Ramelius Resources Limited

Good morning, everyone. Thank you for taking the time to dial in to our full year 2020 financial results call.

Joining me this morning is our Chief Financial Officer, Tim Manners. There have been a number of ASX releases related to our 2020 results loaded onto the platform this morning, that Tim and I will be talking more broadly to the results presentation.

Once we have done that, there will be an opportunity for listeners to ask questions. So if we go to the presentation and start with Slide 3.

We believe that in 2020, Ramelius has delivered for shareholders, and we've done that by breaking records pretty much across the board. We have delivered record production of 230,000 ounces, up 17% on last year.

And this has translated into a record net profit of $113.4 million, up a whopping 420% on last year. In terms of what that has meant for shareholders in terms of an investment, while Ramelius has been best in its class over the last 12 months for share price appreciation, up 176%.

I have some comparatives to talk to later to support our claims in this area. And finally, we've been able to double what was effectively our maiden dividend from last year.

On dividends, we note that Ramelius would be the smallest Aussie gold producer, recognizing our retail shareholders and actually paying a dividend. At this point, I'll now hand over to Tim, who will go into the numbers in more detail.

Thank you, Mark. Welcome again, and thank you all for joining us in the presentation of Ramelius' record-breaking financial results for FY '20.

We're not the first to post record-breaking results this year, and I'm sure it won't be the last. But hopefully, as we go through some of the key metrics, you'll see how Ramelius who at the start of the FY '20 year had an enterprise value of only $378 million has been able to punch above its weight and go head-to-head financially with all of its peers.

So if I can take you to Slide 4, of the presentation pack, you can see a snapshot of the key metrics I mentioned earlier. Ramelius achieved sales revenue of $461 million on the back of gold sales of 228,000 ounces.

The volume of gold sold increased 12% on last year, but even more significant was the 16% increase in the average price received from that achieved in FY '19. As important as the production and price increases are, the cost discipline that we saw across all the operations was just as, if not more important.

I have a chart later that shows the consistency in the group's all-in sustaining cost profile, but you can see from Slide 4 that whilst the revenue jumped 31%, and the EBITDA increased to 128% to $256 million, and statutory NPAT increased, as Mark said, 420% to $113 million, indicating that the costs were down on last year, too. The EBITDA margin, which, as most of you know, is a common measure of financial and operational efficiency was up from 32% last year to 56% this year.

Based on the financial results released so far by our peers, we're yet to find one as strong as this. As mentioned, what it shows is that the cost of the business have reduced year-on-year.

And I don't just mean the cost per ounce, which is clearly influenced by grade, but the underlying cost per BCM and the cost per tonne across our open pits and underground operations. These were nearly all lower than FY '19.

The average cost per BCM for all the pits across the whole group was down 17%. At Mt Magnet, the cost per tonne of ore from our open pits was 14% down on last year.

Due predominantly to the large, efficient and low strip Eridanus open pit. And the underground mining costs were down 10% at Mt Magnet and as much as 30% at Edna May as the namesake underground started to hit its struts.

It's very easy to get complacent in an environment of all time high gold prices. So it's a credit to the operators in our business who've managed to keep control of our cost, while also ensuring the most appropriate economic decisions are made on a day-to-day basis.

Notwithstanding the very strong earnings discussed above, perhaps the most important measure for us at the moment is generating the operating cash flow that we can deploy across the business to generate the returns and set the business up for years to come. FY '20 was a period of significant development expenditure for Ramelius, but with over $236 million in operating cash flows, we have been able to comfortably fund those growth projects and to maintain a strong commitment to exploration and resource development across the company.

Even after deducting the capital expenditure in FY '20, the mine development, leases and rehab costs, the business managed to generate just shy of $100 million in cash flow, giving the company over $185 million in cash and bullion as at June 30. And lastly, from this cash balance, the Board has declared a fully franked $0.02 dividend, which totals over $16 million, which will be paid in October this year.

