Thank you for standing by, and welcome to the Northern Star FY 'twenty one Financial Results Conference 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 Tonkin, Managing Director.
Please go ahead.
Good morning, and thanks for joining the Northern Star full year financial results presentation. With me on the call today is Chief Financial Officer, Morgan Ball. I would like to start by emphasizing what a pivotal year it has been for Northern Star. We have emerged from a period of significant M and A activity with an exceptional asset portfolio, which will drive sector leading growth and financial returns. In simple terms, we have the gold inventory, which will underpin the growth outlined in our recent five year strategy.
Our focus is now on unlocking the full value of that inventory in a way which maximizes shareholder returns. This organic growth will be generated by simplified business utilizing the synergies of the consolidated Kalgoorlie and Yandel regions and delivery of the Pogo growth strategy. Today's results contain numerous accounting adjustments associated with the merger, but we have sought to simplify our metric of success into one key measure of cash earnings, which are a record $648,000,000 This impressive result includes the Saracen assets from the February 12 and was achieved at a gold price of $2,277 an ounce. So with current spot price more than $200 an ounce above this, we are positioned well to generate cash. We emphasized in our strategy that Northern Star is a business first, and there is no better demonstration of business health than cash generation.
We believe that cash earnings provides a transparent and meaningful view of our business performance, both for the past year and into the future. We have a demonstrated history of profitable organic growth and have a clear pathway to build from our current 1,600,000 ounces per annum to 2,000,000 ounces per annum over the next five years. We continue to invest in exploration at our world class assets and grow gold reserves on a per share basis. And now with KCGM under single ownership, this Tier one asset will provide significant contribution to further reserve growth. We also have a track record of paying consistent dividends for the past ten years.
And today, we announced a new dividend policy that delivers an increased final dividend of $0.95 per share, taking the full year payout to $0.19 per share fully franked. Our policy of active portfolio management, as demonstrated by the recent sale of our Kandana assets for $400,000,000 is part of our commitment to maximizing our returns on invested capital. I extend my thanks to the Kandana team for their significant contribution to Northern Star and in supporting a smooth transition of business to Evolution Mining. Finally, with a backdrop of sector buoyancy and labor and materials cost pressures, we have a highly capable operating team drive productivities and deliver merger synergies to lower our all in costs as we grow. I encourage you to take the time to review our annual report and financial results and discover the significant platform we have established to deliver sustainable shareholder returns.
I would now like to pass to Morgan to discuss the financial highlights. Thanks, Stu, and good morning to all.
I will be referring to some of the slides in our presentation that was released on the ASX platform earlier this morning. Hugh's already said it, but it bears repeating. FY 2021 was a transformational year for Northern Star, both corporately with the Saracen merger and financially, with record production, cash flow and profits. From a statutory accounts perspective, FY 'twenty one was unique, given the accounting requirements in relation to the merger, which became effective from February 12. Whilst this year's statutory earnings have been impacted by the merger accounting, our ASX releases this morning highlight the key elements of the company's underlying performance, both for FY 2021 and on a going forward basis.
I now refer you to Slide five of the presentation, which sets out the key financial highlights. As you can see, Northern Star has once again achieved improved year on year financial performance in a number of key areas, namely record revenue of $2,800,000,000 a 47% increase in our underlying EBITDA to $1,200,000,000 record cash earnings of $648,000,000 and a record underlying NPAT of $372,000,000 which is a 28 increase year on year. It is also pleasing to note that despite the challenges posed by COVID and the inflationary environment that we are in, we have been able to maintain good control over our costs as reflected in the increase in our EBITDA margin. On Slide seven, we have set out the company's cash earnings for the financial year. Given that there will be an ongoing non cash impact on the company's statutory earnings from the merger accounting adjustments, cash earnings provides a clear measure of the underlying quality of the financial performance of the business.
