Stillwater Mining Company (NYSE:SWC)
Q4 2015 Results Earnings Conference Call
February 28, 2016, 12 PM ET
Michael McMullen - President and Chief Executive Officer
Christopher Bateman - Chief Financial Officer
David Gagliano - BMO Capital Markets
Lucas Pipes - FBR & Co.
Garrett Nelson - BB&T Capital Markets
Matthew Griffiths - Bank of America Merrill Lynch
Greetings and welcome to the Stillwater Mining Company Fourth Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A question answer and session will follow the formal presentation. [Operator Instructions]
I would now like to turn the conference over to your host, Mick McMullen, President and CEO. Thank you. You may now begin.
Thank you very much and thank you everyone for dialing in. You’ve got myself and Chris Bateman, our Chief Financial Officer on the line, and we’ll run through a presentation which is available for our fourth quarter and full year 2015 results.
So starting on that presentation, on slide 2, and read the forward-looking statements. If you could read that at your leisure, that’d be good.
Moving to slide 3 to discuss our fourth quarter highlights, we had a very strong fourth quarter of last year. All-in sustaining costs, which is the key metric we measure our business on apart from cash, came in at $613 per mined ounce of platinum and palladium, which was approximately 15% reduction from the same period in the prior year.
Cash and cash equivalents plus highly liquid investments grew slightly in the fourth quarter to approximately $464 million. That was an increase of $3.5 million from the previous quarter and that came in spite of all of the capital works we did plus buying a joint venture partner at Marathon.
Mined production of platinum and palladium was quite good at 132,400 ounces. It was down slightly from the same period in the fourth quarter of 2014, which in itself was a very, very strong quarter for us.
Recycling continues to grow. We’re up approximately 12% over the previous year and came in at just under 130,000 ounces of palladium, platinum and rhodium.
Our SG&A costs continue to fall. They came in at $6.4 million for the quarter, which was a 9.5% reduction from the same period in the prior year.
We had consolidated net income attributable to common stockholders of $4.4 million or $0.04 per diluted share, and I think that was a stellar performance just given the fall in the receive basket price down to $667, which was a 24% decrease from the prior year.
Turning to slide 4, we look at the full year results. We achieved or exceeded all of our 2015 guidance metrics and we managed to do that and achieve the best safety results in the history of the company. We managed to reduce our reportable incidence rate by 8.5% from 2014.
I think that was a great result given the many changes that we implemented during the course of the last year. And I think it’s a testament to our people that they managed to get through all the changes and work very safely. We’re still seeing a continuing improvement in safety during the course of 2016 and our incidence rate has continued to fall.
Our all-in sustaining costs for the year came in at $709 a mined ounce of platinum and palladium, which was down just under 10% from the previous year. But again, when we discuss that in detail later on, you will be able to see that the trajectory of those costs have really accelerated to the downside in the last few quarters.
Mined palladium and platinum production was 520,800 ounces, which was a small increase from the previous year. And that was done in spite of the restructuring that we did during the course of the business year and I think again was a very strong result. We saw recycling continue to grow. It was up 17% year on year.
We did have a loss for the year of $11.9 million, which included a $46.8 million before-tax impairment on the Marathon properties and $4 million before-tax net loss on the repurchase of some of our convertible debentures.
If you look at underlying earnings attributable to common stockholders, it came in at $26.1 million after we make adjustments for those abnormal items. And I think again it was a very good result given the metal price environment we’re in.
I think importantly as well, we managed to get a labor contract ratified at the East Boulder Mine towards the end of last year and early in this year we also got the Stillwater Mine and Columbus processing facilities contract ratified, which is good to have that behind us now.
Going to slide 5, if we just look at the results in a table format, you can see there again a strong performance year on year for the quarter. I will note that our sustaining capital expenditure was down approximately 46% year on year for the same quarter. I’ll talk about that in some more detail later on, but I want to make it clear that the sustaining CapEx spend that we’re having at the moment is the amount that’s required to sustain the business on a long-term basis. We’re not cut backing the sustaining CapEx to a level that doesn’t maintain our developed stage.
On slide 6 again, the standout items there are obviously our realized price. It was down 17% year on year. We did see good performance in reducing the cash costs. We did see the all-in sustaining cost come down well and again sustaining CapEx was down. We saw project CapEx go up slightly as we started to ramp our Blitz project and overall total capital expenditure was down to around about $107 million.
