OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2018-Q4

[Andrew Cole, MD, CEO & Director]

Good morning, everyone. Happy New Year, and welcome back. I hope you all had a great break and have come back well rested after the festive season. So before I start the presentation today, I'd like to welcome a few new people to the OZ Minerals team. Firstly, Gabrielle Iwanow. Gabe is our new General Manager at Prominent Hill, and Gabe joined us at the start of this month after John Penhall moved across to a Brazil-based role. Secondly, I'd like to welcome Carlos Gonzalez. Carlos is our new CEO in Brazil, and Carlos joined us just this week with Tony Polglase, who is planning to retire in the next few months.Here with me today in the room is Warrick, our CFO; and also Luke Sandery, who is the acting General Manager of Prominent Hill towards the end of last year. So we've got quite a lot to cover today. So I'm just going to note that I'm going to mention only the highlights on each of these slides. I'm not going to go into too much detail. As usual, Warrick is going to touch on the financials. And then we'll spare at least half an hour at the end of this webcast for questions and answers.So please note the disclaimers and the compliance statements on the next few slides. These are available on our website if you'd like a more detailed read.So let me turn to strategy. OZ Minerals had a very quiet new -- Christmas and New Year period with everything going per plan, which is very pleasing. We've also had a very good start to 2019, which is built on what the team achieved in the last quarter of 2018 and, more broadly, our performance through the last year. So I'm very pleased to say that through 2018, we achieved all of our objectives against the elements of our strategy, with copper guidance in Prominent Hill being achieved for the fourth consecutive year. Carrapateena is now in peak construction and on track for commissioning in Q4 this year. West Musgrave is now in the middle of a PFS, and we've got a platform for growth established in the Carajás and Gurupi Provinces in Brazil. And lastly, we have a healthy and evolving portfolio of national and international exploration projects. So these activities were all enabled by our focus on continually evolving our culture and embedding a devolved business model into the company.So the next slide here shows a decent summary of our assets and projects. In 2018, we grew our exploration pipeline through new joint ventures, and most recently, we added a new project in Peru to the list. And I'll talk more on that a little bit later on. We also added projects in East Musgrave, Sweden and a number of highly prospective opportunities in Brazil. On the flip side, we dropped a project in Portugal after poor drilling results were received. Our Carrapateena Province expansion study is well underway as is our Prominent Hill expansion study, both looking to increase the value of both these assets.You may have also seen the news about our Explorer Challenge, which is an online mining exploration, crowdsourcing competition where geologists and data scientists worldwide have been invited to develop new approaches to identify new exploration targets at our Mt Woods tenements in Northern South Australia. And as you can see, we have many options in front of us, and we'll continue to take a disciplined capital management approach to help us prioritize and focus our efforts where we look for opportunities in priority mineralized belts. This focus will be complemented by us taking our company culture to the next level of maturity as we move to building a more modern and progressive organization and culture.On now to the asset time line, which gives you a rough indication of where our projects are up to and what next steps may look like for each of them. Details of each of these projects will be covered in the following slides, so I'm not going to dwell on this too long. You will note that we have now added a Carrapateena expansion time line and a Prominent Hill expansion time line to give an indication of the schedules for these works. These 2 projects are very material for OZ Minerals and they will build on the existing operations, so we're prioritizing focus on these. Please remember that the milestones for these projects will continuously change as we gain more insight into the risks and value opportunity for each and as we prioritize capital and resources to the most value-accretive opportunities.So moving now to a summary of how we performed in the last quarter of 2018. As I've said, Prominent Hill exceeded the 2018 guidance for both copper and gold production. And all-in sustaining costs and C1 costs were below the guided range. This is the fourth consecutive year that Prominent Hill has met or exceeded its plan, which I think is a testament to the team's focus on reliability and predictability. Mine life has been extended by another year, to 2030, which I think reinforces the pedigree of the quality of the resource.Carrapateena is now in peak construction, and we're on schedule for first concentrate production in Q4 this year. Unfortunately, though, our injury frequency rate quarter-on-quarter was higher at 7.5. I think this is due to an increase in low severity injuries in both exploration in the Carrapateena as we ramped up construction activity and people on the respective sites. Safety is an integral part of everything we do, and we have now prevention strategies in place to address this.Now unaudited 2018 net revenue came in at circa $1.1 billion, and our cash balance is now just over $0.5 million (sic) [ $500 million ] after -- despite having many growth investments made throughout the year.The West Musgrave PFS drilling program is completed and a resource model update progressed for Nebo-Babel, which will form the basis for an updated mine design, which will help us kick off -- to help us do this, we've actually kicked off an agile methodology-based process, which we're using to leverage other industry learnings, which will then help us finalize the scope for the PFS.Carájas Province optimization continues, with drilling program still underway at all the major projects to better inform the study scopes aimed to maximum value. Specifically, high-grade copper continues to be intersected in drilling at Pantera. Pedra Branca in third resource drilling continues to be encouraging, and CentroGold community-based work gives us optimism on the process to remove the injunction.Looking ahead, 2019 is going to be a transformative year, with many projects reaching key milestones. To support this, we have raised Prominent Hill 2019 gold production guidance. We will also be focused on delivering the Carrapateena project and progressing the pipeline of other growth projects, also while achieving our current year production and cost targets.Moving on to Prominent Hill Province. In Q4, the underground mine at Prominent Hill produced 765,000 tonnes of ore at 1.98% copper. Growth in the underground ore reserve saw the extension of Prominent Hill's mine life to 2030 with a 50% increase in proved underground ore resources -- sorry, underground ore reserves. Operationally, this year, we'll be about safely achieving the ramp-up of the underground to 3.7 million to 4 million tonnes per annum. Prominent Hill begins transition of processing the low-grade copper stockpile during the second half of 2019, reducing overall copper metal production from 2020. A gold processing trial is planned for the first half of 2019 to assess recoveries and mill throughput with a view to bringing forward processing of the regular-grade gold stockpiles by approximately 6 months to the start of 2020, rather than commence gold stockpile processing mid-2020. This would see gold output continue to increase, partially offsetting copper reduction from 2020. It will also impact C1 favorably, but noting that the plant will still get full capacity with lower overall metal output.So now I'm going to hand over to Warrick to take us through the financials in a bit of detail. Warrick?

