Regis Resources Ltd

ASX:RRL

Earnings Call Transcript

[Mark Clark]

Good morning, and welcome to Regis' investor conference call to cover the company's September 2018 quarterly report. I'm joined on this call by Managing Director, Jim Beyer. He's only been with Regis since the start of the week. And pleasingly, he's been up in the mines, which is of course why I'm presenting today and not Jim. Kim Massey, CFO; Myles Ertzen, EGM, Growth; and Tara French, GM of exploration are also on the call. Paul Thomas, COO, unfortunately, an apology as he is on annual leave. I'll start the presentation today with an overview of the operating results for the Duketon Gold Project for Q1. I know it was another very strong quarter for the project in terms of production, costs and cash flow generation. Our Q1 gold production was 19,879 ounces, which was in line with Q4. It was above the midpoint of our production guidance range of 340,000 to 370,000 ounces. Throughput, grade and recovery were all pretty much in line with Q4. The Q1 stripping ratio for the project was down significantly from 7 to 4.4 in Q1. The pre-strip of high-grade at Tooheys Well pit was continuing and Dogbolter and Anchor commenced, but the DNO mining returned to ore after a significant waste campaign in Q4. Our Q1 cash cost was $793 per ounce, and all-in sustaining costs were $923 per ounce. Our all-in sustaining costs were 6% lower than Q4, due mainly to the lower strip ratio as Duketon North returned to ore mining. The all-in sustaining cost was below the bottom of our FY '19 guidance range of $985 to $1,055 per ounce, and that concludes the trend that's been the tax for some time. Our Q1 operating cash flow was $78 million, down from our record -- all-time record in Q4 of $85 million. This difference was almost entirely due to a lower delivered gold pricing line with the movement in the stock price across the quarter. So very strong continued operating cash flow underpinning cash build and our dividend payment. On the charts on this slide, the combined Duketon project has shown how strong the operations and consistent the operations been over the last 2 years. In fact, it's remarkable how consistent Duketon has been for some time, and you can see the tonnes milled, grade, recovery, production and cost all fluctuate within a very narrow range on a quarterly basis, which is a great credit to the operating team. And you can see that the one parameter that does have some variation is the stripping ratio. The overall stripping ratio at Duketon is still relatively high this quarter and next as we complete the bulk of the pre-stripping mining at our next satellite projects, Tooheys Well, Dogbolter and Anchor. The stripping of these -- over these 2 quarters will open up these open pits to make a significant contribution to production for the next few years. So looking now at the quarter on a more detailed basis, firstly, the Duketon North Operations produced 27,387 ounces at an all-in sustaining cost of $898 per ounce. The 10% better production in Q4 was largely the result of 9% higher grade in Q4 as mining returned to ore at Gloster, whereas in Q4 the mill phase was lower grade cost per stockpiles whilst we expedited waste mining at Moolart Well to provide rock material for the now completed tailings dam lift. On the strip ratio, the Duketon North decreased dramatically from 7.4 in Q4 to 2.2 for the same reason, i.e. that the campaign waste mining from Q4 was completed. Our pre-strip of the satellite pits, Dogbolter and Anchor continued in Q1 in preparation for first ore delivery to the mill in Q2. And the reversal of the high Q4 stripping ratio saw the project all-in sustaining costs fall to $898 per ounces for the quarter, which is more reflective of the long-term run rate for the project. So a very strong quarter for the Duketon North Operations. I'm now looking at the Duketon Southern Operations, where we produced 63,492 ounces at an all-in sustaining cost of $935 per ounce. This production was 5% lower than the Q4 due to the grade of 1.24 grams per tonne, 4% lower than Q4 as less tonnes of the higher grade Erlistoun ore were mined and processed as the starter pits there narrowed, approaching their final depth. And the mill recovery was about 0.91% lower than the prior quarter, mainly due to the fixed tail impact of the lower grade. All-in sustaining cost of $935 per ounce were in line with Q4. Our stripping ratio is down marginally from 4.7 to 4.1 as we mined our first ore from the Tooheys Well pit and also mined more ore from the Rosemont pit. In Q4, we mined significant prestrip waste at Tooheys Well, about 1.25 million BCMs which is prestripping the pit. That cost is included in the growth capital and that will finish in Q2. So another very strong quarter from Duketon South. And on that note, I'll turn to our cash flow. As I mentioned, the Duketon project generated an operating cash flow for the quarter of $78 million, which was just $7 million below the all-time record of $85 million for the Duketon project in Q4 of 2018. The slightly lower operating cash flow for the quarter was almost entirely the result of a lower delivered gold price of $1,660 per ounce, compared to $1,731 in Q4. This production -- this reduction was in line with the movement in the average spot price from $1,726 to $1,657 across the period. Cash and bullion at the end of the quarter totaled $190 million. During the quarter, we paid over $40 million in dividends and we made some significant capital investments at Duketon, where we spent over $15 million of the $40 million FY '19 growth capital budget. This growth capital is heavily weighted to the first half of the year as we complete prestrips of satellite projects, particularly Tooheys Well, which