The recycling PGM ounces continues to grow, which I think is a very strong performance against a fairly weak market backdrop for recycling, really driven by very low scrap steel prices which reduced the overall volume in that marketplace. Despite that, we’ve actually managed to grow our market share.
Turning to slide 7, delivery on guidance, I believe this is very important for a company to be able to deliver on its guidance and you can see there that we managed to deliver on all of the guidance that we set in the middle of the year. And in fact, we even managed to deliver on the guidance that we’ve set at the start of the year for production which was based on a larger mine play.
Very importantly, I think we managed to come in very, very strongly on the cash cost and all-in sustaining costs. And if people have been following the company for some time, you will note that from January of 2014 when I rolled out the new strategy for the business, it was very focused on cost as opposed to producing ounces for the for the sake of producing ounces.
I think that’s been the correct strategy and even when prices were very strong, we were cutting costs. And I think that’s proven to be a very prudent move for the company, just given where metal prices have gone to. It set us up for the future. It’s put us in a sustainable position and cost will continue to be our primary focus along with safety and preserving a social license.
So I think overall we’ve delivered on all of the metrics that we set forth during the course of the year. And I’d like to say that that’s the second year in a row that we’ve managed to deliver on all of that guidance metrics.
Turning to slide 8, I’m going to hand over for a couple of slides to our CFO, Chris Bateman, to discuss the financial metrics.
Thanks, Mick. As Mick has said in his opening statements, we’ve seen a rapid drop in the price, in fact five quarters ago we were sitting just under $1,000 per PGM ounce, we’re now down to $667. Notwithstanding that, we delivered $4.4 million of net income in the fourth quarter and this was driven by a very strong fourth quarter cost performance even on the back of the restructuring in quarter three.
Moving to slide 9, the balance sheet, we’re sitting on a very strong balance sheet, as you will be aware. In Q3, we repurchased $63.3 million of the convertible debt for $61 million. So that was a discount to face value. In Q4, we’ve added cash to that balance. Again, the strong cost performance drove this, notwithstanding the lower prices.
In addition, we’ve had a very focused effort on managing our working capital. And we’ve seen a shift in the recycle business to more tolled ounces with some of the big contracts that we’ve signed.
Thanks, Chris. If we just turn to slide 10, I’ve talked at length in various calls about productivity and really we felt that productivity was the key structural issue that needed to be addressed within the business. This graph on slide 10, I think, highlights some of the improvements that we’ve made.
And what you can see in green is the ounce per employee per month of non-project employee that is and in blue the East Boulder for the same metric. You can see going back to 2012 that the two mines were broadly the same, East Boulder was slightly high. But I’ll note that the reserve grade for the Stillwater Mine is approximately 40% higher than East Boulder.
Despite that, East Boulder managed to have approximately the same ounce per employee per month outcome. And then going through 2013 and 2014, we saw – and 2015 in the first half, we saw quite a divergence with East Boulder becoming a significantly stronger performer in terms of productivity. Again, despite the significantly lower grade at East Boulder.
In 2014, you can see the impact of bringing Graham Creek online had. If you recall, we brought that online ahead of schedule. It added approximately 20,000 to 25,000 ounces per annum to the East Boulder production profile. And that really drove a significant increase in the ounce metric that we look at.
We’ve spent a lot of time at the Stillwater Mine looking at improving the operations here and looking at how we do things better. As Chris alluded to, we went through a restructuring process here during Q3. We’ve got a new incentive system in place here and that incentive system now has a metric that is part of that that is based on a site-wide cost per ounce target.
We’ve now seen a significant improvement in the green line, which is the Stillwater Mine productivity. And it’s rapidly closing the gap with the East Boulder mine and I think the changes that we’ve made during the course of the last 12 months have really driven that change. I think our team here on site have done a great job at driving the improvement and not only has the gap closed, but the overall absolute number of the two mines has gone up quite significantly.
So we’re now sitting at a – we’re up about 22% on productivity from where we were in 2013. It’s the highest that’s been in many years. And that’s been achieved not through trying to chase high grade ounces, but just fixing the underlying structural issue of the business, which has been low productivity.
