Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2025-Q1

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Limited September 2024 Quarterly Conference Call. [Operator Instructions]

I would now like to hand the conference over to Mr. Bryan Quinn, Managing Director and CEO. Please go ahead.

[Bryan Quinn, executive]

Thanks for joining the September quarterly update today. I'm with Martin Cummings, Chief Financial Officer; Andrew Graham, the Chief Technical and Business Development Officer; and Angus Wyllie, the Cobar Regional General Manager.

Through the meeting, we're going to run through the slides, so you can follow the slides that have been put out as part of the release, and we would appreciate questions at the back end of our presentation, which we'll hand over to the adjudicator to set up for us.

Just to start with on Slide 3. I just want to call out, effectively, we had a strong cash balance that's been maintained, with our operations again funding our growth. And to sort of highlight some of the key points for the quarter, it's important that -- obviously, Peak has been continuing to deliver in line with our guidance. I'll talk through some slides soon on that. But effectively, the operation has set up with a bit of a softer quarter as part of our targets, very much in line with our full year guidance, and we're still getting some very good operational performance coming out of Peak and this obviously generating the cash that is actually supporting our growth aspirations.

In terms of Federation, really exciting quarter for us. We had our first stope ore fired and taken to the surface. We also had our official opening, supported very well by the Minister's office for the Honorable Courtney Houssos. And we had council members from the region. We had community members from the consultative committees. We also had landowners and some other general managers from the region attend the session for our Federation grand opening. A really fantastic day and it really supports our focus that we have a Tier 1 jurisdiction with good support from the region to really see us forward with our growth aspirations.

We also had Dargues come to a conclusion in this last quarter. Obviously, we set out some aspirations to safely maximize cash for Dargues. As you see from some of the results today, we've delivered against that. We've obviously ensured that we've done the right thing with our people, and we've maximized cash as a real highlight for this quarter.

And lastly, the Cobar optimization scoping study has been finalized. We've been discussing that at previous quarters, giving some sort of concepts of where we're going with that. And today, we'll discuss it in a bit more detail as per the release that came out today also.

All of these sort of current activities in terms of operations, projects, studies and even closing down Dargues has been a credit to the management team; lots of activity going on in a small organization, but really showing that we have sort of got some stability and we're really taking the organization forward.

I move on to Slide 4 just to talk about sort of the group production and costs. As you can sort of see, some lower costs in the first quarter relative to the previous quarter. Some of these costs include Dargues costs for the last quarter. Those costs are obviously reducing and they will drop off going forward or be far less. And the all-in sustaining costs at $2,321, very much in line with our expectations for quarter 1. And obviously, we are guiding against it this year. But effectively, our focus right now is to transition our business to a base metals producer in FY '25. And so we'll obviously keep reporting metrics we've got on the table and we set up the guidance above.

In terms of what we produced, very much all those metrics there for quarter 1 FY '25 are pretty much in line with our expectations. And just to do with the configuration and sequencing for the rest of the year, that's very much on target for us.

In terms of Slide 5, in terms of the sustainability, our focus is obviously preventing injuries and protecting the environment. And it definitely remains a priority for us as does working with the community and being a good neighbor, as does making sure the health of our people every day is to the highest standard. We've actually had some improvement in our safety performance. We're still having slips, trips and hand injuries. And obviously, there's a big focus at management right now to really be out in the field, leading our people, really looking at controls and hazards and sort of helping our people, coach our people to be ahead of the game and ensuring that we can prevent these from occurring.

As you can sort of see from the environmental graph, we had a couple of environmental incidents that we reported under our recordable environmental incident frequency rate. One was to do with some substance at Dargues, to do with some old workings in the top of the mine that we've actually rectified. And the second one was to do with a water leak at Federation, which was rectified, and stayed on the roadway actually inside the lease. But once again, we did report it. So nothing serious, but still, obviously, we are very focused on ensuring we can get both of these metrics in control and improve our results accordingly.

On the positive side, we're definitely seeing improved reporting quarter-on-quarter as we want people to raise their awareness and report incidents, both safety, health and environmental and community-related incidents, so we can actually obviously put controls in place to prevent them from reoccurring. We had a recent survey completed by our employees, and we're really seeing also a step-up in people calling out or speaking up about things in the organization, which is excellent, and where we want to see the organization go as well. So our teams are engaged in a sustainable way and really sort of being part of and owning our organization going forward on these various metrics and also performance.

