Good afternoon or good morning, everybody, depending on where you are in the world today. We'd like to take you through the highlights of our first half year results for 2020, that is up to the 6 months to June. In the presentation here, you can see I've shown you a slide of some wind turbines and a solar farm. This comes from our Agnew gold mine in Western Australia, where we've recently completed a microgrid, which on a good day gives us almost 100 percent of energy from renewables. So a great project for us and it's going to enable us to reduce our carbon footprint, to make an impact in terms of climate change.
I think it provides a very good working model for us to consider elsewhere in the group. Given the fact that ESG issues are now fully incorporated into business planning and integrated into decision making, we thought it would be good just to again share with you what has been widely regarded as one of the most successful prototypes of what a renewable project can be combining gas, wind, battery and solar so that you can actually integrate them all and work out what is the best configuration in a particular time of the day. So thank you for that. Can we move on to the next slide please, Garrett? All right.
So going on to the highlights for the first half, we've been in a very unusual period, as we all know, because of the COVID issue, and we've been able to weather the storm much better than what I thought we would. And so far, we've largely contained the impact. We did give updated guidance for the year in May that indicated our production would be between 3% 4% down on our original guidance given in February. And I must say, so far, as you'll see in the results that we put out, it looks like we should still be good for that. Of course, there's always a caveat that is provided we don't hit a second or a third wave and things get fundamentally worse.
We've been well shielded in Australia where we've had no cases on our operations and production has continued almost unchecked, albeit that we've had to de dexify flights, accommodation facilities, etcetera. And that's worked reasonably well for us with a small incremental cost. The big impacts have been in South Africa and in Peru, where we've had national lockdowns that resulted in the operations being closed for a period of time. And that's one of the reasons we had to reduce our guidance. Thankfully, we're back now to almost normality with South Peak being back at around 80% manning today, 80% that is, and with Cerro Corona being up at around about 70% manning.
So we're looking reasonably good at this stage to make sure that we can get back to normal operations within the next month or so. Ghana's had cases, but the recovery rate's been incredibly good, up to almost 90% recovery. So that's been a good result for us. I think importantly, as we've said all along, we want to deliver the gold price to the bottom line. In this particular half year, the mines have made $400,000,000 of cash even after having to absorb some hedge losses on hedges taken out as a risk management exercise during the course of last year.
And net cash flow after all costs, including interest, dollars 320,000,000 for the half year. That's meant that our net debt has come down around about $400,000,000 to just under $900,000,000 normalized earnings about 2.5x up to over $300,000,000 and an interim dividend that is the same as the total dividends declared for the 2019 year. And I think that gives you an indication of our intent to, 1, comply with our policy and number 2, to show that higher earnings will result in higher dividends for shareholders. The Solaris Norte project has commenced. We got the approval to proceed in February, so we started that project around 3 months earlier, and we've secured an equity raise of $250,000,000 which will fund about 30% of the total capital needs, and we believe this places us in a strong position whereby the balance can be funded most likely from internal cash flows, but if not from combination of cash flows and from available debt facilities.
Thank you. Next slide. We put this table in the book, so I won't dwell too much on the table, but this gives you an idea of what we're doing on COVID. We are testing fully all of our people in Ghana, Peru, Chile and in South Africa through proper diagnostic PCR tests, which will give us reliable results. And as you can see, we've tested 20,000 people.
As of today, we have active cases of 658 and of that around about 2 thirds is in Peru, the bulk of the rest is in South Africa. Luckily, we're finding that as we have active cases occurring, we also have people coming back after they've recovered from the illness. And so we're starting to see now that returning employees are equal or greater than new cases. That's a very important turning point in this pandemic. But I have to say, we have to be mindful of the risks of a second or a third wave.
So we're watching this very carefully over the balance of the year. Next slide, please. Just giving you highlights of the production results over the half year. If we look at the total portfolio, just under 1,100,000 ounces produced, all in costs of 1065. And let me just say, this is fully loaded costs.
This is everything. Unfortunately, a lot of our peer companies do not report the true all in cost figure. They leave stuff out. This is everything, including as well the expenditure on the Solaris Norte project in Chile. So this is fully loaded.
And when you want to do proper models to work out how much cash we're going to make, you can use these costs with reliability. That's given you mine cash flow of $400,000,000 net cash flow of $320,000,000 If we look at the individual regions, West Africa produced 384,000 ounces, made $139,000,000 of cash in the half year. The Americas region produced 108,000 ounces, obviously, hard hit by the closure we had to put in place because of COVID. That made still $49,000,000 for half year. South Deep, despite the fact that we had the mine closed for a full month in April and then only operated at about 50% capacity for 6 weeks and still haven't got back to full production, still managed to make a little bit of money in the half year.
It would have made a lot more money had it not been for the closure. Clearly, production was significantly curtailed. And then Australia, of course, annualizing at just around 1,000,000 ounces a year, making cash of US208 $1,000,000 for the half year. So as you can see, despite the COVID issue, the results have been much better than we could have expected given the impact of the pandemic. Next slide please, Garrett.
