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Ladies and gentlemen, thank you for standing by, and welcome to the Evolution Mining September 2020 Quarterly Results Call. [Operator Instructions] And just please be advised that today's conference is being recorded.But I will now hand the conference over to your first speaker for today, Mr. Bryan O'Hara, General Manager of Investor Relations. Thank you, and please go ahead.
Thanks, Miles. Good morning, and welcome to the Evolution Mining September 2020 Quarterly Conference Call. This morning on the call, we have Jake Klein, Executive Chairman; Lawrie Conway, CFO and Finance Director; Glen Masterman, VP, Discovery and Business Development, who are all with me here in the group office in Sydney. And we also have Bob Fulker, COO, who's dialing in from Brisbane.During the September quarter, global macro factors remain supportive of the strong gold price, and new records were set in both U.S. dollar and Aussie dollar terms, with quarterly averages of USD 1,909 per ounce and AUD 2,668 per ounce, respectively. While there's likely to be some volatility in the gold price with the upcoming U.S. election, the longer-term outlook remains constructive, with continued negative real interest rates and record money printing from governments around the globe.Last Friday, we were pleased to release our 2020 annual report and sustainability report. We're looking forward to engaging with our stakeholders in the coming weeks to discuss the great progress we're making in our sustainability performance, as outlined in the report, including a healthier and safer and more diverse workforce, an increased focused on climate-related risk in the key areas of energy efficiency, water security and extreme weather and health events and the ongoing contributions we're making as a trusted partner to provide community benefits beyond the life of our mines.Thank you, and I'll hand you over to Jake.
Thanks, Bryan. Good morning, everyone, and thank you for taking the time to join us on the call today. We hope you are doing well and are healthy and navigating through this COVID pandemic successfully.I'm really pleased with our performance this quarter. We had a strong start to this financial year with the results and progress across our whole business ahead of where we planned. Operationally, our focus continues to be on capturing and banking high margins, safely and reliably converting quality, low-cost ounces in the ground into cash in the bank. This quarter, we are able to capture an all-in cost margin of $871 for every ounce we produced, which is sector leading. At the same time, we are investing in our growth and have an exciting pipeline ahead of us. Over the next 2 years, we expect to be able to deliver a 17% increase in production and a 9% reduction in costs on our already low FY '21 cost base.At Cowal, we are making good progress to grow our production base to 350,000 ounces of low-cost gold from this outstanding asset. In the September quarter, a very important milestone was achieved with the submission of the state significant the significant state development application and the modification 16 development application to the New South Wales Department of Planning, Industry and Environment. Support from0 the local communities and stakeholders for this project has to date been very positive. Reflecting the confidence we have in this underground mine, the Board last week approved the development of 2,300 meters of additional decline which will be used initially for exploration drilling, but it's also been designed so that it can form part of an operating underground mine in the future.We continue to be encouraged by the size and scale of the underground orebody, which was estimated at 2.9 million ounces in the last release, which had a 30 April 2020 drilling cutoff. This quarter, drilling has again extended the resource envelope, and it remains open along strike and at depth. We expect this drilling to support an increase in resources and reserves when we release it in the March 2021 quarter. Red Lake continues to exceed our most optimistic expectations and our confidence is growing about the potential upside for this asset. At 11 million ounces of resource, it is already a very significant mineral inventory. And the 6-drill rigs operating underground is a reflection of our view on the upside of growing its resource and reserve base.Accessing the 4.3 million ounce resource at 10.5 grams per tonne in the Upper Campbell area is a clear and present opportunity, and work has been accelerated to complete a study that will allow us to develop a decline to access this high-grade area.Ernest Henry continues to be a very powerful cash generator. This quarter, contributing an outstanding $83.2 million. There are very few gold mines in the world that generate that scale of cash flow. We are very confident that the drilling program currently being undertaken will extend the mine life of this important asset. The team at Mungari has done a fantastic job at transforming the operation. In many ways, it is the same journey that Red Lake is at the start of. They now consistently meet or exceed plan in this quarter generated their third consecutive quarter of record mine cash flow of just under $45 million, an outstanding achievement by our site team.With this confidence in the operation, we have commenced studies on assessing processing options for the Castle Hill area, which we expect to be able to share with you in the June 2021 quarter. Mt Rawdon delivered largely to plan, while set Mt Carlton drilling at Crush Creek is providing important optionality for the future of this operation. Evolution is very well positioned to prosper through the cycle. During good times, like we are currently experiencing, we are banking sector-leading returns, rewarding our shareholders with dividends and investing in our future growth. This is a great position to be in. Combine this with a fantastic team of people who are passionate about both our values and creating value, I'm confident that Evolution is in very good shape.With that, I will hand over to Bob to provide more detail on our operational performance.
