Evolution Mining Limited

Ladies and gentlemen, thank you for standing by and welcome to the Evolution Mining Limited June 2020 quarter results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. And now I'd like to hand the conference over to you for our speaker today, Mr. Brian O'Hara, General Manager of Investor Relations. Thank you. Please go ahead.

Thanks, Kevin. Good morning and welcome to the Evolution Mining June 2020 quarterly conference call. This morning on the call we have Jake Klein, Executive Chairman, Laurie Conway, CFO and Finance Director, Bob Fulker, COO, and Glenn Masterman, VP Discovery and Business Development. In what has been an extremely volatile year with so many distortions in financial market prices relative to economic reality, it's reassuring to know there's an asset class that's behaving exactly as it should. Gold's historical negative correlation to real interest rates continues to hold true, and with declining real rates coupled with extraordinary government stimulus, the gold price has performed well. While the US dollar gold price is now within a few percent of all-time highs set way back in 2011, the Aussie dollar gold price continues to break records, averaging over $2,600 per ounce for the June quarter. We've got a busy couple of months ahead of us, with the release of our financials on the 13th of August, which we'll use as an opportunity to issue FY21 guidance and an updated three-year outlook. And then on the 1st of September, we hope you can join us for our virtual Investor Day, which will have a particular focus on the longer-term outlook for our business, highlighting the growth potential at Cal, Red Lake, Ernest Henry and Mangari. For today's call, we'll be talking to the June 2020 quarterly results presentation released to the ASX this morning. Thank you and I'll hand you over to Jake.

Thanks Brian and good morning everyone. Thanks for taking the time to join us on the call today. We really do appreciate it. I start by pausing to reflect on the tragedy the Australian gold industry experienced last week when a young man lost his life in Western Australia. We are a relatively small, tight-knit industry and it has appropriately impacted all of us. We'll all work together to learn from it and our thoughts are with his family and his colleagues at this very difficult time. I do hope that you, your families and colleagues are all healthy and well and navigating these unprecedented times we are all confronting. At Evolution, we are fortunate that we are operating in Australia and Canada, two jurisdictions that are very good to operate in. And fortunately, also countries where the COVID-19 pandemic is being well managed. Evolution's management of the COVID-19 pandemic has been very successful so far. We are navigating through this with authenticity and staying true to our health and safety values whilst continuing to keep our business strong. To date, we have not had any impact on our production due to COVID-19, nor have any of our employees or contractors infected. Today, I'll be talking to slides three to five of the presentation that we've released. As an opening comment, I will say that if I could bottle this set of results and bring them out each quarter from here on, I would happily do it. They capture so many of the fundamental attributes our core long-term strategy is at Evolution. Firstly, and very importantly, our safety performance is improving. Performance in this area can never be good enough, but the signs are encouraging. In June, we did not have a recordable injury. Our culture of engaging, reporting and learning from every incident is also improving markedly. Secondly we have long talked about our approach to focus on margin over volume Here you clearly see the benefits of that strategy Producing more cash from lower ounces in our view is a very good thing This quarter we delivered record operating cash flow record net mine cash flow record free cash flow and increased our cash balance by $204.7 million, demonstrating again that Evolution is a high-margin, low-cost business. We are very pleased about today's high gold price and we hope it goes higher, but we are not going to bet our business on it as we continue to seek to position Evolution as one of the very few gold companies that can genuinely claim that it will prosper through the inevitable cycle. Thirdly, a gold company by definition is depleting its assets with every ounce it produces. So you must continually be adding ounces through discovery and also creating value through improvements. If you don't, you're going backwards. Today we announced the Maiden Underground Reserve at Cal. This is an asset that we acquired in 2015 with a resource base of 3.4 million ounces. Since then, we have produced around 1.3 million low-cost ounces, have generated over $750 million in net mine cash flow, and today the asset has a resource base of over 9 million ounces. Our reserve base at Cal now sits at almost 4.5 million ounces, and we will continue to grow this reserve base as we drill out more of the inferred resources into the indicated category. We will also continue to be conservative and constrain our resources at 2000 Australian dollars an ounce and calculate our reserves at 1450 Australian dollars an ounce. This is the best way to protect our margins. The Maiden Reserve announcement is well ahead of our anticipated schedule of the end of this calendar year and reflects the momentum we are building at this world-class mine. Bob and Glenn will talk further about the very exciting opportunities we have in front of us at Cal as we navigate our way to the production profile of over 300,000 ounces a year of low-cost gold. We continue to be very impressed and encouraged at the way evolution's approach, style and culture is being embraced at Red Lake. The transformation and turnaround is happening faster than we anticipated and the scale of opportunity is far bigger than we expected. We believe that as this continues, we will be able to consistently demonstrate material value creation at this asset. You'll be hearing more about this from Glenn in his summary and also at Investor Day and the release of our results. The turnaround at Mangari is impressive and the team there have done a great job at consistently delivering to or above their plans. Lastly, and I believe very importantly, we continue to demonstrate that we are prepared to refresh and revitalise our portfolios. Krakow is an asset that has served us well, but has a mine life of 18 months and needs an owner prepared to allocate risk capital to discovery. Relative to the opportunities in front of us at Cal, Red Lake, Ernest Henry, Mangari and Crush Creek, all properties with discovery upside, Krakow would not have ranked above them from a discovery perspective. This is the third asset we have sold and we continue to believe that our strategy That bigger is not necessarily better, and that margin trumps volume every day is the best approach for long-term shareholder value creation. With that, I'll hand over to Bob.

