Regis Resources Limited

Ladies and gentlemen, thank you for standing by and welcome to the Regis Resources Half-Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.

Thanks, Cezanne, and thanks everybody for joining us this morning. I'd also like to mention that John Latto, our CFO, and Bill Goldbloom, our head of IR, are both on the call as well. All right, so talking through the FY22 first half year results, clearly this has been a challenging first half for us operationally. as I think we've covered a number of times prior to this. But now we're seeing here the impacts of this flowing through into our financial results for the first half of the year. Having said that, some of the results are still quite strong. Our EBITDA, $196 million. I'll just cover off on the highlights and then pass over on to John to run through some of the detail behind these numbers. Our EBITDA margins are still quite strong at 40%. Cash flow from operating activities was $136 million and the cash and bullion at the end of December was $180 million. All of this delivering to us an underlying NPAT of $44 million. Look, while we continue to invest capital in our operations and the recent underperformance of Duketon has put clearly significant pressure on our overall cash flow. And this is reflected in our cash balance at the end of the reporting period. As we look forward, we saw some risks. A continuing cash requirement for these investments, both at Duketon and at Tropicana. We see clear pressures on the cost environment in labour and in some areas on supplies. And certainly in the near term, we see a building risk of COVID here in WA as the board is open and which is an important part of us longer term recovering but it's presenting a near term risk just with the sheer growing numbers of community cases and the potential flow on it that might have into our operations. With these circumstances under consideration and taken into consideration the board has taken a prudent decision on risk and decided to hold off and not declare an interim dividend for the first half of this year. Looking very quickly at slide four, this is primarily a financial discussion, but I'll cover up. Our safety is still pleasingly below the industry average, below being where we want to be. Our COVID management to date, we've had no confirmed cases within our business or on our operating sites. We've got strong managerial positions with diversity. On the environmental front we continue to build on our, catching up on our rehabilitation and we're seeing an increase on that this year, zero non-compliances. So look on the ESG front we feel that our results and our performance here has been quite pleasing. So what I'd like to do now is to get into the meat of this and hand over to John Latto who will talk us through a bit more of the detail on the financial results. Thanks John.

