IGO Limited (IGO) Earnings Call Transcript

Well, good afternoon, ladies and gentlemen. On behalf of the Board of Directors, it is my pleasure to welcome you to the Annual General Meeting of IGO Limited. We are delighted to have you here today, both in person, and for the first time, online. My name is Peter Bilbe, and I will be chairing this meeting. Before we commence, I would like to acknowledge the Whadjuk people on the Noongar nation, on whose land we meet today. We pay our respects to the elders past, present and emerging. Of course, joining me today, on my left, is Peter Bradford, our Managing Director and Chief Executive Officer; and my fellow Non-Executive directors, Debra Bakker, Kathleen Bozanic, Peter Buck and Keith Spence at the end of the table. We also have several other members of our executive leadership team with us today, and I encourage you to take the opportunity to meet with them when we have refreshments after the meeting. And also on my right, we have our Company Secretary, Joanne McDonald; together with our Legal Counsel, Kate Barker; and Head of Business Development, Andrew Eddowes, who will be assisting with our Q&A session later in the meeting through the online platform. Today's AGM is slightly different this year as we have an audience in attendance and also online via the Lumi platform. And if you'll just bear with me in a minute while I run through a few things in relation to that platform. The Lumi platform allows shareholders, proxies and guests to attend the meeting virtually, and all attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. A recording of this meeting will be uploaded to our website later this week. [Operator Instructions] For those following this meeting online, there will be an approximate 30-second delay. As such, we encourage you to enter any questions you may have as soon as possible to ensure we see your questions in time and are able to respond to them. Please note that while you can now submit questions, they will not be addressed until the relevant time in the meeting. Please also note that questions will be moderated to avoid repetition, and if questions are particularly lengthy, we may need to summarize them in the interest of time. If we receive model questions on the same topics, they may be answered together. Finally, as we have a hard finish to today's meeting at 1:00 p.m., we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail. Voting today will be conducted by way of a poll on all items of business. Again, due to the second -- due to the 30-second time delay, and in order to provide you with enough time to vote, we will shortly open up the voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do have the ability to change your vote up until the time voting is closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time. And I will notify the meeting before I move to close voting. This is a shareholders' meeting, and only shareholders, their proxies, attorneys and authorized representatives are entitled to speak or vote at this meeting. For those shareholders in the room, admission cards have been issued to each attendee. Those holding nonvoting yellow cards are entitled to speak and those with green voting cards are entitled to speak and vote at this meeting. As the poll is now open, I will invite Rod Somes from Computershare, who I have appointed as returning officer for today's poll, to explain the poll procedure. Thanks, Rod.

Good afternoon, and thank you, Mr. Chairman. Persons entitled to vote on the poll are all shareholders, representatives and attorneys of shareholders and proxy holders or holding a green admission card or have registered via the online portal. On the reverse of your green admission card is your voting paper and instructions. Proxy holders have attached to their admission card a summary of proxy votes, which details the voting instructions. By completing the voting paper, you are deemed to have voted in accordance with those instructions. In respect to open votes, a proxy holder may be entitled to cast. You need to mark a box beside the motion to indicate how you wish to cast your open votes. Shareholders also need to mark a box beside the motion to indicate how you wish to cast your votes. For those attending online, the voting icon will appear on the navigation bar. Once you click on this, the resolutions will appear on your screen, along with the for, against and abstain voting options. Simply select one of these options to cast your vote. Thank you, Mr. Chairman.

