OceanaGold Corp

TSX:OGC

Earnings Call Analysis

OceanaGold's Q2 Achievements and Future Projections: Anticipated Stronger Second Half

OceanaGold Corporation's Q2 2024 earnings call highlighted several key points for investors. The company reported $251 million in revenue and $31 million in free cash flow, driven by record gold prices. Despite challenges at Didipio and Waihi, the company remains on track for its annual guidance, with production expected to be over 60% weighted to the second half. Major projects, including the ramp-up of Horseshoe underground mine and ongoing developments at Haile and Macraes, are progressing well. OceanaGold also declared a $0.01 per share dividend and initiated a share buyback program, reflecting its commitment to returning capital to shareholders.

Stronger Outlook Despite Challenges

OceanaGold's recent earnings call highlighted a mixed bag of results, but a strong outlook warns investors to stay optimistic. The company reported revenues of $251 million for the quarter, bolstered by record gold prices. However, operational challenges at the Didipio and Waihi sites resulted in lower production than anticipated, pulling the total gold output to just over 98,000 ounces for the quarter. As a result, the company is targeting a production profile that is expected to be heavily weighted towards the second half of the year, with a projected 60% of total annual production occurring during this period.

Production Improvements and Reliability Efforts

The company is optimistic about addressing the production shortfalls. At Haile, production is set to ramp up as the team begins accessing higher-grade ore in Phase 2 of the Ledbetter pit. This move should enhance throughput and increase overall production rates. Furthermore, the Horseshoe underground operation, having just reached planned production rates of 2,000 tonnes per day, is expected to sustain these levels going into Q3 and Q4. The management assures that these developments will contribute positively to achieving the company’s production guidance for 2024.

Cost Management and Financial Health

Even amid operational difficulties, OceanaGold managed to remain free cash flow positive, achieving $31 million, aided by non-core asset sales. The revised all-in sustaining cost (AISC) for Q2 was just over $2,100 per ounce, which was slightly above initial guidance due to lower production volumes. Management maintains confidence that they will reduce AISC in the second half of the year as higher grades come into play. Their capital allocation strategy continues to reflect a robust balance sheet, with a net cash position of $30 million and plans for a $0.01 per share semi-annual dividend and a share buyback program targeting 35 million common shares.

Anticipated Growth and Exploration Activities

As the company stabilizes its production levels, growth remains on the horizon. Activities at the Macraes site are expected to ramp up as access to ore becomes more prevalent. The Didipio mine, while facing initial production setbacks, is anticipated to produce more high-grade ore as operational strategies evolve. Furthermore, exploration efforts will ramp up at the Macraes site with an additional 6,500 meters of drilling scheduled. This exploration is crucial for identifying new resources and ensuring long-term growth at higher gold price levels.

Outlook Guidance and Strategic Focus

Management expressed confidence in achieving their production and cost guidance for the full year, with quarterly production set to progressively increase through Q4. They emphasized a clear commitment to safety following recent operational risks, reinforcing that safety measures are paramount. The anticipated production guidance suggests a focus on improving average grades, lower unit mining costs, and stability across other operations moving forward. With a significant portion of expected production still pending in the second half, investors are positioned to benefit from a potentially strong recovery quarter as the operational issues are worked through.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the OceanaGold Corporation Q2 2024 Earnings Conference Call. [Operator Instructions] Also note that the call is being recorded on Wednesday, July 31, 2024.

I now would like to turn the conference over to Rebecca Henare. Please go ahead.

[Rebecca Henare, executive]

Good morning and welcome to OceanaGold's second quarter 2024 results webcast and conference call. I'm Rebecca Henare, Director of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; David Londono, Chief Operating Officer Americas; and Peter Sharpe, Chief Operating Officer Asia-Pacific.

The presentation that we will be referencing during the conference call is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A, as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars.

I will now turn the call over to Gerard for opening remarks.

[Gerard Bond, executive]

Thank you, Rebecca. Good morning everyone, and thank you for joining us today.

