MGX Resources Limited.

Thank you for joining today's teleconference for the release of Mount Gibson Iron financial results for the December 2020 half year. Mount Gibson Chief Executive Officer Peter Kerr will be leading the discussion and is joined by Chief Financial Officer Jill Dobson and External Relations Manager John Fascius. Mr Kerr will provide a brief overview after which there will be an opportunity to ask questions. Due to time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will be available via the Mount Gibson website shortly after completion of today's teleconference. Go ahead, please, Peter. Thank you.

Thanks, Bethany. Morning, all, and thanks for joining us to discuss our half-year results. As usual, I'll give a brief overview and then hand back to Bethany for any questions. So, as indicated in our recent quarterly report, we delivered a steady operational performance for the half-year, notwithstanding that we had some challenging conditions late in the period at Kulin. In particular we benefited from strong iron ore pricing, particularly that rise in December, which we added to our cash reserves at a time when we were undertaking a substantial overburden removal program at Coolman Island to set that operation up for significant sales and cash flow increases from later this year. At a headline level our net profit after tax rose by about two thirds to $74.5 million. compared with $44.6 million in the prior corresponding half year period and that was on the back of the total shipments we made of 2.3 million metric tonnes and sales revenues of $240.7 million FOB. All of our revenues and costs we report in free on board terms. Group cash flow totalled $52 million for the half year and that comprised $38 million from Coolman Island and $20 million from the Midwest. plus interest income of around $3.5 million, some small development spending on Shine of around $1 million and administration, finance and other costs of $8.8 million. We also in the half year period paid the cash component of the 2019-20 final dividend which was $16.3 million being the cash component. The rest was paid in DRP shares. and we also had negative working capital movements including some significant late period quotation period adjustments associated with the run up in iron ore prices in December which are now being settled in the current half year period. The sum of these numbers meant that our cash and investment reserves increased over the half year by $12.4 million to $435.7 million at 31 December. So that was a positive outcome given the weather and mining interruptions that we faced at Kulin late in the period and puts us in a good position to complete the elevated stripping phase at Kulin over this year. I'll discuss the outlook and guidance in a little more detail shortly. In relation to COVID-19, before I go into the financials, I should just give a couple of quick comments as to the impacts on our business. And happily, Western Australia's positive record in containing the virus has allowed the stage relaxation of a number of restrictions originally imposed across the business in the initial stages of the pandemic earlier last year. and notably the important thing for us was we were able to return fairly promptly to standard 2 and 1 FIFO rosters at the start of the period which was a great improvement over some of the longer rosters that we were forced to do from a safety and fatigue and personnel perspective. Through the period we continued to maintain a range of general site and travel protocols to reduce the risk of virus transmission and we stayed ready to respond promptly should the need arise. This was demonstrated in recent weeks with the Perth region lockdowns and reinstatement of numerous travel and site-related protocols. Although these response measures have come with increased costs and inefficiencies, the response from our personnel, and that includes employees and contractors alike, has been first rate and enabled us to keep operating unlike so many other businesses. Just getting back to the numbers, in relation to pricing, Our weighted average realised price for all of the iron ore that we sold in the half year was $104 AUD per tonne FOB and that was compared with $84 last financial year. Within that our high-grade Kulin Island finds realised an average price of US$1.21 per dry metric tonne FOB and our low-grade Midwest finds were $30 US a tonne and our low-grade lump were $43 US per tonne. It's worth noting that while our Midwest low-grade sales were conducted on a fixed price basis, as I mentioned our coolant sales generally capture the average price for either the first or second month following shipment. This enabled us to capture the benefit of rising prices in December and January for shipments that were made earlier in the December quarter. Positively iron ore prices have continued to strengthen into the current half year period and this is promising for both Kulin and the planned start-up of Shine. Regarding our costs, our group unit cash costs averaged $56 AUD per tonne FOB in the half year and that was before the investment we made in overburden stripping at Kulin and other capital projects at that site and in line with our earlier guidance. I'll talk more about the output of the cash across to each operation shortly. At Kulin Island, so turning there now, we've reported while our shipments were on plan at 1.1 million tonnes, our mining activity was impacted by several interruptions in the December quarter. Firstly, a localised rockfall that occurred on the western end of the footwall in the main pit and then by some heavy wet season rains leading to Christmas. Our site cash costs averaged $64 per tonne FOB in the period before the waste stripping investment of $63 million and capital projects of just under $5 million. That meant that site cash flow of $38 million occurred for the half year. So that was a pretty good result at a time when we were undertaking major waste cutback phase. Although the total material movement in the half year rose by about one third we are going some impacts from the interruptions we incurred in December and that will also impact unit costs. So notably we expect coolant sales to be at the lower end of our guidance so we're not changing our guidance ranges and that will be around 1.8 million wet metric tonnes. The majority of oil produced in the period from coolant will be from the upper western end which is lower grade than the high grade portions of the main pit. The average grade of sales in the current half is expected to range between 58% and 61% FE, which is down from the plus 63% FE we achieved in the December half. We expect to regain mining access to 65% FE in the September quarter. This is based