Transcript from NCM HY Results - 16 Feb 2022
Posted: Sat Jun 25, 2022 4:19 pm
Transcript from NCM HY Results - 16 Feb 2022
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Newcrest Mining Limited Q2 2022 Results Conference Call
February 16, 2022 5:30 PM ET
Company Participants
Tom Dixon - Head of Investor Relations
Sandeep Biswas - Managing Director and Chief Executive Officer
Kim Kerr - Acting Chief Financial Officer
Conference Call Participants
Mitch Ryan - Jefferies
Daniel Morgan - Barrenjoey Markets
Levi Spry - UBS
Al Harvey - JPMorgan
Anthony Barich - S&P Global Market Intelligence
Simon Mawhinney - Allan Gray
Peter O’Connor - Shaw and Partners
Matt Greene - Credit Suisse
Operator
Thank you for standing by and welcome to the Newcrest Mining’s 2022 Half Year Results. All participants are in a listen only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions].
I would now like to hand the conference over to Tom Dixon, Head of Investor Relations. Please go ahead.
Tom Dixon
Thanks very much, operator. Good morning, everyone. Welcome to Newcrest’s FY’22 half year results conference call. I will just let you know this call is being recorded today, Thursday the 17 of February 2022. I will also just remind people that Newcrest is a U.S. dollar for the entity and all dollar references in the slides today are to U.S. dollars. Any references to the prior period, six months ending 31 of December 2020.
I will now hand our hand over to our Managing Director and CEO, Sandeep Biswas.
Sandeep Biswas
Thanks, Tom. It has been a very eventful first half for Newcrest. We have taken significant steps forward in our profitable growth agenda. And we have set up our operations for a stronger second half and a very bright future.
This half we had a big operational focus on major maintenance and productivity improvements with the planned replacement and upgrade of the Cadia SAG mill motor and the rebooking of autoclave forwardly here. The SAG mill is now operating at full capacity, and we expect production to significantly increase in the second half.
In that context, their financial results were solid but the statutory and underlying profit of 298 million in line with our expectations. We are all still witnessing the significant impact of the COVID-19 pandemic across the world.
But pleasingly our operations were able to continue producing throughout the half. And I want to personally thank our people for their hard work and dedication during this challenging time. COVID-19 still remains a risk for the business and this continues to be very closely managed.
We are also very pleased to announce the findings of the Red Chris blockades have her on Stage 1, Lihir Phase 14-A and Cadia PC1-2 pre-feasibility studies during the period and works have been advancing on each of these projects.
The studies overwhelmingly demonstrate the depth and quality of our global organic growth portfolio and create an exciting pathway for one of our operating assets for each one of our operating assets in the future.
In November, we announced the deal to acquire Pretium Resources. As I mentioned at the time, Brucejack is an asset we have been watching and evaluating for many years now and we are absolutely delighted that an all body of its grade quality and significant potential will become part of our already exceptional asset portfolio.
We have also progressed plans to expand Cadia during the period and have drilling resulted Red Chris and Havieron continue to demonstrate fantastic potential. We continue to work diligently I plan to extend a lot of Telfer and the Western cutback is well underway and progressing to plan.
Today we have announced a major increase across our mineral resources and ore reserves with a 10% increase in gold ore reserves to 54 million ounces compared to this time last year. This is an incredible achievement and reinforces our unrivaled long reserve life advantage compared to our North American and Australian peers.
This is a genuinely exciting time for Newcrest and a significant step forward in our forging an even stronger Newcrest plan. At Newcrest safety is core to how we run our business. We remain dedicated to the safety and well being of our workforce to ensure that everyone goes home safe and healthy every day. However, it has been a challenging start to the Newcrest in relation to injury rates.
These have increased during the period, mainly driven by a number of minor hand related injuries. This trend is unacceptable and our team is working around the clock to improve our safety performance going forward. And new safe training program remains central to ensuring all new employees and contractors understand their safety, culture, and the values that have driven our safety transformation.
Critical to our forging and even stronger new Chris plan is building a high performing inclusive and psychologically safe work environment. And we continue to roll out a range of initiatives across the organization during the period. And respect at work program continues to progress with a dedicated project team now in place to eliminate behaviors associated with sexual assault and sexual harassment in the workplace.
We want everyone to feel safe and empowered to speak up and to be included and to feel engaged. As part of that we are focusing on psychological safety. And our goal is to establish the same strong track record that as we have for physical safety across our workforce.
Life safety sustainability is core to how we run our business. This is constant work in progress as we look for ways to care for our environment, develop and maintain strong relationships with our communities and governments and make ethical and transparent strategic business decisions. I’m pleased with the progress we have made towards our sustainability commitments during the period.
Along with many of our peers in the resources sector, we have a goal of net zero carbon emissions by 2050. This is a fantastic goal, but we need to turn it into an action plan and to take concrete steps to deliver on our commitments.
Our dedicated project team has been working to develop our group net zero carbon emissions roadmap, which will outline the detailed steps new Chris will take to reduce their carbon emissions and to manage climate change risks and opportunities. We have a strong track record in identifying and applying innovative technologies. And we look forward to applying that skill set to support the transition to a low carbon future.
With Pretium due to join our portfolio, we look forward to leveraging their industry leading sustainability initiatives as well. Brucejack has one of the lowest greenhouse gas emissions intensities of any operating gold mine in the world, and will be a great fit into our sustainability agenda.
It was also pleasing to see the right part wind farm reached financial close during the period and commenced construction. This renewables project will secure a significant portion of Cadia’s future projected energy requirements and is expected to achieve commercial operation in 2024.
Our $20 million community fund supported more than 65 initiatives since its inception, including health assistance, livelihood restoration, and economic recovery in PNG, Australia, Canada, Ecuador and Fiji. It has been a tremendous support to many people in our communities. And we look forward to continuing this program into the future.
Since we announced the findings of Cadia PC1-2, the Red Chris Block Cave, Havieron Stage 1 and Lihir Phase 14-A Pre-Feasibility Studies works have been advancing on each of these projects as they progress through the feasibility stage.
Some project activities have experienced a few disruptions lead into COVID. But the teams are managing the impact on the overall schedule, and we remain committed to delivering each study on time.
These studies represent the work of many highly skilled people across many years to position nucleus with such a fabulous range of high quality and capital efficient growth options. As highlighted on this slide, each project is expected to deliver real after tax internal rate of return, higher than 16%.
At the spot gold and proper prices at the time of the release, the estimated economics improve even further to at least 22% on all four projects, noting that spot prices as big are even higher today.
The studies are expected to create 3.6 billion net present value to Newcrest increasing to over five billion at the higher metal prices you see on this slide. Works are advancing on all these projects and we continue to evaluate and progress opportunities to extract the full potential of all of them.
I’m also excited to highlight our cost profile going forward. I think this is something that really differentiates Newcrest. If you combine the results of these four studies with the expectations from our existing assets, overall sustaining cost per ounce is anticipated to higher, falling to less than $500 per ounce to FY’30.
If realized this cost position is without comparison in our industry at the scale. The material growth in our copper production comes exclusively from Tier 1 jurisdictions and will assist our all in sustaining cost position with the addition of byproduct credits from Cadia and Red Chris.
And there is also further potential upside in our copper growth story with the development or the potential development of Wafi-Golpu which is not included in our base case. The development is a multi - it can also be, it is excluded from our base case, but you know, at current coppers, this is an difficult to rule this project out also.
As we foreshadowed to the market, Cadia had the slower start to the year, due to the replacement and upgrade of the sag mill motor. This was the first time that gearless mill motor of its size and foundation anywhere in the world has been completely removed, replaced and upgraded.
It was a tremendous achievement for our team to safely complete the project after nearly five years of planning and more than 150 people involved. It sets Cadia up for a fabulous second half with the mill now operating at full capacity.
We also had some great new in December with regulatory approval received to increase the permitted processing capacity of Cadia to 35 million tons per annum, increasing the capacity of the mill is part of the Cadia expansion project, which is on-track for completion in the upcoming September quarter. Key activities are well progressed, including development of PC2-3 upgrading material handling system, improvements to gold and copper recovery and other associated infrastructure.
We also received approval to repair the slump section of the Northern towering stem at Cadia. We plan to progress the remediation once our design work is fully complete. And finally the Moly plants have delivered first concentrate production at Cadia early this year. And the team is working hard to ramp up the plant and improve the product specs.
Moly will be an additional revenue stream for Cadia into the future and we estimated it will provide a life of mine average of around $50 per ounce benefit to Cadia’s already low all in sustaining costs.
Lihir had a challenging start to the financial year. Planned and unplanned shutdown activity impacted mill throughput and heavy rainfall limited access to high grade ore in the pit. Despite the heavy rainfall, we have seen mining rates increased in the first half compared to the prior period.
This is in line with our plan to increase mining rates to 50 million tons per year to meet our base case production schedule. Mining rates will continue to increase in the second half and additional pumping capacity installed into Phase 14 in January, will limit the impact of weather events during the second half.
Lihir is also expecting higher grade ore from Phase 14, and increasingly high and medium grade ore from Phase 15. Together with the high mining rates and lower maintenance schedule, this should increase gold production in the second half. We still expect Lihir to meet production guidance in FY’22, although gold production is likely to be at the lower end of the 700,000 to 800,000 ounce range.
We remain on-track to complete the Lihir Phase 14-A feasibility study in the fourth quarter. And as this slide highlights, we have made some great progress in ground support anchor drilling in installation.
We have also commenced drainage works and procurement of additional mobile equipment and our grant support trial results have been positive. Realizing Lihir’s potential to be a mini announced plus per annum producer is a fabulous opportunity for the company. And we continue to work to achieve this milestone.
The potential of Red Chris and Newcrest continues to unfold. The pre-feasibility study announced last year reflects on the Stage 1 of our growth aspirations with an initial reserve of 8.1 million ounces of gold and 2.2 million tons of copper.
