Thank you for standing by and welcome to the Evolution Mining 2021 Financial Year Results. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Jake Klein, Executive Chairman.
Please go ahead.
Good morning, everyone. Thanks for joining us. We appreciate it. Joining me on today's Call is Laurie Conway, Evolution's CFO and Finance Director. Laurie and I will be talking to the presentation titled 2021 Full year financial results which was released on the ASX this morning.
I want to start by recognizing Evolution's most Asset and that's our people. Time and time again this year, we have asked them to go above and beyond. And each time they have stood up, accepted the challenge and delivered. The anxiety, disruption and challenge that COVID has created should not be underestimated. As we have all found over the past 18 months, Those informal conversations, face to face discussions and site visits just cannot be replaced by Teams or Zoom call.
I'm frustrated at how Australia has gone from leading the fight against this pandemic to becoming a laggard. In a bit of twist of irony, Evolution has 6 assets, 5 of which are in Australia. And the only asset People from our group office in Sydney can legally visit right now is in Red Lake, Canada. Glenn Marston, our VP Discovery and Bob Fulke, our COO will be there in the next couple of weeks. There is only one solution out of this mess And that is to get everyone vaccinated.
No ifs or buts. It is really important for our mental health, our industry and our country. Shifting mood and turning to some real positive highlights on Page 4. I'm sure you will agree with me That Evolution has ended the FY 2021 year in a very strong position. A record net profit Rewarding our shareholders with the 17th consecutive dividend being declared.
This one being $0.05 per share fully franked, A materially improved portfolio of long life low cost assets, which will deliver high margin organic growth And a very strong balance sheet to support that growth. On Slide 5, we have set out how we believe we In summary, we want a concentrated portfolio of 6 to 8 assets, Always looking at acquisitions or divestments through the lens of ensuring it will improve the quality of our portfolio and, And it is a big and is also accretive to our shareholders. Geological upside must And by delivering this upside, we now have an average portfolio of mine life based on reserves of at least 13 years. Reflecting our focus on margin over volume, we continue to estimate our reserves at a very conservative gold price of AUD 14.50 an ounce. We are very comfortable to trade a short mine life asset like Cracker Or a higher cost asset like Edna May for long life low cost opportunities like Red Lake and Cowal.
In both of these exits, we have retained exposure and upside to the asset post the sale through royalty agreements. We seek deep turnaround opportunities. Red Lake fits firmly in this category. That is why we were able to get it so cheaply. With 11,000,000 ounces in resource and great geological upside, I'm certain that the time and effort required to recapitalize and revitalize this asset is going to create enormous value.
We seek genuine synergies. It is why we acquired Battle North, which consolidates the Red Lake District and accelerates our pathway to 350,000 ounces of low cost annual production at that operation. Yesterday, we closed the acquisition of the Kandana and IKJV interests from Northern Star, A game changer for our Mungari operation, which elevates it to our 4th cornerstone assets. We now have immediate access to significantly larger volumes of higher grade material and the opportunity to extract significant synergies that were not available to either ourselves or Northern Star in the absence of this transaction. This is one of those Very rare deals in the gold sector where both parties can genuinely feel comfortable that the transaction creates value for both sets of shareholders.
We also seek out motivated sellers. For strategic or other reasons, they were motivated to sell. Barrick, Newmont, Glencore and most recently Northern Star all fall within this category. More strategically and as the world grapples with an increasingly assertive China, particularly in resource rich developing countries and also fallout of this pandemic, our view is that investors will need to increasingly pay attention to the location of assets. Our entire portfolio by careful design and no accident is located in the Tier 1 jurisdictions of Canada and Australia.
Amongst the highest rated countries for investment attractiveness based on the Fraser Institute and the World Bank. Not only are they places where the rule of law can be relied on, but they are very geologically perspective and have talented people with great mining skills. Our approach, which I hope I've been able to summarize is what we believe will continue to differentiate Evolution well into the future And has been on demonstration again this week as we took ownership of the Kundana and EKJV assets and elevated Mungari to our 4th cornerstone assets. As highlighted in Slide 6, we are really pleased with the strong support we have received from shareholders through both the institutional placements And the share purchase plan, which will close tomorrow. One area I was concerned about given the heated labor market in Western Australia Was convincing the current Kundina and EKJV employees to join Evolution.
