Evolution Mining Limited (EVN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Evolution Mining FY '23 Half Year Financial Results. [Operator Instructions] I would now like to turn the conference over to Mr. Jake Klein, Executive Chair. Please go ahead.

Thanks, MJ. Good morning, everyone. Thanks for joining us. We really appreciate your time on this busy morning. On the call this morning is Lawrie Conway, our CEO; and Glen Masterman, our VP, Discovery. I'll make some introductory comments before handing over to Lawrie, who today, for the last time, will be also acting as our CFO. Our new CFO, Barrie Van Der Merwe, starts on 1 March and was in the office yesterday and assured me he would be listening to the call attentively this morning. So a special good morning to you, Barrie. I know there will be no one happier than Lawrie to see you arrive for work on 1 March. Starting on Slide 3, a gold business that prospers through the cycle. For those of you that have followed our story, you will know that this has always been the purpose of Evolution and the results we are presenting today are evidence of our team's success at delivering this for [Audio Gap]. The recipe is working. Our concentrated portfolio of high-quality assets in Tier 1 jurisdictions, operating at sector-leading low costs are generating over $1 billion of operating cash flow on an annualized basis and allowing us to be investing in quality growth, not growth for growth's sake, but growth that will again improve the quality and sustainability of our production base. Importantly, we are also succeeding with the drill bit as the mineral resource and reserve update demonstrates. We now have over 30 million ounces in gold resources and 1.8 million tonnes of copper. Ernest Henry has been a real standout with a 36% increase in gold and a 37% increase in copper resources with substantial exploration upside still remaining. With an average mine life of 14 years, coupled with good geological upside in our district scale positions in both Australia and Canada, we are excited about our future. This is underpinned by a strong balance sheet. We have generated strong operating cash flow, which we have invested into our growth projects. And as we're now near the end of this, we anticipate generating material net cash flow that will be available to both retire debt and support dividend payments to our shareholders. Our respect and recognition of the importance of this is demonstrated by the declaration of our 20th consecutive dividend today. Turning to Slide 4. Shareholder community and government expectations of mining companies are appropriately continuing to rise. We are proud of the recognition of our work in this area as recognized by external ratings agencies. But what better way to demonstrate the benefits of mining to these important stakeholders than turning Mt Rawdon, a mature gold mine, into a major contributor to Queensland's ambitious renewable energy targets. The feasibility study, which we are completing with our 50% partner, ICA, continues to derisk the project and demonstrate a commercially attractive pumped hydro project capable of delivering capacity of 2 gigawatts. The picture on the slide shows the Mt Rawdon open pit that will ultimately convert into the lower reservoir for the pumped hydro project. Encouragingly, federal, state and community engagement has been very positive, with all parties understanding the strategic and economic benefits of the projects. Finally, great companies are built by attracting and retaining great people. As the mining industry continues its quest to motivate young people to join the sector, we are incredibly proud that Evolution was recently named in the Top 75 of graduate employees for 2023 and was, in fact, the highest graded mining company. This, in our view, is also the best way to also make our industry more diverse and inclusive. With that, I'll hand over to Lawrie.

