OZ Minerals Limited (OZMLF) CEO Andrew Cole on Q4 2019 – Earnings Call Transcript

OZ Minerals Limited (OTCPK:OZMLF) Q4 2019 Earnings Conference Call January 28, 2020 6:00 PM ET

Company Participants

Andrew Cole – Managing Director & Chief Executive Officer

Warrick Ranson – Chief Financial Officer

Conference Call Participants

Paul Young – Goldman Sachs

Lyndon Fagan – JPMorgan

Daniel Morgan – UBS

Sophie Spartalis – Bank of America

Michael Slifirski – Credit Suisse

David Radclyffe – Global Mining

Andrew Cole

Good morning, everybody. And welcome to our 2019 Fourth Quarter Report. I am joined this morning by Warrick Ranson, our CFO as per usual. Today we have released a summary of our fourth quarter performance and a summary of the 2019 full year production results.

So, we’re also taking this opportunity to set out our plans and our guidance for 2020. And you might note in addition for Carrapateena specifically, we’re also providing five-year annual average guidance on key metrics to give you clarity, as it transitions into operations as many of you have asked for.

So firstly, I’d like to acknowledge our employees and our stakeholders for their contribution in what was a milestone year for OZ Minerals. I’d also like to recognize the many people who have been impacted by fires and extreme weather events over these past months, and hope that with all of our support they can get back on their feet.

In December, we’ve produced our first saleable concentrated Carrapateena within the timeframe we set out for ourselves back in 2017, which I think is a remarkable achievement for everybody that’s been involved. So I’d like to thank the Board for this effort. It took just over two years from the final Board approval of Carrapateena to the delivery of the first saleable copper and gold concentrate.

This is a significant milestone for OZ Minerals and it symbolizes the delivery of our growth strategy that began five years ago when we were just a single mine organization.

During this period, Prom Hill, which is a mine that was once slated for closure in 2018 have recorded five consecutive years of meeting or exceeding copper guidance, while extending its life until at least 2031. It also has supported the reliable payment of dividends, the construction of Carrapateena, and the development of the company. It has become a reliable and consistent quality performing mine, along.

With our Brazil acquisition and study works in the West Musgrave and other projects, we are now a multi-asset company with a pipeline of growth options at various stages of maturity. These achievements are aligned with our modern mining strategy. So unlike our company, that strategy has evolved since we launched it five years ago, the latest version being on the screen now.

Even though it’s evolved, this strategy at its heart has always been about value creation for our stakeholders. We are a copper focused company. We are confident in the long-term demand for copper from traditional sources, as well as from a rapidly expanding focus on carbon reduction.

Our strategy today contains more about how we deliver the — what on partnering the leading innovative and investing responsibly, considering the impact of our decisions on the five key stakeholder groups that we list out on our wheel.

We have a default operating model, which allows us to be nimble and have clear lines of accountability. We see culture as being a competitive advantage. And our how we work together principles and behaviours underpin this strategy.

Slide 5 and 6 provide an overview of our projects, their geographic location and the status of the most advanced projects. Our pipeline is now strong and diverse, which when compared to just five years ago has matured significantly.

Those projects are at various stages of development and slide 6 shows the upcoming indicative milestone for each. They have and will continue to move as we learn more about each project. They are all of course dependent upon the merits of the projects themselves and Board approval.

Again, where we allocate capital across those projects is driven by where we can create value. Having choice is an asset and a great problem to have. It forces prioritization, which means capital will get used for the most value creating options.

On the summary slide, we highlight a few key achievements for the last quarter and the last year.

Firstly and most notably, we achieved first copper and gold concentrated Carrapateena and ended the year with a sub-level cave mine being ramped up on the schedule. We also announced, that we are now targeting a faster 12 month ramp-up period to achieve the 4.25 million tonnes per annum throughput rate rather than the original 18 month period, as a result of a number of changes, most notably, a larger cave footprint. And with some investment, we are now aiming to increase the annual throughput rates of Carrapateena to target 4.7 to 5 million tonnes per annum from 2023 onwards.

At Prominent Hill, we achieved our copper guidance for the fifth consecutive year and we’ve added another year to the mine life, which is now out to 2031. Our Carajás Hub strategy took shape with the first satellite mine at Pedra Branca underground, now in construction and a number of strategic agreements reached with Vale, that helps simplify our Brazil operations, reduce capital development and expand the growth pipeline.

We marginally improved on our previous year’s trip up. And financially, our revenue for the year was 1.1 billion and we closed the year with over $130 million of cash after substantial growth investment. I’ll add more detail on our operating performance, projects and planning for 2020 shortly. But I’ll first hand to Warrick, to provide an overview of the financials.

