Thank you for standing by, and welcome to the South32 U.K. S.A. Investor and Analyst Q&A Teleconference. 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 the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Graham Kerr, CEO. Please go ahead.
Thank you, and good morning everyone, and thanks for joining us for our Financial Results Conference call for the year ending June 30, 2021. Joining me on the call today is our Chief Financial Officer, Katie Tovich, and our Chief Operating Officers, Jason Economidis and Mike Fraser. I'll give a brief summary before handing back to the operator for questions.
For people who are interested, there is a short video summary of our FY21 Financial Results available on our website, but I'll start by saying that this has been a challenging year for everyone as the impacts of COVID-19 continue to be felt globally. Our focus has been on keeping our people safe and well, maintaining safe and reliable operations, and supporting our communities.
Despite these challenges, I was really pleased to see our operations performing well, and that's really reflected by the three production records we set: a Worsley Alumina, a Brazil Alumina, and Australian Manganese, and also where we exceeded initial market guidance with South African Manganese, Cerro Matoso, and Cannington. So the base business is running well. This strong operating performance, combined with improved commodity prices, translated into a 153% increase in our underlying earnings.
Also, over the last 12 months, there's been substantial progress in reshaping our portfolio with divestment for South Africa Energy Coal and TEMCO, and a portfolio of non-core precious metals royalties. These actions, plus the closure of Metalloys, allow us to simplify our business, reduce the capital intensity, and improve the margins. In terms of our future developments, I hope that most of our work continues to progress with studies for both Taylor and Clark.
At Ambler Metals, we commence the summer field season drilling program and continue the PFS for the Arctic deposit. In May, we announced our medium-term target to half our Scope 1 and Scope 2 emissions by 2035 from our 2021 baseline, supporting our pathway to net zero by 2050. To make this happen, we'll invest in efficiency projects, shift to low-carbon energy, apply low-carbon design principles, and adopt new technologies.
Increasing our exposure to the base metals is also required for this low-carbon future. Looking ahead at where we are, you should expect to see strong volumes at our base metals operations. Mozal, Cerro Matoso, and Cannington have delivered or are in the process of delivering a series of improvement projects designed to increase production into favorable markets. We will continue to pursue cost and volume efficiencies to offset stronger producer currencies and cyclical inflation.
We are well positioned to take advantage of improving commodity markets and continue to transition our business for the future, which is backed by our strong operating performance, our high-quality growth opportunities, and a disciplined approach to capital allocation. With that, I'll hand it back to the operator for questions. Thank you.
Thank you. 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. Your first question comes from Sylvain Brunet with Exane BNP . Please go ahead.
Good morning. I'm sure, well. Three questions for me, please. The first one is on Cannington. You're hinting at strong volumes in the coming years. I just wanted to get a better sense of how sustainable that is. My second question is on Illawarra, and perhaps I know it's still early days and you're looking at options there, but I wanted to understand what the alternatives would be to your initial Dendrobium expansion plan and to what extent this would raise more questions on the future of Illawarra or if there are ways around that.
And my last question is perhaps to get a better outlook for CapEx if we exclude Hermosa for the moment. For the next few years, if we go beyond just the next 12 months, if you could give us a little bit of a framework to think about. Thank you.
Yeah, look, absolutely. And look, apologies, I'm actually losing my voice slightly, so I wouldn't say I'm 100% well. In the packet, actually, see that we did actually outline some of the work we've been doing at Cannington. Particularly if you go to slide 37, we gave a bit of an overview of where we've been in terms of all process, where we're going for 2022 and 2023, and also what does the payable production look like.
And we certainly gave some pretty clear guidance on 2022 and 2023, and also tried to give you some midterm averages from around 2024 to 2027. Now, the big change that's occurring at the moment is the hoisting, which has been the traditional method of taking material up to the surface at the Cannington from the underground, is nearing the end of its life.
Now, we have been planning for a period of time and flagged that we're looking at a study to transition to a trucking-only operation from quarter four of FY22. This would involve decommissioning the underground infrastructure, which takes off some of the constraints on our mining sequences and allows us to bring forward some of that high-grade material that we always talked about near the end of the mine life that we severed from the current pockets of the infrastructure.
This is a low, if you like, capital investment. It's high returning. Operating costs stay about the same. Capital expenditure included in FY22 is about $15 million for a total investment of $28 million. That's really what the big shift is in the next couple of years, and then the medium-term target.
