OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2018-Q2

[Andrew Cole, CEO, MD & Director]

Good morning, everybody. Thanks for joining us today. This is our first quarterly update from our new office in the Adelaide Airport precinct. So among other things, we've also moved offices in this last quarter, which was a seamless process, which was very good news for us. I'm joined here this morning by Warrick Ranson, our Chief Financial Officer; and Luke Sandery, the acting General Manager for Prominent Hill. And as most of you will be aware, John Penhall has been seconded to Brazil, but I'll talk a bit about this later on. Look, I've got quite a bit to get through today so I think I'm going to pull out the highlights for each of the topics that I'm going to cover. And as with previous webcasts, there's going to be an opportunity to ask Warrick, Luke and myself questions at the end. So please take a moment to note the usual disclaimers and compliance statements that we have in the material. So starting off with our strategy.This was another solid quarter, and I think it was a good, solid quarter of reliable performance for the operations and the projects. And I think we've made very good progress on delivering against the key elements of our growth strategy. So in line with our approach of building a strong pipeline of opportunities, including operations, construction projects, studies and explorations projects that have provincial potential, we made a number of notable additions this quarter, including a new exploration project in Sweden and a number of new projects, of course, within the Avanco portfolio in Brazil.So as a quick overview of what our portfolio currently looks like, in addition to the 2 new opportunities I've just mentioned, we continue to focus on the building of -- not only building of the Carrapateena project itself of course, but also on the Carrapateena province where we see multiple potential development opportunities at Khamsin, Fremantle Doctor, Punt Hill, and targets -- other targets within the Carrapateena lease. We also continued work in the Musgraves, around the Eloise exploration project in Queensland, and in our exploration ventures in Portugal and Mexico, all which we saw encouraging results in. In addition to these, we're also pursuing a few opportunities to extend Prominent Hill mine life and to increase our annual underground mining rate beyond the 3.5 million to 4 million tonne per annum rate assumed in our current base case.So looking back over Q2 in summary. Prominent Hill's production remained on track with the guidance, and our all-in sustaining costs and C1 costs, both came down lower as a result of us having no open pit mining costs or overheads, and Warrick will touch on this in a moment. At Carrapateena, work is progressing well with the airstrip now complete. The access declines now down through Woomera shale and plant construction commenced. Pleasingly, we also had very good drill intersection returns from our drilling program at the nearby Khamsin. So I'll talk about this a bit later on, but one of the drill holes had just over 400 meters of just over 1.5% copper equivalent, which gives us quite a bit of confidence about this mineralized body's potential. The PFS at West Musgrave is advancing well as is the regional exploration drill program that saw Massive Sulphides intersected at Yappsu, which is only 6 kilometers or so from Nebo-Babel. The takeover of Avanco resources is now in the final compulsory acquisition stage having received acceptances from 97.7% as at the 6th of July when the offer closed. And our cash balance remained strong at $454 million, and this is after about $400-or-so million of payments made within the quarter to Avanco shareholders, Carrapateena investment and tax obligations. I'm also glad to report that our move to the Adelaide Airport business district is now complete. Our new workspace is going to facilitate our cultural aspirations while also reducing our annual rental cost by some 40%.Looking ahead, we will be providing an update on our capital management strategy in Q3 and I anticipate closing the transaction for Avanco resources and subsequently releasing renewed guidance for our combined entity along with the Brazil strategy.On to social performance just quickly. We achieved a minor improvement in our TRIFR rate as at the end of June 2018 compared to the end of the prior quarter, with a number of programs that supported this. Many of you on the call today have known John Penhall, who was the General Manager of Prominent Hill. As a result of our successful acquisition of Avanco, John commenced in the new role of Chief Operating Officer in Brazil. So -- and I think his experience at leading Prominent Hill's improvement and progression to an underground-only mine over the last few years is going to be very valuable to the team in Brazil. We will soon have 2 new directors joining our board. Many of -- many people on this call, I suspect, will know these people, both Charlie Sartain and Marcelo Bastos. Both have extensive international mining experience and have led copper divisions to global resource companies. And also of note, both have extensive experience in Brazil.At Carrapateena, access agreements were finalized with our near neighbors to enable work with infrastructure. We also ran a series of community information sessions across the Upper Spencer Gulf, which were well attended and well received. So with that, I'll now going to hand over to Warrick who's going to take us through our financial position, please.

