Evolution Mining Limited

Thank you for standing by and welcome to Evolution Mining Financial Year 2022 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 1 on your telephone keypad. I would now like to hand the conference over to Mr. Martin Cummings, General Manager, Investor Relations. Please go ahead.

Thank you Nirav. Good morning and welcome to the Evolution Mining FY22 financial results conference call. Joining me on the call this morning are Executive Chair Jake Klein and Finance Director and CFO Laurie Conway. We'll be talking to the presentation released to the ASX platform this morning. As you can see, the results we've released today are in line with what we've released recently in our business update late June and our June quarterly report released in late July. We now look forward to hosting investors and analysts at Red Lake next month, where attendees will see firsthand the extensive infrastructure in place, the improvements we've made to date, and the opportunity we have at the operation. We're pleased with the strong interest shown, but if anyone is interested to join the group, please let me know. With that, I'll hand over to Jake.

Thanks, Martin. Good morning, everyone. Thanks for joining us again. It does feel a little like deja vu as this is the third time in six weeks we are speaking to you. I'll make a few opening comments before handing over to Laurie Conway, our CFO and Finance Director, who will take you through the FY22 full year financial results in detail. Since we formed Evolution in 2011, which is now almost 11 years ago, our strategy has remained the same. build a great team, focus exclusively on the 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 our portfolio of assets. In that context, these last 12 months have both been extremely challenging but truly transformational for evolution as we have achieved a genuine step change in the quality of our portfolio. With significant external and internal challenges, we do acknowledge that we have fallen short on operational delivery over these past 12 months. Encouragingly, whilst early days, we have started the year well with our portfolio performing to plan and we are determined to sustain this throughout this year. Now I'm going to turn to slide three. Our approach to sustainability is that it is integrated into everything we do. This is seen through a human-centric lens which incorporates health and safety, both physical and psychological, the environment and the community, including our First Nations partners. We acknowledge that we as a company, like the rest of the industry, have work to do in ensuring the psychological safety for all of our people. In essence, for us this means a workplace where people believe they can speak up and that is inclusive and diverse. Where at a minimum it is free of any form of bullying, prejudice or sexual harassment. We are absolutely committed to doing this. We have demonstrated resilience and strong risk management through the COVID pandemic. Protocols were developed to minimize the risks to our people and the communities that also allowed safe production during this challenging time. Notwithstanding this, we, like every other business, understandably experienced high levels of absenteeism that adversely impacted our performance during the year. Our commitment and focus to a net zero target by 2050 resulted in a 7% improvement in our carbon emission intensity per tonne mined. This is encouraging progress on this important journey. With a shifting ESG landscape and a demand for renewables, we are also looking at our mine life cycle differently. In this regard, we are fortunate to have a truly unique opportunity at Mount Rawdon to create a multi-generational infrastructure asset. Our plan, which is advancing rapidly, is to convert the open pit into a one to two gigawatt pumped hydro battery at the conclusion of mining. We are working with Ironstone Capital Australia, who originated the concept some three years ago and will be co-owners of the project, with each party having a 50% share. We have now reached the stage where we are engaging potential off-take parties. Encouragingly, there's been very strong interest with a number of parties in the data room. We are growing increasingly confident of the potential to demonstrate this as both a model mine closure as well as creating significant value for evolution shareholders. The value of this type of renewable storage has been demonstrated recently with the takeover bid for GenX Power, which valued the company at an enterprise value of around $500 million. Turning to slide four, it has been a very busy year. And we've ended the year with our portfolio transformed and very well positioned for the future. We acquired the balance of Ernest Henry from Glencore. We consolidated the Mangari District through the acquisition of the Kandana and East Kandana joint venture from Northern Star. And we sold Mount Carleton to Navarre Minerals. We have a portfolio that is in the lowest cost quartile and was able to generate an EBITDA margin of 44% for every ounce we produced. We like our increased exposure to copper, which helped us generate almost $900 million in operating cash flow. We are well positioned for growth, with good progress being made on the Red Lake transformation, with all physical metrics having improved to the level we need them at for delivery for our FY23 guidance. And the Cow Underground project remains on schedule and budget. These two projects alone will increase our production by 25% over the next two years, and importantly, this growth is coming from operations that have 15 to 20-year mine lives ahead of them. We also have a number of organic growth studies underway. None of these projects have been committed to, and we will be disciplined in our capital allocation, but they also do give us good options for future growth. As you will hear from Laurie, our balance sheet is strong, and we were particularly pleased that our investment-grade rating was recently reaffirmed by the rating agency in their annual review. Turning to slide five, titled Delivering Value. I think we can all easily agree that the value of a gold company is largely determined by its mineral inventory, its resources and reserves, both the quality and the quantities. Discovering more high margin ounces that are ultimately able to be safely mined, processed and converted into cash in the bank is the true test of value creation. It has been a core pillar of our strategy. The most important call on any acquisition or exploration program is the geological call on the discovery potential. We were very pleased that three weeks ago we released an updated mineral resource estimate for Ernest Henry that captured 119 new drill holes and resulted in a 28% increase in the contained copper to 1.13 million tonnes and a 24% increase in contained gold to just over 2 million ounces. If you think about Ernest Henry in terms of gold equivalents, it equates to a total resource of about 7.5 million ounces, making it a very large mineral system. Whilst these additions have not been included in the charts on this slide, it continues our track record of being able to add ounces of resources to our inventory at a sector-leading very low cost of $35 to $40 an ounce, with the reserve additions delivered at $50 to $55 an ounce. In summary, these last 12 months have been challenging, but they've also demonstrated that our people are up for the challenge. They have shown incredible commitment, strength and dedication to navigate these difficult circumstances and I really believe this is what makes Evolution a unique and special company and provides us a great platform for the future. Thank you and I will hand over to Laurie. Thank you, Jason. Good morning, everyone.

