Thank you for joining today's teleconference for the release of Mount Gibson Iron financial results for the December 2020 half year. Mount Gibson Chief Executive Officer, Peter Kerr, will be leading the discussion and is joined by Chief Financial Officer, Jill Dobson, and External Relations Manager, John Phaceas. Mr. Kerr will provide a brief overview, after which there will be an opportunity to ask questions. Due to time constraints, only institutional participants will be invited to ask questions at that time. A recording of the call will be available via the Mount Gibson website shortly after completion of today's teleconference. Go ahead, please, Peter. Thank you.
Thanks, Bethany. Morning, all, and thanks for joining us to discuss our half year results. As usual I'll give you both overview and then had over to Bethany for questions. As indicated in our recent quarterly report, we delivered a steady operational performance for the half year, notwithstanding that we had some challenging conditions late in the period at Koolan.
In particular, we benefited from strong iron ore pricing, particularly that rise in December, which we added to our cash reserves at a time when we are undertaking a substantial overburden removal program at Koolan Island to set that operation up for significant sales and cash flow increases from later this year.
At a headline level, our net profit after tax rose by about 2/3 to AUD 74.5 million, compared with AUD 44.6 million in the prior corresponding half year period. That was on the back of the total shipments we made of 2.3 million wet metric tons and sales revenues of AUD 240.7 million FOB. All of our revenues and costs we report in free on board terms. Group cash flow totaled AUD 52 million for the half year.
That comprised AUD 38 million from Koolan Island and AUD 20 million from the Mid West, plus interest income of around AUD 3.5 million, some small development spending on Shine of around AUD 1 million, and administration, finance, and other costs of AUD 8.8 million. We also, in the half year period, paid the cash component of the 2019/2020 final dividend, which was AUD 16.3 million, being the cash component. The rest was paid in DRP shares.
We also had negative working capital movements, including some significant late period quotation period adjustments associated with the run-up in iron ore prices in December, which are now being settled in the current half year period. The sum of these numbers meant that our cash and investment reserves increased over the half year by AUD 12.4 million to AUD 435.7 million at 31 December.
That was a positive outcome given the weather and mining interruptions that we faced at Koolan late in the period and puts us in a good position to complete the elevated stripping phase at Koolan over this year. I'll discuss the outlook and guidance in a little more detail shortly. In relation to COVID-19, before I go into the financials, I should just give a couple of quick comments as to the impacts on our business.
Happily, Western Australia's positive record in containing the virus has allowed the stage relaxation of a number of restrictions originally imposed across the business in the initial stages of the pandemic earlier last year. Notably, the important thing for us was we were able to return fairly promptly to standard one and two FIFO rosters at the start of the period, which was a great improvement over some of the longer rosters that we were forced to do from a safety and fatigue and personnel perspective.
Through the period, we continued to maintain a range of general site and travel protocols to reduce the risk of virus transmission, and we stayed ready to respond promptly should the need arise. This was demonstrated in recent weeks with the Perth region lockdowns and reinstatement of numerous travel and site-related protocols.
Although these response measures have come with increased costs and inefficiencies, the response from our personnel, and that includes employees and contractors alike, has been first rate and enabled us to keep operating unlike so many other businesses. Just getting back to the numbers.
In relation to pricing, our weighted average realized price for all of the iron ore that we sold in the half year was AUD 104 per ton FOB, and that compared with AUD 84 last financial year. Within that, our high-grade Koolan Island fines realized an average price of $121 per dry metric ton FOB, and our low-grade Midwest fines were $30 a ton, and our low-grade lump were $43 per ton.
It's worth noting that while our Midwest low-grade sales were conducted on a fixed price basis, as I mentioned, our Koolan sales generally capture the average price for either the first or second month following shipment. This enabled us to capture the benefit of rising prices in December and January for shipments that were made earlier in the December quarter. Positively, iron ore prices have continued to strengthen into the current half year period.
This is promising for both Koolan and the planned startup of Shine in the Midwest. Regarding our costs, our group unit cash costs averaged AUD 56 per ton FOB in the half year. That was before the investment we made in overburden stripping at Koolan and other capital projects at that site and in line with our earlier guidance. I'll talk more about the outlook for cash costs to each operation shortly.
At Koolan Island, turning there now, we've reported while our shipments were on plan at 1.1 million tons, our mining activity was impacted by several interruptions in the December quarter. Firstly, a localized rock fall that occurred on the western end of the footwall in the main pit, then by some heavy wet season rain leading to Christmas.
