Ladies and gentlemen, thank you for standing by and welcome to the Regis Resources half year results conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead.
Thanks, Faizan, and thanks everybody for joining us this morning. I'd also like to mention that Jon Latto, our CFO, and Ben Goldbloom, our head of IR, are both on the call as well. All right. Talking through the FY 2022 first half year results. Clearly this has been a challenging first half for us operationally, as I think we've covered a number of times prior to this, but now we're seeing here the impacts of this flowing through into our financial results for the first half of the year. Look, having said that, as some of the results are still quite strong, our EBITDA, AUD 196 million. I'll just cover off on the highlights and then pass over to Jon to run through some of the detail behind these numbers.
Our EBITDA margins are still quite strong at 40%. Cash flow from operating activities was AUD 136 million, and the cash in bullion at the end of December was AUD 180 million. All of this delivering to us an underlying NPAT of AUD 44 million. Look, while we continue to invest capital in our operations, and the recent underperformance of Duketon has put clearly significant pressure on our overall cash flow. This is reflected in our cash balance at the end of the reporting period. As we look forward, we saw some risks. A continuing cash requirement for these investments, both at Duketon and at Tropicana. We see clear pressures on the cost environment in labor and on, in some areas on suppliers.
Certainly in the near term, we see a building risk of COVID here in WA as the borders open and which is an important part of us longer term recovering, but it's presenting a near-term risk just with the sheer growing numbers of community cases and the potential flow on that that might have into our operations. With these circumstances under consideration or taken into consideration, the board has taken a prudent decision on risk and decided to hold off and not declare an interim dividend for the first half of this year. Looking very quickly at slide four. This is primarily a financial discussion, but I'll cover off our safety is still pleasingly below the industry average, below being where we want to be.
Our COVID management to date, we've had no cases, confirmed cases within our business or on our operating sites. We've got strong managerial positions with diversity. On the environmental front, we continue to build on our catching up on our rehabilitation, and we're seeing an increase on that this year, 0 non-compliances. Look, on the ESG front, we feel that our results and our performance there has been quite pleasing. What I'd like to do now is to get into the meat of this and hand over to Jon Latto, who will talk us through a bit more of the detail on the financial results. Thanks, Jon.
Thanks, Jim. If we turn to slide five, we see a summary of our financial results for H1, and I note the following. Revenue has increased by 22% compared to the comparable prior year period, which reflects the new scale of the business with the first full period of reporting with the inclusion of the company's investment in Tropicana. This increase in revenue occurred despite a 6.4% lower spot gold price than the comparable prior year period, and an additional 10,000 ounces was sold into the hedge book. With 50,000 ounces sold into the hedge book in the current half compared to 40,000 ounces sold into the hedge book in the comparable prior year period. I note that the impact of selling into the hedges in H1 is approximately AUD 42 million straight to the bottom line.
As Jim mentioned, we have a strong EBITDA result of AUD 196 million for H1, with a strong EBITDA margin of 40%. We have seen an increase in our cost of goods sold to AUD 427 million from AUD 267 million in the comparable prior year period. A difference of AUD 160 million, which I'll talk about more in a moment. We returned an underlying NPAT of AUD 44 million and a statutory NPAT of AUD 26.5 million for H1. With our statutory NPAT being impacted by a write-down of our stockpiles, and I'll also talk more about that in a moment. As Jim mentioned, we are expecting a stronger H2 driven by stronger gold output.
I mentioned before that our cost of goods sold has increased approximately AUD 160 million compared to the comparable prior year period. Excuse me. Of this increase, AUD 130 million relates to the addition of Tropicana to our portfolio, and AUD 30 million relates to Duketon. At Tropicana, we see that a sizable portion of the AUD 130 million in cost of goods sold is non-cash in nature. I'll talk to three of those non-cash items now.
When we completed the purchase price allocation exercise for Tropicana, approximately AUD 500 million was allocated to mine properties, and this has to be amortized through the profit and loss statement, which generated a non-cash amortization charge of approximately AUD 32 million for H1. We also recognized a depreciation charge of approximately AUD 17 million associated with our 30% interest in the property plant and equipment at Tropicana and the right-of-use assets. Finally, we recognized a non-cash write-down of our stockpiles at Tropicana of approximately AUD 14 million. And that's really arisen because we have to amortize the AUD 500 million component of the purchase price allocated to mine properties through the stockpile calculation.