I'm very pleased to report the financial results for FY22. On slide six, we have a summary of the financial results. I will go through a number of these in detail in the coming slides. Our underlying profit was $275 million, while our statutory profit was $354 million. As per the half-year accounts, the difference to FY21 relates to the portfolio mix and the stages of the mine plans at each of the operations. As noted by Jake, the improvement in the portfolio achieved by the end of FY22 gives us confidence moving forward on the financial performance. I'll go through the drivers to the change in profit on the next slide. From a cash generation perspective, we delivered around $900 million of operating cash flow, and this was with only six months of full ownership at Ernest Henry. Our EBITDA margin is strong at 44%. We invested over $600 million in capital projects, and pleasingly these projects remain on budget and schedule as part of our planned 25% increase in production over the next two years, at a very low all-in sustaining cost of around $1,240 per ounce. We declared our 19th consecutive dividend of 3 cents per share fully franked. That will be paid next month. Slide 7 shows the movement in net profit between the periods. The main drivers to the change in profit year on year have been the acquisition and divestment of assets, higher achieved gold and copper prices offsetting lower production and higher operating costs at existing assets due to increased activities and slightly higher input costs. The increased revenue was predominantly from the extra copper at Ernest Henry, which added over $250 million. Metal prices outside of this added a net $68 million. The acquisitions of Kandana and Ernest Henry added around $250 million to our operating cost base, while increased activities at Cowell and Red Lake added $65 million to the cost base. For Cowell, the Stage H costs did not have an impact on our cash flow, as these costs were previously capitalised to the project. We did see input costs increase over the year due to COVID supply chain issues, geopolitical tensions and general global inflationary pressures. Overall, the impact on our cost base was just under 5%. I'll go through our cost drivers shortly. The increased depreciation and amortisation costs were linked to the acquisitions and details of our DNA profile by operation for FY23 is included in the appendix of this presentation. Two items of note which relate to statutory profit and not underlying profit are acquisition costs including stamp duty and a gain on the re-measurement of the existing asset interest in Ernest Henry at the time of full acquisition. The stamp duties will be payable in the first half of FY23 while the gain on re-measurement is a non-cash item. Moving to slide 8 on our costs and the drivers. There's been no material change to our cost structure with employee and contractor labour costs making up half of our cost base and our top seven cost types comprise 93% of our total costs. As outlined in our business update in June, we expect our labour costs will move by 5% to 6% in FY23. For our employee labour, we continue to bias towards at-risk variable component. While we saw an acceleration in prices for input costs during the second half of FY22, pleasingly we have seen oil, energy and steel prices reduced since our update in June. However, our FY23 guidance included assumptions around input costs and these were set at the levels in place in June. This gives us comfort at this stage when looking at our operating costs for FY23. Despite the prices lowering in recent weeks, our team remain focused on efficiencies to mitigate these cost increases at all operations with further potential at Mungaree via integration opportunities and improvements in the cost profile at Red Lake are also receiving appropriate attention. The chart on the bottom right shows our sensitivities are to the main cost and cash flow drivers. We proactively manage these to ensure our low-cost position and strong balance sheet are