Perseus Mining Limited (PRU.AX) 2017-07-18 Earnings Call Transcript

Thank you for standing and welcome to the Perseus Mining December 2016 Quarterly Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Mr. Jeff Quartermaine, CEO. Please go ahead.

Thank you very much. And good morning ladies and gentlemen and thank you all for joining me today on this conference call to review our December quarterly report. I should say that we're making this call tonight from Edikan in Cote d’Ivoire. And while the telecommunications network here is generally very good, it's not always totally reliable. So if I do off the edge during the course of this call, I trust that you will understand but hopefully that won't happen so let's get on with it while it's still working. Now as many of you would be aware, the December quarter has been a challenging time for Perseus, operational issues aside in the middle of December we saw a major share price meltdown as some multitude of hedge funds and other investors anticipated the MX-GDXJ-ATS [ph] coming onto our registered material away. It's gamble to offload this stock in a very short period of time, industry [indiscernible] in the collapse of the share price under the wire of serious tired of selling. Put in perspective on the December 16 of something like 140 million shares changed hands and they compared to a normal turnover of about 5 million shares and over the issuing week, well not as large the volume was very large and it certainly had a suppressing effect on things. Now unfortunately for Perseus this event coincided with the release of some news from operations that was a little disappointing causing some shareholders who are already nervous about the Gulf price to fear the worst. The sell-off was severe as I said but between since then there seems to be a level of realization that perhaps the market had overreacted and the share price has partially recovered from the event. Nevertheless, it was a very bitter pill for us to swallow as we felt then and I should say we continue to feel that while we have had a few operational challenges along the way, our business is fundamentally robust and we are well on the path to delivering the strategically sound growth strategy that we've previously articulated to the market. Now that report that we've released today documents exactly what did occur during the December quarter and while a few things did happen they weren’t exactly in the script, the situation that Perseus is nowhere near is as bad as some people have chosen to believe. In fact I've just come from [indiscernible] inside, I've been there for the last few days or so and I've got to say that while we have a some distance to go to consistently hit our target, there is a lot to be very happy about and I'm very much looking forward to future quarters when we will be in a position to bring you very much more positive news from that mine. And as for happens here in Cote d’Ivoire, we've been going through things we converse today and once again there is a lot to be very happy about in the way that our business is starting to shape up in this country as well. So let's turn to the quarterly report and then discuss exactly where we stood at the end of December 2016. Starting with the Edikan mine itself in Ghana, during the quarter we had a very busy time at Edikan, not only did we complete the construction of a housing estate in which to relocate people impacted by our expanding mining operations but we also completed a $9 million program of upgrade works in the plant, and we also opened up new Esuajah North open pit. Now all of these events were very significant [ph]. The first start I mentioned the relocation was important because it completed a $30 million expenditure program and then satisfied an obligation to the local community. And in the process has materially improved as such license in Ghana and that is a very important part of business. The other two investment programs were also significant because both impact our production during the quarter but perhaps more importantly, that will have a continuing positive effect in periods to come. Now let them explain what I'm talking about, turning first to Esuajah North pit; now for the last twelve months or so most of our freshly mined ore has come from the eastern pits and by that I'm referring to Chirawewa and Fetish. Now you will recall that in the last twelve months we've had a series of ups and downs in those pits where we have been challenged at times to get the grade out that we were seeking to do. I think the -- it's fair to say that we underestimated the depth of weathering in those pits and that has had a quite a material effect on the way we had to go about their business there. In addition to that the geology in those pits is really quite complex and quite different from what we were previously used to mining and that also proved something of a challenge in terms of delivering the head drives that we were seeking to deliver from those pits. Now during the course of November we moved into Esuajah North which is a fairly sizable -- will become a fairly sizable open pit. We finally got approval to blast in November and have been working since then to get the pit opened up. Now once again, not similarly to the eastern pits, we have encountered more weathering in Esuajah North and we were anticipating some of the much -- very higher grade material that we have pulled from Esuajah North has actually been in the form of quite weathered rock and that has an implication for our process because our process plant is designed process fresh ore and when we have the material that is very soft, it washes through the plant very quickly and has an impact on residence time and recoveries. And so as a result to combat that what we tend to do is we tend to substitute the higher grade transitional or weather material with compact fresh ore coming from our stockpiles and that carries lot of grade. So during the course of November it was very positive in the sense that we were able to move into Esuajah North and get access to that pit because that will be delivering good quality material for us for quite some time to come. We weren't surprised by weathering in that pit as well but that has certainly got a few more months to run we believe and we'll be into very good material. So getting into Esuajah North was a plus for us. The other thing about that of course is that it will become our major source of ore in the coming months. So going into the next half of the year we'll be getting a small amount of material from