OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the OZ Minerals September 2022 Quarterly Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your first speaker today to Andrew Cole, CEO. Please go ahead.

[Andrew Cole, executive]

Yes. Thank you very much. And good morning, and thanks, everybody, for joining us for our September quarterly report call this morning. I'm on Gaurna land today, and I'd like to pay my respects to their elders past, present and emerging. I'd also like to acknowledge and pay my respects to the traditional owners of all the lands on which OZ Minerals works.

Joining me today are Warrick Ranson, our CFO; and our Operations Executive, Matt Reed. They're going to talk to our Q3 financial and operational performance in a moment here. We'll then move on to Q&A.

The upcoming 2 slides are the usual disclaimer and compliance statements which are available on our website for you to review at your leisure. In quarter 3, we saw continued improvement in operating performance at all 3 of our operating assets, with unit costs improving as production volumes increased. At Prom Hill, improved performance resulted in September being the highest underground ore movement month on record and at Carajas East, September being the highest produced metal on record. There's also been month-to-month production performance improvements at Carrapateena. At West Musgrave, construction will start next month following the positive final investment decision in this quarter. We've now started exploring the potential also for a strategic alliance in this asset, following significant inbound expressions of interest over the last 6 or so months from parties, with a strategic interest in modern minerals.

Our work on the Kalkaroo project commenced late in the quarter also, after Havilah shareholders approved their option to acquire the project. We also continue to progress the brownfield expansion projects at Prom Hill and Carrapateena and in the Carajas.

Our $700 million corporate debt facility continues to provide substantial working capital liquidity, supporting our investments in the Prom Hill and Carrapateena expansion projects. In addition, our new $1.2 billion syndicated term loan facility has been finalized to support the development of the West Musgrave project. I'm going to speak to our 2022 guidance a bit later, but wanted to briefly note that we remain on track to meet 2022 group copper production guidance. However, we have lowered Prom Hill gold production slightly, and increased unit cost guidance.

Mining is key to building a renewable future, which I think we all understand, that it must be conducted responsibly and ethically, and recognizing that we are entering the electrification era, we have evolved our strategy from a specific copper focus, to a broader suite we describe as modern minerals. Initially, this will see us include copper and nickel in our target portfolio. In time, we may consider other electrification era metals.

Our strategy is part of the OZ way, with value creation for all our stakeholders in the center, which is what we hold to be most important. We believe that only when we are creating value for all our stakeholders, will we be a successful and sustainable company. One of our stakeholder groups is our workforce, and a critical metric of how we are creating value for our workforce, is ensuring we have a physically and psychologically safe workplace, which is why during the quarter, we implemented a one-day safety stop across the whole company, to address an unacceptable trend in safety incidents. The company-wide shutdown enabled a wide-ranging set of activities to help people refocus on their physical and mental well-being, and prioritize initiatives to help people work safely. Pleasingly, safety performance has since stabilized, but we still have more to do.

Moving on now to the next slide, which shows our unique portfolio and the key provinces we are creating, along with their production, costs, resources reserves and their growth potential. Each province is an opportunity for us to create something that is multigenerational with low operating costs.

There is a consensus view amongst expert commodity analysts of the substantial market share opportunity ahead of us, a rapidly decarbonizing world that's on the cusp of a multi-decade transition into the electrification era. OZ Minerals is uniquely positioned to capture this growth. We have a one-of-a-kind suite of long-life, low-cost operating assets in low-risk jurisdictions, focused solely on precisely the commodities that will support this transition. Importantly, we have demonstrated a track record of converting innovative ideas into highly value-accretive producing assets for our stakeholders.

Our mines and our growth opportunities are located in safe and stable jurisdictions. This at a time when the supply of minerals that can be accessed in quality locations like Australia, is becoming increasingly scarce. Our organic portfolio of quality, long life, low-cost copper nickel mines and growth assets, support a very realizable growth trajectory. This has been enabled by an innovative culture of people who take great pride in what they do, and it is the foundation of a clear pathway to more than doubling our production in the years ahead, all from within our existing pipeline.

I'll now move on to a summary of our Q3 production costs, before handing over to Warrick and then Matt. As mentioned, production consistency and momentum has been building through this last quarter, with both efficiency and reliability improving month-on-month. This was highlighted with Prom Hill producing a record underground ore movement month, with an equivalent 5 million tonnes per annum run rate for the month.

On costs, unit costs are improving quarter-on-quarter as production volumes increase. We are seeing inflation contribute to higher unit cost, which Warrick will touch on. Given the performance year-to-date, we expect a strong operational finish to the year, which will also set us up well for next year.

So I'm now going to ask Warrick and then Matt to talk through the results in a little more detail, please.

[Warrick Ranson, executive]

Thanks, Andrew, and good morning, everyone. Volatility continued in the sector, consistent with most of this year, of course. For the Chinese economy, we have seen mixed indicators, with some signs of optimism offset by headwinds in the real estate sector. However, EV sales in both the U.S. and China increased significantly, continuing to support our modern mineral strategy. We also saw global auto forecast upgraded, with positive revisions for China, offsetting a slightly lower outlook for Europe.