will be delivering higher grade ore for the mill in Q2 and also tailings dam lifts, which will be largely completed by the end of Q2. This will set Duketon up for a very strong second half cash flow. The continued strong cash flow from Duketon underpinned the final dividend payment of $0.08 per share, which we paid in September. Our full-year dividend was $0.16 per share, which represented dividend metrics of 13.4% of revenue, nearly 26% of EBITDA, 4% basic dividend yield and a 5.7% grossed up dividend yield for franking terms. I think it's worth noting or worth reflecting on the fact that Regis has now paid some $326 million or $0.65 per share in fully franked dividends over the last 4.5 years, which is a testament to the cash generation power of the Duketon operations and sees Regis well established as an industry leader in terms of returns to shareholders and their capital management. Turning now to exploration. It was another big quarter for exploration in Q1, where we drilled in excess of 75,000 meters of drilling at Duketon. Two of the key projects we worked on this quarter were obviously Rosemont and Garden Well underground targets, and I'll talk about those in more detail in a moment. But we also had really encouraging results at a number of other projects during the quarter, too. These included Moolart Well, where we were infill drilling resources outside our current reserves, encouraging results from 22,000 meters with air core and RC drilling included 10 meters at 4.6 grams per tonne from 89 meters, 11 at 5.85 grams per tonne from 58 meters and 9 meters at 5.23 grams per tonne, all of those results being outside reserves. At Baneygo-Idaho, which is 15 kilometers south of Rosemont, same story, drilling outside and below and along strike of our reserves turned up encouraging results including 6 meters at 7.45 grams per tonne; 4 meters at 16.5 grams per tonne; 6 meters at 4.27 grams per tonne. And at King John, which is west of Garden Well, again, encouraging results outside our reserves including 4 meters at 2.5 grams per tonne and 6 meters at 4.96 grams per tonne. So all of those results are being assessed in due course with a view to extending reserves inventory and bottom line. Turning to regional prospects, we drilled a number of those during the quarter and turned up some anomalous regional air core results across 5 regional targets that we'll be following up in Q2, so hopefully further news to come on those in coming quarters. So I'd like to now look at 2 of the projects I mentioned above in more detail, firstly starting with Rosemont underground. The Rosemont project has a number of plunging high grade zones extending well below the final pit depths. The deposit has a strike going for another 4 kilometers, which has barely been explored below open pit of ore depths. As investors following Regis would know, we've been focusing on 2 discrete areas of underground potential within that system over the last 2 years. And these are the areas immediately below the main and south open pits. In March, we estimated a maiden underground resource at Rosemont of 1.4 million tonnes at 5.1 grams per tonne for 230,000 ounces, adjusting those 2 discrete areas. And in case listeners are not familiar with the project, the geology at Rosemont has gold hosted in steeply dipping quartz-dolerite unit and intruding into the surrounding ultramafics. The cost dollar unit varies in with that 80 meters, and as you can see from these 2 cross-sections, where we see the quartz-dolerite unit, we tend to get higher grade intercepts. Pleasingly, earlier in August, the Regis board approved the development of the first stage of underground mining at Rosemont. The inventory for the Stage 1 development is 1.8 million tonnes at a fully diluted mining grade of 3.7 grams per tonne, for 212,000 ounces. We started progressing development in Q1 with the ordering of long leg capital items and the convention of the mining tendering process. We expect to be cutting a portal in the March 2009 quarter, picking up development ore in the September quarter and then getting into our main production ore in the December 2019 quarter. Bearing in mind that we see the Stage 1 development as very much the start of the eventual full-scale underground business at Rosemont and exploration from within the drive type of opportunity, it's really pleasing that the Stage 1 business in that context still has very competitive operating and capital costs. The operating costs are expected to be in the order of $1,150 per ounce, and the pre production capital is a pretty modest $29 million. We expect the Stage 1 mine to be able to deliver between 480,000 to 600,000 tonnes of ore per annum. Once it's fully operational, this should generate 120,000 to 130,000 ounces of production, representing approximately 35,000 to 45,000 ounces per annum on additional production relative to the current open pit, only business that we have at Rosemont at the current time. Looking at an underground long section for Rosemont and knowing the continuity of the quartz-dolerite unit along strike, it's obvious that there will be significant opportunity to conduct exploration and resource drilling from the underground development between the 2 zones in the current resource. Now obviously, it will be much easier to hit targets from within those workings than from surface or within the open pit and much cheaper and quicker to do so. This just reiterates the logic of establishing a viable underground mine on the current 2 positions and then growing the scale of mining in-between operations from that platform. We believe that there is genuine scope for this ultimately to become a much larger underground position. Now with this goal in mind, it's also very important