Gold Road Resources Limited (OTCPK:ELKMF) Q4 2022 Earnings Conference Call October 26, 2022 8:30 PM ET
Company Participants
Duncan Hughes – General Manager, Corporate Development and Investor Relations
Duncan Gibbs – Chief Executive Officer
John Mullumby – Chief Financial Officer
Hayden Bartrop – General Manager, Corporate Development, Legal and Company Secretary
Conference Call Participants
Mitch Ryan – Jefferies Group LLC
Bradley Watson – Bell Potter Securities
Matt Greene – Credit Suisse
Operator
Thank you for standing by, and welcome to the Gold Road Resources September 2022 Quarter Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Mr. Duncan Hughes, General Manager, Corporate Development and Investor Relations. Please go ahead.
Duncan Hughes
Thank you, Ashley, and welcome everyone to our September quarterly analyst call. The September quarter was another solid production quarter from Gruyere. The quarter saw record head grades through the mill. On the exploration front, the team delivered some encouraging results from the Golden Highway within the Gruyere joint venture. Share price performance across the gold sector was extremely volatile this quarter. While Gold Road generally fed better on a relative share cost performance basis and many other fellow producers, it was not immune to this volatility, much of this volatility [Technical Difficulty] solid gold price. Gold Road produces gold in Australia and the Australian gold price has remained pretty stable over this same period. And Gruyere continues to deliver gold at solid margins to the Australian dollar gold price.
In the presentation today, we will be referring to the quarterly results slides that can be viewed on the live webcast, our website or the ASX release. Those on the webcast and on the phone are able to submit a question for us to address at the end of this call.
On the call today we have Duncan Gibbs, Managing Director and CEO; John Mullumby, Chief Financial Officer; Andrew Tyrrell, our General Manager of Discovery; and Hayden Bartrop, our Company Secretary.
I’ll now hand over to Duncan Gibbs to talk you through the quarterly results in more detail.
Duncan Gibbs
Thanks, Duncan, and thank you everybody on the call for joining us today. As Duncan said, September quarter saw continued consistent gold production from Gruyere with 83,635 ounces on 100% basis produced as we reported earlier in this month. All-in sustaining costs was A$1,426 per ounce for the quarter, up from A$1,250 per ounce in the June quarter is obviously a strong production and cost performance in the previous quarter. Our cash and equivalents close to the quarter at A$91 million, and Gold Road continues to carry no debt.
Pleasingly, we continue to operate safely and reported no lost time injuries during the quarter. And in fact, our 12-month LTIFR has now fallen to zero. I’m talking about safety, of course, I acknowledged the devastating news of two recent mining industry fatalities, of course, in the past month. Both of those incidents involved other companies operations, but that’s also enrolled the employees of our business partners. These events underlying the relentless commitment required to safety and the importance of collaboration with across the industry to improve safety and the well being of our personnel.
The commitment to sustainable production, we saw the commissioning of the solar battery energy storage system at Gruyere, which was commissioned early in the September quarter. During the quarter, we consolidated a more strategic position in De Grey Mining through on market acquisition of shares taking out equity position up to 19.9% of De Grey. But that builds upon the 14.4% position acquired through the DGO Gold transaction which was completed during the quarter.
We also participated in De Grey’s recently equity raise early in October and maintained that 19.9% position. We continue to explore across our recently expanded exploration portfolio, and pleasingly recent drilling results have delivered some strong assays at Golden Highway and was further drilling we expect that to lead to extension of the Gruyere joint venture resources and reserves over the Golden Highway.
Now looking at the quarter in a little more detail. Mining continue to advance through the Stage 2 and 3 pits and traditional mining in the Stage 4 pit and achieved average Ore Mined grade of 1.18 grams for the quarter, largely unchanged on a quarter-on-quarter basis. Waste Mined included a high proportion of capitalized waste in line with the mine plan for similar total volumes of mine movement has absorbed to prior quarters.
The processing rates remain strong and head grades were at record high, and throughput benefited from higher planned availability this quarter, but degrees in tens of thousands tonnes processed quarter-on-quarter, it was slightly higher during the period. We also have some further work to do to optimize liners and lifters in the SAG mill to get the right balance between line of life and mill performance, with more liners midway through the quarter having a deleterious impact of a few weeks on throughput rates.