So if I move on to Slide 6 for Peak. Look, in terms of where we are at the first quarter, we're definitely still delivering in line with our guidance. It's been a very consecutive quarter-on-quarter on development performance. Looking forward, we do see that ramping up with additional equipment and setup we've put in place, especially with some of the equipment coming from Dargues, a production drilling jumbo had been taken to Peak mine and setting up for additional operational areas. So really, you sort of see that we've been consistent, which is what we want to be. And now going forward, we'll have some increased targets, and we'll be also going after that consistency at the higher number as well.

Ore mined, like I said, a little bit softer than previous quarter. But effectively, that was part of our sequence in our mine plan, and it will definitely be moving in the right direction in line with our guidance for the remaining quarters.

The costs, obviously, the cost per tonne has an impact, obviously, on the number of tonnes we mine. But obviously, we're okay with that based on our full year numbers as well.

What I've actually put in the graph for this quarter is some more information on our recoveries. I guess it's really worth highlighting that we've really been maximizing plant recoveries quarter-on-quarter. That's really a big focus for our operational team at the moment. Effectively, as we bring on Federation ore this quarter into the Peak processing facility, we obviously want to have our recoveries working and performing at a very high level. And so the focus has been to keep pushing all of those various commodities.

And these two graphs are just on lead and zinc, which are very fundamental to the ore coming from Federation. So that one little blip that you can see that we've put a box around was the quarter where we had the online analyzer go down for more than half the month. And obviously, that actually impacted the recoveries for that quarter. But as you can sort of see, definitely some continuous improvement coming in quarter-on-quarter on those recoveries. We still got definitely a big focus on our development to get ahead of our stoping and, like I said, definitely on target for the full year guidance for our ore mining to feed our processing facility as well.

I'll just move on to the next slide on Federation. Obviously, progress is continuing quite nicely in line with derisking our future for Federation and derisking our volumes coming into the Peak processing facility. The first stope ore has actually been fired and very successful. And the mine was open, as I said, initially. What's important about that in terms of having really the right support from the government, both at the local state level and even local community members involved, it really sort of supports our organization that we're going to grow in this region, and we've got the right support behind us. And it's fundamental to any organization to have that license to operate. So both of those two things were a big celebration for us in this last quarter.

In terms of development, obviously, that's a core value driver for us right now. Our development actually is ahead of our budget leading into the end of this quarter and continues to be moving very, very well as is infill drilling. Infill drilling, obviously, is important for us to set up platforms, get down, drill out to design our future stopes and sort of prepare ourselves for the future design as we progress down into the mine being a new mine. So those two things are going well, especially after the period where we came out where we had rain affected in the last quarter of FY '24.

Another exciting bit of news was we actually signed up a new 3-year mining contract with Redpath. That's been an excellent result for us. We've had a really good partnership with them. They've basically been by our side dealing with some of these water issues and being very proactive around helping us set up for success. That new term and agreement is very much in line with the economics from our feasibility study. So we're very pleased that we've got a good deal and a good relationship and contract with Redpath going forward.

Most of the surface works have now been completed for the ROM stockpile. Preparation for the paste plant, the haulage road, the various dams located around the surface of Federation have been completed and demobilization has pretty much been completed also, the Stage 2 surface works. And the water management infrastructure has been operational that we put in place to really deal with the heavy rainfalls. There's a couple of small activities still to be done around mining of some of the dam areas. But ultimately, I have to say we've really derisked the surface works now, and the focus is on really underground development and infill drilling to set the mine up for the future as we continue to sort of get ourselves set up for ramping up our operation for the rest of FY '25.

In terms of Dargues, like I mentioned earlier, it's a massive milestone to really have operations completed and really maximize the cash and do it safely, coming to the end of Dargues. It's a real sort of attribute that I think the team has done in a very positive way to look after the people, make sure that we've sort of either redeployed them out to the Cobar region, kept some people on care and maintenance/closure. And then obviously, we've let go of the remaining people, both the contracting partners and employees, in a very positive way. And I said I was lucky enough to attend their farewell. It was very positive and very emotional by the people. But effectively, I think we've done the right thing shutting the operation down at this point and come home very strong in cash as we committed.

