Black Cat Syndicate Limited (BC8) Earnings Call Transcript

Hello, and welcome to MarketOpen Direct Connect. I'm your host, Stewart Walters, and we're joined today by Managing Director, Chris Stone; and CFO, Nick Dwyer of Black Cat Syndicate, ASX code BC8, who will run through the September 2026 quarter results and participate in a live Q&A. [Operator Instructions] A recording of this webinar will be available on MarketOpen and BC8's platforms in the next 24 hours. Chris, Nick, welcome to Direct Connect, and over to you guys.

Hello, everybody. Just for this meeting, I haven't prepared a presentation. I thought that I'd run through a bit of my background and essentially what I've been doing in the last 7 weeks since I've been here. Nick is joining me today. And between us, we should be able to answer most of your questions. So I'll only go for 5, 10 minutes of most, and then we'll open it up for questions. So I think in a broad sense, I've been here 7 weeks. It -- my experience, I suppose, has set me up pretty well for this. I started in Kambalda 35 years ago as an airleg miner. I've worked in gold, nickel, coal, been across iron ore and copper for a number of years through BHP largely. A lot of what I see here, the technical challenges, the processes are very similar to my experience, and I feel very comfortable in the role here. But one of the things that attracted me to working with this business and these people is the quality of people. There's a lot of potential in our people. There's a lot of potential in the resources, and it's exciting. There's definitely a few things to be done, and I'm going to touch on a few of those. But I suppose I just want to assure everybody that's here that I'm well across most of the issues and comfortable in addressing those and tackling them. So maybe, Nick, some people may not know you and some do know you, but your background?

Yes. So accountant by trade, been at Black Cat for 3 years. So I've seen the 4 mines start up and the 2 processing plants that we've got now start up. So yes, seen the ups and downs over that period and prior to this, I was CFO of Mandalay Resources.

So just a little bit of when I came on board, it's only been 7 weeks. But the Board first said to me a bit of a mandate, I'll call it. But essentially, I needed to lock down a plan and deliver to that plan and I needed to get our costs down. So in a broad sense, that was clarity for me and jumped in. The first thing in order to have a good plan is we need to understand what our resource base is. So in that first couple of weeks, dived into the resources, reserves and ultimately, we published that at the end of September. And the biggest thing that I think surprised a lot of people is the downgrade in resource grade and consequently, the reserves. I can touch on that a bit more today if people ask questions around it and what's happened. I think in a broad sense, I'm confident that we're not going to see more downside. I spent hours with our resource geologists going through what they've done. In a broad sense, we had models previously that made certain assumptions around their modeling. Going forward, we had information from the mining that had been conducted in the early days of the Fingals open-pit and Majestic underground. With that information, we're better able to model the rest of the ore body. And so we've got good modeling, realistic models and we redid our plans on that. So that was the first big step. The next thing was to put out to the market what we thought our plan was and what we thought our costs were. And so that was essentially the guidance that we put out at the end of September as well. And that was based off the new plan with the new resources. That guidance still stands today, even off the back of the quarterly report, for clarity. We've put that in the report itself, but that guidance still stands. Our plan is still very deliverable for this year. The biggest variance in the guidance, which I think surprised some people, too, obviously, a lower production rate than maybe some people expected, was a result of the lower grades that we saw through the resources. There was also the slower mine ramp-ups and particularly getting into the better quality ore, which is located at Fingals at a bit more depth, but also the stoping in Majestic. And the delay in those ramp-ups has resulted in a lower output for this year. So the updated plans now include better resource and reserve insights around that grade. The plan also comes with costs. And certainly tackling that cost thing and starting to understand our cost base and having a cost focus drove us to develop our cost improvement program, set some goals around that and set a process behind it, which, if people want to have more detail around, Nick can talk to today. Also through that planning process, we saw opportunities and probably necessity to actually build our business processes and systems up to better set the foundation for the future as we grow this business and start to become more and more efficient and ultimately grow. So that has all been built into our plans and our expectations for our production and cost this year. So I feel very comfortable with our plans. The next step, of course, and a few people have been asking you about is our life-of-mine planning. So that's definitely another mandate item that the Board put on to me. We need to put some focus into what our life-of-mine plans are. What's the best value options for shareholders and how do we actually utilize our assets to their full potential. So that long process has started. We kicked off with some more workshops looking at the latest data. Now we do have more drilling. We've got updated resource models and putting those plans together. And so in the quarterly, I've put out there that in that last quarter of this financial year, we expect to communicate the results of that. The Discovery and Growth Program is a large part of contributing to that. Its primary purpose is to improve the quality of resource and reserves that we've got in terms of being able to put them in a plan, but it will set the foundation for our LOM. So some of that data is essential to contributing to our LOM. So there's a lot been going on in the last 6 or 7 weeks. I certainly know there's some questions around why things happened and what are we going to see in the future. And that's why today's focus will be largely around what questions you have and what's important to you. And Nick and myself want to answer things transparently and sincerely around what's actually happening. Of course, we're limited by details that we can't share, but we want you to walk away of confidence in the management here, our plans going forward and give you some sense of the risk profile, and we go from there. So without further ado, I hope Stewart has some questions now that we can hop into, Stewart?

