Regis Resources' (RGRNF) CEO Jim Beyer on Q3 2021 Results - Earnings Call Transcript
Regis Resources Limited (OTCPK:RGRNF) Q3 2021 Earnings Conference Call April 29, 2021 8:30 PM ET
Company Participants
Jim Beyer – Managing Director and Chief Executive Officer
Conference Call Participants
Alex Barkley – Morgan Stanley Australia
David Coates – Bell Potter Securities
Al Harvey – JPMorgan
Matthew Frydman – Goldman Sachs
Jim Beyer
Good morning, everyone. Thanks for joining us on the Regis Resources March 2021 Quarter Update. I know the quarterly were released earlier today and may, on some occasions, make reference to some of those diagrams. Well, what a quarter and a bit it’s certainly been for us, certainly the bit into the – in April. I’m very pleased to report that our key safety metric continues to improve, as we saw the 12-month moving average lost time injury frequency rate continued to drop.
It dropped 40% from – to 1.4 from 2.4 at the end of the prior quarter in December. This is a great ongoing trend, and we’ll continue to focus on the leadership and the role it’s providing in improving our safety and overall operations. As you’re undoubtedly aware, COVID likes to rear its ugly head periodically to remind us that it’s still there. And the recent community outbreak here in Western Australia did cause some minor conditions for us on site, as we had people who had been in the hotspots. But this was managed well by our protocols and our team on site, and our approach has not really – and that approach really hasn’t altered over the quarter or, in fact, over the year.
To date, there have been no confirmed cases of COVID-19 on the site and the impact to operations into the business have been controlled and well-managed by the team, albeit with the marginal impact on costs. Like many, we now await details of the vaccine and how this will be implemented across business and broader society. I’d like to take this opportunity as well to acknowledge and thank the employees and contractors and all their families and all our families for continuing to support and deliver it during this what at times can be quite enduring conditions.
On the production front, we made 86,000 – approximately 86,000 ounces of gold for the quarter, which was down slightly on the 91,000 from the prior quarter, giving a year-to-date of 258,726. Moolart was down very slightly to 22,000, down from 23,000 in the previous quarter, and that was principally driven by slightly lower ore tonnes milled in a slightly shorter quarter.
At Garden Well, production was 37,000 ounces, which was down 19% on the prior quarter. Operations at Garden Well were certainly impacted by a mill pinion failure that occurred. We lost about 100 hours of lost production, along with lower feed and recoveries during the quarter. These were a result of rescheduling our pits, and – which gave us an increase in proportion of some metallurgically difficult ore presenting from Tooheys Well as we got on top of that.
And also, we struggled with some low ore haulage productivities due to some wet weather, which just altered the timing of the feed of good grade material to our mill. The rescheduling that I mentioned earlier on was a result of the geotechnical issues that we’ve reported in the previous quarter, just working its way through our schedules. Production from Rosemont was 26,700 ounces, well up on the 22,500 for the prior quarter. And the increased contribution from the underground is now becoming quite clear. And grades from the underground have continued to lift.
The overall underground ounce contribution for the quarter was about 10%, leading into the quarter. But in March – in the month of March, the ounces represented 25%, which is around about what we expect to see in Q4. So we’re very pleased to see that Rosemont Underground has started to deliver on what we were looking for, particularly from the high-grade Main Zone, which we’re now producing from. On the cost front, the Duketon cash costs before royalties increased for the quarter to $1,074, up about $50 from the December quarter and year-to-date it’s $1,160 an ounce.
The increase in cash costs before royalties is due to the lower production in the March quarter. That’s the direct relationship. Our all-in sustaining was up slightly to $1,388 with year-to-date at $1,366. The increase in unit costs, again, driven by the lower productions, as I mentioned, although it is worth noting that there was a 10% reduction in all-in sustaining at Rosemont, again, off the ounces produced from underground, again, reflecting that relationship clearly between production and unit costs.
Growth capital for the quarter was down to $20.3 million, giving a total year-to-date of $57 million. The spend here was primarily related to mine development at Moolart, Dogbolter-Coopers pit, Rosemont Underground and, of course, the new starts that were underway at Garden Well. In summary, our operations cash flow was a bit over $67 million and then the major deductions being $33.7 million on capitalized mining costs, $6.6 million on exploration and feasibility. Now that includes McPhillamys spend and $5.5 million on other minor items and corporate costs.
