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Paladin Energy Ltd. ( OTCPK:PALAF ) Q3 2016 Earnings Conference Call May 10, 2016 7:30 PM ET Executives Alexander Molyneux – Interim Chief Executive Officer Craig Barnes – Chief Financial Officer Darryl Butcher – Executive General Manager, Project Development Analysts Adeline Tan – Value Partners Limited Glyn Lawcock – UBS Securities Stefan Hansen – Morgan Stanley Simon Tonkin – Patersons Securities Limited Alexander Molyneux Hi, everybody. I’d like to welcome you to this call. I’m joined with me today in Perth, I have Craig Barnes, our Chief Financial Officer; Darryl Butcher, our EGM of Technical and Project Development, and Andrew Mirco our General Manager of Corporate Development and Investor Relations. We’re going to step through our presentation, which I think could probably take about 20 minutes or so, and then we will open the call up to Q&A. So moving into the presentation, we have a disclaimer regarding some forward-looking statements and notes on our resource and reserve disclosure. Into page two, where we describe Paladin in a nutshell. We confirm that we are a global uranium leader. Langer Heinrich is genuinely a Tier 1 mine in its industry and highly strategic. Optimization is a core competency for us and we provide the best senior leverage to uranium price upside. We are a global uranium leader as defined by Paladin,. being the eighth largest uranium producer in the world by capacity. We also have the second largest pipeline of undeveloped uranium projects and resources. We are the only top 10 player that’s purely focused on upstream uranium and also genuinely independent of state ownership, or being part of a diversified conglomerate. The – when we say Langer Heinrich is a strategic Tier 1 mine, we can really define it by its position in the global uranium industry. That position has only improved over the last 12 months. It was 12 months ago that UxC last assessed Langer Heinrich in the first quartile of global C1 cash cost uranium production. And we have now since that time achieved even lower record low C1 cash costs. We have – also I can point out, we have industry-leading sustaining capital cost, and this is very important when we look at the very different methodologies of mining uranium globally. In particular, in secure recovery mining, which has a much higher sustainable capital cost, or even the mines in Canada that have a much higher sustainable capital cost per pound. When we take that into account, we are indisputably an industry leader in terms of all-in sustaining cost. With that, I’m going to handover to Craig, who is going to highlight some of the features of our results for the March 31. Craig Barnes Thanks, Alex. Good morning, everyone. Highlights of the March quarter presented on the Slide 5 and 6, Uranium production for the quarter 1.3 million pounds increased by 5% compared to the March 2015 quarter. Due to the 14% increase in all process, which was partially offset by lower process grade, and lower recovery. The company’s safety stat continues to improve this quarter with a 12-month average loss time injury frequency rate decreasing to 1.4 from 2.1 last quarter and 2.3 in 2015. The realized uranium sales price for the quarter were $34.67 per pound, a $2 per pound premium for the TradeTech average weekly spot price for the quarter. For the nine months to March 31 2016, the realized uranium price was $39.41 per pound versus the average weekly spot price for the nine months of $35.08 per pound. That was a $4.33 per pound premium. In the June quarter, we expect sales of 1.75 million to 2.1 million pounds, of which approximately 1.55 million pounds, or $55.9 million by value has already been priced and shipped as we speak. So that’s basically a realized price of $36 a pound. C1 cash costs decreased by 18% from $29.42 per pound in 2015, to a new record low, as Alex mentioned, of $24.13 per pound for the quarter. This was also within our March quarter guidance of $23 to $25 per pound. The decrease in cost was mostly driven by a reduction in reagent costs, resulting from the bicarbonate recovery plant, as well as weakening of the Namibian dollar against the U.S. dollar. All-in cash expenditure for the quarter was also at a new record low of $31.60 per pound, which is a decrease of 33% compared to 2015. Cash and cash equivalents at the – at March 31, 2016 of $21.4 million was within our adjusted pro forma guidance of $19 million to $29 million after adjusting for the debt repayments. The company’s cash balance is expected to increase between $45 million and $65 million at the end of June. We expect to receive more than one-third of this financial year’s sales receipts in the June quarter, due to the timing of deliveries and payments from customers. The majority of these sales receipts have already been priced, as I said, at a substantial premium to current spot uranium prices. The company is, therefore, still on track to be cash flow neutral excluding one off items. Sales revenue for the quarter increased about 22% to $20.8 million in the March quarter from $17.1 million in 2015, as a result of a 35% increase in sales