Ramelius Resources Limited

Thank you for standing by and welcome to the Remelius Resources half-year results briefing teleconference. 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 Zeppner, Managing Director. Please go ahead.

Good morning, everyone. Thank you for taking the time to dial into our half-year results call. As usual, joining me this morning is Chief Financial Officer Tim Manners. In terms of the order of events for the call, we will refer to the half-year results presentation released this morning, amongst other documents. I'll start with an overview of the highlights, and then Tim will take over to delve into the numbers in a bit more detail, and after the presentation, we'll open the line for questions. So if we turn to slide number three of the presentation, the half year to 31 December was another very strong period for the company, driven by better than forecast production of 144, 240 ounces at an all-in sustaining cost at the lower end of the guidance range at 1,261 an ounce. Essentially, you'll find that Ramirez has set new records pretty much across the board, with many of the key financial metrics comparing very favourably with our ASX peers. Net profit after tax for the half was a record $81.3 million, an increase of 297% on the previous corresponding period, whilst we finished the half with net cash and gold of $213.4 million, a 32% increase from the end of financial year 2020. The improvement in net cash and gold came despite significant investment in capital projects and exploration, plus the $16 million payment of a 40-franc 2-cent dividend and $14 million stamp duty payment that fell due on the Spectrum, Explorum and MARTA acquisition. It is fair to say we have set ourselves up very well for another excellent full-year result. As you would have seen, there were no dividends recommended on the back of the half-year result, but in keeping with recent practice, we will assess dividends at the end of the full-year results for FY 2021. During the half, we completed the penny feasibility study with the project delivering a pre-tax NPV of $301 million using a 5% discount at a $2,300 Aussie gold price, giving the board confidence to proceed with its development. Mineral resources at Edna May were upgraded and topped 1 million ounces with a pre-feasibility study on Stage 3 open pit, moving towards completion by the end of the current financial year. The Eridanus Deep Scoping Study is scheduled for completion at around the same time, after being pushed back to allow for the consideration of potential upside from adjacent targets and alternate portal positions that may result from the development of deposits such as Orion. Development commenced at Tampere where last month we bought out our minority partner as well as purchasing the farmland on which the project is situated. Highlights on the corporate side during the half included the company's admission to the ASX 200 and the appointment of Bob Bassey as non-executive chair. Given that it was announced on Christmas Eve, Bob's appointment didn't meet with a great deal of fanfare, but I can assure you we're very pleased to have a director of his caliber on board. On that note, I will now pass over to Tim.

