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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the Regis Resources Quarterly Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.
Thanks, Harmony, and thanks, everybody, for joining us on the call this morning for the Regis Resources March 2024 quarterly update. Today, I'm joined by our Chief Operating Officer, Michael Holmes; and our Chief Financial Officer, Anthony Rechichi; and also welcome to the table and to the team our Head of Investor Relations and External Affairs, Jeff Sansom. To start with, at Regis, our imperative is to produce profitable ounces safely. And at the end of the quarter, I'm really pleased to say that a key safety indicator has continued to trend in the right direction. And we've achieved our lowest LTIFR, which is the lost time injury frequency rate. We've achieved the lowest on record at 0.34. Now of course, I would note that while it's a great outcome and well done by the team, this is a journey with no end, and we'll keep working hard to make sure we keep this performance running. On to our operations and high-level financial metrics. Across the business, the quarter and it should be no surprise that our production was impacted by the heavy and protracted wet weather events within the Western Goldfields region. Anecdotally, nearly a year's worth of rain fell over parts of WA and the goldfields in March. And our teams did exceptionally well to respond and to manage that deluge and to deliver production for the quarter at 90,600 ounces at an all-in sustaining cost of $2,735 an ounce. Now I would note, across our business, $234 per ounce of that is noncash. And Anthony will talk some more on this shortly. Look, Michael will discuss the specifics of the weather events in a moment as well. But as a general thematic, as a result of the weather and the disruptions it caused, we saw reduced mining rates and a higher proportion of processed stockpiles. So basically, our production for the quarter was always going to be softer as we'd highlighted that were identified than the -- be softer than the prior quarters as we flagged. But then this was amplified by the weather, and this impact artificially pushed up our AISC, our all-in sustaining costs, unit cost. Naturally, as we revert to normal operations and production, we will see our costs drift back towards the first half of this year's levels, to the tune that we will still comfortably fit within our FY '24 production cost and guidance ranges. Look, I would note realistically that we're likely to see a hangover of this quarter in FY '24 production and AISC, both of which will be within our guidance ranges, albeit production a bit more accurate understanding of the weather events now. We see production below the midpoint of guidance and conversely are all-in sustaining at the top end. On the significant positives for the quarter, like us, I'm sure that most of you will have been watching as the gold prices continue to climb. From the beginning of January to the end of March, the gold price has increased by nearly -- of the order of AUD 400 an ounce, which for Regis has meant that, at the end of the quarter, selling 100% of our gold into the spot market means we've seen a cash build of $31 million even in these trying times. Having this full leverage the gold price in a -- is a positive swing of something like $40 million versus how we would have been sitting had we not bought out the hedges position back in December. And just in case you're not aware, we did buy out our hedge book, and we are now fully unhedged. Now putting all of that together, i.e., our production lifting, our all-in sustaining costs reducing and a stronger gold price, we can expect to see some solid improvements in our cash generation going forward. We also made some good progress on our value growth area, but I'll cover a bit more of that towards the end of the call. I'd now like to hand over to Michael, who will provide some more information on the operational performance.