The team themselves at Cannington continue to do work around remnant mining and looking at other opportunities around some of that existing infrastructure. Really, what you're looking at now is, in the perfect world, if you can add a year or two of resource every year, that's where you actually want to be. The one thing I would make about Cannington, you saw that with the results this year when you look at zinc equivalents.
Because of the stopes you're now touching and the sequence of the stopes, you do have quite a bit of variability in grade depending on which stope you're actually into at the time. The second question around Illawarra, that is a good question. We sort of talked through that a little bit of detail today as well to sort of give people a sense.
Probably the best slide for that one is slide 44 in the pack. If you sort of take a step back about where we are in Illawarra, we've spoken for a period of time now about how in Appin we're ultimately moving to using the longwalls in a different way, which is far more efficient for FY25 onwards on a step-on, step-off basis.
That allows us to reduce development. It allows us to reduce the continuous miners and get those longer panels that sort of give us the economies of scale. Where the challenge has been from January, February this year is around Dendrobium Next Domain and what that looks like. The original intent, we were looking for the IPC, which is the Independent Planning Commission in New South Wales, to actually approve it in the third quarter of FY21.
Much to our surprise and also a surprise to the government, they actually refused the process. The IPC is an independent body that was established by the government where they don't really have control over stewardship when past corruption occurred in this space. I guess the challenge we have now is we've got a couple of options that are left open to us, and that's what slide 44 is really outlining.
One is we have commenced the judicial review of the IPC's decision and the Land and Environment Court of New South Wales. That is a process that is something we think we should do because we certainly disagree with some of their findings, and their findings are contrary to many of the technical experts.
So we will go through with that process, but the reality is it probably kicks it into some kind of approval process again by the IPC. The second option is the State Legislative Council has passed a motion requesting that any future development of DND be declared as State Significant Infrastructure, which gives the minister a plan and the opportunity to actually take it through the toll-gating process.
So down below, you'll see there's three options we've got there. One is the original DND mine plan. The second one is a DND adapt, and that's the one we'd be looking to take back towards the minister and use that State Significant Infrastructure. So when we say DND adapt, it'll be, if you like, an optimized mine plan that addresses some of the IPC decisions.
While we don't agree with them, we'll address some of them, and it also focuses on some of the highest quality coking coal. That's the plan, if you like, that we will take through to the minister. It's currently in feasibility study. Expect to finish that by the end of this calendar year.
The last option, obviously, is if we get nothing to go ahead on Dendrobium Next Domain. Well then you just do Appin. With the challenge being that Appin, as we've spoken about in the past, has a relatively high cost structure because of the depth and the gas levels, but that's something the team has been working on. We'll have a lot more clarity around that towards the end of the calendar year.
I think the government is very sympathetic because they understand the broader economic ecosystem in that part of the world where about 20% of our product will go to actually BlueScope to their furnace, where the largest customer of the port when it comes to the Port Kembla Coal Terminal. So there's all those pieces that sort of come together, but by the end of the year, we'll have greater clarity.
The risk of this year, and that's part of the reason we took the impairment, is we still need to go through that approval process. And probably like most coal projects around the world now, there is more uncertainty than there was probably 24, 36 months ago. Maybe CapEx, Katie, do you want to address CapEx?
Sure, thanks, Graham. Just in terms of CapEx, maybe more broadly, and then I'll just quickly touch on Illawarra CapEx, but certainly more broadly. We had been talking about a CapEx range of $420 million-$520 million for sustaining CapEx in our business, and you will have seen we've come out with a number around $475 million. That's a number we expect to sustain as we look into next year as well, moving forward.
What you're seeing in that base sustaining CapEx number is a fairly significant step up with Illawarra. So Illawarra, as they transition to the single longwall structure, they're looking at incremental ventilation and coal clearance activity. So we've got on that slide 44 that Graham referenced, you'll see that sort of between 2022 and 2025, we're expecting around about $190 million a year at Illawarra in that safe and reliable capital bucket.
Stepping across to our improvement life extending decarb capital, we had talked at our last get-together in terms of having roughly $50 million a year of capital to compete in terms of improvement capital. Also, something in the region of $40 milllion-$50 million over a two-year window for decarb CapEx. And then we've also got life extension CapEx that we've categorized in that group.
