Evolution Mining Limited

Thank you for standing by and welcome to the Evolution Mining March 2022 Quarter Results Conference 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 Jake Klein, Executive Chairman. Please go ahead.

Thanks, Harmony. Good morning, everyone. Welcome to the call and thank you for joining us. We do appreciate it. Bob Fulker, our Chief Operating Officer, is taking a well-earned break from today's call, so I'm joined by our Finance Director and CFO, Laurie Conway, and our VP Discovery and Business Development, Glenn Masterman. At a macro level, this quarter inflation in the US rose to 8.5%, its highest level in 41 years, while unemployment rates in the US and Australia are at historic lows. Russia's invasion of Ukraine is now entering its third month, with the conflict showing no signs of reducing, and COVID continues to wreak havoc on people's health, workforce availability and supply chains. Closer to home in February and March, the Australian East Coast was battered by heavy rainfall and flooding that tragically killed 21 people and required thousands of people to evacuate their homes. Against this backdrop, gold has been fulfilling its traditional role as the best hedge against inflation and geopolitical uncertainty. Regrettably for the world, I expect these issues to continue. Turning to Evolution's courtly reports, and our performance and starting on slide three of the presentation. There are many highlights in today's report, but three are clear standouts for me. Firstly, our portfolio has been transformed into one which is amongst the highest quality, lowest cost, cash generative, growth oriented portfolios in the gold sector. 148,000 ounces of gold produced and an oil in sustaining cost of 990 Australian dollars an ounce. or 717 US dollars an ounce, is a 27% reduction quarter and quarter and makes us very close to being the lowest cost gold producer of scale on the planet. Operating mine cash flow increased 33% to $269 million. Net mine cash flow increased 135% to $124 million. the bulk of the $144 million of capital being spent on our most important organic growth opportunities at Cal and Red Lake. We paid our 18th consecutive dividend of $55 million, bringing total dividends paid to shareholders to $1 billion. Secondly, the impact of 100% ownership of Ernest Henry and the transformation at Red Lake. In the last quarterly report conference call three months ago, I said that I was confident that by securing 100% of Ernest Henry, we had concluded what is likely to prove to be one of the most transformative deals in evolution's short history. Today's quarterly report is proof of this. The numbers speak for themselves. Copper production more than tripled to over 13,000 tonnes, resulting in an all-in sustaining cost of negative $2,000 an ounce. and the mine generated $185 million in operating cash flow. Gold sales were higher than production at 39,000 ounces due to an additional 20,000 ounces of gold that was sold due to the cancellation of the previous economic interest. Excluding the impact of those sales, operating cash flow for the quarter would have been $137 million, And all in sustaining cost would have been negative $4,200 per ounce. The transformation at Red Lake gained very important traction this quarter with a 67% increase in production to 33,000 ounces. We expect to improve this to over 40,000 ounces in the June quarter. This is testament to the significant efforts of our people at Red Lake and the operations team under Bob's leadership. We still have lots of work to do, but we are making tangible progress in creating value at this operation. Thirdly, I was proud of the resilience our teams demonstrated. As mentioned a few moments ago, COVID and rain events caused problems across the country during the quarter, and we were also affected. Over 25% of our workforce at Cal tested positive for COVID during the quarter, which amounted to 199 people. Fortunately, everyone is recovering. This, of course, excludes the impact of those needing to isolate as a result of being deemed close contacts. Despite this, not only were we able to deliver a robust quarter at Cal, but the team was able to plan and execute a very logistically challenging seven-day mill shutdown, which required a multitude of contractors, around 300 people, to assemble on site. With very strict protocols in place, not one person involved in the shutdown tested positive. The unprecedented East Coast rainfall in the quarter impacted both Cow and Mount Rawdon. Cow managed through it, but at Mount Rawdon it did result in some instability in the north wall of the open pit. Although this is being managed, it has had and continues to have an impact on our ability to access higher grade ore from the open pit and also required the crusher to be shut down for nine days. As you all know, the underperformance at Red Lake in the first six months of the year left us with very little runway on our original guidance, and taking these new factors into account, we have reduced our FY22 production guidance by 20,000 ounces, or 3% from the lower end to around 650,000 ounces. We are expecting a strong fourth quarter with an increase in production of around 22%. There is no change to our sector-leading oil and sustaining cost guidance, of $1,135 to $1,195 an ounce, so we will continue to produce high-margin ounces. On slide four, we have set out the results from Ernest Henry. Being a copper gold mine, it is challenging to compare it to other gold mines. The best measure is cash flow, and on this measure, I am confident that there will be very few gold mines in Australia that generated $175 million in net mine cash flow this quarter. We have chosen to treat the copper as a by-product credit, which delivers the exceptionally low cost of negative $2,000 an ounce. Another lens to look at this through is on a gold equivalence basis. Through this lens, production for the March quarter would have equated to 95,000 ounces of gold or 380,000 ounces on an annualized basis at a low all-in sustaining cost of $1,150 an ounce. The charts in slide five tell the story of the transformation that is occurring at Red Lake. I am particularly pleased that we gained momentum through the quarter, with March being the strongest month, and in many areas breaking all-time records at the operation. Having consistently delivered above 1,200 metres of development for the last six months, the Red Lake Transformation Plan now has a goal to consistently and safely mine 3,000 ore tonnes per day. This was achieved in March with 106,000 tonnes mined, surpassing the previous monthly record in the history of the mine by more than 20,000 tonnes. Pleasingly, this mining rate is being sustained in April. On-growing improvements to mining practices continue to drive reductions in stoke dilution that improve mine grades by 17% this quarter. Both the Red Lake and Campbell Mills are operating at record throughputs. The CYD decline, which will provide an important new source of higher-grade ore gathered momentum, is on track to deliver the first production ore in the September quarter, only six months away. We expect to improve production to over 40,000 ounces in the June quarter, with a focus on sustaining this level consistently over the next few quarters. Whilst being a few quarters behind our original schedule, we do remain confident of the potential for Red Lake to be transformed into a 350,000 ounce a year low-cost operation. Turning to slide six, the Cal Underground project continues to be on budget and scheduled for critical path activity. Major procurement milestones have progressed during the quarter and the award of the primary mining and drilling contract is imminent. This will complete the award of all material contracts. First production oil from the project remains on schedule for the June 2023 quarter when the paste plant is commissioned. Slide 7 shows the significant impact the Kandana and East Kandana acquisition has made on the future of Manggari. The integration is progressing well with the objective to create what we are describing as one mangari, standardised systems and processes and sharing of equipment and workforce across what was previously three separately run operations. One example of the operational synergies that are being captured is in the underground maintenance and training teams where three separate units are being combined with significant savings and efficiencies. Recruitment of vacant roles is also progressing well, with vacant roles reducing during the quarter, despite the tight West Australian labour markets. Turning to slide eight. Earlier this month, I was fortunate to be on site when Mount Rawdon hosted a delegation from the Queensland Government, led by the Minister of Resources, the Honourable Scott Stewart. The visit included an update on the two-gigawatt pumped hydro power project and the significant contribution it can make to delivering Queensland's renewable energy targets. As a potential pumped hydro facility, Mount Rawdon is blessed by history, topography and location. It has a huge head start in that about $1 billion has already been spent mining $200 million which has been processed for gold production over the expected 25-year period of its life. That billion dollars has created a big hole, which can be used as the lower reservoir of the pumped hydro scheme. In addition, the topography of the surrounding region also delivers Mount Rawdon a great natural site for the upper reservoir. In terms of location, fortunately Mount Rawdon sits only 25 kilometres from major power lines connecting Queensland's southern and central grids. And on top of that, the timing of the mine's closure aligns with Queensland's decarbonisation strategy, with the state due to close the 700 megawatt Calite B coal-fired power station in 2028. The study work remains ongoing and is due for completion in June 2023. With that, I'll hand over to Glenn to provide an update on our exploration and discovery activity.

