Thank you for standing by, and welcome to the Northern Star September 2021 Quarter Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr Stuart Tonkin, Managing Director. Please go ahead.
Good morning, and thanks for joining us. With me today is Chief Operating Officer of Australian Operations, Simon Jessop, and Chief Financial Officer, Morgan Ball. I am pleased to report quarter one production was 386,000 oz at an all-in sustaining cost of Australian AUD 1,594 an ounce. This stemmed from a simplified portfolio with the divestment of Kundana 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 million oz per annum, lowering costs, and extending mine lives in a responsible and sustainable way. During the September quarter, 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 quarter. We maintain strong quarterly cash earnings of approximately AUD 170 million, and our balance sheet sits at net cash of nearly AUD 500 million, 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 1.55 million oz-1.65 million oz at an all-in sustaining cost of Australian dollars AUD 1,475-AUD 1,575 an ounce, as we grow production throughout the year and in future years to deliver 2 million oz per annum by 2026. We highlighted in our guidance that this year is second half-weighted as we increase grades at Yandal 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 oz sold. As scheduled in quarter one, we completed and commissioned the expansion works at the processing plant at Pogo to enable 1.3 million tons per annum throughput, which is key to delivering growth to 300,000 oz 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 24 days mill downtime during the quarter. Now, with this work complete, our focus is on ramping up mining development and stoping volumes throughout FY 2022.
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, Stu. For the Kalgoorlie Production Center, including KCGM, Carosue Dam, Kanowna Belle, and South Kalgoorlie, we sold 232,000 oz of gold at an Australian all-in sustaining cost of AUD 1,533 an ounce, which produced a mine operating cash flow of AUD 212 million and a net mine cash flow of AUD 155 million after spending AUD 57 million on significant growth capital projects. Of this major growth capital total, AUD 40 million 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 million tons, or an annualized movement of 72 million tons, and a new quarterly record. The first two new open pit mining trucks, 793F -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 1.6 million tons at an average grade of 2.6 g per ton for 134,000 ounces. The production center's processing capacity of 20 million tons 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 tons at a lower unit rate, maximizing the already installed mill infrastructure. The KCGM Fimiston North drill platform is on track to be finished in Q2, with drilling of this area to commence at the same time. This is an exciting area to develop away from the main pit and to the south of Mount Charlotte.
KCGM processing volume was lower in quarter one with planned relines of the Fimiston and Mount Charlotte circuits. I will point out that Carosue Dam processing also achieved a new quarterly record, 970,000 tons, which is a full 20% above nameplate capacity. Also at Carosue Dam, a stage two of the solar farm was successfully commissioned, taking solar power generation to 4.3 MW or approximately 8% of the site's total power usage. This is providing Northern Star with invaluable data for the long-term group direction in the green energy space. Moving on to our Yandal production center, including Jundee, Thunderbox, and Bronze wing. We sold 110,000 oz of gold at an Australian all-in sustaining cost of AUD 1,345 an ounce, which produced a mine operating cash flow of AUD 97 million and a net mine cash flow of AUD 62 million after spending AUD 35 million on growth capital projects.
The Thunderbox mill expansion is the key driver of the Yandal 600 to increase production to 600,000 oz per annum and lower all-in sustaining costs. During the quarter, AUD 25 million 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 km 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 oz 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 has now been 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 ramp, approximately 780 cu m of concrete, and is on track for commissioning in the December half 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. Morning to all. As demonstrated in today's quarterly, Northern Star remains in extremely robust financial position. As set out in table three on page six, as of September 30, cash and bullion was AUD 756 million. Further, as noted previously, during the quarter, we utilized the funds from the sale of the Kundana assets to pay down our corporate bank debt. As such, our net cash position at quarter end was a healthy AUD 494 million after allowing for corporate bank debt of AUD 262 million. Figure five on the same page sets out the company's cash movements for the quarter. Closing cash, bullion, and investments of AUD 771 million reflected a decrease of AUD 55 million following the payment of our FY 2021 final dividend totaling AUD 110 million. After adjusting cash flow one-off items, the company's normalized free cash flow for the quarter was in excess of AUD 100 million.