Thanks, Jim, and good morning, everyone. For the operations, as Jim mentioned, the regional wet weather that occurred primarily during March has impacted our quarter 3 gold production. At Duketon North and South, the weather event temporarily washed out several access routes to site, which meant access for road freight and access across the sites via haul roads was challenged. The impact to mining and processing activities, however, had limited disruptions. During the quarter, Duketon South produced the lion's share of gold with 59,017 ounces at an all-in sustaining cost of $2,435 an ounce. We continued mining at Garden Well Stage 6. And during the quarter, Ben Hur and Russell's Find open pits both commenced commercial production. With Benhur and Russell's Find in commercial production, the growth capital pre-stripping activities ceased, resulting in a lower growth capital spend of $14 million for the quarter. Duketon South will continue to produce ore from Garden Well, Ben Hur and Russell's Find in quarter 4. The Garden Well underground performed to expectations as we resolve the issues that impacted our development meters in the last quarter and are comfortable that development will continue at that circa 3,000 meters per quarter, in line with historical performance. Looking to the quarter ahead, Duketon South operations, we are now -- we now have sufficient access to the ore at Ben Hur and Russell's Find. So we will see margins improve with stronger cash generated. At Duketon North, production was 8,466 ounces at an all-in sustaining cost of $4,054 per ounce. During the quarter, mining at Duketon North centered around uncovering the Eindhoven ore and mining the Gloster open pit at lower rates due to the weather impacts. Our mill throughput and recoveries were down on the prior quarter with the majority of ore from Gloster pits and the stockpiles, driving the all-in sustaining cost of $4,054. Of this, nearly $500 an ounce was the noncash impact of processing stockpiled ore. In quarter 4, we expect costs will come down to similar levels to that in the first half as we start to feed the softer Eindhoven ore for the final quarter before transitioning to care and maintenance. As to Tropicana and as announced in our release on the 18th of March, Tropicana bore the brunt of these rainfall events. The predominant impact on Tropicana was to the road infrastructure and supply access. With 310 millimeters of rain over 3 days, roads to site were underwater, which cut access preventing the supplies of diesel and other consumables. Processing was suspended from the 22nd of March to the 1st of April, and the plant was brought back at full production throughput by the 5th of April. Open pit mining was either closed or significantly restricted over a period of around 5 weeks. Open pit mining has recommenced in early in April, whereas the underground mining has been impacted for only a few days. The net results of these impacts was that Tropicana produced 23,200 ounces at an all-in sustaining cost of $2,887 per ounce, with the underground producing most of those ounces. Tropicana is now back up and running and production is ramping back up to previous production rates, and we expect quarter 4 to be a much stronger quarter. Across Duketon, we have access to ore, and all our major planned maintenance activities are now complete. I will now hand over to Anthony, who will discuss the quarterly financials.
Thanks, Michael. First up, we sold just under 99,000 ounces of gold in the quarter at a record average price of AUD 3,126 an ounce, and it was our first quarter in a long time without the impact of hedging. On the back of these record prices, we received $309 million of gold sales revenue. Operating cash flows remained strong, which are demonstrated in the simple waterfall graph that you see at Figure 3 in the announcement, all made better by having no hedge adjustment columns to complicate the chart this time around. So back to Table 1 in the announcement. It's worth picking out our noncash ore inventory adjustments for $21.2 million, which is the expense related to drawing down stockpiles built up in prior periods. Given the weather impact, we had a much greater stockpile drawdown cost. Hence, that noncash cost was higher at this time around than usual. Now drawing your attention back to Figure 3 and the changes in cash and bullion for the period. This waterfall chart is straightforward and demonstrates the relative simplicity of our business, but the overriding point is the $31 million of cash build during the quarter. Overall, our operating cash flows were $108 million, with approximately $76 million coming from Duketon and $32 million coming from Tropicana. Capital expenditure was $55 million for the quarter with the largest component of this being $24 million of waste removal and then $17 million in underground development costs. Exploration and McPhillamys expenditure combined for $13 million. Growth capital for the quarter was less than half of last quarter's at $14 million and was primarily related to the final pre-strip mining work at Ben Hur and Russell's Find open pits prior to the commencement of their commercial production. Now having spoken about growth capital, exploration and McPhillamys spend for the quarter, it's worth noting that we may come in above growth capital guidance but under on exploration and McPhillamys spend and therefore, we're expecting to be materially consistent with the aggregate guidance for those areas of expenditure. Now back to cash and bullion. The closing balance was $186 million, which is a great outcome, and would have been significantly higher if we had not seen weather impacting on our production figures. Needless to say, I'm quite excited thinking about what this figure will look like with a full quarter's uninterrupted production at these current spot gold prices. Furthermore, also at -- in April, we received a tax refund of $20 million made available for the last time for Regis through the ATO's loss carryback tax offset provisions, which allowed the company to effectively recognize carryforward tax losses immediately by way of receiving a cash refund. Like I said at the start, some very straightforward financials, so I hand it back to you, Jim.