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

Thanks, Andrew, and good morning, everyone. So just focusing on Prominent Hill here. And direct costs to concentrate were marginally higher than quarter 3, with a small increase in mining costs from some longer haul distances. C1 costs for the December quarter were favorably impacted by strong gold production, assisted by Western Musgrave and recoveries. Our underground productivity, however, continues to improve with higher backfill rates and an increase in development maintenance with the [ full ] jumbo now on site. Processing costs were also comparatively lower given the absence of a regular major maintenance shut in the December quarter. And we saw the reversal of the higher Q3 TCRC provision with the usual variation in customer mix and the associated variation in commercial terms.Pleasingly, our overall cost base continues to remain relatively stable. Whilst we are starting to see some cost pressure creeping in, in particular areas such as fuel and drilling expenditure, we continue to also focus on cost opportunities. A new power contract pricing applies from 1 January and completion of the open pit at the beginning of the year has locked in some of the current cost of production at Prominent Hill.If we move to Slide 11 now, and noting another strong quarter of cash generation, with an additional $70 million of operating cash generated over the previous quarter, with strong export volumes and favorable working capital movements contributing to the positive result.Total sales were just over 93,000 dry metric tonnes of concentrate, which was up 40-odd percent quarter-on-quarter. And we finished the year with a closing cash balance, as Andrew mentioned, of just over $500 million. The expenditure at Carrapateena began to ramp up as forecast with surface works now well advanced and an increase in underground development rates from the opening up of additional headings. We expect expenditure to continue to increase over the next 6 months also, in particular, drawing down current cash reserves. Spend on the Malu Paste Plant in Prominent Hill also began to accelerate this quarter and is due for commissioning at the end of this year. And as previously forecast, we also had a strong quarter of sustaining capital spend as general projects were completed and closed out for the year.The open copper stockpile continued to supplement underground feed for the quarter, contributing $32 million to the working capital performance. Underground production rates were solid once again. And in December, we surpassed our previous bench rates for underground ore production and backfill activity.We continued to progressively unwind our gold hedges now. And as at 31 December, we held just over 238 ounces (sic) [ 238,000 ounces ] at an average price of AUD 1,742 an ounce.Thank you, Andrew.

