OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2020-Q3

[Andrew Cole, MD, CEO & Director]

Good morning, everybody, and thank you for joining us for our Q3 results today. I have Warrick Ranson, our Chief Financial Officer on the call with me, and we'll take you through the highlights of the last 3 months. And then, of course, we'll follow this -- we'll go to Q&A. In summary, I think it was a solid quarter as we continue to work in an agile way to navigate the fully uncertain operating environment that we all find ourselves in as a result of COVID-19. This has pleasingly enabled us to raise gold production guidance. And for the second time this year, lower cost guidance. It has certainly been a busy few months as we'll cover for you today, but we have just as busy a couple of months coming up ahead as we head into Christmas and to close 2020. On the disclaimer slide, as always, our disclaimer is available on our website together with this presentation. I'm actually going to kick off with a few highlights from the last 3 months. It's been encouraging to see the interstate travel restrictions change over the last couple of months. This has actually enabled us to resume drilling and stakeholder engagement activities in the state, which I'll get to a bit later on in the presentation. While the restrictions continue to be lifted and we see things being relaxed in broader society, our teams are very mindful about staying alert and operating in a COVID-normal way, given what we are all observing globally. Thanks to everybody's efforts, we currently have no COVID-19 cases identified at Prominent Hill or at Carrapateena. And the number of people from our Brazilian team who are currently positive for COVID-19 remains in the single digits, all of whom are well and are isolated at home, pending negative test results. This time of year always sees quite a bit of activity. And I think that's even more so the case for us as we move to progress our strategic aspirations and our priorities and continue to advance our strong growth pipeline. You'll see from this slide that we've sustained our solid operating performance across the assets and with a further reduction in cost guidance and a further increase in gold production, Prom Hill achieved record underground ore movement over the last 3 months. Carra remains on track for 4.25 million tonnes per annum by the end of 2020, and the Carajás Hub at Antas received its first development ore from Pedra Branca for processing. This has all enabled positive improvements to our 2020 guidance, which I will outline through the deck today. What drives our people to deliver quarter-on-quarter is a strong collective alignment to our strategy, which at its heart is all about people. The people we define by our 5 stakeholder groups, whom we aim to create value for. As you know, we've also identified a set of company aspirations and priorities to help us focus our efforts on 3 or 4 high-impact activities under each strategic element so we can rapidly progress toward our desired future state. I'll talk to these a bit more and provide some updates on the progress being made on a few example priorities. But first as a quick recap, our aspirations and priorities came about when we launched Project Beyond, a project to help accelerate us toward our strategy instead of initiating a crisis recovery process for COVID. As part of Project Beyond, we defined a number of key tangible aspirations that are now baked into our strategy. These will form the basis of our planning processes year-on-year to ensure we stay aligned and very focused. Once we had our aspirations, we then gathered ideas from our people on how to achieve these, which we then shaped and distilled into acceleration priorities, designed to be important short-term actions to move us toward our aspirations. And rather than just talking about them as concepts, we've taken these priorities and aspirations and put them into action. Let me give you a few examples of this. We're currently working with the crowd on a few of the challenges we currently face. We partnered with people like Deloitte and Unearthed so we can learn from outside our industry as we look to find solutions on things like reducing carbon emissions, visualizing and strengthening our local supply chain and generating exploration targets in new ways. We are learning to operate in a more agile manner, baking in key concepts from Agile methodologies and Lean methodologies into the old way of work so that we are better placed to respond to an unknown and fast-evolving future. We have normalized remote working to build flexibility for our people where we can currently do so. And while some roles will always need to be on site, we still have a lot more room to allow many current on-site roles to be made more flexible and potentially done remotely to ensure people can plan their work around their life and not the other way around. As a result, we are working on using our physical spaces as hubs for connecting, socializing and collaborating. As a small example, we had the pleasure of hosting the [ OZIM 2020 ] awards, which streamed live from our offices just last week. You'll see on the company's snapshot slide an overview of our assets and projects at different stages of development. Value accretion for our stakeholders is at the center of our strategy, and we consider our strong project pipeline to be one of the keys to value creation as it gives us a range of growth options to tap into at any one time. It is a diverse pipeline with more mature opportunities like the brownfield Carrapateena and Prominent Hill expansion projects, ones like the greenfield West Musgrave project and the longer-dated lower maturity ones at the more exploratory stage like Paraiso and Pantera. This is a pipeline that will remain dynamic with new opportunities added and some removed. We also planned ahead to allow flexibility. For example, our new 270-kilometer power transmission line to Prominent Hill via Carrapateena has just been completed. It ensures reliable, secure and affordable power transmission for our existing South Australian assets and also enables our future expansion aspirations in the region. We do, on occasion, get asked about whether we have too many projects in our portfolio. But having a suite of options makes for a strong company. As a result, we can truly allocate capital to the most value-accretive options and pass or sell those that aren't. Optionality and flexibility is another key important key to our approach. The main thing to note on this addition of our asset time line is the successful completion of the acquisition of Cassini Resources. We're very pleased to now have 100% ownership of the West Musgrave project in the province. The consolidation of our ownership position in the West Musgrave province, including surrounding tenements at One Tree Hill and Succoth enables optionality regarding the optimal approach, timing and funding for the project. Pleasingly, the West Musgrave team recently returned to the lands to discuss the project, our thinking and the process for the EPA Part IV referral to get further input from the traditional owners. Our team spent a couple of weeks with local people walking the project site, which enabled a much better and improved understanding by all involved. Moving now to a summary of our activities for the quarter. As I mentioned briefly, we saw solid asset production performance and progress on our growth projects during the quarter. We have increased annual gold production guidance because of continued strong grade performance and recoveries at Prominent Hill. We were also able to reduce annual cost guidance on the back of continuing strong operational performance and gold pricing. At Prom Hill, we achieved record underground ore movement with 1 million tonnes for the quarter. The accelerated decline development that's currently underway is expected to see increasing mining rates up to 4 million to 5 million tonnes per annum from 2022. We are looking forward to the Prom expansion study that we now expect to release in November, just a month away. And the new 270-kilometer power transmission line to Prominent Hill via Carrapateena has been completed and is now fully commissioned. At Carrapateena, the ramp-up continues to progress well, with underground ore movement on track to reach 4.25 million tonnes per annum by the end of this year. We are also progressively derisking the Carrapateena Block Cave Expansion option with stage 1 of the Block Cave Expansion feasibility study continuing with an expected completion date of late 2021. I mentioned the completion of the Cassini acquisition. The team is currently scoping the next phase of study and now expect to be able to provide a project update by the end of this year. In Brazil, we started trucking Pedra Branca development ore to the Carajás Hub at Antas for processing. We also saw some really encouraging early drilling results at Paes Carvalho and Santa Lucia, both of which are within trucking distance to the Carajás Antas Hub. And overall, we remain in a positive net cash position of $18 million after a one-off Carrapateena payment and growth investments with significant liquidity available. Now over to Warrick, who's going to take us through cash generation, please.

