Evolution Mining Ltd

ASX:EVN

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Evolution Mining June 2019 Quarterly Results Teleconference. [Operator Instructions] Please note that this conference is being recorded today, Wednesday, July 24, 2019. I would now like to hand the conference over to your host today, Mr. Bryan O'Hara, General Manager, Investor Relations. Thank you, sir. Please go ahead.

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

Thanks, Eddie. Good morning, and welcome to the Evolution Mining June 2019 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. With over USD 13 trillion of bonds around the world with negative yield and a recent shift from global central banks toward lower interest rate policies, the U.S. dollar gold price is now trading at its highest level since 2013. This renewed interest in gold in recent months has seen generalist investors revisit their allocation towards gold, and has resulted in large inflows of new funds into gold equities. With a strong track record of delivering to plan, exciting organic growth prospects and sector-leading cash generation per ounce, Evolution continued to benefit from these new fund flows into the sector.We're looking forward to catching up with investors over the coming months with marketing in Sydney and Melbourne post today's results; hosting a site visit to Mungari on Monday, the 5th of August, during the Diggers & Dealers Conference in Kalgoorlie; marketing in Sydney post the full year financial results on the 15th of August; and a road show through Hong Kong and Singapore in late August. Thanks. I'll hand you over to Jake.

[Jacob Klein, Executive Chairman]

Thanks, Bryan. Welcome, everyone. Thanks for joining us. We do appreciate it. I'd like to make a few context-setting remarks before handing over to Bob, Glen and Lawrie, who'll provide you with more detail. The June quarter capped off another successful year for Evolution, producing almost 195,000 ounces, an all-in sustaining cost of AUD 915 an ounce, or USD 640 an ounce. For the 12 months to June 30, we produced 753,000 ounces at an all-in sustaining cost of AUD 924 an ounce, equating to USD 661 an ounce.This positions Evolution in our portfolio of assets as one of the lowest-cost gold producers in the world. We are fortunate to be operating in a very favorable gold price environment with the current gold price over AUD 2,000 an ounce at the moment. Something we will continue to focus on at Evolution is cash generation and ensuring the high cash margin we are earning from these low-cost ounces is banked and allocated judiciously on behalf of our shareholders. This is something that we feel is somewhat overlooked in times of bullish gold prices.Over the last 5 years since we acquired Mungari, Cowal and the economic interest in Ernest Henry, we have generated over $1.55 billion in free cash flow, which has enabled us to repay $910 million of debt, returned $345 million in dividends to our shareholders and grow our cash balance by over $300 million.In the last 12 months alone, we generated $771 million in operating cash flow and net mine cash flow of approximately $500 million. These numbers are sector leading on a per ounce basis, and worth noting, we achieved a realized gold price of $1,760 an ounce, around $250 below the current spot price. At the same time, we are investing in our future. The momentum our discovery team is building is very exciting. Cowal is a world-class asset and we are still in the phase where we simply don't know the extent and scale of the mineralization and, therefore, the ultimate size to which this asset's production can be expanded to. What we do know is that it will be significantly more than the 251,000 ounces, low-cost ounces, it produced in the last 12 months.But as you'd expect from me and Evolution, a word of caution is also warranted. In this very bullish gold price environment, it is easy to lose your head. So what you can continue to expect from Evolution can be summarized as follows. We will remain focused on the things we can control. Productivity improvements and operational excellence will be the key drivers. We will not be distracted by the gold price and we will ensure we remain focused on banking every dollar that the gold price increases by. We will continue to invest in discovery as one of the core pillars of our business, and I'm delighted that today you are seeing some of the very exciting results we are achieving. We will continue to invest our shareholders' capital only in projects where we can generate appropriate returns or when acquisition both make our business stronger and be accretive for our shareholders. And finally, whilst most of this discussion centers around physical and dollar metrics and results, we will continue to recognize that our most important asset at Evolution is our people and we will continue building our unique culture where everyone feels included, empowered and engaged. We are a business in great shape, but there are always things we can improve and I assure you over the next 12 months we are determined to make Evolution an even better business. With that, I'll hand over to Bob for some further detail.

