Earnings Transcript for SOUHY - Q4 Fiscal Year 2021

Graham Kerr: Thank you. Good morning, everyone, and thanks for joining us for our financial results conference call for the year ended June 30, 2021. Joining me on the call today is our Chief Financial Officer, Katie Tovich; and our Chief Operating Officers, Jason Economidis and Mike Fraser. I'll give a brief summary before handing back to the operator for questions. For people who are interested, there is a short video summary of our FY '21 financial results available on our website. But I'll start by saying that this has been a challenging year for everyone as the impacts of COVID-19 continue to be felt globally. Our focus has been on keeping our people safe and well, maintaining safe and reliable operations, and supporting our communities. Despite these challenges, I was really pleased to see our operations performing well, and that's really reflected by the 3 production records we set at Worsley Alumina, Brazil Alumina, and Australia Manganese, and also we exceeded initial market guidance of South African Manganese, Cerro Matoso, and Cannington. So, the base business is running well. This strong operating performance combined with improved commodity prices translated into a 153% increase in our underlying earnings. Also over the last 12 months, we've made substantial progress in reshaping our portfolio with divestments of South Africa Energy Coal and TEMCO and a portfolio of non-core precious metals royalties. These actions plus the closure of Metalloys allow us to simplify our business, reduces the capital intensity, and improves the margins. In terms of our future developments, hope that at Hermosa, work continues to progress the studies for both Taylor and Clark. At Ambler Metals, we committed to summer field sales and drilling program and continued the PFS for the Arctic deposit. In May, we announced our medium-term target to half our Scope 1 and Scope 2 emissions by 2035, from our 2021 baseline supporting our pathway to net zero by 2050. To make this happen, we'll invest in efficiency projects, shift low carbon energy, apply low carbon design principles, and adopt new technologies. Increasing our exposure to the base metals is also required for this low carbon future. Looking ahead of where we are, you should expect to see strong volumes at our base metals operations, Mozal, Cerro Matoso, and Cannington, who have delivered or are in the process delivering a series of improvement projects designed to increase production into favorable markets. We will continue to pursue cost and volume efficiencies to offset stronger producer currencies and cyclically inflation. We are well positioned to take advantage of improving commodity markets and continue to transition our business for the future, which is backed by our strong operating performance, our high-quality growth opportunities, and a disciplined approach to capital allocation. With that, I'll hand it back to the operator for questions. Thank you.

Operator: Thank you. [Operator Instructions] Your first question comes from Sylvain Brunet with Exane BNP.

Sylvain Brunet: Three questions for me, please. The first one is on Cannington, you're hinting at strong volumes in the coming years. I just wanted to get a better sense of how sustainable that is? My second question is on Illawarra, and perhaps I know it's still early days and you're looking at options there, but I wanted to understand the alternatives -- what the alternatives would be to your initial Dendrobium expansion plan and to what extent it would raise more questions on the future of Illawarra or if there are ways around that? And my last question is perhaps to get a better outlook for CapEx, if we exclude Mozal for the moment, for next few years, if you go beyond just the next 12 months, if you could give us a little bit of a framework to think about. Thank you.

