Evolution Mining Limited

Thank you for standing by and welcome to the Evolution Mining FY21 Half Year Results Financial Call. All participants are in a listen-only mode. There will be a presentation followed by a 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. Jake Klein, Executive Chair. Please go ahead.

Thanks Melanie. Good morning everyone. Thanks for joining us. We really do appreciate it. This morning on the call I'm joined by Laurie Conway, our Finance Director and CFO, Glen Masterman, VP Discovery and Business Development, both of whom will be talking to the presentation. Bob Fulker, our COO, is also available here to answer any questions. By any measure the releases we have made on the ASX today are outstanding. I have the privilege of introducing them to you, but before launching into details about the very measurable things like profit, cash flow, resources and reserves, I want you to know that the most valuable asset this company has by far is not measurable and is our people and our culture. We are fortunate to have a group of passionate, hardworking, talented people who together make Evolution a special company who have made these exceptional announcements today possible. Our culture revolves around the characteristics of humility, respect, belief and empowerment. Continuing to develop this culture is core to Evolution's ongoing future success. Turning to the announcements and starting on slide three of our presentation. At Evolution, we seek to differentiate ourselves by focusing on delivering the best long-term sustainable returns via both capital growth and dividends. Our strategy recognizes that we are investing our shareholders' capital, and for every dollar we spend, we need to achieve an appropriate risk-weighted return. If we cannot be confident of delivering this, we should not be making the investment. We predominantly focus on bottom line metrics rather than top line production growth because it is the bottom line where shareholder returns are created, not the top line. So it is with pride that today we report record statutory net and underlying profit for the six months ended 31 December 2020. These results have allowed us to declare a dividend of $0.07 per share fully franked, our 16th consecutive dividend. This brings our cumulative amount of cash return to shareholders via dividends to $851 million over the past eight years. Our strategy is centered around our ambition to be the premier global mid-tier gold miner. operating six to eight high-quality assets in Tier 1 jurisdictions. At the core of our DNA is a belief that quality and margin matters most. Not all resources and reserves are created equal, and that is behind our relentless pursuit of continually seeking to upgrade our portfolio of assets. In the past five years, we have acquired four assets and sold three. Focusing on quality also drives our decision to estimate our resources and reserves using a very conservative gold price of $1,450 per ounce for all reserves and $2,000 per ounce for mineral resources. Today's announcement of a 74% year-on-year increase in resources to 26.4 million ounces and a 49% year-on-year increase in all reserves to almost 10 million ounces is a reflection of the strategy of upgrading the quality of our portfolio. Importantly, the increases in our resources and reserves are coming from our highest quality assets. We are incredibly pleased to announce today the first York Reserve at Red Lake of almost 3 million ounces. There is a strong potential for further reserve growth and discovery and we continue to be excited about our future at Red Lake. Reflecting this, the Board has approved the development of a new decline into the upper Campbell area of the mine which will allow access to the 1.85 million ounces of reserves grading 7.4 grams per tonne. We anticipate the decline will allow in excess of 1 million tonnes of ore to be mined annually from these new mining fronts which are separate to and independent to the current lower levels of the mine which are constrained by the shaft infrastructure. At Cal, the mineral resource base is now 9.7 million ounces and reserves are 4.6 million ounces. The underground reserve has grown to an excess of 1 million ounces and there is good potential for more. For those of you who may recall our acquisition of Cal in 2015, we acquired the mine with 1.6 million ounces in reserves. and it was scheduled to stop mining in 2020 and process stockpiles until closing in 2024. With investment and exploration success to date, we have produced 1.7 million ounces of low-cost gold, and notwithstanding this depletion, today have a reserve base of 4.6 million ounces. Cow and Red Lake now have a reserve base that places each of them in the top five gold deposits in Australia and Canada respectively. At Ernest Henry, the drilling program completed in 2020 confirmed that the ore body extends below the 1200 level at similar copper and gold grades and remains open. A significantly increased budget for drilling is approved and scheduled for 2021. with the aim of allowing these levels to be included in future resources and reserves. Evolution has a 49% interest in all copper, gold and silver added to reserves below this level. This asset has and will continue to be a fantastic one for evolution. Since evolution was formed almost 10 years ago in 2011, We have grown our resource base by 283% to 26.4 million ounces and our reserve base by 186% to almost 10 million ounces after taking into account depletion of 6 million ounces. On slide 4, we highlight a number of achievements we have delivered in the important area of sustainability. We are fortunate that we continue to navigate through the COVID pandemic successfully. However, we remain very conscious of the impact that this is having and have sought to assist and support our host communities with over $2 million of support. With that, I will hand over to Laurie to take you through the financial results.

