Thank you. Thank you for standing by, and welcome to the Evolution Mining Limited full year 2023 financial results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand over to, excuse me, apologies, to Mr. O'Connor. Again, that is Peter O'Connor. Please go ahead.
Thank you, Andrew. My name is Peter O'Connor, the General Manager, Investor Relations at Evolution Mining, and welcome to everybody on the call today to Evolution Mining full year results call. We've lodged a range of announcements today on the ASX platform, and we'll be talking to those in this morning's call, and they include the announcement for the FY 2023 results, the full financials, including the full redocumentation, a presentation for the full-year results, and an additional release about the Ernest Henry Mineral Resource update as well. Speakers on the call today include our Executive Chair, Klein, our Chief Executive Officer and Managing Director, Lawrie Conway, our Chief Financial Officer, Barrie Van der Merwe, and Vice President Discovery, Glen Masterman, who will talk specifically to the Ernest Henry Mineral Resource update towards the end of this call.
Just to recap, the last quarter has been a very active period for external engagement for the company, and over that period of time, we've delivered a range of products, including our Investor Day in June 2020. We participated in several major global and domestic conferences through that, that period. Importantly, we've also hosted a large range of investor groups through our operations over the last couple of months. Our Cowal and Ernest Henry operations in June. Most recently, in early August, our Mungari Operations in Western Australia, and we're looking forward to a fourth visit, which will be in September this year, to our Red Lake Operations . We also look forward to the next couple of days, where we have extensive investor meetings over that period for the balance of this week. With that, I'll hand over to Executive Chair, Jake Klein, to lead the call.
Thanks, Rocky. Good morning, everyone. Thanks for joining us. Some of you were there, and remember that last week at Diggers & Dealers, I spoke to four key messages about the gold industry. This morning, because I know how tired everyone is after watching Matildas last night, I'm only going to ask you to remember three important messages about Evolution this morning. They're on slide three of the presentation, and it starts with the business outlook and stronger cash generation. There's no doubt that the outstanding resilience of our people and our recovery from the weather events at both Ernest Henry and Mount Rawdon this year, which resulted in over AUD 150 million of delayed revenue at Ernest Henry alone. We've now fully recovered from these events, and have started FY 2024 with confidence.
Having invested heavily in our portfolio over the last years, few years, we are entering a period of higher production and lower capital intensity. The next 12 months will be proof of this. This is the first message that I want you to remember. The second one is that this morning we have declared our 21st consecutive dividend, showcasing that gold companies can consistently deliver returns to shareholders whilst investing in growth. We are proud that we have now returned over AUD 1.1 billion to shareholders, with more to come. As you will hear from Lawrie, the priority of margin over ounces will remain. We will continue with our cost discipline to optimize margin and ensure we bank the benefits of higher metal prices. We're also really pleased that following our debt restructure last month, our investment-grade credit rating was recently reconfirmed.
Thirdly, this morning, we released our fourth update to the Mineral Resource Estimate at Ernest Henry. This is after only 18 months of full ownership of this operation. The deposit continues to grow, and as you will hear from Glen in a few minutes, it is truly emerging as a world-class orebody. To recap our three messages this morning: firstly, lower capital intensity and higher cash generation going forward. Secondly, 21 consecutive dividends, a strong focus on capital management, and confirmation of our investment-grade credit rating. Thirdly, Ernest Henry is a world-class orebody. Now turning to slide four. Sustainability is integrated into everything we do at Evolution. The health and safety of our people, both physical and mental, is a core value to us. We are pleased that our Total Recordable Injury Frequency Rate reduced by 19%.
There is more we can do in this space, and we will, as any person being injured is one person too many. Our strong social license is something we are very proud of. We are committed to improving outcomes for all our stakeholders. This commitment was reflected last week at the annual New South Wales Mining HSEC Awards, where we were awarded the 2023 Community Excellence Award, recognizing the long-standing partnership with the Wiradjuri Condobolin Corporation in establishing the Galari Agricultural Company to develop skills in Indigenous youth. This collaborative shared value project has leased 50 acres of land for livestock production, renovated a farmhouse to become a cultural hub, and is successfully training and employing young Indigenous people. We are pleased that in FY 2023, through FY 2023, through our team's efforts, we achieved a 9% reduction in carbon emissions against our FY 2020 baseline.
This puts us on the pathway to deliver our commitment of a 30% reduction by 2030. We also continue to advance the opportunity to convert the Mount Rawdon operation to a very large, multi-generational pumped hydro asset, which is effectively a giant battery. I remain convinced that not only will this be a very valuable asset to Evolution, but it will also be an opportunity to showcase mining and its contribution to our country in a completely different and positive light. With that, I'll hand over to Lawrie.
