Earnings call transcript: Hillgrove Resources Q2 2025 highlights operational growth

Hillgrove Resources Limited (HGO) reported its financial results for the second quarter of 2025, showcasing a strong operational performance despite mixed financial metrics. According to InvestingPro data, the company’s overall financial health score stands at 1.47, indicating significant challenges ahead. While the company emphasized its efforts to ramp up production and maintain operational flexibility as it navigates fluctuating copper prices, the stock has declined 80% over the past six months. Today’s 5.56% increase, closing at $0.038, marks a positive investor response to the company’s strategic direction and operational updates.

Key Takeaways

• Hillgrove’s total liquidity increased to $24 million, up from $20.9 million in March.
• The company achieved an annualized processing rate of 1.4 million tonnes.
• Copper production was just under 2,600 tonnes, with plans to meet full-year guidance.
• The stock price rose by 5.56% following the earnings call.

Company Performance

Hillgrove Resources demonstrated resilience in Q2 2025, focusing on operational growth and efficiency. The company processed 353,000 tonnes of ore with a recovery rate of 95.2%, reflecting its commitment to optimizing production processes. Despite a decrease in payable copper sold, Hillgrove remains on track to meet its annual production guidance of 12,000 to 14,000 tonnes of copper. The company’s strategic initiatives, including expanding mining fronts and enhancing operational flexibility, position it well against industry peers.

Financial Highlights

• Total liquidity: $24 million, up from $20.9 million in March.
• Cash position: $10.6 million.
• Net mine cash flow: -$4.8 million.
• Capital expenditure: $11.2 million.
• Payable copper sold: 2,572 tonnes, down from 2,909 tonnes in the previous quarter.
• Average realized copper price: $14,340 per tonne.

Outlook & Guidance

Looking forward, Hillgrove aims to increase mill throughput to 1.8 million tonnes in the first half of 2026. InvestingPro analysts anticipate sales growth and a return to profitability this year, despite current challenges. The company plans to release an updated mineral resource and ore reserve report in Q4, which could provide further insights into its long-term growth potential. While Hillgrove operates with a moderate level of debt, it maintains operational flexibility as it anticipates a step change in production and free cash flow conversion.

Executive Commentary

CEO Bob Fulker emphasized the company’s focus on sustainable growth, stating, "This is not just about short-term tonnes, it’s about building a sustainable, scalable operation." CFO Luke Anderson highlighted the efficient deployment of shareholder capital, reinforcing the company’s commitment to transparency and financial discipline. Fulker also noted, "We are entering the second half of the year with momentum on all fronts operationally, financially, and geologically."

Risks and Challenges

• Fluctuating copper prices could impact revenue and profitability.
• Increased all-in costs, excluding Nugent, at $4.40 per pound, up from $3.79.
• Potential delays in ramping up production at Nugent.
• Global economic factors and demand fluctuations in the copper market.

Hillgrove Resources’ Q2 2025 earnings call highlighted its strategic focus on operational efficiency and growth, with positive market reception evidenced by the stock price increase. As the company continues to navigate industry challenges, its proactive measures and strategic initiatives are expected to drive future performance.

Full transcript - Hillgrove Resources Ltd (HGO) Q2 2025:

Bob Fulker, CEO and Managing Director, Hillgrove Resources Limited: you

Darcy, Conference Operator: for standing by, and welcome to the Hillgrove Resources Limited June 2025 Quarterly Results Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Bob Fulker, Chief Executive Officer and Managing Director.

Please go ahead.

Bob Fulker, CEO and Managing Director, Hillgrove Resources Limited: Thanks, Darcy, and good morning, everyone. Thanks for joining us for the Hillgrove Resources June 2025 quarterly report. My name is Bob Falker, MD and CEO, and I’m joined on the call for his first quarter report with Hillgrove by Luke Anderson, our new CFO and Company Secretary, who recently joined the company in June and Joe Sattanto, our CCO and Head of Investor Relations. We appreciate your time taking the call and listening in today. I’m pleased to report on what has been a milestone during quarter for Hillgrove.

We not only delivered good operating results, but also achieved a series of strategic advancements that set the foundations for long term value creation. The team’s continued focus on execution, cost discipline and proactive development has enabled us to meet key milestones ahead of schedule, while also positioning Cairnong-two for a more robust second half. The foundations have now been laid to increase throughput and lower unit costs. Operationally, as we highlighted in the June 20 production update release, mill feed grades declined due to short term stoping challenges in June as we advanced our major development work. It is important to note that this is a deferral of grade into future quarters as opposed to an issue with the grade reconciliations.