volume, which was partially offset by 9% decrease in the realized sales price. Cost of sales also increased as a result of the higher sales volume. The reduction in costs from last year results in operation achieving a 200% increase in gross profit, notwithstanding the 9% decrease in the realized sales price. Underlying EBITDA for the March quarter was negative $0.8 million, an improvement of $5.4 million from the negative underlying EBITDA of $6.2 million in 2015. The company further reduced its debt by approximately $81 million during the quarter, with an additional $25 million repurchase of 2017 convertible bonds and the repayment and termination of the $56.4 million Langer Heinrich’s syndicated facility. The convertible bond repurchase together with earlier repayments of Langer Heinrich syndicated facility will generate cash savings to the company in the form of avoided future interest and also principal repayment and will further reduce the company’s all-in cash expenditure. The Langer Heinrich’s syndicated facility will be replaced by a new $25 million revolving credit facility, which is currently being finalized. Slide 7 has two waterfall charts, which provide a variance analysis of the EBITDA, comparing a March 2016 quarter to both the previous December 2015 quarter and last year’s March 2015 quarter. Comparing to the previous quarter, the chart on the left shows that our EBITDA decreased by $11.4 million from $10.6 million in the December quarter to negative $0.8 million in March – in the March quarter. In the graph, you can see the large variances caused by the decrease in sales volume from 1.7 million pounds in the December quarter to 595,000 pounds in the March quarter. Due to the size of certain sales and also their timing, these large sales volume variances will continue from quarter-to-quarter. In addition to the negative sales volume variance of $38.3 million, there was also a negative sales price variance of $5.5 million. The lower sales volume resulted in lower cost of sales with a positive cost of sales volume variance of $33.9 million, partially offset by a negative cost of sales performance variance of $1.9 million. Admin costs were approximately $500,000 lower than in the previous quarter. Comparing to the previous year’s March 2015 quarter, the chart on the right shows that EBITDA improved from about $5.4 million from a negative $6.2 million in the March 2015 quarter to a negative $0.8 million in the current quarter. The impact of the 35% increase in sales volume on revenue and cost of sales, together with the negative variance caused by the 9% decrease in the realized sales price was more than offset by a positive variance in the cost of sales performance resulting from cost reductions. In addition, exploration, administration, unallocated fixed overheads and Kayelekera care and maintenance costs were approximately $4 million lower than in the March 2015 quarter. Onto Slide 8 which shows how all-in cash expenditures reduced by $15.27 per pound year-on-year from $46.87 per pound in the March 2015 quarter to $31.60 per pound in the March 2016 quarter. The graph on the left compares all-in cash expenditure for the last seven quarters and shows the trend of decreasing expenditure. With the March quarter’s $31.60 per pound significantly lower below the FY16 average of $50.75 per pound. All-in cash expenditure for the year is expected to be within a range of $38 to $40 per pound. That’s the guidance range that we’ve provided for FY16. The waterfall chart on the right provides an analysis of the movements in all-in cash expenditure from the previous year’s March 2015 quarter. The biggest movements as you can see from the graph have been a reduction in reagent costs resulting from the bicarb recovery plant of $5.55 per pound and the weakening of the Namibian dollar against the U.S. dollar of $3.10 per pound. Higher production volumes compared to the March 2015 quarter have also resulted in a $2.44 per pound decrease in costs. Additionally, the reduction in mining costs, capital expenditure, Kayelekera care and maintenance costs, and corporate and exploration costs resulted in a further $4.18 per pound decrease in all-in cash expenditure. In summary $12.17 per pound, or 80% of the $15.27 per pound savings was from cost reduction initiatives and efficiencies. On Slide 9, the table provides a breakdown of Paladin’s debt at face value amounting to $362 million at March 31, 2016. Since June 2012, Paladin’s debt has been reduced by approximately $552 million. The $25 million repurchase of the 2017 convertible bonds and the $56 million repayment of Langer Heinrich’s syndicated facility in the March quarter were the most recent debt reduction. The net debt maturity of the $212 million convertible bonds due in April 2017, strategic initiatives are currently being advanced with a view to refinance or repay the April 2017 convertible bond and due diligence by the various counterparties is ongoing. A new $25 million revolving credit facility is being finalized. Documentation is well advanced and implementation and draw down is expected in June. Based on our latest cash flow forecast, we still see the funding