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spk01: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Superior Gold's first quarter 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to answer your question, press star, too. If you have any difficulties during the conference, please press star then zero for operator assistance at any time. As a reminder, this conference call is being broadcast live on the internet and recorded. I would now like to turn the conference over to Chris Yordan, President and Chief Executive Officer. Please go ahead, Mr. Yordan.
spk07: Thank you very much, Mr. Operator, and good morning to everyone. And thank you for joining us to discuss Superior Gold's first quarter for 2022 results. As a reminder, Please refer to slide two of our presentation, which is posted on our website, to view our quarterly language regarding forward-looking statements. In addition, please note that all amounts discussed are in U.S. dollars, unless otherwise noted. Moving on to the next slide. Joining me today on the call is Paul Unset, our Chief Financial Officer, Russell Cole, Vice President for Operations and General Manager of Protonic Operations, Andrew Biggs, our Vice President, Business Development and Long-Term Planning, and Michael Callister, our Vice President, Investment Relations.
spk06: I'd like to start off with the highlights of the first quarter in 2022.
spk07: Firstly, the safety performance improved markedly with a total recordable injury frequency rate reducing 21% quarter-on-quarter. production of 16,747 ounces of gold with sales of 15,823 ounces of gold at a realized price of $1,910 per ounce. Total cash costs were $1,558 per ounce sold and all entertaining costs were $1,721 per ounce sold. That's up 12% and 15% respectively in the first quarter of 2022, which was in line with management's expectations as we completed a successful 15-day mill maintenance shutdown within the quarter. Our all-in sustaining costs also contributed to the highest sustaining exploration and capital expenditures.
spk06: We generated cash flow from operations of $3.49 million before working capital changes,
spk07: and $400,000 after working capital changes, and exited the quarter with a robust cash position of $20 million. An improved understanding of the geology, topology, and mineralization at Petonic has led to the establishment of two new mining funds, as demonstrated by the exciting new draw result at the Pulte Gap, Deep, Mining Front, and at the Western Mining Fund. All of these are in close proximity to existing development and infrastructure. Additionally, the Eastern Mining Front and Indian Access has been added to the fault for continued exploration and potential mining fronts based on the recent goal results reported in Q1. I would now like to hand over to Russell Cole, our VP for Operations, to elaborate on the operational highlights.
spk03: Thanks, Chris. As we mentioned, the plutonic gold operations produced 16,747 ounces of gold during the first quarter as compared to 17,603 ounces the same period in 2021. This decrease is really the result of a planned and successful mill maintenance shutdown and was in line with our management expectations. Operationally, we achieved a stoke grade of 2.6, which is slightly below our targeted stoke grade of 3, although this was what we expected. Our mill grade for the first quarter of 2022 was flat over the comparable period in 2021. We expect our mill grade to improve as we progress into 2022, reflecting the impact of both higher underground grades and replacing our lower grade legacy stockpile material with higher grade open-fit feed. Gold recoveries remained strong during the first quarter of 2022 at 85%. In summary, the operation generated a strong cash flow despite the 15-day shutdown, whilst delivering a solid production result. I'll now hand over to Chris to recap the improvement journey of Plutonic, which started in FY20.
spk07: Thanks, Russell. Moving on to the next slide. It's worth saying that the quarterly improved performance of the business on the operational and financial front since the second quarter of FY20. Overall, we've seen a steady improvement in results following the operational improvements we've implemented at Potomac. While the first quarter in FY22 was softer due to the planned shutdown, it was in line with management expectations, and we maintain our annual production guidance of 80,000 to 90,000 ounces for this year. The quarterly production has been increasing from a low in the second quarter of 2020 to an increase as I expected for the later quarters in this year. Despite the shutdown in Q1 of this year, it outperformed all the quarters in FY20. Our net cash position has remained strong in the first quarter at $20 million, representing a 15% improvement from the end of the first quarter in 2021, reflecting improved operating performance and repayment of full of our gold loan at the end of the second quarter in 2021. I now would like to hand over to our Chief Financial Officer, Paul Olmsted, to discuss our financial results for the quarter.
