Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by, and welcome to the Aurelia Metals Limited Quarterly Activities Report March 2023. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Mr. Andrew Graham, Interim Chief Executive Officer. Please go ahead.

[Andrew Graham, executive]

Thanks, Melanie, and thanks to everyone for joining us this morning to hear about our strong set of results for the March quarter. On the call with me today is Martin Cummings, our CFO; and Peter Trout, our COO. Certainly, you can follow along. We've released the presentation that we'll refer to during this call on the ASX website, and we'll refer to the slides as we go through those.

Just kind of to provide a bit of context before I turn to the slide pack. Overall, we see this as a very strong set of results for the quarter, and we're very pleased to be able to share those with you today.

Just touching on a few high points given the strong result extended across the board in the business. Firstly, as a real step change in operating performance, 26,000 ounces produced, all-in sustaining cost of $1,884. It's certainly a material improvement from where we were from the December quarter. And definitely, as we get to later on, gives us confidence in our guidance for the year.

With that, and obviously, it flows from that strong cash flow pleasingly across all of our assets. Operating cash flow from the assets in excess of $30 million and it has allowed us to extend our cash balance to over $39 million at the 31st of March. So it puts us in a much stronger position than where we were.

We obviously released the Federation update last week. We'll talk a bit about that today because we recognize we haven't given shareholders a chance to hear from us on that yet, other than through the announcement and then also a chance to ask questions on that.

And finally, despite the focus on cash and costs, we have been investing in exploration. We recognize the importance of that. And you will have seen through the quarter some strong results come out from our exploration programs, both in Hera mine and Peak, but also some regional IP work we were doing around Hera.

I will now turn to the slide pack and start on Slide 4. And I suppose the point is that those strong set of results isn't possible without the input of everyone in our business. And one of the things that's really been pleasing is the fact that every single person in our business is really pushing to a common goal, working to get to improve the business and deliver some strong results. And really, I'm pleased for the whole team that we're able to put out such a strong set of quarterly results today. It's a good reward for all of that effort.

One of the more telling items to report on is safety. And I'm extremely pleased to be able to say we had no recordable injury throughout our first quarter. People often say that the strong safety performance goes hand in hand with a strong operational performance, and this is probably further evidence of that. I think it's pretty clear that when people know what they're meant to be doing, are focused on what they're doing, have thought about their task, have planned ahead about their task, you get a good safety result. But similarly, you get a good production result, and we've certainly seen that.

And the other pleasing bit with that, it was not at the time of huge stability within the business. And if you think about what's occurred through the quarter, Hera did come to the end of its life. We took that plant to -- we started taking the plant to care and maintenance during the quarter. And similarly, Peak hasn't been without changes. And we have fully demobilized Pybar, for example, from Peak by the end of that quarter as well, moving very much to underoperated mining. So in a relatively unstable period for the business, to get no recordable injuries, a fantastic outcome. My hats off to everyone in the business for achieving that.

Just to touch on the right-hand graph on that slide, recordable environmental incidents. We did have one to talk through, minor, in that we had a minor fire at the batch plant at Peak. Storage area, came from a faulty light bulb, and smoke leaving the site, I think, classified as a recordable environmental incident, but certainly no lasting consequence on that one.

I'd like to turn to the next slide then, Slide 5, for those following along, on the outlook for the business. I summarized our results for the year-to-date, the half 1 plus the March quarter against our guidance. And I can say, as I've alluded earlier, that we are maintaining guidance based on the performance of the business to this point, 3 quarters the way through the financial year. Gold, we had a particularly strong quarter, and we're now tracking at 85% of our guidance for the year. So it puts us in a very strong position to bring home in that gold production. Similarly, with the other commodities, they're all sitting at 75%, 77% of our full year guidance, 3 quarters away through the year. It's a good place to find ourselves and gives us every confidence that we can achieve guidance across the board.

All-in sustaining, I know we had a number of questions from people in the past, with the half 1 sitting at 2,600 as to whether the 2,300 guidance was achievable. Certainly, below 1,900 for the March quarter, gives us again every confidence that, that guidance number is certainly achievable.

Going forward, just thinking about what's coming to us, I wouldn't want to take this quarter and just project it straight out into the last quarter of the year. There are a few things, as everyone knows. And as I mentioned earlier, Hera has moved to care and maintenance. So we do lose that production from Hera. And we'll talk about -- Peter will talk about that in a little bit more detail, in a moment just around the strong finish it did have. Just be assured that, that was factored into our guidance when we set that in December. So it's not to say there's anything new or surprising in that change.