If you think about the improvement capital, I mean, a lot of our focus in that space has been very much around the base metals, and you will have seen this year and into next year, certainly Cerro Matoso with the Q&P project delivering higher grade ore that comes through into FY22 for the first year. Cannington as well, you'll see a 10% uplift off the back of that project, and that creates optionality for us again going forward in terms of contract extension in Colombia.
But those two projects, they're delivering greater than 100% IRRs. So low-cost, high-value projects, and that's what we're looking to do in that improvement CapEx category across the group. We've got the AP3XLE project at Mozal that's also delivering already. They've got another couple of years to roll out, but we'll see that 10,000-ton uplift over the five years. Hillside are going through a process of testing that technology as well.
They've already commenced that process, and they'll look to toll gate if that's successful into the second half of this year. And that also fits in terms of decarb capital. So as we're thinking about decarbonization capital, we're really looking at efficiency projects in the first instance. So the AP3XLE at Hillside, but also then as we look at Worsley, they're looking at options for mud washing. Again, these are efficiency projects.
They actually compete on an IRR basis with broader options, but they're also great in delivering our decarb commitment in the short term and getting some of those carbon opportunities in play. Further deep bottlenecking opportunities we're looking a at vessels underground, rapid loadout, and some of the other optionality in that space, and then trucking at Cannington as well.
So not a significant amount of capital sitting in that improvement bucket, but certainly lots of good opportunities competing. They're relatively low-cost, high-returning. And the decarb at this stage over the next two years, it's pretty low capital commitment. The next phase of that is really starting to look at some of the infrastructure projects. So things like coal to gas at Worsley, again, relatively low cost, but it starts your transition from a carbon reduction perspective.
It's also a de-risking opportunity for us in terms of coal reliability of supply at Worsley, so something that we also consider in that context. I think probably the last bucket then is our growth CapEx. So we have guided $45 million for Hermosa into next year, or sorry, this year. That's our first half CapEx number. And once we release the details of the PFS, we'll provide updated guidance in terms of what that looks like for the balance of the year.
Thanks, Katie. And I think one of the takeaways there is that the competition we have for capital now that perhaps didn't exist three or four years ago to hope to create value for the group. Does that address all three questions you had?
Yeah, Graham, just to be fully clear on Illawarra, the option of running Appin only, you'd say, is entirely viable economically, even at, say, sort of long-term prices?
I think the team can get towards it, but I don't think it's going to be an attractive long-term option. I still think our preference, because of the nature of the blending and the other benefits that go together, is actually DND, ideally Appin, and also Appin. But the team needs to do the work to make sure that the economics stack up on that.
Okay, great. Thank you.
Thank you. Your next question comes from Peter O'Connor with Shaw and Partners. Please go ahead.
Hi, Graham, Katie. Wish you well, Graham. Met coal. Graham, could you just take us through your thoughts on the market dynamic? Because it just seems extraordinary, the relative price of what you're selling. Met coal from Illawarra and what's thermal coal's going out at and where you think that tracks from here.
Secondly, on coal, Eagle Downs, where is that at the moment? What happened? There was no mention of that in the CapEx slides, so I'm just wondering where that's at. And thirdly, for Katie, just could you run through the alumina cost step up to $241 from where it was last year? Just the buckets that's taken that up, the increments that get you there and why?
Yeah, look, all very good questions. Maybe if we start with the met coal market, I mean, obviously we've seen a strong rebound in the met coal price, particularly the hard coking coal price, above $200. Some of that's been driven by the tight PLV supply and strong demand outside of China.
We could see some supply lead to a little bit of, if you like, downward pressure in that from the current spot in the six months, but that's something we'll continue to watch. We have seen, for example, some interesting dynamics in the market where tighter supply has been made of it from Saraji coal into the thermal market. We've also obviously seen some other shifts around what's happening globally.
I mean, obviously the band still exists in place with regards to Australian coal in China, but we haven't actually seen the domestic coal supply really recover from the safety inspections and other issues. If you look in China, it's probably 52% down year on year. What you have seen, obviously, is the CFR China prices have increased to about $339 a ton, with an import of about $15 a ton.
From our perspective, Australia, India has been a key driver with the May 2021 annualized imports about 66% higher year-to-date, year on year, so that's about 23 million tons, and with cases of COVID-19 declining and sort of coming out of that season, there is more potential upside, if you like, in that space.
I think the other area that we've seen that has been strong is your share of Australian imports into basically Japan, Korea, Taiwan, Vietnam, and Brazil. What we haven't really seen is the European markets take up much of the Australian coal, as they're pretty much stuck with their stable US coal supply agreements, which obviously they understand the blends well and they understand how to make margins when prices are where they are.
