Thank you for standing by, and welcome to the Evolution Mining June 2022 quarter results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the Star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Jake Klein, Executive Chair. Please go ahead.
Thanks, Darcy. Good morning, everyone. I'm joined by Lawrie Conway, our CFO and Finance Director, Bob Fulker, our Chief Operating Officer. Glen Masterman, our VP, Discovery, is also here to answer any questions you may have on our exploration results. I'll make a few comments this morning before handing over to Bob, noting that our commentary will be shorter than usual, given the comprehensive business update that we provided on the twenty-seventh of June. Strategically, in an inflationary higher cost environment, which is what we're in, it is more important than ever to have a portfolio of low-cost operations. Our All-in Sustaining Cost margin we achieved in the last 12 months is AUD 1,166 an ounce, and this is sector leading.
We want to build a business that can prosper through the cycle, and I believe we are well-placed to do this. We finished the year in line with our update. The June quarter was the strongest quarter of the year from a production perspective. I wanna highlight just a few things I think are particularly noteworthy in the quarterly that we released today. Ernest Henry had a stellar year. It generated AUD 435 million of net mine cash flow, and we only owned 100% of it for six months. What is equally exciting is the potential of the ore body.
We are now working through the final checks and reviews of the mineral resource, but I'm confident that when it is released on the first of August, on the first day of the Diggers & Dealers Mining Forum, you'll share our confidence of the operation's very bright and long future. This cash flow we are generating from Ernest Henry is supporting our major investment in accretive growth at both Cowal and Red Lake, which drive the 25% increase in production over the next two years. At Red Lake, we are making good progress. Our ore reserve models are reconciling in line with expectations, our development rates are being sustained, and our mining rates and compliance to plan has improved. This allowed us to deliver 8% higher grade and process 8% more tons for a 17% improvement on production to over 38,000 ounces this quarter.
These are the metrics required to deliver our FY23 guidance, and July has seen these improvements sustained. Given the relatively high fixed cost component at Red Lake as production grows, we do expect to see the cost per ounce continue to improve. We are confident about the future of Red Lake. It is undergoing a transformation, but it is one that will create significant value for our shareholders. Cowal continues to prove itself a great asset. I'm pleased that notwithstanding the inflationary cost pressures, the AUD 380 million Cowal underground mine remains on the original schedule and budget, with all major contracts now in place. Despite challenging operating conditions, Mungari had a very good finish to the year, and the pumped hydro opportunity at Mount Rawdon is progressing.
Finally, we do acknowledge and recognize the importance of operational delivery in FY23 and are motivated and well-positioned to do this. With that, I'll hand over to Bob.
Thanks, Jake, and good morning, everyone. In the June quarter, group production improved by 16% to 173,000 ounces at an All-in Sustaining Cost of AUD 1,290 per ounce. If I go directly to the operations, after a weaker start to the quarter due to weather, Cowal finished strongly and improved the overall material movement by 6% over the March quarter. Ore mined also increased by 42%, with Stage H moving into significant ore movement over the coming quarters. Additionally, the underground development ore increased from 2,000 tons in Q3 to 62,000 tons in Q4. We're using a marginal costing approach to development cut-off grade, and this is the reason for the 1.17 grams per ton from the underground.
The open fleet replacement strategy saw the delivery of the new 400-ton primary excavator. This will improve the total material movement over the coming quarters through improved availability. The AUD 380 million investment in the underground remains on cost and schedule. Total spend to date is AUD 112 million, and practical completion is due this financial year. We have seen a nice lift in development meters with the additional jumbo. With the June month drilling, delivering 743 meters with 2 rigs. Ernest Henry had another strong quarter, increasing production to 21,000 ounces of gold and 15.3 thousand of copper. Revenue was negatively impacted by concentrate revaluations due to a 23% fall in copper price. We still delivered AUD 117 million of operating mine cash flow.
During last quarter, we mentioned the development focus to increase sub-level access for increased cave propagation. Excuse me. This quarter, Ernest Henry lifted lateral development by 39% to an average of 770 meters per month. The site team have plans in place to further increase this in the coming months, all with the aim to improve the cave operational draw and in preparation to deliver the feasibility study outcomes for the mine extension below the 1125mRL. The Pre-Feasibility Study is on track for completion by the end of calendar year 2022, and the updated Mineral Resource will be released on August first. The Red Lake transformation continues to deliver improvements, with production increasing by 17% to 39,000 ounces, setting the mine up to deliver FY23. Red Lake is now performing at the rates required to achieve FY23 guidance.