spk02: Thanks, Chris. During the first quarter, revenue totaled $30.2 million from the sale of 15,823 ounces of gold, a decrease of $984,000 from $31.2 million from the sale of 17,538 ounces of gold in the first quarter of 2021. Gold revenues were slightly lower as a result of 1,715 fewer ounces being sold due to the mill shutdown offset by an increase in the realized gold price to 1,910 per ounce from 1,777 per ounce. Cost of sales were 26.7 million for the first quarter of 2022, a decrease of 0.2 million from 26.9 million for the first quarter of 2021. This was primarily due to the variance in the change in inventory category. Change in inventory reflected increases in gold in circuit resulting from the timing of sales versus production at the end of the quarter. The buildup of stockpile inventory due to the planned mill maintenance shutdown in the quarter and the timing of production which occurred near the end of the first quarter of 2022. The change in inventory reflected a decrease in stockpile inventory. In addition, the decrease in gold royalties was a result of fewer ounces sold in the quarter, partially offset by a higher gold price. These decreases were partially offset by higher mining costs from the addition of surface mining costs from the mining of Plutonic East and the perch open pits, which began in the second quarter of 2021. as well as the increase in site services costs reflecting increased contractor flight and accommodation costs associated with the planned mill maintenance activity. Adjusted net income for the quarter of 2022 decreased by $355,000 to $1,424 or $0.01 per share compared to adjusted net income of $1,779,000, or one cent per share, in the three months ended March 2021. During the three months ended March 31, 2022, cash from operating activities before working capital changes was $3,489,000, an $828,000 increase over from operating activities before working capital changes of 2 million 661 for the three three months ended march 31 2021. the increase in cash generated from operating activities was predominantly a result of the repayment under the gold loan in the three months ended march 31 2021 which as chris mentioned was fully repaid in june 2021 and that was offset in part by lower operating earnings in the three months ended March 31, 2022, in comparison to the same period in 2021. Again, the lower operating earnings was primarily due to the mill maintenance shutdown and in line with management expectations. At the end of the quarter, the company had $19.9 million in cash and cash equivalents. A particular note is the fact that the gold loan was fully repaid at the end of the second quarter of 2021, and the company currently has zero term debt. Despite the 15-day mill shutdown, our working capital position has increased to $11.1 million over the December 31, 2021 position, a continued improvement. I will now turn the call back to Chris to continue. Thank you.
spk06: Thank you, Paul.
spk07: Our production guidance remains as stated for 2022 of between 80,000 and 90,000 ounces of expected softer first quarter due to planned 15-day shutdown, as mentioned before. The company aims to increase the annualised production rate to 100,000 ounces per annum annualised in the second half of 2022. Our all-in sustaining cost is guided to range between $1,450 and $1,600 per ounce. We recognise that this range is above the Q4 2021 all-in sustaining cost of $1,416. However, we have conservatively guided our range for 2022 in consideration of potential inflation impacts as well as potential disruptions from COVID-19 as Western Australia loosens restrictions and opens its borders. Our exploration expenditure rate has increased year-on-year as we ramp up our exploration efforts in new open-pit targets as well as continuing with our underground program. Moving on to the announcement of the December 2021 Mineral Resource and Reserve, I would like to hand over to Andrew Beek, our Vice President of Business Development and Long-Term Planning.
spk09: Thank you, Chris. Today we also released our mineral reserve and resource update with an effective date of December 31, 2021. We're extremely pleased to provide this update of mineral resource and mineral reserve estimates, which continue to deliver on our stated goal of further improving the quality of our resources and reserves, extending the mine life and maximising the potential of the platonic gold operations. I'll just draw you to some of the key highlights. These include Proven and probable mineral reserves increased by 66% against 2019 to 630,000 ounces of contained gold at 3.5 grams per tonne, demonstrating a significant increase in the life of mine. Measured and indicated mineral resources, inclusive of mineral reserves, increased by 2% to 1.92 million ounces of contained gold at 3.5 grams per tonne. Inferred mineral resources increased by 29% to 3.97 million ounces of contained gold at 3.8 grams per tonne, pointing to a significant inventory of gold to fuel long-term production at Platonic. And we further refined our geological model, utilising three-dimensional modelling that now incorporates all historical geological data. The Mineral Resource and Reserve Estimate for Platonic Gold Operations incorporates all available data from an expanded two-year exploration program in conjunction with historical geological data in a newly interpolated block model. We believe this objective approach to mineral resource estimation is an improved indicator of the future opportunities of platonic and is continued evidence that platonic is a large mineralised system with long-term potential at current assumptions. The new interpolation methodology described herein is believed to better predict the spatial distribution of the mineralisation in great estimation. As a result, mineral resources and mineral reserves have been identified in areas previously disregarded. Since converting to the new models, which continue to be refined, Mining from reserve has increased from typically 8-12% in the previous five years to 55% in the first four months of 2022 and 100% from resource grade chills. Our underground drilling continues to add mineral reserves and inferred mineral resources and outlines new areas of mineralisation in the Western Mining Front, Baltic Gap and Indian access as reported during 2021. I strongly encourage you to see today's full news release for all details and further explanation of the updated reserves and resources. I now hand back over to Chris.
