Thanks, Darcy. I'll start obviously by welcoming everyone to the call today. Clearly, we're here to talk about the Hera life- of- mine and the impact that has on guidance. Just so you can follow along, the intent is to talk to the investor presentation that was uploaded to the ASX website earlier today. As I make references to page numbers, that's what I'll be referencing. First of all, as I mentioned at the AGM, clearly I'm not seeing this as a caretaker period, albeit the role is currently an Interim CEO role. Certainly, from the point of view of how we're managing the business, we're not just seeing it as that caretaker period waiting for a new team structure to be announced.
With that, there's a lot of work ongoing and a lot of work that needs to be done. The first slide on slide three goes into a bit of that on the high level as to how we're looking at things. I touched on all of these at the AGM, but thought it worthwhile just to give you a quick round out on the other things we're doing and then how that flows into the work today. Clearly first of all on safety is a top priority for us as a business, and we were pleased in the November month not to have any recordable injuries. However, I can't say that's the same for December at this stage.
It just reiterates to us the need to remain vigilant in what we're doing on that safety front, and we'll be talking about that with our various sites and employees through this month as we come into that festive period. Obviously beyond the operational piece, which we touch on with Hera and guidance, touch briefly on Federation. The work's ongoing on the Federation front. We did talk at the AGM about the optimization piece, in which we were thinking about flows of ore, the capital to start Federation and how we can extract early revenue from the mine plan. All of that work's ongoing, and I'll touch on that a little later on the call, because some of what we're doing at Hera has a flow-on impact to that piece of work on Federation.
On Federation funding, that process is active. As we talked about around the AGM, the intent is to bring that to a head in the first quarter of next calendar year, we're on track for that at the moment. Actively talking with a range of potential financing sources, either bank, non-bank lenders, offtake financiers, royalty providers, those types of groups. Very active process on track for a first quarter resolution. Finally, on the leadership renewal, you'll notice Martin Cummings is on the call today, our new CFO. Hit the ground running, very active in those bank funding and other funding discussions that we've got active. Further updates on the leadership piece will come largely through our board in due course. Anyway, just turning to the main topic of the call.
The intent today within that operational delivery and cash management piece of our organizational renewal program, we wanted to update you on changes we're making to the Hera life- of- mine and also then how that flows through to guidance. I'll just turn over to slide four for those following along. The reality is every asset in any business, but certainly within our business, needs to generate cash every day. That hasn't been the case for Hera as you would have followed along over the last quarters. And it's not a situation we could continue into the future. It was really a trigger for action. The intent was to take account of where the asset was up to, the various items related to its period in its life.
Let's be honest, Hera is towards the end of its life. There's a few items noted on this page. Things like deteriorating rock mass and effectively geotechnical issues. Constrained stoping sequence, there's less inventory to select from. The number of stoping areas we can have open. We have suffered from lower grade than expected through the early part of this year. Obviously there's operating cost pressures, both from an inflationary environment, but also it's an off-grid plant, exposed to energy power. Looking at all of this coming together and looking at an asset that's not generating cash or hasn't been generating cash, there was a clear need to do something different. I set a simple challenge for the group, which was how do we maximize cash from the remaining inventory that we had at Hera?
We weren't targeting towards a particular life, we weren't targeting towards anything other than maximizing cash from that remaining inventory. Turning to slide five, which is really, the action that was picked up and, you know, sort of the silver linings in all these sorts of things. One of the silver linings for me in this was the collaborative way in which our corporate technical team and our site team worked together to work on that challenge of how do we maximize cash from Hera, given all of those constraints, some of which I just touched on before. A few things and then the section to the right of that slide gives you a sense as to the inventory, we've ended up with. There is more inventory than that available at Hera.
The team did a very detailed piece of work, starting with all of the inventory that was available within that mine footprint. Thinking about it from a geological point of view and level of understanding, a geotechnical point of view, you know, the ability to extract that safely and effectively. How those designs might look, how they might then sequence, in a sequence of extraction that made sense. Taking account of things like backfill and those types of things. You know, where some of the levels in this mine actually are flooded, so the ability to access the inventory. All the various factors that go into developing a life- of- mine plan.
