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17.5¢ aurelia metals limited

Ann: FY20 Financial Results Presentation, page-50

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GrumpyMonkey

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27/08/20

10:16

Post #: 46857675
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Originally posted by KKR: ↑

Summary of Conference Call

Apologies for typos. When it comes up on the website it's worth listening to.

Dan: forward outlook for the company. Gold production is somewhat weighed on by Hera particularly at the gold front. Base metals are rising although not enough in terms of volumes and value to offset the AISC range slightly higher in terms of what we achieved in FY20. The sustaining capital remains stable and growth capital as expected has dropped right off. We look forward to the business we have recommenced investment in particular the Kairo infrastructure to bring that high value ore body online over the course of the first half of the year. Great Cobar preparations and a life extension in the Peak tailing facility to facilitate extended mine lives. Exploration & valuation has doubled and forms a key strategy beyond the current assets.

Peter: Higher gold production at Peak whereas Hera is tapering towards the ore reserve grade and the lower gold recovery that comes with that. You will see higher base metal production out of both operations due to higher process volumes and higher lead/zinc grade. Turning to Peak FY21 will see a 20% uplift in mine and milled ore tonnage and that will drive a reduction in unit costs over the FY. That throughput increase and mining volume increase is a 25% year-on-year improvement compared to last FY. You will also see an higher proportion in lead/zinc ore. Looking at a 40% of the ore feed in FY 21 coming from lead/zinc sources which is about twice that in FY20. Major focus is to establish a new underground area at Kairos.........which will contribute around 10% of the mill feed this FY. Stope definition drilling and development activities over the course the year. Expect first stoping due late Q3. Overall expenditure is higher over the year due to higher activity levels and increase volume and capital programs necessary for future production, statutory compliance and some remediation and rectification on some ageing assets. This leads to a reduction overall of the AISC driven by higher by-product credits and gold production in the denominator.

Hera will have a lower average gold grade this year but will see a progressive increase in base metal grades. Operating approach at Hera is to optimise our plant throughput rate and operating time to partially offset that lower gold revenue while pursuing other initiatives to sustain our cash margin. ...We have access to most of our stoping areas and there will be a small capital expenditure to establish an underground drill platform to test the main SE area to assess this area for mine life extension....

Adam: Federation….rank among the best ever drilled results in the Nymagee region. (See previous notice).... the gold is hosted within massive lead, zinc and copper sulphides and occurs within course grains up to 4mm. The copper intercepts are significant as the company moves to investigate the potential to increase the margins at Federation of a separate copper concentrate product...... a trend up to 250m vertically.....comparable to Kairos & North Pod. Taken together the
high grade maiden resource estimates and the exceptional new high grade gold intercepts establish Federation as one of the most significant discoveries in the Cobar region in the last 40 years.

Currently 2 DD drill rigs at Federation infilling this gold corridor as a high priority. Further drilling is testing at depth and along strike and ongoing at other high priority targets are underway......

Dan…..The current operation strategy is a combination of firstly and foremost of the sweating of our mills. This is taking them to full capacity and the combination of high NSR prioritisation to those mills. that combination value lies in the margin to us and the exploration lever, both near mine and regionally leads to higher IRR life extensions and potential capacity increases of these assets. Our focus is firmly centered on Federation, Kairos, Peak North and Great Cobar..........

Our views have now moved to being a returns focused company.....on current unmanaged basis our current trajectory would be a base metals dominant business. We going to redirect that. Still allows for high value base metals and also for the company in the medium term to become copper ready in the view of cyclical movement. Our view is to diversify our footprint and manage on a portfolio basis an increase in the number of operations we run either inorganically or organically sourced. This drive is absolutely focused on driving a group cost and reserve base improvement.... We cycle proofed mines lives and commodity mix and a trusted and sustainable operating presence we believe is the key to long term value and returns......

Q & A - Ord Minnett – congratulations on a great result. What do you mean about growth and 4 to 5 operations?

Dan: Growth will come via investment and we are in an extremely prospective region and I think the results we are returning from our exploration effort are demonstrating that. Adams comment about the shear value lying in the ground at Federation, we are going to continue that drive....exploration doubled.....rate of return on that dollar is extraordinary. Although we recognise that exploration is high risk and we have seen many companies putting all the eggs in the basket only to find a lack of success. And the loss of long-term cash flows from operation. Our dual approach is the dollar. Do we put the dollar towards exploration or do we put the dollar towards value accretive value investments beyond our current position? We will continue our exploration drive and our view is that it will continue and we are showing that now, but we are looking broader than just the country we own now.

The strategy of our portfolio approach is about returns on the dollars deployed and the counter-cyclical approach to ensure we are cycle proofed. We are absolutely focused on our cost base and reserve base. Metal in the ground, how long we can mine it and at what cost can we mine it. Our view if we can reduce our overall cost structure by an accretive bolt-on acquisition then we will. And if we can see that getting to a critical mass of this 4 or 5 operations then we will start to think about an asset turnover with the constant drive to improve cost base, revenue will be what it is, and picking a commodity we have to be careful of as well, but this is out view.

Q are you thinking about acquiring plant capacity? - Life extensions, exploration and value accretive capacity increases is the central focus of the company. Those assets will continue as long as we find NSR material that give us a good return....... ...

40% of feed will come from lead/zinc ores for Peak. The Kairos contribution will be around 10% for the full year.

Q Perennial – Peak plant performance – strong mine production and the plant has been running well. Tuning the circuit , very satisfied but opportunity to improve on that.....

