Thank you for standing by, and welcome to the Evolution Mining Limited June 2023 Quarter 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 the conference over to Mr. Lawrie Conway, Chief Executive Officer and Managing Director. Please go ahead.
Thank you, Darcy, and good morning, everyone. Thanks for joining us this morning as we outline the results for the June quarter, as released on the ASX this morning. I'm joined on the call today by Bob Fulker, our COO; Barrie van der Merwe, our CFO; Glen Masterman, our VP, Discovery; and Peter O'Connor, our GM, Investor Relations. As outlined on our Investor Day last month, we have a very clear plan in place for the next few years, where we'll be delivering low-cost production with reduced capital intensity, enabling us to deleverage the balance sheet and deliver improved returns for our shareholders. Over the period from FY 2024 to FY 2026, we will see four of our assets move to higher production rates and increased cash generation. FY 2023 was about positioning these assets into this phase.
We have a fantastic pipeline of projects which will increase mine life and margin, and they all have further upside potential, which we are currently evaluating. This is evidenced by the excellent drilling results that Ernest Henry released today, which further enhances the expansion project and continues to give us confidence that there is much more value to be unlocked at this asset. Glen will take you through these results shortly. The June quarter was one aimed at setting the business up for FY 2024, and I confirm that we start FY 2024 positioned to deliver these plans. We did achieve this objective, even though there were a couple of areas we would have liked to have seen better outcomes.
On the safety front, our total recordable injury frequency reduced another 3% to 8.64, which is now 19% lower than at the start of the year. In a year with so much activity, change, and adverse weather events impacting our business, it's very performing their tasks safely. For production, the positives included Ernest Henry returning to normal operations post-recovering for the weather event. Mungari delivered another strong and consistent quarter. Cowal continued to deliver low-cost ounces and higher cash flows. Red Lake improved by 12% to 31,500 oz , and we got higher production at Mount Rawdon.
Overall, for the year, we produced 651,000 oz at an all-in sustaining cost of $1,450 an ounce, which is broadly in line with the guidance of approximately 660,000 oz at $1,390 an ounce. The main cause for the production variances were unplanned outages at Red Lake, which resulted in 3,500 oz variations. We will see this higher cash flow resuming immediately from July. Bob will go through this shortly and how each of these assets are going into FY 2024, situated to deliver their plan. It's worth touching on now, which reinforces our guidance of 770,000 oz at $1,370 per ounce, and how the business is moving to higher net cash generation and deleveraging from FY 2024.
Cowal achieved two key milestones in FY 2023, which was the ramp-up in Stage H, higher-grade ore, and commencing production from the new underground mine. Cowal delivered record annual production under our ownership, notwithstanding the weather impact in the first half of the year. Cowal now transitions to a major cash contributor to business as the capital investment reduces. Another key achievement for Cowal is that it has been cash positive for the last three quarters and was net cash positive for the year, even after the major capital investment. Ernest Henry returned to normal operations by the end of FY 2023, and the work done to get to this point over the last three months is a credit to the team. This means that Ernest Henry now reverts back to the high-margin, strong, cash-generating asset that it has been for many years.
I was at Red Lake a couple of weeks ago, and there was a notable progress on the improvement plan compared to my previous visit. We are moving in the right direction, and the changes in progress right now will further enable Red Lake to become more stable and start delivering returns. Red Lake had an improved quarter, and while we wanted to deliver the 35,000 oz during the quarter, the positive out of the slightly lower production is that it was due to unplanned operational outages, as opposed to previous shortfalls being due to cultural or behavioral factors. As we head into FY 2024, the higher production rate at Red Lake will be matched by an improved cost position, while a lot of the cultural and hygiene matters have been resolved.
As of 1 July, everyone is on salary contracts with consistent rosters and a bonus system, which is aligned to the rest of the organization, being based on performance and positive cash hurdles. The structural matters have also been addressed. We've appointed John Penhall, previously our general manager at Cowal, as the VP, Red Lake. John put his hand up for the role a couple of months ago, and we see John as the right person to lead Red Lake going forward. This will allow Bob to revert full-time back to his COO role. We have reset the management superintendent levels and are in the process of right-sizing the organization, with at least a 10% reduction in the workforce to be implemented by the end of the September quarter, which will deliver an approximately $12 million of annualized savings.
Mungari has been a consistent performer now for the past two years, and the work that has been done in recent months on the cost profile. Mungari is expected to generate materially higher operating cash flow to fund the investment in the planned expansion. This change in cash generation at Mungari is why we were able to justify the investment in the planned expansion. I'll now hand over to Bob to take you through the operations performance in more detail.
