OceanaGold Corporation (OTCPK:OGDCF) Q2 2019 Earnings Conference Call July 25, 2019 5:30 PM ET
Mick Wilkes – President and Chief Executive Officer
Michael Holmes – Chief Operating Officer
Scott McQueen – Chief Financial Officer
Conference Call Participants
Michael Slifirski – Credit Suisse
Geordie Mark – Haywood Securities
Daniel Morgan – UBS
Matthew Murphy – Barclays
Good morning and good afternoon, ladies and gentlemen, and welcome to OceanaGold 2019 Second Quarter Results Webcast and Conference Call. At this time, all lines are listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, July 25, at 5:30 p.m. Eastern time.
I would now like to turn the conference over to Mick Wilkes. Please go ahead.
Thank you. Good morning, good evening everybody, and welcome to our second quarter webcast. It’s a pleasure to be here with you today and to discuss operational and financial performance for the last quarter. I’m joined today by Michael Holmes, Chief Operating Officer, who will discuss our performance of operations, and Scott McQueen, Chief Financial Officer, who’ll discuss our financial results.
Moving on to Slide number 2, just the cautionary statement; before we proceed, note the references in this presentation adhere to international financial reporting standards, and all financial figures are denominated in U.S. dollars unless otherwise stated. Also note that the presentation contains forward-looking statements, which by their very nature are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate, as future results and events could differ materially. Please refer to the disclaimer on forward-looking statements in our presentation.
Slide 3, the results overview. I am pleased with our operational and financial performance in the second quarter, as our operations delivered higher quarter-on-quarter production and stronger profits. On a consolidated basis, our operations have produced approximately 255,000 ounces of gold and 7,900 tonnes of copper in the first half of the year. In the second quarter, we produced over 129,000 ounces of gold and 4,000 tonnes of copper, with higher production from Haile and Waihi which was partially offset by the lower production, as expected, from Macraes. All-in sustaining costs were $1,118.00 per ounce on sales of 125,600 ounces of gold and 3,600 tonnes of copper in the second quarter.
The higher quarter-on-quarter all-in sustaining cost was mainly due to an increase in pre-stripping investments as we initiated an accelerated pre-stripping program at Haile to take advantage of the dry and better weather conditions. In the second quarter, Haile delivered a significant operational improvement, with production 45% higher quarter-on-quarter and unit cash costs down 39%. We mined 45% more material in the second quarter, and much of it related to the accelerated pre-stripping program. On the personnel front, we continued to recruit very good talent from mining states such as Nevada, and we’re very excited to have recruited a new executive general manager for Haile.
Our financial performance improved considerably from the last quarter, with higher revenue and lower costs. This translated into a EBITDA of $71 million and an adjusted net profit of over $22 million. As a result, our fully diluted adjusted earnings per share came in at $0.03, which beat analysts’ consensus of $0.02 per share. We generated strong cash flows, resulting in a fully diluted cash flow per share before working capital of $0.11, which was ahead of analysts’ consensus of $0.10 per share.
I’m very pleased to announce that we have commenced development of the Martha Underground with the mining turnout for ramp access from the drill drive. We’re also preparing for a raised bore hull to be installed between the two drill drives for ventilation purposes. The drill drives will convert from mainly exploration to access for development in the coming months.
Expansion at Haile continues to go well, with processing rates currently achieving an annualized rate of 3.5 million tonnes per annum, which is ahead of expectations. We continued to commission the regrinding circuit which, as indicated before, does take time to work out the right parameters and to achieve steady-state grind sizes and recoveries.
We also are continuing to drill at both the Martha project and at WKP, and are advancing an all-encompassing Waihi pre-feasibility study, which we expect will be completed in early 2020. We also are very proud of our ESG performance, which continues to be recognized by reputable agencies such as the MSBI. We have recently retained our A rating, placing us in the top 5 in the gold mining industry. Our safety performance is improving, with reduced frequency of injuries, led by Didipio, which is one of the safest gold operations on the planet.
Let me now move to Slide number 4 and an update on Didipio. Our FTAA, the first one ever signed in the Philippines in 1994, had a 25 year period, renewable under the same terms and conditions for an additional 25 years. As our news releases have stated, we started the FTAA renewal process in March of 2018, and it has been endorsed by our regulatory agencies, the Department of Environment and Natural Resources and the Mines and Geosciences Bureau.
