Thank you for standing by, and welcome to the Northern Star FY 2022 financial results conference 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 one 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 thanks for joining our FY 2022 full year financial results presentation. With me on the call is Chief Financial Officer Ryan Gurner, who will shortly present the financial highlights on what has been a transformational year for Northern Star as we report the first full year as a merged business. We've got the presentation up there today. On slide three, we'll start. You'll see throughout this update, our purpose of generating superior returns for shareholders has been enhanced. Despite the challenges the resources sector currently faces with cost pressure, labor constraints, and carbon intensity, Northern Star continues to build from strength to strength, as seen in the results to date. This is achieved through our deliberate and simplified portfolio of three large-scale production centers in two Tier 1 jurisdictions, producing one commodity, gold.
The strength of this strategy is demonstrated in our operational and financial performance, and I'd now like to hand to Ryan to discuss.
Great, Stu. Thanks. Morning, all. It gives me great pleasure to present to you our financial results for the year ended June 30, 2022. I will be referring to the slides in our presentation release this morning. Firstly, to page four, which provides an overview of the key financial highlights achieved during the year. With record cash earnings of AUD 1 billion, which represents the company's strong sustaining free cash generation. Record underlying EBITDA of AUD 1.5 billion, which is up 31% from the prior year. A final dividend of AUD 0.115 per share, fully franked, up 21% from the prior year final dividend. This takes our total declared to AUD 0.215 per share for the full year.
In addition to the final dividend, today, the company announced its intention to buy back up to AUD 300 million worth of shares over the next twelve months. The company has made a statutory profit after tax of AUD 430 million. When adjusting for abnormal items post-tax of AUD 157 million, which are set out in the appendix on page 18 and largely relate to divestments during the year, the company made an underlying profit of AUD 273 million. Finally, we remain well-positioned to deliver on our near-term profitable growth profile with our strong balance sheet, which includes AUD 628 million in cash and bullion at 30 June. Turning to page five. I'm really proud of our team for delivering our FY 2022 guidance in a year that has seen extraordinary challenges.
Gold sold was 1.56 million ounces at All-in Sustaining Costs of AUD 1,633 per ounce. We are one year into our five-year profitable growth strategy, and as you can see, it was a busy year across our three production centers. Now to page six, which highlights the significant cash generated by the business during the year, with AUD 477 million of group underlying free cash flow, up 33% from the prior year. The waterfall chart on the left illustrates the contribution from each production center to the group's cash earnings for the year. Cash earnings for each production center is represented by the EBITDA generated minus the sustaining capital spent at that center. Corporate, technical, and exploration-related costs are deducted, as is net interest costs of AUD 4 million and tax paid during the year in respect of FY 2022, which amounted to AUD 79 million.
The AUD 1 billion of residual capital, which is cash earnings, is available to deploy to shareholders, growth-related investments which meet our hurdle rates and balance sheet management. Pleasingly, all production centers contributed well, with Kalgoorlie, our largest center, comprising 61% of the group's cash earnings for the year. We expect the mill commissioning at Thunderbox, which is planned for the first half of FY 2023 and the additional investment undertaken at Pogo during FY 2022, will translate into significantly higher percentage contributions to group cash earnings in FY 2023 for the Yandal and Pogo production centers. I'd like to point out a fulsome reconciliation of statutory NPAT to underlying EBITDA, and then to cash earnings has been provided in the appendix to the presentation on page 19. Now to page seven, which highlights EBITDA margins achieved for the group and each production center over the year.
All three production centers performed strongly and achieved healthy EBITDA margins. Pleasingly, as illustrated by the column charts, contributions for all production centers were able to be held or bettered in the second half of the year, despite the cost pressures experienced, reflecting the resilience of the business and the ability to adapt to the conditions. Notably, Pogo's second half performance, lifting its EBITDA margin from 21%- 39%, was achieved from higher physicals and productivity on the back of the capital investment undertaken in the first half of the year. Our operations in Kalgoorlie continue to be a significant contributor, delivering 54% of EBITDA contribution, followed by Yandal at 36%. Over to page eight now.
