Thank you for standing by, and welcome to the Northern Star half-yearly financial results conference call. All participants are in listen-only mode there will be presentation followed by question-and-answer session If you wish to ask question you will need press star key followe by number one on your keypad. I would now like to hand the conference over to Mr. Bill Beament, Executive Chair. Please go ahead.
Good morning, and thanks for joining us for what is a call with a bit of a difference. The results released today by Northern Star and Saracen are entirely separate. They each relate only to their particular company. The financial accounts of the two companies will be merged from the 12th of February this year. That said, we are happy to take questions today on either company, and we have Saracen Managing Director, and now Northern Star Managing Director, Raleigh Finlayson with us on the call. Also joining us today are Northern Star CFO, Ryan Gurner, our CEO, Stuart Tonkin, and Saracen CFO, Morgan Ball. Turning to Northern Star's results, you can see it has been a record six months on all fronts. We have met or exceeded all our key objectives.
Gold sales were at the top end of guidance for the first half, and we're on track to meet full-year guidance, which as we previously foreshadowed, will be weighted to the second half. I would like to draw particular attention to the growth in production, our record underlying company cash flow of AUD 226 million, which was up 94%, and our return on equity, which was an outstanding 17.4% on an annualized basis. These three figures are at the heart of the Northern Star story. They show that our growth strategy is on track, but they also underline our key investment thesis that we don't just grow for growth's sake. The name of the Northern Star game is maximizing returns for all stakeholders.
In the case of our shareholders, part of the strong return can be seen in the 27% increase in the interim dividend to a record AUD 0.095 per share, fully franked. It is also notable that we invested AUD 108 million in exploration and expansion capital. This shows not only are we growing returns today, but we are setting the company up for further growth tomorrow. Our appetite for growth is also reflected in our strategy to continue reducing our hedge book. We saw the recent softening of the gold price as an opportunity to close out another significant slice of our hedge book, with 39% of our sales in the six months going into hedges. As a result, our revenue was well over AUD 100 million lower than would've been the case had we sold all our ounces at spot.
We have now reduced Northern Star hedges to just 10% of the next three years' production. Coupled with Saracen's book we are inheriting, combined group hedges rise to around 14%-15%. This philosophy of maximizing returns and our commitment to reinvesting for tomorrow has been central to Northern Star's success. We invest for growth, but it must be financially rewarding growth. This philosophy is shared by Saracen and was one of the factors which contributed to the success of our merger discussions. Saracen has today announced that it too recorded strong growth and record production in the past six months. It also invested AUD 233 million in growth projects and exploration over this period.
Together, this means our combined group is well on track to deliver on our growth strategy, which gives us a clear pathway to 2 million ounces a year, driven by organic growth and with a growing inventory. I will now ask Ryan Gurner to provide a brief outline on Northern Star's financial results, and then we will open the call to questions. As I mentioned at the start, we are more than happy to take questions on both Northern Star and Saracen's accounts. Thanks, Ryan.
Great, Bill. Thanks. Morning all. It gives me great pleasure to present to you our financial results for the first half of 2021. As Bill highlighted, the results and materials presented here are in respect of Northern Star only. The merger with Saracen will take effect from the 12th of February, meaning the earnings and results of Saracen will be incorporated into NST from this date forward. I'd like to start you all on slide seven, which provides an overview of the key financial highlights achieved during the first half of FY 2021, with increases across all metrics, with the company delivering an underlying net profit after tax of AUD 194 million, and statutory profit after tax of AUD 195 million. EBITDA of AUD 472 million, which is up 47% from the first half of FY 2020.
We generated great cash flow this half with AUD 339 million of net mine cash flow recorded from the operations. Our group underlying free cash flow, which adjusts for non-recurring items, mostly M&A activity and movements in bullion, was AUD 226 million, up 94% from the prior half. Today, we continue our demonstrated history of returning funds to shareholders by announcing an interim fully franked dividend of AUD 0.095 per share, up 27% on prior year, which will total AUD 111 million paid to shareholders. This dividend is consistent with our framework of a distribution targeting 6% of revenue and has been considered in respect of the expanded capital base post-merger. The record date set for the interim dividend is 9th of March, and payment date, 30 March.
