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Thank you for standing by, and welcome to the St Barbara SBM Briefing on Q2 December FY '19 Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Mr. Bob Vassie, CEO. Please go ahead.
Thanks, and good morning, everyone. Thanks for joining us for St Barbara's December '18 quarterly report briefing. I've got with me the usual suspects, Garth and Rowan as well as Val Madsen, our GM, HR; and David Cotterell, our Manager, Investor Relations; and Lucas Welsh, our GM, Commercial.So it's been another good quarter for St Barbara. I'll get through the slides relatively quickly and as I see, we're sandwiched between a few other analyst briefings of other gold miners. So I'll make way for Bill on the other end.Like I said, good quarter for St Barbara. Simberi has had yet another fantastic quarter, which has caused us to increase guidance. And as we forecast, Gwalia had a slightly softer quarter and yet delivered to that forecast. Grade remains very good. The main impact was in production tonnage due to peak activity on the Gwalia Extension Project construction on the ground which takes up our limited ventilation resources.On the exploration front, we've had more significant results at Gwalia deeps and Simberi sulphide, which we'll talk about a bit later. And I'll just get through the slides relatively quickly and open up for questions.On the highlights slides, Slide 4, due to the strong first half at Simberi, we're increasing the consolidated production guidance to 365,000 to 385,000 ounces. That's up from previous guidance of 350,000 to -- sorry, 350,000 to 375,000 ounces, and we're tightening up on -- as we're through the half year, we're tightening up on the all-in sustaining guidance to $1,045 to $1,100 range, and that's from what was previously $1,030 to $1,100.On exploration, we continue to have very significant results at Gwalia and Simberi, and we're excited about that as it could be potentially very positive for the future of both operations. Operating cash contribution was similar to last quarter and a number of quarters in the past that's around AUD 76 million, very healthy operating cash contribution. The cash balance at the end of December was $357 million, which was up $7 million from the last quarter after tax payments of $46 million, $13 million on growth projects and $2 million on mining investments. The tax payments at the moment are a bit lumpy and will level out in the future. Garth will explain that a bit later.Slide 5, safety. Our total recordable injury frequency rate has increased from our record low at the end of financial year '17. We had 6 injuries during the quarter, which were fortunately all low severity. We've had an abnormally high number of hand injuries, people pinching the tips of their fingers, which is recordable, and that's largely at Gwalia. We've had hardly any instance at Simberi. So we're focusing on hand injuries at the moment as well as all the other things that we're doing around safety maturity, safety leadership and behaviors. Fortunately, we've had no loss time injuries. And as I mentioned, we're sort of down at recordable injuries, which might be 1 stitch in the finger, but we don't report in terms of lost time injuries as we happen to not have them.Consolidated production cost on Slide 6. So delving into that on Slide 7 at Gwalia. Gwalia had, as we expected, a lower production quarter due to peak activity of the Gwalia Expansion Project -- Extension Project, sorry. Ore mined was down compared to previous quarter to 164,000 tonnes. Because we're actually currently raiseboring 2 shafts at a time. So if you can imagine 5 meter raisebore shafts at good production rates, so we're seeing -- generating a lot of waste and it's generating at deeper and deeper in the mine and we have to haul it out eventually. But also, we're doing construction on 2 mining levels for PAF. So we've almost completed 1 level, the 1,420 level, and we're busy with the 1,460 level. So long hauls of waste to surface and a lot of activity in the mine, and then the second piece for ventilation resources, which is why we're doing this project to add more ventilation into the mine. So that's along with higher capital development sort of caused the double whammy to the unit costs, but it's all because we're investing in the future.For financial -- for the second half, we have -- we are forecasting a stronger second half and we're tightening the production guidance for Gwalia to 245,000 range to 255,000 ounces. It was previously 245,000 to 260,000, so we just tightened that range, and the all-in sustaining costs, $930 to $970 which was previously $920 to $980. So tightening up that cost.Simberi on Slide 8, we had recorded the third highest quarter of production on record which was only set last quarter. The operation also achieved a record half year for production of 72,000 ounces and we used to get that in the whole year. Very pleasing results at Simberi. The key driver of the performance was the combination: There was higher grade zones at both Sorowar and Pigibow pits, along with recovery at 88% was a record. Typically, we've been below 84%.So good improvements in the plant. As a result of the strong first half result, we're increasing production guidance at Simberi to 120,000 to 130,000 ounces, and that was -- that's a big increase from what was 105,000 to 115,000 ounces. All-in sustaining cost guidance remains unchanged at $1,275 to $1,375, and that's largely due to the impact of the decrease in Australian dollars compared -- when Australian dollar exchange rate compared when we set guidance with Simberi costs mainly denominated in U.S. dollars.We have 2 scheduled maintenance projects for this quarter. The first has actually just finished, it was at a processing plant where we're doing SAG mill reline and other tasks around the plant as well as a good look at the deep-sea tailings pipeline and some refurbishment of that pipeline. So that took about a week and it's finished now. The second is a major overhaul in the Ropecon, which we've spoken about previously, that's the Aerial Rope Conveyor, and we're replacing the main load bearing support ropes there, and we'll feed in some new belts to replace an older section of the belt. The Ropecon will be out of action for 6 weeks, but during this period, we'll draw down on stockpiles that we have been building for this event. So we're not expecting any impact on production, which is pleasing.Just looking at our cash generation and use on Slides 9 and 10. They detail our net cash movements and cash balance. The cash position at the end of the quarter was $357 million and continues to increase. If you have a look at Slide 10, I like the slide that shows that incredibly consistent operations cash flow generation, apart from a big spike where we had that record quarter. So we're consistently around $76 million, $78 million generated from operations. But what's inconsistent is the gray part of the step diagram which is tax and that's because we're going from not paying tax to now paying tax, and so I might just get Garth to make a comment on why that's lumpy and why we expect it to even out.
So we commenced paying tax in December 2017 and commenced monthly installments in March 2018. And the ATO advises you of a installment rate based on your prior year tax return. So each year that we've lodged our tax return, that rate will change. The first tax payment in 2017 still had some tax losses that reduced that tax payment. So as we now become more consistent in the tax calculation, that rate will be adjusted on lodge with other tax returns. So over the next year, I would see that lumpiness sort of being removed. In other words, our monthly installments by the end of the financial year will broadly cover the tax obligation for that year.
Okay. Thanks, Garth. Next, Slide 11, is project timeline, listed -- and the list is unchanged from the last time we spoke with all major projects continuing and continuing well.Slide 12's the Gwalia Extension Project, or GEP, which was around 60% complete, with $62 million spent to date. The high-voltage power cable hole for the PAF component has now passed the area of difficult ground which caused us all the issues in getting that hole through to power the PAF equipment. And it's due to be completed in early March. Followed by that, we'll do the cable install, lowering the cable from the surface down to 1,440 meters below surface. So we're going to case the hole and then lower and suspend the cable through there. We've done that before down to 1,380. Installation of the PAF crushing circuit on 1,420 level, which you can see the photo there, has just been completed now, and work's well underway on the 1,460 level. So the 1,420 level is the sort of 2-stage crushing and screening level, 1,460 level is where we mix it and pump it. So civil work on 1,460 is well advanced.PAF will be commissioned with the existing underground power because we're waiting for the power in the direct hole. And so we'll commission it on the existing underground power in May and then switch over to direct power in June. I would have had -- like to have that done a lot earlier. Really, the issue has been getting that direct power to the site.Raiseboring is progressing very well, and that's why I want PAF going. We're actually doing 2 raisebores at the same time as we predicted a while ago. That has the disadvantage of producing a lot of waste in the mine, but that has obviously that much more valuable advantage of getting the shafts in early, which allows us to breathe new air into the mine and totally liberate the mine. So that ventilation aspect is on-track for completion in December. We've said at the start of the project that it would be 2.5 to 3 years' time to get this done, and we're targeting the lower end of that scale. So we're very pleased to get the ventilation in.Currently, we've got 1 surface shaft through, so that was about a 920-meter shaft. The second shaft is 620 meters up, so that's going incredibly