CMOC Group Limited (EVN) Earnings Call Transcript & Summary

Good morning, everyone. Thank you very much for joining us, particularly at short notice. We really appreciate it. I'm joined today by my colleagues, and we are at different locations today in order to see as many investors as we can. Lawrie Conway, our Chief Executive Officer and Managing Director, is in Melbourne, along with Peter O'Connor, GM Investor Relations. Stean Barrie, the GM transformation and effectiveness who led a lot of the technical DD. And then in Sydney, I'm joined by Barrie Van Der Merwe, our Chief Financial Officer; Glen Masterman, VP Discovery. And Bob Fulker, our COO, is actually on site this morning meeting with the team there. We're going to talk through the presentation that was launched on the ASX this morning, and there are essentially 4 sections we're going to talk through before opening up to Q&A. I'm going to talk through the opportunity and why we think this is such a great opportunity for Evolution. Lawrie will talk through the transaction summary and the Northparkes overview and highlights. And then Barrie will take us through the transaction funding. I do refer to the important notices on Slides 2, 3 and 4, which contain all the customary cautionary statements and would encourage our participants on the call to read those carefully. But I am going to start on Page 7 of the presentation, the Slide 7. And really start off by saying how excited we are today to be the new owners of Northparkes, having acquired from CMOC an 80% interest in the Northparkes mine located right here in our backyard in New South Wales. We genuinely do consider ourselves privileged and honored to be the new custodians, along with our partners, Sumitomo and Triple Flag of this iconic mines future. It is an operation we have long coveted. In fact, we've been interested in this operation since 2020 when we missed out to Triple Flag. It is a reliable, well-established long-life copper and gold operation. It also fits extremely well within our strategy of targeting a highly concentrated portfolio of up to 8 quality assets, this being our sixth operation. Particularly attractive to us is the very long line life ahead of us, around 30 years. It's very consistent track record of reliability and predictability and that it will be able to generate cash from day 1. I'm also really pleased that we have remained disciplined in buying a high-quality asset at a very attractive price. I'll now turn to Slide 8. I think if you've been following the Evolution story for some time, this is very much on strategy for Evolution. It pretty much ticks every one of the boxes that we've highlighted as our strategy for a long time. Firstly, it is an asset in the Tier 1 jurisdiction of New South Wales and is located near to one -- another one of our long-life cornerstone assets, Cowal. Secondly, having visited the mine on Sunday and met the team, I know we will be welcoming a highly skilled, well-established team that has a great track record of delivery and technical expertise at the operations. Thirdly, notwithstanding its exceptionally long mine life already ahead of us, it has compelling and attractive geological upside. And finally, the addition of Northparkes will increase our copper exposure to around 30%. While we are firmly committed to being a gold company, as we have consistently said in the past, we are very happy to add to our copper exposure, which is one of the most important and strategic metals that will be required as the world transitions to a low-carbon future. Turning to Slide 9. This acquisition is really in our sweet spot. CMOC, who are a very large company, have been owners of the operation for the last 10 years and have been great stewards of the asset. They have established a site team who have great technical and commercial skills and an enviable track record of delivering reliably and consistently. But CMOC have had outstanding success elsewhere in their portfolio and therefore, have decided that for strategic reasons unrelated to the asset, it no longer fits within their larger portfolio. Having spent considerable time with key members of the executive over the last week, I do know that they are reluctant sellers. Over the last week, I've also been able to meet the 20% joint venture partner of the asset, Sumitomo Corporation and Sumitomo Metal Mining, who are founding partners of this asset with Rio Tinto when mining commenced some 30 years ago. Also last week, I met with Triple Flag, who in 2020, acquired a gold and silver stream over the assets. I led both meetings with a strong sense that both Sumitomo and Triple Flag are highly committed to the future success of Northparkes and will be collaborative, engaged and value-adding partners as we start a new chapter in the story of this great operation. And finally, it also delivers on our commitments to make acquisitions that both improve the quality of the portfolio and is accretive to our shareholders. There is no doubt that those 2 boxes are well and truly ticked in this acquisition. With that, I'll hand over to Lawrie.

