Aurelia Metals Ltd

ASX:AMI

Earnings Call Transcript 2022-Q4

[Daniel Clifford, executive]

Good morning, and thank you, everyone, for making the time this morning. I have Peter and Ian with me as well online. Through the talk this morning, we'll refer to the June '22 quarterly update and outlook that was posted on the platform this morning with the quarterly report. Before we dive into that, I think considering the time of the year and the volume of results and calls that you have no doubt all listen to. And whilst there is impacts and it's well understood, I'm pretty sure people really don't want to be hearing about COVID-related issues and labor risk shortages. So to us, it's going to be all about the performance on what we can control and we have controlled and what our response would be or will be for the uncontrollables.

So today, if we just move on to Slide 4 of the presentation deck, we'll focus on operational performance, being the quarterly and year across production, AISC and capital. Major project advancements across Cobar, Great Cobar and the Federation operation and then the adapting of the business to the headwinds that we -- I think we can all see with the economy and particularly project development risk.

First get going on the operational performance. If we move on to Slide 6. After 2 really good years of solid improvement across -- particularly across health and safety and environment, we actually had a quarter of deterioration in this quarter. It's not that uncommon to see when a business is doing it hard, where we do see injury rates start to go and do climb in particular cases, what we've seen here. These injury rates, where we did see the uptick during the quarter, one thing for us is that instead of them being spread all over -- ranging spread of injury types and bodily types, very much confined to hands and in particular, with our contracting partners. So that makes it a lot easier for us to focus where our improvement requirements must go and very clear on where we intervene to correct the issues.

Environmental performance also ticked up during the quarter. During, particularly the second half of the year, with our governance and oversight over the operations, we initiated a number of internal compliance audits on our development consent across all 3 operations and tenements. And during that, we uncovered some minor nonconformances against those consents. And in fact, a handful of those, actually really do needed to be self-reported. And that was the uptick, particularly in the last quarter through May and June.

If I move over to Slide 7. Our performance, I think, particularly in the last quarter has absolutely not met the standard we or I think the shareholders expect from us. It was definitely a tough quarter, gold down 5% on the full year guidance, although I must say, against the expectations for the quarter, was materially higher than 5%. Lead down 1% and zinc down 8%. Although Copper over by 12%, and I'll come to that in a minute. I think disappointingly for us, there was a number of own goals on the controllables that really did contribute to the outcome. And we'll cover those in a little bit more detail shortly, and Peter will run through the individual operations.

Primarily, where -- or primarily, what contributed to the gap was at peak where higher-grade lead, zinc and gold ore campaign was actually delayed due to the operational interruptions. And instead we ran a copper campaign. And that's the main cause of the miss on lead, zinc and gold at the end of the year but the contributor to the beat on copper. All-in sustaining cost, as we updated the market last week, was over by 10% on the range to just north of $1,700 an ounce. That variance is, again, as we've described, was primarily driven by the equipment deliveries for the peak owner-operator transition and the late June TC settlement for Hera, which contributed approximately $110 an ounce in the $150 an ounce exceeding over the guidance.

What was though really good to see was the capital investment, particularly in growth, which was mainly Federation and consenting and exploration. And combine those 2 together with the equipment, we did manage successfully to invest about a $20 million in the quarter, investing into the future for the business. And also against the backdrop of what's happening with inflation, the scopes that were achieved, they were actually either achieved or exceeded instead of being reduced to contain the spend with that inflationary pressure, and that resulted in us being in or below the ranges we committed at the start of the year across sustaining growth and exploration and evaluation.

Well, while we did see growth in the gold equivalent, which you can see over the page, it was achieved but the operating performance was, as I mentioned earlier, was not there. Myself, in particular, and the management team, we own that result, and we can, we'll correct it over the coming quarters, and as the growth is good but it could have been stronger, had we delivered a stronger quarter.

With that, I'll hand over to you, Ian.

[Ian Poole, executive]

Thanks, Dan. Aurelia finished the June quarter with $76 million of cash on hand. During June, sales revenue has largely remained unchanged compared to the prior quarter at $101 million with higher volumes offset by lower prices. Dargues operating cash flow of $4.3 million was positively impacted by higher quarter-on-quarter gold sales, with higher sustaining capital due to the Stage 3 tailings lift, which was brought forward from FY '23 to reduce the future risk of the tailings facility reaching operational capacity during periods of intense rainfall.

