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Thank you for standing by, and welcome to the St Barbara December 2017 quarterly report. [Operator Instructions] I would now like to hand the conference over to Mr. Bob Vassie, Managing Director and CEO. Please go ahead.
Thank you, and good morning, everyone, and thanks for joining us for our quarterly report briefing. Today with me as usual, I have Garth, our Chief Financial Officer; Rowan, Company Secretary; and Alistair Reid, our Investor Relations Manager.It's been another very good quarter for the company. Gwalia continues to perform well, and we've had a new record production and record all-in sustaining cost at Simberi. Our operations delivered excellent margins and free cash flow. We've made very good progress on our organic projects. And finally, we continue to invest in our exploration programs.I'm going to get through our slides relatively quickly to get to questions. So just turn to Slide 4. We -- the consolidated results. We produced 100,000 ounces in the December quarter, our best production quarter for quite some time. And it takes us to almost 200,000 ounces for the first half. Simberi continues to perform ahead of our expectations. They set another record there this quarter, now 4 in a row record. And I'd like to congratulate the team for all their hard work there.Our operations delivered a cash contribution of AUD 79 million in the quarter, and our balance sheet is now very robust with $216 million of cash and no debt. And that's after paying our first tax bill in a while and further investments in Peel and Catalyst. Both companies continuing to do well. We're using our strong financial position to grow the business organically as well as seeking value-adding inorganic opportunities. And of course, the board will consider dividends next month with the release of the half year financial results.Just Slide 5 on safety. Our injury frequency rate increased during the quarter as a result of 4 low-severity recordable injuries. Now these are sort of like hand injuries that need medical treatment and the like. So safety continues to be our top priority, and we've brought in some new training programs, in particular, a hand safety program at Gwalia to prevent further injuries. To put it in perspective there, our main measure of total recordable injury frequency rate is hard to compare, but if we look at lost time injury rates across the industry, we sit pretty favorably at 0.7 rate as compared to an industry average of 2.3. But we need to focus on getting rid of these small injuries.Consolidated production costs on Slide 6, 100,000-ounce quarter at all-in sustaining cost of AUD 910 per ounce. As you can see, over the last 3 quarters, we have very consistent performance with Simberi stepping up significantly as Gwalia is building the extension project.Gwalia on Slide 7 had a solid quarter similar to the Q1 of this financial year. Mined grade was 11.2 grams per tonne, thanks to some higher-grade sections in the South West Branch and the mining sequence during the quarter. Ore volumes were down, driven mainly by execution of ground support upgrade impacting the decline access and some impact of implementing the paste aggregate fill construction. As you will recall, earlier this month, we upgraded full year guidance at Gwalia and now expect production of 250,000 to 260,000 ounces for the full year even though we are building the extension project at this time. A bit more on that in a second.Simberi production and costs. New production record, fourth quarter in a row, as I mentioned, improved head grade. But if you look back, we've been mining below reserve grade and now slightly higher, benefiting from all the waste stripping we've been doing in the past. All-in sustaining costs fell under AUD 1,000 an ounce, which is a great outcome for this operation. Following the strong performance in the first half, we've upgraded production guidance for the full year and also improved our cost guidance with details shown there on Slide 8.Just on Slide 9, I mentioned a year down the track from the Simberi strategic review and provide some detail on why we -- retaining Simberi assets following the strategic review was the right decision. Since the decision to retain a year ago, the operations had generated cash contribution of $91 million. In 2018, we have new focus on ways we might realize our project to exploit the sulphide gold mineralization on Simberi. As you know, we've got 1.4 million ounces at average grade of 3.5 grams per tonne, and we completed a PFS in 2016 based on exporting concentrate. We continue to look for ways to enhance the PFS by finding more sulphides or improving the process solution. In fact, we are now drilling under the existing Sorowar Pit, looking to add to the sulphide deposit to further improve the project.Gwalia. Our main organic growth initiative at Gwalia is the extension project, that's a $100 million project, commenced in March last year. The design and manufacture of the PAF equipment, which