The company's scale, asset optionality, and investment decisions are providing flexibility to navigate and excel in current challenging environment, including on the mining front, the successful commissioning of new open pit fleet at KCGM is helping to offset increases in fuel prices and reduce overall unit costs. Lower fuel burn rate and greater ramp speeds are improving cycle times and productivity, along with reduced maintenance costs and material reduction in oil burn rates compared to the old fleet. This investment is an important pillar of our strategy as KCGM increases material movement to 80-100 million tons per annum by FY 2026. Operational flexibility at Kalgoorlie Production Center has ensured a seamless transition of the processing facility at South Kalgoorlie to care and maintenance, with all feed now directed to Kanowna Belle and KCGM.
The optionality in the portfolio will result in an AUD 20 million increase to free cash flow this year through reductions in sustaining CapEx and TSF works. In the current environment, flexibility and scale is advantageous, and we continue to apply sharp focus and drive cost savings initiatives by leveraging our large supply chain and relationships with suppliers to source lowest cost items and receive best terms. These include extending terms from strategic partnerships to new operations. Some of the cost-saving initiatives we are reviewing include reduction of potable water usage at KCGM, reviewing fuel options for power generation, and recycled grinding media used at KCGM to supply other operations. We go to slide or page 9 now.
The company continues its demonstrated history of return, returning funds to shareholders by today announcing a final fully franked dividend of AUD 0.115 per share, totaling AUD 134 million. This takes the total dividends for FY 2022 to AUD 0.215 per share, being 25% of FY 2022 cash earnings, which aligns to the midpoint of the company's payout ratio of 20%-30% payout. Post-payment of this dividend, the company will have returned over AUD 1 billion in dividends to shareholders. The record date for the final dividend is 7th of September, and payment date, 29th of September. Page ten now. This highlights the key elements of our capital management framework to maximize shareholder returns, including allocation, the importance of our balance sheet, and risk management.
Our business has always employed its capital prudently to where the best returns can be generated. In addition to the fleet investment, FY 2022 has seen great inroads into our multi-year profitable growth strategy across all operations. A returns-focused mindset has seen the company manage its portfolio by divesting assets during FY 2022 not required for delivering our strategy. Our balance sheet remains in great shape and supports our strategy. At June 30, we have AUD 1.5 billion in liquidity, with cash and bullion at AUD 628 million, and access to AUD 900 million in undrawn bank facilities. At June 30, we remain net cash with corporate bank debt of AUD 100 million and equipment finance of AUD 271 million. Overall, our cost of debt remains below 3%.
Today, the company announced its intention to undertake an on-market share buyback of up to AUD 300 million over the next 12 months in recognition of the confidence in our outlook. We maintain a sensible approach to risk management with 20% of the next three years of forecast production hedged above $2,550 per ounce. Finally, page 11, which presents our FY 2023 guidance given at our Q4 call last month. Please note, we have provided additional guidance in relation to D&A per ounce and the group's effective tax rate for FY 2023. Thanks very much, guys. I'll hand back to Stu to cover off the final part of the presentation.
Thanks, Ryan. On slide 12, you can see our profitable organic growth strategy planned all the way through FY 2026, and we've made significant progress in FY 2022 at each of the production centers, with KCGM moving 66 million tons per annum and the new fleet delivered now growing these volumes. At Thunderbox, as Ryan said, the mill's been expanded. It's 99% complete and in the final commissioning phases to ramp throughput during the first half of FY 2023 to 6 million tons per annum. Pogo is now focused on growing mining volumes through increased stoping to fill the expanded 1.3 million ton per annum plant, with all development on track.
On slide 13, we maintain a significant mineral resource base above 56 million ounces with reserves above 20 million ounces, and we have very effective exploration programs with this year's budget of AUD 125 million committed across our high-quality geological systems to replace and grow our mine lives. On slide 14, shows our visibility to implement renewables projects across each of our assets to reduce our carbon footprint. We have commenced planning of these projects to enable a 35% reduction in Scope one and two carbon emissions by 2030 and a net zero target by 2050. Slide 15 shows the publications we are proud to have reported on today. With our annual report and our sustainability report, providing visibility and transparency on all of our business activity in FY 2022.
I thank the team that produced the actuals and physicals and the teams that produced the documents. There's a mountain of work that's gone into all of these publications. We're very proud to publish them today. Now I'd like to pass back to the moderator for Q&A. 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 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 Levi Spry from UBS. Please go ahead.
Yeah, good morning, guys. Thank you for the call. Nice result. I guess the main question is just around the buyback, and maybe you could share with us how you came to the quantum, and the things you considered, things in your control, things outside your control, and how you weighed it up against some of your growth projects.
