Evolution Mining Ltd

ASX:EVN

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by, and welcome to the Evolution Mining March 2021 Quarter Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Bryan O'Hara, General Manager, Investor Relations. Please go ahead.

[Bryan O'Hara, General Manager of Investor Relations]

Thanks, Kelly. Good morning, and welcome to the Evolution Mining March 2021 Quarterly Conference Call. This morning on the call, we have Jake Klein, Executive Chairman; Lawrie Conway, CFO and Finance Director; Bob Fulker, COO; and Glen Masterman, VP, Discovery and Business Development. It's been an incredible start to the year with central banks doing everything in their power to stimulate growth following the hit to their economies in 2020. Interest rates are at or near 0 and record amounts of monetary and fiscal stimulus has been embarked on. Inflation remains low and many economies around the world are now booming without their prices of -- with prices of numerous asset classes shooting to the moon, including crypto, tech stocks, commodities and real estate. Not surprisingly, with all this excitement, gold has taken a back seat as real yields have risen and appetite for safe haven asset has waned. However, at the current spot price of over AUD 2,300 per ounce, producers are still enjoying exceptionally higher gold prices. And with surging expectations for future inflation and continued global currency devaluation, gold will continue to play an important role as an asset class as it has for thousands of years. Thanks, and I'll hand you over to Jake.

[Jacob Klein, Executive Chairman]

Thanks, Bryan. Good morning, everyone, and thanks for taking the time to join us on the call today. We do appreciate it. Starting with maybe the biggest news in the quarterly release today. Whilst I knew this day was likely to arrive, after 8 years in the role of heading up Investor Relations at Evolution, Bryan has decided to pursue a career in funds management. Unfortunately, I've run out of ways to convince him to stay. During his time at Evolution, Bryan has undoubtedly been instrumental in improving our reputation in the market for providing high-quality and transparent information to all stakeholders, I'd like to personally thank him for his efforts, dedication and contribution and wish him all the very best for his future endeavors. We, at Evolution, will certainly miss him. I'm pleased to announce that Martin Cummings will move into Bryan's role as the General Manager, Investor Relations effective July 1, 2021. Martin has extensive experience, including the last 7 years of Evolution in a number of senior roles, including General Manager Commercial that involved in leading all banking, procurement and insurance relationships. In supporting this transition, Bryan will remain with Evolution until the end of September and ensure a smooth handover to Martin.Turning to the quarterly. On the safety front, we ended March with a TRIF of 8.6. Red Lake and Mungari are where most of our recordable injuries are recurring and are getting the most attention. Across the company, we are focused on our critical risks and ensuring any actions are closed out quickly. From a production perspective, the March quarter was planned and budgeted to be a lower-production quarter. But the impact of heavy rains at Mt Rawdon, which restricted access to ore at the base of the pit, resulted in the quarter being softer than planned.Notwithstanding this, all our other operations performed largely in line with plans, and we are pleased that today, we are in a position to reduce our FY '21 all-in sustaining cost guidance from the original AUD 1,240 to AUD 1,300 an ounce to significantly improved AUD $1,190 to AUD 1,220 an ounce. In an environment where investors are appropriately becoming increasingly concerned about cost inflation as the Australian resources industry heats up, this is a very pleasing outcome. Underlying this and something I am very proud of is our very strong employee retention rates, which are close to 90%.The upcoming June quarter will be our strongest quarter for the year, with Mt Rawdon recovering and Red Lake continuing to ramp up its production. So we've also taken the opportunity to narrow the production guidance range just from -- to 695,000 to 710,000 ounces, which is well within the original guidance of 670,000 to 730,000 ounces. Overall, FY '21 is proving to be a very strong year for Evolution. Year-to-date, net mine cash flow is $459 million. The Cowal underground feasibility study that will enable Cowal to grow its production base to 350,000 ounces of low-cost gold a year has progressed well and engagement with the New South Wales government for the approvals has been constructive and positive. Red Lake delivered production ahead of plan and delivered a record quarter under Evolution's ownership. With the restart of the Red Lake mill, we expect the June quarter to be materially better. On the 15th of March, we announced an agreement to acquire Battle North for a cash consideration of approximately CAD 343 million. Transaction has the full support of the Battle North Board and has been well received by both Battle North and Evolution shareholders. Both groups understand the compelling synergies that exist. The Battle North tenements are almost the same size as our Red Lake ground position and are contiguous to ours. They are highly prospective with an existing reserve and resource base that would have underpinned a smaller stand-alone operation, producing 74,000 -- around 74,000 ounces a year at less than USD 900 per ounce all-in sustaining cost. Their plant is approximately 12 kilometers away by road, from our mining operations and our due diligence supported the Battle North view that it is expandable from its existing 650,000 tonnes per annum to 900,000 tonnes per annum capacity at a low capital cost. They also have material tax losses, a large portion of which will be able to be utilized by merged operation. Timing was right. Battle North had secured bank funding to commence their stand-alone development, and there was a window in which to make an offer. I commend and thank their CEO, George Ogilvie, his team and the Battle North Board of Directors being open to engagements and at all times acting commercially and in the best interest of their shareholders. The Battle North Shareholder Meeting is scheduled for the 11th of May. With that, I'll hand over to Bob to provide some further detail on the operations.