We are working with the regulatory agencies and national government to finalize the renewal, and we don’t yet have a timetable as to when the renewal process will be concluded. While the renewal process continues, the national government, which has authority over mining in the country, has permitted continued operations at Didipio. Unfortunately, some parties have seen this as an opportunity to challenge that directive by spreading misinformation and disrupting our operations at Didipio.
As we stated in our previous news releases, the governor of Nueva Vizcaya issued an order directing local government units within his province to restrain any operations of the Company. On July 1, the local government unit prevented a supply truck from accessing the mine site, and we decided to halt all truck movements in and out of Didipio to prevent any escalation.
On July 3, we filed a petition in the regional court of Nueva Vizcaya seeking that the Court, firstly, declare the Nueva Vizcaya order null and void; and secondly, prohibit and restrain the government of Nueva Vizcaya and other local government units from performing any act that prevents Didipio’s continued operation; and thirdly, issue an injunction against the government of Nueva Vizcaya and the local government units from interfering with the Didipio operations.
A hearing for the injunction took place on July 12, and yesterday afternoon in Philippine time a decision was rendered denying our petition. We intend to appeal this decision to the Philippines Court of Appeals in Manila. In the meantime, underground mining operations have been suspended due to the depletion of consumable mining supplies. Processing of ore stockpiles is continuing, along with other critical activities to ensure the safety of the employees and the operation.
As I mentioned, the operation falls under the authority of the national government, and the national government has permitted continued operations. We will continue to work in partnership with the national government and regulatory authorities in accordance with the law, and we will always comply with our responsibilities under our contract with the Republic of the Philippines. We remain committed to pursuing genuine and effective engagement with all of our stakeholders.
Didipio is a world-class operation that has strong social license to operate. We have had the support of the community during this renewal period and uncertainty. Let me move to Slide 5 and just emphasize some of the achievements of Didipio.
Didipio is a template for responsible mining globally and in the Philippines. What we have achieved with our strong, proud Filipino workforce is remarkable, and the operation has delivered significant socioeconomic benefits to the host communities, the provinces of Nueva Vizcaya and Quirino, and more broadly in the Philippines.
The Didipio operation is one of the safest operations in the world, with the leaning TRIFR rating of 0.5 per million hours worked. We have direct employment of over 1,500 workers, comprising 97% Philippine nationals. 59% of them are from the local communities and including over 300 women, many of whom are in leadership roles. Indirectly, we estimate employment for nearly 4,000 Filipinos from the provinces of Nueva Vizcaya and Quirino. Didipio is a world-class operation run by Filipinos.
Though OceanaGold has made significant economic contributions in the Philippines over the past several years, we have stimulated the local economy and have led to the establishment of new enterprises that are thriving. We have constructed hundreds of kilometers of access roads connecting Didipio to new markets. We have built hospitals and schools. We have focused on building capacity through training, education, and other forms of tuition assistance.
We established an underground mining simulator at the Clark Training Center, which has allowed Filipinos from our local communities who have had no prior experience to gain hands-on training and certification to work underground at the operations at Didipio. We helped the Didipio community establish DiCorp, which is one of the largest taxpayers in Nueva Vizcaya and employs over 300 people.
The Philippines seeks a responsible mining industry, and we support this initiative completely. Didipio’s environmental performance is exceptional. We are operating to the highest of environmental standards, being the first mining operation to be ISO 14001, OHSAS 18001, and more recently ISO 5001 certified. We have planted over a million trees in the last five years, and we also have several programs designed to promote water management in an area prone to illegal small-scale operations that use harmful substances and contaminate local rivers. We are very proud of Didipio’s performance and its contributions to society.
On that, I’ll pass over to Michael to discuss the performance of operations. Thanks, Michael.
Thank you, Mick. Moving on to Slide 6, and hello everybody. I must say that in my experience, which includes several years in Argentina, the Didipio mine is one of the best performing operations that I’ve had the fortunate opportunity to be a part of. I am proud that Didipio is an OceanaGold operation and the courageous, hard-working, and proud Filipino workforce are a part of the OceanaGold family. They are some of the most talented and dedicated people I have ever worked with.