The first pillar of our corporate strategy is to safely and responsibly deliver gold production. I'll start off by acknowledging that we did not do that this quarter, because one member of our Didipio team, [ Christopher Magastino ], did not go home to his family. This was OceanaGold's only fatality since 2016, and Didipio's only fatality since 2012, before it started production. This loss has been profoundly upsetting to all of us at OceanaGold, particularly for Christopher's friends and colleagues at the Didipio mine, and ultimately greatest to his family and local community.

Preliminary findings of the investigation indicate that he fell from heights while completing a work related task in the paste plant area. Operations were suspended for about 24 hours while the area was secured and crews were notified. The paste plant where the incident occurred remained shut down for about a week.

We continue to drive for a safe workplace across all our sites, particularly in the wake of this tragedy, and continue to implement our key safety programs, namely Our Safe Behaviors and Stop and Think. Keeping our workforce safe remains a critical focus for all of us and we are making it clear to our workforce that the only work we want is safe work. We have a number of other actions being implemented or considered in this never ending pursuit of zero fatality or life altering injuries.

From a production perspective, we produced just over 98,000 ounces during the quarter, and despite a weaker than expected quarter at both Didipio and Waihi, we expect to deliver our 2024 consolidated guidance with production strongly back half weighted, as we outlined at the beginning of the year.

In the first half of the year, our focus was on waste stripping at our 2 open pit mines, Haile and Macraes, to allow us access to higher grade ore. I'm pleased to say that Haile reached ore in Phase 2 of the Ledbetter pit in May and we expect to reach ore in Phase 7 of the Innes Mill pit at Macraes in this current third quarter. At the same time, we've been ramping up production in the Horseshoe underground mine at Haile and this month we achieved target production run rates of around 2,000 tonnes per day.

We were free cash flow positive in the quarter, assisted by the proceeds from selling the noncore Blackwater asset. We also successfully completed the initial public offering of OceanaGold Philippines, the subsidiary that owns the Didipio mine, and we listed the OceanaGold Philippines on the Philippines Stock Exchange. The proceeds of this offering, which we do not include in our free cash flow number, in combination with the quarter's free cash flow, put us in a net cash position at the end of the second quarter.

We also continue to deliver on the capital allocation framework outlined at our recent Investor Day, with progression of our attractive growth options, a strong balance sheet and a focus on returning capital to shareholders. We declared our latest $0.01 per share semi-annual dividend and recently introduced a share buyback.

This slide shows how we're tracking compared to our guidance ranges. As outlined when we set guidance at the start of the year, production was expected to be about 60% back half weighted. We produced just under 40% at the midpoint of guidance in the first half, reflecting weaker production from Didipio and Waihi. But we're expecting a stronger second half to deliver our consolidated production guidance.

In addition to open pit ore sources coming online at Haile, and shortly Macraes, we expect Didipio to have an improved second half as well, driven by progressive sequencing of the high-grade [ breccia ] stopes and an increase in underground ore tonnes hauled with the addition of new mining equipment on site. Increased production from Didipio will also result in higher copper production in the second half of the year.

From a cost perspective, our first half outcome was above our all-in sustaining cost guidance for the year. The major driver for this is mostly due to lower ounces produced in the first half and we expect unit cost to come down across the remainder of the year as production increases.

Capital projects remain on track for the year, including open pit stripping and TSF expenditures at Haile and Macraes, continued capital development at Horseshoe underground at Haile and ongoing permitting and study study costs at WKP.

I'll now turn the call over to Marius to discuss our financial highlights for the quarter.

[Marius van Niekerk, executive]

Thank you, Gerard, and good morning, everyone. During the second quarter we generated $251 million in revenue on the back of record average realized gold prices. AIC for the second quarter was slightly over $2,100 per ounce. The increase was mainly related to lower gold sales across all operations, lower copper credits at Didipio and higher maintenance spent to improve reliability at Haile and Didipio. This was partially offset by less reliance on lower grade stockpiles at both Haile and Macraes.