[Robert Stanley Fulker, Chief Operating Officer]

Thanks, Jake, and good morning, everybody. I'd like to start with safety. As Jake mentioned, we have slightly increased our TRIF by 2% for last quarter. Mt Rawdon continues its exceptional run of injury-free production with 453 days injury-free as of today. March production was 161,000 ounces produced. This was due to the group-wide lower plan mill feed grade and Mt Rawdon's unplanned stockpile treatment, realizing a net quarter-on-quarter reduction in ore feed grade of 8%. All-in sustaining costs of $1,263 resulted in a $101 million of net mine cash flow. Mt Rawdon's production was impacted due to heavy rain, requiring wall remediation. This affected the planned mill feed as we substitute a low-grade stockpiles for high-grade pit feed. This remediation is now completed. And as previously stated, the fourth quarter was planned for higher ounce production due to a full quarter of production from both Red Lake mills. This is now combined with an improved Mt Rawdon quarter due to delayed high-grade feed. Cowal delivered 52,000 ounces at an all-in sustaining cost of $1,078 an ounce with an operating mine cash flow of $56.9 million. Pleasingly, their spend on major growth projects has continued with $36 million in completed works for the quarter. The Cowal Underground achieved another significant milestone in February with the commencement of the Galway decline. This will provide additional underground drilling platforms with drilling commencing in the June quarter. The June quarter will also see the completion of the feasibility study while the regulatory approval process continues in line with our expectations. During the quarter, Cowal operation experienced a 1-in-100-year rain (sic) [ weather ] event. While this resulted in higher-than-planned weather delays and some geotechnical issues, John and the site team responded extremely well. And consequently, the mine remains on track to deliver the full year. Ernest Henry, once again, made a significant financial contribution to the group, producing 22,400 ounces at an all-in sustaining cost of negative $1,027 per ounce, whilst generating a net mine cash flow for Evolution of $74.8 million. Red Lake produced 36,000 ounces at an all-in sustaining cost of $1,966 per ounce with a net mine cash flow of $1.3 million. Noting the operations sold 3,000 ounces less than it produced. The work on transformation of the Red Lake operation continues to plan with several highlights achieved during the quarter. We are starting to see consistency in mine development, successfully restarting the Red Lake mill and the milling team achieved the second consecutive record throughput month at Red Lake processing 56,200 tonnes for the month of March. With the Board approving the [ COD ] decline expenditure work commenced on the box cut. The next key milestone being the underground development contract mobilization. The decline project remains on track to deliver ore within 12 months. With the Battle North potential acquisition, the Red Lake technical team have been working to include this exciting opportunity into the Red Lake planning cycle. Integration is well underway, and the team are looking forward to the opportunity to bring the entire field together under the 1 leadership team within the next couple of months. Mungari delivered 27,000 ounces in the quarter at an all-in sustaining cost of $1,561 an ounce and net mine cash flow of $10.9 million. On the production front, seismicity impacted the underground mining sequence and high-grade delivery during the quarter. However, the underground production from other sources remain consistent. Open pit mining rates have increased by 20% quarter-on-quarter as Cutters Ridge infrastructure setup was completed. As mentioned, Mt Rawdon's production was seriously affected by rain and the subsequent geotechnical issues on the east wall. The team has remediated the pit wall and regained access to the pit bottom. We've also completed the work and increased stability efforts that were a concern during the late wet season. The mining schedule has been reforecast taking the remediation timing and the bench positioning into consideration to significantly increase ore production during Q4 from the Northern end of the pit. The pressurization holes have been installed in both the east and west walls to mitigate the effect of further rain events. And the destocking of the Eastern ramp will be deferred until surface high-grade stocks have been built. It's been a tough quarter for the team, but the focus on safety and a determination to work through the issues has been back into the high-grade zones in the pit base. We have reestablished access to the fresh ore on the negative 30 RL and this is grading 0.9 grams per tonne compared to the 0.5 stockpile material processed in the March quarter. Mt Carlton delivered to plan the quarter cash flow was affected by timing of the concentrated shipments, and this is expected to turn around in the coming quarter. In the June quarter, Mt Carlton underground will be concentrating on the Western zone and the A39 decline. In summary, our operations are in a great position to deliver a strong June quarter and the delivery of our yearly guidance for ounces and a pleasingly reduction in guidance on cost. Thank you for your time, and I'll hand it over to Glen.