Thank you, Jake. Good morning, everyone. I'm going to touch on our FY 2024 plans before handing over to Barrie to take us through the details of the FY 2023 financial results. Turning to slide five, which looks at our FY 2024 group guidance, where we have planned 18% higher production, 6% lower a ll-in sustaining cost, and a 15% lower capital investment, which will be around AUD 117 million less than FY 2023. This is all in line with our FY 2024 guidance, released on our Investor Day of 770,000 ounces, at an all-in sustaining cost of AUD 1,370 per ounce, ±5%, and capital in the range of AUD 640 million-AUD 720 million.
As I said on the June quarterly call last month, we worked on finishing FY 2023 well, so as to set ourselves up to deliver the improved performance in FY 2024, and ultimately, a lot stronger cash flow. Pleasingly, we started July well and are on plan. FY 2024 is about moving back to stronger cash generation, having moved past a peak period of capital intensity and setting the assets up for the long term. As Jake said, the priority on margin over ounces will remain, as will the discipline on costs, to optimize our margins and manage the impacts of inflation. It is good to see some stabilization in inflation, but it does not mean we can reduce the attention on our margin.
I also mentioned capital discipline and lower capital intensity on our investment, with Mungari's growth project, essentially the only major project in execution phase for FY 2024. This shows our capital intensity is reducing this year. All other projects must justify their investment, and will only be gated through to the next phase when investment is needed and justified. Barrie will talk to the balance sheet strength shortly, but I want to reinforce that we are prioritizing reducing our debt levels, and the FY 2024 plan is aligned to this. The metal prices are higher than what we achieved in FY 2023 and are higher than what our planned assumptions are. Each month that the metal prices remain higher, that extra cash will flow through to the bank account. Moving to slide six and a breakdown of the FY 2024 plan by operation.
We expect to see improvements right across the portfolio. The production for FY 2024 will build up quarter on quarter, with the September quarter planned to be the lowest quarter as we complete major maintenance on a number of our mills. As we move into the second half of the year, the production is expected to be materially higher as both Cowal Underground and Upper Campbell at Red Lake ramp up. Our all-in sustaining cost will mirror this ramp-up in production and trend down through the year. Briefly on each operation. Cowal is expected to increase production by 16% in FY 2024 to around 320,000 ounces, which will be another record year. Cowal fully repaid all invested capital by the end of July, including the capital for the underground mine, and is now set to be a strong cash contributor again.
Ernest Henry is back to full production and will revert to the material cash generator it has been for many years. Mungari will continue its consistent performance at 130,000 ounces at a 7%-8% lower all-in sustaining cost compared to FY 2020. The growth project will ramp up during the year and remains on plan. Red Lake has been able to set up to deliver an improved and reliable performance in FY 2024, with the higher-grade material at Upper Campbell to be achieved in the second half of the year. The reduction by 10% of the workforce is on track to be completed this quarter. Mount Rawdon is now back into the pit, which provides access to the higher-grade material, resulting in a lower all-in sustaining cost and improved cash generation.
Overall, we are well placed to deliver improved performance this year, which will result in stronger cash generation, at the same time advancing the strong pipeline of opportunities we have, so as to deliver higher returns over the long term. With that, I'll now hand over to Barrie.
Thank you, Lawrie. Good morning, everyone. We're on slide seven now. FY 2023 was a year during which challenges like the weather events were managed well and showed the resilience of our people at a high-quality, low-cost asset portfolio. Underlying profit after tax of AUD 205 million was materially impacted by weather. I will unpack that further on the next slide.
EBITDA and EBITDA margin remained strong, but only marginally down compared to last year, despite the weather impacts. Adjusting for that, EBITDA would have been approximately 15% higher, with EBITDA margin at about 47%. Operating mine cash flow of AUD 944 million was 6% higher, and the group cash outflow for FY 2023 of AUD 160 million was driven by peak capital expenditure in organic growth. Adjusting for the weather events, group cash flow would have been approximately AUD 20 million positive. The board declared a fully frank AUD 0.02 per share final dividend for FY 2023, as capital intensity is reducing, and we expect strong cash generation. On slide eight. The weather event in March at Ernest Henry had a material impact on profitability and cash flow in FY 2023.
The estimated revenue lost compared to last year was AUD 150 million. This was partially offset by owning Ernest Henry 100% for the full year, which contributed AUD 65 million to profit before tax, compared to FY 2022. An increase in gold ounces sold added AUD 58 million to profit and a higher gold price, AUD 112 million. Excluding the weather impact and a full year of ownership, copper revenue was down by AUD 28.5 million, driven by lower year-on-year production as originally guided.
