I would now like to hand the conference over to Mr. Dan Clifford, Managing Director. Please go ahead.
Thanks, Ashley. Good morning, everyone, and welcome to the Aurelia quarterly report update, as well as the exploration update that we posted as well this morning. Throughout the conference call, I should say, we'll refer to the presentation named March FY22 quarterly update and outlook. I have Peter Trout, Ian Poole with me. Before I get started, I'd just like to make an introduction to a new team member for us, with Andrew Graham joining Aurelia during the course of the quarter in the capacity of General Manager of Growth. It's great to have Andrew on board with a wealth of experience across M&A and growth within businesses. Welcome, Andrew. This morning, we'll run through the performance of the business.
I'll talk a little bit about some of the external headwinds that we faced during the quarter that pretty much have blown over from the December quarter as well. Those headwinds, both external and internally generated. Also I think our resilience against those headwinds and our ability to see through that storm that's come at us, and continue with vigor and agility to advancing the growth projects that we've got in the portfolio. That advancement's been quite significant across both, particularly Federation, but also more now with Great Cobar as well. That flows through to, you know, that resilience I talk about flowing through from being fueled more and more from the exploration successes that we're seeing across all three of the assets in the portfolio.
Let's just move over to slide seven. Amongst you know key priorities to where we are as a business is we'll continue with our health and safety performance and our environmental performance. We actually have seen, and this is not surprising to us as a management team, we actually have seen what we think is a bit of a plateauing in the result. After two years of quarter-on-quarter improvement, we are starting to see these frequency rate declines slowing down. Now that's, I think from our perspective, quite natural when you're starting to get to these performance levels. What that does mean for us, though, is new approaches to how we take our health and safety performance and our environmental performance to the next level.
You know, what we see as good as being sub-5 on recordable injury frequency rates and one or two in environmental incident rates. Fantastic to see, among some pretty dynamic business conditions, our ability to continue that improvement. Just move over to slide seven. It'll be no surprise to people that we're gonna talk about weather and COVID and labor-related impacts on the business. We're not immune from those, and it has continued for us. We'll talk, particularly Peter will talk a little bit more about that when we get into the individual operations. We have seen the impacts of that flow through.
They're what I would call externally related issues, but also the impacts of some internal performances, particularly of grade, majority at Peak, with some ongoing grade related issues at Dargues. Those impacts have blown through. Gold did reduce. It was a fairly soft quarter in terms of gold. Again, Peter will talk through those with each of the operations. Base metal performance was reasonably steady, mainly paced by, you know, different ore bodies coming through at different times, but generally steady. All-in sustaining cost up about 4% to AUD 1,450-odd. Couple of key drivers, majority of that being the softer than planned gold production across the assets. Of importance, though, here when we talk about this business environment, really is the ability to contain costs and capital, particularly during these headwinds.
We've managed to be able to do that with our costs and capital remaining either within the range or on the range of the regional guidance within the business. What you can see here is that even with these, we are continuing to maintain the year-on-year gold equivalent production growth within the business. We've reforecast forward, and you can see on average, roughly a 10% improvement over the prior year as we continue to grow the business. With that growth coming particularly across the operations and the projects and particularly life extensions now, operational improvements now are triggered. That our ability to be able to make much better decisions on that front as these lives and outputs extend. With that, I'll hand over to you, Peter, to talk through the individual operations.
Thank you, Dan, and good morning to everyone on the call. I'll just want to acknowledge this point. It's been a challenging quarter across this and compliment our teams have been working very hard over the last months to deliver results. Even though the results aren't quite where we want to be, there's certainly some good initiatives that are happening across the business. I might commence by just talking about performance at our Peak Mine, which is summarized on slide eight of the quarterly presentation. At Peak, performance over the quarter reflected a single lead-zinc and two copper ore feed campaigns, and that translated to more copper but less lead and zinc production relative to the prior quarter. Gold production of just under 9,000 ounces was below expectations, and that was despite the higher ore processing volumes achieved.
