Good morning and afternoon, ladies and gentlemen. Welcome to the OceanaGold 2022 first 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. Also note that the call is being recorded on Thursday, April 28 at 5:30 P.M. Eastern Time. I would like to turn the conference over to Sabina Srubiski. Please go ahead.
Thank you very much, operator. Good evening and good morning. Welcome to OceanaGold's first quarter 2022 results webcast and conference call. I am Sabina Srubiski, Director of Investor Relations for OceanaGold. I am joined today by Gerard Bond, OceanaGold's new President and CEO, Scott Sullivan, Chief Operating Officer, Scott McQueen, Chief Financial Officer, David Londono, Executive General Manager, Haile Operations, and Sam Pazuki, Senior Vice President, Corporate Development. Before we proceed, please take note that references in this presentation adhere to international financial reporting standards, and all financial figures are denominated in US dollars unless otherwise stated. Also, please note that the presentation contains forward-looking statements which, by their very nature, are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate, as future results and events could differ materially.
I refer you to the disclaimers, including those on the forward-looking statements in our presentation. I will now turn the call over to Gerard Bond.
Thank you, Sabina, and good evening, good morning to everyone. It's a great pleasure to be here with you today for what is my first quarterly webcast. Although it's early days for me as President and CEO of OceanaGold, I'm thrilled with the opportunity to lead an extraordinary organization with a highly talented workforce, quality assets, and a really exciting growth pipeline. I'm actually making this call from New Zealand, having spent time in the last 2 weeks at both of our operations here and meeting the teams at both sites. I'll be visiting Haile and Didipio over the course of the next few weeks, as well as meeting our major shareholders. OceanaGold has a strong and exciting foundation that I will seek to build upon, and together with the management team and all the tremendously committed people here, work to take the company to new heights.
The strong first quarter of operational and financial performance is certainly a great starting point, and I'll walk you through some of the key highlights of the quarter. The company's off to a great start for the year with the safe delivery of record quarterly revenue and record quarterly EBITDA, which powered strong free cash flow generation, which is one of my key focus areas. This strong free cash flow generation allowed us to significantly reduce our net debt, improve our key leverage metrics, and strengthen our financial flexibility. Operational performance in a period of strong gold prices was clearly a driver of the financial performance, with Haile delivering a record quarter of gold production, demonstrating another quarter of operational performance improvement by the Haile team.
Didipio completed its ramp up ahead of expectations, achieving full underground mining rates in March, leading to strong gold and copper production for the quarter. This is an incredible achievement for an operation that only resumed milling six months ago. Finally, in New Zealand, while Macraes delivered a steady quarter of production, we experienced challenges at Waihi relating to under-reconciliation and COVID-19 related workforce disruptions following the New Zealand government's easing of restrictions. Scott Sullivan will speak more to this later in the presentation. The health and well-being of our workforce is of paramount importance, and it was really pleasing to see the continued reduction in the Total Recordable Injury Frequency Rate. Our goal, of course, is zero fatalities and zero injuries, and our leadership and workforce are equally committed to achieving this. A safe and healthy workforce is a productive workforce.
The company produced 134,000 ounces of gold in the quarter, which is 26% above the previous quarter and around 60% above the same period in 2021. The return of Didipio to full operation reestablished the company as a copper producer, and in the quarter, we produced 3,500 tonnes of copper. The company produced gold at a cash cost of $630 per ounce, which is well below the previous reporting periods. Our all-in sustaining cost was $1,084 per ounce, which was $242 lower than the prior quarter. Together, with the higher gold prices in the period, this resulted in a big lift in our AISC margin in the quarter to $831 per ounce.
Given that we're on the numbers, I'll turn the presentation over to Scott McQueen, who will walk through the financial performance.
Thank you, Gerard, and hello, everyone. As Gerard mentioned, the solid group operational performance across the first quarter was highlighted by record quarterly production at Haile, the successful ramp-up of Didipio, an 18% quarter-on-quarter reduction in all-in sustaining costs, all during a period of strong gold and copper prices, all of which underpinned a strong financial performance.
This strong financial performance included record quarterly revenue of $286 million, record quarterly EBITDA of $158 million at an EBITDA margin of over 55%, along with an adjusted net profit after tax of nearly $82 million or $0.11 per share fully diluted, as compared to analyst consensus of around $0.06 per share. Consistent with EBITDA, group cash flow also improved materially with operating cash flow for the quarter over $144 million, up 32% on the previous quarter and over 200% over the same quarter in 2021. This equated to an adjusted cash flow per share after working capital movements of $0.22 per share, fully diluted, compared to analyst consensus of around $0.15 per share.
