Regis Resources Limited (RRL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Regis Resources Half Year Results 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, Faizan, and thanks, everybody, for joining us this morning. I'd also like to mention that Jon Latto, our CFO; and Ben Goldbloom, our Head of IR, are both on the call as well. All right. So talking through the FY '22 first half year results. Clearly, this has been a challenging first half for us operationally, as I think we've covered a number of times prior to this. But now we're seeing here the impacts of this flowing through into our financial results for the first half of the year. Look, having said that, some of the results are still quite strong. Our EBITDA, $196 million. I'll just cover off on the highlights and then pass over on to Jon to run through some of the detail behind these numbers. Our EBITDA margins are still quite strong at 40%. Cash flow from operating activities was $136 million. And the cash and bullion at the end of December was $180 million, all of this delivering to us an underlying NPAT of $44 million. Look, while we continue to invest capital in our operations, and the recent underperformance of Duketon has put clearly significant pressure on our overall cash flow, and this is reflected in our cash balance at the end of the reporting period. As we look forward, we saw some risks: A continuing cash requirement for these investments both at Duketon and at Tropicana. We see clear pressures on the cost environment, in labor and on -- in some areas on supplies. And certainly, in the near term, we see a building risk of COVID here in WA as the borders open and -- which is an important part of us longer-term recovering. But it's presenting a near-term risk just with the sheer growing numbers of community cases and the potential flow on that, that might have into our operations. With these circumstances under consideration and taken into consideration, the Board has taken a prudent decision on risk and decided to hold off and not declare an interim dividend for the first half of this year. Looking at -- very quickly at Slide 4. Look, this is primarily a financial discussion, but I'll cover off our safety is still pleasingly below the industry average, below being where we want to be. Our COVID management to date, we've had no cases -- confirmed cases within our business or in our operating sites. We've had -- we've got strong managerial positions with diversity. On the environmental front, we continue to build on our -- catching up on our rehabilitation, and we're seeing an increase on that this year, 0 noncompliances. So look, on the ESG front, we feel that our results and our performance here have been quite pleasing. So what I'd like to do now is to get into the meat of this and hand over to Jon Latto, who will talk us through a bit more of the detail on the financial results. Thanks, Jon.

