomes for the December quarter. Our unaudited revenue of $141 million, an increase of approximately $40 million from the prior quarter result. Golden Grove achieved higher copper sales despite flat metal production quarter-on-quarter, reflecting the timing of shipments. And lower zinc sales despite a material increase in zinc metal production as concentrate volumes on hand increased, consistent with production outcomes weighted to period end. Capricorn Copper changed an increase in copper sales of more than $20 million into the month, reflecting the ramp-up in production activity. Copper [indiscernible] total revenue for the quarter was approximately 70%, an increase from the prior quarter is 58%. This increase for [indiscernible] quarter and we continue to add up [indiscernible] Capricorn Copper. Realized commodity prices were broadly flat in A&D terms. We're providing the zinc and gold prices in the U.S. state zones [indiscernible] slightly, where copper was slightly softer and the Australian dollar was slightly flat well. Looking ahead in 2024, Golden Grove production sales outcomes are appear to be slightly [indiscernible] and at Capricorn Copper, we expect March performance to be broadly consistent with the December quarter or be adapted the impact of the ramp-up challenges that Peter and Ed spoke to you earlier. [indiscernible] across total growth site cost for the December quarter was $91 million, were higher than the prior quarter result of $81 million reflecting increased activity, contractor rate [indiscernible] 50% increase in concentrate volumes produced during the quarter. Selling costs comprising TCRC and transport costs were broadly in line with the prior period despite an increase in concentrate volumes sold, reflects greater working to come across during the quarter. And capital in the December quarter continued to track into the bottom end of guidance. For the year, total capital of $50 million was below the bottom end of guidance being $68 million, reflecting [indiscernible] TSF procurement commitments, decisions to defer nonessential capital and lower rates of development advance during the year. At Capricorn Copper, site costs increased to $31 million from $19 million from prior quarter reflecting the ramp-up in activity during the period, all begin to below the March quarter runbacks given the ongoing suspension of [indiscernible] and the impact of the ramp-up issues. C1 and AISC unit costs for the quarter declined 14% and 18%, respectively. However will remain elevated ahead of restart of Esperanza South. Capricorn for the December quarter was $16 million and included costs associated with the commencement of SFD Water. For the full year, recovery cost of $61 million was below the bottom end of guidance of $70 million. Effort to identify cost-saving opportunities primarily for 2023 and increase in production at both sites have delivered reduced unit costs in the December quarter. The identification of cost and efficiency opportunities has been encouraging. And there is a focus on expanding these efforts into 2024 with improvements in unit cost to come from resolving ground hub issues and executing our plans to deliver high production in 2024, particularly the production of mining selling from Esperanza South. Working with our team and business partners to identify and extract operational efficiencies and delivering further opportunities to streamline and simplify our business. 29Metals finished the quarter with [indiscernible] cash of $162 million, a decrease on the September quarter position of $227 million. The movement in cash reflects the timing of sale of Golden Grove and the buildup and concentration inventories that Ed mentioned earlier, the impact of the ramp-up issues in Capricorn Copper, reducing production by approximately 1,000 tonnes of copper which has since been solved. The timing of corporate costs, including the payment of insurance payments and a further $10 million principle repayment and interest cost during the quarter. No proceeds from 29Metals ongoing insurance claim were received during the quarter. Our progress continues to be made on the surface [indiscernible] decline for property damage or business interruption. The group had unaudited net drawn debt of $52 million at the end of the quarter, an increase on the unaudited net debt position at 30 September of $15 dollars. After principal repayments, gross drawn debt declined USD 146 million at year-end. 29Metals continue to evaluate opportunities to enhance the liquidity during and post quarter, discussions on a potential offtake facility were advanced. Finally, 29Metals have been in communication with the WA Office of State Revenue, and based on this correspondence, expected to finalize stamp duty payable in connection with the acquisition of Golden Grove during the first half of 2024. 29Metals claims a $26 million provision in relation to stamp duty. Thank you, everyone, for listening. I'll now hand back to Peter Albert.

Thanks, Peter, and thanks, Ed. Lexy, we could now move to any questions at this point in time. Thank you.

[Operator Instructions] Your first question comes from Kate McCutcheon from Citi.

Best wishes for 2024. The comment in the quarterly on insurance, what does making progress mean exactly? And what is still in the works that -- any color you can provide in terms of [indiscernible] versus what you thought it might be and timing around that?

Thanks, Kate. Always a challenging question and understandably asking the question. The discussions with insurance ongoing, positively ongoing. I think in the quarter, we reflect on the indemnity provided by the insurers in respect of the surface property and related BI. So that's advancing and moving ahead. And as noted in our discussions earlier, as we get results, those outcomes, we'll certainly keep the market well informed. And once we get through that, that's the time to engage more significantly with the insurers in relation to the underground component of the insurance. So work in process, I can't really advise any more, Kate. Not that there's any more to advise except the work and the process is ongoing and has advanced, and we're actively engaged with the insurers.

