I would now like to hand the conference over to Mr. Graham Kerr, Chief Executive Officer. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining us today. On the call with me is our Deputy CEO, Matt Daley, for his first call, our Chief Financial Officer, Sandy Sibenaler, and our Chief Operating Officer for Southern Africa, Noel Pillay. I'd like to start with safety, where we're seeing improvements in key measures following our sustained effort to improve performance through our global safety improvement program. During the half, we achieved further improvement in significant hazard frequency, which demonstrates improved hazard awareness and a more proactive reporting culture. We're also seeing positive reductions across our lag indicators. While the data is encouraging, we're determined to continuously improve on our safety performance. Turning to our financial results, I'm pleased to say that we have delivered strong financial results for the half, underpinned by our operating performance and higher prices for base and precious metals.
Our FY 2026 production and unit cost guidance is unchanged across our operated assets off the back of our continued focus on delivering safe and reliable operating performance. This performance enabled us to capture the benefits of positive market conditions for our key commodities. We delivered underlying EBITDA of $1.1 billion, with a group operating margin of 28.2% and growth in underlying earnings to $45 million. Group free cash flow improved to $57 million after growth capital investment of $338 million at our regional scale Hermosa project. Our balance sheet remains strong, with net debt of $25 million at the end of the period, enabling us to invest in both high returning growth and deliver returns to shareholders.
Looking ahead, commodity price tailwinds, coupled with a planned drawdown of inventories at Mozal Aluminium, Aluminium, is expected to add to the group's cash generation in the second half. Our strong financial performance is translating to higher returns for shareholders, with today's announcement of a fully franked ordinary dividend of $175 million in respect of H1 FY2026, and a $100 million increase in our $2.6 billion capital management program, with $209 million remaining to be returned to shareholders. We're continuing to work to increase our production of copper, zinc, and silver into structurally attractive markets. During the half, we advanced construction of our large-scale, long-life Taylor zinc-lead-silver project, and across our broader Hermosa complex.
We returned further high-grade copper exploration results from the Peake deposit, which supports the potential for a continuous copper system connecting to Taylor. As part of the scheduled project execution at Taylor, an assessment of project milestones and capital expenditure will be completed in H2 FY 2026, and will be informed by the pricing of additional underground and surface infrastructure packages scheduled to be awarded during this period. At Cannington, we announced a 28% increase in the underground ore reserve, while also targeting further potential growth through both underground and open pit development options. Sierra Gorda progressed options to grow future copper production. We've defined an exploration target at Catabela Northeast, adjacent to the Catabela pit, ranging from 1.1-2.9 billion tons, highlighting the potential for future mine life extension.
In addition, the feasibility study for Sierra Gorda's fourth grinding line is nearing completion, with an independent review of the feasibility study to be completed by the joint venture partners to support a potential joint final investment decision in mid-calendar year 2026. We are also pursuing further growth in copper and zinc through our Ambler Metals joint venture in Alaska with the U.S. government's decision to issue federal permits for the Ambler Access Road, a key enabler in unlocking the potential of this highly prospective, unexplored region.
In closing, I'd like to thank our teams around the world for their work to deliver these results. Our operations are performing to plan, capturing the benefits of high commodity prices. Our balance sheet remains strong, and our performance is translating to increased returns for our shareholders. Looking ahead, we're focused on continuing our positive momentum into the second half of the year and delivering our growth projects in base metals. Thank you. I'm now happy to take any questions that people have.
Thank you. If you do 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, and if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Paul Young, from Goldman Sachs. Please go ahead.
Good morning, Graham, Sandy, and Noel, and also Matt, welcome, good day, and I look forward to meeting in due course. Graham, first question is on Sierra Gorda, and but I guess the last three or four months has sort of all been about copper in the market, and I know you're still studying the fourth milling line, which has been under study for probably three years now. And I know there's been a lot of changes at the JV level, in country and in Poland as well with respect to management.
So just curious around what do we need to see to actually get this project approved? That's the first question. And then just on Catabela Northeast, you said, you know, it's about possible life extension. Really interesting, 'cause on, as far as the exploration target is concerned, 'cause it could be as big as Catabela. So what's the forward look now as far as studies and the high-level thinking on this. Thanks.
Yeah, thanks, Paul. I might maybe start with Catabela Northeast first. I mean, we drilled about 8.5 kilometers in H1, and in that, we've had intersections of significant copper, moly, et cetera, including 830 m at about 63% copper or 76% copper equivalent. And as we mentioned, we have come out with the exploration target today at 1.1 billion tons of about 0.48% copper to 2.9 billion tons of 0.45. The ore body itself remains open in all directions and at depth. So we're doing, if you like, in the calendar year 2026, we plan to do further step-out exploration to sort of understand how big the ore body could be. That will determine then the options you have.
Is it an open pit, or do you look at maybe accessing from the decline of the open pit in Catabela to access it early? Understanding that resource is gonna be probably the most important piece, but I think it's exciting about what that looks like, particularly as you think about the fourth grinding line and extending the life of that operation. And relatively speaking, brownfields, as we know, is always far more capital efficient than greenfields. Look, on the fourth grinding line, there's maybe a couple of things that we'll need to see. And you rightly point out, there has been a fair bit of change, more in the joint venture, that sort of slowed this a little bit down. In particular, we've changed out the GM a while ago, now, about six months ago, and we also changed out the fourth grinding line project director.