Graham Kerr: Yeah, certainly. Apologies I'm actually losing my voice slightly so I wouldn't say I'm 100% well. In the pack you'd actually see that we did actually outline some of the work we've been doing at Cannington, particularly if you go to Slide 37 we gave a bit of an overview of where we've been in terms of ore process, where we're going for '22 and '23, and also what does the payable production look like, and we certainly gave some pretty clear guidance on '22 and '23 and also I tried to give you some mid-term averages from around '24 to '27. Now the big change securing at the moment is the hoisting which has been the traditional method of taking material up to the surface of Cannington from the underground is nearing the end of its life. Now we have been planning for a period of time and flagged that we're looking at a study to transition to a trucking-only operations from quarter 4 of FY '22. This would involve decommissioning the underground infrastructure, which takes off some of the constraints of mining sequences and allows us to bring forward some of that high grade material that we always talked near the end of the mine after reserving the current pockets of infrastructure. This is a low capital investment that's high returning, operating cost are about the same, capital expenditure included in FY '22 is about $15 million for a total investment of $28 million. That's really what the big shift is in the next couple of years and then in the medium-term guidance. The team themselves at Cannington continue to do work around remnant mining and looking at other opportunities around some of that existing infrastructure. Really, what you're looking now is in the perfect world if you can add a year or 2 of resource every year, that's where you're actually want to be. The one thing I would make about Cannington, we saw that with the results this year when you look at zinc equivalents, because of the stopes you're now touching and the sequence of the stopes, you do have quite a bit of variability in grade depending on which stope you're actually into at the time. The second question around Illawarra, that is a good question. Maybe we sort of talked through that a little bit of detail today as well to sort of give people a sense. Probably the best slide for that one is Slide 44 in the pack. And if you sort of take a step back about where are we at Illawarra, we've spoken for a period of time now about how it happened, relatively move into using the longwalls in a different way so it's far more efficient for FY '25 onwards, almost like a step-on, step-off basis, now that allows us to reduce development and it allows us to reduce the continuous miners and get those longwall panels that sort of gives us the economies of scale. Where the challenge has been you from January, February this year is around Dendrobium Next Domain and what that look like. Now the original intent, we we're looking for the IPC, which is an independent planning commission in New South Wales, to actually approve it in the third quarter of FY '21. Much to our surprise and also a surprise to the government, they actually refused the process. The IPC is an independent body that was established by the government where they don't really have control on the stewardship when past corruption occurred in this space. I guess it sounds we have -- we've got a couple of options that are left open to us and that's what Slide 44 is really outlining. One is, we have commenced the judicial review of the IPC's decision in the Land and Environment Court of New South Wales. Now that is a process is something we think we should do because we certainly disagree with some of their findings and their findings contradict with many of the technical experts. So we will go through with that process, but the reality is to probably kick it into some kind of approval process again by the IPC. The second option is the State Legislative Council has passed a motion requesting that any future development of DND be declared with a state significant infrastructure, which gives the minister planning the opportunity to actually take it through the telegramming process. So, down below you will see there's 3 options we've got there. One is the original DND mine plan. The second one is the DND adapt and that's the one we've be looking to take back towards the minister and use that to significant infrastructure. So when we say DND adapt, it will be if you like an optimized mine plan that addresses some of the IPC decisions, while we don't agree with them, we will address some of them, and it also focuses on some of the highest quality coking coal. That's the plan if you like that we will take through to the minister. It's currently in feasibility study and we expect to finish that probably by the end of this calendar year. And the last option obviously if we get nothing to go ahead on Dendrobium Next Domain, we'll then use Appin. With the challenge Appin, as I spoke now in the past has a relatively higher cost structure, because of deficit in the gas levels, but that's something the team has been working on. So, we will have a lot more clarity around that towards the end of the calendar year. I think the government is very sympathetic because they understand the broader economic ecosystem in that part of the world, where about 20% of that products will go to actually BlueScope to their furnace. We're the largest customer of the port when it comes to the Port Kembla Coal Terminal. So yes, all those pieces have sort of come together, but by the end of the year, we'll have greater clarity. The risk of it, this year, and that's part of the reason we took the impairments, we still need to go through that approval process and probably like most coal projects around the world, now there is more uncertainty than there was probably 24, 36 months ago. Maybe CapEx, Katie, do you want to address CapEx?