The poll will remain open until towards the end of the meeting. I will notify the meeting prior to closing the poll. If you experience any technical difficulties during the meeting, please raise your hand, or for online participants, refer to the Lumi online guide available on the company's website to seek assistance. The agenda for the balance of the meeting today will comprise a short address by myself. I will then invite Peter Bradford to give a more detailed presentation on the company's activities. This will be followed by a Q&A session. We will then proceed to the formal business of the meeting with a poll and closure of the meeting. Ladies and gentlemen, we meet today in very different circumstances than we did 12 months ago. Many of you are joining us virtually today via webcast, a method of communication we have all become very familiar with over the last few months. Wherever you are joining us from today, I thank you for your time, and hope that you and your families are safe and well. It is fair to say that the 2020 financial year has been a year like no other, a year which has challenged all of us and forced us to adapt to new ways of working and living. At IGO, these challenges have included serious bush fires that threatened our operations; the tragic passing of one of our contractors' employees; and of course, most recently, the COVID-19 pandemic. I am incredibly proud of the way the team at IGO have demonstrated resilience, professionalism, and most of all, care for one another during this period. Our people are our priority, and we firmly believe that the strength of our culture has enabled us to rise to the occasion and demonstrate that, true to our values, we are better together. Despite the challenges, I'm delighted to report that the 2020 financial year was a highly successful period for IGO. Underpinned by our 2 high-quality operations at Nova and Tropicana, we have delivered excellent financial and operational performance and built a strong platform for future growth. Highlights for the year include production at Nova exceeding guidance for all metals; production at Tropicana finishing the year within guidance; the successful development of the Boston Shaker Underground mine at Tropicana; record financial results across all key measures; record dividend payout to shareholders; an outstanding free cash generation; building the balance sheet to a cash position of $510 million; strategic investments of $108 million and debt of $57 million; and our continued focus on growing the business through both exploration and accretive M&A. These achievements are testament to the quality of our portfolio, and most of all, the quality of our teams who continue to lead their fields of expertise, whether they be working on-site at Nova, in the field seeking our next discovery or in our corporate team here in Perth. Despite our strong operational performance, the Board has commenced a strategic review of the Tropicana project to determine how best to unlock the full value of IGO's 30% interest in this project for the benefit of all our shareholders. This is an ongoing review, and at this stage, it will be premature to comment on the likely outcome. With our record of strong and consistent performance, IGO is in an ideal position to deliver on its growth ambitions. IGO's strategy is to become a globally relevant producer of metals critical to clean energy. Consequently, we are actively pursuing transformational growth through a combination of exploration and discovery to unlock the mines of the future and a disciplined focus on potential mergers and acquisitions, which are aligned with our strategy and which meet scale, mine life and quality metrics. Despite a slight contraction during COVID-19, demand for clean energy solutions, in particular, electric vehicles, continues to increase as the world rapidly moves towards decarbonization. Government incentives and subsidies, aided by continued public pressure to address climate change, is accelerating this trend. In addition, we are seeing investors having an increased focus on environmental, social and governance matters when considering appropriate investments. At IGO, we understand the importance of this and are taking steps to ensure we are best placed to benefit from these trends. We are doing this by strategically focusing the business on clean energy metals, which will directly benefit from rising demand for clean energy technology, such as nickel, copper and other metals; operating our business in a way that safeguards the welfare of our people while minimizing our impact on the environment and the communities in which we operate; and most importantly, living our purpose of making a difference. How have we made a difference this year? We have done this by maintaining a strong employee engagement score, indicating we are the type of company that people really want to work for, focusing on building diversity within the business because we believe diversity in gender, background, ethnicity, skills and age all contribute to a better and more innovative business. We contributed $3.7 million in royalty payments to our local traditional owners, the Ngadju people, and over $36 million in tax and state royalties. We invested over $600,000 in our corporate giving program, which directly benefit 50 organizations. We are walking the talk on cleaner mining through the commissioning of the Nova solar farm, which is reducing our energy consumption by 10%, in turn, reducing our Scope 1 emissions by 15% compared to the prior year; and finally, continuing our commitment to be best-in-class financial disclosures and sustainability reporting. In conclusion, it was recently announced that I will be retiring from the IGO Board in the coming year. It's been an honor to have been a Director and Chair over the last 10 years, and I'm very grateful to my fellow Board members and all the team at IGO. Thank you for making my time such a rich and rewarding experience. And I would also like to take this opportunity to thank Neil Warburton, who recently resigned as a Director. Neil made a considerable contribution to IGO during his time, and we wish him well in his future endeavors. As a result of this, we are conducting a search process for an additional Non-Executive director and a replacement Chair, and we should be in a position to make an announcement about these appointments in the near term. Ladies and gentlemen, on behalf of the Board, I wish to acknowledge and thank all of our shareholders for your ongoing support. And I would also like to pay credit to all IGO employees, business partners, contractors and suppliers for their outstanding contribution and support over the last year, especially given the challenges we have all faced in recent months. So thank you, and I now invite Peter Bradford to provide a company update. At the end of Peter's presentation, shareholders will be given the opportunity to ask questions about that presentation or any other aspect of the company's business. Thank you, Peter.