Thank you, guys. We do have a few that's come through now. So this is [ Colin Lenny ]. Given your comments about the information you learn on the resource and reserves, will you commit to annual resource and reserve updates from here?

100%, absolutely. If anything, you can do it all at once. So I actually want to be reporting incremental updates as we go through. So I've just been talking to the resource geologists and the LOM planning manager around our priority for resource model updates and it will be associated with our drill priorities once we got new information. I don't need to hold back from sharing that with the market. It may drive the question by the market, "Well, so what? What are you going to do next?" I'd come back to, I will have a LOM view in June next year, but I may issue resource updates before then. But without any doubt, there will be annual summary resource reserve updates.

Another one from [ Kaan Peker ] here. First question is on Majestic. How are mine stope grades reconciling against the revised reserve model? And could you explain September's Q-on-Q lower grade?

All right. Thanks. Yes, the grade on Majestic in the last quarter wasn't fantastic. We haven't done much stoping in Majestic in the last quarter. Underground mines like that, the development is generally the lower grade. Stoping is the higher grade. So we've got reserve grades in there that are sitting at, what are they, 2.8, 2.6 Majestic reserve grades. That's driven by the stoping. So we need to swing the mine production, which is happening as we speak. And by quarter 3, we'll be at that phase we're in full production, and we'll see stoping take over. And so that reserve grade essentially can be realized versus the low 1s that we've been seeing. So development-heavy in the first quarter, probably more development-balanced in the second quarter and third quarter, we're stoping-heavy. And that will drive our grade up. So that's the material difference we'll see in Majestic and essentially, we're hitting commercial production levels then in that third quarter.

The second part of that question for you on Majestic is what proportion of H2 production comes from stope already developed and grade controlled versus areas still requiring development?

Good question. That's getting quite technical. We've got 6 levels pretty much in development at the moment. So that's vertically near on 100 meters of a vertical depth. So in a broad sense, we've got the development done for this year's stoping. But we've got to keep pushing the decline down and keep developing the levels for the next year. So most of those drives have been developed, which means you get much better intel around what resources you've got there. So just having looked at the plans, my judgment would say that we're probably 80% -- 70%, 80% like super confident on those stopes and resources for this year in terms of what we're going to mine. Because once you put the tunnel in and you've identified the ore body, you're able to model that much better. It's like -- we don't call it that, but it effectively becomes a measured resource in that terms of confidence. So yes, high confidence for this year's production stoping.

A question from [ Andrew ]. Could you provide some examples of what types of activities are involved in the $30 million cost reduction program? And how do you identify and prioritize opportunities for the program?

That's a good one. Nick is leading this program. So I might flip to Nick and maybe unpack it a little bit about what we're looking at in a broad sense.

Yes. So that's a good question. We've got that target out there. And the way we've split it up is based on 10 work streams that looks at different activities, major activities across the company, involving travel, accommodation, contracts, maintenance, other like energy as an example. And what we're doing is looking at basically work stream groups to focus on each of those areas. The first part of that is idea generation from essentially the people on the ground and the people that make the decisions as well as input, obviously, from managers. So that process, it will take time to kick in, but we're very focused on that. We do have a full-time resource -- finance resource to make sure that's properly thought out and properly managed, and I'll be leading that up myself. So the examples is just looking at things that were -- contracts across the group, making sure that we're getting the right dollar amount for what -- for that because we have been quiet. We've started up, as I mentioned earlier, 4 mines and 2 mills in the past 2 years essentially. So it is just a matter of getting things a bit more settled and making sure we're doing things right and optimizing costs on that front.

