OZ Minerals Ltd

ASX:OZL

Earnings Call Transcript 2019-Q4

[Andrew Cole, MD, CEO & Director]

Good morning, everybody, and welcome you to our 2019 fourth quarter report. I'm joined this morning by Warrick Ranson, our CFO, as per usual. Today, we have released a summary of our fourth quarter performance and a summary of the 2019 full year production results. So we're also taking this opportunity to set out our plan and our guidance for 2020. And you may note in addition, for Carrapateena specifically, we're also providing 5-year annual average guidance on key metrics to give you clarity as it transitions into operations as many of you have asked for.So firstly, I'd like to acknowledge our employees and our stakeholders for their contribution in what was a milestone year for OZ Minerals. I'd also like to recognize the many people who have been impacted by fires and extreme weather events over these past months and hope that, all of our support, they can get back on their feet.In December, we produced our first salable concentrate at Carrapateena within the time frame we set out for ourselves back in 2017, which I think is a remarkable achievement for everybody that's been involved. So I'd like to thank them all for this effort. It took just over 2 years from the final Board approval of Carrapateena for the delivery of the first salable copper and gold concentrate. This is a significant milestone for OZ Minerals, and it symbolizes the delivery of our growth strategy that began 5 years ago where we were just a single mine organization.During this period, Prom Hill, which is a mine that was once slated for closure in 2018, has recorded 5 consecutive years of meeting or exceeding copper guidance while extending its life until at least 2031. It also has supported the reliable payment of dividends, the construction of Carrapateena and the development of the company. It has become a reliable and consistent quality performing mine. Along with our Brazil acquisition and study works on the West Musgrave and other projects, we are now a multi-asset company with a pipeline of growth options at various stages of maturity.These achievements are aligned with our modern mining strategy, and like our company, that strategy has evolved since we launched it 5 years ago, the latest version being on the screen now. Even though it's evolved, this strategy, at its heart, has always been about value creation for our stakeholders. We are a copper-focused company. We are confident in the long-term demand for copper from traditional sources as well as from the rapidly expanding focus on carbon reduction.Our strategy today contains more about how we deliver the what, on partnering, being lean and innovative, and investing responsibly considering the impact of our decisions on the 5 key stakeholder groups that we list out on our wheel. We have a devoted operating model, which allows us to be nimble and have clear lines of accountability. We see culture as being a competitive advantage in our how we work together principles, and behaviors underpin this strategy.Slide 5 and 6 provide an overview of our projects, their geographic location and the status of the most advanced projects. Our pipeline is now strong and diverse, which, when compared to just 5 years ago, has matured significantly. Those projects are at various stages of development, and Slide 6 shows the upcoming indicative milestone for each. They have and will continue to move as we learn more about each project. They are all, of course, dependent upon the merits of the projects themselves and Board approval.Again, where we allocate capital across those projects is driven by where we can create value. Having choice is an asset and a great problem to have. It forces prioritization, which means capital get used for the most value-creating options.On the summary slide, we highlight a few key achievements for the last quarter and the last year. Firstly and most notably, we achieved first copper and gold concentrate at Carrapateena and ended the year with a sublevel cave mine being ramped up on schedule. We also announced that we are now targeting a faster 12-month ramp-up period to achieve the 4.25 million tonne per annum throughput rate rather than the original 18-month period as a result of a number of changes, most notably a larger cave footprint. And with some investment, we are now aiming to increase the annual throughput rates at Carrapateena to target 4.7 million to 5 million tonnes per annum from 2023 onwards.At Prominent Hill, we achieved our copper guidance for the fifth consecutive year, and we've added another year to the mine life, which is now out to 2031. Our Caraj?s Hub strategy took shape with the first satellite mine, the Pedra Branca underground, now in construction and a number of strategic agreements reached with Vale that helps simplify our Brazil operations, reduce capital development and expand the growth pipeline. We marginally improved on our previous year strip-up. And financially, our revenue for the year was $1.1 billion, and we closed the year with over $130 million of cash after substantial growth investment.I'll add more detail on our 2019 performance, projects and planning for 2020 shortly, but I'll first hand to Warrick to provide an overview of the financials.

