IGO Ltd

ASX:IGO

Earnings Call Transcript 2019-Q3

[Operator]

Thank you for standing by, and welcome to the Independence Group 2019 March Quarterly Report Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Peter Bradford, Managing Director and Chief Executive Officer. Please go ahead.

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

Thank you, operator, and ladies and gentlemen, welcome. It is a great pleasure to lead you through our presentation today, of our March 2019 quarter results released this morning. Joining me on the call today are: Matt Dusci, our Chief Operating Officer; and Scott Steinkrug, our Chief Financial Officer.Slides 2 and 3 highlight our cautionary statement and disclaimer as well as our competent person statement. I also note that all currency amounts in the presentation today are in Australian dollars unless otherwise noted.Moving to Slide 4. Before I discuss the results of the quarter, it is important that I address our purpose. At IGO, we are intent on making a difference. This thinking has informed our strategy to focus on metals, critical to clean energy, and specifically, the rapidly growing markets for renewable energy, energy storage and electric vehicles. Those of you who track the data will have seen that electric vehicle penetration rates are exceeding forecasts released just a few years ago and there is a coordinated push from governments to help support these industries and to accelerate the capacity of industry to meet growing demand. These are exciting times, both for our industry, and we have aligned ourselves and our shareholders to benefit from it. Our strategy is to become globally relevant in the supply chain for clean energy, to become vertically integrated with both upstream and downstream businesses, to produce high-quality products desired by our customers and to do this sustainably, safely and reliably. And finally, we also intend to do this while proactively -- while being proactively green in the way we run our business, minimizing energy consumption and waste production, and continuing to identify innovative ways to operate. Sometimes we don't talk enough about our people and culture, yet this is ultimately key to our success. At IGO, we cocreate our desired culture and the action plans to make it happen. We seek feedback through our employee engagement surveys, which pleasingly show results above benchmark. This is something that I and all of us at IGO are proud of and is contributing to our lower turnover rates.Moving to Slide 5. The quarter's performance was outstanding, characterized by the strong performance from Nova, which delivered record high metal production and record-low cash cost. Underlying EBITDA, or earnings before interest, tax, depreciation and amortization, for the quarter was $117 million, delivering a net profit after tax of $45 million. This resulted in a net cash position at quarter end of $172 million. With one quarter remaining in the 2019 financial year, we are highly confident of achieving full year gold production at Tropicana within our guidance range and delivering metal production at Nova above the top end of our full year guidance range. All-in sustaining cost at Tropicana and cash cost at Nova are expected to be at the top end of guidance. During today's presentation, I will provide greater detail around our financial and operating performance for the quarter and an update on our various growth initiatives, including exploration, where we had been busy in recent months.Moving to Slide 6. Safety and sustainability continue to be a core focus at IGO, and we are proud to demonstrate continued improvement in our key lead and lag metrics, which reflects our continuing commitment to safe work practices across the business.Moving to Slide 7. As you can see on this slide, performance for the quarter was exceptional with quarter-on-quarter improvements across all key measures. Strong operational performance resulted in group revenue increasing from $189 million in the second quarter to $233 million in the March quarter, a 23% increase. Revenue from Nova benefited from an 18% increase in nickel metal and a 59% increase in copper metal sold from Nova as well as higher realized nickel prices during the quarter. The higher revenue led to a 72% increase in underlying EBITDA to $117 million and a threefold increase in underlying free cash flow quarter-on-quarter. Unaudited net profit after tax was $45 million, which benefited from lower depreciation and amortization charges primarily in relation to Tropicana.Moving to Slide 8. We provide a reconciliation of net profit after tax to demonstrate the key drivers underlying the significant quarter-on-quarter increase mentioned on the previous slide. These include strong performance from Nova, delivering a significantly higher EBITDA, a $7.9 million quarter-on-quarter variance in -- on revaluation of investments and lower depreciation and amortization expenses at both Tropicana and Nova for the quarter. Also notice a slight error on this slide, we talked to a 7% increase in nickel price quarter-on-quarter, that was actually 16% and the correct number is in our ASX quarterly report release. The lower depreciation and amortization charges reflect lower third quarter ounces in ore mined together with continued production from the Tropicana pit, for which the deferred stripping asset had been substantially amortized as at 31st of December 