Thanks Jim. If we turn to slide 5 we see a summary of our financial results for H1 and I note the following. Revenue has increased by 22% compared to the comparable prior year period which reflects the new scale of the business with the first full period of reporting with the inclusion of the company's investment in Tropicana. This increase in revenue occurred despite a 6.4% lower spot gold price than the comparable prior year period. and an additional 10,000 ounces were sold into the hedge book with 50,000 ounces sold into the hedge book in the current half compared to 40,000 ounces sold into the hedge book in the comparable prior year period. I note that the impact of selling into the hedges in H1 is approximately $42 million straight to the bottom line. As Jim mentioned we had a strong EBITDA result of $196 million for H1 with a strong EBITDA margin of 40%. We have seen an increase in our cost of goods sold to $427 million from $267 million in the comparable prior year period. A difference of $160 million which I'll talk about more in a moment. We returned an underlying NPAT of $44 million and a statutory NPAT of $26.5 million for H1, with our statutory NPAT being impacted by a write-down of our stockpiles, and I'll also talk more about that in a moment. As Jim mentioned, we are expecting a stronger H2, driven by stronger gold output. I mentioned before that our cost of goods sold has increased approximately $160 million compared to the comparable prior year period. Of this increase, $130 million relates to the addition of Tropicana to our portfolio and $30 million relates to Duketon. At Tropicana we see that a sizeable portion of the $130 million in cost of goods sold is non-cash in nature. I'll talk to three of those non-cash items now. When we completed the purchase price allocation exercise for Tropicana approximately $500 million was allocated to mine properties and this has to be amortised through the profit and loss statement which generated a non-cash amortisation charge of approximately $32 million for H1. We also recognised a depreciation charge of approximately $17 million associated with our 30% interest in the property, plant and equipment at Tropicana and the right of use assets. Finally, we recognised a non-cash write down of our stockpiles at Tropicana of approximately $14 million and that's really arisen because we have to amortise the $500 million component of the purchase price allocated to mine properties through the stockpile calculation. If I look now at Juketon, the $30 million increase in cost of goods sold at Juketon is partly related to increased labour and maintenance costs as well as an increase in reagent unit costs and consumption, particularly at Toohey's Well with its more complex metallurgical material. Moving across to page 6 of the presentation, we see four graphs that show our revenue, cash flow from operations EBITDA and EBITDA margin and they all remain strong despite a challenging half period. Page 7 of the presentation shows a reconciliation of underlying EBITDA for H1 of $221 million to our statutory MPAT result of $26 million. Underlying EBITDA is the EBITDA result of $196 million for H1 with the non-cash inventory adjustments of $25.3 million added back in. The next bar in the waterfall chart shows our depreciation and amortisation charges and you can see that they're sizeable at $149 million for H1. Of our $149 million you can see in the notes to the P&L statement that about $45 million relates to depreciation and $103 million relates to amortisation. If we look first at depreciation, you can see that it's increased to $45 million from $31 million in the comparable prior year period. This increase in depreciation predominantly relates to depreciation on registered share of the property, plant and equipment at Tropicana. Turning to amortisation, you can see that this increased to $103 million in H1 from $44 million in the comparable prior year period. As mentioned previously a significant portion which is approximately $32 million of the increased amortisation charge relates to the amortisation of the $500 million that was allocated to mine properties when the purchase price allocation exercise was completed associated with the company's acquisition of 30% of Tropicana as well as amortisation of deferred waste and some capitalised underground spend. There was also an increase in amortisation charge at the Rosemont Underground at Duketon of approximately $9 million as production increased by almost 80% to 28,000 ounces in H1 compared to about 16,000 ounces in the comparable prior year period. We also saw an increase in our amortisation charge at Duketon of approximately $12 million as we took the opportunity from the 1st of July to amend our amortisation policy to amortising on tonnes mined rather than tonnes milled, which is a policy that is better aligned to the depletion or addition to our ore bodies. The next major bar in the chart shows our income tax expense of $23 million. Now that's been adjusted for the estimated tax impact of the inventory right down for H1 and I'll actually talk about tax more in a moment when we look at the movement in cash and gold on hand across the period. The preceding factors demonstrate how we moved from an underlying EBITDA of $221 million in H1 to an underlying NPAT of $44 million. The final bar in the waterfall chart shows the inventory write-down on an estimated post-tax basis that we have recognised in the current half. Of the $25.3 million inventory adjustment that we have recognised in the P&L statement, approximately $14 million relates to Tropicana That's occurring, as I mentioned, because we need to include the amortisation of the $500 million component of the acquisition cost that was allocated to mine properties through our stockpile calculation. The remaining $11 million relates to Duketon and the majority of that relates to Duketon North where we've undertaken a Duketon North extension. These Duketon North extension ounces are more expensive and although we know they will generate positive cash flow over the life, They do come with a higher strip ratio which impacts the current stockpile cost calculation and requires us to take a non-cash stockpile write down as at 31 December. We will continue to monitor this situation as we move forward. Over on page 8 we have a waterfall chart that shows the movement in our cash and gold on hand balance from 30 June 21 to 31 December 21. Gold on hand is valued at spot at 30 June 21 and also at spot at 31 December 21, so the waterfall chart won't reconcile directly back to the cash flow in the H1 financial report as gold on hand is valued at lower of cost or net realisable value for statutory purposes. The waterfall chart shows that we opened at 1 July with cash and gold on hand balance of approximately $269 million. The second bar in the waterfall chart then shows a strong cash flow from operations of $175 million for H1. This bar is basically revenue from operations, less payments to suppliers and employees other than corporate costs, interest paid and income tax payments which we've broken out in the waterfall to provide some additional detail. The next component of the cash flow waterfall is the capitalised mining costs which started $117 million in H1. and shows that we've made a significant investment in our operations. This expenditure of $117 million includes $22 million in priesthood activities, $32 million in deferred waste costs, $10 million in capitalised underground costs at the Rosemont Underground, $5 million in capitalised underground spend at the Boston Shaker Underground at Tropicana, $13 million in capital costs at the Gardamill Underground as we continue to progress with bringing Duketon's second underground mine online and $29 million towards the significant cutback that's taking place at the Havana Open Cut at Tropicana. The next bar in the Cashlow Waterfall shows our investment in exploration at Duketon and at Tropicana as well as our expenditure at the Macphilemys Gold Project in New South Wales and this has come in at $33 million for H1. Moving on to the next bar in the waterfall chart, we see other capex spend for the hearth, which was $35 million. This includes $8.1 million on fixed asset additions at Tropicana, which includes items like a TSF raise, a bridge repair and a thickener swap upgrade. $6.4 million on underground infrastructure associated with the Garden Well underground. $2 million on land acquisitions associated with the McPhillamy's Gold Project in New $2.5 million on DSO processing upgrades as well as lifters and liners across the Duketon operations and $15.6 million in right of use asset payments across Duketon and Tropicana. Now that's arisen under the recent changes that have taken place for leased assets where we are obliged to recognise some payments that we make to our suppliers as leases where we can direct the use of equipment that's provided by the relevant supplier. The next bar shows corporate costs before general overhead allocations and that's sitting at approximately $14 million for the half. We then show interest and residual transaction costs associated with the company's acquisition of 30% of Tropicana which sat at $12 million and I note that the bulk of that is residual transaction costs that were paid in July 21. We then paid cash dividends of $22 million during H1. And finally, we paid income tax of $31 million during the half, which brings us to our closing cash and gold on hand balance of $180 million at 31 December 21. At this point, I think it's relevant to say a few words about income tax. As I mentioned, we have paid $31 million in H1 for income tax payments. In February, so this month, we received a tax refund of $23 million for income tax paid in FY22 to date and we're expecting to receive a further $12 million refund in H2 associated with the FY21 tax year. These refunds are a combination of the substantial tax benefits that have accrued to the company associated with our investment in Tropicana and our recent lower profitability as shown in our profit and loss statement. Page 9 of the presentation talks to some components of the company's balance sheet. I've just spoken about the tax refunds we received this month and expect also to receive in April, which total approximately $35 million. So I won't go into any further detail on that now. But touching briefly on the debt that we have, as you know Regis took on $300 million in debt associated with its investment in Tropicana. and that had a tenner of three years and so will mature in Q4 FY24. As we look to the capital requirements associated with Macphilemys, we will look at potential options for refinancing this debt. We also continue to make substantial inroads into our hedge book with the balance reducing by a further 50,000 ounces during H1 compared to 40,000 ounces in the comparable prior year period. As at 31 December, the company's hedge book sat at 270,000 ounces, down from its peak of circa 450,000 ounces a few years ago. I'll now hand back to Jim.