[Robert Stanley Fulker, Chief Operating Officer]

Thanks, Jake, and good morning, everyone. This quarter, we saw a slight increase in the recordable injuries, finishing in the year with a TRIF of 8.3. While our FY '19 safety performance has been disappointing, we have seen improvements in the reporting culture, a reduction in severity rate and have significant incident investigations and accident -- and actions, sorry, are being completed timely. In addition, we have increased our focus on TSF governance, and on the back of the recent tragedies in Queensland this month, we are conducting a safety stop across the company. Pleasingly, the June quarter's production is over 194,000 ounces at a reduced all-in sustaining cost of $915 an ounce with a mine operating cash flow of $217 million. These results place our ounces in the upper half of the full year guidance, but we disappointingly missed our all-in sustaining cost guidance by 2.7% at $924 for the year. If we turn to Page 5 for Cowal and Mungari results. Cowal delivered a sound quarter production at 67,900 ounces at an all-in sustaining cost of $1,002 an ounce. The float tail leach is continuing to deliver recovery improvements, circa 6% in the month of June. Cowal's operating mine cash flow increased to $68.5 million. Cowal's highlight for the quarter were the exploration decline reaching 550 meters and commencement of the diamond drill program underground, another successful building block on the journey to 300,000 ounces.Mungari had worked through their issues underground and have delivered just shy of 30,500 ounces with an all-in sustaining cost of $1,242 an ounce, mine operating cash flow of $17.9 million. White Foil stage 3b cut back has progressed to play during the quarter, and the Frog's Legs underground delivered 97,000 tonnes of ore. Development was focused on rehabilitating the Mist and North Portal to enable access to additional mining fronts in the mine's upper levels.If we turn to Page 6 for Mt Carlton and Rawdon results. Mt Carlton delivered 28,000 ounces at an all-in sustaining cost of $750 an ounce and a mine operating cash flow of $41.4 million. After the extreme weather event earlier in the year, mining activity is focused on pit dewatering and regaining access to the ore sources in Stage 3. Development of the underground mine continues to be on schedule. Underground development commenced yesterday with the first portal cut successfully taken. Mt Rawdon produced 24,400 ounces at a reduced all-in sustaining cost of $1,220 an ounce and a mine operating cash flow of $13.9 million. Throughput was impacted by an unplanned major shut of the ball mill gearbox refurbishment -- for the ball mill gearbox refurbishment. This opportunity was taken to bring our planned shut in July forward and the ball and SAG mill reline was completed early.If we turn to Page 7 for Cracow and Ernest Henry results. Cracow produced 18,000 ounces at an all-in sustaining cost of $1,329 an ounce and a mine operating cash flow of $17.2 million. Dilution reduced through the quarter due to changing stope parameters.Ernest Henry produced 25,800 ounces at a negative all-in sustaining cost of $644 an ounce. Mine operating cash flow continued to be very strong with $56.2 million produced during the quarter and a full year net mine cash flow of $222 million.In summary, the quarter's ounce production set us up comfortably to deliver our full year guidance. And I believe we have made a step change throughout the year in our forecasting ability to deliver to ensure FY '20 is successfully delivered.My first full year at Evolution is complete, and it is pleasing to be able to share with you the positive steps we are taking and improvements we have made to advance our business. Some of my favorites include the work out with our communities and stakeholders with 8 sustainable projects completed. One of which is a 3-year partnership with the University of Queensland to support their research into using gold nanoparticles to test for cancer, potentially enabling early diagnosis for all cancer types. Cowal commenced the underground exploration decline, IWL, as well as gaining approvals, allowing us to expand production to 9.8 million. Along with the increased resource and reserve, this is truly making Cowal a magnificent long-life asset.Mungari's great use of data to early detect an imminent failure of the crusher pitman, along with the teams developing a plan post the seismic event to safely access the mine, [ Frog's Leg ] high-grade ore has been very pleasing. Mt Carlton commenced the underground mine plant expansion whilst navigating their way through to the site's worst flood event with no incidents and no impact on production for the year. We also successfully trialed OLGA. This is the online gold analysis, and this is the first prototype installation in the world. Mt Rawdon has increased heat maps for the truck -- via truck vibrations to identify poor road conditions, resulting in improved tire life and potentially reducing truck downtime. Cracow has had some incredible wins in the innovation space during the year with an another production optimizer [ jumbo guard ], surface remotes and HIGmill implementation. The HIGmill line of work has extended reline times from 8 weeks to 6 months with no loss in performance. I'm pleased to say Cracow saw an 8% increase in total tonnes milled for the year, which is not only a site record but nearly an additional month of production. Finally, I'm incredibly proud of all the work -- great work our people are doing to challenge norm and think differently, which, I believe, will be pivotal to the FY '20 success. Thank you for your time, and I'll hand over to Glen.