Warrick Ranson

Good morning, everyone. As Andrew has just mentioned, we finish the year with a strong closing cash balance of 134 million. Following another good quarter of sales, volumes and the continued conversion of our ore inventory stockpiles, which supplement Prominent Hill solid underground performance.

A final shipment just before the close of the year resulted in total sales for the year which were marginally ahead of production. And receivable and concentrate balance have stayed around September levels. Payables increased with the usual year end influx of supplier invoicing and accruals.

We invested a further $136 million of cash into Carrapateena, producing first concentrate in December, along with that FSU commitment. As per the FSU, we will continue to see further investment in 2020, on items such as the crushers, completion of underground infrastructure and, of course, excuse me, underground mine development. We’ll come back and talk more about that, under the guidance section.

Cash invested in the growth pipeline was marginally higher than the September quarter, with the anticipated pickup in exploration drilling. However, in line with our capital management strategy of turning these projects over, where the results have not progressed to where we want them. We made the decision to withdraw from the Oaxaca projects in Mexico.

Growth expenditure in Brazil was consistent with the prior quarter, with limited activity in Gurupi and the commencement of decline works at Pedra Branca. Drilling continued in the broader Carrapateena province to support the Life of Province expansion studies and the Block Cave team continued its pre-feasibility work, focused on a range of infrastructure design activities. We continue to expect to draw down our debt facilities this year, as we transition through the Carrapateena ramp up period, and complete the associated infrastructure development.

Andrew.

Andrew Cole

Thanks, Warrick. Turning now to Prominent Hill, in summary, it’s been another strong year of delivery. In Q4, the processing mill throughput was the second highest for any quarter since commissioning. For the fifth successive year, we’ve delivered on a copper guidance.

Both our Copper and Gold production is also at the upper end 2019 guidance. And through additional studies and optimizations, we’ve extended the project life of Prominent Hill for the year to 2031. Full year C1 costs of US$0.56 per pound, and all-in sustaining costs of US$0.99 per pound. We’re below guidance and comfortably in the bottom cost quartile of global producers.

Underground ore movement, however, was impacted by lower equipment availabilities in the quarter following several unplanned maintenance events. To manage this, progressive replacement of the trucking fleet is underway and will be completed by mid of this year.

Now, I’m going to hand back to Warrick for the financial performance in a bit more detail, please.

Warrick Ranson

Thanks, Andrew. Group C1 cost remained strong this quarter with both Prominent Hill and the Carajás completing the quarter strongly on both the total cost and production basis. As Andrew mentioned, we’ve produced first time at Carrapateena as well. So there is no impact on unit costs with those costs being capitalized.

That will also apply to the – to the circa 295,000 tons of stockpile development ore, which will process in Q1 this year with associated direct processing and selling costs allocated against pre-production capital together with a credit for the revenue component. Additional gold production enabled us to offset some of the current volatility in the copper price, although this was partially accounted by the gold hedge contracts that we have in place.

Antas continues to benefit from small high grade ore pockets as the mine comes to the end of its development, and the level of white stripping is reduced. Mills grades reflect the blending of lower grade material we have from the existing stockpiles there as our overall production was aided by a continued strong utilization and recovery rates in the processing plant.

In the previous quarter, Prominent Hill production levels were impacted by the planned mill maintenance shutdown. And of course, the Green Zone military closure. Underground ore volumes were marginally lower than the September quarter. However, additional development meters were progressed.

And the mill continues to perform extremely well, running at an 11 million tonne run rate. Our sustaining capital picked up in the fourth quarter as expected to finish the year at planned levels.

Andrew Cole

Now to Carrapateena, a lot of milestones listed on the slide and for 2019 here. First couple gold concentrate was produced and a faster ramp-up is now being targeted underground decline development is now nearly five kilometers from the face of the giant decline. We’ve now started caving the first couple of cave and are building them on surface. And last night, we introduced for the underground Crusher, for the first time, and we expect to start moving ore via the conveyor two surface in the coming days.

Looking forward from 2020 to 2022, you will see further investment into Carrapateena, and the spin is going to fall into three categories. So firstly, the first category the spend has been carried forward from 2019, as outlined in the original FSU plan. And this includes things like the western access road, although we did upgrade the southern access road during the project period and the specs of the western access road will change as a result of our increased throughput target rate, and possibly the block cave expansion study. The commencement of the second PFS lift completion of crusher 1 and sundry infrastructure and some project finalization costs as we wrap-up the hill contract.

The second bucket is an increase in some costs over that we anticipated in FSU. The main one here, being an increase in the underground development unit rate, as compared with that assumed, a lesser amount is attributable to an increase in tech services activities, planning and oversight to improve our knowledge and planning for the mine.

The third bucket is a purposeful investment to increase metal production. As a result of the last couple of years of activity, we’ve learned a lot about the ore body, its metallurgy and metal controls. As a result, we are now targeting an annual throughput rate of 4.7 million to 5 million tonnes per annum from 2023 onwards, along with improved metal recovery.