If I look now at Duketon, the AUD 30 million increase in cost of goods sold at Duketon is partly related to increased labor and maintenance costs, as well as an increase in reagent unit costs and consumption, particularly at Tooheys Well, with its more complex metallurgical material. Moving across to page six of the presentation, we see four graphs that show our revenue, cash flow from operations, EBITDA and EBITDA margin, and they all remain strong despite a challenging half period. Page seven of the presentation shows a reconciliation of underlying EBITDA for H1 of 221 million to our statutory NPAT result of 26 million. Underlying EBITDA is the EBITDA result of 196 million for H1, with the non-cash inventory adjustments of AUD 25.3 million added back in.
The next bar in the waterfall chart shows our depreciation and amortization charges, and you can see that they're sizable at AUD 149 million for H1. Of the AUD 149 million, you can see in the notes to the P&L statement that about AUD 45 million relates to depreciation and AUD 103 million relates to amortization. If we look first at depreciation, you can see that it's increased to AUD 45 million from AUD 31 million in the comparable prior year period. This increase in depreciation predominantly relates to depreciation on Regis' share of the property, plant and equipment at Tropicana. Turning to amortization, you can see that this increased to AUD 103 million in H1 from AUD 44 million in the comparable prior year period.
As mentioned previously, a significant portion, which is approximately AUD 32 million of the increased amortization charge, relates to the amortization of the AUD 500 million that was allocated to mine properties when the purchase price allocation exercise was completed, associated with the company's acquisition of 30% of Tropicana, as well as amortization of deferred waste and some capitalized underground spend. There was also an increased amortization charge at the Rosemont underground at Duketon of approximately AUD 9 million, as production increased by almost 80% to 28,000 ounces in H1 compared to about 16,000 ounces in the comparable prior year period.
We also saw an increase in our amortization charge at Duketon, you know, of approximately AUD 12 million as we took the opportunity from the first of July to amend our amortization policy to amortizing on tons mined rather than tons milled, which is a policy that is better aligned to the depletion or addition to our ore bodies. The next major bar in the chart shows our income tax expense of AUD 23 million. Now, that's been adjusted for the estimated impact, tax impact of the inventory write down for H1. I'll actually talk about tax more in a moment when we look at the movement in cash and gold on hand across the period. The preceding factors demonstrate how we moved from an underlying EBITDA of AUD 221 million in H1 to an underlying NPAT of AUD 44 million.
The final bar in the waterfall chart shows the inventory write down on an estimated post-tax basis that we have recognized in the current half. Of the AUD 25.3 million inventory adjustment that we have recognized in the P&L statement, approximately AUD 14 million relates to Tropicana, and that's occurring, as I mentioned, because we need to include the amortization of the AUD 500 million component of the acquisition cost that was allocated to mine properties through our stockpile calculation. The remaining AUD 11 million relates to Duketon, and the majority of that relates to Duketon North, where we've undertaken the Duketon North extension.
These Duketon North extension ounces are more expensive, and although we know they will generate positive cash flow over the life, they do come with a higher strip ratio, which impacts the current stockpile cost calculation and requires us to take a non-cash stockpile write down as at 31 December. We will continue to monitor this situation as we move forward. Over on page eight, we have a waterfall chart that shows the movement in our cash and gold on hand balance from 30 June 2021 to 31 December 2021. Gold on hand is valued at spot at 30 June 2021 and also at spot at 31 December 2021. The waterfall chart won't reconcile directly back to the cash flow in the H1 financial report, as gold on hand is valued at lower cost or net realizable value for statutory purposes.
The waterfall chart shows that we opened at 1 July with cash and gold on hand balance of approximately AUD 269 million. The second bar in the waterfall chart then shows a strong cash flow from operations of AUD 175 million for H1. This bar is basically revenue from operations, less payments to suppliers and employees other than corporate costs, interest paid, and income tax payments, which we've broken out in the waterfall to provide some additional detail.
The next component of the cash flow waterfall is the capitalized mining costs, which start at AUD 117 million in H1 and shows that we've made a significant investment in our operations. This expenditure of AUD 117 million includes AUD 22 million in pre-strip activities, AUD 32 million in deferred waste costs, AUD 10 million in capitalized underground costs at the Rosemont underground, AUD 5 million in capitalized underground spend at the Boston Shaker underground at Tropicana, AUD 13 million in capital costs at the Garden Well underground as we continue to progress with bringing Duketon second underground mine online, and AUD 29 million towards the significant cutback that's taking place at the Havana open cut at Tropicana. The next bar in the cash flow waterfall shows our investment in exploration at Duketon and at Tropicana, as well as our expenditure at the McPhillamys Gold Project in New South Wales.
