Aurelia Metals Limited

I would now like to hand the conference over to Mr. Andrew Graham, Interim Chief Executive Officer. Please go ahead.

Thanks, Melanie, and thanks to everyone for joining us this morning to hear about what are a strong set of results for the March quarter. On the call with me today is Martin Cummings, our CFO, and Peter Trout, our COO. So you can follow along. We've released the presentation that we'll refer to during this call on the ASX website and we'll refer to the slides as we go through those. Just to provide a bit of context before I turn to the slide back, overall we think this is a very strong sort of result for the quarter and we're very pleased to be able to share those with you today. Just touching on a few high points given the strong result extended across the board in the business. Firstly, there's a real step change in operating performance. 26,000 ounces produced, all in sustaining costs of 1,884. It's certainly a material improvement from where we were from the December quarter. And definitely, as we'll get to later on, it gives us confidence in our guidance for the year. With that, and obviously it flows from that strong cash flow, pleasingly across all of our assets, operating cash flow from the assets in excess of $30 million and has allowed us to extend our cash balance to over $39 million at the 31st of March. So it puts us in a much stronger position than where we were. We obviously released the Federation update last week. We'll talk a bit about that today because we recognise we haven't given uh shareholders a chance to hear from us on that yet other than through the announcement and also a chance to ask questions on that um and finally you know despite the focus on cash and costs we have been investing in exploration we recognize the importance of that and you've all seen through the quarter um some strong results come out from our exploration programs both um in and near mine at peak but then also some regional ip work we were doing around hera I will now turn to the slide pack and start on slide four and I suppose the point is that those strong set of results is impossible without the input of everyone in our business and one of the things that's really been pleasing me is the fact that every single person in our business is really pushing to a common goal, working together to improve the business and deliver some strong results and it was really, I'm pleased for the whole team that we're able to put out such a strong set of quarterly results today. It's good reward for all of that effort. One of the more telling items to report on is safety. And I'm extremely pleased to be able to say we had no recordable injuries throughout that first quarter. People often say that a strong safety performance goes hand in hand with a strong operational performance. And this is probably further evidence of that. I think it's pretty clear that When people know what they're meant to be doing, if they're focused on what they're doing, have thought about their task, have planned ahead about their task, you get a good safety result. Similarly, you get a good production result, and we've certainly seen that. And the other pleasing bit with that, it was not at the time of huge stability within the business. If you think about what's occurred through the quarter, Heria did come to the end of its life. We took that plant to, or started taking the plant to care and maintenance during the quarter. And similarly, Peak hasn't been without its changes. We have fully demobilised Pybar, for example, from Peak by the end of that quarter as well, moving very much to under-operated mining. So in a relatively unstable period for the business, to get no recordable injuries, a fantastic outcome. My hat's off to everyone in the business for achieving that. Just to touch on the right-hand graph on that side, recordable environmental incidents, we did have one to talk through, a minor in that we had a minor fire at the batch plant at peak in a storage area, came from a faulty light bulb and smoke leaving the site being classified as recordable environmental incident, but certainly no lasting consequence on that one. I want to turn to the next slide then, slide five, for those following along, on the outlook for the business. I summarised our result for the year today, the half one plus the March quarter, against our guidance. And I can say, as I've alluded to earlier, that we are maintaining guidance based on the performance of the business to this point, three quarters of the way through the financial year. Gold had a particularly strong quarter. and we're now tracking at 85% of our guidance for the year. So it puts us in a very strong position to bring home that gold production. Similarly with the other commodities, they're all sitting at 75, 77% of our full year guidance, three quarters of the way through the year. It's a good place to find ourselves and gives us every confidence that we can achieve guidance across the board. All in sustaining, I know we've had a number of questions from people in the past you know with the half one sitting at 2600 as to whether the 2300 guidance was achievable certainly below 1900 for the March quarter gives again every confidence that that guidance number is certainly achievable going forward just thinking about what's coming to us I wouldn't want to take this quarter and just project it straight out into the last quarter of the year. There are a few things, as everyone knows, and as I mentioned earlier, HERA has moved to care and maintenance. So we do lose that production from HERA, and Peter will talk about that in a little bit more detail in a moment, just around the strong finish it did have. just be assured that that was factored into our guidance when we set that in December so it's not as though there's anything new or surprising in that change. This quarter also two items which are working through actually this month just as a regular routine piece, relining of the mill at the peak will be done and also we will be installing a man riding cage in the shaft at peak which will result in some Southline downtime during that period. However, we will be relocating people into the Northline while that gets done. And the real big thing for us on that is the speed with which we can then get people to and from the job at peak, which will give us some real benefits. Anyway, I think it's... I'll pause at that point in the overarching elements. And you're probably very interested in the details of how things played out through each of the sites. So on that note, I might hand across to Peter, who can then take us through these site slides from that deck.

