Thank you for standing by, and welcome to the Evolution Mining Resway Acquisition Conference Call. 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. Jay Klein, Executive Chairman.
Please go ahead.
Thanks, Sizzy. Good morning or good afternoon, everyone, and thank you for joining us at such short notice.
Today, we are very pleased to
be announcing the acquisition of the Red Lake Gold mine in Ontario, Canada. I'm joined on the call by Glen Masterman, VP, Discovery and Business Development Laurie Conway, our CFO and Finance Director Bob Fulker, our COO Paul Eagle, our VP, People and Culture and a small team of senior Evolution representatives are on-site at Red Lake as we speak to ensure we are available to answer any questions that the workforce may have. Today, we'll be talking to the presentation titled Acquisition of Red Lake that was released on the ASX this
morning, and I'll be talking
to Slides five through nine in the slide deck before handing over to Glen. As many of you know, since 2017, we have been actively looking at assets in Canada. We believe the low geopolitical risk, high geological prospectivity, strong mining culture and skills make it an ideal growth region for evolution. We have kicked a lot of tires over the past three years, but we have not found something that we thought met our strict threshold criteria, an asset that improved the quality of our portfolio, an opportunity for improvement and was also accretive to our shareholders. We believe we have found this in Red Lake.
Our upfront payment of USD $375,000,000 was derived by taking the reserve case and a conservative view of the conversion of known resources to reserves and applying a very conservative long term gold price assumption. So we think we have received good value for the current reserves and resources and only pay for the potential upside through the contingent payment mechanism dependent on our success. The acquisition is highly accretive on a per share basis, increasing our reserves per share by 25% and resources per share by 46%. We also understand and accept that it is the cost per ounce type we need to work on to truly demonstrate the value of this acquisition. It is a turnaround opportunity that we are confident will, in time, become a cornerstone asset of our position.
I'd like to give you some context behind our decision and why we see this as such a fantastic turnaround opportunity. Just like in the property sector, where the old adage is location, location, location, Red Lake is a trophy geological address. The Red Lake complex we have acquired has historically produced over 25,000,000 ounces at 20 grams per tonne, making it the largest, highest grade gold camp in the world outside of South Africa. Our initial interest was amplified when Glen Masterman, our VP Discovery and Business Development, concluded it was the most exciting geological property he and his team had reviewed. The tenement package we have acquired is four sixty square kilometers.
The next appropriate question to ask was how did such a high grade camp, one that drove Goldcorp's best years to be the world's largest gold company, become a high cost mine and can it be turned around? Here again, we think there are clear, logical and rational reasons. And with renovation and reinvigoration, this trophy address can, once again, be a low cost operation. If we reflect back to 2015, Goldcorp was coming off a period of significant capital investment after building a number of new mines, including Cerro Negro, Leonore and Panasquito. Great Lake during that twenty fifteen year produced 376,000 ounces at an all in sustaining cost of US906 dollars an ounce.
In 2016, Goldcorp announced a twenty-twenty-twenty strategy, which was a strategy to increase production by 20%, reduce costs by 20% and increased reserves by 20%. Our due diligence and discussions with management identify this as a critical juncture for the Red Lake operation. While this strategy may have had merit at other Goldcorp operations, it was not suited to Red Lake. By 2016, the high grade zone was effectively depleted, and a very selective approach towards narrow vein mining was required to ensure profitability. So by implementing a strategy that prioritized volume over value at a time when capital was being directed towards other assets meant that the mine started suffering from both chasing largest honnages and not having a proportional increase in investment in exploration and mine development, elements crucial to the sustainability of the operation.
Likewise, when Newmont acquired Goldcorp at the beginning of this calendar year, their priorities were appropriately the bigger Goldcorp assets. And for the last twelve months, there's effectively been a freeze on capital expenditure and exploration at Red Lake. That's the position the mine finds itself in today, behind the proverbial eight ball, high cost and lower production, having suffered from at least five years of underinvestment in capital, development and exploration. We see a clear opportunity for a complete reset of the operation, and this vision and view is shared by both Newmont Goldcorp and the site management team. But we also recognize it is going to take time.
We think it will be a three year journey. But for less than 10% of our market capitalization, we are confident we have secured a cornerstone asset for Evolution that, in time, will be able to produce in excess of 200,000 ounces at less than USD 1,000 an ounce. It will also take significant investments, hence our commitment to spend over $100,000,000 in capital and mine development and USD 50,000,000 in exploration and discovery over the next three years formed a key and important part of our proposal to acquire the asset. The key elements are in place. First and foremost, the operation has an outstanding safety performance, which is a great credit to the team on-site.
There is a sound reserve base as at thirty June twenty eighteen, totaling 2,100,000 ounces and a large resource base totaling 7,000,000 ounces, grading 11.2 grams per tonne. It should be noted that this is before depletion for the period and also does not apply the conservative gold price assumptions that Evolution uses. Nevertheless, it is a significant high grade mineral inventory. There is also outstanding exploration upside, and Newmont Goldcorp share this view and hence their strong desire to return exposure to this exploration upside via the contingent payment mechanism. There are many good, highly skilled people on the site, and there is also recognition and acceptance that to turn the site back into a low cost, high margin, profitable business will require change.
