OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2018-Q3

[Andrew Cole, MD, CEO & Director]

Good morning, everybody. It's Andrew Cole here. Thanks for joining us today. I'm joined here this morning by Warrick Ranson, our Chief Financial Officer; and Luke Sandery, acting General Manager for Prominent Hill.I want to take the opportunity, firstly, as part of our -- to let you know that as part of improving information that we provide to you, we've changed the format of our ASX release. So it's now fully self-contained, and hopefully, more fulsome, and that can hopefully be read independently of the presentation. So hope this new ASX release format's helpful and informative to you. We'd certainly welcome any feedback that you might have on the format and the content. Our next step will be to reduce the size of this webcast presentation so we can spend more time on Q&A.As usual, there's going to be an opportunity to ask Warrick, Luke and I questions at the end of this brief presentation. So please take a moment to note usual disclaimers and the compliance statements that we have in the material in the next 3 slides.Now let me kick off with our strategy. I think we've maintained the momentum that we've built up over the last few years and have sustained year-to-date well. The Prominent Hill team is expecting to reach the top end of its 2018 copper production guidance and the lower end of its cost guidance range for 2018, which I think is good news, and the team has done a great job on this.Carrapateena construction is going well, and it's on track for first concentrate production in Q4 of next year.West Musgrave PFS is on track with the key project indicators such as metallurgy, power and the resource drilling all improving.Our Brazil team is now part of OZ Minerals and they are actively drilling and defining the value-optimizing cases for their projects.The exploration team has had a very busy third quarter and will continue to have a very busy fourth quarter as we drill many programs and projects across our pipeline. All of these contribute towards our objective of becoming a multi-asset copper core company and will enable a number of key milestones over the coming several months.In delivering our strategy, we've also stayed true to applying our lean and agile business approach across the business, including to our exploration projects where we either exit quickly or earn-in to a majority position. So on this slide, we announced last week that we've now earned our 51% of the West Musgrave Project as our confidence in the project has continued to grow. We've now also exited the Alpico exploration project in Portugal, with the drill results being quite poor leaving us no option but to exit the project. We're now actively drilling Pantera in Brazil so we can decide whether to exercise our option to acquire 100% of the project from Vale.On this new asset timeline slide, we tried to capture a high level indicative timeline showing the upcoming milestones across our asset portfolio. It doesn't include the exploration projects, of course, but you'll note that we have multiple projects progressing through the development cycle. Pleasingly, this asset portfolio continues to evolve and grow, giving us optionality, flexibility and I think, a strong future. Our asset leaders are actively defining the resources and project scopes on each so we can either continue to invest in them or exit if we think uninvestable. You need to be aware that this timeline is indicative and that each project must pass strict hurdles before it progresses to the next phase. We are actively trying to add new and additional optionality into this pipeline going forward, and of course, we're going to update this each quarter for you to see how the portfolio matures. So I hope this timeline is useful, and we created this based on some of the feedback we've had from our shareholders.So looking now backwards over quarter 3. In summary, our TRIFR was marginally higher at 6.44 for the quarter, but this now includes Brazil for the first time. Prominent Hill again extended its consistent reliable operational performance. We expect Prom Hill 2018 copper production to reach the top end of guidance, and the Prominent Hill's all-in sustaining cost to be at the lower end of the 2018 guided range.Carra construction remains on track for first concentrate production in Q4 2019. Total preproduction capital for the project is expected to remain within the FSU capital budget of $916 million. Carra project capital expenditure guidance for 2018 has been lowered after some refinements to the timing of noncritical part procurement activity, which will see some cash flow move from Q4 to Q1 of 2019.With the Western Access Road and the Tailings dam redesign capital being deferred post-commissioning and the new 10-degree rotation of the sublevel cave mine following some in-situ stress measurements, we expect to see a slight adjustment to the Carra life of mine all-in sustaining cost, which I'll come to later in the Carrapateena section.The Carrapateena expansion studies are supporting drilling programs and are progressing well. At West Musgrave, we are now the majority 51% partner on the project. This all leaves us with a continuing strong financial position even as we invest in growth. At the end of the quarter, our cash balance was $454 million after a $75 million investment into the Carra project and dividend payments of $26 million. We also now have 2 new directors, Charlie Sartain and Marcelo Bastos, some -- both of whom you probably already know. They have both led copper divisions for global resource companies, including in Brazil.With regard to upcoming activities, we've got quite a few things on. We expect to release a maiden resource -- mineral resource estimate for Freo Doctor later this quarter. An update on the Carra expansion desktop study will probably be released early next year. An update mineral resource for Nebo-Babel is likely due early next year. And we have drill programs either underway or about to begin on a number of projects, including at Pedra Branca, Eloise, East Musgrave, Punt Hill and the regional targets at Carrapateena. I'm going to touch on many of these through the course of this presentation. But let me first hand over to Warrick, who's going to take us through our financial position.

