Vault Minerals Limited

Thank you for standing by and welcome to the Red 5 March 2024 Quarterly Activities Report Investor Call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. First, for telephone participants followed by online questions from webcast participants. For teleconference participants, if you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. For webcast participants, if you wish to ask a question, please type this into the live Q&A section located on the right-hand side of your webcast. I would now like to hand the conference over to Matthew Collings, Corporate Development Manager. Please go ahead, Matthew.

Thank you, Kayleigh, and good morning, and thanks to everyone for dialing in today. On the call today here, we have Mark Williams, Red 5's Managing Director, along with Chief Operating Officer Richard Hay and Chief Financial Officer David Coyne. We'll be presenting Red 5's third quarter results for FY24. We'll be referencing the slide deck that was released to market this morning alongside the quarterly report. And as outlined by the operator, we will have time for Q&A at the end of presentations. But for now, I'll hand over to Red 5's MD, Mark Williams, for opening remarks on our Q3 results. Thank you. Thank you, Matthew.

Good morning, everyone. Red 5 has three active mines, being King of the Hills Openpeck, King of the Hills Underground, and Darlow Underground. with oil being centrally processed at the King of the Hills processing plant, a large, efficient and modern facility which produced its first gold bar less than two years ago. The March quarter saw reds' inclusion in the ASX 200 recognition of production scale and maturity of red. This follows inclusion in the BANEC GDX ETF during the December quarter last year. It's worthwhile taking a minute to refresh memories that Red bought King of the Hills and Darlow for $34.5 million in a unique business transaction. And after viewing King of the Hills differently and acting with courage, six and a half years later, Red has a market cap exceeding $1.4 billion. Red also owns... a 3.25% royalty from the Siena Gold Project in the Philippines, which we pivoted out of in 2017. The project owners have stated publicly that they have commenced mining and processing of Siena during the March quarter after securing their debt earlier within the year. Next slide, please. It's pleasing to see the continued trend downwards of the TRIFA, which over the past 12 months has reduced from 9 to 3.1. However, the L TRIFA has increased from 0 to 1, showing that there is always more work to do in this area. The strong field-led focus and presence by the Site Operations Team will continue. The March quarter saw the fourth time the team have produced over 50,000 ounces in a quarter. A great result. Details being 50,132 ounces produced at an oil and sustain cost of $1,926 per ounce. With 158,000 ounces produced by the end of March, and with the King of the Hills processing plant performing well, we're targeting to achieve the top end of guidance for the year regarding ounce production and within guidance for the oil and sustaining cost. The strong production has underpinned the decision to accelerate waste stripping of King of the Hills open pit in stage 2, which will further de-risk all production in FY25. As a consequence, the growth capital forecast has been revised upwards to 50 to 53 million for the year. Next slide, please. The proposed merger between Red and Silver Lake is progressing well, with the first court hearing for the scheme scheduled for today. Additional progress updates will be issued in the near future. The scheme implementation remains on track and subject to approval is expected to be complete during the month of June. Subject to a successful completion, it will create a leading mid-tier gold company with a combined FY24 guidance production of up to 445,000 ounces. It will have a sector-leading production balance sheet with strong near-term cash generation, and also have a very strong platform poised for organic and inorganic growth. I will now pass over to Richard, who will take us through the operations in more detail. Over to you, Richard.

