OZ Minerals Limited (OTCPK:OZMLF) Q4 2019 Earnings Conference Call April 14, 2020 8:00 PM ET
Company Participants
Andrew Cole – MD, CEO & Director
Warrick Ranson – CFO
Conference Call Participants
Nick Herbert – Credit Suisse
Rahul Anand – Morgan Stanley
Paul Young – Goldman Sachs
Daniel Morgan – UBS
Lyndon Fagan – JPMorgan
Hayden Bairstow – Macquarie
David Coates – Bell Potter
Kate McCutcheon – Citi
Peter O’Connor – Shaw and Partners
Operator
Good morning, everybody. And thank you for joining our Warrick Ranson, our CFO; and I for our First Quarterly Report Conference Call of 2020. I hope you’re all safe and well and have the opportunity to read the Q1 report documents we released earlier today. And I also hope you’ve had the opportunity to read our COVID-19 update that we provided to you on the 30th of March. I’ll refer you to the disclaimer and cautionary statements on the first couple of slides.
So turning now to our strategy slide. Our strategy and the culture we’ve been developing over the past five years, I think has stood us in good state for the current COVID-19 crisis. The team has delivered a strong first quarter and make significant progress despite the adverse macro environment. Our strategic elements of partnering, lean and innovative devolved and agile and investing responsibly, underpinned by how we work together, and have enabled us to respond quickly and take control of our own response, initially well ahead of government restrictions.
For example, we introduced our international and domestic work travel restrictions in mid-February, well ahead of government imposed requirements. The flexible working arrangements we introduced nearly two years ago, smooth our transition to remote working.
Like everyone else, we’ve had to make significant changes to protect the health of our people, stakeholders and their operations. This is a difficult time for everybody. But our people have responded very well. And I’d like to thank everyone within OZ Minerals for their ongoing contribution.
Today, we are delivering a strong first quarter production and cost outcomes even with the restrictions imposed in the latter-half of this quarter. I’d also like to single out the Australian and Brazilian, federal, state and local governments for their support for our industry. We do not take their support lightly. And we understand that it comes with enormous responsibility to protect our people and the community at large. We also understand that our capacity to continue operating provides much needed income for governments in the form of taxes, royalties, and export earnings.
The next slide summarizes our COVID-19 response. We are in regular contact with the government and health department in South Australia, and have provided them with our detailed COVID-19 mentioned plans. At our remote Carrapateena and Prominent Hill mine sites, our medical centers are set up to undertake initial testing should someone present with symptoms. We are also able to isolate and quarantine and undertake contact in the environmental tracing.
We have conducted several precautionary tests at both sites and quarantine others in close contact with suspected cases. To-date, all our tests have been negative. If a positive case does occur, we do have arrangements in place with RFDS and their aviation provider to transfer the person or people of site while protecting the remainder of the site.
We are now operating with an almost all South Australian based workforce, while most of that workforce is if they based in any case, we have taken steps in cooperation with our partners to temporarily relocate critical people to South Australia.
To further limit exposure, we’ve also extended our rosters as a temporary measure. And we’d like to thank everybody for their participation in these changes. Our presumed workforce is driving drive-outs [ph] and are all locally based. And like Australia, all non-essential site based personnel are working remotely.
We also undertook a review of their capital and operating costs in light of the COVID-19 restrictions. We have removed or deferred some AUD150 million Australian dollars in costs, grown predominantly from exploration and growth spending, but also from corporate administration costs. Our focus was to retain only those activities associated with low cost middle production in 2020 and subsequent years, and we also sought to preserve jobs.
We consider this to be phase 1 of our response. We are preparing plans should conditions worsen, and we’re also preparing post COVID-19 recovery plans to ensure we can accelerate out of this crisis. In doing so, we expect that some of our changes we put in place may become permanent. We see this as actually quite an exciting opportunity, but that’s a topic for another day.
As a result of that phase 1 cost savings review, you will see the effect on the timeline slide. There is no change to the top-half of the timeline, Prominent care expansion studies remain on schedule as does Pedra Branca decline construction. However, we expect the CentroGold injunction removal timeline will now be extended out with the Brazilian regulator temporarily suspending administrative activities.
West Musgrave has been paid back whilst we discussed funding with our joint venture partner, and suspend local activities to protect the local community from exposure, in line with government restrictions. In the Carajas, some of our exploration projects such as Pantera, Clovis and Santa Lucia are progressing at a desktop level and securing land access in preparation for drilling once restrictions are lifted. We will continue to provide clarity on the impact of these timelines as the situation unfolds.
So now on to the highlight for the quarter. Despite the adverse environment, we delivered a strong first quarter. Prominent Hill delivered strong gold production with negative C1 costs due to the contribution of high gold byproduct credits. Prominent Hill also achieved its highest monthly underground haulage volumes in March, exceeding an annualized forming in turn run rate.
Carrapateena is making great progress. The team is frequently marking milestones and are very focused on underground mining, development and processing plant performance. Carra continues to stockpile ore and so the materials handling system enabling progressive efficiencies at the underground development progresses.
The plant ramp up is ahead of schedule, with a five day continuous period at 12,000 tons per day, nameplate capacity achieved in March, an impressive early metal recoveries averaging over 90% copper and over 85% for gold.
While production is weighted to the latter half of 2020, we are already building towards a full concentrate process for the first shipment expected this quarter. Total surface stockpiles at the end of March were 18 million tons at Permanent Hill and 300,000 tons at Carrapateena. Both the Carra and Prominent Hill expansion studies progressed as scheduled through the quarter. We expect to release the Carra expansion prefeasibility study later this quarter, and the Prominent Hill expansion study at the end of 2020.
In Brazil, development of the Carajas hub saw good progress, with Pedra Branca underground development now reaching over 270 meters and the installation of the underground development now reaching over 270 meters, and the installation of the ore sorter at Antas near completion. The first parcel of Carajas produced copper concentrate was also prepared for transporting, via the Vale Rail Logistics Network, marking the commitment of the first phase of the strategic Vale OZ Minerals cooperation agreement, which utilize the Vale rail and port infrastructure to realize operational and cost efficiencies.
I’ve already spoken about AUD150 million in savings identified through COVID-19 review. We’ve provided more data on this in our marketplace on the 30th of March, but in summary, we had a good liquidity pop up in the current climate.
We’ve also increased our revolving debt facility to AUD480 million which further improves our liquidity. While we ended the quarter with a circa AUD89 million net debt position. As of yesterday, this was close to zero. Of course, this will fluctuate somewhat with the timing of receipts and payments going forward, but we expect to move to a net cash positive position in Q2 and stay positive for the remainder of the year at spot pricing. All our operations remain on track to achieve 2020 production guidance based on current operating conditions.