The most pleasing was the significant free cash flow generation of just over $63 million for the quarter, which reduced our net debt 29% relative to 31 December 2021. As noted, we also saw a significant quarter-on-quarter reduction in all-in sustaining costs of 29%, mainly driven by the record production at Haile and the full quarter contribution at Didipio, but also reflecting strong by-product credits, particularly copper. Partially offsetting these benefits was a weaker quarter at Waihi, as well as input cost pressures, which primarily consisted of higher diesel costs, which hit most our open pit operations at Haile and Macraes. On a group basis, the quarter-on-quarter jump in diesel prices added approximately $40 per ounce to our all-in sustaining cost. Should oil remain at current levels, we would expect this trend to continue over the coming quarters.
We aren't sitting still on costs, though. We continue to seek opportunities to combat inflationary pressure and secure certainty of supply. For example, we recently established a multi-year renewable energy supply agreement that provides energy cost certainty across all our New Zealand operations. At our other operations, we are accessing non-oil dependent grid power. In some jurisdictions, we have enterprise agreements in place that provide more certainty over wage growth. A weaker New Zealand dollar exchange rate over recent months has also dampened the overall inflationary impact across our New Zealand operations cost base in US dollar terms. While these factors and agreements are included in our cost guidance and all four operations back up and running, we will continue to seek out opportunities to further improve productivity and reduce costs across the group. Moving on to slide six, a bit about our capital investments.
Total capital investments for the quarter were 12% lower than the previous quarter and broadly in line with the first quarter of 2021. The quarter-on-quarter decrease was primarily driven by lower growth investment at Haile. Capitalized mining costs were mainly open pit waste movements at Haile and Macraes. At Haile, we were stripping the second phase of the Ledbetter and Haile pits, while at Macraes, mining was focused in Deepdell. We continue investing in the ramp-up of underground operations in New Zealand, both at Waihi with the Martha project, Martha Underground project, and at Macraes with Golden Point Underground. We do expect capital investments to increase over the course of the year, mainly related to the Haile underground development. The commencement of the bulk of the spend is dependent on the receipt of the SEIS final record of decisions and related operating permits.
Moving on to slide seven, our balance sheet. As previously noted, in the first quarter, we generated approximately $63 million of free cash flow. Our net debt, inclusive of equipment leases, decreased 29% as a result to $168 million. We closed the quarter with $195 million in cash and another $30 million available in undrawn credit facilities. While our production cost and CapEx guidance for 2022 remains unchanged, we do note that we expect the first quarter to be particularly strong and that an anticipated reduction in grade profile, predominantly at Haile, combining with increased capital investments, as mentioned, over the next 2Q means all other things being equal, free cash flow will not be as strong in the next 2Q . Naturally, production sales and metal prices will be the main drivers of the outcome.
We have a healthy balance sheet, and depending on market and operating conditions, we are positioned to deliver strong free cash flow over the next few years. This strong balance sheet and free cash flow will underpin our ability to fund investment in high return value accretive growth opportunities, including Haile Underground and the Wharekirauponga underground mines, to further strengthen the balance sheet by continuing to reduce debt and to provide returns to shareholders. I will now hand the presentation over to Scott Sullivan to walk you through our first quarter operational performance.
Thank you, Scott. Good morning, good evening, everyone. My apologies in advance. I have a slight cold, so if there's a pause every now and then, it's just me hitting the mute button. I'll start on slide 8 to discuss the record quarter at Haile. Before I get into Haile's quarterly physicals and the continued operational improvement, I would like to take the opportunity to highlight the exemplary health and safety record of the operation. When I look back at Haile's TRIFR from a couple of years ago, the operation has come a very long way to significantly reduce its injury frequency. As Gerard mentioned earlier, we will strive for a zero fatality, zero injury operating culture through felt leadership and a strategic focus on fatality prevention and injury prevention.
Operationally, Haile continued to deliver strong quarterly performance, including the first quarter of this year, where it delivered a record 60,249 ounces of gold produced, which was an increase of 42% quarter-on-quarter, mainly from increased mill feed, higher head grade, but also improved gold recoveries. First quarter site AISC was $1,070 per ounce sold with cash costs of $567 per ounce sold. Quarter-on-quarter, the 8% decrease in AISC reflects higher gold sales, partially offset by higher cost, particularly diesel. Ore mined for the quarter was 36% higher quarter-on-quarter, consistent with the mine sequence, but also reflecting a positive reconciliation on ore tonnes from the Haile open pit.