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

Thanks, Andrew. We're continuing to benefit from a strong revenue performance with a total -- with total concentrate sales of just over 65,000 dry metric tonnes for the quarter, which was around 25% more than Q1. As a result, we were able to take advantage of the stronger copper prices during the period, and as Andrew mentioned, with the flow-on benefit to our cash position. This has subsequently enabled us to absorb around half of the outlays associated with the Avanco acquisition, our 2017 final tax installment and the ongoing investment in Carrapateena.Pleasingly, we also saw a reduction in our working capital levels in the first full quarter of our drawdown of the open cut stockpiles, following completion of open pit mining activities at the end of March. Carrapateena expenditure continues to ramp up, with comparative expenditure up by around 40%, up quarter-on-quarter. Although benefits from further schedule optimization may see us being able to defer some capital expenditure originally scheduled for later this year without affecting our target date for first concentrate production. Underground capital development expenditure at Prominent Hill is tracking to plan, and we expect to see the work on the Malu paste plant begin shortly. These 2 items collectively account for around 80% of that asset's capital guidance.Also, Andrew, just to reiterate to everyone on the call that these results don't include Avanco's operating performance, which whilst we took control of in June, and we will be picking up the financial balances in the consolidated balance sheet at the half year. Thanks. Andrew?

[Andrew Cole, CEO, MD & Director]

Thanks, Warrick. I'll now move on to Prominent Hill, and I think we saw a pretty consistent production delivered against the quarter, so that keeps it on track for the annual guidance metrics we've already set for you. Just noting as well that with the drawdown of the open pit stockpile now in place for a full quarter, the all-in sustaining cost and C1 costs are lower with no further open pit mining cost or related overheads to be incurred. In July, Thiess was awarded a 5-year contract to provide Run Of Mine management, crusher feed and ore rehandling services at Prominent Hill. The third underground portal broke through to the lower open pit and we expect a fourth haulage decline in the base of the open pit to be completed in Q3. These, together with rehandling into the Thiess service fleet, will allow us to further improve efficiencies and ramp-up underground ore movement to the 3.5 million to 4 million tonne per annum expected in 2019.We are about to complete the tender process for the replacement of the CHF plant with a fit-for-purpose paste plant. And in the coming quarter, we have a program to look at how we can increase individual stope production rates. On the processing plant, it continues to perform well allowing us to stay on track for copper and gold guidance. We did complete a plant shutdown in May and it was done safely and on time, which included the relines of both the SAG and Ball Mill.We started our stockpile drawdown in April as planned as you can see in the chart there. Stockpiled open pit ore will maintain the plant at full capacity until 2023, along with, of course, the benefit of no for the open pit mining cost incurred. We've also nearly completed an upgrade to our mine-to-mill modeling software, which incorporates improved scenario analysis capability. So this software is going to help us to undertake rapid scenario analysis and plant optimizations for faster decision-making and improve our strategic planning capability.So I'm now going to hand back to Warrick to take us through Prominent Hill costs.