Thanks, Jake, and good morning, everyone. I'll go to slide six, please. It's pleasing, actually, to start with a couple of great positives. In the quarter, TRIF dropped by another 6% to 6.8. For the full year, this is an 18% improvement, meaning less people are being hurt. We've been actively monitoring and reacting to the impacts of COVID, and our people and our business have, to this point, not been materially affected. In the June quarter, we delivered 218,000 ounces at 1,088 all-in sustained cost and $224 million of net mine cash flow, a great result from the site teams to deliver a sound fourth quarter. We continue to produce gold safely. We have a new ore reserve at Cowell, and a great opportunity at Red Lake with the exceptional resource work from the geological team. And finally, 746,000 ounces produced during FY20 at an oil and sustain cost of $1,043. This includes 27.5,000 ounces at Red Lake at $1,943 Australian dollars an ounce. If we turn to page seven, CAL has delivered an exceptional safety improvement through the year with a movement from 8.7 to 1.8 in TRIF in the 12 months. Also, total oil processed is 7% up, and plant utilization has improved by 2% during the year. Considering the plant is predominantly on low-grade stockpile feed, Cal had a sound quarter at 60.6,000 ounces produced at a reduced oil and sustaining cost of $941 an ounce, and a net mine cash flow of 59.3 million, while still investing over 55 million on the underground diamond drilling and study work, stage H strip, and the IWL tails facility. These are all investments for the future. As Jake mentioned, today CAL declared a maiden underground ore reserve of 804,000 ounces and increased the GRE 46 mineral resource to 2.9 million ounces. I'd like to recognise the entire project team for the enormous amount of work completed to date that has enabled us to release this great result. The team are now working on the final stage of regulatory submission and will be ready to commence the underground upon approvals from both the regulator and our board. Finally, John Pennell started this week in the role of General Manager, and I'd like to welcome him to Evolution, and to thank Greg Walker for doing a great job at keeping Cal on track and delivering their ounces safely last year. Ernest Henry once again made a significant contribution to the group producing 28,000 ounces at an all-in-sustaining cost of negative $617 an ounce, whilst generating a net mine cash flow of $68.3 million. On page eight, Red Lake's first quarter with evolution exceeded my expectations, and the team, under guidance of Amber Adams, have really taken on the challenge to transform their operation. They produced 27,500 ounces at an all-in sustaining cost of $1,943 Australian dollars, with a mine cash flow of $9.9 million before the restructuring costs. Post the Campbell Mill refurbishment, the Red Lake Mill has been shut and winterised to save costs. Camber Mill has been running at 98% availability since the shut. Due to the fluidity of the COVID situation, the majority of the shutdown was performed by our local workforce. This has improved site ownership of the shutdown quality and will be replicated in the future where possible. Underground development advance rates are improving month on month. The plan is to reach over 1200 metres per month during the next six months. This improvement is due to focused development areas improved efficiencies in the lead equipment, and overall cycle effectiveness improvements. Other key milestones achieved during the quarter include 42 pieces of underground equipment decommissioned and removed, unused and redundant surface buildings removed, commencement of the underground infrastructure changes to allow the decommissioning of the Campbell shaft, commence the Reed and Barmer hoist automation projects, and updating the resource model continues, which Glen will discuss. and many small projects to reduce cost and improve efficiencies. It's an exciting time at Red Lake. Amber and the team continue to stay motivated and inspired to achieve their vision of being the cornerstone asset in evolution that delivers true value. Their goal remains to deliver greater than 200,000 ounces below 1,000 US AISC a year. And I'm confident that this is very doable. Mangara delivered 37,000 ounces at an all-in sustaining cost of $1,089 an ounce, with another record net mine cash flow of $39.8 million. Frog's Leg Underground delivered 29% increase in tonnes at a higher grade. It's pleasing to announce that the boom of development hit mineralisation as planned early in the quarter, and a drill platform established to start grade control drilling. Cutter's Ridge is progressing nicely with the first all-delivered last month, and the plant continues to run at a sustained... 2 million tonne per annum rate. Mount Rawdon produced just shy of 26,000 ounces at a slightly reduced oil and sustaining cost of $1,305 an ounce. A record net mine cash flow of $32.3 million was also realised. High-grade oil was accessed as expected, which reduced the need to feed low-grade stockpiles. Mount Carton delivered just shy of 15,000 ounces at a reduced oil and sustaining cost of $1,324 an ounce and a mine operating cash flow of $11.7 million. Mill utilization has remained high at 97.9% for the quarter. This is a full year improvement of 5.3%. Krakow continued its consistent performance, producing just shy of 24,000 ounces at a reduced oil and sustaining cost of $1,090 an ounce. The sale of Krakow was successfully completed on the 1st of July to Aeris Resources. And I want to personally thank the General Manager, Jason Floyd, and the entire site team for their service and contribution to Evolution Group. I'm pleased to say Jason will be staying with Evolution. In summary, FY20 has been a year of many highs and some disappointing lows, but it's my belief that we continue to learn how to improve ourselves and our business in these moments of hardship. Our safety has improved. Five of our six operations produced well. We have managed geological and geotechnical uncertainty as well as the COVID pandemic well. Some personal highlights of mine have been 61 Act Block the Owner nominations last quarter, 196 for the year. Our Data Enabled Improvements or DEVI program delivered $45.6 million in value. The Cow Underground project has been accelerated and the Mount Rawdon Western Wall remediation has been completed. It's now the start of a new financial year and we are focused on reliably delivering our promises. I'm incredibly proud of all the positives achieved last year and I'm encouraged with our people's enthusiasm to challenge the norm and think differently. Thank you for your time, and with that, I'll hand it over to Glen.