Thank you, Jake, and good morning, everyone. Like Jake, I'm very excited by the acquisition and becoming an owner of Northparkes, which will be a high-quality asset and contributor for Evolution. I'll walk through the transaction before going into some more detail about Northparkes the asset. Today, we have entered into a binding agreement to acquire 80% operator interest in the Northparkes Copper Gold mine for an upfront consideration of USD 400 million and a contingent consideration of up to USD 75 million based on a copper price linked payment structure at or above USD 4 per pound during a 3-year period from July 2024 to June 2027. As Jake mentioned, Sumitomo retained a 20% interest with the structure of the transaction not triggering any preemptive rights. Evolution will assume the obligation of the Triple Flag stream, which I will cover in detail in a few slides time. On resources and reserves, we want to clarify how this is being reported today. Information reported in relation to the Northparkes resource and reserves estimates was reported by CMOC in a report filed with the Hong Kong Stock Exchange dated 7 March 2023. Evolution has undertaken extensive diligence on the Northparkes resource and reserves estimate and we intend to release a JORC 2012 compliant mineral resources and ore reserve statement during the March 2024 quarter. The acquisition is being done at a very attractive multiple and a very -- is very accretive for Evolution across a number of key metrics. On an EV basis to reserves and resources, it's a multiple of $0.58 per pound and $0.10 per pound, respectively. Meanwhile, on a share metric, for resources and reserves, it is accretive at 32% and 9%, respectively. We'll be funding the upfront consideration via our new 5-year $200 million term loan facility and a $525 million fully underwritten institutional placement. In addition to the placement, we have announced a share purchase plan for eligible retail shareholders of up to $60 million, which is not underwritten. We believe this is the right mix of funding and is aligned to our capital management plan taking into consideration that Northparkes is generating good cash flows. Pro forma gearing will be around 34% before the SPP benefits, which is within our limits and our dividend policy targeting a 50% payout of group cash flow remains unchanged. Barrie will cover off on the funding arrangements soon. We expect the transaction to close prior to the end of this month without any condition precedents. Turning to Slide 13. This provides a snapshot of what the Northparkes acquisition means for Evolution and builds on what Jake outlined. It certainly improves the quality of the portfolio. Firstly, it is an asset which is delivering strong cash flows, which support our current deleveraging program. This is matched with a low capital intensity profile with multiple options for mining of the various ore bodies. The asset provides an attractive exposure to copper with FY '24 pro forma of 25,000 tonnes from a large-scale operation similar to our Ernest Henry operation. There is a large mineral resource with potential for ore reserve growth on the back of a track record of replenishing reserves and a resource base that is 5x the reserve base. With a mine life of around 30 years before full realization of reserve growth potential, it aligns to our long-life asset strategy and extends the group mine life average by around 4 years. The acquisition also now gives us 2 long-life assets in Central West, New South Wales. On Slide 14, we have updated our FY '24 guidance, which captures the impact of Northparkes for the second half of the year and also shows an FY '24 pro forma for Evolution if we were to own Northparkes for a full 12 months. Northparkes is guided to produce 19,000 gold ounces and 12,500 tonnes of copper at an all-in sustaining cost of $150 per ounce. Capital is guided at $10 million to $15 million for each of sustaining major and major mine development. The impact on the group guidance for FY '24 is shown on the table -- in the table with the main point being that the higher gold and copper production improved our all-in sustaining cost by $30 an ounce to a very low $1,340 per ounce. On a pro forma annualized basis, our all-in sustaining cost would be 4% lower at $1,315 per ounce through a combination of the 50% increase in copper production, the high margin of the asset and a 3% reduction in capital intensity for the group. This truly does demonstrate not only the quality of the asset, but the improvement it brings to the overall Evolution portfolio. On Slide 15, we have details of the stream obligation with Triple Flag, which Evolution will assume. The key things to note here is that Stage 1 requires delivery of up to 630,000 ounces, of which 38,000 ounces have already been delivered. This is based on 67.5% of gold and silver production attributable to Evolution being delivered in the stream to Triple Flag. Post Stage 1, the percentage required to be delivered reduces to 32.5%. In addition, for every ounce delivered to the stream, Evolution will receive 10% of the spot price from Triple Flag. From an Evolution reporting perspective, the key things are: The stream liability will be fair valued on the balance sheet as part of the acquisition based on the outstanding commitment of ounces at a gold price of AUD 2,650 per ounce. Evolution share of Northparkes production, sales and costs will be reported consistent with our approach to all the other assets. Gold sales will comprise 39% at the spot price and 61% at the fair value price. The stream liability will be amortized in the P&L as metal is delivered, resulting in a corresponding tax depreciation claim. However, from a very simplistic perspective of how to determine the net cash from Northparkes for the group is to assume the revenue from production at the assumed metal prices less the all-in sustaining cost and major capital is ultimately what the net cash will be for Evolution post delivery of the stream and tax depreciation benefit. I'll now move on to the overview of the actual Northparkes asset, which begins on Slide 17. On the right-hand side is the layout of the site, which identifies the multiple ore bodies, the concentrator and tailings facilities. It is a well laid out operation with a large footprint. Mining is a combination of block and sublevel caving with extra ore coming from campaign open pit mining. In 2021, the processing capacity was increased to 7.6 million tonnes per annum, with the underground ore sources providing 6.6 million tonnes of baseload annual feed which is then periodically supplemented with open pit and stockpile ore. The concentrate is transported to the Port of Newcastle and shipped to overseas smelters under the offtake agreement. Page 19 -- sorry, Slide 19 contains the 3 key highlights of the asset. The asset has multiple large-scale porphyry copper and gold deposits, as shown on the previous slide. These are suitable for bulk paving -- bulk cave mining operations and the asset is located in a well-known area for Evolution. There is a significant mineral resource base. And as mentioned earlier, there is a considerable potential to increase mine life through conversion to ore reserves. As we have done with our other assets acquired, we will now focus on the multiple options to increase reserves. Most importantly, though, is that this asset is now in a cash flow generation mode after significant investment in recent years, where the major capital required for the process plant expansion and for the E26 cave development are all completed. As mentioned, Northparkes is located in the well endowed and prospective district of the Lachland Fold Belt in Central West New South Wales. The multiple mining options shown on the right are all within a 2-kilometer radius and are very close to the well-capitalized surface infrastructure on an extensive tenement position of over 1,100 square kilometers. Moving to Slide 20. This is a world-class multi-decade asset with a mine life ahead of it of at least 30 years. There are multiple sources available and the majority of the current production is coming from the E26 block cave with additional production from the E26 sublevel cave open pits. Currently, the E31 and E31 North shown in the top of the graphics and stockpiles. The next main production front will come from E22, where a feasibility study is ongoing and is expected to be completed in the March 2024 quarter. This includes options for either a block or sublevel cave. The sublevel cave option would lower the medium-term capital intensity while still retaining value and deliver near-term cash flows. Lastly, on Slide 21. There's a massive resource base at 628 million tonnes, of which 433 million tonnes are outside the current planned mining areas. This provides us with many options for expansion of the mining to fill the current 7.6 million tonne processing capacity or for further mine life extension opportunities. Specifically, in E26, we are very excited about how -- about the opportunities with the ore body open at depth. However, just as important is that this is just one of the multiple options. We'll be establishing resource development programs to optimize the mine plan and sequencing. This is a wonderful position to be in with this asset, and I am certain that the current 30-year mine life is only just the beginning of what will be a long and successful journey with Northparkes as an asset within the Evolution portfolio. I'll now hand over to Barrie to talk through the funding of the acquisition.