The concept of cash earnings shows the amount of underlying earnings after claims external to Northern Star, which is available for return to shareholders, growth related investment and balance sheet management. In relation to FY 2021, as you can see, we have removed specific items from our EBITDA of $2,300,000,000 to arrive at an underlying EBITDA of $1,200,000,000 Then, in line with our definition of cash earnings, we have subtracted sustaining capital of $356,000,000 and interest and tax paid of $155,000,000 to arrive at our FY 2021 figure of $648,000,000 Turning to Slide eight. As you heard from Stuart, the Board has reached the decision to update the company's dividend policy from a percentage of revenue approach to a percentage of cash earnings. Under the updated policy, the company will target an annual dividend payment in the range of 20% to 30% of these cash earnings. The final dividend for the year of $0.95 per share reflects approximately 31% of the cash earnings for the half.
Whilst this is slightly above the top end of the range, the Board was cognizant that the Saracen related earnings were only included for four months of this period. By way of comparison, this dividend equates to 6.7% of revenue, above the previous policy levels, which targeted 6% of revenue. This dividend will take the total dividend payout for the financial year to $0.19 per share or $221,000,000 which, out of interest, is 8% of our full year revenue. Given the one off accounting changes during the year, Slide nine reconciles the company's statutory impact of $1,000,000,000 to our underlying impact of $372,000,000 As you can see on the slide, a primary driver of the statutory NPAT amount is the fair value revaluation of Northern Star's existing 50% interest in KCGM. This interest was required to be revalued upon completion of the merger as a result of the company obtaining 100% control of this asset.
This was accounted for by an increase in net assets on our balance sheet, with a corresponding pre tax gain of $1,900,000,000 booked to the profit at loss, along with the corresponding non cash deferred tax expense. On Slide 10, we have summarized the major out of the ordinary items impacting this year's accounts. These include the fair value uplift in the Saraton assets and Northern Star's existing 50% share of KCGM and also the impairment of historical low grade stockpiles at KCGM. Given the investment and operational progress we have made at KCGM, we have seen a material decrease in the expected depletion of the historical stockpiles at the operation. Without any medium to long term plans to process this contained metal, we've taken the conservative view to write the accounting value down to nil at 30 turn.
You will recognize Slide 11 from our strategic plan presentation released in July. We have established key financial parameters that will support the company's growth strategy going forward, whilst maintaining a strong balance sheet and the ability to provide sustainable returns to shareholders. Following the recent sale of the Kandana assets to Evolution, we've reduced our Corporate Bank debt from £662,000,000 at June to £262,000,000 Our strong net cash position and the liquidity available through our balance sheet has the company well placed to execute on its growth plans to lift annual production to 2,000,000 ounces per annum. Finally, I would like to personally thank the Northern Star financial, commercial and legal teams as well as our auditor, Deloitte. This has been one of the more interesting year ends that I have been through, purely due to the number of moving parts.
Both the NFC team and Deloitte have gone the extra yard to pull this all together against a tight timetable in what I believe is a transparent and professional manner. On that note, I'll pass you back to Zoe for our Q and A. Thank you.
Your first question comes from Sophie Spartalis with Bank of America.
Good morning, Stew, Morgan, and team. Just a few questions from me if I can. On the front page of the results release, you talk around, you know, having a clear pathway to 2,000,000 ounces, but you also talk around this profitable growth returns and actively managing the portfolio. Can you elaborate on this further? And I guess just guide us as to what we should be looking for going forward, please?
Thanks, Sophie. So I think that the best material, again, is the financial results focus. But in our strategy presentations and obviously the biggest presentation, showing that five year pathway to 2,000,000 ounces, and that's without the Kundana assets contribution. Largely, that is your Yandel Belt growing from sort of the 450,000 up to 600,000 ounces is growing Pogo from 200,000 to 300,000 and moving all of the Kalgoorlie region up primarily from KCGM. But the sum of the parts there is 900,000,000 to take us up to 2,000,000 ounces by FY 'twenty six.
