Good morning, welcome to the Evolution Mining June 2020 quarterly conference call. This morning on the call we have Jake Klein, Executive Chairman, Lawrie Conway, CFO and Finance Director, Bob Fulker, COO, and Glen Masterman, VP Discovery and Business Development. In what has been an extremely volatile year with so many distortions in financial market prices relative to economic reality, it's reassuring to know there's an asset class that's behaving exactly as it should. Gold's historical negative correlation to real interest rates continues to hold true, with declining real rates, coupled with extraordinary government stimulus, the gold price has performed well. While the US dollar gold price is now within a few % of all-time highs set way back in 2011, the AUD gold price continues to break records, averaging over AUD 2,600 per ounce for the June quarter.
We've got a busy couple of months ahead of us with the release of our financials on the 13th of August, which we'll use as an opportunity to issue FY21 guidance and an updated three-year outlook. On the 1st of September, we hope you can join us for our virtual investor day, which will have a particular focus on the longer-term outlook for our business, highlighting the growth potential at Cowal, Red Lake, Ernest Henry, and Mungari. For today's call, we'll be talking to the June 2020 quarterly results presentation released to the ASX this morning. Thank you. I'll hand you over to Jake.
Thanks, Bryan. Good morning, everyone. Thanks for taking the time to join us on the call today. We really do appreciate it. I start by pausing to reflect on the tragedy the Australian gold industry experienced last week when a young man lost his life in Western Australia. We are a relatively small, tight-knit industry, and it has appropriately impacted all of us. We'll all work together to learn from it, and our thoughts are with his family and his colleagues at this very difficult time. I do hope that you, your families, and colleagues are all healthy and well and navigating these unprecedented times we are all confronting. At Evolution, we are fortunate that we are operating in Australia and Canada, two jurisdictions that are very good to operate in, and fortunately, also countries where the COVID-19 pandemic is being well managed.
Evolution's management of the COVID-19 pandemic has been very successful so far. We are navigating through this with authenticity and staying true to our health and safety values while continuing to keep our business strong. To date, we have not had any impact on our production due to COVID-19, nor have had any of our employees or contractors infected. Today, I'll be talking to slides three to five of the presentation that we've released. As an opening comment, I will say that if I could bottle this set of results and bring them out each quarter from here on, I would happily do it. They capture so many of the fundamental attributes our core long-term strategy is at Evolution. Firstly, and very importantly, our safety performance is improving. Performance in this area can never be good enough, but the signs are encouraging.
In June, we did not have a recordable injury. Our culture of engaging, reporting, and learning from every incident is also improving markedly. Secondly, we have long talked about our approach to focus on margin over volume. Here, you clearly see the benefits of that strategy. Producing more cash from lower ounces, in our view, is a very good thing. This quarter, we delivered record operating cash flow, record net mine cash flow, record free cash flow, and increased our cash balance by AUD 204.7 million, demonstrating again that Evolution is a high-margin, low-cost business. We are very pleased about today's high gold price, and we hope it goes higher. We are not going to bet our business on it as we continue to seek to position Evolution as one of the very few gold companies that can genuinely claim that it will prosper through the inevitable cycle.
Thirdly, a gold company by definition is depleting its assets with every ounce it produces. You must continually be adding ounces through discovery and also creating value through improvements. If you don't, you're going backwards. Today, we announced the maiden underground reserve at Cowal. This is an asset that we acquired in 2015 with a resource base of 3.4 million ounces. Since then, we have produced around 1.3 million low-cost ounces, have generated over AUD 750 million in net mine cash flow, and today the asset has a resource base of over nine million ounces. Our reserve base at Cowal now sits at almost four and a half million ounces, and we will continue to grow this reserve base as we drill out more of the inferred resources into the indicated category.
We will also continue to be conservative and constrain our resources at AUD 2,000 an ounce and calculate our reserves at AUD 1,450 an ounce. This is the best way to protect our margins. The maiden reserve announcement is well ahead of our anticipated schedule of the end of this calendar year and reflects the momentum we are building at this world-class mine. Bob and Glen will talk further about the very exciting opportunities we have in front of us at Cowal as we navigate our way to the production profile of over 300,000 ounces a year of low-cost gold. We continue to be very impressed and encouraged at the way Evolution's approach, style, and culture is being embraced at Red Lake. The transformation and turnaround is happening faster than we anticipated, the scale of opportunity is far bigger than we expected.