to note that the geometry of the current stope designs and their close proximity to the open pit means that there is excellent optionality to cost-effectively add excess waste and ventilation beyond the current mine design to significantly increase mine production rates in the event that as we expect, the mining inventory grows substantially over time. This slide really demonstrates the largest scale opportunity at Rosemont. The long section shows that the current resource covers only about 1 kilometer of the more than 4 kilometers of strike at Rosemont and only extends 150 meters below the current pit design. And that drilling that we completed from surface at Rosemont in Q1 continues to build on the results that we saw in Q4, and I think it's demonstrating the early signs of these extension opportunities are starting to come to fruition. Some of the very strong results in Q1, the Rosemont South resource and between the 2 resource areas, include 6 meters at 56 grams per tonne, 6 meters at 5 grams per tonne, 4 meters at 18.8 grams per tonne, 17 meters at 6.3 grams per tonne and 7 meters at 5.9 grams per tonne. So very strong results. Infill and extensional drilling is continuing into Q2 and beyond. This will be parallel with mine development with a view to extending the resource and ultimately the mine, below and between the current underground resource area. As I mentioned last quarter, the ongoing success in our drilling of underground targets at Rosemont has giving us the confidence to apply this strategy to the next logical target for underground resources at Duketon, which is the southern end of the Garden Well deposit. To date, we've identified at least 4 high grade zones in this area. These represent very significant underground targets with zones and mineralization between 4 to 10 meters of true width, 300 meters of strike, and we haven't found the strike extension this year and down to a maximum depth so far of only 300 meters below surface. We drilled 20 holes into these target areas in Q1. Really encouraging results returned from this drilling included 17 meters at 5 grams per tonne, 14 meters between 0.5 grams per tonne, 11 meters at 3.9 grams per tonne and 4 meters at 8 grams per tonne. RC and diamond drilling will continue in Q2 focusing obviously on infill drilling, the current infill of course 40 x 40 meter drill pattern. And also focusing on step out and get the extensional drilling where those opportunities exist, with a view to establishing our main underground resource at Garden Well later in FY '19. So we're very positive about this opportunity and the early results of drilling that we've seen at Garden Well so far. Moving on to our organic growth project at McPhillamys in New South Wales, this project is located in the Central West of New South Wales in the same region as Cadia, Cowal and Northparkes. In September last year, we quoted a maiden reserve at McPhillamys of 2 million tonnes per annum, which was accompanied by a PFS level study, which shows that we've got a high quality and large-scale project. We're contemplating a 7 million tonne per annum operation here, which is a very big plant delivering about 190,000 ounces per annum over a 9.5 to 10 year mine life. So very significant organic growth opportunity for the company. So turning to our ongoing work and completing our EIS and DFS for McPhillamys. Pleasingly, in Q1, we were able to submit the preliminary environmental assessment to the New South Wales DPE. This was a really important submission for us that sets our intentions as to the development of the project and the proposed management of the environmental and other matters. This submission saw the DPE issue Regis with the environmental assessment requirements, or EARs, for the project. We're now reviewing the status of all of our EIS work stage against those requirements and expect to complete the EIS and submit it for formal assessment early in Q3. We believe that getting the EARs and now as a result being able to finalize the EIS and DFS will generate significant momentum towards the project development of McPhillamys. This is the moment in that we've been trying to build in the last couple of quarters as we work to get resolution of a number of infrastructure variables to a level of confidence that will allow us to complete the PEA and get the EARs issued by the regulator. So it's really pleasing now to have a clear path forward. We also expect to complete the DFS in Q3, now that we have a clear path on the EIS requirements, whilst all of the McPhillamys project parameters are being advanced and remain subject to a number of variables. It's encouraging that we expect the project development capital to come in within towards the upper end of the September 2017 PFS range of $215 million plus or minus 25%. This will be a very competitive cost for a 7 million tonne plant, with significant offsite infrastructure including a 90-kilometer water supply pipeline. This was particularly the case when this development is benchmarked against recent Australian gold project developments. We're also pleased to advise that the exciting Discovery Ridge project will now be included in that study, and we expect it to deliver significant value to the project. It will be subject to its own EIS and approvals process, but this should be a simpler exercise than the ones from the facilities given that it will be a mining only operation. They won't need to address any of the processing chemicals or discharge issues that the McPhillamys EIS covers. This process should be able to be completed whilst the McPhillamys main project is in development. Our maiden reserve for Discovery Ridge early in Q3 is expected to kick this process off. So we're really pleased that we can