The GM, I think, has got his, you know, he's got his feet on the ground. He understands the operations well, and we're certainly far happier as a joint venture owner about the new project director and what we think he can bring to the table. You know, the attraction of the Fourth Grinding Line is its ability to increase the concentrate capacity by about 20%. Obviously, has the impact of increasing copper production and lower unit cost rate. So that's very positive to us. But the detailed engineering work is about 63% complete, and we expect that to sort of be ready for a joint FID by the second half of 2026. We still, you know, look at roughly a 3-year construction timeline. There's a few things that we've been doing in between around here.
We've talked historically about the ability to achieve 62% solids in a tailings thickener is a permanent requirement that the team have been working on, and that's a lot of progress being made in that space. Your question around the other piece we look for, I guess, it'll take both partners to, approve this, and obviously, we can't speak on behalf of our joint venture partner, but certainly in the committee meetings that our people attend, they're being positive, and publicly, they've talked about the need for growth in copper.
So I think, you know, we'd expect them to be aligned with the project if we see it as value add. They've certainly been very aligned around some of the work we're doing around Catabela Northeast, about also looking at what can you do with that material we have sitting on the ground in terms of that oxide material. So, you know, we'll keep working it along. Much happy with the capability we've got on the ground. I'm expecting to see it by the end of this financial year, Paul.
Yeah, thanks, Graham. Let's, yeah, let's hope it gets approved mid-year. And then, a question on Mozal, Graham. Like, obviously, a lot of discussion on this still in the equity market and also probably more so the commodity markets, et cetera. It seems like the ship sailed from, from your perspective, like, you've done everything you can, and you've made that pretty clear. And it now seems like it's really between the government and Eskom to nut out, an agreement around that, you know, sort of five-year, offtake on the power. So, you know, where do you stand now?
Do you just sit back and, and wait for the Mozambique government, and I know they've been it seems like a bit of panic set in from their side, this week at least. Do you just let them sort of negotiate with Eskom, and if they did come back with a tariff, a discounted tariff, you know, on the current agreement between Eskom and Mozambique, what would you actually need to see from a power price perspective? Because obviously, we can't bank $3,000 a ton forever. You can't hedge more than 18 months. So how do you see, like, what needs to come back to you on the table for you to actually engage?
Yeah, look, and maybe if we take this in parts, Paul, you know, we're obviously very concerned about the 2,000+ people that work for us on-site and about another similar number in contractors, and the knock-on impact to so like 20,000 people in, you know, in Maputo. It's probably one in three manufacturing jobs and just under 4% of the GDP. And this has been a long, difficult, if you like, group of discussions because the government of Mozambique, with the Cahora Bassa having severe drought, just hasn't had the power to basically supply us. So it has involved us trying to work with the government of Mozambique, as well as the government of South Africa and Eskom.
I think, you know, as at the end of last week, we've probably had 80 interactions, and I've seen the government of Mozambique in New York, in Dubai, in Abu Dhabi, in Maputo, in Joburg, London, just about everywhere you can think of. I think unfortunately, from our perspective, while we only have about 34 pots offline from the current 576 at the end of January, the reality is, we've run out of things in the next week or so of pitch and coke. And even if we found a power contract today, Paul, that could not be delivered to us in time to keep the plant running. So we're definitely heading for care and maintenance in March, and that's just not changing.
Look, where we got stuck, if you like, on the power contract, like I said, mentioned earlier, you know, we just haven't had any power available from HCB via the Cahora Bassa. So we have been talking to Eskom. You know, the way the current tariff system works in Eskom, their ability to sell across border is effectively a Megaflex rate . Megaflex rat e is about $100/MWh. You know, we could probably afford around $51/MWh. And if you think anything above $50, pre these prices that you're seeing at the moment, outside of China, there's probably less than 1% of the global supply that has a power contract above $51/MWh. So from our perspective, that was a limit we had. Eskom can't match it, have never even got close.
We've ran out of raw materials, so we're now sort of just running the plant down to the end of its life, and managing our people, obviously, which is a huge impact. But it's incredibly unfortunate circumstance to be in, and one that's not where we wanted to be in any shape or form. I do think there's been, despite a lot of work we did, and we've been talking about this power contract for five years, intensively for 12 years, and even though we've been through it numerous times, I think there's still this conception that you can just turn an aluminum smelter on and off, and it is not that easy.
Thanks, Graham. It's a massive shame. All right, thank you. I'll, I'll leave it there.
Thank you. Your next question comes from Rahul Anand, from Morgan Stanley. Please go ahead.
Hi, Graham, Matt, Sandy, and Noel. Thanks for the call. Look, I was gonna take the conversation, perhaps to Hermosa, Graham. Just wanted to get a bit of an update. Obviously, you put out some updates around where you're sitting in terms of the shaft's progress, and also your CapEx, and you've got that assessment coming up in the second half of FY 2026. So how are you tracking so far in terms of budgets, both construction and spend? And I think, you've highlighted the Peak deposit potential. So should we be thinking about the second half as perhaps a bit of a rework of the plan in terms of having those two integrated and then that being a bit accretive, but then you potentially have some critical items in the CapEx side as well that need to be worked on or rather reworked?