Thank you, Jake, and good morning, everyone. Turning firstly to Slide 5 for an overview of our business. We continue to believe that geopolitical risk is rising. This is not new, but a concerning and unfortunate long-term trend. From a business perspective, it underpins our view that operating in Tier 1 jurisdictions like Australia and Canada, where the rule of law can be relied upon is more valuable. We believe that this is going to be preferred by investors seeking a gold exposure. Growth remains a critical component of our strategy. This does not mean following the trend of most gold companies where this growth is measured by the number of ounces produced. But for us, it means a focus on margins, mine life and capital returns. A worrying trend is emerging in the Australian gold sector where margins are being compressed and cash generation is declining. Evolution is an exception. The quality of our portfolio delivers our sector-leading margins and operating cash flow. We continue to estimate our reserves at a conservative gold price of $1,600 per ounce. It is clear that Ernest Henry and Cowal are world-class deposits and operations. Red Lake is a world-class deposit, and our challenge is to make it a world-class operation. There is no doubt that we will be able to do that. Likewise, as you will see in the presentation, we are being prudent and appropriate as we progress in unlocking the greatest value from Mungari. Moving to Slide 6, which summarizes the financial results for the period. Our statutory profit and earnings per share were up 10% to 11%, while underlying profit was up 3%. This is a good result in the environment, and I'll outline the drivers to our profit in the next slide. Our EBITDA margin is solid at 39%, which declined modestly from last year. However, this is largely due to the acquisition of Ernest Henry, where we now have 100% of the costs, while last year, under the previous prepay structure of the joint venture, we only paid 30% of the costs. We obviously now receive 100% of the copper. Mine operating cash flow is the most important metric on this slide. It was around $477 million for the half year or $1,468 per ounce sold. Importantly, though, the December quarter operating cash flow was at an annualized rate of over $1 billion or $1,667 per ounce sold. This demonstrates the cash generation of the business, which should further increase as our production grows moving forward. The capital investment at Cowal and Red Lake underground projects are the drivers to the higher capital investment and gearing levels. These remain on plan and budget. As they transition to commercial production, we expect to see the capital investment and gearing reduce in the second half. As mentioned by Jake, we've declared an interim dividend of $0.02 per share fully franked. Turning to Slide 7, which shows the movement in profit between the 2 periods. Our profit lifted 11%, and the main driver was the immediate benefit from Ernest Henry acquisition, which added approximately $80 million of profit. A 5% higher achieved gold price generated $35 million of additional revenue, while higher production at Cowal and Red Lake delivered an additional revenue of 49 and $32 million, respectively. Our operating costs, excluding Ernest Henry and Kundana at Mungari, increased by around $48 million. Overall, the drivers to this were due to an even mix of inflation impacts and volume-based activity. With regards to inflation, it impacted our costs by around 8%, but it is to be noted that the costs in the December 2021 half year did not have the full inflationary impacts as compared to the current half year. The higher depreciation and amortization charge related to the fair value amortization for the Ernest Henry and Mungari acquisitions. Specifically at Ernest Henry, the amortization includes a fair value uplift for the previous joint venture amount, which was required to be revalued as a result of the December 2021 acquisition. This added around $18 million to the final D&A for the half year post the quarterly. On Slide 8, we have our cost drivers and sensitivities. Despite the cost inflation and high metal prices, discipline is still being maintained across the business to ensure we maintain our low cost position. Additionally, we've been able to maintain our cost guidance range and our capital investment is under budget. We believe the cost inflation has stabilized and with some recent cost contracts awarded, actually achieving lower prices. The charts on the right show our sensitivities to cash flow and costs. They demonstrate that metal price sensitivities outweigh the cost inflation impacts. We continue to ensure that these benefits from the higher-than-planned metal prices are banked. Overall, our cost structure has not materially changed with labor being our biggest cost item at around 46%, and the movement in the period was in line with guidance. The top 7 cost types comprising 87% of our cost base received the most of our attention. Moving to Slide 9 and our cash margins. To me, this is the most pleasing part of our business in that we have sector-leading margins with further improvements expected in the second half of FY '23 and moving into FY '24. Our operating cash margin or EBITDA is around 39%. And as shown on the chart, this has improved quarter-on-quarter with 45% achieved in the December quarter. This is being underpinned by the high-margin Ernest Henry and Cowal assets at 60% and 54%, respectively. Red Lake is improving, and we expect further improvements in the second half. Our all-in sustaining cost margin is also increasing with $1,500 per ounce delivered in the last quarter. We'll see these margins further improve when we commission the new underground mines at Cowal and Red Lake later this half, and they will displace lower grade material. The strong commodity prices and benefit of the copper exposure provided from the full ownership of Ernest Henry also provide opportunities to increase our margin. Turning to Slide 10. We repaid $85 million of debt in the first half with the level of operating cash flow able to service our debt. Approximately 60% of our debt is long-dated, with repayments not due until FY '29 to FY '32, and this debt is at a very low fixed rate of 3.6%. Our gearing of 31% is within our internal limits of 35% for periods of growth investment. Based on the balance sheet position and the outlook for the business performance, including the reducing capital intensity, we have declared a fully franked interim dividend of $0.02 per share. This will be paid on 2 June. That is later than our normal payment timing, but it is to align with when we expect to be past the final stages of the peak major capital investment for this year. Shifting to Slide 11, which provides an update on the future growth project at Mungari. The feasibility study completed at the end of December and has defined a compelling case to invest in growth at the operation at this time. Key items of the growth project are that it provides a pathway to 180,000 to 220,000 ounces per annum and a mine life of around 10 years post completion. It has a simple plant designed to increase capacity to 4.2 million tonnes per annum, which will significantly lower processing unit costs and overall all-in sustaining costs. It will unlock a number of regional ore sources, making them more economic. The study outcomes confirmed a capital cost estimate of $250 million, which is in line with our previous estimates and capital guidance. It will have a 30-month build time from the date of approval. The Board reviewed the project this week and approved an additional $7.5 million of capital to continue additional work on optimizing the capital and operating costs while at the same time, commencing some front-end engineering design work to further reduce execution risk of the project. The team will now complete that work in the coming months to confirm the final costings by the end of the June quarter, and we expect to seek formal approval before the end of the calendar year. Slide 12 shows the growth potential at Ernest Henry. As mentioned at our December quarterly call last month, we have taken the decision to extend the PFS to incorporate the larger mine footprint in defining an optimal mine plan and the location of the underground infrastructure. This work will be completed by the end of the June quarter. However, I'll now turn over to Glen, who will outline the great success we have had in increasing the mineral resource at Ernest Henry and further across our business.

