Resolute Mining Limited (OTCPK:RMGGF) Q4 2022 Earnings Conference Call January 31, 2023 4:00 AM ET
Terry Holohan - Managing Director and Chief Executive Officer
Doug Warden - Chief Financial Officer
Conference Call Participants
Richard Hatch - Berenberg
Thank you for standing by and welcome to the Resolute Mining Limited December 2022 Quarterly Results and 2023 Guidance Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Terry Holohan, Managing Director and CEO. Please go ahead.
Thanks, Melanie and good morning, everybody and thanks for taking the time to join us on this call today. This is a quarterly activities report, which I presume we have all had a look at. I will initially go through the highlights, there is quite a few there and then take you through the ops and exploration. Then I will hand over to Doug to give us a bit of color on the finances in the corporate side. And I will finish off with guidance and then we’ll hand over to Q&A.
If we look at the highlights, obviously, the most important one at the top of the list, the accident and incident frequency rate, we again showed some improvements over that over the last quarter. We are now at record lows on our operations of 0.41. And what is very interesting and exciting for us is that we are less than a week away from 4 years loss time incident free at Syama, which I think is a fantastic record. A lot of focus going into this and given that we did that major shut in Q1 last year, we think it’s a great result.
If you look at the physicals, the gold, we are excited about the gold ounces. We thought we’d squeeze a bit more out, but we had a few hiccups right at the end, but we did the 91,777. And this represents, in terms of physicals, our fifth consecutive quarter of improved numbers and we therefore ended the year on 353. We maintain the gains that we saw in the early part of the year. And eventually in the last quarter now the – as we expected, the grade started coming up in our oxides, which has set us in a nice place going forward for this year. So we exceeded our guidance, which was 345, we didn’t change our guidance for this last year, which we think is a big step for us as a company. And then the all-in costs up 5%. This is our major area of focus. I am never happy with these sort of numbers, but we think we are turning the corner there. We are starting to see improvements coming through, but this is a major focus for 2023. And we think if we can put the effort into costs that we have into production, we will see some benefits over this next year.
Gold sales, the important thing is, as you know, we have got a hedge book covering at least 30% of our production going forward and going forward this year. We gained an extra $89 an ounce over the quarter, which is good for us. And we beat – if you look at the net debt position, we came down to $31.6 million, beating most expectations by about $10 million. And at the end of the quarter, we had cash in bullion of $94 million. Major event in Q4 last year was the equity raise. We are very pleased with the Canaccord efforts there. Oversubscribed, large take-up from the retail investors and we brought in some long-term Tier 1 institutional investors who are in for the long-term, as I mentioned, and excited with the prospects of the future of this company.
Revolving credit facility subsequent to year end, we have managed to get that down to zero and that – the term of that, the RCF, carries through to Q1 ‘24. So what it means with cash bullion etcetera, we have over $200 million now as available liquidity, which is a complete turnaround from where we were last year. We did conclude the final tranche of the Bibiani sale. And on the ESG side, as we said we would do, we have achieved 14,000 and 45,000 certification status. To get those awards, people have to come and visit your site, spend time and do full audits on that and we are very excited with the results of that.
I will go through the guidance a little bit later, as I mentioned. We are looking at a very, very similar year this year, a year of consolidation, 350,000 ounces and with an all-in cost of $1,480 and that’s something we will spend a lot of time on trying to reduce that over this year. And that does not contain any material coming from the Syama North at this stage. That brings me into the Syama North, the – we did announce it, very excited about this. This is almost a standalone mine that we found now, 3.18 million ounces of material. Good grade, close to mine, slightly softer than the underground material. Slightly higher recoveries we are seeing in the labs. And we have got 1.86 million ounces of measured and indicated. It’s also confirmed, we have a large block of material in A21, this on our – drilling it down to 150 meters. We are still finishing off the 150-meter drill lines, it is a 6-kilometer stretch. There is a lot of drilling to do to get it down to 50-50 spacings. But we are also going to look – start looking deeper at that A21 because of the volumes we are seeing, we should be able to mine open pit a little bit deeper than that.
