Thank you for standing by, and welcome to the Evolution Mining Limited September 2023 quarter results call. All participants are in a listen-only mode. There'll 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 the conference over to Mr. Peter O’Connor, General Manager, Investor Relations. Please go ahead.
Thank you, Rachel. Good morning, ladies and gentlemen, and welcome to today's conference call with Evolution Mining. As Rachel said, my name is Peter O'Connor. I am the General Manager of Investor Relations at Evolution Mining. Today, we have lodged four announcements with the ASX platform. Firstly, the September quarter FY 2023 quarterly production update, an exploration update covering our Cowal, Mungari, and Ernest Henry, and also our annual report for FY 2023, and our sustainability report for FY 2023. We have four members of our leadership team from Evolution Mining attending the call today to talk to specifically the first two of those announcements, the quarterly update and also the exploration report.
In attendance, we have, our Chief Executive Officer and Managing Director, Lawrie Conway; our Chief Operating Officer, Bob Fulker; our Chief Financial Officer, Barrie van der Merwe; and our VP of Exploration and Discovery, Glen Masterman. With that, Lawrie, over to you.
Thank you, Peter. Good morning, everyone. We appreciate you joining us as we outline the results for the September quarter, as released on the ASX this morning. Prior to discussing our performance for the quarter, I want to comment on the current gold price. We know that there are many drivers to the gold price, and one of these is geopolitical unrest. That said, the ongoing situation in Israel, which is contributing to a higher gold price, is one of the drivers that we're not comfortable with. The civil unrest and atrocities, which is resulting in such devastation to so many people, including loss of life, is deeply saddening, and we sincerely hope the situation is able to be resolved promptly. For this reason, we're a bit more subdued about the benefits we are receiving from the higher spot gold price today.
At the June quarterly and our full-year financial results, I outlined that we worked to finish FY 2023 so as to set us up to deliver improved results and financial performance in FY 2024 and beyond. The September quarter has seen us track to that plan. On the sustainability front, our recordable injury frequency reduced further to 8.3, continuing the trend of recent quarters. We also confirmed during the quarter that we had reduced our emissions in FY 2023 by 11.2% over the FY 2020 baseline. This places us well on track to achieve our commitment of a 30% reduction by 2030.
At the end of the first quarter, we remain on track to deliver our guidance of 770,000 oz at an all-in sustaining cost of AUD 1,370 per oz ±5%. We knew that the first quarter was going to be a low production and high-cost quarter due to a number of factors, including the ramp-up at Ernest Henry, the planned shutdowns at a number of our processing facilities, and the utilization of lower-grade material, including some stockpile material, which carry higher non-cash inventory values. For the quarter, we produced 158,000 oz at an all-in sustaining cost of AUD 1,612 per oz. As we move through the year, we'll see production increase as we access more higher-grade material at Cowal and Red Lake, and the AISC will trend down.
Bob will go through our operational performance shortly. Financially, we generated an operating cash flow of AUD 280 million at a rate of over AUD 1,700 per oz. This is a 42% increase over the June quarter. However, it reflects the benefits of Ernest Henry returning to the reliable cash contributor that it was before the impacts of the weather event in March. All operations were cash positive before major capital, generating a combined AUD 245 million, which shows that the business is returning to an improved cash generation position. This will increase further as we move through the year and should push us well over the billion-dollar annual rate. If the spot price is maintained, then cash flows will be materially higher again and contribute further to our deleveraging of the balance sheet.
On the projects front, we made good progress at Mungari 4.2 Project, previously known as the Future Growth Project, with the main EPC contract awarded during the quarter. The contract locks away over 60% of the total project cost. However, more importantly, we've been able to confirm the construction will be within the original project schedule and budget, while the required workforce has been secured, as has the associated accommodation. The project team had a kickoff meeting with the contractor last week, and activities will ramp up in the coming months. When we approved the project, we talked about the potential to grow the resource base, targeting underground opportunities to support the ability to sustain for longer the 200,000 oz per annum post-expansion production rate.
Today, we announced some excellent drilling results from two new structures within the Kundana Mining Center at Genesis and Solomon. These results give us confidence in the potential for longer periods of higher-grade material being fed to the expanded plant. Just as exciting are the results at Cowal in the underground mine, with significant results being between Dalwhinnie and Regal, showing upside potential outside the existing mine resource.
Glen will take you through these results soon, but what it does confirm is that the organic growth opportunities we outlined at our investor day have much more upside potential, and we'll continue to work on these opportunities to further improve the financial returns of the projects and the assets. I'll now hand you over to Bob for an update on the operations.
