Good day, ladies and gentlemen, and welcome to today's conference call. Note that at this time, all participants are in listen only mode, but following the presentations, we will conduct a question and answer session. If at any time during this event you require manager assistance, please press star zero for an operator. Note that this call is being recorded on Wednesday, July 16th, 2020. I would like to turn the conference over to Sam Pazuki. Please go ahead, Sam.
Thank you. Good evening, good morning, and welcome to OceanaGold's Waihi District Study results webcast and conference call. I'm Sam Pazuki, the Vice President of Investor Relations for OceanaGold. I'm joined today by Michael Holmes, President and CEO, Mark Cadzow, Chief Development Officer, Craig Feebrey, our EVP Exploration, Scott McQueen, Chief Financial Officer, and Sharon Flynn, EVP External Affairs and Social Performance.
The Waihi District Study is a preliminary economic assessment, and the results we release today provide an estimate of the initial value we forecast for the Waihi District and a snapshot of its potential. Moving on to the cautionary statements. Before we proceed, note that the references in this presentation adhere to international financial reporting standards and all financial figures are denominated in US dollars unless otherwise stated.
Also 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. Bear in mind that the Waihi District Study we are discussing today is a preliminary economic assessment, and according to the definition of a PEA, it is not intended to demonstrate viability, but rather study the potential viability for the Waihi District.
The PEA includes inferred mineral resources that are considered too geologically speculative to have economic considerations applied to them in order to be categorized as mineral reserves. Further drilling, evaluation, and studies are required to provide any assurance of an economic development case. The full technical report will be published on SEDAR and on our website within 45 days of this webcast. I refer you to the disclaimers on the forward-looking statements in our presentation. Moving on to slide number three in the agenda.
For today's webcast, we will review key elements of the PEA and provide an opportunity for questions and answers following the conclusion of the presentation. Without further delay, I will now turn the presentation over to Michael Holmes. Michael?
Thank you, Sam, and good morning, good evening to all. It's a pleasure to be here with you today to go through the results of the Waihi District Study PEA. I am very pleased with the outcome that demonstrates the significant potential of the district opportunities, which includes 2.5 million ounces of existing gold resources and a lot more exploration ahead of us. It's because of this potential that we're even more excited at how big this project could potentially be. Moving on to slide four.
New Zealand has a long, rich history of mining dating back to the 1800s. We've been operating responsibly in New Zealand for the past 30 years and have created significant value for shareholders over this time, and significant social economic benefits for the host country. In fact, we're quite proud of our track record of successfully and responsibly exploring, consenting, developing, operating, and rehabilitating mines in country.
The Waihi District Study highlights the opportunity to extend the mine life at Waihi for at least another 15 years and to create even more value for our stakeholders. The components of the Waihi District Study are the Martha Underground, which is fully permitted and currently in development with first production expected to be in the second quarter of 2021. Additionally, at Waihi, we have the Martha open pit with a small phase IV cutback already permitted, and we are now seeking to permit a fifth phase cutback.
Near the processing plant is a proposal for a small open pit called Gladstone and 10 km to the north of the processing plant is the WKP deposit, which we are proposing as an underground mine with processing through the existing Waihi plant. Our base case for the Waihi District Study PEA is based on a $1,500 per ounce long-term gold price, and under this scenario, the after-tax NPV discounted at 5% is $665 million.
The corresponding after-tax IRR is 51% with a life of mine all-in sustaining cost of $627 per ounce and a mine life extending to 2036 and beyond. Another scenario that we have highlighted is based on the near spot gold pricing, where you can see even greater potential with an after-tax NPV of $915 million and an after-tax IRR of 75%.
The results of the PEA demonstrate the initial potential of the Waihi District, and we look forward to realizing this value and demonstrating even more value through focused exploration and development in partnership with our host communities for several years to come. Moving on to slide five and the resources that have been used for the purpose of the PEA. As we've mentioned to the market previously, we were required to draw a line in the sand with the resources that we had on our books.
We currently have a significant amount of drilling ahead of us, which again, is the opportunity for creating even more value for the district. However, f or the purposes of the PEA, we used the resources that we previously reported, plus we are happy to announce an increased resource at Martha Open Pit, which now has 470,000 ounces of gold on the books.
The increase in resources at Martha Open Pit does include a reallocation of the Martha Underground resources of approximately 140,000 ounces, and the previous resource of 80,000 ounces, which were attributed to the Martha Open Pit phase IV. The net increase for Martha Open Pit is 250,000 ounces of gold. Additionaly, we have increased the Gladstone resource from previously 101,000 ounces of gold to 142,000 ounces of gold.
WKP resource remains unchanged from what we have previously reported, and the Martha Underground's resource is now 740,000 ounces in the indicated category and 550,000 ounces in the inferred category. For the purpose of the PEA for the Martha Underground, only about 700,000 ounces of gold of its booked resources were used. Additional drilling and technical consideration is required to form mining shapes around the other 500,000 ounces or so of gold.
The other opportunity with respect to the resources is the input assumptions. These resources are reported using a New Zealand gold price of NZD 2,083 per ounce, which compares to the current New Zealand gold price of approximately NZD 2,750 per ounce. That could result in a potential upgrade of the resources. We will provide an updated resource and reserve statement in the first quarter of next year. Turning on to slide six. We expect the Waihi District to initially mine 2.5 million ounces of gold over the 15 years of mine life.
The production rate does vary as we bring additional sources of ore feed into production. The first cab off the rank is the Martha Underground, which we expect will start producing in the second quarter of next year with 35,000-45,000 ounces of gold production. Martha Underground will ramp up to between 90,000 ounces and 100,000 ounces a year, and we expect to keep it there through additional exploration success.
Also noting the use of only half of its current resources for the purpose of the study and the exploration target we previously discussed, which Craig will walk through shortly. We expect mining at Gladstone in 2024 before we start feeding high-grade WKP ore in 2026, which starts to drive production significantly higher. WKP is expected to ramp up to produce between 190,000 and 230,000 ounces of gold annually.