Thank you, Jake, and good morning, everyone. It's a pleasure to present the financial results for the half year to December 2020. I echo Jake's comments that the results for the first half are outstanding, with several financial records achieved and more importantly we are banking cash and returning more than half of it to shareholders in a period of high metal prices. Even with the Australian spot gold price being $160 per ounce lower than what we achieved in the first half, our margins and cash generation position remain strong. On top of this, as you'll see in a couple of slides, our cost control efforts continue, with operating costs only increasing by 1% over the prior period. We will maintain our discipline and priority on margin. Turning to slide five, which summarises our financial performance. Our profit, both statutory and underlying, were records at $229 and $234 million, respectively. This equates to increases of 55% and 57% and an earnings per share of 13.4 cents. I'll cover off the drivers to the increased profit on the next slide. Our operating cash margin is very healthy and increased by 6% to 52%. Our investment in sustaining capital, major projects and discovery saw our all-in cost margin increase by 30% to $852 per ounce. The 30% increase is against an 8% lower sales and only a 14% increase in the gold price. This reinforces our focus on margin over ounces. At today's spot gold price this margin would be around $700 per ounce, although the nine year high copper price will buffer some of this impact if it is maintained for the remainder of the financial year. Group cash flow was down 10% but this was effectively due to negative $25 million working capital movement between the two periods. Moving to slide six where the drivers to the underlying profit are shown. The sale of Krakow and acquisition of Red Lake essentially netted off each other with a $4.5 million reduction to profit. Overall revenue was up 9% increasing profit by 21 million net of Red Lake and Krakow. Our focus on cost control remains effective with our operating costs essentially in line with the prior period. Non-cash items of inventory movement and DNA were favourable in the period. They were driven mainly by different stockpile utilisation in grades at cal between the two periods and lower depreciation rates as a result of increased mine lives linked to our MROR. On slide 7 which covers our cash margins and cash flows. Our EBITDA margin is sector leading at 52% which was an increase of 6% over the prior period. On a like for like basis where Red Lake was not in the portfolio in 2020, the 2021 margin would have been 56%. Red Lake has started well with a good base of 34% and we expect this to increase materially as the transformation programs are completed. Our long life assets have the highest margins at 60% to 73%. After investing $173 million across the business, our net mine cash flow margin is very strong at 36%. While at a group level, the cash is hitting the bank at a rate of 22% of total revenue or $625 for every ounce that we've sold. Even at spot gold prices, this margin would be still a very healthy 17%. Turning to slide eight and dividends. On the back of the cash flows generated in the first half and the outlook for the business, we've declared a fully franked interim dividend of $0.07 per share. This will deliver a return of around $120 million to shareholders and is equivalent to a payout rate of 55% of our first half cash flows or 12% of revenues. It represents a dividend yield of around 3.5%. We continue to manage and balance our dividend level and franking credit position to deliver fully franked dividends. We see no change to our policy or payout rates in the near term. Lastly, slide nine demonstrates that any changes we make to the portfolio are aimed at improving the quality. This is either through acquisition or divestment and underpins our strategy. Our track record is shown in recent transactions. A fundamental part of M&A is making a return on investment which means all assets repaying their capital and generating an adequate rate of return. Ernest Henry has repaid all of their investment while Cow will reach 100% in this quarter. They have repaid their investment in a short four to five and a half years. Meanwhile, Mangari's turnaround in the last couple of years has been exceptional. In fact, in the last 12 months alone, it has repaid 36% of its investment. I would suggest that this is the highest return in the Kalgoorlie region. These three assets have delivered an average of 15% to 25% return each and every year that we have owned them, with Ernest Henry to stand out at 25%. It's only early days for Red Lake in the portfolio, but with the transformation plan tracking ahead of schedule and the significant increases in reserves, we expect the rate of payback to improve in the coming years. We've also demonstrated that when we sell assets, not only do we improve the quality of the portfolio, but we sell well with royalty or contingent payment mechanisms. We have received just under $5 million from Penjingo and Edna May to date, and those structures are now delivering payments every six months. In conclusion, the results of the first half of the year sets us up very well to finish FY21 in an even stronger financial position.

