OZ Minerals Ltd. (OZMLF) CEO Andrew Cole on Q4 2018 Results - Earnings Call Transcript

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About: OZ Minerals Limited (OZMLF)
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Earning Call Audio

OZ Minerals Ltd. (OTCPK:OZMLF) Q4 2018 Results Conference Call February 26, 2019 6:00 PM ET

Company Participants

Andrew Cole - Chief Executive Officer

Warrick Ranson - CFO

Conference Call Participants

Michael Slifirski - Crédit Suisse

Lyndon Fagan - JPMorgan

Daniel Morgan - UBS

Hayden Bairstow - Macquarie Group

David Radclyffe - Global Mining Research

Larry Hill - Canaccord

Brenton Saunders - Pendal Group

Paul Young - Goldman Sachs

Peter O'Connor - Shaw and Partners

Andrew Cole

Good morning, everybody. And welcome to our 2018 Full-Year Financial Results Conference Call. I'm joined here by our CFO, Warrick Ranson, who will do the bulk of the talking today and run through the financials. And there'll be plenty of time for Q&A at the end of the presentation to run through any queries. But before we get into the results, I would like to acknowledge the tragedy of the tailings storage facility Feijão in Brazil last month. It's a very sad time and we have offered our condolences to Vale and the people in the impacted region. We have felt this tragedy across the industry, and we will, in time, learn from it.

In this deck, we have provided you with a summary page on how OZ Minerals constructs, how we design, maintain and how we inspect our storage facilities. It also talks about the work we are doing to look at innovative tailings storage methods for consideration in our new development projects. As always, please note our disclaimer, which is available on our website if you'd like a more detailed read.

So let me start with the highlights of 2018. I'm really pleased to say that we achieved all of the objectives we set ourselves against the element of our strategy. 2018 is a successful year with another consistent and reliable performance from Prominent Hill, allowing us to significantly increase investment into our copper-focused growth strategy. We delivered an underlying net profit after tax of $228 million. Much of this detail will be covered in the upcoming slides, but you can see Prominent Hill's financial performance improved on the prior year with a 6% increase in underlying EBITDA.

There were also significant improvements in operating cash flows, which maintained our robust financial position with a closing cash balance of $505 million after substantial investment into our growth strategy. The board approved a second half fully franked dividend of $0.15 per share, which brings the total 2018 fully franked dividend to $0.23 per share. This is a 15% increase over 2017, which I think demonstrates the board's confidence in our strong ongoing cash generation and our ability to invest in growth and consistently reward our shareholders. 2018 marks the fourth consecutive year of achieving copper production guidance at Prominent Hill. In fact in 2018, the team exceeded both copper and gold production guidance and achieved bottom quartile operating costs below their guided ranges. Mine life was also further extended to 2030 with a 50% increase in proved underground ore reserves with underground expansion options now being reviewed.

The Carrapateena project is now in peak construction and is on track for commissioning in the fourth quarter of this year. The outcome of the Carrapateena Province expansion scoping study, which aims to maximize value from the Carrapateena ore body and the surrounding resources and mineralized bodies, will be released within the next month. The West Musgrave copper-nickel project pre-feasibility study is advancing, and we have seen positive early results from metallurgical test work and drilling activity. We have a number of new work packages underway, assessing supporting infrastructure and logistics. And we will continue to explore options to create an innovative mining province through completion of the pre-feasibility study as our knowledge of the regional and resource advances.

Our profits approach to deliver on a multi-asset copper-focused strategy has seen a platform for growth established in the Carajás and the Gurupi provinces in Brazil and a healthy, evolving portfolio of domestic and international exploration projects. These achievements were enabled by our focus on continually redefining our culture and embedding our devolved business model into the company. And I'm very proud of the efforts made by our teams and their achievements in this last year.

Our company snapshot map gives you an overview of our growing portfolio of assets and exploration projects. In 2018, we grew our exploration pipeline through new joint ventures in Australia, Sweden and in Peru as well as several highly prospective opportunities in Brazil. Since our Q4 results, we have entered into an exploration alliance with Red Metal Limited which has significantly increased our exploration footprint in Australia. But I'm going to touch on this a little later in the presentation.

On this map, you can see that we have built an extensive optionality into our portfolio, and we will continue to take a disciplined approach to capital management as we pursue opportunities in priority mineralized belts. Our indicative time line, which many of you will now be familiar with, highlights timing expectations for our operating assets and the projects in the build and study phases. At the Q4 results, we added the Carrapateena expansion time line and the Prominent Hill expansion time line, to give you an indication of schedules for these work streams. As I mentioned at that time, these two projects are quite material for OZ Minerals as they will build on our existing operations, so we are prioritizing our focus on these two initiatives. I would remind you that the milestones for these projects will continuously change as we gain further insight into the opportunities and the risks for each project. We will continue to prioritize capital and resources to the most value-accretive opportunities.

