Perseus Mining's (PMNXF) CEO Jeff Quartermaine on Q4 2015 Results - Earnings Call Transcript

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Perseus Mining Ltd. (OTCPK:PMNXF) Q4 2015 Earnings Conference Call January 27, 2016 6:00 PM ET


Jeff Quartermaine – Chief Executive Officer, Executive Director & Managing Director


Cathy Moises – Evans and Partners

Brendan Fitzpatrick – Morgan Stanley

Michael Slifirski – Credit Suisse


Thank you for standing by and welcome to the Perseus Mining Quarterly Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your first speak today, Mr. Jeff Quartermaine, Managing Director. Please go ahead.

Jeff Quartermaine

Thank you very much and good morning and welcome to this conference call to discuss our December quarterly report. I’m joined here this morning by Elissa Brown, our CFO, who will assist me with any of your questions later in the call.

Now, in summary, it's been a very frustrating quarter for us at Perseus against a backdrop of a fairly difficult gold market that we’re all familiar with. Many things have continued to go well for us, but these positive achievements have been overshadowed by disappointing gold production during the quarter, the root cause of which is not sole of Ivorian making.

Let’s just switch straight into – into talking in a little more detail KWADWO operation. So gold production for the quarter was 32,426 ounces, which was less than the quantity produced in the September quarter, but still a fairly credible result given that the average head grade of ore is processed during the period was 0.68 grams per ton compared to 0.93 in the previous period.

For the half year, this translated to production of about 76,700 ounces and for the full calendar year we have produced 188,800 ounces. Now, clearly, this production does not in line with our expectations. For most of the quarter, we drew ore from our stockpiles while waste was being stripped in Fobinso and the Eastern pits.

Now, as you recall the ROM stockpiles that we’ve been carrying for sometime have got an average grade of about 0.5 grams per ton. And in October the grade of the ore processed was 0.53, in November it improved slightly to about 0.73 as we started to mine some of the higher grade oxide ore from the Fetish and Chirawewa pits. And in December, the grade continued to adjust to about 0.8 grams per ton as we started to get more fresh ore to process.

However, the quantity of fresh ore able to be mined and the grade of that material in December fell short of expectations by some way. In other words, what we have done was the required upward trend of grade has been established as we were coming into the ore zones, but the grade end of that curve was not as steep as we have been planned.

Now before explaining the reasons for this, I should say that this processing plant should not come as a big surprise to anyone as we clearly flagged in our June and September quarterly reports, and also in an update released to the market in December in which we said that we would be processing higher grade ore for much of the quarter. And we sighted that the reason for this was the delayed access in gaining – the delay in gaining access to the Eastern Pits.

As a result of the Ghanaian EPA working to their own agenda, now I won't comment any further on that, but quite clearly it was very frustrating experience for us then and it’s even more frustrating now having to deal with the consequences. However, it looked to be quite wrong of me trying to depict all of the blame for the shortfall in tons and grade in December. Our planning suggested that this would occur and we said in our updated remark in December that ore grade improvements was slower than expected, we did expect to see higher grade ore by the end of the quarter.

Now, I have to say that this didn’t occur exactly as we’ve planned and it was for the following reasons. Despite our best efforts in mining 2.5 million bcm of material from Fetish and Chirawewa, ore production fells short because of – we would needed to clear mud from the historically-mined Chirawewa and Fetish pits, that until recently were flooded, and that mud clearing exercise took a lot longer than we had anticipated. Also the grade control activities limited our access to the higher grade ore zones once we have got through that material. And in addition that we’re also hamstrung for a short period of time negotiating arrangements to allow us to blasting in Chirawewa with the authority. So I would have to say that’s since been sorted out, but it did slow us down for a while.

Now of these reasons grade control was the most important of the three. And to put this context, the Fetish pit is largely graded that it has the deposit, similar characteristics to the Western pits are expected. Now it involves a largely – large relatively low grade eastern – block on the – graded on the eastern side with a higher more consistent grade football granite. And in addition, there is also some mineralized quartz [ph] extending into the sedimentary rocks so it’s not you know straightforward.

The Chirawewa pit is even more complex by the granite and in the Perseus zone has to the gold mineralization. Now, it’s been recognized of our prior experience with granite deposits on the waste and also knowing about the relative geological complexity in Chirawewa that much more rigor would be required in terms of grade control. And by that I am talking about close of drill spacing, auger holes, et cetera.

