IGO Ltd

ASX:IGO

Earnings Call Transcript 2018-Q4

[Operator]

Thank you for standing by, and welcome to the Independence Group 2018 June quarterly report. [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]

Thank you, operator. Ladies and gentlemen, it is my pleasure to lead you through our results presentation for the June 2018 quarter. With me on the call today in Melbourne is Matt Dusci, our Chief Operating Officer, and I'm also joined from Perth by Scott Steinkrug, our Chief Financial 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 ended the 2018 financial year with a record fourth quarter of financial results. This included a 33% increase in unaudited revenue and other income and a 78% increase in unaudited underlying EBITDA relative to the prior quarter. Nova production increased 23% quarter-on-quarter, with nickel and copper production for the full year at 22,258 tonnes and 9,545 tonnes respectively.This could have been better. However, a SAG mill liner issue impacted production in the second half of June 2018 resulting in a 3% shortfall in nickel production relative to full year guidance. This issue has since been resolved.Tropicana gold production and Long nickel production for the quarter were both higher quarter-on-quarter and were both better than the midpoint of guidance for the full year. We announced and completed the divestment of Jaguar to CopperChem Proprietary Limited during the quarter for a total consideration of $73 million.We also entered into a transaction to materially increase our strategic footprint in the Fraser Range by acquiring a joint venture interest in the Southern Hills Tenements to the west and southwest of Nova from Mark Creasy. This group of tenements is contiguous to the Nova mining lease and cover approximately 1,100 square kilometers of highly prospective Fraser Range geology with draw-ready targets. Extensive regional exploration activities also continued across the Fraser Range and at Lake Mackay during the quarter.Moving to Slide 4. Importantly, we had no loss time injuries during the June quarter and our 12-month rolling loss time injury frequency rate at quarter-end was 1.96 per million hours worked. Community engagement activities increased during the quarter and were focused on engagement around the transition of Long into care and maintenance and the divestment of the Jaguar operation.Moving to Slide 5. Total revenues for the quarter was $243 million, up 33% from the previous quarter, with Nova and Tropicana contributing $128 million and $59 million respectively. Our underlying EBITDA increased by 78% relative to the previous quarter to $132 million. Furthermore, we made an unaudited profit after tax of $40 million in the June quarter.Cash from operating activities was lower quarter-on-quarter due to a weather related shipping delay that pushed a planned Nova shipment into the first week of July 2018. This delayed approximately $27 million of operating cash flow into the 2019 financial year.IGO further strengthened its balance sheet in the quarter, with a closing cash balance of $139 million and net debt of $4 million. In anticipation of strengthening free cash flow during the 2019 financial year and beyond, we have taken the opportunity to renegotiate our debt facilities, including the cancelation of our $200 million credit line.Moving to Slide 6. Key movements in cash flow are set out on this slide. Cash at the end of the June quarter improved by $68 million to $139 million. Nova, Tropicana, Long and Jaguar together contributed $59 million of free cash flow during the quarter, slightly less than the $71 million achieved in the prior quarter. This was primarily due to the delay of the Nova shipment already discussed.Other cash inflows for the quarter comprised of $23 million net proceeds arising from the sale of Jaguar and a second installment payment of $11 million for the sale of the Stockman Project. Cash outflows, comprised of corporate costs of $4 million and net finance costs of $2 million, were in line quarter-on-quarter. Exploration and development spend for the quarter was in line with guidance at $11 million.I will now hand over to Matt Dusci, who will talk through each of the operation.

[Matt Dusci, Chief Operating Officer]