Thanks, John. Look, I'll just wrap up on guidance on slide 10. The guidance is unchanged as it was when we released back on earlier when we put out our quarterly results. You see the group production outlook is 420,000 to 475,000 ounces. Our AISC has a range of 1,425,000 to 1,500,000 growth capital and exploration of McPhillanys remains unchanged. We are expecting a stronger second half and that is really coming primarily from increased feed grades across Duketon. We'll see high grade feeds into Tuohy's Well as the activity to modify that circuit and more complex material, albeit higher grade, starts to get completed. We're also seeing scheduled some higher grade stoves coming in from Rosemont Underground, which we'll see over the coming months. We are seeing some improved grade delivery at Mullart Well from the pits, which means we've been able to reduce, as planned, feed from low-grade stockpiles. Halfway through the third quarter, we see our production run rate is basically on plan, pleasingly. As a result of this guidance and the stronger performance in the second half, we're also expecting to see the AISC drop quite significantly from the first half of an average of We'll reduce down obviously to deliver into that guidance range that we've provided above for the full year. Look, there's no doubt, I'll wrap it up and open up to questions shortly. This has been a challenging first half for us operationally and as I said before, we've seen the impacts of this flow into our business. The important thing is we are anticipating a strong rebound in the second half of FY22 operationally and the flow on there financially. we'll see significant lift in production and a subsequent overall lift in the business performance. So I'll leave it there. I won't dwell any longer on the material, and I will now pass it back to Cezanne, and we'll open it up for questions.

Thank you very much. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from Kate MacKeshen from Citi. Please go ahead.

Hi. Good morning, Jim and John. Okay. Thanks for the call and the detailed explanation on the financials. So on the dividends, you've typically been at the top of the payout ratios, the gold miners, No div this half is a bit of a surprise and I appreciate that you've taken a risk adverse stance here, but how should I think about modeling your dividend going forward? Do you think that you need to give the market clarity about what that will look like?

