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Evolution Mining Ltd
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Ladies and gentlemen, thank you for standing by, and welcome to the Evolution Mining September 2019 Quarter Results Teleconference. [Operator Instructions] Please note that this conference is being recorded today, Tuesday, October 15, 2019. I would now like to hand the conference over to your host today, Mr. Bryan O'Hara, the General Manager, Investor Relations. Thank you, sir. Please go ahead.
Thanks, Eddie, and good morning, and welcome to the Evolution Mining September 2019 quarterly conference call. This morning on the call, we have Jake Klein, Executive Chairman; Lawrie Conway, CFO and Finance Director; Glen Masterman, VP, Discovery and Business Development; and Bob Fulker, Chief Operating Officer, who's dialing in remotely as he's attending his daughter's wedding later this week. One thing you can always be sure of in the gold sector is change. Change in gold prices, change in cost structures and changes in asset ownership. In the current environment where these changes appear to be occurring faster than at any time in recent years, it can be easy to get distracted. Today's results reflect that despite the current volatility and the challenges that operating gold mines often present, we've remained focused and our shareholders continue to benefit from sharing in the record cash generation of our business. We're looking forward to catching up with investors over the next couple of months at the Citi and UBS conferences here in Sydney and at our AGM at the Sydney Sofitel Wentworth (sic) [ Sofitel Sydney Wentworth ] on November 28. Thanks, and I'll hand you over to Jake.
Thanks, Bryan. Good morning, everyone, and thank you for joining us today. These quarterly reports seem to come around quicker than a quarter, but I'm sure I'm just expressing the sentiment of all analysts out there. I've always believed that when operating and managing a company in a sector as cyclical and volatile as the gold sector, it is worth pausing once in a while and reflecting on where we're at. It's easy to forget that only 12 months ago the gold price we realized in September 2018 quarter was AUD 1,662 an ounce. Today, the gold price is $500 an ounce higher. It is undoubtedly a great time to be an Australian gold producer. But it is also a time when we must be rewarding our shareholders, realizing and banking cash from production and returning a healthy amount of it back to our shareholders via dividends. Whilst we all hope the gold price is going higher, if you find yourself in a position of needing to invest all your free cash today to generate production sometime in the future, there is a very real risk that the gold price may not continue to rise, and your shareholders could ultimately have little to show from the exceptional gold price environment we are currently experiencing. I believe Evolution has the balance right. In my Diggers and Dealers presentation in August, I used the "Show me the Money!" video clip from the movie Jerry Maguire to suggest that it was time for us, gold producers, to start showing investors the money. This quarter, Evolution has definitely done this. After investing a total of $71 million in sustaining and growth capital during the quarter, we generated record cash flows. We are banking this cash. We are rewarding our shareholders. The final FY '19 dividend was a record fully franked dividend of $102 million. 12 months ago, it was only $68 million. And with our new policy of paying 50% of free cash flow, our next dividend clearly has the potential to be even higher, given our free cash flow for the September quarter alone was close to $160 million. Our strategy of having a portfolio of assets is demonstrating its value as we manage through an unanticipated issue at Mt Rawdon where the west wall needs to be mined at a flatter angle. Our discovery programs are generating excellent organic growth opportunities. We are still yet to define the scale of the very substantial endowment at Cowal, and we are having encouraging success at Mungari. Our focus on earlier-stage opportunities has allowed us a low-cost entry into Crush Creek which has the potential to extend Mt Carlton's mine life. We are assembling a good portfolio of early-stage, high-quality exploration assets. Ernest Henry continues to be a very powerful cash generator, and with drilling schedules commenced this quarter below the existing reserves, we believe there is very good potential they will be extended. I think this is a good mix and balance of cash generation, rewarding our shareholders today and good investment in organic growth which has the potential to be very value accretive in time. The strategy remains the same as it has been since day 1 in 2011 when Evolution was formed. We want to be a globally relevant mid-tier gold producer that will prosper through the cycle. I'll now hand over to Bob to provide you more operational detail.