Development rates have been maintained above the 1,200 m per month for nine months now, and the rate of advance in the CYD 727 m in the June quarter will enable us to extract the first stope in Upper Campbell in the September quarter. Breakthrough to the old 3-level Campbell is imminent. Despite site access restrictions in May due to regional flooding, the operation mined 235,000 tons at 5.16 grams per ton, 12% higher mine grade than the previous quarter. Processed a record 258,000 tons at 5.1 grams per ton, an 8% improvement over the March quarter. Processing performance in the June quarter is at an annual run rate above 1 million tons per annum and in line with the FY23 guidance.
Both mills are running above our expectations, and we are finding ways to further increase throughput without affecting the availability nor the recovery. The December 2021 resource models continued to reconcile well and are performing to within ±5%. The FY23 budget is biased towards delivery. Our focus is on grade and mining the right tons at the right time. The budget has been built with a factored Upper Campbell grade to allow the new model and remnant mining variations to be taken into account. The Mungari integration is progressing well, and this has mitigated the overall effects of COVID during the quarter. Mungari June production was above plan due to Kundana and Frog's Leg grade and limited East Kundana ore processed. Cost reductions are continuing through site synergies and contract consolidation, and this will continue through FY23.
Mount Rawdon is continuing to manage the water and northward geotech issue as well, and the production was expected with these constraints. In summary, Red Lake performance has lifted this quarter and is now operating at the rates we need to achieve our FY23 guidance. Cowal Underground Project is now less than 12 months away from first stope ore, and the project schedule and costs remain on track. Ernest Henry continues to generate significant cash, and I'm excited about the upcoming resource update and the positive impact it will have on the extension study. Thank you for your time, and I'll hand it over to Laurie.
Thank you, Bob. Good morning, everyone. This morning, I'm pleased to update on our financial performance for the June quarter as outlined on pages 8 and 9 of the report. Our financial metrics were in line with our business update of 27 June, with our group All-in Sustaining Costs for the year at $1,259 per ounce, while sustaining capital was below the bottom end of guidance at AUD 146 million, and major capital was well within guidance at AUD 459 million. Operating cash flow was AUD 228 million for the quarter. For the full year, this was AUD 893 million, which is the equivalent of around $1,400 per ounce.
After investing AUD 146 million in sustaining capital, we had just under AUD 750 million dollars available for an investment in growth and other uses. The net mine cash flow for the year was AUD 284 million or $445 per ounce, which is the equivalent of a 20% margin. Our group cash flow was AUD 66 million and AUD 110 million for the quarter and full year, respectively. The balance sheet is very strong, with AUD 300 million dollars in debt repayments made during the year, and our cash balance ended at better than planned at AUD 572 million, which gives us liquidity of over AUD 930 million.
Even given this balance sheet strength, we proactively manage our revenue and cost position as internal and external factors change to ensure that our margins and balance sheet are protected. Our cost guidance for FY23 was outlined in our update on 27 June, with group All-in Sustaining Costs guided at approximately $1,240 per ounce. Sustaining capital is guided in the range of AUD 190-240 million, while major capital is guided at AUD 530-600 million, where Cowal comprises most of this at AUD 325-360 million. I look forward to updating you next month on the full-year financial results. Thank you for your time this morning, and I'll now ask Darcy to open the line 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 a speakerphone, please pick up the handset to ask your question. Your first question comes from David Radcliffe from Global Mining Research. Please go ahead.
Oh, hi. Good morning, Jake and team. Just got a couple of questions, maybe first on Cowal. The plant had the best quarter of throughput for some time at a close to sort of that 9 million ton annualized rate. Just wondering whether you could provide a bit more color on that. Was it just a good run, or is this something you think that could be more sustainable going forward? Looks like you've clearly mined a lot more ore over the last six months than you've been able to process. Trying to think about the potential upside there.
Bob, I think that's one for you. Thanks, David.
Thanks, David. The percentage of ore is high, David. It will continue to be high because we're into a higher ore ratio in the pit than we have been in past quarters.
