29Metals Limited (29M) Earnings Call Transcript & Summary

[indiscernible] Thanks, Melanie. Good morning, ladies and gentlemen. My name is Mike Slifirski, and I'm Group Manager, Investor Relations for 29Metals. I have our full executive team with me this morning to present 29Metals December quarterly and Full year '21 production report and then to provide production and cost guidance for calendar 2022, additional financial guidance points we provided with our 2021 financial report on the 23rd of Feb. So this morning, you'll hear in order first, Peter Albert, our CEO and Managing Director; then Ed Cooney, Chief Operating Officer; then Peter Herbert, Chief Financial Officer; and then Mark Van Heerden, Group Manager, Exploration, after which we'll open up for Q&A. At the conclusion of the call, the transcript -- sorry, the recording will be available on both the 29Metals website and on open briefing. And this call is available via open briefing as a webcast and also over the phone. So I'd like to now hand over to Peter, Peter Albert, to open the call. Thanks, Peter.

Thanks, Mike, and thanks for the introduction, and welcome, everybody, and thank you for joining us this morning. Of course, it's a busy time right now with quarterly reports and results coming out from multiple companies. So very pleased that you can join us this morning. Mike's already done the introduction, so I don't need to do that again. And I'll go straight into an overview of the quarterly results. And then as Mike said, I'll hand over to Ed, Peter Herbert and Mark Van Heerden for a bit more color in each of their specific areas. First of all, of course, safety. Whilst we have held our safety performance steady, we have not yet been able to reduce the number of minor accidents, mostly hand injuries. This is disappointing and there is a strong focus across both sites to improve our performance in this area. But I can say from a cultural point of view, the focus on safety and the reporting of any incident or potential incident is very, very good. COVID, of course, has been a significant business matter for us and for all other mining operations. The difference in the regulatory environment between states presents challenges, although at the same time, it also provides learning opportunities that we are able to share between the sites. With the Queensland borders opening up in mid-December, we have seen the inevitable spread of COVID in the community and early this year, the first appearance of cases in our workforce at Capricorn Copper. However, as described in the quarterly, through our COVID management plans we have to date, successfully managed to limit transmission and keep case numbers low. Whilst there has been some impact on less urgent project activities, the operations have been sustained. And I'm also pleased to be able to report that to date, we've had no person seriously ill or hospitalized as a result of COVID infection. At Golden Grove, our workforce is all double vaccinated and all will soon need to have had their third dose. Whilst this will not stop the spread of COVID, it will almost certainly assist in the reduction of serious illnesses, and we are cautiously optimistic given the effectiveness of our COVID management plans at Capricorn to be able to manage cases at Golden Grove. The recent change to the highly anticipated West Australia border opening is disappointing. However, the last 2 years have demonstrated that we can tightly manage sites remotely, and we will continue to do so until borders normalize. Actually, I couldn't be more proud and pleased of our teams at all 3 sites and across the business. Under 29Metals, the communication, the sharing of information and the support across the business has just been great to see. On the ESG front, plenty of activity in these areas across the group as we have set out in the report. We are progressing work on our first formal sustainability report, which will be included in our annual report later this year. We also commenced work with the expert external group during the December quarter to assist us, a company called Point Advisory. They have been working with us over the last few months to develop our road map for reporting against the TCFDs, an important step as we refine our contribution to actions against climate change, including setting specific targets. As noted in the report, we are working to increase our capability at the group level in this ESG space, in addition to engaging external parties to assist as required. Moving to operating performance. We had a really strong finish to the year at both operations. Capricorn achieved a record in December of over 3,000 tonnes of copper. At Golden Grove, zinc production was lower than the prior quarter as we had expected and indicated, but very strong copper production reflected significant improvement and a strong quarterly result overall. The improved and improving production performance resulted in significantly improved unit costs and solid operating costs for the year, notwithstanding the challenges of the first quarter March quarter last year. Production at 68,200 tonnes in copper equivalent terms exceeded the forecast that we've put into the market at 67,400 tonnes. So we're very pleased about that result. And based upon our full year production revenue and costs released today, we expect full year EBITDA to meet or exceed the prospectus forecast of AUD 221 million, subject, of course, to the finalization of full year final results and the audit process. There is, of course, lots of discussion in the general mining space about cost pressures and 29Metals is no different. As mentioned earlier, to date, COVID impacts have been well contained, albeit, of course, this has come at some cost. Labor costs are largely well managed, recognizing that the labor skill shortage has an impact on wage rises, especially in some areas of the business. Overall labor cost increases in 2022 are not expected to be extraordinary and in line with the rest of the industry, where we have seen cost pressures as being in the supply of goods and materials both in terms of inflationary costs for those materials as well as the freight and logistics costs for delivery to the sites. Nonetheless, the 2021 costs have come in at the bottom of the range of the guidance we provided in the September quarterly report. So now let me move to guidance. In today's quarterly, we have provided guidance on production, operating costs, corporate costs and capital. I should note that going forward, 29Metals will no longer provide guidance for copper equivalent outcomes. We will provide guidance on metal production, and we will report actual copper equivalent outcomes on a quarterly basis for reference purposes. So for 2022, we are providing a guidance range for key parameters, which you'll find in the quarterly report. I don't intend to go through each of those numbers here, although obviously, happy to take questions later. Overall, we expect strengthening performance driven by continuing strong copper production and a material increase in zinc production year-on-year. Cost guidance reflects the continuing cost pressures we are seeing, particularly in Western Australia, and planned increased activity levels at the mine sites. Concentrate transport costs are expected to be materially higher than 2021, reflecting the significant increase in shipping rates and the market that continues to be volatile. Supply chains, high demand for people and materials and border closures have all contributed to rising costs. And as a business, we are very focused on managing through this environment in the best way possible. Guidance for a number of the accounting measures will be released along with our full year financial results due on the 23rd of February. There were a number of important operational and derisking milestones in the December quarter, including first ore from the Xantho Extended orebody at Golden Grove, completion of the TSF1 lift at Golden Grove as well as the advancement of the TSF lift at Capricorn to the point where we will imminently commence depositing tailings into that facility. Advancement of the Gossan Valley feasibility study and breakthrough of the Esperanza South cave to the surface at Capricorn Copper. On the Gossan Valley feasibility study, the key study inputs have been completed and validate the prior PFS outcomes. We are now focused on optimizing Gossan Valley as part of an integrated and optimized Golden Grove mine plan, which will potentially include the role of Cervantes. The Cervantes drilling results reported in September were very encouraging, and the results from the continued drilling through to the end of 2021 will be reported shortly. We aim to include the majority of the Cervantes drilling results up to end of December into our updated mineral resource estimates in our annual resources and reserves statement to be released to the market in this current quarter. We will be considering the optimum and best value proposition for the company in the context of timing for potential development of both Gossan Valley and Cervantes. This year also, we will be focusing significantly on our organic growth opportunities at our sites. For example, the regional work at Capricorn Copper, extensions to the Esperanza South orebody, Grey Ghost and Eagles Nest on our regional tenements that we have as well as extensions to the Greenstone orebody. At Golden Grove, Conteville is an orebody, which has a potential extension to Gossan Valley. Xantho Extended North aligned with Xantho Extended and [indiscernible] commonly known as GG4 as well as the work we are about to commence at Red Hill, and Mark will talk about that shortly. The team at Red Hill has mobilized, and we're about to commence activities there. So overall, a great quarter, a great finish to the year, setting us up for an even more successful 2022. With those overarching remarks, I'll now hand over to Ed Cooney, Chief Operating Officer, to give us a bit more color around the production activities at the 2 operating mines. Ed will then hand over to Peter Herbert on commercial and financial and then we'll finish off with Mark Van Heerden and more detail on the exploration and growth -- organic growth activities. So with that, thank you, Ed. Thank you, and over to you, Ed.

