Hi and welcome to the Northern Star March 2022 quarterly results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director. Please go ahead.
Good morning, and thanks for joining us today. With me today is Chief Operating Officer of Australia, Simon Jessop, and Chief Financial Officer, Ryan Gurner. We have delivered another foundational quarter to break ground on our growth projects at Kalgoorlie, Yandal, and Pogo. Through this capital investment, we'll grow cash flows and returns for shareholders in the near term. Our sector leading safety performance remains a highlight, while we responsibly manage the impacts of COVID disruption across our operations. I thank our team, our people and our team for their continued effort and attention to keeping our teams and communities safe. In the March quarter, we sold 380,000 ounces at an all-in sustaining cost of AUD 1,656 an ounce.
Our Australian operations are on track to deliver full-year production and cost guidance, while Pogo has elevated costs while we increase mining physicals to meet the expanded 1.3 million tons per annum mill capacity in FY 2023. Our full-year group production guidance of 1.55 million-1.65 million ounces remains unchanged. Due to the lower production and higher costs at Pogo, we now lift our FY 2022 group cost guidance to AUD 1,600-AUD 1,640 an ounce from AUD 1,575. What is pleasing to see at Pogo is continued reward for the investment made, with gold sold up 26% from the previous quarter. Our development averaged 1,450 meters for the month during the quarter, with a record month in March of 1,650 meters.
An elevated development above 1,500 meters a month is integral to accessing new and multiple stoping zones, and to increase these development metres, we have added two jumbos to the fleet of now seven to provide added capacity. Once these operating restrictions ease, we will reduce costs through optimizing fleet to the sustaining levels. Our progress at Pogo in the second half of this financial year shows an annualized production rate of 240,000 ounces per annum. With continued increased underground metres, we are well-positioned to make the 1.3 million ton per annum mill capacity in FY 2023. Although we currently have elevated unit costs at Pogo, it is heavily driven by the denominator of gold sold. As we grow production to a steady rate and optimize fleet, we will expand margin at Pogo.
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, Stu. The Kalgoorlie Production Center, including KCGM, Carosue Dam, Kanowna Belle, and South Kalgoorlie, we sold 213,000 ounces of gold at an Australian all-in sustaining cost of AUD 1,659 an ounce, down 14% on gold from the December quarter. This production produced a mine operating cash flow of AUD 179 million, while we also spent AUD 83 million on significant growth capital projects. Of this major growth capital total, AUD 34 million was spent on open pit mine development and AUD 7 million on long-term tailings works at KCGM. At KCGM, open pit material movement was 7% higher than the December quarter at 16.4 million tons, with mining of the Golden Pike South area a key focus when available.
It was also pleasing to see good progress, good mining progress and preparation works underway for when we commence mining through the historic 2018 fall zone. 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 tracking extremely well. We have now successfully commissioned 24 of the new 793F open pit mining trucks, or approximately 75% of the fleet has been changed out. The remainder of the truck fleet will be commissioned in the June quarter, which allows for an optimization phase to begin in FY 2023. Underground mining for the Kalgoorlie region was 12% less than the December quarter, at 1.42 million tons for 105,000 ounces.
Carosue Dam was the largest impact to the reduced underground mine physicals with less stoping fronts available. At this asset, increased production drilling resources were brought online to return volumes and optionality to the mine going forward. Mount Charlotte underground ore tons were also slightly lower than December quarter at 344,000 tons, with vent constraints impacting the trucking capacity as we continue to grow and advance this exciting reserve base. A new raise bore hole and vent shaft is well advanced to increase the fresh air intake for the Mount Charlotte mine. Kalgoorlie Operations Kanowna Belle mine continued targeting the bulk mining areas as top up to the high-grade ore sequence.
This mine also produced a new monthly record since Northern Star acquired the asset in 2014, producing 150,000 ore tons and 930,000 ton kilometers, setting a new benchmark for that operation. Processing volumes in the Kalgoorlie region was 4.6 million tons, or 12% less than the December quarter, driven by mechanical availability at KCGM, crushing and conveyor issues at Carosue Dam, and a blocked tails line at the South Kalgoorlie operations. The principal driver of the production center's lower throughput quarter was at KCGM, with impacts to the Fimiston milling circuit, both on runtime and throughput rates due to downstream ball mill issues. The majority of these issues have been addressed in the recent Q4 shutdown, while some longer lead items will be replaced during FY 2023.