Thank you, Lawrie. Continuing on the Ernest Henry theme and in connection with our mineral resource and ore reserve statement issued, I'm excited to talk about the significant resource growth at Ernest Henry, which is a result of drilling programs up to the end of December 2022. Material increases to our contained gold and copper resources, which when reported on a gold equivalent basis, represents an addition of 2.6 million ounces that were delivered at a sector-leading discovery cost of $5 per gold equivalent ounce. Importantly, this resource update does not include any of the drilling completed since the beginning of this year. So there is further growth to come. I'd like to turn your attention to the Ernest Henry Long section on Slide 12, where we are looking at a site on view of the ore body towards the west. In our field of view, we see the open pit underground mining infrastructure and outlined in the blue shapes the ore body defined at a 0.7% copper contour. The drilling program has focused on step-out and infill drilling at the main ore body, the Southeast Lens, which is stacked for site and overlaps with the main ore body and at Ernie Junior. The black traces highlight holes drilled from surface which commenced in April last year. The benefit of the surface drilling program is that it has enabled us to more accurately delineate the boundaries of the main ore body, which in many areas is wider than previously modeled. Gold and copper mineralization has been extended at depth across all mineralization domains. As well, infill drilling, particularly at Ernie Junior and at the Southeast Lens, has delivered grade increases, which have considerably improved the outcome. Ernest Henry remains our best opportunity for significant resource and reserve growth over the next 12 months. I spoke recently on our quarter end call in January about the excellent results we received from our ongoing surface and underground programs. These results are highlighted on the long section and illustrates the enormous growth potential we continue to envisage for the operation. I am also excited to describe a new development at Ernest Henry named BERT, which is located stratigraphically below and adjacent to the mine portion of the main ore body in the open pit. Mineralization demands for BERT are highlighted at the top right corner of the long section in the diagram on Slide 12. A short drill program completed late last year intersected wide intervals of chalcopyrite in the first 2 drill holes. Full results from this program are expected in late February. However, the significance of the recent drilling intercepts indicates BERT is a sizable mineralization domain that remains open down plunge and has potential to follow the main ore body mineralization to depth with potential to unlock incremental value in future drilling programs. I'd like to now move to the group consolidated mineral resource and ore reserve update, which we released in this morning's annual MROR statement and which is summarized on Slide 13 of the presentation. The standout result is the growth in gold and copper resources [Audio Gap] and 22%, respectively. As mentioned, the key driver was Ernest Henry. However, we also realized material additions at Red Lake and at Mungari, driven mainly by higher metal price assumptions along with increases delivered in our drilling programs. Our group discovery costs for the year were $34 per ounce for gold additions to the mineral resource and a very competitive $16 per ounce on a gold equivalent basis. Our mineral resources were reported within optimized pit shells or underground mining shapes developed using a $2,200 per ounce price assumption for gold. The one exception is the Ernest Henry estimate, which is reported within the interpreted 0.7% copper envelope. Group consolidated ore reserves decreased 2% for gold, however, increased 4% for copper. The slight negative [ movement ] gains we might have realized from assuming a conservative long-term gold price of $1,600 per ounce. The small increase at Ernest Henry was driven by additions realized above the 1,125 meter RL. We expect the mine extension PFS at Ernest Henry, which will include mineral resources between the 1,125 and 775 meter RLs to drive a material increase in the ore reserve when the study completes in the June quarter. This will allow us to incorporate the larger mine footprint being defined in the ongoing drilling program. I'm going to conclude my section on Slide 14, which highlights our impressive growth story since formation of the company. We have built our business through a series of creative and accretive M&A transactions that have provided the foundation for our business and from which we have been able to significantly grow our resources and reserves. We have [Technical difficulty] along with modeling and optimization updates. A key ingredient in our success is the identification and acquisition of assets in world-class geological addresses where we can continue to unlock value with our drilling programs. I look forward to being able to share further updates as our drilling programs progress, particularly at Ernest Henry. With that, I'll hand back to Lawrie for closing remarks.