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. So moving now to Carrapateena, where there's been some really good progress both above and below ground, where total development has now reached nearly 10 kilometers, which takes us to 4 kilometers to the base of the Tjati decline and a vertical depth of just over 500 meters. The project remains on schedule for first concentrate production in Q4 this year. And as a result, we've provided guidance on physicals and costs for 2019 for Carrapateena the first time.In the quarter, the first lift of the underground crusher level was completed, which you can see in the photo on the slide. Works have also commenced on the surface ventilation rises. We anticipate accelerating underground development rate this quarter as more working areas become available to us. Carrapateena Province expansion works continued during the quarter, and we now expect to release results of the Carrapateena Province expansion scoping study late this quarter.At West Musgrave Province, the West Musgrave project was awarded Lead Agency status by the West Australian government, which is good news for us. And it should allow a more streamlined government approvals process. We've now completed the PFS drilling program and progressed an update for the Resource model for Nebo-Babel, which will form the basis for an updated mine design. We expect to release an update at West Musgrave resource later this quarter. As a result of our confidence in the project, we also started an infill drilling program that was scheduled to be completed during the feasibility study. This should help us expedite the FS schedule should the project progress.Now on to the Carajás and Gurupi provinces in Brazil. It's been 6 months since the Brazil assets have been part of our portfolio. And in line with good practice, we have run a parallel review, verification and improvement process, building on the knowledge we gained during the due diligence process leading into the acquisition of Avanco.At Antas, we saw a half 2 2018 performance which was marginally below expectations. Our mining volumes were challenged in the quarter by poor equipment availability in December and less efficient mining in the base of the Stage 2 pit. This and our shift in focus to the Stage 3 cut-back increased mining costs relative to the last quarter. However, our focus on operation improvements in Antas have seen record hourly plant throughput, driven by continued improvement in availability and utilization, largely offsetting the lower milled grade. Looking forward, we anticipate revising the mine plans for Antas in quarter 2 this year on completion of an updated Mineral Resource Estimate, which will then allow us to provide guidance for Antas in 2019.At Pantera, we continued the copper-gold resource drilling through Q4 to enable us to update the Mineral Resource Estimate and test the economics of an open pit design this quarter, so we can then decide on whether to exercise the option with Vale.Pedra Branca drilling, again, in third resource started last quarter and will continue into this quarter along with optimization of the feasibility study to allow us to make a construction decision likely later this year. In the Gurupi Province, resource delineation drilling continued into the Contact Deposit at the CentroGold project, and the PFS Hill of Value optimization exercise to identify optimal project scale progressed to plan. We remain focused on completing the PFS and undertaking the Mineral Resource update post the current drilling programs at CentroGold [ but our client will ] mainly focused on continuing the legal process of lifting the injunction, which we see as a key requirement before spending substantive money in the province.As you can see, our growth pipeline continues to mature. So I'm just going to touch on a couple of things here. The 2018 drilling program, the Eloise project in Queensland was completed in advance of the wet season. Drilling continues to intersect mineralization along the entirety of the Jericho trend, and mineralized structure remains open along strike and at depth. This exploration project has been quite successful and is rapidly moving toward the resource drill-out with our partner, Minotaur Exploration.At Punt Hill, about 50 km south of Carrapateena, we completed drilling on 6 holes and are expecting results from that drilling this quarter.At Antas, 4 holes on the adjacent Serra Verde lease targeting geochemical and geophysical anomalies along strike from historical mineralization and artisanal workings intersected narrow copper mineralization. Work is going to continue through 2019 on testing peripheral and deeper targets in and around Antas.Finally, during the quarter, we also entered into an earn-in agreement to explore IOCG deposits on the Paraiso project in Peru, taking our international earn-ins to 3, now in Mexico, Sweden and Peru.The next slide just provides a bit more information on the new Peru earn-in. It's a good exploration target with existing copper drilling intersections and surface indications of a large system. But the project will allow us to inexpensively test the concept and then decide whether we persist or not. And it's also a good low-cost and low-risk way of learning how to work in Peru with a new partner. This new growth pipeline option, I think, is a testament to our