Oceana Group Ltd

Good morning and afternoon, ladies and gentlemen. Welcome to the Oceana Gold 2022 First Quarter Results Webcast and Conference Call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, April 28th at 5.30 p.m. Eastern Time. And I would like to turn the conference over to Sabina Trubisky. Please go ahead.

Thank you very much, Operator. Good evening and good morning. Welcome to Oceana Gold's first quarter 2022 results webcast and conference call. I am Sabina Trubisky, Director of Investor Relations for Oceana Gold. I am joined today by Jared Baum, Oceana Gold's new President and CEO, Scott Sullivan, Chief Operating Officer, Scott McQueen, Chief Financial Officer, David Londano, Executive General Manager, Hale Operations, and Sam Suzuki, Senior Vice President, Corporate Development. Before we proceed, please take note that references in this presentation adhere to international financial reporting standards, and all financial figures are denominated in U.S. dollars unless otherwise stated. Also, please note that the presentation contains forward-looking statements which, by their very nature, are subject to some degree of uncertainty. There can be no assurances that our forward-looking statements will prove to be accurate if future results and events could differ materially. I refer you to the disclaimers, including those on the forward-looking statements, in our presentation. I will now turn the call over to Jared Bonk.

Thank you, Sabina, and good evening and good morning to everyone. It's a great pleasure to be here with you today for what is my first quarterly webcast. Although it's early days for me as President and CEO of Oceana Gold, I'm thrilled with the opportunity to lead an extraordinary organisation with a highly talented workforce, quality assets and a really exciting growth pipeline. I'm actually making this call from New Zealand, having spent time in the last two weeks at both of our operations here and meeting the teams at both sites. I'll be visiting Hale and Adipio over the course of the next few weeks as well as meeting our major shareholders. Hoshan Gold is a strongly solving foundation that I will keep the build upon and together with the management team and all the tremendously committed people here work to take the company to new heights. The strong first quarter of operation with financial performance is certainly a great starting point and I'll walk you through some of the key highlights of the quarter. The company's off-field great start to the year with the safe delivery of record quarterly revenues and record quarterly EBITDA, which powered strong free cash flow generation, which is one of my key focus areas. This strong free cash flow generation allowed us to significantly reduce our net debt, improve our key leverage metrics and strengthen our financial flexibility. Operational performance in a period of strong gold prices was clearly a driver of the financial performance, with Hale delivering a record quarter of gold production, demonstrating another quarter of operational performance improvement by the Hale team. The Digio completed its ramp-up ahead of expectations, achieving full underground mining rates in March, leading to strong gold and copper production for the quarter. This is an incredible achievement for an operation that only resumed nearly six months ago. Finally, in New Zealand, While McRae's delivered a steady quarter of production, he experienced challenges at Waihi relating to under-reconciliation and COVID-19-related workforce disruptions following the New Zealand government's easing of restrictions. Scott Sullivan will speak more to this later in the presentation. The health and wellbeing of our workforce is of paramount importance, and it was really pleasing to see the continued reduction in the total recordable injury frequency rate. Our goal, of course, is zero fatalities and zero injuries, and our leadership and workforce are equally committed to achieving this. A safe and healthy workforce is a productive workforce. The company produced 134,000 ounces of gold in the quarter, which is 26% above the previous quarter, and around 60% above the same period in 2021. The return of the Divio to full operation re-established the company as a copper producer, and in the quarter we produced 3,500 tonnes of copper. The company produced gold at a cash cost of $630 per ounce, which was well below the previous reporting period. Our all-in sustaining cost was $1,084 per ounce, which was $242 lower than the prior quarter. Together with the higher gold prices in the period, Fisher Gold is in a big lift in our AIC margin in the quarter to $831 per ounce. Given that we're on the numbers, I'll turn the presentation over to Scott McQueen, who will walk through the financial performance.