the eastern pits but progressively more and more of our ore coming from Esuajah North which means that the certainty that we -- with which we can predict is certainly on the open up and also the grade of the material as well which is a positive thing. Now the other matter I mentioned was the plant upgrade exercise, the $9 million program, it works now. What this was back was -- we made a number of modifications to the plant to correct some fundamental what we believe would be design flaws from the original construction. The rig fit works very well but what as often happens when you're retrofitting equipment into plants is that it took quite a bit longer for us to deal with all of the issues than we had expected and we were down for about six days longer along with the nine day period that we expected to start off with, and then we had some toothing issues after that on a couple of items which do impact on the run time during the course of the quarter. And that had a -- that had quite a material impact on our production at throughput levels and therefore at all production during the quarter. I should say that after the works were completed and into this month as well, that plant is running extremely well and we're getting run times and throughput rates now that are as good as we've ever had at any -- and in fact, certainly better than what we were anticipating seeing. So that works very well in the future as we as we push on from here but certainly it did have an impact on production during the course of the quarter. And in fact we ended up putting through on a quarter-on-quarter basis, we reduced our throughput by about 22% and that had quite a significant impact. Also during that period of time quarter-on-quarter we saw a 3% decrease in the head drive and those two factors together materially impact production sales and of course unit cost of production for the quarter. So production for the quarter was in fact 32,223 ounces which was down quite somewhat on the previous quarter, that meant that probably half year we produced 75,999 ounces; so that was 76,000 ounces which was well in line without the revised guidance that we could get give in. So we've given the revised guidance of 70,000 to 80,000 ounces and we came in at 76,000. Now in terms of cost they were directly impacted on an per ounce by the reduction in the number of ounce. If we look at the cost on a productivity basis, so if we look at dollars per ton mine and dollars per ton processed, the mining costs were slightly down on where we would have been in the previous quarter; it can be explained by the slight increase in material moved during that period. The dollars per ton process was up quite a bit but pretty much in line with what you would expect given the shortfall in tons that went straight through. There was also an increase in the processing cost because we did bring to account in that period of time some fairly substantial freight costs associated with the plant -- the works that were done in the plant. But certainly the fundamental cost and the G&A costs were pretty much in line with previous trades. So the fundamental cost of the business side relatively where we would expect them to be but on a per ounce basis they certainly increased. And in fact for the half year the production cost of $1,278 and all inside cost of $1,583 were pretty much in line with the revised guidance that we've given -- the $50 an ounce now. Clearly those costs are very high but the other thing that needs to be pointed out is that those cost do include a fairly significant or fairly material contribution from the capital costs on the plants in the housing that I mentioned earlier so $237 during the December quarter and $215 an ounce during the September quarter certainly contributed to that overall, all inside costs. Now looking to the future, and we have obviously taken right note of the fact that the market certainly views very dimly missing guidance and we've taken out on board and we've looked -- decided to look very carefully at the guidance that we give for the six months coming forward. Now in doing that we've also looked very carefully at what has occurred during quarter and what we think is likely to continue in the next six months. I mentioned earlier that we have -- had been mining ore from the eastern pits and we do believe that that will reduce as we go forward. But nevertheless, some of the ore will be coming from those eastern pits during the next six months. And as I mentioned we have had some issues around grade -- achieving our targeted grades rights in those pits. What we have come to realize by -- is that in fact the method of estimating the resource that we have been using ordinary grading doesn't give an accurate estimate as we would like. In fact we've compared the results as predicted by the ordinary grading against models based on grade control data and we feel that a change of method is required. And so we've re-estimated the mineral resource -- actually for all it's using multiple indicator and that certainly gives us a more accurate alignment between our estimates and what we've actually been achieving in recent times. So that's been taken into account. The other thing that's been taken into account is the issue of wuthering and the impact that that has on our ability to process ore and the need from time to time to substitute pressure -- lower grade pressure from the stockpile for the higher grad whether material in order to be able to keep their process working well. And so as a result of those thoughts we have made some changes to our production and the cost guidance, in fact the production guidance has been the main -- from 125,000 to 145,000 ounces for the six months to 90,000 to 110,000 ounces. The costs have also changed slightly but not so dramatically, previously for the production costs we were predicting $950 to $1,080 an ounce when they are saying $885 to $1,080; so we've actually dropped the bottom end of the production cost range and as far as the old inside costs we were previously predicting, $995 to $1,135, we're now calling it from $1,000 to $1,220 for the next six months. So certainly on the production side I think it has been a change in an outlook for the next six months but I would say this and I would like to make this point very clearly because it is a very important point; it would be an error era to take what we are predicting in the next six months and roll that out for the balance of the life of the mine [indiscernible] and that would -- where we believe give you quite a materially