Thanks, Lawrie, good morning, everyone. As Lawrie said, across the group in FY 2023, our TRIF decreased by 19%. All operations have seen improvements with their safety improvement plans taking effect. Quarter four has seen us come out of FY 2023 ready and prepared for FY 2024. Pleasingly, Cowal and Mungari exceeded plan for the quarter and the year. Ernest Henry has resumed normal operations by the end of June, recovering from the March weather event. This has set them up to deliver guidance in FY 2024. Red Lake has increased gold production by 12% in the June quarter, which builds on the March quarter operational improvements and highlights our efforts are starting to bear fruit. Mount Rawdon ended the year with high-grade faces open and being mined and nil water in the pit.
Cowal delivered another strong production quarter with 73,000 oz at an all-in sustaining cost of $ 1,138 an ounce. Pleasingly, ore mined was a quarterly record for Evolution. Quarter-on-quarter, ore mined increased by 3%, reaching 4.5 million tons at 0.97 g per ton. This includes 54,000 tons at 3 g, 3.09 g per ton from underground. The combination of these underground and open-pit ore tonnages resulted in the mill feed of 2.1 million tons at 1.29 g per ton. Ore production will be lower than the last couple of quarters due to the planned mill shut in Q1, thereafter, the quarterly ounce production will increase through the year as the underground feed proportion increases.
With this increasing underground feed, we'll also see a steady increase in the process grade as the underground proportion increases across FY 2024. The average combined processing grade for the year will be 1.3g- 1.4 g per ton. The underground ramp-up continues to plan, with full commissioning of the paste plant in the village this quarter and commercial production expected by the end of the December quarter. Cowal's full-year operating mine cash flow was at $ 369 million. With a significant investment in the new underground mine completed, our major capital spend will reduce in the coming year. This means we have started to transition Cowal back to a material cash generator for the business.
Ernest Henry has fully recovered from the extreme weather event encountered in March, with a required, which required a major recovery initiative, limited ore tons mined, and the processing of low-grade stockpiles. The impact of this event on ounces, cost, and cash flow are reflected in this quarter's result. By the end of June, cave draw, shaft operations, production drilling, and development were all at full production rate, getting Ernest Henry back to being the consistent, reliable performer it has been known to be. Quarter four production was slightly softer than I expected, due to some start-up issues associated with the mine infrastructure and the blending of the low-grade stockpiles with cave material. These issues were all resolved, and we've been now in steady state production for over four weeks.
The operation has now moved their attention to the development of the 1,200 level, which will be the main source of production for the second half of FY 2024. Feasibility Study work on the cave extension is progressing to plan and will be completing our Mineral Resource update during the September quarter. The All-in Sustaining Cost was significantly impacted by the low ounce and copper production, as well as the lower-than-expected realized copper price. I expect future quarters to be back in line with historic levels. Ernest Henry's full-year mine operating cash flow was $ 398 million. Good and reflects the quality of the asset, I'm frustrated that we lost a fourth quarter, which would have delivered another superb year at Ernest Henry. As Lawrie mentioned, we have appointed John Penhall as the VP Red Lake.
I'd like to thank John for accepting this opportunity, and I look forward to seeing him and the team continue to progress the improvements at Red Lake. Red Lake has delivered a 12% increase in ounces for the last two quarters. The June quarter also delivered a 12% increase in grade, accompanied by over 4,000 meters of consistent development. H2 delivered 12% more development than H1. These achievements have been delivered through the consistent focus on improving the mining practices, as previously discussed. On the cultural transformation, we have successfully converted all employees to an aligned incentive program, which includes a base salary compensation with an incentive bonus linked to the operational performance. We've also implemented consistent rosters. These measures aim to foster employee satisfaction, productivity, with alignment to our company goals.
During June, we commenced the workforce resizing, with the intent to match our people to the reduced equipment and the operating tasks to improve our operational efficiencies. These reductions will continue into FY 2024 as we finalize the movement of people across the site. We are targeting a total reduction of approximately 10% by the end of Q1, this is expected to yield an annual cost saving of approximately $12 million, without compromising safety, whilst improving our productivity. Q4 ounce shortfall was a result of two ore pass blockages, causing a 12-hour, 12-day, sorry, production loss at Cochenour. These operational issues, which are easily remedied, are different from the cultural and absentee issues previously discussed. These initiatives, with our ongoing commitment to sustainably and continuously improvement at Red Lake, have positioned Red Lake for delivery into FY 2024.
Mungari is continuing to reward our trust in the operation through consistent and reliably delivering. The full year production was 136,000 oz. As previously announced, we have approved the transition of the Mungari growth project into execution. This will expand the processing capacity to 4.2 million tons per year. The quarter's production was in line with our expectation, due to the lower proportion of underground feed than previous quarters, combined with a mid-Kundana milling campaign. Cutters Ridge was completed during the quarter, and the mining fleet is now concentrating on the pre-stripping activities at Paradigm. Ore extraction is expected to commence during the September quarter from Paradigm. The all-in sustaining cost increased to $ 2,083 per ounce, primarily due to the production of the planned lower production.
