Good morning, everyone joining us on the call today. With me is Managing Director of De Grey, Glenn Jardine, and we are excited to annoz Northern Star have entered into a binding scheme implementation deed to acquire De Grey via an all-share transaction. Glenn and I will provide an overview of the transaction, including the benefits to all shareholders and the timeline for completion, and there will be plenty of time for Q&A after the presentation. We have released annozments on the ASX and will be referring to the presentation slides on this call this morning, and I'll be starting on slide six. The transaction highlights the combination of Northern Star and De Grey cements Northern Star's position as a global gold leader. The pro forma entity remains a simple business: one commodity, two low-risk jurisdictions, and with the addition of De Grey's Hemi project, four high-quality production centres.
This transaction has been the result of comprehensive due diligence by our respective teams and is an exciting opportunity for De Grey shareholders to join a global gold leader. Stepping through the transaction highlights, Hemi will be a globally significant, large-scale, and low-cost gold project in the Pilbara region of WA, where Northern Star has experience operating via our foundation asset Paulsens. Hemi is estimated to deliver 530,000 oz per annum once developed and increase our growth pathway to 2.5 million oz per annum approximately. We can leverage our exploration, development, and operational expertise and optimize the value of Hemi for all shareholders, and there is strong ESG alignment, including the renewable power options, traditional owner agreements, and mining leases in place.
The transaction delivers immediate and attractive premium to De Grey shareholders while also providing meaningful upside participation in the combined portfolio and immediate production exposure to the current gold price environment. An all-scrip transaction allows us to preserve our balance sheet to fund the development of both our KCGM expansion and Hemi, and also capital management measures. Turning to page seven, this transaction is unanimously recommended and supported by De Grey's directors and will be conducted via a friendly all-scrip scheme of arrangement. The exchange ratio of 0.119 implies consideration of AUD 2.08 per share based on Northern Star's last closing price, which delivers a significant and attractive 37% premium to De Grey shareholders based on the last closing price. Following completion, De Grey shareholders will own 19.9% of the enlarged Northern Star. The transaction is targeted for completion around April or early May 2025.
On slide eight, Hemi is an excellent strategic fit for Northern Star that aligns with our strategy. It is genuinely a unique transaction opportunity, creating significant value for all shareholders. We have maintained a disciplined approach to M&A assessing against our six criteria outlined to the market several years ago, and we are pleased to confirm Hemi satisfies all of these criteria. A low-risk jurisdiction, the Pilbara is well supported by existing infrastructure and mining services. Hemi enhances overall portfolio with AISC forecast to be in the first half of the global cost curve. It has material scale estimated at 530,000 oz per annum production profile over an initial 12-year mine life with upside, particularly from underground potential. Continued geological upside. Hemi is a significant greenfields deposit in an emerging gold district.
Grey has strong ESG credentials in community and traditional owner engagement, with final environmental approvals expected to be received in 2025. Finally, on value, the transaction is accretive to Northern Star across a range of operating metrics. I'll now pass to Glenn for an overview of the project.
Thanks very much, Stu. It's a pleasure to be here with you this morning and everyone online and to have worked on this transaction with the Northern Star team. I'm proud to present this transaction, which the De Grey board believes has a number of compelling benefits for its shareholders. Hemi is a large-scale, low-cost, globally significant gold project located in Western Australia, and De Grey has been operating in the Pilbara for several decades. However, Hemi was only discovered at the beginning of 2020, and we've worked very hard to de-risk the project to this point in that short period of time. Most of you will be familiar with the project, but I'll just touch on a few highlights.
First of all, with the resource, it's currently sitting at 13.6 million oz of contained gold at 1.4 g a tonne, and this is an increase of 16% since the DFS was released and an increase of around 1.25 million oz per annum since the initial maiden resource. Reserves sit at six million oz at 1.5 g, and studies are underway for the conversion of the Eagle cutback since the DFS, and also studies are underway looking at underground mining options. Hemi is strategically located in the Pilbara, 85 km by road from Port Hedland and close to critical infrastructure and mining services. It's obviously in a world-class Tier 1 mining jurisdiction. As far as exploration is concerned, you can see on the figure there that the tenure package stretches for approximately 150 km east-west and north-south for about 100 km.
Northern Star's expertise and balance sheet brings the potential to unlock the opportunities that you can see on the screen and which we presented previously, and Stuart will touch on that shortly. In terms of other matters, you'd be aware that we've had a traditional owner mining agreement in place since December 2022, and the mining lease over Hemi has been granted. Federal and state environmental approvals are pending, and work on this has been a significant focus for the De Grey team in recent months and going back for several years. Infill drilling prog are underway at Brolga, and we recently annozd excellent results there from an infill drilling program, and we did that in October. We've also been ordering long lead equipment, and that's been presented in previous quarterly reports, and we'll be continuing to do that to reduce critical path schedules once FID is completed.
If we move to slide 10, this is just touching on the outcomes of the DFS, and the DFS was completed in September 2023, and we used a range of high-quality independent consultants to do that, coordinated by the De Grey internal team. That study reinforced the potential scale of Hemi, with estimated annual production expected to position Hemi as a top five Australian gold producer and top ten Tier 1 jurisdiction. In terms of annual production, we're looking at just over 550,000 oz per annum on average over the first five years and 530,000 oz per annum over the first ten. The DFS is based on a plant throughput of 10 million tons a year, and cost benefits accrue from that scale. The plant design also allows for potential upgrade to 15 million tons per annum.
Hemi is a semi-refractory ore body, and De Grey has invested significant capital into studies and metallurgical test work to determine the optimal processing route. We ultimately chose a pressure oxidation circuit, which is utilized by many of the world's largest gold mines. Finally, the mining physicals are underpinned with 99% of reserves sourced entirely from the Hemi deposits, with great control drilling underway to de-risk the project. I'll pass back to Stu now. He'll provide an overview of the pro forma Northern Star business and Northern Star's plans for Hemi.