In the Western pits, we were mining on a 10x10 grade control drilling pattern and we did that very successfully. Coming over to the eastern side, we recognize that the pattern needed to be tightened up to about 8x8 meters and we would also be well suited of using a few inclined holes as well as vertical holes.

All of these means that more, more grade control meters need to be drilled. In order to stay up with the program, you need to have more drilling capacity that stands as a reason. Now, it is our enthusiasm to get a mining underway in the Eastern pits following the very lengthy delay caused by the KPI. I guess we overlook the advise of the exploration team some years ago, who had stressed to us the importance of grade control. And we went ahead in those pits with exactly the same practices as we have been previously using.

In addition by not recognizing the need to increase our capacity early enough, it means that that by accelerating the mining as we did, we fairly rapidly caught up to the grade control activities which meant that mining had to be slowed down and hence the shortfall in tons of ore that came in that period. Now, the important thing is that we have moved very decisively to address these shortcomings. We have brought in additional drilling rigs. Now, we’ve also employed a grade control expert to come in and examine our processes and procedures top to bottom to ensure that we fully integrate all available information and applied to the mining operation.

And that work is underway right now, we will take a little time to get – to get all of that effective and the results will come through in due course. The positive thing is that the gold hasn’t – gold hasn’t gone anywhere, it’s still in the ground and the fact is that its just going to be mined a little later than what we had – have had to be the case.

Now, notwithstanding our disappointment in the mining department, from a processing perspective, our technical performance remained very strong during the quarter with elevated throughput rates and fairly reasonable recoveries in view of the effective processing increased quantities of oxide and transitional ore. And neither of those all types performed a lot well in the processing circuit that was designed to process fresh ore.

We actually achieved a quarterly record in terms of throughput rates in the mill, mining about 86% of the time with an early rate of 956 ton an hour, recovery for the quarter averaged at about 81%, which is not far from the theoretical recovery we should be seeing taking into account the amount of oxide and transitional ore that was in the mill feed.

That said while the mill performed fairly well, we did see some downtime on the crusher relative to the previous period. However, when the crusher was operating, it was running at about 1,471 ton an hour, which is about 31% more than the prior quarter. And as a result of that there was no negative impact on our operation coming from the crusher. The reason for the downtime of the crusher is simply that the original design of the crusher and the conveyer is sub-optimal, there is no 2As around that unfortunately. And it does give rise to a need for fairly high-level of maintenance and at times sub-operated – sub-optimal operating practices. But as I said, these efficiencies did not said that as they were to unduly hinder in our operation, but the efficiency of the – of it would be improved with a couple of minor modifications.

Similarly, there are few things in the – that have been identified in the plant. And by addressing all of these issues, we should be able to materially improve run time and reduce maintenance costs into the future and this will be done progressively in coming periods. We have identified a project that involves about 10 to straight tasks. It will costs us about $8.7 million in CapEx. This CapEx is not an addition to previously forecasted, so it’s a substitution for an amount that was previously included in our budget for increasing crushing capacity. We figure that if we do make these improvements, we don’t need to add crushing capacity and in fact this is actually represents a decrease in our capital budget as opposed to the increase.

We do see some fairly material improvements coming from this exercise and just to sort of illustrate the point in an analysis of downtime on the crusher, 69% of the downtime is closed by two issues. And one is CV6, which is the conveyer directly from the crusher to the crushed ore stockpile. And the other area is in the drive trend. And by addressing both of these issues, we should be fairly well ahead in terms of performance. Say similarly in the middle about 33% of our downtime is due to issues resulting from the design problem on screen six. And fixing this alone should deliver some fairly material benefits. And I mean – just with those two examples, you can see that it’s an exercise as well we are doing and one that we will be looking at pretty closely.

Now on the cost front, all-in site costs were recently satisfactory this quarter in terms of the total cost base. But when reduced on into a cost per ounce basis, clearly the result was impacted by the lot of headroom and therefore gold production not to mention the increase in this and in waste stripping in the like.

And for the half year all-in site cost averaged $12.08 an ounce that’s the middle of the guidance range for the half – I think the guidance range is 1,100 to 1,300 so we are right on in the middle there. And to put that cost of $12.08 in context we do actually carry 120,267 ounces of gold, sold forward at an average of $12.76 an ounce. We are at that level still got our head above water. While the cost per ounce was up on a quarter-by-quarter basis, as I say mainly as a result of the gold production, the unit costs – the unit mining costs, and processing costs actually held their own.

