OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2018-Q1

[Andrew Cole, CEO, MD & Director]

Good morning, everybody. Welcome to our First Quarterly Report for 2018. I'm joined here today by Warrick Ranson, our Chief Financial Officer. This morning, we're going to take you through the progress we've made in the first quarter of this year in the key mineral provinces that we're operating. I'm also going to touch briefly on the Avanco shareholder offer we announced in late March. So please take a moment to note our usual disclaimers and compliance statements over the following few pages. Let me go on to our strategy. So we had a very strong and productive start in 2018, with good progress across all aspects of the business. We maintain a strong financial position that enables us to pursue our growth strategy. We closed the Prominent Hill open mine, which completed safely and in line with the plan. We received key government Mining Lease and associated approvals for Carrapateena, clearing the way for Phase 2 construction as scheduled. Phase 1 of our power strategy is now underway, which will see new transmission infrastructure built. We've signed a new earn-in agreement with Woomera Mining Ltd in the eastern portion of the Musgraves. And we commenced the shareholder offer for Avanco Resources, which supports our growth strategy. All of these contribute towards our objective of becoming a multi-asset, copper-core, global modern mining company. One of the things that you're going to hear us talk more frequently about is province potential. This means, instead of just developing a single asset, we will be looking at copper-rich provinces, where initial or existing developments can work as a hub for wider extraction opportunities. The province approach ensures we optimize the footprints we have. A good example of this is in the Carrapateena Province, where we see at least 3 other development opportunities at Khamsin, Freo Doctor and in Punt Hill, as well as realizing the full potential of the wider Carrapateena mineralized zone. Each year, we continue to take a disciplined approach with our exploration pipeline, our earn-in agreement with Woomera Mining for East Musgrave being the latest addition to our exploration portfolio. We've had a very productive first quarter with our devolved operating model, enabling the effective integration of new assets and continued reliable operation of our existing asset. Prominent Hill, again performed consistently in line with the mining plan with all guidance metrics on track. Notably, the open pit closure was completed safely, and after more than 10 years of operation and circa 110 million tonnes of ore mined. At Carrapateena, we exceeded targets for development of the decline for the 6th consecutive month and have received the necessary government approvals for Phase 2 construction to proceed as planned. We're well underway with operationalizing Phase 1 of our power strategy, which will see the construction of a new transmission line. We also made a shareholder offer for Avanco Resources, which, if successful, will provide us with expansion options in the highly prospective Carajás copper province and the Gurupi gold belt in Brazil. We have healthy cash balance of $646 million at the end of the quarter. This was after significant investment into Carrapateena project, an increased working capital balance, and the final 2017 dividend payment of over $40 million. Looking ahead, some of the key activities we'll be working on include progressing the West Musgrave PFS, closing out the shareholder offer for Avanco Resources, starting Phase 2 construction of Carrapateena, processing the stockpile at Prominent Hill, and furthering our drilling program at Khamsin, Fremantle Doctor, Alvito and Eloise. On our social performance, it was encouraging to see our Total Recordable Injury Frequency Rate dropped now down below 6. Equally pleasing was that Carrapateena has remained recordable injury-free since January. The leadership team at Carrapateena have developed a safety strategy, which they are now progressively executing. In quarter 1, we've continued to increase our capability across the Carrapateena and West Musgrave projects, with a number of key appointments, most with experience in similar operations. As mentioned previously, at Carrapateena, key government approvals, including the Mining Lease, have now been received. This means we can start the second phase of construction, which includes the processing plant. In Q1, we've progressed stakeholder engagements in both West and East Musgraves. Last week, we attended a community meeting at West Musgrave, together with Cassini Resources, to provide local stakeholders with an overview of the planned activities as part of the PFS. It was a very constructive meeting with receptive local community members. And at East Musgrave, we agreed a Native Title Mining Agreement with the native titleholders and traditional owners in the quarter, allowing us to start heritage clearances and exploration activities in that area. I'm now going to hand over to Warrick, who's going to take us through our performance in cash generation.

