OceanaGold Corp (OGC) 2018 Q1 法說會逐字稿

Good morning, and good afternoon, ladies and gentlemen, and welcome to the OceanaGold 2018 First Quarter Results Webcast and Conference Call. (Operator Instructions) This call is being recorded on April 26, 5:30 p.m., Eastern time.

I would now like to turn the conference over to Mick Wilkes. Please go ahead.

Thank you. Good morning, good evening to everyone and welcome to OceanaGold's First Quarter 2018 Results Webcast and Conference Call. It's a pleasure to be here with you today to discuss what I think is a very positive start to the new year. I'm joined here today by members of the OceanaGold executive team, who'll provide specific commentary on our operational and financial results. Michael Holmes, the Chief Operating Officer, will walk you through our operational results and what we are expecting from each asset for the remainder of the year. And Scott McQueen, our Chief Financial Officer, will discuss the continued strengthening of our balance sheet from our strong results achieved in the first quarter. I'll also very briefly discussed the start of permitting for the Waihi mine life extension, which is a major milestone for the project.

Before I start, just reference to the presentation adhered to international financial reporting standards and all financial figures are denominated in U.S. dollars, unless otherwise stated. Also note that the presentation contains forward-looking statements, which, by their very nature, are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate as future results and events could differ materially. Please refer to the disclaimer on forward-looking statements in our presentation.

So let's get started on Slide #3, the highlights. I'm pleased to report that we had a positive start to the year, with production in line with our expectation, increased cash position and continued advancement of our organic growth initiatives. Continued to advance the 10-year mine life extension at Waihi, with the start of the permitting process, and I'll discuss that a bit more later. Operationally, we had a strong start to the year from our high-quality assets, with production generally in line with our expectations and opportunities to further improve on this performance going forward. Financially, we delivered another robust quarter while making prudent capital investments. Also, in the quarter, Didipio continued to be recognized globally for its environment, safety and social performance, receiving additional rewards and nominations.

In addition to the first quarter results, we also announced changes to our board. Now Bill Myckatyn, Diane Garrett and Joey Leviste will not be standing for reelection from the board at the next AGM in June; while Ian Reid has been appointed to the board, joining Nora Scheinkestel, who was appointed a month ago. Nora brings over 25 years of experience in the public and private sectors, including significant mining experience. Ian has held several senior level positions in Caterpillar distributors and served as President of Finning Canada for 11 years. Both Nora and Ian will strengthen our board, and we have -- we are excited to have them on our team. We, of course, do wish Bill, Diane and Joey all the best in the future.

Moving on to Slide 4, just an overview. On a consolidated basis, the operations produced 125,600 ounces of gold and 3,900 tonnes of copper. We are particularly pleased with the production from Haile, which delivered a strong quarter performance despite the severe weather event at the beginning of the year, which resulted in reduced mill availability. Cash and all-in sustaining costs were higher this quarter from a slight increase in costs and the timing of sales at Haile. We do expect costs will come down over the course of the year. We are very comfortable in driving our unit cost lower at all of our operations. With slightly higher production and sales expected in the second half of the year, we would naturally see lower costs.

We continued to deliver strong financial results, with revenue of USD 197 million, which is partially aided by higher gold price. We recorded an EBITDA of USD 101 million and a net profit of $45 million. Our adjusted earnings per share on a fully diluted basis was a healthy $0.06, which was slightly better than the consensus of $0.05. While our adjusted cash flow per share was $0.15 per share, which was a solid beat on the consensus of $0.12 per share. We continued to deliver strong returns on invested capital, which in the first quarter was 10%. This follows our trend of positive returns in each quarter dating back to 2010. Our robust return on invested capital demonstrates that the investments we are making are prudent and designed to generate long, strong returns. Our EBITDA margin for the quarter was a solid 51%. Now our EBITDA margins are one of the highest in the gold sector. Now expectation is that we'll remain near the top given our high-margin, low-cost structured business.

