Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Resources Limited Conference call. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.

Thanks, Harmony, and thanks, everybody, for joining us this morning. Regis is very pleased to announce that it signed a conditional binding agreement with IGO to acquire its 30% interest in the Tropicana Gold Project. This will be with an effective date of the 31st of March, 2021, and for a cash consideration of $903 million. This is genuinely transformational -- or this is a genuinely transformational transaction for Regis, and it's one that we'll deliver on our strategic objectives to grow as a safe, responsible, reliable, long-life, low-cost gold producer that generates strong financial returns. Tropicana is a low-cost, high-margin, top 5 producing Australian open pit and underground gold mine. That's located in the Albany-Fraser belt here in WA. It's one of the largest gold mines in Australia, with a gold production last financial year FY '20 of 563,000 (sic) [ 463,000 ] ounces, and guidance for this financial year on a 100% basis of 380,000 to 430,000 ounces. Now the acquisition is subject to the waiver of a non-exercise for the rights of a preemption held by Anglo, Anglo Ashanti, Australia. The $903 million cash consideration payable for this will be funded through a combination of an equity raising of $650 million, which will be comprised of an institutional placement of $200 million and an accelerated nonreplaceable entitlement offer of about $450 million, all fully underwritten by Bank of America. A new $300 million secured syndicated term loan with a maturity date of 3 years has also been entered into with Bank of America. Now the details of the funding and the other aspects of the equity raising are in the release. Now this deal will deliver a well-established long life asset to the Regis portfolio. It's a Tier 1 asset. It's in a Tier 1 province. It has attributable reserves at 30% of 0.8 million ounces and resources of 2.3 million ounces. The business -- the site has a history of reserve replacement. It's got a growth profile outlook. It has an expected mine life of plus-10 years. And importantly, for us, based on the detailed due diligence that we've done over the last number of months, we see great potential for further life extension at the mine beyond the current plans. And we also see multiple near-mine growth opportunities with attractive regional targets for longer-term upside as well. And all of this with a world-class joint venture partner at AngloGold Ashanti, a proven gold miner with a successful track record of developing and operating Tropicana and other underground assets, and we're looking forward to working with AngloGold at Tropicana for many years into the future. The acquisition of Tropicana is expected to create substantial value and provide Regis with multiple additional opportunities to deliver growth for Regis shareholders over the short, medium and long term. At a more strategic corporate level, this acquisition will diversify Regis' existing production base with a high-quality, low-cost, high-margin gold asset. It provides us -- critically, it provides us with additional immediate cash flow and a very limited cost associated with integration through this -- the immediate bolt-on nature of this acquisition. This is a derisked acquisition. And by that, I mean, there's no turnaround fixed assume. There is no fix-up requirements. There's -- basically, it's a high confidence, plug it in and play straight away. And more the point of play, get cash flow straight away, but this is derisked. Further internal growth at the corporate level -- the further internal growth within Regis can be driven by cash flows. For example, with the current gold prices, we can fund the construction of the McPhillamys Gold Project out of the cash flows that we generate. Now all of this sets the company up with an excellent cornerstone of a long-life, reliable, low-cost production machine that forms an excellent cornerstone for both internal growth as I just mentioned, for example, at McPhillamys, and also nonorganic growth. So in summary, this is transformational. It will deliver significant improvements to the company's resources, reserves. It increases our annual production across a greater diversification of sources, which helps derisking. And as I mentioned before, it provides immediate additional cash flows. Now all of this adds immediate strength to our business platform. And while at the same time, it also positions us for undertaking further organic and inorganic growth activities. So on that note, I'd like to pass it back to you, Harmony, and open everything up for questions.

[Operator Instructions] Your first question comes from Nick Herbert from Crédit Suisse.

A few for me, please. First, to just start with valuation. Hoping you could outline some of the key assumptions you've made to get to that acquisition price, just thinking explicitly along the lines of mine life, resource conversion, what new underground developments you've featured in your plans. You've spoken to some of those near-term opportunities. But just trying to get a gauge on how much of that you've embedded in that number.