Importantly in that, the capital is being spent this next three years. Every year this year, capital is $570,000,000 steps down to $425,000,000 and again down in 'twenty four. So once that capital is spent, the all in costs reduce as the capital washes off and the all in sustaining costs improve on that economy scale, particularly at Yandel. So they're the key highlights. Everything's in our control.
We've got the team. We've got the assets. It's around now the execution part to deliver that organic growth over the next fairly few years of that five year strategy.
Thanks, Drew. And then just in terms of that, you've got the team. You've got the assets. I guess you also need the bums on seats. Can you just talk around of that growth capital amount, how much is protected and how much is variable in terms of open to movement given those industry pressures?
Look, we you know, probably to look at the near term stuff, A lot of it is moving the waste at KCGM. There's lot of capital pre strip on the Southern Cutback of Finiston and the OBH to the north. So that is around material movements, it is seats in trucks. Look, that's a challenge, and we've encouraged and put in promotional things to get people to Kalgoorlie and get those jobs filled. The other part is the engineering at TBO, and we've got that contracted there with GR Engineering Services, a $100,000,000 contractor.
And I started handed that over to them to start that commencement of the mill expansion from 3,000,000 to 6,000,000 tonnes. So that work is contracted and underway. Labor pressure for the sector exists. There's probably 140,000 resource jobs for 120,000 people in the state. So without borders, that's a void of absent production activity.
But we have lot of the people in our team and in control, and we prioritize where we put those people to ensure we deliver our guidance. So that's there's flex in our plans, but that's in our control presently.
Okay. And then also a part of that question, that initial question that I asked in terms of actively managing the portfolio. Can you just talk around where Paulson sits in the portfolio and more broadly, you know, other assets that aren't in your growth outlook today, where that priority lies?
Yes, for sure. So when we say active portfolio management, we say we can operate three to five production centers. We've obviously got three presently. And we're saying this at a 1,800,000 to 2,200,000 ounces, so you can flex up and down in how many of those assets. The divestment of Kandana means that we can reapply capital into our business and reapply skills and special team skills in Kalgoorlie for greater returns.
The Paulsens is not a production asset. Again, not core at the moment, but it's still on care and maintenance and able to be turned on. And then the other important asset, obviously, the Tanami, we've sold for a joint venture, a recap there with Tanami Gold and putting together the team to go forward on a fifty-fifty basis there that shareholders have sold on. So there's still plenty of pipeline, and it's important to have projects all the way up the pipeline from your greenfields development all the way through to your production. And you'll see that again in our strategy highlighted in my slide showing that we've got all of those things in there.
So it's more around those that are in production. We've got the three key production centers in Kalgoorlie, Yandall, and Pogo to deliver that 2,000,000 ounces.
Okay. Thank you. So that's awesome. Just one final question for Morgan. Just in terms of the write down of the low grade stockpiles at KCGM, just given there was no near term plan to process these materials.
Can you just talk through that a little bit further, please?
Sure, Sophie. As you would have seen again in the strategy, we based on our actual in pit mining, we actually are realizing a lot more tonnes and ounces than we initially forecast as we've taken on this asset. Given that, as you'd be aware, there's the what we've termed the marginal stockpile is there and that sort of runs at above one gram. And then there's what's called this low grade stockpile of almost mineralized waste that sits at about 0.65 grams. That's been there historically with the previous owners for ever and never been touched.
Eventually, at some stage, we may put it through the mill, but that's so far out. Based on inventory accounting, it was appropriate that we write that stockpile only off for the year.
Okay. That's great. Thanks, guys.
Your next question comes from Daniel Morgan with Barron Joey.
I refer to CapEx guidance specifically on on page 13. Here, it appears that CapEx is for the upcoming year 682 mil gross, $5.70 mil net, which compares to the $5.70 announced back at the strategy day. I just wanna understand this a bit more, and there's also a footnote there that suggests the accounting standard change in FY '23. So this isn't going forward. Guys confirm the strategy date guidance of FY 'twenty three and FY 'twenty four of 04/2025 and 03/1980, respectively.
Is there for both gross and net?