Q Shaw & Partners - new drilling when will a new upgraded resource at Federation be released and the timeline for Federation. Update towards mid-FY. Federation scoping study pushing ahead for permitting and approvals and SC finished back-end FY. Looking at enabling works to extend the camp at Hera and bringing forward an exploration decline to allows us to go underground and get a further bulk-sample.

Q Copper ready what do you mean? Dan – gold is at a great price our views is a counter-cyclical approach towards 25/26/27 a supply deficit in the market. Looking internally in the business we have a great copper exposure as it stands with Great Cobar – once the biggest copper mine in Aust. And we own it. It's open at depth, so we're getting ready for that approach we don't want to be sitting on it. So the work going through the course of this year on the studies for it and the preparation for it a portion of our growth capital is Great Cobar.

Also Federation drilling results copper is emerging and around the area you can see coppers signature regionally. Combination of positioning our company in the long-term to handle commodity diversity and the full maximisation of our current assets we believe the combination of positioning the portfolio approach to assets not only cycle proofs the business in terms of mine life but also commodity mix.....

Q Hartley's – Exploration spend – split?

Dan: last year spent $12.2million. Was going to spend higher. Regional infill drilling about $15 million. 40% spend in and around Federation. Significant also around Peak.

Dividend Policy – no not yet in the short-term. Our view is we are returns focused. Two dividends paid. We want to be recognised we are a returns business. We pay a debt bill all the time we think an equity payment is appropriate ass well. Means looking forward though ensuring we have a prudent level of cash on the balance sheet, second grow the cash balance and having cash as a capital lever as investment is important. All on the basis that we are funding ourselves in development of our own assets, exploration and ongoing sustained investment back into our business. Beyond that returns to shareholders primarily dividends and share buy-backs.

Growth Projects Great Cobar – Peter: Minor amount expenditure dewatering historic workings. No planned mine development at this stage but further evaluation work to position ourselves for recommencement of the decline and establishment. Also permitting process and feedback from the local community and environmental regulators and now bring into planning.

Kairos stoping late Q3. Why then? Peter - Fair bit of setup work and the upper decline has to connect through as the secondary egress. Whilst the decline is progressing we are doing as much work as possible to prepare for first stoping and getting early access to the Kairos material.

Q Forster: Federation permitting give an overview how long the govt takes, etc. A year or so. EIS and then had over to NSW agencies. Doing as much as possible getting ourselves to be set-up in advance. Readying the complex of Hera for future development is the exploration decline. If we could tomorrow we would. But that only allows a bulk sample not commercial production. Consenting in NSW takes 2-3 years.

Q Plant ramp-up – full year numbers. Still headroom to get to full capacity.

Q Mike private shareholder – Lost $31 million hedging! - Dan this has been explained in previous calls. The Board and myself are pretty clear on this and we will do anything to protect the company then we will. We don't see that need for hedging now. Frankly your comments are hind-site in mind. Gold at 10 y high and there is a time and place for hedging. We understand shareholders invest for gold exposure and we take that all into account and if we think that decision needs to be made. (I would like to add the hedging was part of the debt financing contract with the sale of Peak Mines to Aurelia at the time. AMI had no choice at the time)

Q Rest Investments:

Mine constraints as plant through-put increases? Nameplate will depend on the type of ore. To do that we need to have sufficient stoping capacity and also the type of ores. Over time we see a progressive increase in mine progression to fill that plant capacity.

Q Exploration capitalised? First instance capitalised and then each report period it is assessed. Federation results can expect to be capitalised.

Q Hera – underground drilling platform is it expensing?

Drilling platform limited capital work development gives us a drill platform that gives us a better angle for that particular zone and test the grades there to see if they justify mining and the potential ….sustained capital.

Q can't understand the figures – fixed costs expect a better trajectory. Dan – to do with the schedule costs per tonne mined by our contractor also the figures contain sustaining capital rather than growth capital.....

Q same fixed rate. Is that high in FY21? Or is that development – the nature of the orebodies are in a different light to others, vertical on strike and open at depth. So we open these up we will see the sustaining cost basis.

Q FY costs discussion.........

Dan: Will see costs reductions on a per tonne basis beyond this year no doubt about that. As volume goes up we will see more leverage to cost reduction. …..We know this mine will be volume driven.

Q Zinc concentrate charges - Peak yes lower charges, Hera is yearly charges.

No material change in pay ability for zinc at this stage, we have a mix of short-medium and long term off-takes. Last qtr is a separate lead zinc concentrate.

Dan concludes are absolutely committee to a short-medium and long-term strategy. Late Oct next Qtrly production report.

All the best.

KKR

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Excellent summary of the presentation. Many thanks for the effort and time put into this. Might be a first time poster but have been following AMI since the YTC days and while I buy and sell with the ebbs and flows, I feel this is a very different beast now. Granted most metals are cyclical, gold is the shining star at present. In my view, weak world economies will seek weak demand for copper for another year or so, then as they pick up, copper will underpin economic growth.

AMI should be higher than the current prices, but it is a long growth story that as it unfolds, is going to slowly creep up. I have always had a 2.50 target on the company based on production, and I am happy to wait until it gets there. Sure there are faster gains out there and I play those as well, but it is nice to have a fairly safe bet that I can channel extra cash into.

Last edited by GrumpyMonkey: 27/08/20

AMI Price at posting: 50.3¢ Sentiment: Hold Disclosure: Held
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