Thank you, Gerard, and hello, everyone. As Gerard mentioned, the solid group operational performance across the first quarter was highlighted by record quarterly production at Hale, the successful ramp-up at the Dippier, and 18% quarter-on-quarter reduction in all-in sustaining costs, all during a period of strong gold and copper prices all of which underpinned a strong financial performance. This strong financial performance included record quarterly revenue of $286 million, record quarterly EBITDA of $158 million, at an EBITDA margin of over 55%, longer than adjusted net profit after tax of nearly $82 million, or 11 cents per share fully diluted, compared to endless consensus of around 6 cents per share. Consistent with EBITDA, group cash flow also improved materially, with operating cash flow for the quarter over $144 million, up 32% on the previous quarter and over 200% over the same quarter in 2021. This equated to an adjusted cash flow per share, past the working capital movement, of 22 cents per share fully diluted, compared to MLS consensus of around 15 cents per share. But our most pleasing was the significant free cash flow generation of just over 63 million for the quarter, which reduced our net debt 29% relative to 31 December 2021. As noted, we also saw a significant quarter-on-quarter reduction in all interstanding costs of 29%, mainly driven by the record production at Hale and the full quarter contribution at Dubibio, but also reflecting strong by-product growth, particularly copper. Partially offsetting these benefits was a weaker quarter at Waihi, as well as input cost pressures, which primarily consisted of higher diesel costs, which felt most to our open pit operations at Hale and McCrae. On a group basis, the quarter-on-quarter jump in diesel prices added approximately $40 per ounce to our all-in sustain costs. And should oil remain at current levels, we would expect this trend to continue over the coming quarters. We aren't sitting still on costs, though, and we continue to seek opportunities to combat inflationary pressure and secure certainty of supply. For example, we recently established a multi-year renewable energy supply agreement that provides energy cost certainty across all our New Zealand operations. At our other operations, we are accessing non-oil-dependent grid power. In some jurisdictions, we have enterprise agreements in place that provide more certainty over waste growth. And the weaker New Zealand dollar exchange rate over recent months has also dampened the overall inflationary impact across our New Zealand operations, cost-based in US dollar terms. While these factors and agreements are included in our top guidance and all four operations back up and running, we will continue to seek out opportunities to further improve productivity and reduce costs across the group. Moving on to slide six, a bit about our capital investments. Total capital investments for the quarter were 12% lower than the previous quarter and broadly in line with the first quarter of 2021. The quarter-on-quarter decrease was primarily driven by lower growth investment at Hale. Capitalised mining costs were mainly open pit waste loosens at Hale and Macraes. At Hale, we were stripping the second phase of the Leadbetter and Hale pits, while at Macraes mining was focused in detail. We continue investing in the ramp-up of underground operations in New Zealand. both at Waihi with the Martha project, another underground project, and at McCrae's, this Golden Point underground. We do expect capital investments to increase over the course of the year, mainly related to the Hale underground development. The commencement of the bulk of the spend is dependent on the receipt of the SEIS final record of decision and related operating permits. Moving on to slide seven, the balance sheet. As previously noted, In the first quarter we generated approximately $63 million of free cash flow and our net debt, inclusive of equipment leases, decreased 29% as a result to $168 million. We closed the quarter with $195 million in cash and another $30 million available in undrawn credit facilities. Whilst our production costs and capex guidance of 22 remains unchanged, we do note that we expect the first quarter to be particularly strong. and that an anticipated reduction in grade profile, predominantly at hail, combining with increased capital investments, as mentioned over the next two quarters, means all other things being equal, free cash flow will not be as strong in the next two quarters. Naturally, production, sales and metal prices will be the main drivers of the outcome. We have a healthy balance sheet, and depending on market and operating positions, we are positioned to deliver strong free cash flow over the next few years. This strong balance sheet and free cash flow will underpin our ability to fund investments in high return value accrued growth opportunities, including Hale Underground and the Barahirapuna Underground mines, to further strengthen the balance sheet by continuing to reduce debt and to provide returns to shareholders. I will now hand the presentation over to Scott Sullivan to walk you through our first quarter operational performance.