Thanks, Levi. Yeah, absolutely. We're still obviously the second year now into our five-year profitable growth plan. That organic growth takes growth capital, as we know. This year it's AUD 650 million. We weigh that up against our dividend policy, which is unchanged. That sits about 20%-30% of our cash earnings. For the full year, that's AUD 250 million declared now. When we look at our forecast cash flow, we see funding our organic growth. We see our dividend being maintained and growing, and with outlook, we see surplus cash. This is one way to effectively return cash to shareholders through this.
The buyback, AUD 300 million over 12 months, you know, when we see where we believe value's at, we see a very effective way to increase value per share for shareholders.
Thank you. Thanks.
Thank you. The next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Stuart and Ryan. I note that in the release, in some of your comments, you talked about taking some of the surplus equipment of Pogo out, which you were putting in to, you know, get on top of development rates for deliverability of your plan. Can you just go through what has changed? Presumably, productivity is a lot better, and does this have implications for your, you know, cost and capital guidance? Thank you.
Yeah, sure. If you recall, to catch up on the first or second half of 2022, we added the jumbos to really pick up the development meters and our exit rate of FY 2022, we were above sort of 1,800 meters per month. We pulled out our jumbo, loader, truck, parked them up. We've still got seven. Sorry, we had seven jumbos, we've got six and really just reducing overall costs because our we saturated Pogo in the second half of 2022 to get those physicals in place. And now we've demonstrated the physicals and we're working on reducing the cost base. Starting with the fleet and the people being redeployed, we're already working with a lot of vacancy there.
Pogo at the moment is really about getting the costs and productivities stabilized.
Thank you. In your comments, I think you also outlined at Thunderbox that you're entering the commissioning phase for the expansion. Can you just talk about, you know, when that started and, you know, progress and how long you expect that to take and ramp up? Thank you.
Yeah. It's the period we're presently still running through at 3 million tons per annum, and we are literally at the final points at the moment, you know, dry commissioning things and getting things energized to power up and turn that mill. We're gonna wet commission it and then there's a tie in to bring the six million tons per annum online. That's happening literally in the coming weeks. It doesn't mean that it's full noise straight out the gates. It's really that early stages of just testing and trialing all of the engineering designs. I again credit the team on site and GR Engineering Services for doing a fantastic job in getting it, you know, on time, on budget.
It's a very impressive installation and, you know, we're looking forward to its success over the next few weeks.
Do you feel you've got sufficient, you know, ore available to keep the thing full once it ramps up? Like, how's the mining piece going to fill that mill?
Absolutely. The underground's really performing well. Obviously, that came into commercial production in 2022. We also have large stockpiles to feed this expanded case. The capital being spent this year is really on the Orelia pre-strip. That'll be feeding in FY 2024, but we have ample stockpiles and feed from the Thunderbox mine open pit and the underground.
Last question. I mean, you've outlined the shut schedule of the KCGM mill this year. Just how substantial are these shuts and how we should think about, you know, ultimately throughput or production impacts?
Yeah. It's normal business, but I guess what we're trying to give is visibility that our guidance for FY 2023 is in a straight line. We obviously have swings and roundabouts as per our schedule. Early shutdowns across mills in quarter one is as typical as planned, but you know, it does have those spikes and troughs throughout the year. Bear with us, we've given full year guidance and we're confident we can deliver into that.
Thank you very much.
Thank you. The next question comes from Matt Greene from Credit Suisse. Please go ahead.
Hi. Good morning, gents. You've answered some of my questions on results. I finished, I wanna turn to KCGM and the medium-term outlook there.
More around just, I guess, the CapEx requirements. If I take a look at the site visit presentation, thanks for providing the strip profile there. That gives us some context around the open pit CapEx profile. We know what the mill expansion will cost if you go ahead with that. My question is just really around the underground development. You've stated in the past, if I recall, that you wanted to get Mount Charlotte back to 2.5 million tons by FY 2025. I noticed in that presentation, it's showing you're getting closer to 3 million tons and then increasing from there. If you could just please provide some color on what you need to do to achieve this.
Is this just a case of developing enough mining areas, or are you also required to upgrade any infrastructure to support those volumes?