well. The -- and we're into the first underground shaft, so we're doing 2 shafts at a time. It's at 150 meters out of 300 meters, so halfway up, and we remain on schedule for completing the project in December, which is better than we planned. It will be a great day when we switch on that ventilation and chilling because it truly liberates the mine. We are really having to make daily and hourly choices on ventilation at the moment. And whilst we can get waste stored away with PAF, that ventilation is going to make a huge difference, and we're still in good grades at the orebody.The mass extraction project, I'm very pleased with how that's going. As I mentioned last quarter, based on the work we've done on mass extraction and we're nearing the end of the feasibility study, with that higher level of information, we've taken the choice to future-proof the ventilation that we're installing and do it as part of the Gwalia Extension Project outside the original scope. The amount to invest has been increased to $15 million due to the addition of more chilling. If you had more air, you might as well chill it. And we previously had predicted $9 million. And really, it's just bringing some spend forward. Originally, as we announced at the start of GEP, that GEP included Phase 1 ventilation and it'll be followed later as we got deeper by Phase 2 and Phase 3, which was really upgrading fans and putting more chilling. We're now going to do it all in the amount of 2 phases, with part of what was previously Phase 2 being done now while we're constructing depth. Now obviously this is more efficient from a construction perspective. But it has the -- I mean, because you don't want to be taking the fans down 2 times. Might as well get it done at once so that you're not disrupting production. So that's more efficient from that point of view. But it has the added benefit of being able to produce as more flexibly and as we would like with the additional vents and chilling early on. So if we decide we want to be cave mining West Lode with South West Branch and we want to do different things in the mine plan. We're able to do that without restrictions.GMX study work is progressing. Previously discussed, we're looking at 2 slurry pumping options and trying to make that decision at feasibility level so that we're more accurate with that decision and being able to assess the valuation or risk of the pumping options against the base case of continued trucking. Timing wise, the feasibility study of GMX remains on schedule for completion in March. There, we expect to present it to the board in March to make the selection and the way forward, and that would then be followed by detailed design and our procurement strategy or construction strategy, whether we go to EPCM, for example.Now we can't build it straightaway, and that's why it would take the time for the completion of the feasibility study to sort out how we're doing it. But we can certainly do early works. And one excellent example that we've learned is maybe to get a power hole into where that crushing equipment and pumping equipment will be ahead of schedule and start that as soon as possible.All right. Moving on to exploration, 14 to 19 slides. The -- we've been doing a lot in that area. I mentioned that we're now stepping out of the immediate Gwalia area to north into the Leonora area, north of Leonora. We've been starting work there at Horsepaddock Well. We've completed just a simple 7 hole RC drilling program. And pleasingly, we hit a zone of mineralization in 1 hole, including 1 meter at 7.2 grams a tonne at 190 meters below surface. We intend to carry out more drilling in quarter 3. But given the proximity to Gwalia and this was our very first go in that region, it's particularly positive.We continue our work in Pinjin. As I've always said, that's a very big area under 30 meters of cover. But we will be -- we're doing exploration review and targeting study at the moment and plan to be able to finish up our program at the end of the financial year and make some choices about what we focus on and what we do with that asset.Slide 15 and 16 show the drilling we completed at Gwalia. As discussed last quarter, we're particularly interested in the view that the -- that, that is plunging a bit more shallow to the south there and that our previous deep drilling might have been too far to the north into the northern periphery. So we've been drilling to the south and picking up a lot better intercepts, and that's really encouraging story for our outlook on resources and reserves and indeed, our mine plan, but very deep holes. So we keep plugging away. We're going to put in a new parent in and get some more holes there to the south, but what we're seeing is exceedingly encouraging.Slide 16 shows a plan view of Gwalia. I draw your attention to another seismic target, drill hole 22. What -- we didn't know that was there at depth. We picked it up with the seismic work and it did show 88 meters of alteration in vein material, which we