We're ongoing with the sale of the plant and equipment. We've had an auction recently that we'll report obviously next quarter, at the end of this quarter, on the results of that, and we're in the final throes of setting up contracts with some of the other larger bits of equipment as well. We'll report that at the end of this quarter on the results of those things and how those sales revenues will go towards paying the future bills.

And obviously, the focus right now is on mine closure. So with a small care and maintenance team and a group of consultants working through the closure activities, really looking at how we plan that ahead and make sure that's set up for success, so we can do that over the coming years and then ramp down that process as we come to conclusion in the next several years.

Look, before I hand over to Andrew to talk through the optimization study, I just want to sort of reinforce one quick point. Like I said, it's exciting news that we talk about this Cobar Basin optimization study, the conclusions of the study. But it's also the right timing for us.

It's important to reflect that we've sort of delivered the last 18 months of results in a consistent way in terms of the performance of operations, generating cash, preserving cash and having a strong balance sheet. We've definitely sort of focused heavily on getting our development and our operations at Peak in control, ramping down Dargues in a controlled way, maximizing cash while also building Federation in a controlled way, irrespective of some of the headwinds with rainfall that were unexpected. So this sort of delivery of this project is good timing for us. We believe the organization is in the right state of mind and the right sort of control to be able to go forward with this. So we have the infrastructure to be able to leverage off this, we have the geological prospectivity in front of us, and we've now got some great talent that we're bringing to our teams to really set us up for success in the Cobar region.

So I'll hand over to Andrew, and he'll maybe just touch on a bit of exploration and also talk about the study before handing over to Martin. Thanks. Andrew?

[Andrew Graham, executive]

Thanks, Bryan. As Bryan talked about, I normally provide an exploration slide at this time. I didn't today because I want to really focus on that Cobar optimization study, which I'm sure you all do as well.

But look, before we get to that, just to touch on exploration. It's been a busy quarter, some drilling on the surface, albeit we did retender our surface drilling contract, which had us not drilling in the early part of the quarter. Deepcore was awarded that contract for the rest of this year and have mobilized at the back end of the quarter. Importantly, they mobilized a rig to Nymagee, which we're drilling at the moment, I'll get to that in a little while as well; and also a rig to Chesney to focus on infill, the Chesney East Gold Lens. We have kept underground drilling working throughout at Peak, targeting Hercules, Kairos Deeps, Jubilee North and New Cobar Deeps. There is information on that in the quarterly release, and we will provide results, obviously, once we have them together. We've also done a bunch of soil work, soils at Nymagee region. And it's all part of the development of the program that we've talked about previously, stepping through those stages of exploration.

Moving, though, to the Cobar optimization study, which is on Slide 9 of the pack for those following along. Through the study, we have identified a pathway that really delivers significant additional value for shareholders, and it does so while derisking our business and creating a real option for step change in production.

So let's step through that. You'll recall that we previously outlined a plan where we preferentially fed Federation Mine ore to the Peak processing plant. And once the Peak processing plant was full, we restarted Hera and put the rest of the lower-grade ore from Federation through Hera. At the time when we released that, it's quite a change from building a new plant. It's also important to have a base plant that we could finance, which we're doing at that stage. It was achievable. It was permitted. It was using plants that already existed. But as you also know, we always felt we could do better than that. And that's why we embarked on this Cobar Basin optimization study. And the plan for the study was to determine what the optimum configuration was for mines and plants within that Cobar Basin. And the study identified and, a key piece, quantified significant latent capacity within the Peak processing plant.

And you got to recall, we batch feed Peak lead zinc ore or copper ore and the latent capacity and the constraint changes, depending on what we're feeding. So when we're feeding lead zinc ore, we're constrained at the back end, so particularly in flotation. When we're feeding copper ore, we're constrained at the front end in grinding. And when we delved into that, it was a much cheaper exercise to relieve that constraint on grinding, so on copper ore. So we very quickly, through the study, moved towards how do we get more copper ore through the plant, use that latent capacity within the plant to process at a higher rate and, in doing so, allow us to process all of the Federation ore through that Peak plant as well.

So the study determined that the key plant upgrades required were quite minimal, so in effect, crushing and bit of materials handling ahead of the existing feeders and the existing SAG mill as well as a ball mill to give us additional grinding capacity. And when we delved into it, the lowest capital and most efficient way to do that, and also very fit for purpose, was relocating the Dargues ball mill to Peak and installing that in a kind of a tertiary grinding capacity after the existing ball mill that we have at Peak. So with that, really a capital-efficient opportunity to expand throughput because we're using that latent capacity that already exists within the plant. And at around $20 million, it's about the same capital that would be required to restart and reconfigure Hera and get the tailings dam lift done, all those sorts of things.