is all the crushing and screening and conveyors and pumps and mixers, has taken longer than initially planned, however not anticipated to impact the overall project schedule. Actually, approximately 70% of value of the PAF components are now on site with the remaining items on the way.Raise-bore activities have commenced and are progressing well, including the drilling of the first pilot hole 2 months ahead of schedule. In fact, we're about to attach the reaming head and commence boring the first main shaft section, which is a great milestone. We continue to investigate whether we can drill raise-bore shafts concurrently. And if so, this could reduce our overall project time line markedly. We'll make a call on this once we see the boring rate and conditions of this first section, but the team at RUC that are doing the work for us have the resources available to do 2 sections at a time. So we're quite focused on that.Moving quickly to exploration, Slide 11. Our seismic exploration campaign at Gwalia is delivering some good results. And our analysis of the 3D and 2D seismic results in the Gwalia area have generated 3 drill targets, shown on Slide 11. We plan to drill these over the remainder of the financial year.In Slides 12 and 13, we show the details of our ongoing deep resource definition drilling down to 2,200 meters below surface. Similar results to what we've been producing before, but this is really aimed at putting more resources into indicated so that we can convert to reserves. Our drill hole targeting 2,600 meters below surface has started with the hole scheduled to take 3 or 4 months to drill. The total length of the hole, when you look at the angle, the curvature and going through the sequence, will be close to 3 kilometers. It's quite a strategic hole. It's really designed to give us some insights into what goes on, there's this ore body, pinches and swells at depth, and give us a bit of strategic input into our new life of mine plan. And we'll be updating you on that life of mine plan with the half year results. That would be a 5-year forecast on production and commentary on how we're going to look to go and exploit all this material we're finding for the long term.On greenfields exploration, Slide 14. We're progressing -- we actually started drilling in our Back Creek project in New South Wales, a project we've had for some time, and as our fortune has improved, are starting to do work there.We continue various RC and AC programs at Pinjin, northeast of Kalgoorlie. Pinjin results are presented in the report. Lots of gold anomalies to follow up. And as I've said, before, it's a large area under cover but we should be in a good position to assess what we have by the end of the financial year. We have recommenced exploration on Simberi Island proper. That's on the mining lease itself. We believe we see features in the current mining pits that show potential on Simberi for copper-gold porphyry-type mineralization at depth, similar to what we are looking for with Newcrest in the JV on the other islands. But Simberi obviously is 100% ours.We have commenced our own deep drill hole testing for porphyry mineralization underneath the Pigiput mining area. Over the ditch on the next-door island, in our JV with Newcrest on Tatau Island, our first diamond drill hole, and our first porphyry target at Talik North on Tatau Island has been completed. We pushed the hole to 977 meters and results are pending. The [indiscernible] some of the rocks in operation are saying, and we have started another hole in that area. So we are keen to do more work there.Just before concluding on Slide 14, we've just reminded you of our organic growth pipeline. Obviously, we're looking inorganically. We're quite busy doing that, but not much I can reveal there for obvious reasons. But the organic growth pipeline, we're really turning over. I guess that should cover up there. But during the quarter, we invested further $5 million into Catalyst and $6.5 million into Peel Mining, taking us to about 16% of both companies. Both companies are doing well, some interesting results out even today from Peel.In conclusion, it's been a great second quarter and a great half year with very strong production and cost performance from our operations. As a result, we're generating excellent free cash flow from the business. As I always say, this leaves us very well placed to deliver on our organic growth opportunities and where it makes sense, to pursue value-adding inorganic growth.I'll now be happy to answer any questions you may have. I think I've done that in record time.
[Operator Instructions] Your first question comes from Michael Slifirski from Crédit Suisse.
Bob, yes, I've got a few pretty quick ones, I think. First of all, with respect to Simberi guidance, what sort of drives that lower second half expectation when grades have been at reserve grade? You've talked about recovery being sustainable. So what is it that makes you cautious about a repetition of the first half in the second half?
