Newcrest Mining Limited (OTCPK:NCMGF) 2020 Half Year Results Earnings Conference Call February 12, 2020 6:00 PM ET
Chris Maitland – Head of Investor Relations and Media
Sandeep Biswas – Managing Director and Chief Executive Officer
Gerard Bond – Finance Director and Chief Financial Officer
Conference Call Participants
Steuart McIntyre – Blue Ocean Equity
Daniel Morgan – UBS
Levi Spry – J.P. Morgan
Dave Radclyffe – Global Mining Research
Matthew Frydman – Goldman Sachs
Ladies and gentlemen, thank you for standing by, and welcome to the Newcrest Mining 2020 Half Year Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 13th of February 2020. I would now like to hand the conference over to your first speaker today, Chris Maitland, Head of Investor Relations and Media. Thank you and please go ahead, Chris.
Thank you. Good morning everyone and welcome today. With me today is our Managing Director and CEO, Sandeep Biswas; and our Finance Director and CFO, Gerard Bond. [Operator Instructions]
Please take note of the company’s disclaimers on the slide, as you may already be aware, Newcrest is a U.S. dollar reporting entity, and all dollar references made in this presentation refer to the U.S. dollars unless otherwise stated. I’ll now hand the call over to Sandeep.
Thanks Chris, and good morning everyone. Today, Gerard and I will take you through our financial results for the first half of 2020. But first and most importantly, I’ll spend a moment talking about the progress we’ve made on safety and sustainability this year. Then I’ll provide an overview of our half year results, followed by a review of the operational and financial performance of each of our operations. Gerard will then discuss our financial results in more detail, after which I’ll provide a summary of Newcrest unique properties as a multi-decade gold-copper miner, and highlight the differences that help make us unique within the gold industry.
The first half has seen another period free of fatalities or life altering injuries, making it almost 4.5 years now. The Total Recordable Injury Frequency Rate for the last six months looks like it stabilized at 2.3 million man hours worked. However, the December half data now includes Red Chris, which has a TRIFR, significantly higher than other Newcrest sites. Putting Red Chris aside Newcrest TRIFR for the year would have been 1.8, which is a significant improvement compared to this time last year and is at an industry leading levels. This improvement was driven by Cadia, Telfer and Lihir all having fewer injuries in the period.
Red Chris has a great opportunity for us to apply the Newcrest safety transformation plan, with the objective of achieving the same improvement in safety culture, controls and processes that’s been delivered across other Newcrest sites. This will not happen overnight, but we’ve made a strong start and our first steps had been well received by our people. The initial focus of our safety transformation plan as it was at all other Newcrest sites is to engage with the workforce in the NewSafe program, building a safety culture from the bottom up.
NewSafe has a leadership coaching and behavioral component. Almost all the people leaders at Red Chris have completed the leadership component and over the coming months, crew members will experience NewSafe leadership and commence the coaching and behavioral components of the program. I’m really encouraged by how positively the Red Chris workforces embrace these changes and look forward to seeing a reduction in the number of injuries there.
Like our commitment to safety, sustainability is core to the long-term success of Newcrest. We believe the business imperative is straightforward. Sustainable outcomes underpin successful operational outcomes and shareholder value creation. Last August we announced a series of sustainability targets that reflect our values and give an insight into how we’ll manage this area of business. They include greenhouse gas emissions intensity target pricing carbon emissions into our capital investment decisions, a catchment-based approach to water management and the target of no net loss of biodiversity values for new projects.
Our aim is to relentlessly innovate how we operate and improve the energy efficiency, water management and environmental performance, to ensure we remain a sustainable business for the long-term. As also previously announced, we’ve committed to disclose the progress against the TCFD framework. This year our public reporting will seek to include our progress against our emissions intensity target, how we apply our shadow carbon prices and our approach to climate change governance. Longer-term to test our operating and financial resilience, we’ll look to assess climate scenarios on our portfolio of assets.