interpret as being part of the Gwalia Shear Zone but in some way off from the existing orebody and additional modeling will identify the targets. So that wasn't heavily mineralized, but it does give us encouragement to use deep seismics as a targeting tool.At Simberi, the drilling beneath Sorowar Pit for sulphide ore continues to be positive, and we've got some fantastic intercepts there that are really encouraging, around 30 meters at 7 grams-something. That's pretty encouraging for what we see the next door reserves are at 3.5 grams, and that's 1.4 million ounces. So if we can double up on that, we'll be pretty encouraged.Currently, we're only halfway -- we're actually halfway through the 60 by 60 program and that's a bit slow because we have to get into some pretty rough terrain outside the existing pits. We can't just drill only off the bottom of the pit. And so we've actually started the 30 by 30 infill work in the pit while we're still extending the 60 by 60. Slow going but we're looking to expedite it because I think we've got a real chance doing something with the sulphide sooner rather than better -- the sooner, the better. Over the ditch there at the neighboring islands there, Newcrest joint venture is continuing. We are now drilling our third porphyry target, and it's the one that's on Big Tabar Island, the previous 2 were on Tatau. This is actually our personal favorite and we've started the first hole. So we're looking at this as it goes.Slides -- just rounding out Slides 20 to 21, the strategy and growth pipeline, which we presented before, so I won't dwell on them in this round. I'm really pleased that we're pushing and -- pushing hard and realizing our organic opportunities at Gwalia, in the Gwalia regions; in Simberi, in the mining lease and on the exploration lease; and then there are other exploration areas in Australia, but also in other junior's ground where we're taking positions in those companies. So we're really wringing the towel organically. And then inorganically, while that works keep me very busy, and will remain so.So in conclusion, we've had a good quarter. Simberi particularly strong, leading to an increasing consolidated production guidance. Gwalia Extension Project is progressing well and remains on schedule. Pleasingly, the feasibility study for Gwalia Mass Extraction is on track for March completion, and it's filling up the way, I would expect, and I'm pleased with that. The exploration looks very promising at both Gwalia and Simberi. Cash has increased to $357 million, and that positions the company well for the future.So with that, I'll take any questions.
[Operator Instructions] Your first question comes from Reg Spencer from Canaccord Genuity.
A couple questions on the sulphide. It looks like some pretty good drilling results and subject to the completion of your ongoing extension infill programs, it really does start to support the case for your sulphide. Again, maybe you'd prefer to wait until your feasibility study is done, but I was going to ask what do you think might be a minimum increase to the existing sulphide reserve before that really starts to make the case for that sulphide project to go up.
Look, it's a good question, Reg, bit hard to answer until we finish it, as you said yourself. But the way to book end with this is that the existing 1.4 million ounces at Pigiput at 3.5 grams, when we did the pre-feasibility study on that which was based on the strategy of not adding any more milling, just adding flotation banks and con handling and getting the con off the island, that did have a positive NPV. The -- I'd like it to be a better NPV. So when we explored the idea of sulphides under Sorowar and we're able to start to access them as we -- when we got a good pit floor and the like, I worked on the other book end of saying, well, if it's a similar pit and structure, might we be able to get the same sort of result, another 1.4 million ounces, and that would be really attractive. So somewhere in between those is always going to be interesting. It doesn't have to be double though to garner our attention, and the reason I say that is, as I've said before, if you got 2 pits contributing to the sulphide project, you can slow down the sink rate. You don't have to push back hard and sink quick on Pigiput. And fortunately, Sorowar, what we're finding as the good grade is actually just below the pit floor or the final pit floor of oxides. And in fact, we're not only picking up through drilling sulphides, we're picking up more oxide than sulphide. So that allows you to have a much better cash flow curve upfront and manage your strip ratios better, and also means we don't take out the pylons of the rope conveyor too early, if you're only mining Pigiput, you'd have to push that back through to Ropecon. So a lot of positives on just having anything in Sorowar. So I want it to be more than 1.4 million ounces. I would hope it would be double, but it doesn't have to be double to earn it because of the benefits of 2 pits.