Hera's operating cash flow for the period of $3.9 million reflects the higher volume of sales offset by lower prices. The settlement of the 2022 zinc benchmark treatment charges at a higher rate than provision treatment charges, which resulted in the overall higher expense in the quarter of $4.5 million.

Peak's operating cash flow for the quarter was impacted by higher operating costs, lower gold volumes and weaker base metal prices. During the quarter, Peak took delivery of mobile equipment to support its transition to owner mining. The equipment was financed by $6 million of operating loans -- of equipment loans, sorry.

Aurelia spent $4.8 million on enabling work for the Federation project, including the box cut, $1.3 million on studies and environmental approvals. Exploration spend was $3.7 million on infill drilling and exploration at Federation, $1.4 million on near-mine exploration at Peak and $2.1 million on exploration at Dargues. There was also a release of $14.4 million of working capital from prior quarter -- from the prior quarter, which is primarily related to a reduction of debtors.

Aurelia continues to maintain its balance sheet strength with $76 million of cash on hand, low gearing -- with low gearing. During the quarter, it made debt repayments of $4.3 million. The remaining balance of the term loan is now $19.3 million. Aurelia also cashed back $5.1 million of its bank guarantees used for environmental bonding. The restricted cash balance is now $30.7 million.

I'll now hand over to Peter for detail on the operations.

[Peter Trout, executive]

Thanks, Ian, and welcome to everyone on the call this morning. I'd like to open by reiterating Dan's comments that the June quarter's performance was well below our expectations, especially for the Cobar district operations. And our management team is committed to delivering a better result through the coming financial year.

Moving to Slide 10 of the presentation, I'll talk about our recent operation performance, starting with the Peak Mine. Standing back at a high level, the metal production at Peak over the June quarter was a function of the lower processed ore tonnage and running 1 lead zinc and 2 copper ore processing campaigns. We're unable to conduct the second lead zinc processing campaign because of unplanned interruptions to the mining operations that delayed the delivery and processing of the ore into the September quarter.

Mining performance was tracking to plan until mid-May when we experienced 2 abnormal production interruptions in the mine. The first event arose from damage to a conveyance tailrope in the shaft hoisting system. And that was soon after the existing tailropes have been replaced under a condition-based maintenance regime. We moved to a less productive and more costly ore haulage or trucking to the surface whilst the replacement tailropes are manufactured and installed. And I'm pleased to advise that all hoisting resumed yesterday after those new tailropes were installed.

Our second unplanned event came about from a stope blast misfire that led to a suspension of all blasting activities across the site while the circumstances relating to the incident were investigated. We subsequently simplified our blast initiation system to remove potential for human error and a repeat event. In the process plant, we were -- took a major planned outage during the June month and also a number of refurbishment activities to the plant. And these relied on specialist external labor. And unfortunately the timing was fixed around the availability of that labor, and we're unable to process the ore that came out of the mine post those 2 incidents in May, and that led to an accumulation of ore stocks at the quarter end.

Our team at Peak are implementing a number of initiatives to lift our operational performance with emphasis on our asset management plans and recruitment of professional staff to support this work. We also have several cost containment initiatives underway with benefits already being realized, for example, from the electricity supply agreement that commenced in January of this year and locked-in prices at a substantially lower than current market tariffs.

Another positive development is the progress being made on the South Mine owner mining transition. The first units of the new mobile mining fleet are being commissioned now, and we'll go to work with the higher trucks. We've already delivered a noticeable productivity improvement at the mine. We're also in the process of recruiting operating and maintainer roles and sourcing consumables to support the owner mining transition.

If we go now to Slide 11, which talks to the performance of the Hera operation which, in simple terms, reflected the shortfall in ore processed and feed grades that were slightly above our plan but lower on a quarter-to-quarter basis. The ore processing performance was constrained by mine production, which led to a drawdown of surface stocks over the quarter. In the mine, a combination of factors contributed to stoping delays and hence the lower ore production. We experienced extensive ground support rehabilitation requirements in older mining areas, and this was in excess of what we'd anticipated. We had significant damage to an underground loader when it was buried in a stope during remote logging operations, and that required significant component change-outs to bring it back into service. And we're also seeing longer delivery times from part suppliers and that has also exacerbated some of the loader downtime we've seen at the site.