Well, we don't have a dividend policy. It's important for us for exactly these sort of terms and times. to allow the board or to allow us to be clear on the fact that we need flexibility depending on the circumstances, set in place a policy or any detail on this and it doesn't take much for things to change and you're backtracking. Basically it has been a difficult first half for us, it's very clear and you can without wallowing around in it. You can see what's happened over the last six months or so. The board, as I said, we don't have a policy on dividend payout or dividend ratios. We will consider at the end of this half how the business has performed. We will be looking at what the outlook is for gold, gold price. It's certainly very strong at the moment, which is pleasing to see. I'm not sure whether some of the reasons behind that are, you know, there's some concern there, which is always an instability, gives us a strong gold price. But we will look to see how the longer term capital demands are for the business. Clearly there's McPhillamy sitting out there. So we will take, we'll look at this time in six months' time, five or six months' time, how has the business performed? in the second half performs as we expected and we'll be looking carefully to see whether it's appropriate to pay a full year dividend taking into account all those risks but we are not in a position and not you know I mean the other risks that are sitting around clearly as well are in the medium short to medium term of the impacts of COVID as it starts to spread through the community over here in the west which where we haven't suffered the impacts that the east coast has been enjoying for the last many months, year. So, you know, we're not in a position to give guidance. We haven't, and we won't. We just give as best as we can to understand the circumstances of what prevails around that decision when we make it.

Yeah, okay. Because I guess Regus has typically been, you know, a dividend stock in some ways, and so this is a change to what you're... It has, Kate.

Although, you know, that period... was when it was low capital investment and it was in I guess what you'd see as a harvesting mode. Certainly there's no doubt you'd see not just in the last six months but over the last couple of years really we've been reinvesting back into the company. During that time we have been able to continue to pay a dividend so we haven't walked away from it. However, right in the last six months with our cash balance moving in the direction that it did along with the known capital in front of us, we just saw as being prudent to hold back at the moment. That doesn't mean that it may not start up, but as I said, that depends on what could be quite significant recapitalisation phase or capital phase for the business as well for McPhillamy's. Of course if something as that significant might involve looking at using our strong balance sheet a little bit more as well. So we're very cognisant of the fact that Regis is known as a dividend payer and we would I guess dearly have been able to run the business like that forever but businesses go through cycles and we're in a cycle that involves some significant reinvestment.

Yeah, okay. And secondly, this time last year, you're expecting a deep high recommendation from Xelomies within the month. And fast forward a year, we haven't heard a lot about the progress. Are there any green shoots you can talk to or any progress, any updates on how we should think about timing from here?

Green shoots. Yeah. Look, I get whippersnapped off every now and again. Look, I think certainly a year ago the message we were getting was quite encouraging. We've tended to be a little bit disappointed with the speed. The issue sits in one or two key areas. We are now really quite reluctant to make any kind of timing prediction because we've been disappointed in the past with how some things have progressed as people indicated were anticipated, others haven't. But we are seeing positive progress. We still believe that this project is permittable and it's a matter of time. It's not if, it's when. You know, we do know that we have strong support. We know that the local member is a deputy premier and is supportive. There's been some ministerial changes in New South Wales which has sort of slowed the process up a little bit for the end of last year and over Christmas, but everybody's back at work now and we do know that they're working on, the state departments are working on resolving the one or two outstanding state-related issues. So we are pleased to see it progressing. We're frustrated with the rate of progress, absolutely frustrated with it but we can't quit. It's a great project, 2 million ounces, very strong. Certainly in this price environment it's a fantastic project, probably one of the largest undeveloped projects in Australia at this far progressed. Yeah, it's frustrating, but it is what it is, and we're working hard to progress it.

Yeah, okay. And lastly, just for John, is that $14 million of corporate costs what we can broadly expect going forward with Tropicana on board?

I think, Kate, like I mentioned in the... So when I was talking to the numbers, you know, we haven't allocated out, you know... a bunch of costs to say expiration and feasibility. I mean certainly some of the labour costs have been allocated out but things like office rent and all that sort of stuff, we don't bother allocating it. So I think on a sort of a general unallocated basis, yeah, I think that's probably about the number to expect.

Yes, thank you.

Thank you. The next question comes from Jack Gett from Bank of America. Please go ahead.

