Karora Resources Inc. (OTCQX:KRRGF) Q3 2022 Earnings Conference Call November 7, 2022 10:00 AM ET
Company Participants
Paul Huet – Chairman and CEO
Oliver Turner – EVP, Corporate Development
Bevan Jones – Chief Operating Officer, Australia
Conference Call Participants
John Sclodnick – Desjardins
Matthew O’Keefe – Cantor Fitzgerald
Michael Fairbairn – Canaccord
Operator
Good day and welcome to the Karora Resources Third Quarter 2022 Conference Call. Today’s conference is being recorded.
At this time, I’d like to turn the call over to Paul Huet, Chairman and CEO of Karora Resources. Please go ahead.
Paul Huet
Thank you, operator. Hello, I would like to welcome everyone to the Karora Resources third quarter conference call. As a reminder, we will be talking to a slide deck. For anyone interested the slides can be found on the homepage of our website. And you can follow along the webcast.
Over to Slide 3 and 4, before I begin the presentation, I would like to remind you to please review our cautionary statements regarding forward looking information, non-IFRS measures and our 2022 to 2024 growth plan, all of which can be found in our management, discussion and analysis, news release and in our presentation – in our presentation slides.
Over to Slide 5. On the call with me this evening and I’ll reiterate that it is this evening over here in Australia we’re about 11 o’clock at night. On the call with me tonight is Bevan Jones, our Chief Operating Officer for Australia; Oliver Turner, our Executive Vice President of Corporate Development.
Oliver needs no introduction having served with Karora over the last three years. Bevan, on the other hand, recently joined Karora in September of 2022 from the Gold Fields St Ives operation. Bevan brings over 27 years of experience in mine management and senior management roles with his latest years of service right here in Western Australia at St Ives. It is worth touching on some of his outstanding achievements at St Ives, Bevan improved safety, increased production all while reducing costs, the perfect trifecta that landed him the new COO role here at Karora with us.
Our third quarter was our best quarter operationally on several metrics. We broke records on tonnes mined from Beta Hunt on tonnes milled ounces produced, ounces sold and record revenue that we will discuss later. The third quarter, we shattered our previous gold production by 25%, producing 38,437 ounces in a single quarter. Before I get into the details from the quarter, I wanted to share some highlights and recent announcements that I’m very excited about.
Obviously, in July, we closed the acquisition of the Lakewood Mill for $80 million. This was a huge accomplishment for Karora significantly, derisking our growth plan, while increasing our milling capacity to approximately 2.6 million tonnes per annum. This milestone certainly demonstrates that we are on track to deliver our growth plan as expected in the coming years.
We our – new $80 million credit agreement with Macquarie consisting of a $40 million term loan and a $40 million revolving credit, significantly reducing the interest rate on our debt, while providing us additional financial flexibility with the new revolver in place. Look, I’m sure like many of you, I’ve been told through my years – throughout my years of service that the best time to secure funds is when you don’t need them.
And this is a great example of us following through with that strategy. In August, we published results from Beta Hunt, the nickel PEA to demonstrate the incredible nickel opportunity we have. Look, in my humble opinion, we’ve barely scratched the surface on the nickel potential at Beta Hunt and stay tuned as we become much more aggressive during the next couple years advancing our nickel now that we’ve just published that new PEA.
And lastly, while this didn’t occur in Q3, I think it’s very worthwhile mentioning that look, personally, myself and many of shareholders that I spoke to are thrilled to say that last week We announced that Karora maintained carbon neutrality for a second straight year in 2022. This is an area that is very important to us as an organization and Oliver will provide more comments later regarding our roadmap for emissions reductions.
Overall, these are certainly some huge milestones accomplished during Q3. We’ve obviously been extremely busy. Before handing the call over to Bevan our new COO, just allow me please to provide you some financial results from Q3. Our MD&A and financial statements for the period ended September 30, 2022 have been filed, all of which are available on Karora’s website, and under Karora profile on SEDAR.
I’m over to Slide 6 for those of you following along with the presentation, if you want to press forward Slide 6 that’s where I’m at the financial highlights here. As I outlined at the beginning of the call Q3 was a strong quarter for us with multiple record. We successfully continued to reduce our costs during the third quarter, all-in sustaining costs was approximately right at $1,069 per ounce sold for the third quarter.