In response to these circumstances, our mining contractor, Redpath, has mobilized an additional loader to site and increased spare parts holdings to minimize further disruption. I think it's also worth noting that as a mature operation, there's limited flexibility in our mining sequences at Hera. This means that a delay to 1 stope creates a domino effect on scheduled production from within that stoping block, and that defers ore production as we saw in the June quarter.

In response to this and displayed in the March quarterly announcement, we're establishing a fourth mining area in the Upper Hays zone where stoping will commence imminently. This additional mining front will enable more reliable ore delivery and also contributes to Hera's mine life extension.

Moving on to our Dargues operation whose results are summarized on Slide 12. It's great to see that the site delivered its best quarterly performance. The higher processing rates through the mill and a 26% grade uplift resulted in gold production of almost 12,000 ounces, and that contributed more than half of the group's gold production for the quarter. It also allowed the all-in sustaining cost to reduce as the higher gold sales more than offset the higher activity levels at the site. I think it's also important to recognize that these results were delivered under some challenging conditions. The site management team had to carefully control the water accumulation in the tailings dam following some abnormal rain events late last year and earlier this year. And whilst doing so, they brought forward the Stage 3 embankment left on the dam to give us additional storage capacity, and that also contributed approximately $60 per ounce to the site's full year all-in sustaining cost.

Another highlight was the operation of the backfill plant and reconfiguration of the underground reticulation system that allowed higher backfill placement rates. And these are becoming increasingly important to us to cycle through stopes quickly to sustain the ore production rates. In the process plant, we saw some really good run times as a result of our asset management regime and continued optimization of the flotation circuit, which reduced the gold losses to tailings and thereby assisted with our gold recovery results.

And finally, the latest phase of the underground drilling program or the infill drilling program was completed. And as data comes to hand from this program, it will be used to define the extended mineralized zones and upgrade grade estimates to use the mine planning. Another infill drill campaign will commence in the current quarter when we have drill sites coming available deeper in the mine workings and that will allow us to test extensions to the deposit at depth.

I'll close there, and I'll hand back over to Dan.

[Daniel Clifford, executive]

Thanks, Peter. So I think clearly, there's -- you will no doubt take away from this call, there's nothing more important in our minds right now than the operational delivery and certainty because it's that the flat cash flow that we are investing straight back into the growth projects and future life extensions with the main assets in the group.

So let's move over to Slide 14 because what has been a real positive in this and particularly with the headwinds of where the economy is, I suppose, particularly in Australia at the moment, has been this progress on these projects. Starting with Great Cobar with the PFS in maiden announced earlier this year -- so in January this year. It's now being followed by, and what I would say can be seen as a bit of a mine field in New South Wales, we've now received full government consent to the Great Cobar project, which is a fantastic achievement. It's giving us a really clear path to a valuable organic copper contribution into the business. A little bit later on in August, with our results at the end of August, we'll give more update and more detail on the time lines for the Great Cobar project.

Move over to 15. Federation is also moving forward rapidly. You can just see the extent on Slide 15, I should say, the extent of the surface works and escalations that have been undertaken. The box cut at about 90% now, and we're just doing final cleanup and sidewall support. The surface civil works at about 70%. You can see some of the shots there. I think more importantly, for those who would like to see more comprehensive footage of that, there was a video loaded on to our website this morning that you will be able to see the full extent of the work that's happening there and all in preparation for us getting underground.

So I'll move over to Slide 18. But before I go, I just want to take a step back and -- we've talked about the controllables and where our performance needs to be lifted. But I think in thinking forward for where the business is, particularly in this environment, I mean, just looking at some of the external factors and some of the uncontrollables I've seen, as I see them, and what our response can be in these circumstances. And I know everyone will have heard this particularly from the mining houses, but the hyperinflation period we're in right now is something that is coming at us. It has started in 3, 4, 5 months ago, and it's still coming at us. We're seeing labor on 10% to 12% increases and that's led alone actually being able to get them. But also there's energy costs arising, consumables and supplies arising across reagents, explosives and steels and in some -- in a lot of factors being reported at 25% escalations.

In parallel with that, I'd say, the project blowouts across the sector, both internationally and domestically in Australia. And some of the latest results or the latest data I've seen, particularly from commodity analysts, has been across, for example, 78 projects globally, particularly in copper, not one of them brought in on budget and brownfields and greenfields projects with CapEx blowout between 30% and 50%. That's just hugely impacting on the expected returns from those projects. And from our perspective with where we are right now, it's creating high risk or higher risk.