It was done in a lot of detail. From the ground up on every single one of those inventories, including an element of thinking about risk and thinking about what's the practicality and certainty we have of getting that inventory out. With all of that, multiple scenarios were then run, they were then costed. We're looking at, again, trying to maximize the cash generation from that inventory. From that, we then landed on a mine schedule which is as depicted in that section. Let's talk about that in a little bit more detail, so you have a bit of a sense as to what comes out. In effect, the bulk of the inventory, about half of the inventory is in the Far West region of the mine, the FWS on that plan.
The other key area for us in inventory is the main south section. We're actually active in both of those areas right now. Just to comment on risk. In the Far West area, as depicted, we're moving from right to left on that section, which is returning to a retreating or closing pillar, which does have some geotech considerations as we head towards the end of the mine life. The other elements of main north and also the Upper Hays region really act as supplements to those other two feed sources over the remaining life. And the work, you know, I was very pleased, as I say, with the diligence that was put in to coming up with a plan.
Unfortunately, you know, the outcome, and if I turn to slide six, it results in a mine life out to about March 2023, with about 140,000 tons of ore mined. The key for that is that inventory we're mining there will generate cash as forecast through that period. There's a few points that help it generate cash, which are noted there on slide six. We're developing at the moment to the main north area. Beyond December, the real need for any development drops away. Ultimately, those areas that are in that stoping plan become just a stoping sequence, which should have a flow-on impact for us on focusing what we're doing, but also in cost. We also have a larger proportion of uphole stopes.
The benefit to that is there's less backfill, which will then help us in sequencing those remaining stopes, and on balance, proportionally more gold in that remaining sequence. I did flag some risks there, particularly on the Far West, region, where we're retreating to that pillar. It is a late-stage operation, so it's not without risk. One of the things is to move it to a cash generative position, which is what this plan aims to do. The key is then to monitor that and ensure that it continues in a cash generative way all the way to the end of its mine life.
We've got a TARP plan in place, a Trigger Action Response Plan in place, to think through, you know, if anything occurs, we lose a key piece of equipment, we lose a stoping area or anything like that, you know, we can respond quickly, to ensure that we continue to generate cash. Just a note on the workforce, you know, obviously critical focus for us. Engagement has begun. They're a workforce to pay. You know, there obviously is implications on a shorter mine life for our people, especially with the fact at the moment, we can't offer a direct flow to Federation, until we fund that and get that up and running.
There is some possibility for our Hera employees at both Peak and Dargues, which we'll be looking to place people in those roles, but the reality is, there will be a need for some redundancy out of Hera. Just moving on to slide seven and talking about silver linings. We are, as I mentioned, very active thinking about optimization of Federation, and we are looking at what we do with early ore from Federation. One thing with Hera being moved to a period of care and maintenance, is that doesn't become a kind of a hurdle for us in thinking about what we do with ore. We get greater revenue from our Federation material, putting it through the Peak plant, where we produce two individual concentrates in zinc and lead, and the copper reporting into the lead.
There is a benefit that will come from putting those early tons up the road to the Peak plant before we then bring back the Hera plant from care and maintenance at the appropriate time once Federation is ramped up. Another element that we're working through around reducing capital is obviously the plan was to run Hera as it came off. Federation would've been starting up and run the two concurrently for a period. With Hera mine closing at this stage in March next year, we don't see that the two will run together. It does provide us an opportunity to take some equipment and other infrastructure out of Hera and redeploy that into Federation, helping us save capital. That bit of work will be factored into our overall Federation optimization piece, which is ongoing.
It intends to be out sometime in the first quarter of next year, next calendar year, with an update on that. The other element, as I announced earlier or flagged earlier, was funding, activity is ongoing, and again, targeting to be out to market in the first quarter of next calendar year. With those changes, we get to an update of guidance. Just to touch on a few things. Clearly, the change at Hera has a large and the lion's share of the impact on guidance, and accounts for all of the change in gold. A large part of the change in zinc and lead guidance.