Operationally Newcrest delivered gold production of 1.1 million ounces and 62,000 tons of copper at an all-in sustaining cost of $880 per ounce. Our first half production is typically lower than the second half as a result of maintenance schedules at a number of our operations. From a growth perspective, the December half was a period in which we invested for the future. We successfully completed the acquisition of 70% of Red Chris, a mine in Canada with a potential Tier 1 ore body. We also increased our investment in Lundin Gold, the owner of Fruta del Norte a Tier 1 mine in Ecuador. And we recently received some positive news in relation to Golpu, which I’ll talk a little more about later.
Finally, our exploration results in the first half were very pleasing. We announced some very promising exploration results from Havieron located near our Telfer mine in Western Australia. These results extend the mineral footprint and signal the very real potential for renewal of our asset portfolio in the Paterson Province. The grades we’re seeing at Havieron are unique for this region and we’re excited to progress in the accelerator evaluation of this opportunity. Initial drill results at Red Chris had been very positive with the identification of a newer high – a new higher grade zone which has expanded the mineralization in the Gully Zone.
We’ve commenced the Eastern resource definition program with the intention of developing a new resource model, incorporating both historical Imperial Metals results and 2019 Newcrest drilling data. I’ll discuss the drilling results of both Havieron and Red Chris in greater detail later on.
Our continuing strong financial position enabled the board to determine interim fully franked dividend of $0.075 per share. We remain very focused on returns to shareholders and have a strong dividend policy that puts shareholders first. So even in a half year, we made a large investment in Red Chris. We’ve kept to our commitment and have declared an interim dividend.
For the half, Cadia produced 411,000 ounces of gold at an all-in sustaining cost of $167 per ounce, generating a free cash flow of $459 million. Copper production was 45,000 tons. This was another outstanding performance from Cadia. Golden ounces were lower than the prior period, primarily as a result of the extended downtime of the Concentrator 1 SAG mill. This occurred during the first quarter as a result of preventative maintenance. Lower gold grads compared to the prior period were also a factor. Cadia rebounded well in the second quarter with a stand-out performance which culminated in the site achieving its second highest quarterly gold production result. You would also be aware that new South Wales has been in drought for a number of years now, with the last two years being the lowest on record.
Our modeling shows that calendar year 2020 was to be like the last two years, in other words, another one-in-100 lower rainfall year then production may be impacted by the end of the calendar year. Of course any rainfall amounts higher than this one percentile scenario, progressively extends the date in which production might be impacted and eventually can eliminate this risk altogether.
Based on current modeling, we don’t anticipate any production impact if rainfall is at or above the one-tenth percentile of the historical average. However, we continue to pursue all sensible options to maximize our recycling rates and increase our access to alternative water sources in an effort to minimize this potential risk. We’re encouraged by the recent wet weather in other parts of New South Wales and are keen to see how it may extend to the relevant catchment areas for the Orange district.
Turning to the Lihir, it produced 381,000 ounces of gold at an all-in sustaining cost of $1,154 per ounce in the first half. Compared to the prior period Lihir’s production was impacted by lower-grade ore feed to the mill and a corresponding reduction in recovery rates. In addition, during the half, Lihir commenced transition to a biannual shutdown strategy, aimed at improving equipment reliability and utilization from FY 2021 onwards. I’ll talk to this in more detail shortly.
Lihir generated $84 million of positive free cash flow for the half, higher than the same time last year. And though we have advised Lihir’s production will be around the bottom end of its guidance for FY 2020, we expect it to have a strong second half, which if realized would translate into a stronger half of free cash flow.
Onto Telfer, it had a tough first half and its performance was below my expectations. The site produced 192,000 ounces of gold and 7,000 tons of copper at an all-in sustaining cost of $1,380 per ounce. Early in the half year Newcrest announced a change in the operating strategy for the site, that change involved reducing the operating rate to utilize around 1.4 of the sites two trains capacity and at the same time targeting higher feed grade to improve its cash margin.