Thanks, Jake, and good morning, everyone. If I start with our safety performance, the September quarter, we've seen a slight increase in our lagging measure, TRIF. Pleasingly, Mt Rawdon has gone 9 months without a recordable injury. This is a longest run under Evolution's ownership. I'd just like to say well done to both Jamie Coad and all the team at Mt Rawdon. We continue to actively monitor the impacts of Covert at all our sites, and our people in our business remains unaffected. In the September quarter, we delivered 170,000 ounces at $1,198 all-in sustaining cost and just over $183 million of net mine cash flow, a great result from all site teams to deliver a strong quarter. If we turn to Page 6 for the Cowal and Ernest Henry results, Cowal delivered just shy of 52,000 ounces at an all-in sustaining cost of $1,026 an ounce, generating an operating mine cash flow of $72.5 million and a net noncash flow of $30.2 million, while still investing over $42 million on the underground study works, Stage H stripping in the RWL tiles facility. As noted by Jake, the underground state significant development application has been submitted, and the feasibility study is progressing well. The Board recently approved development of the Galway decline to further improve orebody knowledge with additional exploration drilling. A key focus of the feasibility study is to optimize the mine plan and find opportunities to bring grade and gold production forward to further improve project economics. This work is well underway with completion expected in the June quarter. Post the quarter end, Cowal's new RWL stage run was commissioned and deposition commenced on the 14th of October, a huge milestone for the operation and the future. Ernest Henry once again made a significant contribution to the group, producing 24,500 ounces at an all-in sustaining cost of negative $515 an ounce, whilst generating a record net mine cash flow of $83.2 million. If we turn to Page 7 for the Red Lake results, Red Lake produced 26,500 ounces at an all-in sustaining cost of AUD 2,074 per ounce, with a net mine cash flow of AUD 4.7 million. The underground development advance has been improving month-on-month. However, the quarter total development was impacted by the forest fires. The good news is that the surface ore stockpile, ready for processing increased to 15,000 tonnes by the end of the quarter, enabling consistent, steady milled throughput. Lateral mine development in Q1 averaged 893 meters per month, 11% down on our original goal of a sustained 1,000 meters per month. The forest fires attributed to a loss of 21 underground ships or 11% of the available time in the quarter.Additionally, our path to 1,200 meters per month was hampered by availability issues with underground equipment. A further 16 pieces of equipment were decommissioned during the quarter and still more to come. This is enabling more maintenance time on priority equipment to improve the availabilities. It remains an exciting time at Red Lake and the team remain on track to deliver our goal of greater than 200,000 ounces below USD 1,000 all-in sustaining cost and the study team into the future -- sorry, and the study into the future potential has commenced.This study is to define our vision, returning Red Lake to a premier Canadian gold mine at a production rate between 300,000 and 500,000 ounces per year. This will likely involve construction of a new processing plant, alternative access to underground deposits via our surface decline and other options to further increase our production profile while improving our margins. The initial study on the decline is expected to be completed in the March quarter with studies on the long-term processing options to be completed in the June quarter. Mungari delivered another strong quarter with 35,000 ounces produced at an all-in sustaining cost of $1,115 an ounce, with another record net mine cash flow of $44.9 million. The Boomer grade control drilling began during the quarter, and I'm pleased to announce the development commenced last month along strike at the Boomer high-grade vein post drilling. Carters Ridge mining has been going well with the transition starting to occur from oxide to fresh material. The plant continues to run consistently at 2 million tonnes per annum, 25% above its nameplate capacity of 1.6 million tonnes per annum. On Page 8, Mt Rawdon produced 20,000 ounces at an all-in sustaining cost of $1,536 an ounce and a net mine cash flow of $16.8 million was realized. September was impacted by mining-induced 4 and -- sorry, was impacted by mining induced rock fall that prevented ramp access to higher-grade material for about 3 weeks. This material has already started to present to the mill during the December quarter. Mt Carlton delivered 11,500 ounces at an all-in sustaining cost of $2,674 an ounce and an operating mine cash flow of $4.5 million. The geological model performance has improved since recalibration, and this is resulting in more predictable grade performance.In summary, our operations have made a strong start to the new financial year, and we continue to focus on safe, reliable delivery. Despite the minor setbacks in the safety performance at a couple of our assets, I'm encouraged by the efforts and focus at Cowal and Mt Rawdon to keep our people safe, and we continue to look ways we can improve our safety performance across our other operations. Thank you for your time, and I'll hand over to Glen.