Thank you, Mike, and thank you all again for joining us for the presentation of Romelius' financial results for the half year ended 31 December 2020. As most will recall, we finished the second half of FY20 very strongly, and I'm pleased to be able to sit here and report that the strength of the business continued into the first half of the FY21 financial year, with Romelius posting another set of record physical and financial results. As Mark noted, both our gold production and gold sales were up markedly over the same period last year. Coupled with the gold price being stronger, the increased gold sales led to some spectacular financial results when compared to the prior corresponding period, as slide five shows. Our sales revenue more than doubled to $342 million. Our EBITDA nearly trebled to $193 million, and our impact was just shy of a fourfold increase to $81.3 million. Pleasingly, our EBITDA margin, which provides an indication of the amount of sales revenue we managed to retain as operating cash flow, was a record at 56.3%. This even beat FY20's result of 55.6%, which was, at the time, an industry-leading measure. The cash from operations was up 196% to $161 million. After investment into both sustaining and growth capital projects, our net mine cash flow increased to $84.6 million. And we finished the year, as Mark said, with $213 million in cash and gold, in net cash and gold, primed for the second half of this year. Lastly, our earnings per share for the six months was $0.101 per share. Doubling this gives you a notional full-year EPS of $0.201 per share, meaning that at present RMS is trading at less than 7.5 times earnings. which is way below our peers average of 21 times earnings. Moving to slide six, the waterfall chart on slide six explains at its most basic level what has driven the earnings before interest and tax from 30.5 in H1 2019 to 118.3 this reporting period. As mentioned at its basic level, we produced and sold more gold and we did so at a much better average price. We have a slide coming up which shows how consistent our cost profiles have been. So this slide is largely a reflection on price and the margin achieved from the higher sales volume. The main driver behind the increased volume was HEC rate at Mount Magnet through a higher proportion of underground feed in the blend and a six-month period from Edna May, which was at full capacity with all from Greenfinch, Marta and the Edna May undergrounds. The higher price was achieved from simply a higher spot price environment coupled with the settlement of hedge contracts that had a higher average price. On the subject of hedging, at the end of December, a hedge would total 229,750 ounces at an average price of $2,288. Moving to slide seven, I mentioned earlier that our costs have been very consistent over the six months. results period. In fact, they've been incredibly consistent over the past six and a half years, varying less than 4% over that time. With the increasing price and the increasing production, our margins are improving year on year. The margin over all interstating costs has risen from 20% to 42%, and if we meet guidance for the FY21 year, then this will improve even further. Our teams on site have a commitment to safe and responsible cost control and a clear focus on maximising cash flow. On slide eight, we shift to cash flow, which some would argue is the only metric that really counts. One of the key and obvious takeaways from this slide is that the operations generated a substantial amount of cash. The gold sales revenue was $149 million more than the sustaining production cost of the business, and that was just for the six-monthly period. Some of this surplus was reinvested in the future growth of the company, like project development and exploration activities, and as Mike mentioned, into the trailing M&A transaction costs such as stamp duty for Penny and Tampia, which was $14.3 million for the six-monthly period. And the other large item was, of course, the $0.02 fully-franked dividend paid to shareholders of $16.1 million in October. The increase in net cash and gold over the period was $52.3 million. Slide nine will be familiar to some. We always monitor the growths and net cash flows for the major business decisions and investments that we have made over the past years. This chart shows just that. Dating all the way back to some more humble beginnings with Coogee in 2012, where a $1 million investment returned $9 million back to the company, to now where if you look at the three assets we have in production, Vivian, Edna May and Marta, where we have invested $64 million and returned over $202 million so far. Keep in mind, they're obviously still operating too. What's more is that we hope that there's even better to come, as we've only just started the development of Tampia and Penny, both of which are expected to generate significant cash flow for our shareholders in their own right. Moving to slide 10, it looks at the balance sheet status of Remelius and how well we are positioned for growth, both organic and external to the business, if the right assets can be found. We have over $312 million in current assets. We have shareholders' equity of $582 million. We have approximately 80,000 ounces in inventories ready to be monetized. We have minimal debt, but importantly, we have a large debt carrying capacity if we need it to support organic development or a strategic acquisition. We're extremely well positioned to fund the growth of Remedios when required to do so. At the bottom left on this slide, you can see a couple of financial metrics to capture how effective the company is managing the capital entrusted to it. Return on equity annualized for the six-month period was 29.6%, and return on capital employed was 25.8%. Indeed, the returns Romelius has attained in the last 18 months have been a frontrunner in our industry. The last slide shows how our EBITDA margin and our NPAT margin compared to our peers over the last 12 months to June 2020 and the six months to December 31. We're top of the class or very near to the top in both measures. I'd now like to hand back to the operator to begin the Q&A.

Thank you. If you wish to ask a question, please press star 1 on your top right 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 Hugh Stackpool from Petro Capital. Please go ahead.

Hugh Stackpool Cheers. Excellent result guys. Congratulations. A few changes in the gold price and sometimes that can influence mine plans. So I mean I know you guys have a fair few different assets. if there are any kind of levels where mine plans might change and any assets that may change, whereas some of the others are pretty locked in with their mine plans, how to be thinking about that if the A dollar or the gold price continues to change a bit, whether there might be changes to the mine plan, kind of near term, medium term, so to speak.