now move forward towards completion of these studies, which will allow full permitting assessment of the project in the sea. Regis moved to an investment decision on development of the project in Q3 and then be able to develop a development time line as a result of that process. As I mentioned earlier, we're also very positive about the potential of the Discovery Ridge project, our other key New South Wales asset. This project is 32 kilometers away from McPhillamys, has a resource of 501,000 ounces. We've been drilling it for a number of quarters now. Infill drilling in that resource and the results to date appear to be in line with historical results for both location and grade. Our Q1 drilling actually targeted depth extensions at the project, and I'm pleased to say turned up some really strong results, including: 129 meters at over 2 grams per tonne from 159 meters, including 40 meters at 3.5 grams per tonne; 101 meters at 2.17 grams per tonne from 222 meters, including 39 meters at 4.37 grams per tonne; 65 meters at 2.5 grams per tonne; and 162 meters at 2.03 grams per tonne, including 54 meters at 3.93 grams per tonne. So fantastic results and you can see why we're getting so excited about this project. As I mentioned earlier, we do expect to update the resource and quite amazing reserve on the project early in Q3. And also as I mentioned, Discovery Ridge will now be studied as part of the DFS for McPhillamys. Clearly, they're targeting a substantial satellite project to McPhillamys with minimal CapEx, higher grade and lower strip than the early years of the McPhillamys project, and we really do expect this project to deliver significant value to the broader McPhillamys development. The final matter that I'd like to touch on in this presentation is the Management and Board succession plan that we announced in September. After 10 years as Managing Director and more recently, Executive Chairman, I thought it was the right time for me and for Regis for me to transition out and to hand over to a new Managing Director who has the skills and drive to take Regis on hunting the next 10 years of its journey. To that end and after a very considered recruiting process, we offered the role to Jim Beyer, and we're very pleased that he has agreed to join the company. Jim, for those of you who don't know him, his most recent -- was most recently the CEO of WA iron ore producer and explorer at Mount Gibson. But prior to that, he has a very deep DNA in gold mining and gold mining management. He was previously the General Manager of the Boddington Gold Mine, one of Australia's largest gold operations; and prior to that, the General Manager of the high-grade Pajingo underground mine in Queensland. So clearly, very good gold experience and most importantly after spending a lot of time with Jim, we believe that he's an excellent cultural fit for the company. In terms of the chairmanship, James Mactier, one of our incumbent nonexecutive directors, will be taking over for me as Chairman at the conclusion of the AGM on the 23rd of November. James was for 15 years the joint head of the Metals and Energy Capital division of Macquarie Bank. We've had a long relationship with James as our banker at both Equigold and Regis. James retired from that role in April of 2015 and become a nonexecutive Director of Regis in February 2016. James is a very respected WA business leader and I think a very good fit as Chairman of the company. So I have complete confidence in the board and the team led by Jim to continue the strong operational performance for which Regis is very well known, and also to grow the company to the advantage of shareholders when the opportunities arise. So that concludes the details of the quarterly presentation. So just to recap the key points for the quarter. Q1 production was just under 91,000 ounces of gold at an all-in sustaining cost of $923 per ounce, which was another very strong operational quarter for the Duketon project. That production was above the midpoint of FY '19 guidance and well below the bottom of our all-in sustaining cost guidance. Another strong cash flow quarter with $78 million of operating cash flow. Cash and bullion holdings at the end of the quarter were $190 million, and we expensed over $15 million of our growth capital budget of $40 million for the year on satellite prestrips and tailings dams lifts. And as I mentioned earlier, that growth capital budget of $40 million is very much front ended to the first half of the financial year. The Board approved development of the Rosemont underground operation. We expect to be cutting a portal in Q3, picking up development ore in the September quarter -- September '19 quarter and then full production ore in December '19 -- or in the December '19 quarter. Exploration results at Rosemont also continue to indicate expansion opportunities beyond the current stoping and resources. Now the broader exploration at Gibson continue to deliver great results, particularly at Garden Well where high-grade underground targets, the results there are returning very positive and suggest that Garden Well is going to follow the same path towards a underground resource as Rosemont. Our New South Wales extension, a very strong extensional result at the Discovery Ridge project, and clearly that's an exciting addition to the broader McPhillamys project. At McPhillamys itself, the EIS and DFS work is continuing. And with the submission of the PEA and the receipt of the environmental requirements from that submission now allows us to move forward and complete the EIS and DFS in Q3, and we expect to make investment decisions later in Q3. So on that note, thanks very much for listening and that concludes the formal part of the conference call.

