Thank you for standing by, and welcome to the Northern Star September twenty twenty one Quarter Results Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Stuart Sunken, Managing Director.
Please go ahead.
Good morning, and thanks for joining us. With me today is Chief Operating Officer of Australian Operations, Simon Jesup Chief Financial Officer, Morgan Ball. I am pleased to report quarter one production was 386,000 ounces at an all in sustaining cost of AUD $15.94 an ounce. This stems from a simplified portfolio with the divestment of Kandana assets completed during the quarter. At the same time, our growth projects are proceeding well at our long life key production centers of Kalgoorlie, Yandal and Pogo.
During the quarter, we outlined a clear five year strategy of active portfolio management, designed to deliver superior shareholder returns by growing production to 2,000,000 ounces per annum, lowering costs and extending mine lives in a responsible and sustainable way. During the September, we delivered a continued sector leading safety performance with our lost time injuries at below half the industry index. We have set a net zero greenhouse gas emission by 2050 target and will provide greater detail of near term decarbonization progress in our sustainability report published in the coming March. We maintained strong quarterly cash earnings of approximately $170,000,000 and our balance sheet sits at net cash of nearly $500,000,000 which demonstrates the strength of the business and capacity to deliver consistent dividends and fund organic growth. We are on plan to deliver our full year guidance of 1,550,000 to 1,650,000 ounces at an all in sustaining cost of AUD $14.75 to AUD $15.75 an ounce, as we grow production throughout the year and in future years to deliver 2,000,000 ounces per annum by 2026.
We highlighted in our guidance that this year is second half weighted as we increase grades at Yandel and volumes at Pogo. Simon will provide some detail on the Australian operations, but first at Pogo, we saw a softer production quarter with 44,000 ounces sold. As scheduled in quarter one, we completed and commissioned the expansion works at the processing plant at Pogo to enable 1,300,000 tonnes per annum throughput, which is key to delivering growth to 300,000 ounces per annum. It was important that we continued this expansion work despite COVID impacts with labor. But we experienced extended unplanned downtime with failure of the primary conveyor and commissioning ramp up.
The total impact of planned and unplanned works was twenty four days mill downtime during the quarter. Now with this work complete, our focus is on ramping up mining development and stoping volumes throughout FY 'twenty two. And I extend my thanks to the Pogo team who continue to manage the associated impacts of COVID, whilst adjusting to the challenges to meet the growth planned. I would now like to pass to Simon to cover the Australian operations. Thanks, Stuart.
For the Kalgoorlie Production Centre, including KC Gem, Tarasoo Dam, Kanowna Belle and South Kalgoorlie, we sold 232,000 ounces of gold at an Australian all in sustaining cost of $15.33 dollars an ounce, which reduced the mine operating cash flow of two twelve million dollars and a net mine cash flow of $155,000,000 after spending $57,000,000 on significant growth capital projects. Of this major growth capital total, 40,000,000 was spent on open pit mine development. Specifically at KCGM, the largest operating asset in the Kalgoorlie Production Center, open pit material movement was 18,000,000 tonnes or an annualized movement of 72,000,000 tonnes and a new quarterly record. The first two new open pit mining trucks, seven ninety three F class, were delivered and successfully commissioned, with further deliveries and commissioning to continue throughout FY 2022 as the entire open pit fleet is replaced. We look forward to the new haulage fleet having a positive impact, driving lower open pit costs with improved productivity.
Underground mining delivered 1,600,000 tonnes at an average grade of 2.6 grams per tonne per 134,000 ounces. The production center's processing capacity of 20,000,000 tonnes is unlocking previously mine constrained resources and stranded high value stockpile ore. KCGM's underground operation at Mount Charlotte is continuing to ramp up production as drilling is accelerated to understand this large opportunity. Kanowna Bell is also mining increased tonnes at a lower unit rate, maximizing the already installed mill infrastructure. The KCGMPimiston North drill platform is on track to be finished in Q2, with drilling of these areas to commence at the same time.
This is an exciting area to develop away from the main pit and to the south of Mt Charlotte. Kasey Gem processing volume was lower in quarter one with planned relines of the Finiston and Mount Charlotte circuits. I will point out that Carasoo Dam processing also achieved a new quarterly record 970,000 tonnes, which is a full 20% above nameplate capacity. Also at Carasoo Dam, a Stage two of the solar farm was successfully commissioned, taking solar power generation to 4.3 megawatts or approximately 8% of the site's total power usage. This is providing Morgan Stanley with invaluable data for the long term group direction in the green energy space.