The drivers for the lower production were grade and metallurgical recovery, particularly associated with the Kronos and Kairos lead zinc stopes. A significant contributor was gold grade underperformance at the southern extent of the Kairos deposit, where the high-grade nuggety nature of the gold mineralization makes it quite challenging for local grade estimation accuracy. Also notable was Peak's all-in sustaining costs, which stepped up significantly. It's a bit over AUD 1,700 per ounce. In addition to the lower gold sales achieved for the quarter, we realized a loss of AUD 332 per ounce on quotational period hedging that was put in place for our base metals concentrate sales. That loss simply reflected the difference between the spot price at the time the sale was concluded and the price at the time the shipment sailed.
In terms of operational improvements, we are working with our mining contractor, PYBAR, to lift the underground mining performance and also prepare for activities at the Great Cobar Project. Great Cobar will underpin a longer mine life at Peak, and that's provided us with the confidence to invest in internal capability and fleet to operate at the South mine with support from specialist contractors. We've already directly employed supervisors to coordinate production activities at the South mine and introduced some new items of fleet that are improving our long-haul drilling and haulage productivities. The momentum created by these changes will build as we take greater control of critical mining activities through owner mining at the South mine. At the North mine, we'll expand development and production resources to deliver the Great Cobar Project's development and associated mine infrastructure.
PYBAR will perform the majority of this North mine work, and it's anticipated to ramp up in activity levels in July when we start decline access development to the Great Cobar deposit. Turning now to slide nine. Performance at our Hera mine saw benefits from the partial de-bottlenecking of the filtration circuit, which, combined with the lower feed grades, underpinned a 24% increase in processed ore tonnage, a 27% lift in quarterly gold production, an exceptionally low all-in sustaining cost of AUD -1,586 per ounce. Because of the higher processing rate, we depleted much of our surface ore stocks, but delivered base metal production slightly lower, with the lower feed grades, coming off in the prior quarter. These grades continue to be above the ore reserve grades for Hera.
We're now moving to ramp up our underground production with Hera's new mining contractor, Redpath, fully mobilized to site. A further highlight at Hera was an update to the mine plan that supports continued mining and processing at least through to the end of December 2023. The latest mine plan incorporates production from the Upper Hayes Deposit and extensional and remnant stoping from areas that are mostly accessible from established underground workings. That's largely the benefit of higher metal prices that we're seeing in the short to medium term for Hera. At our Dargues Mine, as shown on slide 10, gold production of a bit over 8,000 ounces was below plan, mainly due to the lower mine grade and ore processed tonnage. The grade shortfall was most pronounced in January when we had mine grades in two localized areas returned well below the model grade.
Our reconciliation analysis showed that the geology was more complex and the drilling wider spaced in those areas, and that simply reinforces the need for the infill drill program that's underway, which will allow us to improve grade estimation confidence ahead of mining. With that said, the prolonged assay turnaround times have made it challenging recently to deliver results in time for our mine planning decisions. Production was further impacted when processing activities were temporarily suspended because of water accumulation that threatened to discharge through the tailings dam's emergency spillway. For context, the Braidwood area receives around two years of average annual rainfall in the six months prior to March. The surplus water that accumulated from that rainfall could not be released from the site in a controlled manner because of the permitting conditions under the development consent.
We subsequently implemented an interim tailings operating and monitoring regime, which allows the process plant to operate at rates that match the placement rates for underground cemented hydraulic fill. We're not likely to move away from this regime until we receive regulatory approvals for alternative water management strategies, which include a surface water management dam to take that surplus water. On a more positive note, the underground mine achieved its third consecutive quarter of 90,000 tons of ore delivered to surface and record backfill placement rates into stope voids underground. In the process plant, further optimization work in the flotation circuit has reduced the gold grade in the tailings stream while maintaining gold grade in our concentrate to achieve the highest level of payability, therefore maximizing revenue. On that point, I'll hand back to Dan to talk to operating guidance.
Thanks, Peter. Just in a bit of a recap where we are. We're still operating on great margins within the business, particularly across the portfolio. We can see we're making these changes. As we can see life extends, we take control of some of our own destiny with owner operator transitions, which is great to see within the business. For the rest of the year, we really are estimating that the impacts that we're seeing, particularly from labor shortages, and the impacts of COVID, through the entire business, so all three operating assets, our exploration teams and inclusive of the head office. The impacts of COVID and the seemingly guerrilla warfare of where it pops up and where it doesn't on a very unreliable basis.