Let's look back over what we've achieved relative to our commitments. Over the last 7 years, we've hit our numbers consistently on production and on costs. I think it's fair to say, looked at as a group, we've got a track record of delivery over that period. Safdie, which has been a problematic asset in the past, has implemented a turnaround strategy, which included a labor restructuring in 2018. As a consequence, in 2019, we exceeded our guidance on production.
We did much better. We had a really good quarter 1, and we were building up momentum. Unfortunately, the pandemic has pulled us back, but the integrity of the things we're doing at South Deep have not changed. The relationship with organized labor is better. The morale of mine is good.
And the focus on short term interval controls around mine planning, delivery, maintenance of equipment and making sure that geotechnically we comply with all of the key issues is in good shape. I would say I'm much more optimistic on Safdie today than I have been in some years. We've reinvested for the future of the business. Gruyere has been built pretty much very close to plan in terms of cost and schedule, and that hits commercial levels of production September last year. So that's showing really nice numbers for us.
And the demand reinvestment is ahead of schedule. We've mined more tonnes, more ounces. We're now getting into the good stuff in the ore body. I'll show you a little later. And we're quite excited about the second half of the year and what we expect to see.
And of course, the feasibility on Solaris was completed, and we've started the project. Next slide, please. Further Further achievements over this period, we've extended the life of Cerro Corona by 7 years to 2,030. So that's given us a tremendous benefit there, particularly in the context of being one of our lowest cost assets, and we're not done yet. There's certainly more we believe there's another potential pushback to the side of the ore body to the west, and that could provide further potential.
St. Ives, the InvinciBull complex continues to grow, both laterally and at depth and has now become the mainstay of the St. Ives operation. And I'll show you a little bit more on that later as well. Agnew, an asset that hasn't been well understood by the market.
And in some respects, that's because of a lack of visibility on what exploration success might be. We're looking much better than we ever have, and we're now at the stage where we're not just looking for targets anymore. We have targets and we're getting better resolution on what they're going to deliver for us. We've addressed our reserves concern. We've now got over 20,000,000 ounces outside of South Africa with around a 10 year life, and that benchmarks pretty well against most companies around us even if you leave South Deepout.
And we're in good shape to deliver between 2,000,000 and 2,500,000 ounces a year for the next 10 years. All of our assets have organic growth opportunities. And over the years, this has been one of the best investments for us is to find more gold where we're mining our gold at present because we have the sum capital, we have the infrastructure in place, it's usually low risk and high return for us. And we've added back reserves to top of for the first time, and I think that's an indication of what's coming into the future as well. Next slide, please.
Just talking about Tarquip, we put a picture in here that shows the measured and indicated resources in green and mustard color, so you can see there. And then you've got inferred, which is sort of yellow strips. But the area I want you to focus on is the downdip extensions, which are not in resources or reserve. That's in the light magenta color. And you can see here just by going down to around 200 meters around the entire open pit property, we've got around 11,000,000 ounce potential.
Looking at the drill holes we've got so far, looking at the thickness of the packages, and there are a number of packages here that are very similar to what we mine. And this is an ore body with tremendous consistency and repeatability in terms of these structures that continue throughout the property. So we're going to be spending some money over the next 3 years or so, drilling this out better and trying to figure out how we get this into a plan. So I think Tawke has got a lot ahead of us, which makes us very, very excited. Flagship operation in the company has certainly got life beyond 10 years.
Next slide, please. Looking at demand, here's a cross section of the pit. And you can see over here, if you look at the bottom, you can see the pit shovel, that's the demand reinvestment plan long. That's where we're going to be when we've mined everything out over the next 4 or 5 years. And then you can see at the top there where we are right now.
I think the important thing here is to look at the colors on the right that is giving the different grays. And I think as you can see, we're moving from this very variable Hune sandstones, which has characterized a lot of the mining we've had and we're getting into the high grade material, particularly in the filites and also the other lithologies that have higher grade at the Bank of Hanging Wall as well. So you're going to see us getting into the higher grade areas really in the next month or so. We're just about there. So that's why our confidence on the second half is good.
And that's been great control drilled as well. So it's got a high degree of resolution. Also, I've noticed just look below the current pit shop, you can see some more high grade material. It's probably another 2,000,000 ounces there, and that's going to be the subject of some studies into the future as we consider whether demand will go beyond the current phase and have another pushback of sorts. Work to be done there, but certainly there's potential.
Thank you. Next slide. If we look at Agnew, in the past, we've started the recapitalization of this mine, which has been in our portfolio for 20 years almost by, 1st of all, getting our own power solution, as I mentioned at the outset, the integrated microgrid. And then secondly, getting our own accommodation village, which you can see on the left here, which is in close proximity to the mine. In fact, you can walk to the mine in the morning and go back in the evening.
Previously, we had to bus all of our people in from stone rents into accommodation, which was quite pricey. So that's been the first phase of our recapitalization. The second phase now, next slide, is to look at how we bring to account the significant potential that we have across the different ore bodies. This is the grade of Warunga area, and we flagged here in red the highest priority areas and in gray the 2nd priority areas. And you can see all of the extensions here clearly set out Kath Lower and Warunga North Lower in particular.