Quarter-over-quarter, we reduced AISC by 10% or more importantly, on a unit cost it was – $120 an ounce sold. But more importantly, if we look back to Q1, it was at 23% reduction or $325 an ounce saving from the first quarter. But given the cost challenges we face for labor, inflation, like our peers, we’re actually quite thrilled with the downward trends. So we’re quite happy about it.
Honestly, for that I really want to take a moment and applaud our operations teams that continue to strive for improved productivity rates, while managing costs at all levels. Additional key financial metrics from the second quarter include our revenue that was approximately $81 million for the quarter. Again, another record smashed it was. That’s almost $8 million than the best quarter we’ve ever had in the past.
The third quarter adjusted earnings were $6.6 million or $0.04 per share. Adjusted EBITDA was $27.5 million or $0.16 per share, both showing some healthy improvement. Our cash balance at the end of the third quarter was strong at $56 million after allocating $70 million of cash for the Lakewood Mill coupled with the Macquarie credit facility. We are in a very strong financial position here.
With that, I’ll now turn the call over to Bevan Jones to take you through some of the operational highlights.
Bevan Jones
Thank you, Paul for the warm welcome and kind words.
I’m pleased to be here reporting to you for the first time as a member of the Karora leadership team. I’m also very excited about our operating performance in the third quarter, and even more so about the prospect of the opportunities that lie in front of us. I’m passionate about and committed to safe production. I look forward to leading the Karora team on the journey to improve our results.
Using our Karora values as the guiding light, we’ve been reviewing our life saving commitments we have recommitted to living our values and looking after each other and keeping everyone safe. Our overall goal is to ensure that everyone goes home to their families every shift safe and sound.
Now I’m going to refer to Slide Number 8. On a consolidated basis, mine production for third quarter 2022 was 484,000 tonnes. As Paul pointed out earlier, we processed a record 547,000 tonnes through both mills. Consolidated mill recoveries remained strong at 94% demonstrating consistent results quarter-after-quarter from our strategy to optimize feed blend from Beta Hunt and Higginsville.
As the record tonnes process in Q3 suggests, the addition of the Lakewood Mill provides us not only with the benefit of increasing processing capacity, but also it significantly derisk our growth plan and gives us more processing flexibility. It was also worth noting that Lakewood is closer to Beta Hunt than the Higginsville plant, which provides an obvious advantage in terms of falling costs.
If we look at Slide 9 now, for the third quarter at Beta Hunt, we mined a record 313,000 tonnes, mainly from the Western flanks in A Zone areas. 306,000 tonnes of Beta Hunt material was milled at an average grade of 2.4 grams a tonne for production of 21,977 ounces of gold. Both tonnes processed and average grades were higher than the second quarter results and a 15% quarter-over-quarter production improvement.
The recent tonnage records at Beta Hunt, give us a high degree of confidence that our ability to deliver a growth plan at Beta Hunt to 2 million tonnes per annum, is achievable. I’m also pleased to report that the progress made in the [indiscernible] remain on track.
Looking at Slide Number 10 now, at Higginsville, we mined a total of 412,000 tonnes, which generated 16,640 ounces a 45% improvement over the prior quarter.
If we look at Slide Number 11, turning to exploration and resource development, most of our activity continued to be focused on Beta Hunt, where we continue to see outstanding results for both gold and nickel. Over 15,000 meters were drilled during the third quarter, bringing our total to approximately 40,000 meters year-to-date. Our largest mining zone at Beta Hunt is Western Flanks.
Drilling reported in October has now confirmed the mines share gold mineralization extends a further 250 meters below the current mineral resource. This is exciting news as Western Flank remains open at depth and shows strong potential for continued resource growth. Additionally, drilling identified and continue to test Mason and Cowcill, which are the newly identified shear zones parallel to the Larkin Zone south of the Alpha Island Fault.
We’ve also recently reported high grade drilling results, including 12 grams per tonne over 70 meters at the Mason zone. This builds on the emerging opportunity for a new mining zone at Beta Hunt in an area that was previously untested for gold potential. On the nickel side, we recorded a new discovery called the 4C Offset, which includes a high grade intercept of 6.5% nickel over 11.9 meters located just 25 meters from existing Western Flanks mining infrastructure.
This is another exciting opportunity for near-term mining that we are actively evaluating. Overall, we continue to see excellent results that support potential mine life extensions, and our plan to grow nickel production.
I’ll now turn the call over to Oliver Turner for some additional comments.
Oliver Turner
Thank you, Bevan.