Thank you, Scott. Good morning, good evening, everyone. My apologies in advance. I have a slight cold, so there's a pause every nine minutes with me hitting the mute button. So I'll start on slide eight to discuss the record quarter at Hale. Before I get into Hale's quarterly physicals and the continued operational improvement, I would like to take the opportunity to highlight the exemplary health and safety record at the operation. When I look back at Hale's TRIFA ratings from a couple of years ago, the operation has come a very long way to significantly reduce its injury frequency. And as Gerard mentioned earlier, we will try for a zero-fatality, zero-injury operating culture through health leadership and a strategic focus on fatality prevention and injury prevention. Operationally, Hale continues to deliver strong quarterly performance, including the first quarter of this year where it delivered a record 60,249 ounces of gold produced which was an increase of 42% quarter on quarter, mainly from increased milk feed, higher head grades, but also improved gold recoveries. First quarter for AASC was $1,070 per ounce sold, with cash costs of $567 per ounce sold. Quarter on quarter, the 8% decrease in AASC reflects higher gold sales, partially offset by higher costs, particularly diesels. All mine for the quarter was 36% higher quarter on quarter, consistent with the mine sequence, but also reflecting a positive reconciliation on all tons from the hail open pit. And that was due to the result of a debris-free ore basically found in areas of old wood that were originally believed to contain wood, so that was a bonus. Mill throughput was a marked improvement from a year ago when the operation was challenged by block crusher shoes. The changes around ore fragmentation, in particular, that Davey and his team have implemented, has resulted in improved mill utilisation and higher material throughput rates. Average mill feed gold grade was 2.54 grams per tonne gold, which was higher than the previous quarter due to material supplied from MedBetter Phase 1. Consistent with our plan, gold recovery has increased quarter on quarter because of higher head grades. Mining unit costs per tonne mined increased 14% quarter on quarter, reflecting the impact of higher fuel prices and labour costs, as well as costs associated with unplanned maintenance. Processing unit costs per tonne milled increased 12% quarter on quarter, due to planned shutdown for maintenance and an increase in reagent costs. And looking ahead for the remainder of the year, production is expected to be lower over the next few quarters, as we've mentioned, and inflated in previous quarterlies. related to mine sequencing and lower grades mined and processed before the grades continue to increase again in the fourth quarter. Hale's AISC profile is expected to reflect the production profile with higher AISC in second and third quarters before increasing in the fourth quarter. Capital investments are also anticipated to be the highest through the third and fourth quarters based on the company receiving the SEIS and associated permits during the second quarter.

Let's move on to slide nine.

We continue to await the final recorded decision associated with the SEIS. We have strong broad-based support from stakeholders and engagement with the state regulator remains regular and very positive. We recently finalised an agreement with the Conservation Committee in South Carolina to provide an agreed level of financial assurance for the state and the agreement will also provide for the protection of ecologically sensitive lands after our mining has been completed. We still expect the final record of decision along with the associated permits to come through this quarter. And on a positive note, we received the National Pollution Pollution Discharge Elimination System permit on April 22nd. This permit allows us to expand the water treatment plant and increase our water discharge rate to 3.5 million gallons a day, up from the current 1.75 million gallons. And this permit is not associated with the SEIS. We are currently therefore in the process of expanding the water treatment plant and anticipate this to be completed by year end. We view this as a very substantial development which will allow us to better manage water levels, thereby reducing operational risk and resulting in more efficient operations.

Just moving on to slide 10 and the DIPIO.

The DIPIO didn't just be delivered a very strong quarter, it achieved full underground mining rates of 1.6 million tonnes per annum one month earlier than budgeted. I will point out that before Dipio shut down in the third quarter of 2019, the operation peaked at one and a half million tonnes per annum from underground. So we're now safely operating at the highest underground mine rates in the history of Dipio. And Dipio remains one of the safest operations in the mining industry as measured by its exceptionally low injury frequency rates. The site also recently passed 1,000 days free of lifetime injury, which is an absolutely fantastic result. From a health perspective, we did see another wave of COVID-19 infections during the quarter. However, our SIP protocols clearly helped contain any spread to the workforce. The GPO produced 29,446 ounces of gold and 3,510 tons of copper, representing the first full quarter of operation since the restart of production in November 2021. Its cash costs on AISC were $26 per ounce and $40 per ounce respectively. Bore enrichment in the first quarter was 48% higher than in the fourth quarter of 2021 and mining rates steadily increased during the quarter. I'll also point out that the company extracted the mongonite areas of the crown pillar from surface as a part of a project to further strengthen the crown pillar. This project was completed in February and the ore source from these pillars was processed in the quarter. All mines from the crown strengthening pillar totalled 176,867 tonnes and all mines from underground totalled 308,691 tonnes. The company does not anticipate any further surface extraction until the end of the mine life when mining of the remaining crowning pillar is planned. I would also like to highlight that the DPO's ramp-up in performance to date has been concluded with very modest capital spend. We're very pleased with the DPO's performance and will continue to seek ways to further enhance operations as we move forward. Looking ahead to the remainder of the year, gold production is expected to take off slightly in the second quarter before maintaining previous levels the remainder of the year, while copper production is expected to marginally increase before returning to previous quarter-year production rates. Moving on to slide 11 and the praise. At the praise we saw the total injury frequency rate increase and a trend in that direction that warrants further emphasis on instilling a stronger safety culture and leadership. The workplace senior leadership team continues to engage with the workforce to build on workplace hazard identification and injury prevention. The praise goal fraction was steady quarter on quarter with 37,598 ounces in the first on higher head grades that was partially offset by lower mill feed and reduced gold recoveries. AESC and cash costs were $1,394 per ounce sold and $1,005 per ounce sold respectively, and although unit costs decreased on the previous quarter, we continue to be slightly impacted by inflationary cost pressures, elevating the cost of equipment and supplies. Total mining movements in the first quarter were 6% lower than prior quarter on the elevated high wall movements at the GoTAN phase 3 mine, limiting mining activity and requiring mitigation measures to the internet, which have been successful. Development rates at Golden Point Underground were lower than planned due to poor ground conditions while developing through the main fault zone, requiring additional ground support. By the end of the quarter, development rates were improving as development had transvert through the fault zone. And as the main decline progresses deeper, ground conditions are expected to improve as constraining forces increase with depth and reducing stalling around active mining faces and the rock becomes more confident. Total mill feed was down slightly when compared to the previous quarter, primarily due to a high percentage in harder ore source from deep dell phase 3 impacting on our throughput rate. Mill feed grade was 1g per tonne gold, slightly higher than in the fourth quarter of 2020 while gold recovery during the quarter was impacted by a higher percentage of carbonation soil from deep-dell phase 3, which adversely impacted our carbon and leach recoveries. As mining at deep-dell progresses, the proportion of ore mines near the hanging wall contact will reduce and recovery is expected to normalise as a result.