We believe that as this continues, we will be able to consistently demonstrate material value creation at these assets. You'll be hearing more about this from Glen in his summary, and also at Investor Day and the release of our results. The turnaround at Mungari is impressive, and the team there have done a great job at consistently delivering to or above their plans. Lastly, and I believe very importantly, we continue to demonstrate that we are prepared to refresh and revitalize our portfolios. Cracow is an asset that has served us well, but has a mine life of 18 months and needs an owner prepared to allocate risk capital to discovery. Relative to the opportunities in front of us at Cowal, Red Lake, Ernest Henry, Mungari, and Crush Creek, all properties with discovery upside, Cracow would not have ranked above them from a discovery perspective.
This is the third asset we have sold, and we continue to believe that our strategy that bigger is not necessarily better and that margin trumps volume every day is the best approach for long-term shareholder value creation. With that, I'll hand over to Bob.
Thanks, Jake, and good morning, everyone. Go to slide six, please. It's pleasing actually to start with a couple of great positives. In the quarter, TRIF dropped by another 6% to 6.8. For the full year, this is an 18% improvement, meaning less people are being hurt. We've been actively monitoring and reacting to the impact of COVID, and our people and our business have, to this point, not been materially affected. In the June quarter, we delivered 218,000 ounces at AUD 1,088 all-in sustaining cost and AUD 224 million of net mine cash flow. A great result from the site teams to deliver a sound fourth quarter. We continue to produce gold safely. We have a new ore reserve at Cowal and a great opportunity at Red Lake with the exceptional resource work from the geological team. Finally, 746,000 ounces produced during FY20 at an all-in sustaining cost of AUD 1,043.
This includes 27,500 ounces at Red Lake at AUD 1,943 an ounce. If we turn to page seven, Cowal has delivered an exceptional safety improvement through the year, with a movement from 8.7 to 1.8 in TRIF in the 12 months. Total ore processed is 7% up and plant utilization has improved by 2% during the year. Considering the plant is predominantly on low-grade stockpile feed, Cowal had a sound quarter at 60,600 ounces produced at a reduced all-in sustaining cost of AUD 941 an ounce and a net mine cash flow of AUD 59.3 million, while still investing over AUD 55 million on the underground diamond drilling and study work, Stage H strip, and the IWL tails facility. These are all investments for the future. As Jake mentioned, today Cowal declared a maiden underground ore reserve of 804,000 ounces and increased the GRE 46 mineral resource to 2.9 million ounces.
I'd like to recognize the entire project team for the enormous amount of work completed to date that has enabled us to release this great result. The team are now working on the final stage of regulatory submission and will be ready to commence the Underground upon approvals from both the regulator and our board. Finally, John Penhall started this week in the role of General Manager, and I'd like to welcome him to Evolution and to thank Greg Walker for doing a great job in keeping Cowal on track and delivering our ounces safely last year. Ernest Henry, once again, made a significant contribution to the group producing 28,000 ounces at an all-in sustaining cost of negative AUD 617 an ounce, whilst generating a net mine cash flow of AUD 68.3 million.
On page eight, Red Lake's first quarter with Evolution exceeded my expectations, and the team, under guidance of Amber Adams, have really taken on the challenge to transform their operation. They produced 27,500 ounces at an all-in sustaining cost of AUD 1,943 with a mine cash flow of AUD 9.9 million before the restructuring costs. Post the Campbell Mill refurbishment, the Red Lake mill has been shut and winterized to save costs. Campbell Mill has been running at 98% availability since the shut. Due to the fluidity of the COVID situation, the majority of the shutdown was performed by our local workforce. This has improved site ownership of the shutdown quality and will be replicated in the future where possible. Underground development advance rates are improving month on month. The plan is to reach over 1,200 meters per month during the next six months.
This improvement is due to focused development areas, improved efficiencies in the lead equipment, and overall cycle effectiveness improvements. Other key milestones achieved during the quarter include 42 pieces of underground equipment decommissioned and removed, unused and redundant surface buildings removed, commencement of the underground infrastructure changes to allow the decommissioning of the Campbell shaft, commenced the Reid and Balmer hoist automation projects, and updating the resource model continues, which Glen will discuss. Many small projects to reduce cost and improve efficiencies. It's an exciting time at Red Lake. Amber and the team continue to stay motivated and inspired to achieve their vision of being the cornerstone asset in Evolution that delivers true value. The goal remains to deliver greater than 200,000 ounces below $1,000 AISC a year. I'm confident that this is very doable.