Corrective action plans are being implemented to drive an improved performance at Telfer over the next six months. Whilst Telfer recorded a negative free cash flow of $22 million, revenue losses on the gold hedge book were $33 million, this means the underlying business was free cash flow positive in the half to the tune of $11 million.
Gosowong produced 76,000 ounces of gold at an all-in sustaining cost of $1,261 per ounce in the first half, primarily reflecting substantially lower grade ore feed to the mill. Many of you will recall we were required to divest at least 26% of our interest in Gosowong and we recently announced that we’ve agreed to divest our entire interest in Gosowong for $90 million. Once the conditions precedent had been satisfied the economic ownership of Gosowong transfers to the new owners with effect from 31st December, 2019.
I’d like to extend my sincere thanks to all our Gosowong employees, who have contributed so much to the success of Gosowong and Newcrest over the past few decades. It’s been a fabulous gold mine and we wish the team there and its new owners every success for the future.
We’ve been very focused on integrating Red Chris during the half. As I discussed earlier, our first priority is the implementation of Newcrest safety transformation plan. We also recently announced our first drilling results from Red Chris, which I’ll talk a bit more about later. For the period, our ownership in this half, our share of production at Red Chris was 11,000 ounces of gold and 110,000 tons of copper, at an all-in sustaining cost of around $2,600 per ounce. The high all-in sustaining costs combined with working capital adjustments post acquisition has resulted in the site being free cash flow negative in the period.
Our goal is to make the site free cash flow positive on an underlying basis. To achieve this, we’re investing in the long-term future of Red Chris, which will involve a level of capital expenditure for a period to improve the site and its operational performance. At the same time, we’ll continue to invest in drilling and studies to develop a block cave.
We’ve also recently acquired the GJ copper-gold property adjacent to Red Chris comprising approximately 35,000 hectares of perspective land. It sits on the same structural corridor with Red Chris and we’re pleased to expand our footprint in this prospective region.
As I mentioned, when we acquired Red Chris, we intended to apply a two stage transformation to the operation. Stage 1 which has been our main priorities since acquisition will be to apply Newcrest Edge transformation approach. This is about safely optimizing the mine, plant and cost base to maximize its cash generation potential. Stage 2, it will involve applying Newcrest leading technologies, including deep underground brownfield and greenfield exploration, block caving, coarse ore flotation and mass sensing and sorting.
We appointed Mark Adams previously a General Manager of Telfer, as the General Manager of Red Chris. Mark and his team have been busy over the last 150 days of our integration program. I’m pleased with their performance on progressing the first stage of the transformation plan. We began to upgrade the camp and other working facilities such as the mobile equipment workshop. We completed the necessary tailings impoundment construction on time as well.
A pit optimization study has been completed, and shortly, a fleet management system will be implemented. In order to improve recoveries, we installed the first concentric launders in the rougher circuit, completed a stacked cell pilot and a cleaner column concept study. Given the potential for a block cave development of Red Chris, one of our biggest successes during the period was a completion of 17,500 meters of drilling. Data from this drilling will be used in the block cave concept study, which is currently underway.
I’ll now pass over to Gerard, who will outline Newcrest financial results for the half.
Thank you, Sandeep and good morning everyone.
Newcrest continues to be in a strong financial position. During the half, we delivered an underlying profit of $280 million, up 18% and a statutory profit of $236 million, which was in line with the first half of FY 2019. We continued to have a low cost position relative to the industry and our gold major peers within all-in sustaining cost of $880 per ounce for the half.
This resulted in an all-in sustaining cost margin of around $566 per ounce. EBITDA and EBIT margins were strong at 42% and 26% respectively. And all these margins were derived on an average realized gold price of around $14.46 per ounce for the period. As you know, the spot gold price has been well above that this calendar year. As Sandeep outlined, the December half was a story of investing in a future with $1.2 billion of investment expenditure. This includes progressing growth options like the Cadia expansion, our acquisitions of Red Chris and further interest in Lundin Gold as well as significant exploration activity.