Moving on to slide 12 from Waihi.

At Waihi, the operation did not deliver to expectations, and I'll get to that detail shortly. From a safety standpoint, it was pleasing to see Waihi reduce its 12-month smoothing average total recallable injury frequency rate to 3 per million man-hours worked from 6.2 last quarter and 10.5 in the first quarter of last year. Waihi produced 1,752 ounces of gold in the first quarter, with production decreasing 43% quarter-on-quarter. Mining at Master Underground since site commencement have been in areas of the resource with low resource definition, and which are generally under-reconciled in both grade and terms. Reconciliation accounted for approximately half of the production under performance during the quarter, with poor ground conditions in parts of the ore body and reduced workforce availability due to COVID-19 isolations also contributing factors. Results from the Accelerated Grade Control Dreaming Program Continue to update the resource models used for mine planning. Break control drilling to support mining for the remainder of 2022 has been completed and that required for 2023 is expected to be completed progressively across the second and third quarters of 2022. This accelerated program of break control drilling is expected to better inform our detailed mine planning and design process, allow us to optimise the sloping sequence and also reduce ore loss and deliver improved performance. Despite these challenges, we had encouraging results during the month of March. This resulted in a quarter of reconciliation of all mine to reserve being 112% on tons, 80% on grade and 89% on metal, which is an improvement and improved reconciliation training compared to the fourth quarter of 2021. And also going forward, we will continue to focus on development productivity and subject to COVID-19 workforce absenteeism reducing. The company expects our overall productivity, including Autumns mined, to drive improved mining rates in the coming months. With respect to the Waihi North project, we're preparing for the lodgement of consent application, inclusive of Whare Kerepunga, as we continue to progress environmental assessments to near completion. We expect to formally lodge our consenting application, inclusive of stakeholder feedback, this quarter. The consenting process is on the critical path to first production. We're also continuing to advance technical studies along with the exploration efforts at Faro-Tiruponga, where we continue to increase mineral resources despite minimal drilling due to impacts from weather. We have previously mentioned an expanded scope of work at Faro-Tiruponga and we will allocate additional capital to explore efforts going forward. The increased drilling is to accelerate resource expansion that will allow the company additional mine design opportunities to optimise the mine earth for its full production potential. I will now turn the presentation back over to Gerard. Thanks, Gerard.