Thanks, Anthony, and thanks, Michael, as well. Look, before I talk on growth, I want to cover a couple of things. Firstly, our teams did a fantastic job during a very challenging period despite significant rain. The teams ensured our operations continued albeit impacted by the rain, of course, but continued safely. Well done to everybody involved. On our financial position, the simple waterfall from the figure that Anthony referred to, simple -- as he said, simple waterfall is the best waterfall. But for me, the best part about it is that we have broken free, like reference back to the last quarterly. And we have no more hedge book adjustments, and then we are in the position to meaningfully start building our cash, which is what we are doing. So moving on a bit and looking forward. During the March quarter, we put some really good news on the growth front as well. Starting off at Tropicana, we again showed why we view it as a Tier 1 asset. In February, we released the Tropicana resource and reserve statement, which demonstrated its continued expansion over mining depletion. We saw reserves actually increase by 100,000 ounces. This is at 100% despite mining depletion of something like 0.5 million. And the underground reserves themselves increased to 660,000 ounces. And just to put this into perspective, when we bought Tropicana, the underground reserves at the end of December were 309,000 ounces. At the end of December 23, the last date for issuing, that has increased to 660,000 ounces. And over that time, we have produced 450,000 ounces from the underground. So this -- the Tropicana is really -- the underground continues. I think it's a very clear illustration of this story that we try to lay in front of people to understand that the undergrounds may not look like they have much life, but actually, every year, they just continue to replace, deplete, replace. And Tropicana is an excellent example where not only have we done that, but we've actually grown the asset in terms of reserves. To us, this combined with the exploration data indicates that Tropicana has the geological capability to host or support a mine life of 10-plus years. Another important step in the underground growth story is the Havana Underground. In the February R&R statement, we announced the maiden reserve at Havana -- in the Havana Underground. Look, to access these ounces, we need a decline and supporting infrastructure, and we expect the first stages of development of that access way to commence in the current quarter at Havana. Work to deliver the final approval of the full program is in progress. At Duketon, we're also continuing to progress our evaluation of the 2 new underground mining project areas at Garden Well Main and Rosemont area Stage 3. These 2 projects underpin an important component of our Duketon Underground growth strategy. Now under this strategy, we're targeting 4 to 5 separate underground mining areas. And with that, we see Duketon having the potential to continually produce this 200,000 to 250,000 ounces of rolling production into the future beyond the current reserves, basically, because the undergrounds will follow this trend of behavior of replacing depletion and continuing to run for a number of -- for many years. Now we expect finalization of the assessment of these 2 projects in the coming weeks. Should they be approved, Duketon will then have 3 underground areas producing a large proportion of our targeted production. Lastly but certainly by no means least, I want to cover off on one of Australia's largest undeveloped open pit gold projects at McPhillamys. After quarter end, we released an update to the scope and also the cost assumptions from McPhillamys. As we mentioned at the time, the scope of the project has seen some changes, in part, due to the extensive permitting requirements in the area, but also due to significant inflation and overall cost escalation seen since 2017, the last time we actually formally updated on our cost assumptions. Nonetheless, with the recent updates to our estimates and the new scope, the total CapEx upfront of project now sits at circa $1 billion, maybe a little bit over with a life of mine -- the key piece here being the life of mine all-in sustaining costs being between AUD 1,600 and AUD 1,800. Now we plan to complete and release the details of the DFS before the end of this financial year. Now this recent project value and construction cost optimization work combined with some of the scope changes required to meet elements of the New South Wales permitting approval conditions has resulted in this changing to the original plans that we applied for in that permit. As part of this process, Regis is assembling the information necessary to make an application for the mods -- for the gold modification for the current New South Wales SSD, State Significant Development approval. Now modifications to existing approvals are quite common in New South Wales. A number of projects I'm aware of, some of them have had modifications that are into the teens and into the 20s. It's just a part of the way that you continue to grow and optimize these sites and keeping the approvals current to suit. And it's -- as I said, it's quite common that these designs -- the designs are refined and incorporated into the projects. Now while this has the potential to be somewhat time-consuming, it is not considered to be contentious. With this process underway, we will use the opportunity to continue to optimize the project, particularly in the lead up to FID. Now as such, putting all of that together, we don't expect to be in a position to consider the McPhillamys FID until at least Q3 in FY '25. Meanwhile, the Section 10 application is still being considered by the Commonwealth government. We do anticipate a resolution within the coming month or so. So with our near-term growth pipeline looking