Thank you, Jake, and good morning. This morning I'll update on exploration progress achieved across the discovery portfolio in the March quarter, which is set out on slide 9. Key takeaways I'd like to draw to your attention are firstly the positive drilling results returned on the Kewgine venture, which have expanded the mineralisation footprint at West Island and confirmed the presence of very good grades at this emerging discovery. At Manggari and Red Lake, drilling results continue to reinforce our views on underground upside potential, particularly at Kandana, where we are delineating new areas of high-grade mineralisation very close to existing development. Turning now to highlights in this morning's report, Commencing with our Q joint venture in WA, we completed our first full quarter of managing and operating drilling activities after taking over from our partner, Musgrove Minerals, at the beginning of January. We recently switched analytical laboratories, which has reduced assay turnaround times from well over 12 weeks to a more manageable five weeks. Faster analytical turnaround times give us the confidence to accelerate diamond drilling with a second core rig expected to arrive on the project during the June quarter. This will increase to three the total number of rigs on the JV ground, in which we are earning a 75% interest. Encouraging results from the diamond program in the quarter are highlighted on page 11 of the report. Pleasingly, we identified additional mineralised loads along the West Island trend, which has also extended 500 metres in recent air core drilling to 2.1 kilometres long. The June quarter program will focus on drilling extensions of known structures to understand potential scale of the mineral system and to test other target styles that may be important for hosting high-grade gold. At Mangari, drilling results outlined on page 14 extended the structure that hosts the Christmas hanging wall load at Kandana. This mineralisation is located 35 metres from the main Christmas ore body which we are currently mining. The results signify that the important ore-bearing structure remains open along strike and down dip. The next round of drilling will target the high-grade quartz load within the structure with the aim of potentially expanding the high-grade mineral resource. An exciting implication of the recent Christmas results is the realisation of untested potential in the hanging wall of the Strezlecki load where this structural position is modelled to continue. At Red Lake, drilling returned high-grade results on an extension of the R-zone at Lower Campbell, as summarised on pages 12 and 13 of this morning's report. The results confirmed great continuity at the local scale and highlight an opportunity for significant resource potential between these deep intercepts at the bottom of the Lower Campbell mineral resource. Future drilling will be planned as short step-outs from adjacent development to extend the mineral resource into the 500 metre gap identified on the R zone corridor. I look forward to sharing results of the June quarter drilling programs at our next opportunity in July. With that, I'll hand over to Laurie. Thank you, Glenn. Good morning, everyone.