So moving now to the summary of the strong operating performance of Prom Hill in 2018. We exceeded 2018 guidance for both copper and gold. Our bottom quartile all-in sustaining and C1 costs were both below their guided ranges. This is the fourth consecutive year Prominent Hill has met or exceeded guidance, which have continued to demonstrate the reliability and the predictability of the asset. Mine life is again extended by another year to 2030, with a 50% increase in proved underground ore reserves. We also still have about 80 million tonnes of underground resource that is outside the stated reserve and not yet in our mine plan, which should give us future optionality.

In January, we were able to raise 2019 gold production guidance by about 15,000 ounces due to an increase in gold feed grade. We also announced plans to conduct a gold processing trial to assess recovery and mill throughput rates of stockpiled material with a view to bringing forward processing of the regular grade gold stockpile in place of the lower grade copper stockpile from 2020. In 2019, we'll be focused on safely achieving the ramp-up of the underground to 3.7 million to 4.0 million tonnes per year. In parallel to this, our Prom Hill expansion project, as it's looking at taking Prom Hill above 4 million tonnes per year, will continue with the resource drilling currently underway and a haulage feasibility study expected to finish later this year.

Now touching briefly on the evolution of our growth pipeline in 2018, you can see the expanding list of projects and exploration sites we have established, building extensive optionality into the portfolio. As I mentioned earlier, we recently entered into an exploration alliance with Red Metal Limited which has significantly increased our exploration footprint in Australia. This alliance was formed from our experience that we gained through working together with Red Metals on the Punt Hill project near Carrapateena. OZ Minerals has a two year option to fund a series of mutually-agreed proof-of-concept works programs on the six of Red Metals' early-stage projects, which provides a rare opportunity to gain access to large land holdings in terrains with a significant mineral endowment. In line with our exploration approach, OZ Minerals can withdraw from these individual projects within the alliance if they do not meet the company's value expectations.

So I'm now going to hand over to Warrick to speak through the financial results, please.

Warrick Ranson

Thanks, Andrew, and good morning, everyone. And it's certainly been a year of two halves in terms of the global copper market. However, we have continued to deliver against those market dynamics with another six months of strong operating performance. Our ongoing focus on both production and the control of costs has once again positioned us well to take full advantage of the broader pricing environment and build further on the strong financial results of 2017, especially when you take into account that we'll be expensed an additional $46 million in cost this year in developing our growth pipeline. Importantly, our general operating cost base continues to remain relatively resilient to the rising cost pressures impacting the industry more broadly.

Whilst our underlying net profit after tax of $228 million was in line with our 2017 operating result, the drawing on our previous investment in stockpiled material and a positive working capital movement over the year has meant that our operating cash flow was some $100 million more than the comparative period, which has supported the increase in our capital expenditure, the acquisition of Avanco and there remains of a strong cash position at the end of the year. And as Andrew has mentioned, the board has announced a fully franked dividend for 2018 -- fully franked final dividend, I should say, for 2018 of $0.15 per share.

Moving to the income statement. So total copper sales for the year are approximately 9,800 tonnes more than 2017. However, average U.S. dollar copper prices fell back in early -- fell back to early 2017 levels in the second half, reducing overall revenue despite the benefit of a lower Australian dollar. Lower [indiscernible] assets provided some offset with favorable market rates but we also have the opportunity to open up new markets this year with some variation in our geographic sales responding to customer demand for our high-grade product.

There are basically four areas that contributed to the change in our cost base. First one, Brazil added $36 million in absolute terms. However, Antas also added to the revenue base, of course. Noting, though, that we've only accounted for this operating asset from the second half. As I said, the investment in our growth pipeline added an additional $46 million. This included the expense complied of the West Musgrave pre-feas, the investment in additional exploration and scoping study for assessing the potential future expansion options for Carrapateena and the advancement of our exploration program in Brazil.

We also incurred a full year of higher power cost at Prominent Hill, which applies from the second half of 2017 and, therefore, right through 2018. But we've now moved to our new supply contract, which will see a reduction of around 20% of this cost as we previously advised. And importantly, we offset some of these areas by the solid operating cost performance of Prominent Hill as we continue to ramp up underground production rates. The team at Prominent Hill continue to focus on aspects of equipment productivity, labor availability and high overall underground efficiencies.

As reflected in the group segment report in the financial statements, the net depreciation and amortization expense was relatively unchanged year-on-year, even with the inclusion of Antas and the completion of our surface mining activities. The unwind of the depreciation component previously capitalized in the inventory will continue to be reflected here as we draw down the stockpile materials. In combination, these key factors contributed to the profit result we have been able to report today with net -- with the net EBITDA margin of 48% and 55% at the operating level and an underlying net profit after tax of $228 million, which has been a great result.

