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Thank you for joining today's teleconference. The release of Mount Gibson Iron quarterly activities report for June quarter 2020. Mount Gibson's, Chief Executive Officer, Peter Kerr, will be leading the discussion; and is joined by Chief Financial Officer, Gill Dobson; and External Relations Manager, 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's website shortly after the completion of today's teleconference. Please go ahead, Peter.
Thanks, Lisa, and good morning, all, and thanks for joining us for our June quarter activities report call. By way of introduction, we ended the year on a stronger footing than we might have expected back in March when the impacts of COVID-19 were first coming to light for us. Total ore sales for the quarter were 1.2 million wet metric ton, and that was 13% higher than the March quarter. Koolan Island high-grade fines sales accounted for 516,000 tonnes, an increase of 18% on the March quarter. And this would have been a little bit higher had it not been for adverse impacts of some pretty heavy late season rains at the end of May, which saw one of our shipments scheduled for June flip over into July.Low-grade sales from the Mid-West continued their good run and contributed 643,000 tonnes at a low cost. So the combined sales revenue for the quarter subsequently rose by over AUD 20 million to $103 million free on board. All our numbers are presented as FOB, revenues and costs, and that was for the quarter, taking a provisional full year sales revenue to AUD 413 million FOB. For the full year, combined ore sales totaled just over 4.9 million tonnes, which was made up by 2.4 (sic) [ 2.3 ] million tonnes of high-grade fines from Koolan and nearly 2.6 million tonnes of low-grade material from the Mid-West. As it turns out, the total sales were in line with the prior group sales guidance that we gave for the year, but that we withdrew in late March due to the uncertainty associated with COVID-19 and the weather impacts in the first quarter.And our group unit cash costs were also within our prior withdrawn guidance, and they were AUD 72 per wet metric ton FOB after averaging $79 in the June quarter.The group cash flow for the quarter totaled AUD 24 million before Koolan airstrip construction of AUD 9 million, and the results for the quarter also included the settlement of a historic contractual dispute for a one-off inflow of $8 million. So full year cash flow totaled $72 million before Koolan airstrip project expenditure of $14 million.As a result, including working capital movements, we increased the group's cash and investments by $21 million over the June quarter to $423 million at year-end, and we have no borrowings.So in relation to Koolan Island now, as we foreshadowed back in April, the mining performance generally improved over the quarter, notwithstanding the continued impact of COVID-19 restrictions and protocols and the previously mentioned unseasonal rain at the end of May, and that rain event put about 270 millimeters onto the Island, I should say, in 3 days. And so of course, that disrupted us into early June, adversely impacted mining through that time and restricted us to the 7 shipments that we made.Total material movement in terms of mining increased 5% in the quarter to 3.9 million tonnes, and the high-grade ore production increased by almost 50% to 805,000 tonnes. Our sales were 17% up on the March quarter. And as noted, our full year sales from Koolan, all high-grade material, totaled just under 2.4 million tonnes.From an operating and geotechnical perspective, the Main Pit continues to perform as planned. The seawall is working to design and normal operational geotech activities on the footwall are progressing well. Positively, we've recently finished mining through the very wet muddy sediments that existed in the bottom of the western end of the Main Pit, which slowed us up over the last couple of quarters. These sediments were originally deposited into the pit when the flooding event occurred back in 2014. So removal of those sediments now places us in a good position to access ore in the western part of the pit now as well.Koolan generated operating cash flow of AUD 22 million in the quarter, and that was before we spent $7 million on capitalized waste stripping ahead of our life of mine strip ratio and although airstrip construction costs of $9 million. So the net cash flow from the operation in the quarter after those items was $6 million. Including the waste stripping investment, Koolan unit costs averaged AUD 113 per wet metric ton FOB, and that's excluding the airstrip project construction costs in the quarter. And that was down from the preceding period, reflecting the better performance of the operation and the improved sales in the June quarter. Over the total year, the unit costs -- cash costs averaged AUD 99 per tonne FOB. So we've also now finished the physical construction work at the new Koolan Island airstrip, including ceiling and line marking. Final works, namely the terminal and refuelling facility, along with other items, such as lighting and instrument installation and regulator certification are all underway and anticipated to be completed in this current September quarter. So we're looking forward to starting direct FIFO flights from Perth as soon as possible, targeting October.The operational focus at Koolan Island over the next 12 to 18 months will, as you know, beyond completing the elevated