Thanks, Peter, and good morning, everyone. Great to be here today presenting our December quarterly performance. In terms of production, as Peter mentioned, we delivered a strong performance for the December quarter. It was our best quarter for the calendar year for copper metal produced and on a copper equivalent basis. A very pleasing quarter to finish the year with both operations achieving their best production quarters for the year and really reflecting the significant combined efforts and contributions of the site teams. At Golden Grove, our mining volumes exceeded mill throughput as we navigated our way through completion of the TSF lift and commenced deposition. Opening stockpiles for 2022 ahead of the mill put us in a much better position relative to the start of the 2021 calendar year. Copper production for the quarter was significantly higher than the prior quarters with lower byproduct metals. Our development and backfill maintained good rates during the quarter. As we started last quarter, establishing access to and production from new high-grade ore sources remains a key priority. During the December quarter, we commenced first ore production from the upper levels of the Xantho Extended ore body, and this represents a significant milestone and it's the culmination of a lot of hard work by the Golden Grove team over a number of years. Our focus for the March quarter will be to continue activities upgrading ventilation in the area and extending the decline, linking the Xantho Extended Oizon and Hougoumont ore bodies. Completion of these will enable us to deliver chilled air directly from the surface to work in fronts underground and further optimize our truck haulage and traffic management. In terms of the mill, throughput of 365,000 tonnes was marginally lower than the September quarter, impacted by the restrictions associated with completion of the TSF lift. Post completion of the lift in late November, the mill has been operating unconstrained at higher throughput rates. From a recovery perspective, the processing team have achieved improved copper recovery from lower grades as a result of further optimization of the flotation circuit, enabling us to produce concentrate from grades we previously weren't able to. The paste fill project has now received final regulatory approvals. However, progress has been delayed due to ground conditions experienced when drilling the surface hole. A new hole was commenced in December, which is progressing well, and pleasingly is now through the area of poor ground conditions we experienced in the first hole. We expect to commission the plant towards the end of the June quarter. And in the interim, the site team continue to maximize cement and hydraulic backfill delivery rates and focus on optimizing the remaining construction schedule of the plant. Moving on to Capricorn Copper. We achieved 10% higher metal production in the September quarter. Mining performance was good with volumes broadly consistent with the prior quarter. Higher grades were attributable to Mammoth and, in particular, the Greenstone orebody during the December month, resulting in the site monthly production record Peter mentioned of more than 3,000 tonnes of copper metal produced. At Esperanza South, the sublevel cave successfully broke through the surface, and this was a welcome outcome and eliminates the need for any additional measures to initiate further propagation. We also commenced raised borrowing activities of a new ventilation shaft to surface at the Esperanza South orebody to increase underground air volumes and reduced working temperatures, with the pilot hole successfully breaking through and back reaming now underway. In terms of the mill, we processed similar volumes to the September quarter, although at higher feed grades. Recoveries and overall metal production were higher as a result. Preparation for the transition of the processing operations and maintenance activities in-house is progressing extremely well, and we look forward to the transition occurring in February and pursuing the benefits we believe this transition will afford. Completion of Stage 1 of the Esperanza TSF lift is imminent with commencement of deposition expected by month end. And in parallel with these construction activities, we've also progressed multiple surface site water projects. I'll now hand over to Peter Herbert, our CFO, to address some of the financial outcomes across the business.