Mungari delivered 37,000 ounces at an all-in sustaining cost of AUD 1,089 an ounce, with another record net mine cash flow of AUD 39.8 million. Frog's Leg Underground delivered 29% increase in tons at a higher grade. It's pleasing to announce that the Boomer development hit mineralization as planned early in the quarter, and a drill platform established to start grade control drilling. Cutters Ridge is progressing nicely with the first ore delivered last month, and the plant continues to run at a sustained two million ton per annum rate. Mount Rawdon produced just shy of 26,000 ounces at a slightly reduced all-in sustaining cost of AUD 1,305 an ounce. A record net mine cash flow of AUD 32.3 million was also realized. High-grade ore was accessed as expected, which reduced the need to feed low-grade stockpiles.
Mount Carlton delivered just shy of 15,000 ounces at a reduced all-in sustaining cost of AUD 1,324 an ounce, and a mine operating cash flow of AUD 11.7 million. Mill utilization has remained high at 97.9% for the quarter. This is a full-year improvement of 5.3%. Cracow continued its consistent performance, producing just shy of 24,000 ounces at a reduced all-in sustaining cost of AUD 1,090 an ounce. The sale of Cracow was successfully completed on the 1st of July to Aeris Resources. I want to personally thank the General Manager, Jason Floyd, and the entire site team for their service and contribution to Evolution Group. I'm pleased to say Jason will be staying with Evolution. In summary, FY 2020 has been a year of many highs and some disappointing lows, it's my belief that we continue to learn how to improve ourselves and our business in these moments of hardship.
Our safety has improved. Five of our six operations produced well. We have managed geological and geotechnical uncertainty, as well as the COVID pandemic well. Some personal highlights of mine have been 61 Act Like The Owner nominations last quarter, 196 for the year. Our Data Enabled Improvements or DEBI program delivered AUD 45.6 million in value. The Cowal Underground Project has been accelerated, and the Mount Rawdon Western Wall Remediation has been completed. It's now the start of a new financial year, and we are focused on reliably delivering our promises. I'm incredibly proud of all the positives achieved last year, and I'm encouraged with our people's enthusiasm to challenge the norm and think differently. Thank you for your time, and with that, I'll hand it over to Glen.
Thank you, Bob, and good morning, everyone. I'll be speaking to slide nine in this morning's presentation and referencing pages 12 to 20 of this morning's report. Financial year 2020 proved to be a successful year in discovery at Evolution, particularly at the Cowal Underground. Results from the focused surface and underground drilling activities continue to demonstrate the high-quality opportunity we have in front of us. Over 400,000 ounces was booked in the updated mineral resource only four months since our last estimate was completed. Total resources, inclusive of the 804,000 ounce maiden ore reserve, has increased to 2.9 million ounces.
Drilling will continue underground and from surface in the current quarter, with the aim of upgrading additional inferred resources to build on the 1.5 million ounces of indicated category mineralization and to continue expanding the resource inventory, mainly at the Dalwhinnie South area, where mineralization remains open in the down plunge direction. Infill results highlighted on page 15 of this morning's report, which includes 75.2 meters grading 5.1 grams per ton in Hole 139, confirm our understanding of the geological continuity of mineralization in the underground resource. These results were not available at the end of April when the resource model was updated. Will be incorporated in our annual mineral resource and ore reserve statement for the period ending December 31st, 2020. Importantly, these new results confirm our hypothesis that the ore reserve will continue growing as we progress feasibility work to deliver first ore from the underground.
At Red Lake, we have now completed 2 full quarters of drilling and increased the number of underground drills from 4 to 5. The program continues targeting numerous resource conversion opportunities at Cochenour and Lower Red Lake. The results are demonstrating strong grade continuity in areas that will be mined in the schedule over the next 12 to 24 months. Step-out drilling in adjacent areas is exploring the possibility of extending mining beyond current designs where mineralization remains open along strike. Several longer step-outs at the north end of the Cochenour ore body have confirmed continuity along strike of the Gold Eagle Corridor. The best result was 4.7 meters grading 18.8 grams per ton with follow-up drilling planned around this initial intercept to understand the significance of the results.