At our Yandal production center, including Jundee, Thunderbox, and Bronzewing, we sold 110,000 ounces of gold at an Australian all-in sustaining cost of AUD 1,444 an ounce, up 7% on gold from the December quarter and down 5% on all-in sustaining costs. This production produced a mine operating cash flow of AUD 116 million, while we spent AUD 73 million on significant growth capital projects. The Thunderbox mill expansion itself spent AUD 38 million of major growth capital during the quarter. Our Jundee operation continued with another strong underground performance of 5.9 km of development and a higher mined ore grade that was up 18% quarter-over-quarter.
Ramone underground mine achieved 1,200 meters of development on a partial quarter of work, which is operated by Northern Star Mining Services' in-house division and will bring with it production options forward into FY 2023. Total jumbo development for Jundee was 7.1 km for the quarter and will continue to be a key enabler both on drill platforms and increased areas to produce stope ore tons. Thunderbox underground operation continued to increase the stope mining fronts with 407,000 tons mined in March quarter. This is two quarters in a row above 400,000 tons per quarter, giving an annualized 1.65 million tons per annum run rate. Increased ore tons are expected from the underground mine as we continue to open up more of the ore body, growing to greater than 2 million tons per annum.
The open pit D Zone mine continues to expose further ore and lowers the strip ratio with 18,000 ounces mined in the quarter. The Thunderbox mill expansion is progressing well, with commissioning still expected in the first half of FY 2023. The bulk of the civils and the coarse ore stockpile is complete. SAG mill shells are delivered and installed, with activities to erect the associated steelwork and electrical infrastructure are well underway. This material growth project remains on track and budget as a key project of Northern Star's five-year strategic plan. I would now like to pass on to Ryan, CFO, 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 entering the last quarter of FY 2022. Our balance sheet remains strong, as set out in table four on page 8, with cash and bullion of AUD 533 million at 31 March, and we remain in a net cash position of AUD 433 million, up from AUD 288 million last quarter. Figure 7 on page 9 sets out the company's cash movements for the quarter, with key highlights being the company recording AUD 541 million of operating cash flow, which included the FY 2021 corporate tax refund of AUD 163 million. As mentioned in previous quarters, the company is currently anticipating nil monthly tax installment obligations for the remainder of the calendar year.
After deducting sustaining and growth CapEx of AUD 232 million and AUD 25 million in exploration investment, quarterly free cash flow generation was a very healthy AUD 284 million for the quarter. On the back of this strong free cash flow result, AUD 200 million of corporate bank debt was repaid, resulting in the company having only AUD 100 million of drawn bank debt at 31 March. During the quarter, the company paid its interim FY 2022 dividend of AUD 0.10 per share, totaling AUD 111 million. As an update on other financial matters, in respect of stamp duty payable on the merger, we currently expect this to be paid in half one of FY 2023 and have provided an estimate of AUD 225 million in the accounts.
Depreciation and amortization are in line with expectations at the upper end of the guidance range at approximately $700 per ounce sold. For the quarter, non-cash inventory charges for the group were AUD 30 million. As mentioned previously, the majority of these non-cash inventory charges relate to the milling of acquired stockpiles at KCGM, which were uplifted to fair value on acquisition. In relation to costs, Northern Star, along with the industry, is currently experiencing cost escalation in some parts of our business. We continue to apply sharp focus and drive cost savings initiatives by leveraging our global supply chain and relationships with suppliers to source lowest cost items and receive best terms.
The company is not currently experiencing shortages or disruptions to its supply chain. Input cost increases experienced in the quarter have been notably in respect of diesel fuel, selected processing reagents, notably cyanide, caustic, consumable parts, ground support and freight, which have all increased the cost of production during the quarter. In respect to fuel, the increase in costs realized against our expectations during Q 3 and reforecasted for Q 4, so over the second half, are anticipated to add approximately AUD 15-AUD 18 per ounce to the group's full year all-in sustaining cost. This is included in the updated group FY 2022 cost guidance of AUD 1,600-AUD 1,640 per ounce sold. The company's FY 2022 gross capital guidance remains unchanged at AUD 682 million.