Well, thank you, Scott, and thanks to you, all the site leadership teams and the workforces of all our operations for such a strong start of the year. And it's that strong start which underpins our ability to maintain our guidance rate. O'Hale, they missed a record quarter result in the March quarter based on the grade profile that we expect, we expect lower quartering production from hail through the middle of the year before it returns to higher production in the fourth quarter. We will continue to pursue the final record of decision regarding the SEIS and we're well engaged with the US Army Corps of Engineers and other stakeholders in this process. At the Divio, we expect steady production for the remainder of the year and we are tracking to the high end of the production range there. We'll also commence drilling proximal to the old body as part of a target validation program and to resource expansion. In New Zealand, we expect steady production from McRae for the remainder of the year, and as Scott covered, after such a soft start to the year at Whiting, we expect production for the full year to be around the bottom end of its guidance range, and we will work to continue to de-risk the near-term mine plan. As Scott said, the results that we saw in March are very encouraging. For both operations in New Zealand, we will continue to manage the risks associated with I'd like to close out this formal presentation by reiterating our focus to deliver long-term value to shareholders. As I have said at the onset of this presentation, I inherit a strong foundation from which to grow this business. I also recognise that we have plenty of opportunities for safely delivering near-term operational and financial improvement. Together with the board and management team, I plan to drive accountability across the business to ensure that the organisation delivers on expectations and its full value potential. Specifically, that means we work safely and responsibly. We'll manage risks and execute on business management and operationally discipline the way. We'll look to optimize production and lower costs to maximize the generation of free cash flow and invest capital and use our exploration capability wisely to deliver profitable growth and attractive returns to shareholders. With a strengthened balance sheet, we're rapidly gaining the financial flexibility to deliver strong returns to our shareholders. and I look forward to meeting as many of you as possible over the coming months. Before I hand back to Sabina, I would like to acknowledge that today was Sam Suzuki's last day in the First Army Gold after 10 years in the role that would have made him very familiar to all of you. I want to thank Sam for his dedication and delivery over that 10-year period, which was a very eventful one. I also, at a personal level, want to thank him for the generosity of time that he's given me and his for his insights and candid advice and obvious care for Oceanana Gold as part of my onboarding. So Sam, on behalf of the entire company, we wish you all the very best in the next stage of your career. And with that, I'll hand it over to Sabina.

Thank you, Gerard. I will turn over the logistics of the Q&A session to the operator.

Thank you. Ladies and gentlemen, if you would like to ask a question, please slowly press star followed by 1 on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by 2. And if you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star 1 now if you do have any questions. And your first question will be from Mike Parkin at National Bank. Please go ahead.

Hi, guys. Thanks for taking my questions, and congrats on a good quarter. A couple things just around the WAHI grade and tonnage reconciliation. Can you give us a bit of color on what you're seeing so far? Is it the variability in the ore shapes that are causing it to be not there, or... in terms of the grade, is there anything that you're picking up that suggests, you know, why you're kind of starting to get a little more comfortable with it, as you mentioned, kind of a decent march?

Scott, do you want to take that one?

Yeah, yes, thanks. Thanks, Gerard. I guess the first thing to note is that, you know, this Orbody in entirety is a little bit different than what we've learned before. It's about roughly 70% secondary slaves that we're mining and about 30% of the primary veins which are for us really mining around the old remnants of the historic mining. So it is a bit different. Essentially where we've gone into this, all but a couple of exploration drives that were there, it's just an area of lower certainty as we've found out. What we were finding is we were developing into these secondary displays and they just weren't presenting as our resource model had shown in terms of thickness and grade. So that's it, I guess, in a nutshell. We're seeing improvements now. As mentioned, we've got all of 2022 drilled out with grade control drilling, which is a closer spacing that's giving us more certainty, and that means as we update our mine designs, which we are progressively as we update the models, then we get basically more certainty in our schedules going forward. And I think we're seeing that improvement in March, and we expect to see that improvement as we go forward through the year.

Great. Thanks very much for that. In terms of switching over to hail, with the cease permit, I know you guys had kind of indicated a second half expectations back when you gave your Q4. You're now saying for sure Q2, well, maybe not for sure Q2, but you're saying Q2. What gives you confidence in getting it this quarter? Can you give us some color in terms of discussions, in terms of the final people involved that require a signature or a stamp of approval to get it across the finish line?

Thanks, Mike. I'll take this one, and then if either Scott or David want to cover it in. Look, this is the first underground mine in South Carolina that's been developed. We have great engagement with the appropriate people. We're not going to name them on the call. They're doing their job. We respect the process. The engagement is good. Every question that they have answered, we have asked, I should say. We've been able to answer fulsomely. The information is there, and... kind of like with the ever-reducing number of questions and issues, that gives us the confidence that the decision is imminent. Along the way, as Scott mentioned, we had a really good parallel agreement reached with the conservation community there in South Carolina that gives us, well, gives the state and the environmental community comfort that we're going to do what we should be doing at the end of my life, and in return for that, we've got an agreement from them not to object to any of the, or appeal any of the permits issued. So there are a lot of parallel processes underway that are kind of kicking up on the critical part. The critical part is that final decision, and yeah, unless David's got anything else he wants to add, I think we're just ever close and remain confident. But there's nothing other than the internal process that is holding us up.

