Good morning, everyone. Thank you very much for joining us, particularly at short notice. We really appreciate it. I'm joined today by my colleagues, and we are at different locations today in order to see as many investors as we can. Lawrie Conway, our Chief Executive Officer and Managing Director, is in Melbourne, along with Peter O’Connor, GM Investor Relations. Stian Birnie, the Birnie, the GM Transformation and Effectiveness, who led a lot of the technical DD. And then in Sydney, I'm joined by Barrie van der Merwe, our Chief Financial Officer, Glenn Masterman, VP Discovery, and Bob Fulker, our COO, is actually on-site this morning, meeting with the team there.
We're gonna talk through the presentation that was lodged on the ASX this morning, and there are, essentially, four sections we're gonna talk through before opening up to Q&A. I'm gonna talk through the opportunity and why we think this is such a great opportunity for Evolution. Lawrie will talk through the transaction summary, and the Northparkes overview and highlights, and then Barrie will take us through the transaction funding. I do refer to the important notices on slides two, three, and four, which contain all the customary cautionary statements, and would encourage participants on the call to read those carefully. But I am gonna start on page seven of the presentation, to slide seven, and really start off by saying how excited we are today to be the new owners of Northparkes.
Having acquired from CMOC an 80% interest in the Northparkes mine, located right here in our backyard in New South Wales. We genuinely do consider ourselves privileged and honored to be the new custodians, along with our partners, Sumitomo and Triple Flag, of this iconic mine's future. It is an operation we have long coveted. In fact, we've been interested in this operation since 2020, when we missed out to Triple Flag. It is a reliable, well-established, long-life copper and gold operation. It also fits extremely well within our strategy of targeting a highly concentrated portfolio of up to eight quality assets, this being our sixth operation. Particularly attractive to us is the very long mine life ahead of us, around 30 years. Its very consistent track record of reliability and predictability, and that it will be able to generate cash from day one.
I'm also really pleased that we have remained disciplined in buying a high quality asset at a very attractive price. So I now turn to slide eight. And I think if you've been following the Evolution story for some time, this is very much on strategy for Evolution. It pretty much ticks every one of the boxes that we've highlighted as our strategy for a long time. Firstly, it is an asset in the Tier One jurisdiction of New South Wales, and is located near to another one of our long life cornerstone assets, Cowal. Secondly, having visited the mine on Sunday and met the team, I know we will be welcoming a highly skilled, well-established team that has a great track record of delivery and technical expertise at the operations.
Thirdly, notwithstanding its exceptionally long mine life already ahead of it, it has compelling and attractive geological upside. Finally, the addition of Northparkes will increase our copper exposure to around 30%. While we are firmly committed to being a gold company, as we have consistently said in the past, we are very happy to add to our copper exposure, which is one of the most important and strategic metals that will be required as the world transitions to a low-carbon future. Turning to slide nine now, this acquisition is really in our sweet spot. CMOC, a very large company, have been owners of the operation for the last 10 years and have been great stewards of the asset. They have established a site team who have great technical and commercial skills and an enviable track record of delivering reliably and consistently.
CMOC have had outstanding success elsewhere in their portfolio, and therefore, have decided that for strategic reasons unrelated to the asset, it no longer fits within their larger portfolio. Having spent considerable time with key members of their executive over the last week, I do know that they are reluctant sellers. Over the last week, I've also been able to meet the 20% joint venture partner of the asset, Sumitomo Corporation and Sumitomo Metal Mining, who are founding partners of this asset with Rio Tinto, when mining commenced some 30 years ago. Also, last week, I met with Triple Flag, who in 2020 acquired a gold and silver stream over the asset.
I left both meetings with a strong sense that both Sumitomo and Triple Flag are highly committed to the future success of Northparkes, and will be collaborative, engaged, and value-adding partners as we start a new chapter in the story of this great operation. And finally, it also delivers on our commitments to make acquisitions that both improve the quality of the portfolio and is accretive to our shareholders. There is no doubt that those two boxes are well and truly ticked in this acquisition. With that, I'll hand over to Lawrie.
...Thank you, Jake, and good morning, everyone. Like Jake, I'm very excited by the acquisition and becoming an owner of Northparkes, which will be a high quality asset and contributor for Evolution. I'll walk through the transaction before going into some more detail about Northparkes, the asset. Today, we have entered into a binding agreement to acquire 80% operator interest in the Northparkes copper gold mine for an upfront consideration of $400 million and a contingent consideration of up to $75 million, based on a copper price link payment structure, at or above $4 per pound during a three-year period from July 2024 to June 2027. As Jake mentioned, Sumitomo retained a 20% interest, with the structure of the transaction not triggering any preemptive rights.