Our free cash flow in Q2 was $31 million, which included the sale of the Blackwater project. Adjusted earnings of $0.04 per share was in line with analyst consensus estimates and the operating cash flow was $0.14 per share.

With the net proceeds of $100 million from the Didipio IPO and the $30 million from the sale of Blackwater, we entered a net cash position of $30 million at the end of the second quarter, which is mainly made up of our available cash less drawn bank debt of $125 million.

As outlined at our recent Investor Day, our capital allocation framework is clear. With a strong balance sheet, we want to be able to fund our attractive growth options and increase returns to shareholders. In line with that framework, the Board declared a $0.01 per share semi-annual dividend and in July we announced a share buyback program to buy back up to 35 million common shares, representing approximately 5% of our shares outstanding.

We are expecting a much stronger quarterly production profile throughout the second half and combined with the current gold price environment, we anticipate strong free cash flow generation for the remainder of the year. The free cash flow profile coupled with our strong balance sheet sets us up to continue generating shareholder value.

I will now turn the call over to David to discuss the Haile operation.

[David Londono, executive]

Thank you, Marius, and hello everyone.

Safety remains at the forefront of our minds at Haile and we are committed to identifying and eliminating hazards and unsafe behaviors as part of our company-wide programs to ensure our workforce goes home safely. Core production at Haile in the second quarter was approximately 38,000 ounces. At the start of the quarter, mill pit was comprised of portion, the ground ore and low grade open pit stockpiles. In May, we began accessing ore from Phase 2 of the Ledbetter open pit, displacing ore from the stockpile to the mill, and will continue mining ore from Ledbetter Phase 2 through the remainder of 2024 and into early 2025. With Phase 2 pre-stripping now complete, pre-stripping will continue in Ledbetter Phase 3 as part of the mining sequence for 2025 and beyond.

Production during the quarter was impacted by an 8 day planned maintenance shutdown at the mill, resulting in lower throughput, as well as by a harder than expected open pit ore encounter in the upper benches of Ledbetter Phase 2 open pit. We're addressing this harder ore by increasing blast fermentation through tighter blast patterns, evaluating additional crushing capacity and optimizing the mid blend.

We expect cost to come down in the second half of the year as production increases. Now, from an exploration perspective, our drills were focused on defining a potential new resource at Horseshoe extension, converting resources at Horseshoe at depth, and our surface drills continued at Ledbetter Phase 4 and our other regional targets.

I'm pleased to say that as of today, the underground ramp up at Horseshoe is complete and we're now mining at target production rates. Increased development rates in the first half of the year resulted in more headings and allows us to draw from 2 stopes at all times and having a third stope in process. This drove underground production rates to an average of 2,000 tonnes per day starting at the end of July, in line with plan.

I'm very proud to deliver the Horseshoe underground into full production and on schedule, and this in combination with Ledbetter open pit ore pit, positions us for a strong second half to deliver our 2024 guidance.

I will now turn the call over to Peter to discuss the Didipio and our New Zealand assets.

[Peter Sharpe, executive]

Thank you, David, and good morning, everyone.

I'll first echo Gerard's comments earlier regarding the loss of our colleague, Christopher Magastino and the impact this has had on his family, friends and the broader community. Unfortunately, since Christopher's passing, we have suffered another serious injury at Didipio, when last week a contractor sustained head injuries while attempting to remove a metal blockage from a jaw crusher. He is currently in critical condition in the hospital and the investigation into this incident is underway.

With two serious incidents recently at Didipio, our commitment to ensuring that everyone goes home safely to their families at all of our operations is more steadfast than ever. At Didipio, we are increasing the level of infield coaching for the Our Safe Behaviors program, as well as increasing infield verification of critical controls of high risk tasks. Our people are our most important asset at OceanaGold and nothing is more important than ensuring they go home safely at the end of their workday.

From an operational perspective, during the quarter, Didipio delivered second quarter gold production of approximately 23,000 ounces and copper production of 2,800 tonnes. Production was lower than the previous quarter as the process plant experienced a number of unplanned maintenance shutdowns which impacted throughput.