Our extensive due diligence has also identified a number of areas for operational improvement and productivity changes. In summary, it's a high potential operation that desperately needs a reset. We see many elements in this operation as similar to many of the other successful assets that have been acquired from majors. Lots of recognized upside, but not able to get the attention, focus and allocation of capital needed to revitalize the operation within the larger organization. Newmont Goldcorp understand and agree with this upside and turnaround potential of the asset, recognizing that in their portfolio, it would not have the priority required to achieve this.
They have been exceptionally good to deal with since the process began. They are committed to helping us succeed at the operation and have agreed to give us access to a wide range of skills and knowledge within their organization to support our success at Red Lake. I'm also optimistic that this will lead to other opportunities for Newmont Goldcorp and Evolution to work together. The next exciting chapter in Evolution's history has begun. But before handing over to Glen, I would also like to acknowledge the outstanding effort of our team to get us to this important milestone.
Right throughout the company, from our extensive technical and legal due diligence, commercial contract negotiations, securing debt funding, finalizing the announcements and presentations, our people have stepped up. As I jokingly said to one of my colleagues, if the Wallabies have worked as hard as our team has, they would be the Rugby World Champions today. With that, I'll hand over to Glen. Thank you, Jake, and good morning, everyone. In Bob's absence, I will start this morning on Slides nine to 11, which provide an overview of the asset and touch on a number of the turnaround opportunities we have identified that will unlock value with the goal of restoring Red Lake as a highly profitable, low cost operation.
Following
this,
I will describe what we see as the future resource growth opportunities across the large, highly prospective land position, which will be covered in Slides 12 to 14. The Red Lake Golf Complex is located 180 kilometers north of the town of Dryden in Northwestern Ontario, Canada. Red Lake is accessible by Sealed Highway connecting to the TransCanada Highway, 175 kilometers south of the mine. Commercial Air Services operate from Thunder Bay and Winnipeg. Gold was discovered at Red Lake in 1922, with production commencing in 1949.
Current operations consist of the Red Lake, Campbell and Cochinard mining complexes serviced by five underground shafts, two mills and an autoclave. Operations employed predominantly a local workforce and have developed an impressive safety culture over the last four years. Turning to Slide 10. Mining operations consist of a combination of long haul mechanized underhand or overhand cut and fill techniques with backfill of open stope excavations as required. Evolution's plans consist of introducing a number of operational enhancements, including improved geologic data management, improved drill and blast practices to increase mining recovery and reduce dilution, improvement in fleet efficiency and effectiveness, rationalization of material movement and increases in resource definition drilling to convert the large resource base to reserves.
The bottom line is that the underground operations have been restricted from capital required to invest in critical development to establish access to future production areas. As a result, we're committing to a significant investment in development of the underground in order to reestablish that access and to bring production back up to the 200,000 ounces per annum run rate and beyond over the next three years. Turning now to Slide 11. Cumulative processing capacity between the Red Lake and Campbell plants is 1,100,000 tonnes per annum. Increasing production from the underground will allow us to start bringing the mills back to our long term objective of over 900,000 tonnes per annum.
The evolution turnaround plan considers optimizing processing plants and consolidation of the facilities, installation and commissioning of the Acacia reactor to improve gold recoveries, strategic blending of the mill feed, improvements in utilization and the potential application of ore sorting. Moving now to Slide 12 and on to the exploration opportunities we've identified. I want to firstly provide a brief geological overview of the Red Lake Gold Complex. The underground mines consist of low gold deposits hosted by our key and greenstone rocks of the Red Lake Greenstone Belt. The belt hosts a variety of gold deposits, including the Red Lake, Campbell and Cochina mines, the past producing Nathan Mine and other nearby deposits such as Phoenix and Hesaria.
The most prolific and highest grade mineralization is hosted in mafic and ultramafic volcanic rocks, which are structurally repeated in multiple positions across the camp. These volcanic rocks were deposited over a period of three hundred million years, starting three billion years ago. Gold mineralization was introduced 2,700,000,000 ago into a series of veins, sulfide disseminated and free gold bearing loads along a series of structural corridors that should be mined over the last seventy years. One of the reasons we like our keen Greenstone gold setting is because of their ability to generate deeply developed high grade mineralization that persists at great depths. The Red Flake Complex is certainly one of these types of systems with mineralization starting its surface and extending over 2.5 kilometers deep.
As Jake mentioned, the Red Lake Gold Complex has produced more than 25,000,000 ounces at a grade of 20 grams per tonne since the 1940s. We are confident there will continue to be high grade discovery opportunities that have
the ability to restore Red Lake to
its former glory of a high grade, low cost producer. We will invigorate exploration with an aggressive drilling program over the next three years where we are committed to invest in USD 50,000,000, which will see us complete up to 100,000 meters of drilling in each of those years. Mineral resources and ore reserves reported in this morning's announcement were derived from Gulfport's June 2018 National Instrument forty three-one hundred one technical report. Resources accounted for restated 7,000,000 ounces grading 11.2 grams per tonne and include ore reserves at 2,100,000 ounces grading seven grams per tonne. Evolution intends to revise these estimates using JORC compliant estimation methodology, which will consider removal of the Palmer tailings, mining depletion, grade estimation revisions, recovery factors and other changes.