Thanks, Glenn. So on page 11 now, Hemi will represent Northern Star's fourth production centre in a Tier 1 low-risk jurisdiction and is complementary to our existing hubs. This is aligned with our long-stated target of having three to five Tier 1 production centres. We now have three in WA and one in Alaska. Turning to page 12, Northern Star remains in the enviable position of only operating across genuine Tier 1 mining jurisdictions, and Hemi is located in the Pilbara, 85 km from Port Hedland as Glenn spoke about. And WA is a fantastic mining region with an established infrastructure network with access to the deepest pool of highly skilled labour, contractors, suppliers, and critical infrastructure, all of which help us in developing Hemi to its maximum potential. The Northern Star and De Grey teams have significant Pilbara operating experience complementing the project.
Turning to page 13, through our 2 million oz per annum growth plan and world-class KCGM mill expansion project, we are already on track to reduce Northern Star's all-in sustaining costs to the first half of the global cost curve. Hemi's costs are expected to be in the range of KCGM post-expansion, being complementary to the Northern Star portfolio. And importantly, the addition of Hemi is expected to further cement Northern Star's position in the bottom half of the global cost curve, enhancing the quality and profitability of the business overall. Now on page 14, the acquisition supports Northern Star's strategy of strength from simplicity. There is no change to Northern Star's current growth trajectory, and we remain on track to produce 2 million oz per annum in FY 2026 and maintaining 1.8 million- 2.2 million oz through FY 2029.
Therefore, the addition of Hemi enhances our growth pathway to approximately 2.5 million oz per annum from FY 2029. Post-development, Hemi's forecast production of 530,000 oz per annum will be equivalent to approximately 20% of Northern Star's FY 2029 production. Underground and regional deposits provide opportunity for growth, with Northern Star well placed to use our expertise to unlock these opportunities for all shareholders. And I'll now pass back to Glenn to provide an overview of the exciting geological upside of Hemi.
Yeah, look, thanks very much, Stu. In terms of upside here, we've been talking about this for a while, and there's a number of elements to that. First of all, you're looking at extensions beneath Hemi itself, and that's at the top of slide 15. So on the left-hand side of that slide, you've got the Eagle pit there from the DFS, and you can see that underneath the pit design there, there's obviously mineralization at good grades. And you can see a blue outline there, and that's the Eagle cutback that was planned in November 2023. It's just a pit optimization at the moment. It's not a design, but that's an option we're looking at. And then, of course, we've mentioned we're looking at underground conceptual studies, and that's dealing with mineralization beneath that potential cutback. And the Eagle is just one option there.
If you go to the projection on the right-hand top of that slide, you can see really good mineralized intersections beneath both Diucon and Eagle. That part of the world is one of the areas that we've been focusing on with the underground conceptual study. As far as the greater Hemi exploration area is concerned, which is in the bottom left-hand side there, we've had a lot of smoke around the main deposits. You can see that to the southwest around places like Antwerp, which is extending to the west of Eagle, and then to the northeast along the Diucon shear there leading up into Scooby. In recent months, we've been drilling at Antwerp. We've been drilling along that Diucon thrust, and we've currently got an RC rig operating at Scooby.
Furthermore, on a potential scale, we entered into a joint venture with Novo Resources on the tenements that are shown in orange there because the structures and geology that sit at Hemi and run to the northeast also run to the southwest into Novo's ground. And we've had some recent encouragement on our own ground to the southwest of Hemi, and that encouragement has continued into the Novo ground as well. So look, we're really excited about the provincial scale exploration opportunity here. We do know that we've got additional intrusions on that package. We are aware that there are Hemi-style intrusions on that package, and the company still has a lot of work to do following that up. So yeah, very excited about the upside potential here. You can definitely see it and taste it.
Thanks, Glenn. Now on slide 16, De Grey has laid strong ESG foundations at Hemi, which are aligned with Northern Star's industry-leading environmental and social responsibility values. We intend to build on De Grey's actions and will apply our expertise and values at Hemi, including strong community and traditional owner engagement and responsible water management, progressing the state and federal environmental approvals, which we expect to receive next year, and developing Hemi with a high renewable power target. On slide 17, we are very proud of our track record of shareholder returns and ensure that maximizing returns for shareholders is at the core of any investment decision. The acquisition of De Grey is expected to generate significant returns for all shareholders once it's in production. The transaction is accretive for Northern Star across a number of internal metrics, including free cash flow and cash earnings.
Importantly, we do not expect this transaction to impact our dividend policy and will maintain it at 20%-30% of our cash earnings, which is a further benefit to De Grey shareholders. On slide 19, as we mentioned earlier, this is an all-scrip transaction which preserves Northern Star's balance sheet to ensure Northern Star can fully fund KCGM expansion and Hemi development for the benefit of all shareholders. This is consistent with our prudent approach to funding, ensuring we maintain our position of financial strength, including our target leverage ratios outlined at the lower part of the slide on the right. Following implementation, Northern Star will have a pro forma net cash and bullion of AUD 1.8 billion and AUD 1.5 billion in undrawn revolving facilities.
Northern Star also has a strong track record of consistent cash flow generation and is delivering FY 2024 operating cash flows of over AUD 2 billion and growing. These liquidity sources provide the combined entity with the funding flexibility and capacity to pursue the KCGM expansion and Hemi development concurrently, all while pursuing further opportunities across the portfolio and maintaining superior shareholder returns. Turning to page 19, the KCGM expansion and Hemi represent two of the world's most exciting gold development projects. I want to step you through their complementary development pathways at the current KCGM there on the left. The project is well advanced with construction remaining on schedule for commissioning in FY 2026 and 2027. On the right there at Hemi, under De Grey's leadership, the front-end engineering has achieved its 30% milestone, and they've spent AUD 169 million in long lead items that have been ordered.