Katie Tovich: Well, thanks Graham. Just in terms of CapEx, maybe more broadly and then I'll just quickly touch on Illawarra CapEx, but certainly more broadly. We had been talking about a CapEx range of $420 million to $520 million for sustaining CapEx in our business and you will have seen we've come out with a number around $475 million. That's the number we expect to sustain as we look into next year as well moving forward. What you're seeing in that base sustaining CapEx number is a fairly significant step-up with Illawarra. So, Illawarra as they transition to the single longwall structure, they are looking at incremental ventilation and coal clearance activity. So, we've got on that Slide 44 that Graham referenced, you will see that sort of between '22 and '25 we're expecting around about $190 million a year at Illawarra in that safe and reliable capital bucket. Stepping across to our improvement, life [indiscernible] decarb capital. We had talked at our last get-together in terms of having roughly $50 million a year of capital to compete in terms of improvement capital. Also something in the region of $40 million to $50 million over a 2-year window for decarb CapEx and then we've also got life extension CapEx that we've categorized in that group. If you think about the improvement capital, I mean a lot of our focus in that space has been very much around the base metals and you will have seen this year and into next year certainly Cerro Matoso with the Q&P project delivering high-grade ore that comes through into FY '22 for the first year. OSMOC as well you will see a 10% uplift off the back of that project and that creates optionality for us again going forward in terms of contract extension in Colombia. But those 2 projects they're delivering greater than 100% IRRs, so low cost, high value projects and that's what we're looking to do in that improvement CapEx category across the Group. We've got the AP3XLE project at Mozal that's also delivering already. They've got another couple of years to roll out, but we'll see that 10,000 tonne uplift over the 5 years. Hillside are going through a process of testing that technology as well. They've already commenced that process and now look to tollgate if that's successful into the second half of this year and that also fits in terms of decarb capital. So as we're thinking about decarbonization capital, we're really looking at efficiency projects in the first instance. So, the AP3XLE at Hillside, but also then as we look at Worsley, they are looking at options for mud washing. Again these are efficiency projects basically compete on an IRR basis with broader options, but they are also great in delivering our decarb commitment in the short-term and getting some of those carbon opportunities in place. Further debottlenecking opportunities we're looking at at HMN, vessels on the ground, rapid laidout, and some of the other optionality in that space and then trucking at Cannington as well. So not a small -- not a significant amount of capital sitting in that improvement bucket, but certainly lots of good opportunities competing there relatively low cost, high returning. And decarb at this stage over the next 2 years, it's pretty low capital commitment. The next phase of that is really starting to look at some of the infrastructure projects, so things like coal to gas at Worsley, again relatively low cost, but it starts your transition from a carbon reduction perspective. It's also a derisking opportunity for us in terms of coal reliability of supply at Worsley, so something that we also consider in that context. I think that probably the last bucket then is our growth CapEx. So, we have guided $45 million for Hermosa into next year, I'm sorry this year. That's our first half CapEx number and once we release the details in the PFS, we'll provide updated guidance in terms of what that looks like for the balance of the year.

Graham Kerr: I think, look, one of the takeaways there is that competition we have for capital now that perhaps didn't exist 3 or 4 ago to try to create value for the Group. Did that address all 3 questions you had?

Sylvain Brunet: Yes. Graham, just to be fully clear on Illawarra, the option of running 18 only, you'd say is entirely viable economically even at say sort of long-term prices?

Graham Kerr: I think the team can get towards it, but I don’t think it’s going to be an attractive long-term option. I still think our preference because of the nature of the blending and the other benefits that go together is actually DND, ideally adapt and also Appin. But the team needs to do the work to make sure that economics stack up on that.

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

Peter O'Connor: I wish you well, Graham. Met coal, Graham, could you just take us through your thoughts on the market dynamic, because it just seems extraordinary the relative price of what you're selling, met coal for Illawarra and what steam coal is going out at and where you think that tracks from here. Secondly on coal Eagle Downs, where is that at the moment and what happened? There was no mention of that in the CapEx slide. So I'm just wondering where that's heading? Thirdly for Katie, just could you run through the alumina cost step-up to $241, where it was last year. Just the buckets that's taken it up, how the increments that gets you there and why?

Graham Kerr: Yes. Look, all very good questions. Maybe if we start with the met coal market, I mean obviously we've seen a strong rebound in the met coal price, particularly the hard coking coal price about $200. Some of that's been driven by the tight PNB supply and strong demand outside of China. We could see some supply lead to alumina if you like, downward pressure on that from the current spot in the 6 months, but that's something we'll continue to watch. We have seen for example some interesting dynamics in the market where tighter supply has been made available to large economies of the thermal market. But we're also obviously seeing some other shifts around what's happening globally. I mean obviously the band still exist in place with regards to Australian coal in China, but we haven't actually seen the domestic coal supply really recover from the safety inspections and other issues. If you look in China, it's probably 52% down year-on-year. What you have seen obviously is the CFSR China prices have increased about $339 a tonne with import of about $15 a tonne. From our perspective Australia, India has been a key driver with the May 21 annualized imports about 66% higher year-to-date year-on-year, so that's about 23 million tonnes. And with cases of COVID-19 declining and sort of coming out of that season, there is more potential upside if you like in that space. I think the other area that we're seeing that has been strong is your share of Australian imports into both Japan, Korea, Taiwan, Vietnam, and Brazil. What we haven't really seen is the European markets take up much of the Australian coal as they are pretty much stuck with their stable U.S. coal supply agreements, which obviously they understand the blends well and they understand how to make margins when prices are where they are. Obviously some of the risks in the second half as you potentially see, Ambler restarting more up north. We would probably see our M+3 forecast, as I said, slightly coming down at the high particularly over the next 6 months. We would see steel demand out of China drop quite a bit, but we'd also see some of the global steel not being strong enough to pick up the slack. So it's been good to see the price where it is, but probably you can expect a little bit of softening in that space. But with regards to Eagle Downs, Eagle Downs is rather interesting one for us, because while there has been some upside on the price when it comes to met coal, we pretty much run most of our projects because of the length of the projects with a long-term view of met coal and that hasn't really changed for us, it's around $140 a tonne mark. So, the returns that we spoke about towards the back end of calendar year are probably still pretty similar. It's a high 13.5%, 13.6% IRR, and if it was the base metals project, we'd probably be interested. It's not the base metals project. The noise that go into the met coal projects probably doesn't make it overly attractive for us. I think now that the market's picked up a little bit, [indiscernible], we'll obviously have a look at anyone who might be interested in this. I think between ourselves and [indiscernible], we have a good working relationship and we'll explore the market, but it's also an option we have got which is really low cost to hold if the market turns a certain way and our longer-term view changes. About the alumina, you can answer that and then I'll circle back and see if we missed anything, Peter. Katie, do you want to answer alumina?