And then after that, we saw around – the external – additional cash outflows, $16.8 million in cash dividends that we paid. That was from a declared of approximately $21 million. And we didn’t pay the full amount because shareholders – there were a number of shareholders that participated in the DRP and invested $3.7 million back into the business, which, by the way, brings our total dividends paid now to over $0.5 billion. And the other cash outflow was, of course, income tax of $19.5 million.
Now these extra outflows left us with a cash and equivalent of just over $202 million for the end of the March quarter. On the hedging front, as previously reported, the company is undertaking the program of its long-held spot deferred hedging position, and we’re delivering at a rate of 20,000 ounces a quarter into its lowest priced hedges. We’re now at a point where the remaining hedges are just under 338,000 ounces, and this represents less than a year’s production or 17% of our reserves at Duketon alone, 8%, including McPhillamys. So we’re really cutting into that.
On the guidance front, our full year guidance remains 355,000 to 380,000 ounces produced at an all-in sustaining of AUD1,230 to AUD1,300 per ounce. Now the company maintains its guidance and notes that the year-to-date production of approximately 259,000, the planned strong final quarter relies particularly on the continuing sustained uplift of production performance from Rosemont Underground.
Other key areas that have the potential to impact are pit geotech, plant performance, contractor productivities, none of which we’re anticipating and always aware of, but just wanted to point out. Of course, in addition to that, the COVID impacts still sit out there. When we think we’ve got it under control, they do pop up and cause us potential. Certainly, with the uncertainty with – at the moment, with the recently implemented lockdown, although it looks like we’re coming out of that, hopefully, it stays that way.
Anything tighter has the potential to cause some restrictions. I would note as well on the unit cost, as I’ve said before, key drivers as we soar our production and hence, our final all-in sustaining will hang off the production, but I’m sure you understand – will understand that relationship. So on our value growth projects, where to begin? We announced a conditional binding agreement with IGO to acquire its 30% interest in the Tropicana Gold Project. This $903 million deal is transformational for Regis, and will deliver a well-established long-life asset into our portfolio.
It’s Tier 1 asset, Tier 1 province, attributable reserves of 0.8 million ounces, attributable resource of 2.3 million ounces, a history of reserve replacement, a production growth profile outlook, expected mine life of 10-plus years. And I do note that their guidance for FY2021 is 380,000 to 430,000 ounces. I’m also pleased to note that in the last week or so – or last week that Anglo Ashanti have waived their rights on the preemption. This $903 million cash payment is being funded through $650 million raising in equity and a $300 million syndicated loan, both underwritten by Bank of America.
It goes without saying we really like this asset and see a great near-term and long-term value with great potential for further life extensions of the mine beyond its current plans. Now on the mill grades, organically has been delivered as well. Our group ore reserves increased by 11% from 3.6 million to 4 million ounces. Now that’s a 20% increase after you account for mining depletion. And this also – this includes the Ben Hur reserves of 130,000 ounces, which is a nice little pickup that we got last year.
Group resources have also increased by 5% from 7.7 to 8.1, again, 9% increase after accounting for depletion. Now this update has delivered an increased reserve life at DNO and DSO and pushed it out for seven years. I would draw your attention to Figure 2 in the release. It’s a very simple data set, but what it does is it plots the ounces in resource and reserves, and it also plots on top cumulative with the cumulative production. And really, the intent here is to illustrate the steady growth in the gold endowment that we’ve got at Duketon. There’s some real value generation that’s going – that has gone on and continues to be delivered here.
On the subject of value growth, our new Garden Well Underground site establishment works are well underway. And the portal has been completed. The initial decline development, we’ve got about 36 meters in – of horizontal development commenced during the quarter. Now this feasibility study material – the mining that we’re coming out there will be about 1.85 million tonnes at a grade of 3.2 for about 190,000 ounces. We – and once mining is established, work will certainly continue to grow this potential by drilling from the underground platform where it will be a lot more targeted and cost-effective.
I would also note that in the same way that it is at Rosemont, this mineralization is open at depth. So we see this is just the beginning. It’s a nice addition to our stable of production sources. And look, while I’m on Garden Well, I draw your attention to the – in Figure 6, the drilling that we’re doing in the north area just a few hundred meters north of Garden Well South Underground. You can see the exploration drilling there. It’s got the potential for another new underground development area.