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

Thanks, Andrew. As mentioned and previously guided, the impact of the drawdown on the open cut stockpile material is now being fully reflected in our C1 cost performance as it is for our all-in sustaining costs. You will recall that the comparative quarter 1 C1 cost included an additional $0.12 per pound from adding just under 500,000 tonnes to the open cut stockpiles from the final cut. Power costs are a bit over 10% of our total current cost base and reflect the contract pricing we have in place at the moment, noting that the comparative quarter last year reflected the prior pricing structure. We currently have an RFP in the market for our new power supply contract and expect to see an improved unit price on power once those new arrangements are in place. Our underground mining services contract is now our largest operating cost segment at Prominent Hill. And as covered in the release, underground mining costs are now also picking up the ROM rehandle and management charges of about $2 per tonne milled this quarter. However, the concurrent volume uplift is continuing to provide productivity gains for us and help offset the timing impact of some additional maintenance costs, which we incurred during the period. Backfilling rates also improved quarter-on-quarter despite the team experiencing a number of feed issues. And we completed major relines on both mills in the plant on schedule and budget.Sea freight has also tightened again in the market, which right now are approaching the highs of last year although overall, we are continuing to perform well on costs in a rising market. This remains a key focus for us, and we continue to look for opportunities for productivity and OpEx performance gains going forward. Andrew?

[Andrew Cole, CEO, MD & Director]