The overall impact on reserves and resources will potentially result in a downward revision in the range of 30% to 40%. Although we expect a downward revision in the MROR over the short term, we will commit aggressively to exploration drilling in the next three years. One of the exciting moments that came out of our due diligence was the feedback amongst my team, concluding that Red Lake was the best asset we have evaluated over the last three years for its exploration and upside potential. And to quote another one of my geologists, there will be stuff here to find well into the future, and it's easy to imagine mining operations here in twenty years' time. One of the unique qualities of the Red Lake camp is the ability to host extremely high grade mineralization in very small geometric footprints.
For example, the high grade zone, which was discovered in 1995, produced 7,000,000 ounces grading 64 grams per tonne. Total ore mined from the high grade zone was approximately 3,500,000 tonnes, which occupied a horizontal footprint of approximately 100 by 50 meters inside a pipe like geometry with a plunge length reaching one kilometer long. We believe there are more high grade opportunities to discover that remain hidden across the four fifty square kilometer land package. Focusing in on the near mine environment, Slide 13 of our pack this morning shows a composite long section from the Red Lake underground on the right hand side through Campbell and across to Cochinere on the left hand side. As you can see, Cochinere is connected to Campbell and Red Lake by a five kilometer haulage strip in which additional exploration positions can be accessed for drilling.
The red panels represent mineralization in wireframes supported by mineralized drill hole intercepts. These panels can also surround grade blocks from the resource model. The gray shaded shapes are existing mine development and stope voids. A number of tangible, high confidence targets with material upside potential exist at the upper main zone in Cochina, the aviation zone near Red Lake and at HG Young, which is located one kilometer north of Campbell. Each of these targets remain open either down plunge, up plunge or in both directions with potential extensions of up to 500 meters.
There is a highly experienced and talented technical team in place with numerous ideas ready for investment. A major breakthrough was achieved in recent years with application of Watson AI to develop a fully integrated data and GIS platform that for the first time has incorporated over seventy years of historic geological information into a unified digital platform that is only just beginning to reveal its full potential. We feel very excited about future predictive targeting opportunities with numerous Watson targets inside the operating footprint yet to be tested. Finally, to Slide 14. In addition to the excellent exploration potential in the near mine environment, Evolution is acquiring a highly prospective regional land position within the four fifty square kilometers of exploration tenements.
The properties include six joint venture projects located within 20 to 30 kilometers of the Red Lake Mills. The best deposits in the Red Lake camp are generally located proximal to the unconformity separating the Balmer assemblage volcanic rocks, which host mineralization from the overlying Bruce Channel sedimentary assemblage. These spatial associations are evident across the entire term of package and will help guide and prioritize regional exploration work in the years to come. I'd like to finish by recapping on some of the key growth opportunities we have identified at Red Lake. Is the highly advanced Archean Greenstone gold camp, which has historically generated some of the highest grade production in North America.
There has been limited exploration investment over the last several years, which implies a significant opportunity remains to grow resources with significant space to explore as indicated by historic depths of development of the main
Red Lake ore bodies. There is an
experienced team in place with new target ideas developed from the recently created Watson Bayou platform. The small footprint of the 7,000,000 ounce high grade zone implies the camp remains highly prospective for additional high grade resources, and Evolution is committed to reinvigorating exploration by investing in units $50,000,000 over the next three years. With that, I'll hand over to Lawrie.
Thank you, Glen, and good morning, everyone. This morning, I'll cover off in a few key areas around the Red Lake acquisition with regards to the pro form a metrics, where Red Lake will sit in the portfolio and how the balance sheet will be positioned. Firstly, I think it's important to remember that as Jake and Glen have mentioned, Red Lake is a turnaround opportunity, which will make considerable effort and money over the next few years to return to being a high quality, long life, lower cost asset. For the next three years, Red Lake is likely to be cash negative or neutral as we undertake the turnaround. After the turnaround, we are aiming for Red Lake to produce in excess of 200,000 ounces at less than USD 1,000 per ounce.
Turning to Slide 15, which highlights some of the key metrics on a pro form a basis. In terms of production in AISC, Red Lake is expected to add 160,000 ounces per annum in the first year before ramping up to in excess of 200,000 ounces from FY 'twenty three. During this three year period, we expect Red Lake to have an all in sustaining cost of $1,600 per ounce before trending down. In the near term for Evolution, this will take our production to over 900,000 ounces and increase our all in sustaining cost to approximately $8.1200 per ounce. At a high level, assuming a successful turnaround at Red Lake, Evolution would be producing around 900,000 ounces at an all in sustaining cost of AUD 1,100 per ounce, keeping us as one of the lowest cost gold producers in the world.
Due to the timing of
Red Lake coming into the portfolio not being a firm date at this point, we will update our FY 'twenty guidance once the transaction completes. We see a significant improvement in our mineral inventory and mine life through the Red Lake acquisition. We will increase our ore reserves and mineral resources on a per share basis by 2546%, respectively. Red Lake will contribute over 20% of the group reserves in the amount of our resource base. Importantly though, Red Lake will have a positive impact on the production contribution mix whereby we will have a 22% increase in production from assets with a reserve life of eight or more years, moving the contribution of those assets to 56%.