Notwithstanding this, we ended the half with net debt of $1.365 billion and $691 million of cash on hand positioning elsewhere within our financial policy metrics. Gearing at the end of December was 15% and our leverage ratio was a low 0.8 times, so we continued to have a strong balance sheet. In line with that dividend policy, the board has determined to pay an interim dividend fully franked of $0.075 per share. This is the same interim dividend amount as the previous three years and amounts to a payout ratio of 55% of adjusted free cash flow.
As mentioned, statutory profit was $236 million includes significant items of $44 million, which represents the write-down of Gosowong following its classification as held for sale. Underlying profit of $280 million for the half was 18% or $43 million higher than the first half of last year. As this graph shows, the higher profit was driven by an increase in net revenue resulting from a high realized gold price, more than offsetting the lower period-on-period gold production volume.
A high volume of copper sales more than offset the lower copper price period-on-period. Newcrest revenue continues to be overwhelmingly attributable to gold being 83% of net sales revenue in the December half. Operating costs were a net $21 million higher; primarily due to the addition of Red Chris’s operating costs in the period. The weaker Australian dollar had a positive impact on our costs.
Depreciation expense was lower in the current period compared to the prior period, reflecting low production volumes together with the benefit of the weaker Australian dollar against the U.S. dollar. Off the increasing costs associated with corporate and another $16 million of this relates to our equity accounted share of losses and associates with the balance reflecting the high level of exploration, growth and innovation activities. The increase in tax expense you see broadly in line with the increase in profitability with our effective tax rate being 32%, 2% above the corporate tax rate primarily as a result of non-deductible international exploration expenditures.
Turning now to free cash flow. Free cash flow for this half was negative $729 million, which as we highlighted in this slide reflects our large investment in growth during the period. $774 million was the payment for the acquisition of the interest in Red Chris, and an additional $61 million was invested in Lundin Gold, taking our own ship to 32%. If we adjust for these two expenditures, Newcrest free cash flow would have otherwise have been a positive $106 million for the half.
In total, Newcrest generated $3.4 billion of free cash flow over the last six years, which is a great reflection of the efforts of our people, the quality of our assets and our focus on safely maximizing cash generation. Our strong free cash flow and debt reduction over many years has placed us well within our financial policy metrics. Our leverage ratio was 0.8 times remains comfortably below our target of less than 2 times. And gearing ratio of 15% at the end of December is well below a targeted 25%.
Our strong cash position sees our liquidity coverage at $2.7 billion, $2 billion of which consists of committed undrawn bank facilities, and we continue to retain our investment grade credit rating, which ensures that we have good access to all capital markets.
With that, I’ll hand back to Sandeep.
Thanks, Gerard. I’ll now highlight what makes Newcrest unique as a multi-decade gold-copper miner. Newcrest portfolio comprises some long life producing mines and the industry’s leading low cost mine in Cadia. We have some development projects with long lives and attractive returns, and now we also have a portfolio of exploration opportunities that are delivering some exciting results.
Our asset mix makes Newcrest unique in the gold industry. With Cadia and Lihir, we have the two largest operating mines by reserve base in our peer group and by a considerable margin as you can see from this graph. Amongst our gold major peer group of Newmont and Barrick, Cadia and Lihir, the only two operating assets with more than 15 million ounces of gold reserves. This large gold endowment means that Newcrest is one of the longest reserve lives in the industry. In fact, we have around 25 years of mine life at Cadia and here alone based on reserves. This is a unique attribute that none of our peers have.