[Operator]

[Operator Instructions] Your first question today comes from the line of Michael Slifirski from Crédit Suisse.

[Michael Slifirski, Managing Director]

I've got a few. First of all, Mark, congratulations on building a terrific company. It's been a pleasure working with you over the years and before Regis as well. So thanks very much and all the best in the future. And Jim, to you, the same. Glad to have you. If there had to be someone to succeed Mark, I'm glad it's you. So best of luck to both of you. Having buttered you up, I'll start with the questions. First of all, with respect to Moolart Well, not a lot of discussion there, but those holes look really, really interesting. What are you sort of seeing there in terms of the opportunity? Is that potential for another cut back? Or does the strip ratio start to hurt? Or is that similarly perhaps an underground opportunity? How are you seeing those early holes, please?

[Mark Clark]

Mark here. It's the former not the latter. I think what we're trying to do there is drill out the $2,000 resource shell in areas where it's most amenable to cut back and pushing the pit, in some areas beyond those shells. It's about sort of assessing the shells that we've mined through and the bigger resource shells that sit around that and try to get that a level of data into the best of those areas that gives us the greatest opportunity to push the shells out and extend the mine life as much as we can.

[Michael Slifirski, Managing Director]

Okay. Secondly, with respect to McPhillamys and permitting, is there now a sort of statutory time frame that can be more predictive than what you've been working against? You sounded a lot more confident around the timing of completing, approving and commencing developing perhaps before.