I'm really pleased that over 90% have signed up And we welcome them as our new colleagues. The operations were separated by tenement boundaries, not geology. And we now have immediate access to significantly larger volumes of higher grade material. Yesterday, As you can see in the photo, the 1st bucket of Kundana ore was put into the mill. Acquiring reserves that are 3 grams per Tonne higher than our existing reserve base is a game changer for Mungari.
Now I'm confident that these assets will underpin many good years of production from the Mungari operation. Our focus in the next 6 months will be on integrating the teams and operations, Engaging our EKJV partner, optimizing the mine plan and prioritizing the highest grade feed. Turning to Slide 7. Another area I believe we can continue to differentiate ourselves is in the area of sustainability. Financial institutions are finding that their investors are demanding more proactive plans and action.
As Larry Fink, Chairman and CEO of BlackRock says, there is no company's business model will not be profoundly affected by the transition to net zero carbon emissions economy. That is why we are positioning ourselves ahead of the pack. Demonstrating this is our recent commitment to a 30% reduction in emissions by 2,030 and to net 0 by 2,050. We have a clear path to achieve this. We're also very proud that our MSCI ESG rating has been upgraded to AA.
This is the highest rating of our global gold mining peers. With that, I'm going to hand over to Lawrie to take you through the financial results.
Thank you, Jake, and good morning, everyone. I'm pleased to be able to present the FY 2021 full year financial results today. Overall, the financial position of the business is in great shape with the operations generating cash at healthy margins and the balance sheet well established to support the business. Following the discussions of our results this morning, I will then outline the detailed FY 'twenty two guidance, which is a breakdown by operation of the group guidance we released last month. On Slide 8, we have a summary of the key financial outcomes for the year.
We achieved several records during the year, including statutory profit, earnings per share and dividends paid. Our statutory profit before and after tax were up 21% 14% to $496,000,000 $345,000,000 respectively. This flowed through to a record earnings per share of just over $0.20 Underlying profit after tax and EBITDA were down to $354,000,000 $914,000,000 respectively, with the main drivers from an asset perspective being lower production at Cowal, The sale of Craco, partially offset by a full year's contribution from Red Lake. Essentially, the other assets negated each other. I will talk through the drivers to the profit in more detail on the next slide.
Our margins are still very healthy at around 50% cash margin And at $6.73 per ounce all in cost margin, which is flowed through to mine and group cash flows of $555,000,000 $327,000,000 As mentioned by Jake, we have declared a final dividend of $0.05 per share, which is again fully franked. This is in line with the range of $0.04 to $0.06 we guided in our June quarterly results in July. Turning to Slide 9 and our profit, which was a record $345,000,000 and an increase of 14% over FY 2020. This was achieved against an achieved gold price of only a 4% improvement year on year. The higher copper price was the main contributor to the 27% increase in byproduct revenue.
During the year, contribution from copper moved from just to just under 13%, which is up from just under 10%. As shown here, the full year of Red Lake added $51,000,000 But this did not fully offset the decrease of $82,000,000 from the sale of Craco. The lower gold revenue is driven mainly from the lower sales And production at Cowal, which is expected to increase in the coming years as our growth plan is executed. The most pleasing aspect of the profit is the cost outcome. The price impact in our costs was only 1% higher With increases in labor and maintenance consumables, partially offset by lower fuel, power and grinding media costs.
The main driver of the increase in activity costs was a full year of underground mining production at Mt. Carlton, which commenced in the June quarter of 2020. In terms of non cash items, increased inventory values at Cowal and Lower Group D and A Due to increased resources and reserves resulted in the improvement to profit of 71,000,000 Moving to Slide 10 and our margins. While we did see lower margins through the year, we are still delivering higher margins across the business. It also shows the benefit of a portfolio approach, which focuses on margins as opposed to ounces at any cost.