So if we go to overall operations, I think the key thing is it’s all about tonnage and grade for us. At the moment, we are starting to break records on tonnage and holding grades. That’s the key thing. We are looking – I think if you look at the ore mine, we have – we are on a run-rate of the last quarter of about 7 million tons per annum, ore processed, around about 6 million tons per annum. These are the numbers that we wanted to get to. And obviously, our focus is on the debottlenecking of the process plants, which is an ongoing exercise and will be for the next 18 months as we continually tinker with those to improve the throughputs and the recoveries.
On the ESG, I mentioned the ISO certification part of our program. We have mentioned to you that we are as a signatory to the World Gold Council we are following the RGMPs, which we expect to gain 100% certification of that midyear this year. At this point in time, we are sitting at 88%, which is an aggressive number.
Just going into the operations little bit more detail, the Mali operation. If you remember, I have been talking to you quite some while about bringing the grade up. We got to the grade up to over the resource level of 2.61 in September. And I did say only at that point would we try and push tons and see if we can maintain that grade. I am very excited to say that we actually did 6.65, which is an annualized 2.66 million tons coming off underground, at 2.74. So we again saw a slight increase in grade, but more importantly, I think if we tried to do that earlier on, we’d have lost that grade. So I am very excited the guys are really in control of the underground operation now.
Our reconciliations are within 4%, which is always – is a target. You are always looking to get it less than 5% error in plus and minuses. So we are – I think we are in a very, very good space now in the underground operation. On the processing side, we annualized the 2.1 million tons, and again, the grade into the plant, 2.83 give us an average of 2.68, which are aggressive numbers and the highest numbers we have seen for material coming from underground. And we just – it’s slow progress, but we are making progress on recoveries. You see the recoveries there on the sulfide slowly ticking up and that is part of a lot of work that’s going in on the metallurgical front on the operation.
Costs, as I say, if you look at the sulfide, slowly coming down, 1,400, we still got a long way to go. We believe we can get a lot less than that over this next year. But in the year, we produced 161,000 ounces. That was with that 35-day shut that we talked about. And if you remember, we got 20,000 ounces ex-inventory. A lot of material concentrates in ponds, lot of residues. We are certainly not going to see those sorts of numbers coming out this next year, but we still have materials to clean up on site in process water dams. In terms of the underground, all of trucks now have been fixed and refurbished and we are starting to focus really hard on productivities and therefore costs in the underground. We think we can further improve those.
If you look at the Syama oxide grade finally coming up, we got 1.55, that’s not the target number we are expecting a little bit more, expecting to see that rise over the first quarter this year. And – but again, tonnages were good in the plant, 430,000 tons and 88% recovery. We are back now at the sort of 17.8 thousand ounces coming out per quarter out of the oxide going forward. And most importantly, in terms of both these two operations at Syama, in terms of grade control, we have got development now ahead on the underground of over 12 months and now 6 months ahead in the – sorry, the open pit, which means we have got a lot more confidence in our predictions going forward on the grade.
In terms of Mako, 30,000 ounces, we did mine a lot of material, as you can see, 781,000. We’ve got the new excavator as part of the new contract that kicked in last year. Grades coming down, this is an expected thing. We will talk about that a little bit more. We’ve got slightly lower grades coming forward in ‘23 before this return back to the higher levels ‘24 and ‘25. In the processing plant, we’re still making improvements with the mill slice. We’ve got an extra 7% through – on tonnage. And even at the lower grade, we still managed to get the recoveries 92%. Again, a lot of metallurgical work going in there. And in terms of maintenance and costs, we managed to finish off the year with only three downs on the relining of the SAG mill. If you remember, traditionally, we’ve done four per year and that is one of the major benefits of the mill slices that we’ve put into Mako and optimized over this last year.
In terms of exploration, some really good news there. We announced that a couple of weeks ago. 3.2 million ounces, a lot bigger than we originally thought. But it just explains to us that while people have been operating and exploring on the Syama belt for the last 40 years or so, it is vastly under explored. This is material that’s right next to the operation and it’s within 4 to 6 – 4 to 10 kilometers away. We are mining there at the moment on small satellite pits, but there is a large body very close to surface and extending down at the moment to 150 meters, and 1.86 million ounces of that is measured and indicated.