However, we’re not complacent and are focused on the number of meaningful organic growth projects. During the half we gated Stage 1 of the Cadia Expansion Project to execution. The first stage comprises the development of the next cave, Panel Cave 2, 3 and an increase in the nameplate capacity of the process plan to 33 million tons per annum. The second stage, which is now in feasibility study is focused on further increase in processing capacity to 35 billion tons per annum and improving recovery rates. This represents a 17% increase on Cadia’s current 30 million tons per annum annual rate.
Combined, the two stages are estimated to have a total capital cost of $865 million. Cadia is one of the world’s premier gold assets and it has the potential to be delivering gold and copper at a low cost for decades to come. As I mentioned earlier, during the half, Lihir commenced transition to a biannual shutdown strategy, aimed at improving equipment utilization and reliability from FY 2021 onwards.
Previously, Lihir’s maintenance schedule resulted in roughly 130 days of interruption throughout the year. During FY 2020, we are making the transition to two shutdowns in March and September of each year. We expect that this transition will have the number of days impacted by planned major maintenance. I have long-stated that realizing the full potential of Lihir is dependent on increasing the uptime of the plant. And this is one of the many strategies we’re employing to achieve that. The prize for getting it right is substantial
Now turning to our exploration portfolio. The latest drilling results continue to expand the gold-copper mineralization at the Havieron Project located 45 kilometers east of Telfer. I refer you to our recently released drill results and I think you’ll share our enthusiasm. In fact, these results have encouraged us to increase our FY 2020 exploration expenditure guidance range by $25 million. We plan to drill an additional 20,000 to 30,000 meters in the second half of the year to support the potential delivery of a resource by the end of calendar year 2020. Finding gold is hard and rare, so to get these kinds of drilling results is really exciting.
In the same expiration report, we announced the positive initial drill results for the Red Chris mine in Canada. These drill results have identified a new higher grade area in the Gully Zone. The known Gully Zone mineralization has been expanded at depths between 500 meters and a 1,000 meters below surface including higher grade intercepts as disclosed in the exploration report. Additional drilling at the Gully Zone is planned to map the extent of the high grade mineralization and will underpin the assessment of the viability of an additional block cave.
In the east zone, under the existing open pit, we’ve commenced the Eastern resource definition program. Our intention is to develop a new resource model incorporating both historical Imperial Metals and Newcrest drilling data. Red Chris aligns with our strategic capability to find, build and operate large-scale underground mine.
Beyond expanding our existing mines, we have number of high return development projects within our portfolio. Newcrest owns 50% of the Wafi-Golpu Project, which is one of the premier undeveloped gold-copper projects in the world. Earlier this week, the judicial review proceeding between the Governor of the Morobe Province and the State of PNG in relation to the Wafi-Golpu MOU was dismissed by the National Court. As a consequence, the stay order restricting the joint venture from engaging in discussions with the State of PNG has been lifted. We see this as a positive development and we look forward to recommencing these discussions with the government.
Wafi-Golpu has a potential to become a Tier 1 operation, a multi-decade mind with a low cost of production producing on average approximately 266,000 ounces of gold and 160,000 tons of copper a year
In times of uncertainty, the gold industry has historically provided a safe haven for investors. This has proven true over the last year with the average gold price increasing by 18% in 2019 and has continued to strengthen in 2020. We believe that Newcrest has six competitive advantages that set us apart in the gold industry. One is our unique long reserve life. Our long life assets mean we can continue to produce for decades to come.
Second, our low-cost production because having a lot of gold won’t create value unless you can achieve strong margins from its extraction. We remain the lowest cost major gold producer with our all-in sustaining costs positioned in the first quartile.
Third, we do what we say. We have a strong track record of achieving our guidance and delivering on our plans. We also have a multitude of growth options and we have strong technical and exploration capabilities. And finally, we’re focused on remaining financially robust. Combined, these elements make Newcrest a unique offering in the gold industry.
With that, I will open up the line to questions.
[Operator Instructions] Your first question today comes from the line of Steuart McIntyre from Blue Ocean Equity. Please go ahead.
