Ramelius Resources Limited

Thank you for standing by and welcome to the Remelius Resources Limited full year results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Geppner, Managing Director. Please go ahead.

Good morning, everyone. Thank you for taking the time to dial into our full year 2020 financial results call. Joining me this morning is our Chief Financial Officer, Tim Manners. There have been a number of ASX releases related to our 2020 results loaded onto the platform this morning, but Tim and I will be talking more broadly to the results presentation. Once we have done that, there will be an opportunity for listeners to ask questions. So if we go to the presentation and start we believe that in 2020 Remedios has delivered for shareholders and we've done that by breaking records pretty much across the board. We have delivered record production of 230,000 ounces up 17% on last year and this is translated into a record net profit of $113.4 million up a whopping 420% on last year. In terms of what that has meant for shareholders in terms of an investment, While Remelius has been best in its class over the last 12 months for share price appreciation, up 176%. I have some comparatives to talk to later to support our claims in this area. And finally, we've been able to double what was effectively our maiden dividend from last year. On dividends, we note that Remelius would be the smallest Aussie gold producer, recognising our retail shareholders and actually paying a dividend. At this point I'll now hand over to Jim who will go into the numbers in more detail.

Thank you Mark. Welcome again and thank you all for joining us in the presentation of Romelius' record-breaking financial results for FY20. We're not the first to post record-breaking results this year and I'm sure we won't be the last but hopefully as we go through some of the key metrics you'll see how Romelius who at the start of the FY20 year at an enterprise value of only $378 million, has been able to punch above its weight and go head to head financially with all of its peers. If I can take you to slide four of the presentation pack, you can see a snapshot of the key metrics I mentioned earlier. Remedios achieved sales revenue of $461 million on the back of gold sales of 228,000 ounces. The volume of gold sold increased 12% on last year. but even more significant was the 16% increase in the average price received from that achieved in FY19. As important as the production and price increases are, the cost discipline that we saw across all the operations was just as, if not more important. I have a chart later that shows the consistency in the group's oil and sustaining cost profile, but you can see from slide 4 that whilst the revenue jumped 31%, The EBITDA increased 128% to $256 million and statutory MPAT increased, as Mike said, 420% to $113 million, indicating that the costs were down on last year too. The EBITDA margin, which as most of you know is a common measure of financial and operational efficiency, was up from 32% last year to 56% this year. Based on the financial results released so far by our peers, we're yet to find one as strong as this. As mentioned, what it shows is that the costs of the business have reduced year on year. And I don't just mean the cost per ounce, which is clearly influenced by grade, but the underlying cost per BCM and the cost per tonne across our open pits and underground operations. These were nearly all lower than FY19. The average cost for BTM for all the pits across the whole group was down 17%. At Mount Magnet, the cost per tonne of ore from our open pits was 14% down on last year, due predominantly to the large, efficient, low-strip Eridanus open pit. And the underground mining costs were down 10% at Mount Magnet and as much as 30% at Edna May as the namesake underground started to hit its strats. It's very easy to get complacent in an environment of all-time high gold prices So it's a credit to the operators in our business who've managed to keep control of our costs whilst also ensuring the most appropriate economic decisions are made on a day-to-day basis. Notwithstanding the very strong earnings discussed above, perhaps the most important measure for us at the moment is generating the operating cash flow that we can deploy across the business to generate the returns and set the business up for years to come. FY20 was a period of significant development expenditure for Ramirez. But with over $236 million in operating cash flows, we have been able to comfortably fund those growth projects and to maintain a strong commitment to exploration and resource development across the company. Even after deducting the capital expenditure in FY20, the mine development, leases and rehab costs, the business managed to generate just shy of $100 million in cash flow, giving the company over $185 million in cash and bullion as of 30 June. And lastly, from this cash balance, the Board has declared a 20 francs 2 cent dividend which totals over $16 million which will be paid in October this year. Moving to slide 5, this waterfall chart has been provided to help reconcile the NPAT position achieved in FY19 through to the record figure of $113 million posted today. As noted, the higher gold production and higher achieved gold price were the main drivers for the five-fold increase in MPAT. The benefit of the lower operating costs can also be seen from this chart too, adding nearly $20 million to the pre-tax profit figure. Mitigating those strong positives was a $6.3 million write-off of a number of small exploration projects around WA and