Good morning and afternoon, ladies and gentlemen, and welcome to the OceanaGold 2023 Second Quarter Results Webcast and Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
I would like to turn the conference over to Rebecca Harris. Please go ahead.
Good morning, welcome to OceanaGold's second quarter 2023 results webcast and conference call. I'm Rebecca Harris, Director of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer, Marius van Niekerk, Chief Financial Officer, David Londono, Chief Operating Officer, Americas, Peter Sharpe, Chief Operating Officer, Asia Pacific, and Craig Feighan, Chief Exploration Officer. Also present is Brian Martin, Senior Vice President, Business Development and Investor Relations. The presentation that we will be referencing during this conference call is available through the webcast and on our website.
I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our Annual Information Form. All dollar amounts discussed in this conference call are in U.S. dollars.
I will now turn the call over to Gerard for opening remarks.
Thank you, Rebecca. Good morning, everyone. Thank you for joining us today. I'm pleased to say that we delivered a strong second quarter, producing just over 130,000 ounces of gold and 3,400 tons of copper at an all-in sustaining cost of $1,318 per ounce. This resulted in strong free cash flow generation. On safety, our 12-month moving average total recordable injury frequency rate of 3.5 per million hours worked increased from the record low achieved in the first quarter. While this is still a good result in our industry, we're not comfortable with it. We had a number of interventions in the period to ensure that safety was top of mind for our workforce.
A planned launch of our refreshed safety behavior program occurred during the quarter, which is a key element of our plan to ensure everyone works safely at OceanaGold every single day. From a production perspective, both of the New Zealand operations rebounded strongly in the second quarter. The heavy rainfall impacting Waihi in the first quarter subsided, allowing access back into the high-grade stopes at Martha Underground. At Macraes, the temporary repair to one of the ball mills was completed at the end of March, allowing a full quarter of production from all four mills. That allowed us to show the potential of Macraes. Didipio was a very steady producer quarter on quarter, and Haile had a so-solid quarter, albeit lower than Q1. Strong production, even stronger sales, together with reduced all-in sustaining costs, drove strong free cash flow generation of $72 million for the quarter.
From a shareholder returns perspective, during the second quarter, we paid our previously announced $0.01 per share semi-annual dividend. In our Q2 results, we announced the next $0.01 per share semi-annual dividend to be paid in October. In May, we published our 2022 sustainability report, which demonstrates some of the great work we've been doing in regards to safety, the environment, our partnerships, and in our commitment to integrity, high standards, governance, and transparency. Development of the Haile Underground remains on schedule, with the decline now approaching the third production level. First ore is expected to the mill in Q4 of this year. As you know, the Haile Underground really powers our production growth and all-in sustaining cost reduction in coming years. Its progress and near-term first ore is really exciting.
With all that, we remain on track to deliver our 2023 production cost and capital guidance set at the start of the year, which we know to be a key expectation of the market. This slide looks to compare how our second quarter and first half outcomes on some key metrics compares with full-year guidance. The Q2 and first half outcomes are shown in the circles, and the full-year guidance ranges are shown by the triangles for each metric. On production, we've produced 248,000 ounces of gold and 6,900 tons of copper in the first half, which is a little over half of the full-year production guidance.
Our all-in sustaining costs of $1,318 per ounce for the second quarter resulted in a first half all-in sustaining cost of $1,429 per ounce, which, as you can see, is at the low end of the full-year guidance range. Total CapEx is on track to be in the midpoint of full-year guidance. Due to a combination of scheduled plant shutdowns, mine sequencing, and grade profile across the group, we expect this coming quarter, the third quarter, to be the lowest production and highest AISC quarter of the 2023 year. We expect the fourth quarter to be another strong one. At constant metal prices, our expectation is that free cash flow will broadly follow this profile. We're able to confidently reaffirm our 2023 production costs and capital guidance. Within that, Didipio is on track to achieve the upper end of its annual production guidance, while Haile is tracking towards the lower end of its production guidance.
I'll now hand the call over to Marius to provide an overview of our Q2 financial results.
Thank you, Gerard. Good morning, everyone. As Gerard mentioned, we had a strong Q2 financial result, driven by strong gold sales, which included gold in transit at the end of Q1. Revenue for the quarter was $301 million, a 23% increase from Q1 and the strongest half-year revenue on record.