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

Thanks, Andrew, and good morning, everyone. Cash flow from operations was once again strong for the quarter with a lower comparative quarter-on-quarter average copper price offset by favorable working capital movements with reductions in both ore inventory and our receivable balances. Total concentrate sales were just over 66,000 dry metric tonnes, inclusive of Antas shipments, and sales for the full year expected to probably match our production profile. Our closing cash position continues to remain significant at over $450 million.As Andrew mentioned, we invested a further $75 million of cash into Carrapateena this quarter. And despite the lower spend guidance for the full year, construction of the project continues to progress to plan. We expect to see that cash spend catch up in the first part of next year as engineering is completed and orders are placed for additional surface infrastructure.In line with mill capacity, we continue to draw down our open cut stockpiles to supplement the underground feed. Pleasingly, the level of underground ore mined this quarter increased by 12% to 773,000 tonnes, benefiting from the opening of the third decline last quarter.Inventory movements this quarter included the continued unwind of the discount on our net realizable value calculation on low-grade stockpiles. Though for this quarter, it also included the closing full-value adjustment as we updated our financial assumptions to align with the outcomes of the capital management strategy work that we completed at the half year.The first of our gold hedge contracts also matured this quarter, with just under 13,000 ounces unwound.Underground capital development expenditure at Prominent Hill continues to track to guidance. There will be a brief forecast for timing of expenditure on the Malu Paste Plant after now finalizing the award of that contract. Changes to mine sequencing have meant that this plant is now not required until the end of 2019. Thanks. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So let me just touch now quickly on each of the provinces. Let me start with Prom Hill. Firstly, I'm pleased to announce that we've appointed a new General Manager for Prominent Hill, Gabrielle Iwanow. Gabe comes to us with over 14 years' experience in the mining and resources industry. Luke Sandery has been our interim GM of Prominent Hill, I think has done a fantastic job. So I want to thank him for stepping up and covering while John Penhall has been in Brazil helping out our new Brazil team.So Prominent Hill, as I mentioned, had another strong production quarter with nearly 29,000 tonnes of copper and just over 34,000 ounces of gold produced. As a result, we expect 2018's full year copper production to reach the top end of guidance range.In Q3, the underground mine produced over 770,000 tonnes of ore, just over 2% copper. This higher grade is the result of stope sequencing. We expect the underground level -- grade level to level out going forward. And development of the fourth decline was also completed as planned. The Prominent Hill expansion study, which I've mentioned a number of times before, is coming all well, and the diamond drilling platform development is underway, and the ore haulage study is progressing well.In the coming quarter, we will commence earthworks and ordering long lead items as Warrick has mentioned for the Malu Paste Plant. And this is going to allow us to sustain the 4 million-tonne per annum underground mining rate.So just quickly, back to Warrick. Please take us through Prominent Hill costs.

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

Sure, Andrew. So the C1 cost [ ancillary ] remained flat across the quarter, with Prominent Hill's copper metal output increasing by around 5% quarter-on-quarter. Cyclical variations in processing costs connected to shutdowns were offset by an increase in net TCRC from an altered customer mix when compared to the prior period. Higher gold production from improved mill grades reflect the timing issue increasing our byproduct credit. Despite higher haulage cost driven by longer haul distances and increased backfill cost underground, the mining costs at Prominent Hill have also remained steady whilst delivering improved development meters. The team continues to generate new productivity initiatives with improvements in stope bogging and the development of underground rehandle areas to reduce tipping distances and those -- with those initiatives being progressed.The traditional last quarter ramp up all-in sustaining capital is underway and we expect to end the year within guidance, albeit likely towards the lower end which will in turn flow through to our all-in sustaining cost results.We continue to see opportunities for improving our unit cost base at Prominent Hill. And pleasingly, we are seeing both the Prominent Hill and new Carrapateena operational teams sharing learnings and experiences both ways as we review our operating expenditure plans for 2019 and beyond.Finally, and as alluded to last quarter, we are now in the process of finalizing our new power supply contract following our recent RFP. Power cost remains relatively small in terms of our total cost base at just a little over 10%, but we do expect unit rate savings now in the order of 20% year-on-year through to 2020 once that new contract commences. Andrew.