One of the many highlights since our last quarterly call was the announcement of course, carbon neutrality for the second straight year as part of our overall ESG strategy. Just last week, we announced that we have maintained our carbon neutral status for Scopes 1 and Scopes 2 emission via the investment into several meaningful carbon offset projects.
Once again, our project selection included Mount Sandy project in Australia. Not only have we continued this effort, but we’ve also significantly advanced our emission reduction plans across our operations. With the inclusion of the Lakewood Mill into Karora’s operating portfolio, we have worked to reforecast our forward emissions profile as part of the growth plan to 200,000 ounces per year.
Our first emissions reduction project will be focused on power generation at Higginsville, where we currently self-generate power onsite using diesel genset. We have analyzed several alternatives to the current installation, which include a variety of hybrid renewable solutions and grid plan. By replacing our current power generation setup, we will reduce greenhouse gas emissions and overall power costs through our operations moving forward.
Our work on the selected Higginsville power option will be outlined in our 2022 ESG report, which is due for release in the first quarter of 2023. Concurrently, we will also release our initial intermediate and long-term emissions reduction targets. All of Higginsville power generation we’ve also begun analysis on a variety of other projects at our operations with the aim of reducing our future emissions profile.
As we progress through this list of opportunities over the next several years, we will continuously, update on our emissions and our emissions reduction target. As we stated several times, a Climate Action Plan forms a critical part of our overall strategy in ESG, and we are excited to continue to advance our efforts in this area.
With that, I’ll turn the call back over to Paul.
Paul Huet
Thanks, Oliver. Katie at this point, we’d like to start some Q&A on the call please over to the operator.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We’ll go first to John Sclodnick with Desjardins.
John Sclodnick
Hi Paul, Bevan and Oliver, thanks for taking my question, very impressive quarterly results, particularly on AISC and just wondering what trends you’re seeing on consumables and labor going into 2023. And maybe if you can comment on, you know, what might be differentiating I guess your contained costs versus some of your neighbors?
Paul Huet
Yes, John, listen. Thanks for the question. Actually, to be quite honest, when we looked at some of the inflation in consumables, we actually have been talking to a lot of our neighbors. Unfortunately the story, there’s not actually great for us, we’re actually realizing like diesel explosive, like the others, were realizing some inflation costs that that are mirrored like them. So the advantage we have is we have multiple operations.
And we’ve – got longer term agreements. So we were able to negotiate some really good long lasting prices, where we’ve seen some of these benefits for ourselves really has been on our efficiencies. Our productivity rates have increased, which has really helped our costs, look, some of our productivity rates, let’s just, you know, let’s look at some of the tonnage there. John, four years ago, we were doing that 30,000 tonnes a month at Beta Hunt.
We’ve crested over 100,000 tonnes here with similar amount of people, similar trucks, so our productivity rates have really improved, that has been trending down our overall all-in sustaining costs. Other than that, we’re not oblivious or we’re – we have the same problem that some of the others have with respect to labor, we have a benefit of just have hiring Bevan, who’s certainly got a following.
So he’s got certain amount of people that we were short, he’s able to attract and retain some good people here. But the inflation issues that others are facing, we’re seeing them as well, where we’ve really got to get smart here. And where look, I give hats off to the mill guys, I’ve seen some of the things we’ve done, the mining guys, where our productivity rates are increasing. It’s really about becoming much more efficient to manage these costs and make sure we can sustain them in this current environment. So yes, that’s about it, John.
John Sclodnick
Okay yes, no impressive you guys are doing there. And I guess is COVID still impacting operations at all?
Paul Huet
Yes look, it’s a good question. John, I don’t remember the exact numbers. But it’s something like this. I think in Q2, we had around very close to 10,000 hours that were impacted. And then Q3, it was about 10% of that, it was about maybe 700 hours to 1,000 hours. So it’s much less however, Bevan pointed something out to me just two days ago. He was showing me that there’s, articles out here that COVID actually, you’re seeing more cases.
But in our operations, we’re actually seeing an overall reduction, which is fantastic. Thank God for that. I really think in our case, the worst is behind us. We just spent – I just spent the last five days here underground with myself, Bevan, other members of the executive team, Mike Doolin, Barry Dahl was here.
Our whole Board was here in fact, so it’s one of the first times we could come here, and since I’ve been Chairman, because of COVID. But to answer your question real quickly, look, the amount of hours we saw between quarter-over-quarter, has dropped significantly. The papers are suggesting something different.