spk07: China, we believe the key investment highlights of Superior Gold are that, firstly, it's a world-class operating mine with established infrastructure that includes significant latent billing capacity. The business has a clear and concise optimization and expansion plan with unique strategic advantages, evidence of platonic gold endowment with expiration upside, latent billing capacity, and regional positioning near potential external or sources. Finally, one of the most compelling attributes is the re-rate opportunity we represent compared to our peers. In order to achieve a re-rate, our growth strategy targets delivering on three goals. Goal one is to establish a stable and predictable operation between 70,000 and 85,000 ounces per annum, which we have delivered in 2021. We are now targeting 80,000 to 90,000 ounces in this year as a next step on our way to deliver on goal two. That is to create an operational scale and reduce all the sustaining costs by increasing production 100,000 ounces per annum, with a current 1.8 million tons per annum operating processing facility, and then towards 150,000 ounces per annum by restarting the currently shut down 1.2 million tons per annum milling circuit. This is expected to be achieved by increasing ore production from superior gold underground and open pit mines augmented by external sources. The third goal is to invest smartly. in the exploration of known high-potential targets to expand the resource and reserve and life of mine, which is now evident in the December 2021 Mineral Resource and Reserve announcement this morning. I will explain in more detail how we plan to deliver on these goals. Moving on to the next slide. As I said, our growth strategy at Superior Gold is straightforward and well-defined, and we're delivering on three goals. These three goals will be achieved by working through four phases. The first goal is targeted to put in place a strong base for further growth, therefore delivering safe, stable and predictable operations. We started working to re-establish steady-state production from the underground mine and I encourage the CEO to return to the state of improving positive cash flow from 2021. In addition, the near-mine resource extension drilling and mineral exploration that started last year has, as predicted, provided future mining funds for cost-effective feed to the mill. The second goal is targeted to deliver an operation with scale that produces more than 150,000 ounces per annum at reduced cost and improved cash flow, while then strengthening the balance sheet. The second goal is planned to be achieved in two phases. The first one is in achieving the second goal, which is to set the increased production towards 100,000 ounces per annum by supplementing the now-established underground feed with open-foot production from a number of near-mill, past-producing open-foot projects, including Protonic East, which commenced on schedule in the second quarter of FY21, moving on to Perch, which started in Q4 in FY21, and now entering in the second quarter in Main Capique. In addition, we have optionality into Hermes and Hermes South in the short to medium term. The next phase is planned to increase production towards the 150,000 ounces per annum. Here we plan to recommission our second mill that is currently on care maintenance. New sources of feed may come from exploration of our existing properties and or from several other sources along the platonic Miramai Gold Belt. The third goal consists of delivering on the exploration of known high-potential targeted areas. There is also potential for new discoveries as we invest in exploration at the tonic. We have certainly been very encouraged by our recent building results, as has been reported, specifically the Western Mining Front, Baltic Gap, and more recently, the Eastern Mining Front and Indian Access, to name a few. It is important to share how we are tracking to deliver this strategy. Firstly, Superior Gold has delivered the first goal. In 2020, gold production exceeded the upper-level guidance at 77,000 ounces. The underground production increased over the year, and the Q4 underground mining rate was achieved at 900,000 ounces per annum. We now move on to goal two in 2022. The first phase will target to increase the quality of the open fed ore by executing on our early entry opportunity in the main pit. That is called Mainford Deeds, which started in the second quarter of 2022. This will see the open federal grade increase towards 2.5 grand to come in some areas. The underground mine will expand its operations into new mines, and by doing that, provide 30% of the support from underground from new areas, as opposed to 100% remnant mining in 2022. The underground is scheduled to deliver 900,000 ounces in 2022. That's up from 835,000 kilotons in FY21 and at an exit rate of 1 million tons per annum in the fourth quarter of 2022. Apologies, the other grant was scheduled to deliver 900,000 tons, not ounces. Gold production is guided between 80 and 90,000 ounces for this year and we exit at an exit rate of 100,000 ounces per annum in the second half of FY22. The operational plan for FY22 is therefore designed to edge towards delivering the first phase in delivering operations of scale. We announced the updated December 2021 mineral resource and reserve today, and that concurrent with Q1 financial results. And we continue to work on the life of mine plan expected to be completed later in this year. I will now hand over to Russell to expand our approach to COVID.