Thanks, Lawrie, and good morning, everyone. As Lawrie mentioned, our safety is trending nicely. All operations are currently dedicated to further improvements through their safety improvement plans and implementing an online critical control verification system. Production in the September quarter of 158,000 oz was consistent with the previous quarter, and we expect quarterly production to improve through FY 2024. Notable highlights for the quarter were Ernest Henry back to normal operation. Operating mine cash flow improved to AUD 280 million for the quarter, and the Mungari 4.2 growth project commenced and remains on schedule and budget. Turning to Cowal, their cash flow improved significantly during the quarter, and we expect this trend to continue through the remainder of the year.
The high-grade underground mine project is now in ramp-up phase to circa 1 million tons this year, and will underpin the 18% lift in production. Capital to spend is also forecast to be significantly lower. The stand out achievements for the quarter was on the scheduled completion of the planned processing plant maintenance, the accommodation village becoming fully operational, and paste delivered underground has commenced. In summary, Cowal has returned to the substantial cash generator for the group, generating AUD 112 million in operating mine cash flow in the September quarter, combined with a reducing CapEx profile. Ernest Henry is on track to deliver production and cost guidance. They have successfully restored production to normal operating levels as guided, with 20,000 oz of gold and 13,500 tons of copper produced for the quarter.
Operating mine cash flow improved significantly to AUD 110.6 million for the quarter. They also delivered a record underground development, both under Evolution and prior ownership, with an impressive 3,114 m completed during the quarter. This is a testament to the site team's continued focus on improvement. The future growth plans continue to progress, and the life extension feasibility study remains on schedule for delivery in the March FY 2025 quarter. Over to Red Lake. They remain on track to deliver our full-year guidance. The September quarter production was in line with the previously guided range of 15%-19% of the FY 2024 production, and the quarterly production is expected to improve as the year progresses. Workforce reductions were completed during the quarter to align headcount with the production fleet requirements.
This represents an annual saving of approximately AUD 12 million. Remediation work has progressed nicely to ensure the future ore continuity from the Cochenour mine. The work program, highlighted in the figure on page five of the September quarter, outlines the immediate solution of the number 3 pass and a near-term solution of the raise bore number 4 pass. This pass is scheduled for completion in the December quarter. In the longer term, the ramp breakthrough will provide an alternative for both ore and haulage, ore haulage and mine access. Pleasingly, the all-in sustaining costs reduced by 16% compared to the previous quarter, for an AISC of AUD 2,552 per oz, with the underlying costs trending to improve. Sorry, cost trend continuing to improve. We remain on track for the FY 2024 AISC guidance of AUD 2,000 per oz.
A key highlight for the quarter was a significant improvement in the operating mine cash flow to AUD 27 million. This was the best operating mine cash flow in almost three years. In conclusion, Red Lake has right-sized the workforce, delivered positive operating mine cash flow, addressed the near-term haulage constraints, and remains on track to meet FY 2024 guidance in production and cost. Mungari's production is on track to meet this year's guidance. The September quarter was in line with expectations, given the reduced ore availability during the ramp-up at the Paradigm Mining Hub. North throughput was maintained by the processing of stockpiled ore. In coming quarters, we will see improved production and a reduction of the stockpiled ore processed, reversing the non-cash inventory charge seen in the September quarter.
The new Paradigm Mining Hub is expected to achieve full ore production during the December quarter and will contribute to the higher quarterly production at Mungari. Mount Rawdon is on track to deliver FY 2024 production guidance and delivered consistent production in the September quarter. They continue to make a valuable contribution to the group, generating AUD 8.2 million in operating mine cash flow. In summary, we remain on track to achieve our FY 2024 production and all-in sustaining cost guidance. The September quarter was in line with our expectations, given the resumption of normal production at Ernest Henry and the planned maintenance activity at a number of the operations. Pleasingly, all operations were cash flow positive at the operating mine level before major capital, with AUD 245 million generated. Thank you for your time, and I'll pass it over to Glen for an exploration update.
Thank you, Bob, and good morning, everyone. I'd like to draw your attention to the exploration announcement we released this morning describing exciting and high-grade drilling results at Mungari and Cowal. The results highlight potential for additional high-grade mineralization outside of known mineral resources, near active mining fronts at both sites. Mungari's results reinforce our approach of continuing to discover and delineate further high-grade underground ore to support the planned expansion from 2 Mtpa to 4.2 Mtpa, which positions the site to further increase its mineral resources. The results at Cowal further expand the potential of the underground mine and underline our focus on delivering continued and reliable higher-grade underground production in the coming years.
