Evolution Mining Limited

question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Brian O'Hara, GM Investor Relations. Please go ahead.

Thanks, Izzy. Good morning and welcome to the Evolution Mining March 2020 quarterly conference call. This morning on the call, we have Jake Klein, Executive Chairman, Laurie Conway, CFO and Finance Director, and myself, all appropriately social distancing in Evolutions Group office here in Sydney. Also on the call, we have Bob Fulker, COO, and Glenn Masterman, VP Discovery and Business Development, who are dialling in remotely. The March 2020 quarter was one for the history books with the COVID-19 pandemic pandemic providing the catalyst for some of the largest and fastest declines in financial markets on record. With governments and central banks around the world responding to the crisis with promises of extraordinary monetary and fiscal stimulus, it's been reassuring to see gold performing its role as a relative store of value, with the Aussie dollar gold price up over 25% this year to a record high of over $2,700 per ounce. And despite being caught up in the extreme volatility of the broader markets in early March, gold equities have bounced back strongly, with a number of Australian and global gold producers currently trading at or near all-time highs. Among these, evolution continues to be a standout, with sector-leading cash generation per ounce, a focus on rewarding shareholders through growing dividends, strong balance sheet liquidity a reputation for reliable operational delivery from our diversified portfolio and an attractive growth profile driven by Cal and now Red Lake. Thank you and I'll hand you over to Jake.

Good morning everyone. Thanks Brian and thank you everyone for taking the time to join us on the call today. We really do appreciate it. I also hope that you, your families and colleagues are all healthy and well and navigating through these unprecedented times we are all confronting. At Evolution we do recognise that we own a very small minority of businesses that are operating in an environment where if we can get our colleagues to site and keep them healthy and safe, which we have been able to do so to date, we are in a very fortunate position where we can sell everything we produce at the current record high gold prices. We are doing our best to remain grounded, engage openly and transparently with our communities and respect the very tough times so many people are going through. To date, our management of the COVID-19 pandemic has been very good. We're navigating through this with authenticity and staying true to our health and safety values whilst continuing to keep our business strong. To date, there have been no reported cases for our employees or our contractors and no impact on our production related to COVID-19. Impressive examples of the commitment of our people are many and we are grateful to them. To minimise interruptions, our people have shown a willingness to go above and beyond and adjust to work longer rosters or in some key roles relocating to be near the sites so as to avoid interstate travel. Our safety is improving. We are not yet where we want to be. But the thing that gives me the most confidence is that Fiona Murford, our general manager of sustainability, is saying that after three months of being in the business, what a three months that has been, she believes there is a genuine level of care present across the company, which is the foundation of any great safety culture and any great corporate culture for that matter. Our continued work and focus in the area of sustainability was rewarded with an upgrade in our MSCI sustainability rating from triple B to A. As you have come to expect from evolution, our focus remains on margin and cash flow. We do believe that this should be a differentiating metric for shareholders who are analyzing the sector. Net mine cash flow increased 11% quarter on quarter to almost $160 million and group free cash flow increased 33% quarter on quarter to almost $112 million, both of which are very pleasing results. Cash flow continues to be strong and as of today our cash balance has increased to approximately $240 million and including our undrawn revolver facility our liquidity is around $600 million. Financial strength and robustness is important in these uncertain times. This quarter, you also see in our results the merits of having a portfolio of assets, with material contributions being made from some assets that have at times in the past been overshadowed by our larger assets. Mangari and Cracker both contributed record net mine cash flows this quarter. Mangari has generated a very impressive $73 million in net mine cash flow year to date and he's also having very encouraging exploration success. The June quarter will be a big one for us and one that we expect will bring us in at our guidance of around 725,000 ounces at an all in sustaining cost at the top end of our guidance range of 990 Australian dollars an ounce. These numbers exclude any contribution from Red Lake. The increase in production will mainly come from Mount Carlton as it accesses high-grade material for the first time from the underground mine that it has developed and also from Mount Rawdon that is expected to be back mining the higher-grade area of the pit after recovering from the rockfall it had in the September quarter. We were fortunate to have had access to the Red Lake site for over three months since signing the deal in late November to when the lockdown started. Buying an operation that you're not able to be at when you receive the keys is a first for all of us, but I think the collaboration, preparation, use of technology and engagement is a reflection of what I think is really special about evolution. If the first three weeks of our ownership are a guide to the future, Red Lake will exceed our most optimistic expectations. We were pleased that under the lockbox mechanism that has operated since 1 January, we will receive AU$18.8 million in April. We are also taking the opportunity to strengthen our team and get the right people in the right roles. At Red Lake, the transformation has started with the appointment of Amber Adams into the role of interim general manager and a 40% reduction of the site leadership team roles. I have been incredibly encouraged and impressed how Amber and her new team have embraced the challenge we have ahead of us to transform the operation. In a very important group role, I am pleased to announce the appointment of Amanda Weir as General Manager, Transformation and Effectiveness, a role that reports directly to our COO, Bob Fulker. Amanda has a very impressive track record with her last role being Head of Geoscience and Resource Engineering at Olympic Dam for BHP. Importantly, the drill rigs have kept turning and we continue to be encouraged by the success we're having at Cal, Manggari and now also at Red Lake, which you will hear more about from Glenn in a few minutes. With that, I'll hand over to Bob.