stripping phase in the Main Pit in accordance with the life of mine plan. And while this is when our unit cash costs are at their highest and production of ore most variable, it represents an investment that will facilitate increased ore sales and cash flow at much reduced unit costs from the '21/'22 financial year onwards. We'll provide more detailed cost and sales guidance for the coming or the current financial year 2021 when we release our annual financial results next month. But taking a high-level view, Koolan sales are expected to be a bit below those of the year just completed, and then they'll start rising significantly at much reduced unit cash costs from the 2021, '22 year onwards once that elevated stripping phase has been completed and sales quickly rise.I wanted to also say a few quick words about COVID-19 because it's had a significant impact on us being located for Koolan in the Kimberly region. As reported back in March and April, the COVID pandemic necessitated significant responses to limit the risk of transmission, and that impacted those in the Kimberly region in particular because of the vulnerable remote average of communities there and the federal government's biosecurity restrictions that were placed. This included heightened travel restrictions for our workforce in addition to protocols adopted by most mining companies such as roster changes, and we moved from generally 2 and 1 roster to a 4 and 2 roster for a period, pretravel screening, social distancing, cleaning and hygiene protocols. And although these changes contributed to higher costs, the response from our people was first rate across the business and enabled us to continue operating, whereas other businesses in the Kimberly region were not able to. So the success in WA and controlling the transmission of the virus has now recently allowed a stage relaxation of travel and social restrictions. And importantly, for us on Koolan, it's enabled us to return to our normal 2 and 1 and other associated roster patents, which is a positive factor for the workforce for well-being and productivity. We have maintained though other key travel and site protocols to minimize the continuing risk posed by COVID-19, and we do remain ready, and we have plans in place to respond promptly should there be any required reinstatement of government restrictions.In relation to the Mid-West, it again delivered another positive quarter and is now set to carry on well into the new financial year. We shipped 643,000 tonnes of low-grade material in the quarter for a cash cost of AUD 39 per wet metric ton FOB, and that took full year sales to 2.6 million tonnes at an average unit cash cost of AUD 41 FOB in line with our plan. The Mid-West business suffered limited impacts from COVID-19 relative to the Koolan operation.Pleasingly, marketing efforts are now well underway to further extend the low-grade sales program towards the end of this year based on remaining available stockpile material. And in the quarter, the Mid-West business generated cash flow of $6 million, including $2 million from the ongoing rail credit refund that commenced last year.In relation to the Shine Iron Ore deposit that we own in the Mid-West, we're also well advanced with planning for the development of that project and -- which was originally stalled back in 2014, '15 when the iron ore price fell significantly. It's located about 85 kilometers north of Extension Hill and represents a near-term production opportunity requiring minimal start-up capital, where the total hematite resources are just over 10 million tonnes at 58% iron. During the quarter, state environmental approval was renewed, and we're now optimizing the mine plan and looking at the various transport and logistics options for that material to be brought into the Geraldton Port. And we expect to make a development decision on Shine during the current quarter.In terms of market conditions and prices, during the quarter, we again enjoyed higher prices due to strong underlying demand from China, as people are aware, and ongoing supply issues in various countries, including Brazil, primarily. The average Platts 62 Index in the quarter was USD 93 per dry tonne CFR, and that was up $4 a tonne from the March quarter. And the 65 Index, which is relevant for our Koolan operation, also improved by $4 a tonne and averaged USD 108 CFR in the quarter.But consequently, our high-grade Koolan fines material realized an average price of USD 97 per tonne FOB for the quarter after penalties, and that was up $11. That low-grade material from the Mid-West, which is sold on a fixed price basis, realized an average price of USD 28 per tonne FOB for fines and $40 for lump in the quarter.Shipping freight rates were also slightly lower in the quarter with the rate for Panamax vessels, which is what we're shipping from Mid-West and mostly from Koolan Island, that rate to China averaged around $7 to $8 a tonne, down approximately $1 per tonne from the March quarter.So in closing, the operations achieved good results for the June quarter, so despite some substantial weather and clearly, the COVID impacts that we've had. But this has put us in a solid position to complete our high stripping phase of Koolan in the year ahead, extend our Mid-West business, hopefully, with the development of the Shine project and pursue our longer-term growth objectives.So that's all I have to say this morning. So Lisa, if I now hand back to you for any questions that people may have.