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So on to Carrapateena now starting off with underground development. The hand over to the new OZ Minerals-Downer mining alliance team's complete. The total decline development's reached nearly 8 kilometers to date. We're about 3.3 k (sic) [ kilometers ] from the face of the Tjati decline, which takes us to a vertical depth of just over 490 meters. So the Tjati has now reached the competent basal conglomerate and it's approaching the basement granite having just passed through one of the known larger aquifers, which did cause us a few issues with water inflow. So that's along with the changeover from PYBAR to Downer saw some slow development rates early in the quarter, but they have picked up towards the end of this last quarter.Pleasingly now though, we have additional headings open up as we start developing towards the primary crusher infrastructure and the ventilation levels, which will result in an acceleration of development rates into this quarter.Our first ventilation raisebore to the surface was completed in Q3 and we'll be commencing construction of 2 additional ventilation raisebores from surface.The 556-bed Tjungu accommodation village was handed over, and we now have a regular flight schedules commenced to and from Carrapateena.Construction of the processing plant and Non-Process Infrastructure saw first structural concrete poured in late August. Construction contracts for the Southern Access Road upgrade and Tailings Storage Facility were awarded in early October. The site communications network is also close to completion with over 100 kilometers of cable installed from the Woomera Telstra Exchange to the site.In terms of power, ElectraNet's Mount Gunson substation is nearing completion, and the Pernatty South substation is advancing well. So with the deferral of the Western Access Road to 2020, the upgrade at the existing Southern Access Road is going to begin this quarter.In the next few months, construction of the TSF will start, and both the bulk earthwork and concrete works on the Minerals Processing Plant will complete.So we've shown this project schedule a few times, but for consistency, we've chosen to put this into the deck again. I think we've covered most of this already. The construction for Carrapateena is on track to enable first concentrate production in Q4 2019.The operational mine design has been finalized now, and this confirms the ramp-up schedule of full production as per the feasibility study schedule as per the FSU, which we published in -- I think, in August 2017. So total preproduction capital for the project is expected to remain within the FSU capital budget of $916 million, but the capital expenditure guidance for 2018, as Warrick has mentioned, has been lowered to circa $350 million following the delay of noncritical part procurement activity into early Q1 2019.So work is now underway to update operating costs and post-commissioning sustaining capital following finalization of the mine design, the previously advised deferral of the Western Access Road and the optimization of the Tailings Storage design. So whilst we expect operating costs to remain well in the bottom quartile of the global cost curve, the current trend for the life of mine all-in sustaining cost at Carra reflects an increase of about 5% from the FSU estimate which was USD 0.99 when we published it in 2017. More detailed schedules for post-commissioning operating and sustaining capital costs will be finalized as part of the annual business planning cycle, and we'll update you on this, of course, as part of our normal reporting and guidance cycle.So notwithstanding this, the project NPV is expected to remain in line with the original FSU estimate of just over AUD 900 million back in August '17 when you update it for commodity prices and exchange assumptions.During the quarter, we invested $75-odd million into Carrapateena which included investment into ongoing decline development, additional ventilation raisebores from surface, process plant construction and mine area borrow pit works, as well as the commencement of the Tailings Storage Facility. So northern wellfield bore fit out and improvements to the Southern Access Road.So let me talk just very quickly on the Carrapateena expansion conceptual study works we've started through this year. The studies, as you know, are focused on both the optimization of the Carrapateena resource itself and life of province planning. So for the Carra resource, we're working on the further optimization of the sublevel cave inventory, a possible block cave transition and options for mining lower grade mineralized zones. This is being supported by a drill program currently underway into the Carrapateena itself.Outside Carra, we started drill programs at Khamsin, Freo Doctor, the Saddle Zone and Punt Hill regional targets, all aiming to define additional economic ore to feed into the Carra plant hopefully at some stage. As a result of this work, we expect to be able to release a maiden resource for Freo Doctor this quarter.Early next year, we expect to be able to release the results of the overall Carra province conceptual study, and map out our plan path ahead for the province.We've included 1 slide in here for Freo Doctor just to show the results of some of the recent drilling. I'm going to stop briefly on this so you can see some of the results. And as you can see, mineralization has been extended in all of the drill holes, which is quite encouraging. The overall grade appears to be lower than that of the high grade Carra core, but higher than that than what we see in the larger Carra mineralized zone. So what we need to remember though with Freo Doctor is that it's only about 2 kilometers from the Carra underground infrastructure. We'll bring you more information on Freo Doctor later this quarter.Now on to the Musgrave province. Our confidence in the West Musgrave Project's potential has increased, and that supported us reaching a 51% earn-in level earlier than originally anticipated. Recent early metallurgical test work shows improvements over the scoping study, with a material improvement in copper and nickel recoveries. We also saw an increase in copper con grade while nickel con grade remains in line with the further scoping study. Water exploration drilling is underway, and we expect water modeling to be completed this year.The 2018 resource drill program is nearing completion. Given we've been encouraged by the resource drilling and met network, we've decided to bring forward some of the 2019 infill drill work to help speed up the project assessment plan. So this will see us reach the top end of the guidance spend at West Musgrave this year. We're