wrong result. The transitional ore issues, the weathering issues, the bringing ore from those eastern pits will gradually decrease during the next six months and towards the end of the -- or into the middle part of the second quarter of that six month period we'll be mining very good competent ore from Esuajah North and for pits which we believe will take us pretty much back on track of the life of mine. Now speaking of the life of the mine plan what we are in the presence of doing is to -- as I said, do a complete re-estimate of mineral resources using the multiple indicator, grading method of estimation, and with that we'll be revising our ore reserve estimates and life of mine plan for Edikan. And those results will be published in full in the coming months where arriving to have them into the market towards the end of February once that work is done; and then that's what you'll be able to see quite explicitly what the future of the Edikan mine is. But at this stage from what we know, we are not -- you know, it would be a mistake if I say to just simply take the next six month forecast and roll that out across the life of the mine. We don't believe that that is what will happen. So that's been the situation at Edikan during the six months, it has been a challenging period but nevertheless, as I said there are a lot of good things happening there; the mill is working extremely well and the team is working well as well also and we are looking to the future there with some optimism. Now as far as the Sissingue project in Cote d’Ivoire is concerned, development of the Sissingue project during the quarter continued moving ahead by the end of the quarter, our title spending quoting $10 million on early works was upto $42.9 million and we are looking at around $72 million to complete the construction of the project; and that's actually going ahead very nicely at Sissingue. Now one of the things that did occur during the quarter which did impact on our business at Sissingue is that we had cause to review the drilled database for the Sissingue deposit and as we mentioned in our December release, we identified a number of holes in that database that were contaminated and needed to be replaced. And so we have re-estimated the mineral resource at Sissingue, it is up by about 20%. We are in the process of doing a full ore reserve statement and that will be released fairly shortly as well and the impact of that in terms of the mine plan will be fairly evident. However, what has happened during the quarter as far as resources and research is concerned is that we have completed a round of drilling at the nearby Bella East and Bella West prospects; and that work was being carried out with the [indiscernible] additional mineral resource that could be tucked to the Sissingue plant now. In December we made an announcement about the size of the resource based on the work that had been done at that time and the estimate was given in the third category and subsequent to that we have completed the drilling program and got more drill results in and we've also completed a very detailed and comprehensive QA/QC review of the drill database. And we will be releasing a measured and indicated mineral resource for those two deposits in the coming month. And without going into the specifics at this stage, it is my belief that that additional mentioned indicated mineral resource coming from Bella will very largely compensate for the reduction in the Sissingue mineral resource. And what we looked like me doing later in the quarter is to be putting out a combined maiden reserve for Bella east and west along with the revised reserve for Sissingue and putting that into a lack of mine plan covering by deposits and that will be published either this quarter. And I believe that when that is put into the marketplace, there will be very little difference in fact to the project relative to the project that we approved to move into development several months ago. Now what has happened because it's given the uncertainty around those resource during the quarter, we felt that it was prudent to slowdown construction at Sissingue for a period of time in order to ensure that we didn't overcommit ourselves, given that we may need to change the blend of funding that is applied to Sissingue. So what we did was we worked with our contractors and we slowed down certain aspects of the work now. We have been going full steam ahead as far as the civil works are concerned and so work on the tearing [indiscernible] camp and airstrip are moving along and they are completely on target. At the present time we've also been -- podium is completing the engineering, completed the procurement of goods of various items of equipment and has -- have limited their on-site activities for the moment to doing foundation work and some trenching work and that's going along very well and in that quarterly report there are a number of photographs in one of the appendices there which will show you the work that is being done and you can see the foundations for the CIL tax coming along very nicely. Now what the impact of all this is that we were previously predicting our first gold in October 2017 and that date has pushed back about four months to February 2018. So we as I said what we needed to do was to slow down the expenditure in order to reduce our cash burn so that we didn't cause -- put undue pressure on the balance sheet at the time when there was uncertainty around some of the resources but having moved on from there where well advanced on discussions without debt financing is around the revised debt facility and we are very hopeful that we'll be able to make some announcements in the very near future about that but certainly that is looking relatively promising as indeed as it's the Sissingue project because no only the Bella resources coming along nicely, we've also been exploring a couple of other targets very close to the Sissingue deposit parallel to the north Cataira [ph] of the south and another one whose name I can never pronounce. But certainly it's very early days on those exploration programs but if I said that we are getting encouragement that would be a pretty fast-track. We are starting to see some interesting returns from the drill call, we haven't actually got at this stage but certainly visually we're seeing some things that look kind of interesting. So Sissingue itself is looking quite promising and hopefully we can keep pushing forward on that project and deliver that pretty much as we had previously talked about. Now Yaouré, the other