That 1.86 million will actually underwrite our pre-feasibility study, which is ongoing at the moment. Drilling has continued on Syama but we’re very excited with the larger ore body that we’re seeing in Syama North than – sorry, at A21 pit. There is some spectacular results that came out of that over the Christmas period. We managed to get them into the mineral resource that we talked about, and we’re in the process at the moment of converting that to ore reserves. That ore reserve number should come out in mid-February. But we’re very excited about that.
I think the other comment is on, as I mentioned, with the underexplored. We did do the aeromagnetic survey, we’re starting to review results now in Q1. We’ve actually cleaned up all that data. And again, we think there is going to be quite a few more targets coming out there. However, we will be focusing at Syama on further delineating this 3.2 million ounces that we’ve recorded last week.
And with that, I’ll hand over to Doug, and he will go through our corporate and finances in a bit more detail.
Thanks, Terry. As I said, I plan to just add a bit more color on the costs and step through the cash flow, net debt and hedge book position at year-end. So starting with costs, December quarter, unit cash costs of $1,473 was 6% higher than September quarter of $1,389. This was largely due to a 19% increase in overburden that was removed to access the higher-grade Tabakoroni ore at the Syama oxide operation. In addition, we had a 25% increase in ore mine from underground at Syama, as the rom pad stocks were rebuilt following the wet season. And also, we had a 45% increase in underground development meters, which reflects the degree of catch-up during the quarter, where we did $1,341 meters against Q3 of 924 meters. So those items added to the costs in the December quarter.
We continue to feel pressure on our input costs. By way of example, Syama diesel price has averaged $1.35 during the quarter. And indeed, that was the average for the second half. which represents a significant rise on the Q1 diesel price of $0.76 a liter that we paid prior to the Ukraine conflict. HFO prices, which is the bigger volume at Syama, still around $0.90. So the increase hasn’t been as stark as with diesel, but we were paying $0.72 in Q1.
Mako mining costs also under pressure. And by way of example, we’ve seen an almost doubling of ammonium nitrate costs from about $1,100 a ton to over $2,000 a ton. That represents about a $7 million or $8 million per annum run rate increase, and that’s all happened effectively since about March of last year, again, coinciding with the Ukraine conflict. So that’s the story on cash costs.
All-in sustaining costs were up similarly, not quite as much, $1,547 for the quarter, up 2% on September, for largely the same reasons as the cash cost with some non-cash going the other way relating to a reduction in the GIC that we pulled through. Lower ounces meant lower costs coming through the inventory line there on GIC. Group all-in sustaining for the year of $1,498, disappointing to miss the guidance of $1,425. We have been flagging that that was under pressure. It was about 5% up on that guidance for 2022.
Turning briefly to the cash flow waterfall, I won’t go through this in detail, but obviously, the big-ticket items with the equity raise in addition to the final amounts of Bibiani, $20 million came in for that, helped pay down the debt that you see there of $105 million or applied to the revolver. As Terry said, that was – had a very small amount on at year-end, and that was – that revolver was paid down to zero in January. After accounting for the exploration spend, but before the asset sales and debt service and government dividends, the business generated $8 million of free cash flow in the quarter, is the other point to note there. Largely as a result of the asset sales and the equity raise of AUD164 million during the quarter. We ended the year with net debt of $31.6 million, representing almost $125 million reduction from September quarter. Briefly, on the hedge book, 172,500 ounces hedged as at 31 December 2022, an average price of $1,886.
So that wraps up that – my piece. And with that, I’ll hand over to Terry to talk about 2023 guidance and wrap up.
Thanks, Doug. Okay. So guidance we’re seeing, as I mentioned, a similar year at 350,000 ounces, $1,480 same sort of numbers as this – last year. However, that’s the focus of most of our effort now, getting those costs down to numbers that I’ve talked about previously and I think that could be achievable this next year. The mix is a little bit different. The sulphide 160,000 ounces, just a 161,000. Remember ‘20, that came from stocks as we had the plant down. It’s now coming from tons and grade. We think we’ve really got the physicals right there. And we’ve got that 12 months development in place, so we can understand where the metal is. The oxide, the again, great control, giving us far better clarity on numbers, this year, 73,000 ounces. So that’s up. And then Mako, from its 129 that’s performed at for the last couple of years, with the lower grades that, we’re going to we’re going to through a lower grade patch for ‘23, we’re looking at 117. That’s going to put quite a bit of cost pressure there, and coming back to the 350 at around about $1,480 per ounce.