maintained. Turning to slide 10 and our cash margin. We saw significant cash generation during the year at just under $900 million of EBITDA and operating cash flow. This correlated to an EBITDA margin of 44% or the equivalent of $1,393 per ounce sold. We maintained our discipline on capital allocation to ensure we are investing in the right projects to improve the financial performance of the business and to enable we can continue to return to the shareholder. The immediate benefit of the acquisition of 100% of Ernest Henry is visible here with $465 million in EBITDA, including $290 million in the second half, which was $115 million higher than the first half. Cow continued to be a consistent contributor at $286 million. We saw the benefits of the high-grade stage H ore come through in the second half of the year, although it was partially offset by the impacts of weather and COVID. The contribution from cow should build as the benefits of stage H and the underground mine are realised. While not where we want to see Red Lake's cash generation, the operational improvements in the second half, which generated $35 million more operating cash flow than the first half, was a positive change. This is expected to improve again in FY23. Moving to slide 10, which looks at our dividends and debt. We've declared a final dividend of $0.03 per share fully franked. This will be paid on the 30th of September and brings our total return to shareholders to over $1 billion. There's been no change to our dividend policy. Key components of our policy are the performance during the year and the outlook for the business. We take into consideration the cash received from divestments. This year we received around $56 million from the divestment of Mount Carlton and the divert settlement from Krakow. In terms of the balance sheet, it is in a good position with our investment grade rating being reaffirmed earlier this month as part of the annual review process. This demonstrates the resilience of the balance sheet and supports our dividend. We have over $930 million in liquidity that is able to support our growth projects. It is important to note that we only have two major projects in the execution phase. These are the Cowell Underground Mine and the Upper Campbell Mine at Red Lake. Both projects, as I mentioned earlier, are on budget and schedule. This is planned to be our peak year in terms of capital for the next few years. We have five major studies in progress at the moment, but none of these have any commitments to development, which provides further flexibility to the balance sheet. We are comfortable with our gearing at 27% since it is within our limits and is on track to reduce as the growth projects transition into production. Lastly, on slide 11, in summary, we finished FY22 with a much improved portfolio of assets. The operational performance at the end of FY22 has laid the foundations for a more consistent delivery in FY23. These assets will further enhance our high margin portfolio when the growth projects move into production. They will be the catalyst for our production growth of 25% in the next two years. We continue to deliver returns to our shareholders, even during a capital intensive period, and this is on the back of the relentless work we have done over the past few years to strengthen the balance sheet. Finally, the ability to deliver the business outcomes over the past year takes a significant effort from our entire workforce, despite a difficult operating environment with COVID restrictions and weather impacts. Their commitment is to be commended. The number of acquisitions this year has truly complicated the accounting issues, and we've had many people working endlessly over the past six weeks to consolidate and present the results today. I want to take the time to acknowledge and thank the team for their work. Thank you for your time this morning, and I'll ask Nirav to 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 two. 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.

