Thank you for standing by, and welcome to the Northern Star June 2022 Quarterly Results. 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 Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.
Good morning, and thanks for joining us today. With me is Chief Operating Officer for Australia, Simon Jessop, and Chief Financial Officer, Ryan Gurner. I'm delighted to report our June quarterly production of 402,000 oz at an all-in sustaining cost of AUD 1,650 an oz . Delivered safely and with significant progress towards our five-year profitable growth plan to 2 million oz. Our safety performance is sector-leading, with total recordable injury frequency of 2, 1/3 of the industry index, and the majority of our sites completed the year lost time injury-free. The June quarter cemented the achievement of full-year guidance of 1.561 million oz at an all-in sustaining cost of AUD 1,633 an oz , demonstrating Northern Star's operational resilience to the current challenges the sector faces.
We closed the financial year with a very strong balance sheet with net cash of AUD 528 million, supported by full-year cash earnings of over AUD 1 billion. Today, we also publish our FY 2023 guidance. We forecast gold sales of 1.56 million oz-1.68 million oz at an all-in sustaining cost of AUD 1,630-AUD 1,630 an oz. Our growth capital budget for FY 2023 is AUD 650 million, similar to FY 2022, and our exploration budget is AUD 125 million across our highly prospective multi-million-ounce deposits of Kalgoorlie, Yandal, and Pogo. Simon will talk shortly of the Australian highlights, but first to Pogo.
The team there delivered a step change in physicals quarter-on-quarter, with ore tons mined and milled up to 24% and gold produced up to 20%, with the half to annualized run rate at 250,000 oz per annum. With the additional equipment, work areas, and the lessened personnel impacts, Pogo averaged development meters of 1,800 m a month in the quarter, which is 20% above the sustaining development level of 1,500 m. Excellent result. These improved productivities are key to our cost reduction efforts and actions, as well as increasing the lower-cost stope production portion of the mill feed. The June quarter milling throughput achieved the 1.3 million tons per hour production level that demonstrates the capacity to deliver 300,000 oz per annum.
I'd like to thank the North American team for the sustained effort throughout FY 2022 to achieve these strategic milestones, which endorses the quality of the Pogo operation and provides a stable platform to build on. Simon will now speak to the Australian operations that are performing well and which underpin significant organic growth in the near term. Thanks, Simon.
Thank you, Stuart. For the Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle, and South Kalgoorlie, we sold 213,000 oz of gold at an Australian all-in sustaining cost of AUD 1,791 an ounce or the same gold quantum as the March quarter. This production produced a mine operating cash flow of AUD 146 million, while we also spent AUD 70 million on significant growth capital projects. Of this major growth capital, AUD 34 million was spent on KCGM open pit mine development, along with AUD 4.5 million on long-term tails dam works. At KCGM, open pit material movement was 4% lower than the March quarter at 15.8 million tons, with mining at the Golden Pike South area a key focus.
Open pit movement for the full year was 66 million tons, up 10% on FY 2021 despite deeper and longer hauls. FY 2023 will see further progress towards our strategic goal of 80 million-100 million tons annualized movements. Progress in the ODL area has also positively continued for when we commence mining through the historic 2018 fail zone. An energy absorption dam was created at the base of the Golden Pike area to allow for more continuous mining at the cutback and proactive risk reduction to Golden Pike South. This key growth area remains on track for reestablishing FY 2024 access back into Golden Pike North's low-cost ounces. The open pit fleet replacement program is now complete.
We have now successfully commissioned 39 of the new 793F open pit mining trucks and upgraded 6 older F-series class trucks to the latest specifications for a total fleet of 45 state-of-the-art trucks. These are already showing a 15%-20% improvement speed on ramp with a 5% diesel saving compared to the older fleet. FY 2023 will now focus on optimizing the fleet for the lowest unit cost going forward with consistency. Underground mining in the Kalgoorlie region was 10% higher than the March quarter at 1.56 million tons for 108,000 oz. KCGM's Mount Charlotte operation in Carosue Dam improved physicals with development meters and stoping ore tons. Kalgoorlie operations can now balance South Kal consistent on volume, albeit at lower grade due to access to high-grade ore at South Kalgoorlie, which was sequence constrained.
Processing volumes in the Kalgoorlie region was 4.9 million tons or 6% higher than the March quarter, which was very pleasing given the significant focus of KCGM plant reliability. A decision was made in July to transition the South Kalgoorlie mill into care and maintenance phase due to flexibility within the Northern Star portfolio to improve cash flows. The processing capacity for the Kalgoorlie region will reduce from 20 million tons per annum to 19 million tons per annum after the South Kalgoorlie mill is put into care and maintenance. With an approximate 30,000 oz per annum reduction offset by AUD 20 million cash improvement. KCGM processed a record 13.4 million tons throughout the full financial year, highlighting the regional optionality within Northern Star in the Kalgoorlie district.