spk06: and underground optimisation. Thanks Russell. Thanks Chris.
spk03: Above everything, the health and safety of our people is our top priority. COVID-19 continues to challenge Western Australia as it opens its borders and is impacting operations in 2022. However, the health and safety of our employees is paramount, and we continue to employ in-transit and on-site controls to ensure cases on-site are minimised to reduce this impact. In order to comply with legislation, all employees and contractors are fully vaccinated by February 1st in 2022. We also are putting a lot of effort into introducing a new safety culture that is committed to a workplace free of accidents. A people and safety risk transformation program commenced in October 2021 and focuses on safety leadership and critical controls management. For example, that's on the job safety, process safety and material risks. Early successes as a result of the aforementioned program is our TRIFA has reduced by 21% quarter on quarter. We continue to focus on unlocking the value of the underground operation through production, growth, margin optimization, and systematic exploration. First, we are focused on optimizing our grade from the underground. An average stope grade of better than three grams is our target through better spatial prediction of where the ore is. In mining operations, we have revitalized our underground fleet with the addition of two new trucks, new loaders, and we'll continue to recapitalize the mobile fleet with a new jumbo amongst the replacements for 2022. At the mill, which operates very well, the recommissioning of the gravity circuit continues to have a positive impact on our recovery, increasing from the low to mid-80s to the high 80s, which is a little ore-dependent, but still successful. During the second quarter of 2021, open-pit mining commenced in Plutonic East on schedule. We then moved into perch and now into main-pit deeps. production from these open pits plus longer-term the main pit pushback along with operational improvements in the underground is expected to increase production and return the platonic gold operations to a state of significant free cash flow generation. I will now hand over to Andrew to expand on the exploration.
spk06: Thank you for that Russell.
spk09: Look, this slide here is a reminder, there are significant intercepts in close proximity to existing infrastructure, as well as all great intercepts located one kilometre outside of the mineralised MAFIC. It should be clear that the limits of mineralisation have yet to be found, and continued investment in the exploration of platonic is definitely warranted. In the near term, Our focus on the underground is on exploring and developing new mining fronts. We believe that the two new mining fronts, being the Western Mining Front and the Baltic Gap, will be key in improving the profitability of this operation in the near term. We have announced drilling results from three main areas, Baltic, Indian and Baltic Gap, and more recently, Eastern Mining Front and Indian Access. An update on the Indian Axis exploration is expected by the end of May 2022. In August 2021, we provided an exploration update on the third quarter with drill results from the Western Mining Front. The results were highlighted by drill hole UD24141, which intersected 42.2 grams per tonne of gold over 5.6 metres and UDD 24376 which intersected 17.7 grams per tonne gold over 6.4 metres. We updated drill results from the Western Mining Front in April 22 and highlights include drill hole UDD 24885 which intersected 83.2 grams per tonne of gold over 3.2 metres including 208.7 grams per tonne over one metre, and drill hole UDD 25059, which intersected 4.3 grams per tonne of gold over 11.9 metres. As a reminder, the Western Mining Front is directly adjacent to existing underground infrastructure, thus requiring minimal capital to develop the area. The extension of existing mineral resources are key components of our current strategy to expand into new mining fronts and improve our mining grades, productivity and reduce the reliance on remnant mining. Chris will now present the achieved and upcoming catalysts.
spk07: Thanks, Andrew. We have a number of upcoming catalysts worth noting. Going forward, we expect to continue to provide regular underground exploration updates I would like to draw your attention to the latest exploration update scheduled for the end of May this year on Indian access. In addition, results from the surface exploration in 2022 is expected to be published in the second half of this year. We announced the positive results of the updated reserve and resource update today and reserves increasing by 66% compared to the December 2019 reserve, of course, prior to the pre-ship. We expect more opportunities for improvement as we continue the full potential assessment to unlock the latent capacity in operations with specific focus on the life of mine optimization, now with the completion of the new mineral resource and reserve. This is a very important element in our future as we're assessing and looking at expansion options for our underground mine. In addition to that, assessing commercial options for additional oil trees to utilize the latent mill capacity. We also expect to be commencing and announcing the results of heritage surveys, which will hopefully have some positive impacts on the main set pushback project and make clearer the timing of the HOMEeSouth project. And over the next 12 months, we have a healthy pipeline of development and exploration catalysts to look forward to. Augmenting this is the team Andrew, who will now lead as the UE intensifies Our focus on growth opportunities is both brownfield and external to our business. I'm going to hand over to Mike to present on the capital structure and marketing of the business.