You know, I suppose it comes from a point that it's about making tons and ounces that make money as opposed to just making tons and ounces, which is a key part of the change that we're talking about today. Few other things have flowed into that guidance. There was meant to be a bulk sample coming out of Federation. Obviously, the Federation currently paused, in those sense that we'll be at the point of being able to extract that bulk sample in this financial year. We've replaced that with Peak's own inventory, which does have an impact, particularly on zinc. It also impacts the all-in sustaining, because of the high margin of that Federation material. Few other changes that are playing through, for those following Peak, the S400 stopes.
It's very much a almost copper, almost lead zinc kind of an ore. It's an in-between sort of an ore, which we have been treating as copper ore. It had been pulling a fair bit of lead into that copper, causing us some grief. Going forward, we'll be treating that as lead zinc ore and pulling the copper into the lead concentrate for payables, which obviously impacts the payable copper, but provides us greater payable lead and zinc. We have suffered, as I mentioned at the start, on base metal grades at Hera for the year to date, which does have a flow on to the ore and sustaining just on byproduct credits.
And some of the additional costs that we've seen at Peak, particularly as you would have seen in the first quarter of this financial year, we were hoping to be able to catch and make up for some of those costs through the rest of the year. In some instances, we've seen we won't be able to achieve that, which is reflected now in this guidance. That's all we wanted to cover today, other than to give you an opportunity to ask questions of all of that.
you know, the reality closing a mine or giving an end date of a mine, which is a lot earlier than people may have expected, it's not a good thing for us from the point of view of our employee base who are very important to us, and we're doing what we can to manage through that and then redeploy people as best as possible. We also recognize it's pretty tough this side of Christmas and this close to Christmas, but the intent in coming out, clearly we want to let the market know where we were as soon as we knew, but also come out as early as we can to give our employees as much time as possible to think about, you know, life beyond Hera as a mining operation.
I might pause there and, see if there's anyone with any questions.
Thank you. If you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. If you'd like to cancel your request, please press star two. Please limit your questions to two per person. If you'd like to ask further questions, please rejoin the queue. Your first question comes from Dylan Kelly from Ord Minnett. Please go ahead.
I guess, afternoon, gentlemen. Two questions from me. The first, just in terms of how we should think about closure costs from here. Do we think about, say, a lump sum trailing after the March quarter? Could you give us your sense of around rehabilitation obligations and exactly where that sits at the moment?
Yeah. Thanks, Dylan. I'll take this one. From the point of view of closure costs, firstly, it's important to recognize we're not talking about closure. We're talking about a shift to care and maintenance. You know, the asset base that we have at Hera is critically important for us going forward, particularly in the development of Federation. We will take the surface facilities to a period of care and maintenance. We've, you know, roughly we've obviously done work on what that might look like. If you wanted a rough estimate, we'd be talking about AUD 500,000 that kind of ballpark. The intent's obviously to clean everything out and, make things weatherproof and, ensure that when we go to turn it on for Federation, it does actually turn back on as efficiently as possible.
There'll be a small holding cost then, obviously, to keep the site in care and maintenance. Obviously, it's an active ML, so we're going to need to be doing everything we currently do around environmental monitoring and those sorts of things. Also the work required just to ensure that the plant stays in good shape to be able to be reused.
Okay. Understood. Can you just walk us through the current cash flow? Is my understanding that the December quarter looks to be negative in terms of cash outflows for the period so far? If so, can you just walk me through where each asset is currently at?
Look, obviously, Dylan, I don't wanna jump ahead and start talking about the quarterly result before we have a quarterly result. I'll give you a guide as to where things are. Starting with Hera. Clearly, we wouldn't be talking about this change if Hera was generating substantial cash. This intervention is really around turning that back into cash generation. It's fair to assume that Hera consumed cash in the first two months of this quarter. We have been mining to an updated mine plan from early December. Part of the reason for that, even though we hadn't finished the actual detailed life of mine planning piece of work, we did need to make some change to ensure that the sequence to what you're seeing now could actually be achieved.