Moving to Slide 5. This waterfall chart has been provided to help reconcile the NPAT position achieved in FY '19 through to the record figure of $113 million posted today.

As noted, the higher gold production, higher achieved gold price were the main drivers for the fivefold increase in NPAT. The benefit of the lower operating costs can also be seen from this chart, too, adding nearly $20 million to the pretax profit figure.

Mitigating those strong positives was a $6.3 million write-off of a number of small exploration projects around WA and in the U.S. and also the expected increase in tax expense due simply to a higher pretax income.

As you may have seen in the ASX announcement this morning, we also recognized a $10.1 million one-off tax benefit from the recognition of carryforward tax losses from within the Explaurum Group. This has the impact of giving Ramelius a one-off lower effect -- tax effective rate of 24%, instead of the usual 28% to 30% effective tax rate.

After the exploration write-off and the tax credit, I'll notionally backed out, the underlying impact for the year was $107.8 million. Moving to Slide 6, just quickly, bring some of the earnings history into focus.

Ramelius has now achieved 6 years of consecutive net profit after tax, indeed, a total of $227 million in NPAT has been generated over that time frame. This equates to a simple cumulative earnings per share of $0.387 over that 6-year period.

We're pleased now to have a new section in the bottom right-hand corner of that right-hand chart, which shows graphically how we are now returning those earnings to our shareholders. Moving to Slide 7.

We can take a closer look at the cash flow for the year just gone. Apologies for repeating myself, but again, the record gold price and the record gold production has led to the $236 million in operating cash flows in the year just gone.

The biggest draw on the cash surplus from operations was the investment into our future projects of approximately $105 million. Broadly, this comprises the development of the Eridanus open pit and the Shannon underground at Mt Magnet, the Greenfinch and Marda deposits at Edna May and the underground itself at Edna May.

As flagged in prior ASX releases, we expect the development requirements for FY '21 to reduce from the level seen in FY '20 with the focus moving to Tampia and to Penny. With the acquisition of Spectrum Metals, there was a $30.7 million net cash outlay as well as the issue of approximately 145 million new shares.

The free cash flow for the year was approximately $65 million. The chart also shows a net inflow of borrowings of $24 million, and those who follow us closely will recall a full drawdown of our $32.5 million facility in quarter 3, which was partly repaid on June 30.

The facility in its current form will be repaid in full during FY '21. Slide 8 highlights the 6-year period of operating profits.

But does so from an all-in sustaining cost perspective, plotted against the achieved gold price. The stability of the all-in sustaining cost per ounce year-on-year is a measure that RMS are very proud of.

Whilst costs vary month-on-month and indeed quarter to quarter. The annual all-in sustaining costs have not varied by more than 4% year-on-year.

With the surge in the gold price in FY '20, our margin all-in sustaining cost has ballooned to 42%, which we understand sits us alongside the likes of Evolution, Northern Star's Australian operations and Saracen, and this is a group we are very happy to be associated with. To also have this increase in margins at the same time, we've achieved over 21% year-on-year gold production growth, puts Ramelius in a great position, both operationally and financially.

Moving to Slide 9. I just have a couple of slides on the balance sheet strength of Ramelius.

We touched upon the cash and bullion position of $185 million at June 30, but it's important to highlight also the significant increase in ROM stocks during the year. The Eridanus mine outperformed its reserve model quite considerably last year.

And with the buildup in stocks at Marda also we have accumulated approximately 91,000 ounces on book gold on hand in bullion, GIC and in ROM stocks. This gives the operations excellent diversity and an inherent level of risk management, should any ore supply interruptions come about.

We have a modest debt position that will be repaid in FY '21. And we will then look to reset that to better suit our next phase of growth.

In Slide 10, this is a slide we dust off every now and then, and we think it speaks to the capital discipline we have employed in the past and how we have made our business acquisitions so far worked for us financially. Whilst the blue bars showing the costs of the acquisitions, increasing the further right you go with Spectrum, the latest being a $171 million acquisition being our biggest so far.

