I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director. Please go ahead.
Thank you for participating in the Northern Star 2021 Investor Day. You will have had the opportunity to virtually meet some of our team presenting our five-year strategic plan outlook. On the call today is myself, Stuart Tonkin, Managing Director. Mary Anne Dravnieks, Executive Manager of People and Culture. Hilary Macdonald, General Counsel and Company Secretary. Mike Mulroney, Chief Geological Officer. Simon Jessop, Chief Operating Officer, Kalgoorlie. Luke Creagh, Chief Operating Officer, Yandal and Pogo. Steve McClare, recently joined as Chief Technical Officer, and Morgan Ball, Chief Financial Officer, and Steve, sorry, Troy Irvin, Chief Investor Relations Officer. We are available this morning to discuss our exciting outlook for Northern Star's business-first approach to deliver profitable growth to 2 million ounces per annum, and enhance financial returns through lowering costs, extending mine lives, and responsible and sustainable business activity.
Our FY 2022 guidance midpoint of 1.6 million ounces per annum at all-in sustaining cost of AUD 1,525 an ounce builds to 2 million ounces per annum by FY 2026, and where it counts most, our high margin, long life assets. For clarity, this guidance is exclusive of our Kundana assets, which produced 120,000 ounces in FY 2021, which we recently announced to be divested to Evolution Mining for AUD 400 million. Our focus today is to articulate the tangible actions underway to meet this strategic plan and differentiate Northern Star amongst the sector-leading peer group. We have adequate time this morning, but please limit initial questions to two to ensure we address all the participants, then rejoin if necessary. Thanks, moderator. Now, to questions.
Your first question comes from David Radclyffe of Global Mining Research. Please go ahead.
Hi. Good morning, guys. My first question is around growth capital. You've provided the three-year guidance, which is great, and thanks for that. There's really not much information on the AUD 805 million for FY 2023 and 2024. It's obviously quite a large unallocated sum. Could you maybe provide some more color here on what the key projects are?
Yeah, sure. Look, the fundamental content, obviously AUD 230 million goes from Kalgoorlie, and that's largely the Fimiston South pre-strip. Yandal, there's AUD 270 million going up to Yandal, AUD 190 of that's going into the mill upgrade, taking Thunderbox mill from 3.5 to 6 million tons per annum. The additional mining commencement for open pit mining to also complement and feed that mill. Yes, there are lots and lots of things that add into the total sum. The main chunky pieces of that multiyear capital going into KCGM for that pre-strip that we commenced in the Fimiston South. Within Thunderbox, that plant will be commissioned. That'll be largely a 12-month expenditure to get that up to 6 million tons per annum, David.
Okay.
I think, Dave, to give you a good gauge of directionally in 2023, 2024, which you asked about as well, approximately 40%-50% each year relates to the Kal ops. We do see both Yandal and Pogo easing off a bit in 2023, 2024.
Okay. Thank you. Maybe just to follow up then coming, thinking about cash surplus and capital management. The business is generating solid free cash flow at the spot. You've got a conservative balance sheet. You've given some good guidance around I guess, the current dividend policy is reasonably conservative, yet how do you deal with things like the Kundana proceeds and surpluses above target levels?
Hi, David. It's Morgan. Sorry I failed to introduce myself earlier, but we go way back. As you know, we have a new chair and a new board, and we've implied in the pack that we'll sit down and we'll announce the full year 2021 dividend with our full year accounts. Obviously, we're very proud of the dividend history that Northern Star has and that we intend to continue to always be in a position to return funds to shareholders. The beauty of the conservative balance sheet at the moment, and bearing in mind the purchase price for Kundana isn't in my bank account yet, but that gives us excellent flexibility and optionality to think about these growth projects, both inorganic and organic going forward. We'll continue to upgrade as we can.
We have talked a little bit about the potential for KCGM, particularly in relation to processing, but there's still work to be done on that.
All right. Thanks. That's one, two. Cheers.
Thank you. Your next question comes from Daniel Morgan of Barrenjoey. Please go ahead.
Hi, Stuart and team. First question is on all-in sustaining costs. Basically, in this presentation, you're messaging that synergies from the merger better are or ahead of even on tax synergies. You have also soaked up some of your higher cost ounce for this in your business evolution, your cost guidance is relatively flattish at AUD 1,500 an ounce, which compares around about what we've experienced in the most recent history. My question is your business facing massive underlying cost inflation, which these drivers are helping to arrest? What, if you could just comment on that?