You said like an accountant, Dan, you're exactly right. That's the case. So obviously, under accounting standards, we are required to reduce the capital investment in growth assets by gold that happens to be realized while we're in pre commercial. That changes at the end of this financial year. So those numbers in the Strategy Day are like for like in that regard, I.
We've taken the net number after we've shown you the net number of gold received for this year. Going forward after this year, that's the gross number we'll spend on the capital and the gold will get the P and L.
Okay. Thank you. And could you Dan.
That $5.70 is the net number. And then in FY 'twenty three, $4.25 is is the same growth. It's a gross number. $3.80 in FY 'twenty four is a gross number because the accounting standard changed the industry.
Okay. That's important to know. And which assets are these development receipts going to be at? And can you tell us the expected, ounces and the price assumption you've used there because, obviously, the price assumption might be different.
Yeah. I think we've actually got a note around the price assumption in the word release, Dan. You wouldn't have had a chance to read that yet. Obviously, that could change depending on our hedge book and the spot price, but it's roughly 50,000 ounces forecast at approximately 2,240, 2,250. It's predominantly out of Thunderbox underground, which will kick into commercial production during the course of this year, and Thunderbox D Zone, the D Zone pit.
And then as Stu mentioned, we're still moving a lot of pre commercial dirt at KCPM, so there's a bit coming out of there as well. So the benefit with that is when
you see us in KCGM, we were getting over 30% of the ounces from the same material in those pre strips. That's an additional credit, and it's spot being higher than that assumed price. It's actually netting off significantly netting off to the benefit of your your CapEx.
Yep. Thank you. And last question on the dividend. So you've changed the dividend policy and now focusing on cash earnings, which take into account sustaining CapEx but not growth CapEx. Can you just talk about how you came up with this dividend policy and why you haven't done, say, overall free cash flow, for instance?
Yes. Thanks, Daniel. So look, many things were considered and discussed in all the scenarios. I think the percentage of revenue has served us well over the journey while we've organically grown and invested capital to grow over the recent years, and it's worked well almost as a proxy royalty to shareholders in that regard as a percentage of revenue. On a go forward basis, the capital in the next few years, once that is spent, we're at that run rate of that 2,000,000 ounces.
It is all around the cash generation out of that portfolio and the returns to shareholders on that balanced capital management. So what the difficulty, and you'll see this in these presentations in regard to merger accounting, your traditional metrics, NPAT, EBITDA, kind of get destroyed with that merger accounting assumptions in there. So we've adjusted a non GAAP measure, which is cash earnings. You've got the definition there highlighted. But we believe historically for the year and going forward, it is the best representation of business health in cash generation.
And therefore, 20% to 30% of that cash generation return to shareholders is great opportunity for return as dividend, and it also is higher than the previous policy.
And I guess, Dan, the one thing I'd add as opposed to free cash flow, which some of our peers will use, we do have good capital growth options in the business. But we think the business underlying that can handle a good, strong, consistent dividend return to shareholders. So we didn't want to penalize the dividend by removing free cash flow before we calculated the dividend. And we do see that growth capital tailing off. It just makes really good sense for our business.
Your
next question comes from Nick Evans with The Australian.
I've noted what you've sort of said in response to the labor stuff a little early on, but I just wondered sort of what impact that's having on Pogo. You you sort of had just had a quick look through the annual report, and you said that the, you know, lack of labor mobility between Australia and and The US was a bit of a problem. But, are I you seeing sort of similar kind of skills issues within The U. S. Sort of mining labor market?
Or is it pretty much restrained to Australia at the moment?
Yes. Good question. Look, we see the availability of the labor in The U. S. And remembering probably half of our team are Alaskan residents and half come up from lower 48 states.
We are reliant on some expat specialist skills moving from Australia to Alaska, which is the real constraint at the moment. And we're only talking about fives and tens. We're not talking about hundreds and thousands. So the difficulty of moving labor in and out of Australia is challenging for the business at Pogo. But, you know, a team we absolutely appreciate.