Thinking that board, it's disappointing for us that we think it's responsible. We dropped the gold guidance down to around 104, in reflection of us not seeing substantial changes or relief in those external issues within the business, including the internal issues of the grade performance. Where we did have lead and zinc at the upper end of the range, we've brought that back into mid to low end. With run rates for the rest of this final quarter, pretty much in line with the average run rates of production over the prior three quarters. Copper, which was sitting unchanged last December, sorry, for the December quarter, has just slipped under the bottom end of the original guidance range to 3.3.
Importantly in this though, the ability to, assisted by the tailwind of good commodity prices, particularly the base metals, contain our cost structures within the re-guided range of AUD 1,300-AUD 1,500 announced, and capex overall in the business across sustaining, growth and exploration and our major projects all contained within the original guidance at the commencement of the year. You can see this is where I talk about resilience in the business, and our ability, but we have suffered some impacts over this prior quarter or two. That being said, I'll move over to where we are with our projects. As the operational performance, as we improve those performances, we take some of that under our control, particularly in the undergrounds.
The bringing forward of these projects or the actual execution of these projects now, as I've said last quarter, has gone well beyond a paper or modeling exercise now to actual activity on the ground. We reported during the quarter that clearing had commenced on the Federation project post all the approvals that were required for the development of the exploration decline. Again, I'll say it again because we're immensely proud of this. The speed to execution of this project from the discovery hole of three years is a tremendous credit to the team, right from discovery, right through to consenting and the project team getting it on the ground.
More to that point now, beyond clearing, that you can see in the photos there that the first blast of the box cut as we prepare to take that horizon down to where the decline will commence, off that wall. We're looking and still on track for that, being achieved in this quarter. The work is set up for that. Redpath has been selected as the contractor for that as we commence that decline. The feasibility study, we're going for that completion mid this calendar year, and continuation of the drilling, across that program. Great progress on the project. I think I'm sure I'll get asked the question, there is some challenges with the project.
We, as we talked about earlier, we are in a pretty dynamic business environment, whether it be cost escalation or either operating or capital delivery times, supply chain, labor, you know, for this project, we have accelerated it. Some of the challenges at large for us is the capital over the resource. As we continue to grow the resource, our view is to get a real start on this project early and bring forward those ore bodies as fast as we can for value creation. We'll be pushing hard towards that feasibility and also execution on the ground of the project, which is great to see. Moving over to 14. Just extending off the comment that Peter made, and I'm gonna come back to this because it's important.
The operating philosophy for Aurelia for a long time has well, certainly the last three or four years, has been one of contract operations underground. Our philosophy, we're not one way or the other but it does make commercial sense once mine lives are extended out to convert into owner operator. With the critical mass or the momentum of Great Cobar coming on, the tenor of the exploration, of which Andrew will talk about shortly, the fact that we have a consent to commence the decline enables us to make much better capital decisions. That transition of the South mine at Peak to owner operator, supplemented by specialist contractors, and then the concentration of contract workforce in the North mine getting set up for Great Cobar is a great transition for the company.
That's something that we've made the call on, we've pulled the trigger, and that's in transition during this current quarter into the next quarter.
As I said, that's about our ability to make much better capital decisions as these mine lives are extended. It's a critical part of the strategy. With that and how these projects are, one, discovered, two, extended and delivered on, I'll hand over to Andrew to talk through the exploration successes that we've seen over this last quarter. Thanks, Andrew.
Thanks, Dan, and thanks for the earlier introduction. It's certainly exciting to be part of the Aurelia team at this time. I must say, a bit of a luxury to be able to come into a growth role and almost immediately have the pleasure of presenting what are some absolutely stellar drill results from across the portfolio. I think that's a key point that I wanna make today. These results are across all of our assets and across all of our key commodities. It supports my view in coming into this role, that we have one of the most exciting ground positions and growth pipelines in the industry. Now, with such a breadth of amazing results, one problem I did have was what order to present them in, which is certainly a good problem to have.
