IGO Ltd

ASX:IGO

Earnings Call Transcript 2018-Q3

[Operator]

Thank you for standing by, and welcome to the Independence Group 2018 March Quarterly Report. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Peter Bradford, Managing Director and CEO. Please go ahead.

[Peter J. L. Bradford, MD & CEO]

Thank you, operator. Ladies and gentlemen, it is my pleasure to lead you through our results presentation for the March 2018 quarter. With me on the call today are Scott Steinkrug, our Chief Financial Officer; and Matt Dusci, our Chief Operating Officer.Moving to Slide 2. I note our cautionary statements and disclaimer slide. I also draw your attention to the fact that all currency amounts in today's presentation are in Australian dollars, unless otherwise noted.Moving to Slide 3. IGO delivered stronger free cash flow of $57 million in the quarter, resulting in a further reduction to net debt to $73 million at quarter end. Nova delivered increased nickel production for the quarter from delivery of a combination of nameplate 1.5 million-tonne per annum mining rate and increased nickel grade of 1.85% nickel. Higher grades are expected to deliver a further increase in nickel production in the June 2018 quarter. Importantly, all mining operations were carried out at both the Nova and Bollinger orebodies.As guided, gold production from Tropicana for the quarter was softer. For the June 2018 quarter, we expect marginally stronger gold production and to end the 2018 financial year well within our guidance range for the full year. Importantly, Tropicana reached a major milestone in early January 2018, achieving its 2 millionth ounce of gold produced.Jaguar had lower-than-expected mining tonnage and grade. However, significant preparatory work was completed during the quarter to access higher volumes of ore at higher grades for mining in the June 2018 quarter, which is expected to result in a stronger result quarter-on-quarter. We continue to prepare for care and maintenance at Long. And as mentioned previously, we expect final mining to be on the 31st of May 2018.We made significant progress with our major exploration initiatives in the quarter, with multiple geochemical, geophysical and drilling programs underway. Importantly, at Nova, our 3D seismic survey, which is the largest high-resolution hard rock minerals 3D seismic survey ever to be undertaken in Australia, is ahead of schedule. We also progressed the airborne EM survey on the Fraser Range with SpectremAir during the quarter.I note that Rob Dennis, who transitioned out of the Chief Operating Officer role in February 2018, has retired on the 30th of April. Rob made significant contributions to the delivery of Nova through to commercial production within just 5 years from its discovery in July 2012. We thank Rob for his contributions to the growth of IGO.Moving to Slide 4. We had a lost time incident during the March quarter, which was the result of an employee of our contract drilling provider on the Fraser Range suffering from heat stress and dehydration. The employee was evacuated by the Royal Flying Doctor Service and recovered quickly following treatment. Our people and the Royal Flying Doctor Service involved in the response and evacuation process did a fantastic job. Importantly, our 12-month rolling lost time injury frequency per million hours worked for the quarter was 1.97, down from 2.61 as at 31st of December 2017.Separately, in April 2018, following successful negotiation on trust arrangements between IGO and the Ngadju Native Title Aboriginal Corporation, we made our first royalty payment to the Ngadju people's trust in respect of nickel production at Nova. These funds will go towards programs in education, health and medicine, elder support, emergency medical accommodation, sport recreation and social development.Moving to Slide 5. I will hand over to Scott Steinkrug, who will lead us through the next 2 slides.

[Scott Steinkrug, CFO & Company Secretary]

Thanks, Peter. As highlighted earlier, key financial metrics improved significantly compared to the last quarter. Total revenue for the quarter was $183 million, which is lower than the previous quarter due to lower production and sales from both Tropicana and Jaguar, offset by 23% higher revenue from Nova of $96 million. Both the improved Nova result and softer Tropicana result were grade-driven and were foreshadowed in our last quarterly update. Our underlying EBITDA increased by 14% relative to the previous quarter to $74 million. Furthermore, we made an unaudited profit after tax of $9.2 million in the March quarter, which was driven largely by improved sales at Nova and lower cash costs.Cash from operating activities increased by 82% to $92 million, while free cash flow increased to $57 million, a result that benefited from the receipt of $26 million from deferred December quarter sales, which we received in the March quarter. Net debt reduced quarter-on-quarter from $120 million to $73 million. We paid down $28.6 million of our debt facility in the quarter and also paid an interim dividend of $6 million.Moving to Slide 6. Key movements in cash flow are set out on this slide. Cash at the end of March improved $19 million to $70 million. Nova, Tropicana, Long and Jaguar, together contributed $71 million of free cash flow during the quarter, significantly higher than the $31 million achieved in the prior quarter. This is primarily due to an increase in free cash flow from Nova. Cash outflows comprised of corporate costs of $3 million and net finance cost of $2 million, both in line quarter-on-quarter, and the repayment of debt of $29 million and dividends paid of $6 million. Exploration and development spend for the March quarter was in line with guidance at $9 million.I'll now hand over to Matt Dusci, who will talk to each of the operations.

