OceanaGold Corp

TSX:OGC

Earnings Call Analysis

Company Optimizes Operations Amidst Rising Costs

The company's mining operations are escalating with underground production on track to hit 750,000 tonnes per annum by 2024. They successfully managed over three-quarters of historic water inventory and project a strong output with gold at 43,000 ounces and copper at 3,800 tonnes, achieving an all-in sustaining cost of $730 an ounce. Haile's improvements enable earlier production and cost benefits, seen from 2026. They've widened production guidance considering variability while advancing the promising Waihi North Project, encouraged by supportive government changes. Meanwhile, they're committed to driving free cash flow, growing reserves via exploration, reducing debt, and enhancing shareholder returns despite mid-single-digit labor inflation pressures.

Delivering on Production Guidance and Facing New Horizons

Steering through its third consecutive year of success, the company delivered on production guidance, a key market expectation, with a robust finish in the fourth quarter across all operations. This stride was supported by high-grade ore from Horseshoe Underground at Haile and operational efficiencies at Macraes, indicating a promising trajectory of organic growth and a decrease in sustaining costs over the coming three years.

Record Financial Performance with Optimistic Outlook

The year 2023 marked a financial milestone with record revenues of $1 billion, owing primarily to prosperous gold sales. With a stable augmentation in annual gold sales, revenue, and adjusted EBITDA since 2020, and favorable gold prices, the company's financial health is expected to thrive in the future. With an operating cash flow per share of $0.56, an adjusted earnings per share of $0.16 in line with estimates, and a manageable debt, the firm is poised with both liquidity and a competitive leverage ratio, offering a solid foundation for growth and investor confidence.

Boost in Gold Production and AISC Trends

The 13% surge in year-over-year production was fueled by escalated gold outputs at Haile and Waihi, where higher-grade extractions are on the rise. Notably, the initial quarter of 2024 is anticipated to be the leanest, with over half of gold production expected to surge in the latter half of the year. Following initial higher costs due to capital works and optimizations, the all-in sustaining costs (AISC) are projected to decrease through 2024, with financial benefits rippling into 2025 and 2026.

Haile's Production Profile and Cost Forecast

Haile's fourth quarter gold production saw a significant uptick due to high-grade contributions, setting a stage for consistent performance into 2024. While a reliance on low-grade stockpile material in early 2024 may inflate costs, the advancement in the Ledbetter pit and Horseshoe underground mining are set to enhance the second half's production profile, with a yearly projection of 60 to 65 thousand ounces.

Strategic Development and Expansion

In a single year, the company has successfully initiated underground mining on two levels at Haile, leading to substantial ore production. Also on the agenda is the Palomino reserve, which adds 380,000 ounces to the underground ore reserves, slated to commence mining in 2027. Plans are underway to unravel Ledbetter Phase 4's potential for underground mining, which could better the economics of the site. Such strategic maneuvers could signify a paradigm shift in operations and profitability.

Optimization and Innovation in New Zealand Operations

Didipio manifested a stellar fourth quarter performance, exceeding production guidance which could further optimize with an increased underground mining rate. Following the exclusion of the Round Hill open pit from Macraes reserves due to economic returns not justifying risks, efforts are concentrated on mining areas outside the current plans. Martha Underground's resource addition and the widened guidance range for 2024 reflect an ongoing effort to encapsulate variability and extend mine life until Wharekirauponga becomes accessible.

Exploration Update and Future Prospects

The annual reserve and resource update signals growth as reserve additions eclipse mining depletion. With a focus on expanding underground opportunities at Haile, drilling activities aim to build upon the previous year's success. Meanwhile, at Didipio, exploration aims to augment the resource base and depth extensions, with promising regional targets within sight. Waihi's Martha Underground is a focal point for growth as drilling targets high-grade mineralization continuation, suggesting the potential for additional discoveries and enhanced corporate value.

Leadership and Corporate Goals for 2024

The strategic recruitment of Bhuvanesh Malhotra as the new Chief Technical and Projects Officer, backed by his extensive expertise, is envisioned to drive value for the company. As an affirmation of the company's strategy, the fulfillment of 2023 production guidance marks a path toward boosting high-grade underground ore feed and advancing significant projects such as Waihi North, delineating a clear focus on sustainable and responsible growth in 2024.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the OceanaGold Q4 and Year-End 2024 Webcast and Conference Call [Operator Instructions] Also note that this call is being recorded on Thursday, February 22, 2024, at 10 a.m. Eastern Time. And I would like to turn the conference over to Rebecca Harris. Please go ahead.

