They're suggesting it's possible they'll reach that name blank
kind of haulage rate while half the road is is still being
repaired, which would be a tremendous feat if truly
achievable. All right, money miners.
Mr. Ricardinho, we are in the thick of cordly season and we
picked out a couple stories to chat about Minrez and Emerald
amongst the sort of flurry of announcements.
Or Northern Star was getting a bit of a boat in after they had
to revise their gardens and a few other ones.
But we've picked a couple goodies in in Minarez and
Emerald. I reckon pick.
The two stories you yeah, you're keen to to tell the most amongst
them. Don't you find like when when
the when the month of April ends because you had you had three
public holidays in short order True enough.
All all this time everyone just all released their their
operational quarterly at the same time.
I'd hate to be an analyst that actually had to write research
reports and update my model and and get all of that out today
because. It'd be a stinker.
Yeah, he. Covered a few, you'd be under
the pump today and tomorrow. Plenty of of calls as we are in
the second last day, but it is what it is man.
Speaking of plenty of calls man you know who who would be
getting plenty of calls right now?
Especially the gold price is going up and people are spending
money on expiration once again looking for gold.
Who were they calling? Kay Drew 100% mate.
They are an experienced specialist team.
Would you believe 90 years of combined fueled experience?
Now that is, that is not one individual person with 90 years.
There's no 90 year olds on that team.
You know the 90 year olds get to retire.
But 90 years combined fueled experience mate.
Unbelievable. Mate, when you're an exploration
company or you're a miner and the lifeblood of your business
is finding gold, finding lithium, finding copper,
whatever it might be, you want to go with the experienced team,
don't you? You want experienced team, You
want people that know how to use their rigs and get the most out,
and we're talking about RC and diamond drilling cut in their
blood. This is specific expertise that
you know it traverses geographies and geology.
It is it is they are capable in challenging terrains all across
WA and when you get in touch with K dual mate, you deal
directly with people who have the field credibility, not
layers of admin. They get stuff done, they're
approachable, they're pragmatic, you know, and when conditions
get tough, guess what? That experience matters because
these are people that can be very resilient and and and
operate when get get tricky there.
Safe, reliable, productive drilling.
Coal K drill. The Champions in RC and diamond
drilling. The irony of segwaying when you
say safe, reliable, productive. And now we're going to talk
about min raising. All right, all right.
Let's not, let's not get ahead of ourselves.
It was an interesting quarterly and yeah, the market is liking
it. Let's let's get into it mate.
I think they've they've eased some of the market fears today
with the with the quarterly and yeah, the, you know, min res
quarterly, they always seem to be a pretty interesting day on
the market. Lots of other companies reported
today, but but a ton of vision for the minerals call.
And the important thing to to mention upfront is that the
market liked it that the share price is up a giant 15% today.
You know, in response to the disclosure.
And I used the word disclosure on ironically for once on on
minerals, because this quarter actually provided much more
granularity on on areas of the business that are forefront on
the minds of investors. And we have to commend them for
for doing that upfront. Specifically as it relates to
the whole road and ramp up of Onslow, we get some really good
detail about what they're doing, what their plans are and how
they intend to, to reach their targets.
It's it's been a tumultuous few weeks just in the lead up to
this release, JD, notably the departure of three board members
in very quick succession. And also the, the news about the
class action that dropped earlier this month too.
But the, you know the talking points that that come out of the
the quarterly today and the things I want to I want to touch
on in conversation with you, it's all all relation to the
operating health of this business.
We're talking the balance sheet, how Onslow's going, how's the
the haulage ramp up and bottlenecks going given the road
repairs there, what's the status of the lithium business and and
what's happening to the mining services margins.
Yeah, absolutely. And all the the sort of
tumultuous events that you mentioned there don't even
encapsulate what's happened at a broader macro level, which has
been particularly wild as it relates to minres.
FX has fluctuated pretty wildly and mine or steel making is a
commodities that demand fluctuates with the growth in
the GDP of sort of developing nations and countries all around
the world. So let's get into it at a micro
level now with the balance sheet.
That's the the first spot that people have always looked or
have looked at Glitz for the past couple of years, Minres.
Yeah. I, it's, it's no secret that
their balance sheet is stretched.
And when your balance sheet is stretched, what really matters
is what's your, what's your quarter on quarter change in
cash. And for, for Minres in their
March quarter, they, they ended that, they ended the quarter
with, with $250 million less cash.
So there are some, you know, operational wins that they've,
they've kind of point to and they've, they've certainly kind
of had in various, various areas this quarter.
But I think the money miners should always just remember to
contextualize, you know, what, what could be potentially
accounting wins when the business is still losing
substantial cash. I think it's always, always
important to kind of keep us, you know, a questioning eye if,
if your cash is still not moving in the right direction.
But if you look at look at what they've got, they've got this
$800 million revolving credit facilities undrawn at the at the
quarter end. They've got $450 million of of
cash and cash equivalents remaining at a quarter end.