We don’t expect – we certainly do not expect or anticipate to, see some of the challenges we had in both Q1 and Q2 with respect to labor like we disclosed at the end of Q1 that there were – there were days over 30% absenteeism it was horrific. We’re not anticipating anything like that, but I will say we’re keeping our guards up. We’re still following a lot of similar protocols to make sure that we don’t have any outbursts.
John Sclodnick
Okay, yes no good to hear and yes hopefully you don’t go back to subsidized Netflix watching in the COVID hotels there.
Paul Huet
My God, Amen to that.
John Sclodnick
Yes – and you touched on efficiencies and really impressive mining rates at Beta Hunt with a single decline. Just wondering if you see potential to maybe exceed the 2 million tonnes per annum target with the second decline or if I’m just getting ahead of myself here?
Paul Huet
Oh, my God, you sound like Oliver Turner, my Lord. Now, let’s say all jokes aside, John that is a good question. Look, I haven’t been underground 35 years of my life. I would say this simply put, the infrastructure here has surprised me. I’ve been in a lot of ramps all over the world, Canada, the U.S., Australia, Mexico, South Africa the ability to deliver over 100,000 tonnes out of a single decline actually exceeded some of my own expectations.
Again look John, I’m just – I’m just going to state some facts here. Four years ago, we got here, we were struggling. We were having a very hard time to get consistently 30,000 tonnes out of a single decline. And look over the quarters, we’ve talked about a lot of things we’ve changed, we’ve changed the team. First and foremost, we’ve changed the way we drill, we change the way we blast, we change the way we muck. We changed our trucks.
We made a tremendous amount of changes, where we thought we would end up with right around that 80,000 tonnes a month out of a single decline. And let’s just annualize that John 80,000 tonnes a month times 12 months, you’re looking at 960,000 tonnes a year or 1 million tonnes a year. And we said look, we believe we can get there and we kept getting really close to 70, we get 77.
What recently happened is some of these efficiencies that I’m talking about, we’ve actually crested over 100,000 tonnes out of this single decline. Now, that second decline that we’re putting in, we always said they each have about 1 million tonnes analyzing the 100,000 tonnes a month now John, you’re not incorrect. Look, let’s be honest here, I wouldn’t throw that in your model, or I wouldn’t recommend anyone throws in their model.
Consistently from this point going forward, I would say this, I’d say we have been able to do it, we’ve demonstrated we can get over 100,000 tonnes a month out of the single decline. It gives us a tremendous amount of confidence that once we put in that second decline, that target of ours to get to 2 million tonnes per annum from Beta Hunt that’s a real target. It’s not a pie in the sky. I remember people telling me a year ago, my gosh, Paul, like you seem like you’re getting.
Why are you being so aggressive, we put a pin in the number one risk we had, which was the mill, that expansion was relieved by buying the mill. Our second biggest risk to our growth plan is the decline, we’ve demonstrated that we can, look annualize 1.2 million tonnes per year, we can get to 2 million tonnes a year having two declines in play. So it’s very encouraging. I would caution you to just John, just be careful not to say, okay, from this point on, there are going to be 100,000 tonnes a month – that’s not at all realistic.
We’re building the budgets right now. We’re blessed that we’re ahead of schedule on the knowing look, we’re almost 14 months ahead of time on milling, every tonne that goes through that Lakewood Mill is a tonne that we would have displaced almost 14 months down the road. So the advantages of having that are significant. I would just guide you again saying look, they’re going to be consistent at 100,000 tonnes a month every month. Look, we’re going to have some ups and downs. We’ve got to get the rest of the infrastructure in place, which is the second decline. And I know this is long winded, but it will probably answer a couple other questions.
I spent time underground looking at that second decline. I was there. I got to touch the face. We’re down a kilometer things are going fantastic with the contractor. We’re doing very well. The important parts of the infrastructure are the secondary, the vent raises. We’re going to – we’re doing very well to getting the first one done. There are two others to get done which will come in the New Year and in Q2 around so all that infrastructure getting in place.
And then once we get that in place, we can get the stilts in place below it and really started humming, I paid hunt to sustain that 100,000 tonnes a month. So very long winded, John. But you know, I just spent a lot of time underground, a lot of hours underground with the entire Board. We were specifically looking at all these things, the vent raise, the second decline. How are we doing? What are some of the nickel results? So thanks for the question, John.
John Sclodnick
Okay, yes and we’ll leave that as upside in that model and your expectations?
Paul Huet
Yes, yes.
