The Q2 results were somewhat disappointing relative to Q1, but...

The Q2 results were somewhat disappointing relative to Q1, but were driven by both what the mineable resource could supply, as well as some cost issues.

The C1 costs were impacted firstly by reduced copper production (the divisor), caused by a decrease in the proportion of Sulphide ores in the mill feed. The Sulphide ores have a higher grade and a far superior yield through the processing plant. This deterioration in mill feed quality was caused by replacing Zeta open pit ore with the transitional and oxide ores being uncovered out of the Plutus pit.

To reconcile Q1 to Q2 then, the Q1 cost of USD1.89/t needs to be adjusted for the 13% lower production which would increase this to USD2.18/t. The reconciliation up to the USD2.89/t reported for Q2 includes:

1. +0.52/t for the increase in reported mining costs caused by a reduction in the amount of mining cost allocated across to the deferred mining account (9.6 – 6.7 / 5569). Mining costs have been averaging around USD2.75 per total tonne of material moved, but some of the cost gets allocated across to the deferred mining account by the accountants. In Q2, this allocation was significantly less than Q1 because the Plutus pit has uncovered ore, whereas in Q1 it sounds like most activity in Plutus was in moving waste which could then be allocated to the deferred mining account.
2. -0.07/t for the cost improvement in the processing plant.
3. +0.26/t or about USD1.4M for other costs, which I imagine were primarily the repair to the burnt excavator EX903 and the major maintenance on EX902.

Management’s response to these circumstances appear to have been as appropriate as could be expected:

1. In response to the deterioration in proportion of Sulphide ore in the mill feed, they took the 'good-bye' cut out of Zeta, and were probably stymied in getting more sulphides uncovered from Plutus by the reduced availability of diggers as a result of the fire and month-long maintenance on two of the digger fleet.
2. The reduction in allocation to the deferred mining account is a good thing because it shows that more ore is being uncovered in the Plutus pit.
3. Cost improvement through the processing plant is an excellent achievement, especially with the increased proportion of oxide ores, which often have poorer handling properties.
4. Usually the insurance company would payout some amount for the burnt excavator.