Yeah, look, I would start, and we'll come back to where we're up to on the capital. This, if you like, work we're doing around the schedule and the capital is a normal planned event, 'cause we'll probably be roughly around 80% of the project committed, and that's just the timing of letting out the work. So we've always had that in our timeline to be completed when we got to that threshold. So that's the first signal I'd be giving people, that this is an ordinary course of business that we expected to do at this time. If we talk about physically where we are today, you know, we take the processing plant. The initial foundations work for the primary miller were completed in quarter one. All other foundational work on the processing plant is tracking the schedule.
We've started to put in the belt racks, if you like, across the site. I was there just before Christmas, and certainly the surface already, you see a massive difference. There's four packages related to the surface. Two have come in, and they've absolutely been in line with our fit estimates. We're waiting over the next, you know, three months or so, that we'll get the other two in. So that gives you a sense of where we're up to with the processing plant. If we talk about the vent shafts, and the shafts, I'll be honest, are gonna be always the things that worry me, and we've said that from day one, that, you know, the shafts, you're never really comfortable till you're finished, and they have been challenging, and Redpath, you know, has not had the easiest time.
The vent shaft at the moment is 459 meters of 824, so 56% complete. We actually completed the first lateral development on the first mining level, on the 3,680 level, and we're about to go back into sinking on the vent shaft, and that went absolutely to plan in terms of that lateral development. The main shaft, which is always scheduled to be behind, is about 370 meters of a planned 898 meters, or 41%, if you like, complete. One of the big issues we've always talked about is dewatering. Good to know that our dewatering is certainly tracking ahead of schedule. In terms of volume, we're seeing is much lower than we expected.
We talked about expected flow rates, about 4,000 gallons a minute, and we've seen at best about 2,000 gallons a minute. So that's a lot more comfortable from that perspective. Part of the reason we'll do, if you like, this schedule and cost review is over the next, you know, couple of months, we get the remainder of the surface contracts in. We expect in the second half of this year to get the actual lateral development tendered out, and we also expect, not long after that, to do the final pieces of the underground infrastructure out to the market, which tells you it's the appropriate time to go back and look at schedule and cost. It is an interesting challenge in the US at the moment because every week, tariffs seem to change.
While we haven't had a material impact yet, as we start bringing in mobile equipment and processing equipment, that's the one we're watching to see what the rules look like. But today, there hasn't been material, but the rules change every single day. What I would say on Peak, look, Peak, we announced 14 new holes, and in that, we're seeing some really high-grade copper results, including 143 meters at about 2.1% copper equivalent and 162 meters at 1.42 copper equivalent. We've got a lot of more work to do on this, and we expect Peak to actually grow. We, again, we do expect that we can add a little circuit to the process plant because we actually allowed space for a copper circuit, which will probably be around CapEx of $50 to $60 million.
I would expect that the copper material, depending on how it grows, probably won't be the first piece of ore we touch, because the NSR and some of the zinc stopes and silver stopes that are close to the shaft will be very hard to beat. But I do see a world where Peak could add potentially another 10 years to Taylor and might be the third zone or second zone that we get into mining, but we'll know more about that probably in the first half, next calendar year.
I would say on the Clark side, we actually completed the decline in quarter two of FY 2026, and the decline, to give you a sense of underground work there in terms of lateral development and mining, that was completed ahead of schedule and below budget, and we also did the first bulk sample in December 2025. At the same time, you know, keep in mind, about $20 million of that was funded by the DoD. You know, as the mine matures and we look forward, we'll continue to look at some of those synergies between Clark and Taylor. That's not something that we talk about in the current numbers, but we think over time, there's some really big synergies in that space, but we'll look at that at a further date.
And probably lastly, just for an update, you know, FAST-41 for us in the U.S. has been a fantastic process. The draft EIS was published in quarter four of FY 2025. We expect the final EIS to come out, you know, probably in the second half of this financial year, and we're still on track to get our record of decision in the first half of FY 2027, but it has been a great, if you like, permitting process that we're seeing. That's been a real positive for the team. That's probably a lot of an update on Hermosa, but happy if you wanna dive into anything in more detail.
No, that's exactly what I was after. So thank you for that, mate. And might move on to Cannington, perhaps, for the second one. Obviously, silver prices have been buoyant, to say the least, and you know, you've had good production this year, but we do have production falling off 2026, 2027. There has been a mine life extension there as well. I guess I wanted to touch a bit upon whether you see potential there, perhaps in the open pit again, and how you're kind of thinking about 2026 and 2027 production, where there's any sort of upside potential there. And how do you think about the asset, as you kind of you know close your innings here? Do you, do you see that as a core asset in South32 or a non-core one? A bit of color there would be great. Thanks.
Yeah, look, I would start by saying that, you know, I've probably said this a million times, but I was lucky we could be there when we actually built Cannington 28 years ago now. You know, when we inherited Cannington as part of the demerger, we had probably about six or seven years on the mine plan. As one of the slide pack shows in our presentation for this half year results, I think the team has done an amazing job in terms of extending the life of that operation, because even today, if you are looking for a base metals mine and focusing on zinc and silver, Cannington will be right up there.
And it continues to be a gift that keeps on giving, but we won't shy away from the fact that we recognize that, you know, as the mine gets older and the stopes get smaller, we are gonna see variability in results, and you're probably never gonna get back to the same throughput rate you used to be able to produce at, but it's still a highly value accreted mine even before you've seen this big jump, if you like, in the silver prices. What was pleasing to see this year is that we are basically extending the ore reserve life by about 28%, so that adds about three million tons or another two years. So it takes the underground out to FY 2033. It does require us to invest about $65 million to $80 million in further ventilation, electrical work in FY 2027 and 2028.