The significant upside potential for Red Chris is becoming clear. Results at our new East Ridge Discovery continue to expand the footprint of the mineralized corridor with the latest drill results intersected high grade mineralization within the Eastern extents of this prospect and it also remains open to the east and at depth.
We also have the potential early mining of the high grade pod in the East side. We continue to study this option in parallel with the blockade studies. And this could bring forward the benefit of this high grade material into our cash flows, while we develop the cave.
Havieron has a compelling future based on the pre-feasibility study outcomes which were based on only a small proportion of the initial mineral resource estimate. We have had excellent growth drilling results at Havieron during the first half, including the highest-grade mineralization drill result outside of the South East Crescent sand.
This intercept was within Eastern Breccia corridor. And as you can see on this slide, it sits outside of the inferred mineral resource estimate. The results also confirm the likelihood that the Havieron region has additional high-grade zones indicating significant potential for further resource growth.
We have experienced some difficulty with poor ground conditions at Havieron during the period which impacted the progress of the exploration decline and our team is currently working to understand the potential impacts to the project schedule, and how we can recover some of the lost time. We still expect first gold production from Havieron in FY’24 and we will provide updates as more information comes to hand.
Our team is also working hard to progress some exciting opportunities to extend the mine life at Telfer including in the open pit and underground. The Western Stage 5 cutback is also progressing well and we expect this project to support continuity of the Telfer operations into FY’24.
We were absolutely delighted to announce the agreement to acquire Pretium Resources in November last year and we are very pleased that the Pretium security holders voted overwhelmingly in favor of the transaction last month.
The transaction physicians Newcrest as the leading gold miner in British Columbia’s Golden Triangle, a region that we know well already, where we have established strong stakeholder relationships, and we are very pleased to be expanding our presence.
Brucejack is one of the highest grade operating gold mines in the world and will drive material increase in mineral resources or reserves annual gold production and cash flows, as well as asset and geographic diversification. It has exciting exploration potential and the large mineral endowment provides both near mine and district scale exploration opportunities.
As I said, it has been a very busy time for Newcrest and as highlighted on this slide, we have a number of important milestones approaching us in the near-term. We remain on-track to release several feasibility studies over the next year. And we are confident these studies will provide even more upside to Newcrest. And we also expect to close the Pretium deal this quarter. After which we will provide the market with a more fulsome update on our plans for Brucejack.
Overall, we are thrilled on how our portfolio is positioned and developing going forward. We will have exposure to 61 ore bodies, five of which will be operating with an unmatched reserve life advantage compared to our peers.
We continue to have a strong and strategically advantageous presence in Australia, Havieron, Telfer and a world cave mine is also set to deliver strong cash flows and earnings for our business for many years to come. And we have accelerated our aspiration to be a million ounce plus producer Lihir from FY’24.
Our equity interests in Lundin Gold, owner of the Fruta del Norte mine offers significant value and the financing facilities we acquired from Lundin have provided us with over $160 million in cash flows today. This is a genuinely exciting time for Newcrest and highlights our commitment to deliver superior returns to our shareholders.
I will now pass over to Kim, who will discuss Newcrest financial performance for the first half and a very strong balance sheet position.
Kim Kerr
Thanks, Sandeep, and hello everyone. In the current period, we delivered an underlying profit of $298 million and all in sustaining costs margin of $502 per ounce, and an operating cash flow of $423 million.
Our first half performance was in line with our expectations following the planned replacement and upgrade of the Cadia SAG mill motor and lower production at Lihir. As highlighted by Sandeep, we expect our operating and financial performance to improve in the second half. And we are on-track to deliver at FY’22 growth guidance.
Newcrest continue to monitor the impact of cost inflation across the global industry. In the first half hour, our results were impacted by rising concentrate freight costs driven by tightness and challenges in the sea freight markets.
We are also seeing labor and consumable costs increase with growing demand constrained supply and the impacts of underlying commodity price increases. And we were also impacted by the strengthening Australian dollar and of course, additional costs to manage COVID across the business.
Importantly though, Newcrest continue to be proactive and collaborate with our suppliers to identify ways to manage the cost pressures and improve our overall cost profile. And we have worked hard over many years to get Newcrest into a financial position where it can pursue profitable growth opportunities when they arise.
I’m pleased to say that we have invested just under $500 million in major capital projects and exploration activities during the first half. And in December we announced the sale of our portfolio of 24 royalties for a total cash consideration of approximately $37.5 billion. This transaction highlights our capital discipline across our whole business and unlocked further value for our shareholders.
This slide highlights our strong balance sheet and long dated debt maturity profile. At 31 December, 2021, we have access to $3.2 billion of liquidity and our next corporate bond debt repayment is not due until 2030.
We will draw down on this existing liquidity to fund the cash element of the Pretium offer consideration and we will still retain considerable capacity to execute our pipeline of organic growth projects at Cadia, Red Chris, Havieron and Lihir.
Our strong free cash flow and debt reduction over many years has placed Newcrest well within our financial policy metrics. Our leverage ratio of 0.2 times at 31 December, 2021 remains well below our target of being less than two times EBITDA and our viewing of 4.5% is significantly below our target of being less than 25%.
We also retain our investment grade credit rating, which gives us good access to all capital markets as if and when needed. Our dividend policy is clear. We look to pay dividends that are sustainable overtime, having regard to our cash flow generation, growth opportunities, financial metrics and balance sheet, with annual total dividends being at least U.S. $0.15 per share on a full-year basis. Based on these considerations, we haven’t announced an interim fully front dividend of U.S. $0.075 per share, which will be paid at the end of March.
And with that, I will now hand back to Sandeep.
Sandeep Biswas
Thanks, Kim. So what does all this mean for Newcrest? Well, we believe it shows that Newcrest is a unique investment in the gold industry. Our long-life, high-margin production is expected to be delivered as an extremely competitive all-in sustaining cost, which means strong profits and margins even at lower gold prices.
We have an outstanding organic growth portfolio and with the addition of Bruce Jackson, we will be producing well over two million ounces of gold over the next decade or so. Our substantial and increasing exposure to copper exclusively in Tier 1 jurisdictions is also exciting for our shareholders, and we have even more growth options not included in our base case projections.
We remain relentlessly focused on safety, building an empowered and inclusive culture and building our sustainability credentials across all dimensions. With our excellent exploration and technical capabilities and our strong balance sheet, we are very well-positioned for the future. This is a fabulous place for the company to be, and we believe this makes us a very attractive investment proposition for all investors.
With that, we are now open to questions.
Question-And-Answer Session
Operator
Thank you [Operator Instructions]. Your first question comes from Mitch Ryan from Jefferies. Please go ahead.
Mitch Ryan
Good morning, Sandeep and team. Thank very much. I just wanted focus on stage 14-A this year. What is the grounds for cause conclude, I was just wondering if you could give us some metrics on sort of the cost of inflation that we may be thinking about and how you are trading those costs will it all go into operating costs or you will be capitalizing them?
Sandeep Biswas
I think on 14-A and Kim may know this, but there is obviously is partly capital and all and partly operating. But the good news from the geotech works that you are talking about is that, we are seeing that the ground conditions are better than what we assumed, which is really good news. And the anchors are all testing fine. So I think that methodology that we just to see what we are doing the trials to make sure it works, demonstrate that it does work. And it is better than expected. So that is good news.
In terms of cost inflation, I mean that would depend from place-to-place. I mean, this is equipment and people already mobilized and the drills are already on site. So the only exposure there is, if there is any further inflation in labor or something like that, but it is a highly specialized and small crew. So wouldn’t expect any major changes in relation to the 14-A development. But in terms of the CapEx, OpEx that I just don’t know that off the top of my head.
Kim Kerr
You will see a bit of a mix coming through that. So the infrastructure that Sandeep talked about, that is on site, and the weight maintenance, you will see that coming through capital. And as we work through our or you will see some mining costs coming through. So there is a bit of a mix of trade, and over the next few years as we work through that.
Mitch Ryan
Thank you. And my second question with relates to Cadia, just following the SAG mill update. I was just wondering if you could sort of use it at full capacity. So just to confirm that training as for the 32 million ton per annum throughput rate are not above?
Sandeep Biswas
So we are in the process of testing, it is limited, you can imagine but we did stockpile or during the time that the SAG mill was out for replacement and now the team is in the process of fine tuning it and making sure that we can really optimize and chew through that stockpile, while the mine ramps up to meet the approval, right, the beginning and well targets 35 million tons in line with our permit. So we are just in the middle of that process, but it was a very smooth transition over and it seems to be operating extremely well.
Mitch Ryan
Okay. Thank you. I will pass it on.
Operator
Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Daniel Morgan
Hi Sandeep and Kim. First question just on Lihir. Now you have given greater COVID costs in your guidance today. Just wondering if there is also a productivity issue we should be thinking about. I mean, looking at Lihir, it has to have a very strong second half to make the lower end of guidance. And just wondering if you could elaborate on your confidence and some of the drivers on why improvement will occur in the second half? Thank you.
Sandeep Biswas
It is a very good question. COVID costs have increased than what we expected you to all the number of isolations, et cetera that we have had. But a very important point on COVID is along with other mines in PNG, Lihir has gone to the endemic size of management as opposed to pandemic.
So what we are doing is only treating people and isolating people who are symptomatic, which is what you do in the endemic size. It is been done successfully elsewhere in PNG, and that will obviously be constrained any issues we otherwise would have had in terms of isolating positive cases. So that is an important step to free up their productivity because that has been impacted due to COVID and et cetera.
Now the other drivers will be access to 14-A high grade that was limited during the heavy rains of the last half. But this is where the pumps are referred to we are going to put in there will allow us to dewater much quicker after rain events and get into that higher grade at the base of Phase 14.