That was due to the result of a debris-free ore, basically found in areas originally believed to contain voids, so that was a bonus. Mill throughput was a marked improvement from a year ago, when the operation was challenged by blocked crusher chutes. The changes around ore fragmentation, in particular that David and his team have implemented, has resulted in improved mill utilization and higher mill material throughput rates. Average mill feed gold grade was 2.54 grams per ton gold, which was higher than the previous quarter due to material supplied from Ledbetter phase one. Consistent with our plan, gold recovery has increased quarter-on-quarter because of higher head grade.
Mining unit cost per ton mined increased 14% quarter-on-quarter, reflecting the impact of higher fuel prices and labor costs, as well as costs associated with unplanned maintenance. Processing unit cost per ton milled increased 12% quarter-on-quarter due to plant shutdown for maintenance and an increase in reagent costs. Looking ahead to the remainder of the year, production is expected to be lower over the next two quarters, as we've mentioned and then flagged in previous quarterlies, related to mine sequencing and lower grades mined and processed, before the grades continue to increase again in the fourth quarter. Haile's AISC profile is expected to reflect the production profile with higher AISC in second and third quarters before improving in the fourth quarter.
Capital investments are also anticipated to be the highest through the third and fourth quarters based on the company receiving the SEIS and associated permits during the second quarter. Let's move on to slide 9. We continue to await the final record of decision associated with the SEIS. We have strong, broad-based support from stakeholders, and engagement with the state regulator remains regular and very positive. We recently finalized an agreement with the conservation community in South Carolina to provide an agreed level of financial assurance to the state, and the agreement will also provide for the protection of ecologically sensitive land after our mining has been completed. We still expect the final record of decision along with the associated permits to come through this quarter. On a positive note, we received the National Pollutant Discharge Elimination System permit on April 22.
This permit allows us to expand the water treatment plant and increase our water discharge rates to 3.5 million gallons per day, up from current 1.75 million gallons. This permit is not associated with the SEIS. We are currently, therefore, in the process of expanding the water treatment plant and anticipate this to be completed by year-end. We view this as a very substantial development, which will allow us to better manage water levels, thereby reducing operational risk and resulting in more efficient operations. Just moving on to slide 10 and Didipio. Didipio didn't miss a beat, delivered a very strong quarter. It achieved full underground mining rates of 1.6 million tons per annum one month earlier than budgeted.
I will point out that before Didipio shut down in the third quarter of 2019, the operation peaked at 1.5 million tons per annum from underground. We're now safely operating at the highest underground mine rates in the history of Didipio. Didipio remains one of the safest operations in the mining industry, as measured by its exceptionally low injury frequency rate. The site also recently passed 1,000 days free of lost time injury, which is an absolutely fantastic result. From a health perspective, we did see another wave of COVID-19 infections during the quarter. However, our strict protocols clearly helped contain any spread to the workforce.
Didipio produced 29,446 ounces of gold and 3,510 tons of copper, representing the first full quarter of operation since the restart of production in November 2021. Its cash costs and AISC were $26 per ounce and $40 per ounce, respectively. Ore movement in the first quarter was 48% higher than in the fourth quarter of 2021, and mining rates steadily increased during the quarter. I'll also point out that the company extracted the monzonite areas of the crown pillar from surface as a part of a project to further strengthen the crown pillar. This project was completed in February, and the ore source from these pillars was processed in the quarter.
Ore mined from the crown pillar totaled 176,867 tons, and ore mined from underground totaled 308,691 tonnes. The company does not anticipate any further surface extraction until the end of the mine life, when mining of the remaining crown pillar is planned. I would also like to highlight that Didipio's ramp up and performance to date has been concluded with very modest capital spend. We're very pleased with Didipio's performance and will continue to seek ways to further enhance operations as we move forward. Looking ahead to the remainder of the year, gold production is expected to taper off slightly in the second quarter before maintaining previous levels the remainder of the year. While copper production is expected to marginally increase before returning to previous quarterly production rates.
Moving on to Slide 11 and Macraes. At Macraes, we saw the total injury frequency rate increase and a trend in that direction warrants further emphasis on instilling a stronger safety culture and leadership. The workplace senior leadership team continues to engage with the workforce. To build on workplace hazard identification and injury prevention. Macraes gold production was steady quarter-on-quarter, with 37,588 ounces in the first quarter on higher head grade that was partially offset by lower mill feed and reduced gold recoveries. AISC and cash costs were $1,394 per ounce sold, and $1,005 per ounce sold respectively. Although unit cost decreased on the previous quarter, we continue to be slightly impacted by inflationary cost pressures, elevating the cost of equipment and suppliers.
