OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2019-Q3

[Andrew Cole, MD, CEO & Director]

Good morning, everybody, and welcome to our last quarterly conference call for the year. I'm joined here today by Warrick Ranson, our Chief Financial Officer. A copy of this presentation and the disclaimer is also available on our website. So I'm going to leave you to review the disclaimer in your own time. So on to our strategy. Each year, we review our company strategy to make sure that we consider the macro environment, the mega trends, the changing societal expectations and the threats and opportunities that all of these things create. This year's review has been a highly collaborative effort between the Board and the management teams, with us, again, confirming our commitment towards creating value for our 5 stakeholder groups, and those are employees, community, government, suppliers and, of course, our shareholders. We're going to talk more about our company's strategy and the review that we've undertaken at our November Strategy Day. You will be familiar with the company's snapshot image, which we show in each of our decks. And it provides a visual overview of the composition of our portfolio. This has not changed since our last quarterly report, with Australia comprising over 80% of our portfolio. The majority of our focus over the past 3 months has been to improve the definition of the many options we have in our pipeline, many of which I'm going to touch on in the next 15 or so minutes. As we progressed our pipeline of projects, we want the forward schedules to be as transparent as possible. So for the ease of reference, we've included our project time line, which serves as an indicative guide to the milestones for each project. As flagged in our half year announcement, the West Musgrave time line has been changed with the PFS pushed out by 6 months to give us more time to bring some key innovative ideas into the base case. Before we get into the details, I'd like to outline some of the highlights from the last 3 months. I'm pleased to report that the copper-gold concentrate stocks have returned to normal levels following strong sales in Q3 with all deferred shipments from the Q2 recovered as well as all Q3 scheduled shipments completed. At Prom Hill, we're on track to deliver copper and gold guidance, and we've revised 2019 C1 cost downwards as a result of cost efficiencies and copper-gold mix. We have, however, also had to lower our underground ore movement guidance as we're unable now to make up for the slow start to the year, which was compounded by the impact of the Woomera defense zone closure that required us to close the operation for 4 days. It's unfortunate because the team achieved a combined underground run rate of about 3.8 million tonnes per annum in July and August combined. So they have now demonstrated the capability to deliver the 3.7 million to 4.0 million tonne per annum rate. At Carra, construction is nearing completion, and we're on track for first saleable concentrate in November. We now have about 180,000 tonnes of development ore stockpiled on the surface, and the site is now connected to grid power. At West Musgrave, we continued the prefeasibility study as we work to include new opportunities into the base case, including a Loesche mill, which potentially offers significant power and cost savings. In the Gurupi province, we have seen some encouraging indicators on the removal of the injunction, which we expect to continue into this quarter. And following the OZ Minerals Board visit to Brazil just this last week, we are progressing initial early works at Pedra Branca, the first element of our Carajás hub strategy, whilst we advance the feasibility study. So I'm now going to hand over to Warrick to take us through the OZ Minerals cash position, please.

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

Many thanks, Andrew, and good morning, everyone. Following the expected strong quarter of sales, total group working capital reduced by $120 million from the half year with a reduction in concentrate stocks and positive movements in both trade receivables and payables. Ore inventory also declined with the continued drawdown in the open cut stockpiles. Significantly, these movements have ensured we have retained a substantial cash balance at the end of September of $195 million. Our strong operating cash flow was matched by further progression to first concentrate at Carrapateena, with $150 million expended in project cash outlays as we move to complete surface construction work and commence progressive commissioning. Project development activities also continued on the West Musgrave, Carra expansion and Gurupi studies. And in the Carajás, we commenced work on the lift of the tailings facility as well as continuing preparatory site works for Pedra Branca. Work on the Malu paste plant at Prominent Hill is now approximately 60% complete and progressing to schedule. And in September, we've returned $26 million to shareholders in the form of a fully franked interim dividend, in line with our capital management strategy of providing shareholders with a sustainable allocation of net operating cash flows as we continue to grow. Thanks. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So at Prom Hill, as Warrick said, the construction of the Malu paste plant remains on track, and we expect that all structural, mechanical and piping packages to be completed by the end of this year. In September, the team completed a scheduled plant shutdown. And as mentioned, we've also had to shut the operation and evacuate the site for 4 days when the Department of Defence conducted testing on their Woomera defense site. Whilst this closure was unfortunate, it also enabled us to test our flexible work approach and gave us the opportunity to trial a temporary remote operating center from our Adelaide office, which proved very successful. And as a result, it will become a more permanent facility for us next year. As a result of the successful gold trial completed earlier this year, we will see regular grade gold stockpiles brought forward to the start of 2020, which will push out the low-grade copper stockpiles following observed gold recoveries of about 77%, which are up from the originally assumed 71%. The Prominent Hill expansion study is progressing well. Phase 1 of the underground expansion diamond drill program has been completed with some encouraging results. We will start round 2 of the expansion drill campaign later this year. On haulage, we've anchored our design base case on a vertical shaft comprising our skip hoisting system with assessment scenarios ranging from 4 million up to 8 million tonnes per annum. This study is going to continue throughout 2020 as we continue to define the resource and evaluate the various expansion cases. Around Prom Hill, we're about to commence a 3,000-meter drill program to test the top consensus targets from the Explorer Challenge completed earlier this year, which we're all quite excited about. I'd also like to take a moment to acknowledge the exploration team for jointly winning the 2019 Australian Mining Prospect Awards for innovative mining solutions just last week, together with Unearthed for the Explorer Challenge. So again, just over to Warrick for Prom Hill cost performance, please.