Work on revision of the Red Lake mineral resource continued during the June quarter, including consolidation of over 140 individual block models into a more manageable number of 19 models. Our developing understanding of the geology and controls on grade distribution across the various ore bodies reinforces our belief that we have acquired an excellent geological address in Canada. We look forward to sharing the results of this work as we finalize our analysis on the model later in the September 2020 quarter. At Mungari, access from the Frogleg Decline to the Boomer vein was established in late May. The underground opening exposed, as expected, a narrow section of the vein, which was well mineralized with abundant visible gold. Grade control drilling commenced early in the September quarter to inform a mining study that will optimize development of the Boomer mineralization.
Drilling highlights are summarized on page 16 of this morning's report and include an impressive intercept of 0.7 meters grading 133.8 grams per ton gold from an infill hole. RC drilling commenced on the Boomer north target, which is designed to test a 1-kilometer-long extension of the Boomer structure, where it continues on the north side of the Mary Fault. We expect to be able to report initial results of this RC program in our September 2020 quarter end results. Turning now to the Crush Creek project, which is located 30 kilometers south of our Mount Carlton operation. two diamond rigs commenced drilling on the Delta and BV7 targets in the June quarter. Reverse circulation rig is scheduled to arrive in the September quarter, bringing the total number of drills on the project to three.
Low sulphidation epithermal mineralization with narrow intervals of bonanza grades were confirmed by initial infill holes designed to verify results of historic drilling. The program has subsequently moved to a phase of step-out drilling with the objective of building inventory for a maiden mineral resource estimate that we believe has the potential to extend mine life at Mount Carlton. Results for the first 20 drill holes have been received with highlights summarized on page 18 of this morning's report. Narrow high grades such as those intersected in holes 12 and 16 highlight the opportunity to delineate small narrow high-grade shoots at the Delta target. Step-out drilling will continue in the September quarter, focusing on expanding the mineralized footprint at both targets. With that, I'll hand over to Lawrie.
Thank you, Glen, good morning, everyone. Today, I'll briefly cover the financial performance for the June quarter and FY 2020. A summary of the financials is on pages 10 and 11 of the report and page 10 of the presentation. As mentioned by Jake, if we could replicate this June quarter every quarter, we'd be very happy and we would be building our bank balance significantly. It provided us with an excellent finish to the full year, as evidenced by the charts on the slide. Our group AISC was AUD 1,043 per ounce or U.S. $700 per ounce. This is globally competitive and towards the bottom end of the cost curve. Our Australian operations delivered 719,000 ounces at AUD 1,008 per ounce for the year.
Excluding the impact of higher gold price and lower copper prices on royalties and by-product credits respectively, we would have come in at the top end of guidance around AUD 990 an ounce. Pleasingly, Red Lake in their first quarter delivered over 27,000 ounces below their guidance range of AUD 2,100 to AUD 2,300 per ounce. Our sites delivered in excess of AUD 750 million prior to any restructuring costs. This was after approximately AUD 370 million of sustaining and major capital investment, most of which is for growth or future production. This resulted in healthy margins across the business with an all-in cost margin of AUD 765 per ounce, with Red Lake's first quarter delivering a margin of AUD 253 per ounce. Our EBITDA margin increased to 53% from 51% at the March quarter. This resulted in record quarterly and full-year cash flow of AUD 188 million and AUD 542 million respectively.
At the end of the financial year, the cash balance increased by AUD 205 million to AUD 374 million. We are rapidly reducing our gearing with net bank debt down to AUD 196 million. Early in July, we received the AUD 60 million initial consideration for the sale of Cracow, which further reduces our net debt position. We will be releasing our full-year financial results on August 13, as well as providing guidance for FY 2021 and an updated three-year outlook. With that, Kevin, please open the lines for questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. 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 the pound hash key. Once again, it is star one and wait for your name to be announced. Thank you. We have multiple questions in the queue. Our first question is from Mr. David Radclyffe from Global Mining Research. Please ask your question.
Thank you. Good morning, Jake and team. I had a question around the GRE46 reserve and around the grade of two and a half grams. Obviously, when you look at the number of the holes and the interval results you've reported today, there are a number of areas of high-grade material. How should we think about, I guess, the overall upside to that grade? To put it another way, what do you think the grade profile might look like as you begin to mine it? Would you be able to mine some of these higher grade areas early on?
Thanks, David. Morning. I'm going to hand you over to Glen, and then he'll hand over to Bob.
David, on the question of the average grade. Certainly, as you know, it is an average grade, and we do have areas in the resource model that report well above that average grade, and this is supported by the drilling results, such as what we've disclosed this morning. I think what we're endeavoring to do as we continue the drilling from the underground, which is targeting additional conversion of inferred resource to indicated category, is to prioritize those areas where we feel there are great opportunities that can come into the mine schedule earlier on. This is really sort of driving how we prioritize and schedule the drilling program over the next several months. In terms of the great opportunities that we're going to be looking at scheduling, and this will sort of come through in the feasibility study as we optimize the resource further.