Among the sea of exceptional results from across the group, the standout for me are the results at depth at Great Cobar, shown on slide 16. Hole 31 particularly is more than 300 m below the current resource, and hit great copper across good widths. We did two wedges off that hole, tracking back up towards the defined resource, intercepting some exceptional copper grades and gold grades, over what were very significant intervals. You can see those results on the slide, and also in the earlier announcement. This drilling gives us confidence in our ability to grow the ore body materially at depth. Also, there is potential up-dip of the resource that we do want to test.
Now with the development drive to the ore body beginning imminently, we're in a really good position to shape that up to be an exciting future for Peak. Continuing with Peak and moving to slide 17, we did get some extensional drilling north of Kairos, which delivered exceptional grades, some of the best grades in the history of Peak. We'll call out clearly the 108 g gold in hole 178, which is a game-changer grade in anyone's language. But also 6% copper in hole 177 is certainly impressive. Now on the slide, I made the comment that this warrants further investigation. Maybe I've been a little bit too reserved with that comment, but you can be sure that we'll be following up that drilling with further drill testing. Moving in to Federation.
A bit strange to have Federation sitting at number three in the order, but it takes nothing away from the Federation results. I was really spoiled for choice in which results to report. We had up to five drill rigs working at Federation through the quarter on infill. A few highlights are shown on slide 18, but I could have picked really any number of holes to highlight. And we need to be clear that some of the intercepts over good meters are getting towards concentrate grade. For example, hole 173, 48.6% lead plus zinc over almost eight meters. I mean, that's phenomenal, and it certainly cements Federation as one of the best base metals discoveries in Australia in recent years. Now turnaround time on assays, which was mentioned earlier, is pushing up towards eight weeks.
Look, I'm confident with the drill program that we've done, we'll continue to have some good results in due course. From here, though, a bit of a change of gear at Federation as we move back into the extensional program. We've dropped off a few rigs there now, and now we're focusing on trying to find the extent of Federation. Slide 19 at Dargues. We've seen some good intercepts shown there, with mineable grades and mineable widths, giving us quite a bit of confidence we'll be able to add to the mining inventory at Dargues. We've mobilized a second surface drill rig to site to accelerate that extensional program.
Since coming into the role, one of the things that's surprised me a little bit when you consider the strength of what we have at Cobar, is the level of excitement from the exploration team in relation to Dargues. We're really looking forward to delivering against that potential in time. In summary, for me, an exceptional quarter of results from the exploration team and a real credit to that team. The results are positioning the business very well for the future. I'll pass across now to Ian.
Okay. Thanks, Andrew. And good morning, everybody. I really have finished the March quarter with AUD 80 million of cash on hand. During the quarter, there was a 26% decrease in sales to AUD 100 million, which was more volume related as realized prices for all Aurelia's commodities remain robust. The Dargues operating cash flow was impacted by lower production and an increase in concentrate stocks, which had been built up compared to the prior quarter. There was operating cash flow of AUD 12 million, benefited from stronger realized zinc prices. Peak's operating cash flow was impacted by a lower gold production and an increase in concentrate stocks, which had built up compared to the prior quarter due to weather-related rail impacts and general transport constraints.
Additional rail services are planned in the June quarter to enable the value of these concentrates to be realized. During the quarter, Aurelia spent AUD 900 thousand on growth for the Federation Village, AUD 1.2 million on studies for Federation, and AUD 3.2 million on environmental approvals, including the purchase of additional biodiversity offsets required to commence work on the Federation site. During the quarter, exploration spend was AUD 4.2 million on infill drilling and exploration at Federation and AUD 1.8 million on drilling at Peak. Aurelia continues to strengthen its balance sheet and made debt repayments of AUD 4.1 million. Over the last 15 months, Aurelia has made debt repayments of over AUD 20 million, and the remaining balance of the term loan is now AUD 24.7 million.
That term debt should be fully repaid by September 2023, and Aurelia also cashed back AUD 7.2 million of its bank guarantees used for environmental bonding. I'd now like to hand back to Dan to close.
Thanks, Ian. I think with that, we'll go to question and answer time, please, Lexi, and then I'll wrap up at the conclusion of that.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Dylan Kelly from Ord Minnett. Please go ahead.