Through exploration success, we expect to maintain these production levels for long duration and giving us even more flexibility at mill feed or optionality for an additional mill expansion. We expect mining for Martha open pit in 2027, with its ore feed possibly being either stockpiled in favor of high-grade ore for Martha Underground or representing an opportunity for further expansion of the mill, as I just noted.
The high-grade nature of the district will afford us the opportunity to continue to optimize and evaluate the project development timeline and mining approaches. I will now turn the presentation over to Mark Cadzow, the Chief Development Officer, to take you through the specific results of the study and discuss the optionality available to us. Thank you.
Thank you, Michael, and kia ora everyone. It's a pleasure to be here to present the Waihi District Study results, which are quite compelling. I have been with OceanaGold since 1991, and although we have achieved a lot over the past 30 years, I'm most excited about the opportunity before us in the Waihi District, particularly WKP. Moving on to slide number eight.
Michael mentioned the basis of the material input into the project, which initially is expected to culminate in nearly 2.5 million ounces of gold mined over the initial 15-year mine life. Martha Underground represents the initial feed source for the plant, with a ramp up of mining over a few years as we bring on additional stopes. Craig's team will look after increasing the resource base at Martha Underground to further extend its life beyond the current 2028.
The near-term opportunity is further drilling in the areas around the Martha vein in the underground to allow us to wrap mining shapes around the resource we currently have on the books. We expect to achieve a mining rate of approximately 750,000 tons per annum at the Martha Underground. The next source of mill feed comes from a small open pit at Gladstone, near the existing processing plant.
We are expecting 2-3 years of mill feed from Gladstone initially until stockpiling mill feed in favor of higher grade feed from Wharekirauponga starting in 2026. Wharekirauponga represents the highest grade feed source of the Waihi District w ith approximately 35,000 meters of drilling to date, we have a lot more to do there to further define and expand the resource. To date, we have only really tested the East Graben vein, which is open in multiple directions and at depth.
We have yet to truly test the Western and T-Stream veins, which has less than 8,000 meters of historic drilling. We have made conservative assumptions for Waihi with respect to dilution, and this could be an opportunity to increase feed grade. The mining rates assumed for WKP are initially peaked to 800,000 tons per annum. Finally, phase V of Martha open pit provides additional mill feed beginning in 2027. This is where the most optionality currently resides in the plan.
We could stockpile Martha open pit feed for future processing through exploration success at high-grade mill feed sources, mainly Martha Underground and WKP. We could consider an additional low capital mill expansion. The Martha open pit is a compelling project on its own. Now moving to slide nine. The Martha Underground is progressing well, even despite the five-week hiatus in April due to the COVID-19 restrictions that were put in place by the New Zealand government.
We have completed several critical aspects of the project, including the completion of the ventilation raise bore between the 800 and 920 RL drives, the dewatering holes to approximately 620 RL, the current depth of the mine. Renewal of the development fleet with four new or refurbished jumbos and commissioning of our new smart center as we move to a digital platform for our upgraded mine operating system. The development rates are expected to ramp up as the year progresses to our peak by the end of this year.
From the image at the top left, you can see our development plans at the Martha Underground with the areas we expect to develop this year and next year and over the life of the mine. There are additional mineralized zones that we will be drill testing over the next several years, including at depth, which may necessitate the development of a third production drive below the 800 drive. As Michael has mentioned already, for the purposes of this study, we have used only 700,000 ounces of the 1.3 million ounce resource.
We need additional resource and geotechnical drilling in the Martha vein areas where we have considerable amount of old workings. We have confidence a good portion of this resource will make it into the mine plan. However, we weren't able to include these areas in this study. I will turn it over to Craig to take you through the exploration opportunities at Martha Underground.
Thanks, Mark. Hello, everyone. Although exploration mining activities have been going on for well over a century in the Waihi District, there remains significant opportunity for discovery, as we have demonstrated more recently at Martha, Gladstone, and WKP, adding over three million ounces of resources since we acquired Waihi in late 2015. With approximately nine million ounces mined at Martha historically, this is an exceptional deposit that just keeps giving.
On slide 10, the left figure is an oblique view of the Martha area looking to the west across the Martha Open Pit. The Martha Underground resource in gold, the exploration target in purple, and the current supporting development completed to date in green. The four main veins that contribute the bulk of the resource ounces are labeled Martha, Empire, Royal, and Edward. For scale, the Martha open pit is around one kilometer in length at its longest point.
While the vertical distance from the pit rim to the bottom of the area labeled Royal is approximately 600 meters. I'd like you to keep this in mind when we're talking about WKP later on. We've delivered 740,000 ounces in the measured and indicated category and 550,000 ounces in the inferred category since drilling commenced in August 2017 and shown on the figure on the right. This has been at an all-in cost of approximately $21 per ounce discovered.
As mentioned, we also recognize a large exploration target of approximately 6 million-8 million tonnes grading four to six grams per ton gold, located in and around currently defined resources that will be the focus of drilling in 2020 and 2021. Again, that's the purple area around the resource in the figure on the left. Please refer to our footnote on slide 10 and cautionary statement with respect to the exploration target. Looking forward, we have a sound resource base to support a future mine plan at Martha Underground.
Our current focus is on infill drilling and conversion to support model updates and deliver reserves in line with our plan to commence production in Q2 2021. I'll now turn back to Mark to take you through the WKP physicals, and then I'll talk about the exploration progress we're making at WKP.
Thanks, Craig. Now to potentially the most exciting gold deposit discovery in New Zealand in decades. On slide 11, you can see the initial physicals for WKP, which is based on the 1.1 million ounces of reported resource seen in the first table. As Michael mentioned, this high-grade resource is based only on 35,000 meters of drilling. Nearly all of it is on the East Graben vein, which is open along strike and at depth.