I'm going to hand over to Bob, who'll talk to that.
Thanks, David. Thanks, Glen. Simple answer to your question is, yes, I would expect the grade to be a little higher than that when we come out with the mining plan. The team is working on optimizing the actual schedule. As normal, we will actually identify those higher grade areas for mining first. This is a global reserve grade, I would expect that when we start mining, it will be higher than that lower limit.
Thanks, Bob. David, I'll just add one comment to close that off, and hopefully I've answered your question. When we first started thinking about the underground at Cowal, we were thinking about 750,000 to 1 million tons per annum operation. The scale of the discovery, which is now almost three million ounces and open at depth and along strike and is growing, has now led us to believe that actually a larger scale operation would be preferable. We're now targeting 1.5 to two million tons per annum, which has allowed the cutoff grade to reduce, and that's had an impact on the grade. As Bob said, optimizing that grade into the mining schedule still has upside to that average reserve grade.
Okay. Thank you. Maybe if I can just follow up on Red Lake. The cost out looks to be going well. It's still early days. Can I push you on, given the progress, and your comments sounded quite positive there, on when you think you could actually deliver that $1,000 an ounce target on the costs?
You can push us, but I'm going to try not to answer the question and defer you to when we release the guidance. I would say, as an overall comment, Red Lake is surprising us on the upside in every aspect of the operation, from a geological perspective, from a mining perspective, but most importantly, from the way in which people are embracing the change at the operation. Since 2019, the workforce has been reduced by 20%. Initially, there was some ambivalence about whether production rates, development rates, could exceed 1,000 meters a month. They're now being consistently achieved, and Bob is confident that the team has the capacity to lift that to the 1,200 meters a month. We've listed in the quarterly a number of things that have been cost out, and it has surprised us on all fronts.
Most importantly, it has surprised us from a geological perspective because we are bringing a different lens to an operation which was previously targeting a grade of above 15 grams a ton. In our language, seven to eight grams a ton is high grade material. If you put a different lens on that, it gives you a very different answer.
Okay, great. Thank you very much.
Our next telephone question is from Nick Herbert from Credit Suisse. Please ask your question, Nick.
Thank you. Good morning, gents. A couple on Cowal, please, to start with. Do you mind just running through your assumptions that underpin that guidance for FY 2021, particularly over the first half when you're in that low-grade stockpile?
This is very consistent with the way the plan and the schedule has been articulated previously, Nick, in that we finished the Stage G cutback in the September quarter, and that was the best production run rate that we had at Cowal this financial year. We are then processing low-grade stockpiles as we move towards the Stage H cutback ore, which you'll get to in the second half of the year. That is our profile on what the stockpile material looks like for the next 12 months, plus some of the Stage H cutback material, and that gives you that outcome. I think it's very consistent with the messaging which we've delivered previously.
Yeah. Nick, just into what your question was, the profile. The first half of the year is all low-grade material. We will see another step down in production in the September quarter from the 60, and that will flow through into the December quarter as well. In Q3 and Q4 you'll see that certainly step back up. When we give the full guidance next month, we'll be able to give the profile over the year.
At the risk of repeating myself and looking longer term at the Cowal endowment and opportunity. When we acquired this, we never anticipated. This mine was scheduled originally to close in 2024. We've extended that to 2032 without the underground. We're now looking at the development of the underground, and this plus 300,000 ounces on a sustainable long-term basis is very much within reach. This underground we're talking about, I would add, is only what we consider phase one of the underground.
Yeah, that's very helpful. Thank you. Just sticking with the underground, do you mind just fleshing that out in a bit more detail in terms of timing around when that potential 1.5 million-2 million tons could come into production? Just the assumptions around the timing on permitting to achieve that.
The permitting is the difficult part to predict. What I will say is that this is a project that is in the central west of New South Wales. It will create long-term jobs. It will create a lot of investment. It will provide a lot of benefit to the communities around who are very supportive. It's to an existing mine that has an outstanding track record of environmental and community engagement. It ticks all the boxes from a government perspective as to projects that are effectively shovel-ready and able to be invested in. We're planning to put the submission to the regulators early in the December quarter. How long that will take, we're not sure. We will be ready to be mining on the day they get us that approval. 12 months subsequently, we expect to get our first ore from the underground.