Thanks, and good morning, everyone. So just two quick questions on cash flow and on the dividend again. So I really appreciate the comments you made in your opening remarks and the presentation. Just curious, was there any sort of one-off impacts in there in terms of working capital in terms of cash flow? I did see that there was a bit of an inventory gain on the balance sheet at the end of the half. So just whether that will be released a little bit this half. And then secondly, I guess, just going back to the final dividend, if or when McPhillips is approved, does that basically mean that you will not be paying a dividend whilst that capex spend is being committed to? Thanks.

Well, I'll answer that second question first and I'm afraid I didn't, I think, John, did you pick up that first question? I think so, yeah. Yeah, I'm answering the second piece on the dividend. We have, you know, the circumstances of whether we would be paying a dividend under the conditions where we're constructing McPhillamy's will depend on a number of things, not the least of which is price and cash flow at the time. and us considering that a business is designed to make profit and return it to the shareholders and also take some of that and reinvest it for the future. So the bottom line is we don't have a clear position on that yet and we won't until we get close to the time. Certainly as I said our options are everything from We're anticipating that through that period Tropicana will be in a very strong cash flow making position. We're very pleased with the way Tropicana is playing out and certainly that was an important part of that investment decision that we made. Duketon will also be in a stronger position then as well. So it's quite possible that we could make a decision to fund it all out of cash flow and hold back. But the other side of it is it would make some sense to put a balance sheet to work a little bit and be in a position to continue to pay. So I'm not answering your question because I don't have an answer to it. I'm just telling you the things that we will be considering at the time. So I'll pass over to you, John.

Yeah, so Jack, thanks. In relation to your first question, I'll just make two observations. First of all, in relation to our cash balances, We did see some residual costs associated with the Tropicana acquisition flow into the early part of this current half. If you look in that cash flow waterfall, there's a $12 million bar. The majority of that is some transaction costs associated with that acquisition. We certainly don't expect those to recur. In relation to the second component to your question, yes, we have built stockpiles across the half. I just can't quite recall as to whether they'll unwind across the next half or not, but I'm happy to ... I can have a look into that for you and have a discussion offline with you.

Well, some of the high grade tui as well, which was building up in the first half, we built stockpiles of the high grade tui as well because We weren't prepared to put that through the mill and suffer the significantly higher recoveries, so we basically continued to run the mine as scheduled, build up the Tuohy's Wells stockpiles. Now that we're implementing the circuit modifications that we've been to, we're back slowly increasing the rate of feed of that Tuohy's Wells. That's basically where part of the high grade comes from in the schedule in the second half. I'd imagine we'll be pulling some of that down.

That's really helpful. Thanks, guys. Just one quick last one. Just on Rosemont post the wall slip, has your understanding there changed at all around some of the recoverability of those ounces?

not from the potential of getting access to it from the surface. Work continues from accessing it, for options for accessing it from underground, and we certainly think there's potential there, but we haven't made any, you know, the work's underway at the moment, and so far we haven't seen any reason why we couldn't take a, at least get some of it.

Perfect. Thanks, Tim. Thanks so much. That's it for me. Thanks, Jack.

Thank you. The next question comes from Peter O'Connell from Shaw and Partners. Please go ahead.

Jim, Sean, Ben, good morning. Jim Rosemond to the last question. So access via the open cut, definitely 100% categorically ruled out for the flip areas?

The access from the open cut is from a completely different area to that. Peter, I think I answered that one before. It has not impacted on the slip we enjoyed in the Rosemont main pit. It was actually quite small but the reason it was an issue was less about global stability of the wall and more around the potential risk of any more small slips. Because of the nature of the bottom of the pit was so small and tight, it was putting people at risk that were working in the area. So we just made the decision if it had any other stability of access declines or the like.

And I got that. I remember we talked about that in the call in January, but you're ruling out ever going back into that area where the slip has occurred in that narrow, small open cut area to access that open open cut. It will all be done from underground.

Yes, that's right. We need to look at it. The most important thing with geotech that makes it unstable is time. The longer it's left, the more unstable. That's generally a rule of thumb with geomechanics. We just don't see the value of taking the risks that would be required to pursue that, and we do see some opportunity to access some of that material from underground, but exactly how much we're still trying to work out.