Thank you, Glen. Hopefully, you have seen from the presentation today that Evolution is a high-quality gold company, which is committed to having a sector-leading position while at the same time, having a disciplined approach to capital allocation and rewarding our shareholders at the same time. We will continue to focus on margin over ounces, so as to sustain our low-cost, high-margin position. Our growth projects remain on schedule and budget, which will be the near-term catalyst to the next step-up in operating cash flow [ to ] key projects in the pipeline, which will provide long-term benefits for our shareholders. The balance sheet is well managed, and we have adequate liquidity to navigate through the current cost inflation as well as appropriate sequencing and allocation of capital for our growth projects. This discipline is not changing. We are adding high-quality resources and reserves underpinned by a conservative metal price assumption and the excellent results from the drill bit as outlined by Glen. This gives us a group mine life of 14 years and we've been able to maintain that with further opportunities to extend this going forward. Our full year group guidance remains unchanged at 720,000 ounces at an all-in sustaining cost of $1,240 per ounce in a range of plus or minus 5% for both. I'd like to take the time to express my appreciation and thank the finance, Investor Relations and technical team for their considerable efforts in consolidating the full -- half year accounts and our MROR. It is really appreciated. Thank you for your time this morning, and I'd now ask MJ to open the line for questions.

[Operator Instructions] Your first question today comes from Mitch Ryan with Jefferies.

My first question just relates to -- I know there's an outstanding payment of roughly $200 million to Glencore due in January '23. Are you able to confirm if that payment has been made? And then as a derivative of that, I believe that the undrawn revolver as at the 31 December was roughly $530 million. Has there been any change or draw of that, if you're prepared to comment on that?

Yes. Thanks, Mitch. The Glencore payment went ahead in the first week of January as planned. And to date, as at today, we have not used or drawn on the revolver.

I appreciate that. And my second question is, again, it feels like we were only just speaking about the operational metrics at Red Lake, not longer -- less than a week ago. But any comments that you can provide on any change, given the increased Bob being on site and the management focus on that asset?

Yes. Mitch, so pleasingly, January's performance was better than the finish to the December quarter. We're seeing good improvements in the key metrics continue through to February. So we are seeing the benefits of Bob and Jason spending time on site. And Thomas Lethbridge, the new Head of Operations there will commence in the first week of March, which is another resource that we're looking forward to having on the ground.

The next question comes from Al Harvey with JPMorgan.

Just wanted to clarify with the resource and reserve update, the metal price assumptions for Ernest Henry. So just noting those reserve revenue factors for both copper and gold have moved up. I assume that gold is largely a realignment following the transition of full ownership to Evolution. But I'm just trying to get a sense of how much of the increase in reserves came from that. And then I guess taking a step back to the resources if there was any changes in views around pricing there and how that's changed and flowed through to the 0.7% shell for the resource there.

So Al, the 0.7% copper shell that we use to delineate the ore body is a geological boundary but also serves as the boundary through the resource outlines. And that's been basically generated to reflect essentially the historic gold and copper prices that have been applied to Ernest Henry. So the resource growth that we've seen has not been impacted by the higher metal price assumptions through our mineral resources. It's been entirely done by drilling additions.

The next question comes from Alex Barkley with RBC.

At Ernest Henry, I get that you haven't been able to update the reserve with the study coming out. Is it likely any of the more recent drilling is going to be able to increase the resource as well when the PFS comes out?

Alex, yes, Glen again. So the short answer is yes. We will be able to incorporate some of the drilling that we're doing through this half year. We'll have to determine what the data cutoff date will be. But what we're doing at the moment is really sort of infilling into the gap that sort of exists in information between the 1,125 and the 775. And that particularly concerns where Ernie Junior is sort of plunging down to connect with the deeper mineralization. So there is an opportunity to add additional metal into the study area for consideration in the reserve estimate that we'll be completing through the completion of the PFS.