This has come in at AUD 33 million for H1. Moving on to the next bar in the waterfall chart, we see other CapEx spend for the half, which was AUD 35 million. This includes 8.1 million dollars on fixed asset additions at Tropicana, which includes items like a TSF raise, a bridge repair, and a thickness swap upgrade. AUD 6.4 million on underground infrastructure associated with the Garden Well underground. AUD 2 million on land acquisitions associated with the McPhillamys Gold Project in New South Wales. AUD 2.5 million on DSO processing upgrades, as well as lifters and liners across the Duketon operations, and AUD 15.6 million in right of use asset payments across Duketon and Tropicana.
Now, that's arisen under the recent changes that have taken place for lease, leased assets, where we are obliged to recognize some payments that we make to our suppliers as leases, where we can direct the use of equipment that's provided by the relevant supplier. The next bar shows corporate costs before general overhead allocations, and that's sitting at approximately AUD 14 million for the half. We then show interest and residual transaction costs associated with the company's acquisition of 30% of Tropicana, which sat at AUD 12 million, and I note that the bulk of that, is residual transaction costs that were paid in July of 2021.
We then paid cash dividends of AUD 22 million during H1, and finally, we paid income tax of AUD 31 million during the half, which brings us to our closing cash and gold on hand balance of AUD 180 million at 31 December 2021. At this point, I think it's relevant to say a few words about income tax. As I mentioned, we've paid AUD 31 million in H1 for income tax payments. In February, so this month, we received a tax refund of AUD 23 million for income tax paid in FY 2022 to date, and we're expecting to receive a further AUD 12 million refund in H2 associated with the FY 2021 tax year.
These refunds are a combination of the substantial tax benefits that have accrued to the company associated with our investment in Tropicana and our recent lower profitability as shown in our profit and loss statement. Page nine of the presentation talks to some components of the company's balance sheet. I've just spoken about the tax refunds we've received this month and expect also to receive in April, which total approximately AUD 35 million. I won't go into any further detail on that now. Touching briefly on the debt that we have, as you know, Regis took on AUD 300 million in debt associated with its investment in Tropicana, and that had a tenure of three years, and so will mature in Q4 FY 2024. As we look to the capital requirements associated with McPhillamys, we will look at potential options for refinancing this debt.
We also continue to make substantial inroads into our hedge book, with the balance reducing by a further 50,000 ounces during H1 compared to 40,000 ounces in the comparable prior year period. As at 31 December, the company's hedge book sat at 270,000 ounces, down from its peak of circa 450,000 ounces a few years ago. I'll now hand back to Jim.
Thanks, John. Look, I'll just wrap up on guidance on slide 10. The guidance is unchanged as it was when we released back on earlier when we put out our quarterly results. Pardon me. You see the group production outlook is 420,000-475,000 ounces. Our AISC has a range of AUD 1,425-AUD 1,500. Growth capital and exploration at McPhillamys remains unchanged. You know, we are expecting a stronger second half, and that is really coming from primarily from increased feed grades across Duketon. We'll see high-grade feeds into Tooheys Well as the activity to modify that circuit and accommodate that more complex material albeit higher grade starts to get completed.
We're also seeing some scheduled high-grade stopes coming in from Rosemont underground, which we'll see over the coming months. We will also see some improved grade delivery. We are seeing some improved grade delivery at Moolart Well, from the pits, which means we've been able to reduce and, as planned, our low-grade feed from low-grade stockpiles. You know, partway, halfway through the third quarter, we see our production run rate is basically on plan, pleasingly. As a result of this guidance and the stronger performance in the second half, we're also expecting to see the AISC drop quite significantly from the first half of an average of AUD 1,527.
We'll reduce down obviously to deliver into that guidance range that we've provided above for the full year. Look, there's no doubt, I'll wrap it up and open up to questions shortly. This has been a challenging first half for us operationally. As I said before, we've seen the impacts of this flow into our business. The important thing is we are anticipating a strong rebound in the second half of FY 2022 operationally, and all of the flow-ons there financially. We'll see significant lift in production and a subsequent overall lift in the business performance. I'll leave it there. I won't dwell any longer on the material. I will now pass it back to Sazan, and we'll open it up for questions.
Thank you very much. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from Kate McCutcheon from Citi. Please go ahead.
Hi, good morning, Jim and Jon.
Hi, Kate.
Thanks for the call and the detailed explanation on the financials. On the dividends, you've typically been at the top of the payout ratios for gold miners. No div this half was a bit of a surprise, and I appreciate that you've taken a risk-averse stance here. How should I think about modeling your dividend going forward? Do you think that you need to give the market clarity about what that will look like?