Thanks, Warrick. So let's move on to Carrapateena, which is continuing to make very good progress. In May, the operations team set another monthly development milestone of 505 meters developed for the month. We've now also successfully transitioned from PYBAR to Downer EDI, who will continue the underground development program for us in an alliance-style agreement. So I want to thank both PYBAR and Downer EDI for this transition. The transition was quite seamless. I think both parties acted very professionally during that process. Now underground development is on track with total development now over 6.8 kilometers, taking us to a vertical depth of 430-or-so meters below surface.PYBAR separately commenced our first raisebore during the quarter. That's in preparation for installing and commissioning the first vent rise in Q3. So in Q3, we will see -- also see the underground development works expanded to include access to the first underground crusher installation.On surface infrastructure, I'm pleased to say that the airstrip at Carra is now complete and we're just waiting on the CASA certification to come through. We now have 488 rooms available in the Tjungu accommodation village and we will finish construction in Q3, which will take its final capacity to 550 rooms.Engineering at the plant and the NPI is now well over 70% and construction activity is on track with the top photo showing the preparatory earthworks in place for the processing plant construction. We've now started construction of the off-site support infrastructure, including installation of over 40 kilometers of the main fiber optic cable to site and the major substations to support the power infrastructures on site.So looking forward, we are working on a couple of opportunities to optimize a couple of work packages. One of those work packages is site access where we are considering upgrading the existing Southern Access Road and subsequently look to deferring the build of the Western Access Road. The second opportunity we're currently exploring is to take a staged build approach to the tailings dam in line with the operational ramp-up. So we need to do a fair bit more work on both of these optimizations and we'll provide an update once the optimization work is complete. Both are improved -- aimed at improving project value, and neither of these are expected to impact project schedule.So now just very briefly on cost performance at Carrapateena. We saw an increase in capital expenditure, commensurate with the ramp-up activity of -- as construction of the surface infrastructure really started to ramp up. So in the quarter, we invested some $92 million into the project, and we now have a total of $729 million of the project cost committed under contract. On the project schedule, again, fairly quickly, the main packages are all on track and going well. As I did mention just recently here, we are considering a couple of revised timings for the build of the Western Access Road and the Tailings Storage Facility, but it's a bit premature to get into the details of these so we'll give you an update on both of those at the next quarter.As previously indicated, something we started to look at is the provincial potential for our projects. At Carrapateena, we have established an expansion study team to look at increasing value from the known mineralization across the province. This team is now in place and fully operational. As such, we've created an additional $5 million and allocated this to the teams to pursue these preliminary studies. They will be evaluating the mining methods and infrastructure requirements for a possible future Carrapateena expansion. The scope of these studies includes the wider Carrapateena mineralized zone in which we're considering expanded sublevel caving and block caving and the nearby Khamsin and Fremantle Doctor mineralized bodies. These studies are going to continue into early January 2019 as a separate work stream and will not impact the scope, cost or schedule of the Carrapateena construction project.To support these studies, we've already completed about 6.5 kilometers of new drilling in the first half of this year at both Khamsin and Fremantle Doctor, and we've now received the assays for Khamsin, which I will touch on in a second, but we're still waiting on the assay results for Fremantle Doctor. We have also completed heritage clearances now for our Punt Hill targets, which are just south of Carrapateena, and we expect to start drilling leads in the second half of this year.As I mentioned, we completed 3 new drill holes at Khamsin earlier in the year to test the extent of the known mineralization. All 3 drill holes returned broad intersections of zoned bornite and chalcopyrite. One hole on the edge of the system intersected approximately 400 meters at 1.38% copper and 0.27 grams per tonne gold, which extends the existing high-grade mineralization zone. I think this is quite encouraging on a number of fronts, including that it's the first time we've intersected such significant gold grades at Khamsin. The drilling results will be used in geological modeling of the Khamsin body to help with the Carrapateena province expansion study, and this work will also determine whether we need to do more drilling to better define the mineralized body.We have included some of the detailed results from the recent Khamsin drilling on a slide in this deck, which I think shows the system has more potential than perhaps we previously thought it will, and I'll leave you to review those intersections at your leisure.Now on to West Musgrave. We've made solid progress on the West Musgrave PFS with the metallurgical drilling now complete, leaving the team to work on the floatation test work to help them refine our metallurgical assumptions. This will then be fed into the plant design work and economic modeling scheduled for later on this year. Our resource drilling program, which is designed to increase our confidence in the resource model by converting in third resourced indicated resource. This work is well underway and will continue through the next quarter.We're also investigating wind and solar as supplementary power solutions for the project. So as such, we installed a 100-meter wind mast in the last quarter and over the next year, we will collect data to analyze the suitability of wind and power -- wind as a power solution as a viable option. Energy solution providers have been engaged to investigate options for us, and we've held discussions with ARENA to identify funding opportunities for hybrid power solutions.At Yappsu, which is about 6 kilometers