John Sclodnick
Sorry. And last one from me. Just on these exciting exploration results, you can see just wondering, when you’re planning, releasing an updated reserve and resource statement and what deposits might be included there?
Paul Huet
Yes, so look, we were really our objective internally was to try to get it done in Q4, that’s going to be a little tight, given some of the constraints we have. And it’s back to your first question. Are you guys suffering? Are you stretched on people? The answer is, as I said, yes.
So we’ve come back here just recently and told the Board, we’re likely to not overstress everything as we got going on with the budget and the resource and reserves. We’re going to get it out in Q1 of 2023. So next quarter, and that’s going to be a complete reserve update on Beta Hunt, John, on the gold section. Yes, I think I made that pretty clear.
John Sclodnick
Okay, perfect, that’s great and yes sorry for hogging the line. And thanks for answering my questions.
Paul Huet
No, thanks John, have a great day. It’s been a good day we’re getting close to midnight here. So I don’t think anybody has any empathy for me though, people are laughing at me.
Operator
Thank you. We’ll take our next question from Matthew O’Keefe with Cantor Fitzgerald.
Matthew O’Keefe
Yes, thanks, operator. Hi great quarter, thanks. Just a couple of – questions from me, first, you touched on that drilling that you’ve been doing south of the Island Fault, there’s some pretty impressive results there. You’ve got like 17 meters with 12 grams and 10 meters with four grams and seven meters just seven grams so pretty impressive results. And I know sounds like you’re going to find the way in your reserve update in the New Year?
But realistically, when would you be able to, to attack that? Because that looks like it compares pretty well to what you’re mining today? That’s my first question. And then my second question is more for Oliver, I guess, but on the carbon neutrality side of things, so your – carbon neutral now, and you’re paying for carbon credits, but you’re going to move towards actually being operationally it sounds like moving towards operationally carbon neutral?
Maybe you could expand on that a little bit more. And, you know, kind of cost wise to that versus just considering on the credit path. Because I think you’re a bit of a leader in this with respect to the junior miners. So some guidance on that would help?
Paul Huet
Thanks, Matt, appreciate – both questions. I’ll fire off with number one there. And then we’ll do exactly as you recommended, Oliver will answer number two. So to your first question on the drill results, look, you’re actually – I say this all the time, you’re pushing an open door. Some of those drill results south of the Alpha Island Fault have been phenomenal, fantastic. In fact, you know, I spent what 18 months up here or here in Australia, and one of our biggest targets has always been South of that fault.
One of our biggest challenges now, it is our biggest challenge our biggest challenge has always been the infrastructure that was put into this mine led to the fault have been stopped at the fault. We were the first group to actually drive through it, put in and drill through it about 500 feet through it, flip our drills up. And we had all those results that we had on both. Both Matt on the gold and the nickel, we had some outstanding results.
Where we struggled, has always been the same just like the people who want to mine the fault was the infrastructure. So we don’t have the ventilation down there to really do the right amount of first, all the drilling that’s required. And then as you know, follow up with the mining. Look, we part of this new infrastructure we’re putting in now, with the second decline. There’s a combination that we’ve always been talking about the raises as well.
But there’s, three separate raises, this will allow us access to that Southern area. Those raises won’t be all input and the fans and everything in. And this look this is, Matt, this is a huge ventilation upgrade here. This is I think – it’s about $16 million of our capital that we’re requiring for that infrastructure upgrade. So until that gets complete, we won’t be able to physically get in there to mine or drill.
So we’ve kind of got the area we’re – jumping – to get down and get down there as quickly as we can. But the ventilation needs to be there. So in the meantime, we’ve been drilling in other areas, we’ve had a lot of paralleling zones. Look, we had that intercept it was 11.9 meters with 6.5% nickel. That was up north of the fault that you’re talking about Matt, that that was an amazing intercept.
In fact, I got to go underground this week, we hit that during the Denver Gold show, we announced 11.9 meters of 6.5% think of those numbers like we’re a gold company not diamond. I had mystery gold himself, side-by-side with me with a cap lamp. Scott hand was down underground with me looking at these intercepts, and they were – we drove the drift to it, it was only 25 meters away from existing infrastructures, this is some of the advantages Beta Hunt has Beta Hunt – is such a unique deposit with such optionality.
