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OZ Minerals Ltd
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Thank you all for standing by, and welcome to the OZ Minerals June 2022 Quarterly Results. [Operator Instructions] Please be advised that today's conference is being recorded.
I'd now like to hand the conference over to your speaker today, Mr. Andrew Cole, CEO at OZ Minerals. Thank you. Please go ahead.
Yes. Thank you very much, operator, and good morning, everybody, and thanks for joining us today for our June quarterly report. I hope everyone's been keeping well, especially given the wave of winter cold and influenza that we're all seeing more broadly. I'm on Ghana land today, and I want to pay my respects to the elders past, present and emerging. I also acknowledge and pay my respects to the traditional owners of all the lands on which we work.
Joining me today are Warrick Ranson, our CFO; and our Operations Executive, Matt Reed. I'll talk to our Q2 financials and our operational performance shortly, then we'll move to Q&As. I note that there has been an update to our webcast platform, so please bear with us if there are any feeding issues, given this is the first webcast we're doing since the update. The first 2 slides are our usual disclaimer and compliance statements which are available on our website for you to review at your leisure.
So first off, I'm going to start with some of the highlights from the quarter. In Q2, much like other operators, we were affected by ongoing COVID absenteeism, supply chain disruption and some inflationary pressure. To reflect this, we updated our group copper production and cost guidance in 2022 in June. Operational remediation programs are in place at our South Australian assets, which I will touch on shortly, and then Matt will also talk to. We continue to work to add new opportunities to our growth pipeline for future optionality.
During the quarter, we agreed a Terms Sheet with Havilah Resources for the option to purchase the Kalkaroo copper project in South Australia. Havilah shareholders will be asked to approve the Kalkaroo transaction at a shareholder meeting, which is expected to be held at the end of next month. Kalkaroo is potentially one of Australia's largest undeveloped open pit copper gold deposits.
We've strengthened the liquidity of our working capital, taking it from $480 million up to $700 million for an extended 5-year term, which Warrick will expand on shortly. Our Prominent Hill, work progressed on 2 fronts to look at opportunities to increase annual output, including increasing future mining rates to take advantage of the larger 6.5 million tonnes per annum shaft capacity and assessing the potential to mine Walawuru and Papa via a separate trucking circuits to increase annual tonnage potentially above 6.5 million tonnes per annum, which we now expect to provide a market update later this quarter.
At Carrapateena, cave management remains a focal area. We continue to see the cave slowly propagate the surface. Matt will talk to this shortly. Pleasingly, the Tailings Storage Facility made embankment lift was completed ahead of time and under budget with now just the liner installation due by year-end.
West Musgrave team has continued to engage with the Ngaanyatjara Community to progress completion of the Mining Agreement, which is looking favorable. We were also granted the project mining lease just this month, which further derisks the project, and we continue to steadily work through our assessments of project costs and schedule impacts in the lead-up to a financial investment decision later this year.
In Brazil, the team completed the Pedra Branca underground mine ramp up ahead of schedule, which is now running at full capacity. The Santa Lúcia project team are now also ahead of plan, so we are expecting to deliver a pre-feasibility study and maintenance service for Santa Lúcia in Q4 this year.
This OZWay slide shows how all parts of our business fit together, including how we manage and govern the company. It shows at a glance how and why we do things we do, and in the middle of this is what we hold to be most important, value creation for all our stakeholders. Value creation is embedded across the OZWay as we believe that only when we are creating value for all of our stakeholders will we be a successful and sustainable company, which is why I'm also pleased to share we have finalized the next stage of our Flagship Social Contribution Program, Educating the Next Generation. Since its launch in 2019, the program reflects what is front and center of our strategy, creating value for our stakeholders. And through it, we've developed several partnerships to support our communities.
Finally, under each element of our strategy is a set of strategic aspirations that we've used over the past few years to focus our work on high-impact activities that will help us continue to create a modern mining company. We are in the process of updating these with the Board, and I expect to be able to share the evolved OZ Minerals aspirations at our half year results call on the 29th of August.
This company's snapshot slide shows the location of our assets and their key products. It also illustrates our province approach, where we use existing infrastructure to progressively grow our operations, helping keep costs low and our footprint efficient. As mentioned earlier, we seek to maintain a healthy exploration pipeline to create opportunities for future organic growth with quality assets in quality jurisdictions. Each of the provinces we are building up offers the opportunity for us to create something that is multigenerational with low operating costs. Shown on this slide is what each province offers in terms of production, costs, resources, reserves and growth. At the half year results, we also aim to provide you with a more fulsome overview of the potential that each of these provinces offer.
I'll now briefly talk to a summary of our production and costs before handing over to Warrick and then Matt. As mentioned at the start, we were affected by ongoing COVID absenteeism, supply chain disruption and inflationary pressure in the quarter. This resulted in a June update to our 2022 full year group copper production and cost guidance. We are lower on group production in part due to a material handling system built damage at Carrapateena, which resulted in a reduction of over 4,000 tonnes of copper metal produced. The belt has since been repaired and is now operating without issue.
Group unit costs were also increased in our June guidance update impacted by lower production at the Australian assets and industry inflation of circa 8% across our assets. This quarter, we have started to see operational performance improvements being realized, which we expect to continue over the remainder of the year as our remediation plans take effect. We are actively managing resources to maintain safe and productive operations and to minimize disruption. However, new COVID variants and increasing infection rates across the community will broadly continue to pose a risk to operational productivity and guidance. So with that note of caution, I'm going to ask Warrick to take us through our financial results release.