And as we are getting more and more into Phase 15 and the pre strip is being done, we will be getting access to higher amounts of medium to high grade from Phase 15. And look, it is not going to impact this year that much, but towards the tail end of Q4, we will also start to see some orphan Phase 14. But that is going to have more of an impact in future years.
Daniel Morgan
Okay, thank you. You highlighted ground conditions at Havieron impeding progress to-date on that decline. Can you expand on this, is that just near surface this issue has arised or is it an issue, you think, an ongoing issue?
Sandeep Biswas
We were always anticipating issues in that as you get through the first 400 meters of cover. And what we are finding as we started to decline, those conditions were worse than we imagined. I mean, you can only do limited cuts before you had to shore it all up again. Otherwise, you would have the materials for the reel round the side.
So that slowed us down a lot, we’ve change the design a little bit. So, we were going to go on a decline straight if you can, straight but at a decline, and then step down to the next level, we have brought that forward where we are now going down in the spiral earlier in the decline, and then continue to decline after that.
This is to try and get through that 400 meters of cover as soon as we possibly can, and get into the better ground conditions. So, we can start accelerating. Now exactly what the impact all of that is, we are working through now, but that is fundamentally the issue that we have encountered.
Daniel Morgan
And highlighted the couple of opportunity at Wafi-Golpu, again, just wondering if you could elaborate on if there is any movement at all, and government relations, from what we have seen?
Sandeep Biswas
Well, there is just a little in the last two or three weeks, there has been a movement on the ranch, so to speak. So what is more discussions with the state bigger sharing team. Did you know they are going to go into election mode very soon? So I don’t really anticipate an agreement before the government has to go into caretaker mind. But we are in the right in the middle of another flurry of discussions.
And it is one of those things where you take the ball forward in incremental steps, and this is an opportunity potentially to take the ball forward. But I don’t know that we will necessarily get an agreement before the election. But I mean, you could never tell, but it is unlikely.
Daniel Morgan
Okay. Thank you very much Sandeep and Kim.
Operator
The next question comes from Levi Spry from UBS. Please go ahead.
Levi Spry
Hi Sandeep thanks for the call. And maybe just following up on the like all three questions. What are you doing, are you obtaining any studies or is there any project works happening at all?
Sandeep Biswas
No, it is essentially caretaker mode, because a small team up there. I think given the, I mean, we have had a couple of false starts in the past. I think the intent now is let’s get an agreement. And then let’s focus on the critical path, which is about do some of the infrastructure work which we had started but we stopped, because we had a MOU with the government which then got put on ice as the governor changed.
If we start reading in subtle network again, that scopes already fixed and we know what to do. Set up for the boxcars and the starting to decline and while all that securing we will be look at the study. And obviously we estimated, but more importantly, bring some of the improvements that we have learned since the time that Golpu was originally designed in terms of caving, in terms of tunneling and also in terms of process flow sheet design.
Levi Spry
Okay. Thank you. And just in terms of Pretium. So, most of the approvals have come through, talk about completion, this, next quarter, this quarter. How do we model it? Yep. So how do we model it, what is the economic interest? When does it start going through?
Sandeep Biswas
Well, for an engineer like me, I would said, the day we take over, we start there are answers. But, Kim, you might want to give more sophisticated answers than that.
Kim Kerr
I think the engineer covered it then quite well. So from the day that we do get the completion, that is when we will start consolidating it, as you see with all of our other fully owned operations. So, 100% from whenever that date, that actually is.
Levi Spry
Okay. So two questions. When will you be in a position to give us guidance post that and what is that back dated, does it commence from when it was approved, is it a black box type arrangement or do we think about happening now?
Kim Kerr
So, it is from the day that it completes there is no backwards staging. So whenever that date actually is, we will be, it consolidating both the financials and the production numbers from that date forward, no back dating.
And I think in regards to guidance, we will get the team on the ground on that day. And once we spend some time getting through the detail of speaking closely with management and alike will be in a much better position to put some meaningful guidance out to the market.
Levi Spry
Okay. Thank you. So just maybe on Telfer. So, extending mind life to FY’24, but just this idea of maybe well, what happens after that I guess, how are we thinking about plans, for production, post that in combination with Havieron?
Sandeep Biswas
So, the first target is to make sure there is no gap between Telfer and Havieron. And from what we are finding from our drilling that we are doing in addition to the Westland cutback, there may be another potential cutback that we are now doing some more drilling on to see if that stacks up and as you know underground, we have moved from trying to find another big ore body underground to incremental discovery, which is proving highly successful.
We are finding all sorts of pods, some with quite high grade that we are discovering and mining as we go. So, we would aim to continue that. And first win would be to make sure there is no gap between Telfer and Havieron.
And the second one is, do we run it in parallel? Have we found enough to just run it in parallel with Havieron, we will dedicate one of the lines to Havieron in that scenario and the other line, this is the production train in the mill with focus on Telfer ore if that was that scenario.
Levi Spry
Okay. Thank you. And last one, sorry been cheeky with so many. But just in terms of the longer-term guidance, so less than $500 sustaining cost FY’30, pretty amazing headline. How could that change? It is a long way away. There is a lot of copper involved there. There is not much gold. There is not life extensions at Telfer. It is a lot of copper productions, subsidizing I guess high costs of Lihir.
Sandeep Biswas
Because Lihir is such a high fixed cost business you get smashed when your answers are down. But when your answers are up as they will be with the higher grade coming through as we get deeper and deeper into carpet, that margin and contribution from Lihir goes up quite dramatically as it pertains to all in sustaining costs coming down and obviously the margin going up.
And the copper flying through from Red Chris along with the gold ounces are extremely cheap answers. I think they are negative in all in sustaining costs. And that base case we described. What are the price assumptions for that base case, Kim, I think it is $3.
Anyway, we published all this a few months ago, but it is nowhere near where the spot prices are today. So the risk would come from timing and delivery of our projects. And obviously copper and copper price from the byproduct credit viewpoint. But prices stay where they are, which I mean, who knows? Then it might look even better.
Levi Spry
Okay, thank you. Thanks.
Operator
[Operator Instructions] Next question comes from Al Harvey from JPMorgan. Please go ahead.
Al Harvey
Hey, Sandeep, just one from me. On the Telfer reserves, you mentioned that you have removed O’Callaghans from reserves, like pending strategic tech and financial studies. So that is a fairly sizable share of Telfer’s copper resource. Can you just talk us through that review and how material that is in terms of mine life and general plans there at Telfer and with Havieron ?
Sandeep Biswas
Yes, O’Callaghans has never really been impacted into the mine life at Telfer itself. That would have to be a stand-alone or we would have to dedicate some of the infrastructure of Telfer in the processing to treat the ore that is got a lot of non, it is got a lot of zinc in it. It is got multiple minerals in it.
But the reason we took it out is that that original study is a bit long in the tooth. And so we have taken it out, it is still in the resource, but I think it is gone from a reserve. So as part of this review, and a lot of this is associated with the market right. I mean, if we focus purely on costs, we would be mining O’Callaghans today. It is all about how much material it brings on the market. And how do you make sure that the market is ready to receive it. And that the price isn’t necessarily influenced by you coming online.
So, these are the considerations we will look closer into. I mean, these sorts of materials are becoming more important going forward. And there will be a time where I think that will make sense. But we have got a lot on our plate at the moment. It doesn’t affect the Telfer base case, and we thought it was prudent to make that call.
Al Harvey
Thanks Sandeep. I will pass it on.
Operator
The next question comes from Anthony Barich from S&P Global Market Intelligence. Please go ahead.
Anthony Barich
Hi, you spoke about you net zero roadmap on its way and Brucejack obviously having the lowest emissions profile in the world. Just wondering, with the carbon tax, you are going up there in British Columbia. How do you manage the risk of the rising running price there and does it matter, does it impact operations economics necessarily, or not so much because of the high renewables upset in the grid?
Sandeep Biswas
It really is the high uptake of renewables and speaking with the BC government. I mean, they have a plan to make sure that they are 100%, not just 90, whatever is present carbon free, at least as it pertains to the hydropower going onto the grid. And then pretty already well advanced in their thinking on how to electrify the loader fleet. And together with all the work we are doing it do, Chris.
I think the places where you have hydropower, like there and FdN and Red Chris, it is a real privilege to benefit to only have to focus on onside emissions, really, because the outside will look after themselves. To me, it allows us to really get some traction as this technology. Electrified technology comes into mainstream in relation to on site permissions.
Anthony Barich
These are the industry, you see gold mines going on the grounds, perhaps more given that is, and things have a more favorable emissions profile, or is it not as simple as that operationally?
Sandeep Biswas
It is hard to see the economic driver services, carbon costs, et cetera, et cetera, they would fall without would make you go. If you are unusual situations that would force you to go underground as a surface. But I think the technology both on surface and underground of electrification coupled with decarbonizing the incoming.
I mean, that is the obvious way to go. And then when you go underground, on surface depends on the ore body you have as opposed to something else driving you that way. And I’m a big technology fan and I just see that sort of technology, particularly on onside admissions really starting to accelerate as we go forward.
Anthony Barich
Okay, thank you.
Operator
Your next question comes from Simon Mawhinney from Allan Gray. Please go ahead.
Simon Mawhinney
Hi good morning. Sandeep, would you mind commenting please on your 6% annualized return on equity as reporters, as compared to the greater than 20% IRR, post tax that these projects apparently deliver stock prices?
Sandeep Biswas
Well, these are all great projects going forward, Simon. I mean, that is a future looking projection of these projects, which will all deliver higher returns. And overtime, we should start seeing that number that report improving overtime.
Simon Mawhinney
So, I guess your incumbent asset base is prejudiced relative to your incremental capital spend, is that the right way to interpret that?
Kim Kerr
If I may, there is probably recognition that Lihir is a very large part of our asset base. And so it is obviously a historical asset. And that is the one Simon and that you will see is driving our current return on capital versus what you will see in those future studies.