Obviously, well, maybe not obviously, but what we're doing is we're processing the higher grade that's coming out of the pit with the underground dirt, and we're building stockpiles again, as you do in this phase of the pit. The planned throughput, it really is predicated on the mix of ores and oxide percentages and underground percentages and just what we can push through. It did go well last month, though. It was a good quarter that we had at Cowal on throughput.
I guess the budget for the next 12 months is something closer to what it's been the last couple of years rather than this quarter.
Yes.
Okay. Thanks. Maybe just a couple of quick follow-ups for Laurie. You know, first off, maybe could you talk to the impact to QP or PP at Ernest Henry on the copper sales and where do we see that? Is that in the received price? Also, a little bit of an accounting one here. Just looking at the very large swings at Ernest Henry and Mungari on the depreciation rates, just trying to understand why they're moving so much, and are they reflective of the rates we should be using going forward?
Yeah, thanks. Thanks, David. The first one, the QP adjustments to the Ernest Henry copper actually comes through in their revenue. When we get to finalize each shipment, the final price is what we'll see as the revenue for the copper for Ernest Henry. That's sort of why you'll see for the quarter that we're averaged about $10,500 a ton for the quarter, as opposed to around $14,000 in the March quarter. That's where we see that.
In terms of the D&A, what happens in the June quarter is when we update our MROR in February, we then process the changes of that MROR through the latest life of mine plan. You actually get a number of true ups in the quarter, and that's what happened at those two sites. Now, the only other thing is, with Ernest Henry, you're dealing with the transition from an economic interest joint venture to the new asset, 100% ownership. But there's very little in the June quarter for that item. We have to finalize the valuation of this acquisition in the coming months.
When we get to the August full year results is when we'll break out the D&A by site for this year. I think the things that you'll see is most of those assets will pretty well be in line with the full year for FY22 rather than just the June quarter.
Brilliant. Thanks, guys, I'll pass it on.
Thank you. Your next question comes from Matthew Green from Credit Suisse. Please go ahead.
Hey, good morning, gents. Just to follow up on the QP pricing, if I may. Just generally speaking, what is the settlement lag? Is it 3-4 months on your copper sales?
Yeah. Matt. Depending on the shipments and where we are in terms of the contract year, Glencore gets to nominate the QP, and at the moment they're on a four-month moving average. Every shipment at the moment is open for four months.
Got it. Thanks. That's helpful. I mean, we've seen the FX move a great deal. I mean, I presume you're pricing these in US dollars. When it comes to the Aussie dollar, is that being settled at the settlement dates, or are you hedging out your FX at the sale date?
No, we don't hedge it out. The copper's sold in U.S. terms after the four-month period when we get to the final copper price that's set in U.S. dollars. When the settlement comes through, any FX variance will go to the FX account in the P&L. That's only from-
Got-
The period of closing the price, so at the end of the four months to settlement. It-
Got it. Okay. Thanks.
That stub period doesn't affect the copper revenue per se.
Got it. Okay, thanks. That's helpful. Just on Red Lake, the reconciliation of grade 5%-6% of what you're seeing on grade control model, has this tended to be more a positive or negative reconciliation in recent months?
I think it varies around it. I mean, we're very comfortable that the models are working. It's up and down. We're very comfortable that the models are correct. I think that's a very important thing, takeaway, for people listening to the call, is that, you know, there have been questions on the performance of the models, and we now understand where the dilution and where the impact came from in the first half of the year. We've corrected that, and the models are performing well and are comfortable that where we're mining, the models are accurate and reliable.
Okay, that's great to hear. Look, just lastly then on Cowal, the CapEx, the AUD 380 that you've got there, how much contingency is in that number? I guess now that your contracts are all now in place, are you still comfortable with your contingency level?
Yes, we are. I think that was a credit to the team that put the investment decision to the board. We had a significant contingency in it. It's proven to be appropriate and robust, and we expect to deliver within the AUD 380 million. That's great. Thanks very much. That's all from me.
Thank you. Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Jake and team. My first question is just on Ernest Henry. In your recent update, your copper production is, if I've got this right, slated to drop to 55,000 then 50,000 tons over the next two years. Just wondering what is driving that. Is it tons or grade? And is it somewhat related to the reorientation of the cave that you're undertaking? And perhaps it's worth just reiterating what you're doing on that cave. Thank you.