Thanks, Jake, and good morning, everybody. This quarter we are disappointed to say that our recent trend in recordable injuries has not changed. 12 recordable injuries placing our TRIF at 9.3. Addressing this trend, we conducted safety resets across all our operations to refocus our efforts. During these sessions, we received numerous suggestions and improvements from the workforce. Pleasingly, significant incident investigations and action closeouts have been improving. From a production and cost perspective, for the September quarter, the group performed in line with plan, producing 192,000 ounces at an all-in sustaining cost of $1,018 an ounce. This resulted in a record group mine operating cash flow of $279 million and a net mine cash flow of $207 million. If we turn to Page 4 for the Cowal and Mungari results, the results of our significant investment in growth at Cowal has started to become more visible, with the operation delivering a record quarterly production under Evolution's ownership of 75,807 ounces at an all-in sustaining cost of $885 an ounce. Mine operating cash flow increased to $114.5 million, while net mine cash flow rose to a record of $89.9 million. Cowal's highlights for the quarter were: a record mill throughput of 2.1 million tonnes; 1,635 meters of development in the exploration decline; and 8,600 meters of underground diamond drilling completed ahead of our schedule; some grade intercepts from to GRE46 and Dalwhinnie drill program which continue to indicate significant potential to grow the 1.4 million underground resource. Glen will discuss these in more detail. Mungari delivered just shy of 31,000 ounces at an all-in sustaining cost of $1,351 an ounce and a mine operating cash flow of $18.6 million. Mungari's net mine cash flow increased by $6 million against the June quarter with similar level of production. Frog's Leg Underground delivered 103,000 tonnes of ore with [ access ] development on schedule. The new mining method at Mist is fully implemented and delivering consistent results. Plant throughput was above plan with a record monthly rate of 160,000 tonnes in September, equating to an annualized rate of 1.92 million tonnes. This was driven by continued focus on operational and maintenance improvements. If we turn to Page 5 for Mt Carlton and Mt Rawdon results, Mt Carlton delivered 20,900 ounces at an all-in sustaining cost of $1,301 an ounce and a mine operating cash flow of $40.1 million. Production was lower than expected due to mining on the hinge section of the ore body where mineralization boundaries are less well known. Production during the next quarter will be lower than the current run rate whilst we process mid-grade stopes. Production will increase during the second half of the year with no change expected to the guidance. The portal for the underground was excavated during the quarter and development is progressing well. Mt Rawdon produced 19,200 ounces at an all-in sustaining cost of $1,748 an ounce. As mentioned earlier, Mt Rawdon has been impacted by further instability of the western wall. With the safety of our people first and foremost, the wall is temporarily stabilized with an in-pit buttress using a remote loader. However, long-term stabilization of the wall will require a minor cutback to reduce the wall angle to approximately 38 degrees from the current 45 degrees. This will require mining an additional 3 million tonnes over the next 3 years. However, material movement in FY '20 will be less than planned due to restricted pit access. The grade of the ore processed for the remainder of the financial will be around 10% to 15% lower than originally planned whilst access to higher grade ore under the western wall is regained. This has resulted in a reduction of the FY '20 gold production of about 10,000 to 15,000 ounces, reducing our FY '20 guidance to 80,000 to 85,000 ounces at an all-in sustaining cost of $1,490 to $1,540 per ounce. Despite the difficult quarter, Mt Rawdon still generated a mine operating cash flow of $14.5 million.If we turn to Page 6 for Cracow and Ernest Henry, Cracow continued its consistent performance, producing around 22,000 ounces at an all-in sustaining cost of $1,307 an ounce with a mine operating cash flow of $23 million. The work to improve stope dilution, which I spoke about in the previous quarter, has resulted in a strong grade performance. Ernest Henry, again, had a significant contribution to the group producing 23.4000 ounces (sic) [ 23,400 ] ounces at a negative all-in sustaining cost of $414 an ounce, generating a record net mine cash flow of $66.1 million. Drilling below the 1,200 RL to extend the mine life of Ernest Henry is scheduled to commence during this current December quarter.In summary, our focus is on improving our safety performance whilst maintaining our production and cost focus. Pleasingly, cost and production for the quarter were in line with plan and we delivered record net mine cash flow. Looking to the quarter ahead, although we manage our portfolio and provide guidance on an annual basis, due to the mining sequence and the production mix from our assets, we are expecting lower production and costs to remain elevated in the current December quarter before improving in the second half of FY '20 to deliver our annual guidance. Thank you for your time, and I'll hand over to Glen.
