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Thank you for standing by, and welcome to the Evolution Mining September 2021 Quarter Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Martin Cummings, General Manager, Investor Relations. Please go ahead.
Thank you, Harmony. Good morning, and welcome to the Evolution Mining September 2021 Quarterly Conference Call. As Harmony mentioned, I am the General Manager of Investor Relations. This morning on the call, we have Jake Klein, our Executive Chairman; Lawrie Conway, our CFO and Finance Director; and Glen Masterman, our VP, Discovery and Business Development, join us from our group office in Sydney; Bob Fulker, our Chief Operating Officer; and myself, are dialing in from Brisbane.It's now been 3 months since I replaced Bryan O'Hara as GM, Investor Relations. I'll admit those 3 months have been a blur, but that's because they've also been transformational for the business as we continue to upgrade the quality of our portfolio.Whilst 2021 has been a tough year for gold equities, the macro environment continues to support the investment case for gold. The economies are trying to reopen and restart post COVID lockdowns, while simultaneously dealing with rising inflation, and decisions went to wind back economic stimulus programs.Geopolitical tensions remain particularly in Asia, and the potential fallout for a collapse of heavily geared Chinese property developers remains a concern. While we can hope that these events lead to higher prices, our focus remains on delivering value to our shareholders at whatever the gold price is.With that, I'll now hand over to Jake to introduce the September 2021 quarterly report.
Thanks, Martin. Good morning, everyone, and thank you for joining us. We do appreciate it. For those of us in New South Wales, it feels good to be returning to a normal life, although it's clear that living with COVID means a new normal, wearing face masks, getting vaccinated, proving you're vaccinated wherever you go and a welcome return to conversations with real people rather than virtually on Teams or Zoom.At Evolution, we are encouraging everyone to get vaccinated and are looking forward to the opportunity to travel again soon. Recognizing the need to get on the ground, I want to thank Bob Fulker, our COO; and Glen Masterman, our VP, Discovery, for traveling to Red Lake this last quarter and enduring a 2-week quarantine on their return. Their visit to site was invaluable and a good reflection of their commitment to our company.Turning to the quarter's results. We delivered a first quarter that exceeded our production guidance at lower cost than the AUD 1,450 an ounce we guided when we released our full year results on the 19th of August. This is a pleasing outcome and a good way to start the year.You will hear more from Bob on the makeup of these results. But I want to take some time and focus on some strategic successes we have had this last quarter. There are a number, and I know it has taken a huge effort from our team to be able to deliver both operationally and strategically on a number of fronts. At each of our cornerstone assets, we have projects that will materially increase their value over time.Cowal received the New South Wales government approvals for our $380 million underground development, and activities started ramping up with major contracts awarded. Securing this approval is a very significant achievement. Equally importantly, the Stage H cutback in the open pit is now in ore. And from this quarter, you will start to see the benefits of higher grade being processed. This will increase quarter-on-quarter through the remainder of FY '22. At Red Lake, the integration of the Battle North acquisition continued. Our geologists are hunting for a high-grade zone analog, and our development rates are hitting their targets. There is still a lot of work to do at the operation, but the turnaround to restore Red Lake to a premier Canadian gold mine is gaining momentum. We know what to do. We know how to do it. It is now a case of execution and delivery. Ernest Henry continues to build on an outstanding track record and the concept study for mining below the existing reserves are now moved to pre-feasibility study with growing confidence that the mine life will be extended. The acquisition of the Kundana and EKJV operations from Northern Star is a game changer for the Mungari operation and elevated it to our fourth cornerstone assets. It was only late in August that we got the keys and already you can see the impact on grade and ounces. Our attention is now shifting to integrating and optimizing the operations to improve efficiencies and reduce costs. Importantly, last week, we signed a life of mine tolling agreement with our partners, Rand and Tribune, to treat 100% of the EKJV material at Mungari. This is an important milestone as previously the ore was split and treated at different mills, which created significant complexity. I encourage you to monitor the emergence of the discovery at Cue, where we are earning 75% as the strike length has now grown to approximately 1.6 kilometers, and we are starting to intersect interesting widths and grades in the bedrock. Earlier this month, we again delivered on our strategic commitment to continue to improve the quality of our portfolio by selling Mt Carlton for up to $90 million to Navarre Minerals. Finally, we paid our 17th consecutive dividend and strengthened the balance sheet with a very well-timed and priced USD 550 million U.S. private placement bond issue. A busy quarter, but one, if I pause and reflect on, I believe, has significantly and positively positioned the company strategically. In a couple of weeks, on November 2, we will celebrate 10 years as Evolution. We are incredibly proud of what we have achieved over the last 10 years. A great summary of this is in our annual and sustainability report that was released on Monday this week. It articulates well the incredible journey we have been on, and we are excited and confident that the best is yet to come. With that, I'll hand it over to Bob.