[Warrick R. J. Ranson, Chief Financial Officer]

Thanks, Andrew. As you indicated, our cash position remains extremely strong at $646 million, particularly when considering it includes a few items relating to working capital movements. These included a shipment towards the end of the quarter and further investment into our open cut stockpile, where we added just under 500,000 tonnes to our total stockpile holdings before concluding the open pit mining activities at the end of the month. As touched on last quarter, we are now prepaying tax by installments and we'll see that 2017 true-up payment in quarter 2. We'll also start to see the ramp-up of cash outlays for Carrapateena in the coming quarter. But as for this quarter, we expect that there will be significant inflows from current operations offsetting some of these movements. Pleasingly, we're also seeing a number of operational improvements in our resource drilling at Prominent Hill, with improved productivity rates and reduced overheads, resulting in a lower capital spend in this area. Andrew?

[Andrew Cole, CEO, MD & Director]

Thanks, Warrick. So as I said earlier, you'll increasingly hear us using the term province, so you'll notice a slight change to the way we present our reports to reflect this. I'm going to start with Prominent Hill province. Prominent Hill production and cost performance is on track to deliver 2018 guidance. This will be the last time we report on open pit production as the open pit closure was completed safely to schedule and to guidance. We also did a final 12-meter "Goodbye cut" at the base of the open pit on our exit. Activities will now turn to equipment and facility demobilization, life of mine pit dewatering and minor closure activities. In line with our commitment to continuous mine closure, we will be using contractor equipment to undertake abandonment bund construction, limited remaining south dump rock armoring and paddock tipping prior to the de-load. The team will now focus on increasing underground ore haulage as we process the stockpiles, enabling the plant to remain at full capacity until 2023 with the benefit of no further open pit mining costs or the associated fixed overheads. Turning now to the Prominent Hill underground performance. The underground team delivered consistent quarter-on-quarter production with 680,000 tonnes of ore at just over 1.8% copper. We are expecting a ramp-up in haulage in the second half of the year, and this will be driven by a couple of things. The third decline is expected to break through this quarter with the fourth decline also starting construction this quarter. We're currently running a procurement process for a third party to manage our ROM and transport underground ore from the bottom of the open pit to the crusher. When these 2 activities are combined, we expect to see our underground ore production increase in the second half to facilitate full year guidance of 2.8 million to 3.1 million tonnes. In quarter 2, we'll also trial an underground diesel electric production loader to test for associated production efficiencies, diesel savings and air quality improvements. And we expect to finalize the tender process to replace the current Cemented Hydraulic Fill plant with a fit-for-purpose Paste Plant to enable future production uplift. In terms of processing plant performance. We milled 2.4 million tonnes of ore for the quarter, with copper content in the concentrate producing at 46% and gold at 16 grams per tonne. Our plant recoveries were 86% copper and 73% gold. The concentrator shutdown schedule for January was completed safely. Our next planned shutdown is for May, and this will include relines, both for SAG and the Ball Mill. So those of you who have been following OZ Minerals for a while would know that over the last few years, we've been working to create a mindset of innovation within the business so we can keep finding better ways of doing things. One of the outcomes of this focus is an upgrade of our mine-to-mill model with a whole-of-company software platform that improves transparency and improves our ability to run scenarios. This should facilitate faster decision-making at the operational level and improved strategic planning. So I'm now going to hand back to Warrick to take us through Prominent Hill costs, please.

[Warrick R. J. Ranson, Chief Financial Officer]

Thanks, again, Andrew. As previously alluded to, we've adjusted our C1 costs this quarter to exclude inventory movements. With just under 500,000 tonnes being added to the open cut stockpiles, this has added about $0.12 per pound to this quarter's C1 costs. So on a like-for-like basis, the increase to C1 costs for quarter 1 reflect the impact of timing of maintenance activities with the planned mill shut, variations in our customer mix for the quarter and lower gold by-product credits as we've continued to prioritize our copper production. Our C1 costs will now reduce through the remainder of 2018 as we draw down on the stockpile material and move towards a full year average, which is aligned with our guidance levels. All-in sustaining costs will follow a similar trend, albeit we expect to see a slight increase in sustaining capital spend as the year continues in comparison to this quarter. Open cut mining cost increased on a unit basis, given the wind down in pit activities and lower volumes. The Prominent Hill mill continued to perform well, although we are starting to see some increase in aspects such as [ growing our media ] costs, albeit they're only a small portion of our total cash spend. Diesel costs also increased quarter-on-quarter, but our direct spend in this area is also not that large, although we are, of course, exposed to rise and fall provisions on our underground mining contract. Pleasingly, we see a number of operational productivity gains offsetting these cost changes. Thanks, Andrew.

