Thank you for standing by, and welcome to the Northern Star FY24 half-year financial results call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the STAR key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Stuart Tonkin, Managing Director and CEO. Please go ahead.
Good morning and welcome to the Northern Star First Half Financial Year 2024 Results conference call. Joining me on the call today is our CFO, Ryan Gurner. We have a presentation we'll be referring to this morning as published on the ASX, and that's the presentation titled FY24 Half-Year Results Presentation. I'll start now on slide 3. We are in an exceptional position on the conclusion of our half one while advancing our five-year profitable growth strategy. Northern Star is a global gold leader as well as one of the largest and most liquid gold exposures across the Asia-Pacific region. We continue to build from strength to strength. This is achieved through our deliberate and simplified portfolio of three large-scale production centres in Tier 1 jurisdictions producing one commodity, gold.
As you will see in our update today, we continue to execute our clear low-risk strategy which is generating superior returns for our shareholders today, tomorrow, and into the future. Our focus remains on operational excellence and a disciplined and mature approach to investing shareholders' funds. I'm particularly proud of our people and their commitment to safely and sustainably execute our value creation strategy. Our strong safety culture and results-driven mindset positions Northern Star as an employer of choice to combat the continued skill shortage in our industry. We offer significant career development opportunities across our long-life portfolio of industry-leading gold assets. I'd now like to pass to Ryan to review the highlights of the half year.
Thanks, Stu. Good morning all. I'll now step you through the first half financials. I'll begin on slide 4. As illustrated, our key financial metrics for the group improved significantly on the previous period. Despite the challenges the resource sector currently faces with cost pressures and labor constraints, the strength and resilience of our assets is illustrated with the company delivering a strong underlying EBITDA of AUD 889 million during the first half of FY2024, up 41%. Maintaining capital prudency and the realization of tax synergies from the merger have resulted in the generation of significant cash earnings which totaled AUD 702 million, up 50% from the previous period. A reminder that cash earnings represents the amount of underlying earnings which is available to return to shareholders, invest in profitable growth-related activities and balance sheet management.
A reconciliation of cash earnings to profit after tax is provided in the appendix to this presentation. This record first half cash earnings has enabled the board to declare today an unfranked interim dividend of AUD 0.15 per share. This record dividend represents a 36% increase from the FY23 interim dividend and the midpoint of our dividend policy being 20%-30% of cash earnings. The company does not expect to generate franking credits for at least a further 12 months due to the tax synergies arising on the merger temporarily reducing the company's taxable income of its Australian operations. In respect to the company's AUD 300 million share buyback, the company has bought back 169 million in shares to date, and the program remains open subject to blackout periods until September 2024.
Reflecting on our strong balance sheet on slide 5, our balance sheet supports our strategy and gives us flexibility through the cycle to fund opportunities that may arise to enhance our portfolio of assets to deliver long-term superior returns to our shareholders. We remain well-positioned to deliver our profitable organic growth strategy with our strong balance sheet which includes a AUD 229 million net cash position at 31 December. We have significant liquidity of AUD 2.6 billion following the recent refinance of the company's corporate bank facilities in December which remain undrawn at AUD 1.5 billion. Onto our operational overview slide on 6. As illustrated, we've continued to deliver in what is a challenging environment with 780,000 ounces in gold sold across our three production centres in the half year. We remain on track to meet our FY24 guidance which is second half weighted.
During the first half, and as outlined on this slide, at KCGM we have successfully and safely commenced the mining of Golden Pike North ahead of schedule. At Thunderbox, mill optimization continues, and we commence activity at 1.0 Mtpa underground, and Pogo delivered a record mill performance at 1.4 million tonnes per annum during the period. Our focus for the second half remains on delivering higher ore volumes and grade at KCGM, principally from Golden Pike North, improved milling availability at Thunderbox and Jundee, and continuous optimization at Pogo. Over to page 7. This slide highlights the significant cash generated by the business during the first half with AUD 131 million of group underlying free cash flow. The waterfall chart on the left illustrates the positive contribution from each production center to the group's cash earnings for the period.