I'm very pleased with our results and continued positive momentum. With our strong start to the year, we're well positioned to continue delivering consistent positive results.

Moving on to Slide 5 and a discussion about Waihi and the mine life extension there. I'm very pleased with the continued advancement of the Martha project at Waihi. The start of the permitting process for an additional 10-year mine life extension was a major first step and milestone. The permitting process includes community consultation, in which we have now hosted several events. The feedback we've received thus far has been very encouraging, with strong support from the town of Waihi. As always, we continue to engage with the community to discuss our plans as effectively as we can and address our -- any concerns they may have. The town of Waihi is also familiar with the mine plans of this nature given that Waihi has been in operations since 1988. And during this time, the town has seen full pit cutbacks and several underground mining operations, including Correnso, where mining activities are directly beneath the town. In this permitting phase, we have asked the consent to allow us to mine under the Martha pit, where we are targeting a resource of 500,000 to 700,000 ounces to be mined from underground. Additionally, we are seeking a safely -- to safely reopen the Martha pit and access the 77,000 ounces currently sterilized by the pit wall failure that took place in March 2015. The drill drive development beneath the Martha pit continues to advance well, with the 920 RL drive 85% complete, while the 800 RL drive is about 35% complete. We have completed fan drilling from 4 drill cuddies along the 920 RL and continued to intercept veins with similar widths and grades that we had previously published and have been mining over the past 2 years. Drilling from the 2 underground drill drives will continue over the next 18 months with an objective of resource definition and conversion over that period.

We also have completed project studies during this period and will provide further updates to the market in due course. The advancement of the market project is an exciting opportunity for everyone involved. We expect it to deliver significant value to our shareholders and significant socioeconomic benefit to our host community and stakeholders in the broader region.

So now I'd like to turn the presentation over to Michael Holmes, our COO, to discuss our operating performance in the first quarter. Thanks, Michael.

Thank you, Mick, and good morning, good afternoon, everybody. I'll spend the next few minutes just going through our operational performance, which, as has been mentioned, is in line with our expectations despite some severe weather event at Haile and some operational challenges at Waihi.

We move on to Slide #7. Our safety and health performance remains an important focus for our business. At the first quarter -- again, in the first quarter, our rolling 12-month total recordable injury frequency rate was flat at 3.96, driven by an excellent safety performance at Waihi, which had no total recordable injuries in the quarter. The behavior of our workforce continues to be a driving force in delivering a work environment that is free of injury. One important area for introducing a behavioral safety program is the encouragement of looking after yourself, your work colleagues and reporting all hazards, incidents and injuries, some of which may not have been previously reported. When we do this right, we are better able to assess our safety performance to make the necessary changes to deliver strong encouragement. It is also important that we have a look at the principal hazards and the fatal risk management and the controls we put in place with that. And we're doing this through a process of auditing and the potential investigations.

Looking at the operational performance, moving on to Slide #8. The gold production delivered at Haile was in line with expectations at 37,049 ounces and a result of higher-than-expected grade from the Mill Zone pit and continued strong recoveries. The operational performance, however, was hampered by an unseasonal cold wind in South Carolina that took place in early January. The process plant experienced an unplanned stoppage due to water pipes freezing. This event and the following operation works impacted the mill throughput through the mill to the equivalent of the 2-week shutdown or approximately 125,000 tonnes of throughput. Following this event, we made the necessary reparations and modifications to the piping and the piping design, with lagging and hinge tracing to ensure the pipes don't freeze again. With this event and the subsequent reparations, mill utilization dropped to 78%. Despite the shortfall in mill feeds, higher-than-expected grade at the Mill Zone and recoveries of 82% at the gold production in line with our expectations.

The severe weather event did have a slight impact on mining activities as well, which resulted in less ore mine being -- less ore being mined. Following this event, we experienced a spike in maintenance within our mining operations.

During the quarter, most of the ore was sourced from the Mill Zone, including an area in the northern zone of the Mill Zone, which improved in grade with further in-pit drilling and grade control. Mining from the Snake pit continued, and this low-grade material ore was stockpiled.