They're managing through that with longer losses, etcetera. And it doesn't appear to be that same lockdown scenario in The US. You've got a lot more ability to transport labor around.
Alright. Thanks, guys. I'll pass it on. Thank you.
Thank you. Your next question comes from Mitch Ryan with Jefferies. Please go ahead.
Sorry, guys. I may have missed it on I just had a little audio issue, but can you just talk through that change of dividend policy if it and just confirm its percent of cash earnings and how you calculate that versus it's not operating cash flow, is it?
We've actually again, in the word cash earnings is the name for sure we've used. In the word document, you'll see we have a definition right up the front. Essentially, it's our underlying EBITDA, which is really our operational cash flow proxy, and we remove tax paid and interest paid, which are obligations outside of Northern Star. And that gives us a cash flow number, which we believe we should share with our shareholders. As I mentioned to Dan that some companies use free cash flow, we said before the dividend, they take out the growth capital.
We haven't done that because we're reflecting the underlying sustainable cash of this business, whereas the growth capital discretionary is too loose a word for growth capital. So we've started a path, but it is something that can be turned off to some extent. So we're trying to reflect the underlying sustaining cash flow of the business.
Great. Okay. And secondly, I guess I just note that the small write down of exploration assets, do you think that will you assess your the way that you account for exploration costs? Will expense more rather than capitalize more going forward? Or or is
that just a sort of one off?
We at this stage, we'll be sticking with the existing policy of capitalizing.
Okay. Thank you. That's it for me.
Thank you. Your next question comes from Peter Kerr with the Australian Financial Review. Please go ahead.
Hi, Stew. Hi, Morgan. Thanks for your time. I'm just returning to Nick Evans' question before about the labor situation in Pogo. And thanks for the color on the sort of number of Aussies who are going there.
Thinking about what the government have said in the past month or so, they've talked about tightening the ability of Australians to travel overseas. You know, they talked about people who come here. You know, if you come here, you have to sort of stay at the one way ticket. It's not about sort of coming here for a three week holiday and then heading back overseas. Are those is that sort of tightening that we've heard about in foreign travel in and out of Australia in the past month?
Is that gonna affect your ability to take Australian workers to Pogo, or are you guys sort of, you know, on a different channel with that, and it's about skilled labor and so forth?
Yeah. Good question, Peter. Look, does impact us, and we're asking for ability to move those kind of fives and tens numbers of people with our specialist Australian skills that we need in Alaska. The important thing is we fully appreciate what the government's doing, what the state is achieving with regard to the COVID rules, and we're more than open to help in managing the movement of the people and the quarantining of those staff returning into the state, and we're in absolute compliance with all of those health recommendations. So it's we're not asking for special treatment.
We're not asking for special exemptions. We do need, in a controlled fashion, ability to move those skills. And we're not talking about pulling hundreds and thousands out of the state that needs labor. We're purely talking about specialists that help us expatriate those skills our assets. And ultimately, the earnings come back and go to dividends into and capital into the overall business of Northern Star.
So I think it's not about brain drain or capital drain from the stake. We just need it going forward. We're working with the whole resource sector generally. It's a special skill that's required.
And can you just tell me what are the precise sort of skills that you're needing to take from Australia to Pogo? And what sort of swings are these people doing? I imagine, you know, they're not gonna be doing two weeks on, two weeks off given the distance traveled.
I imagine it's longer than that.
Look. You're right. Often, we've asked them to do sort of two months on, one month off. Some of them have done extended rosters during the last year. Some of them haven't returned to six months.
It is around the layering of that and moving people each month. And look, special skills, when I say, it might be talented development operators, jump operators that do a tunnel development and ground support regimes that are training North Americans with that method. It may also be technical engineers or geologists in doing some of those technical assessments or safety managers in transferring that. US has those skills. We're imposing, I guess, Northern Star's culture and Northern Star's strategy in regards to that.
So it's important for us in our business to be able to move that labor around.
