Mount Gibson Iron Limited

Thank you for joining today's teleconference for the release of Mount Gibson Iron Financial Results for year ended 30 June 2023. 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 Facius. 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 also be available via the Mount Gibson website shortly after completion of today's teleconference. Thank you, and go ahead, please, Peter.

Thanks, Lisa. Good morning, all, and thanks for joining us to discuss Mount Gibson Iron's financial results for the 23rd financial year. As usual, I'll give a brief overview and then hand back to Lisa for any questions that may come from the floor. From an overall perspective, it was satisfying to see the significant underlying financial improvement we achieved over the course of the year. And while sales in the first half were restricted following the fire incident in the crushing plant, once repairs were completed, Coolman Island commenced delivering the benefits of prior investments that we've made in overburden removal, ground support and the crusher upgrade. As noted in our last call in July, the June quarter was a record in terms of high-grade shipments and sales, delivering 17 shipments, which totaled 1.25 million wet metric tonnes in the quarter, double the rate of the prior quarter. Consequently, we beat our revised full-year sales gardens of just over 3 million tonnes and more than trebled sales revenue to just over 452 million free-on-board FOVs. Full year cash flow, after all capital expenditure and corporate costs, totaled $84 million, underpinned by reduced unit costs as sales lifted in the second half of the year, and the waste-to-wall stripping ratio continued to decline as we planned. I'll talk more about cooling operations and unit costs in a bit more detail shortly. On a gross basis, this translated into a gross profit result of $114.2 million compared with a gross loss in the prior year of $72.8 million. Following non-cash impairments of $75.4 million and the derecognition of preferred tax assets for accounting purposes of $16.5 million, both of which are required under the accounting standards, as well as our usual other income and administrative costs, our net profit after tax was $5.2 million. And although this is modest given the gross profit level, it is a substantial turnaround from the $174 million loss after tax recorded in the prior year. The impairment resulted from our normal period end obligations to review the carrying value of the assets in the context of prevailing conditions, including conservative iron ore price and foreign exchange outlooks, inflationary pressures and higher prevailing interest rates. The key metric to keep in mind is our cash and investment reserves balance, however, which totalled $162.4 million at 30 June 23, and that was an increase of $120 million over the second half of the financial year, which was also after repayment of the $25 million that we drew down from our standby credit facility late last year. So turning to Coolen Island's financial performance, sale tonnage has doubled from the previous year, to just over 3 million wet metric tonnes, at a high average grade of 65.3% FE. And cash operating costs averaged 77 Australian dollars per wet metric tonne FOV that we sold, and that was for inventory build, project capital costs and royalties. And that was down from 119 per wet metric tonne in the prior year. That reflected the higher sales and the markedly reduced mine stripping ratio, which averaged 2.2 tonnes of waste for every tonne of ore for the full year and was down to 1.1 to 1 for the June half-year period. And, of course, the stripping ratio is a key driver of costs at Coolen Islands. Consequently, the site generated operating cash flow of 95.3 million in the year on sales revenue of 450.6 million and the profit before interest and tax of 44.1 million. That compared with a loss of 191 million and the cash outflow of 188 million in the prior year. The key cash outflow items in the fiscal 23 year just gone were cash operating costs of 228 million, royalties of $42.5 million, crusher repair and the interim processing arrangements that we've put in place following the fire of $20.7 million, waste stripping investment of $11 million and sustaining and project capital costs totaling $53.4 million. Expect unit cash costs to reduce further over the remaining mine life based on a higher average level of sales and a lower average mine strip ratio of about 1.2 to 1 from here on, although this will vary at times according to normal ore and waste cycles within the main pit. We talked about the mine's operational performance in detail at our quarterly call in July, so I won't say much more than that, other than to repeat that mining has been consistent over the last year, and we averaged about 1 million tonnes of high-grade iron ore extracted from the main pit each quarter. while our crushing capacity has enabled us to consistently ship between five and six cargoes per month during the northern dry season. And we're targeting to achieve at least four shipments per month in the December to March wet season periods. And of course, that depends entirely on the kind of weather we face. That shipping profile is sufficient to support sales of around four million tonnes per year, which is the approximate run rate we expect to maintain going forward. Finally, as reported after period end, we recently incurred a localised rockfall in a section on the eastern footwall on the island side, that is, of the pit. The event was detected in advance by the site's continuous radar monitoring systems and no injuries or equipment damage occurred. The area impacted is not currently being mined and all production is not scheduled to occur in that particular location until the March quarter next year. But in good news, based on the initial geotechnical evaluation, it's currently expected that remedial measures can be implemented to enable mining to recommence in that impacted zone with minimal impact on the current mine plan. A detailed geotechnical assessment is now underway to further define those measures, which are likely to include the use of additional strength and avalanche mesh material, as well as cable bolting and shock creeping, typical for ground support activities at the Kulin Island operation. In relation to