Good day, ladies and gentlemen, welcome to the AngloGold Ashanti Tropicana virtual site visit conference. All participants will be in listen only mode. There will be an opportunity to ask questions later during this conference. Please note that it is advisable to open the webcast on Chrome. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this call is being recorded. I would now like to hand the call over to Fundisa Mgidi. Please go ahead, ma'am.
Thanks, Irene. Good afternoon. Good day, everyone. This is the call, as Irene has said, on Tropicana. It's a virtual call to discuss our operation there. I'd like to just alert everyone to the disclaimers on forward-looking statements as well as regarding this presentation. Please make sure that you go through this as we go through the presentation. The presentation will be made available on the webcast, as well as will be on our website after this call. Mike, over to you. Thanks.
Thank you, Fundisa. My name's Mike Erickson. I'm the Senior Vice President of the Australian Operations of AngloGold Ashanti. What I'd like to do today is give you an overview and an update on some details of the Tropicana operation in Western Australia. Just as a little bit of background, the Australian region contributes approximately 18% of the production within the AngloGold Ashanti portfolio. That comes from two operations in Western Australia, Sunrise Dam and Tropicana. They're approximately 200 km apart, and both are ranked in the top 15 operations in Australia. In calendar year 2017, between them contributed some 700,000 ounces of production or 560,000 ounces attributable. I'm now on slide four, I'm sorry, which is a location map. It's a very remote site, Tropicana.
Some 330 km northeast from Kalgoorlie, which is about an 8-hour drive on a gravel road. We have a bitumen-sealed airstrip on-site, which allows jets to fly in, 100-seater jets. That takes about 1 hour and 15 minutes to fly from Perth to the site. We also have commute flights to Kalgoorlie for people who live in that town. We have a comfortable village also that accommodates approximately 750 people. We have about 250 AngloGold Ashanti people that work there, and the remaining personnel are contractors. I'm now moving to slide five. What I'd like to do now is to give you an update on Tropicana and take you through the key elements of the current operation.
I'll describe the opportunities that still exist to optimize the mine plan and to match the processing plant to the scale of the mine plan. Next slide, delivering to promise. Since commencement of mining in late 2013, Tropicana's produced 2.2 million ounces of gold. It has always delivered to expectation or exceeded budget, in fact. What you will see in the production figures quoted there, the second half is going to be significantly higher than the first half in 2018. That's because we're entering the next phase of grade streaming, which is going to continue through next year. We expect to see Tropicana positioned at around number 4 in Australia in terms of gold producers. The next slide seven. This is just a slide with some comments on mining.
There's a strong focus on continuous improvement and data analytics at Tropicana. We have a culture well embedded that we call operational excellence. The team's been working very hard with our alliance mining partner, Macmahon, to optimize the load and haul and drill and blast activities to minimize costs while undertaking progressive rehabilitation of waste landform faces and commencing in-pit backfill, which is an important part of the future mine strategy. Slide eight is on the mining optimization, and you'll see on that chart, the axis on the left, the mining costs are in AUD. I just wanted to alert you to that currency there. As you can see in this chart, the mining volume has essentially leveled out at a mining rate of approximately 95 million tons per annum. This is a very manageable rate for the team.
It's essentially the rate that we achieved in 2017. By holding this level stable, the operational excellence work is able to really focus on improving productivities and costs. So we can see the mining costs down around the AUD 3, AUD 3.10 mark in AUD. Depending on the exchange rate that you use, currently it's about AUD 0.72, but at about AUD 0.75, that's $2.20-$2.40 over those latter years. Most of our costs are in AUD, and we're exposed to, of course, diesel prices and so forth. I'll talk to that a little bit later. Slide nine is a chart of the mine-to-mill reconciliation. There's really not a great deal to say about it. It's been pretty stable. The geology is very well understood, and it's quite predictable.
