RESA PRODUCTIVITY BREAKFAST Kanmantoo Mine – Change to Owner Operator Mining GREG HALL IIIII CEO & MANAGING DIRECTOR 30 OCTOBER 2014
CORPORATE SNAPSHOT – AS AT 30 SEPTEMBER 2014 ASX listed: HGO SHAREHOLDER DISTRIBUTION Shares on issue: 147.7 million (consolidation of 8:1 on 17/09/14) Overseas Share price: $0.62 at quarter end 18.9% Market capitalisation: $91.6 million Retail Cash and receivables $18.8 million Institutions 45.5% Debt $23.0 million Australia Net Debt $11.6 million 35.6% Tax losses carried forward circa $69 million Franking Account Credit $21.3 million Source: Orient Capital Note: HGO has moved from a 31 January to 31 December year end, so current references are Q1 Feb-Apr, Q2 May-Jul, Q3 Aug-Sep and Q4 Oct-Dec (CY14). In 2015 Q1 and Q2 will be Jan-Mar and Apr-Jun (FY15). 2
KANMANTOO COPPER MINE AND LEASE AREAS 100%-owned by Hillgrove 55km from Adelaide, South Australia Mining Lease is within 500km 2 exploration Exploration Exploration license, and relatively unexplored Area EL4401 Area EL4401 Kitticoola Organic growth potential considered high Prospect Project enjoys infrastructure advantages Kanmantoo Close to power (National Grid) Copper Mine Recycled water pipeline Wheal Ellen 3km from main highway 90km to export port Attractive employment costs compared to remote fly-in/fly-out mine operations Quality of life attracts mature, experienced workforce with low turnover 3
KANMANTOO COPPER MINE – SUMMARY OF OPERATION Historic copper mining area from 1840’s BH South developed and operated open pit mine and plant from 1971 to 1976 HGO acquired leases in 2004, resource development 2005-08, feasibility and construction 2009-11, initial production December 2011 Current production +20,000t copper in concentrates, from processing of 3Mt ore @ ~0.8% Cu – minor gold and silver Current workforce of ~200 and 50 contractors Half year EBITDA A$27M and NPAT A$5.8M Debt A$23M at 30 September, from A$55M C1 costs at US$1.89/lb Cu for three months to end September Strong community focus and engagement 4
KANMANTOO MINE – OREBODY AND SITE LAYOUT Cross section through main Kanmantoo orebody with interim Kavanagh pit and final Giant pit (above) Plan view of all Kanmantoo pits (right) Note: Giant will include Kavanagh, Spitfire, Falcon, Lean, Matthew and Valentine 5
KANMANTOO MINING – BEFORE CHANGEOVER What were the key issues? What areas did HGO need to Variable / changing planning – reactive manage and control for safe, effective and quality Primary crusher system capability performance? Ore dilution Ore and waste mining rates In what areas did we need external expertise, and didn’t Below nameplate copper production need to directly manage/control? and above target costs 6
KANMANTOO MINE – CHANGE TO OWNER OPERATED MINING What areas did HGO need to manage and control for safe, effective and quality performance? Long term planning through to shift planning Dilution control – complex series of copper ore bodies Clean ore extraction – mining copper not tonnes Need consistent, quality and safe operation – predictability Drill & blast design and operation – fragmentation, overpressure and vibration limits Management of dust, noise and other community concerns 7
KANMANTOO MINE – CHANGE TO OWNER OPERATED MINING In what areas did we need external Photo of old drill expertise, and didn’t need to directly rods vs new thick manage / control? wall drill pipe Mining fleet ownership – lease vs capital cost Mining fleet maintenance – we wanted reliable, safe equipment ready to go – no existing mobile equip maintenance expertise on site Accurate, straight and productive blasthole drilling – particular issues with schistocity and dip of rock Safe and effective explosives supply into blastholes 8
KANMANTOO MINE – CHANGE TO OWNER OPERATED MINING Time frames New Life of Mine plan late 2012 – certainty of design using key feasibility principles – changes only based on measurable and real site experience and technical evaluation New primary crusher installed April 2013 Change from full Mining Services contract to owner operator mining, with some specialised contractors August 2013 Prior to this, six week planning and development period Mining services contractor demobilised Friday 26 th July – first HGO leased equipment on site Monday 29 th July – HGO personnel pit mining 10 days later Two month implementation period – back to near full mining rates by end September – continuous productivity improvement from then 9