Turning to Slide 16, which shows where Red Lake will initially sit in the portfolio before any benefits of the asset turnaround and exploration success are realized. Red Lake has a reserve life of thirteen years, and as mentioned earlier, is likely to have a negative to neutral margin for the first few years. However, we have committed over USD 100,000,000 of investment for the first three years to improve productivity and increase margin. At the same time, we've committed USD 50,000,000 in exploration programs to add new resources and convert reserves to extend mine life. We anticipate that in time, Red Lake has the potential to be our second longest life asset with similar margin levels to our shorter mine life assets.
An added benefit here is that the planned increase in production at Red Lake will offset any declines in the shorter life assets. Moving to Slide 17. I won't spend a lot of time on this slide as it's been mentioned a number of times on the call. What this shows practically is that the RedLake acquisition will enhance our position as a leading mid tier producer with annual production rates of 900,000 to 950,000
ounces at an
all in sustaining cost margin of $8.8 to $1,000 per ounce or a 37% to 47% margin at current gold prices. Turning to Slide 18 and the balance sheet. The ability to fund the Red Lake acquisition is due to our relentless focus over the years on costs and margin. This focus has ensured that the cash generated has been banked and the balance sheet was strong. As always said, we are comfortable to leverage up the balance sheet for acquisitions so long as we have a pathway to deleverage quickly as evidenced by the Cowell and Ernest Henry transactions.
For Red Lake, it's a little bit different in that the current strength of the balance sheet will mean that our gearing will only be a modest 13%. We expect to have in excess of $8.6 of liquidity on the closing of the Red Lake acquisition. We've fully funded the acquisition via debt with a five year $600,000,000 term loan, where the amortization profile has been matched to the required investment in Red Lake. Since we have moved to net cash in FY 2019 and that net cash position has continued to increase in FY 2020, we've taken the decision to pay out the Henry term loan upon completion of the Red Lake acquisition. This was on the basis that there was no benefit in maintaining both facilities and the associated costs.
At the same time, we have established the required performance bond facility for Red Lake as well as renewing our revolver facility and performance bond facility for the existing assets for a further three years. The cash generation of the existing portfolio of assets as well as the funding structure for Red Lake will ensure that there is no change to our dividend policy. We plan to continue paying our dividends based on a percentage of good cash flow before debt with a targeted payout rate of 50%. From a finance perspective, it's pleasing to have a balance sheet which supports our business strategy by being able to fund organic growth opportunities, fund growth acquisitions and invest in turning around a long term quality asset while consistently paying dividends. Our balance sheet strength is a critical component to our strategy execution.
With that, I thank you for your time. And Izzy, please open the line for questions.
Thank and Your first question today comes from Levi Spry with JPMorgan. Please go ahead.
Hi. Thanks, guys. First question, can you
take us through the assumptions behind your 30%
to 40% reserve downgrade that
you said is pending and what the impact there could
be also on the resource base?
I'll let Glen answer that one, Levi. Yes, sure, Levi. A number of factors will come into play here, but we're looking at removing the Dalmat tailings from the reserve and resource profile. We need to also deplete the 2018 statement for mining production. We are also looking at revising resource estimation grades, and that potentially will have an impact on bringing down that production.
And we're also going to be applying what we feel realistic mine recovery factors, which will also have an impact in that space as well. So they're the assumptions that we're currently factoring or considering in terms of the work we need to do. Just to add to that, Levi, notwithstanding the revisions that Glenn's talking about, it's still a very significant mineral inventory. And also to be clear, when we built our valuation models, we included all of those factors into our valuation. And as I said earlier, we paid for what we believe are the reserves as of 01/01/2020, and a conservative conversion of resources into reserves and then applied a very conservative gold price to that.
So that's how we arrived at the USD $375,000,000. Yes. Thank you. Thanks for the detail. So just to confirm,
so is it going to be driven both by tonnes and grade?
Since we're going have mine dilutions and things like that? The short answer, Levi, is yes, both tonnes and grade will be revised in the work we'll do over the next twelve months. Okay. And just in terms of the contingent payment for resource additions into
the future, so I guess you're going to reset it lower first.
Yes. So we're going to do a job resource estimate as of 01/2020, And then any increase in that resource will effectively account towards the contingent payment mechanism. That said, the JOK resource will be based on our price assumptions, which are currently AUD $13.50 and AUD 1,800 an ounce.
Okay. Maybe just last one. So you talked about 900,000 tonnes per annum being the capacity you you looked
at the factor in in three years' time. Can can you maybe just take us through the total tonne cost? I guess, get you from
1,600 back to to a thousand.
Yes. I mean, where we see the processing plant at the moment, in Aussie dollar terms, it's running over $100 a tonne. And so between the capital we'll invest in getting the plant throughput and recoveries up in the next couple of years and then also optimizing those plants, we really expect that to drop in the order of 20% to 25% within the first three years and then obviously further optimization once we've got that to a steady state by FY 'twenty three. And we do see that it's an efficient plant, plants the way they're operating today. And I think you just got to
look back in the history of that operation.