expecting to be able to provide the market with an updated mineral resource statement from Nebo-Babel in Q1 2019.Just now quickly onto Brazil. Reviews of the resources study and the cost estimates are continuing across all of the projects. Antas teams' focus on operational improvements saw us milling near record quality plant ore tonnes which was offsetting lower mine grades. The implementation of improvements to the mine planning, the stage design and the operational safety systems led to a temporary reduction in mine volumes during the quarter, which we expect to improve in Q4. A review of the open pit mineral resource and mine plan is underway, with over 4 kilometers of grade-controlled drilling to the base in stage 2 now complete and over 4 kilometers of resource delineation drilling now planned for this quarter. So we expect to be able to provide an updated mineral resource estimate early 2019.At Pedra Branca, we've been granted the key environmental license, which is good news, and this allows us to progress the mining license and the installation license applications. So work has continued on the feasibility study, inclusive of mineral resource updates, mining studies and basic engineering work. This quarter, we will focus on a resource delineation drill program to increase the confidence of peripheral mineralization at Pedra Branca East. It will then focus on mine optimization studies to identify the best value proposition in terms of mine scale and design. We have lowered our 2018 guidance for Brazil project studies and drilling expenditure to USD 5 million to USD 10 million as the bulk of the resource drilling and long lead items procurement will now mostly occur next year with the drill rigs mostly occupied at Pantera.So now on to Pantera. Resource delineation has progressed very well and it's going to continue into Q4 with a view to providing resource upgrade and conceptual mine design study in the first quarter of next year. So a successful completion of these works will then inform our decision on whether we exercise the option to acquire 100% of Pantera from Vale.CentroGold in Gurupi province. Resource delineation drilling continued into the contact deposit with nearly 5.5 kilometers complete. Drilling will continue into Q1 next year but with wet weather -- wet season pending, I suspect productivity is going to slow down a fair bit. We're also continuing the PFS optimization in parallel with Hill of Value optimization exercise planning to identify the final optimal project scale.Just a couple of comments on the strategic projects. Firstly, on power in South Australia. We have now lodged our development application for the new power line to Prominent Hill, and we expect to execute the supporting TCA agreement with ElectraNet shortly, which will enable us to commence construction. As you know, electricity pricing is fixed at Prominent Hill currently until the end of 2018, but we've completed a power tender process to extend our power contract period. This process has confirmed the downward forward pricing trends evidenced in the wholesale market of circa 20% year-on-year through to 2020. So as such, we expect to confirm negotiations and execute this agreement imminently.On CTP, DFS for a plant that can treat both Carra and Prominent Hill con is nearing completion and it remains on schedule and on budget for completion later this year. We successfully completed a 20-hour pilot plant on a sample of Carra con during the quarter, which produced very good results. And that verified the bench scale test results and it gave us an upgraded Carra con that ran 54% copper with virtually no impurities.On our pipeline, we've touched on some of this already and it's a very important aspect of our strategy to exit quickly if a project doesn't meet our hurdles. And as I briefly mentioned earlier, we have exited the Alvito project in Portugal as the drill results didn't warrant us progressing the project any further.At Eloise in Queensland, a total of 28 drill holes is being completed on the Jericho project for a total of 12 kilometers of drilling. We are continuing to drill and to intersect mineralization along the entirety of the Jericho trend and the mineralized structure remains open along strike and the depth. Drilling is ongoing at this project, and we're currently testing several regional targets with similar magnetic and EM characteristics as the Jericho target. So internal modeling and evaluation of this project is also underway. East Musgrave, EM survey commenced in Q3. It's expected to be complete this quarter. And we've got -- identified a number of EM anomalies coincident with magnetic dipoles, which we'll look to test later on next year.At Punt Hill, about 50 kilometers south of Carrapateena, the first drill hole was collared late in the quarter, targeting a large gravity anomaly situated on a regional structure interpreted to be analogous to the controlling structures of IOCG deposits in the gold trapping generally.Moving quickly to Oaxaca in Mexico. A ground magnetic and gravity surveys were completed during the quarter. Coincidence anomalies were identified under alluvial cover, and the company continues to focus on drill permitting to enable us to drill [indiscernible]. And finally, in Sweden, where plan approvals were received for ground-based geophysics and base of till geochemical sampling. The ground EM survey commenced in late Q3, and results to-date have confirmed the presence of the targeted EM anomaly. So drill testing of the target is expected to commence in first half of 2019. So now let me just wrap up here on the guidance slide. I've covered most of these items on this guidance page already, so I'm just going to quickly summarize. At Punt Hill, we're expecting 2018 copper production to reach the top end of guidance, and all-in sustaining cost to be at the bottom end of the range. Carra construction's on track for first con in Q4 2019. The Carra expansion studies are progressing well, and drilling is underway at Punt Hill. At West Musgrave, we've earned 51% in the project. We're getting to know our Brazil colleagues very well, and the projects -- we're working to define the mineralized systems on each of these projects. Our financial position remains strong even as we invest heavily in growth and return monies to shareholders via dividends. I think the OZ team has done a very good job through 2018 with many projects underway simultaneously. So that brings us to the end of our presentation. As a reminder, I've got Warrick, our CFO, here; Luke, our acting Prominent Hill GM ops here, and we're happy to take questions. So operator, if you could remind people how to ask those questions, that would be great. Thanks.