Lastly, we remain well-positioned to deliver on our near-term, low capital intensity, organic growth profile with our strong balance sheet, which includes AUD 372 million cash bullion and investments at 31 December. Over the page to slide eight, which outlines the strong cash flow generation during the half. A total of AUD 544 million of operating cash flow and AUD 339 million of net mine cash flow was generated from the operations, both substantial increases on prior periods. Jundee stands out with AUD 167 million contribution, a record for the operation. The result of investment and hard work completed to date at Pogo is self-evident, with a substantial increase in operating cash flow in the first half to AUD 114 million and net mine cash flow AUD 44 million.
This is also within the context of operational challenges experienced with COVID and highlights the resilience of the operation and success of risk management activities implemented. The processing infrastructure expansion to 1.3 million tons per annum remains on track, with U.S. $16 million of capital spent in respect of this plant upgrade for 31 December. KCGM continues to excel with a solid six-month contribution of AUD 91 million net cash flow. Whilst Kalgoorlie operations are still recording good cash generation, we are expecting these assets to lift their contribution in the second half of the year. Now down to slide 10, which outlines a reconciliation of underlying net profit after tax from this first half of FY 2020 to half one FY 2021, and then to statutory net profit after tax.
The company achieved a record underlying net profit after tax of AUD 194 million, with the main drivers of the profit result relating to the group's increased production alongside a tailwind of a rising gold price. Costs have been well managed through targeted cost initiatives and operational productivities, which will continue to be a focus in the second half of FY 2021, particularly at Pogo and KCGM. Higher, mostly non-cash inventory charges were recorded from the utilization of acquired stockpiles at KCGM, and higher D&A charges were a result of our increased production base. During the first half, the company incurred AUD 4 million in acquisition and integration costs associated with the merger with Saracen. These acquisition-related costs, along with a non-cash exploration impairment of AUD 9.5 million, gave rise to a statutory net profit after tax of AUD 194 million.
Over to the page for slide 11, which highlights the key cash flow movements, where a record group operating cash flow of AUD 426 million was generated during the half, primarily from the stronger performance of Pogo and inclusion of KCGM. This great result also includes AUD 32 million of stamp duty paid on the KCGM acquisition. At the halfway mark of FY 2021, our organic growth projects remain on track with approximately AUD 57 million invested. This, of course, is net of the AUD 40 million in gold revenue received from pre-production gold sales at KCGM, which offsets the development cost during this phase. NST total guided growth capital is AUD 198 million for FY 2021. The company has paid back AUD 325 million in corporate bank debt and delivered AUD 200 million in fully franked dividends to shareholders in the past six months alone. At 31 December, we still retain AUD 317 million in cash.
Finally, as presented in slide 12, given the strong cash flow generated by the business, our balance sheet remains in great shape and supports our growth strategy. At 31 December, we have AUD 672 million in liquidity with cash bullion and investments of AUD 372 million and access to AUD 300 million in undrawn facilities. As Bill mentioned, we remain lightly hedged, and NST is well positioned to take advantage of the favorable gold price environment with only 10% of production hedged over three years. We also remain lightly geared with corporate bank debt of AUD 375 million at 31 December. Thanks, guys. I'll now open back to Melanie for questions.
Thank you if you wish to ask 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 own speakerphone, please take out the handset to ask your question. Your first question comes from David Radclyffe from Global Mining Research. Please go ahead.
Oh, hi. Good morning, Bill, Ryan and team. Just had a couple of quick questions on the accounts and the Saracen merger. In regards to the stamp duty, I see there's been no uptake or even an update on the estimated value. What's your current expectations of when this would be determined and then, more importantly, paid?
David. Ryan here. The stamp duty amount relates to the consideration paid. That'll be a factor of the merger ratio and then obviously our share price on the implementation date, which is Friday. Stamp duty is basically 5% of that value. There's some items that aren't due. We still got to go through a bit of that work. At this stage, look, it's going to be probably sub AUD 300 million, but around that mark. We won't truly know what that number is for a few months ahead, but that's probably what we're estimating at the moment in time. Timing of payment depends on the government. To give you some indication, we settled KCGM on the 2nd of January, we've only just paid our KCGM. You're talking nine, 10, 11, 12 months.
That's up to the state government, really, but that's what our expectation would be.
Yeah. No, thanks. That's helpful. In regards to the transaction costs you'll recognize for the full year, have these changed at all now that you're effectively complete? Can you remind us what you actually expect to expense for the full year?