EBITDA for the quarter was $153 million, which is 53% higher than the prior period. The quarter benefited from gold sales of 139,000 ounces, as well as higher realized gold prices compared to the prior quarter. Net profit after tax of $69 million was 76% higher than the first quarter. When adjusted for the non-cash, unrealized foreign exchange loss, this equated to an EPS of $0.10 per share, fully diluted, while operating cash flow equated to $0.21 per share, fully diluted. Both ahead of analysts' consensus estimate. We reported free cash flow of $72 million, driven by higher gold sales and increased production. It is a significant improvement from the first quarter, and we predict continued cash generation for the second half of the year.
Our financial position continues to strengthen, with $136 million in net debt and liquidity of $215 million at the end of the quarter. At the leverage rate of 0.34x , we have the financial flexibility to continue investing in the exciting growth projects across our business. The next scheduled rollover period for the drawn funds on our revolving credit facility is this month, at which time we will consider further discretionary debt repayments. In closing, our strong second quarter financial results reaffirm our guidance for 2023.
I will now turn the call over to David to discuss the Haile operation.
Thank you, Marius. Hello, everyone. Second quarter gold production at Haile was 44,000 ounces. The quarter-over-quarter reduction was driven by lower-than-expected grade encountered in the lower benches on the base of the Mill Zone pit. Production from Mill Zone is expected to be completed in the third quarter, and mining will transition into the next phase of the Liberty Pit. This sequencing means that the third quarter is expected to be the lowest production quarter of the year, but the fourth quarter will benefit from the introduction of higher grade from the underground ore feed. Full-year production is now expected to be towards the lower end of the guidance of between 170,000 and 185,000 ounces of gold. Haile all-in sustaining cost for the quarter was $1,351 per ounce sold.
Full year all-in sustaining cost is expected to be towards the higher end of the guidance of $1,500-$1,600 per ounce, due to the production profile through the second half of the year. We're now drilling Horseshoe underground with two rigs, focusing on both grade control and resource conversion drilling. We're also continuing to delineate Palomino and expect to deliver a pre-feasibility study on this project in 2024. Regarding the Haile expansion. We continued to advance development during the second quarter at the Horseshoe underground. The decline has now reached the muck bay on the 990 level and is approximately 80 meters from accessing the 975 level of the mine, which is the third production level. Development rates average approximately 300 meters per month during the quarter.
We're in the process of preparing the first ore stopes for mining later in the year and have begun the grade control drill program and remain on track to deliver first ore to the mill in the fourth quarter. Work continues to advance at our surface projects as well, with great progress being made at both the West PAG facility and the tailings storage facility expansion. During the quarter, the new water treatment plant was commissioned and is now fully operational, discharging over 2.5 million gallons of treated water per day. The Haile team has done a great job safely completing this project, and the increased discharge capabilities will help the site to operate more efficiently in the future. Overall, the Haile Expansion Project remains on schedule and will drive production growth and lower all-in sustaining costs of the mine in the near future.
I will now turn the call over to Peter to discuss the Didipio and our New Zealand assets.
Thank you, David, and good morning, everyone. At the Didipio, second quarter gold production of 32,000 ounces and copper production of 3,400 tons were in line with results from the first quarter and put us on track to deliver on production guidance for the year. Didipio's second quarter AISC was $741 per ounce, which helped deliver another period of strong margins, notwithstanding the highest sustaining capital spend compared to the first quarter, as project activities such as the tailings dam construction ramped up in the dry weather months. Mill feed during the quarter was sourced approximately 40% from the underground, which is in line with the 1.6 million ton per annum underground mining target for the year, with the balance of the Mill feed coming from surface stockpiles.
We continue to study the options for increasing underground mining rates at the Didipio to at least 2 million tons per annum. We expect to be in a position to share the findings from this work by the end of this year. Exploration drilling is progressing on all body extensions, with targets in the northwest and at depth. We hope to be able to provide more information on these results soon. We have an analyst tour planned for the Didipio in August, where I'm really looking forward to showcasing the great work being done by the Didipio team. At Macraes, we produced 39,000 ounces of gold in the second quarter, 48% higher than the previous quarter. Increased production was driven by the return of the second ball mill to operation after a temporary repair was completed at the end of the first quarter.