Thanks, Jim. If we turn to Slide 5, we see a summary of our financial results for H1, and I note the following. Revenue has increased by 22% compared to the comparable prior year period, which reflects the new scale of the business with the first full period of reporting with the inclusion of the company's investment in Tropicana. This increase in revenue occurred despite a 6.4% lower spot gold price than the comparable prior year period. And an additional 10,000 ounces were sold into the hedge book with 50,000 ounces sold into the hedge book in the current half compared to 40,000 ounces sold into the hedge book in the comparable prior year period. I note that the impact of selling into the hedges in H1 is approximately $42 million straight to the bottom line. As Jim mentioned, we had a strong EBITDA result of $196 million for H1 with a strong EBITDA margin of 40%. We have seen an increase in our cost of goods sold to $427 million from $267 million in the comparable prior year period, a difference of $160 million, which I'll talk about more in a moment. We returned an underlying NPAT of $44 million and a statutory NPAT of $26.5 million for H1, with our statutory NPAT being impacted by a write-down of our stockpiles, and I'll also talk more about that in a moment. As Jim mentioned, we are expecting a stronger H2 driven by stronger gold output. I mentioned before that our cost of goods sold has increased approximately $160 million compared to the comparable prior year period. Of this increase, $130 million relates to the addition of Tropicana to our portfolio and $30 million relates to Duketon. At Tropicana, we see that a sizable portion of the $130 million in cost of goods sold is noncash in nature. I'll talk to 3 of those noncash items now. When we completed the purchase price allocation exercise for Tropicana, approximately $500 million was allocated to mine properties. And this has to be amortized through the profit and loss statement, which generated a noncash amortization charge of approximately $32 million for H1. We also recognized a depreciation charge of approximately $17 million associated with our 30% interest in the property, plant and equipment at Tropicana and the right-of-use assets. Finally, we recognized a noncash write-down of our stockpiles at Tropicana of approximately $14 million. And that's really arisen because we have to amortize the $500 million component of the purchase price allocated to mine properties through the stockpile calculation. If I look now at Duketon, the $30 million increase in cost of goods sold at Duketon is partly related to increased labor and maintenance costs as well as an increase in reagent unit costs and consumption, particularly at Tooheys Well with its more complex metallurgical material. Moving across to Page 6 of the presentation. We see 4 graphs that show our revenue, cash flow from operations, EBITDA and EBITDA margin, and they all remain strong despite a challenging half period. Page 7 of the presentation shows the reconciliation of underlying EBITDA for H1 of $221 million to our statutory NPAT result of $26 million. Underlying EBITDA is the EBITDA result of $196 million for H1 with a noncash inventory adjustment of $25.3 million added back in. The next bar in the waterfall chart shows our depreciation and amortization charges, and you can see that they're sizable at $149 million for H1. Of that $149 million, you can see in the notes to the P&L statement that about $45 million relates to depreciation and $103 million relates to amortization. If we look first at depreciation, you can see that it's increased to $45 million from $31 million in the comparable prior year period. This increase in depreciation predominantly relates to depreciation on Regis' share of the property, plant and equipment at Tropicana. Turning to amortization. You can see that this increased to $103 million in H1 from $44 million in the comparable prior year period. As mentioned previously, a significant portion, which is approximately $32 million, of the increased amortization charge relates to the amortization of the $500 million that was allocated to mine properties when the purchase price allocation exercise was completed associated with the company's acquisition of 30% of Tropicana as well as amortization of deferred waste and some capitalized underground spend. There was also an increase in amortization charge as the Rosemont Underground at Duketon of approximately $9 million as production increased by almost 80% to 28,000 ounces in H1 compared to about 16,000 ounces in the comparable prior year period. We also saw an increase in our amortization charge at Duketon of approximately $12 million as we took the opportunity from the 1st of July to amend our amortization policy to amortizing on tonnes mined rather than tonnes milled, which is a policy that is better aligned to the depletion or addition to our ore bodies. The next major bar on the chart shows our income tax expense of $23 million. Now that's been adjusted for the estimated impact -- tax impact of the inventory write-down for H1, and I'll actually talk about tax more in a moment when we look at the movement in cash and gold on hand across the period. The preceding factors demonstrate how we move from an underlying EBITDA of $221 million in H1 to an underlying NPAT of $44 million. The final bar in the waterfall chart shows the inventory write-down on an estimated posttax basis that we have recognized in the current half. Of the $25.3 million inventory adjustment that we have recognized in the P&L statement, approximately $14 million relates to Tropicana, and that's occurring, as I mentioned, because we need to include the amortization of the $500 million component of the acquisition cost that was allocated to mine properties through our stockpile calculation. And the remaining $11 million relates to Duketon, and the majority of that relates to Duketon North, where we've undertaken the Duketon North extension. These Duketon North extension ounces are more expensive. And although we know they will generate positive cash flow over the life, they do come with a higher strip ratio, which impacts the current stockpile cost calculation and requires us to take a noncash stockpile write-down as at 31 December. We will continue to monitor this situation as we move forward. Over on Page 8, we have a waterfall chart that shows the movement in our cash and gold on hand balance from 30 June '21 to 31 December '21. Gold on hand is valued at spot at 30 June '21 and also at spot at 31 December '21. So the waterfall chart won't reconcile directly back to the cash flow in the H1 financial report as gold on hand is valued at lower cost or net realizable value for statutory purposes. The waterfall chart shows that we opened at 1 July with cash and gold on hand balance of approximately $269 million. The second bar in the waterfall chart then shows a strong cash flow from operations of $175 million for H1. This bar is basically revenue from operations less payments to suppliers and employees other than corporate costs, interest paid and income tax payments, which we've broken out in the waterfall to provide some additional detail. The next component of the cash flow waterfall is the capitalized mining costs, which started $117 million in H1 and shows that we've made a significant investment in our operations. This expenditure of $117 million includes $22 million in pre-strip activities, $32 million in deferred waste costs, $10 million in capitalized underground costs at the Rosemont Underground, $5 million in capitalized underground spend at the Boston Shaker Underground at Tropicana, $13 million in capital costs at the Garden Well underground as we continue to progress with bringing Duketon's second underground mine online and $29 million towards the significant cutback that's taken place at the Havana open cut at Tropicana. The next bar in the cash flow waterfall shows our investment in exploration at Duketon and at Tropicana as well as our expenditure at the McPhillamys Gold Project in New South Wales, and this has come in at $33 million for H1. Moving on to the next bar in the waterfall chart. We see other CapEx spend for the half, which was $35 million. And this includes $8.1 million on fixed asset additions at Tropicana, which includes items like a TSF raise, a bridge repair and a thickness swap upgrade; $6.4 million on underground infrastructure associated with the Garden Well underground; $2 million on land acquisitions associated with the McPhillamys Gold Project in New South Wales; $2.5 million on DSO processing upgrades as well as lifters and liners across the Duketon operations; and $15.6 million in right-of-use asset payments across Duketon and Tropicana. Now that's arisen under the recent changes that have taken place for leased assets where we are obliged to recognize some payments that we make to our suppliers as leases, where we can direct the use of equipment that's provided by the relevant supplier. The next bar shows corporate costs before general overhead allocations, and that's sitting at approximately $14 million for the half. We then show interest and residual transaction costs associated with the company's acquisition of 30% of Tropicana, which sat at $12 million. And I note that the bulk of that is residual transaction costs that were paid in July '21. We then paid cash dividends of $22 million during H1. And finally, we paid income tax of $31 million during the half, which brings us to our closing cash and gold on hand balance of $180 million at 31 December '21. At this point, I think it's relevant to say a few words about income tax. As I mentioned, we have paid $31 million in H1 for income tax payments. In February, so this month, we received a tax refund of $23 million for income tax paid in FY '22 to date, and we're expecting to receive a further $12 million refund in H2 associated with the FY '21 tax year. These refunds are a combination of the substantial tax benefits that have accrued to the company associated with our investment in Tropicana and our recent lower profitability, as shown in our profit and loss statement. Page 9 of the presentation talks to some components of the company's balance sheet. I've just spoken about the tax refunds we've received this month and expect also to receive in April, which total approximately $35 million. So I won't go into any further detail on that now. But touching briefly on the debt that we have. As you know, Regis took on $300 million in debt associated with its investment in Tropicana, and that had a tenor of 3 years and so will mature in Q4 FY '24. As we look to the capital requirements associated with McPhillamys, we will look at potential options for refinancing this debt. We also continue to make substantial inroads into our hedge book with the balance reducing by a further 50,000 ounces during H1 compared to 40,000 ounces in the comparable prior year period. As at 31 December, the company's hedge book sat at 270,000 ounces, down from its peak of circa 450,000 ounces a few years ago. I'll now hand back to Jim.