Evolution will assume the obligation of the Triple Flag stream, which I will cover in detail in a few slides time. On resources and reserves, we want to clarify how this is being reported today. Information reported in relation to the Northparkes resource and reserves estimates was reported by CMOC in a report filed with the Hong Kong Stock Exchange, dated 17 March 2023. Evolution has undertaken extensive diligence on the Northparkes resource and reserves estimate, and we intend to release a JORC 2012 compliant mineral resources and ore reserve statement during the March 2024 quarter. The acquisition is being done at a very attractive multiple and is very accretive for Evolution across a number of key metrics. On an EV basis to reserves and resources, it's a multiple of $0.58 per pound and $0.10 per pound, respectively.
Meanwhile, on a share metric for resources and reserves, it is accretive at 32% and 9%, respectively. We'll be funding the upfront consideration via a new five-year, AUD 200 million term loan facility and a AUD 525 million fully underwritten institutional placement. In addition to the placement, we have announced a share purchase plan for eligible retail shareholders of up to AUD 60 million, which is not underwritten. We believe this is the right mix of funding and is aligned to our capital management plan, taking into consideration that Northparkes is generating good cash flows. Pro forma gearing will be around 34% before the SPP benefits, which is within our limits, and our dividend policy, targeting a 50% payout of group cash flow remains unchanged. Barry will cover off on the funding arrangements soon.
We expect the transaction to close prior to the end of this month without any conditions precedent. Turning to slide 13. This provides a snapshot of what the Northparkes acquisition means for Evolution and builds on what Jake outlined. It certainly improves the quality of the portfolio. Firstly, it is an asset which is delivering strong cash flows, which support our current deleveraging program. This is matched with a low capital intensity profile, with multiple options for mining of the various ore bodies. The asset provides an attractive exposure to copper, with FY 2024 pro forma of 25,000 tons from a large-scale operation similar to our Ernest Henry operation. There is a large mineral resource with potential for ore reserve growth on the back of a track record of replenishing reserves and a resource base that is five times the reserve base.
With a mine life of around 30 years before full realization of reserve growth potential, it aligns to our long life asset strategy and extends the group mine life average by around four years. The acquisition also now gives us two long life assets in Central West New South Wales. On slide 14, we have updated our FY 2024 guidance, which captures the impact of Northparkes for the second half of the year, and also shows an FY 2024 pro forma for Evolution if we were to own Northparkes for a full 12 months. Northparkes is guided to produce 19,000 gold ounces and 12,500 tons of copper at an all-in sustaining cost of $150 per ounce.
Capital is guided at AUD 10-15 million for each of sustaining, major, and major mine development. The impact on the group guidance for FY 2024 is shown in the table, with the main point being that the higher gold and copper production improves our all-in sustaining cost by AUD 30 per ounce to a very low AUD 1,340 per ounce. On a pro forma annualized basis, our all-in sustaining cost would be 4% lower at AUD 1,315 per ounce through a combination of the 50% increase in copper production, the high margin of the asset, and a 3% reduction in capital intensity for the group. This truly does demonstrate not only the quality of the asset, but the improvement it brings to the overall Evolution portfolio.
On slide 15, we have details of the stream obligation with Triple Flag, which Evolution will assume. The key things to note here is that stage one requires delivery of up to 630,000 ounces, of which 38,000 ounces have already been delivered. This is based on 67.5% of gold and silver production attributable to Evolution being delivered in the stream to Triple Flag. Post stage one, the percentage required to be delivered reduces to 32.5%. In addition, for every ounce delivered to the stream, Evolution will receive 10% of the spot price from Triple Flag....
From an Evolution reporting perspective, the key things are: the stream liability will be fair valued on the balance sheet as part of the acquisition, based on the outstanding commitment of ounces at a gold price of AUD 2,650 per ounce. Evolution's share of Northparkes' production, sales, and costs will be reported consistent with our approach to all the other assets. Gold sales will comprise 39% at the spot price and 61% at the fair value price. The stream liability will be amortized in the P&L as metal is delivered, resulting in a corresponding tax depreciation claim.
However, from a very simplistic perspective of how to determine the net cash from Northparkes for the group, is to assume the revenue from production at the assumed metal prices, less the all-in sustaining cost and major capital, is ultimately what the net cash will be for Evolution, post-delivery of the stream and tax depreciation benefit. I'll now move on to the overview of the actual Northparkes asset, which begins on slide 17. On the right-hand side is a layout of the site, which identifies the multiple ore bodies, the concentrator, and tailings facilities. It is a well-laid-out operation with a large footprint. Mining is a combination of block caving and sublevel caving, with extra ore coming from campaign open pit mining.
In 2021, the processing capacity was increased to 7.6 million tons per annum, with the underground ore sources providing 6.6 million tons of baseload annual feed, which is then periodically supplemented with open pit and stockpile ore. The concentrate is transported to the Port of Newcastle and shipped to overseas smelters under the offtake agreement. Slide 19 contains the three key highlights of the asset. The asset has multiple large-scale porphyry copper and gold deposits, as shown on the previous slide. These are suitable for bulk caving, bulk cave mining operations, and the asset is located in a well-known area for Evolution. There is a significant mineral resource base, and as mentioned earlier, there is a considerable potential to increase mine life through conversion to ore reserves.
