Regis Resources Ltd (OTCPK:RGRNF) Q1 2021 Earnings Conference Call October 22, 2020 8:00 PM ET

Company Participants

Jon Latto – Company Secretary & CFO

Jim Beyer – CEO, MD & Director

Conference Call Participants

Daniel Morgan – UBS Investment Bank

Kate McCutcheon – Citigroup

Ben Crowley – Macquarie Research

Levi Spry – JPMorgan Chase & Co.

Operator

Thank you for standing by, and welcome to the Regis Resources Investor and Analyst Conference Call. [Operator Instructions].

I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO; Mr. Jon Latto, CFO; and Mr. Stuart Gula, Chief Operating Officer. Please go ahead.

Jim Beyer

Thanks, Sayenne. Good morning everyone. Thanks for joining us on the Regis Resources September quarterly update. I note that the report itself was released earlier today, and we’ll occasionally make some reference to some of the diagrams.

Look, kicking off on safety. Very pleased to report our key safety metric continues to improve as we saw our 12-month moving average LTR rate decline by 14% over the quarter, ending up at around 3.1. This is a great trend and will continue to lift the focus on the leadership in this area and its role in improving safety.

While on safety, I’ll touch on COVID-19. Our approach has not really halted over the quarter since our last update. However, what we have been doing is testing some of our systems by running mock COVID cases and also testing our tracing protocols. We see these as being the key element to any level of control should something occur, which obviously, we hope it doesn’t. To date, we’ve had no confirmed cases of COVID-19, and the impact to our operations and to the business has been controlled and well-managed by the team, albeit with a marginal impact on our unit cost.

While I’m on it, I’d like to take the opportunity to thank our employees and our contractors and all of the families for the hard work and support and effort that they’ve been undertaking over this now extended period. They really have done a great job in being able to keep the business running.

Moving on to production. The financial year’s first quarter saw a relatively soft 82,000 ounces being produced, which is down a bit on our prior quarter of circa 87,000. Moolart Well operations were consistent, which is pleasing especially considering that during the period, we had a mill liner change out, and we also had a breakdown in the PSA oxygen plant, which impacted on planned recoveries. Despite that, we still managed to hold consistent. The plant, the oxygen plant I mentioned, has been repaired and is running again.

Production from Rosemont was in line with the prior quarter at 23,300 ounces as contributions from the underground continues to increase. We are seeing some grade variability in the early stages as we’re experiencing in the less well-defined areas of the south and central zones are being opened up.

However, as time progresses our understanding of the ore bodies and the detailed geological modeling, our capability and the requirement is becoming understood and is improving now with experience. The priority at this point in the underground is to develop into the high grade main zone into those reserves and to commence production, and we are progressing with these plans. And you can see that illustrated in the diagram in our report.

Overall development for the quarter was around about 2.1 kilometers underground, with 144,000 tonnes of ore mined from development in the stopes. Now production at Garden Well was 37,963, which is lower than the prior quarter of 42,700. Now three key factors impacted on Garden Well’s production performance during the quarter. We did have some reduced ore tonnes milled due to a mill shut for reline, which was pushed from the prior year. A series of slips in Erlistoun that delayed scheduled access to high-grade area and the consequential rescheduling of lower-grade Tooheys Well ore into the mill, which resulted in both slightly lower grades but also recoveries. Tooheys Well is a little bit more problematic on the recovery front, so it pulled our recoveries down. The impact of the slip is still being managed. However, we see this issue as being timing rather than one of a loss of production over the full year.

Of a positive note is the commissioning of an oxygen supply plant at Garden Well to boost recoveries above their prior levels. And that’s specifically focused on the leach circuit at Garden Well, as I mentioned. So while we had a slower start to our year, it does create early pressure. We continue to consider at the moment that our FY ’21 production guidance of between 355,000 and 380,000 as appropriate. Albeit, as we’ve previously noted a number of times, we expect to see stronger production weighting in the second half of this financial year.

In relation to revenue, the flow-on from production, in the June quarter, we lifted our volumes delivered into the hedge book after delivering 20,000 ounces, and we’re now sitting at around about 379,000 ounces on our hedge at about $1,615 an ounce. Now as a result of this action, we did sell 60,900 ounces of gold at an average price of $2,256 an ounce. Now obviously, that’s after we’ve adjusted for those hedging ounces values. And that gave us a total of $137.5 million in revenue from that gold.

Now of the remaining ounces that we produced, we didn’t sell, which is around about 20,700. And if at a gold price of $2,654, which is what it was at the back end of the quarter, that would have contributed an additional revenue of $55 million. So what I’m doing here is if you add those numbers up and work out what the average price we received for our goal during the quarter, you’ll see that the impact of our disposal strategy of the hedges is impacting on our gross revenue to the extent — if it was relative to what it would be if it was unhedged to the extent of around about 10% or 11%. And of course, this percent impact on the revenue will reduce as our production continues to — will increase over the coming year.