Obviously, the federal environmental approval is pending and expected in the March quarter of 2025. Importantly, we expect the complementary timelines between KCGM and Hemi to drive development efficiencies. And the integration of De Grey's team into Northern Star will also ensure continued development momentum and the sharing of Hemi knowledge. Onto slide 20, the combined teams of Northern Star and De Grey have a unique skill set to develop Hemi to its full potential. We've summarised a few of the key strengths here, including the depth of our management, the proven operational excellence, large-scale project delivery, including the KCGM, as it is the largest gold development project in Australia for over 10 years, and unique refractory experience, including two operations here in WA. There are efficiencies from KCGM and Hemi builds, as outlined just before.
I'd like to now hand back to Glenn to take us through the benefits for De Grey shareholders.
Yeah, thanks very much, Stu. This transaction is expected to deliver a number of benefits for De Grey shareholders, and these include significant and attractive premium across all historical trading prices, ongoing participation in the future upside of Hemi, and broader exploration portfolio through meaningful ownership in Northern Star. It de-risks Hemi development through Northern Star's proven development, operating expertise, and strong balance sheet. Results in the ownership in a globally significant ASX 50 gold leader with enhanced market positioning, significant trading liquidity, and a track record of paying consistent dividends. Exposure to immediate gold production through Northern Star's portfolio of Tier 1 assets, generating stable and robust free cash flow. And finally, there's the potential for capital gain tax rollover relief for eligible De Grey shareholders.
It's for all these reasons that the De Grey board is proud to annoz that they have unanimously recommended De Grey shareholders vote in favor of the transaction, subject to the usual conditions that no superior proposal emerges and that the independent expert concludes and continues to conclude that the transaction is in the best interest of De Grey shareholders. Further details of these benefits are contained in the ASX announcement released today and will be outlined in the scheme booklet, which will be released to shareholders in due course. I'll now hand back to Stuart to outline the benefits for Northern Star shareholders and for concluding remarks.
Thanks, Glenn. On slide 22, in addition to being on strategy, this transaction delivers a number of benefits to Northern Star shareholders, which also flow to De Grey shareholders given the all-scrip nature of the transaction. These benefits include the addition of a low-cost, long-life, large-scale development gold project delivering our fourth production centre in a Tier 1 location. Hemi is the ideal fit for Northern Star's portfolio, a new pillar in our industry-leading growth pipeline. It enhances the quality and scale of our portfolio with increased profitable production. We are uniquely positioned to optimize the value of Hemi by leveraging our best-in-class operating and developing expertise. There is significant exploration potential, as Glenn outlined, at Hemi across its 150K long tenement, and it's an emerging greenfields gold district. Our strong balance sheet will underwrite and optimize development while maintaining our investment-grade ratings.
So that's the final part of the formal slides. I guess I thank you again for listening to our presentation of this outstanding transaction opportunity, which is mutually beneficial for both companies, with Hemi being an excellent strategic fit for Northern Star and the transaction delivering strong benefits for both sets of shareholders. I would like to thank the Northern Star team for their extremely diligent work to make this transaction possible. And I'd also like to thank the De Grey team who have equally worked together with us to achieve this positive outcome for all shareholders. And we recognise the excellent work that the De Grey team has completed to date in taking Hemi from an exploration discovery to a near shovel-ready mine. And look forward to continuing working with the team as we bring Hemi into production.
Lastly, we would like to thank the Northern Star shareholders as responsible stewards of your capital with a transaction like this as requiring an exceptionally high bar. The quality and scale of this asset is truly world-class, and Northern Star is uniquely positioned to maximize its potential, which is why we believe that this is a highly logical and accretive deal for our shareholders. With that, I'd like to hand back to the moderator and open up to questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be annozd. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Levi Spry with UBS. Please go ahead.
Good day, Stuart and Glenn. Thanks for your time and congratulations. Maybe just a question on the DD process. So could you talk us through the key items, I guess, from both your points of view and maybe as part of that, talk through where it's at in terms of the permitting process, any early views on what Northern Star might do to optimise the project, going underground sooner, changing the flow sheet, for example? Maybe we can start there. Thank you.
Thanks, Levi. Stu here. I'll look at anyone asking questions either, I guess, probably direct to Glenn or myself. But DD was very thorough, and as you'd expect at this level and size transaction, pretty much it's pretty bulletproof in the DFS and everything that's publicly disclosed. So I think it was really focused on looking at that value rather than having to find extras, right? So I think importantly, the due diligence process is around proving up all the information that's there, and the De Grey team have done a fantastic job to get to that DFS state. So I think in that, there's nothing more to say than the information that's publicly out there and what we've reinforced. You can expect both teams have done an amount of work to get to this point of the annozment.
Okay, thank you. And so back on the permitting, can you just give us a little bit more detail on what's happened there? I guess maybe Glenn, in terms of it is slightly delayed, what stage that's at and confidence levels around that March quarter?
Yeah, thanks very much. So we've been updating the market quite frequently in the last six months on that matter. Just a little bit of history there for everybody. We made our initial submissions to the federal and state governments back in May and June 2023 for their assessment. Both entities provided levels of assessment that we were expecting when we put out the DFS. So we put out the DFS in September 2023, and then after that, both departments came back with the levels of assessment we were expecting. Those levels of assessment allowed the regulators to ask further questions and require additional information. So as far as that's concerned, we put together what we call resubmission documents, and the federal resubmission went in in August, and we received final requests for further information on that earlier this month.
