Thank you for standing by, and welcome to the Northern Star December 2021 quarterly results call. All participants are on 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, all, and thanks for joining us. With me today is Chief Operating Officer of Australian Operations, Simon Jessop, and Chief Financial Officer, Ryan Gurner. I'm pleased to report quarter two gold production of 392,000 ounces at an all-in sustaining cost of AUD 1,631 an ounce.
With an outlook for the stronger second half of FY 2022, we maintain our full-year guidance for production and costs. I would like to acknowledge the efforts of our team to continue to improve our group safety performance and maintain the precautions necessary to mitigate the impacts of COVID on the health of our employees and communities. We continue to implement these controls with our Pogo learnings in the face of the WA border relaxation. We are well prepared, but the extent of any operational impacts remains largely unknown.
Simon will speak to the Australian operations that are performing well and which underpin significant organic growth in the near term. In North America, our Pogo operation delivered a similar quarter-to-quarter one. It's pleasing to see the development schedules meeting the desired levels to build additional production capacity. Pogo operation remains mine constrained until we maintain 1,600 meters a month to build more safe production stopes to deliver 1.3 million tons per annum of mill. Since year-end, we have supplemented mill feed with lower-grade development ore, which impacts the average grade and recoveries. The focus at Pogo for half two remains on building mine volumes through increased development, lifting the production contribution from higher-grade stoping activity.
For the group financials during the quarter, we delivered strong cash earnings with half one results estimated at AUD 425 million-AUD 440 million. Our dividend policy targets 20%-30% of net cash earnings per year. We maintain a net cash position of AUD 288 million after our organic growth investments of exploration and the acquisition of Newmont Power, as well as the convertible funding agreement with Osisko Mining. We retain a very strong balance sheet to fund our growth, our organic growth activity. During the March quarter, we will publish our sustainability report, providing important ESG disclosures and highlighting the significant positive contribution Northern Star makes to our communities, the environment, and the economy.
The gold price remains very strong above $1,800 and AUD 2,500, providing strong operational cash flows to Northern Star to meet our business plan strategy to profitable growth of 2 million ounces from a simplified asset base. I would now like to pass to Simon to cover the Australian operations.
Thank you, Stuart. For the Kalgoorlie Production Hub, including KCGM, Carosue Dam, Kanowna Belle, and South Kalgoorlie, we sold 745,000 ounces of gold at an Australian all-in sustaining cost of AUD 1,538 an ounce, up 5% on gold from the September quarter. This production produced a mine operating cash flow of AUD 239 million, and we spent AUD 51 million of significant growth capital projects. Of this major growth capital total, AUD 26 million was spent on open pit mine development at KCGM. Specifically at KCGM, open pit material movement was lower than the September quarter, 15.3 million tons, with a focus on the longer hauls from Golden Pike and the Paisley Pit.
Currently, we have 12 of the new open pit mining trucks, 793F class, successfully commissioned for approximately 30% of the replacement program. We are already seeing improved tons per hour and lower diesel burned per ton with the new fleet, and we really look forward to having the entire fleet on site to commence further optimization. Underground mining for the Kalgoorlie region again delivered 1.6 million tons at a slightly lower average grade of 2.5 grams a ton for 126,000 ounces. Carosue Dam increased mined tons by 16% to 685,000 tons, while the Kalgoorlie operations continued targeting the bulk areas at Kanowna Belle and continued to develop the HBJ underground mine.
KCGM processing volume was 3.5 million tons for the quarter, with shorter shutdown durations and improved SAG mill utilization for higher throughput rates. Head grade also increased, with planned delivery from Golden Pike, delivering a 0.2 grams per ton lift. Pre-milling ore from KCGM's Mount Charlotte operation is now being processed for Kanowna Belle and the South Kalgoorlie plants, freeing up capacity at KCGM for previously stockpiled high-value marginal ore. Carosue Dam set a new processing record of 1.03 million tons for the quarter and has milled an impressive 2 million tons from December. The plant continues to perform at 25% above nameplate design and is operating at an annualized 4 million ton per annum rate, providing opportunities.