Moving on to Slide 7 with health and safety, and one of the reasons why Didipio is such a special operation, which Mick has already highlighted, is its outstanding safety performance. Overall, the Company continues to focus on enhancing our safety cultures at Haile and the New Zealand operations, like the one we at Didipio. Our persistence is yielding positive results. We are trending lower in terms of injury frequency and, over the last 12 months, we are running at a total injury frequency rate of 3.8 per million hours worked. This compares to 4.5 that was achieved at the end of 2018.
Moving on to Slide 8 and the operational performance at Haile, as Mick mentioned, we had significant improvement in the operational performance in the second quarter, and this trend has continued into the third quarter. Haile produced over 37,000 ounces of gold, which is 45% higher than the previous quarter. Unit cash costs were $710.00 per ounce in the second quarter, which compares to over $1,100 per ounce in the first quarter, a 39% improvement. Mining costs were 30% lower quarter-on-quarter on better mine productivity.
We achieved this even despite operating our original fleet of Caterpillar 777 haul trucks. In the second quarter, we only had one of our large Komatsu trucks in operation. In the second quarter, our own company mining costs were at $2.50 per tonne mined, and these costs are trending in the right direction. With the rollout of the new fleet over the course of the next 12 months, we expect to push our mining unit costs even lower. And by the end of this year, we expect to have 11 730-E Komatsu trucks at Haile, operating at Haile.
As Mick mentioned, with the improved and dry weather conditions, we took the opportunity to blitz the mining area by accelerating the amount of pre-stripping. Our mine plan for this year saw Red Hill, which is our third pit in the mining sequence, was to commence all mining in September/October. However, under the accelerated pre-stripping program, we are mining ore today.
In quarter two, we completed the pre-stripping of Red Hill, which accounts for over 70% of the pre-stripping for this year. In H2, we will commence stripping in Ledbetter Phase 1. Despite the significant pre-stripping in quarter two, we decreased our all-in sustaining costs by 23% on the previous quarter, reflecting the much improved mine productivity. And in fact, of the $1,379 per ounce all-in sustaining costs in the second quarter, $450 per ounce of that was related to pre-stripping activities.
As we mine down to the lower benches of the Snake Pit, we have had positive reconciliation on both grades and tonnes. This is not too dissimilar to our experience with the Mill Zone Pit, where reconciliation was negative at the top of the ore body and positive in the lower benches. In terms of processing, we achieved a consistent annualized rate of 3.5 million tonnes, and we are now focusing on pushing the plant to achieve even higher rates.
Early in the second quarter, we shut the plant for planned maintenance but also to tie in the IsaMill, which we had been commissioning for much of the quarter. The IsaMill can take some time to work out the kinetics. And the good news is that once the optimal parameters have been worked out, it runs without further input. It also requires lower maintenance than the previous SMD Vertimills. And as such, we expect to reduce our operating costs by $30.00 to $40.00 per ounce from savings in maintenance costs.
With the plant shutdown in April and increased used in some consumables such as carbon, our ore processing unit costs increased quarter-on-quarter. Having said that, our processing unit costs for the months of May and June were around $12.00 per tonne milled, and this trend of lower unit costs has continued into this quarter.
On the personnel front, we continue to hire talented workers at different levels of the operation. And in July, Jim Whittaker has joined OceanaGold in the capacity of general manager for the Haile operation. Jim is a highly experienced mining executive, having spent the last five years with Barrick Gold as one of its partners and executive general managers of the Veladero operation in Argentina.
Prior to this, Jim was a management consultant to the mining industry, having provided strategic support and consulting to the likes of BHP Billiton, Antofagasta, and Barrick. And then prior to that, Jim was with Placer Dome. We are very excited to have someone with his caliber working for us in taking Haile to the next level.
Moving on to Slide 9 just to get a bit more granular with the Haile physicals, you can see there the specific details on how the operation performed quarter-on-quarter. Haile demonstrated significant improvements on many fronts. Production was higher. Cash costs were lower. Total material mined was up, and you can see the mine grades were also increased quarter-on-quarter. The Haile mine plan for 2019 was always back-end weighted, and we continue to expect stronger production and lower costs in the second half of the year.