You'll see from that presentation, the site visit presentation, Greg Diggers, Mount Charlotte has the potential actually to go up to 4 million tons per annum, and we've mapped out with the expanded resource and confidence of what we're drilling out at the low 31 level, that there's a huge opportunity to grow the volumes there. What that does do is take some pressure off activity across the rest of the operations at KCGM, 'cause we can put in that higher grade underground feed. It really takes out a view, and it's beyond FY 2026, 'cause it was around our view of when the Fimiston underground would come into the plant. We're basically saying we could expand and grow Charlotte to displace that.
There's no major capital assigned to that, but when capital comes in, it will come commensurate with the grade of a underground site, and it will likely feed into a view on an expanded Fimiston feasibility. If we were to make, you know, a large scale, low cost cave type arrangement in Fimiston, it certainly has CapEx with it. But with that comes the grade, the ounces, the uplift, and then that gets fed through an expanded plan case. Those things are being iterated at the moment. We'll still need all of six months or so to evaluate what they look like. That'll be published in good time.
Okay, thanks. To just confirm, that 4 million ton at Mount Charlotte, are you relying on the haulage shaft to get that volume or can you do that through the decline?
No, the haulage shaft only—it was decommissioned from a haulage perspective. It only ever hauled a bit over 1 million tons when it was commissioned, so this would be reliant on trucking. Currently it trucks out to its northern end of the super pit and gets picked up by the big trucks and delivered to the mill. If you go and look at our sustaining CapEx embedded in those costs, it can be around $300-$350 an ounce. That's the sustaining CapEx that feeds the development, the extension. We don't have to have big structural changes across the mine to do an uplift in production. We've already put in some power and vent upgrades throughout Mount Charlotte.
There's certainly some growth CapEx assigned to it, but it's 5s and 10s, not 10s, 20s, 100s.
Okay, thanks. Stu, look, you did touch on it there, on the Fimiston underground. I appreciate you're still conducting your study work on this, but I guess if we just take a step back, how do you see this potentially developing? Are you looking at a more selective scoping operation that leverages off those exploration declines you've got in place to start with and then potentially a bulkier extraction method sort of towards the back end of the decade? What's your sort of thinking here? Any sort of color on that would be great. Thanks.
Yeah. All of the drill drives that we excavate, we typically create them as a truck haulage way, and they can have dual purpose, so they're ready to be utilized as infrastructure for future production. I guess planning for success. The 31 level, you know, all those things at the bottom of Charlotte show us that the extension of the ore body is there, and it was cut off at a gold price of about $400 an ounce when it closed 20-odd years ago. Our view is around these big bulk lower cost per ton mining methods. It's not selective mining, it'll be, you know, big bulk, low cost. Ultimately, then that feeds into the expanded mill case.
If it wasn't that, being selective, trying to target 4 or 5 grams and fill it into the mill would be a target. The overall value driver for that significant Golden Mile is getting every ounce at the best margin. It typically would be a 2 or a sub-2 gram underground, but at a very low cost per ton. These things take longer to evaluate and assess, to build up. The Fimiston, we've added 5 million ounces of inferred resource below Fimiston. We see that growing significantly. We're drilling it actively at the moment, so we just need that runway to plan it.
That's very helpful. Thanks. Thanks a lot, Stu.
Thank you.
Once again, to ask a question, please press star one on your phone. The next question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Hey, Stuart. Just to follow up on the Thunderbox ramp-up profile this half. You talked about it starting next few weeks, and it's obviously gonna take time to ramp up. How should we think about the profile this half and also for the full year by 2023 for that mill?
Yeah, it's second half weighted. We've guided for the Yandal region. You know, we've guided 480-520 thousand ounces. And you appreciate that Jundee sort of sits static at that 300,000 ounces. It's really the growth coming from the expanded mill. We've allowed, you know, shutdowns and interruptions this half. I know everyone banked this already. That starts next week. We're giving us this full first half to even put lower grade material through while we're ramping up and stabilizing recoveries and the like. You know, our guidance basically says 480-520 at Yandal for the full year and the second half weighted. As we know, when you turn things on, it's all great in theory until you practically turn it on.
We've got that built into our guidance.