So maybe just expand on that. My prior job in the nickel division of BHP, price is very volatile and we're always chasing the price down and getting our unit cost down. We did a lot of work with McKinsey Partners in performance and other improvement programs. And we became very adept at these type of cost-saving programs. So I brought a lot of that experience and shared it with Nick and he's graduate. But these 10 streams really do get a lot of focus by having stream leads, you set targets, you start chasing that through bottom up. So we're engaging the workforce to start generating ideas, actions, accountabilities, weekly tracking as a strong cadence. I'm actually very confident about the difference we can make here. And there's prime examples already coming up in terms of what we're achieving. So for me, it's very exciting, and it's a relatively flexible business approach. And I call it easy, but this type of thing is never easy. But it just starts bubbling up ideas, and I get excited about the improvements we can make in costs. So we will continue to chase that through Nick and myself with the right focus and the right engagement from the whole workforce and see some step changes. So 2 examples are capital and people, all of that comes through Nick and myself now. So any recruitment or any capital that's going to be an easy one to control. And then we have stronger justifications around that control. And when you start going to the rest of things like quantities, you start looking at the amount of materials or product or reagents we're using and you start to hypothesize and try and find options to reduce scope and then you try to look at options to reduce the cost per unit. So it's all very methodical, and that's why we have a project manager sitting over it to help drive the cadence and the outcomes. But $30 million is a big number and a bit more worth my focus. So for me, it's a huge potential win there that we can have, and I'm sure we'll deliver.

A question from [ Wayne King ]. What is the logic in holding bullion? Wouldn't cash be more benefit at this stage as the company is still in ramp-up and inflation is ramping? Cash declined last quarter and cash position is concerning some shareholders, especially as AISC is high and gold price declining.

Cool. Over to you, Nick.

Yes, it's something we monitor very closely. I think it's one of those strategies that when gold price is going up, you're a genius and when it's going down, you're not. So it's a very pertinent question. We do -- I do sort of sell as and when required. And I think, yes, I'll try and be opportunistic with that. So it's not really a focus for us anymore. We do just manage the bullion and the cash on a day-by-day basis. And yes, it's not really -- it's not so much of a focus for us going forward.

A question from [ Keith ]. Are you stoping in Paulsens? And if so, how is it going as in stoping in Regulus or Lynx?

Yes, yes, yes. That's a quick answer. So there's a lot going on at Paulsens. I'm super impressed with what the team is doing up there. We're drilling on Lynx, Regulus and other ore bodies. You would have seen in the last announcement, well, I won't call them ore bodies yet, I'm optimistic, let's call them deposits because we haven't actually declared any reserves on those. But the fact is that they have been mining in those as we're drilling them out. So there's narrow vein long-hole open stoping, there's airleg stoping. The guys are being selective in what they go and mine. There's a lot of activity going on there. And they're also developing -- they've got jumbos running full time developing out to these other deposits that are having exciting hits. So a lot of activity there. It's pretty lean workforce, very skilled, strong management, safe operations, very pleased with how they're going. I'll be visiting up there next week going through most of the workings, but my reviews to date have given me a lot of confidence. And you would have seen, I might point out, the highlight for me has been the performance of Paulsens just continuing to be consistent and the plans they have shown me for the rest of the year shows them to be ongoingly consistent. So for me, it's a highlight that I would like to call out and acknowledge the team there.

A question from [ Karl ]. Do you expect that the project capital cost for the new Fingals pit is largely done now?

I'll say yes. Would you agree, Nick?

Yes, there's always an element of strip that's required. But I think, yes, it's fundamentally correct, we are sort of winding down the sort of stripping or capital activities. And so the strip ratio going forward will be a lot lower than what it has been, and that's the nature of any open-pit mine. So yes, that's broadly correct. Yes, that's right.