2018 as well as production from other pits with lower amortization charges. The end result is a $45 million net profit after tax for the quarter.Moving to Slide 9. This cash flow waterfall provides an overview of the cash movements in the business. Of note, as you can see, the major contributor to net cash was a strong performance from Nova with outgoings including $11 million expenditure on exploration, one of our key growth drivers, and a $29 million scheduled debt repayment. We also paid a $0.02 per share fully franked interim dividend in March, which totaled $12 million. And I note that we announced in January our new shareholder return policy, which aims to return 15% to 25% of free cash flow to shareholders. Our closing cash balance at quarter end was $257 million with net cash totaling $172 million.Moving to Slide 10. Production at Nova set another record during the quarter with production of 8,375 tonnes of nickel and 3,731 tonnes of copper, both 10% higher quarter-on-quarter. Higher production was driven predominantly by the expected increase in grade as stoping continued in higher grade areas of the Nova and Bollinger orebodies. Average grade mined for the quarter was 2.53% nickel and 1.04% copper. Significantly, Nova achieved record low cash cost of $1.50 per payable pound of nickel. This represents a 22% improvement quarter-on-quarter and is better than our 2019 financial year guidance range of $1.65 to $2 per payable pound. The result in the quarter did benefit from a 9-month year-to-date downward adjustment to mining cost of $2 million as a result of a reassessment of capital meters advanced, and we expect the fourth quarter and full year cash cost to be at the top end of the guidance range. Average nickel recoveries for the quarter were 86.8%, and this is lower than expected. But we had seen an improvement in the month of March where recoveries increased to 88.2%. Several work streams are continuing to deliver higher nickel and copper recoveries on a sustained basis.Moving to Slide 11. As you can see from the chart on the left, this is the third consecutive quarter that Nova has improved production and lowered unit costs. Testament to the quality of the asset, our management systems and processes, and ultimately, our team. The EBITDA margin for Nova for the quarter improved from 41% to 56% and the free cash flow margin was a strong 53%. Moving to Slide 12. This figure represents the Nova underground development, which is now substantially complete, de-risking future access and delivering greater operational flexibility going forward.Moving to Slide 13. A few weeks ago, we updated the market on our nickel sulfate downstream processing study, a project that we have been pursuing as part of our strategy to be vertically integrated and to be part of the renewable energy and energy storage supply chain. The nickel sulfate downstream project promises to deliver higher payabilities and premium prices. Pleasingly, test work to date has demonstrated that the IGO process, for which we have patent applications in place, can achieve high extraction rates in excess of 97% for both nickel and cobalt from Nova concentrate. And we can also produce a high-quality, battery-grade nickel sulfate product. In addition, the IGO process promises strong environmental credentials through lower emissions, lower power consumption and lower waste generation. As we announced in the update, the study will continue until late 2019 with the primary objectives being to optimize the flow sheet, maximize byproduct production and conduct location trade-off studies. For your reference, you can find the full update via the ASX release dated 2nd of April 2019, which is available on our website.Moving to Slide 14. Tropicana delivered a solid quarter of gold production, benefiting from a higher gold price over the period and record mill throughput of 2.1 million tonnes for the quarter, which is higher than the 8.2 million tonne per annum nameplate run rate. Gold production was 10% lower quarter-on-quarter, driven by expected lower average milled grades, which was offset by a 4% improvement in gold price over the quarter to average -- which averaged AUD 1,839 per ounce. Lower production had an impact on cost with cash cost 12% higher and all-in sustaining costs 17% higher quarter-on-quarter.Moving to Slide 15, where we show quarter-on-quarter -- quarter-by-quarter production and cost performance from Tropicana, the marginal fall in production impacted all-in sustaining cost during the quarter, as we just mentioned. However, the EBITDA margin remained strong at 59% and the free cash flow margin was 31%. Tropicana is a high-quality asset that continues to deliver high margins.Moving to Slide 16. As announced, during the quarter, the Tropicana joint venture partners, AngloGold Ashanti and ourselves, approved the development of the Boston Shaker Underground, the first underground mine at Tropicana. The key metrics for the underground development are shown on this slide. Importantly, development will commence in the June 2019 quarter, and we expect first gold production from the underground during the September 2020 quarter. In fact, I was at Tropicana last week, and preparatory plans are well progressed and the Tropicana team are on schedule to start the portal in May 2019.Moving to Slide 17. The image depicted here is not new but it demonstrates the Boston Shaker Underground mine