team who've done a very good project with a private company that wasn't actively looking for a partner.For ease of reference, we've provided an overview of some of the upcoming milestones for the year on the milestone slide. And as you can see, we have many upcoming milestones resulting from work programs, which are all already underway. I'm not going to go through each of these in detail, but it is clear that by the end of 2019, assuming all the milestones demonstrate strong economic viability and manageable risk profiles, we should have clarity on whether our Prominent Hill underground expansion is feasible.Carrapateena operation, which should be in operation and in ramp-up mode. Our Carrapateena Province expansion should be well into a pre-feasibility study. Our West Musgrave feasibility study should have commenced. We should have a new Antas life of mine plan. Pedra Branca underground mine construction should have commenced. CentroGold injunction should be removed and a feasibility study commenced. Pantera should be into a scoping study phase. And our pipeline of exploration projects should be deemed tested and moved on to the next step or moved out.To wrap up and conclude the presentation piece of today's call, I'm going to now talk through our updated guidance for 2019, noting we are now providing guidance for the year ahead. These production cost guidance metrics do not include guidance for Antas, which, as I said previously, will be released in Q2 this year on completion of the Mineral Resource update and mine plan revision.So starting first with Prominent Hill. The guidance for gold in 2019 will be increasing from what we previously forecast due to an increase in gold feed grade. Importantly, we are planning to conduct a gold processing trial to assess recoveries and mill throughput rates of stockpile material with a view to bringing forward processing of the regular-grade gold stockpile in place of the low-grade copper stockpile from 2020. These results will allow us to optimize our mine plan from 2020 on.On capital costs at Prominent Hill, just to highlight a few components of the 3 different expenditures lines that you see here. The underground sustaining capital expenditure is mainly ongoing mine development to keep asset at 3.7 million to 4 million tonne per annum rate. Site sustaining capital expenditure encompasses multiple maintenance and upgrade projects across the site. Growth capital expenditure includes drilling for the Prominent Hill expansion study, mine development, resource definition drilling, the Malu Paste Plant and Malu East ventilation.In terms of operating costs at Prominent Hill, we're expecting 2019 all-in sustaining cost and C1 cost guidance to remain in line with 2018. Our lean capital discipline approach will ensure Prominent Hill continues to operate at the bottom part of the cost curve.At Carrapateena, again, just to clarify what's in the different expenditure lines. Site sustaining expenditure is primarily engineering and maintenance equipment. Growth capital expenditure covers preproduction capital, mine development and underground infrastructure development. And we anticipate additional commissioning expenditure of $40 million to $45 million in 2019, but this will be offset by sale of concentrate from commissioning ore in the first quarter of 2020.Moving on now to growth guidance. We will continue to take a province approach through 2019, with earn-in agreements progressing a pipeline of opportunities, which will leverage exploration expertise in specific geology and locations. Our exploration guidance for 2019, $30 million to $35 million, which provides for works already scheduled and planned and the opportunities that may arise during the year.And lastly, the guidance on the project studies and associated drilling commitments. We expect to spend between AUD 45 million and AUD 50 million on already approved study up until the next milestone, as indicated by the stars on this chart. If the respective study results show that they should be progressed and the Board approves the project to proceed to a further milestone, additional funds, on top of the $45 million to $50 million, will be incurred. As these projects progress, we will keep you informed and update this guidance line item as required.So I'm not going to go through the appendices, and they've been attached to the presentation today for your ease of access to the information. But if you do have any question specifically on those, please get in touch with Tom Dixon. He could organize follow-up questions for you, our answers for you. So I'm going to finish off today's presentation with some quick final messages before we open up the call for questions.I think 2018 has been a very successful year for OZ Minerals generally, both from an operating perspective and delivering on our growth strategy. We've set out our priorities in the release for 2019. These priorities include delivering our production and cost targets; commissioning the Carrapateena project; maturing the Prominent Hill and Carrapateena Province expansion studies; optimizing and developing the Brazilian assets whilst continuing to evolve our modern mining culture fundamental to how we create a new value for our stakeholders.So now I'll turn over -- move to Q&A. So operator, can you please refresh us on how to ask questions, please?