I'll have a go at that one, Tim. In terms of our budgeting process, we're moving into that process at the moment. So it is topical. But like most prudent companies, we run a trailing price. So we leave ourselves some headroom. So similar to Wallace, we're probably talking around $2,000. So unless the price is going to be demonstrably different to a number around that level, then we'd see no reason to change. What you don't want to be doing is changing mine schedules and mine designs too often. and just leave yourself some head room so that you're obviously mining profitable ounces.

You've got a fairly strong margin there across the business. Would there be any particular part of the business that might change or it's not really material enough to part upon at this point?

Quite naturally, you know, your lower-grade, lower-margin projects are the ones that are most sensitive to this. Obviously, a penny project doesn't really... almost doesn't matter what gold price you plug in. It's the Edna May Stage 3s, it's the Eridanus Deeps. Now, they're going to be a bit more sensitive, so we'll run the appropriate sensitivity studies and consider that, you know, appropriately.

And, you know, a great movement in cash generation and, I guess, you know, two ways to think about it. the ability to pay dividends and the building of a war chest. Just what are you seeing on the kind of inorganic growth front at this point in terms of the expectations of the different players there? You know, have sellers' expectations changed? Has there been, you know, a bit of a wait-and-see approach? Just wondering how that might play out, given you've obviously got the ability to do something should you choose to from a financial perspective.

Hugh, Tim here. Look, I guess, you know, we obviously remain on the lookout, as we mentioned, for the right asset to fit within the business, be that a bolt-on like a penny or a more substantial sort of third production centre. Look, I think each party is to their own, whether or not they have a different view on life with the pullback and share prices, whether or not they want to deal at certain levels. You know, I think each board, each management team have their own... I guess all we can do is assess the project, the company, assess value, assess returns. And if there is something that we think is worth pursuing, we'll always put our best foot forward. And, you know, if it takes, it takes. If not, then, you know, we're not such that we will push forever and a day. We'll move on to the next one. So I think it can vary, to be honest.

Yeah, understood. That's it. It's a good result and you deliver, so it's an easy one for us analysts as well. Well done, guys. Cheers.

Thank you.

Your next question is from Andrew Hines from Shore and Partners. Please go ahead.

Thanks, guys. Again, congratulations on another terrific result. Good to see a company with such a strong cost discipline, which I guess is the point of my question. You've done such a good job keeping those costs under control, you know, it's that six years in a row around the $1,200 oil and sustaining cost number now. I know costs are going up next year as more of the production comes from Edna, but is there anything that you're identifying at the moment that could keep that cost number down and keep those margins expanding even if the gold price doesn't leg up next year?

The obvious one for me, Andrew, would be earlier production out of penny. Obviously, penny being a circa $600 an ounce project, it can move the dial for us as a company. Once that is in full production, we're expecting more like $1,100 to $1,200 an ounce costs overall. I suppose if you look at by project, then Penny's the one that can move things for us, and obviously that's encouraging us to move into production as soon as physically possible, and we're headed down that path at the moment. In terms of cost pressures, labour cost is the big one, Tim, that people are talking about. We're starting to see a little bit of that, but we still feel comfortable with our cost forecasts and meeting the numbers we put out to the market.

Yeah, I think that's right. And Andrew, we're in sort of cash harvesting mode at a lot of our projects, but the ones that we have coming on stream, be it Tampere and Penny, are both pretty robust. Certainly Penny is very strong, as Mark said, in any gold price environment. So I think we're reasonably comfortable with what's in front of us. Labor costs could pose some pressures across the industry, not just us. I think that'll affect everyone. But I think, you know, as Mike said, we're trying to bring our best efforts forward and focus on, I suppose, the cash margin as the way we run our business. So, yeah.

Yeah, great. All right, thanks. Another question, just on the penny acquisition, you're bumping up your exploration expenditure a little bit to really go after some additional resources around the penny projects. Have you had any Are you going to give us any early colour on how that's all going, what you're finding there, what you're seeing? Are you getting a lot of encouragement so far?