The gold deportment's very fine-grained, and it's well dispersed in the host rocks, which means it's easy to sample. Drill spacing and grade control processes, it's well-drilled, and that gives us accurate and robust estimation models. So, we're in a pretty good position with information out in front of us to be able to give good estimates of production over the shorter-term planning horizons out to sort of 18 months. The next slide, which is entitled Reliability Improvement, slide 10. This chart looks a bit complex, but it really shows the journey in the processing plant, where maintenance and engineering teams have taken the plant to the best runtimes in the AngloGold Ashanti group, actually. Shutdown intervals are now out to 17 weeks. And we've actually had a number of months at 100% runtime with record tons treated just last month of 689,000 tons.
It really is now operating at world-class runtime benchmarks. The next slide on maintenance. Again, that is in AUD on the left-handed legend. The maintenance unit costs have come down and stabilized at a very acceptable sort of benchmark. The costs are down some 31% from 2015 numbers through a number of improvements. One has been increased throughput. There has been an enormous amount of work done on wear life. We find now we have got very good wear life of the mill liners, so we do not have to take the mill down, and it is now out to 17 weeks, nearly as often as we did. We have put new products and bolt in and out areas and chutes and really been able to optimize and extend that duration between processing plant shutdowns. Slide 12 talks to the mill throughput rate. We continue to push the throughput rate.
Quarter 2 averaged 931 tonnes per hour, and we are now targeting 940 tonnes per hour for the remainder of the year. We manage the relationship between grind size and metallurgical recovery to optimize the two. We have got some flexibility there, and we have got high-pressure grinding rolls in the processing plant. We have been able to improve the feed distribution to the rolls, and we are really making good use of that energy in the HPGR. That has been an excellent piece of equipment in the processing plant that has delivered above expectation. We have got very good wear life out of the rolls, and again, it is extremely energy efficient. The next slide is on metallurgical recovery, slide 13. I mentioned it just a moment ago. The metallurgical recovery is well understood, and we use our knowledge of the recovery and grind size relationship to optimize gold production and costs.
It is sitting at 88%-89% at the moment this year. It is quite stable. We understand it very well. The modeling of recovery going forward is very accurate. The next slide 14, simply shows the combined processing and maintenance costs to give you a sense of where they are sitting. They are stable at below AUD 20 a tonne down to, in fact, about AUD 18.50 at the moment, which is a very good position relative to other benchmarks in Australia. The next slide 15, talks to the gas pipeline. This pipeline was commissioned in 2015. Certainly in more recent times, we have seen the oil prices climbing, exchange rates falling. As we have converted the power station essentially to natural gas, this project is delivering a significant value. We are well-protected from the oil price and exchange rate variability through CPI-linked contracts in AUD.
We have secured some very good gas contracts, good prices over the next three to five years. It helps very much in our processing costs because power is approximately 45% of our processing plant costs. Slide 16. In fact, move to 17. What we will now go through is the optimization work that is happening firstly in the mine. This slide talks about the evolution of the history of the strategy of the open pit mining at Tropicana. We have talked for some period of time now about the depth extension of the ore bodies at Tropicana. The mine planning work has continued quite relentlessly over this time as we have got further drill information. The design work has focused on geotechnical information for slope angles, for optimization work on costs and so forth.
The most recent round had changes in mine sequencing and design optimization, has actually resulted in the removal of nearly 100 million tons of waste from the development of these open pits. It's most notably in the hanging wall of the ore body, particularly in the Havana pit, which is the large, more southern one, and in Boston Shaker, which is the higher grade open pits to the north. The removal of that waste has had minimal impact on the overall ounce production out of the open pits, but it's had a significant benefit to the overall cash flow. The key to the strategy remains backfill. The Tropicana pit, which is the second pit from the north that you can see in this slide, will be the area that we backfill.
In fact, we've commenced with a little bit of backfill in the north of that pit now. The Tropicana pit will, in fact, mining will be completed there end of first quarter calendar 2019, next year. Not long to go in Tropicana. The impact of all that, as I said, the removal of almost 100 million tons of waste has effectively reduced the mine life by one year, but it's extended the stockpile feeding by one year relative to our previous presentations. The optimization work's actually seen a reduction in the overall strip ratio by some 20%. It's been very significant work over the past 12 months on the open pit. Slide 18, which is about optionality. The important thing is that we've retained the optionality and the flexibility with multiple decision points as we go forward.