This morning, I'm pleased to update on our financial performance for the March quarter as shown on slide 10 of the presentation. and outlined on pages 9 and 10 of the report. We had a very strong quarter of cash generation with operating cash flow up one-third to $269 million, and we delivered $125 million of net mine cash flow. This was an increase of 135% from the December. We invested $144 million in capital, comprising $33 million in sustaining and $111 million on major projects. Our group capital guidance remains unchanged at $150 to $175 million for sustaining capital and $440 to $505 million for major projects. Group cash flow for the quarter was just under $22 million. Jake mentioned our excellent all-in sustaining cost performance for the quarter and the $990 per ounce equates to a margin of around 60%. We remain on track to deliver our group all in sustaining costs within the guidance range of $11.35 to $11.95 per ounce. We did see some higher costs come through in the quarter and these were in line with what we outlined at our half year results. As I mentioned at the half year results though, the improvement in metal prices and revenue are more than offsetting these cost pressures. Our achieved gold price was up 3.6% in the quarter. The achieved copper price was down slightly by 1.5% but our copper volume more than tripled. The focus remains on managing the cost pressures across all of it. The balance sheet continued to strengthen even after the increased debt associated with the Ernest Henry acquisition. Our gearing is sitting at around 23% and is expected to trend down below 20% in the coming months. This is in line with our first target level that we set post any acquisition. We ended the quarter with a cash balance of $538 million and have around $900 million of liquidity. Turning to slide 11 and a summary of the quarter. Delivering an all-in sustaining cost below $1,000 per ounce is certainly sector leading and we will finish the year within our group cost guidance range. The margins we are generating is able to fund our growth plans and still return funds to our shareholders. The immediate exceptional contribution from Ernest Henry is evident in terms of additional copper exposure, reducing our group oil and sustaining costs and materially increasing the cash flow. The existing mine life plus the expected extensions will see this cornerstone asset generate significant benefits for many years to come. The ability of the team at Red Lake to achieve improvements in all areas of the operation gives us confidence that the transformation is now progressing well and we expect the momentum to increase again in the June quarter. The other assets are performing well and throughout the business we have demonstrated resilience against the extreme rainfall events and the impacts of COVID, especially the isolation requirements for positive cases and close contacts. We are in a very good position to close out the financial year. Thank you for your time this morning. And Harmony, 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 Matt Green from Credit Suisse. Please go ahead.

Hey, good morning, Jake and the team. My first question is just on Red Lake. Great to see you things heading in the right direction there. But our question is around the milling. Can you please provide some context as to how running the Campbell mill beyond the 2,000 tons today went? Are you getting a sense of what the optimal milling capacity could be? And just to confirm, the exception to run beyond that level, I think I recall you mentioning it was only for six to eight weeks. Is that the case, or have you been able to extend this?

Yeah, so the last question first, it's a 12-week trial that you can restart if it's intermittent. So we are confident that we can run until the end of June and into early July at these higher rates of 2,000 tonnes per day. But we are, you know, we're pushing it to the boundaries. I think it was only running at about 1,700 or 1,800 tonnes a day when we acquired the operation. These are... The milling throughput which it achieved in the first quarter are historic highs, as are the mining rates. So we're starting to get the productivity through that we need to convert this into a medium-grade, higher-tonnage operation.