Katie Tovich: Yes, sure. So I guess in terms of alumina, what we have seen and we did have a slide in there on Slide 22 is that certainly from half one to half 2 last year and then heading into guidance for '22, we have seen a consistent step-up in our costs at Worsley. Look, the large portion of that is off the back of increases in caustic prices and what you will have seen is -- sorry, the caustic -- Northeast Asian price for caustic through FY '21 has shifted up from $250 and right now they're trading at $367 a tonne. So, certainly that step between half 2 FY '21 and what you're seeing in FY '22, half of that step-up is associated with caustic soda price increases and price linked freight. So, that's coming through. And if you take a look at -- if you look at Alumar cost base, so H2 FY '21 for Alumar, we had at $201. But if you back out actually the historical tax credit that they received in half 2, that actually brings them back to $225. And so I think what we're seeing is across the sector more broadly is that inflationary impact coming through off the back of raw material input pricing and other inflationary pressures. So, I'd say Worsley and Alumar are probably on par in terms of their cost structure and you would expect to see that flow for Alumar also into FY '22. Look, the other key factor there that probably is more operational specific for us is really the move into a different mining area. So, we have made a transition into a higher reactive silica area and what we're seeing there is therefore an increase in our caustic soda usage at Worsley as we work through that area. So, the combination of the higher reactive silica and the higher caustic prices are certainly having a more significant impact for us. And probably the other element really is we do have headwinds coming through in terms of this currency through that window as well strengthening through the window that has a couple of dollar impact year-on-year as well. So look, broad inflationary pressures through the market I think, but certainly we have a more specific issue at Worsley in relation to the mining area that we're working through at this stage.

Graham Kerr : Probably the last comment I’d add, Peter, is we’ve talked about met coal, thermal coal, great to see the price is where it is. I think it helps to really make South even more sustainable and stronger. That doesn’t change our view on met coal and thermal coal in South Africa.

Operator: Your next question comes from Myles Allsop with UBS.

Myles Allsop: Just following up on a couple of those questions. How long will you be mining through this high reactive silica area Worsley? And also with Worsley as well, could you talk to this fairly material lift in the closure provision? You're saying that you have kind of changed the discount rate, why are you changing the discount rate now? That would be quite helpful. And how does the discount rate at Worsley compare to some of the other assets and kind of expecting more of a decreasing closure provisions post the sale of South African Energy Coal and hasn't really moved? And then thirdly, I'd be interested just to get a few thoughts on your Scope 1 and 2 emissions. Can you remind us how much in South Africa and what the plan is for the big aluminum smelters? Thank you.