This quarter also, 2 items which we're working through actually this month, just as a regular routine piece, relining of the mill at Peak will be done. And also, we will be installing man-riding cage in the shaft at Peak, which will result in mine downtime during that period. However, we will be relocating people into the nearest mine while that gets done. And the real big win for us on that is the speed at which we can then get people to and from the job at Peak, which will give us some real benefits.

Anyway, I think I'll pause at that point in this sort of overarching elements, and you're probably very interested in the details of how things played out through each of the sites. So on that note, I might hand across to Peter who can then take us through these slides from that deck.

[Peter Trout, executive]

Thanks, Andrew. And just to pick up on Andrew's comments here, it's really pleasing to report a good set of results for the March quarter, particularly given the changes happening at our Peak and Hera sites and delivering those changes and these good metal production results without a serious injury across our operations.

I'll pick up on the site discussions starting with Slide 6, the Peak mine. And I guess the highlight for the quarter for Peak was the higher grades that we were mining from the underground operations there, which clearly flowed through into the better metal production. Always mined from 5 different areas across the North and the South mine. And we saw stoping fronts in a couple of those areas moving to higher-grade zones as we progress through the stoping sequence. And probably the more pronounced grades we saw were in the Chronos deposit, particularly for lead-zinc and Perseverance Deeps for gold. And in fact, the gold grade benefited from a positive reconciliation against the geological model over the campaigns we ran in the quarter.

In terms of mine ore production, we were looking to get higher output for the quarter, but we were held back by some poor drill and blast results in 2 of our stopes early in the quarter and also from labor availability in some of our contracted services. We've addressed most of those issues now and looking forward with our owner-mining crews, which are now fully resourced, to put that behind us.

As Andrew mentioned, during the quarter, the underground mining services contract with Pybar was finished up by mutual agreement at the end of March. And as part of that change, Redpath came in to take over the long-haul drilling and cable bolting services from the start of April. What this allowed us to do is effectively bring forward at low cost the final stage of the owner-mining transition. So we now have ownership of the core mining fleet at Peak, and we are using that to start to drive some productivity improvements across the site.

In the process plant, volumes were restricted at times by lower mined ore tonnages, which is particularly early in the quarter, and some periods of very high lead-zinc grades that reduced the throughput rates and impacted also the zinc recovery to concentrate. At periods we were mining combined zinc grades above 30%, and the only other source we had available for blending is running at 12% combined, which did cause us to struggle back the plant performance there.

Now where possible, we do blend the lead-zinc ores to maintain a consistent fee grade through the float circuit, and when we're able to do that, we do see better recovery in concentrate grades. In fact, in March, we ran a trial to mimic the grind size and the floatation reagent conditions for Federation ore, and we achieved good results there over a weeklong period where we could provide steady state feed to the float circuit.

I think another positive trend from Peak is the sustained reduction in mining costs, which we reported on in the December quarter. We've also identified some further cost and productivity improvements. And we're pursuing those through the remainder of this calendar year, seeking to maintain and improve our cash margin.

If we move now to Slide 7, I would really like to commend our Hera team for what was outstanding quarterly results. And in fact, they outperformed the modified production plan that we announced in December. The chart on Slide 7 of the presentation deck shows the 43% improvement in gold production and also the reduction in all-in sustaining costs to about $1,700 per ounce. And what a change that was from the December quarter.

Our management payment side, our employees across the business and also our site contractors really did a great job dealing with some difficult conditions. Our plan was to run hard right through to the end and come to a short, sharp stop, and that's exactly what the site team delivered.

We did have the benefit of lateral development that we finished in the earlier part of this financial year to stope from 3 different mining areas. And what that meant is we could sustain good ore delivery to the surface and the process plant could run unconstrained at full capacity, and that was the key driver to the higher precious and base metal production.

Perhaps a bit of a sad note, processing operations finished on the 27th of March, and the site has quickly transitioned into care and maintenance preparations. We've recovered all the valuable assets from the underground mine and actually turned off the primary fan and sealed the portal. Our mining contractor Redpath has demobilized from site and have left those key pieces of mining equipment that were required to restart the Federation decline development. And our surface contractors are currently demobilizing and we're tracking very well to place the process plant into hibernation by the end of April.