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

Sure. Thanks, Andrew. So as previously alluded to, C1 costs have continued to trend back towards guidance as sales volumes and the associated commercial cost begin to align with our production rates. Paste filling together with the impact of marginally lower quarter-on-quarter copper production from stope sequencing and recoveries increased unit mining costs, although these were offset by a circa 12% increase in gold production, which lowered overall C1 cost for Prominent Hill to $0.726 per pound. This strong performance continues to place Prominent Hill as a solid first quartile producer and enabled us to sharpen our guidance, as Andrew indicated, for the full year and at the lower end of our original range. I'd just like to note here that on the presentation, there's actually an error on the slide in terms of previous guidance. It should read 65% to 75% -- $0.65 to $0.75 per pound, which is the right number in the report. The green zone whole site closures in September also contributed marginally to underground mining performance although mill throughput levels were comparative quarter-on-quarter, despite minor levels of unplanned shutdown activity and planned maintenance in September. Mining cost per tonne continued to improve with efficiencies of scale and the solid operating performance of the Prominent Hill underground team contributed to that, although metal -- unit performance will, of course, remain variable with grade. Higher all-in sustaining cost reflect both the quarter's C1 performance and the beginning of the second half catch-up in site sustaining capital, which we've talked about before. Thanks. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So very pleasingly, at Carrapateena, it remains on track for first saleable concentrate production in November this year, and it now has over 180,000 tonnes of development ore stockpiled, ready for plant commissioning. The underground development team have rapidly increased their monthly development rate month-on-month, with it now being well over 3 kilometers of development per quarter. This brings total underground development to over 18 kilometers and that we're now at vertical depth of 662 meters. It's been a very busy quarter for work package completion and commissioning, with just a few of the highlights being these following things: The preproduction feeder, the overhead powerline in the underground, underground ventilation rises 1 and 3, primary vent fans, the Tjungu Village power supply, Northern well field stage 1 and completion of the telemetry and solar commissioning of the radio well field. We've also now energized the process plant switch rooms. And as per the photo on the slide, the Carrapateena underground crusher chamber excavation was completed on schedule, with civil works progressing well and mechanical work scheduled for completion in Q1 2020. Looking forward, the current block cave expansion prefeasibility study and the associated life-of-province studies will support another update of the Carra mineral resource and ore reserve statements due next month, and diamond drilling at both the upper sublevel cave and block cave footprints will start in Q4 this year to further improve geotech and resource knowledge to support the ongoing expansion studies. So in the Carajás, last week, we took the OZ Minerals Board to Brazil and spent the week in the Carajás where they met the various team members and visited the various project sites. We also introduced them to our new Brazilian Advisory Board. This Advisory Board comprises independent professionals with long histories in mining, government and legal across various industries in Brazil. The Advisory Board has provided outstanding board for the local teams; and Carlos, the CEO, provided advice to me and now more recently, the OZ Minerals Board, and these people have provided some very invaluable advice and guidance to us. You can find the individual Brazil advisory board bios on our website. During the visit, we reviewed the status of the Pedra Branca feasibility study, which will continue over the next few months. And as a result of our confidence, we approved for an early works program to begin, which will include preparation for the construction of a decline. Much of this work is to protect the site through the December-March wet season. Just as a reminder, the Pedra Branca base case includes a 1 million to 1.2 million tonne per annum underground mine with primary crushing and ore sorting on-site. After which, preconcentrated ROM ore will be trucked to Antas for processing with the tails stored in the open pit once depleted. Expenditure for the remainder of the year on Pedra Branca is only going to be about USD 3 million. At Antas, we're on track to deliver production guidance. We are currently revising our mine plan to steepen walls via double benching so that we can take deeper, higher-grade ore instead of taking another cutback. These changes -- this change lowers site sustaining capital and our all-in sustaining cost. Drilling near the Antas mine included 16 holes at an exploration project called Clovis, and several of the holes intersected massive copper bearing structures, which is quite encouraging. So final results of these drill assays are due in the next month or so. In the Gurupi province, we are concentrating our efforts on the removal of the CentroGold injunction. The feasibility study and further regional exploration work will follow once the injunction has been removed. The West Musgrave prefeasibility study has continued to bring value-accretive opportunities into the base case. One of the value-enhancing opportunities being evaluated is the potential to utilize a Loesche mill. We've now completed a second pilot that has verified the model results, showing that it could significantly reduce power consumption and eliminate grinding media cost relative to the regional ball mill grinding circuit. Many other opportunities are also being explored. An updated mineral resource with an expected improved resource confidence is currently being prepared and this should support a maiden ore reserve planned for early 2020. We have a well-developed growth pipeline with multiple projects at different stages of maturity, and this allows us to allocate resources to the most value-accretive activities. I think we're in a strong position of having choices to make about which projects we progress and when. I'm not going to cover up on all the exploration works completed this last quarter, but work has progressed on many fronts, and that will continue through year-end. So looking ahead at a couple of the more important milestones through the end of this year, we expect to provide an updated mineral resource and ore reserve statement for Prominent Hill and for Carrapateena. And of course, we also have Carrapateena's first planned commercial concentrate production scheduled for November. As we enter the final quarter of the year, we have been able to narrow the guidance ranges in a number of areas. So a few of the highlights here. Positively, Prominent Hill, all-in sustaining costs will likely end in the bottom range. And we've also lowered the C1 cost guidance. Unfortunately, Prominent Hill underground ore movement guidance has been lowered, as previously discussed, despite some great progress in July and August. At Pedra Branca, we will spend an additional $3 million through the end of the year on the early works in the FS study. At Carra, there is a small reduction to site sustaining capital, which has been transferred into the preproduction capital as we get clearer sight on the commissioning. At Antas, we've reduced site sustaining capital and all-in sustaining cost guidance as a result of changing from a cutback to a lower capital wall steepening program. And we've also pleasingly increased our Antas gold guidance up to 5,400 to 5,800 ounces. And finally, we've lowered global exploration spend to $25 million to $30 million. So now just hitting the highlights, a few quick summary takeaways. Prominent Hill, on track for production and we've lowered the full year C1 cost guidance. Carra construction is nearing completion, and we're on track for first saleable concentrate in November. The West Musgrave PFS continues as we work to lock down the project scope. And then the Gurupi province, we're progressing removal of the CentroGold injunction with positive indicators observed to date. In the Carajás, we are progressing with FS and some early wet weather preventative works at Pedra Branca, which is the first element of our Carajás help strategy. So that brings me to the end of the quick summary running throughout Q3. Operator, can you please remind people on how to ask questions for either Warrick or myself. Thank you.