Just to follow on, Nick, that 12 months is ample time with this style of mining to get ore to start to come out. It will ramp up post that. Pretty confident that we can get some sort of ore feeding out in that 12 months.
Okay, great. Finally, just on Red Lake. Appreciate you haven't given guidance for next year. Are you able to sort of just give a broad view on how you're thinking about the potential production out of that next year, I guess also in the context of what your planned development rates were, that I think, Bob, you'd spoken to? Any indication there would be helpful. Thanks.
Thanks, Nick. I'll just start and then hand over to Bob. Just to say that we are still in that investment and transformation phase. This is a mine that was basically being harvested and was due and scheduled to close in the next 12 months. We are prioritizing and focusing on drilling and development, and therefore the ramp-up in terms of production is not going to be a huge step change from the current year. It is investing in the future, and it will deliver us that plus 200,000 ounces at less than $1,000 US dollars an ounce.
Just to expand on that, Nick, the development rate of the underground is the key. The more development we can get early, the more areas that we can open up. We need to actually ensure that the drilling and the grade control drilling actually links in behind that and informs of the actual stoping areas. With the geology and the engineer working together, the next 12 months is really building that development stock or the development inventory, whilst ensuring that we're going into the most value-driven areas. 1,200 meters plus a month should enable us to start to pull ahead. It's pleasing to see that we're doing more than 1,000 meters a month now. The guys on site, they're pretty bullish about what they can do and where they can go. I'm quite happy that that's where we'll be.
I think the next 12 months is not prioritizing production. It's prioritizing investment and setting that operation up for a very successful long-term future.
Yeah. We've got a lot of work to do in the next 12 months.
Got it. All right. Thanks, gents.
Our next telephone question is from Levi Spry from JPMorgan. Please ask your question, Levi.
Good morning, and thanks for the call. Nick's got some pretty good questions there. Maybe I can try both of them just for a little bit more detail. Red Lake development rates, 1,000 meters going to 1,200. 1,000, you're doing 100,000 ounces a year, but you're going to 300,000 ounces. Can you just talk a little bit more to that, Bob? Like, is it a straight line? Do you need to get to 2,000 meters to get to 200,000 ounces?
Levi, no. I'm sorry.
Yep.
It's not a straight line. Yeah, it's not a straight line. If we get that plus 1,200 meters a month, we'll start to be putting development inventory in the bank nicely, which will enable us to get more ore out sooner than that 2 to 3-year timeframe that we talked about originally. Remember that it's actually been depleted over the last 12 to 18 months, so we've got to build up that stockpile first. Plus 1,000 is probably where we need to be long-term to maintain it. Getting more early on is just better for us. I just want to reiterate, it is constrained. We need to get the geology in front of us. We need to understand the interpretation, and we need to actually get that drilling and the development in concert to ensure that we most optimally mine the operation.
Yeah, good. Thanks. Good answer. Just on Cowal, so next year's gone. Does that assume, what's the throughput rate, I guess, running on stockpiles? Is it running at 9.2?
No, it's at 8.7 million tons run.
Okay. Thank you. Thanks, Jake. That's it.
All right. Thanks, Levi.
Our next telephone question is from Daniel Morgan from UBS. Please ask your question, Daniel.
Hi, Jake and Tim. I just want to understand a little bit more of that Cowal underground reserve that you've put out, and the grade. Just wondering, are you suffering from a lot of dilution in your thinking there? Just wondering, the grade versus the resource grade appear identical. Thank you.
Dan, I was trying to remember. It's in the actual tables for dilution. I think it's 5% footwall and hangwall, Glen?
Yeah, that's right.
They've taken that, plus they've allowed for blocks that are outside of the range to be zero. They've taken some of those into consideration as well. I can't remember exactly the percentage of the dilution overall. Sorry. I can get it back to you if I need to.
Yeah. I think the other thing is too, that blocks are going in terms of indicated that can be counted towards the reserve, need to have at least 75%-
Correct
indicator resource into a stope shape, which is a conservative approach. Plenty of blocks there with 50% that haven't been counted. We're looking to obviously convert more of that inferred into indicator so we can count those stopes into the overall resource. I think one point to make on the resource model, which has been updated to deliver the 2.9 million ounces, it's been estimated as a good global estimation of the overall resource. What the infill drilling is going to give for us is a better understanding of local distribution of grade, and that will then influence our stoping sequence and how that's prioritized through the feasibility study. That's in the next phase of work through this feasibility study, and improving really that output that can go into the design of the mine plan and the scheduling.