Plant head grades increased to a record 1.26 grams per tonne. Gold processing recoveries lifted quarter-on-quarter to 92.3%. In the high levels of maintenance that we’re seeing in the pebble crushing circuit in fresh rock, the joint venture is just committed to installing a third larger pebble crusher in 2023, I think detailed engineering of that upgrade has commenced. And we expect the upgrade to reduce the maintenance effort requirement pebble crusher with benefits ultimately to throughput performance of the combination circuit.
Now turning to costs. So costs for ore and waste increased quarter-on-quarter and similar total material movement largely as the impact of ongoing industry-wide cost inflation with the major drivers including diesels, explosives and labor. Processing costs are also a little higher quarter-on-quarter, principally due to cost escalation in plant-related reagents. Unfortunately, we have gas procured on a longer-term contract, that gas contract is also CPI indexed.
As a result of the lower ounce production relative to the strong performance of the prior quarter within inflationary cost movements are attributable. All-in sustaining cost payment slightly higher quarter-on-quarter at A$1,426 per ounce still of course well within guidance.
Corporate all-in costs were A$1,779 per ounce, which I expect remains low when compared to the sector as a whole. Ounces sold were lowered quarter-on-quarter at 39,525 ounces, as was the average price of gold sales of A$2,380 per ounce. At gold held as doré and bullion increased by over 2,000 ounces during the quarter. This will be sold early in this quarter. At the average price to see next quarter, we expect to benefit from the close out of a hedge book over the final hedge deliveries due in November.
Moving on to the next slide, which summarizes that quarterly production on a quarter-by-quarter basis over the next 12 months, which demonstrates the general improvement on grades and production ounces. The trend for all-in sustaining costs in line with our guidance between A$1,270 and A$1,470 per ounce. The Gruyere 2022 production guidance remains unchanged at 300,000 to 340,000 ounces, or 150,000 to 170,000 ounces attributable, and I think we’re well on track to deliver within the time.
If I’m just turning to next slide, we’ve just commissioned or commissioned early in the quarter, the new Solar Farm up at Gruyere, of course, we expect that to obviously reduce our greenhouse emissions. But importantly, it makes a noticeable improvement to our underlying costs of power, and we’re very much locked in that confinement cost [ph] production.
Moving on to next slide. So looking at exploration activities, which were really strongly focused within Golden Highway in the last few months. So Golden Highway is located 25 kilometers West from the Gruyere processing plant, and of course, the main pit associated with the Gruyere ore body.
If we just look at the next slide, which is really a long section through a series of resources and open pit designs along the Golden Highway trend. As you can see from the slide which shows only new drill results, there’s also historical drill result between the pits. We’ve got numerous encouraging intersections outside of the current pit designs, particularly in the northern Argos, Montagne, and Alaric area, which will further drilling in 2023 to expect growth of the resource and the reserves in this area. In the southern end of the trend, including between Attila and Orleans, we’re still waiting for the lab report or results, hopefully, some additional continuity in that area.
During the quarter, Gold Road completed the compulsory acquisition of the remaining 2.1% of the DGO Gold Limited. Gold Road’s portfolios of investments have seen some changes during this quarter. We now hold a 19.99% interest in ASX listed De Grey mining, which is obviously the owner of the 10 million ounce at Mallina Gold Project in Western Australia. With this holding we have consolidated on during the quarter by buying 5.6% on-market to grow our position from the 14.4% acquired through the DGO takeover and solidifying that strategic 19.9% position.
You will also have noticed that we maintained our 19% position by during their equity raise which was completed on October 5. The Gold Road was recently accepted into the takeover offer for Dacian by Genesis Minerals. We now hold Genesis Minerals shares rather than Dacian. Gold Road now households a diverse and prospective portfolio of exploration tenements throughout Australia, including the Yamarna, Pilbara, the Yilgarn and Stuart Shelf provinces.
At Yamarna, along with the GJV Golden Highway trend, we had 3 to 4 rigs operating through the quarter and continue to test for meaningful discovery within our 100% Yamarna project. Here today, we’ve completed approximately 100,000 meters of combined aircore, RC, and diamond drilling.
