Thank you for standing by, and welcome to the Northern Star half year FY 2022 financial results. All participants are in a listen-only mode. There will be a presentation followed by a Q&A 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 our FY 2022 H1 financial results presentation. With me on the call is Chief Financial Officer, Ryan Gurner, and Chief Operating Officer, Simon Jessop. We have delivered a strong financial performance year to date, with record cash earnings of AUD 430 million for the six months, bolstering our net cash balance and providing ability to fund our organic growth plans, our exploration success and dividend growth, all demonstrating continued strong returns to shareholders. We declared an increased interim dividend of AUD 0.10 per share, fully franked, reflecting continued disciplined management across capital allocation options. As presented at our quarterly, our three operating centers at Kalgoorlie, Yandal, and Pogo are all in a growth phase to produce at two million oz per annum by FY 2026, while driving down costs through merger synergies and production efficiencies.
Our strategy is progressing well with an outlook of a stronger second half of FY 2022 to deliver full -year guidance of 1.55 million oz-1.65 million oz at an all-in sustaining cost of AUD 1,475-AUD 1,575 an ounce. We continue to operate our company to the highest standards with improved safety and continued investment in our communities and the environment. We will be publishing our sustainability report next week, highlighting the company's achievements over 2021. In relation to COVID, we have utilized our Alaskan experience to prepare our Australian operations to mitigate the impacts of COVID as we see Western Australian caseloads rise. I would now like to hand to Ryan to present the financials.
Great. Thanks, Stu. Good morning, all. It gives me great pleasure to present to you our finest results for the first half of 2022. I'll be referring to some of the slides in our presentation released this morning. I'd like to start you on slide six, which provides an overview of the key financial highlights achieved during the first half of FY 2022, with a statutory profit after tax of AUD 261 million and an underlying net profit after tax of AUD 108 million. Underlying EBITDA of AUD 699 million, which is up 47% from H1 of FY 2021. The assets performed well this half with AUD 622 million of operating cash flow generated, which was up 46% from the prior half.
The company generated record half-yearly cash earnings of AUD 430 million, and we remain well positioned to deliver on our near-term low-in, low capital intensity organic growth profile with our strong balance sheet, which includes AUD 588 million in cash and bullion at 31 December. Over the page to slide seven, which outlines a reconciliation of underlying net profit after tax from H1 FY 2021 to H1 FY 2022, and then to statutory net profit after tax. The company achieved underlying net profit after tax of AUD 108 million. Consistent with expectations, non-cash inventory charges and D&A were both higher. These increases are due to the significant increase in asset values resulting from the required merger accounting. Underlying net profit after tax, as presented, has not been adjusted upwards for the impact of these items.
These non-cash charges were offset by an increase of AUD 292 million of pre-tax profit in the current half from our higher production levels. When reconciling to statutory profit, the main add backs include the AUD 242 million pre-tax gain on the sale of Kundana, which completed during the half, an AUD 18 million non-cash gain on the required fair value remeasurement of the debenture with Osisko Mining, a AUD 19 million charge to the income statement upon purchase of the power business from Newmont, which represents the extinguishment of the power contract between KCGM and the newly acquired business, and a non-cash exploration impairment of AUD 12 million. The result is a statutory net profit after tax of AUD 261 million. The effective tax rate for the half was 34%.
This was slightly higher than expected due to the charge for extinguishment of the power contract between KCGM and the Power business previously mentioned. Over the page to slide eight, which highlights the company's AUD 430 million of cash earnings. Cash earnings represents the amount of underlying earnings which is available to shareholders, growth-related investments, and balance sheet management. In relation to the first half, as you can see, we have removed the gain recognized on the sale of Kundana and other non-cash items from our EBITDA of AUD 926 million to arrive at underlying EBITDA of AUD 699 million. In line with our definition of cash earnings, we've subtracted sustaining capital of AUD 205 million and net interest and tax paid of AUD 64 million to arrive at our first half cash earnings of AUD 430 million. Over the page to slide nine.
This slide highlights the key cash flow movements during the period. The company recorded group operating cash flow of AUD 626 million during the half, driven by the larger business post-merger. This operating cash flow included AUD 59 million of taxes paid during the half year. Post period end, the company has received AUD 163 million in tax refunds in respect of FY 2021's corporate tax return. As a result of the merger and based on our current forecast and assumptions, we are anticipating minimal corporate taxes over the next 12- 18 months from the Australian operations. At the halfway mark of FY 2022, our organic growth projects remain on track, with AUD 240 million invested.