Thanks, Jake, and good morning, everyone. It's pleasing to start my quarterly comments with a couple of positives from a safety perspective. The site behaviour safety programs continue to yield good results, with the TRIFT decreasing by 15% from 8.4% to 7.2% over the quarter. To date, we have not been materially impacted by COVID-19. On COVID-19, we have implemented and are operating under strict protocols to minimise risk to our people and communities, whilst ensuring we can continue to safely produce gold during these times. We have suspended international travel, restricted domestic travel, rolled out strict social distancing practices, reduced face-to-face interaction, increased flexible working agreements, and increased workforce communications to all employees. All, as a minimum, we are aligned with government protocols. From a site perspective, we're also conducting onsite management meetings, a link to our evolution crisis management daily meetings, shift screening, which includes temperature checks, hired additional vehicles and chartered flights, floor markings in pre-shift meeting areas to aid the 1.5 metre distancing, reduced contractors for non-essential mill shutdown work, and instituted changes to rostering as needed, all whilst working closely with the communities in which we operate. Five of our six operating sites have essentially residential workforces rather than FIFO. This gives some protection from the impact of travel restrictions. We're also very encouraged by the slowing infection rate across Australia. As everyone understands, This is a fluid and evolving situation, and the daily crisis management team meetings are in place to support all operations and office locations. In the March quarter, we delivered 165,500 ounces at $991, all in sustaining cost, generating a net mine cash flow of $160 million. On reflection, we've had some real challenges this year, with the wall instability at Mount Rawdon, all body variability at Mount Carlton, and now COVID-19. However, that being said, on the whole, we're on track to deliver guidance despite all these challenges. I'm excited for the outlook of all our operations. We're doing some great things from an innovation, optimisation and data perspective, which I truly believe will be enablers for our business to improve our reliability, repeatability and our resilience. We're currently operating during a time of great uncertainty and despite this ever-changing environment, I think all our people are doing exceptionally well managing the risks and keeping each other well informed and safe. If we turn to page six, TOW delivered 60.5 thousand ounces at an all in sustaining cost of $1,031 an ounce, with a net mine cash flow of $34.5 million, while still investing $54 million on total capitals, projects, building for the future. The focus on leading safety indicators and hand injury awareness has resulted in a continued and sustained reduction in TRIF, with CAL currently at 2.5, a site record. We've also had a proactive approach to the long-term water security, and I'm pleased to confirm that this, along with the completion of the pipeline twinning and recent rain, has reduced our immediate threat for CAL from a water availability perspective. Work continues on additional saline balls to further reduce the reliance from freshwater sources and we are confident there is enough water to supply to meet cow's ongoing water requirements with no material impact on operating costs or recoveries. Ungari delivered 33,000 ounces with an 18% reduction in their oil and sustaining cost to $1,099 an ounce. This, as Jake said, was with a record net mine cash flow of $31.9 million. Frog's Leg Underground is continuing to deliver its scheduled tonnes and ounces and the boomer development is now only 90 metres from mineralisation. This will be an exciting day for the team at Manjaro. The open pit fleet has commenced the new Cutters Ridge pit, also a major milestone for Manjaro. The plant continues to run well at the elevated levels, close to 2 million tonnes per annum, and the project work is progressing to identify the upper limit of the plant capacity. Turn to page 7 please. Mount Cartland delivered 13,000 ounces at an all in sustaining cost of $1,417 an ounce and a mine operating cash flow of $20.1 million. Underground development and capital spend has been accelerated to bring the high-grade underground ore into production in the June quarter, which we expect will result in a significant uplift in production and reduction in costs. The first underground gold bar was produced from development ore in March. Mount Carlton open pit and underground grey control drilling is continuing and exploration drilling has commenced at Crush Creek. Mount Rawdon produced 16,400 ounces at an all-in sustaining cost of $13.57 an ounce. Whilst this is still high, we have seen Mount Rawdon's all-in sustaining cost reduce in line with forecasts as they work through the Western Wall cutback. The net mine cash flow is holding steady at $9.1 million. Again, this is expected to improve as the capital burden from the Western Wall strip concludes. We're expecting Mount Rawdon's production to increase as access to the high grade ore in the pit floor is exposed during the June quarter. On page eight please, Krakow continues to consistently perform, producing just over 22,000 ounces at an all in sustaining cost of $1,150 an ounce and a mine operating cash flow of 31.7 million. Pleasingly, Krakow's net mine cash flow of 27.6 million was the highest on record. Ernest Henry again made a significant contribution to the group's production, 20,000 ounces at a negative oil and sustaining cost of $188 an ounce, whilst generating a net mine cash flow of $61.3 million. On page nine for Red Lake, the Red Lake operation is making great progress in critical areas. I'll leave the financial implications at closure for Lorry, but from an operational perspective, The site leadership team has been restructured, reduction of 40%. We've commenced resource definition drilling in the future production zones, increased underground development rates with a plan to exceed the 1,000 metres per month rate by July, commenced underground equipment procurement process, commenced number one and Campbell shaft decommissioning, and we've commenced the refurbishment of the Campbell Mill. It's an exciting time at Red Lake. and the new SLT is invigorated and motivated to continue the improvement journey. In summary, our focus remains on improving our safety performance, maintaining the health and wellbeing of our people, whilst delivering to guidance, ounce and cost. During these times of uncertainty and change in the world, it's my belief that we need to remain focused on our goals, connected as people and operations, and continue to make the most of every opportunity. With that, I'd like to hand it over to Glenn. Thank you.