Moving to our Yandal Production Center, including Jundee, Thunderbox and Bronzew ing. We sold 122,000 oz of gold at an Australian all-in sustaining cost of AUD 1,403 an oz, up 10% on gold from the March quarter and down 3% on all-in sustaining costs. This production produced a mine operating cash flow of AUD 121 million, while we spent AUD 94 million on significant growth capital projects. The Thunderbox mill expansion itself spent AUD 46 million of major growth capital during the quarter. Our Jundee operation continued with a very strong performance of 5.9 kilometers of development and a higher mine ore grade that averaged over 5 (g/t) , up 16% quarter-on-quarter.
Ramone Underground Mine, operated by Northern Star Mining Services in-house division, achieved a record 1,370 m of development and is preparing for stoping to commence in FY 2023. Total jumbo development was consistent at 7.2 km for the quarter and will continue to be a key enabler both on drill platforms and increased areas to produce stope ore comes from. Jundee also produced a new Northern Star gold sold record of 311,000 oz for the full financial year 2022, and is a real credit to the on-site team to easily surpass the old record. Thunderbox underground operation continues to increase the stope mining fronts with 440,000 tons of ore mined, up 8% on the March quarter.
For the first time in Thunderbox's history, the underground mine delivered more ounces to the ROM pad than the open pits over a full financial year. The open pit D Zone mine continues to reduce its strip ratio and expose further ore, with 30,000 oz mined in the quarter, up 66% from the March quarter. I'm pleased to say the Thunderbox mill expansion is progressing extremely well, despite COVID and buoyant industry conditions, to remain on track and on budget, with commissioning expected to commence in quarter one and a ramp-up over FY 2023. The crushing circuit started to be commissioned in July, while the milling circuit will commence ramping up later in the quarter. This project remains a key strategic growth item as part of Northern Star's five-year strategic plan and development of the Yandal region as a low-cost milling hub.
In summary, I would like to sincerely thank the Australian Northern Star operations team, including our important contracting partners, for the full financial year, first full financial year under Northern Star's ownership. Many records were achieved during the year, including meeting guidance under a set of very challenging external conditions, which the team have managed extremely successfully throughout FY 2022. I would now like to pass to Ryan, Chief Financial Officer, to discuss the financials.
Thanks, Simon, and good morning, all. As demonstrated in today's quarterly results, Northern Star remains in a very robust financial position as we enter FY 2023. Balance sheet remains strong, with a net cash position of AUD 528 million, up from AUD 433 million last quarter. This is set out in table 4 on page 10, with cash and bullion of AUD 628 million and AUD 100 million of corporate bank debt drawn at 30 June. The company generated record full-year cash earnings of between AUD 1.02 billion-AUD 1.04 billion, and pleasingly, we saw a strong uplift in the second half.
As mentioned, we achieved our group production and our group cost guidance for the full year, and we also came in below our planned expenditure in relation to both growth, capital and exploration. Figure 7 on page 10 sets out the company's cash movements for the quarter, with the key highlights being the company recording AUD 419 million of operational cash flow, up 11% on prior quarter. After deducting sustaining and growth CapEx of AUD 263 million and AUD 42 million in exploration investment, quarterly free cash flow generation was AUD 114 million. The company received AUD 14.5 million proceeds in relation to the sale of its Paulsens and Western Tanami assets. Further proceeds of up to AUD 30 million comprised of deferred and contingent payments are expected in the future as milestones are reached at these projects.
On other financial matters, in respect to stamp duty payable on the merger, we've recently, in July, paid an interim assessment of AUD 155 million. Depreciation and amortization for the quarter was slightly higher, with main gauge going into commercial production and additional ounces from D Zone and Julius. After the quarter, non-cash inventory charges for the group was a credit balance which totaled AUD 8 million. This was in part due to all stocks in gold in circuit being built across all operations, in particular at Thunderbox, in preparation for mill commissioning. Of course, KCGM continues to process stockpiles as planned. We estimate an additional AUD 25 million-AUD 30 million will be carried over and paid in the first half of FY 2023 in respect of the TBO mill expansion.
In respect of costs, the company, along with the industry, is currently experiencing cost escalation in some parts of the business. We continue to apply sharp focus and drive cost-saving initiatives by leveraging our global supply chain and relationships with suppliers to source lowest cost items and receive best terms. Pleasingly, the company is not experiencing shortages or disruptions to its supply chain. Input costs of diesel, fuel, selected processing agents, consumable parts, ground support, explosives remain elevated. We're focused on optimizing usage as much as possible without impacting production. Importantly, labor, which represents approximately 40%-45% of our cost base, is predominantly variable and centered around safety and productivity-based performance measures. Cost of gas and electricity, which make up 5% of our cost base, while modestly higher, are forecast to remain stable over the course of the year on a per unit basis.