With that, I'll now hand you over to Glenn. Thank you, Larry, and good morning. It gives me great pleasure to explain what we have been able to accomplish in 2020 to grow our mineral resources and our reserves. But before I do, I want to acknowledge the hard work and effort by all of our people involved in delivering the excellent results I'm about to describe. I'd like to direct you to slide 10 of this morning's presentation, which shows that our mineral resources increased 74% to 26.4 million ounces with the addition of 11.2 million ounces after accounting for depletion, or in other words, resources grew by a total of 12.1 million ounces exclusive of depletion. Reserves increased 49% to 9.9 million ounces, up by 3.2 million ounces inclusive of depletion, or 4.2 million ounces before depletion. The results we've released this morning are illustrative of the strong platform we've built that will allow us to continue converting our large resource base and extending no and all bodies beyond existing resource boundaries. Pleasingly, our MROR growth was delivered by our most important assets which validates our strategy of improving portfolio quality by acquiring assets in well-endowed geological terrains where we can significantly improve and extend mine life. We continue to shape and position our portfolio to deliver future resource and reserve growth. We have the technical teams and budgets in place to continue improving knowledge of our ore bodies with the potential to make discoveries across our portfolio of high quality brownfields and greenfields targets. I would like to kick off MROR highlights from our operating assets with developments at Cow which are shown on slide 11. We have increased resources to almost 10 million ounces and reserves to 4.6 million ounces. Exclusive of depletion, resource growth at Cow exceeded 1.7 million ounces as a result of drilling additions to the underground and open pit resources. The illustration on slide 11 is an oblique view of the operation looking across from east to west. The grey shapes are the mineral resource models with the red shapes representing reserves. Pleasingly, the underground and open pit resources remain open on strike and at depth in the directions of the arrows and provide exciting future extensional drilling targets. Our journey at CAL over the last three years has been a very rewarding and gratifying one to be part of. We have built the resource inventory commencing at the regal end of JRE 46 where we declared a maiden underground resource of 600,000 ounces at the end of 2017. With over 120,000 metres of surface and underground drilling in the three years since, we have grown the resource to over 3 million ounces and discovered the high-grade Dalwini mineralisation which has driven some of the more spectacular drilling decepts at Kale in recent years. We have also converted over 1 million ounces of the large resource base to an underground at GRE 46 in that time. Development of the Galway decline will commence during the current quarter with further underground drilling due to commence in the June quarter. The short-term drilling focus will be in filling the resource where recent grade control drilling simulations have demonstrated positive grade reconciliation to the resource model in areas corresponding with early years of the production schedule. Turning now to Ernest Henry on slide 12. Glencore completed over 24,000 metres of drilling in the 2020 calendar year. The drill program consisted of both expansion and infill drilling. Further drilling is programmed in 2021 with new data to inform a concept study of the extension opportunity below the 1,200 metre RL during the current half year. A pre-feasibility study will possibly commence late in 2021. Red Lake is a clear highlight of our year end 2020 MROR statement. We have declared our first ore reserve at 2.9 million ounces which is reported in accordance with the JAWC code. I refer you to slide 13 of the presentation which shows the distribution of the 11 million ounce resource shown in red shapes that we announced following our model update last year in August. The reserve's shapes are coloured in blue with over half the reserve located in the Upper Campbell Mine which extends from surface to 1200 metres deep. The big opportunity at Red Lake is to continue converting the large resource base that will position Evolution to bring forward production in our operating plan to achieve a production target in the range of 300,000 to 500,000 ounces per year. With this in mind, I turn your attention to slide 14 and our ASX announcement this morning where we are pleased to advise that we received approval from the Board to advance development of a surface decline. We have named the decline the Campbell Young Dickinson which will provide near-term access to the Upper Campbell Mine, hosting reserves of 1.85 billion ounces grading 7.4 grams per tonne. Regulatory approval is already in place for the CYD decline which we expect will drive in excess of one million additional ore tonnes per annum independent of our shaft hoisting infrastructure. We estimate the capital investment to be in the range of 60 to 70 million Australian dollars over a three year period. Two new mining fronts will be established with one to access production in the Upper Campbell and the other to eventually access the 430,000 ounce resource at HG Yarn. Box cut development is due to commence this quarter with first ore from Upper Campbell anticipated by the June 2022 quarter. I will now pass back to Jake who will take you through an update of the Red Lake Transformation Plan.