Thank you, Peter. Moving to Slide 7. The June quarter was the fourth quarter of commercial production from the Nova operation. For each quarter during the first year of commercial production, we have continued to deliver improvements, which is a great achievement by the team.Nickel production for the quarter was up 23% with 7,340 tonnes of nickel and 3,230 tonnes of copper in concentrate produced. Cash cost decreased significantly by 33% to $1.79 per pound, the payable pound of nickel for the quarter.The team pushed hard in the quarter, achieving 1.8 million tonnes per annum, which is 20% above nameplate for the mining activities for the full quarter and for the processing plant for the majority of the quarter. Mining at this higher rate was achieved by a number of initiatives, including improved sequencing of mining front, especially at Bollinger. To have both mining and processing delivering at 20% above nameplate in the first full year of production is a great achievement.The key disabler during the quarter that resulted in us under delivering relative to the lower end of the full nickel production guidance was the premature failure of the SAG mill liners. This affected both availability and productivity from mid-June. The mill liners were changed in early July and this is no longer an issue.The average grade processed for the quarter was higher at 2.18% nickel and nickel metallurgical recoveries have generally performed in line with modeled recoveries. Copper recoveries were below expectation for the quarter and this is partially attributed to the higher than nameplate rate trialled during the quarter. There are a number of work programs currently being implemented to ensure higher copper recoveries when running the processing plants at the higher throughput to nameplate.The extended period of mining and processing at the 1.8 million tonnes per annum rate during the quarter also allowed us to understand what debottlenecking needs to be done to achieve this rate on an enduring basis going forward. This will form part of our work programs in the 2019 financial year.Underground grade control drilling at the Nova-Bollinger orebodies continued during the quarter with a total of 10,650 meters drilled and we expect to complete the final underground drilling at Upper Nova this month.Moving to Slide 8. Nova guidance for 2019 financial year is shown on this slide. Guidance is based on an updated ore reserve and an improved understanding of the Nova-Bollinger orebodies arising from grade controlled drilling completed in January 2018.Overall capital expenditure is higher than previously guided for 2 reasons. First, we have made the decision to continue the remaining underground capital development at the higher rate and to substantially conclude this work in the first half of the year rather than spread this over the next 2 to 3 years. This will provide both mining flexibility and reduced overall rate.Second, we have allocated improvement capital to address mining and processing plant debottlenecks, as discussed in the previous slide, to be able to increase nameplate rate to 1.8 million tonnes on an enduring basis.Underground capital drilling development is expected to be substantially completed in the first half of the 2019 financial year.For the avoidance of doubt, although we have the flexibility to run at a higher rate of 1.8 million tonnes per annum during FY '19, operational guidance is based on the as built nameplate rate of 1.5 million tonnes per annum. This higher nickel production rate year-on-year is driven by higher grades as we are in the center stopes of both Nova and Bollinger.Moving to Slide 9. During the quarter, we successful produced nickel sulphate hexahydrate crystals as part of the pre-feasibility metallurgical testwork program being undertaken in collaboration with Wood Mining and Minerals Australia and SGS Australia.This testwork has demonstrated the technical feasibility for the proposed hydrometallurgical process to produce nickel sulphate directly from nickel concentrate. In addition, the testwork results to-date has validated and improved upon the metallurgical assumptions that form the basis of our nickel sulphate scoping study completed in March 2018 quarter. We therefore expect that the capital and operating cost assumptions for the projects will be improved as a result of the positive metallurgical testwork results.We see this as a potential significant value driver for the company with the ability to deliver a number of benefits, which include significantly higher payability than traditionally received from nickel concentrate offtake, an opportunity to maximize overall recovery by producing a bulk concentrate as a feed into the downstream