I mentioned it created a fair bit of value, we're saying in the range of $40 million to $60 million of additional value. So you can see from that a very capital-efficient project, which really comes from using that latent capacity that already exists. The value really comes from a few things, certainly a higher net revenue that we get from making a lead product and a separate zinc product from the Federation ores in the Peak processing plant rather than a bulk con that we would have made out of Hera. Importantly, we also get paid for gold and silver, which we wouldn't do in a bulk con out of Hera. And you'll recall that the Peak plant is quite unique and has a whole CIL plant on the back end. So we do get excellent recoveries on precious metals. The other thing is we'd be paid for copper at Peak, and particularly copper from the Federation ores that we'd report to the lead concentrate. We wouldn't get paid for that copper in a bulk con out of Hera.

Operating costs substantially lower. It's quite simply we're running 1 plant instead of 2, so we remove all those fixed costs associated with running Hera. And Peak is also on grid, so the power cost is substantially less than off-grid at Hera.

Let's not forget Hera. If we expand Peak, what it does for us is create a very valuable option in the Hera processing infrastructure. And the challenge for me and for the team is to think about, well, how do we restart Hera and feed that plant with what ores? And there's a range of alternatives. One option is backhauling Peak ore, and that relies on us being able to bring on things like Great Cobar and expanding that output.

And Nymagee, I mentioned that earlier in exploration. It's very near to the Hera processing plant, and certainly having that presenting infrastructure gives us a much better chance as we're able to prove up resource at Nymagee to bring that through a processing plant. We got a very prospective region of package, which we talked about a lot in the past. And certainly, any discovery was made much more valuable having processing infrastructure. And we'd also consider third-party feeds.

One thing which is in the release is the study also identified a compelling opportunity to improve slope performance through process water management changes, and we're looking to move ahead with that very quickly.

So our next steps is certainly be assured that work is up and going. We haven't waited for this release to progress those things. There's a tender process, which is nearing its finish on getting engineering support to take us to that next stage study. And the critical path to expanding throughput at Peak is around permitting, and the study work required to support any permit changes is certainly very active at the moment. We'll keep you abreast as things progress on that over the quarters to come.

Overall, the study is the real credit to the technical team that's thought about the business differently, challenged the status quo and really delivered a path to enhancing value to shareholders. So we're certainly pleased with where we've landed.

Passing now over to Martin with the other strength, I suppose, our balance sheet. Over to you, Martin.

[Martin Cummings, executive]

Thanks, Andrew. So turning to Slide 10. And as we've already said, it's really pleasing that our operations have again maintained our strong balance sheet position.

Our total cash on hand remains above 100%, as you can see, $103.2 million. And Peak and Dargues together generated $24 million, which more than funded our investments in Federation and exploration.

Peak continues to be a reliable cash generator with $16.7 million achieved this quarter. And our focus does continue on lowering unit costs. But that said, the lower ore tonnes mined this quarter resulted in a higher unit rate. I will point out, though, that actual dollar spend was around $2.6 million lower this quarter.

Part of our journey in getting those costs down is increasing our productivities in the mine. And those that follow our LinkedIn page, you may have seen earlier this month that we are investing in 2 new trucks, which will take out 2 old haul trucks at Peak and contribute to higher availability and lower operating costs. The first of those trucks is now working at Peak and the second one is on its way. And that's an investment of around $4 million, which we include in our FY '25 sustaining capital guidance, and they will be funded by our equipment leases.

Dargues contributed $7.3 million in cash flow with only 2 months of operation. And as mentioned, all concentrate is now being shipped and we'll look to finalize all of those shipments in the December quarter. It was a very pleasing finish to Dargues as the site team transitioned from operating to closure activities in a very controlled manner. Included in this cash result is around $3 million in payments relating to redundancies and the retention programs that we implemented earlier in the year. We are well placed now with a small team to manage the work at Dargues. And we did guide $3 million to $5 million this year with around $300,000 spent this quarter. And just to remind you, that closure activities will continue at Dargues into FY '26.