Mungari's total costs were 4.5% lower in H2 compared to H1, as a benefit of the site optimization that we've been seeing. For the full year, Mungari reported a mine operating cash flow of $ 108 million, highlighting a solid financial performance. In the fourth quarter, Mount Rawdon demonstrated notable improvements in gold production, achieving the highest material movement and ounce output for the year. During the period, we have experienced reduced rainfall, resulting in improved pit availability, with access to the higher grade zones in the pit. The pit geotechnical challenges will require active management going forward. This may require, for safety reasons, minor modifications to the mining sequence. Quarterly net mine cash flow increased to $ 11 million.
Looking ahead for FY 2024, Mount Rawdon is well positioned to deliver production and cost guidance as the high-grade ore in the pit floor is mined and processed. Thank you for your time, I'll now pass it over to Glen for an exploration update.
Thank you, Bob. Good morning, everyone. I'd like to turn your attention to the exploration announcement we released this morning, describing further exciting and high-grade drilling results at Ernest Henry. I did not anticipate I would be describing much in the way of new results from the June quarter, given the strong infill focus of the surface drilling program and the fact that the underground program had been on hold since March. However, the results we received were much better than I expected and continue to underscore the quality of this world-class mineral system. The latest results have done three things: firstly, we have confirmed extension of the lower lenses below the Feasibility Study footprint north towards Ernie Jr. Secondly, we've extended a high-grade gold domain, identified within the modeled copper grade shell, further south and down plunge.
Lastly, the lower lenses are wider than we had previously modeled, with the ore waste boundary now positioned further west in the model. The upshot of these results is that the Mineral Resource will continue to grow outside of the mine extension footprint, particularly in the area shaded in green on the long section, as shown in figure one of this morning's exploration announcement. The drilling results are confirming that metal grades within the mine extension footprint and below are holding steady, if not increasing, on the gold side, which is consistent with grades estimated in the model. As Bob mentioned, we will be completing our next update of the Ernest Henry Mineral Resource in the September quarter, which will incorporate the strong results from the last six months of drilling.
I'm pleased to also share that we recently awarded new underground and surface drilling contracts at Ernest Henry. Both service providers are in the process of mobilizing the site in order to commence the eagerly awaited definition and extension drilling programs at Bert and in the Ernie Jr connector zone. I look forward to being able to report what I expect will be another wave of exciting drilling results during the September and December quarters. Turning now to Mungari, where I spent last week on site with our geologists, running the underground and open pit drilling programs. Our drilling is focused on solidifying the production schedule beyond the first five years of production for the growth project at the 4 million ton per year milling rate.
It was really pleasing to see the 2 underground rigs set up almost side by side, aggressively drilling extensions of mineralization beyond the leading edges of the Genesis and Christmas veins at Kundana. The work being undertaken is growing potential resources on these 2 known structures, as well as providing new insights into the potential for new structures, which I'm confident we will discover as we continue to build our geological knowledge of the Millennium system. It was also good to get out to the Paradigm pit to see exposure at the top of the endowed Archean geology, suggesting we will not be far off breaking through to the top of the ore body. I visited our RC rig to inspect progress we are making with our definition drilling below the current pit design.
It's early days in this program, which aims to convert resources to reserves that will drive expansion of the pit design and enabling us to anchor in this production center for longer than forecast in the current plan. The rig will move on to tackle a similar objective at Castle Hill after it has finished the program at Paradigm. Lastly, we included results of our modeling work at the Cue Joint Venture in this morning's announcement, which culminated in the declaration of a 143,000 oz Inferred Mineral Resource at West Island. The resource optimized into a single pit, grading 2.6 g per ton, and is located 6 km north of Musgrave Minerals resource footprint at Lena and Break of Day.
There remains attractive upside in the high-grade loads defined in our deeper drilling at West Island, situated below the base of the oxide pit design. Numerous additional exploration targets occur along the 7-kilometer mineralized trend, connecting back to the Lena and Break of Day deposits. We continue to assess our options on how we will unlock and crystallize the value of our interest in this joint venture. With that, I'll hand over to Barrie.
Thank you, Glen. Good morning, everyone. During the fourth quarter, all operations generated cash at an operating level. Despite the significant revenue impact of the weather event at Ernest Henry, it achieved break-even mine cash flow before major capital in the quarter. The impact of the weather event, which resulted in approximately $ 160 million lower cash flow, was the driver to the lower net cash flow for the quarter. During this quarter, we paid $40 million of debt and $37 million in dividends. Net cash flow for the quarter is better than what we expected at the start of the production outage.
