We have been pointing this out since the announcement of the Q4/19 numbers. Investors need to understand what this cash allows them to do. The options are hugely increased. They have been looking at exploring some of their land packages with good results.
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Matthew Gordon: Paul, how are you doing, Sir?
Paul Huet: Hey, Matt. How are you today?
Matthew Gordon: I’m all good. I’m all good here. Long time, long time. But you have got some fantastic results here I see today. Congratulations. Are you pleased?
Paul Huet: Yes, look. It’s hard not to be pleased when you can deliver results like we have in the current environment. So, I am absolutely thrilled with the team and the results we have had. It has been an outstanding Q1/20 for us.
Matthew Gordon: Yes, and that is the bit I want to talk about, but why don’t you give us the headline numbers for people who haven’t perhaps seen the press release yet? We will put a link to it on the comments section, but I want to talk about how you have done that.
Paul Huet: Sure, let me focus on a couple of things first, Matt, obviously the production – we have guidance out to the market right now: 90,000oz to 95,000oz. Q1/20, despite the challenges we have had with COVID-19, and even in January we had issues with rain and flooding, we managed to achieve just slightly under 25,000oz. Look, if you multiply that times 4, we are on a path to do about 100,000oz, which is the high end of our guidance, so I am extremely happy with the results with respect to production.
Alongside that, we managed 3 consecutive quarters, Matt, to reduce our All in Sustaining Costs. We have been very disciplined. We have been very focussed at following our costs. We’ve always targeted four things: those 4 things were Suppliers, Royalties, people and productivity rates., top 20 vendors, and all of those things that we have been working on have been successful. We are getting to where we need to reduce that AISC. Our All in Sustaining Cost (AISC) has dropped by another USD$30/oz. We are down to about USD$1,100/oz. Our target internally is to get it to USD$1,000 p/oz. Our guidance for the year was USD$1,500 to USD$1,200/oz: it was a larger range. But the truth is, early in January we were faced with some floods, on the heels of the fires from Q4/19. We have had a challenging goal here in Q1/20 and the team have still managed to consistently deliver, so it is nothing to baulk about. I’m pretty proud of them, actually. It’s a pretty exciting time for us and our shareholders.
Matthew Gordon: Yes, for sure. The thing that amazes me is that you are forecasting the same numbers that you did at the beginning of the year despite the fires, despite the floods, despite COVID-19, how are you managing to do this?
Paul Huet: Yes, so look; we have been very proactive on the COVID-19 front. One of the things that happened to us that was actually unplanned but it was a blessing for us: was the fact that when Graeme came on, we talked early on, every interview I have had with you, Matt, we have talked about how our turnover rate went from 87% to 16%. What I wasn’t saying in that interview was where our population or our people reside: we used to have about 80% of our people fly-in, fly-out at Beta Hunt. That has completely reversed now since Graeme has taken over. We have 70% of our workforce that are local. 30% fly-in, fly-out. That turned out to be a tremendous, tremendous blessing for us throughout this COVID. The lowest we ever got to with our workforce, the lowest of the trough was 68%, which coincides perfectly with where our workforce is located. So, when companies were struggling to get people in and out of the plant, our workforce was still coming to work. We are now above 90% with both Beta Hunt and Higginsville.
90% of our workforce is at the mine site. So that is a huge change. By managing to get that workforce locally, we reduced costs, we reduced costs of fly-in, fly-out, we have managed to maintain our production. Coupled with that, Graeme did an extremely good job of hiring a nurse right out of the gate. Look, it was way back in February it was very early on. I think that we were actually the first mining company to hire a nurse, doctors, to do some pre-screening, to put them at the mine site, to put them at the airports. We have been very, very disciplined at making sure that our people coming into the mine site are properly quarantined so that we are not infecting any of the workforce.
All these things we have been doing have been very proactive and have helped us to maintain our guidance. Look, I was asking one of the bankers yesterday, Matt, what is the number for those that maintain guidance? The number I got was anywhere between 40% and 50% of all mining companies have dropped guidance.
We are very fortunate, being based in Western Australia, that none of the governments have come in and shut us down. We are being very proactive, we are being very disciplined in what we do, and as a result, you see the numbers in Q1/20.
One of the other things I just want to talk about is another step we are doing to be very proactive; we can’t say for certain where any of this is going. I don’t think anyone can, to be quite honest, but we are taking the worst-case scenario. We are saying, what if we are forced to shut down? If that happens, we have placed a stockpile in front of our mill. We have built up a stockpile. We are mining from 3 sources today: we are mining from Fairplay, Beta Hunt and Baloo. We have about 100,000t of stockpile in front of the mill. If you are running 4,000tpd, that is almost 1-month’s of feed. So, putting that in front of the mill is a very disciplined approach.
In fact, I will tell you this – it is what saved us in Q4/20. When we bought Higginsville, I remember telling you this, Matt, early on, when we bought Higginsville, we got the mine, the mill, but we also got a stockpile. When we had those fires in Q4/20, we ended up using that stockpile. We had 100,000t of stockpile. We depleted that down to nothing. So, come middle of January, we were faced with no more stockpile and we started building that up by adding Fairplay North into our mix. Adding that into our mix, and now we are putting in safeguards. We are taking away that risk. We are making sure that we have ore and feed in front of the mill in case we get a call where we are asked to shut down the operations or something like that. We believe that because there is only 6 to 10 people at the mill, that there will be the opportunity to keep open the mill. So, we are making sure we are very proactive in case the roads get closed, in case materials or supplies stop coming in.