As we have done with our other assets acquired, we will now focus on the multiple options to increase reserves. Most importantly, though, is that this asset is now in a cash flow generation mode after significant investment in recent years, where the major capital required for the post-process plant expansion and for the E26 cave development are all completed. As mentioned, Northparkes is located in the well-endowed and prospective district of the Lachlan Fold Belt in Central West New South Wales. The multiple mining options shown on the right are all within a two-kilometer radius and are very close to the well-capitalized surface infrastructure on an extensive tenement position of over 1,100 square kilometers. Moving to slide 20. This is a world-class, multi-decade asset with a mine life ahead of it of at least 30 years.
There are multiple sources available, and the majority of the current production is coming from the E26 block cave, with additional production from the E26 sublevel cave, open pits, currently the E31 and E31 North, shown in the top of the graphics, and stockpiles. The next main production front will come from E22, where a feasibility study is ongoing and is expected to be completed in the March 2024 quarter. This includes options for either a block or sublevel cave. The sublevel cave option would lower the medium-term capital intensity while still retaining value and deliver near-term cash flows. Lastly, on slide 21, there's a massive resource base at 628 million tons, of which 433 million tons are outside the current planned mining areas.
This provides us with many options for expansion of the mining to fill the current 7.6 million ton processing capacity or for further mine life extension opportunities. Specifically, at E26, we are very excited about the opportunities with the ore body open at depth. However, just as important is that this is just one of the multiple options. We'll be establishing resource development programs to optimize the mine plan and sequencing. This is a wonderful position to be in with this asset, and I am certain that the current 30-year mine life is only just the beginning of what will be a long and successful journey with Northparkes as an asset within the Evolution portfolio. I'll now hand over to Barrie to talk through the funding of the acquisition.
Thank you, Lawrie, and good morning, everyone. I will now take you through our thinking on funding this exciting acquisition, how it fits into our overall capital management plan, and the funding details. Talking on slide 23. As Lawrie outlined earlier, we will be using a combination of debt and equity to fund this acquisition. It is made up of a fully underwritten institutional placement of AUD 525 million, a share purchase plan or SPP of approximately AUD 60 million, and a new term loan with our existing lender group of AUD 200 million. Northparkes generates strong cash flows and has a low capital intensity. We therefore decided that a debt component should form part of the funding mix. Northparkes cash flows can comfortably service the AUD 200 million, five-year term loan under our conservative planning assumptions.
This is in line with our commitments regarding balance sheet management that will result in deleveraging. Our dividend policy, which is based on free cash flow, remains unchanged. As outlined at our Investor Day earlier this year, we have no debt repayments due until the second quarter of FY 25, and our debt maturity profile is set to align with operational cash generation to allow flexibility for ongoing shareholder returns through dividends. Debt overview on slide 24. I would like to thank our lenders for supporting us to fund this strategic acquisition. Especially pleasing, given the challenge we set you with only a very short time frame to work through your own approval process. We really appreciate your ongoing commitment to Evolution.
The new term loan of AUD 200 million is at the same margin as the existing one and amortizes on a straight line basis over five years, starting in quarter three of FY 2025. Our average debt tenure of about seven years is appropriate, considering our portfolio of long mine lives, with 74% repayable between six and 12 years. Our total average cost of debt is a low 5% per year, with 74% of debt fixed at a rate of 4.4%. This transaction's funding and Northparkes' cash generation is in line with our commitment to deleverage the balance sheet as we enter a period of lower capital intensity and higher production. On slide 25, about the equity raising details. As outlined by Jake and Lawrie, this acquisition is in line with our strategy and has a very strong investment case.
The fully underwritten institutional placement for AUD 525 million that is launched today will involve issuing approximately 138 million fully paid ordinary shares, or 7.5% of existing shares on issue, at a price of AUD 3.80 per share. This represents a discount of 8.2% to the 4 December closing share price and 5.7% to the five-day volume-weighted average price of AUD 4.03. Cash from the placement is expected to be received around December 11. We will also launch a non-underwritten share purchase plan for eligible retail investors to participate in this equity raising. It'll allow shareholders to subscribe for up to AUD 30,000 at a discounted issue price at no cost.
The SPP booklet will be sent out on December 13, and cash from the placement will be received around January 22, 2024. Talking about sources and uses and the capital structure on slide 26. The new equity and debt will be used to fund the purchase consideration through an upfront cash payment of about AUD 608 million. This, and the estimated working capital adjustment of AUD 34 million, is expected to be paid out before the end of the calendar year when the transaction closes. Stamp duty of AUD 66 million and transaction costs of about AUD 32 million is expected to be paid during the March quarter, while integration costs will be incurred during the course of the calendar year 2024. Transaction costs will be expensed to the PNL and will be below the line for purpose of reporting mine cash flow.