In
2018, the costs are below 1,000. Ounce. So 2019, when you speak to the management team and you speak to Newmont Goldcorp and our due diligence, there are very specific reasons as to why the costs are so elevated this year. The one was a drive for production in the 2018, which definitely depleted the plan for 2019. There were also some safety issues identified in the Cochina area, which suspended production for three months, which is in the plan.
That's all now being addressed to Newmont Goldcorp's satisfaction. And also then, you add on top of that the exacerbation of a sustained period of underinvestment in exploration and development meant that there were really no options when production had to be curtailed in that Cochina area. So a mine that had really been sort of on the back foot for a long period of time culminated effectively in 2019. Now we are realistic that there is a reset required, but are very confident that 2019 will prove to be an outlier, an anomaly, rather than a go forward view.
Your next question comes from Michael Slifirski with Credit
I'm not sure if I heard correctly, but are you planning to use your $8.135 price assumption for the operation?
Yes, at this stage.
Okay. Thank you, sir. Then how do we think of that in terms of your aspiration to get to $1,000 an ounce? If we divide that by spot currency, it gets you to about 1,600. And on your depleted reserve pricing with what you've paid is another 400.
So it gets you to, you know, close to I haven't done the math, there'll be $13.50 an ounce. So how how do we think about that, please?
Sorry. I I'm not sure I followed that question. I'm looking around the room to
see Yes. Sorry. Look.
I haven't
I haven't done my numbers, but you're saying that you you aspire to get to less than US dollars or thousand dollars an ounce. So Right. In terms using spot currency, that's close to $1,500, and you're just paying $400 an ounce for the reserve if you lose three to 40%. So put all that together, and you're getting close to a cost of $2,008 per ounce and a future reserve price assumption of $1,300 an ounce. I'm not sure how to think about that math.
I'm not sure you add up on the $400 of cost on the reserves because that $13.50 is the envelope. But that we've used less than 1,000 an ounce. The mine could do better than that. It should be better than that. But I think we want to be realistic in the turnaround and conservative as to the potential of it.
But we'll be driving costs as hard as we possibly can.
Yes. Okay. And in terms of the I think you've $100,000,000 you'll spend over the next three years to recapitalize the mine. Is that just development? Or is there sort of fleet replacement required for the project?
Or is there $100,000,000 in corporate capital development, anything for fleet and so on?
Mean, Michael, the first part of the long that we've got is we'll be looking at anywhere between AUD 45,000,000 and 60,000,000 a year in active mine development. We've got a fair bit of work there to do in the next few years to open up enough ore sources. So that will be the majority of the spend. You'd see sustaining capital around AUD 10,000,000 to 15,000,000 a year and ResDev around AUD 5,000,000 to 10,000,000. What we do have is in the order of $25,000,000 to $30,000,000 of major projects, which will be around equipment and process plant improvement opportunities to get the throughput rates and the recoveries up.
So that would sort of be where we'd be spending the money. And I think just to sort
of add to that, Michael, there are a number of operational efficiency improvements that Bob will be working with the site team through this integration process to identify what is the reason. There's very low fleet utilization numbers at the moment. There are relatively high numbers of people employed. There are two plants which are currently being operated and not being filled. And there are five operating shafts at the moment.
So we do see an opportunity for a significant rationalization of the infrastructure and equipment.
Okay. As a mine that's been operating for a great many years, albeit in recent years by global majors who do a very good job with environment, are there any sort of environmental legacy issues from historic mine? Or has that been well managed by the recent owners?
It's been well managed by the recent owners. And I think you can be very confident Newmont Goldcorp has the highest environmental standards around.
Okay. And then last question with respect to some new technologies that maybe, as a group, you haven't been exposed to, autoclaves and underhand cut
and fill. Is any
exposure within Evolution where people have previously worked with that sort of technology or mining method?
Yes. Bob's very familiar with that.
Terrific. Thanks very much, Jack.
He's to be leading the an oversight of the operation, of course, as the COO, and we'll be spending considerable time in 2020 at Red Lake, and he's there today.
Your next question comes from Daniel Morgan with UBS.
A couple of questions. The mill that you've outlined on Page 11 or two mills has a total capacity of 1,100,000 tonnes. Your long term objective is to lift that up to 900,000 tonnes per annum. I'm just wondering why the gap between the 900,000 and the 1.1
I think that's a target which Bob thinks is realistically achievable. I think one of the areas which is going be very focused on is dilution. At the moment, the minimum mining width, I think, is 2.3 meters. At Cracker, we're doing 1.6 meters at this stage. So I think the view was that 900,000 tonnes from the current close to 600,000 tonnes is an appropriate uplift given the opportunities available to us.
And the cost base aspiration you've outlined to get below USD 1,000 an ounce. The cost base is USD 1,000, not Canadian dollars. Is that because most of the costs in an underlying sense is driven by U. S. Dollar cost factors?
Or can you give us an idea of the split between U. S. Dollar and Canadian cost drivers?
Dan, I mean, we've just reported in U. S. As it's either normal customer report that currency or A dollar for our assets. We didn't go into the Canadian. And in terms of the cost structures, we'll come back.
