OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2020-Q1

[Andrew Cole, MD, CEO & Director]

Good morning, everybody. And thank you for joining Warrick Ranson, our CFO, and I for our first quarterly report conference call of 2020. I hope you're all safe and well and had the opportunity to read the Q1 report documents we released earlier today. And I also hope you've had the opportunity to read our COVID-19 update that we provided to you on the 30th of March. I refer you to the disclaimer and cautionary statements on the first couple of slides. So turning now to our strategy slide. Our strategy and the culture we've been developing over the past 5 years, I think, had stood us in good stead for the current COVID-19 crisis. You've seen us deliver a strong first quarter and made significant progress despite the adverse macro environment. Our strategic elements of partnering, lean and innovative, devolved and agile and investing responsibly, underpinned by how we work together, have enabled us to respond quickly and take control of our own response, initially well ahead of government restrictions. For example, we introduced our international and domestic work travel restrictions in mid-February, well ahead of government-imposed requirements. The flexible working arrangements we introduced nearly 2 years ago smoothed our transition to remote working. Like everyone else, we've had to make significant changes to protect the health of our people, stakeholders and our operations. This is a difficult time for everybody, but our people have responded very well, and I'd like to thank everyone within OZ Minerals for their ongoing contribution. Today, we are delivering a strong first quarter production and cost outcomes even with the restrictions imposed in the latter half of this quarter. I would also like to single out the Australian and Brazilian federal state and local governments for their support for our industry. We do not take their support lightly, and we understand that it comes with the enormous responsibility to protect our people and the community at large. We also understand that our capacity to continue operating provides much-needed income for governments in the form of taxes, royalties and export earnings. The next slide summarizes our COVID-19 response. We are in regular contact with the government and health department in South Australia and have provided them with our detailed COVID-19 management plans. At our remote Carrapateena and Prominent Hill mine sites, our medical centers are set up to undertake initial testing should someone present with symptoms. We are also able to isolate and quarantine and undertake contact and environmental tracing. We have conducted several precautionary tests at both sites and quarantined others in close contact with suspected cases. To date, all our tests have been negative. If a positive case does occur, we do have arrangements in place with the RFDS and our aviation provider to transfer the person or people off-site while protecting the remainder on the site. We are now operating with an almost all South Australian-based workforce. While most of our workforce is SA-based in any case, we have taken steps in cooperation with our partners to temporarily relocate critical people to South Australia. To further limit the exposure, we have also extended our rosters as a temporary measure, and we'd like to thank everybody for their participation in these changes. Our Brazil workforce is drive-in, drive-out and are all locally based. And like Australia, all nonessential site-based personnel are working remotely. We also undertook a review of our capital and operating costs in light of the COVID-19 restrictions. We have removed or deferred some AUD 150 million in costs, drawn predominantly from exploration and growth spending but also from corporate administration costs. Our focus was to retain only those activities associated with low-cost metal production in 2020 and the subsequent years and we've also sought to preserve jobs. We consider this to be phase 1 of our response. We are preparing plans should conditions worsen, and we're also preparing post-COVID-19 recovery plans to ensure we can accelerate out of this crisis. In doing so, we expect that some of our changes we've put in place may become permanent. We see this as actually quite an exciting opportunity, but that's a topic for another day. As a result of our phase 1 cost savings review, you will see the effect on the time line slide. There is no change to the top half of the time line. Prominent Hill and Carra expansion studies remain on schedule, as does Pedra Branca decline construction. However, we expect the CentroGold injunction removal time line will now be extended out with the Brazilian regulator temporarily suspending administrative activities. West Musgrave has been pared back whilst we discuss funding with our joint venture partner and suspend local activities to protect the local community from exposure in line with government restrictions. In the Carajás, some of our exploration projects such as Pantera, Clovis and Santa Lucia are progressing at a desktop level and securing land access in preparation for drilling once restrictions are lifted. We will continue to provide clarity on the impact of these time lines as the situation unfolds. So now on to the highlights of the quarter. Despite the adverse environment, we delivered a strong first quarter. Prom Hill delivered strong gold production with negative C1 costs due to the contribution of high gold byproduct credits. Prom Hill also achieved its highest monthly underground haulage volumes in March, exceeding an annualized 4 million tonne run rate. Carrapateena is making great progress. The team is frequently marking milestones and are very focused on underground mining, development and processing plant performance. Carra continues to stockpile ore on surface with the materials handling system, enabling progressive efficiencies as the underground development progresses. The plant ramp-up is ahead of schedule with a 5-day continuous period at 12,000 tonnes per day nameplate capacity achieved in March and impressive early metal recoveries averaging over 90% for copper and over 85% for gold. While production is weighted to the latter half of 2020, we are already building towards a full concentrate parcel for the first shipment expected this quarter. Total surface stockpiles at the end of March were 18 million tonnes at Prominent Hill and 300,000 tonnes at Carrapateena. Both the Carra and Prom Hill expansion studies progressed as scheduled through the quarter. We expect to release the Carra expansion pre-feasibility study later this quarter and the Prom Hill expansion study at the end of 2020. In Brazil, development of the Carajás Hub saw good progress with Pedra Branca underground development now reaching over 270 meters, and the installation of the ore sorter at Antas neared completion. The first parcel of Carajás-produced copper concentrate was also prepared for transporting via the Vale rail logistics network, marking the commencement of the first phase of the strategic Vale-OZ Minerals cooperation agreement, which utilizes the Vale rail and port infrastructure to realize operational and cost efficiencies. I've already spoken about $150 million in savings identified through COVID-19 review. We've provided more detail on this in our market release on the 30th of March, but in summary, we have a good liquidity buffer in the current climate. We've also increased our revolving debt facility to $480 million, which further improves our liquidity. While we ended the quarter with a circa $89 million net debt position, as of yesterday, this was close to 0. Of course, this will fluctuate somewhat with the timing of receipts and payments going forward, but we expect to move to a net cash positive position in Q2 and stay positive for the remainder of the year at spot pricing. All our operations remain on track to achieve 2020 production guidance based on current operating conditions. Notwithstanding this, we have planned for a range of potential worsening scenarios, some of which may necessitate a future change to guidance if production, costs or capital are impacted. At this point, it is difficult to predict the future impact of the COVID-19 pandemic, but we will keep you informed should the circumstances materially change. So I'm now going to hand over to Warrick, who's going to take you through cash generation.