Equity raising costs of about AUD 14 million will be booked directly to equity. Evolution's pro forma capital structure after the transaction, excluding the proceeds from the SPP, is set out on the slide. On slide 27, we've got the equity raising timetable. So we are currently in a trading halt while the book build for the placement is occurring. We will resume trading tomorrow and announce results of the placement prior to market open. The SPP will follow the placement, it will open on December 13th and run until January 16th. Other dates relating to the equity raising are set out on the slide. In conclusion, our commitment to deleveraging remains the same as before and is on track. Northparkes generates strong cash flows with low capital intensity over the next couple of years.
We have no debt settlement commitments until the second quarter of FY25, and our debt maturity profile is well aligned with mine lives, providing near-term flexibility for continuing shareholder returns through dividends. I'll now hand you back to Jake for conclusion.
Thanks, Barrie. In wrapping up, before we open the lines for questions, we have set out our new portfolio on slide 28. Our strategy has always been to accumulate a concentrated portfolio of high quality, low cost, long life assets, and today's acquisition marks another important step in that direction for Evolution. I and Lawrie and the board are very proud of what we've achieved, because if you'd said in 2011, when we set up Evolution, that this portfolio was our aspiration, I think you would have said that that was very aspirational but unlikely. So a very important milestone in Evolution's history. We're not done yet. We want to create a great gold company, and this marks another very important step in that direction. Operator, can you please open the lines for questions?
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 speakerphone, please pick up the handset to ask your question. Your first question comes from Rahul Anand from Morgan Stanley. Please go ahead.
... Hi, good morning, Jake, Lawrie, Barrie. Thanks for the call. Look, the first one I wanted to touch upon, E22, obviously seems like a good opportunity and constitutes circa 40% of your reserve, if I've done my back of the envelope correctly. I guess my question is the optionality that you talk of, obviously, capital light options are available, which would be perhaps, more beneficial on the cash flow side. But what I wanted to understand was, if you do go down that path, doesn't that mean that your underground production is lower than where it sits at the moment? Because you're already, I think, doing about 6.5 million tons per annum, underground, and the mill's already at 7.6. So how do you solve that problem?
If you can give me a bit of an overview of E22 opportunity, please. I'll come back with another one after.
Thanks, Rahul. I'll hand that over to Lawrie.
Thank you, Jake. And it's gonna go straight to Stian to walk through the options on E22 that we have got going on in the studies.
Yeah, good morning. Thanks, everyone. Look, in E22, the option exists for us to to do the block cave or do a few iterations of a sublevel cave, depending on where we think it best benefits the life of mine for the Northparkes, Northparkes asset. Obviously, a block cave has a substantially longer period to bring online, and that has implications in regards to the availability of ore. Whereas a sub-level cave enables us to bring some ore into the system at a more faster than initially anticipated, but also at a production rate, which is only slightly less than a block caving option.
It's important to note that a sub-level cave doesn't remove the option to transition into a future block caving option, and hence, the option for you to increase, improve the production rate from that specific resource is not removed or diminished through initially anticipating or commencing production through the sub-level caving option. The production rate from the underground, as noted in the slide pack, irrespective of the ore sources, can be maintained at 6.5, where the surface stockpiles and open pit operations are always viewed as an option for you to increase production rate from the 6.5 to a higher level, up to the 7.8 design capacity of the processing plant.
Got it. Okay, and then just to follow up on that point, you, you've said a couple of times in the presentation that, you know, the JORC resource currently available should not be solely relied upon, and you're obviously gonna put out your own update in March. Perhaps one question there is around the fact that if it is JORC compliant and you basically just got the keys to the assets, isn't this simply a typical depletion type update, or is there something major going on at the asset in terms of recalculating the ore body, or you're gonna do some recalculations based on gold pricing? How should we think about that?
Rahul, that's right up Glenn's fairway.
Thanks, Jake. And, Rahul, look, I think, the first thing to say is that the assets are very well drilled. And we've done extensive due diligence on the mineral resources, and the ore reserve estimates. Really, what we're looking at here is simply bringing it into JORC compliance, which is, you know, more of, you know, pulling together, you know, all of the information we need to be able to meet that standard. Given that, you know, that CMOC, when, you know, they're not an ASX-listed company, so there hasn't been a requirement for them to have their mineral resources and reserves, you know, in a JORC 2012 compliant state. So what we need to do is to bring that across. So it's...
You know, we, we expect we can do that over the next sort of, you know, two-three months. And it's really just, you know, a case of bringing together all of the information that currently exists. We don't believe there needs to be more information that we need to acquire, and, and bring that into sort of a standard that we would report in JORC compliance.
Got it. Okay,
Just to add, Rahul, just as another point of reference that people may want to refer to, that Triple Flag listed in 2021 and also had a section on the resources and reserves at Northparkes.
Got it. That's, that's helpful, Jake. Thanks for that. Look, final one from me before I pass it on, is on Triple Flag. Obviously, there's a streaming arrangement there available, and, and the structure seems pretty straightforward in terms of how many ounces go into, Triple Flag and, and up to the 600-something ounces that you've got there in stage one, followed by life of mine. I guess the question here is: Is there any sort of flexibility in the delivery for this? Or, or is it just force majeure, basically, that gives you the option to, to not deliver the exact ounces, that you need to?