And just finally, could I get your view on how WA, given most of your assets are in WA and your headquarters there, how WA has handled COVID? It's obviously been the state in Australia with the most strict kind of border rules and so forth. Are you in the camp that feels like the approach WA has taken has been over the top, or are you in the camp that it you know, eighteen months into this thing, it looks like it was the best strategy of all of all the the state strategy?
Look, it's difficult to be critical on it. We've been very, very fortunate, and we've been relatively undisturbed in our operating capacity. There's been some constraints. I think the resource sector has done very well in addressing the risk and managing that risk in Western Australia, and we've been fortunate to be able to continue to operate. It sits as one of the highest operational risks presently for the import of the COVID case of the mining operation.
Operation. So I think that's at the forefront of everybody's view. So I think WA has done well. The difficulty is when other states in the nation have the difficulty, and we feel for New South Wales, it's a challenge. And we've experienced that firsthand in Alaska.
That's The U. S. Story all over. So again, we're in a very fortunate position in I don't know how long we can maintain that locked border attitude as the globe moves on.
Thank
you. Your
a production basis, has early this year sort of established a Toronto listing just to try and get a bit more liquidity in The U. S. Markets and perhaps a bit more familiar with U. S. Investors.
Given that you guys have got U. S. Operations as well, have you sort of thought about doing something similar, an offshore listing, secondary listing somewhere like Toronto or The U. S. Exchange?
Thanks, Nick. Look, we probably don't want to increase the administrative burden of a dual listing. So we believe that shareholders have access to us on the ASX. We have probably moved waiting from North American ownership to more domestic ownership in the last twelve months, but we feel that anyone that chooses to the So we're going better sense what
to And
then
I think you were talking about reporting under the three assets, which is Kalgoorlie, Yandel, Pogo. Can you just confirm that you have definitely layered on that and reasoning behind it?
Yes, correct, Daniel. We'll do that. It's how the guidance is met. And if you think about it, the processing plants where the feed comes from comes through that centralized processing plant and gives you those production What you'll see in the back of the quarterlies will be the appendix pages that have the mining stats per operation, so you can drill down into those.
But the headline group's performance will be under the hubs of Kalgoorlie, Yandal and Pogo.
Thank you very much.
Thank you. Your next question comes from Matthew Friedman with Goldman Sachs. Please go ahead.
Sure. Thanks. Morning, Stuart and team. Just wanted to ask a quick one, on the Kundana divestment, and and it was probably one that we touched on briefly, during the strategy day. But just wondering how much mill capacity that divestment liberates, you know, either NSP owned or or third party mill capacity?
And whether you've had a chance to think in more detail around what what the options are for that freight capacity? How does that change the material flow across Kalgoorlie?
Yeah. Good good question. It's about a million tonnes per annum, and we present a bit of a legacy toll treatment assistance there for the next few months. And then ideally, think you've seen the neighbor do mill expansion there to take that feed. So it's 1,000,000 tonnes per annum, and it's whether we utilise other operational low grade stockpiles or basically feed more of Mt Charlotte material through a Kananet belt and then put more of Finiston material through the Finiston plant
So, yeah, it simplifies that business. We're able to rotate that capital back into the organic growth, and that's what it gives us milling capacity.
Okay. So potentially, marginal tonnes come from the district in the form of Mt Shard or other operations, which means that you can feed more through more KCGM stockpiles through the Finster mill?
Yes. So separate to the impairment on the marginal stockpile, we have low grade stockpiles at KCGM, 2,900,000 ounces in low grade stockpiles at KCGM that will go through the Finiston plant. What we've identified and already trialed is there is three milling Mount Charlotte material that doesn't have to go through the Finiston flotation plant. It goes through Kananabelt, and that's what we'll track up to Kananabelt.
Understood. Thanks very much, Steve.
Thanks very much, everybody, for being on the call. I think it's clear that we have emerged from this period of M and A with an exceptional asset base, which will drive strong organic growth. This will, in turn, underpin our strategy of achieving superior financial results as we continue to enhance our business first strategy. Thanks for joining us today, and have a great day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.