Thanks, Andrew, and good morning, everyone. So the macro context over the past quarter has certainly remained volatile, driven by geopolitical events, monetary policy changes, supply chain challenges and renewed COVID infections, both domestically and globally. We saw the initial upside risk to commodity prices created by the war in Ukraine diminished in June as markets assess the impact of a potentially slower global demand growth outlook, higher inflation expectations and a continuation of lockdowns in China's major cities and industrial centers. However, we don't consider any of these issues and events as permanent, and over the coming period, expected improvement in supply chains, a further evolution of learning to live with and operate with COVID and monetary policy changes to ease once central banks reach their targeted levels.
Whilst the economic outlook in China are slightly challenged by the possibility of further lockdowns and ongoing disruption in the property sector, we also expect to improve Chinese economic recovery within the next few months. And the indicators that we track such as grid demand, air condition and freight production as well as sales of electric vehicles are all supportive of copper demand in China over the coming months and the medium to longer-term fundamentals for copper remain positive driven by that ongoing economic development, decarbonization and electrification thematics.
Whilst our sales for the quarter aligned with production, lower metal volumes and the macro context did flow through to revenue and operating cash flow. As Andrew mentioned, earlier in the quarter, we finalized an extension of our corporate debt facility from $480 million to $700 million for an extended 5-year period ensuring that we have an appropriate liquidity buffer as we progress our major growth programs and a period of significant capital spend. That ongoing investment in brownfield growth opportunities across all our assets, together with further progress on West Musgrave, contributed to a closing net cash balance of $82 million. While we remain cash positive through the period, we did take a small draw on our revolver towards the end of the quarter to maintain an appropriate working capital liquidity buffer.
As reflected on Slide 10, operating cash was principally allocated to our growth projects, ongoing mine development activities and the payment of our residual tax obligation for 2021. During the quarter, we invested a further $210 million into growing the business and continued our focus on prioritizing production development meters with a low level of other sustaining capital given the ongoing labor and equivalent availability. Work continued on the Wira shaft mine expansion at Prominent Hill, with relevant site works approaching completion for the shaft pre-sink to commence.
At Carrapateena, we completed the main embankment lift earthworks on the tailings storage facility as well as the ongoing decline in crusher 2 development work. And in Brazil, we've made some major inroads to advancing the Santa Lúcia project as our next potential mine while continuing underground development at Pedra Branca.
Moving to Slide 11 now. So just a reminder that aligned with past practice, we've included a reconciliation of our C1 cash cost to operating costs in the appendix as we approach the presentation of our financial results for the first half. We've also made some adjustments to our expected full year depreciation numbers based on our first half performance.
So over the quarter, after a period of insulation earlier in the year, inflationary impacts increased, and we expect additional cost pressures to come from labor and consumables in the coming months as market pricing continues to flow through. We are managing these cost pressures by assessing our short and longer-term demand and cost profiles for each major item and optimizing aspects such as contract periods and structures for each. We remain an agile and value-focused company, seeking to protect our position in the lower half of the cost curve and protecting our margins.
Outside of mining costs at Carrapateena, our absolute costs actually remain generally in line with our original expectations with production levels influencing about 70% of the unit cost variance. As noted, COVID interruptions continue to impact productivity performance with ongoing variability around absenteeism and subsequent equipment availability. These factors also impacted related supply chains. And at Prominent Hill, for example, we saw an improved development and broker stock rates subsequently impacted by emulsion shortages. Whilst we were able to supplement lower underground production with lower grade open cut stockpile material there, deliveries were also impacted by harder ore coming out of Malu Open Pit.
Labor and equipment availability were also core factors for Carrapateena's production, with availability running in consistently between 50% and 70%. We subsequently mobilized additional fleet underground. And as per our guidance update, productivity was impacted by events on the portal conveyor, which slowed down to billing rates as we work to match our supply.
In the Carajás, we continued to develop our in-house operator strength as well as review metallurgical recoveries from the Pedra Branca ore to improve the concentrate grades. Deposition of tailings into the old Antas pit has now also been successfully transitioned.
And then I'll hand over to Matt, who will take us through some more of the detail on the operational update.
Thanks, Warrick, and good morning, everyone.
Starting with Prominent Hill. So Prominent Hill's underground operations delivered just under 900,000 tonnes of ore at 1.19% copper in the quarter. We were, as Andrew and Warrick have both said, impacted by COVID-19 operator absences and saw unplanned absenteeism around about 8% for the quarter. But despite that, we did make progress on our recovery plan and achieved underground production around 11% higher than the previous quarter.
Site team also achieved improvements in equipment availability across the primary fleet as we focused on planned maintenance compliance, and interruptions to mining activities that we experienced in the lower levels due to high ambient temperatures in Q1 were reduced in Q2 as a result of new ventilation infrastructure and also the seasonal reduction in surface temperatures and humidity. Copper and gold metal production for Prominent Hill remains on track to meet the tightened annual guidance.