Yes. Look, I mean, that's an excellent question. And obviously, one question that we have to respect the JV nature of the operation and any forward-looking commentary that we provide certainly publicly. I guess, more generally, we've certainly looked at the plans that do exist. There was a very -- as I mentioned, a very extensive deep dive on the due diligence. We looked at both the underground opportunities and the plans -- the current plans at the Boston Shaker underground, where we saw the resources projecting down and what our -- and came to our conclusions -- our own conclusions as to how confident we looked at that and thought that where it's known. I mean, clearly, as we pointed out in our commentary, we think that there is a lot of -- across the board, underneath the pit, there is a lot of areas that are open at depth, including Boston Shaker. So they present opportunities that we were quite very clearly, very optimistic about. And we also picked up information in our discussions on site that identified that there's some opportunities in there where value -- additional value can be created and is being considered in addition to what Anglo already is planning for that site. So we then looked at -- we didn't make major assumptions on things like cost-outs or the like because we feel that from an acquisition and valuation point of view, we -- I think that's probably shaky grounds. We certainly looked as well at more broadly. So on that basis, we looked at both what the opportunities were to extend the existing open pits, where the down dip opportunity set underground and underneath existing pits that haven't yet really been looked at in as much detail as Boston Shaker and saw potential opportunities there. And then stepping back more broadly, that's clearly near-mines in the region opportunities as well for quite a bit, I guess, further down the track to be able to add more life. If you fundamentally look at the asset there, where there's value from its current production, which is clear. And from our perspective, quite well laid out as they're going through this recap phase, it's quite well publicized. Coming out of the back end of that, we'll see some improvements in growth in their production profile. And with that, there will be some -- as you would anticipate some commensurate reductions from the current quite high all-in sustaining associated with that growth phase that they're in. And we factored all of those into our pricing and the value that we put on the table.

Okay. That's helpful. And then just in terms of how the process is run. Can you just talk to the engagement that you've had with the Anglo team and the experience there? How much was just getting in and getting the data room information? How much was dealing with the executives there? And then also, any indication in terms of the preemptive rights, noting that you'll assume here you have preemptive rights for the remaining 70% stake. Any discussions with Anglo around their appetite to be long-term holders in the asset? Or is that something you view as an opportunity that's essentially coming up down the track?

Yes. Look, first off, on the DD front. I think through the whole process, there was a clear -- as part, there was an obligation to not get in contact directly with Anglo apart from the engagement on the site visit. So we have -- having said that, a lot of the information that we got through the DD process was -- as you'd expect, was ultimately sourced -- requested through IGO and sourced from Anglo. So -- and then there was -- certainly, there was nothing that was requested that didn't come forward on that front. The site visit was our opportunity to engage directly with Anglo, and we were very comfortable with that. Obviously, as part of our evaluation of the opportunity, you like to see -- we know what at the -- here in the state at the corporate level, I know some of the folks there and have known them for quite a while. And -- but it was an opportunity for us to check out the team on site, and we were quite impressed with what we saw and some of the people that we came across. And that also gave us a little bit of a more detailed insight into how the Anglo folks were thinking about the asset that clearly, you can't get unless you're talking to people. We did have a subsequent visit to the site. We did have a follow-up tech meeting with Anglo here in Perth as well as we dug into some of the detail around the geology. I think it was in other aspects in geotech. In terms of engaging directly at a corporate level with Anglo, there wasn't any. And you mentioned the preemptive right that comes with the reverse. Look, we'd like to -- that is certainly something that we value as part of being signatory to the JVA. I would -- this is a great asset. I would imagine that it's something that Anglo feels is valuable. How long that stays over time, corporate approaches and corporate strategies shift, and in the event that their current view shifted, then I'm sure we'd be more than willing to engage in that conversation. But it's certainly not part of our immediate thinking, and it hasn't been part of any conversation that we've had with Anglo corporately. As I said, we haven't had any engagement with them. In terms of the preempt, as I mentioned, the engagement around this has really been directly with the vendor, with IGO, who have been in contact and liaising with Anglo through this process. Based on that and the feedback, we certainly are confident and believe that Anglo will pass on the preempt, but that's still out there.

Okay. And then just looking at, I guess, corporately from a group funding perspective, does it still have any implications for McPhillamys in that if McPhillamys were to get the green light, say, in the next quarter, how would you think about funding that project? Would you have the capacity for that? Or would that be something then that you'd look to potentially defer for a period?