I think what's really important for us now, particularly at this juncture and the project timing that we have, is that what we won't do is just -- and I think all our shareholders would expect us to not do this too, and that is to charge in blindly into this environment with the assumptions that we made in the business 6, 12 months ago. And I think apart from the -- well, including the absolute driver for our operational performance is also executing on these growth projects. The costs that we're seeing put pressure on lower grade -- on the lower grade material in all our projects, particularly at Peak. We've got high grade to low grade spread across 2 mines, in 6 different mining areas.

There are a number of activities that we'll take to curtail the cost pressure that's coming but it is swimming against the tide. And in some circumstances, some of the lower-grade material may go negative, and that's to be understood if it's marginal. What is important for us, though, is that every tonne we mine being positive and ensuring that going forward is going to require a review of our operating strategies, particularly cost structure and debottlenecking, to bring as many of those tonnes as positive as we can.

Additionally, and I've talked about this a lot in strategy really for the last 2 years, and that is prioritizing the highest NSR from Federation, Hera, Peak and Great Cobar through our mills over their time frames. If you put those 2 together, and there's the potential that we see some existing capacity open up as tonnes mined, we're not mining negative margin tonnes. And the CapEx inflation we're seeing in project risk is making a lot of sense for us to assess next to the stand-alone option for Federation. It's worth to us definitely assessing the optimization of their existing mill capacity in the basin next to that stand-alone option. I think that for us is a logical step for where we are in the project junctures.

I think the reality is at the moment, and I'd go as far as saying it's not just a reality but it's absolute benefit that we've got of having 2 polymetallic mills in the basin, is that we have options. And that puts us in -- when I think about the prioritization of the highest NSR material, it's not lost of ore. It's a deferral of lower-grade ore to later timing, puts us in a great risk to be able to adjust the business for the risk that we can see coming to the sector. And I think that's the work we're doing now through the feasibility as we draw that to completion. I'm sure there's plenty of other mining houses out there doing exactly the same reviews that we're doing now.

So with that said, I'd like to hand over, please, Peter, to questions.

[Operator]

[Operator Instructions] Our first question comes from Dylan Kelly with Ord Minnett.

[Dylan Kelly, analyst]

A couple of questions from me. Just firstly, when I look at the results, I suppose we've got a bit of sticker shock last week with the production and the costs. But if I look at your cash balance for the period, it was sort of your net cash is up slightly, and you've reduced debt by $5 million. So can you just walk us through, perhaps I just need to refer straight to the waterfall chart about, how this has ended up this way? Is it largely a working capital unwind of all of the concentrate stockpiles that are sitting behind? Was it -- what was that sort of bridge between what would look like a loss of $30 million to $50 million suddenly just seems to be benign, if I'm reading this correctly?

[Daniel Clifford, executive]

I'll take that Dylan, it's Dan. I think the operating cash flow from the business, you can see in the waterfall, there's no doubting there was a build of concentrate stocks. So I think people will have seen that on the investor trip late last calendar year, the building of stock we had. The team took some really positive action on sourcing containers and additional rail paths to clear that coin through the course of that half. And what you will see is that working capital coming back, as Ian mentioned, in terms of receivables in the business. So that is flowing through to the business. We knew they were coming. Therefore, it goes to the heart of what the operating performance at that point in time was.

So we continued the investment. And you're right, we did pay back debt. We're also continue to cash back the business. And we're looking forward to the end rule and the Federation maiden reserve to enable us to extend our lives out so we can get some, if we can, some relief on that cash backing. So all in all, for us a slight down in cash from $80 million to $76 million as we continue to run the operations and reinvest into the future.

[Dylan Kelly, analyst]

Okay. Fair enough. So in regard to the operations and what's happening at Hera and Peak, I understand that there's a number of different moving parts here. But when we talk about the limited operating flexibility and your ability to change that in the, say, the short- to medium-term in the current environment, do your plans or your strategy to tackle that -- those sorts of problems have a tangible sort of near-term impact in terms of being able to provide that reliability back in the business?

[Peter Trout, executive]

Dylan, it's Peter here. Yes, in short. I mentioned that at Hera, we've only got 3 stoping blocks operating at the moment, and we felt the effects of that with nowhere else to go when we had a hiccup in some of those areas due to last quarter. Bringing in Upper Hays gives us a fourth area and a bit more flexibility in that regard. I will point out, and as you're aware, Dylan, Hera is a pretty mature mine, and we do have some old areas there that deteriorated more than we anticipated as we extracted stopes during the quarter. And what that means is we have to go back and do a lot more ground support to make the area safe before we reenter. And we're not going to able to avoid that in the future, but having another mining block certainly gives us a little bit more flexibility than we had in the last quarter.