Yes. Okay. So it sounds like design factors could be an influence as well.

Yes.

Just a follow-up question around the reserve price increase. Just sort of what's changed in your outlook around gold and copper price?

Yes, Alex, we've -- what we've done there is really just reflected the updates to sort of be in line with rising gold price and copper price environment. The idea being that we still -- we want to be able to sort of maintain exposure to that to -- which is reflected in the increase. But we also believe it's a fairly conservative long [ time ] and price assumption that we're applying.

And just on top of that, Alex, we've also been doing the latest MROR, got to take into consideration the rise in the cost position over the last few years. And so if we've got to factor those in, you've got to match it with the revenue side as well.

The next question comes from Alexander Papaioanou with Citi.

Jake and Lawrie, 2 questions from me. So just a follow-on from Mitch's question, with the upcoming EHM stamp duty payment, Mungari CapEx expansion and the EHM extensions, what are your plans on drawing your debt facility, or in your projections will these items be funded by cash flows?

Thanks, Alex. In terms of stamp duty, that's been factored into our plans. We expect that to come through in the next couple of months, both for Mungari and Ernest Henry. And in terms of the capital for Mungari, I mean we're not expecting to have decisions until the back end of this calendar year. And when we look at the projects going into FY '24 and beyond, we see that coming into our funding via the operating cash flows.

Yes. And Bob's been to Red Lake for another month-ish after the quarterly. Are there any other data points that you can share with how the operation is progressing from there?

Yes. Bob was back for the quarterly call and had a bit of time back home with his family, having spent a lot of time over there up until the end of December. But he has been back on site for a little bit now. What we did see in January are the things around the meters and the tonnes, the processing plant stabilizing. So the key metrics that we needed to see have happened. The commissioning of 2 new jumbos has taken place and the decommissioning of old equipment has also progressed, which is, therefore, reducing costs, particularly around the maintenance and increasing our operating efficiencies. So, yes, as I said just earlier to Mitch was that January was a much better performance and we've seen through to February a continuation of that improving trend. But for me, 6 weeks isn't enough to claim victory and Bob's of the same view that we've got to just consistently do that month in, month out.

The next question comes from Levi Spry with UBS.

I just had a question on Mungari. Just this 30-month build time is probably a little bit longer than I thought. I wondered if you could maybe talk through what's driving that? Is that by choice, given what's going on in the market? And then I guess just the other part to that was, can you help us sort of triangulate an AISC here? You talked to reduce unit costs and obviously, a different reserve price. But how do we think about the margin on that at the [ 180,000 to 200,000 ] ounce run rate?

Yes. Thanks, Levi. And sorry for the background noise. I just couldn't pick up your first question, which was around the build time. I mean the team, in finishing the study, is looking really if it's the long lead time items for the major pieces of equipment for the plant around the ball mill and everything that's currently sitting over 12 months. So that's really what pushes it into a 30-month build time. You've got to consider as well where this will be located in putting the material and making sure we don't interrupt with the existing operations and where we're going to place that, means that you have to probably go at a slower build rate than you would if it was just a greenfield. So that's sort of what's happening in the build. In terms of the AISC, our view at the moment, we're averaging $2,000, $2,100. We've got to see that get down towards $1,500 to make it a far greater cash-generating asset for us. And that's what the study team is trying to work through. You obviously pick up the benefits on the processing capacity doubling, but you also have to offset it now with lower grade material and this lower grade material's coming anywhere from 50 to 80 kilometers away from the plant. So that's what the work in the next few months to do is to lock down the capital cost and optimize what that operating cost profile is going to look like.

[Operator Instructions] The next question comes from Andrew Bowler with Macquarie.

So, stronger second half from Red Lake and Cowal, you've already answered on Red Lake. Can you just give us a bit of an update on how the underground is going on Cowal since the quarter? And is that still remaining on track?

Yes. Thanks, Andrew. It's certainly on track for the first stoping ore in the June quarter. The good thing is that through January and the first half of February, the weather has held up out at Cowal. So that's allowed access into the pit, but it's also importantly allowed the surface infrastructure around the village, the paste plant and those projects to continue on schedule. So in terms of the underground, it's tracking to plan.

And just on BERT Ernest Henry, I'm just trying to get my head around the geometry there. It's a bit hard, the [ data of symmetric view ] you've given us. Is that -- can that be drilled from the pit? Or is that something that needs to be attacked from underground or surface? Whether that -- is that a long strike or is it sort of below in the footwall of the main ore body?