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

Thanks, Andrew. And good morning, everyone. Our sales volume favored the end of the quarter, and as a result, we increased our net group working capital by $103 million, and as Andrew mentioned, drew on our revolver for the first time. Despite the late shipping activity, concentrated stocks increased marginally quarter-on-quarter with both the additional production from Carrapateena and the move to bulk shipping in the Carajás away from containerized parcels. Group net debt at the end of March was $89 million, as we mentioned. However, as indicated, we expect to move back into a net cash positive position through the second quarter as we continue to strengthen our balance sheet in these volatile times. Pleasingly, as Andrew has noted, we've been able to extend our revolving credit facility out to $480 million, whilst also adding a year to its tenure, providing a solid liquidity buffer in this uncertain environment and complementing the cash preservation initiatives we announced at the end of March. Investment capital at Carrapateena this quarter includes the capitalization of processing costs related to the preproduction ore stockpile, for which an offsetting credit will be recorded in quarter 2 when that material is sold. We incurred a small amount of project closeout costs and completed phase 1 of the underground infrastructure program at [ Woods ], whilst work was also commenced on design and procurement activities related to the previously announced plant throughput initiatives. Cash invested in the remainder of the growth pipeline was similar to the previous quarter. Whilst we made solid progress on the decline of Pedra Branca, the overall expenditure in the quarter was not large, and we maintained our minimal spend position at Gurupi. In March, we paid our 2019 final dividend as scheduled. Thanks, Andrew.

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So turning now to the details at Prom Hill. The team achieved record run rates in excess of 4 million tonnes per annum in March. However, underground ore movement for the quarter was impacted by heavy rainfall in February when we saw more than 120 millimeters of rain in a 7-hour period, and this restricted access into the open pit where we typically stockpile underground ore. However, this has now been rectified, and we expect to see additional productivity gains in the coming months. One enabler of this is a recent remote surface telemetry system upgrade that gives us greater remote capability for our underground mining fleet. And we're already seeing some positive results from this, which we expect to continue. We started commissioning the new Malu paste plant in Q1 with the full plant ramp-up scheduled for later this quarter. Commissioning activities scheduled for March were impacted by the COVID-19-related border closures, which restricted the movement of interstate-based commissioning partner specialists, but this shouldn't materially impact the operations. Plant throughput was lower than the previous quarter as we transitioned to processing a higher proportion of harder gold ore and executed a longer-than-normal planned plant maintenance shutdown. Looking ahead, we will continue to progress the Prominent Hill expansion study by focusing on high-priority opportunities such as resource confirmation, mine design options, processing plant operating strategy and material handling system optimizations. The scheduled Prominent Hill expansion study resource drilling will continue through this year, but due to COVID-19, we have suspended Stage 2 drilling of the Explorer Challenge target on the neighboring exploration licenses. I'll now pass back to Warrick for a bit more detail on Prom Hill's financial performance.