I think given the transition to care and maintenance at Hera, and what that means, it's worth looking back on the contribution that Hera has made to our company and the local community. The project was commissioned in 2014 as Aurelia's first operating asset and was expected to extract about 1.9 million tonnes over a 5.5-year operating loss. Since commissioning, however, the mine has produced 3.2 million tonnes of ore over 9 years. It supported 180 full-time jobs and contributed about $216 million to the local economy, which is an outstanding outcome. We're now looking forward to the next chapter of mining in the district with the development of the Federation project. And it's prudent to point out that the Federation project already has a 4 million tonne production target in front of it.

Moving now to Slide 8, just to talk to the performance at our Dargues mine. You'll see that quarterly production increased there to about 9,600 ounces, and that flowed through to the healthy contribution in terms of group cash flow. The operation reached a couple of milestones during the quarter. It processed its millionth tonne of ore and also moved past 100,000 tonnes of gold production since commencing operations in 2019. We were able to process at higher rates during the quarter, thanks to the development consent modification received in December. And mill feed tonnage lifted by 9%, and that was the driver of the higher gold production.

Our mine ore production did drop back a bit, and that was partly due to a very strong December quarter result. And the site team had to work through several stope production and backfill disruptions over the quarter and have got us now back on track. We had accumulated high opening ROM stocks, and that meant that the mill processing volumes weren't impacted, although we did have some downtime events caused by some unplanned power outages.

In the underground mine, development advance again outperformed our expectations and the decline has reached the lowest mining level. What this good progress allows us to do is to reduce development in the coming months, and we've already transferred 1 of the 2 development jumbos from Dargues to Peak, to assist at Peak.

And then the final one on Dargues, we completed the underground infill and extensional diamond drilling program early in the quarter. And the results from that work are currently being incorporated into the site's life-of-mine plan update. And at this early stage, it indicates that we will have a marginal mine life extension beyond that, that was indicated in the production target released last October.

And on that note, I'd like to hand over to Martin to talk about our financial outcomes.

[Martin Cummings, executive]

Thanks, Peter. So turning to Slide 9 of the presentation. And as Andrew and Peter have outlined, the improved operating performance this quarter resulted in a significantly stronger financial position at the end of March.

We finished with $39.3 million in unrestricted cash, up from $23.7 million at the end of December. This is an increase of over $15 million. Pleasingly, this is actually a genuine increase in cash with our metal sales and supplier payments made, all in line with our standard processes.

All of our assets were cash positive and generated a combined $30.2 million of cash flow from the operations, around $10 million higher than the prior quarter. As Peter outlined, at Peak, we benefited from both strong production and metal sales and lower costs resulting in a cash flow of $14.4 million. I'll note that this is lower than the December quarter, but that prior period included concentrate sales relating to September. The team were able to finalize the mining contract with Pybar during March, which now supports our ongoing cost reduction activities as an owner-miner, and it did result in a favorable year-to-date true-up in mining costs of around $2 million.

Dargues cash flow of $9.2 million was very strong this quarter compared to the $1.6 million it generated in the prior quarter. We did sell around 1,700 more ounces this quarter from the sale of concentrate in December, but it was still a very consistent quarter. Dargues is now clearly benefiting from the recent strength in gold price, and it is something we will factor into our thinking about the strategy for the asset during its remaining life.

And as Peter mentioned, Hera had a very strong finish to operations, with the transition to care and maintenance executed extremely well, and it did result in metal production and cash flow that exceeded our plans. There is some remaining concentrate and dore we saw this quarter, which will help offset costs associated with the move to care and maintenance and the payment of remaining supply invoices in April. Our growth in capital exploration spend has been maintained at minimal levels as we complete the refinance, with development spend on Federation to ramp up post that announcement.

As I've updated on recent calls, in January, we received a tax refund of $9.8 million relating to our FY '22 tax return. Given it's likely that we will incur another tax loss in the FY '23 tax year, there is an opportunity under the loss carryback provisions for another tax refund once we submit the FY '23 tax return later this calendar year. It is possible that, that tax refund could be higher than what we received for FY '22.

And now moving to our debt facilities. We made our regular quarterly repayment of $4.05 million on the term loan and cash-backed another $5.1 million in performance bonds in March. Our term loan balance has now reduced to just $8.6 million, and our restricted cash backing of the performance bonds has grown to $46 million. The drawn balance of the performance bond facility is unchanged at $56.8 million.