Thank you, Bob, and good morning, everyone. Before touching on our drilling highlights for the March quarter, I would like to provide a brief overview of what we have done in our discovery group to manage the COVID-19 situation. Drilling programs continue at Red Lake, Cow, Nungari, Mount Carlton and Cracker, where we have implemented the strict measures Bob spoke about earlier. We have suspended exploration activities at three of our four managed and operated greenfields projects in Western Australia and Queensland to avoid the risk of spreading the virus through interface with Indigenous communities. We are continuing our exploration program at the Crust Creek project, which is located 30 kilometres south of Mount Carlton. The first diamond holes have been completed following the arrival two weeks ago of the first diamond rig. A second rig is due to arrive in May, which will help accelerate confirmatory and extensional drilling of vein targets, which we hope will become an important ore source to extend mine life at Mount Carlton. We were very pleased to take the keys at Red Lake early in the month, and we have now completed a full quarter of drilling under Evolution Stewardship. Four rigs have been operating continuously underground during the quarter. Drilling is focused at Koshina and Lower Red Lake with the purpose of converting resources to reserves and to expand ore bodies in these areas of the mine. So far, we are very encouraged by recent drilling results, particularly from Koshina, which has generated high grades over good mining thicknesses. Examples are highlighted on page 13 of this morning's report. Early in April, we commenced our annual review of exploration programs and targets across all our operations and greenfields projects. This process includes the development, ranking and prioritisation of new and existing targets for which we'll propose budgets in FY21. Targets that have the ability for discovery of new high-grade resources at Red Lake are ranking very highly and will be advanced into the drilling schedule in FY21. Underground drilling with three rigs continues to build mineral inventory for the Maiden Reserve, which is on target to be released in the December 2020 half year. Highlights of infill results are presented on page 15 of this morning's report. Step-out drilling is continuing with two surface rigs and is delineating mineralised extensions of the lava zone, highlighted by the results received in holes 544C and 453G on page 15 of this morning's report. As well, a new area known as Galway South is developing on the left side of the Figure 5 long section on page 15. The mineralised zone remains open down plunge, with future drilling designed to extend mineralisation beyond the cluster of holes shown on the long section, which end in hole IDs 545, 466A and 466XT. Examples of mineralised intercepts at Galway South include 7.25% 7.2 metres grading 12.1 grams per tonne in hole 545, which was drilled adjacent to a previously reported intercept of 30.4 metres grading 6.6 grams per tonne in hole 545A. At Mungaree, drilling at Boomer returned more pleasing results with discovery of a new folded vein position beneath the original area of drilling. Drilling highlights are summarised on pages 16 and 17 in this morning's report. Access development is currently 90 metres from the design breakthrough position, and we're expecting to cut into all positions later in the 2020 quarter, June 2020 quarter. The boomer structure remains untested for a kilometre north of the main mineralised area. Work along strike has been postponed owing to the need for cultural heritage clearance, which the company has suspended due to the COVID crisis. And with that, I'll hand over to Laurie.