We’ve already seen an uplift this month heading back towards the reserve growth. Due to this, we produced just under 2,600 tonne of copper for the quarter, which keeps us on track to meet the bottom end of our full year guidance of 12,000 to 14,000 tonnes of copper. Importantly, there are multiple key achievements through the quarter. Over 2,000 meters of underground mine development completed, up 10.7% for the March. This reflects our strategic decision to prioritize development to access new mining fronts and support long term flexibility.

An annualized processing rate above 1,400,000 tonnes was achieved with 353,000 tonnes processed at an amazing 95.2% recovery. And lastly, the accelerated new development has enabled first ore to be exposed and mined ahead of schedule, heading us up to mine the first stope during Q4 and only three seventy decline meters before we break the decline through, establishing a truck loop and creating a second means of egress. This a critical turning point for Hillgrove. The new development began in earnest in late April and in just two months we were able to deliver development ore to the mill through the ten twenty level cross cut. This early success was made possible by the decision to accelerate development rate and invest strategically.

Newgate gives us multiple new mining fronts, improved scheduling flexibility and sets us up to increase mill throughput from 1,400,000 tonne to a run rate of 1,800,000 tonne in H1 twenty twenty six. This is not just about short term tonnes, it’s about building a sustainable, scalable operation that can deliver consistent production and cash flow. This investment is about building for the future by deconstraining the mine through the development of multiple new access points and mining fronts. We are significantly increasing operating flexibility. This enables more efficient mining by reducing reliance on any single area of the mine, improving equipment utilization and lowers congestion underground.

It also provides greater optionality to blend ore from different sources, which supports more consistent grades and metallurgical performance for the plant. As throughput increases, we expect to drive down unit cost by leveraging our large fixed cost base, resulting in stronger margins and more reliable cash flow. On the exploration front, our confidence in the broader Cayman two system continues to build with each round of drilling. In quarter two, we completed over 17,700 meters of diamond drilling across 79 holes targeting both near mine extension and infill drilling. Some of the key highlights in the quarter included at Nugent, drilling intercepted multiple high grade copper gold zones beyond the existing mineral resource envelope.

These results extend non mineralization to three eighty meters below the historic open pit. At Cavanaugh, we achieved the deepest intersection to date at West Cavanaugh, hitting copper mineralization about 200 meters below the current workings. This confirms the down plunge continuity of this ore body. And at Valentine’s, we intersected a previously untested authorization zone about 180 meters below the known mineralization, a potential new source of copper within our mining rigs. Over the coming quarters, we’ll continue to update the market with regular drilling results as they become available.

We’ve also commenced drilling to test the Inleast Bar, Critchley and Baringa zones, all of which are on the mining lease, making for exciting times in the drilling results over the next six months. Looking ahead to the second half of twenty twenty five, our strategy is clear. Ramp up production at Nugent to increase overall copper output, deliver further extensional and infill drilling results with the annual mineral resource and ore reserve update planned for quarter four, continue to advance our exploration programs, not just underground, but also in the regional tenements and reduce development meters back to sustainable levels required for long term production and working on continuous improvement and cost reduction initiatives. Examples of these are the installation of our first ore path, which has increased stope extraction rate significantly and we are reviewing major contracts for extensions with improved rates. We are entering the second half of the year with momentum on all fronts operationally, financially and geologically.

Lastly, before I hand over to Luke, I’d like to thank everyone for their support in the capital raise, which was concluded this quarter. I’ll now hand over to our new CFO, Luke Anderson, to walk through the financial performance and capital allocation for the quarter.

Luke Anderson, CFO and Company Secretary, Hillgrove Resources Limited: Thanks, Bob. Good morning and good to meet everyone on the call. This morning, I’ll walk through the financial performance for the June quarter. Our June results reflect the continued strategic focus on growing the Kanmantou operation through accelerated mine development with record development during the quarter. With this, we have seen higher major capital costs with $5,100,000 spent on the Nugent accelerated project during the quarter.

This is being funded through the recent cap raise, which was completed in May with the receipt of $5,000,000 from the SBP and $2,600,000 from the Tranche two placement. While headline cash flow was impacted by lower copper production, the strategic capital allocation this quarter, particularly towards accelerating Nugent, has set us up well to deliver tangible results in the near term. This quarter was about building the capacity to scale production, grow the business and unlock value over the long term. The reduction in copper produced for the quarter resulted in payable copper sold producing from 2,909 tonnes last quarter to 2,572 tonnes for this quarter. This reduction in payable copper sold was slightly offset by an increase in our average realized copper price of $14,340 per tonne compared to $14,137 per tonne in the prior quarter.