[Mark Clark]

Look, it's not a statutory time period, but now that we've got the environmental requirement given to us, at least it gives us a framework to finish off the study. Whereas before, we were sort of punching in the dark because we -- all the EIS work had got to a certain point and then it was really on hold because until we had the requirement that we were ultimately going to be tested and assessed against, we couldn't progress that work because we didn't know what we were trying to achieve, if you like. So really the process now is that we submit the full application in Q3 and then hopefully something in the order of 3 to 6 months for permitting. That's something that's in the range would be the target. But there's no question that we're still to a degree at the whims of the bureaucrats and the process, but that would definitely be at home.

[Michael Slifirski, Managing Director]

And with respect to the guidance for our environmental work that needs to be completed, was that in the range of what you would've thought was reasonable? Was there any sort of sacrifices there?

[Mark Clark]

Yes. That's right. Yes. We certainly didn't have anything in there that came back and sort of shocked us all, or what we thought was outside the realms of what we had expected. It was more just around getting the definitive requirements so that we could sort of populate the EIS with the exact requirements of what we're being assessed against. But there was certainly no nasty surprises in that, in the requirements that were given.

[Michael Slifirski, Managing Director]

Right. Looking back to Rosemont, great to see all those additional holes. When you're sort of thinking and arm waving about the opportunity to get bigger, do you see that as sort of life extension or sort of multiple mining areas, so perhaps a higher tonnage that could be extracted if you can define more than those 2 mining areas?

[Mark Clark]

Yes. Myles, he might want to talk to that. But just as a preliminary sort of comment, I think a little bit of both. I think if we can keep adding shacks to those stones along strike and at depth. Certainly, along strike given the fact that these workings are going to be very polished to the already existing open pit, we're already starting to sort of brainstorm in terms of where we marked the other access ways and ventilation. So I think it will be a bit of both, Mike. If we can get the critical mass that says that justifies the cost of putting in more access then that gives you capacity to produce more from the workings. But in the bigger picture, I think ultimately, we'd like to target instead of a total inventory and we may never get it into reserve as we discussed on a number of these calls. But we'd like to target something in the order of up to 1 million ounces in that position. But it's going to take us time and effort to get there, and that's going to be contemporaneous with an already underway operation. But we certainly see scope for it to get bigger, which will clearly add lots in the project. And for every time that we add to the output from underground means that we're pushing the open pit blocked out by that same amount. So that's a win-win situation if we can add mine life but also once we -- if we're able to add scale to it, then of course, we'd love to ultimately -- from that 480,000 to 600,000 tonnes per annum at the high grade and deliver that at underground. If we could increase that, then of course it has substantial implications for us in terms of both production and the overall yield of cost. So I think the answer is subject to the drill bit, I think, a bit of both. Myles, have anything to add?

[Myles Ertzen, Executive General Manager of Growth]

Not really. The base was done about 500,000 to 600,000 tonnes per annum production from underground from the development that we are showing on long sections. We're getting really good heap from that central zone. We're filling that in now so that we can get sort of resource around that and then will probably also add value a little bit there because the access is pretty closed and the grade is pretty smooth to that central zone. But really, the next question we'll be asking ourselves both from success and bringing more areas into resources available tend to be a bit higher than 500,000 or 600,000 tonne per annum from the underground and extend mine life. So it's probably both, as Mark has said.

[Michael Slifirski, Managing Director]

Good. That's very useful. And finally, just interested in a quick comment on the Capricorn minerals, Karlawinda opportunity that presented, and unfortunately, didn't get executed. How should we think about it? I mean, it looked in terms of a resource, something that was made for you and your experience and your operating expertise. Was that just an opportunistic thing because it fits or seemingly fits so well? How should we think about how corporately active you might be in future?

[Mark Clark]

Look, I think it's difficult for us to say too much about it, Mike, given, as you know, the way it came out. We never had the opportunity, under an agreed deal, to actually articulate our thesis for the project going forward. But clearly, we like it because it's in WA, it's open pit, it's got some optionality for hopefully getting a little bit bigger. And there's no secret that we've got a mill that sits at Moolart Well that perhaps in sort of a sensible period of time might be looking for something to do. So that was sort of broadly the thesis. Look, we'll just have to continue looking and looking for similar sorts of opportunities. Who knows that one might come back on the radar. But for the time being, we move on. And we're conscious that we -- as we've always said, and I'm sure Jim will be the same, that to be successful in this business, you want to play to your strengths. And our strengths have historically been, we're very good operators of low grade, although we've always said we'd love a high grade one as well, but low-grade open pit. And very good at developing CIL projects at a very, very competitive cost compared to an industry benchmark. So I suppose it's no secret that Capricorn sort of fit in that matrix of opportunity compared to the skill set that we think the company has.