[Glenton J. Masterman]

Thank you, Bob, and good morning, everyone. We finished the financial year on a strong note, with surface drilling at Cowal and Mungari returning positive results. Our full year discovery spend in FY '19 was approximately $50 million, which translates to over 165,000 meters of drilling across all our discovery projects. In addition, over 130,000 meters of resource definition drilling was completed last financial year. At Cowal, drilling results continue to confirm our belief in the growth potential of the underground project at GRE46. New results reported on Page 10 of this morning's report from the Dalwhinnie position have expanded mineralization into areas between MSO outlines. We expect the results to grow the resource into the spaces as we update our models. South plunging high-grade domains remain open and will be drilled throughout FY '20. As Bob mentioned, underground drilling commenced in the decline during the quarter with a single rig. A second rig will be added to the program during the current quarter to focus on infilling resource blocks in the south area of the GRE46 resource. Set-up of diamond drilling outside of the underground resource area to the south has encountered strong results. The significance of the intersections reported on Page 10 at this morning's report is not yet fully understood. However, I believe the results reinforce our opportunity to continue growing the resource base as we expand our drilling footprint beyond the mine. This has been further emphasized in the air core results along the Reflector corridor east of GRE46, which is suggesting we have not yet delineated the eastern extent of the Cowal mineral system.At Mungari, recent drilling at the Boomer target returned several high-grade laminated vein intercepts over narrow intervals. The target occurs on the contact between 2 geologic units 400 meters west of the underground at Frog's Leg. I feel encouraged by these early numbers along with the geologic similarities to mineralization at Frog's Leg. As a result, we are planning a second phase of work to better understand if we have an economic opportunity at Boomer.Looking forward to FY '20, our investment in discovery programs is expected to be $80 million to $105 million. The increase over our FY '19 investment has been largely driven by the success at Cowal and includes the cost of developing exploration decline at GRE46. Total drilling for the year will be approximately 290,000 meters, which is an increase of over 100,000 meters relative to FY '19, almost 2/3 of this drilling will be completed at Cowal, with 50,000 to 60,000 meters planned from the Warraga decline. At Mungari, our focus will be on bringing forward the best opportunities within a 2-kilometer radius at Frog's Leg, including follow-up drilling at Boomer and completion of phase 3 drilling at Banjo. Further afield, we will continue our regional drilling programs in the Ora Banda and Grants Patch camps as well as along the Zuleika and Kundana Shear Zones. I look forward to updating you on progress at the end of the September quarter. With that, I'll hand over to Lawrie.