Thanks, Ed, and thanks, everyone, for dialing in this morning. Group revenues for the December quarter were by far strongest for the year at approximately $196 million. That's an increase of more than 30% on the prior quarter. This result included a material increase in gold revenues, particularly copper and zinc sales, somewhat offset by lower precious metal revenues. Capricorn Copper revenues, excluding QP, decreased slightly on the prior period, in line with lower sales volumes reported in the December quarter. The difference between the production results that Ed admitted talked to in sales reflects timing differences as finished copper inventories increased during the quarter. For the December quarter, realized copper prices increased by approximately 4% in USD terms, also supporting the revenue outcome. Overall, copper accounted for approximately 66% of total group revenues in the December quarter, which is in line with the full year results. In terms of costs, group site costs were approximately $7 million higher than the prior quarter due mainly to high mining and G&A costs. Higher mining costs are largely attributable to Golden Grove on account of higher activity levels as well as continuing cost pressures. Higher G&A reflects works undertaken in the Capricorn Copper to install and ready pumping infrastructure in advance of the wet season. Group C1 absolute costs were approximately $3 million higher than the September quarter, reflecting the higher site costs just mentioned, increased transport and treatment charges on higher sales volumes, lower stockpile credits as timing differences at Golden Grove largely unwound during the quarter and higher byproduct credit largely offsetting higher costs. Golden Grove all-in sustaining costs on a unit basis improved approximately 8% on the prior quarter, reflecting the higher C1 costs, more than offset by increased copper sales and lower capitalized development. Capricorn Copper all-in sustaining unit costs increased 6% on the prior quarter, given the higher absolute costs primarily result of higher sustaining capital and lower copper sales volumes due to timing differences, as just discussed. Turning to the balance sheet. During the quarter, 29Metals achieved financial close on a new corporate debt facility, refinancing existing asset level debt at Golden Grove. The new group facilities encompass term loan, working capital and bonding facilities and we believe will provide greater flexibility to 29Metals to manage the group's liquidity needs. Post completion of the corporate refinance, unaudited drawn debt remained unchanged quarter-on-quarter at USD 150 million. Unaudited group cash of approximately [ AUD ] $199 million is an increase of approximately $27 million in the prior quarter. The increase in cash reflected strong sales for the quarter and has [indiscernible] in connection with the refinancing completed. As a reminder, stamp duty in connection with the acquisition of Golden Grove remains outstanding and is now expected to settle during the March quarter 2022. In terms of our full year financial results, 29Metals expects to release its full year results on the 23rd of February. And based on the full year revenue and cost as disclosed in today's quarterly results, 29Metals expects to meet or exceed 2021 pro forma EBITDA forecast set out in the prospectus, and that includes adjustments for AASB 16 lease accounting. This result is, of course, subject to finalization of our full year accounts and the audit process, and we look forward to updating [ that to you ] in due course. So thank you everyone for your time. And I'll now hand over to Mark Van Heerden, Group Manager of Geology.