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

Thanks again, Andrew. So as noted, Prominent Hill's C1 costs were negative for the quarter, reflecting our prioritization of gold feed, resulting in significantly higher gold in the ore blend, our ability to capitalize on the strong gold price and the lowering of copper output as a result. Mining costs were impacted by equipment availability and restricted haulage following those adverse weather conditions in February, which reduced in-pit movements. Processing costs reflect the standard fluctuations we see in shutdown timing as well as additional diesel generation costs from the tie-in of the new power transmission line there. We're also able to offset some of the impact of the lower U.S. dollar copper prices we experienced through favorable exchange movements against our predominantly local cost base. And just as a reminder that our gold hedged contracts are financial contracts, and therefore, excluded from C1 byproduct revenues. These results flowed on to our overall group C1 cost performance, noting that our reported C1 costs for Carrapateena reflect the mining costs of ore sourced post first concentrate with the processing cost of the preproduction ore excluded and capitalized. We'd processed about 90% of that ore by the end of the quarter, so we'll start to see a normalization of our reported C1 costs going forward for Carrapateena as we move towards full production ramp-up in the second half. And spend on sustaining capital remained conservative for the quarter and is reflected in our reported all-in cost performance. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. Now on to Carrapateena where the team very proudly loaded their first concentrate containers and trucked them to an Upper Spencer Gulf port in Q1, pending our first scheduled customer shipment, which we expect to load this quarter. They continue to strive towards delivering on the various milestones and have done exceptionally well with the underground and the plant being on schedule to reach our target 4.25 million tonne per annum by year-end. As a short-term measure, the team has resequenced the mine to prioritize ore extraction from the first sublevel to build their own stockpile to give us a buffer just in case of any further COVID-19 impacts. This is a resequencing activity only and isn't expected to have any medium- to long-term impacts. I'm also pleased to say that cave propagation has commenced, and our multiple cave monitoring systems are successfully tracking the cave front. To date, the cave is performing very well and as modeled. The processing plant has ramped up ahead of plan, and I'm pleased to say it has achieved nameplate throughput rates for sustained periods within the first month post-commissioning. We are also seeing strong early metal recoveries averaging over 90% for copper and over 85% for gold. With our phase 1 COVID-19 response, we have deferred some nonessential 2020 operating and capital expenditure. We do not expect these deferrals to materially impact any future year guidance ranges, but we are currently reviewing these in detail and we'll update you if the need arises. Looking ahead, the Carra Block Cave Expansion PFS and Life of Province Scoping Study are both on track and we expect to release these later this quarter. So moving now to the Carajás province in Brazil. Our Antas team has managed the disruption well and are on track to achieve annual guidance with unit cost for copper produced benefiting from the increase in copper volume, primarily due to higher grades. The Pedra Branca team completed 274 meters of decline development in Q1, keeping them on track to achieve first development ore in mid-2020. The installation of ore sorting equipment at Antas is also nearly complete, with commissioning expected next month. This equipment will allow us to upgrade low-grade waste stockpiles currently sitting on surface at Antas and test the technology for future satellite Carajás mining operations. This specific equipment will be relocated to Pedra Branca once finished at Antas. The first concentrate parcel was also prepared for transport via Vale's rail network, making the implementation of the first phase of the strategic Vale-OZ Metals cooperation agreement using Vale rail and port infrastructure to realize operational and cost efficiencies. On our Brazilian project studies, some progress has been made, but we have largely suspended all field-based work, leading people to focus on desktop activities. So just quickly, at Clovis, which is about 3 Ks from Antas mine, a trial gravity survey was completed over the deposit and these results are being incorporated into the geological model. We are now focused on access and planning for an upcoming resource definition drill program. At Santa Lucia, we reached a joint venture type asset agreement with Vale and are forward planning for progressing in various government interactions, including with the Brazil National Development Bank and then a resource drilling program. And finally, at Pantera, successful negotiation with all relevant landholders gave us access and the license required to commence low-impact field work. Desktop studies work has continued in the meantime, readying for a resource drill program. On to the Gurupi and West Musgrave provinces briefly. We continued to work on getting the injunction on CentroGold removed, but progress was delayed again as the regulator suspended their administrative activities for 60 days with the onset of COVID-19. We are continuing with preparatory work, the application, so it can be processed when they resume activities. At West Musgrave, the pre-feasibility study confirmed that the project could be developed into a low-carbon, low-cost, long life mine producing both copper and nickel concentrates. We then, however, decided to close the West Musgrave site in the interest of the health and welfare of the local aboriginal community. Access to the Ngaanyatjarra Lands was then subsequently restricted by the West Australian government. We are continuing to work with our partner, Cassini Resources, on the funding structure of the project and the next steps. Given this and our COVID-19 restrictions, we expect minimal spend on this project in 2020. On our growth pipeline, it illustrates our pipeline of projects that you'll all be familiar with. As we've previously announced, we have removed all nonproduction and non time-critical 2020 spend, including studies and exploration along with corporate costs. Whilst we have temporarily suspended project field activities, work progresses with all developed -- devolved project teams remaining in place, readying for a resumption of activity. We are using this time to hone our focus to optimize project scopes, look for ways to improve value for all our stakeholders and embed the modern culture we've been championing for some time. Taking a moment on guidance to wrap up some thoughts on the topics that we've presented so far continues to present some very real and dynamic threats and opportunities to our business and the industry more broadly. COVID-19 has introduced a degree of instability to people's lives and livelihoods that hasn't been seen in this generation. But consistent with how we have strived to operate and deliver to our strategy, we are approaching this challenge by doing what we can to respond to and find the opportunities in the world we find ourselves. We are grateful to the support we have received from governments to keep our operations going. There is shared benefit for the community, government and ourselves for us to continue to operate, and we are all putting health and safety at the forefront. While there is currently no change to production guidance, we recognize that things may deteriorate further. Government regulations or other changes, such as the supply chains or with our customers, may require further adjustment. We have developed scenarios for a range of circumstances, including if concentrate production or sales are reduced or we have to cease operating for an extended period of time. In all our deliberations, the focus is on safety and health of our people, our balance sheet resilience and ensuring we have a strong company for the future. On the latter, we also have a team that's concurrently developing our recovery plan. This pandemic is not only about the downside we're all seeing today, but also about the opportunity it creates. Our intent is to use the learnings from this pandemic to evolve and accelerate our journey of becoming a modern mining company that creates value for all our stakeholders. Every crisis has a silver lining, and we expect to leverage this opportunity and come out stronger. Now just quickly on some of the key milestones coming up for the next quarter. We are looking for a full ramp-up of the Malu paste plant this quarter. We are finalizing our risk controls, independent peer reviews, the value optimization and study documentation for the Carrapateena Expansion PFS and Carrapateena Life of Province Scoping Study, which we also expect to release this quarter. While we continue to work on the removal of the CentroGold injunction and commencement of the feasibility study, we have made the assumption the injunction removal will be deferred to Q3 as a result of the COVID-19 restrictions in Brazil. So just a few bullet points to summarize today's communication. Despite the adverse environment, I feel that we have delivered a good strong quarter. Prom Hill delivered strong copper and gold production with negative C1 costs. Prom Hill achieved its highest monthly underground haulage volumes in March, exceeding an annualized 4 million tonne run rate. Carra is making great progress and continues to stockpile run-of-mine ore on surface via underground materials handling system. The Carra plant ramp-up is ahead of schedule and has achieved a 5-day continuous period at nameplate capacity of 12,000 tonnes per day. It hit impressive early metal recoveries, averaging over 90% for copper and over 85% for gold. We have good stockpiles. So at Prom Hill, we have 18 million tonnes of ore stockpiled on surface, and at Carrapateena, we have over 300,000 tonnes of ore stockpiled on surface, which both give us a good buffer. In Brazil, development of the Carajás Hub saw good progress with the Pedra Branca underground development now reaching over 270 meters, and the ore sorter at Antas is about to commence commissioning. We've increased our revolver to $480 million, which gives us good liquidity. And as of today, we have close to no debt, and we're expecting to move to a net cash positive position from here on out, assuming spot pricing. And finally, all our operations remain on track to achieve 2020 guidance based on our current operating conditions. So thank you for joining us. Operator, can you please remind people how to ask questions? And we've got both Warrick and myself here who can respond.

[Operator]

[Operator Instructions] Your first question today comes from the line of Nick Herbert from Crédit Suisse.

[Nick Herbert, Research Analyst]

Might just start with a few on Carrapateena, please. Big reduction there in the growth capital budget, $50-odd million. Just wondering if you could provide some more detail on what the major items deferred there were. And why you don't actually expect there to be any impact on production or operations from that deferral.

[Andrew Cole, MD, CEO & Director]

Could you answer that one, Warrick?

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

Yes, I can. So a number of the initiatives actually relate to the years -- to some of the plant modifications that we were installing or planning to install and run out into the -- more into the '22, '23 period. So there are items that we've placed on hold for the moment. We'll have another look at those. So they don't impact the current year's production, or indeed, into '21. And we'll again revisit those in terms of their impact on the years beyond that.

[Nick Herbert, Research Analyst]

Okay. And are you able to provide some guidance around when you expect Carrapateena to be cash-neutral [ post ore ] CapEx?

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

Yes. So apart from -- there's -- we've got a couple of months where we won't have sales revenue in this first half as we continue to ramp up production. But effectively, with the incorporation of our current level of cost savings, we've pretty much run cash neutral from the beginning of the second half. So yes, that's sort of the broad perspective.

[Nick Herbert, Research Analyst]

Okay. And then just the mining resequencing you were talking to. Does that have implications for how we should be modeling ramp-up? I think previously you mentioned just take a linear approach to that exit rate of 4.25 million in the year. Should we stick to that? Or has that changed?

[Andrew Cole, MD, CEO & Director]

No. It really doesn't impact -- I wouldn't make any changes to your ramp-up assumption. It doesn't have any medium or long-term impacts. All we've effectively done is move underground development as being the priority 1 to ore extraction being the priority 1 in the short term. And this is entirely aimed at pulling more ore out to build our run-of-mine stockpile up in the short term just as a preventative measure if we have to take harsher action on our -- at Carrapateena in terms of how many people we can have on the site. I expect that this will -- resequencing will be reverted in a few months' time.

[Nick Herbert, Research Analyst]

Okay. Great. And then just finally, just on the hedging. Should we expect a similar rate? I'm sure you've provided the details previously, but just a reminder would be helpful. Is that the sort of the 22,000 ounces per quarter, is that what we should expect over the next couple of quarters as well?