Thank you, Peter, and good afternoon, everyone. It is great to be here to present IGO to you at our 2020 Annual General Meeting. The next 2 slides set out our cautionary statements and disclaimers as well as our competent person's statements. I will leave these for you to digest at your leisure, but I do note that all the currency amounts in the presentation today will be in Australian dollars unless otherwise specified. In today's presentation, I will talk to our strategic focus on metals critical to enabling clean energy. I will then talk to our outstanding operational and financial results for the 2020 financial year and will then summarize our exploration strategy and portfolio, focused on finding the copper and nickel mines of the future. Before I do that, I want to talk to people, safety and sustainability, all of which are core to our being, starting with safety on the next slide. Over the past few years, we have made significant progress to better safeguard our people and improve our safety outcomes. We have done this by continuously improving our working places, our systems and process and our safety culture and behaviors. Notwithstanding this, people continue to be hurt in the business, and in 2019, one of our contract employees was fatally injured while loading a truck at Nova. Our focus remains on making IGO a safer place to work. Like many others here in Western Australia, we have operated through the COVID-19 pandemic. We have done this by changing the way we work, with a focus on safeguarding the physical and mental well-being of our people, protecting our host communities and ensuring our business continuity. Although we have de-escalated some of our response measures in the recent past in line with Western Australian health and government guidelines, we do maintain a high level of readiness to respond in the event of a reescalation of the COVID-19 risk and start warning on how that could happen at any time when we look at recent events in South Australia. Our safety performance and response to COVID-19 is summarized in our sixth sustainability report, which was released in September. This report provides a transparent summary of our sustainability and ESG practices and talks to both what we have done well and what we could have done better, some of which are highlighted on this slide. I note that our sustainability reports over the past few years have been rated as leading disclosure by the Australian Council for Superannuation Investors, and that we were admitted to the Dow Jones Sustainability Index in late 2019. I'm also pleased to advise that IGO continues to be included in the latest index, which was announced this week. Our sustainability report also showcased the development and commissioning of the Nova solar farm in late 2019, in collaboration with our energy partner, Zenith Energy. Through this project, we are walking our talk to be proactively green. The Nova solar farm reduces Nova's carbon footprint, thereby contributing to Nova being one of the lowest carbon intensity nickel producers while also providing a natural hedge to our energy costs. Our sustainability report also talks to the culture that we have co-created with the people in our business. Our aspiration is to build an iconic culture, one that has a profound impact on our people, one that they will remember and cherish for the rest of their career. Our people underpin our success, and they define who we are as a business. Our people go beyond doing the minimum required by law or job description to do what is right. Our people are bold, passionate, fearless and fun, a smarter, kinder, more innovative team. Over the last few years, we have reshaped our purpose, our values and our strategic focus and have done this through a process of co-creation amongst the Board, the leadership and cross-sections of people from across our business to deliver an outcome that resonates with all. Our purpose is making a difference, and as a business, we do that with a strategic focus on metals that are critical for enabling clean energy. We think about clean energy in a broad sense to include renewable energy generation, grid scale energy storage and the electrification of transport. Primarily, we are focused on nickel and copper, but remain constructive around other metals that are critical for enabling clean energy such as lithium. We believe that the focus on climate change and the transition to clean energy will have a transformational disruptive impact on those metals that are critical to enabling it. We believe that this disruption will positively impact our industry over the coming decades. If we take nickel as an example, nickel is the most important constituent for electric vehicle battery cells. And as the production of electric vehicles escalates in the coming years, the demand for nickel will likely outpace supply response. Our industry has a critical task to discover and produce more nickel to enable the continued electrification of transport. I'll now provide an overview of the 2020 financial year, starting with the next slide. Operationally