No. We've been -- I guess we're always expecting whether people would say, does this mean you're walking away or you're giving up on McPhillamys or you might not say that, but it's kind of what might be inferred. In fact, it's quite the opposite. The reason that we really like this deal and why it's such a good fit, as I mentioned before, this is a pure bolt-on. The integration requirements to add this component of Tropicana into our business, it is being managed. It's not the managing process. There isn't this cultural integration process and the systems and all of the rigmarole that goes with that for anybody that's been through that kind of process. And merger, you know how difficult it can be and how it can really drain and consume management time. That doesn't exist here. And as I said before, this is -- it's not like this is a distressed asset that we have to turn around. It's working well. That's one of the reasons why we value it. It's not as if it requires -- there is no -- it's not a project that we're wandering into saying, "Oh, this is going to require 3 to 6 months of fix up and turnaround, and then down the track to point out, it's actually going to take us 18 months to 2 years. We just plug it in, we -- it immediately starts to generate cash flow. And from a McPhillamys perspective, and as McPhillamys is still working through its approvals process, the great thing about this is, if the gold price stays where it is, it means that the funding question for how we fund McPhillamys is basically that question is just taken off the table completely because we could fund that out of our cash flow. It's almost like it's a win-win. The first win is that we get the Tropicana. We get increased reserves, increased resources, increased production, increased cash flow, accretive NAV. And it also allows the smooth pickup of -- or implementation of McPhillamys, which we think is just great.

Okay. And then finally, just help us on the modeling side. Might be one for Jon, but any implications we should be thinking about for -- from a tax perspective and also stamp duty costs.

Okay. Nick, so in relation to stamp duty costs, I'd suggest the best way to deal with that is just to take a standard percentage. I think it's just over 5%, and that will give you an indicative figure for stamp duty. And in relation to taxation, there's nothing really overly special to consider. We've obviously done our modeling and -- but I don't think there is anything in particular. There's nothing particularly in that you need to consider, I don't think.

I think one of the strengths of the tax is that we can assimilate it in as a combined entity. So if the gold price drops, for example, gives us some opportunity to spread any tax losses that might occur in that scenario across the rest of our business.

Our next question comes from Alex Barkley from Morgan Stanley.

Just on IGO's recent reserve and resource statement, perhaps they didn't show so much of that underground opportunity that they've been developing and trying to sell. But obviously, you're pretty confident. Just sort of how did you get comfortable with the likelihood of that future production? Was it drill holes or talking to the team on site? Or how did you get confident?

Look, we -- yes, all of the above. We got access to, as you would expect for an opportunity of this size and of this quantum, we really got into the nuts and bolts of the ore body modeling. We implemented a pretty significant due diligence process, where we did our own mine designs to assess how it looked relative to what was being put forward and proposed, and we got very comfortable with that. So yes, we looked at the available data. We used our judgment. We talked to the people on site. And we came to our conclusion that we think that there is significant value there to be realized over time.

Okay. And you also said -- in all your conclusions, you said maybe you've seen some opportunities in addition to what Anglo was thinking. Do you see any difficulty in maybe imparting that strategy upon Anglo if their vision for the site is a little bit different, and you've maybe come up with different areas of value for the mine? How do you think you can impart your valuation and vision going forward?

Yes. I mean, when -- for those sorts of things, we see that there's a very good near- to medium-term and long-term plan, where the opportunity lies is out towards the back end where we can look and see there is other opportunities that are yet to come forward on that conveyor belt of time horizon, I guess. I draw on my experience of working in larger corporate organizations, mining companies, and you know that there is always a good understanding of where the long-term future comes from. But because you've got such a great asset base in the business, you don't always -- you don't spend a lot of time and effort looking at what might exist in 10 or 15 years' time because you kind of know it -- you know it from your business, but you don't have to go on, I don't know, I suppose shadow from the trees maybe is the wrong way to describe it. But as we look, we can see that I'm sure the confidence that the back-end of the existing plans that it doesn't just drop off. There is plenty of opportunity to continue beyond what's already seen. It's that, that I'm talking about on that front rather than sort of critiquing it and saying, we know both, there's a better way of doing this. That's exactly not what I'm not saying. There is other experiences that we can bring in our -- the way we run satellite pits at Duketon and an opportunity for information sharing, for sure. But I'm not saying that on the suggestion that they aren't already thinking about it or weighing up all the different options. This is a large, smart organization. So -- and how we see that relationship going forward? Well, once we're able to engage -- and there's a number of players and people in at the senior level and locally here that I know. And we will, no doubt, sit down and work together and constructively discuss the long-term plan -- the plans for the business. And as long as we do it constructively, I'm sure our thoughts and ideas will be given the appropriate consideration as we work together.