Yes. Sure. Look, Morgan can talk specifically to corporate synergies as well, but appreciate some of the operational synergies require that capital to be invested. I think people need to understand the alignment between that capital expenditure that gets us to that point. We're at a much lower cost base in all-in sustaining costs, and particularly all-in costs dramatically come off as that growth CapEx rolls off. Yeah, the two aren't immediate. Absolutely, the industry is facing cost escalations. We're in a fortunate position that we've got those synergies that will come in once we've got things like Thunderbox. It's all predicated on that mill expansion. That's still 12 months away from being commissioned. You won't start to see those lower unit costs until that capital's been spent and that thing's up and running.
It absolutely shows the benefits of having those assets combined.
Okay, thank you. My second question is just on the grade reconciliation of Super Pit. Page 42, that slide there. When you say that you're starting to model the positive grade reconciliation, where you've got more ore than you had expected going through the stockpile flow. Just wondering, you're starting to model this? To clarify, is this in the reserves? Is this your business modeling, where you're modeling it? Also, how localized is this? Is this a particular part of your ore body or is this something that maybe is an ongoing benefit?
Yeah, Daniel, it's Mike Mulroney here. The answer to that is basically that we recognize the over-reconciliation in the mine over the last period of time we've owned the asset, and a small portion of that has gone into the reserve, as we announced earlier this year in May. There's still areas that we haven't brought it in at this stage because we are pushing down through those levels, and we'll see how our modeling technique holds up in the real world. Certainly, all indications to date are we're still getting a positive reconciliation even after allowing for the initial uplift. It's not fully baked into the reserves at this point. It's still a work in progress, but we are, as we recognize these things and get a better handle on them, putting them into the reserves as we go year by year.
Thank you very much.
Thank you. Your next question comes from Mitch Ryan of Jefferies. Please go ahead.
Good morning, all, and thanks for the presentation. I was wondering if you could give a bit more detail around slide 43, specifically where you're looking at the different processing optionality. Obviously, the status quo is the five mills, and you've outlined you're looking at option one and option two. Can you clarify as to the extent of how much of that would be refurbishing existing infrastructure and how much would be new? Is it just milling or is it also sort of the back end of the flow sheet? Can you give a bit more color around all of those moving levers, please?
Yeah. Thanks, Mitch. It's Simon Jessop here. I suppose the way we're looking at it is really trying to simplify the plant. The five mills to potentially four by dropping a couple of mills out of Mount Charlotte circuit, and then simplifying the Pemberton circuit to three, is a logical sort of step changes through there. This is a work in progress we're trying to accelerate. Really it's full steam ahead on a study and our intention is to update the market in the first half of FY 2022.
Okay. I might be digging. This is sort of a subset of that question, though, is what sort of capital parameters? I realize it's early days, but I'm trying to get a grasp on the capital framework that you may be looking at with this facility.
Yes. Stuart, and look, this is where I've gated the proceeds from the sale of the Kundana assets. Obviously, we bring in AUD 400 million from that. The range to get that plant from 13 million tons up to 22 million tons, there's a raft of different ways to get there, and obviously the capital is quite wide. We want to be careful that, one, we haven't banked in any production growth from expanding that plant. What we're identifying is the 3 million ounces of reserves and stockpile that's underutilized and really doesn't get depleted because they're mine planned forward. There's capital that could simplify and increase the capacity, lower unit cost of that plant. It's hundreds of millions, yes. The feasibility work is to really look at what that is to get that out.
We'll give some framework on that in the second half of FY22. It could be AUD 200 million, it could be AUD 300 million. Please don't put that into models because there's no ounces hanging off the end of it. The banking balance sheet's available to do it, but we see those opportunities in the business to redeploy capital to get the highest returns. Some of the cash margins on that stockpile at KCGM will be some of the strongest cash margins because there's no mining cash costs associated with that material. That was highlighted in Simon's slides.
Yeah. Thank you very much. For my second question, I just wanted to, with regards to the guidance for KCGM, it appears to be, I guess, quite conservative. If I look at the chart, you sort of close to 500,000 ounces, which is similar to less than the exit rate that you did in the last quarter. I just wanted to understand some of the parameters that you've used in that. Have you assumed a 13 million ton per annum throughput rate of the mill? I guess given the mill's been operating at well north of 14 million tons for the last quarter, why should we not assume that it's going to operate north of 13 million tons?
Thanks, Mitch. Simon again. Just in terms of instantaneous or quarterly rates, we do have large shutdowns probably every second quarter. We're still in that range of around 13 million tons. I think the maximum's been about 13.3 million tons over the history. In our numbers, we have got that processing throughput continuing on. We haven't got a higher throughput rate. In terms of ounces going forward, it's really timing of when we get into Golden Pike at the base of the pit. The cutback is all on track. We're moving forward for Golden Pike. Golden Pike North and South coming on stream in a few years' time, and that really drives your ounce profile.