So as far as the federal process is concerned, we're working through those additional requests for information now, and we'll be having ongoing engagement with the federal regulator later this week, and then that'll keep going in terms of our final submission into them. We'll be able to provide any updates on the March quarter federal approval either later this quarter or in the December quarterly report. As far as the state process is concerned, that's been quite interesting in that that process was running a little bit later than the federal process with us not putting our resubmission in until earlier in November. However, the state regulator took the view that they were comfortable with that submission to the extent that they decided to commence the public review process in November.
And so we're now in a public review process with the state regulator, I think, which commenced on the 20th of November and which will complete around the same time in December. So they're running parallel processes on that. We said that we would come out in the December quarterly report with an update on the state process, but it's fair to say that paralleling of those two activities has been a positive for the company. So yeah, look, we'll provide more updates in the December quarterly report, but yeah, look, so far, so good on both of those fronts. As you know, there's a lot of work involved in these things. We do have very close contacts with the regulators and also with the government agencies and so forth and their leaders.
So there's a full court press on all of that, and we'll update the market in due course.
Thanks, Glenn. And maybe just one more for Stuart, I guess, around the valuation sort of metrics through the Northern Star lens. Can you talk to some more of those, some more detail there, I guess, but also just how much it may have been factoring in further optimization of the project given Northern Star's strengths in certain activities like underground mining and execution?
Yeah, thanks, Levi. And look, there's certainly things that we consider that Northern Star can bring, not just reducing development risk and balance sheet strength, but operational long-term. An asset like this, you're looking decades, and you're looking at that underground potential. We don't necessarily have to bring that into our thinking to justify the annozd deal. You can look at consensus numbers on De Grey, and you can understand what gold price assumptions people have into that as well. So I think it's a very even and balanced valuation for both sides. And I think given the all-scrip nature of the deal, it gives De Grey shareholders an immediate premier out the gates into a cash flow-generating, dividend-paying company. And then it gives them significant upside exposure through 90.9% of the expanded business to enjoy Hemi and the broader Northern Star portfolio going into the future.
So I think that's really what gets that right balance on valuations.
Okay, thanks. Thanks, both. Thanks.
Thanks, Levi.
Thank you. Your next question comes from Hayden Bairstow with Argonaut. Please go ahead.
Good morning, Stuart and Glenn. Well done on the deal. Stuart, just a couple from me. Just on the met, I mean, obviously, it's a key talking point around Hemi. You guys are fairly experienced in dealing with, I guess, similar sort of complex ore bodies. I mean, just your thoughts around any of the met risk and whether you actually see upside or what's in the feasibility study from the learnings that you guys can bring to the table?
It's a different circuit. It's pressure ox. Over 50% of Northern Star's gold production is from refractory sources anyhow. So we've got ultrafine grinds, roasters. We've got that experience. The mining's pretty boilerplate to what we do in scale, volume, technique. So the flow sheet, the great team has done a significant amount of met test work that contributes to the design of that flow sheet and looked globally at other analog operations that also do it. So we're not doing anything crazy here. It's pretty standard and understood. And I think those things maybe let Glenn answer, but the actual flow sheet is well understood and proved up with good data. So I know there'll be questions around looking for what's the upside, what's the improvement. It's a very solid, robust plan currently. So that's where the base case is.
Yeah, thanks, Stuart. And Hayden, just a bit of background there. On the flow sheet, the flow sheet at Hemi hasn't changed in four years since we started metallurgical test work. So that's how robust it is. But obviously, we've followed that up with hundreds of bench scale tests on everything you can think of through that flow sheet. And also two pilot scale tests, one which was conducted at the world-renowned laboratories of Sherritt in Canada. All those tests have gone very well. We've used experts in the field who've worked on virtually every pressure oxidation circuit design that's ever been built and/or that have been involved in the commissioning and maintenance of those plants. So those people are embedded in our team. We've also got people in our team who've either worked on large-scale pressure oxidation circuits such as Pueblo Viejo. So that's our senior pressure oxidation metallurgist.
Peter Holmes, who's currently Project Director, was responsible for the final construction and commissioning of the Pueblo Viejo project in the Dominican Republic, one of the largest pressure oxidation plants in the world. And our Project Director, Allan Mullany, was also associated with overseeing that project, ran Hatch for about a decade, who are obviously key experts in that area. And then on top of that, the team that's been involved in the design and detailed engineering now that are in-house have visited Kittilä in Finland, Macraes in New Zealand, the Nevada operations of Barrick and Newmont. They've also been to Pueblo Viejo, and they've been in detailed discussions with the team at Newcrest at Lihir. So they've either visited those operations in person or spoken with those people.
That's been about understanding the designs that people have put in place, whether there are any issues with those designs and what we can learn from that, and then comparing those installations with the designs that we've got to make sure that we're not doing anything that might be a mistake from an initial construction and/or ongoing maintenance perspective. So yeah, we've been tying those things down technically and practically over the last two years. So yeah, to Stu's point, pressure oxidation is used in 19 or 20 of the largest gold projects in the world. It's not new technology. We're making sure we're learning, and we should be able to work together to make sure that that process is successful. And as you're aware, from the grade control drilling that we bought for it at Brolga, what we're now into is basically operational readiness.
That's around getting into the intrinsic detail on a monthly schedule to make sure that our mining, metallurgy processing in that critical commissioning and ramp-up period is nailed down. That's why we brought Geoff Fenton into the team way ahead of getting to that point.
Okay, great. And Stuart, just on your comfort around the approvals, obviously in the Pilbara there's an increasing focus, particularly on water rights. I mean, obviously, De Grey is probably at a significant advantage to others on that front. Is that sort of where some of your comfort comes from, that these approvals will actually get over the line on time and on the current schedule?
Well, look, we all understand it's a work in progress, and there's no shortcuts here. There's been great work to date and good engagement with regulators and all stakeholders. So yeah, very happy with what's been done there. And there's been, in our view, no showstopper, red flag issues to be concerned about. But also just saying there are risks, there are development risks, and it's on track for those processes. And this is the strength of being in a Tier 1 jurisdiction with pretty transparent, understood, I guess, processes. So obviously, we are comfortable with where it's currently positioned.