[Matt Dusci, Chief Operating Officer]

Thank you, Scott. Moving to Slide 7. The March quarter was the third quarter of commercial production from the Nova operation, and we continue to see consistent improvements each quarter, which is attributed to the hard work of the Nova team.Mining at Nova for the recording period was in line with a 1.5 million-tonne per annum nameplate production rate. Through the quarter, we transitioned from extensive development of ore and access drives and stoping of numerous smaller stopes on the margin of the Nova and Bollinger orebodies to the mining of smaller number of larger stopes within the core of the Nova and Bollinger orebodies. Some of these larger stopes are up to 65,000 tonnes in size. This transition has resulted in an increase in the grade profile quarter-on-quarter, along with providing greater mining flexibility. The average mill head grade for the quarter was 1.85% nickel. Nickel, metallurgical recoveries have been performing in line with or better than modeled recoveries throughout the quarter. Production tonnes and grade in the quarter are expected to increase relative to the March quarter, with the full year nickel metal production expected to be within or at the low end of the full year guidance range.During the quarter, we commenced pre-feasibility metallurgical test work associated with the downstream processing to produce nickel and cobalt sulphates directly from nickel concentrates. Commencement of this test work was based on the completion of a positive stoping study. The metallurgical test work program is expected to be completed in the June quarter.Moving to Slide 8. Grade control drilling of the Nova-Bollinger orebodies continues to progress, with approximately 27,000 meters drilled during the quarter. Grade control drilling at the Nova main orebody is complete, and drilling at Bollinger and C5 are at various stages of completion. Three diamond drill rigs were demobilized during February and March 2018, with the 2 remaining to complete the remaining grade control drilling and with a shift into an underground exploration drilling phase in the June quarter. We expect all grade control drilling to be completed during the June quarter. Work continued with the mineral resource and ore reserve estimate update. The updated mineral reserves -- resource estimate is expected to be complete -- is completed, and work has commenced on the ore reserve estimation process. Both estimates will be reported net of mining depletion to the 30th of June 2018, in the September quarter.Moving to Slide 9. During the quarter, we commenced an extensive 58 square kilometer 3D seismic survey using HiSeis. The Nova 3D seismic survey is the largest high-resolution hard rock minerals seismic survey undertaken in Australia. The data collected component of this work program has progressed rapidly, with the data collection phase now complete -- or now is expected to be completed later this week. We also completed approximately 1,700 meters of Reverse Circulation and diamond drilling during the quarter. The program tested several targets, including a follow-up of the previous intersected nickel and copper anomalies associated with the Phoenix Prospect. The results of Phoenix were in line with previous results characterized by blebby, disseminated sulphides. More drilling is planned on this prospect over the coming months.Moving to Slide 10. Tropicana performed in line with expectations, with all key metrics meeting or exceeding year-to-date guidance. Throughput rates were in line with the previous quarter and as guided. Grades was lower at the 1.85 grams per tonne gold. The average metallurgical recovery was 88.5%, down slightly but in line with expected -- expectation given the lower mill head grades.We are pleased to advise the construction activities of the 6-megawatt second ball mill have commenced. The second ball mill will contribute to a higher overall throughput rate and a finer grind, which is expected to result in improved gold recoveries by up to 3% to approximately 92%. The installation of the second ball mill is expected to be completed by the end of the 2018 calendar year. In terms of exploration, the 100x100 framework drilling at Boston Shaker was completed in the quarter, which was -- which has returned encouraging drill results, extending the high-grade ore shoots. The resource infill drilling on a 50x25 spacing is ongoing. This drilling will be incorporated into an updated mineral resource estimate as part of the Boston Shaker pre-feasibility study due for completion at the end of the calendar year. Gold production in the June quarter is expected to be in line with the March quarterly results. The second half of the calendar year will see an increase in production as a result of the recommencement of grade streaming. This grade streaming benefit is expected to continue through the 2019 calendar year.Moving to Slide 11. Overall, we had a challenging quarter at Jaguar, with lower zinc production resulting from lower mined tonnes and grade. The lower tonnage mined was a result of reduced ore contribution from operating development and reduced stocks -- drill stocks from stopes. Higher-grade stopes have become available in late March. It was expected to contribute to improved metal production in the June quarter. The development of the life of mine scheduling scenarios, including Bentley Deeps, the proposed Triumph Project, potential reentry at Jaguar and depth potential at Teutonic Bore, are continuing during the quarter.Moving to Slide 12. During the quarter, a number of higher-grade drill intersections were returned associated with the up-plunge extension of the Bentayga Lens. The higher-grade drill intersections include 4.1 meters at 8.8% zinc, 6.3% copper, 1.4 grams gold and 492 grams of silver. Another intersection include a 4.15 meters at 8.9% zinc, 3.9% copper, 1 gram gold and 200 grams silver. Given the promising drill results during the quarter, we committed to the development of an approximate 240-meter drill drive to provide a platform for resource definition drilling of the Bentayga Lens. This drill drive has been designed to easily convert to an access decline, enabling early production access to the Bentayga Lens on the success of the resource drilling program. Mineralization on the Bentayga Lens remains open in both up- and down-plunge directions.Moving to Slide 13. Long nickel production year-to-date was in line with pro rata guidance. The surface EM survey at Long North to test for potential extensions of the Gibb and Long deposits was completed early in the quarter. This survey identified 2 conductors worthy of drill testing. Two diamond drill holes for a total of approximately 700 meters were completed to test these 2 conductors. No nickel and sulphide mineralization was observed in the drill holes. However, assay results remain pending. Preparation for suspension of mining and the commencement of care and maintenance are continuing. We expect final mining to be on the 31st of May 2018.I'll hand now back to Peter.