Cash earnings for each production center is represented by the segment EBITDA generated minus the sustaining capital spent at that center. Pleasingly, all production centers contributed strongly with KCGM, our largest center comprising 62% of the group's cash earnings for the year. We will continue our cost focus in the second half which, alongside the planned lift in group production, is expected to translate into free cash flow generation maintaining the company's strong financial position. Now to slide 8 which highlights EBITDA margins achieved for the group and each production center over the period. All three production centers performed strongly and achieved healthy EBITDA margins. When normalizing EBITDA for the non-cash charge resulting from the processing of KCGM acquired stockpiles, group EBITDA margin for the period rises to 43%.
A strong gold price and our focus on costs has delivered an EBITDA per ounce increase from AUD 877 per ounce a year ago to nearly AUD $1,200 per ounce this half. As illustrated by the graph on the left, KCGM production centre continues as the key contributor at 54% of the group's EBITDA and is expected to grow with access to Golden Pike North. In relation to our profitable growth strategy on slide 9, we are now two and a half years into our five-year profitable organic growth strategy. Over this time, we've delivered major milestones which have been key in achieving our objectives, and we are also well-progressed at our KCGM mill expansion project which will see the capacity more than double to 27 million tonnes per annum.
Over the past 2.5 years, along with the progress made on our strategy and the capital investment undertaken in our operations, the business has generated over AUD 1.2 billion accumulated free cash flow from operations. As you can see on this slide, there are great opportunities within each production center to continue to build on that free cash flow generation for years to come. Before I hand back to Stu to finish the presentation, I'd like to step you through page 10 where we've set out the key elements of how we deliver shareholder value which is through owning world-class assets in Tier 1 locations and applying our DNA of operational excellence. Operating in a safe and responsible way with a demonstrated track record.
Our portfolio of long-life assets in well-endowed geological systems provides us with flexibility and optionality to extract value and employ capital prudently to where the best returns can be generated. And as an overarching foundation, we maintain a strong balance sheet which enables the execution of our strategic framework through the cycle.
Thanks, Ryan. On slide 11, talking about those fantastic organic growth returns that we're generating, I am exceptionally pleased with the progress we're making at KCGM mill expansion project to date, and that remains on track. The team there will be kept busy for the remainder of the year, and the key activities are listed at the bottom right side of that slide. The mill expansion contract has commenced site mobilization with activities expected to ramp up in the June quarter as planned. Our CAPEX guidance for that project is AUD 1.5 billion, remains unchanged, and is inclusive of 10% inflation and contingency. Note that as planned, the AUD 525 million this year of capital expenditure is included in our group's capital expenditure guidance.
Our Fimiston mill expansion at KCGM Super Pit is in addition to our five-year profitable growth plan which sees the business reach 2 million ounces per annum. The mill is planned to be commissioned in FY 2027 and ramp up through to FY 2029, enhancing organic growth and returns for our shareholders. Now turning to slide 12. Our FY 2024 guidance remains unchanged which is heavily second-half weighted. Our teams have a clear strategy to deliver this guidance, noting that the cost pressures in the industry are prevalent. We do acknowledge these challenges to deliver our cost guidance. On tax, our board anticipates any future potential dividends to be unfranked for at least the next 12 months. As Ryan's mentioned, as we expect to pay nil tax from Australian operations over the next year, we will remain a taxpayer for our Pogo operation.
Now on slide 13, we maintain a significant mineral resource base of above 57 million ounces with reserves above 20 million ounces, and we have a very effective exploration program across our significantly endowed geological systems to replace and grow our mine lives. We continue to add resources at an industry low cost of AUD 31 an ounce. Further, we have a 10-year reserve-backed production profile which provides significant visibility to enhance the delivery of our superior returns to our shareholders. We have those resource and reserve work underway presently to be reported in quarter four, which is a March end. In summary, on slide 14, we continue to execute on our clearly defined strategy of generating superior returns.
The half one results presented today are outstanding and are a result of our team's effort on safely delivering operational excellence in parallel to a disciplined approach to investing shareholders' funds. So I thank you, and I would now like to pass to the moderator for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're using a speakerphone, please pick up the handset to ask your question. The first question today comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi Stu and team. Thanks for the result. My question just relates to the business performance since balance day, so the 31st of December. There's been a few companies talking about how business is tracked. Can you just talk about have your maintenance activities already occurred, and did they track to plan, and how has the business performed since the end of the year?