At an operating cost level, we are delivering margins of 50% 30% after all operations have invested their This is resulting in a net margin after all expenditure of around 18%. We are seeing high margins continue at our long life cornerstone assets with Cowal and Ernest Henry delivering in the 60% to 70% range. When we acquired Red Lake, we knew that in the short term, it would be a higher cost, lower margin asset. This is reducing our group EBITDA and operating margin by approximately 2% to 3%. However, once the turnaround at Red Lake is completed, Their margin will materially improve and that will flow through to our group margin.
The recently completed acquisition Of the Kundana and EKJV assets adjacent to Mungari, we'll deliver an uplift in margin for that asset, which is already sitting at the 50% level. Onto dividends, which is shown on Slide 11. We declared a fully franked final dividend of $0.05 per share. This will be paid on the 28th September with the final amount estimated at $91,000,000 This amount is subject to the final outcome of the SPP, Which closes on Friday and shareholders who take up that offer are eligible for the final dividend. The full year dividend of $0.12 per share equates to a payout rate of 64% of our group cash flow for the year.
In assessing the final dividend, the Board took into consideration the proceeds we received from the sale of Craco and we have included these proceeds in our full year dividend. Our policy is very much aimed at delivering returns for our shareholders, and the chart on the bottom right reflects this position. As our portfolio and margins have improved, we are returning in excess of $300 from every ounce produced to our shareholders. Moving to Slide 12. We have continued to strengthen our balance sheet.
This has been achieved through our operational performance during the year and the changes we made to our debt facilities last week. We finished the year with low leverage of 0.5x EBITDA and modest gearing of 15%. A revolver of $360,000,000 remains undrawn. In recognition of the work we have done on the balance sheet over the past few years, We received an investment grade private rating, which allowed us to price a debut debt placement on the U. S.
Private placement market. Key benefits of the change to the debt arrangements are lower funding costs, increased average maturity out to 7 years And no material repayment obligations until FY 'twenty six. Upon completing the placement in November, We will have a balance sheet which is able to fund our strategy, be that by organic growth or business development opportunities, While at the same time maintain flexibility on our dividends and be able to withstand any negative impacts should metal prices decline significantly. I'll now move to our detailed FY 'twenty two guidance, which starts on Slide 13. Firstly, it is important to note that at a group level, our FY 2022 guidance remains unchanged from what we announced last month.
That is, we plan to produce 700,000 to 760,000 ounces at an all in sustaining cost of $12.20 to $12.80 per ounce. The drivers to our production guidance are higher production at Cowal and Red Lake, With Cowal benefiting from the higher grade Stage H ore, while Red Lake will deliver higher grade and increased throughput. Mungari's increase is not as big as the other two sites, but it's still important as the high grade ore from Kandana and EKJV will offset the declining Frogs legs or tonnes. On costs, labor remains the biggest input cost for us at around 53%, And we are planning an increase of 3% to 4%. We are not expecting any material increases in our other operating costs.
A driver to our all in sustaining cost this year is that some mines like Cowal have transitioned from capital waste material Movements to ore movements. This transfers costs to operating an all in sustaining cost, But does not adversely impact on our cash flow or our all in cost position. As we have extended the mine life at Cowal and Red Lake, It is the right time to invest in those assets. On a sustaining capital basis, this will add $45 to $50 per ounce to our all in sustaining cost in FY 2022 when compared to FY 2021. Turning to Slide 14, which has our FY 2022 guidance on capital.
As with the guidance on production and the all in sustaining cost, The group level capital guidance remains unchanged from what we released last month at $125,000,000 to $155,000,000 for sustaining capital And $440,000,000 to $510,000,000 for major capital. In terms of sustaining capital, the majority of the investment will be at Cowal and Red Lake. This is directly linked to extended mine life and the age of existing infrastructure and equipment. Investment is as we detailed in July with the growth projects at Cowal and Red Lake. These are outlined on this slide.
The major capital at the other sites is mainly linked to mine development. Moving to Slide 15. From a guidance perspective, we felt this year it was worthwhile providing some context as to how the year will look on a quarterly basis. This is because we have a number of different projects which are in execution and the mine plans at the sites are at different stages. Our production will ramp up from 22% in the September quarter to 25% in December March quarters And then 28% in the June quarter.