Thanks, Jon. Look, I'll just wrap up on guidance on Slide 10. The guidance is unchanged as it was when we released back on -- earlier when we put out our quarterly results. You see the group production outlook is 420,000 to 475,000 ounces. Our AISC has a range of $1,425 to $1,500. Growth capital and exploration and McPhillamys remains unchanged. Yes, we are expecting a stronger second half, and that is really coming from -- primarily from increased feed grades across Duketon. We'll see higher grade feeds into Tooheys Well as the activity to modify that circuit and accommodate that more complex material, albeit higher grade, starts to get completed. And we're also seeing scheduled some higher-grade stopes coming in from Rosemont Underground, which we'll see over the coming months. And we will also see some improved grade delivery -- or we are seeing some improved grade delivery at Moolart Well from the pits, which means we've been able to reduce and -- as planned, our low-grade feed from low-grade stockpiles. Halfway through the third quarter, we see our production run rate is basically on plan, pleasingly. As a result of this guidance and the stronger performance in the second half, we're also expecting to see the AISC drop quite significantly from the first half of an average of $1,527. We'll reduce down, obviously, to deliver into that guidance range that we've provided above for the full year. Look, there's no doubt, I'll wrap it up and open up to questions shortly, this has been a challenging first half for us operationally. And as I said before, we've seen the impacts of this flow into our business. The important thing is, we are anticipating a strong rebound in the second half of FY '22 operationally, and we'll see the flow on there financially. We'll see a significant lift in production and a subsequent overall lift in the business performance. So I'll leave it there. I won't dwell any longer on the material, and I will now pass it back to Faizan, and we'll open it up for questions.

[Operator Instructions] The first question comes from Kate McCutcheon from Citi.

So on the dividend, you've typically been at the top of the payout ratios. The gold miners noted this half was a bit of a surprise, and I appreciate that you've taken a risk-averse stance here. But how should I think about modeling your dividend going forward? Do you think that you need to give the market clarity about what that will look like?