Some of the grades there, 7.6 meters at 2.6, 1 meter at 22 grams a tonne, 2.6 meters at 6 grams a tonne, 2.9 meters at 5.9 grams a tonne. I mean this is obviously shaping up to be – to have some great potential and a very valuable addition to our Garden Well South opportunity. At McPhillamys, the assessment phase of the DA, the development application, is hopefully heading to conclusion with DPIE, the Department of Planning, Industry and Environment.
We continue to work constructively with DPIE in relation to the permitting for the McPhillamys project. And we remain confident that a recommendation to the IPC and subsequent determination on the project is likely in the first half of FY2022. In the meantime, we’re not sitting and idling. The project team is continuing to progress its detailed design phase in all areas, including mining, processing, the site infrastructure, water delivery infrastructure and power supply.
As the project has continued to progress through the approvals, Regis has been updating the scope with any material changes required since the original PFS back in 2017, and I’ve discussed this in the past. In summary, at McPhillamys, works are underway to ensure that in the event of a favorable decision from the IPC, it will be ready for an FID and effectively be shovel-ready as soon as practical after that.
I’ll now turn my comments to our organic growth opportunities in exploration. I’ve already mentioned Garden Well, so I won’t dwell on that. Rosemont Underground, the deep drilling program has been testing the mineralization, continuing down plunge, and we’re seeing some very encouraging and supportive data coming out there. We’ve also – a target area has now been – a new target area is being confirmed and will now form part of our underground planning in terms of additional development for drilling access and when – scheduling and the like. We’ve also additional interest in recent intercepts at the very south end of this mineralization, as you can see it on Figure 7.
And I won’t go through all of the intercepts there, but we’ve got 8.8 meters at 3.6, 1.4 meters at 10.9 grams a tonne and a 0.4 meter intercept at 87 grams a tonne. These are obviously in areas that we haven’t – as you can see from the diagram, in areas that we haven’t got designs around. So this has got the potential to be another new area that’s opening up. It’s very interesting. And our team on site as well are identifying some other opportunities near the existing development, which we’re only just starting to get our heads around.
At Gloster, we keep building, getting more information. There’s a series of extremely encouraging intercepts there, 1 meter at 10 grams, 2 meters at 8.4 grams a tonne. We’re now getting to the stage where, I think, the drilling program is starting to wrap up there. And now we’ve just got to start to pull that together into a structure that allows us to assess it from a mine-ability point of view.
More broadly, on the exploration front, I won’t go through the rest of the info that’s in the release. But we continue to pursue our highest priority targets along the Risden Well trend and they continue to be tested. There’s very enthusiastic and exciting information coming out there. And as material discoveries come forward, we’ll keep you updated.
So in summary, the quarter and considering April, we had very pleasing results on the safety front, but as always, there’s always more to do on safety. Rosemont Underground, there’s lifting in production, building in its contribution to our plans of growth and are key to meeting our guidance in this final quarter. Commencement of the underground Garden Well South project at the – with its clear potential for more at depth. And also the – it’s very exciting to see the potential underneath the northern area or under the northern area, the main pit. Progress does continue and made in the formal process at McPhillamys.
Our resource and reserves growth, we replaced depletion, and we’ve extended the life out to seven years at Duketon. That’s a great outcome. And finally, the announcement, of course, and the subsequent progress of the acquisition of the 30% interest in the Tier 1 Tropicana Gold Mine and its transformational impact for Regis. I mean it’s been a great quarter for value growth. There’s no doubt about it. All right. Well, look, I’ll hand it back to you, Anne, and we’ll open it up to any questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Alex Barkley from Morgan Stanley Australia. Please go ahead.
Alex Barkley
Hi Jim and team. So firstly, on Garden Well. Those pit scheduling issues that have presented the metallurgically difficult ore, is that finished as a problem or likely to persist in the fourth quarter?
Jim Beyer
Yes, that material actually comes from other pits, Tooheys Well and a couple of other spots. It’s because of some of the scheduling, we ended up with a bit more – you have to feed material in at a certain ratio to keep it balanced. And as we went through and rescheduled, we had a higher proportion of that feed than we would normally do, and it was a little bit more tricky to manage. And – but the guys are on top of it now.