And then it sounds like, I originally thought that it would be a function of grade that would improve project economics. From memory, that price study, your all-in sustaining costs were an ounce -- you're around $1,000 an ounce, so if you get to high grade out of Sorowar then that might improve that a little bit but it sounds like additional scale and multiple ore sources is just a bigger -- potentially just as positive an impact?
Yes, yes, indeed. And the grades are looking particularly good though in Sorowar. And in the oxide, they have been good as well. Sorowar sort of -- and certain parts of Sorowar has really outdone Pigiput. So I think the other thing is it also relates to strip ratio and timing of strip ratio, Reg, because you've been getting into good-quality ore pretty quickly without having to do major pushbacks at Sorowar. So it gives a benefit upfront in the cash flow.
Understood. Just last one on the sulphides. Previously, you're bumping up against a decision point whereby you were running out of oxide reserve life and you had to make a decision before your mining progress through that transition zone and you had to check the pit results, so on and so forth. So when would the decision point be in this duration of the sulphide study on whether or not you progress with it?
Yes. It's a bit at the whim of drilling at the moment because it's pretty hard to get a drill in PNG at the moment for a number of reasons. We've got 2 drills on the job but because of the ground conditions, the ground's a bit fractured, you need to have big boosters on them and booster failure as a parcel, these sort of things can make the program go out a lot longer. I'd like to have the programs sort of -- or at least most of the program done with a good amount of infilling so that we can drag the resource over at sort of the May time. And it won't take us long to upgrade the PFS and then the FS is just in terms of getting off that -- studying the off-the-shelf flotation bars. That's the one thing we'd have to do really thoughtfully as part of this as we've got the orebody I hope we have and we'd put more milling in the front so that we can mill right down to the liberation of the pyrites and float the best con we can into the market. So I think we've got time to make a decision this year and then it wouldn't take too long to build it.
Your next question comes from Paul Hissey from RBC.
Just -- I just wanted to clarify on the tax. Obviously, Garth addressed it earlier. But we really -- $14 million put in the bank effectively throughout the first half of this year. Garth, maybe just simplistically for a non-accountant, just are we effectively just paying a nominal tax rate now every month, every quarter? That's the way to think about this going forward? Any implications on the cash flow?
Yes. On an annual basis, if you assume a tax rate of 30%, yes, we don't have much in the way of differences to reduce our corporate tax rate.
Yes, and that's effectively paid -- that's just effectively paid every month, I guess, at a notional rate and what you were saying earlier is that there has been -- I guess, there's been ups and downs because of your transition from, I guess, noncash taxpaying to effectively being a regular cash taxpaying company now?
That's right. It takes a while -- it takes until you've lodged the tax return to the ATO to adjust the monthly installment rate, that's where they catch up. When I said the corporate tax rate is 30%, that's relating to Australian earnings. So at the moment, we still don't pay cash tax relating to our PNG operations.
Yes. Okay. We can cover that.
We can have carryforward deductions.
And we have -- and we can't see ourselves paying tax here and for a good long time. But look, one thing I'd direct you to there, if you look at Slide 10, I think what's interesting is it's a powerful operational cash contribution which, even on a quarter like the one we just had as $76 million and can go up to like a couple of quarters, if you look there, $105 million. And the big below the line bars that mean that, that doesn't necessarily go in the bank is we've been paying some pretty healthy dividends and so we're a dividend stock now. There's some lumpy tax in the gray area that Garth and yourself have just discussed. We are putting into exploration, but also the orange area really delivering into the future of Gwalia because there's some good assets there but when you look at the ranking of mines produced by some of the banks, Gwalia is up there in terms of all-in sustaining cost and volume, but it's also actually up there in terms of life, but we're going to make that investment for the life. When you look at some of the peers, we are generating a lot of cash, cash by multiple is quite good, but we're using it well as well. We're not perhaps doing as much exploration whereas some of our peer companies might be putting $60 million into the ground instead of paying tax to the tax man. That's something we can always consider, but we want to be able to have good ground to drill and good opportunity.