That's great. Thanks, Jake. And then, you know, development rates are being sustained above the 1,200 metres a month. And if you're able to get 3,000 tonnes a day on a sustained basis, what's your thinking around the Bateman mill versus the Red Lake mill? I mean, it's a new mill. Are there potential for cost savings there or scale if you were to go down that medium grade path if you transition to Bateman? And what's your thinking around running all three mills?

yeah so we're assessing that matt now um you know it is it is i think an 11 kilometer distance from the the campbell and red lake mills we're also doing the you know we we have the opportunity to do the bulk trial at the mcfinley deposit which is near the bateman mill um but we're working out the milling strategy obviously the upper campbell area which will come on on track in the first half of next year from the CYD decline gives us higher grade and potentially, you know, a completely independent access to ore bodies. So up until now, we've been focusing on keeping the two mills filled because this is the first quarter which the Red Lake Mill and the Campbell Mill have run combined throughout the quarter. So, you know, up until now, our issue has been on mining rates. We're getting that right. We need to start getting consistency and reliability. We feel we're getting there. You can see the trends. But, you know, obviously we've had a tough 12 months at Red Lake pre this quarter.

Yeah, that's great. And just on Cal, challenging quarter there with the rain and COVID. You mentioned the 25% of confirmed cases. If we were to take the close contacts that had to isolate, What sort of levels of absenteeism did you experience at times on site?

I think I saw that the highest level of absenteeism on one day was about 80 people, 75 to 80 people. It's now down to about 35, so it's reducing. But 80 out of about 400 people is a lot of people off site. That's 400 of total workforce, so if you took that shift and those who are on break, it would be less than the 400. Yeah, got it.

Okay. And then do you expect things to ease with these recent changes on close contacts by the government?

John Pennell, the general manager of Cal, is sitting in the room. Yeah, he's nodding his head. But none of us are pandemic experts, so we're hopeful. Yes, Cal has dealt with the brunt of it, and they've dealt with it very, very well. I mean, getting 300 people onto site for a shutdown was a pretty remarkable achievement without getting infections.

Yeah, I appreciate it. Okay. And look, if I could just squeeze one last one on Mount Rawdon there. Perhaps a longer dated question here, but a lot of the gold miners want to become net zero on emissions. What's your thinking on this pump hydro project? Could this be a project that you participate in the future and look to maybe, I guess, generate credits to offset carbon elsewhere in the portfolio? And then just on the scale, how did you arrive at the two gigawatts for 10 hours?

So I think the scale has been determined really by the reservoir capacity on the pit. It is a multi-billion dollar project, and we are not power operators, and we don't intend to become them. But yes, there is the opportunity which I've described. Can we have some ownership of the project? It would be small, and a disproportionate amount of carbon credits, to me, would be a structuring outcome that would be fantastic for evolution. We haven't yet been able to test it. The first priority is to make sure that this project is feasible and economic. The pre-feasibility study says that it is. The meetings with the Queensland Government suggest that it fits and aligns exceptionally well within their requirements. The more I read about pumped hydro and deep battery storage, the more compelling Mount Rawdon becomes. But fundamentally, Matt, evolution's priority is twofold. One is to do the right thing by the community and the remediation of the mine. The second thing is to maximize the value of the project, and the pumped hydro has the potential to be a very significant and valuable project for evolution shareholders. That's great.

Appreciate your time.

Thanks, Jake.

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

Good morning, Jake and team. First question, this one's probably Laurie's wheelhouse. On page 10 of your quarterly working capital bill, you have roughly $67 million during the quarter. It seems high relative to previous quarters. I'm guessing it's got something to do with the Ernest Hennery acquisition, but just wondering if you could please provide some colour on that quantum of movement.

Yeah, Mitch, it's exactly that. I mean, what happened in the March quarter is we closed out the joint venture. So we get the gold sales. So that was a positive working capital movement. But we then moved to 100% of the concentrate. which works on either a three- or four-month quotational period. So in this very first quarter of owning 100%, our working capital will increase, and it increased by over $40 million on the receivable side, and that was the major impact on our movement in working capital in the quarter.

Thank you. And my second question, understandably, you've softened the guidance for FY22, given... events during the quarter. Just wondering if there are any drivers for that change that are likely to flow into FY23 and at a potential risk of impacting the guidance that's out there for FY23 currently?

I mean, I think, Mitch, the real risk is on Red Lake. You know, we had guidance out there for 200,000 ounces for next year. We are re-looking at that. You know, we're likely to need to downgrade that in due course as the final budgets and loans come in place. But it is, you know, 40,000 ounces is the next hurdle and then 50,000 ounces a quarter from there.

OK, thank you. And then I guess on that then, Can you provide a bit of clarity on Red Lake with regards to that 40,000 ounces? The way I would think about it is that that's the new base once you've achieved that in the fourth quarter. Is that the right way to be thinking about it or is it running hard in the fourth quarter and may come down in one cube FY23?

No, when we had this debate around reducing guidance in the range, we've made a conscious effort to try not to push the sites in the fourth quarter and fall off the edge of a cliff in the first quarter next year. So we are very driven by the fact that we've recognised our missteps at Red Lake. We need to build confidence and we need to get credibility and we are going to be trying to build a base and then step up from those bases.