[Operator]

[Operator Instructions] Your first question comes from David Radclyffe with Global Mining Research.

[David Radclyffe]

I had a quick question re Slide 7, which is that very helpful project time line, so thanks for that. And then certainly, I guess, it shows a number of projects that your global peers lack in terms of number of options you've got. It just seems like you've left off your potentially highest value project, which is obviously the Carrapateena expansion work you're doing there, while early stage Pantera is. If we could try and pin you down a little here, is that indicative time line for Pantera a reasonable proxy for what we could think about for the Carrapateena expansion?

[Andrew Cole, MD, CEO & Director]

David, look, thank you for this. Look, a number of people asked us -- I think, had trouble putting together the various milestones of these projects. So hopefully, this slide helps with that. The Carrapateena expansion time line that I mentioned before, or the Carrapateena expansion time line is that, early next year, we will give you some guidance on what the project plan will look like for an expansion. So we haven't actually got an indicative time line for it as yet. We'll give that early next year. But I have mentioned before, there's 2 parts to this. One is the Carrapateena expansion itself, looking at transitions to block caves, expanded sublevel caves, et cetera. And the second part of it is the provincial plan, which is looking at Khamsin, Freo Doctor, Punt Hill, Saddle, et cetera, and the timing of those. So we're still working out, David, what that plan looks like, and we'll be able to give that to you early next year. But it's going to be a multiyear plan. To understand how these things could be designed, could be developed and integrated is not going to happen in a year or 2. So our base case is that we build Carrapateena. We ramp it up and we get it into production. And it'll only be after that, I suspect, that we're talking about executing expansion plans. I know it's not answering your question, David, but I can't give you an answer yet until we finish this conceptual study.

[Operator]

Your next question comes from Michael Slifirski with Credit Suisse.

[Michael Slifirski, Managing Director]

I've got 3 quick ones. First of all, Antas. Just want to be able to understand a little bit what's going on there in that I guess the last time we saw a reserve grade, it was 2.64%, if I'm not wrong. Last few production quarters, in fact, consistently have been around 2 or just below. This quarter, even lower, 1.39%. What's going on with the grade? Is the grade there? Is it greater dilution? Is there something wrong with the model? I guess if we take out the production to-date that's been reported by you and your predecessor, the implied remaining reserve grade is significantly higher. So there's something there that's not making sense to me.