Thanks Glenn. This significant gold endowment we have announced today makes us very confident about Red Lake being a core, long-life, low-cost asset in our portfolio. When we acquired Red Lake a little over 10 months ago, we announced a Stage 1 transformation program with the objective of delivering annual production of 200,000 ounces at an all-in sustaining cost of less than US$1,000 an ounce within three years. I am really pleased to advise that this Stage 1 transformation is tracking ahead of schedule and on slide 15 we have outlined some of the substantive changes that have been made. We have already discussed in detail the significant resource and reserve base that has been defined. We also identified the lack of mining inventory as a key bottleneck to production so set about both reducing the number of mining horizons and also focusing on increasing the amount of development metres so as to build some mining stocks. This has paid off and we now intend to restart the Red Lake Mill before the end of this quarter to process ore as the Campbell Mill is already at full capacity. We also made an early decision to invest in the reliability of the Campbell Mill, and this mill is now operating at 97% utilization. Simplification has been a key theme to our first phase of the transformation. I mentioned reducing the number of mining fronts. At the same time, we have decommissioned 70 pieces of underground equipment. We are automating two of the shoves. have right-sized the workforce with a 26% reduction, and also introduced a performance-based bonus program that has proved to be very successful across our other sites. There's lots of work ahead of us at Red Lake, but I am confident that we are well on our way to restoring the operation to being one of Canada's premier gold mines. Melanie, with that, can you please open the lines to 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. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Nick Herbert from Credit Suisse. Please go ahead.

Thank you. Good morning, Jake, Laurie and Glenn. Good to see the cow reserve growth. On Red Lake, can you talk through the plan from here for additional resource conversion? And with regard to the upper candle decline, beyond the ore access, that 1 million tonnes per annum you talked to, can you also discuss what that does for your drilling program, how much is the resource in that zone that's not currently in reserve? And then secondly, just on mill expansions or the study that's ongoing there, will that be made on the reserve that you've come out with today, or are you going to be factoring in some additional growth expectations? Thanks.

Thanks, Nick. I'm going to hand over to Glenn who can answer the question on the resources, and then Bob, who's been here waiting patiently for a question, can answer the question on mill expansions.

Thanks Jake. Nick, on the issue of resource conversion, particularly in the Upper Campbell area of the mine, one of the things that we've done with the resource that we've declared this morning is apply very conservative modifying factors to that reserve. The reason for doing that is because it's going to be a new area that we access for where we don't have previous experience along with the fact that this reserve is positioned adjacent to older areas of mining so we need to be rather cautious with our approach to accessing the ore bodies in these areas. What I expect as we start to commence production in the Upper Campbell and our ore body knowledge continues to develop I expect we'll be able to be more optimistic with our modifying factors and that's going to enable us then to convert more of that resource in that area to reserve. The drilling is pretty thorough in that area so we're not expecting to do a whole lot more drilling. It's pretty densely drilled at the moment so we believe we have the data in place. It's more about the mining performance and how we deal with access as we get into the Upper Campbell. Bob did you want to talk through the expansion?

Thanks Nick. On the mill, the first goal that we have is to get that 200,000 ounces and that's using the installed capacity that we currently have. It's around 1.1 to 1.3 million tonnes of capacity in the two current mills. The study that we've got going on is actually to see how do we optimise the processing path into the future and how do we actually, as Glenn's been talking about, use more of that resource and How do we get more converted into reserve in the future and really lift that up? But that will be out in the back end of this year.

Nick, there's probably just one thing worth adding is that the HG Young area currently is not in reserves and this decline has capacity to reach that as well.

Okay, great. Thanks, gents. That's it for me.

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

Sorry, I was on mute. Just looking at your aspirational target of 300,000 to 500,000 ounces at Red Lake and looking at the reserve grades today and particularly the Upper Campbell, it would appear to me that you will need a mill expansion or perhaps a new mill will be needed. Can you just provide your perspectives on that question or challenge?

Yeah, I think you're right, Dan. And we're going through some studies at the moment as to whether it's better to expand our mills or to build a new mill. There's actually a study occurring at the moment. So during this calendar year, we expect to come up with a solution to that issue as to how to best... optimally increase the throughput rates.

And your concept study, if memory serves, is due out later this year, so that will be part of that scope. Can you just broadly talk about the scope of what will be in that study and what we will learn in calibrating the pathway to 300 to 500?

The big one there, Dan, is – it's Bob speaking, sorry. is the actual mill size and setting the mill size to actually optimally be able to process the ore. The decline gives us access to a totally different mining front. We have to put that into the equation for the scoping study. We still have the two hoisting shafts so we have to put that into it. As Jake just said, the decline actually gives us access also to HG Young. So that's also a possibility of trucking it to the surface which is separate to the underground via the shaft. So it actually de-constrains all that. So the scoping study is looking at all that to try and determine what is the most optimum processing and processing path and rate.

Just the last question I had was can you just remind us or perhaps give us an update on what the shaft haulage in a realistic capacity could be in million tonnes per annum.

Thank you. I'll answer that poorly, so I'm going to excuse myself before I finish the answer. Look, I think we can get the 1 to 1.1 quite easily out of the shafts that we've got at the moment. I don't think we've optimised the actual shafts, Dan. They're running okay. We've got other things that we're working on first, That is in the plan to look at. We are automating the shafts and that will help in the optimization but it's down the track a little bit to truly try and test those shafts to see what the actual capacity is.