[Rebecca Harris, executive]

Good morning, and welcome to OceanaGold's Fourth Quarter and Year-End 2023 Results Webcast and Conference Call. I'm Rebecca Harris, Director of Investor Relations. Today, we are joined by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; David Londono, Chief Operating Officer, Americas; Peter Sharpe, Chief Operating Officer, Asia Pacific; and Craig Feebrey, Chief Exploration Officer. Also present is Brian Martin, Senior Vice President, Business Development and Investor Relations.

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 on this conference call are in U.S. dollars.

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

[Gerard Bond, executive]

Thank you, Rebecca, and good morning, everyone. Thank you for joining the call. I'd like to start by recognizing some of the 2023 highlights through the lens of the 5 pillars of our corporate strategy. 2023 was our third consecutive year of safely and responsibly delivering on consolidated production guidance. We know that median production guidance is a key expectation of the market, and I'm pleased that each of our operations delivered a strong fourth quarter result to get us solidly within the production guidance range. Our total recordable injury frequency rate was 4.4 per million hours worked. We remain committed to creating a safe workplace at OceanaGold, and in support of this, in 2023, we commenced the rollout of our refreshed behavioral-based safety program and our new stop and think risk assessment tool across all sites. These programs empower our workforce to work safely and to mindfully identify risks before performing a task.

The second pillar of our strategy relates to making sure we have the right culture. Pleasingly, the results of a new comprehensive survey of all our employees showed that we have a highly engaged workforce with a high intention to stay at OceanaGold. We will work with the detailed results of this survey to identify where and how we can improve our culture even further in 2024. Yesterday, we also released our annual reserve and resource update in which we declared an initial reserve at Palomino Undergrounded at Haile and showed an increase in indicated resources at Wharekirauponga to over 1 million ounces at a world-class gold grade of 15.9 grams a tonne. Both the achievements of Palomino and Wharekirauponga, in addition to a successful ongoing exploration at Didipio, which we shared last year, demonstrate the upside potential of our asset base and our ability to add value through the drill bit.

Craig Feebrey will speak more about this later on. In 2023, we strengthened our balance sheet and increased returns to shareholders. We generated free cash flow of $42 million, which is after the significant investment in building Haile Underground and increased exploration spend. We've refinanced our debt facilities on improved terms, and we returned to paying dividends to shareholders. We expect to continue to strengthen our financial position in 2024, both through the generation of more free cash flow and with the proceeds of the upcoming listing of 20% of OceanaGold's Philippine Inc.

Finally, with the move of our corporate office to Vancouver, we're now closer to and more engaged with our investor and analyst community. We increased the number of investor site visits, and we upgraded our trading platform to provide better access for U.S. investors to trade our shares.

Our strong performance across the business in 2023 allowed us to meet all 2023 consolidated guidance numbers, both the original and revised with the exception of the original all-in sustaining cost guidance as a result of the impact of Mill Zone at Haile, which we discussed last year. This successful delivery guidance was powered by a strong fourth quarter, which was driven by higher grade ore coming from Horseshoe Underground at Haile, improved throughput from operational efficiencies at Macraes and earlier than planned access into high-grade areas of the mine at Didipio.

This slide shows what's truly unique about OceanaGold, being a strong rate of organic production growth and declining all-in sustaining cost over the next 3 years. We are well into a high organic growth phase and expect to produce approximately 13% more gold in 2024 than we did in 2023, with production growth of at least 30% over the next 3 years. This increase is driven largely by a transformation of the production profile and the cost profile at Haile, which takes shape in 2024. This exciting organic growth profile and declining levels of growth capital, which you see on the right-hand side of the slide, positions the company to generate strong free cash flow over the coming years.

I'll now turn the call over to Marius, so he can discuss our 2023 financial results and 2024 guidance in more detail.

[Marius van Niekerk, executive]

Thank you, Gerard, and good morning, everyone. I'm pleased to share that we generated a record full year revenue of $1 billion in 2023, driven by strong gold sales at record average realized prices. As you can see on this slide, our annual gold sales, revenue and adjusted EBITDA have increased each year since 2020. And at today's gold price, combined with the 3-year outlook, we expect our financial position to remain strong in the years to come. Our 2023 full year operating cash flow per share of $0.56 and our adjusted earnings per share of $0.16 are in line with analysts' consensus estimates. Our financial position remains strong with $170 million in net debt, good liquidity and a low leverage ratio of 0.41x at the end of the year.