design, including the decline via our portal from within the Tropicana pit. The image also highlights the significant potential for additional underground opportunities beneath the Havana and Havana South pits. With the Boston Shaker studies completed, the Tropicana team are moving ahead with the assessment of these value enhancement opportunities.Moving to Slide 18. Before I give an update on exploration activities in our specific projects, I'd like to highlight the significant exploration activity that is underway this calendar year. IGO has made a commitment to spend $51 million on exploration in the current financial year, and the largest drilling campaigns in the company's history, with 9 drill rigs in the field, is currently underway, leveraging the targeting work completed over the last couple of years and the capabilities of our best-in-class exploration team. Exploration and discovery are core competencies of IGO and the key driver of the organic growth for the business. We have many exciting prospects, which we aim to convert into discovery during the current program.Moving to Slide 19. At Nova, we are targeting brownfield extensions of the Nova system and have identified a number of key targets which we are currently drilling. We continue to leverage the 3D seismic data that we acquired in 2018, which continues to deliver additional high-priority targets resulting in the expansion of our 2019 Diamond drilling program. Notable progress in the quarter includes promising results at Elara, northeast of Nova, where we have intersected Nova-style rock types and identified an off-hole EM conductor. This is one of the key priorities for the June 2019 quarter. Closer to Nova, underground drilling to the north of Bollinger has expanded our knowledge of and extended the lower grade C5 zone.Moving to Slide 20. In the Fraser Range more broadly, we have identified 40 targets for drilling in the current calendar year. Drilling to date has identified new mafic and ultramafic intrusions across the entire Fraser Range belt, which validates our commitment to this region. Of note, the Kaon target located just 5 kilometers to the west of Nova on the Southern Hills tenements is particularly interesting with a 4-kilometer by 2-kilometer mafic, ultramafic intrusive complex associated with anomalous nickel, copper, cobalt geochemistry. These are all exciting prospects.Moving to Slide 21. Widowmaker is another exciting prospect given its proximity to both Creasy Group's Silver Knight discovery and Nova, 30 kilometers to the Southeast. Drilling at Ecliptic and Solar commenced in March and is continuing in the June 2019 quarter.Moving to Slide 22. At Lake Mackay in the Northern Territory, our work is progressing well. We completed the Spectrum airborne EM survey during the quarter and are now drilling several high-priority EM targets prospective for sulfide mineralization, including Blaze and Prowl as well as other targets including Grimlock, a nickel-cobalt laterite prospect. Demonstrating our commitment to this belt, we expanded the project area by 33% during the quarter to a total of 19,000 square kilometers. In summary, our exploration teams remain very busy across our portfolio, focused on discovering the mines of the future. We are committed to discovering large long-life projects with a focus on commodities required for the rapidly expanding energy storage and renewable energy industries and are looking forward to keeping the market updated as the work programs progress.Moving to Slide 23. Ladies and gentlemen, thank you for joining us on the call this morning. In summary, IGO has delivered an outstanding third quarter result with record production and record low cash cost from Nova, driving a strong EBITDA and net profit after-tax result. The strong cash build achieved over previous quarters continues with a net cash position growing to $172 million at quarter end. This allows us to not only pursue exploration and fund growth initiatives aligned with our strategy but also positions IGO to provide greater returns to our shareholders in accordance with our revised capital allocation and shareholder returns policy. Nova and Tropicana are on track to deliver on full year production guidance. We are also excited to have approved the Boston Shaker Underground development at Tropicana and to have made significant progress on the nickel sulfate downstream processing study. Ladies and gentlemen, we have made good progress and are proud of our achievements and the value proposition we present for all of our stakeholders. Thank you for joining us on the call this morning. Before I hand the call back to the operator, I would like to take this opportunity to thank all of our employees and contractors for their continued contributions. It is thanks to them that we have delivered this outstanding operating result, and equally to continue to lead the way in safety and sustainability performance. In particular, I'd note the efforts of the team at Nova, who not only delivered record production and cash cost in the quarter but dealt with a bushfire that threatened our infrastructure. Thanks to their efforts led by our Processing Manager, Matt Spagnolo, and the assistance of the local pastoralists and the Department of Fire and Emergency Services, no people were harmed and no assets were damaged. We're now happy to open the call to questions from investors and analysts. Thank you. Operator?