Thank you, Bob, and good morning, everyone. Late in the September quarter, we announced 2 new exploration earn-in joint ventures. The first was the Crush Creek project which is located 30 kilometers south of Mt Carlton. Under terms of the agreement, Evolution has the option to purchase 100% of the project, subject to meeting certain exploration expenditure requirements and cash payments over the next 2 years. The target at Crush Creek is a low-sulphidation epithermal precious metals deposit. Over 300 historic drill holes have been completed across 3 main target areas to an average depth of 70 meters. More drilling is required to convert the known mineral inventory to a resource. However, significant historic results show evidence for bonanza grades in a series of narrow quartz veins. Work has already commenced at Crush Creek, which given its proximity to Mt Carlton has strong potential to extend mine life for the operation. Our second agreement was completed with Musgrave Minerals, whereby we had the option to earn a 75% interest in the Cue project in Western Australia. Cue is located 50 kilometers south of our Murchison joint venture and establishes an exploration hub in the Murchison Greenstone Belt, which we had previously identified as being highly prospective via Archaean gold mineralization. The addition of Cue to our portfolio, which also contains the Murchison, Connors Arc and Drummond project, is consistent with our strategy of pursuing quality greenfield exploration projects in Queensland and Western Australia.Turning now to discovery programs across our operations. Firstly, at Cowal, recent drilling results continue to keep us excited about growth potential of the underground opportunity at GRE46 and Dalwhinnie. Recent drill hole intersections, highlighted on Pages 9 and 10 of this morning's report, had extended mineralization well beyond the September 2018 resource boundaries. One result I'd like to draw your attention to is hole 453C, which returned an 84 meter true thickness interval grading 3.3 grams per tonne gold. This thick interval contained numerous high-grade zones including 6 meters at 8.4 grams, 2 meters at 41.6 grams and 9 meters at 9.8 grams. The result is located up to 50 meters beyond the existing resource outline and reinforces our confidence the underground resource at Cowal will be increased in our MROR update at the end of the 2019 calendar year. A second underground rig commenced drilling in the Warraga decline during the quarter. New drilling positions have been designed to enable the most optimal drilling orientations to infill deeper areas at the underground resource. Drilling is expected to commence from these areas later in the quarter and into early next year when a third underground rig arrives on-site. At Mungari, a surface rig and an underground rig completed 22 holes into a laminated vein structure at Boomer. Several vein intercepts, illustrated on Pages 11 and 12, contain visible gold and base metal sulfides. The zone of high grade is being modeled as a series of small south-plunging shoots. One of the things that gets me excited about this target is the potential for shoots to extend down a plunge and potentially coalesce at depth in similar fashion to the way they do at Frog's Leg. Drilling has continued this quarter with the latest holes showing promising visual results on the structure adjacent to the holes reported this morning. The largest part of mineralization delineated to date is located 300 meters from the nearest hanging wall development drives at Frog's Leg. Impressive results were received last quarter from the Picante Trend located 1 to 2 kilometers north of the Castle Hill complex and approximately 35 kilometers from the Mungari processing facilities. Mineralization is localized along the Eastern contact of the Kintore tonalite intrusion. Potential for additional zones of steep plunging mineralization is being targeted at follow-up drilling. Our exploration and geology teams at Cowal and Mungari carried their momentum over the end of last year into very solid performances again this quarter. I'm confident we can continue to expect good things as programs continue to unfold in FY '20. With that, I'll hand over to Lawrie.