If I could add to that, Hayden, yeah, one of the compelling things for De Grey is clearly Northern Star's excellent track record in these matters around community engagement, which they've been doing for many years now, and track record in project development operations. And one of the first things Stuart and I spoke about was the requirement and desire for continued engagement with traditional owners and the community in the Pilbara. So we're both committed to that going forward. And these things do have their challenges. We were obviously somewhat protected from a cash perspective prior to this transaction in that the money that we raised in September last year and May this year provided sufficient interest to cover all of our fixed overheads and then some to deal with any delays that may occur in the approvals process.
Obviously, with the increased balance sheet, that issue becomes less so in terms of making sure we get things right. So yeah, I think that's the environment we're entering into, and I'm really comforted by Northern Star's approach to community engagement and engagement with traditional owners.
Okay, great. Fantastic. Well done to both teams, and I'll leave it there.
Thank you. Your next question comes from Hugo Nicolaci with Goldman Sachs. Please go ahead.
Hi, Stuart. Glenn at Teams. Congrats on the transaction. First one for me, more of a clarification and then maybe one for Gold Road. But have you had any discussions with Gold Road to confirm their support of selling their stake into the transaction?
Yeah, look, it's Glenn here. Gold Road has been and remains a very supportive shareholder of De Grey. They've supported all of our capital raising since they acquired DGO Gold's share of the company. And they've also been very supportive of the board and management throughout that process. But De Grey's relationship with Gold Road is arm's length and as a major shareholder. And Gold Road is aware of the transaction, and obviously, it will be up to them to consider their approach from here.
Got it. Thanks for that. And then, Stuart, once again, you just on the capital management piece, you highlighted you expect to continue the current policy. But if I look at the business, the pro forma cash balance in your own organic cash flow looks more than adequate to build Hemi. But De Grey obviously has lined up a number of debt funding sources. Do you expect to bring some of those across and utilize things like the NAIF debt and other things to support ongoing elevated capital management or other opportunities? Or do you not expect to bring some of that debt across?
Good question. The best thing is we have now multiple lines. I mean, De Grey had Hemi fully funded with lots of those opportunities that are there. But we also have net cash, cash flow generation, and other sources. So it'll ultimately come down to the cost of capital. And we'll sit within our normal leverage ratios. We'll maintain our investment grade ratings, and we'll utilize those things while also maintaining our dividend policy. And we've modelled forward the ability to continue to do that so that all shareholders continue to enjoy those dividends. And obviously, new shareholders that join get that sort of early exposure to that. So yeah, I think I went through AUD 1.8 billion of net cash and AUD 3 billion of liquidity.
We are proud to say we can do lots of these things, which still continues to be build things, explore, and add resource reserve growth, dividends, and potential buybacks, as well as building cash and returning to shareholders, so that really comes back to the premise of why this is an all-scrip transaction, which allows that flexibility into the balance sheet to be able to fund the growth here without costing near-term returns to shareholders.
Okay. So can you be able to do the buyback in the interim, or does that change the scrip ratio if you do?
No. So you may appreciate lots of questions asked to us about the buyback, and you may now appreciate that we were in blackout. But ultimately, we are outside of a blackout pretty much as of tomorrow. So yeah, we're capable of utilizing that.
Got it. And then just one more if I can, just coming back to Leon's question on valuation. Have you factored in any tax synergies that you can bring across from the acquisition? And if so, are you able to give a sense of what magnitude those are?
Look, we haven't calculated and relied on any of those. I'd be careful to talk about them heavily given the last merger that we talked about and they were focused on. It's a reality. There's great rollover relief for all shareholders given this is a scrip transaction and 100% acquisition. But ultimately, you end up with that uplift of the valuation onto the Northern Star balance sheet and effectively get that tax shield in the same fashion. So there are real cash benefits. But there's a direct balancer between improved cash earnings, but the dividend linked to that. So whether it's franked or unfranked, you end up with a balancing mechanism there. And any growth capital, remembering, does not affect our cash earnings calculation. So dividends aren't affected by any growth capital, including the development growth capital associated with Hemi.
Excellent. Thanks both. I'll pass it on.
Thanks, Hugo.
Thank you. Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Hi, good morning, Stu and Glenn. Stu, at your last quarterly call, you made comments that the focus was on organic growth. Just wondering what the catalyst was for executing now? Was it other strategic interest in the project, the recent resource growth, the record gold price, or something else you can talk to?
Thanks, Kate. And look, that hasn't changed in Northern Star's portfolio. Everything is continuing as per our stated plans. It's not sort of this or that. It's as well as. And if anything, our confidence in the outlook of the progress of, say, the Fimiston Mill expansion, the production coming from and cash flows coming from Pogo, Thunderbox Mill cranking, all these things and delivering into 2 million oz next year gave us great confidence and outlook in growth. Hence to the questions on our previous quarterlies around what's Northern Star going to do with all this cash. So our heads have been watching for multiple years the progress of this world-class deposit and proud of what the De Grey team's done to develop it to this near shovel-ready operation and the DFS that's been published. So really, we see alignment.
With our understanding of the working in our backyard, the associated timelines, approvals fit neatly with the activity that's already occurring inside Northern Star. So I often say things you buy things when they're for sale. But ultimately, we initiated this and engaged thoroughly and have got to this deal that we've annozd today. So I think it's certainly not off strategy. It is very aligned with something we've been articulating to the market for multiple years on getting to that three to five assets, sort of rough around 2 million oz, and active portfolio management. So I think it's very aligned with what we've articulated.
Okay. And just on the 2 million oz, you referred to Hemi in your deck as producing that 530 cost per annum. But De Grey's put out studies for a much larger operation. What did you assume in the offer in terms of upside and exploration? And when you say you'll update the market on CapEx and cost pre-FID, what are the key things for certainty on before releasing new numbers to the market?