Okay. And a final follow-up for me on that. I appreciate your hands are a little bit tied from the JV and the ongoing deal. But what sort of timeline do you see on some of that value of the underground mines and the pits and developing and being able to communicate that to the market?

I guess that is something that we'll end up sitting down and working through with Anglo when the time comes and then working out what our communication plan will be around that.

And just before we move on, I'll just make a further comment, if I can, about the stamp duty. Alex, if you look at Page 22 of the investor pres, you'll see there that we've stated that the stamp duty is $46 million, which is roughly, as I said before, the prior times a rate gives you that $46 million.

Your next question comes from Matthew Frydman from Goldman Sachs.

A couple of questions from me, if I can. Firstly, can you remind us what gold price you cut your existing reserves at? And how that compares to your assumptions that underpin the transaction price on this deal? And then I guess the extension to that question then is around expected return on investment. I guess, conceptually, do you have a different approach to returns or hurdle rates from putting capital into an acquisition like Tropicana, a producing asset compared to, say, greenfields project like McPhillamys or even putting capital to work at Duketon? I guess, do you have a lower hurdle rate or a different implied gold price assumption on this transaction? And has that factored into the price that you're willing to pay?

Yes. Thanks, Matt. Good question. So on our resource and reserves, we do our resources at AUD 2,000 an ounce. And the majority of our reserves are tested, and we used a $1,600 cutoff. The reason why I say the majority is that we'll usually have a few small pits where we look at and say, if the gold price is $2,300 an ounce, say, and we've got a small pit to go and finish and take a goodbye cut for whatever it is that we're doing. And it might be worth $1,800 or $1,900 an ounce in cost, but the gold price is $2,300, and the time horizon is 12 months or less. We'll truck that in and go for it as well. So we do exercise a little bit of discretion on those -- on some -- maybe some near-term ounces, but we're always pretty careful with that. The last thing we want to do is -- I think we're doing the right thing and then the gold price in turn sort of exposes us to a P&L impact. In terms of the returns and the hurdles, look, I think you definitely would look at -- and I'm not going to go into the specific numbers, but if we looked at what we would be looking for in a return per se, McPhillamys versus the returns on something like Tropicana, it is quite different in our -- because there is a different -- quite a different risk profile. Even other acquisitions that we have looked at in the last 6 months, you look at it, you go all right. What's the risk? Is it front-end loaded, mid-loaded, back-end loaded? And if you look at Tropicana, the risk is definitely not front-end loaded. There is a clear plan. It's producing. It's got a history of performance. It's -- to a degree, you look at it and go, all right, well, you know you know you're going to get what you were paying for. Where the risk starts to and the questions that we look at and we start to factor the value, the spreadsheet value down is, as you go back, what's it look like in 8, 10, 12 years' time in some of the modeling that we might be looking at. Well, maybe a bit further out that it is you might risk adjust that. But clearly, that's -- in that scenario, you've got a lower risk, a lower return hurdle because you've got much greater certainty and clarity in those early critical years. Flip to the other end of the spectrum or on the other end is something like McPhillamys or any new project for that matter that requires construction commissioning ramp up. You've got construction timing risk, construction cost risk. You've got orebody reconciliation in the early days. You've got commissioning. So for that reason, you'd be looking at a different return on investment to make sure that you've got, I guess, the coverage to reflect the higher risk that you're taking. And similarly, if we're looking at M&A opportunities that it might be an operating asset, but it's struggling operationally. It looks good. You think that you can get in there and convince yourself that you're -- we're good at mining, and we know what we're doing and perhaps, the other party doesn't. I mean, that's not what you say, but that's the implied assumption. That's got a risk about it as well because you've got to be careful, you don't get too cocky about your own abilities or just -- or more to the point, how much better than others that you are. So -- and again, I'm not talking about Tropicana in this case. I'm looking -- talking about perhaps some other M&A opportunity that you might be looking at. So as we look at different scenarios, there was very clearly with Tropicana, the reason that we really like it, and we were comfortable in paying what we felt was a fair price, it's -- and to a large extent, certainly in the near term, it's derisked. It's clear what's going on there. It adds to our reserves. It adds to our resources. It's immediate cash flow generation. And from a corporate perspective, being able to bolt that on to Regis -- yes, we're now looking and saying, all right. This could be -- this is 10-plus years. And we're getting 30% of the production. On average, we might be looking at 150,000, 160,000 ounces per annum of that potential. Okay. That's a pretty good runway for us. Draw a little picture and down the track over a couple of years, we've got -- McPhillamys has worked its way through the approvals. We've managed to get the okay for that. We've built it. There is a 2 million-ounce reserve producing somewhere between 160,000 to 200,000 ounces per annum. Bang, put those 2 together, 2 significant producers of a good cost, good margin that run for 10 years. There is not too many businesses, not too many gold businesses in our space that sits with that type of portfolio. And that's not to discount Duketon. I mean, Duketon is a great asset, up there churning away, spinning out its 350,000 to 400,000 ounces. We just think that by bringing Tropicana into our portfolio, even in the form that it's in, it's just -- it just really transforms, we think, the way that we are able to look at our business. As an MD, I can start to think, what do we look like a few more years out. We're not trying to scratch around and figure out where the ounces are going to come from in 4 or 5 years' time. We've got good margin production at Duketon, and we're not doing this because we think Duketon's got an end of the life. I mean we have been talking about all the ground that we've picked up there in the exploration. So we really like it. This is by no way discounting the value of that. We think that's Rosemont Underground is really starting to come in. We've just kicked off Garden Well, so much more coming out of that. We just see that this really is super complementary to our business. And we will look -- we look at our business differently, and we firmly believe that once it's in there, the market will look at our business in that way as well. It structures us differently. It means we've got a different life, different business and a great platform for us to continue to grow both internally and external opportunities.