spk04: Thanks, Chris. Slide 19 is a quick summary of the analysts currently covering our stock, our key shareholders, and capital structure. We were very encouraged by the support of some significant long-term gold funds and note that the analysts see a significant upside to our current share price. Trading has increased significantly over the last few months from an average of below 100,000 shares per day to an excess of 200,000 shares per day. In addition, the target price for Superior Gold stock has improved over the last quarter from $1.23 to $1.46. We also maintain a tight share structure with just 123 million shares outstanding. I will now hand the call back over to Chris to close off the presentation. Thank you, Mike.
spk07: In closing, I'd just like to highlight the significant re-rate opportunity that exists with Superior Gold, as presented on this slide. Now, by continuing to deliver on our goals, we believe the company will revalue. As a reminder, our strategy is to deliver on three goals. Goal one is to establish a safe, stable, and predictable operation, and we're heading towards 80,000 to 90,000 ounces produced in FY22 after delivering 77,000 ounces last year. Secondly, we will now move on to goal two, that is to create an operational scale which will reduce all its sustaining costs by increasing our production to circa 100,000 ounces per annum, which we believe we will achieve in the second half of this financial year. This is expected to be achieved by increasing oil production for superior gold underground and open-bit mines augmented by external sources when it's in relation to the 1.2 million tonnes per annum milling circuit, which is currently in care and maintenance. That'll be the key lever that we'll be pulling on to move to 150,000 ounces per annum. Goal three is to invest smartly in exploration of known high-potential targets and then to expand the resource and reserve as well as our life of mine, which we've now demonstrated in our new mineral resource and reserve. We remain focused on repositioning tectonic for long-term success and on luck and shareholder value, And we encourage you to take another look at this opportunity. With that, we conclude the presentation portion of the call. Operator, we can now open the line for questions.
spk01: Thank you, sir. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, press star to the number one on your telephone keypad. If you would like to withdraw your question, press star to. There will be a brief pause while we'll compile the Q&A roster. Your first question comes from Phil Kerr with PI Financial. Please go ahead.
spk08: Thanks, operator. Congrats, everyone, on all the success demonstrated over the past several quarters. Just two questions today. I'm just going back to the reserve and resource assessment provided today. Could you provide a little bit more context or background, clarity, whatever it may be, just on what component of either the reserve or resources was contained within the Western mining front.
spk07: So what we have included was what we've already announced. Now, needless to say, post that period, we continued with our underground exploration and mineral exploration. Now, that day, the reports that talk to results up to the end of November last year is included everything thereafter has not been included and that will be seen for forthcoming attractions um in uh in this year as we as we will be going through this um review process of the mineral resource and reserve again sorry maybe could you quantify uh you know you had a million ounces of underground uh growth
spk08: and you had an inferred, and then you had close to 300,000 ounces of reserve growth underground. Is any of that material or what component of that material is from the Western Mine Fund?
spk07: Okay, that's a good question. I'm trying to rack my brain. I know during the analysis we did have those numbers available. I just don't have it now. I'm going to ask Michael Callister to make a note of that. We'll get back to you personally on exactly what that number is.
spk08: Because there wasn't a comment.
spk07: Yeah, there wasn't a note.
spk08: Sorry, there was a note that they converted 30,000 ounces to the M&I from the Western mine front of the Baltic West. So I was just looking for a little bit more, I guess, whether some context to either the reserves or the inferred as well.
spk07: Yes. Well, the one piece of context that I can say to you, as I already referred to, that we continue to draw there and there are more findings, needless to say, that will augment our mineral resource and reserve going forward. We recognise that the Western Mining Front will be one of the mainstay areas that we will be mining into the future. And in fact, we are there, you know, entering into the Western Mining Front as we speak, given the fact that, you know, 30% of our underground oil underground ore will be coming from the new mining front. So the turnaround from drill work that we did last year has already been brought into our mining plans.