Yeah. So I think Glenn spoke about it in the opening remarks. For the first five years, it's over 550,000 oz. You've got the slides there that show the development profile, but noting you've got KCGM by fiscal year, and then you've got Hemi year one, year two, year three, etc. So it's around the timing of its commencement and the partial or full year production coming into our portfolio. And essentially, what we've said is with Northern Star sitting around that 1.8-2.2, add on 500, you get to this sort of 2.5 million oz. Remembering, if you add everything on full Hemi, you're much higher than that.
And if you take a look through that, Glenn's effectively got a plant that's capable of doing 15 million tonnes per annum once we get built to 10. And effectively the expansion upside, the underground opportunities, these are all things that will come in time. And all I'd ask investors and analysts today is you don't have to look much more than the bones and the DFS and the foundation quality of the asset. It's there. And these are opportunities for all shareholders to benefit from as they are in transactions like we did with Pogo, with KCGM, with other ones. We don't stand still. We get it. We get the base case operating. And then we continually look for opportunities to generate greater returns. So at the moment, we're not having to bake that into this deal.
There's a very, very solid all-scrip deal here that people get meaningful positions in. And then the future gets brighter in the combined entity.
Okay. Got it. Thank you. And then, sorry, I didn't catch the answer to the Gold Road question about their support.
They're aware. They've been known, but we can't speak on behalf of Gold Road. That will be for them to speak.
Got it. Thank you, Stu.
Thanks, Kate.
Thank you. Your next question comes from Matthew Frydman with MST Financial. Please go ahead.
Sure. Thanks. Morning, Stu and Glenn. Can I, I guess, follow on a little bit from Kate's question around the timing of the acquisition and particularly as it relates to the outstanding approvals that obviously Glenn's already talked to and given a good background on the history of the state and the federal approvals processes. But obviously, in the gold sector, we've seen some pretty unexpected federal approvals decisions recently. So just wondering if you could elaborate on how the Northern Star DD team and the Northern Star board got comfortable with transferring that approvals risk to your shareholder, Stu, and transferring it now rather than waiting until maybe there's some more certainty around that process. Thanks.
Yeah. So I don't think that De Grey or the Northern Star team consider that there's comparison to other federal decisions, right? So we'll park that one there. And the deal is not condition precedent on that approval. We understand the state of the project. We're comfortable with it as are De Grey. And we're effectively going, irrespective of that timeline, we're going forward now through the same process and just stepping into those shoes. So continuing with the team that are doing that work. So yeah, we recognize that. You recognize that. You can wait a year. You can wait two years. But they're different circumstances and different risk profiles and different values. So I think the alignment right now suits certainly Northern Star and De Grey. And so we're moving forward on that basis.
We think it definitely benefits both groups having the strength and weight behind progressing the project where it is in its current stage.
Okay. Thanks for that, Stu. And secondly, on, I guess, implied gold price or sort of maybe more broadly, how you're thinking about the gold price environment, I guess with respect to your valuation and your acquisition price, you talked to consensus gold prices and really the base case of the underlying DFS being all it's needed to kind of justify that valuation. So again, if I'm thinking about consensus, maybe your sort of implied gold price is somewhere more in the range of, say, AUD 3,000-AUD 3,500 an oz, certainly well above the sort of AUD 2,500 an oz that's in your mineral resources for Northern Star as a group. So the question is, how does the price that you're willing to pay for Hemi compare to the options that exist in your existing assets?
If you're willing to invest shareholder capital at, say, $3,500 an oz into Hemi, what other options in your portfolio can get you similar or better risk-adjusted returns at that sort of an assumed gold price? Thanks.
Yeah. Good question. I think the key thing is we run fairly conservative gold prices, to be clear, through those both cases. But they both are relative. So you put low gold prices and stress test it, and you can get it to work. And then you put in high gold prices and get it to work. But you really don't depart too far from the existing ratios. And you don't depart. It's more around the timing of contribution and cash flows, etc., okay? And then when you say, "What's the comp?" Well, we're not stopping. Everything we possibly can do on the organic growth profile, further to Kate's question, is we're doing it. And we're generating great returns. And exploration success is improving.
So it's not a case of, "Oh, we're going to an inorganic route because the organic stuff is drying up or it's not compelling or we've got the ranking." We're doing both. We're not stressing the balance sheet through that process. And we see compelling returns. And we see good long-term value generation. And I think that's what's key in this for long-term holders.
Yeah. Okay. Thanks, Stu. Maybe the other way to ask the question is, if I look at your organic growth options that you're executing on and the resources in your reserves in your current portfolio, as you say, clearly, you've applied some fairly conservative gold price assumptions to those. And they're delivering solid returns, attractive returns. It appears like you're applying a maybe more aggressive gold price assumption to underpin the acquisition case behind De Grey. So if you were to then apply that same sort of more aggressive stance to your existing portfolio, what options become available? What organic opportunities that maybe we're not thinking about currently would screen positively on a returns basis at a similar sort of implied gold price as to what you've offered for De Grey?
Yeah. I'll let Glenn add to it. But we're not putting in aggressive gold price assumptions to make this deal stand up. If anything, yeah, as you do in DD and things, you try to break stuff to make sure you can really stress test it. But again, we've got conservative gold price assumptions in our resource reserves to make sure we survive the cycles and we've got good, robust, high-quality assets. I'll throw it at Glenn. But this is a high-quality asset at any gold price and at the lowest cost quartile. It's going to be a long-life quality project.
Yeah. I think to Stu's point, you don't have to use aggressive gold prices on Hemi. It has a very low operating cost, a very quick payback because of the Brolga starter pit, and the way that pays back the capital cost of the project in under two years at $2,700 per oz. And it has a very low capital cost intensity from an annual—sorry, a capital cost per annual oz of gold production.