At our Yandal Production Center, including Jundee, Thunderbox, and Bronze Wing, we sold 102,000 ounces of gold at an Australian all-in sustaining cost of AUD 1,518 an ounce. It produced a mine operating cash flow of AUD 76 million, while we spent AUD 77 million on significant growth capital projects. The Thunderbox mill expansion itself spent AUD 47 million of major growth capital during the quarter. Our Jundee operations continued with another strong underground performance by breaking the recently set development record to the new one at 6.8 km deeper. This development will provide long-term drill platforms and the ability to access future ore areas earlier. The open pit of Julius, as part of Jundee Satellite Ore 3, mined an impressive 24,000 ounces of gold in the quarter.
Jundee also completed and commissioned the thickener and a processing plant, which will reduce water by 30% once they install the coastal stockpile cover. Both of these projects are significant environmental improvements, which are now complete. Our Thunderbox operation continued to invest in the pre-strip C zone as the pit reaches the top of the main ore zone, with 23,000 ounces mined in the quarter. The underground improved mined ore tonnes by 44% quarter-on-quarter to 416,000 tonnes in December quarter. The mine will continue to ramp up to greater than 2 million tonnes ground as larger stopes come online, primarily in the A zone area.
The Thunderbox mill expansion project saw significant progress completed in the December quarter, and we're sitting at now 60% of the project complete and remains on track for commissioning in H1 of FY 2023. We continue to be pleased with the progress of this material growth project as a key project of Northern Star's growth strategy. I would now like to pass to Ryan to discuss the finances.
Thanks, Simon, and good morning, all. As demonstrated in today's quarterly results, Northern Star remains in a very robust financial position entering the second half of FY 2022. As set out in table 4 on page 7, at 31 December, our balance sheet is strong, with cash and bullion of AUD 588 million.
The company has recorded strong cash earnings for the first half of FY 2022, which is estimated to be in the range of AUD 425 million-AUD 440 million, and a reminder that our dividend policy is based on 20%-30% of cash earnings. As mentioned, during the quarter, the company completed the acquisition of the power business from Newmont, making the balance payment of $70 million and a funding agreement with Osisko Mining through a convertible debenture totaling CAD 164 million.
After funding both these acquisitions, the company remains in a net cash position at 31 December of AUD 288 million, after allowing for corporate bank debt of AUD 300 million. Figure 5 on page 7 sets out the company's cash movements for the quarter, with closing cash, bullion and investments of AUD 774 million. This included the payment for Newmont Power and additional AUD 38 million in borrowing drawn.
At KCGM, the focus on Golden Pike and Morrison ore zones in preference for waste movement at Fimiston South resulted in higher open pit production, lowering all-in sustaining costs and growth capital cost allocation. The completion of the purchase of the power business, ensuring early disconnection, KCGM was able to realize immediate savings on power costs.
The Kalgoorlie Production Hub recorded AUD 239 million of operating cash flow during the quarter and AUD 450 million during the first half of the year. At Yandal, the Thunderbox underground and B zone open pit operations reached commercial production early into the December quarter, meaning the costs associated with mining and processing ore, along with the revenue relating to gold sales, are recorded as part of all-in sustaining metrics, as opposed to presented net under growth capital.
The Yandal Production Hub recorded AUD 76 million of operating cash flow during the quarter and AUD 173 million during half one. As Stu mentioned, Pogo had an improved quarter with increased ore tonnes mined and milled tonnes, with an anticipated step up in mining rates in the second half.
Table 5 on page 8 sets out the company's committed hedge position at 31 December. The overall hedge book now stands at 1.1 million ounces at an average price of AUD 2,405 an ounce, which reflects approximately 20% of our forward three-year production profile. The average hedge book price has increased AUD 58 per ounce quarter-on-quarter. I will now pass back to the moderator for the Q&A session. Thank you.
Your first question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Hello everyone there . Just on Pogo. I'm just wondering if you can talk through the development phases and what's planned for the rest of the year with the teams now put in place, the team and equipment and parts and since the December quarter for now, you know, maybe where you need to be. Thank you.
Yeah. Thanks, Dan. Look, we've got the place.
You know, disruptions regarding restrictions that have been in place over there. Again, with the borders relaxing, you know, the delivery aspects to move people on their frontline jobs, that's been better. We achieved just obviously 1,500 meters per vehicle, so 1,470 meters in December. We're pleased with the exit rate in 1,200 meters for quarter two. We need to maintain about that 1,500 meters throughout the rest of the year to deal with those stoping fronts.
