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Evolution Mining Ltd
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Thank you for standing by, and welcome to the Evolution Mining Limited December 2022 Quarter Results Call. [Operator Instructions]
I would now like to hand the conference over to Mr. Lawrie Conway, Chief Executive Officer and Managing Director. Please go ahead.
Thank you, Darcy, and good morning, everyone. Thanks for joining us today. I hope you have had an opportunity to relax and enjoy the holiday season with family and friends, and I wish you all the best for the year ahead. On January 1, I stepped into the role of CEO and Managing Director with Jake continuing in the role of Executive Chair. As my first quarterly as CEO and MD, I'm pleased to provide you with an update on our operating performance for the quarter.
Today, we announced the appointment of Barry Van der Merwe as our CFO. Barry has extensive experience in the finance area as well as in the mining sector. He will be a great addition to the Evolution leadership team, and we look forward to him joining us on the first of March. As he's not yet commenced, I will also cover off on the finance section this morning. I'm joined here in Sydney by Bob Fulker, our COO; Terrin Chua, our Group Manager, Investor Relations; and Peter O'Connor, who joined us this week as our General Manager, Investor Relations. We're welcome to Evolution and look forward to his valuable contribution to the team. On the line from Canada is Glen Masterman, our VP, Discovery.
In a global macroeconomic sense, we are seeing a redeployment of capital from the U.S. dollar to gold as there is an expectation of the U.S. economy slowing and interest rates may have reached their peak. This is expected to happen more broadly across the go and has seen gold price rally in both U.S. dollars and Australian dollar terms. This has pushed gold to above USD 1,900 an ounce or around AUD 2,750 per ounce. This is around $350 an ounce higher than what we compiled our FY '23 budgets.
In China, the easing of COVID restrictions and opening up of the economy has seen demand for copper rise against slowing. This has resulted in the copper price rising to over $9,300 a tonne and $13,300 a tonne in U.S. dollar and AUD, respectively, over the last month. The recent rally in the copper price has now also put above our budget copper price. Additionally, we have seen cost inflation start to pull back and even in some areas, costs reduce. Shipping and supply chain logistics have also improved. However, labor shortages in parts of Australia continues to contribute to a tight labor market. Against the backdrop of these macroeconomic conditions, we are seeing the benefits of Evolution being one of the lowest cost, highest margin gold producers. We are benefiting from high-margin assets in the portfolio. And as our growth projects transition to production, we will see the benefits flow through in the coming months and quarters. That said, we do not rely on the metal prices and cost cycle to drive our performance. What we do in these times is to ensure that the cash flow benefits from higher metal prices are realized, while at the same time, remaining disciplined about our capital allocation.
Turning to our December quarter and the outlook. Our full year group guidance remains unchanged at 720,000 ounces, plus or minus 5% at an all-in sustaining cost of $1,240 per ounce, plus or minus 5%. With a solid first half at 46% of guidance achieved, we are well placed to deliver on our full year guidance with ramp-up at our key assets, delivering planned second half weighted production. Cowal continues to access higher grade material in the open pit and commence stoping in the new underground mine in the June quarter. Red Lake will contribute increased production by accessing the higher grade Upper Campbell mine in the June quarter. We saw a number of real positives from our operations, which resulted in an increase in gold production to 166,000 ounces this quarter at an all-in sustaining cost of $1,099 per ounce, which was 27% lower than the September quarter. The performance at Cowal was outstanding given the extreme weather that experienced in the second half of the year. Once the heavy rainfall stopped in early November, the team demonstrated that they have done all the right things in preparing for full access to the pit. We ended up rating a number of records at Cowal with December being the highest ever production month in the quarter being the second highest under our ownership. This quarter demonstrates that Cowal is well on its way to 320,000 ounces in FY '24.
The quarter for Red Lake was a difficult one operationally. Importantly, though, the ore body is performing as expected with good reconciliation to the models. There are a number of factors relating to the mine plan compliance, dilution and absenteeism and these all center around culture and leadership. We acted on them during the quarter with a number of changes to the management and operations team. At the same time, Bob has made Red Lake his primary focus in the business and will continue to do so until we are comfortable that the operation is back on track. The performance to date in January has improved and is trending in the right direction. At a group level, we generated over $270 million in operating cash flow for the quarter, and we were net mine cash positive post investing in our growth projects. This annualizes to over $1 billion of operating cash flow. On a per ounce basis, we generated an operating margin of $1,677 per ounce sold, which is a 32% increase against only a 6% increase in the achieved gold price. At Cowal Underground and the Red Lake projects, they will move into production in the June quarter. Therefore, we are only one quarter away from pivoting to a significant increase in both operating and net cash flow. These projects lay the foundation to moving to around 800,000 ounces in FY '24. Meanwhile, the studies for our growth projects at Ernest Henry and Mungari were completed during the quarter. and they present excellent options for mine life extensions and margin improvements at each operation. Ernest Henry demonstrated its ongoing world-class low-cost position generating $156 million of operating cash flow for the quarter and just under $260 million for the first half. The drilling results for Ernest Henry that we released today continue to excite us with mineralization not only extending below the pre-feasibility area, but also increasing the footprint within the PFS area. This grade is in line and better than our current mining area, and we are gaining confidence of potential linking between the main ore body and early Junior. Glen will cover this in more detail shortly.