Thanks, Jake, and good morning, everyone. Pleasingly, our TRIF reduced slightly in the September quarter to 9.1. The September quarter was an above-average result with 171,000 ounces produced at an all-in sustaining cost of $1,430 an ounce. Our production and costs were better than we guided in August. Cowal had a sound quarter delivering 52,500 ounces and a mine operating cash flow of $48.5 million. The August planned maintenance shut went as scheduled even with the complexity that COVID created. This is the main reason for the planned elevated AISC in Q1. Our strategy of delivery and investment in Cowal's future continued with a further $37.7 million spent on major capital, predominantly on the IWL and underground project. The unground project activities are continuing to ramp up. The project team is established and long lead item recruitment has started. The project is on schedule and budget. During the quarter, a couple of milestones were reached. Stage H is performing well with ore availability increasing in coming quarters. IWL stage 2 commissioning commenced and deposition started just post quarter end. Ernest Henry once again made a significant contribution to the group, producing 24,000 ounces at another record low all-in sustaining cost of negative $1,345 per ounce, whilst generating a net mine cash flow for Evolution of $80 million. Moving on to Red Lake. Although getting on my first [ inaugural flight ] in 18 months was not really enjoyable, getting back to Red Lake for the first time in 18 months was well worth the trouble. During my 2.5 weeks on site, I was able to really get a good feel for the opportunities and the challenges still in front of us. I'm confident with the huge opportunity at Red Lake. But, and as we stated it from the start, this is a long turnaround, and we need to be patient. But there are no show stoppers. As I mentioned last quarter, the initial focus has been the delivery of consistent development meters to open up additional mining fronts. Post the forest fires in July when we lost more than 7 days of underground access, development has progressively improved with 1,183 meters delivered in the September quarter. Our 1,200-meter stated target is within sight, and I'm confident that this milestone will be achieved this quarter. We now need to maintain this rate for future ore availability. We have the majority of Q2 production predeveloped, but the delivery in the December quarter ounces will need to be an improvement in the efficiency on their stoping cycle -- we need an improvement in the efficiency in our stoping cycles, sorry. Our review of the stoping cycle constraints have confirmed that the installed mucking and filling capacity is adequate, and the drill and blasting cycles need to improve as we currently have low drilled and blasting stocks, which is being exacerbated with slow stope turnover. Drill and blast improvements have been initiated to improve the stope production cycle and to reduce potential dilution issues. Red Lake produced 24,000 ounces for the quarter. This was a result of lower than planned mine tonnes and lower grade due to a higher mix of development ore in the mill feed. This production outcome, combined with a high capital investment period, resulted in a negative mine cash flow. Operating cost expenditure though is on plan, and the increase in AISC is due to the lower gold production. A couple of milestones for the quarter, with a CYD decline advanced to 136 meters into the Upper Campbell region. The McFinley decline broke through on target, eliminating the [ access strip ] from the geotechnically challenging shaft. And the cable mill is outperforming even by optimistic throughput rates. And the site still believes there's more capacity available. The Kundana and East Kundana acquisitions are a real game changer for the Mungari operation. Although only combined during August, the result of grade uplift from the Kundana fleet into the Mungari mill was pivotal in delivering the quarter's 35,000 ounces. This equates to a 39% increase in the feed grade from the previous quarter to 2.12 grams per tonne. With the increased development, processing first Kundana ore and consolidating of all our employees into the Evolution way, it's been a huge quarter. Now that we have completed the transaction and brought the workforce across, our attention turns to optimizing the combined operations to reduce costs. Capital spend for the quarter concentrated on the TSF stage 4 expansion and continued open pit development.Mine production at Mt Rawdon was 20,000 ounces and an all-in sustaining cost of $1,420 an ounce, with a net mine cash flow of $9.3 million. Ore mining on the western wall has recommenced, setting operation up for steady or feeding future quarters. Mt Carlton delivered 15,700 ounces of payable gold in the quarter, at an all-in sustaining cost of $1,773 an ounce and a net mine cash flow of $10.3 million. I want to take the opportunity to thank Anton Kruger and the Mt Carlton team for their tireless effort in reducing the injuries at Mt Carlton and delivering on their promises in the last couple of years. I think they have left it in great shape for Navarre to continue the successful operations into the future. In summary, the quarter has delivered ounces and AISC on track and as guided, and we are placed to deliver the production and cost guidance for the year. Thank you for your time, and I'll hand it over to Glen.