Grade mine from underground was also lower in Q2, impacting total production, due to the resequencing and redesign of the high-grade breccia stopes. The impact of the redesign is smaller stopes and some deferral of stopes into the second half of 2024. However, the value that we get is higher recovery and lower dilution of these high grade ore tonnes in the medium to longer term mine schedule.

Mined tonnes were in line with the previous quarter though and we expect this to increase throughout the year as we add additional working faces and new underground equipment to increase the mining rate. This is in service of our goal to increase the underground mining rate to 2.5 million tonnes per annum and is part of the ongoing pre-feasibility study that is on track for delivery in early 2025.

We are currently still expecting to meet 2024 guidance, albeit at the lower end and we are also forecasting cost to come down throughout the remainder of the year's production and gold sales increase.

Macraes delivered the plan during the quarter and produced approximately 27,000 ounces of gold. Continued operating excellence in the mill resulted in another quarter of record throughput. The feed was largely from low grade stockpiles as waste stripping continued in Phase 7 of the Innes Mills open pit.

We expect to reach ore there this quarter which will displace the stockpile material in the mill feed for the remainder of the year and bring the head grade up. Access to ore in Innes Mills will drive stronger production for the second half and positions us to deliver on our 2024 guidance with production approximately 55% back half weighted in line with plan.

In our efforts to assess opportunities for additional mineralization at Macraes, that could be economic at these higher gold prices, we've scheduled an additional 6,500 meters of drilling at site to target resources outside of the current life of mine pit shells.

Waihi produced just over 10,000 ounces of gold in the quarter, which is roughly in line with what we produced in Q1. We did anticipate an increase in production in Q2, but continued to encounter geotechnical issues in the remnant mining areas that prevented us from establishing crown pillars in certain stopes and caused us to pivot to mining stopes out of sequence. We've engaged an external geotech consultant to assist in reviewing the design and installation methods for establishing crown pillars in these areas and hope that the outcome can provide a longer term solution and allow us to increase our compliance to the stope sequence in the mine plan.

Advancement of the Waihi north project, which includes WKP, remains on track with the pre-feasibility study expected by the end of this year. During the quarter, we progressed diamond drilling at WKP, targeting continued resource conversion and growth of the EG Vein, and expect to share further results with the market later this quarter.

I'll now turn the call back to Gerard for closing remarks.

[Gerard Bond, executive]

Thank you, Peter. We remain committed to creating a safe and sustainable workplace and will drive further review of and training through our 2 key safety programs, to ensure that everyone goes home to their families. We expect to deliver on our 2024 guidance with production a little more than 60% second half weighted, and all-in sustaining costs are expected to decrease in line with this increase in production.

Our balance sheet is strong with the company now in a net cash position and we continue to progress our growth options and deliver on our commitment to increase returns to shareholders with our existing dividend and now the share buyback program. We look forward to providing further updates on the results from our exciting exploration targets across the business throughout the year and on delivering the WKP PFS by the end of the year.

I'll now return the call to the operator and open up the line for any questions.

[Operator]

[Operator Instructions] And your first question will be from Wayne Lam at RBC.

[Wayne Lam, analyst]

Just wondering at Didipio, if you could kind of clarifying the stoping redesign there. Have you seen a change in ground conditions that necessitates a reevaluation of the mining methods or resequencing of the mine plan there? And does that have any broader implications for a future ramp up underground if you move forward to support the expanded mill capacity?

[Gerard Bond, executive]

Peter?

[Peter Sharpe, executive]

So Wayne, no, we haven't seen changed ground conditions. What we have been experiencing when we've been mining the breccia stopes has been challenging ground conditions. One of the things about Didipio, it's really healthy, is we get big stopes, we've got 20 by 20 by 30 meter stopes. But the, I guess the weak nature of the breccia material, what we're finding is that when we're looking to mine larger stopes in breccia, we're seeing failure in the shoulders and the roof and we're just not getting the full recovery of those stopes. So what we're looking to do is, redesign with smaller stopes. It will result in a smaller, what we call a hydraulic radius, which mean the span is smaller, which means it's got a greater chance of staying open and we can then paste fill cleanly and ultimately it gives us greater certainty around resource recovery.