[Andrew Cole, MD, CEO & Director]

Sure. So firstly, we're still working on Antas, Michael. So we've done some drilling, a low grade-controlled drilling in the open pit itself, but we've got a resource delineation drilling to give us more confidence in the Carra resource and hopefully extend the resource, but Antas is also halfway through a cutback. So you need to take into account the cutback that is underway now for the second phase, if you like, at mining for Antas. So that will influence the grade, obviously, and the tonnes that we're producing or ore tonnes we're producing from the mine. So what we're working on now is rebuilding the resource model for Antas at the moment, and that will be informed by the resource drilling, which is going to occur this year, and that's why we won't -- we can't release another resource and reserve statement until early next year. We need that drilled down first.

[Michael Slifirski, Managing Director]

Understood. But in terms of the existing model and how you're mining it, is the grade, apart from the cutback issue and access, is the grade reconciling with the model? Or is it a dilution issue? What are you seeing to-date?

[Andrew Cole, MD, CEO & Director]

So the Antas has had a problem with reconciliation, and Antas -- Avanco published some of these issues previously. They had a -- I can't remember the number that they published, but I think it was circa 20% gap between their resource model and what they were actually seeing coming through. There were more gold, less copper, and I'd say that trend is continuing. So the work that we're doing at Antas is to put the science behind the resource model to verify whether that 20% is correct or not correct.

[Michael Slifirski, Managing Director]

Okay. Good. Secondly, with respect to Carrapateena all-in sustaining cost guidance, the up 5%. What are the aspects that are driving that? I guess if we look simplistically, what have you assumed for power compared to this 20% lower power that you're now seeing, currency favorable in terms of a conversion to a U.S. dollar all-in sustaining cost at least for the Australian component of it. So what's the gross cost escalation? What's the net cost -- I guess, well, you're reporting a net cost escalation and what are the drivers of that, please?

[Andrew Cole, MD, CEO & Director]

Yes. So we talked about a few things here. Firstly, as we've delayed -- we've pushed out the Western Access Road capital build in 2020. We have staged the build of the Tailings dam from 2 lifts into 3 lifts. So some more of the Tailings dam lifts gets pushed out into sustaining capital. We've talked about both those on the previous calls. We've now also finished the mine design to an FX level. And you may recall when we published the FSU, the mine design was at PFS level. So with that mine design finalized, what also happened over the last several months is we drilled some stress holes so we can now take it into stress measurements, and that required us to adjust the mine design, and we ended up rotating it, I think, about 10 degrees to optimize the design with the stress fields. So you start putting all of those things together, and our current best estimate for the all-in sustaining cost, which is a combination of operating and the sustaining capital profile, we think our best estimate today sees about 5% all-in sustaining increase.

[Michael Slifirski, Managing Director]

Okay. And finally, the -- I know it's a sensitive issue, and we've asked it before, but I still get very confused. The TC/RC being up for the quarter, and I know it's summarized as different customers but is that driven by what's presented in terms of metallurgical characteristics and having to go to different customers? Or is that driven by what customer -- customer's interest is and optimizing a mix to sort of fit with that -- those scheduled deliveries. I'm trying to understand how much is it orebody related versus design related, you intervening in terms of recovery versus [ equivalent versus ] concentrate?

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

This is Warrick, Michael. Look, it's a bit of both, to be honest. So remember, we look at, obviously, the forward plan. And then one of our strategies is to maintain a sufficient customer mix to manage that profile going forward. And what you see quarter-on-quarter is effectively that outcome. So it's not purely driven -- at a holistic level, it's driven by the mine plan, obviously. And then what we do is work with the customers in terms of their requirements, and then we blend to their specification requirements, so that's why you see quarter-on-quarter this change in customer mix because it literally is that, and we have different -- obviously, different contractual arrangements for each of those customers.

[Michael Slifirski, Managing Director]

Yes, understood. So just digging slightly deeper, but the -- with respect to mine plan, given that you're dependent on an increasing proportion of underground and presumably less activity around stockpiles, does that imply that the -- on a go-forward basis, we should be expecting that TC/RC component to remain elevated? Or is it just again that whole scheduling mix that you've just talked about?

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

The latter. The scheduling mix.

[Operator]

Your next question comes from Sophie Spartalis with Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just a quick one from me. Just in terms of the guidance on Page 31, you've assumed a currency rate of $0.76. Can you maybe just provide some sensitivity to the C1 and all-in sustaining cost given that they are provided in U.S. dollars, please, for Prom Hill specifically?