Slide 10, reflects the same story with a little bit more detail on our performance breakdown. I've touched on most of these items already, so I won't dwell on the detail here. Our effective tax rate for this year was just under 29%. Our earnings in Brazil are not proof for tax consolidation purposes. However, Antas does currently receive a reduced applicable tax rate under Brazil's mining investment incentive regime.

I would note that going forward, as we don't consolidate the Brazilian results for tax, you'll see some impact in our effective tax rate from things like the exploration expenditure in Brazil. And more broadly, as we develop the pipeline of projects in front of us, until they reach project capitalization stage, we will see a higher expense cost in this area. Our total franking credits, prior to today's dividend declaration and as reported in the accounts, was just under $172 million.

On cash. As mentioned, cash flow from operations remained extremely robust in the second half of the year, with positive movements in sales receivables, despite actually having our largest shipment of concentrate on record in December, and that was complemented by three full quarters of stockpile drawdown of the open cut material. We've again provided some additional guidance on the impact of this inventory drawdown on our depreciation and amortization numbers going forward as a supplementary slide at the back of today's pack. We also had a midyear payment from our 2017 residual tax provision relating to the period prior to us moving to pay-as-you-go installments, which has now extinguished our comparative company tax liability.

As we've discussed during our quarterlies, spending on Carrapateena continued through the year. And we'll experience some heavy periods of cash outflows between now and the end of this year as major work packages are completed. Spending on the Malu Paste Plant at Prominent Hill also began to accelerate in Q4. And of course, the Avanco acquisition, net of cash acquired, occurred in the first half. We continue to forecast that our current cash reserves will be substantially drawn down during 2019 in line with this expenditure.

On Slide 12, on the balance sheet, we've summarized a comparative year-end balance sheet. I've talked about some of these items already, but I'll just touch on a couple of key aspects here. Honestly, without wanting to go into the detail on this call, I think the principal items to note are obviously the related increase in property, plant and equipment. But also as previously advised, we accounted for an increase in our deferred tax liability given the fair value assessment of mineral rights acquired through the Avanco acquisition.

The increase in property, plant and equipment includes the Avanco assets at that gross value, the spend at Carrapateena and the ongoing Prominent Hill capital net of depreciation for the year. The increase in other assets relates primarily to the expenditure on West Musgrave, which we're now capitalizing, and the value of the technology asset we've developed through the work on the Concentrate Treatment Plant. Provisions also increased this year with the addition of the Antas mine rehab provision and the progressive unwinding of the provision for Prominent Hill. Our trade creditor profile increased in line with increased activity levels at Carrapateena. In summary, we continue to maintain a very strong balance sheet, positioning us well for pursuing the growth pathway ahead of us.

As Andrew has already highlighted, given the strong operating performance, the strength of our balance sheet and the expected movements of the positive pricing environment going forward, the board has declared a fully franked final dividend of $0.15 per share. This takes the total dividend for 2018 to $0.23 per share, reflecting a 32% return of funds to shareholders on an earnings per share basis or around 20% of our average pre-growth cash flow. Remaining cognizant of our commitments to the Carrapateena project and other development opportunities in our pipeline, whilst recognizing the importance of shareholder returns at the same time as allocating capital growth.

We remain committed to funding both the current capital requirements for Prominent Hill and the existing Carrapateena project from operating cash flow. As previously mentioned, we see opportunities for bespoke funding approaches in other areas, together with those operating cash flows and are comfortable taking on a level of debt when it makes sense to do so, within our stated risk profile. Our objective is to ensure we maintain sufficient headroom in our credit facilities to ensure we have the flexibility and optionality to continue that halfway.

2019 will, of course, be a year of major transition for OZ Minerals as we produce our first concentrate from Carrapateena and start feeding the lower-grade copper stockpile through the mill at Prominent Hill towards the end of the year. The continued development of our growth pipeline will result in additional cost to the P&L as we take it through the various project stage case until they get to the point of potential capitalization.

Back to you, Andrew.

Andrew Cole

Great. Thanks so much, Warrick. The next slide is an overview of the key milestones for 2019, which we also included in the Q4 results deck. So touching on the Q1 milestones highlighted. Firstly, we've now concluded studies on the Concentrate Treatment Plant. Through this process, we have gained a very deep body of knowledge through the studies and the pilot plants we ran, and we have defined the technical solution that can reliably produce a super-concentrate. These study outcomes, the engineering designs, build location and the baseline studies create an asset that provide us with the optionality for the future. We have, however, decided that we will not proceed with the construction of a CTP facility at this time.