Costs at Haile were higher than originally planned, and due mainly to the challenges I have mentioned. As the quarter progressed, we did some significant improvements to the contained costs. For example, our average mining costs were $2.49 per tonne from the first quarter. However, our mining costs in March were down around $2.09 per tonne, which is in line with where we expected our mining costs to be for the year. Although the severe weather event was unexpected, operating performance and productivity and maintenance programs are still areas we continue to focus on and do require some improvement as we progress through the mine. We are confident that these areas of focus will transition into our high standards of operation in the near future. This is not too dissimilar to Didipio, where we trained the workforce to our standards of operations, including safety performance.

We're also looking at implementing the Minestar, which is a GPS and data collection technology designed to monitor and optimize equivalent productivity to further improvement.

Processing unit costs were also expected to decrease if we progress -- process more material through the plant and maintain improved utilization rates. We are finding the ore to be a bit more abrasive than expected, which is leading to wear-and-tear in some of the parts within the plant. This occurrence is not unusual for a new plant and now though -- although it does cost some additional capital to-date, it is not expected to hinder our overall plant performance over the long term.

Looking ahead for the rest of the year, we expect production from Haile to be similar in the second half as it is in the first half and that our costs are expected to come down towards our guidance range.

Moving on to Slide 9. The expansion at Haile continues to progress as planned, and we expect to commence the permitting of the large open pit, the underground mine at Horseshoe and the associated mining infrastructure in the middle of 2018. In the meantime, we have 2 projects planned for the year as part of the de-bottlenecking process to achieve higher throughput rate and enhanced recoveries. We continue to achieve grind sizes of 19 microns as well as achieve phased the design recovery rates. We achieved the throughput improvements to 4 million tonnes per annum. We will be installing a pebble crusher, which is expected to be in place in the third quarter. The pebble crusher will allow us to achieve higher rates when processing harder ore. It reduces the workload on the said mill and allows us to open the [gates,] allowing additional material to pass through. The current regrind circuit is unable to handle the higher throughput rate with the grind size reduction, so we progressed the engineering and procurement of a tower mill and an IsaMill we expect -- which we expect to commission in the first quarter of 2019.

Moving on to Slide 10 and Didipio in the Philippines. The operation remains the top performer for generating strong cash flows while delivering a strong performance in health and safety environment and community. Operationally, we are pleased with the start we have had at Didipio, particularly with the early performance of the underground. The ramp-up of the underground is progressing to plan in the first quarter, and we successfully completed the first trial stope and, with the commissioning of the paste fill plant, filled the stope. We are progressing the development and drilling, and we are targeting the production from 3 stopes at this quarter. We also commissioned the primary pump station, which is capable of pumping at a rate of 650 liters per second, thus, allowing us to open additional stoping areas and increase the mining rates as planned. Costs are generally aligned with expectations thus far. And for the rest of the year, Didipio's production in the first half is expected to be slightly stronger in the second half.

We go to the next slide, you'll see the diagram and the image of the underground. As we're progressing through it to the end of March, what you see in the gray is the underground working that has been developed, and the orange represent the planned development for 2018. In the first quarter, we advanced approximately 1,600 meters of development in the underground. The construction of the panel 2 of the underground is also progressing to plan, and we expect to have the second mining phase completed by the end of 2019. At that time, the underground will source 1.6 million tonnes of ore feed, with the remainder of the ore being sourced from the stockpiles to be fed into the plant. We closed out the first quarter with more than 21 million tonnes of open-pit stockpile, which will be blended with the high-grade ore from underground for processing for the remainder of the life of the mine.