[Peter J. L. Bradford, MD & CEO]

Thank you, Matt, and congratulations on a successful transition into the Chief Operating Officer role.Moving to Slide 14. As guided, at the beginning of the financial year, we expect to invest $50 million on exploration during the 2018 financial year, with approximately 40% of that to be invested in brownfield exploration and 60% on generative and greenfield exploration. A total of $30 million of the $50 million or 60% of the total is expected to be invested on the Nova mining lease and the Fraser Range.Moving to Slide 15. IGO remains committed to both delivery as well as discovery. Our systematic exploration of the Fraser Range, where we have consolidated some 14,000 square kilometers of tenure, continued during the March quarter as we carried out our significant exploration program in a scientific and systematic way to make a belt scale discovery in the region. The work undertaken during the quarter is summarized on this slide.Of note, we have carried out drilling at Zanthus and Pygmy to test ground EM targets and expect to also test the nearby Woolly EM anomaly in the June quarter. A downhole EM survey of the hole drilled at Pygmy during the March quarter has identified a very strong off-hold conductor, which will be drill-tested in the coming weeks.Moving to Slide 16. Work resumed at Lake Mackay in the Northern Territory in the March quarter to prove the potential of the region. This included the first of 2 airborne EM trials to test the effectiveness of these platforms to identify conductors within this belt. The first trial was completed by SpectremAir over areas previously tested with ground EM and drilling at Grapple, Bumblebee and Springer with very good success. In April, we carried out the second trial using the Tempest system and are now assessing the results from the 2 trials.Also during the quarter, we received results from the soil sampling survey completed in the December 2017 quarter over areas surrounding exploration license 24915. Several significant anomalies were identified, including copper, gold, cobalt, silver, zinc and lead anomalism. The soil response is similar in style to that overlying the Grapple prospect. We have now done infill soil sampling and are awaiting the results of this work.Moving to Slide 17. Ladies and gentlemen, I thank you for your participation through this presentation. To conclude, IGO is well positioned to deliver this financial year with strong financial and operational performance as well as opportunity to add value through discovery with our exploration programs.To recap the March quarter, we are on track to deliver full year primary metal guidance within our guidance range from all mines. Nova continues to demonstrate its value by delivering nameplate 1.5 million tonne per annum mining rate through the March quarter and an increase in grade in the March quarter to 1.85% nickel. Tropicana and Long metal production was in line with expectations, and Tropicana achieved its 2 millionth ounce of gold produced in early January 2018. We expect to access higher volumes of ore at higher grades for mining in the June 2018 quarter at Jaguar. Significant progress was made with the 3D seismic survey at Nova and the airborne EM survey on the Fraser Range. And lastly, underlying free cash flow increased substantially to $57 million quarter-on-quarter, and net debt was reduced by $47 million to $73 million. I will now hand the call back to the operator and open the lines for questions from analysts.