Thank you, Bob, and good morning. Following on from our announcement in mid-August to the 11 million-ounce Red Lake resource we've continued drilling with 6 underground rigs at Cochenour, Lower Red Lake and on the hanging-wall corridor. Resource definition drilling at Cochenour is delivering to expectations and is on track to convert resources to reserves that will continue building mining inventory in these areas of the mine.Several impressive results, including 3.4 meters, grading 297 grams per tonne, and 11 meters grading 11.4 grams per tonne, which is shown on Page 11 of this morning's report, illustrate there will be some very healthy grades when we mine these areas at Cochenour. Across the property at Lower Red Lake, drilling at Twin Otter returned results better than we were expecting. Examples include 12 meters at 10 grams per tonne, 4.3 meters at 26.8 grams per tonne and 2 meters at 52.9 grams per tonne with details also on Page 11 of this morning's report. Drilling commenced at the hanging-wall corridor, a target we discussed during our Investor Day in early September. The hanging-wall corridor is prospective for high-grade targets along a trend of highly prospective geology that largely escaped the attention of previous exploration. I look forward to reporting on this program over the coming quarters as results come to hand.Turning now to Cowal, where we recently wrapped up our first phase of underground drilling at GRE46. Highlights and results for the quarter are reported on Page 12 of the report this morning. Full results of the underground program will be incorporated in a mineral resource update that will inform the current feasibility study and will be included in our annual mineral resource and ore reserve statement due for release in February 2021. Infill results are expected to return a high proportion of indicated resource than previously reported. And we believe step-out drilling should extend resources down plunge at Dalwhinnie and at depth at Regal. Diamond drilling is continuing with a single surface rig to step out on the Dalwhinnie domain, extending mineralization where it remains open down plunge to the south. Underground drilling will resume in the June quarter, from holes designed in new positions in the Galway decline that open our angle of attack on deeper sections of the orebody for reserve conversion and expansion.At Mungari, drilling South along strike of the main Boomer resource was completed during the quarter. Follow-up drilling will be designed after we receive and evaluate the full results from the program. A second round of drilling is designed north of Boomer to follow-up on previously reported encouraging near-surface narrow vein intercepts. Drilling at Crush Creek continued during the quarter and returned promising results from the BV7 and Delta targets shown on figures 4 and 5 of this morning's report. We are becoming increasingly confident that drilling at Crush Creek will confirm potential to extend mine life at the nearby Mt Carlton operation. Further drilling is planned through the start -- through to the start of the wet season in January, with the aim of further expanding the potential resource footprint.Lastly, drilling programs continued at our Western Australian greenfields projects near the town of Cue 600 kilometers northeast of Perth. At the Cue joint venture, our partner, Musgrave Minerals, is managing the ongoing aircore drilling program on Lake Austin. We expect to be able to report full results from the program at the end of the December 2020 quarter.80 kilometers away at our Murchison joint venture, we are awaiting full results from the recently completed aircore program, which will inform the next phase of work. That captures our mine exploration activities across the portfolio for the September quarter. With that, I'll hand over to Lawrie.