Thank you, Bob, and good morning, everyone. Last week, we announced new drilling results from our Cue joint venture, which has promisingly expanded the mineralization footprint at this new and emerging discovery on Lake Austin in Western Australia. The recent results have reinforced our belief in this high-quality project and at the same time, validates the original area selection sites by our discovery team that led to the formation of our partnership with Musgrave Minerals in 2019. The best intersections are highlighted on Pages 14 and 15 of this morning's report. Importantly, we have examples on cross-sections across the trend of multiple wide intervals of gold in neighboring drill holes, which we are also seeing repeated on adjacent sections. This gold in regular mineralization extensive mineralization footprint, 1.6 kilometers south from our previously reported diamond drilling results on West Island. The significant mineralization identified at West Island and now in the new aircore results are hosted by a favorable dolerite unit, which is geologically continuous along strike. The new results have delineated mineralization in the deeply weathered and oxidized part of the regular profile, which overlies fresh bedrock underneath. The current diamond drilling program is aiming to delineate the fresh rock source of mineralization in the bedrock. We have received assay results for 2 of 7 new diamond holes drilled at West Island. The best result was 8 meters at 3 grams, including just under a meter at 20 grams in hole 24. Although narrow, there is evidence of high grade, which is an important ingredient that we want to see more of. We are now well on our way to completing the 75% earn-in on the Cue JV and are developing plans with our partner, Musgrave, to accelerate the diamond drilling program over the next several months. At Red Lake, we've been drilling from a position in the hanging wall of the Red Lake ore bodies with the dual purpose of testing a geological analog of the high-grade zone and potential extensions down-plunge of the R Zone, which is one of the Campbell ore bodies. The first hole was over 1,000 meters long and intersected mineralization in the footwall of the Kovala fault, which is believed to be a potential extension 500 meters down-plunge of the current mining front in the R Zone.The 100 intersect footwall ereported on Page 11 of the report opens new real estate in a previously untested but favorable geological position. It is too early to tell how this will develop in time. However, the follow-up hole is underway and will help inform if there is potential scale to this new opportunity as well as test a different location for high grade that may be associated with the Kovala fault. At Cowal, we now have 2 diamond rigs drilling underground in the Galway ore body from the Galway decline. Over 10,000 meters were drilled during the quarter. The new results, which will be updated into our year-end MROR analysis, continue to improve our geological knowledge of the underground ore body, thereby enabling further optimization of the mine plan for the early years of underground production. At Mungari, we're pleased to be able to support consolidated drilling results across Kundana and East Kundana following the acquisition of these assets in August. Drilling underground at Kundana concentrated on confirming small resource extensions and classification upgrades on future mining areas adjacent to existing development. At Kundana, we continued to step out -- I beg your pardon. At Kundana East, we continued the main K2 structure, which hosts the high-grade laminated vein style mineralization at Rubicon-Hornet and Pegasus. Results indicate mineralization extends below the deepest levels of development at Pegasus and Rubicon as well as confirming some modest extensional opportunities at Pode and Hera. Step-out drilling into the footwall of the K2 structure has returned some promising intercepts of [ stacked lodes mineralization ] at Startrek. This mineralization is currently encountered in wide-space drilling for approximately 1 kilometer of strike. Further drilling and modeling will continue in the December quarter to build our knowledge of this potential future mining opportunity. With that, I'll hand over to Lawrie.