Thank you, Lawrie, and good morning, everyone. I will now take you through our thinking on funding this exciting acquisition, how it fits into our overall capital management plan and the funding details. Talking on Slide 23. As Lawrie outlined earlier, we will be using a combination of debt and equity to fund this acquisition. It is made up of a fully underwritten institutional placement of $525 million. The share purchase plan or SPP, of approximately $60 million and a new term loan with our existing lender group of $200 million. Northparkes generates strong cash flows and has a low capital intensity. We therefore decided that a debt component should form part of the funding mix. Northparkes cash flows can comfortably service the $200 million 5-year term loan and our conservative planning assumptions. This is in line with our commitments regarding balance sheet management that will result in deleveraging. Our dividend policy, which is based on free cash flow remains unchanged. As outlined at our Investor Day earlier this year, we have no debt repayments due until the second quarter of FY '25 and our debt maturity profile is set to align with operational cash generation to allow flexibility for ongoing shareholder returns through dividends. Debt overview on Slide 24. I would like to thank our lenders for supporting us to fund this strategic acquisition, especially pleasing, given the challenge we set you with only a very short time frame to work through your own approval process. We really appreciate your ongoing commitment to Evolution. The new term loan of $200 million is at the same margin as the existing one and amortizes on a straight-line basis over 5 years, starting in quarter 3 of FY '25. Our average debt tenor of about 7 years is appropriate considering our portfolio of long mine lives with 74% repayable between 6 and 12 years. Our total average cost of debt is a low 5% for the year with 74% of debt fixed at the rate of 4.4%. This transaction funding and Northparkes cash generation is in line with our commitment to deleverage the balance sheet as we enter a period of lower capital intensity and higher production. On Slide 25, about the equity raising details. As outlined by Jake and Lawrie, this acquisition is in line with our strategy and has a very strong investment case. The fully underwritten institutional placement of $525 million that is launched today will involve issuing approximately 138 million fully paid ordinary shares or 7.5% of existing shares on issue at a price of $3.80 per share. This represents a discount of 8.2% with a 4 December closing share price and 5.7% with a 5-day volume weighted average price of $4.03. Cash from the placement is expected to be received around December 11. We will also launch a non-underwritten share purchase plan for eligible retail investors to participate in this equity raising. It will allow shareholders to subscribe for up to AUD 30,000 at a discounted issue price at no cost. The SPP booklet will be sent out on December 13. And cash from the placement will be received around 22 January 2024. Talking about sources and uses and the capital structure on Slide 26. The new equity and debt will be used to fund the purchase consideration through an upfront cash payment of about $608 million. This and the estimated working capital adjustment of $34 million is expected to be paid out before the end of the calendar year when the transaction closes. Stamp duty of $66 million and transaction costs of about $32 million is expected to be paid during the March quarter, while integration costs will be incurred during the course of the calendar year 2024. Transaction costs will be expensed through the P&L and will be below the line for purpose of reporting mine cash flow. Equity raising costs of about $14 million will be booked directly to equity. Evolution's pro forma capital structure after the transaction, excluding the proceeds from the SPP is set out on the slide. On Slide 27, we've got the equity raising timetable. So we are currently in a trading out while the book build for the placement is occurring. We will resume trading tomorrow and announce the results of the placement prior to market open. The SPP will follow the placement and will open on December 13 and run until January 16. Other dates relating to the equity raising are set out on the Slide. In conclusion, our commitment to deleveraging remains the same as before and is on track. Northparkes generated strong cash flows with low capital intensity over the next couple of years. We have no debt settlement commitments until the second quarter of FY '25, and our debt maturity profile is well aligned with mine lives, providing near-term flexibility for continuing shareholder returns through dividends. I'll now hand you back to Jake for conclusion.