Given the ongoing positive drilling results, we have taken the decision to extend the PFS so as to incorporate the larger mine footprint in defining the optimal mine plan and location of the underground infrastructure. We expect this work to be completed by the end of the June quarter. The plant expansion study at Mungari completed on time at the end of December. The team has confirmed a compelling commercial case for expanding the processing plant. It will be presented to the board during this quarter for consideration including the timing of moving to execution. Our pump hydro project at Mt Rawdon also continues to progress well with ongoing government support being positive, both at federal and state levels. We continue to progress on the regulatory approvals process and further geotechnical drilling to derisk the project. Briefly on our financial performance, which is covered on Pages 6 and 7 of the report. The standouts for cash flow before major capital were earnest tender at $142 million and coal at $93 million. Significantly, Cowal was cash flow positive after major capital and this shows the operation is pivoting back to a positive cash-generating position. Our all-in sustaining costs reduced to $1,099 per ounce for the quarter. Year-to-date, AISC is $1,307 per ounce, which will trend down in the second half to be within the guidance range of $1,240 per ounce, plus or minus 5%. Sustaining and major capital were in line with the September quarter at $44 million and $151 million, respectively. Guidance for both sustaining and major capital remains unchanged at at $190 million to $240 million and $530 million to $600 million, respectively. The major capital is expected to be between $165 million and $175 in the March quarter before reducing significantly to $80 million to $90 million in the June quarter. We ended the quarter with a cash balance of $313 million and liquidity of $838 million. The revolver facility of $525 million is undrawn. Our unaudited gearing is approximately 30%, which is in line with plan and within our internal limit. Our cash and liquidity are expected to further improve due to the planned higher production and materially lower capital in the second half compared to the first half. When taking this into consideration, with the current spot metal prices and should they be sustained during the quarter and the half, this will further enhance our cash flow and liquidity. If the spot metal prices are sustained, we would generate an additional $15 million to $20 million each month over and above what we did in the first half. We continue to proactively manage our balance sheet through disciplined operating and capital cost control during this capital-intensive period and volatile price environment.
I'll now hand over to Bob.
Thanks, Lawrie, and good morning, everyone. We have had a strong December quarter with both gold and copper production lifting over the previous period as planned. Operational pressures, including the ongoing effects of La Nina weather patterns and the inflationary cost environment, which we're all facing, were managed extremely well by the sites. Pleasingly, our safety performance continued to improve with a total recordable injury frequency rate dropping over the quarter to $9.32. Cowal had an outstanding quarter producing 73,700 ounces at an all-in sustaining cost of $1,042 an ounce. Despite the ongoing rainfall that challenged the site during the quarter. Performance in the plant was the highest under our ownership on several metrics, including throughput of viability and recovery. mining process grade both increased during the quarter and are planned to increase further in the next 2 quarters. The underground project progressed to plan, remaining on track and budget for first to par in the June quarter. Underground development lifted 11% to 2,078 meters. The pace plant construction advanced, and we're on track for commissioning in the June quarter on plan, and the accommodation village is nearing completion expected in March quarter. As a result of the strong operational performance and the disciplined cost control, operating mine cash flow increased 66% to $96.5 million in the quarter. At Ernest Henry, copper and gold production increased over the last quarter, in line with land, driven by higher grades from the code. Ore mined and processed both increased slightly despite shops performed successfully in both the underground and the mill during the quarter. The higher production and the higher copper price contributed to a standout operating mine cash flow of $156 million, and an all-in sustaining cost of negative $3,748 an ounce for the quarter. Reflecting our confidence in the mine life extension, we have engaged Barminco to support the acceleration of the decline below the 1,200 RL. Mobilization has commenced, and we'll see good advance in the March quarter. We continue to see positive results from the Doman drilling, which Glen will speak to later.
Moving to Red Lake. As outlined by Lawrie, had a difficult quarter. Partly through the quarter, we noticed a concerning trend emerging, which needed immediate rectification, and I made the decision to put my primary focus into RedLock. I'll predominantly be on site for the second half of the quarter and have initiated key management and operational changes, including the appointment of a new operational head, Thomas , sorry, and we have commenced an external search for the site lead role. These changes have already delivered a monthly run rate during January at 1,500 meters per month in development, 18,000 meters of production drilling in -- per month and 80,000 tonnes of ore mined during the month.
In summary, through being able to spend more continuous time on site, I'm still confident in our ability to deliver at Red Lake going forward and over the long term.
Moving on to Mungari. Mungari had an impressive quarter with production above plan. Costs were well controlled despite the continued tight labor market, higher gold sales and higher realized price resulted in the operating mine cash flow increasing to $18.3 million. Mt Rawdon continues to be affected by the La Nina weather system with water management strategies remaining a key focus on site. The processing of low-grade stockpiles continue to produce -- to drive production profiles while there is a restricted access to the orphan pit. Pleasingly, the North Wall exclusion zone has been removed, following an extensive geotech review and the implementation of additional controls. This is an important milestone for the site as it provides an additional mining front, which drives higher pit productions and will increase tonnes mined from the pit this quarter. Thank you for your time, and I'll hand it over to Glen.