OWNER OPERATOR – PLANNING AND IMPLEMENTATION METHODOLOGY Develop “mind maps” for owner operator mining, fleet supply and maintenance and blasthole drilling that identified all WHS requirements Risk assessment to identify all business risks associated with change Develop full project schedule for changeover Develop and implement risk controls identified during mind mapping and risk assessment – incorporate into project schedule These risk controls included Contractor pre-qualification review and verification Employee Onboarding system Mobile Plant risk assessment and inspection Safe work instructions and procedures Plant operator training Manager and Supervisor roles and recruitment All completed in six weeks prior to changeover 10
IDENTIFICATION OF RISKS WITH CONTROLS DEVELOPED Development of mind maps that identified all WHS requirements for owner/operators and new contractors – risk controls developed End result – a change to quality and productive mining with an improving safety performance 11
EXTENSIVE AND QUALITY OPERATOR TRAINING Operator Competency Framework developed, involving specialised quality machine operator training, and then verification of competency Local training company ACMT mobilised five trainers and remained on site for ~6 months Over time, in-house training specialist recruited, and now competent operators on-shift undertake the training 12
ROLES AND ACCOUNTABILITIES CLEARLY DEFINED Mining Roles Accountability with highly skilled frontline supervision Behavioural management Accountability – Incentive Scheme – 10% portion of salary at risk to key cost drivers Tyre life and damage Productivity – BCM/hour Quality – ore dilution Machine damage – vehicle operation parameters monitored Costs $/BCM To qualify for the quarterly incentive scheme , an employee must not have been subject to disciplinary action actively contribute to a pro-active safety culture ensure prevention of loss and damage maintain consistent attendance, and respect for and proactive community engagement 13
KANMANTOO MINE – SUBSTANTIAL IMPROVEMENT IN QUARTERLY COSTS Mining unit costs have improved with significant productivity gains: truck productivity, re-positioned go- lines, in-cycle start up, haul road maintenance, Processing costs commenced improving with new primary crusher, and have continued incremental improvement: tails pumps life, MSA, bulk lime, new screening plant, increased throughput 14
KANMANTYOO MINE – TARGETING LOCAL EMPLOYMENT Focus on local employment around Kanmantoo / Callington and Adelaide Hills region – increased from ~50% to 81% in one year Risk evaluation of shift rosters – local region means limited driving after shifts Initially skilled and semi-skilled employed – then unskilled with full training Contractors also increasing local employment, or relocating people locally 15
RECORD 3 MONTH PERFORMANCE TO END SEPTEMBER Record Production, Sales and Unit Cost results for the three months ended 30 September 2014 Copper in Concentrate produced at 6,331 tonnes Copper Concentrate Produced at 27,007 dry metric tonnes Copper Concentrate sold at 29,091 dry metric tonnes C1 Unit costs at USD1.89 per pound (AUD2.03/lb) 16 16
KANMANTOO MINE – CHANGE TO OWNER OPERATED MINING Change to Owner Operated Mining An impressive achievement by Hillgrove Management and our specialised contractors Steve McClare, GM Kanmantoo and his highly motivated Management team Russell Middleton, CFO and team – Mining Services contract settlement, financial partners negotiation, capital raise Hillgrove Board – almost weekly meetings / updates by phone – high level of accessibilty, support and advice Selected contract partnerships: Andy’s Earthmovers (Asia Pacific) – Fleet supply and Maintenance RocDrill – specialised blast hole drilling Maxam’s – bulk and specialised explosives supply ACMT – Training and operator competency verification GPR Dehler – Organisational change and process mapping 17
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