processing, to attract a premium price for nickel in nickel sulphate when compared to the LME price for nickel and to directly link IGO into the energy storage value chain. IGO and Wood are in the process of patenting this technology and pre-feasibility engineering studies remain on track for completion by December 2018.Moving to Slide 10. Tropicana had a solid quarter and full year with gold production better than midpoint of full year guidance. Cash costs at the middle end of the guidance and an all-in sustaining cost at the lower end of the guidance range.Gold production for the quarter was higher due to improved mill feed grade at an average grade of 2.04 grams gold as a result of the grade streaming strategy. Average metallurgical recoveries were marginally higher at 89%. Construction activities for the 6 megawatt second ball mill are ongoing and the installation of the second ball mill is expected to be completed in the December 2018 quarter.Moving to Slide 11. The outlook for the Tropicana for the 2019 financial year is positive, with increased gold production at the lower cash cost and lower all-in sustaining cost. This reflects the continued implementa1tion of the Long Island mining strategy, grade streaming and ongoing process plant improvement projects.Gold production on a 100% basis is expected to be 500,000 to 550,000 ounces, while all-in sustaining cost of approximately $890 to $980 per ounce gold for the 2019 financial year. Most of the plant and equipment CapEx is anticipated to be improvement CapEx and this includes expenditure for the additional 6 megawatt ball mill, Long Island expansion capital, plant improvement capital and Boston Shaker pre-feasibility study cost. This equates to approximately $21 million to $24 million for IGO's share.Moving to Slide 12. Ongoing underground studies continued at Tropicana, with a specific focus currently on Boston Shaker located on the northern portion of the Tropicana mineralized system, which is over 5 kilometers in strike. The joint venture partners also consider the potential for the future underground development assessment at both Havana and Havana South.Moving to Slide 13. Resource development drilling continued at Boston Shaker during the quarter. A 50 x 25 meter spaced infill program that was commenced in the March 2018 quarter was completed during the quarter for a total of 1,957 meters. A resource model update incorporating all the new drilling will be completed during the September 2018 quarter. The pre-feasibility study on Boston Shaker underground project will be completed by December 2018 quarter. Regional brownfields exploration was also progressed.Moving to Slide 14. As noted on the previous slide, Jaguar was divested to CopperChem for a total consideration of $73 million during the quarter and therefore all data on this slide only reflects performance up to the 31st of May 2018 completion day.During May 2018, ore mined for the period was a record production rate of approximately 51,000 tonnes, and as planned, higher grade stopes became available during the quarter, which led to higher metal production. Ore processed through the plant prior to the sale was 80,180 tonnes of ore milled at head grades of 8.53% zinc, 0.59% copper, 164 grams silver and 0.55 grams gold.Moving to Slide 15. Once again the team at Long delivered a solid result, with improved production in the quarter. The production and cash cost for the full year were within our guidance range. Long transitioned into care and maintenance in June 2018 and a local contractor has been appointed as part of these activities.At Long North, potential extensions to the Gibb and Long deposits were assessed following analysis of the March 2018 quarter drilling holes. However, results proved that no further work is warranted. Long is expected to be free cash flow positive in the 2019 financial year, with working capital receipt more than offsetting care and maintenance cost and final redundancy cost.Moving to Slide 16. This slide illustrates the updated IGO 2018 mineral resource and ore reserve estimate, which was released to the ASX on the 26th of July, 2018. Of note, the mineral resource at the Nova and Bollinger deposits has been de-risked by grade control with 96% of the nickel metal in the resource now being classified as measured mineral resource. Likewise, 92% of the ore reserve is now in the proven ore reserve category.Year-on-year the nickel metal in the ore reserve is lower and this reflects mining depletion and the mineral resource reduction announced as at the 30th of June, 2017. We are confident that additional discoveries will be made at Nova and on the Fraser Range, which will drive future value.I'll now hand back to Peter.