Operating costs increased by AUD 87.1 million, driven by 5% inflationary cost increase of AUD 71 million, AUD 40 million of additional costs to recover from weather events, partially offset by operational efficiencies and a higher level of capital development across the group, which resulted in more costs being capitalized compared to FY 2022. Depreciation was AUD 38 million high due to the amortization of the purchase price allocation at Mungari, higher asset carrying amounts at Cowal, and Mount Rawdon approaching the end of its life as a gold mine. Underlying profit after tax, AUD 205 million, after adjusting for non-recurring items, as outlined on the slide, and the tax effect. Turning to slide nine. Our cost drivers and their weighting remain consistent. Labor, including contractors, is almost half of our cost, and the top seven categories comprise approximately 80% of the total.
This allows us to focus our management efforts on the cost elements that really matter. The labor market remains tight, we expect labor costs to increase by around 5%-6% in FY 2024. Year-on-year Australian CPI for the June quarter was 6%, down 1% from the March quarter, which was more than offset by the increase in the AUD gold price over the same period. Our cost guidance includes adequate provision for inflation in FY 2024. We have a high level of contracted spend that helps to control cost. Electricity is a good example, where supply is locked in for between two to eight years, with Cowal on a fixed rate contract until the end of 2030, at favorable rates in a very competitive field. Our focus on sourcing and efficiency improvements will continue.
Our cash flow and cost drivers are well understood, and key sensitivities are set out at a high level on the graph, bottom right. If the spot gold price prevails through FY 2024, then compared to the FY 2023 achieved price, cash flow would increase by approximately AUD 270 million, which will contribute to our commitments to de-lever the balance sheet. Turning to slide 10. With capital expenditure peaking in FY 2023 and expecting strong cash generation in FY 2024 and beyond, the board declared a fully frank dividend of AUD 0.02 per share. Our 21st consecutive dividend, which cumulatively now amounts to over AUD 1.1 billion. The dividend will be paid on sixth October to all shareholders that were on the register on 31 August. Our balance sheet is strong and flexible.
Our investment-grade credit rating was reconfirmed last month, which underscores the quality of our asset portfolio and the expected cash generation. Following the debt restructuring announced with our Investor Day, debt maturity is aligned with extended mine lives with an average debt tenor of seven and a half years. We have no debt settlement commitments until Q2 of FY 2025. Our average cost of debt is a low 4.7%, with 80% at an average fixed rate of 4.5%, which compares very favorably with current market rates, considering that the 10-year U.S. Treasury rate increased by about 50 basis points since we locked in the rates of our most recent U.S. private placement. We use hedging only for risk management purposes, and the previous hedge book, with pricing well below current spot levels, was fully delivered by June 2023.
Going forward, 95% of our production is unhedged.
During FY 2023, solid foundations were laid to set Evolution up to deliver in FY 2024 and beyond. The balance sheet is strong and flexible to enable the execution of our strategy. We expect that debt will start to reduce in FY 2024. I will now hand you over to Glen to talk about the exciting resource update at Ernest. Thank you.
Thank you, Barrie. Good morning, everyone. I'd like to direct your attention to slide 11 of the presentation. This latest update at Ernest Henry is our fourth mineral resource declaration in one and a half years, reflecting an excellent rate of growth at this world-class copper-gold ore body. During this period, Evolution has grown the resource by 700,000 ounces of contained gold, which equates to a 41% increase, and by 390,000 tonnes of contained copper, which equates to a 44% increase. We have completed this resource update now in order to inform the feasibility study with the most up-to-date information. Another resource update is scheduled as part of our annual MROR cycle at the end of 2023, and will incorporate another three to four months of drilling.
Overall, the mineral resource has increased to 102 million tonnes, grading 1.25% copper and 0.73 g/t gold, representing a 7% increase by tonnes, a 5% increase in copper metal, and a 3% increase in gold metal. This update is based on only 26 new drill holes and incorporates only two months of underground drilling from the first half of 2023. The long section on slide 11 allows us to visualize from where the growth has occurred. The main additions come from the connector zone, linking Ernie Junior to the lower lenses of the main ore body, which is highlighted by the dashed green line, as well as from expansion of the main ore body below the 775 m RL.
Metal addition outside of the feasibility study footprint that is situated between the 1,125 m RL and the 775 m RL, has the potential to become a future source of production that could help sustain current production rates over the full 17-year mine life extension out to 2040. The attractive aspect of adding metal in this location is that we expect we will be able to potentially utilize infrastructure that will be in place in support of the mine extension, which is currently the subject of the feasibility study, which is expected to be completed in the March quarter of 2025. With that, I'll hand back to Lawrie.
Thank you, Glen. The results we continue to see out of Ernest Henry are amazing, and they do give us confidence of a much better life at what is already a world-class asset. In summary, on slide 12, we have a portfolio of assets where we'll continue to prioritize margin over ounces and maintain our focus on safely and reliably delivering the plan. We've been successful to date in increasing the mine life of each asset and have further upside for either mine life extensions or margin improvement. This will enable us to deliver sector-leading returns. We have the flexibility to time these projects and will continue with our capital discipline. Doing this will allow us to deliver material cash flows through the cycle, and importantly, capture the benefits of current metal prices, which will lead to increased returns to our shareholders.
