I would now like to hand the conference over to Mr. Lawrie Conway, Managing Director and Chief Executive Officer. Please go ahead.
Thank you Ashley and good morning everyone. I'm joined on the call today by Jake Klein our Executive Chair, Matt O'Neill our Chief Operating Officer, Nancy Guay our Chief Technical Officer, Glen Masterman our VP Discovery, and Peter Rocky O' Connor our GM Investor Relations. Today, in addition to releasing our March quarterly results we're excited to announce the approval of the Cowal Open Pit Continuation project that will sustain the operation as a world-class number one asset for at least the next 17 years.
Glen Masterman, our VP Discovery, tells me that we're not discovering at Cowal, and I'm sure he is right. We've released a presentation pack today, and that is what... Turning to slide three, and I think it's fair to say that we've had another successful quarter. On top of our day-to-day operations, though, we've made enormous progress on multiple value-accretive organic growth projects.
As I said in January, our commitment has been to continue to build on the consistency of the past four quarters, and that is what we did in the March quarter. We are delivering to guidance. Our safety was stable with our TRIF at 5.4. We produced around 180,000 oz of gold and just under 20,000 tons of copper. Our all-in sustaining cost remains one of the lowest in the sector at $1,616 per oz for the quarter and $1,575 per oz year-to-date for continuing operations. We're also maintaining our discipline on costs and capital allocation.
The consistency in delivery, matched with the increasing gold price environment, has seen our cash flow generation continue, with $207 million of group cash flow delivered in the quarter. On top of this, we had an extremely productive and successful quarter with our projects.
The Mungari plant expansion has completed construction early and is now in the commissioning and ramp-up. This now moves Mungari back to a material-class contributor for the group. Cowal received final regulatory approval for the continuation of Open Pit mining. On the back of this, the board had the easiest of decisions for the project due to the quality asset an d the high rate of return it will deliver.
The project is now fully approved, and Cowal is extended out to at least 2042. Lastly, at Mount Rawdon, all of the work over the past few years on the pumped hydro project is starting to come to fruition, with the Queensland government committing to funds for the next phase of the project. I'm not going to steal Jake's thunder on the project. He will have the pleasure of talking to it shortly.
Moving to slide four, which really does show the outcome of the successful quarter. We have further accelerated our de-leveraging, which strengthens the balance sheet. The $207 million of group cash flow we delivered for the quarter was at an equivalent rate of $1,115 per oz. This is 30% higher than the December quarter, against only an 11% increase in the average spot gold price.
We expect further improvements in cash flow in the June quarter as we deliver our production guidance, matched with a spot gold price that is $550-$600 per oz higher than what we achieved in the March quarter. There has been a lot of talk about hedge books, and Evolution has minimal hedging at 65,000 oz to be delivered through to June 2026.
It is not material in the overall scheme of things, and when you look at it, this year we have achieved 98.5% of the average spot price. During the quarter, we repaid all of our remaining FY2025 scheduled term loan repayment. With our cash position of over AUD 660 million, the outlook for near-term cash generation, and our gearing now below 20%, we will continue to accelerate repayments of these term loans.
Our long-dated debt via the USPP notes is sector-leading, with a very low average cost of debt at 4.5% in Australian dollar terms. It comprises 75% of our total debt, with an average tenor of about six to seven years. When we issued these notes, we fixed our currency exposure and are seeing the real benefits of that.
Our principal debt is currently AUD 180 million lower, and our interest expense is AUD 7 to 8 million per annum lower than if we were exposed to currency movement. Through delivering to our plan, disciplined capital allocation, and banking the benefits of high metal prices, this will enable us to continue to increase returns for our shareholders.
Turning to slide five and shifting gears to our projects, Cowal is truly a world-class tier-one asset. Since acquiring the operation 10 years ago, it has consistently delivered low-cost ounces. The resource base has grown. It has fully repaid all acquisition and investment capital. It still has at least a 17-year mine life, and as I said earlier, there is more upside to be extracted. Just this year alone, for the first nine months, Cowal has generated around AUD 480 million of net cash at just under 1,900 per oz.
It's hard to resist, but it is a cash Cowal. The decision to invest in the Open Pit continuation project was easy due to the quality asset and the compelling economics of the project. Nancy will take you through this in more detail shortly. In short, the project will deliver around 2 million incremental oz from three satellite open pits and the existing E42 pit.
The project plan and capital are very much in line with what we outlined on site in June last year. For an investment of AUD 430 million over the next seven years to generate an incremental NPV of between AUD 875 million and AUD 2.3 billion at 34% to 71% rate of return and a very short payback period of one and a half, pardon me, to four and a half years from first ore. This is the right place and time to be allocating the funds.
It fully aligns with our discipline on capital allocation. We will be investing AUD 65 million to AUD 70 million of the project capital and around AUD 5 million in mine development this financial year to have the project ready for full ramp-up from July. This capital was not included in our original FY2025 capital guidance, as the project was subject to regulatory approval at that time. Included in this capital for FY2025 is the opportune purchase of low-hour second-hand haul truck fleet, saving approximately AUD 35 million compared to the cost of new haul trucks.