Notwithstanding this, we have planned for a range of potential worsening scenarios, some of which may necessitate a future change to guidance, if production costs or capital are impacted. At this point, it is difficult to predict the future impact of the COVID-19 pandemic, but we will keep you informed should the circumstances materially change.
So I’m now going to hand over to Warrick, who’s going to take you through cash generation.
Warrick Ranson
Thanks, Andrew. And good morning, everyone. Our sales volumes fell at the end of the quarter, and as a result, we increased our net group working capital by AUD103 million. And as Andrew mentioned, drew on our involvement for the first time. Despite the light shipping activity, concentrate stocks increased marginally quarter-on-quarter, with both the additional production from Carrapateena and moved to bulk shipping in the Carajas away from containerized parcels.
Group net debt at the end of March was AUD89 million as we mentioned. However, as indicated we expect to move back into a net cash positive position through the second quarter as we continue to strengthen our balance sheet in these volatile times.
Presently as Andrew has noted, we’ve been able to extend our revolving credit facility up to AUD490 million, whilst also adding a year to its tenure providing a solid liquidity buffer in this uncertain environment, and complementing the cash preservation initiatives we announced at the end of March.
Investment capital at Carrapateena this quarter includes the capitalization of processing costs related to the preproduction ore stockpile, for which and offsetting credit will be recorded in quarter two when that material is sold. We incurred a small amount of project closeout costs and completed phase 1 of the underground infrastructure program of works. Whilst work was also commenced on design and procurement activities related to the previously announced plant throughput initiatives.
Cash invested in the remainder of the growth pipeline was similar to the previous quarter. Whilst remain solid progress on the decline of Pedra Branca, the overall expenditure in the quarter was not large. And we maintained that minimum spend position at Gurupi.
In March we paid out 2019 final dividend as scheduled. Thanks, Andrew.
Andrew Cole
Thanks, Warrick. So turning down for the details of Prominent Hill. The team achieved record run rates in excess of 4 million tonnes per annum in March. However, underground ore movement for the quarter was impacted by heavy rainfall in February, when we saw more than 120 millimeters of rain in a seven year period, and this restricted access into the open pit where we typically stockpile underground ore. However this has now been rectified and we expect to see additional productivity gains in the coming months.
One enabler of this is a recent remote surface telemetry system upgrade that gives us greater remote capability for underground mine fleet. And we’re already seeing some positive results from this which we expect to continue. We started commissioning the new Malu test plants in Q1, with the full plant ramp up scheduled for later this quarter. Commissioning activities scheduled for March were impacted by the COVID-19 related border closures, which restricted the movement of interstate based commissioning partner specialists, but this shouldn’t materially impact the operations.
Plant throughput was lower than the previous quarter as we transition to processing a higher proportion of higher gold ore, and executed a longer than normal plant maintenance shutdown. Looking ahead, we will continue to progress the Prominent Hill expansion study by focusing on high priority opportunities such as resource confirmation, mine design options, processing plant operating strategy and material handling system optimizations.
The scheduled Prominent Hill expansion study results drilling will continue through this year, but due to COVID-19 we had suspended the stage two drilling of the explorer challenge target on the neighboring exploration licenses.
I’ll now get back to work for more detail on the Prominent Hill’s financial performance.
Warrick Ranson
Thanks again, Andrew. So, as noted Prominent Hill see when costs were negative for the quarter, reflecting our prioritization of gold feed, resulting in significantly higher gold in the overland, our ability to capitalize on the strong gold price and the lowering of copper output as a result.
Mining costs were impacted by equipment availability and restricted haulage following those adverse weather conditions in February, which reduced in pit movements. Processing costs reflect the standard fluctuations we see in shutdown timing, as well as additional diesel generation costs from the tie-in of the new power transmission line there.
We’re also able to offset some of the impact of the lower U.S. dollar copper prices we experienced through favorable exchange movements, against that predominantly local cost base. And just a reminder that our gold hedge contracts, our financial contracts and therefore excluded from C1 by-product revenue.
These results flowed on to our overall group C1 cost performance, noting that our reported C1 cost for Carrapateena reflect the mining costs of all source post first concentrate, with the processing costs of the pre-production ore excluded and capitalized. With processed about 9% of that all by the end of the quarter, so we’ll start to see a normalization of our reported C1 costs going forward for Carrapateena, as we move towards full production ramp up in the second-half.
And spend on sustaining capital remain conservative for the quarter and is reflected in our reporting all in cost performance. Andrew?
Andrew Cole
Thanks Warrick. Now onto Carrapateena, where the team very proudly loaded their first concentrate containers, and trapped them to an Upper Spencer Gulf in Q1, pending our first scheduled customer shipment which we expect to load this quarter. They continue to strive towards delivering on the various milestones, and have done exceptionally well with the underground and the plant being on schedule to reach our target 4.25 million ton per annum by yearend.
As a short-term measure, the team has re-sequenced the mine to prioritize ore extraction from the first sub-level to build the wrong stockpile to give us a buffer, just in case of any further COVID-19 impacts. This is a re-sequencing activity only and isn’t expected to have any medium to long-term impacts.
I’m also pleased to say that cave propagation has commenced and our multiple cave monitoring systems are successfully tracking the cave front. To-date, the cave is performing very well and as modeled. The processing plant has ramped up ahead of plan. And I’m pleased to say, it has achieved nameplate throughput rates for sustained periods within the first month post commissioning. We are also seeing strong early metal recoveries averaging over 90% for copper and over 85% for gold.
With our phase 1 COVID-19 response, we have deferred some non-essential 2020 operating and capital expenditure. We do not expect these deferrals to materially impact any future year guidance ranges, but we are currently reviewing the in detail and will update you if the need arises. Looking ahead, the Carra block cave expansion, PFS and Life of Province Scoping Study are both on track, and we expect to release these later this quarter.
So moving now to the Carajás Province in Brazil. Our Antas team has managed the disruption well, and are on track to achieve the new guidance, with unit costs for copper produced benefiting from the increase in copper volume, primarily due to higher grades. The Pedra Branca team completed 274 meters of decline development in Q1, keeping them on track to achieve first development ore in mid-2020.
The installation of ore sorting equipment at Antas is also nearly complete, with commissioning expected next month. This equipment will allow us to upgrade low grade waste stockpiles currently sitting on surface at Antas, and test the technology for future satellite Carajás mining operations. This specific equipment will be relocated to Pedra Branca once finished at Antas.
The first concentrate parcel was also prepared for transport via Vale’s rail network, making the implementation of the first phase of the strategic Vale OZ Minerals cooperation agreement using Vale rail and port infrastructure to realize operational and cost efficiencies. On our Brazilian project studies, some progress has been made, but we have largely suspended all field based work leaving people to focus on desktop activities.