[Operator]

[Operator Instructions] Your first question comes from Trent Allen from Citigroup.

[Trent C. Allen, Vice President and Metals and Mining Analyst]

Just one question for me. Just on Nova-Bollinger production. Now in December quarter, you were on the guidance track. Now it seems like you're trending towards the lower end of guidance. Can you comment a bit on why that might be the case? For example, last quarter, there was a comment about reconciliation of grade to the resource model being a bit lower than expected in grade variability. Is that still the case now? Is that one of the reasons for -- perhaps you're headed towards the lower end of guidance in terms of nickel production?

[Peter J. L. Bradford, MD & CEO]

Yes, sure. I'll get Matt to talk to this, but just to sort of provide the right framework. We provided our annual guidance for Nova in a year of 2 halves, with a guidance range for the first half and then a higher guidance range for the second half. We ended the first half with production right at the top end of guidance and fully expect at that point in time to deliver comfortably within our guidance range for the year. We have been carrying out a comprehensive grade control program at Nova-Bollinger for over the last 2 years. And as a result of the -- of that program, we've continued to optimize our final design and schedule. And as a result of that, we have moved some of that scheduling around during FY '18. But I'll all get Matt to talk a little bit further about that.

[Matt Dusci, Chief Operating Officer]

Trent, it's Matt here. Look, it's not associated with reconciliation. So what we're seeing on the resource model is the resource model is performing in line with our expectations. So the main variance is when we came to do our -- like Peter talked about, came to do our guidance. It wasn't necessarily based on our most up-to-date understanding of that resource because we're continually doing the grade control. Once we've done that grade control drilling, what we're seeing is we're seeing a slight change in our mining schedule -- our mining schedule and mining plan. As a result of that, we'll still come within guidance but at the lower end of that guidance.

[Trent C. Allen, Vice President and Metals and Mining Analyst]

Okay. So to sum up, the resource model is reconciling with what you see at the mill currently?

[Matt Dusci, Chief Operating Officer]

Correct.

[Operator]

[Operator Instructions] Your next question comes from Simon Tonkin from Patersons Securities.

[Simon Tonkin, Senior Resources Analyst]

I just wondered, in the quarterly report, you did say near the lower end of guidance, but in the presentation, you said you'd meet guidance. So it's just a little confusing with that statement in the quarterly, whether that was actually meeting guidance.

[Peter J. L. Bradford, MD & CEO]

Yes, sure. With the way we look at our guidance range, we're not dealing with an exact science in mining. We've got a number of variables that [ within] an outcome, which is a range of outcomes. And so we prefer to talk to a range of outcomes, a minimum and maximum for our guidance, which reflects that inexact science that we deal with day-to-day rather than 1 binary result. So although in the closing remarks, I talked to primary metal production from all of our projects being within our guidance range, we have provided more granular guidance in respect of both Jaguar and Nova to say that they would come out towards the bottom end of that guidance range. And that messaging is just to make sure no one's surprised with where we end up at the end of Q4.

[Simon Tonkin, Senior Resources Analyst]

And then just one other thing. I noticed in your metal in concentrate in your table 3 of the quarterly report, 2,472 tonnes. If you multiply the math out, then it's 2,272, but I think it might just be a slight error on the number there.

[Peter J. L. Bradford, MD & CEO]

Yes. We'll take that on advisement, Simon, and just double check that.

