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Thank you for joining today's teleconference for the release of Mount Gibson Iron's June quarter activities report. Mount Gibson Chief Executive Officer, Peter Kerr; Chief Financial Officer, Gill Dobson; and External Relations Adviser, John Phaceas. Mr. Kerr will provide a brief overview, after which there will be an opportunity to ask questions. Due to time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will also be available via the Mount Gibson website shortly after completion of today's teleconference. Go ahead, please, Peter.
Thanks very much, Ellie. Good morning all and thanks for dialing in to Mount Gibson's June quarter activity report call. As you know, this quarter was an important one for us as Koolan ramped up to become our primary longer-term source of production and cash flow. We made the first shipment from Koolan in late April, as we announced, and by the end of June had shipped almost 0.4 million tonnes of high-grade DSO averaging 65% Fe. Further 2 shipments which we had originally planned and scheduled for the June quarter were rescheduled to the current quarter, and I'll give a few more pieces of information about what's going on there at the moment.Along with the previously reported sales from our Iron Hill deposit in the Mid-West business, our DSO hematite sales for the full year totaled just over 2.9 million tonnes, which was in line with our annual guidance for our high-grade sales. And in addition, in June, we also made 4 low-grade shipments from our previously closed Extension Hill operation and this being the start of our low-grade program there. And so now that took total iron ore sales for the full year to 3.2 million tonnes, and the FOB revenue for those tonnes totaled AUD 240 million. Sales revenue for the June quarter itself totaled AUD 72 million, and that reflected obviously the higher prices during the quarter. And it also included a good positive AUD 7 million provisional pricing adjustment from the previous quarter. I'd point out that as most of our Koolan sales are on an M+2 provisional pricing basis, so that means we ultimately received the price in the second consecutive month. After the month in which we make the shipment, further adjustments may occur to our year-end numbers.Our all-in group cash costs for the year averaged $8.53 per wet metric tonne sold, and that was before the Koolan development and preproduction costs. And that cash cost figure was at the lower end of our guidance.Operating cash flow for the June quarter totaled AUD 13 million, and that was before final preproduction net expenditure at Koolan of AUD 18 million. And the key thing for us was that in the month of June, so after we commenced commercial production at Koolan, that operation was AUD 10 million cash flow positive. So as a result, our cash and investment reserves declined in the June quarter by AUD 9 million and totaled AUD 385 million at 30 June 2019.So now just turning to Koolan in a bit more detail. Ramp-up mining and processing activities have been progressing reasonably well, not without some challenges. However, our sales volumes in the June quarter were a bit lower than we targeted, and this was primarily due to normal ramp-up challenges in the confines of the open pit. Now certainly, the initial mining areas of the central zone in the Main Pit and also the site settling into what is now a more consistent operational cycle. With improvements now underway in a range of activities, production rates have started to build, and we are now on track to ship between 3 and 4 Panamax cargoes per month, consistent with the initial period mine plan. Importantly, from a geotechnical perspective, the mine is performing to plan. Seawall is working to design, and normal operation of geotechnical activities on the footwall, which include depressurization drilling, cable bolting, shot-creting and meshing, are running efficiently. And for those interested to know whether we had any impacts from the undersea earthquake off Broome yesterday, no. It was felt, but instrumentation in the seawall and everything on the island is working as per normal. The average realized price for our Koolan products was USD 106 per dry metric tonne shipped FOB in the quarter, and that's obviously benefited from the recent rise in iron ore prices. At today's spot prices, each Koolan Panamax cargo, and so our average cargo is about 72,000 tonnes, has a gross value of between AUD 9 million and AUD 10 million. With the slightly lower and the slower initial ramp-up, site cash costs in the period averaged, and this is the period after commercial production started, so for June, average AUD 77 FOB, which was a few dollars above the level we were targeting, but still a reasonable performance for this stage of mining. And obviously, that cash cost level should reduce as our sales volumes increased on a more consistent basis. As I've noted, even at that level of cash cost in June, we were strongly cash flow positive.Now turning to the Mid-West. Our campaign to sell some of the remnant Extension Hill stockpile material, which is low grade, averages between 51% and 54% iron, kicked off in May. And the initial shipments we made were in June. We made 4 of them for about 240,000 tonnes. Mid-West cash flows were $4 million in the quarter, and that was net of site reestablishment costs and provisional pricing adjustments from prior quarter plus also the rail rebate, which I'll discuss shortly. So we currently expect the low-grade sales program to total about 1 million tonnes over the remainder of this calendar year. And it has been made possible, as you would expect, by the substantial rise in iron ore prices since the start of the year. And good interest is being shown by customers for the 9 lower-grade cargoes that we have. The sales have been undertaken on a