Looking forward, over the next month, we will release the Carrapateena Province expansion scoping study, which I think is another critical milestone for this company. We will then also release an updated mineral resource for the Nebo-Babel project in the Musgrave Province, both as highlighted in the slide.

Let me now wrap up. 2018 has been a very successful year for OZ Minerals, both from an operating and financial perspective and in delivering our growth strategy. Another consistent and reliable year performance for Prominent Hill has allowed us to significantly increase our growth investment into the business and deliver an underlying EBITDA and underlying NPAT in line with 2017. A final fully franked dividend of $0.15 per share brings the total 2018 dividend to $0.23 per share, which is a 15% increase over last year. This demonstrates the board's confidence in our cash generation and ability to invest in growth and consistently reward shareholders.

Our priorities are set out and they are set for 2019: to deliver on our production and cost targets; commission the Carrapateena project; advance the Prominent Hill and Carrapateena Province expansion studies; optimize and develop the Brazilian asset portfolio, whilst continuing to evolve our modern mining culture, which we think is fundamental to how we create value for all of our stakeholders.

Warrick has highlighted the supplementary slides at the back of his presentation guiding depreciation for 2019, as he's already mentioned. And I would like to take this opportunity to thank all of the OZ Minerals employees and the stakeholders who have supported us through the year. I think I'm going to leave the presentation here to allow us plenty of time for Q&A.

So operator, can you please remind the participants how to ask questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Michael Slifirski with Crédit Suisse.

Michael Slifirski

I've got a few pretty easy ones, I think. First of all just some clarification. So with respect to D&A this year, what you report in your quarterlies, to that we just add the $95 million to $100 million and we allocate that according to, on an even basis, according to stockpile tonnes drawn. Is that right?

Andrew Cole

Yes, that's right, Michael.

Michael Slifirski

On the other expense, the 14.2, how did that swing from a 5 contribution to a 14.2 expense -- 5 in the first half, 14.2 expense in the second half?

Warrick Ranson

Sorry, we're just pulling out the information.

Michael Slifirski

Or more broadly, what's in that bucket to help us get that right? Because quite a swing from what the first half equivalent number was. If I'm assuming that there isn't an equivalent line item in the first half but the only -- some parallels line item was NRV adjustments, which was plus 5. Second half other expenses seems to replace that line item and it's minus 14.2. So just trying to bridge that so we can get that right when we model or perhaps we can't.

Warrick Ranson

Yes, I'll pull up the slide. The main contributor is really around the NRV adjustment that we pick up on the low-grade gold stockpile. That's been the primary contributor to that swing this year.

Michael Slifirski

So how can we project that?

Warrick Ranson

You can't. Really, we just -- I mean that's just a gradual unwind as we get closer to the stockpiles. So it's just really the discount from the existing balance and it's influenced a little bit by the gold price that were forecast. So I mean, you can basically apply the same sort of level, probably a little bit less because we saw an increase in gold this year. So just going forward, around about the same.

Michael Slifirski

Third simple one is exploration and project stage expensing, appreciate the guidance you've given. That's very helpful. First half, second half split, how do we think about that in the year we just completed? First half pretty low, second half dominated. Is that the way you'll continue to do it?

Warrick Ranson

I think you'd see a bit more of a -- more stable through 2019. Yes, I mean, I think you basically split it fairly evenly.

Michael Slifirski

The other question is Concentrate Treatment March quarter, is there any impact from the North Queensland floods? In that I think in the past you talked about the more challenging concentrate stays in country goes to Mount Isa, is that line accessible? Or could there be an impact to the March quarter if that material can't be placed?

Andrew Cole

Michael, we're not aware of any disruptions in any of our supply routes to our customers.

Michael Slifirski

Thanks for the stuff on the tailings dam and Antas being downstream, that's great. So is there any sort of thought-change with respect to permitting challenges in Brazil given the greater scrutiny on both tailings dams, environmental challenges and so on?

Andrew Cole

Michael, I think it's probably a bit early to be calling this. I mean, obviously there needs -- there'll be an investigation, I suspect, down in Brazil. And the outcomes of that investigation will determine what follow-up actions are taken by various departments, etcetera, in Brazil. Now we haven't seen that yet and I suspect it's probably not finished yet. So I wouldn't want to guess on what the implications would be. But I do think as an industry, we need to be much more -- we need to be scrutinizing tailings storage facilities more generally. And it's certainly something we've been talking about internally in OZ Minerals the last couple of years, about how we manage the threat of tailing dams and whilst we do a lot of work on our tailings storage facilities, and you'd be aware of the work we've done at Prominent Hill, for example, there still remains a risk with TSF facilities generally. So we would ideally love to eliminate that risk altogether if we can, which is why we're putting time and energy in alternate storage methods.