The copper price continued to strengthen during the quarter with strong copper demand currently trading at $4,800 per tonne and remembering that our reference pricing is the LME. Now turning to cash flow. Operating mine cash flow for the June was $6,400,000 Net mine cash flow was negative $4,800,000 after accounting for quarterly capital expenditure of $11,200,000 which included $4,700,000 in sustaining capital, million in accelerated Nugent development, exploration of CAD1.1 million and CAD0.3 million on other major capital works. This result reflects our decision to bring forward investment in Nugent ore body and significantly expand our exploration drilling program and was a major reason for the recent fundraising. As we move forward, that capital will transition into more ore tonnes mined to utilize our available mill capacity and generate increased cash flows.

It is also worth highlighting that the Nugent capital is largely non recurring. The major access decline at Nugent will be completed over the next two quarters, reducing development intensity, increasing production fronts and enabling a ramp up in copper output and revenues. All in costs excluding Ugent for the quarter increased from US379 dollars per pound to US4.40 dollars per pound with the increase in activity. However, the headline increase in all in costs is largely a reflection of reduced production due to the temporary shift in stope sequencing and ore grade as referenced by Bob. Having said this, costs continue to be a focus as we demobilize contractor activity associated with the Nugent development over the next couple of months and renegotiate contract terms with some of our major contractor parties.

And whilst all in costs excluding Nugent of US3.44 dollars per pound is above the cost guidance range, we expect to remain within full year cost guidance of $3.4 to 3.9 per pound, albeit at the higher end. We expect a return to more favorable cost metrics in the second half of the year as high grade ore is mined and processed, resulting in our unit costs decreasing. Turning to our liquidity and fund position funding position. We ended the June with $24,000,000 in total liquidity, an increase from $20,900,000 that we had in March and includes some remaining cap raise proceeds received in May of $7,600,000 The working capital balance comprised of the following $10,600,000 in cash, 11,900,000.0 in receivables, which reflects a large concentrate sale at the June and $1,500,000 in unsold concentrate. We remain debt free and fully funded to complete the Nugent Development Acceleration Project, which remains on budget.

Our risk management framework also includes a prudent hedging policy. At quarter end, we had 5,950 tonnes of copper hedged at an average price of $14,272 per tonne, locked in for delivery through to September 2026. This hedge book covers roughly 30% of our forecast production over the period, providing downside protection while leaving the majority of our volumes exposed to any potential upside in the copper market, a position we feel confident about given the long term structural demand of copper. We’re deeply focused on deploying shareholder capital efficiently and transparently. Whilst this quarter reported negative net mine cash flow, this is a function of investment we are making in the future.

That investment has already begun to yield results with new development or process ahead of schedule. We are confident that this will pay dividends over the coming quarters. And with the bulk of the heavy major capital work behind us in the next couple of months, we anticipate a step change in both production and free cash flow conversion. In summary, we maintain tight financial discipline during the phase of major project execution. We continue to manage our liquidity during this high capital development.

Unit costs, while elevated this quarter remain under control and are expected to ease as production eases in the second half. Capital investment has been strategically focused on growing the business. And our zero debt position gives us maximum flexibility for further growth going forward. Thank you for your continued support. And with that, I’ll hand back to the operator to open the line for any questions.

Darcy, Conference Operator: Thank you. Your first question comes from Chris Drew from MST. Pardon me, Chris. You may have yourself on mute. Like can’t hear If you wish to ask a question.

Bob Fulker, CEO and Managing Director, Hillgrove Resources Limited: You need nothing?

Darcy, Conference Operator: Pardon me. Yes. Once again, if you wish to ask a question, please press star one on your telephone. We’ll now pause a moment to allow for any other questions to register. There are no further questions at this time.

I’ll now hand back to Mr. Falker for closing remarks.

Bob Fulker, CEO and Managing Director, Hillgrove Resources Limited: Thanks, Darcy. And Chris, if you can hear us, we’ll give you a call later. You didn’t come through, so we’ll try and answer your questions offline. Look, for closing comments, we look forward to the coming quarters as we release more exploration results and we start to reap the benefits from the recent development success. So really looking forward to the next two quarters to show you some more results in the positive market.

Thank you, everyone, and talk to you soon.

Darcy, Conference Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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