I mean, majority of them are actually Canadian dollar costs.
And then just wondering if you could expand on whether a change to mining method might be envisaged. I mean you've outlined in an answer earlier that you are thinking about managing dilution and minimizing mining widths. Is there a cultural change in mining and mining method that you're going to look to institute of some?
I think it's Bob has some ideas as to how we can improve the efficiency and reduce dilution. But our approach in these early stages is to really understand from the site management team, they have a lot of the answers. And as when we acquired Cowal, I think it's going to be a very similar situation where when I was there a couple of weeks ago, you talk to the management team, this is a site that is wanting a change. They're wanting a new owner. They know that they've been in a process and in somewhat of a tough situation post the merger and we're in a core asset of Newmont Local.
So I think there's a site team that is motivated, enthusiastic and excited about the change. My sense is that they've got a lot of ideas to initiate and to improve. And our team is
going to be sitting
down with them over the next few weeks and matching our ideas that we came up with during the due diligence with theirs and working forward on a plan, a go forward plan. But there is certainly a lot of opportunity there.
Your next question comes from Reg Spencer with Canaccord Genuity.
Just a question over the planned capital investment, that $100,000,000 and the additional fees for the exploration. Should we just assume that, that's an even spin over the next three years? Or is that lumpy? Is there a bit of lead time for those investments to take place? So just wondering if you could provide some comments on that, please.
Yes, I think, as I mentioned this earlier, the majority of the spend will be in capital development in the mine. And we've seen that over the next three years, it's not going to be lumpy. It's going be fairly flat in that 45,000,000 to $60,000,000 range mine development. And then in terms of the exploration, Glenn, the program is going to be stress driven and target areas.
That's right, Larry. And it'll be ramped up accordingly, Reg. One of the things that
we need to
do is create access from the underground that we're drilling from. So once we sort of put our plans in place, we'll be able to develop those schedules and gradually ramp it up into next year after we close.
The
next question comes from Matthew Friedman with Goldman Sachs.
Very much. Jake, thanks for hosting the conference call primarily so you could have a subtle dig at Wallaby. And also congrats to your team for the transaction. First question, I guess, just I guess, following up on the discussion on this on the ore reserve reclassification. Just and I guess, just to point, just wondering what the primary intention in the early days of that $50,000,000 exploration spend will be.
Are you aiming to backfill those lost ounces through through resource conversion and infill drilling in the near term? Or will this require a bit of step out drilling in order to grow the known mineralization, I suppose? How do you grow that? Or how do you backfill that life in the near term?
Matthew, I think it's a combination of both. In the first instance, there are known sort of areas and targets within the operating footprint. We'll obviously prioritize those accordingly, particularly where we see sort of natural extensions to known resources that remain open in various areas of the mine. So we'll certainly be prioritizing some of that $50,000,000 spend into those areas. But there are also new targets that the site team have been developing over the last several years with the work they've been doing with the Watson technology.
And these are picking up some very interesting relationships geologically and in combination with historic results that are supporting the possibility of testing brand new areas within the mine as well. So I think it will be a combination of both. Larry mentioned earlier, there will be a commitment of around 5,000,000 to $10,000,000 of ResDev drilling, And that will start to sort of focus on sort of resource areas, upgrading, classification in those areas and with the
intention of converting the reserves. So we see
it as a combination of both elements.
Sure. Thanks, Graham. Assuming you do control on March,
would you be hopeful to,
I guess, have the first fruits of
that exploration spend in the sort of midyear MRR update the following year?
Look, I think what we want to do is as quickly as we can, we want to get the drills turning again. And obviously, it's the update of our MROR into the end
of next year will obviously be informed by the results.
Sure. Thanks for that. And let me
just add to that, Matt, is that whilst we expect it to close in March, we go to a lockbox arrangement on January whereby Bob and Glen and the team over the next four to six weeks will be looking at what programs we'd like to start as soon as possible. And there's a mechanism in the agreement whereby we can fund that through that lockbox period so that we don't lose any time when the transaction closes.
Understand. Thanks for the detail, Laurie. Second question for me. You guys have been quite explicit around the three year time time for the turnaround. And, I guess, your expectations for production of the asset is, you know, over 200,000 ounces.
I mean, noting that the asset is 276,000 ounces just last year, So do do you have intentions or hopes that you can you can, you know, achieve something like more like the historical level of production? Can the asset get back to 250,000 or 300,000 ounces per annum? And I guess, exploration success the primary driver here given the discussion we just had on reserve inventory?
Matthew, the short answer is yes. We had a long debate internally as to what we should set the expectation, and we decided to go on a conservative basis on what we believe was very achievable. But our aspiration is materially higher than that. And that's, hence, our commitment to sort of exploration and development. And we would like to believe, or we do believe, that getting it back to its historic levels of production is something that we would aspire to do.
And do you think the key driver there will be growing that reserve inventory coupled with the development investment?
I think Glenn just said, if mine another 60 gram, it's an ore body. No, I think it's a combination. I think it's a mine that's really struggling now. It's battling in terms of development areas. And it's really, as I said earlier, like behind the eight board in that it's getting small bits of ore from a variety of different sources.