So combine those two and they point to to this $1.25 billion
of liquidity they called in at debt 5.4 billion as at the 31st
of March. What that has baked into it, you
know, which isn't immediately apparent is, is the, the
revaluation on the on the US denominated like bonds thanks
to, you know, a slight FX movement is $80 million
favorable. It's also that 5.4 is also
excluding the the the the physical line or deliveries that
they that they have to do under the the prepaid with traffic
here too. Yeah.
And and what about the the sort of levers as it relates to the
what the company has flexed or spoken about the potential to to
flex if things get tighter going down the track?
I thought there was like a noteworthy, noteworthy
difference in the way that CFO Mark Wilson discussed this.
I'll play a snippet for for you guys to to evaluate yourself.
And do you have any sort of active testing of the market on,
on, on the asset sales at the moment?
And if you do, how do you actually order those options?
How do you think about actually ordering the those levers and or
asset sales? The way I think about it is
this, there's a cost associated with every choice, right equity
raise as we keep being encouraged to do so by by
aspects of the market that in my mind has a huge cost at today's
price, huge impact on shareholders who don't
participate. So I think of that as an extreme
high cost alternative. At the other extreme, I've got
precedent transactions for the road at over a billion for half
of it that I know I could transact on if I needed to.
Again, I'm not saying it's a priority or preference, but I'm
giving an example. We've talked previously about
opportunity to do something with the carry loan, which is sitting
at 800 million. So there's a lot of capital tied
up in those two assets alone. So normally when I, when I've
heard Mark talk about levers and it's a common question, but like
you often mentioned the carry loan first from my memory, I
mean, before they sold the gas, you'd mentioned the gas 1st and
then before they sold the, the the whole Rd. you mentioned the
whole road first. But I, I always read into a bit
the first thing you mentioned. And this time around, the first
thing you mentioned was the other half of the whole Rd.
selling, selling it for another billion dollars.
I mean, that's an intriguing point and kind of count me
doubtful that Minres would would be able to get a billion dollars
for the other half, but it's it's surely worth something.
And it's interesting that that was the first thing that that
came to his mind and came out of his mouth when he when he was
talking about it. You know, the Australians also
talked about them selling bald Hill in in recent days.
I could say that too. And of course, you know, there's
there's there's genuine potential of of minority sell
down in the in the broader lithium business or, or discrete
minds. That's all of that's impossible
or even a prepaid as it relates to the to lithium too.
The big elephant in the room and one of the reasons the market
has responded the way it has today, I think is the hardline
sort of stance that Minrez has presented in its its messaging
around equity raising. That that's basically it's like
on the front page, no equity raising is being considered.
And yeah, so I think the market market reads that, interprets
that and thinks, great, you know, there's like there's,
there's, yeah, like no immediate short term risk of a cap raise.
And that, that's a, that explains a short term price
movement sometimes. And then to, to round out the
balance sheet. I do think you've always got to
talk about their, their bonds as well.
And if you yeah, like, like historically mean, as I've
talked about refinancing their, you know, near term maturity
bonds. They've got some that mature, I
think in, in June 2027. They're the, they're the
earliest ones where the, you know, big chunky principal
repayment June 2027. Now the, the bond market is, has
moved a lot in recent history, specifically Min Reza's bond
markets have been been very volatile themselves.
And, and yeah, Mark Wilson himself kind of spoke to the
fact that if they were to to refinance the near term maturity
instead of paying an 8% coupon, which they are at the moment,
they'll be looking down the barrel of like a 12% coupon
right now that even though they can refinance as of May.
So, you know, in just days really without actually wearing
a, an, an early, an early cost associated with doing so.
They, you know, he he he actually played down the
potential of, of refinancing in the near term because I'd rather
wait out for that, You know, the implied coupon to to lower as
they ramp up and do risk. Now, whether that happens or not
sort of is all up in the air. But I found that kind of
interesting to know what you thought, JD.
Yeah, yeah, fascinating. I mean I think we should talk
about ONS on the performance of Onslow because you can't really
talk about the bonds without you know discussing the manner in
which Rampart is going and the additional color which they gave
specifically on the on the whole Rd.
I think this is a big thing to wrap your head around.
FY25 guidance has peeled back slightly.
March quarter volumes are are are are disappointing.
But Min Res has provided great detail on how it is navigating
its current haulage constraints. And and don't get me wrong, the
plan seems pretty ambitious, but the detail details good.
And you can see on this map here the haulage route right right
now Minrose is hauling ore from Ken's Bore to port via both.
Its like they've got their own big jumbos, the big Minrose
jumbos which can take up to 330 tons and also some kind of
normal sized Rd. trains, which are largely third party
contractor Rd. trains that they're they're utilizing now
they're they're undertaking upgrades on their whole Rd.
itself. That was that was announced
earlier in the year pretty substantial upgrades going on
there. So the and as they're doing
these upgrades on the whole road and as faulting it, etcetera,
the the jumbos are actually continuing to use the whole Rd.
while the contractor trucks are running on the parallel access
Rd. for the first half of the the leg, then then on public
highways for the second-half of the route.
Like you can see on the yellow line here, minerals say that the
the volumes of vinyl being hold in April in total is 1.3 to 1.4
million tons. And now this, this table I'll
flash up here, this table breaks down the trucks, the payloads on
the on the trucks and the cycles per day of the trucks.