You will recall that following the finalization of our FY 2021 accounts, including the impact of the merger accounting, the company updated its dividend policy, which is now based on 20%-30% of cash earnings generated. For this quarter, estimated cash earnings was in the range of AUD 165 million-AUD 175 million. From a consolidated group perspective, both production and costs are in line with expectations, and we will see all-in sustaining costs reduce 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 2021 accounts, you will note that the fair value uplift relating to the merger accounting is reflected in the increased D&A and non-cash 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 840,000 oz, at 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. 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 David Radclyffe from Global Mining Research. Please go ahead.
Hi, good morning, Stuart and team. I've got a couple of questions, maybe starting at Pogo, obviously, of a tough quarter. 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 ton for operating costs.
Thanks, David. Look, we're very pleased despite where the production was for the quarter at Pogo. We're actually very pleased with the works completed. The mill capability is at that 1.3 million tons per annum.
Reduce team sizes on site if 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, really the focus is on the development underground and getting the stoped tons increased to try to meet and match that volume by FY 2023, which is key to getting the 300,000 oz per annum. FY 2022 we're in is still a building year and quarter on quarter building out that ounce profile. 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 was done and commissioned and now we're able to replace those construction crew people with production people in the mining camp.
Okay, thanks. Maybe just moving on to Carosue. Obviously, great performance from the mill. It continues to annualize 10%-20% above what that capacity was supposed to be. Maybe could you give us an idea, what's driving that? Is it sustainable going forward? What, if anything, are the constraints of actually keeping that full from the underground or open pit?
Yeah, thanks, David. Look, we absolutely see that sort of run rate of between 3.8 million tons-4 million tons per annum as sustainable going forward. We built in some extra upside in that processing plant as part of the design. 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 million tons, and 1.8 million oz on reserve. We've got plenty of ore to feed the Carosue plant at that size for that throughput.
Okay. Maybe just quick last one on the Fimiston underground. Since the site visit, it sounds like things have gone a little bit slower. Is that fair? I thought you would've 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. Those two portals that we cut and 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. That's setting up a multi-year drilling campaign for that one quadrant, that kind of northwest quadrant of Fimiston. No, that will take quite a few years to build out that resource definition. It's just progress that hasn't been seen in decades at the Super Pit. Mount Charlotte, self-ramping and producing wealth, it's really the upside of exploration that's occurring at Fimiston. That isn't in the plan for about seven years, any feed from the Fimiston underground. To get to 2 million oz is not reliant on that. There's an opportunity there to define and evaluate the scale and size of what they can be.
All right, great. Thanks. I'll pass it on.
Thank you. Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead. Pardon me, Daniel, your line is now live.
Sorry, I was on mute. Pogo, I was just wondering if I could understand a bit more of what was happening in the mine. 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. I'm just trying to understand, was the mine productivity on an underlying basis much better than the 840,000 ton per annum rate implied by the quarter? Thank you.
Thanks, Daniel, you're accurate in as much as we don't have the ROM stockpile or the real estate to put broken ore on the surface like you do in Australia. We diverted our efforts to waste development, and tried to maximize the waste development whilst the mill was down. We also utilized trucking ore to the surface and the e-feeder at a lower throughput rate whilst the main conveyor was down. When you take that 24 days out of the quarter, just 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 ROM stockpile. Can't do it there.
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, understand. Just wondering if you could disclose the development meters during the quarter. I don't see this in the report, and would just be good to understand what was happening on the development rate if you had a bigger focus on it during the quarter.
Yeah. It's about 3,600, 1,200 a month, and we want to be at 1,500 m a month.
Okay, thank you. 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 can we expect going forward?
Yeah, Daniel . Morgan here. Well, as you know, the hedging policy is out there and understood. We will always stay within that. The strategy really was increasing the price of the book at times when we see our peak capital spend. It's really just matching our operating cash requirements with some surety and risk management around our gold price.
Okay. Thank you very much. I'll pass it on.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Good morning, everyone, and thanks for the call. Just on the KCGM expansion project, big value driver phase, I think it's during the June quarter. 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 phase?