Well, we don't have a dividend policy. It's important for us, for exactly these sort of times, to allow us to be clear on the fact that we need flexibility depending on the circumstances, set in place a policy or any detail on this and, you know, it doesn't take much for things to change, and you're backtracking. Basically, it has been a difficult first half for us. It's very clear. You know, without wallowing around in it, you can see what's happened over the last six months or so. We, the board, as I said, don't have a policy on dividend payout or dividend ratios.
We will consider at the end of this half how the business has performed. We will be looking at what the outlook is for gold price. I mean, it's certainly very strong at the moment, which is pleasing to see for gold. I'm not sure whether some of the reasons behind that are you know, there's some concern there, which is always a instability gives us a strong gold price. But we will look to see how the ongoing longer term capital demands are for the business. Clearly, there's McPhillamys sitting out there. So we'll look at this time in six months' time, or five or six months' time, how has the business performed? Has the recovery in the second half performed as we expected?
We'll be looking carefully to see whether it's appropriate to pay a full year dividend, taking into account all those risks. We are not in a position and not, you know. I mean, the other risks that are sitting around clearly as well are in the medium, short to medium term are the impacts of COVID as it starts to spread through the community over here in the west, which where we haven't suffered the impacts that the East Coast has been enjoying for the last many months, year. You know, we're not in a position to give guidance. We haven't and we won't. We just give as best as we can to understand the circumstances of what prevails around that decision when we make it.
Yeah. Okay. 'Cause I guess Regis has typically been, you know, a dividend stock in some ways, and so this is a change to what you-
It has.
were looking for.
It has, Kate. Although, you know, that period was when it was low capital investment and it was in, you know, I guess what you'd say is a harvesting mode. Certainly there's no doubt you'd see, not just in the last six months, but over the last couple of years really, we'd been reinvesting back into the company. During that time, we have been able to continue to pay a dividend, so we haven't walked away from it. However, right in the last six months, with our cash balance moving in the direction that it did, along with the known capital in front of us, we just saw it as being prudent to hold back at the moment. That doesn't mean that it may not start up.
As I said, that depends on what could be quite significant recapitalization phase or capital phase for the business as well for McPhillamys. Of course, if something is that significant might involve looking at using our strong balance sheet a little bit more as well. We're very cognizant of the fact that Regis is known as a dividend payer, and we would, I guess, dearly have been able to run the business like that forever, but businesses go through cycles, and we're in a cycle that involves some significant reinvestment.
Yeah. Okay. Secondly, this time last year, you were expecting a IPC recommendation from McPhillamys within the month. Fast forward a year, we haven't heard a lot about the progress. Are there any green shoots you can talk to or any progress, any updates on how we should think about timing from here?
Green shoots. Yeah. Look, again, whip a snippet off every now and again. Look, I think certainly a year ago the message we were getting was quite encouraging. We've tended to be a little bit disappointed with the speed. You know, the issue sits in one or two key areas. We are now really quite reluctant to make any kind of timing prediction because we've been disappointed in the past with how some things have progressed as people indicated, whereas others haven't. We are seeing positive progress. We still believe that this project is permissible, and it's a matter of time. It's not if, it's when. You know, we do know that we have strong support.
We know that the local member is a deputy premier and is supportive. There's been some ministerial changes in New South Wales which has sort of slowed the process up a little bit for the end of last year and over Christmas, but everybody's back at work now, and we do know that the state departments are working on resolving the one or two outstanding state-related issues. We are pleased to see it progressing. We're frustrated with the rate of progress, absolutely frustrated with it. You know, we can't quit. It's a great project, 2 million ounces, very strong. Certainly in this price environment, it's a fantastic project, probably one of the largest undeveloped projects in Australia at this far progressed.
Yeah, it's frustrating, but it is what it is, and we're working hard to progress it.
Yeah. Okay. Lastly, just for John, is that AUD 14 million of corporate costs what we can really expect going forward with Tropicana on board?
I think, Kate, like I mentioned in the, so when I was talking to the numbers, you know, we haven't allocated out, you know, a bunch of costs to say, you know, exploration and McPhillamys and feasibility. I mean, certainly some of the labor cost has been allocated out. Things like, you know, office rents and all that sort of stuff, we don't bother allocating it. I think on a, on a sort of a general unallocated basis, yeah, I think that's probably about the number to expect.
Yeah. Thank you.
Thank you. The next question comes from Jack Kidd from Bank of America. Please go ahead.