AISC was $1,287 per ounce, an improvement of 41% over the first quarter as a result of better production output. The site maintenance team completed another planned inspection of the ball mill in July and identified that the crack in the trunnion had further lengthened, requiring us to take it offline until we can replace the trunnion. A bolt-on replacement was procured when we originally discovered the crack in the first quarter. With that replacement, trunnion already on site and the replacement works currently underway and progressing well. Final repair works are expected to be completed in this quarter. This repair, in addition to other throughput improvement, improvements implemented by the team this year, means that there are limited impacts to production, and the Macraes site remains on track to deliver production guidance for the year.
Now for Waihi. Waihi produced approximately 15,000 ounces of gold this quarter, an increase from the 10,000 ounces produced in Q1. The significant rainfall we experienced in the first quarter subsided, we were able to return to planned productivity levels and access higher grade areas of the mine that were previously flooded. AISC was $1,614 per ounce, an improvement of 26% over the first quarter as a result of better production output. We anticipate the remainder of the year will continue to be strong and that we will remain in line with production guidance set forth at the start of the year.
I'll now hand it over to Craig to provide an exploration overview.
Thank you, Peter. Last month, we released exploration results from our infill drill program at the Wharekirauponga project, just north of Waihi. We continued to intercept exceptional gold and silver mineralization as we focus on converting resources to support the Waihi North pre-feasibility study next year. Drilling rates have been slow due to weather and additional time required on directional drilling, but I'm pleased to say that we received regulatory approval to add a third drill rig to our program last month. The additional rig has commenced drilling and is focusing on conversion of the northern section of the EG vein, where drill productivity is expected to be higher, contributing to our 8,800 meters of planned drilling on the project this year. We continue to actively explore across all four operations, and we'll release exploration updates as results are available throughout the year.
I'll now turn the presentation back to Gerard.
Thanks, Craig, and thanks, Marius, David, and Peter. In summary, our second quarter was a strong one, and I'm thankful for the dedicated efforts of the entire OceanaGold team for delivering that. We remain committed to our goal to safely and responsibly deliver on the production and financial expectations set at the beginning of the year. We are focused on continuing to safely and responsibly maximize the free cash flow generation of the company, and we've made good progress in our journey of realizing the organic growth potential in our portfolio. Shareholders can be confident we remain focused on running the business well and investing wisely to create shareholder value and higher returns to shareholders.
With that, I'll hand the call back to the operator and open up the line to any questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. You will then hear a 3-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by 2. If you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you do have any questions. Your first question will be from Ovais Habib at Scotiabank. Please go ahead.
Thanks, operator. Hi, Gerard and OceanaGold team, congrats on the Q2 beat. Couple of questions from me, really starting off with the strong free cash flow generated in Q2. Now, as the CapEx from the Haile Underground kind of starts dropping off, in the second half, should we see kind of progression of this of this free cash flow? I mean, Q3 is supposed to be on the weaker side, do we think there's a bit of a pause in free cash flow in Q3 and then kind of moving on to Q4? Any color you can provide on that?
Thanks, Ovais. Thanks for the question. You tell me what the gold price is going to be, and I'll tell you what the cash flow is going to be. On a constant gold price basis, yeah, as we expect the third quarter to be the weaker one and then the fourth quarter to be stronger, well, than the third quarter at least. Yeah, it'll be, pretty much follow the gold production profile for the year. You can see that- the, at the, the production profile, you know, we're at the midpoint, the CapEx is on track, and assuming we keep the costs in line with the production profile, all other things being equal, Q3 will be more like Q1, and Q4 will be more like Q2.
Got it. That's also assuming, you know, CapEx starts falling off from the Haile Underground, correct?
Correct. Yeah, and then, then that might be supplemented by more sustained capital elsewhere in the portfolio.
Got it. And just, maybe this is a question for David Londono then. You know, at Haile, guidance is kind of looking to the lower end of guidance, the lower grades mined in Q2 at the Mill Zone, and now the Mill Zone is expected to end in Q3. What should we expect kind of going into Q4 in terms of what zones are you guys looking to mine out in zone, Q4 and going into 2024? Kind of what kind of grade profile should we expect going into 2024 as well?
Yeah, thanks, thanks, Ovais. I will let David comment on that, but, you know, in the second half of the year, we've got a few things going on. As David said, we will transition to Ledbetter Stage 2, and as we saw when we were last in Ledbetter, its performance against the model was much better than what we experienced in Mill Zone 2. Then, of course, in the fourth quarter, we've got the first ore from Haile Underground coming into the mill. You know, that represents, you know, it's quite a dynamic second half for Haile. David, is there any other color you want to add to that?