[Operator]

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

[Michael Slifirski, Managing Director]

Look, just 2 simple ones for me, please. First of all, the gold success at Prom Hill, you did well this year. You're projecting more next year. Just trying to understand how that's been achieved. Is that -- how much of it is metallurgical? And is there any sort of read-through potentially for Carrapateena or some of these learnings from Prominent Hill that have allowed you to do better with gold at Prominent Hill than you'd initially thought? Has that got a positive read-through for Carrapateena? Or the mineralization styles sufficiently different that it's irrelevant?

[Andrew Cole, MD, CEO & Director]

Michael, firstly, Happy New Year to you. Look, let me answer the half -- answer the second piece of your question, and I'm going to hand to Luke to talk a little bit about how we got to where we are at Prominent Hill. Look, I think it's -- the mineralization styles are very similar as we've talked about before. But I think it's a bit premature to be thinking about extrapolating learnings from Prom Hill to Carra around the recoveries of gold. Don't get -- you'll see why when I ask Luke to answer this question specifically about Prom Hill. So I wouldn't read into Prominent Hill results and extrapolate them to Carrapateena. That would be my guidance at the moment. So Luke, if you can just talk a bit about how we achieved gold guidance or above gold guidance this year?

[Luke Sandery, Acting General Manager of Prominent Hill]

Yes, sure. Yes, so I guess it was a combination of quite a few things. Our throughputs were good throughout 2018. And especially in the back quarter of the year, we did see some increased gold in feed. And we also took the opportunity to feed some more gold or, I guess, because we were going quite well on the copper side of things, and rather than disrupt our sequencing, we took the opportunity to pick that additional gold grade.

[Michael Slifirski, Managing Director]

Okay. Secondly, with respect to Carrapateena, still a lot of activity to be completed. And I guess we saw a progression through '19 -- sorry, '18 of less than what you had initially forecast, indicating perhaps less activity as activity was deferred. Yet you're confidently predicting or brave enough to give a guidance number for what you expect to produce at the end of this year. What gives you the confidence to make that projection?

[Andrew Cole, MD, CEO & Director]

Well, Michael, look, there's a lot of process and governance and control that goes around a project like Carrapateena, as you can imagine. And at the -- I think it was the last call we explained some of the things we've done to move capital out for Carrapateena. The Carrapateena plants now have full capacity and construction is well underway. So we're quite confident that when you look at the integrated master schedule and all the dependencies that the project is going to be delivered on time. If I didn't think that, I wouldn't be giving guidance for [ physicals ] for 2019 as the project slightly -- is still listing projects and executing projects. That's the way the various packages are being executed today, and we've included a couple of photos in the deck just to show you what's typically and actually being done, shows that it is on track.And as I've said right from the outset, Michael, the critical path activity at Carrapateena has been underground development and it will remain so through the duration of this project. And I think the team has done exceptionally well in maintaining or improving their underground development rates. The fact that we're now into the development of the first underground crushing chamber is very positive. And if you look at the chart on underground development, you can see that the Downer-OZ Minerals alliance team have really ramped up the underground development rate. So they are staying on track, which gives me a lot of confidence because the highest-risk underground development phase was through the transition of construction contractors and through the base of the covering sequence into basement rocks. So there's a collection of things in that, Michael, but it's giving us more confidence, not less.

[Operator]

Your next question comes from Lyndon Fagan with JPMorgan.

[Lyndon Fagan, Analyst]

Look, first question is just on the Prominent Hill CapEx guidance, just a bit of unexpected growth expenditure there. I'm just wondering whether that flows on into 2020 and beyond. That's the first one.

[Andrew Cole, MD, CEO & Director]

Go ahead, Lyndon. Do you want to tackle this one, Luke, in terms of capital guidance? I mean, what comes -- maybe explain what it's covering now and then what it's going to look like?

[Luke Sandery, Acting General Manager of Prominent Hill]

Yes, sure. So I guess the increase in the capital guidance is some of those key projects that we -- key enabling projects that we're putting in, in 2019. So those being the fans in the East Malu and also the paste plant for Malu as well. So both of those are critical in our ramp-up to full production in all areas of the Malu underground.

[Andrew Cole, MD, CEO & Director]

So I'll just jump in on this one, Lyndon, as well. You may remember that our original underground guidance was 3.5 million to 4 million tonnes per year. We're obviously pushing hard to get to the upper end of that guidance range. And you can see we're now talking about 3.7 million to 4 million tonnes per year, and we're going to keep working at increasing that number. So some of the capital is also about expediting our extraction rates, if you like.

[Lyndon Fagan, Analyst]

Right. So those projects will finish in 2019? Or should we expect a bit more next year?

[Andrew Cole, MD, CEO & Director]

No, those projects would be completed in 2019. You need to remember, though, Lyndon, that the underground development is going to stay through the life of this project, though.

[Lyndon Fagan, Analyst]

Okay. Next one is just on Antas. Can we talk a bit more about the difference between the ore processed and the ore mined? Obviously, a few issues there. Just trying to get a better handle on what's happening.

[Andrew Cole, MD, CEO & Director]

Yes. So at the moment, at Antas, let me break -- let's talk about mining first. The Antas mine has got 2 stages at the moment. So Stage 2 is getting right into the bottom of the pit. So -- and Stage 3 is the cut-back on the mine itself. So coming into the wet season, we put a lot of focus on Antas for Stage 2 ore mining, and we've created a fairly substantial stockpile sitting there. And one of the reasons we've done that is because, actually, coming into the wet season, it gets very difficult to manage, as you can imagine, a deep, narrow open pit with 2.5 to 3 [ minutes ] of rainfall a year. So pretty wet season, I put the focus on ore mining. And as we've gone into the wet season, we're now shifting our focus to the cut-back. So that is a more practical way of managing open pit leading into the wet season.The process in our plant is that we've had improvement teams and the projects focused on increasing plant throughput and recoveries in the processing plant. And right from the outset, we've said that Antas was mining constrained. Now we're just trying to shift that paradigm to make it plant constrained. So the teams have been doing a very good job at improving plant performance. But there was never a stockpile seen behind them. So the quicker they can get that through the plant, the quicker we can generate cash.