Turning firstly to Mungari, I refer you to Figure 1 of this morning's ASX announcement, which illustrates the relationship of the Genesis and Solomon veins relative to the Christmas vein, which is where most of our underground production at Kundana is currently situated. This morning's drilling results confirm that Genesis is the next high-grade discovery at the Kundana Mining Center. Pleasingly, we have already reported production from along the Genesis structure, including a stope that reconciled above 17 g per ton from the area we visited with those of you who were able to join our tour of Mungari during Diggers and Dealers in August. During that site visit, you'll recall the ore drive, where we walked and inspected the high-grade quartz vein arrays exposed along the side walls and in the backs.
We have progressed our geological understanding, which now confirms our interpretation from that time, that we were standing at the very top of the vein structure, almost 500 m-600 m below surface. This is one of the reasons why Genesis has remained hidden from our knowledge for so long, along with the fact that most of the previous drilling was completed from the footwall side of the mine and stopped short of the Genesis position. Our site geology team has shifted their thinking away from the geological dogma that assumed the Centenary and Strzelecki main vein structures were the only hosts of high-grade mineralization at Kundana. Our geological work illustrates there are other mineralized structures that were not previously known, situated in new geological positions that have extensive strike and dip potential.
We are excited about the growth and life of mine prospects at Kundana, with further drilling planned this year, the aim of expanding mineralization at Genesis and Solomon, while continuing to lengthen the same drill holes to infill the Christmas resource for conversion to reserves. At Cowal, it is really pleasing to be able to report the new drilling results from underground, which very nicely follow along from the drilling update I spoke about at our Investor Day back in June. I refer you to figure two in this morning's announcement, highlighting the locations of these new results, which have expanded the Dalwhinnie and Regal ore bodies across the gap zone towards each other. The gap zone, which we will shortly rename along the lines of the same single malt theme as our other underground ore bodies, is one of the areas in the underground that remains very under-drilled.
There is strong potential to connect Dalwhinnie and Regal across this space as we expand our drilling coverage into this area. We are also seeing some very encouraging results from our close-spaced ore definition drilling in the areas prioritized for early production in the underground mine schedule. Our best example is at Galway, where we are generally seeing higher grades from slightly smaller ore volumes, but overall higher metal reported entirely within the ore reserve. Lastly, I would like to mention that underground drilling recommenced at Ernest Henry during the September quarter. Two rigs are currently operating, with initial drilling targeting the down plunge extension of the Bert ore body, along with potential extensions to the Ernie Junior ore body. I look forward to being able to report new results to you after we complete the December quarter. With that, I will hand over to Barrie.
Thank you, Glen. Generated strong cash flow for the quarter, underpinned by Ernest Henry's return to normal operations. All operations contributed positively to operating cash flow of AUD 280 million, and mine cash flow before capital of AUD 245 million, which increased 42% and 98%, respectively, on the previous quarter. Net mine cash flow returned to positive territory, improving by AUD 176 million from the last quarter of FY 2023. Group cash flow improved by AUD 69 million, or 72%, an outflow of AUD 26 million for the quarter. As outlined by Lawrie, our production will increase and our AISC per oz reduce further as the year progresses. This will result in even stronger cash generation in the remaining quarters, putting us on track to reduce net debt in FY 2024.
We are very pleased that Group AISC per oz decreased by 16% to AUD 1,612 per oz, quarter-on-quarter. This was driven by Ernest Henry being back at normal operations, and Red Lake that was lower, resulting from higher ounces sold, partially offset by the impact of the Canadian dollar that was slightly stronger than Q4 of FY 2023. Mungari increased quarter-on-quarter, driven by additional costs from non-cash ore stockpile drawdowns to mitigate the slower ramp-up at Paradigm. This is not expected to recur, with Paradigm reaching full mining rates in the December quarter. Cost management remain a key focus area, and our full-year cost guidance of AUD 1,370 per oz remain unchanged. As Lawrie mentioned earlier, capital intensity is reducing and CapEx guidance is approximately AUD 117 million lower than last year.
For the quarter, CapEx was AUD 60 million lower than the previous quarter, due to reducing capital intensity and timing of expenditure at Cowal and Ernest Henry in FY 2024. As the Mungari 4.2 Project ramps up over the coming months, CapEx will increase from current levels, which is well matched with stronger cash flow expected later in the year. Our full year guidance of AUD 450 million-AUD 490 million for major capital and AUD 190 million-AUD 230 million for sustaining capital remain unchanged. During August, we completed the debt restructuring that was announced at our Investor Day in June. This was done to align our debt maturity profile with increasing mine lives and provide financial flexibility, provide shareholder returns.