Okay, thank you very much.

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

Morning, guys. Thanks for the call, Jake and team. So just following on from the same sort of questions at Red Lake. So I think you're telling us from the June quarter 22, you'll have haulage capacity of plus 2 million tonnes per annum, but milling capacity of that 1.1 to 1.2, and that's what the study will give us the answers on.

Is that right? Aye, Levi. That's well summarised.

Okay, so, okay, looking forward to that study. Thank you. Question for Laurie. DNA, the DNA looks, I don't normally ask about accounting, but DNA looks a little bit higher at Red Lake. Can you just talk us through that, maybe half on half, and what to expect in 22?

Yeah, so... For that, the first half was pre-getting the initial reserves, so that will drive a lot of the DNA. So what we'll have to do in the second half of this year in line with the new reserves, we'll look at the updated life of mine plan that the team will finish in May, June, and that will give us the insights into next year. So I'd expect the second half of the year will be lower than the first half in FY21. And then in FY22, we'll update with our guidance once we've seen the updated life and mine plans. So we'll update them in May, June.

Yep, okay. Thanks, Laurie. And can I just confirm the timing on a couple of your studies, the Cow Underground and also Mangari and the Phoenix Grounds?

Sure, so the Cow Underground due to be released the feasibility study mid this year. The approval is the factor that will sort of determine the rate determining factor. We're still confident given that the public hearing process is completed. There was overwhelming support for the project. that will get momentum within the government departments of New South Wales to get approval. So we're really ready to go pretty much as soon as we get those approvals.

Yeah, great. Thank you. And just Mangari, the update there on the milling solution?

The third quarter, yeah. The third calendar quarter, the September quarter. Great. Thank you.

Thanks, Jake, Laurie. Thank you. Thanks, Levi.

Thank you. Your next question comes from Sophie Spardalis from Bank of America. Please go ahead.

Good morning, Jake and team. I've got a few questions. Just in terms of CapEx going forward, I appreciate you've got a lot going on and subject to a lot of studies, but can you just give us a sense of sort of the expected CapEx rate we can expect over the next couple of years?

Yeah, that's a good question for Laurie, who's got the keys firmly in his drawer, locked up to the pole.

Yeah, so I think FY21 and FY22 are going to be fairly similar capital spends, and what we'll see there is as HH winds down, IWL is fairly consistent at Cal, and then the underground comes into play there. We would see that the Red Lake will, between the transformation this year then going in now to the CYD decline, would sort of start to offset each of that to see similar capital. When you look at Mount Carlton and Mount Rawdon, they're pretty well consistent capital spend profiles over the next few years. and Mungaree will be determined based on the outcomes of the study that's underway now. Through the next few months we'll get a bit of a feel for the capital. That would be the only real change at Mungaree. Ernest Henry is fairly consistent around that $15 million per year. As I said, this year, next year, fairly similar. No change to our three-year outlook that we had at the investor day other than a little bit, as I said, more capital possibly required at Red Lake once these studies on the processing capacity are completed.

Okay, that's great. Thanks, Laurie. And then probably to Glenn next, just in terms of the sensitivity to gold price for your reserve and resources, you pride yourself that you use a very conservative gold price of that $14.50. Do you do any analysis or do you understand how sensitive it is at spot pricing?

Well, I'll take that first, Sophie. It's Glenn. Look, we do sensitivity analysis across the full range of price assumptions from our reserve up to our resource and really to understand the opportunities that we do have in our pits and our undergrounds. Bob, do you want to add anything more?

We do that when we're doing the reserve calculation and a draw for the economic test as well, Sophie. That's where it sort of comes in and really says that's all good. Yeah, does that answer the question?

Yeah, look, that's fine. I just wanted to understand... You know, at different price points, what's the leverage to gold pricing, that's all, on your reserve results?

Well, I think the best way to answer that is that at a 1450 price, our reserves are 10 million ounces and the resources are constrained at $2,000 an ounce and 26 million ounces.

Okay. Okay. Thanks for that clarity, Jake. Okay. And then just in terms of exploration assets, you bought $4.5 million during the half. Can I just ask where you're buying those assets?

I think it was Crush Creek that we acquired the balance, the last 30% of that. So it was mainly related to Crush Creek, which is near Mount Carlton.

Yeah, yeah, sure. And then just a sustainability question. Appreciate the slide in the pack. Just in terms of your power sources, green electricity, are you making any inroads there or what's sort of the near-term focus for the company?