WKP will be an underground operation with limited surface expression, given the deposit sits below Department of Conservation land, which to us is nothing new. Our plan at WKP is to tunnel under DOC land from a portal on private land. We have multiple options on where this would be best placed and where to situate the portal that we will further explore. Our expectation is to truck mill feed from the portal to the Waihi Processing Plant. The only surface expression will be for ventilation.
We are also investigating the use of all-electric mining fleet for WKP, which will reduce ventilation needs and reduce our carbon footprint. Like we have in the Philippines, we would like to install a state-of-the-art underground mining operation, putting New Zealand on the mining technology advancement map.
As someone who has been operating in New Zealand for the last 30 years and who has seen several dozen projects successfully transition through the life cycle, I'm very proud to point out that we have a strong track record of environmental stewardship in New Zealand, notably with our open-pit Reefton mine, located on Department of Conservation land on the South Island of New Zealand.
Reefton commenced operation in 2007, produced over 600,000 ounces of gold during its life, and is successfully transitioning to full closure and reclamation. We're proud of the work we've completed to date there and the contributions the operation made to the local economy. I'll turn back to Craig to discuss WKP exploration efforts.
Thanks, Mark. Turning to slide 12, and our Wharekirauponga project. That's the Māori name for the area. We're very excited about the project, both in terms of the results delivered to date and what may be ahead of us in terms of its ultimate size. As demonstrated by Waihi, we're in a geological belt that can deliver world-class deposits of significant size and grade. As shown in the figure on the left, we've identified three veins in red, the East Graben, Deep Stream, and Western veins, all of which have significant widths and grades.
In addition, as shown in the cross-section on the bottom right, there are several hanging and footwall veins on the East Graben structure, along with a significant footwall splay. Of the three main veins, we've tested a kilometer of strike on the East Graben vein, as shown in the top right figure, with intercepts colored as gram meters. What's getting us excited is the continuity in geology and mineralization, and that the East Graben vein is shaping up to be of similar scale to the main veins at Waihi.
The big question is to what depth does the vein mineralization continue? This is something we'll explore going forward, along with gaining a better understanding of the strike extent of all three main veins now that we have access to drill platforms six and seven, shown on the figure in the bottom left. As Mark mentioned, the East Graben vein has been a focus of exploration along with the footwall splay.
Although the current resource does include some ounces on the Deep Stream vein, the bulk of the resource is grown on the East Graben vein and splay. This year, with drought conditions over the summer followed by COVID-19 restrictions, we achieved very little drilling at WKP. We are, however, drilling again and expect to complete approximately 5,000 meters by year end on the East Graben vein, including both extensional and infill drill holes.
As you can see, we have another excellent opportunity here to invest in organic growth and grow the resource base at WKP and potentially further extend the mine life at Waihi. To date, we've added ounces at an all-in cost of approximately $14 per ounce, similar to the team's performance to date at Martha. I'll now turn it back over to Mark.
Thanks, Craig. You can see on slide 13 a bird's eye view of the surface projects relating to the district. Martha open pit is located next to the town of Waihi, whose town slogan is, "The heart of gold mining in New Zealand." The processing plant and mining infrastructure are outside of the town. Gladstone is next to the processing plant, while the tailing storage facility is near the processing plant as well. WKP, as I've noted earlier, is 10 kilometers north. On slide 14, the Gladstone pit is the second mill feed source for the process plant.
We have increased the resource at Gladstone to 160,000 ounces of gold, of which 140,000 ounces are in the indicated category. It's a small deposit and will represent mill feed for the first couple of years before we stockpile additional mill feed for later processing. We are looking to use the Gladstone waste mine for backfill for the underground stopes and TSF construction. Moving to slide 15. The Martha open pit proposal reflects the fifth cutback of the open pit since inception of the operation in 1988.
For us, the Martha open pit can be looked at as a back-end opportunity, giving way to high-grade mill feed from Martha Underground and WKP, or potentially justifying an additional low capital expense expansion of the processing plant. The open pit resource has been increased and is now 260,000 ounces of gold in the indicated category and 290,000 ounces of gold in the inferred category.
To enable the cutback required, which I will also point out is much smaller than what we initially believed it to be, we will need to relocate some site infrastructure, including the Waihi administration office, which is basically an opportunity to decrease our G&A costs, and includes a road realignment and relocation of the old pump house, which has been moved twice before. The phase IV cutback, which was permitted last year, will now be absorbed into the phase V cutback.
The strip ratio is a modest 4- 1, while grades of approximately 2 grams per ton are relatively high for an open pit operation. Thus, the Martha open pit represents a high-value opportunity on its own. As with Gladstone pit, the waste rock will be utilized as backfill in the Martha and Waihi undergrounds, as well as the Tailing Storage Facility embankments. Moving on to slide 16 and the processing plant overview. The sources of mill feed, which we have discussed, will be processed through the existing process plant.
We have investigated multiple options to upgrade the processing plant and have optimized it given we have four distinct sources of mill feed. We looked at what delivered the most optimal value, taking into consideration the infrastructure we currently have at Waihi, the spare plant at Reefton, and rates of mining. The existing process plant is rated for a throughput of 1 million-1.3 million tons per annum, depending on the hardness of the ore.
Upgrading the mill at Waihi and supplementing with equipment from Reefton, we landed on an optimal and steady throughput rate of 1.6 million tons per annum to support the multiple sources of mill feed. Our test work has shown strong recoveries, and through further refinement, we could possibly do better than that. Moving to slide 17 and the processing physicals. First, we look at the processing physicals and the steady ramp up in throughput, which under the current plan peaks at 2026, in line with timing of the high-grade WKP feed.
In that year, you'll see we start to stockpile feed for future processing. In 2027, we begin stockpiling Gladstone mill feed, and we start feeding Martha open pit feed, but also stockpiling a considerable amount of mill feed for processing in latter years. However, as I mentioned before, exploration success at Martha Underground and WKP has the potential to further push out open pit feed, or we could consider another expansion of the plant. We do show grade variability as we ramp up mining at the various sources of mill feed, mainly WKP.