I'd add to that the success we've had on the discovery piece has really made us think about accelerating it. I think you'd know that previously we were anticipating a reserve of 1 million ounces. We're targeting 1 million ounces by the end of the year, and then releasing that, and then starting to submit regulatory approvals. Given the environment we're in, given the success and the confidence we're having with the discovery opportunity at Cowal, we thought it would be better to put it out early, get the regulatory approvals in early, which hopefully will allow us to bring forward, quite materially, first ore from the underground.
Sorry, Dan. The footwall and hangwall have got a 0.2-meter skin applied to it. There's a further 5% dilution applied to the total reserve. It's actually a 0.2 plus a 5% dilution. There's anything that's development has got a dilution which is outside of a strike drive as well. They're being a little bit conservative in some of it.
Yeah, I guess at a high level, conceptually, just wondering, every quarter you put out drilling results and you often encounter you're hitting gold outside of your prior resource, and now you've got a reserve. The thing keeps growing. I'm just wondering if you could talk about how you might expect it would grow. Is it going to continue to grow in tonnage or grade or both? Could you talk to that?
Yeah. Very good question, and I think there's two ways to answer that, Dan. I think the first thing is, as we continue infill drilling, so more definition into the resource model, we think that the opportunities to sharpen up the resource domains is pretty high. What we would expect there is an improvement in grade, but probably a decrease in the tonnes, but for the same overall ounces. That's a trend that we're starting to see as we close down the drill spacing inside of the inferred resource to get it into indicated. In terms of new growth, it's going to be a combination of both. What we're prioritizing in our step-out drilling, which is underway from surface is, for example, the Dalwhinnie South area, which is a continuation along strike of Dalwhinnie.
Which is, in terms of grade bins, when you assess the model, the Dalwhinnie really delivers the higher grade ore blocks into the model. We are prioritizing the Dalwhinnie or extensions of the Dalwhinnie to hopefully improve the grade. Some of the early results are quite encouraging. That's definitely a priority. I do expect that we'll see in the step-out drilling at a wider spacing growth in tons and grade. Growth in tons at around about the same grade, hopefully a bit higher. As we infill, the desire is that the tightening of the geometries will improve it.
A lot of our concentration or focus in the last little while, Dan, it's been really around what would actually be the first areas that we would want to mine, and how do we actually increase our confidence from a geological and a grade perspective. That's obviously the southern end of the ore body is closer to where we are from decline and access. There's a couple of different things in there that we would hope to try and do over the next little while.
Yeah. Just last question, which is a follow-up on that. You've clearly got permits to do the exploration decline and activities. I'm wondering under those permits, what can you do that will enable a faster start on the project when you get mining permits?
Thank you.
Yeah. We've got a permit to do the exploration decline and drilling from underground. The decline itself has actually stopped or finished now. We're continuing the drilling. We would need additional exploration permits to do more exploration drives and to extend that out. It's an option, but it's one of those things that we're considering. We don't have a mining permit for underground, so we're a little bit restricted there.
The way to advance the permits is go for the mining, and you've exhausted your exploration permits to develop?
No, I think one of the options we're considering is to put another part of the decline development, which will go across the ore body and put us in the right location from a development perspective as well. It'll double up as both an area that we could explore further from and subsequently use as part of the production decline. We are looking at that. Obviously, the exploration decline that we did put in was relatively easy to permit, and we'd expect the same for any additional permit for a decline development.
As you can understand, Dan, our want to understand the ore body and that ore body knowledge is high. Any information that we can get that can help the geologists and the engineers out, it's going to improve our confidence.
Absolutely. Okay, thank you very much.
Our next telephone question is from Reg Spencer from Canaccord. Please ask your question, Reg.
Thanks, sir. Good morning, Jake and team. Just on Cowal. There's quite a big delta in potential production rates in the underground from 1.5 million tons all the way up to 2 million tons. I was wondering if you could maybe explain what might be the limiting factors on that underground ore production rate, just to help guide us in our thinking pre the pre-feasibility study.
Yeah. Reg, it's Bob speaking. Good question. Some of that's going to be answered in the next three to six months. It really depends on geography and space and how many mining fronts we can get and how many stoping fronts we can actually get. With the style of mining that's been planned, which is a fully filled type of mining method, you have to have additional mining fronts to actually increase it a lot. That's what's actually constraining the rate. One and a half to two million, that's realistic from the size of the ore body. When you look at the actual area it covers, the strike extent, the down dip extent, it's quite easy to actually get at least two or three mining fronts going at one time.