Thank you Glenn, good morning everyone. Prior to going through our financial performance for the March quarter and outlook for the year, I want to outline our approach to managing the balance sheet through the COVID-19 situation. Over the past month or so, in conjunction with the measures we have taken across our business to manage the health and wellbeing of our workforce, we've been ensuring the strength of the balance sheet is maintained. While we have no material production impacts and no liquidity problems, it is certainly prudent to do this work. This involved running multiple scenarios for varying types of impacts on our business. At the time of conducting these scenarios, we were preparing to pay our FY20 interim dividend of $120 million and draw down $570 million of debt to close the Red Lake transaction. Both of these items were also taken into consideration. Scenarios we ran looked at the possibility of an extended impact on our business, including scaled back production of all operations through until the end of FY21 and full suspension of all of our operations for a period of up to six months, with impacts of Ernest Henry also being included in all of our scenarios. The scenarios allowed for additional costs due to inefficiencies to operate in this manner. Any redundancy and restructuring costs and metal prices up to 25% below current spot prices all the way through until the end of FY21. The most pleasing result of this work is that it vindicated that we have a quality suite of assets which are highly cash generative and can withstand a disruption event for an extended period. In the scenarios we conducted, all of our operations would be cash flow positive for the FY21 year. While we may not have captured everything in these scenarios, we are comfortable in their robustness. The outcome of the reviews from a group perspective is that we would not be expecting to draw down on our three-year revolver facility. Our debt facility and hedge commitments are all met and our liquidity would continue to increase over this period. It confirmed our confidence to proceed with the interim dividend payment. Our cash balance in April has increased to around $240 million and with the undrawn $360 million revolver, we now have over $600 million of liquidity. Turning to the financials for the March quarter, which are on pages 10 and 11 of the report. We produced over 165,000 ounces at an all in sustaining cost of $991 per ounce. Even though production was slightly behind plan, the improved AISC was in line with plan. Operating costs quarter on quarter were flat at similar activity levels while sustaining capital decreased as outlined in our December quarterly results. The higher metal prices adversely impacted the AISC but the net cash generation outweighed this. If we had achieved the metal prices on which our current guidance is based, Our all-in sustaining cost for the quarter would have been around $970 per ounce and our year-to-date all-in sustaining cost would have been around the $1,000 mark. We generated $160 million of net mine cash flow with records at Mangari and Krakow of $32 and $28 million respectively. Group cash flow before dividends, debt and M&A costs was $111.5 million. A year to date group cash flow was over $350 million or $640 per ounce sold. Year to date our margins are very healthy with an EBITDA margin of 51%, all in cost margin of $695 per ounce and a free cash flow margin of around 30%. Upon closing the Red Lake transaction we moved back into a net debt position with the drawing down of the $570 million term loan. Our gearing is a very conservative 14% and we are planned to reduce below 10% by the end of June. The amortisation of this loan has been aligned to the group cash flows and the expected build-up of cash generation at Red Lake over the next few years. The first repayment of $20 million is due in July with $95 million due through FY21. Looking at the June quarter and to finishing off FY20, we're expecting to produce approximately 195,000 ounces and as mentioned by Jake, the majority of the higher production is expected to come from Mount Rawdon accessing higher grade ore in the open pit and Mount Carlton achieving first production from the higher grade underground mine. This will bring the full year to around 725,000 ounces. at the top end of AISC guidance of $990 per ounce. This is excluding Red Lake. Should current spot metal prices be maintained during the June quarter, our AISC would be negatively impacted by $20 to $25 per ounce due to higher royalties and lower by-product credits. However, our cash flow would be $90 to $95 million higher compared to the metal prices on which our guidance is based. Lastly at Red Lake we are expecting around 25,000 ounces at an all-in sustaining cost of $8, $2,100 to $2,300 per ounce as the operation focuses on implementing the interim and transformation plans. Sustaining a major capital is expected to be around $5 million to $7 million and $15 million to $17 million respectively while exploration investment is expected to be $3 million to $4 million. Thank you for your time this morning, and I'll now ask Izzy to open the line for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. And if you are on a speakerphone, please pick up the handset before asking your question. Your first question today comes from Nick Herbert with CreditSwift. Please go ahead.

Thank you. Good morning, gents. Might just start on Red Lake. Jake, you touched on it in your comments. We're just interested in how much of an impact the COVID travel restrictions are having on your ability to implement your initial plans there, given you can't get key Aussie personnel to site.

Thanks, Nick. Jake will respond to that one. Thanks, Nick. Great to see you following the tradition of your predecessor and first up on the court. We look forward to continuing. Look, the COVID-19 impact has obviously restricted us from being on the ground when we took ownership of the asset, but we have had the opportunity of having several months of time to be on the ground. All of the leadership team and a number of our technical team and commercial team have been on the ground. We did a lot of planning and we still have some of our colleagues on site at the moment, but we are backing, as we do with all of our sites, the leadership team, the new leadership team there. Amber Adams, as I said, has stepped up. We've redefined the leadership team. We've reduced the number of roles by 40%. And that site was ready for change. And so the team there is really embracing it. And whilst we recognize there are challenges ahead of us, technology has allowed us to hold five virtual town hall meetings. So we've spoken to most of the workforce over there in a very interactive way. The feedback of those sessions was positive. I don't think it's restrictive in terms of the change we want to make.

and uh you know very encouraged in the first few weeks okay thanks it's good to hear um and then i i guess you know you've been pretty clear on your three-year turnaround timetable there and just wondering if you're able to point to some nearer term milestones and perhaps we can get a sense of just in you know looking at that performance and just thinking along the lines of when maybe we can see a stepped improvement in productivity of mining rates or and major staff cost reduction go through. Really anything that's major steps ahead of that full three-year implementation period.