East of Nebo, exploration drilling commenced in the quarter with the first holes intersecting some encouraging Massive Sulphide mineralization. This work is still at very early stage with mineralization open in all directions, and I think the team is doing a great job at keeping the market informed of this, so I'd watch their releases for more frequent updates on that project.Now moving on just briefly onto the Avanco shareholder offer. We reached a significant milestone in Q2 with Avanco shareholders' acceptances going past 90%. We still are to start the compulsory acquisition of the remaining Avanco shares. This process is expected to be completed in August, which will result in OZ Minerals owning 100% of the company. The Avanco assets provide us with an operating mine at Antas and a significant pipeline of development and exploration opportunities in the Carajás and the Gurupi provinces in Brazil. We already have an OZ Minerals integration team working with the Avanco team in-country to help optimize the asset base and unlock the potential of the extensive project pipeline. And they're also working on a holistic country strategy, which can then be integrated into the OZ Minerals project pipeline. This integration work is going well, and both the Avanco and OZ Minerals teams are really embracing the new ownership structure and opportunities that this brings. So once we've built a joint understanding of what we want to do with each of the Brazil assets and in what order, we will then release this to the market. As previously committed, this will be before the end of the year. In the interim, the existing Avanco guidance metrics will remain in place. Also just to be clear, OZ Minerals has now incurred nearly all of the acquisition cost for Avanco and we don't anticipate substantial integration cost to be incurred.Just -- I just want to touch very quickly on a couple of the strategic projects, the first being power and the second being CTP. Firstly on power. The project's progressing quite well with a dedicated OZ Minerals project team now in place to oversee that work. And given ElectraNet will be booming the new Prominent Hill power line, the Prominent Hill management team hosted ElectraNet's board and their management team on-site just build contextual understanding ahead of the start of the construction of the new high-voltage power line. We also progressed plan for the line construction with the local traditional owners. We started cultural heritage alignment works so we can optimize the alignment of the powerline and so we can avoid significant cultural heritage sites. We also enabled conclusion of additional land access agreements.On power prices, as Warrick said, pricing remains fixed at Prominent Hill until the end of 2018. Beyond this, we've already released RFT documents for the supply of electricity to both Prominent Hill and Carra. So we'll update you on this on the next quarterly report. Just quickly on CTP, the technical studies continued through the quarter, and a number of further refinements on plant design were made. Execution and ramp-up strategies for the plant are currently being considered and progressing well, and this work remains on track from a substantive update at the end of the year.Okay. Now lastly just moving on to exploration and growth. And on the interest of time here, I'm going to just call out some more recent and more key exploration projects, and you can read the others in the quarterly report. So for our pipeline, we will soon be able to update this pipeline with a suite of Avanco opportunities. But for now, this graphic does not include anything in Brazil. So most recently, we signed a new binding agreement with a private explorer to explore for IOCG mineralization in northern Sweden. This project, which is called Lannavaara, targets IOCG mineralizations located in northern Sweden, nearly 80 kilometers east of some known iron and copper deposits. And exploration is going to focus on a 3-kilometer untested trend of interpreted thrust faulting, which is coincident with overlapping gravity and electromagnetic anomalies. A base of till geochem sampling program is designed to highlight areas of interest within the target area, and that's going to start in Q3. The terms of this deal allow us to earn 75% of the project by spending USD 10 million over 66 months, and we have the right to purchase a further 25% equity. We can exit that project at a number of milestones throughout that period.At Eloise, field work continued in the quarter with a focus on completing ground EM on regional targets and further drilling at the Jericho prospect. An initial 2-kilometer drilling program is completed on the Jericho project and all 6 holes into dissected copper mineralization. Drill results to-date, which you can see on the slide, are quite encouraging but not definitive yet. As such, we extended the drill program at Jericho with a further 8 holes for an additional 1.7 kilometers. So Minotaur are keeping the market updated as our partner on this work. Our expenditure for Q2 on exploration and growth was $4.8 million. And as I've mention, details on our other exploration projects can be reviewed in the full Q2 reports, which is now on our website.So look, let me just to wrap up here and summarize a few key points before we move into questions and answers. I think at the highest level, quarter 2 has been a very productive quarter across many parts of the business. Prominent Hill's production and cost are tracking to annual guidance. Carrapateena is progressing to schedule with the construction of above-ground infrastructure now underway. We received some encouraging results with our drilling at Khamsin, including a broad intersection of around 400 meters at 1.38% copper plus gold that extends the known high-grade mineralization. The PFS for West Musgrave is advancing well as is regional exploration, which saw Massive Sulphide intersected at Yappsu. The takeover of Avanco resources is now in compulsory acquisition stage, and we'll be releasing a detailed strategy update for our Brazilian assets later in the year after we have developed a joint holistic strategy. We've signed a new exploration earn-in agreement with MPS, a private explorer in Sweden. And finally, our cash balance remains strong at $454 million. So -- and we'll be able to provide you with an update on our capital management strategy in Q3. So with this, thanks very much for your time. Let's move now to questions which Warrick, Luke and I can work through for you. Operator, can you please remind participants on the call how to ask questions.