[Andrew Cole, CEO, MD & Director]

Thanks, Warrick. Now let's turn to Carrapateena, and I'll start with the underground development. So just this morning, we announced that Downer EDI was awarded the underground mining contract at Carrapateena. The scope of this work package comprises all underground mining activity through to 2024 and it values at over $600 million over 6.5 years. This cost is included in the project economics as published in FSU last year. It's encouraging to see the rate of development of the declines at Carrapateena gaining momentum and showing continuing improvement. This is due to a number of different factors, as you can see on the slide. The team exceeded monthly decline development targets for the 6th consecutive month, a great achievement we hope to see continue. Total decline development has reached over 5.5 kilometers, with a vertical depth now at 380 meters, with the Tjati decline now over 2.5 kilometers long. In the coming weeks and months, we will see Downer mobilizing to site. There will be a 10-week transition period when Downer will work with PYBAR to facilitate development continuity and support employees. I'd like to thank PYBAR for their work on the project and the achievement of their compliance to the schedule. This contract review was part of the project plan and was held at this point in the project cycle to ensure we are in the right position and maintain momentum to execute ramp-up to steady-state production over the next 3 to 4 years. Let me now talk about infrastructure development. The first stage of the Tjungu accommodation village is occupied and Stage 2 construction and commissioning is progressing. The village is on track for completion this quarter. Final stages of airstrip construction are progressing to plan, and we're expecting it to also be completed this quarter. Mobilization for Phase 2 construction is beginning following receipt of the key primary government approvals. We also completed 60% of the design review for nonprocess infrastructure and concentrate handling in quarter 1, which allows construction to commence. All long lead items also have been ordered to align with the construction schedule. We also executed the Build, Own, Operate, and Maintain contract with ElectraNet during quarter 1 and off-site substation works have already proceeded as planned. We continue to optimize the construction schedule and budget, which will drive commencement decisions for the Tailings Storage Facility and the Western Access Road. All other enabling works such as the Radial Wellfield and on-site borrow pits are progressing to plan and will support major construction packages. Let me take you through the associated activity at Carrapateena in the Carrapateena province. As we ramp up development of the Carrapateena project, we have been building our caving capability. You'll see on this slide some of the key positions filled during the quarter. Many of our new team members have previously worked in Telfer, Cadia, or Ridgeway, or even all 3, and they bring with them valuable sub-living -- sub-level caving experience. In terms of the province, a program of 3 diamond drill holes commenced at the Khamsin project this last quarter, with the aim of testing the existing known mineralization. A total of 2.2 kilometers was completed by the end of the quarter with encouraging bornite mineralization intersected in the first drill hole. A further 3 holes are planned at the Freo Doctor prospect in Q2, after Khamsin drilling is complete. Desktop studies evaluating mining methods and infrastructure requirements have also commenced on the wider Carrapateena mineralized zone. These studies will be ongoing during the year as a separate work stream to the main Carrapateena project. In quarter 2, we can expect to see the completion of the Carrapateena expansion work, which includes the drilling of Khamsin, Fremantle Doctor and further progressing desktop study on the wider Carrapateena mineralized zone, 90% of which is not included in the current Carrapateena mine design. Next, just a bit on Carrapateena's cost performance. 