Thank you. Hi guys. This is my first question. My first question – my first question are about Lihir. Lihir produced 382,000 ounces in the first half, that obviously needs a strong second half and a 44% increase in production to meet the bottom end of guidance. And should we expect to see materially higher grades that were here in the second half?
Well, I think as I touched on, we got lower grades and turns out of principally Phase 14. So in the first quarter we saw Phase 9 come to an end. Previously we were drawing from 9 and 14 and we’re now transitioning to opening up 15. So in that interim we’ve got less than we expected that of Phase 14. It has a lot of narrow benches in it, so we’ve now changed to some of the mining methods there, blasting practices. So we are seeing higher grades and higher sulfur in particular also coming from Phase 14. So we do expect higher grades in the second half than the first half.
Okay. Excellent. I’m mean, even if I run through, I guess the record throughput that you’ve done currently here to-date you still – I still sort of need to run 2.7 grams in that second half to meet guidance. And I guess I was just also looking at that shutdown schedule that you provided; it looks like you’re sort of streamlining that in FY 2021 to ensure the shutdown sort of overlap as much as possible to minimize the downtime. But it does look like the second half of FY 2020 still has shutdowns in four of the six months. Is that right? Can you talk a little bit about the, I guess the impact on of shutdowns in the second half. You don’t expect that to have too much of an impact on throughput?
Well, part of the reason for doing what we did in the first half is will – we will have another shutdown in the second half, but in line with our new strategy that’ll happen sort of towards the end of March, early April or something like that. But that’s with the new kind of shutdown where we do more work in a compressed period as opposed to doing multiple jobs in different shutdowns over the course of many months. So we’ve effectively moved to that new strategy already.
Okay. So that is – that is implemented from now. Okay.
Yes. And though the first half was the transition.
Okay. Understood. And just finally at Wafi-Golpu, in the last study you guys put out indicated that project is probably going to take around 4.75 years to produce first gold from the ground to the SML. Now, earlier this week the injunction at Wafi was lifted. Can you please focus through the steps required from here to obtain the SML, any possible your views on the likely time table?
Look in terms of the steps, what we can do now is we were well advanced on the EIS and many other approvals, so that can all restart now because the bureaucrats in the government can now re-engage on that. I mean, they weren’t allowed to because of the injunction and at the higher level we have to sit down with the new government and hammer out a new agreement – a development agreement and all those things in parallel then combine to form the basis for the granting of an SML.
Okay. I mean…
Yes, we’ve looked – we now enter a period where we can reengage. If you look at the public remarks from the Prime Minister, he’s come out and said that Wafi-Golpu is now one of his priorities particularly now that it looks like the oil and gas projects have ended a little bit of a hiatus. So we’re encouraged to hear that, but as always whatever deal we hammer out, it’s going to work for both parties and that’s what we’re focused on, that’s going to be a win-win agreement.
Okay, understood. So I guess it’s still pretty hard for us to forecast what the likely timetable on that.
Yes. It is absolute again, given up forecasting. I think it is encouraging that we’re reengaging and as soon as there’s something to report we’ll report.
Understood. Thank you very much.
Your next question comes from the line of Daniel Morgan from UBS. Please go ahead.
Hi there, Sandeep. One of your themes in your presentation and I guess for the last few months has been exploration focus at Red Chris and also Havieron. I think in the past you’ve talked about what you want to get to a position of is, have you seen enough in order to put down an expiration decline and get down there and really see out drill laterally. Just wondering how closer we are if at all to that decision on either us of them.
Well, we obviously got to do a lot more drilling. I mean, the last thing you want to do is put a decline in the wrong place. So there’s a certain amount of drilling that has to be done to make sure you position it right, but all the necessary approvals processes, again the gathering of environmental baseline data, all the things that you would need before applying for permits in both locations all that work has begun. So we’re anticipating that as soon as we get enough drill results to work out where to position these declines and we can get approval of them from the two regulators would be a position to get going and look we’ll have to see what the future do results indicate. But if you look at the ones we’ve got so far, we’re feeling pretty confident.
