Evolution Mining Limited

Thank you for standing by and welcome to the Evolution Mining December 2021 Quarter Results 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. Martin Cummings, General Manager of Investor Relations. Please go ahead.

Thank you, Darcy. Good morning and welcome to the Evolution Mining December 2021 quarterly conference call. As Darcy mentioned, my name's Martin Cummings and I'm the General Manager, Investor Relations. This morning on the call we have Jake Klein, our Executive Chairman, Laurie Conway, our CFO and Finance Director, and myself in our group office in Sydney. Bob Fulker, our Chief Operating Officer, and Glen Masterman, our VP Discovery and Business Development, are dialling in. It has been a tumultuous couple of years and as expected, gold's role as a safe haven during those times has been demonstrated. As the pandemic was breaking in early 2020, we saw gold rise from the low 1500s per ounce to an all time high around 2070 in August that year. We started 2021 with the gold price down from its peak at just under US 1900 per ounce. Economies were surging as they emerged from COVID lockdowns and equity markets were printing new highs. Bitcoin was continuing to generate a lot of interest, with some touting it as a new digital gold, and exposure to any metal that ended up in a Tesla was highly sought after. Gold couldn't catch a bid in early 2021, and the sell-off was brisk, down to $16.80 by March. Gold equities would follow, and by the end of September, the GDX index of senior gold companies had fallen about 20% year-to-date, with the GDXJ Junior index even lower, down around 30%. But in the last three months, things have turned. Developing economies are now dealing with soaring inflation, with the Federal Reserve now indicating it will need to respond with rate increases soon. The Omicron COVID variant spread quickly, leading some countries to reintroduce or extend lockdowns and restrictions. And recently, Russia and Ukraine tension has Europe on high alert. Bitcoin had an incredible journey in 2021, but has now given back most of those gains. Gold's role as a safe haven is returning, and we now trade back up around US$18.20 per ounce. For Australian gold miners, the Australian dollar gold price also went on a wild ride, but we currently sit within 10% to 15% of its all-time high. These really are great prices to be selling our product at. And of course, copper had a standout year too, rising around 25%. Evolution is well placed to benefit from this with our copper production materially increasing from this month. With that, I'll now hand over to Jake to introduce the December 2021 quarterly report.

Thanks, Martin. Good morning, everyone. Welcome to the call. Thanks for joining us and happy new year. Despite the industry headwinds, COVID, labour shortages and unseasonal rainfall, our teams did extremely well to manage the impact. As planned and first articulated to you in July, we anticipate the second half of the year to be materially better than the last six months and are on track to deliver our guidance. Given the first half performance at Red Lake, we expect to be in the bottom half of the production range and between the mid and top end of the cost guidance range. Last quarter, our portfolio was significantly improved by securing 100% ownership of the iconic Ernest Henry copper gold mines. We also concluded the sale of Mount Carlton to Navarre Minerals and whilst retaining exposure to the future of the operation, the sale allows us to focus on our larger, higher margin assets. We continue to be consistent and diligent in the implementation of our strategy of improving the quality of our portfolio and being laser focused about putting ourselves into a position where we can generate sector leading returns on the capital we deploy. In our view, this is the holy grail in our industry and is the true measure of a gold company's performance over the long term. I visited Ernest Henry last week and left very confident that in the December quarter we concluded what is likely to prove one of the most transformative deals in evolution's history. It is an outstanding operation with a great team and terrific geological upside. We look forward to hosting a number of you there for a site visit in due course. The foundations for the transaction were put in place in 2016 when we secured the economic interest in the asset, and since then it built a strong and mutually respectful relationship with Glencore that allowed us to negotiate this deal on a bilateral, exclusive basis over the course of a few months last year. Our economic interest delivered $79.5 million in cash flow last quarter, and now with 100% of the operation being included from 1 January, we expect its impact to be even bigger going forward. The CAVE extension pre-feasibility study will be a priority, and with intersections 400 metres below the study area and still open below that, Ernest Henry has a long and very exciting future. Cal performed extremely well and managed to deliver to plan in spite of unprecedented rainfall and COVID interruptions. The underground project, which will grow Cal's production to 350,000 ounces per annum, remains on schedule and budget. I was also fortunate to be able to visit Red Lake in November last year. Due to COVID travel restrictions, this was my first visit since we took ownership of the asset in April 2020. Red Lake is one of the best commercial opportunities I've seen in the gold sector in my career. For the combined purchase price of US$650 million, being Red Lake and Battle North, we have secured a district-scale tenement position with 11 million ounces of resource and significant exploration upside, seven kilometres of prospective strike with associated mining infrastructure, $3 million and $700 million of Canadian tax losses. In time, this asset will be transformed into a plus 350,000 ounce a year low-cost producer. This is how value is created in our sector. As you will hear from Bob, who has just returned from his third visit in the last five months, progress is being made. Last quarter, we consistently achieved over 1,200 metres of development each month. As a result of this and other improvements, we are confident of a material and sustainable improvement to production in the next two quarters. We expect this higher production to drive the cost per ounce lower, and I'm looking forward to visiting the operation again with Laurie in the next few weeks. Frustratingly, mangari remains the only asset in our portfolio that we cannot currently visit. We are fortunate to have a good team in Western Australia who have led the Kandana integration, which has gone well, and we are growing increasingly confident about the future and the potential of this operation. Mount Rawdon was impacted by heavy rainfall and was forced to process the low-grade stockpile material. Strategically, we continue to assess the potential of Mount Rawdon to be converted into a pumped hydro generator, which could be a significant contributor of renewable energy to the southeast Queensland grid at the end of its mine life. This last quarter, the highlights for the discovery team were good intersections at Kew in Western Australia, and also more intriguing and exciting intersections at Red Lake, where there is plenty of open space and interesting geology to discover another high-grade zone. Glenn and his team are also plotting and planning the next phase of drilling at Ernest Henry. Whilst we are managing industry headwinds, we should not ignore the significant commodity price tailwinds. A gold price of over AU$2,500 and a copper price which going forward will represent around 20% of our revenue of over AU$13,500 per tonne. Evolution is well positioned to benefit from this. I'll now hand over to Bob to provide some more detail on the operational performance.