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

Fairly much. We've got about 90,000 ounces left for the rest of the year, and that's fairly evenly spread [indiscernible].

[Operator]

Your next question comes from the line of Rahul Anand from Morgan Stanley.

[Rahul Anand, Equity Analyst]

Andrew and Warrick, hope you are staying safe and well. Look, the first one is on Prominent Hill. I wanted to focus a bit on the milling rate, which is a bit softer. Given that the high-grade stockpile is already part of the plan for this year, I wanted to understand if this milling rate is what should be annualized at this point in time. Or how should we look at that?

[Andrew Cole, MD, CEO & Director]

Yes. Hi, Rahul. Yes, thank you, we're all doing pretty well actually all things considered, yes. But the milling rate that you're seeing at the moment is a result of us prioritizing the high-grade gold stockpile as opposed to the lower-grade copper stockpiles. We've mentioned this a few times before. The higher-grade gold stockpile is a harder ore and does process slower through the mill. So the rates that you'll see are what you'll expect for this year. It's not necessarily an annualized rate that you would drag forward. It's only for the period that we are processing the higher-grade ore stockpile this year.

[Rahul Anand, Equity Analyst]

Got you. So that's for the entirety of this year, though, right?

[Andrew Cole, MD, CEO & Director]

Thereabout, that's correct.

[Rahul Anand, Equity Analyst]

Okay. Perfect. And then just one follow-up to Nick's question re Carrapateena prioritizing due to the COVID impact. So I just wanted to sort of ask, in terms of the grade profile of this ore that's being mined ahead of schedule or the mine plan changes, is there a change in terms of the grade profile? Are you prioritizing more tonnes perhaps in terms of the ore? And does that mean you potentially process more through the mill and perhaps have a slightly higher cost as opposed to before?

[Andrew Cole, MD, CEO & Director]

No, it shouldn't impact costs. And look, we can't really -- we're not -- when I say prioritizing ore extraction, you've still got to manage the cave in a certain way. So we're not prioritizing different parts of the ore body. It's just that we're pulling ore out faster than our original schedule. So originally, our original schedule, our pit staff's -- our priority [ heading ] was access to the second crushing chamber. That's what we spent all our time on as priority 1. The second priority was ore extraction. What we've done for the next couple of months is flip that around. So we're pulling the cave slightly faster than we were planning to originally. And the only reason we're doing this is to put more run-of-mine material on the surface. So if in the worst-case scenario we had to bring Carrapateena back to a skeleton crew, we could do so with just a processing team and continue to process and generate concentrate. So the only consequence of that is we introduced extra rehandling costs for that larger run-of-mine material. In a few months' time, we will flip the priority back and move it back to underground development as priority 1. But there shouldn't be any additional costs or changes to this.

[Rahul Anand, Equity Analyst]

Okay. Perfect. And then, look, a final question on Prom Hill. So the investment decision, feasibility and also resource and reserve are all expected by the end of the year. So you did reaffirm that at the start of the call. I just wanted to check on -- I guess the crux of the work there is related to drilling, and part of the quarterly did cover that. But roughly, at what percentage of completion is the drilling running at the moment?

[Andrew Cole, MD, CEO & Director]

Well, I'm not sure I can answer a percentage of completion because as we drill more, we get more information. So we're continually optimizing the program. But we're looking to put 4 -- we've got 2 drillings up there drilling the resource at the moment. And this is the critical path work, is the resource infill drilling and the resource extension drilling. So we are drilling both to infill the inferred resource within the Malu resource underneath that current underground mine. We are also drilling deeper holes to extend the base of the inferred resource to get an understanding of how deep this potential ore body goes. We are looking to introduce 2 more rigs at the moment, so that will take it to 4 underground drilling rigs, and they will drill right through the end of this year. And look, it's very hard to definitively say whether we will have enough information by the end of this year or not because, obviously, it will depend on the results of that drilling. But as we sit here today, we believe we'll have enough information by year-end to know the confidence with which we can predict this resource and its depth extent or at least another -- a minimum depth extent. That then informs the design of the vertical haulage system and the depth with which we put design in the shafts, too.

[Operator]

Your next question comes from the line of Paul Young from Goldman Sachs.

[Paul Young, Equity Analyst]

Congrats on a pretty strong quarter. First question is on concentrate sales. Can you tell us what your geographic split is on your concentrate sales? And have you seen any impacts on logistics, i.e., selling concentrate into your customers?

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

Yes, Paul. It's Warrick. Look, we don't sort of spread out our -- disclose our yearly sort of split in terms of our geographic spread as we go. But look, we haven't had any sort of major impacts on customers. We do, do some sales into India. And obviously, that's in shutdown at the moment, but we've been able to manage through that. And I think, again, our long-term relationships with our customers have been extremely important in just continuing the communication there, understanding the requirements. So yes, no impact on sales volumes. Obviously, price is impacting us a little bit at the moment. But with our gold volumes, we've been able to offset a large component of that. And in terms of logistics both in Australia and offshore, we haven't seen any material impact in terms of logistics movements.

[Paul Young, Equity Analyst]

Okay. Second question is on Prominent Hill and just around costs and gold production. First of all, I noticed the gold grade, Andrew, was actually quite high during the period, so well above the gold stockpile, I guess, reserve grade, if you call it. And also, gold recoveries, that's at sort of 80%, probably a function of higher grades. And then obviously, it's all related with cost -- I mean cost work -- performance was excellent. And it's hitting your cost performance for the quarter. I mean it's pretty difficult, I think, if gold stays here for you that's -- but you're not sort of reporting a negative cash cost at Prominent Hill and net credits for the year. So your cost guidance was very conservative. So in fact, it's all interrelated, of course. But back on to the, first of all, on the gold grades and recoveries, can you just comment whether or not those gold grades and recoveries are sustainable for the year?

[Andrew Cole, MD, CEO & Director]

Yes. Sure, Paul. I understand the question. And I think actually, technically right now Prom Hill is probably the lowest C1 cost operator in the world actually given the gold that it's pumping out. Look, this is an all interrelated question. And yes, Prom Hill has done very well in the first quarter. But we don't issue guidance, as you know, Paul, by quarter. We issue it by the year. And as we sit here today, we do believe we will see some reversals to some of the performance metrics from the first quarter and future quarters. So I wouldn't change your annual guidance numbers as we sit here today. So yes, we've hit some sweet spots from both our stockpile and from some of our underground stopes that we pulled in the first quarter, but you will see that reverse through the year to bring us back in line with annual guidance for the full year.