[Glenton J. Masterman]

Thank you, Bob, and good morning, everyone. Drilling was ongoing during the quarter at Red Lake, Cowal, Mungari and Cue, where we completed over 14,000 meters of resource definition drilling and 22,000 meters of Discovery drilling. At Red Lake, up to 9 rigs were active with 6 in the underground and 3 on surface. A number of high-grade results from infill holes confirmed continuity of higher grades in the deep sulfide ore body at lower Red Lake which are expected to convert from resources to reserves. Encouraging step out to Cochenour outlined on Page 11 will be followed up in the June quarter. The holes are planned beneath the upper main zone with aggressive step-outs to explore the full extent of mineralization beyond the deepest levels of planned development. Discovery drilling continued underground on structural and stratigraphic targets in the Hangingwall of the Kovala fault. This fault has an important influence on the geometry of the historically mined high-grade zone and may potentially link to new mineralization in adjacent domains. We are currently following up the promising results highlighted on Page 12 to determine potential scale and greater mineralization intersected in this hole. The 3 surface rigs were positioned on targets outside the mining infrastructure footprint. One of the rigs were set up on the ice and provided our first experience of [ Lake drilling Canadian style ], which, as you can imagine, is a little different to what we are normally accustomed to when we drill on [ Salt ] Lakes in Western Australia. Results from the program on the East Bay Trend, the Western Stratigraphy and the SR Zone will be known during the June quarter. Locations of the 3 prospects are shown on Figure 2 -- in Figure 2 on Page 13. At Cowal, a single surface rig completed 8 holes into GRE46 underground. Strong results continue to improve ore body definition at Dalwhinnie and extend the resource down plunge. Late in the quarter, the rig moved into pit with E42 to complete geotechnical drilling before setting up on the Southwest Crest to drill 4 deep step-out holes. The drilling is targeting high-grade extensions of mineralization beneath the ultimate pit design where historic grade -- where historic high-grade intercepts are associated with the central fault. At Mungari, drilling underground at Frog's Leg aim to incrementally extend mineralization at the Rocket ore body beneath the deepest development in the mine. The drilling is intended to delineate how far the mineralized vein structure can fill into an untested space that is ultimately closed off by a panel of drilling deeper down. Visual results have been encouraging, albeit the structure appears to narrow down debt. Results, which we expect will be available later in the June quarter, we'll guide further drill planning to potentially extend mine life in the underground. At Cue in Western Australia, our joint venture partner, Musgrave Minerals, commenced a 7-hole diamond drilling program. The objectivity of the drilling is to identify high-grade bedrock origins of the 5-kilometer-long gold-in-air core anomaly at Lake Austin, the results are expected to be available in the June quarter. Lastly, at Crush Creek, drilling is planned to commence early this quarter continued building on the 126,000 ounce maiden Mineral Resource released back in February. Drilling will be focused on growing the resource base and following up on positive results reported last quarter from Gamma and Delta. Several new targets were developed over the summer wet season, which will be added to the work program in this quarter. With that, I'll hand over to Lawrie.