Yeah. Thanks very much for the answer and your time today, guys. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Sophie Spartalis of Bank of America. Please go ahead.
Good morning, Stu and team. I just wanted to explore a little bit more Dan's question around the all-in sustaining costs, and particularly around the sustaining CapEx. You refer to the growth CapEx of AUD 570 million for FY 2022. Should we be taking this as a guide, the sustaining CapEx of AUD 390 million, which is what you did in FY 2021?
Yeah. Sophie, our sustaining capital sort of tracks at that AUD 250-AUD 275 an ounce. It's probably fair to maintain that. Look, we're tied to the idea of multi-year, past three years and planned all-in sustaining costs. To some of the questions as well, to project forward costs at that point, I think for anyone, it's going to be quite difficult. We've got a lot of our contracted costs in our suppliers and procurement and all that, secured in the near years. We've got a trajectory of where we're going to go in the back years. Yeah, that sustaining capital amount, AUD 250-odd an ounce, has been fairly consistent across the business, so it probably can be assumed.
That relationship with underground mining, you typically are putting that development in at the same ratio to open up the same amount of ounces. That's pretty fair.
Okay. Just as a follow-up to that, the depreciation should be roughly that as well?
You'll also see that increase with the synergies related to the tax shield.
Yeah.
Morning, Sophie, it's Morgan here. I guess in relation to the all-in sustaining, that Stu's absolutely right. We sort of track it around that AUD 250 an ounce. What you do see throughout a year is a bit of variability depending on how many pre-commercial production ounces we have in a particular quarter. We're relatively high in that area in the 1st quarter as Thunderbox Underground approaches commercial production. You don't have as many ounces to spread across your sustaining capital. Over the course of the year, that's the number we'll settle at. In relation to D&A, I guess we're just finalizing the merger accounting work. The best lead I can give you there is the Q4 D&A per ounce numbers that we put out yesterday. That sort of gives you a pretty good proxy for how we're thinking going forward.
Okay, that's great. My second question is, look, a key theme I took away from reading the presentation last night is Northern Star still has a number of optionality and flexibility within the portfolio, particularly around Tanami. You've put out production guidance to FY26 and doesn't include that project. We still understand that it is in the early stage of exploration. You've increased your stake back in May to 50%, so you obviously see some potential there. Can you just talk through when is the right time to start turning your attention to this asset? Maybe talk to what are the key stumbling blocks that are needed to be overcome to get into a similar position of your three existing hubs, that offer that scale and mine life?
Yeah, that's a really good point, Sophie. Look, I think we started with a couple of 100 slides, we really got disciplined to try and trim it down to materiality for the business going forward. Please don't read that the omission of things like Tanami means the significance isn't there. When you look at where the growth's coming from, we've really focused on those material things of opening up KCGM, getting the pre-strip of the Fimiston South cutback and the OBH cutback, rectifying that pit slip, getting in the grade and the floor, as well as the Thunderbox expansion. For us, Tanami, we're still going through the process with a joint venture partner there, to get that 50/50 locked. I think the shareholders have got to vote on that.
Absolutely working with them, with Mike and the team on the exploration programs to get into Groundrush.
Really look at the size of the prize up in the Tanami. We still love that district. The geological potential up there is phenomenal, and we are still holding 8,000 square km or so of tenure. Please see that just because it is not a massive slide in the pack, we are not an exploration company. It is still meaningful in the pipeline, and as probably highlighted in Mike Mulroney's section, is about, we have got projects throughout the whole elements of the pipeline that feed into that future stock, and we just have not, I guess, put a fuse on it to say when it falls into that program. You highlighted optionality. Those things exist across the business, and it is really just prioritizing capital.
Okay, I'll leave it there. Thank you.
Thanks.
Thank you. Your next question comes from Matthew Frydman of Goldman Sachs. Please go ahead.
Sure. Thanks. Morning, Stuart Tonkin and team. A couple of questions from me, please. Firstly, on Pogo. A very flat production profile there, post FY 2023. You've previously scoped up the potential for a further mill expansion at that asset to 1.5 million tons per annum. Just wondering if you've got an updated view on what that next phase of expansion at Pogo could look like, what it could cost, and is it dependent on further exploration success, or is it a matter of bedding down the current mining rates? I would assume that, the milling expansion optionality that you've got there at Pogo, can be presented in much the same way as what you've presented at Carosue Dam.