Thanks, Mark. Again, it's been very pleasing to see that the TRIFA continues to reduce, reflecting the efforts of the operation team's focus in the field of safety leadership activities. We begin with the COST Open Pit, which continued its solid performance in the March quarter, achieving a total movement of 3.4 million BCM from stages 1 and 2. A total of 1.8 million tonnes of ore was mined at an overall grade of 0.8 grams per tonne, which included 1.3 million tonnes of run-of-mine ore at one gram per tonne, predominantly sourced from stage one. This ore tonnage result was significantly higher than the prior quarter and an excellent result given the rainfall events experienced during the quarter. As a result, wrong pad stocks have increased to levels that ensure the company can withstand significant wet weather interruptions to mining that may occur in the future. The floor of Stage 1 in the southern end of the pit is now wall-to-wall mineralisation, whilst the de-stacking of the northern end of the Stage 1 pit is due to expose increasing quantities of ore over the coming months. Mining in Stage 2, as Mark said, is ahead of schedule, with consistently good digging conditions being experienced in the upper benches. Notably, the bringing forward of Stage 2 stripping has further de-risked the FY 2025 production plan, Consistent with our plan to deploy surplus cash to reducing debt and where feasible, accelerate open pit movements. Moving on to the cost underground mine, where we achieved another sound quarter, mining 227,000 tonnes at 2.1 grams per tonne. The mine grade was higher than the prior quarter, offsetting the slightly lower tonnes mined. A combination of poor loader fleet availability and delayed production due to ingress of water to several mining areas resulted in the reduced ore tonnage for the quarter. Both of these issues were resolved during the quarter, so an improved performance is expected in the June quarter. Ore production continued in the west, regal, east and central mining areas. Two key stoves that were mined during the quarter highlight the Coff Underground mine achievements this financial year. These were a multi-lift stove in the Regal Zone that contained 91,000 tonnes at 2g per tonne, and a stove in the West Mining Zone containing 17,000 tonnes at 2.8g per tonne. From the Darlow mine, a total of 136,000 tonnes of ore at 2.8g per tonne was mined for the quarter. The reduction in ore tonnage and grade from the prior quarter was due to a focus on capital development and sequencing constraints, while setting up high-grade stoves scheduled to be mined in the June quarter. Of note, the new mining front in the Darcent area contributed the majority of the development ore tonnes for the quarter and will contribute stoke production over the coming year. Air leg mining continued, contributing a total of 15,000 tonnes at 3.4 grams per tonne. DALO continues to demonstrate the benefits of the right-sizing improvements completed in 2023, maintaining strong profitability. This has justified the commencement of a targeted capital investment into new unmined areas such as the Darst Head Zone. The Koth Processing Plant hit a new crushed tonnes record of 1.2 million tonnes in the March quarter. Milling of just over 1.1 million tonnes at 1.5 grams per tonne resulted in goal production of 50,132 ounces for the quarter. There were two mill shutdowns during the March quarter, with one planned and one unplanned. The unplanned mill outage in February resulted from a lube system failure. The planned mill reline in March was to complete a full sag mill reline with a new liner design that will extend the period between future relines by March. almost two months. A multifaceted project to improve maintenance systems and processes is underway to prevent recurrence of the lube system failure or similar downtime in the future. The quarter also saw several minor interruptions to the processing operations due to extreme heat and wet weather events. However, an overall very strong performance by the mill. Recoveries for the quarter improved to 92.3% as compared to the December quarter. This was a result of remedial actions implemented leading to a recovery of 94.3% in March. I will now hand over to David Coyne.

Thanks, Richard. The March quarter was a solid quarter from a financial and cash generation perspective. 49,726 ounces sold at an average realised price of $2,719 per ounce yielded almost $140 million in sale proceeds, with the average realised price up $100 per ounce compared to the December quarter. Total OPEX and CAPEX expenditure for the quarter has increased from the prior December quarter from $117 million to $122 million and the resulting free cash flow for the quarter was $15 million. The expenditure increase in the March quarter was largely driven by two key factors. Increased tonnes mined in the cop open pit, and as Richard referenced previously, increased mill maintenance costs. Processing costs in the June quarter are expected to be less than the March quarter, as we will not be needing to do a full mill re-line in the June quarter. Strong cash generation year-to-date and confidence in the June quarter production and revenue generation forecasts have enabled REIT to increase the full-year growth capital investment to between $50 and $53 million, as both Richard and Mark touched on earlier. As we noted on the conference call following the release of the December quarterly activities report, we are increasingly turning our attention to improved efficiencies and cost-optimisation activities Our recent improvement on reducing diesel usage per tonne mined continued in the March quarter and we are stepping up our supply chain capabilities to improve our purchasing practices in the months ahead. With the recent announcement of the proposed merger with Silverlake, we have decided to place the debt facility refinance on hold until we know the outcome of the Silverlake shareholder vote in late May. We'll now hand back to Matt and concluding remarks before we go to Q&A.

Thank you, David. It's been a great run, share price-wise, for Red recently and certainly the sector in general, with our share price strengthening on our operational performance, as well as events touched on by Mark, such as the inclusion of the S&P ASX 200 index during March. We're closing in on some of our peers, where Gold Road and Capricorn have been our Case studies in the past, but we still see room to grow. The proposed merger with Silver Lake Resources really presents the company with this opportunity to build its market profile further and continue to improve its valuation relative to peers through both organic and inorganic growth opportunities that the company will be able to pursue. Let's move on to the next slide, please. This is our final slide for today. Before I pass back to our operator for Q&A, I'd just like to remind everyone again, you can subscribe to our mailing lists via the Red 5 website or follow us on LinkedIn for regular insights into what is happening at the company and the operations. On our hand back to the operator for Q&A. Thank you, Kayleigh.