We still believe with some of that capital spent, that will potentially open up a little bit more upside of converting, if you like, the resource to reserve, where there's about 45 million tons. And we'll continue to do that work with the hope of adding another couple of years over probably the next 12 months, and maybe a little bit more after that. Now, we have been relatively conservative on our prices that we've used to run the extension in the underground and look at the open pit. So we use a silver price of, you know, way less than half of what it is today. So we do think there is obviously some upside to the underground, but also some upside to the open pit.
I think what we've talked about in the past is having the end of the life of the underground, and then perhaps, you know, you go into a large open pit model, which is quite capital intensive. With some of the work we're doing now, it's probably more of a focus, potentially, if you like, on an open pit that might sort of have a bit of an overlap with the underground, but also a smaller pit, but a more economic pit in many ways. So we'll continue to do that study work, and we expect to sort of complete a PFS study by calendar year 2026. And we're pushing the team to see how quickly could we get into execution.
Realistically, with the work we'd have to do around, you know, mine design, integration, you'd probably be looking at an execution in FY 30-ish, but would also be talking about a capital number that is not massive because it's a much simpler open pit. So I think Cannington's still got a lot of life to live, a lot of value to create for our shareholders. But like every single asset in the portfolio, someone offers us more money than we think it's worth, we're always looking at selling it. But at this stage, we see a lot more value in it.
Excellent. Okay, that's very clear. And I guess when you're trying to work on that new plan in terms of underground and open pit together, you're basically gonna be looking at blending of the ore so that you can have a bit more throughput and grade. Is that the right way to think about it?
Yeah, potentially. I mean, I think there would be an overlap. There might not be a what I would say is they're not mutually exclusive. I think there's probably gonna be potentially a little overlap in between, not necessarily massive. I think the other thing the team's done a lot of great work on is, we do have a lot of low-grade stockpiles historically on the surface at Cannington that we haven't actually processed through the plant because of some impurities contained there.
I think the team's done a fair bit of work on it, what can we do with that to make that accessible, to sort of get the throughput up, lower mining costs, 'cause it's coming from a stockpile, and maybe managing out the open pit and the underground? Still a bit more work to do on that, but I think there's a bit more potential in that space as well.
Got it. Okay, perfect. Thank you very much, Graham. I'll pass it on.
Thank you. Your next question comes from Rob Stein, from Macquarie. Please go ahead.
Well, Graham, before, I guess, I'm assuming this will be your last result, so, congratulations. Stock's approaching an all-time high, so it must be a good point to sort of be leaving the company in. I'd be interested, from Matt, if he's got any color to add around the opportunity, how he sees his role emerging as the company grows, and seeing, you know, what sort of lens he's gonna provide onto the leadership of the company going forward. I know it's early days, but some initial insights I think would be appreciated by the market.
Yeah, look, I'll throw it over to Matt in one sec, but I would give Matt a little bit of room there. He had his first week, last week with South32, where we obviously had a board meeting in Johannesburg, where he got to spend time with all the board. This is his first week, sort of, around. And certainly, the way we're set up is, you know, we're setting up Matt at the moment to have total accountability for the operations, to understand that part of the business. He will be going on the roadshow for the next two weeks to meet all our investors. But maybe with that said, I'll hand over to you, Matt, to sort of give your initial thoughts.
Yeah, thanks. Thanks, Graham, and thanks, Rob, for the question. Listen, really great to be here and looking forward to meeting everyone over the coming weeks and months. Rob, naturally, you know, you form some impressions in talking to the board, leadership team, and reading everything I'll get my hands on, but I'm pretty cautious to draw conclusions too early. I feel like I'm really well prepared, but definitely keeping an open mind. You know, what stood out to me so far is you've got a really good asset base. There's some real seriousness around how the team, you know, applies discipline to capital allocation, and I'm starting to understand the depth of the operational capability that sits in the business that I think is a real competitive advantage.
So I guess the opportunity I see is to build off the really strong base that Graham and the team has built, continue to improve operational performance, ensuring we allocate capital, you know, to maximize returns for shareholders and manage risk really proactively. Over the coming weeks, you know, my focus is quite simple, is to better understand the business. So lots of getting out, listening, spending time on site, learning, visiting all the assets, and clearly also supporting Graham and Sandy and the team to execute the strategy. So excited to be here, and looking forward to meet you all.
Thanks, Matt and Graham. And maybe just an asset-specific question while I can. With Mozal being, you know, running to care and maintenance, and the Worsley feed being opened up to new offtake, is there any strategic thinking around how that feed is priced into market, noting where alumina prices are? You know, is there an opportunity to draw some commercial rearrangements with others, whether it be a JV on the producer side or finding some strategic offtakers on the demand side? Just interesting how that allocation gets thought about going forward.
Yeah, look, absolutely. So look, from our perspective, you know, the Worsley Alumina has always been well sought after. As you're aware, we have sold into Mozal. It's some old LME-linked legacy contracts that haven't always been the most attractive from our perspective. So that alumina that we have previously provided to Mozal has already been spoken for and is already placed in the marketplace. So I wouldn't expect to see more downward pressure on price. If you look at today's price, probably 60% of the cost curve is out of the money if you sold it, if you're an alumina producer. You know, this material will end up, if you like, in the Middle East, or probably more than end up with a slightly higher margin than what we're selling into Mozal at.