Moving on to the 2024 full year guidance. Year-over-year production growth of 13% is driven by increased gold production at both Haile and Waihi. Haile benefits from an increased contribution from the higher-grade Horseshoe Underground as well as access to a higher proportion of open pit ore from the Ledbetter pit in the second half of the year. Waihi production will also increase from the prior year as mining advances into an increased ratio of higher-grade fresh stope material. We have higher pre-stripping at both Macraes and Haile in the first half of the year to allow for access to more open pit ore in the second half.

The impact of this on a consolidated basis is that the first quarter of 2024 is expected to be the weakest with approximately 55% to 60% of 2024 gold production weighted to the second half of the year. The consolidated AISC profile follows the same trend and as expected to be significantly higher in the first quarter and higher than that in the fourth quarter of 2023. AISC is then expected to come down quarter-over-quarter through 2024. We have taken opportunity to bring forward some capital works and to optimize the Ledbetter pit at Haile. This has resulted in the unit cost and debt of the company being higher in 2024 than we projected this time last year, with benefits flowing into 2025 and 2026. We also continue investing in our business through growth capital and exploration and expect to spend a similar amount in total as we did in 2023 as we advance the decline at Horseshoe to access newly added reserves at depth.

I will now turn the call over to David to discuss our...

[David Londono, executive]

Thank you, Mario and hello, everyone. Fourth quarter gold production at Haile was approximately 38,000 ounces, a healthy increase from the third quarter. This increase was driven by a significant contribution from higher-grade ore on the Horseshoe Underground.

During the same period, [indiscernible] continued in Ledbetter Phase 2 plus stripping and this momentum is expected to continue through 2024.

From a cost perspective, we were impacted during the year by the shortfall in grade and the now completed Mill Zone pit that costs did rebound from the high in Q3 during the last quarter of the year.

Looking ahead to 2024, we are expecting a greater contribution from low-grade stockpile material being processed through the mill during the first quarter, while we continue advancing in the Ledbetter pit and we'll expect to exit the main ore body of the Ledbetter pit during the second quarter.

Considering the timing of open pit ore availability and the ramp-up of Horseshoe underground during the first half of the year, our production profile for 2024 is expected to increase quarter-over-quarter and our all-in sustaining costs to progressively decline in each quarter as well. Our annual production at Haile is projected to be 60 to 65 weighted towards the second half of the year.

Now talking about the Haile expansion. In 2023, Haile experienced a remarkable transformation with the starting of operations at the Horseshoe Underground mine. In 1 year, we established underground mining in 2 different levels, optimizing our extractions, efforts that resulted in 83,000 tonnes of ore produced in 2023 at a grade of 5.32 grams per tonne.

As mentioned earlier, the underground is expected to continue to ramp up until it reaches full annualized run rates of approximately 750,000 tonnes per annum by New Year 2024.

I would like to highlight that we now have added Palomino to reserves. This is an additional 380,000 ounces of underground ore with a target to start mining in 2027. Impact of this will be detailed in an NI 43-101 technical report to be released at the end of March 2024.

On surface, we completed the expanded water treatment plant in 2023. This was an important milestone in managing our contact water on site. Haile has now treated over 75% of historic contact water inventory and it is anticipated that the remaining contact water inventory, which now sits in this pit will be treated and discharged during the first half of 2024.

This advances to our commitment to responsible operations and responsible store ship at Haile. The final point I would like to talk about is that we are currently working on a trade-off study that evaluates the potential for Ledbetter Phase 4 to be mined as an underground. While it is currently improving the mine plan as an open pit, given the high stripping ratio, we believe it could improve the site economics to mine these deposits as an underground, and we're studying the viability of doing so.

We will keep you updated as this work progresses including our additional drilling throughout year.

I will now turn the call over to Peter to discuss the details on our New Zealand assets.

[Peter Sharpe, executive]

Thank you, David, and good morning, everyone. Didipio had an exceptional fourth quarter, delivering gold production of 43,000 ounces and copper production of 3,800 tonnes, which helped us to deliver and exceed the top end of our annual production guidance.