Obviously, some of the risks in the second half is you potentially see Anglo restarting Moranbah North. We would probably see our M+3 forecast, as I said, slightly coming down off the high potential over the next six months. We would see steel demand out of China drop quite a bit, but we'd also see some of the global steel not being strong enough to pick up the slack.
So it's been good to see the price where it is, but probably expect a little bit of softening in that space. Look, with regards to Eagle Downs, Eagle Downs is always an interesting one for us because while there has been some upside on the price when it comes to met coal, we pretty much run most of our projects because of the length of the projects with a long-term view of met coal, and that hasn't really changed for us. It's around that $140 a ton mark.
So the returns that we spoke about towards the back end of calendar year are probably still pretty similar. It's a high 13.5-13.6% IRR. It was a base metals project. We'd probably be interested. It's not a base metals project. The noise that goes with the met coal project probably doesn't make it overly attractive for us.
I think now that the market's picked up a little bit with Aquila, we'll obviously have a look at anyone who might be interested in this. I think between ourselves and Aquila, we have a good working relationship, and we'll explore the market, but it's also an option we've got, which is really low cost to hold if the market turns a certain way and our long-term view changes. Maybe alumina, you can answer that, and then I'll circle back and see if we've missed anything, Peter. Katie, do you want to answer alumina?
Yeah, sure. So I guess in terms of alumina, what we have seen, and we did have a slide in there, slide 22, is that certainly from half one, half two last year, and then heading into guidance for 2022, we have seen a consistent step up in our costs at Worsley.
Look, the large portion of that is off the back of increases in caustic prices, and what you will have seen is, so the caustic Northeast Asian price for caustic through FY21 has shifted up from $250, and right now they're trading at $367 a ton. So certainly that step between half to FY21 and what you're seeing in FY22, half of that step up is associated with caustic soda price increases and price linked freight. So that's coming through.
If you take a look at, if you look at our Alumar cost base, so H2 FY21 for Alumar, we had a $201, but if you back out, actually the historical tax credit that they received in half two, that actually brings them back to $225. And so I think what we're seeing is across the sector more broadly is that inflationary impact coming through off the back of raw material input pricing and other inflationary pressures.
So I'd say so Worsley and Alumar are probably on par in terms of their cost structure, and you would expect to see that flow for Alumar also into FY22. Look, the other key factor there that probably is more operational specific for us is really the move into a different mining area.
So we have made a transition into a higher reactive silica area, and what we're seeing there is therefore an increase in our caustic soda usage at Worsley as we work through that area. So the combination of the higher reactive silica and the higher caustic prices are certainly having a more significant impact for us.
And probably the other element really is we do have headwinds coming through in terms of just currency through that window as well, strengthening through the window that has a couple of dollar impact year on year as well. So look, broad inflationary pressures through the market, I think, but certainly we have a more specific issue at Worsley in relation to the mining area that we're working through at this stage.
Probably the last comment I'll add, Peter, is we talked about net coal, thermal coal. Great to see the price is where it is. I think it helps to really make SAEC even more sustainable and stronger, but doesn't change our view on our way to being thermal coal in South Africa. Saw your questions, Peter?
Thank you. Your next question comes from Myles Allsop with UBS. Please go ahead.
Just following up on a couple of those questions. How long will you be mining through this high reactive silica area at Worsley? And also with Worsley as well, could you talk to this fairly material lift in the closure provision? You're saying that you've kind of changed the discount rate. Why are you changing the discount rate now? That'd be quite helpful. And how does the discount rate at Worsley compare to some of the other assets?
You're kind of expecting more of a decrease in closure provisions post the sale of South Africa Energy Coal, and it hasn't really moved. And then maybe it'd be interesting just to get a few thoughts on your Scope 1 and 2 emissions. Could you mind just how much is South Africa and what the plan is for the big aluminium smelters? Thank you.
Yeah, look, so maybe I'll take the climate change or Scope 1 and Scope 2 questions first, and then Katie can respond on the reactive silica, but also on the actual closure. Just noting the closure changes, remember we actually did that half year, but we'll just go through what were those major drivers again, just so they're very clear.
Look, if we sort of have a look about our emissions profile, because I think that's a starting point, and keep in mind that essentially four of our operations account for 90% of our Scope 1 and Scope 2 emissions, and they really are, if you think about them, they're Worsley, they're Hillside, they're Mozal, they're Illawarra.