Yeah. Look, there's lots of moving parts. Obviously, big merger. Stamp duty is a big one, and that won't get booked until the second half because the transaction's only going to complete on this Friday. The second half is when the stamp duty amount will impact earnings. It's an [audio distortion] , there's lots of moving parts, David, and we've got to go through all that. There's lots of accounting to do.
Yeah, we've got to, number one, settle on the values and then how they relate to our balance sheet and then all the transaction costs. The largest transaction cost is the stamp duty that's going to impact earnings.
Okay. Thank you.
Thank you. Your next question comes from Nick Herbert from Credit Suisse. Please go ahead.
Thanks. Hi, all. Can I just clarify a point, just following on from David's questions just there? The goodwill on the transaction, is that what you're referring to? Are you able to give an indication of what that range will be, just to help us out with what we can forecast there from an amortization perspective from the full year?
Nick, goodwill is rare in mining transactions, as you probably know. There could be some out of this transaction. The work has to be done because of the relative close proximity of the assets. Nick, we just don't know what that number's going to be, mate, to be honest. I wouldn't want to present a number now and then it have to be zero or something larger. I think if you're trying to work through earnings and balance sheet amortization, I think if you just simply look at Saracen's market cap and basically bring it onto our balance sheet, if you're trying to look at earnings in the second half, I think that's the best way to look at it, as opposed to just trying to separate out goodwill, because we could have none or we could have a meaningful number.
Until we do the work, we're not going to know.
Okay. Yep, no problem. Thank you. Secondly, just on the topic of synergies, you've spoken a lot about this in the past. Just wondering now that we're another few months down the path since you first disclosed those, just wondering if there's an update in your thinking there, and how we should think about timing of those over the next six to 18 months. Also just a clarification on how much of that is cash versus non-cash.
Look, I'll hand to Ryan in a minute on the cash and non-cash component. Just to obviously highlight, we tabled AUD 1.5 billion to AUD 2 billion of potential synergies on the merger. Look, timing on that, Nick. Look, the management teams, we're all bedded down now and all that stuff's sorted out and it's long gone. Obviously, it all completes on Friday. From merger and the synergies piece, we've got a lot of management strategy sessions and bringing the wider group into the fold next month. We've got resource reserve updates going with that, obviously that feeds into budgets in May, June. Our expectation is July, when we do our annual strategy day and our guests are launch pad into Diggers & Dealers, is when we'll clearly articulate the synergies and the opportunities that go with that.
I also just emphasize on the synergies piece is we had very little in there on material flow. That's the piece that we said back when we announced the deal, we need time to do that. That's what our teams behind the scenes are rapidly evolving. I think there's some really good opportunities over and above what we've told the market on that material flow. Ryan?
Well, they're all cash, Nick. At the end of the day, as we put out there's a tax component which is probably going to be longer dated, or it's going to come out over a longer period of time, probably 10 years, because depending on the asset life and attributable value to each of those assets. Almost half the value is that over that sort of 10-year period.
Okay. Yep. Thanks, gents.
Thanks, Nick.
Thank you. Your next question comes from Al Harvey from JP Morgan. Please go ahead.
Morning, Bill and team. Just following up on the synergies. You're kind of expecting to have that fade out May, June. Does that mean you're not expecting any synergies to flow through to your guidance this year? Just looking at the aggregated FY 2021 Northern Star-Saracen guidance for this, still likely to be pretty firm or bit of upside here? Second question is just if you've got any updates on your thinking of your dividend and hedging policies as part of the expanded entity. Cheers.
Yeah. Thanks, Al. Look, just back on the synergies. Yeah, look, we'll put a lot of color on that in our strategy session. In July. It's not May, June, it's July. We always do that at the back end of July, launching into Diggers. As I said earlier on, we need that time because there's an added piece of the extra opportunity of material flow and expansions of certain operations. We want to make sure we're going to do that technical work behind the scenes, which is well advanced and heading the right way. Look, I understand what Ryan just said is there's a huge opportunity on our synergy piece as far as combining the two entities and the taxation opportunity with that.
Obviously, we're both extremely profitable operations and companies like we just delivered both results today. There's the opportunity to obviously get some of that in the remainder of this financial year and, as Ryan said, and amortize for the next few years thereafter.