We look forward to applying the same type of operational excellence and financial discipline to these projects as we have done to our smaller assets, which have proven to be multiple baggers for our shareholders. A couple of things to note, there are around 270,000 tonnes of ore stockpiled at Marda providing haulage to Edna May and the mining of Tampia and Penny, we hope will commence in mid- to late FY '21, respectively.

Hopefully, the last 2 slides show that we know how to make projects work and that we have the balance sheet to support these and other growth opportunities as they arise. So in conclusion, from my part, turning to Slide 11.

Ramelius has today reported very strong earnings and very strong cash flow. It has reported a balance sheet that is capable of supporting the significant growth we see from our own internal opportunities as detailed in our ASX announcement in June, which showed a new life of mine plan of 1.45 million ounces of production.

We reported the continuation of dividend returns to shareholders as well as significant capital growth this year. And we have highlighted a capital structure matched with the leadership team determined to seek new and exciting assets to bring them inside the Ramelius business.

Thank you all, and I'll hand you back to Mark for a final word before we take questions.

Thanks, Tim. Now looking at the last slide and coming back to our relative share price performance in FY '20.

We have outperformed those listed peers over the period, largely on the back of a record-breaking fourth quarter. Achieved despite the COVID-19 backdrop and the restrictions associated with it.

Despite this standout year, management firmly believes that this has been some time coming for Ramelius and represents an element of catch-up from previous periods have been significantly undervalued. Importantly, though, post these full year results, when you stand back and look at everyone's numbers, Ramelius remains very competitively positioned on common market metrics such as earnings and cash flow relative to EV.

That concludes the presentation. I'll now hand back to the operator, Tyler, to open the line for questions.

Congratulations on what's a stunning results. And I think you hit on 1 of the key good things here, which is that the cost control has been really strong normally when you get to these sort of price environments, we see costs going up, and you've kept that under control.

I do note, though, that your cost guidance for '21 is for some increases, and you've got a range there of $1,230 up to $1,330 all-in sustaining costs for the year. Can you just talk a little bit more about what are the risks around that range up and down?

And are there other things you could do to bring costs down in the next couple of years?

I'll take that one. Thanks, Tim.

Andrew, thanks for that. Look, there is potential to bring that number down primarily if we can bring the Penny project on a little earlier than we have.

We've only got a very nominal amount. I think it was 5,000 ounces in the financial year.

So a very small amount. So we can bring that project on earlier, we may be able to bring that down.

It's -- the mix of slightly higher cost Edna May production in the overall production this year, which is from Edna May and Marda added into the total mix compared to FY '20, which is going to give you that result. Well hope to do better.

We'll always target internally a $1,200 an ounce stretch target, if you like, but the numbers are telling us that will be a little higher this year. But as always, we'll do what we can to keep the lid on cost.

And I think we've got a pretty good track record of doing so.

Yes, absolutely. And 1 further question for me.

In terms of sort of new opportunities, one of the things you've been looking at is expanding the Mt Magnet mill. I think you're looking at potentially taking that up to 2.4 million tonnes per annum for relatively modest CapEx outlay.

Have you made any further progress on those studies? And is that looking like a realistic option for this year?

We are looking at that amongst a number of studies. And given that it's only a couple of months since we announced that we would embark on that.

It's really been in initial stages. So dusting off the old study, looking at the combination of the Mt Magnet mill overall and considering all the future feed sources.

So it's pretty early days on that. And although we wouldn't expect anything before, probably more before the end of the calendar year, Andrew, on that, to make sure that we do it properly and we get it right.

But still pretty bullish on the potential to add to the capacity and lower the costs and get a relatively quick payback on any capital investment there.

And well done again on a great result.

Thank you.

Thanks.

Very well done on this year's results, really hit the ball out of the park. I can see.