It's, it's, you know, it's great granularity of what is being
done in April. And that's 1.4 you know,
1,000,000 tons per month annualized is just 15,000,000
tons per annum. That's a that's a long way from
the name blade of 35,000,000 tons per annum.
That min resonates right? So status quo.
Yeah, 15 to 17 ish tons per annum at that run rate, but they
give more detail on the next two months.
Exactly. So this is, this is interesting,
right? Exact same table, flash it up of
what they expect in May, May to June, the remaining two months
of the quarter. They say they're going to be
able to get 2.7 to 2.9 million tons per month in May and June
and 2.9 million tons per month annualized is 35,000,000 tons
per annum. They're suggesting it's possible
to reach that name plate kind of haulage rate while half the road
is is still being repaired, which would be a tremendous feat
if truly achievable and how they're going to do it.
Well, you can, you can just interrogate the table.
They're doubling the number of contractor trucks while getting
25% more cycles out of the contractor trucks.
Plus they're adding 14 new of the new jumbos of their own
while getting 25% more cycles out of their own.
Yeah, jumbos. All while keeping the truck
payload constant, notably restricting their jumbos to 260
ton payload. Not, not 330 ton, Yeah.
And they're going to heavily utilize those additional routes,
which obviously wasn't previously the plan.
But this is the, this is one of the points that the the market
must have really liked, I'd imagine.
Right, big time. Yeah.
And there's even this like quote saying the above forecasted
cycles per day are currently being achieved.
So it's, you know, like a very ambitious thing to just double
the, you know, your wholeage bottleneck.
You've got a bottleneck in haulage right now and that's
reported to be capable of being kind of doubled month on month
effectively. That is, that's ambitious, but
it's, it's also like if they're providing, you know, guidance
and confidence to it. That's what I think is really
driving the, the market sentiment today.
And, and, you know, part of the reason why share prices, I think
has responded so, so strongly and it's back in the 20s is, is
some belief that this might be, might be possible.
I think that that, you know, the challenge is still going to be
for them to do it. You know, I don't think it's any
main feat to just kind of double your, your haulage month on
month. And keep in mind that they are,
of course, you know, that they've got, they're, they're
doing upgrades on the road. The more of their own trains
that they add to that road, the more productivity they get out
of those trains and all that's going to inhibit the kind of the
traffic flow management that they've got.
So those two things are kind of going to be working against each
other. And then on the on the
contractor trucks, yeah, I mean it's, they're also adding like
pretty significant volumes of them and, and of course they
can't carry as as much of A payload.
So the, the, the frequency that that those those contractor
trucks are using the highway is, is, is pretty frequent as well.
Meanwhile, you know, relying on the Access Rd. pretty heavily
so. Because the speeds have come
down as well. The speeds, the speed's an
interesting point, right, Because the, the contractor
trucks can run at different speeds to the to the jumbo
trucks. That's.
They tend to be smaller. Smaller and go faster and I
think that's why they're they're now operating on effectively
separate routes because your contractor trucks were, were
getting stuck behind Jumbo's presumably.
And if you're stuck behind a Jumbo that's going slower
because the it's got a bigger payload and it can't get up to
speed as fast, then that's a big issue for your contractor.
So we're getting paid per tonne they're moving, but they're
they're they're limited by how fast they can go because they're
stuck behind the jumbo. So now all of a sudden they're
separate routes and, and potentially a, you know, a path
forward, albeit it requires, you know, considerable scaling of,
of contract trucks. Yeah.
And then and then sort of spoke to breaking up the repairs or
that really the redo of of the road in parts.
And I think the market took a bit of liking that one of the
smaller stages is already notched off that progress is
really being made on that. But if we if we look now at
mining services because mining services again relates because a
lot of the tons come from Onslow tons and you've got a yeah,
changes in, in EBITDA from half one to half 2 is quite
anticipated as as management had sort of outlined what's the,
what's the latest thinking. There, I think there's a really
big point the mining services business is, is there's a
perception it's just that the backbone of min res and these
are its infrastructure like income, long life contracts,
margins just keep expanding over time.
But what we've seen in in in the quarterly today, I think
challenges that assumption. Now what what Min Rez recorded
for their their their earnings when they came out for the first
half of this financial year, they said that EBITDA per tonne
in the mining services business was $2.60 per tonne.
And that was, that was record EBITDA, you know big charts
going up and to the right, you know of them doing more tons and
getting more out of it now. To their credit, they didn't
want to pin the markets hopes on that and they said even at the
call at the time that don't put that in your model going
forward, which they really emphasized again today.
I. Don't.
I don't know if the market was prepared for what eventuated
today because in Res is forecasting FY25 mining services
EBITDA to be just $2.20 per tonne.
Now that's for the full financial year. 25 S forecast
tons for the second-half isn't changing that much for EBITDA
per ton to come down to 220. That means the second-half
EBITDA per ton will be $1.60 thereabouts.
That's a massive erosion of, you know, margin in the, in the
mining services business, $2.60 to to 160 1/2 year.
You know, annualized that $1.00 per ton is like $260 million of
EBITDA from the mining services business kind of gone from,
from, you know, what might have been in some people's heads and
why? Well, it's, it's the mining
services business that has to weigh the cost of the third
party trucking at Onslow. This is, yeah, I think this is
kind of an interesting point, right?