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

Yes, so it's -- obviously, it's a little bit of copper price dependent, Sophie, but it's basically cent on cent, so...

[Operator]

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

[Hayden Bairstow, Analyst]

Just a couple from me. Just on Centro, just want to get an update on the approvals process there and sort of lifting the halt and all that sort of stuff and how that's going. And then just on West Musgrave, when you've had some interesting early stage sort of higher grade discoveries at -- nearby, is that sort of small high-grade underground going to form part of the original -- the study update in terms of pushing some earlier grades? Or is it going to be too early in terms of where that exploration works out?

[Andrew Cole, MD, CEO & Director]

Yes, thanks, Hayden. Let me start with your second question. The higher-grade drill in sections that Cassini has got in exploration program are too early to include in the PFS resource modeling work. At this stage, I would say they look very attractive, but it's way too early because they don't have the drill density or drill resolution to start drawing any inferences from them. So it's positive news. It's upside news. But it won't be part of the resource and reserve that we're putting together now that we plan to release early next year, and I suspect it won't be even part of the PFS as well. But I think all it does for us is demonstrate that there is a pedigree of that district is really strong, and it's got upside to it, but we don't envisage the PFS requiring those higher-grade drill intersections to demonstrate the project's value, if you like. That's our current position. That could change as we continue to drill those areas, but that's what our current view. In terms of your first question back on Centro, so our focus over this last quarter has been 3 things, first one is resource drilling. So increasing the confidence of the resource itself, and that program's been going well. We've drilled over 5ks of -- into that program. That program's going to continue through the wet season, although the wet season can be quite problematic. They're getting over 2 meters of rain there, so you need to plan well for this. The second thing I've been working on is conceptually looking at a value-optimizing case as part of the PFS, so using the Hill of Value approach that we've used elsewhere to maximize -- design a maximum value development case, and that's still being done at the moment. And the third thing is the social and permitting piece, and they are working through the removal of the injunction. It's a lengthy process. All indications are -- haven't changed, but all indications are that it's positive, but there's still more work to be done. So once that injunction's lifted, that paves the way for the next steps. But I can't tell you when that injunction will be lifted, obviously, so I don't know the answer to that. But we're working on it. So I'll tell you, the space hasn't changed all that much, but our technical confidence in the project is increasing.

[Operator]

Your next question comes from Lyndon Fagan with JPMorgan.

[Lyndon Fagan, Analyst]

Just a couple of questions on Carra. The first one is, I just was hoping to square away the capital spend versus first production. I guess you've got $600 million almost, to deploy over the next year. It feels like a bit of a stretch to get to first production, and I just wanted to gauge your level of conviction that you will be up and running by the end of next year. And if so, are we really just talking about the first few tonnes of concentrate? Or is it anything meaningful in the December quarter next year? And when you think you might be able to reach commercial production. That's the first question. I do have a follow-up.

[Andrew Cole, MD, CEO & Director]

Yes. Sure. Let me break it into 2 parts, Lyndon. Firstly, cash flow obviously have spend lags, I guess, activity, generally. So we're quite comfortable sitting here today that our construction schedule -- and you can see in the pack some photographs of the key construction activity, which is all well underway. There are things that are ramping up now, obviously, in the first quarter. Second quarter next year is going to be very busy as the bulk of the processing plant and the surface infrastructure comes together. The critical path [ ultimate ] at Carra are those -- not those activities. It's the client development and underground development, and it has been since we've started this project, which is why we started the declines back in 2016. September '16, I think it was. Now the development rates dropped off earlier this quarter because of the water and the change in the contract. But they pick back up, so they remained the critical path activity. So as long as the decline remains on track, we're comfortable of hitting our first production in Q4 2019. We haven't been specific on when in Q4 2019, and I'm not going to be yet. I'm going to keep it at quarter -- somewhere in that quarter to give us a little bit of flex, if you like, between now and then. Because as you say, there's still a lot of work to be done between now and then. Our ramp-up assumption for Carrapateena has been 18 months, and that 18-month period, as we've said several times, will be dictated by the rate at which the cave propagates the surface. So all of our modeling suggests 18 months is reasonable. And our recent mine design confirmation has confirmed the 18 months is reasonable, but that's what will control the ramp-up. So we won't be at full production until mid-2020, if you like, based on our current best-case scenario.

[Lyndon Fagan, Analyst]

Okay. Great. And is that the point at which you would be declaring commercial production, and we'd start to see it flow through the P&L rather than everything capitalized or...?