Thank you, Glen. Good morning, everyone. It's a pleasure to update on the financial performance for the September quarter. A summary is outlined on Pages 8 and 9 of the report. Evolution continues to be in a great place financially, with around $119 million of group cash flow generated before debt, dividends and any business development activities. This equates to $690 per ounce sold being banked and was on the back of over $272 million of operating mine cash flow and $183 million of net mine cash flow. All operations were net mine cash flow positive for the quarter. Sustaining and major capital investment for the group was below plan and remains on track for full year guidance of $113 million to $138 million and $260 million to $290 million, respectively. The recently approved Galway exploration decline, which will see between $28 million and $30 million of investment is included in our original discovery group guidance of $75 million to $100 million. Our group AISC and AIC were $1,198 and $1,663 per ounce, respectively, with operations on track to deliver within guidance. Focus on margins is evidence where our group EBITDA cash margin remaining very healthy at 53%, while our AISC margin is a strong $871 per ounce.After paying $154 million in dividends, the central debt repayment of $20 million and receiving over $50 million mainly from initial proceeds related to the Cracow divestment, our net bank debt reduced to around $180 million.We finished the quarter with just under $370 million in the bank. Our gearing is approximately 7%, and we remain on track to be net cash by the end of the financial year.Thank you for your time this morning, and Miles, please open the line for questions.
[Operator Instructions] Okay. Our first question on the queue is from Nick Herbert from Crédit Suisse.
A few for me, please. I might just start with Ernest Henry. Are you able to give a bit more detail on the exploration work going on there at those lower levels, what that's revealing? And how much of that will be included in the February reserve resource update? And also when we could expect any sort of formal update to a mine plan there? That's number one.
Yes. Nick, thanks for the question. Look, the program is progressing. It's an 18,000 meter drilling program. We're on to the fourth drilling platform, and we're confident that, that will ensure that the resource is extended and the mine life is extended. Results of the program will be delivered when Glencore released the updated MRR, which I think is scheduled for February next year. And that will then inform the change to the mine plan. But the high degree of confidence that the program is progressing to plan.
Okay. Great. And then just on your production guidance for the group for this year, are you able to just provide your, I guess, general phasing in terms of how you're seeing that contribution, say, first half versus second half? And then just any, I guess, thoughts around where the key variables on that full year production number, whether that's potential for Red Lake to sort of improve back end of the year? Or just more broadly how you're thinking about that?
I'll hand over to Lawrie and let him answer that question, but just make an introductory comment that our guidance is based on our budget. And as at the end of the first quarter, we were ahead of where we expected to be on production and lower than we expected to be on cost.
Yes. Nick, I think in terms of the split, half-on-half, you're only going to see about the second half being 5% to 8% higher than the first half. So there's not a lot of movement. And then if you look at on an asset-by-asset basis, Cowal will trend up over the course of the year, particularly the second half as we get back into some higher grade and then certainly access the Stage H material as opposed to stockpile material. We are trying to put some more oxides through in the first half just to derisk some of the second half. Red Lake, you will see a heavily weighted second half of the year as we get more development done through the first half of the year and then allow us to process more material into the second half of the year. So you're probably going to see that being probably 30% higher in the second half versus first half as opposed to Mungari, we would expect to see the first half being higher, second half dropping away as the grade will come off from the underground and more open pit material coming through there.And both Rawdon and Carlton, you'll see them pretty well in [indiscernible] half 1, half 2 and the same Ernest Henry, you'll probably see a slightly lower -- maybe 5% lower in the second half than the first half just as grade in the case comes down a little. So it's really -- if you look at it on an asset by asset, it's going to be depending on where they are in their mine plan and sequencing. You're not going to see a lot of difference in terms of op costs, sustaining capital that's going to impact our AISC.
Great. Lawrie, that detail's really helpful. And then could you just remind me, please, what's the copper price that you have assumed in your full year cost guidance?
We've assumed AUD 8,400 per tonne.
[Operator Instructions] Your next question in queue comes from Reg Spencer from Canaccord.
Just a question for the Cowal underground. The second decline going in. Clearly, you are [ 50% ] with the development there, then that would double the production decline, as you said. Having those 2 declines there, could that be indicative of the potential to take underground ore production above the top end of that 2 million tonne per annum range that you guys have previously suggested?