2018 is a big development year for Carrapateena, as we substantially ramp up expenditure and the site activities. As noted in the previous slides, receipt of key primary government approvals means we will be pushing ahead with Phase 2 construction of the project, and we'll see its associated expenditure contributing to project costs in the coming quarters. In quarter 1, expenditure relating to the Carrapateena project came in at about $65 million with $547 million of project costs now committed under contract, which represents about 60% of total project cost. As we've touched on the key upcoming activities for Carrapateena in the previous slides, I'm not going to speak too much further to the project schedule, but will just note that it is on track. We are also looking at what the optimal timing for the construction of both the Western Access Road and Tailings Storage dam actually might be. So let me now move on to Musgrave Province. As summarized earlier, we have filled key roles on the West Musgrave Project with the appointment of a Project Director, Deputy Director, Lead Metallurgist and Environment & Approvals Lead for the work. We've also seen a lot of activity on the West Musgrave Project since moving to PFS, including preparations made for the field activities this year, completion of the tender process for resource and metallurgical drilling activities and the completion of the camp expansion. Last week, we held community meetings at the nearby town of Jameson, which was well attended and well received. In quarter 2, we can expect to see the commencement of water exploration program, preparation for the new metallurgical drill core, installation of a wind mast, follow-up exploration of diamond drilling at One Tree Hill and Yappsu, and further definition drilling of the Succoth resource. With the signing of the new earn-in agreement in the East Musgrave Province, we continue to refresh our pipeline in the highly prospective regions as we execute our growth strategy. We are targeting copper/nickel magmatic sulphide systems with Woomera Mining. We can earn up to 75% of the project by spending $7.5 million over 3.5 years. We can, of course, though, exit at a range of interim milestones if results don't warrant further work. So far, we've reanalyzed and reprocessed aeromagnetic and gravity data from a comprehensive historical geophysical data set and have agreed a Native Title Mining Agreement with the native titleholders. Let me now turn to the offer made to Avanco shareholders. We announced in late March an off-market shareholder offer to acquire all the shares of Avanco Resources, a Brazilian-focused copper gold company. The offer consideration values Avanco at about $0.17 per share or $418 million in total equity value, with Avanco shareholders receiving $0.085 cash and 0.009 OZ Minerals shares per Avanco share. And I'm very pleased to report that the Avanco board and the Avanco management team supports and recommends this offer. We also have the support of 2 of the major shareholders, subject, of course, to a better offer, collectively representing nearly 1/3 of Avanco share register. This is a compelling offer for Avanco shareholders as it represents over 100% premium to the closing share price on the day before the offer was made. And the 50-50 cash/scrip offer allows them to retain an interest in upside potential on the Avanco assets. The acquisition of Avanco is consistent with our objective of becoming a multi-asset, copper-core, global modern mining company. It will enhance our portfolio at each stage of the asset pipeline, something that is critical for a healthy resource company. If successful, this acquisition will provide OZ Minerals shareholders with a potential of [ serving ] 7 operating mines within the next half a dozen years. OZ Minerals will have expansive landholdings in Australia and Brazil with significant exploration and consolidation potential for long-term growth. We will also retain a strong balance sheet that preserves flexibility to maximize shareholder value. Following the announcement, we started dispatch of the Bidder's Statement on the 11th of April. A shareholder offer then opened, and unless withdrawn, the offer contained in the Bidder's Statement will remain open for acceptance until the 14th of May 2018. Avanco shareholders, collectively representing over 30% of Avanco shares, have indicated they intend to accept the offer in the absence of a superior proposal. Appian has entered into a Pre-Bid Acceptance Deed with OZ Minerals and agreed to accept the offer in respect to its entire 18.45% interest in Avanco. Funds and accounts under management by BlackRock, which owns 11.6% of Avanco shares, has stated its current intention is to accept the offer with respect to all of their Avanco shares, subject to the bid conditions being satisfied. Avanco's directors and management, whom collectively own 0.57% of Avanco, have stated they intend to accept the