[Simon Tonkin, Senior Resources Analyst]

And then just one other thing on Tropicana. You mentioned grade streaming for 2019. When does that kick in again? Because, I mean, the grade dipped down a bit for the quarter. What can we expect moving forward there in terms of grades?

[Peter J. L. Bradford, MD & CEO]

Yes. We're effectively in that now, and we saw the first benefit of the grade streaming in that first half of the year. Then there's a bit of a lull, and then we returned to our stronger grades for pretty much the whole of calendar '19. And that's in line with our consistent messaging regarding Tropicana production going forward over the last year.

[Simon Tonkin, Senior Resources Analyst]

And when does a new -- is a new ball mill getting installed? When does that happen?

[Peter J. L. Bradford, MD & CEO]

Yes, we're busy doing that work at the moment. Matt and I were actually up at Tropicana last week, and the guys there have made tremendous progress, with most of the major concrete work in place. And the program there is on schedule to be completed in the December 2018 quarter.

[Simon Tonkin, Senior Resources Analyst]

So are there any shutdowns due for Tropicana over the next couple of quarters?

[Peter J. L. Bradford, MD & CEO]

No. Well, we've got our regular shutdowns, and we generally shut down for about 24 to 48 hours on a regular basis to do normal work. And while we do those normal shutdowns, we are doing all of the tie-ins that are required for the new ball mill. So when it gets to the point where we've got to bring that new ball mill online, there will be minimal additional work or shutdown required to do that because we've absorbed the impact into our normal routine shutdowns.

[Operator]

[Operator Instructions] Your next question comes from Hayden Bairstow from Macquarie Group.

[Hayden Bairstow, Analyst]

Just, Pete, just want to circle back on the guidance, just making sure we're looking at, I guess, the right numbers. I mean, the guidance is all pretty much what it was in August last year, I think, across the board. And you're talking about hitting bottom end of range in nickel in Nova and also Jaguar on zinc. Can you just sort of touch on some of the other parts of the guidance. I mean, obviously, cost of Jaguar, even with the copper production, has been pretty high for the first 9 months. Is there some adjustments to some of those other ranges? Or are you going to do that at a later stage? Or how are you thinking about sort of the rest of the guidance that you've all given last year?

[Peter J. L. Bradford, MD & CEO]

Yes. Thanks for that, Hayden. The -- as you pointed out, with both Jaguar and Nova, there's significant byproduct credit impacts on the optics of the unit cash costs that we report. So with Jaguar, with lower overall copper contributions, that has resulted in less byproduct credit and costs overall moving -- unit costs moving upwards. We haven't revised guidance on our cash costs at this particular time. And we do expect a stronger overall production result for both Jaguar and Nova in the quarter, which will go a long way to bringing those unit costs closer to or within the guidance ranges.

[Operator]

Your next question comes from John Cathcart from Thorney Investment Group.

[John Cathcart]

Cash generation of $57 million, debt of $73 million, can you just give us an idea of where you see you'll drive the debt and $50 million on exploration? Are there any other major CapEx numbers that we haven't talked about in the call?

[Peter J. L. Bradford, MD & CEO]

The -- our major ongoing capital investment, if you like, is our commitment to exploration, $50 million this year, and we would expect that will be around $50 million next year. Then if you work through the projects, the next biggest CapEx spend is at Nova this year, with a combination of ongoing capital development CapEx, plus sustaining CapEx. And I haven't got that number right in front of me at this stage. So we're about...

[Scott Steinkrug, CFO & Company Secretary]

[ 44 for the ] development for the full year guidance range.

[Peter J. L. Bradford, MD & CEO]

Yes. So if we add the 2 together there, John, we're up around $55 million, $60 million of CapEx at Nova. That will shrink considerably year-on-year through to FY '19, because by June 30 this year, we would have substantially completed the capital development at Nova, and we'll just have a small amount remaining going forward over the life of the mine. And one of the considerations we're toying with now is whether we continue at the current rate of development and deal with that in FY '19 or drag that remaining capital development out over the next couple of years. So we'll make that decision as part of our budgeting process in the next few weeks. But the numbers will be considerably less than what we saw in FY '18. At Tropicana, we've got a capitalized waste stripping this year, around $50 million. And we've got an improvement CapEx towards the ball mill and a couple of other programs there of about $17 million. So all up, we've got about $60 million, $65 million of CapEx at Tropicana. And year-on-year, we would expect that to be marginally lower in FY '19 because we would have completed that ball mill. But then offsetting that, we would be expecting a decision on an underground at Boston Shaker later this year, which may add more CapEx to our FY '19, FY '20 plans. And then CapEx at Jaguar and Long is pretty much a rounding error.