The main drivers to this are at Cowal, where the grade will increase during the year as we access ore from Stage H, which will then displace lower grade stockpile material. At Cowal, we have also just completed a major planned shutdown of the plant in August. At Red Lake, the production will be driven by the mine development rates that are aimed at lifting our processing throughput rates to 1,000,000 tonnes. And at the same time, the grade profile will increase quarter on quarter. Lastly, at Mungari, we will see the benefits of the Kundana and EKJV acquisition flow through from Q2 onwards.
The lower production rate in September quarter has a flow on effect that our all in sustaining cost will be elevated at around $14.50 per ounce for the quarter And then trend down each quarter to meet our full year guidance of $12.20 to $12.80 per ounce. Lastly, to Slide 16. In conclusion, Evolution has delivered and achieved a lot throughout FY 2021 in what Jake described earlier as a disruptive and challenging environment. As someone who is accountable for shareholder funds, I want to take a minute To mention our move into Canada. In the last 18 months, we've invested over $900,000,000 to acquire Red Lake and then Battle North Without any of us from Australia being able to spend any time at this site since March 2020.
The team at Red Lake has delivered on their guidance, exceeded expectations in the mine life potential and commenced integrating the Battle North assets into their operations. They did this with a lot of support from many people throughout the business and this reflects everyone in Evolution's commitment to delivery. It also links us to what we are trying to build and that is a gold company that prospers through the cycle. We have upgraded our portfolio quality in the last 12 months with a and have a multitude of growth opportunities. That said, we will maintain our discipline to invest our capital to grow long life assets and focus on margin over ounces.
By doing this, we will generate high margins and be able to continue to return funds to our shareholders. Lastly, before turning over to Darcy to open the line for questions, I'd like to reiterate what Jake mentioned about the amount of effort that people have done In putting these full year financial results and presentation together. And not only that, it's also to acknowledge Brian O'Hara, who Today, it's his last Investor Relations call for us, who then is leaving us shortly to go off into new endeavors. On behalf of Evolution and myself personally, I'd like to thank Brian for his valuable contribution to the company and making sure that our relationship with This is as strong as it is today. With that, Darcy, please open the line for questions.
Thank
you. Your first question comes from David Radcliffe from Global Mining Research. Please go ahead.
Thank you and good morning Jake and team. My first question and it's obviously very early days of integration. But in terms of Cardano, can you maybe talk to any opportunities or risks You see now the deal is actually completed. So I think maybe that you were thinking there, but you didn't talk about before it was locked away. And maybe within that whether the teams have actually come up on the ground with any opportunities you haven't thought of?
That's my first question.
Hi, David. We've had the operation the Keys for 24 hours. So it's probably a little early to talk about that. But Look, Witten, we see it as a huge opportunity. As I said in my speaking notes, I was a little concerned about the transfer of the Northern Star employees to Evolution Because it is a heated market, but to get a take up of over 90% has really been very good.
Over the past Our integration team has had 14 meetings with both our Mungari team and the Northern Star team and the overwhelming feedback has been very positive, Constructive. The opportunities there, we have not had one person anywhere push back and say, this deal doesn't make absolute Drill commercial and logical sense. So it's just a case of now getting the integration, making sure that we build a platform Because this is now a very long life asset for us. And it's a really interesting opportunity. So very excited about it and looking forward to Being able to share all those opportunities that we identify in due course.
Okay, thanks. Sorry, that probably was a little bit unfair given the time. There was a slight comment about negotiations about tolling EKJV ore. Maybe if you could expand on that and the timing there. And you've said the mill can do 2,100,000 tons a year.
I sort of assumed that it would be full with everything you already had. So would this be displacing stockpiles?
Yes. So we're talking to Rand and Tribune and we're a 21% shareholder of Tribune About tolling the material through it. Yes, it will displace their share. The 49% will displace, but That's the highest grade ore. I think it's around 4 grams per tonne reserve grade.
So that's the absolute highest grade. And you may recall, we've got this Pre feasibility study, which we're completing this quarter, which is looking at an upgrade to the milling capacity.