In August, we received $200 million from our latest US private placement, which is repayable in equal parts in FY 2034 and FY 2036 respectively. The restructure did not change our gross debt position, and we have no debt repayment commitments until the December 2024 quarter. Since issuing our USPP, 10-year U.S. Treasury yields increased about 100 basis points to about 4.6%, excluding the spread or margin. At 4.8%, our average cost of debt with an average debt tenor of about seven years is very favorable. We have available AUD 504 million, and the committed AUD 525 million revolving credit facility is available until October 2025.
After payment of the interim dividend of AUD 38 million in October, and with a continuing ramp-up of production over the year, a strong gold price and reduced capital intensity, our expectation and commitment to deleverage the balance sheet remains well on track. I will now hand you back to Rachel to open the lines for questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from David Radclyffe with Global Mining. Please go ahead.
Hi, good morning, Lawrie and team. My first question is on the news that's just come out on Glencore's plans to reportedly shutting production of Mount Isa. I understand this doesn't affect the smelter, which maybe you guys could clarify, and you've got a mine gate arrangement anyway, and it's all pretty new news. But to put you on the spot, I was wondering if you could comment on any potential impacts you might see for Ernest Henry or even opportunities. You know, maybe there's increased labor availability that could be a positive. Could there be anything on the tolling that you could see that could be an opportunity?
Thanks, David. Yeah, look, I mean, with regards to the Glencore's plans at Isa, in terms of the first one, our offtake agreement for the life of mine at Ernest Henry already has provisions in place for if the smelter does close, which basically still requires them to take the concentrate and place it into smelters with the freight rates and everything already agreed. In regards to the second part of it, you know, obviously there will be a redeployment of people there that Glencore will look at, but it does mean there will be people available. If there's any of that that fits in with our requirements at Ernest Henry, we certainly will look at that.
And then the last piece, you know, does it provide opportunities for us around toll treating and the like? We know we've got capacity at the plant. We do have some contracts that we have with Glencore that we do toll treat at the moment on campaign. But if it does provide that opportunity, which then would obviously help with the processing costs, that's something that we'd have a look at.
Okay. All right. No, thanks. Thanks for that. And then maybe as a follow-up, if you could just provide some, a little bit more color, maybe on the profile of the capital spending for the year. I know you're only one quarter in, so it's still early days, but you are tracking under, it looks like, on both growth and sustaining capital guidance on an annualized basis. Obviously, Mungari spending is still to come, but everything else looks like it's under a bit as well. So is that just a factor of, you know, managing spending to match expected stronger second half cash flows, or in some cases, might you actually be running under anticipated run rates?
Yeah. So if we look at it, David, sustaining capital through the course of the year, you know, doesn't fluctuate too much, as you'd expect. So it's rushed through in Q4 to get all of last year's done, and therefore has a slower start up in Q1. As we go through Q2, Q3, and Q4, it'll be higher than what we saw in Q1, but still within the range, as Barrie said, of the AUD 190 million-AUD 230 million. Then in terms of major capital, it really does come down to the expansion project at Mungari, where a lot of that activity comes into back end of Q3 and into Q4.
So you'll see, you know, Q2 similar to Q1, Q3, increase a little bit, and then Q4 will be the biggest quarter, as the Mungari plant expansion works expand, which then also lines up to the hedging that was put in place that are in the second half of this year, leading into next year, to cover for that capital as it comes on.
Okay, brilliant. Thank you. I'll pass it on.
The next question comes from Andrew Bowler with Macquarie. Please go ahead.
G'day, all. First one's probably for Barrie. Just noticing the AUD 47 million in working capital move and, and part of that was accounts receivable related to Ernest Henry con . Is that— has that normalized now that Ernest Henry's, you know, back at full noise? Or is there still, you know, some normalization to happen, next quarter? And also, have you just got an update on stamp duty, timing for Ernest Henry as well? Thanks, Barrie.
Yeah, sure, sure, Andrew. And so the components of that working capital outflow that you see, a bit of Ernest Henry debt of which, and of that pipeline's full again, Ernest Henry back to normal operations. So that absorption of working capital has happened. The bulk of it was really creditors' payments relating to CapEx we spent in the fourth quarter of last year, so we had quite high CapEx in quarter that was paid. And so that gives you the AUD 47 million outflow. If you're gonna just look at that over the year, you know, as we get into that Mungari project, and as Lawrie said, as CapEx ramps up, you'd see the working capital position pull back a bit again. And so we'd expect that AUD 47 million to improve slightly as we go through the year.
Then, I mean, with respect to stamp duties, we don't have timing on that. You know, that'll come through when it comes through, but as we stand, we've not been notified of any of that.
Yeah. So Andrew, just to, just to add a little bit on the Ernest Henry, the, the way that we have to think about it is that in the, in the June quarter, there was, you know, essentially no production, so the receivables were very low. As we come into this quarter, that's where it builds back up. So there was over a AUD 25 million increase in receivables because the Ernest Henry cash flow, they don't hold working capital, they have a notional cash flow. So the net of that is what would have happened in the quarter. But essentially, now that they're back to full production, the receivable will sort of level out, depending on the, on the copper price.
But also, I'll add that it, the outflow in the working capital at the group level for the year, for the quarter, the September quarter last year was around, you know, AUD 30-AUD 35 million outflow, and the full working capital movement for the year was a positive AUD 20 million. So that's what you should expect to see, that the working capital move throughout each quarter, up and down, depending on where we're at. But over the course of the year, there's not a lot of material movement in working capital.
No worries. Thanks. And last one from me, just on the drilling results at Kundana. So, you know, obviously some pretty handy results at Solomon and Genesis Lode. I think, Lawrie, you mentioned earlier that, you know, it gives a bit more clarity on, you know, underground grades for longer. But is there any scope to sort of, you know, lift production level by level, or should I say, lift output, you know, quarter on quarter, you know, over time as you start to head into those areas? Or are the Kundana mines, you know, sort of constrained in terms of haulage capacity, and that, and those extra loads will lead to mine life extensions as opposed to production uplift in the medium term? Thanks.
Andrew, if I could try to answer it, the Kundana production profile will remain probably stable, so it give us the extension of life, because we have the mining sequence as well as the actual profile of the ore body. So the geometry of the ore body. So I don't expect it to increase the actual instantaneous or the yearly production, but it will be there for longer.
No worries. Makes sense. Thanks, gents.
Thanks, Andrew.
Your next question comes from Levi Spry with UBS. Please go ahead.
Good day, guys. Thank you for the call. Maybe a question for Bob. Could you just give us a bit of an update on, on how things are progressing at Red Lake, six weeks or so in now, and what the profile—j ust remind us, I guess, of, of the profile you're expecting over the remainder of, FY 2024, tons and grade type stuff?
Yeah, Levi, as we said in the report, we've actually managed to try the alternate paths in for Cochenour. So that's brought the Cochenour ore flow security up. We have a second path that's actually in progress at the moment, which will further improve the actual security to the Cochenour flow. Both of those will actually secure the rest of the year and ensure that we actually increase our production down through the year. It is heavily weighted towards the back end of the year, as we actually have previously announced. We also did a trial in the Upper Campbell area of our stoping area, as we said in the announcement as well, and it came through quite nicely.
So that actually proved that theory of bulking out a bit of a lower- grade mining block. So those two actually went well. Development's starting to pick back up again. Generally speaking, I think we're on track.
Okay. Thanks, Bob. And maybe just one follow-up on the Glencore question, Dave. So the mines are closing, as we understand, is that right? Could there be any opportunity there for you, picking up some assets, operating some assets, that you know do have some life for a different operator? Since it looks like you've got a good relationship based on what's happened to Ernest Henry.
Yeah, Levi, I mean, you know, if I look at it, I think we've got the best mine in the region through Ernest Henry, and if it's closing because of grades and costs, I don't think there's much opportunity for us to refocus our attention away from Ernest Henry.
Got it. Thanks, Lawrie. Thank you. Thanks, Bob.
The next question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Hi, team. Just first question on Cowal, and the paste plant commissioning appears to be a little bit slower than I had thought. Can you just outline any issues that you might have had during the quarter, and whether these have now been resolved, and, you know, are you reliably delivering paste? Thank you.
Yeah. Thanks, Dan. I'll hand this to Bob. You know, we did commission it through the quarter, and with these sorts of plants, you've got to go through that commissioning and some teething problems, which we have. But you know, where we look at it for the year, it's still gonna ramp up in line with the production ramp-up. But Bob, maybe you want to just talk about the plant?
Yeah, thanks, Lawrie. Then, as Lawrie said, we did put first paste underground during the quarter, and we have been going through the commissioning. As you get with paste plants, we have had some issues with quality and throughput. That both all fixed now. We're getting good quality paste underground. All the actual UCS sampling is coming back well, so paste is continuing to be paste.
And over the course of the year, we still expect to get to 1 million tons out of the underground—
Yep.
As per the plan.
Okay. Thank you very much. And Red Lake, when we're at site, there was a seismic event which you did call out in the quarter. Can I just check that there's no ongoing impacts to production from that event? Is it quite discrete? Thank you.