This is net of the AUD 58 million in gold revenue received from pre-production sales at Thunderbox, D Zone and underground, and KCGM, which has offset the development costs during this phase. Northern Star's total gold capital growth, gross capital is AUD 570 million for FY 2022. The AUD 127 million of net investment cash inflow during the half predominantly comprised of three transactions. These were the sale of the Kundana assets for AUD 402 million, purchase of Power business from Newmont for $70 million, which provides infrastructure and power security to support the requirements of KCGM, including any potential mill expansion, lower power costs, and provides further options for Northern Star to implement renewable energy solutions, and a convertible funding arrangement with Osisko Mining for CAD 154 million.
The company has paid back AUD 360 million in corporate bank debt and delivered AUD 107 million in fully franked dividends in the past six months. At 31 December, the company retains AUD 520 million in cash. As illustrated over the page to slide 10, the company continues its demonstrated history of returning funds to shareholders by today announcing an interim fully franked dividend of AUD 0.10 per share, which will total AUD 116 million paid to shareholders and represents a 27% payout of cash earnings. The record date set for the interim dividend is 8th of March and payment date 29 March. Finally, as illustrated by slide 11, our balance sheet remains in great shape and supports our growth strategy.
At 31 December, we had AUD 1.3 billion in liquidity, with cash and bullion AUD 588 million, and access to AUD 700 million in undrawn bank facilities. We remain net cash with corporate bank debt of AUD 300 million at 31 December, and we maintain a sensible approach to risk management, with 20% of the next three years' production hedged above 2,400 per ounce. I'll just hand back to Stu to touch on a few of the remaining key slides in the presentation.
Thanks, Ryan. On slide 13, we maintain our growth in the second half to meet our full-year guidance with increased grades at Jundee and increasing mining rates at Pogo. Our key capital projects at Thunderbox Mill expansion and the KCGM fleet upgrade and mining volumes increase are progressing well. Our continued exploration investment will be reflected in the March and resource reserve update, published in the June quarter. On slide 14, it reminds us of the high-quality organic growth strategy to lift production to two million oz per annum while lowering costs, driving increased cash flow generation, which is the reward for the investment and the effort in the near term.
Slide 15 highlights how close the growth projects at Thunderbox and Pogo convert to cash flow and strong investor returns, and the significant opportunity that exists at KCGM to grow through the next four years and evaluate expansion opportunities, including the mill, the Fimiston Mill study, leveraging this tier -one asset. Now I'd like to pass to the moderator for questions, for the zone.
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 are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Mitch Ryan from Jefferies. Please go ahead.
Good morning, all. Thank you for taking questions. Just wondering if you could please provide an update with regards to your negotiations with Osisko on Windfall, and specifically in light of the announcement that they made yesterday with regards to the high-grade component of that bulk sample.
Yeah. Okay. We're still active in negotiations. We've had a due diligence team on site, and we've still got the next number of weeks to get to complete that due diligence work. I guess I won't give any further detail on what that process is. Both teams are working very well, providing you know good information and working together. As you can see, their renewed resource update and the additional drilling just shows the quality of that Windfall system. You know, again, it's the reason why you know that asset you know sits on strategy with Northern Star and why we're interested.
Still a lot of water to go under the bridge in regard to you know whether we can get to a partnership agreement and remembering that Northern Star is very disciplined in our outlook on investments and the returns we expect from those. Yeah we've still got the rest of this month to play out.
Okay. Thank you. I'll pass the question along.
Thank you. The next question is from Levi Spry from UBS. Please go ahead.
Good day, Stu and team. Thanks for the call. Sorry I missed some of that. I was just after, I think it was the Osisko question, but so I'll cut that. But just in terms of the KCGM mill expansion study, can you just talk us through what, you know, what we're gonna see and maybe where that's up to?
Yeah. I'll pass to Simon.
Yeah, thanks, Levi. Yeah, look, we're progressing very well on the KCGM mill expansion study. You know, we've highlighted a few options there that we're running to ground previously, and it's about simplification.
Of that circuit. At this stage, we're on track for an update by the end of FY 2022 and yeah, we're tracking very well on the mill expansion study. It's all around trying to increase uptime and take advantage of the resource and the reserves we have at that significant asset, at the same time lowering unit costs. Yeah, we're on track for an update in this quarter. Next quarter, sorry.