I think we've mined near 1 million BCM to date in Fingals. There's been a lot of work done on there. And we've essentially backed off now. We've downsized the fleet numbers down to a single digger that's going to be able to feed the mill the stock that we need. So I think we've certainly got down to that low commercial strip ratio, and we're able to sustain that with a slower dig rate now, which is pulling back a bit of cash spend, which has been one of the initiatives we've put in place to just conserve the cash rather than build big stocks. If we need to strengthen Fingals again, we can. So that's just, I suppose, giving some reassurance to the whole picture of Fingals is about less cash spend and still feeding the mill what it needs. So we'll get a better return.

Another question from [ Kaan ]. Will the September quarter be the trough for cash or should we expect further outflows before the H2 production uplift?

Do you want to answer that, Nick?

If you start, I can -- yes.

Okay. So I think there's still a few things to do in the business. I'd like to say yes. But the reality is we've still got some commitments to do, particularly around getting Majestic up to its commercial production level, looking at some tails dam builds that are going on across both Paulsens and Kalgoorlie East, and that's going to be some lumpy capital for this quarter as well. Coming out in the second half, we've already flagged in our guidance and verbally to many of the people on today, second half is like a clean runway. But for this next quarter, we're still going to have some lumpy capital coming through.

Yes. And we do have the prior owner commitments in terms of toll treating at Lakewood as well, which the margins that we make on that -- on those campaigns are a lot lower. So yes, that -- we'll see if that comes through, but that's a factor on cash as well.

Yes. Just -- I mean, truly, it's a cost-plus contract. So it's very low margins. That was part of the sale agreement. And picking up Lakewood was a fantastic outcome. This should be the last parcel from that legacy agreement. The opportunity loss is that we can't process our own equity and get a better margin, and that obviously impacts our cash generation in this quarter. But I reiterate, the second half will clear 100% equity ore into our Lakewood mill for that 6 months is our current plan and unless some compelling commercial agreement comes up for us with toll treating, that's our plan and our runway, which will give us better margin and better cash generation in that second half.

There's a question coming from [ Clark ] around disconnect between previous shareholder comments and issues arising. How can shareholders have confidence in the Board and the information being provided?

I obviously wasn't here in the past. And the Board for me was about being transparent with the market, getting the plans locked down, communicating. The past is the past. All I can assure you now is I've focused on getting out the right resource reserves upfront, getting the right guidance out, and I'm going to 100% focus on delivering to that guidance, if not trying to exceed it. And if I think that's going to happen, I'll communicate that. But I've got a plan. I need to get our costs down. I've got a plan to do that. I am certainly going forward with Nick's help here, we are being transparent. We're being realistic. Maybe there is an element of promotional before. I'm very clear, too, in our LOM, we want to grow this business. I'm not comfortable sitting on 80,000 ounces to 90,000 ounces. I want to go north of 100,000 ounces. That is a pretty clear strategy and direction and call from the Board. But I need to do it with the right resources and the right data in order to be able to do that. So that's the key focus for this year. And you will see more transparency about what we're doing and what we're working on. We just won't have all the answers people may want tomorrow. And therefore, I'll tell you when you'll get your answers, and that's what I focused on for June. So all I can do is give you a personal commitment that we're going to be transparent and deliver on what we say we're going to do.

Question from [ Colin ]. Could you walk us through the specific geological challenges being encountered underground that are driving the grade struggles at Majestic? In particular, is this primarily a narrow vein issue compounded by structural discontinuities or just difficult to stope?