spk06: Russell, I don't know whether you would like to add anything there?
spk03: No, I'm just racking my brain as well as I go through. I think we'll have a look at what's in the western mining front and the other areas so we can break those out for you.
spk08: Okay. And then just looking at Hermes, you know, there was some language here that Hermes reserves were removed because of the, I guess, current economics. But could you just kind of dive into what work is being done to evaluate the economic potential of those over the course of this year and Kind of how you see that playing out. Absolutely.
spk07: Yeah, sure. So, in essence, what we're looking at, there's quite a lot of capital that needs to be spent to get Hermes South and Hermes to operate. Apologies. And that relates to roadworks, et cetera. In addition, what we're doing is we've identified three targets to the east of Hermes South, which we are now... In fact, we've already finished our first round of surface drilling... which is part of the surface drilling strategy and expenditure plan for this year. And that's Paloura, Seaborg and Central Ball. Now, Central Ball is the lion's share of those three targets. We're waiting for the results to come through. We are hoping that through unlocking the potential in that area, we'll be able to distribute the capital strain on Hermes and Hermes South to such an extent whereby Under our current assumptions, it does become economic. So, as I said, that work is currently underway. We're just waiting for the door results, and then we'll do further analysis. But that work needs to be completed post-haste.
spk08: Is it an economic factor related to stripping ratio, grade, operating costs? What is it?
spk07: Well, firstly, grades. is a key element here, given the fact that we need to track that material to our processing plant. In addition to that is also the capital that needs to be spent to reestablish the road that leads from those assets. Okay.
spk06: Thank you very much. That's it for me. All right. And we'll get back to you on that other question you had. Yeah. Appreciate that. Thanks.
spk01: Thank you. Thank you. Your next question comes from Pierre Vaillancourt with Haywood Securities. Please go ahead.
spk05: Hey, guys. Just, you know, in the context of the higher cash costs and all-in sustaining costs for the quarter, could you provide some kind of insight into unit costs, like per ton unit costs, and just how that has changed quarter over quarter and where you see room for improvement there going forward?
spk07: Yeah, I mean, it's very simply from a perspective of converting all that we mined, all that we mined in a quarter into gold that we sell to get that fixed cost valuation. Needless to say, we also incur the costs On the shutdown itself, the underground outperformed our expectations from a production tonnage perspective. But needless to say, that work culminated in quite a significant stockpile on the pad. Needless to say, we didn't have the opportunity, given the shutdown, to mill that material, which we'll now see coming through in the second quarter. It's expected that our all-interstanding costs would have increased in that period, just purely from the perspective of the shutdown and higher fixed costs in that period due to the shutdown.
spk05: Right. So where are you at in terms of unit costs like mining costs? I mean, are things back on track now? I mean... Irrespective of where the grade is, obviously the grade was lower, there was lower throughput. How are you feeling about that? I know the all-in target for the year is, I think, $1,600. What do you think you can do in terms of improving the unit cost?
spk07: Yeah, so, I mean, the first thing's first is to get the mill running at full tilt over the full period. And one of the reasons why we did the shutdown was to enable that mill to run at full design capacity. In fact, we've had a number of days' continuous operation at design capacity, so we're comfortable that the shutdown has put us in a position to run the mill at full tilt. The second thing is what we have seen is that our... or underground ore, sorry, ore costs from underground on a per unit basis have decreased, we would see that decreasing even further through fixed cost dilution given the profile from the underground mine that we plan and as we've announced towards the end of this year in the fourth quarter, we're expecting a mining rate from underground that will equalize a million tons per annum, which is quite a significant jump from 835 delivered in 21, and we're targeting to deliver 900,000 tons in FY22. So we would expect that cost to drop further down. In addition to that, with Mainford Deeps, moving into Mainford Deeps, we expect more ore to come from there. Needless to say, that'll put us in a good position to be able to run the mill at full tilt. Now, that all together, having a full mill, edging towards the second half of this year, we would expect fixed costs to drop quite significantly. Sorry, not fixed costs, all interstating costs to drop significantly. We're very comfortable with the guidance that we've given at $1,600 on the upside. In fact, if the assumptions that we made, which was quite conservative, For this year, turnout, you know, a little bit more positive than we would have hoped or, you know, would see. We've been able to see cost edging towards the lower end of that guidance.