[John Cathcart]

Right. Okay. So we're moving into a fairly -- into your spend pattern, but it's lower than what you have been spending. And so we're going to expect the net cash position of the company to increase. Can you just remind me how much cash you've got on the balance sheet?

[Scott Steinkrug, CFO & Company Secretary]

$73 million cash on the balance sheet. And put that in our -- so $70 million cash at the end of March and debt of $143 million, a net debt of $73 million. And we'd expect to keep on paying down the debt in an orderly fashion. So we have 2 semiannual payments of $29 million each. Other cash flows going forward, that would sort of be -- outside of free cash flow would be dividend payments as well. And other than that, it's really the cash flows that Peter has mentioned.

[John Cathcart]

That's a good result, because, I mean, as I recall, your debt was high up towards north of $200 million at one stage there.

[Scott Steinkrug, CFO & Company Secretary]

You might be referring to a $200 million revolving credit facility that we have undrawn.

[Peter J. L. Bradford, MD & CEO]

But certainly, if you go back sometime then, debt was considerably higher. But the Nova asset has significant cash-generating capacity, and we'll start to see that more so over the next few quarters as we start operating at or above mine life average nickel grades. And with a regular sort of $40 million to $45 million reduction in net debt over the past few quarters, just the straight line arithmetic takes us to being net cash by the September quarter.

[Operator]

Your next question comes from Peter O'Connor from Shaw and Partners.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Firstly -- or 2 questions. Firstly on Long and nickel. Given our discussions over the quarterly of the last year or so about the outlook for Long, how do you and the team and the board think about Long given the context of nickel price, which has been quite extraordinary over that period of time? And is there flexibility in what you're doing with Long? And what would be the triggers to change your current position on care and maintenance? And are there any other options with that particular asset given that backdrop of higher commodity price?

[Peter J. L. Bradford, MD & CEO]

Yes, certainly. We are on a path at the moment to stop the current round of mining on May 31. That doesn't mean that the resources at Long are fully exhausted. We still have resources in the ground. It's just that those resources haven't warranted the investment -- the CapEx investment to drill those off and to access those over the past couple of years while nickel prices were lower. So that is an opportunity going forward. But our main focus has been some of the drill programs we have been doing to identify potential step-change opportunities at Long, and that's the reason why we were drilling at Long North in the quarter. We haven't had the result we were looking for. If anything, it looks like a gold target rather than a nickel target, but we've got a number of other conceptual targets that we will drill over the coming quarters to look for that step-change opportunity at Long and try and demonstrate the discovery of a new world-class mine. And the best place to look for a world-class mine is right next to or underneath one.

[Matt Dusci, Chief Operating Officer]

Peter, it's Matt here. As part of the care and maintenance plan, we're also ensuring that we're keeping the mine de-watered and ventilation still there. So it enables an easy reentry as well.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Should I think about a trigger price for the existing ops as opposed to that step-change option that you would look to restart?

[Matt Dusci, Chief Operating Officer]

Yes. You mean that's a difficult question because it depends on where the access of the ore is. But ultimately, we were looking for that step change at Long so that we can look at extension of life of mine and longer periods of life of mine rather than where we were at, which was all incremental.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Right. Second question, a little bit more high level. Just thinking about the trend that you had over last year, which has been impressive, with the quarter-on-quarter continued improvements in your financials. And as John pointed out before, the deleveraging is impressive as well. I'm thinking now we're at the third quarter, with 1 quarter to go for the year, and I'm just trying to marry up the financial year-to-date versus where we, the muppets, think you will be at the end of the year. There seems to be quite a big gap between the financial expectations versus the impressive financial delivery that you've had. Will the nickel backdrop, which is 25% higher quarter-on-quarter, now be enough to deliver that gap between what you've delivered so far and market expectations? Or are we a little bit awry in our expectations for what you can do in the fourth quarter?