So just quickly at Clovis, which is about three Ks [ph] from Antas mine, a trial gravity survey was completed over the deposit, and these results are being incorporated into the geological module. We are now focused on access and planning for an upcoming resource definition drill program.
At Santa Lucia, we’ve reached a joint venture type asset agreement with Vale, and our forward planning for progressing in various government interactions including with the Brazil National Development bank, and then a resource drilling program.
And finally at Pantera, successful negotiation with all relevant land holders gave us access and the license require to commence low impact field work. Desktop studies work has continued in the meantime, waiting for resource drill program.
Onto the Gurupi and West Musgrave Provinces briefly. We continue to work on getting the injunction on CentroGold removed, but progress was delayed, again, as the regulator suspended their administrative activities to 60 days with the onset of COVID-19. We are continuing with the preparatory work and the application, so it can be processed when they resume activities.
At Wets Musgrave, the pre-feasibility study confirmed that the project could be developed into a low carbon, low cost long life mine, producing both copper and nickel concentrates. We then however decided to close the West Musgrave site, in the interest of the Hill and welfare of the local and regional community. Access to the Ngaanyatjarra lands was then subsequently restricted by the West Australian government.
We are continuing to work with our partner Cassini Resources on the funding structure of the project and the next steps, given this and their COVID-19 restrictions, we expect minimal spend on this project in 2020.
On our growth pipeline, it illustrates our pipeline of projects that you will be familiar with. As we’ve previously announced, we have removed all non-production and non-time critical 2020 spend, including studies and exploration along the copper costs. Whilst we have temporarily suspended project field activities, work progresses with all developed devolved projects remaining in place, readying for our resumption of activities. We are using this time to hone our focus to optimize projects scopes, look for ways to improve value for all our stakeholders, and embed the modern culture we have been championing for some time.
Taking a moment on guidance, to wrap-up some thoughts on the topic that we presented so far, continues to present some very real and dynamic threats and opportunities to our business in the industry more broadly. COVID-19 has introduced a degree of instability to people’s lives and livelihoods, that hasn’t been seen in this generation. But consistent with how we have strived to operate and deliver our strategy, we are approaching this challenge by doing what we can to respond to and find the opportunity in the world we find ourselves.
We are grateful to the support we have received from governments to keep our operations going, there is shared benefit for the community, government and ourselves for us to continue to operate, and we are all putting health and safety at the forefront. While there is currently no change to production guidance, we’ve recognized that things may deteriorate further. Government regulations or other changes, such as the supply chains all with our customers may require further adjustment.
We have developed scenarios for a range of circumstances, including at concentrate production all sales are reduced, all we have to see is operating for a steady period of time. In all that deliberation, the focus is on safety and health of our people, our balance sheet resilience and ensuring we have a strong company for the future.
On the latter we also have a team that’s concurrently developing our recovery plan. This pandemic is not only about the downside we are all seeing today, but also about the opportunity it creates. Our intent is to use the learnings from this pandemic to evolve and accelerate our journey of becoming the modern mining company, that creates value for all our stakeholders. Every crisis has a silver lining and we expect to leverage this opportunity and come out stronger.
Now just quickly some of the key milestones coming out for the next quarter. We are looking for a full ramp up of the Malu paste plant this quarter. We are finalizing our risk controls independent peer reviews, the value optimization and study documentation for the Carrapateena expansion PFS, and Carrapateena Life of Province Scoping study, which we also expect to release this quarter. While we continue to work on the removal of the CentroGold injunction, and commencement of the feasibility study, we have made the assumption the injunction removal will be deferred to Q3, as a result of the COVID-19 restrictions in Brazil.
So just a few bullet points to summarize today’s communication. Despite the adverse environment, I feel that we have to delivered a good strong quarter. Prominent delivered strong copper and gold production, with negative C1 costs. Prominent Hill achieved its highest monthly underground haulage volumes in March, exceeding an annualized 4 million ton run rate. Carra is making great progress and continues to stockpile run mine ore on surface by underground materials handling system.
The Carra plant ramp up is ahead of schedule and has achieved a five day continues period at nameplate capacity of 12,000 tonnes per day, and hit impressive early metal recoveries averaging over 90% for copper and over 85% for gold. We have good stockpiles, so at Prominent Hill we have 80 million tonnes of ore stockpiled on surface, and at Carrapateena we have over 300,000 tonnes of ore stockpiled on surface, which both give us a good buffer.
In Brazil, development of the Carajas hub saw a good progress with the Pedra Branca underground development now reaching over 270 meters, and the ore sorter Antas is about to commence commissioning. We’ve increased our revolver to a AUD480 million which gives us good liquidity. And as of today, we have closed to no debt. And we’re expecting to move to a net cash positive position from here and out assuming spot pricing. And finally, all our operations remain on track to achieve 2020 guidance based on our current operating conditions.
So thank you for joining us. Operator, can you please remind people how to ask questions. And we’ve got both Warrick and myself here who can respond.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question today comes from the line of Nick Herbert from Credit Suisse. Please go ahead.
Nick Herbert
Thank you. Good morning, gents. I’d like to start with few on Carrapateena please. Big reduction there in the growth capital budget AUD50 million odd. Just wondering if you could provide some more detail on what the major items deferred there were? And why you don’t also expect any impact on production operations from that deferral?
Andrew Cole
Do you want to take that one?
Warrick Ranson
Yes, I can. So the number of the initiatives actually were made to the use — to some of the plant modifications that we were installing or we’re planning to install, and run out more into the ’22-’23 period. So there are items that we’ve placed on hold for the moment. We’ll have another look at those. So there is only impact to the current use production or leading to ’21. And we’ll again revisit those in terms of their impact on the use beyond that.
Nick Herbert
Okay. Thank you. And regarding the production guidance around when you expect Carrapateena to be cash neutral post ore CapEx?
Warrick Ranson
Yes. So apart from all this, we’ve got a couple of months where we won’t have sales revenue in this first-half as we continue to ramp up production. But effectively, with the incorporation of our current level of cost savings, we’ve pretty around cash neutral from the beginning of the second-half. So yes, that’s sort of the broad perspective.
Nick Herbert
Okay. Thank you. And then just the mining where you should continue talking to. And does that have implications for how we should be modeling ramp up? I think previously you mentioned just to take a linear approach to that, you could out of $4.25 million end of year, should we stick to that or is that changed?
Andrew Cole
No. It really doesn’t impact. I wouldn’t make any changes to your ramp up assumption, that doesn’t have any medium or long-term impacts. All we’ve effectively done is moved underground development as being the priority one to ore extraction being the priority one in the short-term. And this is entirely aimed fully more ore out to build our underground stockpile up in the short-term, just as a preventative measure, if we have to take harsher action on our Carrapateena in terms of how many bid we can have on site. I expect that this will re-sequencing be reversed in few months’ time.
