I'm now pleased to introduce our third presenter for this session, who is the Chief Development Officer for Capricorn Metals, Shane Clark. Shane brings over 15 years of mining expertise to Capricorn, with a proven track record in project evaluation, delivery, and operational efficiency. Prior to joining Capricorn, Shane held senior positions at MACA and Thiess, where he had a broad range of responsibilities across commercial, engineering, and technology, with a key focus on enhancing productivity and profitability. Over to you.
Good afternoon, and thank you to the Diggers and Dealers team for the opportunity for Capricorn to present again this year. This is an incredible forum and one that is so important to our industry. Thank you. Capricorn Metals is a WA-focused gold mining company with a proven high-margin operation at Karlawinda in the Pilbara, and an exceptional development project at Mount Gibson, much closer to Perth in the Murchison region of Western Australia. The scale, quality, and simplicity of our two assets put Capricorn in a unique position in the Australian mid-tier gold sector. Combined, these assets now state a reserve base of over 4 million ounces that is still growing at a rapid pace. As we advance towards an annual production rate of over 300,000 low-cost ounces per annum, our assets are clearly amongst the best in the sector. The company is in a strong financial position.
The projects are fully funded through a strong balance sheet with over AUD 356 million of cash and gold at hand at the end of last quarter, no hedging, no debt, and a consistent cash build. The register has an excellent institutional representation, with a significant portion of the remainder being held by board and management, and we are well covered by Australia's premier brokers. The board and management of Capricorn have a long and successful history of building and running gold mining companies. Having said that, it seems like everyone wants to be or is a gold miner now. Whilst I have been with the company since the early Regis Resources days, there are many people in the business that have been here much, much longer.
We know not only how to build and operate gold mines for the current record gold prices, but also when cost discipline is necessary for survival. A lot of that previous success has as much to do with choosing the right projects as it has the responsible stewardship of them. We seek and develop long-life assets, then execute them with a disciplined project-first philosophy, shunning external expectations and trends. This allows the business to resist the temptation of having cost-tracking lockstep with the gold price and deliver expanding margins over time. With mine lives beyond a decade, it's a luxury few companies have. Our cornerstone asset in Karlawinda operates with consistency and margin as defining features. It is a low-strip mine with a high-throughput plant and a simple flow sheet, driving stable productions at sector-leading all-in sustaining costs.
Karlawinda is a long-life, high-margin project that is now also expanding to 150,000 ounces per annum. Karlawinda was built in less than 18 months by our internal development team, on time for less than AUD 180 million. It seamlessly transitions into full production with our first full year achieving 118,000 ounces, and has maintained that stable production profile ever since. With over AUD 600 million in cash buildup since startup in 2021, Karlawinda has been an exceptional cash generator and will remain so for many, many years to come. Last quarter, we again saw a strong result, consistent with the mine plan, supported by stable throughputs and recovery. Production was a record 32,000 ounces at AUD 1,381 all-in sustaining, bringing the year numbers to 117,000 at AUD 1,468. This combined for a record operating cash flow of AUD 86 million for the quarter and AUD 260 million for the year.
Pleasingly, we have improved on all physical metrics compared to the previous year. We are set up for similar or better in FY 2026, with a lifting of the production guidance midpoint to 120,000 ounces, whilst we execute on the now fully approved expansion project. Before I do speak more to the expansion, I wish to remind all of the scale and simplicity of the Karlawinda ore body. Last year, the Karlawinda reserve inventory increased to 1.43 million ounces, conservatively estimated within a AUD 2,200 per ounce Australian shell, some 60% larger than our maiden reserve after four years of mining. This provided the basis for the 6.5 million ton per annum expansion project approved in November. Our reserves are accurate and reliable and demonstrated with our sub-2% reconciliation variance project to date and less than 1% for the year.
The ore body is consistent at depth, and our reserves are still largely drill data constrained. Resource definition drilling is planned for the first half for a reserve update in Q3, with plenty of scope for increase, as you see in the resource-to-reserve shell comparison here. Here are some visuals from site. The project has simply never looked better. Bibra is on plan with distinct mining strips providing open work areas, driving exceptional productivities. This has allowed for the acceleration of pre-stripping in the southern corridor with limited additional fleet. The southern corridor provides access to mill feed post-expansion and, importantly, construction clays and laterites for the build. The camp expansion is ready for full occupancy during the construction phase. The future processing plant area has been cleared and the equipment stores built.
Last week, we were pleased to receive notice that the DEMIRS has approved Capricorn Metals' mining proposal and mine closure plan, permitting the development of the expansion. Pleasing, since we have already completed the camp and committed to critical path procurement items. The expansion delivers a 25% production increase for a high-margin 10-year mine life at a steady-state 150,000 ounces per annum. At only a AUD 3,300 gold price assumption, we see an IRR of circa 50% and a 20-month payback period at our traditional low costs. Additionally, as run-of-mine processing will approach the reserve head grade, the capital estimated for the expanded plant is largely offset by the no longer required stockpile rehandling costs. On the wider regional exploration strategy, we are pleased to have increased the Karlawinda portfolio with tenure that we have been attracted to for some time.