On the cost front, our cash cost before royalties were $1,072 million, up slightly, which was impacted by additional D&B costs. We had some harder ground at Moolart that we weren’t expecting. And we also had some extra drilling that we had to undertake on the back of the changes we needed to make due to the Erlistoun geotech. So that, to a degree, that was a timing issue.

On the all-in sustaining front costs, the quarter was $1,400 an ounce. Moolart Well decreased from the prior quarter from $1,519 to $1,392 an ounce, which is primarily a reflection of some of the scheduled activity being undertaken in the growth capital for that reporting period.

And interestingly, despite — or pleasingly, despite the Garden Well lower ounce production, Garden Well’s all-in sustaining costs decreased from $1,387 to $1,269 for the quarter, driven by significantly lower strip ratios. Now that was a timing issue, and we will see that move around, but that was the principal driver of the reduction in unit cost at Garden Well. Rosemont’s all-in sustaining costs increased. They increased quite significantly from $1,165 to $1,559 for the quarter. And this was driven by a similar factor, certainly a significant increase in the strip ratio, which again is timing and also higher unit cost for the underground as it continues to ramp up towards its life of mine average grades.

Look, what I would say at Garden Well and Rosemont, and you will notice in our report, we have increased the degree of information and transparency in our reporting. And as we start to peel apart Garden Well and Rosemont’s reporting, you’ll see that at DSO, this variability that we’re now seeing from quarter-to-quarter we’ll probably continue to see because, historically, there’s been a lot of moving parts in the background that has been, I guess, smooth by the way that we’ve reported. So we will expect to see this variability from one quarter to the next as we are now providing more granularity in our detail.

At DSO, historically, you wouldn’t have seen this because it’s more balanced and added together and smoothed out. And this variability that we will see across Garden Well and Rosemont is somewhat reflective of the fact that we have 6 pits that we’re managing through that, along with an underground. So there’s a lot of complex parts that are moving in the background there that you historically haven’t seen but you’ll start to see now as we increase our transparency in reporting.

Finally, our growth capital for the September quarter was $22.4 million, which primarily related to mine development at Rosemont Underground, a bit at Moolart and also Baneygo as we’ve started to bring in some and prepare some areas or finalize the preparation of areas for bringing into production.

Our operating cash flow was $85 million, with major deductions being $30 million for capitalized mining, $15 million was spent on exploration and feasibility projects, which takes in McPhillamys. Just over $6 million on other capital projects; $3 million on other costs, which includes corporate; and finally, a $15 million outtake for income tax payment. This left us with a cash and equivalent increase of $16 million to $225 million.

Looking at our value growth projects. During the quarter, Regis acquired the Ben Hur gold deposit in September. We like Ben Hur with its mineral resource of 5.8 million tonnes at 1.6 grams for 290,000 ounces. And importantly, we believe this has potential to grow beyond that. This deposit is approximately 30 kilometers south of Garden Well and is an ideal ore source expected to provide valuable oxide open pit material also with potential for underground resource as it’s open at depth. We understand the geology. It’s a sheared dolerite unit, and it’s consistent with Rosemont and Baneygo-style deposits.

Significant high-grade intercepts occurred over this 2-kilometer strike. And as I mentioned, it is open, you can see this in figure 4. And some of those high-grade interceptions, historically, we’ve got 15 meters at 10 grams a tonne from 24 meters below the surface; 6 meters at 11 from 72; 5 meters at 6.9 from 25. There’s some really, really juicy material here that we can chase. We’ve already kicked off the drilling program. We haven’t hung around and waited too long to get into it. We’re in — it will be during this December quarter. It’s infill to the existing resource, and we’re looking to provide sufficient data for a maiden reserve and also to extend it from drilling at depth and a long strike to increase its resource base. We just see this as an ideal strategic acquisition that has the potential to give us valuable life extension beyond our current life.

At Garden Well, the underground story continues to get pieced together and gain momentum. The completed diamond drilling program focused on providing increased confidence supporting the estimation of a maiden underground resource and reserve. And I would point out, it’s still open at depth. Work on PFS is now underway, and we’re expecting this to finish this quarter.

Look, while I’m on Garden Well, I draw your attention to figure 2. There’s an area to the north where we have identified further potential, and we’re now doing some work there as well. Exploration drilling has commenced for a new potential underground development. Why have we gone there? Well, if you look at some of the earlier results, we had 9 meters at 8.7 grams per tonne of gold and another 9 meters at 5.3. So this has certainly got similar potential to the Garden Well South area. We just haven’t been putting any effort into it until more recently.

Three diamond drill holes are drilled during the quarter and the assays on that are now pending. Obviously, should this shape up, it’d be a very valuable addition to the Garden Well South underground opportunity. But I would highlight that any progress at Garden Well South isn’t hanging off the back of any of this work.