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

Thank you, Glen, and good morning, everyone. Today, we'll briefly cover the financial performance for the June quarter and 2019 full year as well as outlining our guidance for FY '20. We will be releasing our full year financial results next month, at which time we will fully review the performance for the year. A summary of the financials is on Pages 8 and 9 of the report. Financial performance for the quarter and the year reflects what Jake mentioned earlier, that is, our business is a highly cash-generative one through low-cost production and disciplined capital investment. We are investing in the business, paying dividends and putting cash in the bank.We generated $215 million of mine operating cash flow, over $150 million of net mine cash flow and nearly $110 million of net cash flow during the quarter. For the year, we delivered just under $500 million of net mine cash flow and around $292 million of group cash flow before acquisition, debt repayments and dividends.This cash was generated at an all-in cost margin of $545 per ounce. Our all-in cost margin has potential to increase further when considering the spot price is $265 an ounce, higher than what we achieved during FY '19.Importantly the strong financial performance of the business transitions us to a net cash position of 32 -- $35.2 million at the end of the financial year. Strong cash generation and outlook for the business now provides us with the opportunity to review our dividend policy.Moving on to our guidance for FY '20, which is detailed on Pages 17 and 18 of the report. Our production is guided to be between 725,000 and 775,000 ounces of gold and 21,000 to 24,000 tonnes of copper at an all-in sustaining cost of between $890 and $940 per ounce. Compared to FY '19, we expect to see similar production levels at Mungari, Mt Carlton and Mt Rawdon, while Cowan and Cracow should be slightly higher and Ernest Henry will be slightly lower as it progresses through the K. At a group level, we expect average processed grades to decline by 10% to 12% with slightly associated recoveries -- lower recoveries, which combined add between $95 and $105 per ounce to our all-in sustaining cost. Pleasingly, we've been able to mostly offset this through higher throughput across the sites. Cowal will see the biggest drop in grade as it completes mining of Stage G ore early in the December quarter and essentially processes stockpile material for the remainder of the year as waste stripping continues at Stage H. Gross operating cost will be up between 2.5% and 3.5% while this will be mostly offset by expected higher copper credits, specifically at Mt Carlton.Investment in sustaining capital in FY '20 is forecast to be between $90 million and $130 million. The main sustaining capital is investment in tails facility and resource definition drilling at all sites. Major capital in FY '20 is expected to be in the range of $195 million to $235 million. As we continue to deliver major projects at Cowal, we will invest between $115 million and $135 million, including $75 million to $85 million continuing the Stage H cut back, $35 million to $40 million on the Integrated Waste Landform and $5 million to $10 million on plant expansion and other projects.Major project capital investment at Mt Carlton includes $30 million to $35 million establishing the new underground mine; $5 million to $10 million on plant optimization; and $15 million to $20 million for the Stage 4 open pit development.FY '20 exploration investment is expected to be $80 million to $105 million, which was an increase of approximately $50 million from FY '19 and is largely driven by the success at Cowal as the GRE46 and Dalwhinnie underground mineralization continues to be defined and extended. We expect to invest between $50 million and $60 million at Cowal, including $20 million to $25 million on the exploration decline. In summary, we see FY '20 as a continuation of profitable production from the diversified suite of assets that are able to fully fund their own sustaining and growth capital programs and deliver excess cash back to the business to either reinvest or return to shareholders. Thank you for your time. I will now hand back to Jake.

[Jacob Klein, Executive Chairman]

Thanks, Lawrie. Operator, can you please open the lines for questions?

[Operator]

[Operator Instructions] First question comes from the line of Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

Just wondering on the balance sheet to begin with. I mean you're making lots of cash, costs are being contained, debts being repaid. Just wondering if you could talk a little bit about capital returns versus dividends versus maybe keeping the powder dry for opportunities in the sector but cognizant of asset prices being higher.

[Jacob Klein, Executive Chairman]

Thanks, Daniel. I'm going to hand it over to Lawrie. Congratulations on getting in first. I think that's a record. Well done. I'm going to hand it over to Lawrie. Just as a precursor, just to say that this is a wonderful problem to have, making too much cash. Lawrie?

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

Thanks, Jake. Thanks, Daniel. Look, as I've mentioned in the notes just before, we finished the year net cash. We've always said that we're not going to build a large cash balance on the balance sheet. And having looked at our latest life-of-mine plans and where the gold price sits, we think that there's an opportunity to review the dividend policy. Also, our franking credit balances has improved dramatically through the course of this year through tax payments. So that's something that we will look at as part of the full year financials next month.

[Daniel Morgan, Director and Analyst]

And on Cowal, so just wondering if you can talk about your expectations for throughput and recovery over the next 12 months.

[Jacob Klein, Executive Chairman]

Bob?

[Robert Stanley Fulker, Chief Operating Officer]

Yes. Thanks, Dan. Just on throughput, I'll start. What we're doing at the moment is we're processing this year around about that 9.5 -- 9.4 million to 9.5 million tonnes. The grade will be high in the first quarter as we finish Stage G mining. So we are 100% in Stage G at the moment, just finishing that last [ TRIF off ] and then it will drop in the second quarter through to the end of the year to circa sort of 1 gram, just below 1 gram-ish range for the rest of the year while we're producing from stockpiles predominantly. Stage H will actually progress then, then obviously bring that higher grade back in after that.