Simon Mawhinney
Okay, thank you. And the second question I have and only have two. With respect to Pretium, you mentioned it is accretive to Newcrest’s EBIDA and cash flow. And any acquisition of a profitable company or assets would do exactly that. And I think it is an unhealthy focus. I’m curious when will Newcrest shift its focus to per share metrics?
Sandeep Biswas
Well, it is not as we don’t look at per share metrics. But, the reasons for buying into Pretium go beyond just being a accretive, I mean, it is a major strategic play for us. We believe there is a lot more upside in what is contained in the existing ore body and future exploration, and that is where the big value drive will come from, and that will flow both into absolute metrics and per share metrics.
Simon Mawhinney
And when you make these acquisitions, do you compare them to your own share price, sorry, or your own shares I should say, our shares I should say.
Sandeep Biswas
Yes, we do. But, that is just a whole broad set of things we look at because we can’t just look at the per share metrics on the day of acquisition. We have to look about what can we do with the asset and look at it on that basis, in addition to what it does strategically in terms of asset geographic diversification things like your emissions profile, et cetera.
So, it is not just a single metric decision. There is multiple facets, as you know, and would appreciate Simon, when we evaluate any potential investment in this particular case, that happens to be an acquisition.
Operator
Your next question comes from Peter O’Connor from Shaw and Partners. Please go ahead.
Peter O’Connor
Good morning, Sandeep. Just want to circle back to a few questions. So Havieron decline, just to get some clear, the answer that you gave, you were putting down a decline, which was going straight down, but the decline you have now gone more to a spiral, that is quite a change in such an early stage of a decline, are the conditions that bad? And is that something we should be, deeply concerned about?
Sandeep Biswas
We were going to, well we were concerned about the progress we were making. We sort of, so the design always had a spiral, but it was further down the decline and then we spiral down and then continue the decline. All we have done is put that spiral forward. So, it will essentially be the same tunnel length, more or less. It is just that spiral piece comes forward as oppose to where it was originally going to go. Just so you go down the vertically quicker.
Peter O’Connor
Are the conditions more related to a particular stratum or aquifer - is it broad based across that sort of first four hundred meters?
Sandeep Biswas
At the moment where we are now and obviously it is variable where we are now it seems fairly evenly distributed.
Peter O’Connor
Okay. And to Telfer when you talked about the mill potentially running longer and then using the two trains between Telfer and Havieron. Previously, I think on calls you talked about campaigning. Is that still the way you would think about packaging and sending the ore through the mill, given the size of Havieron versus Telfer or this is that commentary you made different to that prior comment?
Sandeep Biswas
So, we will be modifying the design of one of the trains, mainly to take you in count the high grade ore from Havieron, particularly copper, this is in the flotation, in the leaching section. And so, we will dedicate one train to Havieron.
Now, initially at the lower tonnages we expect to campaign, but if as we hope over time that we can expand the mining rate and size of Havieron, then once you get above around six million tons around that plus - then you probably go to a continuous type operation, bearing in mind each of these lines of about 10 or 11 million tons capacity. So, they have a limited turndown ratio. But because of the mineralogy and the grade of the broader Telfer ore bodies, we just use that through the other train and not mix it with Havieron.
Peter O’Connor
Got it, thank you. Just to trying to pencil in higher on that guidance, so, you close this quarter? Is the guidance from that weeks after that months that? Should we get an FY’22 June quarter number or do we have to wait for FY’23 full-year number? Just to how you Levi’s question?
Sandeep Biswas
It is good question. I don’t want to pin myself down to an answer right now. We don’t even have feet on the ground from an operational sense. But we do know how important it is that we say what we are going to do and what our plans are. So that will be one of our priorities is to get the information to you guys, as soon as we are comfortable that it is something that we can put out. Put out monitor on.
Peter O’Connor
Have said it there is been a lot of headlines lately that mining industry or culture across a broad range of companies and industry in general. It looks like you asked yourself last week for like a semi editorial. Is there any comments you would like to broaden or share this floor regarding that?
Sandeep Biswas
Yes, I think the way it has been. So when I first started, as you know, back in 2013, 2014, we were in a spot of bother as a company as you would remember. And it really needed a very top down command and control style leadership to really get the operations to where they need to repair the balance sheet to focus on cash, and really pull ourselves out of the hole we have got ourselves into. And then that took a lot of hard work.
And there was some tough discussions, but collectively and individually. But as we pulled out of that to say around 2018, 2019, we started to move towards a more collaborative style of leadership and there was many leadership programs put in place, and this is the top down starting with me and then.
And then what we also did back in the transformation started is we started our cultural index our HR, because we wanted to make sure that the culture was improving along with the business, not that the business improvement was compromising culture.
And all the data was telling us that at a higher level, our culture was improving because our HR Index increased every year until 2019, where we started off with the bottom of the lowest quartile in 2014. And by the time 2019 came along, we were just inside the first quartile, which have improvement in culture. So that was very good, but we had to skip 2020 because of the pandemic and then in 2021.
Now, our HR index dropped down into the top of the second quartile. But what it also showed because along with the numbers you get a lot of comments from people is, everyone understood what we had to do during the tournament.
Our society is changing, people’s expectations are changing. And they want to be more involved in running the business and really being trusted to take more control and less command and control. And as we started that journey, back in ‘18, ‘19, we realized we need to amp it up again.
So about a year and a half ago, there about, we started our inclusive leadership program. Starting with me in the excrement down to the organization with a big focus was on psychological safety, and had the lead in a more inclusive manner. And with just in the process of wrapping that up to psychological safety will be announced, that is going to be at the same level as physical safety in terms of how we approach it.
And we are now preparing our next wave of the new type of methodology, which has been so successful in changing our physical safety culture. We are going to turn that on to psychological safety.
So there is a heap of work going in the area. A lot of it driven by the feedback from our people, in fact, almost all of it, and our various surveys and indicators, and what have you said something we have been taking seriously for some time. We will amp it up again. And we and I particularly recognize the need to change and totally committed to.
Peter O’Connor
I appreciate the color Sandeep. Thank you.
Operator
Your next question comes from Matt Greene from Credit Suisse. Please go ahead.
Matt Greene
Hi, thanks. Sandeep, I think it is a while year-ago, you introduced a new capital measure program policies and in that you highlighted by share buybacks? So just curious you kind of thinking around that just given where new Chris’ trading relative to some of your global peers, and also just the performance of the underlying commodity. So just, if you could provide some color on, what you need to see to justify about that?
Sandeep Biswas
Look, I mean, if we didn’t have the big CapEx projects we have got in front of us. You could argue we should be doing a buyback now, but we have to balance that with our capital projects profile coming forward to add that fundamental value to the stock itself.
But I mean, the board thinks about these things, every six months or so or in between if required, and it is not off the agenda. But we have to consider buybacks in relation to the other commitments that we have both now and going forward in relation to deployment of capital.
Matt Greene
Got it, that is great. Thanks. And then just a couple of Cadia, if I may. Just the SAG upgrade I think just the ramp up of for flow cells. You have to provide some color as to how the performance has been through January and in stepping?
Sandeep Biswas
Look, it is going well. I don’t think you have tested its limits yet. And that is what the site is doing. So right now, I think it is too early to say, but over the next couple of months as we slowly increase its capacity and yet and the thing to remember is all the bits of the project aren’t finished yet.
So it may be that we may not be able to push it to its absolute limit until the other bits and pieces are in place during the course of the year. So it will be that balance, but within the constraints of the current plan, we are testing the what Cadia SAG mill do on and I’m hoping that as usual with these things, then they can do better than nameplate. I’m not saying it will. But that is what I’m hoping.
Matt Greene
Alright that is great. Thanks for the color. That is all for me. Thanks very much.
Operator
Your next question comes from [Stephen Henderson from Henderson Trading] (Ph). Please go ahead.
Stephen Henderson
Good morning, Sandeep. Sandeep, I was interested in the Havieron figures where the move from inferred to indicated resources was somewhere in the region of I think 0.6, 0.7 million ounces of gold. The actual overall resource doesn’t appear to have moved, particularly if at all, despite some phenomenal, real success. I’m just wondering if you would add a bit more colour to how that is being viewed.
Sandeep Biswas
We just haven’t put another resource around it, right? I mean, I think it is simple as that. So, once we, and now we have done a fair bit, I think we announced that, I can’t remember when it was, a couple months ago that we have done a lot of that resource definition drilling.
We are now moving more to growth drilling. We will be able to over the coming period, look at publishing a new resource, once all that data’s analysed and the various designs are put in place and what have you.
So, it is not something that we are not focused on. It is just that, it is got to be informed by the drilling. And then as you know, there is a pile of work that is got to be done before you can under the JORC code, register it as a resource or reserve.
Stephen Henderson
Yes. And so, any further upgrade to MRE2 for one of a better phrase. Is that in any way, linked to the negotiations for the additional 5%, which I take it are off on the run now, there is certainly the window for that to commence was the middle of February, I just wonder if any of those are linked in any way?
Sandeep Biswas
It has commenced. We commenced those discussions in December, but it is not linked to that. I mean, that follows a very different process and this is more technical driven, as opposed to anything along those lines.
Stephen Henderson
So, one could expect to see an MRE update independent of any, what could be, what could be a lengthy process, in the 5% negotiations, depending on whether agreement can be met?
Sandeep Biswas
Yes. We, we don’t want to couple those two things. I mean, one’s project related, the other is a discussion between two shareholders.
Stephen Henderson
Okay. Thank you.
Sandeep Biswas
Well, JV partners is probably technically more the right word.
Stephen Henderson
Yes. Thank you.
Operator
There are no further questions at this time. I will now hand back to Mr. Biswas for closing remarks.
Sandeep Biswas
Alright. Well, thank you very much for dialing in everyone, and thanks. So for the questions and have a safe day.
Operator
That conclude our conference for today. Thank you for participating. You may now disconnect.