Pretty pleased with performance to date on showing we can do it and maintaining at that level throughout. That's key to obviously deliver this year's guidance, then exit this financial year with that development stope and stoping fronts available to make it through 1,000 ounces next year.
Thank you. On COVID in WA, the border is scheduled to open up in early February. There's a lot of trepidation in the resource industry about this. Can you expand on the measures that you're taking to deal with this expected risk? I know there's a lot of stuff out of your hands with regards to just the measures you're taking to plan for this risk. Thanks.
Yeah. I think all companies are very well prepared and us particularly given our experience in Pogo, we've implemented a lot of the same things just to mitigate, you know, the amount of contacts teams are having and with a lot of contingency and diversification of workshop, you know, operations and activities and skill set. From that side, I think, you know, everybody is well prepared. The trepidation you called it is probably more related to the regime of quarantine related to positive cases and or close contacts. That's being reviewed by the Health Minister, and it will likely be modified and it could align with East Coast, you know, and there's a description there.
For, say, that 14 days, which is, you know, it's a design, a structural design of that isolation that comes with problems as you well know, more patience. We believe that'll be reviewed and it'll be a risk-based approach, and it will involve a lot of the RAT tests that everyone's hopped up on and as well. I think everyone's well prepared, but it's still difficult to estimate the actual impact to date.
Just last question, can you elaborate on the process at the Windfall last year, the convertible, you know, convertible notes that you've acquired and just, you know, what is the process from here for decision making, the decision tree?
Yeah. We're in a period where there's due diligence. We've got teams on the ground in Quebec and really going through the processes to work towards negotiating a joint venture with the Osisko team. You know, we've still got a couple of months of exclusivity there to work with them through that. That'll be the process from here to aim to establish a joint venture on the Windfall project. The venture funding agreement is in place, and that was achieved during the quarter.
I guess that can be made into a farm-in to the joint venture structure, or it can be an equity piece on Osisko, or it can just be retained as a debt piece with a coupon. Really from here it's just continuing to do the due diligence work towards that joint venture with Osisko.
Okay. Thank you, Stuart and Simon.
Thank you.
Thank you. The next question comes from Matt Greene with Credit Suisse. Please go ahead.
Hey, good morning all. Just to confirm Pogo for me. Encouraging to see your settlement rates step up, but just on your comments on performance being slightly below expectations. Was this more on settlement rates or are you seeing any initial challenges with the exploratory movement?
No, it's really on the ounce of our. You'll see that reflected as well in the all-in sustaining costs, given that's a denominator. The reason it's high from development, we are pleased with and having achieved that exit rate at 1,500. Really it's about, you know, if you look at the physicals in the tables, it'll show the mining at about 850,000 tonnes per annum. The mill's just over 1 million at a rate. What we did there was supplement that with some low-grade development ore to get stock of. You know, the grade was down as well as recovery, and I'd say below expectations.
You know, 50,000 ounce quarter would have been on plan with the mix of the mine volume. We've absolutely got good visibility in the second half and expecting uplift from the grades will return to those levels. Yeah, it's probably a few thousand ounces short for where we had a plan.
Okay. Thanks. That's helpful. Just on the KCGM deferring of waste movements, what drove that decision and what should we expect to see in the second half?
Yeah, thanks, Matt. Simon here. It was really around access to Golden Pike in the face of the pit. Whenever we get an opportunity where the floor is drilled and available and blasted, then we will always head down to Golden Pike because it's obviously low strip ratio, good ounces from the face of the pit. It's really cycle dependent as to when we're down there. Certainly in the back of that quarter, we had a lot of tonnes to access from the Golden Pike, and we'll always go back there, and the impact is just a longer haul, much longer haul distance than from the top of the pit.
Great. If I could just squeeze one more in, Stu, just on the Osisko JV there. Is that part of the agreement too with the joint operation or what sort of l ook, yeah, to be decided.
I think acknowledging the significant experiences Osisko has had in developing operations over parts of the world, I think it's great advances already on the project. I think what you know the true partnership is leaning on you know some of the underground strengths and technical skills that we have to establish that. Excuse me. Absolutely, joint you know 50/50 joint everything in decisions, investment and likely you know obviously leveraging off both parties' skill sets.