Nick Herbert
Okay, great. Thank you. And then just finally, just in the hedging. Should we expect a similar rate? I’m sure you’ve provided these details previously, but just to remind it would be helpful. Thanks. Is that the sort of the 22,000 ounces per quarter is that what we should expect over the next couple of quarters as well?
Warrick Ranson
Fairly much we’ve got about 90,000 ounces left for the rest of the year, and that’s fairly evenly spread. I think so, yes.
Nick Herbert
Okay. Great. Thanks guys.
Operator
Your next question comes from the line of Rahul Anand from Morgan Stanley. Please go ahead.
Rahul Anand
Hi, Andrew and Warrick. Thanks for the opportunity, and hope you’re staying safe and well. Look, the first one is on Prominent Hill. I wanted to focus a bit on the milling rate, which is a bit softer. Given that the high-grade stockpile is already part of the plan for this year. I wanted to understand, if this milling rate is what should be analyzed at this point in time or how should we look at that?
Andrew Cole
Yes. Hi Rahul, yes, thank you. We’re all doing pretty well actually. I’m all things considered. Yes. The milling rate you just saying at the moment is a result of us prioritizing the high grade gold stockpile as opposed to the lower grade copper stockpiles. We’ve mentioned this a few times before the higher grade gold stockpile is a harder ore and does process slower through the mill. So the rates that you’ll see are what you’ll expect for this year, it’s not necessarily an annualized rate that you would drag forward. It’s only for the period that we are processing the higher grade all stockpile this year.
Rahul Anand
Okay. So that’s for the entirety of this year though it run?
Andrew Cole
They are, that’s correct.
Rahul Anand
Okay, perfect. And then just one follow-up to Nick’s question, we Carrapateena prioritizing due to the COVID impacts. So, I just wanted to sort of ask, in terms of the grade profile of this ore that’s being mined ahead of schedule or the mine plan changes. Is there a change in terms of the grade profile? Are you prioritizing more tonnes perhaps in terms of the ore? And does that mean you’d potentially process more through the mill and perhaps have a slightly higher cost as opposed to before?
Andrew Cole
No, it shouldn’t impact costs. And look, we can’t really — we’re not — when I say prioritizing ore extraction, you still got to manage the cave [ph] in a certain way. So we’re not prioritizing different parts of the ore body, it’s just that we’re pulling ore out faster than our original schedule. So originally our original schedule [indiscernible]. Our priority hitting was access to the second crusher chamber. That’s what we spent all that time on is priority one.
The second priority was extraction. What we’ve done for the next couple of months is flip that around. So we’re pulling the cave slightly faster than we were planning to originally. And the only reason we’re doing this is to put more run-of-mine material on the surface. So if in the worst case scenario if we had to bring Carrapateena back to a skeleton crew, we could do so with just a processing team and continue to process and generate concentrates.
So the only consequence of that is we introduce extra re-handling costs for that larger run-of-mine material. In a few months’ time, we will put the priority back and move it back to underground development, as priority one, but there shouldn’t be any additional costs or changes to this.
Rahul Anand
Okay, perfect. Thanks for that. And then look, a final question on Prom Hill. So the investment decision feasibility and also resource and reserve all expected by the end of the year. So you did reaffirm that at the start of the call. I just wanted to check on, I guess the crux of the work there is related to drilling, and part of the quarterly did cover that. But roughly at what percentage of completion is the drilling running at the moment?
Warrick Ranson
I’m not sure I can answer it, percentage of completion, because as we drill more, we get more information. So we’re continually optimizing the program. We’re looking to put forward, we’ve got two drillings up there, drilling ore resource at the moment, and this is the critical path, is the resource infill drilling and the resource extension drilling. So we are drilling both to infill the inferred resource in the model [ph] resource, underneath that current underground mine.
We are also drilling deeper holes to extend the base of the inferred resource to get an understanding of how deep this potential ore body goes. We are looking to introduce two more rigs at the moment, so that will take it to four underground drilling rigs. And that will drill right through the end of this year. And look, it’s very hard to definitively say, but we will have enough information by the end of this year. We’re not — it obviously will depend on the results of that drilling. But as we sit here today, we believe we’ll have enough information by year-end to know the confidence with which we can predict this resource and if that extends for at least another, minimum depth extend, that’s then informs the design of the [Indiscernible] system and the depth which we could design the shaft to.
Rahul Anand
Right. Okay. Thanks for that. I’ll pass it on.
Warrick Ranson
Okay, thanks Rahul.
Operator
Your next question comes from the line of Paul Young from Goldman Sachs. Please go ahead.
Paul Young
Good morning Andrew. Good morning, Warrick. Congrats on a pretty strong quarter. First question is on concentrate sales. Can you tell us what your geographic split is on your concentrate sales. And have you seen any impact on logistic side selling concentrate to your customers.
Warrick Ranson
Good morning, Paul. It’s Warrick. We don’t sort of spread out or disclose our yield in terms of our geographic spread as we go. But look, we haven’t had any sort of major impacts on customers. We do some sales into India, and obviously that’s in shutdown at the moment. But we’ve been able to manage through that. And I think again, our long term relationships with our customers have been extremely important and just continuing the communication there, understanding the requirements. So yeah, no impact on sales volume. So obviously prices impacting us a little bit at the moment, but with our gold volumes we’ve been able offset a large component of that.
And in terms of logistics, both in Australia and offshore, we haven’t seen any material impact in terms of logistics movements.
Paul Young
Okay, thank you. Thanks Warrick. Second question is on Prominent Hill. And just around cost spend and gold production, first of all, I know the gold grade, Andrew was actually high during the period. So well above the gold stockpile, I guess reserve grade if you call it. And also gold recoveries, that’s sort of 80%, probably a function of high grades. And then obviously it’s related with costing, where performance is excellent and exceeding your cost performance for the quarter. I mean it’s pretty [Indiscernible] I think if gold stays here you will be able to [ph] not to report negative cash cost at Prominent Hill, net credit split for the year. So your cost guidance looks very conservative.
So the fact, it’s all-in related of course. But back on the first one the gold grade recovery, can you just comment whether or not those gold grades and recoveries is sustainable for the year.
Andrew Cole
Yeah. Sure, Paul and I understand the question. And I think actually technically right now Prom Hills is probably the lowest C1 cost operator in the world, actually given the gold it’s pumping out. Look — and this is all interrelated question and yet Prom Hill has done very well in the first quarter. But we don’t issue guidance as you know for by quarter, we issue it by the year. And as we sit here today, we do believe we will see some reversals to some of these performance metrics from the first quarter and future quarters.