As required by accounting standards, receipts from pre-production gold sales are accounted for as an offset to capital spent. Lower than budgeted pre-production sales at Thunderbox over the first half, which was due to an acceleration to commercial production at Thunderbox underground and D Zone, have resulted in lower pre-production receipts for the year. Exploration guidance also remains unchanged for FY 2022. Finally, in respect of hedging, table five on page 9 sets out the company's committed hedge position at 31 March. The overall hedge book now stands at 1.1 million ounces at an average price of $246 per ounce, which reflects approximately 20% of our forward three-year production profile. The average hedge book has increased $41 per ounce quarter-on-quarter. I'd like to now hand back to Harmony 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 speaker phone, please pick up the handset to ask your question. Your first question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Hi. I just wanted to drill into the cost comment you just made a little bit more, if I could, and just understand, firstly, diesel. You've talked about the full year change of guidance on the back of the fuel cost, but can you give a little bit more color on what percentage change that is for the period half, first half or second half and first half? And then likewise with your other components of ground support and freight, how material are they in that cost increase that you've just guided to?
Thanks, Peter. Stuart here. Look, the cost increase or rerate is more related to Pogo, and where Pogo had really delivered in the first half. We really like to see the run rate in the second half and the improvements that are made there. As a group, the change to the group cost guidance isn't just driven by fuel. The fuel impact at the moment is nearly $40 an ounce. Over the year it's about $18 for the group. That's not the reason for the rerate of the cost guidance. We absolutely had buffer within the Australian operations, within the guidance to absorb that. It's really the change at Pogo, and where we expected...
It's the overinvestment in Pogo at the moment to catch up on the physicals now that we have some easing restrictions on getting people and equipment in there. Yeah, the fuel at the moment is relatively short-lived, but it's about $40 an ounce. Given gold prices up, the royalty as well is about an added $8 an ounce to current cost base.
Stuart, just on the other components, ground support and freight, how significant are they in terms of Australian cost base, the changes?
Yeah, Peter. Yeah, look, Peter, they're not. You know, as I mentioned, I mentioned reagents there too around processing, so cyanide and caustic being examples. They're probably in terms of the impact on Q3 for all those elements, it's probably sort of AUD 10 an ounce. So it's not significant. Diesel's been, as Stu said, diesel's been the larger change, and you know, the standalone single element there. So the other components collectively are not huge, but they have added to the cost base.
Stuart, on COVID, we're getting mixed messages from the WA companies so far over the last week or two, reporting about the impact. It sounds like yours are improving. Is that the way I read your comment?
Oh, we're incurring exactly the same impacts as everyone else, with mainly Kalgoorlie affected with lots of absentees and, I guess we have contingency, we have good stockpiles, we're prioritizing, you know, immediate works and working through that. Yeah, we're mitigating what those issues are and our controls that are in place are very solid given our learnings from Pogo over the last couple of years. We're not immune to those challenges. It's not a reason for, you know, the impacts throughout the quarter. We've had some downtime on the mill, a case of GM that Simon highlighted, and we're in growth phase pretty much everywhere. Yeah, we're still seeing that labor pressure, the cost pressure, some COVID impacts, but they're not reasons.
The fundamentals of our business are very, very strong and we're still prioritizing delivering to our growth plans.
Stuart, just a comment on the heat in the WA labor market. Is it getting tighter and hotter?
Interestingly, everyone predicted it would get easier, but we think the board is relaxing. Flight of capital out of Western Australia has probably been compounding that issue. I've got the lowest percentage of vacancies we've ever had at the moment. But we've still got plenty of vacancies. Yeah, if anyone wants a job in Northern Star, come to Kalgoorlie. We've got plenty of work.
Thanks very much.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Morning, everyone. Thanks for the call. Just a question on the KCGM mill issues. Simon, I think you mentioned something about the issues mostly addressed by the shutdown. What's left to do? Can you just sort of talk us through that and maybe lead into the mill expansion studies? I believe they're due this quarter. What can we expect there?
Yeah, thanks, Levi. Look, most of the issues at KCGM was in the Fimiston side of the circuit, which is, you know, the majority of the tons milled at KCGM. We had some ball mill lube issues on one of the ball mills. That restricted that part of the circuit in terms of tons and throughput on and off throughout the quarter. Most of those issues in terms of contamination to the system, et cetera, were all addressed recently in the Q4 shutdown. The only sort of outstanding item we've got is some downstream trunnion bearing housings which will be changed early in FY 2023. Pretty confident we've nailed that issue over the quarter.