Head grade is over 4 grams per tonne with Martha Underground and lowered when blended with Gladstone. However, we see a significant increase in head grade with WKP mill feed starting in 2026. Moving to slide 18. As mentioned, the existing plant has an average annual throughput of 1 million-1.3 million tonnes, and we expect to invest approximately $36 million to upgrade the crushing, milling, and carbon in pulp circuits to achieve the increased throughputs.
Over the life of mine, this upgrade allows us to progressively move to 1.6 million tonnes per annum by 2024 at the targeted grind of 53 microns. Given our familiarity with the style of deposit and metallurgical test work to date, we're confident in the life of mine recoveries of around 90%. We did review the option of flotation and ultra-fine grinding, but at this stage it doesn't appear necessary. Over the next two years, we expect to install the roof and jaw crusher and SAG mill at a capital cost of $17 million.
For the second stage of the mill expansion, we will install a new ball mill, convert the existing SAG mill to a ball mill, install a new pre-leach thickener, and install a new leach tank, all for a capital investment of approximately $90 million. We do not expect any lengthy production disruptions through this work, and tie-ins will take place during planned maintenance shutdowns.
It is also important to note that we looked at upsizing the process plant beyond 1.6 million tonnes per annum and believe 2.3 million tonnes per annum in latter years is achievable on the existing footprint and would allow us to handle additional mill feed from the district as a future option. Moving to slide 19. We currently have two tailings storage facilities, both upstream construction. We have spare capacity at both and have an opportunity to lift both facilities that provide us with an additional 10 million tons of capacity.
Further to that, a new TSF next to the existing facilities has the capacity to take in excess of 20 million tons of tailings, substantially more than that is required for our current life of mine. Moving on to slide 20. We will now go through the project economics, including the estimated operating costs and capital investment. Moving to slide 21. The Waihi District represents production growth at first quartile, all-in sustaining cash costs of $627 per ounce and life of mine cash costs of $557 per ounce.
These costs are based on mining costs that are similar to our historical mining costs but also take into account we will be going owner mining rather than contract mining as was the case previously with Newmont in the open pit. Processing costs are expected to be just below $20 per tonne processed.
As you can see by the chart at the bottom, we will see a gradual decrease in the all-in sustaining cost and the cash cost as Martha Underground ramps up, and especially when we start feeding high-grade WKP mill feed starting in 2026 and see production levels increase significantly. As we've mentioned already. Oh, sorry. As we've mentioned already.
Through further exploration success at both Martha Underground and WKP, we would look to extend the mine lives at both projects, which presumably would keep production levels elevated and unit cost in the first quartile of the cost curve. This is where we see the most opportunity to add value. Shifting gears and moving to capital investment on slide 22. The life of mine growth capital investment is projected to be $447 million spread over eight years, beginning with investment at the Martha Underground this year.
Sustaining capital over life of mine is $105 million and site rehabilitation and closure costs are estimated at approximately $50 million. The largest component of the capital cost is associated with WKP and the Martha open pit phase V cutback. With WKP, the bulk of the growth capital is associated with developing the decline to access the deposit and associated surface infrastructure on private land.
There are opportunities to reduce growth capital, which we are currently contemplating, we are looking at some pre-development of WKP, including an exploration drive. The timing of spend may vary as well, mainly from the timing of when we get WKP into production and further exploration success at Martha Underground and WKP. Moving to slide 23. Here is another look at the capital investment profile by project. I won't spend much time on this slide and turn it over to the next slide, number 24.
Here we provide the timeline and capital investment related to each of the projects within the Waihi District. Note, much of the capital spend is spread over approximately eight years. In general, I will share with you that our mine plans have been built from first principles and to a high level of detail for our PEA mining inventories they reflect.
That said, some of our biggest ticket items, including initial underground mine development at Martha Underground and WKP, infrastructure related to accessing WKP underground from private land, and construction of TSFs and waste rock stacks, all contain PEA-level contingencies. Growth investment at Martha Underground shows a significant curtailment over the next year.
We do expect to increase the mine plan and extend it through further exploration success, which will require additional capital, albeit very modest investment levels. WKP shows a drop-off in 2026 as it comes into production, with further investment expected beyond that through exploration success. Moving to slide 25. How the moving parts I've described culminate into initial value for shareholders.
We assumed a base case scenario with a long-term gold price of $1,500 per ounce and a discount rate of 5% to calculate an after-tax NPV of $665 million and an after-tax IRR of over 50%, t his is a robust project. The cumulative undiscounted free cash flow has been calculated at over $1 billion, while the average annual free cash flow is approximately $65 million from 2020-2036. The highest year for free cash flow is currently 2030 at $226 million.
However, w e calculated free cash flow generation over $100 million a year from 2027-2031. As we pointed out several times already, with further exploration success at Martha Underground and WKP, we could possibly see these strong cash flows extend beyond the timelines depicted here. This is dependent on exploration success. Moving to slide 26. There are some sensitivities we've evaluated.
The biggest drivers of value are gold price and exchange rate, as the project is levered to both. Our base case again, $1,500 gold price with an exchange rate of NZD 0.67 to U.S. We can see that with an increase in gold price, particularly to today's levels, the value of the Waihi District opportunity significantly increases as it does with the weakening New Zealand dollar. Changes to capital investment do not move the value too much, demonstrating the robustness of the deposits. Slide 27.
Now we will move to the stakeholder section, and more specifically on the consenting or permitting process, and the socio-economic benefits the Waihi District is expecting to deliver to New Zealand. On slide 28, you can see the high-level process for consenting projects such as these. The consenting process is nothing new to OceanaGold as we have successfully consented dozens of projects over the past 30 years.