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

Good morning, everyone. As Andrew has just mentioned, we finished the year with a strong closing cash balance of $134 million, following another good quarter of sales volumes and the continued conversion of our ore inventory stockpiles, which supplement Prominent Hill's solid underground performance. A final shipment just before the close of the year resulted in total sales for the year, which were marginally ahead of production, and receivable and concentrate balances stayed around September levels. Payables increased with the usual year-end influx of supplier invoicing and accruals.We invested a further $136 million of cash into Carrapateena, producing first concentrate in December, in line with our FSU commitment. As per the FSU, we will continue to see further investments in 2020 on items such as the crushers, completion of underground infrastructure and, of course, underground mine development. We'll come back and talk more about that under the guidance section.Cash invested in the growth pipeline was marginally higher than the September quarter with the anticipated pickup in exploration drilling. However, in line with our capital management strategy of turning these projects over, where the results have not progressed to where we want them, we made the decision to withdraw from the Oaxaca project in Mexico.Growth expenditure in Brazil was consistent with the prior quarter with limited activity in Gurupi and the commencement of decline works at Pedra Branca. Drilling continued in the broader Carrapateena province to support the Life of Province expansion studies, and the block cave team continued its pre-feasibility work focused on a range of infrastructure design activities. We continue to expect to draw down on our debt facilities this year as we transition through the Carrapateena ramp-up period and complete the associated infrastructure development.Andrew?

[Andrew Cole, MD, CEO & Director]

Thanks, Warrick. Turning now to Prominent Hill. In summary, it's been another strong year of delivery. In Q4, the processing mill throughput was the second highest for any quarter since commissioning. For the fifth successive year, we've delivered on our copper guidance. Both our copper and gold production is also at the upper end of 2019 guidance. And through additional studies and optimization, we've extended the project life of Prominent Hill a further year to 2031.Full year C1 costs of USD 0.56 per pound and all-in sustaining costs of USD 0.99 per pound were below guidance and comfortably in the bottom cost quartile of global producers. Underground ore movement, however, was impacted by lower equipment availabilities in the quarter following several unplanned maintenance events. To manage this, progressive replacement of the trucking fleet is underway and will be completed by mid this year.I'm now going to hand back to Warrick for the financial performance in a bit more detail, please.

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

Thanks, Andrew. Group C1 costs remained strong this quarter with both Prominent Hill and the Caraj?s completing the quarter strongly on both the total cost and production basis. As Andrew mentioned, we've produced first con at Carrapateena as well, though there is no impact on unit costs with those costs being capitalized. That will also apply to the circa 295,000 tonnes of stockpile development ore, which we'll process in Q1 this year, with associated direct processing and selling costs allocated against preproduction capital together with a credit for the revenue component.Additional gold production enabled us to offset some of the current volatility in the copper price, albeit this was partially countered by the gold hedge contracts that we have in place.Antas continues to benefit from small high-grade ore pockets as the mine comes to the end of its development, and the level of waste stripping is reduced. Mill grades reflect the blending of lower-grade material we have from the existing stockpiles there, although overall production was aided by continued strong utilization and recovery rates in the processing plant.In the previous quarter at Prominent Hill, production levels were impacted by the planned mill maintenance shutdown and of course, the Green Zone military closure. Underground ore volumes were marginally lower than the September quarter. However, additional development meters were progressed. And the mill continued to perform extremely well, running at an 11 million tonne run rate. Our sustaining capital picked up in the fourth quarter as expected to finish the year at planned levels.

[Andrew Cole, MD, CEO & Director]