So in summary, sulphides, yes, at Syama, very similar. A little bit of material in the ponds, but not big numbers this year. Syama oxide, it’s all about grade, given we’ve got the great control in place. And then the PFS study, which will be coming out, will be form in March. And then by early Q2, we will be putting out numbers there showing what we want to do with that on the low capital expansion, which we think was going to take about 18 months and get generated – sorry, come from generated cash flows. Mako, as I mentioned 117,000 ounces. We’re actually doing quite a lot stripping there in the stage 6, which is lower grade, and we have to get through this to get to the higher grades below that. And that will allow us to have some in-pit dumping of waste in 2024 onwards, which subsequently will lower our costs quite considerably.
So, if you look at the bottom of the page there, we are saying 2024 in the range of 1.35 to 1.45 at a cost of 12.75 – sorry $1,195 to $1,275, and subsequently 2025 coming down to around about $1,000 an ounce. Subsequent to that, we will be looking at treaty stockpiles. However, that moves me into the exploration. We certainly have not given up, and we are working really hard on the four targets we have got in Senegal. We are so optimistic there and we are going to be able to find something to put through that mill in a couple of years’ time. So, work is continuing there.
And then as I previously mentioned on the exploration, the focus is Syama North. We did spend $16 million last year. We will probably spend about the same. The lion’s share of that, $16.10 million is going to be roughly going into the Syama North operation. In terms of capital expenditure, we think there is a reduction in sustaining capital coming down to $34 million from $53 million last year. And the non-sustaining capital that’s stepping up or including the $25 million for Mako stripping costs. That’s been classified as non-sustainable, so we are seeing $54 million there.
And with that, Melanie, can we open the floor to Q&A.
[Operator Instructions] Your first question comes from Richard Hatch with Berenberg. Please go ahead.
Thanks. Good morning. Terry and team thanks for the quarter. Just the first question on costs at Syama, particularly mining and processing costs, I mean there have been kind of hovering around the sort of high-4s, well, $35 a ton, something like that and then processing costs also sort of bouncing around the high-$30 a ton. Can you just talk a bit about what you are doing to try and drag those down the operation and then obviously, the headwinds that are going against you on that inflation and such like? And just perhaps give us a bit of a steer as to where you would really like to drag those costs down to. That’s the first one. Thanks.
Thanks Richard. Yes, the original feasibility talked about $31 underground mining. And you are right we are at $35 at the moment. We are still using Sandvik for maintenance. But we are going to be taking over, so that’s a small amount of $1 or $2 savings there that we are hoping to see over this year. The other is more largely around productivity. If you remember, we took over 13 underground vehicles of Sandvik’s. They were operating close to the end of the engine’s life. They have all been overhauled this last year, so we have had one or two trucks missing for most of the year. And in January, now, we have got all 13 of those refurbished. We are actually starting to see improvements now at the tail end of December, but here in January, we are starting to see improvements. We have got trucks sitting on the floor now on standby. We are filling the trucks a little bit fuller than we have done historically. And it’s all mainly about productivity underground there. And it is helping now having the – moving into another area where we have got better access. If you remember, we were mining a combination of transverse and longitudinal mining, but not based on the geology. That has been fixed, and that’s why we are now able to access higher tonnages at the correct grades. So, it’s all really sort of mining 101 to try and get the improvements. And we think that will start coming through. Well, we are seeing it come through actually over the last quarter a little bit, but that will certainly come through over the next year. In terms on the processing side, I think the – there is a lot of work ongoing there focused on costs. We have put a lot of capital in, in the last 2 years.
