How to read a quarterly activities report: producers vs explorers

A quarterly activities report is the update ASX-listed miners publish after each quarter, and what matters in it depends on the company. For a producer, focus on production against guidance, all-in sustaining cost (AISC), hedging and the change in cash and bullion; for an explorer, focus on what was drilled, what it found and how much cash is left in the accompanying Appendix 5B.

Who reports what

ASX Listing Rules require mining exploration entities to lodge a quarterly activities report (Listing Rule 5.3) and an Appendix 5B cash flow report (Listing Rule 5.5) within one month of the end of each quarter. Production entities report on their production and development activities under Listing Rule 5.1. In practice most ASX gold and copper producers, such as Northern Star (NST), Evolution (EVN) and Sandfire (SFR), publish detailed quarterly reports covering operations, costs and finances. Australian companies usually report against a July to June financial year, so the September quarter is Q1 of the new year.

Producers: the numbers that matter

Production and sales

Gold produced (ounces poured) and gold sold can differ, because of timing and bullion held at quarter end. For copper, look at payable copper in concentrate (tonnes) and by-products such as gold, silver and zinc. Check mill throughput (tonnes processed), head grade (grade of ore fed to the mill) and recovery. A fall in production usually traces back to one of these three, and the report should say which.

All-in sustaining cost

AISC is a widely used gold industry measure, developed by the World Gold Council, that adds mining, processing and site administration costs, royalties, sustaining capital and corporate costs, less by-product credits, per ounce sold. It does not include growth capital or exploration aimed at new deposits. Copper producers often report C1 cash cost per pound, which excludes sustaining capital, or their own AISC measure. Definitions vary, so compare each company with its own past numbers first.

Guidance

Producers give annual guidance for production, AISC and capital spending. Check where the company is tracking:

• A hypothetical producer guides 400,000-440,000oz for the year at AISC of A$2,500-2,800/oz.
• Q1 production is 105,000oz at AISC of A$2,650/oz.
• Annualised, 105,000 × 4 = 420,000oz, inside guidance; cost is mid-range.
• But if the report says the year is "second-half weighted", Q1 should be below the run rate, and the next quarter becomes the real test.

Watch the language. "Guidance maintained" is clear; "tracking towards the lower end" is an early warning; "guidance revised" deserves a careful read of the reasons.

Hedging

Many producers sell part of future production forward at fixed prices. Hedging protects against falling prices but caps the benefit of rising ones. The report should show ounces hedged, the average hedge price and delivery timing.

Example: in the quarter, 25% of sales are delivered into hedges at A$3,300/oz and 75% sold at a spot price of A$6,000/oz. Realised price is 0.25 × 3,300 + 0.75 × 6,000 = A$5,325/oz, about 11% below spot. When gold has risen sharply, hedge books explain why some producers' realised prices lag the market.

Cash build

The change in cash, bullion and investments over the quarter is the cleanest single measure of how much money the business generated. To read it properly:

• Adjust for debt drawn or repaid, dividends paid, equity raised and acquisitions.
• Check for one-offs such as tax payments, which can be lumpy, and hedge close-out costs.
• Compare growth capital spending with the build. Heavy investment can reduce cash build today for production tomorrow.

A producer reporting "cash and bullion up A$70 million" that also drew A$100 million of debt has, on that measure, consumed cash, not generated it.

Explorers: the numbers that matter

What was drilled

Metres drilled by method (diamond, RC, aircore) and by prospect. Compare with what the company said it would drill last quarter. A program that keeps slipping can point to funding or access problems.

What it found

Most results will already have been announced, but the quarterly is where you can check whether all holes have been reported, and whether any results appear for the first time. Use the techniques in cherry-picking and balanced reporting, and convert headline intercepts to gram-metres.

Cash and the Appendix 5B

Cash at quarter end, spending on exploration versus corporate costs, and quarters of funding at item 8.7. The report must also describe payments to related parties shown at items 6.1 and 6.2 of the 5B. For companies within two years of listing, Listing Rule 5.3.4 requires a comparison of actual spending with the use-of-funds statement in the prospectus, a useful check on whether the money went where investors were told. The Appendix 5B guide covers each line.

Corporate and tenements

Tenement changes, joint venture earn-ins, acquisitions and any capital raisings after quarter end. A raise announced in the following month will not show in the 5B's cash figure but changes the runway entirely.

A quarterly checklist

Where the market looks first

For producers, the market usually reacts to production and AISC against guidance and to the cash build, then to any guidance change. For explorers, quarterlies often generate little reaction unless they contain new results, a cash position that signals a raise, or a change in strategy. Margins also depend on the metal price; see what moves gold stocks and the A$ gold price. This is general information only, not a recommendation about any listed company.

The short version

• Producers: production vs guidance, AISC, realised price vs spot, hedging and cash build.
• Adjust any cash build for debt, dividends and equity raised before reading it as cash generated.
• Explorers: metres drilled, whether all holes were reported, and runway from the Appendix 5B.
• Related-party payments and, for new listings, actual spend vs prospectus use of funds are disclosed every quarter.
• Check for capital raisings after quarter end; they change the runway picture.