Evolution Mining Ltd. (EVN), an Australian gold and copper mining company, announced robust quarterly results, with significant increases in gold and copper production, a substantial boost in cash flow, and a strong financial position.
The company's exploration activities, particularly at the Bert orebody and Ernest Henry, have yielded positive outcomes, contributing to the optimistic outlook presented during the earnings call.
Key Takeaways
- Record gold production of 212,000 ounces, a 14% increase from the previous quarter.
- Copper production reached 20,000 tonnes.
- Group cash flow for the quarter surged to $230 million, tripling the figure from the prior quarter.
- Total recordable injury frequency decreased by nearly 14%.
- The company is on track with its emissions reduction target.
- Gearing was reduced to 25%, with over $400 million in the bank.
- Exploration at the Bert orebody and Ernest Henry showed promising results.
- Exploration commenced at Cloncurry North joint venture, with drilling planned for the September quarter.
- Projects in Ontario, including the October project and the Lake St. Joseph project, exhibit potential for gold and copper deposits.
- Hedged 50,000 ounces of gold sales for the Mungari 4.2 project in FY '25.
Company Outlook
- Evolution Mining is focusing on cost control and improving shareholder returns.
- The company is optimistic about its drilling progress and the growth of the orebody at Ernest Henry.
- Full-year financials and guidance for FY '25 will be released on August 14th, with expectations set by previous reports and updates.
Bearish Highlights
- Red Lake faced unplanned issues and an outage, but a plan is in place for FY '25 to ensure cash positivity.
- The company anticipates an increase in labor costs by 5% and other costs by 3% in FY '25.
- Cost inflation is being addressed through labor optimization and efficiency in the use of goods and services.
Bullish Highlights
- The high-grade intercept at Ernest Henry and positive exploration results support future production prospects.
- The company has seen benefits from the higher gold price, which is offsetting inflationary impacts on costs.
- Dividend policy remains unchanged, targeting around 50% of group cash flow.
Misses
- The company experienced some production impact at the Red Lake site due to rain events.
- Cost inflation is expected to add to the all-in sustaining costs (AISC).
Q&A Highlights
- The company is not considering buybacks as they currently do not see value in them.
- There is a focus on keeping the plant operating at capacity, utilizing various ore sources.
- Accurate and up-to-date models for cost projections are emphasized as crucial for shareholder conversations.
InvestingPro Insights
Evolution Mining Ltd.'s promising quarterly results and optimistic exploration activities are echoed in the performance of another notable player in the mining sector, CAHPF. Here are some insights based on data from InvestingPro that may provide additional context to investors interested in the mining industry:
- With a market capitalization of $5.33 billion, CAHPF is a significant figure in the mining landscape, showcasing the company's substantial size and investor confidence.
- The company's P/E ratio stands at 46.21, indicating a high earnings multiple, which suggests that investors are expecting high earnings growth in the future. This aligns with the InvestingPro Tip that CAHPF's net income is expected to grow this year.
- Revenue growth remains a strong point for CAHPF, with the last twelve months as of Q2 2024 showing a 5.88% increase, and an even more impressive quarterly revenue growth of 18.31%. This reflects the company's ability to expand its sales, corroborating the InvestingPro Tip that analysts anticipate sales growth in the current year.
Investors who are intrigued by these metrics and wish to delve deeper into the company's financial health can find more InvestingPro Tips at https://www.investing.com/pro/CAHPF, including insights on profitability, dividend consistency, and long-term returns. For those looking to enhance their investment strategy, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to a total of 9 additional InvestingPro Tips for CAHPF. This comprehensive analysis could prove invaluable in making informed investment decisions in the dynamic mining sector.
Full transcript - Evolution Mining Ltd (CAHPF) Q1 2025:
Daniel Morgan - Barrenjoey:
Jon Bishop - Jarden Group:
Rahul Anand - Morgan Stanley (NYSE:MS):
Levi Spry - UBS:
David Radcliffe - Global Mining Research:
Al Harvey - JPMorgan (NYSE:JPM):
Andrew Bowler - Macquarie:
Alex Barclay - RBC (TSX:RY):
Jonathan Sharp (OTC:SHCAY) - CLSA:
Anthony Barrett - S&P Global:
Matthew Frydman - MST Financial:
Lawrie Conway: Thank you, Darcy. Good morning, everyone. Joined on the call today by Barrie Van Der Merwe, our Chief Financial Officer; Glen Masterman, our VP, Discovery (NASDAQ:WBD); and Peter O’Connor, our GM, Investor Relations. Today, we released our June quarterly report and an exploration update. Firstly, while safely generating cash is definitely king as shown in our quarterly report, I have to start with the exceptional results at the Bert orebody that includes the highest-grade intercept ever drilled at Ernest Henry and definitely one of the best in Evolution’s history of 52 meters grading 4.1 grams per tonne gold and 1.65% copper. Bert is starting to show real potential as an additional mining front for Ernest Henry, and Glen is really excited to talk about that a little later this morning. The June quarter generated some outstanding results and records to build on the improvements we delivered in the March quarter. The performance in June certainly sees us entering FY ‘25 in excellent shape. On the sustainability front, we achieved our targets or better across all key performance areas. Our total recordable injury frequency reduced by nearly 14% to 7.69% compared to a year ago. We are tracking very well on our targeted 30% reduction in emissions by 2030 with a 14.3% reduction to the end of May over our 2020 baseline. Our Group cash flow for the quarter was a record $230 million nearly three times the March quarter. At the start of the year, we indicated that the built-in cash flow would occur as the year progressed. The June quarter demonstrates what the portfolio is capable of. Group cash flow for the year of $367 million was delivered at achieved metal prices that were $460 per ounce of gold and US$0.25 per pound for copper below current