Reg, we don't want to get ahead of ourselves. No, it's not anticipated that, that will lead to higher than 2 million tonne per annum production base at this stage. We're still speaking with the 1.5 million to 2 million tonnes per annum.
Your next question comes from Luke Smith from AustralianSuper.
Jake, I was just interested in your -- in the first minute of your presentation, you spoke to the growth in ounces. And I just wanted to clarify, is the focus for Evolution still very much on margin and free cash flow generation rather than production growth? Because coming from where you probably most people on call remember, April 2013, when everyone was focused on growth [indiscernible] hands down.
Thanks, Luke. I did mention the increase in production and reduction in costs just after I mentioned, $871 of all-in cash margin. But let me just take a step back and explain our philosophy because I think it is appropriate, and I think it is where Evolution is positioning itself. We don't want to be focused on the top line of sales or production. If we could remove it from this quarterly report and our reports, we would happily do that. We are focused and want to remain focused on the bottom line. To us, that means cash flow per ounce that we produce, cash flow per share and resource and reserves per share, and those resources and reserves continue to be calculated and will continue to be calculated at very conservative prices of at the moment, AUD 1,450 an ounce for reserves and $2,000 an ounce for resource in the very -- for the very reason to protect those margins. And that's, I think, hopefully, something that investors have become used to hearing from Evolution, but there is absolutely no deviation, largely because the people in this room are old enough to remember 2013 and the destination which occurred as a result of that and really believe that margin and sustainability of that margin is much more important than top line growth. Thanks for the question, Luke.
Yes. Thanks, Jake. I'm not done by any way hinting that we're just about to go through April 2013 again, but good to hear that production growth is a result of your strategy focused on margin.
Okay. Our next question comes from the line of Matthew Frydman from Goldman Sachs.
Sure. Just 1 for me on Ernest Henry, again, rounding back to that discussion on the drilling program there and potential resource extension. Can you talk through, I guess, your understanding of any mine planning constraints around extending the life of that asset? I guess in terms of what do you think could easily be added incrementally to the loss of that asset? And what might require a bit of a rethink in terms of infrastructure, whether that's additional underground crushing or moving of underground crushing, additional ore haulage capacity, et cetera, et cetera. Effectively, what might be -- what might we think is going to be added incrementally? And what, I guess, requires a more detailed study?And secondly, maybe if you could give some color around Glencore's thinking on this drill program? Is it to incrementally extend life? Or is it the feed into a more detailed study that might address some of those constraints in terms of their strategy for the asset and more broadly across their portfolio in the region?
Thanks for the questions. Look, I think it's a bit early to speculate on that. We want to see all the results of the drilling program and then sit down with Glencore and define what it all means. I will reference the point that there are already, I think, an additional 1.5 to 2 years of reserve life that has been added to below the 1,200 level already. That was in February last year. So there is -- there are clearly going to need to be discussions around how far it extends the debt. And then what it means for the infrastructure. But I think it's premature to speculate on that until we have all the drill data, which will be early next year.
[Operator Instructions] But we do have a question from David Radclyffe from Global Mining Research.
Just a question from me on Red Lake. Could you maybe just talk in a little bit more detail about where you actually pulled the ore from this quarter to deliver that sort of head grade at 6.4 grams. I'm just trying to think about, obviously, you're going to be lifting throughput, but also maybe how that grade profile looks over the year?
Bob, can you take this question?
Yes. No problem. Thanks, David. The predominant ore from last quarter was from Lower Red Lake and Cochenour. We did have some coming from Upper Red Lake, but none coming from Campbell or the level of ore bodies. The profile of the year is pretty stable from a grade perspective. But the last quarter, the plan is to build stockpiles, as I talked about, and then open up the Red Lake mill because we've got the Red Lake Shut at the moment. So we're only running Campbell mill up until probably that last 3 to 4 months of the year. And that's where we'll get a bit of a kickup in production as well.
We have a follow-up question from Matthew from Goldman Sachs.
Yes, sure. Sorry for jumping in with another one, but probably a bit of extra time for us to hearing more questions. Maybe just firstly on Mt Carlton, and I know, I guess, Bob touched on this, but -- during the call. But obviously, a bit of a disappointing quarter on cost there for that asset. Can you, I guess, talk a bit through how that looks going forward? Are we expecting things to improve given a better understanding of the orebody and, I guess, working our way further into the underground mine? And I guess, where do you start to, I guess, rethink the role of that asset in the portfolio? At what point does that become a bigger question given the soft cost performance?