Because the, the mine code itself, the economics to the
mine code, which Minrez has JV partners.
Well, they're paying like a predetermined rate for the
haulage. However, Minrez is, is, is on
the hook to, to, to contract out the all the cost of the third
parties to actually conduct haulage where it's clearly had
had some limitations. And that's that's going to, it
has to come out of something. And it's certainly hitting the,
you know, the, the earnings of the mining services business for
the time being. Yeah, it really speaks to your
point of looking at cash at a, at a group level for, for a
company sort of nature and putting it all in into context
where you do the work on each individual bucket Here, you
know, in certain aspects Peter's going to be paying Paul and vice
versa. So you want to make sure the
company's making making money at A at a group level.
Well, that's, and that's like, I think that's the the point to,
to kind of dwell on a bit like I'm trying to get a grasp of the
economics of of Mineco and you can sort of infer that by what
happens to the carry loan. So the, the carry loan, like the
way that the carry loan works out is min res, it's kind of
entitled to to priority free cash flow out of out of Mineco
when it's sort of free cash flow positive.
And that for for people just quickly wondering that's money
that Mineco sort of sits there that is owed to.
To min res from its JV partners. Correct.
And that that didn't really move too much.
It kind of got paid down sort of I think it was like single digit
digit. Yeah, it went down 5 million,
5,000,000 bucks. So you know what that tells me
is that that Mineco is is kind of still washing its face at
current volumes. It needs more volumes to
actually generate free cash flow out of out of Mineco when you
really factor in kind of all, all of the cash flows there.
And that's keep in mind not factoring in the cost of
contractor, you know, trucking because Minres is wearing that
separately at 100% sort of Minres, you know, Mineco is only
paying the the predetermined mining services right on the on
the haulage on that front. So yeah, I find that kind of
interesting to start with. The other thing that's kind of
interesting when you think of like Mineco economics is Minres
Steel hasn't declared commercial production on, on, you know, on,
on, on, on Onslow. Yeah.
And that's an accounting thing. Once you, once you do declare
commercial production, all of a sudden, you know, you can't
capitalize OpEx. The extent they're doing that
still kind of unknown entirely in my mind.
So I just, I just find all of that kind of interesting.
But that's why I always just think like you really want to
look at a group level changing cash to really get a snapshot of
the health of the business at a point in time.
Yeah, and and to be in min res's corner for a second, you
wouldn't expect them at A at a run rate of 15,000,000 tons per
annum when they call it 35,000,000 being name plate to
have called commercial production just yet.
Yeah. Well, well, sometimes you call
commercial production when as soon as you start to get, you
know, sustainable free cash flow, but yeah.
I, I know a bit different to that sort of products and stuff,
but there's like you sort of mentioned ramifications of
calling commercial production so.
Totally. And and sometimes you kind of
have to call it even when you're not profitable.
I mean, like, yeah, line is finally declared commercial
production at at their Kabuli facility.
But yeah, show me the positive operating cash from that and
I'll I'll give you a Fredo Frog for free one day.
One day. What what about Ken's more just
quickly I. Want to do some more work here?
I, I find I found it intriguing that min min res like like
there's OK, there's three things that are intriguing to me about,
about the, the actual like mind gate.
So Ken's bore we all know was, you know, where, where they
like, where the whole road goes, where the camp is, where they're
bringing online initial volumes from.
It's a resort. It's resort yes.
Now what they've been like doing is rapidly advancing to other
areas of their of of the of the project being it's Carter bore
East and upper cane. Now those are, those are kind of
like 15 kilometers ish away from Ken's bore.
So there's more kind of logistics to get it through the
whole road and all that sort of stuff.
But but it's those, those are smaller deposits.
So you don't have like as much kind of economies of scale, but
it's, but they do have slightly higher grade and slightly lower
impurities. And what Minres talk about is,
you know, the ability to kind of blend it all and, and all that
sort of stuff. And Ken's ball becomes the, the
central hub where you can do all of that.
Yeah, I find it intriguing. I I, I really want to dig into
this a bit more because I, I find it a bit, yeah, like a bit
suspicious that that, that, that may be there.
You know, was this always, was this always the mine plan to, to
bring these areas on as fast as they are?
Or is this kind of like a, you know, a strategy in order to, to
really maximize the cash flow potential of your early product
because it's got the better grade and the lower impurities,
but there are longer term ramifications?
Or is, or is there also a statement about, you know, the,
the, the quantity of material that is actually, you know,
suitable at, at, at, at these enough realizations.
Atkins bore itself, which had a pretty big step up in its own
strip ratio in, in the quarter. I just, I just need to do more
work. Here is the gist of what I'm
saying. I don't have the answers.
I'm just, I'm very, I'm just curious.
Probably goes back to not actually two years ago seeing a
study come out on on the project, right, that it's harder
to to reconcile. But obviously it's in their
interest to pull down payback and all those sorts of things.