Daniel, how are you? It's Bob Fulker speaking. Couple of things. Number one, the cave shape is actually changing over time, and therefore, the number of available draw points and available active faces is reducing over time. That is also part of the reason why the cave rotation or the cave reorientation is a good thing from a productivity perspective 'cause we go from, and these aren't exact numbers, so just take this as indicative. We go from around about 14-18 draw points per level back up to that 25-30 draw points per level that the cave had if you go back three or four years.
When you actually improve the number of available active headings, you can actually get the tons per draw point back up again because your turnover of the draw point increases. In the next year or so, the tonnage regime is a little bit predicated on that. The other one from my perspective is that it's just the actual, like the grade and the hardness as we're going through the different zones in the cave. The grade does move it a little bit, not a lot, but this is just a straight output of that. Once again, though, there's nothing wrong with the model. The model's looking good, and I'm pretty excited about what we're gonna talk about in August.
Thank you. Just lastly, gold mining valuations, Jake, have been crunched recently. As a company with traditionally more access to capital than many others, is this an opportunity to improve the portfolio, or is the next 12 months, you know, much more focused on the various asset turnarounds being undertaken? Thank you.
Dan, that's a good question. I mean, I think asset prices have been crunched. I was an acquirer of shares in Evolution when we put out the release. That's the confidence I have in this company and the future. The reality is that we need to do both things. You know, we let ourselves down on the operational delivery last year. We recognize that that's the ticket to opportunities. Yeah, in a stressed market like we're in, where capital availability is lower, we do see opportunities emerging and would like to be in a position to take advantage of them, noting that we need to ensure that investors have the confidence that our operational predictability and delivery is on track.
Thank you very much. No further questions.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Thank you very much. Just to follow on from Dan's question there with regards to Ernest Henry, and the lower copper component. Just wondered if that was also a factor of you focusing maybe on more the broader economics of the mine versus when it was under Glencore management, where they were primarily focused on the copper. Or if that's something that may play out on a longer dated timeframe and hasn't been a component in the 23 guidance.
Mitch, I'll try and answer it, then I'll hand it to Glen as well. We are getting a better and an improved gold recovery than has been historically achieved at Ernest Henry. That is not affecting the copper recovery at all. We've actually managed to lift the gold recovery but not affect the copper recovery. That's not a factor in that equation. Glen?
I think as well, Mitch, what we're seeing is that in this type of mineral system, so copper/gold, the grade throughout the ore body is pretty uniform. But we are seeing a little bit of heterogeneity with our infill drilling and different domains with different grades. So that's gonna come out in the Mineral Resource model that we're scheduled to release August first. We'll be able to sort of talk to some of these, you know, insights that we're developing as a result of this work.
I just finish off by adding that, you know, when we did the due diligence, the data room had a 60,000 ton per annum for the next couple of years. We put that back down to 55 and 50,000 tons based on the site visit. You know, if you went back to Glencore, and you said, "Was the 60,000 tons deliverable?" They would say that their expectation was that the site would push and be able to deliver that. We've gone for a conservative approach. It is a, as Bob says, a budget and a forecast bias to delivery.
Thank you. My second question, primarily for Glen, is the updated MRR for Ernest Henry. If I look at Figure 3 and those planned drill results, I'm assuming that they won't be informing that. When will we expect to see those sort of numbers released to the market or any assays on those?
Yeah, Mitch, they're gonna start to come through in the September and, yeah, sort of wrapping up in the December quarters. Those results are from underground drilling that we have completed since the data cutoff for the MR update. It's just a mineral resource update that we're working on at this point in time. The OR will be updated at the end of the year in our year-end annual statement. We're also drilling from surface at the moment. We've got 2 rigs that arrived back in April, and the idea is to get a better angle of attack on the ore body.
What we're seeing in the mineralized footprint is that it's actually a little larger than what we've already modeled. That's a positive outcome from the surface drilling, and that's sort of based on, you know, visual estimates that we can make. Look, we wanna wait for those results. We'll be able to sort of re-release those, as I said, over the next couple of quarters. The Mineral Resource update that we're finalizing is going to incorporate around 35,000 meters of new drilling, so it doesn't capture the surface work or, as I said, the underground work since June or May.
There's a fair bit of new information that goes into that model update that will inform, you know, the outcome that we'll release to the market on August first.
Thank you very much for the clarification. That's it for me.
Thank you. Your next question comes from Peter O'Connor, from Shaw and Partners. Please go ahead.