Thank you. I'll pass it on.
Thank you. Your next question comes from Kaan Peker from RBC. Please go ahead.
Good morning, Graham, Sandy, Matt, and Noel. One question on Hermosa. I know you've provided some great detail on CapEx spend, and understand 50% of CapEx has already been spent, but what percentage of total CapEx is now committed versus exposed to inflation? And then on the main shaft sinking, how is that tracking to feasibility study assumptions? And I'll circle back in a second. Thanks.
Yeah. Look, thanks for that. As you expect, we're gonna get a lot of questions on Hermosa over the next six months as the project gets into that, if you like, critical component. Look, the spend, I'll talk to you first about. The spend is probably where we spent $1.0, so $1 just over $1 billion, and the actual feed schedule had us spending about this time, about $1.145. We're about 48% on a spend. If I looked at a committed number, it's probably getting close to 58%ish kind of percent around that mark. There's still a fair bit of work to be done on that side in terms of committing those packages.
As I mentioned earlier, you know, we'll commit the remaining 2 surface packages and the lateral development in this second half of FY 2026, and the underground infrastructure won't be far off of that, and that's gonna take you probably to 80% of the, if you like, work committed. The ones that I'll focus on, they're very much gonna be around the lateral development, particularly that will usually be a unit rate kind of contract, whereas lots of the other ones are probably CMAR contracts to the surface, we sort of have a guaranteed maximum price.
As I mentioned earlier, tariffs at the moment, we're not expecting a big impact so far, but we'll continue to watch that as the rules change every single day. Look, the main shaft itself, we're about 370 meters of the 898 meters plan, 41%. You know, the speed at which we've been going at the main shaft has certainly been a challenge for us. It's been a challenge in terms of Redpath performance. What we have seen as we've gone into the, sorry, that was the vent shaft, I meant to say, is that 459 or 56% complete. That's the one that's been a little bit more challenging as we've had some lessons to learn.
What I am pleased to see is when we've gone into the main shaft, those lessons have been applied very quickly, and we have made up a lot of speed on that side. What we will have a sense of, again, by the time we have all that work committed around that 80% of what the schedule and cost looks like, and then we'll give the market an update from then. I would be honest and say, look, shafts always worry me. You never know what you have till you get to the bottom, and they're always a unit rate, so it's always a little bit more challenging.
Sure, thank you. And, on Catabela Northeast, a number of questions there, but on the exploration target, is that supported by indicators, style drilling density? I assume not, but, and then on the ore, do you know if it's compatible with current Catabela ore? And, I suppose where it's leading to, it's more the conceptual development path, you know, is the ultimate bottleneck at Sierra Gorda, the fourth line? And, I suppose, how are you thinking about that? Thanks.
Yeah, look, I would start by saying, look, it has similar ore characteristics, so there's nothing that's majorly different, and it is virtually a stone's throw away from where we are today. So no issues in terms of processing that through the facility. I think what I would say at the moment is, you know, we're in the early stage of Catabela. We haven't you know, it's an exciting opportunity for us, and as I mentioned earlier, it's still open in multiple directions. So the primary focus is on really understanding the size of the actual ore body and the grade of the ore body
But pretty happy to have an exploration target that ranges about 1.1 billion tonne-2.9 billion tonne, and it's still open in all directions and at depth, and it's sitting right next to an existing mine and right next to existing processing facility. Look, we have a number of drill rigs at site, and we'll split our time between, you know, infill drilling versus exploration, and certainly from our perspective, you know, there's more work that needs to be done to make it a JORC resource, et cetera. We're in the early days of this, but I think this is such a great opportunity, one, to share it with the marketplace, but it could absolutely extend the life of Sierra Gorda materially, but a lot of work's still to be done.
And just maybe on the ultimate bottleneck at Sierra Gorda, post the fourth line?
Look, I think post the fourth grinding line, the ultimate bottleneck will be still the processing facility. Couldn't tell you which part, but off the top of my head, but my guess is gonna be very similar where you're putting the fourth grinding line in today because that's what we're expanding to remove the current bottleneck.
Sure. Thank you.
Thank you. Your next question comes from Lyndon Fagan, from JP Morgan. Please go ahead.
Thanks. Good morning, everyone. Graham, you mentioned the silver price assumption in the Cannington and Hermosa reserves. I'm, I'm wondering if you can provide some sensitivities around price and perhaps tonnage or mine life. Obviously, if we're double the price that's been used in the reserve calculation, the next update should, should see some pretty positive changes. Is it possible to quantify some of that?
Probably I mean, the one thing I'd have a slight caution on that, Lyndon, that you can model some of this as much as we can, but, you know, the one thing we're seeing in silver at the moment is huge volatility, double-digit changes up and down over a couple of days. So we're slightly cautious to commit a long-term capital investment program just solely on a silver price. It's a speculation. You know, when we looked at the open pit and the underground extension at Cannington at the time, we were probably using a number just south of $40 in terms of silver, to give you a sense.
So that tells you there is a lot more upside in that space. I would say the Cannington open pit extension is not hugely capital intensive, but it will be super, sensitive to silver price. So certainly one of the challenges we've given the team is to have a think about, our commercial team, is: Is there a way you could somehow try and capitalize on this silver price today to help fund the future? But it's early days on that and probably difficult to lock anything in because we don't quite know yet how big the pit's gonna be, what does your production profile look like. But they are all the options that the team will look at.