Thank you, Bob, and good morning, everyone. I'll be speaking to slide nine in this morning's presentation and referencing pages 12 to 20 of this morning's report. Financial year 2020 proved to be a successful year in discovery and evolution, particularly at the Cal Underground. Results from the focused surface and underground drilling activities continue to demonstrate the high quality opportunity we have in front of us. Over 400,000 ounces was booked in the updated mineral resource only four months since our last estimate was completed. Total resources, inclusive of the 804,000 ounce made in ore reserve, has increased to 2.9 million ounces. Drilling will continue underground and from surface in the current quarter with the aim of upgrading additional inferred resources to build on the 1.5 million ounces of indicated category mineralisation and to continue expanding the resource inventory mainly at the Delwini South area where mineralisation remains open in the down plunge direction. Infill results highlighted on page 15 of this morning's report which includes 75.2 metres grading 5.1 grams per tonne in hole 139 confirm our understanding of the geological continuity of mineralisation in the underground resource. These results were not available at the end of April when the resource model was updated. However, will be incorporated in our annual mineral resource and ore reserve statement for the period ending December 31, 2020. Importantly, these new results confirm our hypothesis that the ore reserve will continue growing as we progress feasibility work to deliver first ore from the underground. At Red Lake, we have now completed two full quarters of drilling and increased the number of underground drills from four to five. The program continues targeting numerous resource conversion opportunities at Koshner and Lower Red Lake. The results are demonstrating strong great continuity in areas that will be mined in the schedule over the next 12 to 24 months. Step-out drilling in adjacent areas is exploring the possibility of extending mining beyond current designs where mineralisation remains open along strike. Several longer step-outs at the north end of the Koshner ore body have confirmed continuity along strike of the Gold Eagle Corridor. The best result was 4.7 metres grading 18.8 grams per tonne with follow-up drilling planned around this initial intercept to understand the significance of the results. Work on revision of the Red Lake mineral resource continued during the June quarter, including consolidation of over 140 individual block models into a more manageable number of 19 models. A developing understanding of the geology and controls on grade distribution across the various ore bodies reinforces our belief that we have acquired an excellent geological address in Canada. We look forward to sharing the results of this work as we finalise our analysis on the model later in the September 2020 quarter. At Mungaree, access from the Frog's Leg decline to the Boomer vein was established in late May. The underground opening exposed, as expected, a narrow section of the vein which was well mineralised with abundant visible gold. Grave control drilling commenced early in the September quarter to inform a mining study that will optimise development of the Boomer mineralisation. Drilling highlights are summarised on page 16 of this morning's report and include an impressive intercept of 0.7 metres grading 133.8 grams per tonne gold from an infill hole. RC drilling commenced on the Boomer North target which is designed to test a one kilometre long extension of the Boomer structure where it continues on the north side of the Mary Fault. We expect to be able to report initial results of this RC program in our September 2020 quarter end results. Turning now to the Crush Creek project, which is located 30 kilometres south of our Mount Carlton operation. Two diamond rigs commence drilling on the Delta and BV7 targets in the June quarter. A reverse circulation rig is scheduled to arrive in the September quarter bringing the total number of drills on the project to three. Low sulfidation epithermal mineralisation with narrow intervals of bonanza grades were confirmed by initial infill holes designed to verify results of historic drilling. The program has subsequently moved to a phase of step-out drilling with the objective of building inventory for a maiden mineral resource estimate that we believe has the potential to extend mine life at Mount Carlton. Results for the first 20 drill holes have been received with highlights summarised on page 18 of this morning's report. Narrow high grades, such as those intersected in holes 12 and 16, highlight the opportunity to delineate small narrow high grade shoots at the Delta target. Step-out drilling will continue in the September quarter, focusing on expanding the mineralised footprint at both targets. With that, I'll hand over to Laurie.