So as far as mining concern principal fee the cost per ton moved was $245 a ton this quarter as opposed to $235 a ton in the previous quarter. So quarter-on-quarter it’s pretty much the same. I should say at this point that mining costs are benefiting from mining in the upper benches of the pits where the materials relatively soft.

That said there was a fair amount of work required to remove mud from the bottom of the Fetish and Chirawewa pits and this is fairly expensive. But certainly the cost of mining that softer material is less than it will be when we’re mining from the bottom of the pits in hard ore in future periods.

Diesel costs have certainly given us some assistance, but unfortunately not as much as we might have expected because the Ghanaian government thinks very much added a tax to it, another tax to the diesel price later in the year. So we’re paying about a touch over a dollar – a dollar per litre of diesel at the movement which is not as cheap as it probably should be.

Processing cost is $9.28 a ton, we’re within 2% of the cost last quarter. The fact is that influence their processing cost we were processing more oxide ore than in the past. And so that means we get lower power cost and less grinding medians required. Before anyone ask later on, our average power cost across the board rose running it around $0.139 kilowatt hour. And that includes power drawn from the grid and also power acquired under the arrangement that we have in place to ensure we have 100% of availability of power.

Also we have installed [indiscernible] control and that has certainly been helping use of cyanide so there was less cyanide consumed, we also have switched the propel that we use to allow our products consumable and that actually works even better than the more expensive and that was fairly handy and on other hand maintenance cost were up during the period particularly [indiscernible] the crush away quite a lot of remedial work is needed as I said earlier on.

Actually on the maintenance subject of maintenance we do see higher maintenance cost and talking with that guys what are the reason for that is that – we do have availability or we access 100% of our power needs of the grid and the power grid in Ghana isn’t the most reliable in the world. In quite obviously, quite regularly power spikes coming through which means that there is a lot of good start, probably on our equipment now that isn’t the why that a lot of the equipment was designed to operate. And so with these power spikes, we do see a high level of maintenance required than would normally be the case. While we are on the grid that’s - there is very little we can do with that particular thing other than make sure that we keep the machinery working.

We do except to see some further improvements in price listing costs going forward. We have new mill lining strategy taking effect shortly it will be implemented over a period of time but basically what we are doing there is using a different style of new liner. Which will reduce the number of pieces of liner that have to be replaced each time, we go down we will go down less regularly throughout the year.

And when we do down to re-line so it will take less time to complete. So those sort of things will deliver some benefits going forward. Royalties during the period, they returned to the normal levels sort of being in the $74 an ounce much lower than in the previous quarter.

Expenditure on sustaining and development capital increased during the quarter $118 an ounce and this is directly related to the acceleration of the infrastructure and relocation housing work that we need to do to build houses for people who are going to be dislocated by our activity, mining activities.

So in summary, while gold production was slower than excepted cost performance was fairly encouraging and coupled with the fact that our processing plant is working very efficiently. We are in a very good position to do extremely well when we do get into higher grade or and that will happen in coming periods. We have very little doubt about that because we do have a high level of faith in our resource models we’re seeing good reconciliation from the resource model to the block model – to the grade control model. What we need to do is it to accelerate our mining activity and make sure that we do a proper grade control, we do a effective grade control all the way through and we will get that high grade material into the plant. With respect to the future, we have revised our guidance for the next six months in terms of what has occurred in the last couple of months.

In summary, we’re forecasting gold production in the first half of this year to be in the range of 95,000 to 115,000 ounces. And at all-in site cost of some where between the $1,100 to $1,300 an ounce. And for the full year this translates to a range of 172,000 to 192,000 which costs $1,130 to $1,250 an ounce. To do this we fairly don’t need to see better grades, but as I said before, we’re expecting that this will occur fairly, shortly as the mining operation becomes more effective.

Turning to gold sales, in the December quarter, we sold 32,616 ounces at an average price of $1,247 an ounce, at half year that was 77,960 at $1,280. During the period, we delivered in to some of the preferred sales contracts and spot sales and surprised to say that the average sale price was above the spot price during the period as a result of our conscious efforts to manage the revenue lines through judicious hedging. And no other matters at Edikan, we have been working on the relocation housing project, the civil contractor PW Ghana has been going very well with their works and everything is on schedule for completion of their contract by the June 30 this year.