Graham Kerr: Yes. So look, so maybe I'll take the climate change of Scope 1 and Scope 2 questions first and then Katie can respond on the reactive silica, but also on the actual closure, I'm just noting the closure changes, remember, we actually did at the half year, but we'll just go through what were those major drivers again just so they're just very clear. Look, if we sort of have a look at our emissions profile, because I think that's the starting point and keep in mind that essentially 4 of our operations account for 90% of our Scope 1 and Scope 2 emissions, and they really are if you think about them, they're Worsley, they're Hillside, they're Mozal, and they're Illawarra. In fact, Mozal itself predominantly feeds off a hydro source, which we think that's attractive if we can keep access to that hydro source in the long term and also manage some of the outages where in case we have to flip back on 3 lines on Eskom. That positions us well to actually supply into Europe will actually be a green source. Hillside obviously the first thing was spoken about for a long period of time was to actually secure if you like a long-term power contract, which we announced just recently which is a 10-year power block. Now if you look at the emissions, you're probably talking about 1.4 Scope 1 and 10.7 Scope 2. So, that 10.7 is about 89% of our total Scope 2 emissions and that really is generated from, if you like, what's sort of coming from the Eskom power grid that comes into Hillside. Mike can talk, if you like, in a little second about some of the work we're doing on greenfields. We have got to work both of these angles, our own energy efficiency, but I think more importantly, how do we change policy and induced investments, and maybe Mike can talk a little about the greenfield program. Mike, why don't you cover that one?

Mike Fraser: Thanks, Graham. Myles, look, I think as Graham has said, the first path for us was to secure that life extension for Hillside with a 10-year power contract with Eskom, and that gives us time to secure a transition to renewables. We have done quite a bit of work on the economic modeling as well as the technical assumptions of what is required to deliver continuous power to the smelter using renewables and certainly we believe the economic and the technical challenges can be met over the next decade. But I think the biggest transition that we have to work with is South Africa is obviously moving at a pace to deregulate its energy grid. So removing reliance of Eskom, but in the same way being able to sustain energy intensive industries like the aluminum smelter. But therein also lies an opportunity in our view, because the grid will still require large off-takers and that will actually meet the base demand of the grid. So, it's quite an exciting time. But I think as Graham has said, the key issue for us is to work with Eskom with the regulators to manage this transition in an orderly way. But we certainly believe over the next decade, there will be an opportunity to significantly decarbonize particularly the Scope 2 inputs into Hillside. And in addition, some of the technology opportunities that will emerge to look at reducing Scope 1 emissions as well will become available to aluminum production. So, a lot of work and a lot of exciting work will take place over the next decade in my view and if we can achieve that, then there is a future for Hillside beyond the 10-year power block.

Graham Kerr: So, putting aside Hillside, our second biggest one would be around Worsley, and at Worsley, we have a number of projects you hear us talk about in particular, we're going through the PFS with a mud washing project at the moment. The mud washing project will really have some benefits around water, energy efficiency, operating cost savings. So, that's a real attractive project. The other ones we'll have a look at in the sequence of Worsley is obviously to use and have a large amounts on coal at the moment to create the gas we need, and we will have a look at how we can start the steam we need. We'll have a look at how we convert that coal to gas and then longer-term, we're working at different various forms to try and see the opportunity to convert the gas to actually some kind of hydrogen. And that's certainly the intent and the 2035 timeline gives us the space to do that. And probably the last one worth mentioning, I mean when you think about the next emitter for us, it is actually Illawarra. At Illawarra we're doing 2 things, one is looking at the gas drainages we actually get in there to do the work and the second piece is working hard CSIRO, this embedded technology to basically take on some of the methane that's left in the ventilation system now. So, they are the big projects that we've got at the go at the moment.

Katie Tovich: Maybe do you want me to just cover provisions, Graham?

Graham Kerr : Yes, do provisions, Katie. I think the other one was reactive silica.

Katie Tovich : Yes. Just on provisions, it's probably worth flagging. So we run an annual discount rate review process in our business. That process we ran before the half year and off the back of that process, what you may have seen through our results at the half year was a fairly substantial step-up. It was $875 million step-up in our provisions from June 20 to December 31. And it was a combination there of changes to our discount rate that we used across the portfolio, but also actually a fairly large FX movement from $0.69 to $0.77. So the bulk of that change actually came through at the half year off the back of that process. What we've seen from half year through to the full year is $113 million increase come through if you back SAEC out and that increase has predominantly been at Worsley and relates to some life of mine timing changes and some cost estimate updates that have come through. But certainly as we look at provisions going forward, the biggest volatility we would expect to see half-on-half or period-on-period relates to FX particularly the ZAR and the Aussie dollar coming through. It's not common that we would update our underlying discount rates, but certainly as long-term rates move, risk-free rates move, we do review that and make changes from time to time. And I think our research would highlight that we are well within the range of our peer group, as we've looked at some of the reporting that's also shared in that space. Probably the other comment to make is, in our annual report price last year and we will do the same thing again this year, a 0.5% movement in our discount rate has about a $245 million impact on our provisions. So, that's the sort of sensitivity that you would expect to see with discount rate changes. I think the other thing to call out as well would be shift in -- with SAEC exiting the portfolio, one advantage that you see coming through in our cost is a reduction in our net finance costs or underlying finance costs in the range of $40 million and that also is probably worth flagging. At the same time, we'll also expect to see about a $90 million reduction in underlying depreciation costs come through as well off the back of a number of changes. And then our tax -- underlying effective tax rate -- again with SAEC out of the portfolio, we were getting some unusual effects there. What you'll see is that our underlying effective tax rate will tend towards the average of the countries where we operate, which sort of is in the region of about 30%.