So from that perspective, when you look at two elements, one of the scale of the deposit and the production and then the capital cost, it's obviously one of the most attractive gold development projects in the world. But I think you've also got to look at the bigger picture here, which is one of the reasons that the De Grey board was unanimous in recommending this is De Grey shareholders will be picking up Northern Star shares.
You've got to look at the strategic aspect of this and where this places Northern Star above and beyond not having to use high gold prices to justify the acquisition. So, for example, beyond those metrics of what we used in the PFS, when we did the pit shell optimizations in the DFS, those pit shell optimizations were done at an Australian gold price of AUD 2,170 per oz, even though the financials were done at AUD 2,700. So yeah, you don't have to use a high gold price to get to where we are.
No. It stacks up at a range of gold prices up and down. And if anything, magnifies leverage on the upside, which people should also recognize. So very insulated on the downside, but really ratchets up on the upside.
Yeah. Thanks, Stu and Glenn. And I appreciate the additional color. I mean, I guess the question wasn't really around what gold price was used to justify the acquisition or what you need to get Hemi to stack up. It was more around your existing portfolio, Stu, and what the risk-adjusted returns of investing within that portfolio are compared to an external acquisition, which is no doubt high risk and has a longer period to pay back. But that's fine. I understand that. And I guess the comparison is more so your sort of reserve base at AUD 2,000 an oz and resource base at AUD 2,500 an oz. But all good. Thanks.
Yeah. Thanks, Matt. And we're in those assessments anyway, things like Fimiston. As soon as we get that lower cost mill in and the opportunities on those extensions around Kalgoorlie, that's really where those things come in. But we're all in double-digit IRRs, and they just look better at better gold prices. So I guess we're continuing to advance those at the rate we can. And it's trying to do the best, working from the best backwards as opposed to minimum gateways of IRRs to approve capital. We've probably got flush with great opportunities across the portfolio to keep accelerating. And once you get projects into this high cash generation position, it just magnifies returns to shareholders, retention of cash, but reinvestment to keep those returns coming. That's what we're looking forward to.
Got it. Thanks for the details, Stu.
Thanks, mate.
Thank you. Your next question comes from Mitch Ryan with Jefferies. Please go ahead.
Morning, Stu and Glenn. Thanks for taking my question. If I look at the history of Northern Star, my impression is that the majority of growth has been driven by M&A of operating assets and then operational delivery, not necessarily from greenfield development. What have you done to price the development risk associated when you've made your bid? Or how have you thought about development risks?
Yeah. Okay, so we understand them. We've operated in this state for well over a decade, and we've developed lots of things from approvals, greenfields, mining leases, all the way through to building plants to building underground mines. We're doing it every day of the week. We've got 7,000 employees across our portfolio, and we're obviously the largest gold operator in the country. We have good depth of building stuff. It's what we do. So I wouldn't dismiss that we're saying our history is M&A. We got into suburbs and jurisdictions at a level, renovated assets while we were operating them and expanded them and brought them into a new life through extending life and operating those assets. So it isn't different to all of the skills that sit in it. Plus, De Grey have invested a lot of work, energy, effort.
Their whole focus has been getting the project to this state, which is in a very good and advanced state and progressing, as you'd expect, a project to progress at this scale in WA, and we're very comfortable and pleased, and we would have done nothing different than what De Grey have done to get it to where it is, so I would not dismiss and say that Northern Star aren't developers. If anything, we can bring more to enhance the De Grey team to make sure that this isn't just a single asset company with some of that sitting there. This is on the side of our business. You look at our KCGM mill expansion, AUD 500 million per annum, 600 people. It's less than 10% of the activity, and everyone's getting concerned about, "Is it on time, on budget?" It is.
But ultimately, it's only a small fraction of the activity that we do every day of the week. And we see it dovetailing neatly into the timing and progress of De Grey's Hemi project. And we accept and understand the risks that still sit out there with approvals. But this is what we do. This is what we're used to. Thank you.
Yeah. Yeah. Fair enough. Perfect. Thank you. Just my second question just relates to the deal. Can you just help me understand the structuring of the break fee? There was a lot to go through, but there seems to be a bit of a dichotomy in the quantum between the break fee and the reverse break fee. Yeah. Can you just talk to me through around some of the key conditions precedent that would trigger those, and the reason for the quantum difference?
They're relevant to each other's different market caps for different driving reasons. So there's deal protection for both parties that sign up to this and support it. So they're pretty standard, actually. So I won't go through all the mechanics. They're pretty well laid out in the scheme implementation in the ASX annozment today. But they're pretty standard deal protections that sit in there that give each other's comfort that, yeah, should any other activity occur, there's a bit of a concession for the work that's been completed and the risk associated with the deal falling over.
Okay. Thank you. I'll pass it on.
Thanks, Mitch.
Thank you. Your next question comes from Al Harvey with JP Morgan. Please go ahead.
Yeah. Good day, Stu and Glenn. Just want to get a bit more of a sense of just timing for updating the study, updating us on what the outlook is for Hemi's capital and all-in sustaining costs. I suppose if we assume that permitting is achieved in the March quarter, do we expect a relatively quick FID after that? I suppose refreshing the study, Stu, would that be based on that kind of Hemi base case, or are we really looking to bring in? Would you guys be looking to bring in the Withnell concentrator, which would add another 150,000? I know De Grey are sitting on the underground study as well that was due for this quarter. So basically, what can we expect in terms of new flow, I guess, across all those three different pieces across De Grey's portfolio?