in the US and also the expected increase in tax expense due simply to a higher pre-tax income. As you may have seen in the ASX announcement this morning, we also recognise a $10.1 million one-off tax benefit from the recognition of carry-forward tax losses from within the Explore group. This has the impact of giving Remelius a one-off lower tax effective rate of 24% instead of the usual 28% to 30% effective tax rate. After the expiration write-off in the tax credit, are notionally backed out. The underlying NPAT for the year was $107.8 million. Moving to slide 6 just quickly brings some of the earnings history into focus. Romanes has now achieved six years of consecutive net profits after tax. Indeed a total of $227 million in NPAT has been generated over that timeframe. This equates to a simple cumulative earnings per share of $0.387 over that six year period. We're pleased now to have a new section in the bottom right-hand corner of that right-hand chart which shows graphically how we are now returning those earnings to our shareholders. Moving to slide seven, we can take a closer look at the cash flow for the year just gone. Apologies for repeating myself, but again, the record gold price and the record gold production has led to the $236 million in operating cash flows in the year just gone. The biggest draw on the cash surplus from operations was the investment into our future projects of approximately $105 million. Broadly this comprised the development of the aerodynamic open pit and the Shannon underground at Mount Magnet, the Greenfinch and Maia Valley deposits at Edna May and the underground itself at Edna May. As flagged in prior ASX releases we expect the development requirements for FY21 to reduce from the level seen in FY20. with the focus moving to Tampia and to Penny. With the acquisition of Spectrum Metals there was a $30.7 million net cash outlay as well as the issue of approximately 145 million new shares. The free cash flow for the year was approximately $65 million. The chart also shows a net inflow of borrowings of 24 and those who follow us closely will recall a full drawdown of our $32.5 million facility in quarter three which was partly repaid on 30 June. The facility in its current form will be repaid in full during FY21. Slide 8 highlights the six-year period of operating profits but does so from an all-in-sustaining cost perspective plotted against the achieved gold price. The stability of the oil and sustaining costs per ounce year on year is a measure that RMS are very proud of. Whilst costs vary month on month and indeed quarter to quarter, the annual oil and sustaining costs have not varied by more than 4% year on year. With the surge in the gold price in FY20, our margin over oil and sustaining costs has ballooned to 42%. which we understand sits us alongside the likes of Evolution, Northern Stars Australian Operations and Saracen. This is a group we are very happy to be associated with. To also have this increase in margins at the same time we've achieved over 21% year-on-year gold production growth puts Remelius in a great position both operationally and financially. Moving to slide 9, I just have a couple of slides on the balance sheet strength of Remelius. The cash and bullion position of $185 million at 30 June, but it's important to highlight also the significant increase in ROM stocks during the year. The Eridanus mine outperformed its reserve model quite considerably last year, and with the build-up in stocks at Marta also, we have accumulated approximately 91,000 ounces of gold on hand in bullion, GIC and in ROM stocks. This gives the operation excellent diversity and an inherent level of risk management should any ore supply interruptions come about. We have a modest debt position that will be repaid in FY21 and we will then look to reset that to better suit our next phase of growth. In slide 10, this is a slide we dust off every now and then and we think it speaks to the capital discipline. we have employed in the past and how we have made our business acquisitions so far work for us financially. Whilst the blue bar is showing the costs of the acquisitions are increasing the further rights you go, with Spectrum the latest being a $171 million acquisition being our biggest so far, we look forward to applying the same type of operational excellence and financial discipline to these projects as we have done to our smaller assets which have proven to be multiple baggers for our shareholders. A couple of things to note, there are around 270,000 tonnes of ore stockpiled at Marta awaiting haulage to Edna May and the mining of Tampia and Penny we hope will commence in mid to late FY21 respectively. Hopefully the last two slides show that we know how to make projects work and that we have the balance sheet to support these and other growth opportunities as they arise. So in conclusion, from my part turning to slide 11, Remedius has today reported very strong earnings and very strong cash flow. It has reported a balance sheet that is capable of supporting the significant growth we see from our own internal opportunities as detailed in our ASX announcement in June which showed our new life of mine plan of 1.45 million ounces of production. We've reported the continuation of dividend returns to shareholders as well as significant capital growth this year. and we have highlighted a capital structure matched with a leadership team determined to seek new and exciting assets to bring them inside the Remelius business. Thank you all and I'll hand you back to Mark for a final word before we take questions.