[Andrew Cole, MD, CEO & Director]

No [indiscernible].

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

Yes -- no, Lyndon. It'll effectively be from right at the end of 2019 to into 2020. We'll be selling concentrate at the beginning of 2020 effectively.

[Lyndon Fagan, Analyst]

Okay. Great. And then I guess just an extension to the life of mine cost increase. Could we isolate how that study applied to sustaining capital in isolation? I mean, has that changed relative to the feasibility study?

[Andrew Cole, MD, CEO & Director]

Well, it has changed because we've pushed the Western Access Road out from preproduction capital to post-commissioning sustaining capital, effectively, and we've done a similar thing that spreads the Tailings dam capital. So yes, there'll be changes in sustaining capital. At this stage, Lyndon, I don't want to break out the operating components, sustaining capital components, because we will be -- we're doing a lot more detail work now as part of our annual business planning and budgeting cycle. So Carrapateena operations now fold into that planning cycle, which we get much more granular on the details and the splits and the classifications of what's operating, what's sustaining, et cetera. So as that work completes, then we will be issuing guidance as per Prominent Hill and anywhere else on what the upcoming capital and operating cost splits will be. But I wouldn't be able to give that to you, and I don't want to give that to you now because the resolution on that [ daughter ] is not defined enough.

[Lyndon Fagan, Analyst]

Okay. But it's fair to say, it's gone up.

[Andrew Cole, MD, CEO & Director]

Sustained capital has gone up, yes, because we pushed out a couple of those projects.

[Operator]

[Operator Instructions] Your next question comes from Daniel Morgan with UBS.

[Daniel Morgan, Director and Analyst]

Just want to touch on a little bit on the conceptual nature about how Carrapateena 2 might fit into some of the more regional things. Is there one that is in your thinking that might come before the other? Or looking more perspective, it seems like the Fremantle Doctor prospect is really starting to come along and getting a development coming out of there and trucking it a short distance to the Carrapateena -- an expanding Carrapateena mill might look more interesting. Can you just concept on -- talk about that concept?

[Andrew Cole, MD, CEO & Director]

Yes. Sure, Daniel. Look, there's so many combinations and permutations that could eventuate in a Carrapateena expanded case. I can't tell you what case will be the eventual winner, if you like. But philosophically, the reason we're treating the 2 areas separately, if you like -- so we're treating Carrapateena as a potential expansion case itself because we've got, obviously, infrastructure into this orebody. We've got a lot more drilling, a lot more confidence in the distribution of grade, et cetera, in this orebody. So the study is more advanced. The desktop study is more advanced about whether we can increase the size of the sublevel cave in Carra or add block caving to the suite at Carrapateena. And that work is actually more advanced than the rest of the province. And that's mostly driven by drill density, to be honest. So our drill density at Khamsin's nowhere near at Carrapateena's level nor is it at Freo Doctor or certainly not at Saddle. Oh, and Punt Hill's oil exploration targets. So if the grade at Freo Doctor and/or Saddle, for example, turns out to be higher than possible panel caves or block caves at Carrapateena, then that might change the sequence in which we extract all between these things. But if it doesn't, then conceptually, we would see Carrapateena expansion coming before those others. Now before we had done the drilling at Khamsin and Freo Doctor, over these last few quarters, we had to show previously that you would do an expansion case at Carrapateena and then you would simply add maybe Khamsin, maybe Freo Doctor, to mine life at the back end of that production profile. So -- but the last drill hole we saw at Khamsin had some pretty good grades in it, and certainly the grades that are coming out of Freo Doctor are slightly above the larger Carrapateena footprint. So the assessment the team are doing is looking at which one should come first, and I can't answer that question yet. In terms of Freo Doctor, given it's only a couple of kilometers away from Carrapateena, it most likely would actually access the orebody underground and not have to come in from surface. So you could end up philosophically seeing Freo Doctor and/or the Saddle being part of an underground infrastructure at Carrapateena as opposed to a separate mine, but look, they're all the things that we're trying to work out at the moment, and what we need is more drill information and better quality resource, definition drilling at these various regional targets.

[Operator]

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

[Andrew Cole, MD, CEO & Director]

Okay, thanks, everybody, for your time this morning. Appreciate the questions and your time. As usual, if you've got questions, please send them through to Tom, and he'll organize for the right person to follow up on them. Thanks very much, everybody.

[Operator]

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