[Operator]

Your next question today comes from the line of Sam Berridge from Perennial.

[Samuel Berridge, Equities Analyst of Small Caps]

Sam Berridge from Perennial. I just wanted to say congratulations on an outstanding career, over 15 years. I certainly appreciate it, you always making yourself available to tell me when I was wrong. And I think in Jim, you've done very well in managing to find someone who can sustain for the fund managers and brokers, and sort of assuming [ you've filed as ] your own, which is intended to be a bit of a tongue-in-cheek. But I'll certainly be…

[Mark Clark]

That disdain is for you, personally.

[Samuel Berridge, Equities Analyst of Small Caps]

I'll look forward to directing my suggestions for how you should run the company, Jim, to you going forward. But as usual, Mike's asked most of the questions. But just first on the cash flow there, a pretty big gap between the sales and production, which I would've thought is a little bit unusual for a gold company. Was that intentional just looking at the gold price? Or just a function of the way the [ flight's ] been?

[Mark Clark]

I'll let Kim answer that one.

[Kim Massey, CFO & Company Secretary]

Yes. A little bit around timing, Sam. So we had -- sales were up last year at the end of June. There's some timing around that. And then some of the shipments will be at the end of the quarter as well just affected that. So...

[Mark Clark]

Just let it all [ after the quarter ]...

[Kim Massey, CFO & Company Secretary]

That will get flushed out in the next quarter. But we'll value that at the price we deliver interest.

[Samuel Berridge, Equities Analyst of Small Caps]

Yes. Okay. So touched with a little bit of positive mark-to-market, perhaps?

[Kim Massey, CFO & Company Secretary]

Yes, that's right. I mean, yes, we -- I guess, the beauty about hedging is we've got flexibility around it. So we can wait for a good day when the spot price will [indiscernible].

[Operator]

Your next question today comes from the line of Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Just apologies, I missed the start of the call, so this might have been covered a little bit. But the costs, as you outlined, were very much below the guidance. And you're doing the heavy lifting in terms of your stripping as well and whatnot. Is this an accounting thing where in the next couple of quarters we're going to see cash expense start to come through and the expenses go through the guidance? Or have you guys outperformed what you thought you were actually going do this quarter and costs are tracking potentially below the guidance?

[Mark Clark]

Costs are a little bit below the guidance. But also bear in mind that the prestrip at Tooheys Well is included in the growth CapEx number. I wanted you to understand that. The only other adjustment that there'll be, there's a small amount of ore that we mined at Tooheys Well. It is now at the end of the quarter, is theoretically sitting in stockpile. And that mining cost will come through to the all-in sustaining cost when that material gets moved. So that's not a substantial amount at all, but that's the only sort of accounting vagary, if you like, for the all-in sustaining cost for the quarter.

[Daniel Morgan, Director and Analyst]

So it's then a reason once that gets milled in the next few quarters, costs are on -- probably...

[Mark Clark]

The attributable costs -- the mining costs attributed to those tonnes -- those milled tonnes -- sorry, those mined tonnes from Tooheys Well, when they go through the mill, that mining cost will come through the all-in sustaining cost.

[Operator]

Your next question today comes from the line of David Coates from Bell Potter Securities.

[David Coates, Resources Analyst]

Just bit of a helicopter view, one, with the good underground drilling you guys are getting, there's clearly some pretty strong underground potential emerging across the tenements. And if we have a look at the current reserves on -- due to mine deposits, about 3 years there. How are you sort of starting to view potential transition from open pit mill feed to underground mining, underground feed over the next sort of few years? How are you seeing that mining mix evolve? And I understand it's not in your guidance or any of that, but just from a high-level, how are you seeing that transition over the next sort of 3 years to 5 years?