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

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

Hi. Good morning, Jake and team. So just to follow up, I guess, on Red Lake, a couple there. So firstly, you've got that chart showing the improved haulage from Koshina, which looks like it was around half of the feed for the quarter. Is this showing that Koshina was a key bottleneck and you know, going forward, we should expect sort of similar volumes out of Koshner.

Yeah, David, I don't know whether you've looked at the history of Red Lake, but that high-speed tram, there was nothing high-speed about it, and it cost a huge amount of money. Originally, it had kind of built-for-purpose electric Lokis that it used. So we've changed those. We've changed it. There's been some tremendous and successful change management there, and the team has done a great job there, and they're now running it very consistently. So Koshner was never really able to provide a reliable baseload, and it is now starting to be able to do that. It is lower grade. So as we open up better and higher grade sections in aviation, MMTP, you've seen we've mined a couple of stoves there. And when the upper Campbell area comes in line from the CYDD, obviously we're going to try and replace as much material, if the mills are full, with higher grade material.

Okay. Thank you. And then just to follow up, you've given your previous comments there about the outlook for 2023. Given it looks like the oil mining rates are coming up, but you've talked about better dilution control this quarter. So is really one of the key bottlenecks just getting that grade up towards reserve grade, because we're still obviously running below that. I mean, you do have new high-grade areas coming in, such as Aviator, and I think you've said you've started stoping there. But is it really still grade that's the key drag into 23, and that's the way we think about it? Or is there further sort of But the aspiration, I guess, for the ore throughput levels was maybe high as well.

No, I think there's an element of bruising that we've experienced over the 12 months. But it really is about getting the grade consistent, accessing these higher grade areas, getting reliability and predictability and confidence. Now the mills are running at maximum throughput. There's a 15,000 tonne stockpile on surface at the moment. Remember, Three or six months ago, you know, Red Lake, there were skeptics as to whether it would be an operation that would survive. You know, we were always confident. But, you know, this quarter, you're starting to see the development rates consistently. You're starting to see the mining rates, the processing rates. It's about building confidence and getting credibility.

All right. Thanks, Jake. I'll pass it on.

Thank you. The next question comes from Al Harvey from JP Morgan. Please go ahead.

Yes, good day Jake, Glen and Laurie. Thanks for the call. Just maybe one on Mungare. Just wanted to get an update to confirm the Mungare Mill expansion is still on track for FY22 and you did kind of run through some of those synergies that you're seeing across the the role in EKJV projects. I wonder if you could outline any more of those and how we should think about cost savings at the Mongari asset.

Yes, so we're integrating what were essentially three separate operations into one. We think there are synergies and opportunities over there. As you know, there's a tightness in the labour market. I mentioned that our vacancy rates had actually gone down this quarter, but we did have high level of vacancies at the start of the quarter. But, yeah, there's plenty of opportunity. Glenn visited Mungaree a couple of weeks ago, came back very excited about the geology, and the study is on track for completion at the end of this year, this calendar year.

Great. Thanks, Jake. And maybe just to follow up on Mount Rawdon, have you got any expectations around how long it might take to stabilise that pit wall? And maybe just following on from that, How do we think about rehab costs in the context of the pumped hydro project? Does that shift that down the track further or do we still need to take some costs out there for the rehab?

I think that on the access to the ore this quarter we've made some conservative assumptions that we believe and that's part of the reason why we downgraded guidance. You know, we're expecting that it's deferred production rather than lost production, but we need to do the geotechnical work on. With regard to the rehab, it's kind of a bit of a binary outcome. Either we're going to have to rehab it or we're going to go down the pumped hydro scheme. So, you know, what I'd encourage people to do is to start thinking about the option value of a pumped hydro scheme being viable at that operation.

Thanks, Jake. And I'll just sneak one last one in there. Just on the Ernest Henry costs, obviously, taking out that lag effect, $4,200 an ounce, pretty impressive. Can we expect those actual numbers to flow into subsequent quarters now, or are we expecting any other kind of accounting lag impacts going forward?

I'm going to pass that question on to Laurie, but thank you for asking the first question on Ernest Henry on this call so far. This is an asset that delivered us 17% of the purchase price in the first quarter that we owned it. Laurie, over to you.

Yeah, Al, there's nothing further that should impact on the costing structures from the old joint venture. So going forward, depending on gold and copper produced and sold, the AISC will be will be normalised and it obviously will depend on the copper price that we achieve in the quarter in terms of the by-product credits we get. Jake has sort of locked in his mind that it will be $4,200 negative every quarter. We've just got to give him back to the accounting days of the mechanics of how you calculate it.

That's great. Thanks, Laurie. Thanks, Jake. Thanks, Glenn. I'll pass it on. Thanks.