Thank you Glen and good morning everyone. Today I'll briefly cover the financial performance for the June quarter and FY20. A summary of the financials is on pages 10 and 11 of the report and page 10 of the presentation. As mentioned by Jake, if we could replicate this June quarter every quarter we would be very happy and we would be building our bank balance significantly. It provided us with an excellent finish to the full year as evidenced by the charts on the slide. Our group AISC was $1,043 per ounce or US$700 per ounce. This is globally competitive and towards the bottom end of the cost curve. Our Australian operations delivered 719,000 ounces at $1,008 per ounce for the year. Excluding the impact of higher gold price and lower copper prices on royalties and by-product credits respectively, we would have come in at the top end of guidance around $990 an ounce. Pleasingly, Red Lake in their first quarter delivered over 27,000 ounces below their guidance range of $21 to $2300 per ounce. Our sites delivered in excess of $750 million prior to any restructuring costs. This was after approximately $370 million of sustaining and major capital investment, most of which is for growth or future production. This resulted in a healthy margin to cross the business with an all-in cost margin of $765 per ounce with the Red Lakes first quarter delivering a margin of $253 per ounce. Our EBITDA margin increased to 53% from 51% at the March quarter. This resulted in record quarterly and full-year cash flow of $188 and $542 million respectively. At the end of the financial year the cash balance increased by $205 million to $374 million. We are rapidly reducing our gearing with net bank debt down to $196 million and early in July we received the $60 million initial consideration for the sale of Krakow which further reduces our net debt position. We will be releasing our full year financial results on August 13. as well as providing guidance for FY21 and an updated three-year outlook. With that, Kevin, please open the lines for questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. 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 the power and hash key. Once again, it is star 1 and wait for your name to be announced. Thank you. We have multiple questions in the queue. Our first question is from Mr. David Radcliffe from Global Mining Research. Please ask your question.

Thank you. Good morning, Jake and team. So I had a question around the GRE 46 reserves and around the grade of two and a half grams. I mean, obviously, when you look at the number of the holes and the results you've reported today, there are a number of areas of high-grade material. So how should we think about, I guess, the overall upside to that grade? Or to put it another way, what do you think the grade profile might look like as you begin to mine it? Would you be able to mine some of these higher grade areas early on?

Thanks, David. Morning. I'm going to hand you over to Glenn and then he'll hand over to Bob.

So, David, on the question of the average grade and certainly, as you know, I mean, it is an average grade and we do have areas in the resource model that report well above that average grade and this is supported by the drilling results such as what we've disclosed this morning. And I think what we're endeavouring to do as we continue the drilling from the underground, which is targeting additional conversion of inferred resource to indicated category, is to prioritise those areas where we feel there are great opportunities that can come into the mine schedule. earlier on and this is really sort of driving how we prioritise and schedule the drilling program over the next several months. In terms of the great opportunities that we're going to be looking at scheduling and this will sort of come through in the feasibility study as we optimise the resource further, I'm going to hand over to Bob who will talk to that.

Thanks David, thanks Glen. Simple answer to your question is yes, I would expect the grade to be a little higher than that when we come out with the mining plan. The team is working on optimising the actual schedule and as normal we will actually identify those higher grade areas for mining first. This is a global reserve grade and I would expect that when we start mining it will be higher than that lower limit.

Thanks, Bob. And David, I just had one comment to close that off and hopefully have answered your question. When we first started thinking about the underground at Cal, we're thinking about 750,000 to a million tons per annum operation. The scale of the discovery, which is now almost 3 million ounces and open at depth in a long strike and is growing, has now led us to believe that actually a larger scale operation would be preferable. So we're now targeting 1.5 to 2 million tonnes per annum, which has allowed the cut-off grade to reduce, and that's had an impact on the grade. But as Bob said, optimising that grade into the mining schedule still has upside to that average reserve grade.

Okay, thank you. Then maybe if I can just follow up on Reg Lake. I mean, the cost out looks to be going well. It's still early days. But maybe can I push you on, given the progress and your comments sounded quite positive there, and when you think you could actually deliver that 1,000 US an ounce target on the costs?