We had to make sure we’re keeping the oxygen levels up and the like. There’s – it was an issue. I don’t see it as being a material issue. It was just one of a number of things that the team was dealing with there. I think there’s a lot more control on that now. And a much clearer understanding of how to balance that feed ratios to keep that – the impacts under control.
Alex Barkley
Okay. Sure. And on Rosemont Underground, what sort of split of ore would you be looking at from the Main versus South Zone over the next few quarters? And what does that do for grades in your fourth quarter and beyond? And just as an additional question, how is the Main Zone reconciled versus planned grades and recovery so far, although still early days, though, I guess?
Jim Beyer
Yes. Look, it is very early days. I mean we’ve only just – there’s a lot of – it’s quite interesting, actually. There’s – we’ve done an enormous amount of diamond drilling now. We had – you all looked at the Rosemont Underground way back when it was approved, when it was over 2.5 years ago now back in mid-2018, I think, it was. It was really done off RC drilling from the surface, a handful of diamond drill holes. And it was – which is – it was as much knowing that the gold was there, but needing to get the detail before we could do the plans.
And I think as we went down, we targeted the south area first, which was the lower grades. It was a lot scratchier. But now that we’re into the Main Zone, we’ve recognized that we’ve had to basically reschedule out and make sure we gave sufficient time for diamond drilling so that we could accurately both model and – both model the resource and also model the orebody so that we knew much more accurately where to put the development. So there’s a lot of works being done on that now. And I think we’ve got an order of magnitude understanding of the orebodies today than we did even nine months ago. And frankly, that’s been a little bit of the – this reason for the slower start from where we were, assuming probably this time last year that Rosemont would be in its delivery.
We are pleased with the way – with the results that we’re getting out now against what we have been anticipating from these recent stopes that we’re mining out of the Main Zone. And we’re also – we’re back drilling in the South Zone and getting much more accurate information, and we’re pleased with the reconciliations that we’re getting there as well. Now we’ve only just started to scratch main zone, but we’re pleased with what we’ve seen so far. But we’ve really – I think we’re now on our – I think – I think we’ve finished our second stope coming out of main zone and about to get into the third. We had a little bit of a hiatus last week because we were – we had to shut that part of the mine down for about four days while we upgraded the ventilation we needed to – it was a scheduled change. It wasn’t an unplanned outage, but we’re back in there producing now.
So yes, certainly, in terms of the exact tonnage split as to the split between what’s coming from the main and coming from the south, look, it’s predominantly coming from the main at the moment. We are supplementing it with south stope and development ore. I will give some more guidance on how the Rosemont Underground will contribute into next year when we give the guidance for next year because we’re just working through the details of that now as we get this updated – the drilling information. But certainly, for the rest of this year, the key production, high-grade production is coming from the Main Zone. And we’re very heavily reliant on that continuing to perform as it did during March.
Alex Barkley
Okay. And I suppose the grade should lift up from that 3.3 March quarter. Are you able to put a number on what that might be fourth quarter?
Jim Beyer
No. Not at this point.
Alex Barkley
Okay, no problem. All right. Thanks. That’s all from me.
Jim Beyer
But obviously, we expect it will be – that number or north because it was north of that. Because it’s stepping up – up until just basically March, the overall, the contribution from the underground was significantly to our – the whole site’s production was significantly less than what it is now. So we’re really starting it to basically step up and deliver on what we were wanting it to. If I look at the total production – total contribution of Rosemont Underground to the ounces in the lead up through most of the year, it was probably oscillating around 10% or so. But in March, it contributed about 20%, 25% of the total ounces. So it’s really starting to kick in and deliver what we required it – we were wanting it to.
Alex Barkley
Okay, thanks.
Operator
Thank you. Your next question comes from David Coates from Bell Potter Securities. Please go ahead.
David Coates
Good morning, Jim, Jon. Thanks so much for the call this morning.
Jim Beyer
Good morning, David.
David Coates
Good background now on Rosemont, so I won’t touch on that again. But I was wondering if you can just run us through the mechanics of the completion of the Tropicana acquisition. How we should sort of expect that to pan out? And secondly, the timing of an updated DFS on McPhillamys, are you able to give us what the timeline for that’s going to look like, assuming you’re starting with, hopefully, approval by the final New South Wales approval?