At Mallina, we’ve completed a gravity survey out there, which will assist geological interpretations and to refine targets so that we can rapidly progress the drill testing in that tenure package in early 2023. The portfolio we hold now, of course, is very large and over 20,000 square kilometers. And our team at the moment is focusing on optimizing and rationalizing that portfolio, while maintaining expression, we anticipate a similar level to our current exploration project.
I’ll now hand over to John to take you through the quarterly financial results.
John Mullumby
Thanks, Duncan. So, as Duncan mentioned earlier, the strong bonds across the quarter operationally wise and $51.4 million in operating cash flow, very healthy results in the quarter. This in-turn flow through into free cash flow of just under A$16 million. And I will point out, as much as Duncan mentioned earlier, it was also good about bullion and doré between the Gold Road of over A$6 million. Yeah, by the end of September, all else remaining constant, but additionally unwind this quarter as well.
Looking at the usual cash flow waterfall slide here on the screen, you can see our cash and cash equivalents decline across the quarters to end A$91.4 million. On the point, so I’ve just mentioned some other key points of note were there was dividend of over A$9 million paid in the quarter. Other transaction costs are established trading volume associated with DGO investment and acquisition and [has to persist] [ph] that deal is now fully integrated and close out, and then what transaction costs expected going forward as a result of that deal.
And we also, as Duncan mentioned about 19.99% integrate and maintain that. And that was quite just under A$79.5 million to be invested across the quarter as well. So our balance sheet remains very strong of A$91.4 million in cash and cash equivalents at the end of September, which continues to build. We’ve also got over $314 million in investments spread across various mining houses here in Australia as well. And as usual, we remain debt free. Our Tranche A revolver of A$150 million is sitting there untapped and available for use at any time.
And then just the last point, I forgot to add hedge book, it’s just under 16,500 ounces remaining, roughly fully close out by the end of next month, and we have fully exposed the spot price going forward. Every quarter end in a very good stack as always financially. Thanks, Duncan.
A – Duncan Hughes
Thanks, John. That brings our results presentation to close. We’re now very happy to answer any questions you may have. And I’ll hand the call back to Ashley.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Mitch Ryan with Jefferies. Please go ahead.
Mitch Ryan
Good morning, Duncan and John. Thank you for taking my call. My question, especially just a strip ratio is continued to trend up. Just wondering how we should think about that, obviously, you’ve given guidance previously with that slide. But I thought it was sort of coming down in FY 2023 for a period. Have I understood that correctly? Or should we sort of think about it staying at the current rate?
John Mullumby
You broke up slightly there, Mitch. But your question was about strip ratio and whether we expected it to go up a bit in 2023, as it did on quarter-on-quarter?
Mitch Ryan
Yes.
John Mullumby
Yeah, look, I guess, strip ratio perhaps is around a bit quarter-on-quarter, really just for operational reasons, depending on – we tend to end up campaign ore mining and campaign waste mining, just with geometry at Gruyere. So you’ll see a bit of volatility between the ore mining remains relatively consistent. But the mix between ore and waste – sorry, capitalizing expense waste ounces around a bit. Type of volumes I really see as being relatively consistent, and [as stage] [ph] will be mining at the same rate into next year. So if you look at that at a cost basis, the total mining cost could be relatively similar into next year.
Mitch Ryan
Okay, perfect. Thank you. And my next question relates to the pebble crushing. This is my understanding is this the third pebble crusher to be installed? Is there something in sort of the work in excess of the ore, or is this something why you continually adding pebble crushers to the to the process?
John Mullumby
So, obviously, the nightlight design on the Gruyere plant was 7.5 million tonnes, and we’re pushing it up to 10. So it’s already operating well above the duty of the plant design circuit. Now, we’ve really got enough installed crusher capacity on site to make that ramp up. But what we are seeing is a much higher maintenance burden on those crushers than we anticipated. So we’re having to take them offline with quite high frequency to do maintenance. So we’re able to operate both at the same time, but we’ve really come to the recognition that we’re going to need to put another unit in to address that high level of maintenance. And that’s basically inhibiting us from getting up to really fully optimizing the communication circuit.