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

Thanks, Andrew, and good morning, everyone. Another solid quarter, as Andrew mentioned, contributing to operating cash flow being maintained and maintaining our net cash position on par with the half year despite the inclusion of the deferred consideration payment for Carrapateena this quarter. As a result, we maintained a $100 million draw on our revolver, continuing to flex that facility as required in line with our working capital requirements. Pleasingly, we've had no COVID-19 interruptions in our supply and customer chains again this quarter despite reported cases increasing internationally. Both are continuing to operate normally, although we are seeing some tightness in vessel availability given the longevity of crew deployments at the moment. Although unrelated, shipment timing did result in an increase in closing concentrate stocks at the end of the period. However, this was offset by a reduced trade receivables balance and a continued reduction of ore inventory as we process the high-grade gold stockpiles at Prominent Hill. We will see the depletion of that material in Q1 next year and then move to the lower grade stockpile, reducing Prominent Hill's comparative gold production year-on-year. Project development continued through the quarter, and we're able to recommence a number of field-based activities in the second half of the quarter as COVID restrictions lifted. Underground development continued at Carrapateena down to the third sub-level and also at Pedra Branca in Brazil, where we have started to see a lift in the spend as activities increase. This [ top study ] work was also progressed for West Musgrave as we finalize the Cassini acquisition. We expect to see a pickup in exploration activity during the last quarter with drilling activity now advancing at a number of locations. On Slide 10, we've introduced a new slide into our deck this quarter. Following the overview, we've provided our approach to capital management as part of our strategy dating back in June, with the intent of referring back to this in future results presentations. As I noted on that day, our approach to capital management remains dynamic and partially driven by what is happening around us. But the way we approach capital management ultimately gives us a strong platform for accessing finance to fund our operations and future capital investment, and is, therefore, a key focus in how we operate. Our balance sheet strength, portfolio choice and operating performance are all core elements in how we best position ourselves to create value for all our stakeholders. Our role at the center is, of course, to maximize that value by creating earnings diversity, contributing to the community, challenging our environmental performance and generating shareholder returns aligned with the aspirations we've set ourselves and that Andrew touched on earlier in the presentation. So during the quarter, inclusive of the Cassini acquisition, we committed $215 million to growth projects and a further $15 million in extending the development pipeline through studies and exploration activity. In line with our sustainable dividend policy, the Board also confirmed the maintenance of our interim dividend at $0.08 per share for a payment in October, supplemented by the reintroduction of our dividend reinvestment plan. As I noted, we intend to keep coming back to this, and we'll refine the slide going forward as we advance our pipeline over the next few years. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. Now moving into a bit more detail on to Prominent Hill, where the team delivered over 14,000 tonnes of copper and 51,000 ounces of gold for the quarter. As a result of continued strong grade performance and recoveries, we have again raised gold production guidance to 190,000 to 200,000 ounces. Gold production guidance remains on track to 55,000 to 65,000 tonnes. We again lowered C1 cost guidance for 2020 to minus USD 0.60 to minus USD 0.50 per pound and all-in sustaining costs to USD 0.05 to USD 0.15 per pound. Gold hedge maturity has been matched primarily with consumption of open pit high-grade stockpiles. To reaffirm, the high-grade stockpile is expected to be fully depleted by the end of 2020, which will see lower grade residual stockpiles supplementing underground ore from the start of 2021 through to early 2023, resulting in overall lower gold production from 2021 onwards. I'd like to take a moment to acknowledge the Prom Hill underground team for achieving a record production rate exceeding 1 million tonnes in the quarter. This is a significant milestone, given the complex environment they are working in, and it provides us with increased confidence in the team to not only be able to deliver 4 million tonnes per annum sustainably, but be able to increase their mining rates to between 4 million and 5 million tonnes from 2022. The Prom Hill Expansion study is progressing well with ongoing resource conversion drilling and engineering studies continuing to support the viability of a hoisting shaft to enable lower material handling costs, a higher underground mine production rate and economic development of the deeper zones of the known mineralization. The new power transmission lines at Prom Hill is completed and successfully commissioned in early October, on schedule and on budget. In addition, we also secured a favorable 2-year South Australian electricity supply contract. This is a major milestone for us as we now have a backbone line into the South Australian grid that already enjoys a 50% renewable penetration that can supply sufficient power for any expansion we may contemplate at both Prom Hill and at Carrapateena. Finally, it was good to see the start of stage 2 drilling of targets from the Unearthed crowdsourcing challenge we ran a couple of years ago, which was put on hold as a result of COVID earlier this year. Now I'm going to hand it back over to Warrick, who could take us through the Prominent Hill cost performance, please.