So I wouldn’t change our annual guidance numbers as we sit here today. So yes, we hit some sweet spots from both our swap stockpile and from some of our underground slopes we pulled in the first quarter. But you will see that reverse through the year to bring us back in line with annual guidance for the full year.
Paul Young
Yeah, but second, Andrew, your cost guidance sits backs on AUD13.50 per ounce gold versus spot where we sit at the moment at AUD17.50. So already it’s conservative. So just on some of those reversals, are we talking grade back down at the sort of 0.7 gram per ton mark and recovery back into the mid-70s. Is that what you are talking about?
Andrew Cole
No, you will shift it if recoveries hold up, but the grade in the stockpile is variable and the grade in the stopes that we believe is variable. So yes, you will see variable grade pulling back through. But you are correct on price. We’re not using current spot pricing obviously, we use consensus pricing.
Warrick Ranson
It’s Warrick here. So I suppose, so we had sort of internal debate about whether we should update our gold pricing and exchange assumptions, but in terms of our savings reduction we feel it was better to leave those and to be clear on our savings impact in terms of our related guidance at this stage. So obviously we will continue to review that as we go forward through the year and have a better understanding of where gold mine sits given the current volatility.
Paul Young
Okay, all right, well, thanks so much. That’s all from me.
Andrew Cole
Thanks, Paul.
Operator
Your next question comes from the line of Daniel Morgan from UBS. Please go ahead.
Daniel Morgan
Hi, Andrew and team. Just few questions, firstly, social distancing and COVID, you must be [ph] an underground miner. Could you just talk through the different productivity impacts, the measures you’re taking in to manage COVID? What’s the impact on your productivity that we could expect over the next few months versus what you have reported today?
Andrew Cole
Sure. Hi Daniel. Look to be frank not much really, as you know, when you are in a mining scenario underground ore open pit, people usually are working on their own. They have single operator cabs irrespective of the equipment you are in. All of the activities are usually with one, maximum two people. So social distancing in this environment is actually not that complex. The complexity on a mine site is not in the operating environment, the complexity is in the can, it’s in the mix, the wet mix [ph], in the pre-ship meeting rooms and the transport. That’s where we have to actually put most of our energy and focus.
So that’s doesn’t have a bearing on productivity at all, it has a bearing on mental health. So most of our focus as a result of social distancing is about in trying to do the best we can to keep people focused, keep them motivated, keep them socially connected to friends, peers, families. That’s where the energy needs to go, not on productivity, because there’s actually no impact on that.
Daniel Morgan
Okay, thank you, very clear. Also on the scope of the release coming up at Carrapateena, which is your Block Cave and Life of Mine study, I am not looking for you to announce what the findings are prior to that. I am just wondering, what is the scope of the reports you’re going to release, what can we expect to hear?
Andrew Cole
So there’s two pieces to this, Daniel. The first piece is looking at our Life of Province scoping study. So this is pretty high level, how does this whole province fit together, how does [indiscernible] settle Carra and the whole Cara all fit together in sequence. And that’s under the scoping study level.
The most deep how people [ph] work is what does an expansion and specifically our Block Cave expansion at Carrapateena look like, and that’s done through a prefeasibility study load. So we will be — we expect to release a prefeasibility study report on what our Block Cave expansion at Carrapateena would look like, how that sequence, the risks associated with that, the timeline associated with that and the economics associated with that.
So that’s what we’re looking to release, now that’s all subject to of course our final internal due diligence peer reviews, our board review and our board meeting and our board approval for the release of PFS.
Daniel Morgan
Thank you. And just on the life of mine when you are looking at the other satellite deposits, does it envisage talking about the mining method, that might be employed on those deposits as well?
Andrew Cole
It does define the level, Daniel at a scoping study level. Yes, so we need to do that, you need to assume mining methods, but you need to remember when you see this data, that our scoping study — and as you know we have got some — we’ve got resource on Cams [ph] and with the resource on [indiscernible] published. So these are in third resources, so that’s pretty early stage, but it gives you a rough idea, how we think they should sequence.
Daniel Morgan
Thank you. And just lastly, you have taken a AUD150 mill of capital and operating costs out of the business as prudent measures to manage COVID and potential impacts from COVID. Obviously the spend was seen as valuable and value accretive prior to this event. I am just wondering how does this impact the company in an — what is the impact of losing the spend next year and the year after like, what are we losing out in concept?
Andrew Cole
Well, I — look the first and foremost thing is the reason we took this spend out was because we don’t want people put in harm’s way. So we can’t have people on airplanes flying around the world, around Australia or interacting, or being put into positions where they can’t observe social distancing. So that’s the single biggest driver of this. And the easiest way to do that is to suspend all field type activities.
The second driver is we do not want to put our operating assets at risk. So minimizing the number of people who visit the operating assets is critical. So if we had work scheduled to do improvement activities, like we did at Prom Hill, we were doing some work, we were planning to do some work on the office and IT systems, et cetera. So a prudent measure is just to stop any visitors going to the assets to ensure that we protect the operating cash flow of the business. So they’re the primary drivers of this.
Most of the spend is either corporate. So we’re not flying anywhere. We’ve got everybody working effectively remotely at home. So it’s just a lower cost environment or growth-related. So exploration programs will be pushed out by potentially 12 months. Our studies project programs are being pushed out but although not necessarily by 12 months because we still have all of that teams in place and they are still working on the projects but they’re working on them at a slower pace. And it’s up to the teams now to help us to understand how quickly we can do these works still.
So that’s why we will continue to review the timelines for these projects. So most of the spend that’s being delayed is about future growth options as opposed to current price cuts [ph].
Warrick Ranson
I think the other thing to add Andrew is that — and to Daniel’s question is that, we might have had a lot of flexibility in the things that we’ve cut back. So the ability to sort of switch them back on is quite rapid. So again, we’ve taken a hard step stance to start with not knowing the longevity of the current environment, if those things start to — if there’s an opportunity to relax in a responsible and a safe way, then obviously we can turn some of those things back on quite quickly.
Andrew Cole
That’s a good point, Warrick. So what I didn’t say, I should’ve said, Daniel, is that we’re keeping all of our teams in place. So this is — this will enable us to ramp up very quickly, if the opportunity presents itself.
Daniel Morgan
Okay. Thank you very much.
Andrew Cole
Thanks, Daniel.
Operator
[Operator Instructions] Your next question comes from the line of Lyndon Fagan from JPMorgan. Please go ahead.
Lyndon Fagan
Thanks very much. Look, the first question is just on the gold recovery at the Carrapateena, they’re fair bit above what was in the study? I’m just wondering if you can comment on how sustainable they are. That was my first one.