In terms of KCGM and the mill expansion, look, it is progressing. It's on, certainly on track. We've explored all the options from sort of 15 million tons through to 23 million tons. I suppose the high level comments, we do see any expansion that we put in there is technically low risk. The geology is well understood. We have a large stockpile in reserves of over 120 million tons already mined, sitting on the surface ready for processing. We're currently completing all of the detailed front-end engineering designs just to really understand the various capital costs and the time for all of those options. Pretty excited around the KCGM mill expansion.
We've got some more hurdles to get through, but the project remains on track for a market update sometime in this quarter.
Thanks, mate. I don't want to pin you down any more. Only two months left. Seems like a pretty big
Almost a quarter from June thirtieth, thanks, Levi.
All right. Sounds good. Thank you. Ryan, the decreased development receipts, just so I understand that properly, was that all associated with Thunderbox? Is there really any element of that being less material moved at the pit? How much of it's actually, you know, doing less and costing more as opposed to just moving straight, you know, moving quicker to commercial production?
Yeah. Look, there's a little bit at KCGM level. That's a good pick up. I didn't note it 'cause it wasn't significant. Yeah, depending on where Simon's putting the trucks and what they're doing, of course, makes a difference there. There's probably less at KCGM, but the overwhelming majority has been because we've accelerated production or commercial production, I guess, at the underground and D Zone at TBO.
Yeah.
They're all ounces. It comes to cash flow. It's just simply an accounting change, I guess.
Yep. No element of inflation in that though?
Say again?
No element of inflation in the capital number.
No.
Update? No. Okay. Thanks.
No. At a growth level, that capital is maintained.
Maintained. Yep.
Yep. Okay. Thank you. Just the last one on Pogo. Exit run rates for the, I guess the 300,000 ounce FY 2023 production. Can you talk to that a little bit please, Stu? Like you've mentioned, second half running at 240. What we can expect there over this quarter?
Yeah, sure. Look, I'll answer a question that wasn't asked just in relation to that capital. Absolutely maintaining capital on the full year guidance, and that's due to us securing those long lead items, the fleet at KCGM, the engineering execution at Thunderbox expansion. We absolutely have those long lead items from that secured and pinned, and that's why there's no inflation on those capital numbers. Very low risk. Why are we really spending that time on that front-end engineering and the capital assumptions around the Fimiston mill grade study is because it's a different environment to what we secured a year ago when we committed to those capital projects. We want to be very thorough in understanding what all the options are in that Fimiston study.
I want to use all the time available to make sure, you know, our limits of accuracy on that is well understood because the low technical risk, as Simon highlighted, it really comes down to, you know, for fixed hard money costs and the execution phase of building that. We're working hard to understand it. On to Pogo. Look very, very pleased with where we landed in the quarter three and month to date in April at Pogo. Absolutely with the second half being that 240 and quarter four being much stronger than quarter three.
We're working hard to over-invest and get the development in place and stakes online to be able to deliver the 1.3 million tons in FY 2023, which ultimately delivers the 300,000 ounces. If you kind of look at the tables at the back of the report on page 16, Pogo. You can start to see the physical build. When you go back to the December quarter, we only mined 200,000 tons and milled 250, because we were bringing the low-grade development stockpiles into that mill. Then you see, you know, development. Ore produced or mined from the underground has increased 21% to 258%.
We're working to get that up to obviously 325,000 tons in a quarter to fill up the mill. The milling, you know, steady. You see the grade increase because it doesn't have the low grade in it. You see the ounces obviously in turn increased 26% quarter-on-quarter. Ultimately, we need to lift the mining physicals another 25% from the mine and directly fill that mill. That ultimately gives you know, that uplift on last quarter's ounces gives you a 75,000 ounce run rate, which is that 300,000. We're very pleased with the signs and signals that we've got there.
We're doing it at an elevated cost because we're putting sprint capacity into the mine with people and equipment to catch up when we've got the activity available. The key thing when I was there in February, we had sort of around 40-50 development headings available for the jumbos. We're targeting over 100 development headings, which just opens up and enables more meters and that to be developed. We've been able to get the movement of labor, the expats and that back over from Australia since the start of the year. All of those signs and signals show that the exit run rate at Pogo is gonna be strong. It also then affects the all-in sustaining cost, driving that down.