We now enjoy over 4,000 sq km of project footprint. This completes the consolidation of the settings we believe are most conducive to finding the next Bibra. An extensive gravity survey is planned for the second quarter, covering the 70 km of the new prospective strike. Closer to Bibra, the exploration team has seen promising air-core results at the Badlands and Carnoustie targets, which we look forward to begin testing with RC later this quarter. Now, turning our attention to our second asset and jewel in the crown, the ever-growing Mount Gibson gold project of the Murchison region in Western Australia. Mount Gibson is a quality asset that produced over 850,000 ounces from oxides during the 1990s, where gold fell some 35% to AUD 450 an ounce. It then remained off the grid until acquisition in 2021, and has consistently revealed its unique scale and quality ever since.
It has continued to be advanced through over 370 km of drilling and now boasts an open pit reserve base of 2.6 million ounces. Pleasingly, it is now starting to reveal its high-grade endowment at modest underground depths. Last year's reserve update was exceptional and one that clearly illustrates Mount Gibson's standout in the sector. The reserve pits have an average depth of only 180 m below surface, and the 2.6 million ounces is estimated within a AUD 2,200 per ounce shell. With 8 km of open strike, this deposit will continue to deliver meaningful open pit increases before considering the underground or regional satellite project's upside. The modest reserve head grade of 0.9 grams per ton is reflective of our class-leading cost profiles and masks an ore body with significant high-grade plunges. After over 370 km of resource drilling since acquisition, our reserve inventory is not running into economic constraints.
We are simply running out of drill data. The 2024 pre-feasibility study update delivered 150,000 ounces per annum for the first 15 years at a sustaining cost midpoint of AUD 1,700 per ounce, and at a conservative AUD 3,300 Australian gold price assumption, this delivers a free cash flow of over AUD 3 billion and a payback period of just over 2 years. I'll let you ponder what another AUD 2,000 per ounce does for that. On the ground, we're advancing the project in all areas in which we can prior to permitting. In terms of permitting, we have addressed all the RFIs from the regulator following a process that culminated in submission of the final PER in June. It is expected to go through public exposure shortly and final assessment. We look forward to getting on with building the project.
The resource at Mount Gibson has grown to 4.5 million ounces and gives us confidence for continued expansion and corresponding future reserve updates. We anticipate further growth through infill and extensional drilling in what are relatively shallow, well-constrained open pit resource shells, and through our exciting underground project emerging too, with our maiden underground resource released just last week. On the underground opportunity, a simple underground development executed concurrently with the open pits from early in the project life would lift the grade and production profiles meaningfully. We had three diamond drill rigs on site during the quarter and completed our second underground drill program, delivering a maiden resource of 684,000 ounces at 3.1 grams per ton, with conservative classifications in this 1.2 kilometer strike area. The favorable widths, grades, and orientations show we have all the makings of a productive low-cost underground project.
Early indications are just this area could deliver 50,000 - 75,000 ounces per stoking level, so we won't need to be courageous to meaningfully lift the production profile. Importantly, the 4,500 ounces per vertical meter profile is still only drill-constrained at depth and is only but one portion of the opportunity. Another opportunity, Lexington, has delivered impressive results after its maiden underground drill program. We are seeing Orion-like mineralization strength, albeit over a smaller 300-meter strike length, but importantly, this lode is only 500 m away from development away from Orion. We expect to release our maiden underground resources at both Lexington and the higher grade Hornet to the north later this financial year. Mount Gibson itself is located on the southern margin of the forgotten half of the Yalgoo-Singleton greenstone belt.
We are very pleased to have completed multiple acquisitions of modest cost in the second half, in line with our South Murchison consolidation strategy. The southern greenstones are incredibly prospective and have had almost no modern gold exploration. The Highway trend was our first drill program outside of the Mount Gibson resource area. In the first handful of holes, we hit 28 m at 8.7 grams per ton and delivered 110,000 ounces of resource only 4 months later. These are the types of walk-up targets we believe are throughout the consolidated tenure. The regional strategy leads us to the Warrawoona scheme of arrangement that we announced recently. We believe Capricorn acquiring Warrawoona is a strategic and logical consolidation of Western Australia and South Murchison gold projects.
The proposed scheme pricing reflects an attractive premium to historical trading prices and the recent placement to Warrawoona shareholders, whilst providing continued exposure to the Golden Range project's value, plus further de-risking future funding and development requirements. Capricorn has the operational experience and expertise to integrate the Golden Range project into the Mount Gibson hub 90 km to the south and ultimately develop an enhanced project to maximize value for all stakeholders. We expect the scheme to be completed in early November and look forward to that. Why Capricorn? First, hopefully I've demonstrated that both projects have exceptional growth attributes. Karlawinda has a larger reserve base now than when we started, after producing 450,000 ounces at sector-leading margins. Mount Gibson continues to demonstrate that it's without peer in the pre-development mid-cap space. Both continue to increase inventory at some of the lowest reserve gold price assumptions in the sector.
Further, I'd like to illustrate the uniqueness and compelling relative quality of these two projects. This chart shows Australian gold producing assets with greater than 1 million ounces in reserve. Outside of those held by the majors, when Mount Gibson is in production, Capricorn Metals will hold two of six of these quality assets, both with plus-decade mine lives at lowest quartile operating costs, which leads to the only remaining question, in my opinion, and that's that of valuation. When considering valuation, what should we measure against? If it's margins, mine lives, reserve quality, or growth, Capricorn stands out. Capricorn builds mines for the sustainable delivery of value over the long term, not for record gold prices or production's sake. We will continue to deliver value in any market environment.
I can't help but think that as we deliver on our best-in-class development projects over the next few years, there is huge further value to be created for shareholders. Thank you.
Thank you.