Yeah, you know, not at the forsake of the the long term
life of the mind, but. And there was the the the leaked
technical report that the Finn talked about, which spoke to the
fact that, you know, that some of the material games bore has a
lot of like these, like Tang material and clays and wash
plant for part of it. Now that that might be true
below the water table or it might be true for some, you
know, in the stuff that they're at mine at the moment.
I don't, I don't know right. But if if you've got a portion
of material and you're selectively kind of stockpiling
and then you're kind of, you know, the stuff that's got like,
you know, less clays and it's got, you know, better
realizations and you you've been quite selective about what
you're putting on the whole Rd. then I could understand that.
But I do think that that's kind of a, you know, part of the
economics that that typical analyst isn't really thinking
about the implications of 2. So I just need to do more work
here. If people have have answers or
insight, please reach out to metravis@moneymind.com.
I'd love to know all. Right.
Let's talk a bit about the lithium business, just quickly
to book in this one. So the lithium business they
yeah, the reported cost improvements in the, in the
lithium business like certainly stand out on, on paper.
They're, they're so remarkable, it's tricky to plausibly believe
in their entire entirety. Like to the extent these cost
savings are, you know, have been legitimately realized from, from
the, you know, savings and headcount reductions in, in
various areas like, you know, kudos.
Yeah. Take Wodgina.
So this quarter they shipped 12% less product than last quarter.
They moved 4% more material than last quarter.
The grade was 7% lower than last quarter and yet somehow the unit
costs were lower, 23% lower at $775 per tonne SA 6.
I just can't reconcile where that cost saving has come from.
Yeah, I mean that can't all be recovery.
It's like, yeah, it's just really, really fascinating.
Like it's just a question mark that how they how they get that
one. So yeah.
Yeah. And I think you know, digging
into the detail there, costs have been overshooting guidance
year to date so far before this one, but they hadn't gotten rid
of that guidance. So they were expecting
improvement and then they factored in cuts in in costs.
But how do you get the, how do you get the physicals to match
the unit costs there when I don't know just.
I would think there's a lot of sort.
Of accounting tricks. A lot of accounting and you
know, pretty much everything that doesn't need to be spent,
which again talks to the the long term treatment of the asset
being being cut for the sake of near term survival.
Yeah. But there's a few leaders on
that front to be pulled. There are so I I just think it's
worth kind of, you know, wrapping up with with our
thoughts of, of where you know, where we think business is at
right now. JD, what are what are your
thoughts kind of having listened to the call yourself?
I think they've really addressed some of the concerns or played
into what they thought the market wanted, which is what it
did, which is the reason why it's jumped up so substantially.
They haven't alleviated a lot of those concerns.
They've just given more color as to how they're going to do that,
mainly on the road. It's it's the sort of be all and
end all, you know. So there is still the execution
risk. They still need to get up to
that 35,000,000 ton per annum run rate for all the reasons we
outlined when we spoke about the last a couple months ago.
So yeah, kudos to them for for giving the market what it kind
of wanted on that front. But it's still, you know,
execution, execution, execution on that front.
And that debt pile is getting closer by the day.
And yeah, we know what a refinancing kind of looks like
on on that front. What about you?
What do you think? Yeah, I, I think I echo your
sentiment entirely. I think the the execution, so
it's like what they've got to do in May and June is effectively
double the whole age throughput where they've got real
constraints on the road. And and it's not going to be
like when you're kind of just doubling that.
It's not going to be fully known what the risks are of doing that
until you you do it. And then you put in pressures in
certain areas along the way. So whether they can do it or
not, like, I don't know if it's possible if, like if they can,
if they can, yeah, kind of double, double the throughput on
the road while half the road is offline.
I think that's a tremendous win. And I think like the, you know,
the short term is, is rosy. If they can do that, that's a
big if it's a big if, right? Because yeah, like there's,
there's a lot of stuff that can still go, go wrong.
And then I think on the longer term horizon, the way, the way I
interpret like what's going on with the actual road and the
repairs on the road and everything like that.
So there's like the asphalting, there's a cement and foam fill
now that's going to give the road sort of, you know, rigidity
repair for certainly the short term.
And while the months are colder, you would actually expect it to
to certainly be more, more durable.
It's going to be like the January, February where pressure
is going to come to that road. And that's when I think we'll
know if the repairs have been sufficient or not or if there
are further fundamental issues that come about with the road at
the moment. The road's forecast to be
upgraded by September, like they could have some phenomenal like
performance on that road from the month of September to
December, while the while the month's still cool enough to
don't put that road under too much pressure.
If they're also, you know, restricting the payload of the
trucks to 260, they're up that to 3:30.
It's a very big difference because yeah, your Rd. damage
scales exponentially with, with, with with a load it's.
Got to be built to last that debt balance, right?
And the debt, the debt like, yeah, so cash went down to 100
this quarter, but I don't know if the yeah, all of the interest
repayments and on all of their bonds were actually kind of
payable in this quarter. They might have actually been in
a second-half like a second quarter thing in this half.
So, yeah, it's not to be understated like the impact that
$400 million of interest payments alone can have.
The good news is that, yeah, there's, there's, there's this
quarter could have been a lot worse as well, like 250 million
cash play. This could have been, they could
have lost, you know, cash could have gone down by $200 million
more than that this quarter. And that wouldn't have been a
massive surprise. So I do think I do look at it in
the context of like, things could be much worse.