Yeah, thanks Dan. I guess we were silent on it, but in a group level, we've maintained our full year guidance. So there's certainly been the similar threat of power outages and rainstorms and all the sorts of things that happen generally in this time of year in mining in Western Australia, as well as climate-related stuff in Alaska. But those things have been offset by other things that we have and continuities in place. So yeah, nothing material, nothing to report, and I think silence and the omission of any comments around that probably reflect that here. The planned work has been performed well, and yeah, our view is it is second half weighted and heavily into quarter four. You see us do that each year. It's not necessarily by design, but it is how some of the planned work is scheduled.
And also the exit rate as we're growing year-over-year, showing that flex net capacity. It's not a straight line. There's events that equipment gets turned on, and there's step changes in that. Heavily for us, the second half, the low-cost, high-grade ounces from the Super Pit in Golden Pike North are the large lever that drives down unit costs and ounce production up.
Thank you. And in your disclosures, you talk about paying no tax in Australia, which makes sense, but some tax in the United States with Pogo. Can I take that to read that Pogo is tracking well, and your expectation is that you I mean, obviously, you're going to pay tax, so you're going to be making positive cash flow out of that asset. Is that what you're flagging?
I'll be happy to pay as much tax as I can in the U.S., which will define the health and the profitability of the asset. But you are right. We're at those inflection points of past investment paybacks coming on, generating surplus, past D&A, and obviously generating those returns for attracting tax.
Thank you, Stuart and team.
Thanks, Dan.
Thank you. The next question comes from Andrew Bolo from Macquarie. Please go ahead.
G'day, Stu and Ryan. Just to delve a bit deeper into your comments earlier on in the call about the continued tight labor market in Western Australia. I think from memory on the quarterly call, you said you'd reached out to some lithium and nickel names to potentially take on some staff from those. I was just wondering how those discussions went, and have you seen a sort of reduction in turnover just in the last month given the news out of the nickel sector continues to look bearish? Cheers.
Yeah. So we were seeing a gradual plateau and a decline on turnover anyway. That's reflective of what we have in our business opportunities, promotions, growth, and expansion in some form, but also the lack of places to go or that drag, that demand of other industries pulling those skilled labor. So that's slight.
We absolutely have reached out to sort of five businesses that have our flyer and have got logged with it. But I think that takes a bit of time because they actually go through months of redundancy programs and those sorts of things. So I think a lot of staff are reluctant to move until they've closed those elements out. But that'll relieve for us. We don't want to take advantage of those circumstances. But as far as offering those jobs and filling our vacancies, we've made it very clear and known of what is available. And the costs, I mean, what the backdrop is, heavy IR changes are unfavorable generally for flexibility and mapping out cost outs. And you've heard majors talk about this and potential flight of capital out of Australia because of some of those changes.
So I also don't want to play down and have anyone think there's going to be a material shift and change in labor cost because of some of that framework that's been developed. No, it sounds to me like hopefully if you can fully staff up for the first time in a long time that it's more an incremental improvement in productivity than cost reduction per se. Absolutely. If you kind of recall, the deficit meant lots of trainees entering the industry and potentially derated until they got up to a level of competency and they had additional resources training them, which was additional cost. So that slowly subsides, and then obviously any new startup coming in typically hits the ground running faster and operates at a higher productivity. So yeah, but we've still got nearly 7,000 employees across our business.
When you're dealing with hundreds coming in and doing this, we already have a huge engine room of labor and staff delivering a fantastic result we've just reported on. This is on the margins. It's not a step change in our business. For juniors with one asset or something, it could make a major difference. For us, it's largely business as usual.
Makes sense. No worries. That's all from me. Thanks, guys.
Thanks, Andrew.
Thank you. Once again, to ask a question, please press star one on your phone. The next question comes from Hayden Bairstow from Argonaut. Please go ahead.
Good morning, guys. Stu, just interested on any potential labor risks around all these pilot strikes. Do you guys have much exposure to that mainly Jundee , or is it the risks across Intercal as well?
We're not directly exposed to the pilot strike action. I understand there's either a pause or a change to that in relation to the cyclone up north at the moment. So I think there's some relief in the immediacy, but we're not directly exposed to it. Now, two-thirds of our workforce are residential, whether it's Alaska or Australia, and that's a strength. But yeah, where we do our FIFO, typically we've got other chartered arrangements, and we can make those arrangements. And I think the industry generally through COVID demonstrated a lot of flexibility unrelated to a pilot strike, but certainly related to scarcity of flights and seats on flights, etc. So they will manage through, but everyone should understand ultimately this results in cost increases, not just operational disruptions, threats to those major industries that rely on flights.