Total mining movements in the first quarter were 6% lower than prior quarter on the elevated highwall movements at the Frasers phase three mine, limiting mining activity and requiring mitigation measures to be implemented, which have been successful. Development rates at Golden Point underground were lower than planned due to poor ground conditions while developing through the main fault zone, requiring additional ground support. By the end of the quarter, development rates were improving as development had traversed through the fault zone. As the main decline progresses deeper, ground conditions are expected to improve as constraining forces increase with depth and reducing spalling around active mining phases and the rock becomes more competent.
Total mill feed was down slightly when compared to the previous quarter, primarily due to a high percentage in harder ore sourced from Deepdell phase III, impacting on our throughput rates. Mill feed grade was 1 gram per tonne gold, slightly higher than in the fourth quarter of 2021. While gold recovery during the quarter was impacted by a higher percentage of carbonaceous ore from Deepdell phase three, which adversely impacted our carbon-in-leach recoveries. As mining at Deepdell progresses, the proportion of ore mined near the hanging wall contact will reduce, and recovery is expected to normalize as a result. Moving on to slide 12 in Waihi. At Waihi, the operation did not deliver to expectations, and I'll get to that detail shortly.
From a safety standpoint, it was pleasing to see Waihi reduce its 12-month moving average Total Recordable Injury Frequency Rate to 3 per million man-hours worked from 6.2 last quarter and 10.5 in the first quarter of last year. Waihi produced 6,752 ounces of gold in the first quarter, with production decreasing 43% quarter-on-quarter. Mining at Martha Underground since site commencement has been in areas of the resource with low resource definition and which are generally under-reconciled in both grade and tonnes. Reconciliation accounted for approximately half of the production underperformance during the quarter, with poor ground conditions in parts of the ore body and reduced workforce availability due to COVID-19 isolations also contributing factors. Results from the accelerated grade control drilling program continued to update the resource models used for mine planning.
Grade control drilling to support mining for the remainder of 2022 has been completed, and that required for 2023 is expected to be completed progressively across the second and third quarters of 2022. This accelerated program of grade control drilling is expected to better inform our detailed mine planning and design process, allow us to optimize the stoping sequence, and also reduce ore loss and deliver improved performance. Despite these challenges, we had encouraging results during the month of March. This resulted in the quarter's reconciliation of ore mined to reserve being 112% on tonnes, 80% on grade, and 89% on metal, which is an improvement, an improved reconciliation trend compared to the fourth quarter of 2021.
Also going forward, we will continue to focus on development productivity and subject to COVID-19 workforce absentees and reducing, the company expects our overall productivity, including ore tons mined, to drive improved mining rates in the coming months. With respect to the Waihi North project, we're preparing for the lodgment of consent application, inclusive of Wharekirauponga, as we continue to progress environmental assessments to near completion. We expect to formally lodge our consenting application, inclusive of stakeholder feedback this quarter. The consenting process is on the critical path for first production. We're also continuing to advance technical studies along with the exploration efforts at Wharekirauponga, where we continue to increase mineral resources despite minimal drilling due to impacts from weather. We have previously mentioned an expanded scope of work at Wharekirauponga, and we will allocate additional capital to exploration efforts going forward.
The increased drilling is to accelerate resource expansion that will allow the company additional mine design opportunities to optimize the mine early for its full production potential. I will now turn the presentation back over to Gerard. Thanks, Gerard.
Well, thank you, Scott. Thanks to you all the site leadership teams and the workforces of all our operations for such a strong start to the year. It's that strong start which underpins our ability to maintain our guidance range. Haile delivered a record quarterly result in the March quarter based on the grade profile that we expect. We expect lower quarterly production from Haile through the middle of the year before it returns to higher production in the fourth quarter. We will continue to pursue the final record of decision regarding the SEIS, and we're well engaged with the US Army Corps of Engineers and other stakeholders in this process. At the Didipio, we expect steady production for the remainder of the year, and we are tracking to the high end of the production range there.