Hi, good morning, James. I've got a few financial questions to start with. Just on the stamp duty paid in the December half, I just want to confirm this is around $97 million.

Yes, Matt. So it's about $21 million for the Kandana acquisition and around $77 million for the Ernest Henry acquisition.

Great. Thanks. And just on the interest rate, so 57% fixed at 3%. I was just wondering if you could comment on the floating component. Where is that rate currently and how often is that adjustable?

So the term lines adjust as the cash rates move. So they're on a floating arrangement. So they've been moving as the Australian rates have changed in the last few months. And that's sort of where they sit in line with current cash rates.

Okay, thanks. And sorry to ask another question on the QP pricing at Ernest Henry, but But Laurie, you mentioned in the June quarter that your pricing period was around four months. But just looking at one of your footnotes, it says that this period can range from one to four months. So just trying to get my head around this. Is this timing range determined by Glencoe? And I guess if so, can you just provide some color as to what the mechanisms are that drive a one month versus a four month settlement?

Yeah, so, Matt, it's basically outlined in the offtake agreement. So Glencore have to nominate what the QP will be. It's either a one-month mumma or a four-month mumma. And at this point, they've nominated four months. So we'd expect that not to change, but it's certainly at their discretion.

OK, is that... um, range, uh, set at every shipment or is this sort of a quarterly or semi-annual agreement?

It, it's set, uh, on an, on an annual basis is my understanding. It may be semi, but I'll just have to double check. It's not on a shipment by shipment basis though.

Okay. Thanks. That's helpful. And, uh, just finally on an operational question in relation to cowl, um, July and August have been pretty wet. Have you seen much disruption? And, uh, Unfortunately, it seems like we may see another La Nina this spring. If this were to eventuate, are there any measures that you put in place to try and minimise the amount of disruption you'll see there this time around?

So Cal had a good July. It's operating well and wasn't impacted by wet weather. Mount Rawdon is being impacted by wet weather and continues noting that it's not a material part of our production at the moment. The El Nino, yes, we are monitoring and watching the bomb. We are taking every step that we can to ensure that we are well prepared in the event that it eventuates and feel that we are taking the right steps to address it.

That's great. Thanks, Jake. Thanks, Ari. That's all from me.

Thanks, Matt. Thank you. Your next question comes from Larry Spry from UBS. Please go ahead.

G'day, Jake and team. Thanks for the call. Just a very quick, simple one for Laurie. Red Lake and cash tax. When do you expect to pay cash tax over there? And can you just remind me how it all works with Battle North, the Bateman plant, their losses, how we can expect that to play out?

Levi, I would like them to start paying cash tax a lot sooner than they're currently planned, but that's going to be dependent on performance. But in short, at the moment, we've got $520 million Australian of Red Lake losses that are being recognised on the balance sheet. and then we've got unrecognised losses of about another $300 million. So tax effect on those at 25% is around $130 and $60 million respectively. So I think depending on, as I said, performance over the next two to three years, I'm not envisaging cash tax to be paid in Canada for a little while.

I'll put a slightly more positive spin on that or a different lens on it. When and as Red Lake hits its straps, we have sufficient cash tax or tax losses, part of which we acquired when we acquired Battle North, that we're not going to be paying cash tax for a long time.

Yeah. Thank you. That's all. Thanks, guys.

And just before we go back, Matt, I did double check on the shipments, and it is actually at the end of each month. Sorry for the concentrated earnest, Henrik.

Thank you. Your next question is from Al Harry from JP Morgan. Please go ahead.

Yeah, good day, Jake and team. Just a couple on costs. So just wanting to know, you've noted that oil, energy and steel pricing are down. Do you have a ballpark figure on what the dollar per ounce impact of that could be? I noticed the sensitivities there. in the slides, but yeah, if you could just talk us through that and also how you're seeing the labour costs. You also noted there, I guess, that they're still in line with your June view, but any extra detail there would be helpful.

Yeah, look, on the first one, I mean, you know, where we're sitting now versus the business update in June, oil's down around 15% and electricity's down around 14%. Sort of what we see, you know, is that oil price at $10 a barrel movement is giving us around a $7 an ounce impact on a full year basis. You know, in terms of the energy, we're in the market in the next couple of months to finalise the cost there. So we haven't sort of landed on where that's going to be in terms of the impact on FY23. But as I said, when we gave the update and the guidance in June, we had actually allowed for a higher cost. energy costs and what they currently are. And in terms of labour, you know, we're finishing our reviews right now. They take effect from 1 July. And in the next three weeks, we settle that. And as I said on the presentation, we're expecting them to be around 5% to 6%. I mean, you're seeing it's more around the tightness in the market. We're seeing a little bit of an increase in turnover there.

um at the moment but um you know it's the availability of resources that we're really trying to deal with yeah thanks thanks lori um maybe just on to mungari can you kind of give us a bit of an update on the study there has there been any changes to the scope um now that kandana has been on the books for the last year or so

No. I mean, look, our view still remains, although there was someone who presented at Diggers that said that gold's going to $2,000. So when he was on site with some people, they were asking if the project could be brought forward. Our view is that the project remains in its study mode because we do see the risk of cost escalation on construction projects and availability of quality resources. So there's no movement. The study's on track. It'll complete soon. during this year and then we'll make that decision at that point whether it goes through the gate to the next phase.

No worries. Thanks, Laurie.

