Thank you for joining today's teleconference of 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, Jewell Dobson and External Relations Manager, John Fasius. 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 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. Good morning, all, and thanks for joining us to discuss our half year results. As usual, I'll give a brief overview and then hand back to Bethany for any questions. So 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 Kulin. In particular, we benefited from strong iron ore pricing, particularly that rise in December, which meant we added to our cash reserves at a time when we are undertaking a substantial overburden removal program at Coolman 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 twothree to $74,500,000 compared with $44,600,000 in the prior corresponding half year period. And that was on the back of the total shipments we made of 2,300,000 wet metric tonnes and sales revenues of $240,700,000 FOB. All of our revenues and costs we report in free onboard terms. Our group cash flow totaled $52,000,000 for the half year, and that comprised $38,000,000 from Kulin Island and $20,000,000 from the Midwest, plus interest income of around $3,500,000 some small development spending on Shine of around $1,000,000 and administration, finance and other costs of $8,800,000 We also, in the half year period, paid the cash component of the 20 nineteentwenty twenty final dividend, which was $16,300,000 being the cash component. The rest was paid in DRP shares.
And 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 $12,400,000 to $435,700,000 at 31 December. So that was a positive outcome given the weather and mining interruptions that we faced at Kulin late in the period and puts us in a good position to complete the elevated stripping phase at Kulin over this year. I'll discuss the outlook and guidance in a little more detail shortly. In relation to COVID-nineteen, before I go into the financials, I should just give a couple of quick comments as to the impacts on our business.
And 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. And notably, the important thing for us was we were able to return fairly promptly to standard 2 and 1 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 have 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.
So just getting back to the numbers. In relation to pricing, weighted average realized price for all of the iron ore that we sold in the half year was $104 per ton FOB and that was compared with $84 last financial year. Within that, our high grade Cooling Island fines realized an average price of US1.21 dollars per dry metric ton, FOB, and our low grade Midwest fines were US30 dollars a tonne and our low grade lump were US43 dollars per tonne. It's worth noting that while our Midwest low grade sales were conducted on a fixed price basis, As I mentioned, our coolant sales generally capture the average price for either the 1st or second month following shipment. This enabled us to capture the benefit of rising prices in December 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, and this is promising for both Coolin and the planned start up of Shine in Spring West. Regarding our costs, our group unit cash costs averaged Aussie dollars per tonne FOB in the half year, and that was before the investment we made in overburden stripping at Kulin and other capital projects at that site and in line with our earlier guidance. And I'll talk more about the cash cost to each operation shortly. At Coolwin Island, so turning there now, we've reported while our shipments were on plan at 1,100,000 tonnes, 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 and then by some heavy wet season rain leading to Christmas.
Our site cash costs averaged Aussie dollars per tonne FOB in the period before the waste stripping investment of $63,000,000 and capital projects of just under 5,000,000 dollars And that meant that site cash flow of $38,000,000 occurred for the half year. So that was a pretty good result at a time when we're undertaking major waste cutback phase. Although the total material movement in the half year rose by about one third. We are going to have some impacts from the interruptions we incurred in December, and that will also impact the unit costs. So notably, we expect Coolum sales to be at the lower end of our guidance.
So we're not changing our guidance ranges. And that will be around 1,800,000 wet metric tons. The majority of ore produced in the period from Coolin will be from the upper western end, which is lower grade than the high grade portions of the main pit. And the average grade of sales in the current half is expected to range between 58% 61% FE, which is down from the +63 percent FE we achieved in the December half. We expect to regain mining access to 65 percent FE in the September quarter, and this is based on current schedules and the deployment of additional ground support on certain parts of the Upper Western Wall 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, that program will cost about $15,000,000 spread over this financial year and next financial year. And to put it in context, that's the equivalent to the current value of 1 high grade shipment. So 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 Kulin is to date progressing satisfactorily and our objective is to substantially complete it in the next 6 or so months and significantly expand the high grade ore production and cash flows from that point onwards.