Thank you. And just one more, just to follow-up I guess on the Wafi-Golpu news and the ability to re-engage. It seemed like you had a very much a shovel-ready project. The project team was set to go and obviously I was disappointing to see that have to get, put on hold. What, if any, I guess, how quickly could you redeploy a project team once you get a SML?
Look, I’ll tell you – look, it’s a good question. I think we can do it fairly quickly. We’ve retained a number of those personnel inside our company and also within Harmony. And the other thing is this is a great project. I mean, if – once the SML is actually agreed and people know it’s certain, I’ve no doubt we’ll get a whole bunch of people who want to come and deliver this thing. It’s a great project. It’s a great ore body.
Thank you very much.
Your next question comes from the line of Levi Spry from J.P. Morgan. Please go ahead.
Yes, thanks guys. Question’s going to be on the same areas. So after Telfer, can you map out the path forward there for us? So how do we avoid the production hires in between current reserves and bringing on Havieron?
Well, I mean the first step is obviously taking a lot of the unit costs out of Telfer in the existing mine to make it more profitable on the reserves that’s got left, depending how low that becomes. I mean, there are options for a couple more cutbacks on the surface, which we haven’t committed to at this point. There’s also some potential for maybe even extending the underground life by some exploration we’re doing there, which may reveal some – some smaller deposits, but stuff that you can do through incremental mining.
And the other piece as you say is how do we bring Havieron on as soon as we possibly can, now. It depends what sort of mining we’re looking at. I mean if you’re looking at the grades there, I mean, again we’ve got to do a lot more drilling, but if that becomes a potentially a high grade mine, you could bring that on sooner rather than later and then bulk it out later or if you get a bulk initially, it’ll take a little bit longer, there’s all sorts of options we can play in that. If we just continue and we continue to find quite high-grade amongst the lower-grade stock put, if that trend continues and we’ll see, then – they are the various levers we have to pull to try and prevent hiatus.
So any of them being side right now, sort of cutbacks, pre-feasibility studies going on, on that kind of stuff, I understand that you’ve got to drill, Havieron for probably a couple of years before you can commit to selling, by then your reserve base will be exhausted, so what’s underway right now on drilling?
Well, all those things I touched upon, work in progress. In terms of studies, data-gathering, et cetera.
Okay. And just back in Wafi-Golpu, so SML of five-years and all the data that we’ve had previously still stand, so Harmony how many sort of recently made a strategic move back in South Africa or is there any update on your expectations on equity share going-forward?
Look, there’s no change in my view, but I mean, you have to talk to Harmony and see what their view is, but certainly we’ve been in lockstep and then working closely together for many years now and I don’t see a – well, I haven’t heard any reason why that would change, but, best to ask Harmony.
Okay. Thank you.
[Operator Instructions] Thank you. Your next question comes from the line of Daniel Morgan from UBS. Please go ahead.
Hi, Sandeep. Just a little shy on other calls as well, but I’m just wondering on a Fruta del Norte, it’s a little bit of a sleeper asset in the portfolio, it’s about to enter production and commercial production. You’ve increased your stake to 32%. Just wondering about how you are thinking about getting the market to appropriately value this asset. I think you were flagging, you were going to incorporate guidance in group wide guidance for your equity share or can you just talk to that?
Yes, certainly that’s the intention. And then we expect to see some recognition for that because it is a Tier 1 mine with a long life and we have a major stake in it and so that’s still the plan.
Okay. Thank you.
Your next question comes from the line of Adam Baker from Global Mining Research. Please go ahead.