Okay, thanks for that. Anything else to add to that? Thank you.

And then you mentioned you've got the permit in place to allow you to proceed with expanding the water treatment plant and kind of doubling your discharge rate. Just remind me again, that is that budget for that would be factored into the existing 2022 guidance, correct?

Correct.

Okay, good. And then this last question, your mining costs at Hale for the open pit are up about 40 cents quarter on quarter. Is that mostly factors of inflation or is it also a bit of a combination of some kind of last minute changes in mine plan required while you're waiting for the cease permit, and we could potentially see that kind of go the other way once that cease permit's in hand.

I think it's probably best to talk to that detail. Thanks, David.

Yeah, the difference in price is the cost of diesel, so it's mostly inflationary pressures that increase the mining cost.

Okay. Thanks very much, guys. That's it for me, and thanks very much.

Thank you, man. Excellent.

Next question will be from Ovez Habib at Scotiabank. Please go ahead.

Thanks, operator. Hi, Jared and Oceana Gold team. Really congrats on a strong quarter, especially at Hale. And thanks for taking my questions. I also wanted to thank Sam as well as, you know, as well. Just, you know, super helpful in me actually covering and understanding the Oshawa and Gold operations. So thanks, Sam. Really appreciate it. Just a couple of questions for me. Number one, you started talking about some inflation at hair in terms of diesel. Now, in terms of your cost guidance, how much buffer have you added to incorporate, you know, cost inflation as well as COVID impacts? And are you seeing any of these impacts at any specific operation more than others?

I'll have a go and then Scott McQueen can colour in the details. As it relates to diesel costs, clearly that's a global movement in the cost space there that's affecting everyone. But for us, it mainly affects our open pits, so it's limited to a degree because we're doing a lot of underground mining in other places. And I think generally overall, and Scott can correct me if I'm wrong, but It's around 3-5% of our total cost rate. So it's significant in percentage terms and for those operations that have open pit operations, it's more significant for them on a site level. Offsetting that, of course, is we have, as Scott mentioned, particularly in New Zealand, the benefit of a weaker New Zealand dollar lowering the domestic operating cost. COVID manifests itself in a different way. is primarily absenteeism and so you kind of don't see through the cost base as much as you see through the material movement and we saw that at the Hale in the period. The mine that we have here that's closest to Auckland which has the highest population and the highest rate of propagation of COVID-19. So that's where we experience it with fewer operators to actually to move to and start to see that a little bit at McRae's as well. So as it relates to the extent to which that buffer that you have in the guidance, Scott McQueen, I think you've got some numbers there.

Thanks, Jeremy. Thanks, Dave. I think Derek covered most of it, but just to round out there, that Harlem McRae's, as previously mentioned, is where we see the impact of the diesel most, at the open-pit operations, where at our open-pit operations, about 23% of our mining cost is diesel, where if you look across to our underground operations, it's as low as 4%. So it clearly manifests itself at Harlem McRae's more, and that's already been addressed at Hale by David. At McRae's, we saw a similar increase, probably a higher increase in absolute terms, but it's being a little bit offset evades by a lower exchange rate, which gives us effective US dollar coverage on the whole cost base in New Zealand, but it's sitting around that $0.66. So we take into account our guidance at this point also. Thanks.

Thanks for the colour on that, Dave. Just also moving on to Hale and just a follow-up on Mike's question on the SEIS permit. Now, we've talked about the permit delay that was expected in, I guess, Q1, and now it's kind of moving into Q2. You know, that's not expected to impact 2022 operations. Any sort of impacts do you guys see in terms of, you know, this permit kind of having on 2023?

The longer it takes, the more likely it is going to impact on 2023. But, you know, let's give guidance one year in advance. So that is a possibility, but as we said before, we remain confident that you should get it in this quarter, and if we get it early enough through this year, then the risk of impact on 2023 are lower.

Sounds good. Okay, that's it for me, guys, and thanks for taking my questions.

Thank you, guys. Appreciate the questions.

Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchstone phone. And your next question will be from Reg Spencer at Kenna Court. Please go ahead.