For the year, all operations generated net mine cash flow, except for Red Lake, where major capital expenditure of $189 million will set the operation up to continue to transition to a stable, reliable production rate of 200,000 oz, as outlined at the Investor Day. Production increasing 18% to 770,000 oz in FY 2024, a lower planned capital investment, and our leading cost position will result in improved and strong cash generation in FY 2024. Gold production in FY 2024 is planned to be weighted to the second half, as the Cowal underground mine and Red Lake's Upper Campbell mine ramp up. In the first half of FY 2024, we also have planned maintenance shutdowns occurring in the first quarter. Copper production of 50,000 tons will be delivered evenly over the year.
All-in sustaining costs per ounce of $ 1,370 per ounce for FY 2024 is expected to decrease from current levels as production ramps up over the year. Capital investment is decreasing in FY 2024, with major project capital guided to be approximately $ 100 million lower compared with FY 2023. As explained at the Investor Day, our focus with major projects is to manage overall schedule and budget of projects to deliver the business case. Sustaining capital is expected to be consistent quarter-on-quarter. That said, the discipline on capital allocation will remain to ensure that we are investing the right amounts at the right time. The balance sheet position is strong, with gearing remaining below our upper target of 35%. Moving into FY24, the increased cash generation will see us move to a de-leveraging phase.
With a debt restructuring undertaken in June 2023, Evolution has no debt settlement commitments in FY 2024, benefits from the current high price environment, with only 20,000 gold ounces or 2.5% of production, edged at $ 3,084 per ounce for delivery in the second half of FY 2024. Higher production at current prices, together with lower capital expenditure, will result in strong cash generation for the, see us starting to reduce debt. We will now take your questions, I'll hand back to Darcy. 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 Andrew Bowler from Macquarie. Please go ahead.
Good day, gents. Just some questions around the labor force reduction at Red Lake. I mean, 10% target there. Can you just talk in a bit more detail as to, you know, where those reductions are occurring? Are they sort of at the operational level, or are they the tech services level, or, you know, management level? Just any more color would be good, please.
Yeah, thanks, Andrew. I'll hand that over to Bob, to walk through. Essentially, it's across all parts of the business and including the operational areas.
Yeah, that's correct, Andrew. It's affecting everywhere. We still are restructuring and moving people around. That 10% will come from right across the business.
Thanks. In terms of exploration question, probably more for Glen. Just on the Ernest Henry upgraded resource we're expecting this quarter, has the data cut-off for that passed, or are you still waiting on some results that will get included in that?
No, Andrew, the data cutoff has been closed already, so that modeling and estimation work is currently underway. I don't have the exact date of the data cutoff, but it would've been at least about six weeks ago. The information that's come through in this morning's announcement will be bundled up and incorporated in the next update that we do as part of our regular annual run in December.
No worries. Last quick one from me, just on the Musgrave JV, obviously interesting, maiden resource there. Have you had a chat to Ramelius on how that JV could look if they're successful in closing the deal, or is that still, you know, post-deal completion talk?
Yeah, it's an interesting situation that's developed there for Musgrave and not surprising, I suppose, given that, you know, there is a, you know, an operating plant nearby. I think, you know, we've, as I said, we're still assessing what our options are. There's still upside on that project, and we're sort of making a call on whether that's gonna be something that we'll pursue and attempt to deliver, or whether there's other opportunities that may make more sense, you know, in terms of, you know, how we sort of unlock our value in that joint venture interest.
No worries. That's all for me. Thanks, guys.
Thanks, Andrew.
Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead.
Hi. Good morning, Lawrie and Bob. Red Lake, can you just maybe talk through how the mining recovery and dilution are performing there and the ore pass issues that you had this quarter? Are you confident that they are transient? Perhaps more color there.
Thanks, Kate. Bob's all ready to answer those.
Thanks, Kate.
Thanks, Bob.
I think the uplifting grade is a good indicator of that the dilution is starting to get under control in the stoping blocks. We have seen a lot less issues with drilling since we've put the assemblies in place. We're getting the trace gyros post-drilling are extremely close to design now. If they've got to drill a hole off the original design, they can actually do recalibrations on the run to make sure that the toe hits the right spot, underground. All that is in place and working.
The blasting is actually working pretty well and, well, not pretty, very well, and we're having a lot less issues over the last, I'm gonna say four to six weeks, than we were having in the last half of last quarter and the beginning of this quarter. We're seeing a lot of improvements and a lot less issues with the blasting, which is helping recovery, improving the flow of ore, and improving the consistency of the delivery of the plan. That's improving all of those sort of things. The ore pass issues that we had, they were at Cochenour, they weren't at Cowal. If you remember the last quarter, we had some issues at Cowal.