So back to your original question, when can we get there? Look, we got to get the infrastructure in there. We’re working hard on it now. It’s on track, we’re doing very well. Just stay tuned as we get the infrastructure in. We’ll provide more drilling and the plan to get there. We want to get in there as soon as we can. In fact, I’m making it part of people’s objectives next year. So I’m pushing it as hard as I can here without pushing a rope. So that pretty much gets to your first one Matt I’ll let Oliver come in to your second question all right.
Matthew O’Keefe
Okay, thanks,
Oliver Turner
Yes, hey Matt and thanks, Paul. So yes so, on the carbon neutrality for 2022. Obviously, we put that press release out last week, on two things really right. And – first and foremost, was talking about some of the – offset projects that we’d purchased in Mount Sandy was another one, and retire those offsets. But then also, and more importantly, advanced work or furthering of our emissions reduction analysis.
So what we’re going to be doing moving forward here, Matt, and you’re going to get a lot more details on this in the ESG report in the first quarter of next year is, as we worked with the invert group to basically analyze a whole variety of potential projects that we can do from an emissions reduction standpoint, and the one that just leaps off the page you as our largest company wide contributor to emissions is the Higginsville power generation.
So right now and Higginsville, we generate all of our power from diesel gensets on sites, which have pretty high associated emissions with them. And also high power costs, especially with the increase in diesel prices that we’ve seen globally. So what – we’ve done is we’ve stepped out with additional third-parties and power contractors to analyze a variety of options. There are hybrid power solutions that include renewables, and obviously backup power, as redundancy.
But also grid tie ins, there’s a couple of really interesting initiatives that are going on in Western Australia, with respect to decarbonizing the entire Western Australian grid that we want to get involved in. But first and foremost, we’re going to be focusing on that Higginsville power solution. So the idea there being that these third-parties will step in, they’ll finance and build the project themselves or the plant themselves.
And then you basically pay for it with a with a purchase power agreement over the long-term there so that will be Higginsville first, and we haven’t just looked at Higginsville. No, we are a junior gold producers so we are going to tackle these projects, one – project at a time. And our focus remains squarely on producing gold and nickel. But the next projects, we’re looking at a variety of them with respect to fleet analysis, fuel switching a whole bunch of different things.
So after we tackle this first project, we’ll move on to the next one, and how can we reduce emissions further? And how can we do it in a cost beneficial way with respect to our operating margin, so that comes first. And then with respect to the offsets, I mean, our view here, and you’re right, we have been sector leaders in this space, is that you don’t need to wait for one to do the other, we want to do both of them at the same time taking a dual track approach to both offsetting and emissions reduction.
One of the things that – extended our emission reduction analysis was when we acquired Lakewood, just a few months back. We had to incorporate that into our new forecast and reforecast our baseline going forward. Because of course, previously, we’re going to expand Higginsville. So we have that new forecast, we have these projects we’re looking at the Higginsville power solution will be first.
And then stepping forward as we move through time, the amount that will be required to offset will reduce year-over-year as these emissions reductions take hold. And we tackle more and more of them with basically technology based solutions. And in order for us to tackle this whole problem, emissions reductions have to come first. And the offset is definitely a complementary solution.
So I hope that gives you a bit of a sense we’re going to talk a lot more about this in our in our 2023 reports, or I guess it’s the 2022 report in the first quarter of 2023. But they’re really working hand-in-hand together.
With respect to the last part of your question in terms of asking about costs associated with them, you will see in our financial statements under the sustainability – section of the financial statements. You’ll see some commentary there. And then going forward, obviously, that depends where carbon prices go, but also how much we’re able to reduce from the operations level.
Matthew O’Keefe
Okay, and have you seen – is it too early to say if there’s a trend in these voluntary credits, increasing in price?
Oliver Turner
Yes, I mean – broadly speaking, when you look – at the voluntary market over time, there’s basically it’s got a scale by about 15 to 20 times where the current voluntary market is today. So there certainly is upward pressure on prices. And everybody’s going to be facing that, whether it’s, voluntarily deciding to offset or whether it’s income via the form of carbon taxes, we’re starting to see more and more mining companies step into this.
So while we were leaders in the junior gold space, you’ve seen Newmont step in. You’ve got triple flag on the royalty side. Hecla – stepped in with respect to offsetting as well. So it will form a critical part of the strategy moving forward. But first and foremost, you want to actually reduce operations – sorry emissions at the source level. And that’s what we’ll be focusing on going forward and thereby reducing our exposure to these increasing carbon prices moving forward.
We’re also looking at some ways, and we’ll go into details on this now, but we’re looking at ways to lock in long-term carbon price exposure. But let us get through that work first, and then we can update you on it.