So what it does about smaller stopes means you're not going to mine as many tonnes as fast. We do have that benefit in the Monzonite area, but in the breccia, it just means that the mining cycle will be slower. So it probably just spreads out over the next 2 to 3 years, you know, our ability to mine at that previous rate in the breccia zone. So from a long term perspective, it's a benefit. From a mining ramp up perspective, it'll be a benefit. So all of the PFS work that we're doing, probably on the back of that, you know, the design rechange, the design change was made.

So that, in summary, is where we're at. You know, while it's going to take a short-term hit, from a long term perspective, it'll be an overall benefit.

[Wayne Lam, analyst]

Okay, great. And then maybe just curious on the harder ore experience at Haile this quarter, was that from the Ledbetter pit? I'm just trying to understand if the higher grades from Phase 2 will be partially offset by lower throughput as we think about the back half of the year?

[Gerard Bond, executive]

David?

[David Londono, executive]

Yes, so the harder ore is actually coming from Ledbetter 2, in the upper bench, as we said. We're also getting higher grade, which as you said, is going to offset the lower throughput that we are actually having right now. But at the same time, we are testing some new spacing and drill bits sizes in Ledbetter to make sure that we don't lose too much throughput. We're also improving, optimizing our blend.

[Wayne Lam, analyst]

Okay, great. And then maybe just last one for me. In terms of guidance for the year, you guys have been fairly consistent in messaging the 60% weighting in H2. But the incremental commentary had previously been to expect a steady improvement through the year with Q2 better than Q1 and then a further ramp up into the back half. Given some of the operational challenges encountered this quarter, do you view the cost guidance as still being achievable given the big decline in cost you need to get to get there in the second half?

[Gerard Bond, executive]

Yes, sure. I think there were 2 questions there. One, yes, we do expect the second half to be stronger and that it's a step ladder effect up, as with Q3 being stronger than Q2 and Q4 stronger again, and cost guidance is expected to be achieved. Like most mining companies, we have a fairly significant degree of fixed costs, and the benefit of that higher grade and higher volumes absorbs a lot of those fixed costs. And we remain of the view that our all-in sustaining costs will come inside the guidance range by the end of the year.

[Operator]

Next question will be from Cosmos Chiu at CIBC.

[Cosmos Chiu, analyst]

Maybe on your guidance as well, Gerard, you know given what you've done in the first half, and I hear you, that 60% of the production is going to be in the second half, is it more realistic that you're now targeting the lower end of guidance for the year for production and the higher end for cost?

[Gerard Bond, executive]

No, we don't target the lower end. We're targeting achieving the guidance. And just to point out that, as Wayne said at the start, we kind of said it was going to be around 60-40, at the end of the first half, we're 38 point something of the 40. So it's a little off and we're a little off in those driven by lower than expected performance from 2 sites. And they happen to be our 2 smaller sites, Waihi and Didipio in a production sense, they represent around a little over a 1/3 of our production.

So the big engines performed well. That's Macraes and Haile, and we're expecting them to perform even stronger. So if that continues and, you know, not putting any pressure on Macraes, I mean, quarter-on-quarter, it's getting these fabulous milling rates. Now we're going to get higher grade ore into it.

Haile, as David and our materials have said, is into good ore, both open pit and underground. That, you know, grade is king. And the benefit of that gives us a belief that we'll be able to achieve the guidance. We don't target the lower. Obviously, when 2 assets are at their lower end of guidance, arguably puts pressure, but we kind of factor those judgments in when setting guidance overall. But no, our goal remains to hit guidance.

[Cosmos Chiu, analyst]

I only ask is, if I take your first half production divide by 0.4-ish, I get to something very close to the lower end of guidance. So maybe I'll rephrase it. I think you'll hit at best, the low end of guidance. But to your words, that we'd still be within guidance.

[Gerard Bond, executive]

Yes.