Downward pressure on the Australian dollar over the quarter provided some compensation for a lower U.S. dollar copper price. And in the short term, we expect this to persist in line with expected U.S. economic policy, which is providing higher relative yields. Importantly, copper market fundamentals remain very positive, with activities in our key South American supply chains continuing to experience production and cost issues, at the same time as seeing a tightening market in Europe.

In terms of our specific capital management activities for the quarter. As Andrew mentioned, we saw the investment decision taken on West Musgrave, supported by a new $1.2 billion 18-month syndicated term loan facility, strongly supported by our relationship banks. With documentation completed, financial close of that facility continues to remain on track for the end of October. This facility has enabled us to commence development of the project, whilst optimizing the final funding mix, potentially including a minority interest sell-down, as Andrew touched on. We also paid a fully franked interim dividend of $0.08 per share during the quarter, consistent with our sustainable dividend policy.

On cash, we finished the quarter with a net drawn position of $84 million after investing $286 million into our gross projects. Work continued on the Wira Shaft mine expansion at Prominent Hill, with pre-sink equipment installation completed and shaft sinking operations commenced.

At Carrapateena, the focus remains on the installation of crusher 2, although we also commissioned a new high-intensity grinding mill there, as the team continues to identify opportunities for maximizing the throughput and product quality. Ongoing decline -- development activity across -- continued across all our operations. Working capital movements generally reflected shipment timing, with the busy October shipping program [ scheduled ].

Moving to costs; and unit costs improved quarter-on-quarter in line with both the improved production performance and the weaker Australian dollar. Whilst we certainly had a much better quarter on COVID absenteeism, it took us a bit longer at Prominent Hill to see a full uplift in workforce availabilities, experiencing shortages on cable bolters in particular early in the quarter.

Domestic inflation picked up in July and August, and whilst it was broadly based, it still remains lower than most other developed economies. We've begun to see early signs of slowing from the current tightening of monetary policy, and expect to see a further easing in coming quarters, although utility pricing remains uncertain, with global energy prices remaining high.

Having said that, interestingly, we've actually seen a reduction in electricity and [ legal ] costs in Brazil this quarter. Despite this, we experienced an uplift in mining costs, not so much a factor within the South Australian economy, but with interstate state markets placing pressure on hourly rates for both operator and maintenance crews. Shop trading costs also increased quarter-on-quarter, with pricing volatility for this consumable being experienced throughout this year. We continue to manage cost pressures on key inputs, by assessing our short and longer-term demand, and cost profile to reach main [indiscernible], and optimizing the contract periods and structure for each where we can.

And with that, I'll hand over to Matt, who will take us through some more of the detail on the operational performance.

[Matthew Reed, executive]

Thanks, Warrick. As Warrick said, I'll now speak to the details of our performance operationally in quarter 3, starting with the Prominent Hill. We delivered 1.13 million tonnes of ore during the quarter, which is 26% higher than Q2 and grade averaged 1.1% copper for Q3. Ore production years increased progressively throughout the quarter, as the impacts of COVID related absences fell, a number of critical vacancies were filled and we also benefited from work to improve the diversity of our ore sources, some schedule optimization and some early wins from our continuous improvement program.

In September, as both Warrick and Andrew have mentioned, we achieved the highest monthly underground ore production, recorded at Prominent Hill, at 412,000 tonnes, which represents, as we said previously, an annualized run rate of around 5 million tonnes per annum. We've also been mining remnant ore near the bottom of the Malu Open Pit, utilizing an all-source there that otherwise would have been sterilized through in-pit waste dumping.

Copper reduction is on track to meet annual guidance, with continued improvements on underground operations, higher copper grade stopes coming online in Q4, improved plant performance, we are expecting a material improvement to copper metal production for the quarter. The strategy will, however, result in lower gold production, with a lower portion of gold stockpile feed to be milled during the quarter. And as was mentioned, we now expect 4-year gold production to be within the low gold guidance strategy.

On the Prominent Hill expansion, work has been steadily progressing. As Warrick said, pre-sink equipment has been installed, shaft sinking has commenced. And by the end of the quarter, we were around 25 meters below the shaft collar, using the vertical boring machine. We're expecting the headframe to be delivered to the site in Q4, along with the permanent refrigeration plant equipment and new ventilation fan as well.

Also on expansion, we accelerated into drilling programs progressing to plan, first cuts have been taken on the headings to that program in September. That will ultimately be used for diamond trolling to potentially expand the resource and also to convert the inferred resource to reserve. During the quarter, we also completed drilling in the tailings storage facility as part of our program to investigate the potential of [ further ] recovery there too.

At the Carrapateena, the underground team mined just over 900,000 tonnes of ore for the quarter, at 1.64% copper. Our copper production was 14,500 tonnes and gold just under 20,000 ounces. We have continued there to blend ore hoisted from underground as priority development waste, to maximize total material movement through the system and hence, metal production after reporting produces, you'll see, we've now separated this waste out of mine ore and grade numbers to make it easier to understand.

Around the cave, we've completed a further series of surface hydrofracking campaigns, as we work to aid the propagation of cave to surface. We saw significant seismic responses during the quarter, 43 meters of vertical growth and at the end of September, the cave was about 90 meters from service. And it has given us confidence to cease our underground [ drill ] program. We've got a further hydrofracturing campaign planned for this quarter, and we'll continue to be hopeful of the cave breaking through the surface by the end of the year. Decline development to the block cave now exceeds 1,000 meters vertically below surface, all major components for crusher 2 are now on site, and the completions are now expected towards the end of 2023.