Thanks Tim. Now looking at the last slide and coming back to our relative share price performance in FY20. We have outperformed those listed peers over the period, largely on the back of a record-breaking fourth quarter achieved despite the COVID-19 backdrop and the restrictions associated with it. Despite this standout year, management firmly believes that this has been some time coming for Ramelius and represents an element of catch-up from previous periods that have been significantly undervalued. Importantly though, post these four-year results, when you stand back and look at everyone's Remelius remains very competitively positioned on common market metrics such as earnings and cash flow relative to EV. That concludes the presentation. I'll now hand back to the operator, Taylor, to open the line for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Andrew Hines from Shore and Partners. Please go ahead.

Thanks, guys, and congratulations on what's a stunning result. I think you hit on one of the key good things here, which is that the cost control has been really strong. Normally, when you get these sort of price environments, we see costs going up, and you've kept that under control. I do note though that your cost guidance for 21 is for some increases and you've got a range there of $12.30 up to $13.30 all in sustaining costs for the year. Can you just talk a little bit more about what are the risks around that range, up and down and are there other things you could do to bring costs down in the next couple of years?

I'll take that one. Thanks Tim. Andrew, thanks for that. Look, there is potential to bring that number down primarily if we can bring the penny project on a little earlier than we have. We've only got a very nominal amount, I think it was 5,000 ounces in the financial year, so a very small amount. So if we can bring that project on earlier, we may be able to bring that down. It's the mix of slightly higher cost Edna May production in the overall production this year which is from Edna May and Marta added into the total mix compared to FY20 which is going to give you that result. Willoway booked to do better. We always target internally a $1200 an ounce stretch target if you like but the numbers are telling us that we'll be a little higher this year but as always we'll do what we can to keep a lid on costs and I think we've got a pretty good track record of doing so.

Yeah, absolutely. And one further question from me. In terms of sort of new opportunities, one of the things you've been looking at is expanding the Mount Magnet Mill. I think you're looking at potentially taking that up to 2.4 million tonnes per annum for relatively modest capex outlay. Have you made any further progress on those studies and is that looking like a realistic option for this year?

We are looking at that amongst a number of studies and given that it's only a couple of months since we announced that we would embark on that, it's really been in the initial stages. So dusting off the old study, looking at the whole, the comminution of the Mount Magnet Mill overall and considering all the future feed sources. So it's pretty early days on that and I wouldn't expect anything before, probably more before the end of the calendar year, Andrew, on that to make sure that we do it properly and we get it right. But still pretty bullish on the potential to add to the capacity and lower the cost and get a relatively quick payback on any capital investment there.

Great. Thanks, Mike. Thanks, Tim, and well done again on a great result.

Thank you.

Thank you. Your next question comes from Brian Chu from Australian Gold Fund. Please go ahead.

Hello, Mark, and hello to the team in Romanious Resources. Very well done on this year's results. Really hit the ball out of the park, I can see. What I actually want to ask is, you have substantial hedging, and I know you've talked about this in your previous quality reports, but in light of the fact that the gold price has been rising quite a lot and we are seeing it come down in recent times, do you see a benefit perhaps of unwinding some of the hedging hedge positions in the next two quarters with the cash balance you have to take advantage of the fact that the gold price is likely to continue to go up with greater global financial system instability?