Sure. Thanks, Jim. You've segued quite nicely into my next question, which was really just rounding out that discussion on how the portfolio will look over time. You've talked there about the potential for further inorganic growth. Do you think the portfolio would benefit further from additional derisked bolt-on style acquisitions, assuming this transaction is successful? Or does the cash flow from this acquisition, I guess, underpin an ability to take on additional early-stage projects or more operational risk or turnaround risk where Regis can add value through that lens. I guess, in what direction does this transaction allow you to develop the portfolio from here?

Yes. Look, that's a great question. And what we see is, it actually opens up all of the above, right? It doesn't exclude any of those. We do, for example, look and think, all right, if we've got the construction of McPhillamys going on, do we want another construction project on at exactly the same time. Yes. Okay. Well, it's possible, but it's got an element of challenge about it. But in this scenario that we've got now, any one of those scenarios that you described would certainly be something that we would put on our -- we have on our agenda to consider.

Sure. Fantastic. Maybe one. Just finally, a bit of a more mechanical question, I guess. But assuming -- let's assume that Anglo does exercise their right and chooses to buy the stake, and you've completed the equity raising component. What's your sort of priority list for how you return those funds? Or how you utilize those funds?

Yes. Look, while that's something we obviously anticipate as low, we have given that clearly some thought. But at this point, we look at -- we've got a hedge book that -- while we're managing, it's viewed by quarters as being a bit problematic. We would certainly review how we might use some -- how we might deal with some of that hedge book or all of it. We'd certainly look at the options for using the funds for the construction of McPhillamys, given that we've got them. And then there's -- we'd look at it as well for other potential M&A opportunities, should they be of the right structure that's appropriate for that form of acquisition. And then finally, and this is not in any order of priority. And the final option is also to look at all or a component of that back to the capital return to our shareholders.

Your next question comes from Andrew Bowler from Macquarie.

Actually, all my questions are answered on what would happen if Anglo did exercise its right, and you had excess funds from capital raising. I guess the only question remaining from me is, what's written in the JV agreement about how long Anglo has to make the decision? I mean you talk about breaking down 2 possible outcomes, whether it's pre-placement or pre-finalization of the raising as a whole. Have they sort of got 2 weeks to look at this or are you hoping that they'll come up with something in return?

Look, under the terms of the agreement, they've got 60 days. But we -- on the basis of the conversations, it's not like this whole thing is a surprise. We would certainly hope that and anticipate that Anglo are able to make their assessment and respond pretty quickly. It's clear. The money is on the table, and we'd certainly be anticipating and hoping, I guess, that the response comes back, but the reality is the agreement allows for up to 60 days.

And I guess my follow-up as well. You talked about potentially paying down hedge positions and utilizing some of that equity raise to fund McPhillamys. In terms of the hedge position paydown, are you sort of anticipating that, that could be something that if the deal does go through, that you would look at accelerating delivery into that hedge book? Or would you stay the course on current delivery rates?