[Lawrence John Conway, Finance Director, CFO & Director]

Thank you, Glen, and good morning, everyone. A summary of our financial performance for the March quarter is outlined on Pages 10 and 11 of the report. A few key points I want to highlight today are as follows: Our cash generation and margin are good despite a lower gold price; the outlook for the June quarter is sound, which allows us to improve our cost guidance; and our balance sheet strength demonstrates we're able to prosper through the cycle. We generated $100 million of net mine cash flow and $40 million of group cash flow in the quarter. Operationally, as outlined by Bob, the main drivers to production and unit costs were mostly planned lower grades which were down 8% quarter-on-quarter and the flow-on effect to recoveries, which were down 2%. However, the biggest impact on our cash flow was metal prices. The achieved gold price was 8% or $200 per ounce lower. We did benefit from a 20% higher copper price, which meant the overall net price impact was around 5% lower. However, against this lower price, we still delivered an all-in cost margin of $467 per ounce, which is the equivalent of 21% of revenue. Year-to-date, our all-in cost margin is $731 an ounce or just over 30%. With an improved performance expected in the June quarter, this margin will increase. Looking to the June quarter, where we are on track for higher production and lower costs. The utilization of the Red Lake mill for the full quarter and access to higher grades in the pit at Mt Rawdon will be the main drivers to June quarter. The other operations will be similar with some minor increases or decreases. This will see the average group grade and recovery moved back up towards the December quarter levels. This has been allowed -- this has allowed us to tighten our guidance range to between 695,000 and 710,000 ounces. On the back of this plan for the June quarter and the consistent cost profile across the business as well as a higher achieved copper price, we have lowered our all-in sustaining cost guidance to $1,190 to $1,220 per ounce. The real positive, though, is that in the area where we have the most influence is being very well controlled. That is in the area of costs. Our operating expenditure has been at the $225 million mark for each of the first 3 quarters this year. We will see a slight increase in the June quarter but this is being driven mainly by the Red Lake and Mt Rawdon activities mentioned earlier. Our sustaining capital has also been consistent at $23 million to $25 million for each quarter. And based on the forecast for the June quarter, we will finish the year at $100 million to $110 million, which is down from our original guidance of $113 million to $138 million. From an all-in cost perspective, our major projects are tracking to plan, which has an increasing spend profile as these projects advance. We are on track to finish the year within the original guidance range of $260 million to $290 million. With year-to-date net mine cash flow and group cash flow of $455 million and $258 million, respectively, the balance sheet is in excellent shape. Net bank (sic) [ Net bank debt ] is $167 million after we paid a record interim dividend amount of $120 million during the quarter. Our unaudited gearing is 6%, and we are heading to a net cash position by the end of the year prior to completion of the Battle North transaction. We plan to fund the Battle North transaction from existing cash and credit facility. Our revolver facility of $360 million remains undrawn, which provides us with adequate liquidity going forward. Thank you for your time this morning, and Kelly, please open the lines for questions.

[Operator]

[Operator Instructions] Your first question comes from Nick Herbert with Crédit Suisse.

[Nick Herbert, Research Analyst]

I might just start on Red Lake, please. Just to clarify a few details on that Upper Campbell. Just wondering what the ramp-up profile is post that first ore in 12 months and what sustainable extraction rate that gets to? Also, just interested in the grade continuity, whether we should just be assuming that reserve grade 7.4% or whether that's sort of some variability there when you sort of start from that top down? I've got a couple of others to follow.

[Jacob Klein, Executive Chairman]

Thanks, Nick. I'll pass over to Bob.

[Robert Stanley Fulker, Chief Operating Officer]

Thanks, Nick. The grade is -- your assumptions are right. The ramp-up, we're expecting it to be over an extended or not extended, but it's not going to be instantaneous. So it's going to take a bit of time to ramp up to a full production tonnage regime. And it will be post the 12-month time frame. So we're expecting maybe to get some development ore in that first 12 months, but nothing major else. Post that, we're using pretty broad numbers at the moment, but most underground decline mines, that second year would be some sort of half rate then moving into full rate for that sort of third and subsequent years. We are planning for the areas we have a couple of mining fronts. And as we said last time, full production is around about -- I don't know. That is it...

[Jacob Klein, Executive Chairman]

I mean I think what we're doing is a lot of strategic planning around how to integrate the Bateman facilities and projects as well. And we'll update the market post the shareholder vote over there. But we will going to be mill-constrained with just the Campbell and Red Lake Mill. We now have the Bateman mill potentially available and the Bateman deposits. So we'll be updating the market once the Bateman shareholder vote is complete as to more detail around ramp-ups and source of ore and grades.

[Nick Herbert, Research Analyst]

Okay. Great. That leads nicely into my next question. Just interested in how you're thinking around that Bateman acquisition and whether that changes your long-term view on that 300,000 to 500,000 ounces that you've put out there as a target? Or is it more really around sort of the flexibility that gives you in terms of sort of that available mill capacity? And then just by an extension where that sort of fits into your thinking given that it's a new mill and potentially lower costs. So if you can sort of offer any comment on that?