offer with respect to all of their Avanco shares. Just want to touch on 2 of our strategic operational projects. Let me start with power. In March, we announced our power strategy to achieve reliable, secure and affordable power for our current and future assets. With Phase 1 addressing power transmission, Phase 2 addressing power procurement and generation and site energy-saving initiatives as an ongoing activity. We've started implementation of Phase 1, which looks at building a new high-voltage transmission line, to help us enhance security of power supplier, reduce line losses and enable the execution of the Prominent Hill mine plan, Carrapateena operations and the exploitation of future optionality for the Carrapateena Province. Currently, we're progressing the build of the new lines with ElectraNet solar reserve via the Olympic Dam, the South Australian government and the communities and land owners along the line route. With regard the next steps, we will be soon turning to procurement of power. We will be looking at on-site power-saving initiatives. And we're looking at small on-site renewable energy options to supplement grid power. Just quickly on the Concentrate Treatment Plant. This last quarter, we successfully ran a range of concentrates through the pilot plant and have also integrated waste and water treatment with the copper upgrade process. The final engineering phase is underway, and we still anticipate reaching a final investment decision by the end of 2018. For those of you who've joined us on previous calls, you're going to notice a change in our growth and exploration section as I'm now only going to call out details of key developments in the pipelines. In terms of our exploration pipeline, we will progress all projects actively to maintain momentum. More than half of the projects listed within this pipeline are within a few key provinces that I've already discussed, so I just want to touch on a couple of others. So firstly, at Eloise, drill work started late in the quarter after pausing for the wet season. Our focus in Q1 was an infill ground EM survey on the Jericho prospect, where previous EM surveys and drilling identified 2 linear, multi-plate conductive zones 3 to 4 kilometers in length, which subsequently returned several copper-gold drill intersections. About 16 line kilometers of ground EM survey have subsequently been completed, and drillings have now just commenced. And I'm sure Minotaur will release results on an ongoing basis over the coming month or 2. Further infill EM surveys will take place on the Defiance, Yukon and St Louis prospects in early Q2. At Oaxaca in Mexico, we have now secured support from the local community for drilling, which is expected to commence in the latter half of this year. We've also completed further mapping and geochem sampling, outlining further copper mineralization at surface. At Alvito in Portugal, we're about to commence drill testing of multiple ISCG targets after a prolonged wet season hindered access to drilled sites during the first quarter. Just over 2 kilometers of diamond drilling has been approved, and it's scheduled to take place over several weeks. And finally, at Mt Woods, collaboration venture with Minotaur Exploration completed work on the Prominent Hill district and were unsuccessful in identifying economic ISCG mineralization. So in light of these results, we've agreed to end the alliance with Minotaur and are now reviewing previous targeting work and investigating new exploration techniques. So let me wrap up before we open it up. I think in summary, we've had a very good productive start for 2018 in all aspects of the business. We maintain a strong financial position that enables us to pursue our growth strategy. We've closed the Prominent Hill open pit, which was done safely and in line with the plan. We received key government Mining Lease approvals for Carrapateena, as scheduled, which clears the way for the Phase 2 construction. Phase 1 of our power strategy is now well underway. We signed a new earn-in agreement with Woomera Mining in East Musgrave. And we commenced the shareholder offer for Avanco Resources, which supports our growth strategy. All of these contribute towards our objective of becoming a multi-asset, copper-core, global, modern mining company. So now I'm going to ask to move to questions, and I'm joined here for the question period by Warrick and John Penhall, our General Manager of Prominent Hill. So operator, can you please remind people how to ask questions?