Yeah, that's all from me there . Thanks so much.
Thank you. The next question comes from Hayden Bairstow with Macquarie. Please go ahead.
Good morning, guys. Just a couple of things, I guess I'm interested in the truck replacement at KCG. Obviously been a lot of talk here about, you know, the strike we had at the port earlier on in the year or late last year and the ongoing impacts of that and potentially post five further impacts. Were you seeing any easing in the sort of supply chain within WA to make sure all those trucks get to site as scheduled? Is there any impact potentially on KCG and sort of outlook, particularly sort of swooping into next year if the fleet replacement takes a bit longer than expected?
Yeah, thanks, Hayden. Look, I suppose the short answer is no, we don't expect and we're not seeing any further impacts to the truck delivery schedule. We you know had some small impacts in Q2, just not quite, probably only one or two trucks short. But they'll be caught up in the second half. In the upcoming quarter, we're actually seeing nearly 18 trucks being delivered. Yeah. Look, that's all well behind us now and no impacts going forward.
All right, thanks. Stu, just on Pogo, just following up on Dan's question. I mean, is purely this gonna be a grade story, this production back to the 300,000 ounces, or is there other things you're relying on in terms of efficiency as well to deliver a better outcome?
Oh, look, it's mine volume and obviously returning to the 8-gram reserve grade. Mine volume, as you see that in the quarter, the run rate was only at 850. You know, obviously we need to get that up to the 1.3. That's gonna be a bit of a 10% development or 70% stope and ore. Really it's about pushing all the developments to get all those areas open, to have what we've sort of shown there, having multiple production fronts and, you know, diversification of where you're pulling your ore from. As far as efficiencies go, there will be a point of stability before we can then start bringing the unit cost down.
We still have overcompensated for some fleet, you know, a bit of spares and otherwise continued.
Thank you. The next question comes from Mitch Ryan with Jefferies. Please go ahead.
Hi. Good morning, Stu and team. Just staying on Pogo. Can you on the up and all of the metrics that were delivered up, can you put some color around what the trajectory of that will look like and what the exit rate will be? Will it be at that 8 gram reserve of the June quarter, or will it just be exiting, or will it sort of trend line?
Well, the schedule will say it'll be, you know, stope grade, just a bit above that 8 grams. So its contribution is higher. It could be a bit above that. But as you see, the ounce broke off in the second half. We kind of need to be at that, you know, 120, 140, you know, so you're on 60 plus and then likely a 70, you know, this quarter. So your exit rate of quarter four will be stronger than quarter three, and it will be a good, you know, platform to meet FY 2023, guys.
More of an industry-wide, because you've got a labor workforce partner throughout WA. Can you give any commentary on what you're seeing with regards to workforce turnover at your asset level and then sort of also within your head office and how that's changed relative to normal or historical?
Yeah. I've got high 20s, you know, 30% turnover. It's slowed, but it hasn't come backwards. I don't expect the border relaxation to help it. I actually think there'll be a flight of high labor out of state. With that considered, we're still prioritizing what activities, you know, we do first and making sure that, you know, if we're considering any discretionary activity, that will get the burden of labor. Yeah. The turnover has been high. You have had some labor cost pressure as people have competed for it.
You still see all the other commodities, you know, gold's up again today, but you see a lot of the other commodities attracting higher sentiment and therefore, you know, development projects and new jobs being developed. I think this year we'll still retain some high pressure on labor to see how that converts through to cost before it gets relaxed.
Okay, thank you. Really quickly, last one. The timing for the mill, KCGM mill feasibility study in between the quarters, you have, you know, the front-end truck haulage with this term.
Look, we like to look at the back end of that. We're doing the work on the way at the moment. It won't necessarily be for a decision. It'll be more of a sort of fundamental metrics around it to, you know, how big it would be, what would be the ideal size, what would be the unit cost at the back end of it, the CapEx to get it, the timelines, I mean.
Thank you.
Okay.
Is this a point of decision for investment? Thank you very much. I'll pass you on.
Thank you. The next question comes from Matthew Frydman with Goldman Sachs. Please go ahead.