We're quite excited about the grade there. It's pretty good. Saint is a further extension. We think there's further extensions to the south at Kim, which has been a great mine to us, FPH, Downdip and also across to the south. And if you add all this up, the potential to add over here over a 3 to 5 year window is between 1,000,000 to 2,000,000 ounces that we could add into resources.
So that's just the Warunga operation at Agnew. Then if you look at New Holland on the next slide, Garrett, you can see again, this is an ore body that's got a 3 kilometer strike potential with multiple loads replicated. It started off with the Genesis 200, 300, 400, then 500 and we're down to even the 600. And we're starting to see now as we've been able to get access underground and get drill cutties in, in development drives that we can start drilling out these areas. Remember, it's too prohibitive from a cost perspective to do this drilling from surface, much better to do it from underground, then you got to get the access.
As we've extended our mining, we're getting access, setting up these platforms and drilling out. And again, we're seeing here the potential for between 1,000,000 to 2,000,000 ounces here over 3 to 5 year window. We're not done yet at Agnew. We're also looking at the Greater Redeemer Complex. This was an old open pit that was mined out many years ago that we backfilled.
We did some early drilling, but we didn't think it was going to be prospective. We've come back here and now we're seeing the makings of another substantial ore body that could be over 1,000,000 ounces again of good grades And another open pit underground opportunity in close proximity called Baron Lands, that's an interesting description because based on our current drilling, it's anything but barren. So it shows you the potential over here at Acme. We wanted to share that with you and just to indicate that this doesn't mean now we're going to be spending tens and tens of 1,000,000 of dollars every year. This is going to be dealt with and taken forward within the context of our existing exploration budget in Australia.
All right. As Senayas, I've talked about the very prolific Invencible camp, and as you can see over here, we believe that there's another 1,000,000 to 2,000,000 ounces potentially that could be added over here. Certainly, over the next 3 years or so, there's real potential to add at depth as Invincesbore gets deeper. And then across the Alpha Island Faults, which we've mined through, Invincible South, Invincible South Extensions, you can see it's extending out laterally to the south and also down to so this has been an incredible ore body for us and continues to get bigger. All right.
So moving on to Slide 15, Garrett, cash generation. I think this gives you an idea of our capital for the half year. And what we're looking at for the year overall is close to our original guidance, around about $615,000,000 to 625,000,000 dollars for the entire year. That's very close to what we said it would be. And we've again given you an indication as to how we've de geared the company.
Dollars 700,000,000,000 over the last 18 months in fairness, That's got the equity raise in there as well. So if you want to take that out, then we've dropped $450,000,000 even though we've had to fund the demand project pushback and also the final stages of Gruyere, which was commissioned last year. We have raised 2 new bonds. So essentially, we've pre financed the redemption of the 2020 bond, which is $600,000,000,000 that has to be paid off just before the end of the year. And also, we've restructured the bank debt.
So Paul Schmidt and his team have done a fantastic job here and our credit is now well sought after. Next slide, please. So I've talked about the balance sheet. Nice to have almost $1,000,000,000 of cash on the balance sheet. It gives us real liquidity, particularly given the COVID risks.
We weren't too sure what was going to happen, whether our production would be more impacted, in fact, than what it has been, but that's actually worked out very well, so in really good shape. And as I said, prices hold up at these sort of levels, then we would expect to materially reduce our debt again between now and the end of the year. That's quite important for us because Solaris Norte is a big capital year in 2021. We're going to be spending probably just shy of around $500,000,000 on Solaris next year. So if we can go into next year at a very strong position, we believe that cash flow from the operations could fund most of that.
And even at very conservative prices, our net debt to EBITDA ratio would not get back to the levels it's been in. So a really good position for us to be in. Next slide, Solaris. The one thing I've seen in my time at Goldfields is that we've never been able to start a project with the level of engineering, detailed design, what we call FEED at this kind of level. And before we start spending the really big money towards the end of the year, we will have fully engineered this project.
And why is that so important? It's important because you get real resolution on the exact detail of the designs and it makes sure that if there's any flex in your cost that needs to be considered that you've got it in place before you start spending the money. The other thing is trying to do detailed engineering when you're building the mine is very difficult, but often projects try and do it coterminously. But getting it done upfront, which we've been able to do, has put us in a very strong position. The critical path item for Solaris is camp accommodation capacity.
We have commissioned just this last week our Phase 1. And at the moment, we're mobilizing up to about 400 people on-site, and we hope to have Phase 2 finished in the next 3 months. And then that's important because we've already got the mining contractor mobilizing. They'll have to do their early pioneering work that's setting up the sites and also all of the different packages on the process plant construction, which starts at the same time as pre strip. Remember, we've got about 50,000,000 tonnes of pre strip to do.
We've got to build a process plant at the same time. So the key phase is going to be from quarter 4, late quarter 4 right through until commissioning in the Q1 of 2023. So we're getting ready for all of this stuff. Sectoral permits are not going to be a hand break for us. We've got the umbrella permit, remember, and we're in good shape to make sure all of those are in place.