Thank you, Bob, and good morning, everyone. I'd like to turn your attention now to the exploration report we released this morning, describing the exciting results at Ernest Henry. The ongoing surface and underground drilling programs continue to grow mineralization at this world-class copper gold deposit. We completed the mine extension PFS as planned in December. However, with the exciting drilling results continuing to come through, which indicate a larger mineralization footprint, we have made the decision to extend the PFS a few more months which will allow the full benefit of the growing ore body to be optimized in the mine design and the location of key underground infrastructure. Following on from the drilling results we released in November last year, we have received assays from 2 additional diamond holes that further extend the domain of copper gold mineralization in the mainlands well below the area of the ore body extension PFS. We have been able to repeat the very wide intervals of mineralization in our latest hole, 12,267, which returned a 118-meter downhole interval grading 1.15% copper and 0.79 grams per tonne gold. This latest intercept illustrated on the long section in Figure 1 and in cross section on Figure 2 of this morning's update. It's situated 80 meters down depth of the wide high-grade interval previously reported in hole 1226 D6. The combination of these excellent results and wide intervals as shown in Figure 2 supports a geological interpretation that the ore body will extend at similar winds well below the currently moderated limits of mineralization. Hole-1226 D5 also released in this morning's update, across the main lens up dip of holes D6 and D7. Figure 2 shows that mineralization is approaching the upper limit of the mainlands on this particular cross section. Below the reported interval in hole D5. The lens opens into an impressive volume and mineralization approaching Truis ranging 60 to 80 meters wide, extends at least 270 meters down dip and remains open at depth. Figure 1 also shows the location of holes 1312 and 1314, which are 2 underground diamond holes completed during the quarter into the vacant areas of their model between the early junior lens and the deep extension of the main lens. I'd like to draw your attention to Figure 3, which is a close up long section viewing the whole locations highlighting their significance to expand the mineral resource into this undrilled area of the mine. Although we have not yet received assay results, both holes intersected wide intervals of chalcopyrite mineralization indicating mineralization is continuous down plunge from the early junior lens on the upper right-hand side of the cross-section and up plunge from the deep extension of the main lands on the lower left. Pleasingly, we expect the new drilling results will drive an expansion of the mineral resource across this space, and we'll add more metal to the study area between the 1125 and 775-meter RLs, which can be optimized in the PFS.
Turning now to our Q project. We achieved the earning milestone under the earning an exploration joint venture with Musgrave Minerals. The joint venture was formed in December, an evolution now holds 75% of this prospective greenstone belt at Lake Austin North. Diamond drilling results returned from Q, which are highlighted on Pages 4 and 5 of the exploration update were positive and have confirmed the geology and structure of the West Island prospect in a series of stacked narrow high-grade loads within a broader lower-grade envelope along the 1.6 kilometer mineralized trend. Modeling work is currently being undertaken to domain key loads over mineable with that all being well can support estimation of a maiden mineral resource. The outcomes of this work will guide the future exploration program in the second half of FY '23.
I'd like to close out with a final comment on Ernest Henry, which is positioning itself as a rare opportunity that comes along in a geologist career to participate in an expanding orebody story that is delivering such long intervals of high-grade copper and gold exceeding current reserve grades as well as going beyond my expectations. In my experience, ore bodies tend to bottom out and reduce grade as they grow deeper. Ernest Henry appears to be doing the opposite, and it will be an exciting journey over the next 6 months to understand what is possible with this ore body.
With that, I will hand back to the operator to open the line for questions.
[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley.
Can we please start perhaps with Red Lake. I just wanted to get some color in terms of the Upper Cambpell area. How much ore was available during the quarter? And how do you expect that to progress over the year? And perhaps if you can also provide a bit of color around that absenteeism comment that was in the quarterly. Just wanted to understand what that relates to. Is that COVID-related still? Or is there something else going on in terms of a tight labor market leading to turnover? That's the first one.
Thanks, Rahul. I'll hand to Bob shortly to touch on Upper Campbell and the absenteeism. But I'll just make a comment that Upper Campbell is planned predominantly in Q4 is when we will get the most tonnes out and the like. And absenteeism was really around that holiday period where we saw crew members not turning up to work.
That's correct, Lawrie. So we mined 2 stopes so far in the Upper Campbell region. They're just 2 small crownfills. But over the next 4 to 6 months, we'll be expanding that to being a little bit more consistent through the months with the Q4 being the highest production for the year. We're still developing. We're still opening up areas and it's still coming online. The absenteeism as Lawrie said, it was around that start of the festive season. It also was around some periods in in the local area where people tend to go away on vacation as well as some uncleaned absentees. So we believe we have it under control now. It's not to do with -- that's not to do with vacancies or anything like, it's just about short-term absenteeism.
Okay. Understood. And look, the second one was around Cowal. Obviously, a very strong quarter. and quite pleasing to see the result, especially given some risks around La Nina. I wanted to extrapolate perhaps in the future periods. How should we think about this record quarter? I mean is there certain parameters that you can provide for us to understand whether this record throughput and performance can continue at Cowal. Are there certain things that can be done to make sure that performance perhaps continues to exceed expectations like it has this quarter?
Yes. I think for Cowal, the December quarter, there was no major shutdown. So there was a shutdown in September. Not one in December. The next major one is in the March quarter next month. And then in June, we don't have a shut. So when we look at the throughput, we'd be looking at where it is at the halfway mark rather than the throughput just for the December quarter. So at about 4.4 million tonnes, that's in line with where we'd expect to see in the second half of the year. What we are seeing though is in Q1 was having to utilize lower-grade material off the stockpile and in Q2 through the second half of November and December, they had full access to the pit, which lifted the grade that we've processed. What we would then expect in the second half of the year is that grade profile lift again from the $1.14 billion somewhere between there and 1.2. So that's what we should see in the second half versus the first half, assuming we have seen the end of La Nina.