[Jacob Klein, Executive Chairman]

Yes. So it doesn't change our profile on 300,000 to 500,000 ounces because one of the constraints that we are confronting was with only the Campbell and Red Lake Mills, we were going to be mill-constrained once the Upper Campbell ramps up and the lower areas reach full production. So now we've shifted the sort of the constrained back to the mining area. What does it do in terms of our thinking. So it's not more than 300,000 to 500,000 ounces, but it gives us opportunity to get there potentially sooner. The challenge is going to be which mill to fill, how do we get the highest grade to the mills earliest. And that work is ongoing. And I think shouldn't wait until we get the shareholder -- through the shareholder votes with Battle North to really give you a sense as to what our thinking is in detail around that. But highest grade to the lowest-cost mills will be the strategy. And sorry, and the Bateman mill is a lower-cost mill than the other mills.

[Nick Herbert, Research Analyst]

Yes. Understood. And then on Ernest Henry, are you able to give a bit of an update on how that deep drilling for the below that 1,200 meter deep is progressing? And then just a reminder of when a resource update is due there, please?

[Lawrence John Conway, Finance Director, CFO & Director]

Yes. Nick, the programs running to schedule, we've doubled the budget this year in calendar year with Glencore and Ernest Henry to allow us to do an update in the first quarter of calendar year 2022. They expect to move to a concept study, middle of this calendar year to inform what happens below the 1,200. But all drilling and the programs are tracking on plan.

[Nick Herbert, Research Analyst]

Okay. Great. And then finally, just Bryan, thanks for your help over all the years. It's been good working for you and all the best for your next venture.

[Bryan O'Hara, General Manager of Investor Relations]

Thanks, Nick. I didn't know that you work for me, but that's a nice thing to say. I really enjoyed all the engagement with the broader market over the years and I'm going to say, thanks.

[Jacob Klein, Executive Chairman]

My concern is that if -- as Bryan moves into the fund management area, he may be on one of these calls asking the difficult questions.

[Operator]

Your next question comes from Hayden Bairstow with Macquarie.

[Hayden Bairstow, Analyst]

Also, Bryan, well done. Good to see you can get a final swap at the gold business. We'll keep our eye on your way up. So a couple of things, Jake. I just sort of want to understand -- that was a big transaction in gold that's completed. But you sort of talked about what Bryan's comments around the gold outlook. I mean how are you thinking about the structure of the portfolio and some of the smaller assets, you're obviously going to step up capital in Canada and sort of what you're thinking on that front? And then also kind of management with the hedge book. I mean is it an opportunity to close a bit more sort of the money hedges out while the price is a bit softer or something?

[Jacob Klein, Executive Chairman]

Lawrie, do you want to comment on the hedge book first?

[Lawrence John Conway, Finance Director, CFO & Director]

Yes, sure. Hayden, our position has been -- we've had the hedging in place for specific reasons, be they developments of cutbacks or Red Lake, for example, was just to make sure over this first 2 years of transformation of the asset to ensure that they can fund their own capital. And our position remains that we'll deliver the hedge books as they fall due. We're not going to take a speculation on what the gold price will do. We want the assets to produce at the lowest possible cost, and we still end up with a benefit of 85% to 90% of our production and sales going into the spot market. So we're comfortable where it sits at the moment.

[Jacob Klein, Executive Chairman]

On the portfolio, Hayden, no change to the strategy, continue to look through things at -- through the lens of, will it improve the quality of our portfolio. And will it be accretive to our shareholders. And that relates to investments or divestments.

[Hayden Bairstow, Analyst]

Okay. Great. And just on the Canadian acquisition is that just going to be a discussion about how quickly can ramp up mine development then, given the surplus capacity is now [ all influx ]?

[Jacob Klein, Executive Chairman]

Yes, it is. I mean it's -- the spotlight is firmly on Bob now to get the mining productivity up and get the mills filled.

[Operator]

Your next question comes from Sophie Spartalis with Bank of America.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

I just wanted to ask 2 questions, if I can. First one, just in terms of the improved cost guidance. Lawrie, can you just break down how much of that was copper related versus other, please? Copper price related?