Okay, great. Thanks. Lastly on the stockpile feed into Cowal first half this financial year. I might have missed it before, but the overall stockpile grade average, correct me if I'm wrong, is about 0.6 grams. Given that we don't quite have accurate guidance on the ramp up once you get back into the in situ ore in terms of the feed into the plant ex-pit, I presume you'd be preferentially treating some of those higher grade stockpiles in the first half next year. Trying to get a feel for what kind of feed grade we should be thinking about.
Yeah. I mean, Reg, that's right. I mean, the first half of the year, we'll be mining at an average grade of probably about 0.65 grams, but that will increase. That's over the first two quarters. We'll be out mining the mill such that the average grade that will go through would probably be in the 0.8 to 0.85. Then in the second half of the year, you get back up over one in terms of grade processed as we get into the better grades in Stage H and the oxide material.
That's excellent. Thanks very much, guys. Appreciate it. I'll pass it on.
Our next telephone question is from Lachlan Moffett Gray from The Australian. Please ask your question, Lachlan.
Good morning, guys. I just wanted to ask a broader question about the impact of the coronavirus pandemic on the broader gold price industry. I just am interested in hearing your thoughts on what might happen if we see a global economic recovery, and then on the flip side, what might happen if we see a continued spread of the disease. Thank you.
Thanks, Lachlan. I'd say that we're in a very favorable gold price environment given the amount of fiscal expenditure which is required to address this COVID pandemic. Hopefully, we will get a recovery from it, from a health and safety perspective and community perspective. The amount of money that is being spent and required by governments globally suggests that we are in a very positive gold price environment for at least the medium term.
Thank you very much.
Our next telephone question is from Mr. Matthew Frydman from Goldman Sachs. Please ask your question, Matthew.
Sure. Thanks very much. Morning, gents. Thanks for the call. Just hopefully a fairly simple one for me on Stage H cutback. Can you remind us of the waste movement required to unlock that pushback in line with, I guess, your current thinking in terms of timing in the second half of next year? I see in the June quarter, you've been operating, well, around 3 million tons in the quarter of capitalized waste. Is that the same rate that you need to maintain over the first half of FY 2021 to line up with that timing?
Yeah. Matt, we'll see that we'll be mining in the order of actually four to five million tons of total waste each quarter for the year. Depending on where we are in the pit as to how much gets capitalized, it's probably still going to be around the similar levels that we did in the June quarter. At the back end of FY 2020, that certainly falls away as we get almost double the amount of ore per waste ton out of the pit.
Yeah, thanks, Lawrie. You've preempted my question on how much is being capitalized. With the step up to 4 million-5 million tons from a quarter-over-quarter basis, is that a function of shorter haul distances or additional fleet, or how is that being achieved?
No. I think if we look at I'll just quickly check, the total material of waste moved for the quarter at Cowal was about 3 million tons, and we will see the step up. We do have material shorter haul distances. Some's going out to the IWL, but it will be the fleet utilization is lifting in the year as well. We did some major rebuilds in June on some of the gear to enable it to be able to handle the step up in material that we have to move in the first half of this year.
Yeah, sure. Just finishing that point on the capitalization, is it right to say that the capital component of the waste stripping will be wrapped up by FY22? There's still some capitalized stripping going into FY22?
No, it'll finish in FY 2021. This will be the last of the capitalized material for Stage H will be in FY 2021.
Okay, fantastic. Thanks, Lawrie.
Once again, it is star one. Our next telephone question is from Kate McCutcheon from Citi. Please ask your question, Kate.
Hi, Jake and team. Just was that uplift from the stockpiles from 0.65 to 0.8-ish, was that from the ore?
Thanks. We do appreciate everyone taking the time to join the call today. As you can see, Evolution is in great shape, not only because of the quality of our asset portfolio, but mainly as a result of the quality of the people we are fortunate to have in our business. At all levels in the organization, they are being values-focused, working hard, and importantly, collaborating as a great team to deliver these outstanding results. I don't think there's been a better example of that than in the June quarter, given the performance our people have delivered through uniquely challenging circumstances. Please stay healthy and safe, and we look forward to speaking to you again on the 13th of August when we release our full-year results and three-year outlook. Thanks very much for joining.