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 are on a speakerphone, please pick up the handset to ask your question. For webcast participants, if you wish to ask a question, please type this into the live Q&A section located on the right-hand side of your webcast. Your first telephone question comes from Brett McKay with Petra Capital. Please go ahead.

Morning, team. A couple of quick ones from me. Just on the mining side, the ore mines, the tonnages from the open pit in the court, obviously pretty impressive and a big step up on prior quarters. Maybe, Richard, can you give us a bit of insight as to how that looks going forward? Are we expecting it to stay up at these sorts of elevated tonnage levels or will it pull back at all going forward?

Yeah, thanks, Brett. We aim to keep it steady going forward. And in the June quarter, you'll probably see a slight drop from the prior quarter. We actually used the March quarter to build up our insurance stocks, if you like. And as I said in the discussion, the stage one southern end of the pit is wall-to-wall mineralisation. So We're scheduling that on an as-required basis to keep the best grade fed to the mill and managing our stocks that way.

Yeah, okay, that makes sense. And just relating your tonnage movements across to Stage 2 and that increase in expenditure being incurred this year, How does that impact future years? Would we expect to see lower capex into FY25 because that amount's been brought forward or would it translate into lower strip ratio because you've moved more of the overburden that might have otherwise been classified as waste in future years? How can we sort of help, can you help us sort of quantify the costs that you're incurring now as to what the benefits might be in the medium term?

Yeah, I think that we've still got to, my friends, Mark, I think that we're still going through the budget process. It's really too early to make any specific calls on that. As you know, we're right in the thick of it between April, May, and we'll come out in June. And then if the merge goes ahead, which we expect, then there's going to be a joint, meaning of the budget process so it's probably be extended compared to normal years so really we are looking to we have made the decision to spend this additional capital to de-risk and take some of the lifting off next year's plan but it's too early to be able to say the impact of what that will be as we're still going through the budget process.

Yeah, I'm just keen to sort of understand, I guess, the fact that at the end of the March quarter, you spent basically your full FY24 capital budget of $42.5 million. Is it a function of the fact that things are just moving more material relative to what you were anticipating, or has there been a conscious decision to accelerate those movements or is it just simply costing more?

It was a conscious decision, Brett, to actually move more in Stage 2. There was an opportunity there and the opportunity to de-risk FY 2025 ore supply and then switch over in the future between Stage 1 and Stage 2 ore supply. We always had our eye on taking that opportunity, and we've been able to do that.

Sure. And just going into it in a bit more detail, the contract that we have with McMahons, which we have discussed, gives us flexibility of 90% to 120% of the mine... schedule so that means that we can dial it up or dial it down within a band and we saw the opportunity to as Richard said to consciously move more dirt because of the current situation enabled that and that's we thought was a thing we believe is a prudent approach and especially because we've secured our oil supply on the wrong pad that was the opportunity there

Yeah, those ROM stocks are getting pretty big, obviously. Just quickly on DALO moving into that DAS cent area, I note the development meters kicked up as you did that. Can you give us a better sense of what that means for DALO moving into the June quarter, maybe from a grade point of view, or are you expected just to maintain that fairly steady trend? grade what we've been seeing in the high twos, low threes going forward, or just getting a better sense for that opportunity you've taken to move into that new area.

Yeah, and I think you can expect similar tonnages and similar grade profile, and that's the focus that we have at Darlow. We've got an additional jumbo that started in January, and that's why you saw the development metres increase And that's, as we said, it's our moderate level of investment to move forward and keep Darlow with three mining areas consistently and opening up one new area at a time. And Darf Centre is certainly showing some very good signs of seeing increased tonnages in the area as we open it up. And the grey is holding pretty nicely as well.

All right, sorry, just a final one on the crushing back at Darlow. You achieved that record of 1.2 million tonnes for the quarter, which annualises at a 4.8 million tonne run rate. We know that Crusher sort of has a maximum, let's say, main plate capacity of 6 million tonnes, and that has been previously identified as the potential bottleneck to taking the mill throughput higher. Just given the amount of oil you're mining and stockpiling, what do you think you need to do to get that crushing rate up towards that six would obviously allow you to put more of that lower grade material through the mill rather than on the stockpile?

Yeah, so as I mentioned, we have a very focused maintenance, multifaceted approach to working through or the challenge that we've identified. We do have a mobile crusher that we've purchased last December quarter as a buffer. It gives us the opportunity to maintain the 6 million tonne per annum crusher. Knowing that the close size setting that we're actually crushing finer, which actually helps the throughput through the mill as well, So it's a combination of those two aspects that we are working through the maintenance regime to improve that performance. We're very positive that we'll get to that 6 million capacity in the crushing circuit. There is a...