Now for Carrapateena, a lot of milestones listed on the slide and for 2019 here. First copper-gold concentrate was produced, and a faster ramp-up is now being targeted. Underground decline development is now nearly 5 kilometers from the face of the Tjati decline. We've now started caving the first sublevel cave and are building the ROM on surface. And last night, we introduced all of the underground crusher for the first time, and we expect to start moving ore via a conveyor to surface in the coming days.Looking forward, from 2020 to 2022, you will see further investment into Carrapateena, and the spend's going to fall into 3 categories. So firstly, the first category is spend that has been carried forward from 2019 as outlined in the original FSU plan, and this includes things like the Western Access Road, although we did upgrade the Southern Access Road during the project period, and the spec of the Western Access Road will change as a result of our increased throughput target rate and possibly the block cave expansion study; the commencement of the second TSF lift; completion of crusher 1 and sundry infrastructure; and some project finalization costs as we wrap up the build contract.The second bucket is an increase in some costs over that we anticipated in FSU. The main one here being an increase in the underground development unit rate as compared with that assumed. A lesser amount is attributable to increase in tech services activities, planning and oversight to improve our knowledge and planning for the mine.The third bucket is a purposeful investment to increase metal production. As a result of the last couple of years of activity, we've learned a lot about the orebody, its metallurgy and metal controls. As a result, we are now targeting an annual throughput rate of 4.7 million to 5 million tonnes per annum from 2023 onwards, along with improved metal recovery. Examples of the projects that we expect to enable this will include the previously announced increase in the sublevel cave footprint size, the bringing forward of crusher 2 and ore pass installation, a tailings pump system upgrade, a hydroflow installation, and the addition of a second cleaner circuit along with a list of other smaller debottlenecking activities. So Warrick's going to touch on this a little bit more in the guidance at the end of the presentation.So let me just get into a bit of detail on the ramp-up for a moment, as I'm sure some of you will be interested in this. So following first concentrate production in December 2019, the plant was shut back down to allow the Ausenco Downer Joint Venture unfettered access to the plant to complete all remaining construction items and commissioning tests for the MPP. ADJV is finalizing their schedule with a view of the processing plant being handed back in the coming weeks.So just something to remember as I previously explained, we are currently not plant constrained during this phase of the ramp-up, so we do not expect to see 2020 guidance impact with these plant finalization activities given the work completion schedule. In the interim, underground ore continues to be stockpiled, which will, in part, work to our advantage as we will be able to run the mill fuller and for longer once we start the plant back up again.Post final plant handover, as part of the ramp-up, the plant will then be tested and optimized through the first half of 2020 leading to gradual throughput and recovery increases, which will drive progressively higher output in the second half of this year. So in summary, Carra now enters a planned 12-month ramp-up towards our targeted 4.25 million tonne per annum throughput rate by the end of 2020. As a result, we expect to see Carra turn cash positive in early '21. Beyond the Carra mine itself, we remain focused on the development of the broader Carrapateena province, and we're on schedule to release the Carrapateena block cave expansion PFS mid-2020.So turning now to our Brazilian assets. Last year, we announced the development and implementation of our Caraj?s Hub strategy. As at the end of 2019, the existing Antas open pit mine exceeded guidance for our copper and gold production. We're also finalizing the transition of our previous Antas open pit Australian mining contractor to a local mining contractor that enables reduced operating costs. The 1 million tonne per annum Pedra Branca underground mine also commenced decline development following final project investment approval. And as of today, the team are just ahead of schedule with about 110 meters of decline development now complete.As a recap, pre-concentrated ore from the Pedra Branca underground mine will be trucked about 75 kilometers to the existing Antas processing facility, making it the first spoke in the Caraj?s Antas Hub. In 2019, we also entered into a series of interlinked strategic agreements with Brazilian miner, Vale. They greatly simplify our operations, allowing us to draw on Vale's extensive transport network, utilizing their processing facilities and gain access to small to medium high-grade Vale exploration projects within the Caraj?s. The earn-in agreements with Vale give us the immediate option to purchase Santa Lucia and Circular providing a pathway to potential future satellite mines to the Caraj?s Antas Hub.Turning now to the Gurupi province, where permitting and village relocation planning continue to be a primary focus for the CentroGold project. Meetings were held this month with Brazilian officials as to progressing the removal of an injunction related to this project with further meetings scheduled in the coming couple of weeks. We were expecting the injunction to be removed successfully at the end of last year, but it wasn't to be. We remain hopeful that it will be removed early this year with all indicators pointing to this being the case. Once removed, we anticipate commencing a feasibility study, to commence regional exploration and the relocation of the small community.So back in Australia at West Musgrave, where the pre-feasibility study update is on track for release this quarter. I expect the pre-feasibility study release to be accompanied by a maiden ore reserve and an updated mineral resource. Given its imminent release, I can only touch on the project at a fairly high level. A range of value-adding opportunities were progressed into the base case during the quarter and a number of outstanding threats addressed. These include things like the completion of a detailed workforce plan that now incorporates an integrated remote operating center, an increase in renewable energy and the use of a bulk flotation circuit pilot plant in Canada that confirm the design of the copper and nickel concentrate production flowsheets.Finally, our footprint in this region expanded in the last quarter with the purchase of Traka Resources tenure, along with the application of new tenements prospective for copper and nickel sulfide mineralization. This brings our joint venture with Cassini to hold in excess of 9,500 square kilometers of prospective tenure in the West Musgrave.Our growth pipeline has seen movement during the year as we have exited some exploration projects and advanced others, as Warrick has touched on. I'll continue to expect these to mature and evolve over the course of the year.On the next 2 slides, we have provided detailed 2020 guidance for our 3 operating assets. For Carrapateena, as it moves into operations, we have provided 5-year annual averages, the key metrics, including indicative trends, to help you see how it progresses over this period as many of you have asked for. Warrick's going to provide a summary of these items on the slide before handing back to me where I will wrap up. Thanks, Warrick.