Andrew Cole
Hi, good day, Lyndon. Look, it’s too early to say. So we have been doing quite a bit of experimentation with various flocculants et cetera, and the team up there, I think has done a very good job and I certainly have seen better recoveries than what we expected to see given all of the net tests we’d done through the various study start. Lyndon, I wouldn’t extrapolate yet those talks of recoveries going forward. Look, I’m hoping of course that we can, but it’s way too early to be extrapolating these numbers through life of mine, we just haven’t seen enough data. The plant’s only been operating for six weeks or thereabouts. So very positive early signs and I’d leave it at that.
Lyndon Fagan
Okay. The next quick one is, can you remind us when the tech timing is and how much it is?
Andrew Cole
So the — it’s a tech end [indiscernible] payments. We need to pay both of them and it’s triggered on a — help me here, Warrick it’s the commercialization close [indiscernible].
Warrick Ranson
Yes. It requires a certain level of productivity through the plant for a sustained period. So I mean, the first part of that question is really around sort of our ability to achieve those milestones, as to when the payment would be. And then it’s a U.S. $50 million payment.
Andrew Cole
So in essence, the sooner we have to pay up, the better the plant is performing, the whole operation is performing in essence.
Lyndon Fagan
Are you prepared to put a quarter on when we should have that in?
Andrew Cole
No. We said this year, that’s it.
Lyndon Fagan
Okay. And then I guess the final one from me, just a bit of a high level question. Looking at gain chart at the start of the slide deck. You’ve got Carrapateena block having construction next year. Obviously Centro and West Musgrave were also meant to be construction next year, but you put a caveat there on COVID-19. But the fact that you haven’t on the Carra Block A, how confident are you that where we’re actually seeing these thing built starting next year.
Andrew Cole
So Lyndon you’ve sort of asked me to getting to the PFS results here bit. But the PFS is looking good. And my expectation based on what I’ve seen today is that we’ll be able to release the PFS but it’s subject to all the things I mentioned earlier on the call. It also need feasibility study completed before we can actually commit material capital to this. The other thing that I would say though is the scope of the works that we have planned for the sublevel cave all enable the development of the Block Cave.
So you may recall that one of the constraints we put onto the design of the sublevel cave is that it allowed us to transition to a Block Cave into the future if we could demonstrate the economics and the risk profile warranted that without the need to move or substantially change any underground surface infrastructure and that’s still the case. So I can’t give you a confidence level about whether we will or will not go to a Block Cave at this stage, that’s subject to the study gate. But we are expecting to release the prefeasibility study which I think is looking pretty good later this quarter.
Lyndon Fagan
Okay. And then with nothing happening at West Musgrave, what would be a reasonable delay to expect on that? I guess you presented at 20% IRR and on paper it certainly look arrive, but then I guess it’s sort of on the back burner now.
Andrew Cole
Yes. So Lyndon I wouldn’t say on the back burner per se. So we have the project team from the West Musgrave team is in place largely. And that’s now a mixture of the prefeasibility study team from the West Musgrave project. And the FX and construction teams from Carrapateena. So that team is sitting there in place. And they are working on the West Musgrave project. And they are doing the core work that they can do on approvals timelines and state and federal approvals processes and on as much design and optimization as they can internally without being able to get into the field, because they cannot go and visit the work sites which are under lockdown obviously given the traditional owner communities in place.
And we’ve also tightened the spend around this project. So the delay to the project I think is still to be determined. It’s not going to be straight shift to the timeline out by the length of the COVID-19, because we’re still working on it. But equally, we’re not working on this at a full rate and we actually technically haven’t commenced the feasibility study. We are still working with the same resource as our partner on the funding options and what the scope of the feasibility study will look like.
So it’s a good question Lyndon. We’re just going to have to parse that — the answer to this until probably next quarter I would say, and should be able to give you a bit more clarity on what the timeline might look like.
Lyndon Fagan
Thanks Andrew. I’ll hand it over.
Andrew Cole
Thanks Lyndon.
Operator
Your next question comes from the line of Hayden Bairstow from Macquarie. please go ahead.
Hayden Bairstow
Hi, Andrew. Thanks for that. Just a couple for me. Firstly just on the copper market. I mean are you seeing anything in terms of additional change to the customer buying habit so you have to redirect cargos elsewhere just given if you close it internationally some of this are downsized [indiscernible] whether there’s been an impact on concentrate sales. And then just on sort of more broader strategy. I mean — you have a will at the moment to look at further M&A and sort of smaller putting more projects into the pipeline just given the funding issues that smaller companies are having at the moment given the volatility of the market.
So is it just sort of all eyes down and focus on what you’ve got at the moment given all the restrictions that are at the moment?
Andrew Cole
Yeah, Hayden. Look, there is a whole bulk — bunch of questions in that one question you just asked. Look in terms of smelting and our customers more generally, most customers are still operating. So we have done a little bit of moving and most customers are still operating. So we have done a little bit of moving and switching around parcels to different customers, so that’s the benefit of having a portfolio of customers rather than one or two and benefit of having the benefit of having really good relationships with them.
So we pretty much sold to plan, that’s gone very well and have sold through the rest of this year. So I think we’re in a good position, but that’s always subject to of course to what happens in the various countries with COVID-19 and how it spreads and what the government responses are.
Equally on the supply side, so when you ask about the copper market more generally, there is supply end and demand to this and look it’s very hard to see whether its sustained, because there’s been a lot of supply side disruptions and its growing by the day. Many countries are mandating closures at a national level of operating mines and many companies are voluntarily closing their operations at once they get COVID-19 cases and infections on their sites.
So we’re seeing a reduction in supply gradually build in the market this year, but equally on the demand side, people aren’t buying as much today or building as much today. So look it’s very difficult to see what the short to medium term implication of this is going to be. I would say fundamentally though not much — nothing’s changed fundamentally in terms of the commodity, the supply and the supply demand side. It’s really about how it’s going to right itself not about how long it’s going to take.
It will be interesting to see how operators respond to this, because you can save money in a sustainable way or you can save money and destroy your assets. So it depends on how you do this, as to how operators will come out of it.
The last part about this is opportunities. So the pandemic obviously creates a crisis you got to respond and manage, which I think we’re doing and that’s demonstrated by the result of the quarter. But that’s why also I said in my overview, this also presents opportunity. So we don’t expect just to buckle down and the leave it through this and revert to pre-pandemic. There are lots of opportunities that this pandemic creates and I don’t necessarily expect the whole $150 million that we said we have saved to go back into our operating cost base post pandemic because we’re learning to do things better and more efficiently.
I’d also say that goes for the M&A market more generally. Now M&A things in place, they are still looking at opportunities around the world, whether that’s exploration or right through the operating assets and that go to watching brief for those things. So I am not going to predict obviously what that means, but our appetite for growing value for our stakeholders is still there and I think there are going to be more opportunities as a result of this pandemic then they are probably were before.