We're in the process of putting the final development in for the Cowal rectification, and that should go in the next quarter, and that will fix that issue permanently. The ones at Cochenour were minor ones around blockages that they occurred with some sloughing that was occurring in the actual pass, and some issues we had with the top. We had grizzly bars. We didn't have a grizzly mat, and they got bent, which allowed oversized rocks to go in there, and that's all been fixed already. Those sort of things I'm expecting will reduce.
With the, with the ore passes, we're gonna have issues going forward from time to time, but we just need to make sure that we've got the contingencies in place to deal with them, which we're building now.
Okay. Understood. Thank you. Just Cowal Underground, I would have expected those metrics to lift quarter-on-quarter. Is there anything to read there or that's just part of the ramp-up?
Which metric, sorry?
The tons mined and the grade out of the underground at Cowal.
Yes, it will continue to lift right through this year. That grade that I gave was an average for open pit and underground across the whole 12 months, but the first quarter will be lower, and the last quarter will obviously be higher. The tons will increase. We did 54 last quarter. That will be around about 100 this quarter, and by the end of the year, they'll be at around about 400,000 tons for the quarter. That's the increase that we get through the year to deliver our yearly tons and ounces. The underground-
Perfect.
grade is obviously higher.
Yeah. That's... I think you've, yeah, kind of indicated a 2.3, 2.5 grade level?
That's the, yeah, that's the average for the year, and the first quarter will be the sort of the lowest grade, with the small amount of tonnage we're getting. Yep.
Okay, cool. My final question, maybe just for Lawrie. The one-off costs that we had at Ernest Henry, is there anything to be aware about, with them going through the P&L?
I mean, the once-off costs on the step P&L, Kate, will kind of just go through as normal. As we said in the release, for AISC balance purposes, they were normalized. There'll obviously be into next year, insurance recovery of some of those costs as we move through and we finalize that.
Yeah. In short, Kate, the loss cash flow, obviously just doesn't come through into the revenue and all of the costs, both from an operating standpoint and a recovery standpoint will go to the P&L. The costs that are reported in the quarterly all will go to the P&L.
Okay, all of that number? Yep. Cool, that's helpful. You don't have any clarity on the timing or a magnitude of the insurance numbers yet?
I mean, that's a bit of a process to work through, and it'll play out during the course of next year. Lawrie?
I don't at the moment, Kate, 'cause of the way the insurance stands, we've got a 42 day deductible, which therefore then they've got to work through what has been the impact of the outage, less those 42 days, and then, what would be the insurable amount. We'd expect that to take a few months to finalize. We've put together all the information now that we've been back up and operating, providing that to the underwriters to get an assessment done.
Okay. Perfect. Thanks, Lawrie and Barrie.
Thank you. Your next question comes from Daniel Morgan, from Barrenjoey. Please go ahead.
Hi, Lawrie and team. Maybe just starting with that last point there, that the scope of the insurance claim. As a rough rule of thumb, should we say that in scope is the operating costs at site you would have incurred over those 42 days? Is that a rough rule of thumb that we can use?
It's a little bit more complicated than that, Dan, 'cause you have your standing charges. You've got to work out what falls into the deductible. Then the assessor has to go and look, have a 12-month look back in terms of what the sort of standard run rate would be, and then make an assessment, obviously, also on what would be the metal prices to apply to that, to the revenue that you would have foregone and the like. From our perspective, you know, we see that the insurance recoverable amount is not material or major in compared to the lost revenue. Hence why we actually won't be making a provision for it in the accounts.
Yeah, sure. Okay.
You gotta remember that we actually got back into commencing operations before we got to the full deductible days. It's then, how much have you been at lower operating rates post the deductible period? That's why you get a lower amount that you're actually gonna have as a recoverable.
Yeah. Okay. Thank you. Just staying on Ernest Henry, it sounds like all the key work streams are fully recovered by the end of the quarter, and therefore, we've started this year well. Is there anything else that could be a hangover at site which just suggests that, you know, the first quarter of this year has, you know, some operational impact we could think about? Or have we got a clean year at Ernest Henry?
I'll hand it to Bob, who, in getting back into his role for a couple of weeks, is full bottle on it. Essentially, by the end of June, as we said, all of the areas that are allowing us to go back into the production areas are clear and clean. The areas down to the 1,200 level is allowing us to get into there for development. Certainly below the 1,200, there's still a little bit of cleanup to do there, but it's not significant. Obviously, there's still a little bit of mud and stuff to clean everything up, Bob, that we need to get back into full operation.