Michael Slifirski

And then finally the CTP, I'm just interested in understanding the decision that you came to, in that in the past, I think if I recall correctly, you've said it was always a strategic opportunity rather than an NPV opportunity, that was NPV-neutral but it was strategically important. So in your assessment to not proceed, what's sort of changed in your thinking?

Andrew Cole

So Michael, our view still holds. The CTP strategically would be a facility that we would love to have for the company. And when we originally embarked on this project, this is many years ago, five or six years ago, but more seriously in the last couple of years ago, it was an NPV-neutral project. But as we've got better understanding our products and as we've got better at generating different product types for different customers, the value contribution that CTP can add is diminished in time. So it just gets very difficult to defend outlaying the capital and the operating cost for a CTP facility to justify its construction. So whilst we'd love to strategically have one, it just doesn't financially make sense.

Operator

Your next question comes from Lyndon Fagan with JPMorgan. Please go ahead.

Lyndon Fagan

Look, the first question was just to try and circle back on the 5% life of mine all-in sustaining cost increase at Carra. I guess since you sort of first put that out, I'm still trying to work out the line items that contribute to that. So could we perhaps revisit what the total CapEx is to get Carrapateena to full production in the first instance?

Andrew Cole

When you say full production, you mean post ramp-up, Lyndon, are you talking about?

Lyndon Fagan

Well I guess, you've given us CapEx guidance for this year but you don't get to full production this year. But yes, I mean that's probably the best way to define it. To get it fully ramped up, what do you need to spend on CapEx for the whole project?

Andrew Cole

Yes, Lyndon, look, what the numbers that we've given you today, which we are standing by, is the 916 million that came out by the FSU to commission Carrapateena in Q4 this year, and we're on track for that project and that construction, that commissioning date. We've also given you that we expect and our base case is it will take us 18 months to ramp up from the commissioning date to full production, and that's mid-2021 thereabouts. You have to go back to the PFS to see your capital numbers because we haven't given you the capital breakdown year-by-year because we don't issue guidance for multiple years in advance. So we've given you the guidance to get you this year. And at the end of this year, I suspect we'll be able to start giving you guidance for the following year on what sustaining and development capital looks like. So I can't give you the number, the capital number, if you like, concerning mid-2021 because we haven't actually disclosed that beyond the PFS.

Lyndon Fagan

I guess part of the confusion is that the 916 million hasn't really changed, yet some of the initial CapEx is happening after first production. Now there's been a time line change for some of those items. So given that, are you able to, at least, give us what number is associated with those items, the access rate, et cetera?

Andrew Cole

Yes, sure. So Lyndon, you need to remember that in a sublevel caving project, there is fairly material development capital life of mine. So there are three crushing chambers in the sublevel cave development, which get installed at various points in time, and we're developing development and extraction levels and vent rises to the life of mine. So there is a high capital element through the life of mine for Carrapateena. And that's an ongoing process with the design of sublevel caves generally.

So in terms of the things we've changed over the last year or so, you'll recall we deferred the Western Access Road. So that originally was going to be built, I think, this year, and we pushed that out to 2020. And we'll talk more about the Western Access Road when we release the scoping study for Carrapateena expansion. The reason we delayed it, one of the reasons we delayed it is because the design of the Western Access Road could change if we pursue an expansion option at Carrapateena. So we don't critically need the Western Access Road today. We're using the Southern Access Road, and that's getting us through the construction and it will get us through the ramp-up period. So that was one of the big changes.

One of the second changes was, I think, last year we put a large diameter geotechnical drill hole right through the development area of the sublevel cave. And we took a whole raft of stress measurements in that hole. And as a result of those stress measurements, we ended up rotating the design for Carrapateena. And that rotation of the design also incurred some extra development, extra operating costs. So they're a couple of the big ones. And when you play all that through, you end up getting a slight increase in the

end up getting a slight increase in the all-in sustaining costs.

Lyndon Fagan

Maybe I'll leave it there. The payment to tech of $50-odd million, when does that happen? Is that fourth quarter this year? Or do you need to sort of declare commercial production or something like that?

Andrew Cole

I think when it triggers commercial production, when did we schedule that? Next year.

Warrick Ranson

Yes, it's going to be early in 2020.

Lyndon Fagan

And then the final question, just wondering how much you spent in total on the CTP.

Andrew Cole

This one's yours, Warrick.

Warrick Ranson

I think we've actually just disclosed that. What we're carrying in the balance sheet, in other assets, Lyndon, is about $33 million.

Lyndon Fagan

So you need to look at an impairment of that now? Or is -- how do you get a benefit from those assets going forward?