Moving on to Slide 12 and Waihi, located on the north pole -- north island of New Zealand. The Waihi operation had an excellent quarter, as mentioned, for safety. And some of our safety initiatives that I've mentioned earlier are having a noticeable positive impact. With respect to production, Waihi gold production decreased quarter-on-quarter, which was expected and due to the mining in the lower grade ore zones and underground in the Daybreak, Crushington and Christina veins. Having said that, the first quarter of production was slightly lower and that's due to lower equipment availability. We're fundamentally down 1 [bogger] for much of this quarter and has led to a dropping tonnes and tonnes processed, which has resulted in high unit costs. Today, equipment availability has returned to normal levels, and we experienced strong productivity improvements at the operation. We do expect to make up for the production shortfall from the first quarter over the course of the year. We also expect the unit costs to decrease as the year progresses. Production in both half of the year are expected to be similar. And as Mick mentioned earlier, we have commenced the permitting process for the 10-year mine life extension at Waihi, which is a major milestone and an exciting opportunity for many people involved within the project.

Moving on to Slide 13, and Macraes is located in the south island of New Zealand. You'll see that the operation started the year on (inaudible) good production on the back of some higher-grade material from Coronation North being processed and better-than-expected recoveries at 85%. Lower tonnes mined for the quarter, with the lower quarter-on-quarter proportion of ore to waste -- or waste will increase and, due to the mining waste areas at the Coronation North, will establish future ore mining areas. We also experienced a drop in ore tonne mined from Frasers Underground due to unplanned maintenance of underground equipment as well as some areas where the ground conditions were poor. Costs were in line with how the operations performed, and we expect it will decrease particularly with the unit cost as the year progresses. The main drivers to achieve the higher production and sales: less waste mined at Coronation and better productivity at Frasers Underground.

With these changes through the year, we expect the second half of the production will be better than the first half production. And we expect very strong cash flows from Macraes over the next couple of years.

So I'll now turn it over to Scott McQueen to discuss our financial performance. Thank you. Scott?

Thank you, Michael. Hello, everyone.

Moving to Slide 15, which provides a summary of our financial results. Well, on a quarter-on-quarter comparison, our financials reflect lower consolidated production and sales. This was expected, and Q1 is consistent with the guidance. Despite this, our financial performance in the first quarter remained strong. Revenue is a solid $197 million, which, on an annualized basis, is actually higher than 2017. Naturally, higher gold prices were a key contributor. As you can see at the top right of the slide, this is reflected at an average gold price across the quarter of $1,340 per ounce. As Mick mentioned earlier, we continued to deliver strong margins, with our Q1 EBITDA of $101 million, again, representing a margin above 50%. Out of the slightly strong result, we recognized our costs for the quarter were higher than planned in some areas, primarily additional maintenance costs Michael spoke of. So we continue to focus on bringing those costs back in line to further enhance our already-strong margins. Net profit for the quarter, it's $45 million, reflecting the strong revenue and margins generated. We also saw a reduction in depreciation quarter-on-quarter, reflecting the lower production as majority of our depreciation is allocated on the units of production basis. We also saw lower corporate, G&A and finance costs.

You'll recall, in the previous quarter, we recognized the deferred tax asset of just under $18 million, associated with the initial recognition of tax losses and timely differences at Haile. That tax benefit was reflected in the high Q4 profits here also. In the first quarter this year, we didn't have any similar one-time tax benefits, and as a result, our net profit after tax includes a tax expense that reflects the prevailing tax rate applicable to accounting profits in New Zealand and the U.S.

Moving to Slide 16, which provide the summary of the key attributes of our cash flow. As shown, cash flow from operations were strong at $77 million on the back of solid operating results combined with a higher average gold prices received. This is despite approximately $18 million in the quarter of negative working capital movement and 4,400 ounces of gold, which was produced at Haile but not recognized as sales in the quarter. Cash flow used in investing activities is lower than the previous periods, reflecting a significant decrease in growth, capital and general operating capital. As noted in the boards, the largest uses of capital for the quarter included pre-strip at Macraes and Haile. We also continued developing the Didipio underground, which included both capitalize mining cost with some growth capital associated with advancing panel 2 and the commissioning of the primary pump station. Cover a little bit more on the capital in a latter slide. Also included in investing capital, as you note in the last call, there was $4.3 million in equity contributed to Gold Standard Ventures in the quarter that was to maintain our 15.7% stake in that entity.

