Has MinRes Really Turned the Corner?

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? I I need people, I need kit, I need equipment that can help me with my civils and that is KCA site services.

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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.

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