And the team has been able to interact virtually with the authorities on getting these key permits in place. The mining contract is awarded. Diversion channels are being constructed. This is obviously to ensure that we shield the site from flood events. We don't have a whole bunch of water coming into the site, and it's been structured on the 1 in 1,000 floodplain, so it's very conservative for us.
So I think we're in good shape for that. And then we're starting, obviously, the preparation for the site. 61% of the total capital has been awarded and priced. What's left to worry about is largely inflation. Around about 2 thirds of this project is in local currency.
We've taken out a hedge on that, so that's given us an additional cushion, which is beyond the $88,000,000 of contingency that is in our $860,000,000 So I think we're in pretty good shape here to withstand potential cost overruns, but it is early days, of course. And then exploration continues on Horizonte. I've shared with you previously some very exciting results, and I think we'll see more of that into the future. That program will be resuscitated again in the spring, which is next month, and we'll continue our drilling on the Horizonte project, which is, by the way, it's about 4x the size in terms of land package as the combined Agua Marga, Red Springs, Pearl project that represents the current Solaris mine, and that could be an exciting addition to this project into the future. All right.
So just to show you a few pictures on the next slide, you can see at the top here, you've got the diversion channels. You can see that's the area where we need some concrete base. So those are concrete slabs you're seeing there. And then on the right, you can see some of the trenching, the earthworks there. Bottom left, you can see the 1st phase camp accommodation that's in place.
And then alongside that is the foundation for the 2nd phase, which as I mentioned earlier, we should have ready to go and be used towards the end of the year. Our regional overviews, Australia, I'm not going to spend too much time on these because I'll talk to the front end, done really well. Nice to see Gruyere coming through. I think the rest of the operations have done well. Cenayas is changing.
Interesting to note that of the 115,000 ounces mined, and you can see this in our book, you'll see 85,000 ounces of that is from underground. So it's becoming predominantly an underground operation with Neptune the only open pit ore source at the moment. Hamlet's coming through, Hamlet North, nothing to do with the old Hamlet, but it's an offset, but at much higher grade that's coming through. And that's why you'll see the underground grades have gone up at Sunrise. But we're on track for another good year in Australia.
If we move out to the next slide to the Americas, as I've mentioned, this operation was severely impacted by the COVID issues. So the numbers don't make a whole bunch of sense. Our production has come off significantly from where we were in the second quarter. So that's meant that the first half looks a lot lower than the first half of last year. But we're getting back up.
I don't think anything we've seen on the COVID issue is going to affect the long term integrity of the operation. West Africa on the next slide, Gary. We've seen a slight reduction in production compared to the previous year because we finished the higher grade Amawanda satellite deposit mining last year. And we have had some real great challenges in the Hune sandstones I spoke about earlier at demand. So it's almost been a double whammy effect.
Fortunately, as you may have seen, if you look at the quarter 2 results, our mining volumes have picked up substantially, both waste and ore, and also the grade has started to improve. And you'll see the mine grade was higher than the process grade. That's because a lot of the higher grade stuff from the top were full lights came through towards the end of the quarter, and we couldn't get that through the plant. But I think you'll start to see that coming through into the second half. And then very good cash flow as well and nice to see that we got $38,000,000 in funding redeemed by Asanko.
That certainly goes back to paying down some of our investment there. Going to South Africa, regrettably, one fatality. I should have also mentioned that we did have 3 people who lost their lives to COVID. I should have mentioned that upfront. But let me just say that, that unfortunately, 3 people succumbed to COVID.
And in addition, we had the one fatality at South Deep, very unfortunate and tragic. We're going to redouble our safety efforts here, and the team is working very, very hard on that. So I think it's fair to say that South Deep has done incredibly well given what it's had to work through. Remember, 1 month complete shutdown, around about 5 to 6 weeks at only 50% of capacity and the rest probably at about 70% of capacity. So actually, I'm amazed at what they've achieved.
And I think this shows you that some of the interventions that are being put in place are starting to really work for us. A 30% improvement in productivity on de stress and development, and we're seeing stoping compliance improve. Why is that important? Because these are the big mining cavities where we get the high grade, high volume. And if we can improve our compliance on this, it's going to make a massive difference to us.
We need to get our development going into new mine again. That's been delayed because of COVID, but I'm hopeful the team can still start that work in the next quarter. Right, in terms of the outlook, the guidance, we're still looking at 2,200,000 to 2,250,000 ounces. That's what we gave you in May, around about 3% off the original guidance. All in sustaining costs are up $40 an ounce in the range.
All in costs are $35 an ounce, and that's principally because of the COVID costs. We think COVID has cost us something around about $10 an ounce so far, probably going to cost a little bit more by the time we're done. Royalties because of higher prices, about $20 I think if you adjust for those 2, that really is most of it. All right. So from here, let's continue to manage this COVID issue and see where we go to.