Thank you, Glen, and good morning, everyone. I appreciate the opportunity to update you on our financial performance for the quarter as outlined on Pages 8 and 9 of the report. Operationally, we had another good quarter with just under $194 million of operating cash flow and $67.5 million of net mine cash flow. This was after we invested around $35 million of sustaining capital and $90 million in major projects. Our production and all-in sustaining costs remain on track to our group guidance for the year. As we outlined at the time of releasing our guidance in August, FY '22 would be the first in a couple of years where we invest significantly in our future growth projects. This investment has started to ramp up, and the good news is that all projects remain on track and to budget. Our capital guidance for the year remains unchanged at $123 million to $148 million for sustaining projects, and $430 million to $495 million for major projects. A positive for the quarter is that the cash generated from the operations was higher than planned due to production and costs being on track and higher metal prices were achieved. This resulted in a group cash flow of $30 million, and we paid $92 million for our FY '21 final dividend. Taking into consideration the debt repayments and completion of the Kundana acquisition, we ended the quarter with a closing cash balance of $422 million and net bank debt of approximately $468 million. This left our gearing at 13.4%, which is well within our tolerances. In August, we successfully priced a USD 550 million private placement which has further strengthened and increase the flexibility of the balance sheet. It increases the debt maturity profile to over 7 years with the next major debt repayment due in FY '26 at $240 million. Additionally, in the December quarter, we expect to receive $26.8 million as part of the proceeds from the Mt Carlton divestment. The financial position of the company is very strong and continues to support the execution of our growth strategy. Thank you for your time this morning, and Harmony, please open the lines for questions.
[Operator Instructions] Your first question comes from David Radclyffe from Global Mining Research.
So my question is on Red Lake, and the lower grade strategy has obviously hinged on a higher tonnes. Obviously, Campbell is coming. But what really drives higher tonnes from historical areas? I guess, Bob mentioned a few items. Maybe if you could expand on those. And then what does this make you think about when you think about McFinley? Do you think about maybe developing that earlier to give you a new front and therefore, keep the mills full?
Thanks, Dave. Opening up new mining fronts is definitely the priority. But Bob's had his boots on the ground there, so I'm going to hand that one over to him.
Thanks, Jake, and thanks, David. Yes, look, the plan is to actually get more mining fronts open so we can actually de-constrain the cycle. Campbell, we'll bring a new mining front in -- or the Upper Campbell, sorry. But what we're concentrating at the moment is getting additional mining front at Cochenour and in lower Red Lake because we have access to them currently. And we're actually opening up areas like aviation. There's a zone called NMPP. There's a zone called Upper Hanging Wall 7. So we're looking at trying to get those opened to, as I said, deconstrain the actual cycle. The issue with the Campbell decline or the CYD decline is that we've always said that that's within 12 months, we're going to get ore and we've still got some way to go before that one opens up.With respect to McFinley, we still got a lot of knowledge to going there with regard to geological. We have got access to it now with the decline, a decline broke through. Pleasingly, it was spot on from a survey perspective. So that was a nice target to actually meet. But the next one is to actually let the geologist have a good amount of time to actually understand, a, the geology; and b, the ore mineralization. I don't -- Glen, did you want to actually add anything to [ the mix in ] the ore body?