Yeah, Daniel Morgan, thanks. Everything above the 1,200 is fully operational and going. The 1,200, we're mining, we're actually production drilling. We're getting that level for production in H2. We still do have a little bit of mud left on that level. The 1,175 is clear, we have got access in there to start developing. The 1,150 has been stubbed, but it's still got mud in it, but we haven't started down there yet because we're concentrating on the 1,200 and 1,175. The decline is actually down to 1,125, but we're still using it as a sump and water just as we clean the upper parts of it up.
The first area we started developing was back up the top of the mine, where we've been doing some work on ventilation, and that's all complete. All the teams are down to that 1,200 and 1,175 now.
Yeah, a hell of a good job by the team. Just pivoting over to Red Lake, Bob, if I could. How is the CYD decline tracking? You know, do you have an update on when you might expect it to link up with the lower levels of the mine?
No, I'll just reiterate what you just said. It was a hell of a good job done by the team at Ernest Henry. They really did muck in and didn't complain about any of the work they were doing, and it was pretty messy work. It really is appreciated for by everybody. CYD, if we were to go flat out with CYD, we'd be through this year, as in this financial year. Because we do have a jumbo on 11 level now, it is developing out towards the incline. The priority on 11 level, though, at the moment, is to actually get a drive across to an old stope so we can use it as backfill. We've actually mined a stope on 11 level already.
The only reason that we won't get it through within the 12 months is because we'll be making sure we actually get the ore out as we link the top and the bottom together. It may be a little bit longer than that.
Tell you the truth, if I get more, more out of CYD, I'll be happier. That will be the determining factor. If we actually hit it, the top and bottom once a day, it would be through this financial year.
Last question, did you have any contribution from the Upper Campbell during the quarter or in July? Just wondering what the conditions are like in those areas.
We got, sorry, two stopes in the Upper Campbell. We got one stope in 11 level through the quarter, we're expecting to see the next one come through on three, four or 3/4 level. Around about middle of August, we should start firing it, we should see it in this next coming quarter as well. There won't be another stope on 11 level for a little while, whilst we get that drive out to the waste rock stope, the idea is to try and link it to more as well.
Thank you so much.
Thank you. Your next question comes from Mitch Ryan, from Jefferies. Please go ahead.
Morning, Lawrie and team. During the quarter, the Cowal EIS became publicly available for the open pit expansion project. Any insight that includes CapEx of roughly $ 300 million. I'm just wondering what sort of timing for the key components of that CapEx spend then is, and how much of that sits inside the FY 2024 guidance of $ 85 million-$90 million for Cowal this year?
Yeah, thanks, Mitch. I mean, in terms of this year, there's very little in terms of the capital for the open pit continuation. As we had on the Investor Day, it's about $5 million is all that we'll be spending on it this year. The public period's closed, we've obviously got to see the outcome of that public period to work out what the next steps are. On the regulatory port piece, we still see that going through FY 2024 and into FY 2025, before we actually go through to those decision points on the project.
Okay. Just... there's no rush on any of the capital associated with that, is there? You can delay that and, I guess, sculpt it as is required.
Yeah, look, as we said on the Investor Day, you know, we've got options around the OPC, obviously with the stockpile material. You know, we've got to go through the approvals and permitting process before we make a decision on the project. Yeah, at this point, there is no rush on that project to start today.
Okay. Thank you. Appreciate it. That's it for me.
Thank you. Your next question comes from Jon Bishop from Jarden, Australia. Please go ahead.
Hi, guys. Thanks for taking the question. Just, you made some comments in your opening remarks around some of the productivity, I guess, focuses that you've had at site there. I mean, some of your peers through the quarterly reporting process, and certainly for the last 12 to 18 months, have talked about fairly sticky inflation, and I think a lot of it's driven not only by consumables and fuel to a point, but certainly the productivity issues. What are you guys doing differently that gives you some comfort for your all-in sustaining cost outlook?
Oh, look, I mean, as Jon, as we talked on the Investor Day, you know, when we look at our cost structure and, you know, nearly 50% of our costs are labor, we still expect that to move, as we said on the Investor Day, by 5%-6%, through FY 2024. The pleasing things as we finished June, you know, our site with the highest turnover rate, which has been Mungari in the WA market, has seen that come down materially over the course of the year.
That's been pleasing in terms of being able to maintain that workforce and the benefit that Scott and the team have been able to do through the work done on bringing three operations to one in reducing workshops and warehouses, and all those sorts of things, has meant we have a need for a less number of people on that site. I think when we look at the other items, you know, power, we've got contracts out up to 8 years, 2 years, 4 years. We just sort of know what those costs are going to be. Diesel price, based on the oil, has sort of held in a sort of a narrow moving range over the last 3-4 months.
Again, you know, we know what that, you know, that's 5%- 6% of our cost base. That's sort of, we're using all of that information, which is getting you to 60%-70% of our cost base, has been able to give us the ability to work out where the cost of the $ 1,370 is built up from.