The seismic event that happened when you were there has still got one section of the R zone with an exclusion around it. We expect to get that lifted during this month, if not beginning of next month, Dan. There was a fairly big event, so it's taken its time to get back in there. With all these things, we prefer to be conservative and get back into them slowly. And we're working around that. So John and the team have actually got plans to work around it, and that's what they're doing.
Thank you. Mungari, you're opening up the Paradigm open cut. Can you just expand on what the grade looks like coming out of that, over the course of the year? Thank you.
Yeah, Paradigm is a pit further away from the processing hub, so the average grade of the pit is higher than what we have had before. I'm trying to remember, Dan, exactly what the do you remember what the resource grade was, Glen? One and half, my memory was 1.5 g-2 g, something like that, Dan, was the actual resource grade that we were mining. We are seeing nice grades coming out of it at the moment.
Suffice to say, at Mungari, we should be thinking about higher grades in the quarters ahead, which will, you know, lift the production profile through the year.
Yes.
Yeah. Dan, you should expect the Paradigm grade to sort of be about the 1.82 over the remaining quarters of the year.
You've got to remember, Dan, that we did process low-grade stockpiles during the last quarter.
Thank you. And just, sorry, going back to that Glencore issue, can you just remind us of how the offtake works with your treatment charges? You know, are you currently, like—d oes the mechanics of it or the financials of it work that it would not be an impulse if the, if the smelter were to shut or, you know, does it work that you send it to, you know, I guess, implicitly to Asia already financially? I guess I'm trying to ask.
Yeah. No, good question, Dan, in that, the way the offtake does work is that, you, you don't get the full benefit of not, shipping into Asia. So your, your rates, for treating and refining are, are set at, on a, on a, basically a hybrid between Australia and, and Asia, so there's not a material change. And the other thing that would change is you actually, through the government, do get a benefit on royalty because it's, it's treated and refined in Australia, so your royalty would increase. But, those two items are, are not material, and from our understanding of the announcement, is that there's a commitment, for that smelter to be open till 2030, is our understanding.
Thank you. Thank you very much.
The next question comes from Matthew Frydman with MST Financial. Please go ahead.
Sure. Thanks. Morning, Lawrie and team. Maybe just continuing on the questions on MIM. I think it was Levi asked about, I guess, the mines themselves, whether there'd be any interest there. But maybe more broadly, are there any tenements or assets, you know, infrastructure assets or otherwise that could potentially be interesting to you in time? Maybe anything that might help to de-risk Ernest Henry's future or, I guess, give you further options at Ernest Henry specifically?
Yeah, Matt, I almost would say it's a bit early to be getting down into that detail. I mean, as I said earlier, you know, we think Ernest Henry is the best of it for us. If there's any of those sorts of things, you know, at an asset level, there's nothing that would interest us in terms of some other infrastructure and the like. I think we'll just see how that pans out, but there's nothing that's front of mind at the moment.
Yeah, got it. Thanks. Thanks, Lawrie. Maybe moving back onto Red Lake, and obviously, you cited the ore pass issues over the quarter, and as Bob's talked through, you've got a pretty clear plan to resolve them in Cochenour. Obviously, Cochenour's a bit of, maybe a bit of a deeper and older area of the various production fronts you've got. Are there any other areas where you're conscious that these sorts of issues may appear over time, perhaps the deeper areas of Red Lake? And I guess, how are you thinking about that? And then, if we think about Upper Campbell, which is obviously gonna be a bigger contributor to your production as the year goes on, you know, clearly that's a shallower production phase.
It's a new mine design, you know, new mine development, and obviously brand-new materials handling infrastructure. So should we expect that, that area of the mine won't have, or won't be impacted by any of these sorts of issues, whether it's seismic or, or sort of ore pass issues? Is that, is that a fair assumption?
I'll hand it to Bob, Matt, but I think it's, you know, it's fair to say that when we look at the ore pass at Cochenour, the real positive is the way that John and the team have addressed that in putting the contingencies in. But also, the demonstration, as Bob talked about, the trial that we did with the low-grade stope to keep the plant filled with ore that actually makes money, is sort of showing the shift at the asset about how to operate this better. And also Bob will touch on the Upper Campbell.
Thanks, Lawrie. Matt, I think there's three questions into one there. I'll try and answer them. If I don't, just re-ask it. The difference between Cochenour ore pass and the Red Lake ore pass is the geology and the rocks in the different areas. The Cochenour system, where built future redundancy into it with the raise bore, and the decline will give us further redundancy when it breaks through, and we'll continue to actually have that forward look to ensure that it doesn't affect us in the future. If we go over to Red Lake, Red Lake is actually deeper. We aren't having the same issues with the ore passes there, although we do have a series of raise bores to go in.