[Operator]

[Operator Instructions] Your first question comes from Michael Slifirski from Crédit Suisse.

[Michael Slifirski, Managing Director]

So first of all, you mentioned your focus on metals for clean energy, and then in your closing remarks you talked about commodities for clean energy. Is it broader than metal, are you looking at other opportunities beyond metals for clean energy and into the other commodity space?

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

Slip of the tongue.

[Michael Slifirski, Managing Director]

Right. Okay. So...

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

The phrase at the end should have been metal.

[Michael Slifirski, Managing Director]

Okay. And with respect to that, how does the Tropicana fit into that? It's not exactly a clean energy metal and, in fact, it's fully energy intensive. How do you see Tropicana stope, is that a funding source for further investment in clean energy metals?

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

It's simply a great asset. As I said on the call, it continues to deliver high cash flow and good margins. And we continue to peel back the layers of the onion skin to demonstrate further and further value enhancement. And there is renewed bodies of work to investigate underground opportunities at Havana and Havana South, and we would expect to be there for some time participating in that value-enhancement program.

[Michael Slifirski, Managing Director]

So reading into that, if you find other great projects that happen to be outside the clean energy space, would you pursue them?

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

Absolutely. We've seen too many companies in the past make mistakes because they were blinkered in their approach, making a gold discovery for example when you're looking for nickel, and then walking away from the gold discovery. That's not the sort of people we are. If we should be lucky enough to make that sort of discovery, then we would look at mechanisms for understanding the value and then unlocking the value going forward, and there will be plenty of opportunities for us to do that but not operated ourselves, whether that be joint ventures or divestments. So it's really unlocking value in any way that we can.

[Michael Slifirski, Managing Director]

Okay. And then finally with respect to Tropicana, a little confused is that trade-off, and I think you talked about it last quarterly, between grind size to improve recovery but then utilizing that grinding capacity to increase throughputs. So how do you sort of optimize quarter-on-quarter whether you go for throughput or recovery?

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

Yes. And it's a tradeoff, both from a short-term perspective and a long-term perspective. As we indicated in the ASX release, we were able to create more gold by increasing throughput during the quarter, even though we lost some gold as a result of the recovery decrease but the delta was higher. So therefore, during the quarter, we added value. And I would expect that, that there'd be a similar value equation over coming quarters. And then there is a long-term perspective, does that erode value long-term? So this is an area where we, ourselves and AngloGold Ashanti, continue to consider both the short- and long-term elements.

[Operator]

Your next question comes from Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Peter, just on the grade. I mean it was obviously a very good grade across the board at Nova during the quarter, which led to a beat and also you're going to produce more than guidance -- the top end of the guidance this year. Just wondering on that grade, you said it was mostly planned. But is there any better reconciliation that came through as part of that? Or is it just you mined higher grade stopes as planned during the quarter?

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

Yes, I've got Matt Dusci here, so Matt will talk to that.

[Matt Dusci, Chief Operating Officer]

Daniel, it's Matt here. So essentially, the grade was planned, reconciliation for us is performing extremely well. Now that we've got all the grades drilling, which gives us the ability to well plan our mining and our forecasting, so essentially the production we saw out of the quarter was driven by higher grades stopes in the quarter. That grade will come down a little bit in the following quarter.