At McPhillamys, momentum continues to gather. The assessment phase of the development application is now well underway with the responses to submissions, the RTS, completed and submitted during the quarter. And we’re now in a Phase 4. Phase 4 being assessment by the Department of Planning, Industry and Environment, DPIE, in New South Wales. In fact, last week, DPIE was in Blayney meeting with groups, including ourselves, as part of their assessment process. This assessment is expected to take maybe 3 months, and then their recommendation on the project would go to the IPC for the IPC’s decision, Independent Planning Commission. This could be as quick as 3 months but they have an opportunity for extension, if required. Although we would note that of late, they haven’t really — I think they’ve exercised it in one or two of their projects, extending it by a couple of weeks.

So look, we recognize and respect final decisions and processes here are certainly not under our control but we’d still think that progress is being made, and we think it’s a very constructive process. A decision on the development application on these time lines is quite possible to be in the first half of 2021, calendar 2021. Should this occur on the current plans, the company foresees potential for commissioning to occur at the back end of 2022. But as I said, this is highly dependent on the timing and, of course, of a successful application approval and any conditions that come with that, that we have to evaluate. Having said all of that, it is pleasing, really pleasing, to see progress continuing but with still more to do.

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During the quarter, a Project Manager was appointed to McPhillamys, and the team has been in the early stages of being assembled, and we progressed the project into detailed design phase in all areas of mining, processing and infrastructure. Look, if you put McPhillamys production on top of our targeted 400,000 ounces from the Duketon Operations, you can see how our value growth plans are coming together over the next couple of years.

Turning to some comments now to the third leg of our value growth plan on exploration and our organic opportunities there. Rosemont Underground, deep drilling, testing for quartz — gold mineralized quartz dolerite. Our work certainly supports the concept of this ore potentially continuing at depth and is now forming part of our underground planning in terms of additional development for drilling access and other scheduling provisions.

What is of note in figure 8 that you can see, at the very south end, we picked up some mineralization where we didn’t previously see it. Nearly 6 meters at 6.9 grams per tonne of gold and 3.6 at 4.5. These are really interesting results in an area that have previously not been investigated. So obviously, we’ll be chasing this up as well, given that it’s location and its potential.

On Gloster, it’s still building and looks interesting. And as I said before, it could be a bit of a dark horse. We’ve got some spectacular hand samples of quartz and gold about the size of softballs or cricket balls that tells me we certainly have some potentially very high grade. That came out of the bottom of the Gloster pit. In fact, they’re sitting on the table here in front of me.

The drilling is really giving us some interesting results. A couple of meters at 8.9 grams a tonne, 3 meters at 9 grams a tonne, 1.8 meters at 105. Now these are all between 200 and 400 and 60 meters downhole. So it certainly supports mineralization continuing at depth, and it certainly supports the idea that there is some quite significant grades there. The task on hand is figuring out how it all comes together structurally. But after seeing and holding some of these samples from the base of the existing pit, I think it’s going to be worth the effort.

On the broader exploration front, the highest priority regional targets along the Risden Well trend continue to be tested. Both Betelgeuse and Matts Bore are certainly interesting anomalies. Look, as I said at the Diggers conference for anyone that was — that heard or watched it, it’s certainly as exciting that we’ve got the first things that we’ve walked up to. We’ve got some very significant sniffs. And if we jag the big ones on these first looks, it would be very pleasing. But I guess, reality is on the exploration front, it would also be surprising. So while we’re very optimistic, we’re always — also pragmatic and realize that this is a longer game. Certainly extremely encouraging what we’re getting, but it is a long game.

So look, wrapping up on the call. COVID-19, as we all know, ever present, but we continue to limit its impacts on our business. Very pleasing results on the safety front with more still to do. Rosemont Underground now in production and building in its contribution to our plans of growth, the ongoing building of confidence in the potential underground sources at Duketon, Garden Well, certainly under the assessment microscope at the moment. Real progress being made at McPhillamys with work being done on the RTS and a range of very encouraging results from our exploration across our leases. So to sum up, overall, we see the September quarter is making good progress on our value growth projects.

In the short term, the slower start to our production year does create early pressure, as I mentioned before. We do continue to consider our FY ’21 production guidance as being appropriate, albeit, as previously noted, with a stronger production weighting to the second half of the financial year. But looking out into the medium term, 12 to 24 months, we can now start to see our efforts in delivering production growth that’s sustainable and that we’ll realize these real value growth for our — projects for our business that we’re working hard on delivering. It’s certainly an exciting time.

Okay. Look, I’ll pass it back to you, Sayenne, and we’re happy to answer any questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from Daniel Morgan from UBS.

Daniel Morgan

Firstly, before the question, I just want to commend the change to the reporting. I think transparency always helps market confidence. And so that table 2 you’ve got on Page 4 with more transparency, I think that’s a great move. But then, yes, so on to the questions.