Yeah. I might just kick in to start with and then hand over to Stu. But we are currently out in the market with two tenders, two key tenders. One is on the plant construction contract, and the other one's on the mining contract. So those tenders, and we've advised the market of this, are expected to land this quarter. And then, as you would understand, with contracts of that scale, it will take some time to normalize those, deal with all clarifications, and go through all those. So we would be expecting, in the normal course of business, to be able to update the market probably in the March quarterly report on that. As far as other news flow is concerned, it's business as usual there.
We'll continue to update the market on any exploration success we might have, continued operational readiness, and then things like the underground conceptual study. So all that news flow will just keep going.
Yeah. And I'll add that through DD, we've got great comfort that the quality of the work being done. We're not going to shelve, park, pause. It's progress. If anything, accelerate, but certainly complement what's being done. So the questions that are leading to, "Well, what extra special sauce or recutting flow sheets or changing this or doing that or accelerating underground?" None of that's necessary. De Grey's team have done a fantastic job. That wouldn't be that different to how we do it ourselves. So yeah, it's just around that business as usual timeline that Glenn set out. Of course, we don't leave things alone. As things progress in time, we keep looking and optimizing. But similar to our KCGM Fimiston expansion, once you make a decision and you're on FID, you lock it so that people don't tamper with it.
So you stick on time and on schedule on price because otherwise, you've got to call a plan and build it to get to that return. So yeah, pretty comfortable with where it is at the moment. And that's been where the DD has really been key in establishing that path.
Yeah. Thanks, guys. And so just to clarify, it sounds like it's relatively unlikely that, I suppose, ahead of the initial FID that goes ahead, you wouldn't be looking to kind of talk about that upside to the Withnell concentrator or any underground contribution.
All those things are already going to be out there with the attitude or the view towards it. So essentially, you've still got your approval milestones. FID ain't going to happen until you get all those things in place there anyway. So I think it's more just the team updating those milestone elements towards that.
Cool. Second one from me. I'm hoping you could just kind of step us through who on the De Grey team's sticking around and being integrated into the Northern Star team. Obviously, some great expertise on refractory ore bodies that Glenn mentioned there. Yeah, maybe you can just let us know who's sticking around.
Look, I'm not going to go through a name list, but the Northern Star attitude towards this is we want everyone, and we want the continuity. There's great knowledge, great progress, and interest in the project to develop it, and then the choice goes to the employees around the continuation on that, so really, it's with Northern Star to demonstrate what we've done with integrations across lots of projects and show the benefits to the employees as well to join the broader business, but yeah, we've got no wholesale view of turning up and taking cuts and annoying people. You've seen us on every other transaction, how we've approached things, and this is really no different.
Thank you. Your next question comes from Alex Barclay with RBC. Please go ahead.
Thanks. Hi, Stuart and Glenn. Thanks for the call. A question for you, Glenn, just around the deal timing. You've got the upcoming underground study and permitting decisions, which are hopefully going to be positive. Why would you not wait to realize the company's value post those events, particularly if you expect them to be positive? Thanks.
Yeah. Look, thanks very much for the question. Look, I think it's important to look at the whole picture here. You just can't look at one element, and you have to look at the overall value of the transaction and when that transaction's delivered. The board of De Grey has to take everything into account, including the sort of things that you're talking about, long-term value around EBITDA. But obviously, there's been a premium paid at this point in time. And we've had a serious offer, and it's clearly an offer that we're comfortable to recommend to shareholders. So I don't think you can sort of look at one element of this in isolation. You have to look at everything around approvals, approvals timelines, development, and then having access and exposure to immediate exposure to Northern Star's gold production and dividend.
There's a lot of things here that you have to take into account.
Okay. Sure. Final question, one for you, Stuart. Presentation said Northern Star is reviewing the CapEx. Obviously, you have a lot of operating and development experience in WA. How confident are you of what the final budget number will be? And I don't know if you can comment versus the DFS estimate. I think you might have answered Mitch and said it looks to be on budget. So if you could give a comment there, please.
Yeah. So we've got a comment in there just saying that maybe the information details and things are stale, and as far as the team putting refreshed tenders, you get pricing guidance, and you put that out there. But I think Glenn's also been on record talking about, and we've identified and say the same, this is really not too sensitive to CapEx, so we'll absolutely review and understand it. We don't want to compromise on our compromised capital expenditure. We want to land at the best operating cost for a very high-quality, long-life asset. And that's what we kind of did for the approach of Fimiston expansion too. So a commentary's just in there saying that's an element we'll look at more from how our balance sheet is, what the timing of the capital comes in, how it's funded, all those type of things.
It might be different, but it doesn't mean we're going to try and crimp it to make a lesser production flow sheet. But we're not afraid of doing it right size because the returns are significant, and it really isn't sensitive to returns in that first instance. So we're a little ways off, but we want to put that little peg in the sand to say, as time goes on, those pricings get sharper and closer and more firm.
Yeah. Okay. So perhaps there's still a little bit of learning for your team, but it doesn't really matter either way. Okay. Thanks very much, guys, and congratulations.
Thanks, Alex.
Thank you. Your next question comes from Levi Spry with UBS. Please go ahead.
Yeah. Yeah, and thanks for the follow-up. Just a quick one for Glenn, I guess. Can you confirm whether or not you run a process here or you've only been in discussions with Northern Star the entire time?
Yeah. Look, we've obviously spoken with a range of parties over a range of things over a long period of time. But to be clear, we haven't been running a sale process. So we were approached by Northern Star. We engaged with Northern Star. And following the approach, we determined that if they were able to make a compelling offer, which we believe it is, and it's attractive to both groups of shareholders, that we would seriously consider it. And we were comfortable to make a unanimous board recommendation to our shareholders. So that's the background to that. That's consistent with what we've said in our public statements to this point. But yeah, that's the background.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Okay. Well, thank you very much for joining us on the call today. And it is rare to be able to provide such a compelling transaction that generates significant value for all our shareholders. We look forward to engaging with you over the coming weeks. Have a great day.