[Daniel Morgan, Director and Analyst]

And just -- maybe a follow-up just on the recovery position. You've had some improvements with the float tail project. Just wondering where that's going to sit this year.

[Robert Stanley Fulker, Chief Operating Officer]

Yes. So the recovery this year is being affected slightly from our treatment of scats and in nontreatment of scats from the mill. And we'd expect that to go on for a couple of quarters. Because what we're doing is we're taking those out and we're replacing it with some higher-grade oxide material. And that's also one of the reasons for the high grade in the last quarter. And so we're at Stage G and then the oxide percentages going to the actual processing plant.

[Jacob Klein, Executive Chairman]

Just to add to that. I mean it really is pleasing from my perspective to see the float tails leach achieving their designed recoveries that were planned when we built it.

[Robert Stanley Fulker, Chief Operating Officer]

Yes. I mean last month, Daniel, we actually got up to the 6% in June, which is really good.

[Operator]

Your next question comes from the line of Sophie Spartalis from Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just a quick follow-up to Dan's question, firstly. Just in terms of the timing of the Stage H, when do you think that we'll be able to -- when will you be able to process that ore?

[Robert Stanley Fulker, Chief Operating Officer]

Thanks, Sophie. Most of this year we've taken up. We'll continue stripping -- we will be getting some low-grade -- lower-grade stuff coming into the feed during the year as we take that strip down. So towards the back end of this year and into next year, we'll be getting into more of the ore from Stage H.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

So when do we expect that -- those grades to come back up above 1 gram a tonne then? So that's the second half of '21?

[Robert Stanley Fulker, Chief Operating Officer]

No. Be back up at the end of FY '21.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

End of FY '21. Okay. Great. And then one for you, Jake. I know you've tried to really focus around the discipline of Evolution, and congratulations for that. I guess you've always taken a very conservative stance also on the gold price assumed to calculate your reserve and resources. Given that we are trending in a higher gold price environment, what do you need to trigger a review of that gold price assumption in calculating your resource base?

[Jacob Klein, Executive Chairman]

That's a good question. Thanks, Sophie. Look, we need a sustained increase in the gold price. We want to be conservative, but we want to get a sense -- and there's plenty of reasons why we're bullish about the gold price. But we want to get a sense that this is a sustained rise above this $2,000 an ounce mark before we start reviewing our resource and reserve calculation. Recognizing that, it's very unusual to be constraining resources at a price below the current gold price. And a AUD 13.50 reserve price assumption is extremely conservative in the current spot price environment. But bear in mind, we've always said we want to build a business that prospers through the cycle. We hope the cycle has taken a step change up, but we'd like to see a bit more evidence of that before we make any changes.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. Maybe if I can just extend on that then. In terms of mining the assets at the moment, are you taking any material that's outside the cut-off grades given the pricing environment?

[Jacob Klein, Executive Chairman]

We will mine it and, if necessary, stockpile it, but we won't deviate our mine plans. We will not sterilize large amounts of material that could be mined.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

And I might just actually ask one quick question. Just in terms of exploration, Glen, at Mungari. Obviously, you've got from promising signal there. Can you just expand a little bit further in terms of what are the key focus areas for the next 6 months and when we can expect more news coming through?

[Glenton J. Masterman]