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

Thanks, Andrew. So, yes. Yet another strong performance across the group on C1 costs this quarter with the ongoing benefit of strong gold production and a positive pricing environment. Whilst we continue to benefit from the strong gold price, we're reviewing our full year guidance as a result. Even at long-term gold average of, let's say, $1,200 per ounce, the team's C1 cash cost performance remains solid and well within first quartile limits, further confirming Prominent Hill's position as a low-cost producer in the market. FX rates moved adversely for the quarter, from an export perspective at least, and increased by circa 10% to a quarterly average of just above $0.71 to the U.S. dollar. The strong underground performance of over 1 million tonnes for the quarter lifted average mining costs as we preferentially feed all our underground ore through the plant. Processing costs again reflected the standard fluctuation we see from shutdown timing. Pleasingly, we confirm the new electricity supply contract for our South Australian assets, which will commence on January 1, following expiry of our current supply arrangements. A black energy price reduction of circa 20% in the first year and a further 12% in year 2 continues to see a favorable reduction in what is about 15% of our input costs, continuing the decline since the spike in pricing that we saw back in 2017. Offsetting this gain will be the commencement of the line leasing and operating costs for the new digital power line, which will commence in the fourth quarter. All-in sustaining costs followed the C1 trend. Spend on sustaining capital increased quarter-on-quarter as work on the wall lift schedule for the Prominent Hills tailings facility progressed. And we completed the North Wall pushback and took the opportunity to undertake some remediation works at the top of the West wall in the pit. While it's not part of the sustaining capital, the team at Prom Hill has also done a great job in commissioning the Malu Paste Plant in August and successfully ramping up to nameplate during the quarter. This is already providing additional productivity to the underground, which will continue to flow through to our C1 cost performance. Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. Moving on to Carrapateena. So Carra produced over 7,000 tonnes of copper and 13,000 ounces of gold during the quarter and is on track to meet the raised production guidance for 2020. As we've now developed the top levels of the Carrapateena ore body and drilled horizontally ahead of the next several levels, we're getting a much better understanding of the ore body, its controls and its grade distribution. You will note that the grade of the ore mine year-to-date is currently lower than the reserve grade. This is a result of a much more complex Paleo surface than originally modeled. For the non-geologists on the call, this is the intersection between the older vertical ore body and the younger horizontal copper sequence. This old horizontal weathering surface has also leached some copper from the vertical fault in the middle of the ore body to the upper levels. Given this is a Paleo weathering event, we expect to see this limited to the upper levels and that mine grades trend upward from here. The first major mill shutdown and realigning was successfully completed during the quarter without incident or injury and ahead of schedule. Underground development continues to progress well with over 4 kilometers achieved in the quarter. Western Access Road contract has been awarded, with early works beginning in Q4 this year and major construction activities to take place next year in 2021. Our stakeholders were involved in defining the road placement so that we see a safer, shorter, all-weather and fit-for-purpose access road to the highway that will reduce pastoral interactions, avoid cultural heritage sites and if needed, enable future operational expansions. On the processing side, the site is now in continuous operation, with recovery rate year-to-date in excess of 90% for copper and 80% for gold. We are expecting to start commissioning a new Jameson cell by the end of this year, which should enable an increase in concentrate grade and quality above the levels already being achieved. On the projects and studies front, the Block Cave Expansion Feasibility Study Stage 1 commenced during the quarter with a staged implementation and execution program currently under evaluation. Turning now to our Brazilian operations in the Carajás, where the team produced about 2,000 tonnes of copper and 1,000 ounces of gold during the quarter, keeping them on track to meet their annual guidance. We were able to further revise 2020 cost guidance downwards with C1 costs now at USD 0.95 to USD 1.10 per pound and all-in sustaining costs now at USD 1.45 to USD 1.60 per pound, reflecting favorable gold product revenue and exchange rate movements. Pleasingly, we saw the first development ore from Pedra Branca trucked to the Carajás Hub at Antas, which is scheduled for processing during Q4 of this year, paving the way for our hub-and-spoke approach in the province. As briefly mentioned earlier, we were also able to resume resource definition drilling activities at Pantera and at Santa Lucia during the quarter, both of which are showing consistent results with prior releases. We also completed 8 diamond drill holes south of the Antas mine at the Paes Carvalho prospect during the quarter with encouraging results. I previously covered the highlights of the West Musgrave project, so I won't repeat it here in the interest of time. But I'm just going to flag that in terms of milestones, we expect to release an updated West Musgrave pre-feasibility study supported by an updated ore reserve before the end of this year as a result of further optimization work nearing completion. At that time, we will also map out our plan for the next phase of the study. This slide -- this growth pipeline slide lists the projects in our pipeline that you will all be familiar with. I touched on the importance of ensuring we have a strong growth pipeline to allow us choice and optionality already. Over the past few years, we've seen projects that started on the left of this pipeline move to the right. Some have fallen off as we proved that they weren't for us, while others have continued to strengthen and mature. One of the ways we are experimenting with our exploration targeting approach is to tap on the power of the crowd to challenge our traditional approach to exploration. We're currently running 2 crowd sourcing initiatives. One is called Drillanthropy, aimed at data science-driven exploration targeting South Australia, and it builds on the release of the results from the South Australian Government's Gawler Challenge. Another is the [ copper to copper rate ] in Peru, where the existing exploration strategy in-country is going to be supplemented by the generation of a data-driven domain map of Peru using satellite data. They're both examples of using an open source approach to exploration, tapping into as many different ideas as possible and we'll keep you posted on progress. On guidance, we've covered all of these changes already, but let me summarize. With underground ore movement records achieved at Prom Hill and Carra during the quarter, we were able to further reduce all-in sustaining cost and C1 cost guidance. Specifically, Prominent Hill's gold production guidance was increased to 190,000 to 200,000 ounces. Its copper production guidance remains on track to 55,000 to 65,000 tonnes. Group gold production guidance is now upgraded to 242,000 to 259,000 ounces. Prominent Hill's C1 cost guidance for 2020 has been further lowered to minus USD 0.60 to minus USD 0.50 per pound, and all-in sustaining cost guidance lowered to USD 0.05 to USD 0.15 per pound. At Carrapateena, copper production is expected to be in line with guidance, while gold production is expected to be at the upper end of guidance for 2020, and other growth CapEx guidance has been reduced to $100 million to $110 million, with the timing of some spend pushed into early next year. Finally, just to touch on a couple of milestones for the last few months of this year, which is traditionally a busy time for us, with this year certainly being no different. Prior to the year-end, we expect to be able to release updates on a few key fronts. Firstly, and disappointingly, whilst we continue to work on the removal of the CentroGold injunction, it has slipped again, notwithstanding that all indicators are positive. On a more positive note, we are expecting to provide updates to our group mineral resource and ore reserves. For Prom Hill, we expect to provide an update on the shaft-enabled Prominent Hill expansion study, which will aim to summarize our base case and the plan ahead. For West Musgrave, we aim to release an updated project pre-feasibility study with updated supporting ore reserve and a pathway for the next study phase. And we expect to be able to see Carra reach its nameplate 4.25 million tonne per annum run rate, all in the next couple of months. So in closing, I'm really proud of the team. I think they've done a really great job this last quarter, but there's still a couple of months to Christmas, and we've got a lot planned. So with that, I'm now going to hand over to the operator and ask you to please remind people how to ask questions. Thank you.