Yes. Lawrie, please hand up to answer this question.
I wouldn't say that, Matt. So I think the thing that we look at is in this quarter versus Q4 last year, you saw a drop-off in the grade in the order to 24%. And that's obviously had an effect on the AISC. But at the same time, with that drop-off in grade was the drop-off in copper as well. So we end up about 190 less tonnes of copper. So that added $270 an ounce to the AISC. So yes, in terms of quarter-on-quarter, that's really what's happening. As the years then going to pan out, we will see the grade should lift each quarter through to the end of the year. We'll get an uplift in recoveries through the course of the year as well. And then obviously, we'll get some additional byproducts copper with that, lift up in production and grade. And so that's how we see the year panning out. As Bob mentioned on the call, production was in line with plan, and therefore, we're expecting the cost to be high in this quarter.
As to the question of where it fits in the portfolio, I think the approach there is to finish off this drilling at Crush Creek to evaluate that and then to make some assessments in the first half of next year.
Sure. And then maybe just quickly again on Mungari. You talked about how that asset is really cemented some much more consistent performance. I guess the next phase of investigation there is obviously looking at your milling options, particularly through Castle Hill. And I hate to be the one to ask the question, but obviously, some of your big peers in the sector are looking at the potential synergies in that region that they can achieve in terms of mining and milling capacity. So how do you think about potentially building another mill in that region to exploit a relatively, I guess, low-grade deposit, whereas potentially that set of assets or that deposit might have more value for others in the region that already have established milling capacity, I guess, again, the role of Mungari in your portfolio in that context?
Yes. Thanks, Matt. That's a good question and one which we're happy to take. I'm glad someone's rounded back to Mungari because a cash generation of close to $45 million this last quarter is fantastic for the asset, and I suspect very good for the region. So we're looking at optimizing Mungari still further. We're open to synergies where they exist. And Castle Hill, we mentioned previously that we're investigating either a heap leach over there and tracking to Mungari. We're investigating a stand-alone plant. We're investigating and are very open to regional synergies if they make sense for all parties, not only exclusively with our larger neighbor, but all neighbors around us.
We do have 1 other question, I believe, from the line of Sophie Spartalis from Bank of America.
Just wanted to come back to Red Lake, if I can. You talked around the potential for the decline there and you're working on that. Can you just talk through your intentions there and potential timing in that upper Campbell area, please?
Yes. Thanks, Sophie. I'll start off and then if Bob wants to add something he can. But I mean, obviously, the resource estimates shaped a view that up at upper Campbell area at 4.3 million ounces, 10.5 grams is a real opportunity. There is an area which is already permitted to commence a decline. So we've accelerated that study to assess where and what that decline could do. We articulated the view that at the moment, Red Lake is mine constrained, and we want to ultimately shift it to a mill-constrained operation. And hence the studies are commencing around milling options. So we expect to make a decision in the next 6 months well before the end of the March quarter maybe sooner on where to put that decline, what it could do and how much ore it could access. Obviously, it will also be informed somewhat by our view on reserves. The last reserve estimate, which was calculated at Red Lake was around 1.3 million ounces. We're expecting that to be significantly increased through this new resource estimate. So all of these pieces are coming together. And that sort of objective of 300,000 to 500,000 ounces is starting to get some flesh around it. And over the next 6 to 9 months, we'll be articulating exactly how we intend to get there. Bob, do you want to add anything to that?
I think you covered 90% of it, Jake. Sophie, it's a great question. The -- what I said in the Investor Day about it being the new riddle for Red Lake, I think, is still valid. As Jake said, that upper level of Campbell, was 4.3 million ounces. The location of the portal, the fairly short distance to HG Young, the potential of Upper Red Lake or the Red Lake ore bodies or brings in, what is the sort of best option for that decline and how do we actually get in there. The real challenge is getting the orientation right to get the best outcomes to all those as well as not be tracking from what I call, it's -- I mean I'd stretch the word potential of mining something from the surface as well from an open pit sort of style of mining potentially because they all come into the mix. We are doing all that work at the moment, and we're trying to figure out what the best solution is, in that March quarter, we're pretty confident, I'm pretty confident that we'll have an answer for that.