You can push us, but I'm going to try not to answer the question and defer you to when we release the guidance. I would say as an overall comment, Red Lake is surprising us on the upside in every aspect of the operation, from a geological perspective, from a mining perspective, but most importantly, from the way in which people are embracing the change at the operation. Since 2019, the workforce has been reduced by 20%. Initially, there was some ambivalence about whether production rates, development rates could exceed 1,000 metres a month. They're now being consistently achieved, and Bob is confident that the team has the capacity to lift that to the 1,200 metres a month. We've listed in the quarterly a number of things that have been cost outs and it has surprised us on all fronts. But most importantly, it has surprised us from a geological perspective because we are bringing a different lens to an operation which was previously targeting a grade of above 15 grams a tonne, and in our language, 7 to 8 grams a tonne is high-grade material. So if you put a different lens on that, it gives you a very different answer.

Okay, great.

Thank you very much.

Our next telephone question is from Nick Herbert from Credit Suisse. Please ask your question, Nick.

Thank you. Good morning, Jets. A couple on Cale, I'm pleased to start with. Do you mind just running through your assumptions that underpin that guidance for FY21, particularly over the first half when you're in that low-grade stockpile?

Yeah, I mean, this is very consistent with the way the planned and the schedule has been articulated previously, Nick, in that we finished the Stage G cutback in the September quarter, and that was the best production run rate that we had at Cal this financial year. We are then processing low-grade stockpiles as we move towards the H cutback ore, which you'll get to in the second half of the year. So that is our profile on what the stockpile material looks like for the next 12 months, plus some of the H cutback material. And that gives you that outcome. But I think it's very consistent. with the messaging which we've delivered previously.

Yeah. And Nick, just to... into what your question was, the profile, I mean, the first half of the year is all low-grade material, so we will see another step down in production in the September quarter from the 60, and that will flow through into the December quarter as well. And then in Q3 and Q4, you'll see that certainly step back up. When we give the full guidance next month, we'll be able to give the profile over the year.

And at the risk of repeating myself and looking longer term at the cow endowment and opportunity, when we acquired this, we never anticipated. This mine was scheduled originally to close in 2024. We've extended that to 2032 without the underground. We're now looking at the development of the underground and this plus 300,000 ounces on a sustainable long-term basis is very much within reach. And this underground we're talking about, I would add, is only what we consider phase one of the underground.

Yeah, that's very helpful. Thank you. And just sticking with the underground, do you mind just fleshing that out in a bit more detail in terms of timing around when that potential one and a half to two million tonnes could come into production and just the assumptions around the timing on permitting to achieve that?

So the permitting is the difficult part to predict. What I will say is that this is a project that is in the central west of New South Wales. It will create long-term jobs. It will create a lot of investments. It will provide a lot of benefit to the communities around who are very supportive. And it's to an existing mine that has an outstanding track record of environmental and community engagement. So it ticks all the boxes from a government perspective as to projects that are effectively shovel-ready and able to be invested in. So we're planning to put the submission to the regulators early in the December quarter. How long that will take, we're not sure. but we will be ready to be mining on the day they get us that approval, and 12 months subsequently we expect to get our first ore from the underground.

And just to follow on, Nick, that 12 months is ample time with the style of mining to get ore to start to come out. It will ramp up post that, but pretty confident that we can get some sort of ore feed out in that 12 months. Okay, great.

And then finally, just on Red Lake, you know, appreciate you having given guidance for next year, but are you able to sort of just give a broad view on how you're thinking about the potential production out of that next year? I guess also in the context of what your planned development rates were that I think, Bob, you'd spoken to, sort of any indication there would be helpful. Thanks.

Thanks, Dick. I'll just start and then hand over to Bob, but Just to say that we are still in that investment and transformation phase. This is a mine that was basically being harvested and was due and scheduled to close in the next 12 months. So we are prioritizing and focusing on drilling and development. And therefore, the ramp up in terms of production is not going to be a huge step change from the current year. But it is investing in the future. and it will deliver us that plus 200,000 ounces at less than $1,000 an ounce.

Just to expand on that, Nick, the development rate of the underground is the key. The more development we can get early, the more areas that we can open up. But then we need to actually ensure that the drilling and the grow control drilling actually links in behind that and informs of the actual stoping areas. So with the geology and the engineer working together, The next 12 months is really building that development stock or the development inventory whilst ensuring that we're going into the most value-driven areas. 1,200 metres plus a month should enable us to start to pull ahead. So it's pleasing to see that we're doing more than 1,000 metres a month now. And the guys on site, they're pretty bullish about what they can do and where they can go. So I'm quite happy that that's where we'll be.

But I think the next 12 months is not prioritising production. It's prioritising investment and setting that operation up for a very successful long-term future.

Yeah, and we've got a lot of work to do in the next 12 months.

Got it. All right. Thanks, James.

Our next telephone question is from Levi Spry from JP Morgan. Please ask your question, Levi.

