Victoria Aug 12, 2015 (Thomson StreetEvents) -- Edited Transcript of OZ Minerals Ltd earnings conference call or presentation Wednesday, August 12, 2015 at 12:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Damon Hunt OZ Minerals Limited - Head of Corporate Affairs * Andrew Cole OZ Minerals Limited - MD, CEO * Andrew Coles OZ Minerals Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Stefan Hansen Morgan Stanley - Analyst * Cathy Moises Evans and Partners - Analyst * Michael Slifirski Credit Suisse - Analyst * Lyndon Fagan JP Morgan - Analyst * Matthew Hodge Morningstar - Analyst * David Coates Bell Potter Securities - Analyst * Sam Berridge RBS - Analyst * Ben Lyons ATI Asset Management - Analyst * Andrew Knuckey Commonwealth Bank - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Damon Hunt, OZ Minerals Limited - Head of Corporate Affairs [1] -------------------------------------------------------------------------------- Good morning and welcome to the webcast for Oz Minerals' 2015 half year results. My name is Damon Hunt and I'm the Head of Corporate Affairs. Joining me today is Andrew Cole, the CEO and Managing Director of Oz Minerals and Andrew Coles our CFO. Just a reminder, this webcast is being recorded and will be available on our website later today and I will now hand over to Andrew. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [2] -------------------------------------------------------------------------------- Thanks very much Damon. Thanks very much for joining the call ladies and gentlemen. These are my first half year results and I'm making this phone call along with Andrew from our corporate office in Adelaide. A fairly cold and wet day here so I hope the weather's a little bit better where you are. I'm going to keep my comments today fairly short given it's just two weeks since I spoke with you last, before I hand across to Andrew to take us though the financials in a little more detail. So turning to the disclaimer slide, please note and take note of the disclaimer for the content of this presentation. I'd now like to talk to you a little bit about the operational highlights of Oz Minerals and I'd first like to focus on Prominent Hill as we're working to earn our potential to grow which is the title of strategy that we released earlier this year. We are focused on the execution of this strategy and I think the half one performance that we've seen is a good demonstration of this. I'd like to draw your attention first to the chart on the top right hand corner. As you can see by this chart we've accelerated our copper production in line with our maximizing value component of the strategy. So in the first half, we produced 64,000 tonnes of copper. That's up by 23,000 tonnes, a staggering 59% over the first half of 2014. So let me just touch on how we've actually done that. First thing we've done is we've accelerated the open pit mine plan. So we've brought mining forward and we're utilising our fleet of the maximum productivity or the capacity of those excavators and trucks. That's given us access to higher grade open pit wall. We've actively prioritised the Malu Underground high grade ore and we've preferentially fed that ore into the plant. The Prominent Hill leadership team I think has done a fantastic job in really taking this strategy on board and delivering against the strategies. So we are starting to build confidence. We're building confidence in being able to accurately plan and forecast what we're going to do and then deliver against it. And because of this confidence, we have guided the market and I'm going to repeat that today, we are guiding the market to the upper end of our 110,000 to 120,000 tonnes guidance for the year. Let me move now to the bottom right hand chart and talk a little bit about a lean business. So we do have a natural and quite a large natural advantage in our open pit moving forward here. So despite the pit getting deeper, despite our haul truck distances getting longer from the bottom of the pit to waste dumps, the amount of waste material that we need to move going forward is reducing quarter-on-quarter, half-on-half and this is going to continue right through to the end of the open pit. This gives us a significant natural advantage. In addition to this natural advantage, we are working on driving productivity, driving productivity of our fleet, our excavators and our trucks to make every hour count more and more, so moving more material in the same time. Malu Underground has enabled us in part to deliver this level of production. We commissioned Malu Underground three months ahead of plan. We've pulled forward higher grade stopes. We've focused on improving equipment availability and the utilisation of those equipment and we've prioritised underground ore over lower grade open pit ore. So the Prominent Hill team has also set some records of late in development advances on the site, just to evidence the fact that they are continually improving performance in the underground. In addition to those things, for both open pit and underground, we're working to make our overhead costs as variable as they can to reduce our overhead costs in line with the level of activity at the site. Let me turn to, quickly to Carrapateena. We've made some very good progress on the value enhancing projects that we flagged with you earlier this year and again a couple of weeks ago. The rail study for the Gawler Craton contract has been awarded, so engineering has commenced. The hydromet concentrate treatment project has progressed very well. We've now wet commissioned the plant and we've started feeding Prominent Hill samples into the plant as of the end of last week. On the high grade option we're also building. We're now rebuilding the resource to come up with a smaller, but higher margin option to compare to our base case so when it comes time to make a decision on how we will progress Carrapateena we have a number of options to evaluate. And I look forward to bringing you the results from these projects and these studies over the coming months through the second half of this year. On Oz Minerals restructure, we've now relocated the corporate office from Melbourne to Adelaide. So this has been done very successfully and I'm very pleased that people have done it incredibly professionally through this whole period and I'd like to thank the teams both in Melbourne and in Adelaide for very professionally and efficiently transferring the skills and accountabilities needed to run the corporate office from Adelaide. With the half year results complete, so Melbourne to Adelaide transition is also now complete, we've restructured our business to form a decentralised business model, so the strategy requires the corporate centre to be entirely focused on strategy and corporate activity, so it's just corporate development, running exploration and large projects. This leaves the assets to run the assets. And I'm pleased to say that the results from the first half demonstrate that the asset teams are taking this very seriously. We have a new team. We've got a team that's energised. It's been compiled from people from different parts of Australia and globally and with a clear strategy in place, I think this sets us up very well for the future. I'd now like to turn to financial highlights. So why is all this enabling work so important? I mean very simply, strong operational performance translates directly into strong financial performance. So I'd like to just flag with you a few highlights. Firstly, in the first half of this year our revenue increased 11% or AUD39 million up to AUD390 million. This excludes Malu Underground, as that was capitalised in the first half. Underlying EBITDA increased 64% or AUD78 million to AUD200 million. Underlying NPAT increased by AUD66 million up to AUD52 million, which was negative in the last period and resulting in an earnings per share of AUD0.17, again, which was negative in the last period. I want to touch now on how we've done this. Pleasingly, with all the credit going to the Oz Minerals team, these have come from things within our control, not from price. So if I draw your attention to the chart on the right hand side. We see a lot of media, we see a lot of talk and publicity about declining commodity prices and copper price in US dollars has declined over the past few years. But what's important to us is not copper price in US dollars, but copper price in Australian dollars. And when you compare copper price in Australian dollars in the first half of 2014 to the first half of 2015, they're effectively the same, at AUD3.43 a pound in 2014, up to AUD3.44 a pound in 2015. These improvements we have seen have come from declining waste stripping profiles, driving volume and productivity improvements. This generates a very attractive cash generation profile going forward. On Malu Underground, the first half impressively has been cash flow positive, despite theoretically being under construction. Cash at midyear is up 88% since the end of 2014, now standing at AUD410 million. Let me turn to dividend just briefly and I'll come back to this later in the presentation. So just from performance and a clear dividend policy which was released at the start of this year, allowed the Board to declare an interim dividend of AUD0.06 a share, which totals AUD18.2 million. Again, I'll come back to this later in the presentation. So I'm now going to hand over to Andrew, to take you through the financial performance in a little more detail before I make a few closing remarks and then open up for questions. Andrew. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [3] -------------------------------------------------------------------------------- Thanks Andrew and good morning from Adelaide to everyone listening to the call. I'll now take you through our profit, cash flow and balance sheet numbers and then have a short discussion on working capital and FX before handing back to Andrew to talk about dividend. As Andrew mentioned, Oz Minerals has recorded improved profit compared to the prior comparative period and this table demonstrates that this has been on the back of improved numbers pretty much across the board. I'll pick out a few of the highlights. Revenue was, as Andrew said, AUD39 million higher due to the significant increase in the amount of copper sold itself on the back of higher concentrate production. We continue to be successful in further diversifying our customer base buy building on our ability to produce custom specifications and concentrate to their individual requirements. As Andrew noted, this revenue line does not include revenue of AUD55 million generated from the sales of concentrate produced from ore mined from the Malu Underground, prior to it being commissioned on 1 July. This AUD55 million is posted to the balance sheet against a Malu Underground asset in accordance with accounting standards. Obviously, having been commissioned for accounting purposes on 1 July, Malu Underground revenues and operating costs from that date will come through to the P&L henceforth. As Andrew did mention, despite the lower US dollar copper price compared to the first six months of last year, the A dollar profit price was unchanged thanks to the lower value of the A dollar against the US dollar. And the A dollar gold price was around 9% higher despite the US price being 6% lower. Costs of goods sold was AUD11 million lower. This line includes expenses to consumables and other direct costs, employees, freight, South Australian royalties and adjustment to the change in value of ore and concentrate inventories. As such, there are a number of moving parts. The most common factor across those has been the significant reduction in open pit mining activity as waste removal had dropped, together with the benefits of continuing improvements in productivity from the open pit in particular. Included within this line is a 33% reduction of around AUD58 million in consumables and other direct costs and an 8% reduction in employee expenses. But this has been offset to some extent by higher freight on the back of higher sales to more customers and an almost AUD20 million increase in royalties paid to the South Australian Government as the prior period was the last at the concessionary rate. Also the inventory credit was some AUD27 million lower, which has partly offset these reductions. In line with previous announcements of reduced exploration activity, particularly stopping drilling at Freemantle Doctor, exploration expenditure is 23% lower, with activities now focused on the studies to improve the value of the Carrapateena project, particularly the hydromet demonstration plant which Andrew just mentioned is now underway. We have included an item of AUD7.6 million to reflect the costs and provisions associated with the relocation of the corporate function, primarily redundancies of staff who will not be relocating and also restructuring at Prominent Hill. Depreciation has been marginally lower. The fixed plant depreciation period now reflects the longer life of underground operations as per the last reserves and resources statement issued last -- late last year and with less ore in the open pit mines in this part than the previous comparative period, the amount of deferred waste depreciation is correspondingly lower. I'll give a bit more detail on deferred waste balance when I get to the balance sheet. While there is no bubble, I will note that the tax interest and dividends line does include a tax expense of AUD27.4 million, that as we hold sufficient tax losses we will not have a cash tax liability in this regard. That all brings us to the bottom line at a net profit after tax of AUD52 million, some AUD66 million better than the first six months of last year. Moving on to the next chart. Let's move to the waterfall chart, the movement from the income statement which lays out graphically what I've just gone through. So I'll move through this fairly quickly. You can see at the lower copper price is almost completely offset by the higher gold price and that really -- the gains we have seen due to external factors have been due to the welcome fall in the value of the A dollar against the US dollar. The impact of that on US dollar cash and trade receivables. We've also included royalties in those factors that we don't control, as it's mentioned in the second half of last year our concessional rate of 1.5% expired. So we now pay the South Australian government a 5% royalty which was the main reason we paid an extra AUD20 million in this half, although obviously higher sales revenue was also a factor. High sales revenue increased cash flow by AUD113 million on the back of higher copper production. We've explained the reasons for the high copper production this quarter so I won't go through these again. Please note this column is a gross number and includes revenue from sales of concentrate produced from Malu Underground ore of AUD55 million. In the next column we then back out this revenue to reflect the accounting treatment of it being capitalised and posted against the balance sheet assets of Malu Underground. Non-cash movements were AUD44 million to the negative with the combined effects of deferred mining, depreciation and inventory adjustments that I just talked about. These are more than offset by a AUD64 million reduction in cash operating costs driven by all of the factors we've talked about before, both in the recent quarterly report and the strategy release in April, particularly lower activity levels at Prominent Hill as wage rates decline and cost savings from the lean business model being deployed throughout the Company. The items remaining as per the previous slide so now I'll move onto cash flow. Please note that this chart maps the changes in the last six months which hopefully is more useful to you than our comparison to the first six months of last year. In the first half we have seen good cash generation of AUD66 million from the normal business, with an additional AUD125 million in proceeds from the sale of our shares and Sandfire resources. Taking a total net cash generation of the first six months to AUD191 million and cash as at 30 June of AUD410 million. So it's starting from the left. We started the year with AUD219 million in cash. Net operating cash flow for the six months was AUD183 million. This is in line with the theme so far. Higher sale receipts from higher copper production, reduced waste removal as a striping requirement rapidly drops, leading to lower activity levels allowing more open pit mining equipment to be demobilised. Of course, the impact of continuing costs reduction strategies. On this chart we have split out all the cash flows that tripled the Malu Underground and the next column shows that for the six months to 30 June, we've actually