Moving on to Slide 10 and Didipio in the Philippines, operationally Didipio delivered a strong quarter again with steady production. Underground mining continued to ramp up well, with an 18% increase in underground ore mined. And as Mick mentioned, the underground is comprised entirely of Philippine workforce, most of whom come from local villages and they’ve had no prior underground mining experience. This is been a major success of the Didipio project.
We have further optimized the mine plan for the underground, and we will be using a top-down, long-haul stoping mining method, which defers additional development of panel 2, where we were originally developing it to the bottom of the current known resource. This also defers development capital to later years.
Additionally, we commenced the development of a new crown pillar stabilization project, which is in progress and expected to be completed this quarter. We’ve mined approximately 350,000 tonnes of material with a head grade of 1.7 gram per tonne. The area mined will be backfilled with cement, enhancing the stability in the crown pillar as we mine beneath it.
Innovation is a key aspect of the Didipio operation, and the Philippine workforce has strongly embraced technology. We are progressing with our ADAPT, Automation Digital and Process Transformation program. This initiative includes digital initiatives such as asset tracking and short interval control, and automated control of equipment with the ability to work from surface and during crew blasting and shift change, which is improving our productivity rates and reducing our unit costs, as noted.
As Mick has already indicated, we have temporarily suspended operations of the underground due to the depletion of consumable mining supplies, while other underground activities, including pumping, continue for safety and environmental reasons. Processing of ore from stockpiles in the plant continues.
Didipio’s second-half outlook was broadly consistent with the first half. However, this is now dependent on either the completion of the FTAA renewal process and/or the favorable outcome of the appeal process with the Philippine Court of Appeals.
Moving on to Waihi and Slide 11, Waihi had a strong quarter of operational performance, with production higher quarter-on-quarter on the back of increased mill feed, which was 29% higher than the previous quarter. The average head grade was slightly higher, to impact the mining sequence and accessing additional areas in the underground.
The operational team continues to focus on mining the current phases, while our project team focuses on developing the Martha Underground. Exploration and drilling is ongoing from both underground drill drives and from the surface. This exploration program is designed for both resource conversion and extensions. The drill results continue to be significant, and our confidence in delivering resource increases is strong.
At our WKP prospect, located approximately 10 kilometers to the north of Waihi, we continue exploration drilling from two drill rigs. In the second quarter, we applied for a mining permit which gives us security of tenure over the area. And finally, the pre-feasibility study for all of Waihi continues to progress well, and we expect it to be completed early next year.
This study will include the Martha Underground, WKP, and other projects we have contemplated. It’s important to note the study is based on resources that are at least in the indicated category. As such, the study will only capture the small indicated resource at WKP, but we do believe the WKP will be much larger than the initial resource we published earlier this year.
Production at Waihi in the third quarter is expected to be lower than in the second quarter. However, the second half of the year is similar to the first half.
Turning over to Slide 12 and Macraes, as expected, production at Macraes decreased quarter-on-quarter, as we sourced ore from lower grade zones of the Coronation North and processed a high portion of low-grade stockpiles. In the quarter, we mined 18% more material than previous quarter as we progressed the cutback of Coronation Stage 5. Correspondingly, ore mined in the second quarter decreased due to the focus on pre-stripping activities. The pre-stripping in the second quarter and into the third quarter is ahead of mining of additional ore and at higher grades in the fourth quarter.
Also in the quarter, we completed the installation of a long-term culvert, replacing the temporary culvert which was installed following the road washout last November. This work temporarily interrupted all haulage, and therefore mining of waste was prioritized during this period. This culvert secures the long-term access to the northern ore bodies, which includes the access to the Deepdell North deposit, a new open pit which is planned for mining next year pending approvals. Deepdell North is one of the growing opportunities we have at Macraes. Another is Golden Point, which we continue to drill and achieve favorable results, which are fed into the underground study currently underway.