Well, we don't have a dividend policy. We keep -- it's important for us for exactly these sort of times to make -- to allow the Board or to allow us to be clear on the fact that we need flexibility, depending on the circumstances set in place a policy or any detail on this. And it doesn't take much for things to change and you're backtracking. Basically, our -- it has been a difficult first half for us, very clear. Our -- and you can -- without wallowing around in it, you can see what's happened over the last 6 months or so. We -- the Board, as I said, doesn't -- we don't have a policy on dividend payout or dividend ratios. We will consider at the end of this half how the business has performed. We will be looking at what the outlook is for gold price. I mean, it's certainly very strong at the moment, which is pleasing to see for gold. I'm not sure whether some of the reasons behind that are -- there's some concern there, which is always a -- instability gives us a strong gold price. But we will look to see how the ongoing -- longer-term capital demands are for the business. Clearly, there's McPhillamys sitting out there. So we will take -- we'll look at this time, in 6 months' time or 5 to 6 months' time how the business performed, has the recovery in the second half performed as we expected. And we'll be looking carefully to see whether it's appropriate to pay a full year dividend, taking into account all those risks. But we are not in a position and not -- I mean, the other risks that are sitting around clearly as well are in the medium -- short to medium term and the impacts of COVID as it starts to spread through the community over here in the West, where we haven't suffered the impacts that the East Coast has been enjoying for the last many months here. So we're not in a position to give guidance. We haven't and we won't. We just give as best as we can to understand the circumstances of what prevails around that decision when we make it.

Yes. Okay. Because I guess Regis has typically been dividend stuck in some way. And so this is a change, too, what you...

It has, Kate. Although that period was when it was low capital investment, and it was in, I guess, what you'd see as a harvesting mode. Certainly, there's no doubt you'd see over the -- not just in the last 6 months, but over the last couple of years really, we've been reinvesting back into the company. During that time, we have been able to continue to pay dividends. So we haven't walked away from it. However, right in the last 6 months with our cash balance moving in the direction that it did, along with the known capital in front of us, we just saw us being prudent to hold back at the moment. That doesn't mean that it may not start up. But as I said, that depends on what could be quite significant recapitalization phase or capital phase for the business as well for McPhillamys. Of course, if it's something that, that's significant, it might involve looking at using our strong balance sheet a little bit more as well. So we're very cognizant of the fact that Regis is known as a dividend payer. And we would, I guess, clearly have been able to run the business like that forever. But businesses go through cycles, and we're in a cycle that involves some significant reinvestment.

Yes. Okay. And secondly, this time in the last few years, [ that team ] at DPIE recommendation for McPhillamys within the month, and fast forward a year, we haven't heard a lot about the progress. Are there any green shoots you can talk to or any progress, any updates on how we should think about timing from here?

Green shoots, yes. Look, again, we have to snip it off every now and again. Look, I think certainly, a year ago, we were -- the message we were getting was quite encouraging. We've tended to be a little bit disappointed with the speed. The issue sits in 1 or 2 key areas. We are now really quite reluctant to make any kind of timing prediction because we've been disappointed in the past with how some things have progressed as people indicated, were anticipating, others haven't. But we are seeing positive progress. We still believe that this is -- this project is permittable and it's a matter of time. It's not if, it's when. We do have -- we do know that we have strong support. We know that the local member is a Deputy Premier and is supportive. There's been some ministerial changes in New South Wales, which has sort of slowed the process up a little bit for the end of last year and over Christmas. But everybody is back at work now. And we do know that they're working on -- the state departments are working on resolving the 1 or 2 outstanding state-related issues. So we are pleased to see it progressing. We are frustrated with the rate of progress, absolutely frustrated with it. But we kind of -- it's a great project, 2 million ounces, very strong. Certainly, in this price environment, it's a fantastic project, probably one of the largest undeveloped projects in Australia at -- that is far progressed. So yes, it's frustrating, but it is what it is, and we're working hard to progress it.

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

I think, Kate, like I mentioned in the -- so when I was talking to the numbers, we haven't allocated out a bunch of costs to, say, exploration and McPhillamys and feasibility. I mean, certainly, some of the labor cost has been allocated out. But things like office rents and all that sort of stuff, we don't bother allocating it. So I think on a sort of a general unallocated basis, yes, I think that's probably about the number to expect.

The next question comes from Jack Gabb from Bank of America.

So just 2 quick questions on cash flow and on the dividend again. So I really appreciate the comments you made on -- in your opening remarks and to the presentation. Just curious, was there any sort of one-off impacts in there in terms of working capital or in terms of cash flow? I did see that there was a bit of an inventory gain on the balance sheet at the end of the half. So just whether that will be released a little bit this half. And then secondly, I guess, just going back to the final dividend. If or when McPhillamys is approved, does that basically mean that you will not be paying a dividend whilst that CapEx spend is being committed to?

Well, I'll answer that second question first. And I'm afraid I didn't -- I think, Jon, did you pick up that first question?

I think so. Yes.