Thank you for your time this morning, and Andrew, please open the line for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Hugo Nicolaci with Goldman Sachs. Please go ahead.
Morning, Barrie, Lawrie, and team. Thanks for the update this morning. Maybe just first one on, on Ernest Henry, and good to see the resource update there this morning. Maybe one for Glen. Just wondering if you could remind us if there's anything else outstanding to move to that next level of, of study on the extension and reserve update, and what the timing on those looks like at the moment? Thanks.
Yeah, thanks, Hugo. Yeah, we're currently, if we've commenced the feasibility study on that mine extension footprint. Just turning to slide 11, that, that area of the ore body that is currently the subject of the study is highlighted by the magenta dashed line there. What we're expecting to do is, over the course of the feasibility study, is to continue to infill drill and convert, you know, any of the sort of inferred blocks that continue to exist inside of that footprint so that we can then transition those resources into reserves. We expect the next reserve update for Ernest Henry will be released alongside the feasibility study, which is expected to be ready in the March quarter of 2025.
Great. Thanks for that, Glen. Then next one, just on costs, for the team. Appreciate the detail on the cost breakdown and the sensitivities in the pack. Just wondering if you could provide a bit more color on the labor market tightness comment. You know, is that still reasonably broad-based or still, you know, more specialty underground operators? How have you seen that change, if at all, in the last couple of months since the Investor Day? Thanks.
Thanks, Hugo. look, I mean, I think if we look at it, it's, it, you know, it still is West Coast, East Coast, and then obviously in, in Canada, for starting Canada. You know, we've got still low turnover at Red Lake, the restructuring, the workforce also going on. You know, we don't see as much tightness there other than, you know, attracting technical professionals in, into the, into the region. On the East Coast, we certainly have seen it stabilize quite a bit. You know, Cowal has a, has a good, I guess, access in the central west of New South Wales to, to, to people, and Ernest Henry is on a, on a FIFO arrangement.
When we look at the west, you know, at Mungari, we have seen, as we presented on site last week, the turnover rate dropped from 40%, about 12, 14 months ago now to just over 20%. We are seeing an improvement there. I think also as we've got 25% of the workforce is now on a FIFO arrangement, having picked up Kundana and East Kundana, that, that has alleviated some of the problems. In terms of our area with the most difficulty, it still remains in the west, in Mungari.
Great. Thanks for that extra color. Last one, just maybe for Jake, favorite subject on Mount Rawdon Pumped Hydro. Any updates there and, and how that's progressing?
Yeah. Thanks, Hugo. Appreciate you asking that question. Hopefully, there's many more to come on that. Look, it's progressing well. The engagement with the Queensland Government is increasing. It's clear that as they're defining their strategy better, that the Mount Rawdon Pumped Hydro opportunity clearly strategically as an important part of that. The engagement is ongoing as we're completing the feasibility study or advancing the feasibility study. We're now talking extensively with Queensland Government departments. We're talking to Powerlink, and we're talking to, you know, the Queensland Government entities that are natural potential owners of an asset like this. That is in addition to speaking to other energy retailers, who've all expressed some interest.
Conversations are ongoing, and I'd say, you know, it, constructive and positive.
Great. Thanks for that, Jake. I'll pass it on.
Your next question comes from Matthew Frydman with MST Emerging. Please go ahead.
Sure. Thanks. Morning, Jake and team. Thanks very much for the update. Maybe just firstly to Glen, and, you know, thanks for all that color on the, the resource update today. I just wanted to clarify, you, you highlighted the, the magenta area there, in your body that is the target of the feasibility study update. Is it your intention to continue including these additional, these, I guess, the, the additional resources from, from these updates and, and further incremental drilling? Is it the intention to include that ultimately in, in the feasibility study, or is, is that magenta area the, the, the clearly defined outline, outline of, of what's being considered for the feasibility study?
Matt, what we're doing there is, y ou're right, the magenta outline is the footprint of the current feasibility study. The drilling program, you know, will continue over the course of time to infill and define the ore body inside the magenta area. We'll also be doing work inside the green dashed area, with the idea that we will, you know, we're going to bring that to the connector zone at Ernie Junior. You know, up alongside the mine extension study in terms of our knowledge of it, to the extent that we can understand how we may optimize infrastructure that would support production in that area.
That Ernie Junior to sort of lower, lower lenses of the main ore body won't be at feasibility study level by the time we complete the study for the main mine extension area.
Matt, just to add to that, because it's a, it is a good question, and we actually discussed it yesterday when we were talking about this, this call and, and the release. All the infrastructure is considering all the new drill data, and it's being located in places that will be optimal to access this additional mineralization as it gets upgraded into, you know, reserve and, and feasibility study status.