That's really helpful. Just then to take that a little bit further, with the Red Lake annual savings you've talked to, is that factored in already into your guidance, or is that sort of new, a new dollar amount that we should think about gradually becoming part of our outlook for Red Lake specifically?
No, John, that was built into our plans and guidance on the Investor Day.
Great. Okay. Just one final question, if you wouldn't mind. Just to take up from Mitch on Cowal there. If I understand correctly, and forgive me if I'm wrong, the open pit, as you've currently operated, sort of starts to wind off in FY 2026. Is that correct?
Yes. Yeah.
In terms of time frame for getting into the new pits, assuming that you get through the consultation process, no problem, is there any sort of expectation, or should we be conservative in looking at production profiles dipping a little bit through fiscal 2026 and 2027 by feeding through some stockpiles? Or are you reasonably comfortable that you'll be able to present the mill with, you know, consistent feed and relatively consistent grades?
Look, from the OPC perspective, we know that, you know, we've got stockpile material of over 40 million tons sitting on the ground at Cowal today. Through FY 2024, Stage H will outmine the mill, so that will increase by the end of FY 2024. Obviously, there's certainly low grade and low grade material in those stockpiles. What we see is, as we look at 2026 and 2027, you'd be talking about, you know, 40,000 oz in 2026 and 30,000 oz in 2027, would be the impact in each of those years if we don't start OPC through FY 2026 or 2027. We know what those impacts are.
We'll see what the permitting does, and we'll also see where Cowal and the business is from a perspective of when we need to and should be investing in that project.
Excellent. That's great. That's all for me. Thank you.
Thank you. Your next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Lawrie and team. Thanks for the update. Maybe just coming back to Red Lake again, and maybe more of a qualitative one. Now that you're putting those changes through around headcount and they're starting to take effect, have you had any feedback from the workforce as to how that's going and how that's being taken and the broader attitudes there? Then, as a follow-on, where do you, I guess, see the next sort of areas of optimization of that asset? Thanks.
Thanks, Hugo. I'll hand it to Bob shortly on the workforce and the next areas. I think, you know, when we look at it, the feedback from the site, you know, we've done that through a consultative process whereby, you know, we've got a workforce that, you know, ranges up to 40 years of service. We've got a number of people that are definitely close to retiring. In Canada, there is an early retirement scheme. We've made that available to people as the first part. As the equipment's arrived and needing less people, we've been doing that, and then obviously the support areas.
Those communications have been ongoing, and the feedback has been positive around that restructuring, and that will be done by the end of the September quarter. Then in the other areas, you know, really what we're trying to do is to make sure that as we now bring in the equipment, as we're changing the mining areas and the consumables obviously have to be better utilized. It's those sorts of areas that John and the team will be focused on. Bob, do you want to just touch on it?
Yeah. I guess from the workforce perspective, Hugo, over the last seven to eight months, I mean, myself, Jason, when he was there, and Thomas, in the last little period of time, we've been talking with the workforce continually about where we're at and what's going on. I think that's helped us go through this a lot smoother if they weren't informed. Obviously, it's a stressful time for people going through change. I haven't had negative or bad comments. I've had comments from the town and from people in town that this is as expected. They know what we're going through, and they were expecting something. I've had the same or similar comments from a lot of the workforce.
Take into consideration that change is difficult for people, and we've got to be cognizant of the fact that it's probably a stressful time whilst we're going through this period of restructuring. The only ones that I'd add from the improvements from productivity that Lawrie said was as the mine moves up and starts delivering more consistently through the year, I'm expecting that I'm not expecting, we are focusing already on the mill and the mills, and making sure that we're ready and our productivity with them is improving. 'Cause they haven't really been stressed for a little while, so we've had them up to their nameplate and above for short periods, but not for long periods.
The maintenance team and the production teams are already focused on that next area of potential.
Great. That's clear. Thank you very much. Maybe just a second one, just around, I guess, capital broadly in the group. Made the comment in the release just about having paid the 20th consecutive dividend in the period. Looking at, I guess, the full year cash flow movements implies, I guess, finishing the year with that $46 million cash on hand. I guess, how important is maintaining that dividend payout going forward and, I guess, balancing the rebounding cash flow into FY 2024 against the $ 700 million per annum average CapEx over the next few years?
Yeah, Hugo, I mean, our view is that from a capital management perspective, we look at it from the perspectives of being able to fund the growth into the business, being able to service debt, and give returns to shareholders. As we go into the August full year results, we'll be having those discussions with the board and making recommendations in terms of dividend. In short, you know, we see dividends as just as an important part of our business and capital management plan as any other parts of what we do with the revenue we generate.