gap required to repay the 2017 convertible bond at between $140 million and $165 million. I’ll now hand you back to Alex to complete the presentation. Thank you. Alexander Molyneux Okay. Let’s just return to our core competency, which is optimization and the key architect of that – Darryl Butcher is in the room with me, but I’m going to do this slide for now. And – but Darryl is here to answer any questions as well. Our reagent cost per pound of finished uranium was a record low in this quarter to March 31. It’s basically running at half the level of financial year 2015 levels, and that’s driven – not driven by currency and those kind of influences, it’s driven by projects that we designed and we built here using our optimization capability. We – you can see now that we are now targeting a further $2 to $3 per pound in processing cost reductions over the next two years or so. We have a number of specific projects behind that targeted cost reduction. And some of those projects will feature in our FY 2015 performance, and others are still through – going through the final design process. But we have more to go on this front, and this is definitely one capability that puts us in a leading position in terms of being able to leverage our costs below current low uranium prices. On Slide 11, we have shown this chart before. It – this particular chart was updated last quarter when we revised our all-in expenditure forecast down. To remind everybody, we define all-in expenditure in a current period basis rather than sort of as a rolling going forward basis. We also include every dollar of spending that leaves our doors. So it’s everything. It includes debt servicing, corporate cost administration, royalties, exploration, the cost of keeping Kayelekera on care and maintenance. When we did revise this, we revised it for – we revised it down to forecast a $38 to $40 all-in range for the full financial year of 2016. This graph is unchanged at that, so we still stand by that guidance. What the graph implies is that, it means that our second-half will have a running rate of $33 to $35 a pound. As you can see, we already have the March quarter in at $31.60, so we have no problem with our guidance in this regard. We can also say that our March quarter selling price was $34.67. We certainly believe our June quarter selling price will be at or above $34 a pound. So you can start to see the leverage we have in our business to move it from cash flow neutral towards even cash flow positive in a low uranium price environment. Moving on to the next slide, we say we have the best leverage to uranium upside, because we are relatively uncontracted going forward, and we also have the ability to increase production through Kayelekera being on care and maintenance and being able to be brought relatively quickly back into production, but also our pipeline of undeveloped projects. Analysts continue to believe that uranium will double from current levels in coming years. In the last few months, we’ve seen further market rebalancing. The second half of 2016 will see around 8 million to 9 million pounds less supply than was being included in typical demand supply models only a few months ago. Sources of the supply cutback include Cameco’s announced production cuts at Rabbit Lake and in the US ISR operations, but also the delayed start-up of Swakop Uranium’s Husab Project in Namibia, which was previously in analysts supply models on average for about 6 million pounds this year, and we believe will produce not more than 1 million pounds or so. The – we also have the interesting feedback from customers who are – who we now have – we believe there are strong intentions for a very busy contracting season in the second half of 2016. When we keep our list of customers that report to us intentions to contract over certain periods, our list has grown with respect to the second half of 2016 period, and it’s longer than it’s been in quite some time. Turning to our strategy; our strategy continues to be very simple in this environment. Number one, we are doing everything we can to maximize operating cash flows at Langer Heinrich Mine through optimization initiatives, whilst preserving the integrity and long-term mine plan. Number two, we continue to maintain Kayelekera and our exploration business on a minimal expenditure care and maintenance basis. Number three, we also continue to drive our corporate and administrative costs lower, and are achieving all our targets in that regard. Number four, we are progressing strategic initiatives with respect to partnerships, strategic investment, funding and corporate transactions as – as our primary method to bring in the capital required to meet the requirements of our stated funding gap to repay the 2017 CBs. Just focusing on that for one second, we can say that we have previously disclosed this point that our primary strategy is to leverage the unique strategic nature of our platform in Langer Heinrich to do a deal at a substantial premium to the current market share price of Paladin with a participant in the nuclear or uranium industry. I can say that Craig touched on that process, saying that we have