[Operator]

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

[Michael Slifirski, Managing Director]

I've got 4 quick ones. First of all, Pedra Branca, the ore sorting technology, what are you proposing to use? And has it been tested and demonstrated?

[Andrew Cole, MD, CEO & Director]

Michael, it's the ore sorting technology we've anchored on a [ Steinert ] ore sorter. Yes, we have been testing this. [ Steinert ] has a commercial scale all sorted in the city of Pará, which is where our head office in Brazil is, and we have been testing material from Antas, both ore and mineralized waste, through that ore's water to test its characteristics, if you like, and its weight reduction and its recovery. And we're about to test a small sample from crushed drill core at Pedra Branca. The results have been quite encouraging.

[Michael Slifirski, Managing Director]

Great. Secondly, with the shaft proposal concept, can you sort of indicate a couple of things, I suppose, one, the indicative capital for the ranges you've talked, the 4 million to 8 million tonnes per annum? What OpEx saving dollar per tonne haulage saving you'd expect to get and whether it has any implications for cut-off grade and conversion of resource to reserve, please?

[Andrew Cole, MD, CEO & Director]

Absolutely. Michael, very good questions. They're all part of the study, obviously. So I can't give you all the -- that you're asking for now because we're still working through it. And a lot of these depend on the final scope. So as you can appreciate, depending on how deep you take a shaft will materially influence the capital costs. And it materially influences the operating cost. So all of these questions you've asked are the key questions that we need to answer over the next 12, 14 months. But indicatively, if you build a 1-kilometer long shaft, you're talking about $100 million plus or minus, and you get a -- quite a good reduction in operating costs, so that will give you ballpark. But a lot of those questions are still to be answered, Michael.

[Michael Slifirski, Managing Director]

Okay. That's fine. I'll wait for that. With respect to the cost guidance revision for Antas, just trying to understand what the offsetting things were. Because we can see what the $4 million sustaining capital reduction ex the gold, so a couple of million there, so $6 million net benefit, but a $2.8 million net reduction in cost. So what was the balancing item? Where have cost actually increased?

[Andrew Cole, MD, CEO & Director]

Do you want to talk through that?

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

Yes. Michael, Warrick here. Just basically, general improvements. So the site continues to look at opportunities and reassess their overall arching cost performance, so productivity gains effectively.

[Michael Slifirski, Managing Director]

Yes. Though the question was really quite the opposite. But if we multiply the all-in sustaining cost reduction, it's a lot less than what the implied is by the increased gold production and the reduction in the sustaining capital. It's about half. So look, you can come back rather than do the maths on the phone. It looks like a, sort of, a $6 million benefit that flows through to about a $2.8 million realized benefit.

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

Yes. Okay. Let me come back to you off-line, Michael.