We'll also commence drilling proximal to the ore body as part of a target validation program aimed at resource expansion. In New Zealand, we expect steady production from Macraes for the remainder of the year. As Scott covered, after such a soft start to the year at Waihi, we expect production for the full year to be around the bottom end of its guidance range, and we will work to continue to de-risk the near-term mine plan. As Scott said, the results that we saw in March are very encouraging. For both operations in New Zealand, we'll continue to manage the risks associated with COVID-19. I'd like to close out this formal presentation by reiterating our focus to deliver long-term value to shareholders.
As I said at the onset of this presentation, I inherited a strong foundation from which to grow this business, but also recognize that we have plenty of opportunities for safely delivering near-term operational and financial improvement. Together with the board and management team, I plan to drive accountability across the business to ensure that the organization delivers on expectations and its full value potential. Specifically, that means we will work safely and responsibly. We'll manage risks and execute on business plans in an operationally disciplined way. We'll look to optimize production and lower costs to maximize the generation of free cash flow and invest capital and use our exploration capability wisely to deliver profitable growth and attractive returns to shareholders.
With a strengthened balance sheet, we're rapidly gaining the financial flexibility to deliver strong returns to our shareholders, and I look forward to meeting as many of you as possible over the coming months. Before I hand back to Sabina, I would like to acknowledge that today is Sam Pazuki's last day with OceanaGold after 10 years in the role that would have made him very familiar to all of you. I want to thank Sam for his dedication and delivery over that 10-year period, which was a very eventful one. I also, at a personal level, wanna thank him for the generosity of time that he's given me and for his insights and candid advice and obvious care for OceanaGold as part of my onboarding.
Sam, on behalf of the entire company, we wish you all the very best in the next stage of your career. With that, I'll hand it over to Sabina.
Thank you, Gerard. I will turn over the logistics of the Q&A session to the operator.
Thank you. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have any questions. Your first question will be from Mike Parkin at National Bank Financial. Please go ahead.
Hi, guys. Thanks for taking my questions, and congrats on a good quarter. A couple of things just around the Waihi grade and tonnage reconciliation. Can you give us a bit of color on what you're seeing so far? Is it the variability in the ore shapes that are causing it to be not there? Or, in terms of the grade, is there anything that you're picking up that suggests, you know, why you're kinda starting to get a little more comfortable with it? As you mentioned, kind of a decent March.
Scott, do you wanna take that one?
Yeah. Yes, thanks. Thanks, Gerard. I guess the first thing to note is that, you know, this ore body in entirety is a little bit different than what we've mined before. It's about, you know, roughly 70% secondary splays that we're mining and about 30% of the primary veins, which are, for us, really mining around the old remnants of historic mining. It is a bit different. Essentially, you know, where we've gone into this ore body off a couple of exploration drives that were there, it's just an area of lower certainty as we found out.
What we were finding is we were developing into these secondary splays, and they just weren't presenting as our resource model had shown in terms of thickness and grade. You know, that's it, I guess, in a nutshell. We're seeing improvements now. As mentioned, we've got all of 2022 drilled out with grade control drilling, which is closer spacing. It's giving us more certainty, and that means that as we update our mine designs, which we are progressively as we update the models, then we get basically more certainty in our schedules going forward. I think we're seeing some of that improvement in March, and we expect to see that improvement as we go forward through the year.
Great. Thanks so much for that. In terms of switching over to Haile with the SEIS permit, I know you guys had kinda indicated a second half expectation back when you gave your Q4. You're now saying for sure, well, maybe not for sure Q2, but you're saying Q2. What gives you confidence in getting it this quarter? Like, what can you give us some color in terms of discussions, in terms of, you know, the finer, final people involved that require a signature or stamp of approval to get it across the finish line?
Thanks, Mike.
Yeah.
Well, I'll take this one, and then if either Scott or David wanna color it in. Look, this is the first underground mine in South Carolina that's been developed. We have great engagement with the appropriate people. We're not gonna name them on the call. They're doing their job. We respect the process. The engagement is good. Every question that they've answered, we have asked, I should say, we've been able to answer fulsomely. The information is there. Kind of like with the ever-reducing number of questions and issues, that gives us the confidence that the decision is imminent.
You know, along the way, you know, as Scott mentioned, you know, we had a really good parallel agreement reached with the conservation community there in South Carolina that gives us well gives the state and the environmental community comfort that we're going to do what we should be doing at the end of mine life. In return for that, we've got an agreement from them not to object to or appeal any of the permits issued. There are a lot of parallel processes underway that are kind of keeping us on the critical path. The critical path is that final decision. You know, as
Unless David's got anything else he wants to add, I think we're just ever closer, but remain confident. There's nothing other than their internal process that is holding us up.
