All images: Ramelius Resources.
BY REUBEN ADAMS
THE acquisition of Edna May in late 2017 represents a step change for Ramelius Resources. The estimated 54 per cent uplift in annual gold production pushes Ramelius through the 200,000ozpa ceiling, while a rock-solid balance sheet paves the way for further growth.
Ramelius Resources chief executive Mark Zeptner presented at the Denver Gold Forum in September last year, just after a complex $90m agreement to acquire Evolution Mining’s Enda May gold mine in WA was locked in.
The deal represented the next step in the company’s strategy to build on the strength of its existing WA operations at Mt Magnet and Vivien and establish itself as a profitable and sustainable mid-tier.
“Over the last 6 years at Mt Magnet we proved that we can run that operation profitably,” he told delegates.
“Now we are in the acquisition phase, putting the $90m and no debt – essentially a very solid balance sheet – to work.”
The Edna May open pit gold operation near Westonia in WA has produced of over 1moz over its life, with over 500,000 ounces produced since 2011 under Evolution ownership.
One of Ramelius’ challenges has been reducing expenditures at the traditionally high cost operation.
Prior to the sale, Edna May had produced 70,188oz at an average cash cost of $1309/oz and AISC of $1440/oz for FY17.
Evolution stated that low material movement and a lack of available ore at periods during the year resulted in full year production lower than guidance of 80,000oz – 85,000oz. This had resulted in higher costs relative to guidance of $1020 – $1100/oz and AISC of $1140 – $1220/oz improvement.
Ramelius has moved quickly to put in place an effective improvement program for the operation which is aimed to both increase productivities and reduce costs.
Hit the Ground Running
Ramelius boosted its December half revenue 36 per cent on the back of record production, the result of the Edna May acquisition and improved production from Mt Magnet and Vivien.
Production of 91,162oz was up 35 per cent on the 67,546oz in H1 FY17. Profit after tax was a solid $13.6m, and 5 per cent increase on the $12.9m in H1 FY17.
Importantly, Ramelius remains debt free, with net cash and bullion of $61.8m. FY18 production is expected to be between 200,000ozpa to 210,000ozpa at a comfortable AISC of between $1100 and $1200/oz.
Aided by a formal 3 month transition process, Mr Zeptner said the incorporation of Edna May into the Ramelius business had gone as smoothly as could be expected.
“We signed the Sale Purchase Agreement on the 18th September and settlement occurred on the 3rd October so there was very little time for preparation before the ‘real thing’,” he said.
“Given production achieved in the December 2017 Quarter was very similar to Evolution Mining’s previous quarter, but at lower costs, is a testament to how quickly we have transitioned the asset.”
Since completion of the acquisition, Ramelius has moved quickly to put in place an improvement program for the operation.
Initiatives include streamlining the organisation structure/ changing employment policies; review of truck haul distances and tailings dam earthworks; and assessment of blasting practices.
“All of the initiatives have reduced costs by varying amounts – some immediately by reducing the number of direct reports to the General Manager, and some will take more time, like improving blasting practices and reducing haul distances where possible,” Mr Zeptner said.
Further improvements initiatives are currently being considered that will be designed to secure a lower cost operation leading into the decision on Stage 3 open pit versus Stage 2 underground, expected by mid-2018.
Open Pit v Underground
A decision by Ramelius to develop either of the project’s two main growth options – a major pit cut back and/or continued underground development – will trigger up to
$50m in additional, production based payments to Evolution on top of the initial $40m payment.
According to a September research note from Hartley a large scale cutback is most likely, potentially about 500,000oz to the open pit mine plan.
Ramelius plans to spend up to $3m drilling the extensions from surface and from a newly established underground access point in the December 2017 and March 2018 quarters, prior to making a decision on the cut back by June 2018.
“I have stated that my opinion is that a large Stage 3 cut-back is the best future option, but we will be guided by the both the geology, post-drilling of approximately 13,000 metres from both surface and underground, and the project economics,” Mr Zeptner said.
“The drilling program will be finished by the end of the current March 2018 quarter, with an updated resource model and mining studies to be carried out in the June 2018 quarter, with the aim to be at a decision point by mid-2018.”
Ramelius’ target for FY18 is building cash ‘towards’ $100m and maintaining nil corporate debt. This strong balance sheet enables Ramelius to take advantage of any potential acquisitions as them become available.
“We are constantly assessing potential opportunities – this is what you have to do in a space that is highly competitive – but there are a lot of projects that don’t make the grade,” he said.
“Not surprisingly, we like Australia, NZ, and Nevada in the US but also would consider certain parts of the Asia for the right project as it ticks travel and time zone challenges when based in Perth.”
Mr Zeptner said that FY18 group AISC of between $1100oz to $1200/oz was achievable as costs at Edna May fell.
“We have actually averaged between $1150/oz and $1200/oz for the last 2 financial years which has been surprisingly consistent, and whilst everyone would like lower costs it is not always realistic,” Mr Zeptner said.
“This range is very competitive compared to our peer group producers and provides a healthy operating margin at current gold prices.
“We are looking forward to a very strong second half of FY2018 with increased production and lower costs, combined with reduced capital expenditure when compared to the first half.
“Ramelius is very well positioned heading into some key decision points in the middle of the year that will hopefully provide a longer life profile for the company.”