Thanks, Nick. Jake will respond to that one as well. Nick, your predecessor taught us some lessons as well, and that is not to fall into the trap of changing the promise too quickly. So we're sticking with that three-year timeline. There are encouraging signs, and I'm going to let Bob explain a few of those and give you a heads up on some of the things which we see as opportunities there.

Thanks, Jake. How are you, Nick? I guess I'll start on a couple of easy ones. Development, we've already started to hit some of our straps on development. Very pleasingly, we're seeing an increase month on month And we do expect that by the July-August timeframe that we'll be actually exceeding that 1,000 metres per month rate. And we're on track to do that now. So that's a nice one to start with. The second one is some of the infrastructure work that we're working on, like the Campbell shaft shutting, even though it's a small one, it's significant from a fixed cost and all the rest of it. And that will... will happen probably in the, not probably, it's planned to happen in the March quarter 21. So that's a nice one to talk about as well. The other one is we're working through at the moment with the leadership team. We worked on the leadership team. We talked to them first and, as Jake and I have both mentioned, restructured that and a 40% reduction of people in that team. Now they're actually working with the site team's and with the guys on the ground to actually look at the entire workforce. And we are expecting that that will happen this quarter, towards the back end of this quarter. So we will talk to the workforce first. But during this quarter, we expect to have most of those improvements bettered down.

Great. Thanks, Bob. That's really helpful. Maybe just a couple more. One on the gold price. jake um you know you've recently updated your reserve price to aussie 1450 now still very well below spot and just wondering what's needed to change your view on that or perhaps how long would you need to see gold sustained at current levels to want to change your thinking on that reserve price again and any implications for mine planning yeah nick that's that's a good one i mean i i think you know we want to see

Are these 2700 levels sustained? Are they long-term? When we were looking at our budgets and planning for this year, we were using an 1800 Australian dollar gold price. So the gold price is $900 higher. Now, as you've come to know us, we are focused on margin. This is a cyclical business. We're in a very good part of the cycle. We hope it gets better. But from a business perspective, as you heard from Laurie, the way we stress testing the balance sheets for these type of events like COVID-19 unanticipated, we want to be a business that can prosper through the cycle. So it's going to be a conservative reserve price. We will reassess it when we do our MRR at the end of this year again, as we always do. But it will be conservative because we want to be a margin-focused business.

That makes sense. Thank you. And then finally, I guess, you know, Sue or Vane, how do you think about hedging any appetite beyond what you've locked in there for Red Lake? And then also on the Stage H cutback at Cow, big material movements. So I'm just wondering how much of a swing factor is the oil price in the economics of that cutback? And is there any consideration in locking in some oil price hedging?

Thanks, Nick. Firstly, on the hedging, with Red Lake, as we look at the three-year turnaround plan, we wanted to make sure that that asset is able to fund its own capital programs and basically not put impact on the rest of the business. So we did put 120,000 ounces in at an average of of a spot average of $2,300 an ounce over the three years. So that's about 10,000 ounces there per period. But beyond that we don't see the need to put more in place at Red Lake. We don't want to go, we're probably at a group level when you take that plus our existing hedges, around 15% of our annual production is hedged. And the benefit we see is that 85 to 90% of our production is exposed to the spot price. So we're comfortable with continuing to use hedging as more as a tool for balance sheet and capital management rather than trying to say that we know what the gold price is going to be. In terms of the diesel, the thing I'd say there, yes, Stage H is certainly our biggest user. diesel is 5% of our cost base and we are looking at as we do our FY21 LOMs and budgets is there any benefit there for us. At current spot prices of diesel we would see that that gives us a net taking into consideration the depreciating Aussie dollar it would give us a net benefit on an all in cost of around $20 an ounce for a full year excluding obviously red light there. The thing that we are seeing, though, is that the forward curve on oil is still not reflecting the current spot prices, and basically within 18 months to 24 months, you're back up above what the current prices that we have in our plans are. So right now, as we go through the next few weeks, which is when we are finalising our life and mine plans, we will consider that for stage H. Okay, great.

Thanks very much. We'll leave it there.

Thank you. Your next question comes from Daniel Morgan with UBS. Please go ahead.

Hi, Jake and Tim. A few questions here. On the Stage H cutback at Cal, just wondering when your latest thinking on is when that will be complete.

Thanks, Dan. Good morning. Laurie will take that question.

Yeah, Dan, thanks. We expect that by the end of FY21, we're fully into ore and the stage H cutback is therefore completed from a capital waste position.