Okay. Thanks for that.
David, anything else to add to that?
You've got everything, Gerard. Thank you.
You mentioned you've got the permit in place to allow you to proceed with expanding the water treatment plant and kind of doubling your discharge rates. Just remind me again, that is, that budget for that would be factored into the existing 2022 guidance, correct?
Correct.
Okay, good. Then just last question. Your mining costs at Haile for the open pit are up about $0.40 quarter-on-quarter. Is that mostly factors of inflation, or is it also a bit of a combination of some kind of last-minute changes in mine plan required while you're waiting for the SEIS permit, and we could potentially see that kind of go the other way once that SEIS permit's in hand?
Scott and David, or do you want to take this?
Yeah, I think David's probably best to talk to that detail. Thanks, David.
Yeah, the biggest impact is the cost of diesel, so it's mostly inflationary pressures that we increase in the mining cost.
Okay. Thanks very much, guys. That's it for me, and thanks very much.
Thank you, Mike.
Thanks, Mike.
Next question will be from Ovais Habib at Scotiabank. Please go ahead.
Thanks, operator. Hi, Gerard and, OceanaGold team. Really congrats on a strong quarter, especially at Haile. Thanks for taking my questions. I also wanted to thank Sam, as well as, you know, as well. Just he's been super helpful in me accurately covering and understanding the OceanaGold operations. So thanks, Sam. Really appreciate it. Just a couple of questions from me. Number one, you started talking about some inflation at Haile in terms of diesel. Now, in terms of your cost guidance, how much buffer have you added to incorporate, you know, cost inflation as well as, COVID impacts? And are you seeing any of these impacting any at any specific operation more than others?
I'll have a go at the. Then Scott McQueen can color in the details. As it relates to diesel costs, clearly that's a global movement in the cost base there that's affecting everyone. For us, it mainly affects our open pits, so it's limited to a degree because we're doing a lot of underground mining in other places. I think generally overall, Scott can tell me, correct me if I'm wrong, but it's around 3%-5% of our total cost base. It's significant in percentage terms. It's for those operations that have open pit operations. It's more significant for them on a site level.
Offsetting that, of course, is we have, as Scott mentioned, particularly in New Zealand, you know, the benefit of a weaker New Zealand dollar, lowering you know, the domestic operating costs. COVID manifests itself in a different way. It's primarily absenteeism. You kind of don't see it through the cost base as much as you see it through the material movement. We saw that at Haile in the period. It's the mine that we have here that's closest to Auckland, which has the highest population and the highest rate of propagation of COVID-19. That's where we experience it with you know, fewer operators to actually move dirt. We're starting to see that a little bit at Macraes as well.
As it relates to the extent to which that buffer that we have in the guidance, Scott McQueen, I think you've got some numbers there.
Yeah. Thanks, Gerard, and thanks, Ovais. Just, yeah, I think Gerard's covered most of it, but just to round out there, Haile and Macraes, as previously mentioned, is where we see the impact of the diesel most at the open pit operations, where at our open pit operations, about 23% of our mining cost is diesel, where if you look across to our underground operations, it's as low as 4%. It clearly manifests itself at Haile and Macraes more, and that's already been addressed at Haile by David.
At Macraes, we saw a similar increase, probably a higher increase, in absolute terms, but it's being a little bit offset by a lower exchange rate, which gives us effective US dollar coverage on the whole cost base in New Zealand, but it's sitting around $0.66. We've taken into account in our guidance at this point also.
Thanks. Thanks for the color on that, guys. Just moving on to Haile and just a follow-up on Mike's question on the SEIS permit. Now we've talked about the permit delay that was expected in, I guess, Q1, and now it's kind of moving into Q2. You know, that's not expected to impact 2022 operations. Any sort of impacts you guys see in terms of, you know, this permit kind of having on 2023?
The longer it takes, the more likely it is gonna impact on 2023. You know, we give guidance one year in advance. That is a possibility. We are, you know, as we said before, we remain confident that we should get it in this quarter. You know, if we get it early enough through this year, then the risk of impacts on 2023 are lowered.
Sounds good. Okay, that's it for me, guys. Thanks for taking my questions.
Thank you, Ovais. Appreciate the questions.
Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. Your next question will be from Reg Spencer at Canaccord Genuity. Please go ahead.