At Peak, we've got the North Mine and the South Mine operating there. It's really in the last quarter being impacted by what's happened at the South Mine with the shaft outage. We have used that time to set up areas so we give ourselves a clearer run into the current quarter. And the team has done a great job having truck order surface now for close to 2 months in trying to sustain rates and make sure we get off to a running start, with the shaft coming back into operation. But it will remain a challenging underground mine given that we are, again, in retreat sequences there, and that there's not a lot of tonnage in some of these stopes now. We're having to cycle those stopes pretty quickly to sustain the production rate at both Peak and Hera.

[Dylan Kelly, analyst]

Okay. Fair enough. So Peter, just drilling into some of your final points there around the hoist. I understand that, that's something that you've progressively been spending a lot of time on trying to improve reliability there. Any sense around what we should be thinking about for additional capital to ensure sort of we can get some higher availability out of the kit?

[Peter Trout, executive]

We've already been doing work, as you've alluded to, Dylan, around the shaft to keep that -- to improve that reliability. Its infrastructure is now well over 30 years old. We'll -- and when we give guidance, we'll incorporate capital that's allocated for that program through the year. I will point out that this -- what happened was particularly disappointing because we only just replaced the tailropes. That was done based on the condition assessment at the time. And the damage that occurred within a matter of weeks set us back on our tracks because we've just installed the spare set of ropes we had on site. So that's -- that hit the team pretty hard, I have to say. But we certainly improved practice in the past when things were pretty well run towards failure. And we're now in a much more proactive regime around how we run that shaft and also the process plan.

[Dylan Kelly, analyst]

Okay. Understood. I'll just ask one final one more, if I may. Dan and Peter, it sounds as if you're talking a lot about flexibility with -- in regard to what's happening with Federation. Am I right in hearing perhaps there's a bit of a change in churn in terms of the strategy of building or expanding the Hera mill and perhaps just utilizing the Hera mill and the Peak infrastructure to treat that material? Anything -- am I reading too much into that in terms of your wording?

[Daniel Clifford, executive]

Not really, Dylan. I think the key here is, as I mentioned earlier, the sheer risk of project development at the moment, costs that we're seeing coming through -- as I said, I think shareholders would expect us right now to be assessing options to protect value in the business. And that's exactly what we'll do. So against our stand-alone, either complete rebuild or a stand-alone, of the Federation plant is also assessing against the absolute optimization of the existing facilities and additional tonnes on an incremental basis to support their own capital. So we will look at that. And as I mentioned, I think it's actually -- I don't think there's many mornings. I don't wake up going, thanks God we've got 2 polymetallic mills in the region to support business there. It's a really great opportunity for us to really protect value going forward. So it's an option that is -- we will be assessing.

[Operator]

Our next question comes from the line of Matthew Griffiths, a private investor.

[Matthew Griffiths]

Just with reference to the announcement previous today on FY '22 production, the commentary seems to focus around on key growth projects, being Federation, Great Cobar. I note the exclusion of Dargues amongst this, which was acquired less than 2 years ago. Is it no longer viewed as a key driver of growth within Aurelia?

[Daniel Clifford, executive]

No, that's not our intention there with it. It's -- we've got time lines in place for Dargues in terms of modifications to consent, the continuous, I guess, improvement or expansion of the existing facilities. What we're really waiting on there is the outcomes of the drill results. And at this point in time, we're still awaiting some of the outcomes for that exploration. So we still see Dargues as an important contributor in the portfolio. It's just that it doesn't have the level -- probably the level of capital expenditure and project expenditure that we're looking at on the 2 current projects for the Cobar Basin.

[Matthew Griffiths]

And further, is it meeting your expectations versus when you first purchased it?

[Daniel Clifford, executive]

No, it's not. I think we're pretty clear in the earlier flag this year of the year-end impairment on the assets that we flagged during the March quarter, late in the March quarter. So I think that alone says that it's not meeting our expectations. The thing for Dargues is that on its physicals, tonnes mined, development, throughput, backfill, feed rates, it is meeting our expectations. It is clearly the grade that hasn't. And I can't put it any other way other than that we flagged that issue early with the impairment. So logically, it is not meeting our expectations on that front when we purchased it -- from when we purchased it.