Sure thing. Morning, Stuart and team. In the case of KCGM, and Simon spoke to this a little bit, interested in that trade-off between buying some gold supply and progressing the free strip which is quite well contained at the moment, depending on the treatment of that remediation. Just wondering if you could expect the delivery of both free strip volumes and
Yeah, thanks, Matt. I suppose when you, if you actually look back, you know, we've improved our material movement at KCGM from 30 million tons to 60 last year. We're ramping up again, you know, targeting sort of 70, 75 million -80 million tons this year. As the fleet comes in, our material movements will consistently improve. We will see further material movement in the second half as more of the truck fleet gets replaced, as well as we're training a lot of operators and bringing people through. Yeah, you'll see more tons come through from KCGM in the second half, and certainly more waste stripping, along with similar sort of tons from the face of the pit, as well as from OBH.
The other piece is the cutback on OBH is absolutely on track. We're, you know, on plan for getting cost over the next couple of years.
Thanks, Simon. Yeah, that makes sense. Maybe switching quickly to Pogo, maybe if you have someone on the line to address it. The great capital spend in the quarter, that's up AUD 22 million. You have the bulk of the spend on the mill expansion done. Any key growth capital items remaining for Pogo that we should be thinking about? And then I guess the broad piece, you know, you've already kind of traded up in your ability to utilize that expansion, processing more tons. Does that give you confidence around potential further development projects down the track on that front? Obviously, depending on the mining rates, it's certainly something.
Ryan?
Yeah, a small amount of CapEx, Matt, in relation to finalizing the mill upgrade, but a lot of it actually is development. As we're developing new areas there, as Stu mentioned, to open up. That's probably the majority of the cost there. Pete Bolger, I think, is probably gonna-
It's more just keeping, you know, in any plan you want stability. From that you'll slowly be able to, you know, lift it through to a rate. At the moment it's just maintaining, you know, consistent feed. Secondary crushing is likely gonna help. We're considering how we fit into the main circuit. Ultimately you'll be dedicated to power your mills, and do everything built inside a box. We'll be limited with our, you know, major CapEx to restructure or reformat that plan to really tip it from 1-1.3 very cheaply. We just wanna get that very consistent 1.3 and stabilize it before we start looking at any further expenses from that.
Thank you. Just touching back up on that again, Ryan, you mentioned that the bulk of that road traffic in the quarter actually should be the development in the area. How are you thinking about the required spend, you know, for that going forward? Obviously, it's something that's falling into the planning part. You know, when does that capitalization of development in the area roll off? You know, what's the type of spend that we should be thinking about going forward?
I mean, I'd probably say this year, at least I'd come back to our guidance, Matt, where we've talked about AUD 70 million. You know, part of that's infrastructure, part of that's development. I think for this year, I'd just point to that as to what, you know, at least the development that we've done from the half to the next half, that's the amount that we're looking to sort of invest in that area, and I'll stick to that for now.
No problem. Thanks, Ryan. While I've got you, another quick one. Contract now closed, I guess, as of mid-year, FY 2022. Nothing that's been through there in the waterfall in terms of contract payments at least that you've got. Stamp duty, are there lingering backlogs from past acquisitions that obviously you don't want to share why two payments. Can you give us an indication of what they're expecting in terms of timing for the remainder of the financial year?
Yeah, no, good question. It is, there's a lot going on around tax for Northern Star. Yeah, so the first of all, the stamp duty, you know, that it's a bit of unknown time, so we're waiting on the government to provide assessment and then we look at that and, you know, we do all the work and we essentially make a payment. You know, you'll know back in from last year, we sort of said to the market expecting that, you know, AUD 225 million, could be less than that, but we're waiting on that process. Timing wise, again, a bit uncertain because we're waiting on an assessment. It's probably likely maybe to be Q4 around the timing of that.
In terms of corporate tax. You know, if I come back to 30 June balance sheet of the business, I think there was AUD 150 million there as a receivable and no liability. Again, coming back to that merger hedge around tax synergies, the company will be, you know, basically receiving a tax refund for the prior year, which we expect this quarter. And then looking ahead, I think certainly for the remainder of this year, financial year, our cash and corporate tax base will be close to nil.
Yeah. Okay, got it. Thanks, Ryan. My kind of summary of that in terms of tax competitive, but even though you do have that outstanding due to IP kind of paying up for the next six months, and then tax refund that's gonna offset some of those other corporate tax alignments.