We also made good progress, again, as Warrick mentioned on the Wira shaft mine expansion during the quarter. All shaft pre-sink equipment is now on site. We're planning to commence pre-sink work in Q3 months, so we have in place some additional temporary structural support. And we're expecting the refrigeration plant civil works to be completed shortly. We did take the decision through the quarter to adjust our plan to prioritize the installation of temporary cooling in Q3 of this year to mitigate any heat at depth as we come into the summer months, and now are planning for the permanent refrigeration plant to be commissioned in half 1 of '23. Pleasingly, the project remains within budget despite the general cost inflation that we're seeing across the industry.
Looking ahead, we work to assess whether we can increase underground mining rates to fully utilize the 6.5 million tonne per annum shaft capacity is progressing well, and an assessment, including any operating cost benefit is on track for later this year. And again, also, as mentioned, we work to assess the feasibility of the Walawuru and Papa targets. Also continuing work packages to accelerate access to those independent production areas being prioritized with a focus on mine design, ventilation, services and backfill.
If I move on to Carrapateena now. Underground there, we moved 927,000 tonnes of ore at 1.42% copper during the quarter. We were adversely impacted by further conveyor belt issues on the main material handling system as well as some equipment availability, and as I mentioned earlier, Prom Hill and Carra workforce absenteeism. That resulted in us lowering our copper guidance for Carrapateena to 55,000 to 61,000 tonnes of copper from the previous 62,000 to 72,000 tonnes. Those conveyor belt issues that I mentioned since been resolved, system is now running well at full capacity. And during the repairs, we installed a steady continuous online condition monitoring that now can give us advanced warning of any further deterioration.
We've enacted a series of operational improvement programs, focusing on structured continuous improvement, management operating system refinement. And those programs are seeking to address not only short-term performance issues but as well sustainable long-term improvement as the mine moves from rapid ramp-up to steady-state operations. We commissioned an additional ore pass during the quarter. We also made significant progress on the construction of the second regrind mill, finalization of the new ore rehandle feeder and final commissioning of the upgrade cyclone feed pump.
As Andrew mentioned, we have continued our program to encourage cave growth through the quarter, and we've seen solid results there, too. January, we saw some damage to the Western Access Road due to the rainfall events. Those resulting repairs and improvements have been completed. We also reached a key milestone in the construction of the second stage of the TSF where the main embankment lift earthworks were completed ahead of schedule during the quarter.
I'll now move on to Brazil, starting in the Carajás East province. The team there has achieved a really significant milestone with the ramp-up of the Pedra Branca mine completed ahead of schedule and record ore movements in June. As Warrick mentioned, the depleted Antas open pit is now being successfully transitioned to a tailings storage facility. And at Santa Lúcia, we are working towards an updated MROR and accelerated -- and our work around the PFS to be delivered in quarter 4 of this year.
We're also drilling a series of geochemical and geophysical targets within 50-kilometer radius to the Carajás East processing hub. We've intersected copper mineralization at the Grota Rica and superior targets, and we've also identified copper sulfide mineralization at the Valdomiro Target, although no assay results have yet been returned.
In the Carajás West, mineral resource estimate and study for Pantera are on track to be completed in Q4 and drilling to test down the electromagnetic plate to the east of the existing Pantera deposit to determine potential mineralization outside of the existing resource is planned for half 2 this year.
Meanwhile, at Gurupi, we started the soil sampling and mapping program over portions of the Jiboia project, and we continue to progress the injunction removal for CentroGold at INCRA continuing its review of the proposed land use concession agreement and relocation plan. That's it for me. Back to you, Andrew.
Thanks very much, Matt, and thanks, Warrick. I'm now going to move on to the West Musgrave project. This project is on track for an investment decision in the second half of this year. The team has been engaging extensively with the Ngaanyatjarra community, including spending a lot of time on country together to ensure they have a clear understanding of the impacts and opportunities the proposed mine presents as we progress completion of the mining agreement.
Pleasingly, the mining lease was granted in July, and we're making good progress towards finalizing other regulatory project approvals. In considering further value opportunities for inclusion into the base case, the team is finalizing optimization of the production rate and the renewable energy composition and delivery approach. In addition, work has continue to finalize the approach to mining operations and inclusion of automation and technology that enables remote operations in the site's modern mine operating philosophy.
As we move towards the final investment decision, we are closely monitoring the current operating environment and exploring appropriate contingency levels and further value opportunities to help offset capital and cost escalations with peer review and industry benchmarks being integrated. Separate to the base case of the West Musgrave project scope, the team continues to progress the Life of Province opportunities to further understand optionality within the region, with resource drilling at Succoth completed during the quarter. An updated Succoth mineral resource and Life of Province study has been pushed out to the first half of next year mainly due to delays of core processing and laboratory results and us wishing to prioritize West Musgrave project work itself.
The study to investigate the potential of an on-site downstream legal processing plant is on track for completion at the end of this year. West Musgrave Province has seen relatively little exploration in the last 30 years. Our current project base case does not include Succoth and several other prospects that have returned nickel and copper intersections and additional indications of mineralization, which we believe creates considerable provincial potential.
I'll now cover our growth pipeline, some changes in our asset time line and key milestones for the year over the next couple of slides before we move to Q&A. As I mentioned earlier, we remain focused on adding multiple options like Kalkaroo to our growth pipeline. Our strong study and project construction experience means we can enable rapid deployment to new projects beyond West Musgrave should the project be approved, and our current brownfield expansions of Prom and Carra.