Cash flow used in financing was also lower, mainly reflected repayment of equipment leases during the quarter. We didn't make any debt repayments against our credit facilities in the quarter. The next payment, we expect to make $50 million late in the second half of the year.

Moving to Slide 17, which covers the key features of our liquidity and debt. You'd see we ended the quarter in a stronger financial position than we started. Cash balance increased from 75 -- $73 million at the end of 2017 to $89 million at the end of the quarter. Our total liquidity increased to $119 million at the end of the quarter, includes $30 million of undrawn credit facility; as you know on the slide there, excludes around $71 million in marketable securities that we held as strategic investments.

It's only a modest reduction in our debt via lease repayments. You see a net debt position kept at the end of the quarter stood at $146 million, total debt being the $200 million we have drawn on our facilities and $36 million in equipment leases. Previously mentioned, we expect to make another $15 million payment against debt facilities at the end of the year. In terms of the hedging book, the end of March, we had approximately 108,000 ounces of gold remaining from Macraes over the balance of the year. You can see it on the summary there on the right. New Zealand dollar gold price set (inaudible) here in the quarter. And there were no realized gains or losses on the gold hedges. In regards to copper, we had 9,000 ounces, or that's just under 20 million pounds for our North American participants. Remaining on our 2018 swaps at the end of the quarter, these are at fixed price of $3.19 per pound. In Q1, we realized only modest gains, $200,000. It is worth noting, however, that fairly substantial drop in the copper's spot price later in the quarter did result in it recognizing a material unrealized gain on the open position of approximately $6 million.

Moving to Slide 18, in CapEx. In total, we can see the quarter-on-quarter CapEx has fallen around 30%, $52.5 million. As illustrated in a more detailed table at the bottom, growth capital for the quarter was predominantly deployed at Didipio and Haile; and related to the continued development of the underground at Didipio; and the commencement of the expansion of the process plant at Haile. The bulk -- the corporate growth shown on the last column there relates to rehab at Reefton.

In terms of pre-stripping, you can see the bulk of the activities during the quarter was in Macraes, and that related to Coronation North and also Haile, in relation to the Snake pit. This is consistent with plan and does -- and we do anticipate more of the pre-strip cost being incurred in the first half of the year.

Exploration costs were mainly focused on expansion opportunities around Waihi, where we continue to see good results that support the target of 10-year mine life extension that's been previously mentioned. We also continued to drill around Haile, looking for further enhancements there. So overall, we're tracking in line with our capital guidance.

With that, I'll turn it back over to Mick to rather wrap up. Thank you.

Thanks, Scott and Michael. Before we move on to Q&A, we'll just -- I'll just take you through the outlook for the remainder of the year.

So on Slide 20. As you've heard, we've had a good start to the year, and I'm very happy with where the business is now, and I'm excited about what's to come. As I've mentioned before, we have created a highly profitable business and one that operates in a balanced way, where we pay down debt, return wealth to shareholders and continue to make prudent investments in the business.

Production and the path to the first quarter is where we expected it to be, and we do expect production in the second half to be slightly better than in the first half. Our organic growth projects are expected to create significant value and are progressing to plan, and we will provide updates on all these projects as the year progresses. We're on track to deliver our guidance in strong cash flows. We continue to be one of the highest free cash flow yielding gold companies, one that delivers EBITDA margins at or near the top of the sector and one that continues to achieve strong return on invested capital.

So that concludes the formal presentation segment of the webcast, so we now take some questions over the phone. So I'll turn the webcast over to the moderator to facilitate this session. Thank you.

(Operator Instructions) Your first question is from Michael Slifirski from Crédit Suisse.