[Lyndon Fagan, Analyst]

And final one for me. Just now that you've got the Carra expansion project in the Gantt chart which suggests that you're building a block caving 2.5 years, just wondering whether you might be able to share some initial thoughts on the scope of that project. I imagine it will be quite significant from a capital point of view as well.

[Andrew Cole, MD, CEO & Director]

Lots of opportunities in them. I mean, that's not what we're working on right now, obviously. So we've actually been working on the scoping study for the expansion study over the past several months. And we plan to be able to share the scoping study results and the PFS scope this quarter. That study has now been through independent peer reviews. We have an independent tech advisory board working with us on that project. We've got a dedicated project director and a team in place. So -- although I can't get into details now because it's still going through the final process of tying up that scoping study, but it's looking positive, it's looking encouraging. Probably not going to say much more than that just given we haven't released any data on those yet, Lyndon. But yes, block cave is one of the options we're talking about at foreign expansion study, along with some level cave extensions and stoping, and it's about sequencing Carrapateena, Khamsin, Freo Doctor and Saddle and anything else with the exploration project [ comes, I believe ].

[Lyndon Fagan, Analyst]

So those other orebodies, how do they fit in? I mean, are they ranking below an expansion at Carra itself? Or are you looking to exploit those orebodies at the same time?

[Andrew Cole, MD, CEO & Director]

Admittedly, that question is one of the very questions that the scoping study was aimed at addressing. So I can't give you the answer to that yet. But it is looking at value optimizing the sequence between those different resources. Now you need to remember, we've got a maintenance resource on Freo Doctor. We don't have a resource on Saddle, and we don't have a resource on Khamsin. So the only resources we are working with at the moment is Carrapateena and Freo Doctor, plus drilling programs at the other mineralized bodies. So there's a level of maturity that we need to take into account in all of these as well. Probably related there, Lyndon, but this quarter, we'll come out and give you the results of how well these things can sequence together.

[Operator]

Your next question comes from Dylan Kelly with CLSA.

[Dylan Kelly, Former Research Analyst]

Congratulations on a great result and finish to the year. I just want to carry off on the earlier question about the transition from production ore, I think, in this year and in the future years. How are you thinking about sort of the volume of material going forward? And what gives you the confidence that you're going to be able to achieve or, at the most, open up enough working fronts to be able to develop the full nameplate of the plant?

[Andrew Cole, MD, CEO & Director]

Dylan, can I just check, are you talking about Carrapateena here?

[Dylan Kelly, Former Research Analyst]

Yes, Carra. Yes.

[Andrew Cole, MD, CEO & Director]

Yes. Look, I think I've answered part of that question with Michael already. The critical path activity for Carrapateena has been since September 2016, I think, when we started building the decline underground development, and that remains the critical path activity. We have space in our schedules for surface infrastructure and the ancillary infrastructure. So it's underground mining, which is critical path. And if you remember, a couple of years ago, the risks we talked about with underground mining were development rates through cover sequence, mainly the shale and water inflows through some of the aquifers. That were some of the key milestones. Now we've already gotten through those in our underground development. And the team, by and large, hasn't missed a beat. So I think they've done exceptionally well. We've also transitioned through the contractors, underground contractors from PYBAR to Downer, and that's going well as well. The number of phases we've opened up is on schedule, and they've really managed that complexity of that ramp-up very well. So it's giving us more and more confidence that, that underground mining team, which is an alliance between OZ Minerals and Downer, is working very well.There still remains risk in this, and that's a ramp-up. We've still got to build out the development levels. And the cave will propagate at its own rate. So I will be uncomfortable giving guidance for 2020 at this stage, but we're very comfortable with what we know today about giving guidance through the completion of construction, the commissioning and the rest of 2019, which is what we've given you today. So it should give you confidence that we are more comfortable today than we were a year ago about the delivery at Carrapateena to be on track.

[Dylan Kelly, Former Research Analyst]

Okay. So in terms of your ramp-up profile, we should just be assuming exactly what was in the things from mid last year?