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

Good morning, Jack and team. Thanks for taking my question. I just wanted to clarify you've made a very clear point that you've got sufficient liquidity to support current growth projects. Just wanted to clarify, does that include the likes of, I guess, the Kandana project, which remains in study mode, and Ernest Henry expansion, and also the capacity to pay the final instalment for Ernest Henry?

short answer there mitch is yes i mean when we look at it we finished the year 574 million dollars of cash we've got the revolver available to us we've got obviously um you know good operating cash flows that will be generated through the course of this year um we've got um as we get to the end of fy 23 as i said this is sort of our peak year Underground at Cowell comes on stream first, end of FY23. So as we go into FY24, we expect the cash flows from Cowell to increase. The improvements we're targeting for Red Lake this year should deliver the Upper Campbell as well, that their cash position changes into FY24. As we said, just... To Al there, the growth project isn't coming forward. So that's been delayed in FY25. And Ernest Henry, as that study finishes, will look at what the capital requirements are and when they need to be staged. And a lot of that capital predominantly will be around mine development spread out over a period of time, except for the materials handling, which we'll assess when the study finishes. So the answer is we've been positioning the balance sheet, knowing these projects coming through. and we'll allocate the capital as and when those projects justify it.

And just to add to that, I think that was the rationale behind going to the private placement markets. You look at the tenor of the debt that we've put in place and locked that in at 3% at investment grade rating. That's a very cheap cost of capital, very comfortably matched with the mine lives at Cal and Red Lake and the rest of our portfolio. Ernest Henry, obviously, getting mine life extensions with this drilling success that we're having. So we now really are getting a portfolio of long life assets and the balance sheet is appropriately positioned for that. 3% debt in the private placement market was terrifically well done by Laurie and his team.

Great, thank you.

I appreciate the colour.

That's it for me.

Thank you. Next question is from Alex Barkley from RBC. Please go ahead.

Hi, Jake and Laurie. Sorry, I was sort of going to ask a similar question on the lines of sort of gearing and ability to delay projects. I think you've given some good colour there. Just for FY23, probably most of the spending's at Red Lake and Cow, which is underway, so a bit tougher to defer. um is it sort of a difficult point with regard to commodity prices when you could see issues arise and is there much flexibility remaining in the year maybe um some of that growth exploration spend yeah yeah that's i've i've seen your notes um you know on on concerns around liquidity but you know as as larry's outlined our liquidity is strong uh the only two

Major projects we've committed to are at Red Lake and Cal. We have over $900 million of available liquidity. So I guess it may be helpful to provide a bit of context as to where that concern is.

I think, as you've said, you can defer Mangari in a scenario. That's okay. I was just wondering for the upcoming FY23, If you do see any issue with the gearing, if not, that's okay?

No, the only things we've committed to are the Red Lake transformation and the Cal Underground project. The Cal Underground project's on track and on schedule. Red Lake's progressing to plan. All the other studies that are underway are discretionary and capital will be allocated to with regard to their return and the balance sheet capacity. But as Laurie said, all of those could be accommodated in our long-term forecasts without taking a very aggressive view of the gold price. Our life, mine plans and budgets are being run $150 lower than the current spot price of gold. Laurie, do you want to add to that?

No, I think you've covered it, Jake. I mean, we deliberately, and when we gave the business update on the 27th of June, it said that, you know, there are projects that right now don't measure up in an inflationary environment and we are going to delay those. We've got flexibility. And if we look at Mangari, with the amount of ore sources we've got there, there is no pressure to bring that plant expansion forward or absolutely do it. I mean, if you talk to the team on site, they're they'd love for that to come in place because they get cost efficiency and it allows them to open up some other ore bodies, but that also then requires more capital. What we've said is that, you know, Cowell Underground and Upper Campbell in this year are pivotal projects for us as an organisation. We've committed the funds to those and they're on track. Everything else will go through the studies, but we've got capacity to pull those forward or push those back, not really based purely on where the balance sheet is, but also how those projects stack up economically.

That's quite helpful. Thanks very much.

Thank you. Your next question is from Daniel Morgan from Maranjui. Please go ahead.

Thank you, Jack and Tim. First question is this hydro project. Just wondering how I should think about it. How can you value it? And, you know, is this a project that ultimately you might sell because you are a mining company, or is it something that you keep to offset emissions? Not that you do have high emissions, but yes. Thank you.