Matthew O’Keefe
Great and are there any government incentives or tax breaks for any of this work that you’re doing on the carbon side?
Oliver Turner
In Western Australia, you know there’s, grants with respect to technology based climate solutions. We haven’t seen major tax breaks yet, but that’s an evolving space. It doesn’t matter which jurisdiction you’re in right now actually. It’s entirely evolving space, obviously, with what the U.S. announced as part of that Inflation Reduction Act.
There’s a huge climate associated components to that. They’ve been leaders now, but expect that to flow through to other Western nations as well. So we’ll keep on top of that, but there’s lots of interesting grant work as well in this space, that we’re working through.
Matthew O’Keefe
Great, okay, thanks. Thanks, guys. Thanks great quarter thank you.
Paul Huet
Thanks, Matt.
Operator
Thank you. We’ll take our next question from [Benjamin David] with Scotiabank.
Unidentified Analyst
Hi, thanks for taking my question and congrats on a good quarter. I was wondering if you guys could share a few additional details on nickel development and exploration in particularly the BRI development drive, and if that’s still on track for completion in Q1 of next year?
Paul Huet
Yes, thanks, Benjamin. That that BRI drive was specifically I don’t know if you heard my response to the question that John had asked, I was talking about us driving south of the fault that drift, Benjamin is the BRI drive that BRI drive was the first drift of its kind to be through the fault. And we drifted on the other side of the fault, which is south of the fault and then slipped our drills and had all those nickel discoveries 26 holes and the gold intercepts.
Your question specifically is the BRI drift is in place once that ventilation is completed, and it’s going to take not vent raise one, but it takes all three of them vent raise two and three, which is the most southern end of the mine. They’re scheduled actually to be done in actually Q2. So we’d always said that we would extend the BRI. Our initial BRI drift is actually southern fault. It was the drill platform. So we’re very fortunate to have – had enough ventilation to get through it. Drill all those holes. Now the extension of BRI will come after the second vent raises are put in place Benjamin.
Unidentified Analyst
Okay, thanks and my second question, I guess is for the Lakewood Mill. I was wondering – what kind of capacity you guys have been operating at and if you see any opportunities for maybe further optimization there?
Paul Huet
Yes look, so we got the Lakewood Mill. We’ve only had it here for a couple of months here right. As a reminder, we were very clear in Q1 that we ran 50,000 tonnes right around that it shows exactly, right around 50,000 tonnes – just to test the mill. We wanted to see the kinds of recoveries we would get. And we were quite pleased that we saw some decent recoveries that mill depending on what ore goes through it.
Each ore in Australia is a little variable, we can do anywhere from 750,000 tonnes close to 1 million. We have to do some – work to it next year to get it sustaining that million forever, month-after-month-after-month. It’s not a lot of work that’s scheduled to come in the next year. But right now, we’ve been running it about 750,000 a year in capacity 750,000 tonnes divided by 12.
Unidentified Analyst
Okay, okay thank you.
Paul Huet
Thanks Benjamin.
Operator
We’ll take our next question from Michael Fairbairn with Canaccord.
Michael Fairbairn
Great, thank you, very much for taking my questions. A few from me here, I want to start just to stay on Lakewood for a second and talking about that capacity. I think, you know, a few months back, you’ve been talking about using some of the excess capacity of Lakewood for toll processing or from other miners in the region, just wondering if that’s still the plan to try and do some toll processing going forward or if that may have changed now?
Paul Huet
Thanks for the question, Michael, look, you know, we’re faced with a really good problem to have here, right? Our original growth plan had scheduled the existing mill expansion at Higginsville to be done by Q4, right around Q4 of 2023 and early 2024. Now by buying this mill, we’ve accelerated all that almost 14, 15 months ahead of time. So we are, we’re way ahead of our original plan.
Therefore, the underground isn’t quite all up-to-date with the infrastructure, and then all the development we need underground to sustain that 2 million tonnes. And this is leading into your question. So when we bought that mill, it was only doing toll milling, that’s all it did. It was doing no other things. So we have existing stockpiles on the ground, we’re evaluating until we can get Beta Hunt to the sustainable rate of that 1 million tonnes per annum, which is in – more towards Q4 of 2023.
We’re looking at different stockpiles that we have. And we have probably in the neighborhood of 400,000 to 500,000 tonnes of stockpiles, varying cost to them, and some toll mill. But we want to make sure that look with people we used to use this mill, we are being very clear that we’re a new owner, rates might be slightly different. So we have to make sure that it fits for our needs as well. So toll milling will be second to treating our own stuff always.