Moving on to our Gandall production centre, including Jundee, Thunderbox and Bronze Wing, we sold 110,000 ounces of gold at an Australian all in sustaining cost of AUD1345 an ounce, which produced a mine operating cash flow of AUD97 million and a net mine cash flow of CAD62 million after spending CAD35 million on growth capital projects. The Thunderbox mill expansion is the key driver of the Andal 600 to increase production to 600,000 ounces per annum and lower all in sustaining costs. During the quarter, 25,000,000 of major growth capital was spent on the expansion. Our Jundee operation continued with a strong performance and achieved a new record quarterly development advance of 6.6 kilometers during the quarter, providing future areas to access ore. The open pit of Julius as part of Jundee's satellite ore feed mined an impressive 18,000 ounces of gold during the quarter.
Our Thunderbox operation continues to invest in growth capital to pre strip D zone and the underground ramp up in production. I can say that the new paste plant is now being fully commissioned and is pouring paste as part of normal underground production operations. The Thunderbox mill expansion project saw the mobilization of GR engineering services with the completion of major bulk earthworks, including the pouring of the SAG mill raft, approximately seven eighty cubic meters of concrete, and is on track for commissioning in the December of calendar year 2022. We are very pleased with the commencement of this material growth project. I would now like to pass on to Morgan Ball, Chief Financial Officer, to discuss the financials.
Thanks, Simon, and good morning to all. As demonstrated in today's quarterly, Northern Star remains in an extremely robust financial position. As set out in Table three on Page six, at thirty September, cash and bullion was AUD $756,000,000. Further, as noted previously, during the quarter, we utilized the funds from the sale of the Kandana assets to pay down our corporate bank debt. As such, our net cash position at quarter end was a healthy AUD494 million after allowing for corporate bank debt of AUD262 million.
Figure five on the same page, sets out the company's cash movements for the quarter. Growth in cash, bullet and investments of AUD $771,000,000 reflected a decrease of AUD 55,000,000 following the payment of our FY twenty twenty one final dividend totaling CAD110 million. After adjusting cash flow as one off items, the company's normalized free cash flow for the quarter was in excess of CAD100 million. You will recall that following the finalization of our FY twenty twenty one accounts, including the impact of the merger accounting, the company updated its dividend policy, which is now based on 20% to 30% of cash earnings generated. For this quarter, estimated cash earnings was in the range of AUD 165,000,000 to AUD 175,000,000.
From a consolidated group perspective, both production and costs are in line with expectations, and we will see all in sustaining costs reduced in the second half of the financial year as production increases. Gold sales for the quarter included 24,000 pre commercial production ounces, predominantly from the Thunderbox underground and D Zone open pit operations. Pre production ounces will decrease throughout the balance of the year as these operations achieve commercial production. As mentioned with the release of our FY twenty twenty one accounts, you will note that the fair value uplift relating to the merger accounting is reflected in the increased D and A and noncash inventory charges to the group. Table four on Page seven sets out the company's updated hedge position.
The overall hedge book now stands at roughly AUD 8 and 40,000 ounces, with an average price of AUD 2,347 an ounce. The book is 15% of our rolling three year production profile. Pleasingly, the average hedge book price has increased AUD 61 quarter on quarter. I will now pass you back to Harmony for the question and answer session. Thank you.
Thank you. Your first question comes from David Radcliffe from Global Mining Research.
I've got a couple of questions, maybe starting at Pogo. Obviously, you have a tough quarter. But looking forward, maybe you could talk to when the works were complete and how it's actually performed since? And maybe then to give us sort of an idea about when you actually see it operating at those targeted volumes and obviously targeted costs and if you think they're still possible to get down to that sort of circa 150 per tonne for operating costs?
Thanks, David. So look, we're very pleased despite where the production was for the quarter at Pogo. We're actually very pleased with the works completed. So the mill capability is at that 1,300,000 tonnes per annum. With the reduced team sizes on-site, it was just dragged out longer than we had planned and obviously the fixing of the primary conveyor.