Thanks, good morning, everyone. Just two quick questions on cash flow and on the dividend again. You know, I really appreciate the comments you made on the in your opening remarks and the presentation. Just curious, was there any sort of one-off impacts in there in terms of working capital for the in terms of cash flow? I did see that there was a bit of an inventory gain on the balance sheet at the end of the half. Just whether that will be released a little bit this half. Then secondly, I guess just going back to the final dividend, you know, if or when McPhillamys is approved, does that basically mean that you will not be paying a dividend whilst that CapEx spend is being committed to? Thanks.
Well, I'll answer that second question first, and I'm afraid I didn't. I think, John, did you pick up that?
I think so.
That first question?
Yeah.
Um, so.
You go ahead.
Yeah. Yeah, on answering the second piece on the dividend, we have, you know that the circumstances of whether we would be paying a dividend under the conditions where we're constructing McPhillamys will depend on a number of things, not the least of which is price, cash flow at the time, and us considering, you know, that a business is designed to make profit and return it to the shareholders, and also take some of that and reinvest it for the future. The bottom line is we don't have a clear position on that yet, and we won't until we get closer to the time. Certainly, as I said, our options are everything from, you know, we're anticipating that through that period, Tropicana will be in a very strong cash flow making position.
I mean, we're very pleased with the way Tropicana is playing out, and certainly that was an important part of that investment decision that we made. You know, Duketon will also be in a stronger position then as well. It's quite possible that we could make a decision to fund it all out of cash flow, and hold back. The other side of it is it would make some sense to put a balance sheet to work a little bit and be in a position to continue to pay. I'm not answering your question because I don't have an answer to it. I'm just telling you the things that we will be considering at the time. I'll pass over to you, Jon, for that first question.
Yeah. So Jack, thanks. In relation to your first question, I'd just make two observations. First of all, in relation to our cash balances, we did see some residual costs associated with the Tropicana acquisition flow into the early part of this current half. If you look at that cash flow waterfall, there's a $12 million bar. The majority of that is, you know, some transaction costs associated with that acquisition. We don't. We certainly don't expect those to recur. In relation to the second component to your question, yes, we have built stockpiles across the half. You know, as to whether I just can't quite recall as to whether they'll unwind across, you know, in the next half or not, but I'm happy to.
I can, yeah, have a look into that for you and have a discussion offline with you.
Well, some of the
That's.
Of the high grade, Tooheys Well, which was building up in the first half.
Yeah.
We built stockpiles of the high grade Tooheys Well because we weren't prepared to put that through the mill and suffer the higher, significantly higher recoveries. We basically continued to run the mine as scheduled, build up the Tooheys Well stockpiles. Now that we're implementing the circuit modifications that we needed to, we're back slowly increasing the rate of feed of that to as well. I would imagine that. I mean, that's basically where part of the high grade comes from in the schedule in the second half. I'd imagine we'll be pulling some of that down.
That's really helpful. Thanks, guys. Just one quick last one. Just on Rosemont, post the wall slip. Has your understanding there changed at all, around some of the recoverability of those assets?
Not from the potential of getting access to it from the surface. Work continues on accessing it for options for accessing it from underground. We certainly think there's potential there, but we haven't made any, you know. The work's underway at the moment, and so far, we haven't seen any reason why we couldn't at least get some of it.
Perfect. Thanks, Jim. Thanks, Jon. That's it from me.
Thanks, Jack.
Thank you. The next question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Jim, John, Ben, good morning. Jim, response to the last question. Access via the open cut definitely 100% categorically ruled out for the slip areas?
The access from the open cut's from a completely different area, to that. I think I answered that one before.
Um-
It has not impacted on the slip we enjoyed in the Rosemont main pit. It was actually quite small. The reason it was an issue was less around global stability of the wall and more around the potential risk of any more small slips. Because of the nature of the bottom of the pit was so small and tight, it was putting people at risk that were working in the area. We just made the decision. It hadn't had any other stability of access declines or the like.
No, I got that. I remember we talked about that in the call in January.
Yeah.
You're ruling out ever going back into that area where the slip has occurred in that narrow, small, open cut area?
Oh, got it.
Access that open cut. It'll all be done from underground.
Yes, that's right. It's, you know, we need to look at it. It's just hard to like, you know. The most important thing with geotech that makes it unstable is time. The longer it's left, the more unstable, you know. That's generally a rule of thumb of geomechanics. We just don't see the value of taking the risks that would be required to pursue that. We do see some opportunity to access some of that material from underground, but exactly how much we're still trying to work out.