Yeah. Got it. Thanks, Jake. Clearly, a big chunk of the resource growth today is coming from that area. Obviously very important to consider that, you know, you're not putting infrastructure there. Is there any particular reason, Glen, why you don't think it will be up to that reserved level? Is it just in time for the study, is it just a function of, you know, the drilling density and obviously focusing on infill in the priority areas rather than extension in those additional areas outside the footprint? Is that the driver there?
Yeah, It's just a timing aspect there, Matt. We, we'll do what we can to sort of, you know, catch it up, but we don't feel that it's going to be quite ready to be included in the, you know, in the, in the actual feasibility study. As Jake mentioned, you know, we'll consider all of that information in terms of how we optimize, you know, infrastructure and development.
Got it. Thanks very much for that. Maybe switching over to the financials. Obviously ending half with AUD 46 million, or ending the financial year, I should say, with AUD 46 million in cash. You know, clearly, that's just a point in time, but it's probably been five or six years since you've ended a period with cash at that level. I guess, you know, looking forward. You've talked about the cash generation of the business improving over FY 2024. Clearly, there'll be swings and roundabouts. I'm guessing that you're gonna need to draw down at times and rely on that revolver facility at times. Just wondering if you can talk through, maybe, Barrie, if you can talk through, I guess, what are the costs associated with using that facility?
You mentioned, I guess, group-level average interest costs of 4.7%. Can you, can you talk through the specific costs associated with us utilizing that revolver facility?
Yeah, Matt, I'll, I'll hand that to, to Barrie, around the actual facilities and, and the revolver. I think, you know, we finished the year at AUD 46 million. You know, as we'd started FY 2023 with over AUD 570 million of cash, knowing what we had to do through FY 2023. I think then when you overlay it with the Ernest Henry impact, you know, that had a material effect. When we look at the move into the start of FY 2024, as Barrie outlined, you know, Jake did, the revenue loss was around AUD 150 million, and the extra costs we had to incur through the recovery, those things fall away.
Through the first three to four months of this year, that Ernest Henry back at normal production is the source of cash flow. You then also overlay it with, as I mentioned, Cowal now reverting back to a net cash con versus the investment in the underground. That's what gives us that cash generation in the near term. It builds up through the course of FY 2024, but as we have other commitments, that revolver will come in and out, and Barrie can touch on the costs of those.
Yes. Let me just briefly on, on the revolver. To remind everyone, it's a AUD 525 million facility that we've got available to provide us with that additional liquidity. It's a variable rate facility, it runs at current rates at about 6.1%. And important to note that you can go in and out of that facility fairly, repay very quickly. You can manage it quite efficiently and don't have to carry it to the balance for a long period.
That's pretty clear. Thanks for taking my questions.
Your next question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Thanks, Jake and team. Our first question is, the stamp duty, which is still outstanding. Is there a latest expectation for when that might need to be paid?
Yeah, Dan, as for previous calls, the obligation is within a month of receiving it, and we're pleased to say that the one-way communication remains in place.
Very good. next question. just in the weeds of the accounts, I know that there's a AUD 20 million in deferred revenue at Red Lake. what, what does that pertain to? You know, what's going on there?
This is accounting standards coming into play again, Dan. We had the concentrate, build up during the year, and it was always planned to be sold in the June quarter. We, we were paid for that, that concentrate, but because it hadn't fully left site, and, and title hadn't transferred on thirty June, we couldn't book that as a sale. We'd have to book the cash as deferred revenue, and then we book the ounces as a sale in this year, and therefore, that's why it's on the balance sheet the way it is. Cash received in June quarter, sales recognized in FY 2024.
Right. Okay, sorry to still be in the weeds of the accounts. In note 13 of your accounts, you do have a big step down in trade receivables, but you do have a new item of AUD 70 million in accrued revenue. Is this a reclassification, you know, now that you've taken full ownership of Ernest Henry, where concentrate used to be in trade receivables, now it's in accrued revenue? You know, perhaps can you just explain what's going on there? Thank you.
Look, Dan, I'll have to look at that one to just make sure. I suspect it has to do with bringing on some of that Ernest Henry receivable. Let's confirm that one for you.
Okay, thank you. Then just last question. I mean, this quarter is generally, one at which, maintenance occurs at all sites. I presume that is the case. Maybe just a quick comment on, did the maintenance activities at the various sites, go to plan, or is there anything you might call out?
Yeah. Dan, I think the biggest one is at Cowal, and the second one is at Ernest Henry. Cowal's was this month. It was over 150 hours. That is running on schedule and expected to be completed in this month. That's good for Cowal. Similarly at Ernest Henry, which is both the mining and the plant. We basically try and run those sequentially in the same quarter, and that's tracking the plan again, to be done within this quarter.
Okay. Thank you very much for all your answers.