You can see from that trend line that we’ve got some very good momentum at the moment and we’re starting to see that come through in the all-in sustaining cost as we improve productivity that continues to drive our cost base down. So very pleasing result and a lot of hard work has gone into this by our team.
If we go to slide 11, and this is a standard slide we have now, which shows the costs in great detail on a cost per ton basis. And you can see that we’ve continued to drive cost down, not quite as much on a cost per ton basis, but I think on a cost per ounce basis, we have seen a significant jump down in our cost basis, really driven by better mining practices, I think.
You can see on that for the Stillwater Mine that our milling costs actually were quite low in Q4 of last year, that was when we restructured the business and we’ve also moved the Stillwater Mill on to 10-day on, four-day off roster which is what East Boulder runs at and that has driven a reasonable size reduction in the milling costs.
I will now hear that our guys in the milling area have done a fantastic job of increasing recovery and we’re starting to see recovery ticking up and I think best in class for anyone in the PGM industry. And again, anything we can get out of recovery for no extra cost is just ounces straight to the bottom line.
So we’ve tried to squeeze everywhere in the business. I think we’ve made some big improvements. We’d like to think that there is more to come, but I think the improvements we’ve seen in the milling area really are symptomatic of the approach we’ve taken in the business which is leave no stone unturned.
If we go to slide 12 to the all-in sustaining costs, you can see the graph there. It’s a very good graph. I think the production has been strong, despite the significant reduction in headcount. The all-in sustaining cost, you can see the trend line for the last three quarters is very favorable. And Q4 all-in sustaining cost of $613 is the lowest it’s been on a sustainable basis for approximately a decade.
We’re maintaining a very disciplined approach to capital and operational efficiencies and we’re developing the rate required to sustain the mine in its current format. So we have reduced the dollar amount of sustaining CapEx significantly.
We’ve done that through reducing the unit rates, so the cost of doing a foot of advance has come down significantly, therefore we can do the same foot of advance for less dollars. That’s driven a significant reduction in our all-in sustaining cost. We have trimmed the amount of development slightly; however, the amount of development we’re doing is what is required to maintain the developed state.
We have a thing that we measure called developed state, which is how many ounces or months of reserves we have developed and at both mines it’s sitting at approximately 60 months, which is the longest it’s ever been in the history of the company. We’ve seen the developed state actually increase slightly at the Stillwater Mine year on year and we’ve seen the developed state decrease slightly at the East Boulder mine year on year, although I will note that the significant jump in production at East Boulder has driven that as opposed to reduction in ounces developed. The number of ounces developed at East Boulder have stayed constant; it’s just that we’re producing them at a faster rate, therefore the number of months comes down slightly.
Despite the reduction in the plan for development, we continue to actually do more than the plan calls for. So in Q4 of 2015, we did approximately 8% more development than the plan. And in terms of the amount of drilling that we do, which is necessary to prove up additional reserves or convert reserves, we actually did significantly more drilling in 2015 relative to 2014. And in fact at East Boulder, we did almost double the amount of drilling year on year.
So I just want people to understand that that 46% reduction in sustaining CapEx has come about through trimming the development slightly, but not significantly. It’s more about reducing the unit rate in terms of getting the dollars that we spend down. This plan is a sustainable plan for this production level and we have not cut back into the developed state as the company has done in previous periods. We believe it’s best to drive your unit rates down by permanent savings, cutting back on sustaining CapEx to where you’re edging into your developed state or consuming your developed state is not a sustainable business.
So our goal obviously that we put out at the previous quarterly results was to reduce our all-in sustaining cost down to the mid-600s and we’ve given a timeframe of that of medium-term. Clearly, the Q4 number of $613 is below that. We’re now looking internally to see whether there is a new target that we can set the teams, but we’ll stick with our mid-600s for now until we just continue to deliver on that new figure.
Turning to slide 13, our Blitz project, this is our main development asset; it’s our main project capital spend over the next few years. We’ve continued to drill that out from surface, it demonstrates the presence and the continuity of the J-M Reef. The grades are fairly consistent with the historical off-shaft material, around about 0.6 to 0.7 ounce per ton. The dip of the orebody seems to be sub-vertical, which is quite good from a mining perspective and dilution.