Examples of the projects that we expect to enable this will include the previously announced increase in the sub-level cave footprint size and bringing forward crusher too and all parts installation, a tailings pump system upgrade, a hydro flow installation, and the addition of a second cleaner circuit, along with a list of other smaller debottlenecking activities. So Warrick is going to touch on this a little bit more in the guidance at the end of the presentation.

So, let me just get into a bit of detail on the ramp up for a moment, as I’m sure some of you will be interested in this. So following first concentrate production in December 2019. The plan was shut back down to allow you to think again a joint venture, unfettered access to the plant to complete all remaining construction items and commissioning test for the MPP.

AV JV is finalizing their schedule with a view of the processing plant being handed back in the coming weeks. So, just something to remember as I’ve previously explained, we are currently not plant constrained during this phase of the ramp up, so we did not expect to see 2020 guidance impact with these plant finalization activities, given the work completion schedule.

In the interim, underground oil continues to be stockpiled, which will impact work to our advantage as we will be able to run the mill fuller and for longer once we start the plant back up again. Post final plant is over, as part of the ramp up, the plan will then be tested and optimized through the first half of 2020, leading to gradual throughput recovery increases, which will drive progressively higher output in the second half of this year.

So in summary, carrying out into the plan 12 months ramp up towards our targeted 4.25 million tonne per annum throughput rate by the end of 2020. As a result, we expect to see Carajás turn cash positive in early 2021. Beyond the Carajás mine itself, we remain focused on the development of the broader Carrapateena providence, and we’re on scheduled to release the Carrapateena blockade expansion PFS mid-2020.

So, turning now to our Brazilian assets. Last year, we announced the development and implementation of our Carajás hub strategy. As at the end of 2019, the existing Antas open pit mines exceeded guidance both copper and gold production. We’re also finalizing the transition of our previous Antas open pit Australian mining contractor to a local mining contractor that enables reduced operating costs.

The one million per tonne Pedra Branca underground mine also commits decline development following the final project investment approval. And as of today, the team is just ahead of schedule with about 110 meters of decline development now complete.

As a recap, pre-concentrated ore from Pedra Branca underground mine will be trucked about 75 kilometers to the existing Antas processing facility, making it the first spoke in the Carajás Antas hub. In 2019, we also entered into a series of interlinked strategic agreements with Brazilian Mine Vale. They greatly simplify our operations, allowing us to draw on Vale’s extensive transport network, utilizing their processing facilities, and gain access to small to medium high grade Vale exploration projects within the Carajás.

The union agreements with Vale give us the immediate option to purchase Santa Lucia and Circular, providing a pathway potential future satellite mines to the Carajás Antas hub.

Turning now to the Gurupi Province where permitting and village relocation planning continued to be the primary focus for the CentroGold project. Meetings were held this month with Brazilian officials as to progressing the removal of an injunction related to this project with further meetings scheduled in the coming couple of weeks. We were expecting the injunction to be removed successfully at the end of last year, but it wasn’t to be. We remain hopeful that it will be removed early this year with all indicators pointing to this being the case. Once removed, we anticipate commencing a feasibility study to commence regional exploration, and the relocation of the small community.

So back in Australia to West Musgrave with a pre-feasibility study update is on track for release this quarter. I expect the pre-feasibility study released to be accompanied by a Maiden Ore Reserve and an updated Mineral resource.

Given an imminent release, I can only touch on the project at a fairly high level, a range of value adding opportunities were progressed into the base case during the quarter and the number of outstanding threats, addressed. These include things like the completion of a detailed workforce plan that now incorporates an integrated remote operating centre and increasing renewable energy and the use of bulk floatation circuit pilot plant in Canada that confirm the design of the copper and nickel concentrate production flow sheets.

Finally, our footprint in this region expanded in the last quarter with the purchase of Traka Resources tenure, along with the application of new tenements perspective for copper and nickel sulphide mineralization. This brings out joint venture with Cassini to hold an excess of 9,500 square kilometers of perspective tenure in the West Musgrave province.

Our growth pipeline has seen movement during the year, as we have exited some exploration projects and advanced others as Warrick has touched on, I’ll continue to expect this to mature and evolve over the course of the year.

On the next two slides, we have provided detailed 2020 guidance for our three operating assets, the Carrapateena, as it moves into operations, we’ve provided five year annual averages, the key metrics including indicative trends to help you see how it progresses over this period as many of you have asked for. We’re just going to provide summary of these items on the slides before heading back to me where I will wrap up. Thanks, Warrick.