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

Thanks, Andrew. So on Slide 16, we set out our guidance for 2020. I won't go through all the numbers but thought I would cover some of the high-level context. So for production, this includes prioritized processing of the regular grade gold stockpiles at Prominent Hill, improved output in the Caraj?s with the introduction of Pedra Branca ore in the second half, and the progressive ramp-up of production at Carrapateena also favoring the second half of the year as Andrew has already explained. We expect the uplift in gold production to cover the temporary revenue decline we'll experience in copper production in 2020 prior to Carrapateena completing its ramp-up through the year.On capital, as indicated earlier, our investment in Carrapateena will continue over the next few years. Circa $140 million of the 2020 spend is for mine development, which reflects an increase of around $80 million over our original FSU allowance, principally from a revised rate per meter cost. This is also a primary contributor to capital in other years but is offset by the production uplift in the early years, which maintains our overall initial project value. The higher development rate is from a combination of cost reclassification out of OpEx and mining costs sitting above their original expected levels.Post first concentrate, we always had scheduled the completion of the underground infrastructure with the first crusher currently being installed and, in fact, close to operation. We also have a small number of project finalization items, which have rolled into the current year. Andrew also alluded to new capital relating to increased production rates of circa $45 million in 2020, which includes the start of the expansion of our mill processing capacity and additional mine ventilation.C1 and all-in sustaining costs reflect the benefit of the higher gold production at Prominent Hill and the high initial unit costs at Carrapateena with about 60% of our cost base at that asset fixed. And just to reiterate that the Carrapateena cost guidance relates to production that will be accounted for through the P&L this year, although production volume is inclusive of the metal expected from the precommissioning ore.And as Andrew mentioned on Slide 17, we provided an indication of trends for key metrics for Carrapateena across the following 5 years. The uplift in capital in 2021 covers mine development and a further $75 million in new value acceleration initiatives. Whilst in 2022, we've brought forward the installation of crusher 2. Post that, we revert principally to mine development expenditure. Thanks, Andrew.

[Andrew Cole, MD, CEO & Director]

Okay. Our key milestones for 2020 are set out on this last slide, so they reflect our focus on embedding our priorities as discussed earlier. I just want to touch on a more macro topic. We live in a very dynamic world with many macro events that impact our businesses. It's very sad to see such events such as devastating fires, virus outbreaks and political instability come and go. These all have impacts on all of our businesses. It is, however, imperative that we focus on the key things that we can control and our persistent focus on our company's strategy. We must also remain vigilant and responsive to macro events just as we have done so over the past 5 years. OZ Minerals is in a strong position with a strong balance sheet, strong cash flow, low-cost operations and a pipeline of future growth options in a good, strong commodity.In conclusion for OZ Minerals, 2019 was a year of great progress for OZ Minerals as we achieved our growth and key operating targets, including building a new mine in Carrapateena. After a period of significant growth, 2020 will be about focusing on delivering our priorities safely, and these include the Carrapateena 12-month ramp-up, maintaining our reliable production and cost performance at Prominent Hill whilst deciding on its future via the expansion study underway, developing the Caraj?s Hub with Pedra Branca expected to reach first development ore mid this year, completing the West Musgrave PFS, and removal of the CentroGold injunction. It is going to be another dynamic and very full year with many interim milestones throughout 2020.And with that, I'd like to wrap up, and I'd like to ask the operator to remind people how to ask questions. Thanks very much.

[Operator]

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

[Paul Young, Equity Analyst]

Begin with a few questions on Carrapateena and maybe for you, Warrick, about that increase in -- first of all, the mining rate on a dollar per meter. And so just curious about what percentage increase you've seen in the mining rates. And then also, looking at the forward guidance for '21 and '22 for Carrapateena, the $250 million, can you maybe just break that down to what percentage -- or what of that is actually mining rates? And then also can you just clarify whether the block cave -- any block cave CapEx study -- studies or anything is included in that $250 million?

[Andrew Cole, MD, CEO & Director]

Maybe I can just touch on the first one and the third one, then I'll ask Warrick to hand -- talk about the second one, Paul, if you don't mind. So most of the underground development rate is not so much about an increase in the unit costs. It's about the gap between what we estimated in the FSU versus what we're actually having to do underground. So there were some gaps in our FSU. We didn't anticipate all of the ground support that we needed, the surface area underground wasn't quite as we're actually seeing, for example. So we're having to move slightly more earth use slightly more shotcrete, slightly more ground support than we anticipated. It's things like that, that are actually mostly driving the underground unit rate increase as opposed to market escalations of price, if you like. So on the third point, there are no cost built in yet for block cave. This is all about the sublevel cave, so we won't get to block cave costings, et cetera, until we talk about the block cave PFS that we plan to release mid this year. So maybe I'll just ask Warrick to touch on your middle question around the splits, if that's okay.

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

Yes. So I might have to come back to you on that, Paul. And if I can take that one-on-one, I'll just need to check that number and come back to you on that one.

[Paul Young, Equity Analyst]

Yes, okay. That's okay. Maybe just on the first point again, so if it isn't market -- I understand what's driving that. That makes sense. But what percentage of the dollar per meter have you experienced?