I'll hand that over to Lawrie.
Yeah.
Thanks, Jake.
Look, there is, you know, it's from our perspective, when we've looked through it, you know, as the metal's produced, we would deliver into that stream. You know, there is, you know, there's not really many other options that we would do. And at the same time, when we look at the relationship that Northparkes and CMOC have had with Triple Flag to date, delivering the ounces so far, we would continue to deliver the metal as it's produced. We don't see any reasons to vary that.
... Got it. Got it. Okay,
The addition I'd add to that, Rahul, sorry, was I did meet Shaun Usmar last week in Toronto, the CEO of Triple Flag. And you know, they are genuinely committed to the operation. They are great partners, as are Sumitomo, who I met also last week. And it just feels like that CMOC and them have built a very collaborative engagement and partnership that we hope to carry on.
Now, look, absolutely. I think there seems to be a fair bit of optionality, and that's why I wanted to touch on that E22 option. I guess what I'd be looking to do here is to try and form a view on what type of capital intensity you require to have that mine life, because it would seem that if you don't have E22, then the mine life would be compromised. So obviously, that's the main part that we need to do work on. And perhaps if you can provide a bit more visibility on that part, it'll be helpful for us.
I think we're very confident that 30 years would be a conservative estimate of the mine life, and very comfortable that, you know, E22 will be developed. The only question is how we develop it, whether it's initially via a sub-level cave and then a block cave, and those options are all available to us. I think, you know, for the next few years, it's capital light, and we'll be doing the planning associated with that. And there are only good options associated with that development.
Jake, I'll just add to that. I mean, it's in the mining overview in the pack, you know, it does have a number of the long scenarios with different ore sources that we have and are considering, and it's not dependent solely on E22 to get to that 30-year mine life.
Got it. Okay, guys, I've asked four instead of my allowance of two, so I, I better pass it on. Thanks.
Thank you. Your next question comes from Mitch Ryan, from Jefferies. Please go ahead.
Morning. Thank you for taking my question. Can you just talk to-- You've said multiple times that there's low capital intensity over the next few years. What does that mean? Like, like, can you quantify that, between-- and sort of talk to slide 34, the bottom left-hand side, you know, how that ties in between 2023 and 2026 before the big spend in on a sublevel cave?
Sure, Mitch. Lawrie, that's one for you.
Thanks, Jake. Yeah, look, Mitch, I think I'll be upfront that, in terms of completing the work on the JORC, does put some limits in terms of forward-looking projections. But, you know, what we see as Stian has outlined, you know, the mining for the next few years, which are shown on 34 from 2023 to 2026, is heavily predicated on the E26, which that capital development has been done to get access into that. Then the open pits, which are very short, shallow, open pits, so there's not a lot of capital intensity into those. So for, you know, for 2023 through to 2026, the existing mining areas, which have got a lot of that development done, is what gives us that low capital intensity over those years.
Then what we've got to look at is, as that study on the E22, which is underway, completes, will then allow us to outline what's gonna be the sequencing and timing of that once we've finished the work on it and the MROR. But what we see from the existing ore sources, that's a low capital intensity, strong cash generation over the next few years.
And, Lawrie, I'll just add to that. Yeah, one of the most impressive things for me on the site visit in speaking to the team was just the depth, and skill and their plans, their long-term plans. They've done a lot of these studies. So you know, it's, it's not new work that needs to be done, it's really just getting across it and understanding it alongside them. But the depth of technical experience, the long-term planning, I thought was one of the highlights of the visit.
Thank you. And then with regards to— Can you just sort of give us some rough numbers or how to think about the ore feed being driven from at E26 relative to the milling capacity? So, you know, should we assume sort of that full 7.6 run rate on a milling, and how— what percentage of that would be filled from E26 versus sort of stockpiles versus open pits?
I'm gonna pass that one on to Melbourne as well.
Yeah, look, it, it's around 50% will come from there. And when we look at it, the E31 and the E31 North and the stockpiles basically take it from the 6.6 to that 7.8 for a period of time, but the majority of that feed is coming from E26. So at the moment, E48 finishes at the end of this month, early in the next year, and then it's the E26 is the main feed.
Thanks. I'll pass it on. Thank you.
Glenn just has something to add on that.
Yeah. So really, Mitch, just coming back to that. So, you know, the SLC and the block cave at E26 are going to deliver, you know, predominantly the 6-6.5 million tons from the underground, and then the rest of it at the 7.6 will be coming from the open pits.
Okay. Yep, yep.
Thank you. The next question comes from Jon Bishop from Jarden. Please go ahead.
Morning, guys. Thanks for taking my questions. Just wondering about the sequencing of your capital intensity. You're obviously talking about looking at Block Caving or Sub-Level Caving from 2026. If I look at your other assets, you obviously got the Cowal open pit extension, which is normally AUD 200 upfront, I think is what we've assumed, and then another couple of hundred, depending on today's numbers. And then you've obviously got the bulk of the Ernest Henry life extension also falling in from 2026 onwards. Do we make any assumptions around additional funding or asset rationalization? Do you think that's fair?