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

Thank you, Matt. Moving to Slide 17. We continue our commitment to exploration in the 2019 financial year with approximately $51 million to be invested in exploration. Our focus is on the discovery at Nova and on the Fraser Range with approximately 2/3 of our 2019 financial year exploration investment committed to finding another world class nickel-copper ore deposit like Nova.For the previous year, the majority of our work programs were big regional programs on the Fraser Range as well as the 3D seismic survey at Nova. For the 2019 financial year, our programs will incorporate significantly more drilling. At Nova, we anticipate at least 20,000 meters of diamond drilling during the 2019 financial year.We will also advance our Lake Mackay project with continuing regional geochemical and geophysical programs in the first half of the 2019 financial year, followed by our transition into drilling programs in the second half of the financial year.Moving to Slide 18. The 58 square kilometer high resolution 3D seismic survey contracted to HiSeis was completed in April 2018. The data is being processed and we expect to take delivery of the data by early August 2018.Separately, approximately 31,000 meters of historic diamond drill cores were relogged and resampled from across the Nova mining lease during the quarter as part of a complete reassessment of the camp-scale geology. This program has already been successful in identifying several Nova-like gabbroic intrusives and orphaned magmatic sulphide intersections that do not form part of the immediate Nova-Bollinger deposit environment. A 20,000 meter diamond drilling program and a low temperature SQUID EM survey is due to commence during the September 2018 quarter. These programs will test and complement the 3D seismic dataset.Moving to Slide 19. Our systematic exploration of the Fraser Range, where we have consolidated some 15,000 square kilometers of tenure, continued in the quarter as we carry out our belt scale exploration program in a scientific and systematic way, with the goal of unlocking multiple discoveries. The work undertaken during the quarter is summarized on this slide.Of note, 6 diamond drill holes for an approximate total of 2,300 meters, tested EM geophysical targets at the Woolly, North Bore, Talbot North and Andromeda prospects. All holes intersected abundant pyrrhotite that explains the EM conductors being targeted.Moving to Slide 20. At Andromeda, which is located to the north of Nova, chalcopyrite and sphalerite with abundant pyrrhotite has been intersected in all 3 holes completed to-date. Assay results for the third hole are pending and a fourth hole is currently being completed.This discovery at Andromeda, while not what we are primarily looking for on the Fraser Range, represents further proof that the Fraser belt is fertile with multiple mineralization processes. It also validates the effectiveness of the regional exploration and massive sulphide targeting methodologies that we are using on the Fraser Range.Moving to Slide 21. Work continued at Lake Mackay in the Northern Territory during the quarter with the commencement of our regional airborne EM survey across large parts of the project. By quarter-end, approximately half of the survey had been flown, with final data delivery and interpretation pending.Prospect-scale, geological mapping and rock chip sampling was also completed at various existing prospects. This will help to better understand the local geology associated with each of the mineralized areas.Of note, rock chip sampling results at Grimlock were highly anomalous for cobalt, nickel and manganese as well as scandium and platinum. Cobalt, nickel, manganese sells like an in situ cathode for NMC type electric vehicle battery.Moving the Slide 22. Ladies and gentlemen, I want to thank you for your participation during this presentation. To conclude, IGO has had a solid 2018 financial year. We have delivered now this first year of commercial production, rationalized the portfolio and benefited from a continued improved operational effectiveness at Tropicana. The net result is that we end the year with a strong balance sheet.To recap the June quarter, we demonstrated record revenue and underlying EBITDA, Nova nickel production increased 23% quarter-on-quarter and an average mining rate of 20% above nameplate was achieved.Tropicana and Long production was higher quarter-on-quarter and both beat the midpoint of middle production guidance. We completed the divestment of Jaguar. We also continued to increase our footprint on the Fraser Range through a tenement and purchase and joint venture agreement with Mark Creasy's Southern Hills Tenements. The cash balance increased 97% quarter-on-quarter to $139 million, reducing net debt to $4 million.Before closing, I want to acknowledge the contribution that Long and Jaguar has made to IGO over many years and take this opportunity to recognize and thank the many women and men from Long and Jaguar who made this possible. Thank you.I also want to acknowledge the hard work and dedication of all of our employees. They strive every day to make IGO a better Company, to make a genuine difference for the benefit of all stakeholders and for the community at large.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 Michael Slifirski from Crédit Suisse.

[Michael Slifirski, Managing Director]

Yes, I have got a couple of questions on Nova for me please. First of all, the 1.8 million tonne per annum rate, when do you actually expect to achieve that? Given that if you're saying it's not part of this year's guidance, but do you expect to achieve that sustainably this year? Secondly, with respect to mining versus milling, well, [indiscernible] isn't embedded in guidance. So will you be mining at an accelerated rate and achieving perhaps that elevated head growth through an effective streaming? Or will be mining be matched relative to processing? I got a couple of more after that, but I want deluge you. I'll let you get on with those 2 first please.

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

Yes. So thanks, Michael. Yes, what was focused on up to now is demonstrating that we can achieve that higher run rate and to try and understand what the bottlenecks are to doing that on an enduring basis going forward. We've now planned the CapEx to deal with those bottlenecks, which we will chase or pursue largely in the first half of the financial year. We will then look at what that does potentially to our average cost of production, how high a throughput overall should give us a lower overall cost of production per tonne, which may allow us to then relook at the reserve modeling to incorporate more of the low grade halo over the top of the Nova-Bollinger deposits into the ore reserve, which then allows us to tap into that higher run rate without impacting the overall life of the mine, and as a result of all that, improving the overall value derived from the project.

[Michael Slifirski, Managing Director]

Well, I guess the follow-on from that, which is a question I had anyway, was in terms of mining inventory. In the past you talked about mining inventories, a number that you'd extract exceeding reserves. So can you talk about perhaps what that mining inventory is and whether that -- how much of the resource? Or are you suggesting that the low grade halo is beyond resource? So I'm just trying to understand what you're actually foreseeing particularly relative to that potentially higher depletion rate. And then the follow-up to that is, if you're going to mine at a 1.8 million tonne rate, deplete the orebody faster, how do you think of that in terms of leverage over your smelter customers if you wish to pursue a sulphate route if you then by the time that's implemented only have a sort of nominal mine life left without exploration success? So interested in that whole dynamic please.