generated more cash from sales of concentrate produced from Malu Underground ore than we have spent on the project in this period and it's construction. Indeed, the revenue earned from Malu Underground ore over its life has already repaid 35% of its construction costs to date. We did spend AUD78 million on waste material movement but, as we've noted this amount is rapidly reducing as we get through the waste removal program, as planned. Sustaining capex was mainly development expenditure of AUD20 million in Ankata, a small amount of sustaining capex from the rest of the Prominent Hill operation. I've already covered exploration and Sandfire which gets us to the 30 June cash balance of AUD410 million, which leads us to the balance sheet. I've covered cash so I'll move straight on to working capital. Knowing how much interest this seems to attract among some of you, we've included a bit more detail on the working capital movements, have tripled with the operations on the next slide. But I will note here that the [ROM] stockpile build included in this number, is obviously in line with the profile to be published with the most recent quarterly report. The lower amount for investments obviously reflects the sale of our interest in Sandfire up to AUD125 million in March. We did sell another investment in the half, but it was relatively minor. Property plant and equipment includes the deferred waste balance of AUD482 million. I am pleased to say that this is as high as this asset will get on a reported basis and from now to the end of the open pit in 2018, this asset will be depreciated against remaining open pit ore production through to 2018. The remaining life of mine strip ratio through to 2018 is now 1:1. I should also note that we continue -- sorry if I can mention tax, I did mention tax in the income statement, but consistent with that we have seen a high utilisation of tax losses is due to the higher taxable income. Again I note that no cash tax will be payable for the half year. I should also note that we continue to hold available an underdrawn bank debt facility of AUD200 million and that adds up a strong, highly liquid balance sheet that is readily available to support the Company's growth strategy. Now my last slide before I hand back to Andrew. We provide a bit more detail here behind the working capital movements. On the right hand side you can see the movements and balances between December and June for trade receivables, concentrate at cost obviously, trade payables and ore inventory. I've talked to you in the the past about the high value of those shipments and so they're lumping us with our working capital movement. You can see this reflected in the trade receivables and concentrate variances. We had a shipment due in early July and so the concentrate balance reflects the inventory build prior to the load in that shipment which is now well and truly gone. I've already mentioned the ROM stockpile build on the previous slide. Despite this increase of AUD44 million in working capital, cash still increased by AUD191 million for the six months, at which AUD66 million was attributable to operations. Thankfully we have seen a lower A dollar to US dollar rate in this six months versus the first half of last year, dropping from an average of AUD0.91 cents then to AUD0.78 cents now. This is better than our realised sales prices and a revaluation of US dollars in nominated cash and receivables by about AUD24 million versus the prior comparable period. With that, I'll hand back to Andrew to talk about dividends. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [4] -------------------------------------------------------------------------------- Thanks very much Andrew. I'd now like to elaborate on dividends as Andrew's pointed out. I'd like to bring you first back to the policy that we released earlier this year. That policy for our dividends for Oz Minerals that we will endeavour to pay a minimum of 20% net cash generated not required for investing the balance sheet activity. So last night I met with the Board and we unanimously agreed to pay an interim dividend of AUD0.6 cents per share, totally AUD18.2 million. It was a quick decision, we were unanimous in our conclusion because we were unanimous and aligned around the policy we built and communicated earlier this year. I do understand from talking to people, many of you people on this phone today and others, that there are mixed views about dividends. Some people will think we shouldn't be paying any, some people will think we should be paying more. But, we do have a clear policy and I do want to reassure you that our intent is clear. We do want to reward shareholders for their continued support. We do want to demonstrate confidence in our strong cash position and outlook for future cash flows, whilst we preserve sufficient capital to fund future growth opportunities for the Company. This interim dividend is material for shareholders, but it does not impact our ability to grow the Company. This payment accomplishes all three of the objectives which I've set out. So let me conclude please on a summary slide. So in summary, the strategy we've built earlier this year and have shared with you is clear. People in our Company understand what it is and they are executing against it. We are working on a building a lean business, focussed on value creation, strong (inaudible) operational and financial performance (inaudible). I am very pleased at the results today. They are a step change from the same period last year and I'm very proud of the work of the Oz Minerals team have done to deliver these results for us. But, we're under no misconception, we are just starting this journey, it is early and we have got more to do. These results I think are a good indicator for all our commitment to deliver against the strategy. We do have a clear strategy and we have ready access to roughly AUD680 million or thereabouts when you add our cash and our undrawn debt facility together. We are working hard to build a portfolio of value [accredited] assets. We are currently assessing a range of assets from small, high grade, high margin resources, right through to large assets in operation. It is an exciting time for us. It's an exciting time for Oz Minerals and I think it's an exciting time for our shareholders. So I do look forward to bringing you further results over the remainder of the year, both from Prominent Hill as we continue to deliver on our lean value creating journey, on the projects we're running to improve the value proposition and decrease the risk profile for Carrapateena and on our corporate development and exploration activities. So thank you very much for your time this morning. We have plenty of time for questions. So I'd like to hand over to the operator now to please refresh people on how to ask questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator instructions). Your first question today comes from Stefan Hansen of Morgan Stanley. Go ahead please. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [2] -------------------------------------------------------------------------------- Morning everyone, just a few questions from me. Firstly on the -- merging the underground mines, I recall there, the second quarter presentation you talked about some opportunities to take some costs out from synergies between putting those two mines together and it might have taken a few weeks before you get an indication of progress of that. I'm just wondering if you can give an update on how that's going? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [3] -------------------------------------------------------------------------------- Yes Stefan it's going very well. So we're actively merging these two together now and it's probably a good point and good reminder going forward we will be referring to the Prominent Hill Underground, not Ankata or Malu or separating them out. This is how we're going to get the synergy by optimising the fleet we've got underground, the sequencing we've got for both of those undergrounds into a single underground to ensure we maximise utilisation of the fleet we've got through various pieces of equipment. I think it's going very well. It's too early Stefan to give you numbers on what those impacts are going to be and I'd rather do that once I've actually seen some runs on the board. But the team does have an improvement plan up on the wall. They are actively putting it together. We're working very closely with (inaudible) to do this, so (inaudible) are being very supportive in the approach of putting these two undergrounds together. But I can't give you a number yet but I will over the coming months, as we start to realise improvements. I think we are starting to see some improvements already as we're pulling Malu Underground slopes forward. So this ability to flex between different slopes different heading, is really important. It does allow us to maximise value. So removing any barriers such as different names, different teams, different schedules and different accounting practices, is very important to really simplify the business, remove duplication, remove redundancy and just make it crystal clear for the sites then that they've got one underground optimised. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [4] -------------------------------------------------------------------------------- Okay thanks. The next one is on concentrate blending. I notice in this set of results there's zero spent on concentrate purchase for blending and last year I think it was about AUD10 million in total. I mean I guess the trial is finished and you're going to be doing anymore, or is it just finding its way into another part of the financials? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [5] -------------------------------------------------------------------------------- Hi Stefan, I'll take that one. Look we figured out how to do it last year and we're now very happy that we've got all the systems and processes in place and the commercial arrangements in place to know how to do it. The reality is, the commercial reality is we haven't needed to do it this year, so we haven't. We have been very successful in continuing to diversify our customer base, and whilst we won't talk about who our customers are how many there are, I think we're very pleased with the progress we've been making there and in particular we're able to deliver or produce and deliver these custom concentrates which are really designed for each customer's particular requirements. As Andrew mentioned that is fed directly into our ability then to optimise production as well and bring forward value. So blending remains an option going forward. It's certainly something that we'll have as our toolbox I guess of things that we can use to optimise value from a concentrates and in terms of that customer focus. But, just haven't had to use it for this last six months. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [6] -------------------------------------------------------------------------------- Okay great and the final one, just on acquisitions I mean I know you can't talk of anything specific, but just more broadly, despite the fall in commodity prices, it still seems to be a big divergence between big-and-ask spreads for what sellers are wanting and what buyers are wanting to pay. We've seen a few fully valued deals in the gold space. Not a great deal in copper. But just wondering are you finding it difficult to find good quality assets at value and the result is you probably have to pay a fairly full price for a good quality asset? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [7] -------------------------------------------------------------------------------- Yes. Stefan, I think, look, as we've said in our strategy, this is about value and risk. So we're not going to make a transaction that we destroy value in. We're just not going to do that. So, yes, look, it is hard to find good quality assets that you can create value from. If this was easy, everybody would be doing. Now, that's not the case. It's hard to find them, but they do exist. This is why we've opened up our portfolio, to give us a broader spectrum of things to review and a broader spectrum of places to review them in. We are looking actively at some fairly small, but quite high grade resources that have some really good, strong financial returns on them. But these aren't 20, 30 year mine life things, but you can make an awful lot of money from them. So we're looking at some things from that end of the scale right through to some fairly large operations that are actively operating. They have different value propositions attached to them. They have different risk profiles, so I think to answer your question very simply, yes. It's very hard, but I do think, and we are seeing, assets in the market place, which you create value from. I look forward to bringing one when, if we find one that actually does create value. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [8] -------------------------------------------------------------------------------- Okay. No worries. Then, I guess, just following on then on to dividends, I guess, if nothing eventuates over the next months, we can expect, I guess, the annual dividend policy to come into effect. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [9] -------------------------------------------------------------------------------- Yes, you can. Yes. So the policy is very clear. It is an annual policy, Stefan. So the interim dividend is to give you the confidence that we're adhering to the policy and it's to give you confidence that we are comfortable in a strong cash flow forecast. It's to reward our shareholders for being here with us as we go through this journey. If we need that that capital, then we'll use it. If not, we'll return it. -------------------------------------------------------------------------------- Stefan Hansen, Morgan Stanley - Analyst [10] -------------------------------------------------------------------------------- Great. Thanks very much, Andrew. Cheers. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [11] -------------------------------------------------------------------------------- Okay. Thanks, mate. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Thank you. The next question comes from Cathy Moises of Evans and Partners. Go ahead, please. -------------------------------------------------------------------------------- Cathy Moises, Evans and Partners - Analyst [13] -------------------------------------------------------------------------------- Good morning. Just a couple of very quick questions and I know it's partly dictated by the copper price, but have you got any feel as to how long before we start seeing some franking coming to your dividend? With respect to depreciation, should we be expecting a similar amount for the second half? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [14] -------------------------------------------------------------------------------- Yes. Hi, Cathy. The current outlook on -- obviously it does depend on metal prices. But the current outlook is that we won't pay any cash tax until 2017. Obviously that can move around a bit but certainly we expect to be paying, unless there's a really precipitase drop, we wouldn't expect to be paying any cash tax for 2015. In terms of -- what was your second question? -------------------------------------------------------------------------------- Cathy Moises, Evans and Partners - Analyst [15] -------------------------------------------------------------------------------- Million (multiple speakers). -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [16] -------------------------------------------------------------------------------- Depreciation. Yes. Depreciation well it runs in line with the amount of ore we produce out of the open pit. We produce a little bit less ore out of the open pit in this half verses the prior comparative period and that's why the depreciation rate's down. But Andrew's already talked about the activity levels in the open pit and it will be in line with that. I think we've obviously got a certain amount of ore to take out of the open pit between now and 2018 and you can apply that AUD480 million against that, frankly, because that's the deprecation rate as it's done on a ore mined out of the pit basis. -------------------------------------------------------------------------------- Cathy Moises, Evans and Partners - Analyst [17] -------------------------------------------------------------------------------- Okay thank you. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [18] -------------------------------------------------------------------------------- Thanks Cathy. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from Michael Slifirski of Credit Suisse. Go ahead, please. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [20] -------------------------------------------------------------------------------- Yes. Thank you. I'd like to return to that uranium and concentrate issue that Stefan raised. I just want to understand the commercial solutions that you refer to in your notes, that specifically means the diversify of the customer base or does it imply penalties. How does that change as you get deeper in Malu and have more uranium and as you have a high proportion of the underground or does that arrangement get more challenging for you? Or is what you've got now reflective of -- to end of mine life, please? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [21] -------------------------------------------------------------------------------- Michael, I'll take the first part of the question and then I'll go to Andrew for the second part. In terms of how we deal with that in the commercial terms, obviously I'm not going to go into confidential commercial terms, but it does reflect through in terms of [TCRCs], penalties, the whole -- a whole suite of things that you can twiddle the dials on, in effect, in terms of coming up with terms. You'll see the net outcome of that come through in our TCRCs and realisation costs. So those numbers are obviously disclosed in the accounts. But we -- I think we've been very pleased with the way that we've been able to deal with it through our commercial arrangements and we've really developed that ability and ramped that ability up. I hate to say it's just been done in the last 18 months, because it's actually the product of years of work frankly in terms of developing the relationships and developing the understandings with both current customers and new customers. So it has been a long term process, but we've really managed to get some runs on the board in the last 18 months. I'll hand to Andrew for (inaudible). -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [22] -------------------------------------------------------------------------------- Michael, let me just talk a little bit about the second question, but I might just, just a short story first, mate. I was -- I've visited two customers now, two smelters and I've asked them about what they think of our product. Both of them absolutely unanimous in that they love our product, it usually goes -- it's first in their blend, because of the higher copper content of the concentrate. They use other materials then to blend it out and get all the various other elements into spec, if you like. The reason that we are pulling Malu Underground ore forward, which gives higher copper content and higher uranium content, is because our customers want it. They want it to blend with other customers' products, which are all of varying qualities, of course, and with various challenges and strengths, to give them the optimal blend through their smelters. So the demand from our customer is strong. So that partly answers your second question. We are preferentially pulling deeper material forward and that deeper material is higher grade and higher uranium, but I think the fact that we're pulling it forward means that there is demand for it. What we're doing at the moment in some areas, we've stockpiling (inaudible), for example. That's lower grade copper, but it's also lower uranium and we'll use that in later years to blend out with deeper material from the Underground. Our competent persons are very in that approach, in that strategy and for all of the reasons that I've just talked about and Andrew's talked about, because you've got an array of tools at our disposal to sell the product. The fact that we can ramp up production the way we have and sell it all quickly and easily -- in fact, we could easily go into an oversold position, if we don't manage it and monitor it very carefully -- is very positive. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [23] -------------------------------------------------------------------------------- Okay. Thank you. Look, the second question -- that's for the granular breakdown of the various costs. Nice to see the reduced activity driving lower utilities and fuel and operating consumables and direct mining costs. Big changes in those numbers, which you'd expect, but why are the employee costs relatively flat? Why hasn't those costs changed in proportion to the others, please? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [24] -------------------------------------------------------------------------------- Basic, because there's some redundancy costs in there. I mean, there's the AUD7.6 million we put in there specifically for the restructuring and whatever we've done. But there's also some redundancy costs in there, Michael. So you'll see going forward that that number will get bigger. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [25] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [26] -------------------------------------------------------------------------------- Just to -- Michael, I'll just add one piece to that. So over the past 12 months, we've reduced our employees by 25%. So -- but the -- so the numbers you're seeing at the moment are one-off numbers in the statement. The benefit of this will start flowing through in future quarters. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [27] -------------------------------------------------------------------------------- Great. No. That's very helpful. Then finally on freight expenses, why is freight up? It was in -- pretty good global freight rates. Low oil prices, so why has the freight number increased? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [28] -------------------------------------------------------------------------------- We've got more customers and some of those customers, getting it to them is a little bit more expensive (multiple speakers). -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [29] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [30] -------------------------------------------------------------------------------- Is the simple answer. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [31] -------------------------------------------------------------------------------- That's fine. Thank you. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [32] -------------------------------------------------------------------------------- Also obviously the higher volume. -------------------------------------------------------------------------------- Michael Slifirski, Credit Suisse - Analyst [33] -------------------------------------------------------------------------------- Okay. Thanks very much. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [34] -------------------------------------------------------------------------------- Thanks, Michael. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Thank you. The next question comes from Lyndon Fagan of JP Morgan. Go ahead, please. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [36] -------------------------------------------------------------------------------- Thanks very much. Andrew, I just wanted to touch on a comment you made around M&A, which was that you're prepared to look at larger sets in operation. Just following up on that, what would be the maximum amount of your net cash you'd like to consume on one single deal? So would you be prepared to use all of the AUD410 million plus using some of the undrawn debt facility of which you've got AUD200 million on one deal? I guess, further to that, how do you view gearing going forward? What would be the appropriate gearing metric for Oz Minerals? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [37] -------------------------------------------------------------------------------- Yes. Lyndon, I think we've chatted about this one before. There is no one gearing metric for Oz Minerals, because it will depend. If the asset that's we end up acquiring as an example are all in Australia with low sovereign risk and they're all open [pittable] and they're on the bottom of the cost curve and all of these positive things for them, for example, then gearing's probably not an issue. If all of these assets end up being overseas in South Africa and they're higher cost and tough and underground, then gearing will be an issue. So, I mean, that's just an example. I don't think it's prudent to say that there is a gearing target to be had, because it's -- there is none. It will depend on the value and risk proposition of each asset and that's the reality of it. The same goes for use of our cash. If we find an asset overseas that's got a higher risk profile, we would probably use more cash. Whereas if it's in a low risk jurisdiction, we're probably quite happy to use and other things to finance acquisition. So there's so many variables in here and I don't want to get locked into any one mechanism to actually execute. It will totally depend on the acquisition and when we -- if we announce something like that, then I'll be very happy to go into the details of why, what we've done, how we've done it and very transparent about it. But I don't want to lock ourselves into a rule, if you like, before we get there. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [38] -------------------------------------------------------------------------------- So I guess just to sort of push a bit harder on that. So would you be happy to spend it all on one asset? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [39] -------------------------------------------------------------------------------- It depends where the asset is, Lyndon. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [40] -------------------------------------------------------------------------------- Right. Okay. Then, I guess, if you did, how would you then look at funding Carrapateena, even under a smaller scenario? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [41] -------------------------------------------------------------------------------- The same answer, I guess. It will depend. Carrapateena has got to compete for capital along with everything else. So if we find something else that has a much stronger value proposition than Carrapateena does, and we can only fund one asset, then Carrapateena will sit there. We're not hell bent on just building Carrapateena and everything else is a mechanism to do that. Carrapateena needs to stack up. We're doing some -- I think some really good work on Carrapateena to improve the value proposition and bring the risk down. Hopefully, we'll get to the point where it is the primary thing that we want to spend money on and build, but it's still got to compete for capital and I think in today's marketplace, there are other things sitting out there that are going to push that boundary and are going to make it tough for Carry to get up. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [42] -------------------------------------------------------------------------------- Great. Then just, look, one follow up. Are you a believer in the gold premium? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [43] -------------------------------------------------------------------------------- Am I believer in the gold premium? What do you mean? -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [44] -------------------------------------------------------------------------------- So would you look at a gold asset and would you look at that in terms of assessing its value in what it may or may not do to Oz Minerals in terms of the stock trading with the gold premium? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [45] -------------------------------------------------------------------------------- Okay. No. So when we buy an asset, we are not going to be using future possible price scenarios to defend an acquisition. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [46] -------------------------------------------------------------------------------- Okay. So in terms of assessing a gold asset, that won't be looked at any differently to -- -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [47] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [48] -------------------------------------------------------------------------------- -- base metal assets. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [49] -------------------------------------------------------------------------------- It'll be looked at exactly the same way as any other acquisition. -------------------------------------------------------------------------------- Lyndon Fagan, JP Morgan - Analyst [50] -------------------------------------------------------------------------------- Great. Thanks. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [51] -------------------------------------------------------------------------------- Thanks, mate. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Thank you. The next question comes from Matthew Hodge of Morningstar. Go ahead, please. -------------------------------------------------------------------------------- Matthew Hodge, Morningstar - Analyst [53] -------------------------------------------------------------------------------- Hi, guys. Just a question on acquisition. You'd be well familiar with the track record of acquisitions generally and I think we can all point to plenty of examples in resources where it's even harder to do good deals. The way you're talking, it kind of feels like a deal is inevitable. Like, you're feeling that the pressure from Prominent Hill coming towards its end. What can I take away to feel comfortable that you guys are going to do something different and be the exception and add value to the acquisition or acquisitions that you make? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [54] -------------------------------------------------------------------------------- What can I say to make you feel comfortable? That's a tough thing to answer, Matthew. -------------------------------------------------------------------------------- Matthew Hodge, Morningstar - Analyst [55] -------------------------------------------------------------------------------- (Inaudible). -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [56] -------------------------------------------------------------------------------- We haven't done a deal yet. Every time I get on this phone call, people keep saying to me jeez, it sounds like you're about to do a deal, and I'm not. I'll do a deal when we've got a deal to be done, and if that means in two years' time we're sitting here without one, then we won't do one. In parallel with our corporate development strategy, there are other things we are doing. We're working on optimizing the value of Prominent Hill, so as I said in the quarterly release, Prominent Hill open pit finishes in 2018, but that operation is at full capacity through to 2022. So I don't feel pressure to have to go and do something today or tomorrow. On top of that, Prominent Hill's underground current reserve goes to 2028, and one of our projects is looking at expanding the volume and the mine life at Prominent Hill. Building value is most easily done in the current operation, as opposed to new assets. I don't have pressure, I don't feel pressure, to go and do an acquisition. The only reason we have a growth strategy is because with the marketplace the way it is, things in some areas I think are poorly-valued, and there are opportunities. I think it's tough to do in an operating asset, because the market tends to fairly-value, but as you move back down the maturity, as you move into study stages and things like that, the market tends to, in many cases, under-value them, so I think there are propositions out there we can create value, but if it's not about pressure, we've got plenty to do at Prominent Hill and we've got plenty of years of good cash flow left. So it's not about having to do a deal today. -------------------------------------------------------------------------------- Matthew Hodge, Morningstar - Analyst [57] -------------------------------------------------------------------------------- That's good to hear. Just kind of curious on how you come up with your view on the copper price. I cover iron ore companies and coal companies in addition to base metals, and if you look at what some of the external consultants were saying two or three years ago, very, very wrong, and the market got it wrong, too. How do you guys -- do you guys make up your own mind on the copper price? Because it's obviously a key input into whether you do a deal or not. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [58] -------------------------------------------------------------------------------- Sure. Matthew, I'm going to ask Andrew to take you through how we come up with our price forecast, but before I do that, there's a couple of things. I don't have a personal view on what the copper price is going to be. I have no idea what it's going to do, and I've said it before, one thing that's certain is everybody is going to be wrong, because doing this is really, really hard. The key question for us is about getting our business into shape so that we can survive any copper price, which is why we're driving costs down and efficiencies up so that we can be lean and agile and respond. That's the first piece of the answer, but I'll ask Andrew to talk to you about how we come up with our price forecast, if you like, which we use for budgeting, planning, and corporate development. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [59] -------------------------------------------------------------------------------- Hi, Matthew. We don't profess, we don't have an economics department, we don't have -- I've been in this business for far too long to believe that I know what's going to happen in the market better than anybody else. So what we do is actually look at, quite frankly, a lot of the people on this call and their views of what the copper price is. We do a survey of that. To be honest, quite a lot of those forecasts get pretty thin the further you go out, and when you're looking at long-term planning we're actually looking at a pretty small number of samples. We then look at that, we look at the spread, we look to see whether there's any sort of median or average that makes any sense, and then try and land on something that's as good an agreement as possible with that sample group. We might exercise some judgement looking forward in terms of just smoothing out the bumps where you might get out of that survey you might just get some things that just look illogical, but apart from that, really it's a pretty mechanistic exercise in that what we're trying to do, I guess, is make sure that we're not horribly out of step with where the general market is and also where our investors are, more importantly. Obviously our investors don't necessarily tell us what they think of where the prices are going to be, but we try to do that so that we're not particularly out of step with the market. We certainly don't take a view, so to speak, or a house view based on somebody's economic predictions as to where we think the prices are going to go versus other people. -------------------------------------------------------------------------------- Matthew Hodge, Morningstar - Analyst [60] -------------------------------------------------------------------------------- I could probably ask a few more questions, but that's illuminating, so thanks very much for that. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [61] -------------------------------------------------------------------------------- No worries. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Thank you. The next question comes from David Coates of Bell Potter Securities. Go ahead, please. -------------------------------------------------------------------------------- David Coates, Bell Potter Securities - Analyst [63] -------------------------------------------------------------------------------- Good morning, gents. Just a quick one on the Malu underground. You mentioned you're bringing some of the high-grade stopes forward. The reserve grade on Malu is 1.5%. What sort of grades stopes are you bringing forward? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [64] -------------------------------------------------------------------------------- David, I don't have that number at my fingertips, mate. Can I come back to you with that number a little bit later on? -------------------------------------------------------------------------------- David Coates, Bell Potter Securities - Analyst [65] -------------------------------------------------------------------------------- Yes, certainly. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [66] -------------------------------------------------------------------------------- Thanks. We'll give you a call after this and let you know. -------------------------------------------------------------------------------- David Coates, Bell Potter Securities - Analyst [67] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Thank you. The next question comes from [Dan Berridge of PDM]. Go ahead, please. -------------------------------------------------------------------------------- Sam Berridge, RBS - Analyst [69] -------------------------------------------------------------------------------- Hi guys. Sorry, Sam Berridge. You've made some comments earlier on about the demand for your high uranium grade con and the demand was strong. I was wondering, could you put this in context of price around that? You mentioned TCRC and realization costs as well as perhaps freight up a little bit. So if you sum all that together, the discount that you're wearing on that high uranium grade concentrate, is that stable now or is that likely to increase as the pit declines or descends? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [70] -------------------------------------------------------------------------------- Hi, Sam. Look, as I said in the answer to Michael's first few a little while ago, we do have individual commercial terms with all of our customers. We don't, obviously, disclose that. They're confidential. The net sum of all of those terms are disclosed in our accounts, in terms of the TCRCs that we pay and the various other realization costs that we pay. So as I said earlier, we are very confident in our ability to be able to sell those concentrates that do have higher amounts of uranium in them. In terms of the cost of those, it's still very much economic, and as Andrew mentioned earlier, there's a lot of focus on uranium, but we put out a shipment last week which had 57% copper in it. That's absolutely remarkable in this market, and as Andrew mentioned, we've talked to smelter managers and they're sitting there looking at their various concentrates to go through the smelter. If they've got one that's 57% copper and they've got another one with 20% copper in it and they've got a limited amount of throughput that they can get through their smelter, then they're going to go for the one that's got the higher copper units. So they like our concentrate. They're keen to get it. We get a premium because of our higher copper content in it, and I wouldn't get overly focused on the uranium levels in there. We also have a highly valuable concentrate in terms of the copper and ore content. -------------------------------------------------------------------------------- Sam Berridge, RBS - Analyst [71] -------------------------------------------------------------------------------- So is the trend in cost going to continue to increase or not? That's what I'm getting at. I mean, yes, you've got a high grade con, but it's got -- I'm not sure if you know what the uranium content of that 50% copper con was, but that would be what I'd be curious about. I'm just curious more so on the trend going forward. Are the sum of these costs and TCRCs, are they likely to increase or not? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [72] -------------------------------------------------------------------------------- Well, if you can tell me what TCRCs for the general market are next year, then I'd be interested, but the reality is, in the time that I've been in this job, the TCRCs have gone from AUD39 a tonne to AUD107 a tonne this year. We follow benchmark TCRCs, so if you're asking to predict where TCRCs are going in the future, I can't tell you. That's a far bigger factor in our realisation costs than any penalties that we're paying for uranium. So I'm sorry, but I can't answer your question, because I can't predict what TCRCs are in the future. -------------------------------------------------------------------------------- Sam Berridge, RBS - Analyst [73] -------------------------------------------------------------------------------- That wasn't what I was asking, Andrew. I'm curious about the discrepancies attributable to the uranium content of your con going forward. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [74] -------------------------------------------------------------------------------- I wouldn't call it a discrepancy, Sam. It is commercial terms, and as I said, we don't talk about those, but the bigger factor, if you're concerned about our realisation costs going forward, then the bigger issue to focus on is TCRCs, not uranium. -------------------------------------------------------------------------------- Sam Berridge, RBS - Analyst [75] -------------------------------------------------------------------------------- Rightio. No worries, guys, thanks. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- Thank you. The next question comes from Ben Lyons of ATI Asset Management. Go ahead, please. -------------------------------------------------------------------------------- Ben Lyons, ATI Asset Management - Analyst [77] -------------------------------------------------------------------------------- Thank you. Good morning, everybody. I'd like to return to the M&A strategy, please. Andrew, you made some comments about the value proposition of your investments and not feeling any pressure to pursue M&A. In that context, why did you sell the Sandfire stake at AUD4.20 and leave AUD40 million to AUD50 million to AUD60 million on the table when you didn't require the money at that time? -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [78] -------------------------------------------------------------------------------- For a few clear reasons. We are a mining company. We're not an equity company. Shareholders can choose which companies they invest in. We reviewed Sandfire at the time we made that decision. We felt that Sandfire was fairly valued. What we understood about the resource, when you mapped out based on consensus copper prices what that value and that asset was worth, we decided to sell it because we could not see a value proposition in doing anything but sell it. In terms of leaving value on the table, at the time it was absolutely the right decision to do. We do not want to be holding equities as part of our portfolio. We are looking for assets, not equity holdings. In terms of leaving value on the table, at that time, who knew what the price of Sandfire was going to be? I don't think anybody could predict it, and everybody I spoke with after that transaction was very positive that it was the right decision to do. So I stand by that decision. I think it was the right decision to make at the time. -------------------------------------------------------------------------------- Ben Lyons, ATI Asset Management - Analyst [79] -------------------------------------------------------------------------------- Obviously it's great to have the benefit of hindsight, but at the same time, you're running a fairly significant business development team who also have access to your in-house geology team, so again, I do stress that it's easy with the benefit of hindsight, but it would certainly appear to be the wrong decision was made in the case of Oz Mineral shareholders. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [80] -------------------------------------------------------------------------------- Ben, look, hindsight is a fantastic thing. If you're suggesting that our exploration team should have been able to predict that they were going to intercept something, I think that's a little bit far-fetched. It was the right decision at the right time, and as I said, I stand by it. I don't think we did the wrong thing by shareholders. I think it was absolutely the right thing to do, and I'm pleased that that cash is sitting in our account now, not exposed in the equity market. -------------------------------------------------------------------------------- Ben Lyons, ATI Asset Management - Analyst [81] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [82] -------------------------------------------------------------------------------- Thank you. The final question comes from Andrew Knuckey of Commonwealth Bank. Go ahead, please. -------------------------------------------------------------------------------- Andrew Knuckey, Commonwealth Bank - Analyst [83] -------------------------------------------------------------------------------- Good morning, gentlemen. Just two questions. One is as we get towards the end of the open cut now, and particularly the waste removal elements of that, what should we expect to see in terms of any increase rehabilitation costs and, in that same vein, mine closure costs, appreciating that the mine life is a little bit open-ended at the moment? What should we be factoring in in that respect? Then finally I appreciate it's only a couple of weeks since we spoke about it, but is there any update on the open cut stability work that's been conducting and is that still something that we can feel comfortable about? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD, CEO [84] -------------------------------------------------------------------------------- Hi, Andrew. I'll take the first question and I'll go to Andrew for the stability one. In terms of mine rehab costs, honestly I can't remember the number off the top of my head, but we can come back to you later, but it's certainly provided in the accounts. We have a provision in there that's reassessed on a biannual basis, externally audited. We get an estimate of what it's going to cost to rehab Prominent Hill. That number is in our accounts. It's an NPB number. There's a discount factor that unwinds each year as we get closer to that rehab expenditure. But we can come back to you once we've got off the call. Oh, hang on. I've got somebody pointing it out to me. It's AUD19.7 million currently in the accounts. I'll flick to Andrew on the pit stability. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [85] -------------------------------------------------------------------------------- So on open pit stability, Andrew. As we referenced in our strategic review earlier on, there are some parts of our business that we were prepared to more risk and some less. Open pit is one of those areas that we're prepared to take less risk. It's the primary source of ore and primary source of cash flow for us, going forward for the next few years. So of course, we need to protect that investment. So the work we've been doing on the open pit is really just a reduced risk. We've got an extensive monitoring system on the open pit with prisms and inclinometers and all sorts of things and radar systems. We monitor the pit wall very actively continuously, 24/7. So we are doing a little bit of work. We announced this a bit earlier in the year. I think it's about AUD5 million worth of work to put in more dewatering and remove some overburden material that does put pressure on pit rims, etc. Those sorts of things are continuing and early indications are we're actually seeing the risk reduced. We're seeing less movement in prims, less movement in pit walls, all the pressure is reduced, all of those types of things. They're the sorts of things that we should be seeing and then I'm very pleased we will see them. We are going to continue monitoring and if we do see anything that warrants further actions, then we'll take it, in order to protect that pit, to make sure that we can see it right through to 2018 and indeed, protect the underground access, the decline, the portal, going into the Prominent Hill underground. So look, this work I'm very comfortable with it. I gave the Board another update on it yesterday. They are very comfortable with the work being done and we've got independent advisors critiquing the work and reviewing the work we're doing and they are comfortable. In my view, shareholders should be comfortable with the action we're taking and the money that we're putting into it, which is reasonably small, is money well spent to protect our investment, going forward. -------------------------------------------------------------------------------- Andrew Knuckey, Commonwealth Bank - Analyst [86] -------------------------------------------------------------------------------- Okay, great. Thank you. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [87] -------------------------------------------------------------------------------- Okay, thanks Andrew. Look, we're at 10:30, so look, thank you very much for your time this morning. Thanks very much for the questions that you've asked today. There are a couple of things we'll come back to on a couple of items that we didn't address on the call. So we'll make some phone calls after this. Thanks very much and look forward to talking again.
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