We have put out... Andrew, we have put out sort of some initial results. We haven't found another penny north yet. We have seen some smoke. We've seen some alteration at depth in the long strike. But we didn't expect to hit it with the first sort of small program. So we're, you know, basically putting together plans to... to continue drilling there. So just keep an eye out for that. But we're very keen to not only extend the Penny North and the Penny West, but to find another Penny North. And we'll spend the rest of this probably calendar year embarking on that.

Okay, great. I'll leave it there. Well done once again. Great result. And I'd also like to say a fantastic presentation. It's good to see a short, sharp presentation. All the key points are hidden in a small number of slides. So well done. Thanks.

Thanks, Andrew.

Your next question comes from Richard Hart from Topwheel. Please go ahead.

Good morning, Mark and Tim. I know it gets repetitious, but thank you again. You've done it again. And thanks to all the staff, office, mine, mill staff, everyone in the window works hard on the whole lot. So thanks very much. I suppose from the hedging point of view, I bet you're relieved, like I am too, to be shutting all the windows up. Now your hedge price is the same as the spot price. Hopefully you'll get a bit of a break about that. But my first question is about Vivian. Vivian's due on your statements to finish early the 2022 financial year, which is in months, really. What do you think the chances of that changing are? I mean, you're drilling, I understand. So do you have any more accurate timeline on it or are you just going to see what happens?

We have carried out some drilling and we're assessing that drilling at the moment, Richard. We're hopeful to extend that operation beyond the current October completion. I think last time I was asked that question, I said, you know, ideally by the end of this quarter, maybe early June quarter, we'd be able to provide a bit more information On that, fingers crossed that we can continue at Vivian for some time yet.

Oh, great. Okay. If I could do just one more on Tampia, which I've had a long time interest in. Brilliant that you've taken over the land and everything else. I assume we'll get some income from wheat farming in between everything else. But I'm just wondering, timeline-wise, have you got... What's the closest you can get? Now you've sealed that up. I know the sales haven't finished until the end of March. But what's the closest you can get to actually starting mining and then starting trucking to the mill? Have you got any ideas yet?

Yes, I do. And as soon as there's ore on the ore pad, that's enough to fill a truck. And assuming the road and the permits are in place, which we're working on, currently, then the oil will be going up the road to Tampere. So mining is expected to start early in the June quarter. Our current life of mine plan has gold production in July, but if we can get it in May or June, then we will do so.

Wow, well done. That's certainly gone from quiet to active. One last thing. I seem to remember when we took up WE, the Royal WE, we took over at EXU, whatever they were. There was a small bit of high-grade gold stuff. Is that included in the mining plan? I forgot what it was called. There was a little area which was quite high-grade, just sat close to the surface.

You're probably talking about mates. Yeah, that's... Yeah, that's it, mate, yeah. No surprises. That could be the first stuff that'll be mined. There's a little dogleg off the main champion ore body, and it's very close to surface. So we'll be into that right at the very beginning of the program.

Oh, look, brilliant. Great presentation. Thanks for all your help as a shareholder and good luck in the future.

Thanks, Richard. Thanks again, Richard.

Thank you. Your next question comes from Paul Caner from RBC. Please go ahead.

Yeah, hi, gents. Thanks for taking my question. Just a quick one for Tim maybe on DNA. There was a bit of an uptick which appears to be driven by by Edna May given the added development projects. How could we look at this for the second half? A similar figure maybe to what we saw in the first?

Yeah. Hi, Paul. Tim here. Yes, look, you're right. In short, last year or the prior corresponding period, you might recall there was a lot of low-grade material going through Edna May. That attracted very minimal DNA. I guess we're now in a business as usual type position and the DNA profile for the oil sources that are going through the mill are now sort of, as I say, normalising. So if you were to look at an estimate for the second half, I'd be certainly using the last six months as a good indication as opposed to any other period.