Our site cash costs averaged AUD 64 per ton FOB in the period, before the waste stripping investment of AUD 63 million and capital projects of just under AUD 5 million. That meant that site cash flow of AUD 38 million occurred for the half year. That was a pretty good result at a time when we're undertaking a major waste cutback phase.
Although the total material movement in the half year rose by about 1/3, we are going to have some impacts from the interruptions we incurred in December, and that will also impact our unit costs. Notably, we expect Koolan sales to be at the lower end of our guidance. We're not changing our guidance ranges.
That will be around 1.8 million wet metric tons. The majority of ore produced in the period from Koolan will be from the upper western end, which is lower grade than the high grade portions of the main pit. The average grade of sales in the current half is expected to range between 58% and 61% Fe, which is down from the + 63% Fe we achieved in the December half.
We expect to regain mining access to 65% Fe in the September quarter. This is based on current schedules and the deployment of additional ground support on certain parts of the upper western footwall following that rockfall experienced last year. The work is designed to ensure the safety of people and equipment on the pit floor in that part of the pit and will involve additional rock bolting on the footwall.
We presently estimate that program will cost about AUD 15 million, spread over this financial year and next financial year. To put it in context, that's the equivalent to the current value of one high-grade shipment. It's less about money, this issue, and it's more about safety and ensuring that as we get deeper in the pit, we're very comfortable with people working underneath that footwall.
The overburden stripping program at Koolan is to date progressing satisfactorily. Our objective is to substantially complete it in the next six or so months and significantly expand the high-grade ore production and cash flows from that point onwards. For those who've seen the Koolan mine life, that is the key and the real prize for us, in that the removal of this overburden this year sees then the mine having, the following four or five years, a much lower stripping ratio and higher sales and lower unit cash costs. That's the prize and the key value creation exercise for us.
In the Mid West, the final half year of the low-grade sales program from Extension Hill was very successful. We sold 1.2 million wet metric tons, which was at the top end of our guidance, and our unit cash costs of AUD 40 per ton sold FOB was at the bottom end of our guidance. The operation generated cash flow of AUD 20 million in the half year, and that included AUD 4 million of the ongoing rail credit refund that we're receiving.
All up, the low-grade sales program generated sales of almost 4.1 million tons over its 19-month lifespan for a cumulative operating cash flow of just over AUD 30 million. That was a great effort by the Mid West team, given we were initially targeting sales of just 1 million tons. The Extension Hill site is now in closure mode, and most of the physical rehabilitation work is nearing completion.
The rehab provision at 31 December for the site is AUD 9.2 million, and much of this we expect to incur over the following 12 months. As I mentioned, the historical rail refund contributed AUD 4 million to cash flow in the half year, and has to date contributed just over AUD 12 million to the company at a general rate of about AUD 2 million per quarter.
The refund is linked to third-party rail volumes on parts of the Mid West rail network and is capped at a cumulative total of AUD 35 million, subject to indexation, which at current rates we'd expect to receive over the next three years. Turning to Shine. With Extension Hill heading to closure, we're focused on bringing our Shine project into production.
Shine is located approximately 85 km north of Extension Hill and is expected to extend the life of our Mid West business by at least another two years, and potentially beyond that by another two years if conditions remain supportive. Site works are well underway at Shine. Following the end of December, we received the final mining approval for the open pit operation from the Department of Mines W.A.
We're on track to commence mining pre-stripping activities in April, en route to first ore sales targeted for early in the September quarter. Spending in the December half was modest on Shine at just over AUD 1 million, with the bulk of the AUD 17 million-AUD 20 million development capital investment to be spent in the next few months. After which, we'll then head into initial mining for the June quarter, so from April, May and June.
During that period, we'll produce ore stockpile for sale, and we expect to spend about AUD 15 million on pre-production activities through that quarter. We'll provide more details on Shine as we get closer to the start of mining, but as a reminder, we expect it will contribute about 1.5 million tons per year of 59%-60% Fe direct shipping ore, and that's hematite, per year at a cash cost of AUD 65 - AUD 70 per ton FOB before royalties.
At current prices, where iron ore is today, obviously the project is shaping up as a very attractive incremental extension to our Midwest business, and we're keen to get into it as promptly as we can. Just before I finish, I wanted to make some comments about our outlook for the rest of this financial year and into next.