As Bryan mentioned, it was a very busy quarter at Federation with the recommencement of the development after the water delays, the official opening, firing our first stope and finalizing the contract with Redpath. And our total spend of $17.9 million is on track and in line with our guidance of $70 million to $80 million for the year. As Andrew mentioned, a bit of a quieter, spend-wise, quarter for exploration as the team finalized the new drilling contracts and their plans for the remainder of the year.

In the corporate tax and other movement, we did receive a $3.8 million tax refund relating to our FY '23 tax return that we amended. So that was well received. And the other item I'll just talk to is in the financing cash flows. So we have fully utilized our performance bond facility with Trafigura. That was a AUD 65 million facility. And during the quarter, we were required to lodge an increase of $10.4 million in our performance bonding related to Peak. So we have lodged that performance bond and we have backed it fully with cash. So that cash is sitting in a term deposit, earning interest. And I'm currently working through options through a larger performance bond facility so that we can get that cash returned to us. So just adjusting for that, we would have finished the quarter at around $114 million of cash before the lodgment of that restricted cash.

Just finally, you will have noted we did add some hedging to our book, and this was for FY '26, and the prices that we've locked in are over a modest proportion of our revenue but do provide further strength to our balance sheet as we transition Federation to commercial production and we work through organic growth options with the Peak expansion and Great Cobar. If you want more detail on the split by year, it's in the accompanying release in terms of the volumes and price per year.

So thanks for your time today. I'll hand the call back to Bryan.

[Bryan Quinn, executive]

Thanks, Martin. Just to wrap up in terms of the focus areas for Aurelia going forward.

So obviously, we are very focused on safely delivering our operating performance, our projects, our operations, to really strive to filling our mills with quality ore. That's still very much on track and a focus of the team. With the current operations, with the ramp at Peak, both South and North mine, really focusing on how to make sure we maximize the volume and reduce our unit costs. And with Federation ramp-up to commercial production, very much a key focus these 12 months, we're on budget, we're on schedule still for the end of this financial year to deliver this ramp-up to commercial production. So it's really about doing that well, and I have all the confidence that the team has all the right people and processes in place to make that happen.

In terms of maximizing cash generation for the rest of this financial year and beyond, really, it's about delivering our volumes consistently, reliably in line with our guidance and also our costs. There's a lot of work going on the cost base, as Martin mentioned, around new equipment coming in to replace some higher cost equipment. There's also a focus on using some of the Dargues equipment to basically prop up some of the equipment, which need some maintenance. And we're still very much on track to targeting towards $100 a tonne for mining and less than $50 a tonne for processing with all the initiatives and sort of improvements we're working on.

We do have a BOA process in place at Peak mine and at Federation project mine. And effectively, that's going to generate significant cash to actually help us deliver against our cost targets both across processing and the mine operations.

As Andrew highlighted, there's a lot of work going on in terms of progressing our studies. As you've heard today, for the Peak expansion, there's very much a large focus on how do we get that set up, get the project finalized and get it to FID this financial year, and also how do we get the Great Cobar study finalized to FID this financial year. Both of those projects and studies will really be the next chapter for Aurelia to work on filling our mills with quality ore at low cost and good cash flow benefits to the shareholders and stakeholders.

Supporting the growth is obviously fundamental. We know we have the infrastructure. We know we can expand it. And we know we have the geology and we know we can find it with the right amount of drilling. Obviously, supporting that is actually having the right talent in the Cobar region supporting us. And that's obviously something we're working very actively on right now, revising our people strategies, looking at how we can bring and attract these really capable and talented people from the industry to come and work with us. So far, I have to say, in the last 12 months, we had some really good success bringing in the right people, and I can only see upside from here on in with people coming to work with us as we continue to be successful in growing.

And last, but not least, our exploration is super important, as Andrew touched on, it's sort of the feed for us to look at our organic growth options. And really, if you think about now that we have -- if this study moves in the right direction and the expansion happens with Peak, we basically created an opportunity for over 1.5 million tonnes capacity in the Cobar region for Aurelia, and that's going to be fundamental to us to then look at how do we make sure we fill that capacity with our geology or with other third-party options or operational improvements.

So really, we've got our focus areas in the right order, and we believe it's going to generate significant value for our shareholders going forward. And so I guess we believe that the current plan is working and moving in the right direction.

So I might hand it back to the adjudicator to take some questions for us, and then I'll conclude after that. Thanks very much.