[Operator]

[Operator Instructions] We have a question on the line just from Lyndon Fagan.

[Lyndon Fagan, Analyst]

Yes. Look, the first question is just on Carrapateena, Andrew. Just wanting to concentrate a bit on the grade profile. So I guess the feasibility study had, I think, it was 63,000 tonnes of copper between 2021 and 2025, which implies about 1.5%, 1.6% copper over those years. And it looks a bit ambitious to get there first quarter next year. So I'm wondering if you could give us a sense of how long it will take to actually get to that sort of grade.

[Andrew Cole, MD, CEO & Director]

Yes, Lyndon. Sure. So as I mentioned in my notes, we're right at the top of the ore body at the moment. So the first 2 levels are still are in the transition between the copper sequence and the ore body, and we're right in the middle of the Paleo weathering surface. So look, it wasn't unexpected to see complex mineralization and complex grade distributions in the top few levels. I think what was a bit unexpected for us is a vertical fault that we found that's going to produce deeper weathering profile in it that spans more than the top couple of levels that we're expecting. But as we get down to the lower levels, so from levels sort of 3, 4, 5, 6, which we're moving into starting now, we will start to see that grade increase as we move out of the Paleo weathering surface. So we're still comfortable with the guidance we've issued, both the annual guidance for 2020, the 5-year guidance we've issued for Carrapateena, but we don't expect any changes to the reserve based on what we're seeing today.

[Lyndon Fagan, Analyst]

Sorry. So what should I be doing with the grade profile heading into next year? Should it be gradually ramping up to 1.5 through the year? Or are we getting there a bit quicker than that? I'm just still a bit confused on how to model it.

[Andrew Cole, MD, CEO & Director]

Well, well, the numbers we've given you, Lyndon, are the reserve grade, which holds. So that reserve grade won't be changing, and we've given you the guidance numbers. So you should be using those 2 numbers to actually build you a profile, if you like. We obviously don't give detailed month-by-month data out to help you build data. So you're going to have to use averages, I would say, in your model. But we are transitioning out of the Paleo-weathered environment, which is giving us about 1%, and it will be trending to reserve grade over the next couple of levels. So you can use a linear approach, I guess.

[Lyndon Fagan, Analyst]

Okay. And so -- yes, okay. I'll leave it there.

[Andrew Cole, MD, CEO & Director]

Yes. Thanks, Lyndon. Look, I think the thing to remember with these orebodies is they are complex orebodies. So every time we drill more holes, we get more information that helps us build a better picture. I wouldn't try and get too fancy by trying to predict week-to-week or month-to-month on these orebodies. I would keep them at a fairly high level. On a gross quarter-by-quarter annual basis, we're comfortable with the data we've given, but we will see variability on a short-term basis.

[Operator]

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

[Hayden Bairstow, Analyst]

And just a couple from me. Firstly, just on the Prominent Hill study. Obviously, in November, just looking at that image in the quarterly, just are we thinking about or expecting to see this base purely off the reserve? Or are you going to start capturing some of the resource in this study work, just given, obviously, you've been mining it for a while now. So some idea about the ore body. And then the second one is more for you, Andrew, just on nickel. I mean, obviously, you now own all of West Musgrave. I mean you said before you're gaining confidence in the nickel outlook. It's just one of the key things you have to get your head around. I mean, sort of just interested to see where you're at, at the moment with being as confident in nickel in terms of the medium-term as you are in copper and the likelihood of that project then getting full confidence from you and the Board?

[Andrew Cole, MD, CEO & Director]

Yes, Hayden. Thanks for those. Yes, look, they're both very good questions, things we're actively thinking about. So let me start on Prom Hill. I mean the very question you've asked is the very challenge that we're dealing with. For Prominent Hill obviously, we've got a reasonable reserve grade. We've now got 10 years of history, which has shown us, on average, we see an 80% resource to reserve conversion as we drill out inferred resources. So it's got a reasonable track record of conversion. But we also know that we've got a very large inferred resource sitting underneath and around our current reserve. We've got 4 drill rigs actively drilling that inferred resource currently. The drilling is looking positive. We're generally seeing the grades come back that we're expecting based on the current resource model. The geology is proving to be fairly consistent and predictable. So I'd say things are looking positive from that perspective. The question for us is how much inferred resource should or should we not use in economic evaluations for this. And I'd say, hey, that's what we're still grappling with at the moment to work out how much reserve that we will have to make an investment decision. And this will be the basis for the conversation or the release that we'll make in another month or so time. But the very question you ask is what we're grappling with. I think what we will be thinking about is we'd like to see the payback period for our investment to be covered with a fairly high confidence of our resource itself. But I think we also need to remember, as you've rightly pointed out, the track record of conversion from resource to reserve at Prom Hill has been very good. It's been about 80%. So -- and there's going to be a fair bit of inferred resource sitting outside or beneath the current reserve that we need to take into account. So look, I'm going to hold off until next month to probably answer your question more definitively, but that's exactly the question we're trying to work through now. Remembering that there are rules within JORC, what we can actually use and can't use in terms of declaring production targets and valuation. So we're tackling that question at the moment.