Thanks, Peter. Exploration activities continue to focus on near-mine, in-mine organic growth opportunities this quarter and preparations are well underway for the planned exploration activity across the group in 2022. At Golden Grove, we continue to extend and delineate Cervantes' ore body in the December quarter and an additional 9 extensional holes and 11 infill holes completed following on from the 6 holes previously announced. The results of this drilling will be announced once all assets are received and validated. Additionally, we now expect the bulk of the results from the successful Cervantes campaign to be included as part of our updated mineral resource estimates to be reported in our annual resource and reserve statement, which will be delivered in the March quarter. We now have the opportunity to consider a number of strategic long-term scenarios, taking into account both Cervantes and Gossan Valley in order to determine the best approach to integrating these mining fronts and optimizing the Golden Grove life of mine. Both areas will also be subject to further exploration activity in the March quarter. At Gossan Valley, Conteville, which is located 1.1 kilometers north of Gossan Valley and 800 meters below the surface has been flagged as part of an upside case assessment. Surface extensional drilling is planned to commence in the March quarter, targeting the untested area between Conteville and Gossan Valley to assess further continuity. At Cervantes, we plan to undertake further resource extension and infill drilling in the March quarter and beyond. Near mine underground exploration drilling is also planned to occur down plunge of the [indiscernible] lens at Gossan Hill. Beyond the March quarter, resource extension and infill drilling is planned at Oizon and Xantho Extended and exploration drilling is planned for near-mine targets at Xantho Extended North and Scuddles-GG4. Moving now to Capricorn Copper. In-line near mine growth drilling continued in the quarter with 3.6 kilometers of drilling occurring versus the 1.5 kilometers in the prior quarter, drilling took place at Mammoth Deeps, G Lens, and Esperanza South. The drilling of the regional lead-zinc-silver prospect Grey Ghost had to be deferred due to drill site access issues as a result of the wet season. However, the rig was redeployed to the Magazine prospect to follow up on a historic new surface copper intercept. Three holes were drilled with one intersecting minor copper mineralization visually, as the results for that work are pending. Looking forward, surface and underground drilling plans for the March quarter will focus on near-mine organic growth opportunities, with service rigs conducting infill and resource extension drilling at Esperanza South and underground drilling occurring at Greenstone and Mammoth North. The drilling of Grey Ghost as well as GPO3 and Eagles Nest regional targets is now planned to commence in the September quarter once the surface rigs have concluded with near mine programs. Underground drilling beyond the March quarter is planned to include extension and infill of Mammoth GLens and further infill drilling at Esperanza South. At Red Hill, the team is mobilizing to site in the coming days in order to undertake the first field work on the project in 2017. The work will comprise small field crews, upgrading portable short drills that will take rock samples underneath the peak cover, a long stripe of the known mineralization across all the known veins that make up the current Cutters mineral resource Additionally, our team will be mapping and sampling the surrounding areas to assess potential for further veins and we will undertake a high-resolution drone-based magnetic survey over the Cutters area. The work is planned to occur over the March and during quarters with the objective of determining the overall potential endowment for the system outside of what has currently been modeled. All going well, this would lead into targeted drilling activities in 2023 to increase the resource. Overall, I'm extremely excited by our planned exploration activities Cap Copper, surrounding exploration leases in the [indiscernible] Golden Grove [indiscernible] in July this coming year. I'll now hand back to our CEO, Peter Albert. Peter?

Thanks, Mark and Ed and Peter Herbert. I think we go now to Q&A, Melanie. So over to you, please, to handle the Q&A.

[Operator Instructions] Your first question comes from Mitch Ryan with Jefferies.

Just you're clearly getting very strong [Technical Difficulty]

We are not hearing. Melanie?

Sorry, yes.[indiscernible] So the next question comes from Hayden Bairstow with Macquarie.

Just a couple of questions from me. Peter, just firstly, on Golden Grove. Just interested around the commentary around Cervantes versus Gossan Valley, is Cervantes just turning out to be that good that this is going to be prioritized over everything else? Or has there been some areas of disappointment at Gossan Valley, just on the early work we've done so far on previous drilling, et cetera. And just on the border closure, I mean, the commentary around guidance that you sort of haven't assumed any sort of material weakening or anything on COVID. But what are you assuming in WA because the border closure at the moment is effectively permanent until we get a confirmed date.