We can always respond to any changes in economic conditions. We will continue to work on designs, continue to look at ways to improve what's effectively the waste haulage profiles to reduce costs. Now, if I move to slide 19, future of the mine. This slide basically, and again, the legend, I draw your attention to Aussie dollars on the left. This slide just gives you a sense of the longer-term profile and the benefit of the mine design and scheduling work. You can see quite a flat profile now at around 95 million tons movement per annum. Whereas before, we had in fact had an increase planned up to about 105 million tons per annum. 95 is a very good volume. The equipment is on-site. We worked at that mining rate all of last year.
We know the fleet well, it's actually very good for the team to be able to hold that steady at that rate. There's been enormous benefits that come from stabilizing that profile at the 95 million tons per annum run rate. Now I'm up to slide 20. This is an update on the processing plant. The history of the plant has been one of de-bottlenecking and plant optimization to get to where we are now, which is at around 7.6 million tons per annum. In fact, this year we're looking as though we might be at 7.7, close to 7.8 million tons as we stand today. The next slide 21 shows where we intend to take the processing plant.
Now that the mining profile has been optimized, at around 95 million tons per annum of total movement and the ore that flows from that, matching the processing plant capability to the mine output presents a significant opportunity. What we've been studying over the last, probably 12 months, has been the benefits of an additional ball mill being installed in the processing plant. That work is currently underway on site. It's, in fact, well advanced and the commissioning of this additional mill will be completed by the end of the year. Slide 22. This additional grinding capacity, it's from a 6 megawatt ball mill that's going to be added to the circuit. It's going to increase our throughput to about 8.2 million tons and increase our metallurgical recovery to 92%. That's an additional 3% or thereabouts in metallurgical recovery.
As I described earlier, there's quite a strong relationship between grind size and metallurgical recovery. What we're able to do is to really sort of dial in that relationship. If we're putting some lower grade stockpile through, we might decide to put it through at a higher rate, and that could be at an annualized rate of 8.5 million tons. We might decide to do that over a month or two. When we've got higher grade material, we could dial it the other way and, in fact, maximize metallurgical recovery at a lower throughput rate. It gives us enormous flexibility to take advantage of that relationship to optimize gold production at the lowest cost. Both these mills, our current mill is a 14-megawatt mill, a very big one. With a 6-megawatt mill, they're going to run in parallel.
That gives us increased operational flexibility. We can take one down, and the other one can continue. We've got some common spares. The 14-megawatt mill has two 7-meg electric motors. They're large motors. The 6-megawatt mill will have the same motor. There's a benefit in critical spares. This project costs in the order of $28 million, and the payback's about one year, and it's well and truly on target for commissioning in the December quarter. We're anticipating fully operational from January 1 next year. Our next slide is slide 23. With this additional throughput, we need additional water. Here's a slide on the Kamikaze borefield. It is one of the two borefields that we have. The Kamikaze borefield actually, it's better quality water, and it's much closer to the processing plant.
However, originally we didn't think that the aquifer could provide the volumes of water that we would need. We've since done a lot of exploration on this aquifer, and there is a hope that long-term, we could actually transfer to 100% water sourced from this borefield. It's got much better, lower salinity, and therefore much lower cost in additional reagents and so forth. That's been a real positive for us over the last 12 months. This borefield, while still being explored, we're equipping it now to provide that additional water that we need for the higher throughput. I'll move on to slide 24, which is Boston Shaker underground, and we'll go straight to 25. This is a view of the Boston Shaker pits and the ore zones that extend beneath the open pits.
If you recall from the slide of the open pits, they were the northernmost open pits on that graphic earlier on. There's been quite a bit of drilling carried out over the past year, 12 months or thereabout, some 40-odd thousand meters of drilling. We've completed a number of programs down to 50 by 25-meter spacing. This slide shows some of the results. There's certainly some very good intercepts, as you can see, with grades in the plus six, which is higher than many of the ore zones at Tropicana. We're also pleased that this ore zone is a little more steeply dipping too. There's two good-looking zones extending beneath the Boston Shaker pit. There's a pre-feasibility currently underway, in fact, due for completion in the December quarter.