[Hayden Bairstow, Analyst]

Nickel?

[Andrew Cole, MD, CEO & Director]

Nickel. West Musgrave. Look, we are spending time on nickel generally. I would say we're probably getting more optimistic and more positive about nickel market generally. Certainly, the market is talking very positively about nickel. I think now that we've got 100% of the project, that gives us a lot more flexibility. It gives us a lot more optionality. It is a very good project. We've spent some time recently optimizing the project as well. So we're doing everything we can to make this project as economically viable and resilient as we possibly can. I think the decision for us at the moment is not about whether we build West Musgrave, it's about whether we take West Musgrave to the final stage of a study, if you like, to get to a decision on whether we should build it or whether we should partner or whether we should sell it, which is a decision for much later on. But certainly, all of the narrative that we're seeing in the marketplace around the world, the penetration of electric vehicles, penetration of renewable energy, everybody's drive to reduce emissions more generally, all of those things point towards some of the key metals for the future, which nickel is a key one being in more demand. So look, I would say we're probably getting a bit more upbeat about nickel as a commodity as we learn more about it. And before the end of this year, we'll be able to update the PFS for you to tell you how we're thinking about the project currently and then map out the next study phase for you. So that's something probably for December, Hayden.

[Operator]

Okay. Your next question comes from the line of Nick Herbert from Crédit Suisse.

[Nick Herbert, Research Analyst]

Andrew, Warrick, a few for me, please. I might just start on Prom Hill and that gold grade outperformance. Just keen to understand that a little bit better. How much of that was positive reconciliation from the underground versus the stockpile? And whether you've brought forward that selective high gold grade stockpile material again or whether that was always due to conclude this year?

[Andrew Cole, MD, CEO & Director]

Yes. Nick, the high-grade gold stockpile was always due to conclude this year. So we're prioritizing the [ whole group of ] high-grade gold stockpiles this year over lower grade copper and gold stockpiles, which will start next year. So the result is partly through improved underground performance. It's also partly as a result of improved recovery and performance in the plant. So it's probably the amalgamation of a few things. It actually led us to produce a bit more gold and allowed us to increase our gold guidance for the year.

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

I think the other thing, Nick, is that we've been a little bit uncertain about the variability of the gold in the stockpile, given that state. So -- and we've been more comfortable, I suppose, now, given another quarter's performance and seeing that come through.

[Nick Herbert, Research Analyst]

Yes, got that. Okay. And then can you just remind us what the gold grade in the stockpile, the low grade with regards to next year? And if there's any sort of plan for, like, processing around that ore? Or should we just model on that remaining reserve?

[Andrew Cole, MD, CEO & Director]

It's on the remaining stockpile reserve, Nick. I don't have that at hand, so I'll get Travis to give you a call afterwards, but it's the published low-grade reserve stockpile number you should be using.

[Nick Herbert, Research Analyst]

Okay. A couple more then. The underground mining rates at Prom Hill, just how are you thinking about that rate over the next couple of quarters, whether that sort of continues to advance? And just, I guess, what you're targeting there?

[Andrew Cole, MD, CEO & Director]

Yes. So we -- I mean, the team has successfully called 1 million tonnes of ore for the quarter. So that's the number I think you should be using in the short term. As we announced earlier, a bit earlier on this year, we are accelerating our main access decline down deeper into the orebody at the moment to access another development level. And that's what will enable us to get above the 4 -- to up to 4 million to 5 million tonnes per annum. But until such time as that development decline actually reach the development level and we can start producing from it, I would use 4 million tonne number a year as the next -- as the number for the near term.

[Nick Herbert, Research Analyst]

Okay. And then final one, I know you touched on it, Andrew. But just West Musgrave, are you able to talk a little bit more to, I guess, conceptual timings, PFS coming out, but how are you thinking around timing to the next stage feasibility, if that's sort of the path that you go down, what that means for timing around conceptual development, if you chose to do that? Or when a -- [ happened this time on beta ] sort of run a sales process, whether that would be post the next stage PFS?

[Andrew Cole, MD, CEO & Director]

Nick, I can't get into the details of the project because that's what we're working on right now. Maybe I can talk about things a bit more philosophically. We don't operate traditionally, I guess. So now that we have 100% of the West Musgrave project, that gives us a lot more flexibility in how we think about the project. So we've effectively completed the pre-feasibility study to date. We are going to update. We're in the process of updating that study, which we will release before the year-end. And that's the result of some optimization work and will also be accompanied by a updated reserve to underpin it. In terms of next steps, we don't always or don't need to complete bankable or definitive feasibility studies. We will undertake study work. We typically undertake study work that is risk-based and value based. So making sure we manage the key threats to the project, that enables the opportunities for a project to then determine whether it's an investable project because time is valuable, and speed is valuable. So what we're putting our thinking in at the moment is how we do that. What does that look like? What does that process look like to get more definitive understanding of project risks and economics. And what we will talk about when we release the update later this year is that schedule, that time line to get us to the next milestone.

[Operator]

Your next question comes from the line of Sophie Spartalis from Bank of America.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Most of my questions have been answered. Just a few for me. Just in terms of Carra, when is the next shut scheduled and, I'm guessing '21?

[Andrew Cole, MD, CEO & Director]

I'm guessing here. [indiscernible] So that will be in January or thereabout. I'm guessing. So I think it's very early next year. But I have to kind of confirm that with you though, but I'm pretty sure it's early next year.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And is that -- when -- is that a major shut? Or are we going to have more regular sort of mini shuts through '21?