Okay, thank you. Very clear. And moving to Red Lake, you've talked about some early wins or milestones, one of which is the higher development rates. Just wondering how you're achieving that when, you know, it's very early, you've just got the keys, you haven't got new equipment or established new protocols. Just wondering how you're getting the higher development rates early. How are you getting better productivity?

Thanks, Dan. I'll hand it over to Bob who will expand on the response that he gave earlier. Thanks, Bob.

All right, thanks, Brian. Dan, thanks for the question. It's not a... It's not magic or anything. We've focused the development into the areas that we want to produce from. So we've pulled guys from the lower productive areas and put them into the higher tonnage and the open stoves that are coming up in the future. We've also opened up additional development headings. So as opposed to restricting the development right down to just one or two per cycle, that number is now up to six to eight. and our aim is to get that above that so they can actually get better effectiveness in their cycle. So it's really around deconstraining the guys, focusing their attention, and getting people to really concentrate on getting that turnover of headings every shift.

And I think, Daniel, just to add something to Bob's response, the thing which we've been most encouraged by is What Red Lake needs and people seem to be embracing on site is change. That's really a change in culture. The geological potential is there. The infrastructure is there. It's probably too much infrastructure. It's too much gear. It may not all be the right gear. But fundamentally, people are there. They want to be proud again of that operation. That's what I think is going to lead to the greatest change in the way things are done That's what's being embraced. It's going to take time. There are going to be mistakes, but what we're talking about is a little bit like when we took over Cal in 2016. Everyone on site knew what needed to change. It just needed the framework and the capacity to make those changes. I think that's what we're largely providing.

I don't see it much different to other assets that we've acquired.

Thank you. And just the guidance, I mean, I know you didn't take the opportunity to reduce the FY20 guidance below 725 at the quarterly. It does imply if you were to reach 725 exactly for the year, a big step up in the final quarter. Just wondering if you could expand on your confidence on that and just reiterate the key drivers for that.

It's dependent on and we're confident of the delivery of high-grade material from the underground mine that's been built at Mankong. It will be the first stoves that deliver ore to the mill and we're confident we're ahead of schedule there. As Bob said, the first gold bar has been produced from development ore there. has basically been treating stockpiles predominantly since the walls failure in the September quarter and it will be back in the higher grade part of the pit and will deliver a quarter which is much higher than this quarter. So really it's been the things which have impacted our production to date that we expect to now have addressed and that's from the Mount Carlton underground and Rawdon getting back into high-grade oil.

Thank you. The last one from me is just the cow underground studies. Obviously, everyone's jobs are harder with these mobility restrictions working from home and remotely. Just wondering if the timing of that might slip a little bit or what can you talk about that study in light of these mobility restrictions?

Thanks, Dan. Laurie will respond to that.

Yes, Dan. I think where we're at with the work going on in the exploration and the decline in the underground, the team and the crews are able to get to site and are doing that work and getting the meters we need so that we're not experiencing any problems there. With regards to the rest of the studies, the teams are either working based at Cal or working remotely. So we are seeing all of that progressing to plan. I think the thing that we are looking at is when do we make the submission to the regulator such that they're in a position and they're ready to operate and receive such a submission and that's the only thing that may impact on our timing. But everything remains on track for, as Glenn said, a maiden reserve before the end of December. and that would mean a submission to the regulator in that by the end of the December quarter as well.

Okay. Thank you very much for your answers, Tim. Thanks, Tim.

Thank you. The next question comes from Sophie Spitalis with Bank of America. Please go ahead.

Good morning, team. I'm just following up from Dan's question around the production guidance. It seems as though for the full year, you're aiming for the mid to upper end of production guidance, but you're also guiding to the upper end of the cost guidance. Can you just maybe talk through the cost pressures that are coming through, please?

Thanks, Sophie. Morning.

Another one for Laurie. In terms of cost pressures, nothing has really changed with us throughout the year. The biggest movers have really been labour which we had experienced the changes in the first half of the year, so that was the 3% to 3.5% which is as per our guidance that we issued in August. What we are seeing is that it's the production mix that we've seen through each of the assets in the year whereby as Jake and Bob have both talked about Mount Carlton and Mount Rawdon have missed their mark but are certainly going to be getting back to the revised number of getting us to the bottom end of guidance and obviously on a per ounce basis that is really why our AISC has gone up. The second one which has been back in October when we updated our guidance, the higher the Gold price and lower copper price is adding about that, plus the Mount Rawdon impact has added $50 an ounce to our guidance. Where we're trending in the last quarter, we see Mount Carlton and Mount Rawdon access back to the higher grade. So we get the ounces, which will bring our AISC down in Q4 and bring us back towards the $990 an ounce.