Good morning, everybody. Two questions from me. Just in terms of the gold grades, I know that the expectations were pretty high coming into the quarter. I think guidance was sitting at, what, 29% for the March quarter, the ounces were gonna come in. What's happened with the sequence? Could you just walk us through some of the moving parts and how that may translate over the next, you know, next quarter or next six months?
I'll start there, Dylan, and then I'll hand over to Peter. Just noting after the December result, we did flatten out the expectations of the quarter-over-quarter performance in the second half, as a result of what we could see coming. I think.
Yeah, I just want to remind people of that because that was an important comment I made at that point to make sure that we were giving an indication of what we could see coming during this quarter. For the second point, I'll hand over to Peter because there's no doubt been grade impacts, particularly Hera, but also phasing of ore body timings, as well. Peter.
Yeah, Dylan. I guess if we go through the sites, first of all, at Peak, our highest grades sit in the lead zinc ore feed, and of that, Kairos is the higher gold grade. There's one area in particular where we saw lower grades than the model predicted in the southern extent of Kairos, and that had a significant impact over the quarter. If we look across the next quarter, we'll have one lead zinc campaign and probably two copper campaigns, and that, where we expect the grades to be is reflected in the guidance.
At Dargues, we really took a hit in January with those two areas there, one a stoping area and one a development area, where the ore body was simply more complex than what we modeled, and we didn't have all the results back we would have liked to go ahead with that development and stope design at the time. The challenge at Dargues is the gold is not visible. You simply cannot see it. There's no real proxies, and we very much depend on having those assay results back ahead of time. Again, with COVID, that pushed out the assay returns, and we had to make some judgment calls at the time to continue the operation rather than coming to a standstill. That played out, particularly in January.
On a more pleasing note there, this initial drill program we're doing from underground is really starting to fill the gaps in our modeling. It will not be perfect, but it'll be better. As Andrew has explained, we can now turn our attention to some of the extension control in there as well and feed that through into the life of mine plan update that's planned in the coming months. Apart from that, Dylan, look at Hera. Hera's continuing to perform pretty well, bang on where we expect to be with grades there. No particular concerns.
Okay. Understood. So just in regards to some of the stockpile builds that we saw with concentrate, it looks like there's quite a bit caught up in terms of inventory adjustments for the quarter. Peter, I recall you just mentioning that there was quite a large QP movement during the period. I just want to get a sense of if there's gonna be material unwind of you know of that stockpile build this quarter. If so, what's the rough sort of order of magnitude can we expect there?
I can handle that one, Pete, if you like, or Ian. I think with it, Dylan, yeah, no doubt saw that stockpile increases. We've quantified, particularly Peak, at AUD 70-odd million of realizable value sitting on stocks there. To a lesser extent at Dargues, roughly AUD 4.5 million in realizable value of concentrate in the distribution channels, approximately. You can see that build-up of concentrate for us has an impact on cash flow, I think to the tune of AUD 20-odd million for the quarter. Remedies to that, and no doubt people will be aware that containers are like rocking horse teeth at the moment. They're pretty rare.
Our team has managed to secure more containers from other networks within New South Wales, that will be a material opportunity for us to unwind, particularly Peak over this quarter and effectively monetize those stockpiles. Lead is up there. It's starting to come down, but what is building now is zinc, and we think we can get the majority of that cleared with the improvements that our commercial and logistic teams have put into place for that. I think I believe that answers that question. I think in terms of the QP hedging, you know, we do forward hedge gold. We don't forward hedge any of our base metal other than that Q period, that quotational period timing. We have been watching that closely over the last six or 12 months.
This March quarter, in particular, is the first time that we have, I guess, been selling in very much a steeply rising market. You know, hedging for us at that level for that short period of time is absolute risk mitigation. You know, for the foreseeable future, we'll keep a very clear eye on that. It's the first time we've really seen that flow through and negatively impact our all-in sustaining cost for a good couple of years now.
Agreed. Looks like you've still got some more tailwinds to come, if you're trying to target the upper end of the guidance range for lead and zinc. Okay, that's all quite positive. Okay, that's my two questions. I'll circle back. Thanks, guys.