strong, McPhillamys provides us with a range -- wide range of optionality for the longer term. Now to summarize, I guess, the March quarter, we delivered a very solid improvement in our safety performance as measured by lost time injury. We navigated the protracted wet weather events. We produced 90,000 ounces of gold and sold just under 100,000 in a record spot gold market. We reiterate our guidance, albeit weather adjusted, and we do see production towards the lower end and conversely AISC at the top end but still within our guidance range. We see no reason to change it. We delivered organic growth at Tropicana with significant reserve extensions progressing a new underground area. We're in the final phases of Duketon, of evaluation of 2 underground organic production growth projects. We declared commercial production at 2 new pits at Duketon South, and we hold a greater degree of confidence in the assumptions and the value that underpins the potential development of McPhillamys. So looking to this final quarter with operations normalizing after the rains, we see production strengthening and costs normalizing, and we see a global macroeconomic environment that continues to support record spot gold prices. With this backdrop, Regis is in a really strong position, and we look forward to continue building our cash while also executing on our growth plans as we capitalize on our near-term organic growth opportunities. So thank you, and I'll now hand back to Harmony to help us out with questions. Thank you.
[Operator Instructions] Your first question comes from Alex Barkley from RBC.
Just had a question about that Duketon underground target, the 200,000, 250,000 ounces. Is that sort of a broad strategic target, maybe something internally you're working for? Or is it a bit more specific to the current situation calculated off your current mines, the potential ones? Just trying to get a sense of how you're thinking about that target and when you want to achieve it and that sort of thing.
Yes. If you have a look at one of our presentations that we've done, this is a picture that we've sort of been talking to for a while now. And basically Duketon's production back probably 4 or 5 years ago was over 300,000 ounces. It was all oxide. It was all easy open pits. And the places become obviously more complicated, deeper, the surface pit reserves have been dwindling. However, as we've progressed underground, we've seen a real opportunity to be able to set in place -- and this is all part of our target to get to 0.5 million ounces as a target to drive to. We see -- realistically, what do we think that Duketon has got the capacity to produce. And I say this in the context of, of course, our exploration team is out looking for another Garden Well or another Rosemont 0.5 million to 1 million ounce open pit, but in the meantime, how should we be -- how we're trying to drive Duketon. So if you have a look at -- there's a presentation, there's a little stacked chart. And on that, we look and say, look, Duketon, we think, has got the capacity of around 200,000 to 250,000 ounces, on the back of what and why do we think that's sustainable. Well, it's our target of what we're trying to drive to. And if we look at each of our underground mines and we think, currently, the undergrounds can generate between 50,000 to, say, 70,000 ounces per annum each, of that order, if you've got 4 of them, then you're starting to be able to hit that 200,000-plus production range. Then the second question that people would have is, well, hang on, your reserves aren't particularly long, so you're not going to do that for very long. And that's the other part of this story, is no, our undergrounds -- and we're seeing this already in the undergrounds that we've got. And that's why I emphasize that Tropicana sees it. And you can go to other underground mining -- gold mining companies to see the same thing. The reserves, the nature of them, they continue down plunge. We don't drill them out for -- to demonstrate 10 years of reserves, too damn expensive to do that. But you see this role in continuity. So our strategy there is we've got Rosemont already in an underground environment. Can we look to continue and maintain that production level? We think this has a good picture and good story for that. Garden Well South obviously is another production zone that's really just, I don't know, probably been in commercial production now for maybe 18 months, I guess. We're looking at the Garden Well Main area as a completely independent new production zone. So the new production area at Rosemont, New Garden Well Main, we push on with those and assuming we can get them sort of to a point where we can approve them then there's 3. Okay. That's not quite the whole picture that we're looking for. Where else? When we look around our site, Ben Hur's got underground potential, all our open -- well, not all of them, but a lot of our open pits have got underground potential. If you go back through our -- some of our old releases a few years ago. Baneygo was a potential target. We actually walked away from that because we barely started open pit mining. We went to Garden Well because it had better access to decline portal. You got Baneygo. You've got Ben Hur potential. You've got Tooheys Well. And then we've got some other greenfield discoveries as well, which are -- look obviously a little less mature than those. So we look to build up to that -- get to that 200,000, 250,000. Is it guaranteed? No. Is there a clear pathway as to how we see we can drive to that? We believe so. And that's sort of the basis of how we see that whole what do we think Duketon is capable of. That's what we're driving it to. And of course, if we -- when our exploration team is successful and finds another open pit, well, we're off to another level of production, but that's a whole other story.