If that is positive, which I believe it will be, we'll more than likely declare a reserve at the year-end reporting period. On slide 26, there's a graphic of an underground mine layout. That's a fairly straightforward design. What you will see on that slide is a decline that extends across from the Tropicana pit. That's extending from the northern extent of the Tropicana pit. What we would have then is unimpeded access from the Tropicana pit to the ore zones beneath Boston Shaker. We don't have to have interactions between underground fleet whilst we're still mining the Boston Shaker open pits. As I've also said earlier on, the Tropicana pit is destined to be backfilled, and it will be fully backfilled right to the top. A period about three or four years, and the study is yet to determine this.
We would convert over to a decline from the base of the Boston Shaker pits when those pits have finished mining. The feasibility study is indicating that a start by mid 2019 is very achievable. It would be essentially a small contract with a single jumbo and a truck and a bogger, they would commence mid-year and in about nine months, put us into a position where we could be drilling out from underground positions, these ore zones in detail to get scoping that we can provide underground ore in 2020 and beyond. Slide 27. I think the point to note here is that Boston Shaker is not the only underground potential. In the past, we have completed pre-feasibility and the drilling to indicated level of confidence down at Havana Deeps.
At the time, we used that information as a trade-off study between deepening the open pit and underground. I think once we've got an underground presence at Boston Shaker, we've got an establishment, an underground crew, this potential underground beneath Havana becomes more interesting. There's a high-grade zone also beneath Havana South, and there's a couple of indications beneath Tropicana. Quite possibly, we've got a number of ore zones beneath the open pits at Tropicana. The important thing will be to get started in the underground and bring this all in whilst the open pit is still providing the large volume, because we'll have a processing plant capable of treating in excess of 8 million tons per annum. The underground would never support that based on what we know now. Slide 28 just introduces a couple of comments on exploration.
The exploration strategy has been very much focused around the open pit, and a lot of our work has been in building a resource for the underground during the last 12 months. We still continue to do work in the region within haulage distance of the processing plant. I think it's fair to say that we haven't had a major discovery of the scale of Tropicana. We've had success in some smaller, potentially open-pittable satellite deposits that would feed in, such as Madras and New Zebra. We continue to do the greenfields work. I think it's reasonable to say that it's quite mature, but it's certainly not over yet. We'll assess the satellites where there might be an opportunity to connect them up. A single haul road would be very important. When would we need to feed them?
Very much dependent on grade through the processing plant. Exploration work continues. The last slide, I might not talk to. Yes, I will. It just talks to some of the operational excellence initiatives and the way we plan this work. You can't read any of those. They're actually spreadsheet project plans on the right-hand side. If I talk just briefly on the discipline and the way in which we do these projects. In fact, this week, I'm heading up there tomorrow to Tropicana, we've got another workshop for the week on operational excellence initiatives. We draw in colleagues from different parts of the business. Expertise in metallurgy, mining. People from other operations who've got different ideas and haven't been all that exposed to Tropicana. We do a lot of think-tanking on where might opportunities lie.
We rank and prioritize projects, people are assigned to these projects to manage them, to do the analytics on them, we then track them and measure the benefit, and so forth. It's a sort of a continuous improvement rigor that we have in place, we would do this probably twice a year, these big events, we then track the projects over the coming months. That was the last slide. I hope I haven't gone too long or, in fact, too fast. Very happy to take any questions.
Thank you. Ladies and gentlemen, if anyone would like to ask a question, please press star and then one on your touch-tone phone. If you, however, wish to withdraw your question, please press star and then two to remove yourself from the question queue. If anyone would like to ask a question, please press star and then one. Our first question is from Adrian Hammond of SBG Securities.
Mike, hi. Thanks for your time. Just want to sort of wrap my head around what the outlook for Tropicana is looking like now in terms of production. At the moment, you're generating around 330,000 ounces attributable. Where do you see that going for yourselves with the increase in throughput over the next sort of two to three years?
Hi, Adrian. As indicated, we intend to continue grade streaming through all of next year, our production next calendar year will be a smidge higher than this year. You will see in 2020 the effect of that grade streaming come off, which is why we want to bring the underground production in, particularly in 2020, which is why, in fact, we want to start it next year. You're going to see numbers of around, and I'm just talking at 100%, I'm sorry.