Okay. Can I ask Jon on slide eight, the cash flow waterfall. Can you just walk through that with me? Can I ask you questions as I go? Looking at that and thinking about the second half. Operations bar, which is the first bar, that should do better. Jim's talked about the grade and 2Ds and other areas, and with gold price being higher, that should be better. My context here is I'm looking at a AUD 90 million burn in cash in the last half, and that's a problem. Looking ahead, operations better. Capitalized mining, will that be around about the same level, AUD 117 million, or does some of that capitalized material it's dropped, does that start to unwind or reduce?
It's a good question, Peter. I think the reality is that, you know, captured within that capitalized mining cost is the costs associated with the sample at Havana cutback. That obviously, you know, that's scheduled to primarily be complete this half. You know, then you'll see some costs transition into operations. You know, broadly, I think that, you know, between operations and capitalized mining, certainly what I'd say is Jim's pointed to a much stronger H2, so that'll obviously help that operations cost. I suspect there will be a bit of a transition between capitalized mining and operations, but I think it'll be more than outweighed by the improved second half output.
I think certainly one of the big things you've got to be cognizant of in relation to, you know, our cash burn is clearly that substantial inflow that we're gonna receive or, you know, and we've already received part of in relation to the taxation elements that I spoke to.
You've gone about it by range. Tax, you paid 31%. This half, you'll actually get a credit so far of, what is that, 23%+?
We've already received it, Peter.
Okay.
AUD 23 million, as I mentioned, we got that in February.
Got it.
We anticipate receiving a further 12 April.
Okay. When I look at this waterfall, and you do it for the full year, that AUD 31's gonna actually be a credit of AUD 35. There's no tax paid, it'll be a credit. Got it. No dividend paid for that third, AUD 22-AUD 0. The interest and residual transaction costs, that bit declines to what this half?
Well, I mean, what I can really say there is that, as I mentioned, the bulk of that AUD 12 million relates to transaction costs that we don't expect to recur. Our interest on our debt is incredibly low. I would expect, you know, that'll come down to, you know, a couple of AUD million bucks.
Okay, great. Corporate, you've answered Kate's question, that stays the same. Other CapEx, that 35% increase, decline, what does that imply this half?
Yeah, look, I'd sort of suggest probably likely to be the same, Peter. I mean, I don't want to get on my soapbox here, but a large portion of that relates to right-of-use assets. I think as we all know, that is an interesting standard to say the least. That is, half of that expenditure is right-of-use, you know, lease payments.
Okay. Last on exploration. Jim, given your deliberations of the board and dividends, did they deliberate about exploration spend or given you're a gold/growth company, you need to keep spending? Within that, does McPhillamys spend, given there's nothing happening, does that decline this fast?
Yeah. Good question there, Rocky. No, certainly not. Well, yes, there was discussion around exploration spend, and, you know, yes, there was a very immediate recognition that, if you don't spend money on exploration, it's such. Where's your future coming from? At least with our, you know, our holdings, which we've talked about in the past, and I didn't dwell on it today, but, you know, our holdings at the Duketon Greenstone Belt, there's some fantastic opportunities there, and we certainly haven't wavered from that, and we plan to continue working there. The Tropicana area, the Albany-Fraser Belt itself as well has got plenty of exploration opportunity. We just...
With the workshop that was held recently, we came back from that, more excited than we were when we went there, and we were pretty excited when we went there. McPhillamys, yeah, look, that's a pretty solid spend. That's because part, you know, the cost of permitting, you know, it's not one admin officer sitting around filling out a form every now and again. It's consultants and reviews and in-field investigations that need to be done. Everything from, you know, trees to be counted, grasses to be analyzed. You know, there's a significant spend in there, plus on the DFS side.
Because of some of the long lead times on some of the areas, in particular around power and water supply, we're actually spending, you know, at least a couple of AUD 1 or AUD 2 million on each one of those alone, just getting the design work and corridors sorted out and the like. That will see a spend, you know, full year for McPhillamys will be maintained on track, and I can't see it being too different from the first half.
To the point of my question, is AUD 90 million burn in the first half? Can you turn that around to a neutral or build of cash in the second half?
Well, I think you know, if you talk about the AUD 90 million burn, you can first thing you can do is take off about AUD 55 million because 20 odd of that was dividend. 30 odd of that was tax, which we're getting back, and we won't be paying going forward for the. That's the key. There's two elements of the cash situation that sits on this waterfall chart. The tax that's on there will come back to us, and that won't be an element of our going forward, certainly not to that extent because of the, as John mentioned, the Tropicana tax effect on our, on what we pay. There's of your AUD 90 million, there's over 50 that's already sort of one-offs type of thing.