Finally, on the Carrapateena, we've reached further milestones on the construction of the second stage of the TSF, with the completion of the main embankment lift earthworks and the raise of the decant causeway.

In the Carajas East province, strong operational performance continued at Pedro Branco, increased grade and recoveries contributing to about a 20% improvement in copper and gold production during the quarter, and a metal production record in September. Also expected in this last quarter of the year in Brazil, an update on mineral resources for Santa Lucia, with an accelerating plan in progress for pre-feasibility study, got planned follow-up drilling at the Tapuia, Grota Rica and Valdomiro exploration targets at the Carajas West, the completion of the new resource estimate and study at Pantera, which looks at the possibility of Pantera becoming a second hub in Carajas [ problems ].

Finally, in the Gurupi Province, INCRA Brasilia is now progressing its review of the CentroGold land use concession agreement and relocation plan, following state level endorsement.

On that, I'll hand back to Andrew.

[Andrew Cole, executive]

Great. Thanks very much, Matt, and thank you, Warrick. I'm now going to take the opportunity just to recap the details of the announcement we made in September on the West Musgrave FID and feasibility study. West Musgrave is a key part of OZ Mineral's next growth phase and signals our entry as a multi-commodity producer of modern minerals, both copper and nickel. West Musgrave is expected to come into production at an opportune time, to enable us to supply world markets, as demand is projected to lift for decades to come.

Underpinning the positive final investment decision by our Board, is a rigorous feasibility study that confirms the robustness of the project. It comprises an increased processing capacity of 13.5 million tonnes per annum, achieved through mine planning and plant optimization, a compelling production profile of circa 35,000 tonnes per annum of nickel and about 41,000 tonnes per annum of copper in the first 5 years, and over a 50% increase in project net present value to circa $1.5 billion to $2.2 billion, on capital of about $1.7 billion.

Key highlights of the West Musgrave project, include a 24-year operating life, from first production, expected to commence in the second half of 2025. First quartile position on the cost curve, underpinned by favorable orebody characteristics and a focus on sustainability as a modern mining project, which includes more than 80% renewable penetration of the power generation systems, and a pathway towards achieving Net Zero Scope I emissions by 2038. We are expecting construction to commence in November, with key contracting partners who have already been selected and long lead procurement has already commenced.

In the longer term, the West Musgrave Province holds huge growth potential, and we're exploring several opportunities to unlock further value at the site. 51% of the resource remains outside of the reserves, so there's a potential mine life upside through a resource to reserve conversion over time. The study of the downstream nickel processing plant, to produce mixed hydroxide precipitate, continued in Q3, with a pilot plant program now successfully completed in the U.S., which demonstrated the process flowsheet on a continuous basis and produce a high-quality MHP product, that benchmarks well on a nickel content basis. An MHP PFS update is on track for release later this year.

The key attributes to the West Musgrave, particularly the scale of production and its long mine life, lend itself to potential downstream integration, which is why we have started exploring the potential for a strategic alliance, following significant inbound expressions of interest over the last 6 or so months from parties, with a strategic interest in modern minerals.

Now on to the Curnamona province where the Kalkaroo project is located. Havilah Resources Limited shareholders have voted to grant OZ Minerals the option to purchase the Kalkaroo Copper project. The Kalkaroo project provides us the opportunity to add one of Australia's largest undeveloped copper gold projects to our organic growth pipeline. Since the proposed transaction was announced in May, we have been planning work programs, engaging with suppliers and working closely with the Havilah team to enable the study, which will focus on opportunities to identify additional value, and derisk a project development. Through this study, we will improve our understanding and confidence in the project, which will include an infield drill program to confirm the current mineral resource estimate.

Our agile approach has enabled rapid developments of projects supported by our culture, which has allowed us to maximize value. We have been building the suite of assets and projects you see on the screen over the past years, and now are poised for our next chapter of growth.

I'm going to call out a few updates on our exploration projects from the quarter, which are showing encouraging early stage signs. At Peake and Denison, approximately 150 kilometers northeast of the Prom Hill mine, drill testing of 3 large IOCG targets was completed by Demetallica Minerals. And a second, to further test and magnetic anomaly that's planned at Wills. 5 projects are also underway in Sweden, with early encouraging results. In line with ensuring optionality and growth, we will remain focused through 2022 on adding multiple options like Kalkaroo to our pipeline.

I'm not going to dwell too long on this slide, which shows the usual information on our different assets, projects, spaces of development and resources and reserve information. This has provided us an easy reference to track the estimated delivery of the different assets or projects in our provinces.

Finally, on key milestones, we've got a few busy months coming up ahead of us. These include an updated group MROR update, which is expected in the quarter. Wira shaft precinct works at Prom Hill is expected to be completed this quarter. The TSF Stage 2 that the Carrapateena is expected to complete this quarter. Our West Musgrave MHP study is due for a release and update this quarter. And finally, study updates as well for the Carajas East and West are also due to be updated this quarter.