Okay. Can I ask John, on slide eight, the cash flow waterfall, can you just walk through that with me? Can I ask you questions as I go? Looking at that and thinking about the second half, so operations bar, which is the first bar, that should do better. Jim's talked about the grade and tuis and other areas, and with gold price being higher, that should be better. My context here is I'm looking at a $90 million burning cash in the last half, and that's troubling. So looking ahead, operations better. Capitalized mining, will that be around about the same level, 117, or does some of that capitalized material at the top, does that start to unwind or reduce?

That's a good question, Peter. I think the reality is that if they're captured within that capitalised mining cost associated with the Havana cutback, that obviously, that's scheduled to primarily be complete this half. But then you'll see some cost transition into operations. So broadly I think that between operations and capitalised mining certainly what I'd say is Jim's pointed to a much stronger H2 so that will obviously help that operations cost. I suspect there will be a bit of a transition between capitalised mining and operations but I think it will be more than outweighed by the improved second half output. I think certainly one of the big things you've got to be cognizant of in relation to our cash burn is clearly that substantial inflow that we're going to receive and we've already received part of in relation to the taxation elements that I spoke to.

You've gone about it by round. So tax, you paid 31, this half you'll actually get a credit so far of, what do you say, 23 plus?

We've already received it, Peter. So the $33 million, as I mentioned, we got that in February. We anticipate receiving a further $12 in April.

Okay, so when I look at this waterfall and you do it for the full year, that $31 is going to actually be a credit of $35. So there's no tax pay, it'll be a credit. Got it. And no dividend pays of that $32. And the interest in residual transaction costs, that declines to what, this half?

Well, I mean, what I can really say there is that, as I mentioned, the bulk of that $12 million transaction cost, we don't expect to recur. Our interest on our debt is incredibly low. So I would expect, you know, I mean, that'll come down to, you know, a couple of million bucks.

Okay, great. And corporate, you've answered Kate's question, that's the same. Are the capex, that 35 increase, decline, what is that like, this ask?

Yeah, look, I'd sort of suggest probably likely to be the same, Peter. I mean, I don't want to get on my soapbox here, but a large portion of that relates to right-of-use assets. And I think, as we all know, that is an interesting standard to say the least. But that is half of that expenditure is right-of-use, you know, lease payments.

Okay. And lastly on exploration. Tim, given your deliberations of the board and dividends, did they deliberate about exploration spend or given you're a gold-slash-growth company, you need to keep spending? And within that, does McFelmy's spend, given there's nothing happening, does that decline as fast?

Yeah, good question there, Rocky. No, certainly not. Well, yes, there was discussion around expiration spend and, you know, yes, there was a very immediate recognition that if you don't spend money on expiration, it's such, where's your future coming from? At least with our Our holdings, which we've talked about in the past, and I didn't dwell on it today, but our holdings at the Duketon Greenstone Belt, there's some fantastic opportunities there, and we certainly haven't wavered from that, and we plan to continue working there. The Tropicana area, the Albany Fraser Belt itself as well has got plenty of exploration opportunity. And just with the workshop that was held recently, we came back from that more excited than we were when we went there, and we were pretty excited when we went there. Yes, look that's a pretty solid spend and that's because the cost of permitting, it's not one admin officer sitting around filling out a form every now and again. It's consultants and reviews and in-field investigations that need to be done. everything from trees to be counted, grasses to be analysed, there's a significant spend in there. on the DFS side, because of some of the long lead times on some of the areas, in particular around power and water supply, we're actually spending at least one or two million dollars on each one of those alone, just getting the design work and corridors sorted out and the like. So yeah, that we'll see a spend, a full year for McPhillamy's will be maintained on track and I can't see it being too different from the first half.

So the point of my question is $90 million burn in the first half. Can you turn that around to a mutual slash build of cash in the second half?

Well, I think if you talk about the $90 million burn, the first thing you can do is take off about $55 million because $20 odd of that was dividend, $30 odd of that was tax, which we're getting back and we won't be paying going forward. That's the key. So there's two elements of the cash situation that sits on this waterfall chart. The tax that's on there will come back to us and that won't be an element of our going forward, certainly not to that extent because of the, as John mentioned, the Tropicana tax effect on what we pay. So there's 90 million that's over 50 that's already sort of one-offs type of thing. The reality is that where does the rest of the cash come from that we're projecting? We see a substantial, a solid increase in our performance in the second half. As you can see from our guidance, our sales for the first half will be quite significantly higher and that is all basically under the same cost profile. We just will be processing higher grades and producing more gold, which means that revenue effectively goes straight to the bottom line.