If you go back probably six to nine months ago, we talked about our ore pass issue at Balmer. And we have that all designed with a bypass going to make that flow better, to improve the actual material handling. And we've got a second ore pass, which will actually be the waste pass design that will improve the waste transfer as well. So we've got multiple improvements going on at one time. The main priority at the moment is the Cochenour one, purely because we need to get redundancy in that system. And the Balmer ones are actually working as we speak. We would just like them to work better. To do with Campbell, Campbell will be a truck operation.
So we've got a 62-ton truck in there, which can hoist through the decline a significant amount of dirt. So it is de-risked purely from the fact that it's a— I'm gonna call it a traditional decline operation as we would know it in Australia, with the ability to move equipment around and to improve our production flow as we need it.
Got it. Thanks, Bob. I think you've covered off on everything there, so thank you for that. Maybe just finally, maybe it's one for Glen, but perhaps more broadly, the drilling at the Cowal underground in the gap zone where you've identified some early successes. How do you think about the development of that underground over time in terms of whether linking up all of these various zones and, I guess, giving you a more fulsome resource? And how does that affect how you think about the mining methods that you use, and whether over time, you know, you might look to move to a more bulk underground mining method?
I mean, obviously, you've got a pit and a lake on top, which does somewhat restrict things, but you know, is that an option as you continue to explore the underground areas? And also, can you remind me of the timing of the open pit continuation study as well and where we're at with that, please?
So Matt, I'll pick up on the exploration piece in the underground. I think, you know, at the moment, we're feeling really excited that we're going to be able to close that gap and to hopefully fill it with ore as we increase the drilling coverage into that area. You know, in terms of how we approach it from a mining point of view, I think, all of the above that you mentioned is on the table in terms of how we integrate this into sort of the existing mine design and what we need to sort of change to, you know, optimize the ore body.
So, firstly, it's understanding, you know, kind of what the resource upside is going to be, defining that, and then putting a design around and how we sort of optimize it into the plan. So I think there's a fair bit of work to come on, but I think there are also going to be opportunities as we drill this, to sort of sequence things that optimize grade and production around, you know, those types of opportunities. And, you know, whether we come at it from the Regal side or the Dalwhinnie side, we need to do the work firstly to understand that aspect of the underground.
But I think, look, what we're seeing is strong growth potential, which is going to, you know, extend that mine life for, you know, longer than we, you know, than we have in the plan at the moment. And I'll hand to Bob on the OPC.
Just finishing on the Cowal underground. I agree with everything Glen said, and I think the opportunity here is the potential to increase in the short term the grade, and to increase the actual life of the mine is really exciting from my perspective, from the drill results that we're getting. So the actual underground is looking really good. Mining methods, well, as Glen said, all the above. We've got to take into consideration, though, the constraints of the open pits on the top end, as well as the actual lake and the lake protection bund and all the environmental and social aspects that go with it. So all those things need to come into the thinking process. OPC is tracking to plan.
I'm just trying to remember, it was two years still? FY 20—
Yeah, I think, Matt, the main status of the project at the moment is that all of the public display comments and feedback have been received, and the team is going through the responses, and we'll put our responses back to that in the next couple of months, in this quarter. And then we'll basically then be in the hands of the regulator. We've allowed at least 12 months for us to go through the regulatory process, but it's as Bob said, it's at least two years before we have that decision point on the project. You know, there obviously will be some decisions for parts of the infrastructure and the like, over the next 12 months, but it all does [inaudible].
The only other thing is that, given what Glen's finding, it's gonna have to be a high-quality, single-malt for the zone.
Might be, might be a blend, Lawrie.
Maybe a bit of Laphroaig or something. No, that's excellent. Thanks, everyone, for all the responses. Thanks.
Your next question comes from Alex Barkley with RBC. Please go ahead.
Thanks. Good morning, everyone. A question on that AUD 63 million of restructure and non-operating costs that was mostly capitalization at Cowal. Is that beyond FY 2024 major CapEx guidance? And, what might that number be in the coming quarters?
Yeah, so Alex, basically what you have at the moment is underground as it ramps up. It's not at commercial production, so under the accounting standards, which have changed over the last couple of years, you basically capitalize the costs. You don't net them off against revenue anymore. So the revenue from the underground still will flow to the P&L, and you must move the cost to the balance sheet. So as we guided at the start of the year, we expect commercial production to commence in the second half of the year. So you should expect another quarter whereby the costs of the underground go to the balance sheet and goes to the P&L.