No. Look, at the moment, and we just have assumed that we're just going to continue with our existing delivery rate of 80,000 a year. Once we're in and everybody's got -- it's bedded down, we'd certainly be looking to have discussions around that, but that's our approach at the moment. Quite frankly, we just want to move the things on in a way that is manageable.

Your next question comes from Sam Berridge from Perennial.

I think Nick mentioned the possible timing of next quarter for sort of final permitting and whatnot at McPhillamys? Just -- those are not -- those of us that aren't up-to-date on that project and the sort of the deadlines there. Just would you mind refreshing what the outlook there is in terms of hurdles to FID?

Yes. Sure. I mean, we -- internally, we're working all of our engineering and the finalization of our definitive feasibility study, the DFS. We're driving that to the basis that everything is ready to pull the trigger on early July. The reality of the permitting process is that there is a lot of work, and we're in regular consultation to the Department of Planning, Infrastructure and Environment in New South Wales and the DPIE planning. There is really probably one key outstanding area around surface water licenses, and we're just working our way through with DPIE, and DPIE Water is working its way through the finalization of how that's actually can be structured in a manner that works. We see a pathway through, but these things just take time. They've obviously got to be assessed. We're pleased with the engagement and the very, very constructive discussions that we're having. It's really just a case of sitting now and letting the -- nothing is ever certain. That's for sure. But we -- our confidence is strong. But in the end, we'll get it when we get it. And we can never be 100% or 1000% certain until you've got it in your hand. But our -- we're still pushing along with a high degree of confidence on this project. There is nothing really that's changed to suggest anything otherwise, it's just the timing continues to be a timing factor for us.

Your next question comes from Peter O'Connor from Shaw and Partners.

Congratulations. Jim, Page 29, just jumping around a bit. Your quarter 3 update and guidance, your headlight run rate at the end of quarter 3. Just thought it's going into quarter 4. I know you've got some key levels you've outlined, but I'm not sure, but can you get there? Will you get there? Risk?

Yes. Look, it's a good question, Peter. And it's -- I have this page with me. You said Page 23.

29. 2-9.

29. Sorry, yes, yes. Yes, that explains why I can't find it. Yes, look, it's certainly with our production, and we're -- given where we are in the month, we haven't been able -- we haven't finalized our costings, but as the accounts are still settled. But you can see that Q3 was 86. We certainly saw an improvement, and the key factors for us coming in on guidance is the performance of the main zone at Rosemont. There is some -- we've driven our way there through the year. We got there a couple -- earlier this year. We've done extensive grade control drilling to give us the confidence that we know that it's going to -- because it's such a key point. It's this -- unfortunately, the ounces that we get from the underground, not at the beginning of the year, but they're at the end of the year. So we're sort of in that stage where if a fan breaks and we're down for 2 weeks or something like that, it really has an impact, which is why we've just sort of highlighted that the -- when you're pulling dirt out at 8 to 10 grams a tonne as we are in some of the stopes that we're just kicking off. You don't have to be delayed in June by much before you see it sort of following through. So we did want to highlight those risks. Having said that, Q3 was like we had to slip in Garden Well main pit, which required a lot of jiggery pokery to move around our production sources. We sort of worked through that. So there is a bit more confidence in that. The Rosemont is coming -- just coming back to the Rosemont Underground, I just -- I don't have the figures right in front of me, but from memory, I think the underground was contributing something to the overall production at Rosemont of the order of 20% or 30%. But in March, we saw that step-up as reflective of the grade to more like 60% or 70%. So that's sort of giving us comfort that the ounces are really starting to come out from the high grade, which is clearly what we need to be able to come into the guidance. If we're looking at the range of 355,000 to 380,000 ounces certainly, there is a -- everything needs to come home with a wet sheet to sort of come above that midpoint. But the way that we see everything performing now, we're certainly comfortable that we'd be sitting within that range. But there's a few things that have got to go right for us. So we just wanted to make sure that people understood those things. We believe that we are set up for that. We're not highlighting these because we already know that they are a problem, we don't. We think we're on top of them, but they're just the key deliverables we thought were worth highlighting. And of course, the production profile is a key element of how the unit cost goes. So the 2 are -- even though -- while we haven't got it here, as you guys know, you don't have to be Einstein to figure out the relationship between unit costs and production.

And hedging, I know you've answered this before, but this asset comes unencumbered by -- and your hedging from IGO, that was in their corporate vehicle. Is that right?