[Andrew Cole, MD, CEO & Director]

Do you a number off the top of your head?

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

I don't have the number here.

[Andrew Cole, MD, CEO & Director]

Maybe I can ask you to come back on that.

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

I'm going to have to come back on that, Paul.

[Andrew Cole, MD, CEO & Director]

Yes. We can come back to you on that, Paul. I mean to be honest, we're not spending a lot of time trying to reconcile the FSU. It's mostly about optimizing current state and future planning. So we can certainly come back to you with a number. Yes, absolutely, we'll, Paul, come back to you.

[Paul Young, Equity Analyst]

That's fine. And then on the plants, Andrew, I don't think I've ever seen a plant sort of produce first concentrate then shut back down again for final plant construction items. Can you maybe just step through what those items are. And what gives you the confidence that, that can be completed within, I think you said, a couple of week time frame and then the step back up again.

[Andrew Cole, MD, CEO & Director]

Yes, sure. So producing first concentrate is a -- it's slightly different -- absolutely recognize that this is a slightly different way of commissioning a plant. But it gives us really good line of sight -- gave us really good line of sight on how the plant is performing, where the bottlenecks are, how -- it's part of C3 commissioning, obviously. So parts of the plant were C2 commissioning to get to C3 commissioning. And it gives us a really good line of sight on what's performing to spec and what's not performing to spec. So most of the work that's left is sort of peripheral activity on the NPI and MPP. To produce salable concentrate, obviously, you need your main circuitry, your grinding and floater and the rest to be up and running. So those pieces were operating. So we had got confidence that, that's going to be concluded based on the current schedule of works that ADJV have given us to be completed over the next few weeks. And it's mostly related to final walk-downs and completion of punch list items.

[Paul Young, Equity Analyst]

Okay. Okay. Right. And the final question, Andrew, about -- you sort of outlined again, reiterated your strategy earlier about being NPV focused as opposed to, as I interpreted it, IRR focused. You have a lot going on here. Carrapateena is not small in '21 and '22. Just curious about how you look at -- with copper price here at $2.58 a pound, as I look on the screen today. Is there actually room for -- to do everything, projects or sequencing projects. Is there a room for Prominent Hill underground expansion within the forecast cash flows?

[Andrew Cole, MD, CEO & Director]

Yes. Warrick's going to touch on the second piece. But Warrick just -- as just, Paul, you touched on this in principle, you're absolutely right, and that's a very good question. We have never said that we expect or anticipate doing all of these projects. This is about allocating capital to the most value-accretive projects. And we've got choice and we've got options. And as each of these projects come to a key milestone, we need to decide and we'll be deciding whether we continue to invest in them or not, whether we're the best people to invest in them or somebody else should be. So having that choice, I think is really important, so having that pipeline. I'll just talk -- ask Warrick to talk a bit about our capacity, if you like, and what we can achieve.

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

Yes. No, in that context, Andrew, and I think it's important to recognize that most of the projects going forward aren't -- they're not lumpy in terms of the spend. So again, if you look at the Prominent Hill extension or expansion, we would see that as a progressive spend over a number of years as we progress through that. The same with Carrapateena expansion. So again, that's not all that money upfront. It progresses through. And again, I think the way that our current sequence of projects, whether we go ahead with them or not, runs out quite well in terms of, obviously, having ramped up, move through this transition here with the ramp-up of Carrapateena and then providing an uplift in our free cash flow that facilitates some of those projects further down the track.

[Andrew Cole, MD, CEO & Director]

Perhaps you can touch on debt ceiling as well.

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

Yes. And I suppose, obviously, today's update highlights that we're in a very strong financial position. We do expect to draw on our debt facilities, as you would expect through this sort of phase of development. But we will continue to maintain a very conservative position of around about 1x EBITDA on gearing. And I don't see us moving out of that range at this time.

[Operator]

Our next question comes from the line of Lyndon Fagan from JPMorgan.

[Lyndon Fagan, Analyst]

Yes, just back to the $0.5 billion of spend in '21 and '22, just first question on that is whether that includes any of the overflow versus the feasibility study of $175 million. Or is that sort of that you spend...

[Andrew Cole, MD, CEO & Director]

It's everything, Lyndon. So it includes some of the things that we pushed out from the 2018, '19 period, like I've mentioned when I tell the narratives. So things like Western Access Road, the crusher and first crusher and conveyors pushed into early this year, we're tightening that up now, some completion project costs. It includes the capitalization or increased capitalization of the upper 3 levels of the cave, and that's partly why you see some of the operating costs coming down for Carra. It includes an additional spend on increasing annual throughput rates and recoveries with that list of projects. So that's an all-inclusive number for everything I've referenced.