Myles Allsop: Just to be clear, [indiscernible] what discount rates are you currently using, just on that?

Katie Tovich: So, we don't provide our discount rate. But I think, if we think about long-term risk free rates and bond rates in the various regions where we operate, they're a fairly good indicator and you will have seen that through time, those rates have been coming down. Probably...

Myles Allsop: [indiscernible] closure provisions go down, is that the way to think about it?

Katie Tovich : Sorry.

Myles Allsop: If your long-term rates start lifting, then we'll see your closure provisions come down I guess.

Katie Tovich : Yes, absolutely and that 0.5% sensitivity, it's pretty sensitive to that. So plus or minus in the region of $200 million, $230 million movement for 0.5% movement in the underlying rates. Probably on the reactive silica question. Look in terms of Worsley, we move through a range of different mining areas. We mine out of a number of areas and we do blending, so West Marradong, Saddleback Marradong, [indiscernible], and what we're seeing in terms of our forward view at the moment is that uptick in reactive silica, which is not different from what we've seen a few years back. So, certainly what the team are on continuing to work on is how do you optimize that blend and better understand the ore going into your refinery to see what opportunities you’ve got to optimize the outcome there.

Operator: Your next question comes from Tony Robson with Global Mining Research.

Tony Robson: Thanks for the lots of detail in the presentation. Much appreciated from the analyst community. Two questions, please. Firstly on Cannington, I guess you might have looked at refurbishing the shaft or extending it internally, but what counts against that. So, the question would be, is the exploration upside at depth for Cannington, from memory, the Open South project was shelved some years ago so is there any hope for seeing mine life at depth? Second question on Illawarra, might be how long is a piece of string sort of question. But any idea of the timelines with the various [indiscernible] of the government and departments, could we still be talking about this sometime next year?

Graham Kerr: Yes. Maybe I'll take the Illawarra one and Jason can respond to the Cannington one. Look from my perspective, we would certainly have a preferred path forward towards the end of this calendar year and then we'd be looking to engage with government very quickly to get into activation mode. Don't underestimate there's a lot of work going on in the background about keeping them informed as well and also working with BlueScope. I think the challenge with any kind of longwall underground mine is discontinuity. So, we want to make sure we get in a position where we don't have that, and that's certainly the agenda we're driving to try and sort of get it really pushed towards the end of this year for the minister to make a call, and then go through that approval process. Jason, you want to talk a little bit about Cannington and the shaft?

Jason Economidis: The shaft is coming to the end of its useful life, and we are transitioning to trucking. What the shaft decommissioning enables us to do is actually access some high-grade stopes that wouldn't have been accessible previously. So as far as that transition goes, it's not that the shaft is not able to be kept until the end of life -- sorry, it's that it can be kept until the end of life. So, hope that answers your question?

Tony Robson: Yes. Thank you. And exploration, are you exploring further at depth or around the mine or given it's such old mine, it's all been drilled out over the decades?

Jason Economidis: Yes. So, we do have an exploration program that is in and around the operation and we're continually looking for the sort of broken Hillside deposits. We are also doing work to look at further remnant mining as well as to extend the ore body as best we can. So there isn't a -- there aren't any results to share on that, but we're definitely investing in that exploration in and around the current deposit and a little bit broader.

Katie Tovich: It's probably worth just adding quickly there also that the total CapEx for that trucking transition is relatively low. So, it's around about $28 million project, so a high returning project.