Sorry, Brad, I don't know if it's chicken and egg, but when we have two major sag mill shutdowns occur during the corn as well, we hit a point where the crushed stockpile is full and we've got no capacity to crush any further as well. So in some instances, our crushing capacity is constrained by the milling performance as well. So there's a little bit of both.

Yes, fair point. All right, I'll leave it there. Thanks, Chance.

Thanks, Brad. Your next question comes from Hayden Bester with Argonaut. Please go ahead.

Hey, guys, good evening. Hey, Hayden. Yeah. Yeah, just a question on the front end of the mill. I mean, obviously, you know, it's been a constraint in the past, just sort of trying to understand what you're doing on that front. I mean, obviously, there's capacity if you can, in the mill itself, so just the front end crushing and sort of the work you've done there, and can we start seeing, you know, further creep in throughput through the mill?

Yeah, I'm Richard. Yeah, we're certainly... working on all of the key bottlenecks that we know to get consistency in each of the area. The approach we're taking is a steady, steady throughput as we speak, and we know where the two key bottlenecks are in the mart, which is CB4 mill feed into the feed chute, and at times our pebble crusher. is also the bottleneck. We've now de-bottlenecked the crushing side of things, and that is that we actually have a buffer of 110,000 tonnes of crushed ore stocks on the coarse ore stockpile, which we've not had before. So we have those buffers in between, and we are steadily creeping up the performance of the throughput. I think we'll see a far better throughput in the June quarter as a result of all that work.

Okay, and just on the accelerated strip, is that, I'm just trying to locate exactly where that is, but is that going to open up potential to do some of that drilling below the southern end of the pit that sort of hasn't ever been done?

Yeah, it will open up some opportunities, Hayden, that we've done some drilling and there's been some results that will come through in this quarter at some point with Matt and co., There's a number of other opportunities as well. We're also looking at the potential for underground on the eastern contact in the stage one that we've never been able to drill before because of water in the original pit and not being able to get access. So we should get some drill platforms at the base of stage one to test a number of those targets as well.

Okay, great. I'll leave it there. Thanks, guys. Thanks, Adam.

Your next question comes from Paul Caner with Ord Minute.

Yeah, morning, guys. Maybe just following on from John Hayden's question on expiration spend. Yeah, obviously that's been hamstrung historically given the balance sheet. Now with cash flows improving and obviously the merger will bring a lot of cash as well. Assuming that exploration budget goes up, where would you want to see that spent? Is that sort of king of the hills underground? I guess what I'm really asking is where do you see the most growth potential? Yeah.

Thanks, Paul. Good morning. Again, it's similar to – it's still a work in progress. We're going through the budget process. for rail and stuff like that doing the same and then should the merger comes together there will need to be a unification of the budget and there needs to be some jostling for capital spend and exploration dollars and it will be justified on the best bang for the buck I'm sure the best bang we've The targets that we have discussed previously are underground at both Tilo and King of the Hills. I believe that there will be a strong focus going forward and both open in all areas. Both I have a strong confidence will continue for many years to come and it's a matter of investing the dollars. And so I think that there will be a good amount of spending in most good amount of spend for next year, particularly targeting the two undergrounds.

Yeah, no, understood. That's it for me. Thanks. Thanks, Paul.

I will now hand over to Matthew Collings for webcast questions.

Thank you. We have two questions on the webcast along a similar line, so I'll merge them into one. Who took the initiative to merge, Silverlake or Red, and what was the driver and motivation for it? And also, given Luke Tonkin will become the managing director of the combined group, will Silverlake be taking a driving seat as the more dominant player under merge code? I'll hand that to Mark. Yeah, thanks, man. I think that...

The timing of events was in September 2023 when Silver Lake bought the 11 plus percent stock in red. So really that was the catalyst for the... That was a public catalyst for the mojo to commence discussions. It was... had shortly afterwards by the two chairs of the companies and then due diligence, as we discussed, took place in December onwards. Really, in the discussions between the two chairs, it was agreed that it would be treated as a merger and both companies would provide equal management and share opportunities position so Red 5 has put forward the chair being Russell and the chief operating officer being Richard Silverlake have put forward the MD being Luke and the chief financial officer being Sturin and equal number of Neds so hopefully that answers your question it's not specifically I hope that answers your question in a general way

Okay, that qualifies the questions from the webcast as well. So on behalf of the management team, I'd just like to say thanks to everyone who has dialed in for today's call, and we look forward to keeping the market informed on our operational progress and the progress of our merger of equals with Silver Lake Resources throughout the quarter. Operator, that ends today's call.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.