Sophie, I think that we'll be following up on some of the results at Drummond target pretty quickly. It's actually a fairly large footprint open for testing and so that's going to -- obviously, going to require a fair bit of drilling. But what I'm encouraged about is that it's a structural position that's parallel to -- it's parallel to the Frog's Leg system or vein and it sits on a geologic contact, which is where you like to see these veins develop. And that's -- that also sort of gives us some encouragement that there is potentially some scale. But of course, it's -- the proof is in the pudding and we need to drill it to understand it better. The other thing I like about it is that it's 400 meters from Frog's Leg. So if it does plunge at depth, then it's potentially accessible from the underground. But we'd also like to bring it up to surface as close as we can. So we'll be doing some shallow drilling along that corridor to sort of understand how far up deep it might come. So as I said, a fair bit of work to come. We'll obviously get cracking on that in the current quarter.In the meantime, we've got a Phase 3 program that we're undertaking currently at Banjo. And that's to sort of close off on a couple of pods of mineralization that we have encountered in the drilling under the base of the deepest development there. So a bit of work there to sort of understand if we're going to get the sort of the thickness and continuity that would give us reasonable pods of mineralization that would be -- that would justify development down to those levels. So there's that drill program ongoing. And we have the regional programs up north, particularly around the Grants Patch and Ora Banda area still following up on some of those sort of smaller but higher-grade systems to really understand whether or not we can create an opportunity or a center of gravity in that part of the world that would justify sort of a new operating front in the region there.

[Operator]

Your next question comes from the line of Paul Garvey from The Australian.

[Paul Garvey]

I just want to check in on the Tribune stakes. It's been a few months since you bought that there. Just wondering if there's been any progress at all or any insight into whether or not trading Tribune share of production at East Kundana through your plant. Any update on that front, any respect?

[Jacob Klein, Executive Chairman]

Paul, only to say that we bought the stakes strategically. It is the highest-grade reserves in the area. It comes right past our plants, but I can't comment further on the stake.

[Paul Garvey]

All right. And your comment, Jake, at the start there about the risk of losing your heading in a market like this. What do you make of those issues that have happened -- that have popped up in the gold sector this year amongst some of the smaller players? Did you see sort of common themes or lessons from those problems that have popped up?

[Jacob Klein, Executive Chairman]

Well, I kind of look at it a longer time frame, Paul, and go back to what happened post 2011, '12 or in the lead up to 2011, '12 when the gold price peaked at USD 1,900 an ounce. And then I think there was $80 billion written off subsequent. We've almost -- if you go back 4 years in the gold sector, we are kind of in a recession. That's when we bought Cowal and we bought interest in Ernest Henry. So 4 years is a long time in this sector, and it now feels that we're back in boom time. It's really important and it's something that we've been very committed and we remain committed to, just to keep investing our shareholders' money in things that are going to be accretive and that are going to be profitable and margin enhancing and high if we keep the margins high. I think there's too much focus on volume, and we'd like to focus more on quality of that volume. So it's about maintaining quality and not starting to make marginal investments.

[Paul Garvey]

Sure. And I know this is a bit removed from what you normally talk about on these calls, but you may have seen BHP making some strong comments around climate overnight. Where does that -- is it an issue on your plate now that you've got so much more scale to the business over the last few years? Is it something you put your mind to? Have you looked at where Evolution sits in that space? And is it something that comes up at all among investors in the gold sector?

[Jacob Klein, Executive Chairman]

Yes, it is. Yes to all of those questions. We're certainly applying our mind to it. We are developing and we have a sustainability position. And we recognize that anything that we can do to reduce our emissions footprint, our water use and our impact on the environment is going to be positive.

[Operator]

We have a follow-up question from the line of Daniel Morgan.

[Daniel Morgan, Director and Analyst]

This is probably a question for Glen on exploration. So there's been a lot of great intersections at Cowal pretty much every quarter for a while now. And it seems like you don't fully yet understand what you have there, and now that keeps -- to keep finding gold and it seems like it keeps getting bigger. Holistically, is there any -- when do you think you might understand the opportunity that you have at Cowal? And how do you think about that?