Warrick Ranson

Thanks, Andrew. So, on slide 16 we’ve said in our guidance for 2020. I won’t go through all the numbers, but thought I would cover some of the higher level context. So for production, this includes prioritized processing of the regular grade Gold stockpiles at Prominent Hill, improved output in the Carajas with the introduction of Pedra Branca Ore in the second half, and the progressive ramp up of production of Carrapateena also favoring the second half of the year as Andrew has already explained.

We expect the uplift in gold production to cover the temporary revenue decline will experiencing copper production in 2020 prior to Carrapateena completing its ramp up through the year.

On capital, as indicated earlier, our investment in Carrapateena will continue over the next few years, circa 140 million of the 2020 spend is for mine development, which reflects an increase of around $80 million of our original FSU allowance, principally from a revised rate to meet a cost. This is also a primary contributor to capital in other years, but it’s offset by the production uplift in the early years, which maintains our overall initial project value. The higher development rate is from a combination of costs reclassification out of OpEx and mining costs sitting above the original expected levels.

Post first concentrate, we always have scheduled the completion of the underground infrastructure with the first crusher currently being installed and in fact, post operation. We also have a small number of project finalization items which have rolled into the current year.

Andrew also alluded to new capital relating to increased production rates of circa $45 million in 2020, which includes the start of the expansion of Antas [ph] processing capacity and additional mine ventilation.

C1 and All-in Sustaining Costs reflect the benefit of the high gold production of Prominent Hill and the high initial unit cost of Carrapateena with about 60% of our cost base of that asset fixed.

Just to reiterate that the Carrapateena cost guidance relates to production that will be accounted for through the P&L this year, although production volume is inclusive rather of the metal expected from the pre-commissioning ore.

And as Andrew mentioned on Slide 17, we provide an indication of trends for key metrics for Carrapateena across the following five years. The uplift in capital in 2021 covers mine development and the further $75 million in new value acceleration initiatives. Whilst in 2022 we brought forward the installation of crusher 2, post that we were principally to mine development expenditure. Thanks Andrew.

Andrew Cole

Okay, our key milestones for 2020, I have set out on this last slide so that reflect our focus on embedding our priorities as discussed earlier. I just want to touch on a more macro topic. We live in a very dynamic world with many macro events that impact our businesses.

It’s very sad to see such events, such as devastating fires, virus outbreaks, and political instability come and go. These all have impacts on all of our businesses. It is, however, imperative that we focus on the key things we can control and our persistent focus on our company strategy. We must also remain vigilant and responsive to macro events, just as we have done so over the past five years.

OZ Minerals is in a strong position with a strong balance sheet, strong cash flow, low cost operations, and a pipeline of future growth options in a good strong commodity.

In conclusion for OZ Minerals, 2019 was a year of great progress for OZ Minerals as we achieved our growth and key operating targets, including building a new mine in Carrapateena.

After a period of significant growth, 2020 will be about focusing on delivering our priorities safely. And these include the Carrapateena 12-month ramp-up, maintaining our reliable production and cost performance at Prominent Hill, whilst deciding on its future by the expansion study underway, developing the Carajás Hub with Pedra Branca expected to reach first development ore mid this year, completing West Musgrave PFS, and removal of the CentroGold injunction. It is going to be another dynamic very full year with many intra milestones throughout 2020.

And with that, I’d like to wrap-up and I’d like to ask operator to remind people how to ask questions. Thanks very much.

Question-and-Answer Session

Operator

Thank you. And certainly, ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Paul Young from Goldman Sachs. Please go ahead.

Paul Young

Good morning, Andrew and Warrick. Just to begin with a few questions on Carrapateena and maybe for you Warrick about that increasing, first of all, the mining rate on dollar per meter. So, just curious about what percentage increase you’ve seen in the mining rights?

And then also looking at the forward guidance for 2021 and 2022 for Carrapateena, the 250 million, then maybe just break that down to what percentage or what of that is actually mining rights? And then also, can you just clarify whether the block cave, any block cave CapEx study — studies or anything is included in that 250 million? Thanks.

Andrew Cole

Maybe I can just touch on the first one and the third one and then I’m going to ask Warrick to talk about the second one, Paul, if you don’t mind.

Paul Young

Sure.

Andrew Cole

So, most of the underground and offered price is not so much about an increase in unit costs. It’s about a gap between what we estimated in the FSU versus what we’re actually having to do underground. So, there were some gaps in our FSU. We didn’t anticipate all of the ground support that we needed. The surface area underground wasn’t quite as what actually seeing for example.

So, we’re having to move slightly more — slightly more shotcrete, slightly more ground support than anticipated. Its things like that that are actually mostly driving the underground unit rate increase as opposed to market escalations of price, if you like.

So on the third point, there are no cost built in here for block cave. This is all about the sublevel cave. So, we won’t get to block cave costings etcetera until we talk about the block cave, PFS that we plan to release mid this year. So, maybe I’ll just ask Warrick to touch on your middle question around splits. That’s okay?