Lawrie, another one for you.
Yeah, morning, Jon. Look, when we look at the profile and, and where E22 fits, it's really in the later parts of this decade. So, the cash flow that the assets will generate in the earlier years, and then when we get into that 2026, 2027, and 2028, as the capital, which, depending on the outcomes of the study, increases, it's still self-funding from our plans and our conservative assumptions, and then it's at the back end of the decade. And so if we look at it at the back end of the decade compared to the rest of the portfolio, you know, main capital, Ernest Henry, is in that sort of 2027-2028. Cowal will be spread 2026 through to 2028.
And Ernest Henry, which we know is gonna be able to self-fund itself, its own capital from the cash flow it will generate over the coming years. When we look at it on that portfolio, which still goes back to what we talked in June, each of these projects will be sequenced based on when they're needed and the returns that they generate. But when we look at the asset as it stands today, that capital is more at the back end of the decade.
John, just-- sorry, go on.
Just in answering your, the balance sheet is strong, the cash generation is strong, and will not drive any decision to rationalize the portfolio.
Okay. No, that's helpful. Thank you. And just, it's probably semantics, but just so I understand some of the ratios that you talked to, I think is in slide 14. You've given a capital intensity number based on your 2024 capital guidance, but I'm assuming that's not inclusive of the capitalized underground costs for Cowal. And just as an extension to that, can we assume that you will be declaring commercial production from January 1?
Lawrie?
So, yeah, Jon, and I'm enjoying the accounting lessons with you. The, you know, if, as we've talked about for the Cowal underground, the commercial production, you've got to take it net of revenue. The accounting standards may have changed, so-
Right.
That capital isn't in there, and if it was, you'd have to do it on a net of revenue basis for the revenue that the underground does generate while it's ramping up to commercial production. And in terms of the second question, as at the way the mine is performing today, it is on track. But what Barry and the team have to do as part of the half year reporting is confirm that that's a sustainable position to move to commercial production, not at the spot prices. As we've always said, it has to be at the plan assumption prices for when the project was developed. But-
Okay.
All things being equal, the ramp up to over 1 million tons from the underground this year remain on track.
Okay. So for non-accountants, such as myself, just to be clear, from cash out the door, though, there will be roughly AUD 100 million from that Cowal underground-
Correct.
hopping onto the cash light. Yeah. Thank you.
Based on $50 million was the net negative for the first quarter, and as it ramps into the second quarter, we've estimated the same as we were planning to produce 20,000 ounces in the half, and we did about nine and a bit in the first half, first quarter.
Okay. Thank you, guys.
Thank you. The next question comes from George Eadie from UBS. Please go ahead.
Yeah, thanks, Tim. Just wanting to clarify what commodity prices we use for Northparkes asset guidance. And then just second, also clarify the silver delivered into the stream, does that rate change in stage two when the 630 ounces of gold is delivered and it just follows?
Barrie or Lawrie? Lawrie, over to you again.
So, George, the guidance for Northparkes is in line with the rest of the group, so that's at $2,600 an ounce and AUD 12,500 a ton for the copper. And in terms of the stream, the... As shown on the chart, it stays. I'll just double-check on the silver. It goes back to 50%, as shown on the chart, on the slide 15. So the gold goes back to 33.75 and 50% of the silver in stage two.
But just with that silver, when it goes back, sorry, clarifying, in stage two, is that at the same time as the 630 thousand ounces of gold is delivered, or, is it the same time, essentially, yeah?
I'd have to just check on that ounce number for you, George.
I think, George, what I can say is that the delta on the NPV is gonna be very low on that change.
... Yeah, definitely. No, okay, thanks.
It's very far out, so it wouldn't really affect, but we can get you the details.
Yeah, that's fine then. I'll assume it's the same time. And just one other, so Jake was saying at the start, this is now the sixth asset, and you still sort of like the idea of eight. Can we read that today's update leaves you no less attracted in, you know, adding to the portfolio, given there's a lot across the portfolio happening, but there could be more assets coming online in the market soon?
Yeah, I mean, I think that's it. We're happy with the portfolio at the moment. Let me be clear that, you know, we've learned lessons from our acquisitions in the past, and let me reference Red Lake. You know, we wanna make sure we bed this asset down, we deliver consistency and reliability. And one of the great attractions of this asset is its long mine life and its reliability and consistency. So we wanna do that. We are in no rush to go out and buy more things. And again, I keep saying that the more we improve the quality of the portfolio, the more the hurdle to improve it in the future rises. So, very happy with the portfolio.
As I said earlier, you know, if you'd said we'd have this portfolio when we started Evolution 12 years ago, I would have said it's highly aspirational, maybe delusional, but we're here, and very happy with it.