Demand, we've got to obviously make sure that we have a really good second half and all of the indications are we will, get Solaris ready to start that pre strip and the construction of the process plant in quarter 4 and continue to work on South Deep, restarting the new mine development. And let's use the cash that we can make while the gold price is high because we don't know what the gold price is going to be next year or the year after. And as you've seen, we paid out a nice dividend. The interim dividend is the same as what we paid out for the whole of last year. So maybe that's an indication as to what's to come.
And then lastly, we'll end on another ESG type slide. The last slide there, you can see that is the Cerro Corona tails dam that is going to contain around about 100,000,000 tonnes over the life. That's been constructed over a period from 2,008 to now. There's been multiple lifts. Obviously, there's a new tailings dam standard that the industry has adopted, supported by the ICMM, of which we are members and we're instantly involved.
But I'm pretty sure that sericorona is going to be reviewed again in terms of these new standards. And hopefully, it will come up trumps as it has before in all of the independent external reviews we've conducted over the years along with the same process on a 3 year cycle on all of our other tail stands. This is a critical issue for the industry. We got to get it right. We can't have another tragedy like we've seen in Brazil.
So on that note, we'll hand it over for questions, which either myself or Paul will take. Thank you, Gary.
Okay. Are there any questions
on the conference call?
Thank you. The first question that we have is from Shailen Mody from UBS. Please go ahead, Shailen.
Congrats on a good set of numbers given the circumstances that we've been dealing with for the last few months. A couple of questions from my side. Nick, I just saw in the media this afternoon that you're going to be stepping down in September 2021. Maybe this is a bit of an unfair question, so forgive me if it is. What would you have done differently looking back at the last 13 years as CEO?
I mean, we've been having debates for about 10 years, but maybe tell me what you what you would have done differently. And then I kind of touched on this earlier, but I mean, you're changing your gold price assumption for your reserves from 1200 dollars to $1300 an ounce. Maybe a follow-up on that was, what is your expected all in sustaining cost margin at the new reserve price? So would it be the same margin as it was before or is it higher? Given your dividend policy of I think it's 25% to 35% of normalized earnings and where gold prices are now, could we expect something higher in the nearer term, so maybe at the top end of that band or even higher than that?
Thanks.
Lots of deal with all the back end questions, then I'll come back to your earlier question. Paul, do you want to have a crack?
Yes. If I can answer on the dividend policy, obviously, it's 25% to 35%, and we went at the bottom end of the range for the interim one. But as Nick stated, it was equivalent to the full one from last year. Let's see how the rest of the year plays out. We don't know what's going to happen with COVID.
We could still have further issues. But assuming the rest of the year goes according to plan, we should have another good dividend at the end of the year. What was the other question? Sorry, it was on the dividend. What was the other one?
The reserves.
The margin is still 15% at $1300,000,000 And as we discussed with you earlier this morning, we've raised it to $1300,000,000 to take into account inflation. It's said we had $1200,000,000 for many years, and that's why we're using $13,000,000 But at the minimum, it would still be the 15% margin. And we did state that in the glossies early on in the year where we said 15% at $13,000,000 is our free cash flow margin target. Hope that answers your question. Correct.
But we did state that already in the at the end of last year. That was the target, yes.
I think you just to add, we have to remember, on a look through basis, there's probably 35% to 40 percent of our costs that are labor. When I say look through, including the contractors we use, and those labor rates are going up every year. And we can't always contain that through productivity and efficiency improvements. So and the gold price never comes for free. Generally, when there's an increase in the gold price, the cost base doesn't stand still.
I think coming back to your earlier question, I would say where we are today has surpassed my expectations of where the company would be. If you went back and you bought a Goldfield share just before we unbundled Savania back in 2012 and you held those 2 shares, I think you would get a compound annual rate over the period of 15%, I think. So that's real shareholder value for us. And I think the one frustration I've had and the management team have had is that South Deep has been a tough nut to crack. We've had a number of false starts here, but I do think it is different this time and feel that we're on the right track.
And I guess the one thing that gave me the determination to continue is that the ore body is there. It's not like the ore body is not there. So we got something to work with here. It's just a question of improving the portfolio. But thanks for asking me to reflect on the history.
Okay, other questions?
The next question comes from Tanya Juszkonenovic from Scotiabank. Please go ahead, Tanya.
Yes. Good afternoon, everybody. Can you hear me?
Yes. Tanya, good afternoon to you.
Hi, Nick. How are you? I guess congratulations on your retirement. Maybe I could just start on that. Just to confirm that it is a mandatory retirement in South Africa based on age.
Is that correct?
It's part of our employment policy as retirement is 63. This has been disclosed actually in our annual report for some time. So this is not something new. It's not a surprise. It's an internal policy issue that retirement is at 63.
Okay. I just wanted to confirm that. And I just wanted to ask how this succession planning will go from now until your retirement. Is the plan to have someone overlap you over this next year? Or how are you seeing this play out over the next year?
Yes. Look, the Board will obviously be in control of this situation. There is a search process that will commence, and we'll work out the timing of all of that with the Board. Obviously, we've got to get someone first. And I'll do whatever is required in terms of providing a seamless process.
But there's a very good management team in the company. Paul has also been with me for a long, long time. So I don't think there's going to be any issue of continuity factors or anything like that. We want to do this in a way that is least disruptive for the organization.