Thank you. Morning, guys. Congrats on a very good quarter. It's fantastic to see Haile hitting its straps. My questions revolve mainly around sort of the high level inflation rate or cost environment. Looking forward, how do you guys think about industry cost inflation? You know, the round of quarterly reports that we've seen come out of a lot of the Australian producers in the last week or so has detailed a very inflationary environment. What are you guys seeing and how might that feed into medium to longer term the OpEx and CapEx expectations?
Yeah. Thanks, Reg. Look, it is a phenomenon that every mining company is facing globally. It's a global market for things such as, you know, cyanide emulsions, reagents generally. The inflation is manifesting both in just a general inflationary sense, but also from a supply-side disruption that, you know, that we're seeing now, that you would've seen from other companies' results. You know, getting things out of China, reports of blocking. The disruption. When we get short of it, everyone starts to bid up the price of the things that are in short supply.
You know, our strategies are to, you know, basically look forward and scan, and make sure that we've got sufficient stocks of what we need. Basically, you know, we're in the process of engaging with all of our suppliers to, you know, get a line of sight on the supply chain and be able to manage the flow of materials to sites such that we're not caught short. We have contracts in place, of course, and some of the inflation impacts start to be felt on renewal. As Scott said, you know, one of the biggest, well in fact, the two biggest cost bases that you have of course are labor and energy generally.
A lot of our energy is in the form of contracted electricity provision, so that's a kind of fixed lock, as it were, consistent with guidance on the electricity component of energy. We are exposed, of course, to the diesel prices. We don't hedge diesel. We don't look to hedge it. You know, we remain exposed on any further increase and of course stand to benefit for any decrease. The other thing we've just gotta do is be very sensible and judicious in our use. One of the great opportunities that when costs of your input materials go up is that you know, have to use them more sparingly or be more careful in their use.
There are a couple of things that we can do to help mitigate the risk. Overall, you know, we are globally in every industry entering an inflationary environment. The flip side is that typically tends to be good for the gold price. Arguably on a bottom line impact, we have a good hedge.
Great. Thanks very much for that. My last question is just around Didipio. Fantastic to see the project ramp up over, you know, such a short period of time. Can you give me an indication of what were the key drivers that we're able to see that ramp up take place a lot quicker than was guided and/or than most of us might have expected?
Scott?
Look, you know, we always have to make assumptions about, you know, particularly in a ramp up like this, you know, about our onboarding and training of labor and how many, you know, for example, how many of our original employees might need to get back. That's probably one of the bigger drivers. We've had pretty successful program. You know, when a mine shuts down, you do lose people. They go elsewhere. We've had a lot of success in getting back former employees and I think probably, you know, slightly better than we anticipated, which has minimized our training needs. Productivity and knowledge were there. That certainly benefited us. The guys just did a great job of, you know, firstly maintaining the plant through that two-year period.
Too, you know, just scheduling the maintenance activities and testing the activities that we needed to recommission the plant. It's just been exceptionally well-planned and safely executed.
Excellent. No, it's fantastic to see, so congratulations to you guys and the team on site. It's, yeah, it's a great result. That's all from me. I'll pass it on. Thanks very much.
Thanks, Reg.
Bye, Reg.
Next question will be from Fahad Tariq at Raymond James. Please go ahead.
Thanks, operator, and thanks, everyone. I just wanted to start my question by also actually first saying thanks to Sam. Been very helpful during our time covering OceanaGold, and you will be missed. Good luck in your future endeavors. Getting on to the questions. My question is about Haile. You guys did 60,000 ounces thereabouts in the first quarter, which is roughly 40% of your annual guidance. You know, even if you kind of cut your first quarter production in half for the rest of the year on a quarterly basis, you'll still hit your guidance. I guess my question is, how much of a grade decline or productivity decline are you expecting for Haile in Q2 and Q3? Or conversely, are you thinking that maybe that guidance and maintaining that guidance is conservative at this point?
Well, look, I'll answer that first, but David can jump in if we need to add any color. Haile is going basically exactly as we said it would go. With our earlier profiles, we like to call it the smiley face profile. When you look at our production and basically it's grade-driven. You know we're on schedule, you know, in the pit, you know, on plan, if you like, with our sequencing, and we know the grade's going to decrease basically. You know, it's proceeding as we expected. Our grade will go down, our quarterly production will go down for the next two quarters, and then it will pick up in the fourth quarter.
As long as everything continues to run as good as it is, and David and the team are doing a lot of great work with productivity initiatives, then we'll continue to have a strong year. And you know, if and when we think that will increase our production beyond what we predicted, then we can, you know, rejig the guidance. But for now, we think we'll produce in that guidance range.