Yes. Thanks, Hayden. In terms of your first question, this the Gossan Valley and Cervantes. The way you framed it quite the opposite. I think what we have is not a plethora, but a multitude of opportunities here in terms of how we move forward. Gossan Valley, we're pleased with the outcomes that we've reached there so far. There's some optimization work that we can do, which we'll be working at looking at in coming months this year. And Cervantes, as you've indicated, also some of the results there coming through that we've reported to date in September last year, extremely, extremely good. And we can't, obviously, at this stage, talk about the results that we've received up until December, but that will be coming out shortly. What we're indicating is that Cervantes and Gossan Valley provide great opportunity for the future growth of Golden Grove. We need to look at both of those in the context of everything else that we have and Xantho Extended and all the other and the current mine plans we have and decide and determine what is the best sequence of events in terms of development of those -- potential development of those 2 opportunities. So it's really looking for the optimum outcome rather than any concerns around or around any results, quite the opposite, Hayden. In terms of border closures, we've been living with border closures for the last 2 years. So it's really business as usual for us, quite frankly. It is disappointing. It is frustrating, but we've managed the business extremely well. A great team on site, tremendous team on site. And as you can imagine, we're on the line all the time with the team there and working through the operational day-to-day business. And it really is business as usual. So there's no -- we can't forecast what -- when the borders will come up. We have to assume that they're going to stay down for an extended period of time, and we'll just continue as we have done successfully for the last 2 years.

And just one final one on costs and particularly on freight rates. I mean, are you seeing any indication that, that might settle down at any point? Or we just have to live with these elevated rates for now?

Yes. Look, good question, Hayden. I think we -- quite a difficult one to forecast given the volatility that we saw towards the end of last year. So we're not assuming that at the end of day a major sort of normalization in that -- in terms of how we're looking at the market. But so yes, it's a hard one to pull sometimes really, but we assume sort of the current levels are where the market will stay at for 2022.

Thanks, Ed. And Mitch, when you came on just now, it just came across -- we couldn't hear a word really. I don't know whether that's been resolved. [ Whether you can ] come back in with your question?

Your next question comes from Mitch Ryan with Jefferies.

Can you hear me?

Yes, we got you there, Mitch.[Technical Difficulty]

Sorry Mitch, your line is just cutting out again. I will just ask you to re-register your question and we will move on to the next one. Your next question comes from Rahul Anand with Morgan Stanley Australia.

Great results today, congratulations on that. Look, my first question was perhaps to get a bit of a quick update. I mean, Xantho Extended, you're going to be mining there next year. Are you able to provide a bit of a timing schedule as when you think some of that ore starts hitting the mill. And then perhaps a followon from there was the zinc recovery rates quarter-on-quarter a bit lower despite higher zinc grade. Is this perhaps because of [ the stub ] sequencing and out of that triple sequencing that we've done in the past? And how should we think about the recoveries going into next year or this year, rather?

Thanks, Rahul. I'll just ask Ed to respond to those. Okay, Ed.

Rahul, in terms of Xantho Extended, so we have actually mined the first zinc stone from the upper levels. That's now void, I guess in terms of outlook for 2022, probably waited more to the second half of the year. As you're aware, we are aiming to commission a paste fill plant on surface so that we can effectively fill Xantho Extended at high rates. So that's really -- will be a critical part for maximizing ore tonnes from Xantho Extended. In terms of the zinc recoveries, yes, look, perhaps quarter-on-quarter was a reduction, but I would note that the zinc feed grade is also lower. So compared to probably the June quarter with comparable grades, the recoveries are actually slightly higher. So no concerns from my perspective on the zinc recoveries for the December quarter.

Okay. Perfect. And then perhaps, Ed, a quick followup there. In terms of Cervantes, what's the news flow time line like in 2022? When do we get updates as this progresses?

You might just jumped in there, Ed. So as we've indicated in this call and on the quarterly there also, the results from the drilling, if they're not all through, they're imminent, and we'll be looking to get those results out into the market as soon as we have the full set of results. And we've had also indicated that the results up until the end of December, which is most of them will form -- will be included -- there'll be a resource estimate undertaken on those results, the full Cervantes numbers, up until the end of December, looking to get resources and reserves statement out into the market in this quarter. In terms of moving forward from there, and a fair bit of work to do as we indicated in the previous question from Hayden between Gossan Valley, Cervantes and other optimization opportunities that we have at Golden Grove towards -- through the year as we reach material decisions or milestones, but I can't really give you a time line on that, but as information as we reach conclusions then of course, we'll keep the market informed.

Okay, perfect. And then perhaps one on the cost pressures that you're facing. You've talked about labor cost pressures in WA. Can we get a bit of an update on two fronts, perhaps? First one being, are we comfortable in terms of the contractor rates? Have they been locked in for calendar year '22 now? And then also, you've done quite well at Capricorn besides the cases that you flagged in the quarterly. If you do have a similar type of an impact at Golden Grove, what type of an impact do you envisage there from a cost perspective?