And then at December, Barrie and the team have to make an assessment whether we have hit commercial production or not, and then we'll inform the market based on where we're at in December.
Okay, sure. And just a quick one on Red Lake. I think there was a whole-of-site milling and mining study that was progressing. Do you have an expected date for that? Maybe something tentative.
I just want to say that again, Alex. I was just—
I'm sorry, my coffee. Yeah. Sorry, at Red Lake, I think there's a whole- of-site milling and mining study that, that's been progressing. Do you have an expected date for that one?
Yeah. So on that one, we, we finished what options would be, if we were to go above the 1.1- million ton processing rate at the end of FY 2023. But as we've made the decision to, keep Red Lake at the 200,000 oz, 1.1 Mtpa rate for the foreseeable future, we're, we're actually not doing anything on that study 'cause it's, it's likely, you know, at least three years before we have to make a decision on that, and we'll, revisit the study at that point.
But what it was at the end, it identified a number of options to take it from the 1.1 Mtpa to 1.8 Mtpa, what the capital would be and, and how we would go about doing that, but at the moment, we're not moving forward with it.
Okay, that makes sense. All right. Thanks very much, guys.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. The next question comes from Al Harvey with JP Morgan. Please go ahead.
Yeah, good day, guys. Just wanted to clarify, at Red Lake, those ore pass issues are related to the seismicity. Is seismicity the cause of those issues? Just want to double-check that. And if it is, you know, what are the risks for pass 3 and pass 4 also having difficulties?
So Al, there are multiple issues that were coming into effect. One is the ground that the ore pass went through. We did have some activity in the wall of that ore pass, but that was not the same activity that we're talking about at Balmer. It was totally isolated and separate. The ore pass that we're using now on number three, the bottom half of it has actually been ground supported. So it's an old Alimak raise, so it was actually ground supported when it was put in. And we've put a small hole, which is just a small raise bore equivalent hole into the top of it to keep that circular integrity in place. I don't expect that all passes at Cochenour will last for 10, 15 years.
I think that they're gonna last for a shorter period of time than Balmer, purely because of the rock type and the geology. But if we can actually, or when we actually get a raise-bore, the intent is to not to touch the integrity of that circular opening and to just tip at the top and pull at the bottom and not break into it anywhere in the middle of the ore pass, which is a different strategy to the past.
Great. Thanks for that, Bob. And maybe just one quick one, very brief mention of drilling at Ernest Henry in the exploration release. Drilling down dip of Ernie Junior, and Bert, and looking for results in December, in the December quarter. We likely to get those results separately, or we probably see them with the December quarterly, next year. And I guess just wondering if you can remind us what's in scope for the Ernest Henry expansion, feasibility study, if there is any potential for that to slip in, there as an option.
Thanks, Al. I'll take that one. Look, I think what we will do with the, you know, the sort of the, the current drilling program is just report, you know, a results update, you know, in January, sort of in line with our sort of December quarter, you know, reporting schedule. The reason, the reason I wanna kind of hold back on those numbers is to give us, you know, give us the most amount of time we can to sort of understand, you know, with the drilling program, how things are evolving. So, so that's, that's the strategy, you know, in terms of, the drilling program.
In terms of the feasibility, you know, we're looking at, you know, mainly the sort of mine extension project that we've previously spoken about between the 1,125 and the 775. So that's where the FS is focused on. You know, we're obviously, you know, you know, in parallel with that, sort of starting to develop, you know [inaudible] FS will be predominantly focused on, on that mine extension that I spoke about.
All right. Thanks, Glen.
There are no further questions at this time, and I'll hand back to Lawrie Conway, Managing Director and CEO, for closing remarks.
Thank you, Rachel, and thank you, everyone, for your time today. We really appreciate you making the effort to join the call. Before closing out, I do wanna reaffirm my opening comments around the current spot price and the impact of what's going on in Israel and the real difficult time and really, the atrocities that are happening there. And it is affecting a lot of people, including a lot of friends and colleagues of ours in Australia. So we do hope that that can get resolved sooner rather than later. You know, we have started the year well. We are on track to deliver 770,000 oz, and at AUD 1,370 an oz, our capital intensity guidance, as Barrie mentioned, AUD 117 million lower than last year.
When we take the combinations of those, plus the higher gold price than what we actually achieved last year, it does position us as we move through the remaining quarters to deliver stronger cash generation and continue our efforts to deleverage the balance sheet this year. Thank you, everyone.
That does conclude our conference call today. Thank you for participating. You may now disconnect.