spot prices. Gold production was 14% up to 212,000 ounces and copper production was 20,000 tonnes. Our All-in Sustaining Costs reduced by 13% to $1,275 per ounce or US$842 per ounce. This delivered over $240 million in net mine cash flow, which was a quarterly record and is equivalent to $1,170 per ounce. The three charts on the front page of our quarterly report gives a great snapshot of what has been delivered for the year. Quarter-on-quarter, our operating mine cash flow has built up with the June quarter being nearly double the September quarter. This is on the back of plan quarter-on-quarter increasing production and reducing all-in sustaining cost. As a result, our Group cash flow was more than $250 million higher than the first quarter of the year. This has reduced our gearing materially by 23% over the course of the year. As outlined on our business update on 12th June, production at Cowal and Mount Rawdon was impacted by weather, while seismicity impacted Red Lake, which were the main drivers to not achieving our Group gold production guidance, which flowed through to our all-in sustaining cost being slightly outside our original guidance, which we ended up achieving for the year. Our Group copper production was above the top-end of guidance. We managed our operating cost tightly in a stubborn inflationary environment. The fact that our total capital investment for the year was within guidance reflects our disciplined approach to capital allocation. We did not approve additional investment merely because metal prices were well above our plan assumptions. All our operations were cash flow positive before major capital investment for each and every quarter of the year. The combined results shown on the three charts clearly demonstrate our focus on margin and then to ensure that the benefits of higher metal prices go to the bank account. That is something that we remain committed to doing. We ended the year with over $400 million in the bank, which means we have reduced our gearing to 25% compared to 33% at the start of the financial year. Again, this was done at an average metal price below current spot prices. Turning briefly to the operations and where a number of key milestones and records were achieved. At Cowal, monthly, quarterly and annual production records were achieved at 35,000, 95,000 and 313,000 ounces, respectively. This was achieved despite the impact of weather and shows the benefit of a significant stockpile. Underground ore mined was up 64% to 476,000 tonnes, meaning we exceeded the planned annualized milestone of 1.8 million tonnes. The mine is on-track to achieve the planned 2 million tonnes in FY ‘25. Cowal’s full year net mine cash flow was a record $294 million and was generated at a gold price $460 per ounce below the current spot price. As I outlined during the site visit last month, Cowal is positioned perfectly to generate this type of cash flow over the next five years even allowing for the capital investment plan to extend the mine life to 2040 beyond. Anyone who does not see this operation as a cash Cowal unintended, going forward is not modeling it correctly. At Ernest Henry, the operation has not missed a beat since returning to normal operations last June. Production and costs improved in the June quarter with the full-year meeting guidance. Operating cash flow was 45% higher than the March quarter, while the full year delivered over $480 million $334 million of operating and net mine cash flow respectively. Ernest Henry continues to be an outstanding cash contributor to the portfolio. A highlight was a record sales month in June of over US$77 million or Australian $115 million in the month. Northparkes continued to integrate well into the portfolio with over $150 million of operating cash flow and $74 million of net mine cash flow in the first 6.5 months of ownership. This is on the back of exceeding gold and copper production and the all-in sustaining cost being below the bottom-end of guidance for the year. I could not be happier inquiring Northparkes, which is proving to be a great operation and will be for many decades to come. During the quarter, the Board approved the E48 sub level cave study moving to Pre-Feasibility Study. The E48 sub level cave will provide low capital intensity production in the coming years at Northparkes and also fill a production gap that we identified during our due diligence. I reaffirm that the capital investment on the E48 sub level cave is $40 million to $50 million as presented during the site visit last month. Mungari had a step-up in production in the June quarter with improvements across all key metrics. Production was over 34,000 ounces at an all-in sustaining cost of 22.46 per ounce, delivering its highest quarterly operating cash flow this year of $42 million. The 4.2 expansion project is on budget and schedule, which when completed will transform the operation into a material cash generator as production moves to 200,000 ounces per annum. At Red Lake, production was 8% higher at 33,000 ounces, while all-in sustaining cost was 11% lower at $2,537 per ounce, notwithstanding the issues we highlighted in our business update last month, which have now been resolved. Positively, we started to see the operational performance improvements flow through from the work done during the year with the highest quarterly ore tonnes mine and the establishment of surface ore stockpile of over 25,000 tonnes. Discipline on costs and the improved operational performance drove the 38% and 53% increases in operating and mine cash flow before major capital to $28 million and $16 million, respectively. It’s been hard yards at Red Lake, but it feels like we are making more sustainable positive progress. Mount Rawdon finished the year with a strong quarter despite the impacts of the weather at just under 20,000 ounces, at a 22% better all-in sustaining cost of $1,608 per ounce. This delivered net mine cash flow up 63% to just under $29 million. The operation is now mining on day shift only with mining due to finish in the first half of FY ‘25 where will then process stockpiles through until the end of FY ‘25. Lastly, we completed the restructure of the technical team with the commencement of Nancy Guay as our Chief Technical Officer, and Matt O’Neill as our Chief Operating Officer on the 1st June. Additionally, on the 1st July, we welcomed Fiona Hick as a new independent Director. I’ll now hand over to Glen to provide details of the exploration successes for the quarter.