Those things now have been commissioning and ramping up. This year is really the focus is on the development underground and getting the stope tonnes increased to try to meet and match that volume by FY 2023, which is key to getting the 300,000 ounces per annum. FY 2022 we're in is still a building year and quarter on quarter building out that ounce profile. So that one thing of the mill upgrade was going to be a bottleneck. We've addressed that.
We plowed through in the seasonal weather throughout the summer to make sure that, that was done and commissioned. And now we're able to replace those construction crew people with production people in the mine camp.
Okay. And maybe just moving on to Karatsu. Obviously, great performance from the mill. It continues to sort of annualize sort of 10% to 20% above what that capacity was supposed to be. Maybe you could give us an idea what's driving that?
Is it sustainable going forward? And what, if anything, are the constraints of actually keeping that pool from the underground ore open pit?
Yes. Thanks, David. Look, we absolutely see that sort of run rate of between 3,800,000 to 4,000,000 tonnes per annum as sustainable going forward. We built in some extra upside in that processing plant as part of the design. So it's just maximizing and utilizing all of that installed capacity.
In terms of feeding that process plant going forward, no issues at all. We have 28,000,000 tonnes and 1,800,000 ounces on reserves. So we've got plenty of ore to feed the Karasu plant at that size or that throughput.
Okay. And maybe just a quick last one on the Finston underground. Since the site visit, it sounds like things have gone a little bit slower. Is that fair? I thought you would have been drilling already and might even have some sort of results for us.
How should we think about how you're going to report that going forward and how things are progressing?
No. So that those two bottles of the cut, the drill drive is a significant multi kilometer drill drive. We've got one diamond rig sitting in there, and we'll have multiple diamond rigs sitting in there when the development crews come out. So that's setting up a multiyear drilling campaign for that one quadrant, that kind of Northwest quadrant of Finiston. So no, will take quite a few years to build out that resource definition, but it's just progress that hasn't been seen in decades at the Super Pit.
So Mt Charlotte still is ramping and producing well. It's really the upside of exploration that's occurring at Finiston. And that isn't in the plan for about seven years, any feed from the Finiston underground. To get to 2,000,000 ounces is not reliant on that. There's an opportunity there to define and evaluate the scale and size of what that can be.
Your next question comes from Daniel Morgan from Baron Pardon me, Daniel. Your line is now live.
Sorry. I was on mute. So Pogo, I was just wondering wondering if I could understand a bit more of what was happening in the mine. And my impression is you don't have a lot of stockpile capacity. So I imagine the mill outage and conveyor changeover meant that you couldn't really mine as much.
Just trying to understand, was the mine productivity on an underlying basis much better than
the 840,000 tonne per annum rate implied by the quarter? Thanks, Daniel. And you're accurate in as much as we don't have the wrong stockpile or the real estate to put broken ore on the surface like we do in Australia. So we diverted our efforts to waste development and tried to maximize the waste development whilst the mill was down. And we also utilized trucking ore to the surface and the e feeder at a lower throughput rate whilst the main conveyor was down.
So when you take that twenty four months twenty four days out of the quarter, there's about 25% of the quarter gone. You sort of normalize that back to an ounce profile. We did as best we could do with the available days up. Different to the Australian operations where you can build a wrong stockpile, can't do it there, but we're investing in underground storage bins, developing those this quarter, which will decouple and give us some surge capacity for mine to mill feed.
Okay, I understand. And just wondering if you could disclose the development meters during the quarter. I don't see this in the report. And it would just be good understand what was happening on the development rate if you had a bigger focus on
it during the quarter. Yes. It's about 3.6, so 1,200 a month. And we want to be at 1,500 meters a month.
Okay. And I noticed you are very active on your hedge book. You delivered a lot but also added more to the book. Just what's your strategy here? And what are we what can we expect going forward?
Yes, Daniel Morgan here. Well, as
you know, the hedging policy is out there and understood, so we will always stay within that. And the strategy really was increasing the price of the book at times when we see our peak capital spend. So it's really just matching our operating cash requirements with some surety and risk management around our gold price.
Your next question comes from Levi Spry from UBS. Just
on the KCGM expansion project, big value driver fees, I think, during the June. Can you just remind me what kind of work you are doing here? What the key inputs are? And what we can expect to see along the way leading up until the fees?