Morning, Jake. If Bob Fulker is getting excited about the first of August, I'm super excited, Jake, 'cause I know Rob. I wanna segue back to Dan's comments about valuations and just ask you, could you include in that some commentary buying your own equity? Buy versus build, versus buy Evolution. You've told us what you're doing, and just a buyback, generally speaking, for Evolution.
Peter O'Connor, I mean our capital commitments are such that, you know, we're investing in growth at these opportunities at Red Lake and Cowal. I don't think a buyback is on the horizon for us. I mean, we've got to get through this growth and capital phase and then see what happens. You know, the next couple of years, you won't see a buyback from us. We're leaving that to other investors.
Right. Thanks.
I mean, just to flag, I mean, one question I was hoping to get, and maybe it'll come out in the next couple of questions. On page 6 of our quarterly report, just to flag the improvements that are being made at Red Lake, you know, you can see the tonnage coming up. This is a mine that we produced 43,000 ounces in the first half of this last financial year. Then we've done 33,000 ounces and 38,000 ounces. You can see the tonnage, the grade and everything going up. The transformation is really happening at Red Lake. I think it's worth just emphasizing that and getting people. We're looking forward to taking investors there in September.
That will allow us to showcase the real changes that are happening at Red Lake. Hopefully, you'll be on that trip.
Thanks.
Thank you. Your next question comes from Troy Wilkinson from YL Ventures . Please go ahead.
Yeah, good morning, gentlemen. I'm not sure who will be best to answer this. Maybe Bob, maybe Lawrie. Just in general, around U.S. dollar cost exposure, if any, and supply chain issues, particularly maybe around chemicals for the mining process. Are you seeing any issues with that? Or if you are, is there improving situation? Just sort of forecasts around the supply chain.
Yeah. Thanks, Troy. On the first one, I mean, you know, when we look at it, FX exposure at the moment, we're still seeing on the Australian assets, our exposure, direct exposure is 15% of our costs are linked to the US dollar. You know, that's a few million dollars a year. It's not material in the scheme of things, when we've got 50-plus% of our costs are labor. When we look at the Red Lake Operations, we're sort of seeing their costs more around the 90% mark are linked to Canadian. There's not a lot of exposure there again, but back to the Aussie dollar.
In terms of supply chain, you know, fortunately, at the moment, we've not experienced any major issues at any of our operations in terms of supply and delivery of chemicals, reagents, consumables. It's something that the site teams and the group supply team have been working on, really for the last couple of years since the pandemic started and now the inflationary market that we're dealing with and making sure we've got adequate levels on-site and alternatives in place. Fortunately, right now, we're not experiencing any issues around the supply chain.
Great. Thank you. That's all from me. Thank you very much.
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 comes from Jim Pollock from Surbiton Associates. Please go ahead.
Yes, good morning, everybody. A question or two on Mungari. On the figures that you give for Mungari, you give the recovery rate at what is it? God, I can't read my own writing. 72.5%. However, I calculate it at much closer to 80%, 80%. Why the discrepancy, and is it due to a Rand Mining and Tribune Resources effect?
Can you point out where you're finding that number, please, Jim?
Well, if you look.
Recoveries are 92.5%.
Yeah. Yeah, but if you work it out on the tons of ore produced, the grade and the gold produced from it, I calculate the recovery at closer to 80%.
Yeah, that's the EKJV impact. That's 100% of the material process, but we're taking the attributable gold production and appropriate recoveries for that gold, for all the gold.
It's total tonnage. The grade is specified, but what is it? The 35,000 odd ounces produced is only your share.
That's correct.
Good. Okay. Lovely. Fine. See you all at Diggers.
Thanks, Jim.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Klein for closing remarks.
Thanks, everyone. As I said, a brief commentary and call to give update on the 27th of June. Just a very busy couple of months ahead for us. The mineral resource update for Ernest Henry, which is tagged on the 1st of August. There's a Mungari site visit on the 2nd of August. 18th of August, we're releasing our full year results. In September, really a great opportunity if anyone wants to see what's happening at Red Lake, 'cause it is a seeing is believing story. There is a September site visit, which is the first opportunity we're gonna have to take Australian and North American investors and showcase the changes that have been made at that site. Thanks very much. We look forward to seeing you at Diggers & Dealers.
That does conclude our conference for today. Thank you for participating. You may now disconnect.