on current schedules and the deployment of additional ground support on certain parts of the Upper Western footwall following that rockfall experience last year. The work is designed to ensure the safety of people and equipment on the pit floor in that part of the pit and will involve additional rock bolting on the foot wall. We presently estimate that that program will cost about $15 million spread over this financial year and next financial year. To put it in context, that's the equivalent to the current value of one high-grade shipment So it's less about money, this issue, and it's more about safety and ensuring that as we get deeper in the pit we're very comfortable with people working underneath that footwall. The overburden stripping program at Coolen is to date progressing satisfactorily and our objective is to substantially complete it in the next six or so months. and significantly expand the high-grade oil production and cash flows from that point onwards. For those who've seen the coolant mine life, that is the key and the real prize for us in that the removal of this overburden this year sees then the mine having, following four or five years, a much lower stripping ratio and higher sales and lower unit cash costs. So that's the prize and the key. value creation exercise for us. In the Midwest the final half year of the low grade sales program from Extension Hill was very successful. We sold 1.2 million metric tonnes which was at the top end of our guidance and our unit cash costs of 40 Aussie per tonne sold FOB was at the bottom end of our guidance. So the operation generated cash flow of $20 million in the half year. and that included $4 million of the ongoing rail credit refund that we're receiving. All up, the low-grade sales program generated sales of almost 4.1 million tonnes over its 19-month lifespan for a cumulative operating cash flow of just over $30 million. So that was a great effort by the Midwest team given we were initially targeting sales of just 1 million tonnes. So the Extension Hill site is now in closure mode and most of the physical rehabilitation work is nearing completion. The rehab provision at 31 December for the site is $9.2 million and much of this we expect to incur over the following 12 months. As I mentioned the historical rail refund contributed $4 million to cash flow in the half year and has to date contributed just over $12 million to the company. a general rate of about $2 million per quarter. The refund is linked to third-party rail volumes on parts of the Midwest Rail network and is capped at a cumulative total of $35 million subject to indexation, which at current rates we'd expect to receive over the next three years. Now turning to Shine. With Extension Hill heading to closure we're focused on bringing our Shine project into production. Shine is located approximately 85 kilometres north of Extension Hill and is expected to extend the life of our Midwest business by at least another two years and potentially beyond that by another two years if conditions remain supportive. Site works are well underway at Shine and following the end of December we received the final mining approval for the open fit operation from the Department of Mining in WA. We are on track to commence mining pre-stripping activities in April en route to first ore sales targeted for early in the September quarter. Spending in the December half was modest on Shine at just over $1 million. with the bulk of the $17 million to $20 million development capital investment to be spent in the next few months, after which we'll then head into initial mining for the June quarter, so from April, May and June. During that period we'll produce all stockpiles for sales and we expect to spend about $15 million on pre-production activities through that quarter. We'll provide more details on Shine as we get closer to the start of mining, but can As a reminder we expect it will contribute about 1.5 million tonnes per year of 59% to 60% FE direct shipping ore, that's hemisite, per year at a cash cost of $65 to $70 per tonne FOB before royalties. So at current prices where iron ore is today obviously the project is shaping up as a very attractive incremental extension to our Midwest business and we're keen to get into it as promptly as we can. Just before I finish I wanted to make some comments about our outlook for the rest of this financial year and into next. As we've already noted from a volume perspective our sales guidance for the current 2021 financial year remains unchanged at 2.8 to 3.3 million tonnes of ore. and within this we expect Kulin Island sales to be around 1.8 million tonnes as I mentioned. While group cash costs were 56 FOB Aussie for the December half before the capital investments we described, the lower sales from Kulin in the current half year period will mean that group cash costs per tonne of oil sold over the full year will be slightly higher than originally expected and we expect now those costs to increase to between $65 and $70 per tonne FOB from our previous estimate of $60 to $65. This is based on expected Kulin Island site cash costs of between $70 and $75 per tonne sold FOB. Cash costs exclude the planned capital waste stripping investment for the full year, which we estimate will be around $130 million. and capital improvement projects including the crusher upgrade and the footwalls ground support program that I described, all of those things will be somewhere between $25 million and $30 million for the year. As we described in detail, this financial year is one of investment in the Kulin Island operation and the start-up of Shine. We expect our cash costs to reduce rapidly once we complete the current peak stripping phase of Kulin later this year. after which all sales and cash flow will obviously increase quite substantially and that will be complemented by sales and additional cash flows from Shine. So we have been through a busy period and have a busy period still ahead of us. So in closing I think we've delivered a steady financial result. There's a lot of operational things occurring within the business. and that leaves us well placed to capture the benefits of our investment at Kulin as the stripping phase is completed and in particular at Shine as it contributes to solid cash flows at current iron ore prices. So on that note, after that summary I'll hand back to you now Bethany for any questions that anyone might have.

Thank you. Institutional guests are now invited to ask questions by pressing star 1 on your telephone keypad now. You will hear a tone as you join the queue. Please listen for your name and I will introduce you through to the call to ask your question. That is start one on your telephone keypad now.