Yes. Thanks, Levi. It's Simon here. As we sort of outlined in the strategy document, we've got a couple of key options that we're running to ground. So it's all around simplifying the number of mills there.
So we currently run five mills. One case is to install one bigger mill drop two to drop to four to 17,000,000 tonnes. And then another case is to go to 22,000,000 tonnes with three mills. So look, that study progressing very well. We're certainly on track for a December half sorry, a June update.
But that's a material growth lever for us. But what we do have there at KCGM in terms of reserves, we've got two seventy million tonnes of ore there. So we want to try and realize the value from that as quick as we can. Even at the current processing rate, that's sort of twenty years of processing. And along with that, we obviously see the opportunity to lower our processing cost.
Yes. Thanks, Simon. And just so at Kalgoorlie in the meantime, is that sort of the processing rate or the production rate we can expect going forward post the sale of Tandana?
Yes. So we obviously installed the mine without the mill, so we've got that 20,000,000 tonnes regional capacity at the moment, and that's utilizing those stockpiles and moving that feed around. So that's still there. These expansion projects are just at Pimiston, expanding that. So that's where that expanded capacity would be focused on and leaving the other mills alone.
Yes. And just the last one on Thunderbox. I guess, tough environment to be building a new Brownfields project, I guess. But what are the risks you're seeing out there with the time lines for that over the next twelve months? And what are you focused on to address them?
So it looks pretty good. Ordered back in February, large mill and a lot of the units that go into it. Greg has done a fantastic job, boots on ground and turning soil and getting foundations laid. So we're really ahead of the curve on the progress there. We'll be more comfortable when part through a port and sitting on ground, as you can appreciate.
So we'll get it through one port, if not three metal. And we'll be still the facility in probably the second quarter of next financial year when we're working through that commissioning up the supplies on that. So we've got a bit of buffer, but the beauty with CBO is still running and producing at that 150,000 ounces undisrupted with this upgrade adjacent to it. So there's not a material gap or downtime if there was any slippage in time.
Roger, thank you. Thanks.
Thank you. Your next question comes from Matthew Friedman from Goldman Sachs. Please go ahead.
A few for me. Firstly, I guess, operationally, at Pogo, we can see that recoveries in the quarter were a little bit softer, 84% for the September. Certainly, potentially, that's been partly driven by the lower head grades. Just wondering if there's anything else that you'd like to call out there in terms of what's driven that dip? And I guess, can we expect a return to 90 plus percent, I guess, as you've commissioned the additional milling capacity and potentially a return to higher grade base?
Yes, good point. Look, float banks generally like stability. So we're through a ramping and commissioning up and down. There were losses there, that's why that recovery is slightly down as well as the point that you made on the head grade is a bit lower. But the head grade will return to reserve grade of eight grams.
And as we get stability in the plant, we will return to sort of 90. So I don't know if it will get much more than that 90, but 90% is what our current plan is. There are final projects to continue to do. We're just getting the baseload of that upgrade all completed and stabilized presently.
Got it. Thanks, Stuart. And then flipping over to KCGM, we can see that mine grades from the open pit were a little bit lower during the quarter. I guess you called out there, guess, mine scheduling some restrictions in the amount of high grade material you could access. Just wondering if there's anything you can update us there on in terms of the war remediation progress.
When are you expecting to access that high grade material in Golden Pike? And then also the delivery of the additional haulage fleet, has that been on schedule? I guess you called out some of the timing there in terms of additional trucks. Just wondering whether that's met your, I guess, your plan or your schedule for additional fleet?
Yes. Thanks, Matt. Simon here. In terms of the grade from the open pit, it's really just timing and focus. So we mined a lot less out of Golden Pike during quarter one versus quarter four last year, so virtually 250,000 tonnes in quarter one versus sort of 1,000,000 tonnes at much higher grade in Q4.
So our focus really was on OBH and the cutback. So we moved a lot more ore out of OBH and really just prioritizing that due to the value that we'll unlock still in FY 2024 when Golden Pike North comes on stream. So yes, no issues, just timing of grade and scheduling of where we're mining the pit. The cutback is tracking well. It's on plan.