[Michael Slifirski, Managing Director]

Yes. That's fine. And then finally, with Carra approaching, I'm really interested in how we should think about that first year. I think the only cost guidance we have is sort of life-of-mine averages for each of the unit cost. But if in the first year or so, where you're operating at a not full rate, presumably there's some sort of fixed cost impact on these unit costs. And in addition, I'm interested in what the impact is of that sort of carried ore blanket where you are not getting a full revenue contribution for the operating costs you'll be putting in. So interested in how you would have us think about some -- that first year's operating costs still up per tonne compared to that life-of-mine guidance.

[Andrew Cole, MD, CEO & Director]

Yes. Sure, Michael. So we will give full year 2020 guidance in January next year. So you'll get full transparency of all of the components. But the way to be thinking about this is 2020 is a ramp-up year for Carrapateena, so it's effectively carrying all of the fixed costs for the business. The only variable cost that you will see there will be a -- reduced variable costs will be the campaign running the processing plant. So it'll be run for periods of time and then shut down for periods of time. In terms of copper and gold metal output, what we've given you today is that you should straight-line from November to mid-2021, so you can work out from 0 to 4.25, so you can work out roughly what the metal output next year is. So 2020 is still very much a development year for next year, where we still need to finish off underground crusher, as I've talked about, and the installation of the conveyor, and there'll be quite a bit of development work still. So it's still a high investment year for Carrapateena.

[Michael Slifirski, Managing Director]

So if we summarize then in terms of a proportion of the life-of-mine cost, the $1 million that you expect would be fixed next year, how would you have us think about that?

[Andrew Cole, MD, CEO & Director]

Yes. Look, I haven't given you that number yet, Michael, and I can't give it you on this call, obviously. But the number that you've got, which you could -- the only number you can use to date is the number we provided in the PFS for 2020. It is going to be a heavy capital period for the first half of next year and Carra won't be cash positive next year.

[Operator]

Our next telephone question is from David Radclyffe from Global Mining Research.

[David Radclyffe, Managing Director]

I had a couple questions. Firstly, coming back, I guess, to the point here on the shaft concept. Given the preference now for potentially a shaft, obviously, this is higher complexity and potential costs. So I'm just wondering here, how aggressive is it to actually deliver a phase study by the end of next year, given you've got ongoing drilling? And have you actually picked and tested the location for the shaft yet?

[Andrew Cole, MD, CEO & Director]

David, this is Andrew. So this work has been going on all year -- in fact, the start of last year, with this concept study looking at various haulage methods. So as you'll note, we've been looking at conveyor and declines. We've been looking at vertical conveying and shafts in addition to trucking and scaling up trucking. And all of the work we've done suggests that a shaft is the most value-accretive when you take into account capital and operating efficiencies. Yes, the team have got some preferred site locations, but they are subject to change. They obviously depend on the resource and how it teams together as we continue to drill that. So it's premature to say right now where a final location could be, but the team have obviously got some preferred locations. I also think it's important to stress that we are still very much investigating the range between 4 million and 8 million tonnes. So it's not to say it will be 4 million or 8 million. That is the range that we're investigating for an overall site output. So there's 2 pieces of work that need to progress here to enable this. One is the study on the shaft base case, and the second, of course, is increasing the confidence of the 80 million tonnes of primarily in the third resource sitting underneath and around the current mile or underground. So that's why it's going to take through end of next year. And we have engaged some external consultants to help us in the study and operating -- operational readiness of that work. We can't go into too much more detail just given the early stage of that work though.

[David Radclyffe, Managing Director]

Okay. So then when we think about that larger concept, being the 8 million tonnes, obviously, one advantage of keeping the mill largely full, what are the key risks that's been identified so far and as you're delivering that larger-scale operation, is it the actual ore body? Are you confident that it can deliver to 8 million tonnes? I imagine the early years, it's, what, a new mining domain supported by circa 4 million tonnes out of Malu?

[Andrew Cole, MD, CEO & Director]

Yes, David. I'd say, by default, we can't say we're confident enough that the orebody can support this year. That's why we need to continue to [indiscernible] Most of the 80 million tonnes of resource sitting underneath the pit is [ inferred ], some of it's indicated, but we need to improve the confidence of that resource first before we can start drawing conclusions on whether it can sustain a shaft haulage method. So I mean that's the work that we need to do over the next period. All I can really flag at this stage is given the capital and operating costs of the various options and the shape of the orebody as we know it, the shaft is the preferred option. So I would use Ernest Henry probably as your benchmark for what can be done. That's probably an analog to where Prominent Hill is, I would say.

[David Radclyffe, Managing Director]

Okay. Great. And then just one quick last one. Obviously, looking at the asset time line, which is very helpful, and you're in the great position of having sort of 5 projects, almost looking like they're ready to sanction for the Board in 2020, '21, appreciate the goal is to advance here the better projects and to have the choice, but that's a lot of spending and activity to get those 5 projects to that stage to make that decision. Is there any thought to maybe whittling that down a little bit, given where you are now? I'm sure there's some preferred projects, and I imagine some of the brownfields projects, yes, those expansions can be hard to beat.