Just wondering on the underground ore. I mean it’s helpful that you’ve given us that — the tonnage of the stope and development ore. Just wondering if you could share the average grade of that at all or talk more broadly about the future underground ore you’re going to bring in this year and the grade expectations because you have highlighted variability, and I’m just wondering if that poses questions for the reserve grade or is it just the early production.

Jim Beyer

Look, the thing with Rosemont is it’s quite — there are three distinct zones and in fact, if you have a look at figure — just got to pull it up here. If you have a look at figure 8, you get a bit of a sense as to what we’re dealing with. Underneath the South Pit is — we’re pretty brilliant with our naming that sort of part. Underneath the South Pit is where we call the south end of the mine, south end underground. Now that’s probably the lowest grade area. So while we might be looking at an average grade of just under 4 grams a tonne or circa that number across its life, we do see a lower grade coming out of the south just because of the nature of — even the depth of the open pit sitting above it indicates the lower grade.

We also see a bit more pinching and swelling down that end. And as a result — and — but as you travel to the north, you end up over in the main pit — main underground area, which is a real dark area sitting underneath the main pit, that’s the highest grade area. And that’s also reflected by the fact it’s the deepest part of the main pit because, obviously, the open pit mining can afford to go down deeper there because the grades are higher and more continuous.

So we’ve started in the lower grade area. And the grades that we’re getting out on average are probably sitting a bit below 2 grams a tonne at the moment over the quarter, between 1.6 and 2 grams. It’s okay. It’s not spectacular. But it’s not what — it’s kind of what we were expecting. So we always knew that it would be a slow start to the Rosemont Underground, and we really wouldn’t start to kick some higher grades until we get over into the main area, which is — and the reason we didn’t go there, first off, was because we were still mining in the open pit above it. And obviously, you’ve got some scheduling implications there.

So we expect the grade now to start to lift, certainly — and that’s why we’re expecting production to lift in the back end of the year. So look, coming back to your question, we will be — sorry, Daniel, I’m just trying to have — see if I’ve got the numbers here to give you a bit more detail on the answers, but I haven’t got them readily at hand. But what we’re expecting — certainly, we’re expecting the grades to — as I said, the answer to your first question is the grade was probably for what we mined in that 144,000 was sitting below 2 grams, probably between 1.6 to 2 — 1.8 in that space. We’ll see that grade lift in the second half of the year as we get into the main area. And obviously, it’s going to be quite higher than that. We also have greater confidence in that area because that’s where our reserves actually sit. We have a lot more information and a lot more confidence in that.

Now it’s not to say that we don’t have confidence in the south end overall. But what we do need is time to understand the nature of the ore body. It’s more poddy. It’s more variable. And that’s why it’s just taking a little bit more time for us to get into a point of being consistent in the Rosemont section. So it’s a bit of a long-winded answer, obviously. But I’m just trying to give you a bit of a flavor as to what we’re dealing with. And like any new mine, you go underground, it takes a little bit of time to figure out exactly how it works and how it could be designed.

Daniel Morgan

I appreciate that. I appreciate the transparency in the answer as well. And just following a little bit up on the future drilling from underground on both, I guess, the South and the Main Pit. Does that suggest that the prospectivity under the Main Pit in your estimation is better, and that will be where the resource reserve will grow? Or are some of those new results you’ve highlighted potentially change that view?

Jim Beyer

Yes. Look, I think the potential for extension underground probably sits underneath all of them. The piece that I was highlighting, and if you have a look again at diagram 8, those holes I was pointing to are the ones that are sitting to the south of the existing development. And what that’s suggesting — I mean it’s very early days. It’s only a handful of holes. But what we could see is another pod opening up at depth off the back of that southern deep area. It’s hard to show without a diagram. But that’s an area that we weren’t expecting anything.

And certainly, the drilling that we have done down plunge of Main and Central and the South is telling us that the right mineralization exists down there, that the gold bearing quartz exists. So rather than continuing to try and hit it with the — from the surface holes, it’s — our plan is to put in dedicated development drives underground and undertake drilling — deep drilling programs from the underground. But I guess, in summary, we’re expecting all of them to continue down plunge, but we’ve got to drill it out to confirm that.

Daniel Morgan

And the Garden Well underground pre-feasibility study, you’re saying you’re going to conclude that this coming quarter or the December quarter. Just wondering what lessons you can learn from the Rosemont Underground development that would be applicable here that you might want to call out?

Jim Beyer

Yes. Look, that’s a good question. And one of the things that I didn’t mention before as well is one of the reasons why our grades are softer in this early stages. Proportionately, we — as you open up the mine, you’re obviously doing a lot more development. Proportionately, a lot more of our production is coming from development than from stoping, and that in itself results in greater dilution levels than in the stopes, which is what we expected and are experiencing, which sort of then leads on to Garden Well.