[Andrew Cole, MD, CEO & Director]

Yes, I think that's appropriate. We're not giving you the alternative information at this stage. So we're issuing an 18-month ramp-up, which takes -- goes from Q4 through mid-2021. So it's an 18-month profile. And all of our modeling and peer reviews we've done suggest that, that's appropriate for us today. And we don't have any information that say differently.

[Dylan Kelly, Former Research Analyst]

So just on the point with the peer review process, did you undertake any sort of benchmarking activity versus other ramp-up profiles and sublevel caves in the country and elsewhere?

[Andrew Cole, MD, CEO & Director]

Dylan, we have. We've done a lot of that. So we've done -- obviously, most of our team at Carrapateena come from other sublevel and block cave mining operations from around Australia and elsewhere, so between capability and experiences here, but then we've also done a lot of benchmarking. And most of the companies, the service providers that we're using, including our peer advisory board, are all experienced in caving operations. So there's a lot of data sitting out there in the industry that we are leveraging.

[Operator]

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

[Hayden Bairstow, Analyst]

Andrew, just a couple on just the time lines that you gave us at the site, too, just some of the slippage on Pedra Branca and Centro. Particularly Pedra, I mean, the whole time frame with early works that are coming in during the feasibility study, just want to get a better understanding of your thoughts around that. And I assume Centro is just more around getting all these injunctions lifted, which just takes a bit longer. Is that sort of how we think about it?

[Andrew Cole, MD, CEO & Director]

Yes, that was Centro, Hayden. Centro is entirely about the injunction effectively, which has slowed drilling down on the project. We've got 1 rig turning, and we're doing work on the study. But we're not prepared to commit material money to that project until the injunction is removed. So that's where most of the energy is going. Look, and this is partly about making sure our people and our teams are focused on that milestone, which will then allow us to ramp up. So Centro is about the approvals process effectively.Pedra Branca is a little bit different. So Pedra Branca, we've put rigs in the Pedra Branca at the end of last year. We've got more rigs there now, increasing our confidence in the third resource and the extensions of resource. So what we're trying to do is get a handle on the predictability of the mineralization to fully scope the processing plant site. So that's what's underway now. We'd like to include those drill results. So look, we have pushed the time line back on Pedra Branca. I think we're being probably a bit conservative in this, but -- and it's going to keep moving as we get more information on the resource. So I'll give you those time lines, but we've given you the new guidance. But yes, it has moved backwards compared to the last guidance we gave you for Pedra Branca.

[Hayden Bairstow, Analyst]

And what were the early works for you? Did you have to get an underground sample? Or what were you thinking?

[Andrew Cole, MD, CEO & Director]

Like the asset? No. It will be purely about if the economics look good, we will get cracking on the access decline. So as you know, Pedra Branca performance already in place, and it's pretty shallow. It's at the top of the orebody. So it'll be about making commitments on getting the decline going, probably things like building power lines that connect to the site, et cetera. That's probably what early works would look like.

[Hayden Bairstow, Analyst]

Okay. And just on Prominent Hill, just a commentary in the quarterly around this network you're doing on bringing 4 gold stockpiles as opposed to the copper stuff. I mean is there any guidance you can sort of give on the magnitude? If you do that, what copper versus gold looks like in 2020 as opposed to what the previous guidance was?

[Andrew Cole, MD, CEO & Director]

Look, Hayden, that question you're asking is the very question that we want to answer because the gold price has changed a bit. This potentially presents an opportunity, so we're probably driven by value. So we will do what is most valuable. And these trials that we're planning are to dedicated plants and some of the stockpiled materials in periods of time to give us very accurate information on the mill throughput and recoveries so we can then more accurately schedule the stockpiles through the plant on top of the underground feed. So I don't want to go out on a limb now and making a guess or guesses about what that might look like. I'd rather wait for that -- those trials to tell us how we should sequence to maximize value. Now if it doesn't give us any new information than what we already know, then we'll keep our base plan.

[Operator]

Your next question comes from Tim Hoff with Deutsche Bank.

[Timothy Hoff, Research Analyst]

Look, I just wanted to have a quick question on Prominent Hill around the gold. I mean I think you've answered a couple of the questions, but is that essentially an indication on how you're viewing the copper pricing in the short term versus the gold price?

[Andrew Cole, MD, CEO & Director]

Tim, no, this is not about our forward predictions of price. That is a short answer. This is entirely about plant performance effectively and how that plant is going to perform given what we know about the ore. Maybe, Luke, you can talk a bit about the differences and how it looks and mineralogy of these things and why we're doing it.