Thank you, Glen, and good morning, everyone. The September quarter from a financial perspective was one where we continued to deliver a significant amount of cash with a record group cash flow of just under $160 million. The detail of the financials are on Pages 7 and 8 of the report. Two areas I want to cover off on today are costs and cash flow. With respect to costs, our all-in sustaining cost, or AISC, at $1,018 per ounce was higher than the June quarter and the FY '19 full year. However, it was under budget by approximately 2%, with essentially all sites in line with plan except for Mt Rawdon due to wall stability issues and Ernest Henry due to lower by-product credits. On a growth spend basis, operating and capital costs, we are tracking to plan or better and are not experiencing any material adverse effects on our costs outside the movements highlighted in our guidance and full year financial results. In fact, in some areas, we have seen reductions to input costs. For example, at Cracow, we have one contract where we achieved a 13% reduction and further cost reductions are available from the adoption of technology. At a group level, we're in the final stages of new contract for Tires which currently is a very tight market and prices are increasing. Not only have we been able to secure supply for our entire business but we have achieved a lower cost outcome. Changes to our AISC guidance, which has increased by $50 per ounce to $940 to $990 per ounce, are driven purely by 2 areas which are not linked to input costs into our business: our operational issue at Mt Rawdon, which Bob has outlined; and the impact of metal prices. The wall stability issue experienced at Mt Rawdon increases our group AISC by approximately $30 per ounce. The second item to impact our AISC are metal prices. From a financial perspective, and I suspect for our shareholders too, this is a good problem to be encountering. When completing our business plans, we use [ $1,750 ] per ounce and $8,800 per tonne for gold and copper, respectively. The metal prices impact our AISC by royalties and by-product credits. The September quarter sought of achieved a 20% higher gold price and 5% lower copper price than planned. We do not see these prices moving materially from current levels and have updated our guidance accordingly. Assuming $2,100 per ounce for gold and $8,400 per tonne for copper, we would generate an additional cash flow of $210 million to $220 million. The impact on our AISC though is that it adds between $20 to $25 per ounce, with $20 per ounce allowed for in our revised guidance.Turning now to our cash flow, and this is an area where I believe we are delivering real value for our shareholders, which is approximately 14% higher than was achieved last quarter. We achieved a 45% increase in group cash flow to $160 million. Not only are we banking this cash, we are also delivering on that commitment to return excess cash to our shareholders via the new dividend policy. In the quarter, we paid $102 million in dividends at $0.06 per share fully franked for our FY '19 final dividend. Applying the new policy to our cash flow performance for the September quarter, this would equate to a dividend of approximately $80 million or $0.05 per share, and that is only for 1 quarter. Looking at it from a per ounce produced perspective, our FY '19 final dividend was approximately $275 per ounce, and this was more than $140 per ounce higher than our peers. In the September quarter, under our dividend policy, we would be paying approximately $415 per ounce, up almost 50% on our final FY '19 dividend. Not only does this differentiate us from our peers, but it shows that we are truly generating and delivering sector-leading returns for our shareholders.In conclusion, while we are not happy to have changed our full year cost guidance, we believe we have good control on our costs and remain committed to keeping Evolution as a low-cost producer that generates significant cash irrespective of the metal price for either reinvestment in the business or returning it to shareholders. Thank you for your time. And with that, I'll hand it back to Jake.
Thanks, Lawrie. Eddie, could you now please open the lines for questions?
[Operator Instructions] Michael Slifirski from Credit Suisse.
I've got several pretty simple ones. First of all, with respect to Rawdon, the layback of the wall that's required. How does that make you think about Rawdon on a go-forward basis? Does that cutback reduce the costs of any future cutbacks that you might have contemplated if you were to change some of the assumptions and chase deeper material? Or does the instability make you sort of more reticent about it because perhaps it actually increases what would be required for the next leg if you didn't proceed that way?
Thanks, Michael. I'm going to hand over to Bob to answer that. Bob?
Yes. Thanks, Michael. I think it's too early to say that the laying back of the wall will make the Stage 5 analysis any different to where we've been in the past. Laying it back to the 38 degrees, there are potentials in the future if the walls improve as we go down to change that. That’s the stage outside of the -- we should look at those individual cases.
Okay. Secondly, with respect to that changed guidance, if I do it really, really simplistically, so the midpoint of the prior guidance, midpoint of production implied all-in sustaining costs, just multiplying it out of $117 million. If I use the midpoint now of both, it's $125 million, so an $8 million increase when you're going to be moving less material. How does that math work?
Lawrie?