[Andrew Cole, MD, CEO & Director]

Yes, look, it's a really good question, David. So being in a position that we can allocate capital, I would say, is the most important point first. So having choice, I think, is really important. As we flagged earlier on this year, we've already delayed the West Musgrave project. The most important phase of a project in that PFS stage we optimize the scope. And we've consciously delayed the project PFS by 6 months because we've got some really good opportunities that we want to integrate into the base case. So to have a portfolio of projects allows you to do that to optimize projects and progress them when they should be progressed. But as we sit here today, I can't tell you which is a more -- a better project than the other. The minute we know things like that, that's when we will stop projects or exit them, but to have the choice is really important. But I think, as you correctly state, brownfield value is usually highly accretive. So expansion plans at Prom Hill, the expansion plans at Carra, expansion plans in Brazil around the Carajás hub can be quite value-accretive as compared to greenfield projects. So when we allocate capital, we are comparing them all on a like-for-like basis, and the things that will create the most value will be the ones we fund first.

[Operator]

Our next telephone question is from Rahul Anand from Morgan Stanley.

[Rahul Anand, Equity Analyst]

The first couple on Prom Hill. Just wanted to understand, given the first 3 quarters' performance this year in terms of ore available from the underground, where are your sort of forecasts going into next year? And are you still comfortable of hitting those run rates of around 3.7 million to 4 million tonnes? And then also, the reserve grade is significantly lower than where we're mining at this point in time. However, we have seen a bit of a drop off. So I'd be interested to sort of hear your comments around where you think that trajectory looks going into next year perhaps. Those 2 are on Prom Hill, and I'll come back with one on West Musgrave, if that's okay.

[Andrew Cole, MD, CEO & Director]

Yes, sure, Rahul. So firstly, we've generally said that the Prominent Hill underground will be a 3.7 million to 4 million tonne per annum underground mining operation through life of mine. And I think the fact that the team in July and August hit 3.8 million tonnes gives us a lot of confidence that they can actually do this. So remember, they've been in a ramp-up phase over the past 2 years to get to this point. And for the first part of this quarter, they demonstrate they can do that. September was a bit of an abnormality with a shutdown and a forced evacuation of the site as a response to Woomera defense. So I am confident that they can deliver that 3.7 million to 4 million tonnes year-on-year. So that's the base case that you should be assuming every year going forward. In terms of reserve grade, there's 2 things that dictate the order in which we take off. First one is the mine plan and sequence. You can only take certain things at certain times. But in principle, we will always take higher grade first because that's what value will drive you to do. So we do sequence the underground to take the higher-grade material out first, so you'll tend to see higher grade in the earlier years and a lower grade in the lower years. So that's just the philosophy that we will always progress. Does that answer your question?

[Rahul Anand, Equity Analyst]

Yes. But so considering that the grade has come off of it, so would you then say that we've already peaked in terms of grade? And going forward, I mean, it may not switch to reserve grade, let's say, next year, but we've sort of peaked in terms of what we're mining at the moment?

[Andrew Cole, MD, CEO & Director]

No, we wouldn't necessarily say that.

[Rahul Anand, Equity Analyst]

That your trajectory is downwards?

[Andrew Cole, MD, CEO & Director]

Yes -- no. Look, so the life-of-mine trajectory will be downwards, but that doesn't mean we've peaked right now. So it's still highly variable. Thus -- and to keep your mine in sequence, obviously, you can only take certain stopes at certain times. So you will see variance in the recovered grade, but the life-of-mine trend will be downwards, yes.

[Rahul Anand, Equity Analyst]

Got you. Okay. And then just...

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

Yes. So I think the other thing -- sorry, Rahul, it's Warrick here. I think the other thing to note is obviously the -- in terms of overall output from Prom Hill, it will vary based on the amount of underground phase and the open cut feed that we see going forward, so remembering that next year we start to move into the lower-grade copper stockpiles.

[Rahul Anand, Equity Analyst]

Yes. Noted. Okay. And just the final one on West Musgrave. Just wanted to understand the nature of the delay. I mean are we focusing at this point in time in terms of the metallurgy and sort of finalizing the process here? Or is it more around extending mine life and trying to bring in Succoth and sort of any other sort of extensional ore into the project?

[Andrew Cole, MD, CEO & Director]

Yes. Sure. So just for a little bit of context quickly, West Musgrave PFS, we had pretty much locked in terms of scope at the start of this year. And as part of the agile process, we opened our PFS up to a lot of people. So we invited a lot of people to come here, external people from various sectors to come and challenge it. As a result of that, we came up with a new list of opportunities to potentially improve the scope of the project and some threats we haven't thought about. So the reason we extended the PFS was to fully test all of those new opportunities and some of those strengths to optimize the base case. So as an example, some of those things include primary crushing. So as I mentioned this morning here, we are investigating the use of a Loesche mill as opposed to conventional crushing. And we've run some pilot samples through the Loesche power plant in Germany, and we're in the process of bringing their power plants out here and now to test some more bulk samples, but that's been very encouraging. And the reason it's important to define whether we do or do not use a Loesche mill in the scope now is because it changes your flowsheet quite materially and it changes the size of the power plant you potentially need quite materially. So there's a number of opportunities like that, including sequencing. We are looking at Succoth as to whether it should or should not be in the base case. So there's a whole raft of things that we're still looking at, all designed to optimize and define the scope. Because, as you know, when you go into the feasibility study, you don't want to be shifting your scope around. You really want to be a locked scope and really just completing the detail, design and engineering. So that's the purpose of the delay, and the team are actively working on each of these opportunities.