To summarize our results for the quarter, we are focused on our strategy, capitalizing on value-accretive opportunities and maximizing value for our stakeholders. With consistency and momentum building in our operations, we are on track for 22 group copper production guidance, notwithstanding a slight reduction to Prominent Hill gold guidance. Construction on the West Musgrave project is starting later this month. We have added an option to acquire the Kalkaroo Copper project.

We closed the quarter with a net cash position, minus $84 million after reinvesting $286 million in growth projects. And our corporate debt facility and syndicated term loan facility puts us in a good position, as we invest in our major Brownfield expansion projects at Carra and Prom Hill, and develop the West Musgrave project. What we have achieved this quarter and more broadly has been driven by our culture. It is our innovation, our agility and our collaboration through partnering, that have led to our success and importantly, allows us to replicate this success in the future.

Just finally, on a personal note before we go to questions, I'd like to pay my respect to Peter Bradford and send my condolences to his family, friends and the whole of IGO team. Peter was a great person and a visionary, and I think he's going to be greatly missed. I'd also like to pay my respect and send my condolences to the family and friends of work and the work colleagues of those who have recently lost their lives whilst working in our sector. It's clear that as an industry, we have still got more to do.

Okay. Operator, can I please ask you to remind people how to ask questions? And as a reminder, we've got Warrick Ranson, CFO; Matt Reed, Ops Executive, and myself here to answer.

[Operator]

[Operator Instructions] And I show our first question comes from the line of Paul Young from Goldman Sachs.

[Paul Young, analyst]

Andrew, a couple of questions on Carrapateena. It's clearly still a pretty tough operating environment out there to deliver, and a pretty mixed quarter on mine tonnes and grade from Carra. Just a few questions; one is -- the first one is on the cost guidance, and I know there's no commentary on the increase in cost guidance on the front page of the report. But your cost at Carrapateena year-to-date are $1.25 a pound, your guidance is $1 to $1.15. Can you just step through how you're actually going to achieve your guidance for the year?

[Andrew Cole, executive]

I can do, Paul. We've got Matt Reed here, who can talk a little bit about the operating performance. So maybe I'll ask Matt just to talk a little bit about the trajectory of the operating performance year-to-date, and why we're confident in the next quarter's performance first.

[Matthew Reed, executive]

Yes. We have throughout the previous quarter seen and in fact, through the back end of the quarter before, delivered in proving underground oil production, as well as development performance. And we still got a number of reasonably significant operational improvement initiatives, that have come online throughout this quarter. So comfortable that, that trajectory will continue to improve, and we are comfortably on track around our guided [ cost ] position.

[Andrew Cole, executive]

Sorry. Oh keep going mate.

[Paul Young, analyst]

Okay. Yes. Sorry, that was the question of course, in the next quarter and the near term. I know this is a 20-year asset and [ lets ] through the cost calcs a bit more. But a question actually more in the medium to long run. And Andrew, a question on that, specifically around the block cave. I know you've done a pre-feasibility study on the block cave and the capital estimate is $1.25 billion. You went straight into development. We haven't seen a feasibility study or a, I guess, a capital update on the block cave. Can you maybe provide an update, are you going to provide one, or have you actually re-estimated the CapEx here in line? And has there been any change to the scope of that projects, like how you stage that project?

[Andrew Cole, executive]

Yes, sure, Paul. So as we sit here today, the scope of the project in our base case hasn't changed. And as you know, we have given 5-year guidance versus our 4-year guidance, and we're still on track to deliver that 4-year guidance, which does in part include the first phase of development for the block cave expansion. So if we were to change that, of course, we would need to change our guidance, which we're currently not doing because that base case has not changed.

2 things I would add to that. The first one is, which I've mentioned before, we are driving the current operator processing plant very hard. So the team's role at the site is to continue to deep [indiscernible] that plant, push the plant performance to as high as possible, because the more throughput we get through the current plant, the smaller, the second train we need to build. So notwithstanding an inflationary environment and input costs are increasing in time. It is likely that the size of the plant that we would have to build, to meet the 12 million tonne block cave expansion is also decreasing. So there's swings of roundabout, if you like, to the capital estimate.

Having said all of that, we are constantly reviewing our life-of-mine strategies in our different assets. We're in the middle of another planning cycle at the moment, and we are looking at various options for Carrapateena as we will always do. But unless we actually land an alternative base case, the block cave and its base case will continue as planned. If we do see material capital changes post the guidance, which we've given you, we will need to update the market, because we put it into the PFS that we released a couple of years ago. So for now Paul, you should be assuming the same numbers that we've put into the materials, in the release for you.

[Operator]

And I show our next question comes from the line of Levi Spry from UBS.

[Levi Spry, analyst]

Maybe just another one for Matt. Can you just take me through a couple of the milestones at both Carrapateena and Prominent Hill, and exactly what they do for production? So just maybe starting with the cave breakthrough, what we can expect to see there in terms of cave draw, then when the cross chamber is due, what we're going to expect to see on haulage? And then maybe just remind me at Prominent Hill with the shaft, when that can [ take rocks ]?

[Matthew Reed, executive]

Yes. No problems. So from a cave breakthrough perspective, probably a couple of things. I think we saw a significant amount of movement in the last quarter, as I mentioned, which now gives us a lot of confidence on breakthrough. That has meant, that we've ceased those overdraw activities, which I think we've probably referred to a few times during the last 12, 18 months or so. That improves our grade from underground in closing off a couple of levels, that include increased air ventilation. So it is part of why we see improving trajectory at Carrapateena.