[Lawrence John Conway, Finance Director, CFO & Director]

Yes. Sophie, I mean, we probably see that the second half of the year, we're averaging AUD 11,000, AUD 11,500 a tonne against AUD 8,400. So we would see that probably $50 an ounce likely is the full year impact. You're then going to have an impact of probably, I'd say, $5 an ounce on sustaining capital and the balance is going to be on a mix of OpEx and production mix for the portfolio.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. That's great. And then just a second question, probably more for either Bob or Jake. Just in terms of Cowal, can you talk through how sustainable the plan is of going to 350,000 ounces. What do you need to further shore up to see those rates being sustained for life of mine?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. Sophie, good question. I think it's -- sustainability is linked to the underground development and getting the higher grade ore through the mill. And then it's that combination of the stock feed of open pit feed in the underground, giving us the grade to lift the production. And the underground, as we said, the feasibilities come to conclusion And it will be finished late this sort of quarter -- or fourth quarter. So we'll come back after that's finished as well. But that's how I see the stability there. That underground will give the grade kick that we need.

[Jacob Klein, Executive Chairman]

And the next real catalyst there is government approvals, which is -- engagement has been good and constructive. We've answered all the questions which have been asked. Public support has been good, and it's going through the normal process.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. So just in terms of that underground development, Bob, that grade kick, are you confident that, that grade kick is there? Do you need to further explore for high-grade material to sustain it? Or you're quite comfortable given what you found to date?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. So if we look at -- we're pretty confident, yes, we are confident. Definition drilling, the stuff that we've done so far, the [indiscernible] team from a geological perspective are done. We've actually been showing that as we put those holes in close, we get better definition as we go down to the stope size as opposed to the regional block model. Over time, we're expecting that to continue.

[Glenton J. Masterman]

Yes. So I'll just add that the underground resource, which is -- well, the reserve based on an indicated classification is a pretty good -- we're confident it's a good global estimate of tonnes and grade in the model. The next phase for us is as that development gets into positions where we can start to sort of move from sort of indicated in the [ main ] classification with more infill drilling to improve or increase the drilling density and then eventually in the grade control, and that's going to give us a better understanding for stope design of grade in 3D seismic more likely.

[Operator]

Your next question comes from Kate McCutcheon with Citi.

[Kate McCutcheon, Research Analyst]

Two questions at Red Lake, please. Those unit processing costs have trended right down since you've had the asset. Is that something that we can expect moving forward? And secondly, the seismic issues that you called out at Red Lake is that transient or related to the specific mining area? Any comments there?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. The cost cut -- our plan is to continue to reduce our costs at Red Lake right across the board from mining to processing to G&A. It's a long -- and as we said when we did the original acquisition, it's a 3-year process. So we're halfway through that. The actual seismicity at Red Lake is predominantly in the lower Red Lake zones. We don't seem to have it or we don't have it in the Cochenour or the -- some of the upper levels of Red Lake. But that's something that we work with, and it's something that they've got a good management plan around. The comment was really around seismicity at Mungari from a production perspective for last quarter. And it's something that we're dealing with and the guys actually know about it and they got plans and geotechnical sequences that they follow to make sure that it actually can be continued.

[Jacob Klein, Executive Chairman]

Kate, I'll just add that we are making improvements and cost reductions at Red Lake, which is great. The Bateman mill does operate at materially lower cost than the Red Lake and Campbell mill. So that provides us an opportunity as we get into -- feed into that mill to get it down even further than the sort of the improvements that we're making from a productivity and efficiency perspective at Red Lake.

[Kate McCutcheon, Research Analyst]

Yes. Okay. And then assuming that Battle North all goes through, are you able to just remind me again that the permitting process to be able to truck ore from Upper Campbell and/or for to let the permitted capacity of the Bateman mill?

[Jacob Klein, Executive Chairman]

Yes. So it's -- you need a permit -- it's a provincial permit to be able to track the material. It needs some testing of the material to ensure that there is no issues associated with the deposition of that material into that tailings dam. We don't anticipate that to be a difficult permit to obtain. It's really a matter of timing. And then a similar process to ramp up the development or the limit on capacity from 450,000 tonnes to 900,000 tonnes per annum. So we don't see those as roadblocks in terms of the ramp-up to over 2 million tonnes of throughput at Red Lake.

[Kate McCutcheon, Research Analyst]

Yes. Okay. So that was provincial permits?

[Jacob Klein, Executive Chairman]

Yes.

[Kate McCutcheon, Research Analyst]

Perfect. And then finally, just turning to Cowal, is there anything in the feasibility study that depends on the permitting outcomes? Or can it happen completely in a separate work stream?