Our fourth quarter results were underpinned by the ability to mine high-grade stopes in the top of the orebody, enabled in part by earlier than planned progress of our crown pillar strengthening project. This strong production for the year helped to deliver an all-in sustaining cost of $730 an ounce, which was within guidance that we lowered with our Q3 results.

Last month, we also announced the results of the underground optimization work at Didipio, which is indicating an ability to increase underground mining rates from the current 1.75 million tonne per annum to approximately 2.5 million tonne per annum, which would deliver a major benefit by offsetting lower-grade stockpile feed through the mill. This, in combination with some impressive exploration results at depth last year, will inform an updated NI 43-101 report that is planned to be released early next year. I'm very proud of the Didipio team for all they've accomplished over the last year, and I think we all look forward to what 2024 brings.

Now on to Macraes. Macraes produced 36,000 ounces of gold in the fourth quarter. Last year, the team delivered an increase in the average daily volume of tonnes milled through the year which we believe can continue to be delivered sustainably going forward. These efficiencies came about through the implementation of a number of continuous improvement initiatives and resulted in Macraes producing near the top end of its 2023 production guidance and lower end of its all-in sustaining cost guidance.

As announced in our resource and reserve update released yesterday, we took the decision to remove the Round Hill open pit from reserves at Macraes as a result of the identified goetechnical risks and low economic returns. An updated NI 43-101 technical report from Macraes is expected to be released by March 31, 2024.

The Macraes site has a track record of mining lower-grade material at low unit costs. And one of our key focus areas during the 2024 year will be to identify areas of mineralization that exist outside of our current mine plans, which could be considered for future mining if gold prices were maintained around current levels.

Now on to the North Island in New Zealand were Waihi produced approximately 13,000 ounces of gold this quarter. Fourth quarter was an improvement from the third quarter as the mining sequence included ore from the high-grade skins of remnant stopes. 2023 was a challenging year, however, as we started the year with significant rainfall in the first half which restricted access to high-grade areas of the mine for a prolonged period.

For our 2024 guidance, you'll see that we've increased our expected production output compared to 2023, and we have also widened our guidance range to reflect the ongoing variability that we expect to encounter as we continue to mine the remnant stopes in the historic workings of Martha Underground.

I also want to take the opportunity to highlight the resource addition at Martha Underground here as well. This ability to add ounces in close proximity to our existing operation helps to extend current mine life at Martha Underground, which in turn bridges the gap to when we can access Wharekirauponga.

As a reminder, Wharekirauponga is part of the Waihi North Project. And yesterday, we announced an increasing indicated resources at Wharekirauponga. The other development that occurred in 2023 was a change in the national level government in New Zealand. The new incoming government has made public statements in support of development across multiple sectors, including mining and plans to accelerate time lines for getting major projects consented and permitted. We are watching closely as the new government unveils their plans to establish what they are referring to as a fast-track one-stop shop process.

Wharekirauponga continues to demonstrate impressive exploration results, and with the change in government, we look forward to what this could mean as we continue to advance the Waihi North Project.

I will now hand it over to Craig to provide an exploration overview.

[Craig Feebrey, executive]

Thanks, Peter. As mentioned, we released our annual reserve and resource update yesterday and I'm very pleased to say reserve additions more than offset group depletion through mining before investments. Haile contributed significantly to group reserves with the addition of almost 0.5 million ounces from Horseshoe Underground and Palomino.

This year was also a milestone year delivering over 1 million ounces of new measured and indicated resource of 350,000 ounces of that coming from our growing Wharekirauponga deposit in New Zealand. As planned, we've been undertaking the Round Hill operation -- sorry Round Hill option study at Macraes to understand the geotechnically complex plan of tailings impoundment removal.

Ultimately, the economic return didn't justify the technical risk of undertaking this project and was removed from reserves and resources.

As we look at 2024, drilling at each of the sites is off to a great start. At Haile, we have 32,000 meters planned to build on the success of 2023 and continue to expand our underground opportunities. Drilling is focused on Ledbetter Phase 4 conversion, testing the down dip extension of the high-grade Horseshoe mineralization, testing the Northeast extension to Palomino where we intersected further mineralization last year as well as testing several early-stage targets.