We did effectively create the option for this by starting to change that sequence early December, which is the sequence now we continue through to the end of March. You know, I suppose you can read into that our expectation that December turns us back into a mining of cash during the divestment, which we see for the remainder of the life. The Dargues has been performing as it pretty much does. I think each quarter we talk about the consistency out of Dargues. It continues to do that. You know, Peak has had some issues in the first part of the financial year, which we talked about at the first quarter. The centers were on top of those. Peter may want to make some additional comment there.
We're certainly seeing the transition costs we have with the change from PYBAR mining to owner operated mining now coming back out to a more normalized sort of a level. Peter, did you want to add anything to that?
Absolutely, Andrew. Just to pick up the point, I think on the quarterly, the Q1 quarterly results call, we have carried extra labor through the first quarter, then we started to see those labor numbers come off underground workforce, in particular, through the second quarter. We've moved on to a more stable basis now with our operating platform, with our owner mining team supported by PYBAR doing a number of other tasks for us at the mine. There's more work to go there, but certainly the trajectory's improved over what we saw in the first quarter.
Okay, great. I'll pass it along and circle back. Thank you.
Thank you. Your next question comes from Mr. Trent Allen from CLSA. Please go ahead.
Thanks, guys. Good afternoon. My question is about other potential ore sources around Hera. Now I suspect that you've thought all this through, and maybe it's a bit too early to ask, like in the past, you were looking at Nymagee as a potential source of copper ore. You set that aside for metallurgical reasons in 2019. There are explorers and developers sort of to the west of you that might enjoy having a plant nearby. Are you still open to those kinds of conversations or thinking about other ore sources, or do you really just wanna keep it for Federation in the future? Thanks.
Yeah. Thanks, Trent. I'll pick this one up. The reality is we're realists around the time it takes to permit in New South Wales. You know, we're very well advanced on our permitting process in relation to Federation. You know, what we're talking about is taking the Hera plant to care and maintenance for a period until Federation is on. Federation is almost permitted. In some ways, when I look at the timeframe for that and the timeframe for other people to get something up and to then perhaps use the plant, I'm not sure it necessarily will fill that gap. You know, we're always open to conversations where we can see an opportunity to create shareholder value.
In relation to Nymagee, again, there's a bunch of work required there, including drilling to really extend that inventory beyond what we have in resource today. Again, it's not sort of sitting there in the queue ready to start a decline and start development. In the timeframe we're thinking about the plant being on care and maintenance, probably unlikely that it would fill that void. You know, as I say to your, to your overarching question, we're always open to talking to others about the potential to create shareholder value.
Okay. I guess just a follow-up question. Can you fill Hera with Federation ore in the longer term, or will there be spare capacity, being mindful you can't just put any ton through for metallurgical reasons?
Yeah, look, the plan we've got at the moment, sees about 40% or so of the material head up the road to Peak and the remainder go through, Hera. That will largely utilize the capacity at Hera. As always with plants, once you think about the, feds you've got and what it does around bottlenecks and filters or flows or whatever it happens to be, there's opportunity to look for capacity, extensions or to see if there is spare capacity that we could use for other things. You know, as we finalize the plan on Federation, we'll think about that question and think about, you know, how you would otherwise fill that, recognizing that a full plant is better than a partially full plant when it comes to dilution of fixed costs.
Okay. Thanks very much.
Thank you. Your next question comes from Adam Baker from Macquarie. Please go ahead.
Yeah. Good day, Andrew. Just a question on the balance sheet. Just wondering if you could maybe talk to what shape it's in. I think at the end of September quarter, you had cash of around AUD 46 million and a component of restricted cash of, I think, AUD 36 million and a little bit of debt as well. Just wondering if you could, you know, talk us through that and how that's looking at the moment and maybe if you could, you know, give us some information about the restricted cash component on your balance sheet. Thanks.
I might just see if Martin wants to jump in and talk about those items, particularly the restricted cash now, which we see as a real opportunity for us.
Yeah. Thanks, Andrew. Hey, Adam. Look, the balance sheet is in terms of restricted cash and term loans, the next payments are coming up for that at the end of December. That's really our focus, managing cash through the quarter. Yeah, so no real change in terms of our repayment schedule.
Sure. Great. Can you just remind me what the scheduled repayment is for the quantum of that in December?