parties admitted to due diligence, and that process is going very well. In fact, we have multiple parties admitted to do due diligence. Our confidence is quite high with respect to being able to present something interesting to our investors in that regard. Coming back to our guidance, financial year 2016 guidance is summarized as follows. We’re guiding approximately 4.8 million pounds of production on a full year basis. This has changed from what was previously stated, 5 million pounds. We have a short term issue with – associated with the availability of return water from our tailings storage facility number three. That facility – we’ve basically how we use water for our processing water, how it’s gained is around about 60% of it comes from water that is drawn from sumps under the base of tailings storage facility three, and then incremental water is purchased from outside. Those sumps, over the past few weeks have not been operating – providing the water capacity, the amount of water that would usually provide. There’s solids ingress in these pumps and as a result, they’re not pumping at capacity. We have a number of short term solutions that we’ve already partly implemented, and we’ve got a couple of more things going in this week. And we do not expect this to be a very long-term issue – nor an issue that costs as some meaningful amount, a material amount of capital to deal with. Most of the works that we’re doing are small scale earthworks and drilling activity to sort of fix this problem. But as a result of it, we have lost around 100,000 to 150,000 pounds from our quarterly production to June 30. Having said that, the remainder of our guidance is broadly unchanged, so our full-year average selling price premium is still expected to be $4 or more. And as Craig said, our selling price to-date, as of May 10 is $36 for this quarter. We still expect to be cash flow neutral for 2016. With that we would expect our cash balance to be between $45 million and $65 million at the end of the June quarter. We have for the first time, provided some very high level goalposts, if you like for financial year 2017. Our production will be in excess of 5 million pounds. Our Langer Heinrich C1 cash costs will further reduce from FY 2016 into the range of $22.50 to $24.50 and we would expect our all-in company-wide cash expenditure in the range of $29.50 to $31.50 per pound of uranium produced. As we come into our next reporting activity, such as our next quarterly activities report and then our next quarterly financials. We will start to provide a little bit more meat around the bones of our FY 2017 guidance, but we certainly believe that we will continue to achieve positive results in terms of cost reductions and maintaining a consistent level of production. So before we hand over to questions, there’s a couple of points I want to address, in terms of a wrap-up. Number one is, I can see some points showing up in certain analysts’ reports and whatnot and I just want to address those points specifically. I want to ask the market not to be too cynical regarding our company’s goals. Firstly, we see a couple of analysts questioning our sales guidance and even our cash build that we’re expecting – that we’re forecasting for this quarter. I merely want to make out the point – make the point to those people that, number one, since we have been providing quarterly cash guidance, we have never ever missed it, either missed the midpoint of it or exceeded it comfortably. Number two, as Craig has pointed out, when we provide our sales guidance for the June quarter, and our expected cash balance build, our sales guidance is 1.75 million pounds to 2.1 million pounds. As we sit here at 10 of May, we have already sold 1.55 million pounds at an average price of $36 a pound. So we’re confident in achieving our quarterly outcomes and we are also, I can say confident in achieving our strategic refinancing for the 2017 CB. I can say that that CB is still almost 12 months away from being due. And whilst the process that we are running is not likely to result in an announcement before July, we are highly confident. We have competitive tension in the process. We are currently spending significant resources to conduct due diligence on our business, and when we look at valuation none of the counterparties we are working with believe that low uranium prices at these current levels are here to stay, and all attribute a strong strategic premium to our unique platform and our Tier 1 Langer Heinrich Mine. So that’s it for us. And we’d like to find out if there are any questions. So I’ll ask the operator to run a Q&A process for us please. Question-and-Answer Session Operator Certainly, so ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator instructions] The first question comes from the line of Adeline Tan from Value Partners. Please go ahead. Adeline Tan Hi. Good morning, management. Thanks for taking time for the call. I have two questions with regard to Paladin. Thank you for sharing a lot about the strategy initiatives and that you are intending to take. I’d just like to know because you say that the timeline is unlikely to come out before