Warrick Ranson

Yes, I might have to come back to you on that Paul and if I can take that one-on-one, I’ll just like to check that number and come back to you on that one.

Paul Young

Yeah. Okay. That’s okay. Maybe and just from the first point again, so if it isn’t market, understand what’s driving that, that makes sense, but what percentage of delta meter have you experienced?

Warrick Ranson

Do we have a number on top of your head?

Paul Young

Maybe come back on that, okay?

Warrick Ranson

We can come back to you on that Paul. To be honest, we’re not spending a lot of time trying to reconcile if it’s mostly about optimizing current state and future planning. So we can certainly come back to you with a number. Yeah, absolutely. Paul, come back to you.

Paul Young

That’s fine. And then on the plants, Andrew, I don’t think I’ve ever seen a plant sort of produced that construct and they shut back down again into final plant construction items. Can you maybe just step through what those items are? And what gives you the confidence that that can be completed within – I think you said a couple of week timeframe and then they start back up again. Thanks.

Andrew Cole

Yeah, sure. So, look for taking first concentrate is a slightly different, absolutely recognize that this is a slightly different way of commissioning a plant. But it gives us really good line of sight, gave us really good line of sight on how the plant is performing where the bottlenecks are, how is part of see through commissioning obviously, so parts of the plant where see through commission to get to see through commissioning. And it gives us really good line of sight on what’s performing to spec and what’s not performing to spec.

So most of the work that’s left is sort of peripheral activity on MPI and MPP to produce and we’ll concentrate obviously in major mining circle [indiscernible] and flow to all the rest of it up and running. So those pieces were operating. So, we have got confidence that that’s going to be concluded based on the current schedule of works that ADJV have given us to be completed over the next few weeks, and it’s mostly related to find a walk down until completion of punch list items.

Paul Young

Okay. Okay. All right. And the final question Andrew that, you sort of outline, again reiterate your strategy, early on about being NPV effects opposed to as I interpreted IRR focus. You got a lot going on here. CapEx Carrapateena is not small in 2021 and 2022, just curious about how you look at with copper price here at 250 out of pan as we look in the screen today. Is there actually room for to do everything thing — projects or sequencing projects. Is there room for the Prominent Hill underground expansion within your forecast cash flows?

Andrew Cole

Yeah. Paul, Warrick is going to touch on second piece, but — I’ll just Paul touch on this in principle. I think you’re absolutely right and that’s a very good question. We have never said that we expect or anticipate doing all of these projects. This is about allocating capital to the most value accretive projects. And we’ve got choice and we’ve got options, and as each of these projects come to a key milestone, we need to decide, and we’ll be deciding whether we continue to invest in them or not, whether we’re the best people to invest in them or somebody else should be. So, having that choice, I think, is really important. So, having that pipeline. I just tell — ask Warrick to talk a bit about our capacity, if you like, and what we can achieve.

Warrick Ranson

Yeah. In that context Andrew and I think, it’s important to recognize that most of the projects going forward aren’t — they’re not lumpy in terms of the spin. So, again, if you look at the Prominent Hill extension or expansion we would see that as a progressive spend over, a number of years as we as we progressed through that. Same with Carrapateena expansion, so again, that’s not all that money up front, it progresses through.

And again, I think, the way that our current sequence of projects, whether we go ahead with them or not, runs out quite well in terms of obviously having ramped up most through this transition here with the ramp-up of Carrapateena. And then providing an uplift in our free cash flow that facilitate some of those projects further down the track.

Andrew Cole

Perhaps you can touch on debt facilities as well.

Warrick Ranson

Yeah. And I suppose, obviously, today’s updated highlights that we’re in a strong financial position. We do expect to draw in our debt facilities as you would expect through this phase of development. But we will continue to maintain a very conservative position of around about one times EBITDA on gearing and I don’t see us moving out of that range at this time.

Paul Young

Okay. All right. That was my next question. I don’t know want to say it. So, thanks for that. I’ll pass it on. Thanks guys.

Andrew Cole

Okay. Thanks, Paul.

Operator

Our next question comes from the line of Lyndon Fagan from JPMorgan. Please go ahead.

Lyndon Fagan

Thanks guys. Yeah. Just back to the $0.5 billion of spend in 2021 and 2022, just first question on that is whether that includes any of the overflow versus the feasibility study of $175 million? Or is that sort of bit of–

Warrick Ranson

It’s everything, Lyndon. So, it includes some of the things that we pushed out from the 2018-2019 period, like I mentioned, when I gave a narrative, so things like western access road, the crusher, our first crushers and conveyors pushed into early this year, we’re tightening that up now. Some completion project costs. It includes capitalization or increased capitalization of the upper three levels of the cave and that’s partly why you see some of the operating costs coming down for Cara.