Okay. I'll take the first -- the second question first, and I'll ask Ed to address the contractor rights as the second -- as the second question response. So as you quite rightly point out, Rahul, we've managed very well at Capricorn Copper to date and touch wood in all that. But our processes and procedures for isolation on site if we've got a case, our procedures in terms of keeping people off-site if they're at close contact or indeed, if they have COVID and testing before they get to site and testing on-site if we've got potential close contact. That has worked very well for us as well as a plethora of other management plans we have in terms of social distancing and all the -- besides the government regulated requirements, our own processes. So yes, you're right, worked very well at Capricorn. At Golden Grove not dissimilar in terms of how we will manage that. We're at added advantage, if you like, at Golden Grove in that everybody on site is at least double vaccinated today and the current mandate from the West Australian government [ FEFO and the FIFO ] operations need to be triple vaccinated, i.e., the booster. Timing is a little bit up and down, but sort of by April time or just about everybody has to be triple dosed. So that's one, that means we'll probably have less infections; and two, less seriousness of infections when and if they occur. But the processes that we have had at Capricorn will apply the same at Golden Grove do not anticipate that, that will have an impact on the business in any material way. at Capricorn, as Ed noted, we had to redeploy some personnel to ensure we sustain the business, but there's a short-term and minor impacts to the business. And I would expect that Golden Grove wouldn't be any different and may even be a lesser sort of outcome there. So I might go to Ed on the first question there.

Yes. In terms of mining contractor, right? So at Capricorn Copper, that means fixed schedule rates, so yes, that's locked in for the full calendar year. At Golden Grove, it's a little different. I guess we're subject to some of the market labor prices more there just due to the nature of the structure of the agreement, Rahul.

Okay. Perfect. And I presume that's already been taken into account in terms of your forecast of what you're expecting will come through there, obviously, yes?

Yes. Definitely.

Mike, do we get a question from Mitch on the e-mail or anything else?

[indiscernible] we are going try again.

Your next question comes from Matt Greene with Credit Suisse.

Just checking. Can you hear me okay?

Yes, it goes fine. Thanks, Matt.

Great. Okay. Just one on Golden Grove, your mining cost there. So just on the unit cost of mining, I calculate around $130 a tonne in '21, but you did experience some operating changes this year. If I look at moving into '22, just that the mid-range of your guidance implies a mining cost of around $140 a tonne. And I'm just -- if I look at your technical report, you -- look, I appreciate that these estimates have changed to some degree, but it actually outlined cost decreasing into '22 down to $100 a tonne, but obviously, the cost base has changed somewhat. And I appreciate things are very challenging and uncertain at the moment. But -- and you have said that labor costs have been relatively contained. So can you just help me bridge the gap here on what's driving -- what's quite a significant increase in your cost base there, since the technical reports? And do you see any of this cost pressure unwinding? Or should we be thinking this is the new cost base moving forward?

I guess a couple of things. One would be what we've just discussed, and there have been the labor cost pressures in Western Australia, probably when those reports were done earlier, that sort of escalation that we're seeing was never expected and probably a similar one would be steel input costs in terms of ground support requirements. There's a whole multitude of variables and other maybe ground support requirements as we progress further at depth and managing some of those geotechnical aspects. And probably another point over that in 2022, in particular, there is actually a marked reduction in capitalized development and increase in operating development, implying [indiscernible] costs as we sort of increase orebody development at Xantho Extended. So there's probably some examples of what's driving the costs. In terms of new normal versus prior 2021 spend, I guess, a lot of that will be dependent on probably some of the input costs such as steel, et cetera, and what, if any, reduction in labor pressure we see once the borders reopen.

Okay. Are you able to give me some indication as to how much of that cost base is labor driven? What proportion of it is labor?

Probably not off the top of my head. Well, I'll just make a couple of quick comments. One is in terms of specific labor costs for the 29Metals teams as indicated earlier on, pretty much in line with the rest of the industry. Nothing extraordinary in that framework without talking about specific numbers, sort of less than 5% in terms of a labor cost increase across the board. As Ed indicated, we may well see some reduction in the likes of steel input costs. It's always difficult for suppliers to reduce costs, but that could be an outcome, and we have some sort of suggestion that might be the case going forward. But back to the labor cost question there, where we probably did have some impact last year, which was on short-term contractors that were really under a lot of pressure in terms of their personnel and sustaining those labor forces on a short-term basis that for some of our project work. Now whether that flows through to this year and beyond is a moot point, but possibly not. But certainly, that impacted some of the labor costs that we incurred in the last period of last year, certainly in the last quarter of last year in terms of labor increased costs, not in our workforce, but in some of the short-term contract of workers.