[Operator]

[Operator Instructions] Your first question comes from Daniel Roden from Jefferies.

[Daniel Roden, analyst]

I just wanted to, first off, just clarify with the Cobar optimization study. Just the timing of, I guess, the plant upgrade inside of that NPV, is that an FY '26/'27 kind of upgrade?

[Bryan Quinn, executive]

Andrew, would you like to answer that one?

[Andrew Graham, executive]

Yes. The intent is we'll be working on that through the back end of FY '25 and implementing in FY '26 on all our schedules. As Federation ramps up, obviously, we've got a bit of capacity in Peak at the moment, we'll use that for Federation ore. But as it ramps up, we will be able to keep pace with the ramp-up of Federation. We obviously got the ability to restart Hera as an option if we really needed to, so for example, if there was an unexpected delay in permitting or some issue in permitting, for example. But at this stage, the plan is to achieve that in parallel and be able to move to the expansion to fit with the ramp-up of Federation.

[Daniel Roden, analyst]

Yes. Perfect. And those permits that are currently restricted to 200,000 tonne per annum, like, I think your conversations last quarter and before that were taking that up to the 600,000 tonne per annum. Is there any scope to increase that beyond? And are those conversations part of the existing application to change that permitting?

[Andrew Graham, executive]

Yes. So there's two elements permitting that we need to work through. So the first one that you quite rightly mentioned is making that 200,000 tonnes per year of trucking to 600,000 or whatever Federation can do. That's well advanced and is in with the government at this stage. We expect to get that early next calendar year. At this stage, we've limited our request to that 600,000. There's always scope to change that in the future if we saw the ability to do that. But at some point, you've got to say, "Well, what am I trying to permit," and just get it permitted.

The other piece that we talked about on permitting is throughput at Peak. So we are limited currently in what we can put through there. And we would then seek to extend that to that kind of 1.1 million tonne, 1.2 million tonne per annum. We don't see that as being an issue. We're not having any impact environmentally. Obviously, a slightly higher intensity that we'd be putting more through, but it fits within the permitted tailings dam use of the water that we're already permitted to use. So we don't see any real issue on that front.

[Daniel Roden, analyst]

Okay. And maybe just one last one on the study. But the study kind of loosely touches on Nymagee and Great Cobar as part of that. I just wanted to clarify, if there was an increase in mill throughput, that would obviously bring forward the needs for Great Cobar and potentially in Nymagee to be part of that kind of blended feed profile. This study, in its current form, does that include Nymagee and Great Cobar? Or are those kind of additional upsides to the, I guess, the NPV and the valuation of that project?

[Andrew Graham, executive]

Yes. So there's already previously been a study on Great Cobar. We're very active at the moment in the process of refreshing that study to be able to then go to a proper final investment decision early next calendar year to then commence development towards Great Cobar. At the moment, that timing fits well with our ability to feed additional Peak material first and then move to Great Cobar material, which would then be fed through that expanded Peak processing plant.

Nymagee is different. So we haven't factored that into our plans, and we've talked about previously the need to prove up an additional resource at Nymagee, which is why we're very active at the moment drilling. And the thought or the hope would be that it's only a couple of Ks from the Hera plant. If you had that Hera plant available, it would make infinite sense to be able to put that through the Hera processing plant. But that's upside to the kind of the numbers we talked about today.

[Operator]

[Operator Instructions] Next question comes from Adam Baker from Macquarie.

[Adam Baker, analyst]

Thanks for the update on the Cobar Basin. Just wondering how you're thinking about the Hera project now given that it's the least preferred option to restart it. How are you thinking in the context of realizing value for that asset, whether it's a sale or you mentioned switching it back on if need be? Just wondering through your thinking there.

[Bryan Quinn, executive]

Yes. Thanks, Adam, for the question. At this stage, we'll continue to keep it on care and maintenance, obviously, at a minimal cost. We've had it down since basically April last year. So it's not like it's been down for too long and in care and maintenance. And like I said, we'll get more results in FY '25 from our drilling campaigns to understand what that option looks like. But at the moment, we'll retain that part of our portfolio and look at how we can utilize that capacity going forward, whether it's with our ore that we establish and find and can make viable from our portfolio of growth options or we'll talk to third-parties about some sort of [ tolling ] option in the future as well if it makes sense. So definitely, we'll retain that option for ourselves. It gives us growth beyond Peak, obviously, beyond Peak processing facility, and it gives us an opportunity to really go after the next phase of growth beyond what's on the table now.