The market for this type of equipment is favorable right now, and therefore we will continue to assess options so as to achieve the best outcomes from a capital and operating cost perspective for the long-life Open Pit plan. I'll now hand over to Jake, who's excited to share the good news on the Mount Rawdon pumped hydro project.
Thanks, Lawrie. Good morning, everyone. I'm very happy to have been invited by you, Lawrie, to do a guest cameo appearance on the call today. I must admit, when I asked you, Lawrie, for 20 minutes to provide the full story on Mount Rawdon, you did almost rescind the invitation. I will try and meet my commitment to you and be as brief as possible, given the exciting nature of this project.
As many of you know on the call, the conversion of Mount Rawdon into a pumped hydro clean energy storage facility has been a pet project of mine for... It has had such great positive messages on so many levels for the mining industry and also our country's transition to renewable... What could be better than converting an old gold mine into renewable clean energy infrastructure assets?
It is a project we've been working on for over five years since our partners and joint venture owners in the project, ICA Partners, identified Mount Rawdon as a site suited to the conversion to pumped hydro. This centered around its steep topography, its closeness to the grid, and the fact that it is a disturbed mine site, so its environmental...[all well known] All the work we have done over the last five years has demonstrated this to be correct, and we've set out some of this on slide six.
Mount Rawdon has proven to be one of the most advanced, lowest capital-intensive pumped hydro projects in Australia. It is competitive on every important metric compared to other energy storage alternatives. Last week, the project received a major boost when announced the Queensland government's support in advancing the Mount Rawdon pumped hydro project to final investment decision.
This support is being funded through CleanCo, a government-owned entity who are currently spending AUD 30 million on further study and geotechnical ahead of deciding whether to exercise their option by the end of September this year. The agreement we have put in place with CleanCo aligns ICA and Evolution's interests with the success of the project right through to commissioning, through various milestone payments, and also the right to process any gold extracted as the current Open Pit is reshaped to serve as the lower reservoir for an infrastructure asset that will be built and operated for 100 years.
Finally, probably something that was not considered in the initial analysis but is truly proving to be invaluable is the exceptional community and indigenous partner relationships Evolution has built up over the last decade.
Since the announcement from the Queensland government last week, the response and feedback from these important stakeholders have been overwhelmingly positive, with the recognition that building this project will add jobs and contribute to the local community for decades to come. Lawrie, thanks again for the guest slots, and I'll now hand over to Matt to provide some more detail on what has been a genuinely outstanding quarter for Evolution.
Thank you, Jake, and a hard act to follow. The March quarter was another solid quarter of safely delivered plan. The consistency and predictability of our operations has improved materially over the last year. This is built on the back of strong teamwork and collaboration at each of the operations, and also more broadly across the wider Evolution organization, with the goal being, we say, we do, we deliver. If everyone would turn to slide seven with a bit of an update on the operations.
Firstly, what we delivered in the March quarter. We achieved several important milestones during this quarter, as noted earlier by Lawrie. At Mungari, we successfully completed the 4.2 million tonne expansion ahead of schedule and under budget. At Cowal, we received all approvals required to extend the life of the operation to 2042.
In preparation for the next 20 years of operation at Cowal, the mill underwent a major refurbishment, which commenced in mid-March. These two assets are core parts of the foundation for continued success for the group and are a good demonstration of our capabilities in project execution, which sets us up for long-term growth opportunities.
The operation has delivered consistently through the quarter, although Red Lake production was interrupted in February as a result of a blocked paste line. I'm happy to update that the line is back to full operation, with Red Lake returning to planned production rates through the month of March. Looking ahead, we're set up to finish the year well and are on track for group guidance. Mount Rawdon is expected to continue to generate material cash flow during its final quarters of operation through processing the stockpiles.
Ernest Henry is on track to finalize the ventilation upgrade, which will allow a more productive operation in the June quarter. At Mungari, the commissioning of the new 4.2 million is well underway. Of note, at Cowal, the major mill refurbishment is on track for operation and due to come up in mid-April. During the mill refurbishment, we also carried out works to increase the capacity of the Evolution circuit. In order to complete this upgrade, we drew down on our working gold stocks, which over the course of the first part of the June quarter will be replenished. I'll now hand over to Nancy to talk through some of the exciting projects we've got underway.
Thank you very much, Matt. I'm going to start with a personal note before going with the three slides that we will discuss the project. Being part of the Evolution team for over a year has been a privilege. I'm excited about the strength of our portfolio and, more importantly, the significant value we're positioned to create in the years ahead. What inspires me most, however, is the opportunity to work alongside such a strong, engaged, and passionate team.
With over 30 years of experience in the mining industry, I spent the past two decades at Agnico Eagle as a Vice President, Technical Services, Innovation, and Optimization. This marked my second professional journey in Australia, having previously worked as a consultant for Fatima Mines.
Over the next three slides, I will provide an overview of our project portfolio, focusing on the strategic intent behind the Cowal Open Pit Continuation project, which I will name OPC, and the long-term potential of the Cowal underground. We manage a robust and well-aligned suite of projects designed to deliver sustainable value for Evolution. Each asset has been strategically positioned to enhance our portfolio, and we remain focused and disciplined, timely, and capital-efficient.