[Andrew Cole, MD, CEO & Director]

Yes. Yes, more regular. I mean so Prominent Hill does 17 week rotation. So shut interventions, those shuts can be a few days, sort of 5 days plus or minus. So that's what Carra effectively will be doing from here on out effectively. So there'll be frequent routine shuts, if you like, that will be scheduled in. So we no longer now at Carrapateena need to shut the mill due to lack of ore. We're going to keep the plant running at full capacity effectively and move into a routine operation shut mode.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. That's great. That's clear. And then just Warrick, one for you just in terms of the cash flow, your net cash of $18 million. Can you just talk through your forecasted cash flow in terms of the projects? I'm assuming that the cash generated from Prom Hill and Carra can still fund your capital needs for the rest of this year and maybe into next year? Or when do you significantly draw down or anticipate that you'll draw down on that revolver?

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

Yes. So we've got $100 million drawn down already as part of our working capital funding that just gives us the liquidity. For the rest of this year, Sophie, we're traveling sort of on a cash-neutral level. So we'll sort of see ourselves finish the year at around -- I'm hoping around about the same sort of number. And then obviously, we've got a dividend payment going that's gone out recently as well. So there'll be a bit of variability in that, but then really, I suppose, into next year, just depending on the project progress, et cetera. So there's a bit of -- there's still some things to be worked through with that. Now yes, so we'll sort of see how we go into the first part of next year. We're probably likely to draw down a little bit more when we get there.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And then just remind me, you've paid the $50 million final payment for Carra, [ at most ], during this quarter. Is there any outstanding major payments that we should be aware of going into '21?

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

No. Not in relation to Carrapateena, no.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Or anywhere else across the portfolio?

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

No, not outside of normal project expenditure, et cetera.

[Operator]

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

[Paul Young, Equity Analyst]

Andrew and Warrick, a couple of questions on projects. First of all, just on Carrapateena and the Block Cave studies. Andrew, in the presentation and your summary, you mentioned about looking into an accelerated execution on this project. Can you talk to that, please?

[Andrew Cole, MD, CEO & Director]

Yes, Paul, we're sort of evaluating options at the moment. So what we've seen with the Carrapateena sub-level cave ramp up the performance of the plant, et cetera, the geotechnical properties, the way that the sublevel cave is fragmenting and the way the copper sequence is caving. They're all giving us very -- a lot of comfort, if you like, about the design and the expected performance of the Block Cave. So there aren't that many material risks left to address with the block cave. So that gives us some options. So we are assessing the time line for the block cave schedule, if you like. So it's too early to draw any conclusions from that. We're just looking at options. Critical path, though, for us today, irrespective of whether we move to the block cave or not is getting the second crusher chamber in and getting access to that. So that's still another year or 2 away. So that's a critical path. But we will talk more about this, Paul, as we continue to undertake what the options -- assessment of the options are. But I would say we're getting a lot more comfort now around the likely transition at Carrapateena from a sublevel cave block cave. The thing that we're just debating now is what is the optimal time to make that decision, and that's a work in progress.

[Paul Young, Equity Analyst]

Okay. Andrew, that sounds interesting. Second question is on West Musgrave and actually around traditional owner agreements and heritage approvals in light of, I guess, some events in Western Australia over the last 3 months. The question is around the current West Australian Heritage Act, which is under review. And it's been under review for 2 years and it's best to put forward a legislation in [ the later part ] of this year that won't be the case over the next year. But how do you see heritage approvals at West Musgrave potentially being impacted by the review of heritage legislation in West Australia?

[Andrew Cole, MD, CEO & Director]

Yes. Look, it's a really good question, Paul. Look, to start with, I would say, we don't rely on acts or regulations to determine how we work with our stakeholders. We have our own internal frameworks on how we want to work with our stakeholder groups. So let me use Carrapateena as a start and then I'm going to move to West Musgrave. We said to the Carrapateena Kokatha People right from the very outset that if they didn't want us to build Carrapateena, we wouldn't. And we've had them involved in every part of the process all the way through. Even for the Western Access Road, they have literally walked with our design engineers every inch of the road to make sure that the road is placed in a location that would not impact any sensitive areas that the traditional owners held close to their heart, if you like. And we're taking exactly the same approach at West Musgrave. So COVID made it quite difficult, obviously, because we couldn't get back out on to the lands physically to actually go and walk the project site up until very recently. So pleasingly, we got our team back out to West Musgrave about a few weeks ago, and they spent a couple of weeks literally walking the entire project site with the traditional owners and all different types of people from the local community, so that we could explain the project, take on board the community's feedback, such that we are now ready to submit our EPA Part IV referral, which has completely built into it all of the feedback from the local traditional owners. So that it's a joint submission, effectively, between ourselves with the support of the owners. And that's the way that we approach our work. And I would say that gives us a much -- it gives us a much greater understanding of how both -- what's important to both groups and both parties. And as long as we continue to take this approach, which we will, it exceeds any of the regulation -- regulated requirements that state and federal government actually want to see.

[Paul Young, Equity Analyst]

Yes. Great. And you got a good track record there. Just a question, a further one, is do you actually have -- have you signed a legal agreement or a land use agreement with the traditional owners of West Musgrave yet?

[Andrew Cole, MD, CEO & Director]

Yes. We have a land access agreement with the Ngaanyatjarra People already, and that's what we're working on. That's what we're undertaking our work on. There are other agreements that we will need to work through, though, to enable mining if it ever gets to that point. But it's certainly -- we certainly got the access agreements in place with them already.

[Paul Young, Equity Analyst]

Yes. Okay. And last one, Andrew, just I'll throw the old Section 18 term out there. Do you know actually when this project will go to Section 18 approval? I mean there's obviously the whole approval process and terminology will change, but in effect, when do you think you will be going for Section 18 approval?