[Lyndon Fagan, Analyst]

Okay. Great. So would it be fair to sort of include that capital as capital to achieve full production? So that sort of looks as though we're at about $1.7 billion including that. Is that how you would consider classifying full production capital for Carrapateena in its expanded form?

[Andrew Cole, MD, CEO & Director]

No, I don't think you can just add these things together, Lyndon. The way that we establish this project, rightly or wrongly, and different people have different views on this, is we've said once we could demonstrate first concentrate through the plant, that would be the end of the preproduction capital period, and then it would move into an operating phase. But Carrapateena, the sublevel cave, we've got peak periods investment through its life of mine. And the split between operating costs and capital costs is something that we spend a lot of time, and including the [ staffs you worked ], to talk through how we're thinking about that. So our operating costs have come down, capital has gone up. We need to help explain it a bit.

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

Yes. So I mean, we capitalize all vertical development costs. And obviously, with the top 3 levels, we have to blast and condition those levels. And so -- and we've incurred lateral development costs as a result of that. So those top 3 levels we do capitalize because they're part of that top ore blanket that we've referred to previously. And we will then amortize those top 3 -- the cost of those top 3 levels as we go. However, the standard sort of hauling and crushing costs will continue to be -- are continuing to be applied through as normal operating costs as we go. But similar to the Prominent Hill, we'll always have a continual level of mine development capital as we continue to extend further down the orebody in terms of the main drivers, et cetera.

[Andrew Cole, MD, CEO & Director]

So the other thing to remember, Lyndon, is what is now in our capital guidance in 2021 is the bringing forward of the second crushing chamber. So that was originally further out in our schedule, so we've managed to pull that forward as a result of the development rates and then getting underground. So crushing chamber 2, sorry. So...

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

'22.

[Andrew Cole, MD, CEO & Director]

'22. Sorry, it's not in '21. So that actually is the capital. And again, that there will be a third crushing chamber later on in the life as we get down to the bottom of the sublevel cave. So it will be peaky, if you like, for capital through the life of the mine.

[Lyndon Fagan, Analyst]

Great. And just on the grade profile, there's been a lot of changes in the feasibility study. We've gotten bigger. We've had a reserve grade downgrade, I guess. Just wondering whether sort of any of the earlier years have suffered more from dilution than in the later portion. I'm just wondering whether that high-grade bornite zone is still having an influence. It looks like it is in that diagram on Page 17, but it'd be good if you could maybe talk us through the grade profile over the medium and long term.

[Andrew Cole, MD, CEO & Director]

Yes. So our drilling and our underground development has actually demonstrated our reconciliation to the resource and the reserve is very good. So we are quite confident and comfortable with the resource and the reserve models. We did increase the size of the sublevel cave footprint that did drop the reserve grade very slightly, by -- was it 0.2 or something, zinc-copper. But this is not about just grade, it's about value. So from a value perspective, it warrants a sublevel cave expansion because that's what helps us get to a 12-month ramp-up versus an 18-month ramp-up and provides us the platform to increase annual throughput rate from 4.25 up to that 4.7 to 5. So these are all the trade-off stages you have to undertake. So we're confident in the resource and the reserve. The bornite is still sitting there, and we'll be developing into that over the next year or so.

[Lyndon Fagan, Analyst]

All right. I'll take the grade profile offline maybe. Then just at Prominent Hill, last question, looks as though there's a move to gold stockpile price, I think. Why was that given perhaps a higher value in accelerating the copper stockpile?

[Andrew Cole, MD, CEO & Director]

As you may recall, Lyndon, last year, we undertook a gold trial where we processed gold stockpiles for a couple of weeks to test throughput rates and recoveries in both gold and copper. That was very successful and demonstrated that the processing characteristics of that stockpile were more favorable than what we had originally had in our business plan, in our internal models. And when you do a straight value prioritization, we are now prioritizing the higher-grade gold stockpiles and gold stopes -- some of the gold stopes underground, which materially increases the amount of gold in our short-term plan. So this is entirely about value, and we're sequencing the stockpiles to optimize value. And given the high gold prices, we've got that flexibility at Prom Hill, which is a good thing, I think. So Prom Hill in the next year or so is going to be much more exposed to gold price than copper price.

[Operator]

Our next question comes from Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Firstly, just wondering if you are going to be mining faster, which you're talking about, that 4.7 to 5 rate. Just wondering if that has any impacts on the timing of the block cave because you'll get down to, I guess, the level you thought you might get to when you're in the sublevel cave faster. Does it create a pinch point or a problem for decision-making and tighten that time frame?

