Mount Gibson Iron Limited

Thank you for joining today's teleconference for the release of Mount Gibson Iron's financial results for the year ended 30 June 2022. 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'll be an opportunity to ask questions. Due to the time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will also be available via the Mount Gibson website shortly after the completion of today's teleconference. Thank you and go ahead, Peter.

Thanks, Lisa. Good morning, all. Thanks for joining us to discuss Mount Gibson's results for the 2021-22 financial year. As usual, I'll give a brief overview and then hand back to Lisa for any questions. Our results for the year reflected the significant investments made at Kulin to set the operation up for the next four to five years of the mine life and as you know they also reflected a number of adverse factors that occurred during the year including the iron ore price movements, COVID-related labour availability shortages, general inflationary pressures and some supply chain issues. Despite all this however the benefits of our investment at Kulin started to flow in the last part of the year, in the June quarter in particular. and to provide Mount Gibson with confidence going forward as high-grade mining performance steadily improves and I'll talk more about that shortly. At a headline level we reported a loss after tax for the year of $174.1 million and that was after previously guided pre-tax impairments totalling $184.6 million. Of this impairment amount the coolant component of $147.4 million reflects a conservative approach we've taken for the impacts of recently lower iron ore prices and the shine impairment of $37.2 million which was recorded in the December 21 half year period reflects the suspension of the operations at that time. Cash and investment reserves reduced by $239 million over the year and closed the year at $125.6 million. That was the value at 30 June 2022. This was driven by investments in waste stripping and key capital projects at Kulin Island including the crusher upgrade and the upper footwall ground support works. Importantly in the latter part of the year the benefits of these investments commenced being realised and we had a significant turnaround in operating cash flows in the June quarter as I mentioned as all production, quality and sales at the Kulin operation all lifted substantially. and the mining strip ratio declined rapidly as planned. So while repairing damage from the recent fire at Coolan Island, which I'll talk about in a minute, will temporarily constrain our improvement trajectory in the current half year, the operation remains robust and it's underpinned by growing high-grade ore production. We continue to expect a strong performance over this coming 2022-23 financial year. In relation to the Kulin plant fire within its screening section, as we reported on 12 August a fire occurred in the product screening circuit of the Kulin Island processing plant and that was during a routine maintenance shutdown. Obviously a disappointing event but most importantly the proper efforts of our emergency response team meant that there were no significant injuries and the fire was promptly extinguished. Since then we've commenced assessing the damage and worked to determine the best way to start the crushing plant again in the shortest possible time and to try and increase our crushed volumes. The fire damaged the upper levels of the product screen area of the plant and that's where oversized material out at the front end of the plant is screened and redirected to the secondary crusher for further processing and sizing. The rest of the plant is unaffected and we'll be utilising this as part of our interim crushing solution. Mining and other site activity was also unaffected by the fire and continues to ramp up as planned meaning we'll have substantial high grade ore stocks ready for crushing as processing capacity increases. We expect to resume crushing at about 30% capacity within the next one to two weeks and that's using the front end of the processing plant, so the jaw crusher and the first scalping screen. This will be augmented by the addition of mobile crushing equipment to site, the first parts of which will be mobilised next week. enabling a further increase in crushing activities up to approximately 70% of our normal capacity around the end of September. So that's our target we're trying to achieve is that 70% level whilst we have this temporary processing configuration in place and that should return us to shipping rates of initially two and then around three shipments per month from that time. In parallel we're sourcing materials and planning the necessary repairs to the damaged section of the plant and subject to detailed assessment the repairs are presently anticipated to be completed in late 2022 or early 2023 and we'll of course provide updates as we progress. To date within the September quarter we've completed five high-grade shipments for almost 0.4 million tonnes and are targeting to deliver two more high-grade shipments by the end of September. Subject to the progress of the recovery plan we expect shipping rates to increase in the December quarter and then rise further from early 2023 at which time we expect to be crushing at full capacity and able to consistently ship our targeted levels of four to five cargoes per month. Retention of the mobile crushing equipment that we're using in this next little while may further support a production catch-up in the June 2023 half year. So as indicated in our guidance, although our near-term shipment volumes will be impacted, we're still targeting high-grade ore sales of between 3.2 and 3.7 million tonnes from Kulin during the 2022-23 financial year and that is still a significant increase, well over double, over the last year. Cash operating costs for 2022-23 financial year will be dependent on our recovery progress But the initial target for the year is an average of between $70 and $75 AUD per tonne FOB and that's before royalties. Costs are likely to be a bit higher in the first half and lower in the second as the repair and recovery activities are completed and as the waste-to-wall stripping ratio continues to fall over the year. As we've noted before, the mining stripping ratio will average about 3.5 to 1 in the current and then fall to around 1 to 1 in the second half. So across the full year we're expecting somewhere around 2 to 1. The stripping rate ratio for reference averaged over 10 to 1 in the year we just completed. So moving on to more general market matters, I just wanted to say a few words about the iron ore market. While we're seeing some divergent views regarding near and medium term iron ore prices, from our perspective, and this is based on conversations with our customers and other market participants. Prices have obviously been supported around these current levels at the moment and in particular as we head into the traditionally stronger seasonal period, the infrastructure investment in China and also towards this year's National Congress where economic growth will obviously be a key focus. So whilst we're a price taker at Mount Gibson, and we're obviously monitoring the market closely, there are some reasons why we see that prices will be supported around these current levels, potentially higher. Importantly for us however, the high grade premium for 65% material relative to the benchmark 62% material is now sitting at around 7% to 8% on a grade adjusted basis. and we'd be expected to rise should steel demand increase or in particular should steel producer profitability and margins increase in China. That's the pattern that we've seen consistently on a historical basis. So sales from Kulin Island under our long term offtake agreements capture this premium and that's historically offered solid pricing benefits for us. In relation to dividends you will have seen that the board has not declared a distribution for the 21-22 year and this decision was obviously based on the substantial operating investments that we made in the last year and on our current priority of resuming the growth trajectory in high grade sales at Kulin Island and building our cash reserves. The company is pursuing a plan to drive substantial production and cash flow growth at Kulin and the board has a stated intention to pay dividends as and when the company's performance justifies and that's entirely consistent with the approach adopted for many years now. For reference the company has distributed over AU$330 million in fully franked dividends over the last 10 years. So in summary we expect the 2022-23 financial year to be much stronger operationally and financially for Mount Gibson than last year and that's even with the near term impacts as we deal with the recent processing plant fire and that's driven on the benefits of the previous year's investments as they flow through to our increasing high grade oil production and sales. So with that I'll hand back to you Lisa for any questions that anyone may have.