Our diesel prices have increased 140% since July, which have added about $70 to our cost base this year. Importantly, as Simon noted, the new truck fleet investment at KCGM, which is now complete, will help to offset increases in fuel prices that may be experienced during the year, through 5% hikes in fuel efficiency and 15%-20% greater ramp speed, improving overall productivity. In relation to growth capital, we've today guided FY 2023 to AUD 650 million, which is down from AUD 674 million in FY 2022. This, however, is an increase to the previous outlook provided for FY 2023, which largely relates to additional waste movement and higher unit rates, primarily due to higher fuel price assumptions at KCGM.
The carryover amount of AUD 25 million-AUD 30 million we expect to be paid in the first half of FY 2023 in respect to the Thunderbox mill expansion. We've brought forward the development of Orelia by six months to commence in Q1 this year, and additional investment in tailings facilities at Fimiston and Thunderbox to support those growing production centers. Notwithstanding this investment, the business still sits well against its tier-one peer group on a capital intensity basis. Finally, in respect of hedging, Table 5, page 10 sets out the company's committed hedge position at June. The overall hedge book stands at 1.1 million oz at an average price of $2,551, which reflects approximately 20% of our forward three-year production profile.
The average hedge book price has increased $105 per oz quarter-on-quarter. I'd now like to hand back to Ashley for the Q&A session. 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 two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Hi, Stuart and team. My first question is, you've shut the Jubilee Mill. Can you just expand a little bit on this decision? It would seem that it's unprofitable in the current environment. You know, while your production ounces this year and your guidance is weaker than, I think, market expectation, some of this is shutting down loss-making production. Have I got that wrong?
Less profitable. Still profitable, less profitable. 30,000 oz drop back because we lose 1 million tons per annum capacity. Of that 30,000 oz is really the offset of the lowest-grade material going through that Kalgoorlie network. We just see it as, you know, a AUD 20 million better cash position by making that change. You know, we're not here around for sake. It is around returns, it is around cash flow and margin. We're doing all the things we can do to offset the pressures that exist that Ryan outlined in regards to the cost escalation. That mill, we've got three mills really feeding Kalgoorlie, or four if you count Carosue. We're trucking Kundana out there historically. Fimiston, KV, Jubilee.
We're putting Jubilee on care and maintenance and trucking that HBJ ore to Kanowna. We're getting AUD 20 million extra in cash flows versus the two plans. The team's been advised they're gonna safely and gracefully put that on care and maintenance, get the mine operating, and keep synergies across capital.
There's no difference to mining rates. It's just a milling strategy change?
Correct. We're also cleaning up the operating team across the HBJ underground to operate with Kanowna Belle as one operation. It's a satellite mine to that. We're doing all the things we can do across the whole business. That's just one example to make sure that we're getting fewer, more effective, more productive operations. You're seeing year-on-year our costs go fairly flat. We obviously took the step up in all-in sustaining costs in quarter four or, you know, re-based that quarter at the end of quarter three. You know, there are levers within our business that allow us to control or maintain that cost pressure.
Yeah, sure. The growth CapEx guidance, it is higher than I think market expectations. Can we break that down a little bit in terms of like there's some carryover it sounds like from Thunderbox. Like are you gonna be doing more material movements at the Super Pit? If we talk about these trucks, you know, you've got 39 new trucks, you've got six refurbished, if I've got that right. Would you be doing more material movements in this new plan than the old plan and therefore that's some of the CapEx inflation? Then lastly, you know, some of it's gonna be just industry cost inflation. Can you just help me unpick why the CapEx is higher?
Yeah. One of the biggest drivers, Ross, is that increased material movements. Taking it from the sort of 60 million-65 million tons up towards your 80 million-100 million tons. Yes, the 39 new trucks are there. We're keeping six, so running 45. We'll aim to build up and increase those volumes. It's spend brought forward, but we have the equipment and the people to be able to do that. There is a large, you know, year-on-year from AUD 425 million-AUD 650 million, there is a material increase in our KCGM where you actually get something for it. There is some escalation in, you know, fuel costs, in that regard. Ultimately you're getting, you know, additional material movement.
The other key things we've had, you know, much greater visibility of the plan. Once we've been, you know, one year in settled the combined business and are operating and the outlook is there. We are looking at things like the multiple year lifts on our tailings dams happening this year. Obviously they're amortized over, you know, the life of the mine. It is more efficient and productive to do those single larger lifts rather than doing multiple stage lifts. You know, there's the culmination of a few of those happening across the business. The acceleration of the Orelia pit commencement, which is the other material increase. Even last year we obviously commenced the Ramone underground, which wasn't in those capital numbers.
The offset and the continuation on the capital associated with the Ramone going to the underground development into commercial production this year. There's a number of drivers that are in it. It's not just cost escalation. It is increased activity. I won't say it's discretionary. It is part of our plan to deliver into the two million, and it gives us contingency optionality in the growth plans that are there. Yeah, we appreciate it's a different number relative to the scale and size of the business. It's absolutely funded and manageable and delivers those greater returns in future years.