What I actually want to ask is you have substantial hedging. And I know you've talked about this in your previous quarterly reports.

But in light of the fact that the gold price has been rising quite a lot, and we are seeing it come down in recent times. Do you see a benefit perhaps of unwinding some of the hedge positions in the next 2 quarters with the cash balance you have to take advantage of the fact that the gold price is likely to continue to go up with greater global financial system instability?

Brian, it's Tim here. I'll take that question, if I may.

I guess, in short, our hedging is always being reviewed. At the moment, we are basically doing exactly as you suggest.

We are gradually reducing the level of cover that we have in place. We would expect that to come down to a lower level by the end of the calendar year.

But also at the moment, we still manage our revenue line on the basis of generating cash margins for our operations. The Board, as I mentioned, continually, as does management, review the hedging policy.

And at the moment, there's no decision to change that. But in terms of volume, I would expect a slight drop before the end of the calendar year.

So hopefully that answers your question. But in terms of also the closing of any of the book, we're not looking and we'd probably never look to close the book entirely.

That's a part of our business, and it's part of our risk management strategy. But over time, those ounces will, as I say, come down, and the average price of the book will increase in the same manner.

Look, on Mark & Co. As you know, I'm someone who spent 15 years doing nothing useful in my life, but ridden this golden horse and can you again thank -- I thank you and all the staff, everyone at Ramelius for doing a brilliant job, so well done.

The only question I really just wanted to say, alone, thank you. But I do have a question.

With Tampia that the takeover exercise, wasn't that smooth. And I'm wondering, it seems to be taking a long time.

I know the plan is to start work before the end of '21 financial year. Are there any issues with Tampia that would prevent that?

Or is there anything about Tampia that concerns you? Or is it simply that it's online, in train and okay?

We've got full confidence in starting the Tampia project, Richard, and thank you for your earlier comments as well. As we have put in our life of mine plan, yes, we had to push back the start date slightly.

It's probably a function of mining in the wet belt, which are not too many others have done. And working through the processes associated with that.

That we got every confidence that we'll get going early next calendar year and then start having production in FY '22.

Yes, congrats on a great result. One of the questions I had for you was, it's great to see that balance sheet slide and the capacity that you guys to have to active opportunities.

I'm just wondering the impact of the rising gold price that -- that's having on the opportunities you see? Obviously, sometimes that can change the internal and the external factors.

But is there any color you can provide around I guess what that rising gold price might mean for your growth, sorry, both kind of on internal things and maybe anything you're seeing externally as well?

I'll have that one, Tim. Obviously, it's making -- here it's making potential acquisitions more expensive.

Maybe the price you're paying nowadays is probably would have seen unpalatable 4 or 5 years ago, but it's something that you need to be prepared to deal with, paying $170 million for the Spectrum acquisition, which we think will return significantly on that is just a new set of numbers as compared to $10 million per Vivien back in 2014. I think it's just a reality that you've got to be prepared to deal with, otherwise if you are looking to pay the old sort of prices, you're not going to do too many deals, and you're not going to actually be able to grow the company.

So it's a fact of life. We always look to get a return, but no matter what that valuation looks like.

And maybe a follow-on from that. I like the concept of the slide you have in generating returns.

Are there any -- you've got a certain level of cost discipline? Is there a targeted cost rate that you have in mind where you'd like to go for assets that give you a similar cost profile?

Or once again, is it more just -- we had to make investors a return? And if we can pick something up and make a multiple on that that's an outcome.

That's good for everyone?

Hugh, it's Tim here. As Mark mentioned, look, historically and certainly still within our sort of internal models, we certainly target that $1,200 an ounce type figure.

We are realistic, though. But certainly, our expectations would be to be able to make a decent return on anything that we buy.

But that sort of $1,200 an ounce, $1,250 is where we target. It does make things a little bit more challenging, but there are assets out there that can still meet those criteria.

So yes, I think that's probably where we sit.