[Adam Baker, analyst]

And the right sort of offer came along for it, would that be something you'd consider?

[Bryan Quinn, executive]

I guess that would be a commercial decision at the time. I couldn't answer that question right now. But like I said, at the moment, we are factoring in how do we fill our mills and grow beyond the current Peak expansion and look at 1.5 million tonnes of capacity. And as you would be aware, we're spending a lot of time and a lot of money on drilling in that region, especially down the Federation, Nymagee region. And the results, we've sort of seen some increases in our resource base, and we're going actively after that resource this year with our aggressive drilling program. So I think we would always want to see what we have first before we get any commercial outcome. But like I said, I will wait to see what that commercial option was first before making that decision.

[Adam Baker, analyst]

Okay. Great. And on Peak and the increasing capacity from 800,000 to 1.1 million to 1.2 million tonnes per annum, could you just remind me, the water license that you currently got, what can that support capacity up to?

[Andrew Graham, executive]

I might grab that one, Adam. So at the moment, there are 2 sources of water for Peak particularly. One is water that comes from the pipeline, which goes from Nyngan across to Cobar. And we've got an allowance of about 1.2 gigaliters from that pipe, of which we see about half of that with losses and all the other things that go on. That, though, coupled with about 200 megaliters from underground dewatering, is sufficient for what we have today going through the plant and would support that kind of 800,000 level. We do have water access license to groundwater up to 800 megaliters per annum. And we do have an intention to dewater Great Cobar particularly as part of getting across the mine, but also it's a really good source of water on the lease. So from a water point of view, we've got more than enough for the expansion under our existing water access licenses.

[Adam Baker, analyst]

Okay. So you wouldn't be increasing capacity coming in from the pipe, it's just drawing down additional capacity from your underground water sources that you've got in place. Is that right?

[Andrew Graham, executive]

Yes, that's certainly our intention. And beyond Great Cobar, there's plenty of water underground in New Occidental as well and the old workings there. So there's substantial in-ground water within mine working as opposed to bores and [ aqua ] and those sorts of things. I mean our intent will be to tap those, which is why I say there's really no environmental impact beyond the footprint that we've already created there.

[Adam Baker, analyst]

Got it. And one last quick one for me. Just the timing on the Great Cobar study, please?

[Bryan Quinn, executive]

Currently, those plans, we've taken that to the Board this financial year. Hopefully, the last quarter of this year, we'll have some outcomes to share with the market on that FID outcomes.

[Operator]

[Operator Instructions] Your next question comes from [ Ashley Chan ], private investor.

[Unknown Shareholder]

Guys, can you hear me?

[Bryan Quinn, executive]

Yes, we can.

[Unknown Shareholder]

I'm just a small retail shareholder with about 400,000 shares. Thanks very much for your presentation on the operational and geological and optimization study. That was really appreciated, got no qualms with that. Just I've got a question in regards to hedging gold sales. Firstly, why? And secondly, what has been the cost of hedging compared between the hedge price and the spot price for full year '24 and first quarter '25?

[Martin Cummings, executive]

Ashley, Martin here. The why is really about managing our business. So we're certainly enjoying the higher prices right now, but we don't want our future to be beholden to needing this price environment to continue. So I treat this hedging as buying a bit of revenue insurance, and I'm maintaining modest levels of that insurance to protect the balance sheet and to lock in some of that benefit right now. As you can see, our all-in sustaining cost is well below current gold price, and therefore, I'm locking in that margin on those ounces. So that is the why because it's, to be honest, a bigger prize here in terms of the organic options that we can unlock with a robust balance sheet.

In terms of cost, you can see, I guess, the cost of -- I haven't got that specific number on me, but the realized prices that we are reporting through our quarterly reports is net of those hedge settlements that, as you've pointed out, are negative at the moment. But as I say, they are prudent hedging and part of our overall capital management plan.

[Unknown Shareholder]

So if I look at the first quarter, September quarter's hedging based on what's in the March quarterly report, you sort of had a hedge price of say, $3,080, and the average gold price for the quarter is $3,730, so a differential of $650. So the amount hedged on 7,000 ounces or so, just under would be about $4.5 million. And then looking forward, you have hedging on 14,000 ounces with a differential of $550, so that's about $7.5 million, so talking about $12 million per year. So the revenue foregone or the cost of hedging is $12 million a year. If you look over 10 years, that will be $120 million or 1/3 of market cap. Would out-of-the-money put options be cheaper? What's the Board policy? And is that sort of cost of hedging in alignment with Board policy?