Even when you look at the all-in cost versus the all-in sustaining cost, we've still got a very healthy cash US dollar margin at Pogo, and we're not there yet. Yeah, pretty pleased with what we're seeing.
Very comprehensive. Thank you. Thanks, Stuart.
Thank you. Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Stuart and team. Maybe just expanding slightly just on Pogo. Could you just update us on how many mining fronts you have now? Where do you need to get to? The new equipment that you're bringing in, you know, can that be fully utilized without creating congestion in the mine? Thank you.
It's against conventional thinking to add more gear and split more personnel when you've got the congestion. You're right. We've done it such that we've got that free capacity. Yeah, again, we've said we're trying to target 100 working areas, 100 working headings, more than 10 per jumbo. Ideally targeting more meters in the 1,500 meters a month or reduce the jumbos, reduce the costs and keep maintaining the 1,500. Presently, I think we're sitting at about nearly 70 working fronts, between 70 and 80. Again, we need to just basically through designs, we've got the new resource and reserve statements coming out next week.
In those new defined reserves, you'll see again, you know, areas that can be now planned, designed, marked up, set up with power vent, et cetera, to feed those extra headings. That's the technical bottlenecks of that technical planning. Also appreciate that this year, you know, the reduced drilling because of COVID and getting those rigs manned up has impacted that growth part of it. Getting the drilling and information in front of us, the backlog of assays, all of those things are sort of bottleneck to technical to get those plans and those headings opened up and designed. But yeah, we've got nearly 80 headings at the moment. You're seeing a March quarter of 1650 meters.
We've been getting to between 50 and 70 meters a day with our jumbo crews at the moment. They're very strong signals they can do the work when it's in front of them. We've just got to get that consistency into the plan, then start to optimize it and bring costs out.
That over 1600 meters in the month of March has that been maintained into April? It sounds like it has from all your comments.
Yes. The key thing was the borders for us opened during February, and we couldn't get expats there till. There was some that had been living over in the U.S., but as far as the freedom and movement of getting those jumbo operators and the new equipment delivered and commissioned as two extra jumbos was during the start of the quarter three. The all of those people and equipment are there at the moment. You know, on given days, I think they've certainly knocked out some records. Sort of 70-odd meters in a day as a record. Consistently getting to 50, which is what you need for the 1,500. It's really about removing the troughs.
Yeah, we're very pleased with what we're seeing in April to date. three months left to run, and we're setting up well for FY 2023.
Switching over to Yandal. You're soon gonna have expanded mill capacity at Thunderbox. Can you just outline your confidence in having ore sources to fill that mill? You know, where are they gonna come from? What are those various projects and productivities doing on the mining side to fill the milling capacity? Thank you.
Yeah. Thanks, Daniel. Certainly, a key driver of the feeding the mill there is the continual ramp up of the underground mine at Thunderbox, which is obviously right near the processing plant. The other key driver there is also D Zone, of which really we've been mining that now for a good probably 18 months or greater. So we've broken the back of the stripping there and really are getting on top of generating a lot of ore from D Zone. So we've got those two as the major ore sources. The other areas are Otto Bore across the road. We're just sort of commencing that particular project. Really in FY 2023, we will start the pre-strip in Orelia, so just working through the budget process for that.
Yeah, looking good in terms of D Zone, underground feed. We do have a lot of stockpiles there, and surge capacity at Thunderbox, but it's the two major ore sources and then really setting up for Orelia, which is the longer length project.
Thank you very much.
Thanks, Dan.
Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead. Pardon me, Kate, your line is now live.
Hi. Can you hear me? Hello? Have you got me?
Yes.
Perfect. Hi. At KCGM, you said the balance of the new 793 is due this quarter. Are there any productivity or cost metrics you can talk to that you're expecting on the back of a new fleet that's in their three-year outlook?
We certainly see a faster speed for these trucks. The challenge at the moment is we've got a mixed fleet between C-class trucks and the F-class trucks. The speed's probably 10%-15% faster, but what we really see as a huge advantage is having the new fleet means we need less fitters per hour in a really tight labor market. Rather than need very fitter-intensive trucks for the current fleet that we're replacing, we're moving to much like Northern Star Mining Services have new equipment needs less fitter hours, lower cost, and higher efficiency. Really, FY 2023 is where we've got one consistent fleet in the open pit as well as our shovel fleet had a birthday.