Good morning, and thanks for the call. Nick's got some pretty good questions there. Maybe I can try both of them just for a little bit more detail. So Red Lake development rates, 1,000 metres going to 1,200. So 1,000, you're doing 100,000 ounces a year, but you're going to 200,000 ounces. Can you just talk a little bit more to that, Bob? Are they straight lines? Do you need to get to 2,000 metres to get to 200,000 ounces?

No, I'm sorry. Yep. It's not a straight line. It's not a straight line. If we get that plus 1,200 metres a month, we'll start to be putting development inventory in the bank nicely, which will enable us to get more ore out sooner than that two- to three-year timeframe that we talked about originally. But remember that it's actually been depleted over the last 12 to 18 months, so we've got to build up that stockpile first. So... Plus 1,000 is probably where we need to be long-term to maintain it. Getting more early on is just better for us. But I just want to reiterate, it is constrained. We need to get the geology in front of us. We need to understand the interpretation. And we need to actually get that drilling and the development in concert to ensure that we most optimally mine the operation.

Yeah, good. Thanks. Good answer. And just on cow... So next year's gone. So does that assume, what's the throughput rate, I guess, at running on stockpiles? Is it running at 9.2?

No, it's at 8.7 million tonnes per annum.

Okay, thank you.

Thanks, Jake. That's it. All right, thanks.

Our next telephone question is from Daniel Morgan from UBS. Please ask your question, Daniel.

Hi, Jake and Tim. I just want to understand a little bit more of that Cal underground reserve that you've put out and the grade. Just wondering, are you suffering from a lot of dilution in your thinking there? Just wondering, yeah, the grade versus the resource grade appear identical. Thank you.

Dan, I was trying to remember, it's in the actual tables for dilution. I think it's 5% footwall and hangwall, Glenn? Yeah, that's right. So they've taken that plus they've allowed for blocks that are outside of the range to be zero. So they've taken some of those into consideration as well. I can't remember exactly the percentage of the dilution overall. Sorry, I can get it back to you if I need to.

Yeah, I think the other thing is too that blocks are going in in terms of indicator that can be counted towards the reserve. need to have at least 75% indicated resource into a stope shape, which is a conservative approach. Plenty of blocks there with 50% that haven't been counted. So we're looking to obviously convert more of that inferred into indicated so we can count those stopes into the overall resource. But I think one point to make on the resource model, which is been updated to deliver the 2.9 million ounces. It's been estimated as a good global estimation of the overall resource and what the infill drilling is going to give for us is a better understanding of local distribution of grade and that will then influence how our stoping sequence and how that's prioritised through the feasibility study. So that's in the next phase of work through this feasibility study and improving really that output that can go into the design of the mine plan and the scheduling.

And I'd add to that that the success we've had on the discovery piece has really made us think about accelerating it. And I think you know that previously we were anticipating a reserve of a million ounces. We're targeting a million ounces by the end of the year. and then releasing that, and then starting to submit regulatory approvals. But given the environment we're in, given the success and the confidence we're having with the discovery opportunity at Cal, we thought it would be better to put it out early, get the regulatory approvals in early, which hopefully will allow us to bring forward, quite materially, first of all, from the underground.

Sorry, Dan. The footwall and hanging wall have got a 0.2 metre skin applied to it, but there's a further 5% dilution applied to the total reserve. So it's actually a 0.2 plus a 5% dilution. And then there's anything that's development has got a dilution which is outside of a strike drive as well. So they're being quite a little bit conservative in some of it.

Yeah, I guess at a high level conceptually, just wondering, I mean, every quarter you put out drilling results and you're often... you're hitting gold outside of your prior resource and now you've got a reserve. So the thing keeps growing. I'm just wondering if you could talk about how you might expect it would grow. Is it going to continue to grow in tonnage or grade or both? Could you talk to that?

Yeah. Very good question and I think there's two ways to answer that, Dan. I think the first thing is as we continue infield drilling, so more definition into the resource model, we think that the opportunities to sort of sharpen up the domains, the resource domains is pretty high. So what we would expect there is an improvement in grade, but probably a decrease in the tonnes, but for the same overall ounces. And that's a trend that we're starting to see as we close down the drill spacing inside of the inferred resource to get it into indicator. In terms of new growth, it's going to be a combination of both. And what we're prioritising in our step-out drilling which is underway from surface is, for example, the Delwini South area, which is a continuation along strike of Delwini. Which is, in terms of grade bins, when you assess the model, the Delwini really delivers the higher grade or blocks into the model. So we are prioritising the Delwini or extensions of the Delwini to hopefully improve the grade, and some of the early results are quite encouraging. So that's definitely a priority, but I do expect that we'll see in the step-out drilling that a wider space in growth in tonnes and grades, and it's growth in tonnes at around about the same grade, hopefully a bit higher, but as we infill, the desire is that the tightening of the geometries will improve it.