Thank you. Just switching to Pogo for a moment. Development meters, if I read that right, is 1800. Obviously substantially higher than that 1500 target, which you had difficulty meeting, but now this is much higher. Your guidance looks like your production looks like this will turn a corner. Your guidance is also saying so. Can I just dig into, like, have you finally got on top of the development and this is sustainable? Can you just talk through that and then the decision point of, you know, do you throttle back development at some stage as well, which you highlighted in your note?
Yeah. For the first time in four years, I'm gonna enjoy talking about Pogo with you, Daniel. Excellent results from the team there this quarter. The 1,800 m, you know, is deliberate. We said we added in January when we could get teams in. We kept or added two extra jumbos and obviously teams associated with that to try to catch up, accelerate the deficit of development we had in the previous year. Our balance at the moment is trying to get ahead and then also trying to bring the overall cost structure down. We'll go from seven jumbos to six to five throughout the year, and drop trucks and loaders out to get the cost base down. The great thing at Pogo is we've demonstrated the capacity to run the mill at 1.3 million tons.
The grades off a bit because of the contribution of developmental, but as we get more stoping contribution, that'll come back to reserve grade above our grants. Obviously those meters are opening up new working fronts to give us contingency in the mine plan, no different to what we've done across any of our other operations. You know, best analog being Jundee. It's really pleasing to see those results. You know, 71,000 oz produced at Pogo, 67,000 oz sold, and the second half run rate at 250,000 oz. We're not yet standing at 300,000 oz number on FY 2023. We're showing and guiding 260,000-290,000.
There's still a lot of opportunities to deliver at that mine that'll get really underpin that consistent production, but more importantly start expanding the margin by bringing the cost down, the productivity is up. There's still work in progress. Super pleased with how we finished the year and the rates that we made.
Okay. Thank you very much.
Your next question comes from Levi Spry with UBS. Please go ahead.
Good morning. Thanks, Stuart and team. Quick question from Dan. Maybe can I just push you a little bit more on the production guidance for Kalgoorlie hub for FY 2023, on top of the 3,000 ounces from Jubilee Mill shut. Can you just talk us through what else might be a little bit lower than what we've been expecting? This is a, I guess, the high hundred this time and the fact that it's, you know, growing to 1.1.
Yeah, exactly. I'll let Simon go through the.
Yeah, thanks. Thanks, Levi. I suppose if you look at across the different assets, KCGM's, you know, fairly flat. We're still, you know, developing towards the next lot of ounces in Golden Pike North, which is on track for FY 2024. We'll have a slight uptick in Mount Charlotte dirt, but really KCGM is fairly consistent compared to FY 2022. Carosue Dam, similar, yeah, fairly flat, consistent compared to the last year. Really the delta is the mill, the milling reduction at South Kalgoorlie, and it's about dropping out the highest cost, some of the highest cost ounces as well, which is, you know, driven by the mining and the, obviously the process plant.
We leave a little bit more marginal ounces on the stockpile at KCGM is the fundamental delta of that sort of 30,000 oz. We're very pretty close to this year. If you think at the start of FY 2022, we had some processing of the remainder of the Kundana ore until that asset was sold. It's pretty consistent, fairly close to this year. The main driver is the one million tons less processing capacity over the year, and it's about dropping out some of the highest cost ounces, getting a better cash margin result and using those people and resources back into the higher margin mines at KCGM and Kanowna Belle and driving the growth there.
Roger. Yep, thanks. Thanks, Simon. Just a quick one for Ryan. Can you just run me through? I think you mentioned the stamp duty for Saracen paid in July. Can you just run me through what other cash tax, stamp duty, capital gains tax, would come down on that we need to be aware of for FY 2023?
Yeah, sure. Levi, sure. You're right. Stamp duty, sort of the interim assessments paid. As I said, that's AUD 155 million in this now new financial year that it just started. Looking forward, as you know, we sold Kundana and Millennium assets last year. They will have a capital gain, low tax base, high proceeds. Then we also divested some small assets in Paulsens and Western Tanami. They will feature when we do our return this year. Obviously, there's a large tax shield because of the merger generally on the operations. Well, we will be finalizing our tax return for the end of this calendar year for FY 2022.
It's sort of hard to say, Levi, before we do it because there's lots of moving pieces to it. My expectation is there could be a small balancing payment to make, but that likely won't be now potentially until either the end of this calendar year or even into the start of the new calendar year. You know, it could, it would definitely be some sort of AUD 50 million. Could be zero, could be AUD 30 million. Again, we've got to do all the work to do that. It's a complicated tax landscape for the business at the moment.
Righty, oh. Yep. Thank you. Thanks, Ryan. Thanks.
Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Oh, hi. Good morning. Some good questions so far. Just on Pogo, so great physicals for June quarter. You kind of talked about we've still got to get to 300,000 oz. Interested in your take on the pieces of the puzzle still to fall into place here to consistently deliver those physicals that we saw in June quarter.