I've got 4 straightforward questions, if I may, please. First of all, starting with Haile. I'm slightly confused about what that profile might look like. So if you have the pebble crusher installed in -- I think you said Q3, does that allow you then to operate at 4 million tonnes, or is permitting required before you can get to that 4 million tonnes? And if you’re at 4 million tonnes at that point in time, do you sacrifice recovery because you can't maintain the grind size? So can you just talk about that profile between permitting, de-bottlenecking the grinding circuit and then adding the fine grinding, what that looks like from throughput and recovery, please?

Thanks, Michael. So the permit -- there is no permit required to take the plant up to 4 million tonnes per annum. We have permits in place that will allow for that throughput, and that occurred through an amendment to the designation of the Haile mine as being in rural -- in a rural area as opposed to being in an urban area when it was initially permitted. So we don't need to permit a higher throughput. What we do need to permit is the larger open pit and associated waste facilities and the underground. Secondly, the pebble crusher is to expand the front end of the plant, and that will allow us to go well above the 3 million tonne per annum at least from the third quarter onwards. However, we're still constrained by throughputs in the back end, particularly the fine grinding circuit. So we don't expect to be operating at full production rate in the third quarter as would be allowed by the addition of the pebble crusher. The new fine grinding circuit, with the tower mill and the IsaMill, will be commissioned in the first quarter next year. And that will be a considerable boost to the capacity of the plant and then allow us to increase throughput, reduce the grind size of the concentrate material and improve recoveries. And then we'll see how the plant performs next year, but we've always said we'll invest capital to de-bottleneck the process plant and pushed upon as hard as we can before investing further capital.

Yes, that's -- I think that's clear. So basically, say, from some time first quarter, you'll be at 4 million tonnes and at that improved recoveries, so those 2 things happen, you can see, together?

Well, we're not saying we'll be at 4 million tonne next -- in the first quarter next year, but we would certainly be expecting to be up around the 3 million to 3.5 million tonne range.

Yes. Secondly, with respect to Didipio, I think you said last year that you're applying for a change in the permit to allow you to go beyond the 3.5 million tonne license limit. You've delivered a pretty strong quarter throughput this quarter above that rate annualized. Has there been any progress on that? And can you get that permit adjusted while you're still operating under the suspension order?

Well, I'm -- I'll ask Michael to answer that question. Michael? Thanks.

Yes (inaudible). Thanks, Mick. Thanks, Michael. The -- we are still under the 3.5 million tonnes. We've reapplied with the increased EPC -- or sorry, increased throughput for the EPC, so that is going back through the government process. So we have now accepted -- they've accepted the application, and so they're just working through that at this point in time. So that's about -- I supposed that's about as far as I can give -- say, Michael, until we get some further understanding. And that being said, the government is showing some positive signs with regards to, I suppose, working with the mine. And as far as the suspension order is, we've had the new orders that have come out. The MICC had put their order group out, and the government's working through the outcomes of -- and -- of those wallets as we speak.

Okay. Thirdly, with -- on Waihi and the permitting required there, runs with the public consultation going well, where are the potential showstoppers? I'm trying to understand where the power lies. If the public are offside, does that make the government offside? If the public are onside, can the government still state -- say no?

Michael?

Yes, the -- part of the process is to start the consultation. And then following the consultation, we put the application forward, and that -- the consultation process is to get all the concerns from the community. And I suppose the areas of concerns that we are seeing is residents on the north wall and residents under the potential Rex orebody. And so -- and a lot of that is just understanding what the impacts are going to be. And the beauty, I suppose, we have got is that we are mining Correnso, which is underneath the town at this point in time, so we know what the impact of those -- of that mining is going to be. So as we work through this process, we will consider all those concerns, and then it then goes through the formal application to the council and then through the process of the payment, which we're forecasting to take around about 18 months.

Okay. And that 18 months, is that defined by some form of statutory timetable? Or is that just (inaudible)?

No, it's a estimated timetable, and it doesn't include, I suppose, a process where we do go to the environmental court. So -- and that's been a historical process of consenting at Waihi.