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

Yes. So Jack, thanks. In relation to your first question, I'd just make 2 observations. First of all, in relation to our cash balances, we did see some residual costs associated with the Tropicana acquisition flow into the early part of this current half. If you look at in that cash flow waterfall, there's a $12 million bar. The majority of that is some transaction costs associated with that acquisition. We don't -- we certainly don't expect those to recur. In relation to the second component to your question, yes, we have built stockpiles across the half. As to -- I just can't quite recall as to whether they'll unwind across in the next half or not, but I'm happy to -- I can have a look into that for you and have a discussion off-line with you.

Look, the high-grade Tooheys Well, which was building up in the first half, we built stockpiles of the high-grade Tooheys Well because we weren't prepared to put that through the mill and suffer the higher -- significantly higher recoveries. So we basically continued to run the mine as scheduled, build up the Tooheys Well stockpiles. Now that we're implementing the circuit modifications that we needed to, we're back slightly increasing the rate of feed of that Tooheys Well. So I would imagine that -- I mean, that's basically where part of the high grade comes from in the schedule in the second half. So I'd imagine we'll be pulling some of that down.

That's really helpful. And then just one quick last one just on Rosemont post the water slip. So has your understanding there changed at all around some of the recoverability of those ounces?

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

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

Jim, Rosemont, to the last question. So access via the open cut, definitely 100% categorically ruled out as to the slip areas?

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

No. I got that. I remember we talked about that in the call in January. But -- so it's -- you're ruling out ever going back into that area where the slip has occurred in that narrow small open cut area to access it? Or it will all be done from underground?

Yes. That's right. It's -- yes, we continue to look at it. It just -- it's hard to -- the most important thing with geotechnical [indiscernible] makes it unstable all the time. So the longer the slip, the more unstable -- that's generally a rule of thumb of geomechanics. We just don't see any -- we just don't see the value of taking the risks that would be required to pursue that, and we do see some opportunity to access some of that material from underground. But exactly how much, we're still trying to work out.

Okay. Can I ask Jon on Slide 8, the cash flow waterfall? So can you just walk through that with me? Can I ask questions as I go? So looking at and thinking about the second half, so operations bar, which is the first bar, that should do better. Jim has talked about the grade and Tooheys and other areas. And with gold prices being higher, that should be better. My context here is I'm looking at a $90 million burn in cash in the last half, and that's troubling. So looking ahead, operations is better. Capitalized mining, will that be around about the same level, $117 million? Or does some of that capitalized material drop as that start to unwind or reduce?

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

So you've gone above the range. So tax, you paid $31 million. This half, you'll actually get a credit so far of, what would you say, $23-plus million?

We've already received it, Peter. So the $23 million that I mentioned, we got that in February. We anticipate receiving a further $12 million in April.

Okay. So when I look at this waterfall and you do it for the full year, that $31 million is going to actually be a credit of $35 million. So there's no tax paid. It will be a credit. Got it. And no dividend paid, so that $22 million is 0. And the interest and residual transaction cost, that declines to what this half?

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

Okay. Great. And corporate events, to Kate's question, that stayed the same. Other CapEx, will that the 35% increase, decline? What does that look like this half?

Yes. Look, I sort of suggested it's probably likely to be the same, Peter. I mean, without -- I mean, I don't want to get on my soapbox here, but a large portion of that relates to right-of-use assets. And I think as we all know, that is an interesting standard to say the least. But that is -- half of that expenditure is right-of-use lease payment.

Okay. And lastly on exploration, Jim, given your deliberations with the Board on dividends, did they deliberate about exploration spend? Or given you're a gold/growth company, you need to keep spending? And within that, does McPhillamys' spend, given there's nothing happening, does that decline this half?

Yes. Good question there, Rocky. No, certainly not -- well, yes, there was discussion around exploration spend. And yes, there was a very immediate recognition that if you don't spend money on exploration, as such, where is your future coming from? At least with our holdings, which we've talked about in the past, and I didn't dwell on it today, but our holdings at the Duketon Greenstone Belt, there's some fantastic opportunities there. And we certainly haven't wavered from that, and we plan to continue working there. The Tropicana area, the Albany Fraser Belt itself as well has got plenty of exploration opportunity. And we just -- with the workshop that was held recently, come back from that more excited than we were when we went there. And we were pretty excited when we went there. McPhillamys, yes, look, that's a pretty solid spend. And that's because part -- the cost of permitting, it's not one admin office that's sitting around filling out a form every now and again. It's consultants and reviews and in-field investigations that need to be done, everything from trees to be counted, grasses to be analyzed. There's a significant spend in there. Plus on the DFS side, because of some of the long lead times on some of the areas, in particular, around power and water supply, we're actually spending at least a couple -- well, $1 million or $2 million on each one of those alone, just getting the design work and corridors sorted out and the like. So yes, that will see a spend -- full year for McPhillamys will be maintained on track, and I can't see it being too different from the first half.