Okay. That's good to hear. Anyways, congratulations on that. I'm just going to move on to the mining operations, if I could, and exploration, which is what was very interesting, some of those slides. If I could just start on the mines that were impacted by COVID, and I didn't get to hear all of them.
Unfortunately, my line was a bit fuzzy. But just on Sierra Corona, I think you said we are up at about 70% of capacity and we will be within the next month or so at normal rate. So does that mean that Q4 is a more normalized quarter for us, Sierra Corona?
Yes. I think Q4, we would expect to start getting back to where we were. Obviously, we've had to prioritize our mining with ore to try and keep the process plant going. So the waste strip is a little bit behind, and we won't catch all of that up this year. So some of that will go into next year, but we don't have an overriding concern on it.
But I think quarter 4 will start looking more like quarter 1, but not entirely because we haven't fully exposed all of the oil we would have done had the waste been running at the extent it was, but closer to normality and then next year I think will be better. So we factored all of that into the updated guidance for the year.
Okay. And then for South East, I understood again that we're up to about 70% capacity or so right now. Does that is this a similar scenario that Q4 is going to be a more normalized quarter and we're just ramping up this quarter?
No, we're actually we're ahead of the game. We're up to about 80% now. And we're expecting quarter 3 to be closer to normal at this stage. So we're not going to have the same impact there because we're up to 80%. We're bringing back a lot of the people from the neighboring countries who couldn't get back after the shutdown.
So I think quarter 3 should be more reasonable, not quite there, but not too far off. And in quarter 4, I think should be pretty normal. Okay.
And just to confirm that you mentioned the Australian operations are performing well. You haven't been impacted by COVID neither on the second wave that hit Australia?
The second wave has been on the Eastern States. It hasn't got to Western Australia. But I must just give a caveat on all of the operations, Tanya, is that if we get a second wave in South Africa, we get a second wave in Peru, if all of a sudden Western Australia starts reporting a whole lot of cases, all bets are off. And we can't predict that today. We can only give you where we think we're going based on what we know today.
But that could be very different in a month's time. So that's just the overriding caveat.
Yes. No, I appreciate it was on the East side, just make sure that nothing has impacted you supply wise or other things getting to the mine site.
Yes.
Okay. And then
Sorry, go ahead.
Yes. And maybe just on the expiration, I just wanted to make sure I understand when you were talking about Tarquah, I think I heard an 11,000,000 ounce potential resource number. I just wanted to check that. And my understanding is that at a 2 meter envelope around your existing deposit, if you were to just project the existing grade and depth out 200 meters, that's sort of your potential. Is that a correct assumption I made?
Yes, it's correct. It's also based on very limited drilling that we've got, which is indicating we're seeing the same geological structures, we're seeing the same number of packages, We're seeing the same sort of grades, the same thickness. And that's the magic of Topgore is the continuity of the structure and widths of the ore body are very, very consistent. So it's not like you've got to do a whole bunch of closely spaced drilling to understand where you're going. And again, it's only 200 meters down dip around that entire perimeter.
That perimeter is obviously so large perimeter around all these bits of the 20 kilometers. So that gives you an idea and that's resource, additional resource not beyond that.
Yes. Okay. No, no, that's how I understood that. And my final question just on capital allocation, this higher gold price, what are you intending to do with this incremental cash flow?
Well, we got 3 main areas we need to focus on. One is we got to build Solaris Norte. Remember, we did a 2.50 equity raise, but the total project stands 8.60 before inflation. Number 2, we want to continue delevering. Number 3, we want to make sure that these higher profits translate into higher dividends using our payout ratio.
Fourthly, we will be looking at how we can add organically to all of the mines in the group. Every mine in the group has got potential to add more. And this is really good business for us because we've got the infrastructure, we've got the Sun Capital, it's lower risk. So we'll be looking carefully at that. And things like at Wallaby Underground Mine, as we're getting deeper, one of the ways to offset the increase in costs is another decline.
And we can actually debottleneck the deeper part of the mine, for example. At Agnew, given the significant exploration potential, we want to look at upgrading the crusher and increase the plant throughput from 1,200,000 tons a year to probably 1,600,000 to 1,700,000 tons a year. So these are all projects that we're going to be thinking about over the next couple of years in addition to obviously continuing our exploration and of course the Solaris project. So we've got a fair number of things to do with the money. Let's make it 1st of course.
Okay. And just I understood that you have a policy of 25% to 35%. You're going to remain that intact. You're at the lower end of the range, but you could potentially move yourself up to that upper end of the range with this excess cash. Would that be a fair statement?
Yes. Well, if you look at the average over the last 5 years, we've been about 30%. So Paul and I discussed that, and we're not averse to that. Maybe Paul should jump in and give his thoughts.
Yes. Tanja, it's Paul here. As I said earlier, we paid at the lower end. We're just worried that we may not we still may be caught by a second wave of COVID. But assuming that we don't and the operations run-in the gold price phase, I'm sure we'll be paying a good dividend at the year end and maybe higher than the 25% as we paid in the interest.