Good morning, Sandeep. It’s actually Dave Radclyffe. My question is some of your peers have obviously started to lift their economic assumptions for reserves and resources. I am just wondering if there was any consideration when you were going through the process to change yours and specifically, obviously it doesn’t have a large impact or a meaningful impact on a number of the key low cost assets. But with respect to pulling up to Levi’s question on Telfer, where I imagine something closer to today’s prices obviously would have quite a mean to real impact, especially because I guess reserves are sort of 1.2 million ounces, yet resources at 2.9 when we’re talking about the open pit materials. So in today’s environment, surely there is some upside to pushing out that open pit material itself.
Well, it’s a very good question. I mean we are kind of shy away from changing long-term assumptions like reserves and resources. But when you get down to the detail of tactical mine planning and decision making on a quarterly, monthly, weekly basis, we clearly look at all shells and make value added is to what we mine on that mine on that shorter-term interval.
Okay. So just again, following up, I guess – trying to explain, sort of we all understand, what is the key impediment to pushing out the open pits there? Is it even at today’s price, you don’t think, it could be economic, is it pre-stripped too much? I know in the past you’ve used hedging to try and lock in some of those margins.
Well, it’ll all be the economics. I mean, what we’d like to see is the actual operating costs come down in the open pit to a point where we think it’s well run and then once we know what that number is, that gives us a better determination as to whether we can make some money out of any future potential cutbacks that are not committed to.
Okay. Thank you.
Your next question comes from the line of Matthew Frydman from Goldman Sachs. Please go ahead.
Thanks. Good morning, Sandeep. Just a few quick ones for me please. Firstly your progress so far on Undercutless Caving trails at Telfer, can you give us a quick update on that and just wondering how you might expect to feed that into the development of future panels at Cadia in particular, how can we expect the timeline on that study to play out?
Look, if you remember the Telfer was like a proof of concept trial and we’ve done 75% of the work there and it’s gone really well. I was there last week underground had a good look at it, that’s gone really well. So what we’ll do now is move the trial, once this finishes at Telfer, we will move it to Cadia itself and test out other aspects of converting a proof of concept into Cadia, I guess something that’s battle ready and then we’ll consider implementing that.
Best case would be in part of the PC2-3 footprint, maybe towards the end of – as we expand that footprint or the next cave that we’ve got to work out. But, the key next step is the Cadia trial, which would be more comprehensive in test out a number of other things, but the first trial at Telfer has gone really well.
Sure. Thanks. So then – and maybe just then touching on Cadia, I just noticed, looking through your briefing book that you’ve kind of retained that view of gold grades tracking around the 1 gram a ton over the three year outlook period, but the clearly in the last half or so, you’ve probably been tracking close to that 1.2 grams a ton, so 15% or 20% above that. When might we expect a transition to, I guess a more normalized or lower gold grade around that 1 gram a ton. And I guess is the high grades you’ve been experiencing, is that being driven by I guess a preferential drawdown of PC2 versus PC1.
There’s no doubt PC2 forms the majority of the mix now and that has a higher grade than what’s in PC1 now. But those three year averages, you’ll see that – I mean they are three year averages, you’ll see that trend to lower gold grades unfolding over those periods. As we head down towards the long-term reserve grade at the mine. But with that said, the expansion has meant to dovetail into that to start getting the tons up as well to help offset some of that decline.
Understand. And I guess just finally, can you give us a reminder on when we might see an updated study on the Lihir seepage barrier?
It’s in feasibility study now and part of that is actually doing a trial excavation and CO2 test, things like the concrete mix it gets put in, what temperatures we’re going to deal with and whatever it’s very important to get that bit right. And then once we have that we’ll be in a position to give an update on the feasibility.
Okay. So, potentially this calendar year at some stage?
No, it’s probably early next year. We don’t need this thing for few years now, but it’d be next calendar year, I’d say.
Okay, sure. Thanks for the detail, Sandeep.
[Operator Instructions] There are no further questions at this time. I’d like to hand the conference back to today’s presenters. Please continue.
All right. Everybody thank you very much for your time and questions today. And with that we’ll wrap up the conference call. Thank you very much.