I appreciate the detail. It looks like you had a bit of wiggle room in the second half. Thanks.

Yeah, look, we certainly think that the second half will be materially stronger than it all really. apart from the one-offs, which is the income tax and cash divvies, it's off the stronger production. Thanks, Jim. Thanks, John. Thanks, Robin.

Thank you. The next question comes from Alex Barkley from RBC. Please go ahead.

Thanks. Hi, Jim and John. Question on Garden Well Main Underground. When should we be expecting a decision there? Is it still this first quarter? And it already seemed like your upfront capital was perhaps already justified. So were there any last hurdles there, or is it just sort of working on the optimal entrance into the area?

Yeah, look, we haven't spent any, and we haven't committed any dollars to Garden Well Main underground yet. We haven't made a decision on it. We undertook drilling. We wanted to confirm up. the target zone that we were heading into to make sure that we had confidence in the reserves that we were going to be tackling. The work is now underway, as you said, to find the optimum point. Our original concept was to come across from the Gardenwell South area, but actually what we've recognised is that the Gardenwell Main is probably more substantial than we thought and in itself probably warrants something that could be a little bit more substantial to allow it to be a completely independent production zone. So we've sort of been delayed a little bit by what you might argue as being the success of the drilling and what it's improved. So we are working on it. I guess I think it might be I know we had a review of it a couple of weeks ago. I think there's still a bit to do to make sure we've got the optimum point there. So it's possible that we might be in a position this quarter, but I'm more thinking now that that might slip out into the June quarter.

Yes, okay.

No, that's good, Carlos.

Thanks, guys.

Thanks, Alex. Thank you. The next question comes from David Coates from Bell Potter Securities. Please go ahead.

Thanks very much, and good morning, Jim, John, and Ben. Just following up, kind of a little bit asking a similar question that Rocky had on the cash flow, except on the income statement. And perhaps, Carter, you've been very generous with your time. I appreciate that. I'm just coming to trace a little bit on one-off items in there, you know, the stockpiling authorizations and the C&A and acquisition costs and so on. Can you... Just know you pull out some of the one-off items in the NPAT waterfall that won't, you know, that are the one-offs.

Sorry, Dave, I didn't just quite catch the last part of your question there.

The one-off items, you know, the non-recurring stuff that's in the NPAT waterfall. You know, there are a number of, you know, the stockpile write-downs, non-cash adjustments that we've seen, which is related back to the Tropicana acquisition. Where are the one-offs, I guess, in that empath water form?

Yep. Okay. So firstly, just looking at depreciation and amortization, frankly, I think that will continue for the time being. I don't see that dropping off in the interim. In relation to the stockpiles, what I would say is, particularly at Tropicana, As we are very confident that Tropicana will continue to build and increase its reserves, as they do that and as we continue to amortise down the $500 million of the purchase price that we had to allocate to mine properties, as they continue to increase their reserves and as we continue to amortise down, I'd suggest that the likelihood of future stockpile impairments of Tropicana becomes less. I think as probably everyone's aware, the time when you're most susceptible to sort of write downs is just when you've done the acquisition because everything's just been fair valued and there's not a whole lot of headroom. But we're very confident in the Tropicana operation and we believe that reserves will continue to be increased and that will reduce the likelihood of stockpile write downs going forward.

Okay, all right, cool. And, let's see, you mentioned just briefly one of the other responses there that you started feeding it to as well or through the process plant. Can you give an idea of how that's recovering?