Glen Masterman: Thank you, Lawrie, and good morning, everyone. This morning, we released the drill result in our exploration announcement that is one of the best exploration holes drilled by Evolution. I knew the moment our Ernest Henry geologist sent me the drilling update that it was going to be good. The opening page of their report displayed a diagram of a hot burning flame signaling a sizzling step out result at Bert. The intercept highlighted on Page 1 of the announcement and illustrated in Figure 1 on Page 2 is worth reading out. Hole 1402 returned 52 meters grading 4.1 grams per tonne gold and 1.7% copper and includes a 21-meter-wide interval grading 8.2 grams per tonne and 2.2% copper. In gold equivalent terms, the grade across the full 51-meter interval is 6.5 grams per tonne and the higher-grade portion runs 11.4 grams per tonne gold equivalent over the 21 meters. The hole ranks as the best ever gold intercept drilled at Ernest Henry. And for a mine that has been operating since 1998, that is really saying something. The high-grade interval is located on the high hanging wall position of the Bert orebody and correlates strongly with high-grade mineralization in a previously reported Hole 1292, which returned 21.9 meters grading 3.9 grams per tonne gold and 0.8% copper. Figure 1 shows very clearly how Hole 1402 will extend the footprint of mineralization at Bert beyond the previously model grade outline, as well as remaining open at depth. I’m thrilled about today’s result. The intercept reinforces the exciting potential for Bert as an alternative future ore source, favorably located only 50 meters from the north sidewall of the open pit and with potential to improve mining and processing rates above the current rates of the underground material handling system, which would expand production. The metal grades are spectacular, and I’m excited about the possibility of repeating these results with our ongoing step out drilling. Elsewhere at Ernest Henry, infill drilling north of the mine extension footprint has returned further positive results, solidifying our confidence in copper and gold grade continuity, connecting Ernie Junior to the main orebody. In other news, we’ve commenced exploration at our Cloncurry North joint venture, where we are exploring for incremental copper gold production opportunities within haulage distance of Ernest Henry. Our exploration team has optioned the property because it consists of the same rocks as those hosting the nearby Ernest Henry ore bodies. Drilling is planned to commence on several standout gravity targets during the September quarter. I recently returned from two weeks in the field with our Canadian exploration team who are in the midst of their summer field campaign. I visited our October project, where we are earning a 75% interest on a property located along strike at the 12 million ounce Côté Lake project, 125 kilometers southwest of the mining town Timmins in Ontario. What I saw in the field was a prized opportunity to own an interest in prime geological real estate on one of the best gold-endowed corridors in the Abitibi Greenstone Belt. Surprisingly, the property we’ve optioned has never been seriously explored for gold despite exhibiting the geological criteria we believe is important to see in rocks that have the potential to host large mineral systems. I also had the privilege of visiting our 100% owned Lake St. Joseph project, 200 kilometers east of Red Lake. It was great to spend time with our geologists exploring a Greenstone Belt with similar geological characteristics to the rocks that host the Great Bear deposit near Red Lake. Great Bear was discovered over five years ago in rocks where the geological dogma assumed there should not be any gold. We state these mineral claims three years ago on open ground and have since developed several very attractive gold and copper geochemical anomalies, which is shaping its future potential drill targets. Briefly to wrap up, I’m looking forward to being able to report back on our drilling progress at third throughout FY ‘25, where we are confident, we will continue to grow this new exciting high-grade orebody that is shaping as a very attractive alternative ore source at Ernest Henry. With that, I’ll hand over to Barrie.
Barrie Van Der Merwe: Thank you, Glen, and good morning, everyone. Lawrie explained earlier, our June quarter financial performance was excellent, delivering further improvements from the March quarter. As we promised last year to deleverage through FY ‘24, we are now seeing this become a reality with gearing reduced from 33% at the end of FY ‘23 to 25%. Record group cash flow of $230 million for the quarter resulted in liquidity of $930 million, $412 million better than at the end of FY ‘23. This was achieved at the $3,190 per ounce realized gold and $13,700 per tonne copper price for the year, which is well below current spot prices. Quarter-on-quarter operating cash flow increased by 40% to $537 million with all operations cash positive before major capital. We are particularly pleased with gold’s performance, generating over $200 million of operating cash flow for the June quarter, notwithstanding adverse weather impacts. Ernest Henry’s continued predictable and steady performance, contributing $150 million and North Park’s $75 million showing the quality of this new addition to the portfolio. Record net mine cash flow of $242 million was up 74% on the March quarter. Our focus continued to be on margin, and I was especially pleased that the quality of our portfolio was clearly demonstrated by our all-in cost margin per ounce that was up 36% from $947 per ounce in the March quarter to $1,292 compared to only an 11% increase in the achieved gold price. This performance is almost double what was achieved in the December quarter. The AISC per ounce was the lowest for the year at $1,275 per ounce, down 13% quarter-on-quarter. And AISC per ounce for the full year is $1,477 in line with our June business update. This is testament to our continuing focus on cost control in this inflationary environment and will continue to be a priority in FY ‘25. We continue to be significantly leveraged to the current high spot gold and copper prices and have only 50,000 ounces of gold sales hedged for the capital expenditure on the Mungari 4.2 project in FY ‘25 at $3,160 per ounce. There are no hedges in place for copper. The performance in the June quarter sets us up for delivery into FY ‘25. Our capital management focus continues to be on margin, banking the cash from high metal prices, reducing debt and delivering improved shareholder returns via dividends. This approach will remain a key priority as we move forward into FY ‘25. With that, I’ll now ask Darcy to open the line for questions. Thank you.