Thanks, Andrew. Just to pick up on Andrew's commentary, it's really pleasing to report a good set of results for the March quarter, particularly given the changes happening at our peak and harrow sites and delivering those changes and these good metal production results without a serious injury. across the operations. I'll pick up on the site discussions, starting with slide six, the Peak Mine. I guess the highlight for the quarter for Peak was the higher grades that we were mining from the underground operations there, which clearly flowed through into the better metal production. All was mined from five different areas across the north and the south mine, and we saw stoking fronts in a couple of those areas move into higher grade zones as we progressed through the stoking sequence. And probably the more pronounced grades we saw were in the Kronos deposit, particularly for lead zinc, and Perseverance Steeps for gold. And in fact, the gold grade benefited from a positive reconciliation against the geological model over the campaigns we ran in the quarter. In terms of mine ore production, we were looking to get higher output for the quarter, but we were held back by some poor drill and blast results in two of our slopes early in the quarter, and also from labour availability in some of our contracted services. We've addressed most of those issues now and are looking forward with our owner mining crews, which are now fully resourced, to put that behind us. As Andrew mentioned, during the quarter the underground mining services contract with Pybar was finished up by mutual agreement at the end of March. As part of that change, Redpath came in to take over the long-haul drilling and cable bolting services from the start of April. What this allowed us to do is effectively bring forward at low cost the final stage of the owner mining transition. So we now have ownership of the core mining fleet at peak, and we're using that to start to drive some productivity improvements across the site. In the process plan, volumes were restricted at times by lower mined oil tonnages, which is particularly early in the quarter, and some periods of very high lead zinc grades that reduced the throughput rates and impacted also the zinc recovery to concentrate. At periods, we were mining combined lead-zinc grades above 30%, and the only other source we had available for blending was running at 12% combined, which did cause us to throttle back the plant performance there. Now, where possible, we do blend the lead-zinc ores to maintain a consistent feed grade through the float circuit, and when we're able to do that, we do see better recovery and concentrate grades. In fact, in March, we ran a trial to mimic the grind size and the flotation reagent conditions for Federation oil, and we're able to see some good results there over a week-long period where we could provide steady-state feed to the float circuit. I think another positive trend from peak is a sustained reduction in mining costs, which we reported on in the December quarter. We've also identified some further cost and productivity improvements, and we're pursuing those through the remainder of this calendar year, seeking to maintain and improve our cash margins. As we move now to slide seven, I would really like to commend our HERA team for what was an outstanding quarterly result. In fact, they outperformed the modified production plan that we announced in December. The chart on slide seven of the presentation deck shows the 43% improvement in gold production and also the reduction in oil and sustaining costs to about $1,700 per ounce and what a change that was from the December quarter. Our management team at site, our employees across the business, and also our site contractors really did a great job dealing with some difficult conditions. Our plan was to run hard right through to the end and come to a short, sharp stop, and that's exactly what the site team delivered. We did have the benefit of lateral development that we finished in the earlier part of this financial year, which started from three different mining areas. And what that meant is we could sustain good ore delivery to the surface and the process plant could run unconstrained at full capacity. And that was the key driver to the higher precious and base metal production. That's a bit of a saddle note. Processing operations finished on the 27th of March and the site has quickly transitioned into care and maintenance preparations. We've recovered all the valuable assets from the underground mine and actually turned off the primary fan and sealed the portals. Our mining contractor Redpath has demobilised from site and have left those key pieces of mining equipment that were required to restart the Federation decline development. Our surface contractors are currently demobilising and we're tracking very well to place the process point into hibernation by the end of April. Given the transition to care and maintenance at HERA and what that means, it's worth looking back on the contribution that HERA has made to our company and the local community. The project was commissioned in 2014 as Australia's first operating asset and was expected to extract about 1.9 million tonnes over a five and a half year operating off. Since commissioning, however, the mine has produced 3.2 million tonnes of ore over nine years. It supported 180 full-time jobs and contributed about $216 million to the local economy, which is an outstanding outcome. We're now looking forward to the next chapter of mining in the district, which is the development of the Federation Project. And it's pertinent to point out that the Federation Project already has a 4 million tonne production target in front of it. Moving now to slide 8, just to talk to the performance at our Dargs mine. You'll see that quarterly production increased there to about 9,600 ounces, and that flowed through to a healthy contribution in terms of group cash flow. The operation reached a couple of milestones during the quarter. It processed its millionth tonne of ore and also moved past 100,000 tonnes of gold production since commencing operations in 2019. We were able to process at higher rates during the quarter thanks to the development consent modification received in December and mill feed tonnage lifted by 9% and that was the driver of the higher gold production. Our mined ore production did drop back a bit and that was partly due to a very strong December quarterly result and the site team had to work through several slope production and backfill