Yes. And Dave, just to add on to that. So I mean, what we're looking at, we'll do put some material through in the next couple of months while we're finalizing The terms and that's just really also to make sure that, that ore how we're going to process it, we'll have to do it in batches Through the year, but so far, we've been able to get arrangements in principle agreed to allow us move forward with that and as Jake said, yes, we get the benefit of the toll treatment costs, but we also get the benefit of that high grade material going through the plant.
And it has been of course included in our guidance and outlook for the assets.
Okay, thanks. Maybe just coming back to your sustainability comment. Are you confident you can quickly come up with a plan and above A budget to achieve the 2,030 target, some of your peers are actually quite a bit ahead of you. And then I guess in the market, people have been surprised by some of the costs that people have attributed to delivering this. Is there any sort of layer hanging fruit you can see at the moment?
Yes, Dave. I hope by now you've You know us well enough to know that we wouldn't say something that we don't believe we have a plan to deliver. So yes, we have a clear plan. 70% of our emissions are Scope 2 emissions, and the majority of that comes from power and grinding The Ball Mills and SAG Mills. 50% of our total emissions come from Cowal and that's obviously our priority.
So If we can achieve getting the cow onto renewable power, which we believe is doable, then that achieves our objective. If in the absence of any capacity to reduce our emissions and we see that That is our absolute priority. Carbon offsets costs at the moment would cost us about $10,000,000 to $11,000,000
Brilliant. Thanks very much guys and good luck to Brian.
Thanks, Doug.
Thank you. Your next question comes from Daniel Roden from Jefferies. Please go ahead.
Thanks, guys. It's Mitch Ryan here. Actually, I think I've stolen My first question just relates to Carl working from home.
I was going to ask Daniel what happened to Mitch.
It was a short tenure. The question just relates So, Cal, you called out that you've had a major planned plant shutdown in this August month and I guess that's on the back of the 12 month 12 day shutdown that you experienced in the June quarter. I just wanted to sort of get some clarity on how long it was down for in August and I guess just if there's anything we should be Thinking about or concerned about as an ongoing issue or this was 2 separate issues?
Yes, Mitch, Laurie here. They are 2 separate issues. So when we go to March April was when the site was putting their plan together and The major shutdown, which was around 1.5 weeks, was to do a lot with the staters and everything in the mill, And we had that into our plan. The breakdown in the June quarter was the unplanned piece. And so what we were able to do, we're able to hold some of that work that we had to do in the June quarter for the unplanned and did that in this planned shutdown.
But everything for this one was basically the major shutdown that we needed to do, which will get us through to the next major shutdown, which will be In the first half of FY 'twenty three. So that's really nothing that's out of the norm.
Okay, great.
Thank you. And second well, another comment. Laurie, congratulations on the restructuring of the debt that was obviously well flagged, but good to see that get away. Just wanted to know if you could comment with hedging out for the next 2 years, only after FY2023, should we expect to see Some additional hedging being put in place for FY 'twenty four, just roll do you continue to roll that forward or will you just sort of let it roll out?
No, Mitch, our current plan is to not add any more hedging to the book. We've looked at our mine plan Over the coming 3 to 5 years and match that with the balance sheet and we don't see any need for hedging at this point.
Okay, great. Thank you. Thank you for taking my questions.
No worries. Thanks, Mitch.
Thank you. Your next question comes from Al Harvey from JPMorgan. Please go ahead.
Good morning, Jake and team. Just on the portfolio structure, so you've got the 4 cornerstone assets now, but I guess that puts the spotlight on the smaller assets that Don't have those attractive long life and low cost criteria you pointed out. So how are you thinking about Mount Carlton and Mount Rawdon now and their respect Contributions to production and cash flow going forward.
Thanks, El. I mean, we're always looking at our portfolio. It is true that we now do have Four cornerstones. But we continue to assess it and look at market conditions and see how things are going. At Mt.
Broaden, we really like The opportunity to deliver a potential pumped hydro scheme. So that is a low management intensive asset, not That's from a group office, not from a site team because they're very effective on that site. And Mount Carlton It's providing a smaller contribution, but it's operating pretty successfully at the moment. And Anton Kruger and the team there are doing a good job at delivering Well, at that side. So continue to evaluate things, but nothing to advise you of at the moment.