Okay. And then the final one is on your G&A. I'm trying to understand how you've classified G&A, and the various versions of it are soon to be out to come up with like 3 versions. There's G&A you give by size. And I want to understand. So normally then, we see cash costs include site G&A. So in the way you're presenting them in this new format, are all your G&A costs, site G&A costs now outside your cash costs? Secondly, when I do the maths around the G&A per tonne that you have in the summary table, and most likely, by the time that came up with different G&A figure, and then there's the G&A figure that you have in your little P&A., so I wonder if you could help me put the 3 of them together and understand what's the protocol your following there, please.

Thanks, Michael. I'll ask Scott to speak to that.

Sure. Michael, G&A, site G&A is included in cash cost. That hasn't changed, any costs associated with P&A at site. We have G&A -- or we refer to the corporate group costs as G&A. They're, what, the separate ones that are referred to in the finance act. And they, ultimately, are not in the cash costs, but they would be recharged through management fees and other mechanisms and ultimately end up in the all-in sustaining cost calculation by site.

Okay. So the stuff that you have in those little tables between the cash cost and the all-in sustaining cost, that's simply corporate G&A recharge is what you're saying? But some of those individual corporate G&A recharges then leaves an amount for real corporate, corporate, is it how we should think about it?

Yes, that's correct. The -- if you -- are you referring to the MD&A, Michael, there?

Yes, I am, yes.

Yes, yes, the G&A that's separately disclosed down there is the recharge of corporate G&A. All of the G&A that you would think of as site G&A is up in the cash cost area.

Your next question is from Mike Parkin from National Bank.

I'm just kind of wondering on Haile, with the regrind towers you're planning to put in there in the first quarter, is there going to be -- when you tie those in, like is there enough room in the plant where it won't be a disruption to the throughput? Or would there be any kind of major downturn that we should kind of factor in into our Q1 estimates for tying in the new one and pointing at your old theories?

Mike, on -- in the slide pack, Page -- Slide #9, the picture on the top is the actual design, the engineering design for the fine -- the new fine grinding circuit, and you see it comes off to the side of the main process plant. So that is under construction now. And the only shutdown required will be the tie-in, which would be 1 or 2 shifts. So it won't impact on production significantly.

Okay. My other questions are really answered, so that's it for me.

(Operator Instructions) Your next question is from Mick Sroba from Macquarie.

Mick, Michael, Scott, a question on Didipio. So it appears that one of the key operational challenges at Didipio is the water management and, potentially, ground control. What level of water ingress there are you currently experiencing? And what was it like taking that first trial stope and how you're managing that with the fill and blasting going forward?

Okay. Thanks, Michael. So we've got a detailed water model, which was developed prior to the start of development in the underground. And we've been tracking the water flows against that model, and that's within the boundary -- within the margin of estimation. So we're currently pumping around 350 to 400 liters a second, and that's from all the mined-out areas. So we're developing at 600 meters a month. In development draws, we're mining a stope a month, roughly, and the water flows are within the expectations. The water flows have not affected the ground conditions, and nor are they affecting the paste fill. Of course, it is, as I've mentioned before, the biggest risk for the Didipio underground is water, and that's why we've got 100% redundancy in -- with this pumping system and then some to make sure that we stay on top of it.

Okay. And so I guess it's within the model, so the cost -- the life of mine cost would remain unchanged?

Yes, the cost that we've estimated included, of course, the cost of pumping water and the power associated with that. We do expect it to flatten out around the 450 to 500 liters a second. That's what the model suggests.

(Operator Instructions) There are no further questions at this time. Please proceed.

Okay, thanks, everyone. That concludes our webcast and conference call for today. We look forward to another strong quarter and the rest of the year as we progress. You can see a replay of this website -- sorry, this conference call on our website later today. On behalf of the team, Michael, Scott and rest of the team, thanks for joining. And if you have any follow-up questions, please don't hesitate to contact either Sam, or Jeff and Investor Relations team in Toronto and here in Melbourne. Bye for now.

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.