Thanks, Barrie. In wrapping up, before we open the lines for questions, we have set out our new portfolio on Slide 28. Our strategy has always been to accumulate a concentrated portfolio of high-quality, low-cost, long-life assets and today's acquisition marks another important step in that direction for Evolution. I and Lawrie and the Board are very proud of what we've achieved because if you'd said in 2011, when we set up Evolution that this portfolio with our aspiration, I think you would have said that, that was very aspirational, but unlikely. So with very important milestone in Evolution's history. We're not done yet. We want to create a great gold company, and this marks another very important step in that direction. Operator, can you please open the lines for questions.

[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley.

Look, the first one, I wanted to touch upon E22, Obviously, it seems like a good opportunity and constitute circa 40% of your reserve if I've done my back of the envelope correctly. I guess my question is the optionality that you talk of. Obviously, capital light options are available, which would be perhaps more beneficial on the cash flow side. But what I wanted to understand was, if you do go down that path, doesn't that mean that your underground production is lower than where it sits at the moment because you're already, I think, doing about 6.5 million tonnes per annum underground and the mill is already at 7.6 million. So how do you solve that problem? And if you can give me a bit of an overview of E22 opportunity, please? I'll come back with another one after.

Thanks, Rahul. I'll hand that over to Lawrie.

Thank you, Jake, and it's going to go straight to Stean to walk through the options on E22 that we have got going on in the studies.

In E22, the option exists for us to do the block cave or do a few iterations of a sublevel cave depending on where we think it best benefits the life of mine for the Northparkes asset. Obviously, a block cave has a substantially longer period to bring online, and that has implications in regards to the availability of ore, whereas a sublevel cave enables us to bring some ore into the system at a more faster than initially anticipated, but also at a production rate which is only slightly less than a block caving option. It's important to note that a sublevel cave doesn't remove the option to transition into a future block caving option and hence, the option for you to increase, improve the production rate from that specific resource is not removed or diminished to initially anticipating or commencing production through the sublevel caving option. The production rate from the underground, as noted in the slide pack, irrespective of the ore sources can be maintained at 6.5 million where the surface stockpiles and open pit operations are always viewed as an option for you to increase production rate from the 6.5 million to a higher level up to the 7.8 million design capacity of the processing plant.

Got it. Okay. And then just a follow-up on that point. you said a couple of times in the presentation that the JORC resource currently available should not be solely relied upon and you're obviously going to put out your own update in March. Perhaps one question there is around the fact that if it is JORC compliance and you basically just got the keys to the assets, isn't this simply a typical depletion type update? Or is there something major going on at the asset in terms of recalculating the ore body? Or are you going to do some recalculations based on gold pricing? How should we think about that?

Rahul, that's right up Glen's fairway.