[Operator]

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

[Michael Slifirski, Managing Director]

I've got, I think, 3 or 4 little ones. First of all, the $2 a tonne milled cost for ROM handling, is that subpar recovery and so on? And was that included within your underground cost guidance for the year? Or is that an increment we should add to that guidance?

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

It's Warrick, Michael. No, that's included in the guidance.

[Michael Slifirski, Managing Director]

Right. Secondly, with respect to the Musgrave PFS, I'm sort of wondering how you think about the province potential with respect to a PFS that's going on in the background. And whether the province has revealed what it might yet to show you in terms of different ore sources. And how you can really conduct a sensible PFS until you know what the ore sources might be, it seems that the exploration is perhaps lagging the PFS.

[Andrew Cole, CEO, MD & Director]

Look, an interesting question, Michael. I think that dilemma faces every province or every resource when you do this. At the PFS, as we've currently progressing it, is entirely focused on Nebo-Babel and proving up the economics and design criteria of Nebo-Babel, and we're obviously drilling exploration targets around it. I don't anticipate changing the scope of that PFS. Now if for example Yappsu suddenly looked absolutely fantastic, then we might consider that. But this is a nice problem to have, I guess, that you have with every study and while you're undertaking exploration around the project. We're not going to stop the PFS scope of -- PFS work for Nebo-Babel just because we're doing exploration work. We will be doing them in parallel. But look, I can't say that we would never change the scope of the PFS if we hit something really interesting because we have to consider that. But as we stand here today, the PFS is going to continue as scheduled for Nebo-Babel itself because it looks like a very compelling proposition in its own right. The rest is just opportunity above and beyond that as we sit here today.

[Michael Slifirski, Managing Director]

Okay. Makes sense. Thirdly, tax guidance. How should we model tax going forward in terms of getting tax payments due right from a cash flow perspective?

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

Yes. So I mean we pay -- I think as explained last time, we basically pay on a monthly installment basis and then we have a true-up in June. So -- and our monthly installments are basically a percentage of revenue. So yes, I think basically, month-on-month and then a similar pattern to what we saw this year in terms of that true-up. Obviously, it won't -- sorry, obviously that won't be as much in terms of the June payment. But yes, I think you could basically divide it by 12, Michael, to be honest. [indiscernible], yes.

[Michael Slifirski, Managing Director]

And then finally with respect to comments around investigating alternate hole adoptions for Prominent Hill underground. I'm interested in what you're actually thinking there. Having committed to quite a number of declines to give yourself flexibility, are you now sort of suggesting that maybe that decline option isn't optimal? Or I'm just trying to think what you mean in terms of both alternative haulage and the upside volume that you -- that might unlock.

[Luke Sandery]

Michael, it's Luke here. So the haulage study is primarily focused to go hand-in-hand with the extension. So we still believe -- we revisited this a few times, and we still believe that trucking is, for the current life of mine plan, trucking is still the optimal haulage case. So these haulage studies that we're looking are actually going hand-in-hand with the extension. And they obviously look at a lot of inferred and unclassified material outside of our current reserve area.

[Michael Slifirski, Managing Director]

Right. So the haulage study isn't suggesting you're looking at a shaft or anything different? It's still using trucking but just different configurations, truck sizes and so on?

[Andrew Cole, CEO, MD & Director]

Yes. So the haulage study is not for our current life of mine plan, it's for the extension study scope that we're looking at. For our current life of mine plan, we still believe trucking is the best solution.[indiscernible], Michael, because this is something that came up at the strategy day as well. So our base case, as Luke just said, we still got 4 access declines, I think, right now. And that facilitates our base case, which is 3.5 to 4 million tonnes for use out to 2029. Separate to that, Luke's got a piece of work underway which is looking at the opportunity to take Prominent Hill above 3.5 to 4 million tonnes per year. And that haulage study is looking at trucking solutions but it's also looking at other ore-handling solutions as an alternate to trying to truck 3.5 to 4 million tonnes-plus waste out from the underground. Now that's still early stages so we can't rule out shafts or anything else like that because we haven't actually made those decisions. But those other alternative solutions are only in the upside case for Prominent Hill, not the base case, if that makes sense.

[Operator]

Your next question comes from Dylan Kelly from CLSA.

[Dylan Kelly, Research Analyst]

Most of my questions have been answered but I just wanted to understand some of the points you made around the Carrapateena schedule modifications, to defer some of that CapEx possibly into next year. You mentioned 2 things, what was it, a Western Access Road and a tailings movement. Can you just try to quantify how that could move and exactly what else is on that list?