Yeah. That's right. That'd be yes. I think that's right.
Great. Okay, thanks. Final one for me quickly. Stuart Tonkin, you touched on Windfall before and I guess the potential here. Just wondering at maybe at a high level, can you sort of talk through what attracts you to this project? You know, why do you think it's a good fit for Northern Star potentially? And I guess any particular aspects you're focusing on as, you know, as part of your due diligence that you can sort of highlight anything specific for?
Yeah, sure. I mean, it fits the lot, so I don't wanna give too much color on all our discussions and negotiations to date. Look, you know, one rating the Osisko team highly, their ability for people like Northern Star and the technical know-how for us to explore, discover and develop. Great partner to work with. Secondly, you look at the quality, you'll see recently an upgraded resource update on Windfall, and the assets that they're receiving, you know, could be really exciting to that. The grade, the quality, the scale, the underground, you know, geometry of it all, it's, you know, it's a world-class deposit and it's gonna be, you know, a top North American mine.
Getting to one of those early, we've always picked up things, you know, maybe after some of their peaks. To get into a project early, and build it from scratch has always been something Northern Star has desired, to be able to do and set it up. You know, that's the interest. Timing is never perfect. It's often whenever things are available. Importantly that's been risked, due to the partnership arrangement, and working closely with the Osisko team. A lot of water to go under the bridge. You know, I don't think it's absolutely on strategy, on all the things we've set out and what we do in our business risk strategy.
It's met all of those metrics, and it's a very high quality deposit. We'll see as things unfold in the next couple of months as to how we advance that. You know, as that backstop, we've got that potential there, which is there as well. With that, we just look to the update and support it.
Got it. Thanks very much, Stu. Thanks all.
Thank you. Your next question comes from Alex Barkley with RBC. Please go ahead.
Hi, Alex here. I wanna ask a few more questions on KCGM. Just one on the mill utilization across the Kalgoorlie region. I'm seeing at Kalgoorlie operations, mill capacity is probably not being used at Kanowna and South Kalgoorlie. Is there a more immediate near-term option to use some of that capacity with it all coming from KCGM? I appreciate there's a study in progress, but is there, you know, a more near-term specific opportunity?
Yeah, thanks, Alex. Look, what I can say is we absolutely are using the full capacity at Kanmantoo. South Kalgoorlie, obviously we've had some changes there from taking away the Kundana asset feed into there. Now we're topping up that processing plant with ore from Mount Charlotte pre-milling ore. KCGM is, you know, running at full noise as well. The numbers are certainly at the back of the report, but we are utilizing the full capacity of the processing plants, the three main plants in the region.
Yeah. Okay. Over.
Yep. That's it, Alex.
Yeah. Okay. Thank you.
Thank you. Your next question comes from David Radclyffe with Global Mining Research. Please go ahead.
Hi. Good morning, Stuart and team. I had a bit more of a high level sort of question on the portfolio, given it's kind of finished the year with Kundana sold and now the partnership with Osisko. Just trying to understand when you hit 2022, are you happy with the position of the portfolio?
To have some control around, you know, there are assets that maybe come back quite a bit or other areas you'd like to move into. What sort of thinking does this kind of show that maybe the thinking about how to add to more long-term opportunities in the portfolio?
Look, the interest on it just, you've got the commercial operation, you know, likely to come into 2025, 2026. Albeit it has, you know, between 8 and 10-year mine life on current plans. The, you know, how that fits in is different, I guess, to where our current planning insight is. We'll look at that as that eventuates. We're very happy with our portfolio. All of our producing assets are contributing strong cash flow, you know, and that's what we've got our five-year strategy on. We continually assess that on a yearly basis to see if each's contribution and how they are meeting what we expect out of them. Yeah, presently, you know, maybe some exploration assets or otherwise, we streamline.
Our producing assets at the moment are all contributing strongly and leading organic growth from 1.6 up to 2 million ounces over the next five years. Pretty keen. Again, the way that you just, you know, we don't fall in love with these things. We make sure we run as a business first, and we focus on their contribution. We know which are our higher cost periods, and if labor gets short or otherwise, we tend to migrate, you know, our people to where the best returns and assets are placed, so we're not mining for mining's sake. All of that's on strategy, and the assets that we hold as important.