Thanks, Jake. Rahul look, I think the first thing to say is that the assets are very well drilled and we've done extensive due diligence on the mineral resources and the reserve estimates. Really, what we're looking at here is simply bringing it into JORC compliance, which is more of pulling together all of the information we need to be able to meet that standard. Given that CMOC, they're not an ASX-listed company, so there hasn't been a requirement for them to have their resources and reserves in a JORC 2012 compliance state. So what we need to do is to bring that across. So it's -- we expect we can do that over the next sort of 2 to 3 months. And it's really just a case of bringing together all of the information that currently exists, we don't believe there needs to be more information that we need to acquire and bring that into sort of a standard that we would report in JORC compliance.

I'll just add, Rahul, just as another point of reference that people may want to refer to that Triple Flag listed in 2021 and also had a section on the resources and reserves at Northparkes.

Got it. That's helpful, Jake. Look, final one for me before I pass it on, is on Triple Flag. Obviously, there's a streaming arrangement there available and the structure seems pretty straightforward in terms of how many ounces go into Triple Flag and up to the 600-and-something ounces that you've got there in Stage 1 followed by life of mine. I guess the question here is, is there any sort of flexibility in the delivery for this? Or is it just force majeure basically, that gives you the option to not deliver the exact ounces that you need to?

I'll hand that over to Lawrie.

Yes. Thanks, Jake. Look, there is -- it's from our perspective, what we've looked through it. As the metal is produced, we would deliver into that stream. There's not really many other options that we would do. And at the same time, when we look at the relationship that Northparkes and CMOC had with Triple Flag to date, delivering the ounces so far. We would continue to deliver the metal as it's produced. We don't see any reasons to vary that.

Got it. Got it.

In addition I'd add to that, Rahul, Sorry, was I did meet Shaun Usmar last week in Toronto, the CEO of Triple Flag. And they are genuinely committed to the operation. They are great partners, as are Sumitomo, who I met also last week, and it just feels like CMOC and them have built a very collaborative engagement and partnership that we hope to carry on.

No. Look, absolutely. I think there seems to be a fair bit of optionality, and that's why I wanted to touch on that E22 option. I guess what I'd be looking to do here is to try and form a view on what type of capital intensity you're required to have that mine life because it would seem that if you don't have E22, then the mine life would be compromised. So obviously, that's the main part that we need to do work on. And perhaps if you can provide a bit more visibility on that part, it will be helpful for us.

I think we're very confident that 30 years would be a conservative estimate of the mine life and very comfortable that E22 will be developed. The only question is how we develop it, whether it's initially via a sublevel cave and then a block cave. And those options are all available to us. I think for the next few years, it's capital light, and we'll be doing the planning associated with that. And there are only good options associated with that development.

And Jake, I'll just add to that. I mean, and it's in the mining overview, in the pack, it does have a number of the long scenarios with different ore sources that we have and are considering and it's not dependent solely on E22 to get to that 30-year mine life.

Your next question comes from Mitch Ryan from Jefferies.

Can you just talk to -- you said multiple times that there's low capital intensity over the next few years. What does that mean? Can you quantify that between -- and sort of talk to Slide 34, the bottom of that slide side, how that ties in between 2023 and 2026 before the big spend in -- on a sub level cave?

Sure, Mitch. Lawrie, that's one for you.

Thanks, Jake. Yes. Look, Mitch, I think I'll be upfront that in terms of completing the work on the JORC does put some limits in terms of forward-looking projections. But what we see as Stean has outlined, the mining for the next few years, which are shown on 34 from '23 to '26 is heavily predicated on the E26, which that capital development has been done to get access into that. Then the open pits, which are very short, shallow open pit. So there's not a lot of capital intensity into those. So for '23 through to '26, the existing mining areas which have got a lot of that development done is what gives us that low capital intensity over those years. Than what we're going to look at is that study on the E22, which is underway complete, will then allow us to outline what's going to be the sequencing and timing of that once we've finished the work on it and the MROR. Or what we see from the existing ore sources, that's a low capital intensity, strong cash generation over the next few.

And Lawrie, I'll just add to that. One of the most impressive things for me on the site visit in speaking to the team was just the depth and skill and their plans, their long-term plans. They've done a lot of these studies. So it's not new work that needs to be done. It's really just getting across it and understanding it alongside them. But the depth of technical experience, the long-term planning, I thought was one of the highlights of the visit.

And then with regards, can you just sort of give us some rough numbers or how to think about the [ ore feed ] being driven from E26 relative to the milling capacity. So should we assume sort of that full 7.6 million run rate on 1 million? And what percentage of that would be filled from E26 versus sort of stockpiles versus open pits?

I'm going to pass that one on to Melbourne as well.

Yes. Look, it's around 50% will come from there. And when we look at the E31 and the E31 North and the stockpiles basically take it from the 6.6 million to that 7.8 million for a period of time, but the majority of that feed is coming from E26. So at the moment, E48 finishes at the end of this month, early into next year, and then it's -- the E26 is the main feed.