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

Yes, sure. Yes, it would be too early to sort of to talk to what the mining inventory might look like at a higher run rate with a lower effective cut-off grade, but that's certainly a body of work that we'll work through during the 2019 financial year. And the overall aim, as I said before, is not to tap into the higher than nameplate rate to the detriment of the life of the mine. So we're pursuing multiple or parallel paths all at the same time. One is, as we talked about, to understand the full potential of the mining operation and the processing operation. The second is to understand what the opportunity is for additional mineralization around Nova and Bollinger within the intrusive plumbing system that exists. And the third is to understand how we can extract more value overall through potential downstream processing. So we're pursuing all of those in parallel and we expect to make in-roads into those during the 2019 financial year and to then make decisions about how we go forward. Most likely decision points would be in the second half of the 2019 financial year.

[Michael Slifirski, Managing Director]

My final one then is on the sulphate route. You mentioned that the work conducted to-date gives you better parameters than what the initial scoping study identified. I don't think you defined those scoping study parameters. So -- but just in broad discussion that it might be a $350 million CapEx project. So you're saying CapEx potentially is lower than $350 million. OpEx, I don't think you've talked about. Is there anything you can sort of describe to us about what that conversion cost might be from sulphide to sulphate and how much premium you expect to achieve if it's successful relative to the nickel metal price please?

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

Yes, sure. The key financial drivers for going the downstream processing, which Matt talked to in the presentation, are the premium you get for nickel as nickel sulphide compared to nickel as nickel metal. And there's public domain information there that demonstrates current premiums up around $4,000, $5,000 per tonne of nickel. So a very healthy premium for that. The second benefit is in the increased payabilities. Now you can look through our reported results and we average about a 70% payability for the offtake for the Nova concentrate and over the years through the downstream processing we would increase the effective payability to around 90%, 95%. And we actually get paid for a 100% of the metal as nickel sulphate, but we would have recovery losses of 5% to 10% in producing that nickel sulphate, which is why I talk to that term effective payability. So those are the big drivers. With the scoping study work that we did, that we finished in the last quarter, the aim of that was purely for internal purposes as a way of gating the investment in the metallurgical testwork. And you're right, the order of magnitude -- our CapEx costs are up around $350, $400 million. Based on the metallurgical testwork we've done, we would see our CapEx cost potentially coming down and we would also see lower overall operating cost than what we assumed in the scoping study. And once we've progressed the work and we have a better handle on CapEx and operating cost with a pre-feasibility study level order of accuracy, then we'll provide some of that information to the market.

[Michael Slifirski, Managing Director]

And look I'll make one -- very last one in terms of timeframe. Assuming that the pre-feasibility study gives you a positive result at the end of this year. Then feasibility, long-lead items, construction commissioning. When do you think -- assuming you get through each of those gated points, so when do you think you could be producing your first product please?

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

Yes. We -- again, I talked before about our parallel paths. And on the downstream processing, we're pursuing parallel paths there. And contemporaneously with the pre-feasibility study work, we will be progressing some feasibility study level, metallurgical testwork and -- so something a bit bigger than a bench scale, which will help to de-risk the technology even further. And the overall aim is to get to a decision point during the 2019 calendar year, which then if we proceed could mean that we're producing nickel sulphate sometime in calendar '20. And these all aspirational targets at this stage because we still need to do the work in the pre-feasibility study, which will actually map out the actual timelines and the actual cost. But aspirationally, calendar '20, which means that our existing offtake agreements would come to an end naturally in early 2020. We then potentially may be delivering metal into the spot market for a number of shipments and then transitioning into the downstream processing.

[Operator]

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

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

Hi, Hayden.