[Jacob Klein, Executive Chairman]

The start of development really depends on the permits being obtained. And then we've got to put the paste fill plants and the accommodation or the big-ticket items. So clearly, in terms of starting the development, effectively, we need those permits to come through.

[Operator]

Your next question comes from Mitch Ryan with Jefferies.

[Mitch Ryan, Equity Analyst]

Just following the shareholder meeting with Battle North on the 11th of May, can you just remind us then of the settlement time frame? So when you would get the keys to that asset if the vote is in your favor?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. The vote is on the 11th with then approvals expected by the 17th of May and then shortly after everything, we'll get closed out, and we'll get the keys.

[Jacob Klein, Executive Chairman]

It's similar to, I think, a scheme of arrangement here where there's a -- it goes to the courts for confirmation or affirmation of the shareholder vote, but it's a procedural matter.

[Mitch Ryan, Equity Analyst]

Second question and not related, but I guess hearing from those of your peers with assets in Western Australia, labor availability has been a key issue from a cost basis. You guys are lowering your costs, and obviously, some of that is attributable to copper. But can you give us any commentary on how you're finding labor availability on the East Coast? And what cost pressures that is or isn't having on your cost basis?

[Jacob Klein, Executive Chairman]

Yes, Mitch, I'll reference back to the comments I made that our retention rates are high. They're close to 90%. It's been a real focus for us to try and ensure retention of people. It is higher on the East Coast than the West Coast where there are -- there is increased turnover and increased pressure. But on the East Coast, particularly, our retention rates are very high. And overall, as a group, very pleased with the close to 90% retention rate.

[Mitch Ryan, Equity Analyst]

Okay. Yes. Third and last question from me, I guess the company's position on running a portfolio of assets is sort of well communicated. But given a lot of the soft quarterly production comes from Mt Rawdon and it's a negligible contribution to NPV. Is the strategic review of the asset, something you're considering?

[Jacob Klein, Executive Chairman]

I mean I think Mt Rawdon had a soft quarter because of the rain. And really, it will get back on track. The only thing to overlay on to that is to say that all our assets are always under review. But I don't think we should take the 1 quarter from Mt Rawdon as reflective of its position in the portfolio.

[Operator]

[Operator Instructions] Your next question comes from [ Andrew Barrick ] with S&P Global Market Intelligence.

[Unknown Analyst]

So just a quick question, actually on the United Nations Global Compact that you announced a couple of weeks back. So just wondering whether, I mean, companies announced these things and they joined these initiatives, but there wasn't much said. I know that you spoke in your sustainability report. I think it was referenced to that in your letter that you sent them to apply for it. But what does it actually mean? Is there anything you'd say about what's signing up to what means for you tangibly in terms of like do you need -- does that kind of require you to do something which you maybe see yourself as maybe being inefficient in some way at the moment or look for new initiatives or any -- do a particular thing better that you see that, that -- obviously, you're working on most of it. I imagine it already. But I'm just looking for something more tangible in terms of what that means for your company.

[Jacob Klein, Executive Chairman]

Yes. I think we would say that we were compliant and in line with the 10 principles even before we signed up. But we did see it as an important signal to reflect our commitment to ongoing to those principles and something that, hopefully, the whole industry will get on board with. So it's more an initiative rather than work that needs to be done to ensure that we are compliant because we were compliant prior to this.

[Unknown Analyst]

Just more broadly then, is this something that you see as there's something unique to the gold industry about fostering these goals at global compact kind of broadly working towards as opposed to whether other commodities, whether it be in the area of gold bar tracing or something that's kind of specific to the gold mining industry that's kind of -- that really needs to be brought to bear?

[Jacob Klein, Executive Chairman]

No. I think it's more around the 10 principles, the environmental issues, the human rights issues, the labor issues, anti-corruption. Those are all related. I don't think there's anything necessarily specific to gold. The issue which you raise of sort of tracking a gold bar, we will listen to shareholder and stakeholder feedback as to whether that's something that they want to see in the future. We've been pitched by a few people that blockchain is the solution to that, but I'm still learning about blockchain and that technology.

[Operator]

Your next question comes from Alex Barkley with Morgan Stanley Australia.

[Alexander Barkley, Research Associate]

Just one question from me on the sustaining capital guidance improvement. What was the main contribution there? And was it mainly a case that could work lowering cost? Or are we likely to see some of that deferred into FY '22 would impact the $110 million to $135 million guidance in that year?