[Peter J. L. Bradford, MD & CEO]

Yes. Our focus internally in the organization is to deliver on those physical metrics that we've talked to, and we continue to do that. We had -- have had some grade movement out of Q3 into Q4 and potentially into FY '19. But the near-term forecast for grade outcomes for Q4 look strong, and therefore, we are convinced that we will have a strong end of the year in the fourth quarter at Nova but also across the rest of the business.

[Peter O'Connor, Senior Analyst of Metals and Mining]

Pete, have you ever and would you consider just supplying some sensitivity metrics for us, re: major commodity prices, be it gold and nickel? Is that something you've done before or you could do now?

[Peter J. L. Bradford, MD & CEO]

Yes, it's the sort of thing we do internally all the time. We'd have to ensure there were no disclosure issues there, but quite happy to provide that if there's not. The arithmetic itself is relatively simple.

[Operator]

[Operator Instructions] Your next question comes from Sophie Spartalis from Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just a question on Nova. Are you still continuing to look at those valuating opportunities? Is the team ready to start looking at those and then sort of where are you placed? Can we get some kind of update on that?

[Peter J. L. Bradford, MD & CEO]

Yes. The key ones there that you'd be referring to would be the downstream processing, being able to unlock the nickel and the cobalt from our nickel concentrate and to produce potentially a nickel cobalt sulphate. And the second big one there would be the work we're doing to look at automation opportunities underground. And both programs are ongoing there. Rob Dennis, in recent times, has been spearheading that charge and has those programs up and away. And we have other people in the organization now who are taking carriage of those longer term. With the downstream processing, key milestone points there would be end of metallurgical test work in the June quarter. That's the point in time when we know where that's technically possible. If it is, then we'll do the feasibility study work -- the pre-feasibility study work that we need to do in the second half of the calendar year to demonstrate that it's financially feasible as well. So those are the milestones there. On the automation, yes, that's much more of an incremental process, with a number of smaller milestone points along the journey. A key one there for us has been moving our remote bogging control from the underground to the surface so that we can maximize the amount of hours per day that we are bogging and potentially save up to 2 hours per day. We're just at the point of being able to transition into that because all of the extra infrastructure has been put in place. And I'll just ask Matt exactly when we expect that to happen.

[Matt Dusci, Chief Operating Officer]

Yes. So like Peter is saying, we put a lot of infrastructure in place so that we can bring that bogging operation to surface, which effectively improves our operational efficiencies. So we're in the process of implementing that as we speak, and we should have that implemented by the end of this financial year.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And are you still looking at nickel sulphate opportunities? Because it seems as though some of your peers in the market aren't convinced that, that's actually the product that the battery producers want. Any comments there?

[Peter J. L. Bradford, MD & CEO]

Yes. That's the metallurgical program that we're doing that I just talked to. We expect to complete the metallurgical program at the end of the June quarter, and that will be the point when we know whether we can deliver a product that the battery manufacturers need. And then once we've demonstrated that in the laboratory, we will then do the additional pre-feasibility study work to demonstrate that, that's financially feasible to do and would finish that at the end of the calendar year. But certainly, the technology seems simple. We've produced -- we've been able to demonstrate that we can dissolve the nickel and the cobalt out of the sulphide concentrate. The next step is whether we can precipitate that in a form that's salable to the EV battery guys. But understanding what they need is all about getting closer to them. So 4 weeks ago, Matt and myself visited one of the electric vehicle battery factories for the sole purpose of trying to understand what form they want their nickel and cobalt in.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay, great. And then just at Tropicana, the underground opportunity at Boston Shaker, what kind of grades are we looking at? And what timing also would we be looking at?

[Peter J. L. Bradford, MD & CEO]

Yes. At this stage, we've got no disclosure on the grade other than the assay results for the intersections that we've reported. And we're currently in the process of doing the resource estimation and then the reserve estimation for that. We would expect we'll have a disclosure to the market late in the December quarter.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Late in the December quarter, you said?

[Peter J. L. Bradford, MD & CEO]

Correct, correct.

[Operator]

Thank you. There are no further questions at this time. I'll now hand back to Mr. Bradford for closing remarks.

[Peter J. L. Bradford, MD & CEO]

Must have been mistaking my batting prowess with one of my peers. Ladies and gentlemen, once again, thank you for your participation through this presentation and Q&A session. Good day.