As we will close these facilities down shortly when we establish the new facilities, we've made some changes in March that were possible due to our strong liquidity position. We chose not to extend the undrawn $10 million working capital facility, which matured in March, given it was unlikely to be required in the near term. We also canceled the remaining headroom of $8.2 million on the performance bond facility as we have no requirement in the near term for further performance bonds to be lodged. Both adjustments mean we avoid paying unnecessary commitment fees to maintain those facilities.

The final movement in the cash waterfall on this slide relates to working capital, which was an unfavorable movement of $8.7 million. The primary driver of this is due to our lower trade creditors' balance. Our operations spent approximately $17 million less this quarter relative to the prior quarter, which resulted in $8.5 million less trade creditors at the end of March. We do expect this to come down further in April as we finalize supplier payments in relation to Hera. But as I mentioned earlier, we also have some sales to finalize, which will help offset some of that from a cash perspective.

I talked about the higher gold price earlier with Dargues. But just to reiterate, Aurelia is benefiting from these higher gold prices right now with only a modest hedge book of just over 4,000 ounces hedged, with deliveries out to September 2023. The average price of those contracts is $2,640 an ounce, which is not materially lower than the current spot price. We do have some quotation period hedges for recent concentrate shipments, but these are all very short-dated, with contracts out to June. As we move into a capital-intensive phase with development of Federation, hedging is a tool that we will use to manage the balance sheet, but it will be done in a measured way that considers all of our metal exposures.

And finally, in relation to the refinance, I can assure you it continues to be our top priority. The release of the Federation feasibility study update this month was an important input into finance due diligence. So we did need to sequence that release ahead of them finalizing our facility. We are in the midst of documenting terms at the moment. And once an announcement is made, we will commence remobilization of Redpath to Federation to restart development activities. I do look forward to updating you on the new financing arrangements in due course.

Thanks for your time this morning. I'll now hand the call back to Andrew.

[Andrew Graham, executive]

Thanks, Martin, and thanks also, Peter, for those very detailed and clear explanations. I'm going to pause briefly though, on Slide 10, and those following along will see a beautiful photograph at one of our sites in the early morning.

And just as an example of some of the things we're doing around cost improvement, the fact that it's embedded in everything we're doing, we did recognize we needed some updated photographs of our sites. We could have got an expensive professional photographer to go and do that. Given that they'd only be there for a short period, they probably wouldn't have captured the essence of our sites. So instead, a bright spark in the organization decided we'd run a competition where employees were able to take photographs and submit them. And in time, there will be a winner, and it will be a calendar that comes out with those photographs. And that's one of the photos displayed there on Slide 10. It's all part of our Working Smarter Program.

Which is a good segue into Slide 11 where we just touched a little bit on what we're doing around organizational renewal. I've talked about this quite a bit in the past. And I think there are 9 ticks on this page. It's a small subset of a very large number of things that we are doing across the business. And then I've chosen to highlight a few of those this morning.

Working through site-by-site, Hera and Federation, has been mentioned a few times, that strong finish to the Hera operation in its life. Credit to Rob and Nick in there on site for really driving that outcome, and the entire team. The conditions to the end required management, and the team there certainly manage them extremely well. So everything we had hoped to do in December when we talked about the new mine plan, we have been able to do. And as mentioned earlier, care and maintenance is expected to wrap up tomorrow.

The other elements in there, obviously, Federation Development Consent we've talked about in the past. It's a very important step for us and really unlocked the ability to bring forward tonnes at Federation into production, and therefore, bring forward revenue. And Peter will talk a little bit about that in a moment when we talk about the Federation optimization. That's the third tick I've got there against Hera-Fed. We obviously put out the Federation update last week and included a very large number of initiatives to really bring down costs and more than offset the inflationary impacts we're seeing. We'll talk a little bit about that as well, a very important step for us.

Going forward for Hera and Federation, finalizing that care and maintenance at Hera, and as I mentioned, it's going well. So it will be done as expected fairly swiftly. And then as Martin has mentioned, once funding is secured, we will then begin the remobilization to the Federation side and still expecting that in this current quarter.

At Peak, a lot of work going on. Peter mentioned the transition to owner-mining. We'd like to thank Pybar for their contribution there at Peak. But I take the view that if you've chosen to be an owner-miner, you should be an owner-miner. And this transition needed to end, and it's good we're able to do that in a sort of agreeable way and allow us now to really focus on making the most of Peak with our own people operating our own equipment. So it's nice to see that transition now in place, and it gives our new general manager there the tools and the ability to get on and take Peak to where we know it can go.