Several key projects have been prioritized, and we are pleased to report strong momentum across the portfolio. A standout example is the Mungari Extension project, where timing aligned well with favorable market conditions and was further strengthened by exceptional collaboration between Evolution and our contracting partners. The project was delivered nine months ahead of schedule and 9% under budget, with a total capital of AUD 220 million. Commissioning is progressing well and remains firmly on track.
The long-term future of Cowal is strongly underpinned by the development of its underground potential, which I will cover more in detail in the final slide. We continue to make solid progress on development activity while enhancing our geological understanding of this high-quality ore body. Production remains on track, and we are progressing towards achieving 2.4 million tonnes per annum throughput by 2026.
At Northparkes, the E48 project is advancing as planned. We are now integrating the outcome of a recent study with our life-of-mine plan to confirm the optimal production profile and development schedule. The next six to nine months will be an active and pivotal period across the portfolio.
Key milestones include the completion of the commissioning at Mungari, continuing the advancement at Northparkes, including the trade-off study for E22, block caving versus sublevel caving, the finalization of the feasibility study for the Ernest Henry extension at depth a nd the Bert deposit. As I outlined on the following slide, the commencement of the Cowal Open Pit Continuation project.
The OPC project greatly enhanced the Cowal life-of-mine and supported Evolution long-term production profile. As outlined on slide nine, the OPC project is fully execution-ready. In July, the project will begin constructing a Lake Protection Bund, a vital infrastructure that will enable the safe development of three new openings. This includes the E42 extension, with E46GR scheduled to enter in production in 2020. E41 is planned to come online as the third production pit in 2030.
The key value drivers of this project are the extension of mine open pit by over 10 years, an additional 2 million oz for the overall production profile, the development of critical infrastructure to enable future underground expansion, and the sustainability benefits through the in-pit tailing storage at E46NGR. This project is a cornerstone in Evolution's strategy, delivering scale, longevity, and future optionality at one of our key assets.
As mentioned earlier, Cowal's long-term future. The OPC project is key to delivering production and critical infrastructure that will support future underground extension. As shown on slide 10, the deposits remain open at depth, and we continue to deliver constant low-cost resource replacement, averaging just $20, $23 per oz. This reflects the ore body quality and our disciplined approach to exploration and development. Recent underground development has enhanced our geological understanding and confirmed the system's broader potential.
Combined with Cowal positioned in a tier-one jurisdiction and Evolution-proven operational capability, this reinforces the strategic value of this asset within our portfolio. The Cowal underground continues to unlock material upsides, strengthening our production base and delivering long-term shifts. I'm now handing over to Lawrie for the conclusion.
Thank you, Nancy. Summary as outlined on slide 11, we are set for a strong finish in the last quarter. We've positioned ourselves well through the hard work over the first three quarters and are on track to deliver to our guidance. It will see us deliver a material increase in cash generation in the June quarter, and we are on track for AUD 2.3 billion of operating cash flow this year.
T his compares favorably to what we planned when we issued guidance in August, with around AUD 500 million more cash flow. We're progressing our organic growth projects to generate high returns. The delivery of the Mungari project ahead of schedule and under original budget, the compelling economics at Cowal, and the unique approach we have taken at Mount Rawdon are perfect examples of how we are driving value from the portfolio. We maintain our discipline on capital allocation.
The only changes we've made to capital guidance have been due to the early completion at Mungari and at Cowal with the approval of the compelling investment and opportune acquisition of a fleet. We continue to time our major projects appropriately. The cash flow being generated is definitely flowing through to the bank so that the benefits of these high metal prices are realized by our shareholders through higher returns. With that, Ashley, please 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 Kate McCutcheon with Citi. Please go ahead.
Hi, morning, Lawrie, and congrats on the record cash flow. Just on the timing of projects, the CapEx profile of $750-$950 over the next five years that you presented, that's an average. Can you just give some color on what that profile looks like? What are the high years and what are the low years? What are the key uncertainties, if any, around timing of some of the projects?
Yeah, Kate, thanks. Look, if I look at the portfolio, the timing is going to be project-dependent. As we finish the plans for FY2026 in the next couple of months, when we give the guidance, we'll be able to more clearly outline it. If you look at Cowal, for example, because we're opening up pits and moving the bund wall, the CapEx in the first couple of years will be higher, and then it tails off over the remaining years three to seven. We're just working through what that's going to be like. Similarly, when you look at the fleet that we've purchased now, we get to a peak requirement of probably about another seven to eight trucks. If Matt and the team can identify suitable secondhand trucks that are a lot lower cost than the new ones, we may bring those forward.
When we look at the other assets, they're all pretty well in line over the next couple of years, and Ernest Henry builds up in sort of year three to five. As I said, when we get to our guidance, that's when we'll be able to outline it that AUD 750 to AUD 950 average over the next five years. If you were to take five years at those rates that's what you should be planning on.
Okay, that's helpful. Thank you, Lawrie. Two questions in one. The CFO update, what is the latest there? You're getting close to the 15% gearing target. Will you look to retire the rest of the term loans, or I guess what is the plan after that with the balance sheet?