And for those who've seen the cool and 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 following 4 or 5 years much lower stripping ratio and higher sales and lower unit cash costs. So that's the prize and the key value creation exercise for us. In the Midwest, the final half year of the low grade sales program from Extension Hill was very successful. We sold 1,200,000 wet metric tons, which was at the top end of our guidance, and our unit cash cost of AUD 40 per ton sold FOB was at the bottom end of our guidance. So the operation generated cash flow of AUD 20,000,000 in the half year, and that included $4,000,000 of the ongoing rail credit refund that we're receiving.
All up, the low grade sales program generated sales of almost 4,100,000 tonnes over its 19 month lifespan for a cumulative operating cash flow of just over $30,000,000 So that was a great effort by the Midwest team given we're initially targeting sales of just 1,000,000 tonnes. So 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 $9,200,000 and much of this we expect to incur over the following 12 months. As I mentioned, the historical rail refund contributed $4,000,000 to cash flow in the half year and has to date contributed just over $12,000,000 to the company, a general rate of about $2,000,000 per quarter. The refund is linked to 3rd party rail volumes on parts of the Midwest rail network and is capped at a cumulative total of $35,000,000 subject to indexation, which at current rates we'd expect to receive over the next 3 years.
Now turning to Schein. With Extension Hill heading to closure, we're focused on bringing our Schein project into production. Schein is located approximately 85 kilometers north of Extension Hill and is expected to extend the life of our Midwest business by at least another 2 years and potentially beyond that by another 2 years if conditions remain supportive. Site works are well underway at Schein and following the end of December, we received the final mining approval for the open pit operation from the Department of Mines in WA. We're still on track to commence mining pre stripping activities in April on route to 1st ore sales targeted for early in the September quarter.
Spending in the December half was modest on shine at just over $1,000,000 with the bulk of the $17,000,000 to $20,000,000 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 June. And during that period, we'll produce ore stockpiles for sales, and we expect to spend about $15,000,000 on preproduction activities through that quarter. I will provide more details on Iron and Shine as we get closer to the start of mining. But as a reminder, we expect it will contribute about 1,500,000 tonnes per year of 59% to 60% FE direct shipping ore, that's hematite, per year at a cash cost of $65 to $70 per ton FOB before royalties. So 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 trying to get into it as promptly as we can.
So 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 2,800,000 to 3,300,000 tonnes of ore. And within this, we expect Korn Island sales to be around 1,800,000 tonnes, as I mentioned. While group cash costs were 56 FOB Aussie for the December half before the capital investments we described, the lower sales from Coolin in the current half year period will mean that group cash costs per tonne of ore sold over the full year will be slightly higher than originally expected, and we expect now those costs to increase to between Aussie $0.65 $0.70 per tonne FOB from our previous estimate of $0.60 to $0.65 This is based on expected Kulin Island site cash costs of between Aussie dollars and Aussie dollars per tonne sold FOB. Cash costs exclude the planned capital waste stripping investment for full year, which we estimate will be around $130,000,000 and capital improvement projects, including the crusher upgrade and the footwall ground support program that I described, all of those things will be somewhere between $25,000,000 30,000,000 dollars for the year.
As we describe in detail, this financial year is one of investment in the Kulin Island operation and the start up of Shine. We expect our cash costs to reduce rapidly once we complete the current peak stripping phase of Coolum later this year, after which all sales and cash flow will obviously increase quite substantially, and that will be complemented by sales and additional cash flows from Schein. So
we have
a have been through a busy period and have a busy period still ahead of us. So 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 Kulin as the stripping phase is completed, and in particular, at Shine as it contributes to solid cash flows at current iron ore prices. So on that note, after that summary, I'll hand back to you now, Bethany, for any questions that anyone might have.
Thank We do have a question. Our first question is from Paul McTaggart. Please go ahead, Paul.
Paul. Hi, Peter. Hi, Paul. Hi, Paul. Hi, to take cash from your last question, given I'm not an institutional investor, but obviously an institutional stockbroker.
You're most welcome, Paul. Okay. So I mean, we're finally getting to that point where we can almost kind of touch the post stripping cash flows out of Koolan. And it seems to be going to coincide with a design oil 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 mean, I know that hasn't been a focus, while you've been doing Cool and Island rehab. It's well, fixing your seawall and all and stripping all that sort of stuff. But are we at a point now where you're starting to kind of come up through 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. 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 1 or 2 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. So we focus more on Australia and in Western Australia.