Yep, it's recovering well. Thanks, Dave. Our plan is to ramp up the feed there to around about 35%. We're not at that rate yet. We've been changing the circuit, but we still have to finalise putting in the slam jets, which is a way of more efficiently introducing the oxygen into the circuit. And also that's been delayed a little bit, probably about two or three weeks more than what we originally scheduled. That should be to be finished at the end of this month. That's been delayed because we struggled to source around Australia, thanks to COVID implications, the specialised stainless steel piping that we require. It's interesting, we actually found all the valves and all the controls really quickly, but it was just the basic pipe that took a while. But we've also, the groups that were going to come and do the work for us had to pull out because the border restrictions meant they couldn't come over here and do it. But we have subsequently found a group that we're satisfied with that will do that work. So there is still a bit to go before we ramp up to that full amount. I think the last time I looked we were probably running at, I think it was sort of averaging something like 20% to 25% fee of that order. We were seeing a little bit of an impact on recoveries but nothing to nothing to get too concerned about. It was obviously more than offset by the high grade. It's not where we want it to be yet in terms of how much we can put in, but it's certainly a lot better than where it was three months ago last year, and it's on the right path.

That two or three week delay that you just mentioned there, when does that push back the completion of the plant modifications?

Well that was the completion of the putting in the slam jets which were scheduled to be finished at the end of this month. They'll probably be early mid-March, something like that. What we're actually putting in is a shear reactor as well which is another thing to improve on reaction kinetics. We actually think we can get that one in a little bit earlier, which was originally scheduled to be in, I think, sometime around April, but that could be a little bit earlier than that, which will be pleasing. So, you know, overall, a week here or there, you know, a couple of weeks here or there is not going to cause us an issue. We were a little bit worried about finding that pipe, but we found it a week or so ago and sourced it, so everything's continuing to plan.

And just quickly, M&A, you guys are probably in the penalty box a little bit according to the market, but you've got your foot on probably the better half of 700,000 ounces of Australian-based gold production. Are you feeling a bit vulnerable?

Well, look, I think everybody feels vulnerable at different times. We're not getting too sweaty in the box about that. We just focus on making sure that we work hard on getting our performance up. We see our performance. It's important for us that people understand that this situation that we're going through at the moment, it's not a structural issue with our business. It's just a near-term operational issue with our business, and we think people understand that, and we think that the thing to be focused on from that front is to make sure that we continue to deliver on our plans and keep one eye out for opportunities that might come our way, to be honest.

Thank you so much, Jim. Cheers, guys. Thanks for your call this morning.

Thank you. The next question comes from Patrick Collier from Credit Suisse. Please go ahead.

Hi, Jim and team. Just got the one question. Looking at your whole outstanding cost guidance and what's required in the second half, I'm just wondering if you can provide a bit of colour on what you're assuming around potential COVID impacts just with the border opening up?

Yeah, in our all in sustaining costs estimates, we're assuming that our operation continues to be able to run as it has done. There's a little bit of provision in there for things like the added admin cost of testing and there's an extra flight that we've gone on to manage those things. And we've established a testing station at the airport But in terms of making a provision for 15% or 20% absenteeism because of COVID, like we know that some of our compatriots have seen on the east coast, we don't have that built in. We do have plans. We have contingency plans. We have now been running and continue to run with our COVID emergency response team that at least weekly, depending on the circumstance. We have contingency plans as to how we'd run the site in the event of 20% absenteeism because of COVID, 50% absenteeism, and how we'd manage the site down. But that's certainly not built into our production outlook.

Okay, that's very clear. Thank you. All right, Patrick.

Thank you. The next question comes from Matthew Collings from Morgan's. Please go ahead.

Hi, guys. Look, just one quick question, and it was just stamp duty on the Tropicana acquisition. I had a line item hanging out there this morning that still made my numbers look a bit odd. Has that been paid, or is that still to come? Cheers.

Yeah, it's a good question, Matthew. Basically, the answer to that is that we've done everything we can in relation to that. We are waiting for the government to issue us with an invoice.

The provision we've got there is out there. It could be next week.

It could be next year. We don't know.

No worries. Thanks. That was it.

Thanks, Matthew.

Thanks, Matthew. Thank you. participants to ask a question, please press star and 1. Reminder to the participants, anyone who wishes to ask a question, please press star and 1. There are no further questions at this time. I will now hand back to Mr. Dyer for closing remarks. Thank you and over to you, sir.

Alright thanks very much Fezzan. Alright thanks everyone for joining us. We do appreciate the questions. As you've seen it's been a challenging first half for us but we're certainly in a position where we're looking forward to a stronger second half and watching that flow through to our both operationally and to our financial performance. So thanks very much for joining us. As always if anyone's got any follow up queries please let us know. Contact Ben and we will endeavour to get back to you as soon as we can. Thank you very much. Have a nice day.