Sorry, just go through that again. Michael, you're talking the $30 an ounce?
Yes. So if I take your new guidance for Rawdon, so take the midpoint of production guidance, midpoint of cost guidance, multiply one by the other and subtract from that the prior guidance, the delta is sort of $8 million more costs, and I was trying to reconcile that with the commentary around actually moving less material because of drawing from stockpiles. So is it a P&L impact for stockpile costs or something like that?
Yes. There's a few things there. I mean, the impact at Mt. Rawdon is about $290 an ounce all up, and that most of that will hit C1. C1 is a little bit less because it doesn't have royalties. And what we are saying is then you'll have inventory drawdowns, so that's what's contributing to the $290 an ounce movement at Rawdon, and then you've got the impact of the lower production and grade. So I'm just still trying to work out your maths [indiscernible]. But I mean that's essentially what's happening is we'll do about 2 million tonnes less material mined in the pit. We'll then have the drawdowns of stockpiles to keep the plant full. The grade will drop about 10% to 12%, and then we've obviously got the offset to that -- sorry, the other impact is the higher royalties impact on the AISC.
Yes. I [ can’t ] see if that works. With respect to the Ernest Henry opportunity, the drilling that commences this quarter, is that designed to convert the existing resource below that 1,200-meter RL, convert that resource to reserve or to grow that resource or both? I'm trying to get in my mind what you're actually drilling out. How far below the 1,200 RL are you targeting and where there's already confidence of the ability just to convert it by infilling versus expansion opportunity.
Bob, I think this is another one for you.
Yes, Michael, I think the plan that the team at Ernest Henry have got is to try and convert, not to expand. But -- that's about all the information I have at this moment.
Okay. And finally, with respect to Boomer. Thanks for the little simplified sections. It's still not clear to me though what you think it might actually shape up to be. So I wonder if it's possible to scope out what the potential size could be if it works out to the model that's postulated.
Michael, it's Glen. I'll take that one. I think it's still pretty early days there, Michael. We've only got a relatively sort of short section of strike length drilled along the Boomer structure. And within that, we've seen or we're seeing probably 2 shoots developed. They're relatively modest in size at the moment. And what we're doing is, one, confirming sort of confidence around the deposit mineralization as we currently know them, but we've also got a step-out program underway to sort of understand the full scope and size. We haven't really done much in the way of sort of looking at kind of the actual resource that we have at the moment. We want to complete a fair bit more work before we're in a position to kind of complete that work.
And just to add something which Glen may be scared about right at the moment. Because Glen has done very well at toning me down as I keep seeing these laminated veins on his computer. But -- I mean, Glen has kind of shifted from saying, “Well, let's see what it is and let's keep drilling to maybe let's go and develop out there and see what it really looks like,” because these things are not -- as I understand, not every drill hole is going to hit grade. But once you find these laminated veins, there's a good chance that you're on to something. Actually in a glide shift in Glen's view of that.
Okay. So in the context of his conservatism about the Boomer, but somewhat enthusiastic presentation of the opportunity for Crush Creek to extend Mt Carlton life. What's the pre-resource inventory that forms the basis of the excitement for Crush Creek?
Michael, that's in the range of around 100,000 to 200,000 ounces sort of on Evolution kind of numbers at the moment, but we would hope to not only confirm that but to expand the known inventory as well. We see a fairly good upside in the opportunity there.
Tremendous.
And just to quantify that and help Glen out on that one, it is [indiscernible] and it's not a resource at this stage.
Your next question is from the line of Sophie Spartalis from Bank of America Merrill Lynch.
I just wanted to hone in on the guidance. Obviously, take your notes in regards to the Rawdon guidance. But just in terms of Cowal, you're saying here in the commentary that process grade is expected to average between 0.9 and 1 gram per tonne for the remainder of FY '20. It seems as -- just from the modeling, I can't seem to get to the annual production guidance of 255 to 265. Can you just walk me through that, please?
Lawrie, do you want to take that?