Warrick Ranson

No, no. Again, one, I suppose, the way that we've considered it is that there's lot of IP and technology know-how as far as being build up in that. What we have decided and what you'll see in the accounts when you have a chance to have a look at them is that we'll amortize it over a five year period because if we -- obviously if we're not developing any within that period, the value of that will decline. So right today, we've seen certainly see the value, and as Andrew mentioned around the strategic elements of that, having that knowledge, having that technical know-how, if we need to bring it on has justified the capitalization of that but we will amortize it over about -- over the next five years.

Operator

Your next question comes from Daniel Morgan with UBS.

Daniel Morgan

Andrew, just on Carrapateena, just a quick update on the critical path you took, and the time line in the past has been the development meters. Is that still the case? Is there anything else in the development of Carrapateena that is creeping in towards the critical path or worrying you? Just wondering if you could expand on that.

Andrew Cole

No, look, in essence nothing's changed from the Q4 when we gave a good update on Carrapateena. Critical path for Carra is still underground development. And as I said then, I still suspect it's going to be underground development right through commissioning and then it'll be about underground cave propagation through ramp-up. So that's still my current view on Carra. Underground is going well though. They will progress on the first crusher chamber. We are almost at the top of the orebody. So it won't be long before we start actually developing or generating some development ore out of the top of the orebody. So that's all going well. Surface infrastructure is going full bore, camps full, as we've now got start-up into the year. So the plant construction itself is going well also. So in essence, Daniel, nothing's changed. I think the project's ticking along very well.

Daniel Morgan

And a couple of follow-up questions. So the Carrapateena expansion study is due out in the next month. I presume you're going to be releasing that to the market and we expect a presentation of that. And also, is that going to be wrapped up with the resource? I think you were going to say you're going to put out a resource on -- an update on the Nebo-Babel project as well. Is that wrapped up together?

Andrew Cole

Daniel, I don't think they'll be wrapped up together. I think there'll be separate releases. I just don't think the timing is going to allow us to do them together. We'll release them, obviously, once they're done. And I don't think, looking at the schedules, they're going to be done at the same time. So we will distribute a release for the Carra expansion scoping study and the next steps. But there's going to have to be a separate release, I suspect after Carra expansion, on Nebo Babel.

Daniel Morgan

Okay. And then just one last question. It's been a little bit of a topic amongst many companies during reporting season, has been the franking credit balances. Just wondering if you can talk through the decision on the dividend and why you might not have tried to release more franking credits.

Andrew Cole

Well, I think -- we had the board meeting last night on this and the -- I think the fact that we've increased our dividend and the use of franking credits is a positive indicator that we're confident in the cash flows that we're generating, and that -- I hope that it's a signal that we are rewarding shareholders consistently as we've said repeatedly. So I think that should be received well by the market. And it should give you encouragement that we're confident of the cash we're generating despite having a good growth pipeline and putting more money into the growth. Whether the board wants to use more of those franking credits or not is a future decision, but you do need to remember that Carrapateena has got -- still got half of the investment ahead of it through the course of this year. So the cash on the balance sheet is, right today, destined for Carrapateena construction. So it's about getting that balance right.

Operator

Your next question comes from Hayden Bairstow with Macquarie Group. Please go ahead.

Hayden Bairstow

Andrew, I just wanted a quick update on the sort of project pipeline. I mean, obviously, you've got loads of announcements and stuff coming out this year. I mean is there -- you're still pushing things through the top end of that probably -- other exploration deals. But do you sort of consider yourself effectively full up this year given everything that's on? Or are you actually looking to add in further sort of more advanced-stage projects that could be closer to production? Just keen to understand where you think the capacity of the business is given that I assume Brazil will maybe require a little bit more attention from the approval's point of view than maybe was the case previously.

Andrew Cole

Yes, good question, Hayden. Look, we've certainly got a very strong pipeline and having that pipeline of options is important as we've talked about many times. I expect a number of the things sitting in our pipeline to either progress this year further to the right. So mature in our understanding of them and more favorable or exit. There are a number of projects in there that will have drill programs on them this year that will either generate good results and allow us to progress or they'll be out. So it is important to maintain the process of looking for new opportunities to come into the pipeline. These things cannot just sit there and stagnate. We've got to be agile and move them through quickly. So the team that has put these projects into the pipeline is still looking at new stuff whilst they're actively pushing these projects through the pipeline.

And look, we're always looking for projects that can generate a better value return for our stakeholders. And if we can find something better that will displace something, then we'll take it and we'll displace it. And that's why I've said that the time line that we have given you in that time line chart will change. We will push and slow projects as the value and risk dictates. So we're not wedded to the time lines and we're going to move these things around based on value and risk.

Operator

[Operator Instructions] Your next question comes from David Radclyffe with Global Mining Research. Please go ahead.