Look, I think just with Simberi, it's a bit tortuous there because of the nature of the operation. We have benefited in the last few quarter -- well, in the last quarter of getting all the waste out of the way and being able to exploit some of the better grades in the pits. We still then have to carry on with waste, with rain, with drilling operations in the pit. So when we've come from -- I guess it's a bit natural when we've come from aiming to get from 40,000 ounces in the year to make 100,000 ounces and then be on track for 140,000. We've just gone through the forecast, and I think we are more comfortable with a slightly lesser half to bring it into what would still be another third record in a row for the year.
Okay. Secondly, with respect to Gwalia, you talked, I guess, at length about the risk of disruptions, and there's some small disruption in the first half from the PAF activities. When you look at that profile going forward, does that risk -- as you're reaming the raise-bore holes, does that sort of increase that production risk or this -- that disruption risk as time goes on?
There's the potential to. I think what we've been doing over the first half year of this project is actually stripping out on levels 1,420 and levels 1,460 all the cabins for the crushing and screening and then the mixing infrastructure. And we decided to make those bigger because when we really looked at it, they're going to be there for a while and we want to make them maintainable to be able to service the crusher and things and put I beams in the roof to hook things up. So we've made it a more robust project. That does take jumbo resources. It does generate waste. So there has been some impact there. As we attach the reaming head, we're starting to make chippings. And we're not going to hang around waiting for PAF to finish to be able to deal with those chippings into the stopes in terms of paste aggregate fill because the sooner we get ventilation in for the whole mine, the better. So we're going to rip into the reaming, and that will generate waste, which will take up some tkpm -- or sorry, tkm capacity of our mining fleet. But we are able to actually use some of the chippings as road base and also with the potential ejector tray technology and the like we'll get some away in the stopes and we'll also [ free pour ] into some of the stopes so we can get ahead of the game with that waste while we're commissioning paste aggregate fill. We're not far from getting paste aggregate fill going. And with all the gear on site, we've just got to drag it underground, which can have a minor impact on decline access, and put it all together and get it commissioned. So the risks probably in the second half of the year are a bit higher, but it depends on how much waste you make and we'd like to make as much waste as we could out of this raise-bore because we'll get it done quicker. And that's the bigger driver on the table on the total project's time line. As you know, we sort of said 2.5 to 3 years to get this project done. But if we can do -- we'll start one raise-bore and then as PAF comes on, we can look at doing 2 raise-bores at a time. And certainly, there's equipment available to do that, and that's just going to have a massive impact on the project. But we want to commit to that once we see how things go.
Thirdly, seismic targets that you've generated, how long will it take you? And how much it will cost to determine if they are all significant? Is this something you can condemn or approve pretty quickly? Or is it a fairly long-duration drill from surface to target them?
Yes, it'd likely be some surface drilling. But it's just -- I'm going to review that program with the team shortly because as you know you could probably pop -- the benefit of the seismic -- the 3D seismic program, as you know exactly in the space where these things are, so you can try and target a quick hole into each of those 3. And it would probably be our approach. But as you know, one hole cannot necessarily tell you that much. But we're reviewing the program. And in the remainder of the year, we haven't changed our guidance on how much to spend there because we'll probably just start to drill test each 3. And then if they look encouraging, we'll up the ante in the course of this year.
Makes sense. And with respect to the [ pinching ] program, I know you said by the end of the financial year, you'll have an idea of what you've got. But to date, how is it tracking compared to expectation? There was a commentary today that sounded a little less enthusiastic than perhaps what you had before or have I misinterpreted?
No, it's just when you look at the math, it's just such a big patch of ground. And we don't try and [indiscernible] -- we use our geophysics to target things but you're going to get through 30 meters of cover and do a whole lot of Aircore just to sample the top of the basement. Now pretty much everywhere, where we targeted to do that Aircore drilling, we've got gold normalization. And we followed up some of those things with RC but not all. So it's a really -- there's a lot of smoke there. It's just in my experience, where there's smoke, there's more smoke in expression. But it's such a big patch of land. We know that there's others around that area that have been quite successful. So it's just putting the nose to the grindstone for the next 6 months and make sure that we don't take too long to form a view.
Okay. One last one if I may with respect to Gwalia again. Milled tonnage keeps coming down, obviously, reflecting underground ore availability. But is there -- I assume it's [indiscernible] or hardness. Is there any remaining surface stockpile that you can add? Or is that pretty much depleted?