Sure.
100% production numbers. I would see it going over 500 next year, and well into the mid-four hundreds for the next two years after that.
Does that include Boston Shaker in those numbers?
Yes, it does.
And-
Boston Shaker, of course, is at a modest level of understanding. As you would imagine, we're assuming grades of sort of three and a half to four. We're assuming rates of maximum 1.2 million tons, not in 2020.
Okay. What does this do for your sort of mine plan for the medium term? Does Boston Shaker keep it steady for some years, or when does it start to taper off?
Boston Shaker, I think we're seeing about a seven or eight-year mine life, more modest in 2020 at 400,000 tons as we build up, and that eighth year at about 600. These are very rubbery numbers.
Yeah
early PFS work. That's the sort of profile that we're looking at, Adrian.
What do you think the reserve there, you say you're going to declare a reserve there this year, what do you think that's going to look like in terms of its size?
I think, look, it's very much about the drill density that we will have completed by the end of the year, and therefore, what we can classify as indicated and get into a probable reserve. I would be guessing something like half a million-ish.
Thanks. You've obviously taken some capital to develop that underground. What sort of numbers are we looking at here for the development?
The development's about, I'm trying to think. It's about $20 million. A lot depends on how you want to dice it up.
You get the underground mining contractor to establish things like change rooms, offices, and things like that. I would rather we did that. The capital, the biggest piece would be in the underground development, the ORD, as we call it, to get the decline down there. A vent shaft, which is the sort of main target in the first 12 months to get to a position to raise for a vent shaft through up into one of the benches.
in the fresh rock in the Boston Shaker Pit. That's really the initial year.
Are you able to tell us what sort of IRRs this project as a standalone achieves?
No. Only because I don't have it to hand, to be honest.
Oh, yeah.
We're still right in the grip of the work, and the only reason I've got some numbers is because we're starting to work on our budget now, and I just wanted to get a sense of it from the guys. I've actually got a steering committee that when we review this next week, to be honest. I don't know the project parameters yet.
Mike, thanks very much. Appreciate it.
Thanks, Adrian.
Our next question is from David Houghton of CIBC.
Good morning, Mike. Thank you very much for the update. Just looking at that underground, just if I can recap where we're at. Got initial CapEx of around about $20 million. Is that Aussie or U.S. on the
No, Aussie
Initial-
David.
Your ultimate throughput would be 1 to 1.2 million tons per annum for a 7 to 8-year life, starting 2020, modestly ramping up. The kind of grade that we're looking at there, previously we've seen grade at around about the 3.5, 3.6 kind of level grams. Is that something that we should be thinking about as realistic coming out of the pit, out of the underground?
Yes. Look, in the initial schedule that I've actually got in front of me, it is exactly that, 3.5 to 4.
Okay. What about the unit costs for underground mining? Have you got a bit of an idea of that at this stage?
Where we are at a costing point of view, of course, we've got a very good handle on mining costs via our contractor because of our experience at Sunrise Dam.
Yep.
At PFS level, which is supposed to be plus or minus 15% or thereabout, we're actually dialing in numbers that we know extremely well, but making allowances on the conservative side. I think our unit costs that we're putting in will be a bit higher than Sunrise Dam's.
Okay. AUD 45-50 a ton sort of thing?
Yeah, AUD 55.
Fifty-five.
There's no contemplation of paste fill. We're going to keep this pretty simple. It'll be long hole open stoping.
Okay.
Transverse and longitudinal stopes with reasonable widths. What we, of course, don't know in detail is penetration rates and things like that. We're very on the conservative side of ground support regime, we've got very good pricing information.
Okay.
We just need to get actual information.
Would you propose backfill into these stopes, and would paste backfill be part of the solution there?
No, I don't think so.
Okay.
I don't think so, David. I think that'd add too much cost. We'll look at backfill, but I don't think they'll be big enough to require it. If we've got some areas, we could contemplate cemented backfill with waste, but we'll play that by ear. At this point in time, there's no contemplation of capital for a paste fill plant.