Yeah. It's mainly the switch to the increased contribution of the primary stope tonnes to development ratio. As we're developing up the mine, a lot of the ore feed's coming from that development ore, which have a lower grade. Once we get that, you know, stoping tonnes up to sort of 70%+, we sort of been sitting at, you know, 55%, 60% stoping, that will be the maintained 8+ g head grade through the mill. The mill's demonstrated the 1.3 g/t ability to go a little bit higher over the year, but we're incorporating some shutdown work that'll require some changeouts on some equipment in this quarter.
You know, the guidance this year, 260-290 is with all the knowledge of the things that we're doing to optimize the plant and get stability in it. Really pleased to see the recovery's up 89%. We've still got some improvement to really get that to 90%, keep it 90%. Then it comes back to just, you know, consistency. You can't really catch up. It's not surge capacity at Pogo. If there's an issue or a shutdown in the mill, it rolls through to the Pogo underground, it rolls through to the mining activity, and same vice versa. If the mining slows down, the mill, it retards, you know. The ores that we're developing and our current stockpiles will be in this quarter. There's some contingency there.
It just comes to, we have saturated it with equipment and people to solve and resolve those bottlenecks. It's now about peeling away that comfort layer because we can demonstrate the physicals and obviously get the total cost down and therefore get the unit cost down. We're still sitting up around that AUD 30 million a month. We want to push that back down to AUD 25 million a month on a 25,000 oz month to get the ore starting costs, you know, back down to that $1,000 in the first instance.
Yeah. Okay. Sorry. It's still the target of $25 million a month?
It is. It's, you know, in this environment with the energy prices, labor pressures, you know, all the cost inputs across steel, oil, it is a real challenge to pull AUD 5 million a month out of an operation without risk being introduced around delivery. It's doing it in a structured way that it's, as we get the productivities up, we can take it away. The simplest thing today is, you know, drop dumbos, go back to 1,500 m. We don't feel yet that gives us the best overall long-term plan of contingency, so we're managing through that. We drop from 7 dumbos to 6. Within the first six months, we'll drop a jumbo truck loader and we'll bring overall that headcount compression down to bring the optimization into the plan.
Yep, understood. Just on that cost inflation, Ryan kind of called out $70 an oz, the increase due to diesel. Is there anything else you could call out to give us a sense of the magnitude of what you're seeing in perhaps labor or consumables?
Anywhere between sort of 5%-20% is being asked from service providers or material suppliers. It makes sense. The fundamental inputs into the business being, you know, oil, steel, labor, which we all know globally are scarce and therefore price, you know, supply-demand price drives up. If you kind of go right back to the fundamentals of oil going into, you know, our fuel, our oils, our plastics, our tires, you know, steel going into our ground support, our equipment, you know, the labor generally in service providers and/or our own staff and the turnover and attraction retention schemes, all of those things are embedded. The $70-$80 an oz increase in fuel alone, that's the increase, not the total cost, is such a material uplift.
If, you know, year-on-year, you know, we'd be AUD 8 an oz cheaper, just because of that fuel escalation. Now, the question is how long does it stay up there? We're projecting this year's costs on today's terms. We're not escalating it or de-escalating it, but no one knows. The risk remains for everybody in the sector how to manage that. You know, Simon, myself, the team, Steve and Claire have gone through, what are the levers within the business as the assumptions change? What are the things that we can do? The Jubilee plant is a great example of an immediate action implemented that just gets us AUD 20 million more cash over the year.
Because, you know, you could keep running it, fill it up, but there's a better alternative, and we've got the discipline to make those changes.
Yeah. To be clear, that's why you've withdrawn FY2024 cost guidance because we're not sure how long this is gonna continue.
Yeah. We've got visibility and I could give you a massive range, which would be kind of meaningless because it's almost binary whether projects stay in, stay out, get displaced. That's what we're assessing at the moment. It showed the taper off around the 300s. Obviously there's a step up this year. Some of that is CapEx brought forward. The other part that sits out of this, not included in this CapEx, is the Fimiston Mill expansion. We still need to get it to feasibility level, assess it, on returns basis, on a risk basis, timing, all those things. Again, it's another material thing that's in or out.
I'd also highlight that the extra capital spent to move the waste this year in the Super Pit liberates another 400,000-500,000 oz in the mine plan. That's on top of. It's not a case of just costs go up and that's it. You know, it's a pit shell increased size and scale that also introduces revenues, margins, cash flows related to the extra ounces in that shell.
Yeah. Understood. Then can I just sneak in a final one? Just so you're building cash, but there's some big CapEx items coming up, like you just spoke about the mill expansion. How are you thinking about shareholder returns here? Are there any plans to change anything? Any internal cash balances you wanna maintain? Anything like that?