Second question, I think, was around crusher 2. Crusher 2 enables some improvement in underground ore movement, it debottlenecks our overall materials catalog system. And of course, it also has an impact on costs, as we eliminate some of our trucks from the long circuit. So there, a couple of benefits or opportunities haven't flowed through with conclusion of crusher 2.

[Levi Spry, analyst]

And current timing [indiscernible]...

[Matthew Reed, executive]

So crusher 2, towards the end of 2023. That's what we expect there. And then I think your next question was on the shaft. And we are still saying 2025 for the Wira shaft.

[Levi Spry, analyst]

Okay. And Andrew, to sneak one more in. Just on the strategic partner for West Musgrave, can you just talk us through exactly what stage that process is at, and I guess the context there is the optimization study sometime next year, are there people in the other room, is there a process running, what's the context around that?

[Matthew Reed, executive]

Levi, there is 2 parallel pieces of work underway, both of which we've referred to previously. One is a technical work stream to demonstrate that taking West Musgrave -- nickel concentrate into a West Musgrave nickel MHP is technically feasible. The work that's been done to-date has shown that, not only is it technically feasible through a pilot plant, but the product is very good quality when you benchmark it compared to other MHPs around the world. So from a technical perspective, we're moving further and further down the study pipeline. We're due to complete a PFS, if you like, study update later this year.

In parallel with that, we have started a process to understand what the onstream parties or which downstream parties may be interested in a minority position in West Musgrave. So that process has commenced. It's by invitation. It's going exceptionally well, and once we get more information, we'll update you on what that looks like. So we should be able to give you an update later on this year, I suspect.

[Operator]

And I show we have our next question from the line of Kaan Peker from Royal Bank of Canada.

[Kaan Peker, analyst]

It's great to see Prominent Hill underground development rates increase, but it looks like actually underground movement guidance have been decreased for both Prominent Hill and Carra. And again, this hasn't been called out on the front page of the note. But just with the underground, I wonder if it's -- are we see more selective mining of high grade specs there, and what's changed and how long will these high copper grades last? And also the reasoning behind extracting ore from the open pit, is it more likely to be lower grade? And I'll circle back with a question on Carra.

[Andrew Cole, executive]

Maybe I will just answer the first piece at a high level. I mean the reason we've downgraded total volumes, is because we started the year slowly, and we have just not been able to catch up effectively to the tons we lost in the first half of the year. And we're not high grading, we are targeting volume. So effectively honoring the schedule we've built, which is an NPV maximizing strategy [ pie ] over the long term. So it's not about short term, and it's not about high-grading stopes. We are targeting long-term value, which maximizes volume and throughput not sticking to the schedule.

Matt, do you want to talk a little bit about the work we're doing in the open pit why we've done it, et cetera?

[Matthew Reed, executive]

Yes, I certainly can. So I think probably we've increased knowledge of the stability in the pit and an opportunity to access some material, prior to essentially being lost forever underneath waste, plus some opportunity to improve our flood mitigation. This is just a great opportunity to bring a good chunk of additional [ mines ] the mix. I'm not sure off the top of my head to the grade, but it's not a significant dilation, in fact it's good material. So I wouldn't be concerned about that Kaan.

[Andrew Cole, executive]

Maybe just one point to add, because -- recall, that we've had some pit stability issues with our open pit historically. So we did take a fairly conservative approach to how we left the open pit, but the pits performed exceptionally well, I think Matt, over the last few years, we've seen very little wall movement at all, which has given the team confidence to be able to start taking a bit more out of the pit, than we had planned.

[Kaan Peker, analyst]

Sure. And just second question is sort of following on with what Levi has asked, particularly around the crusher 2. It looks like that's been -- the commission is being pushed back to the first half. So what you're talking about now is towards the end of 2023. What are some of the implications for volumes to see why '23, in terms of costs and also the debottlenecking project, and if there's any CapEx implications there as well?

[Matthew Reed, executive]

Yes. It has moved with some underperformance or really the similar underperformance that we spoke about earlier in the year and more recently. Some redesign work we've had to do, given some changed ground conditions. That's all very much behind us, and we're pleased with progression now. We're comfortable still around the previously guided position on [ progress ] times over that 4 year period. As I mentioned in the previous answer, there is a cost implication as we will run trucking fleets for longer than originally intended.

[Andrew Cole, executive]

And we're working through that in our planning process now. So as far as we sit here today, we don't need to change our guidance. So for Carra, we have got a 4 year guidance out there, I think. If we need to change that, it will be in January next year, once we finished our planning process. But as we sit here today, we don't feel we need to.

[Operator]

And I show our next question comes from the line of Peter O'Connor from Shaw and Partners.

[Peter O'Connor, analyst]

Just following up on the MHP question in the process. Thanks for giving us the detail about the invitation only. So is the process now giving invitations at a level where you're heading towards a non-binding indicative bid stage, is that where we are at? And I missed the comment from before when you may have confirmed the timeframe of the process, but just wanted to seek that clarification?

[Andrew Cole, executive]

Yes, Peter, we are committing to give an update on MHP, both technical and commercial processes, by year-end, and we are seeking indicative offers from 5 parties.