Thanks, Dan. That's a good question. So... I guess the best analog is this GenX power, which is under a takeover offer, which values them at around $500 million. So they have a pumped hydro project, which is under construction, the old Kidston mine. They have a couple of smaller solar projects there. one of which has been built. But their pumped hydro at Kidston, probably not as well located as ours, is between four and eight times the size of theirs, potentially. So, you know, we're going through, we're at feasibility study stage. There's the construction phase. Their company is being valued around $500 million. I don't know, you know, that's probably the best analog, noting that ours is four to eight times bigger. But a lot will depend on how we go with the offtake contracts now. Certainly we've had very good incoming inquiry and interest. We've had site visits. We're advanced on the feasibility study. There are no fatal flaws at this stage, and it all seems doable. The question is whether it's one gigawatt or two gigawatt and how that all fits into the capital structure and the Queensland grid. But certainly it's getting interest from the Queensland government as well. I read yesterday that Queensland needs between 100 and 200 gigawatts of new renewable power if they to meet their commitments. So it's a very interesting project. Certainly it's not one where Evolution intends to build and construct and become the operator of a hydro project, but we will at some point in time monetise it either by an exit or by some sort of spin-off vehicle where Evolution shareholders can participate in that upside.

And so does that mean that you're targeting sort of a free carry type arrangement on the capital spending?

So we need to make a decision as to how far we advance the project. The options are to take it through to the end of the feasibility study, which we committed. That will have then secured off-take contracts. Then there's another phase of detailed design that will take it to the FID, which obviously provides additional value. but is going to compete for costs alongside other projects. And, you know, Laurie has determined that most of our capital gets spent on gold and copper projects correctly. So there is a point in the next 12 to 24 months where we need to think about how to either identify an alternate source of capital or an alternate capital structure for that or to exit the project.

Okay, thank you. Back to accounting questions, which I'm sure everyone loves. Your DNA guidance is a little bit lower than I thought it would be, given that you have acquired quite a bit of assets in the past 12 months. Just wondering, I mean, maybe this is a mechanical thing, but what have you factored into life at Ernest Henry, for example, when you amortized the acquisition cost? Thank you.

So, Dan, we're looking at their current life of mine, which would sort of take us to down below the $1,200 to the $775. And what we have to do is, so we've done the resource update recently. We've got to flow that through to the reserve update, and that's what's really, and the completion of the pre-fees. That then determines whether or not it will actually be extended out over a longer period.

Can you just remind me about the catalyst coming at Ernest Henry, the timing and how we're thinking about it in terms of when are we going to have a feasibility study and how are you thinking about how far you take down the RL and how big you might make the infrastructure that you need to invest?

Yeah, good question, Dan. So the study will complete, you know, end of this year in time for the MROR update in February. And that's what will give us the guide. Right now, the main focus of the study team is really around the materials handling system that's required. So the concept study assumed a trucking fleet. That was what we took on from Glencore. The pre-fees is now looking at what are the right materials handling systems to put in place. And that's, you know, currently looking at a, you know, conveying system below the 1200. And then if that does, we have to determine the sequencing of it. What the first step we'll have to decide later this year is do we start some development below the existing infrastructure so that by the time we need to install the the next level of infrastructure were there. And so what we would see is that's something to consider pre-fees study. And what they're looking at is down to the 775 while there's drilling going on as well to see how far down this ore body could go and would take it into the fees study stage.

Yeah, I mean, just to add to that, Dan, you know, the challenge which Glenn is providing the projects team is that he can't find the bottom of this all-body. He's got two drill rigs operating from surface and they, you know, the all-body seems to continue... robustly at depth. We've got an intersection which has been previously released 300 meters below the 775 level. We're now looking to try and get some holes in between those areas, but early indications are that we have not found the bottom of the soil body yet.

Yeah, so that creates I guess an interesting challenge on how you think about maximizing long-term value. Is extending the shaft, is that something that you would think about, or is the location awkward because the oil body is dipping away, so it's very much a conveyor?

I think probably the choice is more likely between a mechanized conveyor versus trucking, and clearly a mechanized conveyor, which can be extended further at depth, would be a better option. So that's where we're biasing towards now.

Okay. Thank you very much. Thanks.

Thank you. Your next question is from Peter O'Connor from Shaw & Partners. Please go ahead.