Yeah, Matthew, it's Luke here. Great question. It's probably more the latter. This is a massive district, massive potential. We call it camp scale, and we see numerous hits outside the resource. What you're really probably seeing is this first near term, get to the 1.3 million ton, get the 8 g g oing, produce 300,000 ounces. I'm heading there tonight to go and have another look because I miss it, so I'll be over there for a couple of weeks as well. Yeah, this story will evolve over time. When we bought the asset, we saw the 1.3 million tons at 8 g. We're going to deliver on that. We've got huge exploration potential outside of that. We're going to let those results come in over the years. We're in no rush given what we've got in mine to work with.
We'll just really optimize it with just going into just our capital sort of analysis and work out what the best fit is for that region going forward. I guess the short answer is you've got plenty of time, and while it's producing 300,000 ounces, it'll be producing a fair bit of cash along with it.
Matt, Stuart Tonkin, just to add to that, obviously, Steven McClare's joined us as the Chief Technical Officer. The long term, he'll be looking more past the CLO's remit to these bigger scale operational projects. When travel permits, obviously Alaska and that camp scale focus, we'll be looking at Goodpaster maiden resource this year, and just what that whole district can do. Yeah, Luke Creagh's immediate focus is to deliver that 300,000 ounces. The key is to actually get that longer, more forward-dated plan.
Sure. Thanks, Stu, and safe travels to Alaska, Luke. Hope you have a good trip.
Yeah.
Second question. No problem. Second question from me. I guess a bit of a bigger picture one. I guess, looking back at the time that the merger was announced, the prospect at that time was to create an AUD 16 billion company. Currently, your market cap is around AUD 12.5 billion. Just wondering that, if the merger was compelling at that prior valuation, how does buying back stock today rank in terms of return on capital, in terms of your capital management metrics, and do you compare that return on capital up against the optionality from your suite of internal growth projects, which obviously has been the focus of today's release?
Look, these things are always options in the thing. I think it just ranks quite low in how many ounces Mike's shown you he can add efficiently. We've looked at this organic growth CapEx that can lift profile and increase margins. As far as market cap, gold prices retreated somewhat. You've seen us, with a really healthy balance sheet in those environments, even be an acquirer of gold assets. All these things are at play. Share buybacks, in the immediate term, aren't probably high on the list.
Got it. Thanks, Stu.
Thank you. Your next question comes from Rahul Anand of Morgan Stanley. Please go ahead.
Oh, hi, Stu and team. Thanks for the opportunity. I just have one question. If we combine the production guidance for FY 2022, FY 2023, FY 2024 for Northern Star and Saracen prior to the merger, we're losing in your guidance provided overnight about 160, 140 and 130,000 ounces. You did mention that the Kundana sale impacted, and some of those ounces can be accounted for from there. Two questions on that are, firstly, Evolution's presentation gives us ounce numbers that are much smaller than that. How do you bridge that gap? The second is, obviously, I would've thought that you would've moved to higher margin ounces, however, your all-in sustaining costs have still gone higher over this period, post-pre-guidance. How should we square that circle, please? Thanks.
Yeah, thanks, Rahul. Look, I won't answer on behalf of Evolution. You should probably direct it to them. Look, I'm certain it's around the milling capacity. You've got to get that all through the mill, and I think that's led to the fact of an expansion at Mungari that feeds that.
You need to probably ask them on how those [inaudible] are. We produced 121,000 ounces on those Kundana assets in FY21. We're extracting those from the go-forward, sum of the parts plan. We'll give you some of that change. Obviously, we've done a massive resource reserve update. It might sound like chocolates tomorrow, but on a lot of these plans, we've worked for the long-term. We've got a decade plus mine lives on some premium assets. We've made sure we haven't done a snatch and grab plan. Some of the expansions or the work that's happening in places like KCGM is for the absolute long-term to get the best results. It might defer near-term production, but it absolutely drives sustainable levels of production once we get to those levels.
Yeah, we've got that multi-year guidance that's there now on the combined businesses, and obviously the merged companies have been bedded down, and the new plans, new resource reserves have been incorporated into the life of mine plans. I'd probably just highlight as well, that 2 million ounce per annum target, we arrive at that a couple of years earlier than the previous sum of the parts plan. I think that's probably a highlight that we need to look at. It will be at lower all-in sustaining costs.
Okay. I have slightly different numbers, but I might take that offline. Thank you for that.
Yeah, look, we've been watching consensus numbers as well, and there is a bit of a range out that end. Look, please follow up any questions through Troy Ir vin, just so we can assist in clarifying any of that.