As we've already noted, from a volume perspective, our sales guidance for the current 2021 financial year remains unchanged at 2.8-3.3 million tons of ore. Within this, we expect Koolan Island sales to be around 1.8 million tons, as I mentioned. While group cash costs were AUD 56 FOB for the December half, before the capital investments we described, the lower sales from Koolan in the current half-year period will mean that group cash costs per ton of ore sold over the full year will be slightly higher than originally expected.
We expect now those costs to increase to between AUD 65 and AUD 70 per ton FOB from our previous estimate of AUD 60-AUD 65. This is based on expected Koolan Island site cash costs of between AUD 70 and AUD 75 per ton sold FOB.
Cash costs exclude the planned capital waste stripping investment for the full year, which we estimate will be around AUD 130 million, and capital improvement projects, including the crusher upgrade and the footwall's ground support program that I described. All up, those things will be somewhere between AUD 25 million and AUD 30 million for the year. As we described in detail, this financial year is one of investment in the Koolan Island operation and the start-up of Shine.
We expect our cash costs to reduce rapidly once we complete the current peak stripping phase at Koolan later this year, after which ore sales and cash flow ought to increase quite substantially, That will be complemented by sales and additional cash flows from Shine. We have been through a busy period and have a busy period still ahead of us. In closing, I think we've delivered a steady financial result.
There's a lot of operational things occurring within the business, and that leaves us well-placed to capture the benefits of our investment at Koolan as the stripping phase is completed, and in particular at Shine, as it contributes to solid cash flows at current iron ore prices. On that note, after that summary, I'll hand back to you now, Bethany, for any questions that anyone might have.
Thank you. Institutional guests are now invited to ask questions by pressing star one on your telephone keypad now. You will hear a tone as you join the queue. Please listen for your name, and I will introduce you through to the call to ask your question. That is star one on your telephone keypad now. We do have a question. Our first question is from Paul McTaggart. Please go ahead, Paul.
Hi, Peter.
Hey, Paul.
I hope it's okay for me to ask a question, given I'm not an institutional investor, but obviously an institutional stockbroker.
You're most welcome, Paul.
Okay. We're finally getting to that point where we can almost touch the post-stripping cash flows out of Koolan, and it seems to be going to coincide with a decent iron ore price environment. You've obviously been busy with a bunch of operational stuff. Have you started to turn your attention to potential investment opportunities?
I know that hasn't been a focus while you've been doing Koolan Island rehab, well, fixing the seawall and all the stripping and all that sort of stuff. Are we at a point now where you're starting to come up for air and look a bit more broadly because that cash war chest is going to build pretty aggressively over the next 18 months?
Paul, good question. In a quick answer is yes, because we have obviously had a roving program looking at things that we're interested in across the country. We've had one or two things overseas as well that we've focused on and done due diligence. That's hard for us at the moment with the travel restrictions that exist.
We've focused more on Australia and Western Australia. We have taken some small stakes in a number of junior companies, some of those developers, some of those operators. We're getting to know those companies, understand what could occur there in the future and what the opportunities might be. At the same time, there are a number of larger acquisition DD opportunities that we're working on as well. I guess short answer is yes.
We've spent a lot of time in the last little while focusing on Koolan operationally, as you mentioned, and in particular, also starting Shine. That's been handled all internally, existing people from the Midwest and our commercial and corporate teams in Perth, who've done a great job on getting that to the position it is now. That's been a big growth option for us, too. There we go. There's the answer. Now, over the next couple of years, the business development aspects are at the forefront of what we're looking at.
Well, I've still got the floor. In terms of costs, once we put aside the stripping, is it too early to sort of give us guidance beyond December in terms of how you think those Koolan costs might settle out?
Look, we'll seek to update that once we know the timing of what our material movement looks like later on this year and in future years. I think if you take the general rule where we think of our costs on Koolan Island, aside from crushing and ship loading, which are pretty low, as a cost per ton moved, and that's a ton of ore or a ton of waste. We're targeting around AUD 7 - AUD 8 per ton of material moved. Now, at the moment, we're running at a strip ratio of + 10 - 1. When you then run that unit cost through and divide it by the tons sold, you can see that kind of number.
As we come through that strip rate or that elevated strip period, our strip ratio will fall to more like 3 or 4 -1 , and then ultimately two and one over the following years. You'd think there would be a pretty good case for a step down and a pro rata reduction in those costs. It won't be exactly dollar for dollar because Koolan as an isolated site, and it's an island, does have a level of fixed costs that are there irrespective of the volumes done.