Jim Beyer
Yes, yes. Okay. So just on the mechanics of the Tropicana acquisition, so we effectively have economic ownership of the asset on the March 31 or really the April 1. So – but completion of the deal is the May 31. So what we’re anticipating is that the – leading up to completion, the contribution of the asset will be – there’ll be an adjustment to the – against the purchase price for what the asset produces or delivers between the 1 of April, basically, and whatever completion date is. Once that completion date is done, is actually happens, then we start accounting for the production and the costs in our actual accounts.
So effectively, in my speak, whatever happens – whatever that asset produces between the 1 of April and whenever we complete is deducted off of the purchase price after other adjustments. And there’s a mechanism that’s clearly in the asset sale agreement that describes that. But after we’ve actually paid – put the – put our pile of cash in Peter’s hot little hands…
David Coates
And a nice pile of cash it is, too.
Jim Beyer
Yes. Yes. And then we’ll start to account for it more fully.
David Coates
Okay. So we’ll start to see the production numbers being attributable – or accruing to you guys from – in – from the June quarter?
Jim Beyer
Yes. I mean if things – if the date runs as it’s currently planned, then I think what that would mean is that when we come out with our June quarter results, we’ll start to see – we’ll have a new column that will be the contributions and the costs of Tropicana, but it will only really be for one month, assuming that the completion is on the 31.
David Coates
Yes. Okay. Cool. And then a timeline from the McPhillamys approval?
Jim Beyer
Yes. Yes. So your question was around McPhillamys and the DFS. So we’ve – the DA – we’ve worked through with the Department of – with DPIE, and we continue to have engaging interaction with DPIE. There’s really probably one – the key outstanding item, I think, I’ve mentioned before, has been just resolving this – the surface water licenses requirements and how they’re calculated and how they’re allocated. And we’re working our way through that. There’s certainly a path that’s seen. We’re just working on that with DPIE and with the Department of Water.
Once that starts to get wrapped up in a couple of other relatively minor loose ends, then we would anticipate that DPIE would then make their recommendation, and we understand that they’d like to ensure that before they make a recommendation to IPC that either dotted and Ts are crossed, and I think that’s important because I’d rather take a little more time and know that everything squared off rather than being fast and find out that there was a gap somewhere that causes everything to – the wheels to fall off and have to reset our clock. But once we’ve got DPIE’s recommendation, which will come with a series of conditions, there’ll be two things there.
And that then gets referred to the IPC for their decision-making process. And that could be – we know that they’ve got 12 weeks, but they can apply for extra time on that. So that could take longer and we have seen some projects take a few more weeks than that. But in – basically, in the meantime, once we’ve received, we understand what DPIE is satisfied with in terms of the project, then we can finalize our – a DFS with the detail on the cost estimates for the plant, for the infrastructure. And – which we’ve sort of talked about – we’ve given high-level updates. There’s been some pretty significant changes there, but we’ll be able to sort of talk through and give a much more detailed explanation of what’s in it, what’s changed, where the additional costs came from, why they’re there.
So we’re working – all our team, the engineering team now and our project team is working on the basis of being ready for a FID, a final investment decision, sometime in the, what is it, September quarter. And that way, when and if we do get a recommendation from DPIE and then subsequently from IPC, we’re actually ready to pull the trigger, and we’re not sort of sitting around flat-footed with works. We’re doing things at the moment, like, we’re out for tenders. We’re talking with mining contractors at the moment and tendering that process and construction and a whole bunch of elements.
David Coates
Okay. So the clock kind of starts ticking, if you like, on an updated DFS once you’ve got those final conditions from DPIE.
Jim Beyer
Yes, that’s right.
David Coates
I understand you’ve already done a lot of the background work for it and you’re kind of ready to act on them.
Jim Beyer
Yes. Yes. We just – we’re pulling all of that – we’re working on that at the moment. I mean we could – arguably, we – well, we just want to see – make sure that we understand fully what the final conditions are that DPIE might put on us to ensure that we’ve got everything covered in the DFS. And so within weeks of that coming out, we’d be updating the market on the detail of the DFS.