The building is well underway. We’ve basically broken the building into four separate contracts. Wilhelm Construction, we’re issued the first, this is the first contract for 46 dwellings and they are going very well sub-structured construction was in progress on 15 houses and there were other seven slabs down there. Last week when we visited so that construction is going very well and we expect that group of houses will start to be available for occupation around the middle of this year around June this year.

The other tenders the Lot 2, that’s for 33 dwellings and 5 institutional structures that’s gone to another micro company PPP Construction. They are expected to start work any directly [ph] mobilizing your site now. The third contract was left to David Walter, another Ghanaian company. That was for 50 dwellings and that will be starting around the middle of March as well. The fourth contract will be left a little further down the track and I think so we’ll move forward. And all of that houses should be complete by the end of this calendar year, so December 2016.

The pleasing thing about this work as much as we struggle with the total of the cost given that, the houses that we’re replacing, the replacement houses are substantially more valuable than the once that are being replaced. We do expect that the cost of this work will come in under our previously announced budget of $23 million. The $23 million budget I might add is well short of the forecast that we would be making previously and the reason why the forecast has come down is two reasons. One is that the number of dwellings that we’re required to build is under what we were previously predicting.

The other reason is that we’ve been able to negotiate fairly decent pricing for the construction using the four competing Ghanaian contractors to do the work. So far, we – our cost and commitments total a $11.5 million a day. We are well into that exercise and we are recently confident that, that will come in on time and on budget.

Now, turning to Sissingué, the Sissingué as you aware is our second project. We just make a sort of a general comment around that. Now the potential development for Sissingué, it provides us with a relatively low cost grade technical risk opportunity to pursue our strategy of diversifying our production base by developing a second financially robust mine in Côte d’Ivoire. Now if ever we are in doubt about the validity of this strategy, the challenges we face this quarter really can underline, the potential benefits of having technical and geopolitical diversity operating.

And certainly developing Sissingué would be one way of achieving this now the question though is that, that needs to be answered is, is this the best way available for us under the current circumstances. And that is quite a big question. In the context of the progressively weakening global economy we’ve been very disciplined in our price to taking a full scale development decision on this project. And we’ve established a well defined set of criteria that where we’re measuring ourselves again before we make, before we start deploying any major levels of capital on this project.

We do conduct a formal review of our development plans in at the end of last quarter, as we had [indiscernible]. And while a number of the defined criteria for development had been achieved including I should say a peaceful presidential election in Cote d’Ivoire in November, which looks like ensuring political stability in Cote d’Ivoire for the foreseeable future. The fact that that happened was positive, but there are a few other things there that caused us to deter a development decision at that time, largely on commercial grounds I should hasten to add.

So while we’re not there yet on the project, we did during the quarter I did some works to advance the development decision when the time is right, we carried out a well structured program of early works including a material part of front end engineering and design. Construction of access road, initial earth works clearing, fencing, et cetera, et cetera. And the total cost of this work upto the 31 of December was US$7.5 million of which $5 million was spent during the quarter, now we believe that, that this work is important to cut from anything else what it does – it does a portion of the full scale development work now, which means that when we do come to, if we do come to a development decision. The overall cost will be less than $100 million at that time.

We also engaged in a community engagement program during the time with national, regional and local government and local community security holders. To make sure that everyone was adequately inform them what we were doing and what we were thinking. And then all parties would firmly committed to peace and security in the area of Sissingué. And you’d be aware that West Africa in recent times has not enjoyed the most stable terms certainly Mahalé and Mbengué, so have had the share of issues.

We’re very keen given that we are in the North of Sissingué that we maintain a watching break on what is going on and make sure that we are in very well informed as to what is carrying and what we need to do to deal with those things. A decree was issued during the quarter by the Ivorian government that set out the compensation of land owner to be paid to land owner or owners of land and which we are going to develop their well, this decree was well received by some sections of the community to other parts of the community went so happy. Now as far as we are concerned this is a very important matter because we don’t want to be building in a – at any stage in a community that’s divided and so sorting this particular issue out is a matter of a priorities as far as we are concerned.