[Andrew Cole, MD, CEO & Director]

Okay. Daniel, look, in short, no. Because we've expanded the size of the sublevel cave materially, that far exceeds the rates at which we have to progress our sublevels. So it's probably the other way around actually. So this doesn't actually hasten the need to make a decision on the block cave. It, in effect, buys us a bit more time because of that increased size. Look, we'll talk more about this when we get to the middle of the year when we release the block cave PFS. But the interaction between the sublevel cave and the block cave is very important. And a lot of work is being done on how we should optimize that at the moment. The short answer to your question is no, it doesn't create an issue.

[Daniel Morgan, Director and Analyst]

And then just a quick follow-up on that. Where is the pinch point or where is the point of narrowed time we need to make a decision on the block cave?

[Andrew Cole, MD, CEO & Director]

Our current schedule, remind me, Tom. Just a sec. There's PFS now; FS, middle of next year, bulk of the spend's '24, '25, so we're currently expecting a decision in sort of in 2021. I wouldn't say that's the pinch point, that we actually have more time. The dynamic here is your block cave height gets lower and lower the longer you take, so it will have a value impact, but I wouldn't call that necessarily a pinch point.

[Daniel Morgan, Director and Analyst]

Right. And the guidance metrics that you've provided with various C1 costs, all-in sustaining costs, et cetera, maybe I'm missing it. Just wondering, clarification on the gold price that you've assumed in both for 2020 and the Carrapateena guidance you provided for '21 through '25.

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

Yes. So we used consensus, Daniel. So that's basically the gold price going forward, so yes.

[Daniel Morgan, Director and Analyst]

For ease of reference, do you have the latest number that you've got for that? Just trying to back out the absolute where you did all-out costs on an underlying basis because everyone's going to be running different gold price assumptions.

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

Yes, we'll come back to you on that one offline.

[Operator]

Our next question comes from Sophie Spartalis from Bank of America.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just wanted to follow-up on the C1 costs just in relation to where you're tracking versus the guidance. Obviously, you're tracking well above the guidance range. So just in terms of that second half profile, if we start at Prominent Hill, are we expecting that to increase in the second half of the year? Or can you just maybe go through the profile there, please?

[Andrew Cole, MD, CEO & Director]

2020 C1 profile.

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

For 2020, Sophie?

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Yes.

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

Yes.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Sorry, yes. Sorry, yes.

[Andrew Cole, MD, CEO & Director]

Yes. So the question I think is given the 2019 Q4 performance, we're starting very low. Our guidance for 2020 is much higher than that. So what's the profile look like?

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

Yes. So as we start to increase, obviously, the gold production will start to see that adjustment flow through. And then obviously, a lot of that comes out of the existing stockpile, so you'll have -- which won't directly hit the C1 costs in terms of some of those -- some of that cost component. We don't allocate stockpile costs into C1. So we'll gradually see that net C1 costs come in, really, I suppose, more so into Q2 and going forward from there.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. So in terms of that C1 costs for 2020 higher in Q1 and then progressively coming down from Q2 to end in that range of 15 to 25, that's correct?

[Andrew Cole, MD, CEO & Director]

Correct.

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

Correct.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And similarly, for the all-in sustaining cost, like how is that stockpile inclusion then impact the profile of that all-in sustaining costs through the year at Prominent Hill?

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

Those -- so that will just -- that will follow the -- effectively the C1 costs. And I think we'll see a similar sort of trend this year in terms of over the last few years at sustained -- levels of sustaining capital that was favorable for the second half, I suppose, in terms of the general spending profile. So I wouldn't expect that to be much different.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. That's great. And then similarly, for Carrapateena, the profile there just through the year?

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

Yes. So obviously, starting high and coming down as production rates increase. So -- and when we get into the second half, we will get to a point really, I suppose, at the beginning of Q4, end of Q3, where we should get to some consistent mill production. And so you'll see those costs drop right down.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. Are you willing to provide a first half, second half split for the production at Carra today?

[Andrew Cole, MD, CEO & Director]

No.

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

No.

[Andrew Cole, MD, CEO & Director]

Sorry, Sophie. No, we've still got to ramp up this plant. As I talked about, there's still final commissioning checks and some final completion works. And it's largely going to be mine constrained in the first 6 months as the sublevel cave starts to develop. So it's certainly going to be back-ended for the year. So it will be very light first half and progressing heavier through the second half, but we'd like to keep the guidance at an annual level.

[Operator]

[Operator Instructions] Our next question comes from Michael Slifirski from Cr?dit Suisse.

[Michael Slifirski, Managing Director]

Let's just start with the mine development cost update, the additional $80 million. So what does that do to your unit operating costs? I understand that, that's for capital development, but you're doing development to develop each horizon, which is part of your OpEx. So what does it do to your unit operating cost splits?

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

Versus is the FSU, Michael?