So there’s going to be some opportunities for toll milling. We’re looking at running our stockpiles before we do any toll milling. And look, we’ve just recently did a couple months that were much larger than we had expected at Beta Hunt. I am certain in 2023, we’re going to have a couple of those as well – a couple extra months that we’ll be able to feed in to Lakewood. So we’re faced with a fantastic problem. We’ve got a mill. It’s hungry we’ve got a couple ways to feed it before we get into that sustainable 2 million tonnes a year from Beta Hunt.
Michael Fairbairn
Okay.
Paul Huet
What was your other question, Michael?
Michael Fairbairn
Yes just following up on that, I guess you know, thinking about the additional capital that may have to go into the Lakewood Mill to get it running sustainably at 1 million tonnes a year. Any color on when you’re going to come out with I guess guidance for next year as to what that capital is going to be and would that include updates to your longer term guidance as well to incorporate the Lakewood Mill?
Paul Huet
Yes, no, the short answer is yes. We are going to put out some information. Bevan has been on the ground here, six weeks now. Mike Doolin, who led the due diligence on our behalf a lot of you know Mike Doolin he’s a metallurgist, him and I had the privilege of working together at Klondex. He was the COO over there. Him and Bevan are working together scenarios as we speak.
There are some capital requirements and there are some safety standards that we want to put on the mill to make sure that it meets our safety criteria. These aren’t – look these aren’t numbers that are going to freak anybody out. But I would rather wait to give you a number till these guys give me one. You know, the due diligence didn’t have any huge red flags. We are going to have to have some sustaining capital year-after-year couple of years down the road.
There’s going to be some tail stuff, but to give you a number, I don’t want to give you a number right now, without getting it from them, which will come, by the way, when we give out guidance here in Q1 of 2023. So just give us a couple months, and we’ll give you a better number on that, Michael.
Michael Fairbairn
Okay, perfect that that makes sense. And last one from me here. Just thinking about how quickly your, spend is going to ramp down in Q4 on the capital side with the Beta Hunt, decline coming to an end. And you know, probably a little bit of spend at Lakewood in Q4 as well, just wondering maybe on Beta Hunt, specifically, how quickly do you see the capital spend coming off as, as we head into the end of the year at Beta?
Paul Huet
Yes, so look again, thanks for that question, Michael. I actually see the, spend being in line with what we said to the market. The big things that we have in Q4 are the decline. And look, we’ve always we – original schedule was, it would be done in Q2 of 2023. We’ve recently said last quarter that look, we’re expecting that to be done in Q1 of 2023. So there’s going to be no reduction, I went to the base two days ago.
I was underground touching the base the jumbo man was drilling around off. So that spend will kick in – just as planned on the decline. But more importantly, I think, some – there are some people that look when I did the marketing in Denver at Beaver Creek with Oliver. There are some people that didn’t understand, sorry that we needed a series of vent raises to get to that lower elevation and to the southern end of the mine.
So I don’t expect it to come off in Q4. I expect as we had planned or no let me restate that. I said that wrong, Michael, we had originally planned it will be done in Q2 will be done in Q1. So we’re going to be done sooner. But the spending in Q4 will remain intact as we guided.
Michael Fairbairn
Okay, perfect. Thanks very much, Paul that really helpful.
Paul Huet
Michael, that’s great. Thank you for the question.
Operator
Thank you, that will conclude our question-and-answer session, I’d like to turn the call back over to Mr. Huet for any additional or closing remarks.
Paul Huet
Look, it’s closing in on midnight here. I’m not sure what time it is in Toronto for you guys. But I really want to just say thank you to all of you for taking the time to listen into our call. We’re grateful for all of you covering us. We’re very grateful to our shareholders. I thank everyone who asked questions. We actually appreciate those questions a lot. And if somebody doesn’t look like anybody had a question, but if there are other questions.
We’ll always be available to get a hold of – if you have any other follow-up. And just in closing, I want to take a moment and thank our team in Australia, they’ve really, really come together well and worked extremely hard, given some of the obstacles and conditions they’ve had. And again we just had a huge Board visit here went very well. And I’ll end by saying publicly welcome to Bevan Jones as Chief Operating Officer of a very exciting company and have a very wonderful day and take care, everyone. Thank you.
Operator
That will conclude today’s call. We appreciate your participation.
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