So the near term focus is on our big consuming assets and longest life assets, so Red Lake and Cal, particularly Cal. We're doing some studies right now as to what are the options in reducing emissions and what commitments can we make once we've got an understanding of what that could do. So very aware of it, very conscious of it. and very aware of the sentiment that we need to start identifying and articulating those outcomes.

And just to add to that, Sophie, so they're coming off grid but the one that has any sort of potential in that area is at Cow, where we've got work being done on solar capacity as well.

And Red Light Youth, this is one of the colleagues at the start.

So Red Lake isn't hydrating to say, Bob?

Yeah, I don't know how much percentage, Sophie, but it's predominantly on hydro.

Okay, so that's fine. And I guess no call will be a call without a question on M&A and your views, Jake. So you've got six to eight assets as your key strategy. You've currently got six in your portfolio, but needing mine life, in my view. Can you just talk around the... the outlook there in terms of pricing expectations in the sector, et cetera?

Our success at the M&A piece in the last few years has created a problem for us because it does make our portfolio look a bit skewed. Fortunately, the biggest and best assets are the longest life assets as well and adding most to the reserves. I agree with you about that skew on the portfolio. We are always looking. I think pricing has been a bit expensive in the last 12 months. Maybe this pullback in the gold price and some sentiment will actually help us because I think generally people who we've engaged with, their expectations around price has been too high. Generally the alternative of cheap and relatively easy access to the capital markets has been available, so the go-it-alone strategy has been the preferred approach. We've always said that really for successful M&A, you need motivated sellers or a real strategic imperative to make it very accretive. And we continue to be bound by our view that we should only do things which are accretive to our shareholders.

Okay, that's great. Thank you very much.

Thanks.

Thank you. Your next question comes from Alex Barkley from Morgan Stanley. Please go ahead.

Hi Jake and team. I had a question on Mangari. I was just interested in that depletion they drop in reserves and resources despite all the exploration that's been going on there. Was there a reason why there wasn't a bit more growth and also can you give an update on how the Castle Hill project is progressing and is that now the focus for growth of the mine? Thanks. Yes, Glenn.

Alex, I'll take the question on resource depletion. We took depletion by production and then there was also a negative impact as we optimised some of the reserve pits in the regional pits. we needed to or we took a bit of a hit on those pits as well. In terms of the focus of exploration at the moment, we have active drilling programs that are underway in that Castle Hill area where we're looking at how we, well really opportunities in the way in which the pits have been optimised and how we can potentially extend those and do better on some great fronts in some areas.

Rob, did you want to update on that? Alex, I think it's a nice segue from what Glen's saying with regard to the carceral pits and what we're doing there from a geological perspective. That is being fed into the project. The project work's going well. As Jake said earlier, we're expecting something in Q3 this calendar year and that's all on track.

Okay, so there wasn't a little bit closer to the mine. There wasn't anything sort of delayed into next year that we should expect in terms of resource and reserve growth. It sounds like Castle Hill is the focus. Is that fair to say?

Yes, that's right.

Okay, thanks guys.

Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.

Morning all. Thanks for your taking the questions this morning. Can you just, back to red light, can you please remind us what the permitted throughput is? Obviously, nominally it's 1.1 to 1.3, but what's the current permitted rate?

Thanks, Mitch. I'll hand over to Bob. That's 1.1, Mitch. Yeah. I mean, there doesn't seem to be any issue with the regulators in our discussions with them that suggests that increasing it would be a major challenge.

That's the questions we're asking Mitch about whether we can actually take the current ones up a little bit whilst we do the other work or what's the best path to get the way forward.

Okay. Pardon my ignorance and I'm not on top of the Ontario life and things but I thought if it increased by more than 50% then it had to go back through an environmental assessment. Is that not the case?

It does have to go through environmental assessments and it depends on the growth. So a large growth or a new mill, that definitely needs EISs and all the rest of it. Small ones, we're just working through those issues at the moment.

Okay, so hypothetically I guess you're talking about potential mining rates of roughly 2 million times per annum if you add haulage and the decline. and then you'll become milled constrained. Will you have the ability to bring it on a mill in time for that throughput, that mining rate, or will there be a bit of a lag? And if there is that lag, how will you think about mining? Will you focus on just high-grade pockets for the shaft torch?

I think that will all be revealed in the study and as we get into the upper camel area. And yeah, we'll definitely be looking to sequence it so that we get the best grade early on, particularly if we do find ourselves in a meal constraint situation. Okay. Thank you. That's it for me today. Thanks, Mitch.