[Operator]

Our next telephone question is from Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Just wondering, firstly, on the stockpile strategy change that you're pulling the gold stockpiles forward, you're pushing the low-grade copper back. So I just want to understand what next year might look like. Should we just be using reserve grade for the gold stockpiles, which I think is about 0.8 grams and 0.1 copper?

[Andrew Cole, MD, CEO & Director]

In essence, that's correct, Daniel. So you should be using the run-of-mine gold grade stockpile reserve as priority feed in 2020 and then we're pushing back to low-grade copper. So that's correct.

[Daniel Morgan, Director and Analyst]

And then when you've been looking at the scope of the shaft haulage, you're talking about 4 million to 8 million, does that mean that underground haulage would be incremental to that? Or is that -- does the underground haulage go away under that? I'm trying to think about just the mine. Is it 4 million plus 3.7 million to 4 million? Or is it 8 million just from shaft?

[Andrew Cole, MD, CEO & Director]

Yes. Look, it's a good question. So I -- we -- I don't know definitively the answer to this because there will be some trucking there earlier on, but I'll think more of it as a complete replacement for truck hauling to surface. So this will be a 4 million to 8 million tonne shaft haulage operation as opposed to a 4 million tonne trucking operation plus an x million tonne shaft hauling operation.

[Daniel Morgan, Director and Analyst]

Sure. And just wondering about -- will you be running out of stockpiles in the meantime and have to derate the plant? Or can you still make a decision and implement it before you run out of stockpiles?

[Andrew Cole, MD, CEO & Director]

So we've still got time, Daniel, before we run out of stockpiles. But I think, as we've previously discussed, if we have to derate the Prominent Hill mill, it's effectively disconnecting one of the primary crushing circuit, so reconnecting it is not all that material. So it's not terminal if we don't get this decision done before we run out of stockpiles. But the way it's panning out here is we do actually have the time.

[Daniel Morgan, Director and Analyst]

Right. And maybe that's a question also for the processing plant over at Antas. As Pedra Branca, in simple terms, do you still think you could get up and running to shoehorn into the Antas plant? Or do you have to derate and shut Antas? Do we run out of ore before Pedra Branca gets up?

[Andrew Cole, MD, CEO & Director]

Yes -- no, we don't. So current sequencing has us have sufficient ore to keep Antas processing plant running at capacity. That's -- sorry, that's obviously subject to us making a decision to go ahead with Pedra Branca.

[Operator]

Our next question is from Hayden Bairstow from Macquarie.

[Hayden Bairstow, Analyst]

Just a couple of quick ones. Just on -- back on Musgrave. I just want to understand, is the work you're doing now to get this project to a level that is acceptable? Or is it basically already there and you just want to refine it to make it look better? Because, obviously, your recovery rates have improved from what the original study was. I was just wondering what more -- would you need to do more work on that? Is it now just about improving the economics? But it already looks like a pretty decent project. And just secondly, maybe one for Warrick. I mean if you do, do Musgrave and the shaft and the block cave all at once, I mean, is that something that you're not worried about in terms of funding it off the balance sheet without sort of larger debt facilities required? Just wanted your thoughts about what you're thinking about that at the moment.

[Andrew Cole, MD, CEO & Director]

Thanks, Hayden. I'm going to duck into Warrick's personal bank account to pay for these things. Look, in terms of the West Musgrave project, this is really about just finalizing the scope, Hayden. So we're confident in the project. But when we've got really good opportunities to bring in -- and a couple of threats, it's not all about opportunity. There are a few threats we need to address. It's about get locking down the scope because we don't particularly want to be changing the scope all that much in the next phase of the work. So that's the primary work for the West Musgrave project team. And as you can appreciate, as it's already explained, a Loesche mill is not just about replacing one primary crushing method with another. It actually changes your whole flow circuit and your power design and your power output. So it's a pretty material change, and you have to do that in the PFS, not the FS. Do you want to answer Hayden?

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

Yes. Look, I think it comes back, Hayden, to what Andrew has already said that we've got a pipeline of choices and that pipeline will change in terms of timing. So I don't necessarily lose any sleep over the expectation if they'll all come together at the same time. We have a stated capital management strategy in terms of the level of debt that we're currently comfortable with in taking on, and we pretty much stay within those boundaries. So I think, as things unfold, and we do assess the projects as they progress, so we don't wait necessarily right to the end of the study phase in terms of thinking about how some of those things unfolded and how do we then progress with them if we believe that, that was the appropriate way to go. So it continues to be a moving piece. And today, it's not something that I necessarily would lose any sleep over in terms of that. And I think they'll unfold over time.