We have taken some small stakes in a number of junior companies, some of those developers, some of those operators. And so we're getting to know those companies, understand what could occur there in the future and what the opportunities might be. And at the same time, there are a number of larger acquisition DD opportunities that we're working on as well. So I guess, short answer is yes. We've spent a lot of time in the last little while focusing on Coolum 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. So that's been a big growth option for us too. So there we go. There's the answer. And now over the next couple of years, the business development aspects are at the forefront of what we're looking at.
And in terms of well, I still got the floor. In terms of costs post once we put this up as stripping, can you is it too early to sort of give us guidance beyond December in terms of how you think those coolant 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. But 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 tonne moved and that's a tonne of ore or a tonne of waste. And so we're targeting around $7 to $8 per tonne of material moved. Now at the moment, we're running at a strip ratio of plus 10 to 1. And so when you then run that unit cost through and divide it by the ton 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 to 1 and then ultimately 21 over the following years. So you think there would be a pretty good case for a step down and a pro rata reduction in those costs. Although it won't be exactly dollar for dollar because Coolum has an isolated site and it's an island, does have a level of fixed costs that are there irrespective of the volumes done. So 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. But 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 Vester. Please go ahead, Hayden.
Good morning, guys or afternoon if you're in Sydney. But just a couple of quick ones from me. Firstly, just on the grade profile in the second half. I mean, I had a we sort of had an indication that was going to get lower, sort of, than it was benchmark, I would have thought, but certainly not you guys becoming a sub-sixty percent producer out of cool. And so 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 of benchmark should we assume for the second half sales? Can you give us an indication of what that might look like? And then I guess on the satellite pits that you're talking about up there, I mean, what are the sort of tonnage likelihoods? Are these things meaningful? Are they better grade?
Can you bring them in shorter term? Or is this all sort of longer term stuff you're looking at?
Sure. Okay. All right. So first of all, on the second half that we're in now, the grade guidance we've given is that 58% to 61% iron. The main impurity in that is silica.
The alumina is still low and the phosphorus very low. So it's really an exchange of iron for silica. And 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 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. And we're also picking up graded iron ore, sometimes high grade, but it will be blended in elsewhere in the pit as we do the stripping next to the footwall.
So that's really just a function of the timing of the waste movement. And then 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 plus 65% iron. So that's our target to get back there as soon as we can. But 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. And we think we can.
That's based on the advice we've received and the work of our geotech teams on-site. So we'll be looking to do rock bolting in some of that upper area to ensure we can reaccess the Western end. So that's really the reason for that grade. It would be sold off the 62% Platts benchmark. And typically at the moment, the 58 index is seeing a metal unit discount of around 10% of the 62 index.
So you should use that as the assumption. Our contracts are all market price contracts. And the penalties we typically see or with penalties we have in our contracts tie into the reported Platts numbers. In the satellite quick question you have, there's one called Mangrove, which is located near the crusher. There are others that have been mined previously, Acacia East, etcetera.
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 1000000 tons. They have existing resources in them. The growth is around 60% to 62%. So 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. And so some of that work is already well underway. And we obviously do drilling in dry season rather than wet season.
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. So when we're selling in that range between 5862, that's a reasonable estimate to use. So start with 62, adjust for grade and take off 10%.
Yes, okay. And then just a final one, mate. I mean, I guess, unless you're sitting in WA, probably don't notice it, but it hasn't not been raining up there
in the Q3. How do we
think about the market quarter? I mean, you had a Feb on a broom sort of media data kit to collect, but I think even Coolum was raining today, I think we yesterday. So is it are we expecting a sort of better Q4 than Q3 just given the normal sort of wet impacts?
Look, what we're seeing is our total tons moved from December into January had increased. So January into February is improving. We'd expect that to continue improving with the dry weather. So the June quarter will be a higher material movement than the March quarter. That's clear.
So we need to tie it in with that footwall ground support work we're doing, but that's the plan at the moment. So we're looking to try and move as many tonnes as we can in that period. 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, Facius 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.