disruptions over the quarter and have got us now back on track. We had accumulated high opening ROM stocks and that meant the mill processing volumes weren't impacted although we did have some downtime events caused by some unplanned power outages. In the underground mine, development advance again outperformed our expectations and the decline has reached the lowest mining level. What this good progress allows us to do is to reduce development in the coming months and we've already transferred one of the two development jumbos from DAGS to PEAK to assisted PEAK. And then the final note on DAGS, we completed the underground infill and extensional diamond drilling program early in the quarter. And the results from that work are currently being incorporated into the site's life and mine plan update. And at this early stage, it indicates that we will have a marginal mine life extension. Beyond that, it was indicated in the production target released last October. And on that note, I might hand over to Martin to talk about our financial outcomes. Thanks, Peter. So turning to slide nine of the presentation, and as Andrew and Peter have outlined, The improved operating performance this quarter resulted in a significantly stronger financial position at the end of March. We finished with $39.3 million in unrestricted cash, up from $23.7 million at the end of December. This is an increase of over $15 million. Pleasingly, this is actually a genuine increase in cash with our metal sales and supply payments made, all in line with our standard processes. All of our assets were cash positive and generated a combined $30.2 million of cash flow from the operations, around $10 million higher than the prior quarter. As Peter outlined at peak, we benefited from both strong production and metal sales and lower costs, resulting in a cash flow of $14.4 million. I'll note that this is lower than the December quarter, but that prior period included concentrate sales relating to September. The team were able to finalise the mining contract with Pybar during March, which now supports our ongoing cost reduction activities as an owner miner, and it did result in a favourable year-to-date throw-up in mining costs of around $2 million. SARG's cash flow of $9.2 million was very strong this quarter compared to the $1.6 it generated in the prior quarter. We did sell around 1,700 more ounces this quarter from the sale of concentrate in December, but it was still a very consistent quarter. DAGS is now clearly benefiting from the recent strength in gold price, and it is something we'll factor into our thinking about the strategy for the asset during its remaining life. And as Peter mentioned, HERA had a very strong finish to operations, with the transition to care and maintenance executed extremely well, and it did result in metal production and cash flow that exceeded our plans. There is some remaining concentrating DORA to sell this quarter, which will help offset costs associated with the move to care and maintenance, and the payment of remaining supply invoices in April. Our growth in capital exploration spend has been maintained at minimal levels whilst we complete the refinance, with development spend on Federation to ramp up post that announcement. As I've updated on recent calls, in January we received a tax refund of $9.8 million relating to our FY22 tax return. Given it's likely that we will incur another tax loss in the FY23 tax year, there is an opportunity under the loss carryback provisions for another tax refund once we submit the FY23 tax return later this calendar year. It is possible that that tax refund could be higher than what we received for FY22. And then moving to our debt facilities, we made our regular quarterly repayment of $4.05 million. on the term loan and cash back to another $5.1 million in performance bonds in March. Our term loan balance is now reduced to just $8.6 million and our restricted cash backing at the performance bonds has grown to $46 million. The drawn balance of the performance bond facility is unchanged at $56.8. As we will close these facilities down shortly when we establish the new facilities, we've made some changes in March that were possible due to our strong liquidity positions. We chose not to extend the undrawn $10 million working capital facility, which matured in March, given it was unlikely to be required in the near term. We also cancelled the remaining headroom of $8.2 million on the performance bond facility, as we have no requirement in the near term for further performance bonds to be lodged. Both adjustments mean we avoid paying unnecessary commitment fees to maintain those facilities. The final movement in the cash waterfall on the slide relates to working capital. which was an unfavourable movement of $8.7 million. The primary driver of this is due to our lower trade creditors' balance. Our operations spent approximately $17 million less this quarter relative to the prior quarter, which resulted in $8.5 million less trade creditors at the end of March. We do expect this to come down further in April as we finalise supplier payments in relation to HERA, But as I mentioned earlier, we also have some sales to finalise, which will help offset some of that from the cash perspective. I talked about the higher gold price earlier with Dards, but just to reiterate, Aurelia is benefiting from these higher gold prices right now with only a modest hedge book of just over 4,000 ounces hedged, with deliveries out to September 2023. The average price of those contracts is $2,640 an ounce, which is not materially lower than the current spot price. We do have some quotation period hedges for recent concentrate shipments, but these are all very short dated with contracts out to June. As we move into a capital intensive phase with development of federation, hedging is a tool that we will use to manage the balance sheet, but it will be done in a measured way that considers all of our metal exposures. And finally, in relation to the refinance, I can assure you it continues to be our top priority. The release of the Federation feasibility study update this month was an important input into financier due diligence, so we did need to sequence that release ahead of them finalising a facility. We are in the midst of documenting terms at the moment, and once an announcement is made, we will commence remobilisation of Redpath to Federation to restart development activities. I do look forward to updating you on the new financing arrangements in due course. Thanks for your time this morning.