Yeah, great. Thanks for clarity. Cheers.

Thanks Paul. 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 Ashley Chan, private investor. Please go ahead.

Congrats guys, another fantastic result. I just have two questions here. First question is share buyback. There's a share buyback on the agenda at the next board meeting. I just note that the share price at the moment is sort of below conservative broker valuations. And if you are doing a script issue for any potential acquisitions, that would be diluted to existing shareholders at the current share price.

And your second question?

The second question will be on the mine plan. From the 1st of July 2020, you've stated before that you've had about 1.27 million ounces going to be produced, plus 180,000 ounces of tailings, so 1.45 million in the mine plan from 1st of July 2020. And also, conversely, there's 3 million of indicated resources. So I was just wanting to... have an idea, when do you expect to see significant conversion of indicated resources, as opposed to inferred resources, into the mine plan? Is it something for this year, or is it progressively all the way out to 2024, 2025? There's just more timing of conversion of indicated resources into the mine plan.

Yeah, we'd like all of those resources to convert. It's a matter of how long it takes, and it really... dictated by our mine studies. So we've got two relatively large resources at Edna May and at Eridanus that we're looking to convert. And ideally that culminates in an updated mine plan in, say, June, July this year. So some of the targeted dates for completion of studies are 30 June, so shortly thereafter we'll be looking to publish an updated mine plan, obviously. I think it's something bigger than that 1.45, which doesn't include any tailings, includes some low-grade at the back end, is probably what you referred to in terms of the 180,000 ounces that sit at the back end of that mine plan. Then your first question in terms of share buyback, something that potentially gets discussed at board level. It's not something that you see many others doing. Some short-term, it's happened pretty quickly, weakness in share prices. For us, it's something that we assess, but we tend not to, I suppose, need you in terms of our decision-making. It can come up pretty quickly, too. We're seeing that in the last couple of days. The market is pretty fickle, so we like to basically plan on more of a long-term rather than a short-term focus. So it'll be part of the conversation, just like dividends are, just like capital allocation are. share buybacks, they're all part of the conversation but obviously a decision along those lines has not been made.

Oh thanks a lot guys. Good luck for the rest of the second half.

Thanks Ashley.

Thank you.

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. We will now wait for any final questions to come through. Thank you. Your next question comes from Matthew Collings from Morgans. Please go ahead.

G'day, guys. Just for the comment there on the fickle share price, I suppose, and leads me to my biggest dilemma as I stare at the gold stocks every day. Just, it's really your view on what you think the market needs to see to get a bit of confidence that companies like Remelius are still actually making a lot of money despite a slightly softer gold price. The half years are coming out and broadly washing over the market without a change and everyone's probably looking at last year's gold price for last year's results. Just a view if you've got one on what actually kicks people's heads around and makes them notice that there's still really good margins in these businesses.

Yeah, Matthew, I wish we knew the definitive answer to that. I guess it's sort of You know, it can change day by day. I mean, as you know, sentiment seems to be the flavour of the day at the moment. I suppose what we... I guess all we can do is manage the business in the best way we can, try and maximise the cash flow from our assets, maintain the returns that we have achieved, particularly over the last sort of 12, 24 months, And I guess to a degree, you know, hopefully the market will look after itself. I mean, at the end of the day, it is probably the main thing, that and the gold price that we can't really control. We can just keep on delivering and trying to grow the business. Mark, have you got anything to add?

Oh, I suppose, you know, gold was obviously very popular there for a period late last year. You can't be flavour of the month all the time. So there is a cyclic nature to the market. But you'd like to think that once all the numbers are out and everybody's put their numbers out, that when people look at that and they compare very profitable companies like Remelius to some other not-so-profitable companies, then they make investment decisions based around that. But that's for individual investors slash funds to decide, not us. We can just perform the best we can, as Tim says.

No worries. Thanks, guys. Good result and appreciate the chance to ask some questions. Cheers. Thanks, Matthew.

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. Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.