It includes, an additional spend on increasing annual throughput rates and recoveries with that list of projects. So, that’s an all-inclusive number for everything that I’ve referenced.

Lyndon Fagan

Okay. Great. So would it be fair to sort of include that capital, as capital to achieve full production. That sort of looks as though where we’re at about 1.7 billion including that. Is that how you would consider classifying full production capital for Carrapateena in its expanded form?

Andrew Cole

No, I don’t. I don’t think you can just add these things together, Lyndon, the way that we established this project rightly or wrongly a bit different, people have different views on this, is we said once we could demonstrate first concentrate through the plant that would be the end of the pre-production capital period.

And then it would move into an operating phase, but Carrapateena at a sub level cave, we’ve got peak periods investment through its loss of mine, and the split between operating costs and capital costs is something that we’ve spent a lot of time or seasons to ask you what to talk through, how we work — how we’re thinking about that because the operating costs have come down, capital has gone up we need to help explain a little bit.

Warrick Ranson

Yeah. So, I mean, we capitalize on vertical development costs. And obviously with the top three levels, we have to blast and condition those levels. And so — and we’ve incurred lateral development costs as a result of that. So those top three levels we do capitalize because they’re part of that top old blanket that we’ve referred to previously, and we will then amortize those top three that the cost of those top three levels, as we go.

However, the standard sort of hauling and crushing costs will continue to be or continued to be applied through as normal operating costs, as we go. But similar to Prominent Hill, we’ll always have a continual level of mine development capital, as we continue to extend further down the ore body in terms of the main drive, et cetera.

Andrew Cole

I think that the other thing to remember Lyndon is what is now in our capital guidance in 2021 is the bringing forward of the second crushing chamber. So that was originally further out in our schedule, so we’ve managed to pull that forward as a result of the development rates have been getting underground.

So, crusher chamber 2, sorry, so 2022, it’s not in 2021. So that actually is capital and again that there will be a third crushing chamber later on in the life as we get down to the bottom of the sub level cave. So it will be peaky, if you like around for capital through the life of the mine.

Lyndon Fagan

Great. And just on the grade profile, there’s been a lot of changes in feasibility study we’ve gotten bigger, we’ve had a reserve grade, downgrade I guess. Just wondering whether sort of any of the earlier years have suffered more from dilution than in the later portion? I’m just wondering whether that high-grade bornite zone is still having an influence. It looks like it is easy math diagram on Page 17, but it’d be good if you could maybe talk us through the grade profile over the medium and long-term?

Andrew Cole

Yes. Our drilling and our underground development has actually demonstrated our reconciliation to the resource and the reserve is very good. So we’re quite confident and comfortable with the resource on the reserve models.

We did increase the size of the sub level cave footprint that did drop the reserve grade very slightly by 0.1, was a 0.2 or something, same copper. But this is not about just grade, it’s about value. So from a value perspective, it warrants a sub-level cave expansion because that’s what helps us get to a 12-month ramp-up versus an 18-month ramp-up and provides us the platform to increase our annual throughput rate from 4.25, up to that from 4.7 to 5.

So, these are all the trade off stage you have to undertake. So we’re confident in the results that are reserved, all eyes are still sitting there. And we’ll be developing into that over the next year or so.

Lyndon Fagan

All right. I’ll take the grade profile offline, maybe just a Prominent Hill last question. Looks as though as it moves to gold stockpile price, I think why was that given a higher value and accelerating the copper stockpile?

Andrew Cole

So you may recall, Lyndon in last year we undertook a gold trial where we process gold stockpiles for a couple of weeks to test throughput rates and recoveries of both gold and copper. That was very successful and demonstrated the processing characteristics of that stock, stockpiled was more favorable than what we had originally had in our business plan in our internal models.

And when you do a straight value prioritization, we are now prioritizing the higher grade gold stockpiles and gold stopes, some of the gold stopes underground, which materially increases the amount of gold in our short-term plan.

So this is entirely about value. And we’re sequencing the stockpiles to optimize value. And given the high gold prices, we’ve got that flexibility of Prom Hill, which is a good thing I think. So, Prom Hill in next year or so, it’s going to be much more exposed gold price and copper price.

Lyndon Fagan

Great. Thanks a lot guys.

Andrew Cole

Thanks, Lyndon.

Operator

Our next question comes from Daniel Morgan from UBS. Please go ahead.

Daniel Morgan

Hi, Andrew and team. Firstly, just wondering if you are going to be mining faster, which you’re talking about that 4.7 to 5 rate. Just wondering if that has any impacts on the timing of the block cave because you’ll get down to I guess the level you thought you might get to when you’re in the sub-level cave faster. Does it create a pinch point or problem in a decision making and tighten that timeframe?

Andrew Cole

Hi, Daniel. Look in short, no, because we’ve expanded the size of the sub-level cave materially, that far exceeds the rates that, which we have to progress our sub-level. So it’s probably the other way around actually.