And we're looking that's our major priority in terms of pulling down the wall. Last question, just in terms of the haulage fleet. Last quarter, we got two trucks. This month, we expect to get another four or four are on-site. So really, it'll just be ongoing throughout FY 2022.
No real issues there from our perspective. We're in the probably luxurious position that the orders were placed quite a while ago, and those trucks are just coming through the system.
Great. Thanks for the info there, Simon. And then finally, a couple for Morgan, I guess. Firstly, you talked to the strong balance sheet position, as you say, dollars 500,000,000 net cash and bullion. And as we know, all things being equal, you should have better operational cash flows in the second half given our production and lower all in sustaining costs.
So I guess, firstly, can you remind us of the timing of upcoming tax or stamp duty payments, I guess, related to the merger accounting or the Kandana divestment or anything else? That's firstly. And then secondly, more broadly, how do you think about the strength of the balance sheet given that net cash position and into the second half of the year where things should get better? I guess what's the comfortable level of cash and liquidity that you'd like to retain? And I guess what are your options beyond that or in excess of that?
Sure. Thanks, Matt. In relation to the cash and liquidity question, first up, I think we sort of guided to we'd like to sort of have that 1,000,000,000 to 1.5 billion liquidity access, and we have that well and truly at the moment. We'd like to see about onethree of that in cash. And so directionally, you'll see us maintain that.
Sorry, on the first question, Matt? Tax timing. Yes, sorry, the tax stamp duty. So stamp duty, obviously, we're still working through the valuation work and engage and we'll engage with the Office of State revenue on that. But we would expect Q3 of this financial year on the stamp duty from a tax perspective.
And I've got to put the Kandana tax duty net as well following the merger. We and you would have seen in our balance sheet as well. Actually expect to receive a tax refund during the course of this year, that will come in during Q3.
Thank you. Your next question comes from Jason Menell from Kalgoorlie Minor. Please go ahead.
Good morning, Stu and team, and thanks for taking my questions. Just a couple of quick ones from me. Pogo obviously had twenty four days total of downtime. How much of that was unplanned?
Ten days unplanned, fourteen days was planned. So and we persevered. The team did the best they could do with reduced numbers. You appreciate KCGM, when we did a fourteen day shut, we imported 900 extra people. In Pogo, we don't have that luxury.
So we dealt with the teams that were there, and we managed through those TV issues that you have when you upgrade the plant. So again, appreciate their time and effort to get it done, but those extra ten days obviously cost us in that production deferred.
Okay. And just another one for me. Record material movements at the super pit, can that be attributed to the two new machines rocking up during the quarter? Or does it come down to something else?
No. Look, the luxury and the insurance we have is we already have the fleet, albeit it's aged, and the improvement of the new fleet will be lower unit costs and higher availability if your machines are able to work. So no, I think it's the credit to the team that are there, keeping the uptime and keeping things active and the multiple working fronts that we have. So they've got optionality. They can go to the bottom of the bottom pipe.
They can go to Okiatch. They can go to Kingston South and just keep the wheels turning. So I think it's a credit to the way they organize the mine and keep the volumes moved.
Excellent. Thanks. That's all for me.
Thank you. Your next question comes from Hayden Bairstow from Macquarie. Please go ahead.
Morning, guys. Steve, just a broader question on Pogo and the whole North American strategy. I mean, it's clearly been challenging to date. I mean, at what point do you think or how much runway do you need to give yourself to get this mine to $300,000,000 and then stabilize it before you become more confident in the whole operating model of potentially acquiring more assets in that part of the world? Thanks, Hayden.
Look, we're three years in, and I think we're a year late from where we wanted to be. And we've had a obviously, the disruptions of the pandemic amongst us. We have more active COVID cases at Pogo than the state of Western Australia, just to put things in perspective presently. And we see FY 'twenty two as that build out year. We've got the development to occur, the multiple stoping fronts to open up.
We've sort of been tracking about 800 or 900,000 tonnes per annum of ore. We obviously need to build that out to 1,300,000 tonnes to get to the 300,000 ounces. Critical part of that was getting the mill upgraded, is now complete. It's really about getting those development meters in. But everything that we've done to date in the reserves, in the infrastructure, that investment, it's for the long term decade plus asset.
So we are still laboring on and still working on those key milestones to deliver that 300,000 ounce operation. So we're pleased with the progress, albeit it is slower than planned. Were we too aggressive at the start? In hindsight, you might say so, but we still see great fundamentals in that asset. Growth beyond that, we like North America.