So whereas we are at the moment, we’ve just basically committed to moving forward that projects are the joint venture. We’re in the engineering stages. And, of course, the bulk of the money in building it will occur through next year. We’d expect it to be roughly commissioned and what we expect to be commissioned in the second half of the year. We’ll get more details line of sight on all of that when we put together our guidance in the new year.
Mitch Ryan
Yeah. And once commissioned, does that improve throughput rates? Or just sort of almost recoveries, because getting a better grant size?
John Mullumby
Well, look, I think we’ve been talking quite a while to targeting 10 million tonnes per annum. Because we’re really seeing that we need to do that this bit of work to confidently get to that point. So I wouldn’t be factoring anything beyond the previous color tree that we’ve had instead of lots of optimizing the circuit.
Mitch Ryan
Thanks. And my final question just relates to the Solar Farm. I just wondering if you could give – if you’d quantify any impact on operating costs that you’re expecting to see from that.
John Mullumby
We’ll look, I mean – overall, I guess, I mean, the Solar Farm is really sitting there as a fixed least cost structure. And, I mean, overall, it’s providing about 5% of the total energy supply. So insulates us from the global energy kind of environment that we’re in at the moment. And we have our gas contracts still locked in for another couple of years. So we are relatively well insulated from the global energy crisis that we kind of see at the moment.
Mitch Ryan
Okay. I appreciate that. Thank you, guys.
Operator
Your next question comes from Bradley Watson with Bell Potter Securities. Please go ahead.
Bradley Watson
Good morning, everyone. Thank you for the presentation. My first question is around the plant debottlenecking as well? Do you think that what sort of disruptions if any to the plant, do you think there might be and sort of tying in that new infrastructure?
Duncan Gibbs
Not really expect anything, I mean, fines are relatively simple. And we should be able to manage it within the normal shutdown windows required for new grade lines and the like.
Bradley Watson
Okay, thank you. And then sort of once that capacity is increased, outside of perhaps the mills. Is there any other sort of bottlenecks that you can see at the moment that might lead that need to be addressed?
Duncan Gibbs
Nothing that we’ve got line of sight on – I sort of spoke to previously, I mean, we are seeing – it’s about getting that the availability of pebble crushers up all the time. And we’re not only two, and the need to maintain them that’s basically the constraint. Once we’ve got that additional pebble crushing capacity, there’s some further optimization we need to do in detail on the SAG circuit. That’s fairly simple. It’s just about the details of the way lining package within the SAG mill. That fits within normal sort of operating costs.
Bradley Watson
Okay. Thank you. And just one more from me, do you – is the plan to remain unhedged on gold price at the moment?
Duncan Gibbs
Look, at Gold mines, hedging has always really been around risk management. And, sort of conceptually the things that you do hedging forward, but if you’re looking at mining a high cost transaction taking on a debt position, and you need to make sure you’ve got confidence in paying your bills into the future, really we’re not in that situation with strong margins. I think it’s fairly unlikely that we’ll be looking at to the hedging.
Bradley Watson
Okay. Thank you very much.
Operator
You next question comes from Mitch Ryan with Jefferies. Please go ahead.
Mitch Ryan
Yeah. Hi, guys. Thanks for taking my follow-up. I’m just wondering with regards to your holding in De Grey, does that entitle you to a board seat? And if so, will you elect to take that that up?
Duncan Gibbs
Look, I guess, there’s nothing in terms of previous documentation, if you like going back to the DGO Gold that gives an entitlement to a board position. There are pros and cons to, I guess, it’s not normal for a company to or a shareholder that has a 20 position to have a board nominee. I guess, there are pros and cons to doing that. In the moment, it’s not something that we’ve approached De Grey about.
Mitch Ryan
Okay. I appreciate the color. Thank you.
Operator
There are no further phone questions at this time. I’ll now hand back to Mr. Hughes.
Duncan Hughes
Thanks very much, Ashley. And thank you to those that ask questions on the call. I know, there’s umpteen other quarterlies out today as well. So appreciate your inputs. I do think we have a couple of webcast questions. So I’ll just hand over to Hayden, our Company Secretary for those.