We have demonstrated responsible mining on both the North and South Islands of New Zealand and have delivered on our commitments. We are proud of our reputation and track record as a corporate steward in one of the greenest countries in the world. We have never taken shortcuts, and there are none to take. We work collaboratively with our stakeholders through the entire life cycle of our operations, and this is demonstrated by the site reclamation and closure work ongoing at Reefton that I spoke of earlier.
As an integral step in the technical and economic studies, we evaluate the social impacts through assessments and workshops to arrive at a balanced project outcome. Engagement is critical to our success and receipt of permits. The concerns raised by our stakeholders are seriously considered and factored into our decision-making. We expect to be here for decades and work very hard to earn the social license needed to be successful.
After the initial public consultations, we proceed to finalizing the permit application, including lodging of the environmental assessment, with the Hauraki and Waikato Regional Council. From there, we have a public notification period where interested parties can submit letters either in support of the consenting application or in objection to.
Over the course of the four months, the regulator considers all the feedback, and the company engages with stakeholders to further address concerns at which point any opposition letters can be retracted. The council submits a recommendation report over the course of subsequent months, upon which there is a hearing and a decision. Once a decision is made, there is an appeal period where anyone who has been involved in the process, for example, have submitted a letter in support or opposition, can appeal the decision.
From there, any appeal can involve engagement between the company and the appealing party. If there is no resolution in this way, the matter goes before the Environment Court for further hearings and a decision. This process could take up to 12 months. Our base case assumption is based on the permitting process proceeding to the Environment Court for the full duration of 12 months. Our study has assumed a full 12 months of hearing as a base case.
I will point out that we had assumed something similar with Martha Underground, which didn't require a court hearing. Permitting will be the critical path for us on this project, however. We have been going through this process for the last 30 years. We understand the process. We have credibility with stakeholders and government. We will work hard to demonstrate how we will manage our environmental and social impacts while delivering a significant socio-economic benefit to the region.
We'll move to slide 29, and specifically what these benefits may be. We expect the project to provide meaningful socio-economic benefits for stakeholders over the life of the Waihi District. Specifically, we expect the assets to deliver meaningful socio-economic benefits to the regional communities in New Zealand, particularly in a post-COVID-19 environment. Based on the requirements outlined from the PEA, we expect to create an additional 200-300 direct full-time jobs to support the project.
This addition will increase our employment to around 700 direct jobs, making us the major employer in the region. In addition, we estimate an incremental 500 to 1,000 indirect jobs as a result of the investment and expansion of our operations. Over the course of the mine life, we are estimating an in-country investment of approximately $1.4 billion.
This operation is expected to generate nearly half a billion dollars in direct taxation revenue for the government and an additional $125 million in royalty payments, w hich mainly benefit the regions. I will now turn the presentation back to Michael. Thank you.
Thank you, Mark, and thank you, Craig, for outlining in great detail the four projects that make up the Waihi District Study. I'll go through the final slides of this presentation outlining the next steps and the potential opportunities and risks before we turn it over to Q&A. Moving on to slide 31. This is a high-level look at the expected timelines over the next several years, which of course, is subject to further refinement and optimization.
In the near term, we expect to complete a feasibility study for Martha Underground in the first half of 2021 and convert indicated resources to reserves. The permitting process has commenced, and we have used conservative timelines, as Mark has mentioned, as our base case in this study. Exploration is expected to continue for several years.
We haven't fully defined or delineated the resource at Martha Underground, and we continue to believe WKP will grow into a multi-million ounce deposit. This will take a considerable amount of time to prove up. However, we have an initial resource of over 1 million high-grade ounces based on only 35,000 meters of drilling to date. Development of WKP is contemplated to start in the second half of 2023, with first production in 2026. However, there are risks and opportunities on both fronts.
Gladstone is expected to be in development in the first half of 2023, with production about a half year later, while Martha open pit is currently envisioned as the first half of 2025 start of development and the first production in the first half of 2027. Permitting may also represent both an opportunity and a risk, with the New Zealand economy heavily dependent on some sectors that were significantly impacted by the COVID-19 crisis. The government is looking to other sectors to kickstart the economic recovery.
They have mentioned removing the red tape from the permitting process, and that may allow for a more streamlined process, thus could mean early production. Conversely, the permitting process may be protracted depending on whether the decision goes to the Environment Court and how long it stays there. The typical timeframe for a decision by the Environment Court is 12 months, which is what we have assumed as our base case.
It's important to note that WKP and the other opportunities are shovel-ready, and we look forward to working with the government to bring these projects forward and deliver the significant socioeconomic benefits the district opportunities will bring to the rural communities in the Coromandel. Moving on to slide 32. We have outlined a robust set of opportunities with strong potential economics, significant potential value creation for shareholders, and significant socioeconomic benefits for our stakeholders in New Zealand.
These results are just the first indication of the potential of the Waihi District opportunities. As we advance the project and continue to invest in exploration, we believe there is a significant upside potential, particularly at Martha Underground and at WKP. With Martha Underground, this study only utilizes about half of the reported resource due to the need for further exploration to tie in stranded resources within the mine plan.
We have confidence the additional resources will make it into the mine plan through further drilling. The delineated exploration target at Martha Underground represents the potential to significantly increase the mine life. Drilling at Martha Underground is expected to continue for several years. WKP represents the most significant upside for the Waihi District, given the limited drilling to date.
As you've seen a few times throughout this presentation, production at Waihi with WKP sits at around 250,000 ounces a year mark, even peaking at over 300,000 ounces in 2028. We have a lot more exploration drilling ahead of us at WKP, and through further exploration success, we are confident to maintain strong annual production levels and extend the mine life of WKP well beyond the 2031 mark. The strong production levels are also at the first quarter of all-in sustaining cost.
By extending Martha Underground and WKP, we have an option of preferentially treating high-grade mill feed in favor of the lower-grade mill feed sources from Gladstone and the Martha open pit. As Mark mentioned, we could look at further expansion of the process plant to allow for the open pit feed with the underground feed. With further work ahead of us, development, exploration, and study, we will further refine our input parameters from the operational perspective. Moving on to slide 33.