Yeah. Thank you, Gerard. We're gonna be feeding from pretty much the low-grade stockpile in Q3, before we start getting ore from Ledbetter. Obviously, at the beginning, we're gonna get low-grade ore. Once we start getting the underground and ramping up in 2024, the underground, we're gonna get into a higher grade ore.
Got it. And, David, since I've got you on the line, you know, you mentioned grade control drilling is progressing around the first production level at the Haile Underground. Have, have the results kind of been in line with your expectations?
Actually, the grade control, the first hole that we drilled came a little bit higher than estimated, than in the resource model. We just sent the samples for the second hole last week, so we haven't received those samples back yet. It's coming very good.
Got it. Good to hear. Thanks for that, David. Just switching gears to the Didipio. The optimization study is looking like it's gonna expected by the end of the year. Now, assuming the study is positive, and I guess this question is for Peter, how fast could you start ramping up the underground throughput?
Peter?
Thanks, Ovais. We're, we're currently that is actually part of the study, is, you know, how long will it take us to actually ramp up? You know, what is the, the final sort of high, the level of productivity that we think we can get to? Usually, you know, something like this will take at least 12 months to fully ramp up. That's what I'd expect ultimately, the study to return in that order. Yeah, it is looking positive so far, and we looking forward to sharing those results.
Okay, thanks. Looking forward to the site trip as well, in mid-August. That's it for me, guys, and congrats on a good quarter.
Thank you, Ovais. I appreciate the questions as always.
Thank you. Next question will be from Cosmos Chiu at CIBC. Please go ahead.
Hi. Thanks, Gerard and team. Maybe first up on the Macraes. You know, as we talked about, the trunnion was fixed, but it seems like now it has to be replaced, at least a bolt. But it doesn't seem like it's gonna impact your full year, you know, guidance. Can you remind me, maybe, you know, what the capacity is when both mills are up and running? What do you need in terms of capacity and, and how, how the math all works out in terms of, you know, you getting to full year guidance despite some of these hiccups you've had with the trunnion?
Yeah. Thanks, Cosmos. Great, great question.
Thank you.
I'll let Peter answer it, you know, Macraes is a, you know, it's a really resilient operation, and, and there's a great story there of adaptation and, and, and performance and, and running what is a low-grade mine, and mill, very, very well. Peter, do you want to have a go at that, at that question?
Yeah, thanks. I'll answer it. There's a couple of ways. I think there are a couple of questions in that. The first repair we did flag temporary. You know, we actually got a company in from the U.K. to do metal stitching, which is, is common in, you know, cast, steel structures. We, we certainly were hoping that that would let, get, let us basically operate through until the end of this year. We're always planning on doing the planned inspections just to check. That planned inspection in late June identified that that crack had lengthened. When we did actually, obviously, when we did do the temporary repair, we did two things. One is we bought, we procured a bolt on trunnion, which would require us to cut the end off, the current feed end and then, replace that with a bolt on. We also procured a full feed end cast.
We didn't obviously, the repair didn't last, and we've, we've now in a position where we're gonna install the bolt on trunnion. We've done the engineering, so the finite element analysis, FEA, they call it. It looks like that bolt on trunnion can be a permanent repair, and it's progressing really well. That's, that's effectively a summary of the, of the repair. The, as far as the, the mill throughput goes, what we've seen out, out of Macraes over the last three to four months, you know, there's been a number of mill throughput in these improvement initiatives that they've had underway. The results for Q2, if you look at the MD&A, 1.62 million ton mill feed, that's like a 6.5 million ton annualized rate.
Historically, they've, you know, they've never actually hit 6 million tons in a year. You know, those initiatives that the team have been looking at are really paying off, and that allowed, you know, Q2 to be a very good month, higher than what we're probably expecting. We did claw back some of the deficit from Q1. We're now seeing in Q3, we'll give a little bit back, but by the time that mill two re-repair is undertaken and the full the mill processing capacity is back, then we'll see that those higher rates will continue. We see that Q4 will be able to claw back, and that's why we're confident that we can maintain guidance.