And a lot of our concentration or focus in the last little while, Dan, has been really around what would actually be the first areas that we would want to mine and how do we actually increase our confidence from a geological and a grade perspective. And that's obviously the southern end of the oil body is closer to where we are from decline and access. So there's a couple of different things in there that we would hope to try and do over the next little while.

Yeah, and just last question, which is a follow-up on that. I mean, you've clearly got permits to do the exploration decline and activities. I'm wondering, under those permits, you know, what can you do that will enable a faster start on the project when you get, I guess, mining permits? Thank you.

Yeah, we've got a permit to do the exploration decline and drilling from underground. The decline itself has actually stopped or finished now. We're continuing the drilling. We would need additional exploration permits to do more exploration drives and to extend that out. It's an option, but it's one of those things that we're considering. We don't have a mining permit for underground, so we're a little bit restricted there.

So the way to advance the permits is go for the mining and you've exhausted your exploration permits to develop

No, I think one of the options we're considering is to put another part of the decline development which will go across the ore body and put us in the right location from a development perspective as well. It will double up as both an area that we could explore further from and subsequently use as part of the production decline. So we are looking at that. Obviously, the exploration decline that we did put in was relatively easy to permit, and we'd expect the same for any additional permit for a decline development.

As you can understand, Dan, our want to understand the ore body and that ore body knowledge is high, so any information that we can get that can help the geologists and the engineers out, it's going to improve our confidence.

Absolutely. Okay. Thank you very much.

Our next telephone question is from Reg Spencer from Canaccord. Please ask your question, Reg.

Thanks. Good morning, Jake and team. Just on cow, there's quite a big delta in potential production rates in the underground from one and a half million tonnes all the way up to two. I was wondering if you could maybe explain what might be the limiting factors on that underground oil production rate, just to help guide us in our thinking pre the pre-feasibility study.

Yeah, Raj, it's Bob speaking. Good question. Some of that's going to be answered in the next three to six months. It really depends on geography and space and how many mining fronts we can get and how many stoping fronts we can actually get. With the style of mining that's being planned, which is a fully filled type of mining method, you have to have additional mining fronts to actually increase it a lot. So that's what's actually constraining the rate. One and a half to two million, that's realistic from the size of the ore body. When you look at the actual, the area it covers, the strike extent, the down dip extent, it's quite easy to actually get at least two or three mining fronts going at one time.

Okay, great, thanks.

Just lastly, on the stockpile feed into cow first half this financial year, I might have missed it before, but the overall stockpile grade average, correct me if I'm wrong, is about 0.6 grams. And given that we don't quite have accurate guidance on the ramp-up once you get back into the in-situ wall in terms of the feed into the plant ex-pit... I presume you'd be preferentially trading some of those higher grade stockpiles in the first half next year. Just trying to get a feel for what kind of feed grade we should be thinking about.

Yeah.

Yeah. I mean, Reg, that's right. I mean, the first half of the year, we'll be mining at an average grade of probably about 6.65, but that will increase. So that's over the first two quarters. But we'll be out mining the mill such that the average grade that we'll go through would probably be in the 0.8 to 0.85. And then in the second half of the year, you get back up over one in terms of grade process as we get into the better grades in stage H and the oxide material.

That's excellent. Thanks very much, guys. Appreciate it. I'll pass it on.

Our next telephone question is from Lachlan Moffat-Gray from The Australian. Please ask your question, Lachlan.

Good morning, guys. I just wanted to ask a broader question about the impact of the coronavirus pandemic on the broader gold price industry. I just am interested in hearing your thoughts on what might happen if we see a global economic recovery, and then on the flip side, what might happen if we see a continued spread of the disease? Thank you.

Thanks, Lachlan. I'd say that we're in a very favourable gold price environment given the amount of fiscal expenditure which is required to address this COVID pandemic. Hopefully we will get a recovery from it from a health and safety perspective and community perspective. But the amount of money that is being spent and required by governments globally suggests that we are in a very positive gold price environment for at least the medium term.

Thank you very much.

Our next telephone question is from Mr. Matthew Friedman from Goldman Sachs. Please ask your question, Matthew.

Sure, thanks very much. Morning, gents. Thanks for the call. Just hopefully a fairly simple one for me on Stage H cutback. Can you remind us of the waste movement required to unlock that pushback in line with, I guess, your current thinking in terms of timing in the second half of next year? I see in the June quarter you've been operating around 3 million tonnes in the quarter of capitalised waste. Is that the same rate that you need to maintain over the first half of FY21 to line up with that timing?

Yeah, Matt, we'll see that we'll be mining in the order of actually 4 to 5 million tonnes of total waste each quarter for the year, and depending on where we are in the pit as to how much gets capitalized, it's probably still gonna be around the similar levels that we did in the June quarter. But at the back end of FY20, that certainly falls away as we get almost double the amount of ore per waste come out of the pit.