Glen just has something to add on that.

Yes. So really, Mitch, just coming back to that. So the SLC and the block cave at E26 are going to deliver predominantly the 6 million to 6.5 million tonnes from the underground and then the rest of it at the 7.6 million will be coming from the open pits.

Our next question comes from Jon Bishop from Jarden.

Just wondering about the sequencing of your capital intensity. You're obviously talking about looking at block caving or sublevel caving from 2026. If I look at your other assets, you obviously got the Cowal open pit extension, which is normally 200 upfront, I think is what we've assumed and then another couple of hundred depending in today's numbers. And then you've obviously got the bulk of the Ernest Henry life extension also falling in from 2026 onwards. Do we make any assumptions around additional funding or asset rationalization? Do you think that's fair?

Lawrie, another one for you.

Look, when we look at the profile and where E22 fits, it's really in the later parts of this decade. So the cash flow, the assets will generate in the earlier years. And then when we get into that '26, '27 and '28 as the capital, which, depending on the outcomes of the study increases, it's still self-funding from our plans at our conservative assumptions. And then it's at the back end of the decade. And so if we look at it at the back end of the decade compared to the rest of the portfolio, main capital furnace Henry is in that sort of '27, '28. Cowal will be spread '26 through to '28 and Ernest Henry, which we know is going to be able to self-fund it itself its own capital from the cash flow it will generate over the coming years. When we look at on that portfolio, which still goes back to what we talked in journey to these projects will be sequenced based on when they're needed and the returns that they generate. But when we look at the asset as it stands today, that capital is more at the back end of the decade.

Jon, just answering your -- the latter part of that question, that means that the balance sheet is strong. The cash generation is strong and will not drive any decision to rationalize the portfolio.

Okay. That's helpful. And just -- it's probably semantics, but just so I understand some of the ratios that you talked to, I think, is in Slide 14. You've given a capital intensity number based on your 2024 capital guidance. But I'm assuming that's not inclusive of the capitalized underground costs for Cowal. And just as an extension to that, can we assume that you will be declaring commercial production from January 1?

Lawrie?

So yes, Jon, and I'm enjoying the accounting lessons with you. As we've talked about for the Cowal underground the commercial production, you've got to take it net of revenue. The accounting standards may have changed. So that capital isn't in there. And if it was, you have to do it on a net of revenue basis for the revenue that the underground does generate while it's ramping up to commercial production. And in terms of the second question, as at -- the way the mine is performing today, it is on track, but what Barrie and the team have to do as part of the half year reporting is confirm that, that's a sustainable position to move to commercial production, not at the spot prices. As we've always said, it has to be at the planned assumption prices when the project was developed. That -- all things being equal, the ramp up to over 1 million tonnes from the underground this year remain on track.

Okay. So for non-accountants, that's just myself, just to be clear, from cash out the door, though, there will be roughly $100 million from that Cowal underground dropping onto the cash light?

Yes, based on $50 million was the net negative for the first quarter. And as it ramps into the second quarter, we've estimated the same as we were planning to produce 20,000 ounces in the half, and we did about 9 and a bit in the first half -- first quarter.

The next question comes from George Eadie from UBS.

Just wanting to clarify what commodity prices we use for Northparkes asset guidance? And then just second, also clarify, the silver delivered into the stream. Does that rate change in stage 2 when the 630 ounces of gold is delivered and it just follows?

Lawrie, over to you again.

So George, the guidance for Northparkes is in line with the rest of the group. So that's a $2600 an ounce and AUD 12,500 a tonne for the copper. And in terms of the stream. The -- as shown on the chart, it says -- I just double check on the silver, goes back to 50% as shown on the chart -- on the Slide 15. So the gold goes back to 33% and 75% and 50% of the silver in stage 2.

But just without silver when it goes back, so clarifying in Stage 2, is that at the same time as the 630 ounces of [ 1000 ] ounces of gold is delivered? Or is it the same time essentially yes?

I'll have to just check on that ounce number for you.

I think, George, what I can say is that the delta on the NPV is going to be very low on that change.

Yes, definitely. s

Very far out. So it wouldn't really affect but we can get you the details.

Yes, fine. I'll just [indiscernible]. Just one other, so Jake was saying at the start, this is now the sixth asset and you're still sort of like the idea of 8. Can we read that today, the update leaves you no less attractive in adding to the portfolio given there's a lot across the portfolio happening, but there could be more assets coming online in the market soon?