We'll see better efficiencies really coming through in FY 2023. Early days in terms of the truck data shows some very good improvement, especially on the longer hauls.
Just moving to Pogo, recoveries have pulled back from what you were doing in 2021. Is there a throughput trade-off you're managing here, or what are the levers that you're trying to balance, and how should we think about the recovery going forward?
Yeah, it's a good point because we see the same. Well, ultimately, we expect a better recovery. There's a lot of gold going out the back. It's really around the stability through the float plants. Once we maintain that consistent stability, we're able to control that float tail much better. At the moment it's on our radar. It's not the first thing we're working on. It's filling the plant. The throughput itself doesn't trade off recovery. It's purely around the stability through that plant. At the moment, when there's bursts and rhythms hand-to-mouth mine-to-mill at the moment, those peaks and troughs create havoc through the circuits from a milling and recovery perspective.
Yeah, very aware of it. We'll see another opportunity to optimize it. There's a few percent in there that we believe we can get back. Yeah, please don't take those as the averages going forward. The ultimate thing is 1.3 million tons at eight grams at 85%, and we see opportunities on each of those to get some extra benefits out of it.
Yeah. Okay. Understand. Just lastly, when are we due for an updated group resource reserve statement? Did you say next week, or did I mishear that?
We've changed it to our March end. We'll be publishing our updated resource reserves next week.
Great. Thank you.
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 Trent Allen from CLSA. Please go ahead.
Good morning, guys. I'm interested in Carosue Dam. Now it's a profitable mine at the moment, so it was all-in sustaining AUD 1,885 for the quarter. But in the scheme of an expanded Kalgoorlie, it's relatively small, sort of 200,000 ounces, and the grades are sort of 1.1-1.2. You probably have stockpiles of those grades at KCGM. Do you consider trucking some other stockpile ore up the road 100 km to Carosue? That was my first question. Also, is it still a core asset, or is the time coming when you move it on to a smaller operator who wants to give it some more attention? Thanks.
Yeah. Thanks, Trent. Look, I mean, it is, it's part of our plan to grow to 2 million ounces, and it's about 15% of our production at the moment. If you look back at it from year to date on all-in sustaining cost, you know, last quarter was an anomaly, and based on some of those disruptions that were there, it'll return to the average in AUD 1,600 as an all-in sustaining cost perspective. You're right in saying, you know, synergies to Kalgoorlie, not necessarily as far as hauling ore. We've got 4 million, or an upgraded plant, which now can achieve about 4 million tons per annum. We were sending the Kundana ore, free milling ore, overflow out there.
We're getting some synergies out of that, but obviously we sold Kundana. In our view, it's currently filling with the same sources. There's a new underground being developed next quarter at Porphyry. It's got multiple sources in the pipeline and really good exploration success we're seeing up and down the belt, and you'll see again in resource reserve outlook next week. Yeah, in that regard, it's still a meaningful, significant contribution to the team, to the group production. It's generating good cash flow, which is obviously funding the growth at KCGM, Yandal and Pogo. Yeah, by all means, it's contributing, and it's a significant asset at the moment. Thanks.
Yeah, thank you.
Thank you. Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi. Just a follow question. I think if I heard you correctly, you said Pogo, you know, the longer-term numbers, which was, you know, milling grade recovery. Did I hear correctly 85% recovery? It just seems a little bit lower than some of the historic recoveries you've been experiencing.
Look, we're being conservative in saying 85%. I expect more than that 'cause that's a lot of gold out the back. On a float circuit and because of the float tail that you receive, we've restricted on cyanide contacted material needs to be filled with paste and backfill underground. Obviously, all of the float tail goes to the dry stack. It's filter pressed and trucked up and put in the dry stack tailings in the valley. It's different to a scenario that you would you know intensively cyanide leach or ultra fine grind and take a finer cut of that like we do at Fimiston. You can't necessarily get to the 90s, but we can certainly get to high 80s with some improvements in the plant.
At the moment the focus is on building. The biggest gain and win at the moment is increasing underground mining physicals by 25%. Get those physicals stable through the plant, and then work on optimizing through the plant.
That recovery you've outlined, that's just, you know, plant optimization thing. That's not a call on the grade going forward.