We managed to get the Benbow portal permit in place ahead of schedule. We started construction on that. The tunnel boring machine is around about 9,500 feet in so far and the parallel conventional drive is just under 15,000 feet in.
We expect first production from this in 2018, approximately mid-2018. It will take several years to ramp this up to full production. When it’s at full production, it will produce in the order of 150,000 to 200,000 ounces of PGM a year and it’s predominantly a growth project. It will provide growth ounces until we start to see a gradual decline in the Stillwater Mine production about a decade after it starts. We expect the production out of here to be our lowest cost ounces.
The grade is high and the infrastructure is being set up very similar to East Boulder so that you can mine and use gravity to move the material down to the rail level. Therefore, we expect the production cost out of this to be the cheapest that we will have. At the end of last year, we spent around about $80 million. The total spend on this is anticipated to be $205 million, which gets spent by about the end of 2019. We do have production before that from the end closest to the portal.
So Blitz is quite an exciting project. It’s a very large project. It opens up approximately 4.5 miles of strong flint of the reef and this will provide some growth in the medium term.
If I go to slide 14, just an update on our portfolio management, so we have Altar which is a non-core very large porphyry gold asset down in San Juan, Argentina. The measured, indicated and inferred resource contains around about 8 million tons of copper and just over 6 million ounces of gold. It is in the top 15 largest undeveloped copper assets globally.
And the previous exploration by Stillwater was very focused on the existing resource. We’ve done some relatively inexpensive work with geophysics and we’re not drilling down there. We believe that we’ve got some quite interesting targets. It looks like there is potential for multiple porphyry clusters down there.
And we do think that the change of government in Argentina has brought in a more favorably business climate down there and the spend on that project for this year is in the order of $6 million to $7 million. It does look quite interesting, but I think it is still a non-core asset for us, but we believe spending a modest amount of money will advance the valuation of that significantly.
Going to slide 15, Marathon, during the fourth quarter, we bought out our joint venture partner there. We paid them $1 million in cash, plus their share of the cash and equivalents held at the project, so another $4.2 million. It does now provide us with flexibility in terms of what we do with that. We’re doing a limited amount of work up there and that’s very much success-based exploration. So not a lot amount of money spent on that in this year.
In terms of the market commentary on slide 16, we’ve all seen that the PGM prices have been down significantly. When we look at palladium and the underlying industrial demand, actually demand increased year on year from 2015 to 2014. Although, investment demand was negative, so we just saw significant metal outflows from investors during the course of six weeks last year that was approximately 600,000 ounces liquidated of palladium out of the ETF. There is now approximately 800,000 ounces come out of that in total.
So the underlying fundamentals for palladium are quite good. There is a significant deficit ex-investment. The price action in the last six months has very much largely been driven by investors and we see an ongoing structural deficit in the palladium market. The main demand for palladium is in autos, gasoline or petrol and hybrid cars. We’ve seen very strong demand in North America, very low oil prices have made that main demand. Growth has been in large SUVs, which is fantastic for demand.
Even in China, the people we deal with in China are telling us that their demand is very strong in China. And so again, we’re not seeing a collapse of demand in the palladium market. What we’re seeing is instead a significant disinvestment by investors and metal hitting the market. The switch in Europe away from diesel to hybrid has been good for palladium demand. And overall, we see in the medium term reasonably good fundamentals for palladium.
Platinum on the other hand has slightly different story. It’s been dragged up in terms of its price recently by gold. There is a reasonably good correlation between platinum and gold prices in terms of direction, but underlying industrial supply and demand would suggest that there is probably a surplus in platinum ex-investment.
Jewelry demand in Asia has been weak, although improving, and any move away from diesel in Europe is negative for platinum and positive for palladium. And fundamentally we see the increasing of supplies of platinum out of South Africa into what’s probably an oversupplied market, not really conducive to a strong platinum recovery any time soon.
Going to slide 17, where we look at the cost curve for the South Africans, this is courtesy of HSBC. And you can see from that curve there that around about half of South African industry loses money at current prices. In our view, that’s not a sustainable business. There is no doubt that the weakening rand over the last three or four months has helped some of the South African producers.