So Andrew, you're referring to the mineralization I was describing earlier?

Yes. Yes.

Yes. So that sits on strike of the ore body. So we're looking perpendicular to it in this year. So it is actually situated only sort of 60 meters from the north wall of the pit. So it's actually quite accessible from the ramps in the pit. And it -- what it does is it -- at the moment, we don't have a lot of information, obviously, at depth, but it's sort of tracking parallel to the main ore body Lens and in the same strike direction, it just sits beneath it. So yes, the idea is that we will drill it from underground. We have better positions there to get the best angle of attack on getting the information we need to model it appropriately.

The next question is from Jon Bishop with Jarden Australia.

Just 2 for me. Just regarding Red Lake, obviously, sounding pretty positive this calendar year. Are you able to sort of comment on rates of turnover, whether you've seen turnover of staff sort of stabilize a little bit or improve?

Thanks, Jon. Look, I mean, Red Lake, it's got over 80% of the workforce is residential and local. So turnover rate has not been too high. What we're more happy about in January and February is absenteeism has reduced. So in terms of the workforce and the ability to keep that fully resourced is not a major issue for us at Red Lake at the moment.

Right. And that absenteeism is just related to sort of COVID impacts? Or just can I speculate better morale? Is that a fair follow-on?

No. So the absenteeism in that December quarter really probably related more to the holiday season and people taking holidays. So it wasn't linked to COVID at all.

Okay. Good one. And then just around Ernest Henry, obviously, the study is due at the end of this fiscal year. In terms of how the sell side are thinking about CapEx, probably pre Ernest Henry Junior and possibly BERT and the backdrop of obviously inflation at the moment, is this sort of a major change in scope or CapEx that we should have in mind? Or do you think with what you've seen out there in analyst numbers that, within reason, we're all in sort of the ballpark? It's a fluffy question, but I guess you can see where I'm going in terms of potential for major CapEx changes versus expectation.

Yes. Look, Jon, what we're seeing at the moment, we've got a contractor in, helping with the mine development, getting some work done for where the infrastructure underground for the crusher and conveyor is going and the costs that we've seen for that contract have been pretty well in line with expectations and the market position. So we're not seeing any cause for concern around mine development costs. In terms of the crushing and conveying costs, the team is in the PFS at the moment, it's not a material shift from what they were expecting at the start of the study, noting that the concept study was based on a trucking movement system. And then when we look at the sequencing, for us, the great drill results that Glen is getting at the moment and the expanding mineralization, both below and above the existing crushing area, says the timing of the capital, we can push that back a little bit so that we do sequence our projects appropriately between Mungari, Ernest Henry, Red Lake and the Cowal open pit continuation. So the capital -- the big capital for Ernest Henry would be at least a couple of years away.

The next question comes from David Radclyffe with Global Mining Research.

Just maybe a little bit more of a left field question, but coming back to, I guess, the business here and what your current hurdle rates are for capital investment. Just thinking here about how disciplined maybe you'd be with Mungari, given that so much money has gone into that in the past, what you want to see out of this study to then give yourselves the confidence for putting more money in again.

Yes, sure, David. I mean, with my current hat of CFO, as Jake said for today, the hurdle rates, yes, we want to see them 15%-plus is what we want for these projects and to invest in those. And that's what Mungari's got to target. I think, yes, what we do when we allocate the capital as well is we've got to balance it with what's happening at the mine where it's at, at its stage of its life. And, yes, when we look at it right now, the underground from Frog's Legs, which is the highest grade underground material we had up until we acquired Kundana and the like, but the percentage of the high-grade underground is lower than what it was 3, 4 years ago. And secondly, you're replacing White Foil open pit material with open pit material through the satellite ore bodies that's further away from the plant. So it does make it a little bit difficult, but that hurdle rate still applies for Mungari.

The next question is a follow-up from Alex Barkley with RBC.

A quick follow-up on Mungari in that $250 million. Just confirming if that's for the increased processing capacity and nothing around the mines? And then what exactly does need to be done to the processing plant? Is it more about adding incremental capacity above what you currently have, so we should almost be thinking about the cost as building an equivalent 2.2 million tonne per annum mill? Or is that the right way to think about it?