That said the global weakening – the weakening global environment is a – remains a great concern for us as far as our decision on the Sissingué goes. We are very strongly wish to preserve a balance sheet strength well the volatility exists and on that basis until we got a clear line of sight to the economic development and operation of Sissingué we will be maintaining our current position.

In the meantime, what we will do is to continue considering that question I’ve passed earlier of where the Sissingué is in fact that best avenue for us to create shareholder value and we’ll continue to evaluate all opportunities that we are identified or which company knocking our door and based on that assessment I guess that will feed into any decision that we’ve taken in the future about Edikan.

As far as exploration is concerned their activities in this quarter are being fairly minimal we haven’t done a lot of drilling, we have done a quite a lot of work in the office today, we’ve done a very detailed analysis of data sets at Edikan and have come up with some targeting that we may well pursue in the next financial year as budgets become available, we have received some encouragement in Cote d’Ivoire. I should say about six kilometers from the proposed pit side at Sissingué. Some of our drilling has identified some interesting anomalism and in the next quarter we will be putting some RC holes into that particular area because if we can find additional reserves that would certainly enhance the economics of the project at Sissingué extend the life et cetera, et cetera and that would be extremely valuable, similarly over at Bélé west there is encouragement there and so we’ll be doing some further work there as well with the objective of improving the reserve basin at Sissingué project and thereby enhancing the prospects of development.

Turning to corporate situation, networking capital at the end of the quarter was $165 million compared to $190 million at the end of the September quarter, now this is the – in terms of cash and bullion this is the first time in six quarters that our cash balance hasn’t risen.

Now once again with respect, this should not come as a great surprise to anybody. We have been flagging for several years that fiscal 2016 and fiscal 2017 was going to be a period of fairly significant reinvestment for the company as we opened up new mining areas and worked on development housing. And that is in fact exactly what is happening. The issue was of course compounded by laws and expected gold production but nevertheless, this is part of the plan and has been part of the plan for long time and I do say part of the reason why our share price hasn’t reflected the underlying asset value.

During this period – we did, say, invest in the – stripping in the mine field so invested money at Sissingué as I mentioned in those early works, we put as all amount into explorations of course we paid corporate overheads fairly modest corporate overheads and regional office overheads. So, all of those factors contributing – contributed to the drop in working capital this period now. We did have cash of hand of $99 million at the end of the quarter and the bullion we had about – of 3,000 ounces of gold on the side which could divided to another $4.5 million at the prevailing gold price in exchange rate at the end of December. I should point out that those balances don’t include escrowed cash we have escrowed cash in the bank to form future environment commitments and the like.

I mentioned earlier, our hedge position, we do have 120,267 ounces of gold sold forward at an average price of $1,276 an ounce, does include 33,000 ounces of 1,600 that’s we’ve been looking after fairly carefully for some time. At the end of December that was valued at $35.5 million. And that is effectively cash because that could be closed out immediately if that was – if we were over mind to do that. The trade creditors and accruals ran at around $46 million for the quarter, there was a slight increase on the previous quarter. And apart from those creditors and accruals that were incurred in the ordinary course of business were remained debt free and expect to be – to some time.

So all in all, that’s what we’ve been doing for the last quarter, it has been very frustrating as I said at the outfit. We feel that we’re making very good headway on a lot of fonts and doing some very good work and more than managing to hold our way in a challenging environment. And operating the low grade mine as we have 1.16 grams a ton average over the life of the mine, doesn’t afford much room for error and the error that we made in this quarter not advancing our grade control activities quickly enough certainly made its presence felt as far as the result is concerned.

Now, just spend the last week or so with our guys in West Africa, we have been going through the projects top to bottom, we know exactly what we need to do in order to get things back on track and we’re doing those things as you speak and notwithstanding disappointment of the quarter. We’re excited about what lies ahead for us so we can see that we are within a whisker of really delivering some positive outcomes and what we need to do is to make sure that we do all the things that we can do and the thing that we can trial to the best of our ability and I’ve got every confidence in our team of people at Edikan and also in Cote d’Ivoire very capable of doing that.

So with that, I’ll stop talking and I’ll hand the floor to the moderator for questions please.

Question-and-Answer Session


Thank you. [Operator Instructions] Your first question comes from Cathy Moises with Evans and Partners. Please go ahead.