[Luke Sandery, Acting General Manager of Prominent Hill]

Yes. Sure. So it's about putting this large percentage of gold ore through and seeing how that reacts in that plant and seeing what kind of recoveries and what kind of throughput we have with predominantly gold feed. And I guess what we -- essentially what we're looking at is, is it any higher than what our current assumptions are and will that deliver more value at Prominent Hill. And that's actually what we're really looking at. Is there more value to be had in processing some of the ore -- some of the gold ore in preference to some of the lower-grade copper?

[Timothy Hoff, Research Analyst]

Absolutely. Absolutely, yes. And just on Carrapateena, have development rates lifted as you've entered the granite versus sort of, I guess, overlying shale when you weren't going through aquifers and getting held up there?

[Andrew Cole, MD, CEO & Director]

It's -- I'm not sure I would distinguish it from going from the shale to the granites, Tim, because a number of things have changed here at the same time, if you like. So we changed contracting companies that are supporting us. We've gone from sedimentary rocks to basement rocks. We've gone from aquifers to fracture control water and basement rocks. And we've gone from a couple of headings to multiple headings. So there's lots of things that have changed at the same time. Overall, I think -- so the other thing that's changed is just the maturity of the leadership team. The systems they're using for running the underground operations have also improved. So all of those things are making an impact. And all of those things are resulting in better underground development rates. I wouldn't put it down to any one of those. I mean, it's a cross-section, a combination of all of them.

[Timothy Hoff, Research Analyst]

And now that you're actually in basement rock and your geos can get down there and have a look at in situ material, has your understanding of the host rock changed at all? And have you had to make any changes to infrastructure planning or how you're viewing the overall rock mass?

[Andrew Cole, MD, CEO & Director]

Not that I'm aware of, Tim. There's nothing material that's changing the geos' model of our phases, obviously. So it's not just basement rocks. But since we may rotate the miner, the in situ stress measurements that was well earlier last year, there haven't been any other material changes. There will be continual optimization, obviously. They do cover drilling and look for faults and things and geos, et cetera, but none of those changes are material.

[Operator]

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

[Daniel Morgan, Director and Analyst]

Most of my questions have already been answered, but maybe just a follow-up on Carra, the treatment of your early-stage production of sales. I presume you're not going to be putting anything through the P&L until possibly second quarter of next year when you declare commercial production. Is that how you should think about it? Or if you could just talk about the accounting.

[Andrew Cole, MD, CEO & Director]

Yes. So I think sort of 2 components at work here, Daniel. So really sort of 2 components: the pre-commissioning component, which cost component can be capitalized and then offset with the revenue, the associated revenue that comes with that; and then anything post commissioning would, in fact, hit the P&L in terms of that production. And that's what's guided on in the guidance table, is that second component. So there will be an associated C1 cost that comes with that. But at this stage, just depends on the total quantity that we get out of the pre-commissioning phase as to going out for shipment. So we're basically indicating at this stage that our first sale -- actual sale -- physical sale of material would be in Q1 2020.

[Operator]

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

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

Good results. Good start to the year. Just a follow-up on that last question. So Warrick, just to understand that correctly, so it's just a balance sheet item for FY '19 and '20, we start to look at the P&L impact. And the cost guidance you've given, can you just give us that offset for the capitalized component versus the revenue?

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

No, the cost guidance we've given you is what would actually appear in the P&L in relation to the production, the production that we've guided on, which is that second part. So that's really the production that we expect in Q4. And then any production that comes out of the pre-commissioning is the bit -- it's the part that's capitalized and offset by the revenue.

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

Okay. How do I think about D&A in 4Q?

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

Sorry, how do you think about...

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

Depreciation, amortization. When do you start depreciating the capitalized vest against Carrapateena? And how do I think about that profile?

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

Yes, so that starts up post -- comes in post commissioning and will go into -- effectively into inventory in the balance sheet.

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

Okay. And whilst I've got you, another one. Could I have the TCRC reversal in 4Q versus 3Q? Could you just elaborate a bit more?

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

I mean, as you see each quarter, just depending on where we're selling the products -- our product to, we see this fluctuation in terms of our total TCRC and the freight-related return costs. So really, all we're seeing there is a different set of customers in terms of the fourth quarter versus the third quarter.

[Operator]

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

[Andrew Cole, MD, CEO & Director]

Okay. Well, thank you, operator. And thanks, everybody, for joining the call. If you have any further follow-up questions, please give Tom a call, and we'll get the right people in the room to hopefully answer those questions for you. Thanks for your time. I hope you all have a great year. Thank you.