Operator: Thank you. [Operator Instructions]. The first question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Daniel Morgan: Hi, Lawrie and team. First question just relates to Ernest Henry and the exceptional drill result at Bert. I know it’s early, but what is the plan from here to consider bringing this in as a mining front? Is there a scoping study that you’re going to initiate? And perhaps you can just talk on any major risks you foresee in exploiting it, like impacting the pit ramp or the shaft? Thank you.
Lawrie Conway: Thanks, Dan. You sounded a bit like Jake when he saw the results that he wanted to jump straight to mining it. I’m going to hand over to Glen just to walk through the drilling program and where we go with it.
Glen Masterman: Thanks, Lawrie. Yes, Dan, because I think what we would say about Bert is it’s shaping as a very credible alternative oil source. We need to drill its full extent to capture the right level of orebody knowledge. And, as we step down the plunge, the grade is getting better, and we need to sort of obviously model and understand that because that’s really going to sort of drive towards the most optimal way to extract that in the future. I think what I’d also say is we always knew it would extend and the results are consistent with what we’ve been thinking, perhaps a little bit better than what we were expecting, which is always a good problem to have. We’re prioritizing now our step out drilling, and particularly given that we’ve completed most of the infill program on the mine extension footprint, we can start to really prioritize the extension step out work on Bert. And look, I think what we’re seeing with the drill holes that we have into it already is some really strong metal grades. And I’m confident we’ll continue to be able to repeat that as we step down the orebody. I think we have obviously had eye on Bert for a while. So, there is certain thinking that’s obviously underway on how we, how we will sort of attack that in the future and option scenario. But again, I think the information we’re collecting is sort of changing with each drill hole and improving the opportunity, we need to keep that drilling going.
Lawrie Conway: Yes. I think, Dan, just to round that out. As Glenn said, we needed to finish the drilling on the Ernest Henry extension so that we could get that into the resource model for the feasibility study to finish. And given the drilling happening from underground, it’s now freed up capacity for Glen and the team to focus on Bert. That’ll be the drilling going forward. And then in terms of the operation and when it comes in would really it hangs off those results that Glen is expecting to get through the course of this year.
Daniel Morgan: Okay. Thank you. Just turning to Red Lake, can I just expand on the physicals a little bit? What are the key drivers of building the surface stockpile, which to my mind, I think that’s the first time we’ve had any meaningful stocks. Is that the CYD decline and the Upper Campbell access starting to come through?
Lawrie Conway: Yeah. Short answer there, Dan, is that that’s not part of it. So, you’re only having the material from CYD coming to surface, not linked into the to the passes and the shaft, but also, I think it’s the work that John and the team have been doing over the last six months to get those mining rates up in all areas of the mine to give that redundancy in the system. I think John has just brought that focus from the other operations when he was at Cowal and the like to Red Lake to say that we will have problems underground. Having material on the surface is very helpful. That’s really where it’s going to come from. But as I said at the start, getting material out of CYD is also helping build that as well.
Daniel Morgan: And then just last question expanding on that. What is the ongoing impact, if any, from the seismic events last quarter? Was it just the ore passes, which appear resolved in June? Or are there temporarily quarantined ore sources or mining fronts? Thank you.
Glen Masterman: Yeah. It’s not, the quarantining. It was basically blockages of the past caused by seismicity pushing material into the passes. So, as you recall from the visit last year, it’s continuing to have alternative all passes in place, with John and the team in bauma. We’re already working on the next pass that we needed at bauma, which comes into play this quarter. So, it’s building that extra capacity. It’s not restricted mining areas like we had in the first half of the year.
Daniel Morgan: Okay. Thank you so much.
Operator: Thank you. Your next question comes from Jon Bishop from Jarden Group. Please go ahead.
Jon Bishop: Good morning, guys. Thanks for taking my questions. Just a couple. The Cowal, asset obviously had a cracking quarter. You note in your open pit mining, you had a 15% quarter-on-quarter increase in terms of total ore mined there. And this is despite obviously the wet weather that contributed to that announced loss of about 26,000 ounces in the quarter. Can you sort of give us an idea of what the theoretical mining rate capacity is? Because obviously that’s exceptional performance despite that inability to access the pit for a period.
Lawrie Conway: Good morning, John. Thanks. Look, I think as you recall from the visit on-site last month, we had weather impacts in March as well. And so therefore, we adjusted the way we access the pit through the June quarter. We also then had the flexibility around two dig units versus one. So, all of those things that [Emma and Kyle] (ph) talked about on-site is what we saw those improvements in the June quarter. I think as we look at it, I think it was between 45,000 and 50,000 tons per day is what was discussed on-site is what they see as the ability to run that pit based on where we are at the moment in the pit.
Jon Bishop: Excellent. Thank you. And just around, Northparkes now, I may have misunderstood, but I took away from the site visit. You’ve commenced the decline development to start the sublevel caving at E48. Is that correct?
Lawrie Conway: Yes. It is a site that the minute they got the approval, the next day they started the work. So, in early this month, the decline had started.
Jon Bishop: Okay. So, can I just understand, I know this is semantics, but just the nuance around the language there. You’ve had board approval to commence the PFS, if I read that correctly, but the PFS results are not due until the March quarter of next year. What sort of numbers or considerations has the board essentially allowed the site to progress on?