Yes. Okay. That's very helpful. And then similar question around Tropicana. Obviously, a lot going on underground there as well. When should we expect sort of the tonnage in production pick up on top of Boston Shaker, sort of Havana and Tropicana to pick things up? Is there a rough time line or tonnage target that you have in mind?
You mean from an underground point of view?
Yes, from underground, feel did production double or what have you?
Well, I mean, the mill there is full, right, the underground production...
That's from underground [indiscernible]
From underground? Right. Well, I mean, Havana is a whole new area. And realistically, you're probably -- I mean, we're still -- we haven't even done the final approvals yet, but you're looking at, at least probably 18 months before you can see that as being a genuine contributor to the 2 major. See, we've got really 2 major production areas underground at the moment, Boston Shaker and Tropicana. And Havana will be a third, but I reckon that's a bit of the way down the track. And we can be a bit more definitive on the timing of when that would contribute once we've completed the final approvals. But it's not this week.
Your next question comes from Hugo Nicolaci from Goldman Sachs.
I just -- quickly operationally, I just want to clarify on Duketon North, just the comment going into care and maintenance shortly after June. Was that just the mine and you still got a couple of months' worth of stockpiles to keep processing there? Or is that the mill as well?
I'll let Michael to answer that one.
Yes. So the mining at the moment, we're continuing with Eindhoven open pit, which is a softer material, and where we plan to finish that towards the end of June. The other feed source, Gloster, that will be ramping down towards the end of May. And so the mill will be just processing the remains of Gloster, Eindhoven stockpiles. The idea is to, yes, complete the milling as of the end of the quarter and then just basically emptying it out and cleaning it out and preparing it for care and maintenance.
Right. And then maybe one, just a bit more high level strategically. I mean with the economics of McPhillamys now maybe a bit more stretched than they were on the CapEx increase and medium-term production declines still depending on where you get to on underground targets, how do you think about M&A in the current environment? And I guess, what would be the right way for us to think about it in the context maybe of what you paid for Tropicana in annual gold production there and relative to where gold prices have gotten to now?
Yes. Look, there's a fair bit in there. But I guess the reality with McPhillamys is it's obviously a significant chunk of capital. It's a great cornerstone for a business. I mean it's got 10-plus years of production across the 2 million ounces of reserves over those 10 or 11 years at $1,600 to $1,800 an ounce. That's a great asset to have in your portfolio. It's like a -- the undergrounds are like sports cars that can go fast but need a fair bit of maintenance to keep them going. The big open pits of that size are just like diesel engines and just keep churning it out. So we like it in the portfolio, but the reality is that our task here is to ensure that we're finding the best opportunity for the application of our capital or the shareholders' capital. And so we need to make sure that we are looking at other opportunities as well to basically square up against McPhillamys to make sure it's the best use. So what that means is that, yes, we do have to be -- I mean, it's a responsibility for us to be looking around for other opportunities that can compete with that capital, existing operations that might have good life. Of course, those sorts of opportunities are few and far between. I think the last time something decent came up like that was Tropicana. So -- which is everybody is now seeing was a really great investment by the way. So we will -- yes -- the short answer is yes, we have -- we will continue to look at M&A opportunities. How does that fit? Well, if it works out, we think it's a better immediate use, then that might be something that we pursue. In the meantime, we've got McPhillamys as a great project sitting in the background that we continue to optimize and get ready for making a decision on.
Your next question comes from Daniel Morgan from Barrenjoey.
Just continuing on that theme, McPhillamys. Is the project still core to the business? Or might you look to proceed -- get all the permitting done, get it in a shovel-ready position? And might you look to divest?