Thank you. Good morning, guys. Congrats on a very good quarter. It's fantastic to see hails hitting its traps. My questions revolve mainly around sort of the high-level inflation or cost environments. Looking forward, how do you guys think about industry cost inflation? There's a round of calling reports which have come out of a lot of the Australian producers in the last week or so. It's detailed a very inflationary environment. What are you guys seeing and how might that feed into moving to longer term OPEX and CAPEX expectations?

Yeah, thanks. Reg, look, it is a phenomenon that every mining company is facing globally. It's a global market, so things such as cyanide, emulsions, reagents generally, and the inflation is manifesting both on a general inflationary sense, but also from a supply-side disruption that you would have seen from other countries' results, getting things out of China, imports are blocking, and so the disruption, and then when you get short of it, everyone starts to bid up the price of the things for short supplies. Our strategies are to basically look forward and make sure that we've got sufficient stocks of what we need. Basically we're in the process of engaging with all of our suppliers to get the line of sight on the supply chain and be able to manage the flow of materials. two sides such that we're not caught short. We have contracts in place of course and some of the inflation impacts start to be felt on renewal. As Scott said, one of the biggest, in fact the two biggest costs of labour and energy generally, and a lot of our energy is in the form of contracted electricity provision, so that's a kind of a fixed lock, as it were, consistent with guidance on the electricity component of energy. We are exposed, of course, to the diesel prices. We don't hedge diesel, we don't look to hedge it, and so we are and remain exposed on any further increase, and of course, the standard benefits are in decrease. But the other thing we've just got to do is be very sensible and judicious in our use and one of the great opportunities for when costs of your input materials go up is that you have to use them more sparingly or be more careful in the use. So there are a couple of things that we can do to help mitigate the risk but overall we are globally in every industry entering an inflationary environment. The flip side is that that typically tends to be good for the gold pie, so aren't really on the bottom line of the fact we have a good hedge.

Great. Thanks very much for that.

My last question is just around Dipio. It's fantastic to see the project ramp up over such a short period of time. Can you give me an indication of what were the key drivers that were able to see that ramp up? take place a lot quicker than was guided and or than most of us might have expected.

Scott? Yeah. Look, we always have to make assumptions about, particularly in a ramp-up like this, about our onboarding and training of labour and how many, for example, how many of our original employees might need to get back. So that's probably one of the big advisors. We've had pretty successful programs. When a mine shuts down, you do lose people. They go elsewhere. But we've had a lot of success in getting back former employees, and I think probably slightly better than we anticipated, which has minimized our training needs. Productivity and knowledge were there. So that certainly benefited us and the guys just did a great job of one, firstly maintaining the plant through that two year period and then two, just scheduling the maintenance activities and testing the activities that we needed to re-commission the plant. It's just been exceptionally well planned and safely executed.

Excellent. Excellent. No, it's fantastic to see. So congratulations to you guys and the team on site. Yeah, it's a great result. That's all from me. I'll pass it on. Thanks very much. Thanks, Rich.

Next question will be from Farouk Hamad at Raymond James. Please go ahead.

Thanks, operator, and thanks, everyone. And I just wanted to start my question by also actually first saying thanks to Sam. It's been very helpful during our time covering Oceana, and you will be missed. And good luck in your future endeavors. Getting on to the questions, my question is about hail. You guys did 60,000 ounces thereabouts in the first quarter, which is roughly 40% of your annual guidance. You know, even if you, you know, kind of cut your first quarter production in half for the rest of the year on a quarterly basis, you'll still hit your guidance. So I guess my question is, How much of a grade decline or productivity decline are you expecting for hail in Q2 and Q3? Or conversely, are you thinking that maybe that's guidance and you think that guidance is conservative at this point?

Well, I'll answer that first, but David can jump in if we need to in any color. How it was going, basically, exactly as we said it would go, our earlier profiles, we like to call it the smiley face profiles, When you look at our production and basically it's grade driven. So, you know, we're on schedule, you know, in the pit, you know, on the plan, if you like, with our sequencing and we know the grade's going to decrease basically. So, you know, it's proceeding as we expected. Our grade will go down, our quarterly production will go down to the next two quarters and then it will pick up in the fourth quarter. As long as everything continues to run as good as it is, and Daveed and the team are doing a lot of great work with productivity initiatives, then we'll continue to have a strong year. If and when we think that will increase our production beyond what we predicted, then we can rejig the guidance.