Lawrie Conway: So what we’ve what we’ve done there, John, is we’ve basically taken a no regrets capital position on while the study is going to bring it to reserve, the confidence level that the site team has in the existing orebody knowledge of E48 enabled the board to make the decision to allow that development work to be done, which is also going to allow us to do more drilling in there as well. So, that’s as a part of the $40 million to $50 million capital, is that development is in there as well.
Jon Bishop: Okay. Cool. That answered my follow-up question. Perfect. Thanks, Lawrie.
Lawrie Conway: Thanks, Jon.
Operator: Thank you. Your next question comes from Rahul Anand from Morgan Stanley. Please go ahead.
Rahul Anand: Hi, team. Thanks for the call and the opportunity to ask question. Look, some of the ones I had have been asked, but I wanted to focus perhaps then on Mungari. You did have pretty good grades this quarter, and I think that’s been driven by the underground performance. How should we think about that going into next year in terms of open pit and underground and how that, sort of progresses?
Lawrie Conway: Yeah. Look. I mean, as we’d said at the March quarterly call, the June quarter, there were 2 EKJV campaigns this quarter. So, that gave us more of the underground material coming in. So, as we go into this year, the split between the open pit and underground will be fairly similar, probably more from the open pit than underground in ‘25. And therefore, you’ll see an overall total grade a little bit lower than what we saw in the June quarter. Production in FY ‘25, as we’ve said, there’s no change in processing capacity. So, there’s not expected to be any real change in total production at Mungari this year. It is really as the plant comes on in FY ‘26 that you’ll see it.
Rahul Anand: Got it. Okay. And then just to perhaps go back to Red Lake and you obviously had an outage there that was unplanned for the ore pass. But how are you thinking about next year’s guidance? I mean, you’re obviously performing to below that level currently, and the asset does seem to have a lot of these unplanned issues. What type of redundancy or what type of, I guess, steps are you taking, to ensure that there’s a bit more, bankability in some of these numbers that come out of Red Lake?
Lawrie Conway: Yeah. I take it you mean this year’s guidance, not ‘26. But if we look at it, as we said, back in May, we believe that the first thing that Red Lake needs to do is move to cash positive. So, we’ve built a plan for FY ‘25 that gives them both redundancy and an ability to be cash positive at our planned price assumptions. So, I think what you’d see is we exited around 33,000 ounces. If you add in the impacts or take into consideration the impacts of the seismicity, you see that lifting to the over 40%, 45%, which is what we had planned for the June quarter. That was sort of the exit rate that we wanted to see as we go into FY ‘25. We’re finalizing all of our guidance for FY ‘25, which will come out with the full year results, but that’s what we’re looking at. And then if you go to the question on redundancy, it’s the things that John and the team have been doing, in the last six months that I mentioned earlier. It’s getting, that mining rate, it’s the largest we’ve seen. And as I mentioned to Dan, CYD is now giving us access from a decline versus the shafts. So, we see that flow through in the FY ‘25, and then those additional ore pass that were identified as needed to give us contingency in the shafts. Those works are being done to be completed early in FY ‘25. So, it’s those sorts of things, that are being done to build some extra redundancy into Red Lake’s, operational capacity.
Rahul Anand: Got it. And then you get perhaps a much better grade on the back of that as well, I appreciate.
Lawrie Conway: Yes.
Rahul Anand: Okay. That’s all for me. Thank you. I’ll pass it on.
Operator: Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Levi Spry: Hi, Lawrie and team. Thanks for the call. Maybe just a quick follow-up, from the site visit. Can you just run through the CapEx breakdown again at Cowal for the, that five-year guidance that you gave, some of the items, the key items that will be spent on?
Lawrie Conway: Just maybe clarify what you mean there. Levi, I mean, we’ve said the five-year average sustaining capital is going to be pretty similar. 40 to 50 is what we’ve spent the last couple of years at Cowal. There’ll be a couple of years where it’s above that and a couple of years where it’s below that, but that’s about what, the site sort of needs. And then if we look at the major capital, we average around $200 million in the last five years. And as we said, we expect over the next five years that to be about $200 million to $230 million. But I think the thing that people keep missing is that, for the open pits, that’s the mine development. And as we said on the day, the operating costs will be around $95 million a year depending on the ore and waste mix, which is about $50 million a year lower than what it has been in the last couple of years because it moves from operating into capital. So, as we walk through all of that on the day and there is the slide. I just can’t remember the slide number and Rocky can follow it up with you, which breaks down, that span. Can you just give me a minute, Levi? And that that sort of is what we’ve said, gives you all of the information and that shows that about $900 to $1,000 an ounce is the net margin that asset will generate in free cash over each year or the next or average over the next five years.
Levi Spry: Right. Thanks. Yes, I’ll follow-up later. And doing a bit of a review of underground mining costs across operations. Can you just, update me on what you’re expecting then at Cowal, Mungari in particular?
Lawrie Conway: Yeah. Look. I’ll get Rocky to follow that up. That I mean, for Cowal, as we said, it’s, about a couple $100 million a year will be it. So, if you look at it, it’s about a $100 a ton this year as we ramp up to 2 million. And then as we get up to the 2.4, 2.5, that fixed cost starts to get absorbed and it comes down from there. And I’ll just have to get Rocky to follow-up on the Mungari one for you.
Levi Spry: Alright. Thank you. Thanks.
Operator: Thank you. Your next question comes from David Radcliffe from Global Mining Research. Please go ahead.