Today, we are one of the most undervalued stocks in the industry with one of the most compelling organic growth profiles, and Waihi District in New Zealand represents the largest value-creating opportunity we have in our portfolio today. With so much going ahead of us, it's important for me to highlight that the Waihi District Study is a PEA-level study that includes a portion of reported resources, and thus, we believe captures only a fraction of the value. I will be clear that permitting and consenting is the critical path to success.
It is the critical path for us to deliver on our commitments, deliver the significant economic benefits for New Zealand that we've outlined, and create the hundreds of jobs we have estimated. We have very successfully consented dozens of projects over the past 30 years. We know the process, we have a solid reputation as a valued corporate citizen, and we are highly committed to New Zealand.
We have a strong history of responsible mining in New Zealand and look forward to continuing to contribute to the communities in which we live and work. Finally, today, we continue to manage the business for the near term and plan for the long term. We have a strong asset base and exceptional team that is acutely focused on making long-term decisions while delivering consistent positive results.
As I mentioned, we are shovel-ready and ready to work with the government and other stakeholders to advance these exciting opportunities forward. With that, I'll now turn it back over to Sam for Q&A.
Thank you, Michael. That concludes the formal presentation segment of the webcast. I will turn it over to the webcast moderator to facilitate the Q&A session.
Thank you. Ladies and gentlemen, if you do have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you decide to withdraw your question, simply press star followed by the number 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 have a question. Your first question will be from Reg Spencer at Canaccord. Please go ahead.
Thank you. Good morning, Michael and team. Very comprehensive presentation this morning. Thank you very much for that. My first question is just fleshing out the opportunity to accelerate the permitting process a little bit. Obviously, you have outlined quite a conservative consenting program there.
Can I just clarify that the opportunities to accelerate that revolve around, one, if you can avoid having to go to the Environment Court, but also, two, even factoring that in, and let's assume that you can reduce that permitting time by 6-9 months or 9-12 months as you outlined in the presentation. That is still quite a long lead time to bring on WKP. Are there any other opportunities to bring the development of that deposit forward?
Yeah, thanks. Thanks, Reg. It is, as I mentioned, one of the critical paths for us. Look, we have successfully permitted dozens of projects in New Zealand over the past 30 years, including most recently the Martha Underground project, which was permitted six months ahead of schedule. We understand the permitting regime in New Zealand, we take no shortcuts, we engage extensively with the regulators and the stakeholders, and we have a strong reputation as a responsible miner in both the North and South Islands.
We have taken a conservative approach to the permitting timelines, particularly at WKP, have allotted the 12 months for the potential hearing in the Environment Court. This is why we have WKP going to production in 2026. We have allocated 6 months to potential Environment Court hearings for Martha Underground in the past, and we've never ended up there and received the permit ahead of our original timelines.
It's important to note that the WKP and the other opportunities are shovel-ready, and we look forward to working with the government to bring these projects forward and deliver the significant socioeconomic benefits. For us, it is working with the governments and ensuring what they are. We are dealing with the regulators and the government and showing the benefits of the projects, and we are consistently looking at opportunities for moving projects forward, particularly WKP.
With having a look at the opportunities for an exploration decline, as has been mentioned.
Thanks, Michael. Just to follow on from that, if we were to assume a best-case scenario, would that mean that the whole project would be brought forward by approximately 12 months? Is that a best-case scenario where you avoid Environment Court requirements?
Reg, we'd love that to happen, but look, at the moment, that's certainly one of the scenarios we're looking at, but we have put in the base case to follow the process and assume that we will go to Environment Court. We're sticking to that with the base case, but it's certainly one of the scenarios we do look at and we do work on.
Okay. That's thanks. One last question. Just looking at your assumed grades as part of the PEA versus resource grade, clearly there is some mining dilution to have to factor into that. Do you feel like sufficient work has been done for that to understand that grade dilution? Because even a slight reduction in your dilution could have quite a material impact on your head grade, especially from WKP. Have you got any comments around that?
Yeah. Thanks, Reg. It is a PEA study, there is a level of conservatism in there. With the drilling and the understanding of the ore body, we've sort of pegged that dilution at the figures that we sort of currently got at 14%. Through further exploration drilling and further mine planning, we'll look at what we have to do there to sort of refine those dilution figures. Yes, you are correct. Anything that we can do with the mining methodology to reduce that dilution will have a significant benefit.
Okay. That's great. Congratulations, guys. It's a good outcome, and I'll pass it on. Thank you.
Thanks very much, Reg.
Thank you. Next question will be from Mike Parkin at National Bank. Please go ahead.
Hi, guys. Thanks for taking my question. Michael, congrats on a good study. I got a few questions here that kind of jump all over the place. First, could you give just an idea of what your discovery cost per ounce has been at WKP? I believe it's well below the average, but off the top of my head, I don't have it.
Yeah, sure. I'll hand that over to Craig. Thanks, Mike.
Hi, Mike. We've had a good run at WKP. The dollar per ounce as a resource discovery cost sits around $14.
Okay.
We can credit that to a great hit on the EG vein, and pretty much every hole after that contributed to the resource. Remains low. Mark, underground is not much more, so it's very good dollar per ounce delivery.
Can you remind me again the budget for this year for WKP for exploration?
Yeah, we have about 6,000 meters allocated and around $3.5 million-$4 million.
Okay. Great. With a big investment like this, do you get any kind of tax holiday? Do you recoup your capital before you become cash taxed?
Yeah. Thanks, Mike. It's important to understand that the investment goes over a period of time, eight years, as we sort of ramp up the different projects. With regards to tax, Scott, have you got an answer for that? Sorry, Michael, just had a bit of interference there on the question. Could you just repeat that last bit on the tax? Thanks.