Got you. Okay. Look, final one for me. You mentioned a couple of times in your introductory comments about gold price being above budget, copper price being above budget. In the past, obviously, Evolution's focused on keeping the margins and kept to the mine plan as it was set. Is there any incentive now to start picking some of the more marginal material that lies within the pits or in the stopes to perhaps prioritize production over costs?
Look, our focus remains on the margin. I mean, if we look at it in the quarter, our sustaining costs did get a benefit from copper, but it also got a benefit from the increased production and the operating costs were down about $60 an ounce based on Q2 versus Q1. So our focus remains on that. I think as we go through both the pits and the underground material that's at the margins. Certainly in the open pits, we'll end up on the stockpile and we'll process the higher grade. And similarly, in the underground, if we think there's an economic return on it, we'll take that material to surface as well.
Your next question comes from Al Harvey from JPMorgan.
Lawrie and team, just following up on Red Lake. You kind of mentioned that a bit of unplanned absenteeism over Christmas. So just trying to understand how that kind of played out in terms of production. It sounds like perhaps it was the dilution that played more of a part in the production mask, maybe you can just step us through the issues there, Bob.
Yes, dilution had to affect on people and therefore on tonnes. Dilution had an effect on the available tonnes. So there was a combined net effect. The dilution was a combination of both under break. So therefore, not getting the right grade at the right time as well as some venting of a couple of our key stopes, which we've fixed now with some drawn last quality assurance, quality control actions going into place. And the dilution was really -- it was the bigger effect in the absentees. But absentees do affect us from an ability to get the tons out. Across the lease, the models are still actually within that plus or minus 5%. They're still performing really well because we actually want to do the survey and the CMS and everything else we can actually track back to where we've had issues. We have done a lot of improvements in the last area over the last 4 to 6 weeks. And we're actually starting to see the the net effect of those coming to fruition now.
Great. And just to follow up on the management changes. I just want to kind of understand when -- just to clarify when those came into place. And I guess the commentary around you spending a bit more time over there. So just trying to understand how that impacts executive management across the broader business when you've got Ernest Henry and Mungari potentially to expand over the coming year?
Yes. Do you want me to take?
Yes.
So about mid-November, Jason Floyd and myself basically really deployed ourselves to thinking about Red Lake. And I think I only just got back to Australia on Sunday. I've been there since the 28th to 29th of December. Jason is now back there as well, and he will cover while I'm back in Australia. The ops manager left before that, and we have now replaced our position with Thomas Leftbridge. He used to be our General Manager at Rawdon. So pretty excited about having him back in the fold. And we're out actually looking for the lead for Red Lake at the moment. We've got an external search going on through Canada as we speak. The broader context across the group. We have made some changes to cover my absence. Do you want to comment on that, Lawrie, or do you want me to?
Yes. Look, I mean I think what we saw and at Red Lake through that quarter and partway through was moving away from the plan going back to old habits and it was going to end up giving us a difficult quarter we had. So as Bob said, he and Jason have been focused on that. I think the pleasing thing is that the Australian operations have been delivering to plan. They've been well managed to site general managers and their teams knew what they needed to deliver and Cowal was an example of that when the weather improved and the quarter they ended up with. So from the Australian operations and the executive team time allocation, that's still focused on the entire business and Bob is predominantly focused on getting Red Lake back on track.
Yes, that was a good result for the [ opsin ] my view. But maybe I'll just finish one more before I queue back up again. Just on the Mungari study. I guess it's completed in the December quarter and presenting to the Board in March. Just wondering if you could refresh our memory on the scope here, if there's been any changes. And I guess, any color on how the project stacks up on economic returns, not heat of detail in the quarterly today on on how much value that could add to the business.
Yes. Look, Al, the study did finished on time and certainly what the team the last 6 months was looking at the durability of the project in the environment in Western Australia. It still came back within the capital cost estimate. We haven't put a lot of the detail in there in the quarterly because we thought it was more appropriate for the board to see the results of the study before the market. That Board meeting is next month. But we finished the study. The timing of the project still looks at 2 year duration. The project capital still remains in line with what we had previously guided to the market, and the returns are certainly above what we'd be expecting as the minimum thresholds in terms of rates of returns and NPV.
Your next question comes from David Radclyffe from Global Mining Research.
My first question is on Ernest Henry and the copper outlook there. When you acquired the copper stream, you were sort of thinking about 60,000 tonnes of copper a year sort of profile. I think that was then downgraded to circa 50,000 tonnes. Currently, you an sort of up to 60,000 tonne rate. So was this the plan? Or are you seeing sort of better copper grades or reconciliations or have you changed the plan there?
Thanks, Dave. Look, it is pleasing that the performance in the first half at Ernest Henry, the grade has outperformed slightly, but we also have been able to get higher than we plan throughput. At the same time, in the last few months, the team have been working on finishing some projects which were sending around concentrate grades and recoveries, and they've been able to come to a solution on that, which has given us a tick up in copper for the first half, and we'd expect some of that to flow through in the second half. So it's nothing that we've seen any difference. We had actually guided to around 55,000 tonnes over this year and next year. And then the grades will come down as we get to the end of this part of the mine area. What we are pleased with is that the drill results that Glen has talked about is that the grade is actually holding up at depth. So there may be upside, but we'll see what happens as this study finishes over the next 4 to 5 months. Glen, anything you want to add?