Yes. I mean I think that's -- we're happy with the portfolio at the moment. Let me be clear that we've learned lessons from our acquisitions in the past, and let me reference Red Lake. We want to make sure we bed this asset down. We deliver consistency and reliability one of the great attractions of this asset is its long mine life and its reliability and consistency. So we want to do that. We want to -- we are in no rush to go out and buy more things. And again, I keep saying that the more we improve the quality of the portfolio, the more the hurdle to improve it in the future rises. So very happy with the portfolio. As I said earlier, it said we'd have this portfolio when we started Evolution 12 years ago, I would have said it's highly aspirational, maybe delusional, but we're here and very happy with it.

George, just a couple of things on the asset piece, Jake is working heavily on monetizing pumped hydro. So he's got something else that's keep working on. And the silver stream Stage 1 is actually 9 million ounces.

Our next question comes from Matthew Frydman from MST Financial.

Can I firstly ask you about the process itself. If I understand correctly, CMOC have had a for sale sign on the asset for most of this year. So wondering if you can comment, I guess, on the length of the process, how long you guys are participating? What's your understanding of how many other participants were in the data room? Obviously, we all know that copper assets have typically been pretty hotly contested recently. So yes, just wondering how you came about with, I guess, a successful outcome in this process in your view?

Yes, Matt. So Remember, we've been interested in this asset for 3 years. When that stream was sold, we had a good look at it at that time. We always felt that it fitted within our portfolio. Discussions have been ongoing for 10 months with CMOC. Our understanding is that there have been multiple parties who've expressed strong interest. As late as 48 hours ago, we were not certain that we were going to secure the assets. So it's been a very competitive process. CMOC selling it for strategic reasons, not because of any reasons related to the assets. So it has been competitive. We've secured it at what we believe is a bilateral engagement, ultimately with CMOC. We've been disciplined and engaged, but it has been highly competitive through the process.

Yes. Got it. Okay. Can you allude to exactly what changed in the last 48 hours? Is that change in the price or another party exiting the discussions by your understanding?

I think it was a hard fought battle and eventually, both sides landed. And I'd say both sides have some bruises and some pain to show that it's probably a good deal. But both sides moved and from the original view, we stuck to our guns, we've remained disciplined. And I think CMOC, we're very focused on ensuring that they sold the asset to a party that they thought would enhance their reputation and credibly operate the Northparkes operation was a key factor to them. So I think in speaking to CMOC, price is not the only determinant but it was a certainty of closure and reliability and predictability and reputation of the incoming party.

Got it. That's very helpful. And I appreciate the additional color there, Jake. Can I ask secondly, Jake, you talked about the technical ability and the long-term planning that you're very impressed with in your visits to the asset and meeting the team. Can you talk to, I guess, the structure around how much of that is retained, what personnel will come across in the acquisition? And obviously, block caving is not necessarily a common mining method and certainly other gold companies in the past have suggested that it's a skill that really you grow organically and through experience rather than acquiring. So just wondering -- what your thoughts are on that? How you expect the business to get up the curve quickly on block caving operators and potentially in a few years' time, block having developers?

Yes. Sure, Matt. And that's a good question because one of the highlights of this acquisition is the team on site. It is a largely independent sites. So this is the only asset that CMOC has in Australia. And they've largely retained the team that's been there for a long period of time. So the tenure of the team is high. A number of people have been there many, many years. There have been some new additions but it is a very, very independent site, all of whom in terms of people are coming across to Evolution. So we actually think we're adding depth on the technical skills. And you referred to block caving and sublevel caving. Obviously, sublevel caving, we're comfortable within -- at Ernest Henry. But block caving, you'd have to say Northparkes has been a training ground and development ground of the development of block caving skills and capacity in Australia for the last 30 years, and we're absolutely delighted to be welcoming those people into our organization.

Yes. Thanks for that info. Jake, you are certainly one of the first to ever do it. So I'm sure there's a lot of on-site experience. So thanks for the answers.

The next question comes from Hugo Nicolaci from Goldman Sachs.

Congrats on the acquisition. Just one for me, just looking at, I guess, mill capacity versus permitting, appreciated mill at the moment can do 7.6 million tonnes. But I guess from your due diligence, is there any, I guess, sort of low-hanging processing fruit that could help take you to that 8.5 million tonnes that you're permitted to there? Or is it really a relatively capital-intensive process to expand that mill and other parts of the process...

Thanks for your question, but I'm going to cut that one off and take it myself because, again, learning from our experience and other acquisitions, I just want to say that we want to operate this asset to its current capacity, which is the 7.5 million tonnes. We'll look at all options in the future, but don't want people to build that into the model at the moment. We think it's absolutely compelling on the conservative base case that we built on the model. Anything extra will be additional and in the future, but we're not talking about it today.