I’d also like to point out Macraes’ unit mining costs of $1.09 per tonne mined, which we believe is one of the most efficient mining operations in the world. Processing unit costs of $7.03 per tonne milled reflects the efficiency of our plant operations and metallurgists. Looking ahead to the rest of the year at Macraes, we expect the third quarter to look similar to the second quarter. We expect to have high production in the fourth quarter on better grades and lower costs due to less stripping.
I will now turn the presentation over to Scott McQueen, who will discuss our financial performance. Thank you.
Thank you, Michael, and hello everyone. Over the next few slides, we’ll cover some key aspects of our second quarter financial performance, some of which Mick has already touched on in his overview. Turning to Slide 14, you will see a summary of our financial results. The higher quarter-on-quarter revenue reflects not only just the higher average gold price achieved, but also a strong underlying operational performance in the second quarter, which included higher production and sales at a lower cost of sales. EBITDA for the second quarter was approximately 11% higher than in the third quarter, reflecting the higher revenue generated combined with lower cost of goods sold, which drove improved EBITDA margins, the biggest underlying driver being improved operational performance at Haile.
So, as previously mentioned, we saw a 45% quarter-on-quarter increase in production. Adjusted net profit for the second quarter was $22.1 million, equating to earnings per share of $0.03 fully diluted, which, as previously mentioned, exceeded analysts’ consensus of $0.02 per share for the quarter. On the back of the stronger operational performance, operating cash flows also improved significantly quarter-on-quarter, the main drivers being the higher EBITDA already noted combined with the positive working capital movement across the quarter.
Second quarter investing cash flows included material pre-stripping costs at both Haile and Macraes. I’ll cover more on the capital expenditure including pre-strip in a bit more detail on the next slide. The $7 million quarter-on-quarter increase in financing cash flows you can see reflects the payment of a dividend in April. With $150 million drawn on our corporate revolver, no further debt repayments are scheduled until the end of 2020.
Moving on to Slide 15, which includes additional detail on our capital expenditure as outlined in the table, total capital expenditure increased around 50% quarter-on-quarter to $82 million, reflecting increased investment in our organic growth projects, combined with an 80% increase in pre-stripping, and due to growth capital, mainly related to the Haile expansion and also the Didipio underground development.
At Haile this quarter, the spend included the completion of the build out and tie in of the upgraded grinding circuit, land acquisition, and other site infrastructure work, including additional water retention ponds and waste storage cells required at the pilot expansion plant.
As Mick and Michael both mentioned and as the capital costs show, we increased our pre-stripping activities at Haile in the quarter to take advantage of drier weather conditions. We also had material pre-stripping at Macraes, which included the planned stripping at Coronation Stage five and, as Michael noted, the timing impact of additional waste movement mined in lieu of ore while the permanent repair of the haul road culvert was completed in June.
Naturally, we continue to spend strongly on exploration, especially at and around Waihi given the positive progress of both the Martha and the WKP drilling program. Looking forward, we expect pre-strip to reduce materially in H2, and broadly are happy to report our organic growth projects remain on track.
Moving on to Slide 16, which includes a snapshot of our balance sheet, as at the end of the first half, our cash balance stood at $85 million and total liquidity at $135 million. Our net debt was $108 million, reflecting a low net debt to EBITDA ratio of 0.4. Our net debt position increased slightly quarter-on-quarter due to the progressive addition to the new mining fleet at Haile, consistent with our expansion plans. We do expect lease liabilities to continue to increase over the course of the next 12 months, as the new equipment continues to progressively arrive on site, as Michael outlined.
Late in the quarter, we took the opportunity to hedge about two-thirds of Macraes’ anticipated 2020 production, utilizing another zero cost collar at what were five plus year highs in the New Zealand dollar gold price. Since then, we’ve seen some further strengthening, and as a result the quarter includes unrealized on the mark-to-market of those hedge contracts. However, the hedging strategy for Macraes remains a financial de-risking tool to protect the downside risk and ensure strong returns at Macraes even in a lower gold price environment.
Moving on to Slide 17, as previously noted, our EBITDA margins improved quarter-on-quarter, in particular due to the progressive operational improvements at Haile. And as the year progresses, we are targeting further improvements. Nevertheless, H1 was still a strong result.