All right, great. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Peter O'Connor with Shaw and Partners. Please go ahead.
Good morning to you. Happy New Year. Back to Windfall and Francisco. Just wondering if you're actively looking from a M&A perspective on an ongoing basis. It's been international balance. How do you think about balance of the portfolio? Is this about being first tier or is your international first tier portfolio? Is there an international focus you want to consider?
Yeah. From our strategy, I mean, we showed, you know, organic growth, self-funded, you know, the 1.6-2 from the assets we hold. Importantly that Pogo, you know, delivering 300,000 ounces and talking about being that feature in North America. You've also seen the restructure of our team where Simon Jessop heads up all of our Australian operations. Luke Creagh still oversees Pogo, but is in running BD, you know, as a Chief Development Officer, which includes, you know, reviews of North America, including this as a due diligence. Absolutely, you know, keep an eye on looking, you know, to make sure that we're not missing out on, you know, quality opportunities.
Again, we've got to reassess against our own organic growth options and the best returns on that capital for our shareholders. All those things are in line. When you look at that comped up against our strategy, you know, the +200,000 ounce equivalent contribution, the low cost, you know, high margin, long life, you know, scale, you know, jurisdiction, you know, in the one very favorable mining jurisdiction is Quebec. All of those things meet our strategy. It shouldn't be a surprise for people with those types of things coming to our view.
Stu, it sounds as if you need to pull the trigger too.
Good question. We engaged with them over four years ago, in regards to just watching the development and, you know, being close to the team on understanding what's happening there. Not so different to many, you know, emerging deposits and discoveries around the place. We, you know, as chief officers are about keeping close contact with, you know, parties that are doing great things and, you know, seeing if you can learn things and readapt it back to your own operations. That's what we do. Yeah, it's been a number of years of us watching and, you know, ultimately the funding arrangement allowed them to continue to advance the project and, you know, give us best certainty to work with them on a partnership.
It's a lot of work to go under the bridge, and that doesn't mean, you know, any deal done. It is just the early stages of that work.
The why now question would be to get ADU through that to do this deal?
Oh, really about that funding requirement and them needing to source funds to keep advancing the project. They're gonna do that, you know, many different ways. You know, obviously our ability to come in and provide that option or that feature is doing that.
Could you explain the conversion premium if you choose to elect that route? In the headlines at the time was a conversion premium 125%. If any interest in the public taking up to 50%, how does that work?
It'll push effectively the CAD 164 million we put in converts at 1.25. It goes up to your 192-odd million AUD as a conversion into a joint venture interest. You know, the main reason was that Aussie bucks have been trading pretty close to Aussie bucks now. Again, they're kind of natural hedge conditions and not familiar that much in Australia, but they're very common, I guess, in North America. You know, that's something you're very much set up.
You can walk if you convert?
Sorry. No, the target is 50%-60%, 50/50 joint venture in the asset list. That's what I'm saying, the conversion of that bond or that debenture converts at a premium to the money under the scenario with the JV.
Sorry, that's conversion to equity or?
Well, equity joint venture interest in the Windfall asset.
Okay. In terms of development, you mentioned 25% plus elongated option. What should we think about a key milestone? You talked about a couple of months for more due diligence. When do we expect you to come back from that due diligence? Is it monthly? Cash out closing, when would they occur, and how should we think about that?
Yeah. The best reference is through the existing public announcements on the TSX. You know, you can look at their PEA in relation to that, and you can look at, you know, their updated resource that's just published this week. They've set out all the metrics and timelines. I won't comment on anything from the outside of that. I guess we, you know, we're still in that process of doing the work.
When should we expect in a couple of months you said earlier?
Like I said, we'll get them into the market update disclosures.
Thank you.
Thank you. The next question comes from Kate McCutcheon with Citi. Please go ahead.
Hi, Stuart and team. You've noted some tonnes from Mount Charlotte in this quarter. How is this material performing? It's getting the benefits that you expected. Can you just remind me how you're accounting for gold and also those costs in that material?