and financially, we have delivered outstanding performance during the 2020 financial year and into the first quarter of the 2021 financial year while also continuing to strengthen our culture and focus on ESG. We have achieved this under very unique circumstances, and I applaud the response from every single person at IGO and the contractor teams who work side by side with us for the manner in which they have worked through the challenges presented, including the fatality at Nova, bush fires over the summer months, which closed road access to Nova, and the COVID-19 pandemic. Separately, the Boston Shaker growth project was completed. We matured our exploration portfolio towards discovery and considered a number of M&A opportunities. We have been disciplined in our approach to M&A with a focus on value and risk and a desire for high-quality assets of scale and long mine life like Nova that are aligned to our strategic focus on clean energy metals. Let's start with an overview of Nova. Once again, Nova has delivered outstanding performance with metal production for all metals, nickel, copper and cobalt beating the top end of our guidance range and with cash costs that are the lowest nickel production cash costs in Australia. Our outstanding operational results at Nova have delivered strong free cash flow and EBITDA margins. Through the year, we delivered consistent production and cost performance, as shown on the chart on the left. On the right-hand chart, we illustrate that consistent improvement in financial metrics since production -- commercial production commenced at Nova in July 2017 with increasing revenue, increasing EBITDA and increasing cash flow year-on-year. For the 2020 financial year, Nova delivered record financial outcomes for all key financial metrics. Since the site of commercial production, Nova has generated over $750 million of free cash flow while delivering consistently strong EBITDA and free cash flow margins, which demonstrates both the high-quality nature of the ore body and the strength of our operational team. Next, a discussion on Tropicana, where we hold a 30% interest. Our partner, AngloGold Ashanti, hold the remaining 70% and other managers. Like Nova, Tropicana is a high-quality asset and delivered strong gold production and all-in sustaining costs during the 2020 financial year at a continuing high EBITDA margin. From a growth perspective, we progressed the development of the Boston Shaker Underground mine, the first underground mine at Tropicana. Again, like Nova, Tropicana has delivered improving financial metrics over the past few years with increasing revenue, EBITDA and operational cash flow. During the 2020 financial year, we invested into the Boston Shaker Underground mine, and if not for this, free cash flow would have also been higher year-on-year. When we dissect the 2020 financial year, as shown on the left-hand chart, we see a year of 2 halves with higher gold production and lower all-in sustaining costs in the first half, while benefiting from the ongoing impact of grade streaming, which stopped in December 2019. Since then, we have supplemented ore to the process plant from low-grade stockpiles, which has resulted in lower gold production and higher all-in sustaining costs. This trend in the second half of the 2020 financial year will continue through the 2021 financial year while we ramp up the Boston Shaker Underground mine and complete the cutback of the Havana pit. Thereafter, we expect production to increase and have directionally guided towards gold production in the range of 450,000 to 500,000 ounces per year on a 100% basis from the 2022 financial year. Boston Shaker commenced commercial production in September 2020. This project was delivered safely, on time and on budget, and we congratulate AngloGold Ashanti and the Macmahon teams for this achievement. We expect that the Boston Shaker Underground will be fully ramped up by March 2021, and that once that ramped up, Boston Shaker will provide about 1.1 million tonnes per annum of ore for a contribution to gold production of about 100,000 ounces per year for an initial 7-year mine life. Potential exists to extend mine life, and the drill program to demonstrate this is currently underway. In September, we announced a strategic review of our interest in Tropicana. This was initiated because of our belief that the value of Tropicana was not being fully reflected in the IGO market capitalization. The review includes a bottom-up review of the strategy and life of mine plan for Tropicana and an assessment of options to demonstrate and realize full value for the company and its shareholders. This review is ongoing. Now for a discussion of the financial results, starting with the next slide. Our outstanding operational performance has delivered outstanding financial performance with all key financial metrics demonstrating continuous improvement over the past 5 years. As at the 30th of September, we were debt-free and had cash reserves of $509 million. Our strong financial performance and balance sheet has enabled us to increase