So just getting some areas that we can focus on, some development in place and then resetting the operation, doing the drilling, doing the planning will get us back to there. But I don't see any reason or there's nothing identified in the due diligence which suggests that that is not achievable. And I'd add to that, Matthew, that there is a large resource base that is well established, notwithstanding the reset and revision that we'll do over the course of the next twelve months. We do feel that there's some really significant opportunities to build off of that, extend those resources. And for us, really the icing on the cake comes with the discovery of a new high grade zone, and that will certainly be a focus of the exploration efforts over the next twelve months in order to deliver one of those.
And as I mentioned earlier, the footprints of these types of ore bodies are just really, really small and can be easily sort of missed in the sort of drilling density that we know about at Red Lake. So there's definitely some opportunities there that we feel that we want to take forward over the course of the next year to develop those ideas. And I don't want to say that knowing being involved in all the commercial discussions with Newmont Goldcorp, it was very important to them to share in the upside because they had a strong view of the geological prospectivity of the area.
Understand. Thanks for the detail. Just the quick one finally for me. Just wondering what the
rough utilization for each of
the two plants is at
the moment. Is Red Lake still being predominantly idled in terms of that discussion we had previously on the mill capacity?
Yes. That's right, Matthew. Campbell's the main mill at the moment.
Yes, sure. And then in terms of that the gap that Dan referred to previously, maybe you could give us an idea of the split on refractory ore versus normal free milling ore? I mean, is that the key driver behind the, I guess, the difference between the 900,000 tonnes aspiration versus the 1,100,000 tonnes capacity?
We don't have that split, but we don't think that's the limiting factor the utilization. It's really ore availability and ore supply. And a couple of weeks ago, when I was on-site, there was certainly a plan to utilize the mills more effectively that the team had, but I don't think it had yet been implemented. So you still got both mills running and operating, but utilized much less than their full capacity, overall at around 60% of their full capacity at the moment. Certainly, Jake on board that 900,000 tonnes to 1,100,000 tonnes as opportunity.
I think Bob is probably listening in on the call and has that loud and clear.
Sure. Thanks, Jake, and congrats again to the team on the transaction.
Thanks, Andy.
Thank you. Your next question comes from Adam Baker with Global Mining Research. Yes.
It's actually Ian Warden here. Just had a question on the process plants. There is a comment in the presentation that you'll be consolidating the processing activities. Given it looks like there's a little bit
of separation in distance between the two plants, can
you just explain what you mean by that, how you'll
optimize the processing operations between those two sites?
Ian, it's Glen. Look, I think it's really early days in terms of how that consolidation and optimization is actually going to play out. As we've mentioned, the evolves on the grounds. With the team at the moment, we'll start to sort of listen and learn and understand how we're going to move this forward as well as input our own ideas on that. So I think it's pretty it's just a bit
early to
sort of understand how that's really going to sort of transpire. Sure. I mean I think the one thing you'd say is that there is all of the shafts are connected or that the whole underground is connected. So there's no limitation on where the ore comes out effectively. And Bob was certainly keen to sort of see whether you needed all the shafts operating and certainly whether you needed all the plants operating all the time for both plants.
Your next question comes from Paul Hissy with RBC.
Just a bit more. You kind of alluded to Bob spending a lot of time over there, Jake. Can you speak a little bit more about your plans for integration into the business? Will there be a contingent of Secundis in Australia? Or how do you sort of see that playing out over the next twelve to eighteen months?
Yes. Thanks, Paul. I think Bob is committed to spending a material amount of time in Canada next year. We've talked about twelve weeks. We have an integration committee and group that is being headed up by Evan Elsdine.
He helps us with the Carol and the Mungari integration, and that team is being formed now. So that will take us through to effectively day one. We are looking at how to reorganize ourselves and have a plan with respect to making sure that Bob has the bandwidth and capacity to free up some of his time to spend on this asset, which will take up a material amount of his time. And so those plans are in place and confident that we have the capacity and the bandwidth to do that.
I think the other thing I'd add there, Paul, is that we're not planning on seconding a lot of operators or the like into the asset as it might have been done by others. Bob's view is that there's a talented enough team there, just giving them the investment into the mine development and getting the utilizations and productivity up, but we're not planning on seconding operation people into the asset.
Okay. Great. And then maybe a couple of follow ups for you, Laurie. Would we expect to see a noticeable change in or an incremental change rather in group G and A off the back of adding in effectively another geographic jurisdiction?
No, Paul. I mean the one thing in terms of our operating structure is that each of the assets have got to be self sufficient. And so there's nothing at a group level that we expect to see changing here. And when we look at the old structure within Red Lake, they've got everything they need in terms of support activities for that asset. And fairly clearly for Jake, we're not opening up an office in Canada.
Okay. Sure. And a couple
of questions on the balance sheet. Just, I guess, to simplify things on a pro form a basis, I'm not too stressed about one of the few other assets over the next three months or so. But say we arrive at March 31 at the start of next year, effectively, you guys will have a fresh fully drawn 600 facility and no other debt. Is that correct?