Perfect. That's great. Maybe switching gears a little bit, you know, going to Haile and following up on my buddy, Ovais' questions. In terms of, it seems like in Q3, you're going through some of the stockpiles. I don't know if this is disclosed, but how, how much stockpiles do you have in terms of, you know, available, and, and what's kind of like the grade?
David?
At this moment, we have about 2.8 million tons of low-grade stockpile. The grade will be somewhere between 0.75 and 0.85 grams per ton.
Okay. You know, David, as you mentioned, you know, Mill Pit, that's coming to an end in Q3, but that's gonna be Ledbetter is coming in, Phase II is coming in later on. I think in part, Gerard has answered my question in terms of the grade profile. It seems like, you know, Mill Pit, some of the ore coming out was lower grade than expected. Is there any kind of read-through from that into, you know, Ledbetter, as you go into Ledbetter? Any concerns in terms of grade, or, or as Gerard mentioned, the model has always worked out better for Ledbetter, especially for Phase I.
We have a Ledbetter 1. We're in Ledbetter 2. Ledbetter 1 actually performed really well compared to the model, so we're expecting the same performance on Ledbetter 2 and 3.
Okay. Then, and then, maybe the underground development. When I was on site back earlier this year, it was already fairly well advanced. So could you re- maybe remind us what still needs to be completed, you know, to get first ore in Q4, and what are some of the, you know, key sort of, key drivers here?
We're already starting the stopes. We're, we're gonna be well advancing to the decline, getting to a 975 level. Like we said before, we're about 80 meters from the 975. Once we get there, which is gonna be early in Q4, we'll just start mining the ore from those stopes.
Great. Maybe one last question, you know, Gerard, as you mentioned, you know, in the MD&A, you're still on track to hit the $330 million-$380 million in terms of capital exploration expenditures for the year. It sounds like for general operation CapEx, the $95 million-$110 million, you're gonna come in at the lower end due to Didipio and Haile. I'm just wondering if that's a timing thing, or is it cost savings, or are we gonna see higher costs, you know, kind of come back in, say, in 2024? I'm just trying to get a better sense.
No, fair question. No, it's not, any shift of, of expenditure from this year to next will be fairly minor in nature. That's just due to, you know, our, our ability to probably execute on some of our plans that, you know, we, we probably tend to be a bit optimistic, and I think that's not uncharacteristic of most companies in this, in this industry. It'll just be the general sustaining CapEx that, that might move over, but, you know, we're also getting better at, at making sure that we only spend, you know, what we need to, when we need to, and we're procuring smart as well. There's a bit of cost optimization, spend optimization, and overall cost reduction in all that as well, Cosmos.
Great. Maybe one last question here. Talking about costs, and we have talked about this, you know, a lot throughout 2023. Are you finally seeing, you know, overall costs sort of abating? We're seeing inflation come up for the general economy. You know, when I was on site in South Carolina, certainly that was a point of discussion in terms of inflation. Are you finally seeing some of the costs abating in you know, some of the areas, South Carolina or anywhere else around the world?
Yeah, thanks. I'll let Marius answer and provide a bit more color and detail, but at a high level, you know, where we-- from where we were a year ago, in general terms, as you know, oil prices are lower, so that obviously feeds into lower diesel. Energy costs, you know, to the extent you're on contract, it can be, can remain relatively elevated. Overall inflationary impacts have moderated across the industry, too. Marius can provide more detail on a by category basis. One of the things that we're also seeing, now that supply chains have normalized a bit, is that delivery speed and/or delivery risk has improved.
That is, you know, we, we can get things sooner, which allows us to be better at inventory management, which has a positive cash flow benefit as well. Marius, just from a category perspective, any color you can provide Cosmos?
Yeah, sure. Hi, Cosmos. Just looking at it from a business perspective, we are seeing mixed impacts, so it's not like you're gonna have one size fits all. Where we're seeing increases is in wage inflation and obviously, with increased competition for talent and resources, that's, that's washing through our cost base. Also, trending up are grinding media and reagents in APAC, in the APAC region. Other elements where we see it is electricity costs at Haile. Then, you know, from a volume perspective, and let's call it activity level ex perspective, maintenance costs are going up in areas. We're seeing that at Haile with increased maintenance activity.
Obviously, with Peter's repair of the mill two, those costs are washing through. At Macraes, there's additional ground support costs that we're seeing as a result of some of the ground conditions on the underground. On the flip side, pleasingly, we're seeing double-digit increases in diesel and fuel costs and--
Excuse me, reduction.