David Radcliffe: Hi. Good morning, Lawrie and team. I just had a follow-up question to Dan on Ernest Henry. At the site visit a year ago, you sort of mentioned Bert and the fact that the proximity to the shaft could be sort of an issue, but it was something you were looking at. So, just sort of wondering sort of a year on, what are those studies sort of showing? So, in other words, what are the engineers saying is sort of a safe radius that you need to maintain around that shaft? And what could that therefore be the impact of Bert? So, could some of it be sterilized and therefore pushed to the end of mine life? Or is it far enough away to actually potentially be mined in the near term? Because it looks to be obviously moving away from the shaft as it extends down dip. So, it looks to be pretty low hanging fruit given the fact you’ve got spare mill capacity. And just trying to work out, is that the issue why you haven’t already got a drive out there and starting to develop it?
Lawrie Conway: I’ll hand that over to Glen because I don’t believe we saw that as an issue when we talked about that when we were on-site, but we will follow that up. I think when we look at it, the reason why we haven’t done that work, that you’ve mentioned is we needed to finish the drilling on the extension. That was where we had the drilling capacity underground to do that. As Glen said, we’re nearing finishing that now. That’s why we were able to start on Bert and we will go further, drilling in the next couple of quarters. But maybe Glen, you want to pick that up?
Glen Masterman: Yeah. David, the Bert orebody is situated about 50 to 60 meters in from the north sidewall of the pit. It’s quite a distance from the shaft, which is situated quite away east of the bird orebody. So, on the section that you’re looking at, it’s a composite one. So, it does look like it’s proximal, but that’s actually the shaft is coming out of the page towards you in reality or in a 3D scenario. What we like about Bert is given its location adjacent to the pit wall is that we can access it from the pit ramps. And the attractive piece of that is that it’s not going to compete with or can be mined independently of the underground materials handling system. So, that’s essentially how we’re thinking of it at the moment. As Lawrie mentioned, we’re now bringing the priority to sort of drilling its footprint, full extent of it, to understand, the geometry of the orebody and its metal grades. And once we have that orebody knowledge, we’ll continue to progress our studies on understanding how we mine it.
David Radcliffe: Okay. Thank you.
Lawrie Conway: Thanks, Dave.
Operator: Thank you. Your next question comes from Al Harvey from JPMorgan. Please go ahead.
Al Harvey: Good morning, Lawrie and team. I wanted to have a look back at the 2025 outlook you provided back in May. You kind of had a bit of an outlook for flattish production on 2024 levels and costs up including labor about 5% up and other costs 3%. So, I just wanted to get a sense of how the thinking there has changed as you kind of move towards providing guidance. I guess we have seen some cuts to staffing levels across the industry. So, both on the labor cost side and the other cost side, if you can talk through that, how you’re thinking about that into FY ‘25?
Lawrie Conway: Yes. Thanks, Al. Look, there hasn’t really changed from there. I mean, as we said, labor around 5% and that’s about $65 to $70 an ounce and the other costs averaging around 3%, adding $35 to $40 an ounce. As we’ve closed out the year, we’ve seen it pretty well lining up to that. The benchmarking we’ve done in the mining sector for salaries is saying that it will be between 4% and 5% is what the markets are moving. And certainly, in Australia with the in July, the 0.5% increase in the super cap that most organizations pass through has also got to be taken into consideration there. So, as we go into ‘25, that hasn’t changed from what we talked about in early May.
Al Harvey: Great. Thanks for that, Lawrie. And just one for Glen. Glen, you did mention the geo report on Bert that the geo gave you. Can you maybe just give us a bit more of a sense on the geo’s view on continuity? How many more drill holes you think you might have to take from that drill platform timing? And any explanation for the better grades there and if that could be applicable to your exploration strategy around Ernest Henry?
Glen Masterman: Yes. Good question, Al. I think what we’re doing at the moment is we’re stepping out on 50-meter centers just to ensure that we can continue, I guess, getting drill holes into it from the underground drill location at some point, presuming that it continues further down plunge, towards some of the deeper ore bodies, we will have to change that drilling position. But that’s the strategy at the moment. I think in your question around why the gold grade is higher and why do we think we’ve got continuity. What I can say is that we’ve got, we got, 3 to 4 holes into Bert at the moment, which is showing this mineralization, the higher-grade element, particularly with the gold enrichment, relative to elsewhere in the orebody, sits right on the hanging wall contact of the orebody. So, it feels like there’s a structural element that potentially plays a role in upgrading the grade there, particularly for the gold. But what we’re seeing, which is giving us the confidence in the geological continuity, is that we’re hitting the gold in the same position of the orebody as we step down. So, we’re not seeing any variability. Confident it should continue for at least a ways.
Al Harvey: Thanks, Glen.
Operator: Thank you. Your next question comes from Andrew Bowler from Macquarie. Please go ahead.
Andrew Bowler: Good day all. Few questions already been asked. But just getting back to Red Lake for a second, just to clarify about next year. I mean, obviously, you’ve given us a sort of indication of what it could look like in terms of production. But handy stockpile build during the quarter, was building stockpiles part of the plan for FY ‘25? Or is that just more of a strengthening case for the outlook you’ve already given us?
Lawrie Conway: Short answer, Andrew, no. It was part of the plan. We know we have, as I said, work on building passes in the first half of the year and making sure we’ve got material on surface was a part of that. I think the difference is that we got slightly more tonnage on surface than we expected, notwithstanding the past issues that we did experience.
Andrew Bowler: No worries. And Glen, it is early at Bert. Just trying to understand the sort of quantum of the opportunity. Do you think there’s potential for Bert to completely fill the mill, so top up the mill in addition to the main sublevel cave? Or is it more of an incremental story in terms of mining rights? I mean, it doesn’t sound like it’s big enough to support a mini sublevel cave or anything like that.