Then at Didipio, copper, gold, porphyry mineralization lends itself to continuation at depth as we're confirming through exploration. Here, we've been focused on expanding the underground with conversion of mineralization in Panel 2 and defining an initial resource on Panel 3.

With approximately 28,000 meters planned at the mine this year, we're well positioned to continue the expansion of Panel 3 resource and further define the depth extensions recently intersected. We also have some exceptional regional targets, both within the FTAA and the neighboring exploration license that's in the final stages of approval, and we'll share more about these as approval is granted and land access agreements are finalized in the coming months.

And finally, at Waihi, we have 36,000 meters of drilling underway where we continue to grow the Martha Underground and test the size potential of the EG vein at Wharekirauponga, where we've just reported over 1 million ounces at 15.9 grams per tonne gold and an indicated resource and another 350,000 ounces at 9 grams per tonne gold as inferred.

[indiscernible] and high-grade mineralization continuing, as we step south on the EG vein, we're excited looking forward to what this year's drill program will deliver.

And with that, I'll now turn the presentation back to Gerard.

[Gerard Bond, executive]

Thanks, Craig. I'll take the opportunity to remind you all that we recently strengthened our management team with the addition of Bhuvanesh Malhotra as the Chief Technical and Projects Officer, who joined us a month ago. Bhuvanesh has over 25 years of experience in technical and operational roles across multiple commodities and most recently was with Rio Tinto. His experience will be instrumental as he drives value through our technical projects and studies teams at OceanaGold.

In summary, we safely and responsibly delivered on our 2023 production guidance, which I'm very pleased with. We remain focused on our goals for 2024, including increasing the high-grade underground ore feed from both Haile and Didipio, continuing to advance the Waihi North project, safely and responsibly maximizing the free cash flow generation of the company, growing reserves and resources by investing in exploration and finally, reducing debt and increasing returns to shareholders.

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 on the updated 3-year outlook. Maybe on the cost side, a fact from the deferral at Ledbetter, just wondering if there's other drivers of that on inflation pressures. Or is that also a function of higher realized cost as you've actually had a quarter now mining underground?

[Gerard Bond, executive]

Thanks, Wayne. Fair question. There are probably 3 main drivers of costs that are different from what we had this time last year. One which is what everyone is experiencing, and that's labor rate inflation. And our labor rate inflation, which will impact directly through employee wages, but also indirectly through contractors and other service providers, sits in the mid-single digits. So when it's that exposure to your cost base is, I don't know, 40-odd percent in terms of labor costs, you do have that pressure.

As it relates to things like procurement and what we're spending through goods and services with the exception of activity-driven costs such as ground support as we develop Horseshoe Underground, we're actually really pleased with the control and moderated level of inflation there. So it tends to be activity-driven rather than cost inflation outside of labor rate.

Secondly, as it relates to the biggest shift in the unit cost actually comes from the activity level. We have, as a result of optimizing the plans at particularly Haile and Macraes, you're seeing some shift in expenditures that impact the all-in sustaining costs.

So at Haile, for example, we've optimized Ledbetter pit and some of the costs associated with West PAG Phases 2 and 3 have been brought forward into early years, which increases the cost. The dividend of that is greater flexibility and you really start to see it in, say, 2026 onwards. And again, as you see that big lift there in production and also the reduction in all-in sustaining costs as a result of that investment.

As we're producing more, obviously, we want to get ahead of the curve on this tailings lifts. And then the other is a mix issue. The third issue would be a mix issue as we've taken a more modest outlook on Waihi's contribution and then the removal of Macraes Round Hill open pit.

That has shifted the shape of some of the production as well. So a bit of a dip and increase in the unit cost in, say, '24, '25 before better access to ore out of Macraes in the later years. So in summary, labor rate inflation, a bit of activity mix and then a reshaping of things such as the West PAG and stripping and tailings lifts.

[Wayne Lam, analyst]

Okay. Great. Thanks for that detail. That's really helpful. Maybe just on Macraes, you guys had noted an increasing production outlook over the 3-year period. But at the same time, Round Hill was removed from the reserves. Just curious how many ounces the Round Hill kind of account for. And just wondering what's driving a potential growing production profile at Macraes. And how should we think of the kind of remaining reserve life there?

[Gerard Bond, executive]

Yes, great question, Wayne. I mean, the -- a lot of that detailed answer will come with the 43-101 that will come out at the end of March. So if you can hold your breath for 6 weeks for the detail, it will come.