[Operator Instructions] We do already have a question in the queue, Peter, and it's from Hayden Bairstow from Macquarie.
Just a couple for me. Just on Shine. I just want to understand the sort of decision-making there. I mean are you going to need full offtake? Is it going to be a sort of fixed price type product given its lower grade? Or can you get it's much better than the stockpiles? Obviously, if you're going to mine it. I mean how are you thinking about what you need to lock away in terms of market for that before you go ahead with it?
Look, the way we're going to approach it is in effect tender and discussions with existing customers. We already know that we'll have demand for the product. So the grade average is between 58 and so 59.5% iron. It's reasonable quality product, although that grade is a bit lower than what Extension Hill sold for during its mine life. But we don't think we'll have any issues pulling together some offtake agreements. And our general structure will probably be fixed-term offtakes for a certain proportion of the overall production, leaving a balance for us to sell in the spot market as time moves ahead.
And at Koolan, I mean obviously, the big pits are pit, not much you can do about it, but is there point at iron ore prices are where they are, I mean can you get a small mining fleet, didn't rip out some of those little satellites, just to get a bit more ore out, given how the pricing it?
Look, we're looking at some of that at the moment. In the Main Pit, we've actually done quite a few things to try and be able to just smooth that production of ore. But it is constrained because it does rely -- the ore access does rely on movement of the waste. Some of the satellite deposits are now under review. Yes.
Our next question is from Paul McTaggart from Citigroup.
I just wanted to follow up on Shine. So I mean you might be lucky in the sense that there's a potential window of opportunity here where iron ore prices stay at higher levels, and you're clear to see a China infrastructure spend, et cetera. How -- I mean you're looking to do a decision in the current Koolan. How quickly can you bring that material to market? You talked about grade, so I'm going to assume that pricing you would expect would be similar to kind of a [ ford skew ] product, I guess. And what would be the ship -- sorry, the tracking cost? In terms of additional costs, you're going to away -- get at 85 kilometers to Koolan. Can you give us a sense of what you think that might cost kind of transfer to port? I'm just trying to get a sense of potential overall margin on that product.
Yes, sure. Look, in overall scale, and what I'll do is I'll refer back to the studies that we released quite a few years ago now because they're still broadly relevant. But the project we're targeting is somewhere around, say, a 1.5 million tonne per annum project. And it might go for 2 or 3 years and have a couple of phases where it could be extended beyond that, depending on price. If the product is 58% to 59%, we think we'll be seeking to really base that off the Platts, 58 indices so that's where the FMG analogy comes in. In terms of mining, that work is undergoing. We've been finalized now. So can't give you any cost information. But the general routes to market are either mining and road haul to Geraldton or mining and road haul for a bit and then access the railway network in the Mid-West at various points and then rail into Geraldton. And of course, we have infrastructure through the region in terms of sidings and shades in the port. So we're set up to do this. But the biggest cost faced by the material, aside from mining works, will be the transport. And that's what we're seeking to optimize now, and we've got a number of scenarios we're chasing. But previously, when we went through all of this, the breakeven price was somewhere around USD 65 to USD 70 for 62% CFR price.
[Operator Instructions] Peter, we have no further questions.
Okay. Look, thanks, Lisa. Sorry, there was one aspect. Paul, if you're still there, on your question one timing. Time for Shine is probably going to be later in the -- or sometime in the March quarter. There are some approvals and other pieces that need to be done first, but that's the target that we'll have. But we'll clarify that when we come out with further information later this quarter. So look, if there are no more questions, thanks all for attending, and you know where you can reach us if you do have any more queries. Thank you.