David Coates
Thanks very much for the call. I’ll pass it on. Thanks, Jim.
Jim Beyer
Thanks.
Operator
[Operator Instructions] Your next question comes from Al Harvey from JPMorgan. Please go ahead.
Al Harvey
Hi, Jim. Just wanted to get a bit of an update on sustaining CapEx at Duketon South. So looks like it’s running a little bit higher. Just wondering what the kind of go-forward rate for that might be next quarter and beyond.
Jim Beyer
Well, we’ll give guidance on all-in sustaining and growth capital at – for the full year. We don’t – we’re not in a position to go into that at the moment. And I think in terms of our all-in sustaining, we also don’t give a breakdown by the north and the south and the different operations. We just talk it being across the business. But if your questions – but you’re specifically talking about what’s happening at Duketon South, is that right?
Al Harvey
Yes, that’s correct.
Jim Beyer
Well, I mean, our all in – the sustaining capital is built into the all-in sustaining cost number. It’s actually not separated out. So I’m not quite sure how we can give you – we don’t give guidance specifically on the difference between sustaining CapEx and growth CapEx. What we do is we give guidance in terms of what is all-in sustaining cost, which is both the cash cost, if you like, plus the sustaining capital. And we also give guidance on growth capital, and we give guidance on exploration and corporate as well. But – so I think if you – to give specific guidance on the sustaining CapEx is probably a little bit tricky because we don’t really break it down into that level of detail. We just give it as an all-in cost, including sustaining.
Al Harvey
Thanks, Jim.
Jim Beyer
Look, it might be – if it’s worthwhile, we can explain – take it offline and give you – explain how we – what our all-in sustaining costs are in terms of how we build that up. And we’re, obviously, not going to go into specifics because it’s not appropriate. But we can certainly give you an explanation as to how we break – how we – what goes into that number and what doesn’t go into that number. We try to spell it out reasonably clearly in Table 2, but we’re happy to sort of try and fill in any gaps we may have.
Al Harvey
Right. Thanks, again, Jim.
Operator
Your next question comes from Matthew Frydman from Goldman Sachs. Please go ahead.
Matthew Frydman
Sure. Thanks, good morning, Jim. Just a few quick ones. Firstly, on the Rosemont Underground, you guys don’t give, I guess, a breakdown on, I guess, separate costs, so – underground mining cost on a dollar per tonne basis. But just wondering broadly, have these been consistent with your expectations versus the feasibility study? And I guess, maybe referring a little bit to that previous question, are you expecting either further improvements in dollar per tonne mining cost as we get further into that orebody? Or are you just expecting, I guess, costs and all-in sustaining costs to improve as the grades lift from that underground zone?
Jim Beyer
Yes. Look, the – we certainly – we’re now just starting to get into what I would call steady state for Rosemont Underground. While you’re in this buildup phase, your unit costs are sort of all over the place like a mad man’s breakfast depending on quite significantly. But I think as our – from an all-in sustaining cost per ounce basis, I would certainly expect as our production lifts, and we actually saw it. You can see it in the all-in sustaining costs for Rosemont when you compare last – the March quarter’s all-in sustaining versus the prior quarter.
As the Rosemont Underground has started to lift, the all-in sustaining cost has dropped at Rosemont, which is pretty consistent. I mean, broadly speaking, your mining costs are generally reasonably fixed. And what really drives any of your unit costs is three things really: what’s your strip ratio and what’s growth capital and how many ounces did you produce.
So I would certainly anticipate as Rosemont Underground continues to run at this higher production rate that its unit cost will be – on a cost per ounce basis will be lower than what they have been. On a unit cost per tonne, similarly, now as we start to ramp up the tonnage output, I would see the unit cost per tonne doing the same thing, although I would say we tend to watch closely what our unit cost per tonne of ore is. But that’s an operational management point. What really matters is the grade – quite frankly, I’d be happy to pay, I don’t know, $150 or $160 a tonne for something that’s 5-gram dirt rather than $120 a tonne for 2-gram dirt, obviously.
So – and they’re just sort of typical numbers. Don’t read anything. I’m just giving them as an example. So yes, do I expect Rosemont to – unit costs in terms of dollars per ounce to lower? I certainly do as the production now starts to become more consistent and stronger from the Rosemont Underground.