Thanks, Jake, and good morning, everyone. The December quarter saw our TRIF stabilise at 9.4, the highlight being a 35% reduction in the 12-month moving average at Mundari. The December quarter gold production is the first reported without Mount Carlton's contribution. The quarter's gold production was 148,000 ounces, with a 5% improvement in the oil and sustaining cost to $1,347 an ounce. Despite the challenges faced with above average rainfall and COVID, Cal had a strong quarter delivering 60,000 ounces at an oil and sustaining cost of $998 an ounce and an operating mine cash flow pre-capital of $80.6 million. Capital investment ramped up at Cal with $60 million spent on major projects this quarter. This included $24 million on the IWL and $33.5 million on the underground development. Underground development rates will ramp up in the March quarter with a second jumbo commencing in December and the selection of the primary mining contractor is on track for the March quarter. The project remains on budget and on schedule. The IWL Stage 2 deposition has run smoothly throughout the quarter. Ernest Henry produced 21,000 ounces of gold and 4.1 thousand ounces of copper at an all-in sustaining cost of a negative $882 an ounce. The high AISC compared to the September quarter is primarily driven by lower copper production due to lower planned mining tons. The net mine cash flow remains strong at $79.5 million, another significant contribution to the portfolio. I'm pleased to say this will be the last quarter reporting Ernest Henry as an economic interest Integration activities are well underway, and I'm excited to have the Ernestine routine as part of the evolution family. The pre-feasibility study for the mine extension below the 1125RL has commenced and will incorporate the recent drilling results, indicating mineralization extends further than assumed in the concept study. Completion of the study is expected in H1FY23. Moving on to Red Lake. Over the past five months, I've been on site three times. Each time I see an improvement in step change in performance and delivery. Although still work in progress, pleasingly many key metrics are moving in the right direction. Red Lake produced 20,000 ounces for the quarter and although their all in sustaining cost is not where we need it to be, the operating mine cash flow for the quarter was a positive. We spent 13.9 million in sustaining capital and 36.9 million on major capital for future production. For the past couple of quarters, I've been talking about development. Pleasingly, during the December quarter, each month was above our long-term transformation goal of 1,200 metres per month. The December quarter was 21% higher than the September quarter. I expect this to continue, allowing additional mining fronts to be opened. Campbell Mill continues to achieve new records, and approval has been granted to lift the daily throughput restriction of 2,000 tonnes per day for a limited trial in the second half of the financial year to support the Campbell Mill expansion. While still not where we want them to be, there have been significant improvements through the quarter. Stove cycle time has improved by 25%, stove idle time has improved by 60%, time to drill per stove has improved by 27%, and slot drilling has halved with the V30 implementation. Stope extraction quality focus has delivered a 19% improvement in stope recovery, a 3% reduction in dilution, and a 15% increase in our ore mine to quarter and quarter. And in December, the mine upgrade lifted to 4.9 grams per tonne. Looking forward to H2, we're expecting to see a continual improvement in delivery from the underground and the two mills operating. Notable improvements for the second half of the year Tons processed will increase for the Red Lake mill running and the Campbell mill rate extension. Grade mine is lifting as dilution reduces and plans for early ore from the CYD development continue. Increased tons from Koshner, the transfer haulage locomotives performance has improved by 43% last quarter and replacement locomotives will be commissioned this quarter, further reducing downtime. and increased number of mining horizons and continuing the improvement in stoke design and execution to further enhance our ore delivery and quality. Munduragari is moving forward post-integration. For the quarter, they produced 34,000 ounces of gold at an all-in sustaining cost of $1,829 an ounce and generated an operating mine cash flow pre-capital of $20.7 million. Ore grade process increased 34% over the last quarter. as proportion of underground ore in the feed increased from 54% to 67%. Workforce integration is ongoing with a focus on establishing a one team approach. The sharing of resources across the field has commenced in enabling better deployment of equipment and resources to priority areas, which has been critical as a site navigates high vacancy rates and COVID related impacts. Mount Rawdon produced 12.4,000 ounces at an only sustaining cost of $1,842 an ounce, and an operating line cash flow pre-capital of $11.9 million. As previously mentioned, weather significantly impacted access to the pit, resulting in reduced oil movements. As a result, stockpile feed increased, directly affecting gold grade and production. In summary, some great improvements made at Red Lake and Mungaree throughout the quarter. The Cal Underground project continues to hit milestones, and the official ownership of the Ernest Henry mine has added additional opportunities for the portfolio. Thank you for your time, and I'll hand over to Glenn.