[Operator]

Our next question comes from Anthony Wallace, a private investor.

[Anthony Wallace]

Just wanted to follow up on a question asked a little while ago with regard to the amount of marketing and promotion that the company was going to be undertaking. And then you said that you had engaged someone within the staff to improve that. I've -- just recently, we've had Noosa Mining Conference, Gold Coast Resources Rising Stars, Sydney Gold Conference, and we've got really little companies out there with one deposit, one project, spooking that and getting themselves out on the market. I haven't seen anything from Aurelia. What's happening?

[Daniel Clifford, executive]

Yes. I think we recognize the Noosa Mining Conference. For us, that is on -- for our radar next year. It certainly has evolved a long way in the last couple of years. I think the -- for us, we've been focusing on some of the more virtual events, including some of the domestic broker-led events as well. It's certainly on our radar. And I know we have mentioned earlier that there needs to be some more activity in that area. I think we're certainly aiming for that. And there's also, in some circumstances, conferences that we try to get into that we actually can't get an invite for. So it's a bit of a mix. I think I take your point, and it is certainly on our radar.

[Anthony Wallace]

Look, some of the broker-led conferences, that's fine. But the problem is, is that unless you're a client of that broker, you don't really see anything, you don't really get that mass exposure like you're getting at these other, Diggers & Dealers, and all these other sorts of things that is around. So the broker ones are okay, but you're just not getting any exposure from them.

[Daniel Clifford, executive]

That's fair comment, Anthony.

[Anthony Wallace]

Look, and there's one other question that I would appreciate if you would take back to a Board meeting, and that is the amount of -- well, that is directors, management are buying shares on the market. I know personally, I would like to see some directors buying at the moment to show that they're supporting the company, visibly supporting the company with that. I know it's -- I know everyone has various reasons why they do and don't do that. But I noticed Adam McKinnon, that was with you guys for years, started over at Magmatic. And he's had at least 2 or 3 purchases online, and that's just boosted morale amongst shareholders. Now right now, we're looking at our current share price as being as low as it is, those windows of opportunity when the Board is able to buy shares, can I suggest that, that be considered?

[Daniel Clifford, executive]

I'll take it forward, Anthony. But as you mentioned earlier, one has their personal constraints in how they invest personally. So I'll certainly bring it up.

[Operator]

Our next question comes from Michael Evans with Acova Capital.

[Michael Evans, analyst]

A couple of simple ones. And apologies if I missed this in the announcement, but you haven't provided guidance for FY '23. When do you expect to do that? And the second one, second question is just around Federation. Any comments on capital buyout? I mean I appreciate it's very difficult for mining companies to put a line in the sand because the sand keeps moving with CapEx costs, et cetera. But these projects were a 30% CapEx buyout can blow up the IRR, and then there's projects worth 30% CapEx buyout, doesn't actually blow up the IRR. And I would have thought Federation was in that latter? Do you -- I mean, how do you think about flex testing? Well, this is our base case CapEx. And -- but even if it -- do you run sensitivities and perhaps show the market in due course that sensitivity and go with the IRR still pretty robust. Is that how you think about it? One of the things you think about.

[Daniel Clifford, executive]

Yes. I'll come back to the first question first, so I was going to cover that in my closing comments on guidance and what's coming up. So I might deal with that there, Michael, if that's all right. On the second one, I'm not sure I agree with you that a 30% blowout on CapEx isn't damaging in any circumstance, irrespective, 30% is damaging, it always is, and it can't not be. So I think, for us, taking a 30% risk when there's other alternatives in a business that produce -- that don't erode the value of the asset or the project over time is worthy of us reviewing. I think we've always look at these from cash as well as value. And we will assess those options. But I don't agree that a 30% blowout on a big project isn't as damaging. And I would not be at all open to letting that even happen.

[Michael Evans, analyst]

No, I'm not suggesting you do. I just called 30% out of the air, somewhere between -- as you mentioned, out of those 78 projects that have been studied by someone, that's been an average of something like that or more. But yes, okay. So obviously, any sort of allocation of capital is weighed up against all possibilities that are organic, I suppose. And that is -- and there's IRRs for projects, and then there's IRRs for capital elsewhere. Okay. Understood.