[Michael Slifirski, Managing Director]

Yes, that's right.

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

Yes. So we've had, I suppose, pluses and minuses in terms of both the operating expenditure and then, obviously, the higher capital. I think net-net, you'll see slightly higher in the first 5-year period. And then they'll start even themselves out as we continue to progress through.

[Michael Slifirski, Managing Director]

So I'm slightly confused. So -- but you said -- as I understood before, the higher mining cost relates to higher ground support that you didn't anticipate, so presumably, that is within stope development as well? Or is this peripheral to stopes as you've got the higher ground support issues? So I'm trying to understand whether the mining costs themselves for development to develop each level, which are part of your OpEx, actually are higher than you assumed as they are for the capital development.

[Andrew Cole, MD, CEO & Director]

Just a couple of things. Firstly, we don't have stopes, Michael. So we're sublevel caving on this. So most -- for example, the biggest gap we have is within the FSU, we didn't assume over-break. So we are getting over-break in here. It's not a lot, but a little bit of over-breaking increases shotcrete and ground support, for example. So it's not the geotech or geomechanics of the rock that is requiring increase, it's some assumption gaps between the FSU and what we're actually delivering in here. The second thing to remember, which Warrick talked about, is the first 3 levels, the majority of which we're now capitalizing as opposed to going to operating costs. Because that old mine pit will be carried to protect dilution for a long period of time, so it's a change in methodology as well. So a couple of important things to remember, to add that to Warrick's comments.

[Michael Slifirski, Managing Director]

Yes. Look, I understand that. So look, maybe we'll return to that mine, if you like, later. But the second part, and you've just touched on it now, can you articulate within that capital guidance for the next couple of years, how much of that capital guidance increase is attributed to the capitalization of the ore blanket? Because I would have assumed that, that was always to be capitalized anyway.

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

Yes, it's about -- it's just over $20 million, Michael.

[Michael Slifirski, Managing Director]

Per -- in total?

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

In total, yes.

[Operator]

Our next question comes from David Radclyffe from Global Mining.

[David Radclyffe, Managing Director]

So just some more questions, I guess, on Carra. Look, in terms of our annual throughput increase, could you just provide the net capital for just that project and how we should think about that spend over 2020 to 2023?

[Andrew Cole, MD, CEO & Director]

We haven't actually broken that number out. So I think somebody else asked that question as well, didn't they? I guess Paul had asked that question. Look, we'll have to come back to you on the net number. So the things that make that up are a portion of the increased sublevel cave footprint, then a raft of other projects which are mostly plant orientated. So HydroFloat, tails, lines, second cleaner cells, et cetera. So there's a list of those types of things. And there's a very long laundry list of debottlenecking activities which we now have learned about and known as a part of the commissioning process and as a part of understanding the orebody. So I don't have that number off the top of my head, but we'll come back to you, David.

[David Radclyffe, Managing Director]

Okay. Because it'd be also interesting to understand what you guys assess the IRR of that project to be given the focus on IRR. I'm assuming it has met your hurdle rate.

[Andrew Cole, MD, CEO & Director]

It does, yes. It's a material lever for Carra because we've given you guidance for 2020 and the next 5 years compared to FSU. But obviously, with us targeting 4.7 to 5 has a life-of-mine impact, so it has ramifications for the entire life of mine, of which we've given you some guidance for a short period. But that guidance you should be using as an indicative guidance for life of mine effectively in the play, in the -- anything else. So it does have material value attached to it, which is why we will be investing in it.

[David Radclyffe, Managing Director]

Okay. So that kind of feeds in then to the next question, which was just then what actually drives physically that range of 4.7 million to 5 million tonnes a year. Is that ore availability over that period? And should we think of 5 million tonnes as the exit rate for that period?

[Andrew Cole, MD, CEO & Director]

It's mostly the sublevel cave propagation. So I'd still say it's going to be a mine-constrained operation. So this is the rate which we can advance the sublevel cave given the footprint size. So one of the reasons we expanded the sublevel cave footprint was to enable us to expand the annual throughput rate. We'll continue to debottleneck the plant, but we've always got a lever to expand the plant in the future if we need to. But based on our mining rates, we don't believe we need to do any material capital projects to the plant apart from those ones I've listed.

[Operator]

There are no further questions in queue, so I will now pass back to Andrew for closing comments.

[Andrew Cole, MD, CEO & Director]

Okay. Thanks, operator. Thanks, everybody, for joining the call. As usual, if you've got questions, please give Tom Dixon a call, and we'll organize to get the right person in the room to help walk you through it. Thank you.

[Operator]

Thanks very much. Ladies and gentlemen, that does conclude the call for today. Thank you very much for your attendance. You may now disconnect.