[Hayden Bairstow, Analyst]

Hi, Peter. Thanks for that. I always want to start this early on a Monday. Just on the resources on Nova. Obviously, the reserve downgrade was sort of -- in terms of grade was expected I guess given what happened with the resource last year. But the further move on resources, is that largely just an inclusion of that C-5 zone and sort of that low grade stuff? And can you give us an idea of sort of when you start mining that given -- well, I'll assume it's 1 million tonne or so -- what sort of grades that will look like? Or is there -- and just with the reserve. So is there actually a change to mining dilution assumptions that you've learnt over the first year for what was, yes, basically assumed in those resource calculations from 12 months ago?

[Matt Dusci, Chief Operating Officer]

Yes. So Hayden, it's Matt here. So I mean essentially a lot of C-5s are still included in that. Where C-5 intersects with Bollinger, that's captured in the Bollinger ore stopes. In terms of changes to modifying factors on the reserves, there's a whole series of things that impact that, including resource grade, modifying factors, dilution, et cetera. What we're seeing is that dilution is performing in line with our expectation as we previously had.

[Operator]

Your next question comes from Paul Hissey from RBC Capital Markets.

[Paul Hissey, Analyst]

Just a couple of questions from me from the older assets. What's the ongoing cost of care and maintenance at Long?

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

So hi, Paul. Long is approximately $1.5 million of care and maintenance on an annualized basis, a little bit higher in the first few months because we've got some overlapping cost as we transition into care and maintenance. But once that's fully embedded, then about that $1.5 million per year run rate. And as Matt talked about on the call, we expect working capital receipts to more than offset ongoing care and maintenance and redundancy cost during the current financial year. Just to extrapolate on that a little bit further, our current plan for Long is to keep it on care and maintenance while we pursue some more of these conceptual targets at Long with the aim of identifying a further zone of high grade nickel mineralization. We did test one conceptual target and have moved on from that and we have at least 2 other conceptual targets that we expect to drill during FY' 19. And then once we've been able to assess those, then we would revisit what happens at Long going forward, whether we continue care and maintenance, whether we move to full closure or whether we move to a sell process.

[Paul Hissey, Analyst]

And I guess a similar type of question just regarding Jaguar. Have all the working capital balances and everything there have been completely finalized as well prior to the end of the financial year? So is that sort of 0 going forward?

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

Yes, it's a good question. I'll get Scott to enlighten us on that.

[Scott Steinkrug, CFO & Company Secretary]

Yes. Thanks, Paul. Essentially, yes. Having said that though, we have got the completion time that's coming in. And as it turns out with the sales prices, there will be about $1 million coming our way as well as part of the working capital adjustments. And that's quite a standard type of adjustment that you would see coming through then in a sales transaction. Other than that, it's $60 million annually that we would get at the end of next year and -- so May next year and then May the year after as well.

[Operator]

[Operator Instructions] Your next question comes from Stefan Hansen from Nikko.

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

Hi, Stefan.

[Stefan Hansen]

Hi. Good morning. Just one on Nova. Just wondering if you can give us an indication of the -- I guess what the production -- or more on what the grade profile looks relative to the optimization study that was out I think a few years ago? Like should we expect the grade profile to be similar but lower or similar in the near-term and sort of lower in sort of the residual -- in the long-term? Just give us an indication of how we should be modeling this [indiscernible] reserve?

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

Yes, sure, sure. Yes, we've done a lot of continuing work since the optimization study and that optimization study, just to refresh people's memory, was late 2015. With the work we've done since, our priority is to do -- serve 2 masters at one time, so to speak. One is to bring value forward and the other is to try and maintain a fairly consistent profile. So we've been able to achieve both of those. And we have an overall profile directionally, which is 3 years at a similar run rate to what we're guiding for FY'19, followed by the remaining mine life at a step down level, marginally below average life of mine run rate. So 2 distinct periods, one early in the operation at a high level, one later in the operation at a lower level.

[Stefan Hansen]

And then drawing on what you discussed earlier, talking about moving up to a -- hopefully a higher sustained mining and milling rates and potentially bringing in some of that lower grade halo material, so still lower grade in the longer term, but processing at a higher rate. Is that fair?

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

Correct, 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]

Well, thank you, operator. Ladies and gentlemen, once again thank you for your participation through this presentation and QA session. We had a solid 2018 financial year. We have delivered Nova's first year of commercial production, rationalize the portfolio and benefited from continued improved operational effectiveness at Tropicana. The net result is that we ended the year with a strong balance sheet. Thank you again for your participation. Good day.