Okay. Got it. And then Golden Grove guidance on zinc seems to be a bit lower than the 5-year outlook you previously provided. Is there anything to call out there. And just a related part of the question, after spending on capital, even if I strip out the growth at Golden Grove, it's been some time since that asset generated free cash. From the comments, it seems like you're looking at it closely as a business in terms of what you can do to bring costs down. But what are the key levers there? I guess the question is you want to be mining the cap or what are the things that you're looking at there?

Do you want to talk to the tonnes, Ed

I'll tackle that one. I mean, principally, it's due to closing base positions at year-end. If you recall, we did have a number of delays somewhat frustratingly with the booster fans at Xantho Extended. Obviously, they're now resolved and additional improvement projects such as fuel base, et cetera, completed, which sets us up well. Having said that, the improvement that we saw in the year wasn't enough to offset the shortfall early in the year, which effectively means that I guess the total ore tonnes from Xantho extended the plan for next year, slightly lower than where we had previously guided.

Yes. Kate, Herbert here, I want to talk about the cost question that you raised. Great question. I should expect there's no single [indiscernible] these things. We're focused primarily on driving increased efficiencies across the site and Ed talked to things like building a fuel by underground to improve efficiencies out of that plate. And this really is something that we engage very closely with our partners, including [indiscernible] to help us achieve those efficiencies, looking at the same [indiscernible] structure set up to drive growing our output underground. Equally, at Capricorn Copper, we have experienced those ramp-up issues in the December quarter and we hope that those are now resolved that we can [indiscernible] in the last quarter.

Okay. Yes. I guess my question was around the ability for Golden Grove to generate free cash and the outlook there. I know it's not a specific question, but just that asset hasn't been making that so looking forward. That would be good.

Absolutely. I can assure you, we're very much focused on that as well, Kate.

Yes. Just to add to that, Kate. I mean I did make reference in my comments to the savings achieved in 2023 with a backdrop of the not insignificant inflationary pressures and labor pressures. So -- and a lot of focus on contractor management and efficiency across the business and very significant input right across, mostly Golden Grove, of course, because Capricorn Copper in a different status last year. Significant achievement with that backdrop. And as I noted earlier, will -- that process is accelerating and advancing and renewed and continued focus this year is to look for those opportunities, certainly aware of the concerns there. And we're focused on making that operation as efficient as we possibly can.

Thank you. Your next question comes from Tim Hoff from Canaccord.

First off, congrats Peter on your retirement. All the best of the future. I was just looking at Page 2 and just having a look at the Xantho Extended ramp-up rate there. All mines is 140 tonnes post sort of run steady rate -- run rate there? Or is there more sprint capacity?

Yes. That reflects a good increase quarter-on-quarter. I mean, as we've mentioned, the development rates impacted earlier in the year by ventilation, which effectively did mean that we were constraining mining activity in terms of limiting truck movements and the like. So for the year, we achieved about 330,000 tonnes out of Xantho extended. Ultimately, where we want to get to is sort of around 1 million tonne mark. So even on the December quarter, there will -- we expect there will be further increases over time as we bring online or open up more development sublevels and produce from a higher number of stopes from that ore body. So continual improvement over the coming years, even from the December quarter rate.

I'm sorry, Tim, I don't think we can understate the benefit of the ventilation system, which is -- we certainly -- we experienced some significant problems right up to the point of getting them commissioned and back into operation from about sometime in the third quarter, and you see the improvement from there. So they are now up and running and providing the appropriate ventilation as well as the other projects that Ed referred to in terms of the fuel bay and the auto line system, which again was a project for last year. So those activities will lead to continuous and continued improvement as Xantho Extended. And as Ed said, the target is to get to 1 million tonnes per annum. We will repeat there, again, and thank you for your comment earlier in respect of myself. Thank you.

All right. And then perhaps finally, TCRCs, you guiding to an up year. Just noting that in our screens with TCs falling this year, I understand there's an escalated. Can you just step through that and how that functions for us.

Yes, sure. So a bit of a mixed bag there, further particularly in 2024, the high [indiscernible] production forecast is obviously part of it. The [indiscernible] out of those existing offtake agreements are a key driver there. And this year, will be the year where that impacts the most based on the scheduled [indiscernible] those trends. So next year, we'll expect an improvement relative to this year, all things being equal into the [indiscernible] production. But yes, that's the key driver for TCRCs this year.