Garden Well is an interesting deposit. It’s similar, but it’s different to Rosemont. Rosemont is a narrow — would be more described as a narrow vein high-grade deposit. Garden Well tends to be different. We’re seeing thicker ore bodies, lower grades, but they’re thicker. And what that tends to do is — and the geology — it’s quite a different geology. We have drilled out a lot more of Garden Well with diamond drilling at this early stage. Whereas at Rosemont, in the early stages when it was being drilled for consideration, it was drilled with RC, which is good enough to tell you that it’s there, probably not good enough to give you the detail that we would want for being able to get off to a blinding start, and which is part of the reason why we’re still building our understanding of the geology now that we’re down there. We knew that it — Rosemont, we always knew it was there. We also knew it was going to take a while to figure out how to mine it and how it looked in the detail.

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I think Garden Well is probably a slightly different mineralization, and it’s a little bit more forgiving because it’s thicker. And it’s a little bit easier to sort of identify exactly the zones. And if you’re out by a foot or 2, it’s not too bad. Or 0.5 meter to a meter, it’s not too bad. You can accommodate that. Whereas high-grade narrow veins, you want to know pretty precisely where it is.

Now we’re not — another lesson from Rosemont is we’re not going to assume that that’s the case. Once we get on assuming that it does get approved, we’ll start to — and incorporating into our plans is how do we make sure that we get all as much geological information in advance so that we don’t have to get there and then stop and think about it or — and delay process. So yes, we are picking up those learnings, and we are figuring out how to apply them to Garden Well. But the first point is that the mineralization is subtly different to Rosemont. So that’s #1 difference. And number two is all of our drilling there has been done with diamond drilling because it’s much harder and we’ve had to use diamond drills. And as a result, we’ve got much better and more accurate information.

Daniel Morgan

And assuming that the pre-feasibility study is a good one, and it looks like it’s economic, can you just talk about the next steps from that point through to production if you were to advance that?

Jim Beyer

Yes. Look, our objective there, if it does stack up and we approve it, that the time line would see us starting activities early in the new year sometime, maybe back end of the first quarter. And if that was the case, I wouldn’t be expecting it to contribute anything in this year’s production, but I would certainly see it’s got the potential to be adding to next financial year’s production.

So we wouldn’t be sitting around. We’d be chasing it as soon as we can. Probably the only thing that’s holding — would hold up, kicking it off, would be whether the bench that needs to be mined to the port level, it still hasn’t been mined. We’re mining towards that. So we just got to wait until that exposes itself so that we can get in and start mining it. But that’s the timing, early next year with production in the following financial year.

Daniel Morgan

Okay. And last question, McPhillamys. Just conceptually, I mean, the economy in Australia is very weak due to COVID and all the pressure that’s placed on that in New South Wales as well. I’m just wondering if that weakness in the economy is helping expedite the approval process at all, i.e., is there a lens of attitude from the government, we want to progress this quickly? Or is the weakness in the economy not a factor in timing?

Jim Beyer

Look, I think I’ve said before, I think it’s a positive and a negative. It certainly slowed up some of our responses and some of the work that we’ve been wanting to do in the background as a project. I think COVID in general and the impact that it’s had on the economy has reminded certainly key elements of the Australian — in government and reminded the Australians, in general, just how important mining is to our economy. We can all write apps and do a whole bunch of things, but at the end of the day, significant employment, significant taxes are generated from — by resource companies, and that’s where the jobs — and you can build infrastructure, but you need somebody to use it.

And there’s obviously a very strong degree of support for that. And I think that, that is definitely helping us in this process. Having said that, I don’t think I see anything as you would — as is appropriate. I don’t think that means that anybody’s standards and their expectations are being dropped. I think what it means is that it’s just that the decisions and assessments are moving more quickly than they might have done when there wasn’t that recognition that there was an incentive to get important decisions made quickly.

No worries, Daniel. Thanks for the questions. And I appreciate your feedback on the details. We do recognize that, that was something that was important. And as I said before, and I’ll make the point again. It is a little bit of a double-edged sword because the way we were reporting historically, the movements and the ebb and flow of different strip ratios on different parts of our operations were somewhat smooth, whereas now it’s a lot more open. And as long as people understand that we’re still managing the place the same way, but what you’re seeing is the impact of having 6 or 7 pits having to be managed as part of our whole process. So we like it. We think it’s the right thing to do. We just want people to understand the implications of that as we report going forward.

Operator

Your next question comes from Kate McCutcheon from Citi.

Kate McCutcheon

Just tacking on to Dave’s question. So Rosemont Underground, I thought you were going to declare commercial production there last quarter. How are you thinking about that now? And do you have the contribution from the underground handy for this quarter?

Jim Beyer

Yes. We did declare commercial production last quarter. It is producing. We — I think the ounces were they represented probably about 1 quarter of the production from Rosemont, thereabouts, last quarter, and that will continue to step up. If — I think you’ve got the tonnes, I think I mentioned roughly what the grade was. I think that probably work out to be circa 8,000 ounces or something like that. That — it’s not — as an ounce contribution, it’s certainly not at the rate we’re expecting it or wanting it to be at later in the year. But considering that, as I mentioned, a lot of the development — a lot of the ore is coming from development and some of our stopes are in the lower grade area, we’re only just starting to get into some of the more meatier and grade material in the central. But we will really start to see the grade kick along once we get into the main.