Your next question comes from Rahul Anand with Morgan Stanley, Australia. Please go ahead.
Hi, team. Thanks for the opportunity. I might start with an accounting question, perhaps. Just continuing on, in terms of the working capital, I just wanted to touch upon a couple of things. You had a small relief for working capital this period, circa AUD 10 million. The key drivers there were about a AUD 200 million build in your trade and other payables, which offset a large portion of your inventory build, which I would have expected as you bring back production. Could you talk a bit to that, in terms of the trade and other payables, and are you expecting those to reverse in this half?
Yeah, look, Raul, it's, it's one that depends on each of the operations. When we, when we look at it, the, the payables built at the end of FY 2023 as those projects and our major capital was large in the June quarter. They worked their, their way out through FY 2024. When we look at inventory, that's more at the moment based on Stage H in at Cowal. We go into FY 2022, there was a period where we drew down the inventory as we were continuing finishing off the waste stripping through FY 2023 as we accessed the ore, then therefore, we well and truly outmined the processing plant, so that built up.
When we look into FY 2024, now that Cowal is back into full operations at the pit and, and really, mining ore only, that, that inventory will build through FY 2024 again. When you then look at it over the course of a year, and as, as we looked at the June quarter and the full year results, when you look at the financials, the net movement in working capital isn't that material by the end of the year. Obviously, in that second half of FY 2023, that was impacted by the Ernest Henry outage, where we weren't producing for a couple of months and then started to build up production.
What we would see through the 1st quarter of this year, those receivables will lift because concentrates settled over a three to four month period, and then it will stabilize again. That's why I say we try and look at it on a full year.
Yeah, no, that's fair. I was talking more towards the full year number, you know, conscious you have Ernest Henry ramping up. In terms of the payables, then, they're sort of at the level where they should be now. Is that how should, how I should read that?
Yeah, look, what we would see through FY 2024, that down, so therefore it will be a draw on working capital over the year because our capital intensity this year, as I said, is about AUD 117 million lower. Therefore, the capital that we spent in the second half of FY 2023 will be flow through, get paid, and therefore the payables won't build up as much as it did in FY 2023.
Gotcha. Okay, that's clear. Thanks for that. Look, second one still for yourself, and perhaps, you know, Jake and Lawrie as well. Dividend policy. I guess August 2019 was the last update there. And it is sort of, you know, indicating a 50% payout, based on free cash. Obviously, a tight period or a negative period for free cash at this point in time, but still that dividend payment. Should we reach that, or should we read the AUD 0.02 per share as a minimum dividend payment, perhaps? How should we think about that dividend policy going forward?
Yeah. Look, I mean, the, the dividend policy we, we discussed it again with the board this week in finalizing the accounts. We, we don't see a, a change to that in the, in the near term. We do think it's based on cash flow, and as Jake mentioned, you know, making sure that as we then come out of this intensity, we, we turn our attention to returning dividends to, to shareholders. It's not so much that A UD 0.02 will become the base, it's more that as we look into FY 2024 and FY 2025, cash flow increases, and therefore that, that policy will have a, a role to play, whereby we, we would expect that the, the dividend lifts from, from this base.
When finalizing the FY 2023 final dividend, it was really on the, on the outlook rather than, 'cause if you take a 50% of negative cash for a year, we'd have to ask the shareholders for money, but that wasn't the plan.
I, and I think just to add to that, you know, I think it, it reflects a, a, a discipline and a recognition that, you know, we're using shareholders' money. We, we had a very capital-intensive period, but we thought it was appropriate and, and think it is appropriate to recognize shareholders, and it reflects the fact that we're entering and confident we're entering this period of lower capital intensity and higher cash generation.
Understood. Okay, look, final one, perhaps a follow-up for Glen, Ernest Henry. Glen, you're talking about the green area, perhaps providing the upside in terms of the resource, and you're also talking about the thought process going into the infrastructure side. Is there a scenario here whereby, firstly, if, you know, your findings in terms of additions to resources are better than expectations, that perhaps there is a change in scope of the project, and you, you consider perhaps a bigger footprint, perhaps more processing, et c., et c.? I mean, how should we think about how, firstly, these results have come in versus your expectations, and then secondly, potentially, how can they change the scope? Thanks.
Well, yeah, look, I think it's. Well, I'm really pleased that t he, the results, I think, have exceeded our expectations when we took ownership of the asset. As we started to develop more knowledge of the ore body, we were able to start predicting where we would be able to establish future growth. It's pleasing that that's being confirmed by the current drilling. As we've mentioned previously, we still believe that there's definitely more to come. I think, you know, an area, for example, is Bert, which may be, you know, a separate mineralizing or mineralized trend that is sort of plunging down parallel to the main ore body. We've got two surface diamond rigs on site at the moment, drilling.