David Radclyffe

So firstly, just wanted to follow up on your slides on tailings, a little bit more specific I guess. So in terms of Carra, have you actually looked at the potential cost of changing the stage three to six lifts from upstream to downstream? I'm just wondering here if it's actually even material in sort of the life of mine sustaining CapEx for the project.

Andrew Cole

A couple of parts to that, so the future lifts are fair way down the life of mine, obviously. So they're not anytime soon. But those upstream lifts are complemented in the current design by downstream rock armoring. So they're not straight upstream lifts. They're more hybrid lifts. So I think that you need to make that differentiation because it does make a difference to design and stability. But putting that aside for a second, as part of the Carrapateena expansion scoping study, we are looking at alternate tailings storage facility methodologies.

David Radclyffe

Then look, coming back to Brazil again, how confident are you really that you can get the installation license for Pedra Branca late this year? And can you perhaps provide a little bit more color on, I guess, the tone of the recent interactions you've had with the relevant government departments in Brazil, as to give us an idea whether it's still relatively normal business with them? Or everything is just frozen until they work out what to do given the recent events?

Andrew Cole

So look, just looking backwards for a minute. Firstly we just received one of the critical licenses to Pedra Branca. We received that at the end of last year. So that was the main one, the environmental license. So I think that was a really positive milestone for Pedra Branca and the team that put the approvals process together and been managing that. So I think that's important firstly. Secondly, as you can probably imagine in Brazil, people are pretty highly focused at the moment, looking after people and communities and making sure that they are taken care of first. There's also an investigation underway in Brazil on the tragedy of the tailings storage facility. So we cannot really preempt what's going to come out of that. We are working, though, and have continued to work on the removal of the injunction of CentroGold and the permitting process of Pedra Branca. And we have not yet seen any change in approach or behavior to those processes in our engagements with those departments.

Operator

Your next question comes from Brenton Saunders with Pendal Group. Please go ahead. Your next question comes from Larry Hill with Canaccord. Please go ahead.

Larry Hill

Just a quick one around understanding your early comment around that large diamond hole that you drilled at Carrapateena, provided some measurements of stress that changed the orientation of the mine. Does that have any sort of flow-on learnings for the expansion study around the application of block cave at Carrapateena? And also, would you look at doing a large diamond hole at Freo Doctor or [indiscernible]?

Andrew Cole

Yes. Hi, Larry. So yes, it does have a bearing. So the geotechnical measurements that were taken for the sublevel cave final designs obviously feed into any sort of expansion project that we would put at Carrapateena. And the team has been using that information and lots of other information in their scoping study designs. Geotechnical measurements for future work at Carrapateena will be important. But I think the key enabler for any future expansion at Carrapateena is actually getting into the sublevel cave, getting it running, getting it operating to really understand how the ground performs. That will be the true data set that we can use for any sort of potential expansion. But look, we'll probably -- we'll talk more about this after we've completed the scoping study, the Carrapateena expansion scoping study, and release that. But yes, absolutely. That data is getting used in the future expansion designs.

Larry Hill

Yes. And just a quick follow-up around the regional targets. Will there be any sort of information in the expansion scoping study around what gets prioritized out of Khamsin or Freo Doctor or just the regional opportunities?

Andrew Cole

We will talk a little bit about that as part of the problems, Larry, when we release the scoping study for the expansion case.

Operator

Your next question comes from Brenton Saunders with Pendal Group.

Brenton Saunders

Sorry, my question has been answered.

Operator

Your next question comes from Paul Young with Goldman Sachs.

Paul Young

What's the date of first ore to mill at Carrapateena?

Andrew Cole

First ore to mill, we've left it at Q4 right now. So is that what you're asking when we're commissioning the mill?

Paul Young

Yes, yes, so hard commissioning, when are you putting first ore through the mill? What month, what days?

Andrew Cole

Yes, so we haven't given you a date, we've left it at Q4 right now. The commissioning process goes -- it's a long process, obviously. It starts with dry, then wet and then the ore. And right now we're sticking with Q4. So we'll give you a date as we get closer to that. As you can appreciate, we've still got a bit of the plant to construct. So I don't particularly want to nail down a date just yet.

Paul Young

Yes, obviously, you've got one in your schedule, but yes, okay, we'll leave it with 4Q. Just on the scoping study at Carrapateena, Andrew, obviously, all will be revealed in the next month, but just conceptually, are you looking at a block cave below the sublevel cave or next to it?

Andrew Cole

Paul, I can't really answer that question, of the Carrapateena expansion scoping study. So look, we've considered a whole raft of options. As I've mentioned before, we've considered, bigger sublevel caves, bigger block caves, block caves below the sublevel cave, block caves beside the sublevel cave. We've also looked at caving methodologies at Freo Doctor, Saddle and Khamsin and how they can all fit together. And the results of the scoping study is to give an indication as to how we think they sequence and what next steps might look like.