RNS: https://polaris.brighterir.com/public/g ... ry/rd7n89r
Presentation: https://www.newcrest.com/sites/default/ ... tation.pdf
Webinar: https://edge.media-server.com/mmc/p/egv7vpaf
(Transcript from Seeking Alpha used as basis for transcript)
Newcrest Mining Limited Q2 2022 Results Conference Call
February 16, 2022 5:30 PM ET
Company Participants
Tom Dixon - Head of Investor Relations
Sandeep Biswas - Managing Director and Chief Executive Officer
Kim Kerr - Acting Chief Financial Officer
Conference Call Participants
Mitch Ryan - Jefferies
Daniel Morgan - Barrenjoey Markets
Levi Spry - UBS
Al Harvey - JPMorgan
Anthony Barich - S&P Global Market Intelligence
Simon Mawhinney - Allan Gray
Peter O’Connor - Shaw and Partners
Matt Greene - Credit Suisse
Operator
Thank you for standing by and welcome to the Newcrest Mining’s 2022 Half Year Results. All participants are in a listen only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions].
I would now like to hand the conference over to Tom Dixon, Head of Investor Relations. Please go ahead.
Tom Dixon
Thanks very much, operator. Good morning, everyone. Welcome to Newcrest’s FY’22 half year results conference call. I will just let you know this call is being recorded today, Thursday the 17 of February 2022. I will also just remind people that Newcrest is a U.S. dollar for the entity and all dollar references in the slides today are to U.S. dollars. Any references to the prior period, six months ending 31 of December 2020.
I will now hand our hand over to our Managing Director and CEO, Sandeep Biswas.
Sandeep Biswas
Thanks, Tom. It has been a very eventful first half for Newcrest. We have taken significant steps forward in our profitable growth agenda. And we have set up our operations for a stronger second half and a very bright future.
This half we had a big operational focus on major maintenance and productivity improvements with the planned replacement and upgrade of the Cadia SAG mill motor and the rebooking of autoclave forwardly here. The SAG mill is now operating at full capacity, and we expect production to significantly increase in the second half.
In that context, their financial results were solid but the statutory and underlying profit of 298 million in line with our expectations. We are all still witnessing the significant impact of the COVID-19 pandemic across the world.
But pleasingly our operations were able to continue producing throughout the half. And I want to personally thank our people for their hard work and dedication during this challenging time. COVID-19 still remains a risk for the business and this continues to be very closely managed.
We are also very pleased to announce the findings of the Red Chris blockades have her on Stage 1, Lihir Phase 14-A and Cadia PC1-2 pre-feasibility studies during the period and works have been advancing on each of these projects.
The studies overwhelmingly demonstrate the depth and quality of our global organic growth portfolio and create an exciting pathway for one of our operating assets for each one of our operating assets in the future.
In November, we announced the deal to acquire Pretium Resources. As I mentioned at the time, Brucejack is an asset we have been watching and evaluating for many years now and we are absolutely delighted that an all body of its grade quality and significant potential will become part of our already exceptional asset portfolio.
We have also progressed plans to expand Cadia during the period and have drilling resulted Red Chris and Havieron continue to demonstrate fantastic potential. We continue to work diligently I plan to extend a lot of Telfer and the Western cutback is well underway and progressing to plan.
Today we have announced a major increase across our mineral resources and ore reserves with a 10% increase in gold ore reserves to 54 million ounces compared to this time last year. This is an incredible achievement and reinforces our unrivaled long reserve life advantage compared to our North American and Australian peers.
This is a genuinely exciting time for Newcrest and a significant step forward in our forging an even stronger Newcrest plan. At Newcrest safety is core to how we run our business. We remain dedicated to the safety and well being of our workforce to ensure that everyone goes home safe and healthy every day. However, it has been a challenging start to the Newcrest in relation to injury rates.
These have increased during the period, mainly driven by a number of minor hand related injuries. This trend is unacceptable and our team is working around the clock to improve our safety performance going forward. And new safe training program remains central to ensuring all new employees and contractors understand their safety, culture, and the values that have driven our safety transformation.
Critical to our forging and even stronger new Chris plan is building a high performing inclusive and psychologically safe work environment. And we continue to roll out a range of initiatives across the organization during the period. And respect at work program continues to progress with a dedicated project team now in place to eliminate behaviors associated with sexual assault and sexual harassment in the workplace.
We want everyone to feel safe and empowered to speak up and to be included and to feel engaged. As part of that we are focusing on psychological safety. And our goal is to establish the same strong track record that as we have for physical safety across our workforce.
Life safety sustainability is core to how we run our business. This is constant work in progress as we look for ways to care for our environment, develop and maintain strong relationships with our communities and governments and make ethical and transparent strategic business decisions. I’m pleased with the progress we have made towards our sustainability commitments during the period.
Along with many of our peers in the resources sector, we have a goal of net zero carbon emissions by 2050. This is a fantastic goal, but we need to turn it into an action plan and to take concrete steps to deliver on our commitments.
Our dedicated project team has been working to develop our group net zero carbon emissions roadmap, which will outline the detailed steps new Chris will take to reduce their carbon emissions and to manage climate change risks and opportunities. We have a strong track record in identifying and applying innovative technologies. And we look forward to applying that skill set to support the transition to a low carbon future.
With Pretium due to join our portfolio, we look forward to leveraging their industry leading sustainability initiatives as well. Brucejack has one of the lowest greenhouse gas emissions intensities of any operating gold mine in the world, and will be a great fit into our sustainability agenda.
It was also pleasing to see the right part wind farm reached financial close during the period and commenced construction. This renewables project will secure a significant portion of Cadia’s future projected energy requirements and is expected to achieve commercial operation in 2024.
Our $20 million community fund supported more than 65 initiatives since its inception, including health assistance, livelihood restoration, and economic recovery in PNG, Australia, Canada, Ecuador and Fiji. It has been a tremendous support to many people in our communities. And we look forward to continuing this program into the future.
Since we announced the findings of Cadia PC1-2, the Red Chris Block Cave, Havieron Stage 1 and Lihir Phase 14-A Pre-Feasibility Studies works have been advancing on each of these projects as they progress through the feasibility stage.
Some project activities have experienced a few disruptions lead into COVID. But the teams are managing the impact on the overall schedule, and we remain committed to delivering each study on time.
These studies represent the work of many highly skilled people across many years to position nucleus with such a fabulous range of high quality and capital efficient growth options. As highlighted on this slide, each project is expected to deliver real after tax internal rate of return, higher than 16%.
At the spot gold and proper prices at the time of the release, the estimated economics improve even further to at least 22% on all four projects, noting that spot prices as big are even higher today.
The studies are expected to create 3.6 billion net present value to Newcrest increasing to over five billion at the higher metal prices you see on this slide. Works are advancing on all these projects and we continue to evaluate and progress opportunities to extract the full potential of all of them.
I’m also excited to highlight our cost profile going forward. I think this is something that really differentiates Newcrest. If you combine the results of these four studies with the expectations from our existing assets, overall sustaining cost per ounce is anticipated to higher, falling to less than $500 per ounce to FY’30.
If realized this cost position is without comparison in our industry at the scale. The material growth in our copper production comes exclusively from Tier 1 jurisdictions and will assist our all in sustaining cost position with the addition of byproduct credits from Cadia and Red Chris.
And there is also further potential upside in our copper growth story with the development or the potential development of Wafi-Golpu which is not included in our base case. The development is a multi - it can also be, it is excluded from our base case, but you know, at current coppers, this is an difficult to rule this project out also.
As we foreshadowed to the market, Cadia had the slower start to the year, due to the replacement and upgrade of the sag mill motor. This was the first time that gearless mill motor of its size and foundation anywhere in the world has been completely removed, replaced and upgraded.
It was a tremendous achievement for our team to safely complete the project after nearly five years of planning and more than 150 people involved. It sets Cadia up for a fabulous second half with the mill now operating at full capacity.
We also had some great new in December with regulatory approval received to increase the permitted processing capacity of Cadia to 35 million tons per annum, increasing the capacity of the mill is part of the Cadia expansion project, which is on-track for completion in the upcoming September quarter. Key activities are well progressed, including development of PC2-3 upgrading material handling system, improvements to gold and copper recovery and other associated infrastructure.
We also received approval to repair the slump section of the Northern towering stem at Cadia. We plan to progress the remediation once our design work is fully complete. And finally the Moly plants have delivered first concentrate production at Cadia early this year. And the team is working hard to ramp up the plant and improve the product specs.
Moly will be an additional revenue stream for Cadia into the future and we estimated it will provide a life of mine average of around $50 per ounce benefit to Cadia’s already low all in sustaining costs.
Lihir had a challenging start to the financial year. Planned and unplanned shutdown activity impacted mill throughput and heavy rainfall limited access to high grade ore in the pit. Despite the heavy rainfall, we have seen mining rates increased in the first half compared to the prior period.
This is in line with our plan to increase mining rates to 50 million tons per year to meet our base case production schedule. Mining rates will continue to increase in the second half and additional pumping capacity installed into Phase 14 in January, will limit the impact of weather events during the second half.
Lihir is also expecting higher grade ore from Phase 14, and increasingly high and medium grade ore from Phase 15. Together with the high mining rates and lower maintenance schedule, this should increase gold production in the second half. We still expect Lihir to meet production guidance in FY’22, although gold production is likely to be at the lower end of the 700,000 to 800,000 ounce range.
We remain on-track to complete the Lihir Phase 14-A feasibility study in the fourth quarter. And as this slide highlights, we have made some great progress in ground support anchor drilling in installation.
We have also commenced drainage works and procurement of additional mobile equipment and our grant support trial results have been positive. Realizing Lihir’s potential to be a mini announced plus per annum producer is a fabulous opportunity for the company. And we continue to work to achieve this milestone.
The potential of Red Chris and Newcrest continues to unfold. The pre-feasibility study announced last year reflects on the Stage 1 of our growth aspirations with an initial reserve of 8.1 million ounces of gold and 2.2 million tons of copper.