I'll start and if Bob needs to add to it, he can. But I mean, essentially, yes, we'll see that over the course of the year, it's not much different to the plan where you'll get between 2.7 million and 2.8 million tonnes processed in each of the next 3 quarters at sort of 0.95 to 1 gram. It will be a little bit lower in Q4 at about 0.85 to 0.9. Recoveries will still be in the line of the mid-80s as we achieved in Q1, which will still give us in that range of the 250 to 260, it -- that's what it comes through at.
Okay. So coming into then the second quarter, we'll see production dip a little bit lower and then recover in the second half. Is that sort of the profile?
No. I think what you'll see is that the first quarter will be the highest quarter as we're getting the high grades out of the final parts of Stage G. We'll then get a little bit of that into Q2 and then it falls away over the course of the year. You sort of see in the mid-60s for Q2, mid to low 60s in Q3 and high 50s in Q4 to give us that production range because we are processing the stockpile material as the year progresses [indiscernible] higher grade.
Sorry, Lawrie, I just missed that, just in terms of that, probably you said high 50s in the 4Q, 2Q and 3Q. What was that guidance?
So Q2 will be mid to late 60s, high 60s. Q3 will be in the low to mid-60s, and Q4 will be in the mid to high 50s.
Right. Okay. And then just in terms of then the overall production guidance remaining the same, it seems as though there's more downward pressure on production than upward pressure across the portfolio. Any other guidance that you can provide at the mine level? Or you're happy to stick with the mine-by-mine guidance that was provided at the last quarter result?
We've stayed with the full year guidance range. I mean, obviously, with Mt Rawdon losing their production numbers because of the access to the Western area, it does move us down where we expected to land within that range. And with all the other sites running at full capacity on their plants, there's not a lot of opportunity to offset that. But what we have seen through the performance in Q1 at particularly Cracow, Mungari and Ernest Henry, they are mitigating some of that impact of Mt Rawdon. But we didn't change any of the other sites because they're all staying within that range, but Rawdon will probably see -- bring us down a bit sort of the mid-range of the group range.
Okay. Thanks, Lawrie. And then just to follow up. In terms of Rawdon, what's the timing on when you think that you can be back up at 100%? So when do you think that all these remediation assets will be complete?
I'll pass that one to Bob.
Thanks, Lawrie. Sophie, it's -- it won't be back up for the remainder of this year. As Lawrie said, the actual profile is the reason why we've changed the ounce guidance. It will be a slow sort of increase towards the back end of the year so that next year we will be starting to get it up. I haven't got the exact figure on me, but I can get back to you.
Okay. So just to confirm, you expect it at this stage to be isolated to FY '20?
Yes.
I mean, just on that, Sophie. So I mean, Bob's right that over the course of this year, the next sort of quarter and a bit is to get access to that. As we then get into Q4, they will be able to get back into some more ore, but it'll obviously be a lot less than what we had planned for the year. Then as we go into FY '21 and '22, there's still more waste, but we access the ore, just that the strip ratio is going to be different to what we had in this current LOM.
I mean the ore in the last quarter is significantly higher than next 2 quarters so...
Yes.
Your next question is from the line of Daniel Morgan from UBS.
Probably a question for Bob. Just want an update on the Cowal float leach project and what -- I know you've given us numbers this quarter about recoveries overall, which are 83.6%. Just wondering what your actual latest expectations are, where recoveries level out on, does that shift with change in grade? Just want to talk your recovery expectations?
Thanks, Dan. The FTL has actually been delivering to design in the last couple of months. We're getting between 5 and 6 on average percent because of it. And I don't think we would be expecting it to significantly change.
Okay. And another question, more on the exploration upside at Cowal. Every quarter, it seems like you guys are hitting more gold, you're expanding or finding gold outside of the resource envelope. What is the latest thinking behind what a mine might conceptually look like? Is it still too early to talk about that and expand? What is the concept which I think was about 1 million tonnes of underground ore, high-grade underground ore? Should we be thinking larger than that or is it still too early to talk about it?
Thanks, Dan. I'll let Glen answer that and then Bob can add anything he wants.
Thanks, Jake. Yes, Daniel, I think at this point, in terms of the scope of resource potential we're seeing on the underground at Cowal, we feel or we're expecting that it's probably going to sort of double on the 1.4 million ounces that we see there today. So we're -- and that's sort of an overall kind of scope over the next couple of years as we develop this opportunity.