returns to shareholders in line with our capital allocation policy to return 15% to 25% of free cash flow to shareholders as dividends or share buybacks. Our strong financial results and balance sheet have also enabled us to invest in exploration and discovery to find the mines of the future and to drive long-term transformational growth for IGO. Our exploration strategy prioritizes deposit styles that are more likely to deliver high-value assets and is aligned with our strategic focus on metals critical to enabling clean energy. Our focus is on 2 deposit styles: high-value magnetic nickel sulphides, like Nova; and high-value sediment-hosted copper deposits, such as what we might find in the Paterson. We select terranes prospective for our preferred deposit styles following a rigorous review of opportunities using proprietary prospectivity tools and science. Once preferred terranes are selected, we consolidate built scale positions across the terranes with a combination of pegging in our own right and joint ventures with other exploration companies. We have an outstanding portfolio focused on nickel and copper discovery. We also have a best-in-class exploration team that is applying the best science available and which has access to the funding required to unlock discovery. Our exploration budget this year is $65 million. Approximately 60% of this is directed to Nova and the Fraser Range, where the discovery of Nova 2.0 would be transformational to the business. In parallel, we are progressing work programs across the rest of the portfolio. Let me talk briefly to some of these at a high level, starting with Nova and the Fraser Range. Over the past few years, we have completed the consolidation of the Fraser Range and an accelerated program of regional geochemistry and geophysics to understand the terrane. This has not been quick, and it has not been cheap as the terrane was largely underexplored when we commenced and is overlain by deep recent cover, which masks the geology. However, the size of the prize is large, and the potential for the discovery is for the discovery of a multibillion-dollar Nova 2.0. The regional geochemistry and geophysics has been completed and has given us a good understanding of the geology and controls to mineralization and has identified hundreds of targets. The current year work program is focused on testing the best of these targets, shown on this slide, with a singular objective to unlock discovery. The Kimberley and Raptor projects in Western Australia and the Northern Territory, respectively, are prospective for Nova style mineralization. Exploration and testing of targets in the Kimberley have commenced in the current year; while at Raptor, we are progressing airborne geophysical surveys while progressing access discussions with traditional owners as a prerequisite to future on-ground exploration. We expect a higher level of work and expenditure in the Paterson during the 2021 financial year. And here, we are hunting for copper deposits with potential for gold and/or cobalt credits. Although we recently expanded our joint venture holdings in the Paterson, the area is not new to IGO as we have been collaborating with Encounter Resources at Yeneena since 2018. Here, we have tested some new exploration techniques, which have proved successful, and drilling of targets identified by this work has now commenced. Lastly, I want to mention Lake Mackay, where, over the last few years, our exploration team has delivered positive and tantalizing outcomes with several styles of mineralization identified. This includes gold anomalism at the Arcee prospect, multiple occurrences of higher-grade copper-gold polymetallic mineralization, such as what we have at Phreaker, and a lateritic nickel-cobalt-manganese prospect at Grimlock. Fellow shareholders, colleagues and friends, to finish, I wanted to briefly talk to what you should watch for over the coming year. Before I do that, let me again acknowledge our people, whether they are direct IGO employees or contractor employees embedded amongst our teams, and to also thank them for their ongoing contributions, their collaboration and engagement and for going above and beyond to make a difference. I also thank our many other stakeholders for their ongoing support. Across our business, we are committed to continuous improvement to build a better business and drive value for shareholders. To deliver this, we focus on a number of key imperatives. Operationally, at Nova and Tropicana, we have multiple business excellence work programs to deliver additional values through continuous improvement and by leveraging technology opportunities. Growth remains an important strategic imperative, exploration to deliver long-term sustainable growth and disciplined M&A to deliver accretive growth in the short to medium term. Key to unlocking all of this are our people and the journey to maintain and strengthen our culture while also safeguarding their physical and mental well-being. Thank you, everyone. I now hand back to the Chair, who will lead us through the Q&A session.