Yes. Understand, makes sense and look forward to future updates there. I think my other questions have been asked, so I'll pass it on.

[Operator Instructions] Your next question comes from Nick Evans from the Australian.

Just a really quick and simple one for me just because -- most of the rest of what I wanted to know has been covered off. Just, I guess, in terms of the difference in the price that CMOC paid, back a few years ago, and what you paid, should I just assume that that's largely due to that streaming arrangement has stripped out sort of some of the cash flows and that there's nothing fundamentally changed in terms of mine life production and that kind of thing from there?

Nothing has changed.

So the difference between yes -- Jake, so the difference between what they paid [ 820 ] a few years ago and your price is purely about that streaming arrangement with Triple Flag?

I'd like to think it's because we negotiated a good deal, but I'll leave it to you to work out the delta.

Yes. And then just on the -- just on one of the things that I didn't quite understand in the presentation, you talked about the fair value price of gold sales into that strength. Can you just sort of explain to me what you mean by that because I wasn't quite sure of the -- yes, exactly what the -- how that sort of streaming arrangement works in terms of the price that you guys will actually get for gold in that stream within?

Lawrie, this one's for you.

Thanks, Jake. So essentially, we take on the liability of that stream. And as at today, based on the ounces remaining, that liability is valued, fair valued at around USD 356 million. So in Aussie dollar terms, it's AUD 540 million. And then we work out what that is based on how much metal still has to be delivered, and that's where we end up at an average price of $2,650. So if you think of it the ounce that gets produced at Northparkes, that revenue, no matter what, if it's sold at $3,000 an ounce today, that revenue goes to Triple Flag. But we have to amortize that liability on a metals production basis, and it gets locked at $2,650 price on acquisition based on how much metal still has to be delivered.

You have a follow-up question from Jon Bishop at Jarden.

Can you give me a little bit more color around your offtake agreement that you're inheriting for the copper production? Is it vanilla or arms length? Are there anything that we should be aware of ex of spot pricing as a basis?

No, I think you should consider it as a standard offtake contract negotiated at arm's length commercial terms.

Okay. And then in terms of formulating your estimated all-in sustaining costs, I think you've quoted $150 an ounce. Can you sort of step us through what the basis is there in terms of gold price assumed, et cetera?

You're back almost into accounting territories, so I'm going to hand this over to Lawrie again.

Yes. So Jon, the -- the gold is at $2,600 and the copper is at AUD 12,500 per ounce. And then there's the $10 million to $15 million of sustaining cost. So that's how we've calculated the AISC guidance there.

Yes. Okay. That's helpful. And that probably leads on to my last question. Just around the capital intensity, and this probably bury in on that question I asked on previous round. The capital intensity for the operation up until 2026. What do we assume? Is that sort of $30 million a year, roughly? Or is it higher than that? What does it kind of look like?

Yes. look, Jon, I'll go back to the earlier thing once we release our JORC-compliant MROR, that's when we can really openly talk more broadly beyond FY '24, in terms of specific numbers. As I said, the capital for that process plant, the capital for E26 have been done. It's a well-established site. So sustaining capital historically has been around the level that we've guided for the rest of this year. And the mine development, as I said, has been done to now just be ticking along and the major capital for this year in terms of projects is around the fee study in a couple of projects in terms of the process plant. So I'll let you draw some conclusions as to where that may take you for the next couple of years until we get to a position of being able to openly talk about the future years.

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

Thanks, everyone, for participating. We look forward to talking to investors and analysts today. We know there will be a lot of questions about this acquisition, and we look forward to answering those questions you'll be hearing a lot more about Northparkes in Evolution's future going forward. Before concluding the call, I do want to specifically thank a number of people who have made this transaction possible. Firstly to Steele Li and Jon Jin at CMOC. I do know how important it is for you to ensure that the future of Northparkes is in safe hands, and we do appreciate you trusting us with this responsibility and take it seriously. To our new partner, Sumitomo and Triple Flag. We look forward to working with you to make this very good asset, maybe even a little better. To our advisers, Macquarie Bank and legal team at Allens, thank you. A huge amount of effort to get this over the line. To our own team, Lawrie Conway, who is now not only an accounting expert, he's a technical expert, a commercial expert, geological experts who's our Managing Director and CEO. His leadership team and the vast number of our people in our organization have contributed to this transaction, a huge thank you. To Peter, [ Rocky ] and O'Connor and his IR team, none of them have slept for the last 24 hours, and they're still largely smiling. And finally, to Kirron Schmidt, who leads our business development team and his team. That team hasn't slept for a few days and are all definitely sleep-deprived, a huge thank you and well done to them. Thanks all for participating in this call, and we'll speak to you soon.