But certainly, to your comment, if you think about silver and run across our sensitivity of our group, you know, we have silver, obviously, at Hermosa, we have silver at Cannington, and we also have silver at, Sierra Gorda as well. So from that perspective, you know, it's certainly an important part of our portfolio, and I think I saw a quick number on a sensitivity that was. If you run at a price, spot price the other week, it's probably about $1.1 billion EBITDA, but that fluctuates every time. That's assuming all the operations are running up at one time, and obviously, you know, Taylor's still got a fair bit to go.
Okay, thanks for that. The other question I had is just on Ambler Metals. So obviously, since you last reported, there's now a pathway to development. I'm wondering if you can step through some of the timeline, perhaps, that's been put out there or, you know, I'm just wondering, when are we gonna get some proper information that might be able to crystallize some value in the share price for this opportunity?
Yeah, I mean, I guess the one way to look at this is an interesting one, because you clearly have an entity that's traded purely on this project in terms of Trilogy, which is listed in the TSX. You know, they currently have a market cap, the tenth of February, about $800 million. You know, I think the critical piece from our side has been that AIDEA has received the right-of-way permits to the Ambler Access Road and has allocated $50 million to the engineering and permitting, which means that roadwork starts to move forward. At the same time, NANA, Doyon, and AIDEA, and Ambler have signed an MOU, establishing a framework to negotiate access on the road and how the road will work.
So that's a lot of momentum we've never seen in that space before. What we will do from a joint venture perspective in calendar year 2026, is that we will prove-- we've approved about $35 million to get back in there and do further exploration work and studies. We obviously paused a bit of that when the road was frozen under the Biden administration because it didn't make a lot of sense, but we'll restart that work. We plan, if you like, in the current year, to drill about 4,500 meters at Arctic, and that's designed around geotech work and condemnation drilling work, which will then allow us to basically complete the PFS for that some, you know, probably in calendar year, late 2026.
The other one we shouldn't underestimate is, you know, we talk about that road, and that road is about 340 km from where we are in the Ambler joint venture to the Dalton Highway. But we also have Roosevelt, 100% owned, which is about 100 km east of Ambler, so closer to the access road, and we will actually do a about 2,500 exploration drilling programs or 5 holes in that this calendar year to understand that as well. So look, I still think it's, you know, Arctic itself would have been developed anywhere else in the world today. It's a 43 million ton resource, 2.93% copper, 4.3% zinc, and it's open pit to a depth of about 300 meters, so relatively simple, but you just need that road to be put in place.
I think this is a good first step. I think the agreement we've actually struck with the U.S. Department of Defense means that their second lot of equity that comes from Trilogy and our holding in Trilogy requires the road to be built before that happens. So I think we've lined up all the incentives and the signposts heading in the right direction, but I still think Lyndon, it's a longer-term kind of play, and the first critical piece for us now that the road is moving, is to really understand the resource and the resource potential in that region, 'cause it's largely untouched.
Thanks for that.
Thank you. Your next question comes from Lachlan Shaw, from UBS. Please go ahead.
Morning, Graham and team, and congratulations again, Graham, and good luck in what's ahead. So I've just got a couple, to like, to, I guess, clarify. Thanks very much for all of the detail you've given us around Taylor Hermosa. Sounds like a lot of moving parts there, quite a lot on target to schedule ahead of budget, but clearly, you know, you've got that review. I suppose my question is, you know, when you think about some of the broader inflationary pressures and some of the outcomes we've seen, you know, projects for your peers, do you have a sense around y ou know, are we talking here sort of relatively modest kind of updates in terms of the capital, or are you sort of thinking that there could be some more sizable changes to come? And I'll circle back with my second question. Thank you.
Yeah, look, if I gave you honest answer today, if the team run the trending data and they look at the scheduled data, there's nothing that's dramatically different from our FID number. But I'd come back and say, when we talked about the CapEx spend, we've spent about 48% of that. So we're not even over the halfway mark in terms of spend rate yet, so I'm also gonna be super cautious until we get this piece of work in, because, you know, we will go from 48%, probably up to about 80% committed to the project. So I think that's why we're doing a schedule review at that time. That's when we'll have a greater sense of the information. And that'll be the remaining packages for the surface. We'll know.
We'll also know the underground, if you like, lateral development, and obviously, the shafts that have had a fair, fair bit of work coming out of the next three months. So I think that's when would be a good place to talk about it. Now, what we didn't contemplate at the current numbers or in the FID was obviously tariffs. At this stage, as I mentioned, the rules keep moving. We are getting into the stage of bringing in, if you like, equipment, processing equipment from India, and also bringing some mobile equipment in from Europe, and those rules tend to move favorably in the last couple of days, but we'll keep watching that data. Well, last couple of weeks, we'll keep watching that data. But we'll have a much greater estimate when we do the schedule review.
To date, looks on track, but it's only 48% of our capital spend, so I'm never gonna be overexcited to have done that work. Again, I would always come back to the point, is the single biggest challenge in this project was gonna be the dewatering, which is ahead of schedule, looking less than what we expected. But then the next biggest challenge is always gonna be the shafts. And the shafts are unit rate contracts. And until you get to the bottom, I'm never gonna be comfortable around any kind of shaft work, and we're doing two of them.