And that would turn it into a close to 3 million ounce ore body. Bob, do you want to add anything?
I'm pleased Craig's not with me because I'm going to promise for him. The -- I think what you've got so far, Dan, is conservative. We're doing the work. We're planning probably in October quarter '21 to be getting the approval to start mining. But I would expect it to be higher than what we currently got. Saying that, we've got to do the work and we've got to actually get the drilling -- getting the drilling finished. But yes, I think it's going to come out better.
And just, I guess, to expand a little bit on that, it's getting bigger. There's nothing that would suggest a change to mining method or this is going to be a sort of stope development. Is that what we're thinking?
I think if I was a fortuneteller that there'll be multiple methods of mining. We've got a range of narrow potential ore bodies or stuff that we'd have to take out with narrow mining, but we've also got some areas that stand to prove up to be quite a bit wider which we do -- they’re more amenable to classical open stoping. So that's the work that we're doing at the moment, Dan. And obviously, we haven't actually finished it, but I think there would be model different types of mining method, whichever are the appropriate -- whichever is appropriate for the mineralization. Glen, do you want to add anything to that?
No, I think that's right, Bob. I think there are a range of styles. There's sort of narrow high-grade styles of mineralization and wider sort of moderate-grade styles, which should be a different style of mining.
Your next question is from the line of Matthew Frydman from Goldman Sachs.
Just a couple of questions on Cowal. Firstly, on the mill, obviously, continuing to perform quite strongly in the quarter and Lawrie's just given us a bit more detail around the kind of rates you're expecting from that stockpile material. So I guess the question is, is 8.7 million tonnes per annum still the target for fresh material throughput on the Stage 1 expansion? Or have you had a bit of a rating [ con ] on what you think that mill can achieve?
Bob?
I think they're not going to show a bit more than that, Matthew. And that's what the work they're doing. We've still got a few additional pumps and duplication to be installed in our latest project, and that's going to give us better availability, but I think there's still a little bit of upside.
And is there any timing around when you'd expect to finish that Stage 1 works? Is it still December quarter?
It'll be finished this financial year, obviously progressing through. So as we get more of the installation completed, we get better improvements.
Sure. Secondly, on processing the stockpiles. You guys highlighted that you're not expecting really any recovery impact even as you dip below 1 gram a tonne and also obviously pushing throughput for the rest of the year. Just wondering if there's anything that you're doing differently to achieve that outcome. Is it a finer grind? Is it more utilization of the float tails leach capacity? Is there something that you're doing there to keep recovery steady?
Yes, the float tail leach, optimizing the actual circuit itself, ensuring that the geometallurgical blend is the appropriate one for getting the most optimum recovery. All of those seem to be working together, Matthew. It's making the plant operate as a system and as an entity as opposed to just looking at one section. So they're all being optimized and they're all being improved.
And there's probably -- just one thing there, Matt. I mean we will see in Q4, and that's where we'd see that drop off in production mentioned in the mid-50s to just under 60,000. That will be impacted by grade and recovery. I mean your recovery will drop 1%, 1.5% in Q4. That's where we see that lower production come through.
Sure. And just to remind me, even beyond the end of this financial year, you've still probably got, what, another, what, 12 months before Stage H kicks in. Is that right? So we might expect to see again lower grades and lower -- potentially lower recovery into FY '21 until Stage H kicks in?
No, our plan says that as we go into FY '21, we start getting back into Stage H ore and what you'll see through the course of that year, the grade will come back up. But it's -- the higher grade is then achieved in FY '22. But we do access through the last part of this year some ore out of Stage H. And then in FY '21, we are mining ore from Stage H.
Okay, sure. So it'd be gradual ramp-up of that Stage H ore. And I guess, just following on from that, we've seen total prime material movement trending downwards at Cowal for the last few quarters. Just wondering how this looks for the remainder of the year as obviously you complete the ore out of Stage G. Are we expecting a material pickup in waste movement as you're reallocating the fleet to more Stage H pre-strip? Should we expect that prime movement to pick up pretty materially?