Well, thank you, Peter. I would now like to invite shareholder questions on any aspect of the company's business, including the matters set out in Peter's presentation. For those in attendance, if you wish to ask a question, please raise your hand and wait for the microphone to be given to you, and please state your name for the record and whether you are a shareholder, or if a proxy holder, who you are representing. We will then address the questions received via the Lumi online platform. So are there any questions? Yes.

Is it working?

I think so.

Chairman, my name is John Campbell. I'm here as a representative of the Australian Shareholders' Association and also as a shareholder. You've been very kind to give us your time in a meeting that we had a few weeks ago now. And one of the things that we asked you about there, which you have explained to us, was the policy of the company in investments. You have $107 million worth of listed company investments on your balance sheet. And there was some press comment during the year about your purposes of holding that and whether it was speculative or otherwise. And I would be grateful if you'd -- that shareholders know sort of some of the identity of the company and the reason that you've got those investments.

Well, thank you, John. Look, certainly, they're not speculative. These arrangements very much lead to our exploration strategy and their targeted companies. And we joint venture with these companies to pursue our exploration activities in key areas of our belts, particularly in the Fraser Range and also in the Paterson province. You mentioned that the value of those investments were some $100 million, which is about right. That might have dropped a little bit. The bulk of that is associated with 2 companies. The first one is Legend Mining, and of course, the Creasy Group, as the major shareholder of Legend Mining. And we have 13%. The initial money put into that company was about $14 million, and I think that's growing through the growth of Legend Mining up to about $35 million to $40 million. And the other large value investment is with Mincor Resources, and that has grown from about $21 million to currently about $33 million. So about 80% of those investments were associated with 2 companies. But they're done for a specific purpose. We joint venture with these companies. We have farm-in exploration arrangements, whereby we earn a certain equity by earning a certain amount of money. And we also felt that it was important to take a position with the company themselves through equity raisings. And that means, if there is a major discovery on those tenements, not only through our farm-in arrangements will we gain a major position on the ground, but it will also have a strategic position in the company themselves. So that makes a lot of sense to follow that footprint. Other companies that you would be aware of is Boadicea. And there was an announcement yesterday in relation to that work. Some of their tenements are immediately adjacent to the Nova mining lease. And obviously, that's a key area of focus for us because if we can identify additional resources and reserves within trucking distance of the Nova processing plant, then that will have a very substantial impact on the length of that project and the financial outcomes. And other companies, Buxton, up in the Kimberley, Encounter Resources, Galileo and Prodigy are the other key sort of companies in which we have these investments. But we've got a very good working relationship with these companies, and so far, things are proceeding very well in that regard. So I hope that gives you a bit more insight, John. Was there any other questions from the floor before we turn to the online platform? Yes, Derek?

Derek Miller of the other part of the ASA. Well, you cover a lot of things very nicely, and I have to say we're very appreciative of the presentations. There's just one area I wonder whether you could give us a little more background at times, and that's the general industry background. I get my information on that from Western Areas, to be honest. They give more general industry background than, I think, any of your presentations do. I may be misreading things a little bit. I noticed, for instance, on your power usage, one that Peter put up, the ferronickel were right at the top. But at the same time, I see that Nickel Mines, which is a small company -- or not so small because they make 30 million -- 30,000 tonnes of nickel, are booming. So I wonder if we could get a comment on that sort of thing somewhere. It may not be appropriate in the annual report, but in presentations or discussions. The other one is a little more background perhaps on the Goro thing. You must know what's likely to happen there. There's a rumor around I hear that it's going to go bust, which wouldn't surprise me, frankly. But some background like that, I think, would help shareholders like me buy on the quality of the business but also the future of the industry. And that would be, I think, a help to shareholders.

Look, certainly, we do provide background information on the nickel market in particular in various presentations we've done over the years. But if you think that will be a benefit to shareholders, Derek, that we provided a bit more background information along those lines, then we're certainly very happy to do that because it is a growth area. There's absolutely no doubt about that. And it's really starting to take off in some parts of the world. So we'd certainly be very happy to provide a bit more information about that term. Peter, did you have anything further you wanted to add? But was there anything else that, John, did you specifically -- or Derek, that you specifically wanted to...