[Andrew Cole, CEO, MD & Director]

Good day, Dylan. Yes, look, 2 things that we're looking at here. One is the access to site. The second one is the tailings dam. Both are opportunities that we are working through right now, and I can't answer definitively which way these are going to go yet. I'm really just flagging them as things we're working on so they're not a surprise for you at the next quarterly when we come back and say, "This is what we're going to do." So I can't definitively give you the answer. But let me just talk a little bit more about both. In terms of access to site, as you know, we already have a road to site on the Southern Access Road, and by using the Southern Access Road or making upgrades to the Southern Access Road, it may enable us to defer construction of the Western Access Road. So we're just working through the couple of options we've got with Southern Access and Western Access Road and the timing of upgrade to Southern and the timing of the build. And that's too early to tell you what the outcome of that work will be. The second piece is the tailings dam. So we have a fully designed tailings dam, obviously, as part of the study that's ready to go into construction. One of the opportunities that we are looking at is phasing the build of -- primarily of the main tailings wall to match the ramp-up profile of the project. And again, I can't tell you whether we are or aren't going to look at doing that. But they are the 2 primary big opportunities that we are looking at on the project to look at slightly changing the scopes which we originally had in the FSU.

[Dylan Kelly, Research Analyst]

Okay. Fair enough. And just in terms of the CapEx for the second half. I mean it sounds like that's mostly weighted on water entrenchment, $40 million or thereabouts. Could you tell us how that's weighted?

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

The CapEx for Carrapateena was always back-end -- back-weighted the back end of 2018. And that's still the case. And I would say we'll probably give you a bit more clarity on capital spend for 2018 and '19 for Carra, I would say, at the next quarterly because the 2 optimization pieces of work I've just talked about influence that capital spend for '18 and '19. So 2018 is definitely back ended for Carra capital spend. And how much that is will depend on those optimization studies. So I know I haven't answered your question but I can't until we actually define what we will do with both those pieces of work.

[Operator]

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

[Hayden Bairstow, Analyst]

A couple for me. Just on this regional stuff at Carrapateena. Obviously, the original block cave resource was still a better grade than, say, Khamsin. I mean what are you sort of looking at with Fremantle Doctor, which is obviously closer in Khamsin? I mean, are you looking for better grades to maybe supplement? Or is this just a sort of extension to the longer life of Carra after the SLC sort of completed? Just on Brazil, just interested to know about the Avanco sort of key management, and sort of I assume they're all still there. And can you just remind me sort of what the sort of plan is there in terms of what was agreed around the merger in terms of how long the key management for Avanco sort of to stay in place? Cheers.

[Andrew Cole, CEO, MD & Director]

Sure, Hayden. So firstly on Carrapateena expansion, look, it's a good question, and that's primarily our question we're trying to answer as well. The -- there's a few different pieces to the Carrapateena expansion study, and the first one is on Carrapateena itself. As you know, Carra itself has 800 million tonnes of mineralization sitting in it. And we're only taking 84 million tonnes with our current project, which we are constructing at the moment. So the studies that the project team are looking at are looking at expanding sub-level caves and potentially adding block caves to take much more of the 800 million tonnes, so that's one aspect of the expansion study. The second aspect of the expansion study is looking at Khamsin and Fremantle Doctor to determine whether developing those should come before a Carrapateena expansion or in parallel with the Carrapateena expansion or after an expansion. And obviously, what will dictate that will be the grade of the mineralization in those resources and the capital cost to actually access that grade. And I guess up until the recent drilling, I would have said to you that Khamsin almost certainly would come well after Carrapateena just because of the grade but now I'm not so sure because the last hole we got at Khamsin had 400 meters at 1.5% copper equivalent, which is pretty encouraging. So I can't actually tell you now whether Khamsin comes during, before or after a Carrapateena expansion because of the grade. So the work that the team is doing now is to better understand the tonnage and grade profiles for Khamsin-Fremantle Doctor so they can then compare them to what a Carrapateena expansion case and the associated capital that's required to do that looks like. And that -- those results will then determine obviously the sequencing of the different bodies. So it's a very good question, and it's a question that we're trying to answer. I guess, overall, I would say it's a nice question to actually be able to ask, and actually have the ability to work through. On Brazil, the entire -- in-country management team is still in place and plans to stay in place. The -- so Tony Polglase is the Managing Director. And he's in-country at the moment working with our integration team. And in fact, we've got a joint Avanco-OZ Minerals strategy workshop coming up at the end of this month where we're going to start working through the details of the various assets and the strategies on each of those assets to better understand what they think we should be doing with them, and we'll obviously be talking about what we think we should be doing with them to come up with a joint strategy. The entire management team is still there and plans to stay. So Otavio is running Antas. He's going us to continue running Antas. And we've got mechanisms in place to ensure that we keep that senior team in place for the next couple of years, I think it is. And look, at the outset, I would say I actually don't think we need retention plans in place because the team that's in Brazil is just really excited about now being able to develop their portfolio the way they want to. So they see this as an opportunity which is why it's an integration not a takeover and fix it up because that's not the case. So I'm not worried about loss on capability or skills in-country. The people there are very keen to keep going.