Cathy Moises

Good morning, Jeff. Just a couple of questions, I just looking at your guidance for the second half and that’s gone from 110 sorry – 100 to 110 to 95 to 115 and it just interesting you drop the lower end because I’ve thought you were going to catch those higher grade ounces, you would have been up in the guidance rather than widening the range, I just wanted to comment on that and also any indication on how the mines performing since the end of the quarter would be fantastic.

Jeff Quartermaine

Okay. Cathy, with respect to the guidance, I think it’s fair to say that we’re fairly braced by the experience in December. Our plans we’re indicating certain outcome that didn’t occur. While we have every confidence that the measures that we put in place will deliver outcomes, I guess we’re doing little bit – a bit cautious until we see the results coming through because you don’t turn the switch over night on these things, they do take a little bit of time and we are not 100% sure exactly how quickly it will happen although we clearly have our plans and our expectations. But I guess having been a little bruise where we are being cautious about that. That just as to this current quarter, the January quarter, we are seeing a slight improvement in grade. As I said it’s not happening as rapidly as we would like. But I believe that the guide – well, I know that the – we have moved from the fringes of the ore body into the main area, particularly in – all in Fetish and Chirawewa. We are mining around that area in Chirawewa near the ore pit where high grade material is due to come through.

One thing that we have descended during the quarter this month is that the top of the fresh ore is lower than we were expecting in underneath that all pit. And so that means that we will be going through transitional low for a longer period than we were anticipating to hit the fresh side. That’s another factor that contributes to a little degree of uncertainty over the timing of the list. But as I said earlier on, we are seeing good reconciliations on the – from the resource model to the grade control. So we’ve got every component that the goal that we said that was there is there, it’s a question of getting to it and getting it out of the ground.

Cathy Moises

Okay. Thank you, Jeff.


Thank you. Your next question comes from Brendan Fitzpatrick with Morgan Stanley. Please go ahead.

Brendan Fitzpatrick

Thanks and good morning. The plant you are talking about Jeff the improvements for the processing plant, was there a notional timeline when that would be started and completed?

Jeff Quartermaine

Yes, look, we’ll start it as soon as we – where we improved the expenditure at our Board meeting last Friday. And the guys have been tasked with preparing a comprehensive execution plan to get that work done. It will take a period of time because some of the activities – some activities are very simple and they can be done on the run or during a standard shutdown kind of thing. Some of the projects are little bit more comprehensive in nature and so need to be scheduled fairly, exactly such that they don’t interfere with the operation. So it will probably be over the next 12 months, we’ll see those things progressively executed.

Brendan Fitzpatrick

Okay. And with the high throughput we saw at the crusher was that particularly to do with the soft ore is it something that will pass with the completion of the December quarter?

Jeff Quartermaine

No, no, in fact it’s something not only do with soft ore because we try to keep the soft ore out of the crusher actually, the soft ore cogs the crusher up. Now look the higher throughput rates I mean we needed to – the crusher is nominally an eight million ton per annum crusher. But we have and can run at it at very significantly high rates, in fact we have run at it and we are running in the present time effectively at a rate of around ten million ton if we need to. If you look at our production steps on the crusher, we’ve barely been running at around 50% of the time pretty much. And that’s mainly because that’s the time that we need to actually run at and keep the crushed ore stockpile full.

So there is nothing spectacular about that we did actually during the later part of the quarter we worked very hard at maximizing the amount of direct feed into the crusher as well that helps things as well. But the throughput rates are achievable and you only need to crush as much as you need to surprise this and there is limited capacity on the crushed ore stockpile. So that is a natural restriction on the amount of that we crush.

Brendan Fitzpatrick

Okay. And the final one, revisiting the production profile through the second half, it stands off it still a few legacy issues, so a skew, towards the fourth quarter within the second half.

Jeff Quartermaine

I think this skew is probably towards the third quarter. We think that we should get some pretty reasonable grades fairly shortly, but just as I said in response to Cathy’s question where I guess not surprisingly, I’m a little bit bruised by recent experience we don’t want to make too many bowl predictionsat this point.

Brendan Fitzpatrick

Understood, fair enough. Thanks, Jeff.


Thank you. [Operator Instructions] Your next question comes from Michael Slifirski with Credit Suisse. Please go ahead.