[Peter O'Connor, analyst]

Okay. And shifting to labor, you made the comments about COVID and I guess the partial recovery from that COVID absenteeism we've seen for the last several years. And you mentioned skills, so is skills the new crunch, as opposed to absenteeism or is -- that's just a fleeting issue as well?

[Andrew Cole, executive]

Do you want to comment on what we're seeing in the assets?

[Warrick Ranson, executive]

Yes. We -- I mean obviously something we always have front of mind. We had pretty good results over the last quarter and filling a number of critical gaps. So here and now no, but of course we're in our planning process, we're thinking about our 2 year, 5 year plans that includes what skills we're going to need and what preemptive or proactive work we will need to undertake, in order to ensure we continue to have them. But here [ right now ], knowing we're in good shape.

[Andrew Cole, executive]

Peter, I think just to add to that, you know we've seen a bit of a cycle, so we've been through you know where we've dropped off on some skills and then we've been able to recruit them. So earlier in the year, we had I think [ operations ] for example, this quarter we experienced a bit of a shortage as I said with rock bolters, but we've been able to fill those. So it's just a little bit of a cycle that we go through on various sort of base of skills.

[Operator]

And I show we have our next question from the line of Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

Could you just provide an update on your power purchase agreements in South Australia? When are they due and what are your strategy to negotiate the next ones?

[Andrew Cole, executive]

Yes, I can. And so the power contract which we've had in place for a few years now, the fixed price contract ends at the end of this year. We're currently working through a process and have been for quite some time actually, on what our strategy is going forward. There's multiple options of course, it is a pretty volatile and dynamic environment right now. So once we have locked in a strategy, we'll be able to tell you what it is. For now, we're still working through it. We're considering short term, long term fixed price spot [Technical difficulty] price and everything in between at the moment.

[Operator]

And I show we have our next question from the line of Mitch Ryan from Jefferies.

[Mitch Ryan, analyst]

My first question relates to mining costs. You've called out increased turnover rates. So I was wondering if you could provide any color on how they are actually tracking them. Is it that they've returned to normal after a period of being quite low, given border closures or are they elevated relative to historic norms?

[Andrew Cole, executive]

So workforce turnover in underground [ workforce ], we are seeing it, is it different to history?

[Matthew Reed, executive]

Yes, I mean, it has been a bit higher over the course of this year than historically. I think you're right, there was a bit of a bump as borders reopened. And then also, as we were bringing in a number of new people. as Warrick said, we saw some turnover through the -- probably the middle of the year around some critical skills relating to diesel fitters and maintenance crew members generally, are starting to stabilize now. So to back to your original proposition, I think what we saw was -- that was really primarily a bump, as borders opened up and as people, I suppose, made choices after a couple of years of COVID constraints.

[Andrew Cole, executive]

[indiscernible] Adjusted rem rates?

[Matthew Reed, executive]

We have adjusted rem rates in a couple of critical areas, and we're doing a lot of work on improving, let's say workforce engagement generally, as part of our retention work activities...

[Mitch Ryan, analyst]

Just with regards to that rem rate component, remind me, I recall that you now started baking in the bonus as part of the base salary. You referred -- [ with underground ] operators receiving that component. So I guess were they already elevated, and so is it working, that strategy? Or do you have to revise that as well?

[Andrew Cole, executive]

We're talking there about primarily -- or my comments are primarily related to our underground workforce, which is throughout the mining contractor's [indiscernible] so it's a bit different.

[Mitch Ryan, analyst]

Okay. And my last question is just from Hill Tailings, the drill program there. You said you're exploring other commodities and opportunities. What other commodities are you drilling for or potential opportunities with regards to recreating those tailings?

[Andrew Cole, executive]

Okay. My apologies. It's really about the opportunity to recover copper and gold from those tails, and that that's our primary objective.

[Operator]

[Operator Instructions] And I show our next question comes from the line of David Coates from Bell Potter Securities.

[David Coates, analyst]

Thanks very much, Andrew, Warrick and Matt, and mostly to recognize competitor's pricing as to other [indiscernible] we've recently had in the industry. Just a couple of questions, one macro, one sort of quite micro, let's start with the micro one, to hit guidance for this year, you need to [ lose ] copper production from sort of 30,000 tonnes this quarter to 40,000 tonnes next quarter. Can you just give us some more kind of detail on -- where that's coming from, Prom Hill, Carra or Brazil or tonnes and grade, what's going to drive that big uplift?

[Andrew Cole, executive]

Yes, it is by and large coming from Prominent hill. We are expecting sort of an uplift at both Carra and the Carajas as well. But the vast majority of that increase comes from Prominent Hill, and it's on the back of those improved underground ore movements, which we have delivered, well particularly in September of the last quarter, and also an expectation of improved copper grade.

[David Coates, analyst]

Right. Okay. And a sort of more macro question, and it's a little bit hypothetical, but you know you've been -- the company has been executing a strategy of developing and bringing a collection of multi-generational assets. You now have Prominent Hill, Carra, West Musgrave and Brazil or you know is not in operation -- heading for operation. Do you -- so that's been -- that's sort of been -- that's been part of like a big cycle of investment, and that's you know sort of starting to be reflected in big increased debt position on the balance sheet and potentially bringing the strategic partner. At what point does kind of -- see that cycle kind of stabilize, when you see like an optimum, number of assets in the portfolio, can you give us a bit of a think on you know, where maybe you see the medium term future, with that balancing out?