[Operator]

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

[Michael Slifirski, Managing Director]

I've got 3 or 4 pretty simple ones. First of all, the move to paste fill, what will that do for your cycle time, and how much of that is critical to getting that higher aspirational underground rate, please?

[Andrew Cole, CEO, MD & Director]

Sure. I'm going to ask John to answer that question.

[John Penhall, General Manager of Prominent Hill]

Look it is important for us to help us to unlock some of those high sequency rates. What we're seeing is the drying time for our CHF when we want to elevate our rates up beyond that sort of 3 million to 3.5 million tonnes, it becomes a challenge for us. And we need too many stopes on-line filling at one point. So what we're seeing is the move to paste fill will enable us to fill a natural number of stopes, keeping it under control and move that sequence out to that 3.5 million to 4 million tonnes; one of those enablers for us into the future, Michael.

[Michael Slifirski, Managing Director]

Okay. Secondly, from the June quarter, when you've got no open pit or -- other than the stockpile contribution, the stockpile recovery costs, will that report your mining cost combined with underground mining? Or will that be in processing? So how should we expect those unit costs to change, please?

[Warrick R. J. Ranson, Chief Financial Officer]

Yes, it's Warrick here, Michael. So, yes, I'll report through the mining costs as a handling.

[Michael Slifirski, Managing Director]

Okay. Warrick, while I've got you, your Table 2, the C1 costs there, which is the -- here in the numbers, you've got your total cash cost, your D&A and your production costs and about $0.009 difference between -- error in the maths. Do you have any idea which is the right number, which is the wrong number?

[Warrick R. J. Ranson, Chief Financial Officer]

This is on slide...

[Michael Slifirski, Managing Director]

Table 2, Page 10 of the quarterly. Look, you can come back to that. I'll give you my other question.

[Warrick R. J. Ranson, Chief Financial Officer]

Right.

[Michael Slifirski, Managing Director]

Maybe you can have another look at it in a sec. I guess another one for you is the -- the help you've given us with the inventory accounting for the stockpile unwind. Can you give us some idea of how to actually derive the numbers you've given in that we can work out how many tonnes are in gold-only ore, how many tonnes are in copper ore. Can you sort of give us an indicative dollar-per-tonne rate for the 2, in that I don't think we can actually derive that from what you've given.

[Andrew Cole, CEO, MD & Director]

Michael, can I suggest on both of those last 2 questions, given that it's fairly detailed in nature, that I ask Warrick to give you a call after this conference call...

[Michael Slifirski, Managing Director]

Yes, by all means.

[Andrew Cole, CEO, MD & Director]

With some answers, if that's okay?

[Michael Slifirski, Managing Director]

Yes, that's fine.

[Andrew Cole, CEO, MD & Director]

Yes. So you'll do that one after...

[Warrick R. J. Ranson, Chief Financial Officer]

Yes.

[Andrew Cole, CEO, MD & Director]

After the call.

[Warrick R. J. Ranson, Chief Financial Officer]

Sure.

[Operator]

Your next question comes from Matthew Frydman with Deutsche Bank.

[Matthew Frydman, Research Analyst]

Andrew, I'm just after a little bit more detail on CapEx spend at Carrapateena, so just a few questions from me, please. Firstly, you've said you've got about 60% of the $916 million spent or currently committed. Just wondering broadly what items are left. And is it fair to say that these items that are left represent around 40% of the spend remaining on the project?

[Andrew Cole, CEO, MD & Director]

Matthew, yes. So, I'm just -- let me just state -- rattle off a few things that are left uncontracted, in advanced phase of negotiation but just not signed. So Western Access Road is one of them. Tailings Storage Facility is one of them. And underground mining -- underground mining is on a contract, but scheduled [ break ], so it's not a locked, fixed-sum contract, which is the biggest -- big exposure for us. I guess, if you look at it that way. They're the -- and the underground materials handling system -- sorry, is the fourth one, which is not locked in yet.

[Matthew Frydman, Research Analyst]

Sure, okay. So that probably feeds into my next question, which is the contract that you signed with Downer today for $660 million over 6.5 years. You did touch on this briefly in the presentation, but the development size of that contract, how does that compare with the feasibility study estimates for the mine development component, which were given in the feasibility study at $183 million? I mean, as you've said, it's not a fixed-term contract. It's -- I guess, I suppose, just wondering how it compares to that initial estimate.

[Andrew Cole, CEO, MD & Director]

Yes, sure. It's actually extremely close. The caveat to that, though, is we've continued to optimize the mine design, both from a development perspective and an operating perspective, so there's pluses and minuses in number of development, leases and rates, et cetera. But in terms of the total cost and the total end result, it's extremely close to the original assumptions from the FSU.

[Matthew Frydman, Research Analyst]

Okay. That's good to know. And just thirdly, finally, the cash spend rate, it was obviously down quarter-on-quarter despite presumably some increased activity levels on-site. Can you give us an idea of what's driving this and any indications on when we can expect the spend rate to pick up and, I suppose, how lumpy this will be over the remaining life of the development of the project?

[Andrew Cole, CEO, MD & Director]

I'll -- look, let me answer that at a high level, and I might just ask Warrick to pitch in on this. At a high level, we've guided a $500 million capital spend in 2018 on Carrapateena, and we expect to spend that. So our current schedules and time lines suggest that is going to eventuate. Work does definitely pick up in quarter 2. So now that we've received the Mining Lease and the PEPR approval from the respective agencies, Downer -- I think our Downer joint venture will be mobilizing to site now to commence the surface infrastructure for processing plants and all the NPIs. So the spend rate will certainly pick up. Do you want to add anything else, Warrick?