Cash is still going down. That's not good.
They've painted a picture where it looks like next quarter could
be a positive cash flow if everything kind of goes right.
And that'll be a big turning point.
But I don't think that's a sure thing at all.
In fact, I think it could very much go either way on that
front. Yeah.
And of course, we had the revisions just 6 odd halfway
through the quarter. We were revised on guidance and
sorts of things. So weren't coming totally out of
the blue into this quarter? Yeah.
And overlaying all of that is just a commodity backdrop.
Like you're when you're very leveraged, you're also just
super susceptible to changes in in commodity prices that can
that can, that can be a wonderful thing or a dreadful
thing. So it's just vulnerability
still. Yeah, it's kind of keep on
chipping away at it though. And as you're chipping away at
it and as you're doing your, your earthworks on the road and
everything like that, you kind of need, you need some yellow
gear, JD, when you're doing earthworks.
What do you think of when you think of Yellow Gear Man?
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Go KCA site services. Now join us, JD Jonas, Benedict,
JBD. I'm really, I'm really
interested in what's going on with emerald.
I've got to admit Emerald, you know, we know they they produce
gold from Cambodia, but my knowledge is it's, it's not as
as elaborate as it would be for some of the other ASX listed
kind of more, more domestic producers.
But I'm very curious in the fact that they've, yeah, they've had
a big, big drop down in what they actually produced this
quarter versus last. What's going on?
Yeah, there's, there's a number of reasons to be interested in
Emerald. I'm I'm sort of attracted to
them because they're a bit quirky in the sense that they're
not just yet run-of-the-mill goldfields, mid size or mid cap
Goldie here. They operate in a a bit more of
a colorful jurisdiction in, in Cambodia.
And they're also one of those companies that have been a long
time performer now since they got Ochville up and running.
So they've got the, the quote UN quote management premium
attached to them and they've got a lot of growth factored into
the story. You might be paying for that
already. So I think for those reasons, I
was, I was keen to to get into what this company is looking
like today, what it could look like in a couple years and to
really kind of dig into why they had that that downgrade on March
quarter production as you mentioned first up.
Tell me mate, why did they miss? Yeah.
So to put the missing context, they did about 19,000 oz this
quarter at a bit over 1300 US all in sustaining cost.
Now the quarter before that, they'd done 32,000 at 8:50.
So that's a pretty big drop off. And as you suspect, the unit
costs commensurately jumped up quite substantially.
So putting the miss into context why it's kind of happened, I
think it was a little while in the making, they don't spell it
out. They give you kind of three dot
points when they pre flagged this a month ago.
Now cutback activities at the operation in Cambodia limited
access to all. And they didn't say this
specifically, but I suspect this kind of stems back to an
announcement of from September last year where there was a bit
of a pit wall slip that saw them do these cutback activities a
bit earlier. So they would have been doing
these otherwise. It was, you know, all planned
out already. It just spurred them on to do it
a bit sooner. Now that unfortunately led to
limited access to, to other parts.
And that leads to the second challenge that they had where
the areas that they did have access to didn't reconcile well
with the reserve grade. Now that's a, that's a big
problem. It's the first time we've sort
of seen a problem of this nature at like I'm sure they've had it
in sort of parts, but they've been able to compensate
throughout the quarters by going to to other areas.
But given they had limited access to the other areas of the
pit, they were, they were stuck with this one.
And hence they were able to guard the market in March
already that hey, this, this wasn't going to be a good
quarter because they knew they couldn't do an awful lot.
So there's, there's two issues there. 1 is, yeah, reduced
access to, to good areas. And the other one is, you know,
reconciliation. It's the reconciliation that
would would worry me much more as a, as a, as a shareholder
because you worry about a, a potential for a, for that trend
to be expanded for life of mine or for a period of time.
Yeah, 100% it's a it's a real cause for concern.
It's something you really want to dig into and the company
understands this fully and tries to alleviate all the concerns of
the shareholders. So I'll just read out the line
that they said to describe this quickly.
The forward-looking grade control indicates that the
uncharacteristic underperformance of the reserve
in the areas access this quarter is an anomaly and not a trend
specific to like the the point that you mentioned there.
You don't want this to be a trend, you want it to to be a
one off. And yeah, they reiterate further
on that the cutback limited their ability to mitigate the
performance. And I'd be lying.
I'd be talking out of my ass if I could say whether this is
going to be a problem down the track.
I think that's a challenge that a geologist could sort of dig
into. But Even so, you've got limited
information standing outside the walls of the company.
So it's just something you're going to have to scrutinize
quite a bit in many of the many of the quarters to come.
And the company gave pretty specific guidance quarter by
quarter going forward as well as.
Through. FY20 6 to really address these
challenges and to just spell it out a bit more, if you if you
look at the physicals table here, you can see a head grade
of 1.2g per ton in the quarter. We go back the past 3/4, we're
talking about about 2G a ton, about 1.8 and about 2.1g.
So that's a big, big drop off. And that puts into context the
challenge that they faced over this quarter.
On the positive side, they put a lot of work into improving
recoveries and they're sort of bearing the fruit of that.