One of the strengths of Peak is it's been a very strong contributor to our Working Smarter Program. And even yesterday, we just -- we have a winner each month on idea generation and the quality of those. And I think the last 2 winners came from Peak. So it's really great to see ideas still flowing to improve our assets across the board and our company across the board. We had been fantastic traction through our Working Smarter program.

Peak, though, we do recognize can do better. And a real focus for us starting through this quarter is an ongoing improvement program, but more of a step, and what can we do differently at Peak to make its overall unit cost lower, to improve its productivities? And we see -- and the team, they have already identified a number of things that we can be doing. That will flow into a broader piece I've talked about in the past around the optimization of Cobar to us as opposed to thinking about the Cobar assets as a series of discrete operations and what can we do is optimize the overall value we can get from our Cobar business.

Touching on Dargues, it was mentioned the processing limit increase we got through December has certainly paid dividends for us and continues to -- with higher throughput than we otherwise would have been able to do. In itself, has been a strong contributor in Working Smarter, which is excellent. And it's already run well, Dargues, and it's cost-competitive. There's always ways to work better, and it's really great to see that team embrace that.

The other one that was mentioned by Peter, that additional extension on new field drilling, is finalized. Actually, it's coming back, and we're now thinking about how that flows through to life of mine plan, which is well and truly in progress at the moment.

Now I mentioned that we wanted to talk a little bit about the Federation update. I recognize we put that out last week. We didn't have a call around that knowing this quarterly call wasn't too far off. Just at a very high level before I pass over to Peter, I had flagged, if you go all the way back to the AGM, the feasibility study in my mind is never a finished piece of work that you don't ever reopen. And we always recognize there's things that we could do to further improve that study and further improve the project. And the goal through this piece of work was to try to capture some of that.

Obviously, we'll see every day the inflationary environment we're in. And we've certainly seen other projects in the industry see their capital costs run away from them on the back of that higher inflationary environment. And we're not immune from that. We're insulated somewhat in building a new plant, and we're just building a mine. So we've got lower capital spend and less exposure to like equipment and those sorts of things.

But we're not immune from it. So one of the hopes through this update was that we're able to combat that inflation. And you'll see, as you can on Slide 12, at the table on the bottom, certainly, capital to first stope ore. We've certainly combated that inflation in that space through a whole bunch of means. And that was for me, we kind of can look at the release and look at the total capital, $143 million versus $145 million. I think not much has changed. But the reality is there's a lot of things we've done within the overall project to really fight that inflation come in at a competitive cost and also improve the operability in the timing of cash flow from that asset. So very, very pleased with the outcome of the update.

One of the benefits we had was Hera moving to care and maintenance when it did. We had already assumed some benefit from Federation being 10 kilometers away from the operational Hera line. However, now that it's moved to care and maintenance, we've been able to really take advantage of what Hera had, particularly from the underground equipment.

But I'll let Peter talk a bit more about all of that. So passing over to you, Peter.

[Peter Trout, executive]

Okay, Andrew. Thank you. I guess in terms of what we've done at Federation, we really looked at 3 main areas. The first is the mine design and the mine plan. The second one is looking at scope refinements. As Andrew says, with some of the changes happening in the business and just some time and perspective on things, we'll be able to make some positive impacts there. And lastly, and combined with that is a revised cost estimate. And the good thing about that is we've maintained some pretty compelling project economics at Federation. And that's despite a reduction in the zinc price. If we look at the like-for-like spot price NPVs compared to the October feasibility study announcements. .

Going on to Slide 12, I thought it would be helpful to expand on some of those points. Firstly, with the mine design, we've gone through and looked at that and just made some changes to the layout. And principally, there is a reduction in the gradient of the access decline, taking that to slightly shallower gradient. It does 2 things for us. The first one is that we can move to a figure 8 layout in plan view rather than the spiral we had in the feasibility study. That layout actually extends the access of the decline and gives us a better platform to conduct infill drilling along with strike length of the deposit. And of course, the lower gradient, whilst it might add some meters into the initial development requirements, it does support higher truck productivities.

Also given the change to the timing exploration decline and the recent receipt of the project's development consent, it has allowed us to bring forward stope ore production compared to what we allowed for in the feasibility study. And the feasibility study had assumed that the exploration license would still be valid and the mining lease and associated development consent would not have been granted at the time we'd accessed ore. We see that circumstances changing now, and that has allowed us to bring forward some stope ore. And that will be prioritized to feed to our Peak process plant, with the aim of fully utilizing that capacity before we restart the Hera process plant. So apart from the unit cost benefits that we'll derive at Peak, it also allows us to have higher payabilities for the metal that goes out and the lead and the zinc concentrates, and that compares to a combined lead and zinc concentrate that could be produced from Hera. And that's a departure from the feasibility study, which was based on operations at Hera continuing until 2024.