Yeah, a reduction, decreases in diesel and fuel costs, which is more impactful at open pit operations. We're seeing drilling consumables, explosives, freight costs, those type of costs coming down a-and easing up. Even tires, although it's still at higher than the 2022 levels, we're seeing that trending down. Lastly, in New Zealand, we're benefiting from the weaker New Zealand dollar. Then, with the increased mill feed, if we look at the unit cost, right, you can see that washing through on processing and G&A costs on the New Zealand operations.
I think the last point, if I may, on the, on the profile, it just again highlights the importance of the programs we have underway, where we're focusing on the three key value initiatives across asset management, upliftment, procurement excellence, and also continuous improvement, where we are confident that we are delivering sustainable long-term value.
Great. Thanks again. Congrats again, on a very strong Q2. Looking forward to the rest of 2023. Thanks again for answering all my questions.
No, thanks. Thanks for the questions, Cosmos.
Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. Your next question will be from Wayne Lam at RBC. Please go ahead.
Yeah, thanks. Morning, guys. This first question, wondering at Haile, with the water treatment plant now complete, should we anticipate some level of unit cost savings with the reduction in dewatering required or improved treatment and discharge efficiencies? Or curious what we might be able to expect as an offset to the lower grade profile through the back half of the year.
Sure. Yeah, I mean, it gives us a lot more operational flexibility and, and, and as you may have seen when you're at site, we had a temporary and hired water treatment plant, which, you know, we've kept for a little while longer to get well ahead of the curve there, but that obviously will save that cost. You know, this, this thing is, is more about operational flexibility and, and, you know, always being confident of being able to be in full compliance, you know, with water management. It's. Yeah, David, anything else you want to add to that?
Yeah. Yeah, thank you, Gerard. The idea is that this year we are actually gonna have a little bit higher cost because we're ramping up the water treatment to empty it the water that we have in the pits. We'll see reductions starting probably halfway next year.
Okay, great. Thanks. Maybe just on the underground exploration, having, having started at Horseshoe, are there additional drill platforms that are still planned to be put in place? Just curious when we could start to see some of the drill results with the ramp-up in activity underground?
Oh, great, great question, Wayne. I mean, Craig's online. I, I ask him about every second day, when we're going to get some results out of Haile. Look, we're really excited about it. Craig, I'll hand over to you just to provide a general overview, but you can be confident as soon as we have any results of that are material and give us, you know, a return on that investment. We, I'm, I'm pleased to say that we are investing in exploration at Haile. We'll release those to the market. Craig, you know, the, your, the activity level from an input perspective, that's progressing well there at Haile?
Yeah. Thanks, Gerard, and thanks, Wayne, for the question. Activity, drilling's progressing well. We don't have any results in on the resource drilling as yet, a bit to what David commented on the grade control drilling. We have a number of holes into the lab, though, already. I think we've completed five holes, and another one will be off to the lab next week. We're drilling from several platforms as development allows us. Currently, we're drilling from one platform for the resource drilling, things are progressing well. Productivity is good on, on the rig in terms of meters per shift. Yeah, the program's going as expected, if not a little bit better.
Okay, great. Thanks. Maybe just last one for me. At Macraes, did you guys have an estimate of the length of downtime for the second ball mill? Just wondering if you might be able to expand a bit on the mill optimizations. What's the targeted run rate there going forward with the improvements that you guys have implemented? Is that still around the 6 million ton level, or should we be kind of thinking beyond that?
Peter?
Yeah, thanks, Wayne. As far as the mill throughput, if you look at the Q2 results, $1.62 million for the quarter, that's approximately 6.5 million tons annualized run rate. I think that's probably about what we really wanna be able to deliver on an ongoing basis. Yeah, that'll give you some indication of what we're striving for. As far as the, I guess, with the first question was around a ton per hour, was it, from a mill throughput?
Around the estimated length of downtime for the ball mill?
Sorry, the actual trunnion is on site at the moment. The bolt-on trunnion is on site. We actually have the contractors on site. We've cut the old trunnion off the ball mill, so it's already been jacked and set up, and the old trunnion cut off. We've got the jigs set up, and we'll start machining early next week. You know, that, what we're saying is by the end of Q3, because, you know, it is work that, you know, you know, there could be some challenges, but it's progressing really well. If things go as planned, you know, that type of work should take no more than another, you know, four weeks. Because it's obviously work that can be challenging, you know, we're giving ourselves a full quarter.