Got it. That's helpful. Thank you. And then, look, just from my second question, so, and, and again, just on the portfolio, maybe so for you, Graham, and maybe even if Matt's got a view, but just on the manganese assets. So, yeah, obviously, the projects in South Africa versus GEMCO, you know, there's the JV structure there. How do they sort of fit maybe in the portfolio, in terms of thinking about where you want this business to be in three to five years' time? Thank you.
Yeah. So good question. I'll probably help Matt out a bit here because obviously, Matt, you know, he's had a couple of days in the office and a board meeting, so I'm not gonna sort of throw him under the bus. So give him a chance to have a look at the operations and make his own assessment. We'll always start the position that, look, the way that joint venture works between ourselves and Anglo today, is that those two operations are stapled together. You can't sell one without the permission of the other. And you can't actually put one to the market or even your share to the market without the approval of the other joint venture owner. So you're walking lockstep together.
But if we take a step back on two fronts, is one, manganese, we think, is an attractive commodity, unlike, you know, met coal and iron ore. When you recycle steel, you have to actually have in manganese again, 'cause it gets burnt off in part of the process. GEMCO and probably Gabon are the two best operations in the world, and if you look at their margins of the businesses, it's an attractive business. So it's hard to sort of dispute that one. I think when it comes to, you know, HMM in South Africa, it is a little bit more challenging because generally the material is of a lower grade. The rail infrastructure and the transportation to the port basically doubles your mining costs versus what you'd have in Australia.
So I think that makes it a bit more of a challenging business all the time, which is why you have a lot of margins. We never typically make a lot of money at HMM, and we probably never lose a lot of money in HMM. Now, in saying that, you look at the margins over time, and this is reflected, you know, we've probably made margins between 55%-35% in Australia Manganese, and the margins in South Africa have ranged from 20%-5%. So it gives you a sense that the two businesses are quite different. But at the moment, you know, Anglo's been very clear that they've got no interest in doing anything in their share of the operations or the portfolio, so that sort of leaves us in that position as well.
Thank you.
Thank you. Your next question comes from Glyn Lawcock, from Barrenjoey. Please go ahead.
Morning, Graham. I just want to circle back to Mozal and just some of the comments you made. You said it's definitely heading to care and maintenance.
Yep.
Eskom's not able to match on power price. So I'm just curious, what if Eskom does? What's the timeline to restart, or is it in your mind, this is a permanent closure? Thanks.
So if I sit back and look at a couple of the key consumables, pitch and coke, they probably take five to eight weeks to get them in the site, Glyn. We're probably, by in the next 10 days, we're gonna run dangerously low to having nothing left. And it's highly unlikely to see that change. We just it couldn't physically get the shipments now. You know, we did a lot of work trying to extend the timeframe over the Christmas break, but that window is well and truly passed. We're closing the operation down. Look, the restart is never going to be easy. It's going to be expensive. I think the flip side, you can look at what's going on with Alcoa and Alumar.
It has not been easy for them to restart that smelter in terms of losing critical skills in the workforce, restarting it in terms of the availability of things like cranes, stability of power, et cetera. A smelter is like a finely balanced machine. Once it stops, starts, goes out of kilter, it's very difficult to restart in a well-controlled way. And I guess the question is, what power contract would you use to do that?
Because clearly, what Eskom's got available to sell today is not, is not economically viable. I think you can wait for maybe the Cahora Bassa to sort of recharge back to the levels it needs, but they indicated to us that they could only provide low levels of power to probably the next 2, maybe the next 4 years. That would be a long time for Mozal to be out of action and then try to restart it.
Okay. And what happens to the asset, do you think? You know, you transitioned to care and maintenance. Does it sit on your books and we spend money, or what do you do next with it?
Yeah, so we're being quite open about that transition to care and maintenance, which numbers have already been included. The ongoing care and maintenance costs are about $5 million a year, so they're not hugely significant from our side. We will have the ability, if you like, to sort of go into care and maintenance. Our closure rehab is probably about $119 million, because it's a relatively controlled small site. We probably need to work through with the government of Mozambique, what that looks like, because they might want to keep the option around. They might want to wait to 2030, would be our expectation to see what HCB looks like, because they don't have anywhere for that power to be used. You know, you're probably using about 940 megawatts at Mozal on a continuous basis.
It has a, you know, a standby. Well, it's virtually running 24/7, 365 days a year. So that's a really large power load to offload to someone else. So they might want to decide when they have power back on or enough power coming out of HCB to try and restart the smelter. It would have to depend on the economic conditions at the time. They're probably not in a position to make that decision to probably about 2030. Between now and then, we'll probably spend about $5 million to protect the site and do the basic care and maintenance stuff.
Okay. So yeah, it's closing, and then it could restart, but you know, there's a lot of water to fall under the bridge.
A lot of water will be under the bridge, and this will be a Matt kind of decision, but it would be basing on how our coworkers going to tell him, but and you're doing this in Mozambique and losing all that talent, poof! That'd be really tough.
Your first handball of the season? Okay.
Yep.
Cannington, lots of discussion already. What do you think we'veshe's got, what? You know, 28 years ago, she was built. You're going out another seven years from today to 2033. But, I mean, like, are we looking at this well beyond 2040, do you think?