Well, in the context of the question that I just -- just how -- what I was saying is that McPhillamys is a great project, albeit quite a reasonable size, larger than it was considered to be back in 2017. It's still a good asset to have in the portfolio. But as responsible managers or, I guess, of shareholders' funds, we need to make sure that we're looking for the best return on their investment. So you look at options. I need to be careful about how I answer that question because as soon as you say some throwaway line, it immediately goes up as a headline that we're not interested in it, and we're looking at divesting in it. That would not be the case. But we like it as a project. It's in our portfolio. We're working hard at it. We just want to make sure that we figure out the way to maximize the value that we can get from our shareholders, and that ultimately will drive any decision that we make.
And what are the options in competition? I mean, obviously, you've got the underground futures at your various -- Duketon and Tropicana that you're trying to exercise. But is there also an option to pit well pushbacks in the Duketon region given the gold price? Or might you consider this cash harvest to be in the hands of shareholders and consider big dividends?
Yes. So the first, coming back to what are the alternatives. I mean the undergrounds, each time you set up one of these underground mines, they're not huge CapEx. Depending on the complexity, they can be anywhere from, say, 30 million to 70-plus million depending on the size of it and whether you have backfilling or not, could be -- so we're not talking -- I mean, that is a lot of money, obviously, but relative to, say, a $800 million or $900 million or $1 billion investment, they're actually pretty good returns and pretty quick to start returning. So we -- and once you've got them started, the ongoing sustaining CapEx of those things is -- to maintain growth is pretty modest. So that's why we like them. We just like more of them. So that will just continue. In terms of our cash generation, look, as the Board will now be sitting down, watching our cash balance starting to grow significantly, which is what we expected to in this price environment in the outlook, capital management is certainly a question that will come -- well, I won't say will come back on the agenda. It's always on a discussion point around the Board as to the question of dividends or not. And we just will put that in the frame of, well, what are other opportunities for that capital, what's the potential timing for McPhillamys, how might we fund that. So there's plenty of moving parts. What does the outlook for gold look like? All of those variables are there. Certainly not in a position right now to say what our policy may or may not be, suffice to say that it's always something that the Board meetings that we -- as part of the conversation of the strength of the business and the cash flow generation as to what's the appropriate thing to do with that money as it's building.
The next question comes from Alex Papaioanou from Citi.
Are there any one-off costs associated with putting Duketon North into care and maintenance? And can you remind me what are the care and maintenance costs associated with Duketon North?
Anthony?
Yes. Alex, as far as the one-off costs, so we've been sort of accruing towards it. Nothing -- actually, from a materiality perspective, nothing material that's new that's going to jump out. That's something that we've looked at recently, including [ demo ] costs and what we're doing with personnel and that sort of thing there. So certainly nothing that is going to shake our numbers or push us outside of what we've already planned for or what's already in our guidance, I should say, as well.
Great. And then just any sort of maintenance costs going forward?
No, it's just -- that will be minor costs, just rotating the mills once a month. So there'll be a small crew up there, 2 or 3 people that will be doing that and then just sort of looking at the camp. We basically shut the camp down. And the people that we've got will be reallocated within the operations as we fill vacant roles.
[ Helpful for us ] because we've got people looking to fill vacancies at the moment, and we know them and we trust them. They're good people.
Okay. And given that Russell's Find and Ben Hur reached commercial production, is there expected lift in open pit ore tonnes going forward? Or should we expect similar production to the last few quarters?
I think our production will be consistent with our guidance, mate.
Your next question comes from Meredith Schwarz from Bank of America.
I just wanted some clarity on the cost front. With that noncash stockpile inventory adjustments for FY '24, is there going to be any ongoing -- any of those ongoing into FY '25? Or is it just mostly isolated to FY '24?
Well, this is Anthony, Meredith. I'll cover that for you. Look, you really notice it obviously in this quarter because we have to use those stockpiles because of the weather event. So let's just say it was a larger number than usual, particularly in this quarter. But as we're starting to get that -- ore levels building back up to more normal levels, then we should see less of an effect of the significant impact of those drawdowns on a cost per ounce basis.