spk05: Okay. So it sounds like it's really a volume game, you know, just hopefully scaling up as you advance with the mining plans. I just wanted to also ask you on the Van Gogh situation, the court announcement. I mean, what are the implications for that longer term?
spk07: Well, I think it's very difficult to speculate exactly what potentially could happen in the future. What we do know is that the... judge awarded our case as far as the 2017 ROFA is concerned. That has provided us an opportunity to earn 50% of the case. We are in the process of setting up that JV structure and moving forward on that piece. The second is we have appealed the 2016 ROFA which was not awarded to Superior Gold. Apologies, to Superior Gold. And we're hoping to hear soon when that appeal case would be heard. The impact of that would be that we would have the potential to obtain up to 40% of the remainder of all tenements in Vango, on the Vango tenement register.
spk06: Maybe, Andrew, could you elaborate a little bit further on anything there, if you would like to add?
spk09: Yeah, I mean, we're obviously, with the award that we have had, we're looking to set up a constructive relationship with Van Gogh through the JV Committee. And as we work through our Life of Mind plan, anything in the K2 resources or further that that is attractive to us, we'll definitely come in and we'll look to capitalise on that.
spk07: In so far as looking into the future, maybe I can add, we're not hanging any of our hats on that. Our growth strategy is purely built on our own properties and tenements and also looking down south from where we're operating in.
spk06: So anything that could come from the Vango relationship, would purely be augmented. Okay, thanks, Chris. All right, thank you.
spk01: Thank you. Mr. Jordan, there are no further questions on the phone lines at this moment. Please continue.
spk04: We have a few questions from the webcast. The first question is, will COVID-related employee absenteeism affect the current quarters production.
spk07: Russell, would you like to field that? You're very close to the operations, needless to say, and you live with that day in and day out.
spk03: Yes, certainly. The COVID cases are a little bit cyclic, depending on what the government mandates are at the various times. we're probably averaging lower than a 7% or 8% absenteeism rate. So for us at Plutonic, there's no real impact. We are very lucky. We've got a fairly strong program of checks and balances on our people before they go to site, once they're at site, during their rotation at site, and then before they leave. So we've really not seen the impact that a lot of other sites have had. It doesn't mean we sit back and rest on our laurels. We continue to look at that and continue to monitor and educate the workforce further and further. And so far, that's putting us in good stead.
spk04: Perfect. Next question is, are we satisfied and comfortable with the Stope inventory?
spk06: Sorry, just repeat that question. Are we satisfied with? The stope inventory.
spk07: Well, I mean, there's probably two vantage points from which you can answer that. The first thing is, would we like to increase it? Yes, absolutely. And we will do. The fact that the mineral resource reserve has just been updated, that will follow through into the life of mine, which will give us a clear line of what we should set our targets on and what we'll be going after. In addition to that, I already mentioned earlier in the presentation that we'll be replacing the number three jumbo. That will enable accelerated development and, needless to say, open up more stoves into the future. Russell, would you like to add anything there?
spk03: Probably the only thing to add to that now is because our diamond drilling program has become so productive, we are now seeing most of our grade control, close space grade control, completed out to about a three or four month window. So the scope inventory we have during that period is at a pretty high confidence level as well.
spk04: Great. Last question is, this shareholder understands that we are locked in for natural gas under long-term contract. They're asking when they're up for renegotiation. And they're also asking how much roughly we would pay or see as an increase to our oil and sustaining costs if we were to be paying spot prices today.
spk07: Paul, maybe you can answer that question from a contractual perspective.
spk02: Yes. So just on the gas, we're locked in for about a two-and-a-half-year period on gas. which certainly provides us some certainty over that period in terms of cost. In terms of the increased cost at spot, it's hard to say what the actual spot price would be at this point. There would be some impact, but I wouldn't see it being a material increase. But any dollar that we can save through the long-term contracts is certainly a benefit to us.
spk06: Okay, great. There's no further questions through the webcast. Thank you.
spk07: Well, thank you very much, Mike. Since there are no further questions, I'd like to thank everyone for joining us today. The business will continue to focus on strategic projects necessary to reposition Teutonic for sustainable long-term success. Of course, that will include fully optimizing the underground operation and incorporating new sources of open pit feed to increase our production levels while further advancing our understanding and expansion of the mineralized zone at the tonic. We expect that these improvements will drive a continued improvement in our financial performance over the course of 2022 and beyond. And I would like to thank everyone once again for joining us on the call today.
spk06: Thank you very much and have a great day.
spk01: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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