A lot of our chemicals were actually additional – added manually. We have now got control systems in place. We are fine-tuning those. And we are looking at making cyanide additional improvements. We are looking at flotation, chemical improvements, etcetera. So, a lot more focus metallurgically will be on the improvements through that plant there. And the other is the – other point is that the plant itself, we are trying to get more units through there. We are working on the tertiary crushers as we speak. They are the bottleneck on the plant, it’s not the mills. The mills can do about 2.8 million tons per annum and we certainly got the stocks and the production coming forward to be able to do that. But it’s a crushing plant at the moment holding us back a little bit on the tertiary crushers. By the end of – or let’s say, sometime in Q2, we should have that sorted, so we will be able to get extra throughput there – extra throughputs there. I will see the tonnage costs coming down on the processing plant. So, to me, it’s all about now in terms of getting more units through the operation and focusing on productivities on the shop floor, both on mining and on processing.
Okay. Thanks Terry. And then just on Syama North, I mean it looks very interesting. But can you just remind us what the existing oxide operations have got in terms of their life. And then you kind of talk about a 19-month period of time, I mean are you – how should we think about kind of production from the open pit portion of the mine over the next few years?
I think we have probably got 2 years to 3 years of oxides from satellite pits on the books at the moment and the grades of that material is typically 1.5 grams to 2 grams a ton. The beauty of that, with Syama North and they are ranging distance away from the operation up to 40 kilometers away. Strip ratio is averaging about 6 to 1, typically. If you look at Syama North, it’s going to – especially at the A21 side, it’s less than 8 kilometers away. We are mining there at the moment. So, it’s not that much strip to be done. But it’s sitting in the ground. The oxides are 8%, about 3.2 million ounces. It’s not one continuous strip. So, that’s why we are doing a lot of work on the modeling at the moment. But the grade is there. And especially in the larger blocks, we are expecting lower strip ratios than we have seen not coming out of that larger block. Dilution should be less because it’s larger, it’s higher grade. And so I would suggest that if we can bring that material online, we will be pushing – and just passed all the tests with the pre-feasibility study, we will be putting that into the operations as quickly as possible. So, you are looking around about 200,000 ounces of oxides there, which we haven’t yet declared, and we are looking to convert significant numbers of that to ore reserves in the middle of February. So, I am trying not to say too much, but I am waiting for the numbers to confirm our thinking, because you look at the model and it’s looking good if you eyeball it. But let’s just wait for the numbers, which are imminent now. And – but we are quietly excited about it. We think it’s a game changer for oxides going forward.
Okay. Thanks. And then the last one is just on Mako. I mean you pointed out in the exploration commentary you have got four targets to find further feed for the mill from 2025. What’s that action like and how comfortable are you with that, or what’s your view on life extension at the mine?
I think it’s 50-50 at the moment. I don’t think those stats have changed since the last quarterly call when we have mentioned it. We have had some delays getting in there to do the work, but we are now – we have got into the areas [ph]. We have got JVs in place. We have got communities on our sites. Those were the big issues to us previously, because with COVID, we lost 2 years on that ground. And we have actually recovered that position. The geologists are on the ground there. We are taking samples. We are getting ready to start drilling. And I think we are going to see some results over this year. The one site that will – the west, which is right next to the mine has shown some indications, but nothing exciting at this point in time. We have done a couple of lines there. And we – as I have said, we have had some zeros, which we are not used to. We have had some 1 gram or 2 grams, which were exciting, but it’s not hanging together yet, but there is still a lot more work to be done. But we have got drills in place there.
Thanks Terry. Take care.
Thank you, Richard.
[Operator Instructions] Thank you. We are showing no further questions at this time. I will now hand back to Mr. Holohan for closing remarks.
I think if we look at ‘22, I think it’s a story we have managed to get our tonnages up. We have managed to get our grades up. We managed to get our exploration working and that is really humming now and exciting going forward. We are starting to see the unit costs start to turn, but that is what our major focus is going to be, it’s cost, cost, cost. And as I have mentioned, we think we had a good quarter, a good year, mainly on the physicals, but that’s put us in a position now for organic growth at Syama. But we have ticked a lot of the boxes and we are hoping to come back to quarter one next – end of quarter one now and show you the improvements that we are making on the costs. Thank you very much and have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.