Yep. Thanks, Simon. Just in terms of what's happening over there, obviously we're a fair way away from it here, but just in terms of capacity and things like that, can you give us any sort of insight into how that might impact things?
Yeah.
People.
Stuart. Look, the financial metrics around an expansion target of 23 million tons are very sound. But to your point, it gets to the ability to execute that. It's a different level. After we've done the math and done the evaluation of those return metrics, it's really, you know, getting a team to build it in WA at the moment. We're doing a fantastic job at the Thunderbox expansion at the moment. I was up there this week and, you know, you can see the progress is making despite any of those sort of normal disruptions around freight and materials and labor. They're doing a sensational job up there advancing the Thunderbox expansion.
That's a good near-term lesson we're getting in relation to our future thinking and planning around Fimiston.
Okay. Thank you. Thanks a lot.
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. The next question is from Matt Greene from Credit Suisse. Please go ahead.
Hey, good morning, Stu and team. Just quickly on the post-merger synergies. You've realized AUD 40 million to date, sort of procurement and contract savings. Is this in line with your expectations? Just given some of the broader challenges, have you seen some of these synergies unwind or, you know, do you still sort of remain on track in delivering some of these targets over the medium term?
Yeah. Thanks for your question, Matt. Look, short answer is yes. We sort of, you know, we put that note down there. You know, we've done a lot of work, particularly at KCGM and Kalgoorlie around consolidating, you know, consumable supply agreements, hire agreements, you know, diesel and lubricants, unit power costs, things like that with our scale we're able to achieve. Obviously, you know, I mentioned around the tax refund that, you know, the corporate, I guess, synergies are probably more than half the value there. They're certainly in hand and very well known and understood. You know, additionally from a corporate perspective, I think, you know, the synergies, I guess, are probably coming corporately more now and then into the future.
You know, they're probably a bit of a slow burn to corporate, where you've got two companies, you know, running off some fixed costs and then ultimately some of those fixed costs fall away. In the short -term, they're still there, but the sort of medium long- term, they obviously fall away. We're experiencing that now. Look, we're making good progress on the contract synergies from, you know, the scale of the business.
That's great. Thanks. I guess just moving on to Pogo. Stu, you mentioned in the December quarterly that with the WA border reopening, that you're looking to send some expats and jumbo operators over for the second half. Just given that the uncertainty around the border there, do you still, I mean, are you still able to do this? Whilst, you know, we're only a month into the second half, I mean, it seems like you still remain confident you can achieve those production rates at Pogo. You exited the quarter pretty strongly. Have you been able to maintain that into the month of January?
Yeah. Look, as you pointed out and highlighted on the quarterly, it's dependent on us getting the development meters in place to open up those new production fronts and meet the mining rates to feed the mill that's already expanded. Yeah, that's our view on the second half and getting the staff and the equipment that's there now. It's been much easier obviously with the borders relaxing. I guess I'm heading to Pogo on Monday myself, so you know, those are the opportunities to get there and see it firsthand and see how the team's managing through all that.
Yes, it's still very dependent on month in, month out, building out 1,500 m a month, opening up those new starting fronts, building mining volumes, and that's where our view of the second half being stronger, the exit rate of FY 2022 setting us up well for FY 2023.
Okay, thanks. Just for that, I guess to follow on the KCGM mill expansion. Just to be clear, you're only looking at the 2.9 million oz in low-grade stockpiles D. The marginal stockpile that you wrote down last year, are you contemplating evaluating that, particularly I guess if you look at a larger size mill there or is that out of the question now? It's just purely low-grade stockpiles there?
Look, there's a number of things that feed into it. What we're trying to maximize is primary ore into that plant and, you know, then supplement it with the stockpiles that are there. You're right in saying there's nearly three million oz sitting on stockpile, your 120+ million tons without taking that lower subgrade material that was written down. We're really working hard to get the volumes out of the OBH cutback back down into the Golden Pike higher grade, Fimiston South, you know, in the next sort of four or five years really contributing. Another important one is, you know, the expansion of Mount Charlotte underground, so you know, feed from that.