Thanks, Levi. Simon here. As we outlined in the strategy document, we've got a couple of key options that we're running to ground. It's all around simplifying the number of mills there. We currently run five mills. One case is to install one bigger mill, drop two, to drop to four for 17 million tons, another case is to go to 22 million tons with three mills. Look, that study's progressing very well. We're certainly on track for a June half update. That's a material growth lever for us. What we do have there, KCGM, in terms of reserves, we've got 270 million tons of ore there. We want to try and realize the value from that as quick as we can. Even at the current processing rate, that's 20 years of processing.
Along with that, we see the opportunity to lower our processing costs.
Yeah. Thanks, Simon. Just 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 Kundana?
Yeah. We obviously sold the 20 million tons mill, so we've got that 20 million tons regional capacity at the moment, and that's utilizing those stockpiles and, moving that fleet around. That's still there. These expansion projects are just at Fimiston, expanding that. That's where that expanded capacity would be focused on and leaving the other mills alone.
Yep. Thank you. Just the last one on Thunderbox. I guess, tough environment to be building a new brownfields project, I guess. What are the risks you're seeing out there with the timelines for that over the next 12 months, and what are you focused on to address them?
Yeah.
In terms of skills and-
2024 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. We're really ahead of the curve on the progress there. We'll be more comfortable when parts are through a port and sitting on ground, as you can appreciate. We'll get it through one port, if not three metal. And we'll be still in probably the second quarter of next 22 year, when we're working through that commissioning upwards from phase on that. We've got a bit of buffer, but the beauty of a TGO, it's still running and producing at that 150,000 oz undisrupted with this upgrade adjacent to it. 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 Frydman from Goldman Sachs. Please go ahead.
Sure. Thanks. Morning, Stu and team. A few from me. Firstly, I guess operationally, at Pogo, we can see that recoveries in the quarter were a little bit softer, 84% for the September quarter. Certainly, essentially, 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. I guess, can we expect a return to 90+%, I guess, as you've commissioned the additional milling capacity and potentially a return to higher grade feed?
Yeah, good point. Look, float banks generally like stability. Where through a ramping and commissioning up and down, there were losses there, and that's why that recovery's slightly down. As well as the point that you made on the head grades a bit lower. The head grades will return to reserve grade of 8 grams. As we get stability in the plant, we will return to sort of the 90. I don't know if it'll 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 baseline of that upgrade all completed and stabilized presently.
Got it. Thanks, Stu. Flicking 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 the, I 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 water remediation progress. When are you expecting to access that higher grade material in Golden Pike? 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 plan or your schedule for additional fleet.
Yeah. Thanks, Matt. Simon here. In terms of the grade from the open pit, it's really just timing and focus. We mined a lot less out of Golden Pike during Q1 versus Q4 last year. Virtually, 250,000 ton in Q1
Versus sort of 1 million tons at much higher grade in Q4. Our focus really was on OBH and the cutback. We moved a lot more ore out of OBH and really just prioritizing that due to the value that will unlock still in FY 2024 when Golden Pike North comes on stream. Yeah, no issues, just timing of grade and scheduling of where we're mining the pit. The cutback is tracking well. It's on plan. That's our major priority in terms of pulling down the wall. Last question, just in terms of the haulage fleet. Yeah, last quarter, we got two trucks. This month, we expect to get another four, all four are on site. 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. Finally, a couple for Morgan, I guess. Firstly, you talked to the strong balance sheet position, as you say, AUD 500 million net cash and bullion. As we know, all things being equal, you should have better operational cash flows in the second half, given higher production and lower all-in sustaining costs. I guess firstly, can you remind us of the timing of any upcoming tax or stamp duty payments, I guess, related to the merger accounting or the Kundana divestment or anything else? That's firstly. 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 a 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? Thanks.
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 AUD 1 billion-AUD 1.5 billion in liquidity access. We have that well and truly at the moment. We'd like to see about a third of that in cash. Directionally, you'll see us maintain that. Sorry, the first question, Matt?
Tax timing.
Oh, yeah, sorry, the stamp duty. Stamp duty, obviously, we're still working through the valuation work, and we'll engage with the Office of State Revenue on that. We would expect Q3 of this financial year on the stamp duty. From a tax perspective, and if I put the Kundana tax hit in that as well, following the merger, and you would've seen in our balance sheet as well, we actually expect to receive a tax refund during the course of this year, and that will come in during Q3.