Hayden Bairstow
Great, that’s good to hear. Thanks for that.
Andrew Cole
Thanks, Hayden.
Operator
Your next question comes from the line of David Coates from Bell Potter. Please go ahead.
David Coates
Thank you, good morning guys. Just a couple of quick ones more for high level I suppose. Just with the increasing in the debt facility, can you just run us through the — what the catalyst might have been for that and your thinking behind increasing the size of the facility? And second one is also just bit more on how you’re thinking of your gold hedging program, you usually put in place as I understand so protect the value of your stockpiles. Is your thinking around that’s changing in the current market environment? Thanks.
Andrew Cole
Yeah, sure Warrick, do you want to respond to those.
Warrick Ranson
Yeah, I can respond to that. So in terms of the debt facility, I mean we’re just keen on making sure that we had and continue to maintain a sufficient liquidity buffer and we did see it as a buffer in terms of the current environment. So obviously we’re still building our profile in relation to our cash preservation measures and we started to engage with our existing banking pool.
So the number is really just to make sure that we have got a lot of head space in terms of not knowing really I suppose what the next few months might hold, as those things become clearer obviously we may sort of — where we got the cadence for in some ways. But we felt it was just a prudent measure in terms of getting into the market with our existing lenders and they have been very supportive in terms of our business and our approach. So there’s no nothing else to that really I think. There is no — nothing else to that really I think.
In terms of hedging, look the gold hedging program was done for a specific reason which we’ve talked about before and really about the build-up of the stockpiles few years ago. We don’t actively hedge within our current operations and we’re not intending to. And obviously with our existing hedge book, they financial hedges, so we just need to let them unwind. There is not really a lot that we can do with those without incurring significant cost or cash outlay. So it’s better let them run as they are.
David Coates
No, that’s great. Thanks very much.
Andrew Cole
Thanks, David.
Operator
Your next question comes from the line of Kate McCutcheon from Citi. Please go ahead.
Kate McCutcheon
Hi, Andrew and team. Well done on the recovery at Carra during commissioning. Just had a follow-up. So what is that driven by? Is that related to the ore zone that you’re currently mining in or the [indiscernible] that going to that. And then just related to the recovery, are you able to talk about some of those CapEx deferrals with respect to the plant debottlenecking program potential impacts on the plant performance for the next year or two?
Andrew Cole
Yes, hi Kate. And your question is correct, but I think you’re asking about recovery. So the recoveries that we’ve seen in the plant both copper and gold has been, we’ve got to say above our expectations. Now we’ve seen in the first weeks or so weeks of the plant operation. I think it’s probably too early to make any predictions Kate about whether these are sustained recoveries that we will see. I would caution against using these numbers for any modeling purposes at this stage. Because I think it’s premature.
The team have done quite a bit of experimentation in the plant. I think they’ve done a fantastic job at testing and putting the plant through its phases. And they’ve also experimented with a number of flocculants and recovery methodology. So we certainly do hope that we would like — we can see increased recoveries going forward. But I think it’s bit premature to be using it on a sustained basis right now.
Second question was on the capital preservation. So we have taken some capital out of Carrapateena. Warrick answered this little bit earlier, but the principle driver was delaying some of the capital investment into the plant and infrastructure that potentially would have seen benefit in future years in 2023, ‘4, ‘5 thereabout. It’s not to say that we can’t do these things though. There are still options and they can still provide benefits. We just think are prudent to delay them today, given the economic environment we fit in obviously. There are some other costs we’ve taken out of there like travel and we’ve deferred with the access route again.
So there is things like that we have done that will come in later and be pushed into next year. As we sit here today, we don’t believe there are any material changes to the guidance we issued over the next five years but that is still a work in progress for us. So these are things that we will continue to update. And it does in part depend on how long we need to hold their restrictions in place for COVID-19.
Kate McCutcheon
Okay, and then just somewhat on the mine grade, so the base structure as you ramp up and kind of leave the buffer. And what would be reasonable timeframe to kind of trend towards with those numbers or timeframe to kind of get there?
Andrew Cole
Yes, we haven’t really talked that much about grade as we’ve ramping up. We’re more talking about tonnes. But we do obviously are — we will be hitting obviously to reserve grade. The very first sublift was right on the margin of the unconfirming with the recovery sequence and the ore body itself. So we tend to see lower grades in the very top of the first sublevel and higher grades in the very bottom of the top sublevel. That’s getting into a bit of detail. But we will be hitting to reserve grades in months. So it’s not that long before we actually get to reserve grade.
Kate McCutcheon
Yeah. Okay. Thank you.
Operator
The next question comes from the line of Peter O’Connor from Shaw and Partners. Please go ahead.
Peter O’Connor
Andrew and Warrick, thanks for the call. I’ve got four areas I want to touch on. Firstly just Andrew, could you given we won’t get to site for potentially a long time. And you have only mined a little bit of ore from production at Carrapateena, can you wrap some more qualitative or quantitative comments about how the Cave is coping, combination dilution of water anything that can help us get a sense what it looks like if we were undergrounds. That’s the first one.
Andrew Cole
Yes, sure. Yes, exactly. Look, it’s really disappointing we can’t get people up to site, obviously. The site team obviously are quite looking forward to showing off what they’ve done. So we are trying to work out some creative ways that we can share with you what the site team is doing. So that’s something that we’ll talk a bit about later on.
In terms of cave performance, so they’ve — that’s obviously started on some level. I have four different systems that they are using to monitor cave propagation. And the cave is performing as modeled in essence. So we can see the cave back, we can see as it’s progressing, we’re monitoring, acquire open holes in the seismic system and in holes monitoring system, et cetera. So we can actually see the way it’s performing. It’s going very well.
We’ve got less water than we originally anticipated through the study process itself. So we’re over pumped underground, which is a positive thing obviously. In terms of fines generation, we’re not seeing any material generation of fines. And that’s more an optimization of the blasting practice that we’ve been using more than anything else. So I would say on fines probably too early to tell because we’re still only pulling the sub-first level and retreating on that first level. We probably wouldn’t get much of an indication on the lines generation until we get further down into the cave.
So can you leave that with me Peter, because we do need to find a better way of showing you a bit more as to how Carrapateena is performing rather than a bunch of text? I just don’t, how are we going to do that yet? It might literally be Tom running around with a GoPro or something to show you, but we’ll find a way.
Peter O’Connor
Nice. And from a materials flow perspective, these questions have been asked, but I just wanted to add one more. Looking the other way around procurement channels, getting material to your sites. Has there been issues with that?