Okay. And my last question, how much cash do you need to keep on the balance sheet, your minimum cash that you're comfortable with in terms of running your operations before you pay out all the excess that we've talked about?
Tania, we normally keep around $400,000,000 but we've discussed this as well. I would never at the moment, we're still in a net debt situation. Assuming we get beyond that, I would still like to keep a bit more than that on the balance sheet because you never know what's going to happen in the future. It would be silly to pay out an extra dividend, pay out all your cash and the next year prices drop and you actually then have to go and borrow. Our aim is to delever the company and keep probably between $500,000,000 and $1,000,000,000 of cash in reserve once we've got all our debt off the balance sheet.
But the minimum requirement for the mines is around $400,000,000 to $500,000,000 that we keep at any time.
Okay. That's helpful. Thank you very much.
The next question comes from Patrick Mann from Bank of America. Please go ahead, Patrick.
Hi, thanks for the opportunity. I just want to follow-up on the reserve price again and apologies for kind of beating the trauma on this constantly. But I suppose more philosophically, how do you think about this? Because we've obviously had a pretty flat gold price for the last 10 years or so. I mean, if you were starting with a clean sheet of paper and you weren't at 1200 today, what would be the methodology to pick the NPV maximizing or the best value answer for the reserve price?
I sort of just trying to understand really Goldfields' philosophy around this and how it could because at the moment it seems like we're anchored to $1200,000,000 will move up because the gold price has gone up and costs have gone up. But if you were starting from scratch, what should it be what would be the best value maximizing reserve price to use? Thanks.
Patrick, a lot of it Patrick, a lot of it it's not only our view. It's based on the long term view. Remember, we decided on this number, it was probably March, April. And at that stage, the long term gold price for most of the consensus analysts was just above 1300. It was about 13.
And if you check our financials, that's the number that we used in our impairment calculation. So that guided us to a large degree as to what we should be using for our reserves based on what the market and that is analyst consensus as to what the long term price was going to be. So that was the science behind it. It was based on forecasts looking at what the market is telling us long term prices should be. And so I mean
to push a bit on that, so if the market or mark to market, then we all start using closer to spot prices. Does that change does that drive Goldfield's strategy around reserve pricing?
No. I think we would like to keep the 1300 fairly consistent for a couple of years. I mean, this is the first time we've moved it in a while. $1300 has been around for a while, the long term price. But we decided, as Nick said, based on the inflation, maybe it's time to move.
But it's not that every year when the long term forecast change, is Goldfield is going to change its reserve price? No. I mean, dollars 1300 is going to be around with us for a while, I think, as our reserve price. And we'll look at it again in a couple of years. But I wouldn't expect anything in the next 2 or 3 years if we change reserve prices, no.
Okay. Thank you. Thanks, guys.
Patrick, sorry, most companies that we've surveyed have been around 1200. So I think the peer group has been around 1200 and we've been 1200 for a couple of years. But at some point, you need to flex the gold price because costs don't stand still. Wages, as I said, make up a sizable component of our cost base. And we have to have a balance between NPV and margin today.
The one thing we've got to be careful about is not being too conservative, but also not being too aggressive. If you're too conservative, you're going to leave money on the table. If you're too aggressive, you're going to be in a difficult position if prices come back. So 1300 we believe gives us 15% margin comfortably, and it leaves a lot of flexibility for margin expansion at higher prices.
Yes. I mean, we've been debating this internally and with clients, which I think and I'm sure that other analysts have as well. That's why these questions are coming up. But it's kind of if there was a brownfield expansion, which at $1700 $1800 an ounce gave you a 20%, 30% IRR, It seems weird to keep your reserve price at $1300 and not go for it. But with the benefit of hindsight, if you do go for it and the gold price comes back again and you impair it, then you'll be accused of making the same mistakes as the last cycle.
So, just interested in your thoughts on how you assess it because it's a very difficult one to have a coherent answer to. Yes.
I was running this company in the last cycle when the gold price collapsed. And we had gone exactly, as you indicated, across certain operations. And we had to go through a massive restructuring exercise. And the one thing I've learned is, when you've let costs in the business, costs are quite easy to get in. They're very difficult to get out, and it's better not to relax.
And we don't know where the gold price is going to go. It could come back significantly. I remember in 2013, people told me gold is going to 2,000 and 2 months later, we were down 1300. So it could change. Experience has talked Paul and I to be cautious and conservative on this one.
And certainly, that's what we've heard from investors, too.
Got it. Thank you. Thanks.
The next question is a follow-up question from Shailen Mody from UBS. Please go ahead, Shailen.
Hi, guys. Thanks for taking further questions from me. On one of the slides, it shows that your discovery cost of ounces in Australia is about AUD80 an ounce. I just want to confirm this is per ounce found. And then the second thing is you're talking about looking for about 2,000,000 ounces at Agnew.
That implies it's about AUD160 1,000,000 that you'd have to spend. And assuming you spend this over 4 years, that's about $40,000,000 a year. Does that kind of make sense? And should we be baking those into the numbers? And then the second thing was, how should we think about your CapEx, your overall group CapEx numbers, sustained business and growth over the next 3 to 5 years?