[Lawrence John Conway, Finance Director, CFO & Director]

Alex, it was a combination there. Certainly, at Red Lake with some of the improvements they've been able to achieve. They don't see them spending all of that capital this year. You may see some of it flow into next year. And at the other sites, it was just a reduction overall of what they see in the sustaining capital requirements for this year. We're about 5 weeks away from finishing all of the life of mine plans, and final budgets for next year, but we don't expect that sustaining capital next year to materially move from our 3-year outlook.

[Alexander Barkley, Research Associate]

That's quite helpful. Good luck to you, Bryan.

[Bryan O'Hara, General Manager of Investor Relations]

Thanks, Alex. I appreciate it.

[Operator]

Your next question comes from Paul Kaner with RBC.

[Paul Kaner, Analyst]

Just touching further on those Red Lake costs. I understand that Bateman can bring down your fixed milling cost component. Does that mean we're likely to see a change to your long-term cost assumptions at Red Lake, for the broad region?

[Jacob Klein, Executive Chairman]

Well, we've said our 3-year outlook without Bateman was to get to USD 1,000 an ounce at 200,000 ounces a year. We're not yet ready to formulate what the 300,000 to 500,000 ounces will look like. And I think that's better to wait until we have the Bateman project in hand and can articulate the strategy around how we're going to fill those mills. We'll have over 2 million tonnes of capacity at those 3 processing mills, as I said earlier, getting the highest grade into them as quickly as possible is going to be the priority.

[Operator]

Your next question comes from Stuart McKinnon with The West Australian.

[Stuart McKinnon]

This one is probably for you, Jake. I think last time, last quarter or perhaps the quarterly before that, you talked about the easing gold price, possibly bringing down valuations of assets and making it more realistic and achievable to do M&A. We're just seeing significant assets sale in Tropicana and what some people considered a pretty high price. So I was just wondering if you're seeing that lower gold price sort of translate through to lower asset valuations or if these things are still pretty hot out there in the M&A space?

[Jacob Klein, Executive Chairman]

That's a good question, Stuart. We've done one piece of M&A, the Battle North project, where we saw an opportunity there. Yes, the Tropicana sale, we didn't acquire that, so you can draw your own conclusions with respect to that. Yes. I mean I think we're going to stick to the strategy of doing things which are accretive to our shareholders and continuing to look for opportunities where either there is a geological opportunity, which Glen and his team can identify or there is some stress or motivation from the seller. Motivated sellers in a rising gold price environment are more difficult to find. So the shift is back to Glen and his team to find geological upside.

[Operator]

Our next question comes from Peter O'Connor with Shaw and Partners.

[Peter O'Connor, Senior Analyst of Metals and Mining]

At Red Lake, as the mine evolves and production starts to expand on the ground and you seem to be constrained. Just thinking about how the cost evolves. So you've got some deeper, complex, older stoping areas, in the current operations, you've got new areas in Bateman and where you put the decline down at Red Lake, obviously, you're kind of unencumbered by old mining areas. Stoping cost, does it matter whether it's new, virgin ground in the decline or Bateman or at depth that -- Red Lake and the stoping cost the same? Or is there a material benefit from them even though we've been able to open up a new area on the surface from the decline?

[Robert Stanley Fulker, Chief Operating Officer]

Thanks, Peter. There is ease of doing the decline, which will enable access to productivity improvements because it's not constrained by the shaft. The shafts themselves, though, they've got capacity for plus 1.1 million tonnes from the underground. The lower Red Lake area, as I talked about before, it has issues with some seismicity, but there's a lot of areas that don't have any of that, and there's a lot of virgin ground down there that it's quite easy to get nicely as stoping blocks into the area to mine productively. Anything we've -- thanks, anything with clear open space between the historic openings and the new ones gives us the ability to mine cheaper and mine with less complexity. So to answer your question, it's a bit of a combination of all of it. I do expect the stoping from underground that Red Lake down the lower levels to improving the cost as we get better cycles and better size stopes, but I also expect that the Upper Campbell will actually come to its own due to the decline in the cost reductions we can get from the trucking as opposed to the hosting.

[Peter O'Connor, Senior Analyst of Metals and Mining]

So not a material dollar per tonne difference?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. Look, we're saying we're not really going there.

[Operator]

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

[Jacob Klein, Executive Chairman]

Yes. Thanks, everyone. I appreciate you listening in. And looking forward to updating you once the Battle North Shareholder Meeting is held with announcements and more granularity around our plans at Red Lake. Thanks very much.

[Operator]

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