[Cosmos Chiu, analyst]

Maybe another question here in terms of the 2 underperforming assets, Gerard. As you mentioned, Didipio and Waihi both have had geotechnical issues. It sounds like you have a solution for Didipio and they will do better in the second half. How about Waihi? You know, the reason why I ask is, geotechnical risk is always challenging. Geology technical issues are always challenging. So, you know, what's the best case scenario here in terms of Waihi? And then maybe if you can talk to how much of your ore is actually coming from fresh ore versus remnant ore? And is there a way that maybe just mine from the fresh mining areas, would that be a potential alternative?

[Gerard Bond, executive]

Great questions. Cos, I'll hand over to Peter.

[Peter Sharpe, executive]

Cos, how are you? So the question around remnant mining in Waihi, the challenge we have, I mean, the challenges around the establishment of the competent crown pillar, in the remnant areas, you know we actually need to establish a crown pillar which is effectively a stable roof over the top of the stopes that we want to mine so that we can safely mine the stopes beneath, because we do undertake a top down mining sequence.

Now in the remnant areas to establish a competent crown pillar, we've got to mine out all of the old remnant fill and failed material previously because, you know, we just don't know the condition of that, that material. So we have to mine that out and then we have to refill it with competent material and we fill it with cemented rock fill, CRF.

And what we're finding that in addition to the CRF, we're actually having to install spiling rods drilling in through the CRF. We have to drill it in from the foot wall to the hanging wall and then we have to grout or resin inject to ultimately create an engineered crown pillar that we can safely mine beneath. And it's been a bit of, I won't say trial and error, but fundamentally we've done that. We've learned that we have to get to that point and that's taken quite a number of months, remembering that this is new for us in wide mine into these remnant areas.

So we are now starting to see that you know we've got the design that is now holding up and that will allow us to obviously be better at our stope sequencing compliance, which means we'll mine the areas that we say we're going to mine. It has meant that we've just had to learn what is the process and I guess the mining cycle to be able to get confidence that we can safely establish those ground [ problems ].

So I think what we've seen is we've seen that we've had to effectively learn how to create those safe geotech conditions so that we can mine.

The remnant area is very important to us. I'd say over the last 6 months plus, when we haven't been able to mine the remnant areas, we have been going into the fresh ore or the fresh zone areas. So you know we've effectively chewed up a lot of the inventory that we had in the fresh areas. So making sure that we do mine in the remnant areas is important. We have 40% to 50% of remnant mining for the rest of year and it is higher grade, so it is important. But again, the positive signs is, we actually now got a design. We're starting to see that, you know, the design and the execution is working and we're actually maintaining a safe crown pillar. So we certainly expect the second half to be a better performance than the first half. Hopefully that's answered your question.

[Cosmos Chiu, analyst]

That's good to hear, Peter. And then maybe one last question on your CapEx budget for the year, I noticed that you did a bit of a switcheroo, I guess, sustaining CapEx was previously $150 million, but now the new guidance is $110 million and pre-stripping or stripping was $110 million and now $150 million.

That kind of makes sense given what you've spent on, say, stripping, $86 million year to date. But my question is, is this really just a reclassification of the same work, or is it really, are you doing more stripping this year versus what you have planned? And, you know, inversely, the CapEx, sustaining CapEx that you're not spending this year, is it going to come up, say, next year?

[Marius van Niekerk, executive]

Cos, it's Marius here. From a reclassification perspective, no, it's not a reclassification as such, we're not bringing any CapEx forward from next year. All that's happening is there's some activity that is classified, that relates to stripping, that's longer term, that relates to growth. Other than that, from a total perspective, we still expect to be in line with the guidance and you would have seen actually from a year-to-date perspective, we're heading down that track. All activities that we plan to do this year is on track as per the plan.

[Cosmos Chiu, analyst]

Great. So in that case, the sustaining CapEx, the decrease in sustaining CapEx guidance from $150 million to $110 million, is the $40 million you are going to show up next year then?