the Midwest business, while our focus has obviously been on the turnaround of Kulin Island, the Midwest business still generated a positive $6.5 million pre-tax profit for the group. Our ongoing rail credit refund brought in just over $9 million in the year. It proceeds to date since that started. of $33.5 million out of a total capped entitlement of $35 million. So obviously we expect to receive the final proceeds of that entitlement this current financial year. The business also generated modest income from third-party use of our available storage capacity at Geraldton Port. The most significant development, however, was our transaction announced in late June to divest the company's Midwest iron ore mining interests at Shine and Extension Hill and the Geraldton Storage Shared Assets to fellow regional iron ore producer Fenix Resources. We did that for $10 million in cash, 60 million shares currently worth around $18 million, and 25 million five-year options in Fenix. These are exercisable in two tranches of 12.5 million options each at $0.25 and $0.30 respectively. So Mount Vixen is now Fenix's largest shareholder with an interest of approximately 8.6% and with the option there's scope to increase this. As part of the transaction, Fenix has also assumed the remaining rehabilitation obligations across the various asset sites, which we had provisioned at 30 June 23 at approximately $8.2 million. As recently announced, this transaction was successfully completed on the 21st of July. So for Mount Gibson, the deal crystallised value for assets that's not yet reflected in share price, as well as giving ongoing exposure to Phoenix's growth-focused iron ore mining and integrated logistics business in the Midwest. We consider the transaction as a win for both companies, as well as for the Gelsingport and Midwest community, in which we've operated for many years. The sale now also frees us up to focus on maximising cash flow from Kulin and the pursuit of new investment opportunities in other commodities, notably base metals, to provide longer-term operating cash flows. In relation to our exploration activities, we've also recently, and this is after a number of years, recommenced our regional exploration efforts in the Midwest, focusing initially on prospective base metals targets near our Tallane peak site and to the north at the Butchers Track project in the Murchison. Further farming and joint venture opportunities are also being reviewed. I'd just like to touch on market conditions and outlook. So R&L prices were slightly lower in the 2023 financial year, albeit still at attractive levels, and this was driven by the weaker-than-anticipated rate of post-COVID recovery in China and global economic uncertainty, which translated into general inflation and higher interest rates across the globe. I'm sure everyone's familiar with monitoring the Chinese economy, in particular its construction demand and property sector, which are key drivers for iron ore exports from Australia. The benchmark plat 62% index averaged $110 per dry metric tonne, CFR, so that's the price delivered in northern China for the year, and that was a decline of around 20% from the previous financial year. While importantly for us, the 65% FE index price, and that is the price at which the cool and high-grade fines contracts are pegged, averaged $124 US per dry metric ton CFR for the year. The 65% FE index average premium above the 62 index remained reasonably steady at about 7% per contained metal unit, And this is a premium that is captured under our high-grade sales agreements and is important for us. Despite the lower market prices, Mount Gibson's average realized price increased almost 30% to $103 per dry metric ton FOB. So that's the price out of Kulin Island compared with the prior year. And that was reflective of the fact that a significantly increased volume of high-grade 65% FOB finds counted for all of our sales in this last financial year. We also enjoyed another boost from the weaker Australian dollar, which averaged just over 67 US cents for the year, compared with 72 cents in the prior year. So we continue to see good demand from our customers for the high-grade and low-impurity iron ore products from Coolman Island, and we're anticipating a strong year ahead. In relation to production and cost guidance for this 23-24 financial year, we're targeting high-grade iron ore sales from Kulin Island at between 3.8 and 4.2 million wet metric tonnes at an average unit cash cost of Australian 65 to 70 per tonne FOB sold, and that's before royalties. In relation to dividends, you will have seen in the earnings announcement that a final dividend has not been declared for the 23rd financial year, given the continuing focus on increasing shipments and profitability from Coolman Island. However, the board has clearly stated its intention to resume paying dividends going forward and will review dividend capacity, including the expected generation of franking credits at future interim and full year periods. And just remind people that now Gibson heads historically over the last 11 or 12 years paid about 330 odd million fully franked in dividends. So before I wrap up, one final matter, I just want to express my thanks to Russell Barwick for his valued input and contribution to the company as a non-executive director over the last almost 12 years. He has stepped off the board today due to his increased personal business commitments. And in addition, I welcome Ms. Evian Del Fabro to the company when she takes up the role of independent non-executive director next week. And Evian brings key business, commercial and legal experience with her, including in mining construction, and we look forward to working with her going forward. So with that, I'll finish up and hand back to you, Lisa, for any questions you may have.

Thank you, Peter. If anybody would like to ask a question, please press star one on your phone now.

Press star one on your phone if you have a question. Thanks, Peter. We don't have any questions. Okay.

Thanks, Lisa. Thank you all for listening. If you do have questions or you want to ask us something offline, then please feel free to phone either John Fossey or myself on the numbers listed. And please have a good day. Thank you.

Thank you, Peter. The conference is now in moderator-only mode.