[Paul Young, Equity Analyst]

Yes. But second to that, Andrew, your cost guidance is based on $1,350 per ounce gold versus spot, where we sit at the moment, at $1,750. So already, it's conservative. So just on some of those reversals, are we talking grades back down to the sort of 0.7 gram per tonne mark and recoveries back into the 70s -- mid-70s? Is that what you're talking about?

[Andrew Cole, MD, CEO & Director]

No. You should see the recoveries hold up, but the grade in the stockpiles is variable and the grade in the stopes that we pull is variable. So yes, you will see variable grades pulling back through. But you are correct on price. We're not using current spot pricing obviously. We use consensus pricing.

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

Yes. It's Warrick here, Paul. I suppose -- we had sort of internal debate about whether we should update our gold pricing and exchange assumptions, but in terms of our savings reductions, we felt it was better to leave those and to be clear on our savings impact in terms of our updated guidance at this stage. So obviously, we'll continue to review that as we go forward through the year and have a better understanding of where gold might sit given the current volatility.

[Operator]

Your next question comes from the line of Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Few questions. Firstly, social distancing and COVID, you're mostly an underground miner. Can you just talk through the different productivity impacts the measures you're taking in -- to manage COVID? What's the impact on your productivity that we could expect over the next few months versus what you've reported today?

[Andrew Cole, MD, CEO & Director]

Yes, sure, Daniel. Look, to be frank, not much, really. As you know, when you're in a mining scenario, underground or open pit, people usually are working on their own. They're single operator cabs irrespective of which equipment you're in. All of the activities are usually with 1, maximum 2 people. So social distancing in this environment is actually not that complex. The complexity on a mine site is not in the operating environment, the complexity is in the camp, it's in the mess, the wet mess, in the preshift meeting rooms and the transport. That's where we have to actually put most of our energy and focus. So that doesn't have a bearing on productivity at all, it has a bearing on mental health. So most of our focus as a result of social distancing is about trying to do the best we can to keep people focused, keep them motivated, keep them socially connected to friends, peers, families. That's where the energy needs to go, not on productivity because there's actually no impact on that.

[Daniel Morgan, Director and Analyst]

Okay. Very clear. Also on the scope of the release coming up at Carrapateena, which is your Block Cave and Life of Mine Study. I'm not looking for you to announce what the findings are prior to it, I'm just wondering what scope -- what is the scope of the reports you're going to release? What can we expect to hear?

[Andrew Cole, MD, CEO & Director]

So there's 2 pieces to this, Daniel. The first piece is looking at a Life of Province Scoping Study. So this is pretty high level, how does this whole province fit together? How does Cannington, Fremantle Doctor, the Saddle, Carra and the whole Carra all fit together in a sequence, and that's not at a scoping study level. The more detailed piece of work is what does an expansion and specifically a block cave expansion at Carrapateena look like and that's done through a pre-feasibility study level. So we will -- we expect to release a pre-feasibility study report on what a block cave expansion at Carrapateena would look like, how it would sequence, the risks associated with that, the time line associated with that and the economics associated with that. So that's what we're looking to release. Now that's all subject to, of course, our final internal due diligence, peer reviews, a Board review and a Board meeting and a Board approval for the release of the PFS.

[Daniel Morgan, Director and Analyst]

And just on the life of mine, when you're looking at the other satellite deposits, does it envisage talking about the mining method that might be employed on those other deposits as well?

[Andrew Cole, MD, CEO & Director]

It does at a high level, Daniel, at a scoping study level. Yes. So we need to -- to do that, you need to assume mining methods. But you'll need to remember when you see this data, it's at a scoping study level. And as you know, we've got a resource on Khamsin, we've got a resource on Fremantle Doctor published. So -- but these are inferred resources, so it's pretty early stage. But it gives you a rough idea how we think they should sequence.

[Daniel Morgan, Director and Analyst]

And just lastly, you've taken $150 million of capital and operating costs out of the business as prudent measures to manage COVID and potential impacts from COVID. Obviously, the spend was seen as valuable and value-accretive prior to this event. I'm just wondering how does this impact the company in -- what is the impact of losing the spend next year and the year after? Like what are we losing in concept?

[Andrew Cole, MD, CEO & Director]

Well, look, the first and foremost thing is the reason we took this spend out was because we don't want people put in harm's way. So we can't have people on airplanes flying around the world, around Australia or interacting or being put into positions where they can't observe social isolation. So that's the single biggest driver of this. And the easiest way to do that is to suspend all field-type activities. The second driver is we do not want to put our operating assets at risk, so minimizing the number of people who visit the operating assets is critical. So if we had work scheduled to do improvement activities, like we did at Prom Hill we were doing some work, we were planning to do some work on the office and IT systems, et cetera. So a prudent measure is just to stop any visitors going to the assets to ensure that we protect the operating cash flow of the business. So they're the primary drivers of this. Most of the spend is either corporate, so we're not flying anyway. We've got everybody working effectively remotely at home. So it's just a lower cost environment. Or growth-related, so exploration programs have all been pushed out by potentially 12 months. Our studies, project programs are being pushed out by -- although not necessarily by 12 months because we still have all of our teams in place and they are still working on the projects, but they're working on them at a slower pace. And it's up to the teams now to help us understand how quickly we can do these works still. So that's why we will continue to review the time lines for these projects. So most of the spend that's been delayed is about future growth options as opposed to current base case.

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

I think the other thing to add, Andrew, is that -- and to Daniel's question, is that we've maintained a lot of flexibility in the things that we've cut back. So the ability to sort of switch them back on is quite rapid. So again, we've taken a hard stance to start with, not knowing the longevity of the current environment. If those things start to -- if there's opportunity to relax those in a responsible and a safe way, then obviously we can turn some of those things back on quite quickly.

[Andrew Cole, MD, CEO & Director]

That's a good point, Warrick. So what I didn't say and I should have said, Daniel, is that we're keeping all of our teams in place. So this is -- this will enable us to ramp up very quickly if the opportunity presents itself.

[Operator]

[Operator Instructions] Your next question comes from the line of Lyndon Fagan from JPMorgan.

[Lyndon Fagan, Analyst]

Look, the first question is just on the gold recovery at Carrapateena. They're a fair bit above what was in the study. I'm just wondering if you can comment on how sustainable they are? That was my first one.