Just looking at figure 26, which is your schematic where you've got Tropicana then going to Boston Shaker. Looking at the decline coming off the base of the Tropicana pit for access to the underground, I'm just wondering why it's coming off the Tropicana pit rather than dropping down as a decline from the Boston Shaker pit.
The primary reason is that that access position is available in a matter of two or three months.
Because the pit's depleting.
Beg your pardon?
As the pit is depleted.
Yes. The Tropicana pit and the northern end will be mined out. There is an opportunity to establish a portal there and get cracking sooner rather than later. If we were to establish a portal in the Boston Shaker pit, Boston Shaker, it's not a very big pit. What we would then have is all sorts of interaction issues. As we mine Boston Shaker, we've got the open pit fleet as well as underground. That is a recipe for inefficiency in both the open pit and underground. Our preference is to start in Tropicana and come across. Once the Boston Shaker pits are finished, we'll just connect through to the base of Boston Shaker, and that'll allow us to fill the Tropicana pit beyond that portal.
It's really for timing to give us as early a start as we can. It's also to minimize the inefficiency that will come with interaction of the fleets.
I guess the geo team would be quite interested to do some drilling off that to see what's sitting below the Tropicana pit in between Tropicana and Boston Shaker.
Look, that's quite right. There is, in fact, some high-grade hits, but isolated ones deeper at Tropicana that are really quite interesting. There's pretty sort of expensive and slow drilling from surface. We do want to get underground and start getting some drill positions. You're right. Across that decline, there are allowances for drill positions to be able to drill back underneath Tropicana and also set ourselves up to drill with short holes. In fact, we're not contemplating, we're going to use RC drilling, which has been extremely successful at Sunrise for the shorter length holes across the Boston Shaker. We're sort of optimizing the drill horizons above the ore zone to be able to really knock that out with RC drilling.
I've just got a few more questions, if that's okay. Just the expansion of the second mill. At one stage, we were kind of guided to about AUD 28 million for that capital. Is that still accurate, and would that be just spent in Q3 and Q4 of this year?
It's $28 million.
Oh, U.S.
The spend, I really want to finish in 2018, what we'll probably have is some spend for critical spares that will arrive in first quarter 2019. The bulk of the work, which is all the people and the labor and all the activities, will be finished in Q4. High spend in Q3 and Q4.
Yeah.
You're right. There will be some spend that will flop into next year. I think it's a gear and some other, like the extra mill motor or something.
Okay. Just from the open-pit point of view, excluding the capitalized strip, what should we be thinking about as your sustaining CapEx number for the open pit?
There's really not much. What I didn't mention was a small expansion to the village as well in the list of capital. From an open-pit point of view, there is very little. Fleet, of course, will be rotated through, but that's paid for by Macmahon. There's no lumps that we see of capital coming in the future.
All right. Last one, just looking at the strip ratio. For the first half of this year, we're sitting around about 9.5 to one. You had mentioned that you've got the fleet there to maintain a high level of material movement. What should we be thinking about the strip for the next couple of years in the open pit?
I'd keep it at that long-term average.
Of the nine and a half?
That we just mentioned.
Yeah. Okay.
It was looking worse. The work that the mine planners have done on that minimizing of the waste and so forth has enabled us to keep it at that level. It's been very good.
All right. That's good. Thank you for the update, Mike.
Thanks, David.
Hello. Ladies and gentlemen, if anyone else would like to ask a question, please press star and then one. Our next question is from [Brad Sheed] of Macquarie.
G'day, Mike. Just quickly, have you got a sustaining CapEx number for Boston Shaker at hand?
Of the underground?
Okay. Fantastic. Going back, I guess recapping on the numbers that we've heard before. Again, initial CapEx of AUD 20 million at a rate of 1 million-1.2 million tons at a grade of three and a half to four-ish for 7-8 years. You have a slow ramp up with ore coming from 2020 and unit costs of around about AUD 55 a ton. You're looking at sort of long-hole open stoping?
That's correct.
Fantastic. PFS is still looking like it's going to come out at the end of the calendar year?
Yes, it will. I'm quite confident that that'll be completed in quarter four.
Fantastic. Thanks very much.
We have no further questions on the line, sir. Would you like to make any closing comments?
No, I don't think so. I'd just like to thank everyone for joining the call.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.