Hayden Bartrop
Thank you. Our first one is from Michael Scantlebury at Euroz Hartleys, which I think we’ve actually addressed. So his questions were around when is the pebble crusher expected to be commissioned? And what are the impacts on the throughput rate until it’s commissioned? So I think Duncan’s just addressed that questions from Mitch. So I’ll pass on that one.
The second one comes from John, noting your recent corporate acquisitions has gone began to skill up internally in terms of operations and develop management skill sets.
Duncan Gibbs
Look, I guess, are we recruiting people as a consequence of doing transactions? No. But within the team here, I mean, we have already a number of people who have operating money experience that includes myself. John’s worked on mining operations. A couple of the key people in his team have done so as well. We’ve got a pretty capable resource geologists, mining engineers, and what have you. So, I think, we’ve got sufficient depth for where Gold Road’s business is at the moment. Obviously, if we’ve successfully consolidated an acquisition or made a discovery, then we need to build further operating capacity in the business.
Hayden Bartrop
And next question comes from [Kate Good from Eagle research] [ph]. Anything significant in the northern or southern project areas at Yamarna on exploration?
Duncan Gibbs
Look, we can drop, it’s still turning on the project both in the north and southern project area. We plan to continue to test our highest priority targets through the end of the year. And, obviously, as those results come in, we’ll obviously report on them any significance and just churn through the pipeline looking for discovery, so lots of activity on the Yamarna 100% property. And that will continue, as I said, through the end of the year.
Hayden Bartrop
That’s it in terms of questioning online.
Duncan Gibbs
Okay.
Duncan Hughes
Thanks, Hayden. I’ll just put the call quickly back to actually see if there’s any more calls come through a more questions come through on the phone.
Operator
Thank you. We do have one more question from Matt Greene with Credit Suisse. Please go ahead.
Matt Greene
Hi, good morning all. Thanks for taking my next question here. Just one on the Mallina, you have touched a bit on that with this new pebble crushers that you don’t see any other bottlenecks. But just given some of the challenges on the front end of the mill you’ve had? Are you quite comfortable with the grind size? Or do you feel that you aren’t getting the optimal grind size yet, or once you’ve the bottleneck the front end? Do you feel like there is a little bit more tweaking to be done to improve recoveries?
Duncan Gibbs
Yeah, so the prime size. I mean, obviously, we had good recovery in this quarter. And grind size is one of the important factors to achieving recovery. If anything that constraints on the circuit sits between the SAG mill and the pebble crusher, that actually means we’ve got untapped power in the Ball mill. So we’ve got plenty of options to be able to maintain grind size, and I think, we’ll be able to do that, looking forward as we kind of streamline that pebble crusher issue. So I’m not expecting a deleterious impact on recovery. And, if anything, we can hold strong recoveries until the upgrade on pebble crusher is completed.
Matt Greene
Okay. Great. Thanks. And as you push to 10 million tonnes, you’ve got enough leaching capacity, are you still quite comfortable with that?
Duncan Gibbs
It’s something that we review, but I think at the moment, well, there’s no plans to do any further upgrade in that area.
Matt Greene
That’s great. Thanks very much.
Operator
There are no further phone questions at this time. I’ll hand the conference back to Mr. Hughes.
Duncan Hughes
Thanks, Ashley. That brings close to our quarterly results call. Thank you everyone for your continued interest and support in the story. I’ll just close with the last slide of the presentation. September quarter, obviously, saw record head grades. Again, we’ll start quarter-on-quarter all-in sustaining costs was low compared to the industry and quarterly corporate all-in costs remain low. Our guidance was reiterated, so this year, it’s nice to be 9 months in and confident of delivery still.
During the quarter, we consolidated pretty strategic position with regards to our investment portfolio. And we continue to explore through a pretty prospective greenfields portfolio throughout Australia. The business remains strong, we’re debt free, we’ve paid a dividend, as you would have seen with the last half year. Cash and cash equivalents is in a strong position. And as I pointed out, hedge book expires in November. And that should result all things being equal with the current spot price of 20% to 25% of our production, getting a bit of a revenue boost in the order of A$700 ounce. So that’ll be helpful going forward. Thanks again for listening in and speak to you next quarter.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
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