July 2017 – I mean July this year. So I like to know what kind of timeline would be reasonable by December. And is the reasons some kind of a regulatory – is there any regulatory issues with regards to – correct me if I’m wrong, but is it that you are intending to leverage on Langer Heinrich – the LH Mine to – are you intending to sell the whole mine, or are you intending to sell a portion of the mine? Thanks. Alexander Molyneux Okay, thank you, Adeline. I can say on the first point, with respect to the timeline, I think we can say that we would expect to be in a position to announce a deal probably in advance of our next quarterly result, which happen in mid-August, I would imagine. But it’s a little bit difficult to determine because the timeline’s dependant on the performance of various counterparties and how they progress with things. But – so I think we are making progress to be able to announce a solution well in advance of any time that we believe we have any – many sort of pressures or issues with respect to the 2017 CB repayment. We believe that probably not before July, but could be July. But it could be – it’s a little difficult for us to know, but we’re not too far off. Now, on your second point, we can’t – we’re looking at a number of structures. Obviously, we talk to different parties about different kinds of proposals or deal structures, so I don’t want to be specific on the nature of the transaction that the company may enter into. I can say that we only invite parties to commence due diligence if the proposals discussed with them impute a significant premium to the valuation to the market, trading valuation of Paladin. I can also say that various transactions would require various regulatory approvals that would happen probably after an announcement is made. So there is – we’re a public company showing in certain situations, there would be shareholder approvals. There’s also various external regulatory approvals will probably be required when we look at the types of transactions we’re looking at. Adeline Tan Okay. And then one more question that I have is with regards to your cash and your working capital. I mean I expect because given that like – you seem very confident and very comfortable about cash. And in the recent quarter, the cash level is at $21.4, I mean given that you have done your buybacks. I’m just wondering, I mean during that quarter given the stress in the working capital in the sense that the trade receivables hasn’t come in yet and you are still very comfortable to take this – this move of buying back your CBs. So moving forward, are you – are we expecting sort of buybacks of your CBs or how are we seeing your management of the cash? Alexander Molyneux So firstly, yes, I mean we were comfortable repaying – the buying back some CBs last quarter and repaying the Langer Heinrich syndicated loan facility, which was a total of $81 million of debt retirement last quarter. We were comfortable doing that because we have good visibility on our shipping and our sales. So we have a very heavy quarter. So let’s say if at June 30 the cash balance was $20 million, there’s a 10 week period immediately following June 30, where we had – where we received $60 million of sales receipts if you like. So it’s a very, let’s say, in our business, we have a timing of cash receipts issue with respect to the timing of shipping, and we build inventory and then we ship it and then we get paid. But it’s still a very certain process for us once we mine and shipped that uranium we – so we’re quite confident about our cash balance at the June quarter and which we’ve guided to $45 million to $65 million. We also believe that it will continue to build in subsequent quarters. So – and that’s a lot to do with the timing of known sales and what not. We’re always looking at the CBs. The CBs have traded – so the IRR are buying back the CBs sort of has been reducing over time, but we continue to monitor that. We can’t say that we have any specific plan today to buy back more CBs, but we’ve always been opportunistic in that regard and we may continue to be so. Adeline Tan Okay. Thank you. Operator The next question comes from the line of Glenn Wilcock from UBS. Please go ahead. Glyn Lawcock Good morning, Alex. Three quick questions if I can thanks. Quick one, first one, just the Langer Heinrich issues, are they now fully resolved? So you’re comfortable with the guidance or is there still an ongoing issue there? I might have missed that during the call. The second question, your all-in sustaining costs of – I think you’ve put it out to $31 for the quarter, maybe yourself or Craig, so we’re not just simply looking at the cash flow statement, $42.6 million went out the door in the quarter for production of 1.3 million pounds. I know it’s semantics, but if I just divide one into the other, I actually get all-in costs of $32.7. I’m just trying to figure out what you’ve left out or am I doing it wrong? And then the third question is, I’m just interested at a philosophical level, Alex, a little bit. You’ve got a lot of party circling doing due diligence. That’s great. We all think the uranium price is going to go up. And