Perfect. Thanks for that. Much appreciated.
Thank you. Your next question is from Daniel Morgan of Barrenjoey. Please go ahead.
Good day, team. I'm back at the top of the batting order. Portfolio question. You've just sold Kundana to Evolution. Is there more potential rationalization of portfolio, with the Kalgoorlie asset for the non-Super Pit, or maybe Paulsens? What's in and out of what you would consider for the M&A piece? It very much seems like growth is not done on that side either.
Yeah, good question. Look, it's that term, I guess, we've got in there, active portfolio management that says we'll do all those things. It's really the sequencing of it. Ideally, through cash generation from our assets, we're feeding that organic growth. We're dividend paying. We're building our balance sheet. When we look at the acquisition side of things, bolt-on acquisitions that feed into these concentrated production centers, that just make logical sense and complement the life of mine plans, will always occur. We've said we've got the strength bandwidth here to be able to operate sort of three to five meaningful concentrated centers. The acquisitions of standalone large scale production hubs exist. Divestments really is this F for reward. It's what's the return on that invested capital? Are you better spending your focus on fewer areas? It comes in that equation.
Things like Paulsens, they're not burning a hole in our pocket, but they're also contributing. We'll absolutely look to divestments of those types of things, versus trying to turn back on 100,000 ounce per annum mine that's sitting out on an island. All I'd say is, yes, we're not closing doors on any of those options, and we'll keep portfolio management as part of our DNA.
Okay. Thank you. Second question, a little bit of accounting minutia, so apologies. The CapEx guidance you've given, the growth CapEx guidance, just want to clarify, are these gross numbers? What I mean by this is, in the past, there's been pre-production sales of gold that have been offset in the past from Saracen guidance, for instance, and also in the quarterly, there's pre-production that comes in that's offset from gross CapEx numbers. I just want to clarify the CapEx numbers. Is it gross dollars you're spending or is it net after some of these pre-production ounces?
Hi. Good morning, Daniel Morgan. Welcome to your new shop. Morgan Ball here. Yeah, those numbers quoted in the presentation are gross. In fact, you and I can have a really enjoyable long-term accounting discussion later offline. As far as pre-production ounces go, FY 2022 is the last year of the necking off of those pre-production ounces against capital based on accounting standards, and then in FY 2023 onwards, it will change. As far as this FY 2022 goes, they're all gross and there will be commercial pre-production ounces in our books during FY 2022.
Yeah. Very clear. Thank you.
Thank you. Your next question is from David Radclyffe of Global Mining Research. Please go ahead.
Hi. Thanks for the follow-up. My question's on the emissions targets, so slide 24. Could you clarify, you've put out the zero target by 2050, but is there an interim target for 2030, which is reasonably standard these days? Also, it seems like it's a pretty embryonic sort of policy when you compare it to your senior peers. In terms of the strategy, would you look to make direct investments in power if that's sort of the key emissions source? Is it more you rely on providers to provide solutions for you? Will you actually provide budgets in the future?
Yeah, absolutely. In our sustainability report that we do on a calendar year, we'll publish January, February 2022. We will give that near-term 2030 target. Really, we have been doing all the work, and we're holding that, David, on absolute and intensity near-term targets.
I guess what we've really tried to demonstrate here, slide 24, 25, is we understand our emissions profile. We understand those baselines. We understand the current existing technologies that allow us to give an immediate reduction. It is almost Scope 1, 2 power generation that's pretty much 70% of our emissions. It's really driven by replacement of gas-fired or diesel-fired stations with renewable solar, wind, et cetera. Whether we're the owner of that capital, whether other parties are, and there's PPA, the beauty is we've got long life assets that we can secure that long-term commitments with to deliver that. We've pushed back out, given everyone's looking at 2050, what are the types of things that allow us to do that final reduction?
There is a lot of technology and innovation required to make those final changes, particularly in underground mines where it's energy intensive, pumping, ventilation. If you're trying to reduce those things, you're better off making sure that the energy going into your mine is clean before you try to electrify everything. Ultimately, you'll still also need carbon storage offsets. That's the first window and project for our commitment. You'll see a lot more content and detail in our sustainability report. Yeah, appreciate that's the work we're doing to date.
Okay, brilliant. Thank you.
Thank you. Your next question comes from Peter Ker of AFR. Please go ahead.