[Andrew Cole, MD, CEO & Director]

Yes. Yes, we won't be, Paul. We won't be taking that path. We'll be doing this with the approval of the traditional owners, not -- which will not necessitate a ministerial override, if you like.

[Operator]

Your next question comes from Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

And I just want to check back on the Carra grade on the initial levels that you've talked about earlier. Just wondering if what you're seeing has significantly concerned you enough to do more drilling on those levels that are below level 3? Are you looking to get more confidence in what's there? Are you doing more drilling?

[Andrew Cole, MD, CEO & Director]

Dan, no, we're not adding drilling to our pathway ahead. The drilling, you need to copper drill the levels in any underground mine, including a sub-level underground -- sublevel caving underground mine because you need to understand the geotechnical conditions, et cetera, et cetera. So the drilling that we're doing now was planned, it was in budget, in scope, and we will continue to drill the whole orebody top to bottom when we get the access levels again that allow us to do that. Remembering that Carrapateena historically has only been drilled from surface. So because it's 500 meters deep, nearly all the drill holes in the Carra are vertical or sub vertical. So the drilling that we're now doing gives us a horizontal view to the orebody. And we will find things that we didn't know. There'll be positives and there will be negatives in that level that will produce variability, but that's something that we think that we will continue to do for the life of the mine.

[Daniel Morgan, Director and Analyst]

Okay. And on the recoveries on the plant, they've been a bit better than, I'd say, as expected, particularly on the gold. Can you extrapolate any of that? Or is it too early because the plant is not fully utilized at this present time?

[Andrew Cole, MD, CEO & Director]

Yes, Daniel. Look, I think it's a good question. It's one we're grappling with a little bit. It's not the plant that would stop us extrapolating these. It's the nature of the mineralization in the Paleo surface. So the ore that we've mined on the top few levels is not representative of the rest of the orebody because it sits at a Paleo surface and has had some weathering. So some of the mineralogy has been slightly changed, if you like. So we need to see how the deeper ore levels performed through the plant before we would extrapolate any improved recovery through the rest of the ore body. I think it's very encouraging what we've seen to date. And it gives us hope that we will see better recoveries, but I wouldn't extrapolate them yet.

[Daniel Morgan, Director and Analyst]

Okay. And the Prominent Hill electricity contract, I'm just wondering if it's possible to help us quantify the benefit that you're flagging here at all. Is there anything you can say to put it into dollars or costs that we can think about?

[Andrew Cole, MD, CEO & Director]

You can answer that, Warrick.

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

Dan, so not really. I think you could probably -- if you use sort of a reduction of about $0.05 a pound, then I think that would give you enough guidance in terms of the electricity in feed. What we will have to offset that, as you said, though, is the additional costs on the leasing of the transmission line. So that will be something that we'll have to come back on.

[Andrew Cole, MD, CEO & Director]

So Daniel, I wouldn't think of the power line as a cost saving activity. This is an opportunity-enabling activity. So the power line, notwithstanding we have a good power contract now in place as well. But the power line effectively means we are standalone. We have all the power we need tapping straight into the grid and the backbone of the grid to run our assets using 50% renewable energy, which gives us a good kick start on our zero-emission target we've set for ourselves. But it also provides the capacity for us to expand from [indiscernible] of the study demonstrate that they're viable. It also has enough capacity for other third parties to use that line, either generators to tap into it or consumers wanting to take from it. So I think it's not only good for OZ Minerals, but it's good for the state, which helps, obviously, with our local reputation and the brand that we're building.

[Operator]

Your next question comes from Peter O'Connor from Shaw and Partners.

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

Andrew, Warrick, congratulations. Warrick, just back to the power question, you did say in your commentary that the power electricity supply agreement you struck from [indiscernible] would lower your cost by 20% in year 1 and 12% further reduction in year 2. And that represents 15% of all input costs. So -- and then you've mentioned that the leasing would be offsetting that. So can you shape those numbers around the $0.05?

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

Yes. So the $0.05 is in relation to the electricity reduction only. So what we haven't quantified -- actually what I haven't referred to, I suppose, is the additional leasing costs that will come with the Boom contract. And that equipment will have to -- that will come out in Q4 once we finalize our leasing accounting effectively and work through that. That's a 20-year lease. So effectively, that's a long-term debt commitment that will then sit within our balance sheet. So I can't quantify it today, Peter, to you, but yes, we'll see that come out in Q4.

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

So to be clear, power represents 15% of all input costs after the 20% and 12% reduction? Or that's what it is today before those 20% and 15% reduction?

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

It's roughly 15% of input cost for Prominent Hill today.

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

Today. Okay. Got it. And Andrew, if I just move back to you. Carrapateena, just determining the run rate of 4.25 million tonnes. You outlined that during the quarter of September, you had 22 days, I think it was, where you'd run at that rate. How many days or what's the trigger or the hurdle you need to get to, to be able to define that you've achieved that milestone?

[Andrew Cole, MD, CEO & Director]

Peter, yes, so the 4.25 million target, if you like, Peter, it's the whole system. So mining, processing and the whole value chain. To date, the plant has exceeded its nameplate capacity for long periods of time. So it's not a plant constraint, it's a mining constraint. And Carrapateena sublevel cave will always, I suspect, be a mining constrained operation. And that's what we said right from the outset in the underground development rates is the key KPI for Carrapateena. So plant's not constrained, it's mine.

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

And is there a number of days that have to run for the mine at that rate to define that has been achieved?

[Andrew Cole, MD, CEO & Director]

We haven't really -- it's a tough period -- it was circa a month. I think if we see a month's worth of mining activity, that sort of rate would be comfortable.

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

Okay. Got it. Warrick, back to you. Costs, just -- could you split out or define the cost step down in C1 costs that you've taken down today from the previous guidance? How much was gold, FX, et cetera, and denominator effect? And within that, the Brazilian real, how much of that contribute to the Brazilian side cost improvement?