Kate McCutcheon

Okay. And will we get a separate ASIC for the underground going forward or will be amalgamated in at the Rosemont level…

Jim Beyer

At the moment, it will be amalgamated because, again, what we started, we’re concerned to a degree that we’re — as you start to — these are not significant producers of their own. And what — and there’s going to be, particularly from an underground sense, there’s going to be some high variability from period to period. So we’re trying to figure out what’s a sensible balance in granularity versus actually seeing how much you get on a quarter-to-quarter basis of variation from what will be 11 pits and hopefully a couple of undergrounds.

So we’re just giving that some thought. We haven’t finalized it, but you know — and we’re not trying to hide things. We’re just trying to sort of, I suppose, be as clear as we can without ending up appearing to have these wild swings. It’s actually just part of the ebb and flow of the way a mine site runs. We don’t — 3 years or 4 years ago, this place was 3 pits, and that was about it. It’s now — there’s a lot more variability in where we get material from, and there’s a lot of balancing going on. And so it’s just trying to get that balance between transparency and confusion might be a word that some might use.

Kate McCutcheon

Okay. Yes, that makes sense. And then with your ASIC, you’ve got a group level corporate cost component. Is that something new? Or did you just previously allocate it to the sites?

Jim Beyer

Yes. What we’ve decided to do is — and to separate that, so that you can see how the all-in sustaining costs were reported by site. So we’ve maintained that, but we’ve also added in what we see as being the appropriate components of the capital into that now, which was probably in there, but you just couldn’t see it before. We’ve just made sure that it’s all transparent and easily too — easy to pick apart.

Kate McCutcheon

Okay. Got it. And then finally, so 4, 5 years of mine life at Duketon, on resources. How long do you realistically think it would take you to bring online a new satellite from, say, first drill hole? I know it’s quite a broad question, I mean, lots of variables, but interested in how you’re thinking about timing here and kind of how much time you have on your side.

Jim Beyer

Look, I think this is why our value growth strategy relies on a couple of different factors. The addition — we’re chasing the big whale. We really — this regional exploration that we’re pushing into is chasing a 1 million or 2 million-ounce deposit that gives us significant extension of life. But we’re also interested in the things like Ben Hur. I mean you look at the numbers — the basic numbers of Ben Hur, that’s got the potential of giving us another year, certainly, at Garden Well if we can convert that to reserve. And that gives us the time to be able to make sure we’ve got as much time as possible to find and bring on new assets.

The beauty of the area that we’re in is it’s well suited for mining. If we found a deposit, it doesn’t take us too long to quickly decide on — we’d obviously mobilize a massive drilling fleet to get that information as quickly as we could.

We’ve got a network of roads and accesses. The whole region is pretty easily — pardon me, pretty easily developed. We’ve got strong relationships in the area that allow us to be able to move through the necessary steps to get approval. So I think right now, it’s — I would have liked to have been doing this maybe, the exploration, 3 years ago. But I think we’ve got the opportunity, there’s still plenty of time for us to do that.

One of the other interesting things, which we don’t talk about in the quarterly, but you’ll see in our presentation, is some of the options that we’re starting to look at up at Moolart Well, where at the back end of running out of reserves, we’ve actually got a significant resource there that we’re looking to see whether we could tap into. And I think we mentioned, we’ve started to look at what would happen if we used the $2,500 gold price instead of the $1,600 that we use for our reserves. Now obviously, that’s going to bring in some pretty high expensive ounces. But if the — that’s looking at that option and bringing in some of those high cost ounces, not now, but in the — towards the back end or in the back end of the mine life, it’s actually a very good option if the alternative is to close.

So we think that there’s — on that basis, even if the current price environment softens a bit, we still think that there’s a project that we’re working on to give Moolart Well on its own significant extra mine life, albeit higher cost ounces, but still good ounces in this — even in a softer price environment to today. So I think we’ve got some clear options to give Moolart Well an extended mine life, and we’re working through those now.

And down in the south end, at Garden Well, we’ve just bought Ben Hur and that’s added — that’s going to add some extra life as well. So while we’re still looking for the big deposits, we’re also adding incremental pieces, too. So I think we’ve sort of — I think we’ve got a very clear path of activity and work that we need to do. And as I said before, we’re getting on and doing it. The one thing that’s — as all exploration is to a degree, it’s a bit of a leap of faith. It’s a little bit more than just a blind leap of faith. We know the area and we’ve — even the first areas we’ve targeted have proved to be attractive or potentially — potential deposits. So I think we’re definitely on the right track. We’ve just got a — now it’s just the time to put into it and make it work.

Operator

[Operator Instructions]. Your next question comes from Levi Spry from JPMorgan.