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

Hi, Jake and Tim. First question is just on cow. Given the impacts of rainfall and COVID on the quarter, and it sounds like it still impacts this quarter, I'm just wondering if you could outline the latest thinking of grades from the open pit over the next 12 months. Thank you.

I mean, I think we think it's consistent, albeit John Pennell's right here and I'm going to put him on the spot and our general manager is standing in for Bob while Bob's on leave. So, John, you're the best person to answer that question.

Yeah, thanks, Jake, and good morning, Daniel. Look, we're expecting to see the grade incrementally increase over the coming 12 months, and we see that looking back over the last 12 months as we've seen volumes come up, a strip ratio for well below one. So there's going to be a volume piece here, but we're going to see increased volume and we're going to see increased grade, and that'll translate through the mill. We've already seen the grade come up from circa 0.9, 12 months ago, up to around just less than one percent, one gram per tonne, I should say, going through the moon now.

Thank you. And maybe an accounting question for Laurie. Just the DNA at Ernest Henry was about $4,000 an ounce. Just wondering, you know, might be some accounting finalisation adjustments in there or something Just what's the best guidance on where that should settle? Thank you.

Yeah, Dan, we've got... There certainly would be some in the finalisation of the... The prepaid metal, which was always averaging $1,350, $1,400 an ounce, and then now you're amortising another billion dollars of asset acquisition. So that was the impact in this quarter. As we finish the life of mine plans in the June quarter, we'll update on what the DNA profile for this asset's going to be going forward. And I haven't got it in front of me, but we had it at the half year as to what it would be. on an annual basis, but I'll get Martin to follow that one up with you.

Okay, thank you. And Redleg, revisiting a little bit of some earlier questions, just specifically on the mills where you've done this trial, you know, could you further outline what you've learned about, you know, the mill that you didn't already know and, you know, what's potentially surprised you from running it at full tilt?

Yeah, Dan, they can be pushed harder than they've previously been pushed, and they have higher throughput capacity than they've previously had. So we're kind of pushing the boundaries now, but Bob's always keen to push the envelope, and I think we started off at 1,700, 1,800 tonnes. They're over 2,100 tonnes now at Campbell. The mills have never really been pushed to their maximum capacity.

Yeah, the only thing I'd add to that, Daniel, is if you recall, when we first took ownership of the asset, the Campbell Mill was one of the things that we'd identified through our DD that needed to get a little bit of love and attention and money on taking ownership because it was not a mill that was set up to go for the extended periods. We completed those works and the pleasing thing we've seen in this trial is that those works that we've done have allowed us to run even above where the team thought they could on an unlimited or an unconstrained basis and so therefore they're getting a little bit more confident about the capital that may be required to have this sustain at these levels.

Then maybe just an update on the permitting process for that, because this is a temporary dispensation to run these mills flat out, which I presume is obviously they'll have to throttle back in the September quarter. What's the process to re-permit them at a higher number once you know what that number is?

That's in train, and we don't think it's a major impediment. It's more just process than anything else.

Yeah, and if you'd recall when we talked about the mill expansions in the second half of last calendar year, you know, if we were running at these rates, it's a local permitting approval as opposed to if you go above 50%, I think, then it's a federal. So these improvements that we're running at are local approvals, so it's not as complicated. Thank you very much.

Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead. Pardon me, Kate. Your line is now live. Thank you. Your next question comes from Alex Barkley from RBC. Please go ahead.

Hi, Jake and Ted. Another one on Red Lake. With the mining rates going quite well, particularly in March, well above even the 850 kilotons you'd guided from existing mines in FY22-23, just wondering why on an annualised basis the gold and all the sustaining costs would still fall short of your FY22 guidance, despite probably suggesting it was going to be a better second half. So just wondering what you had expected for the third quarter in that original guidance versus what was achieved. And was it just basically a case around grades not being where you wanted them to be? Thanks.

I think the main issue is really the first six months of performance. We produced 38,000 ounces, which left us, as I said, on our group guidance with no runway really, and a disappointing performance, as has been well documented. So we're building from that base. The third quarter was pretty much in line. It's consistently now kind of delivering, and we're getting more confidence, but a bit gun-shy as to making bold predictions. We need to build confidence for the site team, and we need to build confidence that these things are consistent and that 3,000 oil tones a day becomes a habit. and then we can start looking at optimizing and getting greater. We're very comfortable with the models. The reconciliations are not giving us concern about the models. We do have some work to do to further improve mining dilution, but these are all within the range of what you'd describe as normal improvements.

So when you say that the third quarter was pretty much in line, those grades were about what you had planned at the start of the year?