Yeah, thanks, Laurie. You preempted my question on how much has been capitalized. with a step up to four to five million tonnes from a quarter-on-quarter basis, does that require, you know, is that a function of shorter haul distances or additional fleet, or how is that being achieved?

No, so, I mean, I think if we look at, and I'll just quickly check, but the total material of waste moved for the quarter at Cal... was about three million and we will see the step up. We do have material shorter haul distances, some's going out to the IWL, but it will be the fleet utilization is lifting in the year as well. So we did some major rebuilds in June on some of the gear to enable it to be able to handle this step up in material that we have to move in the first half of this year.

Yeah, sure. And then just finishing that point on the capitalisation, is it right to say that the capital component of the waste stripping will be wrapped up by FY22? There's still some capitalised stripping going into FY22?

No, it'll finish in FY21. This will be the last of the capitalised material for Stage H will be in FY21.

Okay, fantastic. Thanks, Laurie.

Once again, it is star one. Our next telephone question is from Kate McCutcheon from Citi. Please ask your question, Kate.

Hi, Jake and Tim. Just with that uplift from the stockpile from 0.65 to 0.80, was that from the ore sort? And can you just talk about how you're going with that and what kind of volumes you can treat?

I think what Laurie was alluding to, Kate, was that we're actually out mining what we can put through the mills. and therefore we'll put the lower grade onto stockpile and we'll take the higher portion of the lower grade. The actual low-grade stockpiles are actually being depleted, and that's really the grade that... Laurie, is that...?

Yeah, there's a mix there, Kate. You will see through the first half of the year some of the material coming out of the mine will be higher than the average, and that will go through, but there is also... The lower grade material that is currently higher than the grade that's coming out of the pit and then the third piece is, as Bob said, there is some sorting that the guys are using to uplift the grade as well to get that movement between around 0.65 to that 0.8 to 0.85 in the first half of the year.

So in the back half of the year, we will have some ore coming up, which is a little bit higher grade as well.

And there is some oxide material going through in the first half of the year, which is also above that one gram per tonne. So there's about four factors determining the grade that goes through the plant.

Ah, right. Okay, got it. Thank you. And then, Laurie, maybe some questions for you. So just for FY21, can we expect a cash benefit Or maybe can you just clarify how you will treat the stockpiles and how we should think about cash costs at Cowell next year?

I'll try and resist as Jake did in terms of giving all of the guidance today based on the different questions that are being asked. I mean, the thing for Cowell is that low-grade stockpile certainly has a value that's in there, but the inventory movement for the year that comes off the stockpiles will be minimal. We will see, therefore, their AISC go up marginally from this year to next year, purely based on that grain and lower production.

Okay, got it. That's helpful. And then just finally, at Red Lake, can we expect a separate York resource, or is that something that we're going to see with your normal kind of year-end cycle?

No, we're preparing a JORC resource. And again, without wanting to take the fanfare away from our August release and investor day, that's when you should expect to see the JORC resource.

Okay, got it. Look forward to August. Thanks, guys.

Thanks, Kate.

And we have another question from Lachlan Moffat-Gray from the Australian. Please ask your question, Moffat.

Thanks again. I just wanted to ask generally how you think the gold industry should be thinking about the windfall that's being seen. I think gold and iron and the iron mining industries are probably the only ones that will be sort of paying out dividends at usual levels. Do you think that the increased amount of income should be seen as something that should be paid out?

So that's a good question, Lachlan. And our focus and our strategy, as I said in my earlier comments, is around margin over volume. We believe that this is a very cyclical industry. We're in a great part of the cycle at the moment. And as I said earlier, I think there are lots of reasons to believe there is a long way to go in this cycle. But where there is a great gold price, we need to be making super returns. And you can see that in the evolution's results today. We are generating material amounts of cash flow whilst investing in our world-class assets that will grow us and sustain us in the future. We also have paid out 13 consecutive dividends and have a target of paying up to 50% of free cash flow. And so in these environments, investors are getting a good yield if they're investors in evolution.

Thank you very much.

There are no further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please go ahead.

Thanks. We do appreciate everyone taking the time to join the call today. As you can see, Evolution is in great shape. Not only because of the quality of our asset portfolio, but mainly as a result of the quality of the people we are fortunate to have in our business. At all levels in the organization, they are being values-focused, working hard, and importantly, collaborating as a great team to deliver these outstanding results. I don't think there has been a better example of that than in the June quarter, given the performance our people have delivered through uniquely challenging circumstances. Please stay healthy and safe, and we look forward to speaking to you again on the 13th of August when we release our full-year results and three-year outlook. Thanks very much for joining.

Ladies and gentlemen, that does conclude the call for today. Thank you for participating. You may all disconnect. Have a great day.