Okay. Sorry. Is there any other color you might be able to provide a little bit in terms of cadence and what kind of a delta we might see on the grade perspective? I mean, if you're expecting it to be in plan, are we expecting, you know, what kind of percentage or what kind of quantum of grade decline are we expecting in the next couple of quarters?
David, I'll hand over to you if you've got, you know, an indication of what Q2 and Q3 grades are relative to what we produced in Q1.
I guess one of the reasons is that we're gonna be mining in Haile pit, which is a much lower grade. Then we're also starting new pushbacks of new areas on Ledbetter pit and Mill Zone, which again, at the top of the pit, a lower grade than at the bottom of the pit. That's why the grade is gonna be almost 60% of what we currently have in Ledbetter at the bottom of the pit. We see a big reduction in Q2 and a further reduction in Q3 before we see an increase on Q4 once we start getting to the bottom of Mill Zone and then down in the benches on Ledbetter too.
Okay. No, thanks for that. That's helpful. In the prepared remarks, Scott made a comment that you saw positive ore reconciliation in part of, I guess it would be the Ledbetter pit. I'm just wondering, is that something that you see going forward in terms of how you've re-looked at the mine, that there's opportunities where what was waste you might see as ore, something that we might see as a positive surprise going forward? Or do you see that as really just a one-off in the first quarter?
Okay. In Haile pit, you know, the Haile pit is where the old workings were. We're mining through, you know, very old tunnels. We assume some areas with voids. We're doing a much better mining sequence, and we're finding that we still have some ore in there. It's still lower grade than, you know, in the bottom of the pit. But we think we're gonna continue seeing more ore tons in the Haile pit. We see that a positive reconciliation in ore tons, but they're gonna be of the lower grade than we normally have.
Okay. No, that's helpful. Thanks. Last question from me is just related to the SEIS. I'm just wondering, are there other permits that are kinda like dominoes that have to come after the SEIS that you were planning that all of those permits would be coming in the first half of the year, and if you kinda get the SEIS towards the end of the second quarter, that those permits could get pushed into Q3 and maybe change your timing. Is there kind of a knock-on effect even if the SEIS gets approved right at the end of the quarter?
What the SEIS will do is that it's gonna trigger the mining permit to start the underground mining, and then it's gonna trigger the expansion of the backfill and storage areas. We don't have any other permits except for some small batch construction for the cement plant that we feed the paste of the concrete for the underground. We don't see any other permits coming in at the end, by the end of this year. As we mentioned before, we got the NPDES early this month that will help us start the construction of the water treatment plant. That was the only permits that we have ongoing with the SEIS.
Okay, great. That's helpful color. Thanks very much. That's it for me.
Thanks, Fahad.
Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone.
Hi, this is Sabina here. I've actually got a question from the webcast that I'll ask on here. This call is for Gerard. Congratulations on your appointment. While you have been on board for less than a month, can you elaborate on your capital allocation priorities for OceanaGold? Any potential dividends or share buybacks?
Sure. Look, you know, one of my key focus areas is to, you know, safely and responsibly maximize the cash generation potential and delivery of this business. You know, we've had a great first quarter and the cash flow's been there, and, you know, we've got a year to deliver. The balance sheet is strong, and we've got growth options. As it relates to when we come to provide direct returns to shareholders, the board, like myself, are very keen to return to paying dividends or effecting some form of capital return. The issue we have, of course, is we're in a strong position, but we would like to get a bit stronger. We have, as you heard, less production coming through from Haile in the coming two quarters.
I think everyone on this call in the market, more broadly, can be comfortable that as soon as we get ourselves into a position of being able to, we will. We know it's a priority. Good businesses pay dividends. We know that shareholders have been very patient and are keen to get the benefit of these high gold prices and production outcomes in the form of a return. Whether it be dividends or share buybacks, that's something that remains future work for us to land on. I can assure you that it is a priority that we are focused on and also, with results like the ones that we had today, we're much closer to it than we've been for a while.
Thanks. There's no more questions online.
At this time, we have no other questions on the phone. Please proceed.
Thanks, operator. Look, thanks everyone for being on the call today. A big call-out to everyone in OceanaGold for such a strong first quarter. I look forward to meeting as many of you who've been on the call today in the coming weeks and months ahead. On behalf of everyone at OceanaGold, we appreciate you joining us today and wish you a pleasant rest of 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. At this time, we do ask that you please disconnect your lines.