[Warrick R. J. Ranson, Chief Financial Officer]

I think, just expect in the second half, Andrew, obviously, the mobilization is happening in this quarter, so we won't really see -- I mean, the majority of the spend will happen in the second half, most of it.

[Andrew Cole, CEO, MD & Director]

Yes. So this -- I think it's important, Warrick, that this is a cash flow chart, not a commitments chart. So cash flow obviously lags the commitment. So whilst activities might be undertaken, it doesn't necessarily mean cash goes out the door, right?

[Matthew Frydman, Research Analyst]

Yes, understood. So it sounds like you're definitely expecting spend to pick up over the remainder of the year in line with that $500 million guidance.

[Andrew Cole, CEO, MD & Director]

Yes, we are, Matthew. So it's all on track and on schedule. So I expect those numbers to -- what -- that we've previously guided on, to be -- to hold true.

[Operator]

[Operator Instructions] Your next question comes from Dylan Kelly with CLSA.

[Dylan Kelly, Research Analyst]

One question from me. Just -- I'm just curious as to the rationale and the risks around the contracted change for Carra. Can you just walk us through exactly what part of the plan was to change at this point in the development? And I mean, the -- just trying to understand here what's happening with the performance. And in PYBAR, those development made us look pretty good. The performance looks quite sound. Do you believe you've got a situation that, after a 10-week handover, they're going to be -- Downer's going to be able to maintain those sorts of rates? And just trying to understand what risks there are around that transfer point and how they can maintain that coming in green into the zone?

[Andrew Cole, CEO, MD & Director]

Yes, sure, Dylan. Look, so part of our FSU and part of our planning has always included a underground mining contract review at this time. So let me first say that I think PYBAR have done an excellent job. When you look at what they've done, they helped get this site up and running. They've done a -- [ finalized job ] schedule. And certainly over recent quarters, you -- and you can tell this by the chart that we've put into the WebEx, their performance in developing the decline has been exceptional. We've continued the improvement month-on-month, so I think they've done a very good job. The reason that we had a underground mining contract review at this point in time is because Carrapateena goes from a dual-decline development phase into a very complex multi-headings, so well over a dozen headings, as we build out the development levels and build out the production levels. So the review was always anticipated to look at, do we have the right company building the next phase of Carrapateena. So this is not a reflection on PYBAR at all. It means we've gone back to the market, hit the market for rates and looked at the requirements for the next phase of the work. There is always a risk when you change contractors in a scope of work like this. We're obviously confident and comfortable that those risks are and can be managed going forward in the transition between PYBAR and Downer. As I've said earlier, the next phase of work at Carrapateena is going to require over a dozen headings being active at any one time, which requires a substantial investment, obviously, in equipment, people and requires very detailed systems and processes to manage it exceptionally well. So they're all the things that went into the decision. It was a very close call, I have to say. It was not an easy decision to make. And I think PYBAR have done very well, and I would use PYBAR again. And I'm confident that Downer can step up quickly to continue the improvement rates that we've seen at Carra.

[Dylan Kelly, Research Analyst]

Yes. Just for background, what sort of skill set are you asking for Downer to adopt? Is this some multiple -- the multiple headings that they're taking on, is this something that they've applied from Cobar, for example, that they're trying to bring down to that part? What's the expertise -- or what expertise are they physically bringing into the business that will enable you to do this? What stood out for them -- on a technical basis, for them to deliver this for you?

[Andrew Cole, CEO, MD & Director]

Yes, sure. Let me break the answer to that into, let's say, 3 pieces. So firstly, I mean, Downer is a large company, and as part of a large company they have very detailed and refined systems and processes, which is important to any complex work, I think. So firstly, they bring a company maturity with them that I think is important. Secondly, Downer have already got the project team at, I think, 3 levels of organization or thereabout, in place recruited as part of this, and they are now in place and active in this project. So we know who they are. We've spent a lot of time with them in building up the scope, the contract and the implementation plan. And these are all people that I suspect you will know, Dylan, so we can reveal them. We can probably publish them soon, so you know who they are. And thirdly, as I've mentioned in my presentation already, the capability that we've got in our [ owner's ] team is substantial. So from the top down, we have got many people now who have not only built but designed, built and operated complex caving operations like Ridgeway, Ernest Henry, Cadia, et cetera. So there's plenty of capability and experience in actually doing this type of work.