Return on capital investment; invested capital also remains a key metric for our business. And as you can see, we’ve delivered a positive return on invested capital continuously since 2011. And with our EBITDA margin, we are targeting further underlying performance improvements in H2, which should, gold price aside, help deliver an improved return on invested capital performance also.
Thank you, and I’ll hand back over to Mick to wrap up the webcast.
Thanks, Scott. So, I just will now close off the webcast with two more slides, moving to Slide number 19 just focusing on our sustainability report for 2018. Nearly a month ago, we released this report, which was based on the globally recognized Global Reporting Initiative Framework, the GRIF.
The report was also independently verified and highlights our performance in environment, health and safety, and social performance, and highlights indicators that are material to our business and our stakeholders, and captures opportunity for improvement. We pride ourselves on our ESG disclosure.
We are in the process of releasing new policies related to climate change, which we believe is the first amongst gold companies of our size. We are already signatories to the UN Global Compact, and are looking for other associations and policies that align with our business and needs of our stakeholders. For a company of our size, we do a lot well, and we do consider ourselves to be leaders in our industry in this space.
Just moving on to Slide 20, which is the last slide for our presentation, the second half of the year is expected to deliver higher production and lower costs on the back of higher grades and lower costs at both Haile and Macraes. This is, of course, dependent on the outcome at Didipio.
As we’ve mentioned, we’re appealing the decision on the injunction with the Philippines Court of Appeals in Manila and working closely with the DNR and NGB to renew the FTAA. We are committed to our stakeholders at Didipio and neighboring communities. We will continue to work in partnership with the national government and regulatory authorities in accordance with the law and will always comply with our responsibilities under our contract with the Republic of the Philippines. We remain committed to pursuing genuine and effective engagement with all stakeholders.
At Haile, the mitigating strategies we implemented in the first quarter have already delivered good results in the second quarter, and we expect continued improvement going forward. We also expect higher grades from the Snake Pit in the second half of the year and in the fourth quarter in particular.
As we continue to commission the re-grinding circuit at Haile, we do believe that recoveries will increase on lower steady-state grind targets. We are feeling good about the future at Haile.
At Macraes, this quarter we expect a similar operational performance in the third quarter as we had in the second quarter before getting into the better grades in the fourth quarter. Production and costs at Waihi are expected to similar in the second half as the first. We will continue to ramp up development of the Martha Underground.
Craig and his team are drilling several exploration targets around our operational footprint. We are excited at the continued strong drilling at Martha Underground and WKP, and expect to have a midyear resource update for both.
As I just mentioned, ESG is a major focus for us and has been for a very long time. We continue to mature our programs, and we remain staunchly committed to delivering a strong health and safety performance while operating to the highest of environmental and social standards.
And notwithstanding the current political challenges we’re currently going through in the Philippines, I am very pleased with the state of our business. We have four solid operations and a substantial growth pipeline. We don’t believe there is any other gold company that can deliver a 50% increase in gold production through organic growth opportunities while also delivering an increase in margin. We will continue to work hard to deliver this and add value for our shareholders.
So, this concludes the formal presentation segment of the webcast. We’ll now take some questions over the phone, and I will turn the webcast over to the moderator to facilitate the Q&A session. Thank you.
[Operator Instructions] Your first question is from Michael Slifirski from Credit Suisse. Michael, please go ahead.
Thanks very much; a few questions around Didipio. And I’m sure there’s some you probably can’t or don’t want to answer, but I’ll ask them anyway. So with respect to the sustainability of stockpile processing, how long before you hit the next consumable constraint, whether it be fuel, grinding, maybe reagents? How long before that ceases, please?
We will continue, we’ve got plenty of ore stockpiles there, as you know. And we will reassess the ability to continue operating on a regular basis. We can’t give you a prediction of when that is, but there is plenty of stocks on-site.
Thank you. Well, with respect to then the appeal, from a statutory process, how long does that take? Is that a long, drawn out thing between submitting an appeal, with being heard and an outcome? Do you have any idea of how long that period might be?
No. There is a process to go through, and it’s not a long-winded process. But we can’t give you a definitive timeline, Michael.
Thank you. Well, good try. The FTAA extension renegotiation, again, is there a statutory period for that? And if that comes first, does that override the local activity?
That’s correct. The FTAA renewal will basically make any issues with the local government go away. And there is no statutory limit to negotiation.