Look, I think the potential exists for you to get out to 2040 with the open pit and continued underground extensions. I'll be honest, probably 2 years ago, I didn't think we could get much more out of the underground, but they've come off a couple of different areas, and we've done a bit of work. It's gonna cost us that little bit of capital I mentioned earlier, to open that up, but that sort of gives you a little bit more option to add maybe a couple other years after that. But I think the open pit, you know, a little bit early to sort of say, but probably by the end of this calendar year, I think we'll have a much greater sense of what that would look like.
Okay. And then just finally, on Cannington, I know you always say, and you have done for years, everything's for sale at the right price. But, I mean, silver, where it is, precious metals companies trade at big premiums to the poor old diversified miners. I mean, surely right now, this asset's worth a lot more to a precious metals company, silver company. I mean, do you actively look to try and monetize what could be another 15 years of life today?
Like, do you actually go out and do that? I mean, or are you just sitting back and waiting in case someone knocks on your door? Because I would have thought there's a great way to unlock maybe a lot of value and not have to go through the heartache of the, you know, all the open cut development studies, if someone can pay you up front, who obviously-
Yeah.
can afford to pay more.
Look, I think you're continuously looking at those options. And to your point, we're always looking at the portfolio to try and maximize value. For me, there's probably three questions you need to answer is: One, do you understand, do you even have an open pit that's a possibility? And can you extend the underground, which obviously creates a lot more value to anyone who actually acquires it. The second piece is, you know, is there a way that potentially we can access some of that cheaper money to unlock the open pit in terms of upfront capital or long-term sales, so you could lock in the current silver price of today. And then the third piece is, you know, outside of the crazy money, there are a number of people who continually knock on the door for us at Cannington. So those three options, we're always continuously evaluating.
All right. Thanks very much, Graham.
Thank you. Your next question comes from Ellen Miller, from Blackwattle Partners . Please go ahead. Pardon me, Ellen, your line is now live. Thank you. Your next question comes from Paul Young, from Goldman Sachs. Please go ahead.
You can't get two cracks, Paul. What's this?
Yeah, yeah, I am, Graham. Thanks. I'm back again. Graham, a question on Brazil Alumina and just the whole strategy there. Interesting transaction a week and a half ago, with Chalco and Rio getting, you know, taking out the Votorantim stake, which is interesting just on the whole Atlantic Basin sort of strategy for alumina, I think in general. If I look at your Brazil alumina assets, I see you didn't spend much on during the period. The smelter's not running so well, the alumina refinery is running well, but you've got this big capital call on MRN and the extension there, on that mine life extension. Can you just update us on that?
Because I think the last CapEx estimate was about $1 billion or something, and you got a 33% stake. It's an equity county unit, so, you know, it's just a washing machine on the cash, right? Obviously, it funds it in internally, but you'll, you might have to tip in. But can you just update as far as, you know, what you're thinking is around the timing on approvals and the capital calls you might, you might receive on MRN?
Yeah, look, absolutely. I mean, I would start with, you know, the performance of Brazil Aluminium has been incredibly disappointing from our side. You know, we the team there experienced instability. Well, our co experienced some instability in December 2025, and basically had unplanned 80 pots that have been taken offline. And obviously, that's not where we want to be after the difficult ramp-up in this period of time. So it does mean if you think about the 565 pots online, that's a total if you think about the total pots, 710, it means they're only 80% where they need to actually be. Now, Alcoa have deployed a specialist team from their technical center of excellence. They have guided us on that revised plan.
You know, we've taken our own look on that plan because obviously this will be the third time that there's been a review on that. And it's disappointing to see the guidance we gave out today. We've got a, you know, guidance FY 2026 to 135,000 tons, 140 in FY 2027, yet the full capacity, these are all our share, is 179. So that's very disappointing from the smelter side. And it goes back to my earlier comment. It is, you know, Alcoa is now a mining company with large degrees of expertise in this place, and they've had challenges restarting Alumar. Look, if we sort of moved on to M&A, MRN, the work is underway by the operator to finalize all those studies.
This will be a key milestone for MRN to sort of understand the schedule and the cost and up to date. Look, we think probably gonna be our share of capital around $200 million. You know, the focus at the moment, if you like, is on the license we need to operate to go forward to sort of set this up. We get a chance to evaluate that as we get closer, but the project itself for the west zone is pretty simple. It's a mine expansion, it's a transmission line to get access to cheaper and lower carbon electricity prices, and we'll get a good chance as they finalize that work to make a decision. But I'd be thinking circa a share capital for us would be $200 million if we decide it's what we want to invest in.
Okay, thanks, Graham. When is that decision? When is FID?
The FID on that, give me one second, Paul. It's late calendar year 2027, so calendar year 2027.
Okay. All right. Still a ways away. Okay, thanks, Graham.
Yep.
Thank you. That does conclude our time for questions. I'll now hand back to Mr. Kerr for closing remarks.
Thank you. Thanks everyone for your questions today. I'd like to thank you again, our teams around the world for the work they did to deliver these strong results. I would say, look, our base business, our operations are performing to plan. They're absolutely catching the benefits of higher commodity prices. Our performance is translating to increased returns for our shareholders. And as you look ahead, we certainly have some positive momentum on the price basis, but also the progress we're making on some of our growth projects and options in base metals. And look forward to seeing most of you over the next couple of weeks and introducing you to Matt. But thank you, everyone.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.