Thanks, Alex. Good questions. The second question first is, yes, you're basically replicating it, and it's really based on the land position and the fact that you've already got that plant in place. So we are -- you get another mill, you've got another crushing and conveying system. We've got to work out then the area for another cause. So that's what goes into that project. And the first part of the question, just remind me again.

The CapEx is just for the processing plant.

Yes. So that allows everything that's required to convert to the 4.2 million tonnes per annum and the required supporting infrastructure around that. It obviously doesn't capture for opening up all of the satellite ore bodies. It's really in and around the site.

The next question is from Daniel Morgan with Barrenjoey.

Just referring to Slide 12 and Ernest Henry. When you look at Ernest Henry and the opportunities like BERT and the fact that maybe it's getting wider at depth, does that mean you might be able to produce more than the 6 million tonne per annum that you're currently being mined or 6 million tonnes mining rate, is that the scale?

Dan, it's Glen. Look, we're actually mine constrained at Ernest Henry with the shaft. So that's always going to put a cap on the future production in the underground at that sort of 6 million to 7 million tonne rate.

Well, just on that, so BERT is very close to surface. Is there a way to mine that, that wouldn't require coming up the shaft, and therefore, that wouldn't be a constraint?

The short answer is yes. The logical thing would be to sort of ramp into it from the pit where we have some fairly ready access there. I think what that does, as we sort of continue to delineate it, gives us sort of options to think about how we sort of transition from the trucking to conveying option and sort of keep that production profile fairly smooth as we do that. The -- probably worth mentioning, though, that as we are getting deeper and within that sort of study area window, we are seeing some areas where the grade is improving. So that is the one lever that we do have. And if that continues to sort of play out like we'd hope, that can deliver some incremental production from the underground that will be coming up the shaft.

Makes sense. And then, I guess more a conceptual question. I mean how deep do you go with the infrastructure? Do you take a calculated risk and go big by going deep, centering the infrastructure below or well below the 775 RL and the PFS study? Like could the PFS study area that you're contemplating expand?

Yes. So it's a good question, Dan, and one that we're obviously talking about internally. I think there's 2 things. We've got to continue to do the drilling to sort of delineate the geometry of the ore body and understand the grade as it continues at depth, and then obviously do the work to sort of understand what -- how can we sort of contemplate developing the infrastructure. That's going to [ not ] be covered off in this PFS. But certainly, as we think about the future, that's what's on our minds.

And the only thing I'd add there, Dan, is that what we've got to take into consideration is that, at the current mining rates, how much time do we have before we have to then continue to truck up to the existing infrastructure and what efficiencies do we lose from going down that path. So the reality is that the study team in the next 3 to 4 months will make a landing on where we've got to place it, and then we have to move forward on that basis.

Okay. And on a financial question, you just paid a dividend, obviously, in a period where you're making heavy capital investments for the future. I presume that's a signal that you're not contemplating a capital raising. Or is that reflecting just near-term cash generation expected?

Dan, the answer to that is no. We're not planning a capital raise. I mean we are 6 weeks away from going into the June quarter, which puts us into a position where as I said on the December quarterly call, our major capital investment starts to decline and the production from Cowal underground and Red Lake ramps up. But also, as we saw in the December quarter, when we can access fully the pit at Cowal, we're getting to that high-grade material. And so that also will continue into the quarter. We successfully completed the major shut for this -- for Cowal for this year, this month. So that's done as well, so they have a clear run through to the end of the year. That's really what we're looking at the outlook, and we believe the operating cash flows justifies a return for our shareholders.

There are no further questions at this time. I would now like to hand the call back to Mr. Klein for closing remarks.

Thanks, MJ. And thanks, everyone, for participating. Great to hear the interest in the company and the -- particularly the questions around Ernest Henry and the interest there. It's a good problem to have that Glen and the discovery team are creating challenges to the project team as they keep getting these great drill results and making the challenge and the size and scale and operation and where to put infrastructure an interesting challenge. But that's a good problem to have, as he discovers more [Audio Gap]. We're looking forward to speaking to investors over the next couple of days. And then we'll be in Miami at the BMO conference where again, we're looking to catch up -- look forward to catching up with North American investors. I would flag that we are hosting an Investor Day and site visits to both Ernest Henry and Cowal from 5 to 7 June. So if you haven't received the save-the-date yet, please contact Peter O'Connor or Taryn Chua. Thanks very much. We look forward to speaking to you over the next few days and weeks. Thanks.

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