I'll just call out our new exploration projects from the quarter here. We entered into a new project with Resolution Minerals called the Benmara Project. It's located in the northeast of the Northern Territory and target large sediment hosted copper deposits. We also entered into 2 new projects in Sweden with our current partner. These 2 new projects target large copper rich VMS deposits in northern Sweden and take a number of exploration projects we have there to 5.
On the asset time line slide is information on our different asset projects, stages of development and resources and reserve information in an easy ready reference for you to track the estimated delivery of the different assets or projects in each of the provinces. Whilst the copper prices weakened recently, the medium to long-term outlook remains strong for minerals linked to supporting the renewable energy industry like copper and like nickel. Our focus for '22 remains on safely delivering our operational targets, advancing our current growth projects and adding new growth options to the portfolio, while we continue to strengthen our unique company culture, placing us in a positive position to leverage forecast demand trends.
So on the final slide before we go to Q&A. I'm going to touch on the milestones as being brought forward or pushed out. So being brought forward, firstly, the Walawuru and Papa update at Prominent Hill, which was previously expected in Q4 this year is being brought forward to Q3 this year. We are assessing the potential to access these 2 near surface targets via a trucking operation in addition to the current tracking operation and future shaft operation at Prom Hill. The Pedra Branca ramp-up, which was originally set for completion in Q3 was actually completed in Q2, which I think was a great job by the Brazil team.
Pushed out this year, a slight delay due to supply chain constraints have seen completion of the Prom Hill shaft pre-sink works being pushed out from Q3 to Q4. Delivery of the main sink stage and winders is planned for Q4 '22, with installation and commissioning activity in Q1 next year. Lastly, an updated Succoth mineral resource and Life of Province Study has been delayed into the first half of next year.
So to summarize this quarter, we were impacted by ongoing COVID-related absenteeism and damage to Carrapateena's material handling system. The belt is now operational and running, as Matt explained. We didn't regret our growth pipeline. We strengthened our working capital liquidity by increasing our corporate debt facility, and we finished the half with net revenue of $909 million, enabling a net cash position of $82 million after reinvesting just over $200 million into our growth projects.
Looking ahead, we're very focused on the safe delivery of our production and cost targets of Prominent Hill and Carra particularly this year. Separate teams are focused on executing our growth pipeline with expansions under our Carra and Prom Hill and new greenfield opportunities in the Carajás. We expect to make a decision about progressing the West Musgrave copper nickel project in the second half of this year.
Okay. Thank you. That brings us to the end of the introduction. Operator, if you could remind people how to ask questions for either Warrick, Matt or myself, please.
[Operator Instructions] Our first question comes from Rahul Anand of Morgan Stanley.
A couple for me. This first one relates to the guidance. I just had a quick follow up there in terms of the mining run rates. I mean if you look at Prom Hill and Carra in terms of the material movements or the underground ore, there is a significant pickup required to meet the ranges that were provided. So at Prom Hill, we're talking about up to 5.5 million tonnes per annum, Carra at greater than 5. Is it just a matter of not having updated those and you're relying on higher grades? Or are you actually expecting to be doing those sorts of mining rates in the second half?
Yes, hi, Rahul. Look, I'm going to ask Matt to talk through this. So this is not just about grade, this is going to be about moving more material, but maybe you can talk a bit about programs underway in there.
Yes, no problem. Thanks, Rahul. So I think probably the first part of the answer is that we already have within our plans an increase in ore movements from both sides over the course of the year. So that's the first piece. There are plans that were in place to deliver that improvement as part of our original business planning process. And now we have enacted a series of additional activities remediation on top of that, really that address those points that we've spoken to, through the course of the update.
So structured continuous improvement at Carra, focusing on voltage efficiency, MHS capacity availability. And at Prominent Hill, drill blast improvements, also equipment availability, mining fronts accruing numbers. So there's a series of activities. And yes, we are anticipating still a continued ramp-up of total material movement over the course of the year -- with the total material movement rates over the course of the year.
Yes. Because I mean if I look at the 5.6 million tonnes at Prom Hill, that would be definitely a record, but also quite a bit higher than what calendar year '23 and '24 are, which is at 5 million tonnes per annum. Now obviously, you might be able to do that over a half year, but just wanted to sort of touch on that.
And I guess the second follow up on that guidance is around the costs as well. I mean the second half required run rate for C1 would be basically sitting at about $1.10 for the copper price, which is even lower than the first quarter, and that is whilst you had all these inflation impacts come in. How do you expect to achieve that? Could you point out perhaps some of the risk factors in terms of being able to get there on the cost side?
Yes, I can address that, Andrew. So I think there's probably sort of 2 primary factors for all. So the first one, obviously, is the production. So with those production rates, it's about sort of $0.40 that sits in unit -- our C1 unit costs that would come off in production. I think the other factor that you need to take into account is that the first half had a number of one-offs. So we had, obviously, the material handling system, the repairs to the Western Access Road, et cetera, the flooding event. So without those, yes, we would maintain that level of confidence in achieving that in the second half.
Rahul, can I just make a comment on volume at Prom Hill as well because you may recall, coming into this year, we were -- we spent most of last year opening up the next mining level, so we could actually build some more stopes at the next level down in Malu. So that's what the team's work and that what was referring to previously. That's in our plan. So we do actually have access to more stopes underground now than what we had last year and at the start of the year.