Thanks, Doug. And just a quick follow-up, what is the medium term production profile at Mount Carlton? Can we Kind of project forward FY 'twenty two guidance until Rush Creek comes online or should we have that tapering down? And is there any hiatus between Mount Carlton Finishing and Crush Creek coming online?
Al, there isn't any hiatus planned. When we looked at it last year, we targeted a number of areas to make sure we didn't have a Hi, Atas. And Anton and his team have been able to successfully do that. Production wise, it will depend on a couple of activities that we're doing this year. You won't A material drop away from current year's guidance for the next 18 months, 2 years and then the 3rd year is going to depend on the outcomes of Crush Creek this year and timing of when we bring that on.
Thanks very much, Jens.
Thanks, Hal.
Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Good morning, Jake and team. Congrats on a strong and clean result. I just wanted to focus on capital management. You talked around the dividend. You've paid 17 consecutive dividends now.
Balance sheet is in excellent condition. Yes, you've got a bit of CapEx coming up, but how should we think about the payout ratios going forward?
I'll leave that with Larry, but the number of compliments we're getting, I'm pleased that his performance review was done a few weeks ago.
Thanks, Jake. Sophie, look, our approach on the capital management is To really make sure that the balance sheet can fund all avenues that we need, which is investing in the business, investing in anything that Kieran finds and returning to the shareholders. Our dividend policy is not changing, which is a percentage of cash flow. What we will do obviously this year and next year, we To balance up the capital investment for the growth and then we will look at where the balance sheet is at the half year and the full year. But our expectations is that We'd see dividend staying at around the current level of our final dividend absent anything else happening.
As a percentage of cash flow or was it as
a lower number? Yes, for the full year, when you take Craco proceeds into consideration, I think we ended up at 51%. Yes, depending on when the major capital gets spent through the course of this year, at the half year, you may see that it's above 50 And at the full year it trends back to 50%. But yes, we're still targeting 50% of cash flow going forward.
Okay. Is that the stated dividend policy, 50%?
Yes. So the stated our stated policy is a percentage of group cash flow Before debt and any sort of M and A activity and we target 50%.
Okay, all right.
It's about $50,000,000 because we need to have that flexibility. As I said, in the first half of the year, gold prices are $24,050, dollars 2,500 and copper is at $12,500,000 $13,000 a tonne and the ramp up of the major projects is slow and but still tracking to plan, you may see a higher percentage than that. And the full year, you'll see it around that 50%.
Yes, sure. And then just in terms of Capital cost pressures, this has been a major scene that's coming through. You guys obviously experienced that when you put out the initial FY 2022 guidance. I just want to understand post FY 2022, obviously, you still got some spending at Red Lake and Cowal. Is there anything else that we need to be aware of going 2023, 2024 period?
I think if you look at it, Sophie, 2022 is a lot around equipment in the sustaining capital. So at Cowal, It's the fleet in the pit. Those orders have all been placed. A couple of them will be secondhand. So those Won't be as long a lead items.
If you look at Red Lake, similarly in May and then in June, we placed The orders for equipment that will be delivered through until the Q1 of FY2023, so those costs, it's really going to be around the capacity of the OEMs to With everything that's going on. So there's nothing we see there. And then when you look at the major capital, the underground at Cowal contract For the mining, basically is finalized and then you look at the pace plants and other equipment, again, those contracts are actually all In line to be ordered within the 1st 90 days, so that will lock those prices. And then from there, you've got the mine development in 'twenty three and 'twenty four at Cowal and Red Lake, similarly, when you look at it, the plant upgrades are over the next 18 months and the rest of it is mine development. We've got burn cut As the contractor is on the ground and ramping up now in the CYD decline and the same at Mc Finley Contractors in place and ramping up.
So the spend in those areas is going to be around mine development and we don't see a lot of that Changing from what we've contracted each of those parties at Cowal and Red Lake to do.
I will just add to that Sophie that we get a lot of scrutiny from and Questions from the Board around our capital cost programs and why our numbers seem somewhat elevated relative to what other participants have out there. So I'm Very comfortable that we're appropriately estimating our capital on the conservative side.