I think what we'll see is our cash costs coming down to well below half where they are now, and then even further as those tons move through. We'll put further clarity on that from a mine life perspective as we get through this waste stripping.
Thanks, Peter.
Thank you, Paul. Our next question is from Hayden Bairstow. Please go ahead, Hayden.
Yeah, morning, guys, or afternoon if you're in Sydney. Just a couple of quick ones from me. Firstly, just on the grade profile on the second half, we sort of had an indication it was going to get lower down the Platts benchmark, I would have thought, but certainly not you guys becoming a sub 60% producer out of Koolan. Just keen to understand that a bit more and how that profile looks over the half, and what are the impurity levels?
I mean, what percentage discount off benchmark should we assume for the second half sales? Can you give me an indication of what that might look like? I guess on the satellite pits that you're talking about up there, what are the sort of tonnage likelihoods? Are these things meaningful? Are they better grade? Can you bring them in shorter term, or is it this is all sort of longer term stuff you're looking at?
Sure. Okay. All right. First of all, on the second half that we're in now, the grade guidance we've given is that 58%-61% iron. The main impurity in that is silica. The alumina is still low and the phosphorus very low. It's really an exchange of iron for silica. The reason that the grade is lower is because the places we are mining whilst we're doing that major strip in the main pit are up on the higher western end where the grade is lower.
As that western end is mined, it might actually get a bit better as we move down the benches, but these are our estimates for the moment. We're also picking up graded iron ore, sometimes high grade, but it'll be blended in elsewhere in the pit as we do the stripping next to the footwall.
That's really just a function of the timing of the waste movement. Once we're able to reaccess the pit floor in the western end of the pit, we know there are broken stocks and there's ore there, which is + 65% iron. That's our target to get back there as soon as we can. Obviously we need to make that footwall area where we had that rock slip before Christmas sure, so that we're comfortable with people working under it. We think we can. That's based on the advice we've received and the work of our geotech teams on site. We'll be looking to do rock bolting in some of that upper area to ensure we can reaccess the western end.
That's really the reason for that grade. It would be sold off the 62% Platts benchmark. Typically at the moment, the 58 index is seeing a metal unit discount of around 10% off the 62 index. You should use that as the assumption. Our contracts are all market price contracts. The penalties we typically see, or the penalties we have in our contracts, tie into the reported Platts numbers.
In the satellite pit question you have, there's one called Mangrove, which is located near the crusher. There are others that have been mined previously, Acacia East, et cetera. There's also another one that we haven't really focused on yet called Coral Trout. All good names of animals up in that part of the world or plants up in that part of the world. The tonnages in these things are a few million tons. They have existing resources in them.
The grades are around 60%-62%. They're good graded satellite ore bodies, and our objective will be try to, this year, organize the heritage approvals, do the drilling, and work out our mine plans. Some of that work is already well underway, and we obviously do drilling in dry season rather than wet season.
Yeah, okay. Just so on that discount, so run the $58 price and then take a bit off the top?
No, no. The 58 Platts index at the moment. You can calculate by looking at the 62 Platts index, adjusting pro rata for grade, so 58, 62s, and then taking off 10%. That will give you the 58 index. When we're selling in that range between 58 and 62, that's a reasonable estimate to use. Start with 62, adjust for grade, and take off 10%.
Yeah. Okay. Just to follow on, mate. I guess unless you're sitting in W.A., you probably don't notice it, but it hasn't not been raining up there in the Kimberley. How do we think about the March quarter? I mean, you had on the Broome, it'll be your data kit to collect, but I think even Koolan was raining fairly yesterday. Are we expecting a sort of better Q4 than Q3, just given the normal sort of wet impacts?
What we're seeing is our total tonnes moved from December into January has increased. January into February is improving. We'd expect that to continue improving with the drier weather. The June quarter will be a higher material movement than the March quarter. That's clear. We need to tie it in with that footwall ground support work we're doing. That's the plan at the moment. We're looking to try and move as many tonnes as we can in that period.
Okay, mate. All right. Good stuff. Thanks.
Okay. Cheers. Back to you, Bethany. Anything else?
Thank you, Hayden. I will hand back to you now, Peter. That was our final question. Thank you.
Okay. Thanks, Bethany. Thank you all. If you do have any further queries, then please call either John Phaceas or myself, and we can chase those down for you. Otherwise, have a great day. Cheers.
Thank you, everyone. As your host has closed the call, I will now disconnect your lines. Thank you for attending.