The good thing is that cash earnings and we've just delivered it half on half and, you know, projections show growth in cash earnings, which therefore as dividends sits at, you know, 20%-30% cash earnings. We can see, you know, improvements from a gold price. We can see improvements in increased returns through dividends to shareholders. The other things that we assess in this environment for surplus cash flow is share buybacks as a good returns metric. You know, things like capital returns necessarily aren't as effective in that regard. Great that we have the optionality. We can either fund our exploration efforts, our organic growth efforts and/or Fimiston Mill expansion efforts because we've got that such strong balance sheet.
It is us weighing up, is it better to put it back into the operation as a financial returns metric or return it to shareholders?
We are assessing all of those options on a, you know, regular basis. Yeah, we're not sitting on our hands and saying we're stuck on this single path because, you know, the year that's been has thrown up some pretty hectic, you know, challenges. The business has just demonstrated, you know, huge resilience to be able to manage it. It doesn't mean ounces have tapered a little bit or that, you know, costs have come up, but it is still a very, very solid business in our book.
Yeah. No timing or catalyst you could talk to on an update on that?
No timing on?
Yeah. On like a, announcing a buyback or lifting dividends.
No decision made at this stage. Thanks.
Okay. Thank you.
Your next question comes from Matthew Frydman with MST Financial. Please go ahead.
Yeah, thanks very much. Morning, Stuart and team. I've just got a few questions to unpack in particular the KCGM growth CapEx a little bit further, and you've given some good detail on it. In terms of Golden Pike, you've guided to total AUD 650 million of CapEx for FY 2023. You know, 43% of KCGM, so that's about AUD 280 million versus the AUD 200 million you spent in FY 2022, which did include the fleet replacement. I guess I'm just trying to, I guess, break that down a little bit and, you know, back out maybe the cost of the fleet replacement. You've sort of guided to the fact that you're looking to move maybe 50% more waste total year-on-year if that's correct.
You know, 90 million tons versus 50 million tons. I'm assuming the uplift in capitalized waste is also similar. It's maybe about 50%. Maybe could you give any indication on, you know, if we look back at FY 2022, you know, of that AUD 200 million maybe, you know, can we back out AUD 50 million for fleet replacement and other activities? Similarly, how much, you know, can we back out of FY 2023 to get an indication of a sort of like-for-like comparison on waste movement?
Matt, Simon here. I'll have a first go at that one and then probably hand to Ryan. In terms of material movement, yeah, we're sort of looking to increase from this year, you know, 15 million-20 million tons more in the next four months. A lot of that is really in Fimiston South area as well as Oroya Brownhill, the cutback continuing on which we should finish, you know, partly into FY 2024. There is a step up in more material movement there which flows straight through to, you know, probably AUD 40 million-AUD 50 million additional growth capital in that area.
The other big one is towards the back of the year, we really start the new TSF facility and further works for the life of mine, which is, you know, multi-year TSF capacity project. They're the big two deltas. There's a little bit in Mount Charlotte underground. You know, we've got 1.2 million oz on reserve there, so we're continuing to increase development at Mount Charlotte. There is more underground costs going in as we start to accelerate and unlock that reserve base. But the majority of the increase in CapEx is open pit movement in Fimiston South and Oroya Brownhill. Obviously slight increase in diesel costs coming through as well.
They're really the three key things at KCGM which lifts the growth CapEx up from this year to next year. It's all about bringing forward more ounces that we continue to find underground on the reserves as well as as Stu mentioned for the open pit. We saw an increase in our reserves in the March reserve statement that you know we need to move a bit more waste to unlock more reserves which is a positive thing. It's purely about timing and accelerating those open pit movements.
Right. That's actually really helpful. Thanks, Simon. Particularly thanks for breaking out the uplift in waste movement cost. That sort of answers my question. You know, following on from what you were just saying in terms of that uplift in reserves. I guess, you know, how do we quantify the actual growth that's delivered by this CapEx? You know, I assume part of it is a pull forward of grade, you know, that was already in the mine plan, but you know, it's more of a timing issue. And then that 400,000 oz-500,000 oz of additional reserves in the updated pit shell, you know, again, is that a factor in this growth CapEx?
Sorry, let me ask it a different way. That 400,000 oz-500,000 oz, is that currently in the reserve statement? That's not additional to the mine plan.
Correct. You saw that in the March update resource reserves, that growth and that reserve growth was related to, you know, that bigger pit shell that Simon alluded to. On page four, you've got those percentages of, you know, ratio of where that AUD 650 million CapEx cut up into, and, you know, 43% goes to Kalgoorlie Deep Plus the KCGM. There's sort of obviously AUD 280 million going into that. That's, you know, a lion's share of the increased activity is coming from that KCGM, but
It makes sense. It's an asset we now know 12 months more, you know, intimate knowledge on that asset. We've got the updated reserve statement. We've got greater visibility of the overall plan, the optimal plan there. When you ask us when does it come in, we've also mapped out that the growth sort of sits around that 500,000 oz for a few years until we've got the useful remediated access to the high grade in the pit floor at Golden Pike. Then obviously the step up to 650,000 oz-675 ,000 z by FY 2026 and obviously 700 thousand ounces by FY 2028. It then stays into the life of mine and the conversion of resource to reserves.