Okay. No, thanks, Jake and Laurie. And then just to expand a little bit more on the net 0 by 2,050, you talked through sort of some of the Initiatives. So if we fast forward to 2,030, how can we see that sort of progress as we move to 2,050? Like how much Should we expect by 2,030 given that you've already identified sort of where the major initiatives are?
So I think the big one will be to move as much as we can to renewable power and that's going to be the priority. And then by 2,030, I think you're going to be starting to look at fleets and hopefully the OEMs have now by that point Got out commercial vehicles and trucks that can be run on electric power as well. So once you shift both your scope 1 and scope 2 emissions To renewable power, you have a very material drop in your emissions.
Okay. So just to confirm, you expect to do a full transition to renewable power at Cowal by 2,030?
No. When we so we're not we're going to be replacing the fleet now. We're going to be estimate we're going to be looking at that. Also going to be looking at our long term plan at Cowal and these future open pits. But ultimately, we want to rotate out the mobile Fleets when it's commercially available and competitive with the current fleets.
So we're confident we'll achieve our target of 2,030 and then 2,050 we have another leg to go And that's going to be the rotation out of these fleets into electric vehicles.
Okay. Thanks, Jake. Thanks, guys.
Thank you. Your next question comes from Daniel Morgan from Barrene Joey. Please go ahead.
Hi, Jake and Tim. I'd just like to revisit the dividend, if I may, and the use of free cash flow. So the company is going through a very Growth and capital investment period, very heavy period. If the gold price, copper price are not in your favor come down, Your free cash flow could get very skinny and just wondering how you think about that potential and what it would mean for the dividend? Like would you Be willing to go up to a higher level of free cash flow payout or even pay from debt?
Yes, Dan. Look, I mean, it is fair. I mean, we set the balance sheet to cover for those drop in metal prices to make sure that we're able to withstand that. We believe we've got the balance sheet in that position now. If those prices came down, we'd have to look at what our Yes, the stress is on the balance sheet with the capital programs.
We're comfortable with it. But of course, our dividend policy is a percentage of free cash flow and we'd have to assess that At the time. I mean, I think the pardon me, the other thing that we always take into consideration as well is where our franking credits sit And what that does to a franked dividend versus an unfranked dividend, if those metal prices come down, your franking balance also comes down. So we have to look at it Each time at each reporting period, the percentage of cash flow for us, it is not, as I said to Sophie, it's not locked at 50 We have flexibility based on where the balance sheet sits. The only thing I would say is I don't see a lot of value in going drawing extra debt Just merely to pay dividends because your metal prices are down and you don't know where they're going to go.
That could lead you into a very difficult balance sheet management position.
And I think Dan, Laurie and I often have this discussion and he makes the point to me that we're not guaranteeing a payment of dividends. Is dependent on cash flow and we want to build a business that prospers through the cycle. So when cash flow is really strong, we're going to be paying good dividends. But if it does happen to be in an environment where the gold price and copper price tanked, we have the resilience and the capacity make that assessment at that time, but it's not a guaranteed dividend.
Very sounds well. Thank you. On the Production targets are pretty well articulated with the 3 year outlook and even beyond at Red Lake. Sorry, there's a question about Red Lake. Just wondering about costs.
We've been hearing a lot about industry costs and how they're under pressure on things. And Just wondering what is the success or the cost profile you're targeting at Red Lake longer term? Was there any update to that given all the pressures that we're seeing in the industry? And could you outline mining and processing cost outcomes you're targeting?
I'll make a few comments and then hand it over to Laurie. But our 3 year guidance we gave when we acquired the asset, which was to get all in sustaining costs down to US1000 dollars an ounce. And that was for a target of 200,000 ounces of production. We don't see any impediments to delivering that. It's around productivity improvements and changes.