Matthew Frydman
Yes. Sure. Thanks for the data. Yes. Sure. It sounds like you’ll get a bit of a double clicking from dollar per tonne cost improving given that you’re working your way into the orebody and you’re sort of more consistent there. And then also, obviously, the dollar per ounce benefit is of higher grade, if I’m reading that correctly.
Jim Beyer
That’s right. Yes. But I think that the beauty of high-grade underground is that really – it’s such a – you can reduce– and we chase everything, right? I’m not suggesting we put up with our mining rates. But if I – a reduction of 10% on the mining rate, if it’s accompanied with a – rate per tonne, if it’s accompanied with a 20% dilution of the ore, then it’s not going to give you what you really wanted. It’s going to increase your costs. So you’ve got to be really careful about it. But yes, certainly, we’re expecting the overall volumes from the underground to lift.
As I said, I think we’ve put another truck in. So we’ve got more trucking capacity there. We just need to make sure that we can get the people for that, which Barminco are working on. And we continue to lift our grades as well from the Main Zone. So we’ve got some good things working for us at the moment.
Matthew Frydman
Sure. Great. Thanks. A couple of questions also on the reserve and resource update. Firstly, on the 25 million tonnes of that lower-grade ore. Clearly, that material – the opportunity there is to, I guess, process that towards the back end of the life of both Duketon North and Duketon South. I guess it’s fair to say that those stockpiles are fairly spread out across the district, across the various satellite pits, et cetera. I guess how do you think about accessing those stockpiles towards the back end of the mine life in terms of maintaining those satellite pits, maintaining those roads, I guess, potentially deferring doing rehabilitation works, et cetera, in order to keep that – those stockpiles as an economic option, but also the fact that, clearly, they are less preferential to high-grade material that’s currently in the mine plan.
Jim Beyer
Yes. Look, it’s a – the works that we’ve – and the opportunity that came here – and I think I’ve mentioned in some of the past quarterlies that we’ve been doing this review of our northern – what happens if we increase the cut-off price assumptions and are there opportunities to expand our pits in a high-price environment. As part of the process of reviewing that, we’ve identified this very clear opportunity for us to stockpile the low-grade material for processing later. And I think in total, there’s about 300,000 ounces that we’ll get from these low grades. Only about a fifth of that or sixth of that is currently on the ground, about 50,000 ounces. The rest of it is still to be mined. And it’s part of our – it’s waste – it was material that we might have historically considered to be waste or not being too careful with where we put it. So we actually – this is a great opportunity that the team has identified.
So is it spread out? It is, but we’ve provided for that in our costs. We have assumed, as good cutoff grade management will tell you, put your high grade through now and leave the low grades for the end, which is what we’ve done. And effectively, there’s a couple of years at the back end when you look at this – it’s pretty easy to look at our reserves and see – you can see the low-grade stockpiles. You can figure out that they will be left to the end because we prefer not – we certainly don’t want to get into a situation where we’re not – it gives us security that if something happens in a pit, you’ve always got backup feed to keep your mills full.
You don’t have to idle them with nothing. But what our – operationally, we just want to get the high grade in first and leave the low grade for the end, and that’s what we’ve done. What this does is, it helps us as well because the interesting thing here is that this effectively at the – because we are now processing 25 million tonnes of what was previously going to be considered as waste, there’s now 25 million tonnes less material that needs to be rehabilitated because it just goes into a tailings dam, just sitting in the same – sitting on top of what was going to be there before.
And it also means that we can do – because by the time we’re processing that material, the site will really have finished the bulk of its – under the – we expect to continue to roll on, but when the time comes, as with any mine site – previous company I was at, we had very similar low-grade stockpiles. And what we were able to do – this was in an iron ore business. While we were processing and selling those low-grade stockpiles, we were also able to use some of that money to actually fund rehabilitation. It’s always a lot cheaper to do rehab when you’re still there and operating rather than bringing in specialists because it’s just incremental cost of running it rather than bringing in a [indiscernible] specialist, which can be a lot more expensive.
So there’s a bunch of benefits that feed off this. So we like it. We’ve certainly factored in how far away from the mill it is, how far it’s got to be trucked, provisions to maintaining the roads. What we have factored in are some of the other hidden benefits of what does this do to our closure cost estimates because now we can do – reduce our closure cost estimates as a result of being able to do incremental work rather than dedicated contractors. And we’ll flow that through. They’re sort of right back in.