Okay. Perfect. Final one for me around Prom Hill again. The delay to the winder, stage, head frame and the fans into calendar year '23. First quick question is, obviously, any sort of impact in terms of project time lines on the back of that? But then more importantly, is there any CapEx that's getting shifted into next year as well? Because I saw the guidance for CapEx for this year is not updated. But then if there is a component of that CapEx going into next year, then is there any sort of inflation impacts this year is what I'm trying to understand.
Yes. So I'll start with the schedule. So construction of the shaft is not critical part for the project. Critical part is mine development, so that's progressed a little bit slower than our plans. We are now consistently achieving required development rates for -- associated with the shaft expansion. So comfortable around the stage, winder pre-sink not impacting overall schedule. Second part of your question was capital into next year. I don't think that will be a material impact, so not expecting any issue there.
Our next question comes from Kate McCutcheon at Citi.
So at Carra, it seems like you did separate conveyor runs to catch up on development. We had grades that get below reserve again. And in the release, you imply that the waste runs on the conveyor gave you a lower grade, but that doesn't seem to make sense. Can you just explain the grade component? And are you still expecting those to pick up back to reserve again?
Yes, no problem. So we are continuing to be happy that the grade -- or the ore body is performing to our reserve grade. What we do at Carra to maximize ultimately total metal make around our bottleneck is that we do drop development waste into our ore stream, and that causes dilution. So the grade you see is a diluted grade. Our undiluted grade for the quarter was just under 1.6%, I think, off the top of my head. So as I say, our bottleneck is around materials handling system. In order to maximize total movement in total metal, we do put development waste into our ore stream.
Okay. So it's a different waste per se.
No, that's right. That's right. And so to the second part of your question, we are expecting to continue to do that over the remainder of the year.
Yes. Okay. But it's just for this year until you catch up on that development?
Look, it's an option that we may choose to continue to use in the future. We'll work through that at the time.
Okay. And can I just ask, so it looks like the cave is progressing with the propagation still on track for breakthrough this half based on your modeling. Is that correct? And at what point does managing that air gap become a bottleneck for production rates, if that makes sense?
Yes. Yes. So we continue to work to propagate the cave. We've been reasonably happy, saw the progress over the quarter, and then we've seen continued movement through into this month as well. It's not -- it's not a linear, entirely predictable process. We're hoping that we see breakthrough this year, but we may or may not. And our propagation works are designed to manage that air gap and make sure that it doesn't become a bottleneck for the mining operation.
Okay. But if the cable was to break through at the end of this year or the start of next year, that wouldn't impact the amounts of ore you are able to draw from the cave?
Right.
Okay. Cool. And then can I just jump across finally to Brazil? We're 4 years in, and we haven't really got that 50,000 tonnes of copper that you were looking for in 2018. Is Brazil still core? Do you have discussions internally around this asset, whether you could get a better multiple in terms of ESG and country risk by focusing on Australia?
I think with Brazil, we've just got Brazil to the point where we've got great capability in country, we've got the right capacity, the right structures, and I think they're now demonstrating that they can actually enact the strategy we've put in place. And they've just built Pedra Branca. It's now ramped up our capacity. So the team is now working on Santa Lúcia. Santa Lúcia is looking very good, which is why we're taking it to a pre-feasibility study, and hopefully, by the end of this year, we'll have a PFS and a maiden reserve on that with the intention all going well to have Pedra Branca and Santa Lúcia feeding potential processing facility, which will then start to see copper out with becoming more material, but we are also working on some other satellite deposits.
So as you say, our aspiration is certainly bigger than the number of tonnes coming out of Brazil at the moment. But I think all of the foundational elements are there, and it's certainly got the potential. So it's not a lot of capital to keep Brazil going, developing these satellite operations doesn't need much infrastructure. It's mostly about mining. So for now, absolutely, we are committed to Brazil. I think it's got an awful lot of optionality. We've just got ourselves into a position where we can start to leverage the infrastructure we've put in place for that.
Our next question comes from Lyndon Fagan at JPMorgan.
The first one is just back on Prominent Hill. Can you -- post the update today, which quarter is the first quarter we'll get ore production out of the shaft just in terms of modeling purposes going forward?
I don't think we published a quarter as part of guidance. What did we guide 2025, I think? So we're holding at that for now, but we haven't actually published a quarter. It's a bit of work to go between 2025.
Sorry, Andrew, is that first half '25? Or you just haven't said it's somewhere in 2025 still?
No, we haven't said it. So we've just said 2025 for now. So you can assume any part of that you like, but for now, we're keeping a pretty course.
Yes. No, no worries. And then just back to this kind of grade dilution issue at Carra. I'm just wondering how to forecast next year. And it was just a little bit vague as to whether the waste will be kind of processed next year or not? I'm just hoping you maybe flesh that issue out. I thought it was encouraging that the undiluted grade is 1.6%. But I'm just wondering how we should think about modeling the asset and whether we need to have this grade process -- sorry, this waste process going forward.