I think you've summarized it pretty well, Bob. Once we open it up, we will be able to start to implement or build our geological knowledge. And we need to do some more drilling from more optimal angles. So that's really the program going forward.
The only thing, David, I will add is that at this stage, we're going to take the bulk sample from McFinley's, but it's only in our plans post 2030. We have lots of mining fronts, as Bob highlighted, that we intend to open up before then.
All right. Maybe if I could just drill a little bit more. I think you mentioned, Bob, the stope cycle. Maybe if you could expand on what the issues are there because that sounds new. Is it the systems? Is it the ground? Is it the equipment? Or sort of a combination of those? And how quickly do you think you can turn that around?
Thanks, David. I was hoping Jake would actually jump in there for a minute.
I'm waiting to go to Red Lake next month. Then I'll be able to answer.
It's a little bit of everything, but it's mainly around the systems and the cycle times within the systems. And it's a lot of those [ specifics ], David. So getting the actual additional mining fronts allows us to work on multiple areas at any one time and therefore, stops us tripping over ourselves.Drilling has been an issue. Powder factors have been an issue. Getting the paste curtain or initial wall in the right locations minimizes the amount of rework from paste making and ground support rehabilitation. All those things coming to speed in the cycle.We've got -- a simple example is we ordered a couple of V-30 slot raises so that we can actually increase the spend that we bring the slots and the stope initial blasting. They're due to arrive this month. And so I guess it's a little bit of all those things and the above. But it's also a little bit of the green conditions and us learning it. We've changed the hole size, our hole diameter size, so that we can actually increase our drilling rates. That's actually shown some benefit in the last 3 weeks. I hope that gives you some feel.
Your next question comes from Daniel Morgan from Barrenjoey.
I was just hoping to expand on Mungari, if I may, on the toll treatment arrangements. If you could just talk through how they work. Is this a revenue and how is it recognized? Is it material or not? And then just how much do you plan to mill from the various components that make up Mungari now, which is EKJV, Kundana, Frog's Leg, White Foil, et cetera?
I'll let Lawrie take us through the tolling arrangements and then maybe hand over to Bob as to the mix.
Yes. Thanks, Jake. Thanks, Daniel. So with the toll treating arrangement, we will campaign mill through each quarter. Generally, it will be about 1 month each quarter. We'll start the first one later of this month and run for a period of about 3 to 4 weeks. And the arrangements will be a cost reimbursement for that toll treating. That will be recorded as an offset to the cost in which we incur, be it in processing, admin, sustaining capital around tails and the like. So that's how it will be reported on the cost side. And then in the production, we will only be reporting our attributable production and our attributable tonnes through the plant and our attributable grades and recovery, respectively. And Bob, I'll hand over to you to the various ore sources that we'll have this year.
Thanks, Lawrie. Then the feed will come a bit around about -- if I was to say a milling rate of 2 million tonnes, and it's probably going to be slightly less than that because of a few other reasons. But there's around about 1 million to 1.1 million from the underground combined. The rest will come from the open pits, and that will be lower grade. The feed from the underground is globally around about 30% to 35% from Kundana and East Kundana, and the remainder coming from Frog's. Does that help?
It does. It suggests that maybe Frog's still has some life left. Can you talk to that? I thought we might be finishing that soon.
Frog's has got a -- quickly, Glen, about 12 to 18 months still to go, with current knowledge?
Yes. So it's got till the end of next calendar year left and a little bit into the first quarter of calendar year '23. So it's just over 12 months left of Frog's Leg.
Okay. And maybe switching just to Cowal. Can we maybe just expand a bit more on where exactly we are in Stage H cutbacks? So I would like to know material. When is Stage H going to be finished? How much money is still to be spent? When should we see the benefits coming up through grade? And when is that project finished?
I'll let Lawrie answer that question. Just before handing over to him, Dan, I'd just say that all that stuff we talked about at Mungari was captured in the guidance update we gave post the acquisition.