Okay, great. Thanks for taking my questions and good luck with the months ahead.
Thanks, Wayne. Just to, before I go on to the next question, just to round out on Macraes, I just think it's a real call-out for the June quarter for that team. I mean, that, that milling rate, is well above what they've historically been able to achieve. Their grade is lower, their recoveries are higher. That's for a low-grade, operation, that's a fantastic combination, and they continue to pull ore out of the ground at from the open pit, especially at what, what I think is industry-leading rates. I think Macraes, producing the volume it does at the all-in sustaining cost it does, was, as I said in the call, a nice window into what its potential is, when it's running well.
Sorry, operator, next, next question.
Thank you. Next question will be from Mike Parkin at National Bank.
Hi, guys. Thanks for taking my call, and congrats on the good quarter. Just a couple of housekeeping items. Just, I may have missed it, but the Macraes repair costs, those will be capitalized, not expensed?
Correct.
Well, yeah.
Okay. Then while you're running for the two to three months on one ball mill, are you, is it exactly kind of 50% of capacity, or are you able to push it a little more even though you're running one line?
Yeah. Even this month, we've been able to demonstrate higher throughput rates than we probably had traditionally seen on the back of those throughput improvement projects. The actual impact is approximately, we're running still at a 75% type capacity, between 70% and 75%. Which again, assuming that we're down for a quarter, still allows us to be comfortable that that guidance can be met. We, we are still seeing those improvement initiatives flowing through, even though mill two is down. Obviously, when mill two comes back up, then we, we can continue to run at those higher throughput rates that--
Okay. Are you taking advantage of that line being down in terms of any other preventative maintenance?
We seem to have lost Peter. Mike?
Okay.
Yeah.
That's okay. If the IR team can maybe just follow up with me, that'd be awesome. Just the last question: Is there any other, you know, shutdowns within the operating base that we should be aware of for Q3, Q4?
Short answer is there are other shutdowns. I know Waihi's have, has a mill shutdown underway at the moment, they are scheduled during the year. That profile of shutdowns is one of the variables that's contributing to our guidance for Q3 to be the weakest Q4 to be another strong quarter. Yeah, there are shutdowns from time to time. Just a reminder, Mike, and not so much for you, but everyone on the call, whilst we say one or ball mill two is down, we actually have four mills at Macraes. There are two SAG mills, two ball mills. When Peter said, you've kind of got-- You're running at 75%, you've got 75% of the milling capacity there, which for reasons that he also said, you know, we've been able to operate the overall complex better than before. I t's headline, lots of capacities, less than what it historically might have otherwise been.
Can you actually run the other SAG and just bypass the ball?
Yeah.
Okay. no, that's interesting. Okay, thanks very much, guys. That's it for me.
Thank, thank you, Mike. Appreciate the question.
Thank you. Again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. Your next question will be from Farooq Ahmed at Raymond James. Please go ahead.
Hi, good morning, everyone. Lots of operational questions on this call, maybe I'll ask a strategy question. Gerard, it's for you. Look, the operations, you know, they've, they've come around and, and this was a good quarter, and it's good to see all the operations kind of running, you know, kind of the way that they can. You know, assuming that Haile Underground kind of goes as per plan and, you know, you're into the production in the fourth quarter, and the gold price, you know, you've talked about the gold price earlier, the gold price stays, you know, $1,900 or above. If we look out two-four quarters and, and you're kind of running as expected, Gerard, what do you see as the strategy at that point for, for the company?
Like, what would you like to do, at that point? Are you, are you kind of looking at the expansion you're seeing at Haile and the increased production, and then maybe WKP in a few years? Is there, you know, kind of another leg here for you, in terms of maybe adding another asset, whether it be kind of a development asset or a production asset? What, you know, what do we expect for the strategy, from Oceana over the next, let's say, year?
Thanks, Farooq. Yeah, look, I mean, that, that future you paint is, is, is the one we want to be heading to, right? You know, predictable operations, delivering to potential, generating a lot of cash. You can expect that, as Marius alluded to, we'll now further reduce the debt that we have, and we don't have much debt, but we can get it lower. Debt costs more now than it used to. We're back to paying dividends. There always is the option to increase dividends. We have growth opportunities around the business that we'd love to prosecute. We have exploration upside potential at all, at least three of our four assets that we're, we're putting money into.