Thank you very much, Peter. If anybody would like to ask a question, please select star one on your phone now. You will be placed in a queue. So star one. We have one question. I won't be a moment. Thank you. We have John Smalls from Macquarie. Go ahead, please, John.

Hi, all. So just touching on that ramp up or getting back to crushing capacity. So the guidance currently that you have out there, account for that? And is the cash cost as well included? Does the mobile crushing, is that included in the costs that you have set out?

John, yes, the answer is yes there. So we've We were obviously prior to this fire targeting levels in excess of what we've given for guidance. That incorporates our assumptions at this stage for how we will deal with the aftermath of that fire in the screening circuit and the costs likewise reflect how we're dealing it. They do reflect the mobile crushing costs that we will be adding to the business to deal in this short period now.

Excellent. And product quality coming out, what do you expect, especially in the first half, given the extreme compression in that period?

Yeah, no change, John. So the product quality has been consistently now for some time 65% FE products. and sometimes actually a little bit higher than that. The silica content in our material is sitting around the 4.5 to 5.5% silica area. Alumina remains low in this product, as you know, so that's 0.8 to 0.9%. Excellent.

Thank you very much.

Thank you. Our next question is from Angus at Baron Joey. Go ahead, please, Angus.

Hi, Peter. Thanks for taking the question. I think I was going to ask about whether the mobile crushing costs were built into your cost guidance as well. It appears you've addressed that. But just looking into the second half and assuming everything's resolved in line with expectations, I mean, I get your current shipping rates to fall in line with the bottom end of guidance. That's sort of 3.2 million tonnes. How should we think about your ability to catch up the tonnes between the bottom and upper end of guidance in the second half? And, you know, what are the constraints to getting more of those tonnes on ships? I mean, you're obviously going to build your stockpiles through this period, but just want to try and get a sense of how we should think about what that second half could look like?

Sure. Well, look, maybe the way to answer that is in shipment numbers, Angus. So our average shipment size is between 70,000 and 80,000 tonnes on a vessel. And during this period, whilst we're using mobile crushing units to basically supplement the front end of the existing crusher, we're expecting to do two and then rise to three per month is our target. and then once the main plant is repaired and comes back online, and so we've made some conservative estimates on that at the minute, so that would be early next year, as in early next calendar year, then that plant is capable of processing the needs for four or possibly five shipments per month. So that will be our target to run through and then if we keep the mobile crushing facility on site there is potential to add to that base load target to try and catch up the deferred shipments that we have. So we'll obviously be trying to maximise that and do everything we can as long as that's cost effective but that hopefully gives you a profile if you model it at four to five shipments per month in that second half.

Okay, great. And just thinking about, I mean, obviously costs are going to be higher in the first half for reasons. But in terms of pulling some of those second half costs forward while part of the operation is down, should we think there's further benefit in the second half?

Sorry, just explain that again, Angus. What do you mean second half costs forward?

Sir, I'm just working on the basis that you're going to be stockpiling ore, so when things start to recover, then you'll be just processing the ore at a lower cost, or maybe I'm thinking about it the wrong way.

Oh, I see what you mean. Yeah, so we've got to continue mining at our current rates, and the quantity of ore that's coming out will obviously process a reasonable proportion of what with the mobile crushing circuit. what we will do is we'll end up building stockpiles which we'll then chew into with the main plant back online next year. So that's what you're referring to. Yeah, that's right. Yep. Our cash operating costs are a tonne sold so that investment in building that inventory will be obviously cash flow that we put to that purpose and then we'll draw that down as we process next year but we won't pull back on mining. We'll still be going at the mining rate so that will continue consistently for several years yet.

Yeah, so the cash flow generation in the second half could be better as a result, but obviously you wear that in the first half.

Correct. That's spot on. Yeah, sorry, that's where you're going. Correct, yes. Yeah. Okay, great. Thank you. Okay, good.

Thank you. And, Peter, we have no further questions in the queue.

Okay well thanks all, thanks for the questions John and Angus and if there is anything further please contact us directly as we do and have a good day. Thank you.