[Operator]

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

[Paul Hissey, Analyst]

I just wanted to ask you about the guidance you've given relating to, I guess, the other capital for the business. So you spoke about the circa-$500 million, which is the existing number for Carrapateena this year. I think if you add up CapEx, underground CapEx, growth CapEx, sustaining at Prominent Hill, you get around about $100 million. There's another $65 million between West Musgrave, Carrapateena, CTP, exploration, et cetera, et cetera. Just can you just sort of break down for me where that's going to show up in your financials? I know you did put some of your exploration spending through operating cash flow, but is this all sort of investing cash flow? It's a bit of a nuts and bolts question, I can take it off-line if that's easier.

[Andrew Cole, CEO, MD & Director]

Look, let me start. I'll answer at the high level, given we're not changing any of the guidance metrics, we're comfortable saying today that we are on track to meet all of the guidance which we've set for each of these line items, which is spelled out on the last slide in the deck. And you're right, there's a number of elements to the guidance we've set and there's a number of -- there's money being spent on various line items. Do you want to talk, Warrick, about how's the new accounting for here? Or do you want to take it off-line, do you want to do that?

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

I mean, we can take it off-line, Paul, in terms of the detail. But effectively, you'll see it in -- as exploration spend in operating cash flow, so, yes.

[Paul Hissey, Analyst]

Yes. So that $65 million-or-so will show up as operating? All that stuff lumped together, effectively?

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

Yes. That's correct.

[Paul Hissey, Analyst]

And just lastly, what portion of that do you think might be expense versus capitalizing?

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

In fact, we haven't taken any decision. It's basically going to be expense, so we haven't taken any decisions to capitalize it.

[Operator]

[Operator Instructions] Your next question comes from Peter O'Connor from Shaw and Partners.

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

Just a quick one on the Carrapateena CapEx options you've talked about twice before. What's the order of magnitude, the site access and the tailings options, depending which way you go, just to get a sense for the delta change this year and next?

[Andrew Cole, CEO, MD & Director]

Hi, Peter. Sorry, I'm just trying to think about it because it's not black and white, there's a number of options you can take with both of these. Just trying to think what's the total tailings dam cost? I can't remember the number off the top of my head. Peter, can I come back to you on that. I can't remember the 2 numbers in particular, but it's not a black-and-white answer because there are -- with the tailings dam, what we're talking about effectively is do you build a wall that's going to last 6 years or do you build a wall that's going to last 1 year and incrementally build it? So it's not black and white, it's a scale. The total tailings dam's --

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

That's about $30 million, yes.

[Andrew Cole, CEO, MD & Director]

Okay. So total tailings dam cost is $30 million and that's currently costed. It will be so -- we're looking at opportunities to go down from there, I guess. And on the Western Access...

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

It's small numbers, really. It's good but it's small numbers. It's not...

[Andrew Cole, CEO, MD & Director]

Yes. Absolutely. They're not going to be massive numbers but these are just opportunities to continually refine and the way that we ask our teams too, so continue to look for opportunities to improve the project.

[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. Great. Look, thank you, operator. Thanks, everybody, for joining the call. As usual, if you've got any follow-up questions, please come through to Tom, and Tom will make sure we'll get the right people in the room to answer them for you. Thanks very much.