Andrew Cole
Very good question. So that’s what we’re putting a lot of time into this to protect our, into our supply chain. When — right now as we sit here today, our inbound supply chains are open. We had an issue from China back in February for Prom Hill, but that those supply rates have now reopened. So as we sit here tonight, Peter, there are no issues with inbound supply chains. But I would say that we’re putting a lot of energy into this, because it’s probably the one area that we worry about more generally, because we’re exposed to many countries and many international borders and shipping routes. But we also have built inventory in many key areas. So we’ve got plenty of buffer on-site to survive short-term impacts on supply routes.
Warrick Ranson
Sorry, just to note, we’re also now starting to take a longer term view. So obviously the immediate priority was the short-term supply issues. As Andrew said that, that’s fine and now we’re starting to switch to what are some of the items that we need for future maintenance, shuts, et cetera and how do we sort of sit on those? So we’re working through those.
Peter O’Connor
Can I flip back to the other side, which is the concentrate sales. Andrew, you did say you fully sold, your concentrate for calendar year ’20. Is that across all 3 sites? And if so, what and how can that change? The customer said, you got Andrew, and take everything. Can they turn on a one phone call or are they locked in and the required force was your event?
Andrew Cole
So Pete, yes. We are sold across all of our assets calendar 2020. I think one of the other things to remember is, we’re not a bulk supplier. So we don’t supply the majority of concentrate to any smelter. We sell very small, high grade, parcels to smelters. So we’ve had instances where smelters have continued to take out product, notwithstanding the product, the smelter itself has been shut down as a result of isolation or self isolation restriction.
So can these things change? Yes, of course they can change. And can people issue — force some issue up on us if they get into trouble? Yes, they can. But we’ve already demonstrated that we can reallocate parcels of product to other smelters and we do that all the time anyway.
So reallocation of parcels amongst our customers is not that uncommon for us. But it is something that we do monitor closely Peter, because we are in a way a global organization as all copper companies and we supply to the global market. So we are dependent on them and the way they operate their smelters and the government policies, which are imposed on them through time.
Warrick Ranson
I think it’s probably…
Peter O’Connor
Sorry. Go ahead Warrick.
Warrick Ranson
I’ll just going to add to that and coming back to Hayden’s question, I think this is add to the ark and coming back to Hayden’s question, I think that we are seeing a lot more trader activity as well. Obviously with the reduction in supply from some of their other sources that, they’re certainly very active in the market. So, there’s alternate options I suppose that keep coming up.
Peter O’Connor
Can I just slip in net concentrate terms? Given this crazy world, are they changing dramatically? I know you’re not selling spot terms, but are you seeing crazy moves with the turns as well for concentrate sales. And that’s something you should expect in the latter part of the year.
Andrew Cole
Not crazy. But yes, there is a swing back to obviously in favor of smelter from where we probably — where we thought that she would be. So obviously, trader activity reverse back to some of those different terms. So, but I would say, I don’t think it’s crazy at the moment.
Peter O’Connor
So I want to ask you two things. Firstly, when you went back in upstage upscale, you’ll get from AUD300 million to AUD480. Nothing as you know is done without an enormous amount of detail. What scenarios did you run to come up with that number AUD480 million. I’m sure it wasn’t as asking the banks how much can we get? Did you run downside scenarios, multitude of sensitivities? Where does AUD480 million come from and why?
Warrick Ranson
It could always fair to same to say how much can you give me. But now we did run a broad range of scenarios. And in fact, we’re still working on a lot of the scenarios as things evolve. I mean we can have any range of scenarios really in terms of understanding government regulatory requirements, whether it’s at our end — whether it’s at the smelter end whether — and there’s a mix in between. And so for us it was really a case of just sort of understanding I suppose, yeah.
What does that range actually look like? What does that phases of cash preservation look like? So obviously we’re in our first phase of cash preservation with our $150 million. We’ve had details of what the worst case scenario. We see that as a prudent and robust measure in terms of our current and the operating. But if any of those parameters change which Andrew has already sort of talked about, whether it be from outside or from a customer side, we need to make sure that we’re able to respond.
And so we have — we’re in the process of developing and refining and where you have already different step-ups if you like, in terms of what we would need to do on our side. And obviously thinking about the capacity and the timeframe that that sort of needs to operate for.
So it’s a bit of like how long has the piece of string, in terms of what we would actually need if any of those scenarios happened. But we believe we’ve got a prudent position there. And as I said earlier, it’s not our intention to hopefully use much or over the tool really.
Andrew Cole
Peter, let me just add one thing that I didn’t talk about where he’s detailed and he’s very cautious. One of these scenarios I think was called the end of the world and they had a shutdown for several months. So he used scenarios like that.
Peter O’Connor
I’d expect nothing less, Andrew. Thank you for that confirmation. And just on debt as well, Cassini and West Musgrave? Could you remind me of the scope of debt options you’re looking at for that? And is that the progressed at the moment on a desktop basis or are you actively canvassing banks and finances at the moment given you can do that without having to do face to face?
Andrew Cole
Yeah, probably. I mean, we’ve talked a little bit about that before, Peter. So I mean it’s sort of, we understand the sort of variety of options at a high level. I suppose the world has changed a bit in terms of obviously the current environment and lender appetite around some of those aspects. And so that sort of changes some of our thinking in terms of how we might approach project development. It’s a bit of a constant, I suppose in terms of, every day is a little bit different in terms of some of those influences.
So all those options are still on the table. It’s really I suppose how we approach those. And what does the future look like in terms of that? Obviously, the nickel market itself is obviously another factor that we’re wanting to understand., given the current volatility how that’s likely to play out. It’s probably a little bit too early for us to really make sense of that at this point in time.
So that again work in progress for us. And Cassini is again work in progress for us, and how that mine impacts some of those options.
Peter O’Connor
Okay. Courtesy one last one. M&A, Andrew versus buyback, where we focus on M&A because everything looks cheap. How you are assessing the variance stock versus M&A, is that part of the active dialogue with the M&A team?
Andrew Cole
So short answer is yes. Buyback is always an option and in our capital allocation framework we talked about allocating capital to whatever, whether its projects or studies or exploration. One of the options we have said in parallel that is buyback option. So yes it’s part of the active dialogue. I wouldn’t comment yet though on how they compare, that buyback does look favorable obviously at the moment. but right now we’re in the right in the middle of the COVID-19 and unclear what the future looks like all of us probably be a bit conservative right now.
Peter O’Connor
Got you, much appreciate it.
Andrew Cole
Thanks Peter.
Operator
There are no further questions from the phone at this time. I now turn the conference back to today’s presenters. Please continue.
Andrew Cole
Thank you very much everybody for joining us. So got a little bit overscheduled here, but hopefully that was useful. If you have other questions please call Tom and we will organize get to the people on the call. Everybody have a good day. And please stay safe and healthy. Thank you.
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