Three questions. Firstly, clarification, Laurie. So when you said the Ernest Henry PFS would be by end calendar 22, ready for the MROR next year in February, when do we see the update on the Ernest Henry PFS? Will you make an announcement in December at the end of this year, or do we wait until next February to see the details?

Yeah, Peter, it would be in February, because what we'll be doing is finishing the study December, taking that through the internal gates and seeking board approval to go through to the next phase of the study at the February meeting.

Got it. And, Jake, back to Mount Rawdon. I'm just thinking about this renewables potential. I take what you're saying about it's not a core asset for you, you need to monetise that bit. In terms of your ESG slide, which you talked to first and you talked to it with quite passion, how does a renewable energy source like this tick some of those boxes on slide three or four? And is it important to have that in the portfolio to get that benefit for your ESG credentials? Or how do you monetize the ESG side of that portfolio?

Yes, I mean, I think the monetization of the ESG side of it, Rocky, is we're looking at sourcing renewable power. So one of the things we're looking at at Cal at the moment is securing a longer-term renewable source of power. It looks like that's potentially doable. And the pumped hydro doesn't itself – solve the carbon credit issue that we need because carbon credits aren't generated by the pumped hydro, so you'd have to put more renewable power around that, and then you're starting to get into capital... requirements which are better suited to infrastructure funds. So the main inbound kind of inquiries we have are from major infrastructure funds, government funds. That's where this asset will sit once it's operating. Don't take that as hesitation around our commitment to meeting our renewables target. And I think that 7% improvement in efficiency or reduction in emissions on a per-time mine basis is an indicator of how seriously we're taking it.

And to your opening remarks as well, you said when you gave your description about where the company's gone from in terms of strategy being consistent, use the term a small concentrated portfolio of assets, et cetera. You previously actually put a number on that, six to eight. That pivot to a small concentrated, is that a new change or is that just a reflection of where you're at with sort of four key hubs now that you've digested?

No, I think six to eight is quite small and concentrated. Okay. If there are any bankers out there, can you find us the next two, please?

Thanks, Jake. Thanks, Larry.

Cheers, Rocky. Thank you. The next question is from Matthew Friedman from MST Financial. Please go ahead.

Sure. Thanks. Morning, Jake and team. Thanks for taking my question. I just wanted to ask the balance sheet question in a bit of a different way and maybe just picking up on your comment just now around finding out a couple of assets. You made the comment in the presentation that gearing currently at 27%, it's within your internal limits. I think you've previously said that the target range is 25% to 35% to digest an acquisition or for internal growth, to fund internal growth. Clearly, the portfolio has changed a lot since you first outlined those ranges, I guess, in terms of life and then quality of the assets and also perhaps the cost structure of the assets. So how do you think about that currently? Is it still a fair range? Are you more focused on bringing the balance sheet back into a more normalised range, which I think you've previously said is around 10 or 15% gearing? Or are you happy to sustain it at these high levels by investing in the growth options that you've outlined that you haven't committed to yet, or even inorganically looking at current asset prices in terms of acquiring new assets?

Yeah, but look, it hasn't really changed. I mean, we've said, yeah, for major acquisitions going up to 35%, you know, as long as we see ways to deliver. I think, you know, this year we saw the acquisition of Ernest Henry, you know, it was one that we had to do when that opportunity came up. that put some leverage onto the balance sheet. I think, you know, then we did have an underperformance in FY22 that left the gearing level up a bit higher than we would have liked and obviously the movement in copper price in Q4 had another slight impact on it. But, you know, what we look at is that these projects that we're in the final stages of construction at both Red Lake and Cowell, they then transition into cash generation. And that's really the way we're looking at it. I mean, ideally, acquiring Ernest Henry and doing those major construction projects would probably not coincide, but you can't really... perfectly align each of those. And that's why we've said we're always comfortable with that as long as we go. We're not rushing to get back to 10%, but we're making sure that we keep our balance sheet well and truly under control.

And it probably does make debt-funded acquisitions more difficult. So we're not... And please don't take my previous comments as saying we're rushing out there to buy things. It needs a discipline around all of this, capital allocations, M&A and everything, to ensure that we keep the balance sheet strong. But I think the balance sheet's in very good shape. At the sort of tenor of debt that we've got at 3% cost of funds, that seems a very efficient way of funding these projects.