Okay. So just to be clear, so March quarter, you'll deliver to the market, your intentions around the decline. And then in terms of if that was to proceed when we could see mining in the upper Campbell area?
Yes. So what I'm saying is we're trying to figure out which is the best area to go for first, whether it's upper Campbell, whether it's HG Young, whether it's something -- a combination of Campbell and a bit of the upper Red Lake. So some of those are the things that we're looking for. And it changes the orientation and the route, the decline takes slightly. So that's what we're trying to figure out, certainly. Suffice to say, the way that I look at it, I mean this is not predicated on any study work at Red Lake. But a decline down to 1,000 meters should give us circa 800 million to 1 million tonnes from that decline. So that's the sort of thing I'm looking for.
Okay. And just to confirm, there won't be any need to move any infrastructure. You said here, the challenge is the orientation. So is that challenge to ensure that you don't need to move the infrastructure?
That's what -- sorry, that's what we're looking at -- there is no need to move any of the surface infrastructure for the decline. But what we're trying to do is sort it out so that we don't have to move the decline in the future as well.
Okay. So that's clear, Bob and Jake. And then just a second one on Mungari. I know we've talked about that already quite a bit. But just in terms of 1Q performance, it was relatively strong, and we talked around sort of one half, second half split. So you -- in terms just of where it's sitting versus the guidance, it's sort of tracking to come above or at the upper end of the guidance? Is that sort of the best way to think about Mungari, like in terms of the sustainability of what we've seen so far in the year?
No. Sophie, as I said, their second half, their production will be lower. I'm assuming when you're talking guidance, production guidance, that will be lower as the grade will come off. The plant throughput won't be dropping below that 2 million tonne per annum, and that's going to be the driver that will bring it back into that guidance range.
We're only 1 quarter into a 4-quarter game. Thanks, Sophie.
We do have 1 other question on the line. It's just a follow-up question from Nick Herbert from Crédit Suisse.
Jake, just your comments and your focus on margin, which is always good to hear. Just sort of on that theme, just interested in your thoughts on how you weigh up your competitiveness in the M&A landscape then at this point in the cycle? Given this conservative approach to reserve pricing and gold oil price is perhaps more conservative than many of your peers out there. Do you think that gives you sort of less opportunity to be competitive for sort of bids and whether then conversely, that gives you a greater competitive advantage at a lower point in the cycle, which perhaps is positive for a longer-term value opportunity. Just give us some thoughts on that, would be interested in that?
Yes, absolutely. I mean I think the notion that we haven't been active in the M&A space is not right. I mean we've done 7 deals in the last 5 years. We've acquired 3 assets and -- or 4 assets in our history, we've sold 3. We're all about value and margins and improving the quality of our portfolio. So the challenge we have is that we've actually done a great job at improving the quality of our portfolio to the point where the threshold is higher now to get into the portfolio. That doesn't mean that we're not very active and looking for opportunities, but we are going to be disciplined, and we're not going to chase growth in production and ounces. We're going to chase things which are accretive to our shareholders and which improve the quality of our portfolio. We think that's just a very rational and logical way of running a business. Just because the gold price is higher or our share price is higher, it doesn't necessarily mean that we should be doing more. I think we've got to wait for opportunities which are accretive. And I'm sure they will come. This -- the current momentum on consolidation and growth and things, let's see how long that lasts -- I mean, how that goes through the cycle, but this is way more than a 2020 game. It's a 5-day test match.
[Operator Instructions] Okay. There appears to be no further questions at this stage. So I'll hand back to your presenters for any closing remarks.
Yes. Thanks, everyone. Appreciate it. And that was a really good and engaged conversation. We enjoyed it. We look forward to updating you at our virtual AGM on the 26th of November. Stay safe and healthy, and look forward to speaking to you soon.
Ladies and gentlemen, that does conclude today's conference call. Again, thank you all for participating today. And you may now all disconnect.