Okay. And then with respect to the unsuccessful initial court hearing, does that have anything to do with the unresolved suspension order, or are they separate issues?
No, it’s got nothing to do with it whatsoever. The initial hearing was just for an injunction to allow us to keep operating and have the restraining order suspended. So that’s what the injunction was there for.
Yes, okay. Thank you. When the block out is freed and you can get consumables back in, how long before you can get the underground back into production? So I guess I’m interested in the period you’ve got before you start to wade into your guidance, given that first half it seemed that you, Didipio was your bank to cover up for the shortfall from Haile. So it sort of seems like you’ve eaten into a bit of the contingency that you otherwise might have had operationally.
Well, just on guidance, we are confident with our guidance for the full year at this stage. So we will just have to wait and see how Didipio pans out. I don’t have any definitive timelines for the ramp back up. But as you know, it will take a bit of time, but in the order of weeks.
Okay, thank you. And finally on Haile, is there any sort of political risk insurance that you carry that can cover for any sort of material losses during the cessation period for underground?
For Didipio, you mean?
Sorry. Sorry, yes, absolutely that’s what I mean. Sorry.
Well, no, there aren’t.
Yes, okay. And sorry to take a bit of time, but just moving to two other areas very quickly. The increased material movements, accelerated stripping during the first half because of favorable weather, does that change your expectation for total material movements of this year or, from an all-in sustaining cost perspective, are we still good with respect to material movements? There’s no increased number that might add some costs to what guidance is currently?
We have moved a lot of the pre-strip material for this year already. I think it’s around about 70%. Michael can confirm that. But obviously, we will go mining as hard and as fast as we can to get our unit cost down. Michael, do you have any comment on that?
No, Mick, you’re right. That’s what we’ve done from the pre-stripping point of view. But yes, no additional sort of cost to what we’ve put forward or no additional movements to what we’ve put forward. But while the weather’s good, we will continue pushing on through.
Thank you. Your next question is from Geordie Mark from Haywood Securities. Please go ahead.
Thanks for hosting the call, just a couple of questions on Didipio but perhaps a different aspect here. On the crown pillar stabilization, when was that initially sort of envisaged? Was that something that was more reactive in terms of what you’ve been seeing for the stability as you’re mining, or is this sort of part of the initial long term development plan that was only now sort of, I guess, effectively initiated and completed in Q2?
No, it hasn’t been part of the long term plan going back a couple of years. It’s something that’s evolved from our knowledge of the ground conditions both in the pit and the underground, and refining and improving our mine plan and the stability of the underground.
So you might recall, Geordie, that we did take some of the crown pillar last year, and that was to take out the very soft material around the Breccias. And that was to strengthen the crown pillar. We backfilled that with cemented rock fill. That was very successful, and we also convinced the regulators that it was the safe and smart thing to do.
So we then extended our thinking to what else can we do to maximize recovery and what can we do to improve the stability of the ore body, and we conducted a study the first part of this year. And some of the engineers got stuck into that and they came up with this new plan. So it is, I guess, innovation in mining and basically strengthening the whole crown pillar, [technical difficulty] only increase recovery or maximize recovery of the underground ore. It also brings production forward that would otherwise have been mined at the end of the mine life.
For sure. The delta on potential recoverable tonnes, I guess, that you’re thinking about, given this I guess increase in stability that you’re envisaging?
I couldn’t give you an exact number on that, but you’re not talking 10% or something. You’re talking 1% or 2%.
Right. Okay, no worries. Thanks.
It’s very high grade stuff.
Yes, for sure. And maybe moving to NZ, turn to Macraes, obviously with commodity price going where it is and you’re kind of above the hedges now, but how’s Macraes’ place in the gold tungsten project in terms of longevity? How do you see that sort of impacting and what are you doing to look at mid and long term plans, given the bolstered gold price environment we’re seeing?
Yes. Well, it’s a good question, Geordie. As you know, the gold price in New Zealand dollar terms is now over NZD 2,100. So I think it’s about NZD 2,130 or something. And we always thought that the gold tungsten project would be viable above NZD 2,000, so it’s starting to look very interesting.