I think you've largely covered it, Lawrie, One of the highlights that's exciting me about the drilling results dates that we are seeing higher copper and gold grades. In an absolute sense, the copper gold ratio is still the same. Higher absolute grades in these drilling results and certainly well above reserve grade. So I think when it's all said and done by the time we sort of update our models as we go we certainly don't expect a downward trajectory. It will hold steady or hopefully improve.
Okay. And then maybe as a follow-up at Red Like. In addition to the dilution in absentee issues you're talking about, or processing looks to be lagging. It looks to be sort of running at sort of 800,000 tonnes a year annualized that's below what I thought was a target of 1 million tonnes. So what's driving this? Is it a lack of stockpiles to supplement underground ore? Or is there something else driving the lower processing rate?
I'll hand that to Bob, but it is back ended as we get access to more ore in Q3 and particularly Q4.
Correct. And it's directly related to the mining rate, Dave. So as the mining rate comes up, this month, January to date, our run rate puts us at around about 80,000 tonnes, and the plan is to actually get that up a little bit higher, which will give us the sort of 1 million plus rate for an annualized rate?
Okay. So there's no stockpile left anymore to help supplement the processing?
What I'd call working stock. It sort of bounces around that sort of a couple of thousand up to sort of 10,000 then it comes down again as we have been maintenance on shafts and things like that.
Your next question comes from Kate McCutcheon from Citi.
Lawrie and Bob, Happy New Year. On D&A, tracking above the guidance range, can we expect that to come down into? And my second finance question was, are those stamp duty payments still coming out of the cash flow this half or half is gone?
Happy New Year you too, Kate. The G&A on a per ounce, it's trending above, but that will come down based on the second at the actual gross spend on G&A, which is in the table on Page 7, they're actually in line and were better in the December quarter than the September quarter. And then the second one, the stamp duties, both at Ernest Henry and Mungari are still pending they're due when we get the notices from the office of state revenues, respectively.
Okay. And sorry, that fast one was depreciation.
Sorry, G&A is similar. So there's 2 things there. One is the production increases in the second half, the units of production depreciation will come through and that won't have an impact. The fixed or straight-line depreciation items in the first half getting depreciated over lower ounces is what's giving us the higher D&A per ounce in the half of the year. So we do expect that to trend in the second half based on the increased production.
Okay. Cool. And then Red Lake, sorry, to go back again here. So on this site with you had those charts in the deck showing how reconciliation of design to actuals had improved. But then from your comments on the call, it seems like there was under break issues again this quarter. In your view, what's the key to getting consistency with this performance to plan. And then the second part of the question was you've said that the model is reconciling well, but then you've called out dilution is problematic, which would imply that it's not reconciling that well? Or are you confident that that's under control? Or have I misheard that?
Yes. So that's tightened, Happy New Year to you too. The -- I'll do the second one first. The dilution, that's really the external dilution that's coming in that has been the cause of the dilution that we're talking about at the moment, not the models themselves. When we reconcile the CMSs back to the stopes and the design, et cetera, et cetera, we're seeing where the drill and blast is causing that dollar in the over break. On the over break in the conversations that we had at the site visit. If I was to point it in a couple of words, I'd say operating discipline and leadership are probably the 2 main things that are -- we lost in the last quarter, which we're guiding back near.
Okay. So it got better. And then last quarter, it wasn't so good conformance to plan and now it's getting better in January.
Yes, yes. And compliance to plan is clear at Red Lake, and we just have to be myopic on it and make sure that we follow it diligently all the time. And in the -- sorry, December, in January, it's improved significantly.
Your next question comes from Levi Spry from UBS.
Just on the Ernest Henry. Copper price -- realized copper price was very good. I think you mentioned you've been doing some work on the offtake. But is there any particular reason why price realized was so good, just timing? Any change to capabilities or anything like that?
Happy New Year, Levi. No, there's no change in pay abilities or anything like that. It's effectively what we saw at the end of the December month, which is when we price the open shipments, that spike. So essentially, it was valued at $12,500 a ton at December, the previous quarter was around $11,500 a tonne at the end of the quarter. And that's what gave the benefit whereby the achieved price for the quarter gets to that $13,000. So it's just merely the open shipments that have to be revalued every month, which is about 20,000 tonnes open every month.
Got it. And just in terms of the exploration update there and the pre-feasibility sort of optimization, can you maybe just talk us through what that involves. You mentioned maybe moving the some of the infrastructure. So is this more just about bigger inventory, longer life? What are the sort of key value drivers here to optimization?
Yes. So the main drivers are the drill program that Glen talked about. So we have more drill drilling to be done through the next couple of months and the ones that the results that Glen mentioned are still outstanding for the team to take into consideration and update the resource model. And if it is showing that depth at the grades that Glen is talking about, and we do see a connection with Erny Junior, then that will get the study team, the decision of how far down do we put the next crushing and conveying system and then the ventilation and the like that needs to be going with it. So that's really what we're working through over the next 4 to 5 months.
Your next question comes from Alex Barkley from RBC.
Just for Ernest Henry, gold recovery was a little bit low, even though grades were decent, exactly why was that? Also, what was the copper recovery I didn't see that one in the release. I might have missed that one.