We have seen some of those producers recapitalize their balance sheets, but in the medium to long-term, we don’t believe that this is a sustainable business model and at some point the lack of investment in sustaining CapEx in South Africa will stop to drive production cuts which will be mainly for platinum, but you will also see a significant reduction of palladium output out of South Africa. So in the medium to long-term, we see that production out of South Africa will have to be reduced, unless prices go up quite significantly.
Turning to slide 18 on our guidance, you can see here that from the guidance on production, we’re expecting production to be similar to last year, ticking up maybe slightly. You can see that on the cash costs, we expect again to drive them down below where they were last year. The all-in sustaining cost range of $615 to $665 we think is a reasonable range given Q4 performance and our stated goal of being in the mid-$600s.
We have had some very strong cost performance over the last quarter or two. However, we’re somewhat wary of having an extremely aggressive guidance based on one quarter. We do feel confident that there are potential opportunities to continue to drive our cost down, but we feel that we should deliver on that first before promising too much.
G&A in the range of $30 million to $40 million, similar to where we were last year. Exploration, as I indicated, ticking up slightly. That’s a combination of the spend at Altar, a little bit of spend in Canada, or at Marathon, and actually some exploration we’re doing at East Boulder. We’re drilling out below East Boulder in an area called Lower East Boulder to look at definition of a project there. So there is a bit of spend in the exploration budget for that.
Sustaining CapEx obviously down again to $50 million to $60 million mark. As per the discussion on a few slides previously, we believe that’s a sustainable number. And project CapEx ticking up slightly to between $40 million to $45 million as we start to ramp up the Blitz project, pretty well all of the project capital for this year and in the next couple years will be on Blitz.
So overall capital spend in the order of $90 million to $105 million and I think we’ve been quite successful of driving our unit cost down over the last few years and so our goal is to really drive ourselves to a lower capital number than where we’ve been in previous years.
So going to slide 19 to summarize, I think, look, the fourth quarter really was a very strong quarter for us. The full year results demonstrate that we’ve continued to deliver on all of our stated goals. The fourth quarter was the lowest AISC report since we started reporting it, but really is the lowest on a sustainable basis in about a decade. We’ve got strong momentum going forward now.
We’re maintaining a very disciplined approach to capital deployment and improving operational efficiencies. It’s got to be all about operational efficiencies, productivity gains is really where we’re going to drive those cost reductions. We have seen over the last three to four months a reasonably good improvement in mining practices at the Stillwater Mine and that is definitely feeding through in our lower all-in sustaining cost that we’re having now.
I’m very pleased with the safety performance to have delivered the operational performance we did last year and the two labor contracts and to have done that with the lowest incidence rate in the history of the company I think is a fantastic achievement.
We continue to grow that recycling business. We’ve got a great balance sheet, with a very strong liquidity profile. And I think it gives us some optionality in the current market marketplace. And again, managing to get both of our labor contracts in place, it’s a full-year contract for both of them and there is a wage freeze for the first two years and then a wage reopen where we will sit down and discuss at the end of the two years, I think, is a very strong result for shareholders. And also I think the change of the incentive at the Stillwater Mine to include metrics that are aligning shareholder outcomes and employee outcomes, I think, is very important.
So that concludes my presentation and I’m happy to open the floor for questions.
[Operator Instructions] Our first question comes from David Gagliano from BMO Capital Markets.
I just wanted to drill down a bit more on the Blitz timeline and outlook. You mentioned obviously several years after first production in 2018, I was wondering if you could give us a sense, bit of a closer sense as to how we should be thinking about this in terms of when it ramps to full production? And also, you mentioned that obviously it’s primarily growth production. How much of that roughly 150,000 to 200,000 ounces is incremental versus replacement, the first, let’s say, first 10 years on average?
We haven’t gone into a lot of detail on that, Dave, and it’s a good question. And I think as we drill about more from underground, we’d be prepared to go into a lot more detail. But I think I can say that really on the current plan and I believe we can accelerate it, that project will take somewhere between two to five years to ramp up to full production. And virtually all of it for the first 10 years is growth. On the current mine plans, we don’t see any reduction in Stillwater, let’s call it the old Stillwater Mine production for at least a decade.
Just for clarity, to make sure, there is no additional CapEx at the mill or anything like that needed for this, correct?