Yes, so in terms of the CFO status, we're well advanced on that and wouldn't expect it to be too long before we announce a replacement there. In terms of the gearing, yes, our first hurdle was to get below 20%. We've now got to that. Therefore, we've accelerated repayments on the term loans whereby we don't have to pay anything more this financial year. We will make some payments in the June quarter, and when we get to June, we'll look at how much further we accelerate that. I think it's fair to say that by the time we get to 15%, we would have been reducing the gross debt at a faster rate than just the net debt. We'll be able to update that in June.
Okay, got it. Thank you, Lawrie.
Your next question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Hi, Lawrie, Jake and team. First question, probably a pretty straightforward one. The Cowal mill overhaul is due to be finished about now. Can I just check the status of that? Is it finished, almost finished? Thank you.
Thanks, Dan. It's what I would say is imminent. It is due to come back online this week and tracking to that plan.
Thank you. I know it's very early, but turning to the Mungari mill, could you expand at all on how commissioning is going? I know it's only been, what, second week?
Yes. I can hand that to Matt, but quite simply, it's going well. It's going to plan. Scott Barber, the GM, was very happy to send me a screenshot of the remittance, having produced the first gold bar out of it and selling it at AUD 5,150. He's very happy with it. Matt, anything to add on the commissioning?
No, I think you've covered that. It's going to plan. There's the normal commissioning issues that the team are working through, but there's nothing that's come up material that I think is going to cause us a problem. No, it's going pretty well.
If everything continues to plan, when would the mill be operating at full throughput and expected recoveries?
The commissioning and commercial production is sort of what the hurdles are. We need to go about three months at a 70% rate. That is sort of around a 3 million tonnes per annum rate and recoveries being within a few percent of plan. I can answer on Matt's behalf by saying that we'd expect that to be in place by the end of June as we put in the release, but yeah, no, that's about right. That's our target.
Okay, thank you. Just last question, maybe a chance for Jake on his favorite topic of the pumped hydro. Mount Rawdon had, I believe this is accurate, AUD 47 million of rehab liabilities at the end of FY2024. How does the pumped hydro project change this, if any? Thank you.
Thanks, Dan. Great question. No, I think we outlined in our release where we put the key commercial terms that once FID is reached, there is a $90 million payment to Evolution, which is 100% held by Evolution, in addition to the $100 million payment on FID that is shared between ourselves and ICA, but $90 million, which will contribute to that $47 million liability.
Okay, thank you so much for your perspectives.
Your next question comes from Rahul Anand with Morgan Stanley. Please go ahead.
Oh, hi team. Thanks for the call. Two questions from me. Perhaps the first one on the all-in sustaining cost performance. Just wanted to touch a bit upon that. Obviously, year to date, you're tracking to the top end of the guidance or maybe even slightly above. If I look at this quarter specifically, gold sales were circa 8% higher than consensus. Silver was 14% higher on sales. Copper production was also a bit higher than consensus. If I look at the copper pricing for the period, nearly AUD 15,000 a ton versus your guided copper at AUD 13,750 per ton. Yet the all-in sustaining cost performance was AUD 1,680 a ton which is above guidance still. Admittedly, Mount Rawdon was part of that but still top end to slightly above.
Is it fair to say that the underlying cost base is now running sustainably higher as we look into next year? How are you thinking about the last quarter as well? That is the first question. I will come back with a second. Thanks.
Thanks, Raoul. Look, I think there's a few questions within the one question that we need to go through. I think on copper, the first thing is that year to date, we are almost in line with the price that we have in our guidance. Yes, this quarter was higher, but year to date, we're sort of almost being on line with what we had guided at. If you then look at the gold price we've achieved AUD 4,500 against AUD 3,300. Royalties are higher, but as I always say, we'll take the 95% extra in the revenue line if we take extra in the cost. That is having an impact probably in the order of AUD 50 to AUD 60 an oz that is in there against our guidance.
If we look at March quarter, you've got to take into consideration that Cowal, largest producer and lowest cost, has the shutdown. Half of those maintenance costs will hit this quarter with lower production. Next quarter, you'll get better production, and you'll still have some of those shutdown costs. Over those shutdown costs then spread over the full year, you get a lower all-in sustaining cost by the time we get to the full year cost number. When you look at you're going into sales, consensus versus I'm more worried about what our plan is. We sold a bit more in March because of when December quarter end was that we weren't able to sell. We then sold that in the March quarter. March quarter end was a weekday. We were also able to do sales at the end.
Therefore, sales were higher. If you then go and look at Red Lake, Red Lake's sales were 10% lower, and that is due to a buildup of concentrate stocks till we get the saleable quantity that will sell into June. The higher production at Red Lake and the sales of that concentrate, we'll see their all-in sustaining costs go dow n.
To answer the last part of your question, are we seeing a shift in the overall cost base? No. We're seeing that pretty well in line. The only thing I would say that I hadn't touched on was at Mungari, we did sell some very low-grade stockpile material through toll treating that would be higher than the average cost. That material, now that the plant's been commissioned early, would not have got processed until the back end of the mine life. We took the opportunity to get that toll treated. Has increased the AISC a bit, but that from our perspective isn't material given that we're getting the revenue right now.
Got it. [crosstalk]
No change to the guidance.