Lawrie Conway: Yes. I’ll pass that to Glen. But the short answer is we’re running at about 6.8 and it can run up to 8.5, and I don’t actually see us getting at that rate.
Glen Masterman: Yes. I agree with Lawrie. Andrew, I think it’s a smaller footprint in terms of volume and hence tonnages, but the grade’s high. So that obviously gives us the improvement in metal production when eventually we do mine from Bert. I think, though that it really is just an incremental production opportunity that we’re looking at. And as Lawrie said, they have like and we’re looking at all options available to help us fill that.
Andrew Bowler: No worries. And last one for me. Obviously, some pretty big news out that Nickel West is pulling up stumps very shortly. Just a general labor market question in Western Australia. How is the absentee or should I say vacancy rates going over at Mungari? Are you noticing any pickup in numbers applying for vacant positions, etcetera?
Lawrie Conway: Yeah. Look, I mean, it’s, if we look at Mungari over the last six months, their turnover rate and ability to fill roles has reduced and improved in that order. And then, obviously, that announcement now and Fortescue’s announcement yesterday means there are more people becoming available in the workforce. So, from our perspective, we see that as a positive for Mungari, but that’s probably what we’re going to have to track over the next six months compared to what we saw in the last six months when these things haven’t started to take place.
Andrew Bowler: No worries. That’s all for me. Thanks, guys.
Operator: Thank you. Your next question comes from Alex Barclay from RBC. Please go ahead.
Alex Barclay: Thanks. Good morning, Lawrie and team. Question around that 26,000 ounce impact you flagged during the quarter. And I know you’ve already commented a bit across those three sites on this call already. Just trying to get an idea whether you think the impact ended up being around 26,000 ounces. Obviously, the guidance came mid-quarter. Just trying to get an idea of what you think the overall impact was and a bit across those three sites, to what was already a pretty good Q4 result.
Lawrie Conway: Yeah, Alex. I mean, you know, when we look at it, that was for the two months. We did see, further rain, less rain at Rawdon. We did have two or three more rain events at Cowal. So, they got impacted by about another 3,000 ounces. The pass in Red Lake probably took another 1,000 ounces in June, and then there was a couple of thousand ounces in sort of rounding’s across each of the sites in terms of where they finished at June versus where we would have liked to.
Alex Barclay: Perfect. So, it sounds like things could have been better still. Just one more question. Quick one Red Lake around that Campbell Young decline and timing there. Do you expect much more CapEx to continue into FY ‘25? And when do you think, we might see a steady state production level there?
Lawrie Conway: Well, in regard to the second part of the question, yeah, I do think the work that the site team’s done in the last four to six months is starting to get some benefit. So, we’d like to see that absent, say, those seismic events. We’re starting to see that stability in the production. And as I’ve mentioned in the call, we’ve seen the costs coming down there. I think, as we go into this year, we do see less in terms of mine development. But we do, as we have mentioned at the roundtable, because we’ve been operating both the Red Lake and the Campbell Mills nearly full time for the last few years and that wasn’t planned. We have to then convert the Red Lake tiles facility into a larger single tiles facility to service the site going forward. And that work will start in midway through FY ‘25. So, that will be some major capital there. But as I said earlier on the call, we now put a plan to the board that shows Red Lake as to being cash positive for this year at our planned process.
Alex Barclay: Okay. Sure. That’s very helpful. Thanks very much.
Operator: Thank you. Your next question comes from Jonathan Sharp from CLSA. Please go ahead.
Jonathan Sharp: Good morning, Lawrie and team. Thanks for taking my question. First question, given the recent performance and financial results, how you’re approaching capital management in for this year, FY ‘25, particularly in terms of dividend and share buybacks? Are there any changes or adjustments to the current policies or payout ratios?
Lawrie Conway: Thanks, Jon. No, look, I mean, in terms of our capital management, the dividend policy that we’ve got at the moment, which is a percentage of group cash flow targeting around 50% remains in place. We don’t see at the moment value in buybacks. So, that’s not something that we’re looking to move forward with. And as Barrie outlined, our focus is on discipline in terms of capital, we invest in the business, deleveraging and making sure we start to increase returns to shareholders. And as you’ll see, we generated $367 million of group cash flow for the year and that’s the thing that we’ll look at when we consider our dividend in August with the board for FY ‘24.
Jonathan Sharp: Thank you. And just another question on cost again for this financial year. So overall, cost was pretty good for FY ‘24, but still inflationary pressures. And we usually do see cost increase with high gold prices. So, how are you addressing the cost inflation in addition the scale? Or what particular strategies are you putting in place?
Lawrie Conway: Yes. Look, I mean, I think when we’re looking at it on the labor front, it’s making sure we’ve got the right amount of people we need across the business to deliver the plan that we’ve got. As I mentioned earlier, we’re expecting that to move around 5% this year versus last year, and that will increase our AISC by about $65 to $70 an ounce. I think in the other areas where we’ve said, and labor makes up around 50% of our cost base. The other areas, it’s really about efficiency of use of and consumption of the goods and services and then obviously testing the market. We have seen in the last sort of four to six weeks some really good prices come in for some of these items that we use. But, when you’re talking these items are less than 1% of our overall spend, they’re not having that material impact yet because, you’ve got power, diesel, and those that really make up, pardon me, most of our cost base. So, I think what we outlined in May remains in place that we see 60 to 70 on labor per ounce and 35 to 40 on other costs coming out of FY ‘24.