I think I remember the first day you took over last year, you said, I’m a uranium pool, I think it will go up, I just don’t know when, but it will. I think it feels like it’s probably been pushed out a little bit with all the issues in Japan. What’s the background that you guys have that you are sort of saying that you could get – what do you believe your batter, I think, you get a high price well above market value, because I mean, I would have thought potential suit is know the trouble you are in, now that you’ve got a CB due next year. Without a deal the longer it goes on the more, I would have thought you’d find yourself on the back foot, not the front foot trying to negotiate the deal. I’m just trying to sense what do you think the batter is like? Alexander Molyneux So I’m just going to address the first question first. Then I’ll let Craig address the second question. And then I’ll come back to the third question. So Langer Heinrich issues, but we – let’s say the issues, we have immediate solution, medium-term solution, and longer-term solutions to these issues, okay? So we have, let’s say, a short-term band aide fix. And we can say that for the last 10 days, our production has been on budget. We – look, we’re not entirely comfortable with that fix and we’re making some additional short-term changes right now to try and access – to try and give ourselves some more buffer to give ourselves some more comfort around our numbers. But right now we’re running it at – we run – the plant is actually running very, very well as we sit here today. So we could say, we’re not experiencing a short fall today, but we need to do a bit more work to make sure, our short-term solution is sustainable. So when we’ve talked about the production losses, we’ve actually put some buffer in there as well. So it may not be that we actually lose 150,000 pounds. We are just trying to be conservative with our guidance. So anyway I hope that answers that question. But on all-in sustaining costs, I’ll let Craig answer that question. Craig Barnes Thanks, Alex. Yes, I think the biggest difference from the cash flow statement that you mentioned there, Glyn, was – is working capital movement. So the all-in cash expenditure wouldn’t take into account any working capital movements. We’re also not including any, because it’s an underlying all-in cash expenditure number, wouldn’t include any one-off items, for instance, any of the restructuring costs that we had previously with some of the retrenchments, et cetera, happened during the year. So it wouldn’t include those. That’s the biggest difference would be working capital movement. So that would be, for instance, sales that we’ve recorded for which we’ve got receivables, which will – the cash flows will only come through the next quarter, as well as the movements on creditors. Glyn Lawcock Okay. Craig Barnes Okay. Alexander Molyneux Okay. So on your question – on your philosophical question regarding sort of the process of a deal, there is a few elements there. You can say that when we say that we’ll do a deal with a premium to our current market valuation, I think it’s broadly accepted among, let’s say the consensus view in the market is that, our share price reflects a discount to the theoretical value of our business already. And that discount in pricing is pricing in some balance sheet risk. Even, I think according, let’s say to your own model, Glyn, we – let’s say, we’re trading at whatever 30% to 40% discount to NPV right? Glyn Lawcock Yes. Alexander Molyneux And the assumptions that a number of analysts would use to assess NPV are not too dissimilar to the kind of assumptions that strategic parties would be using, everybody is using rising uranium prices and what not. So you can see that, let’s say in a theoretical valuation sense, there’s room to pay a significant premium to our share price, yet still be getting a reasonable deal on a theoretical value basis. So that’s one element. The second element is, there is limited opportunities in the global uranium space to acquire a platform of our quality or scale. There is no – or even put it this way, even in a low, let’s say, in a low uranium price environment, our business becomes almost more strategically interesting, because we have a lot of levers to survive that. We can – we even have levers that if we had to return, we could radically restructure the way we run Langer Heinrich. We’d have to cutback production to about [indiscernible] but we can break push the cash cost below $20 a pound to do that, right. So we have a lot leverage where absolutely one of the lowest cost sources of supply and we have scales. So if you are of a nature that you want to have more or you want – or a nuclear participant that you want to be vertically integrated, we literally are the only game in town. So there is some strategic value in our business. If you miss the boat to do something interesting with Paladin, then it’s not going to be something of an interesting nature like ours coming up any time elsewhere soon. And then thirdly, I’d say, we generally have competitive tension, right? So we have a number of alternatives that are all very live