So this doesn’t actually hasten the need to make a decision on the block cave it in effect by us a bit more time because of that increased size. Look, we’ll talk more about this when we get to the middle of the year.

And we release the block cave PFS. But the interaction between sub-level cave and the block cave is very important. And a lot of work has been done on how we should optimize that at the moment. But short answer of your questions, no, it doesn’t create that issue.

Daniel Morgan

And then just a quick follow-up on that, where is the pinch point or where’s the point of in our time we need to make a decision on the block cave?

Andrew Cole

Our current schedule, remind me Tom as up — as we said because PFS and our FS is in the middle of next year, bulk of the spins 24, 25. So we’re currently expecting a decision in 2021.

I wouldn’t say that’s the pinch point though we actually have more time. The dynamic here is your block cave pipe gets lower and lower the longer you take. So it’ll have a value impact, but I wouldn’t call it necessarily a pinch point.

Daniel Morgan

Right. And the guidance metrics that you’ve provided with various C1 costs all in sustaining costs etcetera. Maybe I’m missing, just wondering clarification on the gold price that you’ve assumed in both for 2020 and the Carrapateena guidance you provided for 2021 through 2024?

Andrew Cole

So we used census Daniel. So that’s basically the gold price going forward. So yeah.

Daniel Morgan

So it is a reference to it. Do you have the latest number that you’ve got for them? Just trying to back up the absolute what are you dollar costs on an underlying basis because everyone can be running different gold price assumptions?

Andrew Cole

Yeah, we’ll come back to you on that one offline.

Daniel Morgan

Okay. Thank you.

Operator

Our next question comes from Sophie Spartalis from Bank of America. Please go ahead.

Sophie Spartalis

Good morning, team. Just wanted to follow-up on the C1 costs, just in relation to where you’re tracking versus the guidance. Obviously, you’re tracking well above the guidance range. So just in terms of that second half profile, if we start at Prominent Hill, are we expecting that to increase in the second half of the year or can you just maybe go through the profile there please?

Andrew Cole

2020, C1 profile.

Warrick Ranson

For 2020, Sophie?

Sophie Spartalis

Yes.

Warrick Ranson

Yes.

Sophie Spartalis

Oh, sorry. Sorry. Yep.

Andrew Cole

Yes. So the question I think is given in 2019 Q4 performance, we’re starting very low our guidance for 2020 is much higher than that. So what’s the profile look like?

Warrick Ranson

Yeah. So as we start to increase, obviously the gold production, we’ll start to see that adjustment flow through. And then obviously, a lot of that comes out of the existing stockpile. So you’ll have – which won’t directly hit the C1 cost in terms of the some of those — some of that cost component we don’t allocate stockpiled costs into C1. So yeah, we’ll gradually see that net C1 costs come in really I suppose more so in Q2 and going forward from there.

Sophie Spartalis

Okay. So in terms of that C1 costs for 2020, hiring Q1 and then progressively coming down from Q2 to end in that range of 15 to 25. That’s correct?

Warrick Ranson

Correct.

Sophie Spartalis

Okay. And similarly for the all-in sustaining cost, like how does that stockpile inclusion then impact the profile of that all in sustaining costs through the year at Prominent Hill?

Warrick Ranson

So that will follow the same — effectively the C1 cost and I think we’ll see a similar sort of trend this year in terms of over last few years levels of sustaining capital say with the second half I suppose in terms of the general spending profile. So I wouldn’t expect that to be much different.

Sophie Spartalis

Okay. That’s great. And then similarly for Carrapateena, the profile there just through the year?

Warrick Ranson

Yes. So obviously starting high and coming down as production rates increase so — and when we get into the second half, we will get two points really I suppose the beginning of Q4 end of Q3 where we should get to some consistent mill production. And so you’ll see those costs drop right down.

Sophie Spartalis

Okay. Are you willing to provide a first half, second half split for the production at Carra today?

Warrick Ranson

No. Sorry Sophie. No. We’ve still got a ramp up this plant. As I talked about, there’s still final commissioning checks on some final completion works and it’s largely going to be mine constrained in the first six months, as the sublevel case starts to develop. So it’s certainly going to be back-ended for the year. So, it’ll be very light first half and progressing heavier through the second half, but we’d like to keep the guidance at an annual level.

Sophie Spartalis

Okay. That’s great. Thanks very much.

Andrew Cole

Thanks, Sophie.

Operator

[Operator Instructions] Our next question comes from Michael Slifirski from Credit Suisse. Please, go ahead.

Michael Slifirski

Thank you. Let us start with the mine development cost update, the additional $18 million. So, what does that do to your unit operating costs? I understand that that’s for capital development, but you’re doing development to develop each horizon, which is part of your OpEx, so what does it do to your unit operating cost splits?