[Andrew Cole, MD, CEO & Director]

Lyndon, look, it's too early to say. So we have been doing quite a bit of experimentation with various flocculants, et cetera. And the team up there, I think, has done a very good job, and they certainly have seen better recoveries than what we expected to see given all the met tests we've done through the various studies. But I wouldn't extrapolate yet those types of recoveries going forward. And look, I'm hoping, of course, that we can, but it's way too early to be extrapolating these numbers through life of mine. We just haven't seen enough data. The plant has only been operating for, what, 6 weeks or thereabouts. So very positive early signs and I'd leave it that.

[Lyndon Fagan, Analyst]

Okay. The next quick one is can you remind us when the Teck payment is and how much it is?

[Andrew Cole, MD, CEO & Director]

So the -- it's Teck and Rudy Gomez payments, so we need to pay both of them, and it's triggered on a -- help me here, Warrick. It's a commercialization clause in the agreement. We were...

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

Yes. It requires a certain level of productivity through the plant and for a sustained period. So yes, I mean the first part of that question is really around sort of our ability to achieve those milestones as to when the payment would be. And then it's a USD 50 million payment.

[Andrew Cole, MD, CEO & Director]

So in essence, the sooner we have to pay it, the better the plant is performing. Your whole operation is performing in essence.

[Lyndon Fagan, Analyst]

So are you prepared to put a quarter on when we should have that in?

[Andrew Cole, MD, CEO & Director]

No. We said this year, that's it.

[Lyndon Fagan, Analyst]

Okay. And then I guess the final one from me, just a bit of a high-level question. Looking at the Gantt chart at the start of the slide pack. You've got Carrapateena block caving construction next year. Obviously, Centro and West Musgrave were also meant to be in construction next year, but you put a caveat there on COVID-19. But the fact that you haven't on the Carra block cave, how confident are you that we'll actually see anything built starting next year?

[Andrew Cole, MD, CEO & Director]

So Lyndon, you sort of asked me to get into the PFS results here a bit. But the PFS is looking good, and my expectation, based on what I've seen today, is that we'll be able to release the PFS, but it's subject to all the things I mentioned earlier on the call. It also needs a feasibility study completed before we can actually commit material capital to this. The other thing that I would say, though, is the scope of and the works that we have planned for the sublevel cave all enable the development of a block cave. So you may recall that one of the constraints we put on to the design of the sublevel cave is that it allowed us to transition to a block cave into the future if we could demonstrate the economics and the risk profile warranted that without the need to move or substantially change any of the underground surface infrastructure, and that's still the case. So I can't give you a confidence level about whether we will or will not go to a block cave at this stage, that's subject to the study [ gates ], but we are expecting to release the pre-feasibility study, which I think is looking pretty good, later this quarter.

[Lyndon Fagan, Analyst]

Okay. And then with nothing happening at West Musgrave, what would be a reasonable delay to expect on that? I guess you presented it with a 20% IRR, and on paper, it sort of looked all right. But then I guess it's sort of on the back burner now.

[Andrew Cole, MD, CEO & Director]

Yes. So in -- I wouldn't say it's on the back burner per se. So we have the project team from -- the West Musgrave team is in place largely, and that's now a mixture of the pre-feasibility study team from the West Musgrave project and the FS and construction teams from Carrapateena. So that team is sitting there in place and they are working on the West Musgrave project, and they are doing the core work that they can do on approvals, time lines and state and federal approvals processes and on as much design and optimization as they can internally without being able to get into the field because they cannot go and visit the work sites, which are in a lockdown obviously given the traditional owner communities in place. And we've also tightened the spend around this project. So the delay to the project, I think, is still to be determined. It's not going to be a straight shift of the time line out by the length of COVID-19 because we're still working on it. But equally, we're not working on this at a full rate, and we actually technically haven't commenced the feasibility study. We are still working with Cassini Resources, our partner, on funding options and what the scope of a feasibility study will look like. So it's a good question, Lyndon. We're just going to have to park that -- the answer to this until probably next quarter, I would say, and we should be able to give you a bit more clarity on what the time line might look like.

[Operator]

Your next question comes from the line of Hayden Bairstow from Macquarie.

[Hayden Bairstow, Analyst]

Just a couple for me. Firstly, just on the copper market. I mean, are you seeing anything in terms of additional or changing to the customer buying habits, so you've had to redirect cargoes elsewhere just given a few closes internationally if some of the sort of downstream stuff as to whether there's been an impact on concentrate sales? And then just on the sort of more broader strategy. I mean are you -- do you have a will at the moment to look at further M&A and sort of smaller -- putting more projects into the pipeline just given the funding issues that smaller companies are having at the moment, given the volatility in markets? Or is it just sort of eyes down and focus on what you've got at moment, given all the restrictions that are around the world?

[Andrew Cole, MD, CEO & Director]

Yes. Hayden, look, there's a whole bulk -- bunch of questions in that one question you just asked. Look, in terms of smelting and our customers more generally, most customers are still operating. So we have done a little bit of moving and switching around parcels to different customers, but that's the benefit of having a portfolio of customers rather than 1 or 2 and it's a benefit of having really good relationships with them. So we've pretty much sold to plan. That's gone very well, and we've sold through the rest of this year. So I think we're in a good position, but that's always subject, of course, to what happens in the various countries with COVID-19 and how it spreads and what the government responses are. Equally, on the supply side, so when you ask about the copper market more generally, there's supply and demand to this. And look, it's very hard to see where this heading because there's been a lot of supply-side disruptions and it's growing by the day. Many countries are mandating closures at a national level of operating mines. And many companies are voluntarily closing their operations once they get COVID-19 cases and infections on their site. So we're seeing a reduction in supply gradually build in the market this year. But equally, on a demand side, people aren't buying as much today or building as much today. So look, it is very difficult to see what the short- to medium-term implications of this are going to be. I would say, fundamentally, though, nothing's changed fundamentally in terms of the commodity, the supply and the demand side. It's really about how it's going to right itself and over how long it's going to take. It will be interesting to see how operators respond to this because you can save money in a sustainable way or you can save money and destroy your assets. So it depends on how you do this as to how operators will come out of it. The last part about this is opportunities. So the pandemic obviously creates a crisis that you've got to respond and manage, which I think we're doing, and that's demonstrated by the results of the quarter. But as I also said in my overview, this also presents opportunity. So we don't expect just to buckle down and deliver through this and revert to prepandemic. There are lots of opportunities that this pandemic creates. And I don't necessarily expect a whole $150 million that we have said we'd save to go back into our operating cost base post pandemic because we're learning to do things better and more efficiently. I'd also say that goes for the M&A market more generally. Our M&A team is still in place. They are still looking at opportunities around the world, whether that's exploration or right through to operating assets. And they've got a watching brief for those things. So I'm not going to predict, obviously, what that means. But our appetite for growing value for our stakeholders is still there. And I think there are going to be more opportunities as a result of this pandemic than there probably were beforehand.