Matthew Gordon: Okay. Stockpiling, I get. That’s smart. I do remember from the previous conversation that you had done that and it kind of saved the day, as it were. So, you were getting back to building up that stockpile. I was really getting at, what has building up this cash, this free cash flow, you are making money now, you are making money, which is always nice, but it is giving you optionality, right? You have talked previously about the ore-sorter and bringing that in in terms of improving productivity. What are the other things that it is allowing you to do now and what are the things that, just in your head, that you are thinking, what’s it going to allow us to do in the future? Because money brings options.
Paul Huet: Right, let’s talk about the cash first and then I will talk about the exploration onsite. In Q1/20, we managed to increase our cash position to CAD$38.4M, what was that? Probably about a CAD$4 to CAD$5M increase from Q4/19. Look, this is an important part here: that is despite paying into CAD$5.3M into hedges. These were legacy hedges that were put in place to reduce dilution when the mill was bought. The hedges made sense whilst they were put in place for the debt. Now, we had 7,500oz of hedges in Q1/20 which cost us USD$5.3M. You add that into what we actually added to our treasury, you are close to USD$9M to USD$10M cashflow in Q1/20 – that’s an impressive quarter.
Now, where do we go from here? Q2, we burn off those hedges. We believe wholeheartedly that people are investing in us, in fact, we are hearing it, people are telling us. ‘Look, Paul Huet, don’t hedge, don’t hedge. I believe that Gold is going somewhere else.’ Look - I’ve been in Gold for 30-years, I am not the only one who doesn’t believe that Gold has topped yet. There is an unlimited amount to where Gold can become in the next year or so.
So Q2, we will have no more hedges. We have got 35,000oz left, Matt. 35,000oz. We had 7,500oz replaced in Q1, it is easy math – it is 2,500oz pm. That’s what we were doing. So, once these 3,500oz are gone, our hedges are gone, we are selling at the open market.
Now, what do we do about it? We are in a district that hasn’t had much exploration in almost 2-decades. Matt, we have been talking about it. We have managed to reduce that Morgan Stanley Royalty. We have always said, if we can do some work on these Royalties, we are going to change these locations of the mines. We are in an area, 1,800km2. Within 4-months we have identified 5 new areas within that 18km2 - extra cash will add, we believe organic growth is certainly, certainly something that is doable for us. But certainly, having extra cash opens up a lot of opportunities.
Look, of the 5, I will talk about Fairplay North, which has been very instrumental to us generating the stockpile. I will talk about Aquarius: Aquarius is just South of the mill. The Trident mine was what the mill was built for. It produced 1Moz, Matt. You have got a resource directly South, 5km South of our mill, it is called Aquarius. This thing is wide open. We have intercepts at 6g/t, 200g/t across 2m. We have drilled some holes into that.
So, some of this money; you are saying, well, what are you doing with that cash? There is no doubt that us putting money back into the ground, reinvesting into ourselves, paying off our debt, will really create shareholder value.
Matthew Gordon: Does Trident and Aquarius connect? Do you have enough data? What do you know?
Paul Huet: Look, I would never go out on a limb to say that, but I would say that yesterday on our call, there is indication now that Mouse Hollow and Hidden Secret, yes there are so many of them. Mouse Hollow and Hidden Secret are two satellite between pits that are between Baloo and our mill, so they are closer to the mill. Their grades are similar to Baloo, i.5 to 2g, very high-grade open pit. There is a potential that these two open pits, these two satellite pits, could connect. We are looking at that. You asked where the dollars go? That is a great place to spend dollars for our shareholders where we can unlock value. If these things connect, look – who knows what could happen in this district, right? Again, 5 areas in 4-months: Fairplay North, we are mining at Mouse Hole, Hidden Secret, Aquarius and then that zone to the north, of the geophysics, it is a 5km structure that has been identified.
You can’t help but be excited in this district, and executing and hitting on all cylinders. Look, at the end of the day, producing cash, I couldn’t be happier.
One more thing, Matt, that I think is really relevant here; people sometimes forget that Gold is AUD$2,600 to AUD$2,700. When you consider the metal price in US dollars, when you consider the FX - oh my god, never in my lifetime have I seen Gold like this. In fact, it has been a record in Australia. It hasn’t happened in anybody’s lifetime. So, it is quite exciting to be mining in Australia at our location with these metal prices and knowing that there is no cap on Gold – who knows where it goes from here?
Matthew Gordon: I think a lot of people are quite excited about where it could potentially go. Watch this space?
Paul Huet: Exactly. Exactly
Matthew Gordon: Look – great quarter. Under conditions, as you say, not many people doing it. We interview a lot of companies. I can count on one hand how many people here are. Congrats on that, you and the team, obviously. Looking forward to seeing what you are going to be able to do with all of this cash. I think that it is a very exciting year for you. It’s no secret, we do write about you and we have been very positive about what you have been able to do in a short space of time. I think this year has started of tough, but it would be great to see what you could do by the end of it. Thanks for picking up the phone. Keep talking to us. If there is any news, let us know. I am sure it will be coming in thick and fast.
Paul Huet: Right, hopefully we will be talking sooner rather than later. You take care, Matt.
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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.