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

Sure, thanks. Morning, Jake and team. A few questions from me also on Red Lake. Firstly, the Upper Campbell, Glenn did sort of go into a bit of this detail, but is it fair to say that the grade disparity between resource and reserve in that Upper Campbell zone is mainly driven by those conservative modifying factors? It doesn't seem to have that same level of grade disparity across some of the other areas of the mine. And then secondly, Jake called out the HG Young area not in reserve. I also noticed there that Upper Red Lake isn't in reserve. Again, is that a function of the modifying factors that you've applied? Does that prevent economic conversion to reserves or is there other factors there which mean that area is sitting in resource but not reserved? Do you need more infill drilling, for example, or something of that nature?

Matt, I'll take the question on the Upper Campbell modifying factors first. So you've hit the nail on the head there actually. So the difference in the resource grade to the reserve grade is driven almost entirely by modifying factors. The resource model, it does include internal dilution into our minimum mining widths but the reserves also take into account external dilution and that's pretty much driving the grade differential that you see in the Upper Campbell. As I mentioned earlier, it's going to take getting access into the Upper Campbell to understand really how the production performs against the plan and then we can adjust modifying factors accordingly. Moving on to just the questions concerning HG Young and the Upper Red Lake area. So really what we need is to really continue developing our all-body knowledge. We have some more in-field drilling, particularly at HG Young, that we need to complete to really sort of understand grade distribution in the model. And then once we have more confidence around that, we'll be able to start then sort of thinking about how that converts to a reserve. But that's more about sort of just a bit, you know, we need to accumulate more more information to update our views on all body knowledge and Upper Red Lake as well.

It's time and a little bit of knowledge.

So we've purposefully taken a conservative approach just to make sure that we step through it and we don't get into a situation of over promising and under delivering. We feel pretty confident that there is reserve growth as we get underground and we learn how to mine it efficiently and effectively.

Sure, thanks for the detail there, guys. And then just a couple of questions more, I guess, around the processing capacity again. Firstly, in terms of the proportion of refractory ore, Glenn, do you have a sense in the current reserve base what the sort of proportion or percentage of refractory material is? What mining faces would that be coming from? And I guess, how does that proportion compare to your current processing capacity on the POCS circuit? Then secondly, again, on milling capacity, just wondering if there's any constraints that you're considering in the study around the surface footprint, space at the top of the shafts and top of the decline on site that need to be considered, particularly if you go down the path of potentially building another mill on site.

Matt, we've been working in the last 12 months to update and build upon the GeoMet model at Red Lake and that will continue to be a work in progress particularly as we get into these new areas like HG Young. I think what you will see is that we've reflected our understanding of the GeoMet characteristics of each of the ore bodies. into our recovery for our resources and reserves. That really reflects our current understanding of the relative proportions of refractory to free milling ore at Red Lake.

To do with the space availability on the lease, we do have zones which are possible of putting big plants on if we wanted to. As per the previous question, anything of that size needs full EISs and the like, but we do have some nice locations where you could put a nice big plant close to TAILS facilities.

That's good to know. Thanks, Bob. Sorry, just to clarify. Can you give a number on what your current processing capacity is in the POCS circuit? And is that, you know, is that, I guess, sufficient for the oil presentation that you're seeing at the moment?

The POCS circuit, or the autoclaves on the Campbell Mill, the Campbell Mill does around about 650 to 700, 1,000 tonnes, that's metric tonnes per year. But not all of it goes into the cave. So we actually... split on recovery through it, and I don't have that number, sorry. It's a pretty small clave, it's not a big one, but we run it consistently through the year.

Okay, that's helpful. Thanks, Bob. That's all from me. Thanks, Matt.

Thank you. Once again, if you wish to ask a question, please press star 1. Your next question comes from Brenton Saunders from Pendle. Please go ahead.

Good morning, Jens. Just a quick question back on Red Lake. Sorry to keep coming back there, but just reflecting on the reserve grade and your ethic objective of 1,000, which leaves only one more variable that can be changed to get there, and that's your unit cost per ton milled. So, I mean, I guess my question is what are the fixed costs, what's the fixed cost component of Red Lake and how do you propose decreasing that number sufficiently to at 6.9 ROM grade or for reserve grade achieving the ASIC objective? Thank you.

Thanks Brendan. It's a good question and it's something that we thought a lot about. Bob will take you through the detail but the mine at this point in time is not operating efficiently and there are plenty of efficiencies to be gained even at the current throughput levels and then as we get access to higher throughputs and more efficient mining methods we are very confident that we can drop the operating costs materially. But Bob.