Yeah, can I just on the second half or first half versus second half slight weighting, can you just sort of flesh out a little bit? Is that literally just on grade? Is it more seasonal sort of things that you factor in in that second half? Is it just something which you factor in every year, or is it just specifically this year?
Yeah, so quarter one, quarter three are the planned major mill reline shutdowns at varied length, but at all the sites kind of all at once. And that's typically two major shuts or a major shut and then sort of a lesser one. And we typically have those planned quarter one and quarter three. So you'll see that cyclically through the business. You might say, "Well, why don't you spread them all out and mix them all up?" Each of the assets run in their own right, so depending on throughput, wear rates, all those sorts of things. So that is what it is at the moment. The real key element around the ounce lift is that we access the Golden Pike. The East Wall remediation progressed ahead of plan. We accessed that all last quarter, and we're in that.
So there's still a bit of unstacking and sequencing and some waste bund removal, but we're going to be in that for a number of years. And they have very cheap ounces, and therefore they're averaging down the group, and that's key to the second half and fourth quarter particularly.
Okay, just one final one, just on the increased divvy. I mean, divvy v buyback, is the thought process around allocating capital between the two?
Yeah, we see they're different audiences. And even dividend reinvestment plans, we get questioned why you do that while you have a buyback active. But they're different audience, and they're different values. So we pride ourselves in regularly paying that dividend and having a pretty clear policy, 20%-30% of cash earnings. We're right in the middle of that for half one. And as we're growing production, gold price being where it is, dividends are growing. So AUD 0.15 per share for half one on prior corresponding period is an uplift. And yeah, we should be able to demonstrate the growth in that. We still evaluate that buyback against lots of factors, reinvesting that capital in the business, other capital returns such as divvys. And we keep that assessment there.
But you appreciate we've been in blackouts in regards to the buyback, and we relate it to these reporting periods as well.
Okay, go ahead and leave it there. Thanks, guys.
Thanks, Hayden.
Thank you. The next question comes from Alex Barkley from RBC. Please go ahead.
Thanks. Morning, Stuart and Tim. I think you've covered the cost pressure stuff pretty well. So just a quick question on the KCGM underground studies. Are you still expecting to be able to release something early stage around the middle of this calendar year? Thanks.
Yeah, Alex, not a study level to necessarily report at a phase for the mid-year. The work is absolutely underway and continuing, but largely that's around a lot of information to come in. So drill results, drilling. Still, we'll do the resources and reserves. That'll be end of March and then published in April. And that again sets the foundation for part of the material that goes into that broader plan. So any study would be premature and a bit of arm-waving of what's there until we get some of the density of the drilling up. Very confident it's there. We're just looking at the size of the prize.
Remembering that other than the saddle between Mount Charlotte and the Super Pit and the activity that's happening there, Mount Ferrum, etc., we did not intend in the plan to bring a large underground on the Super Pit in concurrent with pit mining at the Super Pit. There's no haste to accelerate and bring that in. It will sequence after the production of things like Golden Pike. Yeah, development of it, drilling of it, studies of it will occur. But genuine mining in the bottom of the Super Pit won't happen until that pit activity reduces. That's just a geotechnical risk management.
Yeah, okay. No, that's very helpful around the study timing stuff. Okay, thanks very much, guys.
Thanks, Alex.
Thank you. Once again, to ask a question, please press star one on your phone. The next question comes from Daniel Roden from Jefferies. Please go ahead.
G'day, good morning, guys. Just a question on Mineral Resources this morning. We're saying they're doing deals on float circuits in the Goldfields region. Is this something that you consider vending into an unused asset? Thanks.
Yeah, thanks, Daniel. I'm using all my float circuits, so that's what Fimiston’s based on, and as is KCGM. So at this stage, they're fully utilized in their own right to produce our Goldcon. So no.
No worries. Thank you.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Stuart for closing remarks.
Thank you. It's clear that our strategy is delivering strong returns as demonstrated today by our record interim dividend. Our financials are in great shape, and we continue to maintain financial flexibility from a strong balance sheet. Thank you and good morning.