Paul Young

Just on Prominent Hill, noticed you've been mining well above reserve grade since the underground started up. When do you expect actually for underground grades to actually trend back to reserve grade?

Andrew Cole

Well, it's going to be a progression. So value obviously drives you to mine higher grade first. The fact that the whole lot is in reserve means we combine it economically for the entire period. But it will be a gradual trend from now through life of mine, which right now is 2030.

Paul Young

So in that effect, we should actually be modeling below reserve grade at some point?

Andrew Cole

Absolutely, yes. If you take in higher grade first, at some point your mine is lower grade. Now that's an optimization process we run through every year, of course. And as we extend the reserve, you go through a re-optimization process and that profile will change.

Paul Young

Yes, fair enough. Okay. And then on the haulage study, are you looking at conveyor haulage as one of the options?

Andrew Cole

Are you talking about Prom Hill, Paul?

Paul Young

That's correct.

Andrew Cole

Yes, we are. So we're looking at trucking and various truck loops and various access, ways of getting trucks underground. We're looking at vertical conveying shafts and incline conveying.

Paul Young

Just last quick one on West Musgrave. Obviously pretty remote, big project, low grade. What do you need to see out of PFS to give you, I guess, confidence to progress to the feasibility -- to an FS?

Andrew Cole

Look, we want to see value obviously, substantial value. And we want to see risks that are not fatal and that we can manage in the very highest level. I'll just correct one thing you said, though. When you say low grade, if you look at copper equivalent, it's well over 1% and it's open-pitable. I don't think 1% open-pitable is all that low grade, necessarily, not when the global average copper is 0.5% or 0.6% maybe. So it is remote, but that's effectively something that can be paid for through scale. And it's about scale of infrastructure and trucking costs, et cetera. So that's what we're all piecing together at the moment to see if that economic case works.

Operator

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

Michael Slifirski

And I'm coming back really with the same question about -- around the NRV, because I simply don't understand it. You started with a first half of positive 5. September quarter was positive 14. December was negative 3, which gets you to a net 16 and reported it as negative 14.2. So what else was in that number to give that big swing?

Warrick Ranson

We might -- maybe we can take that off-line, Michael. We're going back to it.

Michael Slifirski

Yes, okay. Yes. That's fine.

Andrew Cole

We're getting back to him?

Warrick Ranson

Yes.

Operator

Thank you. Your next question comes from Peter O'Connor with Shaw and Partners. Please go ahead.

Peter O'Connor

Just the data getting me -- I wanted to ask you more about this large diamond hole. I'm intrigued. So firstly, is it a principal stress orientation that you were looking for, and is that how you've realigned the sublevel cave? And secondly, just thinking more holistically, you're an incredibly detailed person and your systems and processes are all -- are incredibly detailed and method-driven. It kind of feels like a little bit late to be putting a large diamond drill hole down and changing your sublevel cave orientation at this point. Was it -- is it an oversight? Or is this additional risk reduction?

Andrew Cole

Just reflecting on whether I'm a detailed person. Was it an oversight? No, I think it's just about managing risks as you go. The orientation of the cave was never a fatal flaw, and this goes back to our primary methodology of progressing projects. So it's about identifying fatal flaws. And if you have a fatal flaw in the project, then you must address it to proceed to the next stage gate. And this orientation of the cave, as a result of understanding more accurately the principal stress, was not a fatal flaw for the design of the sublevel cave. We understood enough about the stress regime, based on previous work, to say that whether there'd be a reorientation or not, would not change the overall economics or the detailed design at the point we were at.

So no, I don't think it was an oversight. I don't think it was done too late. And the fact that it changed the orientation of the cave was well in advance of having to actually do the detailed design, let alone the actual development. So I think we're quite comfortable with the way it sits and it fits with our methodology on projects. As I've mentioned before, at a higher level, if you do all of these activities right up front, you add years to the study and development timeline. So it's a continual trade-off between risk, value and schedule. That's something that we actively do on all these projects.

Peter O'Connor

Perhaps as a follow-up, how deep was that hole? And then following up from that, how does principal stress change with the depth, is this continuous throughout the entire ore body?

Andrew Cole

How deep was the hole? I can't remember the total number but it went through the sublevel cave, well, actually the sublevel cave development, so I don't want to get to the number but it went through the whole sublevel cave development profile, Peter. And we effectively rotated a set angle from top to bottom, more or less, so it'll give you an idea of the stress direction, or the stress magnitude, or the lack of change above the ore body.

Operator

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

Andrew Cole

Okay. Thanks, operator. Thanks, everybody, for joining the call. If you have any questions, please get in touch with Tom, and we'll organize for the right people to help answer those questions. Thanks, everybody.