So if you look at the recoveries line there, you can see 85.6%
for a quote, UN quote refractory ore body is is not too bad and
it's been improving quarter by quarter.
Especially scrapes coming off for recovery.
Exactly. So that's a real positive that
shouldn't be missed because the the benefits of working on your
recoveries as they have been in that sort of way is you know,
it's a really positive thing and hopefully they can keep them up
there as I'm sure they will because they did invest the
capital needed to to unlock that.
So I. Did look at the like like cash.
Cash actually went backwards for for emerald.
I mean, they did have some big one offs, but it was surprising
to see such AI think they're almost the lowest cost producer
historically on the news on that sex in in some quarters to to
actually, you know, have cash balance go backwards was very
surprising to see. Yeah, yeah.
Let's talk about cash. So to to your point on lowest
cost producer, even next year they are flagging guidance all
in sustaining costs to be under 1000 US an ounce.
So that that is pretty competitive.
If we look at cash, 210 million cash and bullion is what they
closed this quarter at and they were about 243,000,000 where
they ended the year at. So the big one offs is the 50
million plus in tax that was for FY24 that that's a big one off
that they had to wear this period.
But on the on the positive side for the the cash they actually
sold 55000 oz more than they produced over the last quarter.
So yeah, you know, ebbs and flies, that's a positive, but.
I've got a growth project in WA from the acquisition of
Bullseye. Where is that at?
Yeah. Let's talk about the growth
projects. This is pretty exciting for the
company. So camp installation is
happening. This is north of Laverton for
those wondering, and we'll flash up a map so you can get a feel
for it. But 6,000,000 was invested in
the asset over the last quarter on, you know, develop, not an
awful lot on development and on the feasibility studies, but
there's been a bit of a hold up here.
So you got a project with a million oz at a bit over 1.1g
per ton. And if you go back to the annual
report which came at mid 2024, it was planned for the DFS to
already be at, this was meant to come out before year end in the
December quarter. That didn't happen.
So they spoke about some of the work they were focusing on.
That's resource definition which did happen.
We had that updated mineral resource come out in the
December quarter. And the second point was that
they were working on the completion of environmental
assessments which leads into permitting.
And I would suspect that's been the hold up.
They didn't say explicitly what has held them up, but given
everything going on across Australia in WA, look at Matt
Gibson and other sort of similar projects, permitting has been
the hold up. It continues to be the hold up.
And I think those sorts of reasons the, the company doesn't
want to, you know, put the cart before the horse.
They don't want to talk too much about it.
They just rather keep doing the work that's within their, within
their sort of graphs, the things they can do and wait because
there's been a lot of changes on this front and it's really not
in the the hands of the company. So, I mean, we've spoken about
it at length over the past 6 to 12 months.
Yeah, I think you let you let you let permitting like decent
permitting pushes back timelines.
To let that be like a a slow release of expectations to, you
know, constantly possibly push back rather than all at once.
Yeah. Nevertheless, they still did say
that they expect to make FID and commence developing this year.
And there's a bunch of tenements like if you if you look in the
map we flashed up before the chart on the left, that's a 90
kilometer long sort of area where they've got tenements are
adjoining. And then the the child on the
right is a sort of zoomed in area of the yellowy sort of
spots there. So they have mining licenses
that were granted in 2021 on a number of those areas.
Other ones are, as you can see, expiration licenses and whatnot.
But I think it's a bit out of their hands.
You know, you can't build a project with kind of half the
permits. You need it all to kind of be in
place so. They call this project Dingo
Range. What?
What kind of production profile are they expecting from it?
They don't give you too much color on this, but what they do
say is they want to be a 300 out of 1000 oz per annum producer
with many operations. So I'll speak to Memet, which is
another growth project in Cambodia in, in a moment.
But given the 1,000,000 oz, the 1.1g per ton style of this, this
ore body, I would sort of benchmark it to 100,000 oz per
annum with A10 year mine life to to kind of start.
I'm sure other people have more kind of specific numbers on it,
but I think it's a rough kind of rule of thumb that you could
use. And yeah, I'll talk in a moment
actually about what what cost could kind of look like for this
because it's interesting to look at the cash position and tied it
all in together. If we look at Mamet for a
second, this is similar again, 1,000,000 oz, 1.65g per ton, so
slightly better grade than than Dingo, very similar stage.
Feasibility studies are underway.
They're looking to permit and do all these sorts of things, very
similar spend over the quarter. If we look at kind of what CapEx
could look like here, given I think this is a similar scale to
Okvale and even to Dingo range, I think we're all in that sort
of 100,000 oz plus or minus area.
Okvale cost about 150 million Aussie to build, 2 million ton
per annum plant. That was 6-7 years ago when the
DFS came out. So we've seen cost inflation
since then. That size plant would seem them
it to about 90,000 oz. I think it has to be slightly
bigger. It would be a very similar
processing plant. Recoveries are 85% plus is what
they call it. So I would sort of suspect
Aussie 200 million plus if they're going to build something
similar. And to go back to what Dingo
could kind of look like. I think Mount Gibson is a good
proxy that one. Now Capricorn we know they
raised late last year, they had initially about $260 million
earmarked for for Mount Gibson similarly being held up on a on
a permitting front. But I think just to keep things
fairly simple, benchmark it in and around that same kind of
cost, 250 ish million. I mean, Capricorn have a great
reputation for getting stuff done time on budget.