Morning, guys. Thanks for your time. Couple of questions on Pogo. Almost three years now since that acquisition, it looks as though net mine cash flows after CapEx and exploration and everything else you've done there, has been roughly neutral over those three years. I notice a further AUD 70 million of CapEx going in there in the year ahead. I'm interested to know, when do you guys expect Pogo to become a significant contributor on a net mine cash flow perspective? I guess that ultimately leads us to the question over what payback period do you have in mind for this acquisition? Should investors be thinking that 10 years is sort of reasonable from the 2018 acquisition date?
Yeah, thanks, Peter. Look, FY2023 is the go steady 300,000 ounces run rate, and that's when it will generate significant U.S. denominated cash flows. It's already contributing now and covering its cost plus exploration. Really going forward, it's starting to chew into that payback period. I think if anyone, the experience of Pogo, we feel has been absolutely successful. It was our first foray offshore. We've put enormous energy into renovating that asset, into driving productivity, extending mine lives, including discovery and resource and reserve update. It's not light-hearted effort going into a project like that. We've got a lot of learnings, it's a significant asset that's meaningful to stay in our business for a long time. It will absolutely contribute, from FY2023, major cash flows in U.S. dollars.
The target is to get initially below that $1,200 U.S. all-in sustaining cost, and then ultimately below $1,000 U.S. all-in sustaining cost in the first targets. Given the grade, it has potential to go much further down. It will be a low, low asset profile of AUD 300 against the other assets. It will be a significant cash generator at a really low quartile cost base.
Has owning a North American asset had a meaningful impact on the way you are viewed and received in North American capital markets?
We were largely over 50% offshore owned, U.K., U.S. anyhow, or North America anyhow. There's a lot of eyes on Australians that embark on that growth. We focus purely on Tier 1 jurisdictions. We've been really clear on our strategy, Australia and North America. Everyone's been looking at that asset understanding it was going to close with a two-year mine plan. Three years on, we're sitting there with over 1.5 million ounces of reserves, and a really good outlook. We'll be putting maiden resource on the Goodpaster discovery, people's eyes are on that project and particularly our brand, our DNA, and our performance. We're out on a poster for that. We're very pleased with the current progress. We were set back, obviously, with a year of pandemic.
It's a credit to our team to be persevering and really delivering now.
Beauty. Thank you.
Thanks, Peter.
Thank you. Your next question comes from Hayden Bairstow of Macquarie. Please go ahead.
Good morning, guys. Just a couple from me. Firstly, Stuart, on Thunderbox versus Jundee, just because I understand different economics of the two mill expansions and why Thunderbox looks better than Jundee does. Circling back to Ghana, I just want to confirm what you were talking about before about AUD 400 million proceeds being reinvested. To get the return on those, that means you're stocking the ounces more likely to be lowering the cash costs at KCGM. Do you think that's where the potential return come from?
Yeah. Hey, it's Luke. I'll answer the first question with TBO. Just for the absolute detail of it, Thunderbox gives a better AUD per ton saving because you're going from basically just two mills. We're just putting a big SAG at the front and using the existing ball mill, whereas Jundee had two ball mills. We would've put a SAG at the front, but running three mills versus the two mills, just increases your cost by about a net average of AUD 1 a ton across the region. That sort of pointed to Thunderbox as the best mine. Conveniently, the weighted tonnes is to the south as well, so it really is closer.
All the sort of regional resources around Thunderbox really come into that plan and deliver that sort of AUD 5 a ton savings over the year to AUD 30 million, or AUD 100 an ounce. What was the second question, sorry, Hayden, on KCGM?
Just on the AUD 400 million from the Kundana sale, you said you're looking at investing it, but it's not on ounces. What is it? Is it mill expansion to drive costs lower? Will that simply be used to grow ounces as well?
Look, I think if we could have that feasibility done in a hurry, I think it's really the most efficient onset and plan of that. In the go forward guidance, we've got some hatched boxes showing what the profile could deliver to restore KCGM to that north of 750,000 ounces and beyond. It's around getting, like we're doing with TBO, a single 18 MW SAG, and taking that Fimiston in Mount Charlotte circuit from sort of five mills down to four and down to three. Not only do you move from 13 up to either 17 or 22 million tons per annum, you're doing it with fewer moving parts at a much lower unit cost per ton. That AUD 400 million of proceeds, Morgan Ball's gonna be looking at it on the balance sheet and guarding it, and making sure it's not deployed, until it's in the best use.
I think we're quite comfortable to sit with that with the growth profile we've got in the next two years. We've also got the debt pieces that we've refinanced out in year four and five. Maybe we are conservative with leverage, but it's a good problem to have.
Yeah. Okay. Thanks, Morgan.
Thank you. Your next question comes from Patrick Collier of Credit Suisse. Please go ahead.