[Operator]

Your next question comes from the line of David Coates from Bell Potter.

[David Coates, Resources Analyst]

A couple of quick ones, more at a high level, I suppose. Just with the increase in the debt facility, can you just run us through what the catalyst might have been for that and your thinking behind increasing the size of the facility?And the second one is also just a bit more on how you're thinking -- your gold hedging program originally put in place, as I understand it, to sort of protect the value of your stockpiles. Is your thinking around that changing in the current market environment?

[Andrew Cole, MD, CEO & Director]

Yes, sure, David. Do you want to handle both of those?

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

Yes, I can respond to that. So in terms of the debt facility, I mean, we were just keen on making sure that we have and continue to maintain a sufficient liquidity buffer. And we do see it as a buffer in terms of the current environment. So obviously, we're still building our profile in relation to our cash preservation measures and we started to engage with our existing banking pool. So the number is really just to make sure that we've got a lot of headspace in terms of not knowing really, I suppose, what the next few months might hold. As those things become clearer, obviously, we may have sort of -- hopefully we've over catered for it in some ways. But we thought it was just a prudent measure in terms of getting into the market with our existing lenders and they've been very supportive in terms of our business and our approach. So there's no -- nothing else to that really, I think. In terms of hedging, look, the gold hedging program was done for a specific reason, which we've talked about before and really about the buildup of the stockpiles a few years ago. We don't actively hedge within our current operations, and we're not intending to. And obviously, with our existing hedge book, there are financial hedges, so we just need to let them unwind. There's not really a lot that we can do with those without incurring significant costs or cash outlays. So it's better to let them run as they are.

[Operator]

The next question comes from the line of Kate McCutcheon from Citi.

[Kate McCutcheon, Assistant VP and Metals & Mining Analyst]

Andrew and team, well done on the recoveries at Carra during commissioning. Just had a follow-up. So what is that driven by? Is that related to the ore zone that you're currently mining in or the bornite zone perhaps and then just related to the recovery? Are you able to talk about some of those CapEx deferrals with respect to the plant debottlenecking program and potential impact on the plant performance for the next year or 2?

[Andrew Cole, MD, CEO & Director]

Yes. Kate, your question was a bit crackled, but I think you're asking about recovery. So the recovery that we've seen in the plant, both copper and gold, has been, we've got to say, above our expectations in what we've seen in the first 6 or so weeks of the plant operation. I think it's probably too early to make any predictions, Kate, about whether these are sustained recoveries that we will see. I would caution against using these numbers for any modeling purposes at this stage because I think it's premature. The team have done quite a bit of experimentation in the plant. I think they've done a fantastic job at testing and putting the plant through its paces, and they've also experimented with a number of flocculants and various recovery methodologies. So we certainly do hope that we would like -- we can see increased recoveries going forward. But I think it's a bit premature to be using it on a sustained basis right now. The second question was on the capital preservation. So we have taken some capital out of Carrapateena. Warrick answered this a little bit earlier, but the principal driver was delaying some of the capital investment into the plant and infrastructure that potentially would have seen benefit in future years in 2023, 2024, 2025, thereabouts. It's not to say that we can't do these things though. There are still options and they can still provide us benefit. We just think it prudent to delay them today, given the economic environment we sit in, obviously. There are some other costs we've taken out of there like travel and we've deferred the Western Access Road again. So there's things like that, that we have done that will come in later and be pushed into next year. As we sit here today, we don't believe there are any material changes to the guidance we've issued over the next 5 years, but that is still a work in progress for us. So these are things that we will continue to update. And it does, in part, depend on how long we need to hold our restrictions in place for COVID-19.

[Kate McCutcheon, Assistant VP and Metals & Mining Analyst]

And then just somewhat -- sorry, on the mine grades, are they softer as you ramp up and kind of leave a buffer? And what would be a reasonable time frame as you kind of trend towards reserve numbers or time frame to kind of get there?

[Andrew Cole, MD, CEO & Director]

Yes. We haven't really talked all that much about grade as we're ramping up. We're more talking about tonnes, but we do obviously -- we will be heading, obviously, to reserve grade. The very first sub-level is right on the margin of the unconformity with the cover sequence and the ore body itself. So we tend to see lower grade in the very top of the first sub-level and higher grade in the very bottom of the top sub-level. So getting into a bit of detail. But we will be heading to reserve grades in months. So it's not that long before we actually get to reserve grade.

[Operator]

The next question comes from the line of Peter O'Connor from Shaw and Partners.

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

I've got 4 areas I want to touch on. Firstly, Andrew, could you -- given we won't get to site for potentially a long time and you've only mined a little bit of ore from production at Carrapateena, can you wrap some more qualitative or quantitative comments about how the cave is caving, comminution, dilution, water, anything that can help us get a sense of what it looks like if we were underground? That's the first one.

[Andrew Cole, MD, CEO & Director]

Sure. Yes, Peter. Look, it's really disappointing we can't get people up to site, obviously, because the site team are obviously quite looking forward to showing off what they've done. So we are trying to work out some creative ways that we can share with you what the site team is doing. So that's something we'll talk a bit about later on. In terms of cave performance, so they obviously started pulling the first sub-level. They have 4 different systems that they are using to monitor cave propagation. And the cave is performing as modeled, in essence, Peter. So we can see the cave back, we can see as it's progressing. We're monitoring it via open holes and seismic system and in-hole monitoring system, et cetera. So we can actually see the way it's performing. It's going very well. We've got less water than we originally anticipated through the study process itself. So we're over pumped underground, which is a positive thing, obviously. In terms of fines generation, we're not seeing any material generation of fines, and that's more an optimization of the blasting practice that we've been using more than anything else. So I will say on fines, Peter, it's probably too early to tell because we're still only pulling the first sublevel and retreating on that first level. We probably won't get much of an indication on fines generation until we get further down into the cave. So can you leave that with me, Peter, because we do need to find a better way of showing you a bit more as to how Carrapateena is performing rather than a bunch of text. I just don't know how we're going to do that yet. It might literally be Tom running around with a GoPro or something to show you, but we'll find a way.

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

And from a materials flow perspective, these questions have been asked, but I just want to add one more. Looking at the other way around procurement channels, getting material to your sites, has there been any issues with that?