Levi Spry

Firstly, just on the slips at Erlistoun, can you just talk us through that a little bit more? Is there any read-through on risks or costs elsewhere?

Jim Beyer

Look, look, our mine site and all of our pits, this is part of the nature of mining. I think if you have — these slips were not — we do a lot of monitoring and a lot — yes, a lot of monitoring and a lot of measuring to ensure that — because the first priority is making sure that we’re not compromising safety, and I think we manage that extremely well.

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The second aspects of pit walls is that the fact that you have a couple of pit walls moving is — and slipping — is it causes disruption. But what it also tells you is that you are doing what engineering involves, which is making sure that your designs are at the appropriate level of conservatism. If I had a series of mines like ours — and we have a lot of very soft ground. So some of these slips are just movements of oxide material. It still causes a problem, but you’re not talking like a massive wedge value that we see at KCGM, for example, a few years ago.

So the fact that we have them, it’s not the first time. In fact, we’ve had them a number of times, but we’ve had that at other places, and we manage our way around it. It just happened that the timing for the Garden Well slips — and there was the same thing that just kept on moving for a bit. It kept on, meaning, that we — it meant that we were continually being delayed in getting into this high-grade area that we were — we’re scheduled to get into. And because we didn’t have any levers to pull in some of the other areas, it just had an impact on it.

So in answer to your question, should we read anything into it? I think you can read into it that we are managing it and managing it safely. Do we expect to have some slips occurring in the future? We don’t plan for it, but I wouldn’t be surprised if they do because it’s something that we’ve had reasonably consistently in the past as well. It’s just that most often in the past, we’ve been able to manage around it without it impacting on the production of the reporting period. So look, that’s — I tried to answer the question. I’m not trying to be frivolous about it, but at the same time, it’s not something that is exceptionally rare either.

Levi Spry

Yes. That was good. I really just after your comfort levels around it. So just in terms of any potential impact in this quarter, are you through it largely?

Jim Beyer

Look, we still — I’d like to think that we are, but we — where are we now? We’re about 3/4 — 2/3 of the way through October. Look, I think that particular event, we were on top of and started and have worked our way through.

These things, I guess, the reason that I’m hesitating is sometimes when these things occur and you respond to them, it doesn’t necessarily mean that you recover from it within a month or so. Sometimes, it can take several months as you start to — you look to reschedule your high-grade and move it all around. It just takes time. I certainly think that over the year, we are comfortable that at the moment, we’re comfortable with maintaining our guidance, and that’s probably the best reflection that we think that we’ve got. We’ve got sufficient capacity in our operations to be able to deal with this and work our way through it by the end of the year.

Levi Spry

Yes. Great. And just moving to McPhillamys. So it sounds like things are progressing well there. Just in terms of if it does hit those 3 months and 3 months sort of time lines, can you just remind me, in terms of funding, what you could spend this year and how that — I guess, when we’ll get an update on that? Will it be well until the final IPC outcome [indiscernible] walking through?

Jim Beyer

Timing-wise, what we’ve said is that at the least, McPhillamys, we’ll spend about — our budget for this year is about $15 million. Now that’s the minimum spend. Normally, I think historically, we’ve probably spent about $7 million or $8 million. So you’re seeing a step-up in that already. And what we’ve indicated is that if we made a decision to start to progress all that we could in anticipation of an approval, we could spend, in addition to that $15 million, somewhere between possibly another $35 million to $45 million on long lead items and getting ready for early works.

But most of that expenditure can only be in terms of — is ordering long lead items and the like. There’s not a great deal that we could do or would want to do until we have that full approval. And even once we get IPC approval, there’s about 2 or 3 months’ worth of other permitting that’s required. Now you might say, why don’t you go and get that permitting now, but you can’t actually get the permitting until you’ve got the formal DA approval. It’s like a — can we get a permit to start to open up the road and put a decent turnout in off the main road there so that we can get easy access? Well, the short answer to that is no.

So the answer is if we get — if our confidence continues to build, instead of the $15 million that we plan to spend this year, we could be spending somewhere from $50 million to $60 million, but that would very much depend on our degree of confidence. I can’t remember. Was there another question in there?

Levi Spry

And I guess — yes, sorry. And just in terms of sort of updating total requirements for the [indiscernible], would they come at that time?

Jim Beyer

Oh, yes, yes. Yes. So yes, we are working on the updated capital at the moment. It does obviously still hold off a little bit because we — there’s a couple of key items we need to wait till we hear back from the Department of Planning as to whether what we’ve got in there is sufficient or whether we need to add to it. We think it’s sufficient. But in the interest of prudent information, we thought we’ll wait on that.

Having said that, as I’ve said a number of times, the capital estimate that sat on the project 3-plus years ago was about $250 million. That was a PFS, plus or minus 25%. Our estimate at the moment is the top end of that range was $270 million. On the same degree of confidence range, at the least, the top end of the old range would be the bottom end of the new range. We’re certainly expecting the capital to come in very significantly in the 3s. And — but the detail there of actually landing on final numbers, we just need to wait a little bit to make sure that our assumptions are appropriate with the — which will be reflected in the planning process. But I would expect us to be in a position to start to give some more confidence and updated capital with — based on that improved confidence late this year or early next year.