Hi. Good day, guys. I'm just looking at slide 36 where Kundana ore says its equivalent margin. Should I take this as meaning that the AUD 12 million-AUD 25 million MAG benefit is unchanged just following yesterday's divestment?
Sorry, Patrick, I missed that question, mate. Could you please repeat it?
Yeah, sure. I'm just on slide 36. It's got Kundana ore as being equivalent margin between the Carosue Dam mill and Kundana ball mill. Just wondering, does that AUD 12 million-AUD 15 million annual benefit from the district milling change at all following yesterday's divestment?
Yeah, thanks, Patrick. Simon here. I suppose with the announcement yesterday, yes, we need to review that. The simple answer is, moving the dirt around, we managed to get a better recovery from our dirt. That's a Q quarter four number that we achieved. We improved the recovery. Really what that does is just give us access to higher free cash flow per ton marginal ore from KCGM. The more of that we can process, the higher that number can actually be. Yes, with the divestment of the Kundana assets, we'll review that going forward as the best way to optimize the ore across the process plants we have.
Okay. Great. Thank you.
That slide just highlights what we've done today. That optionality pilots the optionality, so we've already seen those benefits. It doesn't fall away with that divestment. In fact, we free up 1 million tons of capacity for that 20 in the region, because we don't sell a mill with those mines.
Yeah. Okay. No. Thank you.
Thank you. Your next question is a follow-up from Mitch Ryan of Jefferies. Please go ahead.
Yeah, thanks. Luke, might be getting into the weeds here, mate, but in the quarterly, you called out that at Jundee, the Julius open pit would start to displace low-grade stockpile mill feed in FY 2022. If you look at the guidance you've given, you've sort of held it flat year-on-year. Just wondering if you can sort of help square that circle.
Yeah. The simple way to look at it, Mitch, I think, is Jundee underground produces about 2-2.2, sort of that 4 g or just north of. We've got numerous sort of potential in the resources in the region. We saw that with Ramone. Julius comes in, it knocks out sort of 1 gram stuff, puts 2 g stuff in the mill, so the 1.82. It builds it back up to that 300,000 odd ounces. Ultimately what we're gonna end up with is 300,000 ounces in the north, 300,000 ounces in the south. Double the tonnes at half the grade in the south or half the tonnes at twice the grade in the north.
Okay, great. Thank you.
Thank you. Your next question is a follow-up from Sophie Spartalis of Bank of America. Please go ahead.
Yeah, thanks. Stu, can you help me understand slide 58 around the synergy? There are two pie charts there. For example, how much reduction in cost base have you received by renegotiating, say, your drill and blast contracts? Can you just talk through that slide, please?
Yes, I'll let Morgan pick it up. There's obviously average reduction of 6% spend across those contracts. We're putting, obviously, the agreements totaling about AUD 30 million already achieved per annum as run rate. I think people look to these, AUD 1.5 billion-AUD 2 billion worth of synergies, appreciate that was an NPV over 10 years. When you actually look at what's the go forward annual rate, this is to demonstrate how much progress we've made on that. We do have legacy contracts which still need to be renegotiated. We've literally just renegotiated the Jundee underground mining contract, one of our largest mining contracts, and the issue is being targeted a three plus two-year contract, which is valued at AUD 750 million and we've basically locked in that pricing for that period.
They're examples, and I'm not going to give commercial in confidence away rates for our suppliers and providers. This slide, I'll let Morgan just cover the key highlights that we've achieved.
Hi, Sophie. Stu's exactly right. We do have a little bit of a commercial in confidence restriction. We have good long-term partnerships with a number of these providers. The combination of economies of scale and the relationship and the outlook has seen a number of them come to the party and want to maintain that relationship. We've seen some good wins there. Offsetting that, of course, is the macro environment where costs are going up. The fact we are realizing on average across the contracts we've revisited to date, circa 5% is the best we can do. I've tried to give some categories for you there to give you a bit of a feel, but I'd be loath to go any more granular than that. As Stu said also, that AUD 30 million, that's a real number that we've achieved in calendar 2021 already.
I've also tried to show that's only a 30%-40% of our contestable spend in this company. We still have work to do, and as contracts come up, we will revisit those throughout the course of the next two to three years.
Okay. You've addressed AUD 540 million. Of the AUD 540 million that you're spending, you've got a savings of AUD 30 million out of that AUD 540. Is that the way you interpret it?
That's the way I think about it, Soph. Yep.
Okay. Okay, that's great. Thank you.
Thank you. Your next question comes from Daniel Morgan of Barrenjoey. Please go ahead.