at this time. And I think that gives us – so I can say, we’re certainly not on the back foot in anyway. Glyn Lawcock Okay. That’s great. Thanks very much Alex. Alexander Molyneux Thanks. Operator The next question comes from the line of Stefan Hansen from Morgan Stanley. Please go ahead. Stefan Hansen Good morning everyone. Just a couple from me actually following up on Langer Heinrich production, and then all-in sustaining costs. Just on Langer Heinrich, I’m just wondering how the recoveries are going now. Now are they back to normal where you’d expect them? Alexander Molyneux Darryl, do you want to answer that one? Darryl Butcher Yes, they are. Yes, the prior issues we had with chloride and sulphate incursion into the process have been overcome and recoveries have consequently come back. There was also an issue, with it and I think reported in the last quarterly with some tight or difficult ore. Now we’re through that area now back into a more typical ore source and yes, the recoveries are back where we would expect them to be. Stefan Hansen Okay. Good stuff. Just another one, Alex, you mentioned earlier on in the call talking about your sustaining capital cost for the business. And just looking at the underlying analysis of all-in cash expenditure, it looks like – I mean CapEx for Langer Heinrich has come from say the nine months to-date from $2.38 pound down to just under $0.60 a pound. I mean is most of that sustaining capital? And I guess is that sustainable going forward without impacting the mine plan, the long-term mine plan? I just mentioned, because a couple of years ago, I guess the sustaining capital number that was out there for Langer Heinrich, it was around $8 million a year, obviously you’ve done well to bring costs down across the business and it wouldn’t be that right now, but even $0.60 a pound seems pretty low. Is that sort of the number that we should think about going forward? Alexander Molyneux I think let’s say our budget for the full-year was more in the order of around $1 pound. Stefan Hansen Yes. Alexander Molyneux And we’ve actually frankly that there might be some timing issue going on. It’s still a bit unclear to us. We certainly expect our quarter to June 30 to have a higher CapEx spend than the previous quarters in this financial year. Stefan Hansen Yes Alexander Molyneux But it might be that it’s actually – they set out to spend more around $5 million, $6 million, but as things get delayed during the year. So that wasn’t a specific, let’s say, a specific cost saving that we tried to push through is just in terms of getting things done, design ordering things and whatnot. But they haven’t spent on time if you like, but we’ve got – we’ve actually got $2.9 million in the budget for the quarter to June 30. We don’t believe that will be spent based on the spending as we are by almost half way through the quarter. But on a full year basis it would be closer to about $1 pound would be what we’re expecting. Stefan Hansen So excellent, thank you very much. Operator [Operator instructions] The next question comes from the line of Simon Tonkin from Patersons. Please go ahead. Simon Tonkin Good morning guys. I’ve just got a question on your capital going forward with the TSF1 and TSF – is it 6? Alexander Molyneux Actually what we’re going to do is we’ve got TSF1 moved. And I’m just looking at the numbers in front of me, but what’s happening with our capital is our development of TSF5 and then TSF movement, we start to have an increase in capital for that specific works really in FY 2018 – is that correct? Craig Barnes Yes. Simon Tonkin Okay. Alexander Molyneux Yes, TSF1 sort of mostly that’s about $3.5 million Simon Tonkin Yes. Alexander Molyneux That will take place in FY 2018 and then TSF6 – okay, sorry, let me – sorry Darryl and Craig, these people keep these numbers. Let me change that. TSF5 we actually do – we budget for most of those works in FY 2017. That will be $3.5 million worth of CapEx. TSF6 and then the TSF1 movement will take place in FY 2018, and those two combined to around $11 million, okay. Simon Tonkin Okay. Alexander Molyneux So you see our total CapEx – basically our total CapEx though, in 2017 won’t be more than around about $7 million to $7.5 million. But in FY 2018 it will start to – we start to have higher than typical periods of CapEx in FY 2018 and FY 2019 whilst more of this TSF activity is going on. Simon Tonkin Okay, no worries. Thanks. Operator We have no further questions in the queue. [Operator instructions] There appears to be no further questions, so I’ll hand back to yourself, Mr. Molyneux and Mr. Barnes for any closing comments. Alexander Molyneux Okay. I’d like to thank everybody for their time and interest in Paladin today. And as always both Andrew and myself, and Craig and Darryl are available should you have follow-up questions, please call Andrew, email him. He’ll coordinate the rest of us and we’re definitely available during the course of the day to continue to answer questions people might have. So thanks very much and thanks operator. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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