You know, obviously when it's in their hands, Emerald with
Ochville, again, that's a similar sort of reputation.
They got it delivered and exceeded a lot of people's
expectations. So I think you're, you're
feasibly looking at 400 to $500 million.
I know I saw just one other estimate out there were hard to
come across info, but people were putting it a bit under 400
million. I'd, I'd be surprised if your
total CapEx for both of these projects comes in under 400
million, but who's to say. So you've got a company which by
mid year could have 250 million and I think Okvao could deliver
them another $250 million over FY20 6.
A lot of numbers here, but yeah, working Outback of the envelope,
potentially a bit of a funding gap.
So it brings about the question, how do you address that?
Well that that's a funny gap if they were so ambitious as to to
build 2 minds simultaneously. I think in reality you rarely
ever see that. Exactly, exactly.
I think what you do is you kind of offset them, which is kind of
interesting if you dig into the details to see that they've, you
know, they've lined them up. They want to start development,
both of them this year. You would have thought perhaps
they they staged them already and just plant expectations nice
and early that they're on a stage.
But that's, that's not what they've done today.
Maybe they'll do that in future. But for a whole, you know, range
of reasons. They don't have any debt right
now. They've they've paid off the
last bit just recently. But yeah, do they look at
signing up a bit more debt just to see them through that period?
They're they're valued fairly strongly.
There's growth built into the share price as it stands right
now. You know, I said maybe doing
$250 million in cash flow for a company that's capped at $2.6
billion. Yeah, A2.
Point $6 billion and and all of its production day from Cambodia
two 2/3 in the into the future ones all growth is online still
in Cambodia and and yeah just always kind of question marks on
on that Cambodia is not WA but. Yeah, 5 to 10% dilution would
not be the end of the world by by any means.
It would give them a big pile of cash to just go at this again.
I still think they'd they'd likely stage them to an extent.
I think permitting will do that for them potentially.
So it'll be interesting to see which, which route they go down.
We've, we've spoken at length about the risks of pulling in
debt and it, it's particularly when things are rosy and things
are good. Paladin comes to mind last year
when uranium price is flying there, they're starting to to
work through the, the stockpiles of the previously mined product
there and then you sign up the debt.
So it's, it's always when times are really good that people
look, hey, we can, we can lever up the balance sheet a little
bit. So I'd be curious to see what
they do. I think they they can work
through it, but that's what you always kind of think right until
you. Can't.
Yeah. The good news is like, and if
they were so ambitious as to build both at once, they're
still probably not going to need a ton of debt given gold prices,
operating cash flow and all that sort of stuff.
It would be tricky to find like to think in your head that they
would get debt that would be onerous to the company.
And furthermore, they wouldn't need to get project finance
either because they've had to find assets that have a
corporate facility far less restrictive and a lot more
flexibility to to navigate some of the things that can be, you
know, pitfalls for for single asset developers.
Yeah, that, that can't be understated enough.
Debt can be super, super onerous.
If you've got your one project that you're trying to get into
production, the the more you produce, the, the more cash you
produce, the more assets you have, the terms become more and
more favorable to you. So.
One thing I do wonder with Emerald is like if there were, I
wonder, I wonder how motivated they are to diversify their
their geographical risk. And clearly that's been a
motivation for them to enter Australia by dingo range.
And like, I think I think, yeah, when they knock the I was their
only asset. They were, they were certainly
pretty hungry for something in Australia and they they got a
pretty, pretty interesting and good deal away to to get that
growth project. I do wonder if that will like,
yeah, increasingly look to diversify that geographical
risk, be it by buying, you know, more assets.
Yeah, we've talked in the past about what's for sale in
Laverton and like you actually do something that's synergistic
when you when you group that together with with Dingo range
plus the other option they could have is actually just is, is is,
yeah, merging with one of the any mid tier gold producers that
we have with Australian domestic production, but no growth.
If you merge with them, they they suddenly they get growth.
I just think there's probably a bit of spread and everyone got
to get comfortable with that. But if the motivations are high
enough, I think it's also a possibility that probably can't
be discounted as well. Yeah, absolutely.
For the same reasons we spoke about the capital raise,
potential capital raise just a moment ago.
Doing a deal could be favorable. They'd argue the opposite,
saying they're coming into growth and all this sort of
stuff. But yeah, given where they are,
I'm sure they'd be looking at their options.
Very interesting mate. I think that's a good spot to
leave it mate, as we come into our last day of court at least
tomorrow. I can't wait for it to be over
and I similarly am just very thankful to all our partners.
Yeah, let's run through it. JRX, get your tickets to the
conference, the Mining Innovation Conference.
You need to get tickets to May 20 to May 22nd in Brisbane and a
big thank you to Mineral Mining Services, Grounded Sandy Ground
Support, CRE Insurance, K Drill, WA Water Bulls, Quattro Project
Engineering, KCA Site Services, Black Diamond Drilling Services
and Cross Boundary Energy. Who Duru?
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