The significant upside potential for Red Chris is becoming clear. Results at our new East Ridge Discovery continue to expand the footprint of the mineralized corridor with the latest drill results intersected high grade mineralization within the Eastern extents of this prospect and it also remains open to the east and at depth.
We also have the potential early mining of the high grade pod in the East side. We continue to study this option in parallel with the blockade studies. And this could bring forward the benefit of this high grade material into our cash flows, while we develop the cave.
Havieron has a compelling future based on the pre-feasibility study outcomes which were based on only a small proportion of the initial mineral resource estimate. We have had excellent growth drilling results at Havieron during the first half, including the highest-grade mineralization drill result outside of the South East Crescent sand.
This intercept was within Eastern Breccia corridor. And as you can see on this slide, it sits outside of the inferred mineral resource estimate. The results also confirm the likelihood that the Havieron region has additional high-grade zones indicating significant potential for further resource growth.
We have experienced some difficulty with poor ground conditions at Havieron during the period which impacted the progress of the exploration decline and our team is currently working to understand the potential impacts to the project schedule, and how we can recover some of the lost time. We still expect first gold production from Havieron in FY’24 and we will provide updates as more information comes to hand.
Our team is also working hard to progress some exciting opportunities to extend the mine life at Telfer including in the open pit and underground. The Western Stage 5 cutback is also progressing well and we expect this project to support continuity of the Telfer operations into FY’24.
We were absolutely delighted to announce the agreement to acquire Pretium Resources in November last year and we are very pleased that the Pretium security holders voted overwhelmingly in favor of the transaction last month.
The transaction physicians Newcrest as the leading gold miner in British Columbia’s Golden Triangle, a region that we know well already, where we have established strong stakeholder relationships, and we are very pleased to be expanding our presence.
Brucejack is one of the highest grade operating gold mines in the world and will drive material increase in mineral resources or reserves annual gold production and cash flows, as well as asset and geographic diversification. It has exciting exploration potential and the large mineral endowment provides both near mine and district scale exploration opportunities.
As I said, it has been a very busy time for Newcrest and as highlighted on this slide, we have a number of important milestones approaching us in the near-term. We remain on-track to release several feasibility studies over the next year. And we are confident these studies will provide even more upside to Newcrest. And we also expect to close the Pretium deal this quarter. After which we will provide the market with a more fulsome update on our plans for Brucejack.
Overall, we are thrilled on how our portfolio is positioned and developing going forward. We will have exposure to 61 ore bodies, five of which will be operating with an unmatched reserve life advantage compared to our peers.
We continue to have a strong and strategically advantageous presence in Australia, Havieron, Telfer and a world cave mine is also set to deliver strong cash flows and earnings for our business for many years to come. And we have accelerated our aspiration to be a million ounce plus producer Lihir from FY’24.
Our equity interests in Lundin Gold, owner of the Fruta del Norte mine offers significant value and the financing facilities we acquired from Lundin have provided us with over $160 million in cash flows today. This is a genuinely exciting time for Newcrest and highlights our commitment to deliver superior returns to our shareholders.
I will now pass over to Kim, who will discuss Newcrest financial performance for the first half and a very strong balance sheet position.
Kim Kerr
Thanks, Sandeep, and hello everyone. In the current period, we delivered an underlying profit of $298 million and all in sustaining costs margin of $502 per ounce, and an operating cash flow of $423 million.
Our first half performance was in line with our expectations following the planned replacement and upgrade of the Cadia SAG mill motor and lower production at Lihir. As highlighted by Sandeep, we expect our operating and financial performance to improve in the second half. And we are on-track to deliver at FY’22 growth guidance.
Newcrest continue to monitor the impact of cost inflation across the global industry. In the first half hour, our results were impacted by rising concentrate freight costs driven by tightness and challenges in the sea freight markets.
We are also seeing labor and consumable costs increase with growing demand constrained supply and the impacts of underlying commodity price increases. And we were also impacted by the strengthening Australian dollar and of course, additional costs to manage COVID across the business.
Importantly though, Newcrest continue to be proactive and collaborate with our suppliers to identify ways to manage the cost pressures and improve our overall cost profile. And we have worked hard over many years to get Newcrest into a financial position where it can pursue profitable growth opportunities when they arise.
I’m pleased to say that we have invested just under $500 million in major capital projects and exploration activities during the first half. And in December we announced the sale of our portfolio of 24 royalties for a total cash consideration of approximately $37.5 billion. This transaction highlights our capital discipline across our whole business and unlocked further value for our shareholders.
This slide highlights our strong balance sheet and long dated debt maturity profile. At 31 December, 2021, we have access to $3.2 billion of liquidity and our next corporate bond debt repayment is not due until 2030.
We will draw down on this existing liquidity to fund the cash element of the Pretium offer consideration and we will still retain considerable capacity to execute our pipeline of organic growth projects at Cadia, Red Chris, Havieron and Lihir.
Our strong free cash flow and debt reduction over many years has placed Newcrest well within our financial policy metrics. Our leverage ratio of 0.2 times at 31 December, 2021 remains well below our target of being less than two times EBITDA and our viewing of 4.5% is significantly below our target of being less than 25%.
We also retain our investment grade credit rating, which gives us good access to all capital markets as if and when needed. Our dividend policy is clear. We look to pay dividends that are sustainable overtime, having regard to our cash flow generation, growth opportunities, financial metrics and balance sheet, with annual total dividends being at least U.S. $0.15 per share on a full-year basis. Based on these considerations, we haven’t announced an interim fully front dividend of U.S. $0.075 per share, which will be paid at the end of March.
And with that, I will now hand back to Sandeep.
Sandeep Biswas
Thanks, Kim. So what does all this mean for Newcrest? Well, we believe it shows that Newcrest is a unique investment in the gold industry. Our long-life, high-margin production is expected to be delivered as an extremely competitive all-in sustaining cost, which means strong profits and margins even at lower gold prices.
We have an outstanding organic growth portfolio and with the addition of Bruce Jackson, we will be producing well over two million ounces of gold over the next decade or so. Our substantial and increasing exposure to copper exclusively in Tier 1 jurisdictions is also exciting for our shareholders, and we have even more growth options not included in our base case projections.
We remain relentlessly focused on safety, building an empowered and inclusive culture and building our sustainability credentials across all dimensions. With our excellent exploration and technical capabilities and our strong balance sheet, we are very well-positioned for the future. This is a fabulous place for the company to be, and we believe this makes us a very attractive investment proposition for all investors.
With that, we are now open to questions.
Question-And-Answer Session
Operator
Thank you [Operator Instructions]. Your first question comes from Mitch Ryan from Jefferies. Please go ahead.
Mitch Ryan
Good morning, Sandeep and team. Thank very much. I just wanted focus on stage 14-A this year. What is the grounds for cause conclude, I was just wondering if you could give us some metrics on sort of the cost of inflation that we may be thinking about and how you are trading those costs will it all go into operating costs or you will be capitalizing them?
Sandeep Biswas
I think on 14-A and Kim may know this, but there is obviously is partly capital and all and partly operating. But the good news from the geotech works that you are talking about is that, we are seeing that the ground conditions are better than what we assumed, which is really good news. And the anchors are all testing fine. So I think that methodology that we just to see what we are doing the trials to make sure it works, demonstrate that it does work. And it is better than expected. So that is good news.
In terms of cost inflation, I mean that would depend from place-to-place. I mean, this is equipment and people already mobilized and the drills are already on site. So the only exposure there is, if there is any further inflation in labor or something like that, but it is a highly specialized and small crew. So wouldn’t expect any major changes in relation to the 14-A development. But in terms of the CapEx, OpEx that I just don’t know that off the top of my head.
Kim Kerr
You will see a bit of a mix coming through that. So the infrastructure that Sandeep talked about, that is on site, and the weight maintenance, you will see that coming through capital. And as we work through our or you will see some mining costs coming through. So there is a bit of a mix of trade, and over the next few years as we work through that.
Mitch Ryan
Thank you. And my second question with relates to Cadia, just following the SAG mill update. I was just wondering if you could sort of use it at full capacity. So just to confirm that training as for the 32 million ton per annum throughput rate are not above?
Sandeep Biswas
So we are in the process of testing, it is limited, you can imagine but we did stockpile or during the time that the SAG mill was out for replacement and now the team is in the process of fine tuning it and making sure that we can really optimize and chew through that stockpile, while the mine ramps up to meet the approval, right, the beginning and well targets 35 million tons in line with our permit. So we are just in the middle of that process, but it was a very smooth transition over and it seems to be operating extremely well.
Mitch Ryan
Okay. Thank you. I will pass it on.
Operator
Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Daniel Morgan
Hi Sandeep and Kim. First question just on Lihir. Now you have given greater COVID costs in your guidance today. Just wondering if there is also a productivity issue we should be thinking about. I mean, looking at Lihir, it has to have a very strong second half to make the lower end of guidance. And just wondering if you could elaborate on your confidence and some of the drivers on why improvement will occur in the second half? Thank you.
Sandeep Biswas
It is a very good question. COVID costs have increased than what we expected you to all the number of isolations, et cetera that we have had. But a very important point on COVID is along with other mines in PNG, Lihir has gone to the endemic size of management as opposed to pandemic.
So what we are doing is only treating people and isolating people who are symptomatic, which is what you do in the endemic size. It is been done successfully elsewhere in PNG, and that will obviously be constrained any issues we otherwise would have had in terms of isolating positive cases. So that is an important step to free up their productivity because that has been impacted due to COVID and et cetera.
Now the other drivers will be access to 14-A high grade that was limited during the heavy rains of the last half. But this is where the pumps are referred to we are going to put in there will allow us to dewater much quicker after rain events and get into that higher grade at the base of Phase 14.