Correct. Yes. So we've got $250,000,000 owing on the Ernest Henry facility now, which will be paid out. We'll have that net cash position as the delta, and we'll have the $600,000,000 loan fully drawn.
Okay. Great. And just wondering from a balance sheet perspective, what, if any, kind of environmental liability you might be incorporating with this asset?
Yes. So we've established C125 million dollars performance bond facility that we'll need to put in place. The current performance bond that exists for the asset is lower than that, but that's because they're partway through recent bidding a new mine closure plan. And based on the DD
and the information in the data room,
we expect that we'll be using the majority of that 125 on the transaction closing.
Great. And just one last question perhaps for you, Jay. Do you think this has any sort of or provides any other pathways to further rationalize your portfolio now? I mean you've added something, you spoke about helping to offset potential production losses from other assets. Would you say on balance that the next move could be perhaps to pass on some of the smaller, higher cost contributors from Australia?
Just thanks, Paul. I'm just a little nervous as to how I answer this question as to how full my inbox will be from investment bankers. But it's yes, we continue to review our portfolio is Howard on to that. And we've been very open in saying that we continue to look at that. Six to eight assets is the right number.
This takes us to seven, but it doesn't rule out any other rationalization of the portfolio.
The next question comes from Peter O'Connor with Shoreham Partners.
Congratulations. Steve, it's very interesting. And it's very clear you're very conservative narrative to come through.
So I like to make
the promise and how to deliver.
I have two questions for Laurie
and just one for you, I think it's for Laurie. Laurie, from an accounting perspective, once you complete and we
think about, I guess, the second half of FY 'twenty and beyond, accounting for this asset, will you do it
in a fewest terms and translate it back to Aussie or will it be for Aussie accounting for this asset? How should I think about that from a modeling perspective?
We will be doing it in U. S. Dollars converted to Aussie and reported in Aussie dollar terms. Got it.
And just on the closure question was asked before, so the closure costs you're running is CAD 1.25 effectively for that bond?
Yes. That's the current indications in looking at the 9.5 plan that Renlite was working through as we were doing our due diligence. And on the dividend,
you mentioned the dividend policy, no change. Thanks for that. And thinking about your comments about Red Lake and the free cash flow is likely over the first two years as you're working to integrate and improve. If it's free cash flow flat or free cash flow negative, I think it's been equal, we can now in the market and not change given that free cash flow number shouldn't change. Is that how I should think about that?
Is that likely not going to contribute for the next three years?
Yeah. That's that's a fairly simplistic way to look
at it, Taylor, is that
the the dividend really is going to be based off the existing assets over the next next few years and and what we can do to to make sure that Red Lake's negative cash position is minimized.
Okay. And Jake, just for you, the final teasing comment in your opening remarks, you talked about maybe a more G. S. Revolution you want to work together on. Could you flesh that out a little bit more for me?
Only that. I mean we've found it very constructive to work with them. I mean I first approached Randy Angle at a conference in February see whether they were interested in selling Red Lake. And they weren't at that stage. They were still assessing it.
But through the process, we found Newmont Goldcorp and Randy and his team to be exceptionally good to deal with. We've built a constructive relationship with them, and I know that they are open to engaging with us on other deals. And certainly, we would be very open to working with them.
And the lens you would look at is very much as you've spoken about before. It's about jurisdiction risk allocation and within that six to eight asset portfolio. Is that, again, how
you're thinking about it? There's one thing we're not changing, and that's our strategy, which we started from day one, Peter. We
have a follow-up question from Mr. Paul Hissey.
Sorry to bug you. Just one follow-up. Obviously, Newmont's got a big investor day this week. Obviously, with that layout, and I hope it's bit of a medium term outlook. What are you expecting then to say about Red Lake from a I guess, a production perspective?
Or do you think they're likely to have commentary altogether given the announcement this year?
I can't speak on behalf of Newmont Goldcorp, but we'll be watching their Investor Day. But I don't think Red Lake will feature heavily other than the fact that they've sold it.
There are no further questions at this time. I'll now hand back to Mr. Klein for closing remarks.
Thanks, Zvi, and thanks, everyone, for getting on the call. There will be a webcast of it on our website shortly. But I just want to wrap up by just saying that this is what we where we see true value in the sector being created. This is a turnaround opportunity, undoubtedly, and we are going in with our eyes wide open that there is going to be a lot of hard work to get it turned around. But it has the elements.
It has that geological upside. And I take great comfort from Glen and his team viewing it as highly prospective for resource and reserve additions and discoveries. And I take a lot of comfort from Bob's view and the whole team's on the DB that there is significant operational turnaround, and I know that, that is shared by the site management team. To me, those are the core attributes of a deal that makes money for our shareholders, and that's what I'm very confident that this deal will do. Finally, just looking around the room over here, I see some very tired people.
I think Kieran Schmidt hasn't slept for two days, prime for at least at one night or two nights maybe. These guys and the team have been working extraordinarily hard. And I just, again, want to reflect on that and credit them for getting us across the line through an incredible amount of hard work. So thanks very much, and we look forward to talking to you about the deal the next few days or the next few hours. Speak soon.
That does conclude our conference for today. Thank you for participating. You may now disconnect.