Yes. Okay. Look, just philosophically, Carrapateena is not processing plant constrained, so we've got plenty of capacity in the processing plant at Carrapateena. It's mining and ore material handling or materials handling that is the constraint. So if you start segregating ore and waste on a belt and trying to divert waste to different locations to all that takes time. It means you've got a sequence, you mine a certain way and it reduces your overall capacity that you're able to mine.
So if you're just talking about a value perspective, often it makes more sense to take low-grade waste, if you like, into your ore stream into the plant and processing it because you actually gain -- you don't take up as much time, if you like, by trying to segregate your waste from your ore, more sense to take low-grade waste, if you like, into your ore screen into the plant and processing it because you actually gain -- we don't take up as much time, if you like, by trying to segregate your waste from your ore. That's why we do it, as Matt said. It actually creates more value. And it's going to depend on sequencing demand of development we're doing.
So the feed grade to the plant is actually not really a big driver of value here. It's more ore tonnes as long as the reserve hold, which has done to date. So I can't give you much guidance to get into that sort of detail, if you like, on how you're going to schedule month-to-month or quarter-by-quarter because we're optimizing the value over the whole year.
Okay. And then the final question is more a holistic question. So we're all obviously running lower commodity prices through our models. We're all also thinking about higher CapEx for things like West Musgrave, the block caves, et cetera. And the thing that sort of comes out is the balance sheet gets quite geared up, depending on how aggressively you pursue the projects, and we're still on track for West Musgrave FID in the second half. So I guess the question is, what sort of debt appetite does OZ Minerals have in terms of peak gearing? And can we maybe sort of talk a bit about the future years with a busy project pipeline and how the balance sheet looks in all of that?
I'm going to ask Warrick to talk about the balance sheet piece. I guess just a preamble to that, though, our company's strategy is that we operate assets in the bottom half of the cost curve, which we are committed to, so to hold our margins. So if global prices come down, our job is to make sure our costs come down commensurate. I do think we need to remember that the commodity prices where they're at today are pretty good still, and the medium- to long-term price forecast for the commodities like copper and nickel are pretty robust. It will be highly volatile, though, I think you need to also remember that. The cost control is really important for us to keep us in bottom after the cost curve. Can you talk about balance sheet?
Yes. So I mean. I think, Lyndon, you already know, we're pretty conservative in terms of our thinking. In fact, our long term copper price assumption is sort of consensus has actually come down to sort of match our long term. So in some ways, we've sort of been a little bit ahead of the game in terms of how we think about that. And obviously, that flows into our cash flow and balance sheet analysis. We're also -- yes, one of the things that we continue to monitor is actually how the spend -- the predicted spend in West Musgrave should reach FID. Or when it reaches FID, how that will actually look, and that's sort of varied a little bit as the project team has continued to finalize their costs, et cetera.
But we've continually said that our capital management framework is to run at sort of 1, 1.5x EBITDA. We're happy to sort of go a little bit beyond that if we've got a prompt pathway to return it below that sort of 1.5 max type level. So yes with that, we remain comfortable. But obviously, part of our thinking with the revolver is to make sure that whilst it's not there to fund capital, it's there to manage our working capital movements. It is part of our -- effectively our insurance strategy around volatility in the market.
And just finally, what sort of capital inflation do you feel like the industry has seen since you put out the West Musgrave study? So obviously, you can't give us a new CapEx for West Musgrave, but things have gone north pretty rapidly. Is there any kind of broad comments you can provide us to think about recutting that budget?
I think it's still fairly consistent with what we said on past calls, which is sort of around that sort of 10% to 15%. That's sort of one side of West Musgrave. The other side, as Andrew mentioned, is the scope -- what the final scope looks like, so you'll see when that project comes forward, both escalation factors and life of scope changes on some of the items.
Our next question comes from Levi Spry at UBS.
A couple of quick ones for you, Warrick, since you're upfront. Just firstly, on the Q3 adjustments. What -- how do I calculate that? What is the actual number?
So at the end of June, we had 31,000 tonnes provisionally priced at 82 50.
Yes. And so if it's today 7,500 or something, you were up for the difference? Is that how I think about it?
Yes. So our Q3 period is generally around sort of the 3 months lever, so you can sort of go out from here on your own price predictions.
Got it, yes. And just another cash one. So assuming that the load gets up, what cash are you up for in calendar year '22?
Very little. Yes, as per the previous release in terms of that sort of monthly spend for '22 really is what you'll see this year or so.
It's already included in the study guidance there, Levi.
Okay. Yes. And maybe just on that, so just -- so starting with the license. Can you maybe just talk a little bit more to crusher chamber 2 and the decline in development rates and how that's all progressing at Carra.
No problem. Yes. So we've seen some pretty solid improvement in development performance, particularly around the declines and crusher chamber through Q2. So that's pleasing after the interruptions we saw in Q1. And we're now consistently achieving our planned rates for the decline. So that's excellent as we progress towards block cave. We have a little bit more work to do to get our crusher chamber rates up to where we want. But also, I think June was our best month there so steady improvement there as well.
Our next question comes from Tim Hoff at Canaccord.
Just looking at the current commodity price. I guess if we're looking at how you deliver your projects. At this stage, is there any sense that you might delay to manage your overall capital position?
Not really. I don't think that's necessarily a prerequisite. The capital projects from Carra and the Carajás are all underway in midstream, and we're committed to those. As you know, we've got an investment decision on West Musgrave in the second half. And as a good process that we will, of course, look at all sorts of options as we've said before.