In fact, Mozal itself predominantly feeds off a hydro source, which we think that's attractive if we can keep access to that hydro source in the long term and also manage some of the outages where occasionally we have to flip back onto reliance on Eskom. That positions us well to actually supply into Europe and actually be a green source.
Hillside, obviously, the first thing we've spoken about for a long period of time was to actually secure, if you like, a long-term power contract, which we announced just recently, which is a 10-year power block. If you look at the emissions, you're probably talking about 1.4 Scope 1 and 10.7 Scope 2. So that 10.7 is about 89% of our total Scope 2 emissions, and that really is generated from, if you like, what's sort of coming from the Eskom power grid that comes into Hillside.
Mike can talk, if you like, in a little second about some of the work we're doing on Greenfields. We've got to work both of these angles, our own energy efficiency, but I think more importantly, how do we change policy-induced investment? And maybe Mike can talk a little bit about the Greenfields program, Mike. Why don't you cover that one?
Yeah, thanks, Graham. Hi, good afternoon, Miles. Look, I think, as Graham has said, the first pass for us was to secure that life extension for Hillside with a 10-year power contract with Eskom, and that gives us time to secure a transition to renewables. We have done quite a bit of work on the economic modeling as well as the technical assumptions of what is required to deliver continuous power to the smelter using renewables, and certainly we believe the economic and the technical challenges can be met over the next decade.
But I think the biggest transition that we have to work with is that South Africa is obviously moving at a pace to deregulate its energy grid, so removing reliance of Eskom, but in the same way being able to sustain energy-intensive industries like the aluminium smelter.
But therein also lies an opportunity in our view because the grid will still require large off-takers, and that will actually meet the base demand of the grid. So it's quite an exciting time, but I think, as Graham has said, the key issue for us is to work with Eskom, with the regulators, to manage this transition in an orderly way. But we certainly believe over the next decade there will be an opportunity to significantly decarbonise particularly the Scope 2 inputs into Hillside.
And in addition, some of the technology opportunities that will emerge to look at reducing Scope 1 emissions as well will become available to aluminium production. So a lot of work and a lot of exciting work will take place over the next decade, in my view, and if we can achieve that, then there is a future for Hillside beyond the 10-year power block.
Putting aside Hillside, our second biggest one would be around Worsley, and at Worsley, we have a number of projects we hear us talk about. In particular, we're going through the PFS sort of mud washing project at the moment. The mud washing project will really have some benefits around water, energy efficiency, but operating cost savings, so that's a real attractive project.
The other ones we'll have a look at in the sequence of Worsley is obviously we use and have a large reliance on coal at the moment to create the gas we need. Now, we'll have a look at how we can—sorry, the steam we need. We'll have a look at how we convert that coal to gas, and then longer term, we're working at different various forums to try and see the opportunity to convert the gas to actually some kind of hydrogen.
That certainly is the intent, and the 2035 timeline gives us a space to do that. Probably the last one worth mentioning, I mean, when you think about the next emitter for us, it is actually Illawarra, and in Illawarra, we're doing two things. One is looking at the gas drainage as we actually get in there to do the work, and the second piece we're working hard on with CSIRO is some VAMMIT technology to basically take some of the methane that's left in the ventilation system out. They're the big projects that we've got underway at the moment.
Maybe do you want me to just cover provisions, Graham?
Yeah, closure provisions, thanks, Katie. I think the other one was reactive silica.
Yep, yep. So just on provisions, it's probably worth flagging. So we run an annual discount rate review process in our business. That process we ran before the half year, and off the back of that process, what you may have seen through our results at the half year was a fairly substantial step up.
It was an $875 million step up in our provisions from June 2020 to December 31, 2020, and it was a combination there of changes to our discount rate that we used across the portfolio, but also actually a fairly large FX movement from $0.69 to $0.77. So the bulk of that change actually came through at the half year off the back of that process.
What we've seen from half year through to the full year is a $1,137 million, sorry, $113 million increase come through if you backstake out, and that increase has predominantly been at Worsley and relates to some life-of-mine timing changes and some cost estimate updates that have come through. But certainly, as we look at provisions going forward, the biggest volatility we would expect to see half on half or period on period relates to FX, particularly the Zar and the Aussie dollar coming through.