Got it. Thanks for that telling us.

Thank you. Your next question is from Peter O'Connor from Shine Partners. Please go ahead.

Laurie, it was a question for you related to the last question. And the time it's taken to get to this, I've just forgotten what it was. So my apologies. I'll take it on notice.

It's a good one, though. Potentially.

Three calls this morning. Actually, no, I do. I just remembered. Thank you. Cap is inflation, Laurie. So you made some observations about your cost profile post the balance date, June 13th, how things like fuel and steel limit have come off. And I'd marry that comment to what David Lamont from BHP said on Tuesday. He talked about the, in adverted comments, the intense inflation period looks to have passed. Your comments kind of marry with that from an operating perspective. Yeah. And wrapping this into your thoughts about these projects, can you do them, should you do them, is CapEx inflation high? Is it feeling like we are seeing a peak of inflation both at OpEx and CapEx?

Our view there is just looking from an operating cost perspective, we have seen it come off a little bit in the last six to seven weeks. On the construction side, our view is depending on where those projects are. In Bungaree and the amount of projects in the gold fields and in Iron Ore and everything in WA says that we don't think that we're at a point where we're coming off the peak. And as I mentioned on the on the call earlier, it is also around availability of resources and quality resources. And so in WA, I'd say there's a bit of time to go. And I think that's fair. Then when we look at Ernest Henry, as we come through to the end of the pre-fees, it is going to look at that construction component and we'll get a bit of a sense of what the East Coast is looking like. But it definitely doesn't seem like it's where WA is at the moment.

Thanks, Lauren.

Thanks, Rocky.

Thank you. 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 is from Al Harvey from J.P. Morgan. Please go ahead.

Yeah, hi again, guys. Just a quick follow-up just again on copper pricing. I know your guidance for the next two years around US $4 a pound, spots about $3.60, and I do note those sensitivities you provided in the slide pack. But what gives you that confidence over the next two years that that price assumption you've used will stay at those more elevated levels?

Yeah, look, I mean, our view, you know, when we set the guidance and we explained this in the business update in June, you know, we had to take a point in time of where everything was. So, you know, if we were to adjust because of where the price is sitting today, I mean, it was down $1,000 in July. It was up about $600 a tonne in the first half of August. You know, we've had to take the forward curves at the point of locking our budget. We know what the sensitivity is. Because if we're going to change that, are we going to change the oil price? Are we going to change the steel prices? You know, like we have chosen the point in time. We know the sensitivity and we're going to manage it that way. You know, that's how we've sort of set it. I mean, if you take... If you take the talk in the market at the moment, whilst we've come off some highs from the three months ago, when we spoke at the quarterly, copper was down just over 30% in the three-month period. As at today, it's down 16%, so it's come back. And you look at what the market outlook, everyone says there's going to be a shortage of copper today. in the next two years, and that's where we've taken that sort of long-term forward curve.

Jake? I was just going to add that I took some personal comfort from the fact that our view is obviously aligned with BHP and their bid for us.

Yeah, thanks, guys. I guess another maybe follow-up is, yeah, how often you review those forward curves and when that flows through to your views on guidance.

We always keep our guidance up to date every quarter. If there's a material change, we've obviously got a continuous disclosure requirement. We'd let that be known. But when we look at it whilst on a... All in sustaining cost perspective, it has an impact. On a cash flow perspective, if you look at where the gold price is today versus our achieved gold price for last year, the additional revenue we will get in FY23 exceeds the lower revenue. copper revenue we would get against the guidance because also it's fair to note that the copper price currently being achieved in August is actually in line with what we actually achieved for the whole of FY22. So, you know, we're conscious around the AISC, but we're more conscious on the impact on our cash flow. And at the moment, if today's prices hold for the rest of the year, we get a higher cash flow than we actually... would have achieved last year with more ounces and more copper tons, and we actually would get a higher cash flow than what we guided at the June 27 update.

Thank you. As there are no further questions at this time, I'll now hand it back to Mr. Jake Klein for closing remarks.

Thanks all. As I said at the start of the call, third time in six weeks we've spoken to you. Really appreciate you attending. If you haven't booked your ticket to Red Lake, get on board. An opportunity to see a really genuine and great transformation that is occurring at that operation. If that operation was in Australia, it would be the fourth largest gold field in the country. Speak soon. Cheers.

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