Yeah, sorry. I might just have a bad connection. It's regarding a tax holiday on the capital, like your growth capital that you put in on these various mines. Does that give you a tax holiday? Do you get to recoup that before you become cash taxable on each mine? If there's any kind of funniness in terms of how that gets treated, given you've got multiple ore sources all coming back to one location.
Sure. Yeah, good question. In the past, New Zealand did provide fairly generous accelerated tax arrangements for upfront capital on a range of activities. That's been tightened up over the last few years, and essentially, most capital follows the accounting process now, with the exception of exploration and those costs are generally deducted upfront. It's not a huge timing benefit in terms of taxes.
Okay. With the pit wall design on the Martha open pit, is there any change on that? Are you keeping the same angles that you used previously or backing them off a little bit?
Yeah. Thanks, Mike. I'll hand that over to Mark. That question to Mark.
Yeah, Mike, obviously, we know a lot about the geotechnical aspects of the pit. Yeah, we've taken all the previous experiences into account. There's quite a number of geological areas there, some parts of the pit are laid back further than others. That's certainly been taken into account in the pit wall. If you're asking the question, is it aggressive, the answer to that is no.
Okay, great. Super. That's good to know. Just last question, the mining fleet, you mentioned you're moving, everything will be owner-operated. Is that included in the growth capital for purchases, or do you plan to lease that? If it's leased, is that factored into the economic analysis?
Okay.
Yeah, thanks, Michael. Yeah, it seems to be leased, and it's factored into the economic numbers.
Okay, great. That's it for me. Thanks very much, guys, and congrats on a good study.
Thank you. Next question will be from Nick Herbert at Credit Suisse. Please go ahead.
Good morning, guys. Thanks for the presentation. A couple from me, please. Firstly, the mill expansion, the potential to go to that 2.3 million tonnes per annum. Can you just talk a bit more about what you'd need to see to support that decision just in terms of exploration success? I know you mentioned the processing of the lower-grade open pit material was a consideration. What else would you need to see from the underground? Also just indicatively what that could cost in terms of CapEx?
Yeah, sure. Nick, thanks for that. I'll hand that one to Mark.
Obviously, Nick, we're looking for exploration success at the two high-grade deposits, so Martha Underground and WKP. Assuming that we get that, obviously we have two options. We can either just extend the life or expand the processing plant. Expansion of the processing plant, that decision would be made prior to putting in a second mill. I mentioned a new mill there, that mill would just be bigger.
There would be some additional tankage put in, the cost of that would be in the vicinity of between $5 million and $10 million extra dollars over and above what we're saying to take it up to that next level.
Okay, great. Thank you. Just on WKP, the other vein, that T-Stream and Western veins, when do you expect to really focus your drilling on those areas? Is it fair to expect we're not going to see much in terms of contribution potentially to your resource that you come out with next year, 2021. Is it more beyond that, when the focus sort of really hones in on those areas?
Thanks for the question. We don't have anything scheduled for 2020 on T-Stream or Western vein. We have our plate full with doing extensional and infill drilling on EG that continues to deliver. We do want to get onto those two other significant veins. We've seen in the cross-sections there's already economic intercepts in terms of width and grade.
We also have a platform now permitted, platform seven, that will be able to intercept both the Western, and with a bit more length in the drilling across the T-Stream. I expect we'll get onto that in 2021 budget.
Okay, great. Thank you. Final one, can you just please clarify what the economics are if you assume a reserve gold price assumption of $1,300 versus, I think the $1,600 that you have in the PEA? You've got those tables, I'm just sort of trying to eyeball it. If you could provide that detail, that'd be helpful. Thanks.
Yeah, sure. Nick, it's back to the table for sensitivity. You can see there the influence of the changes in the gold price and the effect. I'll just refer you back to that presentation.
Okay, sure. All right. Thank you.
Thank you. Next question will be from Matthew Frydman at Goldman Sachs. Please go ahead.
Sure. Thanks very much. Morning, team. Couple of questions from me. Wondering firstly, if you can just give a little bit more context on the unit cost, particularly the mining and processing costs, which you've given. To my thinking, they both seem like they're around a third lower than where the operation has been running for the last few years. Underground mining cost of $30 a ton for Martha Underground and WKP underground. Correnso and Favona have been running more like $45-$50 a ton.
I assume the Avoca method, broadly similar from that perspective. Similarly for processing, been running around $29-$30 a ton, but in the PEA, you've got it at $19 a ton. Yeah, whether you can give a bit more context on what are the cost out drivers there on a unit basis and whether that's just a function of bigger volumes and more fixed cost dilution to get to those numbers? Thanks.
Yeah. Thanks, Matthew. Look, just I'll give an overall comment before sort of handing over to Mark if he wants to add some further comments. Basically, we've taken the current performance, understanding that, and with the opportunity of the different mill feeds is in increasing the rate. We're currently ramping up the Martha Underground and the opportunities that we're looking at there with the mine operating systems that we're putting in place. It is a function of the higher rates from both the mining and the processing.
As has been mentioned, for the Martha Open Pit is actually utilizing the owner-operated model rather than the contractor model. Mark, do you have any further comments?
No, I think you've pretty well covered it. It is a function of increased mine productivity. At Martha Underground, we'll be doing around about 750,000 tonnes a year and around about 800,000 tonnes a year at WKP. I think our best mining efforts in Correnso was probably around about that 650,000-700,000 tonnes a year. It is a function of that plus the new equipment and also automation.
Also it was, when you're looking at historical information, then when you're looking at Newmont, it was all contract mining. Which you dropped your cost by just going away from contract mining, dropped our cost by 20%.
Yep, understand. Okay, thanks for that detail there, Mark. Just secondly, the tailing storage facilities and particularly the permitting around those, wondering whether we can go into this in a little bit more detail. If I read that slide in the presentation correctly, it looks like you do need to get a third tailing storage facility permitted and up and running if you did want to achieve everything that you outlined in the PEA.