[Martin Cummings, executive]

I'd like to not refer to this as the cost of hedging because when we hedge, we don't have the benefit of hindsight that we do now. And of course, you've sort of quoted a 10-year period. We have a hedge book that was originally over 12 months, and we've now extended out to 21 months. So back when we hedged those, they were at very attractive prices and lock in our margins. So we do it over a modest portion of our production. So our policy, we wouldn't hedge above 50% in a 12-month period. So I do want to maintain exposure to those gold prices over the longer term. But obviously, we have capital intensity in the near term, and we want to protect from that.

So I won't do the extrapolations that you've done. Yes, those adjustments that you talked about in terms of hedge realizations of the $7 million and the $4 million are about right for those periods. But I'd also like to bring in the benefit that we've got on the unhedged ounces over that period, too, which is well above those amounts.

[Unknown Shareholder]

Okay. So going back to the second part of the question, is this a management policy? Or is it a Board policy? If it's a Board policy, what is the actual Board policy on hedging? And would out-of-the-money put options have been considered or have been rejected?

[Martin Cummings, executive]

Out-of-the-money put options are considered as our collars. And I assume you're familiar with the concept of the zero cost collar. Yes, they have been, at times, favorable in terms of the upside opportunity versus the downside protection. But the way the forward price has been in contango at the moment, I prefer to use forwards over a smaller proportion of production to lock in that certainty versus going into other derivative-style products.

In terms of policy, we have a policy that allows us to hedge. Each time we hedge, it's an individual specific decision of the Board. So it's not a mandate that we'll always hedge. As a management, we will make a decision on what levels of protection we want to put in terms of balance sheet protection. We'll put a recommendation to the Board. The Board will consider that and approve or reject. And that is our process at the moment. So it's not a mandated program where we have to do it.

[Unknown Shareholder]

Okay. Just the last question on that, sorry for emphasizing that point. So are you wishing to signal to the market then that you're partially hedging your gold production, not fully leveraged through the rising gold price as your strategy? Or is it just something that's an interim measure to cover the ramp-up of Federation?

[Martin Cummings, executive]

It's definitely the latter. So we are able to lock in a fantastic price at the moment to deliver on our growth projects and the upside that you see. So the Peak throughput expansion, Great Cobar and bringing Federation online are significant value contributors to that. We don't want the balance sheet dictating that strategy through that period. We have a strong balance sheet. We want to maintain it. We think our balance sheet is as strong or stronger than most of our peers, and we want to protect that. Buying a little bit of revenue insurance is a prudent approach in that context.

[Operator]

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

[Bryan Quinn, executive]

Thanks, Darcy, and thanks for the questions online today.

But just to close out, as I reiterated before, the focus this year is really to ensure we safely can work along the lines of our strategy, which is really to work on filling our mills with the right quality ore. To do that, obviously, the Federation ramp-up is fundamental and well and truly on track to get to commercial production by end of this year. We're going to continue maximizing cash flow. You've seen us do that through Dargues, in the quality of Dargues, and obviously now we're very much focused, with the assistance of Angus and the team in the region, to do that through volumes and at the right lower cost.

You've heard today around our focus on our projects and studies progress that Andrew talked about. And there's a bunch of work on this year really to get to that sort of FID stage for both the expansion of Peak and also the Great Cobar FID later in this year.

You've also heard that, obviously, people are our sort of pillar of success for us here, and we're working very much to attract and retain people to our growing business, and that's ongoing. And we've got a lot of work underway planning and to get our exploration basically as it was, running 4 to 5 rigs, to really unlock our growth options.

As I said earlier, this is the sort of fifth or sixth quarterly update where we've been able to show consistent results. And we're going to have obviously ups and downs along the journey, but the team we have in place really believes that we're on the right path to set us up for success. And hence, all these various activities we talked about today really sort of put us in the right direction to get there where we can sort of grow our business organically with what we have before we look over the fence.

So I want to thank everyone for dialing in today, and thanks for the questions, and we look forward to presenting next quarter. Thanks, Darcy.

[Operator]

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