Jonathan Sharp: Okay. Great. That’s all for me. Thanks.
Operator: Thank you. Your next question comes from Anthony Barrett from S&P Global. Please go ahead.
Anthony Barrett: Yes. Hi. Just following on from that question on labor and cost and you mentioned the stubborn inflationary environment. How does that balance out against what’s happening with the record gold price at the moment? And how do you see producers like yourself, particularly in Australia being able to perhaps lower costs or lift production even?
Lawrie Conway: Yes, Anthony. Look, I think from our perspective and then as Barrie sort of mentioned, our cash flow increase was at a greater rate than what the metal prices moved. When we look at it, as I said, if you take the labor and the other costs that I’ve mentioned that you get up to about $110 an ounce could be impact. Through the course of the year, we’ve seen the benefit of about $400 an ounce, $500 an ounce on the gold price. So, it’s certainly outweighing it. And when we look at the spot price today, it’s about $460 an ounce higher than what we achieved last year. So, from our expectations, if we were to see spot price maintained through the year and we take the inflationary impact, you’re sort of picking up $350 an ounce better. So, the gold price is certainly beating off the inflationary impact on our cost base.
Anthony Barrett: So, just to clarify that, when you refer to those dollars an ounce, that’s Aussie dollars?
Lawrie Conway: Aussie dollars. Yeah. Everything’s Aussie dollars.
Anthony Barrett: Thank you.
Lawrie Conway: I wouldn’t mind if the gold price was up US$450. I’ll take that.
Operator: Thank you. Your next question comes from Jon Bishop from Jarden Group. Please go ahead.
Jon Bishop: Thanks for taking the follow-up. I was just wondering if you could give some more granularity around the allocation of sort of ore sources in the medium term for Northparkes? I mean, you’ve talked about E48 as an opportunity to fill an identified shortfall in production in the short to medium term. Do we sort of look at the tonnages there? I think it sort of implies 2 million tons per annum as breaching that gap between, I guess, the average throughput for the last five quarters you disclosed at site. Is that the way to think about it, taking it up to the 7.6 million tons per annum?
Lawrie Conway: Yeah. I mean, I think as we explained on-site, we sort of have around 6.5 million to 6.8 million tons capacity in the materials handling. We’ve got a E31, both E31 and E31 north that is supplementing the underground. So, those are what will allow us to keep the plant operating at the rate it currently has for the last couple of years. So, if you look at it, Jon, and I just don’t have it in front of me, but there was a slide on the site that showed the tonnage from E48. Yeah. We get up to 2 million tons for a period. E48 runs for about eight years over those four levels. You then got E26 operating, and then you’ve got the pits. And then we’re looking at those other ore sources in the short term, whether it’s E28 or E28 was the bit, to keep the plant operating at capacity.
Jon Bishop: Okay. That’s helpful. Thank you.
Operator: Thank you. Your next question comes from Matthew Frydman from MST Financial. Please go ahead.
Matthew Frydman: Sure. Thanks. Morning, Lawrie and team. Hopefully, a pretty quick one from me. Just wondering if there’s any reason why you’re waiting until the financial result to release FY ‘25 guidance. Obviously, you’ve already given the market some pretty helpful indicative commentary, but just wondering if that’s reflective of, maybe a change in the timing of finalizing your annual budget versus what you guys delivered in FY ‘24 or if there’s any other driver there behind that. Thanks.
Lawrie Conway: Yes. Look. I mean, what it is, Matt, is that we’re we actually normally like doing it with the full year financials. Last year, we had the Investor Day, first week of June. So, we didn’t see it appropriate to have an Investor Day do site visits and not actually talk about FY ‘24. So, that that’s sort of it. So, it has varied a bit, but our preference is there. I think, at the end of the day, if we look at the information through the March quarterly, the business updates, the analyst roundtable and two site visits. We believe there’s a good amount of information out there to enable us to have conversations with our shareholders. And unfortunately, the last one is to try and make sure that, the models that you and your colleagues are using are accurate and up to date because, unfortunately, when I look through, Visible Alpha and the like, having people saying that our costs are going to be sub $1100 an ounce next year or $1200 an ounce based on the information that’s in the market. I think it’s work for us to make sure that that’s right before we put the guidance out there because at $1477 and the inflation we’ve talked in a full year of copper, I’d love to know how we’re going get to $1100 an ounce.
Matthew Frydman: No. I’m sure that’s not helpful for anyone. No. Thanks for that, Lawrie. That’s helpful.
Operator: Thank you. There are no further questions at this time. I’ll now hand back to Mr. Conway for closing remarks.
Lawrie Conway: Thanks, Darcy. Thanks, everyone, for your time today. Really do appreciate it for you to take the effort to join the call. I do just want to finish and reiterate what I said at the start of the call. Yes, we generated record cash flow in the quarter, $230 million. We finished the year with over $400 million in the bank and we delivered as we said on the deleveraging to take our gearing down to 25%. Yes, that was delivered on improved operational performance in the second half of the year. The performance at the back end of the June quarter really lays that foundation going to FY ‘25, which has really put us in good shape. We’ve restructured the technical team and Matt and Nancy are on board now and that really helps us as we go forward as well. We do look forward to hosting, people at Mungari operation as part of the Diggers and Dealers next month, where we can show the 4.2 expansion project and look forward to then updating with the full year financials and FY ‘25 guidance on 14 August. Thank you.
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