I don't think it's difficult to stope. So when you look at the 3D geological model, there are lenses and veins everywhere. There's multitudes of them. So when we go into a level and develop a drive, it's not a single vein that we just go and chase out north-south or east-west or whatever. You've got like 5 or 6 drives. They push -- keep pushing through the hanging wall and you chase the vein, you chase a vein there and you chase one here. So you've got multiple work areas that offset. So all of those veins are discrete areas. You've got to sequence them properly. You've got to go and do some extra development to chase. So I describe it as complex in terms of that system that sits there, but basic mining. Stoping is basic stoping. You develop it. It's 1.5 meters wide, you mine 1.5 meters wide. Whereas the drives are sitting a couple of meters wide, so that's where you get the dilution. Grade control is absolutely critical. One of the things in my first review at the mine was quite simply, we were trying to save development and keep the decline focus sinking, which is good. You want to get the decline [indiscernible] But because we're drilling from the footwall, you're drilling down an oblique angle, you don't get the perfect position [indiscernible] understanding that ore body, you don't get down long enough. But we have a plan that we've actually done back in September, we actually have a hanging wall drive. We push out the hanging wall drive, create a strike to drive the wall there and then we drill down deeper and we start to look ahead for years. We get more efficient drilling and it's just a sensible approach. So our mine planning has changed to incorporate longer-term thinking, better quality information, cheaper drilling cost. That takes a little while to get that drive out there, but that's certainly going to be our focus when -- I've worked in a lot of narrow vein mines, I call this complex geology that you need to understand. The ore driving that the geos are doing when we drive that ore is exceptional. The geo is doing a great job. [indiscernible] trace that vein and everything I saw underground showed me that they're doing that really well. So the fact is we've just got to get more stoping going and that stoping ramp-up has been hampered largely by availability of people. Long-hole drillers at the moment are super hot property in the market. Yes, it used to be jumbo operators a year or 2 ago. Jumbo operators we pay a lot and the industry pays a lot. But you can generally get them now, but long-hole drillers, there is -- certainly, we're finding a shortage and our contractor there is Macmahon. I was talking to them in the last 2 weeks and we are recruiting, but we're also getting turnover. And so that is hampering us, and we are focused on getting those critical roles filled and maybe carrying some contingency there. So that's probably the biggest challenge at the moment, people.

Question from [ Andrew ]. What are our life-of-mine plans at Paulsens and do we have any growth options there?

Paulsens is exciting. I was talking to the General Manager last week about expansion opportunities because I -- Paulsens itself and all these deposits that we're now exploring offer great opportunities for life extension, I think also for potential expansion opportunities. We're severely constrained at Paulsens around heritage and the protocols there. So it's not easy to do anything. So then you come back to us, we just need to high grade a bit more as one option. That's some of the thinking around the Paulsens proper. But then you move across to Belvedere 5 Ks (sic) [ km ] away, and that deposit is looking really good. And so we're putting drill holes into that. That's probably one of the resources, we'll do some incremental updates on the next drill program or maybe 2 more programs. But I'd like to see Belvedere move forward at some point in the future to complement Paulsens. I don't know that it's going to be easy to expand the mill. So maybe it's high grading, maybe there's an ore sorter. I've started conversations on ore sorters and how does that come into the picture. So part of our LOM, we'll have certainly considered the opportunities and the practicalities of maybe expanding output from Paulsens. It's purely concepts at the moment in thinking, but I am encouraged by what's possible up there. And even beyond Belvedere, we've got another area called Big Sarah that we're putting some effort into and hope to put some results out for that soon. There will just be more of that story around that region up there. It's pretty exciting. So watch this space up there. I need to get some more reserves in first, reserves stocks. So that's a key focus, and then I can start looking at expansion opportunities.

A question from [ Brad ]. Previous Chairman's letter in the annual report were extremely bullish. And even earlier this year, you announced a 100,000 ounce per annum run rate and capital was winding back. But none of that has come true. Where was the oversight?

So to be clear, 100,000 ounces is still on the agenda, like pretty clear. I think the time frame has shifted, that's all. But north of 100,000 ounces is absolutely the approach. So one of the enablers of that was the expansion of the Kalgoorlie East Lakewood mill. We've ordered the long lead items, we've got approvals, but I'm not going to the Board to ask for that expansion capital until we actually have a LOM done, and we see the value proposition of that investment in capital and what return we're going to get from that. So again, that will be fed into the LOM picture next quarter, quarter 4 this year. That was part of that 100,000 ounces strategy. And at the moment, that expansion is, I'd call it, ready to go, but pending a decision. So that's part of what we're not getting to 100,000 ounces. Definitely, the grade drop at Kal East is a stumbling point, which we're going to work through. But I need to present LOMs to the Board that are north of 100,000 ounces. So yes, as simple as that. I think that hasn't moved. What was the second part of the Chairman's letter about the 100,000 ounces and -- I forgot that one, Stewart? You are on mute, Stewart.