Thanks, Alex. The gold will be the recoveries will be on finalization of assays and the sales. So that's what drove that in -- mainly in the quarter. And in terms of the copper grade, we'll get back to you if it's not actually in the report.
Okay. So recoveries you sort of bounced back...
Over capital. Sorry, sorry.
And the gold run should sort of bounce back higher. Is that the idea?
Yes. I mean year-to-date, it's trending in line with where we're expecting, but...
Yes, no problem. Just a comment earlier about where copper guidance is sitting FY '24. I think it's 50 kilotons you're thinking grades might get after that, if I heard correctly. I would have thought your depleted reserve grade might suggest slightly higher grades, like copper production going up. Just confirming that great expectation beyond FY '24.
For now, it's still in that 50,000 to 55,000 tonnes in the foreseeable future here, Alex, there's no real change. So it will go up.
Your next question comes from Daniel Morgan from Barron Joey.
Just first question on Cowal. It appears a very strong result in light of all the wet weather in the region, which you called out. Just wondering if you could talk about how that might have impacted performance? I mean, it's not obvious that has, but is there any pit access issues that are a hangover that might impact this quarter where we do a bit more stockpiling, or yes?
Thanks, Dan. No, look, I mean, what we saw is essentially from mid-November through to the end of the quarter, they had a clean run out at no weather events that stopped them getting into the pit. And in December, they actually did over 2 million tonnes out of the pit. So they were -- have no access issues. And what we'd expect to see in the second half, as I said earlier, assuming La Nina's finished and they get a good run of weather. They'll be increasing the tonnes mined and that will outline the mill and allow them access to the high-grade material that I mentioned, where we should be trending up towards 1.2 grams per tonne in the second half of the year.
And just at Ernest Henry, it looks -- obviously, it looks very promising from everything you're outlining. But can you just remind us on the pathway and timing of a decision to proceed. I mean, it looks like you've almost made some of the early decisions given you've made the early work decisions with Barminco on the development. Can you maybe talk about what a decision looks like and the long lead items when you might make a decision on that?
Yes. So the study will continue in PFS through to the end of this financial year. What we are doing though is knowing the extensions below the 1,200 are going to happen. So we are getting work done to make sure that, that development doesn't become a bottleneck so that when we need to put the infrastructure in underground, we're able to do that. So those pieces of work are continuing over the next 6 months as well. Then what we look at is the decision in June to go into feasibility study. And what we'd be looking at is that you're still about 2 and a bit years away before you really ramping up that development and installing the infrastructure.
Your next question comes from Nick Evans from The Australian.
Just returning back to Mungari. I think when you said in June last year when you said you were going to defer it, you were sort of really working an overheated sort of both capital and labor shortages. Over the last 6 months and without prejudging what the Board made aside on this, are you sort of seeing a back to sort of previous normal? I mean how are you thinking about the, I guess, that sort of overheated market in WA at that time compared to where you sort of sit when you take it into the board next month, Lawrie. And secondly, just across the board in terms of the WA labor market on the East Coast, are you seeing any change in where the pinch points are in terms of finding skilled labor, is it a hard across the board? Has there been any shift since the international borders have become a little bit more open. Can you just talk us through sort of where you're seeing the labor market across the board at the moment as well as specifically around the Mungari expansion?
Thanks, Nick. Mungari, look, from where we were when the project went into feasibility study, the capital that the team expected to see has panned out to be fairly well in line. And I think that was because they had taken a view on where the WA market was heading and how many projects were in the pipeline. So pleasingly, they've been able to land at a number that's still in line with that. I think what we've really looked at is those lead times and then around the EP and the CM, which way we we approach that? And is there a different way to do it than what they're originally thinking 12 months ago in terms of having the appropriate allocation of risk to the project. So from where it was 12 months ago to now, the project cost is still in line. I think what the next phase is working out when is the right time to go into that project to ensure that we can deliver it on time and on budget, and that's what the board will need to consider next month when we present the outcomes of it. In terms of the labor markets, WA continues to be the area that we experienced, the highest turnover, we are exposed to an increase in our FIFO workforce, which is now sitting in that 25% of the workforce at Mungari and changing habits of people over there wanting to be more FIFO. So that's the issue that Scott and I am handling with. The good thing is that each month for the last couple of months. There are number of roles that we're feeling is above the number of departures. So hopefully, we are starting to see that slow down a little bit at Mungari. I think on the East Coast, we're still experience the access -- and sorry, in WA, it's a lot around the tradespeople in particular versus the operators. And then on the East Coast, we're seeing it, it hasn't really moved upward or downward in the last 3 to 6 months. It's been pretty consistent. But I think we're for our operations, Ernest Henry, FIFO, Mt Rawdon is generally residential drive in, drive out where people are comfortable in that Southeast Queensland region. And then for Cowal in the Central West, the turnover hasn't been as high as probably what it was this time last year.
Your next question comes from Anthony Barich from S&P Global.
Yes. So just wondering about that out Rawdon, pump hydro. So August last year, Jake was saying that you certainly wouldn't be looking to build and operate something like that, but more -- maybe look to spin it off or exit. Is that still the options that you're looking at? If so is there -- given the work you've done so far, that given you an idea as to which way you're leaning? That's the first thing I wanted to ask.