Thanks, Jake. Yes, Daniel. So effectively, at the end of September, the major material waste movement for the Cowal Stage H cutback has finished, the order waste ratio is now at a point where we would deem that as commercial production. There's a little bit in September. So we have finished capitalizing essentially on Stage H as major waste development. And from now through going forward, as Jake mentioned, quarter-on-quarter, we'll see grades increase over what we've been achieving in the last couple of quarters. We moved from stockpiles to primary feed from the pit.
And on that grade, can you expand a little bit on how the trajectory looks over the next couple of years? I think you were going to go in excess well as a 1 gram tonne.
Yes. So if we look at the rest of this year, you'll see the grade go up to about 1 gram per tonne in the December and March quarters. Then you'll sort of finish the year getting up to 1.1. And then through FY '23 and beyond, you're going to be in that 1.1 to 1.2 grams per tonne range.
And then last question just Ernest Henry. When can we expect the market to get an update on the study below the 1,200 RL?
I think Glencore did their MRR at the end of this year. So I'd say it would be the first quarter next year. But as we mentioned in the report, the concept study looks really positive with -- they pushed it through to the pre-feas study, and mine life extensions look promising.
Your next question comes from Matthew Frydman from Goldman Sachs.
Maybe one for Lawrie to start with. Just looking at the, I guess, the growth of major CapEx spend during the quarter, you spent around $90 million. So times that by 4, we're at $360 million if we annualize that spend rate. You've guided to $440 million to $510 million. So just wondering what the difference is there. Is it just timing on key projects? And I guess, in particular, the Cowal underground spend seemed quite light during the quarter, even though your advance rate was actually above your budget. I'm just wondering if maybe that's the key driver behind that difference and just wondering how that spend at the Cowal underground might accelerate during year.
Thanks, Matt. Look, at Cowal, we only received regulatory approval at the end of September. So the mining portion is what will ramp up over the course of this year. We see that capital in the second half of the year will be about 40% to 50% higher than the first half of the year, and that's -- that will be the mining. It's also as the accommodation, the pace plant and other projects, infrastructure also take shape. So that's sort of why you don't just multiply it by 4.And similarly, if we look at Red Lake, it will only be, I'd say, $5 million, $10 million a quarter higher than what we've achieved in the first quarter. The same thing as they ramp up with the CYD decline as we do some work on the commissioning of the Bateman mill and finish the bulk sample work at McFinley and the last main project in the second half of the year will be around the tails and ammonia plant.
That's helpful, Lawrie. I guess while I've got you, you mentioned back in July, I think it was, that you were starting the year seeing around a 3% or 4% increase in your labor cost year-on-year. Is that still the case? Is there any other sources of cost inflation, either operating or capital that are different to that observation or anything worth calling out?
No, Matt. So in terms of the labor, we finished our annual review across our organization and that took place in September. So that's all being finalized, and we averaged in around the 3%, 3.5% across the organization. Looking at the contract rates that we've applied for some of these mining contracts awarding, we're seeing waste levels around the similar increases that we had expected for our business. So there's nothing there that's giving us concern.We've done a couple of contracts recently around consumables. Pleasingly, they've either been flat. We've had a couple that have been 3% to 4% below what the expiring contracts were and then there's a couple that are probably about 3% to 5% higher. I think what we are facing though is going into the rest of this year, the labor, as we've always talked about. WA is the hottest market, and availability of people is going to be our focus area there.And then in logistics, we have seen some issues around delivery times because of COVID and moving things around from other countries that have had to deal with the pandemic a bit worse than us. So some delivery times have pushed out in the orders of 4 to 6 weeks, but nothing that's on a critical path of material issues for us.And then the last thing I'd say in some areas such as tires and those consumables, with demand increasing a little bit, the key thing is making sure you've got new contracts in place that we've been working over the last 3 to 4 months to make sure our contracts have been renewed and get allocations that we need for the next couple of years.