Thank you, Bob, and good morning, everyone. Firstly, at our queue joint venture in Western Australia, we've advised our partner, Musgrove Minerals, that we will be taking full management and operatorship of the project, which occurred on January 1st of this year. Recent results from diamond drilling at the West Island Prospect outlined on page 15 of this morning's report, importantly confirmed the potential for high-grade mineralisation within individual loads. Drilling has also identified multiple new load structures in the favourable dollarite host in various locations along strike. The geometric relationships between structures and dollarite imply individual loads may be limited by their potential strike length but remain open at depth. The air core drilling program has been very important in further delineating the favorable dollarite host and associated gold anomalism along strike from the original West Island drilling. The results have unlocked new areas with the necessary geological ingredients for mineralization to occur up to five kilometers from West Island. One of the challenges with all of our drilling programs is long delays waiting to receive assay results in time to inform where to drill next. This is an industry-wide issue and is holding back the ability to accelerate drilling programs in the ways we would like to. At Kew, we are still waiting on results from five diamond holes and over 70 air core holes, which restricts our ability to sensibly add additional drilling resources. At Red Lake, two deep holes were completed as wide-space step-outs from the original intercept reported last quarter on the R-Zone extension. One of the holes intersected high-grade mineralisation 200 metres away from the first hole, with the other hole drilling through the structure. However, it did not return significant mineralisation. The results reported on page 12 are encouraging because they unlock a large area of real estate that has not been previously drilled along the extension of the R-Zone structure. Follow-up drilling is currently stepping off the high-grade intercept in hole 69 to expand the potential scale of minimization in this area. At Nungari, drilling underground at Kandana and East Kandana continues its concentration on small resource extensions and classification upgrades on future mining areas adjacent to existing development. Step-out drilling into the footwall of the K2 structure from the underground at Hornet has returned further promising intercepts of stacked load-style mineralisation at Star Trek. Follow-up drilling is underway to understand the significance of a laminated vein in hole 2130, reported on page 14 of this morning's report. The geology is similar to what would be expected on the main K2 structure at RHP, which is worthy of priority follow-up drilling. At Ernest Henry, we have assessed H2 drilling priorities, which will be focused on developing all body knowledge for the PFS, along with de-risking areas of the resource that require additional data support before production is scheduled. As Bob and Jake mentioned earlier, strong copper gold mineralisation has been intersected at the 480 metre RL and remains open down plunge. With that, I'll hand over to Laurie.

Thank you Glen and good morning everyone. This morning I'll provide a brief update on the financial performance for the quarter as outlined on pages 9 and 10 of the report. For the group we produced 148,000 ounces at an all-in sustaining cost of $13.47 per ounce. This aligns with our guidance where we said the production would increase over the year and the all-in sustaining cost would trend down from around $14.50 per ounce in the first quarter. The AISC was approximately 5% lower than the September quarter. Our focus on portfolio quality is evident in that, on a like-for-like basis, the divestment of Mount Carlton operation reduced our all-in sustaining cost by $28 per ounce this quarter. As our production and cost profile changes in the second half, the cost benefit from this divestment will improve further. Group production and cost guidance remain unchanged at 670,000 to 725,000 ounces at an all-in sustaining cost of $11.35 to $11.95 per ounce. With the performance of Red Lake in the first half, we expect to be at the bottom end of the production range and in the top half of the cost guidance range. In terms of cash flow, we were fairly well in line with plan, excluding the underperformance at Red Lake. We generated $203 million of operating cash flow, which is up 4.6%. and 13 excluding mount carlton on a per ounce basis our operating cash flow was up 10 quarter on quarter this was against a flat gold price and lower copper revenue where the higher copper price was offset by planned lower copper volumes at ernest henry net mine cash flow was 53 million with our capital programs remaining on plan We invested around $34 million in sustaining capital while major project investment increased to $114 million as projects at CAL and Red Lake progressed. Group capital guidance remains unchanged at $150 to $175 million for sustaining and $440 to $505 million for major projects. We'll see an immediate benefit of the acquisition of 100% of Ernest Henry where our AISC will reduce materially in the second half of the year. More importantly though, our cash flow will be increasing. Based on our guidance and depending on the copper price achieved in the second half, we expect to realise an additional $80 to $130 million of net mine cash flow at Ernest Henry. This will be taken into consideration when determining our interim dividend. As previously announced, during the quarter we successfully priced the US $200 million US private placement for nine years at very attractive pricing to partially fund the Ernest Henry acquisition. This will be drawn down next month. We ended December with $1.15 billion of cash and net debt of $450 million. Our unordered gearing is around 12.6% prior to the payment for Ernest Henry in early January. We are on track to be below the 29% projected at time of announcing the acquisition and we expect to quickly be back within our targeted gearing levels and maintain a very strong balance sheet. I look forward to updating you next month on the FY22 interim financial results. Thank you for your time this morning and Darcy please open the line for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from David Radcliffe from Global Mining Research. Please go ahead.

Hi, good morning, Jake and team. So my question is on Red Lake. The commentary around mining rates It does seem more optimistic today, which is great, especially with respect to, I guess, the mine efficiencies and dilution and opening up more mining freight fronts. So just try to think how we should think about the high development rates converting into higher mine tons over sort of this year. And if you could maybe provide some sort of quantum how that comes through over the next couple of quarters. And then on grade, how we should sort of think about those numbers over the year. Obviously, there's going to be the sweetener from Campbell, but, you know, when do we, from the operations today, how do we move closer to that reserve grade of six, given the currently sort of single form?

Thanks, David. Those are good questions. I mean, I think we are going through a transformation. We've called it a three- to five-year transformation at Red Lake. The last six months have taught us a lot about the operation. We've focused on the development and we've specifically taken the decision to... I suppose, sacrifice production over development and getting ready and setting the transformation up. And we now feel that we've kind of bottomed and we're at a point where you're really going to see improvements in that. So the development rates are up. The improvements in mining are getting better. As Bob highlighted, and he can talk further to it, you know, dilution has been reduced We're comfortable that the models are performing. We need to open up some of these higher-grade areas, which are going to be happening over the next few months. So it's a journey. We're on the right path, and you are going to see material improvements to production and lowering of costs in the next quarter and following quarters. Bob, do you want to add to that?

David, as Jake said, the expectation is that as we get the development in to the new areas, and it takes a long time to go out and open up new areas, then the mining fronts will open up, which will help stabilise and increase the tonnages. We've started to see an increase in tonnages last quarter through the quarter, although it's not as high as we need it yet, but it's still growing. And areas like aviation and the like, they do take a bit of time to set up. So I would expect that over the next couple of quarters, we'll start to see those tonnages come in. As Jake said, also on the grade, we are getting a lot better with the reconciliations of dilution and the like, as I mentioned, all the numbers. I expect that over the coming quarters we'll see that continue to improve. Dreen, did you want to comment on the model specifically?

Sure, Bob. I think one of the things that we're starting to see, David, is that particularly with our reconciliations, so our DOM to grade control and our DOM to all reserve, We're starting to see an upward tick, particularly on the grade front, as we improve particularly some of the mining-related factors, as Bob has just described, dilution, recovery, and we've improved our grade control system. So we are starting to see that upward tick in the grade, and particularly on a three-month moving average, it's starting to trend into the direction where we need it to be. We have confidence that the models are performing to plan and we're just aligning that with the way we're mining and we're confident that we'll start to see that where it needs to be over the next coming quarters.

I just conclude that, David, with a comment around the fact that we've owned this asset for 21 months. It's only been in the last five months that we've been able to visit the operation. But when we bought the asset in April 2019, we said our three-year goal was to get to a run rate of 200,000 ounces of gold. and then a longer-term five-year horizon of 350,000 ounces a year. And we are committed to delivering that on both 36-month and 60-month targets.

Brilliant. Thanks very much, guys. I'll pass it on.

Thank you. Your next question comes from Al Harvey from J.P. Morgan. Please go ahead.

Yeah, morning, Jake and team. Just a couple from me. Just with Ernest Henry and the study. So we've got about 18 months for the PFS. Just wondering if this was going to take on much of the work that Glencore did or if it'll be kind of a complete recut incorporating those further depth extensions. And I think, Glen, you mentioned it was going down to 480 metres and still open beyond. So where potentially could you... Would you kind of draw the line on those depth extensions and where this study will kind of finish up?

Yes. So just to clarify, the study will be delivered in the second half of this calendar year, so first half of FY23. So we're kind of, say, nine months away from delivery of that. It will build on the concept study which was completed by Glencore. I suppose one of the things which we found intriguing as we've looked at the concept study is that it was determined really on the basis of minimizing the capital expenditure, which meant that the depth extent of the concept study went down to as far as the decline could go and you could crack material up. So it wasn't constrained or determined by geology, it was more determined by How far can we develop, how deep can we develop, which was kind of four to five year mine life extension with a decline development and not needing to spend significant capital. So the priority was really minimizing capital expenditure and extending mine life by reducing which constrained it to that 45 years. So our pre-fees will look at that as well, but it will also look at some longer-dated options as to whether there is potential to extend it even further beyond that, which certainly from my site visit, there was a lot of optimism from the site team that that was possible.

Yep. Thanks, Jake. Maybe just quickly on Red Lake, you got the approval for the higher-throughput trial, how long will that trial last and then what are the permitting steps that will follow that there?

Bob, do you want to take that question?

Yep, thanks Al. The trial is actually, we're permitted for a six to eight week period of basically unlimited throughput through the Campbell Mill and the reason we wanted the trial was to determine how far we could actually push the mill. So really it's a short period of time that will allow us to then be able to go and actually seek the approvals for a permanent lift. At the moment you need an engineering study and we actually believe that we can actually get all the data we need out of this trial to be able to go and actually seek the permitting.

Thanks, Bob. And if I could just sneak one more in, just with cow, there was a small contribution from the underground this quarter. I thought we were kind of going to expect that a little bit later. So is this material a one-off or can we kind of expect underground to start contributing more and seeing that ramp up over the next few quarters? Bob?

We're on track for the timeframe that we've actually spoken about earlier, Al. There will be minor contributions coming through as we develop through different zones, but it won't be significant in the immediate future. But we're on track to deliver first ore, as we said. I'm just trying to remember exactly the timeframe. I don't remember, sorry. I'll have to go and check it. Jake?

No, I don't think there was any contribution or material contribution from the Underground. It remains on track and on schedule.

Yeah, no worries. Thanks, Jake and Bob. Cheers.

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

Hi, Jake and Tim. Just on Red Lake, can you just run through on why FY22 guidance is still achievable, albeit at the low end of the ranch? It does imply the next two quarters have got a very strong production run rate of over 50,000 ounces. I guess we're at the end of January, so you should have visibility on that data, but it just seems a big lift. What is underpinning that? Do you have high-grade stopes available? Is it running this trial of the plant, does that give you more production? How is guidance achievable?

Yeah, Dan, thanks. I mean, we've specifically said that group guidance is achievable. We're not going to make the asset guidance at Red Lake, but we're not feeling that we want to be granular enough to say how much we can produce, because all these steps are in place and are showing improvements. But on a group basis, and I think that's what investors should look at, you know, we are confirming that we will make our guidance range.

All right. I might have misinterpreted the comment that it was a group comment. Apologies. Just on Red Lake, maybe taking a step back, could you maybe break out what are the critical elements that need to be in place for the turnaround to occur? Because obviously a lot of these are not in place at current whether that's equipment whether that's the um you know the access to the up the upper campbell or or the milth reports can you just unpick you know when these pieces to the turnaround will be in place or expected to be in place and you know when we can expect that sure bob you've just recovered from jet lag from your latest trip there so over the years

Thanks Jake and thanks Dan. As we talked about earlier, the big one to start with was getting the development to open up new areas. But post that, we've actually been working on the stope turnaround cycle and the time from initial development through to filling of a stope so we can keep the sequence going for the next for the next stope which comes along right beside the previous filled stopes. So we've been working on long-held drill rates. We've been working on pace fill placement. We've been working on re-entry times as well as as stoping and turnover of the actual stoves. So all those together is really what is enabling the lift last quarter of our ore tonnes by, I think it was about 15% from the previous quarter. So that comes around because we can actually get into the stoves quicker and more regularly. If we actually look at the additional mining fronts, what it enables us to do is actually spread the mining fleet out. So that interruption and disruption from interacting activities is limited even further. So that allows us to actually turn the actual cycles quicker because we actually don't have the same disruption factors. A big one for coming quarters is Koshner. And last quarter, the high-speed tram or the locomotive that takes the ore from Koshner across to Rechart That improved significantly from the previous quarter, and that is one of the main things that allow us, because Koshner has got a good turnover cycle of its types already. Did I sort of try to answer it?

When is access coming to the Upper Campbell, for instance?

Go ahead.

I was just going to say the upper Campbell, so the CYD is actually accessing the upper Campbell and we're already down into that area with the CYD. First stope ore was always said to be around about 12 months after and that still is on track. We will get minor amounts of development ore earlier. The same as at Kell, as you go through areas, you'll intercept some sort of minor war zones, but anything from a start will still be within that 12 months from first starting. Jake, do you want to add anything to that?

No, other than that you were walking around last week and you... you felt positive about the outlook over there. I mean, I suppose the thing that I would add to all this commentary on Red Lake is that each time someone's been there, and particularly Bob has made several trips, you know, there are no red flags with respect to our delivery of this. It's getting our operational efficiency better down. And, you know, I still believe this is, as I said in my commentary, This is an amazing commercial opportunity where we've acquired assets that need transformation. It's going to take some time. We've had a few hiccups in the last six months, but there are no red flags with respect to delivery and transforming this operation.

I guess, Jake, on that comment about the ore tonnages or the potential ore within that Campbell zone, Daniel, I walked 9, 11, 14 and a few other levels this time, and it's ripe for the taking. It's just the access we've got to get there. So that's what's taking the time.

Thank you. And the last question is probably a bit simpler, just Montgomery. Just the numbers on page 4. Can I just get a confirmation on whether these are equity numbers or do they have JV production in them? I just want to make sure I'm treating like with like here.

Sorry? Yeah, Dan, so the physicals up the top will be 100% of what's processed. When we're talking about gold production, silver production, that is our equitable share. So we're wanting to show what the actual mining and processing has been able to do.

Okay, thank you.

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

Yeah, good day. Happy New Year. Thanks for the call. Can I just follow up on Dave and Dan's questions there around Red Lake? Bob, can we get the tons and grades for the second half? And do I assume that the three-year 200,000 ounces means that we're going for a 50,000 ounce per quarter run rate into the 12 months or whatever it works out to be, 12 months?

I think before Bob answers that I'll have a go at Happy New Year Levi. Yes is the answer to your last question. To get to 200,000 ounces we need to get to consistently doing a run rate of 50,000 ounces per quarter. We'd prefer not to kind of break down into tons and grade for the next six months because we just feel we want to build confidence ourselves on a group guidance basis. We are comfortable. We'll make the guidance range, but we'd prefer just to give us another couple of months to just get comfortable that these changes that we're seeing are going to be repeatable and consistently deliverable.

Okay, thank you. Thanks, Jake.

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

Hi, Jake and team. First, a quick one at Cal. It seems like sustaining capex is maybe running a bit low on an annualised basis. Is there a reason for that or should we be expecting a lift in the second half?

Yeah, Alex, it is just basically timing more than anything. We expect that their second half will lift. I mean, the primary focus in the first half was getting the underground and the IWL projects continuing. And in the second half, you'll see some sustaining capital come through.

No problem. And a quick one at Red Lake, just to follow up on what's been asked. For the second quarter, can we confirm that there was no grade reconciliation issues?

Yeah, there was dilution, but that was improving. And in the month of December, we felt very comfortable that we addressed some of the issues that we were getting in terms of both dilution and we feel confident that the models are performing to plan. Yeah, okay. Yeah, I was sort of... talking about the model that you've answered me there.

Thanks very much, guys.

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

Sure. Thanks. Morning, Jake and team. I don't want to labour the point on Red Lake, and you did kind of just touch on it there, Jake, but I'm just wondering, you know, you've highlighted on the call and in the report a number of ways that, you know, tonnes are improving and volumes are improving. You know, we can see mining rates lifting, development rates lifting. but obviously grade keeps falling. You've been underperforming the reserve grade for a year now. So I guess, does that mean we'll see an overperformance at some point? Is there a need to rethink some of the dilution assumptions and other factors that underpin that reserve grade? You said you're comfortable with the way the model is performing at the moment, but I guess there's another year of data on this asset now, I guess, lead to any sort of expectations or anything that we should think about at the next mineral resource or reserve update, you know, anything to think about in terms of that.

Yes, thanks, Matt. I mean, good question again. And Bob and his team have been doing a lot of work on understanding that. And again, we are of the view empirically that the models are performing to plan. But Bob, maybe you can give some colour as to some of the issues and then hand over to Glenn to just give some guidance on the MRI.

Yeah, no problems going, Matt. The number that I quoted when I was speaking earlier That was the December number. So the number in the report is an average for the quarter of 3.95, and in December it did lift to 4.9, which is starting to show out some of the dilution issues that I spoke about being under control. It's also showing some improvements in drilling accuracy and the like within the stoves. So it's actually starting to improve significantly and that's why what jake said about we're pretty confident on the on the models um we're working on all those things are we where we need to be i still think we've got improvements to be had so i still think that there's there's further uplifts to come um but it is actually all moving in the right direction so it's pretty pretty pleasing um glenn did you want to talk comment on the model yeah thanks bob yeah matt um i think uh just a

you know, really, I guess, a bit of a preview, you know, on our MROR update, which we'll come out with mid-next month. As you'll recall, when we did the sort of, I guess, the evolution update to bring it in as compliance, you know, with JORC, we consolidated the models from over 130 to 19 principal models. In the last 12 months... we'll we've had new data and mining from six of those models so so they are the ones that um you know we're going to be revising into the mri annual update we're not seeing you know really any material movement in in the resource and that's from a tons and grade perspective um and and assuming that the same cutoff grades as we previously had which is around about three and a half grams per tonne on a mineral resource basis. The new data that we're collecting is really confirming some of the geological interpretations. There are some small changes. There'll be swings and roundabouts in areas where we didn't have as much data support as we would have liked, but that's to be expected. So I think, you know, all in all, we're not expecting to see any material change sort of year over year in terms of the actual geological model and how it informs the resource estimate.