That's, you know, that's another area that we'll be sort of looking forward to the drilling results coming forward. I guess, in terms of your question around study scope, we, the scope at the moment is to look at the, you know, the main, the main orebody, mine extension inside of, you know, the, the footprint that we've highlighted on the long section there. The reality is that, that's more advanced in terms of our orebody knowledge, and that's in the, you know, the life of mine production sequence. We're not going to change the scope of the study at the moment, but Ernie, that Ernie Junior area and down plunge will become part of a, you know, a separate study that we will continue to drill.
The reality, and the reason why we won't necessarily sort of delay or, or change the scope is that we won't be able to get Ernie Junior in the reserve alongside the main orebody footprint there, or extension footprint, in time, just because we're prioritizing drilling in that mine, in that feasibility study footprint area. Mainly to get a lot, you know, a lot of the Inferred or some of the Inferred that sits in there, we need to convert that up to an indicated resource, so it can be classified as a reserve. So we just have to prioritize our drilling there and then, you know, as we infill Ernie Junior, that, that becomes part of the story.
Yeah, I think just to add to, to that, you know, it's a, it's a fantastic position to be in for an ore body. I think Glen was being modest when he said it's exceeded our expectations, the drill results. I mean, we've added 50%, almost 50% to the copper and gold resources in only 18 months. I think it's, this asset is gonna be the subject of multiple studies going forward. The most important thing for the feasibility study is really to lock down the infrastructure. In the time between now and when we've completed the feasibility study for Glen to have drilled in and around these extensional areas, so that the infrastructure is located in an optimal way, even though that, those additional areas may not be included in the feasibility study.
It's really about getting the infrastructure in place, and then looking at subsequent studies to bring that into production, and extend the mine life. You know, upside is the key theme at Ernest Henry.
Understood. That's helpful. Thank you, team. I'll pass it on.
Your next question comes from Andrew Bowler with Macquarie. Please go ahead.
Good day. I think there's been a few accounting questions asked thus far, but always room for one more. Just in terms of Red Lake, right-sizing the workforce there. Just wondering if you can give us some indication of what that cost could potentially be, and what sort of P&L impact we could expect, in FY 2024, I guess, particularly in the first half of FY 2022? Thanks.
Yeah. The 10% reduction is expected to be about an AUD 10 million-AUD 12 million cost, Andrew, and that will go into the P&L as a cost in the first half of the year, depending on the actual cost we'll get there. As we said, the annual benefit from that is expected to be around AUD 10 million per annum.
All right. That's all for me. Thanks, guys.
Thanks, Andrew.
Your next question comes from Al Harvey with JP Morgan. Please go ahead.
Yeah, morning, team. Just one on the resource, and the 10-year resource for Glen. I know it's only a small amount of drilling that's gone into that update, and it's relatively minor, but grades do still look like they're, they're ticking down. Just trying to get a sense of what part of that new material, you know, kind of like the grade dispersion. What, how's the grade of Bert look versus Ernie Junior versus, the new material below the 775 m RL?
Well, the, the grade is reasonably consistent between most of the ore bodies. The, the, you know, minor sort of shifts between each of them. I think what we're seeing in the, in this update, is there was a big chunk of indicated mineralization in the mine extension footprint that was upgraded to measured classification. What that did, was refined our understanding, particularly of the higher-grade gold domains, you know, in the, in the, in that FS footprint area. What that's done is it's basically put greater definition on the dominating shapes that we use, and has sort of restricted the influence of some of the, some of those high gold grades based on our current understanding.
Having said that, t hose gold domains, which also carry higher copper, remain open at depth, down plunge. There is the ability to continue to extend those with our future drilling programs. That's kind of the impact that you're seeing on, you know, you know, on the resource grades in this, in this update.
Great. Thanks, Glen. Just, just quickly, is it that the copper grades do improve with depth or, or gold grades or both?
What we're seeing is just a slight change in the gold to copper ratio, where gold is higher, you know, on a relative basis than the copper.
Great. Thanks, Glen.
Your next question comes from Sheila and Howard Mills with Stock and Station Services. Please go ahead.
Yeah, thanks, Jake, and your team. Just probably one for Glen here. On slide six, you've got Ernest Henry all-in sustaining cost of, from what I can see, - AUD 2,000. How did you treat that? I'm just having trouble working out how you got to your AUD 1,450 current all-in sustaining cost. Does that mean you not sort of booking that, Ernest Henry?
Yeah, we, we, we treat the, the copper as a by-product credit, so that's, that's what helps bring the average cost down. Yeah, Ernest Henry is, is very low cost and is negative.
Yeah. The, the copper, the copper is a by-product or the gold is a by-product?
The, the copper is a by-product. Yeah, as Glen finds more and more copper, it is turning into a copper gold ore body, in the true sense of the word. We, we treat the copper as a, as a by-product credit. If you think about it in gold equivalents, it's about 300+ thousand ounces of gold equivalents as production goes.