You know, and, and, you know, and that organic growth that we have in the portfolio, that Peter speaks about at Didipio, you know, and, and we've got an ore body there, open at depth, with the potential to increase the mining rate. You know, the leverage value of that is, is enormous. The potential for us to find, you know, more gold at Haile Underground, increase the Haile Underground mining rate, that, that adds more value. I, you know, I think we're in the business of maximizing the free cash flow generation from our operations safely and responsibly, and I think we've got loads of opportunity inside the portfolio. You know, as we generate more cash, we can put more to exploration.
We've got land packages, particularly in the Philippines, you know, outside of our existing mine operating area. We can, you know, take advantage of that. As we strengthen and as we get the confidence of the investment community, you know, there's always the ability to look outside the portfolio. You know, in the very near term, you know, our focus is on maximizing the free cash flow generation from what we have, strengthening the balance sheet, increasing shareholder returns.
Okay, thanks for that. Maybe to paraphrase what you said, what we should expect is a focus on internal growth opportunities as opposed to external growth. Is that fair to say that that's the priority?
Well, that's what we have on the slide that you're looking at, on screen right now. That's how, that's how we think about it. I mean, obviously, you know, we have to be mindful of opportunities outside of our portfolio. They could present from time to time, and our ability to take advantage of that is perfectly correlated with our continued strength, balance sheet strength, our operating performance. You know, we have a very small business development team, and that's not a reference to their height, but, but in number of people. And, you know, their job is to scan and make sure that we're appraised of opportunity that we can take advantage of. That's, that's also what we have to have an eye to.
I'm not so binary as saying, you know, it's in or out, but I'm leaving, hopefully, people with a very clear expectation that our very near-term focus is on running the business we have very, very well.
Okay. No, thanks for that. Maybe the last part of this is, assuming that you do see some external opportunities that are attractive, are there certain ratios or targets or hurdles that you need to see within Oceana before you act externally? Like, things like, you know, cash position or debt position or, you know, cash flow profile or anything like that. Is there, is there any, you know, internal target that you have that you want to hit before you look externally?
Internal targets? Sorry, not, not really. Farooq, I mean, if I understand the question right, no, I mean, we've got the balance sheet now down to, you know, a pretty strong position. Our leverage ratio of 0.34x , you know, is low. You know, we don't have an aspiration per se, to be net cash. It's a great spot to be. You know, these things have a, a temporal dimension. You can be, you know, you know, we don't fixate on any one point, in time.
As, as to what the attributes of the, anything that we look at, obviously, you know, and this is the hardest thing in our industry, when you, when you start doing inorganic growth, is making sure that anything that we do add to the portfolio is accretive in value to the OceanaGold shareholder. That's, that's the thing that we'd be looking for. I mean, it would be nice to have another asset in the portfolio and nice to have two more assets in the portfolio, but, but in the, in the journey to getting there, obviously, our, our preference would be to find it through the through the drill bit and, and, and Craig's efforts, or early stage entry with you know, junior companies.
We obviously have to, if we deploy, you know, any acquisitions, funding to, to those things, we've got to make sure that we get an asset that we believe can, run well, we can run better than the previous owner, which is, you know, actually a lot harder than it, than it sounds. And/or has, exploration upside, and, and making sure that we buy it at a price and can convert that potential, to the betterment of, the OceanaGold shareholder. That-that's the lens we look through it, but there's no, there's no burning platform for us to do that. We have the luxury of having one of the best near-term organic growth profiles in our industry.
We, we feel like we've got the time, and any, we can take that time to continue to prove that we can run well what we have, strengthen the balance sheet, to put us in an ever better position, to make those kind of decisions.
Okay. All right. Well, thanks for that, Gerard. I appreciate the, the insights.
Thank you, Farooq.
Thank you. At this time, it appears we have no further questions. Please proceed with any closing remarks.
Well, thank you, operator, and thank you to the team here, everyone at OceanaGold, but also all the listeners on the call. Really appreciate you dialing in. Really appreciate the questions. That concludes our webcast and conference call. A replay will be available on our website later today. On behalf of everyone here at OceanaGold, wish you a very pleasant rest of the day. Bye for now.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.