Yeah, look, fine for that Brendan. The levers for ATSIC are denominator and numerator. The cost, as Jake said, we're not at the cost savings that we want to be at. We're on par and we're a little bit ahead of where we wanted to be at this stage. We do have the mining costs, which we're working on, all the maintenance work, all the work we're doing on the jumbos to get additional metres. We've dropped the new... a new loader underground just this last month. It's up and running. We've taken 70 pieces of gear out, that's reducing our costs but we still have a lot of old equipment. Mining is just one third of the, not one third isn't one third but it's one part of the equation. Milling is another major cost centre or cost structure that we're working on and getting those two plants that we currently have at a rate that we would like them to be at and full is where we're aiming to be. We've got Campbell up to it. The next stage is to get Campbell and Red Lake both mills running at a full capacity and that will be sometime later this calendar year. Then there is the overhead costs and we've been working on the fixed cost of labour and people. That's where we want it to be now but there's a lot of other work that we've still got to go to get our costs to where we would like them to be. And getting up to that 1.1 throughput will get our ounces to where we want them to be for that first target of 200,000 ounces. But we're a long way from that at the moment. So they're all the levers that we're working on. Mining costs, as in straight dollar per tonne for mine, there's a long way to go.

Yeah, I mean, thanks. There's a lot of stuff in there and... but it's hard to follow which bits of it are going to move when. But, I mean, my observation is you're going to drop that number by a third. So unless there's a very high variable cost component, it seems like a big ask. So, I mean, is there a subset of that reserve grade that you're planning to mine at a higher grade, or what is it? I mean, it's probably... You know, it's considerably below what most people are assuming the long-term grade is going to be.

Well, I mean, we think that through those efficiencies that we've identified, our planning suggests that we can get to that $1,000 an ounce, you know, with the increased throughput, increased productivity, and reduction in cost. So happy to work through it with you, but we're confident that we're on track to deliver that. Okay, great.

Thank you. Your next question comes from David Radcliffe from Global Mining Research. Please go ahead.

Hi, good morning, Jake and team. I thought we'd keep it going on Red Lake here. Obviously lots of focus on the mill capacity, but maybe can we expand a little bit more on how you actually deliver that all? So coming, you're sort of back to the historical levels now for the mines, so that's sort of circa 700,000 times a year. But from the mining perspective, where do the gains come from here? And I'm really sort of talking, I guess, about putting Upper Campbell aside. So really that first kind of million tonnes of potential you've been talking about. And maybe you can touch on how you're dealing with some of those historical top areas such as Koshina.

Yeah, David, it's Bob speaking. I'll start with Koshner, then I'll work backwards. Koshner's actually running quite nicely at the moment. The tonnes per day across the high-speed tram have got some consistency in them now. We're dropping stoves regularly. The development's actually keeping up with it. We've got, well, for the last couple of months, we haven't hoisted any waste at all. It's all going into backfill via Avoca. So Koshner's actually running quite nicely. At the moment we're only running the Campbell Mill. So in the last couple of months we've built a 42,000 tonne surface stockpile of ore and that's with the Campbell Mill running at full capacity. So that's actually giving us some comfort that the developed stocks and the drilled stocks are starting to get to the level where we can maintain the actual production rate. And that's why we're planning to start, as Glenn said earlier, the Red Lake Mill in this quarter because we've got a stockpile on the surface that we can start running it and keep it running for a period of time. So all that coming together, the isolation of the upper levels from the production and therefore the simplification bringing the mining fronts down to that lower Red Lake and the R zones and all those has really helped focus the the attention of the guys on site. So it's really around getting that developed stocks and drill stocks so we can keep the production and the stud turnover. The shafts, as I said earlier, the shafts are not a constraint at the moment. Okay.

So, you know, I guess pushing a bit further then, I mean, in terms of rolling forward sort of quarter to quarter, I mean, are we expecting continued increase in mine tons, I guess, presented to the mill? And then sort of, you know, what's, I guess, the trajectory of that increase? Does it sort of work up to that, I guess, million ton plus and then level and then ideally beyond that?

Yeah, the reason we initially said that we thought that it would take three years to get to the levels was we expect that there will be some bumps. we're going nicely at the moment and I'm hopeful that that will continue, David, because at the moment everything we're seeing is the guys are on board and the growth of that developed in that production stocks is actually going nicely. But as Jake said earlier, that conservative approach is what we'd prefer to take. Did you want to add anything to that?

Thanks, David. Brilliant. Thanks, Jake.

There are no further questions at this time. I'll now hand back to Mr Klein for closing remarks.

Thanks Melanie and thanks everyone for joining us. We really do appreciate it. As always we remain available and open to any further dialogue or questions which you may have and appreciate your ongoing interest in the company. Thanks.

That does conclude our conference for today. Thank you for participating. You may now disconnect.