So, yeah, the Koshner material is lower grade, and we are getting some dilution from the all-power set Koshner, which is an ongoing issue as we're mining those areas. We've factored those all into the guidance and everything we have now. But, you know, Koshner is a bit low-grade. Because of the success we've had at the tramming and the haulage, that material's, you know, being a base load, and aviation and MNCP zones are only coming online now. So that's where you're going to see a bit of great increase in the fourth quarter. Yeah, OK, sure.

And excuse me if I misheard your comments earlier on the call, but I think you said... Red Lake was a few quarters behind the original schedule. Is that pertaining to that sub-US 1,000 per ounce guidance you have by FY23N?

Look, Red Lake had 165,000 ounces of guidance this year. It's been the root cause of our miss this year. We've overestimated our capacity to transform the operation. We've re-based it. We think we're on track. Nothing in what we've seen at the operation gives us doubt that it can be achieved, but we are definitely 12 months behind where we expect it to be on delivery. Okay. All right. Thanks very much for that, guys.

Thank you. Your next question comes from Andrew Bowler from Macquarie. Please go ahead.

G'day, gents. Just sort of noticed a one-liner in the quarterly about development at Bateman. Is that largely to establish drill positions or are you considering sort of heading in there in terms of getting some oil out as well?

It's to establish drill positions, and we do have the opportunity to take 100,000 tonnes as what's described as a bulk sample there, but that's not in the numbers that we're talking about today.

No worries. And just that sort of interim target of 3,000 tonnes per day, I mean, obviously, heading beyond that, is it sort of expected that that'll come from continuing improvements in mining practices or is the next big step coming from opening up those new areas? from that big capital drive at the moment?

Opening up the new areas. You know, this is going to be a case of opening up multiple areas. We've talked about the fact that it was grossly underdeveloped and undercapitalised when we took it over. We knew that when we took it over. We bought it for US$375 million a couple of years ago. We knew that was the case. We didn't know how much it had been undercapitalized, but getting that 1,200 meters a month was a key milestone. We've now shifted that to 3,000 tons of, say, four tons a day. That's now being achieved, and it's about building bases, debot, bottlenecking, the whole process. And the mine is definitely the process because we still have a mill sitting on site that is unused at this point in time being the basement mine.

Thanks for that. Just heading back to Australia, I mean, Cal, you're talking about stoping the underground there sort of roughly a year from now. Can we expect a reasonable volume of development ore from now over the next sort of year or so? And, you know, if so, can you give us a sort of rough grade on that or is it expected to be quite minor before that first stoping also?

John, do you want to take that one?

Lucky you, yeah. Yeah, no worries. Good morning, Andrew. Look, I think in the context of the underground as it develops, we're going to see that normal profile as we start to develop into the ore body over the coming next 12 months. We're pretty busy drilling at the moment underground to get confidence in those first set of stoping. I think as we follow the critical path, you're going to see come through in our quality results, I guess an increasing amount of ounces come out of the underground, but mostly through development. until we hit that first doping. And like all mines, Andrew, it's going to have a bit of a ramp-up period post the mill coming on board, but you will start to see increasing levels of development ore. Again, it'll be at a modest grade because, of course, with development, it'll come through with that lower cut-off.

No worries. That's all from me. Thanks, Jeff.

Thank you. Your next question comes from Matthew Collings from Morgans. Please go ahead.

Good morning, Jen. It's just a very simple question on Mangari and just maybe it's an accounting treatment around the JV, but it looks like it disconnects between the tons and grade processed for the gold produced. Is the difference there just attributable evolution ounces versus a whole ore through the mill or am I looking at it the wrong way?

Yes is the answer. So we're reporting 100% of the stats through the mill and then we're taking our production number that's attributable. So all of the 100% of the assets and 51 of the EKJB.

No worries. Thank you very much.

Thank you. Your next question comes from Kate McCutcheon from City. Please go ahead. Hi, Jake and Laurie. Can you hear me now?

We can. Loud and clear.

Perfect. So just on Dan's question at Cal, I thought at the September quarter result, you said we would see those grades from stage H pick up to one grams per tonne in December and March. And we've been running at 0.8. What's driven that? Are you still expecting it to pick up to that 1.1, 1.2 in FY23?

So on that, Kate, the mining grade will always be the lower one because we are out of stage H building that stockpile. So the lower grade goes on. So that's the average grade mined and the highest grade is going through the mill. So when we were talking about the lifting grade, we're seeing that in grade process. So we're moving away from the stockpile material to pure stage H material. We saw that get up to just under a gram average. this quarter and it will lift, as John said earlier, over the coming quarters as we get the higher volumes of ore out of the pit.

Yeah, I understand. That makes sense. And a question for Laurie. How much longer is cash tax going to sit at that lower rate? And then secondly, when are you expecting to pay stamp duty on the Ernest Henry deal?