[Mark Clark]

Yes. Good question. I'll just correct you a little bit there. Bear in mind that the 2 key southern assets, we've still got sort of 5 or 6 years between Rosemont and Garden Well. I think Garden might have a little bit more. And that's in our $1,400 shells. And I make this point over and over again, remember that our reserves that's done at $1,400 gold price, some of our feed is at around $1,600. And just remember that all of the pits that we have Garden Well, Rosemont, they all have optionality to go deeper because the drilling data extends well below the current pit designs and the geometry of those ore bodies, both have been sort of 45-degree dip ore bodies, they're very amenable to cutbacks. And we've always said that at some point, we will push those pits deeper through cut back to chase those $1,600 ore under Jim's management. If the gold price goes up, you might chase $1,700, $1,800 pits. Who knows what they are. But we very much -- whilst we don't talk about it under the constraint of JORC, we are very cognizant of the fact that at some point we want to be chasing those answers. So I suppose the way we look at it is that we've got some 5 or 6 years of mine life up at those pits with the option and the internal thinking that at some point, we will push those pits deeper and chase that additional metal that we see as profitable metal that belongs to our shareholders. So the way we think about it is, 5 or 6 years, plus some extensions at the time of our choosing, and then they have clearly in that context, we're as anxious as anyone to get both Garden Well and Rosemont firstly, and then Tooheys Well with any others into an underground setting as soon as we possibly can. Because as I've said earlier, every time that we can add to the mill from underground, push at the open pit mine life out by the same amount and the mills are most efficient when they're full. So what we don't want to do is have an underground mine producing small tonnage to a hungry mill. So we're very conscious that we want to push ahead and develop these underground opportunities as quickly as we can. But the flip side to that is that we can't be everywhere. We can't have 20 dual rigs on site. We've got camps that are already pretty close to full. And we've always been a company, I think, that's prided itself on getting the best bang for our buck. And that goes not just from operations but exploration as well. We want to make sure we do this work in a coherent, thoughtful way and get the best results for the dollars and the maidens that we drill. So yes, we are very anxious to bring this stuff forward as quickly as we can but we also want to do it in the context that we don't want to waste money, and we don't want to drill silly holes. We want to do it in a coherent and thoughtful way. So you should take it from that, that we're keen to push these projects and make the best of that opportunity. Because we understand we don't have forever, but we shouldn't think that we've only got 4 or 5 years. We do have a longer time because for as long as the gold price holds up, at some point we will chase those cutbacks, stay in the pits and push those mine life. So we do have some optionality up our sleeve, but definitely chance to make those opportunities or turn those opportunities into mines as quickly as we possibly can.

[David Coates, Resources Analyst]

No. That's great. So you've got a real kind of opportunity to have a very considered sort of transition to optimize that underground [ pit mill feed ] over...

[Mark Clark]

Definitely. And I think the proof in the pudding is what we've done at Rosemont. As I've said, when I've been around, when we went around and saw our shareholders with Jim a few weeks ago. There was always an argument that we could have sat on surface at Rosemont for another 2 or 3 years drilling it to perfection. But that's -- it's very costly. It's logistically challenging around waste dumps and mining activity. And at some point, you say, well if you're going to go and spend another $20 million from surface, when's the right time to say, well let's make a sensible risk-weighted decision to get down onto this geological structure, knowing what we know, knowing that it's a good bet and it's a business that generates a sensible return, but the bigger picture is the much more important feature. Then get down on that unit. And then exploring via 50- or 60-meter holes from within the workings as opposed to 600 meters holes from surface. Almost trying to hit a needle in a haystack. So we're very conscious of that and we'll always weigh up the flip side between saying well, we don't want to be silly about it. We don't want to sort of start going underground when we don't have the level of data that gives us the confidence that we're going to make a buck and turn it into something better. But equally, we don't have forever. So there's that clear tipping point when you say on a risk-weighted basis, stop drilling from surface and getting to it. And I think that'll be the same decision that these guys will make at hopefully Garden Well in 12 to 18 months from now.