We still don't have Fimiston underground in the overall plan. It's 5 million oz of inferred resource. We still don't have, you know, whatever you resolve, you have the expanded, Mount Charlotte contribution to that. We obviously still don't have the, anything around capital or production increase, cost reduction relations with Fimiston mill site. There's still a lot of moving parts around KCGM. All I'd suggest to say is that they're gonna move in the right direction as far as the value creation, and returns focus. We're still really getting new information and we're making sure we're not making short-term decisions to the detriment of long-term value of that asset.
Yeah. Thanks, Stuart. Yeah, I guess the question was maybe a bit more philosophical around, well, the delineation between what's growth capital and what's sustaining capital, if you're not actually adding any new reserves to the mine plan or any new processing capacity. Maybe to put it a different way in terms of the benefit, you know, is there a cash or an all-sustaining cost benefit at some point down the track where, you know, where the operating waste movement is reduced significantly and your strip ratio reduces? If so, you know, how far off is that?
Oh, there is. The strip ratio at the moment, obviously given the scale and the size and the majority of it, you know, it's just at 8:1. It's, you know, it gets better year-over-year as you know, you're moving from that total waste consumption. I think what's different with this asset, analysts will look at this on a year-over-year basis. You know, that capital that year gives that growth in that year, that much expansion or that cost reduction. This has to be looked at, you know, multi-year total asset perspective because the benefit, you know, the scale is large, broadly, over multiple years, and the returns are massive, but they come over multiple years in the future.
Whereas any other small pit, satellite pit, yet even underground, the speed to, you know, develop fringe commercial production, you can include it in a fiscal period, and therefore it all winds up. I fully appreciate that paying all the money going out the door today, you can't see the benefit. On KCGM, we have to zoom right out and go, "Right, this is you know, this is the overall plan." If we didn't spend that extra AUD 100 million on that waste movement, you'd only have to start the dams in the FY 2028 or 2029. You might think in this environment, who cares? We wanna make sure that we, you know, the returns are considered and material enough to continue that plan as it is at the moment.
Yeah. Got it. Intrinsically, the waste movement or that you're capitalizing in FY 2023 gives you a benefit at the end of Golden Pike and at the end of Fimiston South, which is in, you know, five to six years' time.
It absolutely does. It gives us extra ounces in the existing, you know, pit shell and plan that has been designed, the optimal plan that's been designed, which is still done at a relatively conservative gold price. It also, you know, displaces any low-grade material that would be put into that plant at that time. It's the delta between the grade of that virgin ore versus the low-grade stockpile that's there. Yeah, that's the benefit.
Got it. Thanks for all the detail.
Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Matt Greene with Credit Suisse. Please go ahead.
Hi. Good morning, gents. It's a good question, so I'll keep it short. Just on KCGM, following on just the waste movement, I think in the past you've mentioned that FY 2022 and 2023 were peak stripping years. Is this still the case, or do you expect FY 2024 waste movements to remain quite elevated?
Yeah, thanks, Matt. It's Simon here. I think you'll see we've got that target of 80 million-100 million tons, and we'll continue to assess that year-on-year. We're still building. We've got all the fleet delivered into the operation now, so that's great. Now we'll work on optimizing the open pit fleet, and obviously they move material a lot faster. Over FY 2023, we're really keen to, you know, really stress test and put that capital to good use. We'll continue to optimize the mine plan. We know the ultimate picture that we're working on. It's around really just accessing Oroya Brownhill as our key priority first for FY 2024, where we've got nearly 700,000 oz at the face of the pit, which is very low strip ratio.
We wanna get back into that. That's our number one key priority. The second one is continuing the waste stripping on Fimiston South. While we're doing that stripping, it's continuing to assess what is the best mine plan going forward. Do we need to stay at 80 million-100 million tons, or are we up there for a couple of years, and then we can start dropping it back as we get access to a lot more ore areas. We also are, you know, pretty excited around
Resource conversion within that shell. As we get deeper into the pit, it's a very deep pit, so as you can imagine, it's very difficult to drill the whole pit out. You simply can't with that depth of pit and size. As we're mining through the pit, we're continually grade controlling drilling in front of ourselves and, you know, delineating more ore, et cetera, which we can, you know, ideally look at strip ratio as we go forward. It is a long-term project that will continue to get assessed year on year as to what's the right stripping number.
Rest assured, the first year we feel we can start taking the foot off the gas in terms of waste material movement and generating greater returns, increased ounces and cash flow, then we will.
Thanks, Simon Jessop. That's helpful. Then I guess just around the Jubilee Mill, you put them out on care and maintenance. Is this turnkey ready? I mean, what do you? Should we just assume that this is gonna go care and maintenance over the medium term? I mean, what do you need to see to potentially restart that? Is this just a labor and consumables issue, or do you think this is a more permanent move?