We didn't have any Fimiston underground planned in the near five years. Expanding the better grade material coming from Mount Charlotte will also help contribute to the total ounce profile. An expanded mill is really, as Simon highlighted, it's getting the unit costs down as low as we can on a very simplified layout, and that drives a lot of the financial metrics across the whole business 'cause every ton that's put through there. The other important input is power. We've already seen a significant saving on the power on the back of integrating the Newmont Power business. We're nearly half the power cost than what we were effectively being charged on the previous part of that setup.
You're really seeing the benefits and the scale coming into play at KCGM.
That's great. Just one last one, if I may. On a bit of an accounting question, and sorry, apologies if you did mention this, if I missed this earlier, but that AUD 96 million in non-cash inventory movements, is that all at KCGM?
Yeah, Matt, that's right. The majority is KCGM. Yeah, correct.
Got it. Okay. That's it for me. Thanks.
Thank you. The next question comes from Peter O'Connor, from Shaw and Partners. Please go ahead.
Hey, Stu and Ryan. Firstly, Stu, just a clarification about Osisko, the DD. When do we expect to hear the next announcement from you regarding what you're doing in terms of that deal?
Yeah. You know, we've been completing due diligence for you know three months till the end of February. Just, you know, throughout the back end of February into March, we'll be talking closely on those points. Again, I don't want anybody to conclude it goes one way or the other. Just reinforce we've done thorough work. We're disciplined in our investment thesis, and we'll evaluate in that time and my travel will incorporate going from Alaska across to Windfall.
Again, March quarter, do we expect some announcement either way or is that too tight?
Likely an update in March quarter. Sorry, by the end of in March quarter, during March.
Okay, great. Next one. Stu, you talked about, with the mill studies, and you talked about the pressures there in WA, and it's been on calls lately with other peer companies, just that pressure's manifested in particularly one case where a potential development may be deferred. Is that a similar situation to you and if your project not big enough to be a problem due to labor availability, et cetera? Are you considering any.
Yes. I reinforce that Fimiston study, our current growth plans to grow to two million oz per annum, reducing costs, does not require and doesn't have the capital associated with that mill expansion. It's purely looking at that from, you know, an extra over opportunity. It also doesn't include, you know, an underground contribution from Fimiston, which has, you know, four million oz of inferred material at two gram. It's important to note that it's not gonna change our course of our strategy, and we'll evaluate the merit of being able to do it. As you recognize, as many are, you know, building anything at the moment in WA would come under either labor pressure or cost pressure, and just execution risk.
All of those things get considered, should an investment decision be met, post again those financials met.
Thanks, Stu. Acknowledging your discipline in that regard, is that... I know it's an additive project a part of that two million oz. Is it that tight in WA that you would look to defer? Is that a part of your decision tree that if it's labor's too tight or capital pressure's too high? Is that how tight it is over there?
There's a few things at play, and the board are relaxing will assist in that. You know, it would still be a multi-year build, so it could be managed well, but you'd want to see those commitments from those contractors that, you know, their order book and their workload wouldn't compete with that. On a large scale project, I imagine the iron ore players do the same with consideration to, you know, what else is happening across the sector and what's the contingency should you know, have issues with shortages for staff and/or price escalation in that regard. You put all your protections into your contracts, but if you literally cannot get people, that relates to a deferral.
The beauty about this, the Thunderbox is a great example on a smaller scale. We still are running a three million tons per annum plant profitably and the mine's performing well. The tie-in is very, very short, to tie in and do the downtime to do that. In parallel, we're building an additional three million ton capacity that'll turn it into that six million tons per annum. You're not sitting in a J curve being delayed and deferred and out of cash flow. You're able to do the two in parallel. Our thinking in Fimiston goes to the same thing. You're not shutting off for a long period.
You're continuing to maintain your 13 million tons base load, and you're looking at the upscale project to, you know, ultimately end it at a much lower unit cost on a much simplified format.
Stu, to the COVID issue, given your experience that you mentioned in Pogo and just with the situation presented in front of us over the next month and weeks, how do you see this play out? When does McGowan open the borders? How do we think that works? You're experiencing how COVID spreads in Pogo. Plans, thoughts, expectations of how this quarter, next quarter look in that regard with labor, absenteeism, et cetera?
Yeah. I don't know any more than anyone else in regard to the Premier's thoughts on borders, but I expect that as these relaxations occur, they don't get reversed. We've already seen, you know, compromise on the isolation periods going from 14 to seven, which makes a major structural difference to us in our planning. That was one of the key things at Pogo that allowed us to keep things moving that to five days, you know, for positive cases and 2 days for close contacts, with a lot of controls that happened beyond, you know, with isolation masks and testing to manage that. There were two things.