Got it. Thanks. That's helpful, Morgan. That's all from me.
Thank you. Your next question comes from Jason Mennell from Kalgoorlie Miner. Please go ahead.
Good morning, Stuart and team, and thanks for taking my questions. Just a couple of quick ones from me. Pogo obviously had 24 days total of downtime. How much of that was unplanned?
10 days unplanned, 14 days was planned.
Yeah.
Look, we persevered. The team did the best they could do with reduced numbers. If you appreciate KCGM when we did a 14-day shut, we imported 900 extra people. In Pogo, we don't have that luxury, we dealt with the teams that were there, and we managed through those teething issues that you have when you upgrade plant. Again, appreciate their time and effort to get it done. Those extra 10 days obviously cost us in that production deferred.
Okay. Thanks for that. Just another one from me. Record material movements at the Super Pit. Can that be attributed to the two new machines rocking up during the quarter? 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. The improvement of the new fleet will be lower unit costs and higher availability if your machines are able to work. No, I think it's the credit to the teams that are there, keeping the uptime and keeping things active and the multiple working fronts that we have. They've got optionality. They can go to the bottom of Golden Pike, they can go to OBH, they can go to Simpson South, and just keep the wheels turning. I think it's a credit to the way they've organized the mine and kept the volumes moved.
Excellent. Thanks. That's all from me.
Thank you. Your next question comes from Hayden Bairstow from Macquarie. Please go ahead.
Good morning, guys. Stu, just a broader question on Pogo and then the whole North American strategy. I mean, it's clearly been challenging to date. At what point do you think, or how much runway do you need to give yourself to get this mine to 300 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.
Thanks, Hayden. We're three years in, I think we're a year late from where we wanted to be. We've had, 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. We see FY 2022 as that build-out year. We've got the development to occur, the multiple scoping fronts to open up. We've sort of been tracking at that eight or 900,000 tons per annum of ore. We obviously need to build that out to 1.3 million tons to get to the 300,000 oz. Critical part of that was getting the mill upgraded, which is now complete. It's really about getting those development meters in. Everything that we've done to date in the reserves, in the infrastructure, that investment.
It's for the long term, decade-plus asset. We are still laboring on and still working on those key milestones to deliver that 300,000-oz operation. 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 liked North America as 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 open-pit operations that are available in North America. We'll keep our eyes on the lot.
Just on the WA operations, you obviously have these targets in the medium term. How far away are you from completing all of the optimizations on ore feed, et cetera? There's a bit of it that I go on at the moment, small scale, albeit. But before you'd be ready to look at maybe additional ore sources to plug gaps as they emerge, or is that stuff that you think you're already across and if things do pop up, you'll have a pretty hard look at things?
Look, Simon touched on it. We have a significant stockpile ore. We've got over 3.1 million oz of stockpile ore in our own backyard. We will be utilizing and managing all of that in the first instance. We believe we've got everything to deliver our growth plans organically, without doing any of that M&A. There are natural bolt-on things you always look at, but it always has to be at the right price. It's more of a want than need, and we'll keep our eyes active on all of those things. At the moment, plenty to do with our own portfolio, and we've got a really solid team, and we want to simplify the business as we're continuing to do so. Adding things sometimes doesn't make it simpler.
Cool. Okay, just one final one on post the sale of Kundana. Those operations actually look like they are going quite well from our numbers. Is that to release the handbrake a little bit on what you are doing into KB and Millennium and that sort of stuff?
Look, through the quarter, we worked hard to transition Kundana well with the team to Evolution, so I think that's been managed and handled very well. It does allow the bandwidth of the team to focus back on fewer things. We're always just looking at where's the best return for the capital invested. This quarter's been a strong quarter of commencing those growth projects. Don't discount things like the commencement of the TGO upgrade. We're going to get Yandal to 600,000 oz in pretty short order. All of that waste movement and the volume increase at KCGM is paramount to the long-term growth story there. Obviously, key upgrades like the Pogo plant. These are all things to check off the boxes to show that we can grow to 2 million oz organically. It's not a mean feat.
It's a 25% uplift, 1.6 to 2 million oz in five years. There's not many peer gold companies with that organic growth, whilst lowering costs, out there.
Okay, got it there. Thanks, much.