Look, for Northern Star, you know, I don't see us restarting this in the near term. There's nothing wrong with that plant, it's just the operating cost at Kanowna and Fimiston is much lower. It talks to the strength of those plants less to the strength of Jubilee. From a cash business basis, we look at, you know, we can fill it up, but it's at a higher cost, therefore overall compresses our margin. At the moment, the decision is driven by a couple things, that unit cost, but also the scarcities of labor and the simplicity of fewer moving parts in the business.
To put that in context, the landscape since January, we've had over 2,200 COVID cases across Western Australia, and that's 2,200 weeks out of our business, for starters. You know, we've seen that impacted across the operation. To take from three plants to two, everyone's still got a job. They're redeployed throughout the business. We end up having you know, filling those gaps and those voids and having less risk and less exposure to those types of operational disruptions. Yeah, it's difficult decisions to make, but it's sensible, financially prudent. That's what Jubilee does. It sits there on care and maintenance, as did Paulsens for many years. We sold that just recently.
You know, if there is an option, should you have a disruption or unplanned failure in Kanowna, we could quickly turn it back on and get it running. So it's an insurance policy. It's just at the moment, the right thing this year to park it and redeploy the people, keep the mine operating, but the mill itself will be put on a safe, care and maintenance cleanup point. Then we basically sit it there in good condition.
Yeah, that makes sense. I guess just keeping on the theme of labor, I mean, just the challenge, and I'm sure things are getting better, but I'm just keen to from your sort of point of view, how long do you think these challenges will persist for? I guess, do you have a timeframe in mind when it comes to your medium term internal planning?
Sorry, I missed the first part of the question, Matt.
Yeah.
Related to labor. What challenge?
Yeah, I guess just some of these challenges. I mean, do you have a timeframe in mind when it comes to internal planning as to how long these challenges could persist for, particularly in WA?
I don't know. It's a difficult one, but it is. You know, we've obviously already seen that step up and have managed, you know, in the last two years in Western Australia, we've managed it, you know, 10% vacancy rate, we've managed 30% turnover of our team. We've managed, you know, the COVID impacts of, you know, 2,200 cases in WA. It's. You wouldn't have scripted this if you'd asked us, so. All I'm saying is we are adaptive, we're nimble, agile, we're working through what those challenges are, and we're triaging, you know, what keeps, what's the right business. We're not compromising on, you know, do it with less or, you know, compromise on safety or anything like that. We've maintained and improved our safety output despite those challenges.
I just feel it's a new norm. We're not relying on it getting better. We hope it does, but our plan and our guidance is probably reflective of how we see it. You know, as I said, growth tapering a bit, costs staying flat or at an elevated level. You know, these aren't ideal, but they're real, and it's sector-wide. You know, we're capable to manage through those cycles, albeit, you know, not in the best or most favorable outcome that we could have.
Yep. Understood. That's helpful. That's it from me, gents. Thanks a lot.
Thanks, Matt.
Your next question comes from Stuart McKinnon with WA News. Please go ahead.
Oh, good day, Stuart and team. Stuart, you talked just recently about the pressures on the sector. It does feel like the mid-tier producers have been copped a bit of a battering in the market recently. There seems to be an increased focus on costs and margins. Do you think that's been overdone? I mean, you've come off about, I think about AUD 5 in the past four months or so, and others similar. What do you think needs to change in the minds of investors to you know start thinking more positively about the sector?
Yeah, I wouldn't say it's just mid-tier. It's everyone sector-wide. Aussies on an exchange rate basis certainly have had that retracement in share price. If you say, is it overdone? You know, it is disproportionate to, you know, whether it's margin compression or changes or outlook on gold prices or otherwise. It's not for us to sit here and complain about what we think a share price should be. Our job is really to, you know, run the business as best we can and articulate to the market, you know, where we see the best opportunity to keep those returns strong. We should be able to and will operate our business throughout those cycles.
You know, does it mean, you know, growth plans get compromised or does it mean, you know, margins get compressed over longer term? I think we've got to not just stick on one set of rails. We've got to have a plan we're following but continually assess those environments. I guess the question is what has to change to get the sentiment back? You know, delivery, I think in many cases in the gold sector at the moment is, there's a reset, and then there's a consistent delivery against that. No surprises. Then the general, you know, settling. At the moment, you know, do people go to crypto? No. You know, what are the alternatives or where are the surplus funds to be invested in the sector?
I don't see the flows at the moment really heavily moving into gold. When that changes, it changes in a hurry and that's when you have that big step change.
Okay. Thanks. That's good. Cheers.
Thank you.
There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Thanks for joining us on the call today. As you've heard this morning, we've delivered a strong June quarter and we're well positioned to manage the challenges that face the sector. We maintain our profitable growth strategy to 2 million oz whilst measuring success by maximizing shareholder returns through disciplined and responsible investments. Have a good day.