When one -- when a project team brings at a capital project in OZ Minerals, we also have the finance team look at -- settle alternate options as to how we might use that capital. So we will look at delays, we'll look at sale , we look at all sorts of things. But we won't -- I doubt we will be delaying projects because of capital requirements to our balance sheet.
Yes. Okay. And then just pivoting, you've flagged COVID absenteeism for the first half. And then you also mentioned that we've got another spike coming through at the moment. What's being done in addition to what was done in the first half to make sure that second half, you hit your numbers there?
Yes. Good question. Matt, do you want to talk about absenteeism and COVID rates and what we're doing?
Yes. So I think I've probably spoken general into our improvement activities. So I'd now just to talk specifically around COVID. We have -- we, of course, like everyone got the series of hygiene measures, testing, maximizing working from home, those sorts of activities in play. Probably the more significant lever for us is throughout the quarter, we have been seeing our frontline workforce numbers to make ourselves a bit more resilient to those higher, obviously, underlying absenteeism rates that we're seeing. So that's our major lever is for frontline workforce and also a little bit more equipment results to go with that.
Yes. Then perhaps a final question just around the Havilah Resources option for Kalkaroo. I guess first question there is it might cap the company $76 million putting an option on for $200 million. Was looking at just buying the company an option?
Look, we looked at all sorts of options when it came to doing a deal with the Havilah team. This is a deal we landed on and effectively helps us and helps -- and it gives us an 18-month period to determine whether we actually want this project or not, and we've got 3 different work streams underway or will be underway once the vote goes through to give us that opportunity, if you like. So in a way we're buying an option with this approach, where if you buy the company and you're all up and all in upfront. So the strengths and weaknesses to that, but this is the preferred route for us.
Excellent. Looking forward to the outcome there. Just very quickly for Warrick, and the last one, any extraordinary items that are coming through in the first half result?
That would be preempting the first half results.
Not the result, but the extraordinary side.
I don't [have] that I'm aware of.
Our next question comes from David Coates of Bell Potter.
A couple of quick ones. Just touching back on the curve, the -- just addressing that and look a bit of a -- maybe a hard question to answer, but are you guys getting a sense that the COVID absenteeism and a lot of those impacts repeat in the second quarter? I know you spoke to those risks remaining. But just from an intuitive point of view, [pay for] some of those risks and that having maybe peaked as we go into the second half of the year.
It's always, for all, a big danger to make any predictions around what COVID can cause. So I think we are starting to demonstrate a bit more resilience across the assets in managing it. We've seen material less interruption in Brazil, in fact, very little through this quarter. I think at Carrapateena, we've seen a stabilization, which was really just a reflection of us being able to get some additional people on the ground traction earlier. So feeling more confident that we're not going to make any bond predictions given the uncertainty around COVID.
No, I completely understand that, but that's great. And just on the projects or remediation plans that you guys have put in place at Carra and Prom Hill. While you stated that that's bringing production back up to the run rates required for the rest of the year, it still sounds like you've got a relatively fixed number of kind of bonds on seats. So what sort of tasks or jobs that kind of being prioritized between the -- which ones are sort of being sacrificed to deliver on those targets?
Yes. I think the other dimension to consider just is efficiency gains. So roster changes, fly-in, fly-out changes, the timing challenges, which mean that we get more productivity from the same number of people, same equipment. Similarly, haulage efficiency work at Carrapateena, mining options work at Prominent Hill. These are all things that are working on efficiency, effectively, crudely, more tonnes per piece of equipment or per individual. So I think that's probably the other dimension, David, just to consider.
Yes. Okay. And so are they permanent? Or are they sort of temporary measures that you've got the workforce to kind of agree with while you're kind of getting through these disruptions?
No, the things that I just quoted then are permanent challenges. So these are efficiencies we think would be long term.
Okay. Okay. And just finally, you've been talking about case management at Carra being a priority. Can you just run us through specifically some of the case management practices that you've implemented there to achieve that -- those objectives?
Yes. There's really 2 activities that we are undertaking to manage the propagation of the cave. So we've got a series of surface works that we're undertaking, which is to encourage movement, particularly at the apex. And then we've got that match staff with some targeted, what we call overdraw activities, in the underground in the sublevel cave. So just drawing more material from certain draw points to manipulate the muck pile essentially. So it's a combination of those 2 things, and we find that working in concept. And we're, as I said earlier, getting some solid progress around the cave.
Okay. And that target of overdraw as you called it, is that also impacting or creating dilution in the ore stream at Carra?
Yes. In terms of the rig ground, we haven't drawn a lot of material through the quarter. So when I talk about dilution as being associated with that waste material instead, that's far and away the major driver. There's a little bit from overdraw but not a lot.
Our next question comes from Matt Greene at Credit Suisse.
Matt, I think you can kind of just answered some of my questions. But I just wanted to confirm on these targeted draws, you're not having to expand the cave footprint at the upper levels like you've done in the past?
No, we haven't been doing that in the last quarter.
Okay. That's great. All right. And just on West Musgrave, there's been a few questions on, I guess, the balance sheet. But if we were to see a delay here to FID, what could that delayed time line look like? I mean you've expressed in the past that you need to have confidence in the time line and execution here. So is this a case of just looking for things in WA to settle down? Or are there other sort of factors that come to the mix if FID is delayed?