Thanks, Anthony. I could be very pleased that pump hydro got a question. The project will, over the next 12 months, it will continue with the the geotechnical drilling to derisk the project, whilst at the same time, we're trying to work through with the government bodies and the regulatory bodies around the approvals piece. Our view hasn't changed. We don't see this as a project that will be long term in Evolution's portfolio. Ours is to take it to commercial close and then look at a way to exit that project. What we'd see is that by sort of middle to late this year, we would be finishing the sort of the technical feasibility study. And then around -- in the first quarter of next calendar year, we'd be seeing commercial close on the project where you're matching up the feasibility study with offtake partners and finances to build the project.
Okay. And a couple of things, which may be related in some way, just in terms of labor at least, Red Lake, what is the actual culture/leadership issue there? And secondly, on what Nick mentioned on follow-up there about the labor issue, labor and cost issue. Do you see any respond on the horizon, but you actually did do well containing the costs despite labor market. So what was the key to contain those costs despite all that stuff you fleshed out with next question.
I'll answer the cost one and then hand it Bob on Red Lake and what he's seeing in terms of culture and leadership issues on site. But in the costs, I think, when we look at it, 50%, 55% of our cost base is labor. And as we had announced on the September call and the full year results, our labor costs have moved 5% to 6% in the year. And so therefore, we haven't seen any further pressures on our labor costing our energy contracts have all been awarded for each of the operations. Red Lake isn't subject to that. So this is the Australian operations. So again, they will roll into new contracts at Carol and Mungari and Mt Rawdon from this month onwards, but they're still within our cost guidance numbers. And then in the other areas around diesel parts and the like. As we said earlier in the call, we've seen those stabilize. Some of them have come down. Some have obviously come down with the appreciating Aussie dollar in the quarter versus the September quarter. So that's really what we've got from an operational perspective is making sure that we're using those items as efficiently as we can, given the cost piece is out of our control. Bob, do you want to touch on the Red Lake.
Yes. Thanks, Lawrie. Anthony, it's culture is a hard 1 to actually define. When you look at the Red Lake, the colon the leadership, I think the easiest way is to look at the history and where they've come from. The district has a long history of mining, a long history of being good mines. Over a long period of time, though, the if I was to say the hybrid zone made us a little bit easy on a few of the harder areas. That's probably the side. And that goes to leadership and holding people to account and actually setting a direction and then making sure that people actually follow the direction, and that's on us. So that's on the leadership that's on us to stay in there and actually expect people to do what's required. I will say that the culture, I think, is improving. I think the accountability and the people accepting all of their own personal accountability and not of everybody to deliver is actually lifting is actually changing. So it's pleasing to see that.
So as it undergoes was it there when you bought the asset? I mean, this is a -- was this a concern, given you paid USD 335 million for it? And following on from that, is -- was there something that was there at the start and it's going down yell?Or is it just going to be in the same and you're struggling to address it, or what?
From my perspective, that's something that we're working with. The upside that I see is we get this right, when we get access to the 11 million ounces of resource that we've got to and that's the positive from my perspective. It takes time to work with people, and that's what we're doing.
I think it's fair to say, though, Anthony, we've owned it for 2.5 years and through the first part of that international borders were closed. I mean we weren't there on day 1 that we acquired it. We did have or so months before we took ownership to be able to learn as much as we could about the operating style and culture. I wouldn't say that it's got worse. I agree with Bob. It's actually got better because we've had to work with the sites to bring them on the journey of understanding where we want to take Red Lake to maximize the value out of the 11 million-ounce resource there. It meant changing from an operation that used to be 20, 30, 40, 50 grams a tonne to sub 10 grams a tonne, which means you've got to operate differently, and you need to be more efficient. You need more modern equipment, getting them to buy into those and then also embedding that culture through appropriate leadership at the site to say that once we change and move into this operating mode, we don't slip back. I mean this is an operation that's been going for over 50 years. and that is a change for them. And when they do buy into it, as Bob said, when you look at the development meters, the tonnes we're getting the processing plant improvements, it does actually work. We've just got to stop slipping back into old habits and have the leadership team on site, make sure we stay the journey.
We have a follow-up question from Al Harvey from from JP Morgan.
Yes. Maybe one for Glen, just to start with and bear with me, it's a bit geological. But I guess looking at the drilling decaps on Figure 2 of the Ernest Henry exploration release, looks like 122, D6 has had very impressive grades. But D7 just below, not quite the same tenure, although still impressive. Is there a view there like a change in the geological interpretation that perhaps ore bodies are now progressively with depths dipping to the west a bit more? And I guess, we're just trying to think about with the expanded capacity and life extension, how that impacts how you're thinking about CapEx more broadly and the potential for, I guess, the upside to mine life there. Sorry, a big question.