So the point of my question is $90 million burn in the first half, can you turn that around to a neutral/build of cash in the second half?

Well, I think the -- if you talk about the $90 million burn, you can -- first thing you can do is take off about $55 million because $20-odd million of that was dividend, $30-odd million out of that was tax, which we're getting back and we won't be paying going forward for the -- that's the key. So there's 2 elements of the cash situation that sits on this waterfall chart. The tax that's on there will come back to us. And that won't be an element about going forward, certainly not to that extent because of the -- as Jon mentioned, as the Tropicana tax effect on our -- from what we paid. So there's -- of your $90 million, there's over $50 million that's already sort of one-off type of thing. And the reality is that our -- where does the rest of the cash come from that we're projecting? We see a substantial -- a solid increase in our performance in the second half. And so as you can see from our guidance, our sales for the first half will be quite significantly higher. And that is all basically under the same cost profile. We just will be processing higher grades and producing more gold, which means that revenue effectively goes straight to the bottom line.

Appreciate the detail. It looks like you have a bit of wiggle room in the second half.

Yes. Look, we certainly think that the second half will be materially stronger than the first. And it all really -- apart from the one-offs, which is the income tax and cash divis, it's off the stronger production.

The next question comes from Alex Barkley from RBC.

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

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

The next question comes from David Coates from Bell Porter Securities.

Jim, Jon and Ben, just following up -- kind of a little bit asking a similar question that Rocky had on the cash flow except on the income statement. And perhaps, you've been very generous of your time, I appreciate that. I'm just kind of [ chasing ] a little bit on the one-off items in there, the stockpile utilizations in there and the D&A and acquisition costs and so on. Can you just maybe pull out some of the one-off items in that -- the NPAT waterfall, where are the other one-offs?

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

The one-off items, the nonrecurring stuff that's in the NPAT waterfall. There are a number of the stockpile write-downs and noncash adjustments that we've seen, which is related back to the Tropicana acquisition. Where are the one-offs, I guess, in that NPAT waterfall?

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

Okay. All right. Cool. And let's see, the -- you mentioned just briefly in my other response there that you started feeding that Tooheys Well ore through the process plant. Can you give us some idea how that's recovering?

Yes. It's recovering well. Thanks, Dave. It -- we haven't -- our plan is to ramp up the feed there to probably around about 35%. We're not at that rate yet. We've been changing the circuit, but we still have to finalize putting in the slam jets, which is a way of more efficiently introducing the oxygen into the circuit. And also, that's been delayed a little bit, probably about 2 or 3 weeks more than what we originally scheduled. That should be -- was due to be finished at the end of this month. That's being delayed because we struggled to source around Australia. Thanks to COVID implications, the specialized stainless steel piping that we require -- it was interesting. We actually found all the valves and all the controls really quickly, but it was just the basic pipe that took a while. But we've also -- the groups that were going to come and do the work for us had to pull out because the border restrictions meant they couldn't come over here and do it. So it's just -- but we have subsequently found a group that we're satisfied with that will do that work. So there is still a bit to go before we ramp up to that full amount. I think the last time I looked, we were probably running at -- I think it was sort of averaging something like 20% to 25% feed of that order. We were seeing a little bit of an impact on recoveries, but nothing to get too concerned about. It was obviously way more offset -- more than offset by the high grades. So it's not where we want it to be yet in terms of how much we can put in, but it's certainly a lot better than where it was at the -- 3 months ago last year. And it's on the right path.

And that 2- to 3-week delay that you just mentioned then, when does that sort of push back the completion of the plant modifications?

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

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

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

The next question comes from Patrick Collier from Credit Suisse.

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

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

The next question comes from Mathew Collings from Morgans.

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

Yes. It's a good question, Mathew. Basically, the answer to that is that we've done everything we can in relation to that. We just -- it's at -- we are waiting for the government to issue us with an invoice.

Provision we've got there -- out there, it could be next week, it could be...

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

[Operator Instructions] There are no further questions at this time. I will now hand back to Mr. Beyer for closing remarks. Thank you, and over to you, sir.

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

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines.