Evolution Mining Limited

Thank you for standing by and welcome to the Evolution Mining half year 22 results. 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'll need to press the start key followed by the number one on your telephone keypad. I'd like to now hand the conference over to Martin Cummings, General Manager of Investor Relations. Please go ahead.

thank you ben good morning and welcome to the evolution mining fy 22 first half results and december 2021 mineral resource and all reserve update conference call as ben mentioned my name is martin cummings and joining me on the call today we have jake klein our executive chairman laurie conway our cfo and finance director and glenn masterman our vp discovery and business development today we released our fy 22 first half results an update to our mineral resources and oil reserves, and a presentation that covers both. On the call today, we'll be talking to the presentation pack. I'll now hand over to Jake and the team who will take you through today's presentation. Thanks, Martin.

Good morning, everyone. Really appreciate you joining us. I'm going to start on slide three of the presentation, which is titled Highlights. Since we formed Evolution in 2011, our strategy has remained the same. Build a great team, focus exclusively on Tier 1 jurisdictions of Australia and Canada, have a small concentrated portfolio of high-quality operations in well-endowed geologically prospective gold districts, and continually seek opportunities to improve the quality of the portfolio of assets. In that context, this has been a truly transformational period for evolution as we have achieved a genuine step change in the quality of our portfolio. Our average mine life is now over 14 years with good geological upside and we have consolidated our ground positions in each of the world-class districts in which we operate. Our avatar margin of 44% in the first half remains very strong, with improvements expected from ownership of 100% of Ernest Henry. Turnaround at Red Lake yet to take effect. Our consistent focus on margins means that we continue to be conservative in our estimation of gold ore reserves and use a sector-low price of AUD$1,450 an ounce, or US$1,050 an ounce. and have today released record high reserves of over 10 million ounces and resources of close to 30 million ounces. Importantly, we continue to return money to shareholders with our 18th consecutive dividend declared of 3 cents per share fully franked. This leaves us well-positioned for a very strong second-half performance, and our FY22 production and cost guidance remains unchanged. Turning to slide four, titled Accelerating Sustainability. Delivery of strong financial outcomes needs to be built on strong foundations. Our progress in the area of sustainability is respected by our people and communities and is also being recognised by external agencies, which is encouraging. We are proud of our relationships with the communities and our First Nation partners and the shared value projects that we have committed to. It's this improvement and ongoing commitment that will continue to underpin our relevance for decades to come. We also recognize our obligation to provide a healthy and safe working place for our people, a place that's safe both physically and mentally. I acknowledge and welcome the media attention that this topic is currently receiving. At Evolution, we are supportive of the opportunity to actively discuss our performance and how we can do better. It is only through our commitment to providing a workplace that is free of bullying, harassment and prejudice that we as a company and as a sector will truly be the best we can be. Moving to slide five, titled Creating Real Shareholder Value. Our strategy of focusing on quality over quantity and margins over volume, in our view, is the pathway to being able to generate sector-leading returns on the capital we deploy. You can see the double-digit returns we have consistently achieved whilst also extending the mine life at our cornerstone operations. These mine life extensions have been achieved through the drill bits or accretive transactions that have generally been negotiated on a bilateral basis and which add genuine value. This, in our view, is the holy grail in our industry and is the true measure of a gold company's performance over the long term. Cal and Red Lake now have mine life visibility of close to 20 years, and Ernest Henry and Mangari in excess of 10 years. This provides us a great platform to astutely allocate capital and deliver on the outstanding organic growth opportunities we have in front of us. On slide six, we outline the transformation of our portfolio. There have been lots of calls for consolidation in the gold sector. In the background, we have quietly been doing this. actively securing and expanding our positions in areas we understand and we believe in the geological upside. At CAL, we are on track to grow this operation to 350,000 ounces of low-cost production. The underground project is on schedule and budget, and we have commenced studies on being able to continue production from the open-pit resources. At Red Lake, we took advantage of a window of opportunity to consolidate the district by acquiring the adjacent Battle North assets. This quarter, we are making encouraging progress in the turnaround of Red Lake. Laurie and I are looking forward to visiting the site next week. At Ernest Henry, the integration is going well with a positive response from the local workforce and community. We've kicked off the pre-feasibility study to extend the mine life and have decided to extend the study a further 100 metres below what is considered in the concept study which was completed by Glencore and anticipated a four to five year mine life extension. As you'll hear from Glen, we are excited about the geological potential of Ernest Henry. The consolidation of the Manggari district with the acquisition of the Kandon and EKJV interests have opened up an exciting range of opportunities for us at that operation. A pre-feasibility study has been completed around an expansion of the mill to 4.2 million tonnes per annum and unlocks the rich mineral endowments of the district to achieve production of 200,000 ounces for at least 12 years. Recognising the opportunity, yesterday the Board committed $9 million to transition this into a full feasibility study, which we expect to be completed in the December quarter this year. As we discussed at the quarterly results, there are the headwinds of COVID and cost inflation. But as you'll hear from Laurie, these are well and truly exceeded by the very strong tailwinds in the price of both our core commodities, gold and copper. With geopolitical tensions rising and inflationary pressure in the US increasing to its highest level in 40 years, it is encouraging to see investors turn to gold in its traditional storer of value role. With that, I'll hand over to Laurie.

Thank you Jake and good morning everyone. I'm pleased to report the interim financial results for FY22. On slide 7 we have our financial highlights. At the initial glance it may look like the results for the first half were not good. However, when you consider the corresponding period in the half year to December 20, which was a record half year, gold prices were higher, our operations were at different stages of their mine plans, and we had not approved some material growth projects, the performance of December 21 still positions us well to deliver a successful financial year. Our underlying profit was $100 million, while statutory profit was $91 million. The main items of difference between the two profits are the $10 million gain on sale of Mount Carlton and transaction integration costs of $31.5 million associated mostly with the Kandana acquisition. I'll go through the changes to the profit in the next slide. Our EBITDA margin remains very strong at 44% and we expect this to increase in the second half via the Ernest Henry acquisition and improvements at other operations. Our cash flows were impacted by a 57% increase in capital investment on transformation and mine extension projects at Red Lake and Cow, which ramped up during calendar year 2021. We have declared a fully franked dividend of $0.03 per share. Turning to slide 8, which shows the movement in net profit between the periods. Firstly, the changes in the portfolio that Jake mentioned have delivered immediate results with $44 million extra from Kindana at Mangari and the divestment of Mount Carlton. We'll see further benefits from these transactions going forward. Lower gold volume at Mount Rawdon related to limited access to higher grade material in the pit during this half year and Red Lake related to mining higher grade remnant areas in the December 2020 half year contributed to a $145 million reduction in gold revenue. The lower gold price was essentially offset by higher copper revenue. On the cost side, the volume impact of $27 million was predominantly due to the transition in the open pits at Cowell and Mungaree, where we were mining waste in the December 20 half-year, which were capitalised costs, and mining ore in the December 2021 half-year, which are operating costs. This resulted in $21 million of net additional costs expensed in this half-year. However, this essentially meant no material change to cash flow between the periods for these activities. Higher input prices impacted costs by the order of 3% or $13 million. I'll cover the cost position on the next slide. High depreciation charges relate mainly to Cal Stage H and the IWL, which are now assets in use. Moving to slide nine on our costs and the drivers. There has been no material change to our cost structure, with labour, employees and contractors making up 52% of our cost base, while our top seven cost types comprise 87% of our total costs. Therefore, these items have the most impact on our costs and receive the most attention. As with our peers, and as Jake mentioned, the cost pressures have increased in the last six months. And this has been from a mix of demand, supplier input costs increasing, and logistics due to COVID. Thankfully to date, we have not seen any material disruption to supply of goods due to COVID. As I outlined on the last slide, we saw input costs increase by 3% compared to 12 months ago. We expect to see our labour costs increase by 4% to 5% in the next year. But as has been our preference in the past, we try to move our labour costs via the variable components as opposed to the fixed pay rates. Our power costs in Australia are contracted until the end of this year, excluding Ernest Henry. They are coming off a lower price from a couple of years ago, and the new rates are going to be impacted by the market conditions at the time of contract renewal. The chart on the bottom right shows our sensitivities to costs and revenue. It clearly shows that spot metal prices outweigh potential cost changes as compared to our current cost base in our three-year outlook. We continue to maintain our discipline on cost control, including competitive market engagements and working on productivities and efficiencies. Turning to slide 10 and our cash margin. Despite the drop this period, our EBITDA margin is still sector-leading at 44%. Excluding Mount Carlton, the margin was 45%. Ernest Henry and Cale continue to be standouts at 74% and 54% respectively. With the additional copper and high spot price of copper, Ernest Henry will increase in the second half, while Cale, through access to the stage H ore, should also improve. We expect the group margin to benefit from the improvements at Mungaree linked to Kandana and the encouraging progress Red Lake has made so far this quarter. These cash flows are enabling us to fund projects in execution across the portfolio for production growth and mine life extensions. Overall, we are well positioned for a strong second half and into FY23. Lastly, on slide 11, which looks at our dividends and the balance sheet. We have declared an interim dividend of $0.03 per share fully franked. This will be paid on 25 March and brings our total return to shareholders to around $1 billion. We have not changed our dividend policy, which is based on group cash flow, and when determining our interim dividend, we look at what we expect the full year cash flow to be. We know that Ernest Henry will deliver significantly more cash in the second half due to the acquisition of the remainder of the asset, and we have taken the higher spot prices that we will achieve in the March quarter into consideration. We continue to balance investing for growth and returning funds to our shareholders, which is underpinned by a very strong balance sheet. Our gearing at the end of December was 12.5%, which is before we paid for Ernest Henry in January. That said, we will still be well under our 35% limit and gearing will reduce quickly. During the period, the balance sheet was further strengthened by the successful US private placements, which extended our debt maturity at very low rates. We now have a very low average cost of debt at 2.6% and importantly, around 55% of this debt has fixed interest costs and is also our longest dated debt. With the current balance sheet strength, the expected better performance in the second half and current metal prices, we are very well positioned to deliver better returns going forward. Thank you for your time this morning and I'll now hand over to Glenn to take us through the resource and reserve outcomes.

Thank you, Laurie, and good morning. This morning I will provide an update of our annual mineral resources and all reserves for the calendar year ending December 31st, 2021. Before I do, I want to acknowledge the hard work, long hours and inevitable sprint to the line by all of our people involved in delivering the pleasing results I am about to describe. I'd like to direct you to slide 12 of this morning's presentation which shows our gold mineral resources increased 12% year on year to 29.6 million ounces with the addition of 3.2 million ounces after accounting for depletion. Gold ore reserves increased 5% to 10.3 million ounces, up by 450,000 ounces of gold inclusive of depletion also. The increase to the reported gold mineral resources was driven primarily by additions at the Mungari, Red Lake and Ernest Henry operations. I will cover Mungari and Ernest Henry separately and in more detail on the next couple of slides. Previously, however, I would like to briefly summarise the increase in reported mineral resources for the Red Lake operation, which resulted from the acquisition of Battle North and the Bateman Underground Project. Since May last year, we have completed a full rebuild and estimation of the block model. Our maiden mineral resource for the Bateman Gold Project was 5.1 million tonnes at 4.6 grams per tonne gold for 757,000 ounces. which when adjusted for production depletion yielded overall growth of 696,000 ounces to the reported mineral resource at Red Lake. The main difference between our current estimate and the mineral resource previously declared by Battle North is that we report only those resources constrained by optimised mining shapes versus reporting resources above a cut-off grade. Red Lake resource models were updated during the year to reflect new drilling information and or new geological interpretations. The aggregate tonnes and grade have remained substantially the same, which reinforces our confidence in the veracity of the models. improvements to the way in which we are mining at red lake including reducing the amount of dilution and increasing mining recoveries in our stoping sequences are positively impacting reconciliations where we are seeing production grades starting to trend back toward the expected reserve grade moving now to our copper mroy results the acquisition of a hundred percent of ernest henry has driven a material increase in our reported copper resources which increased 63% to 1.4 million tonnes with an addition of 541,000 tonnes of copper after accounting for depletion. Likewise, copper reserves increased 27% to 640,000 tonnes with an addition of 135,000 tonnes net of depletion. As I will describe below, there is a somewhat outdated Glencore model. Ernest Henry dating back to May 2021 and we are currently working on including the 80 holes that have been drilled since then. We believe there is excellent geological upside at this deposit and expect more growth to come. Turning to Mungaree on slide 13, acquisition of the Kandana, East Kandana and carbine assets accounted for most of the resource and reserve additions. Completion of the mill expansion pre-feasibility study enabled re-optimisation of resources at lower cut-off grades because of lower future processing costs anticipated in a 4.2 million tonne per annum plant. In total, the reported mangari mineral resource increased 124% to 4.9 million ounces of gold and oil reserves grew 172% to 1.3 million ounces of gold. A key driver of value is the increase in resource and reserve grades, which reflect the high quality of the consolidated opportunity, in particular the addition of the Kandana and East Kandana underground operations. The post-acquisition combination of tenements grew our overall Manggari land position by 60% to over 1,000 square kilometres in total area. This is the first time a single owner has been able to consolidate the highly prospective Zuleika shear zone along much of its strike length. Drilling in the last six months at Kandana and East Kandana is confirming additional potential for extensions of mineral resources. The future focus of drilling will split between further de-risking the future production schedule assumed in the PFS for the expanded processing facility. and unlocking value in new opportunities across our large prospective land position that were not previously available to Evolution pre-acquisition. Moving now to Ernest Henry on slide 14. Acquisition of 100% of the asset increased our reported mineral resource to 1.7 million ounces. The reported gold ore reserves which are limited to the current life of mine area above the 1125 metre RL were depleted by production but partially offset by our adjusted ownership interest. Additions to reported copper mineral resources are attributable to the adjusted ownership interest above and below the 1125 metre RL and have increased to 885,000 tonnes of copper. Copper ore reserves are reported above the 1125 metre RL only and increased to 269,000 tonnes under evolutions for ownership. The December 2021 MROR Ernest Henry is informed by Glencore's May 2021 block model estimate which has been depleted to the December 31st 2021 void model. As mentioned previously, there have been almost 80 holes for over 21 kilometres of drilling completed since the data cut-off date. We expect to release an updated mineral resource in the September 2022 quarter, which will incorporate all additional drilling completed since the May 2021 model. Future drilling priorities are linked to improving ore body knowledge for the Ernest Henry Extension PFS between the 1125 and 775 metre RLs. Drilling will also extend beyond the base of the PFS to delineate the continuation of the ore body down to and beyond the 480 metre RL, where strong copper and gold mineralisation have been intercepted by the deepest drill holes in the mine. Slide 15 charts our MRR journey since evolution's origins in 2011. The highlight for me is validation of our strategy of identifying and acquiring quality assets in highly prospective geological terrains that have given our discovery teams the runway to continue adding resources with the potential to extend the lives of their operations. The one example I would like to leave you with which I believe exemplifies our approach and that we would love to continue repeating in the future is cow. Over the last seven years we have added over six million ounces in mineral resources inclusive of depletion since we acquired cow from Barrick in 2015. The result has translated to almost 10 million ounces in resources and the conversion of 3 million ounces to all reserves, net of depletion for total reserves of 4.6 million ounces and a mine life that extends to 2038. The results we've released this morning illustrate the strong platform we've built that will allow us to continue converting our large resource base and extend our ore bodies beyond existing resource boundaries. We have the technical teams and budgets in place to continue improving knowledge of our oil bodies with the potential to make discoveries across our portfolio of high quality brownfields and greenfields targets. With that I'll hand back to Jake.

Thanks Glenn. I'll just turn to slide 16 which is a summary slide. You can continue to expect our focus on the application of a consistent strategy which you've come to expect of us and which we believe is the best pathway to value creation in this sector. Our portfolio has been transformed and we have really high quality assets, a small portfolio of high quality assets. They deliver strong margins and will deliver even stronger margins in the second half of this year. A strong balance sheet, as Laurie said, with 55% of our debts at fixed costs, at very low fixed costs. As Glen has described, high-quality resources and reserves, all of which are in Tier 1 jurisdictions. And finally, and importantly, we have a great team which is highly focused on delivery over the next six months and beyond. With that, I'll hand over to Ben who can open the lines 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 Matt Green from Credit Suisse. Please go ahead.

Sure, thanks. Good morning, Jake and Tim. I have a couple of questions. First, just on Red Lake, if I may, you remain confident, I guess, in the technical aspects of the project and the delivery there. So my question is more just around the workforce. Quite a mature workforce there. I've, I guess, done things in a particular way for a number of years before you acquired the mine. And I guess since acquiring, you know, you've restructured the cost base and sort of manages on the asset level there. So I suspect the remaining workers have had to change quite considerably the way they operate. So I'm just hoping to just provide a bit of color as to how that, you know, how receptive has that workforce been? How have you incentivized them and sort of your relationship with the union there? Just any sort of color you could provide on the dynamics of managing the workforce there.

Yeah. Thanks, Nat. Thanks for the question. So just to clarify, the workforce is not unionised. We are fortunate to have Kirsty Liddicote as our general manager at Red Lake Visit Australia. Thank you. this last week to participate in what was actually one of our first general manager leadership team forums that we've been able to have for a long time in person, except for our WA colleagues who couldn't make it. And then she's also presented to the board over the last couple of days. Look, it is a transformation. I think generally, you know, we are transforming this operation from a very selectively mined, high-grade mine to what we describe as a medium-grade. Our Mangari colleagues still describe it as high-grade, but a medium-grade, higher-tonnage operation. We have all the infrastructure in place, and it is, you know, a journey to change the culture there. We're making progress. That's probably the most important thing. There is momentum building, and the commitment and understanding of our desire to change some of the mining practices is there. That's not to suggest that we don't have pockets of resistance to that change, but overall we feel very confident that we can bring the workforce, and a large number of them are already on board with it, along on the journey.

That's great. Thanks, Jacob. Thanks for clarifying on the union there. Look, if I just go on to Ernest Henry now, then I guess at the time of the acquisition, the focus was really, I guess, life beyond the 1200 level. And you didn't really assume any material cost doubts in your valuation or material synergies there. And you're quite complimentary, I guess, of how Glencoe had run that operation. So I guess now that the transaction's closed, and look, you may still stand by as you, but I guess, are there any sort of near-term opportunities that you are evaluating, you know, perhaps not in the next six to 12 months, but maybe 12 to 18 months ahead?

Yeah, I think there are. I mean, I think, as Glenn described, the geological potential of this ore body is very material to us and very prospective, and the depth extensions are there. When Bob was talking to the board over the last couple of days, you know, and Harry Harrison, the general manager, there was a lot of comment around some of the areas that may have been left unmined outside of the cave area, which are reasonably easily accessible with existing infrastructure. but really weren't material to Glencore. So those are the sorts of things that may be much more important for a smaller company like ourselves and things that we're starting to look at. I think I said on the courtly call, the acquisition of Ernest Henry reminds me a lot of what we acquired when we acquired Cal. a very well-run operation, but somewhat lost within a very large organisation where, you know, a few thousand tonnes of additional copper was not material to them but is material to us. So, yeah, we are looking at things which may have been less important to Glencore and are encouraged by the opportunity, recognising that we did not assume a lot of that in our valuation model and neither did we assume this fantastic copper price which we're currently realising.

Yeah, no, that's great. Thanks, Jack. And perhaps I'll just squeeze one more in just on your power costs on the contracts there. Are you exploring renewable source contracts there if they're available? And I guess just how long will these new contracts be in place for?

Yeah, Matt, the power contract generally will only be sort of up to two years. Our focus on the renewables is really working with the energy providers. energy consumption isn't large enough to be a driving force in terms of the renewables, but in terms of working with the energy providers in making sure that the ones that we choose are moving more towards the renewable space. So that's really going to be our approach through this contract renewal period.

Matt, just one comment I'd make in an asset that hasn't got mentioned but I think has some real latent option value is Mount Rawdon, with the potential to convert that into a very significant pumped hydro scheme. You know, the feasibility study is being done on a one gigawatt being able to be stepped up to a two gigawatt power supply, which would be material to the Queensland grid, would be fully renewable and a fantastic way to ultimately close what has been a very successful and long life mine. That's great. Thanks.

Thanks, guys. That's all for me.

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

Yeah, hi, Jake and team. Thank you for the call. Can I ask about Mangari? I imagine it's probably... five and ten percent of most valuations is that about right and can you talk us through I guess the movie over the next couple of years there on the way up to 200,000 ounces I guess the TDR stage it looks like it's tracking well ahead of guidance at the moment just talk us through maybe that the vision for that asset over the next little while please

Yeah, thanks, Levi. Definitely undervalued at 5% to 10% of our value, but don't reduce the value of our other assets to get that. Look, it's an interesting one. As Glenn said, it's the first time that one owner has consolidated that entire Zalika share district. We've got a very significant ground position. We have a good mill there. As you know, you know, Mangari as a standalone was looking at a fairly low-grade future going forward, and that's why we did the pre-feasibility study that said the best way to... create value there was to build and expand the mill to 4.2 million tons. So without Kandana and East Kandana, the pre-fees said that the most compelling value creation opportunity was to expand the mill. We've now started to rerun those numbers and said, well, what about all these other opportunities which have come with the EKJV and Kandana assets? And they're immense. There is a significant mineral endowment. Their resource base is close to 5 million ounces. And there is exploration upside. So it makes that case even more compelling. We need to do the feasibility study. We need to be confident of being able to really deliver a plan there. And Scott Barber, who's the general manager at the site, is integrating the operations. So we need to, you know, take the steps... slowly and appropriately, but our view is that there is a very significant amount of value creation to be delivered over there. Glenn, I don't know if you want to comment.

Yeah, I think what we're going to be focusing on is really conversion of that large resource tail, which comprises both underground and open pit resources, converting those in the reserves that will... continue to extend a production future at that expanded scenario that we're contemplating with the larger plant. The other opportunity at Mangari now with our consolidated land package is the ability to look at some opportunities that we previously had not been available to us. And I think some of these opportunities, particularly new open pit targets, which aren't even on the books at this point, which will likely benefit as we analyse these in the coming 12 months from the processing cost scenario that anticipated in the new plant. Several of these come from the Northern Star work that we inherited through the acquisition, which contemplated putting some of these opportunities through Kanana Bell. So we also get the added benefit of reducing haulage. So there is a number of these opportunities which are not on the books yet, but we'll be assessing in the next 12 months.

Yep, okay. And can I just confirm the timing of the study?

The fourth quarter, December quarter this year, the study will be completed.

Okay, cool. Thank you. And one question for Laurie. Just stamp duty, cash stamp duty on Kandana, Ernest Henry. Can you just talk us through modelling that?

Yeah, so for Kandana, it was around $20 million. And for Ernest Henry, it's going to be upwards of $50 million. Okay. And they'll both be done in this financial year.

Okay. Thank you. And last one, just on the Red Lake, can you tell us how it's gone in the last six weeks? There's some good indications on development meters and some of the KPIs in the month of December. Yeah.

Yeah. It's going well. We said we'd have a substantially better quarter this quarter. We're on track to do that. We look at the weekly reports at the moment at Red Lake. They are encouraging green signs on those reports. I don't want us to get ahead of ourselves. We need to make good a habit at that operation, and it's a journey. So it's a transformation. We're on the right direction. We're feeling good about the last six weeks, but you don't want to come to the end of this quarter and everyone goes, oh, we're disappointed with that. So we've got to deliver at Red Lake. We understand that, and we want to do that.

Great. Thank you. Thanks for your time, guys. Thank you.

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

Good morning, Jake, Glenn and Laurie. Thank you for the call. Quick question. I thought you settled on an itinerary on the 6th of January, but effectively the 1st of January, yet you've increased your reserves and resource, which were effective as of the 31st of December, inclusive of the acquisition. Have I missed something there?

We took ownership effectively the 6th of January, but it was effective 1st of January. So between midnight and the 1st of January, we included those resources and reserves. We'd already, when we released the statement, we'd acquired ownership of Ernest Henry. Sure. Not a problem. Thank you.

But it doesn't change the end outcome, which is sort of interesting. And then, Laurie, just The implication for the fair value uplift on your existing holding in Ernest Henry. I think there's some mention of it in Note 16, but just if you could talk me through how we should be thinking about that, modelling that for the full year results.

Yeah, Mitch, it's an interesting one. Under the accounting standards, it's deemed to be an acquisition by stages, which means the first part, the remaining value as of December gets uplifted as well as the assets that we've acquired. or the remaining assets. So we would see that at the moment the balances at the end of December was around $300 million. That will get uplifted along with the billion dollars that we acquire. But essentially when it runs all the way through, you'll see an asset on the balance sheet effectively about $1.3, $1.35 billion. which then will start to be amortised over the mine life. In our appendix there, you'll see that the DNA is being updated for Ernest Henry for this year. So you'd see about $1,900, $2,000 an ounce as the DNA. The reason for that being as high as it is, is that you'd recall that the acquisition we made gets us the copper. We already had the gold down to the $1,200 and we also pick up the remaining gold and copper below the $1,200 that was in the old new reserves. So on a gold equivalent basis, that DNA is pretty well in line with what our group DNA is, which is around $600. $100, $700 an ounce. So that's sort of how it'll all be treated at the moment. We've got 12 months to work through the purchase price allocation, but that's sort of what it'll look like as at the end of December.

Okay, thank you. And then I just wanted to spend a bit of time focusing on the Ernst Henry PFS. Obviously, you've said that that's on track for the end of this calendar year, but I just wanted to understand... How do you think about that, given that's only going down to the 775RL, and if you look at slide 14, there's potential beneath that, the interplay about, is it contemplating things such as shaft tallage and or conveyor, you know, extending the conveyor down to that depth, and how do you take that interplay if you are limiting yourself only to the 775RL when it looks like the orbital continues at depth?

Yeah, Mitch, that's a good question. But first, I must recognise the impressiveness of you getting to note 17 of the accounts already. The... The way we thought about it and we had a presentation to the board in the last couple of days was that at the 875 sort of trucking and conveying was line board. So that's why we've decided to extend it down to the 775 with a view that in all likelihood you're going to start to get to some sort of mechanised conveyance system and you'll be able to judge quite clearly. In the interim, Glenn and his team will be looking at what is the potential depth extent. In all likelihood, it's going to be kind of a hybrid solution because we do need to extend and start developing into those areas. And then we'll be looking at how the drill results come out and what the ore bodies look like below that 775 level before we need to commit material amounts of capital to that.

And just to add to that, Mitch, I think the 775 level is also where we have detailed drilling information that will inform the studies. the drill hole pierce points into the ore body start to space out a little wider. So there's a bit more work to do as we go forward to continue drilling underneath that 775 level, as well as some more infill work to... tap off on the pre-freezability study we're working on.

And just to reiterate what Glenn said in his speaking notes was we've basically depleted a Glencore model, so it's a slightly historical model from May to 2021. We're going to include these 80 drill holes into a new model. The resource may be updated sometime in the September quarter, but then we need to wait for the completion of this pre-feasibility study to increase reserves. But, you know, we're confident that you will see an uplift in resources and reserves based on the drill data.

Thank you, guys. I really appreciate the call. That's it for me.

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

Hi, Jake and Tim. Obviously, lots of M&A activity, both buying and selling in recent times. Just wondering if conceptually, Jake, the portfolio is now done for a while and it's all about integrating these assets and investing in them?

Yeah, Dan, look, I think we understand the need to now deliver. We have done a lot of deals in the background. There's largely been bilateral deals. There's largely been strategic around the assets that we believe in the geology of, and we feel we do have a very high-quality portfolio with lots of organic growth opportunities in them, but recognise also at the same time Red Lake and delivery is going to be a key to getting shareholder recognition and value.

Thank you. And a question maybe more for Laurie. Just on the debt, you've highlighted 2.6% as a, you know, I guess an interest cost on the debt. Just wondering, do I take that on your debt balances to get the finance costs, or are there, you know, some other finance fees I should add as well that are more fixed in nature, like a dollar millions type charge? Thank you.

No, Dan, effectively, the only other costs, which are, you know, like on the revolver, having that available, there's a charge on that. There's performance bonds as well. And really, what you'll see, that average rate is over all of that debt. The delta from there to the total finance charge is not going to be that material.

And either for you, Laurie, or for Jake, I guess the dividend... You did pay more than the policy on free cash flow. You've got circa $1.4 billion of debt now pro forma for the Ernest Henry transaction, including the $200 to come. How do you think about returns in terms of dividends versus paying down this debt level over the next couple of years and the amount of investment you've still got in your assets?

Yeah, I mean, when we look at it, Dan, firstly, the USPP was deliberately positioned to put longer-dated debt in. I mean, we've got $90 million of debt owing in the next six months, $130 thereabouts next year. and what we will do is balance that plus the uh the investment in the assets and and the dividends what we'd see is that as you get to the end of this financial year you know red light should be um running um certainly at a higher rate than it has been in the first half and therefore not being a drain on our cash Cal will have six months of the stage H ore behind it. And then in the start of FY23, it will be hitting underground ore. And then you've got Ernest Henry, which effectively from 1 January is giving us 70% extra copper plus 70% of those costs. But it's going to be a strong net cash generator for us to be able to reinvest in the business, pay the debt and also continue to pay dividends. That's really how we're going to be looking at it.

Thank you. And the Mangari mill expansion, last question. On page six of the presentation, it seems to indicate that by the end of FY25, if that is committed to, it would be up and running. Is that how I should understand it?

Yeah, that's right.

Okay. Thank you very much for your answers.

Thanks. Ben, are there any more questions? Ben? Operator?

Alex, are you there? Yeah, speaking. Sorry, I think we may have lost the operator, but we can hear you. Okay, great.

Thanks, guys. A couple of questions. Firstly, at Mangari, to reach that 200,000 hours per annum with the PFS study done, what kind of mine tonnage were you presuming from Kandana and East Kandana JV mines?

So I think, Alex, as we noted before, we were really thinking about it on a standalone basis before we applied that East Kandina package. So that'll be part of the feasibility study, bringing it in. But, you know, it is higher grade. Glenn is optimistic about the prospectivity along that Zalika share. And, you know, we have, as you can see on that diagram we've included, there are lots of opportunities there. including Castle Hill probably being the nearest to the mine, where we've done quite a lot of work before, because that was in the Mangari tenement package.

Just to add to that. So the way in which we're thinking about sort of the production mix, I mean, most of the production... you know, in the initial stages of going and coming out of that castle hill area where we have a, you know, sort of a large low-grade open pit resource, that'll be, there'll be a blending strategy in how we sort of mix with the Kandana and East Kandana production that will really drive the sort of production outcomes for that plant. Okay.

Did you have an idea of sort of what the peak capacity might be from those acquired underground mining operations? No, we don't. It'll all be part of the feasibility study. Yeah, OK. No problem. And at Ernest Henry, reserve grade come out at starting 0.93%. You've been mining a bit higher than that, over 1%. And M&I, sort of considerably higher than both. Should we just presume M&I maintains a little bit higher based on that modifying grade and mine grade would eventually drift lower to that reserve grade you've just put out?

I think that would be the right way to think about it at this point in time. I mean, we don't really see or haven't seen any material shifts, particularly throughout reconciliation, intimation, on a monthly and three-month moving average to suggest otherwise. All right, no problem. Thanks very much, guys.

Thanks, Alex. Jamie's back. Are you back, Ben?

Pardon me, I'm back. Your next question comes from David Radcliffe from Global Mine Research. Please go ahead.

Hi. Good morning, Jake and team. My question is on the maintained conservative price assumptions you're using obviously for the reserve resource statement. It can obviously be a trap to chase the price, but it's been many years since prices averaged those levels. Just wondering, is there such an arbitrage now? Does this begin to constrain the business? And I guess what I'm thinking of is things like Ernest Henry, as you go through the PFS study, you know, Glencore's using much higher price assumptions than yours. I'm just wondering if they could actually offset some of the upside of the additional 80 holes.

Yeah, thanks, David. It is something that we've thought about. We pride ourselves on the fact that we've started at $1,350 Australian dollars and we moved it $100 only over the last decade. We want to be conservative. Is this gold price sustainable at above $2,500? It's almost $2,600 at the moment. It is something that we'll look at over the next 12 months, and it is certainly something that, you know, when we're looking at Ernest Henry, you know, we're looking at net smelter returns, and we are starting to think about things about, you know, how do we optimise the value of the asset? But, you know, we'll remain conservative but assess it as we go forward. All right. Thank you.

Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead, Kate.

Good morning, Jake and team. Two questions on Bateman from me. So the first one's for Glenn. So you've got a drop in grade there compared to the prior numbers that were done, but total times have increased significantly. Can you call out what's driving that on the back of confining to optimised scopes, but no extra drilling?

Yeah, Kate, the reason why that's happened is in terms of, I guess, the pre-acquisition resource previously declared was entirely based on a reporting blocks in the model above a certain cut-off grade. Now, what we've done that is different to that is that we've optimised the mining shapes. So that does include dilution and obviously, you know, some economics in terms of the ability to extract, you know, that resource. So that's what's driven the extra tonnes and that, you know, primarily. And as a result, the grade has come down a bit.

Yeah, crystal clear. Thank you. And then secondly, how are you thinking about prioritising this dirt? Now you've had it for a little while. It's obviously a lower grade than the rest of the Red Lake parts that you've got. But then again, you are still mind constrained.

Yeah, look, I think the first step for us is, as you will have seen, we haven't declared a maiden reserve that is JORC compliant for for the Bateman project at this point. We recognise that there are some really good opportunities within that resource. We do have development to those areas at the moment which we're currently drilling. And it's all about establishing, you know, grade continuity above our cut-off grade four reserve, which will obviously be higher than the 2.5 grand cut-off in the resource at the moment. So that's the next step for us. We are, you know, with the goal of identifying sweet spots in that ore body where we can focus future mining on.