That's correct. No hedging, no debt.

And just philosophically, being able to spread your hedge book over more ounces is a good thing?

That's right. We think it -- Jon, you want to talk to that?

Yes. So at the moment, obviously, the hedging that we've got is only over the Duketon reserves. It completely ignores the 2 million ounces of reserves we've got at McPhillamys and obviously, completely ignores anything over Tropicana. So what the Tropicana acquisition does and what the McPhillamys project does is provide a very significant number of additional reserves to spread those hedges over if that's what we chose to do.

So does that mean dilution of 80,000 ounces a year, is that what you mean by that?

So at the moment, as Jim mentioned earlier, the plan is to continue to sell into 80,000 ounces a year because we're pretty keen to lower those number of hedges and just get rid of them. They're a bit of a legacy issue that we are dealing with and getting rid of. We've got -- at this point, that's the strategy that we're going to continue to execute.

Got it. And Jim, when you were preparing a pitch to put in your final bid in late March and you're trying to think about what will the independent group board and management team look at when you're reviewing these, was it just about price? So if I had a bid of $902 million, I would have got it? Or was it about corporate governance, about fit? Was it about operatorship, stewardship, ESG? Was the package you put to them broader than just a dollar number?

Peter, I think it was all based on good looks of the management team, which is why...

You were on a conference call on Zoom.

Yes. That's why I'm surprised we got to where we are, speaking for myself, not the other handsome folks around the table. Look, yes, we knew that -- well, at the end of the day, there is a driver for -- IGO have got an agenda in what they're pursuing. But also, they've clearly got to be comfortable with the counterparty that they're potentially dealing with. It's got the capacity to deliver what they're promising in terms of value. So I'm sure that there was a part of that in the discussions, and how they looked at it and the certainty of delivery and the risks around that. I can't speak anymore for what they would have been thinking. I mean, I know if I was on their Board, that's what I'd be looking at, value and the certainty of that value being delivered.

Okay. And in terms of value, safe to say, based on market numbers, your P/NAV is about 0.7x, give or take, that's Regis Corporate. And it looks like you paid fairish value for this deal. So are you using paper, partly the business, which would look to be dilutive? Just thoughts on your overall funding strategy. Could you have used more debt? Or is your limit $300 million? And how do you come up with that $600 million, $300 million split?

Yes. Look, originally, back at the end of last year, we were looking at it from a pure equity point of view. But as share prices came off, we obviously started to see that on some elements, it was dilutive. I mean from an NAV point of view, it's not dilutive. It adds cash flow. It adds reserves. It adds resources. It gives us -- it really is, as I mentioned before, we -- there is -- we're not trying to suggest that this is just a strategic investment that doesn't really do anything in terms of cash flows or the like, which over my life, I've seen that. This is -- we looked at this. And yes, we believe -- yes, we felt it's a fair price. But we see that it delivers -- it's accretive NAV. It adds to our -- as I was talking about before, it adds to our reserve base, adds to our resource base, adds to our cash flows. Importantly, it gives a time horizon for reserves and resource -- sorry, a time horizon for reserves and for production that we just don't currently have running. We have a decent time horizon with McPhillamys, but we haven't got that running yet. So -- and there is a real value to that in terms of how that sets us up, how people -- how we're able to be #1 view, but more importantly, how we can take more decisions on corporate opportunities by knowing that we've got a much longer certain time horizon for production and cash flows. The decision on the debt to equity, as I said, it was -- as everybody did over the last few months with the softening of gold equity prices, we felt that rather -- that we needed to put in something that limited that dilutionary effect, and so we went for the debt. And then really, we had to go through a balance between -- well, we're happy to take on debt, but we really don't want to fund it too much with debt because then you've got a millstone of a massive amount of debt around you. And this is -- this then becomes a question of managing business risk. You go into debt for the whole thing, and you get a -- maybe not a black swan event, but a sense of karma lands across the world and the gold price softens, which we don't believe will happen. But then the gold price drops, and suddenly, you're starting to struggle with this massive debt. So we're trying to -- we worked on it, and we came up with what we thought was the right balance there between working to protect the existing shareholders but -- and while at the same time not putting our balance sheet overly at risk.

So now you're you required to add hedging around this debt as part of a debt facility?

No.