Andrew Cole

Versus the FSU, Michael?

Michael Slifirski

Yes, that’s right.

Andrew Cole

Yes, so, we’ve had both pluses and minuses in terms of both the operating expenditure and then obviously the higher capital. I think net-net, you’ll see slightly higher in the first five-year period. And then, now stopped, even themselves out as we continue to progress through, so.

Michael Slifirski

I’m slightly confused. As I understood before, the higher mining cost relates to higher ground support that you didn’t anticipate. So, presumably that is within stope development as well or is this peripheral to stope, since you’ve got the high ground support issues. I’m trying to understand whether the money costs themselves for development to develop each level, which are part of your OpEx, actually are higher than you assumed, as they are for the capital development?

Andrew Cole

Just a couple of things. Firstly, we don’t have stopes, Michael, so with some level caving on this. So most — for example, the biggest gap we have is in the FSU, we didn’t assume over-break. So, we are getting over-breaking here. It’s not a lot, but a little bit of over-break increases sharp creeps in ground support, for example. So it’s not the geotech or geomechanics of the rock, but its requiring increasing some assumption gaps between FSU and what we’re actually delivering in here.

The second thing to remember, which Warrick talked about is, the first three levels, the majority of which we’re now capitalizing, as opposed to going into operating costs, because that overall hit will be carried to protect dilution for a long period of time. So it’s a change in methodology, as well, so a couple of important things to remember to add that two Warrick’s comments.

Michael Slifirski

Yes. Look, I understand that, so maybe we’ll return to that mine, if you’d like, but the second part and you’ve just touched on it now. Can you articulate within that capital guidance for the next couple of years, how much of that capital guidance increase is attributed to the capitalization of the old blanket, because I would have assumed that that was always to be capitalized anyway?

Andrew Cole

Yes. It’s about just over $20 million, Michael.

Michael Slifirski

In total.

Andrew Cole

In total, yes.

Michael Slifirski

Okay. I’ll leave it there. Thank you.

Operator

Our next question comes from David Radclyffe from Global Mining. Please go ahead.

David Radclyffe

Hi good morning, Andrew and team. So, just some more questions, I guess, on Cara. In terms of annual throughput increase, could you provide the net capital for just that project and how we should think about that spanned over 2022 to 2023?

Andrew Cole

We haven’t actually broken that number out. So, I think somebody else asked that question as well, didn’t they?

David Radclyffe

Yeah.

Andrew Cole

Maybe Paul asked that question. Look, we’ll have to come back to you on the net number. So, the things that make that up are a portion of the increase sublevel cave footprint. Then a raft of other projects which are mostly plant-orientated, so hydro flow tails lines, second cleaner cells, et cetera.

So, there’s a list of those types of things and there’s a very long laundry list of debottlenecking activities, which we now have learned about and known as a part of the commissioning process, and as a part of understanding the ore body. So, I don’t have that number off the top of my head, but we will come back to you, David.

David Radclyffe

Okay, because it’d be also interesting to understand what you guys assess the IRR of that project to be given the focus on Iowa. I’m assuming it has hurdle [ph] rate?

Andrew Cole

It does. Yeah, it’s much it’s a material lever for Cara because we’ve given you guidance for 2020, and the next five years compared to FSU. But obviously with us targeting 4.7 to 5 has a life of mine impact. So, it has ramifications for the entire life of mine, which we’ve given you some guidance for a short period, but that guidance, you should be using as indicative guidance for the life of mine effectively in the plate — in the lieu of anything else. So, it does have material value attached to it, which is why we will be investing in it.

David Radclyffe

Okay, thanks. I kind of phase in then to the next question which was just, then what would actually drive physically that range of 4.7 million tonnes to 5 million tonnes a year. Is that ore availability over that period? And should we think of 5 million tonnes of the exit rate for that period?

Andrew Cole

It’s mostly the sublevel cave propagation. So, I still say it’s going to be a mine constrained operations. So, this is the rate which we can advance the sublevel cave given the footprint size.

So, one of the reasons we expanded the sublevel cave footprint was to enable us to expand the annual throughput rate. The bottle will continue to debottleneck the plant, but we’ve always got a lever to expand the plant in the future if we need to, but based on our mining rate, we don’t believe we need to do any material capital projects to the plan apart from those ones I have listed.

David Radclyffe

Okay. Thank you.

Andrew Cole

Okay. Thank you.

Operator

There are no further questions in queue. So, I will now pass back to Andrew for closing comments.

Andrew Cole

Okay. Thanks operator. Thanks everybody for joining the call. As usual, if you’ve got question please give Tom Dixon a call and we’ll organize to get the right person in the room to help walk you through it. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that does conclude the call for today. Thank you so much for your attendance. You may now disconnect.

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