But if you look at -- in terms of the removal of Round Hill, that costs us 0.5 million ounces in reserves. And where some of the clawback of that effect is coming from a production perspective is some of the learnings that we got through 2023 in terms of milling rate and the improvement in recoveries that we're getting from that higher milling rate.

So holding or improving recoveries at this high milling rate, which is great testimony to the team there. Whilst we suffer like a bit of a dip in access to the Round Hill pit with a bit of investment, we'll get access to or in the outer boundaries of those -- that 3-year period. And combined with this increase in milling rate is kind of offsetting in part or moderate in fact of the loss of Round Hill.

To the reserve question, again, that will come out -- or reserve life, that will come out in the 43-101. I think Macraes first minted its first ore in December 1990. I don't think it's life was supposed to be the 34 years that it's got to so far. And I think the reserve life is circa 2028 based on the last extrapolation of reserve info.

We will continue to explore and go deeper and near where we exist presently. And of course, it will all depend on price.

So at around current price levels, Macraes can make money at reserve prices, which are presently $1,500 an ounce. Obviously, its reserve life will be shorter than longer.

So not wishing to -- it's kind of a long answer, I'm not wishing to obfuscate anything, but rather show you the kind of drivers of what you'll see in the 43-101 when it comes out.

[Wayne Lam, analyst]

Okay. Great. So we made a lot of history there and hopefully more to come. Maybe just last one for me. Can you just provide a bit of color on the government share payable at Didipio? Just curious, when is it paid out in cash through the year as it accrued.

And then just on the historical tax receivable, can you shed some light on kind of what happened there on the write-down? And is there any read-through to the overall relationship in country?

[Gerard Bond, executive]

So the government share in summary, we accrued quarterly. pay annually. The payment occurs in April. That -- so that's straightforward. The tax case, I will hand it over to Marius for all the detail. But in summary, we had -- we paid taxes that we didn't feel we needed to under the FDAA, but the way the tax laws work in most jurisdictions, it's better to pay and then try and get a refund. We've been trying to get a refund for a decade on some of those taxes paid. Just as time has passed, and particularly now that we're in the recovery period of the additional government share, we, in essence, became cash neutral by not persisting with the case.

It's -- and we already had the credit. And if we've got a refund, it would go to the government anyway. So we found ourselves in a position where there was no merit to continue. And to your third point, absolutely nothing as a read-through in relation to the relationship with the government there. It is strong, it is good. This is a tidy up of a legacy matter.

Marius anything you want to cover on the government -- the tax case?

[Marius van Niekerk, executive]

I've got nothing to add.

[Operator]

[Operator Instructions] And your next question will be from Ovais Habib at Scotiabank.

[Ovais Habib, analyst]

Congrats on a strong end to 2023. And also great to see both Didipio and Macraes increase -- or exceeding guidance. A couple of questions for me. Just a follow-up on Wayne's question regarding the production increase and kind of cost increase going into 2025. Is the sustaining capital that you're kind of bringing forward essentially assisting you to get higher production in 2026? Is that kind of what you were trying to explain?

[Gerard Bond, executive]

Correct.

[Ovais Habib, analyst]

Okay. So in terms of production increasing in 2026, where do we see the bump coming from? Is it essentially from Haile then?

[Gerard Bond, executive]

Mainly from Haile and a little bit from Macraes as well.

[Ovais Habib, analyst]

Okay. Then just kind of moving -- sticking with Haile, I guess. Haile Underground seems to be performing well. That's great to see. Any color you or David can provide on drilling and development? Essentially, I just want to figure out how far ahead of production are you on both ends.

[Gerard Bond, executive]

David, do you want to take that?

[David Londono, executive]

I can take that, I'm sure. We are actually going on plan, development and drilling too for the year. So we have mined 3 stopes in Q4 of 2023. And then we are ready to mine the next 2 stopes in Q1. So we're advancing right on our budget.

And drilling also, we're a little bit ahead of the budget we planned for the year. And we're getting some good intercepts down at the bottom of Haile or Horseshoe Underground.

[Ovais Habib, analyst]

And David, in terms of the first 3 stopes that you mined seemed like it was kind of in line with your expectations, above your expectations and also in terms of what you're drilling so far? How is that kind of reconciling in terms of are we getting some positive reconciliation or still fairly in line?