Got it. Got it. No, look, that's very detailed. Thank you for that. I guess we'll have to make up our own minds on next year, etc. It seems like you're well placed for the last quarter. I guess the second question is just. [crosstalk]
I will make a comment on that. It is good that we get to the end of the March quarter and everyone just moves on to next year. Unfortunately for Matt, I can't let him do that. He's got a quarter to do. If you do look at our cost base, 50% of our costs are labor. What we would see is that we would expect a lower rate of increase than last year given where inflation's at. You should expect that on 50% of our cost base, you're going to see somewhere around 3% to 4% increase in our labor costs, so half of that. The other costs are pretty well holding in line.
Depending on what price assumption you use for gold price next year, which makes up about 5% to 6% of our cost base, if you're holding it at $5,000 an oz and we're averaging $4,500 this year therefore you're going to have a higher royalty cost next year. They are the big drivers that you would see in terms of our costs for next year versus this year.
No, that's brilliant, mate. That's very clear and detailed. Thanks for that. The second one that I was going to get onto was just the Red Lake grade variability that we've had from the mine. Obviously, you're doing a bit of work in there. I guess what I wanted to understand was the works that you're carrying out at the moment, does that kind of leave you in a better, more predictable grade profile into perhaps next year, or do we continue to expect this grade variability continue for the asset?
It's Matt here. I'll answer that one. In terms of the grade variability for the quarter, that was driven by the PACE conversation and essentially us mining in different places to where we'd planned because of it. That is the key driver there. Yes, you should expect, and we do expect more predictability out of the grade going forward. There are two aspects to that. One is everything working as per plan and the PACE and things turning over, but also the drilling and understanding exactly where we are and getting further in front of ourselves. Those are the two drivers. That is exactly where we're headed.
Got it. Okay. That's all from me, guys. Thank you very much. Appreciate it.
Your next question comes from Andrew Bowler with Macquarie. Please go ahead. Andrew Bowler, your line is now live. Please proceed with your question.
Yeah. Sorry, the old on mute. G'day, all. Just sticking on Red Lake, I guess the question for Matt, just wondering if there's any incremental costs associated with the trade tit for tat that's happening between the U.S. and Canada at the moment. How much of your consumables come from south of the border and also plant and equipment, obviously, which could feed into the CapEx line there at Red Lake?
Yeah. Andrew, as good a question as any. I mean, in terms of what it's going to be, we're not certain, and I don't think we're alone in that. We are expecting it to have some impact, and the team are working through that primarily around budgets for next year in terms of the conversations. We've got some reasonable stock levels for our key consumables and bits and pieces on site, but the honest answer is we're not certain, and we'll wait and see over the next quarter. I'd like to say not much, but we'll see. I know that's not the answer you're after, but I really don't know the answer.
Yeah. Just to add to that, Andrew would be that their operating costs, they spend about CAD 260 million to CAD 280 million a year. A large portion of that is labor. Then you've got power and the like that are domestic. We've done a first-pass analysis where at the moment, where the tariff rates are sort of being indicated for Canada, we do not see it as material and significant. Probably a rough estimate would be around 5%, but that's at the top end depending on where it escalates. In terms of capital, at Red Lake, we're not buying a lot of mobile equipment and infrastructure. It's a lot of civils and works around. The biggest piece of work is going to be in the tailings, which will be in country.
Okay. [crosstalk]
We will continue to monitor the tariffs like everyone else is enjoying the daily updates.
That's obviously if Canada doesn't become beast in Alaska. In terms of operational stuff, maybe another one for Matt, just reading the quarterly, talking about a lift in recovery in the June quarter at Ernest Henry Vire Flash Float Circuit coming online. Just wondering if you could quantify that lift in recovery for us. Also, it sounds like it's a new bit of equipment that those recoveries will continue.
Yep. In terms of it's come online and running and going quite well, there will be two aspects to the recovery bump. One will be we will see a slight increase in our grade based on the ventilation circuit coming online, but we will also see a bump around the additional plant. What we are targeting is around 1% in terms of where that comes from. Those are the two key areas we are pulling it from. That is what we are looking for. If we can get a little more, we will, and the team are working quite well on it, but that is what we are chasing.
No worries. That's all from me. Thanks.
Your next question comes from David Radclyffe with Global Mining Research. Please go ahead.
Good morning, Lawrie, Jake and team. Just a question back on Cowal for me. On the stage I cut back, just looking really for some more details. Maybe could you give us an idea of when you expect the first year of ore from the cutback to start, that base case four and a half year payback or better at spot? Maybe sort of an idea on what the key stripping years are and what the material movement tops out at. Going in hand with that, what are the key years where you'll be drawing on low-grade stocks supplemented, obviously, from the underground? Thanks.
Thanks, Dave. Few parts of that to unpick. I'm looking at Matt and Nancy, and neither of them are looking at me getting ready to go. I think if we look at it, as Nancy outlined, the sequencing of the pit roles that we start the cutback in stage I at the end of this calendar year, and then there's a few years before we get into the ore, while at the same time we're opening up E46 as the next pit, then we go into Galway Regal. If you sort of look at them, the overall sort of strip ratios range E42 is about 3, E46 is 4, and the lowest of them all is down at E41 at about 2. That sort of gives an indication. Rocky can update you on sort of tonnages and where they all fit, but that's where they sequence.