And probably one thing, Matt, that Glen certainly sick of me contacting him about previously via phone call or Teams now that we're getting back to the office in person is assay results from this good-looking core that he tells me about, and then I keep hammering on about have we got the assays yet. Assays are our bottleneck for sure.
Okay. Yes, that seems to be a pretty consistent feedback. Just finally for me on Mungari. And Jake, you mentioned that now the focus is on taking costs out of the Kundana acquisition. Just wondering if you could give us a sense of what are the cost drivers there that you potentially see as an opportunity going forward at Kundana. Is it about the material flows in the milling? Is it about the mining cost? Just wondering where your focus is going to be.And then secondly, can you remind us of the timing of the mill expansion study? And whether you thought about or run the numbers on whether there's an opportunity for third-party tolling in the region. Is that an attractive option until you can execute on that mill expansion, given the discussion we just had around Mungari processing plant feed and the mix and the capacity there?
Thanks, Matt. I think the biggest opportunity is that really you've -- these operations have been run as 3 separate operations. So the EKJV operation was separate -- run separately from the Kundana operations, and obviously, our operation was run separately to those 2. So the opportunity now provided by getting this toll milling treatment in place is to try and integrate them and really optimize them from a labor planning, equipment, maintenance perspective right across the operations. And on first pass, look, we think there's real opportunity to make it a lot more efficient than it's previously been operated. Now we're still getting to know it. We're still learning, but there is tremendous opportunity to improve efficiencies at the operation.With regard to the mill expansion, we are completing that study. It will be completed this quarter. But we're probably just going to take sort of a deep breath and look at it and see how best to optimize the Mungari region in our next planning cycle to see whether going for more tonnes is the right strategy versus kind of optimizing for profitability and margin and at a lower throughput. So watch this space. We'll have all the data available, but it will also depend on how we go in terms of integrating and optimizing the operation.
Okay. You probably answered my question there in terms of focusing on margin with respect to whether it's worth engaging any third-party toll treating. But yes, any sort of considerations or comments there, whether you can use excess capacity in a third-party treater?
Yes, you can. But we're not a processor of material. We're a miner, and that's always going to be our first priority. So if that's an opportunity, we'd look at it, but it's unlikely to be a driver.
Your next question comes from Al Harvey from JPMorgan.
Just wanted to get a bit of a summary on the Mt Carlton divestment and the rationale behind taking out an equity stake in Navarre. I guess, I want to get an idea of the strategy there. Got kind of a bit of interest in the Victorian exploration ground. Just any comments on why that option was taken.
Yes. Thanks, Al. Look, I mean, I think the divestments of Mt Carlton, the rationale is clear. 1.6% of our reserves, very short mine life ahead of us and not material to our growth expansion plans. We have retained exposure through the contingent payment, and we decided to retain a bit more exposure through the equity piece both to support their equity raise and a desire to see some exposure through their track record of delivery and discovery, which Ian Holland has. So it's not a material amount for us, but it gives us some exposure into Ian's track record of discovery.
And maybe just more general portfolio. So down to 5 assets now. I think the last strategy presentation, you said the target's 6 to 8. So is kind of JV-ing into early-stage projects a way forward for you to get that number up with Cue and places like that? Or are you still running [ rollover ] operating assets?
Yes, we continue to look at things. I mean, we hope that Cue turns into the sixth operating asset, but it's somewhere away from that. Glen's discovery strategy was put in place some time ago, and Cue is a result of a number of years of delivery on that strategy. So there are some other things they have in it, and we are increasing the momentum in that space.Six to 8 assets is an ideal number from our perspective. But if we had 5 operating assets producing more gold and more money, that's also a good outcome for us.
[Operator Instructions] Your next question comes from Kaan Peker from Royal Bank of Canada.
Two questions from me. Just the first one on Mungari. It seems like a great quarter. I know it's relatively early sort of touching on what Matt asked before. But in terms of cost performance and actually processing of the EKJV, how is cost tracking those expectations pre the Kundana acquisition? And also, just wondering if it opens up or the reevaluation of existing resource base at White Foil, Frog's Leg and Castle Hill. I'll circle back with a second.