fixed price basis with the fines realizing about USD 29 per dry tonne FOB in the quarter and the lump about USD 36 per dry tonne in the quarter. In June, which was the month in which we made the 4 shipments, our average cash cost was AUD 39 per wet tonne shipped FOB, and that's consistent with actually the Mid-West cash costs for the entire year when we were doing high grade earlier in the year and low grade at the end.As we've previously noted, we're also due to receive now an ongoing partial refund of historical rail access charges, and the refund is dependent upon the use by other parties of sections of the rail network which were upgraded in previous years using the access charges paid by Mount Gibson. So in effect, it's a credit for some of our previous capital installation. The refund is currently being accrued at a rate of approximately AUD 1.8 million per quarter, and it's payable every 6 months at the end of March and the end of September each year. The aggregate refund we are entitled to receive is capped at approximately AUD 35 million in today's dollars and also by an expiry date of 2031, whichever occurs first. But based on current third-party railing rates, we expect to receive full AUD 35 million over the next 4 to 5 years.So in closing, the work undertaken in the year and in the most recent quarter, while we didn't quite get there on the shipments that we were targeting and it was a reasonably aggressive target, has placed Mount Gibson in a good position to ramp up production on the Koolan Island and also to continue to monetize some of those Mid-West low-grade stockpiles and in a particular time, obviously, when iron ore prices look to be pretty well supportive. So going forward in the next little while, we will announce our full year financial results on August 21, and we'll provide sales and cost guidance for the coming year at that time.So on that note, Ellie, I'll hand back to you for any questions we may have.
[Operator Instructions] We have our first question from Paul McTaggart.
Peter, it's Paul McTaggart here. I just wanted to ask, with those low-grade tonnes that you're selling, well, I know you've got a benefit because you obviously don't have to do rehab with it. So I'm just trying to understand how that math works in the sense that the costs are roughly $39. You're not quite achieving it. So how does it work? What would have been the rehab cost you would have attached to those tonnes? Just trying to understand how that math works.
Okay. So -- sure, Paul. Maybe the best way to explain it is we're selling the low-grade tonnes in both lump and fines, and we are making a small margin. And so that is the cash flow that we hope to achieve. But at the same time, some of those stockpiles were actually sitting in areas that we would have needed to dose and rehabilitate, spread topsoil and seed. And so while the sums of money aren't that material, it just means it's tidier from a general rehab perspective, the overall rehab provision which will be revised for our June full year numbers, but the rehab provision that we have had is about AUD 11 million. And in the year, we've spent some money, so that will come down. I don't know precisely for the numbers just yet, but that's being assessed right now as of 30 June.
There are no further questions at this time, Peter.
I'll hang on. Paul, if he has any...
Sorry, I beg your pardon. I'll join him back. One moment.
Just, yes, so if there are no other questions, I might as well just follow up on a couple more. So are you able to kind of give us cost guidance at the full year results in terms of -- so I mean with the way -- I'm going to presume with the way things are going at Koolan Island at the minute, there's nothing to kind of suggest that your previous expectations can't be hit. Is that fair?
I think that's a fair assumption for the moment. And if you look at our previous releases, we have published a profile by year for the project. And so in the first 2 years, the costs are up around high 60s and low 70s type numbers in Australian dollars per tonne sold. And they are the numbers we're still aiming for, and we will obviously finance that when we come to our full year results. But for the moment, that's what you have worked and I'll still consider that a fair basis to do so.
And with iron ore prices where they are, you're going to build a pretty decent cash nest over the next couple of years. I mean are you still out actively looking for the next projects? I mean how are you thinking at the minute? Are you potentially going to hand some of it back? What are the thoughts at the moment for this cash?
Look, the mandate that this team has from the Board is to do 2 things: obviously, ramp up Koolan Island properly and reap the cash flows from that; but also then to grow the business. And that could be done internally so, hence, things like the Mid-West, although that's relatively short term. But externally, yes, we are looking into areas in the base metal space and into iron ore and coking coal in the bulk space. And we've done that in the past and come close on a couple of transactions. But fair to say though, for the last 3 to 6 months, our focus has been very much internal on Koolan and getting the Mid-West low-grade business going again which took some efforts. So now as we start to get into a period where we would expect Koolan to be more consistent, then we'll start to lift the eyes and look at other things. That's the plan. As far as returning capital goes, that's a decision for our Board and will be considered in August when we review the annual financials.
Thank you, Peter. There are no further questions at this stage.
Okay. Thanks, Ellie. Well, then thanks to all for listening, and we look forward to speaking with you again.
As the conference has ended, you are able to hang up your telephone. Thank you.
Thanks, Ellie.