Okay. Perfect. Great. And also a question, I suppose, on McPhillamys. Can you talk through how you see that asset in terms of exploration? Do you see any -- obviously, you've got the potential mine life of 9 to 10 years. But what are you looking at in terms of exploration upside and potential for that mine life to go beyond that. And obviously, the CapEx is potentially a whole lot higher. But if you've got that potential for extension of mine life, then that can deliver additional value to that project irrespective of that capital cost upfront.
Yes. That's a great question actually. And it's something that we haven't really spoken about too much. I mean there's a couple of things I would point to. We have already a resource that's just down the road. I think it's about 25,000, 30,000 down the road called Discovery Ridge. It's got about 390,000 ounces in resource sitting there, which could obviously be fed into the plan. There's also -- just across the road, there's a drill hole that we put in, and I'm just trying to remember how many meters at 1 gram per tonne it was, but it's an exploration potential. It's something that we actually drilled apparently quite a few years ago, and then the farmer sort of wasn't interested in us being there. But the farm became available for sale, so we bought that. So -- and then there's other -- we've got other holdings, other exploration holdings in that region. You can sort of get a bit of a feel for it by looking at our exploration update last -- probably went out about 4 months ago, I reckon. And you can see we've got -- I mean that area around the Lachlan Fold Belt, that's just spectacular country. There'll be exploration companies that will be floating off the back of this, just the exciting ground that we hold. So there's plenty of opportunity. And then the other one, quite frankly, is right on the site itself. The mineralization continues down at depth. We know that. We've been having a careful look at that. So there's -- the pit -- the bottom of the pit is defined by economics, not by geology. It's not cut off. It's not a geological boundary. It's just an economic boundary, and it continues on at depth. What we want to do is we want to understand just how big that could be and what sort of production capacity we might be able to hold from there. But it's early days, but I think our bottom line is that period for that is -- it's all just -- we're all just getting started on it. McPhillamys is not the end point. It's the beginning.
Yes. Yes. And in terms of -- obviously, there's a little bit of a period of wait to get those approvals. Can you do any additional exploration work while that's still pending approval? Or will you literally just put it on the back burner and concentrate more on exploration at DSO and Tropicana with the exploration spend?
Yes. The short answer to that is no. It was one -- the only thing that's holding us back from doing a bit more drilling and work on the site is the Section 10 application. That's -- we've got -- we've actually got a couple of target areas that we want to pursue pretty quickly. One is at depth. There's also a little bit of mineralization that's been identified within the shell that probably needs a bit more drilling to see whether that can convert to indicated. And there's a thing -- an area that we -- probably not the best description of it, but it's called the pimple area, which has got some mineralization that's never been -- got an opportunity to go and look at. So yes, there are some things that we would immediately -- Michael's telling me it's now called the node. We don't call it a pimple anymore. We call it the node. So there are some opportunities there that we could certainly get into, and we will look at that once the Section 10 is cleared.
Okay. Could I ask one more sneaky question? Have you given any guidance on the cost of the decline for Tropicana for the underground there, the Havana? Have you given any guidance as to what the cost of that would be?
No. Look, the initial works that we talked about getting started this quarter will be pretty low. It's setting up the portal and getting things ready to move. Once we've made the final full approvals -- it's just -- it's to help get the momentum going on it. Once we've reviewed the project, made the final approvals, then we'll give some better guidance on that. I mean our -- if I look at Duketon indicative numbers for initial setup, I think Rosemont was probably $40-odd million to get it started. I think Garden Well was probably a little bit more. As I said, I think these new starts, by the time you got the portals and bed rises and all those sorts of things, depending on how complicated it is, it could be anywhere from -- at Duketon, from maybe $50 million to get it started running to $80-plus million depending on how much additional infrastructure is required. So -- but in terms of Havana Underground, we'll -- once we've made the call and finalized -- the initial spend is not a lot. It's just to get things -- start the ball rolling. Once we've got the final approval for the project, then we'll let the market know a bit more on the details of that.
[Operator Instructions] The next question comes from Levi Spry from UBS.
Jim, maybe just continuing on a couple of questions. Firstly, as you transition to underground, what sort of mining costs should we be -- mining costs are we modeling underground at Duketon and across the operations and also at drops?