[Daniel Clifford, executive]

I think what it comes to that, the world has changed, Michael, in the last 4 to 5 months. We make assumptions at the start of the financial year, and we guide on those. And if there is a change, we can re-guide. But certainly, when it comes to project studies, and in this year, we've done a pre-feas on Great Cobar and that just drawing the completion of feas on Federation. Just adhering to those assumptions from 12 or 18 months ago when we kick those studies off doesn't make sense with what's come at us in the last 4 or 5 months. And I think shareholders would expect us to review what we're doing on that front and make sure that when it comes to capital deployment that it's protecting value and driving the highest return we can get based on the decisions at that point. So we look at it. And it's -- at the moment, we are still -- we're assessing that option. So against the stand-alone option, which was the original scope of the feasibility. So let us get the work done, and we'll see where it goes.

[Michael Evans, analyst]

Yes. No, that's good. Look forward to seeing that work when it comes out. That's all for me.

[Operator]

Our next question comes from the line of [ Glen Hussein ], a private investor.

[Unknown Attendee]

Yes. My question is really back -- circling back on to the actual dollars in the all-in sustaining costs, which obviously is a big leap for the quarter. And there were some numbers bounced around for the one-off numbers on capital and so forth. And I just need some clarification about the $30 million additional all-in sustaining costs for the quarter and which of those are more one-off or future capital investment-based.

[Daniel Clifford, executive]

Glen, it's Dan. The key contributor, really, if I think about the -- when it comes to all-in sustaining cost, it usually always the denominator being gold and then base metal offsets or credits. That's where the majority of it came for us. We could see the operating performance, and we could estimate and forecast forward what it was looking like. But taking the equipment at the back end of the year and then the recent changes in the TC cost flips us out of the range. And that's what we've been focused on. The sustaining capital in the business at the moment, if I think about it just from a general front, it's predominantly usually underground mine development for all the assets. And if development is up, sustaining CapEx is up.

Added to that, we had on top of that the Dargues TSF lift that was brought forward into this year. So that is an acceleration for a project that was planned next year. And equipment leases -- those equipment, the new equipment coming in, was taken up in sustaining instead of being treated as a finance lease and across. So it's a one-off as well, and that is direct investment and getting to owner operate. So primarily, we will see if there's a lift in sustaining capital a lot higher than planned that will go through to all-in sustaining costs that usually the primary driver of that is underground development.

[Unknown Attendee]

Right. Okay. So it's $60 million in costs for the quarter, which is well above $35 million to $40 million typically in a quarter. So most of that is in sustaining capital -- compared to normal.

[Ian Poole, executive]

Sustaining capital as well as increased treatment charges at Hera, which we highlighted, $4.5 million there.

[Unknown Attendee]

Increased treatment charges. Is that a brought forward or just because of the material we were treating?

[Ian Poole, executive]

No, that's a change in the market -- it's not a brought forward, it's a cost.

[Unknown Attendee]

Yes. Okay. So it's a change in some sort of accounting system?

[Ian Poole, executive]

No. [Technical Difficulty] So there's not a change in accounting system. It is -- we have done driven charges are settled by the market, and that settlement plays for the 2022 treatment charges took place in the current quarter. So therefore, in the current quarter at Hera, we had the treatment charges for the quarter as well as a catch-up in the -- from the March quarter reflected in the current quarter. So there was an increase in cost from that perspective.

[Unknown Attendee]

Okay. All right. So it's a prior quarter -- in part, prior quarter adjustment.

[Ian Poole, executive]

Correct. Because the treatment charges for the whole market settled in the June quarter. And prior to that, we used provisional estimates.

[Operator]

[Operator Instructions] Our next question comes from [ Colin Peek ], a private investor.

[Unknown Attendee]

Labor -- so your labor increase is -- you're expecting it to increase by 10%, 12%. Is that correct?

[Daniel Clifford, executive]

At this point -- Colin, it's Dan. We're expecting -- what we are seeing, I should say, and seeing in the market and listening to other businesses in the market, we are seeing and expecting something along those lines coming forward at us. We -- internally, we don't see necessarily those raises. But in terms of what we see from the external market contractors, casual labor, et cetera, that's what we are expecting to be able to see coming at us.

[Unknown Attendee]

Okay. So I've just been looking at the history of the employees earlier. So in July 2019, there was around 85 employees. You're now sitting around 169, 170, an increase of 99%. Now can you tell me what is the current percentage of lever to overall sales and confirm in relation to this industry, what the ideal lever percentage should be? That includes both direct and indirect, is that monitored that way?