projects that we have in Cote d’Ivoire is also going very well. During the quarter we were granted an extension on the two exploration permits that we're currently holding there on which the project is based that the extension is there for two years and that gives us enough time to complete the definitive feasibility study, get the -- get an exploitation permit issued to us, make sure we've got our financing in place and mining conventions in the like. And so get ourselves into a position where we can start construction at the Yaouré as soon as possible. Now in terms of the definitive feasibility study itself it's going very well, we reasonably are on-track there, we were delighted for a short period of time getting our drill program, our resource confirmation drill program going but I'm very pleased to say that by the end of the year we were drilling and we currently have three rigs on-site drilling 24 hours a day. Our fourth rig was due to be mobilized today, I haven't had that confirmed that [indiscernible] but certainly a fourth rig is due to be started up pretty shortly and we're in the process of bringing in another couple of rigs as well. So if everything goes according to plan we should have six rigs drilling there fairly shortly and starting to generate a series of assay results that hopefully we'll not only confirm the results the results that we believe that they are present time but if we're able to achieve what we're hoping for we might see an improvement there as well. So that work is going along very well, in terms of the rest of the study we are going through all of the other aspects over there, now a title clause emerging from our earlier work, there are some gaps in the work that we need to we need to do some extra work on but there is nothing coming forward that causes us to have anything of the optimism about that, what this project will look like going forward and at this stage of the game we're saying that we should be completed -- have the results available from that study by about August of next year but if we are able to get those extra couple of rigs that I mentioned earlier, and get them working very soon then in fact we may well be able to finish this study a little bit earlier around the middle of the years as we've been previously talking about. The one issue that we are working on at the moment and then in this material in terms of a drilling program is finalizing negotiations on compensation for the land and its people on the land. Those negotiations have been going on for a while and we've been making good progress and there is a very big meeting here tomorrow and hopefully that will get us a little bit closer to having things fully wrapped up and we can move on from there. Now on the corporate side of things I guess they were the biggest event that occurred during the quarter was the settlement of a legal dispute with BCM, that was a legacy issue, probably acquisition of Amara; Amara were in dispute with BCM, either some outstanding claims made in relation to Amara's [indiscernible] mines. You know, we had -- we were aware of the existence of these plans when we acquired Amara. The amount that we needed to pay to get them out completely resolved was a little moment we have anticipated but nevertheless, it was important to do that to clear the slide and to remove this from the same. And we paid $5 million on settlement and we paid another $15 million recently when all of the court processes and seizure orders were lifted. So that's the end of that particular subject but it did -- it certainly costs us quite some money and that has obviously impacted our cash balance and has also been another factor in causing us to slide down at Sissingue to make sure that we don't run into liquidity problems going further forward. So that was -- you know, it was an event during the period; at the end of the quarter our cash balance was [indiscernible] was $67.5 million which was down about $69 million from the balance of September. There was very heavy expenditure during the quarter as a barely at Sissingue but there was also fairly heavy expenditure at Edikan and also that in the form of capital expenditure but also support of the business and then you would have saved from the operating cost there was fairly a cash deficit coming from the business at Edikan during that period. So that combined with the Sissingue expenditure and exploration. Also we shipped -- there was a timing issue in terms of shipping at the end of the quarter that also had an impact on cash balances as well. So that is certainly down from where we were but there is solid reasons for that and we're also at the end of the quarter had a recently healthy hedge book; we had 165,973 ounces hedged to $1,287 an ounce, this of course include 100,000 ounces of hedging earmarked for the Sissingue financing, so that -- that's little bit like the $1,300 an ounce, so that's fairly decent buffer to protect us against any material downturn in the gold price. We also at this particular time have no debt but I did mention that we are in discussions with [indiscernible] about the project debt facility and say during the course of the next quarter that debt-free situation will change we believe and we will take a little bit of debt onboard. So overall that's where we after quarter it has been a fairly tough into 2016 for us here at Perseus and after a reasonably strong September quarter, the December quarter that just passed was something of a disappointment. We had always said however that 2016 was going to be a very, very difficult year for us and this has proven to be correct. Perhaps the strength of the September quarter meant that we all got a little ahead of ourselves but in fact the year was a challenging year as we said it was going to be. We also said that the end of 2016 represented a turning point for us, particularly at the Edikan mine and we still believe this to be true; albeit we trimmed our expectations a little given what we experienced during 2016 and that's reflected in the guidance that we've given. So far in January we've been performing extremely on all fronts and we're very happy about that, and I can assure you that we won't be letting up on continuing to drive very hard on all fronts into [indiscernible] as much performance as we can possibly do. And I look very much and very genuinely looking forward to delivering better news in quarters to come. So thank you very much for listening to that description of where we are at the present time and now I'd like to open the floor for questions.