[Gerard Bond, executive]

Not driven by production stripping. Cos, if I go back to your earlier question, those campaigns are on track.

[Operator]

Next question will be from Ovais Habib at Scotiabank.

[Ovais Habib, analyst]

A lot of the questions I had have been answered. Just a couple of questions from me. At Didipio, just following up to Wayne's kind of first question. Maybe I've missed some of the answers. But again, in terms of accessing those higher grade breccia stopes at the Didipio, will you be able to access those in Q3, or is this kind of a spillover into Q4? Any sort of color that you can provide that would be great.

[Gerard Bond, executive]

Peter?

[Peter Sharpe, executive]

So we can still access the breccia stopes, but what we've done with the redesign by actually making them smaller stopes, and we're doing that again because from a geotech perspective, we know that the smaller stopes means that there's a higher recovery certainty. We're still accessing the breccia stopes and still mining, but it's because it's smaller stopes, we're not as productive and it's taking longer, which means the total tonnes that you can mine in a certain period is not as much.

So it's almost like a mine, our original mine plan in the first 2 to 3 years. We got in and we mined all of the high grade stopes in breccia area, which is up near the top of the mine. What we're seeing now is a bit of a flattening of that. So we're still mining all of the breccia area, but it's just going to take us a year or 2 longer, what we plan to do, because obviously that would drop the average mine grade slightly over the next couple of years.

What we plan to do, obviously, is, is mine at a much higher mining rate. So we've talked about the underground optimization, taking the mine to 2.5 million tonnes. By getting up to that rate, we'll more than offset through extra total tonnes mined with a slight reduction in average grade by just having the slower rate through the breccia zone. So, yes, again, from a longer term perspective, we see this is in actual factor positive because we'll get a higher recovery out of the breccia area.

[Ovais Habib, analyst]

And in addition, you did bring in some additional equipment or you're looking to bring in additional equipment. Is that kind of according to plan as to your increasing the underground, you know production from underground and or kind of resequencing of the stopes?

[Peter Sharpe, executive]

Yes, absolutely. So I think we've shared previously that even though we're actually undertaking the pre-feasibility study this year, we're actually gearing up to ramp up. So we're in parallel. We've actually been onboarding additional equipment. And we do expect to be exiting this year at a mining rate in and around that 2 million tonnes per annum. So we're looking to mine and actually increase our mining rate and get to that 2.5 million tonne mining rate as fast as we possibly can.

[Ovais Habib, analyst]

Okay. Perfect. Just moving on to Haile then. Maybe this is a question for David. You know in terms of achieving the 2,000 tonnes per day from the Horseshoe underground in July, is that a sustainable rate that you're expecting going into Q3, Q4?

[David Londono, executive]

Yes, right now we're going to be mining 2 stopes at any given time with a third being a process drilled, et cetera, so we expect to be mining an average of 2,000 tonnes per day for the remainder of the year.

[Ovais Habib, analyst]

And just on that, I mean, in terms of the second half, any sort of color, color on grade profile that we should be expecting in the second half?

[David Londono, executive]

Yes, we've seen an increase in the Ledbetter 2, so that we expect that grade to continue to also in Ledbetter 2. And the underground, the grade that is coming is exactly what we predicted in the model. So what we see is what we expect to see.

[Operator]

[Operator Instructions] And your next question will be from Farooq Hamed at Raymond James.

[Farooq Hamed, analyst]

I just wanted to follow-up on Didipio again. Obviously there's been a lot of discussion already. I just want to understand you're going with these smaller stopes in the brecciated areas, is that like, how do you see that impacting the cost, the mining costs at Didipio going forward, for the next couple of years, while you're kind of running these smaller stopes? You've maintained your guidance for the year, but can you talk a little bit about what you expect in terms of mining cost impact from the smaller stopes?

[Gerard Bond, executive]

Peter?