[Dylan Kelly, Research Analyst]

Okay, that's useful context. I'll pick up and have a chat to Tom later about some more detail on that.

[Operator]

Your next question comes from Sophie Spartalis with Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Andrew and team, just a few questions from me. Firstly, this is in terms of the cost, and apologies if you've already gone over this. Just in terms of the one-off in the first quarter, are we expecting any other one-off or adjustments to occur, given the closure of the open pit going forward?

[Andrew Cole, CEO, MD & Director]

Want to take that, Warrick? Yes?

[Warrick R. J. Ranson, Chief Financial Officer]

No.

[Andrew Cole, CEO, MD & Director]

No, look, it's very disappointing so -- look, this was coming, given that we've had to close the open pit in the first quarter, Sophie. So you will see the C1 costs come back in line with guidance over the next 3 quarters, given we don't have the open-pit mining operations underway.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And just to be pedantic, I guess, is coming back into the range of $0.75 to $0.85, is that stripping out the $0.12 that you've incurred in the C1 in order to arrive back within that guidance? Or you're resuming the $0.97, and you're still remaining comfortable to get back within the guidance for the year?

[Warrick R. J. Ranson, Chief Financial Officer]

Yes, no, it's based on the $0.97, Sophie. And then basically, as we draw down the stockpile, those costs aren't attributed to C1, so we get the benefit. So over the course of the year, the average will bring us back into the guidance.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And just in terms of looking at the consensus numbers, and happy to take this offline. But do you believe that the market is appropriately capturing-in the inventory drawdown in the earnings going forward, maybe another question for Warwick?

[Warrick R. J. Ranson, Chief Financial Officer]

Look, we've done a lot of work to try and explain it and the value that's sitting there on the balance sheet, that will flow through to the results. So I think -- honestly, I think there's still some -- it's probably not fully recognized in terms of that, but I think there's been more recognition than what we had in the past. [indiscernible]

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And then just a quick one on Avanco. Obviously, things have been progressing well in terms of being able to secure the 30% of the shareholders. If you can see a path, though, where you're unable to secure the 400%, is there still the intention to proceed with the deal? And how would you think differently about the deal if you weren't able to get to 100%?

[Andrew Cole, CEO, MD & Director]

Yes, sure, Sophie. So our minimum acceptance criteria, as per our business statement, is 50.1%. Once we acquire 50.1% of Avanco, then that offer will become unconditional, and we will be progressing. Whether we own 50.1% or more, we will -- in that scenario, we'll be the major shareholder of a publicly-listed company. If we get to 90%, then we'll [ hopefully have a right to delist ] the company and create a subsidiary, if you like, of OZ Minerals being Avanco portfolio. So once we get to 50.1%, we'll be taking an active role as the lead shareholder in Avanco.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And so given that you're the lead shareholder, does that assume management leadership rights and operating rights, et cetera? Is there any clauses in there that would dispute that?

[Andrew Cole, CEO, MD & Director]

Look, this is something that we'll talk more about in time, obviously. But as a major shareholder, you still need to make sure that you represent -- if you're involved in the board, of course, you need to make sure that you represent all shareholders. There's a lot of development potential in the Avanco assets, but those development potentials do need capital. So we will talk more about what will happen when we get to 50.1% soon. But as a majority owner of the company, we will want to be very active in the oversight of that company and how it creates value for all of its shareholders.

[Operator]

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

[Andrew Cole, CEO, MD & Director]

Okay. Thank you very much, operator. Thank you, everybody, for dialing in. As always, if you've got further questions, please give Tom a call, and we'll organize for the right people to get onto the line. And there's a couple of people who we'll follow up directly with after this, given some of the detailed questions that were asked. Thanks for your time today.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.