[David Way, executive]

Some of the stopes are coming in line, and we got to start that was actually a positive reconciliation and the same increase on the next 2 stopes that we're currently mining. We have slightly positive reconciliation on those 2 and the drilling that we are doing down at the bottom is also either in line or slightly positive.

[Ovais Habib, analyst]

Okay. Good color. And just moving on to Palomino then. Great to see an initial reserve there. You guys are looking to come out with, I believe, a tech report at the end of March. I mean, just kind of initial thoughts here, David. How are you looking to kind of develop into Palomino? Is it kind of through a drift from Horseshoe or separate ramp? Can you give us a little bit more color on any sort of initial thoughts there?

[David Way, executive]

We have the initial -- like we're working on the prefeasibility now, and the idea is to drive a decline from Horseshoe into Palomino and then a bend shaft from the surplus. So that our initial thoughts. Obviously, that may change on the feasibility report. But that's what we're doing currently. That's what we're planning currently.

[Operator]

Next question will be from Farooq Hamed at Raymond James.

[Farooq Hamed, analyst]

Apologies if this question was asked, maybe I didn't catch it. But Gerard, maybe a question for you, just kind of looking bigger picture, as your production ramps up this year and over the next couple of years and your balance sheet starts to kind of clean up or it already has been fairly cleaned up, but then you've got proceeds coming from the Didipio IPO and you have proceeds from that sale of the asset in New Zealand, and that balance sheet starts to look pretty clean.

What's your kind of hierarchy and where you're going to start spending your excess capacity or excess liquidity and free cash flow kind of -- as your operations start to kind of hit their stride here and probably towards the back end of the year, you start to see a much cleaner liquidity position?

[Gerard Bond, executive]

Yes. Thanks, Farooq. And I'll take -- I'll leverage one word you used, which is clean. And just to reemphasize the point that relative to many other companies in our space, our balance sheet is as clean as they can be. We have bank debt, and we have finance leases. We have very few and only minor legacy royalty arrangements on a couple of our assets. It's a very simple, clean balance sheet to understand and that compressibility of that bank debt and then the finance leases means that as you say, as we generate free cash flow during the year and get the proceeds from the Didipio partial listing, depending on what the gold price is and subject to our performance, we could be in a net cash position by the end of '24.

If you look at Slide 5 on the presentation, you can see there that the visible committed growth capital in '25, '26 is a step change lower than what it was in '23 and what we expect it to be in '24.

As we progress things like the Palomino development, the drift and shaft that -- and development that David just spoke of, that would be a growth capital investment option that will be -- provide us with attractive returns. As and when we progress going deeper and into the development of Didipio, there'll be some money required to do that. Both of those are strong payback and particularly Didipio is a particularly strong payback.

And then in the other areas for reasons that Peter said, with the potential for us to be included on the fast-track list of New Zealand government projects, the opportunity to spend or invest in the building of Wharekirauponga, which given the grades that you saw announced yesterday, make that an exciting project for us.

I guess that all summarizes to say we have growth capital options that are attractive and then beyond that, you can expect that we would keep the balance sheet strong and then you can expect that we will look to increase shareholder returns.

So in summary, invest in attractive growth options, keep the balance sheet strong and return capital to shareholders. And that capital return can take a form of either increase the dividend or share buybacks, depending on the price of the shares at the day. And again, there are future choices that we have once we get into that position of having that choice.

[Farooq Hamed, analyst]

That's great messaging, Gerard. And then maybe just a little bit of housekeeping. In terms of the timing of the asset sale in New Zealand when that will close and the timing of the closure of the partial IPO of Didipio, is that -- are both of those events expected to close with proceeds being received in the first half of this year?

[Gerard Bond, executive]

Well, the sale of the Blackwater, that's the $30 million, that will happen sometime during the year. It's a little bit out of our control subject to regulatory approvals.

So we expect that during the year, probably early second half, but we're not in control of that one so much. With the Didipio or OceanaGold Philippines, Inc., we're expecting that or targeting that to be listed in May of this year.

[Operator]

And at this time, we have no other questions registered. Please proceed.

[Gerard Bond, executive]

Look, thank you, everybody, for joining the call. It's -- on behalf of everyone at OceanaGold management and employees Board, we appreciate your interest in and support of the company. I wish you the best for the rest of the day. Have a safe day.

[Operator]

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