Yeah, it's just over AUD 4 million per quarter through to September.
Sure. Thanks. Maybe just for the guidance update, appreciate the changes in metals and costs. Just on the growth CapEx, assuming, you know, that number, the AUD 44 million that's getting pushed out to the FY 2023. What about exploration and growth CapEx excluding Federation? Is that looking similar to what you had in the previous guidance updates? Or is it, you just can't put a figure on that at the moment? Thanks.
Adam, I'll just talk a little bit to growth CapEx. Obviously, we've chosen not to guide on the Federation related spend because until we have certainty around the timing on that, then quite obviously it's difficult for us to talk about what will be going out this year. Just on physicals, though, there's really, there's not a lot of activity going on around Federation currently since we paused the decline work. We did finish some work around sheeting, the surface works and the surface area to ensure it stayed good through any wet and also that it was ready to go again when we were ready to go. We're also in the process of installing a small diameter pipeline through to Hera, which will just allow us to better manage water between the two sites.
Beyond that, there's really not a lot of ongoing spend at Federation. More broadly, I'll cover exploration, and Peter might just touch on some of the other capital across the operating businesses. In exploration, as part of our cost reduction activity in the near term, as we thought about funding, we did pull back on particularly surface drilling, so the surface program at Federation. Some of the surface drilling we were doing at Dargues and also around Peak, which has taken a kind of, let's call it AUD 15 as a round number, to more like AUD 10, for exploration for the year.
We are still doing underground drilling at Peak on a number of areas, with the obvious piece being that if we discover additional material near existing workings at Peak, that very quickly turns into part of a mine plan and gets fed into a mill. Similarly, we're also still drilling underground at Dargues, particularly e-extension on an infill drilling below the current lowest level in the mine plan. It has had some success, which is good. The intent and the hope is that we're able to then bring back those lower levels into the mine plan, extend the mine life there at Dargues, and we'll come out on that in more detail as we work through what the updated forecast is for Dargues.
Peter, did you want to touch on any of the capital investment we've been doing around the other operating sites?
I think, Andrew, just in growth capital, the major project we have is the completion of the TSF lanes at Peak. That's been underway for some time now. We flagged at the last quarterly that that was due to finish this quarter. We have had some heavy rain in the region, and there's potential for that CapEx to slip over into quarter three. By and large, the bulk of that work and the spend is complete. Apart from that, there's the routine sustaining CapEx, for example, decline development at Dargues, but not a lot of other capital spend across the group.
That's great. Thanks. Cool.
Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Michael Evans from Acova Capital. Please go ahead.
Good afternoon, Andrew and team. Thanks very much for the update and the opportunity to ask questions. On Hera at June 30, I think you had about 600,000 tons in reserves. I suppose a couple of years left. Correct me if I'm wrong, but you know, you're cutting it short based on that for a bit over a year, which, you know, for good reasons, I understand that. If you mine 200,000 tons, you're leaving 400,000 tons in there. Was there any scope or analysis done on trucking that to Peak? You might have to remind me. I forgot the permits. I know there was some discussion at the AGM.
If you had a permit for 100,000 or 200,000 tons, would you look at the analysis of just mining Hera and taking it to Peak? Obviously the Peak processing plant has some capacity. Was that analysis done or considered, or is there no trucking capacity and therefore that analysis is not, no point in doing that, or it'd take too long to get the approval for the trucking capacity, and in the interim you'd be losing money at Hera? Or is it, is it therefore still an option down the track? I know that's a very long-winded question, Andrew.
Yeah. Michael. Thanks for your question. It's really clear where you're headed with it. Just on the trucking piece. First of all, we are permitted to truck from Hera to Peak at the moment, up to 100,000 tons in a calendar year. We did consider, you know, particularly in managing a tail or any tail that we would have out of Hera as to whether trucking it made more sense. Clearly running a plant like Hera, which is off-grid and out of a camp and all those sorts of things on anything other than near sort of full capacity, becomes a bit questionable because of those fixed costs. We did look at it. The issue we do have at the moment is that we haven't.