There's the actual health risk and sickness, downtime, but then there's the structural downtime created by these isolation periods, and that was what was really penalizing Western Australia. The fact that has changed, that's really key. You know, within a month or two, you will see, I imagine, you know, more freedom between borders into state and international, because it will be, you know, prevalent in the community and managed well. Remembering the resource sector, we are 100% vaccinated at operations. We're testing everybody going through the mine gate to mitigate, you know, importing the pandemic to site and the
We're limiting contacts and number of people in groups such that if we have a positive case, we're just limiting the amount of people that the domino effect affects. They're the learnings and lessons we've taken from Pogo. You know, we're still managing through that at Pogo and, you know, it's limiting the impact that's having. Yeah, it's still, there's still a lot of unknowns in Western Australia. I've seen a lot of planning from the sector, and their, you know, mitigation actions are well placed to deal with those challenges.
Thank you, Stuart.
Cheers, mate.
Thank you. The next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Stuart and team. Just on your guidance, obviously a better second half of FY 2022 is anticipated than the first half. I was wondering if you could just go around the grounds of each of your assets and just highlight, you know, what are the levers or things driving the better performance in the second half, at each of the assets. Thank you.
Look, I'll start with Pogo because that's the one that's fairly further out in the field. It's really those mining volumes and grade and, you know, we see that in the current plans of the stope sources and the development ore that's going into the mill. The mill's been performing when it's fed ore, it's performing well, and it's able to achieve those throughput rates. It's just really about stabilizing that consistent feed to the plant to, you know, stabilize the recoveries and stabilize that throughput because the ramping up and down just takes time on both sides of that. It's still a bit hand-to-mouth at the moment.
The key thing for Pogo is, you know, you've got a very large fixed cost element there as a proportion. It's really, your only sustaining cost there is really driven by the denominator. Look, when we go to the other operations at Yandal Belt, obviously Thunderbox is very steady state. Ryan Gerner spoke to, you know, D Zone of the pits progressing well. The underground is still ramping up its contribution to mill feed from the Thunderbox underground. You know, we're trying to get that up to beyond two million tons per annum. It's on that ramp up month in, month out. The grade up at Jundee, we've obviously got the Julius pit supplementing that feed as well. We've commenced developing the Ramone underground at the moment as well.
That's more grade driven. The volumes are the same, but it's more a grade driven improvement across the second half at Jundee. Kalgoorlie, most of the South Kalgoorlie and Kanowna operations are going well, albeit Kanowna picks up some better grade from the E blocks down the bottom of the mine. Primarily it's around the Fimiston primary ore being managed from what we can get out of Golden Pike in the south, as well as just the sequence of where the cycle is through the OBH and the Fimiston Morrison cutback. It's still volume driven displacing lower grade stockpile material at KCGM. Again, we're seeing it perform really well. That's also driving down the unit costs at KCGM.
As I pointed out, the power saving alone, we're seeing that convert through into, you know, the lower unit costs, which just helps the group's all-in sustaining costs get back in line with guidance.
Thank you. Next question just on the power business which you've just acquired. Are you a natural owner of that business, or is it something you might look to, you know, divest to somebody who's more in the power infrastructure type business, and you know, free up some capital?
No, I think it's fundamental. It achieves a few things. It's fundamental to our ability to do decarbonization and then, you know, emission reduction, utilizing that infrastructure. We can fast track access to, you know, wind and solar, or link into that network that we have there. It's key to that. The question around, you know, should I own it for someone else to liberate capital? It's a very quick payback period from the investment in that. You know, it'll be free carrying in no time, and it can be broader and can actually be a profit center, feeding power on a broader scale outside of Northern Star. I'm not motivated to consider selling it, and it wouldn't be around the capital, you know, rotation there.
It's getting great returns, and it absolutely justifies the acquisition of it over the life of the asset in Kalgoorlie. It's still a significant contribution into the economics on the Fimiston upgrade. Yeah, to be able to halve our power cost, and you know, with renewables, we could potentially halve it again, is a huge opportunity to expand margins at Kalgoorlie for us. It's a really strong business case.
Okay. Thank you very much, Stuart and team.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Okay. Thank you. Thanks for joining the team today. It is clear that our strategy is delivering strong returns as demonstrated in our financials and the balance sheet strength published today. 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.