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

Yes. There's a little bit on the -- I mean, from a weighted average point of view, we don't -- it doesn't have -- Brazil doesn't have a major impact on our sort of group level costs. We've shown, obviously, the FX adjustment for Prom Hill in terms of the information in the pack. I'd have to come back to you, Peter, in terms of the overall impact. So...

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

Okay. And just lastly, gold price, when you talk about updating the gold price, is that just the year-to-date gold price enrolled forward at spot? Is that how you update your gold price?

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

Principally, yes.

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

So that USD 1,600, USD 1,758, that's just quarter-to-date average is updated plus the spot from you?

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

Yes, take it through to our full year estimate.

[Operator]

Your next question comes from Rahul Anand from Morgan Stanley.

[Rahul Anand, Equity Analyst]

Andrew, Warrick, look, a lot of the questions have been asked, but I wanted to touch a bit more on West Musgrave. I just wanted to understand the scope of that optimization. Is that purely focused on the metallurgy slide? Or are you looking at perhaps the mine plan and looking to optimize it?

[Andrew Cole, MD, CEO & Director]

Yes, Rahul, the whole thing. So there is some optimization in metallurgy and plant. We're also been working on power, and we've been working on mining, so mine design, mine planning and the scheduling. So it's the next level of optimization, if you like, which is what we're going to sort of pull together into an updated prefeasibility study such that when we take it to the next phase of study, if we do, the option we assess as a single option that we can rapidly progress.

[Rahul Anand, Equity Analyst]

Okay. And you did talk in your release about the center injunction. I mean all indicators being positive, are you able to point out a few as to what you're seeing from that?

[Andrew Cole, MD, CEO & Director]

Rahul, yes, I can. I was hoping to not have to talk about CentroGold on this call. So that's one area that really disappoints me to a degree. So yes, look, INCRA, which is the primary group that we need support from before we can take it to judge to get the removal of the injunction, is supportive at federal state and local level, and they've all said that's the case. We just need them to write their letter of recommendation effectively. We've been working on our relocation plan, which they wanted to see. So this is the small 40-odd people community relocation plan. They wanted to see how we could do that before they gave us that letter of approval. We've now done that. We've produced the relocation plan. They seem very comfortable and satisfied with it. They just need to write-off the letter so we can then take that to judge to have it removed. And it's that last step that we're just working through, Rahul. So yes, look, I'm hopeful. I'm optimistic, but I've been here for quite some time. So there's not much else I can -- there's not much else I can give you at the moment, but that's the piece we're working on.

[Rahul Anand, Equity Analyst]

Okay. Perfect. Look, last one, perhaps asking a question that's been asked before a bit differently. So Prominent Hill, obviously going pretty strong here. What are some of the key impediments in terms of your sustaining or rather even improving this run rate?

[Andrew Cole, MD, CEO & Director]

Sure, Rahul. So right now, we've got enough development and enough mining areas to sustain a 4 million tonne per annum run rate. So that's what we -- you can pretty much hold as your base case, if you like, for Prominent Hill going forward. For us to be able to get above 4 million tonnes per annum, we need another mining front. So the -- as we announced earlier this year, we committed to accelerate our main access decline to get down to a deeper level to open up a new stoping mine front, and that's what we're currently doing. We expect to be able to start producing from that next year. That is what will enable us to get up to above 4 million tonnes per year is one that actually opens up. But we first got to get there. And until such time as we get there and start building out those new stopes, we won't be able to go above 4.

[Operator]

And your last question comes from Kate McCutcheon from Citigroup.

[Kate McCutcheon, Research Analyst]

Just on the grades at Carra and appreciating that it's early days, do you have a feel or can you provide some comments on how both your mining recoveries and the mining dilution are performing compared to study expectations?

[Andrew Cole, MD, CEO & Director]

Yes, Kate, look, they're basically as planned. So we're pulling out the caves, the sublevel caves to a model and to a forward mine plan. So we control the rate at which we're pulling, remembering that for the top 3 sub levels, we're not taking 100% of material. So we're leaving about half of the 3 top levels in place to provide an ore blanket. So we're very much controlling that. That's going to schedule, and we're seeing no dilution yet. That's not really a risk in the short term. That risk is something we will see in many years to come if or when we start to see the copper sequence start to percolate through that copper or that ore blanket that we're weaving. So both of those caves are going to plan.

[Kate McCutcheon, Research Analyst]

Okay. Great. And then just on Prominent Hill, the conceptual expansion layout you provided looks to the harder section of the stope to the east of that layout. Compared to what you talked -- to the picture you gave a year ago, is that based on drilling? Or what's driving that or...

[Andrew Cole, MD, CEO & Director]

Yes. In essence, it is cave. So it's based on drilling and further mine designs, if you like. And look, I'm pleased that you asked this question because I want to answer Hayden's question again. The way that we are thinking about the Prominent Hill expansion internally is that we feel we have enough historical confidence from resource to reserve that we are considering 80% of the inferred resource would probably make it into mining inventory from an internal perspective. And that's likely what we will use to demonstrate the justification for the expenditure of the project. Externally, we're governed by JORC, and we're still working through whether we can include the conversion of that inferred resource into mining inventory, which you need to be able to declare production targets and valuation metrics. So that's the delta, the challenge that we're working through at the moment as to the way we think about it internally versus how we need to talk about it externally. And that's the fine balance we're working through.

[Operator]

Okay. There are no further questions at this time. So I'll hand back to your presenters for any closing remarks.

[Andrew Cole, MD, CEO & Director]

Okay. Well, just thank you very much, operator. Thanks, everybody, for joining the call. If there's anything you'd like to talk about post this call, please give Travis a call, and we'll get the right people in the room to hopefully answer your question. Thanks again.

[Operator]

Ladies and gentlemen, that does conclude today's conference call. Once again, thank you for participating, but you may now all disconnect.