To answer the question on the stockpiles, it means that by sort of last quarter of this calendar year, so second quarter of FY26, we start using stockpiles that will run through basically over the next three to four years, but decrease each year, with the biggest being basically just over half a year of using stockpiles, and you have 2.4 million tons coming from the underground. That is sort of the way it goes, Matt.
No, you've covered off the profile. Yeah, we start in stage I pretty much off the bat and then move through, but stockpiles do part of what we're going to be processing over the period. Our intent is to try and displace that with the underground as Glen and Nancy find more that we can go and take from there.
Great. Perfect. Thank you. I'll pass it on.
Just to probably help a little bit, given that I know you like a little bit more detail there, you're probably getting 120,000 oz next year out of stockpiles, and then you come down from that to 100,000 for a few years, and then it drops away in year four or five.
Perfect. Thanks, Lawrie.
Your next question comes from Meredith Schwartz with Bank of America. Please go ahead.
Good morning, Lawrie and team. Just a follow-on from David's question at Cowal. With the potential from the underground growing, when do you expect to get an updated resource on that new area? I assume it's not going to come in the next resource statement. Looking at that mineralization grows and that the potential for oz grows, can you talk through how you're looking? That will obviously displace some of that open pit ore that's going to come through from the OPC. Do you have a bit of an idea of how the E41, the E46, and all of that will then come through on the back of that underground?
Yeah. I'm going to hand that one over to Glen.
Thanks, Lawrie. Meredith, I've been waiting for a question like this all morning, so thank you for asking it. Look, I think in terms of sort of going back to the beginning by way of a resource update, we are coming out with our annual MRE. The drilling we've been doing, particularly in the underground extension, if I take you back to slide 10 in this morning's pack, just to sort of guide you around where we are doing our work. There is, on the slide there at E42, a shape there which is indicating where we're currently drilling. Now, that's a target that sits between the E42 open pit and the existing underground.
We have only got a handful of holes into it at the moment, but what we have picked up is a repeat of the architecture that controls the underground in a new location, which has opened up a brand new search space. That is the piece that we are really excited about because each hole we have got in there has hit where we expected to get grade, over some pretty decent intervals. We have only really got a half dozen holes in there, so a long way short of doing a resource update. That is going to develop as we continue to drill.
We have lots of strike lengths to play with, and I think that's the really exciting piece because it gives us some scale, whereby if we do succeed in growing a resource there, it does represent a potential new mining front where we are able to increase production incrementally if it all comes together. The goal there would be to certainly displace some of the low-grade stockpile that is currently in the life of mine plant, pushing that out further into the future and expanding our underground production at much higher grade. That's how we feel we'll get the production growth as we go forward.
Yeah. Perfect. Thanks. I suppose keeping on that exploration front, would you say across the portfolio that you see the greatest potential at Cowal for further upside, exploration upside, or is it sort of level pegging with Mungari and Ernest Henry? Are you the most excited about Cowal? Is that kind of how you're looking at it from an exploration perspective?
Again, a good question. I'm excited about all of it. Look, I think with Cowal, what we have—and Lawrie and Nancy mentioned it earlier—is we have a world-class mineral system here at a fantastic geologic address. In the slide, we're showing total endowment today, just over 13 million oz. Given it's a world-class system, I still think we've got a multimillion-ounce potential to unlock here at Cowal. That's the exciting piece. If I look across the portfolio, what we are blessed with is a full range of options in terms of growth levers that we can pull. We have terrific targets still that remain to be tested, not necessarily associated with the extension of the underground. We have targets there that we're looking to be drilling in FY2026.
At Mungari, I'm really excited about some of the results that are coming out of the Genesis and Solomon underground areas. It is a similar approach to Cowal where we're looking to expand the underground resources, convert them to reserves. That's our higher grade. If we can continue not just at current production levels from the underground, but if there's incremental growth there at higher grades, that's obviously a key driver for value at Mungari. That is also going to be a big focus for us in FY2026. Lastly, at Northparkes, I think we've got the opportunity that we've talked about, particularly around identifying new open pit mining areas that either represent or give us flexibility in our life of mine plan if we can continue to do that.
We've recently recommenced drilling at Major Tom after changing out the drilling contractor, and we're back there drilling to grow that resource or certainly declare a maiden resource there and continue to study it. I think that's the number one target for a new open pit at Northparkes, and we feel we've got a lot of runway to be identifying more of those.
Great. If I could just sneak one more in, speaking on Northparkes with Major Tom and E51, what do you think the earliest could be to bring those into the mine plan? Because obviously, the open pits have finished up there. Now, you've got the open pit material, which will be processed over the next 12 months. Just sort of looking at then how you bring those next open pit sources into the mine plan to supplement that underground feed. Because I assume E48, sublevel caves, that's due to start production FY2027, 2028. Is that correct?
No. E48, we're in developing now. We would expect that ramps up through 2026. Glenn can touch on where we're at with those two deposits. Essentially, as we go forward between the existing underground in E26, then the E48 supplemented with the stockpiles is what will keep the plant full, giving us time around Major Tom E51.
Yeah. Thanks, Lawrie. I think we're still pre-resource stage at Major Tom and E51, Meredith. What we need to do is complete the current phases of drilling that we're working on. We'll model those, and the idea is to see that we can actually optimize some open pits on both of these targets. That is going to drive sort of what we need to do in the study. I would say you're looking at really a three-year plan here in terms of what we can do by bringing on some new open pits in that mining sequence.