Okay. Stuart, we're two months-ish into the current fiscal year. We ask you these questions a lot, so the question I'm about to ask you, I asked back on the last call about the expansion mill and inflation, both CapEx and OpEx. We've had lots of calls in the last week or two, and we've had lots of questions that I'd like you to talk to where things are tracking. Just wanna get a sense for how you're seeing inflation from an operating perspective for the first couple of months of this year. Are they higher, lower, same? Also from the CapEx. We had a call on Friday where somebody noted that CapEx pressures were actually coming down in certain areas. Just wondering how you're seeing that. Also in Australian versus Alaska breakdown, is that much different between the two?
Yeah. I mean, you already saw our guidance, our All-in Sustaining Costs guidance lifted for FY 2023. That's, you know, AUD 1,630-AUD 1,690 was, is inclusive of all of our visibility on our current escalated pricing, which is, again, not where we want it to be, but it's reality. I haven't seen it materially come off, but I've seen our operations team come up with lots of great ideas to, you know, reuse, reduce, remove costs out of the business. We're still seeing on the re-tendering of materials or service contracts, you know, requests for increases. We're just making sure that that's not embedded over multiple years. It's only recognizing costs that are up at the moment. I haven't seen it come off.
The comment on CapEx, I reckon that's probably because people are turning projects off, and therefore everyone's, you know, maybe understanding that you blow the prices up too much that nothing happens. But we haven't seen that CapEx saving come through yet. Most of our CapEx is driven by physically moving waste at Super Pit. All of the long lead items that's related to kind of steel or services around works is contracted and understood. But when we're looking at things like the Fimiston feasibility, there's still, unless you're locking in and committing to long lead items at the moment, there's still rubbery flex on CapEx. You know, we're very conscious of that at the moment. I haven't seen us come off the other side of the hill yet.
The difference, sorry, you asked again, between North America and Australia. There's just fewer options in Alaska on supply chain, so you have to work really closely with the current providers to find savings. You can't just switch to a different supplier. Yeah, we're working very closely with them. There's also a lot of activity happening across the U.S. that attracts labor to their operations as well.
On to the buyback. I applaud the board signing up on a buyback. That's great news and a great development. Very well, well done. You, Ryan made the comment about it reflect the confidence in the outlook. Can you link that back to confidence in the share price or where you're at? Is it a confidence in the outlook or is it a reflection of value or both?
Oh, absolutely. Ryan can answer the confidence in the forward view of cash flow generation. We do see we can fund all of our activity and build cash. That's, you know, one way to return that cash to shareholders. Absolutely through the lens of, you know, how we value, you know, company NAV versus share price means that this is a very effective way to return value to shareholders.
The flex in buyback versus shares, is that a franking issue related or is it back to the value of the shares versus the dividend potential? How did you come to, as to leave those questions about sort of the balance between the two, other than its payout ratio driven on either side?
Well, we have a dividend policy that we maintain, but when we look at the buyback, it's value.
Okay. Thank you.
Thanks.
Thank you. The next question comes from Alistair Harvey from JP Morgan. Please go ahead.
Good morning, Stu. Just wanted to touch on slide 12 in the pack. It's got mentioned there that you're looking at 3-5 production centers. I don't think that's changed, but I just wanna get an understanding of if that is over the next, you think about that over a five-year timeframe, is it rolling? I guess given the AUD 300 million buyback you've announced today, does that kinda indicate that there's not many appealing opportunities out there from an inorganic acquisition perspective?
Good way to look at it. Yeah, all of our focus at the moment is on our organic growth and delivery of this profitable growth plan. Ultimately, we're saying, you know, by the end of that plan or what's a really strong sustaining business for us, you know, with our team and everything we know, that 3-5 asset base means that there is opportunity to acquire, you know, a fourth or a fifth center over that period or even beyond that. We don't have to. We can materially grow the ones we have presently to deliver into that, but that's what feeds into that 1.8 million-2.2 million ounce range.
Yeah, basically if you're not adding that fourth or fifth, you're probably at the lower end of that ounce production profile, because there's just so fewer assets that sit above 300+ thousand ounces, globally or in the tier one jurisdictions that we operate. Don't read into that we're active M&A. We're not. We always look at things, but most compelling options are organic. And as you just highlighted, the buyback at the moment is one of the most compelling value opportunities for us, so we're taking advantage of that.
Thanks, Stu.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Mr. Tonkin for any closing remarks.
Excellent. Thank you very much, and thanks everyone for joining on the call today. It's clear that our strategy is delivering strong returns as demonstrated in our financials and the balance sheet strength. I look forward to continuing to update you on our progress. Thank you and good morning.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.