And as we are getting more and more into Phase 15 and the pre strip is being done, we will be getting access to higher amounts of medium to high grade from Phase 15. And look, it is not going to impact this year that much, but towards the tail end of Q4, we will also start to see some orphan Phase 14. But that is going to have more of an impact in future years.
Daniel Morgan
Okay, thank you. You highlighted ground conditions at Havieron impeding progress to-date on that decline. Can you expand on this, is that just near surface this issue has arised or is it an issue, you think, an ongoing issue?
Sandeep Biswas
We were always anticipating issues in that as you get through the first 400 meters of cover. And what we are finding as we started to decline, those conditions were worse than we imagined. I mean, you can only do limited cuts before you had to shore it all up again. Otherwise, you would have the materials for the reel round the side.
So that slowed us down a lot, we’ve change the design a little bit. So, we were going to go on a decline straight if you can, straight but at a decline, and then step down to the next level, we have brought that forward where we are now going down in the spiral earlier in the decline, and then continue to decline after that.
This is to try and get through that 400 meters of cover as soon as we possibly can, and get into the better ground conditions. So, we can start accelerating. Now exactly what the impact all of that is, we are working through now, but that is fundamentally the issue that we have encountered.
Daniel Morgan
And highlighted the couple of opportunity at Wafi-Golpu, again, just wondering if you could elaborate on if there is any movement at all, and government relations, from what we have seen?
Sandeep Biswas
Well, there is just a little in the last two or three weeks, there has been a movement on the ranch, so to speak. So what is more discussions with the state bigger sharing team. Did you know they are going to go into election mode very soon? So I don’t really anticipate an agreement before the government has to go into caretaker mind. But we are in the right in the middle of another flurry of discussions.
And it is one of those things where you take the ball forward in incremental steps, and this is an opportunity potentially to take the ball forward. But I don’t know that we will necessarily get an agreement before the election. But I mean, you could never tell, but it is unlikely.
Daniel Morgan
Okay. Thank you very much Sandeep and Kim.
Operator
The next question comes from Levi Spry from UBS. Please go ahead.
Levi Spry
Hi Sandeep thanks for the call. And maybe just following up on the like all three questions. What are you doing, are you obtaining any studies or is there any project works happening at all?
Sandeep Biswas
No, it is essentially caretaker mode, because a small team up there. I think given the, I mean, we have had a couple of false starts in the past. I think the intent now is let’s get an agreement. And then let’s focus on the critical path, which is about do some of the infrastructure work which we had started but we stopped, because we had a MOU with the government which then got put on ice as the governor changed.
If we start reading in subtle network again, that scopes already fixed and we know what to do. Set up for the boxcars and the starting to decline and while all that securing we will be look at the study. And obviously we estimated, but more importantly, bring some of the improvements that we have learned since the time that Golpu was originally designed in terms of caving, in terms of tunneling and also in terms of process flow sheet design.
Levi Spry
Okay. Thank you. And just in terms of Pretium. So, most of the approvals have come through, talk about completion, this, next quarter, this quarter. How do we model it? Yep. So how do we model it, what is the economic interest? When does it start going through?
Sandeep Biswas
Well, for an engineer like me, I would said, the day we take over, we start there are answers. But, Kim, you might want to give more sophisticated answers than that.
Kim Kerr
I think the engineer covered it then quite well. So from the day that we do get the completion, that is when we will start consolidating it, as you see with all of our other fully owned operations. So, 100% from whenever that date, that actually is.
Levi Spry
Okay. So two questions. When will you be in a position to give us guidance post that and what is that back dated, does it commence from when it was approved, is it a black box type arrangement or do we think about happening now?
Kim Kerr
So, it is from the day that it completes there is no backwards staging. So whenever that date actually is, we will be, it consolidating both the financials and the production numbers from that date forward, no back dating.
And I think in regards to guidance, we will get the team on the ground on that day. And once we spend some time getting through the detail of speaking closely with management and alike will be in a much better position to put some meaningful guidance out to the market.
Levi Spry
Okay. Thank you. So just maybe on Telfer. So, extending mind life to FY’24, but just this idea of maybe well, what happens after that I guess, how are we thinking about plans, for production, post that in combination with Havieron?
Sandeep Biswas
So, the first target is to make sure there is no gap between Telfer and Havieron. And from what we are finding from our drilling that we are doing in addition to the Westland cutback, there may be another potential cutback that we are now doing some more drilling on to see if that stacks up and as you know underground, we have moved from trying to find another big ore body underground to incremental discovery, which is proving highly successful.
We are finding all sorts of pods, some with quite high grade that we are discovering and mining as we go. So, we would aim to continue that. And first win would be to make sure there is no gap between Telfer and Havieron.
And the second one is, do we run it in parallel? Have we found enough to just run it in parallel with Havieron, we will dedicate one of the lines to Havieron in that scenario and the other line, this is the production train in the mill with focus on Telfer ore if that was that scenario.
Levi Spry
Okay. Thank you. And last one, sorry been cheeky with so many. But just in terms of the longer-term guidance, so less than $500 sustaining cost FY’30, pretty amazing headline. How could that change? It is a long way away. There is a lot of copper involved there. There is not much gold. There is not life extensions at Telfer. It is a lot of copper productions, subsidizing I guess high costs of Lihir.
Sandeep Biswas
Because Lihir is such a high fixed cost business you get smashed when your answers are down. But when your answers are up as they will be with the higher grade coming through as we get deeper and deeper into carpet, that margin and contribution from Lihir goes up quite dramatically as it pertains to all in sustaining costs coming down and obviously the margin going up.
And the copper flying through from Red Chris along with the gold ounces are extremely cheap answers. I think they are negative in all in sustaining costs. And that base case we described. What are the price assumptions for that base case, Kim, I think it is $3.
Anyway, we published all this a few months ago, but it is nowhere near where the spot prices are today. So the risk would come from timing and delivery of our projects. And obviously copper and copper price from the byproduct credit viewpoint. But prices stay where they are, which I mean, who knows? Then it might look even better.
Levi Spry
Okay, thank you. Thanks.
Operator
[Operator Instructions] Next question comes from Al Harvey from JPMorgan. Please go ahead.
Al Harvey
Hey, Sandeep, just one from me. On the Telfer reserves, you mentioned that you have removed O’Callaghans from reserves, like pending strategic tech and financial studies. So that is a fairly sizable share of Telfer’s copper resource. Can you just talk us through that review and how material that is in terms of mine life and general plans there at Telfer and with Havieron ?
Sandeep Biswas
Yes, O’Callaghans has never really been impacted into the mine life at Telfer itself. That would have to be a stand-alone or we would have to dedicate some of the infrastructure of Telfer in the processing to treat the ore that is got a lot of non, it is got a lot of zinc in it. It is got multiple minerals in it.
But the reason we took it out is that that original study is a bit long in the tooth. And so we have taken it out, it is still in the resource, but I think it is gone from a reserve. So as part of this review, and a lot of this is associated with the market right. I mean, if we focus purely on costs, we would be mining O’Callaghans today. It is all about how much material it brings on the market. And how do you make sure that the market is ready to receive it. And that the price isn’t necessarily influenced by you coming online.
So, these are the considerations we will look closer into. I mean, these sorts of materials are becoming more important going forward. And there will be a time where I think that will make sense. But we have got a lot on our plate at the moment. It doesn’t affect the Telfer base case, and we thought it was prudent to make that call.
Al Harvey
Thanks Sandeep. I will pass it on.
Operator
The next question comes from Anthony Barich from S&P Global Market Intelligence. Please go ahead.
Anthony Barich
Hi, you spoke about you net zero roadmap on its way and Brucejack obviously having the lowest emissions profile in the world. Just wondering, with the carbon tax, you are going up there in British Columbia. How do you manage the risk of the rising running price there and does it matter, does it impact operations economics necessarily, or not so much because of the high renewables upset in the grid?
Sandeep Biswas
It really is the high uptake of renewables and speaking with the BC government. I mean, they have a plan to make sure that they are 100%, not just 90, whatever is present carbon free, at least as it pertains to the hydropower going onto the grid. And then pretty already well advanced in their thinking on how to electrify the loader fleet. And together with all the work we are doing it do, Chris.
I think the places where you have hydropower, like there and FdN and Red Chris, it is a real privilege to benefit to only have to focus on onside emissions, really, because the outside will look after themselves. To me, it allows us to really get some traction as this technology. Electrified technology comes into mainstream in relation to on site permissions.
Anthony Barich
These are the industry, you see gold mines going on the grounds, perhaps more given that is, and things have a more favorable emissions profile, or is it not as simple as that operationally?
Sandeep Biswas
It is hard to see the economic driver services, carbon costs, et cetera, et cetera, they would fall without would make you go. If you are unusual situations that would force you to go underground as a surface. But I think the technology both on surface and underground of electrification coupled with decarbonizing the incoming.
I mean, that is the obvious way to go. And then when you go underground, on surface depends on the ore body you have as opposed to something else driving you that way. And I’m a big technology fan and I just see that sort of technology, particularly on onside admissions really starting to accelerate as we go forward.
Anthony Barich
Okay, thank you.
Operator
Your next question comes from Simon Mawhinney from Allan Gray. Please go ahead.
Simon Mawhinney
Hi good morning. Sandeep, would you mind commenting please on your 6% annualized return on equity as reporters, as compared to the greater than 20% IRR, post tax that these projects apparently deliver stock prices?
Sandeep Biswas
Well, these are all great projects going forward, Simon. I mean, that is a future looking projection of these projects, which will all deliver higher returns. And overtime, we should start seeing that number that report improving overtime.
Simon Mawhinney
So, I guess your incumbent asset base is prejudiced relative to your incremental capital spend, is that the right way to interpret that?
Kim Kerr
If I may, there is probably recognition that Lihir is a very large part of our asset base. And so it is obviously a historical asset. And that is the one Simon and that you will see is driving our current return on capital versus what you will see in those future studies.