Hi, Reg, you might have to get off mute as we can't hear you.

Okay, that's great. Thanks.

Well what we've said publicly in the past is that we try to keep about $20 million odd as our cash balance as our minimum cash balance. We will be going under $20 million earlier in the next six months, I mean certainly expenditure on the settlement of the BCM client did put [indiscernible] now in our forward planning. We will be maintaining sufficient cash in our bank to make sure that we don't find ourselves in a situation where we're overly stretched, or we're putting undue pressure on the balance sheet.

Thank you. There are no further questions at this time. I will now hand back to Mr. Quartermaine for closing remarks.

Okay. Well thanks very much for participating in the call today. As I said earlier it has been a challenging year but we do believe that we've learned an awful lot from the last 12 months in terms of being able to master what is a fairly challenging situation there Edikan and as we can do while we are very positive around what is happening over here. So I do look forward to the next quarter because I'm sure that we will have a much more positive story to tell you at that particular time. Anyway once again thank you very much for joining me today. I do appreciate it and look forward to speaking again soon. Thank you.

Thank you. [Operator Instructions] Your first question comes from Reg Spencer with Canaccord Genuity. Please go ahead.

Sorry Jeff, apologies. I was just saying good morning or good afternoon to me where you are. A couple of quick questions for me; number one, the poorer understanding of the grand conditions that's weathering metallurgical characteristics at some of those eastern pits, is it safe to say that this was happened to a degree by drilling access given that they were villages and settlements on those -- on top of those particular pits; I'm just trying to get a better understanding of the background behind why this is becoming evident now.