So the tax was lower in this quarter because based on our tax returns, so the FY21 tax had to be finalised and paid in December at the time that we submit the return. Therefore, there's a higher amount that goes in the December quarter and the March quarter is lower. We then will see maybe a slightly higher tax tax cash in the June quarter. But again, we're going to manage that based on where we see the FY22 year finishing and what franking credit balance we want to end up with. And in the second one, the Ernest Henry will either be in June or potentially in the September quarter. We're finalising the valuation that has to go in with the stamp duty lodgement. So we're hoping it goes into the September quarter, but it could be in June.

Yeah, thank you. And then finally, look, I know Bob's not here to answer this question, but what are you most excited about at Ernest Henry? Are there any near-term opportunities or levers to pull that you've identified in the first couple of months?

We're most excited about the cash that's generated, and I'm going to keep coming back to this because I wish someone would look at this. You know, we've got 17% of the purchase price back in the first quarter. We like the mine life extensions down at depth. The pre-feasibility study suggests that it's going to have an extended mine life down there. So we're excited about the geology, the operation and the cash generation.

Yeah, fair enough. Thank you. Thank you. Your next question comes from Stuart McKinnon from the West Australian. Please go ahead.

Oh, good day, Jake and team. Just two from me. Firstly, on Mangari, are you guys expecting, you know, COVID rates haven't quite peaked there yet? I see you note there's no major impacts to date, but you do mention that there's been a slight increase in cases in April. Are you expecting that increase to continue and possibly you experiencing the same sort of levels of absenteeism as you did at Cal or you're not expecting the same impact at Mangaree?

You'd have to think that it is likely to increase as travel increases and as exposure increases. What we'd hope is that we've learned from our experience at Cal and at Red Lake and that the protocols in place at Mangari are strong and have been built off what the other sites have learned and we'll be able to contain it in a way that is less disruptive.

Okay, thanks, Jake. And just another one from me on the gold price. You mentioned the macroeconomic environment being supportive of the gold price, and certainly it's still at fairly historically elevated levels. But are you in any way surprised that the price hasn't sort of broken out above 2,000 US an ounce? I mean, it's hard to imagine a more supportive environment for the gold price. And while it is elevated, it's not really sort of breaking any records or anything like that. Are you surprised by that or what are your thoughts on the gold price going forward?

My thoughts are that it's going higher. The Federal Reserve I think has a very, very challenging job of trying to bring inflation down from 8.5% last quarter without plunging the country into recession. That has very rarely been done successfully, and therefore I expect inflation to continue, and that is always good for the gold price.

Okay. Thanks, Jake.

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

Hi, Jack. Just a quick follow-up to that on COVID given the broader labour market tightness. How many cases have you had at Mangari in April? And are you getting a bit frustrated that WA is still taking a very different approach given what we saw this week with the easing of restrictions in New South Wales and Victoria.

Yes, so we've had 10 cases at Mungaree to date, so much fewer than at, for example, Cal or what Cal experienced. I did see in I think it was in your newspaper, you know, the call from mining companies that labor access, overseas labor, immigration should be eased. And we would be very supportive of that in a tight labor market like we have at the moment. access to skills without creating rampant inflation and just not being able to fill roles is critical to the future of the mining industry and, frankly, the economy of the country.

And just one more on this issue. I mean, in the last few days, we've seen in quarterly BHP, Whitehaven and others talk about these COVID impacts. I mean, if you sort of sit back, how big of a deal is this for... production and guidance for the industry going forward? And are there any solutions? Because it doesn't seem like COVID is going away.

Well, I think there are solutions in that there are waves of the virus and they do recede and the sites and operations get better at managing it. Omicron seems to be less, you know... cause less damage or illness or death than previous strains. So I think we've got to learn to live with it. And that's what our sites are doing and our people are doing. But it does cause a huge distraction to our operations teams. And I see John is nodding his head on this one. You know, in dealing with high levels of absenteeism, high levels of concern within the workforce and legitimate concern around health and it is a distraction that certainly is not what you'd describe as normal business. All right.

Thanks, Zach.

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

Thanks, Harmony. Thanks, everyone. Look, an interesting call and an interesting quarter. I'm going to go back to just leaving you with one final thought that, you know, we sold our gold at $2,464 an ounce. That leaves us with an average margin of around $1,474 an ounce, or as Laurie said, 60%. That's 150,000 ounces of production. Just to give you an equivalent basis, if we were able to keep the same mix of production on that quarter and we increased AIC to $1,740 an ounce or $750 an ounce, which I think will be more in line with the industry standard in Australia. That's the equivalent of us producing 300,000 ounces of gold at that AIC. Our view is it's much better to produce less gold at higher margin and make lots of money. Thanks for your time.

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