But for now, we think we'll produce in that guidance range. Okay, sorry.

Is there any other color you might be able to provide a little bit in terms of cadence and what kind of delta we might see on the grade perspective? I mean, if you're expecting it to be in plan, are we expecting, you know, what kind of percentage or what kind of, you know, quantum of grade decline are we expecting in the next couple of quarters?

David, I'll hand over to you. I'll hand over to you there if you've got an indication of what Q2 and Q3 grades are relative to what we produced in Q1.

Yeah, so I guess one of the reasons is that we're going to be mining in AO peak, which is a much lower grade. And then we're also starting new pushbacks or new areas on the better peak on this zone, which is at the top of the peak. a lower grade than at the bottom of the pit. So that's why the grade is going to be almost 60% of what we currently have in the bottom of the pit. So we see a big reduction in Q2 and a product factor reduction in Q3 before we see an increase on Q4 once we start getting to the bottom of new zone and then down the bit of basis on LSW2.

Okay, thanks for that. That's helpful. In the prepared remarks, Scott made a comment that you saw positive ore reconciliation in part of, I guess it would be the lead better fit. I'm just wondering, is that something that you see going forward in terms of how you've really looked at the mine, that there's opportunities where what was wake you might see as ore, something that we might see as a positive surprise going forward, or do you see that as really just a one-off in the first quarter?

Okay, so in Hale City, the Hale City is where the old workings were.

So we're mining through very old tunnels. So we assume some areas with voids. So we're doing a much better mining sequence and we're finding that we still have some ore in there. It's still lower grade than in the bottom of the pit. But we think we're going to continue seeing ore more odd tones in the headspace. So we see that the positive reconciliation in odd tones, but they're going to be of the lower grade than we normally have.

Okay, that's helpful. Thanks. Last question from me is just related to the SEIS. I'm just wondering, are there other permits that are kind of like dominoes that have to come after the SEIS? that you are kind of already, like, we're planning that all of those permits would become, it would come in the first half of the year. And if you kind of get the SDIS towards the end of the second quarter, that those permits could get pushed into 3Q and maybe change your timing. So is there kind of a knock-on effect, even if the SDIS gets approved right at the end of the quarter?

So what the SDIS will do is that you can actually get the mining permit to start the underground mining. And then it's going to trigger the expansion of the pad in storage areas. We don't have any other permits except for some small construction, you know, patch construction for the cement plants that we feed the pace of the concrete for the underground. But we don't see any other permits coming in at the end of this year. As we mentioned before, we got the FPDS early this month that will help us start the construction of the body treatment plant.

That was the only permit that we had ongoing with the SEIS. Okay, great. That's helpful, Kalar. Thanks very much. That's it for me.

Thanks, Rui.

Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone.

Hi, this is Sabina here. I actually got a question from the webcast that I asked on here. This call is for Jared. Congratulations on your appointment. While you have been aboard for less than a month, can you elaborate on your capital allocation priorities for Ocean in the Gold? any potential dividends or share buybacks?

Sure. Look, one of my key focus areas is to safely and responsibly maximize the cash generation potential and delivery of this business. And we've had a great first quarter and the cash flow has been there and we've got a year to deliver. The balance sheet is strong and we've got growth options. So As it relates to when we come to provide direct returns to shareholders, the board, like myself, are very keen to return to paying dividends or affecting some form of capital return. The issue we have, of course, is we're in a strong position, but we would like to get a bit stronger. We have, as you heard, less production coming through from Hale in the coming two quarters. But I think everyone on this call and the market more broadly can be comfortable that as soon as we get ourselves into a position of being able to, we will. We know it's a priority. Good businesses pay dividends and we know that shareholders have been very patient and keen to get the benefit of these high gold prices and production outcomes in the form of a return. Whether it be dividends or shared buybacks, that's something that remains a future work for us to land on. But I can assure you that it is a priority that we focused on and also with results like the ones that we had today, we're much closer to it than we've been for a while.

Thanks. There's no more questions online.

And at this time, we have no other questions on the phone. Please proceed.

Thanks, Alfredo. And look, thanks everyone for being on the call today. A big call out to everyone in Oceania Gold for such a strong first quarter. And I look forward to meeting as many of you who've been on the call today in the coming weeks and months ahead. And on behalf of everyone at Oceania Gold, we appreciate you joining us today and wish you a pleasant rest of the day. Bye for now.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.