Oh, look, you end up at a higher head grade. You can get at a fixed tail, you can get higher percentages. You know, historically when it had a head grade of 13 grams for the previous 13 years that Northern Star owned it. Recovery is sitting up around 88%-89%, but more driven by head grade with a fixed tail. At an eight gram head grade, you've got with a similar fixed tail, there are some percentages there you just struggle to extract.
Okay. Thank you very much.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Hi. Good morning, all. Just wanted a quick comment with regards to the Thunderbox mill expansion. You've guided that that's on track for 1H 2023. Just wondering if you give any more color around that and if in that you're experiencing any impacts from the labor and supply chain tightness.
Look, we're very happy, Mitch, with how it's progressing. GR Engineering Services have built; this is their fourth project with Northern Star. We, you know, we're working with those guys very closely, but they continue to put the appropriate labor onto that project and, you know, managing it at the moment on track and on budget. Look, I suppose, last quarter, we were still waiting for some of the mill pieces and motors, et cetera, to come into Australia. We've now got all of the major components here in Australia, so now it's pushing through to final like finishing off the build.
Certainly the civils, you know, 5,000 cubes of concrete we've poured, that's all complete and that part of the project, which has been a real pinch point for commissioning new projects. All of those civil works and concrete is all complete, so pretty happy with where that's all sitting. It's now execution through to, you know, we're at the commissioning stage.
Thank you.
Thank you. Your final question comes from Matt Greene from Credit Suisse. Please go ahead.
Thanks. Good morning, all. A couple from me. Just firstly on Pogo. The comments on the accelerating productivity and the future cost profile there, and the temporary elevated cost structure. Just to confirm those two, is this purely adding jumbos and just getting to the 100 working headings or are there any other costs coming to the business that we should be aware of?
Look, that's the lion's share of the elevated cost at the moment. I've got seven jumbos there and I only need five. We're doing that to not only, you know, train up more U.S. operators to have the ground support and those things that are there, but also saturate it. Whilst we can move labor in, try to have that sprint capacity to catch up because if we get disrupted and have been disrupted throughout the last year. You know, rather than just having a ceiling capped on people and equipment, we've got more than that. If we do for a week have a burst, and when we achieve that, you see 1,650 meters delivered in March. Look, that's the thing.
There's other things at the moment in regard to trying to get more ROMs than planned and elevated costs just in controls around splitting down crew sizes to mitigate knock-on effect of COVID. There's absolutely $1 million-plus a month in all of those actions, which in time we see stabilizing that pull out. Yeah, we really see the focus on growing physicals first. Then optimizing once we've demonstrated we can achieve those physicals.
That, that's handy. Thanks. Sorry, just on the KCGM mill expansion. I appreciate you finalizing your numbers now, but do you have a sense of just the timing on some of the lead items there and how long that could take on a, I guess, a relative sense versus more normalized timeline?
The overall project could be a two to three-year build. As far as managing it from a cash flow perspective and from servicing current operations, that's fine. It's trying to make sure it doesn't disrupt the, you know, stay in business activity that's already happening there. It's trying to understand where you house, accommodate, you know, build the construction teams and understand what those long lead items are. There's no major difference than what we've seen in, you know, when we order large mills or motors or different gear that goes into it. There's nothing there that's artificially changing the timeline. It's just a different project to add 10 million tons per annum to an existing 13 million tons per annum plant.
We're just going through and really making sure that the assumptions that are based in that and the business case around that and the returns for investors are sound before we kind of move much further forward. That's the work that's underway. We'll share that with the market once we've got that there. As Simon said, it's technically simple and it's a very compelling opportunity that's organic that pretty not many companies would have. You know, a 120 million ton stockpile of de-risked mined ore, 3 million ounces sitting on stockpile adjacent to an existing operation township. We're really looking at this seriously as to what we could do in liberating that value.
That's great. Thanks, Stu.
Thank you. That does conclude our time for questions. I'll now hand back to Mr. Tonkin for closing remarks.
Okay, thanks very much, and thanks for joining us on the call today. As you've heard, we're generating very strong cash flows, which are servicing our balance sheet strength, our organic growth projects, our continued exploration activity and our increased dividends. I look forward to reporting our resource and reserves next week and continue to update on our key milestones that deliver our growth to 2 million ounces per annum and lower our cost to continue to drive strong financial returns for shareholders. Thank you, and have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.