Okay. That's helpful. And I guess just on the zinc production staying on Golden Grove being second half weighted. Is this driven by sort of grade in the mine plan? Are you expecting some of these high-grade zinc stopes coming? Or is it more a case of just an increased contribution to costing once the paste plant is up and running? And I guess now that all your regulatory approvals are in place on the plant there, what's the critical deliverables from here to get you comfortable with that June quarter time line?

So a critical part of the construction is really completion of the surface drill hole. So the plant is a modular plant. It's ready to go as soon as that hole is complete. We'll mobilize the site and installation will commence. And in terms of the zinc yes, it look largely, it's just a function of all the mine plan ore sources and really the relative timing, I guess, of higher Xantho Extended terms in the [indiscernible]

Okay. And just on the next tailings lift in the December quarter, are all payments in place for that?

Yes. The [ timings ] at Golden Grove is complete. Approval for that was -- I can't remember, but it'd be months ago. and approval for the first lift that on the ETSF at Cap had gone, that goes back to an approval back in August last year, with that nearing completion into the first part of that to allow deposition before the end of January, we anticipate.

Okay. Sorry, I'm talking about the Lift 5B in the December quarter '22. Is that all approval lying in place?

No, I think that is a Q1 activity, if I'm not mistaken. Sorry, not of 2022. Sorry, Matt, misunderstood you on that one.

[Operator Instructions] Your next question comes from Kate McCutcheon with Citi.

Guidance of the 2022 at Golden Grove? If I take your expected tonnes mined, it implies a [ softer ] zinc grade compared to where we might have expected to see it. What's driving this? Is that just the paste plant delays? And are you still expecting this to kind of trend back up in '23?

Yes, I mean there's a couple of factors, I guess, just to put it in context here, whenever we do a life of mine plan, it's always a single point in time. So probably a future changes, in terms of Xantho Extended, we have made the decision to increase the sub-level interval to 45 meters from 30 meters. So that will mean that there is some stopes planned for later in the year previously, that will move into the 2023 calendar year. So there's slightly less material relative to prior plans in the '22 year. And that's probably one of the key changes. There are some differences in some of the other orebody specific orebodies, but probably that's a key one to call out.

Yes. And what's driving that bigger stope size or the change in the design?

Sub-level interval. So there's a lot of benefits with increasing the sub-level interval in terms of economics. It does mean a bit more development to get to the next level. But once we're there, there are significantly lower or higher, I should say, higher orebody tonnes per development meters. So over time, that should result in much more attractive rate.

Yes. Okay. And is that something that's been done before? Are you comfortable with the geotech around that and everything else that you need?

Yes. We've done a lot of work on the geotechnical side of it to satisfy ourselves if that's the right decision. In terms of operationally, there are some differences in terms of how you drill it and execute it, but we're confident that we have done a great...

Yes. Okay. And then in terms of zinc, we're obviously seeing a lot of [indiscernible] in Europe. Interested to hear what you're seeing in terms of TCs, that looks like quarter-on-quarter, those TCs particularly at Golden Grove has come up. You called out freight, but is there any more color on what you're seeing, please?

No color, particularly. I mean we obviously watch the market very closely to how it's going to develop. The TCs for the quarter is not necessarily an increase in the rates but more volume driven, which is driving up the absolute cost for the period and big zinc sales in this period driving that. So yes, we watch the market. We'll watch the negotiation process around the TCs quite closely and see where that plays out. And I mean, I think we probably read all the same things that you're referring to, and it's a metric that we're keeping a very close eye on.

Okay. And then a final question for Ed. Just for the AASB lease adjustments at the EBITDA line, I think you've said $33 million for this year in adjustment in the prospectus. Is that still what you're expecting? And do you have any expectations as to how we should think about this number going forward?

Look, I think that was the forecast that we put out at the time we gave the prospectus. I don't think any update to that number, we will obviously have to wait to the finalization of our accounts, including the order process. So a bit premature to sort of give any firm or final guidance on that. But yes, the prospectus forecast at this point is the best reference point to that at this stage.

Your next question comes from David Radclyffe with Global Mining.

I just got a follow-up question on Golden Grove. Really just trying to understand here, would you consider spending on both accelerating Cervantes and Golden Valley -- sorry, Gossan Valley? Currently, if that's what your study said was the best result for growth and derisking the business. So just trying to understand whether you think funding is one of the key considerations here we should be thinking about? Or are there other drivers again sort of pushing both projects together?