[Operator Instructions] Your next question comes from Michael Slifirski from Credit Suisse.
Bob, can we return to Simberi briefly? I'm interested in how you think about as the reserve presumably does grow from the Sorowar drilling, is the hurdle rate that you have in mind where you would look at going beyond just producing a concentrate for getting gouged on by smelters? Is there something else from a technology perspective that you could consider doing at a certain number of ounces?
Yes, that's a good point because we have various studies being done on oxidization or BIOX or [ ESBO ], which were mentioned before, which is a whole-of-ore bug treatment. We're now also looking at Alvito process, which is interesting. So we always make sure that we're not overlooking the possibility to produce gold bars on the island ourselves. So we're not flatly ignoring that. But as I've also said before, I'm not entirely interested in trying to make a little -- mini-Lihir. That can be the energy -- the capital investments, the complexity that you place on the island for an output of that size really doesn't weigh up in my mind. You can fully understand the payables and the seasonality that every copper producer lives and dies that way. So I think -- well, not every, but a lot. So I think that what I really want to explore is just put a way better grinding upfront so that I can get down to the true liberation size of the pyrites and go from what was going to be a pretty good [ econ ] at 32 grams a tonne to something like 44, which is much more salable in the market. So we will keep an eye on those technologies, but I think we've got to be conscious of scale and not try and go too elaborate with POX and things like that for that size of operation and that type of environment. And the capital that you'll be thinking into PNG and that nature, I think you can -- to a certain extent there might be a bit of derisking by just getting the con off the island. I would add to that, that we do have a competitive advantage in PNG in that we're there and we're doing well and we know how to operate there, whereas there seems to be -- there's big projects out there that everyone's heard about, Wafi and Frieda. Not too many other projects, and we're doing well there. So I'd be quite happy to invest in a longer life in Simberi and hopeful in the other islands that the work we're doing is we're spending a bit of Newcrest money and getting into those other islands.
Your next question comes from David Radclyffe from Global Mining Research.
My question was just about Tower Hill and you're obviously doing a study there. Can you give me a bit of an update on sort of where that's at and what event you need? Because you're probably thinking it wasn't going to work at sort of today's Aussie dollar gold price, then when would it work?
Which study is that, sorry?
Tower Hill.
Tower Hill.
Tower Hill, oh, yes, okay. So Tower Hill, yes, that's a good point. Tower Hill is right next door to Leonora, and it's been on the -- our books for a while. We carry a small reserve there. We haven't done any recent studies. We probably will -- because we've been so busy with other things, we'll probably dust it off in the not-too-distant future. And there's 2 large -- there are 2 main strategies there with Tower Hill, which you could go underground and really try and be selective. We could pull a larger open pit that the existing nickel west train line is in the way of that, so terminates and that's actually not far from that pit. So it's not whether you divert the line than it would be whether you bring the termination back a couple of kilometers. A lot to think about there, but with the sort of things we have access to in Gwalia at the moment, we haven't prioritized that. So not currently studying it in any way. Conscious that it is still an opportunity and we'll be knocking the dust off it once we get through this GEP implementation.
Okay. So because when I get to that 1,800, so is it still relevant to have it there in reserves, I guess, if today, it's not a priority and if it's -- if it wouldn't work at today's price or it just doesn't seem like it might be -- should be there.
Yes. Look, it's there as reserves, it's just what strategy you employ, whether you go try to focus on underground or a big open pit. And as -- you're right, you do want to look at a cost environment around that. But certainly, the existing prices mean we might dust it off a bit earlier.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Thanks very much.