Yes. I mean what you'll see is total material mined will pick up in Q2, 3 and 4. And as we now will finish Stage G, that tonnage will go over to waste. So you will see the waste pick up in the back end of the year at Cowal.
And as the [ TKMs ] reduce because of where the mining is going from as well, Matthew, you'll see a net increase in the tonnes, as Lawrie said.
Sure. So your space to dump haulage distances is dropping obviously because you're not hauling ore so you can move more material as a total?
Yes. Correct.
Your next question is from the line of Nick Evans from the Australian Newspaper.
Sticking with the theme of Cowal. The New South Wales drought is hitting pretty hard out there. How concerned are you about the impacts of that on -- or how is it out at Cowal? And how concerned are you about the impacts of that on [indiscernible]? And also, I guess potentially the environmental sort of regime when you come to submit your documents on the underground expansion?
Sure, Nick. I'd say we've been focused on this for some time now and working on it. I'm going to hand over to Bob for details. But clearly, it's been -- it is and has been front of mind for us for some time.
Thanks, Jake. Thanks, Nick. Look, water at Cowal is and has been identified as one of our material risks. We're actively working on, i.e., reducing and recycling water. We're also actively working to reduce our reliance on new water coming into the operation, and we've been looking at how we can actually reduce our reliance on water resources [indiscernible] in the thing. So they're all things that we're working actively on and we've been working on for quite a period of time now.
I mean is there -- there's been some talk of say Northparkes and perhaps Cadia running -- potentially having to make production cuts in 12 months or so if the situation doesn't change with the drought. Is Cowal facing sort of similar risks, sort of time constraints?
Look, if we have an exceptionally dry summer and none of our strategies come off, we've got potential issues by the end of this year going into next year. But that would say that nothing comes off of all the mitigating strategies that we're working on.
Yes. And just lastly for me, Jake, Red Lake, any interest in -- is that the kind of mine that would be of interest for Evolution?
I'm really happy you asked that question because it's the first question I've been able to ask on the -- answer on the call. And I'm not even going to answer that, other than to say the stock standard answer, Nick. We're -- we've said we're interested in things which are being divested of. If there were processes, you could expect that we would be looking at things with -- through the lens that we've always said we'd look at it and think through: will it make us a stronger company and is it accretive for our shareholders?
Does that answer your question, Mr. Evans?
Yes.
Your next question is from the line of David Radclyffe from Global Mining Research.
So I've got a question on Mungari and just trying to work out how close we are to an update on the mid-term plan there, because I guess you talked of potential for 10 years, but we sort of know about the underground at White Foil and how you actually plan to extract value from those lower grades, settle that inventory. And also, the plant looks to be going well, whether there's actually upside there for [ magnet ] expansion or do some of these sort of discoveries push this sort of back into maybe next year?
David, thanks for the question. I mean I think obviously these discoveries help, but we're working on it and we're working on the optimization. I'd say towards the end of this financial year, we'll start delivering some outcomes on that.
Okay. So that sounds like it's a little bit back. Then maybe just one on...
When we're drilling all the 130 grams per tonne, it will be pushed back a little.
Sure, sure. Then on safety, obviously, you're probably pretty disappointed about the TRIFR and how it just keeps rising. How much of this is actually your focus on safety seeing more reporting? I did see underlying LTI number was better. And what else can you do to change this trend because I guess you had talked about focusing on it for a while, but it doesn't seem to be working.
Yes. I don't want to make excuses about it, so I'm just going to say we are having way too many injuries, mainly fingers and hands have been in the line of fire. We have to do more to improve the safety. I don't want to talk about it as being a change in our reporting culture. But we're having too many injuries.
There are no further questions at this point, sir. Please continue.
That's it. Thank you very much. That was an interesting call, and I appreciate your interest and attendance. Look forward to being -- having lunch with some of you now and then to the Citibank conference tomorrow and Thursday, and look forward to seeing you over the next few weeks to update you. But gold price, high, generating lots of cash, and the discovery part of the business going really well. Thank you.
Thank you, sir. Ladies and gentlemen, that does conclude our teleconference for today. Thank you for participating. You may all disconnect. Thank you.