[Glenton J. Masterman]

That's a very good question, Daniel. And I think it's reflected in terms of the budget that we're applying to Cowal in FY '20. And it's a considerable jump up. We're investing in underground infill drilling, so about 60,000 meters drilling in the underground. And then from surface, in addition to that, another 170,000 meters of drilling to come. So it's going to be a really big year for Cowal. There's a number of fronts where we're wanting to address there. Obviously, understanding the geometry and continuity of the underground at GRE46 and Dalwhinnie remains a priority, and that's obviously going to plug into the studies for a future underground operation.Beyond that, the high-grade -- or higher-grade shoots remain open down plunge, and so a considerable amount of drilling will be directed at delineating the full extent, hopefully, of what we have there. But even beyond that sort of footprint of GRE46, we're encountering extensions of corridors and even potentially new adjacent and parallel structures that are starting to come up.So the more work we do, the more we learn and as you've been -- as you correctly pointed out, the more gold we're encountering. And so it's actually -- we're still -- we feel really pleased with the opportunity. It's a great problem to have. And as I said, the program this year is really to sort of step change our understanding of the system to understand what exactly we do have. But who knows, I mean, it's one of those interesting problems to have where it, as things unfold, it may take different directions. So stay tuned is all I can really ask you to do. And we'll keep updating on our progress there.

[Daniel Morgan, Director and Analyst]

So maybe just a follow-up then and then possibly moving into Bob's area. You're looking at these great results for the Cowal potential underground operation. How would you think about attacking that? I know it's still early because you don't have a full understanding of what's there. But what sort of mine operation might you look here and how would you attack mining them?

[Robert Stanley Fulker, Chief Operating Officer]

So Dan, we're actually in the process of taking information that we currently have in the developing a pre-feas to figure out exactly what the most optimum and economic way of extracting it is. Obviously, we'll be looking at doing it with the lowest margin possible, but saying that it's -- from what we have so far, it's a great orebody with decent grades, with good strike, down-plunge and down-dip extend. The concern I have is actually, probably the first time I've ever had it, is making sure that we don't limit the potential upside of what we do to start with because, as Glen said, we're trying to find the edges and ends and the down-dip extensions and, at some stage, we'll just going to have to actually get in there and do a design that contemplates everything that we actually currently know.Top of deposits, top of mining, it will be an underground operation. Obviously, it will be some form of non-caving operation. My guess and this is purely very, very early stuff, is that it will be some combination of a longitudinal transverse and that will include filling. That is actually an intricate kind of guess, okay? I would not be apprising anytime that we don't have model declines going into model stoping areas.

[Daniel Morgan, Director and Analyst]

Right. And then maybe a different question back to Jake, a follow-up on the question earlier from Sophie on reserve cutoffs and whatnot, and that you haven't sterilized anything and that things are sitting in stockpile or whatnot. Can I just ask where the opportunities might sit? And if you are going to have a more conservative approach, could this be an opportunity to sell any assets to other people that might be more aggressive on those views?

[Robert Stanley Fulker, Chief Operating Officer]

I'm going to jump in before Jake but I'm not going to answer the question on the sale of assets. I'll leave that one. From a technical perspective, our resources are currently done on 1,800. And therefore anything from an open pit that falls within those 1,800 shells were got placed in stockpiles strategically so that we can actually take the highest grade earliest or the nicest grade today and less nice in the future. So we actually do know in all the open pits in our stockpiles exactly where the different grade profiles are positioned all the way down to what we call mineralized waste, which is the stuff that is currently outside of what we'd classify as potential economic, which is that stuff that sits around the $1,800 shells and slightly above and slightly below. So from a global perspective with the open pits, we're pretty comfortable that we have -- we have a stockpile and we have a position where we can get access to it in the future when we need to. Saying that, we haven't actually -- and we're not going to change the process of mining because the process of mining takes all these things into consideration. The underground, if we take Mungari and Cracow, the style of mineralization there, potentially, we could be looking at slightly changing if we did change those from our reserve basis. But holistically, I don't think we'll change the mining a great deal. I'll hand it over to Jake for sale question.

[Jacob Klein, Executive Chairman]

I mean I think we treat our portfolio as a portfolio. And at this stage, we're happy with the assets in our portfolio. The one thing I'd say about all these questions around investments and divestments just in terms of philosophically, I don't see it as our role investing shareholders' money on the basis that we believe that gold price is going to go up. We've got to invest in assets which we believe are going to be accretive to our shareholders and are going to make our business stronger. And I think the same philosophy has applied in the past where we've divested of assets. We, in fact, have improved the quality of our portfolio through those divestments. And that's the lens that we're looking at our business through, which, again, maybe somewhat different, but at Evolution, we do like to be different. And one of the catchcries of our business is dare to be different.