The reality is that our, as you know, where does the rest of the cash come from that we're projecting? You know, we see a solid increase in our performance in the second half. You know, as you can see from our guidance, our sales for the first half will be quite significantly higher. That is all basically under the same cost profile. We just will be processing higher grades and producing more gold, which means that revenue effectively goes straight to the bottom line.
Appreciate the detail, and it looks like you have a bit of wiggle room in the second half. Thanks.
Yeah. Look, we certainly think that the second half will be materially stronger than the first. It all really apart from the one-offs, which is the income tax and cash dividends, is off the back of the stronger production.
Cheers. Thanks, Jim. Thanks, Jon.
Thanks, Rocky.
Thank you. The next question comes from Alex Barkley from RBC. Please go ahead.
Thanks. Hi, Jim and John.
Hey, Alex.
A question on Garden Well Mine underground. When should we be expecting a decision there? Is it still this first quarter? It already seems like your upfront capital was perhaps already justified. Are there any last hurdles there, or is it just sort of working on the optimal entrance into the area?
Yeah. Look, we haven't spent any and we haven't committed any dollars to Garden Well Mine underground yet. We haven't made a decision on it. We've undertaken drilling. We wanted to confirm the target zone that we were heading into to make sure that we had confidence in the, you know, in the reserves that we were gonna be tackling. The work is now underway, as you said, to find the optimum point. You know, our original concept was to come across from the Garden Well South area.
Actually what we've recognized is that the Garden Well Mine's probably more substantial than we thought and in itself probably warrants something that could be a little bit more substantial to allow it to be a completely independent production zone. We've sort of been delayed a little bit by what you might argue as being the success of the drilling and what it's inferred. We are working on it. And, you know, I guess, I think it might be, yeah, I know. I mean, we had a review of it a couple of weeks ago. I think there's still a bit to do to make sure we've got the optimum point there.
It's possible that we might be in a position this quarter, but I'm more thinking now that that might slip out into the June quarter.
Yeah. Okay. No, that's good color. Thanks, guys.
Thanks, Alex.
Thank you. The next question comes from David Coates from Bell Potter Securities. Please go ahead.
Thanks very much. Good morning, Jim, Jon, and Ben. Just following up, kind of a little bit asking a similar question that Rocky had on the cash flow, except on the income statement, and perhaps current. You've been very generous with your time. Appreciate that. I'm just cutting to the chase a little bit on one-off items in there. You know, the stockpile amortizations and the D&A and acquisition cost and so on. Can you just maybe pull out some of the one-off items in that, in the NPAT waterfall with, you know, what you know, the other one-offs?
Sorry, Dave, I didn't just quite catch the last part of your question there.
The one-off items, you know, the non-recurring stuff that's in the NPAT waterfall. You know, there are a number of, you know, the stockpile write-downs and non-cash adjustments that we've seen, which is related back to the Tropicana acquisition. You know, where are the one-offs, I guess, in that NPAT waterfall?
First, just looking at depreciation and amortization, you know, frankly, I think, you know, that will continue for the time being. I don't see that dropping off in the interim. In relation to the stockpile, what I would say is, particularly at Tropicana, you know, as we are very confident that Tropicana will continue to build and increase its reserves. As they do that, and as we continue to amortize down the AUD 500 million of the purchase price that we had to allocate to mine properties, as they continue to increase their reserves and as we continue to amortize down, I'd suggest that the likelihood of future stockpile impairments at Tropicana becomes less.
I think as probably everyone's aware, you know, the time when you're most susceptible to sort of write down is just when you've done the acquisition because everything's just been fair valued and there's not much, you know, there's not a whole lot of headroom. We're very confident in the Tropicana operation, and we believe that, you know, that reserves will continue to be increased and that will reduce the likelihood of stockpile write-downs going forward.
Okay. All right. Cool. Let's see. You mentioned just briefly in one of the other responses there that you started feeding it too as well or through the process plant. Can you give an idea of how that's recovering?
Yep. It's recovering well. Thanks, Dave. You know, our plan is to ramp up the feed there to, you know, probably around about 35%. We're not at that rate yet. We've been changing the circuit, but we still have to finalize putting in the SlamJets, which is a way of more efficiently introducing the oxygen into the circuit. Also, that's been delayed a little bit, probably about two or three weeks more than what we originally scheduled. That was due to be finished at the end of this month. That's been delayed because we struggled to source around Australia, thanks to COVID implications, the specialized stainless steel piping that we require. It's interesting.