We've also had time to refine the scope elements and the site layout, and they've provided us with some more confidence around the capital cost estimate and also allowed some of the CapEx to be reduced or deferred. So an example here is the regrind mill plans for Peak where we had carried forward a high-level estimate. We've now done some more detailed engineering, and that gives us more confidence in the pricing that sits behind that installation. We're also looking to move the tailings filter and storage shed from the Hera site to Peak. That gives us a lower risk pathway to delivering the volume of tailings we need to paste fill at Federation.

In other areas, we've actually compressed the site footprint, just some of the experience we gained during the initial development of the site and a fresh set of eyes to it. For example, the services corridor between the 2 sites, we're able to trim back the amount of vegetation disturbance there. So reduction in land clearing costs. It's also allowed us to remove some of the biodiversity payments we have to make for the disturbance of that vegetation.

And lastly, as Andrew has mentioned, the transition to care and maintenance at Hera has allowed some of our existing assets and infrastructure to be used. Instead of purchasing new items, which is what the feasibility study assumed, given the assumed concurrent production from both sites, things like refuge chambers, pump stations, secondary fans, jumbo boxes, those sort of things do not have to be purchased new, and we've actually allowed to refurbish those items from Hera. We've also allowed for a temporary construction camp to accommodate the additional personnel. That's no longer required, and that's a direct benefit of about $2.7 million to the CapEx.

So all in all, we're really, really pleased with the outcome of the feasibility study update, and we're now preparing ourselves for project execution activities and looking to resume site activities towards the end of the June quarter.

Andrew, I might hand back over to you.

[Andrew Graham, executive]

Great. And thanks for that extra detail, Peter. Just to wrap up the last slide, the end of the one we covered today, Slide 13, just on exploration, you will recall when we were thinking about where we're up to as a business and looking at what we needed to do around cash management, we did pull back quite heavily on some particularly surface exploration holes. We did, however, continue to retain in our plans and now execute and we're going to continue to execute underground drilling at Peak. Part of that, particularly, is we know the value of what we find at Peak near mine. And it's close to development, and it's a step out extension. Those tonnes can very quickly turn up in a mine plan and turn up in a mill and turn up as revenue. So it is an important piece for us as a business to continue to do. And we have had some great success this year as we put out in our release towards the end of March.

Some 3 items just to touch on then, stepping away from working, I suppose. And certainly with gold mines, you can't get much closer to working 10 meters from existing underground development. I'll just put an example in here, 9 meters at 21 grams gold. And there's plenty of other good drilling in the release that were not in March from that. Obviously, given its proximity to existing workings and our ability to turn that into something our mine plan quite readily is there, and the team on site at Peak are thinking about that at the moment as to how and when that may come into the plan. So really great. And I'm sure as we continue to drill, we'll find more of these types of things at Peak.

Stepping a little further out, we're not talking far, 100 meters from existing underground workings at Burrabungie, 16 meters and almost 2% copper. It's just an example there from the drilling. Definitely an interesting piece. It's not that far from surface. And there's a bit of a gap between Chesney and Burrabungie. It's a plan now for us to drill from underground out of Chesney even back end of this financial year, early in the next, to see whether the continuity of mineralization between Chesney and Burrabungie. It's very exciting, good to secret copper grades in there and something we'll continue to follow up.

Just to touch on, as we did in the March release, was Queen Bee, our 10-Ks can peak. So still absolutely within a very, very easy tracking distance. Some exceptional copper, at 4.2% copper in the section highlighted in the pack. It's good grades, certainly economic grades. How that then comes together, it will need more work. But it's one of many, many exciting targets in the slide that shows some of those, and we've got well over 100 targets that we want to chase. And it's just probably worth talking about that. So that is an annual process we do to prioritize our activity in exploration. It's an active piece we're working on effectively as we speak. And one of the issues we have is we have so many opportunities, and priority targets is what order do you do and how much to spend on them. So it's a good challenge and a good problem to have. It's something we're working through at the moment.

Just to round out. Early in the quarter, we did put out IP results. This time, we're down closer to Hera and Federation. Interestingly, we did 4 IPs. So like all of them came back with lots of [ downtime ] from the follow-up. So again, it's more of these opportunities, priority opportunities in the mix that we need to think about scheduling and budgeting.