Yeah. Okay. Great. Thanks. I'll hand it on.
Your next question comes from Al Harvey with JPMorgan. Please go ahead.
Yeah. Morning, team. Just on Cowal, OPC, I recall at one of the site visits out there at Cowal, there are a few pathways to develop the lake protection bund, I suppose, in the context of like Cowal having a bit of water in it and what it would mean for a wet versus dry build. Just wanted to get a sense of the current thinking, how you're thinking about planning the bund now and if there's any risk planning around sequencing if there's heavy rainfalls over the build timeframe.
Thank you. I will answer that question. Right now, all of our planning is done to do the construction, but we have two steps of construction for the north side and the south. The north side is planned to be done in the wet area, so on a wet lake. We have good quotes from contractors. We have people's experience. We reviewed it. It is quite comfortable. We have some, I should say, risk mitigation or plan mitigation with the road included in our schedule and our project timeline. The south should be done on a dry time. It should be dry at that time when we are going to go in.
Thank you. Maybe then to Jake on Mount Rawdon pumped hydro, I just wanted to get a sense of what the additional ounces in the pit could be from those lower pit wall angles and how and when they'd come into production. I suppose I assume it would come after CleanCo exercise their call option on FID if it goes ahead.
Thanks, Al . I think there's strong competition between Glen and I who want more questions this morning. So appreciate the question. Look, I think it's early days. The reality is, you may recall that there was originally a stage five cutback for Mount Rawdon open pits contemplated by us, and we didn't proceed with it. It's not because the mineralization stops. It was really the cost of—so there is definitely gold at the bottom of the pits, but it's really going to be determined by the shape of the lower reservoir.
At the moment, the wall angles in a mine are obviously—and Mount Rawdon is a classic example—are designed to almost fail on the last day of mining, as a lower reservoir really needs to be a lot flatter wall angles to be able to last 100 years. There is contemplated to be quite a large earth movement and cutback to shape it, but it is predicated on FID being achieved, the project proceeding, and then it will be extracted post-construction of that or during construction of that lower reservoir because essentially we have the option of tagging trucks coming out of the pits during the cutback to go to an old stockpile or being placed stockpile.
All right. Thanks, Jake.
Your next question comes from David Coates with Bell Potter Securities. Please go ahead.
Great. Thank you. Good morning, team. Thanks for the call and the opportunity to ask a couple of questions this morning. Most of them have been covered off. I'll just touch on the rest of production for the rest of this financial year. I've had a production a little bit lower this quarter with shutdowns, and you're clearly on track for guidance. Expecting a little bit of a lift with Cowal. Sounds like it's just about the shutdown, there's just about done. Should we expect a little bit of a lift in production for the final quarter?
Yeah. You'll see a little bit. As Matt did indicate, we had to draw the circuit down to allow for the elution circuit upgrade to be done during the shut period. That means that we'll build those stocks up during the June quarter, as Matt said. You would not see that you get—we're basically 15 days out in the March quarter, 15 days out in the April quarter, thereabouts, in terms of that major shut and the elution circuit.
You have about the same number of operating days, and you have that circuit built up. You will see higher grades coming through from the open pit, which we're building up through the March quarter, but we do not expect it to be materially higher. If you look at it from a group perspective, Matt said, Red Lake, you get that higher production.
You'll get less production at Mount Rawdon and as we're going through those stockpiles. You'll see pretty consistent at Northparkes, Ernest Henry, and at Mungari, we're going through that commissioning. Yes, we get the higher tonnage, but we're processing very low grade stock through the commissioning period. We're tracking 1% above midpoint of guidance as at the three-quarter mark. That's a good indication of where we're going by the full year.
Excellent. That's really great. Thank you. My second question is, this has sort of been touched on, but I was asking if you might want to add a little bit extra, but use of cash. You sent a pretty clear signal with the interim dividend. You've accelerated your debt repayments. Can you just maybe give us a bit of, I guess, sort of how strategically you're thinking about using cash and how those two options sort of fit into that?
Yeah, Dave. Our dividend policy, when we did the interim dividend, has not changed. We assess that each six months. 50% of group cash flow is what we target to pay out. Therefore, as we see the June quarter, higher cash flows, that leads to higher dividends. The fact we have AUD 660 million in the bank and have paid the dividend in April, that is why we have started to accelerate the term loans, the higher cost debt.
We will continue to pay those down while at the same time maintaining flexibility on the balance sheet by sustaining a good cash level. I think if you flow it through to our capital investment, where Kate mentioned it, AUD 750 million to AUD 950 million, that is what we invest average over the next five years. There will be years above it, years below it, based on where the projects are at. They are multi-year projects.
That discipline of when we invest in those projects, when we need it, not just because we've got the cash. I think you might have gleaned from Glen's conversation, he's putting his hand out for a bit more exploration money based on the drilling successes that we're having. That is sort of where we look at it from a capital allocation.
Excellent. Thanks very much.
Your next question comes from Hugo Nicolaci with Goldman Sachs. Please go ahead.