George, just a couple of things on the asset piece. Jake is working heavily on monetizing Pumped Hydro, so he has got something else to keep working on. The silver stream, stage one is actually 9 million ounces.
Awesome. Thanks, guys.
Thank you. Our next question comes from Matthew Frydman from MST Financial. Please go ahead.
Sure. Thanks, morning, all, and thanks for putting on the call. Can I firstly ask you about the process itself? If, if I understand correctly, CMOC have had a for sale sign on the asset for most of this year. So wondering if you can comment, I guess, on the length of the process, how long, you guys were participating? You know, what's your understanding of how many other participants were in the data room? Obviously, we, we all know that copper assets have typically been pretty hotly contested recently. So yeah, just wondering, how you came about with a, I guess, a successful outcome in this process, in your view. Thanks.
Yeah, Matt. So, remember, you know, we've been interested in this asset for three years. When that stream was sold, we had a good look at it at that time. We always felt that it fitted within our portfolio. Discussions have been ongoing for ten months with CMOC. Our understanding is that there have been multiple parties who've expressed strong interest. As late as, you know, 48 hours ago, we were not certain that we were gonna secure the asset. So it has been a very competitive process. CMOC are selling it for strategic reasons, not because of any reasons related to the asset. So it has been competitive. We've secured it at what we believe is a bilateral engagement, ultimately with CMOC.
We've been disciplined, and engaged, but it has been highly competitive through the process.
Yeah, got it. Okay, thanks, Jake. Can you allude to exactly what changed in the last 48 hours? Was that a change in the price, or another party exiting the discussions, by your understanding?
I think, you know, it was a hard-fought battle, and eventually both sides landed, and I'd say, you know, both sides have some bruises and some pain to show that it's probably a good deal. But, you know, both sides moved and, you know, from the original view, we stuck to our guns. We've remained disciplined, and I think CMOC were very focused on ensuring that they sold the asset to a party that they thought would enhance their reputation and credibly operate the Northparkes operation. It was a key factor to them. So I think in speaking to CMOC, price is not the only determinant, but it was certainty of closure and reliability, and predictability, and reputation of the incoming party.
Got it. That's very helpful, and appreciate the additional color there, Jake. Thank you. Can I ask, secondly, Jake, you talked about the technical ability and the long-term planning, that you were very impressed with, in your visits to the asset and meeting the team. Can you talk to, I guess, the structure around how much of that is retained? You know, what personnel will come across in the acquisition? And obviously, Block Caving is not necessarily a common mining method, and certainly other gold companies in the past have suggested that it's a skill that really you grow organically and through experience rather than acquiring.
Just wondering, you know, what your thoughts are on that, how you expect the business to get up the curve quickly on being Block Caving operators and potentially in a few years' time, Block Caving developers? Thanks.
Yes, sure, Matt, and that, that's a good question, 'cause one of the, the highlights, of this acquisition, is the team on site. It is a largely independent site, so this is the only asset that CMOC has in Australia. And they've largely retained the team that's been there for a long, long period of time. So the tenure of the team, is, is high. A number of people, have been there many, many years. There have been some new additions, but it is a very, very independent site, all of whom, in terms of people, are coming across, to, to, to Evolution. So we actually think we're adding depth on the technical skills. And you referred to block caving and sublevel caving. You know, obviously, sublevel caving we're comfortable with in, at, at Ernest Henry.
But block caving, you'd have to say Northparkes has been a training ground and development ground of the development of block caving skills and capacity in Australia for the last 30 years. And we're absolutely delighted to be welcoming those people into our organization.
Yeah, thanks for that info, Jake. Yeah, certainly he was one of the first to ever do it, so I'm sure there's a lot of on-site experience. So thanks for the answers.
Thanks, Matt.
Thank you. The next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Jake, Lawrie, and team. Congrats on the acquisition. Just one for me, just looking at, I guess, mill capacity versus permitting. Appreciate the mill at the moment. Can do 7.6 million tons, but I guess from your due diligence, is there any, I guess, sort of low-hanging processing fruit that could help take you to that 8.5 million ton that you're permitted to there? Or is it really a relatively capital-intensive process to expand that mill and other parts of the processing?
I think, yeah. So thanks for your question, but I'm gonna cut that one off and take it myself because, again, learning from our experience on other acquisitions, I just want to say that we want to operate this asset to its current capacity, which is the 7.5 million tons. We'll look at all options in the future, but don't want people to build that into the model at the moment.
Yeah, thanks.
We think it's absolutely compelling on the conservative base case that we built on the model. Anything extra will be additional and in the future, but we're not talking about it today.
Yep, understand. Makes sense, and I look forward to future updates there. I think my other questions have been asked, so I'll pass it on. Thanks.
Thanks, Hugo.
Thank you. Reminder, if you would 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 Nick Evans from The Australian. Please go ahead.
Oh, good day, Jake and team. Just a really quick and simple one for me, just because most of the rest of what I wanted to know has been covered off. Just, I guess, in terms of the difference in the price that CMOC paid back a few years ago and what you paid, should I just assume that that's largely due to that streaming arrangement has stripped out sort of some of the cash flows, and that, that there's nothing fundamentally changed in terms of mine life production and that kind of thing from there?