On dividends, yeah, look, our dividend policy, 6% of revenue won't change. Really awesome result to announce a record interim dividend today, and it's really great to have the new shareholders from Saracen participate in that dividend as well, which is awesome. Our hedge profile, obviously, we've inherited Saracen's hedge book, that's pushed us up from sub 10 to now 14%-15% over the next three years production. We're in our policy limits that we've clearly articulated to the market over a number of years of what our hedging policy is. We obviously inherited a little bit higher ratio, but as a combined entity and our forecast production, we're well and truly within our treasury zone of 20%-40% hedge in a rolling 12 months and then 10%-20% thereafter, and then 0%-10% in the third year. Very comfortable.
We've done a really good job. Both companies reduced our hedge book to be able to participate at a much higher gold price compared to our peers when you look at their hedge books on a much lower gold price compared to where we sit now.
Great. Thanks, Ryan.
Once again, if you wish to ask a question, please press star one. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Good morning, Bill and team. I just wanted to further flesh out the dividend and capital management under the new MergeCo. Bill, you stated that you won't be changing that 6% of revenue dividend target. Can you just talk around any implications from merging the two companies in terms of tax losses or franking credits, and would you be considering any buybacks given the strong cash flow generation?
I'll hand Ryan on the franking.
Yeah. The franking, Northern Star will take any credits that Saracen has. Obviously, Saracen just paid out a special dividend as well. Yeah, look, we've got plenty of franking credits, we could pay out our total cash balance in franked dividends. There's no problems there from a franking sense.
Yeah. Look, buybacks aren't on our radar. Sophie, from that side of things, we've probably got one of the lowest capital intensities on our production growth moving forward, but we like having a healthy balance sheet. We've always never hidden behind that. We've got great growth. Saracen was spending a bit. We were quite light. Combined, we're in a really good zone. We think our current policy at 6%, continue to grow our production of 1.6 to two, and having a healthy balance sheet and obviously paying off our debt that we've inherited is a very good point.
Okay. Thank you. Just in terms of growth, you did say in your opening remarks that you want to invest in growth, but it must be rewarding growth. Can you define this in regards to organic and inorganic options? Are you going to be more metric-based or is it now more of a strategic-based decision as well?
No, look, obviously, we've always been disciplined from an M&A perspective. You always keep your balance sheet healthy to look at stuff in the future. We've never hidden behind the fact. The right opportunities come up, we'll always look at that. It has to complement our assets. We've got a really good sweep. We go from 1.6 to two. It's not a lot of capital to get there. When you come back and when we start articulating a lot more moving forward on assets like KCGM and KCGM and the potential of deploying capital there on that size and scale geological system, it's pretty hard to spend money elsewhere.
Okay. Do you think, though, that now that you've got these three production hubs, that the new MergeCo has the capacity to add an entirely new hub? Do you think it's more around digesting what you've got? I think you famously said that you want to have as many assets that you can read a bedtime story to. Seven assets, but you've only got sort of three hubs. Can you just talk to that?
Three hubs and two management teams. Look, it's fair to say that the combined skill set is extraordinary. I can't emphasize that enough. It was one of the biggest reasons to put the assets and the teams together is there's nothing we couldn't, can, and can't do, and we've got capacity and bench strength. As you articulated, we've got three hubs. Look, we'll always look at stuff in the future, but there's such an awesome opportunity in our organic growth at the moment. We've got our teams pumped up. The plans are in place. We're getting full buy-in on that. That's where our focus is really concentrated, and that's where we're going to get our best return for shareholders and the best return on our invested capital.
Okay. No, that's great. Just a final one from me, just in terms of the 10-year outlook on the synergies. You've already sort of dangled the carrot in front, saying that there is potential upside to the synergies given material flow. Can you just talk through sort of how you anticipate that AUD 300 million to AUD 350 million per year over the 10 years to average? I'm thinking a lot of that is going to be front-ended given the corporate synergies, and then you'll probably have a lot of the operational stuff will be back-end dated. Is that a fair way to look at it from a modeling perspective as we merge the companies?
Yeah, I think it is. It's right. I think it is obviously the tax depends on where the value is allocated to assets and their lives. Probably that one's probably more amortized over sort of evenly to 10 years. To how you described it is how I would expect it as well.