Okay. Fine. [ Next question ] is, just trying to get a sense for the answers you've given before. It seems to be a case of resource arbitrage in effect what you're doing. You see more than somebody else. So in that respect and given this is a new province compared to all of other places in WA, how do I think about the size of the camp at Tropicana? We talked about camp sizes elsewhere as being substantially larger than meets the eye at least currently given that mining so far in the resource outline, what is about a 7 million-ounce camp. This type of resource, do you have a sense for what size similar camps could be or thoughts on that? And is that what's in part behind this resource arbitrage that you've got?

I mean I don't know how many times I've asked the exploration geologists to tell me what the different reserve production is on a square kilometer basis for all the different greenstone belts around the place so that you can sort of draw the extended extrapolated interpolated postulated relationships between acreage and how many gold ounces you might produce. And every time I ask for it, I get a different answer. And -- but it's always got good color pencils with it. So the short answer is, that's a pretty -- that's a good esoteric question to ask, and I can't give you anything more than an esoteric answer. We -- it's -- as you say, it's a new province. It's pretty spectacular what the guys have found so far. Is it the only thing there? I don't know, but I would be a betting man to say it probably isn't.

Okay. And my last one, on your last call, they talked about the catalysts at Tropicana for the year ahead. And the key one was the Havana DFS, which was due sometime during calendar '21, although they said there'd be news flow along the way. Is that kind of the key milestone we should be looking at for coming out of Tropicana over -- under your stewardship over the next 9 months?

Look, I'll -- I'm going to pause it there. I think we're getting into too much detail on the future, and we need to get a little bit more established with our relationship and discussions before I go making any public comments to that level of detail.

[Operator Instructions] We now have a follow-up question from Matthew Frydman from Goldman Sachs.

Sure. Just a couple of quick follow-ups, if I can. You've obviously outlined conceptually at least where you expect to see upside over time at Tropicana. Maybe just drilling into specifics a little bit more. Can you talk to -- in your -- in arriving at the transaction price, did you build any resource to reserve conversion into your base case based on, I guess, the known deposit? And then secondly, you've just kind of expanded a little bit on your view on the district potential. We know that developing satellite pits, feeding those into established infrastructure, that's really bread and butter for Regis. So do you think that -- I guess, do you see that as an opportunity in your view? Regionally, do you think that the regional exploration budget as it stands is sufficient? And similarly, did you ascribe any value to that in arriving at the transaction price?

Look, in the same way that I just said to Peter, there are some elements here that I'm really not, at this point, prepared to get into the detail on. Yes, we did make some assumptions on the successful ongoing conversions and those sort of things. Of course, we did, and I'd be surprised if anybody didn't. That's the whole opportunity here. The opportunities that you talked about are certainly things that we would like to think that we -- some experience that we bring. And as I said before, I don't say that from a perspective that I'm sure they haven't already been thinking about, they being Anglo haven't already been thinking about that. It's just that we can give some experience on what works and what doesn't work. And that's one of the things that we bring to the table, and that's probably really broadly about as much as I'm happy to explain at this point in time.

We now have a follow-up question from Peter O'Connor from Shaw and Partners.

Jon, Page 22, on the debt. You talk about the term sheet and the key terms around the facility. For the term sheet for debt, it's a $300 million facility over 3 years. Is that a bullet payment? Or does it amortize equally over 3 years? Any thoughts on that? And any indication of what sort of rate or coupon that that's measured off?

Yes. Look, Peter, it is a bullet over 3 years. But as to the commercial terms in the debt, I don't think it's appropriate to go into that.

Yes. And I think, Peter, if you've got any more details that you'd really like to follow-up, we're sort of more than happy to take the conversation offline and help fill in what we're comfortable filling in. Definitely. I'm just conscious of everybody's time. And I appreciate your e-mail from earlier, and so we'd be more than happy to help you get a better understanding of it, if you're coming in [indiscernible]. Okay, Harmony, is there any more? Or are we at a point where we can wrap it up?

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

Okay. Thanks very much, everybody. Look, I'd just reiterate that we really do see this as transformational. I won't go through the reasons again. It's certainly an exciting time for us, and we just see this, with the profile at Duketon, which we really like and love as part of our -- as our business, the excitement and the potential in McPhillamys as we work our way through permitting there and having this immediate bolt-on opportunity is just a -- would just be a great addition for us, and we're looking forward to that. So thanks, everyone, for joining us. And as always, if anybody has any follow-up questions, please feel free to get in touch. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.