And I think from sort of looking at this in a great amount of detail, Bob and his technical team and Glenn and the resource... We are confident that we are addressing the mining issues, and with good mining practice, we should be able to get the grade that is in the models.

Got it. Thanks, Jake, and thanks for the context, Glenn. Just secondly, on Ernest Henry, and obviously congrats to the team on closing that transaction over Christmas and the new year. I hope they did manage to get some kind of a holiday. But just wondering, in terms of, you mentioned that the copper production during the quarter was a bit lower than, sorry, the lower copper production during the quarter was, I guess, to plan, and potentially that's attributable to lower grades quarter on quarter. that asset is still mining above reserve grade for copper in particular. Just wondering when we should be thinking about a roll-off back to reserve grades for that asset. You know, did we see that in the December quarter? And then, you know, I guess similar to the last question, you know, anything to think about in terms of incorporating that reserve and resource into your next update now that that's being reported on a 100% basis. I believe it's already a JORC standard resource, but yeah, any movements there to think about now that it's fully evolution ownership.

Yeah, thanks, Matt. Glenn, do you want to just comment on the resource?

Yeah, sure, Jake. So on the resource, Matt, we... Yeah, we will be providing an update mid-next month, which will incorporate information up until about May last year, which will be when Glencore did their last resource update. So it will be an update reflecting that point in time, and it won't incorporate all the drilling information that we've collected between May and December. um so that will obviously be rolled into our mr or cycle as we go ahead uh you know this 12-month period uh to to really incorporate all that information in in addition to the the new drilling that'll be um that that is in the plan for this year and matt just on the production it was it was a combination so in the in the quarter we had a shutdown

which was a planned shutdown and also a shutdown in the mine. So we did end up with some lower grades coming through. And as we look at the rest of the year, you do see that the average grade being mined is coming back down, certainly from where the first quarter was. And the second thing that did impact on copper in this quarter were some finalisations of of the previous quarter's concentrate sales. So that did have a bit of an impact on the copper piece in particular. So what you'll see, if you look at it as a half, you're going to see that then flow through into the second half as pretty well a light for light. Once you gross it up to 100%, obviously.

Right, got it. Thanks, Laurie, and thanks for the comments, Glenn.

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

Good morning, all. Thank you very much for taking out the questions. Quick question with regards to Red Lake, but more of a longer-term dated question. If only you could provide an update on Battle North and the acquisition there, specifically around the milling capacity. Part of the rationale for that was to potentially bring that milling capacity online. Can you give us an update on the permitting processes for that how much attention is actually being able to be spent on that, given the focus on just, I guess, consolidating the base level of production in the existing Red Lake operations.

Sure. Bob over to you.

Yeah, thanks. The Battle North processing plant, it's there, it's operational if we wanted to start it. We are replacing some parts at need replacing. The big issue at the Bateman plant is the TSF, and we're working through that at the moment. For the next 12-odd-ish months, our capacity at Red Lake and Campbell are going to be enough, so that's what we're doing, the permitting and all the work. to bring it in on time when we actually need it. From the rest of Battle North, we're still doing work in the underground. We're doing some drilling that Glenn could talk about. So we've done some grade control drilling over there, just to grow our knowledge on your bodies as well.

OK. Thank you. That's it for me.

Thanks, Mitch. Your next question comes from Stuart McKinnon from the West Australian. Please go ahead.

Oh, good day, Jake and team. I was just intrigued by the mention in the quarterly about up to 15% of your workforce being effectively knocked out at Red Lake and Cow at various times because of COVID. You know, obviously, you know, COVID hasn't been sort of a wash in the community as it has in those other places, Canada and New South Wales, in WA. Are you expecting that, you know, eventually you're going to have the same challenges at your WA operations in terms of COVID and managing the workforce as you do at Red Lake and Cal? And how much or more of an impact is that going to be given that, you know, you're already sort of short on workers given the WA situation with a labour market shortage just generally in the resources industry.

Yes Stuart that's a good question. Look we're obviously watching it and monitoring it very closely and trying to put in the contingency plans and the learnings which we've got from managing it and we've managed it effectively at Red Lake and Cal but unless there is some someone finds a cure for COVID, which does not seem to be the case because people who are triple vaxxed still seem to be catching the Omicron variant in New South Wales and Canada and around the world, then you'd have to think that at some point in time, if Western Australia opens up, Omicron is going to spread through Western Australia. So we are going to do our best to put in contingency plans, but if you couple that with a skills shortage, it does put the whole mining industry in Western Australia at some risk.

Thanks for that, Jake.

Thank you. Your next question comes from Nick Evans from The Australian. Please go ahead.