Well, there was an element that actually -- that's not the full reason. I mean in fact the pits over there were full of water. So there was wench below in the floor of those pits where -- that we couldn't access but that wasn't really the issue so much. I mean what we did was we -- we drilled these pits and we locked the drill -- we drilled this area and we loved to call for metallurgical property, so looking at upside transition and pressure what we didn't appreciate was that in fact you could get fresh ore that was weathered. So it wasn't oxide but it was weathered and the properties of that weathered pressure and not dissimilar to the transitional ore. So if you look at the drill, it looks like competent pressure. What happens is that when you blast that, it breaks, it absolutely fractures and almost turns to sand; it's quite remarkable actually, it's the color of fresh ore but it's very, very fine. And the problem with it is that it just [indiscernible] through the mill very rapidly and it's difficult for us to process. Now you know, should we have picked that up on the way through? Well, clearly the answer is yes. We were looking at it as I say from the point of view looking at -- for metallurgical properties as opposed to weathering and you know, that is a shortcoming I guess on the way that the core and it was assist from the beginning of the work in those areas. But you know, hindsight is a great thing and when I look back at the assumptions that were made; these pits were previously upside pits that were mined to the point of resistance, there was an understanding that the bottom of those pits represented transitional ore and fresh ore and in fact that wasn't the case and there is a heck of a lot more upside and a heck of a lot more transitional ore than we ever expected.

Okay. Just -- and a question on the guidance for the second half that's come away or come down to reasonable amount. Can you give us any indication of whether or not that is more to lower throughput given your limitations on mining, if you're being a little bit more selective in the pits or is it grade or is it recovery or is it a combination of all three?

Well, it's pretty much grade driven I think, it could be the thing there. I mean we certainly either estimated the grade during the parts of this last quarter. And so as I said what we've done is we used to measure -- am I okay to look at the resource and the grade is certainly down for the half year relative to our predictions in the past now. I guess we are well aware of the penalty that you pay for getting missing guidance and so we have -- we're not sandbagging these estimates but we're not exactly living on the edge of the top side of estimates being overly bullish either. So you know, what we've done is we've delivered a guidance that we are very, very, very confident that we can deliver.

Okay. And just on the new life of mine planned, you mentioned that the lower production in those lower grades are likely to extend, they are not for an extended period of time; correct me if I'm wrong. What could break [ph] and then obviously this last month plan is yet to be completed but what could we expect as a result of the change to the resources estimation methodology on the overall grade estimate of all the pits if that is the change and how much of a change could we expect on the production in '18 and '19 when we previously expected you guys to be harvesting all the cash?

Well, we're certainly expecting to be harvesting cash, make no mistake around that. But the exact quantum of that will be evident from the last month and now you know that it will be released in the latter part of next month and I'm afraid you going to have to wait until into get an answer to those questions. We are doing that work and I don't want to be commenting on work that's incomplete.

Thank you. Your next question comes from Dylan Kelly with CLSA. Please go ahead.

Good morning, Jeff. Two questions; firstly, just want to understand just what changes have occurred in terms of the grade profile in the short-term loan plan? Could you just explain to me what's changed between the previous case and the current case? And exactly where those all sources in -- those talks are actually being drawn from. And secondly just got some questions around the single and the current cash burn or the plan burn, how exactly is that been stretched over the coming quarters and what sort -- could you give us more details for exactly how those numbers one can start falling through in the coming periods?