[Andrew Cole, MD, CEO & Director]

I think one thing we could probably add to that, Hayden, is that we have already said that we don't want to be doing 2 billion-dollar projects at the same time. So we would sequence material projects to make sure they're sequential, not over the top of each other.

[Hayden Bairstow, Analyst]

Okay. Just one quickly on Carrapateena, and there's obviously a bit of important infrastructure that needs to go in early next year. I mean I assume that you're going to have -- if it's not all done by the time we want to see guidance with the first quarter in -- with the fourth quarter in January that we could get some reasonably wider ranges, if there's still -- some of these key infrastructures still yet to be built. Is that sort of how to think of that?

[Andrew Cole, MD, CEO & Director]

So early next year, Hayden, we still got the primary crusher to complete. So that will be -- the majority of that work will be complete this year, but there's still a fair bit of work to do in early next year. The other material piece will be the completion of the conveyor and the tie-ins and the install. And then after that, it's development. So we'll be able to be reasonably specific in our capital guidance in January for the year, obviously once we know exactly where we're up to at the end of this year. So they're the 3 main things off the top of my head that needs to be built at Carra next year. They'll form the capital guidance.

[Hayden Bairstow, Analyst]

But in terms of production guidance, it could be a bit wide at the start of the year until you lock down the core timing in all those?

[Andrew Cole, MD, CEO & Director]

Yes. Look, I suspect so. We're probably going to give you a reasonable range. We're ramping up a brand-new cave or sublevel cave, obviously. So there will be a reasonable range in that. We're comfortable with the way that the sublevel is progressing. We've already started drilling production rings in the first sublevel, and then now they're on path to 6 levels. So I think the team is setting it up exceptionally well for next year, but we're -- we'll need to provide you a bit of a range for next year, just to give us some room.

[Operator]

Our next telephone question is Sam Berridge from Perennial.

[Samuel Berridge, Equities Analyst of Small Caps]

Just looking at the recovery from Prominent Hill, there has been a reasonably straight line decline from circa 88% this time last year to 83% in the quarter just reported. Just curious what's causing that and to where we should extract or should we extrapolate this trend forward or where should it plateau at.

[Andrew Cole, MD, CEO & Director]

I don't have the last year's data in front of me, Sam. But no, there's no long-term recovery trend that you should be using for Prom Hill. We do occasionally trade off recoveries, obviously, for throughput, depending on which blend we're producing. And as we do increase the gold feed, the hard -- the ore hardness is slightly higher, so that does have an impact as well. But no. To answer your question, there's no long-term trend. So I wouldn't take that line and just keep extrapolating up forward or use the average going forward.

[Samuel Berridge, Equities Analyst of Small Caps]

Yes. Okay. And you're not -- so there's nothing going on that's causing that decline other than perhaps a coincidence in blending or whatnot? So there's no issue that's popped up over the last couple of quarters that's causing that decrease?

[Andrew Cole, MD, CEO & Director]

No, nothing that I'm aware of, Sam.

[Operator]

[Operator Instructions] Our next question is from Sophie Spartalis from Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just a quick one from me. Just in terms of the exploration spend, you've lowered that guidance by $5 million to $10 million. Is that due to projects dropping out of the portfolio? Or have you withdrawn from certain areas? Can you just elaborate on that, please?

[Andrew Cole, MD, CEO & Director]

Yes, Sophie. So the answer is both yes to both of those questions. A couple of the projects we've done the first milestones, they haven't demonstrated what we were hoping to find, so we've stopped the programs. Some of the programs we've started we got halfway through and realized that the models we were using were not appropriate, so we've terminated the drill program. So I would say I see this as a positive thing. And we test -- we've drill tested all the projects we set out to test year-to-date, and it's more about just cutting the programs before we spend more money than we need to.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. So in terms of that $25 million to $30 million, how much is that on the more advanced assets in the portfolio versus the really greenfield projects? So how much of that $25 million to $30 million is being spent on Carra, Prom Hill and, let's call it, Musgrave?

[Andrew Cole, MD, CEO & Director]

No. None of them. These are all other exploration projects. So the ones in Sweden, Peru, Queensland, some peripheral exploration projects around Carrapateena, some in Western Australia and Mexico. So Mexico, for example, we're supposed to have already drill tested, and we haven't done that program because we have there some issues there with permitting. So none of these are around the primary assets.

[Operator]

Our next telephone question is from Paul Young from Goldman Sachs.

[Paul Young, Equity Analyst]

Yes. Three questions on Carrapateena to start with. Just on the development rights, Andrew, achieving a bit over 3,000 developed meters for the quarter, how is that tracking compared to development plan?

[Andrew Cole, MD, CEO & Director]

They're doing exceptionally well. I would say it's right on smidge above.

[Paul Young, Equity Analyst]

Okay. Good news. And then also, with respect to production from the cave, when is first ore from the first production level scheduled?

[Andrew Cole, MD, CEO & Director]

So we're obviously taking development ore now. First production ore is just before the end of this year.