Yes. I'll hand over that to Lawrie. Only to say that September was definitely a better month than July and August once we'd acquired the EKJV and Kundana tenements. Go ahead, Lawrie.
Thanks, Jake. Take the grade, I'll deal with the cost. Yes. Look, , what we've seen in the first 6, 7 weeks is that the costs have been performing to plan but we do see, as Jake mentioned, that there's opportunities around the efficiencies between Kundana and East Kundana. And as we go through the next couple of quarters of doing the toll treatment, and at the same time, the team on the ground began to be looking at how can they really optimize that cost base and trying to basically treat that as one part of the overall Mungari operation.So there is a bit of work to be done, and we'd expect that to come through as we do the FY '23 long planning process. But at the moment, they're tracking to plan, and what we see going forward is opportunities to improve on that.In terms of the resources, maybe I'll hand that to you, Glen, as to what we'll see as Kaan was asking about opportunities to add more resources there at Mungari.
Look, I think the -- [ going in ], I mean I think there were some references to White Foil in the pits. I think, really, there's obviously mineralization sitting outside of our resource shales. But whether that comes in or out is really -- is always dependent on what our metal price assumptions will be. And at this point in time, they're $3,000 per resource or AUD 2,000 per resource and $1,450 for reserves. So I expect that will be pretty steady as we go forward. I think the real opportunities for us at Kundana and East Kundana are really looking at sort of depth extensions of the known ore bodies. There are sort of smaller opportunities in the footwall and the hangwall. We're picking up extensions of loads, such as Pode and Hera. I spoke earlier about Startrek, which is a footwall or an example of footwall mineralization on the K2 structure. It's early days there, but we've picked it up in white space drilling. So we think that there are incremental resource growth or resource growth opportunities. And as we're continuing to learn about those assets, we'll be sort of prioritizing where we think the greater scale and opportunity for grade will be.
I think just to add to that, Glen. There's no doubt that there's lots of low-grade material on our tenements areas. There's Castle Hill. There's now Carbine, which we acquired. The challenge for Glen and his team is to find extensions or additional discoveries of higher-grade areas, which will really help us because grade is the priority.
Sure. And I think also you touched on Carbine. Just wondering on the, I suppose, the long-term planning process that is previously referred to in FY '23. How do they -- how do you view those assets, particularly given that they sit outside that 50 kilometer range, including Carnage?
Yes. So you'll remember that we, at one stage, sort of developing Castle Hill separately. Now with Carbine there, where is the center of gravity for that whole region. But we are going through a capital-intensive period at the moment. We're investing a lot of money over the last couple of years. So there is a very high bar for additional capital projects to get off the ground at the moment. So I think it's in the portfolio, and it's a wait and see and optimizing as we go forward. But no priority to go out and develop a new plant at Carbine just to get more production.
Sure, understood. And just finally, before I pass it on. At Red Lake, just an update on approvals at the Bateman mill or anything.
I think that the mill is permanent effectively to mill at 450,000 tonnes a year. It's rated with a capacity of 650,000 tonnes. And I think Bob's view is that it could do 900,000 tonnes without much additional mechanical upgrades. It's a very, not overcapitalized, but well set up mill. The permits and approvals are not a constraint at this point in time at Red Lake for us.
Was it not the transportation limitation?
Well, we're only taking a bulk sample from the Bateman or the McFinley deposit at the moment. So I don't think that is a limitation, or I certainly haven't heard it as being an issue that could be an impediment at the moment.
There are no further questions at this time. I'll now hand back to Mr. Klein for closing remarks.
Thanks, everyone. A very busy quarter. I appreciate the time. I know it's a busy day as well. 25th of November is our AGM. We'll be celebrating 10 years as Evolution then. It won't be in person, it will be virtual, but please join us. Thanks very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.