Thank you. Your next question comes from Al Harvey from JP Morgan. Please go ahead.
Morning, Stu, Simon, and Morgan. Just a quick one on Jundee. Getting a bit of open-pit ore contribution from Julius. Can you just remind us of the reserves here and what the contribution will be to Jundee going forward from those regional open pits? If you can step us through what other regional pits you've got coming online and how they'll flow between the Jundee plant and the expanded Thunderbox mill?
Yeah. Jundee to the north, we'll maintain at about 300,000 oz. It's about two-thirds underground, one-third open pit, the reserve's a bit more biased to the underground. We've got about 2.2 million oz of reserve for underground and 0.8 open pit reserve ounces. The feed going through that 3 million ton plant is about the same, 2 million from the underground and about 1 million tons of open pit. You'll continually see us, like Ramone, Julius, you'll see satellite pits build and grow and contribute to that to maintain that 300,000 oz. We've got 15 underground diamond rigs at Jundee extending the system from an underground perspective. We see a long life, decade of opportunity there. We keep that nice 1 million ton stockpile, we're not spending capital too aggressively ahead.
We'll keep that buffer of a 1 million ton stockpile of open pit feed should you have any disruptions or otherwise in underground feed. Just as a second part of that, the Thunderbox area, doubling that throughput from 3 million tons-6 million tons, it'll be a third from the designed Thunderbox pit, a third from the Thunderbox underground, and a third will come from satellite pits like Orelia or Bannockburn that feed into that 6 million tons to also get 300,000 oz down south.
Awesome. Thanks, Stu.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Thanks, guys. Most of the key ones have obviously been asked, but just wanted to understand, with the two new trucks at KCGM, clearly you called out that that'll 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?
Yeah, 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. 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. Look, it'll take some time for that. It's a big fleet that we're changing out, so it'll take some time for the old fleet and operating costs to wind out, and the newer equipment that's faster, more efficient, and lower operating costs to really kick in. It'll just take us time to transition.
We do see good upside once the fleet is all consistent and the same across KCGM. Obviously, where you've got a mixed fleet, it's a little bit difficult where the fast trucks catch up to the slower trucks. It's probably FY 2023 onwards that we'll really see some improved productivities, significant improved productivities from that fleet.
Okay. Thanks, guys. Thank you very much.
Thank you. Your next question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Thanks, Stuart. Good morning, Morgan. Two questions. Firstly, Stuart, just on cost headwinds, broadly speaking in 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 a tier one jurisdiction and potential for opportunistic potentially M&A. Does Northern Star need paper in the North American market to execute on deals like that in the future?
Yeah, good question, Peter. Look, on the domestic or even general labor costs and input costs, that's probably where we're seeing those headwinds is labor and turnover. The unnecessary cost of 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 interstate, with vaccines becoming prevalent, and therefore that will relax some of that, as well as different commodity cycles. 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 economies of scale of the higher production planned out that we can still reduce our oil costs despite some of those headwinds. 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 that balance sheet being net cash presently, all self-funding on our growth capital at 2 million oz, plus dividend paying, plus exploration resource reserve growth, plus surplus cash. If we're not buying something, we're returning that through a 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.
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 will be able to put to good use to get superior returns. If we can't find the superior return, we return it to shareholders.
Thank you. Your next question comes from Matt Greene 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 how your diesel contracts are structured in terms of just timing lags based on where spot pricing is? Just roughly just on, I guess KCGM more so, how much of that cost base is fuel related?
I think I heard that as the diesel, the way we do diesel, and it's the same as everybody else that's a powerhouse with no hedging and no lead or lag. It's as you buy. I guess fortunately, nearly 8% of our production comes from underground, which is less diesel intensive. Obviously, Super Pit, it has that large fleet, diesel intensive related to your cost base. It doesn't have as huge an input or flux on us, hence why we don't try to hedge it or guess it. All of our power primarily comes off-grid or gas fed into our power plants at the moment as we're transitioning towards a renewable type program. With that, it's not a massive lever or change or sensitivity to others. Thanks, Harmony. I think were there 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 heard, it was a solid quarter at our Australian operations and we incurred a couple of one-off issues at Pogo, which impacts our result clear. Given the strong results being generated at 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 million oz 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.