It's a Tier one jurisdiction like Western Australia, and we see opportunities of assets over there. You're still seeing consolidation in the sector, but you still see high grade underground and or open pit operations that are available in North America. So we'll keep our eyes on all that. And just on the WA operations, I mean, you've obviously got these targets in the medium term. And how far away are you from completing all of the optimizations on ore feeds, etcetera?
So there's a bit of M and A going on at the moment, small scale, albeit before you'd be ready to look at maybe additional ore sources to plug gaps as they emerge? Or is that stuff that you sort of think you're already across? And if things do pop up, you'll have a pretty hard look at things. Look, we've Simon touched on it. We have significant stockpiled ore.
We've got about 3,100,000 ounces of stockpiled ore in our own backyard. So we will be utilizing and managing all of that in the first instance. Something outside of that needs to look better or sooner than we have in our life of mine. So we believe we've got everything to deliver our growth plans organically without doing any of that M and A. There are natural bolt on things you always look at, but it always has to be at the right price.
So we just it's more of a want than need, and we'll keep our eyes active on all of those things. But at the moment, plenty to do with our own portfolio, and we've got a really solid team. We And want to simplify the business as we're continuing to do. So adding things sometimes doesn't make it simpler. Just one final one on post the sale of Kundana.
I mean
those operations look like they're going quite well from our numbers. I mean, is that sort of release the handbrake a little bit on what you're doing into KB and Millennium and that sort of stuff? Look, through the quarter, we were tasked to transition Kundana well with the team to Evolution. So I think that's been managed and handled very, very well. But it does allow the bandwidth of the team to focus back on fewer things.
So look, we're always just looking at where is the best return for the capital invested. This quarter has been strong quarter of commencing those growth projects. So don't discount things like the commencement of the TGO upgrade. We're going get the handle of 600,000 ounces in pretty short order. All of that waste movement and the volume increase at KCGM is paramount for the long term growth story there.
And obviously, key upgrades like the Pogo plant, these are all things to check off the boxes to show that we can grow at 2,000,000 ounces organically. It's not a main peak. It's 25% uplift, 1,600,000 to 2,000,000 ounces in five years. There's not many peer gold companies with that organic growth whilst lowering costs out there. I'll agree.
Thanks, guys.
Your next question comes from Al Harvey from JPMorgan.
Morgan. Just a quick one on Jundee. So getting a bit of open pit ore contribution from Juliet.
Can you just
remind us of the reserves here and what the contribution will be to Jundee going forward from those regional open pits? And if you can kind of step us through what other regional pits you've got coming online and how that kind of flow between the Jundee plant and the expanded Sun Box Mill?
Yes. So Jundee to the north, we'll maintain at that 300,000 ounces. It's about two thirds underground, one third open pit, but the reserve is a bit more biased to the underground. So we have about 2,200,000 ounces of reserve for underground and 800,000 ounces of open pit reserve ounces. And the feed going through that 3,000,000 tonne plant is about the same, 2,000,000 from the underground and about 1,000,000 tonnes of open pit.
So you'll continually see us like Ramon, Julius, you'll see satellite pits build and grow and contribute to that to maintain that 300,000 ounces, whilst we're still we've got 15 underground diamond rings at Jundee extending the system from an underground perspective. So we see a long life decade of opportunity there, and we keep that nice minimum tonne stockpile. So we're not spending capital too aggressively ahead. We'll keep that buffer of a milli tonne stockpile of open pit feed should you have any disruptions or otherwise in underground feed. Just to the second part of that, the Thunderbox area, so doubling that throughput from 3,000,000 to 6,000,000 tonnes, you will see a third from so a third from the D Zone Thunderbox pit, a third from the Thunderbox underground, and a third will come from satellite pits like Orillia or Bannockburn that feeds into that 6,000,000 tonnes or will take it to 300,000 ounces down to the south.
Awesome. Thanks, Steve.
Thank you. Your next question comes from Mitch Ryan from Jefferies.
Most of the key ones have obviously been asked. But just wanted to understand, with the two new trucks at KCGM, clearly, called out that, that will help bring down operating costs. Just wondering if you can put any metrics around it yet as to if they're delivering to the extent that you thought they might be able to or not yet, if it's not statistically yet relevant.