That’s correct, because we run the mill on a 10-day on and 4-day off roaster, the plan would be that once Blitz comes on, we would actually start running the mill fulltime. One of the great things about developing a project like Blitz or Graham Creek is the very low capital intensity because you’re leveraging off your existing infrastructure, you’re leveraging off your existing mill, [your tiling dam] and so therefore you get a strong return on those dollars.
Our next question comes from Lucas Pipes from FBR Capital Markets.
So when I look at your 2016 guidance, compared to the fourth quarter, it struck me as conservative. How would you judge it? Where do you see maybe continued room for improvement over the course of 2016?
Look, I think it is conservative. I believe in this market, really in any market, but specifically this market, you want to be confident of hitting your guidance. So if you look at our all-in sustaining cost quarter by quarter, if you go back to Q3, it was in the order of $677 and then we got the $613 in Q4 after we did the restructuring during Q3. So I think just given where we sit now, we’re little bit wary of just assuming that Q4 is the new run rate going forward guaranteed.
I’m quite confident that we can come in quite strongly as we go forward. And we have set the team a new internal target here to come up with a plan to actually continue to drive those costs down further. Again, I’m somewhat wary of using one quarter as your data point and then coming out with some very aggressive guidance, which you then for some reason struggle to hit. I can’t say that the performance into 2016 has been strong as we’ve actually continued to make improvements in the business. So we’re feeling quite confident in that guidance at this point in time.
That's very good to hear. And maybe two quick follow-up questions, more bigger picture. The first one would be you have a very strong balance sheet, where do you see the best use of capital? Is it cash on the balance sheet, is it may be buying back a little bit more debt, is it M&A? Just your thoughts would be welcome. And then also, appreciated the slide on the South African cost curve and you mentioned this is not sustainable. How quickly would you expect production to adjust out there? Would appreciate your thoughts.
I think that in terms of the cash on the balance sheet, we have a ranking system internally where we look at uses of cash and what the risk adjusted return would be on that. And we have bought debt back in total of about $93 million in the last couple of years back. So I’m quite debt-averse. I like to run the business in a net cash position if I can. We’re opportunistic I would say, so I don’t think people should be assuming that we will necessarily buy the debt back.
We just look at where we think fair value is, given the stock price. I think the significant value in this particular market having a big cash buffer on the balance sheet, because people can buy the stock feeling quite confident that we don’t have a liquidity crunch coming. So that in itself is worth quite a bit, I believe. And again, if we were to look at M&A, you’d never say never, but I think it would have to be a very strategic high-return types of a transaction that would give us a better risk adjusted return than buying our debt back at a discount or continuing to develop our internal projects.
When you have an orebody that’s 28 miles long and running over 0.5 ounce to the ton, that’s a fairly high hurdle rate, but something else would have to be better than that. But again, we always look at lots of stuff like I think the management team’s job is to look at what gives the shareholder the best return. But I would say that in any – I hope that people understand the way I run the business now is a very conservative way of running the business. So whatever we do, whether it’s investing internally or buying something else, or buying our debt or doing anything, it’s got to be a very conservative way to approach the business.
And then second question in terms of the South African, I can't really tell you when something else is going to happen in someone else’s company. But all I can tell you is that I tend to look at what happened to the South African gold industry as an analogy for what’s happening in the South African PGM industry, which is that capital will be underspent.
And over a period of two to five years, that capital underspend will be showing up in the reduced production profile that we see out of some of the mines, because if you're not reinvesting the capital and I haven't been really for a few years, then it’s unlikely you can maintain your production profile. That’s why when we look at our sustaining CapEx, we are very laser-focused on how much development do we need to do to maintain what we’re doing.
We have it, we actually did 8% more in Q4 than what we planned to do, but that’s not the case for many of the mines in South Africa. So I think it's not going to be a case of we wake up one day and company A has shut production down entirely. It’s likely to be over a period of time that as they under invested and they get tighter financially that you see production ticking down. So it's more of a medium term issue, I think, as opposed to a mixed-week type issue.
[Operator Instructions] Our next question comes from Garrett Nelson from BB&T Capital Markets.
It seems like you might have ended the year with higher level of inventories, given that your mine PGM production exceeded sales by about 12,000 ounces or so during the quarter. I also noticed that your production was also higher than your shipments in the third quarter. Was there any reason behind that? Do you expect that trend to reverse and that we will see some destocking over the next couple of quarters?