Can you, I guess, go into a bit of detail on what the permitting for that might look like, a third tailing storage facility, and then whether you have any other options that you might be considering, like whether you would use the pit void at Martha or anything to that effect, if you had any alternatives around that?
Thank you, Matthew. We've successfully permitted dozens of projects, as I mentioned, in New Zealand over the past 30 years, including the most recently, Martha Underground, which was permitted six months ahead of schedule. Permitting of the TSF is nothing new to OceanaGold or New Zealand, as we have seven TSFs in both the South and the North Island. At Waihi, we currently operate two downstream tailing storage facilities. Both are located outside the town next to our processing plant.
Both of those TSFs are expandable, which will meet our near-term requirements. We will require a third TSF to support a larger project like Martha open pit. We're having a few options there that we are contemplating. Our TSFs are built to international standards. We get them reviewed annually by independent third parties. We have the utmost confidence in our TSF construction. For us, it's nothing new, and we'll just go down the required path of that we've sort of built into the program for permitting the TSF.
Yeah, sure. Apologies if I missed it, but do you have, I guess, a critical timing path for permitting on that third TSF? I'm guessing you'd want it permitted prior to the start of production at the end of the Martha five cutback.
Yeah, we've got some optionality there with the current TSFs, and so we're building that into the plan, and we're continually reviewing the actual timeline that we need on that.
Okay, sure. Thanks very much for the detail, Michael.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one on your touchtone phone. Your next question will be from Levi Spry at JP Morgan. Please go ahead.
Good morning, everyone. Thanks for the call. Firstly, just on optimization, the next steps of the study, can you just outline the big pieces for your next cut of the study? Is it the resource updates? Just remind me of the timelines for the next cut, I guess, progressing to the PFS, what the big pieces could be to move things around.
Certainly, Levi. Page 31 of the presentation, slide 31 of the presentation, we try to detail that for everybody because it is a multi-project PEA to get the daylight on what the timings are. If you have a look at that slide 31, we've got the Martha Underground feasibility in the first half of 2021 and the WKP pre-feasibility study in the second half of 2021 as well. Then the open pit projects and the PFS feasibility study in quarter one, quarter two, the first half of 2022.
They're the major key milestones that we do as we progress the different components of the projects through the study and the consenting process.
Okay, thanks. There'll be one resource update for Martha and one for WKP before those. One each. Yeah.
Yeah. Just on the resource or model updates, we'll certainly have an update through our current reporting timeline, so end of March, early April next year. There'll certainly be an update for Martha Underground.
Depending on how much the model changes, the WKP, we would also do a new model update for that.
Okay. Thank you. Just the funding question. Without the Didipio, what comments do you want to make there on that? How you see things playing out potentially without the Didipio?
Yes, thanks, Levi. We've got an exciting potential, the Waihi District Study, given the PEA results are demonstrating the potential for significant value generation for our shareholders. The Waihi District opportunities are expected to be a high margin with tons of growth potential through exploration. We expect that the successful execution of each opportunity will generate significant free cash flows for shareholders.
We've identified the approximately $450 million of capital spend required over the eight-year period to bring each opportunity online in the timelines that we've stated, and we believe that we're well-positioned to fund this growth.
Yeah. Okay. Thank you. Just last one, on a different subject. Haile, can you just remind me when the updated life and mine plan is due for that?
We've currently got the current life and mine plan. That's still going forward. Are you talking about the Horseshoe optimization, Levi?
Yeah.
Look, that's at the end of the year.
Okay, great. Thanks, Michael.
Thank you. Thanks.
Thank you. Next question will be from John Tumazos at John Tumazos Very Independent Research, LLC. Please go ahead.
Thank you very much. Excuse me if I'm not as familiar with the site as maybe I wish I was. You project output every year, but there's three technical studies to finish and permits, et cetera. How many ounces of the resource are permitted and defined in such a way that they're available for production in 2021?
Yeah, look, thanks, John. It is a process, there are four projects. What has been permitted is the Martha Underground project, which is what is in current development stage now. We're increasing the development profile as we mine that project through this year. That is to be brought into production in Q2 of 2021. We're estimating around about 35,000-45,000 ounces of production next year from that resource, and then growing that production level over the coming years.
Forgive me, my English nomenclature is unfamiliar. When you talk about consenting process, are you referring only to government authorities to permit, or are you also referring to your board of directors approval and the degree of stage gate documentation you have internally?
Yeah, thank you for that, John. We have internal stage gate and tollgate policies. That's within the studies going from a scoping to a PEA, to a PFS, to a feasibility study. When we do talk about consenting and permitting, it is really the process that we follow with the New Zealand government and regulatory bodies.
Thank you.
Thank you. Your next question will be coming from Adam Baker at Global Mining Research. Please go ahead.
Yeah, morning, guys. Just wondering what the interactions could potentially be for the current Martha Underground, and the Martha open pit cutback. Will it take out any preexisting underground infrastructure? Is there any reason why you can't run Martha Underground with the Martha open pit cutback? Just some more information would be great.
Yeah, thanks, Adam. In the diagrams, it's a bit misleading, but what we're looking and targeting for initially from the underground is the areas that are not around old workings, and that's the reason we've used half of the resource. We've got some further exploration drilling and geotechnical drilling to have a look at the other potential. The Martha open pit has been operated with the underground in the past, and there's still that opportunity.
What we have done is we've reclassified some of the underground resource into the open pit resource, but there's ability to actually operate both. We have a portal and a ventilation shaft that does come out into the pit. There will be some interaction with regards to that as we proceed with the cutback, but that doesn't prevent any of the mining that we have got planned.
Great. Thanks.
Thank you. At this time, I would like to turn the conference back over to Sam Pazuki. Please go ahead.
Thank you, operator. That concludes the formal presentation segment of the webcast. If you have any questions, please feel free to give us a call. The replay of the webcast will be available on our website later today. On behalf of Michael, Mark, Craig, Sharon, Scott, and the rest of the team, thank you for joining us and bye for now.
Thank you. 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.