It's not common that we would update our underlying discount rates, but certainly, as long-term rates move, risk-free rates move, we do review that and make changes from time to time, and I think our research would highlight that we're well within the range of our peer group as we've looked at some of the reporting that they've also shared in that space.
Probably the other comment to make is in our annual report last year, and we will do the same thing again this year, a 0.5% movement in our discount rate has about a $245 million impact on our provisions. So that's the sort of sensitivity that you would expect to see with discount rate changes. I think the other thing to call out as well with the shift in, with SAEC exiting the portfolio, one advantage that you see coming through in our costs is a reduction in our net finance costs or underlying finance costs in the region of $40 million, and that also is probably worth flagging.
At the same time, we'll also expect to see about a $90 million reduction in our underlying depreciation costs come through as well off the back of a number of changes. And then our underlying effective tax rate, again with SAEC out of the portfolio, we were getting some unusual effects there. What you'll see is that our underlying effective tax rate will tend towards the average of the countries where we operate, which sort of is in the region of about 30%.
Just to be clear, what discount rate are you currently using just on that?
So we don't provide our discount rate, but I think if you think about long-term risk-free rates and bond rates in the various regions where we operate, they're a fairly good indicator, and you will have seen that through time those rates have been coming down.
If it starts lifting, you'd see the closure provisions go down. Is that the way to think about it?
Sorry?
If your long-term rate starts lifting, then we'll see your closure provisions come down again.
Yeah, yeah, absolutely. And that's that 0.5% sensitivity. It's pretty sensitive to that, so sort of plus or minus in the region of $200 million-$230 million movement for 0.5% movement in the underlying rates. Probably on the reactive silica question, look, in terms of Worsley, we move through a range of different mining areas.
We mine out of a number of areas, and we do blending, so West Maradong, Saddleback, Maradong, Lower Hotham. And what we're seeing in terms of our forward view at the moment is that uptick in reactive silica, which is not different from what we've seen a few years back. So certainly, what the team are continuing to work on is how do you optimize that blend and better understand the ore going into your refinery to see what opportunities you've got to optimize the outcome there.
Okay, thanks.
Thank you. Your next question comes from Tony Robson with Global Mining Research. Please go ahead.
Good morning or good evening, and thank you for taking my question. Thanks for the lots of detail in the presentation. Much appreciated from the analyst community. Two questions, please. Firstly, on Cannington, I guess you might have looked at refurbishing the shaft or extending it internally, but mine life, I guess, counts against that.
So the question would be, is there exploration upside at depth for Cannington? From memory, the open-cut project was shelved some years ago, so is there any hope for extending mine life at depth? Second question on Illawarra might be a hell of a piece of string sort of question, but any idea of the timelines with the various three and the phones with the government and departments? Could we still be talking about this by the same time next year? Thank you.
Yeah, maybe I'll take the Illawarra one, and Jason can respond to the Cannington one. Look, from my perspective, we would certainly have a preferred path forward towards the end of this calendar year, and then we'd be looking to engage the government very quickly to get into activation mode. Don't underestimate, there's a lot of work going on in the background about keeping them informed as well and also working with BlueScope.
I think the challenge with any kind of longwall underground mine is discontinuity, so we want to make sure we get in a position where we don't have that, and that's certainly the agenda we're driving to try and sort of get it really pushed towards the end of this year for the minister to make the call and then go through that approval process. Jason, you want to talk a little bit about Cannington and the shaft?
The shaft is coming to the end of its useful life, and we are transitioning to trucking. What the shaft decommissioning enables us to do is actually access some high-grade stopes that wouldn't have been accessible previously. So as far as that transition goes, it's not that the shaft is not able to be kept until the end of life. Sorry, it's that it can't be kept until the end of life. So I hope that answers your question.
Okay. In part, yes. Thank you and exploration. Are you exploring further at depth or around the mine, or given that it's such a fairly old mine, it's all been drilled out over the decades?
Yeah, so we do have an exploration program that is in and around the operation, and we're continually looking for further sort of Broken Hill-style deposits. We are also doing work to look at further remnant mining as well as to extend the ore body as best we can. So there aren't any results to share on that, but we're definitely investing in that exploration in and around the current deposit and a little bit broader.
Okay, thank you.
It's probably worth just adding quickly there also that the total CapEx for that trucking transition is relatively low, so it's around about a $28 million project, so a high-returning project.
Okay, thank you very much.