Interesting question there, David. You're well ahead of us in terms of our thinking. Of course, we ask some to turn our minds to that because given that we've got these opportunities, if you like. We're not currently thinking in terms of what the capital constraints might be. That will be a step in the process we have to go through. Right now, we're more focused on the technical outcomes and benefits of one project against the other or both projects together and the timing of that. It's -- you're probably a few months ahead of us there. We've really got to do this work to understand what is the best outcome for the business. And we can't -- I mean you sort of -- I'm sure you would appreciate, you can't just mine unconstrained. You hit a bottleneck at some point in time in terms of the mill. So we've got to work out what delivers the best value for the project in the longer term. This is -- as of last year, we had a 10-year mine life. And we obviously sustain that, grow it and keep it going over time. But I can't really definitively answer that question, David, but it is a good question and it's something that we're obviously aware of, and we'll work through as we get through this process.

I understand that. Just in terms of sort of making any FID at the moment on any projects. Do you think that is actually possible until you have clarity on the borders? I mean, just for example, obviously, what you've been talking about in terms of labor constraints and such like.

No. I mean that's a short-term perspective. I would suggest, David, this border closure challenges, it won't and can't go on forever. We have to think beyond that. We've got to deal with it here and then, then for sure, but we can't be making long-term strategic decisions on the basis that West Australia is going to be closed off for long periods of time in a way. And in the short and medium term, business as usual. We've managed the business very well, I would like to suggest over the last 2 years, certainly over the last 6 months, as 29Metals and we'll continue to do that and deal with the situation as it exists right now. But longer term, that won't impact our thinking.

There are no further questions at this time. I'll now hand back to Mr. Albert for closing remarks.

Thanks, Melanie. I just want to check, do we have any questions from Mitch?

.[indiscernible] Mitch has missed questions.

Okay. All right. Great. Thanks very much. All right. Great. Thank you very much, everybody. Really great. Thanks for the good question. Thank you for joining the webcast today. And thanks to the team here that contributed. And Mark as well, we're sitting here at Melbourne, most of us. Mark is over there in West Australia. But to answer some of the other questions earlier on about West Australia, we have a very strong presence in WA not only the operating team, Mark Van Heerden is there, some of our other critical strategic resources in the financial and technical area are in WA. So we're able to be on the ground there. We have one of our directors in WA as well. So we are well positioned in WA regardless of the current border situation. 2021 has been a tremendously exciting year for us, bringing the company to market. The timing couldn't have been better, although truth is that there's been a process that started some 2 to 3 years previously, then interrupted by COVID and the commodity prices that transpired immediately post the COVID coming into the world. The rapid turnaround in the commodity prices in our key markets has certainly been a positive for 29Metals and our investors, but we always remain focused in terms of getting our businesses to operate as efficiently as possible and being efficient and competitive players regardless of the commodity price. The performance of the team since listing has been outstanding, remembering, of course, that we brought 29Metals to market on the back of a very poor first quarter. You all remember that at both operating assets and a promise to the investors that the problems experienced in quarter 1 were but a hiccup in the long-term future of the 2 assets. And certainly, the performance over the past 6 months against the backdrop of COVID, the challenges that we are running the business remotely, the melding of a new leadership and management team and increasing inflationary pressures, labor shortages across the industry, which are somewhat unprecedented as in my personal view, been outstanding. I couldn't have asked more of the teams at the sites in the different corporate offices, couldn't have asked more of the team really, really worked well together and efficiently and produced what I think are outstanding results for 2021. Of course, there's always challenges in this mining business and such as the nature of the Golden Grove VMS systems and the variability from multiple ore types and sales with a few question here in that this morning. We need to manage that, and we need to manage the environmental priorities at Cap Copper against which we are making very good progress. We've kicked many, many goals in what I think is a short period of time. It is hard to sort of recollect them all. Some of the key ones are commissioning of the triple sequential flotation circuit, the refinancing of our debt facilities, first ore from Xantho Extended, recommissioning of the winders, Scuddles and extension lifts at both -- at TSF at both operations. And as we just talked about, the advancement of Gossan Valley and Cervantes' drilling results and much, much more. Overall, very pleased with what we have delivered, but never, of course, satisfied, that we're always striving to be better. It provides a foundation from which we move into 2022, and we expect 2022 to be a strong year, and I'm looking forward to our teams continuing the strong operating performance that we delivered in the second half of 2021 as well as more progress to crystallize some of the growth opportunities that Mark talked about as well as Cervantes and Gossan Valley, which we talked about just now. The regional exploration work at Cap Copper is really exciting and also the work we're about to commence at Red Hill. 2022 looks like it's going to be a great year, I am really looking forward to delivering on the guidance and the -- and improving on -- daily on what we have achieved in 2021. Thank you once again, everybody. Happy to catch up with further follow-up questions as and if you have them, but I appreciate you phoning in this morning. Thanks a lot.