Sorry about that, just juggling my phone. G'day, Sam. Just to follow up to your question, Jake, just in terms of New South Wales in particular, how are you sort of thinking about the spread of Omicron in New South Wales? Do you think that sort of Cal or your operations there have seen the worst of it? Or were you expecting this kind of level of absenteeism to continue for some time? And just in terms of WA, I thought I detected a sort of a, a note of frustration in your voice when you talked about not being able to visit it. Do you think that in terms of dealing with the inevitable split in WA that the State Government should have bitten the bullet and done it now or do you think there was some benefit to delaying the reopening in WA?

Thanks, Nick. I'll answer the second question first. Our preference would have been to have the Western Australian border opened earlier. It just seems like you're in some ways deferring the inevitable. by keeping it closed, as I said earlier, unless there is a cure which is not on the horizon, it is going to be present and it is going to have to be dealt with at some point in time. Even if it is deferred, it's not going to be eliminated. It does feel like other places like New South Wales and Ontario and the rest of the world is learning how to manage this, and certainly at our operations, while it has been a big distraction, we have been able to manage through it, and we are getting more comfortable that we can manage it. It has... distracted the management teams a lot, but with proper process and proper protocols, it can be managed effectively. Thanks, Jake. I appreciate that.

Thank you. Your next question comes from Jim Pollock from Surbiton Associates. Please go ahead.

Yes. Good morning, everybody, and thanks, Jake. I think it was you who said in your introduction that the second half of the financial year would be materially better. I was just wondering where we can expect to see material improvements in which operations

Yeah, Jim, thanks. There are two areas which I'd say you should look out for. The one is Red Lake that we've spoken about at length on this call. We expect to see a material improvement in production and reduction in costs over there. And the second one is the acquisition of Ernest Henry will be fully incorporated into our results on a 100% basis from the 1st of January, and that will also have a material impact.

Right, good. I wasn't going to ask, well, I thought I'd be a little bit different and not ask any questions on Ernest Henry, but thanks for including that answer. Given the rain problems you've had in New South Wales and Queensland, Just for example, at Mount Rawton, what tonnage of material, low-grade material do you have stockpiled that you can keep the mill running on?

I think we have very significant low-grade stockpiles. That's not the issue. The issue is more we want to access the more profitable, low-cost ounces in the pit.

Right, but if you had to depend, this is a hypothetical question, if you had to depend 100% on stockpiled material, you have many years ahead of you, I assume, many years' life left. Yes, we do. Right, okay. What's the situation at Cowell? Large stockpiles there?

Yes, very large stockpiles there as well. That's what we were treating before we got into the stage H cutback, which we're now treating all grade materials. So very comfortable there as well. Yep, good.

Okay, finally, look, I've been asked to ask you, what's your best way of contacting you? Dr. Sandra Close did attempt to, well, did try to contact you or did contact you the office before Christmas but got no reply. What's the best way of her getting something to you?

I think if you go through the website, we will respond to it. Right.

Good. Okay, fine. That's me. Thanks very much.

Thank you. Thank you. Your next question comes from Anthony Barich from S&P Global. Please go ahead.

Hi Jake, I'm just wondering, you mentioned early on about some of the headwinds that seem to be front of mind. Just wondering, just for the gold sector, how much are they front of mind in the context of what's going on in the bigger picture? I'm not expecting any crystal balling for the gold sector or anything here, but are you overall more optimistic than not for the coming year?

Yeah, I'm very optimistic. I mean, we've repositioned our portfolio to be profitable right through the cycle, as we've said. If you take our portfolio 12 months on from the beginning of 2021 to the end, it's materially better. We did the Mangari transaction, the Kandana consolidation. We did the Ernest Henry transaction, and we did the... the Battle North transaction to consolidate Red Lake. So from our perspective, you know, the strategy remains the same. Focus on quality over quantity, return on capital and, you know, benefit. The gold price is over $2,500 Australian dollars an ounce. I did reflect on the fact that when I started in the industry, it was $300 an ounce. So, you know, if we're not happy at $2,500 an ounce, we need to find another sector to operate in. We're excited and happy about it. Yeah, the Fed Reserve meeting this morning told everyone what they knew. Interest rates were going to go up. I didn't see anything that people should have been surprised about in that meeting.

So that's my question about the overall... I was more referring to, yeah, that's our macro picture. So when you refer to the US Fed there, you're obviously saying that implications are that for the gold sector, that's obviously looking good for the coming year?

I think the question which everyone's asking, Jerome Powell, the Fed Reserve chairman, made the point this morning that inflation is way higher than their target and they need to start raising interest rates and managing and reducing their balance sheet. Yeah, that's the question. Is the Fed going to be able to do that and do it in a way that is not disruptive? And if I were someone who needed insurance, I'd be buying gold and gold stocks like Evolution.

Okay, thank you.

Thanks.

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

Thanks. Thanks everyone for participating. I appreciate it. It won't be long before you speak to us again with the release of our interim results in the middle of February. So I look forward to updating you then and look forward to being able to hopefully with travel restrictions reducing to be able to take you to Ernest Henry, take you to Red Lake and also visit Cal where there are lots of changes happening because seeing is really believing. So thanks.

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