Okay, fantastic. And then maybe one for Jake, just in terms of COVID-19, obviously we were all now aware of the pressures from, you know, and how we've had to adjust to that. Can you just let me talk through the positives that are coming out of it in terms of the way your team is thinking, whether we can expect ongoing, you know, change in the cost base given new ways of doing business, less travel, etc.? ?

I think I could start off with a bit of a flippant comment, Sophie, that some of our sites may be actually performing better because they're having less visitors from the group office. But they haven't had the courage to tell us that directly yet. But I think the way in which the team has responded has been fantastic. We really are adapting and embracing, and people have gone above and beyond what we would normally expect of them. There has really been a terrific commitment to the protocols which our CMT group has put in place. The CMT team is meeting every day and having a conversation about changes, how we can do things, putting protocols in place. Our communication I think has probably gone up in terms of we have a daily briefing on COVID-19 across the whole organisation. We're very conscious of communication. Obviously, the technology has allowed us to hold these virtual town hall meetings. We're engaging with our sites all the time. One of our site general managers said to us, and we had our quarterly general manager leadership team catch up over a couple of days last week, said he thought the communication had actually got better and we were more connected to each other and our people. Will it change the way we do business in the future? Well, I'm not buying airline chairs at the moment, and I prefer to own dollar chairs, but I'm not sure about that. But certainly, I think we'll have us reflecting on and sort of thinking about how much travel we do do and whether there is technology that can help us do that more efficiently.

Okay, great. And then just a final question from me. Just in terms of Ernest Henry exploration, can you maybe provide an update there, please?

Thanks, Sophie. One for Laurie.

Thanks, Sophie. The program is tracking to plan and the results that we saw in the December and March program have given confidence to the JV parties to approve for the third platform to be put in place. Basically what we really want to do is see the third platform in and the drilling done there. We do have a fourth platform planned for later in the year which will give us the total of the 18,000 metres. But essentially we just want to see the full results of that to determine what would be the impact on infrastructure and logistics underground and everything before making anything public around that work yet. But I think it's fair to say that, as you know, our joint venture partner, Glink, will spend nothing on exploration and development unless they absolutely have to or see value in it. And the pleasing thing is we got approval to go to the third platform.

Okay, fantastic. Thank you very much.

Thank you. The next question comes from Levi Spry with JP Morgan. Please go ahead.

Good day, Jake and team. Thanks for the call. A couple of questions. First one on Red Lake, looked to be a pretty good quarter. So forecasting lower production this quarter, is that really just about you focusing on development and setting it up for the future? And can you remind me when the reserves and resource statement will come out for Red Lake?

Yeah, Levi, thanks and good morning. Look I think it's fair to say that the asset was really being run in harvest mode. I think there was very little development planned in the first quarter and done and really it was cash harvested in that first quarter and we're shifting that completely to be focused on exploration and development. So that's what you're seeing coming through. That's why we generated or the mine generated that $18.8 million, which was frankly a nice surprise to us, given that we weren't anticipating that it would be as cash generative in the first quarter. But it also gives us some confidence that when we get this asset right, it will be a very cash generative asset. There is, as you can see from the exploration results which Glen articulated this morning, and that's in our quarterly, the prospectivity there is great. It just requires a change in cost structure and efficiency and productivity and culture to really make it a great mine again and that's the path we're on. The MRR, as you know, we have a commitment with Newmont to basically create a base for the resource numbers. That's being worked through and we anticipate that being done sometime in the September quarter. Just to add to that, I think there are 160 wireframe models at Red Lake and again that kind of describes some of the complexity which that mine has got itself into and Glenn's interest and desire is definitely to consolidate them, simplify them and that's the work that's going on. So it is a big piece of work that's happening at the moment.

but released to the market reserve in September quarter. Do I understand that right? Yes, around that time. Okay, thank you. And just on cow, so the underground reserve there in December half, so that will include a PFS for us to model more accurately?

Yes, that's right, yep.

Yep. And can you just remind me the wrap-up on the recovery work that's happening there, how that looks over the next little while?

Thanks, Levi. Bob will take that question.

Thanks, Levi. Is the question around the general recovery? Because at the moment, the issue that Kelly's having is that they're treating low-grade stockpiles. And as you treat lower and lower grade as the stockpile start to deplete, as Laurie said, that we're going to be treating them for the next 12 months until we get back into ore and stage H, you will see a net effect on the overall recovery. The float tail leach is working well. We are seeing a nice uplift from the ore sorting. So all those sort of things are doing what they're supposed to do. but the overall numbers are being affected by the lower grade into the processing plant. Does that sort of answer the question?

Yeah, so the big step up doesn't happen until we get better grades in FY22. So, you know, what sort of recoveries are we talking about longer term now, including the float tail leach?

Around the mid-80s, Eva.

Yes, Jack. Okay. Thank you. Thanks.

Thanks for your time. Thanks.