Ideally and really what our plan is that we’ll continue to do what our graph does, that graph, Figure 2 or 3, I think it is Figure 2. We’re very confident that we’re going to be able to continue to replicate history and continue to add reserves. But in the event that we can’t, well, we’ve got a clear plan on the back end. We’ve got – I look at this and say, instead of now sitting with a 4.5- or 5-year mine life, we’ve just demonstrated that we can push it out to seven. We’ve replaced depletion, plus we’ve added more. So it’s a – it just reflects the potential of the ground. And that low grade is sitting as a bit of a sweetener at the back end.
Matthew Frydman
Yes, sure. I understand. Thanks for the data. And then just finally quickly on Ben Hur. Just wondering if you can give any information on when you’re expecting that to come into the mine plan, what the timing could be, what we might expect in terms of quantum on CapEx to develop that deposit, and also whether you’re expecting further growth of that reserve as you do more drilling there.
Jim Beyer
Yes, we’ll give some timing on that, again, with the guidance. From memory, I think we may be starting to do some of the prelim work next year, but it doesn’t really make a – yes, we’re still finalizing our budgets and our schedules for next year. And with this recent – I mean one of the reasons, and people may not have picked up, but we used to issue our reserves back in – historically, we’ve issued them in the September quarter.
And what we’ve actually done is we’ve gone and issued our reserves three months earlier because otherwise we were doing our reserves and our budgeting all at the same time, which was a real challenge. So now that we’ve finished the reserves, now the team is looking to re-optimize all our long-term schedules. So I’ll have a much clearer picture as to exactly when Ben Hur starts to become, number one, a consumer of [indiscernible] and then number two, a contributor to our production. And I’d be – I’m just – I wouldn’t – because I’m guessing, I don’t think – it’s certainly not next year, it’s a year after, from memory, but I know that this optimization is going on.
So we’ll let you know once we know that, which will probably be about the time we give guidance for next year. The other question of, do we expect it to be extended, look, we’ve certainly got some more drilling to do there. We think there’s some potential along strike. What’s really interesting is that the geo has identified that this thing continues at depth. So they certainly got some early indicators of having underground potential, but we’ve sort of said to the team there, let’s just chase the surface stuff first before we get too excited about the underground because that’s two or three years down the track. But it certainly got potential, but nothing that we’re sort of putting a number or hanging our head on at the moment.
Matthew Frydman
Yes. Sure. No problem. Thanks for the answers, Jim.
Operator
Your next question comes from Alexander [indiscernible] from Citi Research. Please go ahead.
Unidentified Analyst
Good morning, Jim and team. Just following on from Matt’s question. With the low-grade stockpiles for Duketon South for rough split, how much would be processed at Garden Well or Rosemont?
Jim Beyer
No. Not off the top of my head. I think – I mean, for simplicity, I’m just modeling it and saying that, basically, we do tend to look at Rosemont and Garden Well, the single unit, even though it isn’t. And from – I think the schedule is basically at the moment on a reserves basis. The high-grade material tends to run out – we’ve – it’s important to us that the low-grade material is really – it’s best for us if the low-grade material is being treated once all other mining is finished so that we can really hatch it into the fixed cost of the site.
So I’d – the subtlety of exactly when Rosemont might start processing the low-grade versus Garden Well is, I think – I don’t think it’s material thing you do. Look at the – if you’re doing simple modeling, I’d be looking at the reserves – at the high-grade reserves [indiscernible] million tonne capacity roughly that we’ve got between Rosemont and Garden Well and then just sticking the low grade on the back of that. I don’t know if that helps you or not.
Operator
Thank you. There are no further questions at this time. I’ll now hand back to Mr. Beyer for closing remarks.
Jim Beyer
Okay. Thanks, Anne. All right, thanks, everybody, for joining us. I appreciate that. And as always, if you’ve got any follow-up questions, please give us a call. And we look forward to catching up with you for the June quarter results. Thanks, everybody, for joining us, and have a great day.
- Read more current RGRNF analysis and news
- View all earnings call transcripts
Recommended For You
Comments (3)