Michael Slifirski

Hi, thanks, Jeff. Back to that the scheduling challenge, I’m still little bit confused about the various events. So the permits were in place, but the mud sort of constrained you access, so you didn’t realize that there was going to be the grade control challenge, I’m a little bit confused as to how it all…

Jeff Quartermaine

They are two separate issues. They are quite two separate issues.

Michael Slifirski

Right, okay. I got. The word sequential though that was the density of grade control wasn’t fully appreciated. I’m just a little bit confused as to how it all fits together.

Jeff Quartermaine

Okay. Well, let me, what it was we went into the ore body, go into the area. We needed to mine through the fringes first to get down to where we wanted to be. I mean we had a well-defined mining sequence. It was in that early stages on the fringes of the ore body that we were seeing discrepancies between the grade control model and ore that was reporting to the mill. Now if we look historically, we’ve done very well in the side in terms of our reconciliations and the numbers where down on where we had previously been.

So that was – at that point we realized we needed a higher density of drilling. At the same time, what we were doing was accelerating the amount of material being moved. And it was because of the grade control didn’t move quickly enough with the more intense drilling that those mining activities in that area caught up to the grade control.

Now, progressively during the quarter, we moved across to where the, we got to a point where we could be mining the base of the ore pits. And we – but the mining contract is done like moving this material, if they got a choice they would much rather move component material. And so I guess getting that material out just would take a little bit longer than what it does take to mine normal ore.

Michael Slifirski

Okay, thank you. Secondly, with respect to Côte d’Ivoire, not in the Newcrest quarterly that talked about some blocking of their access road by subset of disgruntled local community. Is it something going on the country that’s more perceivable or was that issues they’re facing pretty selectivity to think?

Jeff Quartermaine

I don’t know what Newcrest do to be frank. But I can absolutely hundred percent assure you, that at where we are, there is nothing, but one hundred percent support for this project, in fact our non-executive directors where on site last week up there and were blown away by the and little bit anxious I guess around the level of enthusiasm that there was in the community for the project particularly given now current propensity to be cautious with regard to global environment.

Now, the Côte d’Ivoire is a very good environment to operate good to say. And there is support for our activities at community level and very definitely at government level as well. And I can assure you that makes life a lot easier than the alternatives which we have experienced elsewhere.

Michael Slifirski

Yes. Okay, thank you. And then finally, your comments about the outlook for the plant, just try to put it altogether and understand whether that you expect unit costs to fall because of the reduced maintenance and the greater efficiency you get or rise because the ore hardness will increase, or stay stable because despite ore hardness you have those efficiencies from reduced maintenance, and so on.

Jeff Quartermaine

Well, I think on a net basis, we would expect to see improved efficiencies. As I said – the screen I think this – the major item of course of downtime, I mean that represents about 30% of that downtime. And fixing that would make that run a whole lot more efficiently and that’s clearly has to flow through into costs, et cetera, et cetera. The other thing that I should have mentioned that we are doing is that we are going to put in additional electric generating capacity on the side subset, we can be 100% self sufficient should we need it to be. At the present time, we get full power from the grid, as I said. And while it is fluky, it is a 100%. Now the thing is that part of the Ghana’s power is generated through hydro dams. And the level of the dams, well it’s come up just recently through the wet season, the next dry season we could see a similar situation to what we saw in the past.

So to prevent ourselves ever being in a position where we didn’t have full access to power we are putting in a diesel plant that will give us that power. The other thing that will also by keeping some of those units operating at all times, it will prevent this up and down aspect that comes around that through failure of the national grid. I mentioned before that that has an impact on us not only just in terms of downtime for the plant operating, but it also causes wear and tear on anything that’s got an electrical aspect to it, which is a large proportion of the plant.

And I think that by reducing that – that currents we are going to improve our maintenance – maintenance exercise as well. It’s surprising to me. The number of items we have had to replace or to repay that when you look at them on price value you would think that they would be the sort of things that should see the life of the project through, but it is the result of the fluctuations that we see in the power supply.

Michael Slifirski

Okay, thank you.


Thank you. There are no further questions at this time. I’ll now hand back to Mr. Quartermaine for any closing remarks.

Jeff Quartermaine

Okay. Thanks very much. And as I said, there have been some challenges this quarter, but we do believe that they are all capable of being dealt with. And we will be looking forward to reporting more positively next time around about three months from now. So thank you very much for your attendance today.


That does conclude our conference for today. Thank you for participating. You may now disconnect your lines.

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