So at Red Lake, you've got an offset between productivity improvements that are available to us and downsizing, which we're doing all the time and making the operation Very efficient. Laurie will talk through our cost structures. But as he said, labor is the one area that we are Forecasting a 3% to 4% increase in costs, but our cost control and this is largely a credit to Laurie and his team, has been incredibly effective. We have a large proportion of our workforce, which is residential right across our operations. And Bob Fulker has been adamant that that is the way to go in terms ensuring that we try and contain our costs, but the procurement team have done really, really well at Ensuring that our price increases in the last 12 months across the whole business was limited to 1% or $5,000,000
Yes. The only thing I'd add there, Dan, I mean, when we look at Red Lake year on year, so for the quarter last year and the full year this year, it was basically In line on a pro rata basis. So the operating costs there are not moving materially. Jake's right. We've got 80 To 85% of the workforce there is residential.
So we're not seeing high turnover rates. I think as Canada opens up, you'll see some movement, But not a lot when you're talking about operators and supervisory level roles. And then the other cost pressures that Yes, we see there in terms of the other cost power consumables and the like, it's not Going to have a material impact if we see any slight upward movement because it is really Around our labor cost and activities that we do there.
Is there any Dollar per tonne figure you'd be willing to share on mining or processing at Red Lake targets?
Targets right now, not really, Dan, because what we're looking at is, this is going from the existing underground operations, which are putting in New piece of equipment over this year, then we've got a new surface decline going in and we're opening up McFinley and trying to work out where they're all going to land in terms of their cost And similarly, we're running with 3 plants, some the Red Lake Mill, which will come on and off the Campbell Mill, which will operate Full time and then obviously we'll turn the Bateman Mill on as we go through the next 12 to 18 months. I think it's probably about Yes, this time next year that we'll have finished all of those plans and worked out exactly where we're going to end up. But in terms of what we see over the next 2 to 3 years, it's exactly as Jake said, a fairly stable cost Right, but a focus on productivity and efficiencies.
Thank you. And then just one last question more holistically So, Jake, I guess, you are a portfolio manager of these gold mines and you made successful acquisitions at different times. Is this a time to be a buyer or a seller of gold assets? Are there motivated sellers out there?
We haven't come across a lot of motivated sellers at the moment. I'm a bit surprised by that to be honest because Yes. Gold equities have had some real headwinds. I think it's up to investors to start to put some pressure on companies to start looking at deals, Which makes sense. There's nothing we have our organic growth ahead of us.
We've got our cornerstone assets. We don't want to do deals just for the sake of doing deals. So from our perspective, we're watching with interest as we always do, But not anxious about doing something.
Thank you very much.
Thank you. Your next question comes from Brad Thompson from Australian Financial Review. Please go ahead.
Good morning, Jake and Laurie and team. Thanks for the briefing. Jake, just harking back to your comments about Australia becoming a laggard on COVID-nineteen and frustration at not being able to visit sites. Just wondered if you could elaborate on where it's gone wrong and your position on mandatory vaccination for mine workers, please?
Yes. I mean, I think where it's gone wrong is we haven't vaccinated our population quickly enough. And if you compare ourselves to other nations, We're well behind in vaccination rates. We're catching up and the government's doing everything they can to get everyone vaccinated, but we are well behind and it's Clear that vaccinations are the pathway to getting restrictions Lifted. Where we are, we want and are encouraging all of our workforce to get vaccinated.
We have not yet made a statement that it's mandatory, but we want to assess what their position is with respect to vaccinations. It seems overwhelmingly positive, But we want to assess that and we'll be making some determination in the future. But at this stage, we are making it absolutely As easy as possible and encouraging our workforce to get vaccinated.
Thanks, Jake. And just on Kundana and you mentioned there that with the acquisition you've been able to Retained about 90% of the workforce. Have you had to offer incentives or bonuses to keep those workers?
No, we have not. They came across on the same basis as they were being paid at by Northern Star.
Excellent. Thanks. Thanks for that.
Thanks, Brad.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Klein for closing remarks.
Thanks, Darcy. Thanks, everyone. I just want to add my thanks and appreciation to Brian. He's Been Investor Relations General Manager for the last 8 years. His guidance, counsel, friendship to this company, to me as an individual It has been fantastic.
And Brian, on behalf of everyone, best of luck in the future.
That does conclude our conference for today. Thank you for participating. You may now disconnect.