Thanks.
Yes.
So just the $80 is per reserve ounce. So
you have
to look at what you convert. And typically, you convert between 40% 50% maybe if you look at the averages. So that will scale it back somewhat. And we see the potential to bring those ounces in within the envelope of what we're currently spending in Australia. Wouldn't want you to go away and think we're suddenly going to be spending a whole lot of extra money.
In terms of sustained business capital, I think we've said probably somewhere between $2.50 $300 per ounce is a good number. If you take into account the need to replace mines in the group, the need to obviously continue exploration, replace tail stands, ventilation, drives on the ground. There's a whole heap of things, replacement of fleet when you're doing your own operations. That seems about the right number to us and probably the right number for the industry at large. I don't know if Paul wants to add something to that.
No, I think you're right. It's around it's probably just over $600,000,000 I mean, if you look at our guidance for this year, it was about $630,000,000 and that included some CapEx for Solaris. But I would say, if you want to model stain business, it's around $600,000,000 And that ties up with Mick saying the $300 on 2,000,000 ounces circa. So yes, that's a fair number.
Okay. Thanks. And then if we added your exploration, should we say about $50,000,000 to $100,000,000 per year for exploration?
That's in there.
So yes, that's included. Sorry, yes, we're including exploration in our same business capital. So if you want to, then you can take this probably close to $100,000,000 out that we're spending between Australia and the other regions on exploration. So if you want to backscale it, you can look at $500,000,000 same business capital, dollars 100,000,000 exploration capital,
if you
want to put it that way.
Okay. We got some other questions coming through. Yes.
I'm going to ask a couple of questions on the webcast. Paul, you're going to answer a few of these. Do you expect to book further hedging losses in H2 and into 2021 given current coal prices?
No, I don't think there'll be any hedge losses in 2021 because remember, the only hedging we've got for 2021 are the puts that we've already paid for. So they are basically done and dusted. Obviously, we booked we mark our hedges at the end of the half year. They've done gold has moved a little bit since then. But at the moment, for modeling, you can work on about $30,000,000 to $35,000,000 a month that we're paying out on the edges, and that will be till the end of the year.
Again, you need to pick a gold price to work out how much more the loss could move from what we had at half year end. We were using just over $1800 gold price at the end of the half year.
Okay. Then Nick, this one's for you. In your forward looking statement that contains a list of general risks that shareholders should be aware of, One of the statements is the effects of regional re watching at South Deep. Hasn't ever been has they ever been such an event that caused a problem?
No, we haven't got any events that have indicated a problem. At the moment, we are dewatering, so there's no water that is getting out of the mine. But it is a risk of operations around us, I suppose, as a concern. So that's really part of the issue. But we have been looking at that again, and we might update that risk into the future based on new information as we evolve that.
And if anything, it looks like the risk might be reduced.
Okay. Paul, another one for you. Did you say that you'd retire the debts due in October 2020 with cash on the balance sheet? Or would you look to refinance that going forward?
No, we wouldn't refinance. Remember, we did the bonds last year, so we've got cash on the balance sheet. And obviously, we're making a lot of money this year. So it will be paid from cash on the balance sheet. As we said, we're sitting with just over $900,000,000 at the end of June.
So we would use that cash to pay down the debt The bond that's due.
Okay. One more for you, Paul. The company's leverage has reduced significantly. Under what conditions will Goldfields consider materially increasing its leverage?
Well, we're not forecasting to increase our leverage at the moment. We said even if we take into account, as Nick mentioned, the $500,000,000 that we're going to spend at Salares next year, at conservative gold prices around $13,000,000 we still forecast net debt to EBITDA to be below 1x at the end of next year, even with the capital. So that's all that we've got on the horizon at the moment, Isolares. And using a 1300 gold price, we still stay below 1x net debt to EBITDA. So we don't see any reason big increase in the debt in the leverage.
Yes. I think in terms of just adding to that, we do have a lot on our plate in terms of building Solaris. I've talked about the organic growth potential, the existing assets, the need for us to show higher dividends, given higher profits. And we don't really think we need to do anything beyond that. So I wouldn't necessarily think that we're going to be out there looking to do stuff.
We're quite happy with what we have now and we think it's going to add significant value even at lower prices than where we are today.
Okay. From the webcast, operator, is there 1 or 2 more questions Perfect. Thank you so much. Nick, further comments?
I think just to say thanks for dialing in. I must just say again, the company has been able to produce really good results despite the COVID issue and has shown that it's very resilient, lots of liquidity. We're in pretty good shape. We're ready if things get worse, second waves, etcetera. But hopefully, we've got the protocols in place.
And if you got the time, have a read through all of the COVID procedures and protocols we've put in place. And we've written a long section in the book because we get a lot of questions on this. So we thought we'd give that. And if you have any follow-up questions on that, feel free to contact us because we've taken this incredibly seriously as you can imagine. And lastly, be safe wherever you are in the world and we look forward to engaging with you again soon.
Thank you very much for your attendance today.