[Andrew Cole, executive]

So it's an interesting question and it's a debate that we had -- we have this debate every year with our board, when we review our strategy, because we have annual strategic views where we spend a few days with the board off site usually debating, and there are all sorts of avenues. That's one -- there's a few avenues here. They're obviously in addition per our current pathway. We've got a pipeline of activity sort of clearly mapped out, which sets spends the next 5 years if you like, investing in organic options in the business, and they will be realized at different stages over the next 5 years. But it's a question that we're going to continually debate.

We're not aspiring to be a large company, but there will be a sweet spot for the size of the company like this. I suspect we're just getting to the point now, where we've actually got a pipeline. We've got choice in how we invest in assets, which assets we invest in and now we're at a point where we can also consider divestments, given we've got a pipeline and that's a enviable position to be, and I think that's the sweet spot you need to be in, as a as a very healthy company, where you can make asset allocation decisions including considering divestments.

So we've still got a bit more work to do over the next few years, but that very question is one that we're going to debate every year. I can't give you an answer to it, because it will evolve through time. But it's a great question, one that we will keep considering.

[Operator]

And I show our next question comes from the line of Peter O'Connor from Shaw and Partners.

[Peter O'Connor, analyst]

Just further to Dave's question, the fourth quarter production profile, and thanks for the detail about Prominent Hill. So that grade presentation and the stope presentation, sounds like you're quite confident. But is Carrapateena breakthrough a risk to the quarter, if you don't get that? I think you mentioned that would happen this quarter? Is that necessary to get to Carra guidance, or is that just a benefit along the way?

[Matthew Reed, executive]

I will tell you what, I am hopeful [Technical difficulty].

[Peter O'Connor, analyst]

And Andrew, comments you made in your opening remarks about safety. You've had a fantastic track record of meeting guidance and been a safe operation et cetera and safety is a big deal, and I'm just wondering why the need to have the day out, which is a great initiative and well done for doing that. Are you doing too much, are there too many -- you talked about having a pipeline which is right. Is there too much going on? Are you too stretched, or are you too distracted by external suitors? Why now has the safety gone off the rails? Is there any definitive step change?

[Andrew Cole, executive]

You know, I don't think it has gone off the rails. I think it's more, that we've seen an increase in low severity injuries mostly, and tied injuries to people in the operating assets. So these are frontline operator maintainers hurting themselves. And no injury except -- and as we saw that trend start to increase -- and it has been a very dynamic year, with turnover high COVID rules changing, higher cost of living, people distracted, [indiscernible] change the operating assets themselves, leadership changes et cetera. This is just about making sure that people understand, that their personal safety and their personal mental well-being is the most important thing that they need to be thinking about when they're in a workplace. So we use events like this, just to make sure that people understand that we symbolically demonstrate it.

We obviously don't want anybody hurt, that's one symbolic initiative that we can take. So I wouldn't think of it any more than that. As more frontline concern, as it is to a company portfolio concern. We're not seeing the same sort of increased injury trends in other parts of the business, of the frontline operation at the moment.

[Peter O'Connor, analyst]

I shouldn't have used gone off the rails, so my bad. So thanks for the correction.

[Operator]

[Operator Instructions] Our next question comes from the line of Paul Young from Goldman Sachs.

[Paul Young, analyst]

Andrew, can I ask a pretty direct question? Have you had any discussions with BHP recently?

[Andrew Cole, executive]

No, I haven't.

[Paul Young, analyst]

Okay. And then secondly just on the on the sell down of West Musgrave, trying to understand what you're trying to sell here. I mean one is of course flexibility around the balance sheet, but minority -- selling down minority stake is pretty broad, it's between 1% and 49%. So what are you looking for? Is it a dollar, million number? Is it a percentage above MPV? Is it partner alignment? I'm just trying to figure out what you're trying to solve here with the minority interest?

[Andrew Cole, executive]

Yes, sure. So let me start with strategy. Our strategic aspirations that we've released to the market recently, we should give you an indication as to the direction here. We are setting this company up to produce clean, green, environmentally friendly commodities, that are supported by traditional owners as partners, in a very safe jurisdiction. So these are commodities that will be sought after, in a world which is very rapidly changing and very rapidly demanding it. So these are commodities that we're setting up to be able to put into a market like that. With copper concentrates, nickel concentrates, by selling these into a smelter, it makes it harder for traceability through the system, because they generally get blended.

So we are looking at opportunities to be able to provide traceability from these metals in the ground, through a value chain to an end customer, because it's only at that point that you can potentially capture the value attributable to producing clean green metal, you know, very safe jurisdiction with no modern slavery, et cetera. So the partners that we are looking for is a strategic partner, who can help build traceability of those commodities down the value chain, and then can leverage those commodities in their customer set, as clean green products. Because I do believe and we do believe as a company, that in the future there will be a structural pricing difference between clean green commodities and those that are not.

Now whether that's a price premium or a tax to those who are not, doesn't really make a difference. It will still be structurally different. So that's what we're setting up here. And the first we're setting up in a way, the vehicle at West Musgrave, given the interest and the demand. What form that takes, we remain very open. So where we are talking to downstream partners in a very open way, seeking to understand what they value, what they want, before we start narrowing our expectation.