Anyway, look, I recognize we covered a lot today, and that's probably because there's been a lot going on. We will, however, now poll for questions to see if anything needs further clarification.

[Operator]

[Operator Instructions] Your first question comes from Adam Baker with Macquarie.

[Adam Baker, analyst]

Andrew and team, good quarter. Just wondering the South mine shaft refurb, how long is this roughly expected to take? And just wondering if you can counteract the loss in ore tonnes from that mine and extractable from the North mine during that period? In addition to this, the sag mill reline, just wondering how long that is expected to take.

[Peter Trout, executive]

Adam, it's Peter here. I'll answer both your questions. You've cracked our strategy on how we're going to deal with shaft outage at the South mine. It's about a 5- to 6-day changeover period. We're actually replacing the man-riding cage for the first time in the history of that shaft. There's some corrosion there. Whilst we're doing that, we will redeploy our workforce in the South mine to the North mine and focus on copper ore from the North mine. We currently have some good stocks ahead of the mill, lead-zinc ore, and we'll finish over the next week or so. More lead-zinc will come to surface to feed the mill. So the mill shouldn't be impacted materially by that particular outage.

We also mentioned the sag mill reline. We had to defer that from March into April, and that was largely around labor availability. That has been completed. But instead of our normal 3-day reline program, we can only work on day shift due to the available labor. So it actually took us closer to 6 days, and the mill came up late last week and has operated through to today when it goes on to a pause for the operator change. So they're separate events, and we have plan for those to minimize the disruption in mill feed over the course of the quarter.

[Adam Baker, analyst]

Yes, pretty short outages there really, nothing too material for the guidance. And you've stuck with guidance for FY '23, so that's clearly baked in there. And maybe just switching to Dargues, now that the decline is finished, how many ore tonnes have you got lot to extract in the mine plan there?

[Peter Trout, executive]

I think the best guidance I can give you at this point of time, Adam, is look at the production target that we released last year, where we stand at the moment. And as we flagged in the announcement, we do expect a little bit of upside there coming through from the latest program. But we'll have some more to say about that when we release the updated mineral resource statement or reserve statement and production target early in the September quarter.

[Operator]

[Operator Instructions] Your next question comes from Michael Evans with Acova Capital.

[Michael Evans, analyst]

Good morning, Andrew, Peter and Martin. Thanks very much for the update today. I just want to ask about the grades at Peak, obviously, versus the mine sequencing. Certainly we're not privy to sort of when modeling our work on the reserve grade. And the grade was a big driver of production at Peak in both the copper gold and the lead-zinc, it looks like.

And you mentioned also Perseverance is getting some good growth with some positive reconciliation. Just wondering if you can give us some guidance on what you expect to see in the short term on those grades and whether that -- how big is that positive reconciliation at Perseverance. Is it, I don't know, 5%, 20%? Will that affect the June quarter, September quarter going into FY '24? And should we -- going forward for the next few years, should we still be using the reserve grades for modeling purposes? I suppose. If not, why not? Just some more detailed color around that would be great.

[Peter Trout, executive]

Certainly, Michael. I think addressing what should be used for modeling, what we use is our resource model reserve grade for our planning, and we update that with grade control information as that comes through. So for our longer-term planning, we're using resource and reserve essentially, and that's a logical approach to use as well. As you're probably aware, there is a high degree of variability in the grades at Peak in terms of gold, at least. It's quite patchy [indiscernible], and that does make the estimation difficult. And while we did see reconciliation up to 40% above the grade control model, I would caution that, that's not an ongoing event. We've also suffered negative movements or reconciliations against the grade control model. So I would not be factoring that in as an ongoing positive uplift on the resource and reserve models.

Perseverance did outperform on gold, but it's also, along with Chronos, the more difficult one to estimate. We've also some good uplift in gold grades out of Jubilee, which is a bit unexpected, particularly based on historical performance. I'll sound like a bit of a winter, but the Chronos areas we're mining at the moment, some at Chronos, we are mining exceptionally high grades. And as much as we try and sequence those things to try and get high and light grade come together, there are times where we simply can't do that. And those grades have reconciled pretty well, blends on the money [indiscernible]. And I think on that basis, using the reserve and resource grades going forward is appropriate.

[Michael Evans, analyst]

Okay. And can you just remind me, the Perseverance Deeps, how long do you expect to be mining that? How much is that in the mine plan?