There's various intersections that we would need to upgrade between Hera and Peak in order to truck. We intend to do those upgrades of those intersections as part of the Federation project. We're actually, as an aside, in the design stage of those intersections as we speak. In order, in the timeframe, based on the inventory we saw that we believe was economic and extractable, and the time it would take to then get those intersection upgrades done, it didn't make any real sense to try to push some of that up to Peak, because we effectively, to your last point, we ran out of the feed that we would have for Peak before we got to a position where we could actually truck.
Okay, thanks. Just on the 400,000 tons, I missed a few of your comments on the closure, but you made a couple of comments in the slide. There was a few technical issues. In your retreat, or I don't know if it's called a retreat, in your closure plan to the end of March, are you sterilizing that 400,000 tons by any chance, or some of it, or all of it, or none of it?
It's a bit of a mixed bag. It's. I'll get Peter to talk in a little bit more detail. As I mentioned, geotech-wise, some of that inventory is seen as difficult, so perhaps not achievable. As we retreat back on, say, the closing pillar at Far West, it may be that further inventory there near the decline, is also not recoverable in the future. We have had some geotech issues at depth, down at our pumping or near our pumping levels, which has impacted our ability to get in there. There is, you know, a reasonable amount of water at the bottom levels of the mine, which impacts some of that inventory as well.
Also some of the inventory relies on having, you know, a solid feed of a bit like how we're doing the mine plan to the end here from Far West, but, you know, a core of feed supplemented by inventory from the periphery and certainly some of our remaining inventory sits on that periphery. It's there in the future. It won't go anywhere, clearly, but it's, we're not actually going to do anything to stop our ability to get back into the mine. Obviously in the future, if we wanted to come back in, particularly if it sits idle for a period, it's gonna need a bit of rehab to get in back underground. Peter, did you perhaps want to talk any more to some of that remaining inventory?
I think you've covered off pretty well, Andrew. There are some areas there where we've chosen to take up old stopes and retreat and not backfill, so we are leaving rock in pillars and that material previously set in the mine plan. At the same time, we're not putting development into the upper level to get top access to those stopes. It's been all about trying to maximize the value from that inventory and manage our risk as we retreat out of the mine. There will be some areas there of mineralization that they don't actually stack up to a viable economic cash flow for us based on our current costs and performance in the mine.
Okay. That's great. Thanks. Thanks, gents.
Thank you. Your next question comes from Cafiero Pietropaolo from Canaccord Genuity. Please go ahead.
Good day. Can you hear me? Hello?
Yeah. No, we can hear you well.
Oh, okay. That's fine. Just a question on your hedging of gold, in the, in the books and the outlook for copper and gold looks potentially a lot stronger next year. You've got very little balance sheet debt. Can you just explain how the hedge position looks at the moment, in your books and what your plans are with that?
I might just pass that one over to Martin.
Sorry, I haven't got the numbers in front of me. Look, the hedge position is just being delivered into each quarter. That's a part of our debt facility, is that we have a level of hedging in place. We are feeling, you know, positive about the gold price and about where the price trajectory is for our base metal production as well. We'll look at that as part of the refinance and what we wanna do around the balance sheet as we reset it in the first quarter. The other piece is we are looking at, you know, managing our price exposure in the short term through QP hedging.
You know, right now the prices are, you know, they're holding up well, and we are putting in that protection, you know, within the time windows for each of the shipments.
Okay. Okay. Fair enough. That's all.
Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. As there are no further questions at this time, I'll now hand the call back to Mr. Graham for any closing remarks.
Thanks, Darcy. Thanks, everyone, for taking the time to hear where we're up to and also ask some questions. I think it's been hopefully a useful call for you. I'll just reiterate a couple of points. As I said at the start, we're not, certainly not seeing this as a care taker period. We can't afford it to be as a business. We're getting on with things, as you see today, with our change to the whole life of mine. The entire team board down, we're entirely committed to realizing what is a very bright future for this business, particularly as we bring on federation and ultimately the copper around Peak. We're busy across a wide range of areas that we touched on right at the beginning of the call.
We'll certainly be back in touch with the market and with you as shareholders in these types of calls as we land any of those. Otherwise, thank you very much for your time.