[Operator]

Your next question comes from the line of Michael Slifirski from Crédit Suisse.

[Michael Slifirski, Managing Director]

I've been toggling between 2 calls, so I apologize for being late and disappointing you. But really what has --

[Jacob Klein, Executive Chairman]

I was worried, Michael.

[Michael Slifirski, Managing Director]

I know. I could feel you fretting, Jake. I was worried myself. I just want you to speak about the opportunity that [ model ] might not be at -- again, within the context of gold price and maybe, maybe the opportunity to hedge in the term, I think in the past it's been said that there isn't another cut off -- sorry, cut back because it's uneconomic. In the context of the impact on the NPV if you run it to depletion and then you incur a closure cost, how do you think about that opportunity to perhaps consider locking in some $2,000 an ounce gold to defer an ultimate closure liability and to provide some optionality over life extension there?

[Robert Stanley Fulker, Chief Operating Officer]

Michael, Jake is still gobsmacking you weren't first on the call [indiscernible]. I'll answer it. Mt Rawdon, it's a good question. And what we're doing? We've got a study that's being done as part of the FY '20 program there, about how much more we could extract out and at what sort of price we would need. And certainly, as we've done with previous ones and we did it within the make of that cut back and the underground and the like and the previous cut back at Mt Rawdon, if it's the gold price that makes it economic and we can get a margin and that means we lock away some ounces, we would certainly do that. But right now, that work is not finished yet.

[Michael Slifirski, Managing Director]

Okay. Then I guess extension to those, your overall view of hedging. You've got a very modest hedge book and it's still not bad hedge book. Certainly, we are very, very cash generative compared to your reserve price, which is nice to see. So do you treat that any differently now? Do you try and do you replace with high price positions as you deplete low price positions? What -- is there ways of change strategy where gold is currently?

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

Not specifically, Michael. I mean we've got the 400,000 ounces -- 100,000 ounces a year over the next 4 years, which is sort of 13% to 15% of our production. So we're happy with the current price where it is today, that 85% to 87% of our production is actually being sold at over $2,000 an ounce as we stand. What we do look at is what's the cash requirements for the business and if we need to put some in place, for example, like that Mt Rawdon one to not take capital off the other sites, we would do that. We've always said we'd be willing to go up 20%, 25% if the need is there. But right now, as we move to net cash, we're making good money across all of our sites. We don't see a need to lock away more hedging. And the other thing is, you think about do you push some of those out and then sell everything at a spot. Our approach has always been just to deliver to the time that these ounces need to be delivered. We're not here to get into derivatives and trading and trying to guess the gold price. We've put those in place through our balance sheet reason and we'll deliver as they fall due.

[Jacob Klein, Executive Chairman]

And I think just to add to that in a bit more -- from a strategic perspective, Michael. It was only in late May that the gold price was AUD 1,800 an ounce. So whilst we are absolutely delighted to see it above $2,000 and in record territory, strategically, I think you've come to know that we have a clear strategy. We want to build the business that prospers through the cycle and we want to be focused on margin and cash generation. So to kind of make adjustments to our strategy on a shift in the gold price over 3 months, I just don't think is what you'd expect from Evolution and not something that we're going to do.Let's see if it's sustained. As I said, I'm as hopeful as everyone that we are in a step change gold price environment. There's plenty of reasons to be bullish about the gold price. But from a business perspective, I think it's too premature to start adjusting the strategy.

[Operator]

[Operator Instructions] There are no further questions at this time. Please continue, sir.

[Jacob Klein, Executive Chairman]

Thanks very much. And look, thanks for everyone's participation. I know it's a busy morning. I appreciate it. And just to round out, we are a business in great shape and we're largely there because we have an absolutely great group of people who're working tirelessly every day on behalf of shareholders to create the company that we have. And I'm very proud of that and appreciate their efforts enormously. So thank you. We look forward to speaking to you on the 15th of August when we release our financial results and over the next few days as we do the rounds of the quarterly. Thanks very much.

[Operator]

Ladies and gentlemen, that does conclude our teleconference for today. Thank you for participating. You may all disconnect. Thank you.