[Andrew Cole, MD, CEO & Director]

Very good question. So that's why we're putting a lot of time into this, to protect our inbound supply chain. When -- right now, as we sit here today, our inbound supply chains are open. We had an issue from China back in February for Prom Hill, but that -- those supply routes have now reopened. So as we sit here today, Peter, there are no issues with inbound supply chains, but I would say that we're putting a lot of energy into this because it's probably the one area that we worry about more generally because we're exposed to many countries and many international borders and shipping routes. But we also have built inventory in many key areas. So we've got plenty of buffer on-site to survive short-term impacts on supply routes.

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

Yes. I think the other thing, Peter, to -- sorry, just to note that we're also now starting to take a longer-term view. So obviously, the immediate priority was the short-term supply issues. As Andrew said, that's fine. And now we're starting to switch to what are some of the items that we need for future maintenance shuts, et cetera, and how do we sort of sit on those. So we're working through those.

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

Can I flip back to the other side, which is the concentrate sales. Andrew, you did say you're fully sold, your concentrate, for calendar year '20. Is that across all 3 sites? And if so, what and how can that change? The customer said you're great, Andrew, I want to take everything. Can that turn on a phone call? Or are they locked in and would require a force majeure event?

[Andrew Cole, MD, CEO & Director]

So Peter, yes, we are sold across all of our assets for calendar 2020. I think one of the other things to remember is we're not a bulk supplier. So we don't supply the majority of concentrate to any smelter. We sell very small high-grade parcels to smelters. So we've had instances where smelters have continued to take our product. Notwithstanding the product, the smelter itself has been shut down as a result of isolation or self-isolation restriction. So can these things change? Yes, of course, they can change. And can they -- can people issue force majeure on us if they get into trouble? Yes, they can. But we've already demonstrated that we can reallocate parcels of product to other smelters. And we do that all the time anyway. So reallocation of parcels amongst our customers is not that uncommon for us. But it is something we do monitor closely, Peter, because we are, in a way, a global organization, as are all copper companies, and we supply to the global market. So we are dependent on them and the way they operate their smelters and the government policies which are imposed on them through time.

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

I was just going to add to that, that -- and probably coming back to Hayden's question, I think that we are seeing a lot more trader activity as well, obviously, with the reduction in supply from some of their other sources, they're certainly very active in the market. So there's some alternative options, I suppose, that keep coming up.

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

Just looking at concentrate terms, given this crazy world, are they changing dramatically? I know you're not selling spot terms, but are you seeing crazy moves with the terms as well for concentrate sales? Is that something we should expect in the latter part of the year?

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

Not crazy. But yes, there is a swing back, obviously, in favor of the smelter from where we probably -- where we thought this year would be where -- so obviously, trader activity reverts back to some of those different terms so -- but I wouldn't say -- I don't think it's crazy at the moment.

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

I just want to ask you 2 things. Firstly, when you went back and upstage -- upscaled your debt from $300 million to $480 million, nothing in OZ Minerals is done without enormous amount of detail. What scenarios did you run to come up with that number of $480 million? I'm sure it wasn't just asking the banks how much can we get? Did you run downside scenarios, multitude of sensitivities? Where does $480 million come from and why?

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

Well, it's always -- you can always go to the bank and say how much can you give me, but no, we did run a broad range of scenarios. And in fact, we're still working on those scenarios as things evolve. I mean, we can have any range of scenarios, really, in terms of understanding government regulatory requirements, whether it's at our end, whether it's at the smelter end, whether -- so -- and there's a mix in between. And so for us, it was really a case of just sort of understanding, I suppose, yes, what does that range actually look like? What does our phases of cash preservation look like? So obviously, we're in our first phase of cash preservation with our $150 million. We've had -- we don't see that as -- like a worst-case scenario. We see that as a prudent and robust measure in terms of our current -- how we're currently operating. But if any of those parameters change, which Andrew has already sort of talked about, whether it be from outside or from a customer side, we need to make sure that we're able to respond. And so we have -- we're in the process of developing and refining, and we have already different step-ups, if you like, in terms of what we would need to do both on our side and obviously thinking about our capacity and the time frame that, that sort of needs to operate for. So it's a bit of like how long is a piece of string in terms of what we would actually need, if any of those scenarios happened. But we believe we've got a prudent position there. And as I said earlier, it's not our intention to hopefully use much of it at all, really.

[Andrew Cole, MD, CEO & Director]

But Peter, let me just add one thing that Warrick didn't talk about. Warrick is detailed and he is very cautious. One of his scenarios, I think, was called the end of the world and had a shutdown for several months. So we used scenarios like that.

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

I'd expect nothing less, Andrew, thank you for that confirmation. And just on debt as well, Cassini and West Musgrave, could you remind me of the scope of debt options you're looking at for that? And is that being progressed at the moment on a desktop basis? Or are you actively canvassing banks and financiers at the moment given you can do that without having to do it face to face?

[Andrew Cole, MD, CEO & Director]

You want to talk about that, Warrick?

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

Yes. Probably -- I mean, we've talked a little bit about that before, Peter. So I mean, it's sort of -- we understand there's sort of variety of options at a high level. I suppose the world has changed a bit in terms of, obviously, the current environment and lender appetite around some of those aspects. And so that sort of changes some of our thinking in terms of how we might approach project development. It's a bit of a constant, I suppose, in terms of every day is a little bit different in terms of some of those influences. So our options -- all those options are still on the table. It's really, I suppose, just how we approach those and what does the future look like in terms of -- but obviously, the nickel market itself is obviously another factor that we're wanting to understand given the current volatility, how that's likely to play out. It's probably a little bit too early for us to really make sense of that at this point in time. So that's, again, work in progress for us and Cassini as to how that sort of might impact some of those options.

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

Okay. Good. Just one last one, M&A, Andrew, versus buyback. Everybody's focused on M&A because everything looks cheap. How are you assessing the value of growing stock versus M&A? And is that part of the active dialogue with the M&A team?

[Andrew Cole, MD, CEO & Director]

So short answer is yes. Peter, buybacks are always an option and where we -- in our capital allocation framework, we talk about allocating capital to whatever, whether it's projects or studies or exploration, one of the options we assess in parallel, that is a buyback option. So yes, it's part of the active dialogue. I wouldn't comment yet, though, on how they compare. But buyback does look favorable, obviously, at the moment. But right now, we're right in the middle of COVID-19 and it's unclear what the future looks like for all of us. Probably best to be a bit conservative right now.

[Operator]

There are no further questions from the phone at this time. I'd now like to hand the conference back to today's presenters. Please continue.

[Andrew Cole, MD, CEO & Director]

Thank you very much, everybody, for joining us. Sorry, we've gone a little bit over schedule here, but hopefully, that was useful. If you have other questions, please call Tom and we'll organize to get the right people on the call. Everybody, have a good day and please stay safe and healthy. Thank you.