Thank you. We ask remaining questioners, please keep your questions to one per person. And your next question comes from Ben Crowley with Macquarie. Please go ahead.

Yeah. Hi, guys. Thanks for the call. I'm just wondering if you could give us just a little bit more granularity on sustaining CAPEX. I mean, I appreciate that at the sender you were trending towards the bottom end of the range. And now you've cut that again a little bit below the original range. But, you know, it's a pretty significant step down on a per ounce basis across the board, I think with the exception of cow. So, yeah, just if you could give me a bit of an idea on what the drivers of that have been, whether anything's being deferred and really whether, you know, they're the sort of numbers that we should be thinking of going forward.

Yeah, thanks, Ben. What we said in the December quarterly results is that the second half would be over $10 million less in the second half. And it was really around the timings of the programs, because if you look at it in the first quarter, we spent over $27 million. So on an annualised rate, you're getting up towards $120 million, and that wasn't what we were expecting to spend. So therefore, and in the second quarter we did $20 million and the third we've done $12.5 million. We'd expect in the last quarter that's going to be $15 million, $20 million and it really is just coming down to when these programs are completing. We have seen that in the fourth quarter and why we've lowered it again now is just because some programs that some of the sites had planned to be doing really can't be done because of the restrictions really only getting essential things on site and some things have just been purely pushed out. What we see and it's no different to what we said at the start of the year around the guidance is that effectively for all of our sites we would see that 90 to 110 million is the run rate that the sites would be operating under. Just at the end of this year, we're going to be probably around the 80-plus mark to $85 million, but that's where we sort of see it going full.

Yeah, okay. No worries. Thanks, Laurie.

Thanks, Ben. You can ask another question if you want.

Oh, in that case, well, just a quick one maybe for Glenn. Just wondering about Crush Creek, obviously starting the drilling down there. But yeah, maybe if you just give us a bit more of an idea of, you know, what kind of target, what you're looking at in terms of, you know, potential size of target, maybe just a bit more detail on the geology there.

Yeah, sure, Ben. So Crush Creek is a, it's an epithermal, style geological target, but it's a bit different to Mount Carlton. Mount Carlton being a high sulfidation, sort of high sulfide style of ore body, where we float a con and also have a gravity circuit. But Crush Creek is more aligned to, say, the style of mineralization we have at Krakow, so it's a low sulfidation epithermal. There is a drilled mineral inventory at Crush Creek. It's in the range of 100,000 to 200,000 ounces. It's unclassified, so it doesn't make it into our resource classifications. But the drilling program there is targeting some of the higher-grade shoots in these vein targets to really just confirm the grade continuity that... that has sort of come out of some of the previous open hole RC drilling. So that's one of the reasons why we won't classify it as a resource. We don't like that type of drilling. So we've got the two, well, we've got one call rig, second one on its way. And really the idea, as I said, is to confirm some of these higher grade shoots, extend them where we can, and then expand the mineralised resource footprint in order to sort of build on you know, additional mine life that we can augment production at Mount Carlton.

Yeah, okay. Thanks, Glenn. Yep, all good. Thank you. That's all from me.

Thanks, Ben.

Thank you. Your next question comes from Matthew Friedman with Goldman Sachs. Please go ahead.

Sure, thanks. Morning, gents. Thanks for taking the time to fill questions. My question's regarding Red Lake and specifically the mills. Wondering how you're thinking since closing the acquisition about the milling infrastructure. You've touched in the quarterly on the plans to refurbish the Campbell Mill that are currently underway. Wondering what the work program is there Is the plan still to take that mill to 1 million tonnes per annum or there or thereabouts? And also wondering if the Red Lake Mill is currently on care and maintenance and if the plan is still to maintain that. Thanks.

Thanks, Matt. Morning. That's one for Bob.

Thanks, Ron. How are you going, Matt? I guess quickly, the current today, the Red Lake Mill is actually operating and producing gold. because we're doing a five-week shut at Campbell to improve the reliability and to change out some parts that need changing. We're working on the whole gambit at Campbell, including the autoclave, including the crusher circuit, including the wet end, being the tanks and steel replacements. And we're also working on...

Thank you. Thank you. Thank you. Thank you. ... ... The request for a second number begins at the start of the efficiency test. For any of the things that I saw that you called, it's the same process that I had for the weekend. Well, I'm not quite sure what that means. But thank you for the question for your question. Thank you for the question. Thank you. Thank you. Thank you. I just want to say thank you so much for your time. Thank you so much. Good morning. I think it's important to be cautious if you need to learn how to speak English. I think it's important to be cautious if you need Thank you. Thank you. Um, we've got to be prepared. Uh, uh, uh, uh, uh, uh, Thank you. It's interesting how we can think around this aspect and it's very well. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. If you have any questions or comments, please feel free to reach out to me. Thank you. Thank you. That's the end of the conference today. Thank you for taking your time.