OK, but you are drilling it now, so it obviously... We are. ..is somewhat of a priority.

Yeah. Yeah. I'll just add to that, Kate, that that was all part of our due diligence. Nothing in the Bateman resource is surprising to us at all. It was included in our due diligence and our engagement with them in acquiring the asset.

Yeah, got it.

Thanks. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Al Harvey from JP Morgan. Please go ahead.

Good day, Jake, Laurie and Glen. Maybe just starting with you Glen. Just on the Mangari resource and reserve increase, I'm not sure if you guys can kind of break down the proportion that was unlocked from the lower processing costs. from the meal expansion study versus just bringing on the ounces from the Kandana acquisition. That would be helpful if you could elaborate on that.

Sorry, Al, I'm just coming off mute here. Yeah, so the relative splits there are, in terms of the growth driven by the low processing costs at the larger plant, is about 580,000 ounces in resources and about 250,000 ounces in reserves on a consolidated basis, fully consolidated basis.

Awesome, thanks for that Glenn. Maybe just another one, thinking about higher copper prices at the moment and lots of potential around Lake Cow, have you guys looked at any further opportunities, maybe re-looking at Marsden for example or any other opportunities along the district?

Our focus at CAL is on delivery of the underground and also expanding. We've commenced an open pit continuation study and we see that taking us out to 2040 at CAL on a 350,000 ounce a year, getting us up to that level. I think the team at CAL have a lot in front of them and need to deliver what's ahead of them.

Yep, thanks for that, Jake. And maybe just apologies if I missed this in the intro, but just wanted to touch on the labour costs rising 4% to 5%. Just elaborate on that a little bit. Are you seeing that across evolution shirts and contractors? And maybe if you can step us through how you're increasing the variable versus the fixed components.

Yeah, Al, what we're seeing is that you're seeing both our employee labour and as we're recruiting, we've seen the market move there. And it's the same for the contractors. I'd say that there's not a lot of difference at the moment that we're seeing in movement in rates. What we've seen were 3%, 3.5% last year. We expect it to be... around the 3.5% as a base movement. This year, what we're looking at, you know, we run a variable system down to the entire organisation from operator level up to supervisor level and superintendent level. is on a quarterly scheme and beyond that's on an annual scheme. So we're looking at those structures and how we can make those, one, more attractive for bringing people into the organisation and retaining them on above-plan performance. So that's where we sort of see that if we can achieve those, that would be a flow-on effect to our overall cost base in that 4% to 5%. Great.

Thanks very much for that, guys.

Thank you. Your next question comes from Peter O'Connor from Shore and Partners. Please go ahead.

Morning, Jake, Laurie. Jake, thinking through the next couple of months in WA and COVID, how do you think it will play out and how material could that be either way to what happens with your assets and WA in general?

Thanks, Rocky. We've been thinking about that a lot. I mean, I think we've been on record in saying that, you know, we think that COVID arriving in WA is inevitable and it's positive that they're looking to open up the borders. You know, we are preparing for it as best as we can. So, obviously, Cowell and Red Lake have had the experience of having COVID present in their operations. and Mangari is taking the lessons from that. It's difficult to predict the impact. We have had, at Red Lake and Cal, up to 15% of the workforce unavailable at certain times due to COVID or isolation. At this point in time, we're confident that we have done our best to put plans in place that will mitigate the impact.

Thanks, Jack.

Thank you. Your next question comes from Michael Bennett from AFR. Please go ahead.

Hi, Jack. My question, I think you just answered. But seeing as I've got you, I think in your prepared remarks you mentioned you get the feeling that goal is returning to its place. provide a bit more colour on this environment, because obviously, yes, inflation's rising, but so is rates, expectations, and the gold sector has obviously come off its highs from last year as the economic outlook has improved and the like. So can you just touch on what you were referring to in your remarks there a bit more?

Sure. Look, I mean, I think, you know, that inflation in the US is the highest in 40 years, and The Fed has never successfully been able to bring inflation like that under control without either putting the economy into deep recession or managing inflation within a reasonable limit. People are talking about 45 interest rates over the next 12 months, but that will never be enough to bring a 7% inflation level under control. So the Fed has a very difficult and small landing strip to manage this. It hasn't been done successfully previously before. My view is that they err on being conservative, and that will mean that inflation will be higher than expectations on a longer basis or a longer-dated basis, which would bring people back to a store of value commodity like gold. Great. Thanks for that. Thanks, Michael.

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

Thanks, Ben. Really appreciate everyone's interest and appreciate your time. Just finally, a recognition and call-out to our finance and technical teams. and the MROR statement finalised. It is of very high quality and very much appreciated. And finally, Laurie and I are going to get rugged up because over the weekend we hope to be in minus 35 degrees Celsius at Red Lake. Speak soon. Cheers.

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