Thanks, Dylan.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question is a follow-up question from Dylan Kelly from Ord Minnett. Please go ahead.
There's been quite a few calls in today, I think. James, just if we turn around to some of the questions on DSO or dev, any potential plans for that coming up in the short term as part of the feas?
Sorry, Dylan. Just repeat that question again.
I just want to circle back to the Federation point made that the grades of base metals are high enough to be its own form of DSO. Is there any plans for that as part of the feas at this point?
No.
Okay.
No, there isn't. Yeah, no. In short answer, no.
Yeah, fair enough. I just remember Sandfire did something similar in the early days with DeGrussa.
In all seriousness, on that, Dylan, you know, because of a pretty short period of time from drilling to when we brought this on, we did opt to go straight to feasibility 'cause the key decisions that have got to be made really are in the processing facility. We are of the view, you know, keep it simple, tried and tested technology or OEM infrastructure, to make sure that while we bring this on quickly, we significantly de-risk it. We can see those opportunities. They're never completely discounted and gone.
They will always sit there as opportunities for us, but at this point in time, we're looking at the bringing forward of that value as quickly as possible with tried and proven technology and a what I would call a responsible capital and sizing of the asset. At this point in time, it's never a no, but at this point in time, it's not a priority on our radar.
Okay, fair enough. Also just wanted to come back to the point on Fed regarding the number of rigs on site. I think when we were on the site visit, there was five. I think it dropped just recently one. Are you now saying there's only two? How many are currently left? Is it just two at this point?
Yeah. Dylan, Andrew here. Yeah, that's correct. We're down to two. One of those rigs came off there to Dargues. Yeah, down to two, and both are now turning their attention to the extensional side of things as opposed to infill.
Okay, fair enough. Thank you, Dan. Thanks for the update and the quarter.
Just to expand that out a bit more, Dylan. You know, we'll always face the conflict between infill for resource conversion, step out for reserve extension, but also the cost impacts of drilling of this magnitude to, you know, even to the 500 m or 600 m depth that we've got. The reality is for us, where we can see significant efficiency in drilling is by being as underground as fast as possible and putting underground rigs off real estate from the decline. You know, through this budgeting period now, we've got to do the trade-offs as to the most effective way to get that done. We've tested it to huge extents in the first parts of the mine to absolutely underpin feasibility decisions.
We're at that point now where we've just got to assess the most efficient way to grow, convert, and deliver the project from the drilling team's perspective.
Understood. Thanks for putting the videos up of the box cut blast and some of the overhead shot. That gives us good context for how quickly this is advancing.
Thanks.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Clifford for closing remarks.
Thanks, Sophie, and thanks everyone for your time this morning. I think just to wrap up, couple of wrap-up comments. Some of the standouts for me here, I just wanna, I'll call these out. While we have been in pretty choppy water from labor and COVID, and also the internally controllable aspects of doing great control across the assets. What we can clearly see in that site level tier is just the resilience of the business that we have at the moment. With the see-through through this into these major projects that are coming on. They're all about life extension, and that will be the best NPVs we can get, or IRRs, I should say.
Those and the ability to be able to do that and then follow on through the key initiatives of making a commercial switch, which we can see direct operational improvement coming out of going to owner/operator at Peak. That is a big milestone for the company and something that we'll continue to be pushing across all our assets pending life extensions. The second key call-out point here is the actual discovery of material gold at depths of Great Cobar. That's a real first for us to see that, and it's a standout issue, particularly with that copper tenor, but also with this. Well, what I'd hope anyway, well, you can never say with one hole, but the emergence we're seeing of gold at depth within that ore body as well.
What we see is robust margins, where we have taken a step back at lone assets, particularly with Dargues, with the impairment during the quarter. How we respond to that will be key now. Retaining a strong balance sheet, AUD 80 million in cash. You know, we had a approximately AUD 20 million build up in finished inventory sitting on the ground or on the trains. And a very resilient commodity mix and mine life package with these extensions for the project. We find ourselves in a what I would say a very fortunate position with what I see as very dynamic market conditions across the board, whether it's globally or locally. I think we find ourselves in foundationally in a very strong position. With that, I'll close.
Thank you very much for everybody's time, and we'll talk at the next update. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.