Okay. That's great. Thanks, Bill. I'll leave it there.
Thanks, Sophie.
Your next question comes from Daniel Morgan from UBS. Please go ahead.
Hi. First question is just regarding the hedge book. It seems like over the past 12 months or so, Northern Star in particular, has been trying to deliver quite aggressively into the hedge book and reduce that. Obviously, it needed to be put in place as part of the transaction to buy the Super Pit for both parties. Just wondering if there might be a movement in the hedge policy towards going to less hedging and just having more exposure to the gold price now that you are going to be net cash and your debt's being paid down.
Yeah, look, good question, Dan. Look, we've always had a policy in articulated all the way through. We only hedge for a couple of reasons, and that's when we're transacting, we're building, or we're taking on debt. It's been our policy for eight, nine years now. Hence, as you said, we wrote our hedge book up buying Carosue Dam in particular, taking on a large chunk of debt and protecting that capital and that investment for shareholders. We've always done that. We were really at the top end of our policy, 12-odd plus months ago, 18 months ago. We're back well and truly in our policy ranges of what we historically sat at. We do like to be at probably the bottom end of our policy. Obviously inheriting Saracen's hedge book, which is a lot higher than our normal policy.
Combined entity, we're probably sitting back in the middle. We'll always look at stuff when we're deploying capital. We want to protect the returns of that capital because the capital we're investing across our asset base, we're very fortunate to have very long life assets with huge reserves. We are deploying capital into things like Carosue Dam in Fimiston South and other areas. We do want to protect that investment because we won't get a return on that for two, three, four years out. It'll be a case-by-case scenario. When we look at our exposure to the spot price, and yes, it's come off a little bit in the last three months, but no one is delivering into an average of the spot price across Australia right now. We're dealing with AUD 2,400 gold price. Have a look at everyone's quarterlies.
People are delivering at AUD 2,200, AUD 2,300 when you add in their hedges. Northern Star is in a great position to still capitalize and get maximum exposure for investors to the current higher gold price.
Thank you for that. Next question is on the tax and merger implementation and accounting. Just wondering if you could clarify, if you know, when you go ahead and book the Saracen assets for tax purposes into the Northern Star accounts. The value of the Saracen assets, is that done with the Northern Star share price at the announcement of the deal or the implementation date, which is going to be Friday? Obviously there's a big difference between those two numbers, which will go to the final tax synergy number. Thank you.
Yeah, Daniel, it's Ryan. Good question. No, it'll happen on the twelfth, so Friday.
Okay. Could I just clarify the stamp duty comments earlier? I might have had a little bit of interference, as I was listening, on you don't know the number clearly yet that's being finalized, but you said it would be less than a number. Could you just clarify what that number was?
AUD 300 million. Less than AUD 300 million.
Less than AUD 300 million.
Yeah. It's probably gonna be depending on the day, depending on our share price and that on Friday, then we have to do the work around what assets are doable or not. It's gonna be something like maybe AUD 280 million at this stage. Depending on share price today to Friday, it'll change days, but something like that as we speak now.
Okay. I wasn't sure whether you said you were going to expense or capitalize that. I would've thought maybe you'd capitalize that into the balance sheet.
It's expense. It's a transaction cost.
Right. That I imagine you'd pull out from underlying earnings when you report in June, as you've sort of done with the transaction costs and impairments.
Yeah. That's right, Dan. Yep.
Okay. Well, thank you very much for answering my questions.
Thanks, Dan.
There are no further questions at this time. I'd now like to hand back to Mr. Beament for closing remarks.
Thanks. Today's results from both companies demonstrate clearly the high quality of the world-scale gold mining company we have formed. This business is in absolutely superb shape on every level, and the merger paves the way for it to be even better. It will deliver efficiencies, synergies, and scale while maintaining our superior financial returns and a growth outlook which stands in stark contrast to most of our peers. On that note, you'll be delighted to hear that this is my last investor call as a Northern Star executive. In future, you'll be treated to Raleigh's expert commentary, along with those of our Chief Executive Officer, Stuart Tonkin, CFO Morgan Ball, and other key members of our management team. Thanks very much for putting up with my briefings all these years. I've thoroughly enjoyed it. All the best.
That does conclude our conference for today. Thank you for participating. You may now disconnect.