[Paul Young, Equity Analyst]

Okay. Right. And then, therefore, with respect to the, I guess, ramp-up and looking at the installation of the underground conveyor complete the end of first quarter of 2020, therefore should we expect that -- you did 130,000 tonnes, I think, of development ore during the quarter, that's -- around that level is probably the mark for the next couple of quarters?

[Andrew Cole, MD, CEO & Director]

It will actually step up, Paul, because our development rates keep stepping up as we get more available headings on the various production levels. So as we bring more equipment in, so this number will step up and the proportion of development in ore versus in the wall rock, as we've been previously explaining, crushing changes, et cetera, increases. So the amount of ore we'll be trucking to surface from a development ore perspective is actually going to increase.

[Paul Young, Equity Analyst]

Okay. And then a quick question for Warrick. You've been asked a few times about project sequencing, et cetera. If you look at this high level, you've got about $2.5 billion of CapEx ahead of you if every project goes ahead. And I understand that the spending on the block cave at Carra will only really commence in sort of 2023 to the 2027 sort of time frame. So really, the question is around preference of which project gets a sanction. Really, the question there comes down to Prominent Hill underground and the shaft, which is a big capital component, I imagine, versus West Musgrave. So the question I have is, if copper prices don't improve above sort of current levels, and I'm sure, Warrick, you've done this modeling based on the project studies and the capital outcomes you have in front of you, can you actually do the Prom Hill underground together or at the same time as West Musgrave?

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

That's a perennial question. Because, I mean, we're also obviously keeping an eye on nickel price movements and where that goes. So again, Paul, I think it sort of comes back to as the projects unfold and we get more information on the pattern of spend and the actual timing of those, that will unfold. So we do have a view going forward in terms of our -- obviously, our full capacity and how those projects unfold. But yes, price will be the -- a key driver of that. So I suppose it's a watching brief, and I wouldn't say yes or no at this stage.

[Paul Young, Equity Analyst]

Okay. Yes, we can talk about this more about, I guess, at the strategy day, so that's great. And last question is on the Loesche mill, Andrew. Just I haven't seen anything like this, I guess, the adoption of new technologies since, I guess, HPGRs in the 1990s and a few of the larger companies were sort of industry leaders on adopting that technology, but they could do it because they're a large company. So I guess, are you comfortable taking on the technical risks of a new sort of milling technology for the industry? And then secondly, what are the sort of CapEx savings, just rough back of the thumb, versus sort of a crushing and SAG milling -- traditional crushing SAG milling technology?

[Andrew Cole, MD, CEO & Director]

Yes. Thanks, Paul. So I mean Loesche mills are not new. Loesche mills have been around 100-plus years. They're just typically not used in hard rock mining situations. They're more used in softer rocks, so cement, limestone and quarries, et cetera. So the technology is actually not new. It's the application of the technology. There is also -- we're aware of one hard rock installation. I think it's Foskor that have got an installation. That's been running for 15 or so years. There's actually a paper published on the use of a Loesche mill in a hard rock mining environment. So we're obviously learning from that. So this would not be the first of its kind. But we also, obviously, want to get quite comfortable about the use of this technology in this situation. So I don't think it's about whether the technology will work or not. The question is what will it cost to maintain the mill based on the wear rates that you will see given the hardness of the rock. So that's what we're mostly testing at the moment. And that's what the pilot plant samples have been about, running them through Germany. And it's also about liberation of metal obviously and then flowing on to how it floats. So those are the things that we need to be testing, and that's why we're running various pilot plants at the moment as opposed to what you'd primarily do at the crushing circuit, is just take it for granted and not run power plants. So we are getting more and more comfortable with the technology. And when we come to make a decision, we'll be able to share the results of various pilot plants we've run the demonstration plans. So once we've done all of that, that will tell us whether we're comfortable or not to use a Loesche mill. In terms of savings, I don't think the savings are necessarily in capital. I think it's about [ line fold ]. The savings are more in the power costs and operating costs. The other big benefit with the Loesche mill is that you can switch it on and off quickly and you can run it at full capacity or any rate of partial capacity and it's still just as effective, whereas the primary mill types generally can't do that. So if you can run a Loesche Mill like that, you can actually campaign run it. And if you campaign run the Loesche Mill, it means you can potentially only run it when you've got renewable energy. So in other words, effectively free energy post capital. So that's the benefit of the Loesche mill, and that's what we're investigating. It's effectively putting more mill capacity in West Musgrave than we need, run it on free power and then only run the rest of the circuit when power is more expensive.

[Operator]

And our next question is from Larry Hill from Canaccord. [Operator Instructions] There's no more further questions on the line. I'd like to hand the call back to speakers for closing remarks. Please go ahead.

[Andrew Cole, MD, CEO & Director]

Okay. Thanks very much, operator. Thanks very much for everybody dialing in and the great questions today. Enjoy the rest of your day. Thanks again.

[Operator]

Ladies and gentlemen, that does conclude the call for today. Thank you for participating. You may all disconnect. Bye.