Graham Kerr : And it’s also easy to forget, when Cannington was built, what are we in 22nd, 23rd year now, you probably are talking about a mine life of that size for the [indiscernible] years. So the shaft has as well and truly gone longer than people expected and I think that’s a testimony to have the team has been watching and monitoring it, but the economics are trucking just make much better sense. And to your point, from a life of mine, thinking of a shalt like that lighting at maintaining doesn’t sort of make any sense anymore.

Operator: Your next question comes from Sergey Donskoy with Societe Generale.

Sergey Donskoy: I have 2. One is actually a follow-up on Hillside, and this transition to low carbon power. I know it's early days, but you have made some interesting comments and I can't help asking do you have any initial thoughts on what sort of impact this transition to low carbon electricity can have on the cost structure, basically should we be prepared to see power costs double trouble over the next decade if we move away from coal-fired electricity, based on whatever technology or solutions you're considering now, or is it something that we -- that can be less extreme? And second question, on Australia Manganese, I know it's not a major issue for you now, but are there any news on exploration progress in the area of Southern Leases that could help extend mine life beyond this decade?

Graham Kerr: Sergey, look, maybe just the manganese one first. We're still doing the work on the Southern Leases. We'd expect that the next tranche of that program to be finished by the end of this calendar year, although I sort of made the position that it is a different mining area because you sort of going to the southern part. It does have a lot more waterways and causeways, which naturally means it's small if you're like of value to the traditional alliance, and we've got to work through what that looks like. The range I've always said is, we're going to get 2 years, 5 years and the -- has been we don't really know till we finish the drilling program. But in saying that probably getting more confidence that we'll at least get a couple of years out of that, but the rest of it will probably have a better sense of potential by the end of the calendar year. Maybe the Hillside question, Mike can cover that in a bit of detail. But I would start by saying that look, the one thing I think Mike and the team have done very well over the journey is, Hillside is very much integrated to the whole ecosystem around that part of South Africa in terms of we sell much of -- a lot of that product, roughly 30% domestically goes to fuel. [indiscernible] that creates a lot of jobs downstream. So, it's very much tied to policy of the agency and South African government. We're a very large power user. We're obviously looking for security of a long-term power agreement that has to be competitive. We think that provides a good basis whether it's Eskom or some other condominium party producer to think about what they do. But maybe Mike, you could sort of have a bit of discussion about how the team is approaching it.

Mike Fraser: Yes. Look, I think the first thing I'd just say from a health warning, we've only migrated this working to pre-feasibility recently so there is a lot more work that we have to do. But I think what really gives us and the team a belief that this can be achievable at an economic level that is not significantly more than we will be paying for existing Eskom grid top power in 10 years is, when you look at the cost of coal that's actually coming through into Eskom and their primary energy costs, that continues to push real inflation in power costs through that grid and it's probably something that you would expect to see in many grids globally that coal just becomes increasingly more expensive. And then when you offset that against the learning rates that are starting to be demonstrated into solar, wind, and even battery storage as a combined renewable solution, we believe that over a decade there will be very close intercept points when you should see a very competitive position for renewables. And I guess that's what's going to be really interesting about the aluminum sector because aluminum ultimately, the resources power, and so being able to secure a competitive positioning in power over a decade will be what determines long-term sustainability of these smelters. But at this stage, we do believe that it will not be orders of magnitude greater than what we would anticipate seeing in a decade from now, if we just renewed our existing power block.

Katie Tovich: Probably one thing I'd like to add is -- just quickly add to that, sorry. Certainly one thing we're not intending to do is put our balance sheet at risk in terms of becoming an energy producer. So, this works about working with stakeholders to induce green energy. But certainly it's not our intent to apply our balance sheet towards that activity as we go forward.

Operator: Thank you. That does conclude our Q&A session for now. I'll now hand back to Mr. Kerr for closing remarks.

Graham Kerr: First and foremost, thanks everyone for your time, because I know everyone is very busy at the moment. But just a couple of high-level key messages I wanted to leave you with is, when you look at our business today, the base operations are performing strongly and they are well-positioned to take advantage of strong commodity markets. We have been very busy reshaping our portfolio for a low carbon future, exiting lower returning operations, and investing further in base metals, which I think positions us very well for the future. At the same time, our approach to capital management remains unchanged and that capital management framework is working as we intended it to. It’s rewarding our shareholders as our financial performance improves. But more importantly, thanks for your time today and support, and have a good day.