[Daniel Morgan, Director and Analyst]

And then maybe just one other question. Can you give us an update on how you're thinking about contracting for your concentrate given the downstream strategy? What's the latest thoughts on that?

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

The -- as we indicated in our ASX release in early April on the downstream process, it will take some time to get ourselves to the point where we can make an investment decision on that. And therefore, there will be a gap period between when our current offtake agreements expire and the earliest opportunity for us to be producing a nickel-sulfate product in the future. Therefore, we will be going to market in the coming months to seek new offtake agreements for the period post December and June -- or December 2019 and June 2020 for the 2 components of that current offtake.

[Operator]

You're next question comes from Sophie Spartalis from Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just continuing on that downstream question. It looks like the company is progressing down that route. What do you think could come up between now and when you make the investment decision to derail it, given all indications are that it's likely to go ahead?

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

Yes. There's no guarantees at this stage, whether it goes ahead or not because that'll be an outcome from the study works that we do. And ultimately, it will all be around value. And the value trade-off here is the offtake terms we might get for future sales of nickel-cobalt concentrate versus the value that we could unlock through the nickel sulfate downstream processing. And we see some tightening of the nickel concentrate market and some upward pressure on potential payabilities. And ultimately, there could be a point therein in the future where one -- where increasing payabilities negates any value that could be derived from nickel sulfate. So at this stage, there is no guarantees as to which way we may -- which -- what the final decision may be. The main focus is doing the work to unlock the opportunity to make that decision in the future.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

So okay. That's great. So just following on from that then, in terms of the nickel sulfate pricing assumptions, obviously, there is a price premium today. Can you just maybe give us some insight as to what goes into the forecasting of that premium going forward? Are you reliant on your discussions with potential customers? Or is there other market analysis that is being done to give you some confidence around how that projection of that premium plays out going forward?

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

Yes, ultimately, it's a combination of the two. And ultimately, we need to assess the economics over a broad range of sensitivities on that potential premium.

[Matt Dusci, Chief Operating Officer]

Yes, Sophie, it's Matt here. It's also important to note the payability. So the value driver that we're trying to unlock is driven by the uplift in payabilities, not just the nickel sulfate premium, which is the differentiation between this process and traditionally on how nickel sulfate is being produced. So it is less sensitive to the nickel-sulfate premium for us because of the payability uplift.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. No. That's great. And then just changing tack, earlier in the conference call, and forgive me, but I didn't quite catch it, you talked about, in terms of the guidance, was -- did you say that Nova could go above the top end of guidance? Can you just reiterate where you think Nova and Tropicana production and cost guidance will sit versus the range?

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

Sure. The -- what we've guided in the ASX release is that production -- metal production at Nova this quarter will be marginally lower quarter-on-quarter, but will deliver an end of year result which will be above the top end of our full year guidance. And for Tropicana, we've guided that we will be within the guidance range for gold production. For both projects, we've guided that cash cost and all-in sustaining cost will be at the top end of our full year guidance range.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And then just -- sorry, just in terms of the third question, following on from Michael's question earlier regarding the commodity or metal exposures, how do you split your exploration assets versus inorganic growth? Like, is it first base is just to explore as much as you possibly can, and then as you sort of get to the time frame of year 3 to 5 then you'd potentially look at M&A? Or can you just kind of describe the strategy there?

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

We take a holistic approach to growth opportunities. And we look at both organic and inorganic opportunities equally. The delivery of organic growth is something that may take quite a few years to unlock. And so therefore, we've got a significant commitment to that early in the mine life of Nova and Tropicana, and that work is continuing and we discussed that in detail on the call. In parallel with that, we do have a program of work which looks at inorganic opportunities, led by Andrew Eddowes and his team, and so we do look at a number of opportunities aligned to our strategy and our focus on metals that are critical for clean energy. But as yet, there's been nothing out there that we would call compelling that we would feel motivated to take action on.

[Operator]

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

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

Congratulations on the good results.

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

Thank you.

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

Couple of things. Firstly, feedback. I love your strategy page, by the way, Page 4, well done. And could you keep reiterating it? Firstly, cost guidance, top end of the range in both. Why? I know you've talked through on the call but record production at the bottom end -- or at the top end but cost at the top end. Should we be concerned about that trend? Are you overoptimistic about your guidance range and costs related to production? Or why is that the case?

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

Yes. When we look at the -- take Nova for example, we've got costs that are in our control and then we've got -- and we've performed very well there year-to-date. And we've got some language in the ASX release that talks to how well we've performed. But the biggest detractor has been the byproduct credits that -- and those have come out about -- they've contributed to a $0.41 per pound increase in cash cost year-to-date and that's been the biggest detractor. If we had achieved byproduct credit pricing in line with what we assumed for our full year guidance, then we'd be traveling or tracking at the bottom end of our full year guidance range right now today.

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

Okay. And Tropicana?

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

So the team at site have actually outperformed and that outperformance has been diluted by the byproduct metal pricing underperformance.

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

That makes sense. And with Tropicana?

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

With Tropicana, the main driver there has been fuel. Fuel prices year-to-date has been significantly higher than what was assumed in the budgets we developed for Tropicana this year, which then informed our full year all-in sustaining cost guidance.

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

Is there much lag between that fuel price and what we see on the screens on the oil price?

[Matt Dusci, Chief Operating Officer]

It's Matt here. There's not much lag but the difference was when we set the budget, fuel prices were also extremely low at that point.

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

Okay. And Matt, three for you. Mark-to-market, just remind me what's in that bucket. And secondly, long -- how long we've got care and maintenance cost there and how large? And thirdly D&A. Just that Nova and Tropicana pop-in for the quarter, I heard that explanation of Tropicana on the call, at least the Nova comments. But how do I think about the fourth quarter D&A for both?

[Scott Steinkrug, Joint Company Secretary & CFO]

Peter, Scotty, I'll take the questions if you'd like. So on the mark-to-market, we talk about a $7.9 million turnaround. So what that means is that the mark-to-market has been actually increased by $7.9 million during the quarter. We had about a $5 million decrease in the second quarter, $5.5 million decrease and a $2.5 million increase in this quarter. So hence, where that $7.8 million comes from. In terms of D&A, yes, D&A charges were higher in previous quarter compared to this quarter and, look, as I've alluded to in the quarterly report, that was primarily around deferred stripping and the outcomes of the December quarter versus this quarter. So there was one pit in particular -- one stage of the Tropicana pit that we took the decision to fully amortize in the December quarter. We had some additional ounces coming through than in the March quarter, that effectively carried very little cost base. So going forward then into the fourth quarter, looking at the models, it's looking about 10%, 15% higher D&A charges compared to this quarter is where I'd say we'd end up, so well within what we were initially talking about at the start of the financial year in terms of where D&A charges would end up. We had similarly slightly lower depreciation, amortization charges at Nova, $4 million, and that was based on the depletion of the mine. So mining ore tonnes was lower quarter-on-quarter, hence why amortization charges were lower quarter-on-quarter as well.

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

Okay. And then, Pete, just one more. Miners do mining really well, Pete, explorers do mining -- sorry, exploring well, you got to do both. Chemistry is different. So nickel sulfate, a different area. And you're increasing ultimately the risk profile of the group. Is that -- how do you get comfortable with that? And how should we think about that?

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

Yes. Sure. And look, it's a little bit of a follow-on to the question from Sophie earlier. At this stage, our focus is really on understanding the opportunity. And once we understand it and should there be a compelling motivation to proceed, part of that decision to proceed will be then exploring the options on the best way to proceed. And that could include doing it ourselves, which introduces that capability risk that you mentioned or we could proceed with a partner. And we're open to both those opportunities and we're actively exploring both those opportunities as part of the ongoing study work.

[Operator]

[Operator Instructions] Your next question comes from Matthew Cane from Argonaut.

[Unknown Analyst]

Well done on a great quarter. Good result at Nova. Matt, I've got 2 questions, both relate to exploration. The first one. So down in the Fraser Range belt, in the old days with the junior explorers, there was a lot of false negatives picked up with the EM, particularly around graphite. As I understand, we've come a long way, you can now differentiate between particularly metal sulfides and the graphites. In something like Elara, is that something you're quite confident that what you're seeing as a whole is metal bearing? And I suppose the follow on to that is, have you seen a lot of, say, pyrite, peridotite bodies out there from drilling, which haven't obviously had payable metals in there and I'm sort of just looking at probability of success sort of scenario.

[Matt Dusci, Chief Operating Officer]

Yes, with Elara, we've got multiple layers of evidence there. And so we're quite confident that, that's a sulfide-based EM target rather than a graphite. And then more broadly across the work we're doing in the Fraser Range with the systems we're using, with the analysis that we're doing, we have been quite pleased with the ability so far to target EM anomalies that are actually metal sulfide-based rather than graphites, and we've had very few false positives.

[Unknown Analyst]

Are you intercepting a lot of iron sulfide systems there? Are there -- is there...

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

We do. But the iron sulfide in itself is part of the evidence, a trial that there has been some mineralizing event.

[Unknown Analyst]

Sure. Understood. Okay. Second question, upper at Lake Mackay, you've obviously got access to a broader range of area where you can actually work and conduct exploration. You've got a heap of targets here. I suppose two questions each, what do you like? So what's really exciting you as -- in those number of prospects? And second one, what are you looking for? Is there in terms of a cornerstone discovery what you're looking for in terms of maybe grade and mine life that would really prompt you to sort of maintain the joint venture and go ahead sort of with a backdrop of -- obviously Jaguar had some exploration potential left but that was obviously divested?

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

Yes. We've had 2 phases of work at Lake McKay. Initially, we went out there with a large area under application, but with permits to only work in a very small area. And so we did some very sort of project-level work around Bumblebee and Grapple. And we were successful in that very early greenfield exploration on -- in those areas at drilling pretty much all grade mineralization in our first drilling campaigns. And there to remind you, we had at Bumblebee and Grapple, we had multiple gram per tonne gold and multiple percent copper intersections. And for first -- for greenfield exploration, that certainly gets my attention. We then got access to the broader tenement package there and started the second phase of our work. And there we went back to more of a helicopter view of the world to try and better understand holistically the whole package and where the best targets may be. So that then any further work could be, focusing on where we're going to deliver the most value. So over the last year or so, we have covered systematically the whole package with geochemical and geophysical methods. And that's resulted in the targets. We're now doing the first drilling on those targets to differentiate which are the better ones and not. And in the event that we make discovery there, then we would expect to quickly move to project-scale work. With the belt-scale work we've done so far, we have identified 3 different types of mineralization. There's the gold copper polymetallic mineralization, like we've intersected at Bumblebee and Grapple, and that looks very interesting. We've also seen nickel-cobalt manganese mineralization in laterite profile with cobalt grades up to 2%, 2.5% in rock chips, and that looks very exciting. And we've also seen some pure gold anomalies. So at this stage, we're continuing to understand all those and then at the end of this field season, we will make an assessment as to whether we're going to find an IGO-type project that's going to justify the continuing working in the region. At this stage, everything looks more positive than otherwise.

[Unknown Analyst]

Okay. Just -- I suppose just a really quick one to follow-up on that. So what do you -- what's an IGO-scale project? That's what I'm trying to tease out. Is it a mine life grade or is it you really make that decision once you sort of get to a feasibility or scoping staging and get some project economics wrapped around it?

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

Yes. So it's a combination of scale and quality. And then the scale ultimately delivering mine life with it as well. The northern territory, and particularly where we're working in Lake McKay, delivers its own challenges, but from an infrastructure point of view. So we'd be looking for a fairly special project in Lake McKay.

[Operator]

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 & Executive Director]

Ladies and gentlemen, once again, we appreciate your participation through this presentation and Q&A session. And good day.