Well looking at the full cost on which the guidance is based, the grade is coming down and so we've made an estimate of where we think we can deliver it. So it's lower than what it was indicated in the previously published last month plan, that is a given. Now in terms of ore sources as we speak today some more is being taken from Fetish. Some more is being taken from Chirawewa and ore is being taken from Fobinso and it is taking from the Esuajah north. Now at the present like as we speak I think the balance is probably weighted towards too Fetish rather than the other pits but that is going to be progressively decreasing and you know there's a lot of activity in the Esuajah North at the present time in over the next couple of months we Fetish and Fobinso and work on Chirawewa and Fetish will slow down very, very dramatically because what we will be doing is actually doing another cut on the final cut on the pits and when we come back into those pits we will be well and truly through that whether design is well and we will pick up ore pit from there it comes in about 218, 219. So we’re progressively switching from the four pits and heavy emphasis on two going forward. Now in terms of the cash burn it's the [indiscernible] I don't remember exactly what spending there over the next few months we certainly cut the expenditure on the run out -- basically the expenditure on [indiscernible] is about 50:50 proposition between our [indiscernible] team and Lycopodium and as I said the Lycopodium work has been slowed down quite a bit in terms of the way they are progressing with the upside work which is design and procurement most of that’s already been done today. And so there's very modest expenditure on the EPC side of things between now and May. As far as the [indiscernible] team is concerned they are working on the projects that they're doing and the reason why they were working full steam ahead is because what they're doing is primarily civil kind of work that are on the critical part and we’re trying to get that work done before the onset of the next wet season. And the site I think applies to the foundation work that's being done by Lycopodium. We want to have that done by the time that it starts to rain over here so that erection can go straight on to the foundations and alike. So we're managing the cash flow fairly carefully, you know we obviously like to keep a minimum buffer of cash in the bank to make sure that we run into strife and we'll certainly be doing that as we go forward.

So could you just on that last point you made about your minimum balance where do you ideally see that plant sitting quarter to quarter?

[Operator Instructions]. Your next question comes from Michael Slifirski with Credit Suisse. Please go ahead.

First the 72.5 million capital I think you said it was remaining to be spent, does that fully include the extended four or five month extension to the construction period, is it fully accounted of that longer term?

Yes it does. Yes the incremental cost in there associated with the delay that obviously has an impact on things and also involves some additional expenditure on our team part as well because you got people there for another three or four months longer than what you otherwise you would have had. So yes it's very much essentially -- that’s a very full forecast. But assume that you have to spend that money, you can bring in later that, please go ahead.

And then with respect to any candidate [ph], any other areas there with the North you have learned from all these drilling deficiencies it's been pretty pervasive, are there any other areas where there could be surprises because you've got doubts about the quality of the drilling, the quality of the essays, the quality of the analysis. Is there anything else there that is on your mind that could challenge you in future?

Well Michael, I didn't say any of those things. I didn’t say that we had problems with the quality of the drilling, the quality of essays etcetera. What I did say is that I think the analysis or the assessment of the drill results was not correction in the sense that misunderstood weathering impact. Certainly the estimating technique that was used on those particular ore bodies as eastern [ph] pits proved to be not correct. Now the thing is that we used ordinary drilling on the western pits and the reconciliation on there was perfect over the 3 or 4 years that we mined that, it was nearly perfect and the situation is that the existing pits are quite different geologically. It wasn't a matter of I don't think deficiency in the work necessarily like the drilling in and alike but I do think that probably the design and the like that came the back of it with the benefit of hindsight could have been better.

And specifically with this Esuajah North I think your comment was that you expect by the June quarter would be into you fresh material and problem solved. Are you confident that you know where that transition weathering in so, if you couldn't pick it from the initial drilling how can you be confident you’ve got a good fix on it now to make that prediction as to when you come to fresh.

We've done is we've gone back and relogged a lot of that core and all what we're working off now is great control as drilling as opposed to resource estimation drilling. So the working off costs based drilling and we have got drilling quite a few months ahead of where we are. So certainly the level of information we have is substantially superior to what we have had previously, and the other thing is that what does give me confidence is that we are seeing you know positive reconciliations on this Esuajah North today. So that is very encouraging. Whereas the reconciliations on Fetish [ph] sure have been negative be it the reconciliation of Esuajah North probably, so I think there is basis for optimism there.

Yes. Thank you. And the follow with respect to the current half guidance, it's not clear in my mind you may have said but I'm sorry it's not clear in my mind how much of the lower guidance is attributable to having to displace high grade or with low grade stockpiles because of the plant requirement and how much is the grade, the missing grade compared to what the expectation was?

I didn't say that I can't give you that -- I don't have that exactly in my head, but both of those factors are relevant.