We’ve had a couple of good quarters’ mine production. I think the one thing to bear in mind is we’re measuring at two different points in time, so we talk about mine production being production coming out of the concentrator and the estimate of returnable ounces. And I think that harks back to the days before we had the Columbus processing facility. And then obviously sales, it had to go through the Columbus process and then on to Johnsen Maffei for refining.
So it is fair to say in the last two quarters given the prices we haven’t been as aggressive at flushing out inventory. At the end of the quarter, I think we talked at the Q3 conference call that we held back some inventory or not moved it through the process as quickly, and certainly with the prices at the end of Q4 that wasn’t the same rush to push stuff out. But we’ll continue to watch our working capital levels very closely and manage them.
So I think it’s fair to say that when prices are low we do have some optionality as to whether we push ounces out or we don’t. If prices are quite low, we typically don’t push them out. So there is a bit of an inventory sitting in there that at some point we’ll look to liquidate.
And then on Blitz, I know you said you're expecting first production in 2018. But can you get any more granular on the timing, is that early 2018 or late 2018, just trying to determine, figure out how many ounces we should be modeling for 2018 from Blitz?
All I can say at this stage, just given the level of accuracy mid-2018 is about the best timeframe that I can give at the moment. We do have a work program underway at the moment to look to see if there is some way that we can accelerate that and it’s high on the priority list for our management team this year to see how we can both accelerate the time to first production, but then accelerate that ramp up period which is still relatively long.
So all I can say there is a bit of work in progress at the moment. There will be some ounces come on, but we can’t really give more detail at the moment partly because it's several years out, but partly because we actually have a big work program underway at the moment, looking at the project and seeing if we can actually re-scope it a little bit to get some production from the end closest to the concentrator earlier rather than waiting until everything has developed at the far end.
Our next question comes from Matt Griffiths from Bank of America Merrill Lynch.
I just had another question for you on Blitz. I was just interested, I know it's probably a little early to get too detail, but on how the sustaining CapEx changes as you bring that on. I'm kind of thinking like do you have to ramp up the developed state of that part of the mine and maybe it's a little higher initially, or does that work get done maybe with the project CapEx? Anything you could add there would be really helpful.
The bulk of it gets done with the project CapEx initially and then rest of the sustaining CapEx would be not more on a dollar per ounce basis. They will obviously be more dollars you got to spend that you’re producing more ounces. So it’s relatively minor. I think from memory the first ramp system and it developed very similar to the way Graham Creek has developed, how we develop in 2,000 foot long blocks and then we put a ramp system up for each block and then we put the footwall laterals in them, drilled them out. I think from memory the first ramp system is about $3 million spend and you will get production out of it fairly quickly. So it’s relatively minor and on a dollar per ounce basis shouldn’t be any more than what we currently do.
And also just on the market, on the recycling business, I was just curious, you mentioned how the steel price or scrap steel price influences how the availability, I guess, of recycled material. Is there a limit to how long that part of the supply chain build inventory, do you have any sense of whether they have limitations or if they are near full or can this go on kind of indefinitely in this way?
It can go on indefinitely and the reason is that the scrap steel price is basically an impediment to whether a target is scrapped or not. And if it doesn’t get – if it makes it to the scrapyard, even if they don’t scrap the rest of the car, they will typically cut the can off and so it gets into the system. But what we’re seeing is that lower scrap steel prices mean that it actually cost you more to pick the car up and send it to the scrapyard than you get paid. And therefore those cars never make it into – are not making it into the system. So until that price point moves up a little bit, that stuff can probably be sitting out there indefinitely.
So I think within the last year, we’ve seen investors be talking about a wave of recycling ounces and recycling is just not the case. We are, I believe, the largest auto cap recycler in the world now and the overall market is down significantly, most of our collectors are telling us the market is down 25% for them year on year. We’ve got one or two collectors who tell us they are up slightly, but net-net the overall market is down. And you can see that in the volumes of the listed scrap companies, there is a couple of large ones out there. You can see that very clearly in the volumes.
[Operator Instructions] There are no further questions. I would turn the call back over to our speakers for closing comments.
Thank you very much everyone and we will continue to drive the business forward and we look forward to speaking on the next quarterly call. Thank you.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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