Simon Mawhinney
Okay, thank you. And the second question I have and only have two. With respect to Pretium, you mentioned it is accretive to Newcrest’s EBIDA and cash flow. And any acquisition of a profitable company or assets would do exactly that. And I think it is an unhealthy focus. I’m curious when will Newcrest shift its focus to per share metrics?
Sandeep Biswas
Well, it is not as we don’t look at per share metrics. But, the reasons for buying into Pretium go beyond just being a accretive, I mean, it is a major strategic play for us. We believe there is a lot more upside in what is contained in the existing ore body and future exploration, and that is where the big value drive will come from, and that will flow both into absolute metrics and per share metrics.
Simon Mawhinney
And when you make these acquisitions, do you compare them to your own share price, sorry, or your own shares I should say, our shares I should say.
Sandeep Biswas
Yes, we do. But, that is just a whole broad set of things we look at because we can’t just look at the per share metrics on the day of acquisition. We have to look about what can we do with the asset and look at it on that basis, in addition to what it does strategically in terms of asset geographic diversification things like your emissions profile, et cetera.
So, it is not just a single metric decision. There is multiple facets, as you know, and would appreciate Simon, when we evaluate any potential investment in this particular case, that happens to be an acquisition.
Operator
Your next question comes from Peter O’Connor from Shaw and Partners. Please go ahead.
Peter O’Connor
Good morning, Sandeep. Just want to circle back to a few questions. So Havieron decline, just to get some clear, the answer that you gave, you were putting down a decline, which was going straight down, but the decline you have now gone more to a spiral, that is quite a change in such an early stage of a decline, are the conditions that bad? And is that something we should be, deeply concerned about?
Sandeep Biswas
We were going to, well we were concerned about the progress we were making. We sort of, so the design always had a spiral, but it was further down the decline and then we spiral down and then continue the decline. All we have done is put that spiral forward. So, it will essentially be the same tunnel length, more or less. It is just that spiral piece comes forward as oppose to where it was originally going to go. Just so you go down the vertically quicker.
Peter O’Connor
Are the conditions more related to a particular stratum or aquifer - is it broad based across that sort of first four hundred meters?
Sandeep Biswas
At the moment where we are now and obviously it is variable where we are now it seems fairly evenly distributed.
Peter O’Connor
Okay. And to Telfer when you talked about the mill potentially running longer and then using the two trains between Telfer and Havieron. Previously, I think on calls you talked about campaigning. Is that still the way you would think about packaging and sending the ore through the mill, given the size of Havieron versus Telfer or this is that commentary you made different to that prior comment?
Sandeep Biswas
So, we will be modifying the design of one of the trains, mainly to take you in count the high grade ore from Havieron, particularly copper, this is in the flotation, in the leaching section. And so, we will dedicate one train to Havieron.
Now, initially at the lower tonnages we expect to campaign, but if as we hope over time that we can expand the mining rate and size of Havieron, then once you get above around six million tons around that plus - then you probably go to a continuous type operation, bearing in mind each of these lines of about 10 or 11 million tons capacity. So, they have a limited turndown ratio. But because of the mineralogy and the grade of the broader Telfer ore bodies, we just use that through the other train and not mix it with Havieron.
Peter O’Connor
Got it, thank you. Just to trying to pencil in higher on that guidance, so, you close this quarter? Is the guidance from that weeks after that months that? Should we get an FY’22 June quarter number or do we have to wait for FY’23 full-year number? Just to how you Levi’s question?
Sandeep Biswas
It is good question. I don’t want to pin myself down to an answer right now. We don’t even have feet on the ground from an operational sense. But we do know how important it is that we say what we are going to do and what our plans are. So that will be one of our priorities is to get the information to you guys, as soon as we are comfortable that it is something that we can put out. Put out monitor on.
Peter O’Connor
Have said it there is been a lot of headlines lately that mining industry or culture across a broad range of companies and industry in general. It looks like you asked yourself last week for like a semi editorial. Is there any comments you would like to broaden or share this floor regarding that?
Sandeep Biswas
Yes, I think the way it has been. So when I first started, as you know, back in 2013, 2014, we were in a spot of bother as a company as you would remember. And it really needed a very top down command and control style leadership to really get the operations to where they need to repair the balance sheet to focus on cash, and really pull ourselves out of the hole we have got ourselves into. And then that took a lot of hard work.
And there was some tough discussions, but collectively and individually. But as we pulled out of that to say around 2018, 2019, we started to move towards a more collaborative style of leadership and there was many leadership programs put in place, and this is the top down starting with me and then.
And then what we also did back in the transformation started is we started our cultural index our HR, because we wanted to make sure that the culture was improving along with the business, not that the business improvement was compromising culture.
And all the data was telling us that at a higher level, our culture was improving because our HR Index increased every year until 2019, where we started off with the bottom of the lowest quartile in 2014. And by the time 2019 came along, we were just inside the first quartile, which have improvement in culture. So that was very good, but we had to skip 2020 because of the pandemic and then in 2021.
Now, our HR index dropped down into the top of the second quartile. But what it also showed because along with the numbers you get a lot of comments from people is, everyone understood what we had to do during the tournament.
Our society is changing, people’s expectations are changing. And they want to be more involved in running the business and really being trusted to take more control and less command and control. And as we started that journey, back in ‘18, ‘19, we realized we need to amp it up again.
So about a year and a half ago, there about, we started our inclusive leadership program. Starting with me in the excrement down to the organization with a big focus was on psychological safety, and had the lead in a more inclusive manner. And with just in the process of wrapping that up to psychological safety will be announced, that is going to be at the same level as physical safety in terms of how we approach it.
And we are now preparing our next wave of the new type of methodology, which has been so successful in changing our physical safety culture. We are going to turn that on to psychological safety.
So there is a heap of work going in the area. A lot of it driven by the feedback from our people, in fact, almost all of it, and our various surveys and indicators, and what have you said something we have been taking seriously for some time. We will amp it up again. And we and I particularly recognize the need to change and totally committed to.
Peter O’Connor
I appreciate the color Sandeep. Thank you.
Operator
Your next question comes from Matt Greene from Credit Suisse. Please go ahead.
Matt Greene
Hi, thanks. Sandeep, I think it is a while year-ago, you introduced a new capital measure program policies and in that you highlighted by share buybacks? So just curious you kind of thinking around that just given where new Chris’ trading relative to some of your global peers, and also just the performance of the underlying commodity. So just, if you could provide some color on, what you need to see to justify about that?
Sandeep Biswas
Look, I mean, if we didn’t have the big CapEx projects we have got in front of us. You could argue we should be doing a buyback now, but we have to balance that with our capital projects profile coming forward to add that fundamental value to the stock itself.
But I mean, the board thinks about these things, every six months or so or in between if required, and it is not off the agenda. But we have to consider buybacks in relation to the other commitments that we have both now and going forward in relation to deployment of capital.
Matt Greene
Got it, that is great. Thanks. And then just a couple of Cadia, if I may. Just the SAG upgrade I think just the ramp up of for flow cells. You have to provide some color as to how the performance has been through January and in stepping?
Sandeep Biswas
Look, it is going well. I don’t think you have tested its limits yet. And that is what the site is doing. So right now, I think it is too early to say, but over the next couple of months as we slowly increase its capacity and yet and the thing to remember is all the bits of the project aren’t finished yet.
So it may be that we may not be able to push it to its absolute limit until the other bits and pieces are in place during the course of the year. So it will be that balance, but within the constraints of the current plan, we are testing the what Cadia SAG mill do on and I’m hoping that as usual with these things, then they can do better than nameplate. I’m not saying it will. But that is what I’m hoping.
Matt Greene
Alright that is great. Thanks for the color. That is all for me. Thanks very much.
Operator
Your next question comes from [Stephen Henderson from Henderson Trading] (Ph). Please go ahead.
Stephen Henderson
Good morning, Sandeep. Sandeep, I was interested in the Havieron figures where the move from inferred to indicated resources was somewhere in the region of I think 0.6, 0.7 million ounces of gold. The actual overall resource doesn’t appear to have moved, particularly if at all, despite some phenomenal, real success. I’m just wondering if you would add a bit more colour to how that is being viewed.
Sandeep Biswas
We just haven’t put another resource around it, right? I mean, I think it is simple as that. So, once we, and now we have done a fair bit, I think we announced that, I can’t remember when it was, a couple months ago that we have done a lot of that resource definition drilling.
We are now moving more to growth drilling. We will be able to over the coming period, look at publishing a new resource, once all that data’s analysed and the various designs are put in place and what have you.
So, it is not something that we are not focused on. It is just that, it is got to be informed by the drilling. And then as you know, there is a pile of work that is got to be done before you can under the JORC code, register it as a resource or reserve.
Stephen Henderson
Yes. And so, any further upgrade to MRE2 for one of a better phrase. Is that in any way, linked to the negotiations for the additional 5%, which I take it are off on the run now, there is certainly the window for that to commence was the middle of February, I just wonder if any of those are linked in any way?
Sandeep Biswas
It has commenced. We commenced those discussions in December, but it is not linked to that. I mean, that follows a very different process and this is more technical driven, as opposed to anything along those lines.
Stephen Henderson
So, one could expect to see an MRE update independent of any, what could be, what could be a lengthy process, in the 5% negotiations, depending on whether agreement can be met?
Sandeep Biswas
Yes. We, we don’t want to couple those two things. I mean, one’s project related, the other is a discussion between two shareholders.
Stephen Henderson
Okay. Thank you.
Sandeep Biswas
Well, JV partners is probably technically more the right word.
Stephen Henderson
Yes. Thank you.
Operator
There are no further questions at this time. I will now hand back to Mr. Biswas for closing remarks.
Sandeep Biswas
Alright. Well, thank you very much for dialing in everyone, and thanks. So for the questions and have a safe day.
Operator
That conclude our conference for today. Thank you for participating. You may now disconnect.