[Paul Young, analyst]

Okay. Just one follow-up, does that mean that in that case that, a cathode producer, a precursor/cathode producer is you know -- that group is -- potential offtakers and customers are the group you're probably targeting?

[Andrew Cole, executive]

We are staying pretty open here. So there's a there's a number of groups that we're talking with. So anybody who can sort of fill the criteria that I mapped out, would fit the invitation list, if you like. So as long as they can demonstrate that they can produce or provide the traceability through the value chain, we are open to and probably already engaging with them.

[Operator]

And I show our next question comes from the line of Lyndon Fagan from JPMorgan.

[Lyndon Fagan, analyst]

Andrew, just wondering when you are hoping to get that minority sell-down done, is there a timeline on that?

[Andrew Cole, executive]

The only commitment we've made so far is that we'll give you an update towards the end of this year. There's no tight timeframe around this. Of course, by the end of this year, we'll be able to give you an update on how that process is going, and what the timeframe probably looks like.

[Lyndon Fagan, analyst]

Okay. And I guess second one is just a high-level question. So fair to say, you've done a great job creating value for shareholders. I guess I'm just sort of thinking about a scenario, where the BHP offer doesn't exist or the market loses confidence in that offer, and the share price potentially falls from 25% to, say, 20% or even lower. A lot of that hard work that you've done in creating value, there'd be a lot of heavy lifting to go in the absence of copper pricing recovering materially in the short term. So I guess I'm just wondering, how comfortable you'd be, if that scenario played out, given some of the comments in the news over the weekend?

[Andrew Cole, executive]

Sure. Look, I think we've demonstrated that confidence by rejecting the bid in the first place. We're not assessing the value we create for our stakeholders on one day's share price trading. We assess the value we're creating over long-term value, and that's created through a number of channels. But we believe, that we can create superior value above $25 a share over the medium to long term. And I think we've demonstrated that we've got the capability to do that. And I think we definitely have a pipeline in order to do that. So that's -- I'm generally very comfortable if that eventuated.

[Operator]

[Operator Instructions] And I show our next question comes from the line of Kate McCutcheon from Citi.

[Kate McCutcheon, analyst]

At Carrapateena, you've given us grade adjusted mine numbers, thank you, good to see the grade coming up. Are you still feeding development waste this half, or what's driving that filter in mine to the mill tonnes and grade?

[Andrew Cole, executive]

Yes. Sure, Kate. I'll get Matt to talk us through for you.

[Matthew Reed, executive]

Yes, Kate we are. So we are continuing to add developments into the mill and development waste into the ore stream. Logic is the same as we've spoken about previously. So it debottlenecks our total materials handling system, and because our processing plant has capacity, it allows us to increase [indiscernible]. I expect we will continue to do these probably through until the point, where we commission crusher 2, and we create value out of that, at that stage.

[Kate McCutcheon, analyst]

Okay. And so to be clear, like this is by definition waste, are you saying that the starting and stopping of the materials handling system you would get to doing separate runs, it's accretive to see this material on the conveyor? Is that -- am I thinking about that correctly?

[Matthew Reed, executive]

Yes, that's spot on. So the interruptions to the conveyor system, as well as the -- [ learn ] the whole cycle, means that we're better off with the continuous blending into the system. So yes, spot on.

[Kate McCutcheon, analyst]

Okay. Great. And can I just try to understand what's going on at Prom Hill. So has the mine plan changed there? You're no longer milling the gold stockpile? Is that because you're running behind on ore movements, or are these higher grade stopes in Q4 the same ones you're always planning to take? And then second part of that question, what are you expecting copper recoveries to go through in Q4, if you're pulling that stockpile material?

[Matthew Reed, executive]

Yes. There's a couple of things going on there. There's a little bit of sequencing change as you mentioned, between -- primarily between Q3, Q4 and a little bit of Q1 next year. We've been aggressively increasing the amount of gold stockpiles, which was a planned activity. But we have had some challenges with plant performance, while we've been processing large amounts of that. So we backed that off a bit for this quarter, while we continue to work in parallel on plant performance improvements, and consider some minor capital investment as well and the merits of that.

So I think it's something that will continue, but we all said -- as we've said through Q4.

[Kate McCutcheon, analyst]

Okay. So for example, you did 84% and 72% for copper and gold recovery last quarter. What are you expecting for December quarter without doing those stockpiles anymore?

[Matthew Reed, executive]

Sorry, I don't have the numbers off the top of my head, but we can come back. But I think about it more as overall plant performance than just a matter of recovery. So it's about throughput and stability as well.

[Kate McCutcheon, analyst]

Right. Okay. So you'd be plant constrained per se or so if you are feeding the [ stock off ]?

[Matthew Reed, executive]

Yes, that's right. Yes.

[Operator]

I'm showing no further questions in the queue at this time. I would like to turn the call back over to Andrew Cole, CEO, for closing remarks.

[Andrew Cole, executive]

Okay. Thank you very much, operator, and thank you, everybody, for dialing in. As usual, if you have any questions you'd like to follow up with, please give Travis a call, and we'll aim to get the right people [Technical difficulty]

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Good day.