We continue to do drilling at Macraes. As you know, we’ve identified another underground at Golden Point, which is an extension, if you like, or it’s contiguous with the Round Hill project, where most of the tungsten is. And we’re also finding a lot of tungsten at depth in Golden Point.
So it’s starting to get very interesting, and the tungsten processing work is starting. We’re looking at what they call a VSI, vertical spindle something or other, a different kind of mill for milling tungsten ore and then using gravity. So we’re starting to get closer to finalizing the flow sheet for recovery of tungsten, and may even be able to tack on a tungsten circuit on the back of the current plan as a pilot and then produce a marketable concentrate.
That work is continuing. In the meantime, we’re still drilling for extensions of the project and increases in the size of that gold tungsten project, which of course does require the [indiscernible]. But with current gold prices, it’s starting to look pretty attractive.
Okay, thanks. And would we anticipate having sort of an update by the end of the year or something on the metallurgical aspect at least?
I hope so. I hope so. It’s not our number one priority, Geordie. We’ve got a lot of work to do at Waihi, bringing that all together and demonstrating another 15 years of mine life there. We are obviously very busy at Haile implementing the expansion plan there. And Macraes, we’re finalizing mine plans now to take it out to 2024 before we consider any larger extension of the mine beyond that.
So yes, look, Macraes looks like it’s got a long life ahead of it. It wouldn’t surprise me if it’s still there in another 20 years’ time, the way it’s going, but yes, hopefully something in the next six months or so.
Okay, great. Thanks.
Thank you. Your next question is from Daniel Morgan from UBS. Daniel, please go ahead.
The question relates to Haile. So you’ve got well ahead on your stripping plan, clearly, this quarter and this half year. And you’re saying that the mill is operating quite well, particularly at the end of the quarter. Just wondering how much ore in the second half you can pull out, what sort of run rates you’re expecting now you’ve done all this pre-strip. What can we expect in terms of ore and potentially even grade? Thank you.
Michael, would you like to answer that?
Sure, Mick. The grade will be improved because we’re sort of getting down to the better part of Snake. So the Snake Pit, we’re basically into the benches where we’ll mine down to the end of Phase 1, which is basically all-in ore. And Red Hill, with the stripping of, with the pre-strip and bringing that down, there’s still some waste movement in the Red Hill pit. But we’ll be getting into the main in the ore body as we go down there as well, so the ratios will improve. But that being said, we will then sort of commence the pre-stripping on Ledbetter as well, but not at the rate so the strip ratio at the moment for the first half was around about 6 or over 6. I don’t have it off the top of my head, sorry, what the second half strip ratio will be.
Yes, maybe just a quick follow up. Sorry to interrupt. I was also I guess thinking about are you going to be processing fresh ore in the mill, because looking at the numbers, it looks like you were pulling in some stockpiles into the mill, i.e., the mill was outperforming the mine. Just trying to get some sense of what’s happening in the second half.
Yes, that’s right. So I’m sorry. I misread the question. But we’ll be stockpiling fresh ore through the second half, so the processing plant will be taking all fresh ore in the second half.
Thank you. Your next question is from Barclays. Matthew, please go ahead.
I was wondering what the grade is of the stockpiles at Didipio that you’re going to be processing this quarter.
Yes, 0.6 gold and about 0.35 copper.
Okay. And then because of the blockade, you won’t be able to ship that concentrate, right? You’ll just be stockpiling it.
Yes, okay. And then just on the FTAA processing, is it actually the president’s signature that’s required on this thing? And can you speak to at all what efforts that you might be taking or can take to try and get this prioritized?
Look, we continue our discussions with the government, including the office of the presidents, who have the authority to sign the approval. So we’re not going to discuss the details of that, other than to say it is a good working relationship and we are moving it forward as quickly as we can. And I’m confident of a positive outcome.
Thank you. There are no further questions at this time. Please proceed, Mick.
Well, thanks everyone for your time. And thanks for your support for OceanaGold. That concludes our webcast and conference call for today. There will be a replay available on our website later on. On behalf of Michael, Scott, and the rest of the team, thank you for joining us. Should you have any follow up questions, please don’t hesitate to contact our great Investor Relations team. Thank you. Bye for now.
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