Yeah. Thanks, Katie. I'll just comment on the performance of that there. It is performing very, very well. We're getting improved recovery of, you know, approximately 9%, you know, sitting around the 19% mark when we take that either to Kanowna Belle or South Kalgoorlie. We're getting an improvement in terms of gold recovered by doing that. The main point here is we're actually filling up the SAG mill with the marginal stockpile there, which has no mining costs attached to it. We've still got, you know, circa 18 million tons of that left. It really just complements synergies across the processing plants in the region. It certainly gives us a benefit and performs very well.
Yeah. Just can you remind me how you're gonna account for the, that gold? Where will it be
No. The accounting sits under KCGM. Even though that all moves and gets processed elsewhere, it gets internally costed back to the income, the revenue and the costs associated with it. It'll be costed back to KCGM. I think the earlier question around bills not being pulled. In those tables, it shows KB, Kalgoorlie Ops mining rate at whatever it was, 600,000 tons versus just at 800,000. It's because of that accounting of moving those tons back under KCGM mill appropriately.
Yes. Got it. Thanks. You maintained cost guidance. On an annualized basis, what does it look like to get to eight down to meter? How are you feeling about cost inflation, how you're going with the cost curve, and what we're seeing with like pay problem?
Yeah. Look, if you look at the second half, most of our costs quite sticky and contracted and firm. Typically, like cost escalation, there's quite a lag, you know, associated with that because you've already got inventory you've paid for, you've got long lead items you've paid for, capital that you've got secured. Maybe you know what the costs are. In the near term, we've got great visibility of what that is. Look, the second half is really driven by those ounces improved and volume that Tess written are very, very similar just through the quality, and grade uptick, and obviously the denominator for our unit costs, same cost down. In the near term, we have really good visibility.
You know, it's through the review of what you get exposed, and then what the runway is in 2020 from here out, in regards to any kind of cost escalation. We have good understanding.
Yeah, got it. Thank you.
Thank you. The next question comes from Nick Evans with The Australian. Please go ahead.
Yeah. Good day, guys. I guess just returning to the first pack on what I've been through. I wonder if you could give us just a bit of color around what sort of scenario model that you're doing. Just go around, I guess, what you've learned from the experience of Pogo and what you're doing now in terms of ways you couldn't have done if you just never had the Pogo experience.
Yeah. Thanks. There's probably two things to understand. One is the you know the true health impacts should someone have a case and get symptoms and you know the absolute domino of that through with no effective testing with understanding and seeing symptoms temp checks all of those things that you do as a screening and/or testing to get positive. You've seen all of the states having done this well you know through their medical systems for one. That's actually what's happened. There's the sort of framework you impose artificially to try to reduce that. This 14-day quarantine or you're in close contact because you've been face-to-face for 16 minutes and all those sort of things that's the part that really gives you the structural impact to your operations.
That's the part where people err on the side of caution, and we're looking to review how you benefit, you know, the 14 days? Is it gonna be 10? Is it gonna be 7? Is it gonna be 5? You know, can you test someone every day? That's the modifications at the moment, kind of learnings we've had from Pogo, and also just understanding, you know, a lot of people can be asymptomatic, without the symptoms and basically testing positive and/or not testing in their workplace.
Importantly, the material things we do is reduce the sustained interactions, reduce them, bouncing around and being in multiple places, ask them to be responsible with all of the, you know, community-based, you know, precautions in regards to scanning in places, knowing where their hotspots have been, you know, mask wearing and cleaning. Also doing deep cleans across our vehicles, offices, spaces, those sort of things, hygiene and cost. Then again, you know, sitting down and thinning out those interactions to negate the domino effect. These are all things that we've learned and have worked and managed through at Pogo, and are still doing that.
That's the things we expect to see, the strength of our Australian operations buy-in and roll-out as much of this year to maintain and control. With residents where we see, you know, so the continual interaction in the community and then coming back to work the next day, where those challenges are. The onus really goes on us at the start to step up and understand and, you know, be risk-averse in regards to, you know, big gatherings should there be a community outbreak.
Thank you. Appreciate that. Thank you very much.
Thanks, guys.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Okay. Thanks for joining us on the call today. As you've heard, we remain on track to deliver full-year guidance and are well advanced on our organic growth projects funded from our strong balance sheet position. Look forward to reporting our progress, deliver production to the announcements by 2026, and lower our costs to drive strong financial returns for shareholders. Have a good day.
That concludes our conference call today. Thank you for participating. You may now disconnect.