Yes. Look, that's the work that we're actually doing now on that. So we're looking at all scenarios. We're looking at the macro, not just Western Australia, but globally supply chains, transport routes, input pricing, labor availability, of course, the WA local conditions, how this current COVID wave impacts, states -- how states respond and then, of course, the project itself and they are coming to the projects, the risks, what sort of contingency levels do we need in that, how we commercially package up each of the scopes.
So look, there's a lots of feeds into that. And we are looking at various delay options and value and risk scenarios for each of those and not suggesting that we will delay. But I think it's prudent to do the work to understand what the value and risk scenarios look like. So that -- I mean the question you just asked is the very question that we're working on so that when we take this to the Board with a recommendation, we're confident that we're taking the best value risk proposal forward.
Okay. That's helpful. And I guess just on this Kalkaroo option in 18 months and then you must pay a couple of hundred million dollars. Does that come to your thinking at all if you were to delay West Musgrave?
No, I think it's a separable opportunity at the moment. So we've spent a fair bit of time working with the Havilah Board management team over many years, in fact, to come up with a structure and a pathway and a work program that we think benefits both Havilah shareholders and our shareholders. That's what we've been working on. I think the deal structure is quite unique, and it's quite innovative. I think it gives Havilah shareholders some certainty, a lot more support, access to capital bills, quite unique study approaches and what we -- maybe what they would have taken themselves.
I don't think at this stage, it will necessarily need to be a choice about 1 or the other. But our intent is to get the Kalkaroo option to be as valuable as it possibly can be. So we have the choice of allocating capital to it. That's where our job is to get as many options like that as we possibly can.
Okay. That's helpful. And I guess just in terms of your downstream with West Musgrave, do you see any potential synergies there? Is this part of your spend, what you're looking out over the next 18 months with Kalkaroo to see if there are any potential downstream options with the Kalkaroo option?
As a company, we are certainly looking at broader aspects of value chain connectivity, chain of custody, building -- there's a lot of carbon commodities as we possibly can. We're going to talk a little bit more about this thematic and a number of other thematics at the August half year report when we give you an update on what our old strategic aspirations are. The downstream work we're doing at West Musgrave at the moment is limited to nickel.
So looking at what we can do with nickel concentrates, potentially taking it to an MHP or some other commodity to help us build stronger chain of custody, if you like, into a supply route. So at the moment, in the tactics there independent work streams. But as a company, we are certainly looking to have better chain of casting traceability of our products through the supply chain.
That's great. And last one for me, Warrick, just on the brownfield growth CapEx, you're annualizing about $700 million per annum. So if we all think of West Musgrave, how do you see that spend profile, if you can give us what that could look like over the next 12 to 18 months would be helpful.
Well, we don't guide out to beyond the current year. But yes generally, we said that that's pretty flat. Yes, it's pretty flat there, Matt.
We have time for one final quick question, and it will come from Daniel Morgan at Barrenjoey.
Just back on this Carrapateena and the waste going into the plant and the ore handling system being a bottleneck. Can you just maybe outline why we shouldn't be thinking this might be a case -- still a case entering 2023? Like are you still going to be undertaking this in 2023? When does the ore handling system not become a bottleneck, I guess? And when do we really get the benefit of these ore grades from the reserve?
Yes. I think just back to a couple of points that Andrew made in his answer, we may continue to do this if it maximizes metal lag through the whole system. Our processing plant is not the limit. So it is all about maximizing metal units up through that conveying system. So we may consider to use to do it, but it will be to maximize bottleneck. We are still getting the benefit of the reserve growth.
Can I add something, Daniel? And you correct me if I'm wrong here, Matt. But when we say material handling system, that's an end-to-end process that includes loading units, trucks, the whole work. So the belt itself has got more capacity than we can use. But if you go in to start sequencing waste to campaigns for an hour or 2 and then move to ore, you change your productivities.
So quite often, you'll have number of trucks of ore and then a few trucks of plates. So segregating that in a mining sequence underground lowers your overall productivity. So the issue is not the belt, the issue is sequencing your trucks and your loading unit to segregate the waste. So I hope that helps, Daniel, because it's not about the belt or the drives or anything like that, that's got more capacity than we can use right now.
Is this a temporary issue? Or is this a life of mine issue? Or when does this normalize, like next year? Have you got on top of this and we're back to reserve grades or? Just trying to think through what grade you're going to put through the mill and --
To enable us to unlock this, the cave of getting through to service, so we can focus on production optimization. And the second one is the underground crusher chamber 2, so we can use all passes because that's what takes out the bulk of the congestion.
And when is that scheduled to happen, like Q1 next year? Can you just outline that?
As per Kate's question, I said we hope the cable break through the end of this year, that's sort of currently what we're thinking, and it will be next year when crusher 2 sort of comes on stream, so there's 2 debottlenecking options we're working on right now.
Thank you, everyone. That's all the time we have for questions. So Andrew, I'll pass back to you if you have any closing comments.
Yes. Thanks, operator, and thanks, everybody, for dialing in. If you've got any follow-up questions, please give Travis a call, and we'll organize to get the right people in the room to answer fully.
This does conclude today's conference call. Thank you all for joining. You may now disconnect.