Morning, Lawrie and Tim and Jake. I'm tired of progress as well. First one from me, just observationally, looking at that project summary table, which is helpful inclusion in the report. Last couple of quarters, just looks like the Ernest Henry mine extension study is now due this quarter, having been due last quarter. Just any sort of comments there around timing or what's led to that quarter slippage?
Yeah. Look, just shortly on that, Hugo, is that as the team's getting towards the end of the feasibility study phase and seeing the drill results that we've had through the course of the study and making sure in terms of the optimal way to go below the 1,200, we felt it was opportune to spend time to finish all of that assessment. Therefore, we're rolling that into the June quarter.
Yeah. That makes sense. Just second one, I guess looking a bit longer term, I appreciate you've got a number of projects in front of you already, and maybe with gold pricing where it is, there's maybe a bit more upside to drilling and study timing and the like. I guess if I look at your overall asset life on the current resource base, you've probably still got one of the longer resource lives, both locally and globally versus some of your peers. I guess how do you strategically think about what the right mix of asset life is and where the constraints might be relative to your current mine rates?
Yeah. Really good question, Hugo. I mean, I think when we look at it, we've got latent capacity in the plants at Ernest Henry and Northparkes. They're high returning assets. That's the first area that we will look at. We've obviously now upgraded Mungari, and the focus there will be how do we put more volume through from the underground.
Similarly, at Cowal, as Nancy mentioned, the potential of the underground and the role it plays, it's 30% of the feed. The more we can get through the underground through that plant is where we get that potential. I think the other one is just when you look at the resource base, Northparkes has the largest. Therefore, is there opportunities for basically looking at expanding the processing rates without actually reducing the mine life materially? The ways that we look at across the portfolio.
That's helpful. I'll pass it on. Thanks team.
Your next question comes from Matthew Frydman with MST Financial. Please go ahead.
Sure. Thanks. Morning, Lawrie and team. Lawrie, you've kind of already partly addressed my question in your responses to some of the prior questions, but maybe kind of synthesizing it all together. You've got the MROR update in the middle of the year. You've got a number of material studies, as you've just been talking about, particularly at Ernest Henry and at Northparkes, and obviously some ongoing exploration activities, as Glen's already talked about this morning. Overlaid on top of all of that is obviously the gold price environment and the cash generation and the strengthening balance sheet. Potentially a lot of optionality there in terms of the timing and the payback on spending incremental growth capital and executing on some of those projects.
I guess the question is, how are you thinking about integrating the outcomes of all of those various studies into an overall multi-year kind of outlook for the business? Should we be expecting an update on that at some point in FY2026? Really, is there anything else apart from those ongoing studies that you've outlined that you'd want to be capturing in that sort of outlook before presenting something to the market? Thanks.
Yeah, Matt. Look, thanks for pulling all of that together. I mean, basically, that's the dilemma we're rolling through as we're doing our business plans and budgets is where do these all aggregate up to? I think the good thing is that when we look at it at a portfolio level, there is no urgency for us to accelerate projects merely because of where the metal price is and the cash position is, because from an operational standpoint, they actually sequence very well. Mungari, that investment's now done. It converts back to a major cash generator as we move into the Cowal OPC that can fund that and still generate cash for the group.
We then look at going below the 1,200 at Ernest Henry over the next few years and where that plays out in terms of how we mine that and what it does below the 775 in the longer term. Northparkes, as I just mentioned, how do we unlock the capacity we've got there and then go beyond? With E48, E26 running, and then where E22 fits in, that's over the next few years that rolls through after those other projects and Cowal's back into ore. When you look at all of those over the next five years, they do sequence quite well without creating operational risk. Where the balance sheet is, we therefore can afford those projects. That 750-950 average over the next five years still stands as valid.
As I said, there'll be years where we're above it. There'll be years where we're below it. As long as those multi-year projects are delivering to plan, we're very happy with where we're going with the cash and the balance sheet.
Yeah. Thanks, Lawrie. Should we be expecting any kind of specific timing for an updated multi-year outlook or just happy to let the kind of results of the ongoing studies as they release sort of speak for themselves in terms of how they integrate with the portfolio?
I think as we go over the next six to nine months, as those studies finish and formulate what they mean to the portfolio, as we update on those, we always overlay it with what does it mean for a group. I do not think you are going to see a specific, "Here is everything in a one update." You are going to see them as studies or projects advance. We show what is the benefit of those projects and what does it mean to the portfolio. Cowal today is a classic example.
The economics are really compelling. It is the right time. It can fund it. It still delivers cash. From a portfolio perspective, Mungari is now moving to a major cash contributor. The capital we have been investing in the last few years at Mungari is being replaced by Cowal.
Yep. Understand. Okay. Thanks. Look for those study outcomes. Cheers.
There are no further questions at this time. I'll now hand back to Mr. Conway for closing remarks.
Thank you, Ashley. Thank you everyone for joining us today. It was really pleasing to have another successful quarter delivering to guidance and seeing that cash flow through to the bank account, which is helping us from a balance sheet perspective and allowing us to increase returns to shareholders. Also on the project side, the successful completion at Mungari, the approvals at Cowal, and the progress at Mount Rawdon says that from a company perspective, we're in good shape to finish the quarter. We look forward to updating you in the coming months on each of these projects. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.