Al, I'll take the first part of the question, just what we're learning on majority. And you've called it correctly on the difference between D6 and D7. We do see a core of high grade on that figure 2 that you referenced in D6. And we see similar grades project up dip. It's a narrow as own down dip. This is a geological feature that we've begun to observe over the last sort of 6 to 9 months. And there is in various mineralization domains at Ernest Henry. And as you may appreciate, there are numerous lenses there, not just 1 or 2. The center or core areas of these lenders are called by higher-grade domains, and that's something that we're starting to see come through in the models or actually able us separately to man that. And the sit within a sort of broader envelope of mineralization that reports back at reserve grades. So the cause of these things are reporting higher than reserve grade and envelopes at reserve grade. To your point on the Western Lee dip, it's a good question actually. And what we're seeing is that as we push these holes further to the west, we are seeing mineralization actually build further out in the same direction. And that's something we haven't been able to -- we haven't been able to identify previously because of the really acute drilling angles, particularly for most of the deep drilling of the mainlands, which occurred underground on the 1,200 level. They were highly able angle. So the reason we got the surface rigs in was to drill across the ore body so we could define that all waste mineralization boundary of the ore body and actually bed that down accurately. And what these results are telling us is that there's more drilling that we're doing push through, particularly that western contact to understand and locate exactly where it is. And that might sort of it might indicate in the future that we're starting to see as sleep on .
Maybe just Bob could follow up on someone else can follow up on just how that's changing your views around the study and yes?
I'm thinking the question is, is the is the tonnage regime going to stay the same? Or is it going to increase with the increased geology side of the ore body. At this stage, any cave is predicated on the draw points the ring turnovers and the cave draw model. And at this stage, it's too early for me to actually say whether this is going to increase it. Our premise at the moment is that it will. Circle where we've been as we go down to the extension. Hopefully, if what Glen saying continues, then we can reassess some of those draw points and number of draw points therefore take it out. But it's really too early to try and to get some of that -- so the updated study over the next 6 months, that's just going to really incorporate the current drilling? Yes, and it will allow us to to assess what you just asked to see whether what is the appropriate tons that we could get out of the cave without actually offending any of the cave draw characteristics or the geotechnical considerations.
Thank you. Your final question comes from Jon Bishop from John Group Australia.
Just a couple for me. Your hedge book at the moment looks very light. Gold prices have obviously gapped up pretty strongly in the last couple of months and copper in the last couple of weeks. Is the temptation to build out that hedge book at the moment given you're still fairly CapEx heavy?
Thanks, John. At the moment, our hedge book is winding down. We use it as a tool to manage the balance sheet, but where we currently sit, there's no intentions to add hedging to the portfolio.
Okay. Great. And then similarly, just around hedging for copper, obviously, you're comfortable with current price direction. What about diesel? Is there any temptation to hedge diesel talking heads out there obviously calling China reopening and a huge increase of demand. Is there any temptation to hedge that side of the cost equation?
Look, it is one that we always look at where it sits as a percentage of our cost structure. And certainly, it will become less of a percentage of our cost structure, sub-5%, more likely 3% It's not one that we've got any in place at the moment. And when we look at the forwards on them, they're actually not very attractive. So that's why we haven't done anything even when the prices have come off their peaks.
Excellent. Just a couple of questions. You've sort of talked a little bit around the Ernest Henry PFS. That last question around the geology was helpful. I mean, I guess, very hypothetically, how deep or how far do you realistically want to get ahead of this ore body. It obviously looks like it's improving with depth in terms of tenor. Crystal ball, would you like a little bit more time? Or where do you cut things off in terms of having enough life of mine ahead of you in terms of committing the body? Is it middle of the year enough? Or could you conceivably go longer.
I'd like for Glen to keep extending it every time he drills it. But I mean, the reality is that we've got a time the mining out of the existing mine area and making sure that we're not ending up having to truck too much material until the infrastructure below the 1,200 is put in place. I mean we've put the pre-feasibility down to the 775 million, which was 875 when in the concept study. I think when you talk to the project team, their view is it's a few levels. It's not a lot. And all we need to do, as I said, is Glen to keep proving that it's getting bigger. But at some point in the next 6 to 8 months, we have to make the decision about where that infrastructure goes and continue to that there's not an impact on the existing production.
Okay. And then just finally on Red Lake, probably done to death, but I did note a quote, there was a concerning trend emerging prompted the change in management? Are you able to sort of disclose a little bit more what that concerning trend was or trends were?
Yes. Look, in brief, yes, we had a very good quarter in September, and that was also on the back of getting some material out of the upper levels of Upper Campbell. What we saw then starting to build into end of the December quarter was noncompliance to plan. We were starting to see waste coming back into the plant. We were -- so it was just the slipping back into the old habits and seeing it as Bob saw these results coming through, that it was going to put the quarter at risk. And therefore, we had to make those changes so that we then didn't come into this quarter with something that wasn't going to give us the ability to deliver a better outcome for the year. So it was just really -- and look, it's getting the supervisors and superintendents to make sure that we stay with the plan and don't go back to the old habits.
Yes. Okay. No, that's helpful. And then just finally, I guess one of the things that I rightly or wrongly took away from the site visit was at Red Lake there, one of the key pieces of work that seem to be running in parallel with optimizing the the mine plan and the underground development was understanding the resource in terms of grade, metallurgical distribution and the like. How is that body of work going? It's obviously hard when you've got 3 sort of major mining centers and huge inventory there to get on top of. Are you obliging me some broad-brush comments as to how that piece of work is going?
Yes, that piece of work is going well for completion through this financial year, along with the the processing optimization. It is difficult with the amount of ore bodies there, but it is tracking well to finish out this year.
There are no further questions at this time. I'll now hand back for closing remarks.
Thank you, Darcy, and thank you for your time this morning. A lot of questions, from our perspective, the first half is on track for where we need to deliver for the full year, keeping our guidance intact at 720,000 ounces at $1,240 an ounce. We have a big second half planned and we'll also update you with our half year financials next month. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.