Oh hi, page 41. That's the underground potential of the Super Pit. It's not in the mine plan. I'm just wondering if you could talk through what is the timeframe for the drilling contemplation and when might earliest feeds occur if it was a mineable proposition? I'm basically just looking for you to step me through how this opportunity might evolve over time. Thank you.
Thanks, Daniel. It's Simon here. I suppose the really exciting thing about this is the first portal in over 20 years at KCGM. This is our first drill platform of a kilometer to really start targeting and growing the 50 million tonnes of 2.5 g, 4 million ounces that we've got. The size of the system is massive here. It's over 5 km, 900 m in width. Our average depth is still only 500 m of mining, yet we've still got kits over 1.5 km. Look, this is gonna evolve. We'll obviously keep updating as we drill it. Really this will fall to Steven McClare to drive this large scale project over time. It's a lot of drilling, in different areas of the pit. Look, this is our first start.
Steve's experience on large-scale mines will really lead this study over the next few years. It absolutely will be ounces on top of the plan once we develop the way to tackle this enormous system.
Maybe just a follow-up. In your experience, this is something the company's done with regenerating assets in the past, like Jundee, et cetera. What's been the experience of putting in these drill drives in terms of timing through to production?
It's a good question. Look, we've just picked one quadrant of the Super Pit to put these western portals in and get this 1-kilometer drill drive. We're trying to make sure we don't interrupt the open pit activity with the underground accessing those parts of the ramps and that. It is drill it out first, define it, and you can jump straight in there today and get some stope tonnes out. We want to make sure we understand the full size of the prize. We've got that runway, and it's important that we do that. The same as the mill feasibility expansion, we already know a format today that we could spend money and get it up, but then you're gonna be discovering more ore and then having to expand it again.
We just want to make sure that we've really worked out what the ultimate end game is, and then we set it up, you almost do it once well and set that up for the long term.
This isn't the size asset that you rush hard into because you could spend a lot of money and not end up with what the optimum result is. I think we've really got a solid base load. It's important that we do the prudent feasibility work to make sure that the capital efficiency. If you compare us against peers, our capital efficiency, albeit the big numbers in our plan forward here, but you compare us up against peers, our capital efficiency is well ahead of the pack in that regard. Just give us the time to do the work and then put it into the model. Same as that AUD 400 million. If it means we haven't got a great use for it, we will return it to shareholders as special dividends. We've done that before as well, with Plutonic, when we did a sale of an asset.
I absolutely believe we've got options inside our business to get the greatest returns to shareholders for that.
Thank you very much.
Thank you. Your final question comes from Sophie Spartalis of Bank of America. Please go ahead.
Good morning, guys. Just coming back. Two questions from me. Firstly, the synergies. How much of the synergies show up outside of the all-in sustaining cost?
Hi, Sophie Spartalis. It's Morgan Ball. I don't have a really quantitative answer for you on that, but certainly you see on the section on tax, which is a large portion of synergies, that tax cash saving falls outside the all-in sustaining cost. Some of the other synergies we realize are on a capital basis, so they also fall out.
Okay. Then page 16 of the deck, you talk around sustainable 20-plus year mine life. Do you believe that is the case across all the assets?
On those production centers that we've put there.
Yes
Absolutely. The focus on the geological systems, why we've got into these hubs in these Tier 1 locations is with that focus. You've seen the track record, and we continue to invest with exploration to extend that resource reserve. We've got this target of 20 million ounces reserve maintained, and the 60-million-ounce resource means that the balance with the resource conversion we have on these deposits means that we can keep that pipeline in our life of mine plans. Look, these things aren't finite, we've got ability to acquire and move from 3 to 4 to 5 of these centers with the bandwidth of the team we have. That's our DNA and that's our planning to target that. Yeah. Thanks, Sophie.
Okay. Awesome. Thanks, guys.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Yeah, thanks, moderator. Look, you didn't hear from Maryanne or Hilary today, who are here in the room. Please assure that they are both very active in the teams that look after our people and our governance matters and social responsibility. Please follow up any of those questions, and you'll see more of them on the ESG roadshow. Look, for conclusion today, at Northern Star, we operate as a business first with disciplined capital management to deliver superior shareholder returns. We operate a simplified business with scale exclusively in tier 1 locations, and we offer profitable growth where it counts at our higher margin, longest life operations, and we actively portfolio manage our assets to ensure our efforts yield the greatest returns for all stakeholders in a responsible and sustainable manner. Thank you for your time today.
That does conclude our conference for today. Thank you for participating. You may now disconnect.