Yes. Thanks, Mitch. I suppose this year is a transition of the old fleet out with the new fleet in. So it's going to take some time for that to just stabilize and go through. But what we do see is with the F trucks, we see less downtime in the summer months.
So they don't overheat on the ramp compared to the old trucks as well as the new modern F trucks are actually a couple of kilometers faster than the older Model C. So look, will take some time for that. It's a big fleet that we're changing out, so it will take some time for the old fleet and the operating costs to wind out and the newer equipment that's faster, more efficient and lower operating costs are really kicking. So it will just take us time to transition. But we do see good upside once the fleet is all consistent and the same across KCGM.
Obviously, we've got a mixed fleet. It's a little bit difficult where the fast trucks catch up to the slower trucks. So it's probably FY 2023 onwards that we'll really see some improved productivities significant improved productivities from that fleet. Your
next question comes from Peter O'Connor from Shaw and Partners.
Two questions. Firstly, Stuart, just on cost headwinds, broadly speaking, WA and from a level of COVID impact still, but also other broader industry issues, how are you seeing them? Now the second question, going back to the point about North America, Stu, when you talked about the attraction of the tier one jurisdiction and potential for opportunistic, potentially, and A. Does Northern Star need paper in the North American market to execute on deals like that in the future?
Yes. Good question, Peter. So look, on domestic or even general labor costs and input costs, that's probably where we're seeing those headwinds in labor and turnover. The unnecessary costs are just churning labor that get fussy and flighty in this environment. I still think within six months, we'll see relaxation of borders, international and or interstates with vaccines becoming prevalent, and therefore, that will relax some of that as well as different commodity cycles.
So those cost inputs at the moment are layering in across the sector. Fortunately, we have the synergies delivered from the merger as well as the economy scale of the fire production planned out, but we can still reduce our ore costs despite some of those headwinds, but it means we offset some of those with the synergies costs. On the North American outlook and paper, and I'll take that as does it require equity and or second dual listings or otherwise. Look, what fewer questions there before were the balance sheet and the health of our balance sheet being net cash presently, all self funding on our growth capital of 2,000,000 ounces plus dividend paying plus exploration resource reserve growth plus surplus cash. If we're not buying something, we're returning that through special dividend or evaluating things like share buybacks and all of those other sources and uses of capital.
The beauty is Northern Star has those options available to us. So we reliably consider all of the capital management. And my view is that we have a lot of capacity for debt, but we have a lot of free cash flow that in the future years, we'll be able to put to good use to get superior returns. And if we can't find a superior return, we return it to shareholders.
Thank you. Your next question comes from Matt Green from Credit Suisse. Please go ahead.
Hi, good morning, Stu and team. I just have a follow-up really on the cost base. Can you just remind me some of how your diesel contracts are structured in terms of just timing lags based on where spot pricing is? And then just roughly, just on, I guess, KCGM more so,
how much of that cost base is fuel related? So I think I heard that it's the diesel the way we do diesel, and it's the same as everybody else at the Bowser with no hedging and no later lag as you buy it. But I guess fortunately, nearly 8% of our production comes from underground, which is less diesel intensive. Obviously, it has that large fleet that's diesel intensive related to cost base. So it doesn't have a huge input or flux on it, hence why we don't try to hedge it or guess it.
And all of that power primarily comes off grid or gas fed into our power plants at the moment as we're transitioning towards a renewable type program. So with that, it's not a massive lever or change or sensitivity to it. Thanks, Harmony. I think there were any more questions.
Thank you. There are no further questions at this time. I'll now hand back for closing remarks.
Excellent. Well, thanks for joining us today on the call. As you've heard, it was a solid quarter of our Australian operations, and we incurred a couple of one off issues at Pogo, which impacts our results there. Given the strong results being generated at the Australian operations and the fact that we will see the benefits of the investment made at the Pogo plant, we are well on track to meet our full year guidance. We are also in the midst of an exciting expansion phase with significant organic growth projects commenced during the quarter at Kalgoorlie, Yandal and Pogo to lift production to 2,000,000 ounces per annum by 2026 and lower our costs to continue to generate significant cash flow and superior shareholder returns.
Have a good day.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.