No problem. Right, thanks for that, Jake.
Thanks, sir.
Your next question comes from ABC News, Jarrod Lucas of ABC News. Please go ahead.
Yeah, good morning, guys. Just was interested in a few of the logistics around the Mungari expansion ramp up here in Kalgoorlie. If you could talk to that, I know what that construction workforce is likely to peak at?
Yeah, Jarrod. The workforce will ramp up. It'll be about, for the construction, 250-275 people needed in the latter stages of installation of the facility. As we said, it's a 30-month build. We've got around a 60-week lead time on the major items for the plant. It's sort of at least a year, year and a half in before we need to see that ramp up in the construction workforce.
Are you having any issues, around potentially housing the, that construction workforce on? Just on, I just note the number of construction projects in this part of the world at the moment. I mean, the Super Pit, for example, has got about 600 construction workers incoming for its Fimiston expansion.
Yeah, look, I mean, it is, it is definitely tight for accommodation over there, even with Diggers, people staying in caravans. I think it's, it's showing that there's not a lot of housing around. The, the good thing for this project, one, it's not of that size and scale of the Super Pit. In terms of we're, we're down to shortlist, in terms of the contractors for the construction and both parties that were on the shortlist have identified not only the, the workforce requirements that they can meet, but also the accommodation for that workforce. The pleasing thing for the project there is that the contractors we're looking at are already thought of the accommodation requirements and have identified the way they'll be able to provide that, which will be temporary accommodation and villages coming in to the area.
Awesome. Last one on the, w hen, when do you think you'll award that, those contracts?
The main contracts are expected in the December half, or if not, early in the March quarter of FY 2024 calendar year. It's within the next six months. The ramp up has been, we've been going through the design and confirming all of that with the engineering and the contractor. Then we'll go through the final selection process in the next few months.
Fantastic. Thanks for that, guys. Appreciate it.
No problem, Jarrod.
Your next question comes from Jon Bishop with Jarden Group, Australia. Please go ahead.
Good morning, guys. Thanks for taking my questions. Just a couple of quick ones. You flagged the Navarre Minerals write- down in your June quarter. It's probably a reflection on me rather than you, but where does that occur in the P&L, and what was the final amount?
Yes. Jon, the final amount was AUD 13.8 million, and that went through the other costs in the P&L. If you look in note two, you'll find it there, in other costs of the income.
Perfect. Yeah, as I said, it was probably more a reflection of me, so thanks for pointing that out. Just quickly on Cowal OPC, could you remind me again of the timing of that consultation process and final investment decision? Then leading on from that, what sort of approximate amount we should be thinking about for capital and the spread of that capital in terms of timeline?
Yeah, Jon, the public display closed in this, in the last few weeks. That'll then go through the normal regulatory process, where they look at those submissions. Pleasingly for us, the number of submissions were overwhelmingly positive, with over 100 out of 112 being positive. We'll then wait for the regulator to come back with their position, having assessed all of those submissions. We then go through the process of responding to those. We still have allowed a 12-month period, depending whether it gets sent through the IPC or not, then we will go from there. In terms of timing, as we said on the Investor Day, I mean, realistically, for us, we've got a lot of flexibility around the timing of that project.
We would see that, you know, as mining of the E42 pit comes off, we've got the stockpile material. If something in FY 2026, 2027, is when we'd be looking at that, that ramp-up in the capital. Obviously, if we make a decision, depending on the, the approvals, to start some of the work on that pit earlier, instead of the stockpile material, that may come forward a little bit, no decisions on that yet. And obviously, we also you would've heard on the day at Cowal, yeah, there's the difference is, is it, is the move to the OPC done on a dry lake or a wet lake, which does also impact on timing and.
Right. That's very clear. Thank you very much.
There are no further questions at this time. I'll now hand back to Mr. Jake Klein for closing remarks.
Thanks, Andrew, and thanks, everyone. Just a reminder for those of you who may want to attend and haven't signed up yet, we will be running an investor and analyst visit to Red Lake in September around the Denver Gold Forum. You're welcome to attend if you, if you want to. I highly recommend it. Just to recap those three messages, hopefully, we'll see some of that commentary in your analysis and reports coming through. First one, we are entering a period of lower capital intensity and higher cash generation. Secondly, a very strong record of 21 consecutive dividends, an ongoing strong focus on capital management, and a reconfirmation of our investment-grade credit rating. Thirdly, I, I don't think this needs much emphasis, but Ernest Henry is genuinely a world-class ore body. Thanks very much.
We're looking forward to speaking to you over the next couple of days. As usual, we want to be transparent and open, so if you have any questions, we've got one to go back to Dan with. If you have any questions, please contact us, and we'll be happy to answer them. Thanks very much.
That does conclude our conference for today. Thank You for participating. You may now disconnect.