We carry some low-grade stockpiles at times, but otherwise, we pretty much take it out of mine and throw it in the mills. So it's still all about getting it out. I mean, holistically, we're -- and that's why we're doing the ventilation project. We can't throw a whole bunch more trucks at it because of ventilation. And then because we generate waste, that depends how much waste we can get rid of, depends on our access to the top of stopes until we get this paste aggregate fill done. So we're on the edge of that sort of [ 10-kilometer ] haulage capacity of the fleet. Now that's improved a bit from going to the largest trucks that are -- which I think we've got 4 out of our fleet of 9 that we use at any one time that are about 10% more productive and just being a wee bit more wise on how we do the waste, but we would have had the capacity to haul more ore this month. And as you've seen, I think, in the quarterly report, there's the comparison there on volumes that we produce. And they go a bit with waste but also go with the stope cycle and some of the work we're doing underground like, for example, we did put in a long hole from surface down to 1420, which we're reaming now to put a cable in to run PAF. So that impacts the things in the decline at times. And also, one of the things we found is we still have our -- as I've mentioned before, the seismic events that we have at Gwalia are relatively low compared to Kalgoorlie. We have a few things over 1. And still up until today, nothing that's reached 2. But proactively, as we get deeper into these core production areas where we're existing for quite some time, we've decided to bump down right to the ground level in key areas rather than just up to the grade line. So sometimes that impacts when we have the jumbos in the decline peppering the place around with more support. So a couple of things there that are a bit niggly, but grades helps us a fair bit in the area we are now. And it gives us opportunity when we can really punch it out to -- as you've seen, Gwalia is capable of over 70,000-ounce quarters.
Your next question comes from Reg Spencer from Canaccord Genuity.
Michael actually asked a couple of questions I was going to get some info on. I just want to sort of follow on, on the Gwalia sort of guidance. If we go back to when you provided your FY '18 guidance, you suggested that it would be second half-weighted on the stoping sequence given the presence of those high-grade shoots that we saw on the September quarter and the resulting impact on grade. Even considering the potential for impact for what you're doing with the [indiscernible] vent upgrade, is your guidance for Gwalia not just a little bit conservative? Or are you, as you alluded to, to Michael, you've sort of been cautious given what you're working with [ in the past ]?
I don't think it's -- we tend to err on the side of a bit of conservatism due to the nature of both operations actually. We made operations in PNG relatively low grade in the rain versus very, very deep decline reliant mine. I think that we've tightened that guidance for the bottom end up, which I think is appropriate. We haven't moved the top end but we always hope to test our top end through the full year. There's some good still on outlook of some -- of good grades, but the tonnage issue and how much impact we have from dealing with the waste from the raise-bore is the reason why we kept that top end the same.
Okay. So if we were thinking about milling volumes over the next 6 months, is it -- can we presume that, that will be similar to what you delivered in the December quarter? Or would there be very much variation from that?
Depending on the impact of the project, I think we probably could go up a bit in volumes. But then we tend to have this ability to have grade when we're low on volumes and have good volumes when the grade returns more to normal. And that all goes in with how we jive around moving the waste because sometimes we can deposit the waste a bit around the mine and then have to move it later so that we're not taking the decline up with waste in critical times.
I understand. I understand. I just want to say well done at Simberi. Amazing what you've done over the last couple of years. Just amazing.
Yes, no, so the team is doing really well. It's just stunning. If you had that mine in WA, it would be worth quite a bit. Of course, we've got to focus on having a longer life there, which we're doing on -- pretty rapidly, approved the drill program underneath Sorowar because -- but a huge majority of the sulphide ore body at one point, 4 million ounces at 3.5 grams is under Pigiput. And we thought, well, there's not much under Sorowar. But as it turned out, there's not much drilling on the Sorowar area. And we found some of the work we've done on mapping the pits now that we're actually making through pits and not just mining the ridgelines actually gives us a bit of a clue into being able to extend that ore body and we'll start drilling pretty shortly, RC drilling through the pit there to see if we can hit a similar area.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Thank you.