[Peter Trout, executive]

We've taken most of the Perseverance Deep ore there at the moment. We are going back and having a relook at random areas on the basis of the higher gold price we're seeing at the moment. And we do have plans to do some extensional drilling beneath that. But in terms of substantial stope tonnage from Perseverance Deeps, that's going to fall away.

[Michael Evans, analyst]

Okay. Great. And just a final one. I've got -- actually, I've got your -- the quarterly in front of you. If I just go to the peak data towards the back, the Appendix 1 on detailed quarterly physicals. The Peak copper, the mine grade for the gold on Page 13, you've got that there. It's the processed gold grade, 3.75. Is that right? What's driving that? Does that mean next quarter to be much lower?

[Peter Trout, executive]

Yes. No, I should step back and say that we reconcile not on a monthly or period basis, we reconcile on campaigns. So at the end of each campaign, we reconcile back. So what you're seeing there in the mine grades is a combination of reconciled grades and model grades for the period, which is why they're different to the mill feed grades, which are the source of the reconciled numbers.

[Michael Evans, analyst]

Isn't that gold grade starkly different on what's mined and what's processed or at least with the other grades?

[Peter Trout, executive]

So there's the factors I've described and also depends where they come from. As I said, we treat the Perseverance Deeps ore as copper, and it has significantly outperformed the grade control model.

[Michael Evans, analyst]

Yes. Okay. That's great. I'm just some more thinking of that, Peter, and I'll get back to you off-line for any more questions.

[Operator]

Next question comes from William Thurlow with Ord Minnett.

[William Thurlow, analyst]

Hey, Andrew, Martin and Peter, thanks for taking the call, and good job with the results. I appreciate the conversation on the grade profile. That was certainly one that I wanted to dig into as well. So just a basic one then, just wanted to understand if there's a quantum for the costs associated with the Hera care and maintenance that would be incurred into the fourth quarter? And then separately, whether there's any other notable sustaining and growth CapEx items on the horizon aside from those associated with Federation?

[Martin Cummings, executive]

Okay, Will, Martin here. What we're going to see in April, we've got around $7 million of costs left to come out from Hera in terms of trade payables and other working capital unwind. Offsetting that, we do have revenue and some contract revenue and some dore that would be in the order of $2 million to $3 million. So there will be another bit of unwind in that last quarter, which we've factored into our plans.

In terms of ongoing costs, there is a monthly charge of a couple of hundred thousand dollars to actually maintain the operation, to maintain the inspection routine and to keep the operation really ready in a state that when we come back to mill there, that the site has been looked after.

I might just hand to Peter in terms of the sustaining capital coming through this quarter.

[Peter Trout, executive]

There's not a lot of other sustaining capital coming through. Dargues, as I mentioned, the decline had reached the lowest level. That's been the main source of sustaining capital at Dargues. So that will fall away this quarter. There are some routine maintenance-related tasks at Peak that we're undertaking, but nothing major compared to what we've seen in some of the prior quarters.

[Operator]

We are showing no further questions at this time. I'll now hand back to Mr. Graham for closing remarks.

[Andrew Graham, executive]

Thanks, Melanie. Look, I'll just touch on the high points again just to leave them with you. Firstly, as a management team, but also as a total business with employees, we're definitely super pleased to have gone through the quarter with no recordable injuries. So a very strong outcome for the business, and we're hoping to obviously keep that going through the next quarter and the ones thereafter.

Obviously, as I touched on it at the start, step change in operating performance, 26,000 ounces, all-in sustaining of $1,884, vastly better than where we had been on the half year to date and certainly brought us definitely in line with of our guidance target. Strong cash flow, Martin talked about, pleasingly across all 3 of our assets, allowing us to grow that cash balance to in excess of $39 million at the end of March, putting us in a strong position as we look to finalize funding and move to development of Federation.

The Federation update, Peter took us through in good detail. We are very pleased with the outcome there, particularly the fact that capital came down rather than going up despite the inflationary environment. And more pleasingly, from my point of view, I think we've got a much more robust plan to develop better operability decline gradients. And the layout configuration, and those sorts of things, will allow us to really deliver that mine with confidence.

And finally, as I mentioned on the last slide, exploration despite our real focus on cash, still investing in exploration and still getting excellent success, which, again, just highlights the value of our tenement package there in Cobar.

So just to wrap up, certainly very proud of the entire Aurelia team. It's an excellent set of results, and hoping that the entire team is proud of their achievement. So thank you for your time today.

[Operator]

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