I mean, it's also easy to forget when Cannington was built. What are we in, 22nd, 23rd year now? You probably are talking about a mine life at that stage of about 14-ish years. So the shaft has well and truly gone longer than people expected, and I think that's a testimony to how the team have been watching and monitoring it. But the economics for trucking just make much better sense. And to your point, for a life of mine, sinking a shaft like that, lighting it, maintaining it, doesn't make any sense anymore.
Yep. Okay, awesome. Thank you.
Thank you. Your next question comes from Sergey Donskoy with Société Générale. Please go ahead.
Yes, hi. Thank you very much for taking my questions. I have two. One is actually a follow-up on Hillside and its transition to low-carbon power. I know it's early days, but you have made some interesting comments, and I can't help asking, do you have any initial thoughts on what sort of impact this transition to low-carbon electricity can have on the cost structure?
Basically, should we be prepared to see power costs double or treble over the next decade if we move away from coal-fired electricity based on whatever technologies or solutions you are considering now? Or is it something that can be less extreme? And second question on Australia Manganese. I know it's not a major issue for you now, but are there any news on exploration progress in the area of southern leases that could help extend mine life beyond this decade?
Yeah, thanks, Sergey. Maybe just the manganese one first. We're still doing the work on the southern leases. We'd expect the next tranche of that program to be finished by the end of this calendar year. I've always sort of made the position that it is a different mining area because you're sort of going to the southern part.
It does have a lot more waterways and causeways, which naturally means it's more, if you like, a value to the traditional owners. So we've got to work through what that looks like. The range I've always said is we're going to get two-five years, and the answer's been we don't really know till we finish the drilling program.
But in saying that, probably getting more confidence that we'll at least get a couple of years out of that, but the rest of it we'll probably have a better sense of potential by the end of the calendar year. Maybe the Hillside question, Mike can cover that in a bit of detail, but I would start by saying that, look, the one thing I think Mike and the team have done very well over the journey is Hillside is very much integrated to the whole ecosystem around that part of South Africa in terms of we sell much of it.
A lot of our product, roughly 30% domestically, goes to Hillside and to India. That creates a lot of jobs downstream. So it's very much tied to policy of the ANC and South African government. We're a very large power user.
We obviously are looking for a security of a long-term power agreement that has to be competitive. We think that provides a good basis, whether it's Eskom or some other kind of independent power producer to think about what they do. But maybe Mike, you could sort of have a bit of discussion about how the team's approaching it.
Yeah, no, excellent question. And look, I think the first thing I'll just say from a health warning, we've only migrated this work into pre-feasibility recently, so there is a lot more work that we have to do. But I think what really gives us and the team a belief that this can be achievable at an economic level that is not significantly more than we will be paying for existing Eskom grid-type power in 10 years is when you look at the cost of coal that's actually coming through into Eskom and their primary energy costs, that continues to push real inflation in power costs through that grid.
And it's probably something that you would expect to see in many grids globally, that coal just becomes increasingly more expensive. And then when you offset that against the learning rates that are starting to be demonstrated into solar, wind, and even battery storage as a combined renewable solution, we believe that over a decade there will be very close intercept points when you should see a very competitive position for renewables.
And I guess that's what's going to be really interesting about the aluminium sector because aluminium ultimately the resource is power. And so being able to secure a competitive positioning in power over a decade will be what determines long-term sustainability of these smelters. But at this stage, we do believe that it will not be orders of magnitude greater than what we would anticipate seeing in a decade from now if we just renewed our existing power block.
Probably one thing I'd also.
Thank you very much.
Just quickly answer that, sorry. Certainly, one thing we're not intending to do is put our balance sheet at risk in terms of becoming an energy producer. So this is about working with stakeholders to induce green energy, but certainly it's not our intent to apply our balance sheet towards that activity as we go forward.
Thank you very much. It's very, very helpful.
Thank you. That does conclude our Q&A session for now. I'll now hand back to Mr. Kerr for closing remarks.
Look, first and foremost, thanks everyone for your time because I know everyone's very busy at the moment. Look, just a couple of high-level key messages I wanted to leave you with is when you look at our business today, the base operations are performing strongly, and they're well positioned to take advantage of strong commodity markets.
We have been very busy reshaping our portfolio for a low-carbon future, exiting lower-returning operations, and investing further in base metals, which I think positions us very well for the future. At the same time, our approach to capital management remains unchanged, and that capital management framework is working as we intended it to. It's rewarding our shareholders as our financial performance improves. But more importantly, thanks for your time today and support, and have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.