Yes. Look, at the moment, we're still -- obviously, we'll give some understanding on what we expect the mining costs for these new areas to be once we've finalized it and approved it. I think when you -- at a very high level, if you're looking at -- you look at the grades and you look at the all-in sustaining costs of what we've been doing historically, you can probably say that, that trend -- those -- there's a pretty good relationship there. And if the grade is about the same, then the costs might be about the same once you get the setup costs out of the way. One of the things that we're considering is backfill, which might add a little bit of the cost, but it's -- but then that gets offset by improved capital efficiencies. So we haven't finalized these new areas, but certainly, if I'm looking at it at a high-level picture for -- from my head, I don't see it being -- I certainly wouldn't see the costs being any less than what they currently are for our undergrounds, which I think we sort of give some indication of in our reporting.
Okay. So [ fantastic ]. And then just jumping back to the optimization process at McPhillamys, sort of just catching up here a little bit. But just can you talk us through what the big levers are? Understand the CapEx, not much of it can be postponed or pushed into sustaining or anything like that, so maybe that's not going to move much. So it feels like in the ore body, the grade's sort of upside down, so it feels like the main lever is trying to bring some grade forward. Is that what we're -- what are the big levers to improve the economics?
Yes. Look, it's -- from some perspective, the project is quite -- has got some pretty significant initial CapEx. So if you look at the -- if you look at it and say the CapEx is $900 million, $165 million of that is the pipeline. Can we optimize that? Can we -- no one's developed a way of transporting water without a pipeline yet or certainly not our [ appeals ], which is what we're trying to do. So we -- the only thing we could look at there is there might be a different route that you could follow that didn't require as much high pressure pumping, but all of these things come with a trade-off, but you've got to look at those and make sure that you're not sort of writing them off too quickly. There will be some looking at the crushing and grinding circuit. Can we pull a few more -- can we delay one of the fine-grinding towers or maybe use slightly different technology to what we've assumed that could be cheaper to install? The idea of high grading would be absolutely lovely. Well, it's a lovely idea. But the ore body is what the ore body is, and you can only -- there are limitations on how we can mine it. Not the least of which is there's only a certain speed we can mine it because of the noise limitations. So I think in the very early days, the assumption -- and an example of that is, in the early days, the assumptions were we're going to have 3 diggers running. And then when we did the analysis with the sound, the sound restrictions in that part of the world meant we could only run with 2, which sort of limits your ability to run with grade streaming, as they call it, otherwise known as high grade, and bring it forward. So there's some -- there are some challenges there, Levi. But what we want to look at is -- back in the capital front is are there some things that we can push back and can we do a bit more optimization. But I mean, at the end of the day, we're not talking about something that's going to reduce the cost by 20%. So it's just number one is getting -- increasing our confidence of the number being what the number is and not having a blowout as we get into construction. So that's a key element of making sure that we're checking things. And the other is just looking to see whether there's money that we can defer without cutting off our nose despite our face sort of thing.
Yes. Okay. And last one, just on the capital management sort of train. So late last year, I think you extended the maturity of your debt facility. What's the current thinking there in isolation without the -- backing out any decision-making around McPhillamys?
Well, that money is now due middle of next year. And as we grow our cash now and we start to look at the requirements for McPhillamys and anything else that we might be thinking about, as I sort of mentioned before, the question was asked about what else might you do besides McPhillamys, that and how we deal with that $300 million is definitely something that comes into the equation. And we could do everything from rolling it to maybe paying it down early as we start to build our cash. The interest rate on that's not as -- it was great when we picked it up. So there's a couple of challenges there, but we've got options there. Yes -- or, I mean, frankly, depending on what we do with McPhillamys, we could roll it into the refi of that.
There are no further questions at this time. I'll now hand back to Mr. Beyer for closing remarks.
No, look, thanks, Harmony. Thanks, everybody, for joining us on the call. As always, if you've got any follow-ups, please get in touch with us. Jeff's here and fully up to speed. So thanks, everyone, and let us know if you've got any questions. Otherwise, have a nice day. Thank you.
Thank you. And that does conclude our conference for today. Thank you for participating. You may now disconnect.