Operator

[Operator Instructions]. Your next question comes from Ben Crowley from Macquarie.

Ben Crowley

Yes, just wondering if you could just run us through how the hedge book looks over the next sort of 12 months or so. On my numbers, I think you’ve got to pick up — picked up the rate of deliveries. Can you just step us through that?

Jim Beyer

I’ll just get Jon to talk that one through, Ben.

Jon Latto

Yes, sure, Ben. So as you know, towards the back end of Q4, we increased the sales into the hedges up to a rate of 20,000 ounces per quarter, up from 10,000 ounces per quarter that we’ve been doing across FY ’20. We continue to execute that strategy and sell ounces into the hedge at 20,000 ounces for the quarter. And at this stage, we expect to continue to do that across FY ’21. We are aware of the volume limits that we’ve put out to the market. But frankly, as Jim has just been talking about the McPhillamys gold project, as we become more and more confident about that project, then clearly, what that does is create an entirely new runway with a 10-year mine life over which to sell hedges into if [indiscernible].

Jim Beyer

And the other factors that play on that, Ben, are we’re adding mine life both as we’re going along here. As we mentioned, we had Ben Hur. Garden Well will add mine life in ounces. In fact, Rosemont adds ounces because remember, keeping in mind that a lot of Rosemont’s ounces aren’t in reserves, but we’re confident that they’re there. So we certainly see we’ll continue on down this path. And we think we’re dealing with it in an appropriate manner, and we’re getting positive feedback and constructive feedback and confirmatory feedback on that as well from the hedge provider.

Ben Crowley

Okay. So you think you — the most likely outcome is, obviously — it sounds like you’ll be able to roll existing hedging into some sort of future renegotiated book?

Jim Beyer

Yes. I mean these are spot deferred. So these aren’t on a fixed time frame, and they’ve been there for quite some time. But we’ve just recognized on a number of fronts it’s appropriate to start to knock them down. Of course, with the exceptional gold price that we’re enjoying at the moment, to some degree, it’s a bit of a double-edged sword. On the one hand, it means that the — a lot of those hedges are out of the money by a reasonably significant amount. But quite frankly, the other 90% of gold that we’re selling is we’re selling into a fantastic gold price.

So it’s — yes, it’s a — to a degree, it’s a nice problem to have. I think if somebody — if I’m sitting down and somebody said, would you like those hedges to be of value to you? I’ll say, no way, I think I’d rather be selling at $2,600, $2,700 an ounce with a hedge book that’s out of the money and be losing — effectively knocking 10% of the value off the top, than have a gold price that’s down through the floor and relying on the hedging to be the only thing that’s making any money. So I think as our Chairman describes it, it’s a pretty good upside risk to have.

So there’s no doubt we’d prefer not to have it, but it’s there, and we’re dealing with it. And we’re dealing it in the manner that’s trying to manage that impact on our overall business. And frankly, setting us — making sure that we’re setting ourselves up for when Duketon comes — when McPhillamys comes along and making sure that we’ve got everything lined up for how we finance that when the time is required.

Ben Crowley

Yes, okay. And then just to go back to Levi’s question on the slips. And can you just clarify, so you’re not mining in Erlistoun at the moment or at least in that high-grade zone in Erlistoun? And how long do you — if that’s still the case, how long are you going to be at Tooheys Well for?

Jim Beyer

Look, we’re everywhere. And this is the point. We now have — what have we got? We’ve got 11 pits running, and we’ve got — sorry, we’ve got — yes, we’ve got 11 pits running across our operations, and we’ve got an underground. There’s parts of Erlistoun where we still work there. We’re just moving — this is — and even if you had a single pit, you’re always taking from different benches and different parts of the pit. So we don’t — we’ll just continue to match and balance.

And for example, we would normally be running Baneygo material, the long-running plan was to run Baneygo material up to the Rosemont mill. Due to some of this, we made a decision that we’re going to swing Baneygo material around and put it through the Garden Well mill and let Rosemont step up a little bit. And we may continue to do that. We may decide to back that off. These are all the things that it certainly adds to the challenge by having more pits, but what it also does gives you a few levers to pull. And that’s what we — that’s the way we deal with this.

Operator

There are no further questions at this time. I’ll now hand back to the speakers for closing remarks.

Jim Beyer

All right. Thanks, Sayenne. Look — so look, thanks, everybody, for joining us. And we appreciate the questions. And as always, if anybody has got any other follow-ups or anything that they’d like to come back to us on, then please give us a call. Thanks a lot. Have a nice day, and go, Richmond Tigers.

Operator

That does conclude the conference for today. Thank you for participating. You may now disconnect.



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