[Peter Sharpe, executive]

Yes, sure, Farooq. We don't see that it's going to be a significant impact. It would be absorbed in the ramp up to a higher mining rate. Majority of our stopes are over 20 meter by 20 meter by 30 meter in the Monzonite area, the breccia zone is more of a higher grade ore body in the higher lifts of the actual ore body itself. So we really don't mine many tonnes out of the breccia anyway. Majority of our stopes are mined down to the Monzonite and they will be maintained at those higher productivity levels.

There will be some costs associated with the smaller stopes, predominantly just with the cycle and the paste fill. So smaller stopes mean that you'll need to build paste fills and then backflow and then mine another slot. So there will be some, but it won't have a material impact on the overall mining costs. And again, as we see the overall mining rate increase, all that will be absorbed. So we actually see that the mining unit rate will reduce over time.

[Farooq Hamed, analyst]

Okay, that's good. And then maybe just following up with the new equipment that you've brought in underground at Didipio, does that new equipment, is there any issue from a sizing perspective as it relates to potentially having these smaller stopes? Is it still appropriately sized for kind of your redesign?

[Gerard Bond, executive]

Yes, it is. The actual draw point is not going to change. So the size of the loader that will mine the stope, It's actually the shape of the stope. So we'll be going from a 20 by 20 to 30 to a 20 or a 15 by 5. So what we're trying to do is reduce the span that is open at any one time, because, again, in this weaker monzonite material, we're seeing fails in the. In the shoulders and the backs or the roof. And we want to just make sure that we don't have as big an opening at any one time. Then we'll backfill it with paste and then we'll go to the next stope next door. But the actual equipment itself, none of that will be impacted at all.

[Farooq Hamed, analyst]

Okay, good. And then maybe just lastly on Didipio. So you talked about the redesign, but then you've also mentioned resequence. Can you just talk a little bit about what the resequence entailed and why you had to do a resequence?

[Gerard Bond, executive]

Yes, it's just fundamentally what I said earlier around, because it is a smaller stope and the actual mining cycle means that the productivity levels will be slower. You just can't mine as many tonnes in a certain period. So what it's doing is, rather than probably mining at all in the first 2 to 3 year, all the breccia high grades gone in 2 to 3 years, it's adding another year or 2 to the overall shape.

So you're flattening it over those 2 to 3 years, but you're extending it into year 3 and year 4. So that's all that means is it's not the fact that we can't mine in particular areas because it's a smaller stope, it just means the cycle time is a little bit longer, which means you just can't mine as many tonnes in a certain period.

[Farooq Hamed, analyst]

Then maybe just switching to Haile. Really the question here on the underground, David, you talked about kind of reaching the 2,000 tonne per day steady state in July from operating 2 stopes at the same time. And it sounds like a third on standby or ready to go as you switch out. Can you just talk a little bit about what your forward development is? How far is your development in advance of where your mining rate is or where your mining is right now?

[David Londono, executive]

Yes, we're mining in the 950 and 975 levels. And the development decline is down at the 900. And we already passed the 900, so we're 50 meters ahead. So we're very good on the development. So we are over almost 12 months ahead of the mining.

[Farooq Hamed, analyst]

Okay, that's good. And then maybe last question for me, where, you know, obviously, based on your guidance, 60% to 65% of 2024 production at Haile is expected in the second half. And that's obviously going to be key in hitting your overall guidance for the year. We're 1 month into the third quarter, you're accessing from Ledbetter, and now you've ramped up at underground. So just the question is, what have you seen so far into the third quarter? What you're mining and what you're milling and what you're recovering, is that all according to your plan so far into the third quarter?

[Gerard Bond, executive]

Yes, Farooq, we'll give updates on the quarter at the end of each quarter. It's basically in line with plan, but I don't want to get into the habit of giving intra-quarter updates 1 month in. So but in a broad sense, we're comfortable with it, but I don't want to be confirmed with specifics.

[Operator]

Thank you. And at this time, it appears we have no further questions. Please proceed.

[Gerard Bond, executive]

Well, thank you, everyone. That concludes the call. A replay will be available on our website later today. On behalf of the management team and everyone at OceanaGold, we appreciate you joining us and wish you a very pleasant rest of day. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.