Fantastic. Thanks for that. I'll pass it on.
Thank you. Your next question comes from Meredith Schwarz from Bank of America. Please go ahead.
Good morning, Lawrie and team. Just a couple from me, please. At Red Lake, with the redundancies, I was just wondering if you can give us a guide as to what those costs will be, as I assume they'll come through the P&L in the first half of 2024. The second question is on Ernest Henry. More of a production question. You know, the recoveries have been declining over the last 12 months. What's your view on sort of getting those back up to the low 80s, going forward? Thank you.
Thanks, Meredith. I'll hand the Ernest Henry one over to Bob shortly. In terms of Red Lake redundancies, I mean, yeah, we see that the, you know, depending on where the people are from and which schemes they're made redundant through, it could be up to, you know, $ 10 million-$12 million as the total cost of the program. Again, as I said, we by the time we get through this program at the end of September, we have to just assess where each of the people have come from, and which schemes they're exiting the business on.
On the recovery, Meredith, with the cave performing at the end of June, we'll see the grade return to the full grade, or full cave grade, sorry, and that will actually allow the recoveries to go back up to those low 80s, as we've seen in the past. The low recovery's been a factor of the mixing of the low grade with the cave material, and the restart of the mill. It should return to that low 80s.
Perfect. Thank you very much.
Thank you. Your next question comes from David Radclyffe from Global Mining Research. Please go ahead.
Good morning, Lawrie and team. There's obviously been a lot of questions, so I might ask one on pumped hydro. The Queensland Government obviously recently had some pretty significant commitments. I'm just interested in an update, post your comments at the Investor Day, really around the view that, given the size of these commitments, do you still see the capacity for state support for Rawdon, or is the government now likely done, and therefore that means you all would be more reliant on non-government investment?
Dave, Jake will send you a personal email thanking you for asking the question. Look, I think, you know, the reality is, in the last 3-4 weeks, the level of engagement that Jake and the project team have been able to have with government has been high. So the short answer is yes, there is still interest from the government in this project. I think the interest in the government, continues to build as they look at where the project is, how it feeds into the grid, and the timing of when, Mount Rawdon would be available to come on stream as a renewable energy project. You know, from our perspective, we're still confident in terms of government involvement in the project.
As we go through until the end of the technical and commercial feasibility of the project, the engagement levels, I think are gonna continue to build as they have in the last few months.
Okay. All right. Thanks for that. I'll pass it on.
Thanks, Dave.
Thank you. Your next question comes from Al Harvey from JP Morgan. Please go ahead.
Good morning, all. Just one on Mungari and expansion there. I guess, sounds like parade is required to keep the production at that 200,000 oz per annum rate beyond the first 5 years. I think Glen mentioned it in the opening comments there, but there was some talk around the Investor Day around those higher grade shoots from Raleigh to Strzelecki. I'm just wondering if how those prospects are shaping up and if we might see them come into the next R&R. Following that, just, you mentioned as well, progressing, moving the drill rigs to prove up some more reserves at Castle Hill. What's the focus here? Is it really around more ounces, or are we looking to prove up mine life longer term?
I'll sort of separate that question into the two parts. Firstly, at Kundana and in the Millennium Complex there. The short answer is, yes, we will be upgrading our MRE with the drilling results that we're currently delivering. I think what we're seeing is expansion of the opportunity along the structures at Christmas, the newly discovered new structures now that are early days, and I think there's a fair bit more understanding that we need to develop on those to sort of determine how they sort of fit in longer term to sort of potential resources. It's really exciting stuff, that this is emerging.
Yeah, I'm expecting an upgrade, you know, on Kundana, and I think that's going to be, over the longer term, you know, one of the sources of high grade that we're able to sort of blend into the base load that we'll be producing from the, you know, regional production centers. Sort of switching to the second part of the question, which is, you know, what are we hoping to sort of, I guess, deliver with the drilling programs at Castle Hill and also Paradigm? I think when we look at how we've optimized those resources and the design pits at the, you know, the metal price assumptions we're using, we still carry a lot of inferred material or blocks, you know, into those pit designs, as well as mineralization potential.
The goal of these drilling programs is really to upgrade the classification of those, you know, of those ore blocks, and that will ultimately give us more answers, you know, into those, into those ore reserve design pits. That's, that's goal number one. By virtue of sort of, you know, delivering or converting resources to reserves, we will also be able to extend. We're achieving, you know, both of those goals, or attempting to achieve both of those goals, with these drilling programs.
Thanks, Glen.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Conway for closing remarks.
Thank you, Darcy, and thanks everyone for your time today. We really do appreciate it. We look forward to hosting some people at the Mungari site visit in a couple of weeks' time and then updating you on the full year financial. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.