We actually found all the valves and all the controls really quickly, but it was just the basic pipe that took a while. The groups that were gonna come and do the work for us had to pull out because the border restrictions meant they couldn't come over here and do it. We have subsequently found a group that we're satisfied with that will do that work. There is still a bit to go before we ramp up to that full amount. I think the last time I looked, we were probably running at, I think it was sort of averaging something like 20%-25% feed of that order.
We were seeing a little bit of an impact on recoveries, but nothing to get too concerned about. You know, it was obviously way more offset, more than offset by the high grade. It's not where we want it to be yet in terms of how much we can put in, but it's certainly a lot better than where it was three months ago last year. It's on the right path.
That two or three-week delay that you just mentioned then, when does that sort of push back the completion of the plant modifications?
Well, that was the completion of the putting in the SlamJets, which were scheduled to be finished at the end of this month. They'll probably be early, mid-March, something like that. We're putting in a shear reactor as well, which is another thing to improve on reaction kinetics. We actually think we can get that one in a little bit earlier, which was originally scheduled to be in, I think, sometime around April. That could be a little bit earlier than that, which will be pleasing. You know, overall, a week here or there, you know, a couple of weeks here or there is not gonna cause us an issue.
We were a little bit worried about finding that pipe, but we found it a week or so ago, so sourced it. Everything's continuing to plan.
Awesome. Just quickly, NI, you know, you guys are probably in the penalty box a little bit, a quarter of the market, but you've got your foot on probably the better half of 700,000 ounces of Australian-based gold production. Are you feeling a bit vulnerable?
Well, look, I think everybody feels vulnerable at different times. We just, we're not getting too sweaty in the box about that. We just focus on making sure that we work hard on getting our performance up. You know, we see our performance. You know, it's important for us that people understand that this situation that we're going through at the moment is not a structural issue with our business. It's just a near-term operational issue with our business, and we think people understand that. We think that the thing that to be focused on from that front is to make sure that we continue to deliver on our plans and keep one eye out for opportunities that might come our way, to be honest.
No. Look, thanks very much, Jim. Cheers.
Thank you. The next question comes from Patrick Collier from Credit Suisse. Please go ahead.
Hi, Jim and team. Just had one question. Looking at your all-in sustaining cost guidance and what's required in the second half, I'm just wondering if you can provide a bit of color on what you're assuming around potential COVID impacts just with the border opening up.
Yeah. In those, in our all-in sustaining costs estimates, we're assuming that our operation continues to be able to run as it has done. There's a little bit of provision in there for things like, you know, the added admin cost of testing and there's an extra flight that we've gone on to manage those things. You know, we've established a testing station at the airport. But in terms of making a provision for, you know, 15% or 20% absenteeism because of COVID, like we know that some of our compatriots have seen on the East Coast, we don't have that built in. We do have plans. We have contingency plans.
We have now been running and continue to run with our COVID emergency response team that meets, you know, at least weekly, depending on the circumstance. We have contingency plans as to how we'd run the site in the event of, you know, 20% absenteeism because of COVID, 50% absenteeism, and how we'd manage the site down. That's certainly not built into our production outlook.
Okay. That's my question. Thank you.
No worries, Patrick.
Thank you. The next question comes from Matthew Collins from Morgans. Please go ahead.
Oh, hi, guys. Look, just one quick question. It was just stamp duty on the Tropicana acquisition. I had a line item hanging out there this morning that still made my numbers look a bit odd. Has that been paid or is that still to come? Cheers.
Yeah, it's a good question, Matthew. Basically, the answer to that is that we've done everything we can in relation to that. You know, we are waiting for the government to issue us with an invoice.
The provision we've got there is out there. It could be next week. It could be next year.
It could be next year. We don't know.
No worries. Thanks. That was it.
Thanks, Matthew.
Thanks, Matthew.
Thank you. Participants, to ask a question, please press star and one. Reminder to the participants, anyone who wishes to ask a question, please press star and one. There are no further questions at this time. I will now hand back to Mr. Beyer for closing remarks. Thank you, and over to you, sir.
All right. Thanks very much for that. All right. Thanks, everyone for joining us. We do appreciate the questions. As you've seen, it's been a challenging first half for us. We're certainly in a position where we're looking forward to a stronger second half and watching that flow through to our both operationally and to our financial performance. Thanks very much for joining us as always. If anyone's got any follow-up queries, please let us know. Contact Ben, and we will endeavor to get back to you as soon as we can. Thank you very much. Have a nice day.