[Daniel Clifford, executive]

Not necessarily to sales. It isn't, Colin. I mean there's typical benchmarks. So run-of-mine tonnes per full-time equivalent, et cetera, that float around in various businesses, but not the way you've expressed it there. I think what is needing to be understood here is that there is -- there has been an increase in full-time labor within Aurelia over the last 3 years. And there's a couple of contributing factors to that. What we've got to remember is that we acquired an operation in that time with Dargues and there was full-time employment arrangements made with the management team and staff of that operation. We're also talking away from being contract operated, the processing facility at Dargues, and that's now operated by full-time Aurelia staff as is Hera, Peak and now Dargues.

So the increases are coming from bolt-on acquisition and where we have been assumed where we will convert from contract provision of that service or labor to in-housing or owner operating. And as Peter mentioned earlier, we're going to see that again in terms of the decision to transition the Peak underground or certainly the South Mine underground to owner-operator labor away from externally provided. So we will see full-time labor numbers go up again, but it's -- it will be a direct offset against external resupplied or contract labor.

[Unknown Attendee]

Okay. So just touching on Dargues, so your comments some time ago, "We believe this transaction ticks all the boxes for really shareholders and offers excellent short- and long-term value growth potential." For investors that are listening right now, what would be the difference between short and long term? We know that it hasn't met expectations. But going in the future, where do you see this in a year, 2 years? Obviously, there's a lot of consent shareholders out there at the moment given the current [ movement ] of the share price. And I just think we need some reassurance here.

[Daniel Clifford, executive]

Yes. So along the lines of what I answered before is that the grade wasn't to our expectations. The rest of the physical operations of the assets have been. I think the -- and we flagged that. So it didn't meet our expectations on that front. We've got 2, and we have been investing in the exploration on the assets and containment to ensure we've got margin. Those results really, we are still waiting on some of those to come through. A lot of the focus has been on underground infill drilling to increase the certainty of particularly at grade control level for what we've got in the near term coming at us. I think we still have an exploration horizon there to drive what we think and how long we think the asset can go for. And we are still investing in that exploration through the course of this year and FY '23 to ensure that we can find additional value in the asset if it's there.

[Unknown Attendee]

Right. Let's keep our fingers crossed.

[Operator]

There are no further questions at this time. I now hand the call back to Mr. Clifford for closing remarks.

[Daniel Clifford, executive]

So just in summary, I think we've talked through the operational performance. And just to round up on that, we own that result, and we'll correct it. I think Peter and myself and Peter have expressed our determination to be able to turn that around. I think the impacts during that quarter have been corrected in terms of the shaft work and the blasting and the later reliability, in particular, at Hera. So I think we will see a much stronger performance as we come out of that quarter. Our projects are advancing well, and we're happy with where they're heading in terms of right through -- from government consents, right through to the execution, particularly with the activity going on at Federation on the surface now.

As I mentioned, that does put us in -- it puts us in a great position to be able to adapt our business now really because we've got flexibility in terms of milling capacities. And back to Michael's question earlier, it really does -- the assessment of that flexibility we have in front of us now at this point helps us adapt the business to these risks that are coming at us in this economic cycle. So that's a great position for us to be in. We'll get that work done. And what that leads to is -- what have we got coming up over the course of this quarter? We are expecting a Federation exploration update. A lot of the drilling there now has been completed, certainly in this tranche, focused on resource definition and we will update in the coming weeks as we get the final assays. Those assays will also help inform final outcomes for the Federation feas.

Once we do that, it comes into the Federation feasibility and options that we're looking at there that will also enable us to print the maiden on Federation. From that then allows us -- because Federation expenditure is near term, it allows us to do a couple of things: one is provide guidance for the business, again, back to Michael's question, will that be in during this quarter, late August, particularly on CapEx; and then pending the assessments we make on milling capacity, the additional or existing milling capacity allows us to provide further guidance and development schedules and, of course, more importantly, the full year results at the end of August.

So included in there will also be the FY '22 [indiscernible] because we'll be able to put in the Federation maiden reserve into that as well. So there's quite a lot of triangulating over this quarter, and we're looking forward to being able to update to shareholders, all our shareholders, with what those outcomes are looking like.

Okay, so with that done and said, thank you very much for your time this morning, and you're no doubt hear from us towards the end of August. Thanks very much.

[Operator]

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