Nothing has changed.
Yep. Yeah. Sorry, Jake. So the difference between what they paid, AUD 820 a few years ago and your price is purely about that streaming arrangement, the Triple Flag?
I'd like to think it's because we negotiated a good deal, but, I'll leave it to you to work out the delta.
Yeah. And then, just on the, just on one of the things, that I didn't quite understand in the presentation. You talk about the fair value price of, gold sales into that stream. Could you just sort of explain to me what you mean by that? 'Cause I wasn't quite sure of the, yeah, exactly what the, how that sort of streaming arrangement works in terms of the price that you guys will actually get for, for, for gold in that stream, with them.
Lawrie, this one's for you.
Thanks, Jake. Morning, Nick. So essentially, we take on the liability of that stream, and as at today, based on the ounces remaining, that liability is valued fair valued at around $356 million. So in Aussie dollar terms, it's AUD 540 million. And then we work out what that is based on how much metal still has to be delivered, and that's where we end up at an average price of $2,650. So if you think of it, the ounce that gets produced at Northparkes, that revenue, no matter what, so if it's sold at $3,000 an ounce today, that revenue goes to Triple Flag.
We have to amortize that liability on a metals production basis, and it gets locked at a $2,650 price on acquisition, based on how much metal still has to be delivered.
Yeah. Okay. Thanks, Lawrie. That makes sense. Thanks, guys. I'll pass it on.
Thanks, Nick.
Thank you. You have a follow-up question from Jon Bishop at Jarden. Please go ahead.
Can't believe I'm asking follow-up questions, guys. Anyway,
I hope it's about accounting.
I think I've done my dash for today. Can you give me a little bit more color around your offtake agreement that you're inheriting for the copper production? Is it vanilla, arm's length? Are there anything that we should be aware of, ex sort of spot pricing as a basis?
No, I think you should consider it as a standard offtake contract negotiated at arm's length, commercial, terms.
Okay. And then in terms of formulating your estimated all-in sustaining costs, I think you've quoted $150 an ounce. Can you sort of step us through what the basis is there in terms of gold price assumed, et cetera?
You're back almost into accounting territory, so I'm gonna hand this over to Lawrie again.
Yeah. So, John, the gold is at AUD 2,600, and the copper is at AUD 12,500 per ounce, and then there's the AUD 10-15 million of sustaining cost.
... So that's how we've calculated the AISC guidance there.
Yep. Okay, that's helpful. That probably leads on to my last question. Just around the capital intensity, and this probably to Barrie in on that question I asked on previous round. The capital intensity for the operation up until 2026, what, what do we assume? Is it that sort of AUD 30 million a year, roughly, or is it higher than that? What does it kinda look like?
Yeah, look, John, I'll go back to the earlier thing, and, you know, once we release our JORC compliant MROR, that's when we can really openly talk, more broadly beyond FY24.
Okay. No, that's helpful. Thank you.
In terms of specific numbers.
Yep. That's fine.
But as I said, you know, the capital for that process plant, the capital for the E26 have been done. It's a well-established site, so, you know, sustaining capital historically has been around the level that we've guided for the rest of this year. And, you know, the mine development, as I said, has been done to now just be ticking along. And the major capital for this year in terms of projects is around the feasibility study and a couple of projects in terms of the process plant. So I'll let you draw some conclusions as to where that may take you for the next couple of years, until we get to a position of being able to openly talk about the future years.
Right. Thank you.
Thank you. There are no further questions at this time. I'll now hand the conference back to Mr. Klein for closing remarks.
Thanks. Thanks, everyone, for participating. We look forward to talking to investors and analysts today. We know there will be a lot of questions about this acquisition, and we look forward to answering those questions. You'll be hearing a lot of more about Northparkes in Evolution's future going forward. Before concluding the call, I do want to specifically thank a number of people who have made this transaction possible. Firstly, to Steele Li and John Jun of CMOC. I do know how important it is for you to ensure that the future of Northparkes is in safe hands, and we do appreciate you trusting us with this responsibility, and take it seriously. To our new partners, Sumitomo and Triple Flag, we look forward to working with you to make this very good asset, maybe even a little better.
To our advisors, Macquarie Bank and legal team at Allens, thank you. Huge amount of effort to get this over the line. To our own team, Lawrie Conway, who is now not only an accounting expert, he's a technical expert, a commercial expert, geological expert. He's our Managing Director and CEO. His leadership team and the vast number of our people in our organization have contributed to this transaction, a huge thank you. To Peter O'Connor and his IR team, none of them have slept for the last 24 hours, and they're still largely smiling. And finally, to Kieran Schmidt, who leads our business development team, and his team. That team hasn't slept for a few days and are all definitely sleep-deprived. A huge thank you, and well done to them.
Thanks, all, for participating in this call, and we'll speak to you soon.