Brian, it's Tim here. I'll take that question if I may. I guess in short our hedging is always being reviewed. At the moment we are basically doing exactly as you suggest. We are gradually reducing the level of cover that we have in place. We would expect that to come down to a lower level by the end of the calendar year. But also at the moment, we still manage our revenue line on the basis of generating cash margins for our operations. The board, as I mentioned, continually, as does management, review the hedging policy. At the moment there's no decision to change that but in terms of volume I would expect a slight drop before the end of the calendar year. So hopefully that answers your question but in terms of also the closing of any of the book, we're not looking and would probably never look to close the book entirely. That's part of our business and it's part of our risk management strategy but over time those ounces will, as I say, come down and the average price of the book will increase in the same manner.

Okay. Well, thanks very much and keep up the good work. Thank you.

Thank you, Brian. Thank you. Your next question comes from Richard Hart from Top Wheel. Please go ahead.

Oh, thank you. Look, G'day, Mark and Co. As you know, I'm someone who spent 15 years doing nothing useful with my life. but ridden this golden horse. And can you again thank, I thank you and all the staff, everyone at Remelius for doing a brilliant job. So well done. The only question, I really just wanted to say hello and thank you, but I do have a question. With Campia, that takeover exercise wasn't that smooth. And I'm wondering, it seems to be taking a long time. I know the plan is to start work before the end of the 21 financial year. Are there any issues with Tampia that would prevent that, or is there anything about Tampia that concerns you, or is it simply that it's online, in train, and okay?

We've got full confidence in starting the Tampia project, Richard, and thank you for your early comments as well. as we have put in our life of mine plan. Yes, we had to push back the start date slightly. It's probably a function of mining in the wheat belt, which not too many others have done, and working through the processes associated with that. But we've got every confidence that we'll get going early next calendar year and then start having production in FY22. Thanks very much, Graeme.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Hugh Stackpool from Petra Capital. Please go ahead.

G'day guys. Yeah, congrats on a great result. One of the questions I had for you was it's great to see that balance sheet slide and the capacity that you guys have to act on opportunities. I'm just wondering the impact of the rising gold price that that's having on the opportunities you see. Obviously, you know, sometimes that can change the internal and the external factors, but is there any colour you can provide around, you know, I guess what that rising gold price might mean for your growth, both kind of on internal things and maybe anything you're seeing externally as well?

I'll have that one Tim. Obviously here it's making potential acquisitions more expensive. Maybe the price you're paying nowadays probably would have seemed unpalatable four or five years ago but it's something that you need to be prepared to deal with. Paying $170 million for the Spectrum acquisition which we think will return Significantly on that is just a new set of numbers as compared to $10 million for Vivian back in 2014. I think it's just a reality that you've got to be prepared to deal with otherwise if you're looking to pay the old sorts of prices you're not going to do too many deals and you're not going to actually be able to grow the company. So it's a fact of life. We always look to get a return but no matter what that valuation looks like.

And maybe a follow-on from that, I like the concept of the slide you have in generating returns. You've got a certain level of cost discipline. Is there a targeted cost rate that you have in mind where you'd like to go for assets that give you a similar cost profile or once again, is it more just we're here to make investors a return and if we can pick something up and make a multiple on that, that's an outcome that's good for everyone?

Hugh, Tim here. As Mike mentioned, historically and certainly still within our internal models, we certainly target that $1,200 an ounce type figure. We are realistic though, but certainly our expectations would be to be able to make a decent return on anything that we buy. But that sort of $1,200 an ounce, $1,250 is where we target. It does make things a little bit more challenging, but there are assets out there that can still meet those criteria. So, yeah, I think that's probably where we sit.

No, that's great, Carla. Thanks.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. I will now give you a few moments to register your questions. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.